<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 Wednesday, July 7, 1999, at 10:00 a.m., local time, for the
following purposes:
1. To elect nine (9) Directors to serve until the 2000 Annual Meeting
of Shareholders or until their successors are elected and qualified;
2. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending February 29, 2000;
3. 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 3, 1999 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
April 9, 1999
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 7, 1999
---------------------
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 Wednesday, July 7, 1999, 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 Tuesday, June 1, 1999.
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, and FOR ratification of the appointment of
Ernst & Young LLP as independent auditors. 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 3, 1999 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 8,476,372 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 is 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.
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 3, 1999
-----------------------------------
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 1,937,960(4)(5)(9)(10) 22.86%
age 40; President and Chief Executive Officer
for more than the past five years(3)
WILLIAM R. ZIMMER.............................. 1946 23,352 0.28%
age 80; Chairman of the Board for more than
the past five years(3)
FENTON N. HORD................................. 1997 2,000(4) 0.02%
age 52; President & CEO of Carolina Holdings,
Inc. for more than the past five years;
Director of Wachovia Bank of North Carolina,
N.A. (Central Region)
ROBERTA G. ZIMMER.............................. 1952 8,724 0.10%
age 74; Secretary for more than the past five
years(3)
G. WADDY GARRETT............................... 1994 10,000(4) 0.12%
age 58; 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(4)(6)(9)(10) 20.67%
age 48; Member of Zimmer Development Company
LLC and affiliates; previously, Vice
President and Secretary, Schreiber's Inc., a
ladies specialty store for more than the past
five years(3)
RICHARD F. SHERMAN............................. 1991 8,470(4) 0.10%
age 55; Private Investor for more than the
past five years; Chairman of P.J. America,
Inc., Director of Taco Cabana, Inc., and Papa
John's International, Inc.
HERBERT J. ZIMMER.............................. 1986 1,837,621(4)(7)(9)(10) 21.68%
age 53; Partner in the law firm of Zimmer and
Zimmer LLP, 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 3, 1999
-----------------------------------
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(4)(8)(9)(10) 21.04%
age 42; Partner in the law firm of Zimmer and
Zimmer LLP, which serves as general counsel
to the Company, for more than the past five
years(3)
All directors and executive officers as a
group........................................ 7,379,447(4) 87.06%
(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 3, 1999 by the following persons pursuant to the
Company's various stock option plans (G. Waddy Garrett, 11,840 shares;
Fenton N. Hord, 5,000 shares, Richard F. Sherman, 9,420 shares; Alan M.
Zimmer, 78,600 shares, Herbert J. Zimmer, 5,000 shares, Jeffrey L. Zimmer,
5,000 shares, Arlene Z. Schreiber, 5,000 shares) and all directors and
executive officers as a group, 375,396 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) 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, 1999.
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
3
<PAGE> 6
administration of the stock option plans. The Compensation Committee met two
times in the fiscal year ended February 28, 1999.
In the fiscal year ended February 28, 1999, 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, 1999.
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 an annual
retainer fee of $5,000, $1,250 for each Board meeting attended, $500 for each
Committee meeting attended, and options for 1,000 shares of stock for their
services during the fiscal year ended February 28,1999.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables and narrative text set forth the compensation paid in
fiscal year ended February 28, 1999 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
ANNUAL COMPENSATION COMPENSATION
---------------------------- -------------
SECURITIES ALL OTHER
UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(#)(2) SATION(3)
- --------------------------- ---- -------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Alan M. Zimmer............................... 1999 $264,880 $ 157,000 0 $12,550
President & Chief Executive Officer 1998 254,808 0 4,000 16,892
1997 240,866 39,279 0 18,511
William R. Zimmer............................ 1999 149,925 45,000 0 4,692
Chairman of the Board 1998 147,773 30,000 0 5,206
1997 147,773 35,000 0 6,815
James R. Rouse............................... 1999 174,018 50,260 0 30,430
Treasurer & Chief 1998 168,923 0 4,000 35,479
Financial Officer 1997 166,673 10,418 0 27,915
Orville R. Westmoreland...................... 1999 162,672 63,343 0 12,449
Vice President of Financial Services 1998 156,171 0 4,000 17,939
1997 148,414 21,899 0 17,107
Allan E. Metzner............................. 1999 151,551 57,725 0 12,730
Vice President of Administration 1998 145,529 0 4,000 17,520
& Corporate Controller 1997 134,385 19,351 0 14,801
</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. In each of the three years a portion of each executives salary
has been paid in the form of a guaranteed bonus as follows: Alan M. Zimmer,
$55,000; William R. Zimmer, $75,000; James R. Rouse, $25,000; and all other
executives, $12,500 each. Beginning March 1, 1999, the annual bonus plan has
been changed and the above amounts are included in the bi-weekly pay for
each executive. Accordingly the amounts are included above as salary.
(2) Adjusted for 100% stock dividend issued on February 20, 1998.
4
<PAGE> 7
(3) During each of the fiscal years ended February 28, 1999, 1998 and 1997,
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, $6,428,and $10,573; William R. Zimmer, $0, $0, and
$0; James R. Rouse, $25,337, $25,337, and $22,446; Orville R. Westmoreland,
$7,500, $7,500, and $11,749; and Allan E. Metzner, $7,905, $7,905, and
$9,978. 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, 1999 for Alan M. Zimmer, $6,122, William R. Zimmer,
$4,692, James R. Rouse, $5,093, Orville R. Westmoreland, $4,949, Allan E.
Metzner, $4,825; 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, and Allan E. Metzner, $5,041; and 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, $4,823.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------ POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION FOR OPTION
% OF TOTAL TERM (10 YEARS)(1)
OPTIONS ---------------------------------------------
NUMBER OF GRANTED TO EXERCISE 5% 10%
SECURITIES EMPLOYEES OR BASE --------------------- ---------------------
UNDERLYING IN FISCAL PRICE EXPIRATION PRICE PER AGGREGATE PRICE PER AGGREGATE
NAME OPTIONS(2) YEAR ($/SHARE) DATE SHARE VALUE SHARE VALUE
- ---- ---------- ---------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alan M. Zimmer(3)............ 2,000 16.7% $4.125 5/31/2003 $4.79 $1,330 $6.04 $ 3,830
James R. Rouse............... 2,000 16.7% 3.750 5/31/2008 6.11 4,720 9.73 11,960
O. R. Westmoreland........... 2,000 16.7% 3.750 5/31/2008 6.11 4,720 9.73 11,960
Allan E. Metzner............. 2,000 16.7% 3.750 5/31/2008 6.11 4,720 9.73 11,960
</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.
(3) Options for Alan M. Zimmer expire after five years. The calculations for
potential realizable value for the options of Alan M. Zimmer are therefore
for a period of only five years, rather than ten years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED
SHARES FEBRUARY 28, 1999 IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE EXERCISABLE EXERCISABLE AT
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(#) FEBRUARY 28, 1999 ($)(1)
- ---- ----------- ----------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Alan M. Zimmer..................... 12,100 $14,036 64,080/14,520 0
James R. Rouse..................... 6,050 13,313 60,450/12,100 4,038
Orville R. Westmoreland............ 6,050 13,313 60,450/12,100 4,038
Allen E. Metzner................... 0 0 37,410/10,050 811
</TABLE>
- ---------------
(1) Based on $ 3.25 per share at February 28, 1999.
5
<PAGE> 8
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG
REEDS JEWELERS, INC.,
S & P SMALL-CAP 600, AND
THE COMPANY'S PEER GROUP
<TABLE>
<CAPTION>
MEASUREMENT PERIOD REED S&P SMALL-
(FISCAL YEAR COVERED) JEWELERS, INC. CAP 600 PEER GROUP
<S> <C> <C> <C>
1994 100 100 100
1995 96 96 118
1996 76 126 136
1997 63 146 142
1998 83 198 204
1999 66 171 211
</TABLE>
The above graph assumes $100 invested on February 28, 1994 in the Company's
Common Stock, the S & P Small-Cap 600, and the Company's Peer Group (Peer Group
Index, consisting of the following publicly-traded retail jewelry chains:
Friedman's, Inc. (FRDM), Samuels Jewelers (SMJW), Signet Group PLC (SIGYY),
Whitehall Jewellers, Inc. (WHJI), and Zale Corporation (ZLC)). The S & P Index
and the Peer Group Index are calculated based on indexes prepared for Reeds
Jewelers, Inc. by Zacks Investment Research, Inc.
RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its corporate headquarters, consisting of 17,831 square
feet of office space and 155 parking spaces, from a partnership 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.
On September 1, 1999 the Company will be increasing its office space to a total
square feet of 20,731. Monthly rental payments under the leases are $23,448,
increasing to $26,484 on September 1, 1999, and rising to $26,927 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.
6
<PAGE> 9
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, 1999, Zimmer and Zimmer received from the Company
legal fees and reimbursement of costs advanced in the amount of $184,000. 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.
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, $21,000 was repaid in June 1996, and $34,000 was
repaid in July 1998. 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 $560,000 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.
7
<PAGE> 10
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 two times in the
fiscal year ended February 28, 1999.
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 a compound annual growth rate of 20% over any
five-year period. 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 4% increase in base salary during
the fiscal year ended February 28, 1999 because of the sales and earnings
performance of the Company during the fiscal year ended February 28, 1998
and has been granted a 3% 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 net income goal is achieved or
exceeded. Accordingly, for the year ended February 28, 1999, the President
and Chief Executive Officer was eligible to earn up to 100% of annualized
base salary and all other executives were each eligible to earn up to 50%
of annualized base salary in the form of an annual cash bonus. Each
executive earned the maximum bonus when corporate earnings before taxes for
the current year were at least 20% higher than the average corporate
earnings before taxes for the three previous years; if such increase in
earnings were less than 20%, each executive earned a proportionate share of
the potential maximum bonus. Alan M. Zimmer earned 100% of annualized base
salary for the year ended February 28, 1999 since corporate earnings before
taxes for that year were 27.2% higher than the average corporate earnings
before taxes for the three previous years.
Effective March 1, 1999, the annual bonus plan has been changed. Upon
achievement of the budget for corporate net income, an amount equal to 60%
of base salary is placed in a bonus pool for the President and Chief
Executive Officer. An amount equal to 30% of base salary for each other
executive is placed in bonus pools for each of them. In addition, for each
1% that net income exceeds budget, an amount equal to 1% of the excess
would be added to the executives' bonus pools in the ratio of 25% for the
President and Chief Executive Officer and 15% for each of the other
executives. The pools are capped at 50% of all excess over the budget. If
the net income budget is not achieved, the executives receive no bonus. If
the net income budget is achieved, then each executive earns 40% of his or
her bonus pool. Another 20% is earned if asset turnover increases. An
additional 30% is earned if gross profit and gross margin targets are met.
The final 10% is earned if the target for comparable store sales is
achieved.
8
<PAGE> 11
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 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 position, as well as
corporate performance. Alan M. Zimmer received options for 2,000 shares of
stock during the fiscal year ended February 28, 1999.
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
9
<PAGE> 12
APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP, Certified Public Accountants, has been recommended by
the Board of Directors to serve as independent auditors of the Company for the
fiscal year ending February 29, 2000. Ernst & Young LLP is the present
independent auditor of the Company and has served in this capacity for the past
eight years. The Company knows of no direct or material indirect financial or
other interest of Ernst & Young LLP in the Company.
Representatives of Ernst & Young LLP 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 LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING
FEBRUARY 29, 2000.
SHAREHOLDER PROPOSALS
Proposals of shareholders for the 2000 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 29, 2000.
ANNUAL REPORT
The Company's Annual Report to Shareholders and Annual Report on Form 10-K
for the year ended February 28, 1999 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
April 9, 1999
10
<PAGE> 13
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 3, 1999 at the Annual Meeting of Shareholders
to be held at the Hilton Hotel, 301 North Water Street, Wilmington, North
Carolina, on Wednesday, July 7, 1999, 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 LLP AS INDEPENDENT AUDITORS FOR
THE YEAR ENDING FEBRUARY 29, 2000
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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: , 1999
------------------
------------------------------
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.
