GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
September 13, 1996
VIA EDGAR AND
FEDERAL EXPRESS
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Little Switzerland, Inc.: Definitive Proxy Materials and
1996 Annual Report
---------------------------------------------------------
Ladies and Gentlemen:
On behalf of Little Switzerland, Inc. (the "Company"), we attach herewith
for filing by EDGAR, pursuant to the requirements of the Securities Exchange Act
of 1934, as amended (the "Act"), and the applicable rules and regulations
thereunder, copies of the definitive proxy materials (proxy statement and proxy
card) to be distributed to the Company's stockholders in connection with its
Annual Meeting of Stockholders to be held on Friday, October 11, 1996.
The Company anticipates distributing these definitive proxy materials to
its stockholders on or about September 13, 1996. A check in the amount of
$125.00 made payable to the order of the Securities and Exchange Commission (the
"Commission") as payment for the associated filing fee was received by the
Commission by 2:00 p.m. EST on Thursday, September 12, 1996, the business day
prior to the date of this electronic filing.
In addition, pursuant to Rule 14a-3(c) of the General Rules and Regulations
under the Act, we have sent to the Commission by Federal Express seven (7) paper
copies of the Company's 1996 Annual Report. The Annual Report is furnished
solely for the information of the Commission and is not deemed to be "soliciting
material" or "filed" with the Commission.
Please acknowledge receipt of this letter and its enclosures by
date-stamping the enclosed copy of this letter and returning it to me in the
enclosed self-addressed, stamped envelope. If you have any questions or comments
concerning this letter or the enclosures, please call the undersigned at
(617) 570- 1798.
Very truly yours,
/s/ Paige H. Pease
Paige H. Pease
Enclosures
cc: Ronald J. Lataille, Little Switzerland, Inc.
Kevin M. Dennis, Esq.
<PAGE>
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 [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14(a)-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
LITTLE SWITZERLAND, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $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 (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>
[LOGO: LITTLE SWITZERLAND]
161B CROWN BAY CRUISE SHIP PORT
ST. THOMAS, U.S.V.I. 00804
September 13, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Little Switzerland, Inc. (the "Company") to be held on Friday, October 11, 1996,
at 10:30 a.m., local time, at State Street Bank and Trust Company, Board Room,
33rd Floor, 225 Franklin Street, Boston, Massachusetts (the "Annual Meeting").
The Annual Meeting has been called for the purpose of electing two Class II
Directors each for a three-year term, approving an amendment (the "1991 Plan
Amendment") to the Company's 1991 Stock Option Plan (the "1991 Option Plan")
authorizing issuance under the 1991 Option Plan of an additional 400,000 shares
of the Company's common stock and considering and voting upon such other
business as may properly come before the meeting or any adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on September 4, 1996
as the record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournments or postponements thereof.
The Board of Directors of the Company recommends that you vote "FOR" the
election of the two nominees of the Board of Directors as Directors of the
Company and "FOR" the approval of the 1991 Plan Amendment to the 1991 Option
Plan.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE
ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR PROXY CARD.
Very truly yours,
/s/ John E. Toler, Jr.
John E. Toler, Jr.
Chief Executive Officer
and President
<PAGE>
LITTLE SWITZERLAND, INC.
161B CROWN BAY CRUISE SHIP PORT
ST. THOMAS, U.S.V.I. 00804
(809) 776-2010
-----------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-------------------------------
TO BE HELD ON FRIDAY, OCTOBER 11, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Little
Switzerland, Inc. (the "Company") will be held on Friday, October 11, 1996, at
10:30 a.m., local time, at State Street Bank and Trust Company, Board Room, 33rd
Floor, 225 Franklin Street, Boston, Massachusetts (the "Annual Meeting") for the
purpose of considering and voting upon:
1. The election of two Class II Directors each for a three-year term;
2. The approval of an amendment to the Company's 1991 Stock Option Plan
(the "1991 Option Plan") authorizing issuance under the 1991 Option
Plan of an additional 400,000 shares of the Company's common stock; and
3. Such other business as may properly come before the Annual Meeting and
any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on September 4, 1996
as the record date for determination of stockholders entitled to notice of and
to vote at the Annual Meeting and any adjournments or postponements thereof.
Only holders of common stock of record at the close of business on that date
will be entitled to notice of and to vote at the Annual Meeting and any
adjournments or postponements thereof.
In the event there are not sufficient votes with respect to the foregoing
proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned
in order to permit further solicitation of proxies.
By Order of the Board of Directors
Richard E. Floor
Secretary
St. Thomas, U.S.V.I.
September 13, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
LITTLE SWITZERLAND, INC.
161B CROWN BAY CRUISE SHIP PORT
ST. THOMAS, U.S.V.I. 00804
(809) 776-2010
------------
PROXY STATEMENT
------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, OCTOBER 11, 1996
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Little Switzerland, Inc., a corporation
incorporated under the laws of the state of Delaware on May 23, 1991 (the
"Company"), for use at the Annual Meeting of Stockholders of the Company to be
held on Friday, October 11, 1996, at 10:30 a.m., local time, at State Street
Bank and Trust Company, Board Room, 33rd Floor, 225 Franklin Street, Boston,
Massachusetts, and any adjournments or postponements thereof (the "Annual
Meeting"). Unless otherwise indicated, references to the "Company" in this Proxy
Statement include its various subsidiaries.
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon the following matters:
1. The election of two Class II Directors each for a three-year term, each
such term to continue until the 1999 annual meeting and until each
Director's successor is duly elected and qualified;
2. The approval of an amendment (the "1991 Plan Amendment") to the
Company's 1991 Stock Option Plan (the "1991 Option Plan") authorizing
issuance under the 1991 Option Plan of an additional 400,000 shares of
the Company's common stock, par value $.01 per share ("Common Stock");
and
3. Such other business as may properly come before the Annual Meeting and
any adjournments or postponements thereof.
The Notice of Annual Meeting, Proxy Statement and Proxy Card are first
being mailed to stockholders of the Company on or about September 13, 1996 in
connection with the solicitation of proxies for the Annual Meeting. The Board of
Directors has fixed the close of business on September 4, 1996 as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting (the "Record Date"). Only holders of Common Stock of record
at the close of business on the Record Date will be entitled to notice of and to
vote at the Annual Meeting. As of the Record Date, there were 8,459,089 shares
of the Company's Common Stock outstanding and entitled to vote at the Annual
Meeting and 153 stockholders of record. Each holder of a share of Common Stock
outstanding as of the close of business on the Record Date will be entitled to
one vote for each share held of record for each matter properly submitted at the
Annual Meeting.
The presence, in person or by proxy, of a majority of the total number of
outstanding shares of Common Stock is necessary to constitute a quorum for the
transaction of business at the Annual Meeting. A quorum being present, the
affirmative vote of a plurality of the votes cast is necessary to elect a
nominee as a Director of the Company. To approve the 1991 Plan Amendment, the
affirmative vote of the holders of a majority of the shares of Common Stock
present, or represented, and entitled to vote on such proposals at the Annual
<PAGE>
Meeting is required. The affirmative vote of a majority of the shares of stock
voting on a matter is necessary to approve any proposal presented at the
meeting. Shares that reflect abstentions or "broker non-votes" (i.e., shares
represented at the meeting held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
such shares and with respect to which the broker or nominee does not have
discretionary voting power to vote such shares) will be counted for purposes of
determining whether a quorum is present for the transaction of business at the
meeting. In addition, abstentions will be treated as votes cast against a
particular proposal while broker non-votes will have no impact on the outcome of
the vote on a particular proposal. With respect to the election of Directors,
votes may only be cast in favor of or withheld from the nominee; there is no
ability to abstain. In addition, broker non-votes will have no effect on the
outcome of the election of Directors.
STOCKHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE. COMMON STOCK
REPRESENTED BY PROPERLY EXECUTED PROXIES RECEIVED BY THE COMPANY AND NOT REVOKED
WILL BE VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH THE INSTRUCTIONS
CONTAINED THEREIN. IF INSTRUCTIONS ARE NOT GIVEN THEREIN, PROPERLY EXECUTED
PROXIES WILL BE VOTED "FOR" THE ELECTION OF THE TWO NOMINEES FOR DIRECTOR LISTED
IN THIS PROXY STATEMENT AND "FOR" THE APPROVAL OF THE 1991 PLAN AMENDMENT. IT IS
NOT ANTICIPATED THAT ANY MATTERS OTHER THAN THE ELECTION OF DIRECTORS AND THE
APPROVAL OF THE 1991 PLAN AMENDMENT WILL BE PRESENTED AT THE ANNUAL MEETING. IF
OTHER MATTERS ARE PRESENTED, PROXIES WILL BE VOTED IN ACCORDANCE WITH THE
DISCRETION OF THE PROXY HOLDERS.
Any properly completed proxy may be revoked at any time before it is voted
on any matter (without, however, affecting any vote taken prior to such
revocation) by giving written notice of such revocation to the Secretary of the
Company, or by signing and duly delivering a proxy bearing a later date, or by
attending the Annual Meeting and voting in person.
The Annual Report of the Company, including financial statements for the
fiscal year ended June 1, 1996 ("Fiscal 1996") is being mailed to stockholders
of the Company concurrently with this Proxy Statement. The Annual Report,
however, is not a part of the proxy solicitation material.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of six members and is
divided into three classes, with two Directors in each class. Directors serve
for three-year terms with one class of Directors being elected by the Company's
stockholders at each annual meeting.
At the Annual Meeting, two Class II Directors will be elected to serve
until the 1999 annual meeting and until their successors are duly elected and
qualified. The Board of Directors has nominated Timothy B. Donaldson and Kenneth
W. Watson for re-election as Class II Directors. Unless otherwise specified in
the proxy, it is the intention of the persons named in the proxy to vote the
shares represented by each properly executed proxy for the re-election of Mr.
Donaldson and Mr. Watson as Directors. Each of the nominees has agreed to stand
for re-election and to serve if re-elected as a Director. However, if any of the
persons nominated by the Board of Directors fails to stand for re-election or is
unable to accept re-election, the proxies will be voted for the election of such
other person or persons as the Board of Directors may recommend.
2
<PAGE>
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of a plurality of the votes
cast is necessary to elect a nominee as a Director of the Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE FOR THE RE-ELECTION OF THE TWO NOMINEES OF THE BOARD OF
DIRECTORS AS DIRECTORS OF THE COMPANY.
PROPOSAL NUMBER 2
APPROVAL OF AN AMENDMENT TO THE 1991 STOCK OPTION PLAN
The Board of Directors unanimously approved the 1991 Plan Amendment to the
Company's 1991 Option Plan, subject to shareholder approval, which increases the
aggregate number of shares of the Common Stock of the Company available for
grants under the Plan from 500,000 to 900,000 (subject to adjustment for certain
changes in the Company's capitalization). A summary of the principal features of
the 1991 Option Plan is set forth below.
TERMS OF THE 1991 OPTION PLAN
Purpose of the 1991 Option Plan. The 1991 Option Plan is designated to
advance the Company's interests by enhancing its ability to (a) attract and
retain officers and other full-time employees (including Directors who are also
full-time employees) who are in a position to make significant contributions to
the success of the Company, (b) reward employees for such significant
contributions and (c) encourage employees to take into account the long-term
interests of the Company through ownership of shares of Common Stock and thereby
to promote the progress and success of the Company.
Scope of the 1991 Option Plan. A total of 500,000 shares of Common Stock
have been reserved for issuance under the 1991 Option Plan. The proposed 1991
Plan Amendment to the 1991 Option Plan would increase the number of shares
available for issuance under the 1991 Option Plan to 900,000 (subject to
adjustment for certain changes in the Company's capitalization). If an option
granted under the 1991 Option Plan expires, is canceled or otherwise terminates
without having been exercised in full, the number of shares of Common Stock as
to which such option was not exercised will be available for future grants under
the 1991 Option Plan. The 1991 Option Plan provides that the Compensation
Committee of the Board of Directors (the "Compensation Committee") will
determine and make appropriate and proportionate adjustments to the aggregate
number and kind of shares available under the 1991 Option Plan in the event the
shares of the Company's Common Stock as a whole are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
of the Company, whether through merger, consolidation, reorganization,
recapitalization, reclassification, stock dividend, stock split, combination of
shares, exchange of shares or change in the corporate structure or the like.
Upon the occurrence of such an event, the Compensation Committee will also make
any appropriate adjustments to the number and kind of shares of Common Stock or
securities subject to options then outstanding under the 1991 Option Plan, any
exercise price relating to such options and any other provisions affected by
such change.
Availability of Shares for Future Grants. On November 1, 1995, John E.
Toler, Jr., upon his appointment to the offices of President and Chief Executive
Officer and as a Director of the Company, was awarded (the "Award") an incentive
stock option to purchase an aggregate of 300,000 shares of the Company's Common
Stock. See "Option Grants In Last Fiscal Year" for the terms of such option.
Only 1,700 shares of Common Stock are currently available under the 1991 Option
Plan with respect to this grant or any other future grants. Accordingly, if the
1991 Plan Amendment is approved, all of the Award will be deemed to have been
3
<PAGE>
granted under the 1991 Option Plan, and there will be 101,700 shares available
for future grants, subject to increase to the extent that outstanding grants
terminate without issuance of all shares issuable under such grants. If the 1991
Plan Amendment is not approved, the Award may be deemed granted outside of the
1991 Option Plan (but on the same terms as if granted under the 1991 Option
Plan). In that event, there will be only 1,700 shares available under the 1991
Option Plan for future grants, unless outstanding grants terminate without
issuance of all shares issuable under such grants. See "Scope of the 1991 Option
Plan."
Administration of the 1991 Option Plan. The 1991 Option Plan is
administered by the Compensation Committee. Subject to the terms of the 1991
Option Plan, the Compensation Committee has the authority to (a) grant options
at such times as it may choose, (b) determine the types of options granted
(whether incentive stock options or nonqualified options), (c) determine the
size, terms and conditions of each option, (d) waive compliance by a participant
with any provisions of an option, (e) with the consent of the participant,
cancel any existing option in whole or in part, (f) grant a participant another
option to replace an option or portion thereof that has been canceled, (g)
prescribe the forms of instruments required under the 1991 Option Plan, (h) make
rules for the administration of the 1991 Option Plan and (i) interpret the 1991
Option Plan. Determinations and actions of the Compensation Committee in
accordance with the 1991 Option Plan will be conclusive.
Eligible Participants in the 1991 Option Plan. Awards under the 1991
Option Plan may be granted to officers and other full-time employees (including
Directors who are also full-time employees) of the Company or any of its
subsidiaries at the discretion of the Compensation Committee. Directors of the
Company or any of its subsidiaries who are not full-time employees thereof are
not currently eligible to receive incentive stock options or nonqualified stock
options under the 1991 Option Plan, other than certain nonqualified stock
options granted to such Directors upon consummation of the Company's initial
public offering on July 17, 1991. Options granted under the 1991 Option Plan are
personal to the person to whom they are granted, are non-assignable, are
exercisable during the optionee's lifetime only by such optionee and are
generally not capable of being transferred in any manner other than by will or
the laws of descent. As of July 31, 1996, there were 493 executive officers and
other full-time employees of the Company and its subsidiaries eligible to
receive awards under the 1991 Option Plan.
Terms of Options Under the 1991 Option Plan. Options granted under the 1991
Option Plan may be in the form of incentive stock options and nonqualified stock
options. The exercise price of an incentive stock option ("ISO") granted under
the 1991 Option Plan may not be less than 100% of the fair market value of the
Common Stock at the time of grant. The exercise price of a nonqualified stock
option granted under the 1991 Option Plan may not be less than 50% of such fair
market value. As of May 31, 1996, the market value of the Common Stock was
$5.625 per share. To the extent that the aggregate fair market value (determined
as of the date of grant) of the Common Stock with respect to which ISOs granted
under any plan of the Company are exercisable for the first time during any
calendar year exceeds $100,000, such options shall not be treated as ISOs. The
option exercise price may be paid in cash or, if authorized by the applicable
option agreement and subject to certain additional limitations, by tendering
shares of Common Stock of the Company. An optionee, therefore, may have the
opportunity to apply his/her shares of Common Stock received upon the exercise
of an option to satisfy the exercise price for successive, simultaneously
exercises of additional options. The term of each option may be set by the
Compensation Committee but cannot exceed ten (10) years from grant, and each
option will become exercisable at such time or times as the Compensation
Committee specifies. No option granted under the 1991 Option Plan, however, is
exercisable within six (6) months from the date of grant of the option. Options
granted under the 1991 Option Plan may contain certain exercise restrictions,
such as vesting schedules and provisions calling for early termination of
options upon termination of employment, death and similar events.
Notwithstanding any other provision of the 1991 Option Plan, in the event
of a Change in Control (as defined below), the 1991 Option Plan provides for the
immediate exercisability of all outstanding stock options provided that the
participant has held the stock option granted under the 1991 Option Plan for at
least six (6)
4
<PAGE>
months. Under the 1991 Option Plan, "Change in Control" is generally defined to
include a change in control that the Company would be required to report in
response to Item 6(e) of Schedule 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"); the acquisition of beneficial
ownership, directly or indirectly, of securities of the Company representing
twenty percent (20%) or more of the total number of votes that may be cast for
the election of Directors of the Company; the sale, transfer, or other
disposition of all or substantially all of the assets of the Company to another
person or entity; certain changes in the membership of the Company's Board of
Directors; and the signing of an agreement or other arrangement providing for
any of the foregoing transactions. In addition, the 1991 Option Plan provides
that it and all options issued thereunder will terminate on the effective date
of any (a) dissolution or liquidation of the Company; (b) merger, reorganization
or consolidation in which the Company is acquired by another person or in which
the Company is not the surviving corporation; or (c) sale of all or
substantially all of the assets of the Company to another corporation, unless
provision is made for the assumption of any outstanding options or the
substitution for such options of a new stock option of the successor corporation
with appropriate adjustments. In the event of any such termination, any
unexercised portion of outstanding options, which is vested and exercisable at
that time, will be exercisable for at least fifteen (15) days prior to the date
of such termination, but in no event after the applicable expiration date for
such option.
Duration and Amendment of the 1991 Option Plan. No option may be granted
under the 1991 Option Plan after June 3, 2001. The Board retains the right to
amend the 1991 Option Plan at any time, and from time to time, subject to
shareholder approval when and if required by applicable law or regulation.
Except as set forth above in the event of a Change of Control or other
extraordinary corporate event, no amendment of the 1991 Option Plan may alter or
impair the rights and obligations under a previously granted option without the
optionee's consent.
Federal Income Tax Implications of the 1991 Option Plan. The following
discussion summarizes the material federal income tax consequences of
participation in the 1991 Option Plan based on the law as in effect on August
31, 1996, including consequences of issuance and exercise of options granted
thereunder to the Company and the optionee. Neither this summary nor the other
summaries in this Proxy Statement of certain federal income tax consequences of
participation in plans purport to cover federal employment tax or other federal
tax consequences that may be associated with the plans, nor does it cover state,
local or non-U.S. taxes.
An optionee realizes no taxable income upon the grant or exercise of an
ISO. However, the exercise of an ISO may result in an alternative minimum tax
liability to the optionee. With certain exceptions, a disposition of shares
purchased under an ISO within two (2) years from the date of grant or within one
year after exercise produces ordinary income to the optionee and a deduction to
the Company equal to the value of the shares at the time of exercise less the
exercise price. Any additional gain recognized in the disposition is treated as
a capital gain for which the Company is not entitled to a deduction. If the
optionee does not dispose of the shares until after the expiration of these one-
and two-year holding periods, any gain or loss recognized upon a subsequent sale
is treated as a long-term capital gain or loss for which the Company is not
entitled to a deduction.
In the case of a nonqualified stock option, the optionee has no taxable
income at the time of grant but realizes income at the time of exercise in an
amount equal, in general, to the excess at that time of the fair market value of
the shares acquired upon exercise over the exercise price. A corresponding
deduction is available to the Company. Upon a subsequent sale or exchange of the
shares, appreciation or depreciation after the date of exercise is treated as
capital gain or loss for which the Company is not entitled to a deduction.
In general, an ISO that is exercised more than three (3) months after
termination of employment is treated as a nonqualified stock option. An
optionee's ISOs are also treated as nonqualified stock options to the extent
they first become exercisable in any calendar year for shares having a fair
market value (determined as of the date of grant) in excess of $100,000.
5
<PAGE>
The Company's federal income tax deduction as discussed above for
compensation paid pursuant to the 1991 Option Plan or otherwise is subject to
the limitations of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). In general, Code Section 162(m), subject to certain
exceptions, denies a deduction for compensation payable pursuant to the 1991
Option Plan or otherwise to any employee who is the chief executive officer or
one of the four highest paid officers of the Company (other than the chief
executive officer) to the extent that such compensation exceeds $1 million in
any taxable year. Thus, notwithstanding the foregoing, part or all of the
compensation paid to such officers under the 1991 Option Plan may not be
deductible by the Company.
Market Value. On May 31, 1996, the closing sale price of a share of Common
Stock on the NASDAQ National Market was $5.625. Based on such closing sale
price, the maximum aggregate market value of the securities outstanding and
eligible for issuance under the 1991 Plan Amendment to the 1991 Option Plan was
$2,812,500.
New Plan Benefits. The following table sets forth information regarding
potential awards to eligible participants and groups under the Plan, to the
extent known. See "Availability of Shares for Future Grants."
Dollar Number of Shares
Name and Position Value ($)(1) Subject to Award
----------------- ------------ ----------------
John E. Toler, Jr.
President, Chief Executive Officer
and Director ............................. $ 1,687,500 300,000(2)
Ronald J. Lataille
Chief Financial Officer and Vice
President ............................. (3) (3)
Denis X. Comment
Senior Vice President of Merchandise .. (3) (3)
William Canfield
Vice President of Store Operations .... (3) (3)
Executive Officer Group .................... $ 1,687,500 300,000
Non-Executive Officer Group ................ (3) (3)
- --------------
(1) Based on the market value of $5.625 per share as reported by the NASDAQ
National Market on May 31, 1996.
(2) Represents a stock option granted to Mr. Toler on November 1, 1995, subject
to shareholder approval of the 1991 Plan Amendment. For alternate valuation
of such option, see "Option Grants In Last Fiscal Year" and footnote 3
thereto.
(3) Employees, including executive officers, are eligible to receive awards
pursuant to the 1991 Option Plan. The amount of any such future grants, if
any, cannot be determined at this time.
6
<PAGE>
VOTE REQUIRED FOR APPROVAL
A quorum being present, the affirmative vote of the holders of the majority
of the shares of Common Stock present, or represented, and entitled to vote on
such proposals at the Annual Meeting is required to approve the 1991 Plan
Amendment.
THE BOARD OF DIRECTORS BELIEVES THAT THE ADOPTION OF THE 1991 PLAN
AMENDMENT WILL PROMOTE THE INTERESTS OF THE COMPANY AND THE STOCKHOLDERS AND
HELP THE COMPANY TO ATTRACT, MOTIVATE AND RETAIN FULL-TIME EMPLOYEES.
ACCORDINGLY, THE BOARD OF DIRECTORS HAS APPROVED THE ADOPTION OF THE 1991 PLAN
AMENDMENT, SUBJECT TO SHAREHOLDER APPROVAL THEREOF, AND RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO AMEND THE 1991 OPTION PLAN. PROXIES
SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY
OTHERWISE.
INFORMATION REGARDING DIRECTORS
The Board of Directors of the Company held six meetings during Fiscal 1996.
During Fiscal 1996, each of the incumbent Directors attended at least 75% of the
total number of meetings of the Board and of the committees of which he or she
was a member. The Board of Directors has established an Audit Committee and a
Compensation Committee. The members of the Audit Committee are Ms. Jacobs and
Messrs. Correra and Donaldson. The Audit Committee reviews the financial
statements of the Company and the scope of the annual audit, monitors the
Company's internal financial and accounting controls and recommends to the Board
of Directors the appointment of independent certified public accountants. The
Audit Committee met one time during Fiscal 1996. The members of the Compensation
Committee are Messrs. Carey and Donaldson and Ms. Jacobs. The Compensation
Committee recommends the compensation levels of officers and employees of the
Company to the Board of Directors and is responsible for administering the
Company's stock option plans pursuant to authority delegated to it by the Board
of Directors. The Compensation Committee met one time during Fiscal 1996. The
Board of Directors does not have a nominating committee.
Directors who are officers or employees of the Company receive no
compensation for service as Directors. Directors who are not officers or
employees of the Company receive such compensation for their services as the
Board of Directors may from time to time determine. Non-employee Directors each
receive an annual retainer of $5,000, plus a fee of $2,500 for each Board of
Directors meeting attended ($500 if such meeting is held via telephone
conference) and $1,000 for each committee meeting attended ($500 if such meeting
is held via telephone conference) if such meeting does not take place in
conjunction with a regularly scheduled Board of Directors meeting. All Directors
are reimbursed for expenses incurred in connection with attendance at meetings.
Pursuant to the Company's 1992 Non-Employee Directors' Nonqualified Stock Option
Plan (the "1992 Option Plan"), each eligible non-employee Director automatically
receives an option to purchase 3,000 shares of Common Stock on the last day of
the Company's fiscal year. All options granted pursuant to the 1992 Option Plan
vest and are immediately exercisable upon grant. All options granted under the
1992 Option Plan have an exercise price equal to 100% of the fair market value
of a share of Common Stock on the grant date. On June 1, 1996, the eligible
non-employee Directors of the Company each received an option to purchase 3,000
shares of Common Stock at an exercise price of $5.625 per share, the fair market
value of the Common Stock on May 31, 1996.
Set forth below is certain information regarding the Directors of the
Company, including the two Class II Directors who have been nominated for
re-election at the Annual Meeting, based on information furnished by them to the
Company.
7
<PAGE>
Name Age Director Since
- ---- --- --------------
CLASS I-TERM EXPIRES 1998
Francis X. Correra ......................... 58 1991
Ilene B. Jacobs ............................ 49 1991
CLASS II-TERM EXPIRES 1996
Timothy B. Donaldson*....................... 62 1991
Kenneth W. Watson*.......................... 53 1991
CLASS III-TERM EXPIRES 1997
C. William Carey............................ 59 1991
John E. Toler, Jr........................... 53 1995
- -------------------------------
* Nominee for re-election.
The principal occupation and business experience during at least the last
five years for each Director of the Company is set forth below.
Mr. Carey is Chairman of the Board of Directors of the Company. Since 1965,
he has been Chairman, Chief Executive Officer, President and Treasurer of Town &
Country Corporation ("Town & Country), a wholly-owned subsidiary of which was
the sole shareholder of the Company prior to the public offering of
approximately 68% of the Company's Common Stock in July 1991. Mr. Carey is also
a Director of Prospect Street High Income Portfolio, Inc. and Solomon Brothers,
Limited.
Mr. Correra has been Senior Vice President and Chief Financial Officer of
Town & Country since 1983.
Mr. Donaldson is Chairman and Chief Executive Officer of Dynamo M. Ltd. He
has been Ambassador to the United States, Government of the Bahamas (1993 to
1995); Chairman, Bank of Montreal (Bahamas & Caribbean Ltd.) (1980 to 1983);
Governor, the Central Bank of The Bahamas (1968 to 1980); Governor,
International Monetary Fund (1974 to 1980); Governor, The World Bank (1974 to
1980); and Governor, Caribbean Development Bank (1975 to 1980).
Ms. Jacobs has been Vice President of Digital Equipment Corporation since
1986 and Treasurer since 1984, and currently serves as a Director of Arkwright
Mutual Insurance Company.
Mr. Toler has served as President and Chief Executive Officer and a
Director of the Company since November 1, 1995. Prior to joining the Company,
Mr. Toler was Director of Merchandising of Trimingham's, Bermuda, from May 1995
through October 1995 and President and Chief Executive Officer of Sage-Dey, Inc.
from August 1991 to May 1993. From October 1990 through July 1991, Mr. Toler was
President and Chief Executive Officer of Sage-Allen, Inc. Mr. Toler was a
15-year employee of May Department Stores Company where he served as President
and Chief Executive Officer of several regional department store divisions.
Mr. Watson served as Chief Executive Officer and President of the Company
from January 1, 1994 to October 21, 1994, and has been a Director since 1991.
Mr. Watson served as Executive Vice President of KMart Corporation from October
1994 through March 1996. Mr. Watson was President of Louis Vuitton Stores, Inc.
from July 1992 to March 1993. Previously, he was Chairman and Chief Executive
Officer of Gump's, a retailer of jewelry, art and gift items from September 1989
to June 1992 and President and Chief Executive Officer of Cartier, Inc. from
1985 to September 1989.
8
<PAGE>
EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company and the
principal occupation and business experience during at least the last five years
for each are set forth below as of June 1, 1996.
Name Age Position
---- --- --------
John E. Toler, Jr............ 53 Chief Executive Officer and President
Ronald J. Lataille........... 34 Chief Financial Officer, Vice President
and Treasurer
Denis X. Comment............. 50 Senior Vice President of Merchandise
William Canfield............. 49 Vice President of Store Operations
Mr. Toler has served as President and Chief Executive Officer and a
Director of the Company since November 1, 1995. Prior to joining the Company,
Mr. Toler was Director of Merchandising of Trimingham's, Bermuda, from May 1995
through October 1995 and President and Chief Executive Officer of Sage-Dey, Inc.
from August 1991 to May 1993. From October 1990 through July 1991, Mr. Toler was
President and Chief Executive Officer of Sage- Allen, Inc. Mr. Toler was a
15-year employee of May Department Stores Company where he served as President
and Chief Executive Officer of several regional department store divisions.
Mr. Lataille served as the acting Chief Executive Officer and President of
the Company from October 21, 1994 through October 31, 1995. He has been Chief
Financial Officer, Vice President and Treasurer of the Company since May 1991
and was Controller of the Company from May 1990 to May 1991. Prior to joining
the Company, he was an Audit Manager with Coopers & Lybrand from January 1990 to
May 1990 and an Audit Supervisor from January 1987 to January 1990.
Mr. Comment has been Senior Vice President of Merchandise of the Company
since 1994 and Vice President of Merchandise of the Company since 1987. Mr.
Comment was a buyer of watches and jewelry and a supervisor of crystal, china
and perfume buyers for the Company from 1986 to 1987 and a store manager from
1980 through 1985.
Mr. Canfield has been Vice President of Store Operations since June 1994.
Mr. Canfield was Retail General Manager -- Watches and Jewelry of Colombian
Emeralds International from December 1979 to June 1994.
Each of the officers holds his respective office until the regular annual
meeting of the Board of Directors following the annual meeting of stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal.
9
<PAGE>
EXECUTIVE COMPENSATION
The following sections of this Proxy Statement set forth and discuss the
compensation paid or awarded during the last three years to the Company's Chief
Executive Officer and the four most highly compensated executive officers who
earned in excess of $100,000 during Fiscal 1996.
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended May 31, 1994, May 31,
1995 and June 1, 1996 compensation paid by the Company to the Chief Executive
Officer and the four most highly compensated executive officers who earned in
excess of $100,000 during Fiscal 1996.
<TABLE>
<CAPTION>
Long Term Compensation
-------------------------------------
Annual compensation Awards Payouts
------------------------------------------ --------------------------- --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Annual Restricted Securities LTIP All Other
Name and Compensation Stock Award(s) Underlying Payouts Compensation
Principal Position Year Salary($) Bonus($) ($) ($) Options (#) ($) ($)
- --------------------- ---- ---------- -------- ------------ -------------- --------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr. 1996 177,804 50,000 1,750(4) -- 300,000(6) -- --
President and Chief 1995 -- -- -- -- -- -- --
Executive Officer(1) 1994 -- -- -- -- -- -- --
Ronald J. Lataille 1996 110,000 70,000(3) 1,250(5) -- -- -- --
President and Chief 1995 110,000 15,000 1,750(4) -- 75,000(7) -- --
Executive Officer, 1994 85,000 -- -- -- 10,000 -- --
Chief Financial Officer
and Vice President (2)
Denis X. Comment 1996 150,000 15,000 -- -- -- -- 4,335(8)
Senior Vice President 1995 136,538 10,000 -- -- 75,000(7) -- --
of Merchandise 1994 115,000 -- -- -- 10,000 -- --
William Canfield 1996 156,327 15,000 -- -- -- -- --
Vice President of 1995 141,923 55,000 -- -- 60,000 -- --
Store Operations 1994 -- -- -- -- -- -- --
- -------------------
</TABLE>
(1) Mr. Toler was appointed Chief Executive Officer and President on November 1,
1995.
(2) Mr. Lataille resigned as the acting Chief Executive Officer and President of
the Company on October 31, 1995.
(3) Mr. Lataille was awarded a bonus of $50,000 as compensation for his services
to the Company as its acting President and Chief Executive Officer from
October 21, 1994 to October 31, 1995.
(4) This amount represents the cost to the Company for seven months of certain
automobile allowances.
(5) This amount represents the cost to the Company for five months of certain
automobile allowances.
(6) In connection with his appointment as President and Chief Executive Officer
of the Company, the Company granted Mr. Toler an option to purchase 300,000
shares of the Company's Common Stock pursuant to the 1991 Option Plan,
subject to approval by the stockholders of the Company of the 1991 Plan
Amendment. See "Proposal Number 2--Approval of an Amendment to the 1991
Stock Option Plan" and "Option Grants in Last Fiscal Year."
(7) In connection with the December 21, 1994 grant of an option to purchase
75,000 shares of the Company's Common Stock pursuant to the 1991 Option
Plan, the Company canceled an option to purchase 25,000 shares of the
Company's Common Stock that was granted on November 6, 1992 pursuant to the
1991 Plan.
(8) In Fiscal 1996, the Company contributed $4,335 to an individual account
maintained on behalf of Mr. Comment pursuant to the L.S. Holding, Inc.
tax-qualified discretionary contribution retirement plan (the "Retirement
Plan"). As of June 1, 1996, the total amount of contributions made by the
Company to Mr. Comment's account was $11,767. The Company made no
contributions to the Retirement Plan in Fiscal 1995 or Fiscal 1994.
10
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during Fiscal
1996 to the Chief Executive Officer and each other executive officer named in
the Summary Compensation Table. No stock appreciation rights ("SARs") have been
granted.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(3)
------------------------------------------------------------------- --------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities
Underlying
Options % of Total Options/SARs Exercise or
Granted Granted to Employees in Base Price Expiration
Name (#)(1) Fiscal Year (2) ($/Sh) Date 5%($) 10%($)
- ---- ------------ ------------------------ ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr........ 300,000(4) 100% $3.50 11/1/2005 660,339 1,673,430
Ronald J. Lataille....... 0 -- -- -- -- --
Denis X. Comment......... 0 -- -- -- -- --
William Canfield......... 0 -- -- -- -- --
0 -- -- -- -- --
</TABLE>
- ------------------
(1) All options were granted pursuant to the 1991 Option Plan.
(2) Percentages are based on a total of 300,000 shares of Common Stock
underlying all options granted to employees of the Company in Fiscal 1996.
(3) Represents the value of the options granted at the end of the option terms
if the price of the Company's Common Stock were to appreciate annually by 5%
and 10% respectively. There is no assurance that the stock price will
appreciate at the rates shown in the table. If the stock price appreciates,
the value of stock held by all shareholders will increase.
(4) One-fifth of such option vests and becomes exercisable on each November 1
beginning on November 1, 1996. This option was granted subject to receipt of
stockholder approval of the 1991 Plan Amendment. See "Proposal Number 1--
Approval of an Amendment to the 1991 Stock Option Plan."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
The following table sets forth the shares acquired and the value realized
upon exercise of stock options during Fiscal 1996 by the Chief Executive Officer
and each other executive officer named in the Summary Compensation Table and
certain information concerning the number and value of unexercised options.
11
<PAGE>
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at
Options at FY-End(#) FY-End($)(1)
Shares Acquired on Value --------------------------- ---------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr....... -- -- -- 300,000(2) -- 637,500
Ronald J. Lataille...... -- -- 30,167 63,333 13,125 52,500
Denis X. Comment........ -- -- 37,667 63,333 13,125 52,500
William Canfield........ -- -- 7,000 53,000 1,750 7,000
</TABLE>
- ------------------
(1) Equal to the market value of shares covered by in-the-money options on June
1, 1996 less the aggregate option exercise price. Options are in-the-money
if the market value of the shares covered thereby is greater than the option
exercise price.
(2) Represents an option granted to Mr. Toler on November 1, 1995 subject to
receipt of stockholder approval of the 1991 Plan Amendment. See "Proposal
Number 1--Approval of an Amendment to the 1991 Stock Option Plan" and
"Option Grants in Last Fiscal Year."
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Compensation Committee of the Board of Directors of the Company
consists of C. William Carey, Timothy B. Donaldson and Ilene B. Jacobs, all of
whom are outside directors. The Compensation Committee approves Company
compensation policies and procedures and establishes compensation levels for
executive officers. The Compensation Committee also administers and grants
awards under the 1991 Option Plan and the Company's Employee Stock Purchase
Plan.
Compensation Policies for Executive Officers
The Compensation Committee's executive compensation philosophy is to
provide competitive levels of compensation, integrate management's pay with
Company performance, reward above average individual performance, and assist the
Company in attracting and retaining qualified management. The Compensation
Committee has determined that base salaries of executive officers should be set
at levels that are competitive within the local retail industry. In addition,
the Compensation Committee believes that it is appropriate to reward outstanding
performance through a combination of cash bonuses and stock option grants and,
through stock option grants, to provide a competitive compensation package that
will enable the Company to attract and retain the executives needed to achieve
such performance. The Compensation Committee also has determined that any stock
option or other equity-based compensation should involve long-term vesting to
encourage long-term tenure and enhancement of shareholder value over the
long-term.
Base salaries for executive officers are targeted according to the salaries
of employees holding similar offices and having similar responsibilities within
the local retail industry. The Compensation Committee also considers the
relative cost of living within the United States Virgin Islands. Annual salary
adjustments for executive officers are determined by evaluating the competitive
marketplace, the performance of the Company, the performance of the executive
officer and any change in the responsibilities assumed by the executive officer.
Salary adjustments are normally determined and made on an annual basis.
The base salary and salary adjustments for John E. Toler, Jr., President
and Chief Executive Officer since November 1, 1995, and William Canfield, Vice
President of Store Operations since June 16, 1994, were established pursuant to
their respective employment agreements, as described below under "Employment
Agreements." The terms of employment of Ronald J. Lataille, the acting Chief
Executive Officer and President
12
<PAGE>
of the Company from October 21, 1994 through October 31, 1995, were determined
by the Compensation Committee and approved by the Board of Directors. See
"--Compensation of the Chief Executive Officer" below.
Cash bonuses paid to executive officers generally are earned primarily
through the achievement of financial goals relative to each officer's
responsibilities. Such financial goals include targeted sales and profit levels,
earnings before interest and taxes ratios, selling, general and administrative
expense ratios, return on assets, inventory shrinkage and inventory turns.
Executive officers generally are eligible to earn up to 25% of their base
salaries in cash bonuses. Based upon the foregoing criteria, Messrs. Lataille
and Comment received bonuses of $20,000 and $15,000, respectively, for Fiscal
1996 performance. In addition, Mr. Lataille was awarded a special bonus in
Fiscal 1996 of $50,000 as compensation for his services to the Company as its
acting President and Chief Executive Officer from October 21, 1994 to October
31, 1995. Cash bonuses may also be paid to executive officers in accordance with
the terms of their employment agreements. Bonuses payable pursuant to such
agreements generally are earned through the achievement of the financial goals
similar to those discussed above and may also be awarded for executive retention
purposes in the sole discretion of the Compensation Committee. Pursuant to their
respective employment contracts, Messrs. Toler and Canfield were each eligible
to earn a bonus of up to 33.33% and 25%, respectively, of their respective base
salaries for Fiscal 1996. Based upon the performance of the Company for Fiscal
1996, Messrs. Toler and Canfield received bonuses of $50,000 and $15,000,
respectively. See "--Compensation of the Chief Executive Officer" and
"Employment Agreements" below.
Stock options are designed to attract and retain executives who can make
significant contributions to the Company's success; reward executives for such
significant contributions; and give executives a longer-term incentive to
increase shareholder value. In determining whether to grant stock options to
executive officers, the Compensation Committee evaluates each officer's
performance by examining criteria similar to that involved in fixing cash
bonuses (but without any specific performance measures) and awards reflect
individual performance reviews. The Compensation Committee also may grant stock
options for executive retention purposes, taking into account, among other
things, general industry practice. Stock options typically vest over three to
five years in order to encourage outstanding performance over the long-term.
Historically, stock options generally have been granted with a ten-year term and
an exercise price equal to 100% of the fair market value of the Common Stock on
the grant date.
In Fiscal 1996, for executive retention purposes, Mr. Toler received an
option to purchase 300,000 shares of Common Stock at $3.50 per share in
connection with his hire on November 1, 1995, subject to stockholder approval of
the 1991 Plan Amendment. See "Proposal Number 1--Approval of an Amendment to the
1991 Stock Option Plan." This option vests ratably over a five-year period
beginning on the first anniversary of the grant date.
Compensation of the Chief Executive Officer
John E. Toler, Jr. The base salary and bonus for Mr. Toler, the Company's
President and Chief Executive Officer since November 1, 1995, were established
by Mr. Toler's employment agreement. See "Employment Agreements" below. During
Fiscal 1996, there were no adjustments made to Mr. Toler's base salary, and he
received a cash bonus of $50,000 in accordance with the terms of his employment
agreement. Additionally, pursuant to the terms of Mr. Toler's employment
agreement, the Company granted Mr. Toler an option to purchase 300,000 shares of
the Company's Common Stock at $3.50 per share pursuant to the 1991 Option Plan,
subject to stockholder approval of the 1991 Plan Amendment. This option vests
and becomes exercisable ratably over a five-year period beginning on November 1,
1996.
Ronald J. Lataille. Mr. Lataille, the Company's Vice President and Chief
Financial Officer and, from October 21, 1994 to October 31, 1995, acting
President and Chief Executive Officer, receives competitive
13
<PAGE>
compensation and regular benefits in effect for senior executives of the
Company. In Fiscal 1996, the Compensation Committee established a base salary
for Mr. Lataille of $110,000, and Mr. Lataille received a bonus of $20,000. In
addition, Mr. Lataille was awarded a special bonus in Fiscal 1996 of $50,000 as
compensation for his services to the Company as its acting President and Chief
Executive Officer from October 21, 1994 to October 31, 1995. See "--Compensation
Policies for Executive Officers."
New Federal Tax Regulations
As a result of new Section 162(m) of the Code, the Company's deduction of
executive compensation may be limited to the extent that a "covered employee"
(i.e., the chief executive officer or one of the four highest compensated
officers who is employed on the last day of the Company's taxable year and whose
compensation is reported in the summary compensation table in the Company's
proxy statement) receives compensation in excess of $1,000,000 in such taxable
year of the Company (other than performance-based compensation that otherwise
meets the requirements of Section 162(m) of the Code). The Company intends to
take appropriate action to comply with such regulations, if applicable, in the
future.
C. William Carey Ilene B. Jacobs Timothy B. Donaldson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Carey, a member of the Compensation Committee and Chairman of the Board
of Directors of the Company, is President, Chief Executive Officer, Chairman of
the Board and the controlling stockholder of Town & Country. Town & Country and
certain of its subsidiaries supply the Company with jewelry. The aggregate
amount of purchases by the Company from these entities totaled approximately
$1.4 million, $2.5 million and $1.4 million, in Fiscal 1994, 1995 and 1996,
respectively. Pursuant to written agreements among Town & Country, these
subsidiaries and the Company, Town & Country and the subsidiaries have agreed to
supply jewelry to the Company at the Company's option, on the terms and
conditions in effect prior to the Company's initial public offering. These
agreements are automatically renewed each year unless either party terminates
upon 60 days' notice prior to the end of a year. The Company believes that all
jewelry purchased pursuant to these agreements with Town & Country and its
subsidiaries can be readily purchased from other suppliers on comparable terms,
and that these agreements do not restrict the Company from purchasing from other
sources. See "Certain Relationships and Related Transactions."
On June 2, 1996, Mr. Carey entered into a consulting agreement with the
Company (the "Carey Consulting Agreement"). Pursuant to the Carey Consulting
Agreement, Mr. Carey has agreed to make himself available for a period of three
(3) years commencing on June 2, 1996 to provide consulting services to the
Company, including, without limitation, advice with respect to business and
product planning, marketing strategy, leasing and new store development and
executive recruitment. In exchange for such services, Mr. Carey will receive a
consulting fee at the annual rate of $150,000, payable in monthly installments.
In addition, Mr. Carey is entitled to receive reimbursement for all reasonable
expenses incurred by him on behalf of the Company in connection with the
performance of his obligations thereunder.
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock, based on
the market price of the Company's Common Stock and assuming reinvestment of
dividends, with the total return of companies within the NASDAQ stock market and
the companies within the NASDAQ Retail Trade Stocks Index prepared by the Center
for Research in Security Prices ("CRSP") at The University of Chicago Graduate
School of Business. The calculation of total cumulative return assumes a $100
investment in the Company's Common Stock, the NASDAQ stock market and the NASDAQ
Retail Stocks Index on July 18, 1991.
14
<PAGE>
<TABLE>
COMPARISON OF FIVE YEAR -- CUMULATIVE TOTAL RETURNS
[CHART OMITTED]
The following table contains the data on which the chart is based.
<CAPTION>
Fiscal Little Nasdaq Stock
Year Switzerland, Market Nasdaq Retail
Ended Inc. (US Companies) Trade Stocks
<S> <C> <C> <C>
5/31/91 100 100 100
5/29/92 102.083 117.405 112.84
5/28/93 83.333 141.223 112.35
5/31/94 54.167 148.669 113.96
5/31/95 39.583 176.858 116.23
5/31/96 48.958 257.051 159.72
</TABLE>
EMPLOYMENT AGREEMENTS
On November 1, 1995, Mr. Toler entered into an employment agreement with
the Company (the "Toler Employment Agreement"), pursuant to which Mr. Toler
serves as President and Chief Executive Officer of the Company for a five-year
term. Under the Toler Employment Agreement, Mr. Toler receives a base salary of
$300,000 over each twelve month term ending on October 31, beginning with the
term ending on October 31, 1996. The Toler Agreement does not provide for any
adjustment of base salary over the term. Pursuant to the Toler Employment
Agreement, Mr. Toler is entitled to receive a bonus if certain performance
criteria are satisfied, ranging from 33.33% of base salary for Fiscal 1996 to
50% of base salary for fiscal year 1999 and each fiscal year thereafter. In the
event Mr. Toler's employment is terminated without cause, Mr. Toler is entitled
to receive the salary plus pro rata share of any cash bonus he would have
received if he had continued his employment for 18 months following the date of
such termination. Mr. Toler is subject to certain non-competition provisions
during the term of his employment and, in certain circumstances, for a period of
18 months subsequent to his leaving the Company.
On June 16, 1994, Mr. Canfield entered into an employment agreement with
the Company (the "Canfield Employment Agreement"), pursuant to which Mr.
Canfield serves as the Vice President of Store Operations of the Company for a
five-year term. Under the Canfield Employment Agreement, Mr. Canfield receives a
base salary ranging from $157,000 over the twelve-month term ending on June 15,
1996 to $182,000 over the twelve-month term ending on June 15, 1999, and upon
the achievement of certain financial performance criteria, a bonus in an amount
of up to 25% of his base salary in each year. Pursuant to the Canfield
Employment Agreement, Mr. Canfield received a signing bonus equal to $50,000 on
the date he became Vice President of Store Operations of the Company. In the
event Mr. Canfield's employment is terminated due to his disability, for
non-performance or without cause, Mr. Canfield is entitled to receive the salary
he would have received had he continued his employment for 60 days, 90 days or
12 months, respectively, following the date of such termination. Mr. Canfield is
subject to certain non-competition provisions during the term of his employment
and, in certain circumstances, for a period of up to one year subsequent to his
leaving the Company.
15
<PAGE>
CHANGE-IN-CONTROL AGREEMENTS
Messrs. Lataille and Comment have each entered into Change-in-Control
Agreements (the "Change-in-Control Agreements") with the Company. Each
Change-in-Control Agreement provides that in the event of a "Termination Event"
(as defined in the Change-in-Control Agreements, and generally any termination
of employment (a) for any reason other than death or "For Cause" (as defined in
the Change-in-Control Agreements), or (b) by the executive subsequent to the
occurrence of a 10% reduction in the executive's annual base salary) subsequent
to a "Significant Event" (as defined in the Change-in-Control Agreements, and
generally a change in control, sale or other disposition of all or substantially
all of the assets, or liquidation or dissolution of the Company), the following
benefits will be provided: a monthly cash payment beginning 30 days after the
date of the Termination Event equal to one twenty-fourth (1/24th) of an
aggregate amount equal to two times the sum of the executive's highest annual
base salary paid at any time during the twenty-four months prior to the
Termination Event plus the amount of any bonuses paid during the previous fiscal
year; such monthly payment to be paid for a period of 24 months if the
Termination Event occurs within 1 year after a Significant Event or for a period
of 12 months if the Termination Event occurs any time after 1 year subsequent to
the Significant Event. A change in control is deemed to have occurred if, in the
event of certain tender offers, mergers, consolidations, sale of assets,
contested elections or other transactions in which the Company is acquired, (a)
directors of the Company before the transaction cease to constitute a majority
of the Board of Directors of the Company (or of any successor entity); (b) the
Company is not the surviving corporation; or (c) the stockholders of the Company
immediately prior to such transaction do not hold immediately after such
transaction a majority in the aggregate of the outstanding common shares of the
surviving entity.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Carey, a Director and Chairman of the Board of Directors of the
Company, is Chairman, President, Chief Executive Officer and the controlling
stockholder of Town & Country. Prior to the consummation of Town & Country's
recapitalization on May 14, 1993 (the "Recapitalization"), Switzerland Holding
Inc., a wholly-owned subsidiary of Town & Country ("Switzerland Holding"), owned
2,700,000 shares of the Company's Common Stock (approximately 32.0% of the
issued and outstanding Common Stock at that time). In connection with the
consummation of the Recapitalization, Switzerland Holding was dissolved and
2,533,279 shares of such stock were transferred to a trust (the "Trust")
established for the benefit of Town & Country and the holders of Town &
Country's Exchangeable Preferred Stock (the "Town & Country Exchangeable
Preferred Stock"). Generally, each holder of a share of Town & Country
Exchangeable Preferred Stock may exchange such share for one share of the
Company's Common Stock held in the Trust. On April 6, 1993, Town & Country
exercised its rights under a Registration Rights Agreement and requested that
the Company file with the SEC a registration statement covering the shares of
the Company's Common Stock currently held in the Trust. In accordance with the
terms of the Registration Rights Agreement, the Company caused such shares to be
registered with the SEC. In November 1994, holders of an aggregate of 2,381,038
shares of Town & Country Exchangeable Preferred Stock exercised their right to
exchange such shares for shares of the Company's Common Stock on a
share-for-share basis. Accordingly, the Trust currently holds 152,241 shares of
the Company's Common Stock for the benefit of Town & Country and the holders of
Town & Country Exchangeable Preferred Stock.
In addition to Mr. Carey, Mr Correra is an executive officer of Town &
Country and holds the offices of Senior Vice President and Chief Financial
Officer. Town & Country and certain of its subsidiaries supply the Company with
jewelry. The aggregate amount of purchases by the Company from these entities
totaled approximately $1.4 million, $2.5 million and $1.4 million in Fiscal
1994, 1995 and 1996, respectively. Pursuant to written agreements among Town &
Country, these subsidiaries and the Company, Town & Country and the subsidiaries
have agreed to supply jewelry to the Company at the Company's option, on the
terms and conditions in effect prior to the Company's initial public offering.
These agreements are automatically renewed each year
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unless either party terminates upon 60 days' notice prior to the end of a year.
The Company believes that all jewelry purchased pursuant to these agreements
with Town & Country and its subsidiaries can be readily purchased from other
suppliers on comparable terms, and that these agreements do not restrict the
Company from purchasing from other sources.
Mr. Carey, a Director of the Company, is also a Director of Solomon
Brothers, Limited, the Company's franchisee which operates nine stores under the
Little Switzerland name in the Bahamas. In addition, Mr. Carey entered into the
Carey Consulting Agreement with the Company on June 2, 1996, which provides,
among other things, that Mr. Carey will receive in exchange for certain services
a consulting fee at the annual rate of $150,000 over a three (3) year term. See
"Executive Compensation--Compensation Committee Interlocks and Insider
Participation."
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of the Company's
Common Stock as of August 31, 1996 by (i) each person known by the Company to be
the beneficial owner of more than 5% of the outstanding Common Stock, (ii) each
of the Company's Directors, (iii) each of the named executive officers in the
Summary Compensation Table and (iv) all of the Company's executive officers and
Directors as a group.
SHARES
DIRECTORS, EXECUTIVE OFFICERS BENEFICIALLY PERCENT OF
AND 5% STOCKHOLDERS OWNED(1) CLASS(2)
State of Wisconsin
Investment Board.............................. 815,000(3) 9.4%
P.O. Box 7842
Madison, WI 53707
The TCW Group, Inc.............................. 627,600(4) 7.2%
Robert Day
865 South Figueroa Street
Los Angeles, CA 90017
Wellington Management Company................... 477,000(5) 5.5%
75 State Street
Boston, MA 02109
T. Rowe Price Associates, Inc................... 433,600(6) 5.0%
T. Rowe Price New Horizons
Fund, Inc.
100 E. Pratt Street
Baltimore, MD 21202
William Canfield................................ 14,500(7) *
C. William Carey................................ 52,000(8) *
Denis X. Comment................................ 41,601(9) *
Francis X. Correra.............................. 27,000(10) *
Timothy B. Donaldson............................ 18,000(11) *
Ilene B. Jacobs................................. 27,000(12) *
Ronald J. Lataille.............................. 34,468(13) *
John E. Toler, Jr............................... 0 *
Kenneth W. Watson............................... 24,000(14) *
All directors and executive officers
as a group (9 persons)........................ 238,569 2.8%
- --------------------------
* Less than 1%.
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(1) Beneficial share ownership is determined pursuant to Rule 13d-3 under the
Exchange Act. Accordingly, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares the power to vote
such security or the power to dispose of such security. The amounts set
forth as beneficially owned include shares owned, if any, by spouses and
relatives living in the same home as to which beneficial ownership may be
disclaimed. The amounts set forth as beneficially owned include shares of
Common Stock which such Directors or officers had the right to acquire
within 60 days of July 31, 1996 under options previously granted pursuant
to the 1991 Option Plan and the 1992 Option Plan.
(2) Percentages are calculated on the basis of 8,671,089 shares of stock
outstanding as of August 31, 1996, which includes 73,000 shares subject to
options exercisable within 60 days of July 31, 1996 granted pursuant to the
1992 Option Plan, and 139,000 shares subject to options exercisable within
60 days of July 31, 1996 granted pursuant to the 1991 Option Plan.
(3) The above information is based on copies of a statement on Schedule 13G
filed with the SEC on February 6, 1996, which indicates that the State of
Wisconsin Investment Board has sole voting and dispositive power with
respect to all 815,000 shares.
(4) The above information is based on copies of a statement on Schedule 13D
filed with the SEC on February 13, 1996, which indicates that The TCW
Group, Inc. and Robert Day each has sole voting and dispositive power with
respect to all 627,600 shares.
(5) The above information is based on copies of a statement on Schedule 13G
filed with the SEC on February 14, 1996, which indicates that Wellington
Management Company has shared voting power with respect to 248,000 shares
and shared dispositive power with respect to all 477,000 shares.
(6) The above information is based on copies of a statement on Schedule 13G
filed with the SEC on February 13, 1996, which indicates that T. Rowe Price
Associates, Inc. has sole dispositive power with respect to all 433,600
shares and that T. Rowe Price New Horizons Fund, Inc. has sole voting power
with respect to all 433,600 shares.
(7) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Canfield which are subject to options previously granted pursuant to the
1991 Option Plan.
(8) Includes 10,000 shares and 17,000 shares of Common Stock deemed to be
beneficially owned by Mr. Carey which are subject to options previously
granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively. Includes 25,000 shares of Common Stock deemed to be
beneficially owned by Mr. Carey which may be acquired pursuant to the
conversion of shares of Exchangeable Preferred Stock of Town & Country
Corporation beneficially owned by Mr. Carey. Does not include 152,241
shares of Common Stock held in the Trust by Linchmen Company, c/o State
Street Bank & Trust Company, as trustee for the Trust established in
connection with the recapitalization of Town & Country, of which Mr. Carey
is Chairman, President and the controlling stockholder. Does not include
166,721 shares of Common Stock beneficially owned by Town & Country.
(9) Includes 41,000 shares of Common Stock deemed to be beneficially owned by
Mr. Comment which are subject to options previously granted pursuant to the
1991 Option Plan.
(10) Represents 10,000 shares and 17,000 shares of Common Stock deemed to be
beneficially owned by Mr. Correra which are subject to options previously
granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively. Does not include 152,241 shares of Common Stock held in the
Trust by Linchmen Company, c/o State Street Bank & Trust Company, as
trustee for the Trust established in connection with the recapitalization
of Town & Country, of which Mr. Correra is Senior Vice President and Chief
Financial Officer. Does not include 166,721 shares of Common Stock
beneficially owned by Town & Country.
(11) Represents 10,000 shares and 8,000 shares of Common Stock deemed to be
beneficially owned by Mr. Donaldson which are subject to options previously
granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively.
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(12) Represents 10,000 shares and 17,000 shares of Common Stock deemed to be
beneficially owned by Ms. Jacobs which are subject to options previously
granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively.
(13) Includes 33,500 shares of Common Stock deemed to be beneficially owned by
Mr. Lataille which are subject to options previously granted pursuant to
the 1991 Option Plan.
(14) Represents 10,000 shares and 14,000 shares of Common Stock deemed to be
beneficially owned by Mr. Watson which are subject to options previously
granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively.
MARKET VALUE
On August 31, 1996, the closing price of a share of the Company's Common
Stock on NASDAQ was $4.375.
EXPENSES OF SOLICITATION
The Company will pay the entire expense of soliciting proxies for the
Annual Meeting. In addition to solicitations by mail, certain Directors,
officers and regular employees of the Company (who will receive no compensation
for their services other than their regular compensation) may solicit proxies by
telephone, telegram or personal interview. Banks, brokerage houses, custodians,
nominees and other fiduciaries have been requested to forward proxy materials to
the beneficial owners of shares held of record by them and such custodians will
be reimbursed for their expenses.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1997 annual meeting
must be received by the Company on or before June 16, 1997 in order to be
considered for inclusion in the Company's proxy statement and form of proxy for
that meeting. The Company's By-laws provide that any stockholder of record
wishing to have a stockholder proposal considered at an annual meeting must
provide written notice of such proposal and appropriate supporting
documentation, as set forth in the By-laws, to the Company at its principal
executive office not less than 75 days nor more 120 days prior to the first
anniversary of the date of the preceding year's annual meeting; provided,
however, that in the event the annual meeting is advanced by more than seven
days from the anniversary date, notice must be so delivered not later than (i)
the 20th day after public disclosure of the date of such meeting or (ii) if such
public disclosure occurs more than 75 days prior to such scheduled date of such
meeting, then the later of the 20th day after the date of public disclosure or
the 75th day prior to such scheduled date of such meeting. Any such proposal
should be mailed to: Secretary, Little Switzerland, Inc., 161-B Crown Bay Cruise
Port, St. Thomas, U.S.V.I. 00804.
INDEPENDENT ACCOUNTANTS
The Company has selected Arthur Andersen & Co. as the independent public
accountants for the Company for the fiscal year ending May 31, 1997. The firm of
Arthur Andersen & Co. has served as the Company's independent public accountants
since its incorporation and has served as the accountant for certain of its
subsidiaries since 1980. A representative of Arthur Andersen & Co. will be
present at the Annual Meeting and will be given the opportunity to make a
statement if he or she so desires. The representative will be available to
respond to appropriate questions.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of the Company's
outstanding shares of Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and NASDAQ. Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Section 16(a)
reports were required for those persons, the Company believes that during the
fiscal year ended June 1, 1996, one report for each of the following directors
was inadvertently filed late: C. William Carey, Francis X. Correra, Ilene B.
Jacobs, Timothy B. Donaldson and Kenneth W. Watson.
OTHER MATTERS
The Board of Directors does not know of any matters other than those
described in this Proxy Statement which will be presented for action at the
Annual Meeting. If other matters are duly presented, proxies will be voted in
accordance with the best judgment of the proxy holders.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
20
<PAGE>
PROXY CARD
LITTLE SWITZERLAND, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 11, 1996
The undersigned hereby constitutes and appoints C. William Carey and Ronald J.
Lataille, and each of them, as Proxies of the undersigned, with full power to
appoint his substitute, and authorizes each of them to represent and to vote all
shares of Common Stock of Little Switzerland, Inc. (the "Company") held of
record by the undersigned as of the close of business on September 4, 1996, at
the Annual Meeting of Stockholders (the "Annual Meeting") to be held at State
Street Bank and Trust Company, Board Room, 33rd Floor, 225 Franklin Street,
Boston, Massachusetts, on Friday, October 11, 1996, at 10:30 a.m., local time,
and at any adjournments
or postponements thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE NOMINEES OF THE BOARD OF DIRECTORS LISTED IN PROPOSAL 1 AND FOR
APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1991 STOCK OPTION PLAN AS SET FORTH
IN PROPOSAL 2. IN THEIR DISCRETION, THE PROXIES ARE EACH AUTHORIZED TO VOTE UPON
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY
ADJOURNMENTS OR POSTPONEMENTS THEREOF. A stockholder wishing to vote in
accordance with the Board of Directors' recommendations need only sign and date
this proxy and return it in the enclosed envelope.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of Annual Meeting of Stockholders, the Proxy Statement with respect
thereto and the Company's 1996 Annual Report to Stockholders and hereby
revoke(s) any proxy or proxies heretofore given. This proxy may be revoked at
any time before it is exercised.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
PLEASE SIGN NAME EXACTLY AS SHOWN. WHERE THERE IS MORE THAN ONE HOLDER, EACH
SHOULD SIGN. WHEN SIGNING AS AN ATTORNEY, ADMINISTRATOR, EXECUTOR, GUARDIAN OR
TRUSTEE, PLEASE ADD YOUR TITLE AS SUCH. IF EXECUTED BY A CORPORATION OR
PARTNERSHIP, THE PROXY SHOULD BE SIGNED BY A DULY AUTHORIZED PERSON, STATING HIS
OR HER TITLE OR AUTHORITY.
HAS YOUR ADDRESS CHANGED? ___________________________________________
___________________________________________
DO YOU HAVE ANY COMMENTS? ___________________________________________________
___________________________________________________
<PAGE>
PLEASE MARK VOTES AS IN [ X ]
THIS EXAMPLE
PROPOSAL 1. [ ] FOR [ ] WITHHOLD [ ] FOR ALL
Election of two Class II Directors, EXCEPT
each for a three-year term.
NOMINEES: Timothy B. Donaldson and
Kenneth W. Watson
IF YOU DO NOT WISH YOUR SHARES VOTED FOR A PARTICULAR NOMINEE, MARK THE FOR ALL
EXCEPT BOX AND STRIKE A LINE THROUGH THAT NOMINEE'S NAME. YOUR SHARES WILL BE
VOTED FOR THE REMAINING NOMINEE.
PROPOSAL 2. [ ] FOR [ ] AGAINST [ ] ABSTAIN
Amendment of the Company's 1991
Stock Option Plan, authorizing
issuance thereunder of an additional
400,000 shares of the Company's
common stock
RECORD DATE SHARES
- -----------------------------------------
REGISTRATION LITTLE SWITZERLAND, INC.
- -----------------------------------------
PLEASE BE SURE TO SIGN AND DATE THIS PROXY. Date:________________________
Shareholder(s) signature(s): _______________________________________________
_______________________________________________
Mark the box at the right if comments or address change [ ]
have been noted on the reverse side of this card.
