UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
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:
[_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-11(c) or SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
FLEXSTEEL INDUSTRIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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:
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2) Aggregate number of securities to which transaction applies:
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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
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[_] 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:
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4) Date Filed:
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FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
Date: October 29, 2002
Office of the Chairman of the Board
Dear Stockholder:
You are cordially invited to attend the Annual Stockholders' Meeting on
Monday, December 9, 2002, at 2:00 p.m. We sincerely want you to come, and we
welcome this opportunity to meet with those of you who find it convenient to
attend.
Time will be provided for stockholder questions regarding the affairs of
the Company and for discussion of the business to be considered at the meeting
as explained in the notice and proxy statement which follow. Directors and other
Company executives expect to be available to talk individually with stockholders
after the meeting. No admission tickets or other credentials are currently
required for attendance at the meeting.
The formal notice of the meeting and proxy statement follow. I hope that
after reading them you will sign and mail the proxy card, whether you plan to
attend in person or not, to assure that your shares will be represented.
Sincerely,
/s/ L. Bruce Boylen
L. Bruce Boylen
CHAIRMAN OF THE BOARD
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RECORD DATE: October 15, 2002
DATE OF MEETING: December 9, 2002
TIME: 2:00 p.m.
PLACE: Hilton Minneapolis
1001 Marquette Avenue
Minneapolis, MN 55403
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IMPORTANT
WHETHER YOU OWN ONE SHARE OR MANY, EACH STOCKHOLDER IS URGED TO VOTE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
FLEXSTEEL INDUSTRIES, INC.
P.O. BOX 877
DUBUQUE, IOWA 52004-0877
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 9, 2002
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Flexsteel Industries, Inc. will be
held at the Hilton Minneapolis, 1001 Marquette Avenue, Minneapolis, Minnesota
55403, on Monday, December 9, 2002 at 2:00 p.m. for the following purposes:
1. To elect three (3) Class I Directors to serve until the year 2005
Annual Meeting and until their successors have been elected and
qualified or until their earlier resignation, removal or termination
(Proposal I).
2. To consider and act upon a proposal to approve the 2002 Stock Option
Plan (Proposal II).
3. To ratify or reject the appointment by the Board of Directors of
Deloitte & Touche LLP as independent auditors for the fiscal year
ending June 30, 2003 (Proposal III).
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
October 15, 2002 has been fixed as the record date for the determination of
common stockholders entitled to notice of and to vote at the meeting, and only
holders of record at the close of business on that date will be entitled to vote
at the meeting or any adjournment thereof.
Whether or not you plan to attend the meeting, please mark, date and sign
the accompanying proxy and return it promptly in the enclosed envelope which
requires no additional postage if mailed in the United States. If you attend the
meeting, you may vote your shares in person even though you have previously
signed and returned your proxy. Voting by ballot at the meeting cancels any
proxy previously returned.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R.J. Klosterman
R.J. KLOSTERMAN
SECRETARY
October 29, 2002
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PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY
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PROXY STATEMENT
The accompanying proxy is solicited on behalf of the Board of Directors of
Flexsteel Industries, Inc. (the "Company") to be used at the Annual Meeting of
Stockholders to be held on Monday, December 9, 2002, and any adjournments
thereof, and may be revoked by the stockholder at any time before it is
exercised by a written notice or a later dated proxy delivered to the Secretary
of the Company. Execution of the proxy will in no way affect a stockholder's
right to attend the meeting and vote in person. The proxy will be revoked if the
stockholder is present at the meeting and votes by ballot in person. Properly
executed proxies received prior to the voting at the meeting will be voted at
the meeting or any adjournments thereof. If a stockholder specifies how the
proxy is to be voted on any business to come before the meeting, it will be
voted in accordance with such specification. If no specification is made, it
will be voted FOR the election of K. Bruce Lauritsen, Thomas E. Holloran and L.
Bruce Boylen as Class I Directors (Proposal I), FOR the approval of the 2002
Stock Option Plan (Proposal II) and FOR ratification of the appointment of
Deloitte & Touche LLP (Proposal III). Each of the above named nominees has been
previously elected by the stockholders.
The mailing address of the corporate office and principal executive office
of the Company is P.O. Box 877, Dubuque, IA 52004-0877. The approximate date on
which this proxy statement and accompanying proxy card are first being mailed to
stockholders is October 29, 2002.
As of the close of business on October 15, 2002, the record date for
determining stockholders entitled to notice and to vote at the meeting, the
Company had 6,072,020 outstanding shares of Common Stock, par value $1.00 per
share. Each share is entitled to one vote and cumulative voting is not
permitted. No Preferred Stock is outstanding.
Stockholder votes will be counted by the Inspector of Election who will be
present at the stockholder meeting. The affirmative vote of a majority of the
shares of stock represented at the meeting shall be the act of the stockholders
for the election of directors. Abstentions and broker non-votes shall not be
counted as votes for or against the proposal being voted on.
EXPENSE OF SOLICITATION
The cost of the solicitation of proxies on behalf of the Board of Directors
will be paid by the Company. Solicitation of proxies will be principally by
mail. In addition, the officers or employees of the Company and others may
solicit proxies, either personally, by telephone, by special letter, or by other
forms of communication. The Company will also make arrangements
1
with banks, brokerage houses and other custodians, nominees and fiduciaries to
send proxies and proxy material to their principals and will reimburse them for
reasonable expenses in so doing. Officers and employees of the Company will not
receive additional compensation in connection with the solicitation of proxies.
PROPOSAL I
ELECTION OF DIRECTORS
The Board currently consists of eleven persons divided into three classes.
At each Annual Meeting the terms of one class of Directors expire and persons
are elected to that class for terms of three years or until their respective
successors are duly qualified and elected or until their earlier resignation,
removal or termination.
The Board of Directors of the Company has nominated K. Bruce Lauritsen,
Thomas E. Holloran and L. Bruce Boylen for election as Class I Directors of the
Company. The Class I Directors' term expires at the time of the year 2005 Annual
Meeting and until their respective successors have been elected and qualified or
until their earlier resignation, removal or termination. It is the intention of
the proxies named herein to vote FOR these nominees unless otherwise directed in
the proxy.
All nominees named above have consented to serve as Directors if elected.
In the event that any of the nominees should fail to stand for election, the
persons named as proxy in the enclosed form of proxy intend to vote for
substitute nominees. The proxies cannot be voted for a greater number of persons
than the number of nominees named herein.
2
PRINCIPAL OCCUPATION AND OTHER
DIRECTOR DIRECTORSHIP OR EMPLOYMENT DURING
NAME AGE SINCE THE LAST FIVE YEARS
- ---------------------------------------------------------------------------- ----- --------- ---------------------------------------
NOMINEES FOR ELECTION FOR A TERM OF THREE YEARS EXPIRING AT THE 2005 ANNUAL
MEETING, CLASS I
K. Bruce Lauritsen 60 1987 Chief Executive Officer and President,
1993 to present, Flexsteel Industries,
Inc.
Thomas E. Holloran(1)(2) 73 1971 Professor Emeritus, School of Business,
University of St. Thomas, St. Paul;
former Director, Medtronic, Inc.
(1960 - 2000).
L. Bruce Boylen(2) 70 1993 Retired Vice President, Fleetwood
Enterprises, Inc. (mfr. of recreational
vehicles and manufactured homes).
DIRECTORS CONTINUING TO SERVE WHOSE TERMS EXPIRE AT THE 2003 ANNUAL MEETING,
CLASS II
James R. Richardson(3) 58 1990 Senior Vice President Marketing, 1994
to present, Flexsteel Industries, Inc.
Patrick M. Crahan(3) 54 1997 Vice President, Dubuque Upholstering
Division, 1989 to present, Flexsteel
Industries, Inc.; Director, American
Trust and Savings Bank, Dubuque, Iowa;
Trustee, University of Dubuque.
Marvin M. Stern(2)(3) 66 1998 Retired Vice President, Sears-Roebuck
Company.
Robert E. Deignan(1) 63 2001 Partner, Baker and McKenzie law firm.
DIRECTORS CONTINUING TO SERVE WHOSE TERMS EXPIRE AT THE 2004 ANNUAL MEETING,
CLASS III
Edward J. Monaghan(3) 63 1987 Chief Operating Officer and Executive
Vice President, 1993 to present,
Flexsteel Industries, Inc; Clarke
College.
Jeffrey T. Bertsch(3) 47 1997 Vice President Corporate Services, 1989
to present, Flexsteel Industries, Inc.;
Director, American Trust and Savings
Bank, Dubuque, Iowa; Trustee,
University of Dubuque.
Lynn J. Davis(1)(3) 55 1999 General Partner, Tate Capital Partners,
2002; President, 2001, and Senior Vice
President, 1991 to 2001, ADC
Telecommunications, Inc.; Director,
Automated Quality Technologies, Inc.
(mfr. of non-contact measurement
equipment); Director, Infrared
Solutions (mfr. of specialty camera
equipment).
Eric S. Rangen 45 2002 Vice President and Chief Financial
Officer, 2001 to present, Alliant
Techsystems, Inc.; Partner, Deloitte &
Touche LLP, 1994 to 2000.
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(1) Member of Audit Committee
(2) Member of Compensation and Nominating Committee
(3) Member of Marketing and Planning Committee
3
CERTAIN INFORMATION CONCERNING BOARD
AND OUTSIDE DIRECTORS' COMPENSATION
During the fiscal year ended June 30, 2002, four meetings of the Board of
Directors were held. No Director attended less than 75% of the Board and
Committee meetings, except for Thomas E. Holloran.
Each Director who is not an employee of the Company is paid a retainer at
the rate of $9,600 per year. In addition, each is paid a fee of $2,400 for each
Board meeting each attends. The Chairman of the Board is paid a retainer of
$16,800 per year and a fee of $4,200 for each Board meeting attended. For
attending a committee meeting each is paid a fee of $1,000. The Chairman of each
Committee is paid $1,100 for each meeting attended. The Company pays no
additional remuneration to employees of the Company who are Directors. All of
the aforementioned amounts were subject to a voluntary 10% reduction effective
with the March 2001 Board meeting and ending with the December 2001 Board
meeting.
Each Director who is not an employee of the Company receives on the first
business day after each annual meeting a non-discretionary, non-qualified stock
option grant for 1,000 shares valued at fair market value on date of grant,
exercisable for 10 years. Each person who becomes for the first time a
non-employee member of the Board, including by reason of election, appointment
or lapse of three (3) years since employment by the Company, will receive an
immediate one-time option grant for 2,000 shares.
The Company has entered into an agreement with Thomas E. Holloran pursuant
to which the Company will pay to him, or his beneficiaries, $20,000 after he
ceases to be a Director as additional compensation in recognition of Director
services rendered.
4
COMMITTEES OF THE BOARD
The Board of Directors has established three standing committees; the names
of the committees and the principal duties are as follows:
AUDIT COMMITTEE:
Confers with the independent auditors on various matters, including the
scope and results of the audit; authorizes special reviews or audits; reviews
internal auditing procedures and the adequacy of internal controls; and reviews
policies and practices respecting compliance with laws, conflicts of interest
and ethical standards of the Company. The Committee held two meetings during the
fiscal year ended June 30, 2002. The Committee members are Thomas E. Holloran,
Lynn J. Davis and Robert E. Deignan. The Board of Directors has adopted a
written charter for the Audit Committee. The Company believes all audit
committee members are independent as defined in Rule 4200(a)(14) of NASD listing
standards.
COMPENSATION AND NOMINATING COMMITTEE:
Makes recommendations regarding Board compensation, reviews performance and
compensation of various executive officers, determines stock option grants, and
advises regarding employee benefit plans. Makes recommendations regarding Board
of Director nominees and reviews timely proposed nominees received from any
source including nominees by stockholders. Nominations by stockholders must be
received by the Secretary at least 18 days before the annual meeting and set
forth nominee information as required by the Restated Articles which are
available upon request to the Secretary of the Company. The Committee held two
meetings during the fiscal year ended June 30, 2002. The Committee members are
L. Bruce Boylen, Thomas E. Holloran and Marvin M. Stern.
MARKETING AND PLANNING COMMITTEE:
Reviews marketing plans with respect to the Company's position in the
various market places. Makes recommendations regarding marketing direction to
enhance revenues and profit margins. The Committee held one meetings during the
fiscal year ended June 30, 2002. The Committee members are Marvin M. Stern,
Patrick M. Crahan, Jeffrey T. Bertsch, Lynn J. Davis, Edward J. Monaghan and
James R. Richardson.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITS NOMINEES. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE IN THEIR PROXIES.
5
OWNERSHIP OF STOCK BY
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the shares of Flexsteel's common stock
beneficially owned by the Directors, the Chief Executive Officer, the other four
most highly compensated executive officers and by all directors and executive
officers as a group as of August 9, 2002. Unless otherwise indicated, to the
best knowledge of the Company all persons named in the table have sole voting
and investment power with respect to the shares shown.
PERCENT
SHARES BENEFICIALLY SHARES
NAME TITLE OWNED(1)(2)(6) OUTSTANDING
- ----------------- ------------------------------------------------- --------------------- ------------
J.T. Bertsch Vice President Corporate Services, Director 417,682(3)(4) 6.7%
L.B. Boylen Chairman of the Board of Directors 11,000 0.2%
P.M. Crahan Vice President Dubuque Upholstering 114,457(4) 1.8%
Division, Director
L.J. Davis Director 5,000 0.1%
R.E. Deignan Director 3,500 0.1%
T.E. Holloran Director 16,680 0.3%
K.B. Lauritsen President, Chief Executive Officer, Director 139,169(4) 2.2%
E.J. Monaghan Executive Vice President, Chief Operating 146,979(4) 2.4%
Officer, Director
J.R. Richardson Senior Vice President Marketing, Director 463,493(4)(5) 7.4%
E.S. Rangen Director 2,500 0.0%
M.M. Stern Director 6,000 0.1%
T.D. Burkart Senior Vice President Vehicle Seating 83,399(4) 1.3%
R.J. Klosterman Vice President Finance, Chief Financial Officer 83,658(4) 1.3%
and Secretary
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP(13) 1,493,517 23.9%
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(1) Includes the following number of shares which may be acquired by exercise
of stock options: J.T. Bertsch -- 57,750; L.B. Boylen -- 11,000; P.M.
Crahan -- 1,750; L.J. Davis -- 5,000; R.E. Deignan -- 1,500; T.E. Holloran
-- 12,000; K.B. Lauritsen -- 48,875; E.J. Monaghan -- 41,700; J.R.
Richardson -- 45,850; E.S. Rangen -- 2,000; M.M. Stern -- 6,000; T.D.
Burkart -- 37,250; R.J. Klosterman -- 36,950.
(2) Includes shares, if any, owned beneficially by their respective spouses.
(3) Does not include 177,868 shares held in irrevocable trusts for which trusts
American Trust & Savings Bank serves as sole trustee. Under the Terms of
Trust, J. T. Bertsch has a possible contingent interest. J. T. Bertsch
disclaims beneficial ownership in the shares held by each such trust.
(4) Includes shares awarded pursuant to the Company's Long-Term Incentive Plan
over which shares the Grantee has voting rights. Investment rights are
restricted subject to continued service with the Company.
(5) Includes 237,714 shares held in the Irrevocable Arthur D. Richardson Trust
for which J.R. Richardson serves as co-trustee and over which shares J.R.
Richardson has the rights of voting and disposition.
(6) Includes the following number of shares deferred pursuant to election to
participate in the Company's Voluntary Deferred Compensation Plan: J.T.
Bertsch -- 4,411; P.M. Crahan -- 5,628; K.B. Lauritsen -- 11,884; E.J.
Monaghan -- 8,029; J.R. Richardson -- 7,142.
6
OWNERSHIP OF STOCK BY
CERTAIN BENEFICIAL OWNERS
AS OF AUGUST 9, 2002
To the best knowledge of the Company, no person owns beneficially 5% or
more of the outstanding common stock of the Company except as is set forth
below.
AMOUNT PERCENT
BENEFICIALLY OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) CLASS
- ---------------- --------------------------------------------------- ---------------- --------
Common J.T. Bertsch, P.O. Box 877, Dubuque, IA 52004 417,682 6.7%
Common J.B. Crahan, P.O. Box 877, Dubuque, IA 52004 344,413 5.5%
Common J.R. Richardson, P.O. Box 877, Dubuque, IA 52004 463,493(2) 7.4%
Common Dimensional Fund Advisors, Inc. 1299 Ocean Avenue,
Santa Monica, CA 90401 479,600 7.7%
Common Royce & Associates 1414 Avenue of the Americas New
York, NY 10019 587,700 9.4%
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(1) To the best knowledge of the Company, no beneficial owner named above has
the right to acquire beneficial ownership in additional shares.
(2) Includes 237,714 shares held in the Irrevocable Arthur D. Richardson Trust
for which J.R. Richardson serves as co-trustee and over which shares J.R.
Richardson has the rights of voting and disposition.
7
The following table discloses compensation received by the Company's Chief
Executive Officer and the four remaining most highly paid executive officers for
the three (3) fiscal years ending June 30, 2002.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
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OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING LTIP OTHER
SALARY BONUS COMP AWARDS OPTIONS PAYOUTS COMP
NAME & PRINCIPAL POSITION YEAR $ $ $ $ # $ $(1)
- ---------------------------- ------ --------- --------- -------- ------------ ------------ --------- ---------
K. Bruce Lauritsen 2002 327,750 104,524 15,000 54,322 107,868
President & Chief 2001 323,589 0 14,000 63,307 136,287
Executive Officer 2000 316,500 181,068 12,000 76,020 169,744
Edward J. Monaghan 2002 246,615 77,446 10,750 36,726 115,576
Executive Vice President 2001 243,945 0 10,000 42,747 130,421
& Chief Operating Officer 2000 239,700 137,559 9,000 52,054 119,708
James R. Richardson 2002 215,700 76,551 10,750 33,128 49,397
Senior Vice President of 2001 213,699 0 10,000 37,449 68,753
Marketing 2000 210,300 121,046 9,000 45,714 117,627
Ronald J. Klosterman 2002 188,085 53,656 10,750 27,386 32,913
Vice President of 2001 185,319 0 10,000 32,472 57,183
Finance & Secretary 2000 180,600 92,292 9,000 37,647 171,770
Thomas D. Burkart 2002 191,160 46,965 10,750 26,989 42,948
Senior Vice President 2001 188,535 0 10,000 33,036 67,402
Vehicle Seating 2000 183,600 105,889 9,000 39,938 93,212
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(1) All Other Compensation -- Includes for the fiscal years and the named
executive officers indicated below: (i) retirement plan contributions, (ii)
Company matching contributions to the Section 401k plan, (iii) accruals
made in accordance with the Company's Senior Officer Deferred Compensation
Plans and (iv) gross-up amounts to cover income taxes payable on common
stock awards taxable in 2001.
8
RETIREMENT DEFERRED
NAME YEAR PLAN 401K COMP TAXES
- -------------------------------- ------ ----------- ------- ---------- ---------
K. Bruce Lauritsen 2002 8,592 1,700 97,576 0
2001 8,676 1,700 82,911 43,000
2000 8,148 1,600 159,996 0
Edward J. Monaghan 2002 8,592 1,700 105,284 0
2001 8,676 1,700 91,045 29,000
2000 8,148 1,600 109,960 0
James R. Richardson 2002 8,592 1,700 39,105 0
2001 8,676 1,700 32,977 25,400
2000 8,148 1,600 107,879 0
Ronald J. Klosterman 2002 8,592 1,700 22,621 0
2001 8,676 1,700 18,307 28,500
2000 8,148 1,600 162,022 0
Thomas D. Burkart 2002 8,592 1,700 32,656 0
2001 8,676 1,700 27,126 29,900
2000 8,148 1,600 83,464 0
STOCK OPTIONS/SAR*
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
FOR
OPTION TERM(1)
EXERCISE ------------------
NAME SHARES PRICE ($/SH) EXPIRE DATE 5% 10%
- ---------------------- --------- -------------- ------------- -------- --------
K. Bruce Lauritsen 15,000 10.30 11/02/2011 97,164 246,233
Edward J. Monaghan 10,750 10.30 11/02/2011 69,634 176,467
James R. Richardson 10,750 10.30 11/02/2011 69,634 176,467
Ronald J. Klosterman 10,750 10.30 11/02/2011 69,634 176,467
Thomas D. Burkart 10,750 10.30 11/02/2011 69,634 176,467
- ---------------------
* The Company does not have a stock appreciation rights plan (SAR).
(1) The amounts set forth in these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercise are dependent on the future
performance of the Company's common stock.
9
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during the last fiscal
year and unexercised options held as of the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
# FY-END 2002 AT FY-END 2002(1)
OF SHARES $ ------------------------ ---------------------
ACQUIRED ON VALUE # $
NAME EXERCISE REALIZED EXERCISABLE EXERCISABLE
- ------------------------ ------------- ---------- ------------------------ ---------------------
K. Bruce Lauritsen 38,470 223,332 48,875 120,805
Edward J. Monaghan 32,970 207,018 41,700 104,491
James R. Richardson 26,870 141,434 45,850 128,250
Ronald J. Klosterman 26,500 145,625 36,950 97,475
Thomas D. Burkart 17,500 86,021 37,250 105,275
- ---------------------
(1) Based on the closing price as published in The Wall Street Journal for the
last business day of the fiscal year ($14.99). All options are exercisable
at time of grant.
10
LONG-TERM INCENTIVE PLAN AWARDS TABLE
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
PERFORMANCE OR
OTHER PERIOD ESTIMATED FUTURE
NUMBER OF UNTIL PAYOUTS UNDER
SHARES, UNITS MATURATION OR NON-STOCK PRICE BASED
NAME OR OTHER RIGHTS PAYOUT(1) PLANS(2)
- ---------------------- --------------- -------------- ---------------------
K. Bruce Lauritsen 6,160
Edward J. Monaghan 4,164
James R. Richardson 3,756
Ronald J. Klosterman 3,106
Thomas D. Burkart 3,060
- ---------------------
Shares of the Company's common stock are available for award annually to key
employees based on the average of the returns on beginning equity for the last
three years.
(1) Shares awarded are subject to restriction, with 33.3% of the stock received
by the employee on the award date and 33.3% each year for the next two
years. Restricted Stock Awards -- The aggregate stock holdings (number of
shares and value) as of August 8, 2002 are as follows: K. Bruce Lauritsen
-- 4,106 shares, $54,322; Edward J. Monaghan -- 2,776 shares, $36,726;
James R. Richardson -- 2,504 shares, $33,128; Ronald J. Klosterman -- 2,070
shares, $27,386; Thomas D. Burkart -- 2,040 shares, $26,989. Dividends are
paid to the employee on restricted shares.
(2) Not applicable to Plan.
NOMINATING AND COMPENSATION COMMITTEE REPORT CONCERNING
FLEXSTEEL'S EXECUTIVE COMPENSATION POLICY
The Nominating and Compensation Committee of the Board of Directors is
responsible for the establishing of the Company's policy for compensating
executives. The Committee is comprised of non-employee directors.
COMPENSATION PHILOSOPHY -- The fundamental objective of Flexsteel's
executive compensation program is to support the achievement of the Company's
business objectives and, thereby, the creation of stockholder value. As such,
the Company's philosophy is that executive compensation policy and practice
should be designed to achieve the following objectives:
* Align the interests of executives with those of the Company and its
stockholders by providing a significant portion of compensation in
Company stock.
* Provide an incentive to executives by tying a meaningful portion of
compensation to the achievement of Company financial objectives.
* Enable the Company to attract and retain key executives whose skills
and capabilities are needed for the continued growth and success of
Flexsteel by offering competitive total compensation opportunities and
providing attractive career opportunities.
11
In compensating senior management for its performance, two key measures are
considered: return on equity and stock price. At the executive level, overall
Company performance is emphasized in an effort to encourage teamwork and
cooperation.
While a significant portion of compensation fluctuates with annual results,
the total program is structured to emphasize longer-term performance and
sustained growth in stockholder value.
COMPETITIVE POSITIONING -- The Committee regularly reviews executive
compensation levels to ensure that the Company will be able to attract and
retain the caliber of executives needed to run the Company and that pay for
executives is reasonable and appropriate relative to market practice. In making
these evaluations, the Committee annually reviews the result of surveys of
executive salary and annual bonus levels among durable goods manufacturers of
comparable size. The Committee periodically completes an in-depth analysis of
salary, annual bonus, and long-term incentive opportunities among specific
competitors assisted by an independent compensation consulting firm. The
surveyed companies are included in the Household Furniture Index used as the
peer group for purposes of the performance graph. While the pay of an individual
executive may vary, the Company's Policy is to target aggregate compensation for
executives at average competitive levels, provided commensurate performance.
COMPONENTS OF EXECUTIVE COMPENSATION -- The principal components of
Flexsteel's executive compensation program include base salaries, annual cash
bonuses, and longer-term incentives using Company stock.
BASE SALARY -- An individual executive's base salary is based upon the
executive's level of responsibility and performance within the Company, as well
as competitive rates of pay. The Committee reviews each executive officer's
salary annually and makes adjustments, as appropriate, in light of any change in
the executive's responsibility, changes in competitive salary levels, and the
Company's performance.
ANNUAL INCENTIVE -- The purpose of the Company's annual incentive program
is to provide a direct monetary incentive to executives in the form of annual
cash bonus tied to the achievement of performance objectives. For executive
officers, the Committee annually sets a targeted return on equity for the coming
year, from which minimum and maximum levels are determined. Corresponding
incentive award levels, expressed as a percentage of salary, also are set based
primarily on an individual's responsibility level. If minimum performance levels
are not met, no bonus award is made. After the completion of the year, the
Committee ratifies cash bonuses as awarded based principally on the extent to
which targeted return on equity has been achieved.
12
LONG-TERM INCENTIVES -- Longer-term incentive compensation involves the use
of stock under two types of awards: Long-term incentive awards and stock
options. Both types of awards are intended to focus executives' attention on the
achievement of the Company's longer term performance objectives, to align the
executive officers' interests with those of stockholders and to facilitate
executives' accumulations of sustained holding of Company stock. The level of
award opportunities, as combined under both plans, are intended to be consistent
with typical levels of comparable companies and reflect an individual's level of
responsibility and performance.
Long-term incentive awards are paid under the stockholder approved
Management Incentive Plan. Awards give executives the opportunity to earn shares
of Company stock to the extent that the three-year average return on equity
objectives are achieved. As with annual incentives, various levels of
performance goals and corresponding compensation amounts are established, with
no awards earned if a minimum level is not achieved. Two-thirds of any earned
shares are subject to forfeiture provisions tied to the executive's continued
service with the Company. This provision is intended to enhance the Company's
ability to retain key executives and provide a longer-term performance focus.
Stock options, as awarded under stockholder approved plans, give executives
the opportunity to purchase Flexsteel common stock for a term not to exceed ten
years and at a price of no less than the fair market value of Company stock on
the date of grant. Executives benefit from stock options only to the extent
stock price appreciates after the grant of the option.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER -- The total compensation for
Flexsteel's CEO in fiscal year 2002 was established in accordance with the
policies discussed above. Mr. Lauritsen's base salary increase reflects market
movements in executive salaries. His annual cash incentive award and his
long-term incentive award were based on the Company's achievement of minimum
established target levels for return on equity. Mr. Lauritsen's stock option
award was consistent with prior awards and those to other senior executives.
The Company's current levels of compensation are less than the $l,000,000
level of non-deductibility with respect to Section 162(m) of the Internal
Revenue Code.
This report has been prepared by members of the Compensation and Nominating
Committee of the Board of Directors. Members of this Committee are:
L. Bruce Boylen Thomas E. Holloran Marvin M. Stern
Chair
13
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the audited financial
statements with management. The Audit Committee has discussed with the
independent auditors the matters required to be discussed by Statements on
Auditing Standards (SAS) No. 61 and 90 "Communication with Audit Committees", as
may be modified or supplemented. The Audit Committee has received the written
disclosures and the letter from the independent auditor required by Independence
Standards Board Standard No. 1, as may be modified or supplemented, and has
discussed with the independent auditor, the independent auditor's independence.
Based on the review and discussions referred to above in this report, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the last
fiscal year for filing with the Commission.
This report has been prepared by members of the Audit Committee. Members of
this Committee are:
Thomas E. Holloran Robert E. Deignan Lynn J. Davis
Chair
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The current members of Flexsteel's Compensation and Nominating Committee
are L. Bruce Boylen, Chairman, Thomas E. Holloran and Marvin M. Stern. No
executive officer of Flexsteel served as a director of another entity that had
an executive officer serving on Flexsteel's compensation committee. No executive
officer of Flexsteel served as a member of the compensation committee of another
entity which had an executive officer who served as a director of Flexsteel.
SHARE INVESTMENT PERFORMANCE
The following graph is based upon the SIC Code #251 Household Furniture
Index as a peer group. It shows changes over the past five-year period in the
value of $100 invested in: (1) Flexsteel's Common Stock; (2) the NASDAQ Market
Index; and (3) an industry group of the following: Bassett Furniture Ind., Bush
Industries Inc. CL A, Chromcraft Revington Inc., DMI Furniture, Inc., Ethan
Allen Interiors, Furniture Brands Intl., Industrie Natuzzi S.P.A., Keller
Manufacturing, La-Z-Boy Inc., Leggett & Platt Inc., The Rowe Companies and
Stanley Furniture Inc. This data was furnished by Zacks Investment Research,
Inc. The graph assumes reinvestment of dividends.
14
FIVE-YEAR CUMULATIVE TOTAL RETURNS
VALUE OF $100 INVESTED ON JUNE 30, 1997
[PLOT POINTS GRAPH]
1997 1998 1999 2000 2001 2002
----------- ----------- ----------- ----------- ----------- -----------
Flexsteel 100.00 123.44 121.96 116.85 119.42 155.64
NASDAQ 100.00 131.62 189.31 279.93 151.75 102.81
Furniture Household 100.00 127.08 133.19 82.85 112.98 127.19
15
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes share information about the Company's equity
compensation plans, including the 1989, 1995 and 1999 Stock Option Plan, and the
1981 Management Incentive Plan. All of these plans have been approved by our
shareholders.
(c)
NUMBER OF SECURITIES
(a) REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO (b) FUTURE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE WEIGHTED-AVERAGE EXERCISE COMPENSATION PLANS
OF OUTSTANDING OPTIONS, PRICE OF OUTSTANDING OPTIONS, (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS IN COLUMN (a))
- ----------------------- ------------------------- ------------------------------- --------------------------------
Equity compensation
plans approved by
security holders 490,365 $ 11.37 392,090
Equity compensation
plans not approved by
security holders 0 0
------- -------
Total 490,365 $ 11.37 392,090
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Information with respect to directorships held by certain directors of the
Company in local financial institutions is set forth in the table under
"Proposal I -- Election of Directors," in the column captioned "Principal
Occupation and Other Directorships or Employment during the Last Five Years."
The Company maintains normal banking relations with the bank named in the table.
It is expected that the Company's relationship with the bank will continue in
the future.
16
PROPOSAL II
PROPOSAL FOR APPROVAL OF THE 2002 STOCK OPTION PLAN
The Compensation and Nominating Committee, recognizing that insufficient
shares are available to provide further grants of stock options under the
existing Company plan, advised the Board of Directors that it is in the interest
of the Company to continue its longstanding practice of making stock options
available to those employees responsible for significant contributions to the
Company's business. The Compensation and Nominating Committee believes that the
equity stake in the growth and success of the Company afforded by stock options
provides such key employees with an incentive to continue to energetically apply
their talents within the Company. Accordingly, on June 10, 2002, the Board of
Directors, acting on the recommendation of the Compensation and Nominating
Committee, unanimously approved the 2002 Stock Option Plan (the "Plan") and
directed that it be submitted for consideration and action at the meeting of
stockholders.
The following is a brief but not comprehensive summary of the Plan which
continues a practice that began at the Company in 1969. The complete text is
attached as Appendix A and reference is made to such Appendix for a complete
statement of the provisions of the Plan. The Plan provides for the granting of
options to purchase up to 500,000 shares of the Company's Common Stock, to be
drawn from authorized but unissued shares and/or from shares acquired by the
Company, including on the open market. The number and kind of shares subject to
the Plan would be appropriately adjusted in the event of any change in the
capital structure of the Company. Stockholders would have no preemptive rights
with regard to shares allotted to the Plan. The Plan would be administered by
the Company's Compensation and Nominating Committee which is composed of two or
more directors who are not employees of the Company. Each member of the
Compensation and Nominating Committee must be a "disinterested person" within
the meaning of Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended from time to time. No member of the
Compensation and Nominating Committee is eligible to receive options under the
Plan except automatic formula grants as a director. Participants would be
selected by the Compensation and Nominating Committee from among key employees
of the Company. Optionees would be selected on the basis of demonstrated ability
to contribute substantially to the effective management of the Company. The
Compensation and Nominating Committee would determine both the number of
optionees and the number of shares to be optioned to any individual under the
Plan. The Board of Directors would be able to amend the Plan without further
approval by the Stockholders, except insofar as such approval is required by
law.
17
Under the Plan, nonstatutory stock options are automatically granted to
non-employee directors of the Company. Each person who is a non-employee
director is granted a nonstatutory 2,500 share option the day after the annual
meeting of stockholders of the Company, at an exercise price equal to the fair
market value (as defined in the Plan) of the Common Stock on the date of the
grant. The option is immediately vested.
The Plan would enable the Company to grant either "non-qualified options"
or "incentive stock options". No options could be granted under the Plan later
than December 1, 2012. Options could have an exercise period of up to ten years
as determined by the Committee.
In the event of termination of employment due to death, disability or
retirement, the period of time for exercise varies from two (2) to five (5)
years. The options would not be transferable, except in the event of death.
The exercise price per share for each option would be not less than the
fair market value on the date of grant. It is provided that payment for the
exercise may be made in stock or cash.
The aggregate fair market value (determined as of the time such option is
granted) of the Common Stock for which any employee may have incentive stock
options vest in any calendar year may not exceed $100,000.
Proceeds received from optioned shares will be used for general corporate
purposes.
Under currently applicable provisions of the Internal Revenue Code an
optionee will not be deemed to receive any income for Federal tax purposes upon
the grant of an option under the Plan, nor will the Company be entitled to a tax
deduction at that time. However, upon the exercise of an option the tax
consequences are as follows:
1. Upon the exercise of a non-qualified option, the optionee will be
deemed to have received ordinary income in an amount equal to the
difference between the option price and the market price of the shares
on the exercise date. The Company will be allowed an income tax
deduction equal to the excess of market value of the shares on the
date of exercise over the cost of such shares to optionee.
2. Upon the exercise of an incentive stock option, there is no income
recognized by the optionee at the time of exercise. If the stock is
held at least one year following the exercise date and at least two
years from the date of grant of the option, the optionee will realize
a long-term capital gain or loss upon sale, measured as the difference
between the option exercise price and the sale price. If either of
these holding period requirements are not satisfied, ordinary income
tax treatment will apply to the amount of gain at sale or exercise,
whichever is less. No income tax
18
deduction will be allowed the Company with respect to shares purchased
by an optionee upon the exercise of an incentive stock option,
provided such shares are held for the required periods as described
above.
There is no current charge against the Company in connection with the grant
of an option or the exercise of an option for cash. The exercise of an option
for stock may result in a charge against income.
Under the Internal Revenue Code, an option will generally be disqualified
from receiving incentive stock option treatment if it is exercised more than
three months following termination of employment. However, if the optionee is
disabled, such statutory treatment is available for one year following
termination. If the optionee dies while employed by the Company or within three
months thereafter, the statutory time limit is waived altogether. In no event do
these statutory provisions extend the rights to exercise an option beyond those
provided by its terms.
The closing price of the Common Stock of the Company on October 15, 2002,
based on composite trading data published in the Wall Street Journal, was $14.26
per share.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock present and entitled to vote at the Meeting will be required for
approval of the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE THE
2002 STOCK OPTION PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED UNLESS SHAREHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
PROPOSAL III
APPOINTMENT OF INDEPENDENT AUDITORS
Subject to ratification by the stockholders, the Board of Directors has
appointed Deloitte & Touche LLP as independent auditor to examine the financial
statements of the Company for the fiscal year ending June 30, 2003.
The Company has been informed by Deloitte & Touche LLP that neither it nor
its members nor its associates has any direct, nor any material indirect
financial interest in the Company. Management is not aware of any material
connection by such firm in the recent past with the Company in any capacity
other than as independent auditors and tax preparers. Representatives of
Deloitte & Touche LLP are expected to be present during the annual
19
meeting. They are expected to be available to respond to appropriate questions
and will have the opportunity to make a statement if they wish.
Audit services performed by Deloitte & Touche LLP during the fiscal year
include examinations of the financial statements of the Company, services
related to filings with the Securities and Exchange Commission and consultation
on matters related to accounting, taxation and financial reporting. Professional
services were reviewed by the Audit Committee and the possible effect on the
auditor's independence was considered.
AUDIT FEES
The aggregate fees billed for professional services rendered for the audit
of the Company's annual financial statements for the 2002 fiscal year and the
reviews of the financial statements included in the Company's Form 10-Q for that
fiscal year were $140,000.
FINANCIAL INFORMATION DESIGN AND IMPLEMENTATION FEES
There were no fees billed for professional services described in Paragraph
(c)(4) (ii) of Rule 2-01 of Regulation S-X rendered by Deloitte & Touche LLP,
the Company's principal independent auditor, for the fiscal year 2002.
ALL OTHER FEES
The aggregate fees billed for services by Deloitte & Touche LLP, other than
the services covered in the preceding two paragraphs, for the fiscal year 2002
were $52,000, which were primarily tax services.
The Audit Committee has considered and found the provision of services
covered in the two preceding paragraphs compatible with maintaining Deloitte &
Touche LLP's independence.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE
APPOINTMENT OF DELOITTE & TOUCHE LLP. PROXIES SOLICITED BY THE BOARD OF
DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR
PROXIES.
PROPOSALS BY STOCKHOLDERS
Stockholders wishing to have a proposal considered for inclusion in the
Company's proxy statement for the 2003 annual meeting must submit the proposal
in writing and direct it to the Secretary of the Company at the address shown
herein. It must be received by the Company no later than June 30, 2003.
20
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section
16(a) requires the Company's directors and executive officers to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership of the Company's Common Stock, and the Company is required
to identify any of those persons who fail to file such reports on a timely
basis. To the best of the Company's knowledge, there were no late filings by
directors and executive officers during fiscal year 2002.
OTHER MATTERS
The percentage total number of the outstanding shares represented at each
of the last three years stockholders' meetings was as follows: 1999 -- 92.0%;
2000 -- 89.5%; 2001 -- 94.0%.
UPON WRITTEN REQUEST THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2002. REQUESTS SHOULD
BE DIRECTED TO THE SECRETARY OF THE COMPANY AT P.O. BOX 877, DUBUQUE, IA
52004-0877.
The Board of Directors does not know of any other matter which may come
before the meeting. However, should any other matter properly come before the
meeting, the persons named in the Proxy will vote in accordance with their
judgment upon such matters unless a contrary direction is indicated by the
Stockholder by his lining or crossing out the authority on the Proxy.
Stockholders are urged to vote, date, sign and return the Proxy form in the
enclosed envelope to which no postage need be affixed if mailed in the United
States. Prompt response is helpful and your cooperation will be appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ R.J. KLOSTERMAN
R.J. KLOSTERMAN
SECRETARY
Dated: October 29, 2002
Dubuque, Iowa
21
APPENDIX A
FLEXSTEEL INDUSTRIES, INC.
2002 STOCK OPTION PLAN
SECTION 1
DEFINITIONS: As used herein, the following terms have the meaning indicated:
"AGREEMENT" means the Option Agreement entered into between the Company and an
Optionee.
"BOARD OF DIRECTORS" means the Board of Directors of the Company.
"COMMITTEE" means the members of the Board of Directors appointed to administer
the Plan.
"COMPANY" means Flexsteel Industries, Inc.
"DATE OF ADOPTION" means December 9, 2002.
"DATE PLAN APPROVED BY SHAREHOLDERS" means December 9, 2002.
"OPTION" means an Optionee's right to purchase shares of Common Stock of the
Company, subject to the terms and conditions of the Plan and Agreement. Options
are either Incentive Stock Options or Nonqualified Stock Options.
"OPTIONEE" means an eligible employee who has been designated for participation
under the Plan as defined in Section 5(a) or a Non-employee director granted
options pursuant to Section 5(e).
"OPTION PERIOD" means the ten-year or lesser period of time during which the
Stock Option Agreement allows the Option to be exercised commencing with the
date the Option is granted. No Option shall be granted after December 1, 2012.
"NON-EMPLOYEE DIRECTOR" means a director of the Company who has not been an
employee of the Company for three years.
"PLAN" means the Flexsteel Industries, Inc. 2002 Stock Option Plan.
A-1
SECTION 2
AGGREGATE SHARES UNDER THE PLAN AND PURPOSE:
(a) The aggregate number of shares which may be issued pursuant to this
Plan under Options is 500,000 Common Shares of the Company, subject to
adjustments provided for hereafter in Section 4(b).
(b) The purpose of this Plan is to encourage the growth and success of the
Company by providing incentives to motivate, attract and retain employees of
competent training, experience and ability to encourage such people to invest in
the Common Stock of the Company, thereby increasing their proprietary interest
in the business and their personal interest in the Company's continued success
and progress. The purpose also is to attract and retain outstanding Non-employee
directors by enabling them to participate in Company growth through automatic
non-discretionary grants of Options.
(c) The Plan shall be deemed to have been adopted December 9, 2002, subject
to the ratification and approval by shareholders of the Company at the December
9, 2002 Annual Meeting. Options may be granted after the Plan is adopted and
before the Plan is approved by shareholders but the Company shall have no
obligations of any nature whatsoever to any employee or other person arising out
of either this Plan or any Options granted hereunder unless shareholder approval
is obtained.
(d) The Plan will not confer upon any Optionee any right with respect to
continuance of employment by the Company, nor a continuing directorship, nor
will it interfere in any way with the Company's right to terminate the
Optionee's employment at any time with or without cause.
(e) No Option shall be granted pursuant to the Plan after December 1, 2012.
(f) The Committee, in its discretion, shall set the length of the time
during which each Option may be exercised, except for Non-employee director
grants, but in no event shall it be longer than ten years after the date of
grant.
SECTION 3
ADMINISTRATION:
(a) Subject to such orders and resolutions not inconsistent with the
provisions of the Plan as may from time to time be issued or adopted by the
Board of Directors, the Plan shall be administered by, or only in accordance
with the recommendation of, a Committee of two
A-2
or more persons having full authority to act in the matter, all of the members
of which Committee are disinterested persons within the meaning of Rule 16b-3 of
the Securities Exchange Act of 1934, as amended.
(1) The Committee shall administer the Plan and accordingly, it shall
have full power to grant Options, construe and interpret the Plan, amend
and adjust terms of then existing options subject to restrictions of this
Plan, establish rules and regulations and perform all other acts, including
the delegation of administrative responsibilities, it believes reasonable
and proper.
(2) The determination of those eligible to receive Options, and the
amount, type and timing of each Option and the terms and conditions of the
respective Option Agreements shall rest in the sole discretion of the
Committee, subject to the provisions of the Plan.
(3) The Committee may cancel any Options awarded under the Plan if an
Optionee conducts himself in a manner which the Committee determines to be
inimical to the best interests of the Company and/or accepts employment
with a competitor. This provision does not apply to Non-employee director
Options.
(4) The Board, or the Committee, may correct any defect, supply any
omission or reconcile any inconsistency in the Plan, or in any granted
Option, in the manner and to the extent it shall deem necessary to carry it
into effect.
None of the Committee members are eligible to receive Options under the
Plan while a member of the Committee, except pursuant to Section 5(e).
(b) All determinations by the Committee shall be made by the affirmative
vote of a majority of its members by written consent or by a majority vote, in
person or otherwise, of its members at a meeting called for that purpose.
(c) Each Option shall be evidenced by an Agreement which shall contain the
terms and conditions and shall be signed by an Officer of the Company and the
Optionee. As a minimum, the Agreement shall state the number of shares of stock
under Option, the Option price and the duration of the Option.
(d) All decisions made by the Committee pursuant to provisions of the Plan
or related orders or resolutions of the Board of Directors shall be final,
conclusive and binding on all parties, including the Company, shareholders,
employees and Optionees.
A-3
SECTION 4
SHARES SUBJECT TO THE PLAN:
(a) Shares to be delivered upon exercise of an Option under the Plan shall
be made available at the discretion of the Board of Directors either from
authorized but unissued shares of the Company's Common Stock or shares acquired
by the Company, including shares purchased in the open market.
(b) In the event of merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, or other change in corporation
structure affecting the Company's Common Stock the number of shares of Common
Stock available for Options and subject to outstanding Options shall be adjusted
proportionately. Similarly, the Option price per share of outstanding Options
shall be appropriately adjusted. However, fractional shares may be rounded to
the nearest whole share.
SECTION 5
ELIGIBILITY AND PARTICIPATION:
(a) The persons eligible for participation in the Plan shall be full-time
managerial, administrative or professional employees of the Company,
Non-employee directors and those other employees who are key to the Company's
success. This includes officers, whether or not Directors of the Company.
Participation in the Plan shall not be automatic except for Non-employee
directors who shall be granted Options in amounts and pursuant to the terms only
as provided by Section 5(e) herein and not otherwise.
(b) Subject to the limitations of the Plan, the Committee shall select the
persons to participate in the Plan, determine the number and Option price of
shares subject to each Option, and determine the date when each Option shall be
granted and the date when each Option shall expire. The date the employee
becomes an Optionee is the date of his Agreement with the Company. More than one
Option may be granted to the same Optionee and an Optionee may enter into more
than one Agreement with the Company.
(c) No Incentive Stock Option shall be granted to anyone who, immediately
after such Option would otherwise be granted, would own stock representing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company.
(d) An Option granted to an Optionee under this Plan shall in all events
lapse upon expiration of the Option period, if not exercised, lapsed, canceled
or otherwise terminated prior thereto. If an Option granted hereunder is not
exercised but is canceled, terminated or
A-4
lapsed, the shares covered by such Option shall become again available for grant
by the Committee under this Plan.
(e) Each person who becomes for the first time a Non-employee director,
including by reason of election, appointment or lapse of three (3) years since
employment by the Company (whether or not that person is standing for
re-election that year), will receive an immediate one-time Option grant for
2,500 shares. Each Non-employee director will receive an Option grant for 2,500
shares on the first business day following each annual meeting. The following
terms and conditions are applicable to each Option. The Option price per share
will be equal to one hundred percent (100%) of the fair market value on the date
of the Option grant. The Options will have terms of ten years measured from the
date of the Option grant. In the event the Optionee ceases to serve as a
director the Option may be exercised for a period of five (5) years after the
date of cessation unless cessation is caused by reason of disability or death in
which case the option may be exercised for a period of two (2) years. In the
case of death the Option may be exercised within such period by the estate or
heirs of the Optionee. The above exercise periods do not extend the option
period as established at time of grant.
SECTION 6
TERM OF THE PLAN AND OPTION PERIOD:
(a) The Plan shall automatically terminate on December 1, 2012, which is
within ten years from the Date of Adoption. No Options shall be granted after
the date of such termination. However, the Plan shall remain in effect as to all
outstanding Options until the outstanding Options are exercised, canceled,
terminated or lapsed.
(b) Such termination shall not adversely affect Options previously
granted.
(c) Subject to the provisions of the Plan with respect to death,
disability, retirement, termination of employment, or otherwise, the maximum
period during which each Option shall be exercised shall be fixed by the
Committee, except for Non-employee directors, at the time each such Option is
granted, but in no event shall it exceed ten years from the date of such grant.
SECTION 7
OTHER PROVISIONS:
The Committee may grant either Incentive Stock Options or Nonqualified
Stock Options to employees. Where an Incentive Stock Option and a Nonqualified
Stock Option are
A-5
awarded by the Committee, such Options shall constitute separate grants and
shall clearly be identified as such. In no event will the exercise of one such
Option affect the right to exercise the other such Option. If an Incentive Stock
Option is awarded, absolutely all terms and conditions making it so must be
complied with by the Company and the Optionee.
(a) OPTION PRICE: The Option price for shares of Common Stock of the
Company shall be one hundred percent (100%) of the fair market value of
such Common Stock on the date the Option is granted. For the purposes of
this Plan, such fair market value shall be determined (i) in case the
Common Stock shall not then be listed and traded upon a recognized
securities exchange, upon the basis of the mean between the bid and asked
quotations for such stock on the date of grant (as reported by a recognized
stock quotation service) or, in the event that there shall be no bid or
asked quotations on the date of grant, then upon the basis of preceding the
date of grant, or (ii) in the case the Common Stock shall then be listed
and traded upon a recognized securities exchange, upon the basis of the
mean between the highest and lowest selling prices at which shares of the
Common Stock were traded on such recognized securities exchange on the date
of grant or, if the Common Stock was not traded on said date, upon the
basis of the mean of such prices on the date nearest preceding the date of
grant, and upon any other factors which the Committee shall deem
appropriate.
(b) MAXIMUM OPTION GRANTS: The aggregate fair market value (determined
at the time the Option is granted) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by such
individual during any calendar year (under all such plans of the Company
and its parent and subsidiary corporations, if any) shall not exceed
$100,000. Options granted in excess of the applicable statutory limit shall
be treated as Nonqualified Stock Options.
(c) EXERCISE OF OPTIONS: Each Option granted under the Plan shall be
exercisable at the Option price set forth in the Agreement, on such date or
dates during such Option Period (not exceeding ten years from the date of
such grant) and for such number of shares as determined by the Committee
and as is set forth in the Agreement with respect to such Option. However,
no Option granted hereunder to any employee may be exercised except in the
case of death, disability or retirement pursuant to any pension or
retirement plan of the Company, until two years of continued employment
with the Company has elapsed. Any Optionee desiring to exercise any Option
hereunder shall give written notice to the designated financial officer of
the Company and include therein full payment for the shares supporting such
Option. Full payment of the exercise price including any tax due is to be
made in cash, with the stock of the Company or with a combination of both.
Notice is only valid when full payment is included therewith.
A-6
(d) TRANSFERABILITY OF OPTIONS: 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 Optionee shall only be exercisable by the
Optionee. The Optionee shall have no interest in the stock subject to
Options and shall have no rights until the shares are fully paid for and
certificates for such stock are issued to the Optionee.
(e) PAYMENT FOR SHARES: No shares shall be issued to any Optionee
until notice, as defined in Section 7(c) has been given to the Company.
Within 45 days after the receipt of said notice to exercise the Option, the
Company shall deliver to the Optionee certificates representing all stock
purchased thereunder.
(f) RESTRICTION ON SALE OF SHARES: Any stock received pursuant to the
exercise of an Incentive Stock Option which is sold within either: 1) two
years from the effective date of the Option grant, or 2) within one year of
the effective date of exercise, shall not be afforded the tax treatment of
Incentive Stock Options. However, if any Optionee disposes of shares of
Common Stock of the Company acquired on the exercise of an Incentive Stock
Option by sale or exchange, either: 1) within two years after the date of
the Option grant of the Incentive Stock Option under which the stock was
acquired, or 2) within one year after the acquisition of such shares, the
Optionee shall notify the Company of such disposition and of the amount
realized upon such disposition.
(g) If any Option is not granted, exercised or held pursuant to the
provisions of this Section, it will be considered to be a Nonqualified
Stock Option to the extent that any or all of the Option grant or exercise
is in conflict with the above restrictions.
SECTION 8
DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT:
Any Option granted to an employee, the period of which has not lapsed or
expired, shall terminate at the time of the death of the Optionee to whom the
Option was granted or on the retirement or termination for any reason of such
Optionee's employment with the Company, and no shares may thereafter be
delivered pursuant to such Option, except that:
(a) within two years after the date of the Optionee's death, during
which two year period the Option may be exercised by the Optionee's estate,
legal representative, or legatee or such other person designated by an
appropriate court as the person entitled to exercise such Option but only
to the extent the Optionee was entitled to exercise it at the time of
death. The Option must be exercised in the manner provided for in Section
7(c).
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(b) within five years after termination of employment by reason of
retirement pursuant to any pension or retirement plan of the Company or
cessation of serving as a non-employee Director and to the extent the
Optionee would have been able to exercise it at the time of such
termination or cessation. The Option must be exercised in the manner
provided for in Section 7(c).
(c) within two years after termination of employment by reason of
disability to the extent the Optionee would have been able to exercise it
at the time of such termination. The Option must be exercised in the manner
provided for in Section 7(c).
Nothing in this Section 8 shall extend the option period as established at
time of grant.
SECTION 9
AMENDMENT OF THE PLAN:
The Board of Directors may amend, suspend or discontinue the Plan, but may
not, without the approval of the Company's shareholders, make any amendment
which would:
(a) abolish the Committee, change the qualifications of its members,
or withdraw the administration of the Plan from its supervision, or permit
any person while a member of the Committee to become eligible to
participate in the Plan subject to Section 5(e);
(b) make any material change in the class of eligible employees as
defined in the Plan;
(c) increase the aggregate number of shares for which Options may be
granted under the Plan;
(d) extend the term of the Plan or the maximum Option Period; or
(e) change the right of any Non-employee director to receive automatic
non-discretionary grants of Options under this Plan. The Plan provisions
relating to grants to Non-employee directors shall not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
REQUIREMENTS OF LAW:
(a) WITHHOLDING TAXES: The Company shall have the right to deduct from all
payments under this Plan, in cash, or deduct from payroll wages, an amount
necessary to satisfy any federal, state or local withholding tax requirements or
otherwise.
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(b) GOVERNING LAW: The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Minnesota.
(c) AGREEMENT TO COMPLY WITH SECURITIES LAWS AND THE INTERNAL REVENUE CODE:
Before the Company delivers any stock purchased, the following written statement
may be required from the Optionee:
"I agree not to dispose of the shares purchased by me pursuant to the
Flexsteel Industries, Inc. 2002 Stock Option Plan, otherwise than in
compliance with the Securities Act of 1933, as amended, and rules and
regulations promulgated thereunder and all other laws, rules and
regulations applicable."
(d) If any term in this Plan pertaining to Incentive Stock Options does not
conform to Section 422 of the Internal Revenue Code of 1986, as amended, those
terms will be invalid and taken out of the Plan. However, removal of any invalid
terms will not affect the remaining terms of the Plan.
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[LOGO]
FLEXSTEEL(R)
AMERICA'S SEATING SPECIALIST
NOTICE OF 2002
ANNUAL MEETING
AND
PROXY STATEMENT
THIS PROXY IS SOLICITED ON BEHALF
FLEXSTEEL INDUSTRIES, INC. OF THE BOARD OF DIRECTORS FOR THE
P.O. BOX 877 ANNUAL MEETING OF STOCKHOLDERS TO
DUBUQUE, IOWA 52004-0877 BE HELD DECEMBER 9, 2002
The undersigned, a stockholder of Flexsteel Industries, Inc., hereby
appoints Patrick M. Crahan and Ronald J. Klosterman and each of them, as
proxies, with full power of substitution, to vote on behalf of the undersigned
the same number of shares which the undersigned is then entitled to vote at the
Annual Meeting of the Stockholders of Flexsteel Industries, Inc., to be held on
Monday, December 9, 2002 at 2:00 P.M. at the Hilton Minneapolis, 1001 Marquette
Avenue, Minneapolis, Minnesota 55403, and at any adjournments thereof as
follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
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Proposal No. 1 - Election of three (3) Class I Directors (Term Expires at the 2005 Annual Meeting):
K. BRUCE LAURISTEN (Class I) L. BRUCE BOYLEN (Class I) THOMAS E. HOLLORAN (Class I)
[ ] FOR all Nominees [ ] WITHHELD from all [ ] WITHHELD from the following only: (Write name(s) below)
(Except as marked to Nominees _______________________________________________________
the contrary) _______________________________________________________
- ----------------------------------------------------------------------------------------------------------------------
Proposal No. 2 - Approval of the 2002 Stock Option Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- ----------------------------------------------------------------------------------------------------------------------
Proposal No. 3 - Appointment of Deloitte & Touche LLP as Independent Auditors for the ensuing fiscal year:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- ----------------------------------------------------------------------------------------------------------------------
In their discretion to vote upon such other business as may properly come before the meeting, or any adjournments
thereof, UNLESS THE STOCKHOLDER LINES OR CROSSES OUT THIS AUTHORITY.
- ----------------------------------------------------------------------------------------------------------------------
(IMPORTANT: continued, and to be signed and dated, on the reverse side)
(CONTINUED FROM OTHER SIDE)
The Undersigned hereby revokes any proxy or proxies
to vote such shares heretofore given.
PLEASE VOTE, DATE, SIGN, AND RETURN IN THE ENCLOSED ENVELOPE.
Dated _____________________, 2002.
__________________________________
(Signature)
__________________________________
Signature of stockholder shall
correspond exactly with the name
appearing hereon.
If a joint account, each owner
must sign. When signing as
attorney, executor, administrator,
trustee, guardian or corporate
official, give your full title as
such.
This proxy when properly executed will be voted in the manner directed hereon by
the above signed stockholder. If no direction is given, this proxy will be voted
FOR Proposals 1, 2 and 3, and the grant of authority to vote upon such other
business as may properly come before the meeting or any adjournments thereof
will not be crossed out.