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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
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LITTLE SWITZERLAND, INC.
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(Name of Registrant as Specified in its Charter)
ASPEN INVESTMENTS INC.
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(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)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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NOTE: THESE ARE PRELIMINARY PROXY MATERIALS AND AS REQUIRED BY U.S. SECURITIES
LAWS DO NOT INCLUDE A PROXY CARD. ONCE OUR PROXY MATERIALS BECOME DEFINITIVE,
YOU WILL RECEIVE ANOTHER COPY ALONG WITH OUR GOLD PROXY CARD WHICH YOU CAN USE
TO VOTE YOUR SHARES.
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PROXY STATEMENT
IN OPPOSITION TO THE SOLICITATION BY THE BOARD OF DIRECTORS OF
LITTLE SWITZERLAND, INC.
ANNUAL MEETING OF STOCKHOLDERS
OF LITTLE SWITZERLAND, INC.
TO BE HELD ON , 1997
This Proxy Statement and the accompanying [GOLD] Proxy Card are being
furnished by the Colombian Emeralds International group of companies ("Colombian
Emeralds"), Stephen G.E. Crane and Aspen Investments Inc., a Panama corporation
("Aspen", and together with Colombian Emeralds and Mr. Crane, "CEI"), to the
stockholders of Little Switzerland, Inc., a Delaware corporation (the
"Company"), with its principal executive offices located at 161-B Crown Bay
Cruise Ship Port, St. Thomas, U.S. Virgin Islands VI00802, to be used at the
1997 annual meeting of the stockholders of the Company and any adjournments or
postponements thereof (the "Annual Meeting"). CEI understands that the Company
(i) has selected , 1997 as the record date (the "Record Date") for
determining the stockholders of the Company entitled to notice of and to vote at
the Annual Meeting and (ii) plans to hold the Annual Meeting on ,
, 1997, at a.m. local time at
.
For the reasons set forth below, CEI is soliciting your proxy to elect
Stephen G.E. Crane (the "Nominee") to the board of directors (the "Board of
Directors") of the Company to serve until the year 2000 annual meeting of the
stockholders of the Company and until his successor is elected and qualified.
This Proxy Statement and the accompanying [GOLD] Proxy Card are first being
sent or given on or about , 1997 to the holders of record of common
stock, $0.01 par value per share (the "Common Stock"), of the Company at the
close of business on the Record Date. According to the Company's Notice of
Annual Meeting of Stockholders and Proxy Statement (the "Company Proxy
Statement") filed by the Company with the Securities and Exchange Commission on
, 1997, as of the close of business on the Record Date, there were
shares of Common Stock outstanding. Each share of Common Stock is
entitled to one vote on all matters to come before the Annual Meeting. The
Company has no other class of voting securities outstanding.
On , 1997, Aspen was the beneficial owner of 300 shares of
Common Stock and Mr. Crane was the beneficial owner of 261,100 shares of Common
Stock. CEI believes that Aspen and Mr. Crane together own % of the issued
and outstanding shares of Common Stock. Aspen and Mr. Crane intend to vote their
shares FOR the election of the Nominee.
THE BOARD OF DIRECTORS HAS RECENTLY DEFERRED CONSIDERATION OF A PROPOSAL
FOR A BUSINESS COMBINATION BETWEEN THE COMPANY AND COLOMBIAN EMERALDS, WHICH IS
CONTROLLED BY MR. CRANE, WHICH PROPOSAL CEI BELIEVES TO BE IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS (A COPY OF THE PROPOSAL IS ATTACHED HERETO
AS EXHIBIT A). PRIOR TO THIS RECENT DEFERRAL, THE BOARD OF DIRECTORS REJECTED
TWO SIMILAR PROPOSALS FOR A BUSINESS COMBINATION BETWEEN THE COMPANY AND
COLOMBIAN EMERALDS. IN ADDITION, AS DETAILED BELOW, CEI BELIEVES THAT THE
COMPANY'S POOR FINANCIAL PERFORMANCE AND THE RESULTING DECREASE IN THE TRADING
PRICE OF ITS COMMON STOCK SINCE THE COMPANY'S INITIAL PUBLIC OFFERING IS THE
RESULT OF THE MISMANAGEMENT OF THE COMPANY UNDER THE DIRECTION OF THE CURRENT
CHAIRMAN OF THE BOARD OF DIRECTORS. THE COMMON STOCK WAS FIRST SOLD TO THE
PUBLIC IN JULY 1991 AT A PRICE OF $12.00 PER SHARE. THE AVERAGE LAST SALE PRICE
OF THE COMMON STOCK DURING THE ONE MONTH PERIOD PRECEDING THE JOINT FILING OF A
SCHEDULE 13-D BY VALUEVEST PARTNERS L.P.
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AND DONALD L. STURM ON MAY 5, 1997 WAS $4.69 PER SHARE. CEI BELIEVES THAT THE
COMPANY'S CURRENT MANAGEMENT TEAM UNDER THE SUPERVISION OF THE CURRENT CHAIRMAN
OF THE BOARD OF DIRECTORS WILL BE UNABLE TO LEAD THE COMPANY BACK TO THE
COMPETITIVE POSITION IN THE MARKETPLACE ONCE HELD BY THE COMPANY. MR. CRANE HAS
SUBSTANTIAL EXPERIENCE IN SUCCESSFULLY RUNNING THE DAY TO DAY OPERATIONS OF AN
ENTERPRISE WHICH IS IN THE SAME BUSINESS AS THE COMPANY AND WHICH HAS
SIGNIFICANTLY OUTPERFORMED THE COMPANY IN RECENT YEARS. THE CHAIRMAN OF THE
BOARD OF DIRECTORS WHO IS NOMINATED FOR RE-ELECTION AT THE ANNUAL MEETING MUST
BE REPLACED. ACCORDINGLY, YOU ARE URGED TO VOTE IN FAVOR OF THE ELECTION OF THE
NOMINEE BY SIGNING, DATING AND RETURNING PROMPTLY THE ENCLOSED [GOLD] PROXY
CARD.
IMPORTANT
Carefully review this Proxy Statement and the enclosed [GOLD] Proxy Card.
No matter how many or how few shares of Common Stock you own, please vote FOR
the election of the Nominee to the Board of Directors by so indicating and by
signing, dating and mailing to CEI the [GOLD] Proxy Card promptly.
ONLY STOCKHOLDERS OF RECORD ON THE RECORD DATE ARE ENTITLED TO EXECUTE
PROXIES.
CEI REQUESTS THAT YOU DO NOT VOTE ON OR RETURN TO THE COMPANY ANY PROXY
CARD PROVIDED TO YOU BY THE COMPANY OR ANY OTHER STOCKHOLDER OF THE COMPANY,
EVEN TO VOTE AGAINST THE INCUMBENT BOARD'S SLATE OR ANY OTHER SLATE OF NOMINEES.
RETURNING ANY PROXY CARD PROVIDED TO YOU BY THE COMPANY COULD REVOKE THE [GOLD]
PROXY CARD THAT YOU SIGN, DATE AND SEND TO CEI.
If you own shares of Common Stock, but your stock certificate is held for
you by a brokerage firm, bank or other institution, it is very likely that the
stock certificate is actually in the name of such brokerage firm, bank or other
institution. If so, only such entity can execute a [GOLD] Proxy Card and vote
your shares of Common Stock. The brokerage firm, bank, or other institution
holding the shares of Common Stock for you is required to forward proxy
materials to you and to solicit your instructions with respect to the granting
of proxies; it cannot vote your shares of Common Stock unless it receives your
instructions. PLEASE INSTRUCT THE BROKERAGE FIRM, BANK, OR OTHER INSTITUTION
HOLDING THE SHARES OF COMMON STOCK FOR YOU TO VOTE SUCH SHARES FOR THE ELECTION
OF THE NOMINEE TO THE BOARD OF DIRECTORS BY SIGNING, DATING AND MAILING TO CEI
ON YOUR BEHALF THE [GOLD] PROXY CARD PROMPTLY.
If you have any questions about giving your proxy or require assistance in
voting your shares of Common Stock, please call:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
(212) 929-5500 (COLLECT)
OR
CALL TOLL FREE (800) 322-2885
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THE SOLICITATION AND THE NOMINEE
INTRODUCTION
In order to pursue a business combination with the Company, Colombian
Emeralds, of which Mr. Crane is the President and the controlling stockholder,
determined that it would cause the nomination of its designee for election to
the Board of Directors at the Annual Meeting. On July 17, 1997, Aspen, at the
request of Mr. Crane, purchased 100 shares of Common Stock. At the request of
Mr. Crane, on July 25, 1997, Aspen submitted to the Secretary of the Company a
Notice of Nomination pursuant to the By-Laws of the Company (the "Notice"). The
Notice set forth Aspen's intention to nominate Mr. Crane for election to the
Board of Directors at the Annual Meeting. If elected to the Board of Directors
of the Company, Mr. Crane intends to use his best efforts to cause the Company
to enter into a business combination transaction with Colombian Emeralds. IF MR.
CRANE IS ELECTED TO THE BOARD OF DIRECTORS AND A BUSINESS COMBINATION BETWEEN
THE COMPANY AND COLOMBIAN EMERALDS IS NOT EFFECTED WITHIN SIX MONTHS AFTER THE
DATE OF THE ANNUAL MEETING, MR. CRANE WILL RESIGN FROM THE BOARD OF DIRECTORS
IMMEDIATELY.
By letter dated August 14, 1997, the Company notified Aspen that its
nomination of Mr. Crane had been rejected because Aspen was not a record holder
of Common Stock as of the date of the Notice and was therefore not in compliance
with the advance notice nomination procedures set forth in the Company's By-
Laws. CEI believed that the Company's By-Laws required Aspen to be a record
holder as of the date the Notice was delivered to the Company. Aspen was a
record holder of Common Stock as of the date the Notice was delivered to the
Company. Accordingly, on September 16, 1997, Aspen commenced litigation in the
Delaware Court of Chancery to challenge the Company's rejection of its
nomination. On September 18, 1997, in light of such litigation, the Company's
legal counsel contacted Aspen's legal counsel to advise them that the Company
would not contest Aspen's nomination.
On September 12, 1997, Aspen submitted a Demand for Stockholders List to
the Company pursuant to Section 220 of the General Corporation Law of the State
of Delaware for the purpose of permitting CEI to communicate with the Company's
stockholders concerning the matters set forth in this Proxy Statement.
THE SOLICITATION
According to the Company Proxy Statement, the Board of Directors is
soliciting proxies in favor of the election of [two incumbent directors (C.
William Carey and John E. Toler, Jr.)] as nominees for election as directors to
serve until the year 2000 annual meeting of the stockholders of the Company and
until their successors are duly elected and qualified. Aspen has nominated Mr.
Crane for election as a director of the Company in opposition to the nomination
of [Mr. Carey.] CEI is soliciting your proxy for the election to the Board of
Directors of (i) Mr. Crane and (ii) the nominees, other than [Mr. Carey],
proposed by the Company, to serve until the year 2000 annual meeting of the
stockholders of the Company and until their successors are duly elected and
qualified. Notwithstanding the foregoing, CEI reserves the right to withdraw its
support for the nominees proposed by the Company in the event another person is
nominated for election to the Board of Directors by another stockholder of the
Company.
THE NOMINEE
Biographical data on the Nominee is set forth below:
STEPHEN GEORGE EDWARD CRANE, age 51, has been the President of the
Retail Group of Adanac Investment Co., Ltd. ("Adanac") from 1972 to the
present. Adanac began operations in 1972 with two small stores in Freeport,
Bahamas selling Spanish gift merchandise. Mr. Crane subsequently formed the
Young Caribbean Jewelry Company Ltd. in 1980, which ran two high end
jewelry stores under the name Colombian Emeralds International in Freeport
and St. Thomas. Over the years, operations were expanded, new stores opened
and today Colombian Emeralds operates 60 stores located throughout the
Bahamas, the Eastern Caribbean and Alaska. The merchandise presently
offered at such stores consists of emeralds and other gemstone jewelry and
watches. The Colombian Emeralds group of stores is currently the largest
retailer of duty free luxury products in the Carribean region with
consolidated
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revenues of approximately $137 million and consolidated net income before
minority interest of approximately $10 million for the trailing twelve
month period ended June 30, 1997. Colombian Emeralds is controlled by Mr.
Crane, who owns and runs the business in a highly tax efficient structure
involving approximately 50 subsidiary operating entities. Prior to his
involvement with Colombian Emeralds, Mr. Crane was employed in the retail
business, first in the management of a High Street clothing & food store in
the U.K. (from 1961 to 1968) and later (from 1968-1971) as the Island
Manager in Grand Bahama for Mademoiselle Ltd., a leading retail ladies
luxury fashion chain. The business address of Mr. Crane is Adanac
Investment Co., Ltd., International Bazaar, P.O. Box F-40349, Freeport,
Bahamas. As of , 1997, Mr. Crane beneficially owned 261,100
shares of Common Stock. For information regarding Mr. Crane's purchases and
sales of Common Stock during the past two years, see Appendix A hereto.
The Nominee has consented to serve as a director of the Company and, if
elected, intends to discharge his duties as a director in compliance with all
applicable legal requirements, including the general fiduciary obligations
imposed upon corporate directors.
The Nominee, if elected, would serve as a director for the term expiring in
the year 2000.
Except as set forth in this Proxy Statement, the Nominee is not, nor was
within the past year, a party to any contract, arrangement or understanding with
any person with respect to any securities of the Company, including, but not
limited to, joint ventures, loan or option arrangements, puts or calls,
guarantees against loss or guarantees of profit, division of losses or profits,
or the giving or withholding of proxies. The Nominee does not have, and to his
knowledge none of his associates has, any arrangement or understanding with any
person with respect to any future employment by the Company or any of its
affiliates or any future transaction to which the Company or any of its
affiliates will or may be a party.
The Nominee is the President and the controlling stockholder of Colombian
Emeralds, which is a direct competitor of the Company. Accordingly, if elected,
Mr. Crane is willing to sign a confidentiality agreement with the Company which
will provide that any information regarding the Company which comes into Mr.
Crane's possession as a result of his membership on the Board of Directors will
be used by Mr. Crane only in his capacity as a director of the Company and will
not be disclosed to any person other than the Company and its representatives.
IF MR. CRANE IS ELECTED TO THE BOARD OF DIRECTORS AND A BUSINESS
COMBINATION BETWEEN THE COMPANY AND COLOMBIAN EMERALDS IS NOT EFFECTED WITHIN
SIX MONTHS AFTER THE DATE OF THE ANNUAL MEETING, MR. CRANE WILL RESIGN FROM THE
BOARD OF DIRECTORS IMMEDIATELY.
THE PROPOSED BUSINESS COMBINATION
INTRODUCTION
In June 1997, Mr. Crane decided to pursue a business combination between
Columbian Emeralds, of which he is the President and the controlling
stockholder, and the Company. Mr. Crane believes that significant synergies and
economies of scale can be achieved in the areas of marketing, purchasing,
distribution and management, among others, by combining the business operations
of the Company and Colombian Emeralds. To facilitate such a combination, Mr.
Crane began acquiring shares of Common Stock in July 1997.
CEI seeks your vote in support of the election of the Nominee at the Annual
Meeting. Should the Nominee be elected, he would work to persuade the Board of
Directors to cause the Company to enter into a business combination with
Colombian Emeralds which would be accretive to the Company's net income and
earnings per share before consideration of any operating synergies which CEI
believes the combined entities will realize. The proposed transaction would
result in the creation of an enterprise with strong growth prospects as a result
of: (i) improved market share in a growth oriented region; (ii) a strong balance
sheet available to finance new store openings and contribute to accelerated
earnings growth; and (iii) the Company's business benefitting from the operating
margin efficiencies Colombian Emeralds will contribute to the
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combined enterprise; each of which has the prospect to significantly enhance the
Company's post-transaction stock price as a result of both earnings per share
and price/earnings multiple accretion. In addition, the combined enterprise
would be positioned, as a result of Colombian Emeralds' prior years' commitment,
to benefit from Internet marketing opportunities (i.e., Colombian Emeralds has
pre-eminent web sites relating to the Caribbean market, including among others
(i) Caribbean Super Site.com (1,000 pages of deep content on thirty-two islands,
1,000 links to other Caribbean web sites, 260 maps and seven search engines) and
(ii) Dutyfree.com). For all of these reasons, CEI believes that the proposed
business combination would certainly be in the best interests of the Company and
its stockholders.
THREE FORMAL OFFERS BY COLOMBIAN EMERALDS
On July 11, 1997, Colombian Emeralds submitted to the Board of Directors a
written offer (the "First Offer") for the Company to enter into a
stock-for-stock transaction with Colombian Emeralds pursuant to which the
controlling stockholder of Colombian Emeralds would own at least a majority of
the issued and outstanding shares of the Company's Common Stock following
consummation of the transaction. Colombian Emeralds expressed its belief that a
business combination with Colombian Emeralds would provide the Company with a
proven regional management team, excellent communication and distribution
capabilities and the ability to increase the Company's revenues and earnings. In
addition, Colombian Emeralds made known its preparedness to enter into immediate
negotiations with the Company to effectuate the proposed transaction or to
discuss alternative transaction forms that the Company might suggest. The
Company did not formally respond to the First Offer or publicly disclose its
receipt.
Colombian Emeralds submitted a second offer to the Board of Directors on
July 23, 1997 (the "Second Offer"). The Second Offer contained a definitive
offer by Colombian Emeralds to enter into a stock-for-stock transaction with the
Company pursuant to which (i) Colombian Emeralds would contribute all of the
capital stock of the entities which comprise Colombian Emeralds to the Company
and (ii) the controlling stockholder of Colombian Emeralds would own
approximately 75% of the issued and outstanding shares of the Company's Common
Stock following consummation of the transaction. Once again, Colombian Emeralds
expressed its desire to enter into immediate negotiations with the Company to
effectuate the proposed transaction and its willingness to discuss any
alternative transaction forms that the Company might suggest. The Company did
not publicly disclose receipt of the Second Offer.
On August 7, 1997, Colombian Emeralds's financial advisors met with the
Company's financial advisors to explore the Company's willingness to negotiate a
business combination with Colombian Emeralds. This meeting was followed by
several telephone discussions between the respective financial advisors. On
August 14, 1997, the Company's financial advisors contacted Colombian Emeralds's
financial advisors to inform them that the Company was not prepared to discuss a
business combination as contemplated by the Second Offer.
On August 29, 1997, the Company issued a press release stating that it
would not timely file its Form 10-K for fiscal year 1997 because certain
transactions may have been recorded in error on the books of the Company.
Due to the unavailability of the Company's fiscal year 1997 financial
results, on September 8, 1997, Colombian Emeralds made a revised written offer
to the Board of Directors (the "Third Offer") based on 1996 fiscal year and 1997
quarterly financial results. A copy of the offer letter containing the Third
Offer is attached hereto as Exhibit A.
On September 15, 1997, the Company's financial advisor notified Colombian
Emeralds's financial advisor that the Company would defer consideration of the
Third Offer because the Company's Form 10-K for fiscal year 1997 had not yet
been filed. The Company did not publicly disclose receipt of the Third Offer.
Based on the notification that the Company had decided to defer
consideration of the Third Offer, on September 17, 1997, Colombian Emeralds sent
a letter to the Company encouraging the Company to meet with Colombian Emeralds
to discuss the Third Offer because Colombian Emeralds firmly believed that
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further delay is not in the best interests of the Company's stockholders. A copy
of such letter is attached hereto as Exhibit B.
COLOMBIAN EMERALDS' CURRENT PROPOSAL
Colombian Emeralds' current proposal contemplates the following business
combination transaction (the "Transaction"): (i) Colombian Emeralds would
contribute all of the capital stock or assets of the entities which comprise
Colombian Emeralds to the Company, (ii) the Company would issue such number of
shares of Common Stock to the controlling stockholder of Colombian Emeralds so
as to give such stockholder a fully-diluted 77.5% interest in the Company upon
consummation of the Transaction, and (iii) record holders of Common Stock on the
business day immediately prior to the Transaction closing date would be granted
a one-time, non-transferable right to put the shares of Common Stock held by
them of record as of such date to the Company on the first anniversary of the
Transaction closing date at a price of $6.15 per share. In addition, the Third
Offer provides that if the Company's stockholders should desire increased
liquidity following consummation of the Transaction, the Company shall, subject
to the satisfaction of any necessary SEC registration requirements, offer such
stockholders the opportunity to participate in a registered secondary
redistribution of their shares of Common Stock.
Your attention is directed to Exhibits I through III of Exhibit A hereto
which set forth (i) the financial results of Colombian Emeralds for the past
three fiscal years, certain actual and estimated results for 1997 and estimated
results for 1998; (ii) the pro forma combined consequences and accretion from a
combination of the Company and Colombian Emeralds; (iii) audited financial
statements of Colombian Emeralds for fiscal year 1996; and (iv) a business
profile of Colombian Emeralds. In reviewing Exhibits I through III of Exhibit A
hereto, please note the following:
- COLOMBIAN EMERALDS HAS ENJOYED A SUBSTANTIALLY HIGHER REVENUE GROWTH RATE
THAN THE COMPANY for the periods referenced in such Exhibits.
- COLOMBIAN EMERALDS HAS GENERATED SUBSTANTIALLY GREATER PROFITS AS A
PERCENTAGE OF REVENUES THAN THE COMPANY for the periods referenced in
such Exhibits.
CEI believes that Colombian Emeralds' superior operating success relative to
that of the Company is attributable to: (1) Colombian Emeralds' more competent
management and (2) Colombian Emeralds' greater commitment to investing retained
cash flow in new stores, improved warehousing and distribution facilities and
systems, and modern computerized management information systems. CEI believes
that a business combination between Colombian Emeralds and the Company, as has
been proposed three times during the past few months by Colombian Emeralds,
would allow the stockholders of the Company to benefit from the management
expertise and operating skills of Mr. Crane and his Colombian Emeralds
management team.
In addition, if the Transaction is consummated, Mr. Crane would afford the
minority stockholders of the Company representation on the Board of Directors.
Mr. Crane would also use his best efforts to ensure that a majority of the Board
of Directors would consist of independent directors.
OTHER MATTERS TO BE CONSIDERED
AT THE ANNUAL MEETING
[Except as set forth above, CEI is not aware of any proposals to be brought
before the Annual Meeting.] Should other proposals be brought before the Annual
Meeting, the attorneys-in-fact named on the [GOLD] Proxy Card will abstain from
voting on such proposals unless such proposals adversely affect the interests of
the Nominee, as determined by CEI in its sole discretion, in which event such
persons will vote on such proposals in their discretion.
The [GOLD] Proxy Card will be voted in accordance with your instructions on
such card. IF YOU SIGN THE [GOLD] PROXY CARD AND NO MARKING IS MADE, YOU WILL BE
DEEMED TO
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HAVE GIVEN A DIRECTION TO VOTE THE SHARES OF COMMON STOCK REPRESENTED BY THE
[GOLD] PROXY CARD IN FAVOR OF THE ELECTION OF THE NOMINEE.
VOTING AND PROXY PROCEDURES
The presence in person or by proxy of a majority of the outstanding shares
of Common Stock will constitute a quorum at the Annual Meeting. Each outstanding
share of Common Stock is entitled to one vote on each matter properly presented
at that meeting and a majority vote of the shares of Common Stock present in
person or by proxy at that meeting will be required to approve each matter.
Directors of the Company are elected by a plurality of the votes cast by
the stockholders entitled to vote at a meeting at which a quorum is present. A
plurality means that the nominees with the largest number of votes are elected
as directors, up to the maximum number of directors to be chosen at the meeting.
Consequently, election of the Nominee requires the affirmative vote of a
plurality of the votes cast in the election at the Annual Meeting, assuming a
quorum is present or otherwise represented at the Annual Meeting. All other
matters submitted at the Annual Meeting will be determined by a majority of the
votes cast.
Shares represented by proxies that withhold authority with respect to the
election of one or more nominees for election as director and proxies which are
marked "abstain" on other proposals, will not be counted in determining whether
a plurality or majority vote was obtained on such matters. If no directions are
given and the signed [GOLD] Proxy Card is returned, the attorneys-in-fact
appointed in the proxy will vote the shares of Common Stock represented by that
[GOLD] Proxy Card FOR the election of the Nominee. In instances where brokers
are prohibited from exercising discretionary authority for beneficial owners who
have not returned proxies to the brokers, those shares of Common Stock will not
be included in the vote totals, will not be counted as present for purposes of
determining whether a quorum exists, and will have no effect on the outcome of
the vote.
Only holders of record as of the close of business on the Record Date will
be entitled to vote at the Annual Meeting. If you sold your shares of Common
Stock before the Record Date (or acquired them without voting rights attached
after the Record Date), you may not vote such shares. IF YOU WERE A STOCKHOLDER
OF RECORD ON THE RECORD DATE, YOU WILL RETAIN THE VOTING RIGHTS IN CONNECTION
WITH THE ANNUAL MEETING EVEN IF YOU SELL OR SOLD YOUR SHARES OF COMMON STOCK
AFTER THE RECORD DATE. Accordingly, it is important that you vote the shares of
Common Stock held by you on the Record Date or grant a proxy to vote such shares
whether or not you will own such shares.
At the Annual Meeting, two directors are to be elected to hold office until
the year 2000 annual meeting of the stockholders of the Company and until their
successors have been elected and qualified. CEI is soliciting your proxy in
support of the election of the Nominee. Aspen is nominating Mr. Crane for
election as a director of the Company in opposition to the nomination by the
Company of [Mr. Carey]. If you wish to vote for the Nominee by proxy, you must
submit the [GOLD] Proxy Card furnished to you by CEI and must NOT submit the
Board of Directors' [White] Proxy Card. A stockholder may not submit a proxy
card to vote for both the Nominee and the Company's nominees; if a stockholder
submits both a [GOLD] Proxy Card and the Company's [White] Proxy Card, only the
latest dated proxy will be counted.
CEI REQUESTS THAT YOU DO NOT VOTE ON OR RETURN TO THE COMPANY ANY PROXY
CARD PROVIDED TO YOU BY THE COMPANY, EVEN TO VOTE AGAINST THE INCUMBENT BOARD'S
SLATE OF NOMINEES. RETURNING ANY PROXY CARD PROVIDED TO YOU BY THE COMPANY COULD
REVOKE THE [GOLD] PROXY CARD THAT YOU SIGN, DATE AND SEND TO CEI.
Any stockholder giving a proxy may revoke it at any time before it is voted
by attending the Annual Meeting and voting his or her shares of Common Stock in
person, by giving written notice to the Secretary of the Company at 161-B Crown
Bay Cruise Ship Port, St. Thomas, U.S. Virgin Islands VI00802, stating that the
proxy has been revoked, or by delivery of a proxy bearing a later date.
An executed proxy card may be revoked at any time before its expiration by
marking, dating, signing and delivering a written revocation before the time
that the action authorized by the executed proxy becomes
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effective. A revocation may be in any written form validly signed by the record
holder as long as it clearly states that the proxy card which is properly
completed will constitute a revocation of an earlier consent. Although a
revocation is effective if delivered to the Company, CEI requests that either
the original or photostatic copies of all revocations of proxies be mailed or
delivered to MacKenzie Partners, Inc., at the address set forth below, so that
it will be aware of all revocations and can more accurately determine if and
when proxies have been received from the holders of record on the Record Date of
a majority of the shares of Common Stock then outstanding.
ONLY HOLDERS OF RECORD ON THE RECORD DATE ARE ELIGIBLE TO VOTE ON THE
MATTERS DISCUSSED ABOVE. ANYONE OWNING SHARES OF COMMON STOCK BENEFICIALLY (BUT
NOT OF RECORD), SUCH AS A PERSON WHOSE OWNERSHIP OF SHARES IS THROUGH A BROKER,
BANK OR OTHER FINANCIAL INSTITUTION, SHOULD CONTACT THAT BROKER, BANK OR
FINANCIAL INSTITUTION WITH INSTRUCTIONS TO EXECUTE THE [GOLD] PROXY CARD ON HIS
OR HER BEHALF OR TO HAVE THE BROKER, BANK OR FINANCIAL INSTITUTION'S NOMINEE
EXECUTE THE [GOLD] PROXY CARD.
SOLICITATION OF PROXIES
Proxies may be solicited by CEI and by its agents by mail, telephone,
telegraph and personal solicitation. Banks, brokerage houses and other
custodians, nominees and fiduciaries will be requested to forward proxy
solicitation material to the beneficial owners of the Common Stock that such
institutions hold of record.
The entire expense of preparing and mailing this Proxy Statement and the
total expenditures relating to the solicitation of proxies (including, without
limitation, costs, if any, related to advertising, printing, fees of attorneys,
financial advisors, solicitors, consultants, accountants, public relations,
transportation and litigation) will be borne by CEI.
CEI has retained MacKenzie Partners, Inc. ("MacKenzie") to assist it in the
solicitation of proxies and for related services. CEI has agreed to pay
MacKenzie an estimated fee of up to $ and has agreed to reimburse it
for its reasonable out-of-pocket expenses, which are anticipated to be
approximately $ to $ . Approximately persons will be used by
MacKenzie in its solicitation efforts. CEI estimates that its total expenditures
relating to this proxy solicitation will be approximately $ . Total
expenditures to date relating to this proxy solicitation have been approximately
$ .
CEI will not seek reimbursement from the Company for its expenses in
connection with this proxy solicitation.
ADDITIONAL INFORMATION
Stockholders are referred to the Company Proxy Statement with respect to
the compensation and remuneration paid and payable and other information related
to the Company's officers and directors, beneficial ownership of the Company's
securities and the procedures for submitting proposals for consideration at the
1998 annual meeting of the stockholders of the Company.
THE COLOMBIAN EMERALDS INTERNATIONAL
GROUP OF COMPANIES
STEPHEN G.E. CRANE
ASPEN INVESTMENTS INC.
, 1997
8
<PAGE> 10
IMPORTANT
1. If your shares of Common Stock are registered in your own name, please
sign, date and return the [GOLD] Proxy Card furnished to you by CEI.
2. If your shares of Common Stock are held in the name of a brokerage firm,
bank nominee or other institution, only it can sign a [GOLD] Proxy Card
with respect to your shares.
3. Time is critically short. Only your latest dated Proxy Card will count.
Please sign, date and mail the enclosed [GOLD] Proxy Card today in the
envelope provided.
If you have any questions about giving your proxy or require assistance in
voting your shares of Common Stock, please call:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, NY 10010
(212) 929-5000 (Collect)
or
CALL TOLL FREE (800) 322-2885
9
<PAGE> 11
APPENDIX A
Transactions in the Securities
of the Company within the Past Two Years
The following table sets forth information with respect to all purchases
and sales of shares of Common Stock by Mr. Crane during the past two years. Each
of these transactions was effected on the open market. Other than as noted, the
price per share excludes brokerage commissions and other charges.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
PURCHASED SHARES SOLD DATE PRICE PER SHARE
- ---------------- ----------- ------------- ---------------
<C> <C> <S> <C>
8,100 July 14, 1997 $ 6.50
23,000 July 15, 1997 $ 6.4891
33,700 July 21, 1997 $ 6.8417
200 July 22, 1997 $ 6.90625
43,500 July 23, 1997 $ 7.061
67,200 July 24, 1997 $ 7.159
2,000 July 25, 1997 $ 7.125
23,400 July 29, 1997 $ 7.187
60,000 July 30, 1997 $ 7.318
</TABLE>
The following table sets forth information with respect to all purchases
and sales of shares of Common Stock by Aspen during the past two years. Each of
these transactions was effected on the open market. Other than as noted, the
price per share excludes brokerage commissions and other charges.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
PURCHASED SHARES SOLD DATE PRICE PER SHARE
- ---------------- ----------- ------------- ---------------
<C> <C> <S> <C>
100 July 9, 1997 $6.3125
100 July 9, 1997 $6.0625
100 July 17, 1997 $7.25
</TABLE>
<PAGE> 12
EXHIBIT A TO PROXY STATEMENT
[COLOMBIAN EMERALDS INTERNATIONAL LETTERHEAD]
September 8, 1997
CONFIDENTIAL
Board of Directors
LITTLE SWITZERLAND, INC.
161-B Crown Bay Cruise Ship Port
St. Thomas, U.S. Virgin Islands VI 00802
Attention: John E. Toler, Jr.
Gentlemen:
In the interest of advancing prior discussions between Little Switzerland,
Inc. ("LSI") and the Colombian Emeralds International group of companies
("CEI"), CEI is sending this letter for the purpose of making a definitive offer
(the "Offer") to enter into a business combination transaction with LSI (the
"Transaction") pursuant to which: (1) LSI would be the surviving entity and (2)
the controlling stockholder of CEI would own seventy-seven and one-half percent
(77.5%) of the fully diluted shares of LSI common stock issued and outstanding
upon consummation of the Transaction.
The Offer. Based upon the calculations and information contained in
Exhibits I, II and III attached hereto, CEI hereby offers to enter into the
Transaction whereby, on the closing date thereof: (1) LSI would issue that
number of its shares of common stock equal to a fully diluted pro forma
seventy-seven and one-half percent (77.5%) interest in LSI to the controlling
stockholder of CEI in exchange for all of the capital stock or assets of the
entities which comprise CEI, and (2) LSI stockholders of record on the business
day immediately prior to the Transaction closing date would be granted a
one-time, non- transferable right to put the shares of LSI common stock held by
them of record as of such date to LSI on the first anniversary of the
Transaction at a price of $6.15 per share (the "Put Right"). In addition, if the
LSI stockholders should desire increased liquidity following consummation of the
Transaction, LSI shall, subject to the satisfaction of any necessary SEC
registration requirements, offer such stockholders the opportunity to
participate in a registered secondary redistribution of their shares (the
"Secondary Offering").
Discussion of the Consequences of the Transaction. CEI offers the
following observations with respect to the Transaction:
1. On the terms proposed and as shown in Exhibits I and II attached
hereto, the consummation of the Transaction would result in a combined
entity with (i) latest twelve month sales which CEI estimates to be on the
order of $226 million and (ii) pro forma earnings per share which is
accretive to LSI before consideration of the many operating synergies which
CEI believes the combined entity will realize;
2. The consummation of the Transaction would result in the creation of
an enterprise with strong growth prospects as a result of: (i) improved
market share in a growth oriented region, (ii) a strong balance sheet
available to finance new store openings and contribute to accelerated
earnings growth, and (iii) LSI's business benefitting from the operating
margin efficiencies CEI would contribute to the enterprise -- each of which
has the prospect of significantly enhancing LSI's post-Transaction stock
price as a consequence of both earnings per share and price/earnings
multiple accretion;
3. The terms of the Put Right offer LSI stockholders both stock price
protection and liquidity to underpin future stock market fluctuations and
LSI operating risks;
<PAGE> 13
4. The Transaction would create an enterprise which can benefit from
rationalization of LSI's and CEI's respective diamond-related business
lines; and
5. The Transaction would create an enterprise poised, as a result of
CEI's prior years' commitment, to benefit from Internet marketing
opportunities (i.e., CEI has pre-eminent web sites relating to the
Caribbean market, including, among others: (i) Caribbean Super Site.com
(1,000 pages of deep content on thirty-two islands, 1,000 links to other
Caribbean web sites, 260 maps and seven search engines) and (ii)
Dutyfree.com.
IN CONNECTION WITH THESE OBSERVATIONS REGARDING THE OFFER, CEI CALLS YOUR
ATTENTION TO THE INFORMATION PROVIDED IN APPENDIX I OF EXHIBIT III ATTACHED
HERETO. BASED ON CEI'S FORECAST OF ITS RESULTS OF OPERATIONS FOR ITS FISCAL YEAR
ENDED SEPTEMBER 30, 1998, CEI PROJECTS AN INCREASE IN NET INCOME OF $6.8 MILLION
(66%) -- BEFORE CONSIDERATION OF: (1) ANY NET INCOME INCREASE LSI COULD
RECOGNIZE IN THE SAME PERIOD FROM ITS OPERATIONS AND (2) ANY OPERATING SYNERGIES
OR RATIONALIZATION BENEFITS A COMBINED LSI/CEI ENTITY COULD BE EXPECTED TO
REALIZE. BASED ON ITS CALCULATIONS AND THE TERMS OF THIS OFFER, CEI CAN EXPECT,
FROM ITS CONTRIBUTION ALONE, AN INCREASE IN THE 1998 PRO FORMA COMBINED LSI/CEI
ENTITY NET INCOME PER SHARE OF APPROXIMATELY $.18, WHICH EQUALS A 52% INCREASE
OVER THE PROJECTED CURRENT YEAR RESULTS FOR THE COMBINED ENTITY AS SET FORTH IN
EXHIBIT II ATTACHED HERETO.
Fairness of the Offer. On its terms, the Offer calls for the controlling
stockholder of CEI to receive seventy-seven and one-half percent (77.5%) of the
fully diluted shares of LSI common stock to be issued and outstanding upon
consummation of the Transaction. After fully taking into consideration and
valuing the Put Right to be granted to LSI's stockholders of record immediately
prior to the Transaction, CEI believes this to be a very fair exchange ratio
insofar as, by its calculations, CEI: (1) will contribute approximately seventy-
nine percent (79%) of the combined entity's net income (i.e., CEI operates more
efficiently than LSI in respect of its gross operating margins, central office
overhead expense and its effective taxation structure) and (2) has a history of
growth which exceeds that of LSI.
The Put Right. The Put Right to be granted to LSI's existing stockholders
in connection with the Transaction is intended to afford such stockholders: (1)
one hundred percent (100%) of the upside potential CEI believes can result from
the proposed business combination and (2) very substantial downside protection
against any risks, whether operational or market driven, that may arise in
connection with the achievement of such upside potential. To the extent
necessary, CEI will obtain an irrevocable funding facility to be in place as of
the Transaction closing date to fund the full amount of LSI's obligations with
respect to the Put Rights. LSI would maintain such facility until the expiration
of the Put Rights. Based on the pro forma combined earnings of CEI and LSI, CEI
is confident it will obtain such funding facility.
The Secondary Offering. While CEI believes that the LSI which will
continue to exist as a result of the business combination with CEI will be a
highly profitable enterprise with strong prospects for growth, CEI also
recognizes that certain stockholders may desire increased liquidity following
consummation of the Transaction. In this regard, CEI believes that inclusion of
a possible Secondary Offering in this Offer would serve two purposes: (1) it
would provide an efficient post-Transaction after-market within which those of
LSI's existing stockholders wishing to do so may sell their shares; and (2) it
would occasion the opportunity for LSI to undertake an investor roadshow for the
purpose of engendering broader U.S. investor awareness of the investment merits
of the combined enterprise.
Conditions of the Offer. CEI, with this letter, seeks the opportunity to
enter into a definitive agreement describing the Transaction in accordance with
the terms of the Offer set forth herein (the "Definitive Agreement"). The
Definitive Agreement would be conditioned upon receipt of all necessary
approvals, including: (1) LSI Board of Director approval; (2) LSI stockholder
approval; (3) Hart-Scott-Rodino and any other regulatory approvals (to the
extent required); and (4) any other third party approvals required as a result
of the form of the Transaction. Additionally, the Definitive Agreement will
provide for other customary terms and conditions, including: (1) fiduciary
termination provisions for the benefit of LSI in return for payment to CEI of
appropriate "break-up" fees under certain specified circumstances and (2) a
mechanism whereby the exchange ratio proposed herein would be adjusted in the
event LSI or CEI materially exceed (or fall short of) the earnings indicated in
Exhibit I attached hereto. CEI, for its part, will rely for its due diligence
2
<PAGE> 14
on the accuracy of the filings made by LSI to date pursuant to the Securities
Exchange Act of 1934 (including with respect to LSI's 1997 fiscal year, which
has not yet been filed), together with appropriate representations and
warranties from LSI.
The LSI/Rolex Business Arrangements. CEI recognizes the perceived
importance to LSI of its existing business arrangements with Rolex. In that
regard, CEI's intention in connection with the consummation of the Transaction
would be to work with LSI management to confirm the interest of Rolex in
sustaining such business arrangements with LSI subsequent to the closing of the
Transaction on a basis which is (1) consistent with the standards and practices
of the existing arrangements and (2) mutually acceptable to all parties to the
arrangements. For its part, CEI believes the Transaction can be of mutual
benefit to all parties, including Rolex, and looks forward to LSI's assistance
in arranging for CEI to meet with Rolex both to learn firsthand and to address
any questions Rolex may have regarding the future intentions and operations of
LSI as they may relate to the existing LSI/Rolex business arrangements.
NOTWITHSTANDING THE FOREGOING, THE OFFER IS NOT CONDITIONED UPON LSI PROVIDING
ANY SUCH ASSISTANCE, THERE BEING A MEETING WITH ROLEX, OR ROLEX CONFIRMING ITS
INTENT TO MAINTAIN ITS CURRENT BUSINESS ARRANGEMENTS WITH LSI FOLLOWING
CONSUMMATION OF THE TRANSACTION.
Most importantly, CEI believes that, once LSI's Board of Directors
commences in good faith its due diligence investigation of the business, assets,
liabilities and financial condition of CEI, it will be obvious that: (1) the
Offer set forth herein is fair to and in the best interests of LSI and its
stockholders; (2) the Offer, versus possible alternative offers LSI might
consider, provides the opportunity, via an earnings per share accretive
transaction, for LSI's stockholders to participate going forward in the future
growth of a highly synergistic, conservatively financed business combination;
(3) the combined entity's stockholders have the potential to benefit in the near
term from an improved stock price as a result of the significant potential for
growth in LSI's post-Transaction earnings; and (4) the Offer provides for
downside protection pursuant to the Put Right, which, at a price of $6.15 per
share, is approximately 31% higher than the average last sale price ($4.69) of
the LSI common stock during the one month period preceding the joint filing of a
Schedule 13-D by ValueVest Partners L.P. and Donald L. Sturm on May 5, 1997.
CEI assumes that, in exercising its fiduciary duties, LSI's Board of
Directors will give this Offer and the many benefits it provides to LSI's
stockholders all due consideration. In this regard, and in good faith, enclosed
herewith as Exhibit III are summary materials which highlight the business of
CEI -- all of which CEI believes LSI will be able to confirm to its satisfaction
upon commencement by LSI of its due diligence investigation of CEI.
As time is always of the essence in transactions of this nature, CEI looks
forward to receiving your prompt response to this Offer and the scheduling of a
meeting of CEI's and LSI's respective legal and financial advisors at the
earliest practicable time.
Sincerely,
Stephen G.E. Crane
President and Chief Executive Officer
cc: William C. Carey
Francis X. Correra
Timothy B. Donaldson
Ilene B. Jacobs
Kenneth W. Watson
Wasserstein Perella & Co.
3
<PAGE> 15
EXHIBIT I
LSI/CEI POOLING OF BUSINESS RESULTS
<TABLE>
<CAPTION>
LSI(1) CEI(1) PROFORMA COMBINED
------------------ ------------------- ------------------- CEI AS %
$ MARGIN % $ MARGIN % $ MARGIN % OF COMBINED
------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1997
Fiscal Year End............ June 1, 1997 N/A
# of Stores................ 29 60 89
Revenues................... $86,024 -- $140,100 -- $226,124 -- 62.0%
Gross Operating Income..... 37,541 43.6% 67,116 47.9% 104,657 46.3% 64.1%
EBIT....................... 4,422 5.1% 13,999 10.0% 18,421 8.1% 76.0%
plus:...................... 3,727 3,580 7,307
------- -------- --------
Depreciation and
Amortization
EBITDA..................... 8,149 9.5% 17,579 12.5% 25,728 11.4% 68.3%
Pre-Tax Income............. 3,348 3.9% 11,394 8.1% 14,742 6.5% 77.3%
------- -------- --------
Net Income Before
Extraordinary Items...... 2,765(2) 3.2% 10,312(3) 7.4% 13,077 5.8% 78.9%
======= ======== ========
</TABLE>
- ---------------
(1) Estimates prepared by CEI Management.
(2) Before recognition of insurance proceeds of $560,000.
(3) CEI is in the process of acquiring the minority interest which exists in two
of its subsidiary companies.
<PAGE> 16
EXHIBIT II
PROFORMA COMBINED COMPANY CONSEQUENCES AND ACCRETION
<TABLE>
<CAPTION>
LSI BEFORE THE PROFORMA LSI/CEI
TRANSACTION COMBINED
--------------------- TRANSACTION ---------------------
SHARES % CONSEQUENCES SHARES %
---------- ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
A. LSI Shares Outstanding/Resultant
Ownership
LSI common Shares Out Before
Transaction (as off 4-10-97 per
10-Q)........................... 8,461,488 100.0 -- 8,461,488 22.5
LSI Shares Issued in Transaction to
CEI stockholders(1)............. -- -- 29,145,125 29,145,125 77.5
---------- ------ ---------- ----------- -----
Total Shares Outstanding... 8,461,488 100.0 37,6060,613 100.0
========= ===== ========== =====
B. Accretion in EPS Calculation
LSI Net Income 6-30-97 (see Exhibit
I).............................. 2,765 -- 2,765
CEI Net Income (see Exhibit
I)(2)........................... -- 10,312 10,312
---------- ---------- -----------
Proforma Combined.......... 13,077
LSI EPS.............................. $0.327 N/A $0.348
========= ==========
% ACCRETIVE.......................... 6.4%
==========
</TABLE>
- ---------------
(1) Before consideration of dilutive LSI options.
(2) Before minority interest deduction, as CEI believes it will acquire such
minority interest.
<PAGE> 17
EXHIBIT III
BUSINESS PROFILE
OF
COLOMBIAN EMERALDS INTERNATIONAL GROUP
SEPTEMBER 1997
<PAGE> 18
1. INTRODUCTION
Formed in 1972 with a two store operation in Freeport, Bahamas, Colombian
Emeralds International Group ("CEI") has grown to become the market leader in
luxury retailing throughout the Bahamas and the Caribbean. Having fully
recovered from the September 1995 Luis and Marilyn hurricanes which devastated
almost all business in the Northern Caribbean, for its fiscal year ended
September 30, 1997, CEI (which will close its 1997 fiscal year with 60 stores in
operation) expects the following results from operations:
<TABLE>
<CAPTION>
$MM
--------
<S> <C>
Revenues......................................... $140.1mm
EBIT............................................. $ 14.0mm
Net Income (before minority interests)........... $ 10.3mm
</TABLE>
CEI is controlled by Mr. Stephen G.E. Crane, who owns and runs the business
in a highly tax efficient structure involving approximately 50 subsidiary
operating entities, of which there are minority interests in two; such minority
interests are in the process of being acquired by CEI.
2. BUSINESS OF CEI
CEI is a duty free retailer with a superb portfolio of specialty retailing
stores in the Bahamas and Caribbean marketplace. The group, which employs 950
people, operates its stores, via long term leasehold interests, under the
following trade names:
<TABLE>
<CAPTION>
# OF STORES
-----------
<S> <C>
Colombian Emeralds International.................. 33
Diamonds in Paradise.............................. 3
Jeweler's Warehouse............................... 8
Parfum de Paris................................... 7
Island Galleria................................... 4
Perfect Oasis..................................... 5
--
60
==
</TABLE>
CEI's revenues for 1997 will be generated approximately in accordance with
the following mix of specialty retailing products:
<TABLE>
<CAPTION>
REVENUE SOURCE $000 %
------------------------------------------- -------- ---
<S> <C> <C>
Primary Products Emerald jewelry items..... $ 47,700 34%
Other gemstone jewelry items............. 32,200 23%
Watches.................................. 25,200 18%
Gold and other non-gemstone jewelry...... 25,200 18%
-------- ---
Subtotal.............................. 130,200 93%
Other Product (china, crystal, fragrances,
etc.).................................... 9,800 7%
-------- ---
$140,100 100%
======== ===
</TABLE>
Today, the group's Colombian Emeralds International stores (33), located
throughout the Bahamas, the Eastern Caribbean and Alaska, are recognized as
being "the world's leading emerald jeweler"; CEI's focus on future store
openings is as follows:
- Colombian Emerald store openings are targeted for the Western Caribbean
(Cayman/Jamaica), where CEI is under represented, as well as in Key West,
Florida, and, via an exclusive agent, in Bermuda.
- Starting from a recently launched and successful three store pilot test,
CEI plans to roll-out its Diamonds in Paradise stores aggressively
throughout the Caribbean in order to exploit the romantic wedding and
anniversary appeal of the Caribbean.
1
<PAGE> 19
- To capitalize on the growing budget/value driven sector of the Caribbean
tourism market, CEI now has 8 discount jewelry stores under its Jeweler's
Warehouse brand with more openings planned in the coming years; the
opening of this brand allowed CEI to penetrate a differentiated market,
without undercutting its higher-end CEI brand.
As the world's leading emerald jeweler and the Caribbean's largest
duty-free retailer, CEI is at the forefront of exploiting new "electronic"
marketing technologies. Over the past two years, CEI has spent $0.5 million on
positioning itself to take full advantage of its market leading position and
reputation through what it believes will be a burgeoning Internet and "mail
order" business opportunity. This aspect of extending the group's brand name is
expected, over the coming five years, to become a substantial, high margin
growth business.
3. OPERATIONS OF CEI
A significant reason for CEI's high operating margins results from the
group's efforts over the past five years to rationalize its sources of supply
and implement a direct computer-driven "just in time" inventory stocking system.
- Sources of Supply: Five years ago, CEI dealt with as many as 280
separate jewelry manufacturers; today, having developed a highly
structured product-line range of jewelry and watches designated as
"standard repeat sale items", CEI is able to more efficiently maintain a
comprehensive selection of in-store inventories over a range of prices in
each of its principal product families of merchandise using only 110
suppliers.
- Merchandising: Over the past three years CEI has undertaken a massive
commitment to computerization of its hub inventory centers and island
store locations. Point of sale systems (POS) are in place in all key
stores which link to: (1) central hub warehouse restocking systems, and
(2) sophisticated report generation which delivers the information needed
by management to optimize and maintain each store's performance. CEI has
just opened a 15,000 sq. ft. (with 17,000 sq. ft. available next door)
state-of-the-art merchandising support center in Ft. Lauderdale which
will (1) further streamline its efforts to achieve just-in-time inventory
for its stores as well as (2) be the "fulfillment center" for its
electronic, mail order business.
- Marketing and Promotion: CEI's business, via its POS computer tracking
systems, is known to come 55% from Caribbean bound cruise ship customers
and 45% via local island promotion. The cruise ship results are achieved
by successful on-board promotion services which CEI has worked hard to
establish with the various cruise ship operators; the balance of results
have been achieved as a result of placing a promotion manager in charge
of each separate Caribbean island in which CEI has a presence who works
with the local hotels, time share units, and tour operators to
effectively promote the group. CEI budgets to spend 4.5% of sales per
annum on the advertising and promotion of its stores and brand names.
Today, CEI is poised, with management and systems infrastructure in place,
to support a bigger, high growth enterprise.
2
<PAGE> 20
4. FINANCIAL RESULTS AND CAPITALIZATION
Financial Results. Appendix I attached hereto provides CEI operating
results for the fiscal years 1994-96 (actual), latest 12-months ended June 30,
1997 (actual) and projected fiscal year ended September 30, 1997 and 1998
forecast results. Appendix II contains: (1) CEI's 1996 fiscal year audit as
prepared by KPMG Peat Marwick, the group's chartered accountants and (2) a June
30, 1997 interim period trial balance sheet.
Capitalization. As of June 30, 1997, CEI's capitalization was as set forth
in the table below:
<TABLE>
<CAPTION>
$000
-------
<S> <C>
Bank Indebtedness(1)............................... $ 9,988
Long term debt (including current portion)(1)...... 14,851
Minority Interest(2)............................... 6,875
Shareholders Equity................................ 48,412
-------
$80,126
=======
</TABLE>
- ---------------
(1) CEI's principal bank is the local island representative bank of CIBC.
(2) Minority interest in subsidiaries results from two entities in the CEI Group
which constitute 50/50 joint ventures.
5. MANAGEMENT
The key principals of CEI are:
<TABLE>
<S> <C>
Stephen G.E. Crane.... President & CEO
Christopher Cooper.... Chief Financial Officer
Robert Cockayne....... General Manager, Caribbean
David McPhail......... Vice President, Operations
Bob Ramsden........... Vice President, Business Development
Douglas Kerr.......... Vice President, Merchandising
Jack Coote............ Director of Sales
Peter Allen........... Director of Stores
Ken Fordik............ Director of Human Resources
George Romanenko...... Director of Management Information Systems
Mike D'Amico.......... Director of Electronic Marketing
Linda Beadel.......... Director of Advertising & Promotions
Kelly Ramsden......... Director, Organizational Development
</TABLE>
This executive team is highly experienced and bring relevant experiences
from, among others, the following companies: Zales Jewelry, Neiman Marcus, Royal
Caribbean Cruise Lines, Mays Department Stores, Prodigy, Service Merchandise,
Price Waterhouse, Arthur Anderson Consulting, Office Depot and other fine
companies. Subject to the afore summarized minority interests being acquired,
Mr. Crane owns the common stock of the CEI companies. His key management team,
in addition to normal and customary benefit plans, enjoy a phantom stock
Shareholders Appreciation Plan patterned after that employed by Wal-Mart and
which allows CEI to recruit and retain quality senior executives.
3
<PAGE> 21
APPENDIX I
CEI FINANCIAL RESULTS ($000)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED LAST 12 1997 1997 1998
SEPTEMBER 30 MONTHS NINE FULL FULL
----------------------------- ENDING MONTHS YEAR YEAR
1994 1995 1996(1) 6-30-97 ACTUAL ESTIMATE ESTIMATE
------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales (net of
discounts).............. $98,397 $115,641 $117,051 $137,359 $112,328 $140,100 $175,723
Costs of Goods Sold....... 53,294 61,377 60,985 71,137 58,169 72,984 91,435
------- -------- -------- -------- -------- -------- --------
Gross Operating
Profit............. 45,103 54,264 56,066 66,222 54,159 67,116 84,288
Expenses
Salaries................ 17,684 20,318 22,841 24,648 19,563 24,877 29,968
Sales expenses.......... 1,120 1,019 1,446 1,279 1,001 1,090 1,400
Credit card
commissions.......... 1,535 1,867 2,080 2,213 1,813 2,090 2,800
Advertising and
promotion............ 4,366 5,329 6,289 6,168 5,001 6,305 7,908
Rent.................... 5,183 5,670 5,674 6,244 4,885 6,477 7,810
Insurance............... 1,046 1,275 1,481 1,600 1,258 1,650 1,800
Utilities and
telephone............ 1,297 1,772 1,766 1,880 1,440 1,850 2,000
Repair and
maintenance.......... 766 962 1,079 810 641 550 650
Professional fees....... 735 987 1,100 835 622 700 775
Computer service fees..... 113 152 112 -0- -0- -0- -0-
Service center fees..... 278 325 417 -0- -0- -0- -0-
Travel and
entertainment........ 559 645 1,046 934 656 800 880
Office and other
costs................ 981 1,373 1,683 1,691 1,305 1,600 1,750
Interest and bank
charges.............. 2,340 2,506 3,006 3,482 2,728 3,253 2,772
Depreciation and
amortization......... 2,839 2,683 2,554 2,999 2,318 3,580 4,625
Gross receipts tax...... 1,264 1,281 1,050 1,304 1,072 1,200 1,450
------- -------- -------- -------- -------- -------- --------
Subtotal............. 42,106 48,164 53,624 56,087 44,303 56,022 66,318
------- -------- -------- -------- -------- -------- --------
Income Before Taxes....... 2,997 6,100 2,442 10,135 9,856 11,094 17,970
Other items
Insurance proceeds...... -- 1,270 7,597 588 -0- -0- -0-
Gain (loss) on
disposition.......... 3,710 (10) (145) -0- -0- -0- -0-
Miscellaneous........... 284 450 -0- -0- -0- 300 1,040
------- -------- -------- -------- -------- -------- --------
Adjusted Income before
taxes................... 6,991 7,810 9,894 10,723 9,856 11,394 19,010
Taxes................... (644) (1,116) (748) (800) (800) (1,082) (1,901)
------- -------- -------- -------- -------- -------- --------
NET INCOME BEFORE MINORITY
INTEREST................ $ 6,347 $ 6,694 $ 9,146 $ 9,923 $ 9,056 $ 10,312 $ 17,109
======= ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1)Reflects impact of Hurricanes Luis and Marilyn (see Appendix II).
<PAGE> 22
APPENDIX II
- 1996 FISCAL YEAR AUDIT
- 6-30-97 INTERIM PERIOD TRIAL BALANCE SHEET
<PAGE> 23
COMBINED FINANCIAL STATEMENTS OF
COLOMBIAN EMERALDS
INTERNATIONAL GROUP
YEAR ENDED SEPTEMBER 30, 1996
<PAGE> 24
COLOMBIAN EMERALDS INTERNATIONAL GROUP
COMBINED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Auditors' Report to the Shareholders.................................................. 1
Combined Balance Sheet................................................................ 2
Combined Statement of Operations and Retained Earnings................................ 3
Notes to Combined Financial Statements................................................ 4-9
</TABLE>
<PAGE> 25
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the accompanying combined balance sheet of the Colombian
Emeralds International Group ("the Group") as of September 30, 1996 and the
combined statement of operations and retained earnings for the year then ended.
These combined financial statements are the responsibility of the Group's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit. We did not audit the financial
statements of certain combined companies, which statements reflect total assets
constituting 11%, total liabilities constituting 12%, total revenues
constituting 66% and total expenses constituting 63% of the related combined
totals. Those statements were audited by another firm of auditors, whose report
has been furnished to us and our opinion, insofar as it relates to the amounts
included for certain combined companies, is based solely on the report of the
other auditors.
We conducted our audit in accordance with International Standards on
Auditing. Those Standards require that we plan and perform the audit to obtain
reasonable assurance as to whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
The combined financial statements of the Group for the year ended September
30, 1995 were not audited and the scope of our engagement for the year ended
September 30, 1996 did not provide for independent verification of the Group's
current assets and liabilities as of September 30, 1995. Since the Group's
current assets and liabilities as of September 30, 1995 enter materially into
the determination of results of operations for the year ended September 30,
1996, we do not express an opinion on the statement of operations and retained
earnings for the year then ended.
In our opinion, based on our audit and the report of the other auditors,
the combined financial statements present fairly the financial position of the
Group as of September 30, 1996, in accordance with International Accounting
Standards, except that management has elected not to present comparative figures
or a statement of cash flows.
Chartered Accountants
Freeport, Bahamas
April 4, 1997
1
<PAGE> 26
COLOMBIAN EMERALDS INTERNATIONAL GROUP
COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 1,661,246
Accounts receivable........................................................... 778,860
Inventories (note 3).......................................................... 74,679,469
Prepaid expenses and other assets............................................. 5,799,761
-----------
82,919,336
Due from related party (note 4)................................................. 3,468,048
Deferred costs, net (note 5).................................................... 185,684
Property and equipment (note 6)................................................. 8,418,834
-----------
$94,991,902
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts (note 7)...................................................... $ 9,292,030
Accounts payable and accrued liabilities...................................... 15,819,420
Income taxes payable (note 8)................................................. 1,158,626
Current portion of long-term debt (note 9).................................... 8,541,291
-----------
34,811,367
Long-term debt (note 9)......................................................... 8,951,941
Minority interest (note 10)..................................................... 6,424,707
Shareholders' equity:
Share capital (note 11)....................................................... 7,460
Contributed surplus (note 12)................................................. 16,511,540
Retained earnings............................................................. 28,284,887
-----------
44,803,887
Commitments (note 12)
$94,991,902
===========
</TABLE>
See accompanying notes to combined financial statements.
<TABLE>
<S> <C>
Approved:
S.G.E. Crane R.C. Cooper
- -------------------------------------------- --------------------------------------------
</TABLE>
2
<PAGE> 27
COLOMBIAN EMERALDS INTERNATIONAL GROUP
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED SEPTEMBER 30, 1996
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Sales, net of discounts........................................................ $117,050,660
Cost of goods sold............................................................. 60,985,017
------------
Gross profit................................................................... 56,065,643
Expenses:
Salaries and employee benefits............................................... 22,841,453
Sales expenses............................................................... 1,445,779
Credit card commissions...................................................... 2,080,236
Rent......................................................................... 5,674,271
Advertising and promotion.................................................... 6,288,607
Insurance.................................................................... 1,481,408
Utilities and telephone...................................................... 1,765,642
Repairs and maintenance...................................................... 1,078,688
Professional fees............................................................ 1,099,774
Computer fees................................................................ 112,297
Service centre fees.......................................................... 416,471
Travel and entertainment..................................................... 1,046,341
Office and miscellaneous..................................................... 1,682,607
Interest and bank charges.................................................... 3,005,525
Depreciation and amortization................................................ 2,553,994
Gross receipts tax........................................................... 1,050,069
------------
53,623,162
------------
Net operating income before other items........................................ 2,442,481
Other items:
Insurance proceeds........................................................... 7,596,779
Loss on sale of investment................................................... (144,936)
Income taxes................................................................. (748,550)
Minority interest............................................................ (1,682,553)
------------
Net income for the year........................................................ 7,463,221
Retained earnings, beginning of year........................................... 20,821,666
------------
Retained earnings, end of year................................................. $ 28,284,887
============
</TABLE>
See accompanying notes to combined financial statements.
3
<PAGE> 28
COLOMBIAN EMERALDS INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 1996
(EXPRESSED IN UNITED STATES DOLLARS)
1. GENERAL
The combined financial statements include the financial statements of the
following companies:
<TABLE>
<CAPTION>
COMPANY NAME COUNTRY OF INCORPORATION
-------------------------------------------------------- ------------------------
<S> <C>
Young Caribbean Jewellery Company Limited and
subsidiaries.......................................... Cayman Islands
CEI Distributors, Inc................................... British Virgin Islands
Adanac Investment Company Limited and subsidiaries...... Bahamas
Island Galleria Limited................................. Bahamas
Island Galleria Limited................................. British Virgin Islands
Cascade Management N.V.................................. Netherlands Antilles
City Associated Enterprises Limited and subsidiaries.... Bahamas
CEI Limited............................................. Bahamas
Carfinco................................................ Nevis
CEI Holdings, Ltd....................................... Bahamas
Sunflower Investments Limited........................... Bahamas
</TABLE>
The above companies are collectively referred to as the Colombian Emeralds
International Group ("the Group"). Significant intercompany balances and
transactions have been eliminated in the combined financial statements.
The Group's activities include the sale of jewellery, watches, perfume,
cosmetics, crystal, gifts and drug store inventories. The Group retail outlets
trade under the Colombian Emeralds International, Oasis and Parfum de Paris
trade names.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The combined financial statements have been prepared in accordance with
International Accounting Standards, and the significant accounting policies are
as follows:
Inventories
The Group's inventories are valued at the lower of cost, and net realizable
value. Cost is determined using the methods:
<TABLE>
<S> <C>
Jewellery and watches................................... Specific identification
Crystal, gifts, perfume and cosmetics................... Weighted average
Drug store inventories.................................. First-in, first-out
</TABLE>
Property and equipment
Property and equipment are stated at cost net of accumulated depreciation.
Depreciation is provided on the straight-line basis over the following periods:
<TABLE>
<S> <C>
Building....................................................... 40 years
Leasehold improvements......................................... 5 - 10 years
Furniture and equipment........................................ 4 - 5 years
Vehicles and aircraft.......................................... 3 - 5 years
</TABLE>
4
<PAGE> 29
COLOMBIAN EMERALDS INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
Deferred costs
Deferred costs represent primarily lease acquisition costs and are
amortized over the term of the lease agreements using the straight-line method.
Foreign exchange
Monetary assets and liabilities in other currencies are translated at the
exchange rates in effect at year end. Other assets and liabilities are
translated at the historical rates. Income and expenses in other currencies are
translated at the rate in effect at the transaction date. Foreign exchange gains
and losses are included in operations in the year they arise.
Estimates
Management of the Group has made a number of estimates and assumptions
relating to certain assets and liabilities and the disclosure of commitments and
contingencies to prepare these combined financial statements in conformity with
International Accounting Standards. Actual results could differ from those
estimates.
3. INVENTORIES
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Jewellery and watches........................................... $70,758,989
Perfume and cosmetics........................................... 2,055,362
Crystal and gifts............................................... 1,559,849
Drug store...................................................... 579,269
-----------
74,953,469
Provision for obsolete inventory................................ (274,000)
-----------
$74,679,469
===========
</TABLE>
4. DUE FROM RELATED PARTY
The amount due from related party is interest free and has no fixed terms
of repayment.
5. DEFERRED COSTS
<TABLE>
<CAPTION>
1996
---------
<S> <C>
Deferred costs................................................... $ 507,791
Less accumulated amortization.................................... (322,107)
---------
$ 185,684
=========
</TABLE>
6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED NET
COST DEPRECIATION 1996
----------- ----------- ----------
<S> <C> <C> <C>
Building............................. $ 250,000 $ 57,242 $ 192,758
Leasehold improvements............... 10,615,954 6,350,497 4,265,457
Furniture and equipment.............. 8,863,463 5,377,488 3,485,975
Vehicles and aircraft................ 942,609 467,965 474,644
----------- ----------- ----------
$20,672,026 $12,253,192 $8,418,834
=========== =========== ==========
</TABLE>
5
<PAGE> 30
COLOMBIAN EMERALDS INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
7. BANK OVERDRAFTS
The bank overdrafts bear interest at various rates ranging from 8.75% to
9.75% per annum and are secured by first fixed and floating charges over the
Group's assets and a personal guarantee of one of the Group's principals. The
maximum amount of the overdraft facilities as at September 30, 1996 was
approximately $9,560,000.
8. INCOME TAXES PAYABLE
All tax amounts included in these combined financial statements relate to
the companies operating in countries which do impose income taxes.
The following is a summary of the net operating loss carry-forwards and
corresponding taxing countries of the subsidiaries:
Colombian Emeralds Inc. and subsidiaries
This Company is subject to U.S. Virgin Islands income taxes. At September
30, 1996, the Company had net operating loss carry-forwards available to offset
future taxable income of approximately $13,507,000 through 2005.
Colombian Emeralds International, Inc.
This Company is subject to U.S. income taxes. At September 30, 1996, the
Company had net operating loss carry-forwards available to offset future taxable
income of approximately $1,243,000 through 2009.
CEI Investments, Inc.
This Company is subject to U.S. Virgin Islands income taxes. At September
30,1996, the Company had net operating loss carry-forwards available to offset
future taxable income of approximately $880,000 through 2004.
CEI, Inc.
This Company is subject to U.S. Virgin Islands income taxes. At September
30, 1996, the Company had net operating loss carry-forwards available to offset
future taxable income of approximately $493,000 through 2004.
Hat Check Harry's Inc.
This Company is subject to U.S. Virgin Islands income taxes. At September
30, 1996, the Company had net operating loss carry-forwards available to offset
future taxable income of approximately $2,167,000 through 2005.
West Indies Ice Company Ltd.
This Company, an affiliate of Hat Check Harry's, Inc., is subject to
Antigua and Barbuda income taxes.
Deltamar N.V.
This Company is subject to the income tax provisions of the Netherlands
Antilles. At September 30, 1996, the Company had net operating loss
carry-forwards available to offset future taxable income of approximately
$1,140,000 through 2001.
6
<PAGE> 31
COLOMBIAN EMERALDS INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
Colombian Emeralds International, S.A.
This Company is subject to the income tax provisions of the French
Antilles. At September 30, 1996, the Company had net operating loss
carry-forwards available to offset future taxable income of approximately
$826,000 through 2001.
C.E.I. Limited
This Company is subject to Antigua and Barbuda income taxes. For income tax
purposes, the subsidiary uses the modified accelerated cost recovery method for
determining depreciation. For financial reporting purposes, depreciation is
recorded using the straight-line method.
Income taxes paid during the year amounted to approximately $210,100 (1995:
$115,400).
Colombian Emeralds International Limited
This Company is subject to St. Lucia income taxes. Income taxes paid during
the year amounted to approximately $371,000 (1995: $164,000).
Colombian Emeralds International N.V.
This Company is subject to Aruba income taxes. Income taxes paid during the
year amounted to approximately $233,200 (1995: $131,100).
Colombian Emeralds International (Barbados) Limited
This Company is subject to Barbados and Grenada income taxes. Income taxes
paid during the year amounted to approximately $507,000 (1995: $293,000).
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
B$ bank loan at B$ prime plus 2% per annum repayable in monthly
instalments of $80,485, maturing in February 2001..................... $ 3,240,928
US$ bank loan at U.S. base plus 2% per annum, repayable in monthly
instalments of $46,291, maturing in November 1997..................... 629,910
US$ bank loan at six month libor plus 2% per annum, repayable in monthly
instalments of $163,891, maturing in 2001............................. 7,244,615
Advances under a revolving line of credit with a bank at U.S. prime plus
1% per annum, renewable annually...................................... 395,833
First mortgage note payable to a bank at U.S. prime plus 1 1/2% per
annum................................................................. 73,838
Note payable to Knights Ltd. at 11%..................................... 62,925
Promissory note payable at 12% per annum maturing in March 1997......... 2,000,000
Promissory note payable at 12% per annum maturing in January 1997....... 1,000,000
Bank loan at 9.75% per annum, repayable in monthly instalments of
$9,400, maturing in February 2000..................................... 321,105
Note payable on demand at 8.25% per annum............................... 1,024,078
Note payable at 9%, maturing in December 1997........................... 1,500,000
-----------
17,493,232
Less current portion.................................................... (8,541,291)
-----------
$ 8,951,941
===========
</TABLE>
7
<PAGE> 32
COLOMBIAN EMERALDS INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
Long-term debt is secured by first fixed and floating charges over the
Group's assets and a personal guarantee of one of the Group's principals.
10. MINORITY INTEREST
The combined financial statements include the accounts of two companies:
CEI Limited and a subsidiary of Young Caribbean Jewellery Company Limited,
Colombian Emeralds International (Barbados) Limited incorporated under the laws
of Barbados. The minority interest presented in the combined balance sheet
represents 50% of the shareholders' equity of these two companies.
11. CONTRIBUTED SURPLUS AND COMMITMENTS
On October 10, 1992 the two beneficial shareholders of one of the Group
companies entered into an agreement whereby one of the shareholders agreed to
sell his shareholding to the other shareholder. Under the terms of the
agreement, the total consideration is US$13,000,000 plus interest at US$ prime
plus 1 1/2%, which is payable in monthly installments of US$250,000 beginning on
October 31, 1994. The Group intends to fund these payments by making
distributions from contributed surplus. During the year ended September 30,
1996, US$$1,250,000 of interest and principal payments were made and the
principal amount outstanding amounted to approximately $11,300,000.
Effective October 1, 1995, the Group implemented a deferred compensation
scheme in which all employees of the Group are eligible to participate. The
objective of the scheme is to allow employees to be entitled to additional
compensation in the form of the value of units of participation referred to as
"Emerald Shares" which are allocated to employees based on salary levels and the
performance of stores and the Group as a whole. After three years of employment,
20% of the value of employees' Emerald Shares vests. Vesting percentages
increase gradually up to 100% after seven years of employment.
The value of the Emerald Shares is determined at the discretion of the
Group's directors. As of September 30, 1996, the potential liability assuming
that all employees become fully vested after 7 years was approximately $200,000,
which amount has been accrued for and included in selling, general and
administrative expenses in the combined statement of operations.
Various Group companies lease office and store space for their retail
operations under non-cancelable operating leases.
The approximate future minimum annual lease payments for the five years
ending September 30 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------- -----------
<S> <C>
1997........................................ $ 4,146,000
1998........................................ 3,089,000
1999........................................ 1,827,000
2000........................................ 884,000
2001........................................ 683,000
Thereafter.................................. 2,507,000
-----------
$13,136,000
===========
</TABLE>
Capital commitments as at September 30, 1996 relating to leasehold
improvements amounted to approximately $1,000,000.
8
<PAGE> 33
COLOMBIAN EMERALDS INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
12. SHARE CAPITAL
<TABLE>
<CAPTION>
1996
------
<S> <C>
Young Caribbean Jewellery Company Limited; authorised 720,000 shares of par
value $1 each, issued 100 shares.......................................... $ 100
Island Galleria Limited; authorised, issued and fully paid 1,000 shares of
$1 each................................................................... 1,000
CEI Limited; authorised, issued and fully paid 5,000 shares of $1 each, net
of 50% minority shareholding.............................................. 2,500
Sunflower Investments Limited; authorised, issued and fully paid 2,860
shares of $1 each......................................................... 2,860
Adanac Investment Company Limited; authorised, issued and fully paid 1,000
shares of $1 each......................................................... 1,000
------
$7,460
======
</TABLE>
9
<PAGE> 34
COLOMBIAN EMERALDS INTERNATIONAL
COMBINED FINANCIAL STATEMENTS
(PREPARED: AUGUST 6, 1997)
<TABLE>
<CAPTION>
IN HOUSE AUDITED
NINE MONTHS YEAR ENDED
BALANCE SHEET JUN 30/97 SEP 30/96
- ------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash............................................................. 1,511,846 1,661,246
Accounts receivable.............................................. 2,122,010 664,254
Insurance receivable............................................. 0 0
Due from Shareholder............................................. 4,061,025 3,468,048
Inventories...................................................... 78,564,806 74,679,469
Prepaids and deposits............................................ 3,981,591 4,649,884
----------- ----------
90,241,278 85,122,901
----------- ----------
Fixed Assets
Building, leasehold improvements, and equipment and vehicles..... 25,552,467 20,672,026
Accumulated depreciation......................................... 14,571,454 12,253,192
----------- ----------
10,981,013 8,418,834
----------- ----------
Due from Island Galleria Limited................................... 0 0
Due from Roblin Limited............................................ 98,042 114,606
Pre-operating expenses............................................. 500,000 1,149,877
Intangible Assets.................................................. 585,684 185,684
----------- ----------
102,406,017 94,991,902
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank indebtedness................................................ 9,988,432 9,292,030
Accounts payable and accruals.................................... 21,334,781 15,819,420
Income taxes payable............................................. 945,875 1,158,626
Due to F Martinez................................................ 0 0
Current portion of long-term debt................................ 9,000,000 8,305,187
----------- ----------
41,269,088 34,575,263
----------- ----------
Long-Term Debt..................................................... 5,850,509 9,188,045
----------- ----------
Minority Interest.................................................. 6,874,707 6,424,707
----------- ----------
Shareholders Equity
Capital stock.................................................... 7,460 7,460
Contributed surplus.............................................. 14,011,540 16,511,540
Retained earnings................................................ 34,392,713 28,284,887
----------- ----------
48,411,713 44,803,887
----------- ----------
102,406,017 94,991,902
=========== ==========
</TABLE>
<PAGE> 35
EXHIBIT B TO PROXY STATEMENT
[COLOMBIAN EMERALDS INTERNATIONAL LETTERHEAD]
September 17, 1997
Board of Directors
LITTLE SWITZERLAND, INC.
161-B Crown Bay Cruise Ship Port
St. Thomas, U.S. Virgin Islands VI 00802
Attention: John E. Toler, Jr.
Gentlemen:
The Colombian Emeralds International group of companies ("CEI") has
submitted three bona fide offers to Little Switzerland, Inc.'s ("LSI") Board of
Directors in the last few months, the most recent of which was made on September
8, 1997 (the "Offer"). None of these offers has been either publicly announced
or otherwise disclosed to LSI's shareholders. In addition, CEI has now been
advised by LSI's financial advisor that LSI's Board feels compelled to delay
considering the Offer until such time as it is able to complete its long overdue
Annual Report on Form 10K for fiscal year 1997 (the "97 10-K") and file it with
the SEC. We feel compelled to follow-up CEI's September 8, 1997 Offer letter
with the following comments:
1. CEI's Offer provides LSI's shareholders with an immediately
accretive transaction having both no limit on its upside potential and
fully assured downside protection at $6.15 per share. As you know, we
provided comprehensive exhibits and information in support of this Offer.
As our respective businesses are within months of entering their seasonal
peaks, CEI's goal is to complete the proposed transaction promptly so that
the synergies of our respective companies have the utmost chance of being
recognized in the coming high season.
2. In furtherance of the fundamental point made above, CEI's Offer
provides for an immediate commencement of negotiations and the execution of
a definitive agreement in the very near future. CEI offered "fiduciary-out"
protection to LSI's Board should a more attractive proposal be received by
LSI during the pendency of the closing of our proposed transaction.
3. CEI's Offer essentially contained no due diligence conditions,
other than review of the '97 10-K. In this regard and in connection with
the difficulties LSI is apparently having completing its '97 10-K, while it
should have been clear from our Offer (and would be so were we able to have
a definitive meeting), let us make another key point: absent a very
material asset write-down of LSI's inventories, CEI's focus on moving
forward with dispatch on the terms of its Offer is not affected by any
adjustments to prior years' earnings as may be reflected in LSI's current
fiscal year's results. CEI only cares about confirming (via its review of
the information which will be contained in LSI's overdue '97 10K) that
LSI's May 31, 1997 fiscal year's results from operations, before one time
historic charges (other than a material inventory write down), are
substantially in line with those set forth in Exhibit I of our Offer
letter.
CEI has acted in good faith and, in connection with its Offer, sees no
reason, based on points 1-3 above, why LSI's Board is resisting meeting with CEI
at the earliest possible date:
- operationally, LSI shareholders stand to benefit from the earliest
possible completion of the accretive and synergistic transaction proposed
by CEI (Point 1);
<PAGE> 36
- fiduciarily, LSI's Board has, within its full legal power, the ability to
enter into the definitive agreement proposed by CEI at this time (Point
2); and
- financially, absent a material inventory problem at LSI (which will no
doubt negatively impact any other offer LSI might be hoping to
entertain), CEI is prepared to move ahead on the terms of its Offer
(Point 3).
Furthermore, it is apparent to us, as shareholders of LSI, that you have
been delaying setting a date for LSI's 1997 annual meeting for the election of
directors. We would expect that you will promptly schedule and hold the 1997
annual meeting.
Your delaying tactics with respect to our Offer and the holding of the 1997
annual meeting are not in the interests of LSI's shareholders. Once again, we
request that you promptly meet with us and negotiate a definitive agreement and
give LSI's shareholders the chance to vote on the transaction proposed by CEI.
CEI's full expectation is that, given the chance, LSI's shareholders would
readily approve the accretive transaction proposed by CEI whereby (1) their
upside is reinforced by the synergies of the combined companies and (2) their
downside is covered by the $6.15 Put Right provided for in the CEI Offer.
Insofar as LSI's financial results have done nothing but deteriorate since
1992, it is high time that LSI's Board of Directors properly perform its
fiduciary duties and give LSI's shareholders the opportunity to decide whether
they want (1) more delay and maintaining of the status quo or (2) a chance to be
part of a very favorable business combination with substantial upside
opportunity for them.
We look forward to hearing from you soon.
Sincerely,
Stephen G.E. Crane
President and Chief Executive Officer
cc: William C. Carey
Francis X. Correra
Timothy B. Donaldson
Ilene B. Jacobs
Kenneth W. Watson
2
<PAGE> 37
THIS PROXY IS SOLICITED BY ASPEN INVESTMENTS INC. (THE "SOLICITING STOCKHOLDER")
IN CONNECTION WITH
THE 1997 ANNUAL MEETING OF STOCKHOLDERS OF
LITTLE SWITZERLAND, INC.
The undersigned stockholder of LITTLE SWITZERLAND, INC. (the "Company") hereby
appoints Stephen G.E. Crane as lawful attorney and proxy, with several power of
substitution, for and in the name of the undersigned to represent and vote, as
designated below, all shares of the common stock, par value $.01 per share, of
the Company which the undersigned is entitled to vote at the 1997 Annual Meeting
of Stockholders of the Company, to be held on , 1997 at the offices of
commencing at a.m., or at any adjournment, postponement or
rescheduling thereof (collectively, the "Annual Meeting"). The undersigned
hereby revokes any and all previous proxies with respect to the matters covered
by this proxy and the voting of such shares at the Annual Meeting.
A. ELECTION OF DIRECTORS: Nominees of the Soliciting Stockholder (Aspen
Investments Inc.):
[ ] FOR the nominees listed below
[ ] WITHHOLD AUTHORITY for the nominees listed below.
NOMINEES: STEPHEN G.E. CRANE
THE PERSONS NOMINATED BY THE COMPANY,
OTHER THAN [C. WILLIAM CAREY]
THE SOLICITING STOCKHOLDER IS NOT SEEKING, AND THE PROXY WILL NOT VOTE, FOR ANY
NOMINEES OTHER THAN THE NOMINEES NAMED ABOVE.
B. ADJOURNMENTS: If a quorum is not present, to vote upon any motion for
adjournment or postponement made by or supported by the
Soliciting Stockholder.
<TABLE>
<S> <C> <C> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
C. DISCRETIONARY AUTHORITY: In his discretion, the proxy is authorized to vote
upon such other business as may properly come
before the Annual Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE> 38
This Proxy Card, when properly executed, will be voted as directed herein. IF NO
INSTRUCTIONS ARE GIVEN, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED "FOR"
THE NOMINEE LISTED ABOVE, "FOR" ANY ADJOURNMENT OR POSTPONEMENT SUPPORTED BY THE
SOLICITING STOCKHOLDER, AND IN THE DISCRETION OF THE PROXY AS TO ALL OTHER
MATTERS.
PLEASE DATE AND SIGN THIS PROXY EXACTLY AS YOUR NAME APPEARS HEREON.
Dated:
- ------------------
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Signature of Owner
-----------------------------------------------------------------------
Additional Signature
of Joint Owner (if
any)
If stock is jointly held, each joint owner should
sign. When signing as attorney in fact, executor,
administrator, trustee, guardian, corporate officer
or partner, please give full title.
TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE SOLICITING STOCKHOLDER,
ASPEN INVESTMENTS INC.,
JUST SIGN, DATE AND RETURN THIS PROXY --
NO BOXES NEED BE CHECKED.
