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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
GARGOYLES, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(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.
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Notes:
GARGOYLES, INC.
May 15, 2000
Dear Shareholder:
You are cordially invited to attend the 2000 Annual Meeting of Shareholders
("Annual Meeting") of Gargoyles, Inc. to be held at 10:00 a.m. on Thursday,
June 15, 2000, at the company's headquarters at 5866 South 194th Street, Kent,
Washington 98032.
At the Annual Meeting, the shareholders will be asked to elect two
directors. The Notice of 2000 Annual Meeting of Shareholders and the Proxy
Statement on the following pages describe the nominees for election to our
Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU CAST YOUR VOTE IN
FAVOR OF EACH OF THE NOMINATED DIRECTORS.
Whether or not you plan to attend the Annual Meeting, we hope that you will
have your stock represented by marking, signing, dating, and returning your
proxy card in the enclosed envelope as soon as possible. Your stock will be
voted in accordance with the instructions you have given in your proxy card.
You may, of course, attend the Annual Meeting and vote in person even if you
have previously returned your proxy card.
We look forward to your attendance at the meeting.
Sincerely,
/s/ Leo Rosenberger
Leo Rosenberger
Chief Executive Officer
and Chief Financial Officer
IMPORTANT
A proxy card is enclosed. All shareholders are urged to complete and mail
the proxy card promptly. The enclosed envelope for return of the proxy card
requires no postage. Any shareholder attending the Annual Meeting may
personally vote on all matters that are considered, and when a shareholder
votes at the Annual Meeting, the signed proxy will be revoked.
GARGOYLES, INC.
----------------
Notice of 2000 Annual Meeting of Shareholders
June 15, 2000
----------------
TO THE SHAREHOLDERS:
The 2000 Annual Meeting of Shareholders (the "Annual Meeting") of Gargoyles,
Inc., a Washington corporation ("Gargoyles"), will be held at 10:00 a.m.,
local time, on Thursday, June 15, 2000, at the company's headquarters at 5866
South 194th Street, Kent, Washington 98032, for the following purposes:
1. To elect two Class 3 Directors to the Gargoyles Board of Directors to
serve until the 2003 annual meeting of shareholders; and
2. To address such other matters as may properly come before the meeting
and any adjournment or postponement thereof.
The Board of Directors has fixed May 1, 2000 as the record date for
determining shareholders entitled to receive notice of and to vote at the
Annual Meeting or any adjournment or postponement thereof. Only shareholders
of record at the close of business on that date will be entitled to notice of
and to vote at the Annual Meeting.
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON, BUT
EVEN IF YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE REQUESTED TO
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN
THE POSTAGE-PAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION. YOUR PROXY
MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND RETURNING A
LATER-DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH THE
SECRETARY OF GARGOYLES A WRITTEN REVOCATION BEARING A LATER DATE OR BY
ATTENDING AND VOTING IN PERSON AT THE ANNUAL MEETING. SHAREHOLDERS ATTENDING
THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE PREVIOUSLY SENT IN A
PROXY CARD.
By Order of the Board of Directors
/s/ Cynthia L. Pope
Cynthia L. Pope
Ex. VP, General Counsel
and Secretary
5866 South 194th Street,
Kent, Washington
May 15, 2000
GARGOYLES, INC.
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
To Be Held On Thursday, June 15, 2000
General
The enclosed proxy is solicited by the Board of Directors of Gargoyles,
Inc., a Washington corporation ("Gargoyles" or the "Company"), for use at the
Annual Meeting of Shareholders of Gargoyles (the "Annual Meeting") to be held
at 10:00 a.m., local time, on Thursday, June 15, 2000, at the Company's
headquarters at 5866 South 194th Street, Kent, Washington 98032, and at any
adjournment or postponement thereof.
Gargoyles' principal executive offices are located at 5866 South 194th
Street, Kent, Washington 98032.
This Proxy Statement and the accompanying proxy card are being mailed to the
shareholders of Gargoyles on or about May 15, 2000.
Outstanding Securities and Voting Rights
Only holders of record of Gargoyles stock at the close of business on May 1,
2000 will be entitled to vote at the Annual Meeting. On that date, Gargoyles
had 7,822,191 shares of common stock (the "Common Stock") outstanding. Each
share of Common Stock is entitled to one vote at the Annual Meeting. On that
date, the Company also had 10,000 shares of Series A Preferred Stock (the
"Preferred Stock") outstanding. Each share of Preferred Stock is entitled to
3.1600342 votes at the Annual Meeting, or 79% of the total votes entitled to
be cast at the Annual Meeting. See "Information Regarding Beneficial Ownership
of Principal Shareholders, Directors and Management". Holders of Common Stock
or Preferred Stock are not entitled to cumulate votes in the election of
Directors. Under Washington law, the Company's Articles of Incorporation and
the Company's Bylaws, if a quorum is present at the Annual Meeting, the two
nominees for election to the Board of Directors will be approved if a majority
of the shares present in person or represented by proxy and entitled to vote
at the Annual Meeting vote in favor of their election. Because the only
business scheduled to come before the Annual Meeting is the election of
directors, the presence in person or by proxy at the Annual Meeting of holders
of record of a majority of the outstanding shares of Common Stock and the
number of votes attributable to each share of Preferred Stock, in the
aggregate, is required to constitute a quorum for the transaction of business
at the Annual Meeting.
Abstention from voting and broker non votes will have no effect on the
election of directors since they will not represent votes cast at the Annual
Meeting for such purposes.
Proxy Voting
Shares for which proxies are properly executed and returned will be voted at
the Annual Meeting in accordance with the directions noted thereon, or, in the
absence of directions to the contrary, such shares will be voted "FOR" the
election of the nominees to the Board of Directors named on the following
pages. It is not expected that any matters other than those referred to in
this Proxy Statement will be brought before the Annual Meeting. If, however,
other matters are properly presented, the persons named as proxies will vote
in accordance with their discretion with respect to such matters.
Revocation
Any shareholder giving a proxy may revoke it at any time before it is voted
by delivering to the Secretary of the Company a written notice of revocation
or a duly executed proxy card bearing a later date, or by attending the Annual
Meeting and electing to vote in person.
Election of Directors
In accordance with Gargoyles' Bylaws, the Board of Directors has set the
number of Directors constituting the Gargoyles Board of Directors at four
members. Directors are elected for three-year terms. The Board is divided into
three classes, with one class of Directors elected to a three-year term at
each annual meeting of shareholders. Class 1 and 2 is comprised of one
Director, and Class 3 is comprised of two directors.
The Class 3 Directors are up for election at this Annual Meeting and will
serve until the 2003 Annual Meeting of Shareholders or until their successors
are elected and qualified. There are no family relationships between any of
the nominee Directors or executive officers of the Company. After the Annual
Meeting, and assuming the election of the nominees named below, the Company's
Board of Directors would consist of three outside Directors.
The nominees set forth below have consented to being named in this proxy
statement and to serve if elected. However, if any nominee at the time of his
election is unable or unwilling to serve or is otherwise unavailable for
election, and as a result another nominee is designated by the Board of
Directors, the persons named in the enclosed proxy, or their substitutes, will
have discretion and authority to vote or refrain from voting for such nominee
in accordance with their judgment.
Nominees Standing for Election
Name Age Class
---- --- -----
Leo Rosenberger............................................... 49 3
Paul S. Shipman............................................... 47 3
Continuing Directors
Name Age Class
---- --- -----
Daniel C. Regis............................................... 60 2
William C. Thompson........................................... 61 1
William C. Thompson has been a director of the Company since June 1999. Mr.
Thompson is the President of Worldwide Marketing Consultants. From 1996 to
1998, Mr. Thompson was the Executive Vice President and Chief Marketing
Officer of Umbro International, a $600 million brand marketed through a
subsidiary/licensee network in 55 countries. From 1987 to 1995, Mr. Thompson
was Vice Chairman and Chief Marketing Officer of J. Walter Thompson, a $6
billion international advertising agency.
Daniel C. Regis has been a director of the Company since June 1999. Mr.
Regis is the Managing Director of Digital Partners, which provides investment
consulting services to several venture capital funds. From July 1996 to July
1999, Mr. Regis was President of Kirlan Venture Capital, Inc. which also
provided investment consulting services to several venture capital funds. From
July to December 1999, Mr. Regis was a consultant to Kirlan Venture Capital.
Prior to joining Kirlan, Mr. Regis was the Managing Partner of Price
Waterhouse LLP for the Northwest Region.
Leo Rosenberger has been a director of the Company since October 1999. Mr.
Rosenberger is Chief Executive Officer, Chief Financial Officer and Treasurer
of the Company. Mr. Rosenberger joined the Company in February 1998. From
January 1996 to January 1998, Mr. Rosenberger was President and Chief
Financial Officer of Pacific Linen, Inc. Pacific Linen, Inc. filed a voluntary
petition for Chapter 11 bankruptcy in April 1996 and emerged therefrom in
December 1997. In May 1995, Mr. Rosenberger was appointed by the court as the
Chapter 7 Trustee in Bankruptcy for Waterbed, Inc. From August 1994 to
February 1995, Mr. Rosenberger served as interim Chief Financial Officer of
Jay Jacobs, Inc., a company which filed a voluntary petition for Chapter 11
bankruptcy protection in May 1994 and emerged therefrom in November 1995. Mr.
Rosenberger was
2
a general partner in a national accounting and consulting firm and has over
twenty years of experience as a turnaround crisis manager and financial
restructuring and management consultant.
Paul S. Shipman has been a Director of the Company since June 1996. Mr.
Shipman has been President since September 1981, Chairman of the Board since
November 1992 and Chief Executive Officer since June 1993 of Redhook Ale
Brewery, Incorporated, a brewer of craft beers.
Compensation of Directors
The Directors waived all cash compensation in 1999.
Directors who do not beneficially own five percent or more of the Company's
outstanding voting securities and who are not an officer, director or employee
of the Company or of any entity that beneficially owns five percent or more of
the Company's outstanding voting securities ("Non-employee Directors") receive
nonqualified stock option grants under the Gargoyles, Inc. 1995 Stock
Incentive Compensation Plan (the "Stock Plan"). In 1999 each Non-employee
Director was granted a nonqualified option to purchase 10,000 shares of the
Company's common stock. The exercise price for each option grant is equal to
the fair market value on the grant date based on the closing sale price of the
Common Stock as quoted on the OTC Bulletin Board. The options vest at a rate
of 1/12 per month so long as the director continues to serve on the Company's
Board of Directors.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
ELECTION OF EACH OF ITS NOMINEES TO SERVE ON THE
COMPANY'S BOARD OF DIRECTORS
Information Regarding the Board and its Committees
During 1999, there were six meetings of the Board of Directors. Additional
action was taken by the Board of Directors during 1999 by unanimous consent
resolution. All directors attended at least 75% of the meetings of the Board
of Directors and the committees of which they were members. During the first
half of 1999, the Board had five committees, an Audit Committee, a
Compensation Committee, an Executive Committee, a Nominating Committee, and a
Special Committee. Appointments to committees of the Board of Directors are
traditionally made at the annual meetings of the Board of Directors, which
occur after the annual shareholders' meetings. No appointments were made to
the Executive Committee, the Nominating Committee, or the Special Committee at
the 1999 annual board meeting, and those committees were dissolved.
Audit Committee. The Audit Committee reviews the scope and results of the
annual independent audit of the Company's books and records and reviews the
Company's finance and accounting policies. From June 1999, the members of the
Audit Committee were Mr. Regis and Mr. Thompson. The Audit Committee met six
times in 1999, and additional action was taken by the Audit Committee by
unanimous consent resolutions.
Compensation Committee. The Compensation Committee establishes salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company. The Committee also administers the Company's benefit
plans, including the Stock Plan, and recommends the establishment of policies
relating to such plans. From June 1999, the members of this committee were Mr.
Shipman and Mr. Thompson. Action was taken by the Compensation Committee in
1999 by unanimous consent resolution.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the 34 Act requires the Company's Directors and executive
officers, and persons who own more than 10% of a registered class of the
Company's securities, to file with the SEC initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers,
3
Directors, and greater-than-10% shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the best of the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company during the fiscal year ended
December 31, 1998, all Section 16(a) filing requirements applicable to its
officers, directors and greater-than-10% shareholders were complied with in
1999.
Information Regarding Beneficial Ownership of Principal Shareholders,
Directors and Management
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May 1, 2000, for (i) each person known by
the Company to own beneficially 5% or more of the Company's common stock, (ii)
each Director of the Company, (iii) each executive officer of the Company for
whom compensation information is given in the Summary Compensation Table in
this Report, and (iv) all Directors and executive officers as a group.
Outstanding
Shares of
Common Stock Percent
Name and Address of Beneficially Of
Beneficial Owner Owned Class
------------------- ------------ -------
Scott Davidoff (1)....................................... 6,250 *
c/o Gargoyles, Inc.
5866 S. 194th Street Kent, WA 98032
Nancy Parker (1)......................................... 20,625 *
c/o Gargoyles, Inc.
5866 S. 194th Street Kent, WA 98032
Cynthia L. Pope.......................................... 0
c/o Gargoyles, Inc.
5866 S. 194th Street Kent, WA 98032
Daniel C. Regis (1)...................................... 10,000 *
c/o Gargoyles, Inc.
5866 S. 194th Street Kent, WA 98032
Leo Rosenberger.......................................... 0
c/o Gargoyles, Inc.
5866 S. 194th Street Kent, WA 98032
Michael Schroeder (1).................................... 5,000 *
c/o Gargoyles, Inc.
5866 S. 194th Street Kent, WA 98032
Paul S. Shipman (1)...................................... 24,360 *
c/o Gargoyles, Inc.
5866 S. 194th Street Kent, WA 98032
William C. Thompson (1).................................. 10,000 *
c/o Gargoyles, Inc.
5866 S. 194th Street Kent, WA 98032
Trillium Corporation (2)................................. 2,505,313 6%
4350 Cordata Parkway Bellingham, WA 98226
U.S. Bank National Association (3)....................... 39,600,342 79%
601 Second Avenue South
MPSP1803
Minneapolis, MN 55402
U.S. Bankcorp (4)........................................ 400,000 1%
601 Second Avenue South
MPSP1803
Minneapolis, MN 55402
All current Directors and executive officers as a group
(8 persons)............................................. 76,235 *
4
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
Compensation Summary
The following table sets forth during the fiscal years ended December 31,
1999, 1998, and 1997 the compensation for services rendered for the Company's
Chief Executive Officer and the Company's four other most highly compensated
executive officers based on salary and bonus for the last completed fiscal
year (the "named executive officers").
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
-------------------- ------------
Securities
Name and Principal Underlying All Other
Position Year Salary ($) Bonus ($) Options (#) Compensation($)
------------------ ---- ---------- --------- ------------ ---------------
Leo Rosenberger (1)..... 1999 225,000 300,000 2,382
CEO and CFO 1998 196,875 1,823
1997
Cynthia L. Pope (2)..... 1999 120,000 120,000 7,276
Ex. V.P., General 1998 105,000 1,474
Counsel and Secretary 1997
Scott Davidoff (3)...... 1999 139,735 113,938 4,829
Sr. VP, Marketing and 1998 129,951 61,589 5,292
Product Development 1997 66,740 40,904 669
Nancy Parker (4)........ 1999 141,875 25,000 4,623
Sr. VP, New Business 1998 83,337 915
Development 1997
Michael Schroeder (5)... 1999 113,269 52,500 10,110
VP Sales 1998 91,779 3,098
1997 46,771 15,000 669
- --------
(1) Mr. Rosenberger's 1999 bonus includes $150,000 payable on January 31,
1999 for progress on the turnaround of the Company prior to that date and
$150,000 payable upon the closing of the Company's recapitalization
transaction with U.S. Bank. Mr. Rosenberger's other compensation includes
(i) $464 and $656 for life insurance and disability premiums in 1999 and
1998, respectively, and (ii) $1,918 and $1,167 for health insurance
premiums in 1999 and 1998, respectively. Mr. Rosenberger's employment
with the Company commenced February 1, 1998.
(2) Ms. Pope's 1999 bonus includes $60,000 payable on January 31, 1999 for
progress on the turnaround of the Company prior to that date and $60,000
payable upon the closing of the Company's recapitalization transaction
with U.S. Bank. Ms Pope's other compensation includes (i) $358 and $378
for life insurance and disability premiums in 1999 and 1998,
respectively, (ii) $1,918 and $1,095 for health insurance premiums in
1999 and 1998, respectively, and (iii) $5000 in matching 401(k)
contributions by the Company in 1999. Ms. Pope's employment with the
Company commenced February 1, 1998.
(3) Mr. Davidoff's other compensation includes (i) $368 and $61 for life
insurance and disability premiums in 1999 and 1998, respectively, and
(ii) $ 5,231, $1,192, and $669 for health insurance premiums in 1999,
1998 and 1997, respectively.
(4) Ms. Parker's other compensation includes (i) $342 and $242 for life
insurance and disability premiums in 1999 and 1998, respectively, (ii)
$1,543 and $673 for health insurance premiums in 1999 and 1998,
respectively, and (iii) $2,737 in matching 401(k) contributions by the
Company in 1999. Ms. Parker's employment with the Company commenced May
5, 1998.
5
(5) Mr. Schroeder's other compensation includes (i) $324 and $53 for life
insurance and disability premiums in 1999 and 1998, respectively, (ii)
$4,813, $1,192 and $669 for health insurance premiums in 1999, 1998 and
1997, respectively, and (iii) $4,973 and $1,853 in matching 401(k)
contributions by the Company in 1999 and 1998, respectively.
Option Grants in 1998
The following table sets forth information concerning the grant of stock
options during 1999 to the named executive officers.
Option Grants in Last Fiscal Year
Potential
Realizable
Value at
Assumed Annual
Individual Grants Rates of Stock
-------------------------------------------- Price
Number of Percent of Appreciation
Securities Total Options For Option
Underlying Granted to Term(2)
Options Employees in Exercise Expiration ---------------
Name Granted Fiscal Year Price(1) Date 5% 10%
- ---- ---------- ------------- -------- ---------- ------- -------
Scott Davidoff.... 50,000 14 $0.32 10/14/09 $26,062 $41,499
Nancy Parker...... 50,000 14 $0.32 10/14/09 $26,062 $41,499
Michael
Schroeder........ 40,000 11 $0.32 10/14/09 $20,849 $33,199
- --------
(1) All options were granted with an exercise price equal to the fair market
value on the grant date based on the closing price of the Common Stock as
quoted on the OTC Bulletin Board
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates required by applicable regulations of the Securities
and Exchange Commission and, therefore, are not intended to forecast
possible future appreciation, if any, of the Common Stock price, and
assumes all options are exercised at the end of their respective 10 year
terms. Actual gains, if any, on the stock option exercises depend on the
future performance of the Common Stock and overall stock market
conditions, as well as the option holders' continued employment through
the vesting period. The amounts reflected in this table may not be
achieved.
1999 Year-End Option Values
No stock options were exercised by the named executive officers during the
fiscal year ended December 31, 1999. The following table sets forth
information concerning unexercised stock options held by each of the persons
then named executive officers as of December 31, 1999.
1998 Year-End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options at
End Fiscal Year End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Leo Rosenberger............. -- -- -- --
Cynthia L. Pope............. -- -- -- --
Scott Davidoff.............. 2,083 47,917 -- --
Nancy Parker................ 13,958 51,042 -- --
Michael Schroeder........... 1,667 38,333 -- --
6
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
Compensation Committee Report on Executive Compensation
The Compensation Committee's policies and plans are intended to (i) attract
and retain high-caliber personnel on a long-term basis; (ii) encourage the
creation of shareholder value; (iii) link compensation to business performance
and shareholder returns over time; and (iv) maintain an appropriate balance
between base salary and short- and long-term incentive opportunities. Guided
by these principals, executive compensation is comprised of three components:
base salary, annual incentive cash bonus compensation and long-term incentive
compensation in the form of stock options. In general, the Company limits
increases in base salaries and favors bonuses based on Company performance.
Executive base salaries and option grants are negotiated at the time of
hire. Options granted at the date of hire vest over time in accordance with
the terms of the option grant. Cash bonus compensation is reviewed and
established annually and is based on quantitative indicators of Company
performance or specific performance to be achieved. Compensation established
for Mr. Rosenberger and Ms. Pope for 1998 and 1999 reflected the Company's
short-term restructuring and recapitalization goals.
The Company has established no extraordinary fringe benefit programs for its
executive officers. Instead, the Company's executive officers participate in
the Company's broad-based employee benefit programs under the same terms and
conditions as all Company employees.
Compensation payments in excess of $1 million to highly compensated
executive officers are subject to a limitation on deductibility for the
Company under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"). Certain performance-based compensation is not subject to the
limitation on deductibility. The Compensation Committee does not expect cash
compensation in 2000 to any of the Company's named executive officers to be in
excess of $1 million. The Company's Stock Plan is designed to qualify for the
performance-based exception to the $1 million limitation on deductibility of
compensation payments.
Chief Executive Officer Compensation. The 1999 compensation for the
Company's Chief Executive Officer, Leo Rosenberger, was based on the Company's
short-term restructuring goals. Mr. Rosenberger's base salary of $225,000 per
year was established by his employment agreement with the Company. The
agreement and amendments thereto also provided for a cash bonus of $150,000
payable on January 31, 1999, if Mr. Rosenberger was employed by the Company on
that date and an additional $150,000 cash bonus which was payable upon
completion of the recapitalization transaction with U.S. Bank in June 1999.
Mr. Rosenberger was granted options to purchase 150,000 shares of the
Company's common stock at an exercise price of $2.63 per share. Mr.
Rosenberger rescinded acceptance of the option grant on October 14, 1999, so
that the options would be available under the Stock Plan for grant to other
members of senior management. A portion of the options was used in option
grants awarded by the Compensation Committee to other members of senior
management in October 1999.
The Compensation Committee
Paul Shipman
William C. Thompson
7
Employment and Severance Agreements and Change-In-Control Agreements
Employment Agreements.
In February 1998, the Company entered into a one-year employment agreement
with Leo Rosenberger, Chief Executive Officer and Chief Financial Officer of
the Company. The agreement was amended in February 1999 and again in February
2000 to extend Mr. Rosenberger's employment for an additional year. Pursuant
to the terms of the February 2000 amendment, the Company agreed to pay Mr.
Rosenberger an annual base salary of $295,000 and a bonus of $295,000 upon a
change in control of the Company. Mr. Rosenberger received a change-in-control
bonus of $150,000 as a result of the June 1, 1999 transaction with U.S. Bank.
In February 2000, the Company entered into a retention agreement with
Cynthia Pope, Executive Vice President, General Counsel and Secretary of the
Company. Pursuant to the terms of the agreement, the Company agreed to pay Ms.
Pope a bonus of $165,000 upon a change in control of the Company. Ms. Pope
received a change-in-control bonus of $60,000 as a result of the June 1, 1999
transaction with U.S. Bank.
Stock Plan.
Upon certain mergers, consolidations, acquisitions of property or stock,
separations, reorganizations or liquidation of the Company, outstanding
options, SARs and restricted stock under the Stock Plan will become fully
exercisable, subject to certain exceptions. The June 1, 1999 transaction
between Gargoyles and U.S. Bank did not accelerate the vesting of any
outstanding options. In addition, the Compensation Committee of the Board of
Directors may take such further action as it deems necessary or advisable, and
fair to participants, with respect to outstanding awards under the Stock Plan.
8
Stock Price Performance
The graph set forth below compares cumulative total return on the Common
Stock with the cumulative total return of the Nasdaq Composite US and a
selected peer group resulting from an initial assumed investment of $100 in
each and assuming the reinvestment of any dividends, for the period beginning
on the closing of the Company's initial public offering on October 2, 1996 and
ending on December 31, 1999. Stock price performance shown in the Performance
Graph for the Common Stock is historical and not necessarily indicative of
future price performance.
[PERFORMANCE CHART OF DATA SET FORTH BELOW]
TOTAL RETURN TO STOCKHOLDERS
(Assumes $100 investment on 10/2/96)
- --------------------------------------------------------------------
Total Return Analysis
10/2/96 12/31/96 12/31/97 12/31/98 12/31/99
- --------------------------------------------------------------------
Gargoyles Inc. $100.00 $ 43.00 $ 19.75 $ 1.23 $ 1.18
- --------------------------------------------------------------------
Peer Group $100.00 $ 52.00 $ 41.57 $ 43.07 $ 50.59
- --------------------------------------------------------------------
Nasdaq Composite $100.00 $104.00 $127.03 $178.07 $331.43
- --------------------------------------------------------------------
Certain Transactions
The Company is a party to a credit agreement with its primary lender U.S.
Bank, National Association which consists of (i) a revolving loan commitment
of up to $9 million, secured by the assets of the Company and (ii) a term loan
of $9.5 million, a term loan of $7 million, and a term loan of $3 million, all
of which also are secured by the assets of the Company. All term loans under
the credit agreement are due and payable on June 1, 2005. As part of a
restructure of the credit facility in January 1997, the Company issued 400,000
shares of Common Stock to the Bank's affiliate, U.S. Bancorp. As part of the
further restructuring of the credit facility, on June 1, 1999, Gargoyles
issued 10 million shares of Series A Preferred Stock to the Bank.
9
AUDITORS
BDO Seidman, LLP were the Company's independent public accountants for the
fiscal year ending December 31, 1999. Representatives of BDO Seidman, LLP are
expected to attend the Annual Meeting and will have an opportunity to make a
statement or to respond to appropriate questions from shareholders.
EXPENSES AND SOLICITATION
The accompanying proxy is solicited by and on behalf of the Board of
Directors, and the entire costs of such solicitation will be borne by the
Company. American Stock Transfer and Trust Company will distribute proxy
materials to beneficial owners and may solicit proxies by personal interview,
mail, telephone or telegram, and will request brokerage houses and other
custodians, nominees and fiduciaries to forward soliciting material to the
beneficial owners of the Common Stock held on the record date by such persons.
American Stock Transfer and Trust Company serves as the Company's transfer
agent and provides other services to the Company for a fixed monthly fee, and
no additional fee is charged by American Stock Transfer and Trust Company for
distributing proxies for the Company's Annual Meeting. The Company, however,
will reimburse American Stock Transfer and Trust Company for payments made to
brokers and other nominees for their expenses in forwarding solicitation
materials. Solicitations may be by personal interview, telephone or telegram
by Directors, officers and other employees of the Company without special
compensation.
OTHER MATTERS
The Company knows of no other matters that are likely to be brought before
the Annual Meeting. If, however, other matters not now known or determined
come before the Annual Meeting, the persons named in the enclosed proxy card
or their substitutes will vote such proxy in accordance with their discretion
with respect to such matters.
PROPOSALS OF SHAREHOLDERS
For proposals of shareholders to be considered for inclusion in the proxy
statement and proxy for the 2001 Annual Meeting of Shareholders, such
proposals must be received by the Secretary of Gargoyles by January 17, 2001.
ANNUAL REPORT
A copy of the Company's 1999 Annual Report is being mailed with this Proxy
Statement to each shareholder of record. Shareholders not receiving a copy of
the Annual Report may obtain one without charge by writing or calling Cynthia
L. Pope, Executive Vice President and General Counsel, Gargoyles, Inc., 5866
S. 194th Street, Kent, Washington 98032 (253) 796-2752 Ext. 3404.
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