<PAGE> 1
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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
HUFFY CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
HUFFY CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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:
================================================================================
<PAGE> 2
HUFFY CORPORATION LOGO
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 1998
To our Shareholders:
It is a pleasure to invite you to attend your Company's 1998 Annual Meeting
of Shareholders which will be held this year on Friday, April 17, 1998, at 9:00
a.m. Pacific Daylight Time, at the Marriott Coronado Island Resort, 2000 Second
Street, Coronado, California.
The 1998 Annual Meeting location was chosen to commemorate the tenth
anniversary of the Company's acquisition of Washington Inventory Service and its
second consecutive year of record sales and earnings. Shareholders will be
invited to tour the Washington Inventory Service offices following the
conclusion of the Annual Meeting.
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. For your convenience, a map of the area and directions
to the hotel are printed on the back of the admission ticket.
Formal Notice of the Meeting and Proxy Statement accompany this letter.
Please sign, date and return the enclosed proxy card in the envelope provided as
soon as possible so that your shares will be represented at the meeting. We hope
you will be present at the meeting.
Sincerely,
/s/ Don R. Graber
Don R. Graber
Chairman of the Board
<PAGE> 3
HUFFY CORPORATION LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 1998
The Annual Meeting of Shareholders of Huffy Corporation (the "Company"), an
Ohio corporation, will be held at the Marriott Coronado Island Resort, 2000
Second Street, Coronado, California, on Friday, April 17, 1998, at 9:00 a.m.,
Pacific Daylight Time, for the following purposes:
1. To elect three Directors to serve for terms of three years.
2. To approve the Huffy Corporation 1998 Director Stock Option Plan.
3. To approve the Huffy Corporation 1998 Key Employee Stock Plan.
4. To approve the Huffy Corporation Restricted Share Plan.
5. To ratify the appointment of KPMG Peat Marwick LLP as independent public
accountants for 1998.
6. To consider two shareholder proposals that have been presented to the
Company for consideration by shareholders as properly may be brought
before the Annual Meeting.
7. To transact such other business as properly may be brought before the
Annual Meeting or any adjournment(s) thereof.
Shareholders of record at the close of business on February 27, 1998, 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 5, 1998
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. WHETHER YOU
EXPECT TO ATTEND OR NOT, PLEASE DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL
IT PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE TO SAVE THE COMPANY THE
EXPENSE OF FOLLOW-UP LETTERS AND TELEPHONE CALLS.
<PAGE> 4
HUFFY CORPORATION
P.O. BOX 1204
DAYTON, OHIO 45401
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 1998
MARCH 5, 1998
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 17, 1998, and any
adjournment(s) thereof. This Proxy Statement and the accompanying proxy card
were first mailed to Shareholders on or about March 5, 1998. 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 $5,000.
VOTING SECURITIES
The authorized voting capital stock of the Company consists of 60,000,000
shares of Common Stock, $1.00 par value, of which there were 12,474,310 shares
issued and outstanding as of February 27, 1998, 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
thereof 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 Don R. Graber, Linda B.
Keene, and Thomas C. Sullivan; (2) for the approval of the Huffy Corporation
1998 Director Stock Option Plan; (3) for the approval of the Huffy Corporation
1998 Key Employee Stock Plan; (4) for the approval of the Huffy Corporation
Restricted Share Plan; (5) against the shareholder proposals; (6) in favor of
ratification of the appointment of KPMG Peat Marwick LLP as independent public
accountants for the Company for 1998; and (7) 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 substitute
nominee(s) designated by the Board of Directors, or take other legally
permissible action in the event that any 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, P.O. Box
1204, Dayton, Ohio 45401, Attention: Nancy A. Michaud, Secretary.
1
<PAGE> 5
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes. The Board
of Directors of the Company recommends that three Directors be elected each for
a three year term expiring in 2001. The Board of Directors of the Company
currently has 10 Directors: four whose terms expire in 1998, three whose terms
expire in 1999, and three whose terms expire in 2000. In 1998, in accordance
with Ohio law and the Company's Code of Regulations, the Board of Directors set
the number constituting the full Board on the date of the 1998 Annual Meeting of
Shareholders to 9. Don R. Graber, Linda B. Keene and Thomas C. Sullivan, whose
terms expire in 1998, have each 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 three year term expiring
in 2001. Geoffrey W. Smith, whose term expires in 1998, is retiring from the
Board of Directors in accordance with the Company's Director Retirement Policy.
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 Harris Trust and Savings Bank acting as the inspector of
elections.
Under Ohio law and the Company's Code of Regulations, the three nominees
receiving the greatest number of votes shall be elected as Directors. Shares as
to which authority to vote is withheld, abstentions and shares not voted by
brokers and other entities holding shares on behalf of beneficial owners will
not be counted and will have no effect on the outcome of the election.
The following table sets forth certain information as to each 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
- ------------------------------------------------------------ --- ---------
<S> <C> <C>
NOMINEES FOR TERMS EXPIRING IN 2001
Don R. Graber, Chairman of the Board, President and Chief 54 1996
Executive Officer of the Company since December, 1997;
prior thereto President and Chief Operating Officer of the
Company since July, 1996; prior thereto President of
Worldwide Household Products Group and Group Vice
President of The Black & Decker Corporation (engaged in
the marketing and manufacture of products used in and
around the home and for commercial applications) since
1993(2)
Linda B. Keene, Vice President-Market Development of 46 1993
American Express Financial Advisors since 1994 (engaged in
financial advising services); prior thereto Vice
President-Marketing Services of The Pillsbury Company
Thomas C. Sullivan, Chairman and Chief Executive Officer of 60 1995
RPM, Inc. (manufacturer of specialty chemicals and
coatings)(3)
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
SERVED AS
NAME AND PRINCIPAL OCCUPATION DIRECTOR
FOR THE PAST FIVE YEARS(1) AGE SINCE
- ------------------------------------------------------------ --- ---------
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Jack D. Michaels, Chairman, President and Chief Executive 60 1993
Officer of HON INDUSTRIES Inc. (manufacturer and marketer
of metal and wood office furniture and pre-fabricated
fireplaces/stoves) since 1995; prior thereto President and
Chief Executive Officer of such company(4)
James F. Robeson, Chief Executive Officer and President of 61 1994
Roberds, Inc. (retailer of a broad range of home
furnishing products) since 1997; prior thereto and
currently consultant to various distribution companies
since 1993; prior thereto Herbert E. Markley Visiting
Scholar in Business at Miami University since 1995; prior
thereto Senior Director of Coopers & Lybrand (national
accounting firm) in 1993(5)
Patrick W. Rooney, Chairman of the Board, President and 62 1995
Chief Executive Officer of Cooper Tire & Rubber Company
(manufacturer of tires and inner tubes for the automotive
aftermarket, and engineered rubber products for the O.E.M.
automotive industry) since 1994; prior thereto President
and Chief Operating Officer of such company(6)
DIRECTORS WHOSE TERMS EXPIRE IN 2000
W. Anthony Huffman, retired from the Company and currently 55 1997
President of Huffman Travel Limited (engaged in travel
services) since 1997; prior thereto Vice
President-Corporate Affairs of the Company from 1994 to
1995; prior thereto Vice President-Marketing of the
Company
Donald K. Miller, Chairman of Greylock Financial Inc. 66 1988
(engaged in the financing of management and leveraged
buyouts) since 1992; and Vice Chairman of Thomson Advisory
Group L.P. (now PIMCO Advisors L.P.) from 1993-1994(7)
Joseph P. Viviano, President and Chief Operating Officer of 59 1996
Hershey Foods Corporation (engaged in the manufacture,
distribution and sale of consumer food products) since
1994; prior thereto President of Hershey Chocolate U.S.A.,
a division of such company(8)
</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. Graber is a Director of Precision Castparts Corporation.
(3) Mr. Sullivan is a Director of Pioneer-Standard Electronics, Inc., and RPM,
Inc.
(4) Mr. Michaels is a Director of HON INDUSTRIES Inc.
(5) Mr. Robeson is a Director of Roberds, Inc.
(6) Mr. Rooney is a Director of Alltrista Corporation and Cooper Tire & Rubber
Company.
(7) Mr. Miller is a Director of Layne Christensen Company, and RPM Inc.
(8) Mr. Viviano is a Director of Chesapeake Corporation and Hershey Foods
Corporation.
MEETINGS BY, AND CERTAIN COMMITTEES OF, THE COMPANY'S BOARD OF DIRECTORS
James F. Robeson (Chairman), Donald K. Miller, and Geoffrey W. Smith
comprise 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
3
<PAGE> 7
and executives with respect to internal accounting controls. During the last
fiscal year, the Audit Committee met four times.
Thomas C. Sullivan (Chairman), Patrick W. Rooney and Joseph P. Viviano
comprise 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 five times.
Jack D. Michaels (Chairman), W. Anthony Huffman and Linda B. Keene comprise
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 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 Committee met three times.
During the last fiscal year, the Board of Directors met nine 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 1997, the Company's non-employee Directors ("Outside Directors")
received annual base compensation of $19,000. All Directors received additional
compensation of $900 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 $850 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 plant 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 1987 Director Stock Option Plan (the "1987
Plan"), which expires April 15, 1998 (see p.17 herein), 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 1987 Plan provides for the automatic
grant of options to purchase 5,625 shares (adjusted for stock splits) of the
Company's Common Stock every third year, commencing in 1988, on the second
business day after the 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 three years, if an
Outside Director files an irrevocable election with the Secretary of the Company
at least six months prior to July 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 July 1 and ending June 30, then the Company shall grant options
automatically on July 1 or such other dates, if applicable, to such Outside
Director. The number of shares of Common Stock for which options will be granted
will be the nearest number of whole shares of Common Stock determined in
accordance with the following formula:
<TABLE>
<C> <S>
Portion of Annual Base
Compensation Not Received = Number of Shares
---------------------------
Fair Market
Value minus $1.00
</TABLE>
For the 12 month period beginning July 1, 1997, and ending June 30, 1998,
Outside Directors have elected not to receive, in the aggregate, $61,000 of
their annual base compensation and the Company granted options to them on
4
<PAGE> 8
July 1, 1997, based on such elections in accordance with the 1987 Plan. The
option price per share of the Common Stock covered by such options is $1.00.
No options may be exercised before the second Annual Meeting of
Shareholders of the Company following the date they were granted, except upon a
change in control (as defined in the 1987 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 1987 Plan is administered by a Committee
consisting of not less than three Officers of the Company who are not entitled
to participate in the 1987 Plan.
In February, 1996, the Board of Directors discontinued the Directors'
Retirement Plan, freezing retirement benefits for those Board members vested in
such Plan through their current term. Under the Directors' Retirement Plan, each
Outside Director who served as a member of the Board of Directors five years or
more earned an annual retirement benefit of $5,000 plus $1,000 for each year of
service as an Outside Director (prorated for partial years) in excess of five
years service, not to exceed a maximum annual benefit of $10,000. Retirement
benefits commence when specified by an eligible Director after retirement from
the Board of Directors, but not earlier than age 60 or later than age 70, and
continue for a period equal to the number of full years of service as an Outside
Director, not to exceed 12 years.
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, 1998, 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,
nominees and Executive Officers as a group. For purposes of the table, a person
is considered to "beneficially own" any shares of Common Stock (i) over which
the person exercises sole or shared voting or investment power or (ii) of which
the person has the right to acquire beneficial ownership at any time within 60
days after January 2, 1998.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME OF BENEFICIAL OWNER(1) OWNERSHIP(2)
- ------------------------------ -------------
<S> <C>
Thomas A. Frederick........... 24,145(3)
Don R. Graber................. 81,327(4)
Timothy G. Howard............. 43,053(5)
W. Anthony Huffman............ 140,888(6)
Linda B. Keene................ 7,079(7)
Jack D. Michaels.............. 6,625(8)
Nancy A. Michaud.............. 17,696(9)
Donald K. Miller.............. 77,061(10)
Richard L. Molen.............. 205,627(11)
James F. Robeson.............. 7,292(12)
Patrick W. Rooney............. 1,200
Geoffrey W. Smith............. 48,351(13)
Thomas C. Sullivan............ 7,250
Joseph P. Viviano............. 1,700(14)
Pamela J. Whipps.............. 15,848(15)
All Directors, Nominees and
Executive Officers,
including Named Executive
Officers, as a Group (16
persons).................... 686,242
</TABLE>
5
<PAGE> 9
<TABLE>
<C> <S>
(1) All shares are held with sole voting and
sole investment power unless otherwise
indicated in the footnotes below. The
grant of all restricted shares is
contingent on shareholder approval as
discussed on pages 22 and 23 herein.
(2) Except for W. Anthony Huffman and
Richard L. Molen whose Common Stock
ownership is 1.10 percent and 1.62
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 5.42 percent of
the issued and outstanding shares of
Common Stock of the Company as of
January 2, 1998.
(3) Mr. Frederick has shared voting and
shared investment power with respect to
6,059 shares held jointly with his
spouse. The total amount also includes
14,155 shares as to which Mr. Frederick
holds options exercisable within 60
days, and 2,971 restricted shares.
(4) The total amount includes 63,333 shares
as to which Mr. Graber holds options
exercisable within 60 days, and 7,994
restricted shares.
(5) Mr. Howard has shared voting and shared
investment power with respect to 8,772
shares held jointly with his spouse. The
total amount also includes 27,682 shares
as to which Mr. Howard holds options
exercisable within 60 days, and 4,527
restricted shares.
(6) Mr. Huffman has sole voting and sole
investment power with respect to 111,440
shares, of which 20,930 shares are held
by him as custodian for his children.
Mr. Huffman has shared investment power
with respect to 975 shares held by his
spouse. The total amount also includes
28,473 shares as to which Mr. Huffman
holds options exercisable within 60
days.
(7) Ms. Keene has shared voting and shared
investment power with respect to 1,454
shares held jointly with her spouse. The
total amount also includes 5,625 shares
as to which Ms. Keene holds options
exercisable within 60 days.
(8) The total amount also includes 5,625
shares as to which Mr. Michaels holds
options exercisable within 60 days.
(9) Ms. Michaud has shared investment power
with respect to 1,563 shares held by her
spouse. The total also includes 9,655
shares as to which Ms. Michaud holds
options exercisable within 60 days, and
2,405 restricted shares.
(10) Mr. Miller has sole voting and sole
investment power with respect to 59,450
shares, of which 20,000 shares are held
by him as custodian for his children.
Mr. Miller has shared investment power
with respect to 1,975 shares held by his
spouse. The total amount also includes
15,636 shares as to which Mr. Miller
holds options exercisable within 60 days.
(11) Mr. Molen has shared investment power
with respect to 2,459 shares held by his
children and 35,555 shares held by his
spouse. The total amount also includes
50,314 shares as to which Mr. Molen
holds options exercisable within 60
days, and 39,027 restricted shares.
(12) Mr. Robeson has shared investment power
with respect to 1,000 shares held by his
spouse. The total amount also includes
6,292 shares as to which Mr. Robeson
holds options exercisable within 60
days.
(13) Mr. Smith has sole voting and sole
investment power with respect to 31,095
shares, of which 3,819 shares are held
in trust for the benefit of his children
and 1,923 shares are held by him as
custodian for his children. The total
amount also includes 17,256 shares as to
which Mr. Smith holds options
exercisable within 60 days.
(14) Mr. Viviano has shared voting and shared
investment power with respect to 500
shares held jointly with his spouse.
(15) Ms. Whipps has shared investment power
with respect to 750 shares held by her
spouse and shared voting and shared
investment power with respect to 584
shares held jointly with her spouse. The
total amount also includes 9,331 shares
as to which Ms. Whipps holds options
exercisable within 60 days, and 919
restricted shares.
</TABLE>
6
<PAGE> 10
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
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS(6)
- -------------------------- ---------- ----------
<S> <C> <C>
David L. Babson and
Company, Inc.(1)
One Memorial Drive
Cambridge, MA
02142-1300 1,187,350 9.31%
Sanford C. Bernstein and
Company, Inc.(2)
One State Street Plaza
New York, NY 10004 730,200 5.70%
Brinson Partners(3)
209 South LaSalle Street
Chicago, IL 60604-1295 672,650 5.0%
Dimensional Fund Advisors,
Inc.(4)
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401 743,050 5.82%
Mellon Bank Corporation(5)
One Mellon Bank Center
Pittsburgh, PA 15258 828,974 6.49%
</TABLE>
- ---------------
(1) This information is taken from the Schedule 13G, dated January 15, 1998,
filed by David L. Babson and Company, Inc. with the Securities and Exchange
Commission, which disclosed David L. Babson and Company, Inc. has sole
voting power with respect to 1,187,350 shares, shared voting power with
respect to 0 shares, and sole investment power with respect to 1,187,350
shares.
(2) This information is taken from the Schedule 13G, dated February 4, 1998,
filed by Sanford C. Bernstein and Company, Inc. with the Securities and
Exchange Commission, which disclosed Sanford C. Bernstein and Company, Inc.
has sole voting power with respect to 596,800 shares, shared voting power
with respect to 16,700 shares, sole investment power with respect to 730,200
shares, and sole investment power with respect to 0 shares.
(3) This information is taken from the Schedule 13G, dated February 11, 1998,
filed by Brinson Partners with the Securities and Exchange Commission, which
disclosed Brinson Partners has sole voting power with respect to 0 shares,
shared voting power with respect to 672,650 shares, sole investment power
with respect to 0 shares, and sole investment power with respect to 672,650
shares.
(4) The following description was supplied by Dimensional Fund Advisors, Inc.:
Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 743,050 shares of HUFFY
CORP stock as of December 31, 1997, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, all of
which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(5) This information is taken from the Schedule 13G, dated January 20, 1998,
filed by Mellon Bank Corporation with the Securities and Exchange
Commission, which disclosed Mellon Bank Corporation has sole voting power
with respect to 701,124 shares, shared voting power with respect to 0
shares, sole investment power with respect to 753,424 shares, and shared
investment power with respect to 75,550 shares.
(6) Percentages listed are those disclosed in the referenced Schedules 13G and
are not verified by the Company.
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 appreciation 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
7
<PAGE> 11
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 industrial manufacturers whose size is adjusted to that
of the Company. The Committee believes that industrial manufacturers generally
represent the Company's most direct competitors for executive talent. A majority
of those industrial companies are not included in the Performance Graph on page
14 herein, as the Company uses the Standard & Poor's Leisure Time Products
Index, which is more representative of the Company's lines of business. The
Committee's policy is to establish midpoints of base salary ranges and total
compensation at the 50th percentile level of industrial midpoints for comparable
positions and to adjust such midpoints annually to maintain that level. The
Company's overall executive compensation levels are below such 50th percentile
midpoints.
The key elements of the Company's 1997 executive compensation program
consist of Base Salary, the Profit Sharing Bonus Plan, the Long-Term Incentive
Plan and Stock Options, and for Mr. Richard L. Molen who retired as Chief
Executive Officer in December 1997, the Transition/ Consulting Compensation
Agreement ("Transition Agreement"). 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 1997) 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 industrial companies nationwide. The Company's policy is to generally
establish midpoints of such base salary ranges at the 50th percentile level of
industrial midpoints for comparable positions, and to adjust such midpoints
annually to maintain that level. Annual salary adjustments within such base
salary ranges are determined by evaluating both the performance of the Executive
Officer and the Executive Officer's current base salary as a percentage of his
or her target base salary range midpoint, using a matrix which reflects the
Company's overall annual salary increase budget. Generally speaking, the higher
the performance level and the lower the percentage that current base salary
represents of the base salary range midpoint, the higher the percentage of base
salary increase. 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. Molen and Mr. Graber by the Board of
Directors), and general management abilities. Pursuant to the terms of the
Transition Agreement and prior to his retirement on December 29, 1997, Mr.
Molen's annual base salary was increased, on May 1, 1997, to $525,000. While in
the position of President and Chief Operating Officer, Mr. Graber's base salary
was increased, on September 1, 1997, to $425,000.
PROFIT SHARING BONUS PLAN
Executive Officers may receive bonuses based upon corporate and individual
performance objectives established at the beginning of each year. The corporate
performance measure for bonus payments in 1997 recommended and approved by the
Committee and approved by the Board of Directors was based equally on return on
average net assets ("RONA") and on earnings per share ("EPS"). In 1997, the
performance measure was established to motivate management to continue the 1996
turnaround in RONA and EPS; in 1995, the Company had a RONA of 0 percent and a
net loss per share of $0.78. For 1997, target level and maximum level bonus on
corporate performance would be achieved when RONA was at 5.8 percent and 6.7
percent, respectively, and EPS at $0.68 and $0.78, respectively. As approved by
the Committee, the Executive Officers are eligible to earn
8
<PAGE> 12
profit sharing bonuses ranging from 30 percent to 50 percent (50 percent for Mr.
Molen and Mr. Graber) of their annual base salaries at target level and from 60
percent to 100 percent (100 percent for Mr. Molen and Mr. Graber) of such
salaries at maximum level, with 80 percent of the bonus based on corporate
performance and 20 percent on individual personal objectives. Individual
performance is based on achievement of personal goals. Personal goals are both
qualitative, such as implementation of strategic plans, and appropriate programs
to attract, motivate and retain key personnel, and quantitative, such as the
achievement of planned cash flow and working capital and the implementation of
continuous rapid improvement to reduce costs. In 1997, the Company reported a
RONA of 6.8 percent and an EPS of $0.78 (including discontinued operations).
Based on these results, Mr. Graber was awarded a bonus of $396,000, $76,000 of
which was based on personal goals. Mr. Molen was awarded a bonus of $374,400;
due to his retirement, no payment was made for personal goals.
LONG-TERM INCENTIVE PLAN
The Executive Officers participate in the Company's Long-Term Incentive
Plan which is based on the Company's actual earnings achieved during the period
as compared to an earnings' target established by the Compensation Committee
prior to the commencement of the award period. The Plan is designed to establish
earnings' targets at a level which motivates the Executive Officers to manage
the business such that it returns tax affected earnings before interest minus an
asset usage charge, using the Company's weighted average cost of capital, at a
level that exceeds the Company's cost of capital. Under this Plan, in 1997,
Executive Officers are each eligible to earn target and maximum awards ranging
from 17.5 to 35 percent, respectively, and 50 to 100 percent for Mr. Molen and
Mr. Graber, respectively, of their annual base salaries. For 1997, target level
awards required a minimum equivalent EPS of $0.68. Awards earned for 1997 are
payable one-third in 1998, one-third in 1999 and one-third in 2000. The 1999 and
2000 payments may be reduced to zero if the Company's actual earnings for each
immediately preceding year are less than the then established targets for such
years. For year 2 of the three year award cycle beginning January 1, 1996, Mr.
Molen received $70,833 and, for the award period beginning January 1, 1997,
based on 1997 EPS of $.78 (including discontinued operations), Mr. Molen and Mr.
Graber received a target award of $78,000 and $66,667, respectively.
STOCK OPTIONS
Under the Company's 1988 Stock Option Plan and Restricted Share Plan ("1988
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 awards of stock option grants which are based upon the employee's
position and base salary. Except for Mr. Molen and Mr. Graber, as discussed
below, all Executive Officers were eligible in 1997 to receive an annual grant
equal to approximately 85 percent of their base salary (subject to eligibility
for additional options as described below) divided by the closing price of the
Common Stock on the New York Stock Exchange on the date of grant. 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 currently 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 price appreciation occurs. Pursuant to
the Transition Agreement, no additional options were granted to Mr. Molen after
June, 1996. Mr. Graber is in the middle of a program of compensation which, in
1997, does not award grants of options under the 1988 Plan. As of January 2,
1998, Mr. Graber beneficially owned 81,327 shares of Common Stock and Mr. Molen
beneficially owned 205,627 shares of Common Stock.
In order to align the interests of Shareholders and management, the Board
of Directors approved an Executive Stock Ownership program in 1994, commencing
in 1995, which sets guidelines for share ownership for Executive Officers and
other key personnel. Under the guidelines, in order to be awarded additional
stock options, equal to approximately 17 percent of their base salary, the Chief
Executive Officer and all other
9
<PAGE> 13
Executive Officers are required to own Common Stock equal to 1.5 times (for the
Chief Executive Officer) and 0.5 times their salaries (for all other Officers),
with measured interim ownership goals to be attained over a ten year period.
1993 CEO LONG-TERM PERFORMANCE PLAN AND 1987 RESTRICTED STOCK UNIT PLAN
In 1997, Mr. Molen received no award under the terms of the 1993 CEO
Long-Term Performance Plan ("CEO Plan"). In connection with Mr. Molen's
retirement, the CEO Plan has been terminated effective December 29, 1997.
On January 1, 1987, Mr. Molen received a grant of 11,250 restricted stock
units (adjusted to reflect subsequent stock splits) under a Restricted Stock
Unit Program ("COO Program"), dated January 1, 1987, which units vested and were
payable on January 1, 1997. A restricted stock unit is equivalent when earned to
a share of the Company's Common Stock valued at Fair Market Value (as defined in
the COO Program). Pursuant to the terms of the COO Program, Mr. Molen is
receiving eight quarterly cash payments beginning April 1, 1997 in the amount of
$23,761.89 for the 11,250 restricted stock units.
Through the programs described above, a significant portion of the
Company's executive compensation is linked directly to individual and corporate
performance and returns to Shareholders, a policy the Committee intends to
continue.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS(1)
Patrick W. Rooney, Thomas C. Sullivan 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 14 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 Rust-Oleum Corporation, a subsidiary of
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, 1997,
Rust-Oleum Corporation paid $334,800 for such services which were provided on
terms, conditions, and prices competitive with those offered to other purchasers
of such services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee for 1997 were 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.
10
<PAGE> 14
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER INFORMATION
The following table shows, for the fiscal years ended December 31, 1995,
1996 and 1997, the cash compensation paid by the Company as well as certain
other compensation paid or accrued for those years, to each of the five most
highly compensated Executive Officers, including Don R. Graber, the current
Chairman, President and Chief Executive Officer of the Company, and Richard L.
Molen who retired as Chairman and Chief Executive Officer of the Company in
1997, in all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ---------------------- ----------
OTHER NUMBER
ANNUAL RESTRICTED OF ALL OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) SATION(2) AWARD(S)(3) SARS(5) PAYOUTS(6) SATION(7)
- -------------------------- ---- --------- -------- --------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Don R. Graber 1997 $407,693 $396,000 $5,073 $111,916 0 $66,667 $16,321
Chairman of the Board, 1996 164,616 300,000 50,971 922,500(4) 100,000 0 4,292
President and Chief 1995 -- -- -- -- -- -- --
Executive Officer
Thomas A. Frederick 1997 181,692 105,750 2,578 41,594 12,503 18,841 15,222
Vice President- 1996 159,769 87,000 2,039 0 13,449 8,458 14,068
Finance and Chief 1995 145,000 25,325 1,974 0 14,086 0 14,397
Financial Officer
Nancy A. Michaud 1997 159,692 92,875 2,347 33,670 11,055 17,850 15,370
Vice President-General 1996 151,462 89,700 1,366 0 11,787 8,750 13,825
Counsel and Secretary 1995 140,000 0 1,826 0 13,600 0 14,533
Timothy G. Howard 1997 158,462 93,600 3,461 63,378 10,792 17,383 8,636
Vice President- 1996 149,577 85,200 4,535 0 11,787 8,283 11,966
Controller 1995 142,000 0 2,597 0 13,794 0 19,042
Pamela J. Whipps 1997 132,077 77,400 0 12,866 9,147 13,650 6,565
Vice President-Treasurer 1996 115,654 63,000 1,297 0 9,747 6,125 3,855
1995 105,000 0 511 0 10,200 0 4,252
Richard L. Molen 1997 516,727 374,400 1,453 546,378 0 220,119 30,821
Retired Chairman of the 1996 453,114 417,350 2,192 0 100,000 70,833 52,680
Board and Chief 1995 424,996 0 2,184 0 41,286 0 93,914
Executive Officer
</TABLE>
- ---------------
(1) "Salary" and "Bonus" include amounts that would have been payable currently,
but were deferred at an election of an Executive Officer, such as through
the Company's 401(k) Savings Plan.
(2) No perquisites were provided or other personal benefits paid to a Named
Executive Officer in 1997 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 under the Company's Benefit Plan (discussed on pages 22 and 23
herein) with the Company's Common Stock granted as restricted shares. The
grant of restricted shares is contingent on shareholder approval of the 1998
Restricted Share Plan. See pages 22 and 23 for a detailed explanation of the
Restricted Share Plan. The projected dollar value in the aggregate of cash
benefits cancelled is $1,441,737. There were a total of 57,843 restricted
shares awarded to Named Executive Officers which shall vest in accordance
with the terms of the 1998 Restricted Share Plan as discussed on pages 22
and 23 herein, and which have a value, in the aggregate at December 31, 1997
of $780,880. Dividends will be paid on the restricted stock for all the
grants made in 1997.
(4) Upon acceptance of employment with the Company, Mr. Graber was awarded a
restricted share grant of 90,000 shares of Common Stock at a purchase price
of $1.00. The value of the restricted shares, as of December 31, 1997 was
$1,125,000. When the restricted shares are exercisable and Mr. Graber
subscribes for them, dividends will be paid on the subscribed shares.
(5) These numbers represent options for shares of the Company's Common Stock
granted pursuant to the Company's 1988 Stock Option Plan and Restricted
Share Plan. See next table labeled "Option Grants in Last Fiscal Year" for
more detailed information on such options.
(6) Long Term Incentive Pay consists of amounts paid to each of the Named
Executive Officers under the Company's Long-Term Incentive Plan discussed
later in this Proxy Statement under the table labeled "Long Term Incentive
Plans." For Mr. Molen, Long Term Incentive Pay consists of the foregoing and
amounts paid under the COO Program described on page 10 herein.
11
<PAGE> 15
(7) "All Other Compensation" includes (i) Company contributions to the Company's
401(k) Savings Plan in the amount of $3,167 each for Don R. Graber, Thomas
A. Frederick, Nancy A. Michaud, Timothy G. Howard, and Richard L. Molen; and
$2,663 for Pamela J. Whipps to match 1997 pre-tax elective deferral
contributions (included under "Salary" and "Bonus") made by each Named
Executive Officer to such plan; (ii) amounts distributed of $6,000, and
$6,300 under the Company's Capital Accumulation Plan to Thomas A. Frederick,
and Nancy A. Michaud, respectively, and accrued interest of $681, $915,
$596, and $8,972 (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 Thomas A. Frederick, Nancy A.
Michaud, Timothy G. Howard, and Richard L. Molen, respectively, on the
Company's Capital Accumulation Plan (Richard L. Molen and Timothy G. Howard
deferred salary in 1986, and Thomas A. Frederick and Nancy A. Michaud
deferred salary in 1987 pursuant to such plan); and (iii) the principal
amounts of $13,154, $5,374, $4,988, $4,873, $3,902 and $18,682 credited by
the Company for Don R. Graber, Thomas A. Frederick, Nancy A. Michaud,
Timothy G. Howard, Pamela J. Whipps, and Richard L. Molen, 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.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1988 Stock Option Plan and Restricted Share Plan
("1988 Plan") to the Named Executive Officers for the year ended December 31,
1997, 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) DATE 0% 5% 10%
---- ---------- ---------- --------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Don R. Graber........ 0 0% 0 $ 0 $ 0 $ 0
Thomas A.
Frederick.......... 12,503 5.40% $14.3125(3) 12-11-2007 0 112,540 285,199
Nancy A. Michaud..... 11,055 4.78% 14.3125(3) 12-11-2007 0 99,507 252,169
Timothy G. Howard.... 10,792 4.66% 14.3125(3) 12-11-2007 0 97,139 246,170
Pamela J. Whipps..... 9,147 3.95% 14.3125(3) 12-11-2007 0 82,333 208,647
Richard L. Molen..... 0 0% 0 0 0 0
</TABLE>
- ---------------
(1) The options were granted pursuant to the Company's 1988 Plan which was
approved by the Shareholders. All options granted under the 1988 Plan in
1997 are non-qualified stock options. No stock appreciation rights were
granted under the 1988 Plan in 1997.
(2) Upon a change in control (as defined in the 1988 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 three months of such change in control 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 the latter of (a) one
year after the first exercise date for the last shares to become exercisable
under the terms of the option grant, or (b) three years after the date of
the employee's termination of employment. Under the 1988 Plan, upon the
death of an employee or a retired or disabled former employee, all options
under the 1988 Plan shall remain exercisable for six months following the
date of death. Except as set forth above, upon termination of employment,
all options terminate.
(3) The Common Stock closing market price on date of grant was $14.3125. 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 1998.
(4) Calculated on option terms of ten years beginning December 11, 1997 through
December 11, 2007. 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.
12
<PAGE> 16
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, 1997, and unexercised options held as of December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF VALUE REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES (MARKET PRICE AT OPTIONS AT FISCAL YEAR-END(1) AT FISCAL YEAR-END(1)(2)
ACQUIRED EXERCISE LESS ----------------------------- ---------------------------
NAME ON EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Don R. Graber.................. 0 $ 0 63,333 126,667 $449,999 $ 900,001
Thomas A. Frederick............ 0 0 14,155 44,540 4,878 33,454
Nancy A. Michaud............... 0 0 10,518 39,927 1,221 32,300
Timothy G. Howard.............. 4,433 46,026 27,682 40,105 46,820 32,761
Pamela J. Whipps............... 0 0 9,331 30,822 4,160 24,225
Richard L. Molen............... 0 0 50,314 163,776 0 98,054
</TABLE>
- ---------------
(1) The number of unexercised options includes options granted under the
Company's 1988 Plan. No SARs were issued or outstanding as of December 31,
1997 under the 1984 Plan or 1988 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, 1997, 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"). Payments made under the LTIP in the year
ended December 31, 1997 are included in the Summary Compensation Table.
LONG TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF SHARES, PERFORMANCE OR NON-STOCK PRICE BASED PLAN
UNITS OTHER PERIOD UNTIL --------------------------------
NAME OTHER RIGHTS MATURATION OR PAYOUT THRESHOLD TARGET MAXIMUM
---- ----------------- ----------------------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Don R. Graber............. (1) 3 years ending 12/31/00 $106,250 $212,500 $425,000
Thomas A. Frederick....... (1) 3 years ending 12/31/00 23,750 47,500 95,000
Nancy A. Michaud.......... (1) 3 years ending 12/31/00 21,000 42,000 84,000
Timothy G. Howard......... (1) 3 years ending 12/31/00 20,500 41,000 82,000
Pamela J. Whipps.......... (1) 3 years ending 12/31/00 17,375 34,750 69,500
</TABLE>
- ---------------
(1) Awards earned under the Company's 1998 Long-Term Incentive Plan ("Plan")
cycle are payable during the year following the end of a three-year award
cycle in 2001. For the Named Executive Officers, the Plan 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.
13
<PAGE> 17
PERFORMANCE GRAPH
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") and the Standard &
Poor's Leisure Time Products Index ("Leisure Index") for the five-year period
ended December 31, 1997:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
HUFFY CORPORATION, S&P 500, AND LEISURE TIME PRODUCTS INDEX*
<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) HUFFY S&P 500 LEISURE INDEX
<S> <C> <C> <C>
1992 100 100 100
1993 115.94 109.90 110.58
1994 96.10 111.17 109.07
1995 67.10 152.28 145.15
1996 97.56 186.55 180.59
1997 93.92 248.17 234.58
</TABLE>
* Assumes $100 invested on December 31, 1992 in Company Common Stock, the S&P
500 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 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
- --------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 20,974 $ 27,132 $ 33,290 $ 39,448 $ 39,448
250,000 54,724 72,132 89,540 106,948 106,948
500,000 110,974 147,132 183,290 219,448 219,448
750,000 167,224 222,132 277,040 331,948 331,948
1,000,000 223,474 297,132 370,790 444,448 444,448
1,250,000 279,724 372,132 464,540 556,948 556,948
1,500,000 335,974 447,132 558,290 669,448 669,448
</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 under
both the Retirement 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 $16,104. Thus, the offset is
$8,052 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, in-
14
<PAGE> 18
centive 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) and (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). Additional provisions for
early retirement are included. Mr. Graber has 5 years of credited service, Mr.
Frederick has 11 years of credited service, Ms. Michaud has 11 years of credited
service, Mr. Howard has 24 years of credited service, Ms. Whipps has 7 years of
credited service, and Mr. Molen has 29 years of credited service.
The Company has established the Benefit Plan which provides additional
benefits to participants in the Retirement Plan whose benefits are reduced by
limitations imposed under Sections 415 and 401(a)(17) of the Code and Section
2004 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Under the Benefit Plan, Executive Officers and certain key employees
will receive at the same time and in the same form as benefits paid under the
Retirement Plan, additional benefits in a monthly amount 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, and subject to approval of the 1998 Restricted Share Plan (see
pages 22 and 23 herein), less the portion of such participant's benefit which
has been replaced by benefits under the Restricted Share Plan. The Benefit Plan
also provides that Executive Officers and certain key employees will be provided
benefits beginning at age 58, in an amount equal to such participants' then
accrued benefits without actuarial reduction for early commencement in the event
of (i) a "change-in-control" of the Company, as defined in the Benefit Plan, and
(ii) subsequent termination of employment. Except as noted in the preceding
sentence, benefits under the Benefit Plan will be reduced to an actuarial
equivalent to reflect early distribution in the same manner as benefits under
the Retirement Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There are no employment contracts between the Company and any Executive
Officers of the Company.
The Named Executive Officers and certain other key employees of the Company
each have a Special Deferred Compensation Agreement pursuant to which on each
January 1 the Company credits to an account for such employee an amount equal to
two percent of the aggregate of the base salary paid in the preceding calendar
year and bonus paid or credited to such employee under the Profit Sharing Bonus
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 1997 have been
included in the Summary Compensation Table.
Named Executive Officers, except for Don R. Graber and Pamela J. Whipps,
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 (a) on the
first day of each of the eighth through eleventh years following the deferral to
each such participant and (b) 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 ba-
15
<PAGE> 19
sis of attributing from 19 to 24 percent per annum interest to the deferrals,
with each payment under clause (a) above equaling the amount of the original
deferral. 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 Named Executive Officers have each entered into a severance agreement
with the Company pursuant to which the Company has agreed to provide an
irrevocable letter of credit from a commercial bank (or to fund an escrow
account if such letter of credit cannot be promptly issued) in the event a
change-in-control (as defined in the agreements) of the Company is threatened.
The letter of credit is to be for an amount equal to three times the sum of each
such person's current annual salary, bonus award at the target level, and
long-term incentive compensation plan award at the target level, plus two times
the Company's cost of current benefits for three years (unless the Company
agrees to provide the same), and a gross up amount for applicable excise taxes,
if any. In addition, such Officers will be vested in and receive thirty-six
months of credited service under the Benefit Plan. If the employment of said
person terminates, for any reason other than disability, retirement or death,
within two years after a change-in-control of the Company occurs, the person or
the person's beneficiaries shall be entitled to the above described amount in a
lump sum payment. If proper demand for such payment is not made within two years
from the date of the change-in-control event, the Company may terminate the
letter of credit or withdraw the funds in the escrow account. If such person's
employment is terminated prior to the occurrence of a change in control of the
Company, payment under the severance agreement is forfeited.
Mr. Molen entered into a Retirement Agreement, dated December 22, 1997
("Retirement Agreement"), which superseded his Transition Agreement, dated June
13, 1996. The Retirement Agreement provides that in return for the termination
of his Transition Agreement, a five year non-competition agreement and certain
future contractual obligations and other agreements with the Company, Mr. Molen,
who retired on December 29, 1997, will receive a lump sum payment in 1998 of $2
million, the receipt of credited service through December 31, 1998 under the
Benefit Plan, the right to receive benefits under the COO Plan, as described
below, $89,388 in lieu of payment for personal goals, and benefits available to
other retirees, generally, of the Company.
Mr. Molen receives benefits under a Restricted Stock Unit Program (the "COO
Program") dated January 1, 1987, whereby he received grants of 11,250 restricted
units (adjusted to reflect subsequent stock splits) on January 1, 1987, 1988,
1989, 1990, and 1991. When earned, a restricted unit is equivalent to a share of
the Company's Common Stock valued at fair market value (as defined in the COO
Program). The restricted units fully vest on January 1, 1997, 1998, 1999, 2000,
and 2001, respectively, subject to earlier vesting due to, among other things, a
change-in-control of the Company (as described in the COO Program). Upon grant,
the restricted units accumulate additional restricted units equal to dividends
paid on the Company's Common Stock. Once vested, the then actual value of each
restricted unit will be paid in cash.
In connection with his acceptance of employment with the Company, Don R.
Graber entered into an agreement, dated June 11, 1996, as amended, whereby he
may receive an annual pension benefit of $115,000 per year beginning at age 57
if during his first three years of employ-
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<PAGE> 20
ment he is involuntarily terminated or an annual pension benefit of $169,118
beginning at age 65 if during his first three years of employment he should
become totally and permanently disabled. Subsequent to such three year period,
Mr. Graber will be vested under the Retirement Plan and Benefit Plan.
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; or 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.
PROPOSALS TO ADOPT STOCK-BASED
INCENTIVE PLANS
INTRODUCTION
The Company has two stock option plans, the Huffy Corporation 1987 Director
Stock Option Plan (the "1987 Plan") and the Huffy Corporation 1988 Stock Option
Plan and Restricted Share Plan (the "1988 Plan"). Both the 1987 Plan and the
1988 Plan expire as of April 15, 1998. Consequently, on June 12, 1997, the
Company's Board of Directors approved the Huffy Corporation 1998 Director Stock
Option Plan (the "1998 Director Plan") and the Huffy Corporation 1998 Key
Employee Stock Plan (the "1998 Key Employee Plan") to replace the 1987 Plan and
the 1988 Plan, respectively. The Board of Directors also approved the Huffy
Corporation 1998 Restricted Share Plan (the "1998 Restricted Share Plan"). The
Board directed that such plans 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 Plans will become effective upon their approval by the shareholders of
the Company. If approved, the 1998 Director Plan will terminate on April 17,
2008, the 1998 Key Employee Plan will terminate on April 17, 2008, and the 1998
Restricted Share Plan will remain in effect until terminated by action of the
Board of Directors. The Board of Directors may terminate the Plans at any time;
however, any such termination will not affect options, stock appreciation
rights, or restricted shares previously granted under the Plans.
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 resolutions to adopt the Plans. Proxies will be voted
in favor of the resolutions 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
resolutions, provided such shares are properly present at the meeting in person
or by proxy.
The following information is a brief summary of certain provisions of the
1998 Director Plan, the 1998 Key Employee Plan and the 1998 Restricted Share
Plan (collectively the "Plans"). The complete text of each of the Plans is
attached to this Proxy Statement as Exhibits 1, 2 and 3 and reference is made to
Exhibits 1, 2 and 3 for all particulars.
NUMBER OF SHARES SUBJECT TO PLANS
Not more than 623,714 shares of the Company's Common Stock, in the
aggregate, will be made available for options and grants of restricted shares
under the Plans on a combined basis. The aggregate number of shares which may be
issued under the Plans, the number and class of shares subject to each
outstanding option or stock appreciation right and restricted shares still
subject to restrictions, and the price per share will be appropriately adjusted
in the event of any change in the Common Stock by reason of a merger,
consolidation, reorganization, recapitalization, stock dividend, stock sp-
17
<PAGE> 21
litup, combination or exchange of shares, or other change in the corporate
structure.
PLAN ADMINISTRATION
The 1998 Key Employee Plan and the 1998 Restricted Share Plan will be
administered by the Compensation Committee of the Board of Directors (the
"Committee") and require that the Committee consist of at least three members of
the Board of Directors of the Company who are not entitled to participate in
such plans. The Committee has the full power and authority to construe the
provisions and to supervise the administration of such plans, and all decisions
made by the Committee will be final. The 1998 Director Plan is to be
administered by a committee consisting of at least three officers of the Company
who are not entitled to participate in such plan to be appointed by the Board of
Directors.
At the close of business on February 27, 1998, the market value of a share
of the Company's Common Stock was $15.1875.
TAX CONSEQUENCES
Gain taxable as ordinary income to the optionee is generally deemed to be
realized at the date of exercise of a nonqualified option, the amount of gain on
each share being the difference between the market price on the date of exercise
and the option price. This amount is generally treated as a tax deductible
expense to the Company at the time of exercise. Any appreciation in the value of
stock after the date of exercise is considered as long or short-term capital
gain, depending on the length of time the stock is held by the optionee prior to
the time of its sale.
No taxable income for federal income tax purposes results from the exercise
of an incentive option at the time of exercise. Any gain realized on the sale of
stock acquired on exercise of an incentive option is considered as long-term
capital gain for federal income tax purposes if the stock has been held at least
one year after it was acquired on exercise of the option and if at least two
years have expired after the grant of the option. Except as hereafter indicated,
the Company is not entitled to any deduction with respect to the grant or
exercise of any incentive option. If the stock is sold or otherwise disposed of
within one year after exercise or within two years after the grant, any
appreciation at the date of exercise above the option price is treated, subject
to certain limitations, as "ordinary" income for federal income tax purposes.
Any appreciation after the date of exercise is considered as long or short-term
capital gain to the optionee depending upon whether or not the stock was held
longer than one year. The amount of ordinary income received by the optionee
generally is treated as a tax deductible expense to the Company.
Upon the exercise of a stock appreciation right, the holder will realize
ordinary income equal to the amount of the gain. This amount is generally
treated as a tax deductible expense to the Company at the time of exercise.
With respect to grants of restricted shares, the recipient must recognize
ordinary income equal to the fair market value of the Common Stock at the first
time the Common Stock becomes transferable or not subject to a substantial risk
for forfeiture, whichever occurs earlier. The Company generally will be entitled
to a deduction for the same amount at the time the recipient recognizes such
income.
Under Section 162(m) of the Internal Revenue Code, corporations with a
class of securities required to be registered under Section 12 of the Securities
Exchange Act of 1934 (i.e. "public companies") are no longer permitted to
deduct, for income tax purposes, compensation paid to certain executive officers
to the extent such compensation exceeds $1 million in a tax year. However,
certain types of compensation, including generally compensation which
constitutes "performance-based" compensation, is excluded from this limitation.
In any given year, as to options exercised by an executive officer, the
difference between the exercise price and the market price on the exercise date
(the "spread") would be included as compensation for Section 162(m) purposes
unless the applicable option plan meets certain requirements contained in the
applicable regulations promulgated by the Internal Revenue Service. Such
regulations provide that in order for the spread realized upon the exercise of
an option to constitute performance-based compensation which is exempt from the
Section 162(m) deduction limitation, the stock option plan under which the
options were granted must, among other requirements, be administered by a
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<PAGE> 22
compensation committee comprised solely of two or more "outside directors" and
must contain a specific limit on the number of options which may be granted to
any one employee participant. The 1998 Key Employee Plan is drafted with the
intention of preserving the Company's ability to deduct for federal income tax
purposes the compensation expense relating to stock options granted to Named
Executive Officers.
PROPOSED ADOPTION OF 1998 DIRECTOR PLAN
The 1998 Director Plan provides for annual non-discretionary option
issuances to non-employee directors, of which the Company will have eight
following the 1998 Annual Meeting of Shareholders. It also provides a feature by
which non-employee directors may elect to receive options in lieu of annual
retainer fees. Its stated purpose is to encourage ownership in the Company by
members of the Board of Directors of the Company who are not employees of the
Company or any of its subsidiaries and whose continued services as directors are
considered essential to the Company's continued progress.
The Board of Directors may alter or amend the 1998 Director Plan at any
time prior to its termination, except that the Board may not, without the
approval of the shareholders, change the number of shares of Common Stock which
may be issued upon exercise of options, reduce the prices at which options may
be exercised, extend the time within which options may be granted or exercised,
change the designation of the class of directors eligible to receive options,
materially increase the benefits accruing to participants, or alter or affect to
the detriment of an option holder any option previously granted without the
consent of such option holder.
The 1998 Director Plan provides that non-employee directors automatically
will be issued options to purchase 2,000 shares of the Company's Common Stock on
the second business day after each annual meeting of the shareholders, beginning
in April, 1998. Options granted under the 1998 Director Plan are non-qualified
options for federal tax purposes. The purchase price of the Common Stock covered
by such options will be equal to the fair market value of the Common Stock on
the date of grant of the option.
Effective April 18, 1998, the Company will pay its non-employee directors
an annual retainer in the amount of $22,500 per year. Under the 1998 Director
Plan, non-employee directors may elect to receive an option in lieu of all or
any part of the annual retainer to be earned in the current 1998 Director Plan
Year. Such options will be granted automatically on May 1, the first day of the
1998 Director Plan Year, and/or on such other dates as may be designated as long
as the director makes an election prior to such dates. An election to receive an
option in lieu of the retainer with respect to any particular year is
irrevocable. The purchase price of the Common Stock covered by such options 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 1998 Director Plan.
All options granted under the 1998 Director 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.
Options under the 1998 Director 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 the option holder or his representative. In
addition, options generally may be exercised only while the option holder is
serving as a member of the Board of Directors. However, upon the death of a
director, upon the retirement of a director because of total and permanent
disability, upon expiration of a director's term of office, or upon the
resignation of a director due to a potential conflict of interest, the former
director or his representative may, at any time during the balance of the ten
year period, purchase all or any part of the Common Stock covered by the option.
Notwithstanding the foregoing, in no event shall an option be exercised if the
former director engages or participates in any business which competes against
any of the businesses engaged in by the Company.
In the event of a change in control of the Company, all outstanding options
will become
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<PAGE> 23
immediately and fully exercisable. Any non-employee director whose services are
terminated within twenty-four months after a change in control may exercise
outstanding options at any time during the balance of the ten year period.
It is impossible at the present time to indicate specifically the names of
persons to whom future options will be granted, or the aggregate number of
shares, within the limitations of the 1998 Director Plan, to be covered by such
options. The following table represents options which would have been received
by or allocated to each of the listed directors for the last completed fiscal
year if the 1998 Director Plan had then been in effect.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
SHARES
UNDERLYING
DIRECTOR NAME OPTIONS
- ------------- ----------
<S> <C>
W. Anthony Huffman............... 2,000
Linda B. Keene................... 2,000
Jack D. Michaels................. 2,000
Donald K. Miller................. 2,000
James F. Robeson................. 2,000
Patrick W. Rooney................ 2,000
Geoffrey W. Smith................ 2,000
Thomas C. Sullivan............... 2,000
Joseph P. Viviano................ 2,000
</TABLE>
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE 1998 DIRECTOR PLAN.
PROPOSED ADOPTION OF 1998 KEY
EMPLOYEE PLAN
The 1998 Key Employee Plan provides a means for key employees to receive
options to acquire shares of the Company's Common Stock and stock appreciation
rights, and an opportunity to subscribe for shares of Common Stock subject to
certain restrictions. Its stated purpose is to provide an additional incentive
to officers and directors who are employees of the Company and its subsidiaries
to increase shareholder value and to remain in the employ of the Company or its
subsidiaries.
The Board of Directors may alter or amend the 1998 Key Employee Plan at any
time prior to its termination, except that the Board may not, without the
approval of the shareholders, increase the aggregate number of shares of Common
Stock which may be issued, reduce the prices at which options or stock
appreciation rights may be exercised, extend the time within which options or
stock appreciation rights may be granted or exercised, extend the time within
which restricted shares may be offered, permit any person while a member of the
Committee to be eligible to participate, alter or affect to the detriment of an
optionee any option or stock appreciation right previously granted without the
consent of such optionee, or alter or affect to the detriment of a subscriber
any subscription for restricted shares without the consent of such subscriber.
Any full-time salaried employee of the Company or a subsidiary who is also
an officer and may or may not be a member of the Board of Directors, or a key
employee will be eligible to participate in the 1998 Key Employee Plan. At the
present time, the number of employees who may participate in the 1998 Key
Employee Plan is unknown. The Committee will designate the employees to whom
options and/or stock appreciation rights will be granted or to whom restricted
shares will be offered. The Chief Executive Officer of the Company, subject to
limitations, also may grant non-qualified options to employees, but not
officers, of the Company. Such grants will be subject to the same terms and
conditions of the 1998 Key Employee Plan as grants made by the Committee.
Options granted under the 1998 Key Employee Plan to a key employee will be
either non-qualified stock options or incentive stock options, or both, as
described below.
The number of shares of Common Stock that may be subject to options granted
to an employee during any calendar year may not exceed 25% of the total number
of shares that may be issued under the 1998 Key Employee Plan. Shares covered by
an option which is no longer exercisable with respect to such shares or
restricted shares which are forfeited will again be available for offering under
the 1998 Key Employee Plan. If an option is surrendered in connection with the
exercise of a stock appreciation right, the number of shares covered by such
option less the number of shares issued in connection with the exercise of the
stock appreciation right will again be available for offering.
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<PAGE> 24
The purchase price of Common Stock covered by an incentive stock option
will not be less than 100% of the fair market value of such Common Stock on the
date of grant of such option. The purchase price of Common Stock covered by any
other option will be determined by the Committee; provided, however, that the
purchase price will not be less than $1.00 per share. Options may be exercised
by payment to the Company of the purchase price in cash or in Common Stock of
the Company already owned by the optionee or any combination thereof. No option
may be exercised until six months following the date upon which it was granted
or after ten years from such date.
In the event of a change in control of the Company, all outstanding options
will become immediately and fully exercisable. Any outstanding option of an
optionee whose employment is terminated, except by the Company for cause, within
24 months after a change in control will remain exercisable for a period of
three months from the date of such termination, but in no event after the
expiration of the exercise period.
The Committee may grant in connection with any option granted under the
1998 Key Employee Plan a stock appreciation right, whereby the option holder may
receive from the Company, upon request and in exchange for the surrender of any
outstanding option, shares of the Common Stock, cash or any combination thereof
having a value equal to the excess of the fair market value of the Common Stock
on the date of the request over the purchase price specified in such option. A
stock appreciation right may be granted only at the time of an option and is
exercisable only if the fair market value of the Common Stock on the date of the
request exceeds the purchase price of such option.
No stock appreciation right or related stock option may be exercised during
the first six months of its term, unless the death or disability of the optionee
occurs during this period, or after ten years from the date of grant. Upon
surrender of an option in exercise of stock appreciation rights, such option
will expire. The Committee's disapproval of a request will not affect the
optionee's right to exercise the stock appreciation right at a later date or to
exercise any option granted under the 1998 Key Employee Plan.
An option or stock appreciation right may be transferred only by will or
the laws of descent and distribution or by gift to certain family members.
During the lifetime of an employee, only the employee, his representatives, or
his permitted assigns may exercise any option or stock appreciation right.
Options or stock appreciation rights may be exercised only while the option
holder is an employee during a period of continuous employment with the Company
or a subsidiary from the date of grant and may not be exercised at any time
after termination of employment except as follows: (1) upon the termination of
employment for disability or upon retirement under any pension plan for salaried
employees, a former employee may exercise all or any part of his non-qualified
options until five years after such termination or retirement, whichever occurs
first, and he may exercise all or any part of his incentive stock options or
stock appreciation rights for a period of three months following such
termination or retirement; (2) upon termination following the disposition of a
business, a former employee may exercise all or any part of his non-qualified
options, incentive stock options, or stock appreciation rights until three
months after such termination; (3) at the discretion of the Company, upon
severance of an employee, such former employee may exercise his non-qualified
options for a period to be negotiated, not to exceed the severance pay period,
provided the former employee has executed a release and waiver; and (4) upon the
death of any employee, retired employee, or employee whose services were
terminated due to disability, his representatives may exercise his options or
stock appreciation rights for a period of six months following the date of
death. Notwithstanding the foregoing, in no event shall an option be exercised
if the former employee engages or participates in any business which competes
against any of the businesses engaged in by the Company.
The 1998 Key Employee Plan gives key employees selected by the Committee an
opportunity to subscribe for restricted shares. Such shares will be restricted
as to transferability for a period of time, not to exceed ten years, as
determined by the Committee. The purchase price of the restricted shares will be
determined by the Committee; provided, however, that in no event will the price
be less than $1.00 per share. The
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<PAGE> 25
purchase price must be paid in full by the subscriber on or before ten years
from the date of the subscription by setting off against such purchase price
100% of the cash dividends payable with respect to the restricted shares plus
such portion of all profit sharing or other bonuses to which the subscriber
becomes entitled as provided by the Committee and in cash. No certificates for
restricted shares will be executed and delivered until such shares are fully
paid.
Except for restrictions on transfer, an employee who subscribes for
restricted shares will have all of the rights of a shareholder of the Company,
including the right to vote the restricted shares and the right to receive
dividends, subject to provisions of the subscription agreement.
In the event a subscriber ceases to be an employee of the Company or a
subsidiary during the restricted period for any reason other than death,
disability, retirement under any pension plan, or termination by the Company
other than for cause within 24 months of a change in control, all restricted
shares will be forfeited to the Company. However, if the termination is by
action of the Company, the Committee may determine that some or all of the
restricted shares will be free of restrictions and not forfeited. If a
subscriber ceases to be an employee by reason of death, disability, retirement
under any pension plan, or within 24 months after a change in control, the
restrictions will terminate. The Committee may at any time accelerate or waive
all or any portion of the restrictions in respect of the restricted shares.
Upon termination of employment for any reason, including death or
retirement, the employee or his representative may elect to pay the purchase
price due on any portion of the restricted shares which are freed of
restrictions and not forfeited within three months after the happening of such
event. If such payment is not made, the Company will treat the failure as a
default in payment, whereby the Company will release the shares from
subscription and treat as retired the shares subject to the subscription which
have not been fully paid.
It is impossible at the present time to indicate specifically the names of
persons to whom future options, stock appreciation rights, or restricted shares
will be granted, or the aggregate number of shares, within the limitations of
the 1998 Key Employee Plan, to be covered by such grants.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE 1998 KEY EMPLOYEE PLAN.
PROPOSED ADOPTION OF 1998 RESTRICTED SHARE PLAN
The 1998 Restricted Share Plan replaces a portion of the cash retirement
benefits owed to key management employees under the Benefit Plan with the
Company's Common Stock granted as restricted shares. Restricted Shares granted
under the 1998 Restricted Share Plan will directly reduce and replace a portion
of the cash amount of supplemental retirement benefits owed to participants
under the Benefit Plan. Its stated purpose is to encourage such employees to
increase overall shareholder value. The 1998 Restricted Share Plan aligns the
interests of shareholders and plan participants by awarding Common Stock to
selected executives and Huffy Company Presidents upon whose judgment, initiative
and efforts the financial success and growth of the Company largely depend,
subject to certain vesting and forfeiture restrictions (the "Restricted
Shares"), at fair market value thereby providing additional incentive for the
participants to increase the value of the Company's Common Stock. Furthermore,
since the Company will be able to take a tax deduction for the value of the
Restricted Shares awarded under the 1998 Restricted Share Plan upon the vesting
of such shares, the Company will also benefit from increases in value of the
Company's Common Stock. Conversely, the Company will realize reduced tax
deductions if the Company's Common Shares depreciate in value.
The Board of Directors may alter or amend the 1998 Restricted Share Plan at
any time prior to its termination, except that the Board may not, without the
approval of the shareholders, increase the aggregate number of shares of Common
Stock which may be issued. Further, the Board of Directors may not alter or
affect to the detriment of any recipient any outstanding restricted shares
granted pursuant to the 1998 Restricted Share Plan without the consent of such
recipient.
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<PAGE> 26
Any Senior Executive Participant in the Benefit Plan will be eligible to
receive a grant of restricted shares under the 1998 Restricted Share Plan. This
class of participants includes approximately eleven persons.
Each recipient will be entitled to an annual grant of restricted shares in
an amount having a fair market value equal to one-half of the total dollar
amount of such recipient's accrued benefit under the Benefit Plan as determined
by the Company's actuary. The Committee may approve additional grants in its
discretion.
Until vested, restricted shares may not be transferred or encumbered
without the consent of the Committee. Subject to other provisions of the 1998
Restricted Share Plan and any agreement for restricted shares, each grant of
restricted shares will vest upon the earliest of the following dates: (1) the
date of the recipient's death, (2) the date on which the Committee determines
that the recipient is disabled, (3) the date on which the recipient becomes
vested in his benefit under the Benefit Plan, (4) the closing date of a change
in control, or (5) the date on which the recipient becomes eligible to commence
retirement benefits under any salaried retirement plan. However, in no event
will a recipient's restricted shares vest prior to the later of the effective
date of the approval of the 1998 Restricted Share Plan by the shareholders or as
otherwise required by federal securities laws.
Except for restrictions on transfer, an employee who receives restricted
shares will have all of the rights of a shareholder of the Company, including
the right to vote the restricted shares and the right to receive dividends,
subject to provisions of the 1998 Restricted Share Plan and any grant agreement.
In the event a recipient ceases to be an employee of the Company or a
subsidiary prior to the vesting of any restricted shares, all restricted shares
which are not vested will be forfeited to the Company. However, if the
termination is by action of the Company, the Committee may determine that some
or all of the restricted shares not yet vested will not be forfeited. If
restricted shares granted under the 1998 Restricted Share Plan are later
forfeited, such restricted shares will again be available for offering under the
1998 Restricted Share Plan.
It is impossible at the present time to indicate specifically the names of
all persons to whom future restricted shares will be granted or the aggregate
number of such shares. However, at the time the 1998 Restricted Share Plan was
approved by the Board of Directors, the Committee made a number of restricted
share awards subject to shareholder approval of the 1998 Restricted Share Plan.
The following table summarizes such contingent awards for the Named Executive
Officers.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
--------------------- PROJECTED
DOLLAR DOLLAR
NUMBER VALUE OF VALUE
OF NEW OF CASH
NEW PLAN PLAN BENEFITS
NAME SHARES(1) SHARES(2) CANCELLED(3)
---- --------- --------- ------------
<S> <C> <C> <C>
Don R. Graber 7,994 $111,916 $ 190,857
Thomas A. Frederick 2,971 41,594 100,284
Nancy A. Michaud 2,405 33,670 64,326
Timothy G. Howard 4,527 63,378 96,208
Pamela J. Whipps 919 12,866 34,795
Richard L. Molen 39,027 546,378 614,675
Executive Officers as a
group 57,843 809,802 1,101,145
Non-Officer employees as a
group 11,240 157,360 340,592
Total for all employees 69,083 967,162 1,441,737
</TABLE>
- ---------
(1) On June 12, 1997, the Board of Directors and Compensation Committee adopted
and approved the 1998 Restricted Share Plan, subject to shareholder
approval.
(2) The dollar value of the awards is based on the closing price of the
Company's Common Stock on June 12, 1997 ($14.00).
(3) The dollar amounts under this column represent the projected dollar value at
retirement of the cancelled cash benefit payments owed to each participant
under the Benefit Plan.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE 1998 RESTRICTED SHARE PLAN.
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, upon recommendation of its Audit Committee, has
appointed the firm of KPMG Peat Marwick LLP as independent public accountants
for the Company for calendar year 1998, subject to ratification by the
Shareholders and any future contingencies that may require reconsideration. The
firm of KPMG Peat Marwick 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
23
<PAGE> 27
law. One or more members of KPMG Peat Marwick 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 proposal to ratify the appointment of KPMG Peat Marwick LLP requires
the affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy at the meeting. 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. THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
SHAREHOLDER PROPOSALS
SHAREHOLDER PROPOSAL NUMBER 1
Mr. Charles Miller, 23 Park Circle, Great Neck, New York 11024, beneficial
owner of 250 shares of Huffy Corporation Common Stock, submitted the following
proposal:
"ELIMINATE CLASSIFIED BOARD OF
DIRECTORS RESOLUTION
'RESOLVED, that the stockholders of the Company request that the Board of
Directors take the necessary steps, in accordance with state law, to
declassify the Board of Directors so that all directors are elected
annually, such declassification to be effected in a manner that does not
affect the unexpired terms of directors previously elected.'
SUPPORTING STATEMENT
The election of directors is the primary avenue for stockholders to
influence corporate governance policies and to hold management accountable
for it's [sic] implementation of those policies. I believe that the
classification of the Board of Directors, which results in only a portion
of the Board being elected annually, is not in the best interests of the
Company and it's [sic] stockholders.
I believe that the Company's classified Board of Directors maintains the
incumbency of the current Board and therefore of current management, which
in turn limits management's accountability to stock-
holders.
The elimination of the Company's classified Board would require each new
director to stand for election annually and allow stockholders an
opportunity to register their views on the performance of the Board
collectively and each director individually. I believe this is one of the
best methods available to stockholders to insure that the Company will be
managed in a manner that is in the best interests of the stockholders.
I believe that concerns expressed by companies with classified boards that
the annual election of all directors could leave companies without
experienced directors in the event that all incumbents are voted out by
stockholders, are unfounded. In my view, in the unlikely event that
stockholders vote to replace all directors, this decision would express
stockholder dissatisfaction with the incumbent directors and reflect the
need for change.
I URGE YOUR SUPPORT, VOTE FOR THIS RESOLUTION"
----------------------
YOUR DIRECTORS RECOMMEND A VOTE AGAINST THIS PROPOSAL. The Company's Code
of Regulations, which authorizes the staggered Board terms, was revised and
approved by the shareholders as recently as 1995. The Board of Directors
believes, for the reasons stated below, that the shareholders' decision was
appropriate and that a classified Board is in the best interests of the Company
and its shareholders.
In the opinion of the Board of Directors, a classified Board facilitates
continuity and stability of leadership and policy by assuring that experienced
personnel familiar with the Company and its business will be on the Board of
Directors at all times. This provision is similar to those which have been
adopted by the shareholders of many major corporations. In fact, over 70% of
corporations included in the S&P 500 index currently have classified boards.
Currently, under the Company's Code of Regulations, the number of Directors
in each
24
<PAGE> 28
class is nearly equal in number, with each Director serving for three years and
with one class being elected each year. The Company has a Director retirement
policy which limits Director terms to 12 years, ensuring Director rotation. All
Director Nominees are reviewed and nominated by the Nominating and Governance
Committee comprised of non-employee Directors.
The classified Board of Directors is intended to prevent precipitous
changes in the composition of the Board and thereby serves to moderate those
changes in the Board's policies, business strategies and operations which the
Board of Directors does not deem to be in the best interests of the Company and
its shareholders.
Board classification is intended to encourage any person seeking to acquire
control of the Company to initiate such an action through arm's-length
negotiations with management and the Board of Directors, who are in the best
position to negotiate a transaction which is fair to all of the Company's
shareholders.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST
THIS PROPOSAL. The affirmative vote of a majority of shares participating in the
voting on this proposal is required for adoption of this proposal. Proxies will
be voted AGAINST the proposal unless instructed otherwise. Abstentions indicated
on such a proxy card will not be counted as either "for" or "against" this
proposal. "Broker non-votes" specified on proxies returned by brokers holding
shares for beneficial owners who have not provided instructions as to voting on
this issue will be treated as not present for voting on this issue.
SHAREHOLDER PROPOSAL NUMBER 2
Mr. William Steiner, 4 Radcliff Drive, Great Neck, New York 11024,
beneficial owner of 900 shares of Huffy Corporation Common Stock, has submitted
the following proposal:
"MAXIMIZE VALUE RESOLUTION
Resolved that the shareholders of Huffy Corporation urge the Huffy
Corporation Board of Directors to arrange for the prompt sale of Huffy
Corporation to the highest bidder.
The purpose of the Maximize Value Resolution is to give all Huffy
Corporation shareholders the opportunity to send a message to the Huffy
Corporation Board that they support the prompt sale of Huffy Corporation to
the highest bidder. A strong and or majority vote by the shareholders would
indicate to the board the displeasure felt by the shareholders of the
financial performance of the company over many years and the drastic action
that should be taken. Even if it is approved by the majority of the Huffy
Corporation shares represented and entitled to vote at the annual meeting,
the Maximize Value Resolution will not be binding on the Huffy Corporation
Board. The proponent however, believes that if this resolution receives
substantial support from the shareholders, the board may choose to carry
out the request set forth in the resolution:
The prompt auction of Huffy Corporation should be accomplished by any
appropriate process the board chooses to adopt including a sale to the
highest bidder whether in cash, stock, or a combination of both. It is
expected that the board will uphold its fiduciary duties to the utmost
during the process.
The proponent further believes that if the resolution is adopted, the
management and the board will interpret such adoption as a message from the
company's stockholders that it is no longer acceptable for the board to
continue with its current management plan and strategies."
----------------------
YOUR DIRECTORS RECOMMEND A VOTE AGAINST THIS PROPOSAL. The Board of
Directors has always acted and will continue to act in what it considers to be
the best interest of all shareholders. The Board reviews all available strategic
alternatives, remains committed to maximizing value for shareholders, and will
pursue the course of action which best achieves that objective.
In the Corporation's 70-year history it has weathered many business cycles,
including the Great Depression of the 1930's and most recently the downturn in
profitability in 1995.
- In 1997 net sales from continuing operations grew 19.8% over 1996 levels,
while
25
<PAGE> 29
net earnings in dollars increased by 50.6%.
- In 1996, earnings per share from continuing operations were $0.51,
compared to a loss in 1995; and in 1997, earnings per share from
continuing operations increased nearly 63% to $0.80.
To ensure continuing growth and profitability in future years and as part
of its long term plan, Management has implemented the following actions:
- The sale of Gerry Baby Products Company in 1997.
- The acquisition of product lines and brand names complementary to our
existing businesses. The following were acquired since 1995:
- Rebike (recumbent bicycle line)-1996
- Meaford (wheelbarrows)-1996
- Aluminum rakes and lutes-1997
- Sure Shot(R) and Hydra-Rib(TM) institutional and in-arena basketball
lines-1997
- Royce Union Bicycle Company-1997
- Constant and improved focus on continuous rapid improvement in all
businesses to eliminate waste and improve productivity.
- Accelerated product innovation, including: Huffy(R) BMX and Ironman(R)
bicycles; True Temper Sno Zone(TM) Snow Shovel and Shark Attack(TM) lawn
and garden tools; Huffy Sports Company in-mold graphics on backboards.
Ironman is a registered trademark of World Triathlon Corporation.
Approval of this resolution could adversely affect the Corporation's
relationships with its customers by communicating a high level of uncertainty
surrounding the Corporation as a future supplier. Loss of customer confidence
could have a devastating effect on future orders, thus substantially harming the
Corporation's financial performance and depressing the market price. Adoption of
this resolution would be totally inconsistent with the Board's duty to maximize
stockholder value and protect the interests of all stockholders of the
Corporation.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST
THIS PROPOSAL. The affirmative vote of a majority of shares participating in the
voting on this proposal is required for adoption of this proposal. Proxies will
be voted AGAINST the proposal unless instructed otherwise. Abstentions indicated
on such a proxy card will not be counted as either "for" or "against" this
proposal. "Broker non-votes" specified on proxies returned by brokers holding
shares for beneficial owners who have not provided instructions as to voting on
this issue will be treated as not present for voting on this issue.
OTHER MATTERS
Proposals of Shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company by November 6, 1998 for
inclusion in the Company's Proxy Statement and proxy relating to the 1999 Annual
Meeting of Shareholders.
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 5, 1998
26
<PAGE> 30
EXHIBIT 1
HUFFY CORPORATION
1998 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1998 Director Stock Option 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 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 623,714 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 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 TO OUTSIDE DIRECTORS
(a) An option to purchase 2,000 shares of Common Stock 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 shall be 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 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.
<PAGE> 31
(c) 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, 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 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>
<C> <S> <C>
Annual Retainer
------------------------------- X 1.5 = Number of Shares
(Fair Market Value minus $1.00)
</TABLE>
"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) 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 422 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
The Committee shall promptly cause each Outside Director to whom an option
is granted under the Plan to be notified of the fact of such grant. Such
notice shall set forth, among other things, the exercise price of the
option, the term of the option, provisions regarding exercisability of the
option and 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.
-2-
<PAGE> 32
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
(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 (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, if the
option holder 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 has violated or breached
this provision, then all options held by the option holder shall be
terminated 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.
-3-
<PAGE> 33
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 (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, or if more than one of the events
described in subsection 12(b) occurs, then within twenty-four (24)
months after the last event to occur, 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
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.
14. LIMITATION OF RIGHTS
(a) Neither the Plan, nor the granting of an option 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.
-4-
<PAGE> 34
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 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 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 may
be exercised, (d) change the designation of the class of directors eligible
to receive options, (e) materially increase the benefits accruing to
participants under the Plan or (f) without the consent of the option holder,
alter or affect to the detriment of the option holder any option previously
granted under the Plan.
18. LAWS AND REGULATIONS
(a) The Plan and all options granted pursuant to it are subject to all laws
and regulations of any governmental authority which may be applicable
thereto, and notwithstanding 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 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 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 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.
-5-
<PAGE> 35
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.
-6-
<PAGE> 36
EXHIBIT 2
HUFFY CORPORATION
1998 KEY EMPLOYEE STOCK PLAN
PART I GENERAL
1. PURPOSE
The Huffy Corporation 1998 Key Employee Stock Plan (the "Plan") is intended
for the purpose of providing an additional incentive to officers and
directors who are employees of Huffy Corporation (the "Company") and its
subsidiaries, in order to increase shareholder value and to remain in the
employ of the Company or its subsidiaries. The Plan provides a means for
these key employees to receive options to acquire shares of the Company's
Common Stock, $1.00 par value ("Common Stock"), and stock appreciation
rights, and an opportunity to subscribe for shares of Common Stock subject
to the restrictions set forth in Section 25 of this Plan ("Restricted
Shares"). The Plan will benefit the Company by giving key employees an
increasing personal interest in its continued success and progress.
2. DEFINITIONS
(a) 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; or
(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
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.
(b) The term "subsidiary" where used in this Plan means any corporation
more than 50% of whose voting stock is owned directly or indirectly by
the Company.
3. ADMINISTRATION
(a) The Plan shall be administered by the Compensation Committee of the
Board of Directors (hereinafter called the "Committee") which shall at
all times consist of not less than three (3) members of the Board of
Directors of the Company who are not entitled to participate in the
Plan to be appointed by, and to serve at the pleasure of, the Board of
Directors of the Company.
(b) The Committee shall have full power and authority to construe the
provisions and to supervise the administration of the Plan, including
the establishment of such rules and regulations as it may deem
appropriate, and all decisions and designations made by the Committee
pursuant to the provisions of the Plan shall be final. Any action taken
by a majority of the Committee shall be the action of the Committee.
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4. EMPLOYEES WHO MAY PARTICIPATE IN THE PLAN
Any full-time salaried employee of the Company or of a subsidiary, who is
also an officer of the Company and may or may not be a member of the Board
of Directors, or a key employee as designated by the Committee shall be
eligible to participate in the Plan. The employees to whom options and/or
stock appreciation rights are granted or to whom Restricted Shares are
offered shall be designated from time to time by the Committee.
5. SHARES SUBJECT TO THE PLAN
(a) The total number of shares of Common Stock which may be issued in the
aggregate under this Plan, the 1998 Director Stock Option Plan and the
1998 Restricted Share Plan shall not exceed 623,714 shares subject,
however, to adjustments required under the provisions of Section 5(d)
hereof. The number of shares of Common Stock that may be subject to
options granted to an employee under the Plan during any calendar year
shall not exceed twenty-five percent (25%) of the total number of
shares of Common Stock which may be issued under the Plan.
(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 is surrendered for any reason (other than the election to
receive stock appreciation right benefits) or for any other reason
ceases to be exercisable in whole or in part, or if Restricted Shares
subscribed for under the Plan are later forfeited pursuant to the Plan,
the Common Stock which is subject to such option but as to which the
option has not been exercised, or such Restricted Shares, shall again
become available for offering under the Plan. If an option is
surrendered in connection with the exercise of a stock appreciation
right, the number of shares of Common Stock covered by such option or
portion thereof which is so surrendered less the number of shares of
Common Stock issued in connection with the exercise of the stock
appreciation right shall again become available for offering under the
Plan.
(d) In the event of any change in the Common Stock subject to the Plan or
to any option or stock appreciation right 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 which
may be issued under this Plan and the number and class of shares
subject to each outstanding option or stock appreciation right and
Restricted Shares still subject to restrictions, and the price per
share, shall be appropriately adjusted by the Committee.
6. DURATION AND TERMINATION OF THE PLAN
The Plan shall become effective upon its approval by the shareholders and
shall terminate on the tenth anniversary of the date of such approval unless
terminated at an earlier date by action of the Board of Directors; provided,
however, that any termination of this Plan after shareholder approval shall
not affect options or stock appreciation rights granted, or Restricted
Shares subscribed for, prior thereto.
7. 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) increase the aggregate number of shares of Common Stock
which may be issued under the Plan; (b) reduce the option prices permissible
hereunder at which Incentive Stock Options (as defined in Section 10(b) of
this Plan) or stock appreciation rights relating thereto may be exercised;
(c) extend the time within which options or stock appreciation rights may be
granted, or Restricted Shares may be offered, hereunder; (d) extend the time
within which options or stock appreciation rights may be exercised;
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(e) permit any person while a member of the Committee to be eligible to
participate in this Plan; (f) without the consent of the optionee, alter or
affect to the detriment of the optionee any option or stock appreciation
right previously granted under the Plan; or (g) without the consent of the
subscriber, alter or affect to the detriment of the subscriber any
subscription for Restricted Shares entered into pursuant to this Plan.
8. 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 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.
9. 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 holder of options, stock appreciation rights or
Restricted Shares (or other person then entitled to exercise an option
and/or stock appreciation right) shall be addressed to the holder, (or such
other person or persons), at the holder's address set forth in the Company's
current personnel records. Anyone to whom a notice may be given under this
Plan may designate, in writing, a new address by notice to that effect.
PART II OPTIONS AND STOCK APPRECIATION RIGHTS
10. GRANT OF OPTIONS OR STOCK APPRECIATION RIGHTS
(a) To the extent not inconsistent with the provisions of this Plan, the
Committee shall fix the terms and provisions and restrictions of
options and stock appreciation rights, including the number of shares
of Common Stock to be subject to each option, the dates on which
options may be fully or partially exercised, the minimum period (if
any) during which the same must be held until exercisable and the
expiration dates thereof, provided that subject to Section 16 of this
Plan, in no event may an option be exercised until six (6) months
following the date upon which it was granted. The Committee may require
an agreement, commitment, or statement on the part of any grantee of
options and/or stock appreciation rights prior to the effectiveness of
any such grant as it shall determine is in the best interest of the
Company.
(b) In addition to grants by the Committee, the Chief Executive Officer of
the Company may also grant non-qualified stock options in his sole
discretion to employees, but not to officers of the Company. The total
number of non-qualified stock options that the Chief Executive Officer
may
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grant under this Plan in any one calendar year shall not exceed options
to purchase 5,000 shares for any one employee or options to purchase
50,000 shares for all employees in the aggregate. All grants made in
accordance with this Section 10(b) shall be subject to the same terms
and conditions of this Plan as grants made by the Committee, provided
that upon the granting of any option to an employee, the Chief
Executive Officer shall promptly cause such employee to be notified of
the fact of such grant and shall advise the Committee not less than
annually of grants made under this provision.
(c) It is intended that certain options issued pursuant to this Plan shall
constitute incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended ("Incentive Stock
Options"). Non-qualified stock options may also be issued under this
Plan in accordance with the Plan's terms and conditions. An eligible
employee may hold more than the one option, whether they are Incentive
Stock Options, non-qualified stock options or both, but only on the
terms and subject to the restrictions set forth in this Plan.
(d) Notwithstanding anything in this Plan to the contrary, no person shall
be eligible to receive an Incentive Stock Option, if at the time of
grant, such person owns of record and beneficially more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company then outstanding and entitled to vote; provided,
however, that the foregoing limitation shall not apply if the option
price at the time the option is granted is at least one hundred ten
percent (110%) of the fair market value (as defined in Section 10(e) of
this Plan) of the Common Stock subject to the option and the option
term is not more than five (5) years. Further, the aggregate fair
market value (determined at the time the option is granted) of the
Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by the optionee during any calendar year
(under all such plans of the Company and its subsidiaries) shall not
exceed One Hundred Thousand Dollars ($100,000).
(e) Subject to the exception set forth in Section 10(c) of this Plan, the
purchase price of the Common Stock covered by such Incentive Stock
Option shall not be less than one hundred percent (100%) of the fair
market value of such Common Stock on the date of grant of such option.
The purchase price of the Common Stock covered by any other option
issued under this Plan shall be as determined by the Committee;
provided, however, that in no event shall the purchase price be less
than one dollar ($1.00) per share.
(f) The fair market value of shares 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, shall have full authority and discretion and
be fully protected in doing so.
11. NOTICE OF GRANT OF OPTION OR STOCK APPRECIATION RIGHT
Upon the granting of any option or stock appreciation right to an employee,
the Committee shall promptly cause such employee to be notified of the fact
of such grant. The date on which an option or stock appreciation right shall
be granted shall be the date of the Committee's authorization of such grant
or such later date as may be determined by the Committee at the time such
grant is authorized, subject to satisfaction of any conditions the Committee
may place on the effectiveness of the grant.
12. STOCK APPRECIATION RIGHTS
Subject to any other provisions of this Plan, the Committee, in its sole
discretion, may grant with any option granted under the Plan, in addition to
the holder's option to acquire shares of Common Stock, a stock appreciation
right, whereby the option holder may receive from the Company, upon his
written request ("Request"), in exchange for the surrender of any option or
any portion thereof which, under the terms and conditions of the Plan is
exercisable on the date of the Request, shares
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<PAGE> 40
of Common Stock, cash or any combination thereof as specified in the
Request, having an aggregate value equal to the excess of the fair market
value on the date of the Request of one share of Common Stock over the
purchase price specified in such option multiplied by the number of shares
of Common Stock covered by such option or portion thereof which is so
surrendered. A stock appreciation right granted in connection with an option
under the Plan may only be granted at the time of such option, and is
exercisable only when the fair market value of the Common Stock on the date
of the Request exceeds the purchase price specified in such option.
For the purpose of this Section 12, the fair market value of a share of
Common Stock on any date shall mean the average of the closing price thereof
on each of the ten (10) trading days immediately preceding such day as shown
in the New York Stock Exchange Composite Transactions.
Any election by an option holder to surrender his option and to receive a
stock appreciation right settlement, whether for cash, for stock or for any
combination of stock and cash, shall be made by a Request only during any
period beginning on the third business day following the date of release for
publication by the Company of quarterly or annual summary statements of
sales and earnings and ending on the twelfth business day following such
date. No stock appreciation right or related stock option shall be
exercisable, however, during the first six (6) months of its term, except
that this limitation shall not apply in the event death or disability of the
optionee occurs prior to the expiration of the six-month period. Any stock
appreciation right shall be exercisable upon such additional terms and
conditions as may from time to time be prescribed by the Committee. Upon
surrender of an option or a portion thereof in exercise of stock
appreciation rights, such option or portion thereof shall expire.
No fractional shares of Common Stock shall be issued upon the exercise of
any stock appreciation right.
In the event the Committee disapproves in whole or in part any Request by an
option holder to exercise his stock appreciation right, or the form of
payment thereof, such disapproval shall not affect the optionee's right to
exercise his stock appreciation right at a later date to the extent that
such right is otherwise exercisable or to elect the form of payment at a
later date, provided that such later exercise and the form of payment also
shall be subject to the Committee's approval. Additionally, such disapproval
shall not affect the option holder's right alternatively to exercise any
option or options granted to him under the Plan.
13. ADDITIONAL PROVISIONS
Any option agreements authorized under the Plan shall contain such other
provisions, including provisions with respect to stock appreciation rights,
as the Committee shall deem advisable which are not inconsistent with the
terms herein stated. All Incentive Stock Option agreements shall contain
such limitations and restrictions upon the exercise of the option governed
thereby as shall be necessary in order that such option will be an
"incentive stock option" as defined in Section 422 of the Internal Revenue
Code of 1986, as amended, or to conform to any change in the applicable law,
rulings or regulations.
14. EXERCISE OF OPTIONS
An option may be exercised by notice given to the Committee in such form as
the Committee shall require. No fractions 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 15(b) of this Plan.
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<PAGE> 41
15. EXERCISE AFTER TERMINATION OF EMPLOYMENT.
(a) Options or stock appreciation rights may be exercised only while the
option holder (or if the options or stock appreciation rights have been
assigned, while the initial option holder) is an employee during a
period of continuous employment with the Company or a subsidiary from
the date of grant and may not be exercised at any time after
termination of the employment of the original option holder for any
cause, whether upon retirement or otherwise, except as hereinafter
provided:
(i) Upon the termination of the employment of an employee for
disability or upon his retirement under any pension plan for
salaried employees, he shall have the right to purchase all or any
part of the Common Stock with respect to which he held
non-qualified options immediately prior to the date of termination
or retirement, until five years after such retirement under a
pension plan for salaried employees or due to disability,
whichever is first to occur. The employee shall also have the
right within the period of three (3) months next following the
date of such termination or retirement, to purchase all or any
part of the Common Stock with respect to which he was entitled to
exercise Incentive Stock Options immediately prior to the date of
such termination or retirement or to exercise any equivalent stock
appreciation right which he was entitled to exercise immediately
prior to the date of such termination or retirement;
(ii) Upon termination of an employee as a result of the disposition of
a business at which he was employed at the effective date of
disposition, such former employee shall have the right to purchase
all or any part of the Common Stock with respect to which he was
entitled to exercise non-qualified options immediately prior to
the date of termination until three (3) months after the date of
the employee's termination of employment. The employee shall also
have the right within the period of three (3) months next
following the date of such termination to purchase all or any part
of the Common Stock with respect to which he was entitled to
exercise Incentive Stock Options immediately prior to the date of
such termination or to exercise any equivalent stock appreciation
right which he was entitled to exercise immediately prior to the
date of such termination;
(iii) Upon severance of an employee who has executed a release and
waiver in such form and substance as determined by the Company,
such former employee, if agreed by the Company in its sole
discretion, shall have the right to purchase all or such part of
the Common Stock with respect to which he was entitled to exercise
non-qualified options immediately prior to the date of severance
until the expiration of the severance period as specified by the
Company in the release and waiver or such shorter period as agreed
to by the Company; and
(iv) Upon the death of any employee while in the active service of the
Company or of a subsidiary or upon the death of any such retired
employee or of any such employee whose services have been
terminated on account of disability within the exercise periods
described in (i) above, his executor or administrator or the
person or persons to whom his rights under the option or under the
stock appreciation rights are transferred by will or the laws of
descent and distribution shall have the right, within the period
of six (6) months next following the date of his death, to
purchase all or any part of the Common Stock with respect to which
he was entitled to exercise such option immediately prior to his
death or to exercise any equivalent stock appreciation right which
he was entitled to exercise immediately prior to his death.
(b) In no event shall an option or stock appreciation right be exercised,
including but not limited to any event set forth herein, if the option
holder 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
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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 of the 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 has violated or breached this provision, then all options
held by the option holder shall be terminated effective the date of
such breach.
(c) The Committee shall have power to define the extent to which absences
due to illness, service in the armed forces, or leaves of absence shall
not be considered to break "continuance employment."
16. CHANGE IN CONTROL
In the event of a Change in Control of the Company (as defined in Section
2(a) of the Plan), then notwithstanding anything to the contrary in this
Plan or any notice or option agreement issued pursuant to this Plan, (a) all
options then outstanding shall become immediately and fully exercisable and
(b) the then outstanding option of an optionee whose employment is
terminated, except by the Company for cause, within twenty-four (24) months
after a Change in Control, or if more than one of the events described in
Section 2(a) occurs, then within twenty-four (24) months after the last
event to occur, shall remain exercisable for a period of three (3) months
from the date of such termination of employment, but in no event after the
expiration of the exercise period provided in Section 18 of this Plan.
17. PAYMENT FOR SHARES
Shares of Common Stock which are subject to an option shall be transferred
only upon exercise of the option in whole or in part and upon full payment
of the purchase price for the Common Stock as to which the option is
exercised. The option price shall be payable upon exercise of the option
either (a) in United States dollars in cash (including check, bank draft or
money order) or (b) by delivery of shares of Common Stock of the Company
already owned by the optionee or by the withholding of Common Stock to be
issued to the optionee or (c) by delivery of a combination of shares of
Common Stock and cash. Any federal, state or local withholding taxes payable
by an optionee shall be paid either (a) in United States dollars in cash
(including check, bank draft or money order) or (b) by delivery of shares of
Common Stock of the Company already owned by the optionee or by the
withholding of Common Stock to be issued to the optionee or (c) by delivery
of a combination of shares of Common Stock and cash. Any shares of Common
Stock delivered to the Company in payment of the option price shall be
valued at their fair market value (as defined in Section 10(e) of this Plan)
on the date of delivery. An employee to whom an option or stock appreciation
right has been granted shall have none of the rights of a shareholder with
respect to the shares to be acquired until such shares are transferred to
him.
18. TERMINATION OF OPTION OR STOCK APPRECIATION RIGHT
Each option and stock appreciation right shall terminate in any event no
later than ten (10) years from the date of grant. In the case of any option
or stock appreciation right providing for exercise in installments, unless
the option or stock appreciation right has been canceled, on termination of
employment by reason of death prior to the next succeeding maturity date of
an installment, the option or stock appreciation right shall be exercisable
with respect to a proportionate part of such
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installment based upon the number of days of employment during the period of
such installment in relation to the total number of days in such period.
19. ASSIGNABILITY
An option or stock appreciation right granted under the Plan may not be
transferred except (a) by gift to a spouse, parent, child, or grandchild
(collectively "Family Members") or a trust the beneficiaries of whom are
exclusively Family Members or (b) by will or the laws of descent and
distribution; and in the case of (a) or (b) only in accordance with
applicable state and federal tax and securities laws. During the lifetime of
the employee to whom an option or stock appreciation right is granted, the
option or stock appreciation right may be exercised only by him, his
guardian, legal representative or by a permitted assignee described in
Section 19(a) above.
20. LAWS AND REGULATIONS
(a) The Plan and all options and stock appreciation rights granted pursuant
to it are subject to all laws and regulations of any governmental
authority which may be applicable thereto, and notwithstanding any
provisions of this Plan or the options or stock appreciation rights
granted, the holder of an option or a stock appreciation right shall
not be entitled to exercise such option or stock appreciation right,
nor shall the Company be obligated to issue any shares or pay any cash
under the Plan to the holder, if such exercise, issuance or payment
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 upon any exercise of an option or stock appreciation
right until completion of any stock exchange listing or registration or
other qualification of such shares under any state or federal law, rule
or regulation as the Company may consider appropriate; and may require
any person exercising an option or stock appreciation right 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 stock
appreciation right 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.
PART III RESTRICTED SHARES
21. OFFER OF RESTRICTED SHARES
(a) To the extent not inconsistent with the provisions of this Plan, the
Committee shall fix the terms and provisions and restrictions on the
offer and sale of Restricted Shares, including the number of shares of
Common Stock offered, the purchase price, the portion of future bonuses
to be set off against such purchase price (as provided in Section 21(c)
of this Plan), and the Restricted Period (as defined in Section 25(a)
of this Plan). The Company shall offer to sell to eligible employees
selected by the Committee the number of shares of Common Stock fixed by
the Committee, and each employee to whom such offer is made may elect
to purchase up to that number of shares.
(b) The purchase price of the Restricted Shares offered under Section 21(a)
of this Plan shall be as determined by the Committee; provided,
however, that in no event shall the purchase price be less than one
dollar ($1.00) per share. Subject to the foregoing, the Committee in
fixing the purchase price, shall have full authority and discretion and
be fully protected in doing so.
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(c) Each employee who elects to purchase Restricted Shares pursuant to this
Section 21 shall execute and deliver to the Company a subscription
agreement for such Restricted Shares, containing such provisions as the
Committee and the Board of Directors of the Company shall deem
advisable which are not inconsistent with the terms herein stated,
agreeing to the terms and conditions of the purchase including the
restrictions set forth in Section 25 of this Plan. Each subscription
agreement shall set forth the aggregate purchase price of the
Restricted Shares which are the subject of such subscription and shall
provide that such purchase price shall be paid in full by the
subscriber on or before ten (10) years from the date of such
subscription (a) by setting off against such purchase price one hundred
percent (100%) of the cash dividends payable with respect to the
Restricted Shares which are the subject of such subscription plus such
portion (as the Committee in its sole discretion shall provide in the
subscription agreement) of all profit sharing or other bonuses to which
the subscriber becomes entitled after the date of such subscription and
(b) in cash in United States Dollars (including check, bank draft or
money order). The Company shall have the right to retain and apply
against the purchase price the cash dividends payable with respect to
the Restricted Shares and the portion of any profit sharing bonus or
other bonus to be set off against such purchase price as aforesaid. The
subscriber shall have the right to prepay all or any part of the
purchase price by cash payments to the Company at any time. The Board
of Directors may not call for any unpaid portion of the purchase price
prior to ten (10) years from the date of the subscription. No interest
will be charged to the subscriber on the unpaid balance of the purchase
price.
(d) Subject to Section 25(b), upon termination of employment of a
subscriber for any reason whatsoever, including retirement or death,
the subscriber or his legal representative may elect, within three (3)
months after the happening of such event, to pay the entire balance due
upon the purchase price of any portion of the Restricted Shares which
are freed of restrictions and not forfeited pursuant to Section 25(b)
of the Plan and thereupon receive delivery of the stock certificate. If
such payment shall not be made within such period, the Company will
treat the failure to pay as a default in payment of the purchase price
subject to the provisions of Section 24 of this Plan.
(e) The obligations of the Company to issue Restricted Shares pursuant to
the Plan shall be subject to (i) compliance with all laws and
regulations of any governmental authority which may be applicable
thereto and (ii) the completion of any stock exchange listing or
registration or other qualification of such shares under any state or
federal law, rule or regulation as the Company may consider
appropriate. The subscription agreement may contain such
representations as the Company considers appropriate in connection with
the issuance of the Restricted Shares in compliance with applicable
law. The Company shall proceed with reasonable promptness to complete
any such listing, registration or other qualification.
22. RIGHTS AS SHAREHOLDER
The subscriber will become a shareholder of record as of the date of the
subscription agreement and will thereupon have, subject to the provisions of
this Plan and the subscription agreement, all of the rights of a shareholder
of the shares so subscribed including, without limitation, the right to vote
the Restricted Shares at any meeting of the shareholders, to receive
dividends declared and paid thereon, if any, and to receive all
communications furnished by the Company to its shareholders. In accordance
with the subscription agreement, all cash dividends payable with respect to
the Restricted Shares will be credited to and applied against the unpaid
balance of the purchase price. Any dividends other than cash paid or
distributed with respect to such shares will be distributed to the
subscriber.
23. ISSUANCE OF CERTIFICATES
No certificates for Restricted Shares sold pursuant to Section 21 hereof
will be executed and delivered until such shares are fully paid. Any
certificate issued hereunder shall bear appropriate
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legends as the Company, in its discretion, shall determine are necessary to
reflect the restrictions on such shares existing under this Plan or arising
under applicable state or federal securities laws. Each installment of the
purchase price paid pursuant to a subscription agreement shall be credited
pro rata among the Restricted Shares which are the subject of such
subscription, and no portion of the Restricted Shares shall be deemed fully
paid until the purchase price of all of the Restricted Shares which are the
subject of such subscription is paid in full.
24. DEFAULT IN PAYMENT
In case of default in the payment of the purchase price, the Company shall,
subject to compliance with Section 1701.35 of the Ohio Revised Code, after
thirty (30) days' notice setting forth such default has been given to the
subscriber by registered mail, release the shares from subscription and
treat as retired the shares subject to the subscription which have not been
fully paid. In such event, the subscriber shall no longer be liable for the
unpaid portion of the purchase price and shall receive a refund of any
portion of the purchase price paid pursuant to the subscription agreement
prior to such default, without interest.
25. RESTRICTIONS
(a) At the time of each sale of Common Stock pursuant to Section 21 of this
Plan, the Committee shall establish for each subscriber a "Restricted
Period" with respect to the Restricted Shares purchased, which period
shall not be longer than ten (10) years. Restricted Shares sold
pursuant to this Plan may not be sold, margined, assigned, transferred,
pledged or otherwise encumbered during the Restricted Period
notwithstanding that such shares may be fully paid prior to the
expiration of the Restricted Period.
(b) If a subscriber ceases to be an employee of the Company or a subsidiary
during the Restricted Period for any cause other than (i) death, (ii)
disability, (iii) retirement under any pension plan for salaried
employees, or (iv) termination by the Company within twenty-four (24)
months after a Change in Control of the Company (as defined in Section
2(a) of the Plan), or if more than one of the events described in
Section 2(a) occurs, then within twenty-four (24) months after the last
event to occur, and such termination by the Company is not for cause,
all Restricted Shares which are still subject to the foregoing
restrictions shall, upon such termination of employment, be forfeited
and returned to the Company; provided, however, that in the event his
employment is terminated at the request of the Company or by action of
the Company, the Committee may, but need not, determine that some or
all of his Restricted Shares shall be free of restrictions and shall
not be forfeited. If a subscriber ceases to be an employee of the
Company or a subsidiary during the Restricted Period by reason of
death, disability, retirement under any pension plan for salaried
employees, or within twenty-four (24) months after a Change in Control,
or if more than one of the events described in Section 2(a) occurs,
then within twenty-four (24) months after the last event to occur,
(except if terminated by the Company for cause), the restrictions in
Section 25(a) shall terminate. The Committee may at any time in its
sole discretion accelerate or waive all or any portion of the
restrictions remaining in respect of the Restricted Shares.
(c) If any Restricted Shares are forfeited pursuant to Section 25(b)
hereof, the subscriber shall no longer be liable for any unpaid portion
of the purchase price and shall receive a refund of any portion of the
purchase price paid pursuant to the subscription agreement prior to
such forfeiture, without interest.
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<PAGE> 46
EXHIBIT 3
HUFFY CORPORATION
1998 RESTRICTED SHARE PLAN
1. STATEMENT OF PURPOSE
The purpose of this Plan is to provide certain benefits for key management
employees in the form of the Sponsor's Common Stock granted as Restricted
Shares, thereby encouraging such employees to increase overall shareholder
value. This Plan shall be considered an "Offset Plan" as that term is defined in
the Huffy Corporation Supplemental/Excess Benefit Plan.
2. DEFINITIONS
Where required by the content, the noun, verb, adjective and adverb forms
of each defined term includes any of its other forms and the singular includes
the plural and the plural includes the singular. "He," "his" and "him" includes
"she," "hers" and "her." In addition, the following terms shall have the
following meanings:
2.1 "Agreement " shall mean an agreement described in Section 6.2 under
which Restricted Shares are granted to a Recipient.
2.2 "Change in Control " means and will be deemed to have occurred upon the
occurrence of any of the following events: (a) any person acquires, other than
directly from the Sponsor in exchange for cash or property, in excess of 30% of
the Sponsor's outstanding shares of Common Stock; or (b) a merger, consolidation
or other combination of the Sponsor with one or more other corporations as a
result of which more than 49% of the voting stock of the merged, consolidated or
combined corporation is held by former shareholders of the corporations (other
than the Sponsor) which are parties to, or are shareholders of corporations
(other than the Sponsor) in control of parties to, such merger, consolidation or
other combination; or (c) two or more persons, who were not nominated as
candidates for the Board of Directors of the Sponsor in proxy statements
forwarded to shareholders during any period of 24 consecutive months on behalf
of the Board of Directors of the Sponsor, are elected to the Board of Directors
of the Sponsor by the shareholders of the Sponsor voting in person or by proxy,
and such persons so elected are nominated as candidates for the Board of
Directors in proxy statements forwarded, or caused to be forwarded, to the
shareholders of the Sponsor during such period by any person other than the
Board of Directors of the Sponsor.
2.3 "Code " means the Internal Revenue Code of 1986, as amended from time
to time.
2.4 "Committee " shall mean the Compensation Committee of the Sponsor's
Board of Directors.
2.5 "Common Stock " shall mean a share of the Sponsor's common stock.
2.6 "Disability " shall mean an injury or disease which will prevent a
Recipient from satisfactorily performing his or her regular duties for the
Sponsor.
2.7 "Effective Date " of this Plan means the date of the approval of this
Plan by the Sponsor's Board of Directors, June 12, 1997, subject to the
provisions of Section 7.
2.8 "Fair Market Value " of a share of Common Stock on a particular date
shall mean the closing sale price for 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 determining the Fair Market Value of Common
Stock, shall have the full authority and discretion and be fully protected in
doing so.
2.9 "Plan " means this Huffy Corporation 1998 Restricted Share Plan, as
amended from time to time.
<PAGE> 47
2.10 "Recipient" shall mean a person who receives one or more grants of
Restricted Shares under the Plan.
2.11 "Restricted Shares" shall mean any shares of Common Stock which are
granted to Recipients hereunder which have not yet vested; i.e. which remain
subject to a substantial risk of forfeiture under this Plan.
2.12 "Senior Executive Participant" shall mean an individual who is, as of
June 13, 1997 or any subsequent date, an Officer of Huffy Corporation, or a
President and General Manager of a Huffy Corporation subsidiary or operating
division.
2.13 "SERP" means the Huffy Corporation Supplemental/Excess Benefit Plan as
in effect on the Effective Date, or as subsequently amended from time to time.
2.14 "Sponsor" means Huffy Corporation or any successor.
2.15 "Supplemental/Excess Benefit" or "SERP Benefit" means the benefit
provided under Article III of the SERP to a Senior Executive Participant at the
time of his or her retirement, disability or death.
3. ADMINISTRATION
3.1 Role of Compensation Committee. The Plan shall be administered by the
Committee, which shall at all times consist of not less than three (3) members
of the Board of Directors who are not entitled to participate in the Plan.
Members of the Committee shall be appointed by, and shall serve at the pleasure
of, the Board of Directors.
3.2 Rules, Regulations and Procedures. The Committee shall have full power
and authority to construe the provisions and to supervise the administration of
the Plan, including the establishment of such rules, regulations and procedures
as it may deem appropriate, and all decisions and designations made by the
Committee pursuant to the provisions of the Plan shall be final. Any action
taken by a majority of the Committee shall be the action of the Committee.
3.3 Indemnification of Committee Members. 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 Sponsor 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 the Plan and against and from any and all amounts paid by him in
settlement thereof, with the Sponsor's approval, or paid him in satisfaction of
judgment in any such action, suit, or proceeding against him; provided he shall
give the Sponsor 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 Sponsor's
Articles of Incorporation or Code of Regulations, as a matter of law, or
otherwise, or any power that the Sponsor may have to indemnify him or hold him
harmless.
4. EMPLOYEES WHO MAY RECEIVE GRANTS OF RESTRICTED SHARES UNDER THE PLAN
Any Senior Executive Participant in the SERP shall be eligible to receive a
grant of Restricted Shares under the Plan.
5. SHARES SUBJECT TO THE PLAN
5.1 Aggregate Limitation. The total number of shares of Common Stock which
may be issued in the aggregate under this Plan, the Sponsor's 1998 Director
Stock Option Plan and the Sponsor's 1998 Key Employee Stock Plan shall not
exceed 623,714 shares, subject, however, to adjustments required under the
provisions of Section 5.4 hereof.
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<PAGE> 48
5.2 Source of Shares. Common Stock subject to the Plan may be, at the
discretion of the Board of Directors, either authorized and unissued shares,
treasury shares, or shares acquired by the Sponsor in open market transactions
for the purpose of funding this Plan.
5.3 Availability of Forfeited Shares. If Restricted Shares subscribed for
under the Plan are later forfeited pursuant to the Plan, such Restricted Shares
shall again become available for offering under the Plan.
5.4 Certain Adjustments. In the event of any change in the Common Stock
subject to the Plan or to any Restricted Shares 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 which may be issued under this Plan
and the number or class of Restricted Shares still subject to restrictions,
shall be appropriately adjusted by the Committee.
6. GRANT OF RESTRICTED SHARES
6.1 Grant of Restricted Shares. Each Recipient shall be entitled to an
annual grant of Restricted Shares in an amount having a Fair Market Value which
has been determined by the Sponsor's Actuary to be the equivalent of one-half of
the total dollar amount of such Recipient's accrued SERP Benefit. The
computation of a Recipient's SERP Benefit shall be made as of the date of the
grant as the SERP Benefit would be computed in the absence of this Plan, subject
to certain adjustments, as more fully described on Exhibit A. For grants
received during calendar year 1997, the actual number of shares granted to each
Senior Executive Participant is intended to represent the actuarial equivalent
of the future value at retirement of one-half of the SERP benefit accrued
through December 31, 1997; except for the Chief Executive Officer as of the
Effective Date, whose benefit for such period shall accrue and be granted over
three years in substantially equal grants in 1997, 1998 and 1999, regardless of
employment status. For subsequent years, grants of Restricted Shares made in
accordance with Exhibit A shall be made automatically in June of each year,
provided that this Plan has been approved by the shareholders of the Sponsor.
Alternatively, the Committee may approve additional grants in its discretion.
6.2 Grant Agreements. Each Recipient to whom Restricted Shares are granted
shall execute and deliver to the Sponsor an Agreement for such Restricted
Shares, containing such provisions as the Committee and the Board of Directors
of the Sponsor shall deem advisable which are not inconsistent with the terms
herein stated, and under which the Recipient agrees to the terms and conditions
of the Plan.
6.3 Restricted Share Vesting. Subject to the other provisions of this Plan
and any Agreement, each grant of Restricted Shares under this Plan shall vest
(i.e. cease to be subject to a substantial risk of forfeiture hereunder) upon
the earliest to occur of the following dates: (i) the date of the Recipient's
death, (ii) the date on which the Recipient is determined by the Committee to be
suffering from a Disability, (iii) the date on which the Recipient becomes
vested in his or her SERP Benefit, (iv) the closing date of a Change in Control,
or (v) the date on which the Recipient becomes eligible to commence retirement
benefits under any salaried retirement plan of the Sponsor. The preceding
sentence notwithstanding, however, in no event shall a Recipient's Restricted
Shares become vested prior to the later of (vi) the special vesting date
described in Section 6.5, or (vii) the effective date of the approval of this
Plan by the shareholders of the Sponsor. Unless and until vested, Restricted
Shares granted pursuant to this Plan may not be sold, margined, assigned,
transferred, pledged or otherwise encumbered by the Recipient without the prior
consent of the Committee.
6.4 Restricted Share Forfeiture. Except as otherwise set forth in this Plan
or in an Agreement applicable to the Recipient, if any Recipient ceases to be an
employee of the Sponsor or a subsidiary of the Sponsor prior to the vesting of
any Restricted Shares, all Restricted Shares which are not vested shall, upon
such termination of employment, be forfeited and returned to the Sponsor.
Provided however, that in the event that a Recipient's employment is terminated
at the request of the Sponsor or by
3
<PAGE> 49
action of the Sponsor, the Committee may, but need not, determine that some or
all of his or her Restricted Shares not yet vested shall not be forfeited.
6.5 Special Vesting Rule. Unless a specific grant of Restricted Shares
shall have been approved prior to grant by the Committee within the meaning of
Rule 16b-3(d)(1) of the Securities and Exchange Commission, then notwithstanding
any other provision of this Plan or the SERP, the Restricted Shares which are
the subject of such grant shall not vest as provided above for a period of six
months after the date of grant, or such shorter period as may be permitted under
Rule 16b-3 in the future.
6.6 Shareholder Approval of Plan as Prerequisite to Vesting.
Notwithstanding any other provision of the Plan or the SERP, to the extent
grants of Restricted Shares may be made prior to the receipt of the approval of
the Plan by the Sponsor's shareholders, the Restricted Shares which are the
subject of such grants shall not vest earlier than the effective date of such
approval of the Sponsor's shareholders.
6.7 Withholding Taxes. Any federal, state or local withholding taxes
attributable to a grant of Restricted Shares which are payable by a Recipient
shall be paid to the Sponsor by the Recipient when due either (i) in cash, (ii)
in the form of the surrender of other shares of Common Stock owned by the
Recipient or (iii) by the withholding of some of the Restricted Shares from the
grant. All such shares so surrendered or withheld shall be valued at Fair Market
Value on the date surrendered or withheld.
6.8 Securities Law Compliance. The obligations of the Sponsor to issue
Restricted Shares pursuant to the Plan shall be subject to (i) compliance with
all laws and regulations of any governmental authority which may be applicable
thereto and (ii) the completion of any stock exchange listing or registration or
other qualification of such shares under any state or federal law, rule or
regulation as the Sponsor may consider appropriate. The grant agreement may
contain such representations as the Sponsor considers appropriate in connection
with the issuance of the Restricted Shares in compliance with applicable law.
The Sponsor shall proceed with reasonable promptness to complete any such
listing, registration or other qualification.
6.9 Rights as Shareholder. A Recipient will become a shareholder of record
with respect to specific Restricted Shares as of the date such Restricted Shares
are granted and an Agreement is executed by the Sponsor and the Recipient. The
Recipient will thereupon have, subject to the provisions of this Plan and the
Agreement, all of the rights of a shareholder with respect to the Restricted
Shares so granted, including, without limitation, the right to vote the
Restricted Shares at any meeting of the shareholders, to receive dividends
declared and paid thereon, if any, and to receive all communications furnished
by the Sponsor to its shareholders. Any dividends other than cash paid or
distributed with respect to such Restricted Shares will be distributed to the
Recipient free and clear of restriction under this Plan.
6.10 Stock Certificates. Any certificate representing Restricted Shares
hereunder shall bear such appropriate legends as the Sponsor, in its discretion,
shall determine are necessary to reflect the restrictions on such shares
existing under this Plan or arising under applicable state or federal securities
laws, and such certificate may be held by the Sponsor until the restrictions
lapse.
7. EFFECTIVENESS AND DURATION OF THE PLAN
The Plan shall become effective immediately upon its approval by the
Sponsor's Board of Directors, provided, however, that the Plan shall be
submitted to the Sponsor's shareholders for their approval at the 1998 Annual
Shareholders' Meeting and, if such approval is not granted, then the Plan shall
be of no force or effect and shall be void ab initio, except that Recipients
shall in any event be permitted to retain any dividends or other distributions
received by them with respect to any Restricted Shares granted and outstanding
prior to the date of such annual meeting. If approved, the Plan shall remain in
effect until terminated by action of the Sponsor's Board of Directors.
8. AMENDMENT OF THE PLAN
The Board of Directors may alter or amend the Plan from time to time prior
to its termination, but (i) without the approval of the Sponsor's shareholders,
no such amendment shall increase the aggregate
4
<PAGE> 50
number of shares of Common Stock which may be issued under the Plan; and (ii)
without the consent of the Recipient, no such amendment shall alter or affect to
the detriment of any Recipient any Restricted Shares granted to such Recipient
which are then outstanding pursuant to this Plan.
9. GENERAL PROVISIONS
9.1 Employment Rights. This Plan does not create any rights in favor of any
Recipient to continue employment with the Sponsor for any specific period of
time.
9.2 Notice. 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 on which 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 holder of Restricted Shares shall be addressed to the
holder, at the holder's address set forth in the Sponsor's current personnel
records. Anyone to whom a notice may be given under this Plan may designate, in
writing, a new address by notice to that effect.
9.3 Applicable Law. This Plan will be governed and construed in accordance
with the laws of the State of Ohio and the United States.
9.4 Plan Forms. Whenever the Plan requires a Recipient to file a form,
application, notice, election or designation with the Sponsor, the Recipient
will take such action by completing and signing a form approved by the Sponsor.
9.5 Non-Alienation of Benefits. No benefit payable under the Plan and no
right or privilege under the Plan may be anticipated, alienated, sold,
transferred, assigned, pledged, garnished, encumbered or charged by a Recipient,
and any attempt to do so will be void.
9.6 Successors. This Plan and the obligations hereunder are binding on the
Sponsor and its successors and assigns.
5
<PAGE> 51
EXHIBIT A
The following assumptions and administrative procedures will be applicable for
the purpose of determining grants of Restricted Shares under the Plan.
- Interest, mortality and other actuarial assumptions (including, but not
limited to, projections of increases in the Recipient's compensation and
the rate of price increase of the Sponsor's Common Stock) will be
determined by the Committee from time to time (but not less frequently
than once during any three year period) upon advice from the Sponsor's
actuary.
- The Committee may implement and enforce such other assumptions and
administrative procedures as it deems necessary from time to time.
- Recipients will be assumed to retire at the end of the month when age and
service will satisfy the Rule of 85 under the Sponsor's defined benefit
plan. However, if a Recipient has reached the Rule of 85 date but has
continued employment, the Recipient will be assumed to retire on the date
on which the Recipient reaches age 65.
- The final grant will occur during the fiscal year in which the executive
retires or reaches age 65, whichever occurs first. The final grant will
consider the actual SERP Benefit up to the date of the grant, less all of
the benefits already provided by earlier grants.
- Calculation of the SERP Benefit is based on the 3 highest calendar years'
compensation. Compensation includes the base pay plus the annual and long
term incentive cash compensation paid in that year.
- An annual "benefit" is tied to each grant. When grants are made after the
first year, the "benefit" corresponding to the prior grant will be offset
after the new projected SERP Benefit is calculated. Then the number of
new shares to be granted will be calculated.
- The 1997 grants are based on the compensation for the years 1994 to 1996
(except for the grant made to the Chief Executive Officer). The SERP at
the projected retirement date will be calculated based on the assumptions
being used. The number of shares will be determined from those results.
6
<PAGE> 52
PROXY PROXY
HUFFY CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS APRIL 17, 1998
The undersigned hereby appoints Jack D. Michaels, James F. Robeson, and
Patrick W. Rooney, and each of them, his or her proxies, with power of
substitution, to vote all shares of Common Stock of HUFFY CORPORATION, an Ohio
corporation, which he or she may be entitled to vote at the Annual Meeting of
Shareholders of said Corporation to be held April 17, 1998, and at any
adjournment(s) thereof, on the following matters, all of which are described in
the Proxy Statement, receipt of which is hereby acknowledged:
ELECTION OF DIRECTORS, NOMINEES
(For a term of three years)
Don R. Graber
Linda B. Keene
Thomas C. Sullivan
This Proxy will be voted as directed. If no choice is specified, this proxy
will be voted (A) FOR the nominated Directors, (B) FOR proposals 2, 3, 4, and 5,
and (C) AGAINST proposals 6 and 7. 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 the
appointed proxies' discretion and best judgment. If cumulative voting is elected
for the election of Directors, votes cast pursuant to this proxy will be
distributed among the above nominees at the discretion of said proxies.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
3850--HUFFY CORPORATION
- --------------------------------------------------------------------------------
Coronado Island Marriott Resort
[MAP]
DIRECTIONS
----------
TO THE HOTEL FROM THE SAN DIEGO AIRPORT
(SOUTHBOUND 5 FREEWAY)
o Exit the airport, following signs to Harbor Drive, to Downtown
o Turn left onto Grape Street
o Enter (right) onto 5 freeway--south
o Enter 75 Coronado (Stay to the right over the Bay Bridge)
o The bridge toll is $1.00 per car, if there are two or more persons in
the vehicle you may use the extreme right lane (without stopping) at
the toll plaza, it is a free car pool lane.
o After the toll plaza, turn right onto Glorietta Blvd.
(it will be the first available right hand turn)
o Two blocks, the hotel will be on your right.
<PAGE> 53
1. ELECTION OF DIRECTORS: For Withhold For All
Nominees: Don R. Graber All All Except
Linda B. Keene / / / / / /
Thomas C. Sullivan
- -----------------------------------
(Except nominees written above)
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR THE FOLLOWING:
For Against Abstain
2. Approval of 1998 Director Stock Option Plan / / / / / /
3. Approval of 1998 Key Employee Stock / / / / / /
Option Plan
4. Approval of Huffy Corporation Restricted / / / / / /
Share Plan
5. Ratification of appointment of KPMG Peat / / / / / /
Marwick LLP as the Company's independent
public accountants for 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS RECOMMENDS A
VOTE AGAINST THE FOLLOWING:
6. Shareholder Proposal 1 / / / / / /
7. Shareholder Proposal 2 / / / / / /
- --------------------------------------------------------------------------------
Mark here for address change and revise / /
preprinted address as necessary.
Mark here if you plan to attend the meeting. / /
Please indicate number attending:_________
Date , 1998
-----------------------
Signature(s)
---------------------------
----------------------------------------
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
3850--HUFFY CORPORATION
HUFFY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
ADMISSION TICKET
April 17, 1998
Marriott Coronado Island Resort
2000 Second Street
Coronado, California
If you plan to attend the meeting, please check the box above and indicate the
number attending on the proxy form above. Please detach this card and bring it
with you to the meeting for presentation at the meeting.
