SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
HUFFY CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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[HUFFY CORPORATION LOGO]
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 22, 2004
To our Shareholders:
It is a pleasure to invite you to attend your Company's 2004 Annual Meeting
of Shareholders which will be held this year on Thursday, April 22, 2004, at
10:00 a.m., Eastern Daylight Time, in the Frederick C. Smith Auditorium at
Sinclair Community College, 444 West Third Street, Dayton, Ohio.
I hope you will be able to join us. 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 22, 2004
The Annual Meeting of Shareholders of Huffy Corporation (the "Company"), an
Ohio corporation, will be held in the Frederick C. Smith Auditorium at Sinclair
Community College, 444 West Third Street, Dayton, Ohio 45402 on Thursday, April
22, 2004, 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 two
Directors 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 and/or
restricted shares under the plans;
3. To ratify the appointment of KPMG LLP as independent public accountants
for 2004; and
4. 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 26, 2004 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 12, 2004
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 the proxy card enclosed with the Proxy Statement in hand.
- On a touch-tone telephone, call TOLL-FREE 1-866-207-3912, 24 hours a day,
7 days a week.
- Follow the recorded instructions.
TO VOTE VIA INTERNET:
- Have the proxy card enclosed with the Proxy Statement in hand.
- Go to HTTP://WWW.EPROXYVOTE.COM/HUF/.
- 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 22, 2004
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March 12, 2004
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 22, 2004, and any
adjournment(s) of such meeting. This Proxy Statement and the accompanying proxy
card were first mailed to Shareholders on or about March 12, 2004. 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 $6,000.
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 16,037,799 shares
issued and outstanding as of February 26, 2004, 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 Paul R. D'Aloia, James
F. Robeson and Thomas C. Sullivan for two year terms expiring in the year 2006
and for the election of Don R. Graber and Donald K. Miller for one year terms
expiring in 2005; (2) in favor of the amendment of the 1998 Key Employee Stock
Plan, the 1998 Director Stock Incentive Plan, and the 1998 Restricted Share
Plan; (3) in favor of ratification of the appointment of KPMG LLP as independent
public accountants for the Company for 2004; and (4) 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.
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ELECTION OF DIRECTORS
The Company's Board of Directors is currently comprised of nine (9)
Directors and is divided into two (2) classes. Ms. Linda B. Keene, who has
served as a Director since 1993, is retiring as a Director at the 2004 Annual
Meeting of Shareholders in accordance with the Company's Director retirement
policy. The Company wishes to express its appreciation to Ms. Keene for her many
years of valuable service. In accordance with the Company's Code of Regulations,
the Board of Directors has set the total number of Directors of the Board,
effective as of the 2004 Annual Meeting of Shareholders, at eight.
The Board of Directors of the Company recommends that two Directors be
elected for a one-year term expiring in 2005 and three Directors be elected for
two-year terms expiring in 2006. James F. Robeson and Thomas C. Sullivan, whose
terms expire in 2004, and Paul R. D'Aloia, who was appointed a Director in
October 2003, 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 2006. Don R. Graber and
Donald K. Miller, whose terms expire in 2004, 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 one-year terms
expiring in 2005.
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 two nominees
receiving the greatest number of votes for the terms expiring in 2005 shall be
elected as Directors and the three nominees receiving the greatest number of
votes for the terms expiring in 2006 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.
As provided in the Company's Corporate Governance Guidelines, a majority of
the Directors are independent. No Director is deemed independent unless the
Board affirmatively determines that the Director has no material relationship
with the Company, directly or as an officer, shareholder or partner of an
organization that has a material relationship with the Company. The Board will
observe all additional criteria for independence established by the New York
Stock Exchange or other governing laws and regulations. Annually, Directors
certify to the Chairman of the Audit Committee that no conflict of interest
exists. The Board has determined that all non-employee Directors (other than Mr.
Graber) meet these standards.
Recently adopted Securities and Exchange Commission rules and regulations
require disclosure of the process by which shareholders may forward
communications to the Board of Directors. The Company, several years ago,
established a toll-free telephone number through which employees and others
could report to the Company's Standards of Ethics and Behavior Committee. The
Board of Directors has determined that any shareholder may address
communications to the Board by submitting such communications to the toll-free
number at 1-800-486-2264 (Standards of Ethics & Behavior) or by
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written communication addressed to the Company in care of the Secretary. All
such transmissions are communicated to the Audit Committee and the Board of
Directors.
The Company strongly encourages and recommends that each of the Directors
and Nominees attend the Company's Annual Meeting of Shareholders. Although not
required by law, all of the Company's Directors and Nominees for director
attended the 2003 Annual Meeting of Shareholders.
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
----------------------------- --- ---------
NOMINEES FOR TERMS EXPIRING IN 2005
Don R. Graber, Chairman of the Board since 1997; prior 60 1996
thereto Chairman of the Board and Chief Executive Officer of
the Company from August 2003 to January 2004; prior thereto
Chairman of the Board, President and Chief Executive Officer
from 1997 to August 2003; prior thereto President and Chief
Operating Officer of the Company since 1996(2)
Donald K. Miller, Chairman of Axiom International Investors 72 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(3)
NOMINEES FOR TERMS EXPIRING IN 2006
Paul R. D'Aloia, Chief Executive Officer and President of 45 2003
the Company since January 2004; prior thereto President and
Chief Operating Officer of the Company since August 2003;
prior thereto Group President and General Manager of Huffy
Sports Group from September 2002 to August 2003; and
President and General Manager of Huffy Bicycle Company from
2001 to 2003; prior thereto President and General Manager of
Huffy Service Solutions, Inc. from 1999 to 2001; prior
thereto President and General Manager of Huffy Sports
Company from 1997 to 1999
James F. Robeson, Consultant to various distribution 67 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(4)
Thomas C. Sullivan, Chairman of RPM International, Inc. 66 1995
(manufacturer of specialty chemicals and coatings) since
1971; prior thereto Chairman and Chief Executive Officer of
RPM International, Inc. from 1971 to 2002(5)
DIRECTORS WHOSE TERMS EXPIRE IN 2005
W. Anthony Huffman, retired from the Company and currently 61 1997
President of Huffman Travel Limited (engaged in travel
services) since 1997
Joseph P. Viviano, Retired Vice Chairman of Hershey Foods 65 1996
Corporation (engaged in the manufacture, distribution and
sale of consumer food products) since 2000; prior thereto
Vice Chairman of such company from 1999 to 2000; prior
thereto President and Chief Operating Officer of such
company since 1994(6)
Gerald B. Wasserman, Retired President, Chief Executive 66 2002
Officer and Chairman of The Hockey Company (engaged in the
manufacture, distribution and sale of hockey equipment,
skates and accessories) since 1996
---------------
(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.
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(2) Mr. Graber is a Director of Precision Castparts Corporation, Amcast
Industrial Corporation and MTC Technologies Inc.
(3) Mr. Miller is a Director of Layne Christensen Company and RPM International,
Inc.
(4) Mr. Robeson is a Director of Moto Photo, Inc.
(5) Mr. Sullivan is a Director of Agilysys, Inc., RPM International, Inc., and
Kaydon Corporation.
(6) Mr. Viviano is a Director of Chesapeake Corporation, Harsco Corporation,
R.J. Reynolds Tobacco Holdings, Inc., and RPM International, Inc.
MEETINGS BY, AND CERTAIN COMMITTEES OF, THE COMPANY'S BOARD OF DIRECTORS
During the year 2003, James F. Robeson (Chairman), Donald K. Miller and
Gerald B. Wasserman 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 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
Board of Directors has determined that each of the members of the Audit
Committee is each an audit committee financial expert as defined by Securities
and Exchange Commission rules and regulations. The current Audit Committee
Charter more fully describing such Committee's function is attached hereto.
During the last fiscal year, the Audit Committee met four times.
In February 2004, each of the members of the Audit Committee, along with
all other members of the Board of Directors of the Corporation, attended a
half-day director education program presented by The Ohio State University
Fisher College of Business entitled "Corporate Governance Reform and the Role of
the Audit Committee".
During the year 2003, 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. The members of the Compensation Committee are
independent, as defined in the New York Stock Exchange's listing standards. The
current Compensation Committee Charter more fully describing such Committee's
function is available at the Company's website, www.huffy.com. During the last
fiscal year, the Compensation Committee met four times.
During the year 2003, 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. This Committee has used both professional consultant services as
well as recommendations from Board members to identify possible candidates.
Shareholders may submit nominee recommendations, 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. As provided in the Company's Corporate
Governance Guidelines, Directors may be nominated by the Board or by a
shareholder in accordance with the Company's Code of Regulations. The Nominating
and Governance Committee will review all nominees for the Board in accordance
with its charter. The assessment will include a review of the nominee's
judgment, experience, independence, understanding of the Company's or other
related industries, and such other factors as the Committee concludes are
pertinent in light of the current needs of the Board. The Board does not believe
that there are any specific minimum qualifications that nominees must meet, but
believes that its membership should reflect a diversity of experience, gender,
race, ethnicity and age. The Committee will select qualified nominees and review
its recommendations with the Board, which will decide whether to invite the
nominee to join the Board. The assessment of potential nominees will be the same
regardless of the party nominating such person. The Committee also conducts the
annual Chief Executive Officer and Board assessments and reviews and assesses
corporate govern-
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ance compliance. The members of the Nominating and Governance Committee are
independent, as defined in the New York Stock Exchange's listing standards. The
current Nominating and Governance Committee Charter more fully describing such
Committee's function is available at the Company's website, www.huffy.com.
During the last fiscal year, the Nominating and Governance Committee met two
times.
In 2003, the independent non-employee Directors met in Director Executive
Sessions at each regularly scheduled Board of Directors meeting. The Committee
Chairmen serve on a rotating basis as the Chair of non-management Director
Executive Sessions. For 2004, Director Executive Sessions are scheduled at each
regular Board of Directors meeting.
During the last fiscal year, the Board of Directors met eight 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
Effective March 1, 2003, the Company's independent non-employee Directors
("Outside Directors") annual base compensation was established at $25,000. Prior
thereto, the Outside Directors' annual base compensation was $22,500. All
Directors received additional compensation of $1,000 per Board meeting attended.
The Chairman of the Audit Committee received additional compensation of $3,000
per year from January 1 through June 30, 2003 which was increased to $6,000 per
year effective July 1, 2003. The Chairmen of 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. 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 annual 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, 2003, and ending April 30, 2004,
Outside Directors have elected not to receive, in the aggregate, $150,000 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.
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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, 2004, 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, 2004.
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2)
--------------------------- ------------
Paul R. D'Aloia............................................. 148,741(3)
Don R. Graber............................................... 387,152(4)
Timothy G. Howard........................................... 108,888(5)
W. Anthony Huffman.......................................... 123,688(6)
Linda B. Keene.............................................. 36,328(7)
Robert W. Lafferty.......................................... 47,988(8)
Nancy A. Michaud............................................ 129,188(9)
Donald K. Miller............................................ 203,316(10)
James F. Robeson............................................ 59,069(11)
Thomas C. Sullivan.......................................... 59,373(12)
Joseph P. Viviano........................................... 82,375(13)
Gerald B. Wasserman......................................... 16,842(14)
All Directors, the Nominees and Executive Officers,
including Named Executive Officers, as a Group (12
persons).................................................. 1,402,948
---------------
(1) All shares are held with sole voting and sole investment power unless
otherwise indicated in the footnotes below.
6
(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 8.3 percent of the issued and outstanding shares of Common
Stock of the Company as of January 2, 2004.
(3) Mr. D'Aloia has shared investment power with respect to 8,202 shares held
by his spouse. The total amount also includes 109,766 shares as to which
Mr. D'Aloia holds options exercisable within 60 days.
(4) Mr. Graber has shared investment power with respect to 3,100 shares held by
his spouse. The total amount also includes 237,500 shares as to which Mr.
Graber holds options exercisable within 60 days.
(5) Mr. Howard has shared investment power with respect to 14,586 shares held
by his spouse. The total amount also includes 73,844 shares as to which Mr.
Howard holds options exercisable within 60 days.
(6) Mr. Huffman has sole voting and sole investment power with respect to
70,059 shares. Mr. Huffman has shared investment power with respect to 975
shares held by his spouse. The total amount also includes 52,654 shares as
to which Mr. Huffman holds options exercisable within 60 days.
(7) 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.
(8) The total amount includes 41,000 shares as to which Mr. Lafferty holds
options exercisable within 60 days.
(9) Ms. Michaud has shared investment power with respect to 2,293 shares held
by her spouse as trustee. The total amount also includes 109,543 shares as
to which Ms. Michaud holds options exercisable within 60 days.
(10) Mr. Miller has sole voting and sole investment power with respect to
174,015 shares. Mr. Miller has shared investment power with respect to
4,475 shares held by his spouse. The total amount also includes 24,826
shares as to which Mr. Miller holds options exercisable within 60 days.
(11) Mr. Robeson has shared investment power with respect to 1,000 shares held
by his spouse. The total amount also includes 29,418 shares as to which Mr.
Robeson holds options exercisable within 60 days.
(12) The total amount includes 48,239 shares as to which Mr. Sullivan holds
options exercisable within 60 days.
(13) Mr. Viviano has shared voting and shared investment power with respect to
500 shares held jointly with his spouse. The total amount also includes
45,891 shares as to which Mr. Viviano holds options exercisable within 60
days.
(14) The total amount includes 7,576 shares as to which Mr. Wasserman holds
options exercisable within 60 days.
7
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)
------------------------------------ -------------------- ----------
Wells Fargo & Company(1).................................... 1,675,368 10.3%
420 Montgomery Street
San Francisco, California 94104
Kenneth J. Finkelstein(2)................................... 1,101,955 7.12%
35 Brandy Court
Don Mills, Ontario M3B 3L3
James J. Salter(3).......................................... 1,101,955 7.12%
135 Forest Hill Road
Toronto, Ontario M4V 2L9
KeyCorp(4).................................................. 961,700 5.95%
127 Public Square
Cleveland, Ohio 44144
Dimensional Fund Advisors Inc.(5)........................... 890,025 5.50%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
---------------
(1) This information is taken from Amendment No. 2 to Schedule 13G, dated
February 12, 2004, filed by Wells Fargo & Company with the Securities and
Exchange Commission, which disclosed Wells Fargo & Company has sole voting
power with respect to 1,648,734 shares, sole investment power with respect
to 1,615,284 shares and shared voting and investment power with respect to 0
shares.
(2) 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. Subsequent to such filing, the Company was advised
113,800 shares were sold.
(3) 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. Subsequent to such filing, the Company was advised 113,800
shares were sold.
(4) This information is taken from Schedule 13G, dated February 13, 2004, filed
by KeyCorp with the Securities and Exchange Commission, which disclosed that
KeyCorp has sole voting and investment power with respect to 958,000 shares
and shared voting and investment power with respect to 3,700 shares.
(5) This information is taken from the Amendment to Schedule 13G, dated February
6, 2004, 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 890,025 shares and shared voting
and investment power with respect to 0 shares.
(6) Except as stated above, percentages listed are those disclosed in the
referenced Schedules 13D and 13G and are not verified by the Company.
8
REPORT OF AUDIT COMMITTEE
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee of the Board ("Audit Committee"), which is composed of
independent non-employee Directors, 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 2003, the
Audit Committee met four 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 2003 the
use of KPMG LLP as the Company's independent auditors. In December 2003, the
Chairman of the Audit Committee, pursuant to his authority as delegated to him
by the Audit Committee, and as subsequently ratified by the Audit Committee,
approved the engagement of Jefferson Wells to provide internal audit functions,
including Sarbanes-Oxley internal controls analysis and documentation, to the
Company. Prior to that time, Deloitte & Touche provided internal audit functions
to the Company during 2003. 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 approval of KPMG LLP is subject to shareholder ratification as described in
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 permitted 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, 2003, 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, 2003, 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
Donald K. Miller, James F. Robeson (Chairman), Gerald B. Wasserman
9
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 independent, 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 in 2003, 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 2003 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 2003) 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.
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. Salary adjustments for
Executive Officers are customarily made at 12 to 18 month intervals. 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
10
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.
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 2003 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, 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 2003, threshold level bonus required corporate performance,
from continuing operations with RONA at 4.3 percent, EPS at $.52, and a Free
Cash Flow goal of $15,403,000. EPS was weighted at 70 percent; RONA and Free
Cash Flow were weighted at 15 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 2003, from continuing operations, the Company reported a RONA of
0.6 percent, an EPS of $(.49), from continuing operations, and a Free Cash Flow
of $(24,698,000). Based on such results, Mr. Graber was not awarded an annual
performance bonus.
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 2003, 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 2003, threshold
awards required an EPS of $1.72, RONA of 13.3 percent, and TSR of 6.8 percent.
For 2003, EPS was $(.49), from continuing operations, RONA was 0.6 percent and
TSR was (8.9) percent. Mr. Graber received no Long-Term Incentive Plan payment
for 2003.
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 2003, no options were awarded to Mr. Graber. As of
January 2, 2004, Mr. Graber beneficially owned 387,152 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 pages 16 and 17 shall not be incorporated by reference into any
such filings.
11
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.
In December 2003, Gen-X Sports Canada, Inc., a subsidiary of the Company,
entered into a supplier agreement with Osgoode Financial, Inc. Osgoode is owned
by James Salter and Kenneth Finkelstein, each of whom are greater than 5%
shareholders of the Company. Pursuant to the supplier agreement, Osgoode agreed
to supply and sell to Gen-X Sports Canada, Inc. certain products. Osgoode will
be paid a fee calculated on the amount of profit generated by Gen-X Sports
Canada, Inc. from its sale of goods to its customers. As of February 1, 2004, no
payments have been made. As of the date of this Proxy Statement, the parties are
unable to estimate whether payments to be made under the agreement will exceed
$60,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and ten percent beneficial owners of Common Stock
to file reports of ownership and changes of ownership of the Company's Common
Stock with the Securities and Exchange Commission. The Company believes that
during 2003 all filing requirements applicable to its directors, executive
officers and ten percent beneficial owners were met, except for one Form 4
report which was inadvertently not timely filed (10 days delay) by Mr. D'Aloia.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for 2003 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.
12
EXECUTIVE COMPENSATION
SUMMARY OF CASH COMPENSATION AND CERTAIN OTHER INFORMATION
The following table shows, for the fiscal years ended December 31, 2001,
2002 and 2003, 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, Chairman and Chief Executive Officer (during
2003) 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)(4) SARS(4) PAYOUTS(5) SATION(6)
------------------ ---- ---------- --------- --------- -------------- -------- ----------- ---------
Paul R. D'Aloia(7).......... 2003 $ 316,346 $ 0 $ 0 $180,900 30,000 $ 0 $ 45,266
Chief Executive Officer 2002 $ 286,154 $ 330,000 $ 0 $ 21,542 55,000 $ 0 $ 11,167
and President 2001 $ 259,065 $ 274,000 $ 0 $ 8,119 50,000 $ 0 $ 13,602
Don R. Graber(7)............ 2003 $ 620,000 $ 0 $ 0 $ 0 0 $ 0 $195,342
Chairman of the Board 2002 $ 620,000 $ 252,883 $ 0 $174,069 100,000 $ 0 $ 19,567
2001 $ 593,097 $ 173,350 $ 0 $ 80,118 75,000 $ 0 $ 29,992
Robert W. Lafferty(8)....... 2003 $ 290,000 $ 0 $ 0 $ 0 0 $ 0 $ 11,200
Vice President-Finance, 2002 $ 282,500 $ 71,905 $ 0 $ 20,345 36,000 $ 0 $ 9,967
Chief Financial Officer 2001 $ 272,691 $ 33,550 $ 147,730 $ 11,762 30,000 $ 0 $ 12,600
and Treasurer
Nancy A. Michaud............ 2003 $ 247,154 $ 0 $ 0 $ 0 0 $ 0 $ 31,602
Vice President-General 2002 $ 233,692 $ 60,993 $ 0 $ 23,886 47,000 $ 0 $ 9,597
Counsel and Secretary 2001 $ 216,538 $ 28,075 $ 0 $ 12,594 40,000 $ 0 $ 11,159
Timothy G. Howard........... 2003 $ 201,788 $ 0 $ 23,660 $ 0 0 $ 0 $ 10,718
Vice President- 2002 $ 196,000 $ 48,795 $ 0 $ 36,318 20,000 $ 0 $ 9,502
Controller 2001 $ 189,606 $ 23,925 $ 0 $ 21,330 10,000 $ 0 $ 10,724
---------------
(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.
(2) Except for Mr. Howard, no perquisites were provided or other personal
benefits paid to a Named Executive Officer in 2003 which exceeded the lesser
of $50,000 or ten percent of the total annual salary and bonus reported for
such Named Executive Officer. "Other Annual Compensation" for Mr. Howard
includes a car allowance of $9,600 and financial planning and tax services
of $9,458.
(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 provided that each recipient was 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. In 2003, the Board of Directors eliminated future grants
in restricted shares using cash in lieu thereof under the 1998 Restricted
Share Plan. Cash payments for 2003 are included under "All Other
Compensation." See also the discussion on page 28.
(4) The grant of restricted shares to Mr. D'Aloia in 2003 was made pursuant to
the Company's 1998 Key Employee Stock Plan and was in connection with his
election as and promotion to President and Chief Operating Officer of the
Company. These shares vest subject to achievement of annual performance
goals over four years and have a value at December 31, 2003 of $157,500.
Options were granted for shares of the Company's Common Stock 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."
13
(6) "All Other Compensation" includes (i) Company contributions to the Company's
401(k) Savings Plan in the amount of $4,000 for Paul R. D'Aloia, Don R.
Graber, Robert W. Lafferty, Nancy A. Michaud and Timothy G. Howard to match
2003 pre-tax elective deferral contributions (included under "Salary" and
"Bonus") made by each Named Executive Officer to such plan; (ii) accrued
interest of $876 and $1,718 (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); (iii) the principal amounts
of $12,900, $17,500, $7,200, $6,200, and $5,000 credited by the Company for
Paul R. D'Aloia, 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; and (iv)
cash retirement benefits paid under the 1998 Restricted Share Plan described
above in the amounts of $28,366, $173,842, $0, $20,526 and $0 for Mr.
D'Aloia, Mr. Graber, Mr. Lafferty, Ms. Michaud and Mr. Howard, respectively.
(7) Mr. D'Aloia was elected President and Chief Operating Officer on August 21,
2003. Mr. D'Aloia was subsequently elected Chief Executive Officer and
President on January 7, 2004. Mr. Graber retired as Chief Executive Officer
of the Corporation on January 7, 2004 and as an employee of the Corporation
on January 31, 2004.
(8) 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, 2003, 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%
---- ------------ ---------- ----------- ---------- --- -------- ----------
Paul R. D'Aloia............ 30,000 8.85% $5.98 10/21/13 0 $112,824 $ 285,917
Don R. Graber.............. 0 0% -- -- -- -- --
Robert W. Lafferty......... 0 0% -- -- -- -- --
Nancy A. Michaud........... 0 0% -- -- -- -- --
Timothy G. Howard.......... 0 0% -- -- -- -- --
---------------
(1) The options were granted pursuant to the Company's 1998 Plan. All options
granted under the 1998 Plan in 2003 are non-qualified stock options. No
stock appreciation rights were granted under the 1998 Plan in 2003.
(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 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
14
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 October, 2004.
(4) The options are calculated on option terms of ten years beginning October
21, 2003 through October 21, 2013. 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, 2003, and unexercised options held as of December 31, 2003:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
VALUE
NUMBER REALIZED NUMBER OF SECURITIES
OF (MARKET PRICE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES AT OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
ACQUIRED EXERCISE LESS END(1) AT FISCAL YEAR-END(1)(2)
ON EXERCISE --------------------------- ---------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ------------- ----------- ------------- ----------- -------------
Paul R. D'Aloia.............. 0 $ 0 109,766 96,250 $ 0 $ 0
Don R. Graber................ 0 0 237,500 112,500 0 0
Robert W. Lafferty........... 0 0 41,000 42,000 0 0
Nancy A. Michaud............. 0 0 109,543 55,250 0 0
Timothy G. Howard............ 0 0 73,844 20,000 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, 2003 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, 2003 was $5.25, represented by an
option exceeds the per share exercise price of the option.
15
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 Executive Officers.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
SHARES ESTIMATED FUTURE PAYOUTS UNDER
UNITS PERFORMANCE OR NON-STOCK PRICE BASED PLAN
OTHER OTHER PERIOD UNTIL -------------------------------
NAME RIGHTS MATURATION OR PAYMENT THRESHOLD TARGET MAXIMUM
---- ------------ ----------------------- --------- -------- --------
Paul R. D'Aloia.................... (1) 3 years ending 12/31/05 $ 79,087 $158,173 $316,346
Don R. Graber(2)................... (1) 3 years ending 12/31/05 155,000 310,000 620,000
Robert W. Lafferty................. (1) 3 years ending 12/31/05 36,250 72,500 145,000
Nancy A. Michaud................... (1) 3 years ending 12/31/05 30,894 61,789 123,577
Timothy G. Howard.................. (1) 3 years ending 12/31/05 25,224 50,447 100,894
---------------
(1) Awards earned under the Company's 2003 LTIP cycle are payable during the
year following the end of a three-year award cycle in 2006. 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.
(2) Mr. Graber retired effective January 31, 2004 and will not be eligible for
payment under this award.
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") 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, 2003:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN: HUFFY CORPORATION,
LEISURE PRODUCTS, AND S&P SMALL CAP 600 VALUE INDICES*
(5-YEAR GRAPH)
S&P 600
LEISURE SMALL CAP
YEAR HUFFY PRODUCTS VALUE
---- ----- -------- ---------
1998 $100.00 $100.00 $100.00
1999 $ 33.87 $ 69.39 $102.93
2000 $ 41.93 $ 61.73 $124.24
2001 $ 41.28 $ 79.36 $140.40
2002 $ 38.51 $ 79.04 $120.27
2003 $ 33.87 $ 64.49 $167.32
* Assumes $100 invested on December 31, 1998 in Company Common Stock, S&P Small
Cap 600 Value and the Leisure Products and the reinvestment of dividends.
16
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, 2003:
COMPARISON OF THREE-YEAR CUMULATIVE TOTAL RETURN: HUFFY CORPORATION,
LEISURE PRODUCTS, AND S&P SMALL CAP 600 VALUE INDICES*
(3-YEAR GRAPH)
HUFFY LEISURE PRODUCTS S&P 600 SMALL CAP VALUE
----- ---------------- -----------------------
2000 100.00 100.00 100.00
2001 98.46 128.56 113.01
2002 91.85 128.05 96.80
2003 80.77 104.47 134.67
* Assumes $100 invested on December 31, 2000 in Company Common Stock, S&P Small
Cap 600 Value and the Leisure Products and the reinvestment of dividends.
EQUITY COMPENSATION PLAN TABLE
The following table sets forth information, as of December 31, 2003, 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)...................... 1,360,754 $8.4134 549,187
Equity compensation plans not approved by
security holders......................... 780,126 $7.5689 0
--------- ------- -------
Total...................................... 2,140,880 $8.1057 549,187
========= ======= =======
In 1998, the Directors approved the 1998 Non-Qualified Key Employee Stock
Plan (the "Non-Qualified Plan"). In 2003, the Directors agreed that no future
grants would be made under this plan except to the extent options previously
granted under such plan are returned to it upon an employee's termination of
service. The Non-Qualified Plan provided 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 were identical to the 1998 Key Employee
Stock Plan described later in this proxy statement except that, under this
Non-Qualified Plan, no incentive stock options were granted and no grants of any
kind could 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.
17
PENSION PLAN TABLE
The Company's Salaried Employees' Retirement Plan (the "Retirement Plan")
is a defined benefit pension plan which provides benefits to U.S.-based salaried
employees of the Company, including Huffy Bicycle Company and Huffy Sports
Company and excluding employees of Huffy Service Solutions, Inc. since January
1, 2003, not otherwise covered under another pension plan of the Company. The
following table shows, as of December 31, 2003, 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 $30,898 $40,364 $49,830 $59,296 $59,296
250,000 53,398 70,364 87,330 104,296 104,296
500,000 109,648 145,364 181,080 216,796 216,796
750,000 165,898 220,364 274,830 329,296 329,296
1,000,000 222,148 295,364 368,580 441,796 441,796
1,250,000 278,398 370,364 462,330 554,296 554,296
1,500,000 334,648 445,364 556,080 666,796 666,796
2,000,000 447,148 595,364 743,580 891,796 891,796
---------------
(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 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 $21,408. Thus, the offset is
$10,704 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
$0 for Mr. D'Aloia, $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 2, 2004, for purposes of the Retirement Plan and the
Benefit Plan, Mr. D'Aloia has 7 years of credited service, Mr. Graber has 19
years of credited service, Mr. Lafferty has 4 years of credited service, Ms.
Michaud has 17 years of credited service, and Mr. Howard has 30 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
18
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 provides for unreduced benefits at age 62 if the
participant has 10 years of service. If the participant has 10 years of service
at age 60 then benefits are reduced 2.5% per year from age 62. 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 plus 36 additional months of credited service 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 within two years following a "change-in-control." Except as noted in
the preceding sentences, 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 2003 have been
included in the Summary Compensation Table.
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
19
the Company's outstanding severance arrangements and determined it would be
advisable to negotiate revised and less costly arrangements with its Executive
Officers, including four of the Named Executive Officers, Messrs. D'Aloia,
Graber and Howard and Ms. Michaud. Mr. Graber's agreement terminated on his
retirement, effective January 31, 2004. 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, and, as amended in 2004, in some instances for
retention purposes, the Named Executive Officers (excluding Mr. Graber whose
agreement terminated after his retirement) 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, but not in the event of a change-in-control
of the Company, in amounts ranging from 2 times, for Mr. D'Aloia, and not to
exceed 1 times, for all other Named Executive Officers, base salary in effect on
February 11, 2004. Previously, these Named Executive Officers were not obligated
to facilitate any potential Company transactions by submitting to personal
confidentiality and/or non-compete restrictions.
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 AND THE
1998 DIRECTOR STOCK INCENTIVE PLAN AND THE
1998 RESTRICTED SHARE PLAN
As you, our shareholders, are aware, 2003 was a difficult year with sales
and earnings below expected levels. SG&A expenses crept to unacceptable levels
as public company costs, pension expenses and insurance premiums increased
without corresponding expense reductions.
For 2004, as publicly announced, the Company focus will be on cost
reduction. Specific targets have been identified to reduce Company-wide SG&A
expenses, for example, consolidating product groupings such as skateboards with
bicycles (wheeled products) to eliminate job duplication. In 2004, the Company
will accelerate its SG&A reductions by reconfiguring to a more profitable
sporting goods product operating platform resulting in an approximately 20%
reduction in sporting goods product work force. Currently, administrative
functions are being consolidated and a single logistic function to revamp the
supply chain from product purchasing through warehousing and distribution has
been implemented.
20
In order to successfully achieve the Company reconfiguration and resulting
SG&A reductions, the Company must retain and motivate its key employees. No cash
bonuses were paid to any employees in 2003, even to employees in an operating
unit which maximized its operating plan. In 2004, as the Company commenced its
reconfiguration with resulting SG&A reductions, it identified individuals key to
the success of the plan and awards of restricted shares were made to those
employees to retain them and motivate performance. The only Officer awarded
restricted shares was Paul D'Aloia, recently elected Chief Executive Officer.
Additionally, no options were granted to Officers in 2003, except for Mr.
D'Aloia upon his election as and promotion to President and Chief Operating
Officer.
Further, the Company proposes any bonus achieved under the Annual Incentive
Plan in 2004 be paid in 2005, all or in part, at the discretion of the
Compensation Committee, in restricted shares under the 1998 Key Employee Stock
Plan (the "1998 Key Employee Plan"). The Compensation Committee has approved a
plan whereby no bonus payments will be earned by Management under such Annual
Incentive Plan unless certain earnings per share targets are achieved.
As described in more detail below in this Proxy Statement, the 1998 Key Employee
Plan:
- Provides key employees with options, and an opportunity to subscribe for
shares of the Company's Common Stock in lieu of some or all of a cash bonus
earned in 2004.
- Provides a vehicle to retain key employees as the Company moves to one
sporting goods platform.
- Is administered by a committee of independent directors of the Company.
- Prohibits any repricing of an outstanding stock option without the approval of
the Company's stockholders.
- Caps the number of shares which may be issued in the form of subscriptions for
shares of the Company's Common Stock at 50% of the total shares reserved for
issuance under the Plan.
The 1998 Key Employee Plan and the 1998 Director Stock Incentive Plan and
the 1998 Restricted Share Plan (collectively, the "Plans"), all approved by
shareholders, utilize a single pool of available shares. In 2004, the Board of
Directors approved an amendment to the 1998 Key Employee Plan placing a cap on
the issuance of restricted shares at 50% of the shares reserved for issuance
under the Plans and vesting within no less than six months of the grant date.
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 promote long-term retention of key employees, motivate high levels of
performance, and recognize contributions of employees. Based on shareholder
approval in 1998, 2001 and 2003, a total of 1,856,714 shares were reserved for
issuance under the Plans. In December 2003, 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 750,000 to a total of 2,606,714 shares,
an additional amount that is equal to approximately 4.7% of the Company's total
outstanding Common Stock on February 26, 2004.
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, and 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 2,606,714 shares from the present 1,856,714 shares. Proxies
will 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.
21
As of December 31, 2003, options to purchase 912,119 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. Taking into account
the retention awards of restricted stock and without taking into account the
proposed amendment to the Plans, 43,125 shares remained available for future
grant as of February 26, 2004.
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.
At the close of business on February 26, 2004, the market value of a share
of the Company's Common Stock was $4.00.
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.
22
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 independent non-employee directors, of which the Company will
have six following the 2004 Annual Meeting of Shareholders. It also provides a
feature by which independent 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 independent 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.
Effective March 1, 2003, the Company pays its independent non-employee
Directors an annual retainer in the amount of $25,000 per year. 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
Directors 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.
23
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 independent 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.
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 six. 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 2004.
NEW PLAN BENEFITS
DIRECTOR NAME DOLLAR VALUE OF GRANT NUMBER OF UNITS
------------- --------------------- ---------------
W. Anthony Huffman........................................ $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 (6 persons)................... $75,000 *
---------------
* 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 2003,
each Outside Director received a grant of 2,171 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 2003
under the 1998 Directors Plan.
24
NEW PLAN BENEFITS
SHARES
UNDERLYING
OPTIONS
DIRECTOR NAME GRANTED IN 2003
------------- ---------------
W. Anthony Huffman.......................................... 7,576
Donald K. Miller............................................ 7,576
James F. Robeson............................................ 7,576
Thomas C. Sullivan.......................................... 7,576
Joseph P. Viviano........................................... 7,576
Gerald B. Wasserman......................................... 7,576
All Directors who are not employees as a group.............. 45,456
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, Directors who are employees of the Company and its subsidiaries,
and certain other key employees to increase shareholder value and to remain in
the employ of the Company or its subsidiaries.
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 Plan does not permit option
repricing without shareholder approval.
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.
25
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 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
26
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, 497,314 restricted
shares have been awarded under such plan. The Board of Directors amended the
1998 Key Employee Plan in 2004 to allow restricted shares to be granted in an
amount up to fifty percent (50%) of the number of shares approved under the
Plans and to vest no earlier than six months after grant.
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.
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 and restricted shares granted in 2003 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.
27
NEW PLAN BENEFITS
RESTRICTED
SHARES AND
SHARES
UNDERLYING
OPTIONS
NAME GRANTED IN 2003
---- ---------------
Don R. Graber............................................... 0
Paul R. D'Aloia............................................. 60,000
Robert W. Lafferty.......................................... 0
Nancy A. Michaud............................................ 0
Timothy G. Howard........................................... 0
Executive Officers as a group............................... 60,000
Non-Officer employees as a group............................ 192,512
Total for all employees..................................... 252,512
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 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.
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.
28
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.
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
2004, 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 years ended
December 31, 2003 and 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 such years amounted to $460,000 and $744,000, respectively.
AUDIT-RELATED FEES
The aggregate fees billed for professional services rendered by KPMG LLP
for assurance and related services reasonably related to the performance of
audit and review of the financial statements described above amounted to $83,000
for 2003 and $198,464 for 2002. Such services included auditing employee benefit
plans and due diligence assistance relating to acquisitions made in 2002 by the
Company.
TAX FEES
The aggregate fees billed for professional services rendered by KPMG LLP
for professional services rendered for tax compliance, tax advice and tax
planning during 2003 and 2002 amounted to $175,518 and $393,418, respectively.
ALL OTHER FEES
No fees were billed by KPMG LLP other than the Audit Fees, Audit-Related
Fees and Tax Fees described above, during the years ended December 31, 2003 and
December 31, 2002.
All of the services described above were approved by the Audit Committee.
The Company's Audit Committee did consider whether KPMG's provision of such
non-audit-related services was compatible
29
with maintaining the independence of KPMG LLP and concluded that it was
compatible with maintaining such independence.
As required by the Sarbanes-Oxley Act of 2002, the Audit Committee is
responsible for the approval of all permitted non-audit services performed by
the independent public accountants for the Company. As part of such
responsibility, the Committee has established a procedure whereby Management of
the Company is required to request such authorization of the Committee prior to
engaging KPMG LLP to perform any non-audit services. In the event that such
services, or engagement thereof, are required prior to a regularly scheduled
meeting of the Committee, the Committee has delegated the authority to approve
both audit and non-audit services to the Chairman of the Committee, or his
designee in the event he is unavailable. All such requests and approvals are
presented to the Committee at its next regularly scheduled meeting.
OTHER MATTERS
Proposals of Shareholders intended to be presented at the 2005 Annual
Meeting of Shareholders must be received by the Company by November 13, 2004 for
inclusion in the Company's Proxy Statement and proxy relating to the 2005 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, 2004, unless the Company receives notice of such proposals
prior to January 27, 2005.
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 12, 2004
30
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
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 and shall consider whether, in order to assure continuing
auditor independence, it is appropriate to adopt a policy of
rotating the independent accountants on a regular basis.
(ii) The Audit Committee shall obtain and review a report from the
outside independent auditor at least annually regarding (a) the
outside independent auditor's internal quality-control procedures,
(b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any
inquiry or investigation by governmental or professional authorities
within the preceding five years respecting one or more independent
audits carried out by the firm, (c) any steps taken to deal with any
such issues, and (d) all relationships between the independent
auditor and the Corporation. Evaluate the qualifications,
performance and independence of the outside independent auditor,
including considering whether the auditor's quality controls are
adequate and the provision of permitted non-audit services is
compatible with maintaining the auditor's independence, taking into
account the opinions of management and internal auditors. The Audit
Committee shall set clear hiring policies for employees or former
employees of the independent auditor. The Audit Committee shall
present its conclusions with respect to the independent auditor to
the Board.
A-1
(iii) 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.
(iv) 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.
(v) 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 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.
(vi) Following completion of the annual audit, the Audit Committee shall
meet with the auditors to review the audit and their report thereon.
(vii) The Audit Committee shall also, following completion of the annual
audit and quarterly releases of financial statements, 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 Corporation's annual audited financial statements and quarterly
financial statements with Management and the independent auditor
including the Corporation's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
-- The adequacy of management disclosure of financial information to the
Directors and of earnings press releases as well as financial
information and earnings guidance provided to analysts and rating
agencies.
(viii) 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
A-2
the Audit Committee), which are approved by the Audit Committee
prior to the completion of the audit.
(ix) 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.
(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 make regular reports to the Board of Directors
regarding the auditors' findings and other matters considered by the Committee
and shall make such recommendations to the Board of Directors on audit matters
or procedures and other matters, as it may deem appropriate.
(f) The Audit Committee shall review this charter annually and shall
annually evaluate the performance of the Audit Committee.
(g) The Committee shall prepare an Audit Committee Report as required by
the SEC to be included in the Corporation's annual Proxy Statement.
(h) 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,
A-3
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.
(f) Discuss policies with respect to risk assessment and risk management.
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. Unless the Board determines
that such simultaneous service does not impair the ability of a member to
effectively serve on the Audit Committee, 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.
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.
Except as otherwise required by applicable law, regulations, and the
listing standards of the New York Stock Exchange, all major decisions of the
Corporation are to be considered by the Board of Directors of the Corporation as
a whole.
A-4
HUFFY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. 0
-----------------------------
-----------------------------
Control Number
Will Attend Annual Meeting [ ] YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING: For Withheld For All
1. Election of Directors: All All Except
Please indicate number attending: ___ Nominees for 1 year terms: (01) Don R. Graber, 0 0 0
(02) Donald K. Miller
Change of Address [ ] Nominees for 2 year terms: (03) Paul R. D'Aloia,
Mark here for address change and (04) James F. Robeson,
revise pre-printed address (05) Thomas C. Sullivan
----------------------------------------------------- For Against Abstain
(Except nominees written above) 0 0 0
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 and restricted shares under the
plans.
For Against Abstain
3. Ratification of appointment of KPMG LLP as independent 0 0 0
public accountants for 2004.
---------------------------------------------------------------------------------------
Signature(s) Date: ,2004
------------------------------------ ---------------
Signature(s) Date: ,2004
------------------------------------ ---------------
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.
------------------------------------------------------------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
VOTE BY TELEPHONE OR THE INTERNET 24 HOURS A DAY, 7 DAYS A WEEK
TELEPHONE INTERNET MAIL
--------- -------- ----
Use a touch-tone telephone to vote by Access the World Wide Web site at MARK, SIGN AND DATE the proxy card.
phone toll-free. Simply dial http://www.eproxyvote.com/huf/ to vote Detach the proxy card and return it in
1-866-207-3912 and follow the simple via the Internet. Have this form the postage-paid envelope provided.
recorded instructions. Have this form available when accessing the web site.
available for the call. If shares are voted via the Internet,
there is no need to return the proxy
A telephone vote authorizes the named card.
proxies to vote shares in the same
manner as if the proxy card is marked,
signed and returned. If shares are voted
by telephone, there is no need to return
the proxy card.
Voting by phone or via the Internet may occur anytime prior to 11:59 p.m. on April 21, 2004. This form will be needed to vote by
phone or via the Internet. If so voted, the proxy card does not need to be mailed.
HUFFY CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS APRIL 22, 2004
P The undersigned hereby appoints W. Anthony Huffman and Joseph P. Viviano,
R and each of them, his or her proxies, with power of substitution, to vote
O all shares of Common Stock of HUFFY CORPORATION, an Ohio corporation, which
X he or she may be entitled to vote at the Annual Meeting of Shareholders of
Y said Corporation to be held April 22, 2004, and at any adjournment(s)
thereof, on the following matters, all of which are described in the Proxy
Statement, receipt of which is hereby acknowledged:
ELECTION OF DIRECTORS, NOMINEES
(FOR A TERM OF ONE YEAR) DON R. GRABER, DONALD K. MILLER
(FOR A TERM OF TWO YEARS) PAUL R. D'ALOIA, JAMES F. ROBESON, THOMAS C. SULLIVAN
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 STOCK PLAN, THE 1998 DIRECTOR STOCK INCENTIVE PLAN AND THE 1998
RESTRICTED SHARE PLAN, AND (C) 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 22, 2004, 10:00 a.m. [MAP]
Frederick C. Smith Auditorium
Sinclair Community College
444 West Third Street
Dayton, Ohio
Directions:
TAKE THE THIRD STREET EXIT
(53A off of I-75) (northbound or
southbound)
TURN RIGHT ONTO PERRY STREET
(second light) Go one block to
Fourth Street and turn right
Underground parking garage is on
the right in the Sinclair Center
If planning 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 to the meeting for presentation at the meeting.