<PAGE> 1
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-12
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 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
CANNONDALE CORPORATION
16 TROWBRIDGE DRIVE
BETHEL, CONNECTICUT 06801
(203) 749-7000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 2000
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 15, 2000, 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 three (3) Class III directors of the Company for a three-year
term;
2. To approve an amendment to the Company's 1998 Stock Option Plan to
increase the number of shares of Common Stock available for issuance
from 1 million shares to 2 million shares;
3. To consider and act upon a proposal to ratify the selection of Ernst &
Young LLP as independent accountants of the Company for the 2001 fiscal
year; 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 2000.
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 9,
2000 will be entitled to vote at the meeting.
By Order of the Board of Directors
JOHN T. CAPETTA
Secretary
Bethel, Connecticut
October 13, 2000
<PAGE> 3
CANNONDALE CORPORATION
16 TROWBRIDGE DRIVE
BETHEL, CONNECTICUT 06801
------------------------
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 Cannondale
Corporation headquarters, 16 Trowbridge Drive, Bethel, Connecticut on Wednesday,
November 15, 2000, 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 13, 2000.
GENERAL
Only stockholders of record at the close of business on October 9, 2000 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 amendment
to the 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 June 30, 2001 ("fiscal 2001"), 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 9, 2000, will
constitute a quorum. As of October 9, 2000, 7,515,225 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.
In determining the presence of a quorum at the Annual Meeting, abstentions
and broker non-votes (votes withheld by brokers in the absence of instructions
from the street-name holders) will be counted. 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 29, 2000, by (i) each person known to the
Company to own more than 5% of the outstanding Common Stock as of September 29,
2000; (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.
<TABLE>
<CAPTION>
PERCENT OF
BENEFICIAL OWNER NUMBER OF SHARES(1) COMMON STOCK
---------------- ------------------- ------------
<S> <C> <C>
Joseph S. Montgomery(2)............................. 1,458,275 19.1%
James Scott Montgomery(3)........................... 454,237 6.0
William A. Luca..................................... 208,627 2.7
Daniel C. Alloway................................... 186,963 2.4
Leonard J. Konecny.................................. 26,583 *
Mario Galasso....................................... 52,233 *
John Sanders........................................ 6,000 *
Sally G. Palmer..................................... 6,000 *
Michael J. Stimola(4)............................... 16,200 *
Gregory Griffin..................................... 7,880 *
Dimensional Fund Advisors Inc.(5)................... 614,300 8.2
Kayne Anderson Capital Advisors, L.P. and Richard A.
Kayne(6).......................................... 575,438 7.7
Arthur E. Hall(7)................................... 567,500 7.6
All current directors and executive officers as a
group (13 persons)................................ 2,481,586 30.2%
</TABLE>
---------------
* Represents less than 1% of the Company's outstanding Common Stock.
(1) The number of shares of Common Stock deemed beneficially owned includes
shares issuable pursuant to stock options which may be exercised within 60
days of September 29, 2000, for the following persons: Mr. Joseph
Montgomery -- 128,750 shares, Mr. James Scott Montgomery -- 71,000, Mr.
Luca -- 182,463, Mr. Alloway -- 157,882, Mr. Konecny -- 26,583, Mr.
Galasso -- 52,233, Mr. Sanders -- 6,000, Ms. Palmer -- 6,000, Mr.
Stimola -- 6,000, and Mr. Griffin -- 6,000.
(2) Mr. Joseph S. Montgomery has a business address c/o Cannondale Corporation,
16 Trowbridge Drive, Bethel, Connecticut 06801.
(3) Includes 2,400 shares held in trust for Mr. James Scott Montgomery's minor
children.
(4) Includes 5,000 shares held in Mr. Stimola's spouse's Individual Retirement
Account.
(5) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, furnishes investment advice to four registered investment companies
and serves as an investment manager to certain other investment vehicles.
Dimensional disclaims beneficial ownership of the shares reported.
Dimensional has an address at 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.
(6) Based on information contained in Schedule 13D filed jointly by Kayne
Anderson Capital Advisors, L.P. ("Kayne Anderson") and Richard A. Kayne on
March 25, 2000. Kayne Anderson and Mr. Kayne have shared voting and
dispositive power for 561,653 shares held by investment funds and managed
accounts. Mr. Kayne has sole voting and dispositive power for 13,785 shares
held by him directly. Kayne Anderson and Mr. Kayne have an address at 1800
Avenue of the Stars, Second Floor, Los Angeles, California 90067.
(7) Based on information contained in Schedule 13D filed jointly by Arthur E.
Hall and certain related parties on February 8, 1998. Mr. Hall has sole
voting and dispositive power for 525,000 shares and shared voting and
dispositive power for 42,500 shares. Mr. Hall has an address at 1726
Cedarwood Drive, Minden, Nevada 89423.
2
<PAGE> 5
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) reports 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 July 1, 2000, all required filings
during this period were made on a timely basis, except for a Form 3 and a Form 4
reporting one transaction were filed late by Michael T. Dower (Vice President of
Information Technology), a Form 4 reporting one transaction was filed late by
Leonard J. Konecny (Vice President of Purchasing) and a Form 4 reporting one
transaction was filed late by William A. Luca (Vice President, Treasurer, Chief
Financial Officer and Chief Operating Officer).
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 III expires at the 2000 Annual Meeting. The
Board of Directors proposes that the nominees described below be elected to
Class III 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 III -- DIRECTORS STANDING FOR ELECTION
WILLIAM A. LUCA, Director since 1994
William A. Luca, 57, has served as Vice President of Finance, Treasurer and
Chief Financial Officer of the Company since January 1994 and as Chief Operating
Officer since February 2000. 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, 41, has held a number of positions since joining
Cannondale in 1982. He is currently Vice President of Sales (1998 to present).
His previous positions with the Company included Vice President of Sales-United
States and Vice President of European Operations (1994 to 1998), Managing
Director of Cannondale Europe (1992 to 1994), Director of Sales and Marketing
(1990 to 1992) and National Sales Manager (1987 to 1990).
GREGORY GRIFFIN, Director since 1999
Gregory Griffin, 51, is a self-employed attorney and businessman.
Previously, Mr. Griffin was Assistant General Counsel with BTR, Inc., a
multinational conglomerate (1995 to 1999), and a partner with the law firm of
Levett Rockwood & Sanders (1981 to 1995).
3
<PAGE> 6
CLASS I -- TERM EXPIRES AT THE 2001 ANNUAL MEETING
JOSEPH S. MONTGOMERY, Director since 1971
Joseph S. Montgomery, 60, 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, 43, founded Sandvick Associates, Inc. in 1986 and has
been its President since its formation. Sandvick is a design and construction
company headquartered in Georgetown, Connecticut. See "Certain Relationships and
Related Transactions." 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 a principal stockholder. Sandella's owns,
operates and franchises upscale gourmet quick-service restaurants.
CLASS II -- TERM EXPIRES AT THE 2002 ANNUAL MEETING
JOHN SANDERS, Director since 1998
John Sanders, 52, is currently engaged in venture capital investment with
Milstein Brothers Capital Partners. From 1998 to September 2000 he was with the
New York Islanders Hockey Club, L.P. (the "Islanders"), where he served as
President (1999 to 2000) and Senior Vice President-Administration and General
Counsel (1998 to 1999). Prior to joining the Islanders, Mr. Sanders was a
partner with the law firm of Levett, Rockwood & Sanders since 1981.
JAMES SCOTT MONTGOMERY, Director since 1994
James Scott Montgomery, 39, 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 B.V. (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.
SALLY G. PALMER, Director since 1999
Sally G. Palmer, 45, has served as the Chief Development Officer for the
Credit Suisse First Boston Technology Group since June 2000, where she oversees
the career development of the group's professionals, as well as the group's
marketing and public relations activities. Previously, she served as an advisor
to the Company while she was a Principal with the investment banking division of
Robertson, Stephens & Company (1990 to 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 2000, 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. From time to time,
non-employee directors may be granted additional options to purchase the Common
Stock of the Company. During fiscal 1999, each non-employee director was granted
5,000 options, which were 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 six times during fiscal 2000. No director
attended fewer than 75% of the total number of meetings of the Board and
committees on which such director served.
4
<PAGE> 7
COMMITTEES OF THE BOARD
The Board of Directors has standing Compensation and Audit Committees. The
Compensation Committee is composed of Messrs. Sanders, Griffin, Stimola and
Joseph Montgomery and Ms. Palmer. The Audit Committee is composed of Messrs.
Sanders, Griffin and Ms. Palmer. The Board of Directors does not have a standing
nominating committee.
The Compensation Committee's functions are to review and set the
compensation, including salary, bonuses, stock options (in conjunction with the
Administrative Committee) 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 four times during fiscal 2000.
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 two times during fiscal 2000.
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 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 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, 1996 Stock Option Plan and 1998 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 four 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 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 and in leading the
Company's entrance into the motorcycle industry. He was awarded a profit-sharing
bonus of $62,000 in fiscal 1999 based on corporate
5
<PAGE> 8
profitability in fiscal 1998. He was not awarded a profit-sharing bonus in
fiscal 2000 based on corporate profitability in fiscal 1999, and he was not
awarded a profit-sharing bonus in fiscal 2001 based on corporate profitability
in fiscal 2000. 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
John Sanders
Joseph S. Montgomery
Michael J. Stimola
Sally G. Palmer
Gregory Griffin
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of John Sanders, Gregory
Griffin, Michael J. Stimola, Sally G. Palmer and Joseph Montgomery. Joseph
Montgomery serves as a director 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.
See "Certain Relationships and Related Transactions" for a discussion of
transactions between certain members of the Compensation Committee and the
Company.
6
<PAGE> 9
EXECUTIVE COMPENSATION SUMMARY TABLES
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 2000, 1999 and 1998 to its Chief Executive Officer and
the Company's four most highly compensated executive officers whose aggregate
cash and cash equivalent compensation exceed $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS
--------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Joseph S. Montgomery.............................. 2000 $408,611 $ 0 0
Chairman, President and Chief Executive Officer 1999 338,278 62,000 190,000(2)
1998 287,616 67,391 0
William A. Luca................................... 2000 335,769 0 80,000
Vice President, Treasurer, Chief Financial
Officer 1999 305,769 62,000 276,412(2)
and Chief Operating Officer 1998 247,252 67,391 158,394(3)
Daniel C. Alloway................................. 2000 201,827 0 30,000
Vice President of Sales 1999 175,000 45,000 203,091(2)
1998 150,000 44,927 65,000(3)
Leonard J. Konecny................................ 2000 132,714 0 10,000
Vice President of Purchasing 1999 130,278 23,000 73,917(2)
1998 108,077 22,464 40,000(3)
Mario Galasso..................................... 2000 124,154 0 10,000
Vice President of Product Development 1999 114,231 23,000 86,900(2)
1998 97,308 12,500 55,000(3)
</TABLE>
---------------
(1) Profit-sharing bonuses were not paid to Messrs. Montgomery, Luca, Alloway,
Konecny and Galasso in fiscal 2000 for corporate profitability in fiscal
1999. No profit-sharing bonuses will be paid to Messrs. Montgomery, Luca,
Alloway, Konecny and Galasso in fiscal 2001 for corporate profitability in
fiscal 2000.
(2) Includes the replacement of 90,000, 246,412, 173,091, 58,917 and 71,900
options that were previously granted to Messrs. Montgomery, Luca, Alloway,
Konecny and Galasso, respectively, and canceled pursuant to the repricing of
options on September 3, 1998.
(3) Includes the replacement of 86,697, 50,000, 20,000 and 40,000 options that
were previously granted to Messrs. Luca, Alloway, Konecny and Galasso,
respectively, and canceled pursuant to the repricing of options on March 27,
1998.
7
<PAGE> 10
The following table sets forth certain information regarding stock options
granted during fiscal 2000 by the Company to the executive officers named in the
Summary Compensation Table above.
OPTION GRANTS IN FISCAL YEAR 2000
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
-------------------------------------------------- REALIZABLE VALUE
PERCENT AT 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 DATE 5% 10%
---- ---------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Montgomery......... -- -- -- -- -- --
William A. Luca.............. 30,000 6.78% $9.50 8/18/09 $164,086 $430,095
50,000 11.30 6.56 2/3/10 206,277 522,748
Daniel C. Alloway............ 30,000 6.78 9.50 8/18/09 164,086 430,095
Leonard J. Konecny........... 5,000 1.13 9.50 8/18/09 27,348 71,682
5,000 1.13 7.06 4/26/10 22,200 56,259
Mario Galasso................ 10,000 2.26 9.50 8/18/09 54,695 143,365
</TABLE>
---------------
(1) Options vest over a three- or 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 would be achieved.
The following table sets forth certain information with respect to the
exercises of stock options during the fiscal year ended July 1, 2000 (none of
the named executive officers exercised any options during fiscal 2000), and
presents the fiscal year-end value of unexercised stock options held as of July
1, 2000 by the executive officers named in the Summary Compensation Table above.
AGGREGATE OPTIONS EXERCISED IN FISCAL 2000 AND
FISCAL 2000 YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT JULY 1, 2000 OPTIONS AT JULY 1, 2000(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. Montgomery..... -- $ -- 128,750 100,000 $238,700 $0
William A. Luca.......... -- -- 164,231 215,031 140,756 0
Daniel C. Alloway........ -- -- 151,882 108,334 167,090 0
Leonard J. Konecny....... -- -- 25,583 58,334 0 0
Mario Galasso............ -- -- 43,566 53,334 0 0
</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 30, 2000, $6.50, less the
respective option exercise price.
8
<PAGE> 11
EMPLOYMENT AGREEMENTS AND SEPARATION PLANS
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
employment during the Employment Period (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 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 and
(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.
The Company has also entered into identical non-competition agreements,
dated as of February 16, 2000, with each of the Executives. Under the terms of
each agreement, if, after a Change of Control (as defined in the agreement) of
the Company, the Executive's employment with the Company is terminated other
than for death or disability, the Executive has agreed that he will not engage
in any business that engages in the bicycle or motorcycle manufacturing,
marketing or distribution business and will not interfere with any business
relationship between the Company and any of its customers, suppliers, lessors,
lessees or employees for a period of two years after the termination of his
employment. In consideration for his covenant not to complete, the Company would
pay to the Executive within 30 days after his termination of employment a lump
sum payment equal to two times the sum of the Executive's Annual Base Salary and
Highest Annual Bonus (as such terms are defined in the agreement).
On February 16, 2000, the Company entered into a severance agreement with
William Luca. Together with the non-competition agreement, this agreement
replaces and supersedes a prior employment agreement between the Company and Mr.
Luca. Pursuant to the terms of the severance agreement, if, prior to a Change
9
<PAGE> 12
of Control (as defined in the agreement) of the Company, Mr. Luca's employment
is terminated by the Company without Cause or by Mr. Luca for Good Reason (as
such terms are defined in the agreement), the Company will be obligated to pay
Mr. Luca substantially the same amounts and provide substantially the same
benefits that Mr. Luca would have been entitled to receive pursuant to the terms
of his change-of-control employment agreement and his non-competition agreement
if his employment was terminated after a Change of Control of the Company. The
agreement also contains a two-year non-competition provision which prohibits Mr.
Luca from, among other things, engaging in any business that engages in the
bicycle or motorcycle manufacturing, marketing or distribution business or
interfering with any business relationship between the Company and any of its
customers, suppliers, lessors, lessees or employees for a period of two years
after the termination of his employment.
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 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 and (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.
Mario Galasso is a participant in the Company's Change-of-Control
Separation Plan B. The plan provides that Mr. Galasso 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. Galasso, 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 through the Date of
Termination (as defined in the plan) to the extent not already paid; and (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 Mr. Galasso's Annual Base Salary. Upon such
termination, Mr. Galasso 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. Galasso for death or disability with
specified payment obligations in each instance for accrued obligations.
10
<PAGE> 13
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, during
the five-year period ended June 30, 2000. The graph assumes that $100 was
invested on June 30, 1995, 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
[PERFORMANCE GRAPH]
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<PAGE> 14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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
the construction of the Company's headquarters and research and development
facility in Connecticut, the construction of the Company's motorcycle
manufacturing facility in Bedford, Pennsylvania and the expansion of its
Bedford, Pennsylvania bicycle manufacturing facility. In fiscal 2000, the
Company paid Sandvick a final payment of approximately $146,000 for the
construction of the motorcycle facility, which was completed in fiscal 1999.
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. In fiscal 1999, the Company provided to
Mr. Luca an additional $200,000 of interest-free loans under the same terms and
conditions as the original loan. In fiscal 2000, the Company advanced to Mr.
Luca an additional $200,000. These advances were incorporated into the original
loan agreement and are subject to the same terms and conditions as the original
loan. As of September 29, 2000, $850,000 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 Konecny to enable him to purchase a home in the
vicinity of the Company's headquarters. In fiscal 2000, the Company agreed to
provide Mr. Konecny an additional $20,000 of interest-free loans under the same
terms and conditions as the original loan. In the beginning of fiscal 2001, the
Company advanced to Mr. Konecny an additional $30,000. These advances were
incorporated into the original loan agreement and are subject to the same terms
and conditions as the original loan. As of September 29, 2000, $175,000 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 fiscal 1999, the Company provided Daniel Alloway with an $80,000
interest-free advance against his future salary. In fiscal 2000, the Company
advanced to Mr. Alloway an additional $15,000. As of September 29, 2000, $95,000
had been advanced to Mr. Alloway. The total amount advanced to Mr. Alloway was
converted into a demand note receivable during fiscal 2000.
During the first quarter of fiscal 1999, the Company provided Joseph
Montgomery with a loan in the principal amount of $10,000,000 for the purchase
of certain real property. This loan was combined with a previous loan in the
principal amount of $2,000,000 which enabled him to meet certain tax obligations
in April 1998. The combined 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 third security interest in a
mortgage on certain real property.
The Company deferred the first interest payment of approximately $900,000
payable by Mr. Montgomery to the Company due August 1, 1999 pursuant to the
terms of the loan. Under the terms of the deferral, Mr. Montgomery was obligated
to sell 75,000 shares of his Common Stock per quarter beginning in the third
quarter of fiscal 2000, and the net proceeds of such sales were to be remitted
to the Company to pay the deferred interest. The stock-selling program by Mr.
Montgomery was subject to applicable securities laws and other restrictions,
which precluded him from selling 75,000 shares per quarter. During the third and
fourth quarters of fiscal 2000, Mr. Montgomery sold 98,100 shares pursuant to
the terms of the deferral, thus reducing his deferred interest balance by
approximately $614,000. The Company also deferred the interest payment due
August 1, 2000 of approximately $1,067,000 until August 28, 2000. At such time,
Mr. Montgomery paid $1.4 million to the Company as full payment of all deferred
interest and accrued interest thereon. As of September 29, 2000, $12,196,333
including interest was outstanding on the loan.
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
12
<PAGE> 15
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 THE AMENDMENT TO THE 1998 STOCK OPTION PLAN
The Board of Directors has unanimously adopted and recommends that the
stockholders consider and approve an amendment to the Company's 1998 Stock
Option Plan (the "Plan") to increase the number of shares of Common Stock which
may be subject to options granted under the Plan.
The purposes of the Plan are to encourage stock ownership by employees,
officers, consultants and advisors of the Company, to provide an incentive for
such individuals to improve the profits of the Company, to assist the Company in
attracting, retaining and motivating those individuals who will be largely
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.
The Plan currently authorizes the issuance of up to 1,000,000 shares of
Common Stock pursuant to the exercise of options granted under the Plan. As of
September 29, 2000, options to purchase 984,936 shares were outstanding under
the plan. Therefore, only 15,064 shares were available for future grant under
the Plan.
To assure that sufficient shares are available to provide incentives to
those employees, officers, consultants and advisors of the Company who will be
responsible for the Company's future growth and continued success, and to
attract new employees, the Board of Directors has adopted the amendment to the
Plan, subject to stockholder approval. The amendment increases by 1,000,000
shares, to 2,000,000 shares, the number of shares of Common Stock which may be
issued pursuant to awards granted under the Plan.
The following is a summary of the material features of the Plan.
ADMINISTRATION
The Plan is administered by the Stock Option Plan Administrative Committee
(the "Committee") which consists 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.
AMENDMENT AND TERMINATION
Unless earlier suspended or terminated by the Board of Directors, the Plan
will continue in effect until December 31, 2008. The Plan may be amended or
terminated at any time by the Board of Directors, provided that no amendment or
termination may adversely affect the rights of an option recipient without the
recipient's consent and 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.
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<PAGE> 16
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.
The table below shows the number of options granted and outstanding under
the Plan to the persons or groups listed in the table from its inception through
September 29, 2000.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS NUMBER OF OPTIONS
---------------------------- -----------------
<S> <C>
Joseph S. Montgomery........................................ 100,000
Chairman, President and Chief Executive Officer
William A. Luca............................................. 110,000
Vice President, Treasurer, Chief Financial Officer and
Chief Operating Officer
Daniel C. Alloway........................................... 60,000
Vice President of Sales
Leonard J. Konecny.......................................... 25,000
Vice President of Purchasing
Mario Galasso............................................... 25,000
Vice President of Product Development
All current executive officers as a group................... 344,500
All current directors, who are not executive officers as a
group..................................................... 42,000
All current employees, excluding executive officers as a
group..................................................... 598,436
</TABLE>
ADJUSTMENTS UPON CHANGES IN COMMON STOCK, REORGANIZATION, MERGER, CONSOLIDATION
OR 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
14
<PAGE> 17
("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 Plan provides that options may not be transferred other than by will or
applicable laws of descent and distribution, and that 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.
FEDERAL INCOME TAX CONSEQUENCES
Under present federal tax laws and regulations, the federal income tax
consequences to the Company and the Optionees 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, an Optionee will not be subject to federal income tax upon the
grant of an option. 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 Optionee 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
Optionee.
The Optionee'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 Optionee
will be taxed as a capital gain or loss to the Optionee and will be long-term
capital gain or loss if the Optionee 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.
15
<PAGE> 18
STOCKHOLDER APPROVAL
The adoption of the amendment to the Plan requires 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT 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 fiscal 2001. 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 2000 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 2001 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 2001.
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 2001 ANNUAL MEETING
Pursuant to the Securities and Exchange Commission rules promulgated under
the Securities Exchange Act of 1934, any proposal of a stockholder intended to
be presented at the Company's 2001 Annual Meeting of Stockholders must be
received by the Secretary of the Company, for inclusion in the Company's proxy
statement relating to the 2001 Annual Meeting, by June 15, 2001. In accordance
with the advance notice provisions contained in the Company's Bylaws, the
Company generally must receive notice of a stockholder's intent to propose any
business at an annual meeting no later than the close of business on the 70th
day and no earlier than the close of business on the 90th day prior to the first
anniversary of this year's Annual Meeting (November 15, 2001).
16
<PAGE> 19
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 13, 2000 By Order of the Board of Director
JOHN T. CAPETTA
Secretary
17
<PAGE> 20
CANNONDALE CORPORATION
1998 STOCK OPTION PLAN
(As amended as of August 16,2000)
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
2,000,000 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).
<PAGE> 21
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
<PAGE> 22
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 event no
<PAGE> 23
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,
<PAGE> 24
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,
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 in Section
3 to fail to satisfy the conditions of Rule 16b-3, such provision shall be
deemed null
<PAGE> 25
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> 26
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
15, 2000 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
DETACH HERE
<PAGE> 27
/X/ 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 III Directors.
Nominees: (01) William A. Luca, (02) Daniel C. Alloway and
(03) Gregory Griffin
FOR \ \ \ \ WITHHELD
\ \ For all nominees except as noted above
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
2. Amendment to the Company's 1998 Stock Option Plan. \ \ \ \ \ \
3. Selection of Independent Accountants. \ \ \ \ \ \
</TABLE>
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:
-------------------------------- ---------------
DETACH HERE
