-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZIpjK5FjnMelQi2e2cmPBoQAQGQ3ZsczIy0/lgL+1D1c0VJ1l+IOf8ehLpJAKZ+w 51QwKC3N7qiDJ6juYr0wNQ== 0000793952-94-000021.txt : 19940817 0000793952-94-000021.hdr.sgml : 19940817 ACCESSION NUMBER: 0000793952-94-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940626 FILED AS OF DATE: 19940809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARLEY DAVIDSON INC CENTRAL INDEX KEY: 0000793952 STANDARD INDUSTRIAL CLASSIFICATION: 3751 IRS NUMBER: 391382325 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09183 FILM NUMBER: 94542485 BUSINESS ADDRESS: STREET 1: 3700 W JUNEAU AVE CITY: MILWAUKEE STATE: WI ZIP: 53208 BUSINESS PHONE: 4143424680 10-Q 1 HARLEY-DAVIDSON 2ND 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION ------------------------------------------------ WASHINGTON, D.C. 20549 FORM 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended JUNE 26, 1994 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------------- -------------- Commission File Number 1-9183 HARLEY-DAVIDSON, INC. ------------------------------------------------------ (Exact name of registrant as specified in its Charter) Wisconsin 39-1382325 - - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3700 West Juneau Avenue, Milwaukee, Wisconsin 53208 - - ---------------------------------------------- ----------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (414) 342-4680 -------------- None ----------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock Outstanding as of August 1, 1994 38,115,762 Shares ------------------ HARLEY-DAVIDSON, INC. FORM 10-Q INDEX FOR THE QUARTER ENDED JUNE 26, 1994 Page ---- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Statements of Income 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-14 Part II. Other Information Item 1. Legal Proceedings 15 Item 4. Submission of Items to a Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit Index 17 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Harley-Davidson, Inc. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except per share amounts) Three months ended Six months ended ------------------ ---------------- June 26, June 27, June 26, June 27, 1994 1993 1994 1993 -------- -------- --------- --------- Sales $401,372 $334,378 $745,077 $603,963 Cost of goods sold 288,013 243,525 541,429 437,655 -------- -------- -------- -------- Gross profit 113,359 90,853 203,648 166,308 Selling, administrative and engineering expenses 64,724 50,788 121,893 101,073 -------- -------- -------- -------- Income from operations 48,635 40,065 81,755 65,235 Interest expense - net (56) (261) (367) (742) Other income - net 617 352 1,960 690 -------- -------- -------- -------- Income from operations before provision for income taxes and accounting changes 49,196 40,156 83,348 65,183 Provision for income taxes 14,594 16,361 27,914 26,247 -------- -------- -------- -------- Income before accounting changes 34,602 23,795 55,434 38,936 Cumulative effect of accounting changes: Postretirement health care benefits, net of tax - - - (32,124) Income taxes - - - 1,796 -------- -------- -------- -------- Net income $ 34,602 $ 23,795 $ 55,434 $ 8,608 ======== ======== ======== ======== Weighted average common shares outstanding 38,081 37,953 38,057 37,929 Earnings per common share: Income before cumulative effect of accounting changes $0.91 $0.63 $1.46 $1.03 Cumulative effect of accounting changes: Postretirement health care benefits - - - (0.85) Income taxes - - - 0.05 ----- ----- ----- ----- Net income $0.91 $0.63 $1.46 $0.23 ===== ===== ===== ===== Cash dividends per share $0.06 $0.06 $0.12 $0.06 ===== ===== ===== ===== Harley-Davidson, Inc. Condensed Consolidated Balance Sheets (In thousands, except share amounts) ASSETS June 26, Dec. 31, June 27, 1994 1993* 1993 -------- -------- -------- (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $97,740 $ 77,709 $ 55,529 Accounts receivable, net of allowance for doubtful accounts 143,639 86,031 115,888 Inventories (Note 2) 141,610 140,151 119,640 Deferred income taxes 20,296 20,296 18,105 Prepaid expenses 7,624 9,571 8,611 -------- -------- -------- Total current assets 410,909 333,758 317,773 Property, plant and equipment, net 212,592 205,768 183,916 Deferred income taxes 16,276 11,676 10,306 Goodwill - - 55,116 Other assets 36,632 32,083 31,794 -------- -------- -------- $676,409 $583,285 $598,905 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 24,986 $ 20,580 $ 14,692 Current maturities of long-term debt 573 789 921 Accounts payable 55,168 56,350 53,680 Accrued expenses and other liabilities 142,067 113,043 121,767 -------- -------- -------- Total current liabilities 222,794 190,762 191,060 Postretirement health care benefits 57,653 54,999 52,633 Other long-term liabilities 15,383 12,612 12,039 Contingencies (Note 3) Stockholders' equity: Common stock 385 385 385 Additional paid-in capital 140,467 137,150 132,283 Retained earnings 240,276 189,410 212,178 Cumulative foreign currency translation adjustment 1,203 186 1,011 -------- -------- -------- 382,331 327,131 345,857 Less treasury stock, at cost (1,581) (1,583) (1,587) Unearned compensation (171) (636) (1,097) -------- -------- -------- Total stockholders' equity 380,579 324,912 343,173 -------- -------- -------- $676,409 $583,285 $598,905 ======== ======== ======== *Condensed from audited financial statements. Harley-Davidson, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Six months ended ------------------- June 26, June 27, 1994 1993 -------- -------- Cash flows from operating activities: Net income $55,434 $ 8,608 Depreciation and amortization 17,595 17,601 Long-term employee benefits 4,864 53,971 Deferred income taxes (4,600) (22,333) Change in current assets and current liabilities: Accounts receivable (57,608) (22,710) Inventory (1,459) (17,469) Prepaid expenses 1,947 1,006 Accounts payable and accrued liabilities 27,842 20,871 ------- ------- Net cash provided by operating activities 44,015 39,545 Cash flows from investing activities: Purchase of property and equipment (24,156) (16,223) Investment in joint ventures - (10,350) Other - net (2,810) 669 ------- ------- Net cash used in investing activities (26,966) (27,092) Cash flows from financing activities: Reduction of long-term debt (175) (476) Net increase (decrease) in notes payable 4,406 (1,241) Dividends paid (4,568) - Issuance of stock under employee stock plans 3,319 671 ------- ------- Net cash provided by (used in) financing activities 2,982 (1,046) ------- ------- Net increase in cash and cash equivalents 20,031 11,407 Cash and cash equivalents: At beginning of period 77,709 44,122 ------- ------- At end of period $97,740 $55,529 ======= ======= HARLEY-DAVIDSON, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 1 - BASIS OF PRESENTATION The condensed interim consolidated financial statements included herein have been prepared by the Company without audit. However, the foregoing statements contain all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of Company management, necessary to present fairly the consolidated financial position as of June 26, 1994 and June 27, 1993, and the results of operations for the three and six month periods then ended. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company's annual report on Form 10-K for the year ended December 31, 1993. NOTE 2 - INVENTORIES The Company values its inventories at the lower of cost, using the last-in, first-out (LIFO) method, or market. Inventories consist of the following: June 26, Dec. 31, June 27, 1994 1993 1993 -------- -------- -------- Components at the lower of cost, first-in, first-out (FIFO), or market: Raw material & work-in-process $ 51,007 $54,155 $ 46,291 Finished goods 68,012 66,865 55,426 Parts & accessories 40,689 35,366 33,377 -------- ------- -------- 159,708 156,386 135,094 Excess of FIFO over LIFO 18,098 16,235 15,454 -------- ------- -------- Inventories as reflected in the accompanying condensed consolidated balance sheets $141,610 $140,151 $119,640 ======== ======== ======== NOTE 3 - CONTINGENCIES The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility (the Facility). The Facility was formerly used by the U.S. Navy and AMF (the predecessor corporation of Minstar). The Company purchased the facility from AMF in 1981. Although the Company is not certain as to the extent of the environmental contamination at the Facility, it is working with the Pennsylvania Department of Environmental Resources. The Company is currently pursuing cost recovery litigation against the Navy and believes that the Navy, by virtue of its ownership and operation of the Facility, will ultimately be responsible for a substantial portion of the environmental remediation costs at the Facility. In addition, in March 1991 the Company entered into a settlement agreement with Minstar related to certain indemnification obligations assumed by Minstar in NOTE 3 - CONTINGENCIES (CONTINUED) connection with the Company's purchase of the Facility. Pursuant to this settlement, Minstar is obligated to reimburse the Company for a portion of its investigation and remediation costs at the Facility. Although substantial uncertainty exists concerning the nature and scope of the environmental remediation that will ultimately be required at the Facility, based on preliminary information currently available to the Company and taking into account the Company's estimate of the probable liability of the Navy, and the settlement agreement with Minstar, the Company estimates that it will incur approximately $4 million of additional remediation and related costs at the Facility. The Company has established reserves for this amount. The Company has also put certain of its insurance carriers on notice that it intends to make claims relating to the environmental contamination at the Facility. However, the Company is currently unable to determine the probable amount of recovery available, if any, under insurance policies. NOTE 4 - INVESTMENTS Company holds 49% investments in Eagle Credit Corporation (Eagle) and another investment. The Company accounts for these investments using the equity method. As of June 26, 1994, the Company's carrying value of its investment in these unconsolidated affiliates totaled $9.8 million which is included in the other assets classification in the accompanying condensed consolidated balance sheets. The summarized information below represents an aggregation of the Company's unconsolidated affiliates. Six months ended June 26, 1994 ---------------- Earnings data: Revenue $9,337 Gross profit/ net interest margin 7,898 Operating income 1,720 Net income 1,720 Company's equity in net income 843 June 26, 1994 -------- Balance sheet data: Total assets $91,401 Total liabilities 69,307 ITEM 2. HARLEY-DAVIDSON, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 26, 1994 COMPARED TO THE THREE MONTHS ENDED JUNE 27, 1993 MOTORCYCLE UNITS AND CONSOLIDATED NET SALES FOR THE THREE MONTH PERIODS ENDED JUNE 26, 1994 AND JUNE 27, 1993 Incr 1994 1993 (Decr) % ------ ------ ------ ---- Motorcycle units 25,006 22,951 2,055 9.0% Net sales (in millions): Motorcycles $232.5 $205.3 $27.2 13.2% Motorcycle Parts and Accessories 64.4 51.6 12.8 24.8 ----- ------ ----- ---- Total Motorcycles and Related Products 296.9 256.9 40.0 15.6 Recreational Vehicles 74.9 51.2 23.7 46.1 Commercial Vehicles 26.3 23.0 3.3 14.3 Other 3.3 3.3 - 2.7 ----- ----- ----- ---- Total Transportation Vehicles 104.5 77.5 27.0 34.9 ----- ----- ----- ---- Harley-Davidson, Inc. Consolidated Net Sales $401.4 $334.4 $67.0 20.0% ====== ====== ===== ==== The Company reported record consolidated net sales of $401.4 million during the second quarter of 1994, a $67.0 million (20.0%) increase over the second quarter of 1993. Both the Motorcycles and Related Products segment (the "Motorcycle segment") and the Transportation Vehicles segment contributed to the increase. Net sales increases in the Motorcycle segment were primarily volume related. Motorcycle unit shipments increased 9.0% compared to the same quarter in 1993. The Motorcycle division met, and periodically exceeded, its 380 units-per-day production schedule throughout the second quarter. In addition, Motorcycle assembly operations worked three Saturdays and some daily overtime during the quarter to help satisfy strong demand in the marketplace. While the Motorcycle division shipped 25,006 units during the quarter, similar results should not be projected to the final quarters of 1994. The Motorcycle division has fewer working days in the second half of the year, which includes eleven of the year's thirteen holidays and a week of shut-down. If production continues at the scheduled rate of 380 units-per-day for the rest of the year, motorcycle production should approximate 93,000 units during 1994 (compared to 81,696 during 1993). The Motorcycle division remains on schedule and on budget to attain its goal of manufacturing at a rate of 425 units-per-day (100,000 units-per-year) sometime in 1996. The Parts and Accessories division contributed approximately $12.8 million to the overall consolidated net sales increase. This change represents a 24.8% percent increase in parts and accessories net sales compared to the second quarter of 1993. The division recorded improvements in each of its major product categories. The Transportation Vehicles segment recorded 1994 second quarter net sales of $104.5 million, a $27.0 million (34.9%) increase over the same period during 1993. The Recreational Vehicles division generated $23.7 million of the change primarily through volume increases. Higher priced "Class A" (motorized) units comprised a majority of the increase. The Company is pleased with this quarter's performance of the Recreational Vehicles division, but remains cautious pending customer acceptance of the 1995 models. New model introductions are scheduled for the division's dealer meeting at the end of August. The manufacturing phase-in of the new models begins in July and runs through October. Accordingly, many of the new models will not be available for shipment until the end of the third quarter. The Commercial Vehicles division recorded a $3.3 million (14.3%) net sales increase over the second quarter of 1993. During the second quarter of 1994, the division reported that it had been awarded a contract to manufacture 550 walk-in vans for Frito-Lay beginning during the fourth quarter of 1994 and running into early 1995. CONSOLIDATED GROSS PROFIT FOR THE THREE MONTH PERIODS ENDED JUNE 26, 1994 AND JUNE 27, 1993 (Dollars in Millions) Percent Percent of sales of sales 1994 1993 Change 1994 1993 ----- ----- ------ ------- ------- Motorcycles and Related Products $93.6 $79.2 $14.4 31.5% 30.8% Transportation Vehicles 19.8 11.7 8.1 18.9 15.1 ----- ----- ----- ---- ---- Consolidated Harley-Davidson, Inc. $113.4 $90.9 $22.5 28.2% 27.2% ====== ===== ===== ==== ==== Consolidated gross profit increased $22.5 million (24.8%) compared to the second quarter of 1993. Both segments contributed to the increase. The Motorcycle segment contributed $14.4 million to the second quarter increase in consolidated gross profit related primarily to volume increases in motorcycle unit shipments and parts and accessories business. Compared to the second quarter of 1993, the segment's gross profit margin benefited from increased volume and favorable mix. The Transportation Vehicles segment recorded an $8.1 million improvement in gross profit during the second quarter of 1994 compared to the same quarter in 1993. The Recreational Vehicles division was responsible for a majority of the increase, primarily on volume increases. The volume increases occurred primarily in the motorized Class A products resulting in a favorable shift in product mix (away from lower margin towable products) for the quarter. CONSOLIDATED OPERATING EXPENSES FOR THE THREE MONTH PERIODS ENDED JUNE 26, 1994 AND JUNE 27, 1993 (Dollars in Millions) Percent 1994 1993 Change Change ----- ----- ------ ------ Motorcycles and Related Products $46.5 $37.6 $8.9 23.8% Transportation Vehicles 15.0 11.4 3.6 31.7 Corporate 3.2 1.8 1.4 74.8 ----- ----- ----- ---- Consolidated Harley-Davidson, Inc. $64.7 $50.8 $13.9 27.4% ===== ===== ===== ==== Consolidated operating expenses increased $13.9 million (27.4%) over the second quarter of 1993. Increases in the Motorcycle segment were primarily volume related. Other areas of increased spending included MotorClothes advertising costs, the VR Racing (road racing) program, and variable compensation. The Transportation Vehicles segment recorded a $3.6 million (31.7%) increase in operating expenses during the second quarter of 1994 compared to the second quarter of 1993. Primary areas of increase included research and development costs and selling and promotional programs. The Recreational Vehicles division has been investing heavily in research and development and has added engineering expertise to its workforce. 1994 second quarter operating expense benefitted from the elimination of goodwill amortization ($.7 million during the second quarter of 1993) that resulted from the goodwill write-down recorded by the Company during the fourth quarter of 1993. Consolidated income taxes - - ------------------------- The Company's second quarter tax provision includes a one-time benefit of $4.6 million related to the legal reorganization and recapitalization of the Transportation Vehicles segment. Excluding this benefit, the Company's effective tax rate in the second quarter of 1994 would have been 39% compared to 40% for all of 1993. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 26, 1994 COMPARED TO THE SIX MONTHS ENDED JUNE 27, 1993 MOTORCYCLE UNITS AND CONSOLIDATED NET SALES FOR THE SIX MONTH PERIODS ENDED JUNE 26, 1994 AND JUNE 27, 1993 Incr 1994 1993 (Decr) % ----- ----- ----- ---- Motorcycle units 48,062 42,453 5,609 13.2% Net sales (in millions): Motorcycles $441.6 $373.5 $68.1 18.2% Motorcycle Parts and Accessories 113.9 88.7 25.2 28.4 ------ ------ ----- ---- Total Motorcycles and Related Products 555.5 462.2 93.3 20.2 Recreational Vehicles 134.2 97.3 36.9 38.0 Commercial Vehicles 49.1 38.2 10.9 28.6 Other 6.3 6.3 - - ------ ------ ------ ---- Total Transportation Vehicles 189.6 141.8 47.8 33.8 ------ ------ ------ ---- Harley-Davidson, Inc. Consolidated Net Sales $745.1 $604.0 $141.1 23.4% ====== ====== ====== ==== The Company reported record net sales for the first six months of $745.1 million, an increase of $141.1 million (23.4%) compared to the first six months of 1993. Net sales increases were generated by both the Motorcycle segment and the Transportation Vehicles segment. Worldwide demand within the Motorcycle segment continues to outweigh supply. Dealer inventories of motorcycles in most major markets remain virtually non- existent. The most recent information available (through April) indicates a U.S. heavyweight (751+cc) market share of 59.8% compared to 63.6% for the same period in 1993. The decrease in market share is attributable to the division's capacity constraints in a growing market. Parts and accessories net sales also exhibited strong growth during the first two quarters of 1994. Overall, net sales of parts and accessories increased 28.4% compared to the first six months of 1993. The MotorClothes product continues to be the fastest growing portion of the parts and accessories' product line, currently comprising approximately 35% of parts and accessories net sales. The Transportation Vehicles segment recorded net sales of $189.6 million during the first six months of 1994, an increase of $47.8 million (33.8%) compared to the first six months of 1993. The Recreational Vehicles division generated the majority of the increase, primarily on volume increases. The most recent Class A market share information available (through April) indicates that industry registrations have increased 24% compared to registrations of the Recreational Vehicles division's products which are up 39.5% during the same period. Most of the volume increases were generated by the division's lower-end Endeavor and Vacationer models. The division has not seen the same result in its towable product registrations which are up 12.4% for the first four months of 1994 compared to industry registrations which are up 17.7%. The Commercial Vehicles division recorded a $10.9 million (28.6%) increase in net sales during the first six months of 1994 compared to the same period in 1993. The division benefited from a 6% volume increase and a shift in mix to its higher priced walk-in units. A majority of the increase occurred during the first quarter which benefitted from a substantial backlog at the end of 1993. Industry wide demand for commercial vehicle chassis has resulted in major domestic chassis manufacturers putting their customers (including the Commercial Vehicles division) on an allocation system. The Commercial Vehicles division has recently experienced minor delays in the allocation of chassis as a result of these systems but does not currently anticipate significant delays during the remainder of the year. CONSOLIDATED GROSS PROFIT FOR THE SIX MONTH PERIODS ENDED JUNE 26, 1994 AND JUNE 27, 1993 (Dollars in Millions) Percent Percent of sales of sales 1994 1993 Change 1994 1993 ---- ---- ------ ------- ------- Motorcycles and Related Products $170.4 $143.0 $27.4 30.7% 30.9% Transportation Vehicles 33.3 23.3 10.0 17.5 16.4 ------ ------ ----- ---- ---- Consolidated Harley-Davidson, Inc. $203.7 $166.3 $37.4 27.3% 27.5% ====== ====== ===== ==== ==== Consolidated gross profit for the first six months of 1994 totaled $203.7 million, an increase of $37.4 million (22.5%) over the same period in 1993. The Motorcycle segment reported a $27.4 million (19.1%) increase for the period. The segment's gross profit margin remained essentially unchanged at 30.7% for the period compared to the first six months of 1993. The margin benefitted from increased volume and a shift in product mix. These benefits were largely offset by weather related overtime during the first quarter and additional costs during both quarters associated with the reorganizations and enhancements of the Motorcycle segment's manufacturing facilities. The reorganizations and enhancements are part of the Company's three year manufacturing strategy announced during the third quarter of 1993. The Transportation Vehicles segment recorded gross profit of $33.3 million during the first six months of 1994, an increase of $10.0 million (42.8%) compared to the first six months of 1993. The Recreational Vehicles division generated the majority of the increase, primarily on volume increases. The Commercial Vehicles division benefitted from an increase in volume and a shift in mix toward higher-margin walk-in units. CONSOLIDATED OPERATING EXPENSES FOR THE SIX MONTH PERIODS ENDED JUNE 26, 1994 AND JUNE 27, 1993 (Dollars in Millions) Percent 1994 1993 Change Change ----- ----- ------ ------- Motorcycles and Related Products $88.3 $73.9 $14.4 19.4% Transportation Vehicles 28.3 23.6 4.7 20.1 Corporate 5.3 3.6 1.7 47.9 ------ ------ ----- ---- Consolidated Harley-Davidson, Inc. $121.9 $101.1 $20.8 20.6% ====== ====== ===== ==== Consolidated Operating expenses of $121.9 million for the first six months of 1994 increased $20.8 million (20.6%) compared to the first six months of 1993. The Motorcycle segment generated the majority of the increase related primarily to volume increases. The Transportation Vehicles segment increase was generally the result of additional research and development and promotional programs as discussed earlier. Consolidated income taxes - - ------------------------- The Company's tax provision includes a one-time benefit of $4.6 million related to the legal reorganization of the Transportation Vehicles segment. Excluding this benefit, the Company's effective tax rate would have been 39% compared to 40% for all of 1993. Environmental - - ------------- The Company's policy is to comply with applicable environmental laws and regulations. The Company has a compliance program in place to monitor, and report on, environmental issues. The Company is currently involved with its former parent (Minstar) and the U.S. Navy in cost recovery litigation surrounding the remediation of the Company's manufacturing facility in York, PA. The Company currently estimates that it will be responsible for approximately $4 million related to the remediation of the York facility. The Company has established reserves for this amount (refer to footnote 3 to the accompanying condensed consolidated financial statements). Recurring costs associated with managing hazardous substances and pollution in on-going operations are not material. The Company regularly invests in equipment to support and improve its various manufacturing processes. While the Company considers environmental matters in capital expenditure decisions, and while some capital expenditures also act to improve environmental compliance, only a small portion of the Company's annual capital expenditures relate to equipment which has the sole purpose of environmental compliance. The Company anticipates that capital expenditures for equipment used to limit hazardous substances/ pollutants during 1994 will approximate $2 million. LIQUIDITY AND CAPITAL RESOURCES AS OF JUNE 26, 1994 - - --------------------------------------------------- The Company generated $44.0 million of cash from operating activities during the first six months of 1994 compared to $39.5 million during the same period in 1993. Cash flow from higher earnings during the first two quarters of 1994 was largely offset by a net increase in working capital items, primarily accounts receivable. A majority of the increase in accounts receivable is the result of typical shipping patterns during the year. Accounts receivable as of the end of the second quarter of 1994 increased approximately 24% over the balance at the close of the second quarter of 1993. This increase is comparable to the 20% increase in net sales recorded during the second quarter of 1994 versus the similar period during 1993. Investing activities utilized approximately $27.0 million during the first six months of 1994, compared to $27.1 million for the same period in 1993. Capital expenditures amounted to $24.2 million and $16.2 million during the first six months of 1994 and 1993, respectively. The Company anticipates 1994 capital expenditures will approximate $90-100 million. The Company anticipates funding these expenditures with internally generated funds. The Company believes that available cash, cash flow from operations and existing lines of credit will be sufficient to meet its normal operating requirements. The Company's Board of Directors declared two cash dividends during the first six months of 1994 including, most recently, a $.06 cash dividend declared on May 14, 1994 payable June 7, 1994 to shareholders of record May 24. PART II OTHER INFORMATION HARLEY-DAVIDSON, INC. FORM 10-Q JUNE 26, 1994 Item 1. Legal Proceedings - - -------------------------- The Company is involved with government agencies in various environmental matters, including a matter involving soil and groundwater contamination at its York, Pennsylvania facility. See footnote 3 to the accompanying condensed consolidated financial statements. Item 4. Submission of Items to a Vote of Security Holders - - ---------------------------------------------------------- (a) The Company's Annual Meeting of Shareholders was held on May 14, 1994. (b) At the Company's Annual Meeting of Shareholders, the following directors were elected for terms expiring in 1997 by the vote indicated: Shares Shares Voted Withholding in Favor of Authority ------------ ----------- Vaughn L. Beals, Jr. 31,816,420 99,008 Donald A. James 31,818,931 96,497 James A. Norling 31,803,997 111,431 (c) Matters other than election of directors and approval of auditors, brought for vote at the Company's Annual Meeting of Shareholders, passed by the note indicated. Shares Voted -------------------- For Against Abstained --------- --------- --------- Amendments to the Harley-Davidson, Inc. 1986, 1988 and 1990 stock option plans 30,323,101 1,472,596 119,731 Approval of the Harley-Davidson, Inc. Corporate Short-Term Incentive Plan 30,681,624 1,091,156 142,648 Approval of the Harley-Davidson, Inc. restructuring of the motorcycle division* 24,111,665 292,689 145,060 * Broker non votes related to this matter totaled 7,366,014 shares. Item 6. Exhibits and Reports on Form 8-K - - ----------------------------------------- (a) Exhibits 10.1 Harley-Davidson, Inc. 1986 Stock Option Plan (as amended) 10.2 Harley-Davidson, Inc. 1988 Stock Option Plan (as amended) 10.3 Harley-Davidson, Inc. 1990 Stock Option Plan (as amended) (b) Reports on Form 8-K None. Part II - Other Information HARLEY-DAVIDSON, INC. FORM 10-Q JUNE 26, 1994 Signatures ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARLEY-DAVIDSON, INC. Date: 8/9/94 /s/ James L. Ziemer ------------ ------------------------ James L. Ziemer Vice President and Chief Financial Officer (Principal Financial Officer) 8/9/94 /s/ James M. Brostowitz ------------ ------------------------ James M. Brostowitz Vice President, Controller (Principal Accounting Officer) and Treasurer EXHIBIT INDEX Exhibit No. Description Page - - ----------- ----------- ---- 10.1 Harley-Davidson, Inc. 1986 Stock Option Plan (as amended). 18 10.2 Harley-Davidson, Inc. 1988 Stock Option Plan (as amended). 25 10.3 Harley-Davidson, Inc. 1990 Stock Option Plan (as amended). 32 EX-10 2 HARLEY-DAVIDSON, INC. 1986 STOCK OPTION PLAN (AS AMENDED THROUGH MAY 14, 1994) ARTICLE I PURPOSE The purpose of the Harley-Davidson, Inc. 1986 Stock Option Plan is to provide favorable opportunities for certain selected employees of Harley- Davidson, Inc. and its subsidiaries to purchase or receive shares of Common Stock of Harley-Davidson, Inc., or to benefit from the appreciation thereof. Such opportunities should provide an increased incentive for these employees to contribute to the future success and prosperity of Harley-Davidson, Inc., thus enhancing the value of the stock for the benefit of the shareholders, and increase the ability of Harley-Davidson, Inc. to attract and retain individuals of exceptional skill upon whom, in large measure, its sustained progress, growth and profitability depend. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1. Board: The Board of Directors of Harley-Davidson, Inc. 2.2. Code: The Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. 2.3. Committee: The Human Resources Committee of the Board 2.4. Common Stock: The common stock of Harley-Davidson, Inc. 2.5. Company: Harley-Davidson, Inc. and any of its Subsidiaries. 2.6. Disability: Disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. 2.7. Disinterested Persons: Disinterested persons within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as amended. 2.8. Employer: The entity that employs the employee or Optionee. 2.9. Fair Market Value: The average of the high and low reported sales prices of Common Stock on the New York Stock Exchange Composite Tape on the date for which fair market value is being determined. 2.10. ISO: An incentive stock option within the meaning of Section 422A of the Code and which is designated as an incentive stock option by the Committee. 2.11. Non-ISO: A stock option which is not an ISO. 2.12. Option: A stock option granted under the Plan. 2.13. Option Price: The purchase price of a share of Common Stock under an Option. 2.14. Optionee: An employee of the Company who has been granted one or more Options. 2.15. Parent Corporation: A parent corporation, as defined in Section 424(e) of the Code. 2.16. Plan: The Harley-Davidson, Inc. 1986 Stock Option Plan. 2.17. Retirement: Retirement on or after age sixty-five or, with the advance consent of the Committee, at an earlier age. 2.18. Subsidiary: A corporation, limited partnership, general partnership, limited liability company, business trust or other entity of which more than fifty percent (50%) of the voting power or ownership interest is directly and/or indirectly held by the Company. 2.19. Termination Date: A date fixed by the Committee but not later than the day preceding the tenth anniversary of the date on which the Option is granted. ARTICLE III ADMINISTRATION 3.1. Except as otherwise provided in the Plan, the Committee shall administer the Plan and shall have full power to grant Options, construe and interpret the Plan, establish and amend rules and regulations for its administration, and perform all other acts relating to the Plan, including the delegation of administrative responsibilities, which it believes reasonable and proper. 3.2. Subject to the provisions of the Plan, the Board shall establish the policies and criteria pursuant to which the Committee shall grant Options and administer the Plan. Subject to the provisions of the Plan, and pursuant to the policies and criteria established by the Board, the Committee shall, in its discretion determine which employees of the Company shall be granted Options, the number of shares subject to option under any such Options, the dates after which Options may be exercised, in whole or in part, whether Options shall be ISOs, and the terms and conditions of the Options. 3.3. The Committee may at any time, with the consent of the Optionee, in its sole discretion, cancel any Option and issue to the Optionee a new Option for an equivalent or lesser number of Common Stock shares, and at a lesser Option Price. 3.4. Any decision made, or action taken, by the Committee or the Board arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. 3.5. Any action undertaken by the Board pursuant to this Article III shall be null and void if a majority of the directors acting on the matter are not Disinterested Persons; provided, further, notwithstanding any other provision of the Plan, if a majority of the members of the Board are not Disinterested Persons, the powers and responsibilities granted to the Board under Article III of the Plan shall be exercised solely by the Committee until such time as a majority of the members of the Board are Disinterested Persons. ARTICLE IV SHARES SUBJECT TO THE PLAN 4.1. The total number of shares of Common Stock available for grants of Options under the Plan shall be 400,000; provided that Options for not more than 100,000 shares of Common Stock shall be granted to an Optionee in any calendar year under the Plan, which amount shall be reduced by the amount of Common Stock subject to options granted to such Optionee in such calendar year under any other stock option plan of the Company. The foregoing amounts shall be subject to adjustment in accordance with Article VIII of the Plan. These shares may be either authorized but unissued or reacquired shares of Common Stock. If an Option or portion thereof shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Options. An Option, or portion thereof, exercised through the exercise of a stock appreciation right pursuant to Section 6.7 of the Plan shall be treated, for the purposes of this Article, as though the Option, or portion thereof, had been exercised through the purchase of Common Stock, with the result that the shares of Common Stock subject to the Option, or portion thereof, that was so exercised shall not be available for future grants of Options. ARTICLE V ELIGIBILITY 5.1. Options may be granted to key employees of the Company or to persons who have been engaged to become key employees of the Company. Key employees will comprise, in general, those who contribute to the management, direction and overall success of the Company, including those who are members of the Board. Members of the Board who are not employees of the Company shall not be eligible for Option grants. ARTICLE VI TERM OF OPTIONS 6.1. Option Agreements: All Options shall be evidenced by written agreements executed by the Company and the Optionee. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. Those Options that comply with the requirements for an ISO set forth in Section 422A of the Code shall be designated ISOs and all other Options shall be designated Non-ISOs. 6.2. Option Price: The Option Price shall be set by the Committee; provided, however, that the price per share shall not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 6.3. Period of Exercise: The Committee shall determine the dates after which Options may be exercised in whole or in part. If Options are exercisable in installments, installments or portions thereof that are exercisable and not exercised shall accumulate and remain exercisable. The Committee may also amend an Option to accelerate the dates after which Options may be exercised in whole or in part. However, no Option or portion thereof shall be exercisable after the Termination Date. 6.4. Special Rules Regarding ISOs Granted to Certain Employees: Notwithstanding any contrary provisions of Sections 6.2 and 6.3 of the Plan, no ISO shall be granted to any employee who, at the time the Option is granted, owns (directly or indirectly, within the meaning of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the Option Price under such Option is at least 110 percent of the Fair Market Value of a share of Common Stock on the date the Option is granted and (b) the Termination Date of such Option is a date not later than the day preceding the fifth anniversary of the date on which the Option is granted. 6.5 Manner of Exercise and Payment: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: a. in United States dollars in cash or by check, bank draft or money order payable to the order of the Company. b. through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, or c. by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. 6.6. Withholding Taxes: The Company may, in its discretion, require an Optionee to pay to the Company at the time of exercise the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise. Upon the exercise of an Option requiring tax withholding, an Optionee may make a written election to have shares of Common Stock withheld by the Company from the shares otherwise to be received. The number of shares so withheld shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. The acceptance of any such election by an Optionee shall be at the sole discretion of the Committee. Where the exercise of an Option does not give rise to an obligation to withhold Federal income taxes on the date of exercise, the Company may, in its discretion, require an Optionee to place shares of Common Stock purchased under the Option in escrow for the benefit of the Company until such time as Federal income tax withholding is required on amounts included in the gross income of the Optionee as a result of the exercise of an Option. At such time, the Company, in its discretion, may require an Optionee to pay to the Company the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, in which case the shares of Common Stock will be released from escrow to the Optionee. Alternatively, subject to acceptance by the Committee, in its sole discretion, an Optionee may make a written election to have shares of Common Stock held in escrow applied toward the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, based on the Fair Market Value of the shares on the date of the termination of the escrow arrangement. Upon application of such shares toward the Company's withholding obligation, any shares of Common Stock held in escrow and not, in the judgment of the Committee, necessary to satisfy such obligation shall be released from escrow to the Optionee. 6.7. Stock Appreciation Rights: At or after the grant of an Option, the Committee, in its discretion, may provide an Optionee with an alternate means of exercising an Option, or a designated portion thereof, by granting the Optionee a stock appreciation right. A "stock appreciation right" is a right to receive, upon exercise of an Option or any portion thereof, in the Committee's sole discretion, an amount of cash equal to, and/or shares of Common Stock having a Fair Market Value on the date of exercise equal to, the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Option Price, multiplied by the number of shares of Common Stock that the Optionee would have received had the Option or portion thereof been exercised through the purchase of shares of Common Stock at the Option Price, provided that (a) such Option or portion thereof has been designated as exercisable in this alternative manner, (b) such Option or portion thereof is otherwise exercisable, and (c) the Fair Market Value of a share of Common Stock on the date of exercise exceeds the Option Price. 6.8. Nontransferability of Options: Each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 6.9. Cessation of Employment of Optionee: a. Cessation of Employment other than by Reason of Retirement, Disability or Death. If an Optionee shall cease to be employed by the Company otherwise than by reason of Retirement, Disability, or death, each Option held by the Optionee, together with all rights hereunder, shall terminate on the date of cessation of employment, to the extent not previously exercised. b. Cessation of Employment by Reason of Retirement or Disability. If an Optionee shall cease to be employed by the Company by reason of Retirement or Disability, each Option held by the Optionee shall remain exercisable, to the extent it was exercisable at the time of cessation of employment, until the earliest of: i. the Termination Date, ii. the death of the Optionee, or such later date not more than one year after the death of the Optionee as the Committee, in its discretion, may provide pursuant to Section 6.09(c) of the Plan. iii. the third anniversary of the date of the cessation of the Optionee's employment, if employment ceased by reason of Retirement, or iv. the first anniversary of the date of the cessation of the Optionee's employment by reason of Disability; and thereafter all such Options shall terminate together with all rights hereunder, to the extent not previously exercised. c. Cessation of Employment by Reason of Death. In the event of the death of the Optionee, while employed by the Company, an Option may be exercised at any time or from time to time prior to the earlier of the Termination Date or the first anniversary of the date of the Optionee's death, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Optionee was entitled to exercise it on the Optionee's date of death. In the event of the death of the Optionee while entitled to exercise an Option pursuant to Section 6.09(b), the Committee, in its discretion, may permit such Option to be exercised at any time or from time to time prior to the Termination Date during a period of up to one year from the death of the Optionee, as determined by the Committee, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Option was exercisable at the time of cessation of the Optionee's employment. Any person or persons to whom an Optionee's rights under an Option have passed by will or by the applicable laws of descent and distribution shall be subject to all terms and conditions of the Plan and the Option applicable to the Optionee. 6.10. Notification of Sales of Common Stock: Any Optionee who disposes of shares of Common Stock acquired upon the exercise of an ISO either (a) within two years after the date of the grant of the ISO under which the stock was acquired or (b) within one year after the transfer of such shares to the Optionee, shall notify the Company of such disposition and of the amount realized upon such disposition. ARTICLE VII LIMITATIONS AND ACCELERATIONS ON EXERCISABILITY 7.1. Notwithstanding any other provision of this Plan, in the case of an ISO, the aggregate Fair Market Value (determined at the time the ISO is granted) of the shares of Common Stock with respect to which all "incentive stock option plans" (within the meaning of Section 422A of the Code) are first exercisable by the Optionee during any calendar year (under this Plan and under all other incentive stock option plans of the Employer, any Subsidiary and any Parent Corporation) shall not exceed $100,000. ARTICLE VIII ADJUSTMENTS 8.1. If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable; (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Options, the Committee shall forthwith take any such action as in its judgment shall be necessary to preserve the Optionee's rights substantially proportionate to the rights existing prior to such event and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to outstanding Options, the number of shares available under Article IV above shall be increased or decreased, as the case may be, proportionately; provided, however, that each such adjustment, in the case of ISOs, shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee. ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1. The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part or amend it in such respects as the Board may deem appropriate, provided, however, that no such amendment shall be made, which would, without approval of the shareholders: a. materially modify the eligibility requirements for receiving Options; b. increase the number of Shares of Common Stock which may be issued pursuant to Options, except as is provided for in accordance with Article VIII of the Plan; c. reduce the minimum Option Price; d. extend the period of granting Options; or e. materially increase in any other way the benefits accruing to Optionees. 9.2. No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. 9.3. The Board may amend this Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Options meeting the requirements of future amendments or issued regulations, if any, to the Code. ARTICLE X GOVERNMENT AND OTHER REGULATIONS 10.1. The obligation of the Company to issue or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and the stock exchanges on which Common Stock is traded. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Plan Does Not Confer Employment or Stockholder Rights: The right of the Company to terminate (whether by dismissal, discharge, retirement or otherwise) the Optionee's employment with it at any time at will, or as otherwise provided by any agreement between the Company and the Optionee, is specifically reserved. Neither the Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights of a stockholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option. 11.2. Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. 11.3. Use of Exercise Proceeds: Payments received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any stock received in payment may be retired, or retained in the Company's treasury and reissued. 11.4. Indemnification: In addition to such other rights of indemnification as they may have as members of the Board, or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member's own behalf. ARTICLE XII SHAREHOLDER APPROVAL AND EFFECTIVE DATES 12.1. The Plan shall become effective when it is adopted by the Board. However, the Plan and all Options shall terminate after the passage of one year from the date the Plan was adopted by the Board unless: a. within such one year period, the Plan is approved by the vote at a meeting of the shareholders of Harley-Davidson, Inc. of the holders of a majority of the outstanding shares of Harley-Davidson, Inc. entitled to vote; provided that if at a meeting of such shareholders held within such one year period, the Plan is not so approved, the Plan and all Options shall terminate at the time of that meeting of shareholders; or b. within such one year period, the Plan is approved by the written consent of the holders of a majority of the outstanding shares of Harley- Davidson, Inc. entitled to vote. Options may not be granted under the Plan after May 16, 1996. EX-10 3 HARLEY-DAVIDSON, INC. 1988 STOCK OPTION PLAN (AS AMENDED THROUGH MAY 14, 1994) ARTICLE I PURPOSE The purpose of the Harley-Davidson, Inc. 1988 Stock Option Plan is to provide favorable opportunities for certain selected employees of Harley- Davidson, Inc. and its subsidiaries to purchase or receive shares of Common Stock of Harley-Davidson, Inc., or to benefit from the appreciation thereof. Such opportunities should provide an increased incentive for these employees to contribute to the future success and prosperity of Harley-Davidson, Inc., thus enhancing the value of the stock for the benefit of the shareholders, and increase the ability of Harley-Davidson, Inc. to attract and retain individuals of exceptional skill upon whom, in large measure, its sustained progress, growth and profitability depend. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1. Board: The Board of Directors of Harley-Davidson, Inc. 2.2. Code: The Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder. 2.3. Committee: The Human Resources Committee of the Board 2.4. Common Stock: The common stock of Harley-Davidson, Inc. 2.5. Company: Harley-Davidson, Inc. and any of its Subsidiaries. 2.6. Disability: Disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. 2.7. Disinterested Persons: Disinterested persons within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as amended. 2.8. Employer: The entity that employs the employee or Optionee. 2.9. Fair Market Value: The average of the high and low reported sales prices of Common Stock on the New York Stock Exchange Composite Tape on the date for which fair market value is being determined. 2.10. ISO: An incentive stock option within the meaning of Section 422A of the Code and which is designated as an incentive stock option by the Committee. 2.11. Non-ISO: A stock option which is not an ISO and which is designated as a Non-ISO by the Committee. 2.12. Option: A stock option granted under the Plan. Options include both ISOs and Non-ISOs. 2.13. Option Price: The purchase price of a share of Common Stock under an Option. 2.14. Optionee: An employee of the Company who has been granted one or more Options. 2.15. Parent Corporation: A parent corporation, as defined in Section 424(e) of the Code. 2.16. Plan: The Harley-Davidson, Inc. 1988 Stock Option Plan. 2.17. Retirement: Retirement on or after age sixty-five or, with the advance consent of the Committee, at an earlier age. 2.18. Subsidiary: A corporation, limited partnership, general partnership, limited liability company, business trust or other entity of which more than fifty percent (50%) of the voting power or ownership interest is directly and/or indirectly held by the Company. 2.19. Termination Date: A date fixed by the Committee but not later than the day preceding the tenth anniversary of the date on which the Option is granted. ARTICLE III ADMINISTRATION 3.1. Except as otherwise provided in the Plan, the Committee shall administer the Plan and shall have full power to grant Options, construe and interpret the Plan, establish and amend rules and regulations for its adminis- tration, and perform all other acts relating to the Plan, including the delega- tion of administrative responsibilities, which it believes reasonable and proper. 3.2. Subject to the provisions of the Plan, the Board shall establish the policies and criteria pursuant to which the Committee shall grant Options and administer the Plan. Subject to the provisions of the Plan, and pursuant to the policies and criteria established by the Board, the Committee shall, in its discretion determine which employees of the Company shall be granted Options, the number of shares subject to option under any such Options, the dates after which Options may be exercised, in whole or in part, whether Options shall be ISOs, and the terms and conditions of the Options. 3.3. The Committee may at any time, with the consent of the Optionee, in its sole discretion, cancel any Option and issue to the Optionee a new Option for an equivalent or lesser number of Common Stock shares, and at a lesser Option Price. 3.4. Any decision made, or action taken, by the Committee or the Board arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. 3.5. Any action undertaken by the Board pursuant to this Article III shall be null and void if a majority of the directors acting on the matter are not Disinterested Persons; provided, further, notwithstanding any other provi- sion of the Plan, if a majority of the members of the Board are not Disinterest- ed Persons, the powers and responsibilities granted to the Board under Article III of the Plan shall be exercised solely by the Committee until such time as a majority of the members of the Board are Disinterested Persons. ARTICLE IV SHARES SUBJECT TO THE PLAN 4.1. The total number of shares of Common Stock available for grants of Options under the Plan shall be 800,000; provided that Options for not more than 100,000 shares of Common Stock shall be granted to an Optionee in any calendar year under the Plan, which amount shall be reduced by the amount of Common Stock subject to options granted to such Optionee in such calendar year under any other stock option plan of the Company. The foregoing amounts shall be subject to adjustment in accordance with Article VIII of the Plan. These shares may be either authorized but unissued or reacquired shares of Common Stock. If an Option or portion thereof shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Options. An Option, or portion thereof, exercised through the exercise of a stock appreciation right pursuant to Section 6.7 of the Plan shall be treated, for the purposes of this Article, as though the Option, or portion thereof, had been exercised through the purchase of Common Stock, with the result that the shares of Common Stock subject to the Option, or portion thereof, that was so exercised shall not be available for future grants of Options. ARTICLE V ELIGIBILITY 5.1. Options may be granted to key employees of the Company or to persons who have been engaged to become key employees of the Company. Key employees will comprise, in general, those who contribute to the management, direction and overall success of the Company, including those who are members of the Board. Members of the Board who are not employees of the Company shall not be eligible for Option grants. ARTICLE VI TERM OF OPTIONS 6.1. Option Agreements: All Options shall be evidenced by written agreements executed by the Company and the Optionee. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. Those Options that comply with the requirements for an ISO set forth in Section 422A of the Code shall be designated ISOs and all other Options shall be designated Non-ISOs. 6.2. Option Price: The Option Price shall be set by the Committee; provided, however, that the price per share shall not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 6.3. Period of Exercise: The Committee shall determine the dates after which Options may be exercised in whole or in part. If Options are exercisable in installments, installments or portions thereof that are exercisable and not exercised shall accumulate and remain exercisable. The Committee may also amend an Option to accelerate the dates after which Options may be exercised in whole or in part. However, no Option or portion thereof shall be exercisable after the Termination Date. 6.4. Special Rules Regarding ISOs Granted to Certain Employees: Notwith- standing any contrary provisions of Sections 6.2 and 6.3 of the Plan, no ISO shall be granted to any employee who, at the time the Option is granted, owns (directly or indirectly, within the meaning of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the Option Price under such Option is at least 110 percent of the Fair Market Value of a share of Common Stock on the date the Option is granted and (b) the Termination Date of such Option is a date not later than the day preceding the fifth anniversary of the date on which the Option is granted. 6.5 Manner of Exercise and Payment: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: a. in United States dollars in cash or by check, bank draft or money order payable to the order of the Company. b. through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, or c. by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibi- tions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. 6.6. Withholding Taxes: The Company may, in its discretion, require an Optionee to pay to the Company at the time of exercise the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise. Upon the exercise of an Option requiring tax withholding, an Optionee may make a written election to have shares of Common Stock withheld by the Company from the shares otherwise to be received. The number of shares so withheld shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. The acceptance of any such election by an Optionee shall be at the sole discretion of the Committee. Where the exercise of an Option does not give rise to an obligation to withhold Federal income taxes on the date of exercise, the Company may, in its discretion, require an Optionee to place shares of Common Stock purchased under the Option in escrow for the benefit of the Company until such time as Federal income tax withholding is required on amounts included in the gross income of the Optionee as a result of the exercise of an Option. At such time, the Company, in its discretion, may require an Optionee to pay to the Company the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, in which case the shares of Common Stock will be released from escrow to the Optionee. Alternatively, subject to acceptance by the Committee, in its sole discretion, an Optionee may make a written election to have shares of Common Stock held in escrow applied toward the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, based on the Fair Market Value of the shares on the date of the termination of the escrow arrangement. Upon application of such shares toward the Company's withholding obligation, any shares of Common Stock held in escrow and not, in the judgment of the Committee, necessary to satisfy such obligation shall be released from escrow to the Optionee. 6.7. Stock Appreciation Rights: At or after the grant of an Option, the Committee, in its discretion, may provide an Optionee with an alternate means of exercising an Option, or a designated portion thereof, by granting the Optionee a stock appreciation right. A "stock appreciation right" is a right to receive, upon exercise of an Option or any portion thereof, in the Committee's sole discretion, an amount of cash equal to, and/or shares of Common Stock having a Fair Market Value on the date of exercise equal to, the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Option Price, multiplied by the number of shares of Common Stock that the Optionee would have received had the Option or portion thereof been exercised through the purchase of shares of Common Stock at the Option Price, provided that (a) such Option or portion thereof has been designated as exercisable in this alternative manner, (b) such Option or portion thereof is otherwise exercisable, and (c) the Fair Market Value of a share of Common Stock on the date of exercise exceeds the Option Price. 6.8. Nontransferability of Options: Each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 6.9. Cessation of Employment of Optionee: a. Cessation of Employment other than by Reason of Retirement, Disabil- ity or Death. If an Optionee shall cease to be employed by the Company otherwise than by reason of Retirement, Disability, or death, each Option held by the Optionee, together with all rights hereunder, shall terminate on the date of cessation of employment, to the extent not previously exercised. b. Cessation of Employment by Reason of Retirement or Disability. If an Optionee shall cease to be employed by the Company by reason of Retire- ment or Disability, each Option held by the Optionee shall remain exercis- able, to the extent it was exercisable at the time of cessation of employ- ment, until the earliest of: i. the Termination Date, ii. the death of the Optionee, or such later date not more than one year after the death of the Optionee as the Committee, in its discretion, may provide pursuant to Section 6.09(c) of the Plan. iii. the third anniversary of the date of the cessation of the Optionee's employment, if employment ceased by reason of Retirement, or iv. the first anniversary of the date of the cessation of the Optionee's employment by reason of Disability; and thereafter all such Options shall terminate together with all rights hereunder, to the extent not previously exercised. c. Cessation of Employment by Reason of Death. In the event of the death of the Optionee, while employed by the Company, an Option may be exercised at any time or from time to time prior to the earlier of the Termination Date or the first anniversary of the date of the Optionee's death, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribu- tion, to the extent that the Optionee was entitled to exercise it on the Optionee's date of death. In the event of the death of the Optionee while entitled to exercise an Option pursuant to Section 6.09(b), the Committee, in its discretion, may permit such Option to be exercised at any time or from time to time prior to the Termination Date during a period of up to one year from the death of the Optionee, as determined by the Committee, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Option was exercisable at the time of cessation of the Optionee's employment. Any person or persons to whom an Optionee's rights under an Option have passed by will or by the applicable laws of descent and distri- bution shall be subject to all terms and conditions of the Plan and the Option applicable to the Optionee. 6.10. Notification of Sales of Common Stock: Any Optionee who disposes of shares of Common Stock acquired upon the exercise of an ISO either (a) within two years after the date of the grant of the ISO under which the stock was acquired or (b) within one year after the transfer of such shares to the Optionee, shall notify the Company of such disposition and of the amount realized upon such disposition. ARTICLE VII LIMITATIONS AND ACCELERATIONS ON EXERCISABILITY 7.1. Notwithstanding any other provision of this Plan, in the case of an ISO, the aggregate Fair Market Value (determined at the time the ISO is granted) of the shares of Common Stock with respect to which all "incentive stock option plans" (within the meaning of Section 422A of the Code) are first exercisable by the Optionee during any calendar year (under this Plan and under all other incentive stock option plans of the Employer, any Subsidiary and any Parent Corporation) shall not exceed $100,000. ARTICLE VIII ADJUSTMENTS 8.1. If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable; (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Options, the Committee shall forthwith take any such action as in its judgment shall be necessary to preserve the Optionee's rights substantially proportionate to the rights existing prior to such event and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to out- standing Options, the number of shares available under Article IV above shall be increased or decreased, as the case may be, proportionately; provided, however, that each such adjustment, in the case of ISOs, shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee. ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1. The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part or amend it in such respects as the Board may deem appropriate, provided, however, that no such amendment shall be made, which would, without approval of the shareholders: a. materially modify the eligibility requirements for receiving Op- tions; b. increase the number of Shares of Common Stock which may be issued pursuant to Options, except as is provided for in accordance with Article VIII of the Plan; c. reduce the minimum Option Price; d. extend the period of granting Options; or e. materially increase in any other way the benefits accruing to Optionees. 9.2. No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. 9.3. The Board may amend this Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Options meeting the requirements of future amendments or issued regulations, if any, to the Code. ARTICLE X GOVERNMENT AND OTHER REGULATIONS 10.1. The obligation of the Company to issue or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and the stock exchanges on which Common Stock is traded. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Plan Does Not Confer Employment or Stockholder Rights: The right of the Company to terminate (whether by dismissal, discharge, retirement or otherwise) the Optionee's employment with it at any time at will, or as other- wise provided by any agreement between the Company and the Optionee, is specifi- cally reserved. Neither the Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights of a stockholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option. 11.2. Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. 11.3. Use of Exercise Proceeds: Payments received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any stock received in payment may be retired, or retained in the Company's treasury and reissued. 11.4. Indemnification: In addition to such other rights of indemnifica- tion as they may have as members of the Board, or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member's own behalf. ARTICLE XII SHAREHOLDER APPROVAL AND EFFECTIVE DATES 12.1. The Plan shall become effective when it is adopted by the Board. However, the Plan and all Options shall terminate after the passage of one year from the date the Plan was adopted by the Board unless: a. within such one year period, the Plan is approved by the vote at a meeting of the shareholders of Harley-Davidson, Inc. of the holders of a majority of the outstanding shares of Harley-Davidson, Inc. entitled to vote; provided that if at a meeting of such shareholders held within such one year period, the Plan is not so approved, the Plan and all Options shall terminate at the time of that meeting of shareholders; or b. within such one year period, the Plan is approved by the share- holders of Harley-Davidson, Inc. Options may not be granted under the Plan after March 7, 1998. EX-10 4 HARLEY-DAVIDSON, INC. 1990 STOCK OPTION PLAN (AS AMENDED THROUGH MAY 14, 1994) ARTICLE I PURPOSE The purpose of the Harley-Davidson, Inc. 1990 Stock Option Plan is to provide favorable opportunities for certain selected employees of Harley- Davidson, Inc. and its subsidiaries to purchase or receive shares of Common Stock of Harley-Davidson, Inc., or to benefit from the appreciation thereof. Such opportunities should provide an increased incentive for these employees to contribute to the future success and prosperity of Harley-Davidson, Inc., thus enhancing the value of the stock for the benefit of the shareholders, and increase the ability of Harley-Davidson, Inc. to attract and retain individuals of exceptional skill upon whom, in large measure, its sustained progress, growth and profitability depend. ARTICLE II DEFINITIONS The following capitalized terms used in the Plan shall have the respective meanings set forth in this Article: 2.1. Board: The Board of Directors of Harley-Davidson, Inc. 2.2. Code: The Internal Revenue Code of 1986, as amended. 2.3. Committee: The Human Resources Committee of the Board 2.4. Common Stock: The common stock of Harley-Davidson, Inc. 2.5. Company: Harley-Davidson, Inc. and any of its Subsidiaries. 2.6. Disability: Disability within the meaning of Section 22(e)(3) of the Code, as determined by the Committee. 2.7. Disinterested Persons: Disinterested persons within the meaning of Rule 16b-3 as promulgated under the Securities Exchange Act of 1934, as amended. 2.8. Employer: The entity that employs the employee or Optionee. 2.9. Fair Market Value: The average of the high and low reported sales prices of Common Stock on the New York Stock Exchange Composite Tape on the date for which fair market value is being determined. 2.10. ISO: An incentive stock option within the meaning of Section 422A of the Code and which is designated as an incentive stock option by the Committee. 2.11. Non-ISO: A stock option which is not an ISO and which is designated as a Non-ISO by the Committee. 2.12. Option: A stock option granted under the Plan. Options include both ISOs and Non-ISOs. 2.13. Option Price: The purchase price of a share of Common Stock under an Option. 2.14. Optionee: An employee of the Company who has been granted one or more Options. 2.15. Parent Corporation: A parent corporation, as defined in Section 424(e) of the Code. 2.16. Plan: The Harley-Davidson, Inc. 1990 Stock Option Plan. 2.17. Retirement: Retirement on or after age sixty-five or, with the advance consent of the Committee, at an earlier age. 2.18. Subsidiary: A corporation, limited partnership, general partnership, limited liability company, business trust or other entity of which more than fifty percent (50%) of the voting power or ownership interest is directly and/or indirectly held by the Company. 2.19. Termination Date: A date fixed by the Committee but not later than the day preceding the tenth anniversary of the date on which the Option is granted. ARTICLE III ADMINISTRATION 3.1. Except as otherwise provided in the Plan, the Committee shall administer the Plan and shall have full power to grant Options, construe and interpret the Plan, establish and amend rules and regulations for its adminis- tration, and perform all other acts relating to the Plan, including the delega- tion of administrative responsibilities, which it believes reasonable and proper. 3.2. Subject to the provisions of the Plan, the Board shall establish the policies and criteria pursuant to which the Committee shall grant Options and administer the Plan. Subject to the provisions of the Plan, and pursuant to the policies and criteria established by the Board, the Committee shall, in its discretion determine which employees of the Company shall be granted Options, the number of shares subject to option under any such Options, the dates after which Options may be exercised, in whole or in part, whether Options shall be ISOs, and the terms and conditions of the Options. 3.3. The Committee may at any time, with the consent of the Optionee, in its sole discretion, cancel any Option and issue to the Optionee a new Option for an equivalent or lesser number of Common Stock shares, and at a lesser Option Price. 3.4. Any decision made, or action taken, by the Committee or the Board arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive. 3.5. Any action undertaken by the Board pursuant to this Article III shall be null and void if a majority of the directors acting on the matter are not Disinterested Persons; provided, further, notwithstanding any other provi- sion of the Plan, if a majority of the members of the Board are not Disinterest- ed Persons, the powers and responsibilities granted to the Board under Article III of the Plan shall be exercised solely by the Committee until such time as a majority of the members of the Board are Disinterested Persons. ARTICLE IV SHARES SUBJECT TO THE PLAN 4.1. The total number of shares of Common Stock available for grants of Options under the Plan shall be 1,800,000; provided that Options for not more than 100,000 shares of Common Stock shall be granted to an Optionee in any calendar year under the Plan, which amount shall be reduced by the amount of Common Stock subject to options granted to such Optionee in such calendar year under any other stock option plan of the Company. The foregoing amounts shall be subject to adjustment in accordance with Article VIII of the Plan. If an Option or portion thereof shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered by such Option shall be available for future grants of Options. An Option, or portion thereof, exercised through the exercise of a stock appreciation right pursuant to Section 6.7 of the Plan shall be treated, for the purposes of this Article, as though the Option, or portion thereof, had been exercised through the purchase of Common Stock, with the result that the shares of Common Stock subject to the Option, or portion thereof, that was so exercised shall not be available for future grants of Options. ARTICLE V ELIGIBILITY 5.1. Options may be granted to key employees of the Company or to persons who have been engaged to become key employees of the Company. Key employees will comprise, in general, those who contribute to the management, direction and overall success of the Company, including those who are members of the Board. Members of the Board who are not employees of the Company shall not be eligible for Option grants. ARTICLE VI TERM OF OPTIONS 6.1. Option Agreements: All Options shall be evidenced by written agreements executed by the Company and the Optionee. Such Options shall be subject to the applicable provisions of the Plan, and shall contain such provisions as are required by the Plan and any other provisions the Committee may prescribe. All agreements evidencing Options shall specify the total number of shares subject to each grant, the Option Price and the Termination Date. Those Options that comply with the requirements for an ISO set forth in Section 422A of the Code shall be designated ISOs and all other Options shall be designated Non-ISOs. 6.2. Option Price: The Option Price shall be set by the Committee; provided, however, that the price per share shall not be less than the Fair Market Value of a share of Common Stock on the date the Option is granted. 6.3. Period of Exercise: The Committee shall determine the dates after which Options may be exercised in whole or in part. If Options are exercisable in installments, installments or portions thereof that are exercisable and not exercised shall accumulate and remain exercisable. The Committee may also amend an Option to accelerate the dates after which Options may be exercised in whole or in part. However, no Option or portion thereof shall be exercisable after the Termination Date. 6.4. Special Rules Regarding ISOs Granted to Certain Employees: Notwith- standing any contrary provisions of Sections 6.2 and 6.3 of the Plan, no ISO shall be granted to any employee who, at the time the Option is granted, owns (directly or indirectly, within the meaning of Section 424(d) of the Code) more than ten percent of the total combined voting power of all classes of stock of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a) the Option Price under such Option is at least 110 percent of the Fair Market Value of a share of Common Stock on the date the Option is granted and (b) the Termination Date of such Option is a date not later than the day preceding the fifth anniversary of the date on which the Option is granted. 6.5 Manner of Exercise and Payment: An Option, or portion thereof, shall be exercised by delivery of a written notice of exercise to the Company and payment of the full price of the shares being purchased pursuant to the Option. An Optionee may exercise an Option with respect to less than the full number of shares for which the Option may then be exercised, but an Optionee must exercise the Option in full shares of Common Stock. The price of Common Stock purchased pursuant to an Option, or portion thereof, may be paid: a. in United States dollars in cash or by check, bank draft or money order payable to the order of the Company. b. through the delivery of shares of Common Stock with an aggregate Fair Market Value on the date of exercise equal to the Option Price, or c. by any combination of the above methods of payment. The Committee shall determine acceptable methods for tendering Common Stock as payment upon exercise of an Option and may impose such limitations and prohibi- tions on the use of Common Stock to exercise an Option as it deems appropriate, including, without limitation, any limitation or prohibition designed to avoid certain accounting consequences which may result from the use of Common Stock as payment upon exercise of an Option. 6.6. Withholding Taxes: The Company may, in its discretion, require an Optionee to pay to the Company at the time of exercise the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise. Upon the exercise of an Option requiring tax withholding, an Optionee may make a written election to have shares of Common Stock withheld by the Company from the shares otherwise to be received. The number of shares so withheld shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. The acceptance of any such election by an Optionee shall be at the sole discretion of the Committee. Where the exercise of an Option does not give rise to an obligation to withhold Federal income taxes on the date of exercise, the Company may, in its discretion, require an Optionee to place shares of Common Stock purchased under the Option in escrow for the benefit of the Company until such time as Federal income tax withholding is required on amounts included in the gross income of the Optionee as a result of the exercise of an Option. At such time, the Company, in its discretion, may require an Optionee to pay to the Company the amount that the Company deems necessary to satisfy its obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, in which case the shares of Common Stock will be released from escrow to the Optionee. Alternatively, subject to acceptance by the Committee, in its sole discretion, an Optionee may make a written election to have shares of Common Stock held in escrow applied toward the Company's obligation to withhold Federal, state or local income or other taxes incurred by reason of the exercise of the Option, based on the Fair Market Value of the shares on the date of the termination of the escrow arrangement. Upon application of such shares toward the Company's withholding obligation, any shares of Common Stock held in escrow and not, in the judgment of the Committee, necessary to satisfy such obligation shall be released from escrow to the Optionee. 6.7. Stock Appreciation Rights: At or after the grant of an Option, the Committee, in its discretion, may provide an Optionee with an alternate means of exercising an Option, or a designated portion thereof, by granting the Optionee a stock appreciation right. A "stock appreciation right" is a right to receive, upon exercise of an Option or any portion thereof, in the Committee's sole discretion, an amount of cash equal to, and/or shares of Common Stock having a Fair Market Value on the date of exercise equal to, the excess of the Fair Market Value of a share of Common Stock on the date of exercise over the Option Price, multiplied by the number of shares of Common Stock that the Optionee would have received had the Option or portion thereof been exercised through the purchase of shares of Common Stock at the Option Price, provided that (a) such Option or portion thereof has been designated as exercisable in this alternative manner, (b) such Option or portion thereof is otherwise exercisable, and (c) the Fair Market Value of a share of Common Stock on the date of exercise exceeds the Option Price. 6.8. Nontransferability of Options: Each Option shall, during the Optionee's lifetime, be exercisable only by the Optionee, and neither it nor any right hereunder shall be transferable otherwise than by will or the laws of descent and distribution or be subject to attachment, execution or other similar process. In the event of any attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise dispose of an Option or of any right hereunder, except as provided for herein, or in the event of any levy or any attachment, execution or similar process upon the rights or interest hereby conferred, the Company may terminate the Option by notice to the Optionee and the Option shall thereupon become null and void. 6.9. Cessation of Employment of Optionee: a. Cessation of Employment other than by Reason of Retirement, Disabil- ity or Death. If an Optionee shall cease to be employed by the Company otherwise than by reason of Retirement, Disability, or death, each Option held by the Optionee, together with all rights hereunder, shall terminate on the date of cessation of employment, to the extent not previously exercised. b. Cessation of Employment by Reason of Retirement or Disability. If an Optionee shall cease to be employed by the Company by reason of Retire- ment or Disability, each Option held by the Optionee shall remain exercis- able, to the extent it was exercisable at the time of cessation of employ- ment, until the earliest of: i. the Termination Date, ii. the death of the Optionee, or such later date not more than one year after the death of the Optionee as the Committee, in its discretion, may provide pursuant to Section 6.09(c) of the Plan. iii. the third anniversary of the date of the cessation of the Optionee's employment, if employment ceased by reason of Retirement, or iv. the first anniversary of the date of the cessation of the Optionee's employment by reason of Disability; and thereafter all such Options shall terminate together with all rights hereunder, to the extent not previously exercised. c. Cessation of Employment by Reason of Death. In the event of the death of the Optionee, while employed by the Company, an Option may be exercised at any time or from time to time prior to the earlier of the Termination Date or the first anniversary of the date of the Optionee's death, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribu- tion, to the extent that the Optionee was entitled to exercise it on the Optionee's date of death. In the event of the death of the Optionee while entitled to exercise an Option pursuant to Section 6.09(b), the Committee, in its discretion, may permit such Option to be exercised at any time or from time to time prior to the Termination Date during a period of up to one year from the death of the Optionee, as determined by the Committee, by the person or persons to whom the Optionee's rights under each Option shall pass by will or by the applicable laws of descent and distribution, to the extent that the Option was exercisable at the time of cessation of the Optionee's employment. Any person or persons to whom an Optionee's rights under an Option have passed by will or by the applicable laws of descent and distri- bution shall be subject to all terms and conditions of the Plan and the Option applicable to the Optionee. 6.10. Notification of Sales of Common Stock: Any Optionee who disposes of shares of Common Stock acquired upon the exercise of an ISO either (a) within two years after the date of the grant of the ISO under which the stock was acquired or (b) within one year after the transfer of such shares to the Optionee, shall notify the Company of such disposition and of the amount realized upon such disposition. ARTICLE VII LIMITATIONS AND ACCELERATIONS ON EXERCISABILITY 7.1. Notwithstanding any other provision of this Plan, in the case of an ISO, the aggregate Fair Market Value (determined at the time the ISO is granted) of the shares of Common Stock with respect to which all "incentive stock option plans" (within the meaning of Section 422A of the Code) are first exercisable by the Optionee during any calendar year (under this Plan and under all other incentive stock option plans of the Employer, any Subsidiary and any Parent Corporation) shall not exceed $100,000. 7.2. Each Option granted under the Plan shall have a limited right of surrender allowing the Optionee to surrender that Option within the 30-day period following a Change of Control Event and to receive cash, in lieu of exercising the Option, in the amount by which the highest "COC Fair Market Value" (as hereinafter defined) of the number of shares of Common Stock covered by the Option during the 60 days preceding the date on which the Change of Control Event occurs exceeds the exercise price for the shares of Common Stock covered by the Option. For this purpose, the "COC Fair Market Value" of the Common Stock means the highest closing price of one share of Common Stock as reported on the New York Stock Exchange Composite Tape. If the Common Stock is not listed or admitted to trading on the New York Stock Exchange, the COC Fair Market Value of the Common Stock shall be the closing price of one share of Common Stock on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted sale price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market of the Common Stock, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other system then in use, or, if on any such date the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices of the Common Stock as furnished by a professional market maker making a market in the Common Stock selected by the Board. If on any such date no market maker is making a market in the Common Stock or other Stock, the COC Fair Market Value shall be determined in good faith by the Continuing Directors. For purposes of this Section 7.2: (a) "Change of Control Event" means any one of the following: (i) Continuing Directors no longer constitute at least two-thirds of the Direc- tors constituting the Board; (ii) any person or groups (as defined in Rule 13d-5 under the Securities Exchange Act of 1934, as amended ("Exchange Act")), together with its affiliates, becomes the beneficial owner, directly or indirectly, of 20% or more of the Corporation's then outstanding Common Stock or 20% or more of the voting power of the Corporation's then outstand- ing securities entitled generally to vote for the election of the Corporation's Directors; (iii) the approval by the Corporation's stockhold- ers of the merger or consolidation of the Corporation with any other corpo- ration, the sale of substantially all of the Corporation's assets or the liquidation or dissolution of the Corporation, unless, in the case of a merger or consolidation, the Continuing Directors in office immediately prior to such merger or consolidation constitute at least two-thirds of the directors constituting the board of directors of the surviving corporation of such merger or consolidation and any parent (as defined in Rule 12b-2 under the Exchange Act) of such corporation; or (iv) at least two-thirds of the Continuing Directors in office immediately prior to any other action proposed to be taken by the Corporation's stockholders or by the Board of Directors determine that such proposed action, if taken, would constitute a change of control of the Corporation and such action is taken; and (b) "Continuing Director" means any person who either (i) was a Director on November 1 1989, or (ii) was designated before such person's initial election as a Director as a Continuing Director by a majority of the Continuing Directors. ARTICLE VIII ADJUSTMENTS 8.1. If (a) the Company shall at any time be involved in a transaction to which Section 424(a) of the Code is applicable; (b) the Company shall declare a dividend payable in, or shall subdivide or combine, its Common Stock; or (c) any other event shall occur which in the judgment of the Committee necessitates action by way of adjusting the terms of the outstanding Options, the Committee shall forthwith take any such action as in its judgment shall be necessary to preserve the Optionee's rights substantially proportionate to the rights existing prior to such event and to the extent that such action shall include an increase or decrease in the number of shares of Common Stock subject to out- standing Options, the number of shares available under Article IV above shall be increased or decreased, as the case may be, proportionately; provided, however, that each such adjustment, in the case of ISOs, shall be made in such manner as not to constitute a "modification" within the meaning of Section 424(h)(3) of the Code. The judgment of the Committee with respect to any matter referred to in this Article shall be conclusive and binding upon each Optionee. ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1. The Board may at any time, or from time to time, suspend or terminate the Plan in whole or in part or amend it in such respects as the Board may deem appropriate, provided, however, that no such amendment shall be made, which would, without approval of the shareholders: a. materially modify the eligibility requirements for receiving Op- tions; b. increase the number of Shares of Common Stock which may be issued pursuant to Options, except as is provided for in accordance with Article VIII of the Plan; c. reduce the minimum Option Price; d. extend the period of granting Options; or e. materially increase in any other way the benefits accruing to Optionees. 9.2. No amendment, suspension or termination of this Plan shall, without the Optionee's consent, alter or impair any of the rights or obligations under any Option theretofore granted to an Optionee under the Plan. 9.3. The Board may amend this Plan, subject to the limitations cited above, in such manner as it deems necessary to permit the granting of Options meeting the requirements of future amendments or issued regulations, if any, to the Code. ARTICLE X GOVERNMENT AND OTHER REGULATIONS 10.1. The obligation of the Company to issue or transfer and deliver shares for Options exercised under the Plan shall be subject to all applicable laws, regulations, rules, orders and approvals which shall then be in effect and required by governmental entities and the stock exchanges on which Common Stock is traded. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1. Plan Does Not Confer Employment or Stockholder Rights: The right of the Company to terminate (whether by dismissal, discharge, retirement or otherwise) the Optionee's employment with it at any time at will, or as other- wise provided by any agreement between the Company and the Optionee, is specifi- cally reserved. Neither the Optionee nor any person entitled to exercise the Optionee's rights in the event of the Optionee's death shall have any rights of a stockholder with respect to the shares subject to each Option, except to the extent that, and until, such shares shall have been issued upon the exercise of each Option. 11.2. Plan Expenses: Any expenses of administering this Plan shall be borne by the Company. 11.3. Use of Exercise Proceeds: Payments received from Optionees upon the exercise of Options shall be used for the general corporate purposes of the Company, except that any stock received in payment may be retired, or retained in the Company's treasury and reissued. 11.4. Indemnification: In addition to such other rights of indemnifica- tion as they may have as members of the Board, or the Committee, the members of the Committee and the Board shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any action, suit or proceeding to which they or any of them may be party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except a judgment based upon a finding of bad faith; provided that upon the institution of any such action, suit or proceeding a Committee or Board member shall, in writing, give the Company notice thereof and an opportunity, at its own expense, to handle and defend the same before such Committee or Board member undertakes to handle and defend it on such member's own behalf. ARTICLE XII SHAREHOLDER APPROVAL AND EFFECTIVE DATES 12.1. The Plan shall become effective when it is adopted by the Board. However, the Plan and all Options shall terminate after the passage of one year from the date the Plan was adopted by the Board unless: a. within such one year period, the Plan is approved by the vote at a meeting of the shareholders of Harley-Davidson, Inc. of the holders of a majority of the outstanding shares of Harley-Davidson, Inc. entitled to vote; provided that if at a meeting of such shareholders held within such one year period, the Plan is not so approved, the Plan and all Options shall terminate at the time of that meeting of shareholders; or b. within such one year period, the Plan is approved by the written consent of the holders of a majority of the outstanding shares of Harley- Davidson, Inc. entitled to vote. Options may not be granted under the Plan after May 13, 2000. -----END PRIVACY-ENHANCED MESSAGE-----