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:
|X| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
AMBASSADOR EYEWEAR GROUP, INC.
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(Name of Registrant as Specified in Its Charter)
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(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 O-11.
1) Title of each class of securities to which transaction applies:
N.A.
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2) Aggregate number of securities to which transaction applies:
N.A.
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11: (Set forth the amount on which
the filing fee is calculated and state how it was determined):
N.A.
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4) Proposed maximum aggregate value of transaction:
N.A.
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5) Total fee paid:
N.A.
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|_| Fee paid previously with preliminary materials
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|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule O-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:___________________________________________________________
<PAGE>
Ambassador Eyewear Group, Inc.
3600 Marshall Lane
Bensalem, Pennsylvania 19020
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Notice Of Annual Meeting Of Stockholders
To Be Held November 23, 1998
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The 1998 Annual Meeting of the Stockholders of Ambassador Eyewear Group, Inc.
(the "Company") will be held at the Company's offices at 3600 Marshall Lane,
Bensalem, Pennsylvania 19020 on November 23, 1998 at 1:00 p.m., eastern time for
the following purposes:
(1) To elect four directors to hold office for a term of one year or
until their successors have been duly elected and qualified.
(2) To approve a Plan of Internal Restructuring under which the
Company proposes to transfer all of its tangible assets to a
newly-created Pennsylvania subsidiary and reclassify the Company as
a Delaware holding company which would retain the Company's
intangible assets.
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on September 24, 1998 as
the record date for determining the stockholders entitled to notice of and to
vote at the meeting and any adjournment thereof.
Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.
All stockholders are asked to complete, sign and date the enclosed proxy and
return it promptly by mail in the enclosed self-addressed envelope, which does
not require postage if mailed in the United States.
By Order of the Board of Directors
Raymond Green
Secretary
October 23, 1998
Bensalem, Pennsylvania
<PAGE>
Ambassador Eyewear Group, Inc.
3600 Marshall Lane
Bensalem, Pennsylvania 19020
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Proxy Statement For Annual Meeting
-----------------------------------------------
This Proxy Statement is furnished by the Board of Directors (the "Board of
Directors") of Ambassador Eyewear Group, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies to be used at the
Annual Meeting of Stockholders (the "Meeting") to be held on November 23, 1998
at the Company's offices at 3600 Marshall Lane, Bensalem, Pennsylvania 19020 at
1:00 p.m., eastern time, and at any adjournment thereof. This Proxy Statement
and the accompanying Annual Report, Notice and Proxy are being mailed to
stockholders on or about October 23, 1998. The principal executive offices of
the Company are located at the address indicated above.
Only stockholders of record at the close of business on the record date,
September 24, 1998 (the "Record Date"), will be entitled to vote at the Meeting
and at all adjournments thereof.
On the Record Date, there were outstanding and entitled to vote 4,700,000
shares of the Company's common stock, $.01 par value per share (the "Common
Stock"). Each outstanding share of Common Stock is entitled to one vote on each
matter to be voted upon. A majority of the shares of Common Stock entitled to
vote at the Meeting will constitute a quorum for the transaction of business.
Holders of Common Stock have no cumulative voting rights.
Voting Of Proxies
If a proxy is properly signed by a stockholder and is not revoked, the
shares represented thereby will be voted at the Meeting in the manner specified
on the proxy, or if no manner is specified with respect to any matter therein,
such shares will be voted by the person designated therein (with respect to the
matters as to which the stockholder is entitled to vote) (a) "FOR" the election
of each of Rudy A. Slucker, Barry Budilov, Jay Rice, and Jeffrey Seiken as
directors of the Company, (b) "FOR" the approval and ratification of the
Company's Plan of Internal Restructuring under which the Company proposes to
transfer all of its tangible assets to a newly-created Pennsylvania subsidiary
and reclassify the Company as a Delaware holding company which would retain the
Company's intangible assets, and (c) in connection with the transaction of such
other business as may properly be brought before the Meeting, in accordance with
the judgment of the person or persons voting the proxy. If any of the nominees
for director is unable to serve or for good cause will not serve, an event that
is not anticipated by the Company, the shares represented by the accompanying
proxy will be voted for a substitute nominee designated by the Board of
Directors or the Board of Directors may determine to reduce the size of the
Board.
A proxy may be revoked by the stockholder at any time prior to the voting
thereof by giving notice of revocation in writing to the Secretary of the
Company, by duly executing and delivering to the Secretary of the Company a
proxy bearing a later date or by voting in person at the Meeting.
Directors of the Company will be elected by a plurality of the vote of the
outstanding shares of Common Stock present, in person or by proxy, and entitled
to vote at the Meeting. The affirmative vote of the holders of at least a
majority of the outstanding shares of Common Stock present, in person or by
proxy, and entitled to vote at the Meeting is required for the ratification and
approval of the Company's Plan of Internal Restructuring, and, unless otherwise
required
<PAGE>
by the Delaware General Corporation Law or the Company's Certificate of
Incorporation, any and all other matters which may be put to a stockholder vote
at the Meeting. Except for the election of directors, as to any particular
proposal, abstentions will have the same effect as a vote against that proposal,
and broker non-votes will not be counted as votes for or against the proposal,
and will not be included in counting the number of votes necessary for approval
of the proposal. Votes cast, either in person or by proxy, will be tabulated by
Continental Stock Transfer & Trust Company, the Company's transfer agent.
Voting Securities and Principal Holders Thereof
The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of September 24,
1998 for (i) each person who is known by the Company to beneficially own more
than 5% of the Common Stock, (ii) each of the Company's directors, and (iii) all
directors and executive officers as a group. The Company believes that each of
the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares. The information contained herein is based upon 4,700,000
outstanding shares of Common Stock. Unless otherwise indicated, the address for
each such person listed below is c/o Ambassador Eyewear Group, Inc., 3600
Marshall Lane, Bensalem, Pennsylvania 19020.
Number of Shares
Name Beneficially Owned Percentage of Class
- ---- ------------------ -------------------
Kenneth Kitnick (1) 151,667 2.94%
Jay Rice 700 *
Rudy Slucker (2)(3)(4) 2,444,500 47.39%
Barry Budilov (5) 1,862,000 36.10%
Raymond Green 0 --
Jeffrey Seiken 0 --
All directors and 3,958,867 76.75%
executive officers as
a group (6 persons)
(2)(3)(4)(5)
- --------------------------------------
*Less than 1%
(1) Includes options to acquire 151,667 shares of Common Stock of the Company.
(2) Includes 225,000 shares of Common Stock held in the names of Mr. Slucker's
wife and two children over which Mr. Slucker disclaims beneficial
ownership.
(3) Also includes an option to purchase 500,000 shares granted to Mr. Slucker
from Barry Budilov.
(4) Includes (i) options to acquire 54,833 shares of Common Stock held by Mr.
Slucker and (ii) 139,667 shares of Common Stock for Mr. Slucker issuable
upon the conversion of Convertible Notes.
(5) Includes (i) options to acquire 54,833 shares of Common Stock held by held
by Mr. Budilov and (ii) 57,167 shares of Common Stock for Mr. Budilov
issuable upon the conversion of Convertible Notes.
As of June 18, 1998, Mr. Slucker and Mr. Budilov donated 47,000 shares of
Common Stock and intend to donate an additional 47,000 shares each, every 90
days (not to exceed 150,000 shares of Common Stock each including the initial
47,000 shares), to the Slucker Family Foundation, a charitable foundation over
which Mr. Slucker is a controlling person. The Common Stock donated to the
foundation will not be subject to a lock-up agreement with the underwriters of
the Company's initial public offering. The above table does not reflect those
donations.
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<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS
At this year's Annual Meeting of Stockholders, four directors will be
elected to hold office for a term expiring at the next Annual Meeting of
Stockholders. Each director will be elected to serve until a successor is
elected and qualified or until the director's earlier resignation or removal.
The affirmative vote of the holders of a plurality of the shares of Common
Stock voted in person or by proxy at the Meeting is required for the election of
each director. Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of each of the following nominee
directors: Rudy A. Slucker, Barry Budilov, Jay Rice and Jeffrey Seiken. If any
of the nominee directors listed above becomes unable to serve or for good cause
will not serve, an event that is not anticipated by the Company, (i) the shares
represented by the proxies will be voted for a substitute nominee or substitute
nominees designated by the Board of Directors or (ii) the Board of Directors may
determine to reduce the size of the Board of Directors. At this time, the Board
of Directors knows of no reason why any of the persons listed above may not be
able to serve as directors if elected.
The Board of Directors recommends a vote "FOR" the election of each of the
nominee directors.
The name and age of each of the nominee directors, their respective
positions with the Company and the period during which each such individual has
served as a director are set forth below. Additional biographical information
concerning each of the nominee directors and executive officers of the Company
follows the table.
Position
Name Age Position with the Company Since
---- --- ------------------------- -----
Rudy A. Slucker 49 Chairman of the Board of May 1995
Directors
Barry Budilov 42 President and Chief May 1995
Executive Officer
Kenneth B. Kitnick 35 Executive Vice President June 1996
Raymond Green 35 Treasurer May 1995
Jay Rice 45 Director June 1997
Jeffrey Seiken 44 Director June 1997
Certain Biographical Information Concerning Directors and Executive Officers
Rudy A. Slucker has served as Chairman of the Board of Directors of the
Company since May 1995. Mr. Slucker also serves on a full time basis as Chairman
of the Board of Directors, President and Chief Executive Officer of the TearDrop
Golf Company, a Nasdaq-listed company, which position he has held since
September 1996 and of the Tommy Armour Golf Company, a wholly-owned subsidiary
of TearDrop Golf Company, since November 1997. Mr. Slucker was the Chief
Executive Officer of the Atlas Group of Companies, Inc. ("Atlas"), which
imported and marketed hardware and consumer products, from 1978 until 1990, when
it was sold. Since 1990, Mr. Slucker has been a venture capital investor. He
currently serves on the board of directors and/or is a principal stockholder of
Major league Fitness, a chain of fitness centers associated with Major league
Baseball through a licensing agreement and Babylon
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<PAGE>
Enterprises and Beacon Concessions, which, together, currently own and operate
the Beacon Theater in Manhattan. Mr. Slucker graduated from the University of
Cincinnati with a Bachelors Degree in 1971.
Barry Budilov has been President and Chief Executive Officer of the
Company and has served as a Director since the Company's inception in 1995. From
1989 to 1995, Mr. Budilov served as the President of Chanuk, the predecessor of
the Company. Prior thereto and since 1987, Mr. Budilov served as Chief Financial
Officer of Eco-Med, Inc., which was sold in 1989 to Avicare, Inc., a
publicly-traded company. Mr. Budilov is a certified public accountant. Mr.
Budilov graduated magna cum laude from George Washington University with a
Bachelor's Degree in accounting in 1997.
Kenneth B. Kitnick has served as Executive Vice President of the Company
since June 1996. Prior to joining the Company he spent sixteen years in the
optical industry as Vice President and Chief Operating Officer of Windsor, which
the Company acquired in January 1997. Mr. Kitnick graduated from Franklin &
Marshall College with a Bachelor's Degree in mathematics in 1983.
Raymond Green has served as Treasurer of the Company since the Company's
inception in 1995. From 1992 to 1994 he served as the controller of The Backe
Group, Inc., a holding company in the communications field. Prior thereto and
since 1990, he was the Controller for Water-Jel Technologies, Inc., a
manufacturing company with securities traded on Nasdaq. Prior thereto and since
1987, he was employed as a staff accountant for Abo, Uris & Altenburger, a
certified public accounting firm. Mr. Green graduated from Iona College in 1983
with a Bachelor's Degree in finance.
Jay Rice has been the managing partner of the law firm of Nagel Rice &
Dreifuss since 1983 and has served as a Director of the Company since June 1997.
He served as a member of the advisory board to Summit Bank from 1989 to 1991.
Since 1990, he has served as a trustee and is now the President of the Jewish
Community Housing Corp. and has been a member of the Board of Trustees of the
United Jewish Federation of Metrowest since 1995. Prior to joining Nagel Rice &
Dreifuss, Mr. Rice served as a law clerk to the Honorable Baruch S. Seidman of
the New Jersey Superior Court, Appellate Division from 1977 to 1978. Mr. Rice
has authored several legal articles and has served as a lecturer. Mr. Rice is a
member of the Essex County Bar Association, the New Jersey State Bar Association
(serving as Chairman of the Equity Jurisprudence Committee from 1989 to 1991)
and the American Bar Association. Mr. Rice receive his Juris Doctorate from
Rutgers University in 1977.
Jeffrey Seiken practices law in Philadelphia, Pennsylvania in the law
offices of Jeffrey Seiken and has served as a Director of the Company since June
1997. From 1988 through 1996, Mr. Seiken was a partner with the law firm of Rush
& Seiken. He was one of the initial founders and investors in American Health
Care, a corporation formed in 1988. American Health Care provides nursing home
care to elderly individuals with facilities in New Jersey, Alabama, Indiana and
Oregon. In addition, Mr. Seiken has been involved in real estate development
since 1985. Mr. Seiken has also served as a member of the Whitemarsh Township,
Pennsylvania Sewer Authority and the Whitemarsh Township Planning Commission.
For a period of 36 months, H.J. Meyers & Co., Inc. and National Securities
Corporation have the right to appoint either a member to the Company's Board of
Directors or an observer to attend all meetings of the Board of Directors. The
observer will have no right to vote on any matters before the Board. No observer
has been appointed.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors, and persons who beneficially own
more than ten percent of a registered class of the Company's equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and Chicago Stock Exchange. Based solely on a review of the
copies of reports furnished to the Company and written representations from the
Company's executive officers,
4
<PAGE>
directors and persons who beneficially own more than ten percent of the
Company's equity securities, the Company believes that other than the initial
report (Form 3) of beneficial ownership by Kenneth Kitnick, Raymond Green,
Jeffrey Seiken, Barry Budilov, Rudy Slucker and Jay Rice which were filed late
all required reports have been filed.
Meetings of the Board and Committees
During fiscal year 1998, the Board of Directors held two meetings. Each of
the directors attended at least 75% of the aggregate of all meetings of the
Board of Directors and the total number of meetings held by all committees of
the Board of Directors of which each respective director was a member during the
time he was serving as such during the fiscal year ended March 31, 1998.
The Board of Directors has created a Compensation Committee and an Audit
Committee. The Board of Directors has not created a Nominating or similar
Committee. The members of both the Compensation Committee and Audit Committee
consist of Jeffrey Seiken and Jay Rice.
The Compensation Committee, which held no meetings during fiscal year
1998, has jurisdiction on behalf of the Company to approve, disapprove, modify
or amend all plans to compensate employees including bonuses. The Compensation
Committee determines the salaries of employees of the Company who are directors
and also determines the salaries of all other employees of the Company who are
officers or who occupy such other positions as may be designated by the
Compensation Committee.
The Audit Committee, which held no meetings during fiscal year 1998,
periodically reviews the Company's auditing practices and procedures, makes
recommendations to management or to the Board of Directors as to any changes to
such practices and procedures deemed necessary from time to time to comply with
applicable auditing rules, regulations and practices, and recommends independent
auditors for the Company to be elected by the stockholders.
Compensation Of Directors And Executive Officers
The following table sets forth information concerning the compensation
paid or accrued by the Company for fiscal years ended March 31, 1996, March 31,
1997, and March 31, 1998, to Barry Budilov, President and Chief Executive
Officer, Rudy Slucker, Chairman of the Board and Kenneth B. Kitnick, Executive
Vice President of the Company. No other executive officer of the Company earned
more than $100,000 in salary and bonus during the last fiscal year.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name and Other
Principal Annual Number of All Other
Position Fiscal Year Salary Bonus Compensation Options Compensation
- ------------- ----------- ------ ----- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Barry Budilov
President
and Chief 1998 $230,580 $0 $32,742(2) 0 $8,473(3)
Executive 1997 $250,000 $0 $32,742(2) 0 $8,473(3)
Officer 1996(1) $169,900 $0 $32,742(2) 54,833 $8,473(3)
Rudy A. Slucker
Chairman of 1998 $245,000 $0 $32,742(2) 0 $8,473(3)
the Board 1997 $260,000 $0 $32,742(2) 0 $8,473(3)
of Directors 1996(1) $172,000 $0 $32,742(2) 54,833 $8,473(3)
Kenneth B. Kitnick
Executive 1998 $105,040 $0 $5,591 0 $260
Vice 1997 $105,040 $0 $5,591 0 $0
President 1996 $0 $0 $0 151,667 $0
</TABLE>
(1) Fiscal 1996 consisted of approximately 11 months.
5
<PAGE>
(2) Include payments for medical insurance, disability insurance and auto
insurance. Also includes $17,106 for automobile allowance.
(3) Represents payment for life insurance.
Compensation Arrangements
The Company entered into an employment agreement with Barry Budilov,
effective on March 18, 1998 pursuant to which he will serve on a full-time basis
as President and Chief Executive Officer of the Company for a period of three
years. The agreement provides for an annual base salary of $200,000 subject to
annual increases at the discretion of the Board of Directors. The agreement also
contains a confidentiality provision and a provision prohibiting Mr. Budilov
from competing with the Company for a period of six months subsequent to the
termination of his employment. The Company has agreed to pay Mr. Budilov an
amount equal to six months salary in the event of a change of control or in the
event his agreement is not renewed. In the event Mr. Budilov is terminated
without cause, the Company breaches the terms of the agreement or upon the
relocation of the Company to a place outside of the Philadelphia metropolitan
area, which leads to Mr. Budilov's resignation, the Company will pay to Mr.
Budilov his base salary unpaid through the greater of the termination date or a
period of six months. The agreement also provides for the payment of additional
benefits of approximately $41,000 annually.
The Company entered into a consulting agreement with Rudy Slucker,
effective on March 18, 1998, pursuant to which he will serve as Chairman of the
Board of the Company for a period of three years. The agreement will provide for
an annual consulting fee of $100,000, subject to annual increases at the
discretion of the Board of Directors. Mr. Slucker will not be required to devote
any minimum amount of time to the affairs of the Company and is subject to an
employment agreement with another company. The consulting agreement also
contains a confidentiality provision and a provision prohibiting Mr. Slucker
from competing with the Company for a period of six months subsequent to the
termination of his employment. The Company has agreed to pay Mr. Slucker an
amount equal to six months fee in the event of a change of control or in the
event his agreement is not renewed. In the event Mr. Slucker is terminated
without cause, the Company breaches the terms of the agreement or upon the
relocation of the Company to a place outside of the Philadelphia metropolitan
area, which leads to Mr. Slucker's resignation, the Company will also pay Mr.
Slucker his basic fee unpaid through the greater of the termination date or a
period of six months. The agreement also provides for the payment of additional
benefits of approximately $41,000 annually.
The Company entered into an employment agreement with Kenneth Kitnick,
effective on June 26, 1996, pursuant to which he is serving on a full-time basis
as a Vice President of the Company for a period of four years. The agreement
provides for an initial base salary of $105,000, plus an automobile allowance
and provides for annual minimum increases through the year of 1999 to a maximum
of $120,000. The agreement has been amended, as of June 30, 1997, to provide for
the grant as of the date of the agreement to Kenneth Kitnick of options to
purchase 151,667 shares of Common stock at an exercise price of $1.50 per share,
vesting over a period of five years. The agreement contains a non-compete
provision which prohibits Kenneth Kitnick from directly or indirectly competing
with the Company for a period of one year upon termination.
Compensation of Directors
At present, no separate cash compensation or fees are payable to directors
of the Company, other than reimbursement of expenses incurred in connection with
attending meetings. The Company expects, however, that new non-employee
directors not otherwise affiliated with the Company or its stockholders will be
paid $500 per meeting and reimbursement for reasonable out-of-pocket costs for
attending meetings.
6
<PAGE>
Option Exercises and Fiscal Year-End Values
Shown below is information with respect to the exercise of options to
purchase Common Stock by the Chief Executive Officer and the named executive
officers and unexercised options to purchase shares of Common Stock granted to
the Chief Executive Officer and such named executive officers.
Aggregated Option Exercises In Last Fiscal Year and Fiscal
Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares to be Acquired Value Fiscal Year End (1) Fiscal Year End (1)
Name on Exercise (#) Realized $ Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------------------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Rudy A. Slucker 0 0 54,833/0 $322,144/0(2)
Barry Budilov 0 0 54,833/0 $322,144/0(3)
Kenneth B. Kitnick 0 0 151,167/0 $701,460/0(4)
</TABLE>
(1) Assuming a value of $6.125 per share.
(2) Does not include an option to purchase 500,000 shares of Common Stock for
$6.00 per share granted personally by Mr. Budilov to Mr. Slucker
(3) Messrs. Budilov and Slucker were granted options to acquire 54,833 shares
of Common Stock at an exercise price of $.25 per share.
(4) Mr. Kitnick was granted options to acquire 151,667 shares of Common Stock
at an exercise price of $1.50 per share.
Amounts shown represent the market value of the underlying shares of
Common Stock at year-end, calculated using the March 31, 1998 closing
price per Share of Common Stock of $6.125 on the Chicago Stock Exchange.
The actual value, if any, an executive may realize is dependent upon the
amount by which the market price of shares of Common Stock exceeds the
exercise price per share when the stock options are exercised. The actual
value realized may be greater than the value shown in the table.
Indemnification of Directors and Officers and Limitation of Liability
As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Certificate of Incorporation includes a provision that eliminates
personal liability for its directors for monetary damages for breach of
fiduciary duty as a director except for liability: (i) for breach of the
director's duty of loyalty to the Company or its stockholders; (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the DGCL; and (iv) for any
transaction from which the director derived an improper personal benefit.
As permitted by Section 145 of the DGCL, the Company's Amended Certificate
of Incorporation and By-Laws provide that: (i) the Company is required to
indemnify its directors and officers to the fullest extent permitted by the
DGCL; (ii) the Company may indemnify other persons as set forth in the DGCL;
(iii) rights conferred in the By-Laws are not exclusive; and (iv) the Company is
authorized to enter into indemnification agreements with its directors,
officers, employees and agents. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted for directors, officers and
controlling persons of the Company pursuant to the foregoing provisions or
otherwise, the Company has been advised that in the opinion of the
7
<PAGE>
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
The Company has obtained directors and officers liability insurance with
an annual aggregate coverage limit of at least $1 million.
Stock Option Plans
On November 12, 1997, the Board of Directors and the stockholders of the
Company adopted the 1997 Employee Stock Option Plan ("Plan") and reserved
150,000 shares of Common Stock, for issuance thereunder. The Plan provides for
the granting to employees (including employees who are also directors and
officers) of options intended to qualify as incentive stock options within the
meaning of Section 442 of the Internal Revenue Code of 1986, as amended
("Code"), and for the granting of nonstatutory stock options to employees,
consultants and independent contractors. The Plan is currently administered by
the entire Board of Directors of the Company. The Plan terminates on June 5,
2007 unless terminated earlier by the Company's Board of Directors.
The exercise price per share of incentive stock options granted under the
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. In addition, in accordance with the Underwriting Agreement
relating to the Company's initial public offering on March 18, 1998, the Company
has agreed not to grant any options under the Plan with an exercise price per
share less than the initial public offering price of the Common Stock. With
respect to any participant who owns shares representing more than 10% of the
voting power of all classes of the Company's outstanding capital stock, the
exercise price of any incentive or nonstatutory stock option must be equal to at
least 110% of the fair market value on the grant date, and the maximum term of
the option must not exceed five years. The terms of all other options granted
under the Plan may exceed ten years. Upon a merger of the Company, the options
outstanding under the Plan will terminate unless assumed or substituted by the
successor corporation. To date, no options have been granted under the Plan.
Certain Relationships And Related Transactions
On May 3, 1995, the Company was formed by Rudy A. Slucker, the Company's
current Chairman of the Board of Directors, and Barry Budilov, the current
President and Chief Executive Officer of the Company, at which time each of Mr.
Slucker and Budilov were issued 1,750,000 (giving effect to the 1,166,667 for
one stock split) shares of Common Stock for $.0003 per share and, as of such
date, were each granted options to acquire 54,833 of Common Stock at an exercise
price of $.25 per share.
On May 10, 1995, the Company acquired from Chanuk, Inc. ("Chanuk"), the
predecessor of the Company, substantially all of the assets of Chanuk valued at
approximately $6 million and assumed an aggregate of approximately $5.7 million
of liabilities of the business of Chanuk. The Company acquired Chanuk for
approximately $700,000, which amount was determined by negotiation between the
shareholders of Chanuk and the Company based primarily on the perceived net
asset value of Chanuk at the time. The assume liabilities included indebtedness
of Chanuk to Mr. Slucker of approximately $508,000. In addition, Daniel
Messinger, an uncle of Mr. Budilov's wife, was repaid $250,000 in debt from the
proceeds of the sale. Chanuk, a company engaged in the wholesale sale and
distribution of eyewear, was a company owned approximately 10% by a partnership
controlled by Rudy A. Slucker and 74% by the mother-in-law of Barry Budilov.
Chanuk was incorporated in Pennsylvania on December 3, 1965 and commenced its
eyewear business in 1980. The above $700,000 purchase price was represented by
the issuance by Messrs. Budilov and Slucker of promissory notes in the principal
amount of $343,500 each to Chanuk.
In consideration of the issuance of promissory notes to Chanuk, the
Company issued promissory notes for $343,500 to each of Rudy A. Slucker and
Barry Budilov. In addition, on May 8, 1995, the $508,000 in debt
8
<PAGE>
previously owed from Chanuk to Mr. Slucker was assumed by the Company and took
the form of a promissory note. All three obligations are represented by demand
promissory notes that bear interest at 8% per annum. In addition, the promissory
notes are convertible at the option of the holders at any time at a per share
price equal to the initial public offering price (the "Convertible Notes").
The Company's indebtedness includes approximately $1.18 million to
principal and interest, payable to Mr. Slucker and Mr. Budilov under the 8%
Convertible Notes. The Convertible Notes are repayable at 8% per annum, subject
to restrictions contained in the Company's loan agreement with CoreStates Bank,
on March 31, 2000. Interest accrues and is payable quarterly at the rate of 8%
per annum. If the Company has earnings equal to or in excess of $.60 per share
for the year ending March 31, 1999, the Convertible Notes may be prepaid at the
option of the holder commencing on March 31, 1999. The Convertible Notes may be
converted at any time into shares of Common Stock at the initial public offering
price per share. The Company's revolving line of credit with CoreStates Bank
restrict the payment of dividends to stockholders and provides for a variety of
conditions of default, including the continuing participation of Rudy A. Slucker
and Barry Budilov in their current management positions.
Upon consummation of the acquisition of Chanuk, in May 1995, the Company
entered into a Consulting Agreement with Chanuk. The agreement became effective
on May 10, 1995 and terminates on May 9, 2005. Pursuant to the agreement, two
prior officers of Chanuk who are relatives of Mr. Budilov provided advisory and
consulting services to the Company on behalf of Chanuk, for which Chanuk
received the sum of $26,000 per year, which was to be payable over a ten year
period in installments of $500 per week. The time and effort devoted to the
Company on a weekly basis did not exceed five hours per week. The Company also
entered into a consulting agreement with Central City Optical, Inc. ("Central
City"), a company owned by Daniel Messinger (one of the relatives referred to
above) pursuant to the same terms as set forth above, which agreement will
continue in effect until May 9, 2005. In addition, in November 1997, Chanuk
assigned its rights and obligations under its consulting agreement to Central
City, Mr. Messinger provides consulting services to the Company on behalf of
Central City.
In June 1996, the Company acquired substantially all of the assets (the
"Windsor Acquisition") of Windsor Optical, Inc. ("Windsor"). In connection with
the Windsor Acquisition, the Company acquired trademark licenses with Kenneth
Jay Lane and John Lennon, among others. The aggregate consideration for the
Windsor Acquisition was $550,000, including $100,000 in cash and two promissory
notes, payable to Windsor, in the aggregate principal amount of $450,000.
Kenneth Kitnick, who subsequently because an officer of the Company, was an
officer and principal shareholder of Windsor.
Upon consummation of the Windsor Acquisition, the Company entered into an
employment agreement with Kenneth Kitnick and a consulting agreement with Jay
Kitnick. Jay Kitnick is the father of Kenneth Kitnick. The three-year consulting
agreement with Jay Kitnick provides for 36 monthly payments of $6,944 commencing
on June 20, 2004. The agreement contains a non-compete provision prohibiting Jay
Kitnick from directly or indirectly competing with the Company for a period of
three years from June 25, 1996.
In February 1997, the Company acquired from Summit Bank (the "Bank"),
pursuant to a Collateral Sale Agreement (the "Renaissance Acquisition"),
substantially all of the assets of Renaissance Eyewear Group ("Renaissance").
The Bank had acquired the assets of Renaissance in a foreclosure proceeding
instituted by the Bank. The aggregate consideration paid to the Bank for
Renaissance was $3,446,000. Edward Kauz, who had a right to become a Vice
Chairman of the Board of the Company was an officer, principal stockholder and
significant shareholder of a debtor to Renaissance.
Mr. Kauz remains the sole stockholder of Renaissance. At the time that the
Company acquired the assets of Renaissance, a company 50% owned by Mr. Kauz owed
Renaissance $2.8 million which receivable had been written down to no value at
the time of the acquisition of Renaissance. The Company has entered into a
five-year consulting agreement with Edward Kauz which became effective on
February 27, 1997. The
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agreement provides for aggregate payments to Mr. Kauz of $200,000 subject to
certain conditions set forth in a supplemental agreement, dated February 27,
1997. In addition, under an amendment to such agreement dated as of June 30,
1997, Mr. Kauz waived his right to serve as Vice Chairman of the Board of
Directors and was granted as of February 27, 1997 a five-year option to purchase
180,833 shares of Common Stock for five years for $3.00 per share.
In connection with the revolving loan facility from CoreStates Bank to the
Company, each of Rudy Slucker and Barry Budilov, and their respective spouses,
have provided personal guarantees of no more than $500,000 each, securing the
Company's indebtedness.
From February 4, 1997 through February 1, 1998, in connection with, and to
assist the Company in financing its costs related to the acquisition of
substantially all of the assets of Renaissance and the integration of the
business of the Company and for working capital, Rudy A. Slucker loaned the
Company $576,000, payable upon demand with interest at 8% per annum. This loan
was repaid from the proceeds of the Company's public offerings dated March 18,
1998.
In July 1997, Messrs. Budilov and Slucker entered into an agreement with
the landlord of the Company's facility to purchase such facility. In
anticipation of such purchase, Messrs. Budilov and Slucker have also entered
into an agreement to rent such facility to the Company at substantially the same
terms and conditions set forth in the Company's current lease. In August 1998, a
partnership owned by Messrs. Budilov and Slucker purchased the facility and the
Company is currently leasing the building from such partnership for an annual
rental rate of $307,400, being the same rate previously paid by the Company.
In January 1998, Mr. Budilov granted to Mr. Slucker an option to purchase
500,000 shares of Common Stock owned by Mr. Budilov for $6.00 per share.
Management believes that each of the above transactions was made pursuant
to terms no less favorable than the terms reasonably expected in third-party,
unaffiliated transactions.
PROPOSAL 2. APPROVAL AND RATIFICATION OF PROPOSED RESTRUCTURING PLAN
Background
As of October 12, 1998, the Board of Directors of the Company unanimously
adopted a Plan of Internal Restructuring (the "Restructuring Plan") attached to
this proxy statement as Appendix A, subject to the consideration and approval of
the shareholders of the Company (the "Restructuring"). If approved by the
shareholders and implemented by the Company, the Restructuring will have no
direct impact on the holders of outstanding Common Stock of the Company, since
it will not entail any increase or decrease or other material modification in
the nature or number of shares of authorized or outstanding capital stock of the
Company.
As further described below, there are a number of considerations that
management of the Company believes make it prudent and desirable to pursue the
Restructuring:
(1) management believes that the resulting restructure will insulate
certain valuable intangible assets of the Company and better enable the Company
to expand by completing corporate acquisitions and insulating from each other
the operations of the seperately acquired businesses.
(2) the Restructuring will not result in the acquisition or
disposition of any material assets of the Company, except for the transfer of
tangible assets to a newly created subsidiary that will be controlled by the
Company;
(3) management believes that the resulting structure will result in
significant income tax savings on the state level;
(4) the resulting structure can be accomplished tax free for both
federal and state income tax purposes;
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(5) no shares of capital stock of the Company will be issued or
redeemed and the Restructuring will not otherwise have no material impact on the
rights of shareholders of the Company; and
(6) the Restructuring is not expected to entail any material federal
or state tax costs to the Company or to shareholders of the Company.
There is currently uncertainty as to whether Delaware law requires that
the Restructuring be submitted to a vote of shareholders prior to its
implementation. This uncertainty results because it is unclear whether the
Restructuring constitutes a transfer of substantially all of the assets of the
Company out of the ordinary course of business within the meaning of Section 271
of the Delaware General Corporation Law. As such, while the transfer of tangible
assets will be made by the Company only to a new subsidiary that will be
controlled by the Company, existing legal precedent in Delaware provides no
assurance that a shareholder vote is not required. Given this uncertainty, the
Company has determined to seek shareholder approval by the affirmative vote of
holders of a majority of the total number of outstanding shares of Common Stock
of the Company at the record date September 24, 1998. If the shareholders fail
to approve the Restructuring as proposed, the Board will attempt to evaluate the
concerns of shareholders and determine whether to (1) implement selected aspects
of the Restructuring Plan that do not require shareholder approval, or (2) table
the Restructuring Plan for possible reconsideration at a future date.
Reasons for the Restructuring
Management of the Company believes that the creation of a new subsidiary
and formation of a Delaware holding company contemplated by the Restructuring
Plan could result in income tax savings at the state and local level. In
addition, the Restructuring Plan will better enable the Company to expand by
completing corporate acquisitions and insulating from each other the operations
of the seperately acquired businesses.
At the time that the Company completed its initial public offering, it
stated that it intends to expand its business, through, among other things, the
acquisition of other companies in related businesses. By establishing the
Company as a Delaware holding company, the Company will be able to separate the
liabilities of each corporate enterprise from the Company's other corporate
assets.
The Company also believes that by transferring the tangible operating
assets of the Company to an operating subsidiary, it may recognize significant
income tax savings.
Management of the Company has also considered the possibility that the
more elaborate structure contemplated by the Restructuring Plan may introduce a
certain amount of added complexity into the administration of the Company's
affairs, but believes the added administrative and accounting burdens and costs
will be justified by the benefits that may be realized. The Company will be
required to maintain a bona fide office in Delaware and hold its annual meetings
in Delaware.
Description of the Restructuring Plan
General
The Restructuring Plan contemplates that the Company will transfer all of
its tangible assets to a newly-created Pennsylvania corporation (the "New
Subsidiary") under a tax-free transaction under Section 351 of the Internal
Revenue Code of 1986 as amended (the "Code"), in exchange for voting common
stock of the New Subsidiary. The proposed name, function, and assets and
liabilities of, and certain additional information concerning, the New
Subsidiary are described in the Restructuring Plan set forth in Appendix A to
this proxy statement.
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The principal executive office of the New Subsidiary would be located at
3600 Marshall Lane, Bensalem, Pennsylvania 19020, telephone number (800)
523-4675 which is the same address currently used by the Company. The Company
anticipates that the Chairman, the President and the Treasurer of the Company
would initially be elected to serve as the Board of Directors of the New
Subsidiary.
Effect on Shareholder Rights
The Restructuring will not entail the issuance or redemption of any shares
of capital stock of the Company.
If the Restructuring Plan is implemented, all of the tangible assets of
the Company will be transferred to the New Subsidiary. The result will be that
the Company's right to control the use and disposition of such assets will be
exercised less directly than in the past, by means of control over the
composition of the Board of Directors of the New Subsidiary, which in turn will
elect the officers and otherwise control the business and affairs of the New
Subsidiary. The officers of the New Subsidiary will be comprised principally of
persons also serving as officers and other senior executives of the Company.
Management of the Company does not anticipate that any of the effects
described above will in fact result in any material adverse impact on the
Company's operations or on the rights of shareholders of the Company.
Financial Accounting Implications
For financial accounting and reporting purposes, the New Subsidiary will
be fully consolidated with the Company and the Restructuring transaction is not
expected to otherwise have any material financial reporting implications for the
Company.
Federal Income Tax Consequences
The Restructuring will not have any federal tax consequences for
individual shareholders of the Company.
Subject to certain possible exceptions that are not expected to apply in
the context of the Restructuring, the transfer of assets to the New Subsidiary
in exchange for voting common stock of that subsidiary generally is treated as a
tax-free exchange under Section 351 of the Code. Consequently, it is expected
that neither the Company nor the New Subsidiary will recognize gain or loss as a
result of the Restructuring.
It is not expected that the Restructuring will have any material adverse
effect on the Company's effective federal income tax rate, and management
expects that state taxes will be decreased significantly as a result of the
Restructuring.
Implementation; Modification or Abandonment
If the Restructuring Plan receives the approval of the Company's
shareholders, management of the Company expects that it will immediately
implement the various elements of the Restructuring.
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The Board of Directors of the Company has determined that it is advisable
and in the best interests of the Company and its shareholders for the Board to
reserve the power to modify or abandon the Restructuring Plan in whole or in
part after it has been approved by the shareholders of the Company, provided
that any such modification or abandonment does not have any material adverse
effect on individual shareholders or on the Company's financial condition or
operations. Management of the Company does not presently anticipate that the
abandonment or material modification of the Restructuring Plan will prove to be
necessary or desirable.
The Board of Directors recommends that the shareholders of the Company
vote FOR the approval of the proposed Restructuring Plan.
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Stockholder Proposals For Next Annual Meeting
Any stockholder proposals intended to be presented at the Company's next
annual meeting of stockholders must be received by the Company at its offices at
3600 Marshall Lane, Bensalem, Pennsylvania 19020, on or before July 26, 1999,
for consideration for inclusion in the proxy material for such annual meeting of
stockholders.
Expenses Of Solicitation
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by regular employees
of the Company, either personally or by telephone or telegraph. The Company does
not expect to pay any compensation for the solicitation of proxies, but may
reimburse brokers and other persons holding shares in their names or in the
names of nominees for expenses in sending proxy material to beneficial owners
and obtaining proxies of such owners.
Other Matters
The Board of Directors does not intend to bring any matters before the
Meeting other than as stated in this Proxy Statement, and is not aware that any
other matters will be presented for action at the Meeting. If any other matters
come before the Meeting, the persons named in the enclosed form of proxy will
vote the proxy with respect thereto in accordance with their best judgment,
pursuant to the discretionary authority granted by the proxy. Whether or not you
plan to attend the Meeting in person, please complete, sign, date and return the
enclosed proxy card promptly.
By Order of the Board of Directors
Raymond Green
Secretary
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APPENDIX A
Ambassador Eyewear Group, Inc.
Plan of Internal Restructuring
The Plan of Restructuring (the "Plan") contemplates that Ambassador
Eyewear Group, Inc., a Delaware corporation (the "Company"), will establish a
new subsidiary. Ambassador Eyewear Operations, Inc. ("Operations"), which would
serve as an operating company in Pennsylvania. In addition, the Company will
discontinue its current operations in Pennsylvania and establish a corporate
office in Delaware which would serve as a holding company. The Company, in
essence, will become the Delaware holding company and retain all of the
intangible assets and will transfer all of its tangible assets to the newly
formed Pennsylvania subsidiary.
I. Transfer of Tangible Assets to and Assumption of Certain Liabilities by
Operations.
As of an Effective Date or Dates to be determined (such dates to be as
soon after approval of this Plan by the shareholders of the Company as deemed
prudent and practicable by the officers of the Company) the following transfers
of assets and operations will be implemented.
1. Transfer of Employees. The Company will transfer to Operations all
of the employees described in Schedule A.
A. Operations will assume and be responsible for all obligations
of the Company with respect to the transferred employees;
B. Operations will assume and be responsible for accrued benefits
of all transferred employees for vacation and sick leave;
C. All benefit plan account balances will be transferred by the
Company to the comparable plan accounts of Operations,
excluding stock option plans.
<PAGE>
2. Leases. Operations will assume the following:
A. Lease of the Company's former principal offices occupying
approximately 60,000 square feet in Philadelphia,
Pennsylvania.
B. Lease of the Company's current location in Bensalem,
Pennsylvania.
3. All Other Tangible Assets. The Company intends to transfer and
Operations shall acquire all of its furniture, fixtures and
displays, equipment, loans/notes payable to and by Company,
inventory, accounts receivables, all debt (short and long-term),
equipment leases and agreements, all other leases payable by
Company, consulting and employment agreements, and any and all other
tangible assets.
4. Taxes/Utilities. As of the applicable Effective Date, real and
personal property taxes, water, gas, electricity and other
utilities, and similar matters associated with any of the assets
transferred by the Company to Operations will be prorated between
the Company and Operations and such amounts shall be due to the
Company or Operations as a result of such proration will be promptly
paid to the other following the Effective Date.
II. Discontinuance of Current Operations and Formation of Holding Company.
The Company will discontinue its current operations in Pennsylvania and
reclassify itself into a Delaware holding company. Such format, will enable the
officers of the Company to insulate certain valuable corporate assets above the
new operating company to be created in Pennsylvania. The following is a list of
certain intangible assets such as trademarks to be maintained by the Company
under the new holding company format.
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1. Trademarks and Tradenames: Listed on Schedule B.
2. Licensing Agreements: The retained license agreements indicated
on Schedule C.
III. Miscellaneous. The Company and Operations will enter into such additional
agreements, documents and instruments as the officers of the Company deem
necessary or advisable to effectuate the general purposes of this Plan.
IV. Modification. This Plan may be modified by the officers of the Company at
any time and from time in any fashion which the Chairman and the President
of the Company deem advisable and in the best interest of the Company;
provided, however, that no modification shall be implemented without the
approval of the Company's Board of Directors if it would result in any tax
being imposed on the individual shareholders of the Company as such or
would result in a materially increased tax burden or other material
adverse effect on the Company and Operations taken as a whole.
AMBASSADOR EYEWEAR GROUP, INC.
By:_________________________________
Its:________________________________
AGREED TO:
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AMBASSADOR EYEWEAR OPERATIONS, INC.
By:___________________________
Its:__________________________
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AMBASSADOR EYEWEAR GROUP, INC.
The undersigned hereby appoints Barry Budilov, with full power of
substitution, as proxy for the undersigned, to attend the annual meeting of
stockholders of Ambassador Eyewear Group, Inc. (the "Company"), to be held at
the Company's offices at 3600 Marshall Lane, Bensalem, Pennsylvania 19020 on
November 23, 1998, at 1:00 p.m., eastern time, or any adjournment thereof, and
to vote the number of shares of common stock of the Company that the undersigned
would be entitled to vote, and with all the power the undersigned would possess,
if personally present, as follows:
1. |_| FOR or |_| WITHHOLD AUTHORITY to vote for the following nominees for
election as directors. Rudy A. Slucker, Barry Budilov, Jay Rice, Jeffrey
Seiken.
(INSTRUCTION: to withhold authority to vote for an individual nominee,
write the nominee's name on the line provided below.)
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2. To appove Plan of Internal Restructuring under which the Company proposes
to transfer all of its assets to a newly created Pennsylvania subsidiary
and reclassify the Company as a Delaware holding company which would
retain the Company's intangible assets.
FOR |_| AGAINST |_| ABSTAIN |_|
3. The Proxy is authorized to vote in his discretion upon such other matters
as may properly come before the meeting.
(Continued on the reverse side)
<PAGE>
(Continued from previous page)
The Proxy will vote as specified herein or, if a choice is not specified,
he will vote "For" the nominees listed in Item 1 and "For" the proposals set
forth in Item 2.
The Proxy is solicited by the Board of Directors of the Company.
Receipt of the Notice of Annual Meeting of Stockholders,
Proxy Statement dated October 23, 1998 and Annual Report
to Stockholders is hereby acknowledged
DATED______________________________________________,1998
________________________________________________________
________________________________________________________
________________________________________________________
(Signature)
(Please sign exactly as your name appears hereon,
indicating where proper, official position or
representative capacity).
