<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended November 28, 1998
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ___________ to ____________
Commission File No. 0-19369
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LITTLE SWITZERLAND, INC.
(Exact name of registrant as specified in its charter)
Delaware 66-0476514
(State of Incorporation) (I.R.S Employer
Identification No.)
161-B Crown Bay Cruise Ship Port
St. Thomas U.S.V.I. 00802
(Address of Principal Executive Offices) (Zip Code)
(340) 776-2010
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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At January 4, 1999, 8,624,202 shares of $.01 par value common stock of the
registrant were outstanding.
1
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LITTLE SWITZERLAND, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 28, 1998
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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<S> <C>
Consolidated Balance Sheets as of November 28, 1998 (unaudited) and May 30, 1998 3
Consolidated Statements of Income (unaudited) for the three and six months ended
November 28, 1998 and November 29, 1997.......................................... 4
Consolidated Statements of Cash Flows (unaudited) for the six months ended
November 28, 1998 and November 29, 1997.......................................... 5
Notes to Consolidated Financial Statements (unaudited)............................ 6-11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations.................................................................... 12-15
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Item 3. Quantitative and Qualitative Disclosures about Market Risk....................... 15
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................ 16
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Item 5. Other Information................................................................ 16
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Item 6. Exhibits and Reports on Form 8-K................................................. 17
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</TABLE>
Signature Page
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial statements
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands except per share data)
<TABLE>
<CAPTION>
November 28, May 30,
ASSETS 1998 1998
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(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,143 2,278
Accounts receivable................................ 2,734 1,999
Inventory.......................................... 46,422 49,178
Prepaid expenses and other current assets.......... 2,357 1,944
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Total current assets............................. 53,656 55,399
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Property, plant and equipment, at cost.............. 37,240 39,688
Less -- Accumulated depreciation................... (17,968) (18,230)
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19,272 21,458
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Other assets........................................ 292 294
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Total assets..................................... $ 73,220 $ 77,151
======== ========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current portion of long term debt.................. $ 2,225 $ 2,225
Unsecured notes payable............................ 14,300 7,825
Accounts payable................................... 7,591 10,840
Accrued and currently deferred income taxes........ 1,320 777
Other accrued expenses and deferred income......... 3,112 3,500
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Total current liabilities........................ 28,548 25,167
Long term debt...................................... 2,781 3,894
Deferred income taxes............................... 202 202
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Total liabilities................................ 31,531 29,263
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Commitments and contingencies....................... --- ---
Minority interest................................... 1,619 1,619
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Stockholders' equity:
Preferred stock, $.01 par value--
Authorized--5,000 shares
Issued and outstanding--none....................... --- ---
Common stock, $.01 par value--
Authorized--20,000 shares
Issued and outstanding--8,624 shares
at November 28, 1998 and at May 30, 1998.......... 87 87
Capital in excess of par............................ 15,601 15,601
Retained earnings................................... 24,382 30,581
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Total stockholders' equity........................ 40,070 46,269
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Total liabilities, minority interest
and stockholders' equity......................... $ 73,220 $ 77,151
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
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LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
November 28, November 29, November 28, November 29,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net sales................. $14,800 $21,034 $31,787 $41,404
Cost of sales............. 8,886 11,997 18,190 23,710
------- ------- ------- -------
Gross profit.............. 5,914 9,037 13,597 17,694
Selling, general and
administrative expenses... 9,224 8,826 18,485 17,306
Operating income(loss).. (3,310) 211 (4,888) 388
Interest expense, net..... 367 426 711 796
------- ------- ------- -------
(Loss) before
income taxes........... (3,677) (215) (5,599) (408)
(Benefit) for
income taxes.............. 600 (47) 600 (82)
------- ------- ------- -------
Net (loss)................ $(4,277) $ (168) (6,199) (326)
======= ======= ======= =======
Net (loss)
Per share................ $ (0.50) $ (0.02) $ (0.72) $ (0.04)
======= ======= ======= =======
Weighted average shares
outstanding.............. 8,624 8,462 8,624 8,462
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
4
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LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the six months ended
November 28, November 29,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net (loss)..................................................... $ (6,199) $ (326)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities--
Depreciation................................................. 1,539 1,283
Store closing expense........................................ 1,668 --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable................. (735) (1,206)
(Increase) in prepaid income taxes......................... -- (83)
Decrease (increase) in inventory........................... 2,756 (7,347)
(Increase) in prepaid expenses and other current assets.... (413) (1,542)
Decrease in other assets................................... 2 171
(Decrease) increase in accounts payable.................... (3,249) 5,570
(Decrease) in other accrued expenses and deferred income... (972) 606
(Decrease) in accrued and currently deferred income taxes.. 543 (428)
-------- --------
Net cash (used in) operating activities........................ (5,060) (3,302)
-------- --------
Cash flows from investing activities:
Capital expenditures......................................... (437) (582)
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Net cash (used in) investing activities........................ (437) (582)
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Cash flows from financing activities:
Proceeds from unsecured notes payable........................ 18,056 21,125
Repayments of unsecured notes payable........................ (11,581) (13,700)
Repayments of long term borrowings........................... (1,113) (838)
Issuance of common stock..................................... -- 3
-------- --------
Net cash provided by financing activities....................... 5,362 6,590
-------- --------
Net (decrease) increase in cash and cash equivalents............ (135) 2,706
Cash and cash equivalents, beginning of period.................. 2,278 1,710
-------- --------
Cash and cash equivalents, end of period........................ $ 2,143 $ 4,416
======== ========
</TABLE>
During the six months ended November 28, 1998 and November 29 1997, the Company
paid income taxes of $56 and $428, respectively, and paid interest of $718 and
$785, respectively.
See accompanying notes to consolidated financial statements
5
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1. Consolidated Financial Statements
---------------------------------
The accompanying consolidated financial statements include the operations
of Little Switzerland, Inc. (the "Company") and its wholly owned subsidiaries,
L.S. Holding, Inc. and L.S. Wholesale, Inc. All significant intercompany
balances have been eliminated in consolidation. The interim financial statements
are unaudited and, in the opinion of management, contain all adjustments
necessary to present fairly the Company's financial position as of November 28,
1998 and November 29, 1997 and the results of its operations and cash flows for
the interim periods presented. It is suggested that these interim financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K/A for the
fiscal year ended May 30, 1998.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for a full fiscal year, due
to the seasonal nature of the Company's operations.
2. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Transactions with Affiliates
----------------------------
The Company enters into a number of transactions with Town & Country
Corporation and its affiliates ("Town & Country") for the purchase of jewelry.
During a portion of fiscal 1998 and all of fiscal years 1997 and 1996 one of the
Company's directors and its acting president and chief executive officer was an
executive officer of Town & Country. The Company purchased jewelry in an
aggregate of approximately $560,000, $640,000 and $1.4 million in fiscal 1998,
1997 and 1996, respectively. Management believes that these purchases
approximate arm's-length transactions.
4. Store Closing Expense
---------------------
During the quarter ended November 28, 1998, the Company recorded a charge
associated with the closure of its store in Ketchikan, Alaska, as well as one
store in each of Antigua and St. Kitts. The store in St. Kitts was closed
indefinitely due to damage inflicted by Hurricane Georges. The charge amounted
to approximately $1.7 million and has been included in selling, general and
administrative expenses in the accompanying consolidated statements of income.
Approximately $1.5 million of the charge relates to the impairment of fixed
assets and leasehold improvements at the closed stores.
5. Credit Arrangements
-------------------
The Company has unsecured credit facilities of $19.7 million with two
banks, of which approximately $16.6 million in borrowings were outstanding as of
November 28, 1998. Approximately $4.1 million of these outstanding borrowings is
utilized to secure customs bonds and other bank guarantees required in the
normal course of business. The Company currently has $3.1 million available for
borrowing under these credit facilities. However, any unfunded portion of the
available facilities can be withdrawn at the banks' discretion.
6
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The credit facilities with the Company's two banks were up for renewal
at the end of December 1998. One of the Company's lead banks has
renewed its credit facility in the amount of $9.5 million on approximately the
same terms and conditions through December 31, 1999. The other lead bank has
extended its credit facility in the amount of $7.0 million through January 31,
1999. The Company is currently negotiating a renewal of this facility through
September 30, 1999; however, there is no assurance at this time that such
renewal will be granted. If this credit facility is not renewed, or if the terms
and conditions of this credit facility are materially changed, it could have a
material adverse effect on the Company's results of operations. On August 11,
1998, in addition to the credit facilities discussed above, one of the Company's
lead banks approved a $3.0 million seasonal line of credit (the "Credit
Facility"), which the Company is using to support its inventory for the peak
selling season. As of January 4, 1999, the Company has drawn $2.8 million
under the Credit Facility. Additionally, in February 1996, the Company
obtained a term loan of approximately $8.9 million from its two lead banks to
finance the acquisition of the fixtures, leasehold rights and inventories of two
stores in Barbados. Interest on this debt accrues at an annual interest rate of
7.25%, and is payable monthly. The principle is payable in equal quarterly
payments over a four year period, commencing March 1997. As of November 28,
1998, the Company had $5.0 million of term debt outstanding against this term
loan. As of May 30, 1998, the Company was in compliance with, or received
waivers for, all restrictive covenants related to these credit facilities.
6. Earnings Per Share
------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, Earnings per Share, effective December 15, 1997. In accordance with the
requirements of SFAS No. 128, basic earnings per share is computed by dividing
net income by the weighted average number of shares outstanding and diluted
earnings per share reflects the dilutive effect of stock options (as calculated
utilizing the "Treasury Method"). The weighted average number of shares
outstanding, the dilutive effects of outstanding stock options, and the shares
under option plans which were anti-dilutive for the periods included in this
report are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
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11/28/98 11/29/97
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<S> <C> <C>
Weighted average number of shares
used in basic earnings per share
calculation................................ 8,624 8,462
Dilutive effects of options................. --- ---
Weighted average number of shares
used in diluted earnings per share
calculation................................ 8,624 8,462
Shares under option plans or outside
such option plans excluded in computation
of diluted earnings per share due to
anti-dilutive effects...................... 944 929
</TABLE>
7
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7. Accounting for Income Taxes
---------------------------
The Company follows the liability method of accounting for income taxes as
set forth in SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. The amount of deferred tax asset or liability is based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount that is realizable, based
upon the realization criteria defined in SFAS No. 109.
8. Other Assets
------------
Other assets consist primarily of amounts related to rental deposits.
The Company accounts for long-lived and intangible assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of. The Company continually reviews applicable
assets for events or changes in circumstances which might indicate the carrying
amount of the assets may not be recoverable. The Company assesses the
recoverability of these assets by determining whether the amortization over
their remaining lives can be recovered through projected undiscounted future
results. The amount of impairment, if any, is measured based on projected
discounted future results using a discount rate commensurate with the risks
involved. No such impairment existed as of November 28, 1998.
In April 1998, the AICPA issued Statement of Position (SOP) 98-5, Reporting
on the Costs of Start-up Activities. SOP 98-5 requires all costs associated
with preopening, preoperating and organization activities to be expensed as
incurred. The Company elected to adopt SOP 98-5 as of June 1, 1997.
9. Statement of Financial Accounting Standards No. 123 - Accounting for
---------------------------------------------------------------------
Stock-Based Compensation
- ------------------------
In December 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, which became effective for fiscal
years beginning after December 15, 1995. SFAS No. 123 requires employee stock-
based compensation to be either recorded or disclosed at its fair value.
Management continues to account for employee stock-based compensation under
Accounting Principles Board Opinion No. 25 and did not adopt the new accounting
provision for employee stock-based compensation under SFAS No. 123. The
additional required disclosures will be included in the Company's fiscal year
end financial statements.
10. Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------
In June 1998, the Financial Account Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
8
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SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement SFAS No. 133 as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before
January 1, 1998).
The Company has not yet quantified the impact of adopting SFAS No. 133 on
its financial statements and has not determined the timing of or method of its
adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in
earnings and other comprehensive income.
11. Advertising
-----------
The Company expenses the costs of advertising as advertisements are printed
and distributed. The Company's advertising expenses consist primarily of
advertisements with local, regional and national travel magazines, which are
produced on a periodic basis and distributed to visiting tourists, and fees paid
for promotional "port lecturer" programs directed primarily at cruise ship
passengers.
12. Commitments and Contingencies
-----------------------------
The Company's Relationship with Rolex
- -------------------------------------
Historically, the Company was the exclusive authorized retailer for Rolex
watches on the islands on which the Company operates. Following the execution
of the Agreement and Plan of Merger, dated as of February 4, 1998 (the "Merger
Agreement"), with Destination Retail Holdings Corporation ("DRHC") and certain
of its affiliates, Rolex suspended shipments of its products to the Company
because Rolex indicated that it did not believe it would be in its best interest
to begin a business relationship with DRHC. Following termination of the Merger
Agreement, on June 9, 1998, the Company made numerous attempts to rebuild its
business relationship with Rolex. However, on July 15, 1998, the Company
announced that it had learned that Rolex had decided not to resume shipments of
its watches to the Company for retail sale through Little Switzerland's stores.
Sales of Rolex watches accounted for 26%, 24% and 23% of the Company's sales in
fiscal 1998, 1997 and 1996, respectively. In order to mitigate the impact on
sales of the loss of Rolex products, the Company is actively exploring
opportunities for expanding existing, and adding new, world class product lines
in both watches and jewelry. In connection with these efforts, the Company has
added Movado, Baume & Mercier and Mont Blanc time pieces to its watch lines and
has added Breitling products to its flagship store in Aruba. At this time, the
Company does not anticipate adding Breitling products to its other stores. In
addition, the Company has increased the showcase space allocated to jewelry in
certain of its larger stores to accommodate a greater variety of moderate to
higher priced fashion merchandise, including diamond, tanzanite, pearl and
certain designer name classifications. There can be no assurance that the
Company's actions in replacing Rolex products with new or expanded watch and
jewelry products will be successful or that the sales of these new or expanded
products will reduce the effect of the loss of Rolex as a supplier on the
Company's sales.
On September 25, 1998, at Rolex's request, the Company returned its
remaining Rolex inventory valued at $1.4 million to Rolex for credit. The
Company invoiced Rolex for the full value of the inventory and has accounted for
the return as a receivable on its books. The Company has been verbally
informed by Rolex that Rolex does not believe the returned inventory is worth
the $1.4 million and the Company is currently in discussions with Rolex
regarding the value of this inventory.
9
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Aruba Audit
- -----------
During 1997, the Company received an assessment from the local government
in Aruba that relates to the Company's local income tax returns regarding
certain consulting fees paid and service fees assessed by L.S. Wholesale, Inc.,
a wholly-owned subsidiary of the Company, to Aruba. During 1998, the Company met
with the tax authorities in Aruba. The Company has entered into a final
settlement with the tax authorities regarding its 1988-1996 local tax returns
and recorded a tax expense of $.6 million in the three-month and six-month
periods ended November 28, 1998 for the incremental cost of this settlement.
Pursuant to this settlement, the Company has been assessed a profit tax in the
amount of $650,000, which is payable in ten equal installments of $65,000 per
month commencing on March 1, 1999. Interest of 6% per annum will be charged on
the outstanding amount starting on March 1, 1999. The Company also has been
assessed a wage tax in the amount of $550,000, which is payable in six
installments commencing in June 1999. Interest of 6% per annum will be charged
on the outstanding amount starting on June 1, 1999. The Company may be subject
to an additional assessment for the Company's fiscal years 1997 and 1998 local
income tax returns. At this time the Company is unable to quantify the related
financial exposure, if any. In the opinion of management of the Company, there
is no assurance that this assessment will not have a material adverse effect on
the Company's financial condition or results of operations.
IDC Benefit
- -----------
Under an agreement which expired at the end of August, 1998, the Company's
wholly-owned subsidiary, L.S. Wholesale, Inc., which acts as a purchasing agent
for items sold by the Company's stores and charges fees for acting as such an
agent, benefited from a lower tax rate on its income earned outside the U.S.
Virgin Islands. Under this agreement such income was taxed at a rate of 3.74%.
L.S. Wholesale has submitted its application for renewal of benefits, and
anticipates that it will be notified with respect to the renewal sometime during
fiscal 1999. Until it receives notification with respect to this renewal, the
Company must pay taxes on all of L.S. Wholesale's U.S.V.I. based income at the
statutory rate of 37.4%. However, if the renewal is granted, then management
believes that the lower tax rate will be applied retroactively to the end of
August, 1998 and the Company will be reimbursed for any excess tax payments;
however, there is no assurance that this will occur. The Company anticipates
that the agreement will be renewed at the same or less favorable benefit. It,
however, has no assurance at this time that such a renewal will be granted or
that it will be notified with respect to such renewal during fiscal 1999. If it
is not renewed, all of the L.S. Wholesale's U.S.V.I. based income will be taxed
at the statutory rate of 37.4% and L.S. Wholesale will be subject to a gross
receipts tax. Such non-renewal may have a material adverse effect on the
Company's results of operations. The Company's effective tax rate was 31.9% and
0.0% in the fiscal years ended May 30, 1998 and May 31, 1997, respectively.
Hurricane Damage
- ----------------
In September 1998, Hurricane Georges inflicted minor damage to several of
the Company's stores and caused significant damage to its St. Kitts store and to
various islands' infrastructures, including hotels and other tourist facilities.
As of October 16, 1998, all of the Company's stores have reopened with the
exception of the St. Kitts store, which sustained major damage. Based on
currently available information, the Company anticipates that the St. Kitts
store will be closed indefinitely. At this time, the financial impact of
Hurricane Georges on the Company's Caribbean operations is difficult to
quantify. The Company is currently in the process of completing and filing
insurance claims with its insurance carrier in connection with the hurricane
damage to certain of the Company's properties. In January 1999, the Company
received approximately $500,000 in initial payments on its claims from its
insurance carrier.
Employee Defalcation
- --------------------
In July, 1997 management disclosed to its independent auditors that certain
transactions may have been recorded in error on the books of the Company. As a
result, the Company engaged Arthur Andersen LLP
10
<PAGE>
to evaluate the matter and determine the impact, if any, on the Company's
previously and currently reported consolidated financial statements. After
extensive review, analysis and evaluation, which focused on unlocated
differences in cash balances, management believes that an employee defalcation
occurred during fiscal 1997. The employee was able to circumvent existing
internal controls largely due to lapses in appropriate segregation of duties
regarding cash deposits and disbursements, inter-bank transfers and bank account
reconciliations. This lapse in the segregation of such duties was further
exacerbated by the resignation of the Company's Assistant Treasurer on February
28, 1997, which office was not filled until April 29, 1997. Two individuals, one
of whom was an employee of the Company, were arrested on February 10, 1998 in
connection with this defalcation and charged with embezzlement and appropriation
of the property of the Company. Lorraine Quetel, the former employee, has pled
guilty to the embezzlement of $1.85 million. The criminal action against Lydia
Magras is still pending.
The estimated loss of approximately $2.4 million has been classified as a
general and administrative expense in the consolidated financial statements for
the fiscal year ended May 31, 1997. As a result of the charge, the Company
filed amended financial statements on Form 10-Q for each of the quarters within
fiscal 1997.
The Company has insurance coverage which calls for a maximum claim
limitation of $1,000,000. A claim for the full amount of the loss has been
submitted and payment of the $1,000,000 has been received. The amount of
insurance recovery from its insurance carrier relating to these losses has been
reflected in the selling, general and administrative expenses in the
consolidated financial statements for the year ended May 30, 1998. To date, the
Company has received $65,000 in restitution from the employee. On March 11,
1998, the Company filed a civil action against Lorraine Quetel, the former
employee of the Company, Lydia Magras and Bon Voyage Travel, Inc. seeking full
restitution from such parties, however, the Company does not know what, if any,
of the funds are still in the possession of the former employee and such other
parties. See Part II - Other Information, Item 1 "Legal Proceedings."
11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
- ---------------------
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain statements that are
"forward-looking statements" as that term is defined under the Private
Securities Litigation Reform Act of 1995 and releases issued by the Securities
and Exchange Commission. The words "believe," "expect," "anticipate," "intend,"
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company to differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements. The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
The future operating results and performance trends of the Company may be
affected by a number of factors, including, without limitation, the following:
(i) the frequency of tourist visits to the locations where the Company maintains
retail stores, (ii) the Company's ability to retain relationships with its major
suppliers of product for resale, (iii) the Company's ability to mitigate the
impact on sales of the loss of Rolex products by expanding existing, and adding
new, world class product lines in both watches and jewelry, (iv) weather in the
Company's markets, (v) actions of the Company's competitors and the Company's
ability to respond to such actions, (vi) economic conditions that affect the
buying patterns of the Company's customers and (vi) availability of new tourist
markets for expansion. In addition to the foregoing, the Company's actual
future results could differ materially from those projected in the forward-
looking statements as a result of the risk factors set forth in the Company's
various filings with the Securities and Exchange Commission and of changes in
general economic conditions, changes in interest rates and/or exchange rates and
changes in the assumptions used in making such forward-looking statements.
YEAR 2000 READINESS DISCLOSURE
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning the Year 2000 Information and Readiness
Disclosure Act.
Many existing computer programs and databases use two digits to identify a
year in the date field (i.e., 98 would represent 1998). These programs and
databases were designed and developed without considering the impact of the
upcoming millennium. If not corrected, many computer systems could fail or
create erroneous results relating to the year 2000. If the Company or its
significant suppliers fail to make necessary modifications and conversions on a
timely basis, the year 2000 issue could have a material adverse effect on
Company operations. However, the impact cannot be quantified at this time. The
Company believes that its competitors face a similar risk.
The Company has developed plans to address the possible exposures related
to the impact on its computer systems of the year 2000 issue. Key financial,
information and operational systems, including equipment with embedded
microprocessors, have been or are currently being inventoried and assessed, and
detailed plans have been or are currently being developed for the required
systems modifications or replacements. Progress against these plans is monitored
and reported to management on a regular basis. Implementation of required
changes to critical systems is expected to be completed during fiscal 1999. The
Company is also focusing on major suppliers to assess their compliance. The
Company has received assurances from certain suppliers that such suppliers
expect to be year 2000 compliant and is seeking such assurances from its other
material suppliers. Nevertheless, there can be no assurance that there will not
be a
12
<PAGE>
material adverse effect on the Company if third party governmental or business
entities do not convert or replace their systems in a timely manner and in a way
that is compatible with the Company's systems. In the event a material supplier
is not year 2000 compliant, the Company's business, financial condition and
results of operations could be materially and adversely affected.
The costs incurred to date related to these programs have not been material
and the Company does not expect its future costs related to these programs to be
material. Such costs have been and will continue to be funded through operating
cash flows. The Company presently believes that the total cost of achieving year
2000 compliant systems is not expected to be material to its financial
condition, liquidity, or results of operations.
Time and cost estimates are based on currently available information.
Developments that could affect estimates include, but are not limited to, the
availability and cost of trained personnel; the ability to locate and correct
all relevant computer code and systems; and remediation success of the Company's
customers and suppliers.
The preceding "Year 2000 Readiness Disclosure" contains various forward-
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934 and the Section 27A Securities Act of 1933. These forward-looking
statements represent the Company's beliefs or expectations regarding future
events. When used in the "Year 2000 Readiness Disclosure", the words "believes,"
"expects," "estimates" and similar expressions are intended to identify forward-
looking statements. Forward-looking statements include, without limitation, the
Company's expectations as to when it will complete the modification and testing
phases of its year 2000 project plan as well as its year 2000 contingency plans;
its estimated cost of achieving Year 2000 readiness; and the Company's belief
that its internal systems will be year 2000 compliant in a timely manner. All
forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
Factors that may cause these differences include, but are not limited to, the
availability of qualified personnel and other information technology resources;
the ability to identify and remediate all date sensitive lines of computer code
or to replace embedded computer chips in affected systems or equipment; and the
actions of governmental agencies or other third parties with respect to year
2000 problems.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIOD ENDED NOVEMBER 28, 1998
General
- -------
The Company currently operates 24 luxury gift and jewelry stores. Last year
at this time, the Company operated 27 stores. The Company has recently closed
one store in Ketchikan, Alaska, as well as one store each in Antigua and St.
Kitts. The store in St. Kitts was closed indefinitely due to damage inflicted by
Hurricane Georges. See Part I, Item 1 "Footnote 12 Consolidated Financial
Statements (unaudited)."
Net Sales
- ---------
Net sales for the three-month period ended November 28, 1998 were $14.8
million, a 29.6% reduction from net sales of $21.0 million for the corresponding
three-month period last year. Net sales for the six-month period ended November
28, 1998 were $31.8 million, a 23.2% reduction from net sales of $41.4 million
for the corresponding six-month period last year. Net sales in comparable
stores fell 28.6% in the three-month period ended November 28, 1998 and 22.5% in
the six-month period ended November 28, 1998.
Management attributes the reduction in sales for both the three-month and
six-month period ended November 28, 1998 primarily to the absence of Rolex
products in the Company's stores. The Company has not received any shipments of
Rolex products since January 1998. Historically, Little Switzerland was the
13
<PAGE>
exclusive authorized retailer for Rolex watches on the islands on which the
Company operates. On July 15, 1998, the Company announced that it had learned
that Rolex had decided not to resume shipments of its watches to the Company for
retail sale through Little Switzerland's stores. See Part I, Item 1 "Footnote 12
to Consolidated Financial Statements (unaudited)." The overall impact of
operating without Rolex was similar throughout most of the Company's market
areas. Excluding the impact of Rolex sales, sales in comparable stores fell 3.1%
in the three-month period ended November 28, 1998 and 1.8% in the six-month
period ended November 28, 1998.
During the three-month period ended November 28, 1998, the Company's store
in St. Kitts was closed indefinitely due to damage inflicted by Hurricane
Georges. See Part I, Item 1 "Footnote 12 to Consolidated Financial Statements
(unaudited)." This event contributed to approximately $.2 million of the net
sales reduction in both the three-month and six-month period ended November 28,
1998.
Gross Profit
- ------------
Gross profit, as a percentage of net sales, was 40.0% for the three-month
period ended November 28, 1998 and 42.8% for the six-month period ended November
28, 1998 as compared to 43.0% and 42.7%, respectively, for the corresponding
periods last year. The Company attributes the decrease in gross profit as a
percentage of net sales for the three-month period ended November 28, 1998 in
part to the impact of markdowns taken to stimulate sales of slow-moving
inventory. In addition, the Company decided to discontinue and liquidate
certain merchandise in the "accessories" category, resulting in significant
discounting of this product line.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, General and Administrative expenses ("SG&A") for the three-month
period ended November 28, 1998 were $9.2 million, or 62.3% of net sales, and for
the six-month period ended November 28, 1998 were $18.5 million, or 58.2% of net
sales as compared to $8.8 million, or 42.0% of net sales and $17.3 million, or
41.8% of net sales for the corresponding periods last year. Included in SG&A
for both the three-month and the six-month periods ended November 28, 1998 is a
charge of $1.7 million representing a charge recorded by the Company for the
closing of three stores. The Company recently closed one store in Ketchikan,
Alaska, as well as one store in each of Antigua and St. Kitts. The store in St.
Kitts was closed indefinitely due to damage inflicted by Hurricane Georges. See
Part I, Item 1 "Footnote 12 to Consolidated Financial Statements (unaudited)."
This charge is for impairment of fixed assets and leasehold improvements at the
closed stores of approximately $1.5 million. Excluding store closing costs,
SG&A represents 51.0% and 52.9% of net sales for the three-month and six-month
periods ended November 28, 1998, respectively. The increase in SG&A as a
percentage to net sales, exclusive of store closing costs, is primarily
attributable to the reduction in net sales for the three-month and the six-month
period ended November 28, 1998.
Other
- -----
Net interest expense was $367,000 for the three-month period ended November
28, 1998 and $711,000 for the six-month period ended November 28, 1998 compared
to $426,000 and $796,000, respectively, for the corresponding periods last year.
The decrease in net interest expense reflects lower average borrowings and lower
interest rates as compared to the corresponding periods last year.
The Company's effective tax rate was essentially 0.0% for the three-month
and six-month periods ended November 28, 1998 compared to 21.9% and 20.1%,
respectively, for the corresponding periods last year, however, a tax expense of
$.6 million was recorded in the three-month and six-month periods ended November
28, 1998 representing the incremental cost of the tax settlement with the
government of Aruba. See "--Liquidity and Capital Resources."
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations during the six-month period ended November 28,
1998 was $5.1 million, compared to $3.3 million for the corresponding period
last year. The increase in net cash used in operations primarily reflects an
increase in the net operating loss and a decrease in both inventory and accounts
payable balances during the three-month period ended November 28, 1998.
During 1997, the Company received an assessment from the local government
in Aruba that relates to the Company's local income tax returns regarding
certain consulting fees paid and service fees assessed by L.S. Wholesale, Inc.,
a wholly-owned subsidiary of the Company, to Aruba. During 1998, the Company met
with the tax authorities in Aruba. The Company has entered into a final
settlement with the tax authorities regarding its 1988-1996 local tax returns
and recorded a tax expense of $.6 million in the three-month and six-month
periods ended November 28, 1998 for the incremental costs of this settlement.
Pursuant to this settlement, the Company has been assessed a profit tax in the
amount of $650,000, which is payable in ten equal installments of $65,000 per
month commencing on March 1, 1999. Interest of 6% per annum will be charged on
the outstanding amount starting on March 1, 1999. The Company also has been
assessed a wage tax in the amount of $550,000, which is payable in six
installments commencing in June 1999. Interest of 6% per annum will be charged
on the outstanding amount starting on June 1, 1999. The Company may be subject
to an additional assessment for the Company's fiscal years 1997 and 1998 local
income tax returns. At this time the Company is unable to quantify the related
financial exposure, if any. In the opinion of management of the Company, there
is no assurance that this assessment will not have a material adverse effect on
the Company's financial condition or results of operations.
The Company has unsecured credit facilities of $19.7 million with two banks
of which approximately $16.6 million in borrowings were outstanding as of
November 28, 1998. The credit facilities with the Company's two banks were up
for renewal at the end of December 1998. One of the Company's lead banks has
renewed its credit facility in the amount of $9.5 million on approximately the
same terms and conditions through December 31, 1999. The other lead bank has
extended its credit facility in the amount of $7.0 million through January 31,
1999. The Company is currently negotiating a renewal of this facility through
September 30, 1999; however, there is no assurance at this time that such
renewal will be granted. If this credit facility is not renewed, or if the terms
and conditions of this credit facility are materially changed, it could have a
material adverse effect on the Company's results of operations. On August 11,
1998, in addition to the credit facilities discussed above, one of the Company's
lead banks approved a $3.0 million seasonal line of credit (the "Credit
Facility"), which the Company is using to support its inventory for the peak
selling season. The Credit Facility expires on March 2, 1999. As of January 4,
1999, the Company has drawn $2.8 million against the Credit Facility. Further,
in February 1996, the Company obtained a term loan of approximately $8.9 million
from its two lead banks to finance its acquisition of the fixtures, leasehold
rights and inventories of two stores in Barbados. Interest on this debt is
payable monthly and the principal is payable in equal quarterly payments over a
four year period commencing March 1997.
The loan documents for the Company's credit facilities contain restrictive
covenants, including financial covenants. As of May 30, 1998, the Company was
in compliance with, or received waivers for, all restrictive covenants related
to these credit facilities. There is no assurance that the Company will
continue to be in compliance with, or obtain waivers for, all such restrictive
covenants. It remains management's expectation that funds available from
operations and existing credit facilities will be sufficient to fund operations
and expansion for the foreseeable future.
Capital expenditures for the six months ended November 28, 1998 were
approximately $437,000 compared to $582,000 for the corresponding period last
year.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
----------------------------------------------------------
None.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
On March 11, 1998, the Company filed a civil action in the Territorial
Court of the Virgin Islands (Civil Action No. 98-229) against Lorraine Quetel, a
former employee of the Company, Lydia Magras and Bon Voyage Travel, Inc. The
Company alleges that such parties were involved in the employee defalcation that
management believes occurred during the Company's fiscal year ended May 31,
1997. The Company is seeking a preliminary injunction and damages against the
former employee and the other parties allegedly involved in the theft against
the Company.
On June 10, 1998, the Company filed a civil action in the United States
District Court for the District of Delaware (Civil Action No. 98-315-SLR)
against DRHC, Stephen Crane, DRHC's controlling shareholder, Young Caribbean
Jewelry Company Limited, a Cayman Islands corporation, Alliance International
Holdings Limited, a Bahamian corporation, and CEI Distributors Inc., a British
Virgin Islands corporation, each an affiliate of DRHC. The Company alleges
breach of the Merger Agreement among the Company, DRHC and certain affiliates of
DRHC and also alleges claims of misrepresentation and civil conspiracy, among
other causes of action. The Company is seeking monetary damages, including,
without limitation, consequential damages relating to harm to its business.
On July 15, 1998, the defendants moved to dismiss the Complaint on the
grounds that the court lacks subject matter jurisdiction over the claims. In
addition, Mr. Crane moved to dismiss the Complaint on the grounds that the court
lacks personal jurisdiction over him. Following preliminary discovery, the
Company filed an opposition to the defendants' motion to dismiss. The court
heard these motions on November 17, 1998, but has not yet issued a decision on
the motion.
On October 7, 1998, Jewelcor Management, Inc. ("Jewelcor"), a record
stockholder of the Company, filed an action in the Court of Chancery for the
State of Delaware (Civil Action No. 16688-NC) against the Company seeking an
order that a meeting of stockholders of the Company be held immediately for the
purposes of electing directors and conducting such other business as is brought
before the meeting. On December 1, 1998, the Company announced that it had
scheduled an annual meeting of stockholders to be held on February 25, 1999,
with a record date of January 8, 1999, at which one Class I director and one
Class III director would be elected. Jewelcor subsequently filed a motion for
leave to file an amended complaint alleging that the Company has inequitably
manipulated the size of the Board of Directors and seeking an election of four
directors at the next annual meeting of stockholders. On December 11, 1998, the
court granted Jewelcor's motion for leave to file an amended complaint. The
parties are currently conducting discovery and a trial on this matter has been
scheduled for January 26, 1999.
In addition, the Company is involved in various other legal proceedings
which, in the opinion of management, will not result in a material adverse
effect on the financial condition or results of operations of the Company.
ITEM 5. Other Information
-----------------
In December, 1998, a Royal Caribbean cruise ship ran aground near St.
Maarten. This ship is expected to be out of service during the Company's third
and fourth quarters. This ship's regular travel route allows passengers to
disembark on several islands where the Company maintains stores. It is not
possible at this time for the Company to quantify the amount of profits it may
lose as a result of the temporary loss of sales to passengers traveling on this
ship. At this time, the Company does not expect that the losses will have a
material adverse effect on the financial condition or results of operations of
the Company.
16
<PAGE>
ITEM 6. Exhibits and Reports of Form 8-K
--------------------------------
(a) Exhibits
3.1 The Amended and Restated Certificate of Incorporation of the Company
is incorporated herein by reference to Exhibit 3.3 to Amendment No. 1
to the Company's Registration Statement on Form S-1, Registration No.
33-40907, filed with the Securities and Exchange Commission on July
10, 1992 ("Amendment No. 1 to the Form S-1").
3.2 The Amended and Restated By-Laws of the Company are incorporated
herein by reference to Exhibit 3.4 to Amendment No. 1 to the Form S-1
and the First Amendment to the Amended and Restated By-laws of the
Company is incorporated herein by reference to the Current Report on
Form S-K filed with the Securities and Exchange Commission on November
12, 1997.
10.26 Employment Agreement, dated as of September 10, 1998, between David J.
Nace and the Company is filed herewith as Exhibit 10.26.
10.27 Employment Agreement, dated as of August 25, 1998, between Michael M.
Poole and the Company is filed herewith as Exhibit 10.27.
10.28 Non-Qualified Stock Option Agreement, dated as of August 25, 1998,
between Michael M. Poole and the Company is filed herewith as Exhibit
10.28.
27.1 Financial Data Schedule is filed herewith as Exhibit 27.1.
(b) Reports on Form 8-K during the quarter ended November 28, 1998
No Form 8-K was issued by the Company during the three-month period
ended November 28, 1998.
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITTLE SWITZERLAND, INC.
Date: January 12, 1999 By: /s/ David J. Nace
-----------------
David J. Nace
Chief Financial Officer,
Executive Vice President and Treasurer
[Authorized Officer and Principal
Financial and Accounting Officer]
18
<PAGE>
Exhibit 10.26
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of the 10th day of September, 1998, by and among L.S.
Wholesale, Inc., a Massachusetts corporation with its main office in St. Thomas,
U.S.V.I. (the "Employer"), Little Switzerland, Inc., a Delaware corporation with
its main office in St. Thomas, U.S.V.I. ("Little Switzerland"), and David Nace
(the "Executive").
WITNESSETH
WHEREAS, the Executive possesses certain unique skills, talents and
judgment as well as the experience to provide the direction and leadership
required by the Employer; and
WHEREAS, the Employer and Executive desire to provide for the Executive's
employment by the Employer.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants contained herein, the Employer and the Executive mutually agree as
follows:
1. Employment. The Employer agrees to employ the Executive and the
----------
Executive agrees to be employed by the Employer on the terms and conditions
hereinafter set forth.
2. Effective Date and Term. The commencement date (the "Commencement
-----------------------
Date") of this Agreement shall be September 10, 1998. Subject to the provisions
of Section 5 hereof, the term (the "Term") of the Executive's employment
hereunder shall be for two (2) years from the Commencement Date. The last day
of such Term shall be September 9, 2000 and is herein sometimes referred to as
the "Expiration Date."
3. Compensation and Benefits. The compensation and benefits payable to
-------------------------
the Executive under this Agreement shall be as follows:
a. Salary. For all services rendered by the Executive under this
------
Agreement, the Employer shall pay the Executive a total salary as follows:
(1) Base Salary. For each twelve (12) month period of the Term,
-----------
the Employer shall pay the Executive a base salary at an annual rate
(the "Base Salary") equal to Two Hundred Thousand Dollars ($200,000).
(2) Bonus. During the Term and as further set forth below, for
-----
each fiscal year during which the Executive is employed by the
Employer pursuant to this Agreement, in the event that Little
Switzerland shall achieve certain performance criteria (the
"Performance Criteria"), which will be based on the business plan of
Little Switzerland, the Employer shall pay to the Executive a bonus
(the "Annual Bonus") in an amount of up to one-quarter (25%) of the
Base Salary earned for that fiscal year, which shall be prorated for
periods shorter than a full fiscal.
The applicable Performance Criteria for the 1999 fiscal year of
Little Switzerland shall be mutually agreed upon by the Employer and
the Executive and the applicable Performance Criteria for the 2000
fiscal year of Little Switzerland shall be established by the
Compensation Committee of Little Switzerland prior to the beginning of
such fiscal
<PAGE>
year. For any fiscal year, the determination of whether the
Performance Criteria have been met and whether any Annual Bonus shall
be paid shall be made by the Compensation Committee of Little
Switzerland.
The Executive's Base Salary shall be payable in periodic installments
in accordance with the Employer's usual practice for payment of
compensation to its senior executives. The Annual Bonus, if any, shall be
payable within ten (10) calendar days after the date on which Little
Switzerland determines from its business plan, financial reports and other
relevant information the extent to which, if any, the Performance Criteria
have been achieved and in any event not more than ninety (90) days after
the end of the Employer's fiscal year. Notwithstanding the foregoing, the
Annual Bonus shall be prorated for any period of employment shorter than a
full fiscal year.
b. Stock Bonus Plan. On the Commencement Date, the Executive will be
----------------
awarded an option (the "Option") to purchase 75,000 shares of common stock,
par value $.01 per share, of Little Switzerland (the "Common Stock") having
an exercise price equal to one hundred percent (100%) of the fair market
value of a share of Common Stock on the Commencement Date, pursuant to
Little Switzerland's 1991 Stock Option Plan. If at least eighty percent
(80%) of the Performance Criteria have been met, as determined in the sole
and absolute discretion of the Compensation Committee of Little
Switzerland, for the 1999 fiscal year of Little Switzerland, then on the
first anniversary date of the Commencement Date, the Executive will be
awarded an additional option to purchase 75,000 shares of Common Stock on
the same terms and conditions as the Option. All options awarded to the
Executive shall qualify as an "incentive stock option" under (S)422A of the
Internal Revenue Code of 1986, as amended.
c. Living Expenses. The Executive shall be entitled to reimbursement
---------------
for reasonable expenses actually incurred for the purpose of maintaining a
temporary place of residence in St. Thomas, U.S.V.I. (the "Living Expense")
for a period not to exceed thirty (30) days from the Commencement Date.
The Executive shall account promptly for the expenses set forth above to
the Employer in the manner reasonably prescribed from time to time by the
Employer and in compliance with the Employer's policy.
d. Relocation and Out-of-Pocket Expenses. On the Commencement Date,
-------------------------------------
the Employer shall pay the Executive an aggregate amount equal to Fifty
Thousand Dollars ($50,000) to cover moving, relocation and out-of-pocket
expenses incurred by the Executive in moving to St. Thomas, U.S.V.I.
e. Regular Benefits. The Executive shall be entitled to vacation
----------------
time in an amount to be agreed upon by the Employer and the Executive prior
to the beginning of each fiscal year; provided, however, that the Executive
-------- -------
shall be entitled, on a bi-weekly basis, to extended weekends, which shall
begin at approximately noon on Friday through approximately noon on Monday
or equivalent time periods. The Executive shall be entitled to participate
in any and all employee benefit plans, medical insurance plans, life
insurance plans, disability income plans, retirement plans and other
benefit plans (including, without limitation, any 401(k) plans) from time
to time in effect for senior executives of the Employer. Such
participation shall be subject to the terms of the applicable plan
documents, generally applicable policies of the Employer, applicable law
and the discretion of the Board of Directors, the Compensation Committee or
any administrative or other committee provided for in or contemplated by
any such plan. Nothing contained in this Agreement shall be construed to
create any obligation on the part of the Employer to establish any such
plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
<PAGE>
The Executive also shall be entitled to reimbursement for all ordinary
and necessary business expenses incurred by the Executive in connection
with the advancement of Little Switzerland's and the Employer's interests
and the discharge of his duties and responsibilities hereunder, including
without limitation, all travel and lodging expenses; provided, however,
-------- -------
that the Executive accounts promptly for such expenses to the Employer in
the manner reasonably prescribed from time to time by the Employer and in
compliance with the Employer's policy.
4. Capacity and Extent of Service.
------------------------------
a. The Executive shall serve the Employer as Executive Vice President
and Chief Financial Officer beginning on September 10, 1998 and shall serve
the Employer in such other or additional offices in which he may be
reasonably requested to serve.
b. During his employment hereunder, the Executive shall, subject to
the direction and supervision of the Board of Directors of the Employer,
devote his full business time, best efforts and business judgment, skill
and knowledge to the advancement of the Employer's interests and to the
discharge of his duties and responsibilities hereunder. In accordance with
the foregoing, the Executive shall not engage in any other business
activity, except as may be approved by the Board of Directors of Little
Switzerland; provided, however, that nothing herein shall be construed as
-------- -------
preventing the Executive from:
(1) investing his assets in a manner not otherwise prohibited by
this Agreement, and in such form or manner as shall not require any
material services on his part in the operations or affairs of the
companies or other entities in which such investments are made;
(2) serving on the board of directors of any company, provided
that he shall not be required to render any material services with
respect to the operations or affairs of any such company; or
(3) engaging in religious, charitable or other community or non-
profit activities which do not impair his ability to fulfill his
duties and responsibilities under this Agreement.
5. Termination and Termination Benefits. Notwithstanding the provisions
------------------------------------
of Section 2, subject to the following provisions, the Executive's employment
hereunder shall terminate under the following circumstances without further
liability on the part of the Employer or right of the Executive to receive any
payments hereunder:
a. Death. In the event of the Executive's death during the
-----
Executive's employment hereunder, the Executive's employment shall
terminate on the date of his death.
b. Termination by the Employer for Cause. The Executive's employment
-------------------------------------
hereunder may be terminated for cause (as defined below) by written notice
to the Executive setting forth in reasonable detail the nature of such
cause, effective upon delivery of such notice. The determination of
whether cause existed for terminating the Executive's employment shall be
made by a vote of at least two-thirds of the Board of Directors of Little
Switzerland. Only the following shall constitute "cause" for termination
pursuant to this Section 5.b.:
(i) Deliberate dishonesty of the Executive with respect to
the Employer or any subsidiary or affiliate thereof;
<PAGE>
(ii) Conviction of the Executive of (A) a felony or (B) any
crime involving moral turpitude, deceit, dishonesty or fraud; or
(iii) Gross negligence or willful misconduct of the
Executive with respect to the Employer or any subsidiary or affiliate
thereof.
c. Termination by the Executive for Cause. The Executive's
--------------------------------------
employment hereunder may be terminated by the Executive by written notice
to the Board of Directors of Little Switzerland effective thirty (30) days
after the giving of such notice in the event of a material breach by the
Employer of any provision of this Agreement, which breach shall continue
for more than thirty (30) days after the date on which the Board of
Directors of Little Switzerland receives such notice.
d. Termination by the Employer Without Cause. The Executive's
-----------------------------------------
employment with the Employer may be terminated without cause by a two-
thirds vote of all of the members of the Board of Directors of Little
Switzerland on written notice to the Executive effective upon thirty (30)
days after the giving of such notice.
e. Termination by the Executive Without Cause. The Executive may
------------------------------------------
terminate his employment with the Employer without cause on written notice
to the Employer effective upon thirty (30) days after the giving such
notice.
f. Disability. If, due to physical or mental illness, the Executive
----------
shall be disabled so as to be unable to perform substantially all of his
duties and responsibilities hereunder (a "Substantial Disability"), the
Employer may designate another executive to act in his place during the
period of such disability. For a period of up to two (2) months subsequent
to the commencement of a Substantial Disability, the Employer shall
continue to pay to the Executive his salary and benefits in accordance with
Section 3 hereof. If, at the end of such two-month period the Executive
shall continue to have a Substantial Disability, the Executive's employment
may be terminated by a two-thirds vote of all of the members of the Board
of Directors of Little Switzerland. If any question shall arise as to
whether during any period the Executive suffered a Substantial Disability,
the Executive may, and at the request of the Employer will, submit to the
Employer a certification in reasonable detail by a physician selected by
the Executive or his guardian to whom the Employer has no reasonable
objection as to whether the Executive was so disabled and such
certification shall for the purposes of this Agreement be conclusive of the
issue. If such question shall arise and the Executive shall fail to submit
such certification, the Employer's determination of such issue shall be
binding on the Executive.
g. Participation in a Change of Control. Notwithstanding anything to
------------------------------------
the contrary contained herein, in the event that the Executive participates
in a Change of Control (as defined below) of Little Switzerland which is
not approved by the Board of Directors of Little Switzerland as constituted
prior to such Change of Control, the Executive's employment shall terminate
immediately upon delivery of notice of termination without further
liability to the Employer or Little Switzerland, and any and all
outstanding unvested options, benefits and severance obligations shall be
canceled and terminated immediately upon such termination of employment.
h. Severance Benefit. In the event the Executive's employment
-----------------
hereunder is terminated pursuant to Sections 5.d. or 5.f. hereof, on the
date of such termination, the Executive shall be entitled to receive a lump
sum payment equal to twelve (12) months of Base Salary, plus any accrued
but unpaid Annual Bonus which the Executive has earned pursuant to Section
3.a. of this Agreement.
<PAGE>
6. Termination Subsequent to Change in Control.
-------------------------------------------
a. Except as set forth in Section 5 above to the contrary, in the
event of a Terminating Event (as defined below) within one year from the
date of a Change in Control (as defined below) of Little Switzerland, as of
the date of such Terminating Event, the Executive shall be entitled to
receive a lump sum payment equal to twelve (12) months of Base Salary, plus
any accrued and unpaid Annual Bonus which the Executive has earned pursuant
to Section 3.a. of this Agreement.
b. For purposes of this Agreement, a "Terminating Event" shall mean
termination by the Employer or its successor entity of the Executive for
any reason other than death or cause pursuant to Section 5.a. or Section
5.b. above.
c. For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred in the following instances: (i) if there has
occurred a change in control which Little Switzerland would be required to
report in response to Item 1 of Form 8-K promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or, if such regulation
is no longer in effect, any regulations promulgated by the Securities and
Exchange Commission pursuant to the 1934 Act which are intended to serve
similar purposes; (ii) if there has occurred a change in control which
Little Switzerland would be required to report in response to Item 6(e) of
Schedule 14A promulgated under the 1934 Act, or, if such regulation is no
longer in effect, any regulations promulgated by the Securities and
Exchange Commission pursuant to the 1934 Act which are intended to serve
similar purposes; (iii) when any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such
term is defined in Rule 13d-3 promulgated under the 1934 Act), directly or
indirectly, of securities of Little Switzerland representing fifteen
percent (15%) or more of the total number of votes that may be cast for the
election of Directors of Little Switzerland; (iv) the sale, transfer or
other disposition of all or substantially all of the assets of Little
Switzerland to another person or entity; (v) the election of Directors of
Little Switzerland equal to one-third or more of the total number of
Directors then in office who have not been nominated by Little
Switzerland's Board of Directors or a committee thereof as constituted on
the date hereof; or (vi) the signing of an agreement, contract or other
arrangement providing for any of the transactions described above in this
definition of Change in Control; provided, however, that a "Change in
-------- -------
Control" shall not be deemed to have occurred as a result of the beneficial
ownership of Little Switzerland's Common Stock by any person who is a
"Grandfathered Person" under Little Switzerland's Shareholder Rights
Agreement dated July 17, 1991, as amended (the "Rights Agreement"), so long
as such Grandfathered Person's beneficial ownership of Little Switzerland's
Common Stock does not exceed such Grandfathered Person's "Grandfathered
Percentage" (as defined in the Rights Agreement).
7. Noncompetition and Confidential Information.
-------------------------------------------
a. Noncompetition. During the period of the Executive's employment
--------------
by the Employer pursuant to this Agreement or otherwise, the Executive will
not, directly or indirectly, whether as owner, partner, shareholder,
consultant, agent, employee, co-venturer or otherwise, or through any
Person (as defined in Section 9 hereof), compete in Little Switzerland's or
the Employer's market area (defined as any country or other jurisdiction in
which Little Switzerland or the Employer conducts business as of the
effective date of termination) with the business conducted by Little
Switzerland or the Employer during the period of his employment hereunder,
nor will he attempt to hire any employee of Little Switzerland or the
Employer, assist in such hiring by any other Person, encourage any such
employee to terminate his or her relationship with Little Switzerland or
the Employer, or solicit or encourage any customer of Little Switzerland or
the
<PAGE>
Employer to terminate its relationship with Little Switzerland or the
Employer or to conduct with any other Person any business or activity which
such customer conducts or could conduct with Little Switzerland or the
Employer.
b. Confidential Information. The Executive will not disclose to any
------------------------
other Person (except as required by applicable law or in connection with
the performance of his duties and responsibilities hereunder), or use for
his own benefit or gain, any confidential information of Little Switzerland
or the Employer obtained by him incident to his employment with the
Employer. The term "confidential information" includes, without
limitation, financial information, business plans, prospects and
opportunities (such as lending relationships, financial product
developments, or possible acquisitions or dispositions of businesses or
facilities) of Little Switzerland or the Employer but does not include any
information which has become part of the public domain by means other than
the Executive's non-observance of his obligations hereunder.
c. Relief; Interpretation. The Executive agrees that the Employer
----------------------
shall be entitled to injunctive relief for any breach by him of the
covenants contained in Sections 7.a. or 7.b. In the event that any
provision of this Section 7 shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over too
great a period of time, too large a geographic area, or too great a range
of activities, it shall be interpreted to extend only over the maximum
period of time, geographic area, or range of activities as to which it may
be enforceable. For purposes of this Section 7, the term "Employer" shall
mean L.S. Wholesale, Inc. and any of its subsidiaries, affiliates,
predecessors and successors.
8. Conflicting Agreements. The Executive hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants against
competition or similar covenants which would affect the performance of his
obligations hereunder.
9. Definition of "Person". For purposes of this Agreement: the term
----------------------
"Person" shall mean an individual, a corporation, an association, a partnership,
an estate, a trust and any other entity or organization.
10. Taxation of Payments and Benefits.
---------------------------------
a. The Employer shall undertake to make deductions, withholdings and
tax reports with respect to payments and benefits under this Agreement to
the extent that it reasonably and in good faith believes that it is
required to make such deductions, withholdings and tax reports. All
payments made by the Employer under this Agreement shall be net of any tax
or other amounts required to be withheld by the Employer under applicable
law. Nothing in this Agreement shall be construed to require the Employer
to make any payments to compensate the Executive for any adverse tax effect
associated with any payments or benefits or for any deduction or
withholding from any payment or benefit.
b. Notwithstanding the foregoing, the Employer shall pay to the
Executive an additional payment (the "Gross-up Payment") for otherwise
taxable reimbursements made to the Executive under Section 3.c. of this
Agreement. The Gross-up Payment shall be determined by taking the total
amount of the Living Expense deemed to be compensation to the Executive and
dividing such amount by .56.
11. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination
<PAGE>
of that employment (including, without limitation, any claims of unlawful
employment discrimination whether based on age or otherwise) shall, to the
fullest extent permitted by law, be settled by arbitration in any forum and form
agreed upon by the parties or, in the absence of such an agreement, under the
auspices of the American Arbitration Association ("AAA") in Boston,
Massachusetts in accordance with the Employment Dispute Resolution Rules of the
AAA, including, but not limited to, the rules and procedures applicable to the
selection of arbitrators. In the event that any person or entity other than the
Executive or the Employer may be a party with regard to any such controversy or
claim, such controversy or claim shall be submitted to arbitration subject to
such other person or entity's agreement. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. This Section
11 shall be specifically enforceable. Notwithstanding the foregoing, this
Section 11 shall not preclude either party from pursuing a court action for the
sole purpose of obtaining a temporary restraining order or a preliminary
injunction in circumstances in which such relief is appropriate; provided,
--------
however, that any other relief shall be pursued through an arbitration
- -------
proceeding pursuant to this Section 11.
12. Assignment; Successors and Assigns, etc. Neither the Employer nor the
---------------------------------------
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided, however, that the Employer may assign its rights under this
-------- -------
Agreement without the consent of the Executive in the event that the Employer
shall hereafter effect a reorganization, consolidate with or merge into any
other Person, or transfer all or substantially all of its properties or assets
to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Employer and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns.
13. Enforceability. If any portion or provision of this Agreement shall
--------------
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
14. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
15. Notices. All notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Board of Directors. Any such notice shall be deemed to be effective and
therefore given upon the following dates: (i) if such notice is delivered in
person the date on which such delivery is done; or (ii) if such notice is sent
by registered or certified mail, postage prepaid, the date which is three (3)
days subsequent to the date on which such notice is mailed.
16. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
17. Governing Law; Consent to Jurisdiction. It is the parties' intention
--------------------------------------
that the terms of employment under this Agreement shall be construed under and
be governed in all respects by the laws of The Commonwealth of Massachusetts.
To the extent that any court action is permitted consistent with or to enforce
Section 11 of this Agreement, the parties hereby consent to the jurisdiction of
the Superior Court of The Commonwealth of Massachusetts and the United States
District Court for the District of Massachusetts. Accordingly, with respect to
any such court action, the Executive (a) submits to the personal jurisdiction of
<PAGE>
such courts; (b) consents to service of process; and (c) waives any other
requirement (whether imposed by statute, rule of court, or otherwise) with
respect to personal jurisdiction or service of process.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original, but such counterparts shall together constitute one and the same
document.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by each of the Employer and Little Switzerland, by their duly authorized
officers, and by the Executive, as of the date first above written.
L.S. WHOLESALE, INC.
By:/s/ C. William Carey
--------------------
Name: C. William Carey
Title: President and CEO
LITTLE SWITZERLAND, INC.
By:/s/ C. William Carey
--------------------
Name: C. William Carey
Title: President and CEO
/s/ David Nace
--------------
David Nace
<PAGE>
Exhibit 10.27
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of the 25th day of August, 1998, by and among L.S.
Wholesale, Inc., a Massachusetts corporation with its main office in St. Thomas,
U.S.V.I. (the "Employer"), Little Switzerland, Inc., a Delaware corporation with
its main office in St. Thomas, U.S.V.I. ("Little Switzerland"), and Michael M.
Poole (the "Executive").
WITNESSETH
WHEREAS, the Executive possesses certain unique skills, talents and
judgment as well as the experience to provide the direction and leadership
required by the Employer; and
WHEREAS, the Employer and Executive desire to provide for the Executive's
employment by the Employer.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants contained herein, the Employer and the Executive mutually agree as
follows:
1. Employment. The Employer agrees to employ the Executive and the
----------
Executive agrees to be employed by the Employer on the terms and conditions
hereinafter set forth.
2. Effective Date and Term. The commencement date (the "Commencement
-----------------------
Date") of this Agreement shall be August 25, 1998. Subject to the provisions of
Section 5 hereof, the term (the "Term") of the Executive's employment hereunder
shall be for two (2) years from the Commencement Date. The last day of such
Term shall be August 24, 2000 and is herein sometimes referred to as the
"Expiration Date."
3. Compensation and Benefits. The compensation and benefits payable to
-------------------------
the Executive under this Agreement shall be as follows:
a. Salary. For all services rendered by the Executive under this
------
Agreement, the Employer shall pay the Executive a total salary as follows:
(1) Base Salary. For each twelve (12) month period of the Term,
-----------
the Employer shall pay the Executive a base salary at an annual rate
(the "Base Salary") equal to One Hundred Thirty-Five Thousand Dollars
($135,000).
(2) Bonus. During the Term and as further set forth below, for
-----
each fiscal year during which the Executive is employed by the
Employer pursuant to this Agreement, in the event that Little
Switzerland shall achieve certain performance criteria (the
"Performance Criteria"), the Employer shall pay to the Executive a
bonus (the "Annual Bonus") in an amount of up to one-quarter (25%) of
the Base Salary earned for that fiscal year, which shall be prorated
for periods shorter than a full fiscal.
The applicable Performance Criteria for the 1999 fiscal year of
Little Switzerland shall be mutually agreed upon by the Employer and
the Executive and the applicable Performance Criteria for the 2000
fiscal year of Little Switzerland shall be established by the
Compensation Committee of Little Switzerland prior to the beginning of
such fiscal year. For any fiscal year, the determination of whether
the Performance Criteria have been
<PAGE>
met and whether any Annual Bonus shall be paid shall be made by the
Compensation Committee of Little Switzerland.
The Executive's Base Salary shall be payable in periodic installments
in accordance with the Employer's usual practice for payment of
compensation to its senior executives. The Annual Bonus, if any, shall be
payable within ten (10) calendar days after the date on which Little
Switzerland determines from its business plan, financial reports and other
relevant information the extent to which, if any, the Performance Criteria
have been achieved and in any event not more than ninety (90) days after
the end of the Employer's fiscal year. Notwithstanding the foregoing, the
Annual Bonus shall be prorated for any period of employment shorter than a
full fiscal year.
b. Stock Bonus Plan. On the Commencement Date, the Executive will be
----------------
awarded an option (the "Option") to purchase 50,000 shares of common stock,
par value $.01 per share, of Little Switzerland (the "Common Stock") having
an exercise price equal to one hundred percent (100%) of the fair market
value of a share of Common Stock on the Commencement Date, upon the terms
and conditions set forth in the Non-Qualified Stock Option Agreement, dated
as of the date hereof, between the Executive and Little Switzerland.
c. Living Expenses. The Executive shall be entitled to reimbursement
---------------
for reasonable expenses actually incurred for the purpose of maintaining a
temporary place of residence in St. Thomas, U.S.V.I. (the "Living Expense")
for a period not to exceed thirty (30) days from the Commencement Date.
The Executive shall account promptly for the expenses set forth above to
the Employer in the manner reasonably prescribed from time to time by the
Employer and in compliance with the Employer's policy.
d. Relocation Expenses. The Executive shall be entitled to
-------------------
reimbursement for reasonable moving, relocation and out-of-pocket expenses
actually incurred by the Executive in moving to St. Thomas, U.S.V.I. in an
aggregate amount not to exceed Twenty Thousand Dollars ($20,000). The
Executive shall account promptly for the expenses set forth above to the
Employer in the manner reasonably prescribed from time to time by the
Employer and in compliance with the Employer's policy.
e. Regular Benefits. The Executive shall be entitled to vacation
----------------
time in an amount to be agreed upon by the Employer and the Executive prior
to the beginning of each fiscal year. The Executive shall be entitled to
participate in any and all employee benefit plans, medical insurance plans,
life insurance plans, disability income plans, retirement plans and other
benefit plans (including, without limitation, any 401(k) plans) from time
to time in effect for senior executives of the Employer. Such
participation shall be subject to the terms of the applicable plan
documents, generally applicable policies of the Employer, applicable law
and the discretion of the Board of Directors, the Compensation Committee or
any administrative or other committee provided for in or contemplated by
any such plan. Nothing contained in this Agreement shall be construed to
create any obligation on the part of the Employer to establish any such
plan or to maintain the effectiveness of any such plan which may be in
effect from time to time.
The Executive also shall be entitled to reimbursement for all ordinary
and necessary business expenses incurred by the Executive in connection
with the advancement of Little Switzerland's and the Employer's interests
and the discharge of his duties and responsibilities hereunder, including
without limitation, all travel and lodging expenses; provided, however,
-------- -------
that the Executive accounts promptly for such expenses to the Employer in
the manner reasonably prescribed from time to time by the Employer and in
compliance with the Employer's policy.
<PAGE>
4. Capacity and Extent of Service.
------------------------------
a. The Executive shall serve the Employer as Vice President and
General Merchandise Manager beginning on August 25, 1998 and shall serve
the Employer in such other or additional offices in which he may be
reasonably requested to serve.
b. During his employment hereunder, the Executive shall, subject to
the direction and supervision of the Board of Directors of the Employer,
devote his full business time, best efforts and business judgment, skill
and knowledge to the advancement of the Employer's interests and to the
discharge of his duties and responsibilities hereunder. In accordance with
the foregoing, the Executive shall not engage in any other business
activity, except as may be approved by the Board of Directors of Little
Switzerland; provided, however, that nothing herein shall be construed as
-------- -------
preventing the Executive from:
(1) investing his assets in a manner not otherwise prohibited by
this Agreement, and in such form or manner as shall not require any
material services on his part in the operations or affairs of the
companies or other entities in which such investments are made;
(2) serving on the board of directors of any company, provided
that he shall not be required to render any material services with
respect to the operations or affairs of any such company; or
(3) engaging in religious, charitable or other community or non-
profit activities which do not impair his ability to fulfill his
duties and responsibilities under this Agreement.
5. Termination and Termination Benefits. Notwithstanding the provisions
------------------------------------
of Section 2, subject to the following provisions, the Executive's employment
hereunder shall terminate under the following circumstances without further
liability on the part of the Employer or right of the Executive to receive any
payments hereunder:
a. Death. In the event of the Executive's death during the
-----
Executive's employment hereunder, the Executive's employment shall
terminate on the date of his death.
b. Termination by the Employer for Cause. The Executive's employment
-------------------------------------
hereunder may be terminated for cause (as defined below) by written notice
to the Executive setting forth in reasonable detail the nature of such
cause, effective upon delivery of such notice. The determination of
whether cause existed for terminating the Executive's employment shall be
made by a vote of at least two-thirds of the Board of Directors of Little
Switzerland. Only the following shall constitute "cause" for termination
pursuant to this Section 5.b.:
(i) Deliberate dishonesty of the Executive with respect to
the Employer or any subsidiary or affiliate thereof;
(ii) Conviction of the Executive of (A) a felony or (B) any
crime involving moral turpitude, deceit, dishonesty or fraud;
(iii) Material failure to perform a substantial portion of
his duties and responsibilities hereunder, which failure continues, in
the reasonable judgment of the Board of Directors of Little
Switzerland, for more than thirty (30) days after written notice given
<PAGE>
to the Executive pursuant to a two-thirds vote of all of the members
of the Board of Directors of Little Switzerland, each such vote to set
forth in reasonable detail the nature of such failure; or
(iv) Gross negligence or willful misconduct of the Executive
with respect to the Employer or any subsidiary or affiliate thereof.
c. Termination by the Executive for Cause. The Executive's
--------------------------------------
employment hereunder may be terminated by the Executive by written notice
to the Board of Directors of Little Switzerland effective thirty (30) days
after the giving of such notice in the event of a material breach by the
Employer of any provision of this Agreement, which breach shall continue
for more than thirty (30) days after the date on which the Board of
Directors of Little Switzerland receives such notice.
d. Termination by the Employer Without Cause. The Executive's
-----------------------------------------
employment with the Employer may be terminated without cause by a two-
thirds vote of all of the members of the Board of Directors of Little
Switzerland on written notice to the Executive effective upon thirty (30)
days after the giving of such notice.
e. Termination by the Executive Without Cause. The Executive may
------------------------------------------
terminate his employment with the Employer without cause on written notice
to the Employer effective upon thirty (30) days after the giving such
notice.
f. Disability. If, due to physical or mental illness, the Executive
----------
shall be disabled so as to be unable to perform substantially all of his
duties and responsibilities hereunder (a "Substantial Disability"), the
Employer may designate another executive to act in his place during the
period of such disability. For a period of up to two (2) months subsequent
to the commencement of a Substantial Disability, the Employer shall
continue to pay to the Executive his salary and benefits in accordance with
Section 3 hereof. If, at the end of such two-month period the Executive
shall continue to have a Substantial Disability, the Executive's employment
may be terminated by a two-thirds vote of all of the members of the Board
of Directors of Little Switzerland without further liability to the
Employer or Little Switzerland. If any question shall arise as to whether
during any period the Executive suffered a Substantial Disability, the
Executive may, and at the request of the Employer will, submit to the
Employer a certification in reasonable detail by a physician selected by
the Executive or his guardian to whom the Employer has no reasonable
objection as to whether the Executive was so disabled and such
certification shall for the purposes of this Agreement be conclusive of the
issue. If such question shall arise and the Executive shall fail to submit
such certification, the Employer's determination of such issue shall be
binding on the Executive.
g. Participation in a Change of Control. Notwithstanding anything to
------------------------------------
the contrary contained herein, in the event that the Executive participates
in a Change of Control (as defined below) of Little Switzerland which is
not approved by the Board of Directors of Little Switzerland as constituted
prior to such Change of Control, the Executive's employment shall terminate
immediately upon delivery of notice of termination without further
liability to the Employer or Little Switzerland, and any and all
outstanding options, benefits and severance obligations shall be canceled
and terminated immediately upon such termination of employment.
h. Severance Benefit. In the event the Executive's employment
-----------------
hereunder is terminated pursuant to Section 5.d. hereof, on the date of
such termination, the Executive shall be entitled to receive a lump sum
payment equal to twelve (12) months of Base Salary, plus any
<PAGE>
accrued but unpaid Annual Bonus which the Executive has earned pursuant to
Section 3.a. of this Agreement.
6. Termination Subsequent to Change in Control.
-------------------------------------------
a. Except as set forth in Section 5 above to the contrary, in the
event of a Terminating Event (as defined below) within one year from the
date of a Change in Control (as defined below) of Little Switzerland, as of
the date of such Terminating Event, the Executive shall be entitled to
receive a lump sum payment equal to twelve (12) months of Base Salary, plus
any accrued and unpaid Annual Bonus which the Executive has earned pursuant
to Section 3.a. of this Agreement.
b. For purposes of this Agreement, a "Terminating Event" shall mean
termination by the Employer or its successor entity of the Executive for
any reason other than death, cause or disability pursuant to Section 5.a.,
Section 5.b. or Section 5.f. above.
c. For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred in the following instances: (i) if there has
occurred a change in control which Little Switzerland would be required to
report in response to Item 1 of Form 8-K promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), or, if such regulation
is no longer in effect, any regulations promulgated by the Securities and
Exchange Commission pursuant to the 1934 Act which are intended to serve
similar purposes; (ii) if there has occurred a change in control which
Little Switzerland would be required to report in response to Item 6(e) of
Schedule 14A promulgated under the 1934 Act, or, if such regulation is no
longer in effect, any regulations promulgated by the Securities and
Exchange Commission pursuant to the 1934 Act which are intended to serve
similar purposes; (iii) when any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such
term is defined in Rule 13d-3 promulgated under the 1934 Act), directly or
indirectly, of securities of Little Switzerland representing fifteen
percent (15%) or more of the total number of votes that may be cast for the
election of Directors of Little Switzerland; (iv) the sale, transfer or
other disposition of all or substantially all of the assets of Little
Switzerland to another person or entity; (v) the election of Directors of
Little Switzerland equal to one-third or more of the total number of
Directors then in office who have not been nominated by Little
Switzerland's Board of Directors or a committee thereof as constituted on
the date hereof; or (vi) the signing of an agreement, contract or other
arrangement providing for any of the transactions described above in this
definition of Change in Control; provided, however, that a "Change in
-------- -------
Control" shall not be deemed to have occurred as a result of the beneficial
ownership of Little Switzerland's Common Stock by any person who is a
"Grandfathered Person" under Little Switzerland's Shareholder Rights
Agreement dated July 17, 1991, as amended (the "Rights Agreement"), so long
as such Grandfathered Person's beneficial ownership of Little Switzerland's
Common Stock does not exceed such Grandfathered Person's "Grandfathered
Percentage" (as defined in the Rights Agreement).
7. Noncompetition and Confidential Information.
-------------------------------------------
a. Noncompetition. During the period of the Executive's employment
--------------
by the Employer pursuant to this Agreement or otherwise, the Executive will
not, directly or indirectly, whether as owner, partner, shareholder,
consultant, agent, employee, co-venturer or otherwise, or through any
Person (as defined in Section 9 hereof), compete in Little Switzerland's or
the Employer's market area (defined as any country or other jurisdiction in
which Little Switzerland or the Employer conducts business as of the
effective date of termination) with the business conducted by Little
Switzerland or the Employer during the period of his employment hereunder,
nor will he
<PAGE>
attempt to hire any employee of Little Switzerland or the Employer, assist
in such hiring by any other Person, encourage any such employee to
terminate his or her relationship with Little Switzerland or the Employer,
or solicit or encourage any customer of Little Switzerland or the Employer
to terminate its relationship with Little Switzerland or the Employer or to
conduct with any other Person any business or activity which such customer
conducts or could conduct with Little Switzerland or the Employer.
b. Confidential Information. The Executive will not disclose to any
------------------------
other Person (except as required by applicable law or in connection with
the performance of his duties and responsibilities hereunder), or use for
his own benefit or gain, any confidential information of Little Switzerland
or the Employer obtained by him incident to his employment with the
Employer. The term "confidential information" includes, without
limitation, financial information, business plans, prospects and
opportunities (such as lending relationships, financial product
developments, or possible acquisitions or dispositions of businesses or
facilities) of Little Switzerland or the Employer but does not include any
information which has become part of the public domain by means other than
the Executive's non-observance of his obligations hereunder.
c. Relief; Interpretation. The Executive agrees that the Employer
----------------------
shall be entitled to injunctive relief for any breach by him of the
covenants contained in Sections 7.a. or 7.b. In the event that any
provision of this Section 7 shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over too
great a period of time, too large a geographic area, or too great a range
of activities, it shall be interpreted to extend only over the maximum
period of time, geographic area, or range of activities as to which it may
be enforceable. For purposes of this Section 7, the term "Employer" shall
mean L.S. Wholesale, Inc. and any of its subsidiaries, affiliates,
predecessors and successors.
8. Conflicting Agreements. The Executive hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which he
is a party or is bound, and that he is not now subject to any covenants against
competition or similar covenants which would affect the performance of his
obligations hereunder.
9. Definition of "Person". For purposes of this Agreement: the term
----------------------
"Person" shall mean an individual, a corporation, an association, a partnership,
an estate, a trust and any other entity or organization.
10. Taxation of Payments and Benefits. The Employer shall undertake to
---------------------------------
make deductions, withholdings and tax reports with respect to payments and
benefits under this Agreement to the extent that it reasonably and in good faith
believes that it is required to make such deductions, withholdings and tax
reports. All payments made by the Employer under this Agreement shall be net of
any tax or other amounts required to be withheld by the Employer under
applicable law. Nothing in this Agreement shall be construed to require the
Employer to make any payments to compensate the Executive for any adverse tax
effect associated with any payments or benefits or for any deduction or
withholding from any payment or benefit.
11. Arbitration of Disputes. Any controversy or claim arising out of or
-----------------------
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures
<PAGE>
applicable to the selection of arbitrators. In the event that any person or
entity other than the Executive or the Employer may be a party with regard to
any such controversy or claim, such controversy or claim shall be submitted to
arbitration subject to such other person or entity's agreement. Judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. This Section 11 shall be specifically enforceable.
Notwithstanding the foregoing, this Section 11 shall not preclude either party
from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such
relief is appropriate; provided, however, that any other relief shall be pursued
-------- -------
through an arbitration proceeding pursuant to this Section 11.
12. Assignment; Successors and Assigns, etc. Neither the Employer nor the
---------------------------------------
Executive may make any assignment of this Agreement or any interest herein, by
operation of law or otherwise, without the prior written consent of the other
party; provided, however, that the Employer may assign its rights under this
-------- -------
Agreement without the consent of the Executive in the event that the Employer
shall hereafter effect a reorganization, consolidate with or merge into any
other Person, or transfer all or substantially all of its properties or assets
to any other Person. This Agreement shall inure to the benefit of and be
binding upon the Employer and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns.
13. Enforceability. If any portion or provision of this Agreement shall
--------------
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
14. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
15. Notices. All notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Board of Directors. Any such notice shall be deemed to be effective and
therefore given upon the following dates: (i) if such notice is delivered in
person the date on which such delivery is done; or (ii) if such notice is sent
by registered or certified mail, postage prepaid, the date which is three (3)
days subsequent to the date on which such notice is mailed.
16. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by a duly authorized
representative of the Employer.
17. Governing Law; Consent to Jurisdiction. It is the parties' intention
--------------------------------------
that the terms of employment under this Agreement shall be construed under and
be governed in all respects by the laws of The Commonwealth of Massachusetts.
To the extent that any court action is permitted consistent with or to enforce
Section 11 of this Agreement, the parties hereby consent to the jurisdiction of
the Superior Court of The Commonwealth of Massachusetts and the United States
District Court for the District of Massachusetts. Accordingly, with respect to
any such court action, the Executive (a) submits to the personal jurisdiction of
such courts; (b) consents to service of process; and (c) waives any other
requirement (whether imposed by statute, rule of court, or otherwise) with
respect to personal jurisdiction or service of process.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be taken to be
an original, but such counterparts shall together
<PAGE>
constitute one and the same document.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by each of the Employer and Little Switzerland, by their duly authorized
officers, and by the Executive, as of the date first above written.
L.S. WHOLESALE, INC.
By:/s/ C. William Carey
--------------------
Name: C. William Carey
Title: Chairman
LITTLE SWITZERLAND, INC.
By:/s/ C. William Carey
--------------------
Name: C. William Carey
Title: Chairman
/s/ Michael M. Poole
--------------------
Michael M. Poole
<PAGE>
Exhibit 10.28
NON-QUALIFIED STOCK OPTION AGREEMENT
Name of Optionee: Michael M. Poole
----------------
No. Of Option Shares: 50,000 Grant Date: August 25,1998
------ --------------
Option Exercise Price: $2.0625 Expiration Date: August 25,2008
------- --------------
Little Switzerland, Inc., a Delaware corporation (the "Company"), hereby
grants to the Optionee named above, who is now employed by the Company, an
option ("Stock Option") to purchase on or prior to the expiration date of this
Stock Option specified above (the "Expiration Date") all or any part of the
number of shares of common stock, par value $0.01 per share, (the "Common
Stock") of the Company specified above (the "Option Shares") at the per share
Stock Option exercise price specified above, subject to the terms and conditions
set forth herein. This Stock Option is not intended to qualify as an "incentive
stock option" under Section 422(b) of the Internal Revenue Code of 1986, as
amended from time to time (the "Code").
1. Vesting Schedule.
-------------------
(a) No portion of this Stock Option may be exercised until such
portion shall have vested. Except as set forth below, and subject to the
determination of the Board of Directors of the Company in its sole and absolute
discretion to accelerate the vesting schedule hereunder, this Stock Option shall
be vested and exercisable with respect to the following number of Option Shares
on the dates indicated:
Cumulative Number of
--------------------
Option Shares Exercisable Vesting Date
------------------------- ------------
10,000 August 25, 1998
20,000 August 25, 1999
30,000 August 25, 2000
40,000 August 25, 2001
50,000 August 25, 2002
In any event this Stock Option shall become fully vested and exercisable
with respect to all of the
<PAGE>
Option Shares on August 25, 2002. Once vested, this Stock Option shall continue
to be exercisable at any time or times prior to the Expiration Date, subject to
the provisions hereof.
(b) In the event of a "change in control" (as defined below) of the
Company, all Stock Options then outstanding granted to the Optionee shall become
fully vested and immediately exercisable. For purposes of this Agreement, a
"change of control" shall be deemed to have occurred in the following instances:
(i) if there has occurred a change in control which the Company would be
required to report in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or, if such
regulation is no longer in effect, any regulations promulgated by the Securities
and Exchange Commission pursuant to the 1934 Act which are intended to serve
similar purposes; (ii) if there has occurred a change in control which the
Company would be required to report in response to Item 6(e) of Schedule 14A
promulgated under the 1934 Act, or, if such regulation is no longer in effect,
any regulations promulgated by the Securities and Exchange Commission pursuant
to the 1934 Act which are intended to serve similar purposes; (iii) when any
"person" (as such term is used in Section 13(d) and 14(d)(2) of the 1934 Act)
becomes a "beneficial owner" (as such term is defined in Rule 13d-3 promulgated
under the 1934 Act), directly or indirectly, of securities of the Company
representing fifteen percent (15%) or more of the total number of votes that may
be cast for the election of Directors of the Company; (iv) the sale, transfer or
other disposition of all or substantially all of the assets of the Company to
another person or entity; (v) the election of Directors of the Company equal to
one-third or more of the total number of Directors then in office who have not
been nominated by the Company's Board of Directors or a committee thereof as
constituted on the date hereof; or (vi) the signing of an agreement, contract or
other arrangement providing for any of the transactions described above in this
definition of change of control; provided, however, that a "change in control"
-------- -------
shall not be deemed to have occurred as a result of the beneficial ownership of
the Company's Common Stock by any person who is a "Grandfathered Person" under
the Company's Shareholder Rights Agreement dated July 17, 1991, as amended (the
"Rights Agreement"), so long as such Grandfathered Person's beneficial ownership
of the Company's Common Stock does not exceed such Grandfathered Person's
"Grandfathered Percentage" (as defined in the Rights Agreement). If the
Optionee
<PAGE>
is a Director or officer of Company he shall not be deemed, solely as a result
of his position as Director or officer of the Company, to be the beneficial
owner of any securities of the Company that are beneficially owned by any other
Director or officer of the Company.
2. Exercise of Stock Option.
------------------------
(a) The Optionee may exercise only vested portions of this Stock Option
and only in the following manner: Prior to the Expiration Date, the Optionee
may give written notice on any business day to the Compensation Committee of the
Board of Directors of the Company (the "Compensation Committee") of his election
to purchase some or all of the shares purchasable at the time of such notice.
Said notice shall specify the number of shares to be purchased and shall be
accompanied (i) by payment therefore in cash or, at the Optionee's election, in
shares of Common Stock of the Company having a fair market value (as determined
below) on the date of exercise equal to or less than the total option exercise
price, plus cash, in an amount equal to the amount, if any, by which the total
option exercise price exceeds the fair market value of such shares of Common
Stock, and (ii) by such agreement, statement or other evidence as the Company
may require in order to satisfy itself that the issuance and conveyance of the
shares being purchased pursuant to such exercise and any subsequent resale
thereof will be in compliance with applicable laws and regulations, including,
without limitation, all federal and state securities laws.
(b) Certificates for the shares so purchased will be issued and delivered
to the Optionee upon compliance to the satisfaction of the Company with all
requirements under applicable laws or regulations in connection with such
issuance. Until the Optionee shall have complied with the requirements hereof,
the Company shall be under no obligation to issue the shares subject to this
Stock Option, and the determination of the Compensation Committee as to such
compliance shall be final and binding on the Optionee. The Optionee shall not
be deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares of Common Stock subject to this Stock Option unless and
until this Stock Option shall have been exercised pursuant to the terms hereof,
the Company shall have issued and delivered the shares to the Optionee, and the
Optionee's name shall have been entered as a stockholder of record on the books
of the Company. Thereupon, the Optionee shall have full voting, dividend and
other ownership rights with
<PAGE>
respect to such shares of Common Stock.
(c) The minimum number of shares with respect to which this Stock Option
may be exercised at any one time shall be 100 shares, unless the number of
shares with respect to which this Stock Option is being exercised is the total
number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof, no portion of this Stock
Option shall be exercisable after the Expiration Date.
(e) For purposes of this Agreement, the fair market value of the Common
Stock shall be determined in good faith by the Compensation Committee, provided,
however, that (x) if the Common Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System on the date the
Stock Option is granted, fair market value shall not be less than the average of
the highest bid and lowest asked prices of the Common Stock on such date or on
the last preceding date on which a sale was reported, or if the Common Stock is
admitted to trading on the National Association of Securities Dealers Automated
Quotation National Market System on the date the Stock Option is granted, fair
market value shall not be less than the closing price reported for the Common
Stock on such National Market System on such date or on the last preceding date
on which a sale was reported, or (y) if the Common Stock is admitted to trading
on a national securities exchange on the date the Stock Option is granted, fair
market value shall not be less than the last sale price reported for the Common
Stock on such exchange on such date or on the last date preceding such date on
which a sale was reported.
3. Termination of Employment.
-------------------------
(a) If the Optionee's employment by the Company terminates by reason of
his death or disability, this Stock Option may thereafter be exercised, to the
extent it was exercisable on the date of such termination, until the earlier of
(i) one year from the date of such termination or (ii) the Expiration Date.
(b) If the Optionee's employment by the Company terminates by reason of
his retirement in accordance with the Company's normal retirement policy as
determined by the Board of Directors of the Company, this Stock Option may
thereafter be exercised, to the extent it was exercisable on the date of such
<PAGE>
termination, until the earlier of (i) one year from the date of such termination
or (ii) the Expiration Date.
(c) If the Optionee's employment by the Company terminates by reason of
cause, this Stock Option shall lapse immediately upon the effective date of such
termination and shall not be exercisable at any time thereafter. Only the
following shall constitute "cause" for termination: (i) deliberate dishonesty of
the Optionee with respect to the Company or any subsidiary or affiliate thereof;
(ii) conviction of the Optionee of (A) a felony or (B) any crime involving moral
turpitude, deceit, dishonesty or fraud; (iii) material failure to perform a
substantial portion of the Optionee's duties and responsibilities with respect
to the Company or any subsidiary or affiliate thereof, which failure continues
for more than thirty (30) days after written notice given to the Optionee
pursuant to a two-thirds vote of all of the members of the Board of Directors of
the Company, such vote to set forth in reasonable detail the nature of such
failure; or (iv) gross negligence or willful misconduct of the Optionee with
respect to the Company or any subsidiary or affiliate thereof.
(d) If the Optionee's employment by the Company is terminated for any
reason other than death, disability, retirement or cause, this Stock Option may
thereafter be exercised, to the extent it was exercisable on the date of such
termination, until the earlier of (i) ninety (90) days following such
termination or (ii) the Expiration Date.
(e) The Compensation Committee shall have sole discretion to determine the
reason for the termination of the Optionee's Directorship with the Company.
4. Transferability. This Agreement is personal to the Optionee and is
---------------
not transferable by the Optionee in any manner other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Code, or Title I of the Employee Retirement Income Security Act,
as amended, or the rules thereunder; provided, however, that the designation of
a beneficiary by the Optionee does not constitute a transfer. Options may be
exercised during the Optionee's lifetime only by the Optionee.
5. Restrictions on Issuance of Option Shares. The issuance of Option
-----------------------------------------
Shares upon exercise
<PAGE>
thereof shall be subject to compliance with all of the applicable laws, rules
and regulations, including all applicable federal and state securities laws, and
the obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Board of Directors of the Company.
6. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) The shares of stock covered by this Stock Option are shares of the
Common Stock of the Company. If the shares of the Company's Common Stock as a
whole are increased, decreased, changed into or exchanged for a different number
or kind of shares or securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kind of shares, and the per share exercise price
of shares subject to any unexercised portion of this Stock Option. In the event
of any such adjustment in this Stock Option, the Optionee thereafter shall have
the right to purchase the number of shares under this Stock Option at the per
share price, as so adjusted, which the Optionee could purchase at the total
purchase price applicable to this Stock Option immediately prior to such
adjustment. Adjustments under this Paragraph 6 shall be made by the
Compensation Committee of the Company, whose determination as to what adjustment
shall be made, and the extent thereof, shall be conclusive. No fractional
shares of Common Stock shall be issued on account of any adjustment specified
above.
7. Effect of Certain Transactions. In the case of (a) the dissolution or
------------------------------
liquidation of the Company, (b) a merger, reorganization or consolidation in
which the Company is acquired by another person or in which the Company is not
the surviving corporation, or (c) the sale of all or substantially all of the
assets of the Company to another corporation, this Stock Option shall terminate
on the effective date of such dissolution, liquidation, merger, reorganization,
consolidation or sale, unless provision is made in such transaction for the
assumption of this Stock Option or the substitution for this Stock Option of a
new Stock Option of the successor employer corporation or a parent or subsidiary
thereof, with appropriate adjustment as to the number and kind of shares and the
per share exercise price, as provided in Paragraph 6. In the event of such a
termination, the Optionee will receive written notice thereof at least twenty
(20) days prior
<PAGE>
to the effective date of such transaction.
8. Tax Withholding.
---------------
(a) The Optionee, no later than the date as of which the value of any
Common Stock first becomes includable in the gross income of the Optionee for
federal income tax purposes, shall pay to the Company, or make arrangements
satisfactory to the Compensation Committee regarding payment of any federal,
state or local taxes of any kind required by law to be withheld with respect to
such income. The Company shall, to the extent permitted by law, have the right
to deduct any such taxes from any payment of any kind otherwise due to the
Optionee.
(b) The Optionee may elect to have such tax withholding obligation
satisfied, in whole or in part, by:
(i) authorizing the Company to withhold from shares of Common
Stock to be issued pursuant to the Stock Option a number of shares
with an aggregate fair market value that would satisfy the withholding
amount due, or
(ii) transferring to the Company shares of Common Stock owned by
the Optionee with an aggregate fair market value that would satisfy
the withholding amount due. While the Optionee is a director or
officer of the Company within the meaning of Section 16(b) of the 1934
Act, the following additional restrictions shall apply: (1) the
election to satisfy tax withholding obligations relating to the Stock
Option in the manner permitted by this Section 8(b)(ii) shall be made
either (A) during the period beginning on the third business day
following the date of release of quarterly or annual summary
statements of sales and earnings of the Company and ending on the
twelfth business day following such date, or (B) irrevocably at least
six months prior to the date as of which the receipt of such Common
Stock first becomes a taxable event for federal income tax purposes;
and (2) such election shall not be made within six months of the date
of grant of the option.
9. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Optionee and a duly authorized representative
of the Company.
<PAGE>
10. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of Delaware, except to the extent that such law is preempted by federal
law.
11. Miscellaneous. Notice hereunder shall be mailed or delivered to the
-------------
Company at its principal place of business, and shall be mailed or delivered to
the Optionee at the address set forth below, or in either case at such other
address as one party may subsequently furnish to the other party in writing.
[Remainder of Page Intentionally Left Blank]
<PAGE>
LITTLE SWITZERLAND, INC.
By:/s/ C. William Carey
--------------------
Name: C. William Carey
Title: Chairman
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned.
Dated: 10/14/98 /s/ Michael M. Poole
--------------- --------------------
Michael M. Poole
Optionee's Address:
St. Thomas, U.S.V.I
----------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-29-1999
<PERIOD-START> MAY-30-1998
<PERIOD-END> NOV-28-1998
<CASH> 2,143
<SECURITIES> 0
<RECEIVABLES> 2,734
<ALLOWANCES> 0
<INVENTORY> 46,422
<CURRENT-ASSETS> 53,656
<PP&E> 37,240
<DEPRECIATION> (17,968)
<TOTAL-ASSETS> 73,220
<CURRENT-LIABILITIES> 28,548
<BONDS> 2,781
0
0
<COMMON> 87
<OTHER-SE> 39,983
<TOTAL-LIABILITY-AND-EQUITY> 73,220
<SALES> 31,787
<TOTAL-REVENUES> 31,787
<CGS> 18,190
<TOTAL-COSTS> 18,190
<OTHER-EXPENSES> 18,458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 711
<INCOME-PRETAX> (5,599)
<INCOME-TAX> 600
<INCOME-CONTINUING> (6,199)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,199)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
