<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:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
REEDS JEWELERS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
James R. Rouse
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
REEDS JEWELERS, INC.
2525 SOUTH SEVENTEENTH STREET
WILMINGTON, NORTH CAROLINA 28401
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
---------------------
To Our Shareholders:
The Annual Meeting of Shareholders of Reeds Jewelers, Inc. (the "Company")
will be held at the Hilton Hotel, 301 North Water Street, Wilmington, North
Carolina, on Tuesday, July 14, 1998, at 10:00 a.m., local time, for the
following purposes:
1. To elect nine (9) Directors to serve until the 1999 Annual Meeting
of Shareholders or until their successors are elected and qualified;
2. To ratify the appointment of Ernst & Young as independent auditors
of the Company for the fiscal year ending February 28, 1999;
3. To approve an amendment to the Articles of Incorporation of the
Company to increase from 10,000,000 to 25,00,000 the number of shares of
Common Stock that the Company shall have the authority to issue; and
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Shareholders of record at the close of business on May 15, 1998 are
entitled to notice of and to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors,
/s/ ROBERTA G. ZIMMER
ROBERTA G. ZIMMER
Secretary
Wilmington, North Carolina
June 15, 1998
SHAREHOLDERS ARE URGED TO VOTE BY SIGNING, DATING, AND RETURNING THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF
MAILED IN THE UNITED STATES.
<PAGE> 3
REEDS JEWELERS, INC.
2525 SOUTH SEVENTEENTH STREET
WILMINGTON, NORTH CAROLINA 28401
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 14, 1998
---------------------
This proxy statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Reeds Jewelers, Inc. (the
"Company") to be voted at the Annual Meeting of Shareholders of the Company to
be held at the Hilton Hotel, 301 North Water Street, Wilmington, North Carolina,
on Tuesday, July 14, 1998, at 10:00 a.m., local time, and at any adjournments
thereof. In addition to solicitation by mail, proxies may be solicited by
telephone or in person by officers, directors, and by other agents of the
Company without compensation therefor, except for reimbursement of actual
expenses. All costs of solicitation of proxies will be borne by the Company. The
Company expects to mail this proxy statement and enclosed form of proxy to its
shareholders on or about Monday, June 15, 1998.
All shares represented by proxies received and not revoked will be voted in
accordance with the instructions therein. A proxy may be revoked prior to the
voting of the proxy by: (1) giving written notice to the Secretary of the
Company at the Company's executive office at 2525 South Seventeenth Street,
Wilmington, North Carolina 28401; (2) submitting a duly executed, later-dated
proxy to the Secretary of the Company; or (3) submitting notice to the Company,
prior to the exercise of the proxy, of the death or incapacity of the maker of
the proxy. A proxy is suspended if the person executing the proxy votes in
person at the meeting. Proxies duly executed and returned by shareholders which
specify no choice will be voted FOR election of the nominees for director as
proposed by the Board of Directors, FOR ratification of the appointment of Ernst
& Young as independent auditors, and FOR approval of the amendment to the
Company's Amended Articles of Incorporation increasing the number of shares of
authorized Common Stock. Although the Board of Directors is not aware of any
other matters to be presented at the meeting, if other matters are properly
presented at the meeting for action, the persons named in the enclosed form of
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment.
The Board has fixed the close of business on May 15, 1998 as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting and any adjournments thereof. As of the record date, there were
outstanding 8,449,752 shares of Common Stock, which number represents all of the
voting securities of the Company. Each holder of Common Stock on the record date
is entitled to cast one vote per share, in person or by properly executed proxy,
with respect to each matter to be considered at the meeting. Directors are
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. The proposals to approve the
appointment of independent auditors and to approve an amendment to the Company's
Amended Articles of Incorporation increasing the number of authorized shares are
approved if the votes in favor of the proposal exceed the votes opposed to the
proposal. Shares which are withheld as to voting with respect to one or more of
the nominees for Director and abstentions will be counted in determining the
existence of a quorum, but shares held by a broker, as a nominee, that are not
voted on any matter will not be counted for such purposes. Abstentions, shares
which are withheld as to voting with respect to nominees for Director and shares
held of record by a broker, as a nominee, that are not voted with respect to any
of the proposals will not be counted as a vote in favor of or against such
proposal, and, therefore, will have no effect on the proposal to elect the
Directors and the proposals to ratify the appointment of independent auditors or
to increase the number of authorized shares.
Other than certain directors and officers of the Company, the Company is
aware of no person who beneficially owns more than five percent of the Company's
outstanding Common Stock. See "Election of Directors" below.
1
<PAGE> 4
ELECTION OF DIRECTORS
Nine Directors are to be elected at the meeting and shall hold office until
the next Annual Meeting of Shareholders or until their respective successors
have been duly elected and qualified. All nominees have indicated that they are
willing and able to serve as Directors if elected. However, if any nominee for
Director shall withdraw his candidacy or otherwise be unable to serve, it is
intended that votes will be cast, pursuant to the discretionary power granted in
the enclosed form of proxy, for such substitute nominee or nominees as may be
nominated by the Board of Directors. Each director will be elected by a
plurality vote of the votes cast, in person or by proxy, at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW:
<TABLE>
<CAPTION>
COMMON STOCK OF THE COMPANY
BENEFICIALLY OWNED ON MAY 15, 1998
---------------------------------------
YEAR FIRST PERCENT OF
NAME, AGE, PRINCIPAL OCCUPATION, BECAME NUMBER OF COMMON STOCK
AND BUSINESS EXPERIENCE DIRECTOR(1) SHARES(2) OUTSTANDING
- -------------------------------- ----------- --------- ------------
<S> <C> <C> <C>
ALAN M. ZIMMER............................. 1981 1,925,860(4)(5)(9)(10)(11) 22.79%
age 39; President and Chief Executive
Officer for more than the past five
years(3)
WILLIAM R. ZIMMER.......................... 1946 23,352 0.28
age 79; Chairman of the Board for more
than the past five years(3)
FENTON N. HORD............................. 1997 0 0.0
age 51; President & CEO of Carolina
Holdings, Inc. for more than the past
five years; Director of Wachovia Bank of
North Carolina, N.A
ROBERTA G. ZIMMER.......................... 1952 8,724 0.10
age 73; Secretary for more than the past
five years(3)
G. WADDY GARRETT........................... 1994 10,000(4) 0.12
age 57; Chairman and Chief Executive
Officer of Alliance Agronomics, Inc. for
more than the past five years; Director
of Ag-Chem Equipment Co., Inc. and Cadmus
Communications, Inc.
ARLENE Z. SCHREIBER........................ 1986 1,751,955(6)(9)(11) 20.73
age 47; Vice President and Secretary,
Schreiber's Inc., a ladies specialty
store, or its predecessor for more than
the past five years(3)
RICHARD F. SHERMAN......................... 1991 6,050(4) 0.07
age 54; Private Investor for more than
the past five years; Chairman of P.J.
America, Inc., Director of Taco Cabana,
Inc., Papa John's International, Inc.,
and Hartz Restaurants, Inc.
HERBERT J. ZIMMER.......................... 1986 1,837,621(7)(9)(11) 21.75
age 52; Partner in the law firm of Zimmer
and Zimmer, which serves as general
counsel to the Company, for more than the
past five years(3)
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
COMMON STOCK OF THE COMPANY
BENEFICIALLY OWNED ON MAY 15, 1998
---------------------------------------
YEAR FIRST PERCENT OF
NAME, AGE, PRINCIPAL OCCUPATION, BECAME NUMBER OF COMMON STOCK
AND BUSINESS EXPERIENCE DIRECTOR(1) SHARES(2) OUTSTANDING
- -------------------------------- ----------- --------- ------------
<S> <C> <C> <C>
JEFFREY L. ZIMMER.......................... 1986 1,783,317(8)(9)(11) 21.10%
age 41; Partner in the law firm of Zimmer
and Zimmer, which serves as general
counsel to the Company, for more than the
past five years(3)
All directors and executive officers as a
group.................................... 7,350,327 86.99
(fourteen persons)
</TABLE>
- ---------------
(1) Year first became director of the Company or its predecessors.
(2) Unless otherwise indicated, each person has sole voting and investment
power over the shares beneficially owned by such person.
(3) William R. Zimmer and Roberta G. Zimmer are the father and mother of Alan
M. Zimmer, Herbert J. Zimmer, Jeffrey L. Zimmer, and Arlene Z. Schreiber.
(4) Does not include shares which may be acquired by the exercise of options
within 60 days of May 15, 1998 by the following persons pursuant to the
Company's various stock option plans (G. Waddy Garrett, 10,840 shares;
Fenton N. Hord, 4,000 shares, Richard F. Sherman, 10,840 shares; Alan M.
Zimmer, 88,700 shares, Herbert J. Zimmer, 4,000 shares, Jeffrey L. Zimmer,
4,000 shares, Arlene Z. Schreiber, 4,000 shares) and all directors and
executive officers as a group, 398,536 shares.
(5) Rose W. Zimmer, wife of Alan M. Zimmer, is the voting trustee of 154,676
shares held in trust for their minor children; she also owns 3,900 shares
in her name. Such shares are included in the beneficial ownership of Alan
M. Zimmer.
(6) Ronald L. Schreiber, husband of Arlene Z. Schreiber, is the voting trustee
of 86,772 shares held in trust for their minor child, Mark Harrison
Schreiber; he also owns 3,900 shares in his name. Their sons, Andrew
Michael Schreiber and Mark Harrison Schreiber, own 99,322 and 12,550
shares, respectively. Such shares are included in the beneficial ownership
of Arlene Z. Schreiber.
(7) Ronna T. Zimmer, wife of Herbert J. Zimmer, is the voting trustee of
190,534 shares held in trust for their minor children; she also owns 3,900
shares in her name. Their son, Bradley Trent Zimmer, owns 17,790 shares.
Such shares are included in the beneficial ownership of Herbert J. Zimmer.
(8) Jeffrey L. Zimmer, is the voting trustee of 160,858 shares held in trust
for his minor children. Such shares are included in the beneficial
ownership of Jeffrey L. Zimmer.
(9) A partnership comprised of Alan M. Zimmer, Herbert J. Zimmer, Jeffrey L.
Zimmer, and Arlene Z. Schreiber owns 93,854 shares of Company stock.
Beneficial ownership for each of the above persons includes 23,463 1/2
shares over which each such person has the power to vote or dispose of such
shares.
(10) Alan M. Zimmer and his wife, Rose W. Zimmer, are the voting trustees of
20,000 shares held in the Alan M. Zimmer Family Foundation. Such shares are
in the beneficial ownership of Alan M. Zimmer.
(11) The address of each person who beneficially owns more than 5% of the
Company's Common Stock is 2525 South Seventeenth Street, Wilmington, North
Carolina 28401.
COMMITTEES OF THE BOARD OF DIRECTORS; MEETINGS AND COMPENSATION OF DIRECTORS
In accordance with the By-Laws of the Company, the Board of Directors has
established an Audit Committee and a Compensation Committee.
The Audit Committee, which is composed of outside Directors G. Waddy
Garrett (chairman), Richard F. Sherman, and Fenton N. Hord, recommends to the
Board of Directors the engagement of the independent auditors of the Company and
reviews with the independent auditors the scope and results of the Company's
audits, the Company's internal accounting controls, and the professional
services furnished by the independent auditors to the Company. The Audit
Committee met two times in the fiscal year ended February 28, 1998.
3
<PAGE> 6
The Compensation Committee, which is composed of outside Directors, Richard
F. Sherman (chairman), G. Waddy Garrett, and Fenton N. Hord, reviews and
approves all salary arrangements and other remuneration for officers of the
Company. It also is responsible for review of certain benefit plans and for
administration of the stock option plans. The Compensation Committee met once in
the fiscal year ended February 28, 1998.
In the fiscal year ended February 28, 1998, the Board of Directors held
four meetings and Committees of the Board of Directors held a total of four
meetings. All Directors attended 100% of the total number of meetings of the
Board of Directors and the Committees on which he or she served during the
fiscal year ended February 28, 1998.
Officers of the Company who are also Directors do not receive any fee or
remuneration for services as members of the Board of Directors or of any
Committee of the Board of Directors. Non-management Directors received a
retainer fee of $5,000 per annum, $1,250 for each Board meeting attended, and
$500 for each Committee meeting attended last year.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables and narrative text set forth the compensation paid in
fiscal year ended February 28, 1998 and the two prior fiscal years to the
Company's Chief Executive Officer and the Company's four other most highly
compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(#)(2) COMPENSATION(3)
- --------------------------- ---- -------- -------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Alan M. Zimmer.......................... 1998 $199,808 $ 55,000 4,000 $16,892
President & Chief Executive Officer 1997 185,866 94,279 0 18,511
1996 175,673 55,000 0 14,925
William R. Zimmer....................... 1998 72,773 105,000 0 5,206
Chairman of the Board 1997 72,773 110,000 0 6,815
1996 72,208 100,000 0 4,780
James R. Rouse.......................... 1998 143,923 25,000 4,000 35,479
Treasurer & Chief Financial Officer 1997 141,673 35,418 0 27,915
1996 140,596 25,000 0 21,704
Orville R. Westmoreland................. 1998 143,671 12,500 4,000 17,939
Vice President of Financial Services 1997 135,914 34,399 0 17,107
1996 130,217 19,684 0 15,867
Allan E. Metzner........................ 1998 133,029 12,500 4,000 17,520
Vice President of Administration 1997 121,885 31,851 0 14,801
& Corporate Controller 1996 103,952 15,976 10,000 37,369
</TABLE>
- ---------------
(1) Under the Company's Annual Bonus Plan, cash awards are made to participants
based primarily upon the increase in corporate profitability for the current
year over the average of the prior three years. All levels of management in
the corporate office are covered under this plan. The plan also awards cash
bonuses to store managers and district supervisors based on the
profitability of their individual stores and districts. Awards are paid to
participants annually, normally during the year following the Annual Bonus
Plan year. A minimum annual bonus is guaranteed under the plan to each of
the executives as follows: Alan M. Zimmer, $55,000; William R. Zimmer,
$75,000; James R. Rouse, $25,000; and all other executives, $12,500 each.
(2) Adjusted for 100% stock dividend issued on February 20, 1998.
4
<PAGE> 7
(3) During each of the fiscal years ended February 28, 1998, February 28, 1997
and February 29, 1996, respectively, the Company paid premiums for insurance
to fund the supplemental executive retirement plan for each named executive
as follows: Alan M. Zimmer, $6,428, $10,573,and $6,428; William R. Zimmer,
$0, $0, and $0; James R. Rouse, $25,337, $22,446, and $13,337; Orville R.
Westmoreland, $7,500, $11,749, and $7,500; and Allan E. Metzner, $7,905,
$9,978, and $7,905. The Company also made contributions to the
profit-sharing and 401(k) savings plan accounts of each named executive as
follows: for the fiscal year ended February 28, 1998 for Alan M. Zimmer,
$5,890, William R. Zimmer, $4,666, James R. Rouse, $5,567, Orville R.
Westmoreland, $5,550, Allan E. Metzner, $5,041; for the fiscal year ended
February 28, 1997 for Alan M. Zimmer, $5,474, William R. Zimmer, $4,351,
James R. Rouse, $5,469, Orville R. Westmoreland, $5,358, and Allan E.
Metzner, $4,823; and for the fiscal year ended February 29, 1996 for Alan M.
Zimmer, $5,759, William R. Zimmer, $2,042, James R. Rouse, $5,629, Orville
R. Westmoreland, $5,629, and Allan E. Metzner, $5,655.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION FOR OPTION
% OF TOTAL TERM (10 YEARS)(1)
OPTIONS ---------------------------------------------
NUMBER OF GRANTED TO EXERCISE 5% 10%
SECURITIES EMPLOYEES OR BASE --------------------- ---------------------
UNDERLYING IN FISCAL PRICE EXPIRATION PRICE PER AGGREGATE PRICE PER AGGREGATE
NAME OPTIONS(2) YEAR ($/SHARE) DATE SHARE VALUE SHARE VALUE
- ---- ---------- ---------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan M. Zimmer................ 4,000 16.67% $4.2625 7/8/2002 $6.31 $9,740 $10.05 $24,700
James R. Rouse................ 4,000 16.67 3.8750 7/8/2007 6.31 9,740 10.05 24,700
O. R. Westmoreland............ 4,000 16.67 3.8750 7/8/2007 6.31 9,740 10.05 24,700
Allan E. Metzner.............. 4,000 16.67 3.8750 7/8/2007 6.31 9,740 10.05 24,700
</TABLE>
- ---------------
(1) The dollar gains under these columns result from calculations assuming 5%
and 10% growth rates over an option period of ten years (except as otherwise
noted) and are not intended to forecast future price appreciation of the
Common Stock of the Company. The gains reflect a future value based upon
growth at these prescribed rates. The Company did not use an alternative
formula for a grant date valuation, an approach which would state gains at
present, and therefore lower, value. Options have value to the listed
executives and to all option recipients only if the stock price advances
beyond the grant date price shown in the table during the effective option
period.
(2) These awards were made pursuant to the 1994 Stock Option Plan. Under this
plan, the option price must not be less than 100% of the fair market value
of the Company's Common Stock on the date the option is granted. The fair
market value of a share of the Company's Common Stock is the closing price
as reported on the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS VALUE OF UNEXERCISED
SHARES AT FEBRUARY 28, 1998 IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE EXERCISABLE EXERCISABLE AT
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(#) FEBRUARY 28, 1998($)(1)
- ---- ----------- ----------- -------------------- -----------------------
<S> <C> <C> <C> <C>
Alan M. Zimmer..................... 0 0 59,660/29,040 15,549
James R. Rouse..................... 0 0 60,870/24,200 35,435
Orville R. Westmoreland............ 0 0 58,450/24,200 32,744
Allan E. Metzner................... 0 0 27,360/18,100 2,849
</TABLE>
- ---------------
(1) Based on $ 4.125 per share at February 28, 1998.
5
<PAGE> 8
PERFORMANCE GRAPH
On February 23, 1998, Reeds Jewelers, Inc. listed its common shares to be
traded on the American Stock Exchange under the symbol, RJI. At the same time,
its shares ceased trading on the Nasdaq National Market System under the symbol,
REED. As a result of this change, the Company believes that the S & P 500 and a
peer group of companies composed of other publicly-traded retail jewelry chains
is more appropriate. Both comparisons are shown below; in future years, only the
new comparison will be shown.
<TABLE>
<CAPTION>
Measurement Period Reeds
(Fiscal Year Covered) Jewelers, Inc. S & P 500 Peer Group
<S> <C> <C> <C>
1993 100 100 100
1994 228 108 155
1995 220 116 182
1996 173 157 211
1997 144 198 220
1998 190 267 316
</TABLE>
The above graph assumes $100 invested on February 28, 1993 in the Company's
Common Stock, the S & P 500, and the Company's Peer Group (Peer Group Index,
consisting of the following publicly-traded retail jewelry chains: Friedmans Inc
(FRDM), Marks Brothers Jewelers (MBJI), Signet Group PLC (SIGYY), and Zale Corp
(ZLC)). The S & P 500 Index and the Peer Group Index are calculated based on
indexes prepared for Reeds Jewelers, Inc. by Zacks Investment Research, Inc.
6
<PAGE> 9
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
REEDS JEWELERS, INC.,
CRSP TOTAL RETURN INDEX FOR THE NASDAQ STOCK MARKET (US COMPANIES), AND
NASDAQ RETAIL TRADE STOCKS INDUSTRY INDEX
<TABLE>
<CAPTION>
NASDAQ
MEASUREMENT PERIOD REEDS STOCK NASDAQ
(FISCAL YEAR COVERED) JEWELERS, INC. MARKET RETAIL TRADE
<S> <C> <C> <C>
1993 100 100 100
1994 228 118 111
1995 220 120 102
1996 173 167 120
1997 144 199 134
1998 190 273 177
</TABLE>
The above graph assumes $100 invested on February 28, 1993 in the Company's
Common Stock, the Nasdaq Stock Market Index, and the Nasdaq Retail Trade Index
(Peer Index). The Nasdaq Stock Market Index and the Nasdaq Retail Trade Index
are calculated based on indexes prepared for Nasdaq by the Center for Research
in Securities Prices (CRSP) at the University of Chicago.
RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its corporate headquarters, consisting of 17,831 square
feet of office space and 155 parking spaces, from partnerships comprised of Alan
M. Zimmer, Herbert J. Zimmer, Jeffrey L. Zimmer, and Arlene Z. Schreiber. Alan
M. Zimmer is President and Chief Executive Officer of the Company and Herbert J.
Zimmer, Jeffrey L. Zimmer, and Arlene Z. Schreiber are all Directors. Monthly
rental payments under the leases are $23,127, escalating to $23,520 on January
1, 1999, and rising to $23,929 on January 1, 2003. The Company also pays the
related insurance, property taxes, maintenance fees, and utilities for this
location. The leases for these facilities expire December 31, 2006. Based on
rentals charged for comparable properties in Wilmington, the Company believes
the terms of the leases are no less favorable to the Company than those that
could be obtained from unaffiliated parties.
Herbert J. Zimmer and Jeffrey L. Zimmer are partners in the law firm of
Zimmer and Zimmer, which serves as general counsel to the Company. During the
fiscal year ended February 28, 1998, Zimmer and Zimmer received from the Company
legal fees and reimbursement of costs advanced in the amount of $175,000. Zimmer
and Zimmer has advised the Board of Directors that legal fees paid to Zimmer and
Zimmer are based on the firm's customary fees for similar services.
7
<PAGE> 10
Between June 30, 1989 and February 6, 1990, the Company borrowed a total of
$1,370,000 from three of its principal shareholders, of which $470,000 was
repaid as of May 28, 1991 and $21,000 in June 1996. The amounts borrowed
accumulate interest at the prime rate as quoted monthly in the Wall Street
Journal. The amounts remaining outstanding under the notes are $594,000 to Alan
M. Zimmer, $185,000 to Arlene Z. Schreiber, and $100,000 to Ronna T. Zimmer (the
wife of Herbert J. Zimmer). These amounts are evidenced by various subordinated
notes and are due and payable upon full payment of all senior obligations or
with approval of all senior lenders.
8
<PAGE> 11
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS OF REEDS JEWELERS, INC.
ON EXECUTIVE COMPENSATION
The Compensation Committee, which is composed of outside Directors, Richard
F. Sherman (chairman), G. Waddy Garrett, and Fenton N. Hord reviews and approves
all salary arrangements and other remuneration for officers of the Company. It
also is responsible for review of certain benefit plans and for administration
of the stock option plans. The Compensation Committee met one time in the fiscal
year ended February 28, 1998.
The primary responsibility of the Company's management is to maximize
shareholder value over time. To accomplish this objective, the Company's
business strategy and operating plans are derived from its goal to increase the
net earnings of the Company at least 20% annually on a sustained basis. The
overall goal of the Compensation Committee is to pay executive officers in a
manner that is consistent with and linked to this strategic objective.
The Committee believes that the compensation package of executive officers
must be structured to enable the Company to attract, retain, and encourage the
continued development of its executive officers. Accordingly, the Company's
executive officers are compensated as follows:
Base Compensation: An executive of the Company is compensated for the
required general management and specific technical skills demanded by his
position. The value of such skills are determined by evaluation of the
executive's demonstrated knowledge, experience, productivity, and
effectiveness, as well as the value placed upon such qualities as reflected
by compensation for similar positions within the retail jewelry industry.
Such guaranteed compensation for each executive is in the form of a base
salary and certain benefits designed to relieve financial concerns of the
executive regarding illness, disability, retirement, or death. The base
salary of each executive is reviewed annually in light of the
aforementioned criteria and typically is increased, as appropriate for each
executive, within the general guidelines for all salary increases within
the Company. Alan M. Zimmer received a 8% increase in base salary during
the fiscal year ended February 28, 1998 because of the sales and earnings
performance of the Company during the fiscal year ended February 28, 1997
and has been granted a 4% increase in base salary for the current fiscal
year.
Pay for Performance: An executive of the Company is challenged to
perform and manage so that the Company's goal to increase the net earnings
of the Company at least 20% annually on a sustained basis is achieved or
exceeded. Accordingly, the President and Chief Executive Officer is
eligible to earn up to 100% of annualized base salary and all other
executives are each eligible to earn up to 50% of annualized base salary in
the form of an annual cash bonus. Each executive earns the maximum bonus
when corporate earnings before taxes for the current year are at least 20%
higher than the average corporate earnings before taxes for the three
previous years; if such increase in earnings is less than 20%, each
executive earns a proportionate share of the potential maximum bonus. Alan
M. Zimmer earned 27 1/2% of annualized base salary for the year ended
February 28, 1998, representing his minimum guaranteed bonus.
Equity Participation: An executive of the Company makes numerous
tactical decisions about the short-term operations of the Company, and also
provides consistent input and influence regarding longer-term strategic
issues. In addition, because the Company believes that its shareholders are
attracted primarily by its consistent and increasing profitability, the
executive's daily application and interpretation of the Company's policies
and procedures must be couched within a longer-term perspective. Stock
ownership aligns the interests of executives with those of shareholders.
Accordingly, the final component of executive compensation provides for the
periodic granting of stock options as a longer-term incentive designed to
reward executives for managing the Company over a period of several years
in a manner that is more likely to increase shareholder value through
higher market valuations of the Company's share price as the result of
consistent and sustainable increases in profitability. Factors considered
regarding the timing and number of stock options granted include the
executive's scope of responsibility and time in the
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position, as well as corporate performance. Alan M. Zimmer received stock
options for 2,000 shares of common stock during the fiscal year ended
February 28, 1998.
Summary. The Committee believes that the executive compensation policies
and programs described in this report serve the interests of the shareholders
and the Company. Compensation of executive officers is intended to be linked to,
and commensurate with, Company performance and with shareholder expectations.
The Committee believes that the practice and the performance results of the
compensation philosophy described herein should be measured over a period
sufficiently long to determine whether strategy development and implementation
are in line with, and responsive to, shareholder expectations.
Richard F. Sherman, Chairman
G. Waddy Garrett
Fenton N. Hord
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<PAGE> 13
APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young, Certified Public Accountants, have been recommended by the
Board of Directors to serve as independent auditors of the Company for the
fiscal year ending February 28, 1999. Ernst & Young is the present independent
auditor of the Company and has served in this capacity for the past five years.
The Company knows of no direct or material indirect financial or other interest
of Ernst & Young in the Company.
Representatives of Ernst & Young are expected to be present at the Annual
Meeting and will have the opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF ERNST &
YOUNG AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING FEBRUARY
28, 1999.
AMEND THE ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
Article IV of the Company's Amended Articles of Incorporation currently
provides that the Company shall have authority to issue 10,000,000 shares of
Common Stock, $0.10 par value per share. This proposal presents a proposed
amendment to the Amended Articles of Incorporation that, if adopted, would
increase the number of shares of Common Stock that the Company is authorized to
issue from 10,000,000 to 25,000,000 shares. In accordance with this Proposal,
the first sentence of Article IV, as proposed to be amended by this Proposal,
would read as follows: "The aggregate number of shares which the corporation
shall have the authority to issue is 25,000,000 shares of the par value of ONE
TENTH ($0.10) DOLLAR, each, making a total authorized capital of 2,500,000
DOLLARS."
If this proposal is adopted, the Board of Directors of the Company will be
permitted to issue the authorized shares without further shareholder approval,
except to the extent otherwise required by law or by a securities exchange or
stock market on which the Common Stock is listed or traded at the time. The
Company's Common Stock is presently traded on the American Stock Exchange.
Shareholders do not have preemptive rights to subscribe for or purchase
additional shares of Common Stock. The additional shares of Common Stock for
which authorization is sought, if and when issued, would have the same rights
and privileges as the shares of Common Stock now outstanding.
As of the Record Date, 8,449,752 shares of Common Stock were issued and
outstanding. At February 28, 1998, the Company had reserved an aggregate of
532,158 shares of Common Stock for future issuance under (i) the Company's 1986
Employee Incentive Stock Option Plan, (ii) the Company's 1992 Director Stock
Option Plan, and (iii) the Company's 1994 Stock Option Plan (collectively, the
"Stock Option Plans"). As of the Record Date, only 1,018,090 of the 10,000,000
shares of Common Stock that are currently authorized for issuance are unreserved
and available for future issuance. If the amendment to the Company's Amended
Articles of Incorporation is adopted, the Company would have 16,018,090 shares
unreserved and available for future issuance.
The Board of Directors recommends the increase in authorized Common Stock
to enable the Company to have additional shares for issuance in connection with
stock splits and dividends, offerings of Common Stock, stock options, stock
purchases and other employee benefit plans, business acquisitions, and for other
general corporate purposes. The Board of Directors believes that increasing the
number of shares of authorized Common Stock will give the Company greater
flexibility and will enable the Board of Directors to issue additional shares of
Common Stock for the purposes listed above without the expense and delay of
holding a special shareholders' meeting. The Company has no current plans,
agreements, or arrangements for the issuance of additional shares of Common
Stock, other than the grants of options and the issuance of shares pursuant to
Stock Option Plans.
The additional authorized shares of Common Stock will be available for
issuance (subject to further shareholder approval if required by law or stock
exchange rules as noted above) at such times and for such proper purposes as the
Board of Directors may approve. Issuances of Additional Shares of Common Stock
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<PAGE> 14
could also enable the Board of Directors to render more difficult or discourage
an attempt by a third party to obtain control of the Company. For example, the
issuance of shares of Common Stock in a public or private sale, merger, or
similar transaction would increase the number of the Company's outstanding
shares, thereby diluting the interest of a party seeking to acquire control of
the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE AMENDED
ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK TO 25,000,000.
SHAREHOLDER PROPOSALS
Proposals of shareholders for the 1999 Annual Meeting of Shareholders of
the Company must be received at the Company's corporate office, P.O. Box 2229,
2525 South Seventeenth Street, Wilmington NC 28401, Attention: Corporate
Secretary, no later than February 28, 1999.
ANNUAL REPORT
The Company's Annual Report to Shareholders and Annual Report on Form 10-K
for the year ended February 28, 1998 are included in this mailing to all
shareholders.
By Order of the Board of Directors,
/s/ ROBERTA G. ZIMMER
ROBERTA G. ZIMMER
Secretary
Wilmington, North Carolina
June 15, 1998
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<PAGE> 15
APPENDIX A
PROXY REEDS JEWELERS, INC.
2525 SOUTH SEVENTEENTH STREET
WILMINGTON, NORTH CAROLINA 28401
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby appoints Alan M. Zimmer and Roberta G. Zimmer, or
either of them, as agents, each with the power to appoint his or her substitute,
and hereby authorizes them to represent and to vote, as designated below, all
the shares of Common Stock of Reeds Jewelers, Inc. (the "Company") held of
record by the undersigned on May 15, 1998 at the Annual Meeting of Shareholders
to be held at the Hilton Hotel, 301 North Water Street, Wilmington, North
Carolina, on Tuesday, July 14, 1998, at 10:00 a.m., local time, and at any
adjournments thereof.
1. ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below) all nominees listed below
</TABLE>
G. Waddy Garrett; Fenton N. Hord; Arlene Z. Schreiber; Richard F. Sherman; Alan
M. Zimmer; Herbert J. Zimmer; Jeffrey L. Zimmer; Roberta G. Zimmer; William R.
Zimmer.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.)
- --------------------------------------------------------------------------------
2. TO APPROVE THE APPOINTMENT OF ERNST & YOUNG AS INDEPENDENT AUDITORS FOR THE
YEAR ENDING FEBRUARY 28, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO APPROVE AN AMENDMENT TO THE AMENDED ARTICLES OF INCORPORATION INCREASING
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 25,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxy agents are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted for all the nominees for Director and for Proposals 2 and 3.
Dated: , 1998
---------------------------
------------------------------
Signature
------------------------------
Signature if held jointly
Please sign exactly as name
appears below. When shares are
held as joint tenants, both
should sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by the
president or other authorized
officer. If a partnership,
please sign in partnership
name by an authorized person.
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
