<PAGE> 1
SCHEDULE 14A(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / 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 Rule 14a-11(c) or Rule 14a-12
CANNONDALE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee Computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth in the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
CANNONDALE CORPORATION
9 BROOKSIDE PLACE
GEORGETOWN, CONNECTICUT 06829
(203) 544-9800
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 19, 1996
To the Stockholders of Cannondale Corporation:
PLEASE TAKE NOTICE that the Annual Meeting of Stockholders of Cannondale
Corporation (the "Company") will be held on Tuesday, November 19, 1996, at 10:00
a.m. Eastern Standard Time, at the Danbury Hilton, 18 Old Ridgebury Road,
Danbury, Connecticut, for the following purposes:
1. To elect two (2) Class II directors of the Company for a three-year
term;
2. To approve the adoption of the Company's 1996 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 on Form 10-K for fiscal year 1996.
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 October 4,
1996, will be entitled to vote at the meeting.
By Order of the Board of Directors
John Sanders
Secretary
Georgetown, Connecticut
October 15, 1996
<PAGE> 3
CANNONDALE CORPORATION
9 BROOKSIDE PLACE
GEORGETOWN, CONNECTICUT 06829
------------------------
PROXY STATEMENT
------------------------
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 Danbury
Hilton, 18 Old Ridgebury Road, Danbury, Connecticut on Tuesday, November 19,
1996, 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 18, 1996.
GENERAL
Only stockholders of record at the close of business on October 4, 1996,
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 adoption of the Company's
1996 Stock Option Plan, (iii) FOR ratification of the appointment of Ernst &
Young LLP as the Company's independent accountants for the fiscal year ending
June 28, 1997, 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 October 4, 1996, will
constitute a quorum. As of October 4, 1996, 8,612,279 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.
<PAGE> 4
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 30, 1996, by (i) each person known to the
Company to own more than 5% of the outstanding Common Stock as of September 30,
1996, (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.
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES(1) COMMON STOCK
---------------------------------------------------- ------------------- ------------
<S> <C> <C>
Joseph S. Montgomery(2)............................. 1,905,125 21.9%
James Scott Montgomery(2)........................... 521,420 6.0
William A. Luca..................................... 76,183 *
Richard J. Resch.................................... 52,666 *
Daniel C. Alloway................................... 87,539 1.0
Tarek Abdel-Meguid.................................. 0 0
Michael Carter...................................... 5,000 *
Michael J. Stimola.................................. 5,200 *
AIM Management Group Inc.(3)........................ 451,500 5.2
All current directors and executive officers as a
group
(12 persons)...................................... 2,724,300 30.3%
</TABLE>
- ---------------
* 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 30, 1996, for the following persons: Mr. Joseph Montgomery --
85,416 shares, Mr. James Scott Montgomery -- 54,333 shares, Mr. Luca --
76,183 shares, Mr. Resch -- 52,666 shares, and Mr. Alloway -- 48,791 shares.
(2) Messrs. Joseph and James Scott Montgomery, the only persons other than AIM
Management Group Inc. known to the Company to own more than 5% of the
outstanding Common Stock as of September 30, 1996, each has a business
address c/o Cannondale Corporation, 9 Brookside Place, Georgetown,
Connecticut 06829.
(3) Based on information contained in Schedule 13G filed by AIM Management Group
Inc., AIM Management Group Inc. may be deemed to have shared voting and
dispositive power with respect to all of the shares of Common Stock reported
for AIM Management Group Inc. AIM Management Group Inc. has an address at 11
Greenway Plaza, Suite 1919, Houston, Texas 77046.
On September 27, 1995, the Company sold 1,300,000 shares of newly issued
shares of Common Stock and certain selling stockholders, including Mr. Joseph
Montgomery, Mr. James Scott Montgomery, Mr. Resch and entities affiliated with
Mr. Abdel-Meguid, sold an aggregate of 1,250,000 shares of the Company's Common
Stock, pursuant to an offering registered with the Securities and Exchange
Commission on Form S-1, Registration No. 33-96340. Immediately prior to such
sale, the stock ownership of each of the selling stockholders (including shares
deemed to be beneficially owned pursuant to the rules of the Securities and
Exchange Commission) was: Mr. Joseph Montgomery, 2,174,380 shares; Mr. James
Scott Montgomery, 629,337 shares; Mr. Resch, 77,966 shares; and PG Investors,
Inc., of which Mr. Abdel-Meguid is an executive officer, together with three
affiliated entities, 958,261 shares. Upon such sale, a "change in control" may
be deemed to have occurred due to the officers, directors and affiliates of the
Company no longer having beneficial ownership of more than 50% of the voting
securities of the Company.
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 29, 1996 ("Fiscal 1996"), the Form 3 filed on behalf of
each of Michael J. Stimola and Michael Carter in connection with their election
as directors of the Company was not filed on a timely basis; all other required
filings during this period were made on a timely basis.
2
<PAGE> 5
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 II expires at the 1996 Annual Meeting. The Board
of Directors proposes that the nominees described below be elected to Class II
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 II -- DIRECTORS STANDING FOR ELECTION
TAREK ABDEL-MEGUID, Director since 1992
Tarek Abdel-Meguid, 40, is a Managing Director and Deputy Head of the
Corporate Finance Department within the Investment Banking Division of Morgan
Stanley Group Inc. Mr. Abdel-Meguid has been employed in various investment
banking capacities with Morgan Stanley since 1982.
JAMES SCOTT MONTGOMERY, Director since 1994
James Scott Montgomery, 35, has held a number of positions since joining
Cannondale in 1984. He is currently Vice President of Marketing. His previous
positions with the Company include founder and President of Cannondale Japan's
Sales and Trading Divisions (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.
CLASS I -- TERM EXPIRES AT THE 1998 ANNUAL MEETING
MICHAEL CARTER, Director since 1995
Michael Carter, 42, is Managing Director of Carter & Company, a regional
investment banking firm based in Southport, Connecticut, which he formed in
1987. Previously, Mr. Carter was a Vice President at The Chase Manhattan Bank.
Mr. Carter also serves as a director of First National Bank of New England. In
the past, Carter & Company provided certain investment banking valuation
services to the Company and may provide investment banking services to the
Company in the future. No fees were paid by the Company to Carter & Company in
Fiscal 1996.
JOSEPH S. MONTGOMERY, Director since 1971
Joseph S. Montgomery, 55, 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 and serves as the Company's Vice President of Marketing.
MICHAEL J. STIMOLA, Director since 1995
Michael J. Stimola, 39, is the President of Sandvick Associates, Inc., a
design and construction company headquartered in Bethel, Connecticut. Mr.
Stimola is also the founder, Chief Executive Officer and President of Sandella's
Coffee Cafe, Inc., a company formed in 1994, of which Mr. Joseph Montgomery is
the majority stockholder. The company develops and operates coffee cafes in New
England and the New York metropolitan area.
3
<PAGE> 6
CLASS III -- TERM EXPIRES AT THE 1997 ANNUAL MEETING
WILLIAM A. LUCA, Director since 1994
William A. Luca, 53, joined Cannondale in January 1994 as Vice President of
Finance, Treasurer and Chief Financial Officer. Prior to joining the Company he
was a management consultant from 1989 to 1993, and served as a consultant to the
Company between August and December 1993.
RICHARD J. RESCH, Director since 1990
Richard J. Resch, 53, joined Cannondale in 1988 as Director of
Manufacturing. He subsequently served as Vice President of Operations and from
1991 to the present has been Vice President for Technology Development.
DIRECTORS' REMUNERATION; ATTENDANCE
Directors who are also full-time employees of the Company receive no
additional compensation for service as director. During Fiscal 1996, 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.
The Board of Directors met four times during Fiscal 1996. 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.
Abdel-Meguid, Carter, Stimola and Joseph Montgomery. The Audit Committee is
composed of Messrs. Abdel-Meguid, Carter 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 review, approve and recommend the Company's
stock option plans. The Compensation Committee met two times during Fiscal 1996.
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 three times during Fiscal 1996.
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 consists of three
key elements: a base salary, a discretionary annual bonus and grants of stock
options, in addition to benefit plans available to all employees. The 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 Bonuses. 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
4
<PAGE> 7
makes recommendations to the Compensation Committee as to discretionary annual
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 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.
Chief Executive Officer Compensation
Mr. Joseph Montgomery's compensation as Chief Executive Officer is composed
of the same elements and performance measures as for 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 awarded a
bonus of $50,000 in Fiscal 1996 and a bonus of $10,000 for the fiscal year ended
July 1, 1995 ("Fiscal 1995"). The 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
Tarek Abdel-Meguid
Michael Carter
Joseph S. Montgomery
Michael J. Stimola
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company has a Compensation Committee composed
of Messrs. Abdel-Meguid, Stimola, Carter and Joseph Montgomery. 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 serves as a director of Sandella's Coffee Cafe, Inc., a
company formed in 1994, of which Mr. Stimola is the founder, Chief Executive
Officer and President. The company develops and operates coffee cafes in New
England and the New York metropolitan area.
Sandvick Associates, Inc., 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 an ongoing
construction project at the Company's headquarters. See "Certain Relationships
and Related Transactions."
Joseph Montgomery is the sole manager, and Joseph Montgomery and Sandvick
Associates, Inc., are each members, of Nantucket Roost Associates, LLC, a
limited liability company which has purchased the Company's existing
headquarters facility for approximately $1.7 million. See "Certain Relationships
and Related Transactions."
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 1996 and Fiscal 1995 to its Chief Executive Officer and
to its four most highly paid executive officers other than the Chief Executive
Officer.
5
<PAGE> 8
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS(2)
ANNUAL ------------
COMPENSATION(1) SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)
- ----------------------------------------------------- ---- -------- ------- ------------
<S> <C> <C> <C> <C>
Joseph S. Montgomery................................. 1996 $251,304 $50,000 40,000
President and Chief Executive Officer 1995 257,688 10,000 50,000
William A. Luca...................................... 1996 233,100 50,000 64,715
Vice President of Finance, Treasurer 1995 168,808 10,000 60,000
Richard J. Resch..................................... 1996 139,000 25,000 25,000
Vice President for Technology Development 1995 139,000 5,000 20,000
James Scott Montgomery............................... 1996 130,000 30,000 10,000
Vice President of Marketing 1995 130,000 5,000 30,000
Daniel C. Alloway.................................... 1996 130,000 30,000 88,091
Vice President of Sales -- United States 1995 119,231 8,000 20,000
</TABLE>
- ---------------
(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 29, 1996 and July 1, 1995.
(2) The Company did not grant any restricted stock awards or stock appreciation
rights during the fiscal years ended June 29, 1996, or July 1, 1995. The
Company does not have any long-term incentive plan.
The following table sets forth certain information regarding stock options
granted during Fiscal 1996 by the Company to the executive officers named in the
Summary Compensation Table.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
PERCENT POTENTIAL
NUMBER OF OF TOTAL REALIZABLE VALUE
SECURITIES OPTIONS AT ASSUMED ANNUAL
UNDERLYING GRANTED TO EXERCISE RATES OF STOCK
OPTIONS EMPLOYEES IN PRICE EXPIRATION PRICE APPRECIATION
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE FOR OPTION TERM(2)
- ------------------------------ ---------- ------------ --------- ---------- ---------------------
5% 10%
--------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Montgomery.......... 40,000 7.56% $ 15.00 10/20/05 $ 377,337 $ 956,245
William A. Luca............... 40,000 7.56 15.00 10/20/05 377,337 956,245
24,715 4.67 16.50 03/22/06 256,462 649,924
Richard J. Resch.............. 10,000 1.89 15.00 10/20/05 94,334 239,061
15,000 2.84 14.25 11/15/05 134,426 340,662
James Scott Montgomery........ 10,000 1.89 15.00 10/20/05 94,334 239,061
Daniel C. Alloway............. 25,000 4.73 15.00 10/20/05 235,835 597,653
63,091 11.93 16.50 03/22/06 654,680 1,659,088
</TABLE>
- ---------------
(1) All options vest over a three-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.
6
<PAGE> 9
The following table sets forth certain information with respect to the
aggregate exercises of stock options and unexercised stock options held as of
June 29, 1996, by the executive officers named in the Summary Compensation Table
above.
AGGREGATE OPTIONS EXERCISED IN FISCAL 1996 AND
FISCAL 1996 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT JUNE 29, 1996 OPTIONS AT JUNE 29, 1996(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Montgomery......... -- $ -- 55,416 73,334 $ 892,341 $ 451,672
William A. Luca.............. 31,400 519,774 42,850 104,715 599,944 592,681
Richard C. Resch............. -- -- 37,666 38,334 665,539 239,172
James Scott Montgomery....... -- -- 41,000 30,000 689,710 197,500
Daniel C. Alloway............ -- -- 33,791 101,425 588,387 464,513
</TABLE>
- ---------------
(1) The values in this column represent the closing sales price of the Company's
Common Stock on the Nasdaq National Market on June 28, 1996, $20.25, less
the respective option exercise price.
7
<PAGE> 10
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 (US 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 28, 1996. 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 Roadmaster
Industries, Inc.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Company Market Peer
<S> <C> <C> <C>
11/16/94 100.000 100.000 100.000
11/30/94 91.818 97.559 94.994
12/30/94 74.545 97.833 95.639
01/31/95 88.182 98.382 94.996
02/28/95 94.545 103.585 98.157
03/31/95 90.909 106.654 94.512
04/28/95 110.909 110.011 87.275
05/31/95 114.545 112.849 93.595
06/30/95 101.818 121.993 95.264
07/31/95 127.273 130.960 99.324
08/31/95 119.091 133.614 99.318
09/29/95 120.000 136.687 97.999
10/31/95 116.364 135.904 95.219
11/30/95 103.636 139.095 104.898
12/29/95 115.455 138.358 112.795
01/31/96 110.000 139.040 104.829
02/29/96 112.727 144.339 117.009
03/29/96 133.636 144.819 123.944
04/30/96 161.818 156.834 127.932
05/31/96 160.00 164.035 135.956
06/28/96 147.273 156.654 136.586
</TABLE>
8
<PAGE> 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Joseph Montgomery is the sole shareholder of JSM, Inc. ("JSM"). JSM owns a
Cessna Citation Jet aircraft which it leases to the Company. Under the terms of
a lease which expired in October 1996, the Company paid JSM a monthly rental of
$10,000, less the amount of insurance premiums paid by the Company with respect
to the aircraft. In October 1996, the Company entered into a new lease which
expires in October 1999. Rental payments under the new lease are based on the
fair rental value of the Cessna Citation Jet. Rental payments for the first year
of the term of the new lease will be $100,000 for the first month, and $25,000
per month thereafter; rent for the second and third years of the term will be
adjusted based on the fair rental value of the Cessna Citation Jet on the first
and second anniversary dates of the lease. The Company, under the terms of the
new lease, will pay all taxes, maintenance and insurance expenses for the
aircraft. The Company uses the aircraft largely for transporting personnel
between its Connecticut headquarters and its Pennsylvania manufacturing
facilities.
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 aircraft
leased from JSM. 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 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 1996, Mr. Montgomery's personal use of the aircraft was
valued at $35,999.
Sandvick Associates, Inc. ("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 an ongoing construction project at the
Company's headquarters.
The Company recently negotiated a contract with Sandvick to act as general
contractor for the construction of an addition of up to 40,000 square feet to
its manufacturing facility in Bedford, Pennsylvania. The additional space will
be used for warehousing and expanded production. Sandvick will be paid
approximately $5.1 million to construct the project.
The Company has contracted to buy land for the construction of a new
headquarters facility, located approximately 10 miles from the existing
headquarters. The Company recently negotiated a contract with Sandvick to act as
general contractor for the construction of the new facility. Sandvick will be
paid approximately $2.4 million to construct the new headquarters facility.
In connection with the construction of the Company's new headquarters
facility, Sandvick agreed to purchase the existing headquarters facility for
approximately $1.7 million. Sandvick subsequently assigned its contract to
purchase the existing headquarters facility to Nantucket Roost Associates, LLC
("Nantucket Roost"), which purchased the property in October 1996. Joseph
Montgomery is the sole manager, and Joseph Montgomery and Sandvick are each
members, of Nantucket Roost. Pending its relocation to the new headquarters
facility, the Company will continue to occupy the current facility on a
month-to-month net lease of $16,000 per month.
In Fiscal 1996, the Company paid Sandvick $145,944 for the ongoing
construction projects at the Company's headquarters. Payments by the Company
constituted less than 5% of Sandvick's gross revenues for its last fiscal year.
The Company has agreed to provide up to $300,000 in interest-free loans to
Mr. Luca to enable him to purchase a home in the vicinity of the Company's
headquarters. As of October 15, 1996, $63,764 had been advanced to Mr. Luca. The
loans mature on December 29, 2006, at which time the entire principal balance is
due. The loans will be secured by a mortgage on Mr. Luca's new residence.
ITEM 2 -- APPROVAL OF 1996 STOCK OPTION PLAN
On May 17, 1996, the Board of Directors (the "Board") adopted, subject to
approval by the Company's stockholders, the 1996 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.
9
<PAGE> 12
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 896 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, 2006. The Board may suspend or terminate the Plan, but not
outstanding Options, at any time.
SHARES RESERVED
A maximum of 750,000 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 (which
may not be less than $1.00 per share), 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, 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
10
<PAGE> 13
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; provided, however, that at any time when the Company's
Common Stock is publicly traded, the repurchase price is based upon the average
of the closing sales price on each of the five trading days prior to the date of
closing of the repurchase. The Company does not anticipate that it will exercise
this repurchase right 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 benefits are
determinable at this time. As of September 30, 1996, the closing sales price of
the Company's Common Stock was $23.25.
The Company has granted Options to purchase 35,000 shares of Common Stock
to a non-executive officer of the Company, subject to stockholder approval of
the Plan. The exercise price of these Options was based on the closing sales
price of the Company's Common Stock on the date of grant. As of September 30,
1996, estimated benefit to this individual was approximately $122,500.
ADJUSTMENTS UPON CHANGES IN COMMON STOCK; REORGANIZATION, MERGER, CONSOLIDATION
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), and the Committee is authorized to adjust Options
and terms of the Plan in the event of a change in capital stock in order to
prevent dilution or enlargement of Options.
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.
Adjustments shall be made by the Board, 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.
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.
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.
11
<PAGE> 14
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 1996 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 June 28, 1997 ("Fiscal 1997"). 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 1996 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 1997 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 1997.
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.
12
<PAGE> 15
STOCKHOLDER PROPOSALS FOR THE 1997 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the Company's
1997 Annual Meeting of Stockholders must be received by the Secretary of the
Company, for inclusion in the Company's proxy statement relating to the 1997
Annual Meeting, by June 14, 1997.
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 15, 1996
By Order of the Board of Directors
John Sanders
Secretary
13
<PAGE> 16
Appendix A
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 Danbury
Hilton, 18 Old Ridgebury Road, Danbury, Connecticut, on Tuesday, November 19,
1996 at 10:00 a.m. 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 SIDE
<PAGE> 17
/X/ Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR proposals 1, 2 and 3.
1. Election of Class II Directors.
Nominees: Tarek Abdel-Meguid and James Scott Montgomery
FOR WITHHOLD
/ / / /
/ /
--------------------------------------------
For Both Nominees Except as Noted Above
2. Approval of the Company's 1996 Stock Option Plan.
FOR AGAINST ABSTAIN
/ / / / / /
3. Selection of Independent Accountants.
FOR AGAINST ABSTAIN
/ / / / / /
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.
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.
MARK HERE / /
FOR ADDRESS
CHANGE AND
NOTE BELOW
Signature Date Signature Date
----------------- -------- ------------- -------
<PAGE> 18
Appendix B
CANNONDALE CORPORATION
1996 STOCK OPTION PLAN
1. Purpose. The purpose of the Cannondale Corporation 1996 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
750,000 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
<PAGE> 19
Internal Revenue Code of 1986, as amended (the "Code"), 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).
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 $1.00 per share.
(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 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:
-2-
<PAGE> 20
Full Incremental Cumulative
Years 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 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 (1) a written notice specifying the number of shares to be purchased,
and (2) 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 of 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
-3-
<PAGE> 21
distributions of 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 (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 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.
-4-
<PAGE> 22
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) Cash, Stock or Other Property for Stock. Except as
provided in subparagraph (c) below, upon 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, reorganization (other than a mere reincorporation
or the creation of a holding company) or liquidation of the Company, as a result
of which the shareholders of the Company receive cash, stock or other property
in exchange for or in connection with their shares of Common Stock, any option
granted hereunder shall terminate, but the optionee shall have the right
immediately prior to any such merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation to exercise his or her option
in whole or in part, whether or not the vesting requirements set forth in the
option agreement or herein have been satisfied.
(c) Conversion of Options on Stock for Stock Exchange. If the
shareholders 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 be exercisable and terminate 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
-5-
<PAGE> 23
in such merger, 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 holders of a majority of the Common Stock issued and outstanding 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 Subsidiary.
9. Governing Law. The Plan and each option agreement shall be governed
by the laws of the State of Delaware.
10. Shareholder Approval; Term of the Plan. The Plan shall be effective
as of May 17, 1996, subject to the approval of the stockholders of the Company
on or before May 17, 1997. 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, 2006,
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).
-6-
<PAGE> 24
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 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.
<PAGE> 25
EXHIBIT I
FORM OF
CANNONDALE CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of [______________], 199_ by and between CANNONDALE
CORPORATION, a Delaware corporation (the "Company") and [_____________] (the
"Optionee").
Pursuant to the Cannondale Corporation 1996 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, 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 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.
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 of the Company following
the date of grant:
Full Incremental Cumulative
Years 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]
<PAGE> 26
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, and (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 held for more than six months.
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 of 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 subsidiary
for any reason other than death or disability, 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 as director. 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
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<PAGE> 27
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 PARAGRAPH WOULD BE
MODIFIED].
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 (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 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,
reorganization (other than a mere reincorporation or the creation of a holding
company) or liquidation of the Company, as a result of which the shareholders of
the Company receive cash, stock or other property in exchange for or in
connection with their shares of Common Stock, the Option granted hereunder shall
terminate, but the Optionee shall have the right immediately prior to any such
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise the Option in whole or in part,
whether or not the one year of continuous employment or service as an officer as
provided in Section 2 has been satisfied.
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<PAGE> 28
(c) However, if the shareholders 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 terminate 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 on the same basis 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
option shall be fully vested, whether or not the requirements set forth in this
Agreement shall have been satisfied.
(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.
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<PAGE> 29
11. Tax Considerations. Optionee hereby acknowledges and understands
that (a) pursuant to the Internal Revenue Code as currently in effect, the
difference between the fair market value of the Stock on the date he exercises
the Option and the Option price will be taxable income to him in the year he
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 Optionee upon an exercise of the Option. If the Company determines that such
withholding is required, 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 payment, including authorizing the
Company to withhold such amounts from any payments to which he 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. Stockholder 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 "Stockholder Agreement"), a copy of which
accompanies this Agreement. 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.
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 May 17, 1997.
14. Governing Law; Entire Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware. 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.
-5-
<PAGE> 30
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
CANNONDALE CORPORATION
By:________________________________________
Its_____________________________________
___________________________________________
[signature of Optionee]
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