SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11c or Section 240.14a-12
</Table>
HUFFY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
HUFFY CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
[HUFFY CORPORATION LOGO]
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 2002
To our Shareholders:
It is a pleasure to invite you to attend your Company's 2002 Annual Meeting
of Shareholders which will be held this year on Thursday, April 25, 2002, 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. Prior to and immediately following the
meeting, various Company products and services will be exhibited. For your
convenience, a map of the area and directions to the meeting are enclosed.
If you plan to attend the meeting an admission ticket will be required and
is attached to the proxy card. Please indicate the number attending from your
immediate family. If your shares are held in the name of a broker or other
nominee and you do not have an admission ticket, please bring with you a proxy
or letter from the broker, trustee, bank or nominee confirming your beneficial
ownership of the shares.
Formal Notice of the Meeting and Proxy Statement accompany this letter.
Whether or not you plan to be at the meeting, it is important to exercise your
right to vote. Please vote so that your shares will be represented at the
meeting. You can vote electronically by telephone or via the Internet which
eliminates the need to return the proxy card, or vote on the enclosed proxy card
and sign, date and return it promptly in the envelope provided. I look forward
to seeing you at the meeting.
Sincerely,
/s/ Don R. Graber
Don R. Graber
Chairman of the Board
[HUFFY CORPORATION LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 2002
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
25, 2002, at 10:00 a.m. Eastern Daylight Time for the following purposes:
1. To elect one Director to serve for a term of two years;
2. To approve an Amended and Restated 1998 Director Stock Option Plan
to provide for restrictive stock awards in lieu of options;
3. To ratify the appointment of KPMG LLP as independent public
accountants for 2002; 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 28, 2002 are
entitled to vote at the meeting or any adjournment(s) thereof.
By Order of the Board of Directors
/s/ Nancy A. Michaud
Nancy A. Michaud
Secretary
Dayton, Ohio
March 6, 2002
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER YOU
EXPECT TO ATTEND OR NOT, PLEASE VOTE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED, POSTAGE PAID ENVELOPE OR VOTE ELECTRONICALLY
BY TELEPHONE OR VIA THE INTERNET WHICH ELIMINATES THE NEED TO RETURN THE PROXY
CARD.
TO VOTE BY TELEPHONE:
- Have your proxy card in hand when you call.
- On a touch-tone telephone, call TOLL-FREE 1-866-207-3912, 24 hours a day,
7 days a week.
- You will be prompted to enter your control number printed in the box
located near the top of your proxy card.
- Follow the recorded instructions.
TO VOTE VIA INTERNET:
- Have your proxy card in hand when you access the web page.
- Go to HTTP://WWW.EPROXYVOTE.COM/HUF/.
- Have your control number printed in the box located at the top of your
proxy card available when you access the web page.
- Follow the web page instructions.
HUFFY CORPORATION
225 BYERS ROAD
MIAMISBURG, OHIO 45342
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 2002
---------------------
March 6, 2002
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 25, 2002, and any
adjournment(s) of such meeting. This Proxy Statement and the accompanying proxy
card were first mailed to Shareholders on or about March 6, 2002. 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 $5,500.
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 10,387,422 shares
issued and outstanding as of February 28, 2002, 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 James F. Robeson for a
two year term expiring in the year 2004; (2) in favor of the amendment and
restatement of the 1998 Directors Stock Option Plan; (3) in favor of
ratification of the appointment of KPMG LLP as independent public accountants
for the Company for 2002; 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.
1
ELECTION OF DIRECTORS
The Company's Board of Directors is currently comprised of seven (7)
Directors and is divided into three (3) classes. Beginning at the 2002 Annual
Meeting of Shareholders, the Company's Board of Directors will be divided into
two classes in accordance with the Company's Code of Regulations. The Board of
Directors of the Company recommends that one Director be elected for a two-year
term expiring in 2004. The Board of Directors of the Company currently has seven
Directors: one whose term expires in 2002, three whose terms expire in 2003, and
three whose terms expire in 2004. James F. Robeson, whose term expires in 2002,
has been recommended by the Nominating and Governance Committee of the Board of
Directors and nominated by the Board of Directors for election to the Board of
Directors for a two-year term expiring in 2004.
Under Ohio law, if a Shareholder gives written notice to the President, a
Vice President or the Secretary of the Company, not less than 48 hours before
the time fixed for the Annual Meeting, that such Shareholder desires the voting
at the election of Directors to be cumulative, and if an announcement of the
giving of such notice is made upon the convening of the meeting by the chairman
or secretary of the meeting or by or on behalf of the Shareholder giving such
notice, then the Directors will be elected by cumulative voting. In such event,
each Shareholder has the right to give one candidate a number of votes equal to
the number of Directors then being elected multiplied by the number of such
Shareholder's shares, or to distribute such Shareholder's votes on the same
principle among two or more candidates. In the event that Directors are elected
by cumulative voting and cumulated votes represented by proxies solicited hereby
are insufficient to elect all the nominees, then the holders of the proxies
intend to vote such proxies cumulatively for the election of as many of such
nominees as possible and in such order as the holders may determine. Votes will
be counted by LaSalle Bank, N.A. acting as the inspector of elections.
Under Ohio law and the Company's Code of Regulations, the nominee receiving
the greatest number of votes shall be elected as a Director. Shares as to which
authority to vote is withheld, abstentions and shares not voted by brokers and
other entities holding shares on behalf of beneficial owners will not be counted
and will have no effect on the outcome of the election.
The following table sets forth certain information as to the nominee for
Director and each other person whose term of office as Director will continue
after this Annual Meeting:
<Table>
<Caption>
SERVED AS
NAME AND PRINCIPAL OCCUPATION DIRECTOR
FOR THE PAST FIVE YEARS(1) AGE SINCE
- ----------------------------- --- ---------
NOMINEE FOR TERM EXPIRING IN 2004
James F. Robeson, Consultant to various distribution 65 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; prior thereto
Herbert E. Markley Visiting Scholar in Business at Miami
University since 1995(2)
DIRECTORS WHOSE TERMS EXPIRE IN 2004
Don R. Graber, Chairman of the Board, President and Chief 58 1996
Executive Officer of the Company since December, 1997; prior
thereto President and Chief Operating Officer of the Company
since July 1996(3)
Linda B. Keene, Principal, Waterford Marketing Group since 50 1993
July 2001 (engaged in marketing and organizational
consulting services); prior thereto Vice President -- Market
Development of American Express Financial Advisors from 1994
to 2001 (engaged in financial advising services)(4)
Thomas C. Sullivan, Chairman and Chief Executive Officer of 64 1995
RPM, Inc. (manufacturer of specialty chemicals and coatings)
since 1971(5)
</Table>
2
<Table>
<Caption>
SERVED AS
NAME AND PRINCIPAL OCCUPATION DIRECTOR
FOR THE PAST FIVE YEARS(1) AGE SINCE
- ----------------------------- --- ---------
DIRECTORS WHOSE TERMS EXPIRE IN 2003
W. Anthony Huffman, retired from the Company and currently 59 1997
President of Huffman Travel Limited (engaged in travel
services) since 1997
Donald K. Miller, Chairman of Axiom International Investors, 70 1988
LLC (engaged in international equity asset management) since
1999; currently President of Presbar Corporation (engaged in
private equity investing and investment banking) since 1999;
prior thereto Chairman of Greylock Financial Inc. (engaged
in private equity investing and investment banking) since
1992(6)
Joseph P. Viviano, retired Vice Chairman of Hershey Foods 63 1996
Corporation (engaged in the manufacture, distribution and
sale of consumer food products) since March 2000; prior
thereto Vice Chairman of such company since from 1999 to
2000; prior thereto President and Chief Operating Officer of
such company since 1994(7)
</Table>
- ---------------
(1) Except as disclosed herein, no information is included in this Proxy
Statement for any portion of a period in which a Director did not hold
office as a Director of the Company.
(2) Mr. Robeson is a Director of Moto Photo, Inc.
(3) Mr. Graber is a Director of Precision Castparts Corporation and Amcast
Industrial Corporation.
(4) Ms. Keene is a Director of Scholastic Corporation.
(5) Mr. Sullivan is a Director of Pioneer-Standard Electronics, Inc., RPM, Inc.,
and Kaydon Corporation.
(6) Mr. Miller is a Director of Layne Christensen Company, and RPM, Inc.
(7) Mr. Viviano is a Director of Chesapeake Corporation, Harsco Corporation,
R.J. Reynolds Tobacco Holdings, Inc., and RPM, Inc.
MEETINGS BY, AND CERTAIN COMMITTEES OF, THE COMPANY'S BOARD OF DIRECTORS
During the year 2001, James F. Robeson (Chairman), Linda B. Keene and
Donald K. Miller 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 members of the
Audit Committee are independent, as defined in the New York Stock Exchange's
listing standards. During the last fiscal year, the Audit Committee met four
times.
During the year 2001, Thomas C. Sullivan (Chairman), Patrick W. Rooney and
Joseph P. Viviano comprised the Compensation Committee up to the 2001 Annual
Meeting of Shareholders; thereafter, Thomas C. Sullivan (Chairman), James F.
Robeson and Joseph P. Viviano comprised the Compensation Committee of the Board
of Directors. The Compensation Committee sets salary and benefits policy, and
determines compensation and benefit levels for the Company's Officers and
certain other key employees. During the last fiscal year, the Compensation
Committee met three times.
During the year 2001, Joseph P. Viviano (Chairman), W. Anthony Huffman and
Linda B. Keene comprised the Nominating and Governance Committee. This Committee
seeks out and reviews the qualifications of possible candidates for Board
membership. Shareholders may submit nominee 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. The Committee also conducts the annual
Chief Executive Officer and Board assessments. During the last fiscal year, the
Nominating and Governance Committee met three times.
3
During the last fiscal year, the Board of Directors met ten times. No
Director attended fewer than 75 percent of the aggregate number of meetings of
the Board of Directors and meetings of Committees thereof during the time such
person was a Director and member of any such Committee.
COMPENSATION OF DIRECTORS
In 2001, the Company's non-employee Directors ("Outside Directors")
received annual base compensation of $22,500. All Directors received additional
compensation of $1,000 per Board meeting attended. The Chairmen of the Audit
Committee, the Compensation Committee, and the Nominating and Governance
Committee received additional compensation of $3,000 per year. Each Committee
member (including the Chairman of the Committee) received $1,000 for each
Committee meeting attended. Additionally, Directors received consulting fees of
$500 for each half day of service provided outside their normal duties as
Directors when such services were provided at the request of management of the
Company and $500 for Board of Directors' visits to Company operation sites.
Directors received $2,500 for attendance at Board of Directors' retreat meetings
but such fee was in lieu of all meeting fees for Board and Committee meetings
held during such retreat. No Director who is an employee of the Company receives
any compensation for services as a Director.
DIRECTOR PLANS
Pursuant to the Company's 1998 Director Stock Option Plan (the "1998
Directors Plan"), Outside Directors may elect to defer payment of their fees or
take part or all of their annual base fees in the form of stock options. The
1998 Directors Plan provides for the automatic grant of options to purchase
2,000 shares of the Company's Common Stock on the second business day after each
Annual Meeting of Shareholders. Options are granted to Outside Directors at a
purchase price equal to 100 percent of the fair market value of the Common Stock
on the date of grant.
In addition to options granted automatically 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:
<Table>
Portion of Annual Base
Compensation Not Received x 1.5 = Number of Shares
- -------------------------
Fair Market
Value minus $1.00
</Table>
For the 12 month period beginning May 1, 2001, and ending April 30, 2002,
Outside Directors have elected not to receive, in the aggregate, $122,000 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.
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
4
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, 2002, 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
Nominee 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, 2002.
<Table>
<Caption>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2)
--------------------------- ------------
Don R. Graber............................................... 300,971(3)
Timothy G. Howard........................................... 100,690(4)
W. Anthony Huffman.......................................... 130,469(5)
Linda B. Keene.............................................. 32,444(6)
Robert W. Lafferty.......................................... 18,566(7)
Nancy A. Michaud............................................ 99,512(8)
Donald K. Miller............................................ 227,264(9)
James F. Robeson............................................ 43,017(10)
Thomas C. Sullivan.......................................... 43,321(11)
Joseph P. Viviano........................................... 46,523(12)
All Directors, the Nominee and Executive Officers, including
Named
Executive Officers, as a Group (10 persons)............... 1,042,777
</Table>
- ---------------
(1) All shares are held with sole voting and sole investment power unless
otherwise indicated in the footnotes below.
(2) Except for Don R. Graber, W. Anthony Huffman and Donald K. Miller whose
Common Stock ownership is 2.85 percent, 1.25 percent, and 2.18 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 own 9.52 percent of
the issued and outstanding shares of Common Stock of the Company as of
January 2, 2002.
(3) Mr. Graber has shared investment power with respect to 3,100 shares held by
his spouse. The total amount also includes 167,500 shares as to which Mr.
Graber holds options exercisable within 60 days.
(4) Mr. Howard has shared voting and shared investment power with respect to
14,586 shares held jointly with his spouse. The total amount also includes
70,606 shares as to which Mr. Howard holds options exercisable within 60
days.
5
(5) Mr. Huffman has sole voting and sole investment power with respect to
81,175 shares. Mr. Huffman has shared investment power with respect to 975
shares held by his spouse. The total amount also includes 48,319 shares as
to which Mr. Huffman holds options exercisable within 60 days.
(6) Ms. Keene has shared voting and shared investment power with respect to
3,904 shares held jointly with her spouse. The total amount also includes
28,540 shares as to which Ms. Keene holds options exercisable within 60
days.
(7) The total amount includes 14,500 shares as to which Mr. Lafferty holds
options exercisable within 60 days.
(8) Ms. Michaud has shared investment power with respect to 2,293 shares held
by her spouse as trustee. The total amount also includes 82,882 shares as
to which Ms. Michaud holds options exercisable within 60 days.
(9) Mr. Miller has sole voting and sole investment power with respect to
182,627 shares, of which 40,000 shares are held by him as custodian for his
children. Mr. Miller has shared investment power with respect to 4,475
shares held by his spouse. The total amount also includes 40,162 shares as
to which Mr. Miller holds options exercisable within 60 days.
(10) Mr. Robeson has shared investment power with respect to 1,000 shares held
by his spouse. The total amount also includes 40,162 shares as to which Mr.
Robeson holds options exercisable within 60 days.
(11) The total amount includes 36,071 shares as to which Mr. Sullivan holds
options exercisable within 60 days.
(12) Mr. Viviano has shared voting and shared investment power with respect to
500 shares held jointly with his spouse. The total amount also includes
33,723 shares as to which Mr. Viviano holds options exercisable within 60
days.
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.
<Table>
<Caption>
AMOUNT AND
NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(3)
- ------------------------------------ -------------------- ----------
David L. Babson & Company Inc.(1)........................... 943,300 9.09%
One Memorial Drive
Cambridge, Massachusetts 02142-1300
Dimensional Fund Advisors Inc.(2)........................... 883,525 8.51%
1299 Ocean Avenue,
11th Floor
Santa Monica, California 90401
</Table>
- ---------------
(1) This information is taken from the Schedule 13G, dated January 11, 2002,
filed by David L. Babson & Company Inc. with the Securities and Exchange
Commission, which disclosed David L. Babson & Company Inc. has sole voting
power with respect to 942,800 shares, shared voting power with respect to
500 shares, sole investment power with respect to 943,300 shares, and shared
investment power with respect to 0 shares.
(2) This information is taken from the Schedule 13G, dated January 30, 2002,
filed by Dimensional Fund Advisors Inc. with the Securities and Exchange
Commission, which disclosed Dimensional Fund Advisors Inc. has sole voting
power with respect to 883,525 shares, shared voting power with respect to 0
shares, sole investment power with respect to 883,525 shares, and shared
investment power with respect to 0 shares.
6
(3) Percentages listed are those disclosed in the referenced Schedules 13G and
are not verified by the Company.
REPORT OF AUDIT COMMITTEE
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee of the Board ("Audit Committee") assists the Board in
fulfilling its responsibility for oversight of the quality and integrity of the
accounting, auditing and financial reporting practices of the Company. During
2001, 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. The Audit Committee Written Charter is included as Exhibit 2 to this proxy
statement.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from the independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence consistent with Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees,"
discussed with the auditors any relationships that may impact their objectivity
and independence and satisfied itself as to the auditors' independence. The
Audit Committee also discussed with Management, the independent third party
("outside") internal auditors and the independent auditors the quality and
adequacy of the Company's internal controls and the outside internal audit
function's organization, responsibilities, budget and staffing. The Audit
Committee reviewed with both the independent auditors and the outside internal
auditors audit plans, audit scope, and identification of audit risks.
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, 2001, 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, 2001, for filing with the Securities
and Exchange Commission. The Audit Committee also recommended the reappointment
of the independent auditors and the Board concurred in such recommendation.
SUBMITTED BY THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Linda B. Keene, Donald K. Miller, James F. Robeson (Chairman)
REPORT OF COMPENSATION COMMITTEE
Decisions on compensation and stock options of the Company's Executive
Officers are made by the Compensation Committee of the Board of Directors (the
"Committee") which is comprised of non-employee Directors.
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS
The Company's executive compensation program is designed to tie a
significant portion of executive compensation to the Company's success in
meeting specified performance goals and to apprecia-
7
tion in the price of the Company's Common Stock. This strategy is designed to
attract and retain the best possible executive talent, to motivate these
executives to achieve the Company's goals, to link executive and Shareholder
interests, and to provide a compensation package that recognizes individual
contributions as well as overall business results. In reviewing the individual
performance of the Named Executive Officers whose compensation is detailed in
this Proxy Statement, other than that of Mr. Don R. Graber, the Chief Executive
Officer, the Committee takes into account the views of Mr. Graber.
The Committee compares the Company's executive compensation structure
against those of other manufactured products businesses and retail service
providers whose size is adjusted to that of the Company. The Committee believes
that such manufactured products businesses and service providers generally
represent the Company's most direct competitors for executive talent. The
Committee's policy is to evaluate competitive base salary ranges and total
compensation based on the 50th percentile level of total compensation paid by
manufactured products businesses and service providers for comparable positions.
The Company's actual overall executive compensation levels are generally below
such 50th percentile levels. The Committee reviews competitive pay practices on
an annual basis.
The key elements of the Company's 2001 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 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 2001) by an independent compensation
consultant who evaluates the responsibilities of each such position and compares
the Company's salary level for the position to comparable positions at other
manufactured products businesses and retail service providers nationwide. The
Company's policy is to generally pay competitive base salaries by using the 50th
percentile levels at manufactured products businesses and service providers for
comparable positions as guidelines and to review such salary levels annually.
Annual salary adjustments within such base salary ranges are determined by
evaluating the performance of the Executive Officer and the Executive Officer's
current base salary as compared to 50th percentile competitive pay practices and
the Company's overall annual salary increase budget. Performance of an Executive
Officer is evaluated based upon the employee's accomplishment of his or her
duties, objectives established by his or her supervisor (in the case of Mr.
Graber by the Board of Directors), and general management abilities. Elected
Chairman, President and Chief Executive Officer, in December 1997, Mr. Graber's
base salary was increased, effective September 1, 2001, to $620,000. To incent
improved earnings, Mr. Graber proposed and the Compensation Committee accepted
his proposal to not increase his base salary again until 2004 and, beginning in
2002, to increase the incentive measure for his annual bonus, at target, from 55
percent to 65 percent, interpolated from such measurement for threshold and
maximum annual bonus performance.
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 2001 approved by the Committee and by the Board of Directors
was based equally 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 13.75 percent (13.75 percent for Mr.
Graber) of their annual base salaries at threshold level, from 30 percent to 55
percent (55 percent for Mr. Graber) of their annual base salaries
8
at target level with 80 percent of the bonuses based on Corporate performance
and 20 percent on individual personal objectives. For 2001, threshold and target
level bonus required corporate performance, from continuing operations,
including restructuring and refinancing, with RONA at 12.1 percent and 14.2
percent, respectively, EPS at $1.06 and $1.25, respectively, and a free cash
flow goal of $29,407,000 and $34,597,000, respectively. 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 2001, the Company reported a
RONA of (7.0) percent, an EPS of $(0.82), from continuing operations, including
restructuring and refinancing, and a free cash flow of $38,237,000. Based on
free cash flow results, Mr. Graber was awarded an annual performance bonus of
$173,350. Free cash flow results for the Corporation exceeded the bonus target
resulting in cash at 2001 year-end of $26,541,000 and no debt.
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 2001, 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 2001, threshold
awards required an EPS of $1.10, RONA of 8.6 percent, and TSR of 14.4 percent.
For 2001, EPS was $(0.82), RONA was (7.0) percent and TSR was (27.0) percent.
Mr. Graber received no Long-Term Incentive Plan payment for 2001.
STOCK OPTIONS
Under the Company's 1998 Key Employee Stock Plan ("1998 Plan"), stock
options may be granted by the Committee to the Company's Executive Officers and
other key managers. The Committee sets guidelines for the size and frequency of
stock option grants which grants are based upon the Executive Officers'
performance and results achieved. Stock options are granted to Executive
Officers with an exercise price equal to the closing market price of the Common
Stock on the date of grant and generally become exercisable in four equal,
annual installments commencing one year from the date of grant. This approach is
designed to motivate the creation of Shareholder value over the long term since
the full benefit of the compensation package cannot be realized unless Common
Stock appreciation occurs. In December 2001, the Committee awarded Mr. Graber
75,000 options at $6.20 per share. As of January 2, 2002, Mr. Graber
beneficially owned 300,971 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 graph set forth on page 13 shall not be incorporated by reference
into any such filings.
CERTAIN RELATIONSHIPS AND OTHER RELATED TRANSACTIONS
The Company, through a wholly-owned subsidiary, provides certain services
in the ordinary course of business to RPM, Inc. Mr. Thomas C. Sullivan, a
Director of the Company, is the Chairman and Chief Executive Officer of RPM,
Inc. During the year ended December 31, 2001, RPM, Inc. paid $87,000 for such
services which were provided on terms, conditions, and prices competitive with
those offered to other purchasers of such services.
9
Roberds, Inc. filed for Chapter 11 bankruptcy protection on January 19,
2000. Mr. James F. Robeson, a Director of the Company, was formerly the Chief
Executive Officer and President of Roberds, Inc. He ceased to be an executive
officer of such company in July 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for 2001 were James F. Robeson,
Patrick W. Rooney, Thomas C. Sullivan, and Joseph P. Viviano, none of whom is or
was a current or former officer or employee of the Company or any of its
subsidiaries. No Executive Officer of the Company serves as a Director or as a
member of a committee of any company of which any of the Company's Directors are
executive officers.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER INFORMATION
The following table shows, for the fiscal years ended December 31, 1999,
2000 and 2001, the cash compensation paid by the Company as well as certain
other compensation paid or accrued for those years, to each of the Executive
Officers, including Don R. Graber, the Chairman, President and Chief Executive
Officer of the Company, in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS
-------------------------------- -----------------------
OTHER NUMBER ALL
ANNUAL RESTRICTED OF OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) SATION(2) AWARD(S)(3) SARS(4) PAYOUTS(5) SATION(6)
- ------------------ ---- ---------- --------- --------- ------------ -------- ----------- ---------
Don R. Graber............... 2001 $ 593,097 $ 173,350 0 $ 80,118 75,000 $ 0 $ 29,992
Chairman of the Board..... 2000 554,231 673,910 0 47,497 50,000 520,833 6,308
President and Chief....... 1999 540,000 0 1,245 112,947 30,000 66,667 20,232
Executive Officer
Robert W. Lafferty(7)....... 2001 $ 272,691 $ 33,550 $ 147,730 $ 11,762 30,000 $ 0 $ 12,600
Vice President-Finance,... 2000 260,000 169,563 0 5,004 17,000 66,437 8,600
Chief Financial Officer... 1999 -- -- -- -- -- -- --
and Treasurer
Nancy A. Michaud............ 2001 $ 216,538 $ 28,075 $ 0 $ 12,594 40,000 $ 0 $ 11,159
Vice President-General.... 2000 199,962 149,484 0 7,653 34,000 122,381 4,957
Counsel and Secretary..... 1999 186,400 0 905 7,731 0 9,100 8,637
Timothy G. Howard........... 2001 $ 189,606 $ 23,925 $ 0 $ 21,330 10,000 $ 0 $ 10,724
Vice
President-Controller.... 2000 182,819 129,418 0 32,428 20,000 131,522 5,377
1999 175,708 0 3,061 34,802 0 9,100 8,788
</Table>
- ---------------
(1) "Salary" and "Bonus" include amounts that would have been payable currently,
but were deferred at an election of a Named Executive Officer, such as
through the Company's 401(k) Savings Plan. Free cash flow results for the
Corporation exceeded the bonus target resulting in cash at 2001 year-end of
$26,541,000 and no debt.
(2) No perquisites were provided or other personal benefits paid to a Named
Executive Officer in 2001 which exceeded the lesser of $50,000 or ten
percent of the total annual salary and bonus reported for such Named
Executive Officer.
(3) The 1998 Restricted Share Plan replaces 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. The Benefit Plan provides that each recipient will be entitled to an
annual grant of restricted shares in an amount having a fair market value
equal to up to one-half of the total dollar amount of such recipient's then
accrued and unfunded benefit under the
10
Benefit Plan as determined by the Company's actuary. There were a total of
21,616 restricted shares awarded to Named Executive Officers on June 18,
2001, which vest, following a six month period upon the earlier of death,
disability, retirement or vesting under the Company's Benefit Plan
(hereinafter defined) in accordance with the terms of the 1998 Restricted
Share Plan and which have a value, in the aggregate at December 31, 2001 of
$138,342.
(4) These numbers represent options for shares of the Company's Common Stock
granted pursuant to the Company's 1998 Key Employee Stock Plan. See next
table labeled "Option Grants in Last Fiscal Year."
(5) Long-Term Incentive Pay consists of amounts paid to each of the Named
Executive Officers under the Company's long-term incentive plans discussed
later in this Proxy Statement under the table labeled "Long-Term Incentive
Plans."
(6) "All Other Compensation" includes (i) Company contributions to the Company's
401(k) Savings Plan in the amount of $3,400 for Don R. Graber, Robert W.
Lafferty, Nancy A. Michaud and Timothy G. Howard to match 2001 pre-tax
elective deferral contributions (included under "Salary" and "Bonus") made
by each Named Executive Officer to such plan; (ii) accrued interest of $609
and $1,199 (being interest earned in excess of 120 percent of the applicable
federal long-term rate provided under Section 1274(d) of the Internal
Revenue Code of 1986, as amended), by Nancy A. Michaud and Timothy G.
Howard, respectively, on the Company's Capital Accumulation Plan (Timothy G.
Howard deferred salary in 1985 and 1986, and Nancy A. Michaud deferred
salary in 1987 pursuant to such plan); and (iii) the principal amounts of
$26,592, $9,200, $7,150, and $6,125 credited by the Company for Don R.
Graber, Robert W. Lafferty, Nancy A. Michaud, and Timothy G. Howard,
respectively, pursuant to the Company's Special Deferred Compensation
Agreements. Refer to "Employment Contracts and Termination of Employment and
Change-in-Control Arrangements" later in this Proxy Statement for
descriptions of such special deferred compensation agreements.
(7) Mr. Lafferty joined the Company as Vice President-Finance, Chief Financial
Officer and Treasurer on January 3, 2000. The amount in the Other Annual
Compensation column reflects certain sums Mr. Lafferty received in
connection with relocation to the Company headquarters in 2001.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1998 Key Employee Stock Plan ("1998 Plan") to the
Named Executive Officers for the year ended December 31, 2001, all of which are
reflected in the Company's Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
INDIVIDUAL GRANTS
------------------------
% OF POTENTIAL REALIZABLE VALUE
NUMBER TOTAL AT ASSUMED ANNUAL RATES
OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION RATES
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM(4)
OPTIONS IN FISCAL PRICE PER EXPIRATION ----------------------------
NAME GRANTED(1) YEAR SHARE(2)(3) DATE 0% 5% 10%
---- ------------ ---------- ----------- ---------- ---- --------- ---------
Don R. Graber............... 75,000 23.7% $6.20 12/13/11 0 $292,436 $741,090
Robert W. Lafferty.......... 30,000 9.5% 6.20 12/13/11 0 $116,974 $296,436
Nancy A. Michaud............ 40,000 12.7% 6.20 12/13/11 0 $155,966 $395,248
Timothy G. Howard........... 10,000 3.2% 6.20 12/13/11 0 $ 38,991 $ 98,812
</Table>
- ---------------
(1) The options were granted pursuant to the Company's 1998 Plan. All options
granted under the 1998 Plan in 2001 are non-qualified stock options. No
stock appreciation rights were granted under the 1998 Plan in 2001.
11
(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 option 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 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 2002.
(4) The options are calculated on option terms of ten years beginning December
13, 2001 through December 13, 2011. 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, 2001, and unexercised options held as of December 31, 2001:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF VALUE REALIZED OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
SHARES (MARKET PRICE AT END(1) AT FISCAL YEAR-END(1)(2)
ACQUIRED EXERCISE LESS --------------------------- ---------------------------
NAME ON EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------------- ----------- ------------- ----------- -------------
Don R. Graber............ 85,000 $471,750 160,000 90,000 $15,188 $15,000
Robert W. Lafferty....... -- -- 14,500 32,500 5,050 7,000
Nancy A. Michaud......... -- -- 82,882 40,000 11,138 8,000
Timothy G. Howard........ -- -- 70,606 10,000 6,413 2,000
</Table>
- ---------------
(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, 2001 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 represented by an option exceeds, as of December 31, 2001, the
per share exercise price of the option.
LONG-TERM INCENTIVE PLANS
The following table provides information concerning awards made to the
Named Executive Officers during the last fiscal year under the Company's
Long-Term Incentive Plan ("LTIP") with the Named
12
Executive Officers. No payments were made under the LTIP in the year ended
December 31, 2001 as reflected in the Summary Compensation Table.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<Table>
<Caption>
NUMBER OF ESTIMATED FUTURE PAYOUTS UNDER
SHARES PERFORMANCE OR NON-STOCK PRICE BASE PLAN
UNITS OTHER PERIOD UNTIL -------------------------------
NAME OTHER RIGHTS MATURATION OR PAYMENT THRESHOLD TARGET MAXIMUM
- ---- ------------ ----------------------- --------- -------- --------
Don R. Graber.................... (1) 3 years ending 12/31/03 $155,000 $310,000 $620,000
Robert W. Lafferty............... (1) 3 years ending 12/31/03 34,375 68,750 137,500
Nancy A. Michaud................. (1) 3 years ending 12/31/03 28,750 57,500 115,000
Timothy G. Howard................ (1) 3 years ending 12/31/03 24,500 49,000 98,000
</Table>
- ---------------
(1) Awards earned under the Company's 2001 LTIP cycle are payable during the
year following the end of a three-year award cycle in 2005. For the Named
Executive Officers, the LTIP is based one-third on earnings per share,
one-third on return on net assets, and one-third on total Shareholder return
over the performance period compared to targets approved by the Compensation
Committee at the beginning of the performance period.
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 500 Composite Stock Index ("S&P 500"), the Standard & Poor's
Small Cap 600 Value Index ("S&P Small Cap 600 Value") and the Standard & Poor's
Leisure Time Products Index ("Leisure Time Products"). The Company has been
classified as a member of the S&P Small Cap 600 Value and is not included in the
S&P 500. The performance graph is for the five-year period ended December 31,
2001:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN:
HUFFY CORPORATION, LEISURE TIME PRODUCTS, S&P 500 AND S&P 600 SMALL CAP VALUE
INDICES*
[GRAPH]
<Table>
Huffy S&P 500 Leisure Time Products
1996 100 100 100
1997 96.34 132.03 129.51
1998 120.23 169.45 99.46
1999 40.72 204.24 66.63
2000 50.42 184.12 59.82
2001 49.64 160.1 82.83
S&P 600 Small Cap Value
1996 100
1997 127.09
1998 142.94
1999 158.24
2000 164.86
2001 143.06
</Table>
* Assumes $100 invested on December 31, 1996 in Company Common Stock, the S&P
500, S&P 600 Small Cap Value and the Leisure Time Products Index and the
reinvestment of dividends.
PENSION PLAN TABLE
The Company's Salaried Employees' Retirement Plan (the "Retirement Plan")
is a defined benefit pension plan which provides benefits to salaried employees
not otherwise covered under another pension plan of the Company. The following
table shows the estimated annual benefits (assuming
13
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)
<Table>
<Caption>
YEARS OF SERVICE
---------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------ --------- --------- --------- --------- ---------
$150,000.... $ 31,270 $ 40,860 $ 50,450 $ 60,040 $ 60,040
250,000.... 53,770 70,860 87,950 105,040 105,040
500,000.... 110,020 145,860 181,700 217,540 217,540
750,000.... 166,270 220,860 275,450 330,040 330,040
1,000,000.. 222,520 295,860 369,200 442,540 442,540
1,250,000.. 278,770 370,860 462,950 555,040 555,040
1,500,000.. 335,020 445,860 556,700 667,540 667,540
2,000,000.. 447,520 595,860 744,200 892,540 892,540
</Table>
- ---------------
(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 $19,920. Thus, the offset is
$9,960 for a person with 30 or more years of service.
Monthly benefits upon normal retirement (age 65) 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 compensation times years
of service to a maximum of 30 years but not to exceed $2,257 for Mr. Graber for
the period ended December 31, 2001 and $0 for Mr. Lafferty, $1,358 for Ms.
Michaud and $1,417 for Mr. Howard for the period ended March 31, 2001.
Additional provisions for early retirement are included. As of January 3, 2002,
Mr. Graber has 17 years of credited service, Mr. Lafferty has 2 years of
credited service, Ms. Michaud has 15 years of credited service, and Mr. Howard
has 28 years of credited service. The 2001 compensation covered under the
Retirement Plan and Benefit Plan for Mr. Lafferty was $305,691.
The Company has established the Benefit Plan which provides additional
benefits to participants in the Retirement Plan whose benefits are reduced by
limitations imposed under Sections 415 and 401(a)(17) of the Code and Section
2004 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Under the Benefit Plan, Executive Officers and certain key employees
will receive at the same time and either in a lump sum or in the same form as
benefits paid under the Retirement Plan, additional benefits which, when added
to the benefits paid to the participant under the Retirement Plan, will equal
the benefit amount such participant would have earned but for the limitations
imposed by the Code and ERISA to the extent such limitations apply, and the
amount by which the sum of 45 percent of final average monthly compensation (as
defined under the Benefit Plan to include salary and bonus and based upon the
highest three years in the last ten) less 50 percent of the monthly PIA payable
under Social Security, with the difference prorated for less than 30 years of
service, plus $2,500 per year, exceeds benefits payable only under the
Retirement Plan, less the portion of such participant's benefit which has been
replaced by benefits under the Restricted Share Plan, as described in footnote 3
to the Summary Compensation Table. The Benefit Plan also provides that Executive
Officers and
14
certain key employees will be provided benefits beginning at age 58, in an
amount equal to such participants' then accrued benefits without actuarial
reduction for early commencement in the event of (i) a "change-in-control" of
the Company, as defined in the Benefit Plan, and (ii) subsequent termination of
employment. Except as noted in the preceding sentence, benefits under the
Benefit Plan will be reduced to an actuarial equivalent to reflect early
distribution in the same manner as benefits under the Retirement Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment contracts between the Company and any Executive
Officers of the Company.
The Named Executive Officers and certain other key employees of the Company
each have a Special Deferred Compensation Agreement pursuant to which on each
January 1 the Company credits to an account for such employee an amount equal to
two percent of the aggregate of the base salary paid in the preceding calendar
year and bonus paid or credited to such employee under the Annual Performance
Incentive Plan for preceding calendar year results. The aggregate amount in such
account is to be paid to the employee, subject to certain forfeitures, following
termination of employment. Such amounts for calendar year 2001 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
current compensation is being deferred by Named Executive Officers under the
Capital Accumulation Plan. Based upon the amount of such compensation deferred
in 1985, 1986, and 1987, the Company has agreed to pay certain annual amounts
generally beginning at age 65 or upon retirement, whichever occurs later, to
each such participant or to designated beneficiaries upon such participant's
death after retirement, until such participant reaches (or would have reached)
age 80. These annual amortized amounts will be calculated on the basis of
attributing from 19 to 24 percent per annum interest to the deferrals. A lump
sum benefit equal to any remaining balance of deferred amounts, with annual
interest at the rate noted below, will be paid in lieu of any annual benefits if
(i) a participant terminates employment with the Company other than by death or
disability prior to retirement (10 percent interest) or the Company terminates
the participant's employment for certain reasons other than cause or competing
with the Company (20 percent interest); (ii) a participant dies prior to
retirement (20 percent interest); or (iii) the Capital Accumulation Plan is
terminated by the Company because a change in federal or state laws, or judicial
or administrative interpretation thereof, has materially affected its cost to
the Company (20 percent interest). The Company will make supplemental pension
payments to persons participating in the Capital Accumulation Plan to the extent
pension benefits are reduced due to participation in such plan. Distributions
made and interest accrued in excess of 120 percent of the applicable federal
long-term interest rate provided under Section 1274(d) of the Code for the
benefit of the Named Executive Officers have been included in the Summary
Compensation Table.
The Company has historically provided its key executive officers with
severance benefits in the event of a change-in-control of the Company. During
2000, the Board of Directors undertook a review of the Company's outstanding
severance arrangements and determined it would be advisable to negotiate revised
and less costly arrangements with its Executive Officers, including three of the
Named Executive Officers, Messrs. Graber and Howard and Ms. Michaud.
Accordingly, these officers and the Company entered into Amended and Restated
Retention/Severance/Non-Competition Agreements which replaced their prior
agreements and Mr. Lafferty executed a similar agreement which, among other
provisions, established the maximum potential severance benefit at 2.99 times a
base amount, determined under applicable sections of the Code (which is
essentially the executive's average annual compensation over the preceding five
years), representing a substantial reduction in cost from the prior
arrangements. In addition, the revised agreements specify that the severance
benefit is only payable in the event the executive's employment is involuntarily
terminated, or voluntarily terminated by the
15
executive under certain circumstances, following the change-in-control. In
consideration for their agreement to the substantial reduction in their
potential severance benefits, the Named Executive Officers are also entitled to
certain long-term incentive payments in the event of the possible sale of
certain of the Company's operating businesses short of an actual
change-in-control in exchange for their personal agreements to maintain the
confidentiality of information and not to compete with the purchaser, as well as
additional non-competition payments in the event of a change-in-control of the
Company in amounts ranging from approximately 3.5 times for Mr. Graber and 1.0
times to 3.7 times for all other Named Executive Officers of the total
compensation set forth in the Summary Compensation Table. Previously, these
Named Executive Officers were not obligated to facilitate any potential Company
transactions by submitting to personal confidentiality and/or non-compete
restrictions.
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 AND RESTATE
THE 1998 DIRECTOR STOCK OPTION PLAN
INTRODUCTION
The Company has three stock-based incentive plans, all of which were
adopted by the Shareholders in 1998. They are the 1998 Key Employee Stock Plan,
the 1998 Restricted Share Plan, and the 1998 Director Stock Option Plan.
Following a review of the operation of these plans since their adoption in 1998,
the Board concluded that the Director Stock Option Plan should be revised to
provide for 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, rather than stock option grants. The details of the proposed
amendments are described below.
All three of the stock-based incentive plans share a fixed pool of
1,123,714 shares of the Company's Common Stock available for grant. The market
price of the Company's Common Stock was $6.30 as of January 2, 2002. The
proposed amendments to the Director Stock Option Plan do not include any change
in the total number of shares reserved for all three plans together.
The Board directed that its proposed amendments to the Director Stock
Option Plan be submitted for the approval of the Company's Shareholders in
accordance with the requirements of the New York Stock Exchange, the Internal
Revenue Code, and Rule 16b-3 promulgated under the Securities Exchange Act of
1934. 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 Director Stock Option Plan.
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.
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The following information is a brief summary of the proposed revisions to
the Director Stock Option Plan. The complete text of the plan, showing the
revised language, is attached as Exhibit 1 to this Proxy Statement, and
reference is made to Exhibit 1 for all particulars.
NATURE OF INCENTIVES
The Director Stock Option Plan presently provides for the grant of stock
options to the Company's Outside (non-employee) Directors under two
circumstances. One is an annual automatic grant to each Outside Director of
options to purchase 2,000 shares of Huffy Common Stock at a price equal to the
fair market value on the date of grant. The other is the grant of stock purchase
options at the election of individual Outside Directors in lieu of all or part
of their annual cash Directors' fees (presently $22,500 per year). The purchase
price of the Common Stock covered by such options will be $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 Plan.
All options granted under the Director Stock Option 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
Director Plan.
The proposed revisions to the Plan would eliminate the first category of
options, those granted automatically each year, and replace them with an annual
restricted stock grant of Huffy Common Stock having a fair market value of
$12,500. The shares included in such restricted stock grants would be forfeited
back to the Company at the time an Outside Director ceases to be a Director
except to the extent vested. Unlike the annual option grants presently in place,
restricted stock awards under the amended plan will not automatically vest due
to the passage of time. Instead, they will 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. The Directors' policy requires a
Director to own at least 1,200 Common Shares within 18 months after election to
the Board of Directors; 2,200 Common Shares on the third anniversary of a
Director's nomination to the Board of Directors; and 3,200 Common Shares on or
before the sixth such anniversary.
The Board believes that encouraging significant stock ownership by the
Directors serves to closely align the interests of the Shareholders, the Board
of Directors and the Company generally, and that by expressly tying a portion of
the Outside Directors' compensation to their personal achievement of the Board's
formal stock ownership guidelines, as the revised plan would do, the goal of
having Directors with substantial personal ownership of Huffy Common Stock, and
thus the long-term best interests of the Shareholders, will be advanced.
Because the nature of the incentives available under the plan will change,
the name of the plan will be changed from the "1998 Director Stock Option Plan"
to the "1998 Director Stock Incentive Plan", if the Shareholders approve the
proposed amendments.
TAX CONSEQUENCES
The options granted under the existing plan are "nonqualified" options for
federal income tax purposes. Accordingly, 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.
With respect to grants of restricted shares, which the plan will permit if
the proposed amendments are approved by the Shareholders, the recipient must
recognize ordinary income equal to the fair market
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value of the Common Stock at the first time the Common Stock becomes
transferable or not subject to a substantial risk for forfeiture, i.e., vested.
The Company generally will be entitled to a deduction for the same amount at the
time the recipient recognizes such income.
FUTURE RESTRICTED STOCK GRANTS
Under the existing plan and as it is proposed to be amended, 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 initial grants of restricted stock will be as set forth below.
It is not possible to determine any such benefits to be granted in subsequent
years.
NEW PLAN BENEFITS
<Table>
<Caption>
DIRECTOR NAME DOLLAR VALUE OF GRANT NUMBER OF UNITS
------------- --------------------- ---------------
W. Anthony Huffman........................................ $12,500 *
Linda B. Keene............................................ $12,500 *
Donald K. Miller.......................................... $12,500 *
James F. Robeson.......................................... $12,500 *
Thomas C. Sullivan........................................ $12,500 *
Joseph P. Viviano......................................... $12,500 *
Non-Executive Director Group (6 persons).................. $75,000 *
</Table>
- ---------------
* 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.
RECOMMENDATION
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENTS PROPOSED TO THE 1998 DIRECTOR STOCK OPTION PLAN.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of its Audit Committee, has
appointed the firm of KPMG LLP as independent public accountants for the Company
for calendar year 2002, 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.
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AUDIT FEES
The aggregate fees billed for professional services rendered by KPMG LLP
for its audit of the Company's annual financial statements for the year ended
December 31, 2001 and for its reviews of unaudited quarterly financial
statements contained in the reports on Form 10-Q filed by the Company during the
year amounted to $327,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
KPMG LLP did not provide any financial systems design or implementation
during the year.
ALL OTHER FEES
The aggregate fees billed for all services rendered by KPMG LLP other than
the Audit Fees described above, during the year ended December 31, 2001 amounted
to $155,623. The Company's Audit Committee did consider whether KPMG's provision
of such non-audit-related services was compatible with maintaining the
independence of KPMG LLP and concluded that it was compatible with maintaining
such independence.
OTHER MATTERS
Proposals of Shareholders intended to be presented at the 2003 Annual
Meeting of Shareholders must be received by the Company by November 7, 2002 for
inclusion in the Company's Proxy Statement and proxy relating to the 2003 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, 2002, unless the Company receives notice of such proposals
prior to January 21, 2003.
The Board of Directors does not intend to present to the meeting any
matters other than those mentioned herein. It does not know of anything that
will be presented by other parties, other than those mentioned herein. However,
if any other matters shall properly come before the meeting, it is the intention
of the persons named in the enclosed form of proxy to vote thereon according to
their discretion and best judgment.
By order of the Board of Directors
/s/ Nancy A. Michaud
Nancy A. Michaud
Secretary
Dayton, Ohio
March 6, 2002
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EXHIBIT 1
HUFFY CORPORATION
1998 DIRECTOR STOCK "OPTION" [INCENTIVE] PLAN
1. PURPOSE
The purpose of this 1998 Director Stock "Option" [INCENTIVE] Plan (the
"Plan") of Huffy Corporation (the "Company") 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 ("Outside Directors")
and whose continued services as directors are considered essential to the
Company's continued progress. The Plan would benefit the Company by
providing Outside Directors with a further incentive to continue as
directors of the Company and to increase shareholder value.
2. ADMINISTRATION
(a) The Plan shall be administered by a Committee of the Board of Directors
(the "Committee") which shall at all times consist of not less than
three officers of the Company who are not entitled to participate in
the Plan to be appointed by the Board of Directors of the Company and
to serve at the pleasure of the Board of Directors of the Company.
(b) Grants of "options" [RESTRICTED STOCK AND OPTIONS (COLLECTIVELY
REFERRED TO HEREIN AS "STOCK INCENTIVES")] under the Plan and the
amount and nature of the awards to be granted shall be automatic as
described in Sections 5 and 6 hereof. However, all questions of
interpretation of the Plan or of any options issued under it shall be
determined by the Committee, and such determination shall be final and
binding upon all persons having an interest in the Plan. Any action
taken by a majority of the Committee shall be the action of the
Committee.
3. PARTICIPATION IN THE PLAN
Each Outside Director of the Company shall be eligible to participate in
the Plan.
4. SHARES SUBJECT TO THE PLAN
(a) The total number of shares of the Company's Common Stock, $1.00 par
value ("Common Stock"), which may be issued in the aggregate under this
Plan, the 1998 Key Employee Stock Plan and the 1998 Restricted Share
Plan shall not exceed 1,123,714 shares subject, however, to
adjustments required under the provisions of Section 15 hereof.
(b) Common Stock subject to the Plan may be, at the discretion of the Board
of Directors, either authorized and unissued shares or treasury shares.
(c) If "an option" [A RESTRICTED STOCK AWARD IS FORFEITED BACK TO THE
COMPANY UNDER THE TERMS OF SECTION 5 HEREOF, THE SHARES OF COMMON STOCK
SUBJECT TO SUCH AWARD PRIOR TO SUCH FORFEITURE SHALL AGAIN BECOME
AVAILABLE FOR OFFERING UNDER THE PLAN.
(D) IF AN OPTION GRANTED UNDER SECTION 6 HEREOF] is surrendered for any
reason or for any reason ceases to be exercisable in whole or in part,
the Common Stock which is subject to such option, but as to which the
option has not been exercised, shall again become available for
offering under the Plan.
5. AUTOMATIC GRANT OF "OPTIONS" [RESTRICTED STOCK] TO OUTSIDE DIRECTORS
(a) An "option to purchase 2,000 shares of Common Stock" [AWARD OF COMMON
STOCK HAVING A FAIR MARKET VALUE OF $12,500, ROUNDED TO THE NEAREST
WHOLE SHARE, SUBJECT TO THE RESTRICTIONS SET FORTH IN SECTIONS 5(B) AND
5(C) BELOW,] shall be granted automatically on the second business day
after each Annual Meeting of Shareholders of the Company to each
Outside Director then in office. The foregoing notwithstanding, no
"options" [RESTRICTED STOCK] shall be
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granted under this Section 5 at any time when such grant would result
in a violation or possible violation of federal or state securities
laws.
(b) "The purchase price of the Common Stock covered by each option" [EACH
SHARE OF COMMON STOCK AWARDED UNDER SECTION 5(A) ABOVE SHALL VEST ON
THE DATE IMMEDIATELY PRECEDING THE DATE OF THE NEXT ANNUAL MEETING OF
SHAREHOLDERS FOLLOWING THE GRANT OF THE AWARD UNDER SECTION 5(A) IF THE
HOLDER IS THEN IN OFFICE AND IS IN COMPLIANCE WITH THE DIRECTOR STOCK
OWNERSHIP REQUIREMENTS SET FORTH IN DIRECTOR POLICY 10.02, AS THE SAME
MAY BE AMENDED FROM TIME TO TIME (OR ANY SUCCESSOR POLICY THERETO);
PROVIDED, THAT IF THE HOLDER IS NOT IN COMPLIANCE WITH SUCH DIRECTOR
STOCK OWNERSHIP REQUIREMENTS AS OF SUCH DATE, THEN THE AWARD WILL VEST
ON SUCH LATER DATE AS THE HOLDER, WHILE IN OFFICE, FIRST ACHIEVES
COMPLIANCE WITH SUCH DIRECTOR STOCK OWNERSHIP REQUIREMENTS.
(C) EACH SHARE OF COMMON STOCK AWARDED UNDER SECTION 5(A) ABOVE SHALL BE
AUTOMATICALLY FORFEITED BACK TO THE COMPANY, AND THE HOLDER THEREOF
SHALL HAVE NO FURTHER RIGHTS THEREIN, IF (I) SUCH SHARE HAS NOT YET
VESTED AND THE HOLDER THEREOF FOR ANY REASON CEASES TO SERVE AS A
MEMBER OF THE COMPANY'S BOARD OF DIRECTORS OR (II) THE HOLDER THEREOF
VIOLATES SECTION 11(B) HEREOF.
(D) THE HOLDERS OF RESTRICTED STOCK] granted under this Section 5 shall "be
100% of the fair market value of such Common Stock on the date of grant
of such option." [CONSTITUTE SHAREHOLDERS OF THE COMPANY FOR ALL
PURPOSES, INCLUDING VOTING AND THE RIGHT TO RECEIVE DIVIDENDS, UNLESS
AND UNTIL SUCH RESTRICTED STOCK IS FORFEITED TO THE COMPANY AS PROVIDED
IN SECTION 5(C) ABOVE. WITH RESPECT TO ANY RESTRICTED STOCK AWARD
HEREUNDER, THE STOCK CERTIFICATE REPRESENTING SUCH SHARES SHALL BEAR AN
APPROPRIATE LEGEND REFERENCING THIS PLAN AND THE FACT THAT SUCH SHARES
ARE SUBJECT TO A SUBSTANTIAL RISK OF FORFEITURE, AND THE COMPANY'S
SECRETARY SHALL RETAIN PHYSICAL POSSESSION OF SUCH CERTIFICATES, UNTIL
THE APPLICABLE RESTRICTIONS LAPSE IN ACCORDANCE WITH THIS PLAN.]
"(c)"
[(E)] The fair market value of Common Stock on a particular date shall be
the closing sale price for the Company's Common Stock as shown in the
New York Stock Exchange Composite Transactions for that date or, if
no such sale occurred on that date, then for the next preceding date
on which a sale was made. Subject to the foregoing, the Committee, in
"fixing the purchase price" [DETERMINING THE FAIR MARKET VALUE OF
COMMON STOCK FOR PURPOSES OF THIS PLAN], shall have full authority
and discretion and be fully protected in doing so.
6. DISCOUNTED OPTIONS IN LIEU OF RETAINERS
(a) In addition to any "options" [RESTRICTED STOCK] granted pursuant to
Section 5 hereof, options shall be granted automatically on May 1
and/or on such other date(s) as may be designated by the Committee from
time to time as date(s) to grant such options (or, if any such date is
not a business day, on the next succeeding business day) of any year to
any Outside Director who, prior to such date(s), files with the
Secretary of the Company an irrevocable election to receive an option
in lieu of all or any part (in multiples of $1,000) of Annual Retainer
fees to be earned in the then current Plan Year (i.e., the year
beginning May 1 and ending April 30; herein referred to as a "Plan
Year").
(b) The number of shares of Common Stock for which an option may be granted
under this Section 6 in any Plan Year shall be equal to the nearest
number of whole shares of Common Stock determined in accordance with
the following formula:
<Table>
Annual Retainer
- -------------------------------
(Fair Market Value minus $1.00) x 1.5 = Number of Shares
</Table>
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"Annual Retainer" shall mean the amount which the Director would be
entitled to receive for serving as a member of the Board of Directors
in such Plan Year exclusive of (i) fees for attending Board of
Directors meetings, (ii) fees associated with service on any committee
of the Board of Directors, or (iii) fees associated with any other
services to be provided to the Company. "Fair Market Value" shall mean
the fair market value of a share of Common Stock on the date of grant
computed pursuant to Section "5(c)"[5(D)] hereof.
(c) The purchase price per share of the Common Stock covered by each option
granted under this Section 6 shall be $1.00.
7. NON-STATUTORY STOCK OPTIONS; STOCK APPRECIATION RIGHTS
All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422A of the Internal Revenue
Code of 1986, as amended to date and as may be amended from time to time. No
stock appreciation rights shall be granted under the Plan.
8. NOTICE OF GRANT OF "OPTION" [STOCK INCENTIVE]
The Committee shall promptly cause each Outside Director to whom "an option"
[A STOCK INCENTIVE] is granted under the Plan to be notified of the fact of
such grant. Such notice shall set forth, among other things, [(I) IN THE
CASE OF AN OPTION] the exercise price of the option, the term of the option,
provisions regarding exercisability of the option "and"[; (II) IN THE CASE
OF A RESTRICTED STOCK AWARD THE FAIR MARKET VALUE PER SHARE USED IN
DETERMINING THE AMOUNT OF THE GRANT, THE DATE OF GRANT, AND A DESCRIPTION OF
THE RESTRICTIONS; AND (III)] such other provisions as the Committee and the
Board of Directors of the Company shall deem advisable which are not
inconsistent with the terms herein stated.
9. PERIOD OF OPTION
Subject to Section 12(a) of this Plan, no option may be exercised until six
(6) months following the date upon which it was granted. No option shall be
exercisable after the expiration of ten (10) years from the date upon which
such option is granted. Each option shall be subject to termination before
its date of expiration as hereinafter provided.
10. EXERCISE OF OPTIONS
An option may be exercised by notice given to the Committee, in such form as
the Committee may require, accompanied by full payment of the purchase price
for the Common Stock as to which the option is exercised in United States
dollars in cash (including check, bank draft or money order). No fraction of
a share may be purchased by an option holder upon exercising his option, and
to the extent that the use of fractional or percentage computations would
otherwise give rise to the right of the option holder to purchase a fraction
of a share, the total shares subject to exercise shall be adjusted to the
nearest whole number with any half share balance being adjusted to one whole
share. No option may be exercised in the event of a breach of Section 11(b)
of this Plan.
11. "EXERCISE UPON RETIREMENT OR AFTER THE DEATH OF A DIRECTOR" [LIMITATION ON
OPTION EXERCISE AND FORFEITURE OF RESTRICTED STOCK]
(a) Options may be exercised only while the option holder is serving as a
member of the Board of Directors of the Company and may not be
exercised at any time after termination of his service as a member of
the Board of Directors for any cause, whether upon retirement or
otherwise, except as hereinafter provided:
(i) Upon the retirement of a member of the Board of Directors of the
Company because of total and permanent disability, upon expiration
of such Director's term of office, or otherwise in accordance with
the then current Board of Directors' retirement policy, or upon the
resignation of a Director from the Board of Directors because of a
potential conflict of interest which precludes him from further
service to the Company as a Director, then in any of the foregoing
instances, he shall have the right, at any time during the balance
of the ten
22
(10) year period of such option, to purchase all or any part of the
Common Stock covered by such option. If he shall die during such
period, his rights hereunder may be exercised by his executor or
administrator or the person or persons to whom his rights under the
option are transferred by will or by the laws of descent and
distribution.
(ii) Upon the death of a member of the Board of Directors of the Company
while serving as such, his executor or administrator or the person
or persons to whom his rights under the option are transferred by
will or by the laws of descent and distribution shall have the
right, at any time during the balance of the ten (10) year period
of such options, to purchase all or any part of the Common Stock
covered by such option.
(b) In no event shall an option be exercised, including but not limited to
upon any event set forth in Section 10 or this Section 11, [AND A
RESTRICTED STOCK AWARD SHALL BECOME SUBJECT TO IMMEDIATE FORFEITURE,]
if the "option" holder [THEREOF] engages or participates, directly or
indirectly as an officer, director, employee, sales representative,
partner, individual proprietor, consultant, holder of debt or equity
securities (except for ownership of less than one percent (1%) of the
issued and outstanding securities of any publicly held corporation) or
otherwise, in or for any company, corporation, partnership or other
business entity of any kind whatsoever, whether within or outside the
United States of America, which competes against any of the businesses
engaged in or contemplated by the Company (including subsidiaries and
other affiliated business entities of the Company, or its respective
successors or in any of its related interests which developed or arose
prior to, during or after the effective date or term of this Plan), or
in or for any affiliate of such competitive company, corporation,
partnership or other business entity. For purposes of the preceding
sentence, it is understood and agreed that the business activities of
the Company are carried on throughout the world. In the event either a
majority of the members of the Committee or a majority of the
disinterested members of the Board of Directors, in their sole
discretion, determines that an "option holder" [OUTSIDE DIRECTOR] has
violated or breached this provision, then all options held by the
"option holder" [OUTSIDE DIRECTOR] shall be terminated [AND ALL
RESTRICTED STOCK GRANTED TO THE OUTSIDE DIRECTOR SHALL BE FORFEITED]
effective the date of such breach.
(c) Irrespective of the above, no option may be exercised after the
expiration of the exercise period provided in Section 9 of this Plan.
12. CHANGE IN CONTROL
(a) In the event of a "Change in Control" of the Company, as defined below,
then notwithstanding anything to the contrary in this Plan or any
notice issued pursuant to this Plan, (i) all options then outstanding
shall become immediately and fully exercisable and [ALL RESTRICTIONS
APPLICABLE TO RESTRICTED STOCK AWARDS SHALL IMMEDIATELY LAPSE, AND]
(ii) the then outstanding options of any Outside Director whose service
as a member of the Board of Directors is terminated upon or within
twenty-four (24) months after a Change in Control, shall remain
exercisable during the balance of the ten (10) year period of such
option.
(b) A "Change in Control" shall mean the occurrence of any one or more of
the following events:
(i) Shares of Common Stock of the Company have been acquired other than
directly from the Company in exchange for cash or property by any
person who thereby becomes the owner of more than twenty percent
(20%) of the Company's outstanding shares of Common Stock;
(ii) Any person has made a tender offer for, or a request for
invitations for the tender of, shares of Common Stock of the
Company;
(iii) Any person forwards or causes to be forwarded to shareholders of
the Company a proxy statement or statements in any period of
twenty-four (24) consecutive months soliciting proxies to elect to
the Board of Directors of the Company two (2) or more persons who
23
were not nominated as candidates for the Board of Directors of the
Company in proxy statements forwarded to shareholders during such
period on behalf of the Board of Directors of the Company.
13. ASSIGNABILITY
An option granted under the Plan may not be transferred except by will or
the laws of descent and distribution, and during the lifetime of the option
holder, may be exercised only by him, his guardian or his legal
representative. [COMMON STOCK INCLUDED IN A RESTRICTED STOCK AWARD MAY NOT
BE TRANSFERRED OR ASSIGNED IN ANY WAY UNLESS AND UNTIL ALL APPLICABLE
RESTRICTIONS THEREON HAVE LAPSED BUT AFTER SUCH LAPSE SHALL BE FREELY
TRANSFERABLE SUBJECT ONLY TO APPLICABLE FEDERAL AND/OR STATE SECURITIES
LAWS.]
14. LIMITATION OF RIGHTS
(a) Neither the Plan, nor the granting of "an option" [A STOCK INCENTIVE]
nor any other action taken pursuant to the Plan, shall constitute or be
evidence of any agreement or understanding, express or implied, that
the Company will retain a member of the Board of Directors as a
director for any period of time, or at any particular rate of
compensation.
(b) An option holder shall have no rights as a shareholder of the Company
with respect to the Common Stock covered by his options until the date
of the issuance to him of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for which the
record date is prior to the date such certificate is issued.
15. ADJUSTMENT UPON CHANGES IN SHARES
In the event of any change in the Common Stock subject to the Plan or to any
option granted hereunder 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, the aggregate number of shares as to which options may be granted
under this Plan, the number and class of shares subject to each outstanding
option and the price per share shall be appropriately adjusted by the
Committee.
16. DURATION AND TERMINATION OF THE PLAN
The Plan shall become effective upon its approval by the shareholders and
shall terminate on the tenth (10th) anniversary of the date of such approval
unless terminated at an earlier date by action of the Board of Directors;
provided, however, that any such termination of this Plan after shareholder
approval shall not affect "options" [STOCK INCENTIVES] granted prior
thereto.
17. AMENDMENT OF THE PLAN
The Board of Directors may alter or amend the Plan from time to time prior
to its termination; but without the approval of the shareholders, no such
amendment shall (a) except as provided in Section 15 hereof, change the
aggregate number of shares of Common Stock which may be issued under the
Plan upon [THE GRANT OF RESTRICTED STOCK AWARDS OR UPON] exercise of
options, (b) reduce the option prices permissible hereunder at which options
may be exercised, (c) extend the time within which options may be granted
hereunder or the time within which "options" [STOCK INCENTIVES] may be
exercised, (d) change the [TERMS OF THE RESTRICTIONS APPLICABLE TO
RESTRICTED STOCK AWARDS, (E) CHANGE THE] designation of the class of
directors eligible to receive options, "(c)"[(F)] materially increase the
benefits accruing to participants under the Plan or "(f)"[(G)] without the
consent of the "option" [STOCK INCENTIVE] holder, alter or affect to the
detriment of the "option" [STOCK INCENTIVE] holder any "option" [STOCK
INCENTIVE] previously granted under the Plan.
18. LAWS AND REGULATIONS
(a) The Plan and all "options" [STOCK INCENTIVES] granted pursuant to it
are subject to all laws and regulations of any governmental authority
which may be applicable thereto, and notwithstand-
24
ing any provisions of this Plan or the options, the holder of an option
shall not be entitled to exercise such option, nor shall the Company be
obligated to issue any shares under the Plan to such holder, if such
exercise or issuance shall constitute a violation by the option holder
or the Company of any provisions of any such law or regulation.
(b) The Company, in its discretion, may postpone the issuance and delivery
of Common Stock [WITH RESPECT TO ANY RESTRICTED STOCK AWARD OR] upon
any exercise of an option until completion of any stock exchange
listing or registration or other qualification of such shares under any
state or federal law, rule or regulations as the Company may consider
appropriate; and may require any person [RECEIVING A RESTRICTED STOCK
AWARD OR] exercising an option to make such representations and furnish
such information as it may consider appropriate in connection with the
issuance of the shares in compliance with applicable law. Under such
circumstances, the Company shall proceed with reasonable promptness to
complete any such listing, registration or other qualification.
(c) Common Stock issued and delivered upon exercise of an option [OR GRANT
OF A RESTRICTED STOCK AWARD AND/OR LAPSE OF THE RESTRICTIONS THEREON]
shall be subject to such restrictions on trading, including appropriate
legending of certificates to that effect, as the Company, in its
discretion, shall determine are necessary to satisfy applicable legal
requirements and obligations.
19. INDEMNIFICATION
Each person who is or shall have been a member of the Committee or of the
Board of Directors shall be indemnified and held harmless by the Company
against and from any loss, cost, liability, or expense that may be imposed
upon or reasonably incurred by him in connection with or resulting from any
claim, action, suit, or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act upon under
the Plan and against and from any and all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him in satisfaction of
judgment in any such action, suit or proceeding against him; provided he
shall give the Company an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such person may be entitled under
the Company's Articles of Incorporation or Code of Regulations, as a matter
of law, or otherwise, or any power that the Company may have to indemnify
him or hold him harmless.
20. NOTICES
Each notice relating to this Plan shall be in writing and delivered in
person or by first class or certified mail to the proper address. Each
notice shall be deemed to have been given on the date it is received. Each
notice to the Committee shall be addressed as follows:
Huffy Corporation
225 Byers Road
Miamisburg, OH 45342
Attention: Secretary
Each notice to the option holder or other person then entitled to exercise
an option shall be addressed to the option holder, or such other person or
persons, at the option holder's address set forth in the Company's records.
Anyone to whom a notice may be given under this Plan may designate, in
writing, a new address by notice to that effect.
25
EXHIBIT 2
AUDIT COMMITTEE CHARTER
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, one such member having accounting
or related financial expertise 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. The Committee is expected to maintain free and open
communication (including private executive sessions at least annually) with the
independent accountants, the internal auditors and the management of the
Corporation. 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.
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 recommend to the Board of Directors
the firm of public accountants to be selected, evaluated, and, where
appropriate, replaced by the Corporation, and verify and ensure the
independence of such firm, discussing with the Board of Directors any
relationships that may adversely affect the independence of the auditor.
The Audit Committee is responsible for ensuring that the outside
independent auditor submits on a periodic basis to the Audit Committee a
formal written statement delineating all relationships between the
auditors and the Corporation. The public accountant firm is ultimately
accountable to the Board of Directors and the Audit Committee.
(ii) The Audit Committee shall, prior to the annual audit of the
Corporation or any non-routine audit, meet with the auditors
conducting such audit for the purpose of discussing:
- The scope of the audit.
- The extent and sufficiency of internal accounting controls.
- Coordination with and review of internal auditing work of the
Corporation.
- The cost of the audit.
(iii) The Audit Committee shall have the authority to instruct the
auditors to expand the extent of their audit or to specify particular
areas for examination by the auditors.
(iv) Prior to the release of the financial statements contained in
the quarterly Form 10-Q, such statements will be reviewed with the
Chairman of the Audit Committee and other members of the Committee will
be notified in advance of the review date and time so as to be afforded
the opportunity to participate in such review.
(v) Following completion of the annual audit, the Audit Committee
shall meet with the auditors to review the audit and their report
thereon.
26
(vi) The Audit Committee shall also, following completion of the
audit, review the auditors' evaluation of:
- The quality and adequacy of the accounting financial and
internal audit policies and procedures of the Corporation.
- The overall internal controls of the Corporation.
- The impact of opinions of the Financial Accounting Standards
Board, releases of the Securities and Exchange Commission,
regulations of the New York Stock Exchange, changes in the tax
laws and any other pertinent laws or regulations that could
have an impact upon the Corporation's financial condition and
statements.
- The adequacy of management disclosure of financial information
to the Directors.
(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 least annually, 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) Ensuring both the public accountants and the internal auditors
will have direct access to members of the Audit Committee.
(d) Reviewing 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.
(e) The Committee shall report to the Board of Directors on the
auditors' findings and shall make such recommendations to the Board of
Directors on audit matters or procedures as it may deem appropriate.
(f) The Audit Committee shall review this charter annually.
Quorum/Attendees - The Audit Committee will be comprised of not less than
three Directors (all of whom shall be Outside Directors (defined to mean
non-employees of the Corporation)) 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 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.
The Audit Committee may have in attendance at its meetings such members of
management, the auditors of the Corporation or other parties as it may deem
necessary to provide the required information to carry out its responsibilities.
All members of the Committee will receive a copy of the minutes of each
meeting of the Audit Committee following such meeting.
27
HUFFY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.[ ]
-----------------------
-----------------------
Control Number
Will Attend Annual Meeting Your Board of Directors recommends a vote FOR the following: For Withheld
1. Election of Director: [ ] [ ]
Please indicate number attending:___ Nominee: (1) James F. Robeson
___________________________________________________________
Change of Address (Except nominees written above)
Mark here for address change and
revise pre-printed address [ ] 2. Amended and Restated 1998 Director Stock Option Plan to provide for
restrictive stock awards in lieu of options. For Against Abstain
[ ] [ ] [ ]
3. Ratification of appointment of KPMG LLP as independent public
accountants for 2002. For Against Abstain
[ ] [ ] [ ]
Signature(s)__________________, Date:___, 2002
Signature(s)__________________, Date:___, 2002
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 Access the World Wide Web site at
by phone toll-free. Simply dial http://www.eproxyvote.com/huf/ to MARK, SIGN AND DATE your proxy
1-866-207-3912 and follow the vote via the Internet. Have your card. Detach your proxy card and
simple recorded instructions. Have control number (located near the return it in the postage-paid
your control number (located near top of this form) available when envelope provided.
the top of this form) available you access the web site. If you
when you call. vote your shares via the Internet,
there is no need to return your
Your telephone vote authorizes the proxy card.
named proxies to vote your shares
in the same manner as if you marked,
signed and returned your proxy card.
If you vote your shares by telephone,
there is no need to return your
proxy card.
You can vote by phone or via the Internet anytime prior to 11:59 p.m. on April 24, 2002. You will need the control number
printed at the top of this page to vote by phone or via the Internet. If you do so, you do not need to mail in your proxy card.
HUFFY CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS APRIL 25, 2002
P The undersigned hereby appoints W. Anthony Huffman, Donald K. Miller
R and Joseph P. Viviano, and each of them, his or her proxies, with
O power of substitution, to vote all shares of Common Stock of HUFFY
X CORPORATION, an Ohio corporation, which he or she may be entitled to
Y vote at the Annual Meeting of Shareholders of said Corporation to be
held April 25, 2002, 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 DIRECTOR, NOMINEE
(FOR A TERM OF TWO YEARS)
JAMES F. ROBESON
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO CHOICE IS SPECIFIED, THIS PROXY WILL
BE VOTED (A) FOR THE NOMINATED DIRECTOR, (B) FOR THE AMENDING AND RESTATING OF
THE DIRECTOR 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 NOMINEE, AT THE DISCRETION OF
SAID PROXIES. [SEE REVERSE SIDE]
HUFFY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
ADMISSION TICKET
April 25, 2002, 10:00 a.m. [MAP]
Frederick C. Smith Auditorium
Sinclair Community College
444 West Third Street
Dayton, Ohio
DIRECTIONS TO SINCLAIR COMMUNITY COLLEGE
- - Take the Third Street Exit (53A off of I-75) (northbound or southbound);
- - Turn right onto Perry Street;
- - Go one block to Fourth Street and turn right;
- - Underground parking garage is on the right in the Sinclair Center.
If you plan to attend the meeting, please check the box and indicate the number
attending on the reverse side of the proxy form. Please detach this card and
bring it with you to the meeting for presentation at the meeting.