DEF 14A 1 ddef14a.htm DEFINITIVE PROXY STATEMENT DEFINITIVE PROXY STATEMENT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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 §240.14a-12

 

SAUCONY, INC.

(Name of Registrant as Specified in Its Charter)

 

Not Applicable

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x No fee required.

 

¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 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:

 

 

SAUCONY, INC.

13 Centennial Drive

Peabody, Massachusetts 01960

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD MAY 18, 2005

 

 

The annual meeting of stockholders of Saucony, Inc. will be held at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, on Wednesday, May 18, 2005 at 10:00 a.m., local time, to consider and act upon the following matters:

 

1.    To elect five directors;

 

2.    To ratify the appointment by the audit committee of our board of directors of the registered public accounting firm of Deloitte & Touche LLP as our registered public accounting firm for the 2005 fiscal year; and

 

3.    To transact such other business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.

 

Our board of directors has no knowledge of any other business to be transacted at the annual meeting.

 

Our board of directors has fixed the close of business on April 7, 2005 as the record date for the determination of the holders of our class A common stock entitled to vote at the annual meeting and at any postponement or adjournment of the annual meeting.

 

By order of the board of directors,

 

David E. Redlick, Clerk

 

Peabody, Massachusetts

April 27, 2005

 

 

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED ENVELOPE IN ORDER TO ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES.

SAUCONY, INC.

13 Centennial Drive

Peabody, Massachusetts 01960

 

 

PROXY STATEMENT FOR

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON

MAY 18, 2005

 

 

Saucony, Inc. is furnishing this proxy statement in connection with the solicitation of proxies by our board of directors for use at the annual meeting of stockholders to be held at the offices of Wilmer Cutler Pickering Hale and Dorr LLP, 60 State Street, Boston, Massachusetts on Wednesday, May 18, 2005 and at any postponement or adjournment of the annual meeting.

 

All shares of our class A common stock for which stockholders submit proxies will be voted in accordance with the stockholders’ instructions, and if no choice is specified, the shares will be voted in favor of the matters set forth in the notice of meeting accompanying this proxy statement. A stockholder may revoke a proxy at any time before its exercise by delivering a written revocation to our corporate Clerk or by voting in person at the annual meeting. Attendance at the annual meeting will not itself be deemed to revoke a proxy, unless the stockholder gives affirmative notice at the annual meeting that the stockholder intends to revoke the proxy and vote in person.

 

We will bear all costs of our solicitation of proxies. In addition to solicitations by mail, our directors, officers and employees, without additional remuneration, may solicit proxies by telephone, telecopy, personal interviews, and other means. We will also request brokerage houses, custodians, nominees and fiduciaries to forward proxy soliciting material to those persons for whom they hold shares and request instructions for voting the proxies. We will reimburse brokerage houses and other persons for their reasonable expenses in connection with this distribution.

 

We are first sending or otherwise giving to our stockholders the notice of meeting, this proxy statement, the enclosed proxy and our annual report to stockholders for the fiscal year ended December 31, 2004 on or about April 27, 2005. Our annual report is not a part of, or incorporated by reference in, this proxy statement.

 

Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our proxy statement or annual report may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of either document to you if you call or write us at the following address or phone number: Saucony, Inc., 13 Centennial Drive, Peabody, Massachusetts 01960, Telephone: (978) 532-9000, Attention: Michael Umana, Chief Financial Officer. If you want to receive separate copies of the annual report and proxy statement in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee record holder, or you may contact us at the above address and phone number.

 

Our annual report to stockholders for the fiscal year ended December 31, 2004 consists of our annual report on Form 10-K for the same fiscal year, as filed with the Securities and Exchange Commission, including financial statements and schedules, but excluding exhibits. We will, upon written request and payment of an appropriate processing fee, provide our stockholders with copies of the exhibits to our annual report on Form 10-K. Please address your request to Saucony, Inc., 13 Centennial Drive, Peabody, Massachusetts 01960, Attention: Michael Umana, Chief Financial Officer.

Voting Securities and Votes Required

 

Our board of directors has fixed April 7, 2005 as the record date for determining holders of our class A common stock who are entitled to vote at the annual meeting. At the close of business on the record date, there were outstanding and entitled to vote 2,520,647 shares of our class A common stock. Each share of class A common stock is entitled to one vote. Stockholders may not vote shares of our class B common stock at the annual meeting.

 

The holders of a majority of the shares of our class A common stock outstanding and entitled to vote at the annual meeting will constitute a quorum for the transaction of business at the annual meeting. Shares of our class A common stock present in person or represented by proxy, including shares which abstain or do not vote with respect to one or more of the matters presented for stockholder approval, will be counted for purposes of determining whether a quorum exists at the annual meeting. Therefore, shares held in “street name” by brokers or nominees who indicate on their proxies that they do not have discretionary authority to vote those shares as to a particular matter, commonly referred to as broker non-votes, will be counted for purposes of determining whether a quorum exists at the annual meeting.

 

The affirmative vote of the holders of a plurality of the shares of our class A common stock voting on the matter is required for the election of directors. In other words, a candidate for director will be elected if he or she receives more votes than a competing candidate, even if the winning candidate does not receive a majority of the votes cast. The affirmative vote of the holders of a majority of the shares of class A common stock voting on the matter is required to ratify the appointment of our registered public accounting firm.

 

Shares which abstain from voting as to a particular matter and broker non-votes will not be counted as votes in favor of that matter, and also will not be counted as shares voting on the matter. Accordingly, abstentions and “broker non-votes” will have no effect on the voting on the election of directors, which requires the affirmative vote of a plurality of the shares voting on that matter, nor will they have any effect on the ratification of the appointment of our registered public accounting firm, which requires the affirmative vote of a majority of the shares voting on that matter.

 

Stock Ownership of Certain Beneficial Owners and Management

 

The table below sets forth information concerning beneficial ownership of our class A common stock and class B common stock by:

 

  •   each stockholder we know to own beneficially more than 5% of the outstanding shares of our class A common stock;

 

  •   each of our directors;

 

  •   each of the individuals named in the table set forth under the heading “Compensation of Executive Officers—Summary Compensation Table” below; and

 

  •   all of our directors and executive officers as a group.

 

Unless otherwise indicated in the footnotes to the table, all information set forth in the table is as of January 31, 2005.

 

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The number of shares beneficially owned by each stockholder we identify below is determined under rules promulgated by the Securities and Exchange Commission. The information does not necessarily indicate ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the person has sole or shared voting power or investment power and also any shares that the individual has the right to acquire within 60 days after January 31, 2005 through the exercise or conversion of any stock option or other right. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner of those shares. Unless otherwise indicated, to our knowledge based upon information provided by the stockholders named in the table, each stockholder has sole investment and voting power, or shares voting and/or investment power with his or her spouse, with respect to all shares listed below as owned by that stockholder.

 

     Number of Shares
Beneficially Owned
     Percentage of Class Outstanding
Beneficially Owned
  
     Class A
Common
Stock
     Class B
Common
Stock
     Class A
Common
Stock
     Class B
Common
Stock
  
5% Stockholders                         

John H. Fisher

c/o Saucony, Inc.

13 Centennial Drive

Peabody, MA 01960

    901,736 (1)   332,160 (2)   35.8 %   7.9 %

Charles A. Gottesman and Merrill F. Gottesman

c/o Saucony, Inc.

13 Centennial Drive

Peabody, MA 01960

    901,736 (3)   359,866 (4)   35.8 %   8.6 %

PooRoo LLC

c/o Saucony, Inc.

13 Centennial Drive

Peabody, MA 01960

    382,472 (5)   —     15.2 %   —  

Slater Capital Management, L.L.C.

153 E. 53rd Street

26th Floor

New York, NY 10022

    161,123 (6)   153,500 (6)   6.4 %   3.7 %
Other Directors and Executive Officers                         

Jonathan O. Lee

    —     60,000 (7)   —     1.5 %

Robert J. LeFort, Jr.

    —     83,775 (8)   —     2.0 %

John J. Neuhauser

    —     81,196 (9)   —     2.0 %

Michael Umana

    —     97,960 (10)   —     2.3 %

Samuel S. Ward

    —     35,925 (11)   —     *  

Brian J. Enge

    —     31,360 (12)   —     *  

All directors and executive officers as a group
(10 persons)

    1,232,790     1,106,082 (13)   48.9 %   24.1 %
*   Less than 1%

 

(1)  

Consists of 382,472 shares held by PooRoo LLC (which are the same 382,472 shares listed as beneficially owned by Charles A. Gottesman and Merrill F. Gottesman, as described in note (3) below), of which each of Mr. Fisher

 

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and his sister, Merrill F. Gottesman, has a 50% membership interest and shares investment and voting power; 94,210 shares held in a generation-skipping trust for the benefit of Mr. Fisher (which are the same 94,210 shares listed as beneficially owned by Charles A. Gottesman and Merrill F. Gottesman, as described in note (3) below), for which Mr. Fisher and Mrs. Gottesman are trustees and share voting and investment power; 94,210 shares held in a generation-skipping trust for the benefit of Mrs. Gottesman (which are the same 94,210 shares listed as beneficially owned by Charles A. Gottesman and Merrill F. Gottesman, as described in note (3) below) for which Mr. Fisher and Mrs. Gottesman are trustees and share investment and voting power; 311,129 shares held in the name of Mr. Fisher; 1,333 shares held by Mr. Fisher’s daughter for which Mr. Fisher exercises sole voting and investment power; 4,000 shares held by Mrs. Donna Fisher, Mr. Fisher’s wife; and 14,382 shares held in trust for the benefit of Mr. Fisher’s children, for which Mr. Fisher is the trustee and exercises sole voting power. Mr. Fisher disclaims beneficial ownership of 191,236 of the 382,472 shares held by PooRoo LLC, of which Mr. Fisher and Mrs. Gottesman share investment and voting power, and further disclaims beneficial ownership of 94,210 shares held in a generation-skipping trust for the benefit of Mrs. Gottesman, for which Mr. Fisher and Mrs. Gottesman are trustees and share investment and voting power.

 

(2)   Consists of 23,410 shares held in a generation-skipping trust for the benefit of Mrs. Gottesman (which are the same 23,410 shares listed as beneficially owned by Charles A. Gottesman and Merrill F. Gottesman, as described in note (4) below) for which Mr. Fisher and Mrs. Gottesman are trustees and share investment and voting power; 34,210 shares held in a generation-skipping trust for the benefit of Mr. Fisher (which are the same 34,210 shares listed as beneficially owned by Charles A. Gottesman and Merrill F. Gottesman, as described in note (4) below), for which Mr. Fisher and Mrs. Gottesman are trustees and share investment and voting power; 1,582 shares held in trust for the benefit of Mr. Fisher’s daughter for which Mr. Fisher is the trustee and exercises sole investment and voting power; 171,780 shares held in the name of Mr. Fisher; and 101,178 shares which Mr. Fisher has the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005. Mr. Fisher disclaims beneficial ownership of 23,410 shares held in a generation-skipping trust for the benefit of Mrs. Gottesman, for which Mrs. Gottesman and Mr. Fisher are trustees and share investment and voting power.

 

(3)   Consists of 382,472 shares held by PooRoo LLC (which are the same 382,472 shares listed as beneficially owned by John H. Fisher, as described in note (1) above), of which each of Merrill F. Gottesman and John H. Fisher has a 50% membership interest and shares investment and voting power; 94,210 shares held in a generation-skipping trust for the benefit of Mr. Fisher (which are the same 94,210 shares listed as beneficially owned by John H. Fisher, as described in note (1) above) for which Mrs. Gottesman and Mr. Fisher are trustees and share investment and voting power; 94,210 shares held in a generation-skipping trust for the benefit of Mrs. Gottesman (which are the same 94,210 shares listed as beneficially owned by John H. Fisher, as described in note (1) above), for which Mrs. Gottesman and Mr. Fisher are trustees and share investment and voting power; 10,666 shares held by Mr. and Mrs. Gottesman’s daughters for which Mr. and Mrs. Gottesman exercise shared investment and voting power; 7,964 shares held in trust for the benefit of Mr. and Mrs. Gottesman’s daughters for which Mrs. Gottesman is the trustee and exercises sole investment and voting power; 6,700 shares held in the name of Mr. Gottesman; 94,781 shares held by Mr. and Mrs. Gottesman as joint tenants with right of survivorship; and 210,733 shares held in the name of Mrs. Gottesman. Mr. and Mrs. Gottesman disclaim beneficial ownership of 191,236 of the 382,472 shares held by PooRoo LLC, of which Mrs. Gottesman and Mr. Fisher share investment and voting power, and further disclaims beneficial ownership of 94,210 shares held in a generation-skipping trust for the benefit of Mr. Fisher, for which Mr. Fisher and Mrs. Gottesman are trustees and share investment and voting power.

 

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(4)   Consists of 23,410 shares held in a generation-skipping trust, for the benefit of Mrs. Gottesman (which are the same 23,410 shares listed as beneficially owned by John H. Fisher, as described in note (2) above), for which Mrs. Gottesman and Mr. Fisher are trustees and share investment and voting power; 34,210 shares held in a generation skipping trust for the benefit of Mr. Fisher (which are the same 34,210 shares listed as beneficially owned by John H. Fisher, as described in note (2) above), for which Mrs. Gottesman and Mr. Fisher are trustees and share investment and voting power; 3,164 shares held in trust for the benefit of Mr. and Mrs. Gottesman’s daughters for which Mrs. Gottesman is trustee and exercises sole investment and voting power; 10,800 shares held in the name of Mrs. Gottesman; 117,833 shares held by Mr. and Mrs. Gottesman as joint tenants with right of survivorship; 69,271 shares held by Mr. Gottesman; and 101,178 shares which Mr. Gottesman has the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005. Mr. and Mrs. Gottesman disclaim beneficial ownership of 34,210 shares held in a generation-skipping trusts for the benefit of Mr. Fisher, for which Mrs. Gottesman and Mr. Fisher are trustees and share investment and voting power.

 

(5)   The information reported is based on a Schedule 13D filed on March 11, 1999 with the Securities and Exchange Commission by PooRoo LLC, PooRoo, Inc., John H. Fisher and Charles A. Gottesman and Merrill F. Gottesman. PooRoo LLC is the direct owner of 382,472 shares. PooRoo, Inc. is the managing member of PooRoo LLC and as a result is deemed to have an indirect interest in and the power to direct the vote and disposition of the 382,472 shares held by PooRoo LLC. John H. Fisher is President and a Director of PooRoo, Inc. and has a 50% membership interest in PooRoo LLC. Merrill F. Gottesman is Treasurer, Clerk and a Director of PooRoo, Inc. and has a 50% membership interest in PooRoo LLC. The 382,472 shares listed as beneficially owned by PooRoo LLC are the same 382,472 shares listed as beneficially owned by John H. Fisher and by Charles A. Gottesman and Merrill F. Gottesman, as described in notes (1) and (3) above.

 

(6)   The information reported is based on Schedules 13G filed on February 14, 2005 with the Securities and Exchange Commission by Slater Capital Management, L.L.C. Slater Capital Management, L.L.C. is the general partner of a private investment partnership, of which it is the investment advisor. Slater Capital Management, L.L.C. disclaims beneficial ownership of all these shares.

 

(7)   Includes 15,000 shares which Mr. Lee has the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005.

 

(8)   Consists of 22,036 shares which Mr. LeFort has the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005 and 61,739 shares held by Mr. LeFort and Mrs. Elisabeth A. LeFort.

 

(9)   Includes 52,696 shares which Mr. Neuhauser has the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005.

 

(10)   Includes 74,357 shares which Mr. Umana has the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005.

 

(11)   Includes 33,227 shares which Mr. Ward has the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005.

 

(12)   Consists of 31,360 shares which Mr. Enge has the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005.

 

(13)   Includes a total of 481,792 shares which our directors and executive officers have the right to acquire pursuant to outstanding options exercisable within 60 days after January 31, 2005.

 

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ELECTION OF DIRECTORS

 

Unless otherwise instructed, the persons named in the accompanying proxy will vote to elect as directors the five nominees named below, all of whom are presently directors of Saucony. Each director will be elected to hold office until the 2006 annual meeting of stockholders and until his successor is elected and qualified. Each of the nominees has indicated his willingness to serve, if elected. However, if any nominee should be unable to serve, the person acting under the proxy may vote the proxy for a substitute nominee. Our board of directors has no reason to believe that any of the nominees will be unable to serve if elected. The proxy may not be voted for more than five directors.

 

For each nominee for election as a director there follows information given by each concerning:

 

  •   the nominee’s age;

 

  •   all positions or offices with Saucony held by the nominee;

 

  •   the nominee’s length of service as a director of Saucony;

 

  •   the nominee’s principal occupation and business experience for at least the past five years; and

 

  •   the names of other public reporting companies of which the nominee serves as a director.

 

John H. Fisher, age 57, has served as one of our directors since 1980 and as Chairman of the Board since 1991. Mr. Fisher has served as our Chief Executive Officer since 1991 and as our President since 1985. Mr. Fisher served as our Chief Operating Officer from 1985 to 1991, our Executive Vice President from 1981 to 1985 and as our Vice President, Sales from 1979 to 1981. He is a member of the World Federation of Sporting Goods Industries, is the former Chairman of the Athletic Footwear Council of the Sporting Goods Manufacturers Association and is a member of various civic associations. Mr. Fisher is the brother-in-law of Charles A. Gottesman, our Vice Chairman of the Board and Executive Vice President, Business Development.

 

Charles A. Gottesman, age 54, has served as one of our directors since 1983. Mr. Gottesman has served as our Vice Chairman of the Board and Executive Vice President, Business Development since July 2001. Mr. Gottesman served as our Executive Vice President, Chief Operating Officer and Treasurer from 1992 to June 2001, our Executive Vice President, Finance from 1989 to 1992, our Senior Vice President from 1987 to 1989, our Vice President from 1985 to 1987, our Treasurer from 1983 to 1989 and in several other capacities beginning in 1977. Mr. Gottesman is the brother-in-law of John H. Fisher, our Chairman of the Board, President and Chief Executive Officer.

 

Jonathan O. Lee, age 54, has served as one of our directors since 2001 and also served as one of our directors from 1990 to 1998. Mr. Lee has served as President of Lee Capital Investments, LLC, a private equity and investment banking firm, since 1980. Mr. Lee serves on the board of trustees of the Beth Israel Deaconess Medical Center, the board of trustees of the Commonwealth School and the board of directors of the Pioneer Institute for Public Policy Research. He is also a director of several privately held companies.

 

Robert J. LeFort, Jr., age 51, has served as one of our directors since 1997. Mr. LeFort is the founder of Connextions.net, Inc., an integrated e-commerce and customer support service provider, and has served as its Chairman of the Board and Chief Executive Officer since its inception in 1996. Mr. LeFort also has served as

 

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Chairman of the Board and Chief Executive Officer of Magnetix Corporation, a multimedia manufacturer, since its inception in 1992. From November 1997 to June 1999, Mr. LeFort served as President of Connextions.net, and from July 1992 to March 2000, Mr. LeFort served as President of Magnetix.

 

John J. Neuhauser, age 62, has served as one of our directors since 1989. Mr. Neuhauser has been Academic Vice President and Dean of Faculty at Boston College since August 1999. Mr. Neuhauser served as Dean of Boston College’s Carroll School of Management from 1978 to August 1999, and held the position of Associate Professor and Chairman of the Computer Science Department of Boston College from 1971 to 1977. He presently serves as a trustee and a member of the board of directors of Columbia Group, a Bank of America family of mutual funds and a trustee of Saint Michael’s College.

 

Our board of directors recommends a vote FOR electing as directors the five nominees named above.

 

Phyllis H. Fisher retired from the board of directors on May 21, 2003. In recognition of Mrs. Fisher’s more than twenty years of service to Saucony, and as a means of providing the board of directors with the opportunity to benefit from her experience and counsel, the board of directors appointed Mrs. Fisher Director Emeritus of the Company as of May 21, 2003. As Director Emeritus of the Company, Mrs. Fisher is invited to meetings of the board of directors. Mrs. Fisher is paid an annual retainer of $15,000 for her service as Director Emeritus of the Company, and we pay the expenses she incurs to attend board meetings.

 

CORPORATE GOVERNANCE

 

General

 

We believe that good corporate governance is important to ensure that Saucony is managed for the long-term benefit of stockholders. This section describes key corporate governance guidelines and practices that we have adopted. Complete copies of our corporate governance guidelines, committee charters and code of conduct described below are posted on the “Investor Relations – Corporate Governance” section of our website, www.sauconyinc.com. Alternatively, you can request a copy of any of these documents by writing to us at Saucony, Inc., 13 Centennial Drive, Peabody, Massachusetts 01960, Attention: Investor Relations.

 

Corporate Governance Guidelines

 

Our board of directors has adopted corporate governance guidelines to assist the board in the exercise of its duties and responsibilities and to serve the best interests of the Company and its stockholders. These guidelines, which provide a framework for the conduct of the board’s business, provide that:

 

  •   the principal responsibility of the directors is to oversee the management of the Company;

 

  •   a majority of the members of the board shall be independent directors;

 

  •   the independent directors meet regularly in executive session;

 

  •   directors have full and free access to management and, as necessary and appropriate, independent advisors;

 

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  •   new directors participate in an orientation program and all directors are expected to participate in continuing director education on an ongoing basis; and

 

  •   at least annually the board and its committees will conduct a self-evaluation to determine whether they are functioning effectively.

 

Board Determination of Independence

 

Under applicable NASDAQ rules, a director will only qualify as an “independent director” if, in the opinion of our board of directors, that person does not have a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that none of Messrs. Lee, LeFort and Neuhauser has a relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is an “independent director” as defined under Rule 4200(a)(15) of the NASDAQ Stock Market, Inc. Marketplace Rules.

 

Board Meetings and Attendance

 

Our board of directors met ten times during fiscal 2004 and acted by written consent on five occasions. During fiscal 2004, all of our directors attended at least 75% of the aggregate number of meetings of the board of directors and the committees on which he served during the period for which he was a director. Our corporate governance guidelines provide that directors are expected to attend the annual meeting of stockholders. All directors attended the 2004 annual meeting of stockholders.

 

Board Committees

 

The board of directors has established three standing committees – audit, compensation, and nominations – each of which operates under a charter that has been approved by the board. Current copies of each committee’s charter, along with our corporate governance guidelines and code of business conduct and ethics, are posted on the “Investor Relations – Corporate Governance” section of our website, www.sauconyinc.com.

 

The board of directors has determined that all of the members of each of the board’s three standing committees are independent as defined under the rules of the NASDAQ Stock Market, including, in the case of all members of the audit committee, the additional independence requirements of Rule 10A-3 under the Exchange Act.

 

Audit Committee

 

The audit committee’s responsibilities include:

 

  •   appointing, approving the compensation of, and assessing the independence of our registered public accounting firm;

 

  •   overseeing the work of our registered public accounting firm, including through the receipt and consideration of certain reports from such firm;

 

  •   reviewing and discussing with management and the registered public accounting firm our financial statements and related disclosures;

 

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  •   monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;

 

  •   discussing our risk management policies;

 

  •   establishing procedures for the receipt and retention of accounting related complaints and concerns;

 

  •   meeting independently with our registered public accounting firm and management; and

 

  •   preparing the audit committee report required by SEC rules (which is included in this proxy statement under the heading, “Ratification of Appointment of Registered Public Accounting Firms – Report of the Audit Committee of the Board of Directors”).

 

The members of the audit committee are Messrs. LeFort, Lee and Neuhauser. Mr. Lee serves as chairman of the audit committee. The board of directors has determined that Jonathan O. Lee is an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K. The audit committee met eleven times during fiscal year 2004 and acted by written consent on two occasions.

 

Compensation Committee

 

The compensation committee’s responsibilities include:

 

  •   reviewing and approving, or making recommendations to the board of directors with respect to, the compensation of our executive officers including our Chief Executive Officer;

 

  •   overseeing an evaluation of our senior executives;

 

  •   overseeing and administering our cash and equity incentive plans;

 

  •   reviewing and making recommendations to the board of directors with respect to director compensation; and

 

  •   preparing the compensation committee report required by SEC rules (which is included in this proxy statement under the heading “Compensation of Executive Officers – Report of the Compensation Committee on Executive Compensation”).

 

The members of the compensation committee are Messrs. LeFort and Neuhauser. Mr. Neuhauser serves as chairman of the compensation committee. The compensation committee met five times during fiscal year 2004 and acted by written consent on two occasions.

 

Nominations Committee

 

The nominations committee’s responsibilities include:

 

  •   identifying individuals qualified to become directors;

 

  •   recommending to the board of directors the persons to be nominated for election as directors and to be appointed to each of the board’s committees;

 

  •   reviewing and making recommendations to the board of directors with respect to management succession planning;

 

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  •   developing and recommending to the board of directors corporate governance principles; and

 

  •   overseeing an annual evaluation of the board of directors.

 

The members of the nominations committee are Messrs. LeFort, Lee and Neuhauser. Mr. LeFort serves as chairman of the nominations committee. The nominations committee did not meet during fiscal year 2004 and acted by written consent on one occasion.

 

Director Nomination Process

 

The process followed by the nominations committee to identify and evaluate director candidates includes requests to members of the board of directors and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the committee and the board.

 

In considering whether to recommend any particular candidate for inclusion in the board of directors’ slate of recommended director nominees, the nominations committee applies the criteria set forth in our corporate governance guidelines. These criteria include the candidate’s integrity, business acumen, knowledge of our business and industry, age, experience, diligence, conflicts of interest and the ability to act in the interests of all stockholders. The committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. We believe that the backgrounds and qualifications of our directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow the board of directors to fulfill its responsibilities.

 

Stockholders may recommend individuals to the nominations committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of our common stock for at least a year as of the date such recommendation is made, to Nominations Committee, c/o Clerk, Saucony, Inc., 13 Centennial Drive, Peabody, MA 01960. Assuming that appropriate biographical and background material has been provided on a timely basis, the committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others.

 

Communicating with the Independent Directors

 

The board of directors will give appropriate attention to written communications that are submitted by stockholders, and will respond if and as appropriate. The chairman of the nominations committee, with the assistance of our Chief Executive Officer, is primarily responsible for monitoring communications from stockholders and for providing copies or summaries to the other directors as he considers appropriate.

 

Communications will generally be forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the chairman of the nominations committee considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters as to which Saucony tends to receive repetitive or duplicative communications.

 

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Stockholders who wish to send communications on any topic to the board of directors should address such communications to Board of Directors c/o Clerk, Saucony, Inc., 13 Centennial Drive, Peabody, MA 01960.

 

Code of Business Conduct and Ethics

 

We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We have posted a current copy of the code on our website, which is located at www.sauconyinc.com. In addition, we intend to post on our website all disclosures that are required by law or NASDAQ stock market listing standards concerning any amendments to, or waivers from, any provision of the code.

 

Compensation of Directors

 

Non-employee directors are each paid an annual retainer of $30,000. Non-employee directors are also paid a fee of $1,500 for each meeting of the board of directors they attend in person and $500 for each meeting of the board of directors they attend via telephone.

 

In addition, for the purpose of advancing the interests of our stockholders by enhancing our ability to attract, retain and motivate outside directors by providing those directors with equity ownership opportunities and incentives and thereby better aligning the interests of those directors with the interests of our stockholders, our board of directors has adopted a policy under which it grants stock options to each director who is not an employee of Saucony. Each director who is not an employee of Saucony annually receives, following the annual meeting of stockholders, a nonqualified stock option to purchase 15,000 shares of our class B common stock. These options are granted with an exercise price equal to the per share fair market value of our class B common stock on the date of grant and are exercisable immediately. Pursuant to this policy, on May 19, 2004 each of Messrs. Lee, LeFort and Neuhauser were granted nonqualified stock options to purchase 15,000 shares of our class B common stock at a per share exercise price equal to $20.06.

 

COMPENSATION OF EXECUTIVE OFFICERS

 

Summary Compensation Table

 

The following table sets forth information with respect to the compensation, for the last three fiscal years, of our Chief Executive Officer and each of our four other most highly compensated executive officers during fiscal 2004.

 

In accordance with the rules of the Securities and Exchange Commission, the compensation set forth in the table below does not include medical, group life or other benefits which are available to all of our salaried employees, and perquisites and other personal benefits, securities or property which do not exceed the lesser of $50,000 or 10% of the total annual salary and bonuses for each of the individuals shown in the table.

 

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Amounts described in the following table under the heading “Securities Underlying Options” represent shares of our class B common stock.

 

Summary Compensation Table

 

     Annual Compensation
     Long-Term
Compensation
   

All Other
Compensation

  

Name and Principal Position

    Year
    Salary
    Bonus
    Other Annual
Compensation
     Securities
Underlying
Options
   

John H. Fisher

    Chairman of the Board,
President and Chief Executive Officer

    2004
2003
2002		    $
 
 		 529,944
518,371
504,848		    $
 
 		 602,804
408,704
278,601		    18,500
18,500
—		 (1)
(1)
 		   —
35,142
10,000		    $
 
 		 10,850
10,200
20,245		 (2)
(2)
(2)

Charles A. Gottesman

    Vice Chairman of the Board and Executive Vice President,
Business Development

    2004
2003
2002		    $
 
 		 450,465
440,705
429,120		    $
 
 		 401,869
272,469
232,167		    19,000
19,000
—		 (1)
(1)
 		   —
35,142
10,000		    $
 
 		 11,538
10,200
20,329		 (3)
(3)
(3)

Michael Umana

    Executive Vice President, Chief Operating Officer and
Chief Financial Officer

    2004
2003
2002		    $
 
 		 308,387
282,453
278,554		    $
 
 		 296,576
282,453
275,000		    —
—
—		  
 
 		   —
120,000
10,000		    $
 
 		 10,254
11,129
10,629		 (4)
(4)
(4)

Samuel S. Ward

    Senior Vice President,
Operations and Technology

    2004
2003
2002		    $
 
 		 191,134
176,374
165,728		    $
 
 		 100,000
100,000
82,160		    —
—
—		  
 
 		   —
108,609
5,000		    $
 
 		 4,816
4,401
4,109		 (5)
(5)
(5)

Brian J. Enge(7)

    Senior Vice President and
General Manager,
Saucony Apparel Division

    2004
2003
2002		    $
 
 		 180,269
169,928
69,893		    $
 
 		 100,000
107,500
30,000		    —
—
—		  
 
 		   —
108,645
7,500		    $
 
 		 4,678
3,296
—		 (6)
(6)
 
(1)   Represents a cash payment or amounts earned to be used by the executive, after the payment of applicable taxes, to obtain whole life insurance coverage on the life of the executive.

 

(2)   For 2004, consists of $5,000 in contributions by Saucony under our 401(k) savings plan and $5,850 in contributions by Saucony under our Supplemental Executive Retirement Plan. For 2003, consists of $5,000 in contributions by Saucony under our 401(k) savings plan and $5,200 in contributions by Saucony under our Supplemental Executive Retirement Plan. For 2002, consists of $5,000 in contributions by Saucony under our 401(k) savings plan, $4,745 in contributions by Saucony under our Supplemental Executive Retirement Plan and $10,500 in split-dollar life insurance premiums paid by Saucony.

 

(3)   For 2004, consists of $5,125 in contributions by Saucony under our 401(k) savings plan and $6,413 in contributions by Saucony under our Supplemental Executive Retirement Plan. For 2003, consists of $5,000 in contributions by Saucony under our 401(k) savings plan and $5,200 in contributions by Saucony under our Supplemental Executive Retirement Plan. For 2002, consists of $5,000 in contributions by Saucony under our 401(k) savings plan, $5,200 in contributions by Saucony under our Supplemental Executive Retirement Plan and $10,129 in split-dollar life insurance premiums paid by Saucony.

 

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(4)   For 2004, consists of $5,125 in contributions by Saucony under our 401(k) savings plan and $5,129 in whole life insurance premiums paid by Saucony. For 2003, consists of $6,000 in contributions by Saucony under our 401(k) savings plan and $5,129 in whole life insurance premiums paid by Saucony. For 2002, consists of $5,500 in contributions by Saucony under our 401(k) Savings Plan and $5,129 in whole life insurance premiums paid by Saucony.

 

(5)   For 2004, consists of $4,816 in contributions by Saucony under our 401(k) savings plan. For 2003, consists of $4,401 in contributions by Saucony under our 401(k) savings plan. For 2002, consists of $4,109 in contributions by Saucony under our 401(k) savings plan.

 

(6)   For 2004, consists of $4,678 in contributions by Saucony under our 401(k) savings plan. For 2003, consists of $3,296 in contributions by Saucony under our 401(k) savings plan.

 

(7)   Mr. Enge joined Saucony on July 29, 2002.

 

Option Grants

 

No options were granted in fiscal 2004 to the executive officers named in the Summary Compensation Table above.

 

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Table

 

The following table sets forth information regarding stock options exercised during our 2004 fiscal year and the number and value of unexercised stock options held as of December 31, 2004 by each of the executive officers named in the Summary Compensation Table above. In the following table:

 

  •   amounts set forth under the heading “Value Realized” represent the difference between the aggregate fair market value of the underlying shares of class B common stock on the date of exercise and the aggregate exercise price; and

 

  •   amounts set forth under the heading “Value of Unexercised In-the-Money Options at Year-End” are based on the aggregate fair market value of the underlying shares of class B common stock on December 31, 2004, or $27.05 per share, less the aggregate option price.

 

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

 

     Shares of
Class B
Common
Stock
Acquired
on
Exercise
   

Value

Realized

   

Number of Shares of Class
B Common Stock
Underlying Unexercised
Options

at Fiscal Year-End

   

Value of Unexercised

In-the-Money Options

at Fiscal Year End

Name

          Exercisable
    Unexercisable
    Exercisable
    Unexercisable

John H. Fisher

    47,880    595,000    81,372    53,432    $ 1,444,856    $ 941,232

Charles A. Gottesman

    47,880    595,000    81,372    53,432    $ 1,444,856    $ 941,232

Michael Umana

    59,847    734,295    56,059    172,392    $ 1,009,557    $ 2,929,842

Samuel S. Ward

    6,000    96,746    29,178    115,461    $ 436,938    $ 1,718,632

Brian J. Enge

    —    —    29,188    114,870    $ 438,524    $ 1,711,415

 

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Other Executive Compensation

 

All of our vice presidents of Saucony are eligible to participate in our Vice President Bonus Plan, which has been approved by our board of directors upon recommendation of the compensation committee. To be eligible for this plan, an executive must be a vice president for the entire fiscal year. Bonuses awarded to a vice president under this plan are limited to a maximum of 25% of the vice president’s salary for the previous fiscal year, and are based on the level of attainment of specified sales and earnings per share profit objectives of Saucony or the division for which the vice president is responsible. The compensation committee may also award additional bonuses to vice presidents on a discretionary basis from time to time based on their individual performance.

 

Employment Contracts

 

Employment Agreements.    We have entered into an employment agreement with each of Mr. Fisher and Mr. Gottesman, pursuant to which we employ Mr. Fisher as President and Chief Executive Officer and Mr. Gottesman as Executive Vice President, Business Development. The following is a summary of the principal terms and conditions of these employment agreements:

 

  •   The term of employment for each executive currently expires on August 17, 2005, and automatically extends for additional one year terms thereafter unless the executive or Saucony gives the other party 90 days’ prior notice of its desire to terminate.

 

  •   We are required to take all actions available to us to cause Mr. Fisher to be elected as a director and chairman of the board and Mr. Gottesman to be elected as a director for the term of their respective employment agreements.

 

  •   In 2005, we are required to pay an annual base salary of $543,770 to Mr. Fisher and $462,205 to Mr. Gottesman, subject to upward adjustment by our board of directors. The base salary of each executive is increased annually to reflect the increase in the Consumer Price Index – Urban Wage Earners and Clerical Workers for the previous year.

 

  •   We are required to pay an annual cash bonus to Mr. Fisher equal to 3% of the consolidated pre-tax income of Saucony for the fiscal year. We are required to pay an annual cash bonus to Mr. Gottesman equal to the sum of 2% of the consolidated pre-tax income of Saucony for the fiscal year plus 1% of the consolidated pre-tax income of Saucony for the fiscal year, if the performance of a division or divisions of Saucony selected by our board of directors, if any, equals or exceeds performance levels set by the board of directors. Our board of directors may in its sole discretion award a larger bonus to either or both executives in any fiscal year.

 

  •   We are required to make a cash payment to each executive of not less than $18,500 for Mr. Fisher and of not less than $19,000 for Mr. Gottesman to be used by the executive, after the payment of applicable taxes by the executive, to obtain whole life insurance coverage on the life of the executive in an amount not less than three times the executive’s then-current base salary.

 

  •   Each executive is entitled to participate in all benefit programs available to our employees and is entitled to four weeks paid vacation per year. We also are required to provide use of an automobile, pay up to $2,500 per year for club memberships and pay up to $10,000 per year for financial or legal counseling services for each executive. We have also obtained, as required, a lifetime membership for Mr. Fisher in the CEO Group.

 

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  •   The employment of each executive terminates upon the earlier to occur of the expiration of the employment period described above, our election to terminate for cause, or the death or disability of the executive.

 

  •   Upon the expiration of their employment periods, other than termination for cause or due to death or disability, each executive is entitled to receive an amount equal to his annual base salary as then in effect. However, those payments will not be made if the executive is entitled to receive severance benefits under his executive retention agreement described below.

 

  •   Each executive is subject to a non-compete clause, which provides that during his employment at Saucony and for two years after that employment is terminated, he will not engage in a competitive business, will not induce Saucony employees to terminate their employment with Saucony, will not solicit business from our clients and will not interfere in our relationships with our suppliers.

 

Retention Agreements.    In addition, we have entered into a retention agreement with each of Mr. Fisher, Mr. Gottesman, Mr. Umana, Mr. Ward and Mr. Enge. The retention agreements with Mr. Fisher and Mr. Gottesman provide that if a change in control of Saucony occurs during the term of the executive’s employment at Saucony, the following provisions apply:

 

  •   Each outstanding option to purchase our capital stock held by the executive will become immediately exerciseable in full, and each outstanding restricted stock award, if any, will be deemed fully vested and will no longer be subject to a right of repurchase by Saucony or its successor or acquirer.

 

  •   If within 36 months following the change in control the executive’s employment is terminated either by Saucony or its successor or acquirer, other than for cause, disability or death, or by the executive for good reason, it will be required to pay to the executive the aggregate of his annual base salary to the date of termination, a pro rata portion of his bonus for the most recently completed fiscal year, any deferred compensation and accrued vacation pay to the date of termination and three times the sum of his highest annual salary and highest annual bonus during the five-year period prior to the change in control. Saucony or its successor or acquirer is required to continue to provide benefits to the executive and his family for 36 months after the date of termination or until he is reemployed with a company that provides comparable benefits. It is also required to provide to the executive any other termination benefits which he is eligible to receive, and for purposes of determining eligibility for retirement benefits, the executive will be deemed to have remained employed by Saucony or its successor or acquirer for 36 months after the date of termination.

 

  •   If the executive resigns within 36 months following a change in control, other than for good reason, or if his employment is terminated by death or disability within 36 months following a change in control, Saucony or its successor or acquirer is required to pay to him his annual base salary to the date of termination, base salary, a pro rata portion of his bonus for the most recently completed fiscal year, any deferred compensation and accrued vacation pay to the date of termination and any other termination benefits which he is eligible to receive.

 

  •   If Saucony or its successor or acquirer terminates the executive’s employment for cause within 36 months following a change in control, it is required to pay to the executive his annual base salary to the date of termination, annual base salary plus any deferred compensation and any other termination benefits which he is entitled to receive.

 

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The retention agreements with Mr. Fisher and Mr. Gottesman also provide that Saucony or its successor or acquirer will gross up compensation payments to the executive to pay for any excise taxes that may be payable with respect to compensation payments, and any taxes payable with respect to the gross-up payments, in the event of a change in the ownership or control of Saucony or the ownership of a substantial portion of the assets of Saucony, within the meaning of Section 280G(b)(2)(A)(i) of the Internal Revenue Code.

 

The retention agreements with Mr. Umana, Mr. Ward and Mr. Enge provide that (1) if the executive remains continuously employed full-time by Saucony and we complete a change in control on or prior to December 31, 2005, we will pay the executive an initial retention bonus and (2) if the executive remains continuously employed full-time by Saucony or its successor or acquirer during the period ending six months after the change in control, or the executive’s employment at Saucony or its successor or acquirer is terminated during that period by Saucony or its successor or acquirer without cause or by the executive for good reason, Saucony or its successor or acquirer will pay the officer an additional retention bonus. The amounts of the retention bonuses provided for in the retention agreements are as follows:

 

Name

    Initial Retention Bonus
    Additional Retention Bonus

Michael Umana

    $ 150,000    $ 150,000

Samuel S. Ward

      92,500      92,500

Brian J. Enge

      88,275      88,275

 

The retention agreements for Messrs. Umana, Ward and Enge further provide that if the executive remains continuously employed full-time by Saucony and we complete a change in control on or prior to December 31, 2005 all options to purchase our capital stock granted to the officer (which do not by their terms otherwise automatically vest upon the occurrence of the change in control) will automatically vest as to 50% of the unvested shares subject to such options.

 

Executive Severance Benefit Plan.    We made Mr. Umana, Mr. Ward and Mr. Enge participants in our executive severance benefit plan. Under this plan, if the executive is terminated without cause on or after July 30, 2004, we will pay the executive one month of the executive’s annual base salary, as of the termination date, for every complete continuous year of full-time employment service by such executive, up to a maximum of 6 months of severance pay. The executive is not eligible to receive the severance payment if he or she (1) voluntarily terminates his or her employment prior to a change in control, (2) voluntarily terminates his or her employment from and after a change in control without good reason, (3) retires, (4) refuses to accept other suitable employment that is offered by Saucony or its successor or acquirer, (5) is terminated for cause or (6) voluntarily terminates employment by declining an offer of employment with an acquirer of the business or assets of Saucony. In a separate agreement with Mr. Umana, the terms of the plan were amended so that if Mr. Umana becomes entitled to severance under the plan, his severance payment will equal $300,000. This severance benefit is in place of, and supercedes, the benefit to which Mr. Umana would otherwise be entitled to under Saucony’s executive severance plan.

 

Related Party Transactions

 

On January 2, 2004, we entered into an agreement with Wolfgang Schweim in connection with his retirement from his service as President of Saucony International. Under the terms of the agreement, we made a one-time severance payment to Mr. Schweim in the amount of $204,000. In connection with Mr. Schweim’s

 

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retirement from his service as President of Saucony International, he also received an automobile with a fair market value after tax considerations of approximately $65,000. In addition, we have entered into a consulting arrangement with Mr. Schweim for him to provide us with product development and product marketing assistance for two years through 2005 for a consulting fee of $50,000 per year.

 

Report of the Compensation Committee on Executive Compensation

 

The compensation committee of our board of directors is responsible for establishing compensation policies with respect to our executive officers, including our Chief Executive Officer and the other executive officers named in the Summary Compensation Table above, and setting the compensation for these individuals.

 

The compensation committee seeks to achieve three broad goals in connection with our executive compensation programs and decisions regarding individual compensation:

 

  •   the compensation committee structures executive compensation programs in a manner that the committee believes will enable Saucony to attract and retain key executives;

 

  •   the compensation committee establishes compensation programs that are designed to reward executives for the achievement of specified business objectives of Saucony and/or the individual executive’s particular business unit. By basing compensation in part on particular goals, the compensation committee believes that a performance-oriented environment is created for our executives; and

 

  •   our executive compensation programs are intended to provide executives with an equity interest in Saucony so as to link a portion of the compensation of our executives with the performance of our capital stock.

 

In order to provide for continuity of our two most senior executive officers, the compensation committee in August 2000 approved multi-year employment contracts with John H. Fisher, our President and Chief Executive Officer, and Charles A. Gottesman, our Executive Vice President, Business Development. These agreements are described in detail under “Employment Contracts” above. The compensation committee recommended that we enter into the agreements after meeting with a compensation consultant engaged by Saucony and obtaining advice from our counsel. Each agreement fixes the executive officer’s annual base salary during the term of the agreement, subject to upward adjustment by the board of directors and annual increases to reflect changes in the consumer price index. The agreements also provide for bonuses to be awarded to Mr. Fisher and Mr. Gottesman based upon a percentage of consolidated pre-tax income of Saucony and, in the case of Mr. Gottesman, a division or divisions of Saucony specified by the board of directors of Saucony. Each of these agreements includes provisions prohibiting the executive from engaging in a business competitive with Saucony during the term of the agreement and for two years after termination of employment.

 

The compensation committee believes that the base salary levels provided for in these contracts, including the agreement with Mr. Fisher, established appropriate base salary levels for the covered individuals in light of the objectives described above. The compensation committee also believes that the bonus structure provided under the agreements, combined with participation in our stock incentive plan, effectively aligns the compensation of Mr. Fisher and Mr. Gottesman with the success of Saucony.

 

To provide for continuity of Messrs. Umana, Ward and Enge in light of the company’s review of its strategic alternatives, the compensation committee in July 2004 authorized the company to enter into retention

 

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agreements with these executives and authorized the creation of an executive severance benefit plan and designated each of the executives participants under the plan as described under “Employment Contracts” above. Except for an agreement specifying the amount Mr. Umana would receive as a bonus for fiscal 2004, none of the executive officers, besides Mr. Fisher and Mr. Gottesman, have employment agreements establishing compensation levels. The compensation programs for these executives established by the compensation committee consist of three elements based upon the objectives described above:

 

  •   base salary;

 

  •   annual cash bonus; and

 

  •   a stock-based equity incentive in the form of participation in our stock incentive plans.

 

In establishing base salaries for executives not covered by employment agreements, the compensation committee monitors salaries at other companies, including those companies within the Footwear Index described in this proxy statement under the heading “Compensation of Executive Officers – Stock Performance Chart.” The compensation committee also considers historic salary levels of the individual and the nature of the individual’s responsibilities and compares the individual’s base salary with those of other executives at Saucony. To the extent it deems appropriate, the compensation committee also considers general economic conditions, our financial performance and the individual’s performance, in establishing base salaries of executives. The compensation committee believes that the base salary levels for fiscal 2004 of our executive officers not covered by employment agreements were appropriate in light of these factors.

 

The compensation committee generally structures cash bonuses for its executive officers by linking them to the achievement of specified company and/or business unit performance objectives. For these executive officers, the board of directors, upon recommendation of the compensation committee, has adopted a Vice President Bonus Plan pursuant to which vice presidents of the company are eligible for bonuses, calculated as a percentage of annual salary, upon the attainment of specified sales and earnings per share profit objectives which are fixed by the compensation committee for the company or certain of its divisions. This plan is described under “Other Executive Compensation” above. The compensation committee may also award additional bonuses to vice presidents on a discretionary basis from time to time based on the performance of the individual vice presidents. The compensation committee believes that these arrangements tie each executive’s performance closely to a key measure of success of the company or the executive’s business unit.

 

The compensation committee awards stock option grants to our executive officers. Stock option grants are generally designed to make a portion of the overall compensation of the executive officers, including our Chief Executive Officer, receiving grants vary depending upon the performance of our common stock. These grants, as a result of the applicable vesting arrangements, also serve as a means for Saucony to retain the services of these individuals. Stock options granted to executive officers generally have an exercise price equal to the per share fair market value of our common stock on the date of grant, vest over time and terminate ten years after the date of grant, although the compensation committee has in prior years and may in the future grant options with different terms. Grants of options to Mr. Fisher and Mr. Gottesman generally terminate five years after the date of grant and, if they are intended to be incentive stock options, generally have an exercise price equal to 110% of the per share fair market value of our common stock on the date of grant. The compensation committee granted no stock options to its executives in fiscal 2004.

 

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Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation in excess of $1.0 million paid to a company’s chief executive officer and four other most highly compensated executive officers. Some compensation, including qualified performance-based compensation, will not be subject to the deduction limit if specified requirements are met. The compensation committee reviews the potential effect of Section 162(m) periodically and generally seeks to structure the long-term compensation granted to our executive officers through option issuances under our stock incentive plans in a manner that is intended to avoid disallowance of deductions under Section 162(m). Nevertheless, compensation attributable to awards granted under our stock incentive plans may not be treated as qualified performance-based compensation under Section 162(m). The salary, bonus and other compensation paid to Mr. Fisher in fiscal 2004 pursuant to his employment agreement exceeded the $1.0 million limit in fiscal 2004 by approximately $133,000. The compensation committee believes that Mr. Fisher’s pay sufficiently aligns his compensation with the performance of Saucony so that the payment in excess of the limit is in the best interests of the stockholders. The compensation committee reserves the right to use its judgment to authorize compensation payments to our other executive officers that may be in excess of the limit when the compensation committee believes those payments are appropriate and in the best interests of our stockholders, after taking into consideration changing business conditions and the performance of our employees.

 

By the compensation committee of the board of directors of Saucony, Inc.,

 

Robert J. LeFort, Jr.

 

John J. Neuhauser

 

Compensation Committee Interlocks and Insider Participation

 

During the 2004 fiscal year, the compensation committee of our board of directors consisted of Mr. LeFort and Mr. Neuhauser. No executive officer of Saucony has served during the 2004 fiscal year as a director or member of the compensation committee, or other committee serving an equivalent function, of any other entity whose executive officers served on our board of directors or compensation committee.

 

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Stock Performance Chart

 

The following graph compares the cumulative total stockholder return on our common stock during the five fiscal years ending December 31, 2004 with the cumulative total return over the same period of the Russell 2000 Index and a group index, which we refer to as the Footwear Index, utilized to provide a comparison between our stock performance and that of other footwear companies we believe to be our peers. This comparison assumes the investment of $100 on December 31, 1999 in our common stock, the Russell 2000 Index and the Footwear Index and assumes dividends, if any, are reinvested.

 

The Footwear Index consists of K-Swiss, Inc. – Class A, Stride Rite Corp., Timberland Co. – Class A and Vans, Inc. The return of each component company of the Footwear Index is weighted according to the respective company’s stock market capitalization at the beginning of the period.

 

Comparison of Cumulative Total Returns

 

LOGO

 

    

December 31,

1999

   

January 5,

2001

   

January 4,

2002

   

January 3,

2003

   

January 2,

2004

    December 31,
2004

Saucony, Inc. Common Stock

    $ 100    $ 60    $ 38    $ 66    $ 120    $ 236

Russell 2000 Index

      100      93      102      81      117      138

Footwear Index

      100      204      141      132      214      247

 

20

Equity Compensation Plan Information

 

The following table provides information about the securities authorized for issuance under our equity compensation plans. In accordance with the rules of the Securities and Exchange Commission, the information in the table is presented as of December 31, 2004, the end of our most recently completed fiscal year.

 

Equity Compensation Plan Information

 

Plan category

   

Number of securities
to be issued upon
exercise of
outstanding

options, warrants
and rights

     Weighted-average
exercise price of
outstanding
options, warrants
and rights
    Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
  
     (a)     (b)    (c)  

Equity compensation plans approved by security holders

    1,347,009 (1)   $ 10.86    1,147,015 (2)

Equity compensation plans not approved by security holders

    —       —    —  
    
 
  

Total

    1,347,009     $ 10.86    1,147,015  
    
 
  
(1)   Consists of options to purchase shares of class B common stock.

 

(2)   Includes 198,752 shares of our class B common stock issuable under our 2001 Employee Stock Purchase Plan, of which 8,146 shares were issued in connection with the offering period which ended on February 14, 2005. We may not issue shares of our class A common stock under the 2001 Employee Stock Purchase Plan. Also includes 948,263 shares issuable under our 2003 Stock Incentive Plan. In addition to being available for future issuance upon exercise of options that may be granted after December 31, 2004 up to 500,000 shares available for issuance under the 2003 Stock Incentive Plan may be issued in the form of restricted stock. All awards under the 2003 Stock Incentive Plan, including stock options and restricted stock, may be either class A common stock or class B common stock.

 

21

RATIFICATION OF APPOINTMENT OF REGISTERED PUBLIC

ACCOUNTING FIRM

 

The audit committee of our board of directors has appointed the registered public accounting firm of Deloitte & Touche LLP as our registered public accounting firm for the 2005 fiscal year. Deloitte & Touche began serving as our registered public accounting firm effective July 9, 2002. Although stockholder approval of the audit committee’s appointment of Deloitte & Touche is not required by law, the board believes that it is advisable to give stockholders an opportunity to ratify the audit committee’s appointment. If this proposal is not approved at the annual meeting, the audit committee will reconsider its appointment of Deloitte & Touche.

 

We expect representatives of Deloitte & Touche to be present at the annual meeting. They will have the opportunity to make a statement if they desire to do so and will also be available to respond to appropriate questions from stockholders.

 

Our board of directors believes that the ratification of Deloitte & Touche as our registered public accounting firm for the 2005 fiscal year is in the best interest of both Saucony’s stockholders and Saucony and recommends a vote FOR this proposal.

 

Report of the Audit Committee of the Board of Directors

 

The audit committee has reviewed our audited financial statements for the fiscal year ended December 31, 2004 and has discussed these financial statements with our management and our registered public accounting firm.

 

The audit committee has also received from, and discussed with, our registered public accounting firm various communications that our registered public accounting firm is required to provide to the audit committee, including the matters required to be discussed by Statement on Auditing Standards 61 (Communication with Audit Committees).

 

Our registered public accounting firm also provided the audit committee with the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). Independence Standards Board Standard No. 1 requires auditors annually to disclose in writing all relationships that in the auditor’s professional opinion may reasonably be thought to bear on independence, confirm their perceived independence and engage in a discussion of independence. The audit committee has discussed with the registered public accounting firm their independence from Saucony.

 

Based on its discussions with management and the registered public accounting firm, and its review of the representations and information provided by management and the registered public accounting firm, the audit committee recommended to our board of directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2004.

 

By the audit committee of the board of directors of Saucony, Inc.,

 

Jonathan O. Lee

 

Robert J. LeFort, Jr.

 

John J. Neuhauser

 

22

Independent Auditor’s Fees

 

The following table summarizes the fees of Deloitte & Touche LLP, our registered public accounting firm, billed to us for each of the last two fiscal years.

 

Fee Category

    2004
    2003

Audit Fees (1)

    $ 334,146    $ 231,367

Audit-Related Fees(2)

      229,368      3,375

Tax Fees (3)

      2,059      2,639

All Other Fees

      —      —
    
  

Total Fees

    $ 565,573    $ 237,381
    
  
(1)   Audit fees consist of fees for the audit of our financial statements, the audit of our internal control over financial reporting, the review of the interim financial statements included in our quarterly reports on Form 10-Q, and other professional services provided in connection with statutory and regulatory filings or engagements.

 

(2)   Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit and the review of our financial statements and which are not reported as “Audit Fees”. These services relate to consultations concerning internal controls, financial accounting and reporting standards.

 

    None of the audit–related fees for fiscal 2004 or fiscal 2003 were provided under the de minimis exception to the audit committee pre-approval requirements.

 

(3)   Tax fees consist of fees for tax compliance, tax advice and tax planning services. Tax compliance services, which relate to preparation of original tax returns, claims for refunds and tax payment-planning services, accounted for $2,059 of the total tax fees paid for fiscal 2004 and $1,889 of the total tax fees paid for fiscal 2003. Tax advice and tax planning services relate to tax advice in connection with endorsement arrangements.

 

    100% of the tax fees for fiscal 2004 and 28% of the tax fees for fiscal 2003 were provided under the de minimis exception to the audit committee pre-approval requirements.

 

Pre-Approval Policy and Procedures

 

The audit committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our registered public accounting firm. This policy generally provides that we will not engage our registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the audit committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.

 

From time to time, the audit committee may pre-approve specified types of services that are expected to be provided to us by our registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.

 

The audit committee has also delegated to each individual member of the audit committee the authority to approve any audit or non-audit services to be provided to us by our registered public accounting firm. Any approval of services by a member of the audit committee pursuant to this delegated authority is reported on at the next meeting of the audit committee.

 

23

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act requires our directors, executive officers and holders of more than 10% of either class of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Based solely on our review of copies of reports filed by the reporting persons and furnished to Saucony or written representations from reporting persons that no Form 5 filing was required, we believe that our officers, directors and holders of more than 10% of either class of our common stock during fiscal 2004 have complied with all Section 16(a) filing requirements.

 

OTHER MATTERS

 

We do not know of any other matters which will be presented for consideration at the annual meeting. However, if any other matters are properly presented to the annual meeting, it is the intention of the persons named in the accompanying proxy to vote, or otherwise act, in accordance with their judgment on those matters.

 

Any proposal that a stockholder of Saucony wishes to be considered for inclusion in our proxy statement and proxy card for our 2006 annual meeting of stockholders must be submitted to our corporate Clerk at the address noted above no later than December 28, 2005.

 

If a stockholder of Saucony wishes to present a proposal before the 2006 annual meeting, but does not wish to have the proposal considered for inclusion in our proxy statement and proxy card, that stockholder must also give written notice to our corporate Clerk at our offices, 13 Centennial Drive, Peabody, Massachusetts 01960. If our corporate Clerk does not receive the notice on or before March 13, 2006, the proxies designated by our board of directors will have discretionary authority to vote on any such proposal.

 

By order of the board of directors,

 

David E. Redlick, Clerk

 

April 27, 2005

 

Our board of directors hopes that stockholders will attend the meeting. Whether or not you plan to attend, you are urged to complete, date and sign the enclosed proxy and return it in the accompanying envelope. Prompt response will greatly facilitate arrangements for the meeting and your cooperation is appreciated.

 

24

Appendix A

 

PROXY   SAUCONY, INC   PROXY

 

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

 

2005 ANNUAL MEETING OF STOCKHOLDERS

May 18, 2005

 

The undersigned, revoking all prior proxies, hereby appoints John H. Fisher, Charles A. Gottesman and David E. Redlick, and each of them, with full power of substitution, as proxies for the undersigned to act and to vote at the annual meeting of stockholders of Saucony, Inc. (“Saucony”) to be held on May 18, 2005 and at any postponement or adjournment of the meeting as designated in this proxy upon all matters referred to on the reverse side of this proxy and as described in the proxy statement for the meeting and, in their discretion, upon any other matters that may properly come before the meeting.

 

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THE PROXIES WILL VOTE FOR THE ELECTION OF ALL OF THE DIRECTOR NOMINEES AND FOR PROPOSAL 2.

 

PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE OF THIS PROXY AND

RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.

 

CONTINUED AND TO BE SIGNED ON

REVERSE SIDE

 

A-1

Annual Meeting of Stockholders

 

SAUCONY, INC.

 

May 18, 2005

 

Please date, sign and mail your

proxy card in the envelope provided as soon as possible.

 

Please detach along perforated line and mail in the envelope provided.

 

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF ALL DIRECTOR NOMINEES AND “FOR” PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE   x

 

 

1. Election of five directors.

 

¨

    FOR ALL NOMINEES    Nominees:   

¨

¨

   

John H. Fisher

Charles A. Gottesman

¨

    WITHHELD AUTHORITY FOR ALL
NOMINEES		        

¨

¨

   

Jonathan O. Lee

Robert J. LeFort, Jr.

¨

    FOR ALL EXCEPT (SEE INSTRUCTIONS
BELOW)		        

¨

    John J. Neuhauser

 

  INSTRUCTION:    TO   WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S), MARK “FOR ALL EXCEPT” AND FILL IN THE CIRCLE NEXT TO EACH NOMINEE FOR WHOM YOU WISH TO WITHHOLD AUTHORITY, AS SHOWN HERE:  x

 

2. Ratification of the appointment by the audit committee of Saucony’s board of directors of the registered accounting firm of Deloitte & Touche LLP as Saucony’s registered public accounting firm for the 2005 fiscal year.

 

FOR   AGAINST   ABSTAIN
¨   ¨   ¨

 

To change the address on your account, please check the box at right and indicate your new address in the address space
above. Please note that changes to the registered name(s) on the account may not be submitted via this method.             

 

Signature of Stockholder:                                                               Date:                             

 

Signature of Stockholder:                                                               Date:                             

 

Note: Please sign exactly as your name or names appear on this proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.

 

A-2