<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Holt's Cigar Holdings, Inc.
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(Name of Registrant as Specified in Its Charter)
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Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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HOLT'S CIGAR HOLDINGS, INC.
[LOGO] NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 7, 2000
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 7th day of September, 2000, 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 2003
Annual Meeting of Stockholders;
2. The approval of the selection of PricewaterhouseCoopers LLP as
Holt's Cigar's independent accountants for the fiscal year ending March 31,
2001;
3. The approval of the increase by 150,000 of the shares of the common
stock of Holt's Cigar which are subject to the 1997 Employee Stock Option Plan;
4. The approval of the increase by 75,000 of the shares of the common
stock of Holt's Cigar which are subject to the 1997 Non-Management Directors
Stock Option Plan; and
5. 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 July 12, 2000
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 July 12, 2000 will
be available for inspection during normal business hours from August 14, 2000
through September 6, 2000 at 12270 Townsend Road, Philadelphia, Pennsylvania
19154, starting at 10:00 A.M., local time.
/s/ MICHAEL PITKOW
Secretary
Dated: June 29, 2000
<PAGE> 3
HOLT'S CIGAR HOLDINGS, INC.
12270 TOWNSEND ROAD
PHILADELPHIA, PENNSYLVANIA 19154
PROXY STATEMENT
This Proxy Statement is furnished to the stockholders ("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 September 7, 2000 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
("Board of Directors")of Holt's Cigar. The initial distribution of proxy
materials is expected to be made on or about July 15, 2000. 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; (ii) for approval of the
selection of PricewaterhouseCoopers LLP as independent accountants for Holt's
Cigar for the fiscal year ending March 31, 2001; (iii) for the approval of the
increase by 150,000 of the number of shares of the common stock of Holt's Cigar
which are subject to the 1997 Employee Stock Option Plan; and (iv) for the
approval of the increase by 75,000 of the number of shares of the common stock
of Holt's Cigar which are subject to the 1997 Non-Management Directors Stock
Option Plan. For voting purposes (as opposed to 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 2001 Annual Meeting of Stockholders must be received by Holt's
Cigar before Thursday, February 1, 2001.
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 July 12, 2000 (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 6,245,593 shares of Common Stock (of which 397,865 are shares of
treasury stock). Of the outstanding shares, 2,927,149 shares of Common Stock
representing 46.9% 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 1,522,964 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 which 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. 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.
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
PricewaterhouseCoopers, 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: (1)
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appoint PricewaterhouseCoopers, LLP as Holt's Cigar's independent accountants
for the fiscal year ending March 31, 2001, (2) approve the increase by 150,000
of the number of shares of Common Stock which are subject to the 1997 Employee
Stock Option Plan; and (3) approve the increase by 75,000 of the number of
shares of Common Stock which are subject to the 1997 Non-Management Directors
Stock Option Plan.
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"), Holt's Company( "HC"), Ashton Pipe Company,
Inc. ("AP") and Holt's Mail Order, Inc. ("HMO").
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ELECTION OF DIRECTORS
At the 2000 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 II Directors to
serve until the 2003 Annual Meeting of Stockholders or 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 ALSO SERVES AS A
WHICH HAS CONTINUOUSLY PRINCIPAL OCCUPATION AND DIRECTOR
SERVED AS A DIRECTOR, AND BUSINESS EXPERIENCE OF THE FOLLOWING
NAME COMMITTEE MEMBERSHIPS DURING PAST FIVE YEARS CORPORATIONS
---- --------------------- ---------------------- ------------
<S> <C> <C> <C>
Robert G. Levin.............. 53, 1980 Chairman of Board, Chairman of the Board of Directors,
Chief Executive Officer & Chief Executive Officer and
President (1972) President, Holt's Cigar
Company Inc., Ashton
Distributors, Inc. and
Ashton Holdings, Inc.
Carlos A. Fuente, Sr. (1) ... 65, September 1997; Director Chairman of the Board of
Directors and Chief Executive
Officer of Fuente Cigar
Ltd.
</TABLE>
The following directors will continue to serve after the 2000 Annual Meeting:
<TABLE>
<CAPTION>
AGE, DATE SINCE ALSO SERVES AS A
WHICH HAS CONTINUOUSLY PRINCIPAL OCCUPATION AND DIRECTOR
SERVED AS A DIRECTOR, AND BUSINESS EXPERIENCE OF THE FOLLOWING
NAME COMMITTEE MEMBERSHIPS DURING PAST FIVE YEARS CORPORATIONS
---- --------------------- ---------------------- ------------
<S> <C> <C> <C>
Carlos P. Fuente, Jr. (1) ... 46, September 1997; Director President and Chief Operating
Officer of Fuente Cigar
Ltd.
Marvin B. Sharfstein ........ 56, September 1997; V.P. of Corporate Proscape Technologies,
Director, Compensation Development & Director Inc., Impower, Inc.
and Audit Committees of Cabot Medical Corp.
(1983-1996); President
MBS Capital Corp. (1996
- present)
Harvey W. Grossman .......... 62, September 1997; Certified Public Proscape Technologies
Director, Audit and Accountant and partner Inc.
Compensation Committees in Cogen Sklar LLP
Michael Pitkow .............. 51, 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>
(1) Carlos A. Fuente, Sr. is the father of Carlos P. Fuente, Jr.
The Board of Directors held three meetings during the fiscal
year ending March 31, 2000. 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 95% 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.
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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's initial public offering of Common Stock on November 24, 1997.
Non-employee Directors 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 two meetings during the fiscal year ended
March 31, 2000 and recommended to the Board of Directors the selection of
PricewaterhouseCoopers, LLP as the Company's independent accountants for the
fiscal year ending March 31, 2001 (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 2001 Annual Meeting of Stockholders should submit
names and appropriate biographical information to the Secretary of the Company
before Thursday, February 1, 2001.
For information about the Compensation Committee, see
Compensation Committee Report on Executive Compensation.
PROPOSAL TO AMEND THE COMPANY'S 1997 EMPLOYEE STOCK OPTION PLAN
The Board of Directors believes our 1997 Employee Stock Option Plan (the
"Plan") is an effective means of attracting, motivating and retaining our key
personnel, and that the authorization of additional shares for the grant of
options under the Plan will facilitate the achievement of the Plan's purpose.
In order to provide the Compensation Committee with the ability to issue
grants during fiscal 2001 to key personnel and to have available shares in order
to attract further key personnel, on June 2, 2000, the Board of Directors
amended the Plan, subject to Stockholder approval, to increase the aggregate
maximum number of shares for which options may be granted under the Plan by
150,000 from 426,729 to 576,729. As of June 1, 2000, options have been granted
under the Plan to purchase 385,568 shares.
1. SUMMARY OF THE PLAN
The key features of the Plan are as follows:
(a) Eligibility. All officers and other key employees of the Company
and any of its subsidiaries are eligible to receive options under the Plan.
(b) Grant. The Plan allows the Board of Directors to grant options as
it, in its sole discretion, may determine. Options may be in the form of
Incentive Stock Options or Non-Qualified Stock options. The Board of Directors
has delegated all of its responsibilities in connection with the administration
of granting options to the Compensation Committee, currently composed of Messrs.
Sharfstein and Grossman.
(c) Shares covered by the Plan. The maximum number of shares of the
Company's common stock reserved for issuance under the Plan (the "Plan Shares"),
as amended, is 576,729 (increased from the 426,729 share maximum prior to this
amendment), subject to adjustment on the occurrence of a stock dividend, stock
split, recapitalization or certain other capital adjustments. If an option
granted under the Plan expires or terminates without having been fully exercised
for any reason, the Plan Shares underlying such portion of the unexercised
option may again be the subject of one or more awards granted pursuant to the
Plan. Prior to the date of this Proxy, option grants have been made to the
following persons or groups with the underlying share amounts immediately
following each person or group) Robert J. Levin, Chairman, President and Chief
Executive Officer (120,421); Michael Pitkow, Executive Vice President and Chief
Operating Officer (67,860); Keith A. Goorsky, Chief Financial Officer and
Treasurer (25,000); all current executive officers as a group (213,281); all
other employees as a group (172,287).
(d) Administration. The Plan is administered by the Compensation
Committee formed of the Board of Directors, which
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is currently composed of Messrs. Sharfstein and Grossman. Each member of the
Committee is a non-employee director as such term in defined in Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, and an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). Subject to the provisions of the Plan, the Committee is
authorized to determine the participants to whom, and the times at which, awards
under the Plan shall be granted. Furthermore, the Committee determines the type
of award to be granted and the number of shares underlying options comprising
each such award. The Committee is authorized to determine other terms and
conditions of awards which are not inconsistent with the Plan. Any awards
granted pursuant to the Plan will be evidenced by an award document setting
forth the terms of the award. Interpretation and construction by the Committee
of any provision of the Plan or of any award document is final, binding and
conclusive. The members of the Committee serve at the pleasure of the Board of
Directors and may be replaced at any time by action of the Board.
(e) No award may be granted under the Plan after September 30, 2006.
(f) Option Provisions.
(i) Exercise Price of Options under the Plan. The Committee
determines for each option grant, the exercise price for the shares covered
thereby (the "Option Shares"). The exercise price cannot be less than the fair
market value of the Option Shares at the time of the grant. If an Incentive
Stock Option is granted to an optionee who then owns, directly or indirectly by
attribution under Section 424(d) of the Code, shares of the Company's stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the exercise price for the Option Shares must be at least
110% of the fair market value of such shares on the date the option is granted.
(ii) Payment. Payment for shares of common stock purchased
upon the exercise of options may be made by cash or such other method of payment
as the Committee may approve.
(iii) Term of Options. The right of an optionee to exercise
any part of an option granted pursuant to the Plan terminates on the first to
occur of the following:
(A) Ten years after the date of grant or
expiration of the option term specified in
the option document as determined by the
Committee;
(B) Expiration of one year from the date the
optionee's employment or service with the
Company terminates as a result of the
optionee's death or disability;
(C) Upon the termination of the optionee's
employment or service with the Company other
than as a result of the optionee's death or
disability, although the Committee may elect
to grant such optionee a period, not to
exceed ninety days from the date of such
optionee's termination of employment or
service with the Company, in which to
exercise any options; or
(D) The effective date of certain sales,
mergers, reorganizations or other organic
changes to the existence or capital stock of
the Company, or immediately upon a
liquidation or dissolution of the Company.
(iv) Transferability of Options. Options granted under the
Plan are not transferable by the optionee except by will or laws of descent and
distribution or to the optionee's spouse or lineal descendants, or trusts or
partnerships for their sole benefit.
(v) Amendment of Option Documents. The Committee may amend the
provisions of option documents issued to an optionee, subject to the optionee's
consent if the amendment is not favorable to the optionee.
(g) Amendments of the Plan. The Board of Directors or the Committee
may, in their discretion, amend, modify or terminate the Plan at any time and
from time to time, but may not, without obtaining shareholder approval within
twelve months before or after such action, change the class of individuals
eligible to receive an Incentive Stock Option or increase the maximum number of
Plan Shares (other than as a result of an adjustment in the event of a stock
dividend, stock split, recapitalization or certain other capital adjustments),
or make another change or amendment as to which shareholder approval is required
in order to satisfy the conditions
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set forth in Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended. No amendment or modification to the Plan shall adversely affect any
outstanding option, without the consent of the optionee.
2. FEDERAL INCOME TAX MATTERS
The following discussion is intended to point out the general
principles of current federal income tax law applicable to the options and
restricted stock.
(a) Incentive Stock Options.
Incentive Stock Options granted under the Plan are intended to qualify
for the favorable federal income tax treatment currently accorded "Incentive
Stock Options" as defined under Section 422 of the Code.
Under the Code, generally no federal income tax is imposed at the time
an Incentive Stock Option is granted or exercised. While ordinarily no income is
required to be recognized at the time an Incentive Stock Option is exercised, it
should be noted that, for purposes of the alternative minimum tax, an Incentive
Stock Option is treated as a Non-Qualified Stock Option. Accordingly, the excess
of the fair market value of the shares of stock subject to the Incentive Stock
Option, determined at the time of exercise, over the exercise price constitutes
ordinary income for purposes of the alternative minimum tax. If an optionee
disposes of stock acquired pursuant to the exercise of an Incentive Stock Option
within the same taxable year as the exercise of such option, then the amount of
ordinary income recognized for alternative minimum tax purposes is the lesser of
(i) the excess of the fair market value of the shares over the exercise price at
the time the option is exercised, and (ii) the excess of the amount realized on
the sale of such stock by the optionee over the exercise price. Accordingly, the
exercise of an Incentive Stock Option by an optionee may cause the optionee to
incur some alternative minimum tax. For purposes of the alternative minimum tax,
the basis of stock acquired through the exercise of an Incentive Stock Option is
equal to the fair market value taken into account in determining the amount of
ordinary income recognized for alternative minimum tax purposes.
If the shares of stock acquired upon the exercise of an Incentive Stock
Option are not disposed of (i) within two years after the date of the grant of
the Incentive Stock Option, or (ii) within one year after the exercise of the
Incentive Stock Option, then, generally, any gain realized upon the sale or
other disposition of such shares will be treated as long-term capital gain.
These holding periods are not applicable to Incentive Stock Options exercised
after the death of an optionee by his estate or a person who acquired the right
to exercise such Incentive Stock Option by reason of the death of the Optionee.
The optionee's tax basis, in shares of stock acquired upon the exercise
of an Incentive Stock Option, in the event that the entire exercise price is
paid in cash, is equal to the exercise price paid. In a case where the optionee
pays all or a portion of the exercise price in the form of shares of stock of
the Company already owned by him or her, in general, (i) the optionee will not
recognize any gain (or loss) with respect to the already-owned shares, but the
amount of the gain, if any, which is not so recognized will be excluded from the
optionee's bases in the new shares received, and (ii) the new shares received
will have a holding period that includes the holding period of the already-owned
shares. In the event the already-owned shares used to acquire new shares were
acquired pursuant to the exercise of an Incentive Stock Option, the optionee
will be treated as having made a Disqualifying Disposition (as defined below) of
the already-owned shares if the holding period requirements have not been
satisfied.
In the event an optionee sells or otherwise disposes of shares of stock
acquired upon the exercise of an Incentive Stock Option before the expiration of
two years after the grant of the Incentive Stock Option or before the expiration
of one year after the exercise of the Incentive Stock Option (a "Disqualifying
Disposition"), the lesser of (i) the excess of the fair market value of the
shares of stock at the time the Incentive Stock Option was exercised over the
exercise price of such shares, and (ii) the excess of the amount realized upon
such Disqualifying Disposition over the exercise price, is treated as ordinary
income at the time of the sale or other disposition. Any gain upon a
Disqualifying Disposition which is not treated as ordinary income will be
treated as long-term capital gain if the shares of stock have been held for a
period of more than one year prior to such disposition. We are generally
entitled to a tax deduction equal to the amount of ordinary income, if any,
recognized by the optionee upon a Disqualifying Disposition.
(b) Non-Qualified Stock Options.
Non-qualified Stock Options granted under the Plan will not qualify for
the favorable federal income tax treatment accorded Incentive Stock Options.
Generally, an optionee should not recognize any income for federal income tax
purposes at the time of the grant of a Non-Qualified Stock Option under the
Plan. Upon the exercise of a Non-Qualified Stock Option, the excess of the fair
market value of the shares of stock acquired pursuant to such exercise,
determined at the time of the exercise, over the exercise price,
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constitutes ordinary income to the optionee. The Company generally is entitled
to a corresponding income tax deduction for the taxable year in which the
optionee is required to recognize such ordinary income.
Optionees who are subject to the short-swing profits rules of Section
16(b) of the Securities Exchange Act of 1934, as amended ("Section 16(b)"),
unless they elect within 30 days of exercising a Non-Qualified Stock Option to
be taxed as of the time of such exercise (on the basis of the fair market value
of the stock at the time of such exercise), are permitted to defer the
recognition of gain from the exercise until the earlier of (i) the expiration of
the six-month period described in such sales, or (ii) the first day on which the
sale of such stock at a profit will not subject such optionee to suit under
Section 16(b).
(c) Restricted Stock.
Generally, a participant who receives a grant of restricted stock will
recognize ordinary income with respect to such stock in the year or years in
which such stock ceases to be subject to forfeiture. The amount of ordinary
income recognized will be equal to the fair market value of the restricted stock
on the date it ceases to be subject to forfeiture. Notwithstanding the general
rule, a participant who receives restricted stock which is subject to forfeiture
may elect, within 30 days of the issuance of such stock, to include in his or
her taxable income for the year of issuance an amount equal to the fair market
value of such restricted stock at the date of such issuance. If a participant
makes this election, no additional ordinary income is required to be recognized
at the time the risk of forfeiture for such restricted stock lapses. However, in
the event that such participant actually forfeits the stock, such participant
may not deduct the amount previously included in income pursuant to the
election. Any dividends paid to a participant on restricted stock prior to the
lapse of the risk of forfeiture will be treated as ordinary income.
We Company will be entitled to a deduction with respect to a restricted
stock award in the year in which ordinary income is recognized by the
participant on account of such award. Such deduction will be equal to the amount
of ordinary income recognized by the participant with respect to such restricted
stock.
(d) Relevance of Distinction Between Capital Gains and Ordinary Income.
Currently, the maximum rate of tax imposed on ordinary income is 39.6%
and the maximum marginal rate of tax imposed on long-term capital gains is 28%.
In addition to this difference in tax rates, the distinction between capital
gains and ordinary income is relevant for a number of reasons, including the
fact that capital losses only are deductible against capital gains and a limited
amount ($3,000) of ordinary income.
The above description is a partial summary of material provisions of
the 1997 Stock Incentive Plan and is qualified in its entirety by reference to
the 1997 Stock Incentive Plan, a copy of which will be sent without charge prior
to the Meeting to any shareholder requesting it from the Secretary of the
Company.
The affirmative vote of the holders of a majority of our Common Stock
present at the meeting in person or by proxy is required to approve the
amendment to the Plan adopted by the Board as described above. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE ADOPTION OF
THE AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN.
PROPOSAL TO AMEND THE COMPANY'S 1997
NON-MANAGEMENT DIRECTORS STOCK OPTION PLAN
The Board of Directors believes our 1997 Non-Management Directors Stock
Option Plan (the "Director's Plan") is an effective means of attracting,
retaining and rewarding our non-management directors by offering them an
opportunity to have a greater proprietary interest in our Company and closer
identity with us and our financial success, and that the authorization of
additional shares for the grant of options under the Director's Plan will
facilitate the achievement of the Director's Plan's purpose.
In order to provide the Compensation Committee with the ability to issue
grants during fiscal 2001 to directors, on June 2, 2000, the Board of Directors
amended the Director's Plan, subject to Stockholder approval, to increase the
aggregate maximum number of shares for which options may be granted under the
Director's Plan by 75,000 from 191,088 to 266,088. As of June 1, 2000, options
have been granted under the Director's Plan to purchase 191,088 shares.
1. SUMMARY OF THE DIRECTOR'S PLAN
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The key features of the Director's Plan are as follows:
(a) Eligibility. All of our non-management directors are eligible to
receive options under the plan.
(b) Grant. Each non-management director is automatically granted the
option to purchase 15,000 shares of our Common Stock at fair market value at
each annual meeting of stockholders. Each option is evidenced by a written
agreement specifying the type of option granted, the exercise price, the terms
of payment, the duration of the option and the number of shares of Common Stock
to which the option pertains.
(c) Shares Covered by the Director's Plan. The maximum number of shares
of the Company's Common Stock reserved for issuance under the Director's Plan
(the "Plan Shares") as amended, is 266,088 (increased from the 191,088 share
maximum prior to this amendment), subject to adjustment on the occurrence of a
stock dividend, stock split, recapitalization or certain other capital
adjustments. If any option granted under the Director's Plan expires or
terminates for any reason without having been exercised in full, the unpurchased
shares shall again be available for Options to be granted under the Director's
Plan. Prior to the date of this Proxy, option grants have been made to the
following persons or groups with the underlying share amounts immediately
following each person, Carlos A. Fuente, Sr., director 47,772, Carlos P. Fuente,
Jr., director 47,772, Marvin B. Sharfstein, director 47,772 and Harvey Grossman,
director 47,772.
(d) Administration. The Director's Plan is administered by the Board of
Directors. Subject to the provisions of the Director's Plan, the Board shall
have authority: (i) to construe and interpret the Director's Plan; (ii) to
define the terms used therein; (iii) to prescribe, amend and rescind rules and
regulations relating to the Director's Plan; (iv) to establish the fair market
value of the Company as required under the Director's Plan; and (v) to make all
other determinations necessary or advisable for the administration of the
Director's Plan. Interpretation and construction by the Board of any provision
of the Director's Plan or of any award document is final, binding and
conclusive.
(e) Term of the Plan. Our Board of Directors may at any time terminate
or suspend the Director's Plan without the authorization of Stockholders to the
extent otherwise allowed by law.
(f) Option Provisions
(i) Exercise Price of Options Under the Director's Plan.
Except as otherwise provided by the Board of Directors, the per share exercise
price of each option shall be equal to one hundred (100%) of the Fair Market
Value of our Common Stock established by our Board of Directors on a date no
more than thirty (30) days prior to the grant of any Option, in the discretion
of the Board.
(ii) Payment. Payment for shares of Common Stock purchased
upon the exercise of options may be made by cash or such other method as the
Board of Directors may approve.
(iii) Term of Options. The right of an optionee to exercise
any part of an option granted pursuant to the Director's Plan terminates on the
first to occur of the following:
(A) ten years after the date of grant or
expiration of the option term specified in
the option document as determined by the
Board of Directors.
(B) Ninety (90) days subsequent to the date that
the holder thereof is no longer our
director.
(iv) Transferability of Options. Options granted under the
Director's Plan are not transferable by the optionee except by will or the laws
of descent and distribution or to the optionee's spouse or lineal descendants,
or trusts or partnerships for their sole benefit.
(v) Not an Employment Agreement. Neither the adoption of the
Director's Plan nor the grant of any option is deemed to obligate us to employ
any non-management director in any capacity or to entitle any non-management
director to continue in the director's capacity.
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<PAGE> 11
(g) Amendments of the Director's Plan. Our Board of Directors may, in
its discretion, at any time terminate, suspend or modify the Director's Plan
without the authorization of our Stockholders. However, the Board of Directors
may only amend the Director's Plan with stockholder approval to (1) increase the
maximum number of shares which may be issued pursuant to the Director's Plan;
(2) change the minimum purchase price of options; (3) increase the term of the
options; or (4) permit the granting of options to anyone other than a
non-management director.
The above description is a partial summary of material provisions of
the 1997 Non-Management Directors Stock Option Plan and is qualified in its
entirety by reference to the 1997 Non-Management Directors Stock Option Plan, a
copy of which will be sent without charge prior to the Meeting to any
Stockholder requesting it from our Secretary.
The affirmative vote of the holders of a majority of our Common Stock
present at the meeting in person or by proxy is required to approve the
amendment to the Directors Plan adopted by the Board of Directors as described
above. THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE ADOPTION OF THE AMENDMENT TO THE 1997 NON-MANAGEMENT DIRECTORS STOCK
OPTION PLAN.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of June 15, 2000, certain information with
respect to the beneficial ownership of the Common Stock by (i) each director of
our Company, (ii) each person who is known by us 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, 2000, and (iv) all of our 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 (2,3).......................................................... 2,927,149 46.9%
Carlos A. Fuente, Sr. (2,4,5,6)................................................ 1,570,736 25.2
Carlos P. Fuente, Jr. (2,4,5,6)................................................ 1,570,736 25.2
Fuente Investment Partnership (2,4,5).......................................... 1,522,964 24.4
Michael Pitkow (3,6)........................................................... 288,134 4.6
Marvin B. Sharfstein (6)....................................................... 274,973 4.4
Harvey W. Grossman (6)......................................................... 47,772 0.8
Keith A. Goorsky(3) ........................................................... 26,825 0.4
Palisades Capital Management LLC............................................... 501,024 8.0
All directors and executive officers as a group (7 persons) (3,6).............. 4,345,228 70.0%
</TABLE>
(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, Goorsky,
Grossman 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) Represents shares of Common Stock which may be acquired upon the exercise
of options granted by the Company to Messrs. Levin, Pitkow and Goorsky
pursuant to the 1997 Employee Stock Option Plan. Mr. Levin has received
options to purchase 120,421 shares of Common Stock of which options to
purchase 18,040 shares of Common Stock have vested. Mr. Pitkow has received
options to purchase 67,860 shares of Common Stock of which options to
purchase 9,020 shares of Common Stock have vested. Mr. Goorsky has received
options to purchase 25,000 shares of Common Stock of which options to
purchase no shares of Common Stock have vested. 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
11
<PAGE> 12
as a group would beneficially own an additional 213,281 shares of Common
Stock, and collectively would beneficially own shares representing 70.5% of
all outstanding shares.
(4) 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.
(5) 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 47,772 shares of Common
Stock each granted pursuant to the Non-Management Director Stock Plan.
(6) 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 47,772 shares of
Common Stock each granted pursuant to the Non-Management Director Stock
Plan. In 1996, Messrs. Pitkow and Sharfstein received options to purchase
216,485 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 404,369 shares of Common Stock, and collectively would
beneficially own shares representing 76.1% of all outstanding shares.
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 persons 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, 2000 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, 1998, 1999 and 2000, we purchased approximately $9.3 million,
$11.0 million and $12.0 million, respectively, of premium cigars from Fuente
Cigar Ltd. ("Fuente Cigar"), representing approximately 55%, 61% and 58%
respectively, of premium cigar purchases for such periods. At March 31, 2000,
approximately $1,348,000 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 24.4% 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 3.3 million premium cigars in the fiscal year ended
March 31, 1997, 4.6 million premium cigars in the fiscal year ended March 31,
1998, 6.0 million premium cigars for the fiscal year ended March 31, 1999, and
4.8 million premium cigars for the fiscal year ended March 31, 2000. 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
12
<PAGE> 13
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.
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. Under the terms of
this agreement, Fuente Cigar manufactured and the Company launched the brand
"Premium Dominicana" during the summer of 1998. Fuente Cigar supplied the
Company with 628,000 Premium Dominicana cigars during the fiscal years ended
March 31, 1999 and March 31, 2000, respectively.
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 $75,000 to Mr. Levin under
this lease in each of the fiscal years ended March 31, 1998 and 1999,
respectively, and $112,500 in the fiscal year ended March 31, 2000. The Company
and Mr. Levin recently negotiated an extension of the term of this lease through
May 31, 2009. The rent payable to Mr. Levin prior to the extension was $6,250
per month, or $75,000 per year, which was increased to the current market rental
of $10,000 per month, or $120,000 per year.
Loan to Shareholder. In May, 1999, the Company loaned Mr. Levin the sum of
$700,000 secured by a pledge of the Company's Common Stock owned by Mr. Levin
and equal in current market value to 150% of the outstanding principal balance
of this loan from time to time. This loan is for a term of five years, and is
payable interest only, at an annual rate of 6.00% in semi-annual installments.
As of March 31, 2000, the outstanding principal balance of this loan is
$700,000.
Company Purchase of Stock. In February, 2000, Carol Cohn, the sister of Mr.
Levin, pursuant to an Option Agreement between the Company and Carole Cohn (the
"Agreement"), agreed to purchase forty thousand (40,000) shares (the "Shares")
of Common Stock of the Company. The exercise price for the Shares, as set forth
in the Agreement, was $0.50 cents per share (the "Exercise Price") or $20,000.00
total. The Company agreed to purchase the Shares acquired upon exercise of the
Option Agreement for $3.75 per Share, a per share price that was $0.0375 per
share less than the closing price for the Company's Common Stock as reported on
NASDAQ on February 16, 2000, for a total purchase price of $150,000 (the
"Purchase Price"). In lieu of exchanging checks, the Company paid the net amount
of $130,000, representing the difference between the Purchase Price and the
Exercise Price. In accordance with an Agreement between the Company, Mr. Levin
and Carole Cohn, the Shares acquired in the exercise of the option by Ms. Cohn,
and subsequently purchased by the Company, were transferred to the Company by
Mr. Levin pursuant to a Stock Transfer Agreement dated February 17, 2000.
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
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<PAGE> 14
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.
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 average closing price of the Common Stock on the five
trading days prior to 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 July 1, 1998, 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 stock options more
closely align the grantees interests with those of its Stockholders, and focus
management on increasing profitability and long-term Stockholder value.
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<PAGE> 15
Messrs. Levin, Pitkow and Cox were the only persons who received awards under
this plan during the fiscal year ended March 31, 2000. Mr. Levin was granted
options to purchase 66,300 shares of common stock at an exercise price of $7.49
per share, Mr. Pitkow was granted options to purchase 40,800 shares of common
stock at an exercise price of $6.81 per share, and Mr. Cox was granted options
to purchase 20,000 shares of common stock at an exercise price of $11.00 per
share. When Mr. Goorsky was hired as Chief Financial Officer of the Company in
September 1999, he received 25,000 options to purchase Series A Common Stock
with an exercise price of $3.825 per share.
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. In addition to the increase in
salary as set forth in Mr. Levin's employment agreement, 66,300 options were
granted to Mr. Levin at an exercise price of $7.49 per share during the fiscal
year ended March 31, 2000. In addition to a cash incentive of $40,000, the
Compensation Committee recommended to the Board of Directors, and the Board of
Directors approved a $700,000 loan to Mr. Levin as described above in "Certain
Transactions".
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.
Keith A. Goorsky was appointed Chief Financial Officer of the Company effective
as of October 8, 1999. Prior to joining the Company, Mr. Goorsky was the owner
of Goorsky & Associates, a financial and general management consulting firm.
From 1982 to 1997 Mr. Goorsky was the Vice President of Finance and Chief
Financial Officer of Day-Timers, Inc.
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 $100,000 in
the last three fiscal years of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
FISCAL SALARY BONUS OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION OPTIONS/SARS COMPENSATION
--------------------------- ---- --- --- ------------- ------------ ------------
($) (#) ($)(1)(2)
--- --- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Levin 2000 $450,000 $50,000 $34,666 65,000 $6,231
Chairman, CEO & President 1999 $442,308 $25,000 $27,379 53,060 $4,750
1998 $421,286 $44,281 $4,750
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
SECURITIES
FISCAL SALARY BONUS OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION OPTIONS/SARS COMPENSATION
--------------------------- ---- --- --- ------------- ------------ ------------
($) (#) ($)(1)(2)
--- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1997 $335,973 $4,750
Michael Pitkow 2000 $200,000 $20,000 $4,533 40,000 $7,308
COO & Exec. VP 1999 $195,769 $30,000 $2,732 26,530
1998 $154,780 $10,000 213,302
1997 $111,039 $5,000
Keith A. Goorsky 2000 $57,077 $2,500 25,000 0
CFO, Treasurer
</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, Pitkow and
Goorsky. 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, 2001. Mr. Goorsky's
employment agreement, effective as of September 22, 1999, provides for a
minimum base salary of $110,000, to be reviewed annually. This employment
agreement expires on September 21, 2000.
16
<PAGE> 17
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 Company's fiscal year ended March 31,
2000, assuming an investment of $100 on April 1, 1998.
[GRAPHIC]
(a) The Company was required to amend its "Peer Group Index" for the
fiscal year ended March 31, 2000 because Consolidated Cigar Holdings was
acquired as of January 22, 1999 and its stock ceased trading.
5 YEAR CUMULATIVE TOTAL RETURN SUMMARY
STARTING BASIS
<TABLE>
<CAPTION>
DESCRIPTION 11/97 1998 1999 2000
----------- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HOLT'S CIGAR HOLDINGS ($) $100.00 $71.59 $37.38
S & P 500 ($) $100.00 $121.27 $143.66
S & P Smallcap ($) $100.00 $112.48 $90.95
Peer Group Only ($) $100.00 $56.81 $29.84
Peers & Your Company ($) $100.00 $57.70 $30.29
</TABLE>
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, 2000.
17
<PAGE> 18
OTHER MATTERS
Selection of Independent Accountants. The Board of Directors has proposed, and
recommends the appointment of PricewaterhouseCoopers LLP as the independent
accountants of the Company for the current fiscal year, ending March 31, 2001.
The Board of Directors expects that a representative of PricewaterhouseCoopers
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, 2000 with the Securities and Exchange Commission on
June 29, 2000. A copy of the report, including any financial statements and
schedules and a list describing any exhibits not contained therein, may be
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.
/s/ Michael Pitkow,
Secretary
Philadelphia, Pennsylvania
June 29, 2000
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<PAGE> 19
HOLT'S CIGAR HOLDINGS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS SEPTEMBER 7, 2000
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 SEPTEMBER 7, 2000, 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.
Robert G. Levin Carlos A. Fuente, Sr.
2. PROPOSAL TO RATIFY appointment of PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending March 31, 2001.
/ / FOR / / AGAINST / / ABSTAIN
3. PROPOSAL TO APPROVE the increase in the number of shares of the Company's
common stock subject to the Company's 1997 Employee Stock Option Plan by
150,000.
/ / FOR / / AGAINST / / ABSTAIN
4. PROPOSAL TO APPROVE the increase in the number of shares of the Company's
common stock subject to the Company's 1997 Non-Management Directors Stock Option
Plan by 75,000.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR the election of the nominees listed
above and FOR proposals 2, 3 and 4.
(CONTINUED ON REVERSE SIDE)
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<PAGE> 20
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 PROPOSALS 2,
3 AND 4.
DATED: _____________________ , 2000
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.
20
