<PAGE>
================================================================================
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 Section 240.14a-11(c) or Section 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:
(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:
Notes:
<PAGE>
GARGOYLES, INC.
June 4, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
("Annual Meeting") of Gargoyles, Inc. to be held at 10:00 a.m. on Tuesday,
June 29, 1999, 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 1999 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.
<PAGE>
GARGOYLES, INC.
----------------
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
JUNE 29, 1999
----------------
To the Shareholders:
The 1999 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 Tuesday, June 29, 1999, at the Doubletree Guest Suites
Seattle, 16500 Southcenter Parkway, Seattle, Washington 98188, for the
following purposes:
1. To elect one Class 1 Director to the Gargoyles Board of Directors to
serve until the 2001 annual meeting of shareholders;
2. To elect one Class 2 Director to the Gargoyles Board of Directors to
serve until the 2002 annual meeting of shareholders;
3. To elect one Class 3 Director to the Gargoyles Board of Directors to
serve until the 2000 annual meeting of shareholders; and
4. To address such other matters as may properly come before the meeting
and any adjournment or postponement thereof.
The Board of Directors has fixed June 4, 1999 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,
VP and General Counsel and Secretary
5866 South 194th Street,
Kent, Washington
June 4, 1999
<PAGE>
GARGOYLES, INC.
----------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held On Tuesday, June 29, 1999
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 Tuesday, June 29, 1999, 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 June 7, 1999.
Outstanding Securities and Voting Rights
Only holders of record of Gargoyles' stock at the close of business on June
4, 1999 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 million 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 80% 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 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. Because the only business scheduled to come before the
Annual Meeting is the election of directors, the presence in person or by
proxy 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.
<PAGE>
ELECTION OF DIRECTORS
On June 1, 1999, Gargoyles completed a refinancing and recapitalization
transaction with U.S. Bank National Association. As a result of that
transaction, Gargoyles issued 10 million shares of Series A Preferred Stock to
U.S. Bank. As part of the transaction with U.S. Bank, Timothy C. Potts, Paul
S. Shipman, Walter F. Walker, and Robert G. Wolfe each resigned from the
Gargoyles Board of Directors effective June 1, 1999. Effective June 2, 1999,
William C. Thompson was appointed by the Board of Directors to fill a vacancy
in the Class 1 Directors, Daniel C. Regis was appointed by the Board of
Directors to fill a vacancy in the Class 2 Directors, and Mr. Shipman was
reappointed to the Board of Directors as a Class 3 Director. William D.
Ruckelshaus will remain on the Board of Directors until the Annual Meeting
when his term of office will expire.
Following the completion of the transaction with U.S. Bank and in
accordance with Gargoyles' Bylaws, the Board of Directors has fixed the number
of Directors constituting the Board as of the date of the Annual Meeting at
three. 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. Following the Annual Meeting, each
class will be comprised of one Director.
The Class 1 Director is up for election at this Annual Meeting and will
serve until the 2001 Annual Meeting of Shareholders or until his successor is
elected and qualified. The Class 2 Director is up for election at this Annual
Meeting and will serve until the 2002 Annual Meeting. The Class 3 Director is
up for election at this 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
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>
William C. Thompson.............................................. 60 1
Daniel C. Regis.................................................. 59 2
Paul S. Shipman.................................................. 46 3
</TABLE>
William C. 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 is the President of Kirlan Venture Capital, Inc. which
provides investment consulting services to several venture capital funds.
Prior to joining Kirlan Venture Capital, Inc. in 1996, Mr. Regis was the
Managing Partner of Price Waterhouse LLP for the Northwest Region. Mr. Regis
worked for Price Waterhouse LLP for more than 32 years serving many notable
clients during his career, including NIKE, Longview Fibre and Precision
Castparts.
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.
2
<PAGE>
Compensation of Directors
The Directors waived all cash compensation in 1998.
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 Company's 1995 Stock Incentive
Compensation Plan (the "Stock Plan"). In 1998 each Non-employee Director was
granted a nonqualified option to purchase 10,000 shares of the Company's
common stock, and 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. 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 Nasdaq National Market or 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. 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
In 1998, the Board had five committees, an Audit Committee, a Compensation
Committee, an Executive Committee, a Nominating Committee, and a Special
Committee. During 1998, there were nine meetings of the Board of Directors.
Seven additional meetings of the Board of Directors were held 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. 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. It is anticipated that no appointments will be made to the Executive
Committee or the Special Committee at the 1999 annual board meeting and those
committees will be 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. In 1998, the members of the Audit
Committee were Mr. Potts, Mr. Walker and Mr. Wolfe. The Audit Committee met
five times in 1998.
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 Company's 1995 Stock Incentive Compensation Plan, and
recommends the establishment of policies relating to such plans. In 1998, the
members of this committee were Mr. Shipman and Mr. Ruckelshaus. The
Compensation Committee met three times in 1998.
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 comprised the Executive Committee. The
Executive Committee met three times in 1998.
3
<PAGE>
Nominating Committee. The Nominating Committee was established in December
1997 to report and make recommendations to the Board of Directors on the size
and composition of the Board and on nominees for Directors. In 1998, Mr.
Ruckelshaus, Mr. Shipman and Mr. Walker were members of the Nominating
Committee. The Nominating Committee met once in 1998.
Special Committee. The Special Committee was established in June 1998 to
investigate and evaluate various possible alternatives to maximize shareholder
value which from time to time are available to the Company. Mr. Ruckelshaus,
Mr. Shipman and Mr. Walker were members of the Special Committee. The Special
Committee met five times in 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 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
except for the initial Form 3 filings for Robert G. Wolfe, Leo Rosenberger,
and Cynthia Pope with respect to their initial designation by the Company as
"executive officers" which were filed late.
4
<PAGE>
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 June 2, 1999, 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.
<TABLE>
<CAPTION>
Outstanding Shares
of Common Stock Percent Of
Name and Address of Beneficial Owner Beneficially Owned Class
------------------------------------ ------------------ ----------
<S> <C> <C>
Sheldon Goldman(1).............................. 20,000 *
c/o Sungold Eyewear, Inc.
2095 New Highway
Farmingdale, NY 11735
Douglas B. Hauff(2)............................. 0
The Highlands
Seattle, WA 98177
Cynthia L. Pope(1).............................. 32,700 *
c/o Gargoyles, Inc.
5866 S. 194th Street
Kent, WA 98032
Daniel C. Regis................................. 0
c/o Kirlan Venture Capital, Inc.
221 First Avenue West, Ste. 108
Seattle, WA 98119
Leo Rosenberger(1).............................. 150,000 *
c/o Gargoyles, Inc.
5866 S. 194th Street
Kent, WA 98032
William Ruckelshaus(3).......................... 16,360 *
c/o Madrona Investment Group
1000 Second Avenue, Suite 3700
Seattle, WA 98104
Paul S. Shipman(1).............................. 14,360 *
c/o Red Hook Brewery, Inc.
3400 Phinney Avenue
North Seattle, WA 98103
William C. Thompson............................. 0
c/o Worldwide Marketing Consultants
112 Bon Air Avenue
New Rochelle, NY 10804
Trillium Corporation(4)......................... 2,505,313 6%
4350 Cordata Parkway
Bellingham, WA 98226
U.S. Bank National Association(5)............... 31,600,342 80%
601 Second Avenue South
MPSP1803
Minneapolis, MN 55402
U.S. Bankcorp(6)................................ 400,000 1%
601 Second Avenue South
MPSP1803
Minneapolis, MN 55402
All current Directors and executive officers as
a group (8 persons)............................ 233,420 *
</TABLE>
5
<PAGE>
- --------
* Represents less than 1%
(1) Consists of shares subject to an option exercisable within 60 days.
(2) Information is as of August 14, 1998 as indicated in the shareholder's
Schedule 13G filed with the Securities and Exchange Commission on August
14, 1998.
(3) Includes 14,360 shares subject to an option exercisable within 60 days.
(4) Information is as of July 6, 1998 as indicated in the shareholder's
Schedule 13G filed with the Securities and Exchange Commission on July 16,
1998.
(5) Represents the number of shares of Common Stock reserved for issuance to
U.S. Bank National Association upon the conversion of 10 million shares of
Series A Preferred Stock held by U.S. Bank National Association.
(6) U.S. Bankcorp is an affiliate of U.S. Bank National Association
6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
Compensation Summary
The following table sets forth during the fiscal years ended December 31,
1998, 1997, and 1996 the compensation for services rendered for the Company's
former Chief Executive Officer and the Company's three 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
Compensation
Annual Compensation Awards
---------------------- ------------
Securities
Underlying All Other
Name and Salary Bonus Options Compensation
Principal Position Year ($) ($) (#) ($)
------------------ ---- --------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Leo Rosenberger(1)........... 1998 196,875 150,000 1,823
CEO and CFO 1997
Cynthia L. Pope (2).......... 1998 105,000 1,474
V.P., General Counsel and
Secretary 1997
Douglas B. Hauff(3).......... 1998 84,662.72 0 0 5,398
Former President and CEO 1997 225,000 0 0 11,786
1996 225,450 350,000 0 12,664
Sheldon Goldman(4)........... 1998 209,615 0 9,498
President, Sungold Eyewear,
Inc. 1997 125,769 20,000 7,489
</TABLE>
- --------
(1) Represents (i) $656 for life insurance and disability premiums in 1998 and
(ii) $1,167 for health insurance premiums in 1998. Mr. Rosenberger's
employment with the Company commenced February 1, 1998.
(2) Represents (i) $378 for life insurance and disability premiums in 1998 and
(ii) $1,095 for health insurance premiums in 1998. Ms. Pope's employment
with the Company commenced February 1, 1998.
(3) Represents (i) $1,570, $4,626, and $4,710 in matching 401(k) contributions
by the Company in 1998, 1997 and 1996, respectively, (ii) $786, $2,390 and
$3,816 for life insurance and disability premiums in 1998, 1997 and 1996,
respectively, and (iii) $3,041, $4,770 and $4,138 for dependent health
insurance premiums in 1998, 1997 and 1996, respectively. Mr. Hauff
resigned effective April 2, 1998.
(4) Represents (i) $2,115 in matching 401(k) contributions by the Company in
1998 and (ii) $7,382 and $7,489 for dependent health insurance premiums in
1998 and 1997, respectively. Mr. Goldman's employment with Sungold
Eyewear, Inc. commenced April 10, 1997.
Option Grants in 1998
The following table sets forth information concerning the grant of stock
options during 1998 to the named executive officers.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation For
Individual Grants Option Term(2)
-------------------------------------------- -----------------
Number of Percent of
Securities Total Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price(1) Date 5% 10%
- ---- ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Leo
Rosenberger.... 150,000 74 $2.63 2/1/08 $185,625 $471,375
</TABLE>
Option Grants in Last Fiscal Year
7
<PAGE>
- --------
(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 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.
1998 Year-End Option Values
No stock options were exercised by the named executive officers during the
fiscal year ended December 31, 1998. The following table sets forth
information concerning unexercised stock options held by each of the persons
then named executive officers as of December 31, 1998.
1998 Year-End Option Values
<TABLE>
<CAPTION>
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
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas Hauff............... -0- -0- -0- -0-
Sheldon Goldman............. 20,000 -0- -0- -0-
Cynthia L. Pope............. 27,931 4,769 -0- -0-
Leo Rosenberger............. 112,500 37,500 -0- -0-
</TABLE>
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. Executive compensation
established for 1998 and 1999 reflect 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 1999 to any of the Company's named
8
<PAGE>
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 1998 compensation for the
Company's Chief Executive Officer, Leo Rosenberger, was based on the same
policies and criteria as the compensation for other executive officers and
reflected 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 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. Mr. Rosenberger was also granted options to purchase 150,000 shares of
the Company's common stock at an exercise price of $2.63 per share. The
options vested quarterly and were fully vested at May 1, 1999.
The Compensation Committee
Paul Shipman
William D. Ruckelshaus
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 March 1999 to extend Mr.
Rosenberger's employment for an additional year. Pursuant to the terms of the
amended agreement, the Company agreed to pay Mr. Rosenberger an annual base
salary of $225,000 and a bonus of $150,000 upon a change in control of the
Company. Mr. Rosenberger is entitled to the change-in-control bonus 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.
9
<PAGE>
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, 1998. Stock price performance shown in the Performance
Graph for the Common Stock is historical and not necessarily indicative of
future price performance.
[PERFORMANCE CHART APPEARS HERE]
Total Return Analysis from Performance Chart
-----------------------------------------------------------------------------
10/2/96 12/31/96 12/31/97 12/31/98
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Gargoyles Inc. $100.00 $ 43.00 $ 19.75 $ 1.23
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Peer Group $100.00 $ 52.00 $ 41.57 $ 43.07
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Nasdaq Composite $100.00 $ 104.00 $ 127.03 $ 178.07
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Certain Transactions
In January 1996, in exchange for a cash payment of $56,000, the Company
issued to Walter F. Walker, a director of the Company until June 1, 1999, 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.
On April 9, 1997, the Company advanced funds to its then President and
Chief Executive Officer, Douglas B. Hauff, as evidenced by a promissory note
in favor of the Company in original principal amount of $531,299 plus interest
at the rate of 4.75% per annum, relating to an individual income tax payment
resulting from the exercise of a non-qualified stock option. During his
employment with the Company, the Company from
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time to time had advanced funds to Mr. Hauff, as evidenced by a second
promissory note dated March 11, 1998, in favor of the Company in original
principal amount of $56,307 together with interest thereon at the rate of
5.75% per annum (the April 1997 note and the March 1998 note being referred to
herein as the "Hauff Notes"). The Hauff Notes were due on February 15, 1999
and were fully reserved at December 31, 1997. Pursuant to an agreement dated
February 2, 1999, Mr. Hauff paid the Hauff Notes by (1) paying the Company
cash in the amount of $185,000, (2) waiving certain COBRA payments in the
amount of $1,330, (3) assigning to the Company a non-interest bearing
promissory note from Trillium Corporation in the amount of $95,000 payable
August 14, 2000 (the "Assigned Note"), (4) executing and delivering to the
Company a new promissory note in original amount of $32,500 plus interest at
8% per annum, with a maturity date of August 31, 2001 (the "New Hauff Note"),
and (5) assuming certain obligations of the Company to Ken Griffey, Jr. under
a License Agreement dated October 30, 1995 between Mr. Griffey and the Company
which the Company valued at $200,000. The Company has reserved all but $20,000
of the Assigned Note and New Hauff Note at December 31, 1998.
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 $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 are secured by the assets 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. 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. All term
loans under the credit agreement are due and payable on June 1, 2005.
AUDITORS
BDO Seidman, LLP were the Company's independent public accountants for the
fiscal year ending December 31, 1998. 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. 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 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.
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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 June 15, 1999.
ANNUAL REPORT
A copy of the Company's 1998 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, Vice President and General Counsel, Gargoyles, Inc., 5866 S. 194th
Street, Kent, Washington 98032 (253) 796-2752 Ext. 3404.
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1544PS99
<PAGE>
PROXY
GARGOYLES, INC.
Annual Meeting, June 29, 1999, 10:00 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 June 4, 1999, at the
Annual Meeting of Shareholders of Gargoyles, Inc. (the "Company") on June 29,
1999 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.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SEE REVERSE
SIDE SIDE
<PAGE>
Please mark
[X] votes as in
this example.
Directors recommend a vote FOR election of the following directors:
1. Election of Directors.
Class 1 Nominee: William C. Thompson, Jr.
Class 2 Nominee: Daniel C. Regis
Class 3 Nominee: Paul S. Shipman
FOR WITHHOLD
[ ] [ ]
[ ]
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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:
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