SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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HUFFY CORPORATION
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(Name of Registrant as Specified In Its Charter)
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[HUFFY CORPORATION LOGO]
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 2003
To our Shareholders:
It is a pleasure to invite you to attend your Company's 2003 Annual Meeting
of Shareholders which will be held this year on Thursday, April 24, 2003, at
10:00 a.m., Eastern Daylight Time, in the York Halls Ballroom at Holiday Inn
Toronto Yorkdale, 3450 Dufferin Street, Toronto, Ontario, Canada.
I hope you will be able to join us. This year we are pleased to hold the
Annual Meeting of Shareholders in Toronto, the headquarters of our latest
acquisition, the Gen-X Sports business. Prior to and immediately following the
meeting, representative Gen-X and Huffy Sports business products and Company
services will be exhibited. For your convenience, a map of the area and
directions to the meeting are enclosed.
If you plan to attend the meeting an admission ticket will be required and
is attached to the proxy card. Please indicate the number attending from your
immediate family. If your shares are held in the name of a broker or other
nominee and you do not have an admission ticket, please bring with you a proxy
or letter from the broker, trustee, bank or nominee confirming your beneficial
ownership of the shares.
Formal Notice of the Meeting and Proxy Statement accompany this letter.
Whether or not you plan to be at the meeting, it is important to exercise your
right to vote. Please vote so that your shares will be represented at the
meeting. You can vote electronically by telephone or via the Internet which
eliminates the need to return the proxy card, or vote on the enclosed proxy card
and sign, date and return it promptly in the envelope provided. I look forward
to seeing you at the meeting.
Sincerely,
/s/ Don R. Graber
Don R. Graber
Chairman of the Board
[HUFFY CORPORATION LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 2003
The Annual Meeting of Shareholders of Huffy Corporation (the "Company"), an
Ohio corporation, will be held in the York Halls Ballroom at Holiday Inn Toronto
Yorkdale, 3450 Dufferin Street, Toronto, Ontario, Canada M6A 2V1 on Thursday,
April 24, 2003, at 10:00 a.m. Eastern Daylight Time for the following purposes:
1. To elect three Directors to serve for a term of two years and one
Director to serve for a term of one year;
2. To approve an amendment to the 1998 Key Employee Stock Plan, the
1998 Director Stock Incentive Plan and the 1998 Restricted Share
Plan increasing the number of shares available for grant of options
thereunder;
3. To approve an amendment to the Articles of Incorporation of the
Company to eliminate the right to cumulative voting;
4. To ratify the appointment of KPMG LLP as independent public
accountants for 2003; and
5. To transact such other business as properly may be brought before
the Annual Meeting or any adjournment(s) thereof.
Shareholders of record at the close of business on February 27, 2003 are
entitled to vote at the meeting or any adjournment(s) thereof.
By Order of the Board of Directors
/s/ Nancy A. Michaud
Nancy A. Michaud
Secretary
Dayton, Ohio
March 6, 2003
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER YOU
EXPECT TO ATTEND OR NOT, PLEASE VOTE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED, POSTAGE PAID ENVELOPE OR VOTE ELECTRONICALLY
BY TELEPHONE OR VIA THE INTERNET WHICH ELIMINATES THE NEED TO RETURN THE PROXY
CARD.
TO VOTE BY TELEPHONE:
- Have your proxy card in hand when you call.
- On a touch-tone telephone, call TOLL-FREE 1-866-207-3912, 24 hours a day,
7 days a week.
- You will be prompted to enter your control number printed in the box
located near the top of your proxy card.
- Follow the recorded instructions.
TO VOTE VIA INTERNET:
- Have your proxy card in hand when you access the web page.
- Go to http://www.eproxyvote.com/huf/.
- Have your control number printed in the box located at the top of your
proxy card available when you access the web page.
- Follow the web page instructions.
HUFFY CORPORATION
225 BYERS ROAD
MIAMISBURG, OHIO 45342
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PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 2003
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March 6, 2003
GENERAL INFORMATION
PERSONS MAKING THE SOLICITATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Huffy Corporation (the "Company") to be
used at the Annual Meeting of Shareholders to be held on April 24, 2003, and any
adjournment(s) of such meeting. This Proxy Statement and the accompanying proxy
card were first mailed to Shareholders on or about March 6, 2003. The Company
will bear the cost of soliciting proxies and will, upon request, reimburse
banks, brokerage houses and other institutions for their expenses in forwarding
proxy materials to their principals. Directors, Officers and employees of the
Company may solicit proxies personally from some Shareholders if proxies are not
received promptly. In addition, the Company has retained Morrow & Co. to assist
in the solicitation of proxies for which the Company will pay fees estimated to
total $9,000.
VOTING SECURITIES
The authorized voting capital stock of the Company consists of 60,000,000
shares of Common Stock, $1.00 par value, of which there were 14,670,976 shares
issued and outstanding as of February 27, 2003, which is the record date for the
determination of the holders of Common Stock entitled to receive notice of and
to vote at the Annual Meeting. Each share of Common Stock entitles the holder to
one vote.
ACTIONS TO BE TAKEN BY HOLDERS OF PROXIES
Unless otherwise directed by the person giving the proxy, all properly
executed proxies will be voted: (1) for the election of W. Anthony Huffman,
Joseph P. Viviano and Gerald B. Wasserman for two year terms expiring in the
year 2005 and for the election of Donald K. Miller for a one year term expiring
in 2004; (2) in favor of the amendment of the 1998 Key Employee Stock Plan, 1998
Director Stock Incentive Plan, and the 1998 Restricted Share Plan; (3) in favor
of an amendment to the Articles of Incorporation of the Company; (4) in favor of
ratification of the appointment of KPMG LLP as independent public accountants
for the Company for 2003; and (5) at the discretion of the holders of the
proxies, in the transaction of such other business as may properly come before
the Annual Meeting or any adjournment(s) thereof.
The holders of the proxies may, in their discretion, vote for a substitute
nominee designated by the Board of Directors, or take other legally permissible
action in the event that the nominee becomes unable to serve for any reason
presently unknown.
A proxy may be revoked at any time before exercise by written notice to the
Company bearing a later date than the proxy, by submission of a later dated
proxy, or by voting in person in open meeting (although presence at the Annual
Meeting will not in and of itself constitute revocation of the proxy). Any
written notice revoking a proxy should be sent to Huffy Corporation, 225 Byers
Road, Miamisburg, Ohio 45342, Attention: Nancy A. Michaud, Secretary.
1
ELECTION OF DIRECTORS
The Company's Board of Directors is currently comprised of eight (8)
Directors and is divided into two (2) classes. The Board of Directors of the
Company recommends that one Director be elected for a one-year term expiring in
2004 and three Directors be elected for two-year terms expiring in 2005. W.
Anthony Huffman and Joseph P. Viviano, whose terms expire in 2003 and Gerald B.
Wasserman who was appointed a Director in October 2002, have been recommended by
the Nominating and Governance Committee of the Board of Directors and nominated
by the Board of Directors for election to the Board of Directors for two-year
terms expiring in 2005. Donald K. Miller, whose term expires in 2003, has been
recommended by the Nominating and Governance Committee of the Board of Directors
and nominated by the Board of Directors for election to the Board of Directors
for a one-year term expiring in 2004.
Under Ohio law, if a Shareholder gives written notice to the President, a
Vice President or the Secretary of the Company, not less than 48 hours before
the time fixed for the Annual Meeting, that such Shareholder desires the voting
at the election of Directors to be cumulative, and if an announcement of the
giving of such notice is made upon the convening of the meeting by the chairman
or secretary of the meeting or by or on behalf of the Shareholder giving such
notice, then the Directors will be elected by cumulative voting. In such event,
each Shareholder has the right to give one candidate a number of votes equal to
the number of Directors then being elected multiplied by the number of such
Shareholder's shares, or to distribute such Shareholder's votes on the same
principle among two or more candidates. In the event that Directors are elected
by cumulative voting and cumulated votes represented by proxies solicited hereby
are insufficient to elect all the nominees, then the holders of the proxies
intend to vote such proxies cumulatively for the election of as many of such
nominees as possible and in such order as the holders may determine. Votes will
be counted by LaSalle Bank, N.A. acting as the inspector of elections.
Under Ohio law and the Company's Code of Regulations, the nominee receiving
the greatest number of votes for the term expiring in 2004 shall be elected as a
Director and the three nominees receiving the greatest number of votes for the
terms expiring in 2005 shall be elected as Directors. Shares as to which
authority to vote is withheld, abstentions and shares not voted by brokers and
other entities holding shares on behalf of beneficial owners will not be counted
and will have no effect on the outcome of the election.
The following table sets forth certain information as to the nominees for
Director and each other person whose term of office as Director will continue
after this Annual Meeting:
SERVED AS
NAME AND PRINCIPAL OCCUPATION DIRECTOR
FOR THE PAST FIVE YEARS(1) AGE SINCE
----------------------------- --- ---------
NOMINEE FOR TERM EXPIRING IN 2004
Donald K. Miller, Chairman of Axiom International Investors, 71 1988
LLC (engaged in international equity asset management) since
1999; currently, President of Presbar Corporation (engaged
in private equity investing and investment banking) since
1986(2)
NOMINEES FOR TERMS EXPIRING IN 2005
W. Anthony Huffman, retired from the Company and currently 60 1997
President of Huffman Travel Limited (engaged in travel
services) since 1997
Joseph P. Viviano, Retired Vice Chairman of Hershey Foods 64 1996
Corporation (engaged in the manufacture, distribution and
sale of consumer food products) since March 2000; prior
thereto Vice Chairman of such company from 1999 to 2000;
prior thereto President and Chief Operating Officer of such
company since 1994(3)
Gerald B. Wasserman, Retired President, Chief Executive 65 2002
Officer and Chairman of The Hockey Company (engaged in the
manufacture, distribution and sale of hockey equipment,
skates and accessories) since 1996
2
SERVED AS
NAME AND PRINCIPAL OCCUPATION DIRECTOR
FOR THE PAST FIVE YEARS(1) AGE SINCE
----------------------------- --- ---------
DIRECTORS WHOSE TERMS EXPIRE IN 2004
Don R. Graber, Chairman of the Board, President and Chief 59 1996
Executive Officer of the Company since December 1997; prior
thereto President and Chief Operating Officer of the Company
since July 1996(4)
Linda B. Keene, Principal, Waterford Marketing Group since 51 1993
July 2001 (engaged in marketing and organizational
consulting services); prior thereto Vice President -- Market
Development of American Express Financial Advisors from 1994
to 2001 (engaged in financial advising services)(5)
James F. Robeson, Consultant to various distribution 66 1994
companies since 1993; Vice Chairman of Roberds, Inc.
(retailer of a broad range of home furnishing products) from
1998 to 2000; prior thereto Chief Executive Officer and
President of Roberds, Inc. from 1997 to 1998(6)
Thomas C. Sullivan, Chairman of RPM, Inc. (manufacturer of 65 1995
specialty chemicals and coatings) since 1971; prior thereto
Chairman and Chief Executive Officer of RPM, Inc. from 1971
to 2002(7)
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(1) Except as disclosed herein, no information is included in this Proxy
Statement for any portion of a period in which a Director did not hold
office as a Director of the Company.
(2) Mr. Miller is a Director of Layne Christensen Company and RPM, Inc.
(3) Mr. Viviano is a Director of Chesapeake Corporation, Harsco Corporation,
R.J. Reynolds Tobacco Holdings, Inc., and RPM, Inc.
(4) Mr. Graber is a Director of Precision Castparts Corporation, Amcast
Industrial Corporation and MTC Technologies Inc.
(5) Ms. Keene is a Director of Scholastic Corporation.
(6) Mr. Robeson is a Director of Moto Photo, Inc.
(7) Mr. Sullivan is a Director of Pioneer-Standard Electronics, Inc., RPM, Inc.,
and Kaydon Corporation.
MEETINGS BY, AND CERTAIN COMMITTEES OF, THE COMPANY'S BOARD OF DIRECTORS
During the year 2002, James F. Robeson (Chairman), Linda B. Keene, Donald
K. Miller and Gerald B. Wasserman (commencing December 12, 2002) comprised the
Audit Committee of the Board of Directors. The Audit Committee meets with the
Company's independent public accountants, internal auditors, and financial
management executives and reviews the scope and results of audits as well as
recommendations made by the Company's auditors and executives with respect to
internal accounting controls. The Audit Committee is responsible for approving
and recommending to the Board the appointment of the Company's auditors for all
audit and permitted non-audit services. The members of the Audit Committee are
independent, as defined in the New York Stock Exchange's listing standards. The
current Audit Charter more fully describing such Committee's function is
attached hereto. During the last fiscal year, the Audit Committee met five
times.
During the year 2002, Thomas C. Sullivan (Chairman), James F. Robeson and
Joseph P. Viviano comprised the Compensation Committee of the Board of
Directors. The Compensation Committee sets salary and benefits policy, and
determines compensation and benefit levels for the Company's Officers and
certain other key employees. During the last fiscal year, the Compensation
Committee met three times.
During the year 2002, Joseph P. Viviano (Chairman), W. Anthony Huffman and
Linda B. Keene comprised the Nominating and Governance Committee. This Committee
seeks out and reviews the qualifications of possible candidates for Board
membership. Shareholders may submit nominee recom-
3
mendations, complete with qualifications, to any member of the Nominating and
Governance Committee at any time. The Committee recommends to the Board of
Directors candidates for election as Directors at annual meetings, candidates to
fill vacancies on the Board, and candidates for Committees of the Board. The
Committee also conducts the annual Chief Executive Officer and Board assessments
and reviews and assesses corporate governance compliance. During the last fiscal
year, the Nominating and Governance Committee met two times.
The Committee Chairmen serve on a rotating basis as the Chair of
non-management Director Executive Sessions which are generally scheduled at
regular Board meetings.
During the last fiscal year, the Board of Directors met ten times. No
Director attended fewer than 75 percent of the aggregate number of meetings of
the Board of Directors and meetings of Committees thereof during the time such
person was a Director and member of any such Committee.
COMPENSATION OF DIRECTORS
In 2002, the Company's non-employee Directors ("Outside Directors")
received annual base compensation of $22,500. All Directors received additional
compensation of $1,000 per Board meeting attended. The Chairmen of the Audit
Committee, the Compensation Committee, and the Nominating and Governance
Committee received additional compensation of $3,000 per year. Each Committee
member (including the Chairman of the Committee) received $1,000 for each
Committee meeting attended. Additionally, Directors received consulting fees of
$500 for each half day of service provided outside their normal duties as
Directors when such services were provided at the request of management of the
Company. Such consulting fees have been eliminated in 2003 in order to not
compromise Director independence. Directors received $2,500 for attendance at
Board of Directors' retreat meetings but such fee was in lieu of all meeting
fees for Board and Committee meetings held during such retreat. No Director who
is an employee of the Company receives any compensation for services as a
Director.
DIRECTOR PLANS
Pursuant to the Company's 1998 Director Stock Incentive Plan (the "1998
Directors Plan"), Outside Directors may elect to defer payment of their fees or
take part or all of their annual base fees in the form of stock options. The
1998 Directors Plan provides for the automatic grant of restricted stock having
a fair market value of $12,500 to Outside Directors. Shares included in
restricted stock grants are forfeited back to the Company at the time an Outside
Director ceases to be a Director except to the extent vested. Shares vest on the
later of the first anniversary of the grant date or the date the Director first
achieves compliance with the Directors' policy for stock ownership.
In addition to the restricted stock awards granted every year, if an
Outside Director files an irrevocable election with the Secretary of the Company
prior to May 1 of any year and on such other date(s) as may be designated from
time to time electing not to receive all or a portion of his or her annual base
compensation to be earned in the following 12 month period beginning May 1 and
ending April 30, then the Company shall grant options automatically on May 1 or
such other dates, if applicable, to such Outside Director. The Company's policy
is to encourage stock ownership and thus the formula used to determine the
number of shares for which an option may be granted pursuant to such an election
provides a premium for such deferrals and such formula is as follows:
Portion of Annual Base
Compensation Not Received x 1.5 = Number of Shares
-------------------------
Fair Market
Value minus $1.00
For the 12-month period beginning May 1, 2002, and ending April 30, 2003,
Outside Directors have elected not to receive, in the aggregate, $112,500 of
their annual base compensation, and the Company granted options to them based on
such elections in accordance with the 1998 Directors Plan. The option price per
share of the Common Stock covered by such options is $1.00.
4
No option may be exercised until six months following the date upon which
it was granted, except upon a change in control (as defined in the 1998
Directors Plan), or due to retirement from the Board of Directors because of
total and permanent disability, expiration of a Director's term of office, or
otherwise in accordance with the current Board of Directors' policy or upon the
death of the option holder. A notice to exercise an option must be accompanied
by full payment of the purchase price for the Common Stock being purchased. The
1998 Directors Plan is administered by a Committee consisting of not less than
three Officers of the Company who are not entitled to participate in the 1998
Directors Plan.
In February 1996, the Board of Directors discontinued the Directors'
Retirement Plan, freezing retirement benefits for those Board members vested in
such Plan through their current term. Under the Directors' Retirement Plan, each
Outside Director who served as a member of the Board of Directors five years or
more earned an annual retirement benefit of $5,000 plus $1,000 for each year of
service as an Outside Director (prorated for partial years) in excess of five
years service, not to exceed a maximum annual benefit of $10,000. Only one
Outside Director has vested retirement benefits under such plan.
The Board of Directors approved a policy on Director Ownership of Huffy
Common Stock, effective April 17, 1998. This policy requires Outside Directors
to acquire periodically and own up to 3,200 shares of Common Stock of the
Company. Such ownership amounts are determined on the anniversary date of such
Director's nomination to the Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of the Company's shares
of Common Stock reported to the Company as of January 2, 2003, for each Director
and Nominee and for each of the Executive Officers named in the Summary
Compensation Table (the "Named Executive Officers"), and for all Directors, the
Nominees and Executive Officers as a group. For purposes of the table, a person
is considered to "beneficially own" any shares of Common Stock (i) over which
the person exercises sole or shared voting or investment power or (ii) of which
the person has the right to acquire beneficial ownership at any time within 60
days after January 2, 2003.
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2)
--------------------------- ------------
Don R. Graber............................................... 343,238(3)
Timothy G. Howard........................................... 104,485(4)
W. Anthony Huffman.......................................... 120,516(5)
Linda B. Keene.............................................. 34,157(6)
Robert W. Lafferty.......................................... 30,287(7)
Nancy A. Michaud............................................ 110,135(8)
Donald K. Miller............................................ 193,569(9)
James F. Robeson............................................ 49,322(10)
Thomas C. Sullivan.......................................... 49,626(11)
Joseph P. Viviano........................................... 72,628(12)
Gerald B. Wasserman......................................... 6,780
All Directors, the Nominees and Executive Officers,
including Named Executive Officers, as a Group (11
persons).................................................. 1,114,743
5
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(1) All shares are held with sole voting and sole investment power unless
otherwise indicated in the footnotes below.
(2) Except for Don R. Graber and Donald K. Miller whose Common Stock ownership
is 2.3 percent and 1.3 percent, respectively, no such beneficial owner owns
more than one percent of the issued and outstanding shares of Common Stock
of the Company. All Directors, Nominees and Executive Officers as a group
beneficially own 7.3 percent of the issued and outstanding shares of Common
Stock of the Company as of January 2, 2003.
(3) Mr. Graber has shared investment power with respect to 3,100 shares held by
his spouse. The total amount also includes 193,750 shares as to which Mr.
Graber holds options exercisable within 60 days.
(4) Mr. Howard has shared voting and shared investment power with respect to
14,586 shares held jointly with his spouse. The total amount also includes
69,434 shares as to which Mr. Howard holds options exercisable within 60
days.
(5) Mr. Huffman has sole voting and sole investment power with respect to
70,888 shares. Mr. Huffman has shared investment power with respect to 975
shares held by his spouse. The total amount also includes 48,653 shares as
to which Mr. Huffman holds options exercisable within 60 days.
(6) Ms. Keene has shared voting and shared investment power with respect to
3,904 shares held jointly with her spouse. The total amount also includes
28,540 shares as to which Ms. Keene holds options exercisable within 60
days.
(7) The total amount includes 23,250 shares as to which Mr. Lafferty holds
options exercisable within 60 days.
(8) Ms. Michaud has shared investment power with respect to 2,293 shares held
by her spouse as trustee. The total amount also includes 90,382 shares as
to which Ms. Michaud holds options exercisable within 60 days.
(9) Mr. Miller has sole voting and sole investment power with respect to
144,340 shares. Mr. Miller has shared investment power with respect to
4,475 shares held by his spouse. The total amount also includes 44,754
shares as to which Mr. Miller holds options exercisable within 60 days.
(10) Mr. Robeson has shared investment power with respect to 1,000 shares held
by his spouse. The total amount also includes 21,842 shares as to which Mr.
Robeson holds options exercisable within 60 days.
(11) The total amount includes 40,663 shares as to which Mr. Sullivan holds
options exercisable within 60 days.
(12) Mr. Viviano has shared voting and shared investment power with respect to
500 shares held jointly with his spouse. The total amount also includes
38,315 shares as to which Mr. Viviano holds options exercisable within 60
days.
6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to Shareholders
known to the Company to be beneficial owners of more than five percent of the
Company's Common Stock.
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(6)
------------------------------------ -------------------- ----------
David L. Babson & Company Inc.(1)........................... 1,255,700 8.57%
One Memorial Drive
Cambridge, Massachusetts 02142-1300
Benson Associates, LLC(2)................................... 1,143,900 7.82%
111 S.W. Fifth Avenue
Suite 2130
Portland, Oregon 97204
Kenneth J. Finkelstein(3)................................... 1,101,955 7.12%
35 Brandy Court
Don Mills, Ontario M3B 3L3
James J. Salter(4).......................................... 1,101,955 7.12%
135 Forest Hill Road
Toronto, Ontario M4V 2L9
Dimensional Fund Advisors Inc.(5)........................... 860,125 5.87%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
---------------
(1) This information is taken from the Schedule 13G, dated January 30, 2003,
filed by David L. Babson & Company Inc. with the Securities and Exchange
Commission, which disclosed David L. Babson & Company Inc. has sole voting
power with respect to 1,179,700 shares, shared voting power with respect to
76,000 shares, sole investment power with respect to 1,255,700 shares, and
shared investment power with respect to 0 shares.
(2) This information is taken from the Schedule 13G, dated February 5, 2003,
filed by Benson Associates, LLC with the Securities and Exchange Commission,
which disclosed Benson Associates, LLC has sole voting and investment power
with respect to 1,143,900 shares and shared voting and investment power with
respect to 0 shares.
(3) This information is taken from the Schedule 13D, dated September 30, 2002,
filed by Kenneth J. Finkelstein with the Securities and Exchange Commission,
which disclosed that Mr. Finkelstein had sole investment power with respect
to 1,101,955 shares.
(4) This information is taken from the Schedule 13D, dated September 30, 2002,
filed by James J. Salter with the Securities and Exchange Commission, which
disclosed that Mr. Salter had sole investment power with respect to
1,101,955 shares.
(5) This information is taken from the Schedule 13G, dated February 10, 2003,
filed by Dimensional Fund Advisors Inc. with the Securities and Exchange
Commission, which disclosed Dimensional Fund Advisors Inc. has sole voting
and investment power with respect to 860,125 shares and shared voting and
investment power with respect to 0 shares.
(6) Percentages listed are those disclosed in the referenced Schedules 13D and
13G and are not verified by the Company.
7
REPORT OF AUDIT COMMITTEE
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee of the Board ("Audit Committee") assists the Board in
fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing and financial reporting practices of the Company. During
2002, the Audit Committee met five times, and the Audit Committee Chairman, as
representative of the Audit Committee, discussed the interim financial
information contained in each quarterly Form 10-Q with the Vice
President-Controller and independent auditors prior to the filing of the
Company's Form 10-Q. In response to the Sarbanes-Oxley Act adopted in 2002, the
Audit Committee has assumed additional responsibilities including that the Audit
Committee must approve, in advance, the use of the Company's auditors for all
audit and non-audit services. The Audit Committee approved in October 2002 the
use of KPMG LLP as the Company's independent auditors and Deloitte & Touche to
provide internal audit functions to the Company. The approval of KPMG LLP is
subject to shareholder ratification as described in this proxy statement. In
addition, the Audit Committee is provided, upon its request, all representation
letters provided to the Company's Chief Executive Officer and Chief Financial
Officer as part of their certifications of the Company's periodic reports
required under Sections 302 and 906 of the Sarbanes-Oxley Act. Also, the Audit
Committee regularly reviews compliance with the Company's Standards of Ethics
and Behavior for Officers and all employees. The Audit Committee anticipates
additional responsibilities will be undertaken upon the issuance of final rules
under the Sarbanes-Oxley Act. The Audit Committee is closely monitoring
developments in this area. The Audit Committee written charter more fully
describing the Committee's authority and responsibilities is attached as Exhibit
A to this Proxy Statement.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees,"
discussed with the auditors any relationships that may impact their objectivity
and independence and satisfied itself as to the auditors' independence. The
Audit Committee also discussed with Management, the independent third party
("outside") internal auditors and the independent auditors the quality and
adequacy of the Company's internal controls and the outside internal audit
function's organization, responsibilities, budget and staffing. The Audit
Committee reviewed with both the independent auditors and the outside internal
auditors audit plans, audit scope, and identification of audit risks and
approved all non-audit services provided by the independent auditors.
The Audit Committee discussed and reviewed with the independent auditors
all communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without Management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Audit Committee also discussed the results of the
outside internal audit examinations.
The Audit Committee reviewed the audited financial statements of the
Company as of and for the fiscal year ended December 31, 2002, with Management
and the independent auditors. Management has the responsibility for the
preparation of the Company's financial statements and the independent auditors
have the responsibility for the examination of those statements.
Based on the above-mentioned review and discussions with Management and the
independent auditors, the Audit Committee recommended to the Board that the
Company's audited financial statements be included in its Annual Report on Form
10-K for the fiscal year ended December 31, 2002, for filing with the Securities
and Exchange Commission. The Audit Committee approved the reappointment of the
independent auditors subject to shareholder ratification.
SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Linda B. Keene, Donald K. Miller, James F. Robeson (Chairman), Gerald B.
Wasserman
8
REPORT OF COMPENSATION COMMITTEE
Decisions on compensation and stock options of the Company's Executive
Officers are made by the Compensation Committee of the Board of Directors (the
"Committee") which is comprised of non-employee Directors.
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS
The Company's executive compensation program is designed to tie a
significant portion of executive compensation to the Company's success in
meeting specified performance goals and increasing shareholder value. This
strategy is designed to attract and retain the best possible executive talent,
to motivate these executives to achieve the Company's goals, to link executive
and Shareholder interests, and to provide a compensation package that recognizes
individual contributions as well as overall business results. In reviewing the
individual performance of the Named Executive Officers whose compensation is
detailed in this Proxy Statement, other than that of Mr. Don R. Graber, the
Chief Executive Officer, the Committee takes into account the views of Mr.
Graber.
The Committee compares the Company's executive compensation structure
against those of other manufactured products businesses and retail service
providers whose size is adjusted to that of the Company. The Committee believes
that such manufactured products businesses and service providers generally
represent the Company's most direct competitors for executive talent. The
Committee's policy is to evaluate competitive base salary ranges and total
compensation based on the 50th percentile level of total compensation paid by
manufactured products businesses and service providers for comparable positions.
The Company's actual overall executive compensation levels are generally below
such 50th percentile levels. The Committee reviews competitive pay practices on
an annual basis. There are no loans outstanding to Executive Officers and none
are permitted.
The key elements of the Company's 2002 executive compensation program
consist of Base Salary, the Annual Performance Incentive Plan, the Long-Term
Incentive Plan and Stock Options. In addition, while the elements of
compensation described below are considered separately, the Committee takes into
account the full compensation package afforded by the Company to the individual,
including pension benefits, supplemental retirement benefits, severance plans,
insurance and other benefits, as well as the programs described below. The
Committee has reviewed Section 162(m) of the Internal Revenue Code of 1986, as
amended, which limits the deduction for certain executive compensation and,
based on present levels of compensation, does not anticipate a material tax
impact due to the loss of deductibility for any compensation paid over the next
year.
BASE SALARY
Base salary ranges for Executive Officers are determined by periodic
recommendations (most recently in 2002) by an independent compensation
consultant who evaluates the responsibilities of each such position and compares
the Company's salary level for the position to comparable positions at other
manufactured products businesses and retail service providers nationwide. The
Company's policy is to generally pay competitive base salaries by using the 50th
percentile levels at manufactured products businesses and service providers for
comparable positions as guidelines and to review such salary levels annually.
Annual salary adjustments within such base salary ranges are determined by
evaluating the performance of the Executive Officer and the Executive Officer's
current base salary as compared to 50th percentile competitive pay practices and
the Company's overall annual salary increase budget. Performance of an Executive
Officer is evaluated based upon the employee's accomplishment of his or her
duties, objectives established by his or her supervisor (in the case of Mr.
Graber by the Board of Directors), and general management abilities. Elected
Chairman, President and Chief Executive Officer, in December 1997, Mr. Graber's
base salary was increased, effective September 1, 2001, to $620,000. To incent
improved earnings, Mr. Graber proposed and the Compensation Committee accepted
his proposal to not increase his base salary again until 2004 and, beginning in
2002, to increase the incentive measure for his annual bonus, at target, from 55
percent to 65 percent, interpolated from such measurement for threshold and
maximum annual bonus performance.
9
ANNUAL PERFORMANCE INCENTIVE PLAN
Executive Officers may receive an annual bonus under the Annual Performance
Incentive Plan based upon corporate and individual performance objectives
established at the beginning of each year. The corporate performance measure for
bonus payments in 2002 approved by the Committee and by the Board of Directors
was based on return on average net assets ("RONA"), earnings per share ("EPS")
and free cash flow. The Executive Officers are eligible to earn profit sharing
bonuses ranging from 6 percent to 16.25 percent (16.25 percent for Mr. Graber)
of their annual base salaries at threshold level, from 30 percent to 65 percent
(65 percent for Mr. Graber) of their annual base salaries at target level and
from 60 percent to 130 percent (130 percent for Mr. Graber) of their annual base
salaries at maximum level with 80 percent of the bonuses based on Corporate
performance and 20 percent on individual personal objectives (except for Mr.
Graber whose bonus is paid based solely on Corporate performance). For 2002,
threshold, target and maximum level bonus required corporate performance, from
continuing operations with RONA at 7.3 percent, 8.6 percent, and 10.3 percent,
respectively, EPS at $.38, $.45, and $.54, respectively, and a Free Cash Flow
goal of $12,462,000, $14,661,000, and $17,593,000 respectively. EPS was weighted
at 50 percent; RONA and Free Cash Flow were weighted at 25 percent each.
Individual performance is based on achievement of personal objectives. Personal
objectives are both qualitative, such as certain business strategy development
and/or implementation, improved customer satisfaction, management effectiveness
and personal development, and quantitative, such as achieving cost reduction,
continuous rapid improvement and sales goals. In 2002, from continuing
operations, the Company reported a RONA of 4.3 percent, an EPS of $.38, from
continuing operations, and a Free Cash Flow of $22,991,000. Mr. Graber was
awarded an annual performance bonus of $252,883.
LONG-TERM INCENTIVE PLAN
The Executive Officers participate in the Company's Long-Term Incentive
Plan which is based on the Company's EPS, RONA and Total Shareholder Return
("TSR") during the period as compared to targets for each established by the
Compensation Committee three years prior to the commencement of this award
period. Under this plan, in 2002, Executive Officers were each eligible to earn
threshold awards ranging from 12.5 percent to 25 percent (25 percent for Mr.
Graber at threshold level) of their annual base salaries. For 2002, threshold
awards required an EPS of $1.25, RONA of 12.8 percent, and TSR of 13.0 percent.
For 2002, EPS was $.38, from continuing operations, RONA was 4.3 percent and TSR
was 4.6 percent. Mr. Graber received no Long-Term Incentive Plan payment for
2002.
STOCK OPTIONS
Under the Company's 1998 Key Employee Stock Plan ("1998 Plan"), stock
options may be granted by the Committee to the Company's Executive Officers and
other key managers. The Committee sets guidelines for the size and frequency of
stock option grants which grants are based upon the Executive Officers'
performance and results achieved. Stock options are granted to Executive
Officers with an exercise price equal to the closing market price of the Common
Stock on the date of grant and generally become exercisable in four equal,
annual installments commencing one year from the date of grant. This approach is
designed to motivate the creation of Shareholder value over the long term since
the full benefit of the compensation package cannot be realized unless Common
Stock appreciation occurs. In December 2002, the Committee awarded Mr. Graber
100,000 options at $6.89 per share. As of January 2, 2003, Mr. Graber
beneficially owned 343,238 shares of Common Stock.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS(1)
James F. Robeson, Thomas C. Sullivan (Chairman) and Joseph P. Viviano
---------------
(1) Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, this report
and the graphs set forth on page 15 shall not be incorporated by reference
into any such filings.
10
CERTAIN RELATIONSHIPS AND OTHER RELATED TRANSACTIONS
Roberds, Inc. filed for Chapter 11 bankruptcy protection on January 19,
2000. Mr. James F. Robeson, a Director of the Company, was formerly the Chief
Executive Officer and President of Roberds, Inc. He ceased to be an executive
officer of such company in July 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for 2002 were James F. Robeson,
Thomas C. Sullivan, and Joseph P. Viviano, none of whom is or was a current or
former officer or employee of the Company or any of its subsidiaries. No
Executive Officer of the Company serves as a Director or as a member of a
committee of any company of which any of the Company's Directors are executive
officers.
EXECUTIVE COMPENSATION
SUMMARY OF CASH COMPENSATION AND CERTAIN OTHER INFORMATION
The following table shows, for the fiscal years ended December 31, 2000,
2001 and 2002, the cash compensation paid by the Company as well as certain
other compensation paid or accrued for those years, to each of the Executive
Officers, including Don R. Graber, the Chairman, President and Chief Executive
Officer of the Company, in all capacities in which they served:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
-------------------------------- -----------------------------------------------
OTHER NUMBER ALL
ANNUAL RESTRICTED OF OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) SATION(2) AWARD(S)(3) SARS(4) PAYOUTS(5) SATION(6)
------------------ ---- ---------- --------- --------- ------------ -------- ----------- ---------
Don R. Graber............... 2002 $ 620,000 $ 252,883 $ 0 $174,069 100,000 $ 0 $ 19,567
Chairman of the Board,.... 2001 $ 593,097 $ 173,350 0 $ 80,118 75,000 $ 0 $ 29,992
President and Chief....... 2000 $ 554,231 $ 673,910 0 $ 47,497 50,000 $ 520,833 $ 6,308
Executive Officer
Robert W. Lafferty(7)....... 2002 $ 282,500 $ 71,905 $ 0 $ 20,345 36,000 $ 0 $ 9,967
Vice President-Finance,... 2001 $ 272,691 $ 33,550 147,730 $ 11,762 30,000 $ 0 $ 12,600
Chief Financial Officer... 2000 $ 260,000 $ 169,563 0 $ 5,004 17,000 $ 66,437 $ 8,600
and Treasurer
Nancy A. Michaud............ 2002 $ 233,692 $ 60,993 $ 0 $ 23,886 47,000 $ 0 $ 9,597
Vice President-General.... 2001 $ 216,538 $ 28,075 0 $ 12,594 40,000 $ 0 $ 11,159
Counsel and Secretary..... 2000 $ 199,962 $ 149,484 0 $ 7,653 34,000 $ 122,381 $ 4,957
Timothy G. Howard........... 2002 $ 196,000 $ 48,795 $ 0 $ 36,318 20,000 $ 0 $ 9,502
Vice
President-Controller.... 2001 $ 189,606 $ 23,925 0 $ 21,330 10,000 $ 0 $ 10,724
2000 $ 182,819 $ 129,418 0 $ 32,428 20,000 $ 131,522 $ 5,377
---------------
(1) "Salary" and "Bonus" include amounts that would have been payable currently,
but were deferred at an election of a Named Executive Officer, such as
through the Company's 401(k) Savings Plan. Free cash flow results for the
Company exceeded the bonus target resulting in a bonus at 2002 year-end.
(2) No perquisites were provided or other personal benefits paid to a Named
Executive Officer in 2002 which exceeded the lesser of $50,000 or ten
percent of the total annual salary and bonus reported for such Named
Executive Officer.
(3) The 1998 Restricted Share Plan replaced a portion of the cash retirement
benefits accrued under the Company's Supplemental/Excess Benefit Plan (the
"Benefit Plan") with the Company's Common Stock granted as restricted shares
through 2002. The Benefit Plan provides that each recipient will be entitled
to an annual grant of restricted shares in an amount having a fair market
value equal to up to one-half of the total dollar amount of such recipient's
then accrued and unfunded benefit under the Benefit Plan as determined by
the Company's actuary. There were a total of 34,879 restricted shares
awarded to Named Executive Officers on June 7, 2002, which vest, following a
six
11
month period upon the earlier of death, disability, retirement or vesting
under the Company's Benefit Plan in accordance with the terms of the 1998
Restricted Share Plan and which have a value, in the aggregate at December
31, 2002 of $208,228. See also the discussion on page 20.
(4) These numbers represent options for shares of the Company's Common Stock
granted pursuant to the Company's 1998 Key Employee Stock Plan. See next
table labeled "Option Grants in Last Fiscal Year."
(5) Long-Term Incentive Pay consists of amounts paid to each of the Named
Executive Officers under the Company's long-term incentive plans discussed
later in this Proxy Statement under the table labeled "Long-Term Incentive
Plans."
(6) "All Other Compensation" includes (i) Company contributions to the Company's
401(k) Savings Plan in the amount of $3,667 for Don R. Graber, Robert W.
Lafferty, Nancy A. Michaud and Timothy G. Howard to match 2002 pre-tax
elective deferral contributions (included under "Salary" and "Bonus") made
by each Named Executive Officer to such plan; (ii) accrued interest of $730
and $1,435 (being interest earned in excess of 120 percent of the applicable
federal long-term rate provided under Section 1274(d) of the Internal
Revenue Code of 1986, as amended), by Nancy A. Michaud and Timothy G.
Howard, respectively, on the Company's Capital Accumulation Plan (Timothy G.
Howard deferred salary in 1985 and 1986, and Nancy A. Michaud deferred
salary in 1987 pursuant to such plan); and (iii) the principal amounts of
$15,900, $6,300, $5,200, and $4,400 credited by the Company for Don R.
Graber, Robert W. Lafferty, Nancy A. Michaud, and Timothy G. Howard,
respectively, pursuant to the Company's Special Deferred Compensation
Agreements. Refer to "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements" later in this Proxy Statement for
descriptions of such special deferred compensation agreements.
(7) Mr. Lafferty joined the Company as Vice President-Finance, Chief Financial
Officer and Treasurer on January 3, 2000. The amount in the Other Annual
Compensation column reflects certain sums Mr. Lafferty received in
connection with relocation to the Company headquarters in 2001.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1998 Key Employee Stock Plan ("1998 Plan") to the
Named Executive Officers for the year ended December 31, 2002, all of which are
reflected in the Company's Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
------------------------
% OF POTENTIAL REALIZABLE VALUE
NUMBER TOTAL AT ASSUMED ANNUAL RATES
OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM(4)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------------
NAME GRANTED(1) YEAR SHARE(2)(3) DATE 0% 5% 10%
---- ------------ ---------- ----------- ---------- --- -------- ----------
Don R. Graber.............. 100,000 16.36% $6.89 12/12/12 0 $433,308 $1,098,089
Robert W. Lafferty......... 36,000 5.89% $6.89 12/12/12 0 $155,991 $ 395,312
Nancy A. Michaud........... 47,000 7.69% $6.89 12/12/12 0 $203,655 $ 516,102
Timothy G. Howard.......... 20,000 3.27% $6.89 12/12/12 0 $ 86,662 $ 219,618
---------------
(1) The options were granted pursuant to the Company's 1998 Plan. All options
granted under the 1998 Plan in 2002 are non-qualified stock options. No
stock appreciation rights were granted under the 1998 Plan in 2002.
(2) Upon a change in control (as defined in the 1998 Plan), all options then
outstanding become fully and immediately exercisable and the then
outstanding options of an employee whose employment
12
is terminated, except for cause, within twenty-four months of such change in
control, or if more than one of the events leading to a change in control
occurs, then within twenty-four months after the last event to occur, shall
remain exercisable for three months from the date of such termination, but
not after the expiration of the exercise period. Those employees who
terminate employment due to disability or retirement may exercise
non-qualified stock options after such termination of employment until five
years after such retirement or disability. Under the 1998 Plan, upon the
death of an employee or a retired or disabled former employee, all options
under the 1998 Plan shall remain exercisable for six months following the
date of death. Except as set forth above, upon termination of employment,
all options to Named Executive Officers terminate.
(3) The exercise price may be paid in cash or in shares of Common Stock valued
at fair market value on the date of delivery or by a combination of cash and
Common Stock. The options become exercisable ratably over a four-year period
beginning in December, 2003.
(4) The options are calculated on option terms of ten years beginning December
12, 2002 through December 12, 2012. The dollar amounts under these columns
are the result of calculations at the zero percent, the five percent and the
ten percent rates set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation of the
Company's Common Stock. The Company did not use an alternative formula for a
grant date valuation, as the Company is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the year ended
December 31, 2002, and unexercised options held as of December 31, 2002:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF VALUE REALIZED OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
SHARES (MARKET PRICE AT END(1) AT FISCAL YEAR-END(1)(2)
ACQUIRED EXERCISE LESS --------------------------- ---------------------------
NAME ON EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------------- ----------- ------------- ----------- -------------
Don R. Graber............ -- $ -- 186,250 163,750 $ 0 $ 0
Robert W. Lafferty....... -- -- 22,000 61,000 0 0
Nancy A. Michaud......... -- -- 69,434 27,500 0 0
Timothy G. Howard........ -- -- 90,382 77,000 0 0
---------------
(1) The number of unexercised options includes options granted under the
Company's 1988 Stock Option Plan and Restricted Share Plan (the "1988 Plan")
and the Company's 1998 Plan. No SARs were issued or outstanding as of
December 31, 2002 under the 1988 Plan or 1998 Plan.
(2) The value of "in-the-money" options is calculated on a per share basis as
the amount by which the fair market value of a share of the underlying
Common Stock, which as of December 31, 2002 was $5.97, represented by an
option exceeds the per share exercise price of the option.
LONG-TERM INCENTIVE PLANS
The following table provides information concerning awards made to the
Named Executive Officers during the last fiscal year under the Company's
Long-Term Incentive Plan ("LTIP") with the Named
13
Executive Officers. No payments were made under the LTIP in the year ended
December 31, 2002 as reflected in the Summary Compensation Table.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER
SHARES PERFORMANCE OR NON-STOCK PRICE BASED PLAN
UNITS OTHER PERIOD UNTIL -------------------------------
NAME OTHER RIGHTS MATURATION OR PAYMENT THRESHOLD TARGET MAXIMUM
---- ------------ ----------------------- --------- -------- --------
Don R. Graber...................... (1) 3 years ending 12/31/04 $155,000 $310,000 $620,000
Robert W. Lafferty................. (1) 3 years ending 12/31/04 36,250 72,500 145,000
Nancy A. Michaud................... (1) 3 years ending 12/31/04 30,625 61,250 122,500
Timothy G. Howard.................. (1) 3 years ending 12/31/04 24,500 49,000 98,000
---------------
(1) Awards earned under the Company's 2002 LTIP cycle are payable during the
year following the end of a three-year award cycle in 2005. For the Named
Executive Officers, the LTIP is based one-third on earnings per share,
one-third on return on net assets, and one-third on total Shareholder return
over the performance period compared to targets approved by the Compensation
Committee at the beginning of the performance period.
14
PERFORMANCE GRAPHS
Set forth below is a line graph comparing the yearly percentage change in
the Company's cumulative total Shareholder return on its Common Stock with the
Standard & Poor's Small Cap 600 Value Index ("S&P Small Cap 600 Value"), the
Standard & Poor's Leisure Time Products Index ("Leisure Time Products"), which
index was discontinued after 2001, and the Standard & Poor's Leisure Products
Index ("Leisure Products"). The Company has been classified as a member of the
S&P Small Cap 600 Value. The performance graph is for the five-year period ended
December 31, 2002:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN: HUFFY CORPORATION,
LEISURE TIME PRODUCTS, LEISURE PRODUCTS, AND S&P SMALL CAP 600 VALUE INDICES*
(5-YEAR GRAPH)
LEISURE S&P 600
TIME LEISURE SMALL CAP
YEAR HUFFY PRODUCTS PRODUCTS VALUE
---- ----- -------- -------- ---------
1997 $100.00 $100.00 $100.00 $100.00
1998 $124.70 $ 76.80 $ 77.88 $ 94.82
1999 $ 42.25 $ 51.44 $ 54.04 $ 97.60
2000 $ 52.31 $ 46.19 $ 48.07 $117.81
2001 $ 51.50 $ 63.96 $ 61.80 $133.13
2002 $ 48.04 $ 61.55 $114.04
* Assumes $100 invested on December 31, 1997 in Company Common Stock, S&P Small
Cap 600 Value, the Leisure Time Products and the Leisure Products and the
reinvestment of dividends.
Set forth below is a line graph comparing the yearly percentage change in
the Company's cumulative total Shareholder return on its Common Stock with the
indices described above for the three-year period ended December 31, 2002:
COMPARISON OF THREE-YEAR CUMULATIVE TOTAL RETURN: HUFFY CORPORATION,
LEISURE TIME PRODUCTS, LEISURE PRODUCTS, AND S&P SMALL CAP 600 VALUE INDICES*
(3-YEAR GRAPH)
LEISURE S&P 600
TIME LEISURE SMALL CAP
YEAR HUFFY PRODUCTS PRODUCTS VALUE
---- ----- -------- -------- ---------
1999 $100.00 $100.00 $100.00 $100.00
2000 $123.81 $ 89.78 $ 88.96 $120.71
2001 $121.89 $124.32 $114.37 $136.41
2002 $113.71 $113.91 $116.85
* Assumes $100 invested on December 31, 1999 in Company Common Stock, S&P Small
Cap 600 Value, the Leisure Time Products and the Leisure Products and the
reinvestment of dividends.
15
EQUITY COMPENSATION PLAN TABLE
The following table sets forth information, as of December 31, 2002, with
respect to the Company's compensation plans under which common stock is
authorized for issuance:
NUMBER OF
SECURITIES
NUMBER OF WEIGHTED- REMAINING AVAILABLE
SECURITIES TO BE AVERAGE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE PRICE OF UNDER EQUITY
EXERCISE OF OUTSTANDING COMPENSATION
OUTSTANDING OPTIONS, PLANS (EXCLUDING
OPTIONS, WARRANTS WARRANTS AND SECURITIES REFLECTED
AND RIGHTS RIGHTS IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- ----------------- ----------------- --------------------
Equity compensation plans approved by
security holders(1)...................... 1,146,537 $9.3235 134,352
Equity compensation plans not approved by
security holders......................... 779,138 $7.8131 988
--------- ------- -------
Total...................................... 1,925,675 $8.7124 135,340
========= ======= =======
In 1998, the Directors approved the 1998 Non-Qualified Key Employee Stock
Plan (the "Non-Qualified Plan"). The Non-Qualified Plan provides a means for key
employees, other than Officers of the Company, to receive options of the
Company's Common Stock. The material terms of the Non-Qualified Plan are
identical to the 1998 Key Employee Stock Plan described later in this proxy
statement except that, under this Non-Qualified Plan, no incentive stock option
may be granted and no grants of any kind may be made to an Officer of the
Company.
---------------
(1) Includes options issued pursuant to the Company's 1988 Stock Option Plan and
1987 Director Stock Option Plan, which plans ceased to have options
available for additional grants in 1997.
PENSION PLAN TABLE
The Company's Salaried Employees' Retirement Plan (the "Retirement Plan")
is a defined benefit pension plan which provides benefits to salaried employees
not otherwise covered under another pension plan of the Company. The following
table shows, as of December 31, 2002, the estimated annual benefits (assuming
payments made on the normal life annuity with 12 months certain) payable upon
retirement at age 65 to an employee in specified compensation and years of
service classifications.(1)
YEARS OF SERVICE
----------------------------------------------------
COMPENSATION 15 20 25 30 35
------------ -------- -------- -------- -------- --------
$ 150,000 $ 31,087 $ 40,616 $ 50,145 $ 59,674 $ 59,674
250,000 53,587 70,616 87,645 104,674 104,674
500,000 109,837 145,616 181,395 217,174 217,174
750,000 166,087 220,616 275,145 329,674 329,674
1,000,000 222,337 295,616 368,895 442,174 442,174
1,250,000 278,587 370,616 462,645 554,674 554,674
1,500,000 334,837 445,616 556,395 667,174 667,174
2,000,000 447,337 595,616 743,895 892,174 892,174
---------------
(1) The Internal Revenue Code of 1986, as amended (the "Code"), places certain
limitations on the annual pension benefits which can be paid from the
Retirement Plan. Such limitations are not reflected in the table. This table
reflects the total aggregate benefits payable annually upon retirement
represented by the combination of benefits under the Retirement Plan, the
Restricted Share Plan, and the Company's Supplemental/Excess Benefit Plan
("Benefit Plan"), which is discussed
16
below. The Benefit Plan requires an offset of one-half of the Social
Security primary insurance amount ("PIA"), and such amount has been deducted
from the figures in the table. The PIA amount used in developing the above
figures is $20,652. Thus, the offset is $10,326 for a person with 30 or more
years of service.
Monthly benefits upon normal retirement (age 65) under the Retirement Plan
are the sum of (i) 0.9 percent of final average monthly compensation (as defined
under the Retirement Plan to include salary, incentive compensation, commissions
and overtime pay and based upon the highest three consecutive years in the last
ten) up to the monthly Social Security Covered Compensation Amount, plus 1.3
percent of the amount by which final average monthly compensation exceeds the
monthly Social Security Covered Compensation Amount, times years of service (to
a maximum of 30 years), (ii) .075 percent of final average monthly compensation
(to a maximum of $4,166.67) times years of service (to a maximum of 20 years),
and (iii) for the Named Executive Officers 3.0 percent of final average monthly
compensation times years of service to a maximum of 30 years but not to exceed
$2,257 for Mr. Graber, $0 for Mr. Lafferty, $1,358 for Ms. Michaud and $1,417
for Mr. Howard. Additional provisions for early retirement are included. As of
January 3, 2003, for purposes of the Retirement Plan and the Benefit Plan, Mr.
Graber has 18 years of credited service, Mr. Lafferty has 3 years of credited
service, Ms. Michaud has 16 years of credited service, and Mr. Howard has 29
years of credited service.
The Company has established the Benefit Plan which provides additional
benefits to participants in the Retirement Plan whose benefits are reduced by
limitations imposed under Sections 415 and 401(a)(17) of the Code and Section
2004 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Under the Benefit Plan, Executive Officers and certain key employees
will receive at the same time and either in a lump sum or in the same form as
benefits paid under the Retirement Plan, additional benefits which, when added
to the benefits paid to the participant under the Retirement Plan, will equal
the benefit amount such participant would have earned but for the limitations
imposed by the Code and ERISA to the extent such limitations apply, and the
amount by which the sum of 45 percent of final average monthly compensation (as
defined under the Benefit Plan to include salary and bonus and based upon the
highest three years in the last ten) less 50 percent of the monthly PIA payable
under Social Security, with the difference prorated for less than 30 years of
service, plus $2,500 per year, exceeds benefits payable only under the
Retirement Plan, less the portion of such participant's benefit which has been
replaced by benefits under the Restricted Share Plan, as described in footnote 3
to the Summary Compensation Table. The Benefit Plan also provides that Executive
Officers and certain key employees will be provided benefits beginning at age
58, in an amount equal to such participants' then accrued benefits without
actuarial reduction for early commencement in the event of (i) a
"change-in-control" of the Company, as defined in the Benefit Plan, and (ii)
subsequent termination of employment. Except as noted in the preceding sentence,
benefits under the Benefit Plan will be reduced to an actuarial equivalent to
reflect early distribution in the same manner as benefits under the Retirement
Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment contracts between the Company and any Executive
Officers of the Company.
The Named Executive Officers and certain other key employees of the Company
each have a Special Deferred Compensation Agreement pursuant to which on each
January 1 the Company credits to an account for such employee an amount equal to
two percent of the aggregate of the base salary paid in the preceding calendar
year and bonus paid or credited to such employee under the Annual Performance
Incentive Plan for preceding calendar year results. The aggregate amount in such
account is to be paid to the employee, subject to certain forfeitures, following
termination of employment. Such amounts for calendar year 2002 have been
included in the Summary Compensation Table.
17
Two of the Named Executive Officers, Timothy G. Howard and Nancy A.
Michaud, have deferred compensation and receive benefits under the Company's
Capital Accumulation Plan (the "Capital Accumulation Plan") adopted in 1985. No
compensation has been deferred by Named Executive Officers under the Capital
Accumulation Plan since 1987 when deferrals were discontinued. Based upon the
amount of such compensation deferred in 1985, 1986, and 1987, the Company has
agreed to pay certain annual amounts generally beginning at age 65 or upon
retirement, whichever occurs later, to each such participant or to designated
beneficiaries upon such participant's death after retirement, until such
participant reaches (or would have reached) age 80. These annual amortized
amounts will be calculated on the basis of attributing from 19 to 24 percent per
annum interest to the deferrals. A lump sum benefit equal to any remaining
balance of deferred amounts, with annual interest at the rate noted below, will
be paid in lieu of any annual benefits if (i) a participant terminates
employment with the Company other than by death or disability prior to
retirement (10 percent interest) or the Company terminates the participant's
employment for certain reasons other than cause or competing with the Company
(20 percent interest); (ii) a participant dies prior to retirement (20 percent
interest); or (iii) the Capital Accumulation Plan is terminated by the Company
because a change in federal or state laws, or judicial or administrative
interpretation thereof, has materially affected its cost to the Company (20
percent interest). The Company will make supplemental pension payments to
persons participating in the Capital Accumulation Plan to the extent pension
benefits are reduced due to participation in such plan. Distributions made and
interest accrued in excess of 120 percent of the applicable federal long-term
interest rate provided under Section 1274(d) of the Code for the benefit of the
Named Executive Officers have been included in the Summary Compensation Table.
The Company has historically provided its key executive officers with
severance benefits in the event of a change-in-control of the Company. During
2000, the Board of Directors undertook a review of the Company's outstanding
severance arrangements and determined it would be advisable to negotiate revised
and less costly arrangements with its Executive Officers, including three of the
Named Executive Officers, Messrs. Graber and Howard and Ms. Michaud.
Accordingly, these officers and the Company entered into Amended and Restated
Retention/Severance/Non-Competition Agreements which replaced their prior
agreements and Mr. Lafferty executed a similar agreement which, among other
provisions, established the maximum potential severance benefit at 2.99 times a
base amount, determined under applicable sections of the Code (which is
essentially the executive's average annual compensation over the preceding five
years), representing a substantial reduction in cost from the prior
arrangements. In addition, the revised agreements specify that the severance
benefit is only payable in the event the executive's employment is involuntarily
terminated, or voluntarily terminated by the executive under certain
circumstances, following the change-in-control. In consideration for their
agreement to the substantial reduction in their potential severance benefits,
the Named Executive Officers are also entitled to certain long-term incentive
payments in the event of the possible sale of certain of the Company's operating
businesses short of an actual change-in-control in exchange for their personal
agreements to maintain the confidentiality of information and not to compete
with the purchaser, as well as additional non-competition payments in the event
of a change-in-control of the Company in amounts ranging from approximately 3.0
times for Mr. Graber and 1.5 times to 3.0 times for all other Named Executive
Officers of the total compensation set forth in the Summary Compensation Table.
Previously, these Named Executive Officers were not obligated to facilitate any
potential Company transactions by submitting to personal confidentiality and/or
non-compete restrictions.
18
Generally, a "change-of-control" or "change-in-control", with respect to
the above-referenced plans and agreements, is the acquisition by another person
or persons other than directly from the Company of more than 20 percent of the
Company's outstanding shares of Common Stock; a merger, consolidation or other
combination of the Company with one or more corporations as a result of which
more than 49 percent of the voting stock of the merged, consolidated or combined
corporation is held by former shareholders of the corporations other than the
Company; a tender offer for, or a request for invitations for the tender of,
shares of Common Stock of the Company by any person; the election to the Board
of Directors of the Company by the Shareholders of two or more persons not
nominated as candidates for the Board of Directors in proxy statements furnished
during such period on behalf of the Board of Directors of the Company; the
approval by the Shareholders of the Company of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company; or approval by the Shareholders of the Company of a
complete liquidation or dissolution of the Company.
PROPOSAL TO AMEND THE 1998 KEY
EMPLOYEE STOCK PLAN, THE 1998
DIRECTOR STOCK INCENTIVE PLAN AND
THE 1998 RESTRICTED SHARE PLAN
Competition for key employees is intense and the use of significant stock
options for recruitment, retention and motivation of key employees and directors
is widespread. In 1998, following approval by the Board of Directors, the
Shareholders approved the 1998 Key Employee Stock Plan (the "1998 Key Employee
Plan"), the 1998 Director Stock Incentive Plan (the "1998 Directors Plan") and
the 1998 Restricted Share Plan (collectively the "Plans"). Based on shareholder
approval in 1998 and again in April 2001, a total of 1,123,714 shares were
reserved for issuance under the Plans. The Plans utilize a single pool of
available shares.
In 2002, the Company made two acquisitions: McCalla Company, a service
merchandising company headquartered in Atlanta, Georgia, and Gen-X Sports Inc.,
a distributor and marketer of sporting goods equipment, headquartered in
Toronto, Canada. Both acquisitions were accretive and added key employees to
continue profitable growth. The Company anticipates these acquisitions will add
approximately $170 to $180 million to 2003 revenues. Options were granted to key
employees at the close of such acquisitions in order to retain talented
performers and to motivate future profitable performance. As a result of such
acquisitions, options were granted to 135 key employees in 2002 compared to 89
employees in 2001. As a result of such option grants, as of December 31, 2002,
134,352 shares remained available for issuance under the Plans, an amount which
will not be sufficient to meet the Company's anticipated needs for employee
retention and recruiting.
The Board of Directors therefore believes that an increase in the number of
shares available for grant under the Plans is critical to enabling the Company
to recruit highly qualified new employees, promote long-term retention of key
employees, motivate high levels of performance, recognize contributions and
broaden the base of employees incentivized by stock option grants. In December
2002, the Board approved an amendment that, if approved by the shareholders,
would increase the total number of shares reserved for issuance under the Plans
by 733,000 to a total of 1,856,714 shares, an additional amount that is equal to
approximately 4.9% of the Company's total outstanding Common Stock on February
27, 2003.
The shareholders are being asked to ratify and approve the amendment to the
Plans at the Annual Meeting. The affirmative vote of the holders of a majority
of the Company's Common Stock present in person or by proxy at the Annual
Meeting and entitled to vote is required to adopt the resolution to amend the
Plans. The resolution will provide that the first sentence of each of Section
4(a) of the 1998 Directors Plan, Section 5(a) of the 1998 Key Employee Plan, and
Section 5.1 of the 1998 Restricted Share Plan will be amended to specify that
the total amount of shares available for issuance under the combined Plans will
be increased to 1,856,714 shares from the present 1,123,714 shares. Proxies will
19
be voted in favor of the resolution unless otherwise instructed by the
shareholders. Abstentions and shares not voted by brokers and other entities
holding shares on behalf of beneficial owners will have the same effect as votes
cast against the resolution, provided such shares are properly present at the
meeting in person or by proxy.
In connection with the foregoing approval of shares, the Board of Directors
also approved the following Plan changes:
- Prohibition on Option Repricing: In accordance with the terms of each of
the Plans, the Board has approved an amendment to each of the Plans
effective January 1, 2003 prohibiting repricing of options without
shareholder approval.
- Elimination of Future Grants under 1998 Restricted Share Plan: In
accordance with the terms of the 1998 Restricted Share Plan, as amended
(the "Restricted Plan"), the Board has eliminated future restricted share
grants under the Restricted Plan, which will no longer replace a portion
of cash retirement benefits owed to key employees, in order to remove any
shareholder concerns that the grant of the restricted stock under such
plan is a "give-away" compared with stock options that have an exercise
price equal to the fair market value on the date of grant. By contrast,
the 1998 Director Stock Incentive Plan limits the annual award of
restricted shares to that number of Common Shares of stock having a fair
market value of $12,500, on the date of grant, rounded to the nearest
whole share.
- Limitation on Restricted Share Grants under the 1998 Key Employee
Plan: Although no restricted shares have been granted under the 1998 Key
Employee Plan and there is no current intention to do so, the Board has
limited any future grants under such plan to no more than fifty percent
of the number of shares by which the Plans are increased as requested for
approval at this meeting. Vesting of any such restricted shares will in
no event be less than 12 months.
- Curtailment of 1998 Key Employee Non-Qualified Stock Plan: The 1998 Key
Employee Non-Qualified Stock Plan (the "Non-Qualified Plan") adopted in
1998 provides no options to Officers of the Company and thus in
accordance with then applicable law was not approved by shareholders. As
of February 27, 2003, no shares remain to be granted under the
Non-Qualified Plan. No future grants will be made under the Non-Qualified
Plan, except to the extent options previously granted under the plan are
returned to it upon an employee's termination of service; such amount is
estimated to be de minimus.
As of December 31, 2002, options to purchase 665,273 shares were
outstanding under the Plans with exercise prices ranging from $1.00 (for options
by Directors in lieu of receipt of Director fees) to $16.25. Without taking into
account the proposed amendment to the Plans, 134,352 shares remained available
for future grant as of December 31, 2002.
The aggregate number of shares which may be issued under the Plans, the
number and class of shares subject to each outstanding option or stock
appreciation right and restricted shares still subject to restrictions, and the
price per share will be appropriately adjusted in the event of any change in the
Common Stock by reason of a merger, consolidation, reorganization,
recapitalization, stock dividend, stock split-up, combination or exchange of
shares, or other change in the corporate structure.
PLAN ADMINISTRATION
The 1998 Key Employee Plan and the 1998 Restricted Share Plan are
administered by the Compensation Committee of the Board of Directors (the
"Committee"). The Committee consists of at least three independent members of
the Board of Directors of the Company who are not entitled to participate in the
Plans. The Committee has the full power and authority to construe the provisions
and to supervise the administration of such plans, and all decisions made by the
Committee will be final. The 1998 Directors Plan is to be administered by a
committee consisting of at least three officers of the Company to be appointed
by the Board of Directors who are not entitled to participate in such plan.
20
At the close of business on February 27, 2003, the market value of a share
of the Company's Common Stock was $5.85.
TAX CONSEQUENCES
Gain taxable as ordinary income to the optionee is generally deemed to be
realized at the date of exercise of a nonqualified option, the amount of gain on
each share being the difference between the market price on the date of exercise
and the option price. This amount is generally treated as a tax-deductible
expense to the Company at the time of exercise. Any appreciation in the value of
stock after the date of exercise is considered as long or short-term capital
gain, depending on the length of time the stock is held by the optionee prior to
the time of its sale.
No taxable income for federal income tax purposes results from the exercise
of an incentive option at the time of exercise. Any gain realized on the sale of
stock acquired on exercise of an incentive option is considered as long-term
capital gain for federal income tax purposes if the stock has been held at least
one year after it was acquired on exercise of the option and if at least two
years have expired after the grant of the option. Except as hereafter indicated,
the Company is not entitled to any deduction with respect to the grant or
exercise of any incentive option. If the stock is sold or otherwise disposed of
within one year after exercise or within two years after the grant, any
appreciation at the date of exercise above the option price is treated, subject
to certain limitations, as "ordinary" income for federal income tax purposes.
Any appreciation after the date of exercise is considered as long or short-term
capital gain to the optionee depending upon whether or not the stock was held
longer than one year. The amount of ordinary income received by the optionee
generally is treated as a tax-deductible expense to the Company.
Upon the exercise of a stock appreciation right, the holder will realize
ordinary income equal to the amount of the gain. This amount is generally
treated as a tax-deductible expense to the Company at the time of exercise.
With respect to grants of restricted shares, the recipient must recognize
ordinary income equal to the fair market value of the Common Stock at the first
time the Common Stock becomes transferable or not subject to a substantial risk
for forfeiture, whichever occurs earlier. The Company generally will be entitled
to a deduction for the same amount at the time the recipient recognizes such
income.
Under Section 162(m) of the Code, corporations with a class of securities
required to be registered under Section 12 of the Securities Exchange Act of
1934 (i.e. "public companies") are no longer permitted to deduct, for income tax
purposes, compensation paid to certain executive officers to the extent such
compensation exceeds $1 million in a tax year. However, certain types of
compensation, including generally compensation which constitutes
"performance-based" compensation, is excluded from this limitation. In any given
year, as to options exercised by an Executive Officer, the difference between
the exercise price and the market price on the exercise date (the "spread")
would be included as compensation for Section 162(m) purposes unless the
applicable option plan meets certain requirements contained in the applicable
regulations promulgated by the Internal Revenue Service. Such regulations
provide that in order for the spread realized upon the exercise of an option to
constitute performance-based compensation which is exempt from the Section
162(m) deduction limitation, the stock option plan under which the options were
granted must, among other requirements, be administered by a compensation
committee comprised solely of two or more "outside directors" and must contain a
specific limit on the number of options which may be granted to any one employee
participant. The 1998 Key Employee Plan is drafted with the intention of
preserving the Company's ability to deduct for federal income tax purposes the
compensation expense relating to stock options granted to Named Executive
Officers.
THE 1998 DIRECTOR STOCK INCENTIVE PLAN
The 1998 Directors Plan provides for annual non-discretionary restricted
share grants to non-employee directors, of which the Company will have seven
following the 2003 Annual Meeting of
21
Shareholders. It also provides a feature by which non-employee directors may
elect to receive options in lieu of annual retainer fees. Its stated purpose is
to encourage ownership in the Company by members of the Board of Directors of
the Company who are not employees of the Company or any of its subsidiaries and
whose continued services as Directors are considered essential to the Company's
continued progress.
The Board of Directors may alter or amend the 1998 Directors Plan at any
time prior to its termination, except that the Board may not, without the
approval of the Shareholders, change the number of shares of Common Stock which
may be issued upon exercise of options, reduce the prices at which options may
be exercised, reprice options, extend the time within which options may be
granted or exercised, change the designation of the class of Directors eligible
to receive options, materially increase the benefits accruing to participants,
or alter or affect to the detriment of an option holder any option previously
granted without the consent of such option holder.
The 1998 Directors Plan provides that non-employee Directors will
automatically receive annual grants of restricted stock awards at a fair market
value of $12,500, with vesting tied to the recipients' attainment of director
stock ownership targets, but not before the first anniversary of the grant date.
The Directors' policy requires a Director to own at least 1,200 Common Shares
within 18 months after election to the Board of Directors; 2,200 Common Shares
on the third anniversary of a Director's nomination to the Board of Directors;
and 3,200 Common Shares on or before the sixth such anniversary.
The Company paid its non-employee Directors an annual retainer in the
amount of $22,500 per year in 2002. Under the 1998 Directors Plan, non-employee
Directors may elect to receive an option in lieu of all or any part of the
annual retainer to be earned in the current 1998 Director Plan Year. Such
options will be granted automatically on May 1, the first day of the 1998
Directors Plan Year, and/or on such other dates as may be designated as long as
the Director makes an election prior to such dates. An election to receive an
option in lieu of the retainer with respect to any particular year is
irrevocable. The purchase price of the Common Stock covered by such options is
$1.00 per share. The Board's policy is to encourage stock ownership and thus the
formula used to determine the number of shares for which an option may be
granted pursuant to such an election provides a premium of 150% for such
deferrals, as calculated in the 1998 Directors Plan.
All options granted under the 1998 Directors Plan have a ten-year term.
Options are not exercisable for the first six months from the date of issuance,
at which time they become exercisable as to 100% of the shares covered until
termination. Shares covered by an option which is no longer exercisable with
respect to such shares will again be available for offering under the 1998
Directors Plan.
Options under the 1998 Directors Plan may not be transferred except
generally by will or the laws of descent and distribution, and during the
lifetime of the option holder, may be exercised only by the option holder or his
representative. In addition, options generally may be exercised only while the
option holder is serving as a member of the Board of Directors. However, upon
the death of a Director, upon the retirement of a Director because of total and
permanent disability, upon expiration of a Director's term of office or
otherwise in accordance with the Board's retirement policy, or upon the
resignation of a Director due to a potential conflict of interest, the former
Director or his representative may, at any time during the balance of the ten
year period, purchase all or any part of the Common Stock covered by the option.
Notwithstanding the foregoing, in no event shall an option be exercised if the
former Director engages or participates in any business which competes against
any of the businesses engaged in by the Company.
In the event of a change in control of the Company, all outstanding options
will become immediately and fully exercisable. Any non-employee Director whose
services are terminated within twenty-four months after a change in control may
exercise outstanding options at any time during the balance of the ten-year
period.
22
FUTURE RESTRICTED STOCK GRANTS
Under the existing plan, stock incentives are only available to Outside
Directors. The approximate number of persons eligible to participate in the Plan
is seven. If all of the nominees for election to the Board at the Annual Meeting
are in fact elected by the Shareholders, the grants of restricted stock will be
as set forth below for 2003.
NEW PLAN BENEFITS
DIRECTOR NAME DOLLAR VALUE OF GRANT NUMBER OF UNITS
------------- --------------------- ---------------
W. Anthony Huffman........................................ $12,500 *
Linda B. Keene............................................ $12,500 *
Donald K. Miller.......................................... $12,500 *
James F. Robeson.......................................... $12,500 *
Thomas C. Sullivan........................................ $12,500 *
Joseph P. Viviano......................................... $12,500 *
Gerald B. Wasserman....................................... $12,500 *
Non-Employee Director Group (7 persons)................... $87,500 *
---------------
* The number of shares of Common Stock included in the awards will be
determined by dividing the fixed dollar amount of each award by the closing
price of Huffy Common Stock on the New York Stock Exchange on the award date.
In 2002, each Director (other than Mr. Wasserman who was not a Director at
the time of grant) received a grant of 1,713 shares of restricted stock.
It is impossible at the present time to indicate specifically the names of
persons to whom future options will be granted, or the aggregate number of
shares, within the limitations of the 1998 Directors Plan, to be covered by such
options. The following table sets forth the number of options to acquire shares
which were received by or allocated to each of the listed Directors in 2002
under the 1998 Directors Plan.
NEW PLAN BENEFITS
SHARES
UNDERLYING
OPTIONS
DIRECTOR NAME GRANTED IN 2002
------------- ---------------
W. Anthony Huffman.......................................... 4,592
Linda B. Keene.............................................. 0
Donald K. Miller............................................ 4,592
James F. Robeson............................................ 4,592
Thomas C. Sullivan.......................................... 4,592
Joseph P. Viviano........................................... 4,592
Gerald B. Wasserman......................................... 0
All Directors who are not employees as a group.............. 22,960
THE 1998 KEY EMPLOYEE PLAN
The 1998 Key Employee Plan provides a means for key employees to receive
options to acquire shares of the Company's Common Stock and stock appreciation
rights, and an opportunity to subscribe for shares of Common Stock subject to
certain restrictions. Its stated purpose is to provide an additional incentive
to Officers and Directors who are employees of the Company and its subsidiaries
to increase shareholder value and to remain in the employ of the Company or its
subsidiaries.
23
The Board of Directors may alter or amend the 1998 Key Employee Plan at any
time prior to its termination, except that the Board may not, without the
approval of the Shareholders, increase the aggregate number of shares of Common
Stock which may be issued, reduce the prices at which options or stock
appreciation rights may be exercised, extend the time within which options or
stock appreciation rights may be granted or exercised, reprice options, extend
the time within which restricted shares may be offered, permit any person while
a member of the Committee to be eligible to participate, alter or affect to the
detriment of an optionee any option or stock appreciation right previously
granted without the consent of such optionee, or alter or affect to the
detriment of a subscriber any subscription for restricted shares without the
consent of such subscriber.
Any full-time salaried employee of the Company or a subsidiary who is also
an Officer and may or may not be a member of the Board of Directors, or a key
employee will be eligible to participate in the 1998 Key Employee Plan. At the
present time, the number of employees who may participate in the 1998 Key
Employee Plan is unknown. The Committee will designate the employees to whom
options and/or stock appreciation rights will be granted or to whom restricted
shares will be offered. The Chief Executive Officer of the Company, subject to
limitations, also may grant non-qualified options to employees, but not
Officers, of the Company. Such grants will be subject to the same terms and
conditions of the 1998 Key Employee Plan as grants made by the Committee.
Options granted under the 1998 Key Employee Plan to a key employee may be
either non-qualified stock options or incentive stock options, or both, as
described below. To date, no incentive stock options or stock appreciation
rights have been granted under such plan.
The number of shares of Common Stock that may be subject to options granted
to an employee during any calendar year may not exceed 25% of the total number
of shares that may be issued under the 1998 Key Employee Plan. Shares covered by
an option which is no longer exercisable with respect to such shares or
restricted shares which are forfeited will again be available for offering under
the 1998 Key Employee Plan. If an option is surrendered in connection with the
exercise of a stock appreciation right, the number of shares covered by such
option less the number of shares issued in connection with the exercise of the
stock appreciation right will again be available for offering.
The purchase price of Common Stock covered by an incentive stock option may
not be less than 100% of the fair market value of such Common Stock on the date
of grant of such option. The purchase price of Common Stock covered by any other
option is determined by the Committee; provided, however, that the purchase
price may not be less than $1.00 per share. Options may be exercised by payment
to the Company of the purchase price in cash or in Common Stock of the Company
already owned by the optionee or, subject to applicable Company policy, the
withholding of Common Stock to be issued to optionee or any combination thereof.
No option may be exercised until six months following the date upon which it was
granted or after ten years from such date.
In the event of a change-in-control of the Company, all outstanding options
will become immediately and fully exercisable. Any outstanding option of an
optionee whose employment is terminated, except by the Company for cause, within
24 months after a change-in-control will remain exercisable for a period of
three months from the date of such termination, but in no event after the
expiration of the exercise period.
The Committee may grant in connection with any option granted under the
1998 Key Employee Plan a stock appreciation right, whereby the option holder may
receive from the Company, upon request and in exchange for the surrender of any
outstanding option, shares of the Common Stock, cash or any combination thereof
having a value equal to the excess of the fair market value of the Common Stock
on the date of the request over the purchase price specified in such option. A
stock appreciation right may be granted only at the time of an option and is
exercisable only if the fair market value of the Common Stock on the date of the
request exceeds the purchase price of such option.
Options granted by the Committee vest, generally, in equal amounts over
three or four years beginning on the first annual anniversary date of the grant.
No stock appreciation right or related stock
24
option may be exercised during the first six months of its term, unless the
death or disability of the optionee occurs during this period, or after ten
years from the date of grant. Upon surrender of an option in exercise of stock
appreciation rights, such option will expire. The Committee's disapproval of a
request will not affect the optionee's right to exercise the stock appreciation
right at a later date or to exercise any option granted under the 1998 Key
Employee Plan.
An option or stock appreciation right may be transferred only by will or
the laws of descent and distribution or by gift to certain family members.
During the lifetime of an employee, only the employee, his representatives, or
his permitted assigns may exercise any option or stock appreciation right.
Options or stock appreciation rights may be exercised only while the option
holder is an employee during a period of continuous employment with the Company
or a subsidiary from the date of grant and may not be exercised at any time
after termination of employment except as follows: (1) upon the termination of
employment for disability or upon retirement under any pension plan for salaried
employees, a former employee may exercise all or any part of his non-qualified
options until five years after such termination or retirement, whichever occurs
first, and he may exercise all or any part of his incentive stock options or
stock appreciation rights for a period of three months following such
termination or retirement; (2) upon termination following the disposition of a
business, a former employee may exercise all or any part of his exercisable
non-qualified options, incentive stock options, or stock appreciation rights
until three months after such termination; (3) at the discretion of the Company,
upon severance of an employee, such former employee may exercise his
non-qualified options for a period to be negotiated, not to exceed the severance
pay period, provided the former employee has executed a release and waiver; and
(4) upon the death of any employee, retired employee, or employee whose services
were terminated due to disability, his representatives may exercise his options
or stock appreciation rights for a period of six months following the date of
death. Notwithstanding the foregoing, in no event shall an option be exercised
if the former employee engages or participates in any business which competes
against any of the businesses engaged in by the Company.
The 1998 Key Employee Plan gives key employees selected by the Committee an
opportunity to subscribe for restricted shares. Such shares will be restricted
as to transferability for a period of time, not to exceed ten years, as
determined by the Committee. The purchase price of the restricted shares will be
determined by the Committee; provided, however, that in no event will the price
be less than $1.00 per share. The purchase price must be paid in full by the
subscriber on or before ten years from the date of the subscription by setting
off against such purchase price 100% of the cash dividends payable with respect
to the restricted shares plus such portion of all profit sharing or other
bonuses to which the subscriber becomes entitled as provided by the Committee
and in cash. No certificates for restricted shares will be executed and
delivered until such shares are fully paid. To date, no restricted shares have
been granted under such plan and none are currently planned. Restricted shares
granted may not exceed fifty percent (50%) of the number of shares by which the
Plans are increased upon approval of this proposal.
Except for restrictions on transfer, an employee who subscribes for
restricted shares will have all of the rights of a shareholder of the Company,
including the right to vote the restricted shares and the right to receive
dividends, subject to provisions of the subscription agreement.
In the event a subscriber ceases to be an employee of the Company or a
subsidiary during the restricted period for any reason other than death,
disability, retirement under any pension plan, or termination by the Company
other than for cause within 24 months of a change-in-control, all restricted
shares will be forfeited to the Company. However, if the termination is by
action of the Company, the Committee may determine that some or all of the
restricted shares will be free of restrictions and not forfeited. If a
subscriber ceases to be an employee by reason of death, disability, retirement
under any pension plan, or within 24 months after a change-in-control, the
restrictions will terminate. The Committee may at any time accelerate or waive
all or any portion of the restrictions in respect of the restricted shares.
25
Upon termination of employment for any reason, including death or
retirement, the employee or his representative may elect to pay the purchase
price due on any portion of the restricted shares which are freed of
restrictions and not forfeited within three months after the happening of such
event. If such payment is not made, the Company will treat the failure as a
default in payment, whereby the Company will release the shares from
subscription and treat as retired the shares subject to the subscription which
have not been fully paid.
It is impossible at the present time to indicate specifically the names of
persons to whom future options, stock appreciation rights, or restricted shares
will be granted, or the aggregate number of shares, within the limitations of
the 1998 Key Employee Plan, to be covered by such grants. The following table
sets forth the options granted in 2002 under the 1998 Key Employee Plan to the
Named Executive Officers, to all Executive Officers as a group, to non-officer
employees as a group and to all employees.
NEW PLAN BENEFITS
SHARES
UNDERLYING
OPTIONS
NAME GRANTED IN 2002
---- ---------------
Don R. Graber............................................... 100,000
Robert W. Lafferty.......................................... 36,000
Nancy A. Michaud............................................ 47,000
Timothy G. Howard........................................... 20,000
Executive Officers as a group............................... 203,000
Non-Officer employees as a group............................ 0
Total for all employees..................................... 203,000
THE 1998 RESTRICTED SHARE PLAN
The 1998 Restricted Share Plan replaced a portion of the cash retirement
benefits owed to key management employees under the Benefit Plan with the
Company's Common Stock granted as restricted shares. As indicated above, the
Board has eliminated future restricted share grants under the 1998 Restricted
Plan, effective January 1, 2003. Despite the elimination of future grants, an
amendment to the 1998 Restricted Share Plan is required in that, as described
above, each of the Plans utilize a single pool of available shares. As to
restricted shares previously granted under the 1998 Restricted Plan, such shares
directly reduced and replaced a portion of the cash amount of supplemental
retirement benefits owed to participants under the Benefit Plan. The Company is
able to take a tax deduction for the value of the Restricted Shares awarded
under the 1998 Restricted Share Plan upon the vesting of such shares.
The Board of Directors may alter or amend the 1998 Restricted Share Plan at
any time prior to its termination, except that the Board may not, without the
approval of the Shareholders, increase the aggregate number of shares of Common
Stock which may be issued. Further, the Board of Directors may not alter or
affect to the detriment of any recipient any outstanding restricted shares
granted pursuant to the 1998 Restricted Share Plan without the consent of such
recipient.
Any Senior Executive Participant in the Benefit Plan was eligible to
receive a grant of restricted shares under the 1998 Restricted Share Plan. This
class of participants includes approximately seven persons.
Each recipient was entitled to an annual grant of restricted shares in an
amount having a fair market value equal to one-half of the total dollar amount
of such recipient's accrued benefit under the Benefit Plan as determined by the
Company's actuary. The Committee could approve additional grants in its
discretion.
26
Until vested, restricted shares may not be transferred or encumbered
without the consent of the Committee. Subject to other provisions of the 1998
Restricted Share Plan and any agreement for restricted shares, each grant of
restricted shares will vest upon the earliest of the following dates: (1) the
date of the recipient's death, (2) the date on which the Committee determines
that the recipient is disabled, (3) the date on which the recipient becomes
vested in his benefit under the Benefit Plan, (4) the closing date of a
change-in-control, or (5) the date on which the recipient becomes eligible to
commence retirement benefits under any salaried retirement plan.
Except for restrictions on transfer, an employee who receives restricted
shares has all of the rights of a Shareholder of the Company, including the
right to vote the restricted shares and the right to receive dividends, subject
to provisions of the 1998 Restricted Share Plan and any grant agreement.
In the event a recipient ceases to be an employee of the Company or a
subsidiary prior to the vesting of any restricted shares, all restricted shares
which are not vested will be forfeited to the Company. However, if the
termination is by action of the Company, the Committee may determine that some
or all of the restricted shares not yet vested will not be forfeited. If
restricted shares granted under the 1998 Restricted Share Plan are later
forfeited, such restricted shares will again be available for offering under the
1998 Restricted Share Plan.
At the present time, future grants have been eliminated and the program has
been curtailed.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL TO AMEND
ARTICLES OF INCORPORATION
TO ELIMINATE CUMULATIVE VOTING
INTRODUCTION
The Board of Directors has unanimously approved and recommended that the
shareholders adopt an amendment to the Company's Articles of Incorporation to
eliminate cumulative voting in the election of directors. Under this proposal,
the following new provision would be added to the Articles of Incorporation:
ARTICLE EIGHTH: No holder of shares of the Corporation shall be entitled
to vote cumulatively in the election of directors of the Corporation.
BACKGROUND
The Company's Articles of Incorporation are presently silent on the issue
of cumulative voting, and under Ohio corporate law cumulative voting is
available unless affirmatively eliminated by a provision in the Articles. In
practice, the Company's shareholders have not chosen to invoke cumulative voting
at any time since 1928, if ever, to the knowledge of the Company's current
management.
In an election of directors in which cumulative voting has been invoked by
the shareholders, each share has a number of votes equal to the number of
directors to be elected, and each shareholder may allocate his or her cumulative
votes among as many candidates and in such proportions as the shareholder
chooses. In the absence of cumulative voting, a shareholder's votes are spread
equally among all candidates for whom the shareholder votes. Thus, under
cumulative voting minority shareholders may concentrate all of their votes on
one candidate and could elect one or more candidates to the Board who might not
otherwise have received enough votes to be elected. Without cumulative voting,
the holders of a majority of shares have the power to elect the entire Board of
Directors.
If the proposal to eliminate cumulative voting is approved, the ability of
an organized block of minority shareholders to elect a representative to the
Board of Directors without the cooperation of shareholders owning a majority of
the voting shares would be greatly reduced or eliminated. Under some
circumstances the elimination of cumulative voting could have an anti-takeover
effect by making it
27
more difficult for a hostile potential acquiror holding a minority block of
shares from obtaining a foothold on the Board. Under other circumstances,
however, the existence of cumulative voting can have an anti-takeover effect by
making it more difficult for a hostile potential acquiror who obtains a majority
but not all shares from consolidating control of the Company.
REASONS FOR AMENDMENT
The Board recommends the elimination of cumulative voting because one of
the principal results of cumulative voting is to make it more likely that an
individual or group of individuals, owning less than a plurality of the
Company's voting stock, could obtain representation on the Board. Such an
individual or group may have interests and goals inconsistent with, or even
actively conflicting with, the best interests of a majority of the shareholders.
The Company's Board of Directors believes that each director should represent
the interests of all shareholders rather than the narrow interests of any
special constituency. The proposal eliminates the possession of rights by
shareholders that are disproportionate to their respective share holdings.
While the elimination of cumulative voting may impact the voting rights of
certain minority shareholders, cumulative voting creates an administrative
expense and burden to administer for the Company. Further, the Company's
shareholders, as a matter of practice, do not exercise the right of cumulative
voting in the election of the Directors.
VOTE REQUIRED
The affirmative vote of the holders of at least a majority of the Company's
outstanding Common Stock is required for the adoption of this proposal. Proxies
received in response to this solicitation will be voted in favor of the proposal
unless the shareholder otherwise instructs.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has appointed the firm of
KPMG LLP as independent public accountants for the Company for calendar year
2003, subject to ratification by the Shareholders and any future contingencies
that may require reconsideration. The firm of KPMG LLP has served as independent
public accountants for the Company since 1962. The Board of Directors recommends
ratification of this appointment although it is not required by law. One or more
members of KPMG LLP will attend the Annual Meeting with an opportunity to make a
statement if they desire to do so and to respond to such appropriate questions
as may be asked by Shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL. The proposal
to ratify the appointment of KPMG LLP requires the affirmative vote of the
holders of the majority of the shares of Common Stock present in person or
represented by proxy at the meeting. Abstentions and shares not voted by brokers
and other entities holding shares on behalf of beneficial owners will have the
same effect as votes cast against the resolution, provided such shares are
properly present at the meeting in person or by proxy.
AUDIT FEES
The aggregate fees billed for professional services rendered by KPMG LLP
for its audit of the Company's annual financial statements for the year ended
December 31, 2002 and for its reviews of unaudited quarterly financial
statements contained in the reports on Form 10-Q filed by the Company during the
year amounted to $790,814.
28
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
KPMG LLP did not provide any financial systems design or implementation
during the year.
ALL OTHER FEES
The aggregate fees billed for all services rendered by KPMG LLP other than
the Audit Fees described above, during the year ended December 31, 2002 amounted
to $396,418. The Company's Audit Committee did consider whether KPMG's provision
of such non-audit-related services was compatible with maintaining the
independence of KPMG LLP and concluded that it was compatible with maintaining
such independence.
OTHER MATTERS
Proposals of Shareholders intended to be presented at the 2004 Annual
Meeting of Shareholders must be received by the Company by November 6, 2003 for
inclusion in the Company's Proxy Statement and proxy relating to the 2004 Annual
Meeting of Shareholders.
The Company may use its discretion in voting proxies with respect to
shareholder proposals not included in the Proxy Statement for the fiscal year
ended December 31, 2003, unless the Company receives notice of such proposals
prior to January 20, 2004.
The Board of Directors does not intend to present to the meeting any
matters other than those mentioned herein. It does not know of anything that
will be presented by other parties, other than those mentioned herein.
However, if any other matters shall properly come before the meeting, it is
the intention of the persons named in the enclosed form of proxy to vote thereon
according to their discretion and best judgment.
By order of the Board of Directors
/s/ Nancy A. Michaud
Nancy A. Michaud
Secretary
Dayton, Ohio
March 6, 2003
29
EXHIBIT A
AUDIT COMMITTEE
PURPOSE AND ROLE - The Audit Committee of the Board of Directors assists
the Board in fulfilling its responsibility for oversight of the quality and
integrity of the accounting, auditing and reporting practices of the Corporation
and such other duties as directed by the Board. The membership of the Committee
shall consist of at least three directors who are (or will become within a
reasonable period of time) financially literate, as such is determined by the
Board of Directors, in its business judgment, with at least one such member
being an "audit committee financial expert" as defined by the Securities and
Exchange Commission ("SEC") as the Board of Directors interprets such
qualification in its business judgment. Each member shall be free of any
relationship that would interfere with his or her individual exercise of
independent judgment. In discharging this oversight role, the Committee is
empowered to investigate any matter brought to its attention, with full power to
retain outside counsel or other experts for this purpose. The Corporation shall
provide funding, as determined by the Audit Committee, for payment of
compensation to the independent accountants for the purpose of issuing an audit
report or to any advisors employed by the Audit Committee.
SCOPE - The Audit Committee serves at the pleasure, and is subject to the
control and direction, of the Board of Directors.
RESPONSIBILITIES - The primary responsibilities of the Audit Committee
include:
(a) Public Accountants.
(i) The Audit Committee shall be directly responsible for the selection,
evaluation and, where appropriate, replacement of public accountants
for the Corporation, and to verify and ensure the independence of
such firm, discussing with the Board of Directors any relationships
that may adversely affect the independence of the auditor. The Audit
Committee is responsible for ensuring that the outside independent
auditor submits on a periodic basis to the Audit Committee a formal
written statement delineating all relationships between the auditors
and the Corporation. The public accountant firm shall report
directly to the Audit Committee.
(A) The Committee shall review and evaluate the lead and concurring
partners of the independent accountants.
(B) The Committee shall ensure the rotation of the lead audit and
concurring partner of the independent accountants as required
by law.
(ii) The Audit Committee shall, prior to the annual audit of the
Corporation or any non-routine audit, meet with the auditors
conducting such audit for the purpose of discussing:
-- The scope of the audit.
-- The extent and sufficiency of internal accounting controls.
-- Coordination with and review of internal auditing work of the
Corporation.
-- The cost of the audit.
(iii) The Audit Committee shall have the authority to instruct the
auditors to expand the extent of their audit or to specify
particular areas for examination by the auditors.
(iv) Prior to the release of the financial statements contained in the
quarterly Form 10-Q, such statements will be reviewed with the
Chairman of the Audit Committee and other members of the Committee
will be notified in advance of the review date and time so as to be
afforded the opportunity to participate in such review. In addition,
the Audit Committee Chairman and, to
A-1
the extent the Committee deems necessary or appropriate, the Audit
Committee shall review and discuss quarterly reports from the
independent accountants on:
(A) All critical accounting policies and practices to be used.
(B) All alternative treatments of financial information within
generally accepted accounting principles that have been
discussed with management, ramifications of the use of such
alternative disclosures and treatments, and the treatment
preferred by the independent accountants.
(C) Other material written communications between the independent
accountants and management, such as any management letter or
schedule of unadjusted differences.
(v) Following completion of the annual audit, the Audit Committee shall
meet with the auditors to review the audit and their report thereon.
(vi) The Audit Committee shall also, following completion of the audit,
review the auditors' evaluation of:
-- The quality and adequacy of the accounting financial and internal
audit policies and procedures of the Corporation.
-- The overall internal controls of the Corporation.
-- The impact of opinions of the Financial Accounting Standards
Board, releases of the SEC, regulations of the New York Stock
Exchange, changes in the tax laws and any other pertinent laws or
regulations that could have an impact upon the Corporation's
financial condition and statements.
-- The adequacy of management disclosure of financial information
to the Directors.
(vii) The Audit Committee shall preapprove all auditing services and
permitted non-audit services (including the fees and terms thereof)
to be performed for the Corporation by its independent accountants,
subject to those exceptions for non-audit services permitted by law
including those described in Section 10A(i)(1)(B) of the Securities
and Exchange Act of 1934 (the "Exchange Act"), as amended from time
to time (a copy of this Section has been provided to the Audit
Committee), which are approved by the Audit Committee prior to the
completion of the audit.
(viii) The Audit Committee may form and delegate authority to subcommittees
consisting of one or more members, when appropriate, including the
authority to grant preapprovals of audit and permitted non-audit
services, provided that decisions of such subcommittee to grant
preapprovals shall be presented to the full Audit Committee at its
next scheduled meeting.
(b) Internal Auditors.
As used in this charter, "Internal Auditors" means the Corporation's
internal audit department or the external audit firm hired to fulfill the
internal audit function.
(i) The Audit Committee shall meet, at each of its regularly scheduled
meetings, with the Manager of Internal Audit to review the internal
audit program of the Corporation. As used in this charter, "Manager
of Internal Audit" means the manager of the Corporation's internal
audit department or the manager of an external audit firm hired to
fulfill the internal audit function
(ii) The Audit Committee shall receive periodic reports on such program,
including information on audits completed and in progress, and
audits added to or deleted from the program. Such reports shall
include a discussion of any major findings disclosed during the
course of such audits.
A-2
(c) The Committee will ensure both the public accountants and the internal
auditors will have direct access to members of the Audit Committee.
(d) The Committee will review the Certification of the Chief Financial
Officer and Chief Accounting Officer in connection with the filing of the
Corporation's annual Form 10-K Report and quarterly Form 10-Q Reports.
(e) The Committee shall report to the Board of Directors on the auditors'
findings and shall make such recommendations to the Board of Directors on audit
matters or procedures, as it may deem appropriate.
(f) The Audit Committee shall review this charter annually.
(g) The Audit Committee shall perform such other functions as are
prescribed by law.
COMPLIANCE OVERSIGHT RESPONSIBILITIES - The Audit Committee, to the extent
it deems necessary or appropriate, shall:
(a) Obtain from the independent accountants assurance that Section 10A(b)
of the Exchange Act regarding discovery of illegal or improper acts (a copy of
which has been provided to the Audit Committee) has not been implicated.
(b) Obtain reports from management and the independent accountants that the
Corporation and its subsidiaries are in conformity with applicable legal
requirements and the Corporation's Standards of Ethics and Behavior, including
any separate policy applying to Officers and Company Presidents. Review reports
and disclosure of insider and affiliated party transactions. Advise the Board
with respect to the Corporation's policies and procedures reports regarding
compliance with applicable laws and regulations and with the Corporation's
Standards of Ethics and Behavior.
(c) Establish procedures for the receipt, retention and treatment of
complaints received by the Corporation regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
(d) Discuss with management and the independent accountants any
correspondence with regulators or governmental agencies and any published
reports which raise material issues regarding the Corporation's financial
statements or accounting policies.
(e) Discuss with the Corporation's Vice President - General Counsel and
Secretary legal matters that may have a material impact on the financial
statements or the Corporation's compliance policies.
QUORUM/ATTENDEES - The Audit Committee will be comprised of not less than
three Directors (all of whom shall be Independent Directors) to be nominated by
the Nominating and Governance Committee and approved by the Board of Directors
for appointment in April of each year, and other times when necessary to fill
vacancies. The members of the Audit Committee shall meet the independence and
experience requirements of the New York Stock Exchange, Section 10A(m)(3) of the
Exchange Act, as amended from time to time (a copy of which has been provided to
the Audit Committee), and the rules and regulations of the SEC as may be amended
from time to time. At least one member of the Audit Committee shall be an audit
committee financial expert as defined by the SEC. Audit Committee members shall
not simultaneously serve on the audit committee of more than two other publicly
traded companies.
The membership of the Audit Committee shall be in full compliance with the
requirements of the New York Stock Exchange and other applicable laws, rules or
regulations or bodies having authority over such matters. One of such Directors
will be designated as Chairman of the Audit Committee. The duties and
responsibilities of a member of the Audit Committee are in addition to those for
a member of the Board of Directors. A majority of the duly appointed and
qualified members of the Audit Committee shall constitute a quorum for the
transaction of business.
A-3
MEETINGS - The Audit Committee shall meet as often as it determines, but
not less frequently than quarterly. The Audit Committee shall meet periodically
with Management, the internal auditors and the independent accountants in
separate executive sessions. The Audit Committee may request any officer or
employee of the Corporation or the Corporation's outside counsel or independent
auditor to attend a meeting of the Committee or to meet with any members of, or
consultants to, the Committee.
LIMITATION OF AUDIT COMMITTEE'S ROLE - While the Audit Committee has the
responsibility and powers set forth in this Charter, it is not the duty of the
Audit Committee to plan or conduct audits or to determine that the Corporation's
financial statements and disclosures are complete and accurate and are in
accordance with generally accepted accounting principles and applicable rules
and regulations. These are the responsibilities of management and the
independent accountants of the Corporation.
All members of the Committee will receive a copy of the minutes of each
meeting of the Audit Committee following such meeting.
A-4
HUFFY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [ ]
-------------------------------
-------------------------------
Control Number
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR WITHHELD FOR ALL
FOR THE FOLLOWING: All All Except
Will Attend Annual Meeting [ ]
Please indicate number 1. Election of Directors: [ ] [ ] [ ]
attending: ______ Nominee for a 1 year term: (01) Donald K.
Change of Address [ ] Miller
Mark here for address change Nominees for 2 year terms: (02) W. Anthony
and revise pre-printed address Huffman, (03) Joseph P. Viviano, (04) Gerald
B. Wasserman
----------------------------------------------
(Except nominees written above)
For Against Abstain
2. Amendment to the 1998 Key Employee Stock [ ] [ ] [ ]
Plan, the 1998 Director Stock Incentive Plan
and the 1998 Restricted Share Plan increasing
the number of shares available for grant of
options thereunder.
For Against Abstain
3. Amendment to the Articles of Incorporation [ ] [ ] [ ]
to eliminate the right to cumulative voting.
4. Ratification of appointment of KPMG LLP as For Against Abstain
independent public accountants for 2003. [ ] [ ] [ ]
Signature(s)______________________________________Date:_______________,2003
Signature(s)______________________________________Date:_______________,2003
IMPORTANT: Please sign and return promptly. Please sign exactly as
name appears. If signing in fiduciary or representative capacity,
please give full title as such. If shares are registered in more than
one name, all holders must sign. If signature is for a corporation,
the handwritten signature and title of an authorized officer is
required, together with the full corporate name.
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-- FOLD AND DETACH HERE --
VOTE BY TELEPHONE OR THE INTERNET 24 HOURS A DAY, 7 DAYS A WEEK
TELEPHONE
Use a touch-tone telephone to vote by phone toll-free. Simply dial
1-866-207-3912 and follow the simple recorded instructions. Have your control
number (located near the top of this form) available when you call.
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card. If you vote your
shares by telephone, there is no need to return your proxy card.
INTERNET
Access the World Wide Web site at HTTP://WWW.EPROXYVOTE.COM/HUF/ to vote via the
Internet. Have your control number (located near the top of this form) available
when you access the web site. If you vote your shares via the Internet, there is
no need to return your proxy card.
MAIL
MARK, SIGN AND DATE your proxy card. Detach your proxy card and return it in the
postage-paid envelope provided.
You can vote by phone or via the Internet anytime prior to 11:59 p.m. on April
23, 2003. You will need the control number printed at the top of this page to
vote by phone or via the Internet. If you do so, you do not need to mail in your
proxy card.
HUFFY CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS APRIL 24, 2003
P
The undersigned hereby appoints Don R. Graber and Thomas C. Sullivan, and
R each of them, his or her proxies, with power of substitution, to vote all
shares of Common Stock of HUFFY CORPORATION, an Ohio corporation, which he
O or she may be entitled to vote at the Annual Meeting of Shareholders of
said Corporation to be held April 24, 2003, and at any adjournment(s)
X thereof, on the following matters, all of which are described in the Proxy
Statement, receipt of which is hereby acknowledged:
Y
ELECTION OF DIRECTORS, NOMINEES
(FOR A TERM OF ONE YEAR) DONALD K. MILLER
(FOR A TERM OF TWO YEARS) W. ANTHONY HUFFMAN, JOSEPH P. VIVIANO, GERALD B.
WASSERMANAN
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL
BE VOTED (A) FOR THE NOMINATED DIRECTORS, (B) FOR THE AMENDMENT OF THE 1998 KEY
EMPLOYEE STOCKPLAN, THE 1998 DIRECTOR STOCK INCENTIVE PLAN AND THE 1998
RESTRICTED SHARE PLAN, (C) FOR THE AMENDMENT TO THE ARTICLES OF INCORPORATION,
AND (D) FOR THE APPOINTMENT OF AUDITORS. EXCEPT FOR THE MATTERS LISTED ON THE
REVERSE SIDE OF THIS CARD, THE BOARD OF DIRECTORS AT PRESENT KNOWS OF NO
BUSINESS OTHER THAN OF A ROUTINE NATURE TO BE BROUGHT BEFORE THE MEETING. IF ANY
OTHER BUSINESS IS BROUGHT BEFORE THE MEETING, THIS PROXY WILL BE VOTED ACCORDING
TO APPOINTED PROXIES' DISCRETION AND BEST JUDGMENT. IF CUMULATIVE VOTING IS
ELECTED FOR ELECTION OF DIRECTORS, VOTES CAST PURSUANT TO THIS PROXY WILL BE
DISTRIBUTED TO THE ABOVE NOMINEES, AT THE DISCRETION OF SAID PROXIES.
SEE REVERSE
SIDE
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HUFFY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
ADMISSION TICKET
April 24, 2003, 10:00 a.m.
York Halls Ballroom
Holiday Inn Toronto Yorkdale
3450 Dufferin Street
Toronto, Ontario, Canada
Directions:
WESTBOUND: HWY. 401 - exit Allen Rd. Take Yorkdale [MAP]
Rd. N. Follow along north side of Yorkdale
Shopping Centre. Cross Dufferin St. at the lights
to Bridgeland Ave., turn left into driveway.
EASTBOUND: HWY. 401 - exit Dufferin St. S. Turn
right into Plaza Pontiac car dealership.
If you plan to attend the meeting, please check the box and indicate the number
attending on the reverse side of the proxy form. Please detach this card and
bring it with you to the meeting for presentation at the meeting.