WELLCO ENTERPRISES, INC.
150 Westwood Circle
P.O. Box 188
Waynesville, North Carolina 28786
October 17, 2003
NOTICE OF ANNUAL MEETING
OF
STOCKHOLDERS
The annual meeting of stockholders of Wellco Enterprises, Inc. will be held in
the cafeteria of the Company's Waynesville, North Carolina, plant, located at
150 Westwood Circle, on Tuesday, November 18, 2003, at 3:00 P.M., EST, for the
purpose of considering and taking action upon the following:
1. A proposal to amend the Company's Articles of Incorporation and By-laws to
provide for annual election of all directors of the Company by the 2005 Annual
Meeting; and
2. The election of directors as more particularly described in the accompanying
Proxy Statement; and
3. Such other matters as may properly come before the meeting.
Only stockholders of record at the close of business on October 17, 2003, will
be entitled to vote at the meeting. This Notice and the accompanying Proxy
Statement are being mailed to stockholders on approximately October 24, 2003.
By Order of the Board of Directors
RICHARD A. WOOD, JR.
SECRETARY
YOUR VOTE IS IMPORTANT. EVEN IF YOU DO NOT PLAN TO
ATTEND THE MEETING, PLEASE RETURN YOUR SIGNED
PROXY!
Please complete and promptly return your Proxy in the postpaid envelope
provided. This will not prevent you from voting in person at the meeting. It
will, however, help to assure a quorum and avoid added proxy solicitation costs.
Wellco Enterprises, Inc.
150 Westwood Circle
P.O. Box 188
Waynesville, North Carolina 28786
PRELIMINARY PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of Wellco
Enterprises, Inc. (the "Company") for use at the 2003 Annual Stockholders
Meeting of the Company, to be held on November 18, 2003, and at any adjournment
thereof. The cost of solicitation will be borne by the Company. Mellon
Shareholder Services LLP, the transfer agent for the Company, has been retained
to assist in obtaining proxies, including proxies from brokerage houses and
others with respect to shares registered in their names but beneficially owned
by others, by such means as Mellon Shareholder Services LLP deems appropriate,
at a cost to the Company presently estimated at $5,500. Such brokerage houses
and others will be reimbursed for their out-of-pocket expenses incurred. Proxies
may also be solicited by some directors, officers or employees of the Company,
in person or by mail, telephone or telefax, without extra compensation to them.
The shares represented by the proxies received will be voted at the meeting, or
any adjournment thereof. On matters coming before the meeting as to which a
choice has been specified by the stockholder by means of the ballot on the
proxy, the shares represented will be voted accordingly. If no choice is so
specified, the shares will be voted in favor of the matters set forth in the
foregoing notice of meeting. The accompanying proxy appoints as proxy holders
William M. Cousins, Jr., Katherine J. Emerson and John D. Lovelace (and each of
them with full power of substitution, or any one or more of them acting in the
absence of the others) to vote at the Annual Meeting all shares covered by the
proxy. Management does not know of any other matters which will be presented for
action at the meeting, but the appointed proxy holders intend to vote or act
with respect to any other proposal which may be presented for action, and
matters incident to the conduct of the meeting, according to their judgment in
light of conditions then prevailing except as to election of substitute nominees
for director, as to which proxies will be voted for nominees designated as
hereinafter stated. Executed proxies may be revoked by written revocation or
later dated proxy delivered to the Secretary prior to or at the meeting. Also,
stockholders who are present at the meeting may withdraw their proxies and vote
in person if they so desire.
Stockholders of record at the close of business on October 17, 2003, will be
entitled to vote at the meeting. On that date, there were outstanding 1,185,746
shares of the Company's common stock. Each stockholder is entitled to one vote
for each share of stock on all matters to be presented at the meeting. A
plurality vote of the shares represented at the meeting, in person or by proxy,
is necessary for the election of each director. Cumulative voting is not
available at the meeting.
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Stockholders having questions concerning the matters to be considered at the
meeting are invited to telephone the Company at (828) 456-3545, extension 102.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR AMENDMENT
OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS TO
ELIMINATE THE EXISTING THREE CLASSES OF THE BOARD AND ELECT ALL
DIRECTORS ANNUALLY EFFECTIVE AT THE 2005 ANNUAL STOCKHOLDERS
MEETING OF THE COMPANY.
As a result of Stockholder approval at the 1976 Annual Stockholders Meeting, the
Board has since that time totaled nine (9) in number, divided into three Classes
(Class I, Class II, and Class III) of three Directors each, with each Class
being elected every three years.
The Board unanimously recommends that this structure be changed so that
effective with the 2003 Stockholders Meeting and subsequent annual meetings in
2004 and 2005 the three Classes of Directors then scheduled for election will be
elected annually instead of for three-year terms, with the result that at the
2005 Annual Stockholders Meeting and thereafter all of the Company's nine
Directors will be elected annually. Under the present Articles of Incorporation
and under the proposed amended Articles of Incorporation, any vacancies which
occur during a year may be filled by the Board of Directors to serve only until
the next annual meeting.
The Board of Directors believes it is in the best interest of the Company and
its Stockholders to eliminate the existing classified Board so that Stockholders
will elect all Directors annually. The recommended amendments to the Articles of
Incorporation and Bylaws will allow Stockholders to review and express their
opinions on the performance of all Directors each year.
The proposed reclassification of Directors would result in shortening of the
time period during which Stockholders could effect a complete change in
Directors. Thus, if any domestic or foreign person or entity should seek to
obtain control of the Company by proxy contest or by purchasing a substantial
amount of its stock, the proposed reclassification would permit such person or
entity to accomplish control of the Company's board of Directors at any single
annual meeting. Such changes would also make it easier for Director J. T.
Emerson, who owns 57 % of the Company's stock, to sell his stock position to a
third person or entity and permit that person or entity to acquire control of
the Company's Board of Directors at the next annual meeting or thereafter.
Director Emerson has advised that he has no present intention to make such a
sale.
The Company's present Article Ninth and Tenth of its Articles of Incorporation
and Bylaws 13 and 54, relating to matters proposed to be hereby amended are as
set forth in Exhibit "A" (see pages 17 and 18). Your Board of Directors
recommends that these provisions be superseded by the amendments to the
comparable provisions of the Articles of Incorporation and Bylaws set forth in
Exhibit "B" (see page 19).
In order to be adopted, the foregoing amendments to the Company's Articles of
Incorporation and Bylaws must receive the favorable vote of the holders of 2/3
of the
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outstanding stock entitled to vote at the 2003 Annual Meeting. Assuming such
approval, the appropriate amendments to the Articles of Incorporation would
become effective upon filing of an appropriate certification with the North
Carolina Secretary of State. Director J.T. Emerson, who owns 57% of the
Company's outstanding common stock, has indicated his intention to vote for such
changes at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITS
NOMINEES FOR DIRECTORS.
Assuming passage of the foregoing amendments, the Board of Directors unanimously
recommends election of currently serving Directors Claude S. Abernethy, Horace
Auberry, and Rolf Kaufman for a term of one year until the 2004 Annual
Stockholders Meeting. If the foregoing amendments are not approved, the Board of
Directors recommends election of said three individuals as Class III Directors
for a term expiring at the 2006 Annual Stockholders Meeting or until their
respective successors are duly elected and qualified. Each of said nominees has
consented in writing to serve either of said capacities if elected.
NOMINEES FOR ELECTION:
Directors Whose Term Expires in 2004 (or Class III Directors whose terms expires
in 2006 if the above amendments are not approved:
Claude S. Abernethy, Jr. has been a Director of the Company since 1997 and
previously served as a Director from 1976 until 1994 and is 76 years of age. He
is Senior Vice President of Wachovia Securities (a securities brokerage firm),
and a Director of Air T Inc., Carolina Mills, Inc. and Director Emeritus of
Wachovia Securities, a subsection of Wachovia Bank, N.A..
Horace Auberry has been a Director of the Company since 1964 and is 72 years of
age. He is Chairman Emeritus, Board of Directors and as of January 1, 2002
consultant to the Company. He was Chairman, Board of Directors and Chief
Executive Officer of the Company (from October, 1996 until December 31, 2001)
and was Chairman of the Board of Directors and joint Chief Executive Officer
from 1968 until October, 1996.
Rolf Kaufman has been a Director of the Company since 1962 and is 73 years of
age. He was President of the Company and joint Chief Executive Officer from 1968
until October 1996. Upon his retirement from the position of President on
September 30, 1996, Mr. Kaufman was elected by the Board of Directors to the
position of Vice Chairman, Board of Directors. As Vice Chairman, Mr. Kaufman is
retired from full time employment, while still being significantly involved in
several areas of the Company's business affairs.
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DIRECTORS CONTINUING IN OFFICE:
Class I Directors for Term Expiring in 2004:
William M. Cousins, Jr. has been a Director of the Company since 1990 and is 79
years of age. He is President (since 1974) of William M. Cousins, Jr., Inc.
(management consultants), a Director (from 1991 through 1999) of
Alba-Waldensian, Inc. (an apparel manufacturing company) and a director of
Biosphere Medical, Inc. (since 1994).
Katherine J. Emerson has been a Director of the Company since 2001 and is 48
years of age. She is the information systems controller and accountant for
Master Gage and Tool Company (since 1994), a wholesale distributor of precision
measuring and gauging equipment and supplies. She is a certified public
accountant. Ms. Emerson is married to the nephew of Director James T. Emerson,
the cousin of Director/Vice President Fred K. Webb, Jr. and the cousin of
Director John D. Lovelace.
John D. Lovelace has been a Director of the Company since 1999 and is 54 years
of age. He is the Vice-President (since 1987) of Credit/Collections for United
Leasing Corporation, a company primarily engaged in the leasing of equipment.
Prior to joining United Leasing, he served as Assistant Vice President of Retail
Banking for United Virginia Bank. He is the nephew of Director James T. Emerson
and the cousin of Director/Vice President Fred K. Webb, Jr.. Director Katherine
J. Emerson is married to the cousin of John D. Lovelace.
It is intended that shares represented by the accompanying Proxy will be voted
for election of the above nominees unless authority for such vote is withheld.
In the event that any nominees should become unable to serve or for good cause
will not serve, it is intended that such shares will be voted for substitute
nominees designated by the present Board of Directors of the Company.
Class II Directors Whose Term Expires in 2005:
James T. Emerson has been a Director of the Company since January, 1996 and
previously served as a Director from 1988 until 1993, and is 81 years of age. He
was an industrial instrumentation engineer and consultant (retired 1983), and is
an investor. He is the uncle of Director/Vice President Fred K. Webb, Jr. and
Director John D. Lovelace. Director Katherine J. Emerson is married to the
nephew of James T. Emerson.
David Lutz has been a Director of the Company since January, 1996 and previously
served as a Director from 1984 until 1992. As of January 1, 2002, he is Chief
Executive Officer, President, Chief Operating Officer and Treasurer of the
Company and is 58 years of age. Since October, 1996, he served as President and
Chief Operating Officer and Treasurer of the Company. He served as Executive
Vice President and Treasurer of the Company from May until October, 1996, as
Secretary/Treasurer from 1986 until May 1996 and as Controller from 1974 until
1986.
Fred K. Webb, Jr. has been a Director of the Company since January, 1996. He is
Vice President of Marketing of the Company (since February 1999) and is 43 years
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of age. He previously held the position of Special Projects Manager with the
Company ( August 1998 until February 1999). Before joining the Company, he was
employed as an Accounting Team Leader (since 1995) and Senior Staff Accountant
(since 1989) for United Guaranty Corporation (an insurance holding company). He
is the nephew of Director James T. Emerson and the cousin of Director John D.
Lovelace. Director Katherine J. Emerson is married to the cousin of Fred K.
Webb, Jr.
BOARD AND COMMITTEE MEETINGS
During the Company's last full fiscal year, there was one regular (the 2002
Annual) and two special meetings of the Board of Directors. In addition, the
Company has for a number of years followed the practice, permissible under North
Carolina corporation law, of approving corporate resolutions by unanimous
written consent without meeting. One such resolution was adopted by the Board of
Directors during the Company's last full fiscal year.
The Company has a standing Audit Committee of the Board of Directors. In
accordance with the American Stock Exchange requirements, the Company's Board of
Directors, on May 16, 2000, adopted a written charter for the Audit committee. A
copy of the original charter was attached as Exhibit C to the October 13, 2000
Proxy Statement. In addition, on November 19, 2002, the Company's Audit
Committee and Board of Directors amended the charter and is attached as Exhibit
C to this proxy statement. All directors not otherwise associated with the
Company as an officer, employee or consultant are designated as members of the
Audit Committee except for James T. Emerson who may not be deemed to be
independent as defined by Section 121(A) of the current American Stock Exchange
Company Guide. Accordingly, Directors Cousins, Katherine Emerson, Abernethy and
Lovelace were the members of such Committee for the 2003 fiscal year with
Director Cousins serving as Chairman. All members serving on the Audit Committee
are independent as defined by Section 121(A) of the current American Stock
Exchange Company Guide.
The Audit Committee held four meetings (three in person and one by phone) during
the Company's last fiscal year at which representatives of the Company's
independent auditors, Deloitte & Touche LLP and Crisp Hughes Evans LLP were
present. The Audit Committee recommends to the Board the firm to be designated
as the Company's auditors, and performs other functions which are stated in the
below Audit Committee Report.
The Board has a standing Compensation Committee, and Directors Cousins, James T.
Emerson, Katherine Emerson, Abernethy and Lovelace were the members of such
Committee for the 2003 fiscal year with Director James T. Emerson serving as
Chairman. The Compensation Committee did once meet during the 2003 fiscal year.
The Company does not have a standing Nominating Committee. Nominees to serve on
the Board of Directors are determined by a vote of the entire Board of
Directors.
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Audit Committee Report
In accordance with its written charter adopted May 16, 2000, as amended November
19, 2002, by the Board of Directors (Board), the Audit Committee of the Board
(Committee) assists the Board in fulfilling its responsibility for oversight of
the quality and integrity of the accounting, auditing and financial reporting
practices of the Company. During fiscal year 2003, the Committee or the Chairman
thereof, held four meetings (three in person and one by phone), to discuss with
management and the independent auditor the financial information contained in
the Securities and Exchange Commission Form 10-Q filing for the three fiscal
quarters and the annual Form 10-K.
In discharging its oversight responsibility as to the audit process and
consistent with Independence Standards Board Standard No. 1 ("Independence
Discussions with Audit Committees"), 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. The Committee also discussed with the auditors any relationships
that may impact their objectivity and independence and satisfied itself as to
the auditors' independence. The Committee also discussed with management and the
independent auditors the quality and adequacy of the Company's internal
controls. The Committee reviewed with the independent auditors their audit
plans, audit scope, and identification of audit risks.
The 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".
The Committee chairman reviewed with the independent auditors and management the
audited financial statements of the Company for the fiscal year ended June 28,
2003. Management has the responsibility for the preparation and content of those
statements.
Based on the above-mentioned review and discussions with management and the
independent auditors, the Committee Chairman recommended, on behalf of the
Committee, 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 June 28,
2003, for filing with the Securities and Exchange Commission.
Submitted by the Audit Committee of the Board of Directors
Claude S. Abernethy, Jr. John D. Lovelace
William M. Cousins, Jr., Chairman Katherine Emerson
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COMPENSATION COMMITTEE REPORT
The Compensation Committee (the Committee) of the Board of Directors submits
recommendations to the Board of Directors as to the type and amount of
compensation for two executive officers of the Company (Mr. Lutz, Chief
Executive Officer, President, Chief Operating Officer, and Chairman of the Board
and Mr. Webb, Vice President of Marketing). The Committee consists of all
directors not otherwise associated with the Company and, in the 2003 fiscal
year, consisted of five members.
The Committee met once during the year to consider and make recommendations to
the Board of Directors. In the 2003 fiscal year, the Board of Directors did not
modify or reject any action or recommendation of the Compensation Committee.
The Committee does not use any compensation consultants in making its decisions
and recommendations, and does not relate compensation of the above named
executive officers to that of any other entity or industry grouping.
Each of the named executive officers received an annual cash bonus for said
fiscal year which is based on a specified percentage of consolidated net income,
as defined. Each executive officer's percentage has remained constant for the
past several years. No one of the above named executive officers has a
guaranteed or minimum amount of bonus. Although not a frequent occurrence, the
Committee from time to time may give discretionary additional bonuses for
extraordinary achievement.
All officers of the Company participate in fringe benefit plans (group health
insurance, group life insurance and long-term disability) to the same extent and
under the same terms as all other salaried employees of the Company. Mr. Auberry
and Mr. Lutz each receive perquisites whose value aggregates much less than 10%
of their total annual salary and bonus.
Submitted by the Compensation Committee of the Board of Directors
William M. Cousins, Jr. Claude S. Abernethy, Jr.
Katherine Emerson James T. Emerson, Chairman John D. Lovelace
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee has ever served as an officer or
employee of the Company or had any relationship requiring disclosure by the
Company under any paragraph of Item 404 of Regulation S-K of the Securities and
Exchange Commission. No executive officer of the Company has ever served as a
director or member of the compensation committee of any other entity of whose
executive officers has ever been a member to the Company's Compensation
Committee or Board of Directors.
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COMPENSATION OF DIRECTORS
Directors' fees are $4,250 per year; $1,000 per meeting for each Board meeting
attended in person; $1,000 per meeting for each committee meeting attended in
person that is held apart from the day of a Board meeting; and $500 for each
committee and Board phone meeting. Directors who are full-time employees of the
Company do not receive any directors' fees. Travel expenses of directors
incurred traveling to and from meetings are reimbursed by the Company.
INDEPENDENT AUDITORS
On March 17, 2003, the Audit Committee decided to engage the firm of Crisp
Hughes Evans LLP to serve as independent public accountants for the Company and
Crisp Hughes Evans LLP served as the Company's independent auditors for the
fiscal year ended June 28, 2003. Deloitte & Touche LLP and its predecessor firm,
Touche Ross & Co., had served in this capacity since the Company's 1979-80
fiscal year. Deloitte & Touche LLP's report on the financial statements for the
fiscal year ended June 30, 2001 and June 29, 2002 did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.
During the fiscal years ended June 30, 2001, June 29, 2002 and during interim
periods subsequent to June 29, 2002 through March 17, 2003, there were no
disagreements with Deloitte & Touche LLP on any matter of accounting principle
or practice, financial statement disclosure, or auditing scope or procedure
which, if not resolved to Deloitte & Touche's satisfaction, would have caused
them to make reference to the subject matter of the disagreement in their
report.
During the fiscal years ended June 30, 2001, June 29, 2002, and during interim
periods subsequent to June 29, 2002 through March 17, 2003, Wellco did not
consult with Crisp Hughes Evans LLP with respect to the application of
accounting principles to a specified transacation, either completed or proposed,
or the type of audit opinion that might be rendered on Wellco's consolidated
financial statements.
The Board of Directors has not selected independent auditors for the fiscal year
beginning June 29,2003. The Board of Directors has a policy of selecting and
engaging independent auditors a few months prior to the end of the Company's
fiscal year. A representative of Crisp Hughes Evans LLP has been requested and
is expected to be present at the stockholders meeting. Such representative will
have the opportunity to make a statement if he or she desires to do so and will
be available to respond to appropriate questions.
INDEPENDENT AUDITORS FEES FOR THE FISCAL YEAR ENDED JUNE 28, 2003
The following table shows the aggregate fees billed to the Company by its
independent auditors, Crisp Hughes Evans LLP for professional services rendered
during the fiscal year ended June 28, 2003:
Description of Fees Amount
- ------------------- ------
Audit Fees (1) $62,000
Financial Information Systems
Design and Implementation Fees $0
All Other Fees (2) $26,000
(1) Includes fees for audits of the June 28, 2003 consolidated financial
statements of the Company and its subsidiaries, and reviews of the
related quarterly financial statements included in quarter reports on
Form 10-Q for the 2003 fiscal year and direct engagement expenses.
(2) The Audit Committee of the Company's Board of Directors has considered
whether the rendering of such non-audit services by Crisp Hughes Evans
LLP is compatible with maintaining the principal accountant's
independence.
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STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's common stock to the Standard & Poor's 500 Stock Index and an index of
peer companies that produce non-athletic footwear. The Standard & Poor's 500
Stock Index is a broad equity market index published by Standard & Poor's. The
index of peer companies was constructed by the Company and includes the Company
and R. G. Barry; Brown Shoe, Inc.; Genesco, Inc.; Phoenix Footwear Group, Inc.;
Justin Industries; McRae Industries; Rocky Shoes & Boots, Inc.; Stride Rite
Corp.; Timberland Co.; Weyco Group, Inc; and Wolverine World Wide. In
constructing the peer index, the return of each component company was weighted
according to its respective stock market capitalization. The graph assumes the
investment of $100 in the Company's common stock, the Standard and Poor's 500
Stock Index and the peer index at the end of the Company's 1997 fiscal year.
Total Stockholder Return
- ------------------------
1998 1999 2000 2001 2002 2003
-----------------------------------------------------------------
WELLCO $100 $78 $96 $92 $146 $108
S & P 500 $100 $123 $132 $112 $92 $92
PEER GROUP $100 $80 $89 $126 $124 $144
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EXECUTIVE COMPENSATION
Compensation Summary
The following Summary Compensation Table shows certain information concerning
the compensation of each of the Company's highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 during the last fiscal
year:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
LONG TERM
OTHER COMPENSA-
ANNUAL TION-STOCK ALL OTHER
NAME AND PRINCIPAL COMPEN- OPTION COMPEN-
POSITION: YEAR SALARY BONUS SATION(1) GRANTS SATION(2)
David Lutz, Chief
Executive Officer,
President, Chief Operating
Officer and Chairman of
the Board (4) 2003 $121,636 $15,789 $952
2002 $116,636 $10,235 $960
2001 $106,652 $17,302 $3,326 10,000
Horace Auberry, Chairman
Emeritus of the Board and
Consultant to the
Company (5) 2003 $ 39,988 $0 $2,435
2002 $119,964 $17,057 $2,788
2001 $159,952 $28,836 $3,549 (3)60,000 $964
Chandra Wijewickrama,
V.P. - Caribbean
Operations (6) 2003 $87,412 $13,374
2002 $84,630 $24,804
2001 $82,130 $23,577 7,500
Sven Oberg, V.P.-
Engineering and Process
Development (7) 2003 $86,424 $15,789
2002 $83,876 $10,234
2001 $81,406 $17,301 5,000
(1) Amounts represent reimbursement for income taxes and commissions paid.
(2) Life insurance premiums paid by the Company for benefit of the named
executive officer.
(3) Options for 10,000 shares are immediately exercisable and 50,000 are
unexercisable.
(4) Chief Executive Officer since January 1, 2002.
(5) Chief Executive Officer through December 31, 2001.
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(6) Elected to office of V.P. - Caribbean Operations on November 14, 2000.
(7) Elected to office of V.P. -Engineering and Process Development on November
14, 2000.
Stock Options
There were no individual grants of stock options to the named executive officers
during the fiscal year ended June 28, 2003.
The following table shows, on an aggregated basis, for executive officers named
in the Summary Compensation Table each exercise of stock options during the 2003
fiscal year and the fiscal year-end value of unexercised options.
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTION IN-THE-MONEY
SHARES SHARES OPTIONS
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON REALIZED UNEXERCISEABLE UNEXERCISEABLE
EXERCISE (1)
Horace Auberry 45,000/50,000(2) $18,300/$35,250
David Lutz 45,000/0 $90,750/$0
Chandra
Wijewickrama 12,500/0 $13,725/$0
Sven Oberg 5,000/0 Not in the money
(1) Excess of the total market value at June 28, 2003 of the shares over
the total exercise price.
(2) On July 12, 2000, the Company and Chairman Auberry entered into an
employment agreement. The agreement included 50,000 options which vest
not later than June 30, 2005, with accelerated vesting based on the
Company reaching certain defined earnings per share. All of the 50,000
options are unexercisable.
Employment Contracts and Termination of Employment and Change-in-Control
Agreements
On July 12, 2000 the Company and Chairman Auberry entered into an employment
Agreement. Under this Agreement, Auberry would continue full-time employment
with the Company through December 31, 2000, or for a later period of time as
subsequently agreed to between the Company and Auberry. The salary and bonus
compensation of Auberry during the period of full-time employment was an annual
salary of $159,952 and a cash bonus equal to 2.5% of the Company's consolidated
net income after taxes and after all bonuses. On January 1, 2002, Auberry
reduced his time devoted to employment with the Company to approximately 50% of
full time, and his annual salary was reduced to $79,976. Effective June 30,
2002, the Agreement was amended to
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provide that Auberry will work as a consultant to the Company and be compensated
on the basis of actual hours worked at a rate of $100 per hour. For the fiscal
year ending June 28, 2003, Auberry was not paid any consulting fees. In
addition, the amendment eliminated the cash bonus. The Agreement has a term
which expires on December 31, 2006.
Under the Agreement, Auberry was granted an option to purchase up to 50,000
shares of the Company's common stock at a price of $9.125 per share. These
options vest not later than June 30, 2005, with accelerated vesting based on the
Company reaching certain defined earnings per share. Expiration of such options
shall be the earlier of the fifth anniversary of the date on which such options
vest or one year after the Chairman's separation from employment under the
Agreement. In addition, for the period from July 1, 2000 until the end of the
Agreement, Auberry will not engage in the footwear industry other than through
his employment with the Company, and Auberry will assign to the Company certain
developments conceived by him. In consideration for these provisions and for a
period of five years after the Company first realizes revenues from such
developments, Auberry will receive additional cash compensation equal to 7.5% of
royalty income received from unaffiliated entities for these developments and
..225% of the Company's sales of products embodying these developments. As of the
date of this proxy, Auberry had earned $6,000 additional compensation as
provided for in the Agreement and none of the options in the Agreement had
vested.
The Company does not have employment contracts with any executive officer other
than Mr. Auberry. There are no compensation plans or arrangements that will
result from the resignation, retirement or termination of any executive officer,
or that will result from a change-in-control of the Company or a change in any
executive officer's responsibilities following a change-in-control.
Long-Term Incentive Plans
The Company does not have any type of long-term incentive plans for any
executive officer or other employee.
Pension Plan
The Company's executive officers and all other salaried employees participate in
an Administrative Employee Pension Plan (the Plan). Benefits under the Plan are
based on years of service and average annual earnings. The following table
illustrates the amount of annual pension benefits based on the years of service
and average annual compensation levels shown:
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PENSION PLAN TABLE
YEARS OF SERVICE
----------------------------------------------------------------
AVERAGE
ANNUAL
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
----------------------------------------------------------------
$125,000 $14,900 $19,900 $24,900 $29,800 $34,800
$150,000 18,300 24,400 30,500 36,600 42,700
$175,000 21,700 28,900 36,100 43,300 50,600
$200,000 25,000 33,400 41,700 50,100 58,400
The Plan provides benefits based on final average compensation, defined in the
Plan as the average of the consecutive five highest of the last ten years
compensation, and on years of service. Compensation under the Plan is
essentially equivalent to the aggregate amounts reported as annual salary and
bonus compensation in the Summary Compensation Table above. Total years of
service are limited to 35 and benefits are computed on a straight life annuity
basis. Mr. Auberry and Mr. Wijewickrama named in the Summary Compensation Table
have more than the maximum 35 years of service. Mr. Lutz would have more than 35
years of service under the plan, assuming his employment to age 65.
SECURITY OWNERSHIP
The number of shares of common stock (the Company's only voting security)
beneficially owned or held under option by (a) all executive officers, directors
and nominees for director and (b) each person or entity owning more than 5% of
the outstanding shares of common stock (including persons or entities who may be
deemed a group for purposes of the federal securities laws), as known by
management of the Company, based upon information furnished to the Company by or
on behalf of such person or entity, as "beneficial ownership" is defined under
Rule 13d-3 under the Securities Exchange Act of 1934, is set forth in the
following table:
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AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP ON SEPTEMBER 26, 2003
SOLE
VOTING SHARED
AND VOTING AND TOTAL PERCENT
DISPOSITIVE DISPOSITIVE STOCK BENEFICIAL OF
NAME POWER POWER(1) OPTIONS OWNERSHIP CLASS(2)
Officers and Directors:
David Lutz 4,500 45,000 49,500 3.71%
Fred K. Webb, Jr. 500 12,000 12,500 0.94%
Directors :
James T. Emerson 766,972 766,972 57.48%
Horace Auberry * 78,920 1,540 45,000 125,460 9.40%
Rolf Kaufman * 48,620 6,600 4,000 59,220 4.44%
Claude S. Abernethy, Jr.* 9,000 2,000 11,000 0.82%
William M.Cousins, Jr. 2,000 2,000 0.15%
John D. Lovelace 2,000 2,000 0.15%
Katherine J.Emerson 300 4,000 4,300 0.32%
Officers:
Chandra Wijewickrama 12,500 12,500 0.94%
Sven Oberg 5,000 5,000 10,000 0.75%
Other Officers 8,900 19,000 27,900 2.09%
All Officers and Directors
as a Group (14) 920,212 16,640 146,500 1,083,352 81.19%
Owners of More Than 5% of the Company's Common Shares:
Other than Officer/Director Auberry and Director Emerson shown above, the
Company is not aware of any other beneficial owner of more than five percent of
its Common Shares.
* Nominee for reelection to the Board of Directors.
(1) Shares owned jointly with spouse and shares held by spouse and children
over whom the listed person may have substantial influence by reason of
the relationship are shown as shared voting and dispositive power.
(2) Percent of total shares outstanding (1,185,746) and shares issuable
under options exercisable within 60 days (148,500).
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STOCKHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING
Proposals of qualified stockholders intended to be presented at the Company's
2004 Annual Stockholders Meeting must be received by the Secretary at the
address stated herein no later than June 30, 2004, in order to be considered for
inclusion in the Company's Proxy Statement and Proxy for that meeting.
By Order of the Board of Directors
RICHARD A. WOOD, JR.
Secretary
Waynesville, North Carolina
October 17, 2003
A copy of the Company's 2003 Form 10-K (Annual Report filed with the Securities
and Exchange Commission) is available at no charge to any stockholder requesting
it. Requests should be made in writing and addressed to the Secretary, Wellco
Enterprises, P. O. Box 188, Waynesville, NC 28786.
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EXHIBIT A
PRESENT COMPANY ARTICLES OF INCORPORATION AND BY-LAWS RELATING TO
SIZE AND COMPOSITION OF BOARD OF DIRECTORS,
REMOVAL OF DIRECTORS AND AMENDMENTS
ARTICLES OF INCORPORATION
Article Ninth: The property and business of this corporation shall be managed by
its Board of Directors. The number of Directors which shall constitute the whole
board shall be nine, divided and classified into three classes, to be
designated, respectively, Class I, Class II and Class III, each Class to consist
of three Directors. At the 1976 annual meeting of stockholders, all of the
Directors shall be elected: Class I for a term to expire at the 1977 annual
meeting of stockholders; Class II for a term to expire at the 1978 annual
meeting of stockholders; Class III for a term to expire at the 1979 annual
meeting of stockholders; and in the case of each Class, until their respective
successors are duly elected and qualified, or until their resignation, death, or
removal by stockholders for cause. At each annual meeting of stockholders
commencing in 1977, directors shall be elected to fill any vacancies then
existing and to succeed those whose terms have expired, and the directors so
elected shall be identified as being of the same class as the directors they
succeed and shall be elected to hold office for the term of the class to which
each is elected, and until their respective successors are duly elected and
qualified, or until their resignation, death, or removal by stockholders for
cause.
If any vacancy shall occur in the Board of Directors by reason of the death,
resignation, or disqualification as by law provided, the directors then in
office, although less than a quorum, may by majority vote to fill any such
vacancy, and any director so chosen shall hold office until the next annual
meeting of the stockholders and until his successor shall be duly elected and
qualified; provided, however, that if in the event of any such vacancy, the
directors remaining in office shall be unable, by majority vote, to fill such
vacancy within thirty (30) days after the occurrence thereof, the President or
the Secretary may call a special meeting of the stockholders at which such
vacancy shall be filled. Any Director elected by stockholders may be removed
from office as a Director at any time, but only for cause, by the affirmative
vote of stockholders of record holding a majority of the outstanding shares of
stock of the corporation entitled to vote in elections of Directors given at a
meeting of stockholders duly called for that purpose.
Article Tenth: This corporation reserves the right to amend, alter, change, or
repeal any provision contained in this corporation's Articles of Incorporation
in effect from time to time, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation; provided, however, that the foregoing Article Ninth may be
amended only by the affirmative vote of stockholders of record holding
two-thirds of the outstanding shares of stock of this corporation entitled to
vote upon such amendment given at a meeting of stockholders duly called for that
purpose and no amendment to this Article Tenth modifying such requirement may be
adopted except upon the same affirmative vote.
BY-LAWS
13. The property and business of this corporation shall be managed by its Board
of Directors. The number of Directors which shall constitute the whole Board
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shall be nine, classified into three classes, to be designated, respectively,
Class I, Class II, and Class III, each class to consist of three Directors. At
the 1976 annual meeting of stockholders, all of the Directors shall be elected:
Class I for a term to expire at the 1977 annual meeting of stockholders; Class
II for a term to expire at the 1978 annual meeting of stockholders; Class III
for a term to expire at the 1979 annual meeting of stockholders; and in the case
of each Class until their respective successors are duly elected and qualified,
or until their resignation, death, or removal by stockholders for cause. At each
annual meeting of stockholders commencing in 1977, directors shall be elected to
fill any vacancies then existing and to succeed those whose terms, have expired,
and the directors so elected shall be identified as being of the same class as
the directors they succeed and shall be elected to hold office for the term of
the class to which each is elected, and until their respective successors are
duly elected and qualified, or until their resignation, death, or removal by
stockholders for cause.
54. Paragraphs 13, 38, 39, and this Paragraph 54 may be amended only by the
affirmative vote of stockholders of record holding two-thirds of the outstanding
shares of stock of the corporation entitled to vote upon such amendment given at
a meeting of stockholders duly called for that purpose. All other provisions of
these By-Laws may be altered, amended or rescinded by the affirmative vote of a
majority of the Board of Directors at a duly held meeting for such purpose, pro
vided three days written notice of the proposed action shall have been given to
each director.
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EXHIBIT B
PROPOSED CHANGES IN COMPANY ARTICLES OF INCORPORATION AND BY-LAWS
RELATING TO SIZE AND COMPOSITION OF BOARD OF DIRECTORS, REMOVAL OF PROPOSED
DIRECTORS AND AMENDMENTS
ARTICLES OF INCORPORATION
Article Ninth: The property and business of the corporation shall be managed by
its Board of Directors. The Board of Directors of the corporation who shall hold
their offices until their successors be chosen according to the by-laws of the
corporation, shall consist of nine members. Effective with the Annual
Stockholders Meeting of the corporation in the year 2003 and subsequent years,
Directors whose terms have then expired shall be elected annually, with the
result that by the corporation's Annual Stockholders Meeting in 2005 all Classes
of the Board of Directors shall have been eliminated and all Directors of the
corporation shall be elected annually at said 2005 Annual Stockholders Meeting
and all future Annual Stockholders Meetings.
If any vacancy shall occur in the Board of Directors by reason of the death,
resignation, or disqualification as by law provided, the directors then in
office, although less than a quorum, may by majority vote to fill any such
vacancy, and any director so chosen shall hold office until the next annual
meeting of the stockholders and until his successor shall be duly elected and
qualified; provided, however, that if in the event of any such vacancy, the
directors remaining in office shall be unable, by majority vote, to fill such
vacancy within thirty (30) days after the occurrence thereof, the President or
the Secretary may call a special meeting of the stockholders at which such
vacancy shall be filled. Any Director elected by stockholders may be removed
from office as a Director at any time, but only for cause, by the affirmative
vote of stockholders of record holding a majority of the outstanding shares of
stock of the corporation entitled to vote in elections of Directors given at a
meeting of stockholders duly called for that purpose.
Article Tenth: This corporation reserves the right to amend, alter, change, or
repeal any provision contained in this corporation's Articles of Incorporation
in effect from time to time, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
BY-LAWS
13. The property and business of this corporation shall be managed by its
board of directors, consisting of nine (9) in number. Each director shall be
elected to serve until his successor shall be elected and shall qualify.
Effective with the Annual Stockholders Meeting of this corporation in the year
2003 and subsequent years, Directors whose terms have then expired shall be
elected annually, with the result that by this corporation's Annual Stockholders
Meeting in 2005 all Classes of the Board of Directors shall have been eliminated
and all Directors of the corporation shall be elected annually at said 2005
Annual Stockholders Meeting and all future Annual Stockholders Meetings.
54. These By-Laws may be altered, amended or rescinded by the affirmative vote
of a majority of the Board of Directors at a duly held meeting for such purpose,
provided three days written notice of the proposed action shall have been given
to each director.
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Exhibit C
Wellco Enterprises, Inc.
Audit Committee Charter.
Adopted May 16, 2000ter.
Revised November 19, 2002
The Audit Committee (herein the "Committee") is a standing committee of the
Board of Revised November 19, 2002 Directors (herein the "Board") of Wellco
Enterprises, Inc. (herein the "Company"). The Committee's primary function is to
assist the Board in fulfilling its oversight responsibilities by reviewing the
financial information to be furnished by the Company to its stockholders and
others, the systems of internal controls which the Company's management and
Board have established and the Company's audit process.
I. Composition of the Committee
The Committee shall consist solely of independent directors, as determined by
the Board of Directors, and will be at least three (3) in number. In determining
the independence of directors serving on the Audit Committee, the Board of
Directors shall measure independence using the requirements of the American
Stock Exchange. Audit Committee members shall be free of any relationships that
would interfere with the exercise of independent judgement.
Each member of the Committee must be able to read and understand fundamental
financial statements, including the Company's balance sheet, income statement,
and cash flow statement or will become able to do so within a reasonable period
of time after his or her appointment to the Committee. Additionally, at least
one member of the Committee shall have past employment experience in finance or
accounting, requisite professional certification in accounting, or any other
comparable experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities.
II. Duties of the Committee
In meeting its responsibilities, the Audit Committee ("Committee:) is expected
to:
1. Be directly responsible for the appointment, compensation, and
oversight of the work of any registered public accounting firm
("independent auditor" or "auditor") employed by Wellco (including
resolution of disagreements between management and the auditor
regarding financial reporting) for the purpose of preparing or issuing
an audit report or related work, and each such independent auditor
shall report directly to the Audit Committee.
2. Preapprove all auditing services and non-audit services, other than as
stated below.
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This preapproval requirement is waived with respect to the provision of
non-audit services , if:
A. The aggregate amount of all such non-audit services is not
more than 5 percent of the total amount of revenues paid to
the auditor during the fiscal year in which the nonaudit
services are provided;
B. Such services were not recognized at the time of the
engagement to be non-audit services; and
C. Such services are promptly brought to the attention of the
Audit Committee and approved prior to the completion of the
audit by the Audit Committee or by 1 or more members of the
Audit Committee who are members of the board of directors to
whom authority to grant such approvals has been delegated by
the Audit Committee.
The Audit Committee may delegate to 1 or more designated members of the
Audit Committee who are independent directors of the Board Of
Directors, the authority to grant preapprovals required by this
subsection. The decisions of any member to whom authority is delegated
under this paragraph to preapprove an activity under this subsection
shall be presented to the full Audit Committee at each of its scheduled
meetings.
If the Audit Committee approves an audit service within the scope of
the engagement of the auditor, such audit service shall be deemed to
have been preapproved.
3. Provide an open avenue of communication between management, the
independent auditor, and the Board. The Committee shall have full and
unrestricted access to all employees of the Company and its
subsidiaries, including providing for the confidential, anonymous
submission by employees of Wellco and its subsidiaries, concerns
regarding questionable accounting or auditing matters.
4. Engage independent counsel and other advisers, as it determines
necessary to carry out its duties. Wellco will provide the Audit
Committee appropriate funding for any such counsel and advisers, as
well as appropriate funding for payment of compensation to the
independent auditor, all as determined by the Audit Committee.
5. Review and update the Committee's charter annually.
6. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall confirm
and assure the independence of the auditor, including a review of non-
audit services and related fees provided by the auditor, consistent
with Independence Standards Board Standard 1. The Audit Committee will
actively engage in a dialogue with the auditor with respect to any
disclosed relationships or services that may impact the
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objectivity and independence of the auditor. The Audit Committee will
take appropriate action to oversee the independence of the auditor.
7. Inquire of management and the independent auditor about significant
risks or exposures and assess the steps management has taken to
minimize such risk to the company.
8. Discuss with management and the independent auditor the Company's
critical accounting policies.
Consider, in consultation with the independent auditor, the audit scope
and plan of management and the independent auditor.
9. Review with the independent auditor:
A. The adequacy of the company's internal controls including
computerized information system controls and security.
B. Any related significant findings and recommendations of the
independent auditor, together with management's responses
thereto.
10. The Committee, or the Chairman of the Committee, shall review with
management and the independent auditor at the completion of the annual
examination:
A. The Company's annual financial statements and related
footnotes;
B. The independent auditor's audit of the financial statements
and its report thereon;
C. Any significant changes required in the independent auditor's
audit plan;
D. Any serious difficulties or disputes with management
encountered during the course of the audit;
E. Discuss with the independent auditor, the matters required to
be discussed by Statement of Auditing Standards 61; and
F. Other matters related to the conduct of the audit which are
to be communicated to the Committee under generally accepted
auditing standards.
11. If the review is done by the Chairman, after he/she has completed the
review in Item 11 above, he/she shall either recommend to the Company's
Board of Directors that the Audited Financial Statements be included in
the Company's Annual Report Form 10-K or shall convene a meeting of the
Committee if the Chairman deems the same appropriate. If a meeting is
convened, the Committee shall recommend that the Audited Financial
Statements be so included.
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12. The Committee, or the Chairman of the Committee, shall review with
management and the independent auditor quarterly filings with the SEC
before the same are filed. If the review is done by the Chairman,
he/she shall convene a meeting of the Committee for such purpose if the
Chairman deems the same appropriate.
13. Report Committee actions to the Board with such recommendations as the
Committee may deem appropriate.
14. Prepare a report and any other disclosure, as required by the rules and
regulations of the SEC, for inclusion in the Company's proxy statement.
15. The Committee shall have the power to conduct or authorize
investigations into any matters required to meet its responsibilities.
16. The Committee shall meet at least four times per year or more
frequently as circumstances require. The Committee may ask members of
management or others to attend the meeting and provide pertinent
information as necessary. Such meetings may be held by telephone
conference call or in person.
17. The Committee will perform such other functions as assigned by law, the
Company's Articles of Incorporation or bylaws, or the Board.
18. Audit Committee members will be informed that in Exchange Act Release
No. 42266 the Securities and Exchange Commission stated that, by
adopting new rules and amendments related to audit committees, it did
not "intend to subject companies or their directors to increased
exposure to liability under securities laws, or to create new standards
for directors to fulfill their duties under state corporation law."
Audit Committee members will also be informed that the Securities and
Exchange Commission has added to its regulations a "safe harbor" (Item
306(c) of Regulation S-K) for the information contained in the Audit
Committee report included in the Company's proxy statement.
III. Adoption of Charter
This Charter was initially adopted by the Company's Audit Committee and its
Board of Directors at their meetings duly held on May 16, 2000; was revised by
the Company's Audit Committee and its Board of Directors at their meetings duly
held on November 19, 2002; and, shall be reviewed, reaffirmed or revised as
appropriate by the Board at its regular annual meeting hereafter ensuing.
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