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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
CANNONDALE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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CANNONDALE CORPORATION
16 TROWBRIDGE DRIVE
BETHEL, CONNECTICUT 06801
(203) 749-7000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 4, 1998
To the Stockholders of Cannondale Corporation:
PLEASE TAKE NOTICE that the Annual Meeting of Stockholders of Cannondale
Corporation (the "Company") will be held on Wednesday, November 4, 1998, at
10:00 a.m., Eastern Standard Time, at the Company's corporate headquarters, 16
Trowbridge Drive, Bethel, Connecticut, for the following purposes:
1. To elect two (2) Class I directors of the Company for a three-year term;
2. To approve the adoption of the Company's 1998 Stock Option Plan;
3. To consider and act upon a proposal to ratify the selection of Ernst & Young
LLP as independent accountants of the Company; and
4. To transact such other business as may properly come before the meeting or
any adjournments thereof.
Accompanying this Notice is a Proxy, a Proxy Statement and a copy of the
Company's Annual Report to stockholders for fiscal year 1998.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN
AND DATE THE PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE PROVIDED FOR THAT
PURPOSE. The Proxy may be revoked at any time prior to the time that it is
voted. Only stockholders of record as of the close of business on September 30,
1998, will be entitled to vote at the meeting.
By Order of the Board of Directors
/s/ John T. Capetta
John T. Capetta
Secretary
Bethel, Connecticut
October 2, 1998
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CANNONDALE CORPORATION
16 TROWBRIDGE DRIVE
BETHEL, CONNECTICUT 06801
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PROXY STATEMENT
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This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors and management of Cannondale Corporation, a Delaware
corporation (the "Company"), of proxies for use at the Annual Meeting of
Stockholders of the Company (the "Annual Meeting") to be held at the Company's
corporate headquarters, 16 Trowbridge Drive, Bethel, Connecticut on Wednesday,
November 4, 1998, at 10:00 a.m., Eastern Standard Time, and at any and all
postponements or adjournments thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting.
This Proxy Statement, Notice of Annual Meeting and accompanying proxy card
are first being mailed to stockholders on or about October 2, 1998.
GENERAL
Only stockholders of record at the close of business on September 30, 1998,
are entitled to notice of and to vote the shares of common stock, par value
$0.01 per share, of the Company (the "Common Stock") held by them on that date
at the Annual Meeting or any postponements or adjournments thereof. A list of
stockholders entitled to vote at the meeting will be available for inspection at
the meeting.
If the accompanying proxy card is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the instructions
contained therein. Unless contrary instructions are given, the persons
designated as proxy holders in the proxy card will vote (i) FOR the slate of
nominees proposed by the Board of Directors, (ii) FOR approval of the adoption
of the Company's 1998 Stock Option Plan, (iii) FOR ratification of the
appointment of Ernst & Young LLP as the Company's independent accountants for
the fiscal year ending July 3, 1999 ("Fiscal 1999"), and (iv) with regard to all
other matters which may be brought before the Annual Meeting, in accordance with
the judgment of the person or persons voting the proxies. Each stockholder may
revoke a previously granted proxy at any time before it is exercised by filing
with the Company a revoking instrument or a duly executed proxy bearing a later
date. The powers of the proxy holders will be suspended if the person executing
the proxy attends the Annual Meeting in person and so requests. Attendance at
the Annual Meeting will not, in itself, constitute a revocation of a previously
granted proxy.
The presence at the Annual Meeting, in person or by proxy, of the holders
of a majority of the shares of Common Stock outstanding on September 30, 1998,
will constitute a quorum. As of September 30, 1998, 7,448,679 shares of Common
Stock were outstanding. Each outstanding share entitles its holder to cast one
vote on each matter to be voted upon at the Annual Meeting.
Directors will be elected by a plurality of votes cast at the Annual
Meeting. Abstentions are not counted toward a nominee's number of total votes
cast. All other matters which properly come before the Annual Meeting must be
approved by a majority of the votes present at the Annual Meeting. Abstentions
will have the practical effect of voting against such matter, since an
abstention is one less vote for approval. Broker non-votes on any matter will
have no impact on such matter since they are not considered "shares present" for
voting purposes.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table reflects shares of Common Stock beneficially owned (or
deemed to be beneficially owned pursuant to the rules of the Securities and
Exchange Commission) as of September 25, 1998, by (i) each person known to the
Company to own more than 5% of the outstanding Common Stock as of September 25,
1998; (ii) each director and nominee to be a director of the Company; (iii) each
of the executive officers named in the Summary Compensation Table included
elsewhere herein; and (iv) the current directors and executive officers of the
Company as a group. Unless otherwise indicated in the footnotes below, the
persons named in the table have sole voting and investment power with respect to
all shares shown as beneficially owned.
PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES(1) COMMON STOCK
---------------- ------------------- ------------
Joseph S. Montgomery(2)............................. 1,545,909 20.4%
James Scott Montgomery.............................. 372,987 5.0
William A. Luca..................................... 146,826 1.9
Daniel C. Alloway................................... 147,933 2.0
Leonard J. Konecny.................................. 13,917 *
John Sanders........................................ 1,000 *
John H.T. Wilson.................................... 6,500 *
Michael J. Stimola.................................. 5,200 *
Richard J. Resch.................................... 0 0
Franklin Resources, Inc.(3)......................... 429,900 5.8
Valarian Associates(4).............................. 567,500 7.7
All current directors and executive officers as a
group (8 persons)................................. 2,240,272 28.3%
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* Represents less than 1% of the Company's outstanding Common Stock.
(1) The number of shares of Common Stock deemed outstanding includes shares
issuable pursuant to stock options which may be exercised within 60 days of
September 25, 1998, for the following persons: Mr. Joseph
Montgomery -- 128,750 shares, Mr. James Scott Montgomery -- 71,000 shares,
Mr. Luca -- 139,326 shares, Mr. Alloway -- 114,185 shares, Mr.
Konecny -- 13,917 shares, Mr. Sanders -- 1,000 shares, Mr. Wilson -- 5,000
shares and Mr. Stimola -- 5,000 shares.
(2) Mr. Joseph S. Montgomery has a business address c/o Cannondale Corporation,
16 Trowbridge Drive, Bethel, Connecticut 06801.
(3) Based on information contained in Schedule 13G/A filed by Franklin
Resources, Inc. dated February 10, 1998, Franklin Resources, Inc. may be
deemed to have sole or shared voting power and investment power with respect
to all of the shares of Common Stock reported for Franklin Resources, Inc.
Franklin Resources, Inc. has an address at 777 Mariners Island Blvd., San
Mateo, California 94404.
(4) Based on information contained in Schedule 13D filed by Valarian Associates
dated February 9, 1998, Valarian Associates may be deemed to have sole or
shared voting power and investment power with respect to all of the shares
of Common Stock reported for Valarian Associates. Valarian Associates has an
address at 1726 Cedar Wood Drive, Minden, Nevada 89423.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers, directors and
persons owning more than 10% of the Company's Common Stock ("Reporting Persons")
to file reports of ownership and reports of changes of ownership with the
Securities and Exchange Commission. Reporting Persons are required to furnish
the Company with copies of all Section 16(a) forms that they file. Based solely
upon a review of copies of these filings received, the Company believes that
with respect to the fiscal year ended June 27, 1998 ("Fiscal 1998"), all
required filings during this period were made on a timely basis.
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ITEM 1 -- ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three classes, as
nearly equal in number as possible. Each class serves three years, with the
terms of office of the respective classes expiring in successive years. The term
of office of directors in Class I expires at the 1998 Annual Meeting. The Board
of Directors proposes that the nominees described below be elected to Class I
for a new term of three years and until their successors are duly elected and
qualified. The Board of Directors has no reason to believe that any of the
nominees will not serve if elected, but if any of them should become unavailable
to serve as a director, and if the Board designates a substitute nominee, the
persons named as proxies will vote for the substitute nominee designated by the
Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE SLATE OF NOMINEES
DESCRIBED BELOW.
CLASS I -- DIRECTORS STANDING FOR ELECTION
JOSEPH S. MONTGOMERY, Director since 1971
Joseph S. Montgomery, 58, founded Cannondale in 1971 and has been its
Chairman, President and Chief Executive Officer and a director since its
formation. Mr. Montgomery is the father of James Scott Montgomery, who is also a
director.
MICHAEL J. STIMOLA, Director since 1995
Michael J. Stimola, 41, is the President of Sandvick Associates, Inc.,
("Sandvick") a design and construction company headquartered in Bethel,
Connecticut. See "Certain Relationships and Related Transactions." Mr. Stimola
is also the founder, Chief Executive Officer and President of Sandella's Coffee
Cafe, Inc. ("Sandella's") a company formed in 1994, of which Mr. Joseph
Montgomery is the majority stockholder. Sandella's owns, operates and franchises
upscale gourmet quick-service restaurants.
CLASS II -- TERM EXPIRES AT THE 1999 ANNUAL MEETING
JOHN SANDERS, Director since 1998
John Sanders, 50, has been Senior Vice President and General Counsel of the
New York Islanders Hockey Club, L.P. since June 1998. Previously, Mr. Sanders
was a member of the law firm of Levett, Rockwood & Sanders Professional
Corporation ("Levett Rockwood") since 1981. Levett Rockwood provides certain
legal services for the Company. Mr. Sanders was elected to the Board of
Directors by the unanimous vote of the directors on June 15, 1998. Mr. Sanders
was also appointed to the Audit Committee, the Compensation Committee and the
Stock Option Plan Administrative Committee (the "Administrative Committee") of
the Board of Directors on such date.
JAMES SCOTT MONTGOMERY, Director since 1994
James Scott Montgomery, 37, is a private investor and provides consulting
services to the Company. He was the Vice President of Marketing of the Company
from 1993 to June 1997. His previous positions with the Company include founder
and President of the Sales and Trading Divisions of Cannondale Japan KK (1991 to
1993), co-founder and Managing Director of Cannondale Europe (1989 to 1991) and
Director of Purchasing. Mr. Montgomery is the son of Joseph S. Montgomery, the
Company's Chairman, President and Chief Executive Officer.
JOHN H.T. WILSON, Director since 1997
John H.T. Wilson, 64, is an Advisory Director within the Investment Banking
Division of Morgan Stanley Group Inc. Mr. Wilson has been employed in various
investment banking capacities with Morgan Stanley since 1960.
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CLASS III -- TERM EXPIRES AT THE 2000 ANNUAL MEETING
WILLIAM A. LUCA, Director since 1994
William A. Luca, 55, joined Cannondale in January 1994 as Vice President of
Finance, Treasurer and Chief Financial Officer. Prior to joining the Company, he
served as a management consultant from 1989 to 1993, including consulting for
the Company between August and December 1993. From 1980 to 1989 Mr. Luca was
employed by Dual-Lite, Inc., a manufacturer of emergency lighting systems, as
Chief Financial Officer (1980-1983), President and Chief Operating Officer
(1983-1986) and President and Chief Executive Officer (1986-1989).
DANIEL C. ALLOWAY, Director since 1998
Daniel C. Alloway, 39, has held a number of positions since joining
Cannondale in 1982. He is currently the Vice President of Sales-United States
and Vice President of European Operations (March 1994 to the present). His
previous positions with the Company included Managing Director of Cannondale
Europe B.V. ("Cannondale Europe") (1992 to 1994), Director of Sales and
Marketing (1990 to 1992) and National Sales Manager (1987 to 1990). Mr. Alloway
was elected to the Board of Directors by the unanimous vote of the directors on
June 15, 1998.
DIRECTORS' REMUNERATION; ATTENDANCE
Directors who are also full-time employees of the Company receive no
additional compensation for serving as a director. During Fiscal 1998, each
non-employee director received a quarterly payment of $1,500, plus $1,000 for
each day on which the member attended a meeting of the Board of Directors or a
committee, together with reimbursement of actual expenses incurred in attending
meetings. Upon election to the Board of Directors, non-employee directors are
granted 1,000 options to purchase the Common Stock of the Company, which are
immediately exercisable, at an exercise price per share equal to the fair market
value of a share of Common Stock at the time of grant.
The Board of Directors met ten times during Fiscal 1998. No director
attended fewer than 75% of the total number of meetings of the Board and
committees on which such director served.
COMMITTEES OF THE BOARD
At its December 1994 meeting, the Board established standing Compensation
and Audit Committees. The Compensation Committee is composed of Messrs. Sanders,
Wilson, Stimola and Joseph Montgomery. The Audit Committee is composed of
Messrs. Sanders, Wilson and Stimola.
The Compensation Committee's functions are to review and set the
compensation, including salary, bonuses, stock options and other incentive
compensation, of the Company's Chief Executive Officer and certain of its most
highly compensated officers, and to recommend to the Board of Directors
incentive compensation, retirement or other similar plans benefiting directors,
officers and other key employees of the Company. The Compensation Committee met
ten times during Fiscal 1998.
The Audit Committee's functions are to review financial and auditing issues
of the Company, including the Company's choice of independent public accounting
firms, and to make recommendations to the Board of Directors. The Audit
Committee met four times during Fiscal 1998.
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EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON COMPENSATION OF EXECUTIVE OFFICERS OF THE
COMPANY
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
Executive Officer Compensation
The Company's compensation program for executive officers and the Company's
management team consists of three key elements: a base salary, a profit-sharing
bonus (a discretionary annual bonus) and grants of stock options, in addition to
benefit plans. The Compensation Committee believes that this approach best
serves the interests of stockholders by ensuring that executive officers are
compensated in a manner that advances both the short- and long-term interests of
stockholders.
Total Cash Compensation -- Salary and Profit-Sharing Bonus. Salaries paid
to executive officers are reviewed annually by the Chief Executive Officer based
upon his subjective assessment of the nature of the position, and the
contribution, experience and Company tenure of the executive officer. The Chief
Executive Officer reviews his salary recommendations for all executive officers
with the Compensation Committee, which is responsible for approving or
disapproving those recommendations. In addition, the Chief Executive Officer
makes recommendations to the Compensation Committee as to profit-sharing
bonuses, if any, to be paid to individual executive officers, based upon his
evaluation of each executive officer's contribution to Company performance.
Stock Options. The Company's 1994 Stock Option Plan, 1994 Management Stock
Option Plan, 1995 Stock Option Plan and 1996 Stock Option Plan authorize the
Administrative Committee of non-employee directors to grant options to
executives, directors, employees, consultants and advisors of the Company. The
Administrative Committee is composed of the three non-employee directors on the
Compensation Committee. Option grants are made from time to time to executives
whose contributions are perceived to have had or to be likely to have a
significant impact on the Company's performance.
Repricing. During the course of Fiscal 1998, the Company implemented
certain repricings of existing stock options. The Compensation Committee is very
much aware of the general resistance in certain segments of the investor
community to option repricings. Although sensitive to such concerns, the
Compensation Committee is forced to deal with the reality that in the current
environment, experienced management and valuable employees have multiple
opportunities available to them. Stock options are one of the principal
incentives for employees and if such options have an exercise price above the
current value of the Company's Common Stock, the value of such options as a
motivating and retention factor is substantially reduced. It is very difficult
to retain employees when they are presented with other employment opportunities
with stock options which are not "underwater." At the same time, in considering
whether to reprice options, the Company must weigh, on the one hand, the direct
and indirect costs of attracting and incentivizing replacement management and
other employees, to, on the other hand, the cost to the Company of the repriced
options needed to keep employees or management who might otherwise leave due to
the lower option incentives. On balance, the Compensation Committee believed the
repricings to be in the best interest of the stockholders of the Company.
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The following table sets forth historical information about the repricing
during the last ten fiscal years of stock options granted to the Company's
executive officers.
NUMBER OF MARKET LENGTH OF
SECURITIES PRICE OF EXERCISE ORIGINAL
UNDERLYING STOCK AT PRICE AT OPTION TERM
OPTIONS TIME OF TIME OF NEW REMAINING AT
DATE OF REPRICED OR REPRICING OR REPRICING OR EXERCISE TIME OF
NAME AND PRINCIPAL POSITION REPRICING(1)(2)(3) AMENDED AMENDMENT AMENDMENT PRICE REPRICING
--------------------------- ------------------ ----------- ------------ ------------ -------- ----------------
Joseph S. Montgomery............ June 15, 1998 40,000 $12.50 $15.00 $15.00 7 Years 127 Days
Chairman, President and Chief June 15, 1998 50,000 $12.50 $13.00 $13.00 6 Years 153 Days
Executive Officer
William A. Luca................. March 27, 1998 50,000 $16.50 $18.75 $16.50 8 Years 254 Days
Vice President of Finance, March 27, 1998 36,697 $16.50 $21.31 $16.50 9 Years 189 Days
Treasurer and Chief June 15, 1998 40,000 $12.50 $15.00 $15.00 7 Years 127 Days
Financial Officer June 15, 1998 24,715 $12.50 $16.50 $16.50 7 Years 280 Days
June 15, 1998 50,000 $12.50 $16.50 $16.50 8 Years 174 Days
June 15, 1998 36,697 $12.50 $16.50 $16.50 9 Years 109 Days
June 15, 1998 60,000 $12.50 $13.00 $13.00 6 Years 153 Days
June 15, 1998 35,000 $12.50 $16.56 $16.56 9 Years 290 Days
Daniel C. Alloway............... March 27, 1998 50,000 $16.50 $18.75 $16.50 8 Years 254 Days
Vice President of Sales- June 15, 1998 25,000 $12.50 $15.00 $15.00 7 Years 127 Days
United States and Vice June 15, 1998 63,091 $12.50 $16.50 $16.50 7 Years 280 Days
President
of European Operations June 15, 1998 50,000 $12.50 $16.50 $16.50 9 Years 286 Days
June 15, 1998 20,000 $12.50 $13.00 $13.00 6 Years 153 Days
June 15, 1998 15,000 $12.50 $16.56 $16.56 9 Years 290 Days
Leonard J. Konecny.............. March 27, 1998 20,000 $16.50 $18.75 $16.50 8 Years 254 Days
Vice President of Purchasing June 15, 1998 2,250 $12.50 $15.63 $15.63 7 Years 105 Days
June 15, 1998 15,000 $12.50 $16.50 $16.50 7 Years 280 Days
June 15, 1998 20,000 $12.50 $16.50 $16.50 8 Years 174 Days
June 15, 1998 1,667 $12.50 $13.00 $13.00 6 Years 153 Days
June 15, 1998 20,000 $12.50 $16.56 $16.56 9 Years 290 Days
Mario M. Galasso................ March 27, 1998 20,000 $16.50 $18.75 $16.50 8 Years 254 Days
Vice President of Product March 27, 1998 20,000 $16.50 $17.63 $16.50 8 Years 162 Days
Development June 15, 1998 5,000 $12.50 $15.63 $15.63 7 Years 105 Days
June 15, 1998 3,000 $12.50 $13.00 $13.00 6 Years 153 Days
June 15, 1998 15,000 $12.50 $16.56 $16.56 9 Years 290 Days
June 15, 1998 8,900 $12.50 $16.50 $16.50 7 Years 280 Days
June 15, 1998 40,000 $12.50 $16.50 $16.50 9 Years 286 Days
John P. Moriarty................ March 27, 1998 10,000 $16.50 $18.75 $16.50 8 Years 254 Days
Director of Accounting June 15, 1998 2,500 $12.50 $15.00 $15.00 7 Years 127 Days
June 15, 1998 10,000 $12.50 $13.00 $13.00 6 Years 153 Days
June 15, 1998 10,000 $12.50 $16.50 $16.50 8 Years 174 Days
June 15, 1998 4,250 $12.50 $16.50 $16.50 7 Years 280 Days
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(1) On March 27, 1998, an aggregate of 509,426 options to purchase Common Stock
with exercise prices in excess of $16.50 were canceled and new options were
issued in replacement thereof with exercise prices of $16.50 and terms
identical to those canceled. These new options are no longer outstanding
due to the June 15, 1998 repricing.
(2) In February 1998, the Company amended its stock option plans to include a
provision whereby upon a change of control, as defined by the plans, any
option granted and outstanding shall immediately become vested. On June 15,
1998, an aggregate of 1,430,652 options to purchase Common Stock with
exercise prices in excess of $12.50 were canceled and new options were
issued with the same exercise prices and terms as the old options;
provided, however, that in the event of a change of control, the exercise
price of the new options would be $12.50 (the fair value of the Company's
common stock at the time of the grant). These new options are no longer
outstanding due to the September 3, 1998 repricing.
(3) On September 3, 1998, an aggregate of 1,460,052 options to purchase Common
Stock, including options granted to the executive officers of the Company,
with exercise prices in excess of $9.31 were canceled and new options were
issued in replacement thereof with exercise prices of $9.31 and terms
identical to those canceled. The table does not reflect this repricing.
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Chief Executive Officer Compensation
Mr. Joseph Montgomery's compensation as Chief Executive Officer is composed
of the same elements and performance measures as the Company's other senior
executives. The Compensation Committee believes that Mr. Montgomery's total
compensation reflects the unique contributions that he makes to the Company's
performance as an innovative leader in the bicycle industry. He was not awarded
a profit-sharing bonus in the fiscal year ended June 28, 1997 ("Fiscal 1997").
He was awarded a profit-sharing bonus of $67,391 in Fiscal 1998 based on
corporate profitability in Fiscal 1997, and he was awarded a profit-sharing
bonus of $62,000 in Fiscal 1999 based on corporate profitability in Fiscal 1998.
The Compensation Committee believes that such compensation is appropriate based
on the Company's performance, including its earnings, revenue growth and cash
flow from operations.
Members of the Compensation Committee
Joseph S. Montgomery
John Sanders
Michael J. Stimola
John H.T. Wilson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company has a Compensation Committee. During
Fiscal 1998, the Compensation Committee included Tarek Abdel-Meguid, Michael
Carter, Michael J. Stimola, John Sanders, John H.T. Wilson and Joseph Montgomery
as members. During Fiscal 1998, Messrs. Carter and Abdel-Meguid ceased to be
directors of the Company and John Sanders was elected to the Board of Directors
and appointed to the Compensation Committee. During the last fiscal year, Joseph
Montgomery, the Company's Chairman, President and Chief Executive Officer
participated in discussions with members of the Compensation Committee
concerning executive officer compensation.
Joseph Montgomery and William Luca serve as directors of Sandella's, a
company formed in 1994, of which Mr. Stimola is the founder, President and Chief
Executive Officer. Sandella's owns, operates and franchises upscale gourmet
quick-service restaurants.
Joseph Montgomery is the sole shareholder of JSM, Inc. ("JSM"). JSM entered
into a commitment during the Company's 1998 fiscal year to sell its Cessna
Citation Jet aircraft and option to buy a Learjet aircraft to the Company. See
"Certain Relationships and Related Transactions."
Levett Rockwood, of which John Sanders was a partner, acted as counsel to
the Company in Fiscal 1998 and continues to perform certain legal services for
the Company. Mr. Sanders is no longer affiliated with Levett Rockwood.
Sandvick, of which Mr. Stimola is the President and majority stockholder,
has been the construction manager and general contractor for several
construction projects of the Company, including the construction of the
Company's new headquarters and an expansion project at the Company's Bedford,
Pennsylvania facility, both of which were completed during Fiscal 1998. In
addition, the Company has entered into a contract with Sandvick to build a
production facility for the Company's motocross motorcycle and clothing line.
See "Certain Relationships and Related Transactions."
Joseph Montgomery is the sole manager, and Joseph Montgomery and Sandvick
are each members, of Nantucket Roost Associates, LLC ("Nantucket Roost"), which
purchased the Company's previous headquarters facility for approximately $1.7
million. See "Certain Relationships and Related Transactions."
During the Company's 1998 fiscal year, the Company provided Joseph
Montgomery with certain loans. See "Certain Relationships and Related
Transactions."
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EXECUTIVE COMPENSATION SUMMARY TABLE
The following table sets forth certain information with respect to the
compensation paid by the Company for services rendered to the Company in all
capacities during Fiscal 1998, 1997 and 1996 to its Chief Executive Officer and
the Company's other most highly compensated executive officers whose aggregate
cash and cash equivalent compensation exceeds $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS(3)
------------
ANNUAL COMPENSATION(1) SECURITIES
---------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) OPTIONS
- --------------------------- ---- --------- --------- ------------
Joseph S. Montgomery.............................. 1998 $287,616 $67,391 0
Chairman, President and Chief Executive Officer 1997 278,471 0 0
1996 251,304 50,000 40,000
William A. Luca................................... 1998 247,252 67,391 158,394(5)
Vice President of Finance, Treasurer and Chief 1997 233,100 75,000 50,000
Financial Officer 1996 233,100 50,000 64,715
Daniel C. Alloway................................. 1998 150,000 44,927 65,000(5)
Vice President of Sales -- United States and 1997 148,462 50,000 50,000
Vice President of European Operations 1996 130,000 30,000 88,091
Richard J. Resch(4)............................... 1998 121,796 31,449 15,000
Former Vice President for Technology Development 1997 139,000 35,000 0
1996 139,000 25,000 25,000
Leonard J. Konecny................................ 1998 108,077 22,464 40,000(5)
Vice President of Purchasing 1997 97,500 25,000 20,000
1996 92,981 15,000 17,250
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(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or ten percent of the total
annual salary and bonus reported for the executive officer during the Fiscal
years ended June 27, 1998, June 28, 1997 and June 29, 1996.
(2) Profit-sharing bonuses paid in Fiscal 1998 were based on corporate
profitability in Fiscal 1997. Profit-sharing bonuses based on corporate
profitability in Fiscal 1998, payable in Fiscal 1999, for Messrs. Joseph
Montgomery, Luca, Alloway and Konecny will be $62,000, $62,000, $45,000 and
$23,000, respectively.
(3) The Company did not grant any restricted stock awards or stock appreciation
rights during the fiscal years ended June 27, 1998, June 28, 1997 or June
29, 1996. The Company does not have any long-term incentive plan.
(4) Richard J. Resch resigned from the Company May 22, 1998 as Vice President
for Technology Development and served as a consultant during the remainder
of Fiscal 1998, but was one of the most highly compensated executive
officers during Fiscal 1998.
(5) Includes the replacement of 86,697, 50,000 and 20,000 options that were
previously granted to Messrs. Luca, Alloway and Konecny, respectively, and
canceled pursuant to the repricing of options on March 27, 1998.
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The following table sets forth certain information regarding stock options
granted during Fiscal 1998 by the Company to the executive officers named in the
Summary Compensation Table above.
OPTION GRANTS IN FISCAL YEAR 1998
INDIVIDUAL GRANTS POTENTIAL
----------------------------------------------------- REALIZABLE VALUE
PERCENT OF ASSUMED ANNUAL
NUMBER OF OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE(3) DATE 5% 10%
---- ---------- ------------ ------------ ---------- -------- ----------
Joseph S. Montgomery......... 0 0% $ 0.00 -- $ 0 $ 0
William A. Luca.............. 36,697 4.00 21.31 10/02/07 491,804 1,246,327
35,000 3.81 16.56 03/31/08 364,507 923,733
36,697(4) 4.00 16.50 10/02/07 350,565 883,105
50,000(5) 5.45 16.50 12/06/06 426,443 1,050,416
Daniel C. Alloway............ 15,000 1.63 16.56 03/31/08 156,217 396,786
50,000(5) 5.45 16.50 12/06/06 426,443 1,050,416
Richard J. Resch............. 15,000 1.63 17.75 06/30/07 167,443 424,334
Leonard J. Konecny........... 20,000 2.18 16.56 03/31/08 208,290 527,848
20,000(5) 2.18 16.50 12/06/06 170,577 420,166
- ---------------
(1) All options vest over a five-year period from the date of grant.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based upon assumed rates of share price appreciation set by the
Securities and Exchange Commission of five percent and ten percent of the
fair value of the Common Stock on the date of grant of the options,
compounded annually from the date of grant to the option expiration dates.
The gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise. Actual
gains, if any, are dependent on the performance of the Common Stock and the
date on which the option is exercised. There can be no assurance that the
values reflected will be achieved.
(3) On September 3, 1998, an aggregate of 1,460,052 options to purchase Common
Stock, including options granted to the executive officers of the Company,
with exercise prices in excess of $9.31 were canceled and new options were
issued in replacement thereof with exercise prices of $9.31 and terms
identical to those canceled. This table does not reflect the effect of this
repricing.
(4) Grants of stock options pursuant to the repricing of options on March 27,
1998, in exchange for the cancellation of Mr. Luca's 36,697 outstanding
stock options granted on October 2, 1997.
(5) Grants of stock options pursuant to the repricing of options on March 27,
1998, in exchange for the cancellation of Messrs. Luca's, Alloway's and
Konecny's 50,000, 50,000 and 20,000, respectively, outstanding stock options
granted on December 6, 1996.
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The following table sets forth certain information with respect to the
aggregate exercises of stock options and unexercised stock options held as of
June 27, 1998, by the executive officers named in the Summary Compensation Table
above.
AGGREGATE OPTIONS EXERCISED IN FISCAL 1998 AND
FISCAL 1998 YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT JUNE 27, 1998 OPTIONS AT JUNE 27, 1998(1)
ACQUIRED ON VALUE --------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
Joseph S. Montgomery....... -- $ -- 115,416 13,334 $471,200 $0
William A. Luca............ -- -- 125,992 143,270 277,856 0
Daniel C. Alloway.......... -- -- 105,851 94,365 329,840 0
Richard J. Resch........... 21,000 296,026 36,666 0 0 0
Leonard J. Konecny......... 7,750 138,813 13,167 45,750 0 0
- ---------------
(1) The values in this column represent the closing sales price of the Company's
Common Stock on the Nasdaq National Market on June 27, 1998, $12.50, less
the respective option exercise price.
EMPLOYMENT AGREEMENTS AND SEPARATION PLAN
On January 3, 1994, the Company entered into an employment agreement with
William Luca, pursuant to which Mr. Luca agreed to serve as Chief Financial
Officer of the Company. The annual base salary to be paid under such agreement
to Mr. Luca was $150,000 per annum. The agreement may be terminated either by
Mr. Luca or the Company upon at least 14 days prior written notice, or by the
Company effective immediately for cause. The agreement also contains a
non-competition provision which requires, among other things, that Mr. Luca not
perform functions or provide the same or substantially similar services to those
performed or provided by him for the Company for any competitor of the Company
for a period of one year following the termination of his employment for any
reason.
On June 6, 1994, the Company entered into an employment agreement with
Leonard Konecny, pursuant to which Mr. Konecny agreed to serve as Vice President
of Purchasing of the Company. The annual base salary to be paid under such
agreement to Mr. Konecny was $80,000 per annum. The agreement may be terminated
either by Mr. Konecny or the Company upon at least 14 days prior written notice,
or by the Company effective immediately for cause. The agreement also contains a
non-competition provision which requires, among other things, that Mr. Konecny
not perform functions or provide the same or substantially similar services to
those performed or provided by him for the Company for any competitor of the
Company for a period of one year following the termination of his employment for
any reason.
On February 5, 1998, the Company entered into Change-of-Control Employment
Agreements with Joseph Montgomery, William Luca and Daniel Alloway (each, an
"Executive"). Each agreement is identical and provides that upon a Change of
Control (as defined in each agreement), the Company will continue to employ the
Executive for three years after the Change of Control occurs (the "Employment
Period"), unless the agreement is terminated earlier in accordance with its
terms. During the Employment Period, each Executive will receive an annual base
salary at least equal to 12 times the highest monthly base salary paid or
payable to each respective Executive for the 12-month period prior to the Change
of Control ("Annual Base Salary"). In addition, each Executive is entitled to
receive an annual profit-sharing bonus at least equal to the highest
profit-sharing bonus paid to each respective Executive in the past three fiscal
years ("Annual Bonus"). Pursuant to the terms of each agreement, each
Executive's employment with the Company may be terminated by the Executive at
any time and for any reason or no reason at all. Upon a termination of a
Change-of-Control Employment Agreement (other than for death or disability (as
defined in each agreement)), the Company shall pay to the Executive the
aggregate of the following amounts: (1) the Executive's Annual Base Salary
through the Date of Termination (as defined in each agreement) to the extent not
already paid; (2) the
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product of (x) the higher of (i) the amount of any Annual Bonus, annualized in
the event the Executive was not employed for the full fiscal year relating
thereto and (ii) the Annual Bonus paid or payable, including any bonus or
portion thereof which has been earned but deferred (and annualized for any
fiscal year consisting of less than 12 full months or during which the Executive
was employed for less than 12 full months), for the most recently completed
fiscal year during the Employment Period, if any (such higher amount being
referred to as the "Highest Annual Bonus") times (y) a fraction, the numerator
of which is the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365; (3) any compensation
previously deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the extent not
already paid; (4) the amount equal to the product of (i) three times (ii) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus;
and (5) any Gross-Up Payments (as defined in each agreement) for certain tax
obligations of the Executive. Each Executive shall also be entitled to certain
benefits and limited payments relating to specific obligations of the Company.
During the Employment Period, the Company may terminate each Executive's
employment with the Company upon an Executive's death or disability with
specified payment obligations in each instance for accrued obligations and other
benefits.
Leonard Konecny is a participant in the Company's Change-of-Control
Separation Plan A. The plan provides that Mr. Konecny will continue to be a
participant in the plan until he ceases to be employed by the Company or his
designation as a participant of the plan is rescinded by the Board of Directors.
Upon a Change of Control (as defined in the plan), the Company will be obligated
to pay Mr. Konecny, subject to certain federal tax limitations, the aggregate of
the following amounts if he is terminated for any reason other than for cause
(as defined in the plan), death or disability (as defined in the plan): (1) his
annual base salary at the time of a Change of Control ("Annual Base Salary")
through the Date of Termination (as defined in the plan) to the extent not
already paid; (2) any compensation previously deferred (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each case
to the extent not already paid; and (3) the amount equal to the product of (i)
one and one-half times (ii) Mr. Konecny's Annual Base Salary. Upon such
termination, Mr. Konecny shall also be entitled to certain benefits and limited
payments relating to specific obligations of the Company. After a Change of
Control, the Company may also terminate Mr. Konecny for death or disability with
specified payment obligations in each instance for accrued obligations.
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COMPARISON OF CUMULATIVE TOTAL RETURNS
The following graph compares the performance of the Company's Common Stock
with the performance of the Nasdaq Stock Market (U.S. Companies) Stock Price
Index (the "Nasdaq Index") and a peer group index created by the Company, over
the period from November 16, 1994 (the first day of public trading of the
Company's Common Stock) to June 27, 1998. The graph assumes that $100 was
invested on November 16, 1994, in each of the Company's Common Stock, the Nasdaq
Index and the peer group index, and that all dividends were reinvested.
The peer group index created by the Company is composed of companies in
bicycle or other recreational product lines of business. The common stock of the
following companies has been included in the peer group index: K2, Inc., Bell
Sports Corp., Callaway Golf Company, GT Bicycles, Inc., The Coleman Company,
Inc., First Team Sports, Inc., Huffy Corporation, Ride Inc. and Rockshox Inc.
PREPARED BY THE CENTER FOR RESEARCH IN SECURITY PRICES
NASDAQ STOCK SELF-
MARKET (US DETERMINED|PEER
CANNONDALE|CORPORATION COMPANIES) GROUP
6/30/94 91.394 98.011
93.269 98.285
99.215 97.938
98.962 98.367
100.906 102.698
100.000 100.000 100.000
91.818 97.559 94.170
74.545 97.832 95.292
88.182 98.381 94.837
94.545 103.584 98.194
90.909 106.655 95.183
110.909 110.014 88.360
114.545 112.852 93.771
6/23/95 101.818 122.716 91.804
127.273 130.966 100.512
119.091 133.621 100.506
120.000 136.694 99.104
116.364 135.910 96.766
103.636 139.101 106.211
115.455 138.360 115.561
110.000 139.042 106.936
112.727 144.334 120.218
133.636 144.812 127.951
161.818 156.826 131.774
160.000 164.027 140.875
6/28/96 147.273 156.633 142.150
143.636 142.686 126.349
132.727 150.681 131.812
169.091 162.206 131.227
140.000 160.414 118.178
140.000 170.331 120.936
163.636 170.177 116.844
169.091 182.273 126.107
148.182 172.191 121.249
134.545 160.949 112.659
141.818 165.981 118.903
127.273 184.791 128.592
6/27/97 130.455 189.771 139.424
129.091 210.553 136.398
129.091 210.231 131.606
163.636 222.669 133.566
160.909 211.137 122.480
151.364 212.195 118.848
158.182 208.805 113.227
147.727 215.356 104.222
149.545 235.575 127.886
120.455 244.263 137.852
115.455 248.401 117.790
102.727 234.779 98.963
6/26/98 90.909 247.848 83.667
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Joseph Montgomery is the sole shareholder of JSM. JSM owned a Cessna
Citation Jet aircraft that it leased to the Company from March 1995 through June
30, 1998. The Company made rental payments of $300,000 to JSM pursuant to such
lease during Fiscal 1998. On June 30, 1998, the Company purchased the Cessna
Citation Jet aircraft from JSM for $2.8 million (which was determined by the
Company based on independent valuations of the market value of the aircraft) and
terminated its lease with JSM. The Company also assumed the obligations of JSM
Aviation, LLC ("JSM LLC"), a Connecticut limited liability company in which Mr.
Montgomery and Michael Stimola are each members, as sublessee under a hangar
lease which houses the Cessna Citation Jet aircraft. As part of the assumption
of the hangar lease obligations, the Company reimbursed JSM LLC $160,922 for the
cost of certain leasehold improvements made to the hangar by JSM LLC. The
Company currently uses the Cessna Citation Jet aircraft largely for transporting
personnel between its Connecticut headquarters and its Pennsylvania
manufacturing facility and anticipates that it will have an increased need for
an aircraft in connection with the growth of the business.
In connection with the purchase of the Cessna Citation Jet aircraft, the
Company also purchased, for $500,000, JSM's right to acquire a Learjet aircraft.
JSM had entered into a contract with Learjet, Inc. ("Learjet") to purchase an
aircraft and had paid Learjet $500,000 as a deposit with respect to such
purchase. The Company has assumed JSM's rights and obligations under this
contract. In connection with these transactions, JSM obtained a right of first
refusal with respect to the Cessna Citation Jet aircraft and the Learjet
aircraft under certain limited circumstances. It is not the intent of the
Company to own both the Cessna Citation Jet aircraft and the Learjet aircraft
simultaneously.
The Company has entered into an agreement with Joseph Montgomery pursuant
to which he agrees to pay the Company for any personal use of the Company's
Cessna Citation Jet aircraft. This agreement does not require the Company to
make the aircraft available to Mr. Montgomery, but governs payments to be made
by Mr. Montgomery for such personal use as may be agreed to by the Company from
time to time. Payment for such personal use is at the rate established from time
to time by the Internal Revenue Service as reasonable for personal use of
employer-owned aircraft. During Fiscal 1998, Mr. Montgomery's personal use of
the aircraft was valued at $34,924.
Sandvick, of which Mr. Stimola is the President and majority stockholder,
has been the construction manager and general contractor for several
construction projects of the Company in Connecticut and Pennsylvania, including
construction projects at the Company's new headquarters and its Bedford,
Pennsylvania facility. In Fiscal 1998, the Company paid Sandvick $3.0 million
for the construction of the Company's new headquarters and $2.6 million for the
construction project at the Company's Bedford, Pennsylvania facility.
In Fiscal 1997, in connection with the construction of the Company's new
headquarters facility, Sandvick entered into a contract to purchase the then
existing headquarters facility for approximately $1.7 million. Sandvick
subsequently assigned the contract to purchase the existing headquarters
facility to Nantucket Roost, which purchased the property in October 1996. Mr.
Montgomery is the sole manager, and Mr. Montgomery and Sandvick are each
members, of Nantucket Roost. Pending its relocation to the new headquarters
facility, the Company continued to occupy the old facility and paid Nantucket
Roost $16,000 per month, pursuant to a month-to-month net lease.
In Fiscal 1998, the Company authorized the purchase of 23.9 acres of land
in Bedford, Pennsylvania. The Company intends to use such land to construct a
100,000 square foot production facility for the Company's motocross motorcycle
and clothing line. In August 1998, upon the closing of the purchase of this new
property, the Company retained Sandvick as general contractor for the
construction of the new facility. The cost of the new facility is estimated to
be approximately $7.5 million, of which approximately 13% will be financed by
the Pennsylvania Industrial Development Authority.
During Fiscal 1998, John Sanders was a partner in the law firm of Levett
Rockwood. Levett Rockwood acted as counsel to the Company in the fiscal year
ended June 27, 1998 and continues to perform certain legal services for the
Company. Mr. Sanders is no longer affiliated with Levett Rockwood.
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In Fiscal 1997, the Company agreed to provide up to $450,000 in
interest-free loans to William Luca to enable him to purchase a home in the
vicinity of the Company's headquarters. As of September 25, 1998, $450,000 had
been advanced to Mr. Luca. The loans mature on December 29, 2006, at which time
the entire principal balance is due. The loans are secured by a mortgage on Mr.
Luca's residence.
In Fiscal 1997, the Company agreed to provide up to $125,000 in
interest-free loans to Leonard Konecncy to enable him to purchase a home in the
vicinity of the Company's headquarters. As of September 25, 1998, $125,000 had
been advanced to Mr. Konecny. The loans mature on September 1, 2007, at which
time the entire principal balance is due. The loans are secured by a mortgage on
Mr. Konecny's residence.
In April 1998, the Company provided Joseph Montgomery with a loan in the
principal amount of $2,000,000 to enable him to meet certain tax obligations. In
June 1998, the Company agreed to provide Mr. Montgomery with an additional loan
in the principal amount of $10,000,000 for the purchase of certain real
property, which loan was combined with the previous $2,000,000 loan made in
April 1998. As of September 25, 1998, $12,090,496, including interest accrued
but not yet due, was outstanding on the combined loan. The loan matures on
August 1, 2003, at which time the entire principal balance is due. The interest
rate on the loan is set at the prime rate as published in the Wall Street
Journal from time to time, and the loan is secured by a pledge to the Company of
all of the shares of the Company's Common Stock held by Mr. Montgomery and by a
mortgage on such real property.
The Board of Directors of the Company believes that the terms of the
transactions described above (other than those involving loans to employees)
were on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties; and that the transactions involving loans to
employees were fair and reasonable under the circumstances. The Company
anticipates that future transactions with affiliated parties will be approved by
a majority of the Company's disinterested directors and will be on terms no less
favorable to the Company than those that could be obtained from unaffiliated
parties.
ITEM 2 -- APPROVAL OF 1998 STOCK OPTION PLAN
On August 12, 1998, the Board of Directors (the "Board") adopted, subject
to approval by the Company's stockholders, the 1998 Stock Option Plan (the
"Plan"). The Plan authorizes the grant of non-qualified stock options
("Options") to employees, officers, advisors and consultants of the Company and
its subsidiaries. The following description of the Plan is intended merely as a
summary of its principal features and is qualified in its entirety by reference
to the Plan, a copy of which may be requested from the Company.
PURPOSE AND ELIGIBILITY
The purpose of the Plan is to encourage stock ownership by employees,
officers, advisors and consultants of the Company and its subsidiaries, to
provide an incentive for such individuals to improve the profits of the Company
and its subsidiaries, to assist the Company in attracting, retaining and
motivating those individuals who will largely be responsible for enhancing the
profitability, growth and stockholder value of the Company, and to attract
qualified individuals to provide services as consultants and advisors to the
Company and its subsidiaries.
To carry out this purpose, Options may be granted under the Plan to present
and future employees, officers, advisors and consultants of the Company or a
subsidiary of the Company ("Subsidiary") within the meaning of Section 424(f) of
the Internal Revenue Code of 1986, as amended (the "Code"). As of the date
hereof, the Company estimates that approximately 1,041 employees, including
officers, are eligible to participate, although this number is subject to
increase or decrease in the future.
TERM OF THE PLAN
Assuming stockholder approval of the Plan, the Plan will continue in effect
until December 31, 2008. The Board may suspend or terminate the Plan, but not
outstanding Options, at any time.
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SHARES RESERVED
A maximum of 1,000,000 shares of Common Stock may be issued pursuant to
Options granted under the Plan, and the Board of Directors has reserved such
number of shares for this purpose.
ADMINISTRATION; AMENDMENT AND TERMINATION
The Plan will be administered by a committee (the "Committee") consisting
of at least two directors appointed by the Board who qualify as "non-employee
directors," as the term is defined in Rule 16b-3(b)(3) under the Exchange Act.
Under the terms of the Plan, the Committee has full and final authority to take
any and all action with respect to administration of the Plan, including,
without limitation, the selection of individuals to be granted Options, the
number of shares of Common Stock subject to an Option, the exercise price per
share (which may not be less than 100% of the fair market value (as defined in
the Plan) of a share of Common Stock), vesting schedules, exercise periods and
other terms and conditions of each Option.
The Plan may be amended or terminated at any time by the Board of
Directors, subject to the following: (i) no amendment or termination may
adversely affect the rights of an Option recipient without the recipient's
consent; and (ii) stockholder approval is required of any amendment that would
increase the number of shares issuable under the Plan (except to the extent of
adjustments, as discussed below), materially increase the benefits under the
Plan or materially change the requirements for eligibility to receive an Option.
OPTION AWARDS
The Plan authorizes the grant of Options, exercisable for shares of Common
Stock, to present and future employees, officers, advisors and consultants (each
person receiving such grant is referred to herein as an "Optionee"). The
Optionee may exercise Options by written notice to the Company upon such terms
and conditions as the Plan provides. The exercise price of an Option (as
determined by the Committee at the time of grant) is payable in full upon
exercise of the Option, and may be paid in cash, shares of Common Stock already
owned by the Optionee for a period of more than six months or by any other means
the Committee approves, or a combination thereof.
Subject to the terms of the Plan and to any conditions, including vesting
requirements, imposed by the Committee at the time of the grant, no Option will
become exercisable unless the person to whom the Option was granted remains in
the continuous employ or service as an employee or officer of the Company or a
Subsidiary for at least one year from the date the Option is granted; provided,
however, that in the case of an Option granted to a consultant or advisor, there
shall be no requirement of continued provision of services, unless imposed by
the Committee at the time of grant. In the event of the death or permanent
disability of the Optionee, Options may be exercised up to one year after the
date of termination of employment or service. Outstanding Options will terminate
no later than three months after the date of termination of employment or
service for any reason other than death or disability. Notwithstanding the
foregoing, Options granted to consultants or advisors will not terminate upon
their death, disability or termination of services unless the Committee so
provides at the time an Option is granted.
As a condition to exercising an Option, the Optionee must enter into a
stockholders award agreement (the "Stockholder Award Agreement") covering the
stock to be acquired. Among other provisions, the Stockholder Award Agreement
grants to the Company the right to repurchase the stock upon the termination of
employment or service for any reason or upon the intended disposition of the
stock to a third party. Any such repurchase is to be at a price (the "Formula
Price") based upon the weighted average earnings of the Company for the three
prior fiscal years. This repurchase right would not be applicable at any time
when the Common Stock is publicly traded.
ESTIMATE OF BENEFITS
The number of Options to be awarded, the exercise price and the other terms
and conditions of each Option are all determined at the discretion of the
Committee, pursuant to the Plan. Therefore, no estimated
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benefits are determinable at this time. As of September 25, 1998, the closing
sales price of the Company's Common Stock was $9.75.
ADJUSTMENTS UPON CHANGES IN COMMON STOCK; REORGANIZATION, MERGER,
CONSOLIDATION, CHANGE OF CONTROL
The number of shares reserved for issuance under the Plan may be adjusted
in the event of an adjustment in the capital structure of the Company or a
related corporation affecting the Common Stock (due to stock split, stock
dividend or similar event). Adjustments shall be made by the Board of Directors,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final and conclusive. No fractional shares of Common Stock
shall be issued under the Plan on account of any such adjustment.
The Plan further provides that, in the event of a merger, consolidation or
other specified corporate transaction, wherein the stockholders of the Company
receive capital stock of another corporation ("Exchange Stock") in exchange for
their shares of Common Stock, all Options granted under the Plan may be
converted into Options to purchase shares of Exchange Stock, unless the Company
and the corporation issuing the Exchange Stock, in their sole discretion,
determine otherwise.
Upon a change of control, as described below, any option granted under the
Plan shall immediately become vested, and the optionee shall have the right to
exercise his or her option so long as such option remains outstanding, whether
or not any other vesting requirements set forth in the option agreement have
been satisfied. A "Change of Control" is defined as: (1) the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the
outstanding Common Stock of the Company or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors; (2) the cessation for any reason of the individuals
who constitute the Board of Directors as of the date of the Plan ("Incumbent
Board") to constitute at least a majority of the Board of Directors; provided,
however, that any individual becoming a director subsequent to the date of the
Plan whose election, or nomination for election by the stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board; (3) the approval by the stockholders of a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), unless following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the outstanding Common
Stock and outstanding voting securities of the Company immediately prior to such
Business Combination would beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of Common Stock and the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination in substantially the
same proportions as their ownership, immediately prior to such Business
Combination, of the outstanding Common Stock and outstanding voting securities
of the Company; (ii) no Person beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination; and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or (4) the
approval by the stockholders of the Company of a complete liquidation of
dissolution of the Company.
NONTRANSFERABILITY; DIVIDEND AND VOTING RIGHTS
The terms of the Plan provide that Options are not transferable other than
by will or applicable laws of descent and distribution, and each Option may be
exercised during the Optionee's lifetime only by the Optionee.
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An Optionee will not be deemed to be the holder of any shares subject to an
Option unless and until he or she validly exercises the Option and the
certificate for such shares is issued to him or her under the Plan. Shares
subject to an Option shall have no voting, dividend or other rights until such
exercise and issuance of a certificate.
FEDERAL INCOME TAX CONSEQUENCES
Under present federal tax laws and regulations, the federal income tax
consequences to the Company and the recipients of the Options pursuant to the
Plan are as described below. The following discussion is only a brief summary of
such tax consequences, is not intended to be all inclusive and, among other
things, does not cover possible state, local or foreign tax consequences.
In general, a recipient of an Option will not be subject to federal income
tax upon the grant of such Option. The exercise of an Option, however, will
generally result in tax consequences to the recipient and the Company. Upon the
exercise of an Option, the difference between the fair market value of the
Common Stock on the date of exercise and the Option exercise price will
constitute taxable ordinary income to the recipient on the date of the exercise.
The Company generally will be entitled to a deduction in the same year in an
amount equal to the ordinary income recognized by the recipient.
The recipient's basis in shares of Common Stock acquired upon exercise of
an Option will equal the Option exercise price plus the amount of income taxable
at the time of exercise. Any subsequent disposition of the stock by the
recipient will be taxed as a capital gain or loss to the recipient and will be
long-term capital gain or loss if the recipient has held the stock for more than
one year at the time of the sale.
Pursuant to the terms of the Plan, the Board will require any recipient of
shares of Common Stock pursuant to an exercise of an Option to pay the Company,
in cash, the amount of any tax or other amount required by any government
authority to be withheld and paid over by the Company to such authority for the
account of the recipient, unless the recipient has made other arrangements
satisfactory to the Company regarding such payment.
STOCKHOLDER APPROVAL
The Plan requires stockholder approval by an affirmative vote of a majority
of the shares of Common Stock represented in person or by proxy and entitled to
vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 1998 STOCK
OPTION PLAN.
ITEM 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Company has appointed Ernst & Young LLP as the Company's independent
accountants for the fiscal year ending July 3, 1999 ("Fiscal 1999"). Ernst &
Young LLP has served as the Company's independent accountants since 1993.
Services provided to the Company and its subsidiaries by Ernst & Young LLP with
respect to Fiscal 1998 included the audit of the Company's consolidated
financial statements, limited reviews of quarterly reports, services related to
filings with the Securities and Exchange Commission and consultations on various
tax matters. Representatives of Ernst & Young LLP will be present at the Annual
Meeting to respond to appropriate questions and to make such statements as they
may desire.
Ratification of the appointment of Ernst & Young LLP as the Company's
independent accountants for Fiscal 1999 will require the affirmative vote of a
majority of the shares of Common Stock represented in person or by proxy and
entitled to vote at the Annual Meeting. In the event stockholders do not ratify
the appointment of Ernst & Young LLP as the Company's independent accountants
for the forthcoming fiscal year, such appointment will be reconsidered by the
Audit Committee and the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR
FISCAL 1999.
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OTHER MATTERS
As of the date of this proxy statement, the Company knows of no business
that will be presented for consideration at the Annual Meeting other than the
items referred to above. Proxies in the enclosed form will be voted in respect
of any other business that is properly brought before the Annual Meeting in
accordance with the judgment of the person or persons voting the proxies.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the Company's
1999 Annual Meeting of Stockholders must be received by the Secretary of the
Company, for inclusion in the Company's proxy statement relating to the 1999
Annual Meeting, by June 4, 1999. In accordance with the advance notice
provisions contained in the Company's Bylaws, the Company must receive notice of
a stockholder's intent to propose any other business at an annual meeting no
later than the close of business on the 60(th) day and no earlier than the close
of business on the 90(th) day prior to the proxy solicitation applicable to such
meeting.
ADDITIONAL INFORMATION
The cost of soliciting proxies in the enclosed form will be borne by the
Company. Officers and regular employees of the Company may, but without
compensation other than their regular compensation, solicit proxies by further
mailing or personal conversations, or by telephone, telex or facsimile. The
Company will, upon request, reimburse brokerage firms and others for their
reasonable expenses in forwarding solicitation material to the beneficial owners
of stock.
October 2, 1998
By Order of the Board of Directors
/s/ John T. Capetta
John T. Capetta
Secretary
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APPENDIX A
CANNONDALE CORPORATION
1998 STOCK OPTION PLAN
1. Purpose. The purpose of the Cannondale Corporation 1998 Stock Option
Plan (the "Plan") is to enable Cannondale Corporation (the "Company") and its
stockholders to secure the benefits of common stock ownership by employees and
officers of the Company and its subsidiaries and by consultants and advisors to
the Company and its subsidiaries. The Board of Directors of the Company (the
"Board") believes that the granting of options under the Plan will foster the
Company's ability to attract, retain and motivate those individuals who will be
largely responsible for the continued profitability and long-term future growth
of the Company.
2. Stock Subject to the Plan. The Company may issue and sell a total of
1,000,000 shares of its common stock, $0.01 par value per share (the "Common
Stock"), pursuant to the Plan. Such shares may be either authorized and unissued
or held by the Company in its treasury. New options may be granted under the
Plan with respect to shares of Common Stock which are covered by the unexercised
portion of an option which has terminated or expired by its terms, by
cancellation or otherwise.
3. Administration. The Plan will be administered by a committee (the
"Committee") consisting of at least two Non-Employee Directors within the
meaning of Rule 16b-3(b)(3) promulgated under the Securities Exchange Act of
1934, as amended (the "Act"), appointed by and serving at the pleasure of the
Board. Subject to the provisions of the Plan, the Committee, acting in its sole
and absolute discretion, will have full power and authority to grant options
under the Plan, to interpret the provisions of the Plan and option award
agreements made under the Plan, to supervise the administration of the Plan and
to take such other action as may be necessary or desirable in order to carry out
the provisions of the Plan. A majority of the members of the Committee will
constitute a quorum. The Committee may act by the vote of a majority of its
members present at a meeting at which there is a quorum or by unanimous written
consent. The decision of the Committee as to any disputed question, including
questions of construction, interpretation and administration, will be final and
conclusive on all persons. The Committee will keep a record of its proceedings
and acts and will keep or cause to be kept such books and records as may be
necessary in connection with the proper administration of the Plan. No member of
the Committee shall be liable for any action taken or decision made in good
faith relating to the Plan or any award thereunder.
4. Eligibility. Options may be granted under the Plan to individuals
who at present or in the future serve as employees or officers of the Company or
a subsidiary of the Company (a "Subsidiary") within the meaning of Section
424(f) of the Internal Revenue Code of 1986, as amended, or who at the time of
grant are engaged as consultants or advisors to the Company or a Subsidiary.
Subject to the provisions of the Plan, the Committee may from time to time
select the persons to whom options will be granted under the Plan, and will fix
the number of shares covered by each such option and establish the terms and
conditions thereof (including, without limitation, exercise price and
restrictions on exercisability of the option or on the shares of Common Stock
issued upon exercise thereof).
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5. Terms and Conditions of Options. Each option granted under the Plan
will be evidenced by a written award agreement in substantially the form
attached hereto as Exhibit I, or such other form approved by the Committee from
time to time. Each such option will be subject to the terms and conditions set
forth in this paragraph and such additional terms and conditions not
inconsistent with the Plan as the Committee deems appropriate as reflected in
the written award agreement.
(a) Option Exercise Price. The exercise price per share may
not be less than 100% of the Fair Market Value of a share of the Common Stock on
the date of grant of the option. "Fair Market Value" shall mean the closing
price of a share of the Common Stock on the Nasdaq National Market, or, if the
Company elects to list or admit the Common Stock on another exchange or service
instead of the Nasdaq National Market, on such other exchange or service, on the
date immediately preceding the date of grant of the option, or if no shares were
traded on such determination date, the next preceding date on which the Common
Stock was traded, or the Fair Market Value as determined by any other method
adopted by the Committee from time to time, which the Committee may deem
appropriate under the circumstances, or as may be required in order to comply
with the requirements of applicable laws and regulations.
(b) Exercise of Options. No option will become exercisable
unless the person to whom the option was granted remains in the continuous
employ or service as an officer of the Company or an affiliate (as defined
below) for at least one year (or for such other period as the Committee may
designate) from the date the option is granted; provided, however, that in the
case of an option granted to a consultant or advisor to the Company or a
Subsidiary, there shall be no requirement for such person's continued provision
of services to the Company or an affiliate unless such requirement is imposed by
the Committee at the time the option is granted. For purposes of this Plan,
"affiliate" means either a Subsidiary or any entity in an unbroken chain of
entities ending with the Company if each of the entities other than the Company
owns an equity interest holding 25% of the total combined voting power of all
equity holders in one of the other entities in such chain. Subject to earlier
termination of the option as provided herein, unless the Committee determines
otherwise, the option will become exercisable in accordance with the following
schedule based upon the number of full years of the optionee's continuous
employment or service with the Company or an affiliate following the date of
grant:
Full Years Incremental Cumulative
of Continuous Percentage of Percentage of
Employment/ Option Option
Service Exercisable Exercisable
Less than 1 0% 0%
1 33 1/3% 33 1/3%
2 33 1/3% 66 2/3%
3 or more 33 1/3% 100%
provided, however, that in the event the exercise period of an option is three
years or less, the foregoing schedule shall be deemed to be modified to provide
that any remaining portion of the option shares which have not yet become
exercisable shall become exercisable on the date which
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is one year prior to the date of expiration of the option; and provided,
further, that an option granted to a consultant or advisor to the Company or an
affiliate shall be immediately exercisable in full unless the Committee
determines otherwise at the time of the option grant.
All or any part of the exercisable portion of an option may be
exercised at any time during the option period, except that, without the written
consent of the Committee, no partial exercise of an option may be for less than
50 shares. An option may be exercised by transmitting to the Company (i) a
written notice specifying the number of shares to be purchased and (ii) payment
of the exercise price, together with the amount, if any, deemed necessary by the
Committee to enable the Company to satisfy its income tax withholding
obligations with respect to such exercise (unless other arrangements acceptable
to the Company are made with respect to the satisfaction of such withholding
obligations).
(c) Payment of Exercise Price. The purchase price of shares of
Common Stock acquired pursuant to the exercise of an option granted under the
Plan may be paid in cash and/or such other form of payment as may be permitted
under the option award agreement, including, without limitation,
previously-owned shares of Common Stock owned for at least six months prior to
the date of option exercise.
(d) Rights as a Stockholder. No shares of Common Stock will be
issued in respect of the exercise of an option granted under the Plan until full
payment therefor has been made (and/or provided for where all or a portion of
the purchase price is being paid in installments). The holder of an option will
have no rights as a stockholder with respect to any shares covered by an option
until the date a stock certificate for such shares is issued to him or her.
Except as otherwise provided herein, no adjustments shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such stock certificate is issued.
(e) Nontransferability of Options. No option granted under the
Plan may be assigned or transferred except by will or by the applicable laws of
descent and distribution and each such option may be exercised during the
optionee's lifetime only by the optionee.
(f) Termination of Employment or Other Service. If an optionee
ceases to be an employee or to perform services as an officer for the Company
and any affiliate for any reason other than death or disability (as defined
below), then each outstanding option granted to him or her under the Plan will
terminate on the date three months after the date of such termination of
employment or service (or, if earlier, the date specified in the option
agreement). If an optionee's employment or service is terminated by reason of
the optionee's death or disability (or if the optionee's employment or service
is terminated by reason of his or her disability and the optionee dies within
one year after such termination of employment or service), then each outstanding
option granted to the optionee under the Plan will terminate on the date one
year after the date of such termination of employment or service (or one year
after the later death of a disabled optionee) or, if earlier, the date specified
in the option agreement. For purposes hereof, the term "disability" means the
inability of an optionee to perform the customary duties of his or her
employment or other service for the Company or an affiliate by reason of a
physical or mental incapacity which is expected to result in death or be of
indefinite duration (but in any
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event no less than twelve months). Notwithstanding the foregoing, if and to the
extent that the option is exercisable at the time of termination of services, an
option granted to a consultant or advisor to the Company or an affiliate shall
not terminate because such person ceases to provide services to the Company or
an affiliate, unless the Committee provides otherwise at the time the option is
granted.
(g) Other Provisions. The Committee may impose such other
conditions with respect to the exercise of options, including, without
limitation, any conditions relating to the application of federal or state
securities laws, as it may deem necessary or advisable.
6. Capital Changes, Reorganization, Sale.
(a) Adjustments upon Changes in Capitalization. The aggregate
number and class of shares for which options may be granted under the Plan, the
number and class of shares covered by each outstanding option and the exercise
price per share shall all be adjusted proportionately for any increase or
decrease in the number of issued shares of Common Stock resulting from a
split-up or consolidation of shares or any like capital adjustment, or the
payment of any stock dividend.
(b) Change of Control. (i) Except as provided in subparagraph
(c) below, upon a Change of Control (as defined below), any option granted
hereunder shall immediately become vested, and the optionee shall have the right
to exercise his or her option in whole or in part, so long as such option
remains outstanding, whether or not any other vesting requirements set forth in
the option agreement or herein have been satisfied.
(ii) For the purpose of this Plan, a "Change of
Control" shall mean:
A. The acquisition by any individual, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Act) of 20% or more of either (i) the then outstanding shares of
Common Stock (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subparagraph A, the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company, or
(iv) any acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subparagraph C of this Section 6(b)(ii); or
B. Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose,
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any such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
C. Approval by the stockholders of the
Company of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination would beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be; (ii)
no Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination; and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
D. Approval by the stockholders of the
Company of a complete liquidation or dissolution of the Company.
(c) Conversion of Options on Stock for Stock Exchange. If the
stockholders of the Company receive capital stock of another corporation
("Exchange Stock") in exchange for their shares of Common Stock in any
transaction involving a merger (other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock, separation
or reorganization (other than a mere reincorporation or the creation of a
holding company), all options granted hereunder shall be converted into options
to purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion, determine that any or all
such options granted hereunder shall not be converted into options to purchase
shares of Exchange Stock but instead shall vest in accordance with the
provisions of subparagraph (b) above. The amount and price of converted options
shall be determined by adjusting the amount and price of the options granted
hereunder in the same proportion as used for determining the number of shares of
Exchange Stock the holders of the Common Stock receive in such merger,
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consolidation, acquisition of property or stock, separation or reorganization.
Unless the Board determines otherwise, the converted options shall be fully
vested whether or not the vesting requirements set forth in the option agreement
or herein have been satisfied.
(d) Fractional Shares. In the event of any adjustment in the
number of shares covered by any option pursuant to the provisions hereof, any
fractional shares resulting from such adjustment will be disregarded, and each
such option will cover only the number of full shares resulting from the
adjustment.
(e) Determination of Board to be Final. All adjustments under
this paragraph 6 shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
7. Amendment and Termination of the Plan. The Board may amend or
terminate the Plan. Except as otherwise provided in the Plan with respect to
equity changes, any amendment which would increase the aggregate number of
shares of Common Stock as to which options may be granted under the Plan,
materially increase the benefits under the Plan or modify the class of persons
eligible to receive options under the Plan shall be subject to the approval of
the stockholders of the Company and such other approvals as may be required by
the provisions of the Company's Certificate of Incorporation or otherwise. No
amendment or termination may affect adversely any outstanding option without the
written consent of the optionee.
8. No Rights Conferred. Nothing contained herein will be deemed to give
any individual any right to receive an option under the Plan or to be retained
in the employ or service of the Company or any affiliate or interfere in any way
with the right of the Company to terminate the employment or service of the
optionee.
9. GOVERNING LAW. THE PLAN AND EACH OPTION AGREEMENT SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ITS CONFLICT OF
LAWS RULES OR PRINCIPLES.
10. Stockholder Approval; Term of the Plan. The Plan shall be effective
as of November 4, 1998, subject to the approval of the stockholders of the
Company on or before November 4, 1998. Any options awarded under the Plan prior
to such stockholder approval shall be conditioned upon such approval being
obtained and in the event such approval is not obtained all such options shall
be automatically null and void. The Plan will terminate on December 31, 2008,
unless sooner terminated by the Board. The rights of optionees under options
outstanding at the time of the termination of the Plan shall not be affected
solely by reason of the termination and shall continue in accordance with the
terms of the option (as then in effect or thereafter amended).
11. Interpretation. The Plan is intended to enable transactions under
the Plan with respect to directors and officers (within the meaning of Section
16(a) under the Act) to satisfy the conditions of Rule 16b-3 or its successors;
to the extent that any provision of the Plan would cause a conflict with such
conditions or would cause the administration of the Plan as provided
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27
in Section 3 to fail to satisfy the conditions of Rule 16b-3, such provision
shall be deemed null and void to the extent permitted by applicable law. This
Section shall not be applicable if no class of the Company's equity securities
is then registered pursuant to Section 12 of the Act.
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EXHIBIT I
FORM OF
CANNONDALE CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
This AGREEMENT has been made and entered into as of [ ], by and
between CANNONDALE CORPORATION, a Delaware corporation (the "Company") and
[ ] (the "Optionee").
Pursuant to the Cannondale Corporation 1998 Stock Option Plan (the
"Plan"), the Company desires to grant to the Optionee and the Optionee desires
to accept an option to purchase shares of the common stock, $0.01 par value per
share, of the Company (the "Common Stock") upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, the Company and the Optionee agree as follows:
1. Grant of Option; Option Price. The Company hereby grants to the
Optionee an option to purchase [____] shares of the Common Stock at a purchase
price per share of $[ ] (the "Option"). The Option is intended to be treated
as an option which is not an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Entitlement to Exercise Option; Term of Option. The Option shall
only become exercisable in accordance with the following schedule based upon the
number of full years of the Optionee's continuous employment, or continuous
service as an officer of the Company or an affiliate (as defined in the Plan) of
the Company following the date of grant:
Full Years Incremental Cumulative
of Continuous Percentage of Percentage of
Employment/ Option Option
Service Exercisable Exercisable
Less than 1 0% 0%
1 33 1/3% 33 1/3%
2 33 1/3% 66 2/3%
3 or more 33 1/3% 100%
[FOR NON-EMPLOYEE ADVISORS AND CONSULTANTS ONLY:] The option shall be
immediately exercisable in full.
[OTHER ALTERNATIVES MAY BE CHOSEN BY THE COMMITTEE]
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Unless sooner terminated pursuant to the terms of this Agreement, the
Option will expire if and to the extent it is not exercised on or before [ ].
3. Exercise of Option. Once the Optionee has satisfied the required
continuous employment, service as an officer or other requirements, if any, in
accordance with Section 2, the Option may be exercised in whole at any time or
in part from time to time during the term of the Option, except that no partial
exercise may be for less than 50 shares. To exercise the Option, the Optionee
shall deliver to the President of the Company (a) a written notice specifying
the number of shares of Common Stock to be purchased; (b) payment in full of the
exercise price, together with the amount, if any, deemed necessary by the
Company to enable it to satisfy any income tax withholding obligations with
respect to the exercise of the Option (unless other arrangements, acceptable to
the Company, are made for the satisfaction of such withholding obligations); and
(c) the Stockholders Agreement described in Section 12 below, fully executed by
Optionee. The Company may (in its sole and absolute discretion) permit all or
part of the exercise price to be paid with previously-owned shares of Common
Stock owned for at least six months prior to the date of option exercise.
4. Rights as a Stockholder. No shares of Common Stock will be issued
and delivered pursuant to an exercise of the Option until full payment for such
shares has been made. The Optionee shall have no rights as a stockholder with
respect to any shares covered by the Option until a stock certificate for such
shares is issued to the Optionee. Except as otherwise provided herein, no
adjustment shall be made for dividends or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
5. Nontransferability of Option. The Option is not assignable or
transferable except by will or by the applicable laws of descent and
distribution and is exercisable during the Optionee's lifetime only by the
Optionee.
6. Termination of Employment or Service as an Officer. If the Optionee
ceases to be employed by or to be an officer of the Company or any affiliate for
any reason other than death or disability (as defined in the Plan), then, unless
sooner terminated under the terms hereof, the Option will terminate on the date
three months after the date of the Optionee's termination of employment or
service. If the Optionee's employment or service is terminated by reason of the
Optionee's death or disability (or if the Optionee's employment or service is
terminated by reason of the Optionee's disability and the Optionee dies within
one year after such termination of employment or service), then, unless sooner
terminated under the terms hereof, the Option will terminate on the date one
year after the date of such termination of employment or service (or one year
after the disabled Optionee's later death). This paragraph shall not be
applicable to an Option granted to an Optionee as an outside consultant or
advisor to the Company. [NOTE - THE COMMITTEE MAY DETERMINE OTHERWISE, IN WHICH
CASE THIS PARAGRAPH WOULD BE MODIFIED].
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7. Investment Representation. In consideration of the grant of the
Option, the Optionee hereby represents and warrants to the Company that upon an
exercise of the Option, the shares purchased by the Optionee pursuant to such
exercise, will be acquired for the Optionee's account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof. The Optionee further acknowledges that neither the Option
nor any shares of Common Stock issuable upon exercise of the Option have been
registered under the Securities Act of 1933, as amended (the "Act"), and may not
be sold unless a registration under the Act is in effect with respect to the
shares and all relevant state securities laws have been complied with or unless
an exemption from such registration or compliance is available under the Act or
any relevant state securities law. The certificates representing any shares of
Common Stock issued upon exercise of the Option shall bear a legend to such
effect as the Company's counsel shall deem necessary or desirable. The Option
shall in no event be exercisable and shares shall not be issued hereunder if, in
the opinion of counsel to the Company, such exercise and/or issuance would
result in a violation of federal or state securities laws.
8. Capital Changes, Reorganization, Sale. (a) In case of any split-up
or consolidation of shares or any like capital adjustment, or the payment of a
stock dividend, which increases or decreases the number of outstanding shares of
Common Stock, appropriate adjustment shall be made to the number of shares and
the exercise price per share which may still be purchased under this Agreement.
(b) Upon a Change of Control (as defined in the Plan), the
Option granted hereunder shall immediately become vested, and the Optionee shall
have the right to exercise the Option in whole or in part, so long as the Option
remains outstanding, whether or not the one year of continuous employment or
service as an officer as provided in Section 2 has been satisfied.
(c) However, if the stockholders of the Company receive
capital stock of another corporation ("Exchange Stock") in exchange for their
shares of Common Stock in any transaction involving a merger (other than a
merger of the Company in which the holders of Common Stock immediately prior to
the merger have the same proportionate ownership of common stock in the
surviving corporation immediately after the merger), consolidation, acquisition
of property or stock, separation or reorganization (other than a mere
reincorporation or the creation of a holding company), the Option granted
hereunder shall be converted into an option to purchase shares of Exchange Stock
unless the Company and the corporation issuing the Exchange Stock, in their sole
discretion, determine that the Option shall not be converted into an option to
purchase shares of Exchange Stock but instead shall vest in accordance with the
provisions set forth in subparagraph (b) above. The amount and price of the
converted option shall be determined by adjusting the amount and price of the
Option granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the Common Stock receive in
such merger, consolidation, acquisition of property or stock, separation or
reorganization. Unless the Board of Directors of the Company determines
otherwise, the converted options shall be fully vested whether or not the
requirements set forth in this Agreement shall have been satisfied.
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(d) In the event of any adjustment in the number of shares
covered by the Option pursuant to the provisions hereof, any fractional shares
resulting from such adjustment will be disregarded, and the Option will cover
only the number of full shares resulting from the adjustment.
(e) All adjustments under this Section 8 shall be made by the
Board of Directors, and its determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
9. No Rights Conferred. Nothing in this Agreement shall give the
Optionee any right to continue in the employ or service of the Company or an
affiliate or interfere in any way with the right of the Company to terminate the
employment or service of the Optionee.
10. Plan Provisions Control. The provisions of the Plan shall govern if
and to the extent that there are inconsistencies between the provisions of the
Plan and the provisions of this Agreement. The Optionee acknowledges that the
Optionee has received a copy of the Plan prior to the execution of this
Agreement, and that the provisions of the Plan are incorporated herein by
reference.
11. Tax Considerations. Optionee hereby acknowledges and understands
that (a) pursuant to the Code as currently in effect, the difference between the
Fair Market Value (as defined in the Plan) of the Stock on the date he or she
exercises the Option and the option price will be taxable income to him or her
in the year he or she exercises the Option; and (b) the Company may be required
to withhold federal, state or local taxes with respect to the compensation
income, if any, realized by the Optionee upon an exercise of the Option. If the
Company determines that such withholding is required, the Optionee agrees either
to provide the Company at the time of any exercise of the Option with funds
equal to the amount of taxes which the Company determines must be withheld or to
make other arrangements satisfactory to the Company regarding such payment,
including authorizing the Company to withhold such amounts from any payments to
which he or she is entitled. All matters with respect to the withholding of
taxes resulting from an exercise of the Option shall be determined by the Board
of Directors of the Company and such determination shall be conclusive and
binding.
12. Stockholders Agreement. The Optionee hereby acknowledges and agrees
that all shares of Common Stock issued upon an exercise of the Option shall be
subject to the restrictions and obligations on transfer imposed on a stockholder
as provided in the form of Stockholders Agreement, attached hereto between the
Company and the Optionee (the "Stockholders Agreement"), a copy of which
accompanies this Agreement as Exhibit A. The Optionee, as a condition to the
receipt of the Option, hereby agrees to execute the Stockholders Agreement upon
exercise of the Option in whole or in part and to be bound by all the terms and
conditions imposed on a stockholder under the Stockholders Agreement with
respect to the shares of Common Stock issuable upon exercise of the Option and
consents to the legending of the stock certificates for such shares in
accordance with the Stockholders Agreement.
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13. Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and permitted assigns; provided, however,
that this Agreement and the grant of an Option hereunder shall be null and void
and of no further force and effect in the event the Plan is not approved by the
stockholders of the Company on or before November 4, 1998.
14. Governing Law; Entire Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware, without
giving effect to its conflict of laws rules or principles. This Agreement
constitutes the entire agreement between the parties with respect to the subject
matter hereof and may not be modified except by written instrument executed by
the parties.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
CANNONDALE CORPORATION
By:___________________
Name:
Title:
OPTIONEE
______________________
Name:
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EXHIBIT A
FORM OF
STOCKHOLDERS AGREEMENT UNDER 1998 STOCK OPTION PLAN
Cannondale Corporation is a Delaware corporation maintaining its
principal place of business at 16 Trowbridge Drive, Bethel, Connecticut. It will
be referred to in this Agreement as "Cannondale." You and the other parties to
this Agreement are all employees or officers of Cannondale, or consultants or
advisors to Cannondale, who have acquired shares of common stock in Cannondale
under options granted pursuant to the Cannondale Corporation 1998 Stock Option
Plan (the "Plan"). Each such stockholder is referred to in this Agreement as
"Stockholder," and the Cannondale common stock (or other capital stock of
Cannondale issuable in respect of the common stock pursuant to an adjustment
under the Plan) acquired by the person under an option granted pursuant to the
Plan from time to time is referred to as "Stock". You have so acquired [ ]
shares of Stock and understand that the difference between the fair market value
of such stock and the price you paid for such stock constitutes taxable income
to you. As a condition of its receipt, you, as a Stockholder, have entered into
this Agreement.
This Agreement imposes restrictions on the sale or transfer of any
Stock held by a Stockholder. The Stockholder agrees with Cannondale as follows:
1. So long as the Stockholder owns Stock, the Stockholder agrees to the
restrictions described below on any voluntary or involuntary sale, gift,
transfer, encumbrance or other disposition of any of the Stock or any interest
in the Stock.
2. Unless the Stockholder shall have obtained the prior written
approval of Cannondale, a Stockholder must offer to sell his or her Stock to
Cannondale if any of the following events happen:
(a) the Stockholder intends or attempts to sell or in any way
transfers or encumbers any of the Stock or an interest in it to another party
(except incident to the sale or transfer of substantially all of the outstanding
Stock of Cannondale), or the Stock becomes subject to an involuntary transfer,
such as by court order;
(b) the Stockholder's employment by Cannondale is terminated
for any reason, or in the case of a non-employee officer of Cannondale, the
Stockholder ceases to be an officer of Cannondale for any reason;
(c) the Stockholder seeks protection under any laws relating
to debtors' or creditors' rights;
(d) the death or permanent disability of the Stockholder; or
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(e) the Stockholder does not comply with this Agreement.
If either of the events listed under (a) or (c) above occur, the
Stockholder must give written notice to Cannondale. If either of the events
listed under (b) or (d) occur, Cannondale will be deemed to have notice on the
date the event happens, and if the event listed in paragraph (e) occurs, notice
will be deemed to have occurred on the date ten days following the date on which
Cannondale notifies a Stockholder that he or she is in breach of this Agreement,
providing the Stockholder has not cured that breach to the satisfaction of
Cannondale during that ten-day period.
3. The receipt of actual or deemed notice by Cannondale will constitute
an offer by the affected Stockholder to sell all his or her Stock to Cannondale.
Cannondale will then have a period of 90 days after the receipt of that notice
to send written notice to the Stockholder (or in the case of the death of a
Stockholder, to his or her legal representative) that Cannondale chooses to
purchase the Stockholder's Stock. The purchase price for the Stock will be
calculated in the manner described in paragraph 4 below. In addition to choosing
to purchase the Stock itself, Cannondale may also designate another party to
purchase the Stock, providing that party pays the same purchase price as
Cannondale would.
Once Cannondale provides notice that it accepts the offer to purchase
the Stock, the Stockholder (or his or her legal representative) shall sell the
Stock to Cannondale or its designee at a closing to be held at Cannondale's
office within 90 days after that date, or sooner at Cannondale's election.
If Cannondale chooses not to accept the offer to purchase the Stock
prior to the end of the 90-day period, then the Stockholder shall have an
additional 90-day period during which the Stockholder may sell or transfer the
Stock free and clear of the restrictions set forth in this Agreement, provided
the Stockholder first notifies Cannondale of the terms and conditions of any
such sale or transfer and gives Cannondale a ten-day option to purchase the
Stock on the same terms and conditions. If the Stockholder chooses not to sell
or transfer the Stock during that additional 90-day period, the restrictions
will continue, and the Stockholder agrees to give notice to Cannondale of the
occurrence of any subsequent event described in paragraph 2.
4. At the closing for the purchase of the Stock, the Stockholder (or
his or her personal representative upon furnishing appropriate evidence of
authority) shall deliver the Stock, duly endorsed for transfer or accompanied by
a fully executed stock power, and shall receive the Purchase Price (as defined
below) for each share of Stock sold.
The "Purchase Price" shall mean that number as determined by
multiplying the Earnings Per Share (as defined below) of Stock times five.
"Earnings Per Share" shall mean that number equal to Average Net Income (as
defined below) per share based on the weighted average number of shares of
common stock outstanding during the most recent fiscal year determined on a
fully diluted basis, taking into account all unexercised options and other
similar
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arrangements as to rights to acquire common stock of Cannondale. "Average Net
Income" shall mean that amount equal to the sum of the following divided by
four: (i) two times the consolidated net after tax income for Cannondale's most
recent fiscal year preceding the occurrence of the event causing the sale, (ii)
consolidated net after tax income for the second most recent fiscal year
preceding such an event and (iii) consolidated net after tax income for the
third most recent fiscal year preceding such event. For purposes of the
computation: (A) net income in any given year shall not be less than zero; (B)
the following shall be excluded in the computation of net income: (i) income (or
loss) from the sale or other disposition of assets outside the ordinary course
of the Cannondale business and (ii) income (or loss) from any extraordinary
items; and (C) in any year in which there are outstanding shares of preferred
stock of Cannondale which provide for payment of dividends on a cumulative
basis, the dividends paid or accrued on such preferred stock for such year shall
be treated as expenses. All such computations shall be made in accordance with
generally accepted accounting principles, except as otherwise specifically
provided herein, applied by Cannondale's principal financial officer, or at
Cannondale's election by its independent auditors, and shall be final and
binding for the purposes of this Agreement unless shown to have been prepared in
bad faith.
5. Notwithstanding anything to the contrary contained herein, the
restrictions contained in this Agreement on sale, gift, transfer, encumbrance or
other disposition of the Stock or any interest in the Stock shall not be in
effect for so long as stock of the same class as the Stock is publicly traded.
6. Each Stockholder understands that each certificate representing the
Stock and any further certificates representing the Stock issued to him or her
will bear such legends as are applicable, including without limitation, the
following:
The securities represented by this certificate are subject to the
limitations and restrictions on their transfer provided in an agreement
entitled "Stockholders Agreement Under 1998 Stock Option Plan," a copy
of which is on file at Cannondale Corporation at its principal business
office.
This Agreement shall be governed by and construed under the laws of the
State of Delaware, without giving effect to its conflict of laws rules or
principles. It may be signed in one or more counterparts, each of which shall be
deemed an original, but all of which together will constitute one and the same
agreement. It shall be binding upon and enforceable by all of the parties who
sign it and their respective successors, assigns, heirs, executors,
administrators, other legal representatives or transferees. If any part of this
Agreement is determined to be unenforceable, the remainder of this Agreement
will continue in full force and effect.
Any notices or communications given pursuant to this Agreement shall be
either hand delivered or mailed by certified or registered mail to Cannondale at
its principal office or to any Stockholder at the address shown on the
employment records of Cannondale unless another address is provided in writing
to Cannondale.
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This Agreement is effective as of [ ], [_____].
CANNONDALE CORPORATION
By:___________________
Name:
Title:
STOCKHOLDER
______________________
Name:
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DETACH HERE
- -----------------------------------------------------------------------------
PROXY
CANNONDALE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph S. Montgomery and William A. Luca, and
each of them individually, as proxies, each with the power of substitution, and
hereby authorizes them to vote all shares of Common Stock of the undersigned at
the Annual Meeting of the Company, to be held at the Company's Corporate
Headquarters, 16 Trowbridge Drive, Bethel, Connecticut, on Wednesday, November
4, 1998 at 10:00 a.m., Eastern Standard Time, and at any adjournments or
postponements thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF DIRECTORS AND "FOR" THE PROPOSALS SET FORTH ON THE
REVERSE SIDE.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
38
DETACH HERE
- -----------------------------------------------------------------------------
PLEASE MARK
X VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Election of Class 1 Directors
NOMINEES: Joseph S. Montgomery and Michael J. Stimola
FOR WITHHELD
/ / / /
/ /_______________________________________
For both nominees except as noted above
FOR AGAINST ABSTAIN
2. Approval of the Company's 1998 Stock / / / / / /
Option Plan.
3. Selection of Independent Accountants. / / / / / /
4. The Proxies Are Authorized To Vote Upon Such Other Business That May
Properly Come Before The Meeting. In Accordance With The Judgment Of
The Person Or Persons Voting This Proxy.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH.
Signature:_______________ Date:_______ Signature:_______________ Date:_______