<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Gargoyles, Inc.
- --------------------------------------------------------------------------------
(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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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE> 2
GARGOYLES, INC.
MAY 4, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders
("Annual Meeting") of Gargoyles, Inc. to be held at 9:00 a.m. on Thursday, June
4, 1998, at the Doubletree Guest Suites Seattle, 16500 Southcenter Parkway,
Seattle, Washington 98188.
At the Annual Meeting, the shareholders will be asked to elect three
directors. The Notice of 1998 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,
[SIG]
Leo Rosenberger
Chief Executive Officer and
Chief Financial Officer
IMPORTANT
A proxy card is enclosed herewith. 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, in which event the signed
proxy will be revoked.
<PAGE> 3
GARGOYLES, INC.
------------------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
JUNE 4, 1998
To the Shareholders:
The 1998 Annual Meeting of Shareholders (the "Annual Meeting") of
Gargoyles, Inc., a Washington corporation ("Gargoyles"), will be held at 9:00
a.m., local time, on Thursday, June 4, 1998, at the Doubletree Guest Suites
Seattle, 16500 Southcenter Parkway, Seattle, Washington 98188, for the following
purposes:
1. To elect one Class 3 director to the Gargoyles Board of Directors to
serve until the 2000 annual meeting of shareholders;
2. To elect two Class 1 directors to the Gargoyles Board of Directors to
serve until the 2001 annual meeting of shareholders; and
3. To address such other matters as may properly come before the meeting
and any adjournment or postponement thereof.
The Board of Directors has fixed April 3, 1998 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
LOGO
Cynthia L. Pope
V.P. and General Counsel and Secretary
5866 South 194th Street,
Kent, Washington
May 4, 1998
<PAGE> 4
GARGOYLES, INC.
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, JUNE 4, 1998
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
9:00 a.m., local time, on Thursday, June 4, 1998, at the Doubletree Guest Suites
Seattle, 16500 Southcenter Parkway, Seattle, Washington 98188, 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 4, 1998.
OUTSTANDING SECURITIES AND VOTING RIGHTS
Only holders of record of Gargoyles' common stock, no par value (the
"Common Stock") at the close of business on April 3, 1998 will be entitled to
vote at the Annual Meeting. On that date, the Company had 7,837,191 shares of
Common Stock outstanding. Each share of Common Stock is entitled to one vote at
the Annual Meeting. Holders of Common 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 three 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. The
presence in person or by proxy of holders of record of a majority of the
outstanding shares of Common Stock 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.
<PAGE> 5
ELECTION OF DIRECTORS
In accordance with the Company's Bylaws, in 1998 the Board of Directors
decreased the number of Directors constituting the Board from six members to
five. Directors are elected for three-year terms, and 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 Class 2 is comprised of two
Directors, and Class 3 is comprised of one Director. Class 1 Directors are up
for election at the 1998 Annual Meeting and will serve as Directors of the
Company until the 2001 Annual Meeting of Shareholders or until their successors
are elected and qualified. Erik Anderson, former Chairman of the Board of
Directors of the Company, and Douglas B. Hauff, former CEO and President of the
Company, comprised the Class 3 Directors, and both have resigned from the Board.
The remaining members of the Board of Directors appointed Robert G. Wolfe to
fill the vacancy left by the resignation of Mr. Anderson, to serve on an interim
basis until the 1998 Annual Meeting. Since the size of the Board has been
decreased, Mr. Hauff's position will not be filled. The Class 3 Director is up
for election at the 1998 Annual Meeting and will serve until the 2000 Annual
Meeting of Shareholders or until his successor is 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 two
inside Directors and 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
<TABLE>
<CAPTION>
NAME AGE CLASS
---- --- -----
<S> <C> <C>
Robert G. Wolfe............................................. 41 3
Timothy C. Potts............................................ 49 1
Walter F. Walker............................................ 43 1
</TABLE>
CONTINUING DIRECTORS
<TABLE>
<CAPTION>
NAME AGE YEAR ELECTED CLASS
---- --- ------------ -----
<S> <C> <C> <C>
William D. Ruckelshaus............................. 65 1996 2
Paul S. Shipman.................................... 45 1996 2
</TABLE>
ROBERT G. WOLF was appointed to the Board and elected its Chairman in
January 1998 to fill a vacancy left by the resignation of Erik J. Anderson. Mr.
Wolfe has been serving on an interim basis until the 1998 Annual Meeting. Mr.
Wolfe has been Chief Financial Officer of Trillium since August 1996. From 1987
to 1995 Mr. Wolfe was a corporate finance executive at Goldman Sachs.
TIMOTHY C. POTTS has been a Director of the Company since March 1995. Mr.
Potts has been Senior Vice President, Finance of Trillium since July 1994. From
April 1987 to July 1994, Mr. Potts was the Chief Financial Officer of Trillium.
WALTER F. WALKER has been a Director of the Company since December 1995.
Since September 1994, Mr. Walker has been the President of the Seattle
Supersonics National Basketball Association basketball team, owned by a
subsidiary of Ackerly Communications, Inc. From March to September 1994, Mr.
Walker was a Vice President of Goldman, Sachs & Co., a registered broker-dealer.
From 1976 to 1985, Mr. Walker was a professional basketball player in the
National Basketball Association. Mr. Walker is also a director of Redhook Ale
Brewery, Incorporated, Advanced Digital Information Corp., and is a member of
the Board of Visitors of the University of Virginia.
WILLIAM D. RUCKELSHAUS has been a Director of the Company since July 1996.
Since March 1996, Mr. Ruckelshaus has been a principal of the Madrona Investment
Group, L.L.C., a private investment firm.
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<PAGE> 6
Mr. Ruckelshaus is also Chairman of the Board of Browning-Ferris Industries,
Inc., a waste services company, and from October 1988 to October 1995 was its
Chief Executive Officer. From 1983 to 1985, Mr. Ruckelshaus was Administrator of
the Environmental Protection Agency and from 1979 to 1983, a Senior Vice
President of Weyerhaeuser Co. Mr. Ruckelshaus is also a director of Cummins
Engine Company, Monsanto Company, Nordstrom, Inc., Weyerhaeuser Co. and
Coinstar, Inc.
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
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") are paid
a $4,000 annual retainer and are paid $250 for each committee meeting they
attend. Directors' fees are paid quarterly in arrears. Directors who are
employees of the Company or who beneficially own or are employees, officers or
directors of entities which beneficially own at least five percent of the
outstanding voting securities of the Company receive no fees for their services
as Directors.
Non-employee Directors also receive nonqualified stock option grants under
the Company's 1995 Stock Incentive Compensation Plan (the "Stock Plan"). In each
of 1996 and 1997, each Non-employee Director was granted a nonqualified option
to purchase 2,180 shares of the Company's common stock with an exercise price
equal to the fair market value on the grant date based on the closing sale price
of the Common Stock as quoted on the Nasdaq National Market. 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. For information concerning a warrant to purchase
shares of Common Stock granted to Walter F. Walker, see "Certain Transactions."
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
The Board currently has four committees, an Audit Committee, a Compensation
Committee, an Executive Committee and a Nominating Committee. During 1997, there
were ten meetings of the Board of Directors. Except for Mr. Wolfe who did not
join the Board until January 1998, all directors attended at least 75% of the
meetings of the Board of Directors and the committees of which they were
members.
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. The members of the Audit Committee
are Mr. Potts, Mr. Walker and Mr. Wolfe. The Audit Committee met five times in
1997.
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. The members of this Committee are Mr. Shipman and Mr.
Ruckelshaus. The Compensation Committee met six times in 1997.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee was established in July 1996 just prior to completion of
the Company's initial public offering. Prior to that time, the Company's full
Board of Directors, including the Company's former Chairman, Erik J. Anderson,
and its
3
<PAGE> 7
former President and CEO, Douglas B. Hauff, performed the duties now delegated
to the Company's Compensation Committee.
Executive Committee. The Executive Committee was established in January,
1998, (i) to consider and evaluate recommendations made by Leo Rosenberger, the
Company's current Chief Executive Officer and Chief Financial Officer, on issues
concerning the Company's structure, operations, liquidity, financing strategies,
and other business matters, (ii) to review and evaluate the performance of Mr.
Rosenberger, (iii) to report and make recommendations to the Board of Directors
on matters which come before the Executive Committee, and (iv) to perform such
other duties as shall be assigned to the Executive Committee by the Board of
Directors of the Company. Mr. Ruckelshaus, Mr. Shipman, Mr. Walker and Mr. Wolfe
comprise the Executive Committee.
Nominating Committee. The Nominating Committee was established on December
29, 1997, to report and make recommendations to the Board of Directors on the
size and composition of the Board and on nominees for Directors. Mr.
Ruckelshaus, Mr. Shipman and Mr. Walker are members of the Nominating Committee.
The Nominating Committee did not meet in 1997.
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 April 3, 1998, for (i) each person known by
the Company to own beneficially 5% or more of the Common Stock, (ii) each
Director and nominee for Director of the Company, (iii) each executive officer
of the Company for whom compensation information is given in the Summary
Compensation Table in this Proxy Statement, and (iv) all Directors and executive
officers as a group.
<TABLE>
<CAPTION>
OUTSTANDING SHARES OF PERCENT
COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
------------------------------------ --------------------- -------
<S> <C> <C>
Dennis L. Burns.................................. 577,678 7.7%
c/o Supreme Corq.
19039 62nd Avenue S
Kent, WA 98032
The Capital Group Companies, Inc.(1)............. 915,900 11.7%
333 S. Hope Street
Los Angeles, CA 90071
Sheldon Goldman(2)............................... 20,000 *
c/o Sungold Eyewear, Inc.
2095 New Highway
Farmingdale, NY 11735
Douglas B. Hauff(3).............................. 1,013,084 12.6%
The Highlands
Seattle, WA 98177
David W. Jobe(4)................................. 73,862 *
24207 SE 17th Place
Issaquah, WA 98027
Steven R. Kingma(5).............................. 33,640 *
5811 111th Avenue
Bellevue, WA 98006
Douglas Lauer.................................... 3,000 *
c/o the kindling company
100 Park Place, Suite 230
San Ramon, CA 94583
Bruce Meckling(2)................................ 7,357 *
c/o Gargoyles, Inc.
5866 S. 194th Street
Kent, WA 98032
Cynthia L. Pope(2)............................... 23,162 *
c/o Gargoyles, Inc.
5866 S. 194th Street
Kent, WA 98032
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
OUTSTANDING SHARES OF PERCENT
COMMON STOCK OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
------------------------------------ --------------------- -------
<S> <C> <C>
Timothy C. Potts................................. 97,560 1.2%
c/o Trillium Corporation
4350 Cordata Parkway
Bellingham, WA 98226
Leo Rosenberger(2)............................... 37,500 *
c/o Gargoyles, Inc.
5866 S. 194th Street
Kent, WA 98032
William Ruckelshaus(6)........................... 6,360 *
c/o Madrona Investment Group
1000 Second Avenue, Suite 3700
Seattle, WA 98104
Paul S. Shipman(2)............................... 4,360 *
c/o Red Hook Brewery, Inc.
3400 Phinney Avenue North
Seattle, WA 98103
Trillium Corporation(7).......................... 1,490,994 19.2%
4350 Cordata Parkway
Bellingham, WA 98226
U.S. Bankcorp.................................... 400,000 5.1%
c/o 601 Second Avenue South
MPSP1803
Minneapolis, MN 55402-4302
Walter F. Walker(8).............................. 70,690 *
c/o Seattle SuperSonics
490 5th Avenue West
Seattle, WA 98109
Robert G. Wolfe.................................. 0
c/o Trillium Corporation
4350 Cordata Parkway
Bellingham, WA 98226
Travis Worth(2).................................. 29,878 *
432 Smith Street
Seattle, WA 98109
All current Directors and executive officers as a
group
(9 persons).................................... 269,989 3.4%
</TABLE>
- ---------------
* Represents less than 1%
(1) Information is as of December 31, 1997 as indicated in the shareholder's
Schedule 13G filed with the Securities and Exchange Commission on February
10, 1998.
(2) Consists of shares subject to an option exercisable within 60 days.
(3) Includes 664,209 shares resulting from exercise of options on March 7, 1997
granted to Mr. Hauff by certain shareholders of the Company. These shares
have been pledged to the grantor shareholders, including Mr. Kingma (with
respect to 11,357 shares), Mr. Jobe (with respect to 11,357 shares) and
Trillium (with respect to 567,704 shares). See "Certain Transactions". Also
includes 136,250 shares held by the Hauff Family Limited Partnership, of
which Mr. Hauff is general partner.
(4) Includes 40,634 shares subject to an option exercisable within 60 days and
4,905 share held by Russell Goodnow, Trustee for the Jobe Children's Trust
UTA.
(5) Includes 29,280 shares subject to an option exercisable within 60 days and
4,360 shares held by Mr. Kingma's minor children.
(6) Includes 4,360 shares subject to an option exercisable within 60 days.
(7) Does not include 567,704 shares pledged by Doug Hauff to Trillium.
(8) Includes 38,150 shares subject to a warrant and 6,540 shares subject to an
option exercisable within 60 days.
5
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
Compensation Summary
The following table sets forth during the fiscal years ended December 31,
1997, 1996 and 1995 the compensation for services rendered for the Company's
former Chief Executive Officer and the Company's five other most highly
compensated executive officers based on salary and bonus for the last completed
fiscal year (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------- SECURITIES
SALARY BONUS UNDERLYING OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) COMPENSATION($)
--------------------------- ---- --------- -------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Leo Rosenberger(1)............. 1997
CEO and CFO
Cynthia L. Pope(1)............. 1997
V.P., General Counsel and
Secretary
Douglas B. Hauff(2)............ 1997 225,000 -0- -0- 11,786
Former President and CEO 1996 225,450 350,000 -0- 12,664
1995 224,950 50,000 -0- 13,012
G. Travis Worth(3)............. 1997 147,500 -0- -0- 9,705
Former COO 1996 135,214 35,000 -0- 4,983
1995 20,457 25,000 114,733 -0-
David W. Jobe(4)............... 1997 133,582 -0- -0- 10,427
Former Sr. V.P. Sales 1996 104,281 25,000 -0- 9,721
1995 83,870 32,500 100,399 6,040
Steven R. Kingma(5)............ 1997 120,834 -0- 15,000 10,609
Former V.P. and CFO 1996 96,687 25,000 -0- 9,590
1995 91,540 25,000 43,027 6,469
Bruce Meckling(6).............. 1997 175,000 50,000 21,800 74,354
Sr. V.P. 1996 71,401 40,000 -0-
Douglas Lauer(7)............... 1997 150,000 -0- -0- 6,387
President, the kindling
company 1996 78,998 -0- -0- -0-
Sheldon Goldman(8)............. 1997 125,769 -0- 20,000 7,489
President, Sungold Eyewear,
Inc.
Richard Hammel(9).............. 1997 139,606 -0- 10,000 2,848
President, Private Eyes
</TABLE>
- ---------------
(1) Employment with the Company commenced February 1, 1998.
(2) Represents (i) $4,626, $4,710 and $5,171 in matching 401(k) contributions by
the Company in 1997, 1996 and 1995, respectively, (ii) $2,390, $3,816 and
$3,696 for life insurance and disability premiums in 1997, 1996 and 1995,
respectively, and (iii) $4,770, $4,138 and $4,145 for dependent health
insurance premiums in 1997, 1996 and 1995, respectively. Mr. Hauff resigned
effective April 2, 1998.
(3) Represents (i) $4,076 and $844 in matching 401(k) contributions by the
Company in 1997 and 1996, respectively, (ii) $415 for life insurance and
disability premiums in 1997 and (iii) $5,214 and $4,139 for dependent health
insurance premiums in 1997 and 1996, respectively. Employment with the
Company commenced on November 1, 1995. Mr. Worth resigned effective January
31, 1998.
(4) Represents (i) $4,007, $3,855 and $2,993 in matching 401(k) contributions by
the Company in 1997, 1996 and 1995, respectively, (ii) $1,659, $1,884 and
$149 for life insurance and disability premiums in
6
<PAGE> 10
1997, 1996 and 1995, respectively, and (iii) $4,761, $3,982 and $2,898 for
dependent health insurance premiums in 1997, 1996 and 1995, respectively.
Mr. Jobe resigned effective February 2, 1998.
(5) Represents (i) $4,061, $3,538 and $2,369 in matching 401(k) contributions by
the Company in 1997, 1996 and 1995, respectively, (ii) $1,782, $2,052 and
$162 for life insurance and disability premiums in 1997, 1996 and 1995,
respectively, and (iii) $4,766, $4,000 and $3,938 for dependent health
insurance premiums in 1997, 1996 and 1995, respectively. Mr. Kingma resigned
effective January 31, 1998.
(6) Represents (i) $2,857 in matching 401(k) contributions by the Company in
1997, (ii) $423 for life insurance and disability premiums in 1997, (iii)
$1,782 for dependent health insurance premiums in 1997 and (iv) $69,292 in
estimated cost of living adjustment related to expatriate status. Employment
with the Company commenced August 1, 1996. 21,800 options granted in 1996
were rescinded, and 21,800 options were granted in 1997.
(7) Represents (i) $2,063 in matching 401(k) contributions by the Company, (ii)
$398 for life insurance and disability premiums, and (iii) $3,926 for
dependent health insurance premiums. Employment with the Company commenced
May 31, 1996.
(8) Represents $7,489 for dependent health insurance premiums. Employment with
Sungold Eyewear, Inc. commenced April 10, 1997.
(9) Represents $2,848 for dependent health insurance premiums. Employment with
the Private Eyes Sunglass Corporation commenced May 14, 1997. The term of
Mr. Hammel's employment agreement with the Company expires April 30, 1998,
and Mr. Hammel's employment will not continue past such date.
Option Grants in 1997
The following table sets forth information concerning the grant of stock
options during 1997 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PRICE(1) DATE 5% 10%
---- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sheldon Goldman.................... 20,000 10% $8.63 5/9/07 $108,484 $274,921
Richard Hammel..................... 10,000 5% $9.00 5/14/07 $ 56,601 $143,437
Douglas B. Hauff................... -0-
David W. Jobe...................... -0-
Steven R. Kingma(3)................ 15,000 8% $8.00 1/03/98 $ 75,467 $191,249
Douglas W. Lauer................... -0-
Bruce E. Meckling(4)............... 21,800 11% $8.00 2/7/07 $109,679 $277,949
G Travis Worth..................... -0-
</TABLE>
- ---------------
(1) All options were granted with an exercise price equal to the fair market
value on the grant date based on the closing price of the Common Stock as
quoted on the Nasdaq National Market.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates required by applicable regulations of the Securities and
Exchange Commission ("the SEC") and, therefore, are not intended to forecast
possible future appreciation, if any, of the Common Stock price, and assumes
all options are exercised at the end of their respective 10 year terms.
Actual gains, if any, on the stock option exercises depend on the future
performance of the Common Stock and overall stock market conditions, as well
as the option holders' continued employment through the vesting period. The
amounts reflected in this table may not be achieved.
7
<PAGE> 11
(3) Mr. Kingma's right to exercise any of these options was forfeited by Mr.
Kingma as part of a Separation and Release agreement between the Company and
Mr. Kingma effective January 31, 1998.
(4) On February 7, 1997, the Company rescinded options granted to Mr. Meckling
during 1996 and issued new options for the same number of shares of Common
Stock. Upon the achievement of certain sales objectives, the exercisability
of the options is accelerated.
Option Re-pricing
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET LENGTH OF
UNDERLYING PRICE OF EXERCISE ORIGINAL
OPTIONS/ STOCK AT PRICE AT OPTION TERM
SARS TIME OF TIME OF NEW REMAINING AT
RE-PRICED OR RE-PRICING OR RE-PRICING OR EXERCISE DATE OF
AMENDED AMENDMENT AMENDMENT PRICE RE-PRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT
---- -------- ------------- ------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Meckling............... 02/07/97 21,800 8.00 $16.00 8.00 54 months
</TABLE>
1997 Year-End Option Values
No stock options were exercised by the named executive officers during the
fiscal year ended December 31, 1997. The following table sets forth information
concerning unexercised stock options held by each of the persons then named
executive officers as of December 31, 1997.
1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas Hauff(1).............................. -0- -0- -0- -0-
Travis Worth(2)............................... 14,939 99,794 $ 7,768 $51,893
David Jobe(3)................................. 39,439 60,961 $20,508 $31,700
Steven Kingma(4).............................. 23,384 29,643 $14,760 $15,414
Bruce Meckling................................ 5,450 16,350 -0- -0-
Douglas Lauer................................. -0- -0- -0- -0-
Sheldon Goldman............................... 2,000 18,000 -0- -0-
Richard Hammel................................ 2,500 7,500 -0- -0-
</TABLE>
- ---------------
(1) Mr. Hauff held no stock options granted by the Company as of December 31,
1997. For a discussion of certain options granted to and exercised by Mr.
Hauff, see "Certain Transactions."
(2) Subject to the Severance and Release Agreement between the Company and Mr.
Worth effective as of January 31, 1998, Mr. Worth has 29,878 shares which
are fully vested and exercisable and no additional shares unexercisable. As
of this date, no shares were valued in-the-money.
(3) Subject to the Severance and Release Agreement between the Company and Mr.
Jobe effective as of February 2, 1998, Mr. Jobe has 40,634 shares which are
fully vested and exercisable and no additional shares unexercisable. As of
this date, no shares were valued in the money.
(4) Subject to the Severance and Release Agreement between the Company and Mr.
Kingma effective as of January 31, 1998, Mr. Kingma has 29,280 shares which
are fully vested and exercisable and no additional shares unexercisable. As
of this date, no shares were valued in the money.
8
<PAGE> 12
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation is administered by the Compensation
Committee, which is comprised of Mr. Shipman and Mr. Ruckelshaus. Both are
independent, non-employee directors, as the term "non-employee director" is
defined in Rule 16(b)-3(i) of the Securities Exchange Act of 1934 (the "34
Act").
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 (typically over a four
or five year period) in accordance with the terms of the option grant, and in
some cases, vesting is tied to sales performance goals for the Company or a
division thereof. Cash bonus compensation is reviewed and established annually
and is based on quantitative indicators of Company performance.
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 1998 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.
Base Salary. Mr. Rosenberger, Mr. Goldman, Mr. Hammel, Mr. Lauer and Mr.
Meckling are parties to employment agreements with the Company or a subsidiary
of the Company which were negotiated at the time of hire and establish each
executive officer's base salary. Under the terms of these agreements, base
salaries may not be decreased. No base salary increases were given to any such
executive officer in 1997.
Merit Bonuses. In 1997, executive officers were eligible to receive cash
bonuses in amounts tied to 1997 earnings per share goals for the Company. Such
earnings goals were not achieved by the Company, so no executive officer
qualified for an incentive bonus in 1997. Bruce Meckling was paid a bonus in
January 1997 in accordance with his employment agreement negotiated in 1996.
Except for a cash bonus of $150,000 to be awarded to Mr. Rosenberger if he is
employed by the Company on January 31, 1999 as provided in his employment
agreement, the Compensation Committee has not yet established any incentive
bonus program for executive officers of the Company for 1998.
Stock-Based Compensation. In May 1997, stock options were granted to
Sheldon Goldman and Richard Hammel in connection with the purchase of Sungold
Eyewear, Inc. and Private Eyes Sunglass Corporation, respectively, to foster a
spirit of cooperation among the Company and its subsidiaries and to incentivise
Mr. Goldman and Mr. Hammel in connection with the growth of the Company on a
consolidated basis. In February 1997, additional options were granted to Mr.
Kingma in recognition of his efforts in connection with the Company's initial
public offering.
Option Re-Pricing. A 1996 option grant to Mr. Meckling was rescinded and
options for the same number of shares were granted to Mr. Meckling in February
1997, effectively resetting the exercise price of such options from $16.00 per
share to $8.00 per share, to reward Mr. Meckling in connection with his initial
efforts at establishing and organizing the Company's international expansion
initiative.
9
<PAGE> 13
Chief Executive Officer Compensation. The compensation for the Company's
former President and Chief Executive Officer, Douglas B. Hauff, was based on the
same policies and criteria as the compensation for the other executive officers.
Mr. Hauff's base salary was established by his employment agreement with the
Company. Mr. Hauff holds no options subject to the Company's 1995 Stock
Incentive Compensation Plan. Instead, Mr. Hauff held options to purchase 664,209
shares of Common Stock, all of which options were exercised on March 7, 1997.
See "Certain Transactions." Mr. Hauff was not paid an incentive bonus in 1997.
The Company, however, did loan certain funds to Mr. Hauff in three transactions
discussed herein in "Certain Transaction".
The Compensation Committee
Paul Shipman
William D. Ruckelshaus
EMPLOYMENT AND SEVERANCE AGREEMENTS AND CHANGE-IN CONTROL AGREEMENTS
Employment Agreements
In July 1996, the Company entered into a three-year employment agreement
with Bruce Meckling. After expiration of the initial term, the employment
agreement continues on a quarterly basis until terminated by either party on 90
days' notice. The agreement may be terminated by the Company if the Company
fails to achieve certain international sales levels. Pursuant to the agreement,
the Company agreed to pay Mr. Meckling an annual base salary of $175,000. In
addition, Mr. Meckling is entitled to participate in incentive compensation
programs established by the Company for executive management and is also
entitled to receive a bonus on December 31, 1999 subject to the Company
achieving certain international sales levels.
In February 1998, the Company entered into a one-year employment agreement
with Leo Rosenberger. Pursuant to the agreement, the Company agreed to pay Mr.
Rosenberger an annual base salary of $225,000 and a bonus of $150,000 if Mr.
Rosenberger is employed by the Company on January 31, 1999. The Company also has
the right to terminate the agreement at any time during the term by paying Mr.
Rosenberger a termination fee of $150,000.
Severance Agreements
Effective January 31, 1998, the Company entered into a Separation and
Release Agreement with Steven R. Kingma, former CFO of the Company. Under the
terms of the separation agreement the Company agreed to pay Mr. Kingma $40,000
payable in installments over a six-month period, and to reimburse Mr. Kingma for
the cost of COBRA benefits for a five-month period. In addition, the Company
agreed to accelerate the vesting of 2,689 options to purchase the Company's
common stock at an exercise price of $3.48 per share and to extend the period
for Mr. Kingma to exercise his options to December 31, 1998. Mr. Kingma
forfeited the right to exercise any vested portion of the February 1997 option
grant. The Company also agreed to pay Mr. Kingma's legal fees and expenses if
Mr. Kingma is added as a defendant in litigation against the Company filed by
Michele Maulden relating to her employment with the Company. Mr. Kingma agreed
to fully release the Company from all claims relating to his employment with the
Company.
Effective January 31, 1998, the Company entered into a Separation and
Release Agreement with G. Travis Worth, former COO of the Company. Under the
terms of the separation agreement the Company agreed to pay Mr. Worth $33,750
payable in installments over a four-month period, and to reimburse Mr. Worth for
the cost of COBRA benefits for a three-month period. In addition, the Company
agreed to accelerate the vesting of 14,939 options to purchase the Company's
common stock at an exercise price of $3.48 per share and to extend the period
for Mr. Worth to exercise his options to December 31, 1998. Mr. Worth agreed to
fully release the Company from all claims relating to his employment with the
Company.
Effective February 2, 1998, the Company entered into a Separation and
Release Agreement with David Jobe, former Senior Vice President, Sales of the
Company. Under the terms of the separation agreement the
10
<PAGE> 14
Company agreed to forego collection from Mr. Jobe of $25,998 of draws against
unearned sales commissions. In addition, the Company agreed to extend the period
for Mr. Jobe to exercise vested options to December 31, 1998. Mr. Jobe agreed to
fully release the Company from all claims relating to his employment with the
Company.
Effective March 11, 1998, the Company entered into a Separation and Release
Agreement with Douglas B. Hauff, former President and CEO of the Company. Under
the terms of the separation agreement the Company agreed to reimburse Mr. Hauff
for the cost of COBRA benefits for three months. In addition, the Company agreed
to accept 15,000 shares of Common Stock with a fair market value on the date of
transfer of $54,750 and an assignment of Mr. Hauff's receivable from Axcent
Sports, Inc. ("Axcent") as payment in full of that certain promissory note dated
July 25, 1997 executed by Mr. Hauff in favor of the Company in original
principal amount of $118,000 and commonly referred to as the "Axcent Note". See
"Certain Transactions" for a further discussion of the Axcent Note. Mr. Hauff
agreed to fully release the Company from all claims relating to his employment
with the Company.
Stock Plan
In the event of 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. 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.
11
<PAGE> 15
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, 1997. Stock price performance shown in the Performance Graph for
the Common Stock is historical and not necessarily indicative of future price
performance.
<TABLE>
<CAPTION>
Measurement Period Nasdaq Composite
(Fiscal Year Covered) 'Gargoyles, Inc.' Peer Group (US)
<S> <C> <C> <C>
10/2/96 100 100 100
12/31/96 43 52 104
12/31/97 20 42 127
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (303) 494-5472. Data from
Bloomberg Financial Markets
CERTAIN TRANSACTIONS
The Company is a party to a lease with DB&D Partnership which is majority
owned by Dennis L. Burns, the Company's founder and a shareholder holding 7.7%
of the issued and outstanding shares of Common Stock, under which the Company
leases its primary facility in Kent, Washington. The lease provides for monthly
lease payments by the Company of $21,087 to the expiration of the lease term.
The lease expires on March 31, 2000. The Company paid DB&D Partnership lease
payments of $212,956 in 1997.
In January 1996, in exchange for a cash payment of $56,000, the Company
issued to Walter F. Walker, a director of the Company, a warrant to purchase
38,150 shares of the Company's Common Stock at an exercise price of $4.45 per
share. The warrant is also convertible by Mr. Walker in certain circumstances
into shares of Common Stock. The warrant was immediately exercisable in full and
expires in December 2005.
In May 1996, the Company, together with Douglas W. Lauer and The Timberland
Company ("Timberland"), formed the kindling company, a California corporation
("Kindling"). The Company contributed $1.2 million for its 70% interest in
Kindling, while Mr. Lauer owns a 20% interest in Kindling and Timberland owns
the remaining 10% interest. Of the $1.2 million, $100,000 was paid in cash and
$1.1 million by means of a non-interest-bearing promissory note (the "Kindling
Note") payable in installments of $100,000 each on June 3, July 3, September 3,
October 3 and December 3, 1996 and $600,000 on January 3, 1997. Between January
3, 1997 and January 1, 2000, Kindling, Mr. Lauer or Timberland may require the
Company to contribute an additional $300,000 to Kindling. From 1999 to 2003,
Timberland may require Kindling to
12
<PAGE> 16
repurchase all of Timberland's 10% interest in Kindling under certain
circumstances. The Company further agreed that Mr. Lauer and certain key
employees of Kindling may be granted up to an aggregate of 10% (2.5% for each
year, 1997 to 2000) of Kindling's common stock owned by the Company upon the
achievement of certain operating objectives. Kindling management met their goals
for 1997 and will receive 2.5% of the Company's Kindling stock. The Company also
provides shipping and receiving, customer service, accounting, administrative
support and operations management to Kindling at no cost to Kindling.
In February 1997, the Company entered into Registration Rights Agreements
with two of its shareholders, Trillium Investors II and Douglas B. Hauff. The
Registration Rights Agreements were granted by the Company in consideration of
Mr. Hauff's services to the Company as President and CEO, and to Trillium
Investors II in consideration of the services of Erik J. Anderson and Timothy C.
Potts as then Chairman and Director, respectively, of the Company's Board of
Directors. Trillium Investors II was owned 80% by Trillium Corporation. Mr.
Anderson was CEO and Mr. Potts is Senior Vice President, Finance of Trillium,
and each also were members of Trillium Investors II. Trillium Investors II was
dissolved in November 1997. Common Stock and the rights of Trillium Investors II
under the terms of the Registration Rights Agreement were distributed to its
members including Trillium Corporation, Mr. Anderson and Mr. Potts. Under the
terms of the Registration Rights Agreements, holders of rights pay all expenses
of the registration, including all registration and selling expenses. The demand
registration rights are limited in number and frequency and are subject to delay
if, in the good faith judgment of the Company's Board of Directors, registration
at the time requested by a holder would be detrimental to the Company. Subject
to certain conditions, the registration rights are transferable.
The Company has advanced funds to Axcent, a Washington corporation, which
had operations in Boulder, Colorado, that distributed bicycling products
produced by adidas America, Inc. ("Adidas"). On February 24, 1996, Adidas filed
a lawsuit in the United States District Court for the District of Oregon under
Case Number CV-P7-239-JE. In this lawsuit, Adidas claimed $603,904.56 plus
prejudgment interest and incidental damages, against the Company, Axcent, and
Conquest for product shipped to Axcent by Adidas and for product ordered by
Axcent and held in Adidas warehouse facilities. Adidas claimed that the Company
was liable to it on the theory that Axcent was a division of the Company.
Trillium Corporation ("Trillium") and the Company's former President and CEO,
Douglas B. Hauff, jointly and severally and on an unlimited basis, agreed to
indemnify, defend and hold harmless the Company from and against all losses,
liabilities, deficiencies, claims and expenses (including but not limited to,
costs of defense and reasonable attorneys' fees) incurred by the Company arising
from the lawsuit. The Company tendered defense of the Adidas lawsuit to Trillium
and Mr. Hauff, and they accepted such defense. On July 14, 1997, the parties
reached a settlement of the matter and Adidas agreed to drop all claims against
all defendants in exchange for payment of $200,000, which settlement amount has
been fully paid. As part of the settlement, Adidas assigned its receivable from
Axcent jointly to Trillium and Mr. Hauff.
On July 25, 1997, Douglas B. Hauff executed a promissory note in favor of
the Company in original principal amount of $118,000 (the "Axcent Note") which
accrued interest per annum at the prime rate announced from time to time by U.S.
Bank. Proceeds of the Axcent Note were used to pay Mr. Hauff's indemnity
obligation to Adidas and to pay $18,000 related to termination of an equipment
lease entered into by Axcent and guaranteed by Mr. Hauff. Repayment of the
Axcent Note was secured by a pledge of 15,000 shares of the Company's Common
Stock. On March 11, 1998 the Company accepted transfer of the 15,000 shares and
an assignment of Mr. Hauff's receivable from Axcent as payment in full of the
Axcent Note.
Periodically during 1997, as an accommodation to Douglas B. Hauff, its then
President and CEO, the Company made payments on Mr. Hauff's behalf for amounts
due under a loan made by U.S. Bank to Mr. Hauff the proceeds of which were used
to purchase Common Stock in March 1995. On March 11, 1998, Mr. Hauff executed an
unsecured promissory note to the Company in principal amount of $56,307. The
note accrues interest per annum at the rate of 5.75% and matures on February 15,
1999. The note has been fully reserved by the Company as of December 31, 1997
for financial accounting purposes. The Company intends, however, to vigorously
pursue collection of this receivable from Mr. Hauff.
13
<PAGE> 17
On March 7, 1997, Douglas B. Hauff exercised all of the options (the "Hauff
Options") exercisable under certain option agreements between Mr. Hauff and
certain investors in the Company, including Trillium Corporation, who purchased
Common Stock as part of the March 1995 recapitalization of the Company (the
"March '95 Investors"). As consideration for the exercise of the Hauff Options,
Mr. Hauff executed and delivered to the March '95 Investors promissory notes in
principal amounts totaling $1,096,815.92. Repayment of the promissory notes to
the March '95 Investors is secured by a pledge of the 664,209 shares of Common
Stock exercised by Mr. Hauff under the Hauff Options. Mr. Hauff's obligation to
Trillium Corporation totals $937,454.36 and is secured by a pledge of 567,704
shares of Common Stock.
On April 9, 1997, Douglas B. Hauff, executed an unsecured promissory note
in favor of the Company in original principal amount of $531,299. Proceeds of
the note were used by Mr. Hauff to pay a tax obligation related to the exercise
of the Hauff Options. The note accrues interest per annum at the rate of 5.75%
and matures on February 15, 1999. The Company has fully reserved the note as of
December 31, 1997 for financial accounting purposes. The Company intends,
however, to vigorously pursue collection of this receivable from Mr. Hauff.
The Company is a party to a credit agreement with its primary lender U.S.
Bank, National Association (the "Bank") which consists of (i) a revolving loan
commitment of up to $14 million, secured by the assets of the Company, (ii) a
term loan of $16.47 million, also secured by the assets of the Company and (iii)
an equipment loan of $3.9 million, secured by the equipment of the Company. 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. Under the
terms of the credit agreement, the Company is required to make principal
payments totaling $8.8 million in January 1999 and to pay the indebtedness in
full in April 1999. The Company is obligated to file a registration statement
with the Securities and Exchange Commission with respect to the 400,000 shares
by November 15, 1998.
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, 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 and written representations that
no other reports were required, during the fiscal year ended December 31, 1997,
all Section 16(a) filing requirements applicable to its officers, directors and
greater-than-10% shareholders were complied with.
AUDITORS
Ernst & Young LLP were the Company's independent public accountants for the
fiscal year ending December 31, 1997. Representatives of Ernst & Young 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. Boston EquiServe 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. Boston EquiServe 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 Boston EquiServe for distributing
proxies for the Company's Annual meeting. The Company, however, will reimburse
Boston EquiServe for payments made to brokers and other nominees for their
14
<PAGE> 18
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 1999 Annual Meeting of Shareholders, such proposals
must be received by the Secretary of Gargoyles by May 14, 1998.
ANNUAL REPORT
A copy of the Company's 1997 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 Investor
Relations, Gargoyles, Inc., 5866 S. 194th Street, Kent, Washington 98032 (425)
921-3600, Ext. 3991.
15
<PAGE> 19
1544PS98
<PAGE> 20
DETACH HERE
PROXY
GARGOYLES, INC.
ANNUAL MEETING, JUNE 4, 1998, 9:00 A.M.
DOUBLETREE GUEST SUITES SEATTLE, 16500 SOUTHCENTER PARKWAY, SEATTLE,
WASHINGTON
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Leo Rosenberger and Cynthia L. Pope, and each
of them, with full power of substitution, as proxies to vote on behalf of the
undersigned all shares held of record by the undersigned on April 3, 1998, at
the Annual Meeting of Shareholders of Gargoyles, Inc. (the "Company") on June
4, 1998 and any adjournments or postponements thereof, with all powers that the
undersigned would possess if personally present, with respect to the following:
The shares represented by this proxy will be voted as specified on the reverse
side, but if no specification is made, this proxy will be voted FOR the
election of directors. The proxies may vote in their discretion as to other
matters that may come before this meeting.
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
<PAGE> 21
DETACH HERE
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE
Directors recommend a vote FOR election of the following directors:
1. Election of Directors.
CLASS 1 NOMINEES: Timothy C. Potts. Walter F. Walker
CLASS 2 NOMINEE: Robert G. Wolfe
FOR WITHHOLD
[ ] [ ]
[ ]
-------------------------------------------------
To withhold authority to vote for any individual,
write the name(s) on the line above.
2. Transaction of any business that properly comes before the meeting or any
adjournments or postponements thereof. A majority of the proxies or
substitutes at the meeting may exercise all the powers granted hereby.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please date and sign exactly as name is imprinted hereon, including
designation as executor, trustee, administrator, guardian or attorney. If
applicable. When shares are held by joint tenants, both should sign. A
corporation must sign its name by the president or other authorized officer. If
a partnership, please sign in partnership name by an authorized person.
Signature: Date:
---------------------------------- ---------------
Signature: Date:
---------------------------------- ---------------
