<PAGE>
HOLT'S CIGAR HOLDINGS, INC.
[LOGO] NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 14, 1998
PLEASE TAKE NOTICE that the Annual Meeting of Stockholders of Holt's Cigar
Holdings, Inc. ("Holt's Cigar") will be held at the Radisson Hotel Philadelphia
Northeast, U.S. Route 1 at Old Lincoln Highway, Trevose, PA 19053 on the 14th
day of August, 1998, at 10:00 A.M., local time, to consider and act upon:
1. Elect two Class I Directors of Holt's Cigar to serve until the 2001
Annual Meeting of Stockholders;
2. The approval of the selection of Price Waterhouse LLP as Holt's
Cigar's independent accountants for the fiscal year ending March 31, 1999;
and
3. Such other business as may properly be brought before the Annual
Meeting or any adjournment or postponement thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE.
Only stockholders of record at the close of business on June 19, 1998 are
entitled to notice of, and to vote at, the Annual Meeting. A list of
stockholders of Holt's Cigar as of the close of business on June 19, 1998 will
be available for inspection during normal business hours from July 16, 1998
through July 30, 1998 at 12270 Townsend Road, Philadelphia, Pennsylvania 19154,
starting at 10:00 A.M., local time.
/s/ MICHAEL PITKOW
---------------------------------
Secretary
Dated: June 26, 1998
<PAGE>
HOLT'S CIGAR HOLDINGS, INC.
12270 TOWNSEND ROAD
PHILADELPHIA, PENNSYLVANIA 19154
------------------------------
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders of Holt's Cigar
Holdings, Inc. ("Holt's Cigar" or the "Company") in connection with the
solicitation by the Board of Directors of proxies for the Annual Meeting of
Stockholders to be held on August 14, 1998 at 10:00 A.M., local time, at the
Radisson Hotel Philadelphia Northeast, U.S. Route 1 at Old Lincoln Highway,
Trevose, PA 19053, and at any postponements or adjournments thereof for the
purposes set forth in the accompanying notice of meeting.
GENERAL
This solicitation is being made on behalf of the Board of Directors of
Holt's Cigar. The initial distribution of proxy materials is expected to be made
on or about June 26, 1998. Any proxy received in the accompanying form may be
revoked by the person executing it at any time before the authority thereby
granted is exercised. Proxies received by the Board of Directors in such form
will be voted at the meeting or any adjournment thereof as specified therein by
the person giving the proxy; if no specification is made, the shares represented
by such proxy will be voted (i) for the election of directors as described in
this Proxy Statement; and (ii) for approval of the selection of Price Waterhouse
LLP as independent accountants for Holt's Cigar for the fiscal year ending March
31, 1999. For voting purposes (as opposed to for purposes of establishing a
quorum) abstentions and broker non-votes will not be counted in determining
whether the directors standing for election have been elected or whether the
other matters to be voted on have been approved. Proposals by Stockholders for
Holt's Cigar's 1999 Annual Meeting of Stockholders must be received by Holt's
Cigar before February 1, 1999.
Management knows of no other matters which may be brought before the Annual
Meeting or any adjournment thereof other than those described in the
accompanying notice of meeting and routine matters incidental to the conduct of
the meeting. However, if any other matter should come before the meeting or any
adjournment thereof, it is the intention of the persons named in the
accompanying form of proxy or their substitutes to vote the proxy in accordance
with their judgment on such matters.
The cost of solicitation of proxies by the Board of Directors will be borne
by Holt's Cigar. Such solicitation will be made by mail, and in addition may be
made by officers and employees of Holt's Cigar personally or by telephone,
facsimile or telegram. Proxies and proxy materials will also be distributed
through brokers, custodians and other similar parties.
Each holder of a share of Common Stock, par value $0.001 per share, of
Holt's Cigar (the "Common Stock") will be entitled to one vote for each share
held of record by such person at the close of business on June 19, 1998 (the
"Record Date"), which is the record date fixed by the Board of Directors for the
determination of stockholders entitled to notice of, and to vote at, the Annual
Meeting or any adjournment thereof. As of such date, Holt's Cigar had
outstanding 5,770,000 shares of Holt's Cigar's $.001 par value common stock the
("Common Stock") (none of which are shares of treasury stock). Of the
outstanding shares, 2,620,515 shares of Common Stock representing 45.4% of the
outstanding shares of Common Stock are owned by Robert G. Levin, President,
Chairman of the Board and Chief Executive Officer of Holt's Cigar, and 1,406,985
shares of Common Stock, representing 24.4% of the outstanding shares of Common
Stock are owned by the Fuente Investment Partnership, a Florida General
Partnership whose partnership interests of which are beneficially owned by
Carlos A. Fuente, Sr., Carlos P. Fuente, Jr., and Cynthia Fuente Suarez. Carlos
P. Fuente, Jr. and Cynthia Fuente Suarez are the children of Carlos A. Fuente,
Sr. The Fuente Investment Partnership and Robert G. Levin have entered into an
agreement which provides that Mr. Levin will vote all of his
1
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shares of Common Stock for the election of two directors nominated by the Fuente
Investment Partnership (currently Carlos A. Fuente, Sr. and Carlos P. Fuente,
Jr.) and the Fuente Investment Partnership will vote all of its shares of Common
Stock for the remainder of the directors to be nominated by Mr. Levin.
Collectively, and pursuant to that Agreement, Mr. Levin has informed Holt's
Cigar that he will vote for the election of the nominees for election to the
Board of Directors identified herein and for the ratification of Price
Waterhouse LLP as Holt's Cigar's independent accountants. The affirmative vote
of Mr. Levin, and pursuant to the voting agreement, the shares held by Fuente
Investment Partnership, would be sufficient, without the concurring vote of any
other stockholder of Holt's Cigar, to elect the directors proposed by the Board
of Directors. The affirmative vote of Mr. Levin and the Fuente Investment
Partnership would be sufficient, without the concurring vote of any other
stockholder of Holt's Cigar, to appoint Price Waterhouse LLP as Holt's Cigar's
independent accountants for the fiscal year ending March 31, 1999.
The Common Stock trades on the NASDAQ National Market under the symbol
HOLT.
As used herein, the term "Company" refers to Holt's Cigar Holdings, Inc.
and its subsidiaries, including Holt's Cigar Co., Inc. ("HCC"), Ashton
Distributors, Inc. ("Distributors") and Holt's Company( "HC"). On November 17,
1997 the Company, HCC and Distributors and their respective shareholders
implemented a plan of reorganization (the "Reorganization"), whereby, in a
series of transactions: (i) the Company amended its Certificate of Incorporation
to change its authorized common stock from 15,000 shares of Class A common stock
and 5,000 shares of Class B common stock to 25,000,000 shares of Common Stock;
(ii) the Company effected a 307.74-for-one stock split; (iii) the Company issued
an aggregate of 3,517,197 shares of Common Stock in exchange for the shares of
Class A and B common stock then outstanding; (iv) HCC and Distributors became
wholly owned subsidiaries of the Company, and the Company issued 502,803 shares
of Common Stock to Robert G. Levin in exchange for all the outstanding common
stock of HCC and Distributors; and (v) holders of options to purchase an
aggregate of 12% of the Company exchanged such options for options to purchase
482,400 shares of Common Stock. Immediately following the Reorganization the
Company formed HC, a Delaware corporation and assigned and transferred to it all
of the Company's rights in and to the Ashton, Holt's, Cortesia and Castano
trademarks and other intellectual property rights then owned by HCC and the
Company.
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ELECTION OF DIRECTORS
At the 1998 Annual Meeting of Stockholders, the two Class I Directors (out
of a total of six directors) are to be elected. The Board of Directors proposes
the nominees listed below for re-election as Class I Directors to serve until
the 2001 Annual Meeting of Stockholders and until their successors are duly
elected and qualified. Both nominees have served as directors since September
1997. The directors must be elected by a plurality of the votes cast in person
or by proxy by stockholders entitled to vote at the meeting. If for any reason
any nominee or nominees become unavailable for election, the proxy holders will
vote for such substitute nominee or nominees as may be designated by the Board
of Directors.
INFORMATION CONCERNING DIRECTOR NOMINEES
<TABLE>
<CAPTION>
AGE, DATE SINCE
WHICH HAS CONTINUOUSLY PRINCIPAL OCCUPATION AND ALSO SERVES AS A DIRECTOR
SERVED AS A DIRECTOR, AND BUSINESS EXPERIENCE OF THE FOLLOWING
NAME COMMITTEE MEMBERSHIPS DURING PAST FIVE YEARS CORPORATIONS
---- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Harvey W. Grossman...... 60, September 1997; Certified Public Proscape Technologies,
Director, Audit and Accountant and partner Inc.
Compensation Committees in Cogen Sklar LLP
Michael Pitkow.......... 49, September 1997; Chief 1985-95 owner of Pitkow
Operating Officer (1995), Associates, media
Executive Vice President service; 1983-85 general
and Director (1997) manager of Cable AdNet
</TABLE>
The following directors will continue to serve after the 1998 Annual
Meeting:
<TABLE>
<CAPTION>
AGE, DATE SINCE
WHICH HAS CONTINUOUSLY PRINCIPAL OCCUPATION AND ALSO SERVES AS A DIRECTOR
SERVED AS A DIRECTOR, BUSINESS EXPERIENCE OF THE FOLLOWING
NAME AND COMMITTEE MEMBERSHIPS DURING PAST FIVE YEARS CORPORATIONS
---- ------------------------- ------------------------ -------------------------
<S> <C> <C> <C>
Robert G. Levin......... 51, Chairman of Board, Chairman, Chief
Chief Executive Officer & Executive Officer and
President (1972) President, Holt's Cigar
Company Inc., Ashton
Distributors, Inc. and
Ashton Holdings, Inc.
Carlos A. Fuente, 63, September 1997; Chairman of the Board
Sr.(1)................ Director and Chief Executive
Officer of Fuente Cigar
Ltd.
Carlos P. Fuente, 44, June 1993; Director President and Chief
Jr.(1)................ Operating Officer of
Fuente Cigar Ltd.
Marvin B. Sharfstein.... 54, September 1997; V.P. of Corporate Proscape Technologies,
Director, Compensation Development & Director Inc.
and Audit Committees of Cabot Medical Corp.
(1983-1996); President
MBS Capital Corp. (1996)
</TABLE>
- ------------------
(1) Carlos A. Fuente, Sr. is the father of Carlos P. Fuente, Jr.
3
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The Board of Directors held two meetings during the fiscal year ending
March 31, 1998. The Company has the following Committees of the Board of
Directors: Audit and Compensation. Committee Memberships of the Board of
Directors are indicated in the above table. Directors as a whole attended
approximately 92% of the aggregate of all Board and Committee meetings (of
committees of which they were members). No Director attended less that 75% of
the aggregate of all Board and Committee meetings.
Members of the Board of Directors who are not employees of the Company
received $1,000 for each Board and Committee meeting attended since Holt's Cigar
initial public offering of Common Stock on November 24, 1997. Non-employee
Directors who are not officers of Holt's Cigar participate in the Company's
stock option plan for non-employee Directors.
The Audit Committee, whose Chairman is Mr. Sharfstein, reviews audit
reports and the scope of audit by the Company's independent accountants and
related matters pertaining to the preparation and examination of the Company's
financial statements. From time to time such Committee makes recommendations to
the Board of Directors with respect to the foregoing matters as well as with
respect to the appointment of the Company's independent accountants. The Audit
Committee held one meeting since the Company's initial public offering on
November 24, 1997 and recommended to the Board of Directors the selection of
Price Waterhouse LLP as the Company's independent accountants for the fiscal
year ending March 31, 1999 (See "Selection of Independent Accountants").
The Board of Directors, whose Chairman is Mr. Levin, recommended the
election of the director-nominees proposed in this Proxy Statement for election
by the stockholders. The Board of Directors, excluding those members whose seats
are to be filled by the election of the Annual Meeting, reviews incumbent
directors and the qualifications of candidates suggested from all sources,
including Board members, management and stockholders. Stockholders desiring to
recommend candidates for election as directors at the Company's 1999 Annual
Meeting of Stockholders should submit names and appropriate biographical
information to the Secretary of the Company before February 1, 1999.
For information about the Compensation Committees, see Compensation
Committee Report on Executive Compensation.
4
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of June 1, 1998, certain information
with respect to the beneficial ownership of the Common Stock by (i) each
director of the Company, (ii) each person who is known by the Company to
beneficially own 5% or more of the outstanding shares of Common Stock, (iii) the
Company's executive officers earning more than $100,000 in total compensation
during the fiscal year ended March 31, 1998, and (iv) all of the Company's
executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED OWNED
---------------------------------------- ------------ ----------
<S> <C> <C>
Robert G. Levin (2)......................................... 2,620,515 45.4%
Fuente Investment Partnership (2,3,4)....................... 1,406,985 24.4
Carlos A. Fuente, Sr. (2,3,4,5)............................. 1,421,985 24.6
Carlos P. Fuente, Jr. (2,3,4,5)............................. 1,421,985 24.6
Marvin B. Sharfstein (5).................................... 224,900 3.9
Michael Pitkow (5).......................................... 203,500 3.5
Harvey W. Grossman (5)...................................... 15,000 *
Palisades Capital Management LLC............................ 329,000 5.7%
All directors and executive officers as a group (7 persons)
(5,6)..................................................... 4,038,900 70.0%
</TABLE>
- ------------------
* Less than 1% of outstanding shares of Common Stock
(1) Unless otherwise noted, the Company believes that all persons named in the
above table have sole voting and investment power with respect to the shares
beneficially owned. The address for Messrs. Levin, Pitkow and Sharfstein is
12270 Townsend Road, Philadelphia, Pennsylvania 19154, the address for the
Fuente Investment partnership and Messrs. Fuente is c/o Fuente Cigar Ltd.,
Zona Franca, Santiago, Dominican Republic. The address for Palisades Capital
Management LLC, is 1 Bridge Plaza, Suite 695, Fort Lee, New Jersey 07024.
(2) The Fuente Investment Partnership and Robert G. Levin have entered into an
agreement which provides that Mr. Levin will vote all of his shares of
Common Stock for the election of two directors nominated by the Fuente
Investment Partnership (currently Carlos A. Fuente, Sr. and Carlos P.
Fuente, Jr.) and the Fuente Investment Partnership will vote all of its
shares of Common Stock for the remainder of the directors to be nominated by
Mr. Levin.
(3) The Fuente Investment Partnership is a Florida general partnership, the
partnership interests are beneficially owned by Carlos A. Fuente, Sr.,
Carlos P. Fuente, Jr., and Cynthia Fuente Suarez. Carlos P. Fuente, Jr. and
Cynthia Fuente Suarez are the children of Carlos A. Fuente, Sr.
(4) Carlos A. Fuente, Sr. and Carlos P. Fuente, Jr. are deemed the beneficial
owners of the shares of Common Stock owned by the Fuente Investment
Partnership. Also includes options to purchase 15,000 shares of Common Stock
each granted pursuant to the Non-Management Director Stock Plan.
(5) Represents shares of Common Stock which may be acquired upon the exercise of
options granted by the Company. Each of Mr. Fuente, Sr., Fuente Jr.,
Sharfstein and Grossman have received options to purchase 15,000 shares of
Common Stock each granted pursuant to the Non-Management Director Stock
Plan. In 1996, Messrs. Pitkow and Sharfstein received options to purchase
201,000 shares of Common Stock each. The totals shown for all directors and
officers as a group do not include shares which may be purchased pursuant to
the options described in this footnote. If all these options were exercised
in full, all directors and officers as a group would beneficially own an
additional 462,000 shares of Common Stock, and collectively would
beneficially own shares representing 72.2% of all outstanding shares.
(6) On June 2, 1998 the Chief Financial Officer of the Company resigned and the
Board of Directors appointed Jerry L. Cox as the Company's new Chief
Financial Officer. Options formerly granted to the previous Chief Financial
Officer had not vested and pursuant to the terms thereof such
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options were terminated. As of June 1, 1998, the former Chief Financial
Officer owned 1,250 shares of Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and person who own more than ten percent
of its Common Stock, to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and NASDAQ. Such persons are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Based upon its involvement in the preparation of certain of such forms, a
review of the copies of other such forms received by it and the written
representations from certain reporting entities that no Form 5 was required for
each such entity, the Company believes that with respect to the fiscal year
ended March 31, 1998 all such Section 16(a) filing requirements were satisfied.
CERTAIN TRANSACTIONS
Relationships with Fuente Cigar Ltd. and Related Parties. In the fiscal
years ended March 31, 1997 and 1998, the Company purchased approximately $3.6
million and $9.3 million, respectively, of premium cigars from Fuente Cigar Ltd.
("Fuente Cigar"), representing approximately 47.0% and 64.2% respectively, of
premium cigar purchases of such periods. At March 31, 1998, approximately
$534,000 was due to Fuente Cigar for premium cigars sold to the Company. Two of
the principal executive officers of Fuente Cigar, Carlos A. Fuente, Sr. and
Carlos P. Fuente, Jr., are directors of the Company and a related family
partnership owns approximately 24.6% of the shares of the outstanding Common
Stock of the Company. Robert G. Levin, Chairman of the Board, Chief Executive
Officer and President of the Company and an affiliate of Fuente Cigar had
previously entered into a consulting agreement whereby such affiliate paid Mr.
Levin the sum of $50,000 per year for consulting services. This agreement has
been terminated. The Company has entered into two agreements with Fuente Cigar,
a Private Label Manufacturing Agreement ("PLMA") and an Exclusive
Distributorship Agreement.
Private Label Manufacturing Agreement. The Company entered into the
PLMA with Fuente Cigar in April 1997 whereby Fuente Cigar agreed to sell
the Company a minimum of 5 million premium cigars per year for an initial
term of ten years and the Company agreed to use its best reasonable efforts
to purchase at least 5 million premium cigars during each year of the term
of the PLMA. In addition, Fuente Cigar has agreed to use its best
reasonable efforts to sell to the Company premium cigars in excess of the 5
million per year. The premium cigars supplied by Fuente Cigar pursuant to
the PLMA include the Company's proprietary Ashton and Holt's brand premium
cigars, as well as other premium cigars manufactured by Fuente Cigar under
its trademarks, and comprise those brands in such amounts, sizes and shapes
as determined by Fuente Cigar. Fuente Cigar supplied the Company with 2.1
million premium cigars in the fiscal year ended March 31, 1996, 3.3 million
premium cigars in the fiscal year ended March 31, 1997 and 4.6 million
premium cigars in the fiscal year ended March 31, 1998. The purchase price
for premium cigars delivered under the PLMA is set by Fuente Cigar at the
market price in effect from time to time. The PLMA specifies that while the
Company owns the trademark to the name Ashton, Fuente Cigar owns the
formula used to blend the tobacco contained in the Ashton cigars. The PLMA
permits noncompliance with the obligations of Fuente Cigar to sell 5
million premium cigars per year for various reasons, including but not
limited to, a shortage of labor or the inability to secure materials and
supplies at reasonable prices. The PLMA provides that it is to be
interpreted and enforced under Florida law. However, the agreement
specifically prohibits any actions for specific performance and damages in
the event of a breach of the PLMA by Fuente Cigar. In the event that a
competitor of Fuente Cigar were to acquire control of the Company, Fuente
Cigar may, after the expiration of an eight month period commencing on the
date of such change in control, give notice of the termination of the PLMA
effective one year from the date of such notice. If Fuente Cigar does not
give such notice, the PLMA will automatically be renewed for successive one
year terms provided neither party gives notice of termination.
6
<PAGE>
Exclusive Distributorship Agreement. In September 1997, the Company
and Fuente Cigar entered into an exclusive distributorship agreement
whereby Fuente Cigar agreed to develop with the Company up to three new
premium cigar brands to be manufactured by Fuente Cigar, and to be
exclusively distributed by the Company on a worldwide basis. Cigars
manufactured for the Company under this agreement will be applied to the
annual minimum requirement under the PLMA. The initial term of this
agreement expires on August 31, 2007. The Company is obligated to use its
best reasonable efforts to promote these new brands. As of the end of the
Company's fiscal year on March 31, 1998, no new brands had yet been
developed under this agreement.
Shareholders' Agreement. The Fuente Investment Partnership and Robert G.
Levin have entered into an agreement which provides that Mr. Levin will vote all
of his shares of Common Stock for the election of two directors nominated by the
Fuente Investment Partnership (currently Carlos A. Fuente, Sr. and Carlos P.
Fuente, Jr.) and the Fuente Investment Partnership will vote all of its shares
of Common Stock for the remainder of the directors to be nominated by Mr. Levin
including Messrs. Grossman and Pitkow. This agreement also requires unanimous
approval by the Company's Board of Directors prior to the issuance of any
preferred stock. In addition, the agreement grants each party a right of first
refusal on sales of Common Stock by the other party and provides for each party
to participate on a percentage basis in any transaction involving the sale of
Common Stock. This agreement also provides for the Fuente Investment Partnership
to have the right to acquire all of the shares of Common Stock, upon the death
of permanent disability of Mr. Levin, and for Mr. Levin to have the right to
purchase all of the shares of Common Stock owned by the Fuente Investment
Partnership upon the death or permanent disability of the last of Carlos A
Fuente, Sr., Carlos P. Fuente, Jr. and Cynthia Fuente Suarez.
Philadelphia Retail Store Lease. The Company currently leases from Robert
G. Levin the entire two-story building comprising approximately 4,700 square
feet in which the Company's Center City Philadelphia retail store is located.
The Company's retail store occupies 3,000 square feet on the street level, and
the Company sublets approximately 1,700 square feet on the second floor to an
unrelated third party. The Company paid approximately $54,000 and $75,000 to Mr.
Levin under this lease in the fiscal years ended March 31, 1997 and 1998,
respectively. The term of this lease extends through October 31, 2004 and the
Company has the right to renew the lease for an additional five year term. The
current rent payable to Mr. Levin is $6,250 per month, or $75,000 per year,
which rent is fixed through the end of the renewal term.
Guaranty of Loan. The Company guaranteed certain debt of Robert G. Levin
relating to the acquisition of the building in which the Company's Center City
Philadelphia retail store is located. The Company's guaranty of this loan was
released by the bank on September 30, 1997.
Loan to Shareholder. The Company advanced payment of certain insurance
policy premiums and personal purchases of Robert G. Levin in the aggregate
amount of $23,396 as of September 30, 1997. These advances did not accrue
interest and have been repaid in full by Mr. Levin.
All of the foregoing transactions between the Company and the foregoing
persons and entities were on substantially the same terms and conditions as if
such transactions would have been entered into with unrelated third parties. The
Company has a policy that any future transactions between it and any of its
officers, directors, principal stockholders or the affiliates of the foregoing
persons be on terms no less favorable to the Company that could reasonably be
obtained in arm's length transactions with the independent third parties, and
that any such transactions also be approved by a majority of the Company's
directors who are disinterested in the transaction.
The information given in this Proxy Statement with respect to the five year
business experience of each director, beneficial ownership of stock, interlocks
and the respective interests of persons in transactions to which the Company or
any of its subsidiaries was a party (other that as appears from the records of
the Company), is based upon statements furnished to the Company by its directors
and officers.
7
<PAGE>
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Compensation
Committee") comprises Messrs. Sharfstein and Grossman, neither of whom are
officers or employees of the Company. The Compensation Committee's duties
include the design, implementation and administration of the Company's
compensation and benefits policies and practices for executive officers and key
managerial employees. In accordance with the rules established by the Securities
and Exchange Commission (the "SEC"), the Company is required to provide certain
data and information in regard to the compensation provided to the Company's
Chief Executive Officer and certain other highly compensated executive officers.
The Compensation Committee has prepared the following report for inclusion in
this Proxy Statement.
Compensation Policies. The Company's executive compensation program is
designed to attract, retain and motivate the management talent necessary to
achieve the Company's business objectives and to maximize long-term
profitability and shareholder value. The program is designed to accomplish this
objective through plans that (i) motivate senior management; (ii) align senior
management's interests with those of the Company's shareholders by linking
compensation to the enhancement of long-term shareholder value; and (iii)
provide an appropriate level of base compensation for senior management.
Elements of Compensation. The key elements of the Company's compensation
program consist of fixed compensation in the form of base salary, and variable
compensation in the form of annual incentive compensation and stock option
awards. While these elements of compensation are considered independently, the
Compensation Committee also takes into account the full compensation package
offered by the Company to each executive, including pension benefits, insurance
and other benefits, as well as the compensation described below.
Base Salary. Base salaries for executive officers are determined based
upon the Compensation Committee's evaluation of the responsibilities of the
position held, the relevant experience of such individual, and by reference to
the historical levels of salaries paid by the Company.
Adjustments to each executive's base salary are based upon a periodic
evaluation of the performance of the Company and each executive officer, as well
as the financial results of the Company's business operations. The Compensation
Committee takes into account the effect of corporate transactions that have been
consummated during the relevant year and, where appropriate, also considers
non-financial performances measures. These may include increases in market
share, improvements in relations with customers, suppliers and employees, and
implementation of management plans and directives.
Annual Incentive Compensation Awards. The variable compensation payable
annually to executive officers (including the Chief Executive Officer) consists
of two parts, an annual or more periodic cash incentive award, and awards of
stock options under the Company's 1997 Employee Stock Option Plan. Cash
incentive awards are designed to provide an additional incentive for senior
management to perform their responsibilities, and represent a more immediate
reward for excellence in the execution of their responsibilities, as evidenced
by the financial performance of the Company.
Stock Option Awards. The other principal component of executives'
compensation is stock options, which are intended as a tool to attract, provide
incentive to, and retain those executives and other key employees who have made
the greatest contribution to the business of the Company, and who can have the
greatest effect on the long-term profitability of the Company. The exercise
price of each option granted under the Company's 1997 Employee Stock Option Plan
(the "Stock Option Plan") is the price of the Common Stock on the date of each
grant, except for certain employees who commenced their employment between
November 24, 1997 (the date of the Company's initial public offering of Common
Stock) through the date of this Proxy Statement, who received options with
exercise prices equal to the initial public offering price of $11.00 per share,
which exercise price was above the then trading range of the Common Stock. The
Compensation Committee believes that these
8
<PAGE>
stock options more closely align the grantees interests with those of its
stockholders, and focus management on increasing profitability and long-term
shareholder value. Shortly prior to the time of the Company's initial public
offering in November 1997, the Board of Directors (prior to the constitution of
the Compensation Committee) awarded a total of 169,500 options under the Stock
Option Plan to employees of the Company with an exercise price equal to the
initial public offering price of the Common Stock of $11.00 per share. The only
executive officer of the Company who received an award under this plan during
the fiscal year ended March 31, 1998 was the former Chief Financial Officer of
the Company, who received options to purchase up to 25,000 shares of the Common
Stock at the time of the Company's initial public offering described above.
These options were terminated upon the resignation of the former Chief Financial
Officer.
Deductibility of Compensation. The Compensation Committee has not adopted
any formal policy with respect to Section 162(m) of the Internal Revenue Code of
1986, as amended, which prohibits the deductibility of certain compensation paid
in excess of $1,000,000. While the Compensation Committee will continue to give
due consideration to the deductibility of compensation payments to the Company's
executive officers, the Compensation Committee will make its decisions based
upon an overall determination of what the Committee believes to be in the best
interests of the Company and its stockholders, and deductibility will be only
one among a number of factors to be considered by the Compensation Committee in
determining compensation matters.
Compensation of the Chief Executive Officer. Prior to the Company's
initial public offering of its Common Stock, the Company entered into a five
year employment agreement with Robert G. Levin, Chairman of the Board, President
and Chief Executive Officer of the Company, effective as of October 1, 1997
which established a minimum base salary of $400,000, and which provides for
annual review by the Company with respect to increases. Except for the increase
in salary as set forth in Mr. Levin's employment agreement, no increase, annual
cash incentive or stock options were granted by the Compensation Committee
during the fiscal year ended March 31, 1998.
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
The Executive Officers of the Company are as follows:
Robert G. Levin is the Chairman of the Board, Chief Executive Officer and
President of the Company. Mr. Levin has been engaged in the business of the
Company since 1972, and has been Chairman of the Board, Chief Executive Officer
and President since 1980.
Michael Pitkow joined the Company in October 1995 as Chief Operating
Officer and Executive Vice President and has been a Director of the Company
since September 1997. From 1985 through October 1995, Mr. Pitkow was the owner
of Pitkow Associates, a media service and marketing communications company. From
1983 to 1985, Mr. Pitkow was general manager of Cable AdNet, then Philadelphia's
largest cable advertising interconnect company.
Jerry L. Cox was appointed Chief Financial Officer of the Company effective
as of June 2, 1998. Prior to joining the Company, Mr. Cox was the sole officer,
director and shareholder of J. Lloyd Company, Inc., a financial and general
management consulting firm established in 1990. During a ten month period in
1996, Mr. Cox served as Vice President of Finance for Domestic Operations for
National Media Corporation, an infomercial company. From June 1997 through his
appointment with the Company, and in connection with services performed by J.
Lloyd Company, Inc., Mr. Cox served as acting Chief Financial Officer of
Innovative Tech Systems, Inc., a publicly traded facilities management software
company.
The following table sets forth the annual and long-term compensation for
the Company's Chief Executive Officer and Executive Vice President, the only
executive officers of the Company whose total compensation exceeded $100,000 in
the last three fiscal years of the Company.
9
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
OTHER UNDERLYING
ANNUAL OPTIONS/ ALL OTHER
FISCAL SALARY BONUS COMPENSATION SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)(1)(2)
--------------------------- ------ -------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Levin, .................... 1998 $421,286 $44,281 $4,750
Chairman, CEO & President 1997 $335,973 $4,750
1996 $153,200 $4,500
Michael Pitkow ...................... 1998 $154,780 $10,000 201,00
COO & Exec. VP 1997 $111,039 $ 5,000
1996 $ 50,000
</TABLE>
- ------------------
(1) Pursuant to the Securities and Exchange Commission rules on executive
compensation disclosure, 'All Other Compensation' does not include
perquisites because the aggregate amount of such compensation for each of
the persons listed did not exceed the lesser of (i) $50,000 or (ii) ten
percent of the combined salary and bonus for such person in Fiscal 1997.
(2) Represents the Company's matching contribution pursuant to its 401(k)
defined contribution plan.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Levin and Pitkow. Mr.
Levin's employment agreement, effective as of October 1, 1997, provides for a
minimum base salary of $400,000, to be reviewed at least annually and to be
adjusted based upon his performance, and has a term of five years. This
Agreement is automatically renewed each year to maintain a five-year term if
neither party gives a notice of termination. Mr. Pitkow's employment agreement,
effective as of October 1, 1997, provides for a minimum base salary of $150,000
per year, to be reviewed at least annually, and expires on March 31, 1999.
On June 2, 1998, the Company's Chief Financial Officer resigned, and the
Company agreed to provide him with a severance package constituting three months
base salary and medical benefits. The Company entered into an employment
agreement with his successor, Jerry L. Cox, effective as of June 2, 1998, which
provides for a minimum base salary of $104,000, to be reviewed annually. This
employment agreement expires on March 31, 1999.
10
<PAGE>
STOCK PERFORMANCE GRAPHS
The following graph compares the percentage change in the Company's Common
Stock to the cumulative total return of the Standard & Poor's 500 Stock Index
and the Company's peer group for the portion of the Company's fiscal year ended
March 31, 1998 that the Company's Common Stock was registered pursuant to
Section 12 of the Securities Exchange Act, assuming an investment of $100 on
November 24, 1997.
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicts the following plot points:
11/97 3/98
----- -------
Holt's Cigar Hol 100 71.59
S & P 500 100 121.27
Peer Group 100 64
The performance of the Company's Common Stock reflected above is not
necessarily indicative of future performance of the Common Stock. The total
return on investment (change in year-end stock price plus reinvested dividends,
if any) for the period shown for the Company, the Standard & Poor's 500 Stock
Index and the Company's peer group is based upon the stock price or composite
index on March 31, 1998.
11
<PAGE>
OTHER MATTERS
Selection of Independent Accountants. The Board of Directors has proposed,
and recommends the appointment of Price Waterhouse LLP as the independent
accountants of the Company for the current fiscal year, ending March 31, 1999.
The Board of Directors expects that a representative of Price Waterhouse LLP
will be present at the Annual Meeting with the opportunity to make a statement
if he desires to do so and will be available to respond to appropriate
questions.
Report on Form 10-K. The Company filed its annual report on Form 10-K for
the fiscal year ended March 31, 1998 with the Securities and Exchange Commission
on June 26, 1998. A copy of the report, including any financial statements and
schedules and a list describing any exhibits not contained therein, maybe
obtained without charge by any stockholder. Written requests for copies of this
report should be directed to Investor Relations, Holt's Cigar Holdings, Inc.,
12270 Townsend Road, Philadelphia, PA 19154.
Quarterly Financial Data. The following table presents the unaudited
quarterly financial data for the Company's last two completed fiscal years.
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
---------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
(IN THOUSANDS EXCEPT FOR EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
Year ended March 31, 1998
Net sales................. $6,361 $7,063 $8,592 $7,051
Gross profit.............. 2,749 3,356 3,833 3,176
Income from operations.... 1,356 1,855 1,698 1,286
Net income................ 1,053 1,538 1,335 1,112
Earnings per share........ $ 0.26 $ 0.38 $ 0.29 $ 0.19
Year ended March 31, 1997
Net sales................. $3,450 $4,160 $4,957 $4,710
Gross profit.............. 1,472 1,993 2,227 2,020
Income from operations.... 438 786 1,043 550
Net income................ 353 486 912 522
Earnings per share........ $ 0.09 $ 0.12 $ 0.23 $ 0.13
</TABLE>
/s/ Michael Pitkow,
-----------------------------------
Secretary
Philadelphia, Pennsylvania
June 26, 1998
12
<PAGE>
HOLT'S CIGAR HOLDINGS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS AUGUST 14, 1998
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Robert G. Levin and Michael
Pitkow, and each or either of them, proxies of the undersigned, with full power
of substitution, to vote all of the shares of Common Stock of Holt's Cigar
Holdings, Inc., (the "Company") which the undersigned may be entitled to vote at
the Annual Meeting of Stockholders of the Company to be held at the Radisson
Hotel Philadelphia Northeast, U.S. Route 1 at Old Lincoln Highway, Trevose, PA
19053 on August 14, 1998, at 10:00 a.m., local time, and at any adjournment
thereof as follows:
1. For the election of two directors, to serve until their successors are
duly elected, as described in the accompanying Proxy Statement.
<TABLE>
<S> <C>
FOR all nominees listed / / WITHHOLD authority to vote for / /
(except as marked to the contrary below). all nominees listed below.
</TABLE>
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME.
Michael Pitkow Harvey W. Grossman
2. PROPOSAL TO RATIFY appointment of Price Waterhouse LLP as the Company's
independent accountants for the fiscal year ending March 31, 1999.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR the election of the nominees
listed above and FOR proposal 2.
(CONTINUED ON REVERSE SIDE)
<PAGE>
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournment thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF A CHOICE IS NOT SPECIFIED, THE
PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR AND FOR
PROPOSAL 2.
DATED: _____________________ , 1998
___________________________________
Signature
___________________________________
Signature if held jointly
Note: This proxy should be dated
and signed by the stockholder
exactly as his name appears hereon.
When shares are held by joint
tenants, both should sign. When
signing as an attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE, MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE.
