D G JEWELLERY OF CANADA LTD, DEF 14A, 1999-06-30

D G JEWELLERY OF CANADA LTD
DEF 14A, 1999-06-30
JEWELRY, PRECIOUS METAL

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant / X /
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

/ / Preliminary Proxy Statement
/ X / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss.240.14a-11(c) or
Section 240.14a-12

D.G. JEWELLERY OF CANADA LTD.
---------------------------------------------------------
(Name of Registrant as specified in its charter)

--------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement), if other than Registrant

Payment of Filing Fee (Check the appropriate box):

/ X / No fee required
/ / $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which
transaction applies:_______________________________
(2) Aggregate number of securities to which transaction
applies:___________________________________________
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act
Rule 0-11:______________________________________(A)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:____________________________________

/ / Fee paid previously with preliminary materials.

/ / Check box if any of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.

(1) Amount Previously Paid:____________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________
(3) Filing Party:______________________________________
(4) Date Filed:________________________________________

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D.G. JEWELLERY OF CANADA LTD.
1001 PETROLIA ROAD
TORONTO, CANADA M3J 2X7
-------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 20, 1999

TO THE STOCKHOLDERS OF D.G. JEWELLERY OF CANADA LTD.:

NOTICE IS HEREBY GIVEN, that the Annual Meeting of Stockholders of D.G.
Jewellery of Canada Ltd. (the "Meeting") will be held at 10:00 a.m. on July 20,
1999 at the offices of D.G. Jewellery of Canada Ltd. (the "Company"), at 1001
Petrolia Road, Toronto, Ontario M3J 2X7, for the following purposes:

1. To elect the Board of Directors of D.G. Jewellery of Canada Ltd. for
the ensuing year;

2. To ratify the appointment of Schwartz, Levitsky, Feldman, llp,
Chartered Accountants, as the Company's independent chartered
accountants for the ensuing year;

3. To ratify the adoption of the 1999 Stock Option Plan.

4. To change the corporate name of D.G. Jewellery of Canada Ltd. to D.G.
Jewelry Ltd.

5. To transact such other business as may properly come before the Meeting
and any continuations and adjournments thereof.

Stockholders of record at the close of business on June 25, 1999 are entitled to
notice of and to vote at the meeting.

In order to ensure a quorum, it is important that Stockholders representing a
majority of the total number of shares issued and outstanding and entitled to
vote, be present in person or represented by their proxies. Therefore, whether
you expect to attend the meeting in person or not, please sign, fill out, date
and return the enclosed proxy in the self-addressed, postage-paid envelope also
enclosed. If you attend the meeting and prefer to vote in person, you can revoke
your proxy.

In addition, please note that abstentions included in the determination of
the number of shares present and voting, for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
are not counted as voted either for or against a proposal.

By Order of the Board of Directors,

/s/ S. Berkovits

Samuel Jacob "Jack" Berkovits
Chairman, Chief Executive Officer and President
June 30, 1999

<PAGE>

D.G. JEWELLERY OF CANADA LTD.
1001 PETROLIA ROAD
TORONTO, CANADA M3J 2X7
-------------------------------
PROXY STATEMENT
-------------------------------

ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 20, 1999

This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of D.G. Jewellery of Canada Ltd. (the
"Company"), for use at the Annual Meeting of Stockholders of the Company (the
"Meeting") to be held on July 20, 1999 at 10:00 a.m. at the Company's offices at
1001 Petrolia Road, Toronto, Canada M3J 2X7, and at any continuation and
adjournment thereof. Anyone giving a proxy may revoke it at any time before it
is exercised by giving the Chairman of the Board of Directors of the Company
written notice of the revocation, by submitting a proxy bearing a later date or
by attending the meeting and voting. This statement, the accompanying Notice of
Meeting and form of proxy have been first sent to the Stockholders on or about
June 30, 1999.

In addition, please note that abstentions are included in the
determination of the number of shares present and voting, for purposes of
determining the presence or absence of a quorum for the transaction of business.
Abstentions are not counted as voted either for or against a proposal.

All properly executed, unrevoked proxies on the enclosed form, which
are received in time will be voted in accordance with the stockholder's
directions, and unless contrary directions are given, will be voted for the
election of directors of the nominees described below.

OWNERSHIP OF SECURITIES

Only stockholders of record at the close of business on June 25, 1999,
the date fixed by the Board of Directors in accordance with the Company's
By-Laws, are entitled to vote at the meeting. As of May 31, 1999, there were
issued and outstanding 5,960,280 shares of the Company's common stock.

Each outstanding share of common stock is entitled to one vote on all
matters properly coming before the meeting. A majority of the shares of the
outstanding common stock is necessary to constitute a quorum for the meeting.

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth as of the date of this Proxy Statement,
the names and beneficial ownership of the Company's Common Stock beneficially
owned, directly or indirectly, by (i) each person who is a director or executive
officer of the Company, (ii) all directors and executive officers of the Company
as a group, and (iii) all holders of 5% or more of the outstanding shares of
Common Stock of the Company.

NAMES AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF PERCENTAGE OF SHARES
OWNER(1) BENEFICIAL OWNERSHIP(2) OUTSTANDING
------------------------------- ----------------------- --------------------
<S> <C> <C>
Jack Berkovits............................. 2,634,975(3) 44.2%
The Berkovits Family Trust................. 426,000 7.1%
Sheba Berkovits............................ 816,000(4) 13.7%
Gary Davis................................. 29,000(5) *
Leonard Fasullo............................ 20,000(6) *
Theodore Bonsignore........................ 2,500 *
Myer Feiler................................ 50,000(7) *
Ronald Rutman.............................. ---- ----
Haymarket, LLC............................. 787,693(8) 13.2%
All directors and executive officers
as a group (6) persons..................... 2,736,475 45.9%
</TABLE>

* Less than one %.

(1) Except as set forth above, the address of each individual is 1001
Petrolia Road, Toronto, Ontario, Canada M3J 2X7.

(2) Based upon information furnished to the Company by either the directors
and executive officers or obtained from the stock transfer books of
the Company. The Company is informed that these persons hold the
sole voting and dispositive power with respect to the Common Stock
except as noted herein. For purposes of computing 'beneficial
ownership' and the percentage of outstanding Common Stock held by
each person or group of persons named above as of the date of this
Prospectus, any security which such person or group of persons has
the right to acquire within 60 days after such date is deemed to be
outstanding for the purpose of computing beneficial

<PAGE>

ownership and the percentage ownership of such person or persons,
but is not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person. As of the date of May 31,
1999, the Company had 5,960,280 shares of Common Stock outstanding
and an additional 83,875 shares of Common Stock provided for
issuance under the 1996 Stock Option Plan and an additional 411,375
under the 1998 Stock Option Plan.

(3) Includes (i) 426,000 shares of Common Stock owned by the Berkovits
Family Trust of which Mr. Berkovits and his wife are co-trustees; (ii)
390,000 shares of Common Stock owned by his wife individually and (iii)
148,375 shares issuable upon options that are currently exercisable or
exercisable in the next sixty days. Does not include (i) an aggregate
of 390,000 shares of Common Stock owned by two of Mr. Berkovits' sons
who are independent of their father, and (ii) 133,000 shares of common
stock underlying options which are not currently exercisable or
exercisable in the next sixty days.

(4) Includes 426,000 shares of Common Stock owned by the Berkovits Family
Trust of which Ms. Berkovits is a co-trustees. Ms. Berkovits is the
wife of Jack Berkovits.

(5) Includes 5,000 shares issuable upon the exercise of options which are
currently exercisable or exercisable in the next sixty days.

(6) Includes 5,000 shares issuable upon the exercise of options which are
currently exercisable or exercisable in the next sixty days.

(7) Includes 30,000 shares issuable upon the exercise of options which are
currently exercisable or exercisable in the next sixty days.

(8) Includes 172,308 shares issuable upon the exercise of warrants which
are currently exercisable or exercisable in the next sixty days,

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PROPOSAL 1

ELECTION OF DIRECTORS

Four directors are to be elected at the Meeting to hold office until
the next meeting of stockholders or until their successors have been duly
elected and qualified. The election of directors requires the affirmative vote
of at least the majority of shares of Common Stock present or represented at a
meeting at which a quorum is present or represented.

The By-Laws of the Company provide that the authorized number of
directors shall be as set by the Board of Directors but shall not be less than
one or more than ten. The By-Laws require that a majority of the Company's
directors be Canadian residents. The directors hold office until the next annual
meeting of stockholders and until their successors have been elected and
qualified. There are no agreements with respect to the election of directors.
The Company has not to date paid directors fees for service on the Board of
Directors or any committee thereof.

STOCKHOLDER VOTE REQUIRED

The election of the directors will require the affirmative vote of the
majority of the shares present in person or represented by proxy at the Annual
Meeting of Stockholders and entitled to vote on the election of directors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION TO THE BOARD OF DIRECTORS
OF THE COMPANY OF EACH OF THE NOMINEES

POSITION WITH THE POSITION HELD
NAME AGE COMPANY SINCE
<S> <C> <C> <C>
Samuel J. Berkovits..................... 47 Chairman of the Board, 1979
CEO and President
Meyer Feiler............................ 46 Director 1998
Theodore L. Bonsignore.................. 52 General Manager - 1998
Diamonair, Director
Ronald Rutman........................... 46 Director 1999

</TABLE>

SAMUEL JACOB "JACK" BERKOVITS has served as President and a director of
the Company since 1979. He is a founding member of the Jeweler's Vigilance
Committee (Canadian Jeweler's Association) and is active in community affairs.
Mr. Berkovits became a member of the Canadian Institute of Chartered Accountants
in 1976. He practiced as an accountant in Montreal from 1972

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to 1977 when he joined the Company.

THEODORE L. BONSIGNORE has served as General Manager of Diamonair since
May 1998 and as a director since July 1998. Mr. Bonsignore works for the Company
an average of between fifteen to twenty hours a week and also operates T.L.
Bonsignore Management and Advisory Services, a consulting firm specializing in
the jewelry industry. From 1975 to 1997, Mr. Bonsignore was employed by Krementz
& CO., a jewelry manufacturer, serving as President since 1990. Mr. Bonsignore
has been a director of the Jewelers Board of Trade since 1990 and has served as
Chairman of that Board since 1998. Mr. Bonsignore is a certified public
accountant. Mr. Bonsignore will be nominated to serve as a director at the
Company's annual meeting.

MEYER FEILER has been a director of the Company since July 1998. Mr.
Feiler has served as President of Carmen Incorporated, one of the largest
jewelry companies in Canada since 1993. Mr. Feiler has worked at Carmen
Incorporated since 1979.

RONALD RUTMAN has served as a director of the Company since March 1999.
Mr. Rutman is a Chartered Accountant with the firm Zeifman & Company where he is
a partner. Mr. Rutman has been with Zeifman & Company since 1973. Mr. Rutman
specializes in taxation, consulting and bank finance. He has particular
expertise in the jewelry and healthcare industries. He has a B.A. from the
University of Toronto.

There is no family relationship between any of the above named officers
or directors.

The term of office for directors and officers is one year.

AUDIT AND COMPENSATION COMMITTEES

The Audit Committee consists of Messrs. Rutman, Berkovits and Feiler .
The responsibilities of the Audit Committee include recommending to the board of
directors the firm of independent auditors to serve the Company, reviewing the
independent auditors reports, services and results of audit, and reviewing the
scope, results and adequacy of the Company's internal control procedures. The
Compensation Committee consists of Messrs. Berkovits, Rutman and Feiler. The
Compensation Committee is expected to periodically review and evaluate officers'
compensation and administers the Company's 1998 Stock Option Plan, and will
administer the 1999 Stock Option Plan if adopted.

For a period of three years after the effective date of the Company's
Initial Public Offering on April 17, 1997, the Company has agreed to invite a
designee of Joseph Dillon & Co. ("Dillon"), the underwriter to the Company's
initial public offering to attend all meetings of the board of directors, but
such designee will not be entitled to vote or be compensated. To date, Dillon
has not designated a nominee.

It is not expected that any director or committee member will receive
any compensation for
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acting in such capacity. The Company will reimburse directors and committee
members for all ordinary and necessary expenses incurred in attending any
meeting of the board or any committee thereof.

During the fiscal year ended December 31, 1998, the Company's Board of
Directors met three times on February 17, 1998, May 21, 1998 and July 14, 1998,
at which all of the Directors were present and acted by written consent eight
times on February 6, 1998, February 10, 1998, June 1, 1998, June 19, 1998, July
13, 1998, July 30, 1998, November 16, 1998 and November 30, 1998, the Audit
Committee met on May 21, 1998 and the Compensation Committee did not meet.

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EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth all cash compensation for services
rendered in all capacities to the Company, for the fiscal years ended December
31, 1998, December 31, 1997, December 31, 1996 paid to the Company's Chief
Executive Officer, and the other most highly compensated executive officers (the
"Named Executive Officers") at the end of the above fiscal years whose total
annual salary plus bonus exceeded $100,000 per annum.

EXECUTIVE COMPENSATION

The Summary Compensation Table below sets forth compensation paid by
the Company and its subsidiaries for the last three fiscal year for services in
all capacities for its CEO and any other officer who received a total annual
salary and bonus from the Company which exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
NAME AND YEAR/ RESTRICTED
PRINCIPAL PERIOD ANNUAL STOCK OPTIONS/ OTHER
POSITION ENDED COMPENSATION BONUS AWARDS SARS COMPENSATION
-------- ----- ------------ ----- ------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Jack Berkovits, Chief 1998 $216,951 $125,000 0 266,000 $12,000(1)
Executive Officer 1997 $197,242 $187,798 0 377,500 $12,000(1)
and Chairman.............. 1996 $147,061 $0 0 0 $12,000(1)
Gadi Beer, Vice President 1998 $196,755 $0 0 10,000 $7,710(3)
of Sales and Marketing 1997(2) $109,375 $0 0 0 $0
Aviv...................... 1996 ---- ---- ---- ---- -------
</TABLE>

(1) Represents monthly auto allowance.
(2) Mr. Beer's employment with the Company commenced on June 1, 1997, after
the Company's acquisition of Aviv.
(3) Represents car allowance of $5,638 and health insurance of $2,082.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

Jack Berkovits and the Company entered into a three year employment
agreement commencing April 17, 1997 for Mr. Berkovits to serve as Chief
Executive Officer and President

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at an annual salary of $250,000 with yearly increases of no less than $10,000.
Should Mr. Berkovits die during the term of this agreement, his estate or
designee shall receive, upon his death, two years full salary. In the event of
disability, Mr. Berkovits is to receive 70% of his salary for the remainder of
the term of the agreement. The agreement also provides for the Company to
maintain approximately $2,000,000 in key-man insurance on the life of Mr.
Berkovits. Currently, the Company is beneficiary of two "key-man" term policies
with a total death benefit of $840,000. The $700,000 policy has been assigned to
secure the Company's financing facilities with The Bank of Nova Scotia. The
Company maintains a third policy with a death benefit of $1.1 million for which
Mr. Berkovits' family is the beneficiary.

Based upon any wrongful termination, which includes changes in
control of the Company through an acquiring person (any person who has acquired
or announces a tender offer or exchange for 25% of the Company), a sale of
substantially all of the assets or merger, acquisition of the Company or its
consolidation with another, or certain types of board changes, the Company shall
pay Mr. Berkovits a lump sum payment, based upon his then compensation,
including benefits and perquisites, from such termination. Such payment shall be
the balance of his compensation for the remainder of the term or compensation
for one year whichever is less; provided, if the payment is in excess of
$100,000, then such excess shall be payable in equal quarterly payments with
interest at the legal rate. The employment agreement also contains a one-year
non-competition provision within a 200 mile radius of the Company's primary
operation in Canada or anywhere in the United States.

The Company entered into an employment agreement with Gadi Beer,
the Vice-President of Sales and Marketing of Aviv for a term of one year
terminating on February 9, 2000. Mr. Beer earns an annual base salary of
$120,000 and is entitled to receive 0.8% of the total sales of Aviv. Mr. Beer
has agreed to a covenant not to compete with the Company for a period of three
years from the date of termination of the agreement. The agreement is renewable
for additional successive one year terms upon the consent of both parties.

No other officer has an employment contract with the Company.

COMPENSATION OF DIRECTORS

There are no standard arrangements for the payment of any fees to
directors of the Company for acting in such capacity. Directors are reimbursed
for expenses for attending meetings.

The Company has adopted a 1998 Stock Option Plan pursuant to which
options have been granted to officers, directors, consultants, key employees,
advisors and similar parties who provide their skills and expertise to the
Company. See "Options, Warrants or Rights" below.

OPTIONS, WARRANTS OR RIGHTS

In December 1996, the board of directors and shareholders adopted
the 1996 D.G.

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Jewellery of Canada Ltd. Stock Option Plan (the "1996 Plan"), pursuant to which
500,000 shares of Common Stock are provided for issuance. All such option have
been granted.

In February 1997, the Board granted 172,500 Options under the 1996
Plan to 20 persons, including officers, directors and key employees. The Options
were exercisable at $4.50 per share for five years expiring February 9, 2002. On
August 22, 1997, the Compensation Committee lowered the exercise price to $1.38,
which was the Company's stock price on such date. On August 22, 1997, the
Company granted an additional 327,500 options exercisable at $1.38 per share for
five years to Jack Berkovits. All options granted vest and become issuable at
the rate of 25% every six months so that the options are fully vested and
issuable two years from their issuance date. The table below reflects the
Options granted to the present officers and directors of the Company and the
percentage of Options owned by such persons.

OFFICER AND/OR DIRECTOR EXPIRATION DATE OPTIONS PERCENT EXERCISE PRICE
----------------------- --------------- ------- ------- --------------
<S> <C> <C> <C> <C>
Jack Berkovits................... (1) 377,500 75.5% $1.38
Gary Davis....................... 02/09/02 15,000 3.0% $1.38
Leonard Fasullo.................. 02/09/02 15,000 3.0% $1.38
</TABLE>

- --------
(1) 327,500 of such options expire on August 21, 2002 and 50,000 expire on
February 9, 2002.

In July 1998, the board of directors and the shareholders adopted
the 1998 Stock Option Plan, pursuant to which 500,000 shares of Common Stock are
provided for issuance. In July 1998, the board also granted all of the 500,000
options to 42 persons including officers directors, consultants and key
employees. The options were exercisable at the following prices: $2.77 (410,000
options); $3.25 (40,000 options); $4.00 (50,000 options). All options granted
vest at the rate of 25% every six months so that the options will become fully
vested in July 2000. The table below reflects the options under the 1998 Stock
Option Plan granted to our present officers and directors and the percentage of
options issued to such persons.

OFFICER AND/OR DIRECTOR EXPIRATION DATE OPTIONS PERCENT EXERCISE PRICE
----------------------- --------------- ------- ------- --------------
<S> <C> <C> <C> <C>
Jack Berkovits................... 07/14/03 266,000 53.2% $2.77
Gary Davis....................... 07/14/03 20,000 4.0% $2.77
</TABLE>

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OFFICER AND/OR DIRECTOR EXPIRATION DATE OPTIONS PERCENT EXERCISE PRICE
----------------------- --------------- ------- ------- --------------
<S> <C> <C> <C> <C>
Leonard Fasullo.................. 07/14/03 20,000 4.0% $2.77
Theodore L. Bonsignore........... 07/14/03 10,000 2.0% $2.77
Myer Feiler...................... 07/14/03 60,000 12.0% (1)

(1) 10,000 of such options are exercisable at $2.77 and the remaining
50,000 options are exercisable at $4.00.
</TABLE>

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CERTAIN TRANSACTIONS

In February 1995, the Company entered into a 10 year lease
consisting of 23,000 square feet for its executive offices and manufacturing
operations in North York, Ontario. The lease is with 1001 Petrolia Road Limited
Partnership ("Petrolia L.P."), the general partner being 1013418 Ontario Inc.
Jack Berkovits, Chairman, CEO and President of the Company, is the sole owner,
officer and director of that general partner. Current rent is $107,948 and
increases each year by the greater of $.37 a square foot or the percentage
increase in the Consumer Price Index for the Municipality of Metropolitan
Toronto. Additionally, the Company is paying real estate taxes, utilities and
insurance aggregating $95,000 per year for this facility. Management is of the
opinion that the lease is on terms as favorable as obtainable from unaffiliated
third parties.

Petrolia L.P. through 1013418 Ontario, Inc., the general partner,
of which Mr. Berkovits is the sole shareholder, officer and director, had
obtained a five year $660,000 mortgage on the property, which was renewed in
October 1998. On April 30, 1999, the principal amount outstanding was $515,661.
The Company is a guarantor of this mortgage.

Jack Berkovits loaned the Company monies from time to time for
operations and working capital which sums at April 30, 1999 aggregated
approximately $2.0 million and the weighted average interest rate was 10%. In
1997, the Company repaid $1.2 million of such loans, including payments to a
third party, Laurbrad Holdings Limited, who had loaned funds to Mr. Berkovits.
Mr. Berkovits loaned the funds to the Company on the same terms, which included
a 20% annual interest rate. The rate has now been reduced to 10%.

Diamante is a Canadian company operating under the name Oromart
which has four retail jewelry stores and operates jewelry departments in six
Best Value Discount Stores. Diamante is owned by a Vice President of the
Company, Leonard Fasullo, who is also Diamante's President (since 1998). The
inventory provided to Diamante, consists primarily of manufacturing surplus,
returns or refurbished jewelry, and on occasion gold chains and watches
purchased by the Company for resale to Diamante. The inventory is secured by a
registered security agreement covering the assets of Diamante, which security
agreement has been assigned to The Bank of Nova Scotia which holds a substantial
security interest in the assets of the Company. Diamante has guaranteed the
Company's bank financing and provided the bank with a direct security interest
in its assets. The Company consolidated, for financial reporting purposes, with
Diamante until February 7, 1997, the termination date of the agreement with
Diamante reflecting the Company's control over that retail operation. The
Company performs certain administrative functions for Diamante.

Diamante leases each facility for its four stores, of which one
lease is guaranteed by the Company. This lease is terminable by Diamante on 90
days written notice, and is for five years, is a net, net lease, with renewal
options for a rental rate of approximately $17,000 per year plus taxes,
maintenance, insurance and utilities.

In connection with the purchase of Aviv, the Company agreed to
issue the former owners of Aviv an amount of shares having a value of $325,000
based on the average closing price in April 1999 in settlement of a note in that
amount. Based on the closing prices the Company issued an aggregate of 45,145
shares. All of the former owners are presently employees of the Company

The Company has entered into a supply agreement with Xite
Jewelry.Com, Inc. ("Xite"),

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which is a newly formed company owned 50% by the Company and 50% by two sons of
Jack Berkovits. The agreement provides that Xite will purchase jewelry from the
Company on the best terms offered to the Company's other customers. In turn,
Xite will sell such jewelry to or through certain Internet companies who have
previously entered into arrangements with the Company. The Company has assigned
certain Internet contracts to Xite. To date, sales through the Internet do not
represent a significant percentage of total sales. Xite has entered into a
letter of intent with a broker-dealer to effect a public offering of its common
stock. There can be no assurance that such public offering will be effectuated
or what the terms of such offering would be.

All transactions between the Company, its officers, directors,
principal shareholders or affiliates are, in the opinion of management, except
for the interest rate charges on a portion of Mr. Berkovits' loans which are
above the market rate, on terms no less favorable to the Company then may be
obtained from unaffiliated third parties. All future transactions and loans
between itself and its officers, directors and 5 % shareholders to be on terms
no less favorable than could be obtained from independent, unaffiliated parties
and will be approved by a majority of the independent, disinterested directors
of the Company.

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PROPOSAL 2

RATIFICATION OF SCHWARTZ, LEVITSKY, FELDMAN, llp, CHARTERED
ACCOUNTANTS, AS THE COMPANY'S INDEPENDENT CHARTERED
ACCOUNTANTS

The Board of Directors has unanimously approved and unanimously
recommends that the stockholders approve the appointment of Schwartz, Levitsky,
Feldman, llp, Chartered Accountants as the Company's independent chartered
accountants for the ensuing year. A member of Schwartz, Levitsky, Feldman, llp,
Chartered Accountants will be available to answer questions and will have the
opportunity to make a statement if he or she so desires at the Annual Meeting of
Stockholders.

STOCKHOLDER VOTE REQUIRED

Ratification of the appointment of Schwartz, Levitsky, Feldman,
llp, Chartered Accountants as independent chartered accountants will require the
affirmative vote of the majority of the shares present in person or represented
by proxy at the Annual Meeting of Stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF SCHWARTZ, LEVITSKY, FELDMAN, LLP, CHARTERED ACCOUNTANTS AS
INDEPENDENT CHARTERED ACCOUNTANTS.

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<PAGE>

PROPOSAL NO. 3

ADOPTION OF THE COMPANY'S
1999 STOCK OPTION PLAN

The Company's 1999 Stock Option Plan (the "1999 Option Plan") was
adopted by the Board of Directors in June 1999. The purpose of the 1999 Option
Plan is to grant directors, executive officers, employees, consultants and
others who provide significant services to the Company a favorable opportunity
to acquire Common Stock so that they have an incentive to contribute to its
success and remain in its employ. Under the 1999 Option Plan, the Company is
authorized to issue options for a total of 500,000 shares of Common Stock.

DESCRIPTION OF 1999 STOCK OPTION PLAN

All directors, executive officers, employees, consultants and other
persons who perform significant services for or on behalf of the Company are
eligible to participate in the 1999 Option Plan. The Company currently has
approximately 212 full-time employees.

The Company may grant under the 1999 Option Plan both incentive
stock options ("Incentive Stock Options") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and stock options
that do not qualify for incentive treatment under the Code ("Nonstatutory
Options") or the Income Tax Act of Canada.

A copy of the 1999 Option Plan is attached hereto as Appendix A.
The following summary of the 1999 Option Plan does not purport to be complete
and is qualified in its entirety by reference to the complete text of the 1999
Option Plan.

ADMINISTRATION.

The Plan shall be administered by the Board of Directors of the
Company (the "Board"), if each member is a "disinterested person" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("Rule 16b-3"), or a committee (the "Committee") of two or more directors, a
majority of whom are disinterested persons. Appointment of Committee members
shall be effective upon acceptance of appointment. Committee members may resign
at any time by delivering written notice to the Board. Vacancies in the
Committee may be filled by the Board. A majority of the members of the Committee
shall constitute a quorum for the purposes of the Plan. Provided a quorum is
present, the Committee may take action by affirmative vote or consent of a
majority of its members present at a meeting.

Subject to the express provisions of the Plan, the Committee shall
have the authority to construe and interpret the Plan and all Stock Option
Agreements (as defined in Section 3.4 of the 1999 Stock Option Plan) entered
into pursuant hereto and to define the terms used therein, to prescribe, adopt,
amend and rescind rules and regulations relating to the administration of the
Plan and to make all other determinations necessary or advisable for the
administration of the Plan; provided, however, that the Committee may delegate
nondiscretionary administrative duties to such employees of the Company as it
deems proper; and, provided, further, in its absolute discretion, the Board may
at any time and from time to time exercise any and all rights and duties of the
Committee

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<PAGE>

under the Plan. Subject to the express limitations of the Plan, the Committee
shall designate the individuals from among the class of persons eligible to
participate as provided in Section 1.3 of the 1999 Stock Option Plan, who shall
receive options, whether an optionee will receive Incentive Stock Options or
Nonstatutory Options, or both, and the amount, price, restrictions and all other
terms and provisions of such options (which need not be identical).

Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
Company's officers and directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. No members of the Committee or Board
shall be personally liable for any action, determination or interpretation made
in good faith with respect to the Plan, and all members of the Committee shall
be fully protected by the Company in respect of any such action, determination
or interpretation.

STOCK SUBJECT TO THE PLAN.

Subject to adjustment as provided in Section 3.5 of the 1999 Stock
Option Plan, the stock to be offered under the Plan shall be shares of
authorized but unissued Common Stock, including any shares repurchased under the
terms of the Plan or any Stock Option Agreement entered into pursuant hereto.
The cumulative aggregate number of shares of Common Stock to be issued under the
Plan shall not exceed 500,000, subject to adjustment as set forth in Section 3.5
of the 1999 Stock Option Plan.

If any option granted hereunder shall expire or terminate for any
reason without having been fully exercised, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan. For purposes of
Section 1.4 of the 1999 Stock Option Plan, where the exercise price of options
is paid by means of the grantee's surrender of previously owned shares of Common
Stock, only the net number of additional shares issued and which remain
outstanding in connection with such exercise shall be deemed "issued" for
purposes of the Plan.

OPTION PRICE.

The exercise price of each incentive Stock option granted under the
Plan shall be determined by the Committee, but shall not be less than 100% of
the "Fair Market Value" (as defined below) of Common Stock on the date of grant.
If an Incentive Stock Option is granted to an employee who is a resident of the
United States and who at the time such option is granted owns (within the
meaning of section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of capital stock of the Company, the option exercise
price shall be at least 110% of the Fair Market Value of Common Stock on the
date of grant and the option by its terms shall not be exercisable after the
expiration of 5 years from the date such option is granted. The exercise price
of each Nonstatutory Option also shall be determined by the Committee, but shall
not be less than 85% of the Fair Market Value of Common Stock, as defined in
Section 2.1 of the Plan on the date of grant. The status of each option granted
under the Plan as either an Incentive Stock Option or a Nonstatutory Stock
Option shall be determined by the Committee at the time the Committee acts to
grant the option, and shall be clearly identified as such in the Stock Option
Agreement relating thereto.

15
<PAGE>

In the discretion of the Committee exercised at the time the option
is exercised, the exercise price of any option granted under the Plan shall be
paid in full in cash, by check or by the optionee's interest-bearing promissory
note (subject to any limitations of applicable state corporations law) delivered
at the time of exercise; provided, however, that subject to the timing
requirements of Section 2.7 of the 1999 Stock Option Plan, in the discretion of
the Committee and upon receipt of all regulatory approvals, the person
exercising the option may deliver as payment in whole or in part of such
exercise price certificates for Common Stock of the Company (duly endorsed or
with duly executed stock powers attached), which shall be valued at its Fair
Market Value on the day of exercise of the option, or other property deemed
appropriate by the Committee; and, provided further, the so-called cashless
exercises as permitted under applicable rules and regulations of the Securities
and Exchange Commission and the Federal Reserve Board shall be permitted in the
discretion of the Committee. Without limiting the Commit tee's discretion in
this regard, consecutive book entry stock-for-stock exercises of options (or
"pyramiding") also are permitted in the Committee's discretion.

Irrespective of the form of payment, the delivery of shares
pursuant to the exercise of an option shall be conditioned upon payment by the
optionee to the Company of amounts sufficient to enable the Company to pay all
federal, state, and local withholding taxes applicable, in the Company's
judgment, to the exercise. In the discretion of the Committee, such payment to
the Company may be effected through (i) the Company's withholding from the
number of shares of Common Stock that would otherwise be delivered to the
optionee by the Company on exercise of the option a number of shares of Common
Stock equal in value (as determined by the Fair Market Value of Common Stock on
the date of exercise) to the aggregate withholding taxes, (ii) payment by the
optionee to the Company of the aggregate withholding taxes in cash, (iii)
withholding by the Company from other amounts contemporaneously owed by the
Company to the optionee, or (iv) any combination of these three methods, as
determined by the Committee in its discretion.

OPTION PERIOD.

(a) The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option subject thereto expires 90
days following a Termination of Employment for any reason other than death or
disability or one year following a Termination of Employment for disability or
following an optionee's death.

(b) OUTSIDE DATE FOR EXERCISE. Notwithstanding any provision of
this Section 2.2 of the 1999 Stock Option Plan, in no event shall any option
granted under the Plan be exercised after the expiration date of such option set
forth in the applicable Stock Option Agreement.

EXERCISE OF OPTIONS.

16
<PAGE>

of the date such option is granted; and provided, further, that if the holder of
an option shall not in any given installment period purchase all of the shares
which such holder is entitled to purchase in such installment period, such
holder's right to purchase any shares not purchased in such installment period
shall continue until the expiration or sooner termination of such holder's
option. The Committee may, at any time after grant of the option and from time
to time, increase the number of shares purchasable in any installment, subject
to the total number of shares subject to the option and the limitations set
forth in Section 2.5 of the 1999 Stock Option Plan. At any time and from time to
time prior to the time when any exercisable option or exercisable portion
thereof becomes unexercisable under the Plan or the applicable Stock Option
Agreement, such option or portion thereof may be exercised in whole or in part;
provided, however, that the Committee may, by the terms of the option, require
any partial exercise to be with respect to a specified minimum number of shares.
No option or installment thereof shall be exercisable except with respect to
whole shares. Fractional share interests shall be disregarded, except that they
may be accumulated as provided above and except that if such a fractional share
interest constitutes the total shares of Common Stock remaining available for
purchase under an option at the time of exercise, the optionee shall be entitled
to receive on exercise a certified or bank cashier's check in an amount equal to
the Fair Market Value of such fractional share of stock.

The exercise price of an option may not be less than the fair
market value per share of Common Stock on the date that the option is granted in
order to receive certain tax benefits under the Income Tax Act of Canada (the
"ITA"). If the exercise price is below fair market value a benefit equal to the
amount by which the fair market value of the shares at the time the employee
acquires them exceeds the total of the amount paid for the shares or the amount
paid for the right to acquire the shares shall be deemed to be received by the
employee in the year the shares are acquired pursuant to paragraph 7(1) of the
ITA. Where the exercise price of the option is equal to the fair market value of
the shares at the time the option is granted, paragraph 110(1)(d) of the ITA
allows a deduction from income equal to one quarter of the benefit as calculated
above. If the exercise price of the option is less than the fair market value at
the time it is granted, no deduction under paragraph 110(1)(d) is permitted.
Options granted to any non-employees, whether directors or consultants or
otherwise will confer a tax benefit in contemplation of the person becoming a
shareholder pursuant to subsection 15(1) of the ITA.

TRANSFERABILITY OF OPTIONS.

ISSUANCE OF STOCK CERTIFICATES.

Upon exercise of an option, the Company shall deliver to the person
exercising such option a stock certificate evidencing the shares of Common Stock
acquired upon exercise. Notwithstanding the foregoing, the Committee in its
discretion may require the Company to retain possession of any certificate
evidencing stock acquired upon exercise of an option which remains subject to
repurchase under the provisions of the Stock Option Agreement or any other
agreement signed by the optionee in order to facilitate such repurchase
provisions.

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<PAGE>

ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; MERGER AND CONSOLIDATION.

If the outstanding shares of Common Stock are changed into, or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another corporation through reorganization, merger,
recapitalization, reclassification, stock split-up, reverse stock split, stock
dividend, stock consolidation, stock combination, stock reclassification or
similar transaction, an appropriate adjustment shall be made by the Committee in
the number and kind of shares as to which options and restricted stock may be
granted. In the event of such a change or exchange, other than for shares or
securities of another corporation or by reason of reorganization, the Committee
shall also make a corresponding adjustment changing the number or kind of shares
and the exercise price per share allocated to unexercised options or portions
thereof, which shall have been granted prior to any such change, shall likewise
be made. Any such adjustment, however, shall be made without change in the total
price applicable to the unexercised portion of the option but with a
corresponding adjustment in the price for each share (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices).

In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Common Stock, the Committee in its discretion shall make an
appropriate and equitable adjustment to the exercise prices of options then
outstanding under the Plan.

Where an adjustment under Section 3.5 of the 1999 Stock Option
Plan, of the type described above is made to an Incentive Stock Option held by a
resident of the United States, the adjustment will be made in a manner which
will not be considered a "modification" under the provisions of subsection
424(b)(3) of the Code.

In connection with the dissolution or liquidation of the Company or
a partial liquidation involving 50% or more of the assets of the Company, a
reorganization of the Company in which another entity is the survivor, a merger
or reorganization of the Company under which more than 50% of the Common Stock
outstanding prior to the merger or reorganization is converted into cash or into
a security of another entity, a sale of more than 50% of the Company's assets,
any person or group of affiliated or associated persons, other than present
management and directors, acquires 25% of more of the outstanding shares, or a
similar event that the Committee determines, in its discretion, would materially
alter the structure of the Company or its ownership, the Committee, upon 30 days
prior written notice to the option holders, may, in its discretion, do one or
more of the following: (i) shorten the period during which options are
exercisable (provided they remain exercisable for at least 30 days after the
date the notice is given); (ii) accelerate any vesting schedule to which an
option is subject; (iii) arrange to have the surviving or successor entity grant
replacement options with appropriate adjustments in the number and kind of
securities and option prices, or (iv) cancel options upon payment to the option
holders in cash, with respect to each option to the extent then exercisable
(including any options as to which the exercise has been accelerated as
contemplated in clause (ii) above), of any amount that is the equivalent of the
Fair Market Value of the Common Stock (at the effective time of the dissolution,
liquidation, merger, reorganization, sale or other event) or the fair market
value of the option. In the case of a change in corporate control, the Committee
may, in considering the advisability or the terms and conditions of any
acceleration of the exercisability of any option pursuant to this Section 3.5,
take into account the penalties that may result directly or indirectly from such
acceleration to either the Company or the option holder, or both, under Section
280G of the Code, and may decide to limit such acceleration to the extent
necessary to avoid or

18
<PAGE>

mitigate such penalties or their effects.

No fractional share of Common Stock shall be issued under the Plan
on account of any adjustment under Section 3.5 of the 1999 Stock Option Plan.

AMENDMENT AND TERMINATION.

The Board or the Committee may at any time suspend, amend or
terminate the Plan and may, with the consent of the option holder, make such
modifications of the terms and conditions of such option holder's option as it
shall deem advisable, provided, however, that, without approval of the Company's
stockholders given within twelve months before or after the action by the Board
or the Committee, no action of the Board or the Committee may, (A) materially
increase the benefits accruing to participants under the Plan; (B) materially
increase the number of securities which may be issued under the Plan; or (C)
materially modify the requirements as to eligibility for participation in the
Plan. No option may be granted during any suspension of the Plan or after such
termination. The amendment, suspension or termination of the Plan shall not,
without the consent of the option holder affected thereby, alter or impair any
rights or obligations under any option theretofore granted under the Plan. No
option way be granted during any period of suspension nor after termination of
the Plan, and in no event may any option be granted under the Plan after the
expiration of ten years from the date the Plan is adopted by the Board.

PRIVILEGES OF STOCK OWNERSHIP; NON-DISTRIBUTIVE INTENT;
REPORTS TO OPTION HOLDERS.

A participant in the Plan shall not be entitled to the privilege of
stock ownership as to any shares of Common Stock not actually issued to the
optionee. Upon exercise of an option at a time when there is not in effect under
the Securities Act of 1933, as amended, a Registration Statement relating to the
Common Stock issuable upon exercise or payment therefor and available for
delivery a Prospectus meeting the requirements of Section 10(a)(3) of said Act,
the optionee shall represent and warrant in writing to the Company that the
shares purchased are being acquired for investment and not with a view to the
distribution thereof.

The Company shall furnish to each optionee under the Plan the
Company's annual report and such other periodic reports, if any, as are
disseminated by the Company in the ordinary course to its stockholders.

TERMINATION.

The Plan shall terminate automatically as of the close of business
on the day preceding the tenth anniversary date of its adoption by the Board or
earlier as provided in Section 3.8. Unless otherwise provided herein, the
termination of the Plan shall not affect the validity of any option agreement
outstanding at the date of such termination.

U.S. FEDERAL INCOME TAX TREATMENT

Under the Code, neither the grant nor the exercise of Incentive
Stock Options is a taxable event to the optionee (except to the extent an
optionee may be subject to alternative minimum tax); rather, the optionee is
subject to tax only upon the sale of the common stock acquired upon exercise of
the Incentive Stock Option. Upon such a sale, the entire difference between the
amount realized upon the sale and the exercise price of the option will be
taxable to the optionee. Subject to certain

19
<PAGE>

holding period requirements, such difference will be taxed as a capital gain
rather than as ordinary income.

Optionees who receive Nonstatutory Options will be subject to
taxation upon exercise of such options on the spread between the Fair Market
Value of the Common Stock on the date of exercise and the exercise price of such
options. This spread is treated as ordinary income to the optionee, and the
Company is permitted to deduct as an employee expense a corresponding amount.
Nonstatutory Options do not give rise to a tax preference item subject to the
alternative minimum tax.

CANADIAN FEDERAL INCOME TAX TREATMENT

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<PAGE>

STOCKHOLDER VOTE REQUIRED

Approval of the Company's 1999 Stock Option Plan requires the
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting of Stockholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE COMPANY'S 1999
STOCK OPTION PLAN.

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<PAGE>

PROPOSAL 4

CHANGE OF THE CORPORATE NAME
TO D.G. JEWELRY LTD.

Management proposes that the corporate name of the Company be
changed to D.G.. Jewelry Ltd. Management believes the name of the Company should
be changed to reflect its becoming an international supplier of jewelry.

STOCKHOLDER VOTE REQUIRED

The change of the corporate name to D.G. Jewelry Ltd. will require
the affirmative vote of 2/3 of the shares present in person or represented by
proxy at the Annual Meeting of Stockholders and entitled to vote on the change
in the corporate name. If 2/3 of the shares present in person or represented by
proxy at the Annual Meeting of the Stockholders votes in favor of changing the
corporate name to D.G. Jewelry Ltd., the new name needs to be submitted to and
approved by the Ministry of Consumer and Commercial Relations for the Province
of Ontario.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE CHANGE IN THE CORPORATE
NAME TO D.G. JEWELRY LTD.

OTHER MATTERS

The Board of Directors does not know of any matters other than
those referred to in the Notice of Meeting which will be presented for
consideration at the meeting. However, it is possible that certain proposals may
be raised at the meeting by one or more stockholders. In such case, or if any
other matter should properly come before the meeting, it is the intention of the
person named in the accompanying proxy to vote such proxy in accordance with his
or her best judgement.

SOLICITATION OF PROXIES

The cost of soliciting proxies will be borne by the Company.
Solicitations may be made by mail, personal interview, telephone, and telegram
by directors, officers and employees of the Company. The Company will reimburse
banks, brokerage firms, other custodians, nominees and fiduciaries for
reasonable expenses incurred in sending proxy material to beneficial owners of
the Company's capital stock.

STOCKHOLDER PROPOSALS

In order to be included in the materials for the Company's next
Annual Meeting of Stockholders, stockholder proposals must be received by the
Company on or before March 31, 2000.

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<PAGE>

ANNUAL AND QUARTERLY REPORTS TO THE SECURITIES AND EXCHANGE
COMMISSION

The Annual Report on Form 20-F for the year ended December 31, 1998
as filed with the Securities and Exchange Commission will be made available to
stockholders free of charge by writing to 1001 Petrolia Road, Toronto, Ontario
M3J 2X7, Attention: Corporate Secretary.

By Order of the Board of Directors,

/s/ S. Berkovits

Samuel Jacob "Jack" Berkovits
Chairman, President and Chief Executive Officer

June 30, 1999

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<PAGE>

APPENDIX A

D.G. JEWELLERY OF CANADA, LTD.
1999 STOCK OPTION PLAN

<PAGE>

1. PURPOSE OF PLAN; ADMINISTRATION

1.1 PURPOSE.

D.G. Jewellery of Canada, Ltd. 1999 Stock Option Plan (hereinafter,
the "Plan") is hereby established 11, grant to officers and other employees of
D.G. Jewellery of Canada, Ltd. (the "Company") (11 (11 its parents III
subsidiaries (as defined in Sections 424(e) and (f), respectively, of the United
States Internal Revenue Code of 1986, as amended (the "Code")), if any
(individually and collectively, the Company"), and to non employee directors,
consultants and advisors and other persons who may perform significant services
for or on behalf of the Company, a favorable opportunity to acquire common stock
("Common Stock"), of the Company and thereby to create an incentive for such
persons to remain in the employ of or provide services to the, Company and to
contribute to its success.

The Company may grant under the Plan both incentive stock options
within the meaning of Section 422 of the Code ("Incentive Stock Options") and
stock options that do not qualify for treatment as Incentive Stock Options
("Nonstatutory Options"). Unless expressly provided to the contrary herein, all
references herein to) "options,' shall include both incentive Stock Options and
Nonstatutory Options.

1.2 ADMINISTRATION.

The Plan shall be administered by the Board of Directors of the
Company (the "Board") if each member is a "Non-Employee Director" within the
meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("Rule 16b-3"), or a committee (the "Committee") of two or more directors, each
of whom is a Non-Employee Director. Appointment of Committee members shall be
effective upon acceptance of appointment. Committee members may resign at any
time by delivering written notice to the Board Vacancies in the Committee may be
filled by the Board.

A majority of the members of the Committee shall constitute a
quorum for the purposes of the Plan. Provided a quorum is present, the Committee
may take action by affirmative vote or consent of majority of its members
present at a meeting. Meetings may be held telephonically as long as all members
are able to hear one another, and a member of the Committee shall be deemed to
be present for this purpose if he or she simultaneous communication by telephone
with the other members who are able to hear one another in lieu of action at a
meeting, the Committee may act by written consent of a majority of its members

Subject to the express provisions of the Plan, the Committee shall
have the authority to construe 'I'll interpret the Plan and all Stock Option
Agreements (as defined in Section 3.4) entered into pursuant hereto and to
define the terms used therein, to prescribe, adopt, amend and rescind rules and
regulations relating to the administration of the Plan and to make all other
determinations necessary or advisable for the administration of the Plan;
provided, however, that the Committee may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper; and,
provided, further, in its absolute discretion, the Board may at

2
<PAGE>

any time and from time to time exercise any and all rights and duties of the
Committee under the Plan. Subject to the express limitations of the Plan, the
Committee shall designate the individuals from among the class of persons
eligible to participate as provided in Section 1.3 who shall receive options,
whether an optionee will receive Incentive Stock Options or Nonstatutory
Options, or both, and the amount, price, restrictions and all other terms and
provisions of such options (which need not be identical).

Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur ill connection with the
administration of this Plan shall be home by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and the
Company's officers and directors shall be entitled to rely upon the advice
opinions or valuations of any such persons. No members of the Committee or Board
shall be personally liable for any action determination or interpretation made
in good faith with respect to the Plan, and all members of the Committee shall
be fully protected by the Company in respect of any such action, determination
or interpretation

1.3 PARTICIPATION.

Officers and other employees of the Company, non-employee
directors, consultants and advisors and other persons who may perform
significant services on behalf of the Company shall be eligible for selection to
participate in the Plan upon approval by the Committee; provided, however, that
only "employees" (within the meaning of Section 3401(c) of the Code) of the
Company shall be eligible for the grant of Incentive Stock Options. An
individual who has been granted an option may, if otherwise eligible, be granted
additional options if the Committee shall so determine. No person is eligible to
participate in the Plan by matter of right; only those eligible persons who are
selected by the Committee in its discretion shall participate in the Plan.

1.4 STOCK SUBJECT TO THE PLAN.

Subject to adjustment as provided in Section 3.5, the stock to be
offered under the Plan shall be shares of authorized but unissued Common Stock,
including any shares repurchased under the terms of the Plan or any Stock Option
Agreement entered into pursuant hereto. The cumulative aggregate number of
shares of Common Stock to be issued under the Plan shall not exceed 500,000,
subject to adjustment as set forth in Section 3.5.

If any option granted hereunder shall expire or terminate for any
reason without having been fully exercised, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan. For purposes of
this Section 1.4, where the exercise price of options is paid by means of the
grantee's surrender of previously owned shares of Common Stock, only the net
number of additional shares issued and which remain outstanding in connection
with such exercise shall be deemed "issued" for purposes of the Plan.

3
<PAGE>

2. STOCK OPTIONS

2.1 EXERCISE PRICE; PAYMENT

(a) The exercise price of each Incentive Stock Option granted under
the Plan shall be determined by the Committee, but shall not be less than 100%
of the "Fair Market Value" (as defined below) of Common Stock on the date of
grant. If an Incentive Stock Option is granted to an employee who (i) at the
time such option is granted owns (within the meaning of section 424(d) of the
Code) more than 10% of the total combined voting power of all classes of capital
stock of the Company and (ii) is a U.S. resident, the option exercise price
shall be at least 110% of the Fair Market Value of Common Stock on the date of
grant. The exercise price of each Nonstatutory Option also shall be determined
by the Committee, but shall not be less than 85% of the Fair Market Value of
Common Stock on the date of grant. The status of each option granted under the
Plan as either an Incentive Stock Option or a Nonstatutory Option shall be
determined by the Committee at the time the Committee acts to grant the option,
and shall be clearly identified as such in the Stock Option Agreement relating
thereto.

"Fair Market Value" for purposes of the Plan shall mean: (i) the
closing price of a share of Common Stock on the principal exchange on which
shares of Common Stock are then trading, if any, on the day immediately
preceding the date of grant, or, if shares were not traded on the day preceding
such date of grant, then on the next preceding trading day during which a sale
occurred; or (ii) if Common Stock is not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, (1) the last sales price (if Common
Stock is then listed on the Nasdaq Stock Market) or (2) the mean between the
closing representative bid and asked price (in all other cases) for Common Stock
on the day prior to the date of grant as reported by Nasdaq or such successor
quotation system; or (iii) if there is no listing or trading of Common Stock
either on a national exchange or over-the-counter, that price determined in good
faith by the Committee to be the fair value per share of Common Stock, based
upon such evidence as it deems necessary or advisable.

(b) In the discretion of the Committee at the time the option is
exercised, the exercise price of any option granted under the Plan shall be paid
in full in cash, by check or by the optionee's interest-bearing promissory note
(subject to any limitations of applicable state corporations law) delivered at
the time of exercise; provided, however, that subject to the timing requirements
of Section 2.7, in the discretion of the Committee and upon receipt of all
regulatory approvals, the person exercising the option may deliver as payment in
whole or in part of such exercise price certificates for Common Stock of the
Company (duly endorsed or with duly executed stock powers attached), which shall
be valued at its Fair Market Value on the day of exercise of the option, or
other property deemed appropriate by the Committee; and, provided further, that,
subject to Section 422 of the Code, so-called cashless exercises as permitted
under applicable rules and regulations of the Securities and Exchange Commission
and the Federal Reserve Board shall be permitted in the discretion of the
Committee. Without limiting the Committee's discretion in this regard,
consecutive book entry stock-for-stock exercises of options (or I "pyramiding")
also are permitted in the Committee's discretion. Irrespective of the form of
payment, the delivery of shares issuable upon the exercise of an option shall be
conditioned upon payment by the

4
<PAGE>

optionee to the Company of amounts sufficient to enable the Company to pay all
federal, state, and local withholding taxes resulting, in the Company's
judgment, from the exercise. In the discretion of the Committee, such payment to
the Company may be effected through (i) the Company's withholding from the
number of shares of Common Stock that would otherwise be delivered to the
optionee by the Company on exercise of the option a number of shares of Common
Stock equal in value (as determined by the Fair Market Value of Common Stock on
the date of exercise) to the aggregate withholding taxes, (ii) payment by the
optionee to the Company of the aggregate withholding taxes in cash, (iii)
withholding by the Company from other amounts contemporaneously owed by the
Company to the optionee, or (iv) any combination of these three methods, as
determined by the Committee in its discretion.

2.2 OPTION PERIOD.

(a) The Committee shall provide, in the terms of each Stock Option
Agreement, when the option subject to such agreement expires and becomes
unexercisable, but in no event will an Incentive Stock Option granted under the
Plan be exercisable after the expiration of ten years from the date it is
granted. Without limiting the generality of the foregoing, the Committee may
provide in the Stock Option Agreement that the option subject thereto expires 90
days following a Termination of Employment (as defined in Section 3.2 hereof)
for any reason other than death or disability, or one year following a
Termination of Employment for disability or following an optionee's death.
Except as limited by the Option Agreement, the Committee may declare any options
null and void if the holder of such options is terminated for cause.

(b) Outside Date for Exercise. Notwithstanding any provision of
this Section 2.2, in no event shall any option granted under the Plan be
exercised after the expiration date of such option set forth in the applicable
Stock Option Agreement.

2.3 EXERCISE OF OPTIONS.

Each option granted under the Plan shall become exercisable and the
total number of shares subject thereto shall be purchasable, in a lump sum or in
such installments, which need not be equal, as the Committee shall determine;
provided, however, that each option shall become exercisable in full no later
than ten years after such option is granted, and each option shall become
exercisable as to at least 10% of the shares of Common Stock covered thereby on
each anniversary of the date such option is granted; and provided, further, that
if the holder of an option shall not in any given installment period purchase
all of the shares which such holder is entitled to purchase in such installment
period, such holder's right to purchase any shares not purchased in such
installment period shall continue until the expiration or sooner termination of
such holder's option. The Committee may, at any time after grant of the option
and from time to time, increase the number of shares purchasable in any
installment, subject to the total number of shares subject to the option and the
limitations set forth in Section 2.5. At any time and from time to time prior to
the time when any exercisable option or exercisable portion thereof becomes
unexercisable under the Plan or the applicable Stock Option Agreement, such
option or portion thereof may be exercised in whole or in part; provided,
however, that the Committee may, by the

5
<PAGE>

terms of the option, require any partial exercise to be with respect to a
specified minimum number of shares. No option or installment thereof shall be
exercisable except with respect to whole shares. Fractional share interests
shall be disregarded, except that they may be accumulated as provided above and
except that if such a fractional share interest constitutes the total shares of
Common Stock remaining available for purchase under an option at the time of
exercise, the optionee shall be entitled to receive on exercise a certified or
bank cashier's check in an amount equal to the Fair Market Value of such
fractional share of stock.

2.4 TRANSFERABILITY OF OPTIONS.

Except as the Committee may determine as aforesaid, an option
granted under the Plan shall, by its terms, be nontransferable by the optionee
other than by will or the laws of descent and distribution, or pursuant to a
qualified domestic relations order (as defined by the Code), and shall be
exercisable during the optionee's lifetime only by the optionee or by his or her
guardian or legal representative. More particularly, but without limiting the
generality of the immediately preceding sentence, an option may not be assigned,
transferred (except as provided in the preceding sentence), pledged or
hypothecated (whether by operation of law or otherwise), and shall not be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of any option contrary to
the provisions of the Plan and the. applicable Stock Option Agreement, and any
levy of any attachment or similar process upon an option, shall be null and
void, and otherwise without effect, and the Committee may, in its sole
discretion, upon the happening of any such event, terminate such option
forthwith.

2.5 LIMITATION ON EXERCISE OF INCENTIVE STOCK OPTIONS.

To the extent that the aggregate Fair Market Value (determined on
the date of grant as provided in Section 2.1 above) of the Common Stock with
respect to which Incentive Stock Options granted hereunder (together with all
other Incentive Stock Option plans of the Company) are exercisable for the first
time by an optionee who is a U.S. citizen in any calendar year under the Plan
exceeds $100,000, such options granted hereunder shall be treated as
Nonstatutory Options to the extent required by Section 422 of the Code. The rule
set forth in the preceding sentence shall be applied by taking options into
account in the order in which they were granted.

2.6 DISQUALIFYING DISPOSITIONS OF INCENTIVE STOCK OPTIONS.

If the option holder is a U.S. citizen and if Common Stock acquired
upon exercise of any Incentive Stock Option is disposed of in a disposition
that, under Section 422 of the Code, disqualifies the option holder from the
application of Section 421(a) of the Code, the holder of the Common Stock
immediately before the disposition shall comply with any requirements imposed by
the Company in order to enable the Company to secure the related income tax
deduction to which it is entitled in such event.

2.7 CERTAIN TIMING REQUIREMENTS.

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<PAGE>

At the discretion of the Committee, shares of Common Stock issuable
to the optionee upon exercise of an option may be used to satisfy the option
exercise price or the tax withholding consequences of such exercise, in the case
of persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended, only (i) during the period beginning on the third business day
following the date of release of the quarterly or annual summary statement of
sales and earnings of the Company and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written election by the
optionee to use shares of Common Stock issuable to the optionee upon exercise of
the option to pay all or part of the option price or the withholding taxes made
at least six months prior to the payment of such option price or withholding
taxes.

2.8 NO EFFECT ON EMPLOYMENT.

Nothing in the Plan or in any Stock Option Agreement hereunder
shall confer upon any optionee any right to continue in the employ of the
Company, any Parent Corporation or any subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporation and its
Subsidiaries, which are hereby expressly reserved, to discharge any optionee at
any time for any reason whatsoever, with or without cause.

For purposes of the Plan, "Parent Corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if each
of the corporations other than the Company then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. For purposes of the Plan, "Subsidiary" shall
mean any corporation in an unbroken chain of corporations beginning with the
Company if each of the corporations other than the last corporation in the
unbroken chain then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

3. OTHER PROVISIONS

3.1 Sick LEAVE AND LEAVES OF ABSENCE.

Unless otherwise provided in the Stock Option Agreement, and to the
extent permitted by Section 422 of the Code, an optionee's employment shall not
be deemed to terminate by reason of sick leave, military leave or other leave of
absence approved by the Company if the period of any such leave does not exceed
a period approved by the Company, or, if longer, if the optionee's right to
reemployment by the Company is guaranteed either contractually or by statute. A
Stock Option Agreement may contain such additional or different provisions with
respect to leave of absence as the Committee may approve, either at the time of
grant of an option or at a later time.

3.2 TERMINATION OF EMPLOYMENT.

For purposes of the Plan "Termination of Employment," shall mean
the time when the employee- employer relationship between the optionee and the
Company, any Subsidiary or any Parent Corporation is terminated for any reason,
including, but not by way of limitation, a

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<PAGE>

termination by resignation, discharge, death, disability or retirement; but
excluding (i) terminations where there is a simultaneous reemployment or
continuing employment of an optionee by the Company, any Subsidiary or any
Parent Corporation, (ii) at the discretion of the Committee, terminations which
result in a temporary severance of the employee- employer relationship, and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company, a
Subsidiary or any Parent Corporation with the former employee. Subject to
Section 3.1, the Committee, in its absolute discretion, shall determine the
affect of all matters and questions relating to Termination of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave of
absence or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that such leave of absence or
other change interrupts employment for the purposes of Section 422(a)(2) of the
Code and the then-applicable regulations and revenue rulings under said Section.

3.3 ISSUANCE OF STOCK CERTIFICATES.

3.4 TERMS AND CONDITIONS OF OPTIONS.

Each option granted under the Plan shall be evidenced by a written
Stock Option Agreement ("Stock Option Agreement") between the option holder and
the Company providing that the option is subject to the terms and conditions of
the Plan and to such other terms and conditions not inconsistent therewith as
the Committee may deem appropriate in each case.

3.5 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; MERGER AND CONSOLIDATION.

If the outstanding shares of Common Stock are changed into, or
exchanged for cash or a different number or kind of shares or securities of the
Company or of another corporation through reorganization, merger,
recapitalization, reclassification, stock split-up, reverse stock split, stock
dividend, stock consolidation, stock combination, stock reclassification or
similar transaction, an appropriate adjustment shall be made by the Committee in
the number and kind of shares as to which options may be granted. In the event
of such a change or exchange, other than for shares or securities of another
corporation or by reason of reorganization, the Committee shall also make a
corresponding adjustment changing the number or kind of shares and the exercise
price per share allocated to unexercised options or portions thereof, which
shall have been granted prior to any such change, shall likewise be made. Any
such adjustment, however, shall be made without change in the total price
applicable to the unexercised portion of the option (except for any change in
the aggregate price resulting from rounding-off of share quantities or prices).

8
<PAGE>

Where an adjustment under this Section 3.5 of the type described
above is made to an Incentive Stock Option, the adjustment will be made in a
manner which will not be considered a "modification" under the provisions of
subsection 424(b)(3) of the Code.

In connection with the dissolution or liquidation of the Company or
a partial liquidation involving 50% or more of the assets of the Company, a
reorganization of the Company in which another entity is the survivor, a merger
or reorganization of the Company under which more than 50% of the Common Stock
outstanding prior to the merger or reorganization is converted into cash or into
a security of another entity, a sale of more than 50% of the Company's assets,
any person or group of affiliated or associated persons, other than present
management and directors, acquires 25% of more of the outstanding shares, or a
similar event that the Committee determines, in its discretion, would materially
alter the structure of the Company or its ownership, the Committee, upon 30 days
prior written notice to the option holders, may, in its discretion, do one or
more of the following: (i) shorten the period during which options are
exercisable (provided they remain exercisable for at least 30 days after the
date the notice is given); (ii) accelerate any vesting schedule to which an
option is subject; (iii) arrange to have the surviving or successor entity grant
replacement options with appropriate adjustments in the number and kind of
securities and option prices, or (iv) cancel options upon payment to the option
holders in cash, with respect to each option to the extent then exercisable
(including any options as to which the exercise has been accelerated as
contemplated in clause (ii) above), of any amount that is the equivalent of the
Fair Market Value of the Common Stock (at the effective time of the dissolution,
liquidation, merger, reorganization, sale or other event) or the fair market
value of the option. In the case of a change in corporate control, the Committee
may, in considering the advisability or the terms and conditions of any
acceleration of the exercisability of any option pursuant to this Section 3.5,
take into account the penalties that may result directly or indirectly from such
acceleration to either the Company or the option holder, or both, under Section
28OG of the Code, and may decide to limit such acceleration to the extent
necessary to avoid or mitigate such penalties or their effects.

No fractional share of Common Stock shall be issued under the Plan
on account of any adjustment under this Section 3.5.

3.6 RIGHTS OF PARTICIPANTS AND BENEFICIARIES.

The Company shall pay all amounts payable hereunder only to the
option holder or beneficiaries entitled thereto pursuant to the Plan. The
Company shall not be liable for the debts, contracts or engagements of any
optionee or his or her beneficiaries, and rights to cash payments under the Plan
may not be taken in execution by attachment or garnishment, or by any other
legal

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<PAGE>

or equitable proceeding while in the hands of the Company.

3.7 GOVERNMENT REGULATIONS.

The Plan, and the grant and exercise of options and the issuance
and delivery of shares of Common Stock under options granted hereunder, shall be
subject to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities law) and
federal margin requirements and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company, be
necessary or advisable in connection therewith. Any securities delivered under
the Plan shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or desirable to
assure compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan and options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.

3.8 AMENDMENT AND TERMINATION.

3.9 TIME OF GRANT AND EXERCISE OF OPTION.

An option shall be deemed to be exercised when the Secretary of the
Company receives written notice from an option holder of such exercise, payment
of the exercise price determined pursuant to Section 2.1 of the Plan and set
forth in the Stock Option Agreement, and all representations, indemnifications
and documents reasonably requested by the Committee.

3.10 PRIVILEGES OF STOCK OWNERSHIP; NON-DISTRIBUTIVE INTENT; REPORTS TO OPTION
HOLDERS.

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<PAGE>

relating to the Common Stock issuable upon exercise or payment therefor and
available for delivery a Prospectus meeting the requirements of Section 10(a)(3)
of said Act, the optionee shall represent and warrant in writing to the Company
that the shares purchased are being acquired for investment and not with a view
to the distribution thereof.

3.11 LEGENDING SHARE CERTIFICATES.

In order to enforce any restrictions imposed upon Common Stock
issued upon exercise of an option granted under the Plan or to which such Common
Stock may be subject, the Committee may cause a legend or legends to be placed
on any share certificates representing such Common Stock, which legend or
legends shall make appropriate reference to such restrictions, including, but
not limited to, a restriction against sale of such Common Stock for any period
of time as may be required by applicable laws or regulations. If any restriction
with respect to which a legend was placed on any certificate ceases to apply to
Common Stock represented by such certificate, the owner of the Common Stock
represented by such certificate may require the Company to cause the issuance of
a new certificate not bearing the legend.

Additionally, and not by way of limitation, the Committee may
impose such restrictions on any Common Stock issued pursuant to the Plan as it
may deem advisable, including, without limitation, restrictions under the
requirements of any stock exchange upon which Common Stock is then traded.

3.12 USE OF PROCEEDS.

Proceeds realized pursuant to the exercise of options under the
Plan shall constitute general funds of the Company.

3.13 CHANGES IN CAPITAL STRUCTURE; NO IMPEDIMENT TO CORPORATE TRANSACTIONS.

The existence of outstanding options under the Plan shall not
affect the Company's right to effect adjustments, recapitalizations,
reorganizations or other changes in its or any other corporation's capital
structure or business, any merger or consolidation, any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting Common
Stock, the dissolution or liquidation of the Company's or any other
corporation's assets or business, or any other corporate act, whether similar to
the events described above or otherwise.

3.14 EFFECTIVE DATE OF THE PLAN.

The Plan shall be effective as of the date of its approval by the
stockholders of the Company within twelve months after the date of the Board's
initial adoption of the Plan. Options

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<PAGE>

may be granted but not exercised prior to stockholder approval of the Plan. If
any options are so granted and stockholder approval shall not have been obtained
within twelve months of the date of adoption of this Plan by the Board of
Directors, such options shall terminate retroactively as of the date they were
granted.

3.15 TERMINATION.

3.16 NO EFFECT ON OTHER PLANS.

The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Subsidiary or any Parent
Corporation. Nothing in the Plan shall be construed to limit the right of the
Company (i) to establish any other forms of incentives or compensation for
employees of the Company, any Subsidiary or any Parent Corporation or (ii) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporate purpose including but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise. of the
business, stock or assets of any corporation, partnership, firm or association.

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<PAGE>
GENERAL PROXY--1999 ANNUAL MEETING OF STOCKHOLDERS OF D.G. JEWELLERY OF CANADA
LTD.

The undersigned hereby appoints Samuel Jacob Berkovits, with full power of
substitution, proxy to vote all of the shares of Common Stock of the undersigned
and with all of the powers the undersigned would possess if personally present,
at the Annual Meeting of Stockholders of D.G. Jewellery of Canada Ltd., to be
held at 1001 Petrolia Road, Toronto, Ontario, M3J 2X7 on July 20, 1999 at 10:00
a.m. and at all adjournments thereof, upon the matters specified below, all as
more fully described in the Proxy Statement dated June 30, 1999 and with the
discretionary powers upon all other matters which come before the meeting or any
adjournment thereof.

THIS PROXY IS SOLICITED ON BEHALF OF D.G. JEWELLERY OF CANADA LTD'S BOARD OF
DIRECTORS.

1. To elect five directors to hold office for a term of one year.
/ / FOR ALL NOMINEES / / WITHHELD FOR ALL NOMINEES
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, WRITE THAT
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW:
--------------------------------------------------------------------------
2. To ratify the appointment of Schwartz, Levitsky, Feldman, llp, as the
Company's chartered accountants.
/ / FOR / / AGAINST / /
ABSTAIN
3. To adopt the Company's 1999 Stock Option Plan.
/ / FOR / / AGAINST / /
ABSTAIN
4. To change the Company's corporate name to D.G. Jewelry Ltd.
/ / FOR / / AGAINST / /
ABSTAIN
5. In their discretion, upon such other matter or matters that may properly
come before the meeting, or any adjournments thereof.

(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)

Every properly signed proxy will be voted in accordance with the
specifications made thereon. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3 AND 4.

The undersigned hereby acknowledges receipt of a copy of the accompanying
Notice of Meeting and Proxy Statement and hereby revokes any proxy or proxies
heretofore given.

Please mark, date, sign and mail your proxy promptly in the envelope
provided.
Date: _______________________, 1999
___________________________________
(Print name of Stockholder)
___________________________________
(Print name of Stockholder)
___________________________________
Signature
___________________________________
Signature
Number of Shares __________________

Note: Please sign exactly as name
appears in the Company's
records. Joint owners should
each sign. When signing as
attorney, executor or
trustee, please give title as
such.