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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-K/A
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended May 29, 1999
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number 0-19369
LITTLE SWITZERLAND, INC.
(Exact name of registrant as specified in its charter)
Delaware 66-0476514
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
161-B Crown Bay Cruise Ship Port
St. Thomas U.S.V.I. 00802 00802
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (340) 776-2010
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None N/A
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
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 for 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of September 10, 1999, 8,627,209 shares of $0.01 par value Common Stock of
the registrant were outstanding. The aggregate market value of the voting stock
held by non-affiliates of the registrant based upon the closing price of
$.484375 per share for the registrant's Common Stock, as reported on the NASDAQ
National Market System as of September 10, 1999, was $2,929,407.
================================================================================
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The undersigned Little Switzerland, Inc. (the "Company") hereby amends the
following items, financial statements, exhibits or other portions of its Annual
Report on Form 10-K for the period ended May 29, 1999 ("Fiscal 1999") as set
forth in the pages attached hereto:
Part III, Item 10 Directors and Executive Officers of the Company
Part III, Item 11 Executive Compensation
Part III, Item 12 Security Ownership of Certain Beneficial Owners and
Management
Part III, Item 13 Certain Relationships and Related Transactions
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Directors
The Board of Directors of the Company currently consists of six members, and
is divided into three classes, with two Directors in each of classes I, II and
III. Directors serve for three-year terms, with one class of Directors being
elected by the Company's stockholders at each annual meeting.
Set forth below is certain information regarding the Directors of the
Company as of September 10, 1999, based on information furnished by them to the
Company.
Name Age Director Since
- ---- --- --------------
Class I-Term Expires 2001
Robert L. Baumgardner........ 52 1999
Alex J. Nobile............... 47 1999
Class II-Term Expires 1999
Peter R. McMullin............ 56 1999
Kenneth W. Watson............ 55 1991
Class III-Term Expires 2000
Richard C. Hunter............ 54 1999
Melanie L. Sturm............. 37 1999
The principal occupation and business experience during at least the last
five years for each Director of the Company is set forth below.
Mr. Baumgardner joined the Company as its Chief Executive Officer and
President effective as of August 17, 1999. Mr. Baumgardner was Senior Vice
President of Zale Corporation's Bailey Banks and Biddle Division in Dallas from
September 1998 to August 1999. Prior to his tenure with Zale Corporation, Mr.
Baumgardner held senior management positions with Mayors of Coral Gables,
Florida from May 1994 to September 1998, and with Tiffany of New York from May
1987 to June 1994. Mr. Baumgardner began his retail career in 1971 at Bailey
Banks and Biddle, as Vice President of Stores.
Mr. Hunter was the Senior Vice President for International Operations &
Development of Williams Sonoma, Inc. from November 1996 to April 1999. From
March 1996 to October 1996, Mr. Hunter was the President of RCI Consulting,
Inc., from January 1995 to February 1996 he was the Executive Vice President of
DFS Group Limited and from June 1992 to December 1994 he was the President of
DFS North America Division of DF Group Limited.
Mr. McMullin is the co-founder of Southeast Research Partners, Inc.
("Southeast") and has been an Executive Vice President and a managing director
of Southeast since its inception in June 1990. Since 1997, Mr. McMullin has been
the Executive Vice President, Chief Investment Officer and a director of
Research Partner International, a company that provides institutional research,
investment banking, securities brokerage and trading services through its
principal subsidiaries. Prior to being nominated as a director of the Company,
Mr. McMullin followed and wrote about the Company since its initial public
offering in 1991. Southeast has been and will continue to be a market maker for
the Company's Common Stock.
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Mr. Nobile has been an attorney and investment professional with Berkeley
International Capital Corporation, the venture capital arm of London Pacific
Group Limited, a diversified international financial services firm, since
January 1997. Prior to joining Berkeley International Capital Corporation, Mr.
Nobile was Executive Vice President, General Counsel and Corporate Secretary for
Gruen Marketing Corporation ("Gruen") from 1991 to 1996. Mr. Nobile joined Gruen
after serving as Senior Vice President, Corporate Counsel and Secretary at
Gruen's predecessor, Jewelcor Inc. from 1978 to 1991.
Ms. Sturm is a private equity investor and serves on the Board of Directors
of FirstWorld Communications, an internet solutions and telecommunications
provider, and MD Network, a healthcare company, each based in Denver, Colorado.
From 1990 to 1996, Ms. Sturm served as an Investment Officer at International
Finance Corporation, the private sector affiliate of the World Bank, where she
specialized in project finance. From 1984 to 1989, Ms. Sturm specialized in
mergers and acquisitions at Morgan Stanley and Drexel Burnham Lambert. Ms. Sturm
holds a B.A. degree in Economics from Tufts University and a MBA from INSEAD in
Fontamebleu, France.
Mr. Watson was the Acting Chief Executive Officer of the Company from April
7, 1999 until his resignation effective August 17, 1999. Mr. Watson also served
as Chief Executive Officer and President of the Company from January 1994 to
October 1994. Mr. Watson is currently serving as the Chief Operating Officer of
CyberSettle.com, an internet dispute resolution company, with which he has been
associated since March of 1999. From October 1996 to March 1999, Mr. Watson
served as Vice President-Consumer Marketing of the New York Times Magazine
Group, a subsidiary of the New York Times Company. Mr. Watson served as
Executive Vice President of K-Mart Corporation from October 1994 through March
1996. Mr. Watson was President of Louis Vuitton Stores, Inc. from July 1992 to
March 1993. Previously, he was Chairman and Chief Executive Officer of Gump's, a
retailer of jewelry, art and gift items from September 1989 to June 1992 and
President and Chief Executive Officer of Cartier, Inc. from 1985 to September
1989.
Messrs. Hunter and McMullin and Ms. Sturm were nominated as Directors of the
Company pursuant to the terms of the Settlement Agreement, dated as of February
23, 1999, among the Company, Donald L. Sturm, ValueVest Partners L.P., Seymour
Holtzman, Jewelcor Management, Inc. and the other parties identified therein
(the "Settlement Agreement"). In addition, pursuant to the terms of the
Settlement Agreement, Mr. Watson was appointed as the Acting Chief Executive
Officer of the Company effective as of April 7, 1999 until a successor was
found. For a complete description of the terms of this Settlement Agreement see
the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission (the "SEC") on February 24, 1999, which is incorporated by reference
herein.
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Executive Officers
The names and ages of all executive officers of the Company and the
principal occupation and business experience during at least the last five years
for each of the executive officers who are not Directors of the Company are set
forth below as of September 10, 1999.
Name Age Position
---- --- --------
Robert L. Baumgardner........ 52 President, Chief Executive Officer
and Director
Patrick J. Hopper............ 37 Chief Financial Officer, Vice
President and Treasurer
William Canfield............. 52 Vice President of Store Operations
Michael M. Poole............. 56 Vice President and General
Merchandise Manager
Raoul Mills.................. 38 Vice President, Distribution
Mr. Canfield has been Vice President of Store Operations since June 1994. In
that position, he has been responsible for store operations, new store
development and strengthening the Company's position in jewelry throughout its
stores. Mr. Canfield was Managing Director of Colombian Emeralds International
from December 1979 to June 1994. In the past, he served as the President of the
St. Thomas Retail Association for two years.
Mr. Hopper joined the Company as its Vice President-Finance on June 7, 1999
and subsequently became the Chief Financial Officer, Vice President and
Treasurer of the Company on July 3, 1999. Prior to joining the Company, Mr.
Hopper was with Tesco PLC., serving as the Director of Central European Projects
from January 1998 to January 1999, and as Chief Financial Officer of Tesco PLC
for the Czech and Slovak Republic from April 1996 to January 1998. From January
1994 to April 1996, Mr. Hopper served as Director of Finance and Administration
of K-Mart Corporation in the Czech and Slovak Republic.
Mr. Mills has been Vice President of Distribution since December 1998. In
that position, he has been responsible for streamlining the Company's logistics
process. Mr. Mills joined the Company in February 1995 as Director of
Distribution, and served as Divisional Vice President of Distribution from
February 1997 to December 1998. Prior to joining the Company, Mr. Mills served
as General Manager for Sea Chest Hardware, Inc.
Mr. Poole has been the Vice President and General Merchandise Manager of the
Company since August 1998. Mr. Poole was the Director of Licensing for Combine
International Inc., a jewelry manufacturing company, from August 1996 to August
1998. From September 1991 to July 1996, Mr. Poole was the President of NXP,
d/b/a Jewels at A.H. Riise, a retail jewelry store in St. Thomas, U.S.V.I.
Each of the officers holds his respective office until the regular annual
meeting of the Board of Directors following the annual meeting of stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than 10% of the Company's outstanding shares of Common Stock, to file
reports of ownership and changes in ownership with the SEC and NASDAQ. Officers,
directors and greater than ten percent stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Section
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16(a) reports were required for those persons, the Company believes that during
Fiscal 1999, Jewelcor Management, Inc., Seymour Holtzman, Steven Holtzman, Trust
F/B/O A. Holtzman Garcia and Custodial Account F/B/O Chelsea Holtzman and
ValueVest Partners L.P. and Donald L. Sturm inadvertently failed to timely file
the requisite Section 16(a) reports. Each of these reporting persons may be
deemed to beneficially own more than 10% of the Company's outstanding shares of
Common Stock. See Item 12 "--Security Ownership of Certain Beneficial Owners and
Management." The Company has been informed that such reports will be filed
shortly. In addition, the Company believes that during Fiscal 1999 Mr. Mills
inadvertently failed to timely file a Form 3 with respect to stock options owned
by him. The Company has been informed that the report will be filed shortly. In
addition, the Company believes that during Fiscal 1999 Ms. Dudley inadvertently
failed to timely file a Form 4 with respect to a stock option grant on May 28,
1999 of 3,000 shares of the Company's Common Stock, and Messrs. Poole, McMullin
and Hunter and Ms. Dudley inadvertently each failed to timely file a Form 3.
Messrs. Poole, McMullin and Hunter and Ms. Dudley each subsequently filed the
required forms.
ITEM 11. EXECUTIVE COMPENSATION
The following sections of this Form 10-K/A set forth and discuss the
compensation paid or awarded during the last three years to (i) any individual
who served as either the Company's Chief Executive Officer or Acting Chief
Executive Officer during Fiscal 1999 and (ii) the three most highly compensated
executive officers other than such individuals who were serving as executive
officers at the end of Fiscal 1999 and who earned in excess of $100,000 during
Fiscal 1999.
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Summary Compensation Table
The following table shows for the fiscal years ended May 31, 1997, May 30,
1998 and May 29, 1999 compensation paid by the Company to (i) any individual who
served as either the Company's Chief Executive Officer or Acting Chief Executive
Officer during Fiscal 1999 and (ii) the three most highly compensated executive
officers who were serving as executive officers at the end of Fiscal 1999 and
who earned in excess of $100,000 during Fiscal 1999.
<TABLE>
<CAPTION>
Annual compensation Long Term Compensation
----------------------------- --------------------------------------------------
Awards Payouts
------------------------ ----------------------
Other Annual Restricted Securities LTIP All Other
Salary Bonus Compensation Stock Award(s) Underlying Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) Options (#) ($) ($)
- --------------------------- ---- -------- --------- ------------ ------------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr........... 1999 $ 91,154 $ 4,000(5) - - - - $ 43,833(12)
President and Chief....... 1998 $300,000 $140,000 $4,000(6) - - - $ 6,688(13)(14)
Executive Officer(1)...... 1997 $300,000 - $3,000(6) - 300,000(7) - $ 3,894(13)
C. William Carey............ 1999 $211,347 $ 91,250 - - 150,000(8) - $359,162(15)
Acting Chief.............. 1998 - - - - - - -
Executive Officer(2)...... 1997 - - - - -
Kenneth W. Watson........... 1999 $ 45,692 - - - -(9) - $ 60,750(16)
Acting Chief.............. 1998 - - - - - - -
Executive Officer(3 )..... 1997 - - - - -
David J. Nace............... 1999 $140,000 $ 50,000 - - 75,000(10) - $ 50,000(17)
Chief Financial Officer... 1998 - - - - - - -
Executive Vice............ 1997 - - - - - -
President and Treasurer(4)
William Canfield............ 1999 $181,446 - - - - - $ 8,684(18)
Vice President of......... 1998 $173,000 $ 28,000 - - - - $ 8,659(19)
Store Operations.......... 1997 $173,000 - - - - - -
Michael M. Poole............ 1999 $100,731 - - - 50,000(11) - -
Vice President and....... 1998 - - - - - - -
General Merchandise...... 1997 - - - - - - -
Manager.................
</TABLE>
__________________
(1) Mr. Toler resigned as the President and Chief Executive Officer of the
Company effective August 31, 1998. Mr. Toler continued to serves as a
Director of the Company until April 7, 1999.
(2) Mr. Carey assumed the role of Acting Chief Executive Officer of the Company
effective September 1, 1998 and resigned as such effective April 7, 1999.
(3) Mr. Watson assumed the role of Acting Chief Executive Officer of the Company
effective April 7, 1999 and resigned as such effective August 17, 1999. Mr.
Watson is currently serving as a class II Director of the Company.
(4) Mr. Nace resigned as the Chief Financial Officer, Executive Vice President
and Treasurer of the Company effective July 2, 1999.
(5) This amount represents a one-time stay bonus that Mr. Toler was awarded in
connection with his resignation as President and Chief Executive Officer of
the Company.
(6) These amounts represent the cost to the Company for one year of certain
automobile allowances.
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(7) In connection with his appointment as President and Chief Executive Officer
of the Company, the Company granted Mr. Toler an option to purchase 300,000
shares of the Company's Common Stock pursuant to the Little Switzerland,
Inc. 1991 Stock Option Plan (the "1991 Option Plan"). Pursuant to the terms
of the Letter Agreement between the Company and Mr. Toler, in connection
with Mr. Toler's resignation, this option will expire on September 1, 2000.
(8) In connection with his appointment as Acting Chief Executive Officer of the
Company, the Company granted Mr. Carey an option to purchase 150,000 shares
of the Company's Common Stock outside of the 1991 Option Plan as an
inducement for him entering into such employment agreement. Pursuant to the
terms of the Stock Option Agreement between the Company and Mr. Carey, in
connection with Mr. Carey's resignation, this option will expire on
April 7, 2001.
(9) In connection with his directorship, since 1991, the Company has granted
Mr. Watson options to purchase an aggregate of 20,000 shares of the
Company's Common Stock pursuant to the 1992 Non-Employee Directors'
Nonqualified Stock Option Plan (the "1992 Option Plan") and an option to
purchase 10,000 shares of the Company's Common Stock pursuant to the 1991
Option Plan.
(10) In connection with his appointment as Chief Financial Officer, Executive
Vice President and Treasurer of the Company, the Company granted Mr. Nace
an option to purchase 75,000 shares of the Company's Common Stock pursuant
to the 1991 Option Plan. Pursuant to the terms of the Stock Option
Agreement between the Company and Mr. Nace, due to Mr. Nace's resignation,
this option will expire on September 30, 1999.
(11) In connection with his appointment as Vice President and General
Merchandise Manager of the Company, the Company granted Mr. Poole an option
to purchase 50,000 shares of the Company's Common Stock outside of the 1991
Option Plan as an inducement for him entering into his employment agreement
with the Company.
(12) This amount includes $19,833 Mr. Toler received in connection with his
resignation as President and Chief Executive Officer for, among other
things, moving expenses, attorney's fees and living expense. Also includes
$24,000 Mr. Toler received as compensation for his duties as a Director of
the Company while not also employed as President and Chief Executive
Officer during Fiscal 1999.
(13) Effective June 1, 1996, the Company replaced its tax-qualified
discretionary contribution retirement plan (the "Retirement Plan") with a
401(k) Plan under which the Company matches each employee's contribution up
to 3% of compensation. In fiscal 1998, the Company contributed $2,423 to
the individual account maintained on behalf of Mr. Toler pursuant to the
401(k) Plan. In fiscal 1997, the Company contributed $3,894 to an
individual account maintained on behalf of Mr. Toler pursuant to the 401(k)
Plan.
(14) This amount includes $4,265 in insurance premiums paid by the Company with
respect to term life insurance for the benefit of Mr. Toler.
(15) This amount includes $21,138 reimbursed by the Company for the payment of
taxes, $30,357 reimbursed by the Company for living expenses, one month
severance of $29,167, consulting fees of $180,000 in connection with the
New Consulting Agreement (as defined below) and $50,000 in connection with
the CWC Consulting Agreement (as defined below), $37,500 in lieu of the
three-month notification necessary pursuant to the CWC Consulting Agreement
to terminate such agreement and $11,000 as compensation for his duties as a
Director of the Company while not employed as Acting Chief Executive
Officer during Fiscal 1999.
(16) This amount reflects compensation received by Mr. Watson for his duties as
a Director of the Company while not also employed as Acting Chief Executive
Officer during Fiscal 1999.
(17) This amount reflects $50,000 reimbursed by the Company for moving expenses.
(18) This amount represents $1,017 in insurance premiums paid by the Company
with respect to term life insurance for the benefit of Mr. Canfield and
$7,667 in insurance premiums paid by the Company with respect to whole life
insurance for the benefit of Mr. Canfield.
(19) This amount represents $1,092 in insurance premiums paid by the Company
with respect to term life insurance for the benefit of Mr. Canfield and
$7,567 in remainder of premiums paid by the Company due to Mr. Canfield's
interest in the cash surrender value under one such insurance policy.
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Option Grants in Last Fiscal Year
The following table sets forth the number of shares underlying stock options
granted during Fiscal 1999 to any person who acted as the Chief Executive
Officer or Acting Chief Executive Officer of the Company and each other
executive officer named in the Summary Compensation Table and certain other
information regarding such stock options.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------
Alternative
Number of Percent of Realizable Value To (f) and
Securities Total At Assumed Annual (g) : Grant
Underlying Options/ Rates Of Stock Date Value
-----------
Option SARs Granted Exercise Price Appreciation
/SARs To Employees Or Base for Option Term Grant Date
--------------------
Granted In Fiscal Price Expiration Present
Name (#) Year ($/Sh)(1) Date 5% ($) 10% ($) Value $
- ---- ---------- ------------ -------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr.... - - - - - - -
C. William Carey..... 150,000(2)(5) 55% $ 2.25 4/7/01 $213,000 $538,500 -
Kenneth W. Watson.... - - - - - - -
David J. Nace........ 75,000(3)(5) 27% $ 2.50 9/30/99 $117,500 $298,827 -
William K. Canfield.. - - - - - - -
Michael M. Poole..... 50,000(4)(5) 18% $2.0625 8/25/08 $ 68,000 $172,000 -
</TABLE>
_____________
(1) The exercise price is equal to the fair market value of a share of Common
Stock on the grant date. The amounts shown as potential realizable value
illustrate what might be realized upon exercise immediately prior to
expiration of the option term using the 5% and 10% appreciation rates
established in regulations of the SEC, compounded annually. The potential
realizable value is not intended to predict future appreciation of the price
of the Company's Common Stock. The values shown do not consider
nontransferability, vesting or termination of the options upon termination
of employment.
(2) Granted outside the Company's 1991 Option Plan as an inducement to Mr. Carey
entering into an employment agreement with the Company. Pursuant to the
terms of the Stock Option Agreement between the Company and Mr. Carey, in
connection with Mr. Carey's resignation, this option will expire on
April 7, 2001.
(3) Pursuant to the terms of the Stock Option Agreement between the Company and
Mr. Nace, due to Mr. Nace's resignation, this option will expire on
September 30, 1999.
(4) Granted outside the Company's 1991 Option Plan as an inducement to Mr. Poole
entering into an employment agreement with the Company.
(5) Upon the execution of the Settlement Agreement, all unvested Stock Options
on the date of the execution of the Settlement Agreement automatically
vested pursuant to the terms of either the 1991 Option Plan or the Stock
Option Agreements with respect to options granted outside the 1991 Option
Plan. As such, each of Messrs. Carey, Nace and Poole's stock options
automatically vested on February 23, 1999.
Compensation of Directors
Directors who are officers or employees of the Company receive no
compensation for service as Directors. Directors who are not officers or
employees of the Company receive such compensation for their services as the
Board of Directors may from time to time determine. Non-employee Directors each
receive an annual retainer of $5,000, plus a fee of $2,500 for each Board of
Directors meeting attended ($500 if such meeting is held via telephone
conference) and $1,000 for each committee meeting attended ($500 if such meeting
is held via telephone conference) if such meeting does not take place in
conjunction with a regularly scheduled Board of Directors meeting. All Directors
are reimbursed for expenses incurred in connection with attendance at meetings.
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In order to align stockholder and Director interests, in 1992 the Board of
Directors established the 1992 Non-Employee Directors' Nonqualified Stock Option
Plan (the "1992 Option Plan"). Pursuant to the 1992 Option Plan, each eligible
non-employee Director automatically receives an option to purchase 3,000 shares
of Common Stock on the last day of the Company's fiscal year. All options
granted pursuant to the 1992 Option Plan vest and are immediately exercisable
upon grant. All options granted under the 1992 Option Plan have an exercise
price equal to 100% of the fair market value of a share of Common Stock on the
grant date. On May 29, 1999, the then eligible non-employee Directors of the
Company each received an option to purchase 3,000 shares of Common Stock at an
exercise price of $.84375 per share, the fair market value of the Common Stock
on May 28, 1999.
For a description of the employment and consulting arrangements with Mr.
Carey during Fiscal 1999, see "--Compensation Committee Interlocks and Insider
Participation."
For a description of the employment arrangements with Mr. Watson during
Fiscal 1999, see "--Employment Contracts, Termination of Employment."
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
During certain portions of Fiscal 1999, the Compensation Committee of the
Board of Directors of the Company consisted of the following Directors: Timothy
B. Donaldson, Ilene B. Jacobs, C. William Carey, Melanie L. Sturm, Peter R.
McMullin and Adriane J. Dudley. During Fiscal 1999, other than Mr. Carey who
served as Acting Chief Executive Officer of the Company from September 1998 to
April 1999, all of the members of the Compensation Committee were outside
Directors. The current members of the Compensation Committee are Ms. Sturm and
Mr. McMullin.
Ms. Jacobs resigned as a member of the Board of Directors effective
September 14, 1998 and, on such date, the Compensation Committee was
reconstituted with Messrs. Carey and Donaldson. In connection with the
settlement of the proxy contest with Donald L. Sturm and Seymour Holtzman, Mr.
Donaldson resigned as a member of the Board of Directors and the Compensation
Committee effective April 7, 1999, and Mr. Carey did not stand for re-election
at the Annual Meeting of Stockholders held on April 7, 1999. Thereafter, Mr.
McMullin and Messes. Sturm and Dudley were appointed to the Compensation
Committee on April 7, 1999. Ms. Dudley resigned as a member of the Board of
Directors and of the Compensation Committee effective June 4, 1999 and, on such
date the Compensation Committee was reconstituted with Ms. Sturm and Mr.
McMullin.
The Compensation Committee approves Company compensation policies and
procedures and establishes compensation levels for executive officers. The
Compensation Committee also administers and grants awards under the 1991 Option
Plan and the Company's Employee Stock Purchase Plan.
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Compensation Policies for Executive Officers
The Compensation Committee's executive compensation philosophy is to provide
competitive levels of compensation, integrate management's pay with Company
performance, reward above average individual performance, and assist the Company
in attracting and retaining qualified management. The Compensation Committee has
determined that base salaries of executive officers should be set at levels that
are competitive within the local retail industry. In addition, the Compensation
Committee believes that it is appropriate to reward outstanding performance
through a combination of cash bonuses and stock option grants and, through stock
option grants, to provide a competitive compensation package that will enable
the Company to attract and retain the executives needed to achieve such
performance. The Compensation Committee also has determined that any stock
option or other equity-based compensation should involve long-term vesting to
encourage long-term tenure and enhancement of shareholder value over the long-
term.
Base salaries for executive officers are targeted according to the salaries
of employees holding similar offices and having similar responsibilities within
the local retail industry. The Compensation Committee also considers the
relative cost of living within the United States Virgin Islands. Annual salary
adjustments for executive officers are determined by evaluating the competitive
marketplace, the performance of the Company, the performance of the executive
officer and any change in the responsibilities assumed by the executive officer.
Salary adjustments, if any, are normally determined and made on an annual basis.
The base salary and salary adjustments for John E. Toler, Jr., President and
Chief Executive Officer of the Company during a portion of Fiscal 1999, were
established pursuant to his employment agreement, as described below under "--
Employment Contracts, Termination of Employment." See "--Compensation of John E.
Toler, Jr., Former Chief Executive Officer" below. The base salary and salary
adjustments for C. William Carey, Acting Chief Executive Officer of the Company
during a portion of Fiscal 1999, were established pursuant to his employment
agreement, as described below under "--Employment Contracts, Termination of
Employment." See "--Compensation of C. William Carey, Former Acting Executive
Officer" below. The base salary for Kenneth W. Watson, Acting Chief Executive
Officer of the Company during a portion of Fiscal 1999, were established
pursuant to the terms of his employment arrangement, as described below under
"--Employment Contracts, Termination of Employment." See "--Compensation of
Kenneth W. Watson, Former Acting Chief Executive Officer" below. The terms of
employment of William K. Canfield, Vice President of Store Operations, Michael
M. Poole, Vice President and General Merchandise Manager, Raoul Mills, Vice
President of Distribution and David J. Nace, the Chief Financial Officer,
Executive Vice President and Treasurer of the Company as of the end of Fiscal
1999, were determined by the Compensation Committee and approved by the Board of
Directors.
Cash bonuses paid to executive officers generally are earned primarily
through the achievement of financial goals relative to each officer's
responsibilities. Such financial goals include targeted sales and profit levels,
earnings before interest and taxes ratios, selling, general and administrative
expense ratios, return on assets, inventory shrinkage and inventory turns. Cash
bonuses may also be paid to executive officers in accordance with the terms of
their employment agreements. Bonuses payable pursuant to such agreements
generally are earned through the achievement of the financial goals similar to
those discussed above and may also be awarded for executive retention purposes
in the sole discretion of the Compensation Committee. Pursuant to their
respective employment contracts, Messrs. Nace, Poole, Canfield and Mills were
each eligible to earn a bonus of up to 25% of their respective base salaries for
Fiscal 1999. In addition, Mr. Toler was eligible to earn a bonus of up to 45.83%
of his base salary for Fiscal 1999 and Mr. Carey was eligible to earn a bonus of
up to a maximum of $50,000 per quarter for Fiscal 1999. See "--Compensation of
John E. Toler, Jr., Former Chief Executive Officer," "--Compensation of C.
William Carey, Former Acting Chief Executive Officer" and "--Employment
Contracts, Termination of Employment" below. Mr. Watson was not entitled to
receive a bonus for his services rendered as Acting Chief Executive Officer of
the Company during Fiscal 1999. Occasionally, cash bonuses are paid to
11
<PAGE>
executive officers for the performance of services to the Company outside the
scope of their offices, as determined by the Compensation Committee of the Board
of Directors of the Company.
Stock options are designed to attract and retain executives who can make
significant contributions to the Company's success; reward executives for such
significant contributions; and give executives a longer-term incentive to
increase shareholder value. In determining whether to grant stock options to
executive officers, the Compensation Committee evaluates each officer's
performance by examining criteria similar to that involved in fixing cash
bonuses (but without any specific performance measures) and awards reflect
individual performance reviews. The Compensation Committee also may grant stock
options for executive retention purposes, taking into account, among other
things, general industry practice. Stock options typically vest over three to
five years in order to encourage outstanding performance over the long-term.
Historically, stock options generally have been granted with a ten-year term and
an exercise price equal to 100% of the fair market value of the Common Stock on
the grant date. Upon the execution of the Merger, dated as of February 4, 1998,
with Destination Retail Holdings Corporation ("DRHC") and certain of its
affiliates (the "Merger Agreement"), all unvested stock options on the date of
the execution of the Merger Agreement automatically vested pursuant to the terms
of the 1991 Option Plan. Upon the execution of the Settlement Agreement, all
unvested stock options on the date of the execution of the Settlement Agreement
automatically vested pursuant to the terms of either the 1991 Option Plan or the
Stock Option Agreements with respect to options granted outside of the 1991
Option Plan.
Compensation of John E. Toler, Jr., Former Chief Executive Officer
The base salary for Mr. Toler, the Company's President and Chief Executive
Officer during a portion of Fiscal 1999, was established by Mr. Toler's
employment agreement (the "Toler Employment Agreement"). For a complete
description see "--Employment Contracts, Termination of Employment." In
connection with his resignation, the Company entered into a Letter Agreement,
dated August 14, 1998 (the "Toler Letter Agreement"), pursuant to which Mr.
Toler received an aggregate amount equal to $19,883 as payment for certain fees
and expenses upon his resignation as President and Chief Executive Officer of
the Company. In addition, pursuant to the Toler Letter Agreement, Mr. Toler
received a one time stay bonus equal to $4,000 and is entitled to purchase any
and all of the Company's merchandise, at the Company's cost, up to a maximum
aggregate amount equal to $20,000 until August 31, 1999. See "--Employment
Contracts, Termination of Employment" below. Additionally, pursuant to the terms
of Mr. Toler's employment agreement, on November 1, 1995, the Company granted
Mr. Toler an option to purchase 300,000 shares of the Company's Common Stock at
$3.50 per share pursuant to the 1991 Option Plan. This option automatically
vested upon the execution of the Merger Agreement with DRHC pursuant to the
terms of the 1991 Option Plan. In connection with his resignation, the Board of
Directors amended his option agreement so that he may exercise the option after
the termination of his employment with the Company at any time prior to
September 1, 2000, upon which date the option shall expire.
Compensation of C. William Carey, Former Acting Chief Executive Officer
The base salary for Mr. Carey, Acting Chief Executive Officer of the Company
during a portion of Fiscal 1999, was established by Mr. Carey's Employment
Agreement, dated September 1, 1998 (the "CWC Employment Agreement"). For a
complete description see "--Employment Contracts, Termination of Employment." In
connection with his resignation, the Company entered in to a Severance
Agreement, dated February 23, 1999 (the "CWC Severance Agreement") pursuant to
which Mr. Carey received an aggregate amount equal to $29,167 in base salary on
the effective date of his resignation as Acting Chief Executive Officer of the
Company. In addition, pursuant to the terms of the CWC Severance Agreement, Mr.
Carey (i) received $50,000 as a bonus for the Company's third quarter of Fiscal
1999, (ii) is entitled to purchase any and all of the Company's merchandise, at
the Company's cost, for his personal use until
12
<PAGE>
March 17, 2002, (iii) will be reimbursed for the premiums associated with
continuation of medical coverage under COBRA and (iv) was reimbursed for the
legal expenses he incurred in connection with the negotiation of the CWC
Severance Agreement. In connection with his appointment as the Acting Chief
Executive Officer of the Company, the Company granted Mr. Carey an option to
purchase 150,000 shares of the Company's Common Stock at $2.25 per share outside
of the 1991 Option Plan as an inducement to Mr. Carey entering into his
employment agreement with the Company. Pursuant to the terms of Mr. Carey's
Stock Option Agreement, this option automatically vested as a result of the
execution of the Settlement Agreement. In connection with his resignation and
pursuant to the terms of the Stock Option Agreement, Mr. Carey may exercise this
option until April 7, 2001.
Compensation of Kenneth W. Watson, Former Acting Chief Executive Officer
The base salary for Mr. Watson, Acting Chief Executive Officer of the
Company during a portion of Fiscal 1999, was established by terms set forth in
Schedule C of the Settlement Agreement. Mr. Watson received a monthly salary of
$30,000 per month. In addition, Mr. Watson received reimbursement for all
reasonable living expenses. Mr. Watson was not entitled to receive a bonus for
his services rendered as Acting Chief Executive Officer of the Company.
Federal Tax Regulations
As a result of Section 162(m) of the Internal Revenue Code (the "Code"), the
Company's deduction of executive compensation may be limited to the extent that
a "covered employee" (i.e., the chief executive officer or one of the four
highest compensated officers who is employed on the last day of the Company's
taxable year and whose compensation is reported in the summary compensation
table in the Company's proxy statement) receives compensation in excess of
$1,000,000 in such taxable year of the Company (other than performance-based
compensation that otherwise meets the requirements of Section 162(m) of the
Code). The Company intends to take appropriate action to comply with such
regulations, if applicable, in the future.
The report of the Compensation Committee of the Board of Directors on
executive compensation is made by each of the current members of the
Compensation Committee listed below:
/s/ Melanie L. Sturm /s/ Peter R. McMullin
Compensation Committee Interlocks and Insider Participation
Mr. Carey served as a member of the Compensation Committee of the Board of
Directors of the Company during a portion of Fiscal 1999. Mr. Carey also served
as the Chairman of the Board of Directors of the Company until September 1, 1998
and, on such date, became the Acting Chief Executive Officer of the Company. Mr.
Carey resigned as the Acting Chief Executive Officer of the Company effective as
of April 7, 1999 and did not stand for re-election as a Director of the Company
at the Annual Meeting of Stockholders held on April 7, 1999.
On June 2, 1996, Mr. Carey entered into a consulting agreement with the
Company (the "CWC Consulting Agreement"). Pursuant to the CWC Consulting
Agreement, Mr. Carey provided consulting services to the Company, including,
without limitation, advice with respect to business and product planning,
marketing strategy, leasing and new store development and executive recruitment,
in exchange for a consulting fee at the annual rate of $150,000, payable in
monthly installments. In addition, Mr. Carey was entitled to receive
reimbursement for all reasonable expenses incurred by him on behalf of the
Company in connection with the performance of his obligations thereunder. In
connection with his position as Acting Chief Executive Officer of the Company,
the Company terminated the CWC Consulting
13
<PAGE>
Agreement effective September 1, 1998. Mr. Carey received $37,500 in lieu of the
three-month notification necessary pursuant to the CWC Consulting Agreement to
terminate such agreement.
On September 1, 1998, the Company entered into an employment agreement with
Mr. Carey with respect to his position as Acting Executive Officer and President
of the Company. In connection with his resignation as Acting Chief Executive
Officer, the Company entered into a severance agreement with Mr. Carey. For a
description of certain terms of such agreements, see "--Employment Agreements,
Termination of Employment."
In connection with his resignation as Acting Chief Executive Officer,
effective April 7, 1999, the Company entered into a new consulting agreement
with Mr. Carey (the "New Consulting Agreement"), which expires on October 7,
1999. Pursuant to this New Consulting Agreement, Mr. Carey agreed to provide
consulting services to the Company similar to those he provided under the CWC
Consulting Agreement in exchange for a consulting fee equal to an aggregate of
$180,000, which was paid on April 7, 1999. Mr. Carey also is entitled to receive
reimbursement for all reasonable expenses incurred by him on behalf of the
Company in connection with such consulting services.
On February 23, 1999, the Company entered into an amended and restated
success fee agreement with Mr. Carey, which expires on January 15, 2000.
Pursuant to the terms of this agreement, under certain circumstances, Mr. Carey
will be entitled to receive a fee upon the successful completion of certain
transactions involving the Company. For a more detailed description of this
agreement, see Item 13 "Certain Relationships and Related Transactions."
The other members of the Compensation Committee of the Board of Directors of
the Company during portions of Fiscal 1999 were Timothy B. Donaldson, Ilene B.
Jacobs, Melanie L. Sturm, Peter R. McMullin and Adriane Dudley. Messes. Jacobs
and Dudley and Mr. Donaldson each resigned as a member of the Board of Directors
and the Compensation Committee of the Board of Directors effective September 14,
1998, June 4, 1999 and April 7, 1999, respectively. During Fiscal 1999, the
Company retained and continues to retain, Dudley, Clark & Chan, of which Ms.
Dudley is the senior partner, as its local law firm in St. Thomas, U.S.V.I.
Messrs. Donaldson and McMullin, and Messes. Jacobs and Sturm have never been
officers or employees of the Company and have never had any other reportable
relationship with the Company other than through his/her position as a Director
of the Company.
14
<PAGE>
Shareholder Return Performance Graph
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total shareholder return on the Company's Common Stock, based on
the market price of the Company's Common Stock and assuming reinvestment of
dividends, with the total return of companies within the NASDAQ stock market and
the companies within the NASDAQ Retail Trade Stocks Index prepared by the Center
for Research in Security Prices at The University of Chicago Graduate School of
Business. The calculation of total cumulative return assumes a $100 investment
in the Company's Common Stock, the NASDAQ stock market and the NASDAQ Retail
Stocks Index on May 31, 1994.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE REPORT FOR
LITTLE SWITZERLAND, INC.
Prepared by the Center for Research in Security Prices
Produced on 9/10/99 including data to 5/28/99
Company Index: CUSIP Ticker Class Sic Exchange
53752810 LSVI 5940 NASDAQ
Fiscal Year-End is 5/31/99
Market Index: Nasdaq Stock Market (US Companies)
Peer Index: Nasdaq Retail Trade Stocks
SIC 5200-5599, 5700-5799, 5900-5999 US & Foreign
Company Market Peer
Date Index Index Index
---- ----- ----- -----
05/31/1994 100.000 100.000 100.000
06/30/1994 96.154 96.344 97.994
07/29/1994 96.154 98.323 98.155
08/31/1994 100.000 104.588 105.527
09/30/1994 100.000 104.322 107.134
10/31/1994 82.692 106.356 108.440
11/30/1994 82.692 102.832 104.323
12/30/1994 80.769 103.111 101.277
01/31/1995 63.462 103.704 97.722
02/28/1995 80.769 109.186 99.738
03/31/1995 76.923 112.427 100.172
04/28/1995 69.231 115.968 99.625
05/31/1995 73.077 118.968 101.991
06/30/1995 67.308 128.602 110.340
07/31/1995 65.385 138.046 116.333
08/31/1995 92.308 140.849 116.007
09/29/1995 61.538 144.091 118.116
10/31/1995 57.692 143.261 116.025
11/30/1995 59.615 146.622 115.407
12/29/1995 59.615 145.846 111.551
01/31/1996 63.462 146.576 110.417
02/29/1996 63.462 152.163 117.715
03/29/1996 61.538 152.674 125.443
04/30/1996 89.423 165.322 136.781
05/31/1996 90.385 172.907 140.013
06/28/1996 80.769 165.113 134.080
07/31/1996 70.192 150.415 125.870
08/30/1996 67.308 158.851 134.791
09/30/1996 66.346 170.994 141.553
10/31/1996 75.000 169.101 135.709
11/29/1996 70.192 179.593 139.044
12/31/1996 70.192 179.443 132.982
01/31/1997 75.962 192.177 135.814
02/28/1997 73.077 181.547 131.140
03/31/1997 69.231 169.710 126.508
04/30/1997 75.962 174.995 122.291
05/30/1997 88.462 194.818 135.128
06/30/1997 92.308 200.806 142.919
07/31/1997 108.654 221.966 149.383
08/29/1997 109.615 221.634 151.945
09/30/1997 101.923 234.775 162.023
10/31/1997 100.000 222.545 153.251
11/28/1997 102.885 223.730 156.715
12/31/1997 108.654 219.881 156.241
01/30/1998 114.423 226.839 158.470
02/27/1998 118.750 248.171 172.880
03/31/1998 118.269 257.327 187.514
04/30/1998 123.077 261.661 187.780
05/29/1998 85.577 247.137 180.890
06/30/1998 69.231 264.398 191.416
07/31/1998 50.962 261.295 177.909
08/31/1998 36.538 209.704 131.439
09/30/1998 50.000 238.814 138.790
10/30/1998 47.115 249.137 154.215
11/30/1998 39.423 274.291 176.360
12/31/1998 35.577 309.836 189.985
01/29/1999 34.615 354.760 193.764
02/26/1999 30.769 322.982 178.816
03/31/1999 29.808 346.230 189.524
04/30/1999 14.423 355.415 192.769
05/28/1999 12.981 347.115 183.262
15
<PAGE>
Employment Contracts, Termination of Employment
The following is a description of the employment arrangements with the
persons who were officers of the Company during portions of Fiscal 1999, but who
are no longer officers of the Company.
On November 1, 1995, Mr. Toler entered into the Toler Employment Agreement
with the Company, pursuant to which Mr. Toler was to serve as President and
Chief Executive Officer of the Company for a five-year term. Mr. Toler resigned
as Chief Executive Officer and President of the Company effective August 31,
1998. Under the Toler Employment Agreement, Mr. Toler received a base salary of
$300,000 over each twelve-month period employed. The Toler Employment Agreement
did not provide for any adjustment of base salary over the term. Pursuant to the
Toler Employment Agreement, Mr. Toler was entitled to receive a bonus if certain
performance criteria were satisfied, ranging from 33.33% of base salary for
fiscal 1996 to 50% of base salary for Fiscal 1999 and each fiscal year
thereafter. In the event the Company terminated Mr. Toler's employment without
cause, Mr. Toler was entitled to receive the salary plus the pro rata share of
any cash bonus he would have received if he had continued his employment for 18
months following the date of such termination. Mr. Toler was subject to certain
non-competition provisions during the term of his employment and, in certain
circumstances, for a period of 18 months subsequent to his leaving the Company.
On August 14, 1998, Mr. Toler entered into the Toler Letter Agreement with the
Company, pursuant to which Mr. Toler received an aggregate amount equal to
$19,883 as payment for certain fees and expenses upon his resignation as
President and Chief Executive Officer of the Company. In addition, pursuant to
the Toler Letter Agreement, Mr. Toler received a one time stay bonus equal to
$4,000 and is entitled to purchase any and all of the Company's merchandise, at
the Company's cost, up to a maximum aggregate amount equal to $20,000 until
August 31, 1999. For a description of the options granted to Mr. Toler see "--
Report of the Compensation Committee of the Board of Directors on Executive
Compensation--Compensation of John E. Toler, Jr., Former Chief Executive
Officer."
Mr. Carey entered into the CWC Employment Agreement with the Company
effective as of September 1, 1998. Under the terms of the CWC Employment
Agreement, Mr. Carey was to serve as Acting Chief Executive Officer and
President of the Company for a one-year term, or until such time as a successor
Chief Executive Officer and President of the Company commenced employment. Mr.
Carey was to receive a base salary of $350,000 over the twelve-month period
employed, but such amount was not subject to adjustment over the term. In
addition, Mr. Carey was entitled to receive a minimum of six months' salary if
the Company employed him for more than three months of the term of the
employment (minus the amount of base salary actually paid to Mr. Carey). Upon
the achievement of certain performance and other criteria, Mr. Carey was
entitled to receive up to a maximum of $50,000 per quarter (and up to 100% of
such amount for each quarter or part thereof worked) as a quarterly bonus. The
Board of Directors authorized a payment of $41,250 to Mr. Carey as a bonus for
the second quarter of Fiscal 1999. Mr. Carey also received payment for certain
expenses, including living expenses, relocation expenses and travel related
expenses. Mr. Carey was subject to certain non-competition provisions during the
term of this employment. Additionally, on September 1, 1998, the Company granted
Mr. Carey an option to purchase 150,000 shares of the Company's Common Stock at
$2.25 per share. The Company granted this option outside of the 1991 Option
Plan.
Mr. Carey resigned as the Acting Chief Executive Officer of the Company
effective April 7, 1999. In connection with his resignation, on February 23,
1999, Mr. Carey entered into the CWC Severance Agreement with the Company.
Pursuant to the terms of the CWC Severance Agreement, Mr. Carey received an
aggregate amount equal to $29,167 in base salary on the effective date of his
resignation as Acting Chief Executive Officer of the Company. In addition,
pursuant to the terms of the CWC Severance Agreement, Mr. Carey (i) received
$50,000 as a bonus for the Company's third quarter of Fiscal 1999, (ii) is
entitled to purchase any and all of the Company's merchandise, at the Company's
cost, for his personal
16
<PAGE>
use until March 17, 2002, (iii) will be reimbursed for the premiums associated
with continuation of medical coverage under COBRA and (iv) was reimbursed for
the legal expenses he incurred in connection with the negotiation of the CWC
Severance Agreement. Pursuant to the terms of his Stock Option Agreement, the
option granted to Mr. Carey in connection with his appointment as the Acting
Chief Executive Officer of the Company automatically vested as a result of the
execution of the Settlement Agreement and is exercisable until April 7, 2001.
Mr. Watson was appointed as the Acting Chief Executive Officer of the
Company effective as of April 7, 1999 and resigned on August 17, 1999. Mr.
Watson served as the Acting Chief Executive Officer of the Company from month to
month until a successor President and Chief Executive Officer of the Company
commenced employment. Mr. Watson received a salary equal to $30,000 per month
for each month employed, but such amount was not subject to adjustment over the
term. Mr. Watson also received reimbursement of his reasonable living expenses
during his term as Acting Chief Executive Officer.
Mr. Nace entered into an employment agreement with the Company (the "Nace
Employment Agreement") effective as of September 10, 1998 pursuant to which Mr.
Nace was to serve as the Chief Financial Officer, Executive Vice President and
Treasurer of the Company for a two-year term. Mr. Nace resigned as such
effective July 2, 1999. Mr. Nace received a base salary of $200,000 over each
twelve-month period employed, but such amount was not subject to adjustment over
the term. Upon achievement of certain performance criteria, Mr. Nace was
entitled to receive a bonus in an amount of up to 25% of his base salary in each
year. Mr. Nace's employment could have been terminated immediately by the
Company with "cause" (as defined in the Nace Employment Agreement). If Mr.
Nace's employment was terminated by the Company due to his disability, without
cause or within one year from the date of a change of control of the Company,
then he was entitled to receive, on the date of such termination, a lump sum
payment equal to twelve months of base salary plus the pro rata share of any
accrued and unpaid cash bonus Mr. Nace earned prior to his termination. Mr. Nace
was subject to certain non-competition provisions during the term of his
employment. Additionally, on September 10, 1998, the Company granted Mr. Nace an
option to purchase 75,000 shares of the Company's Common Stock at $2.50 per
share pursuant to the 1991 Option Plan. Due to his resignation, pursuant to the
terms of the 1991 Option Plan, this option expires on September 30, 1999.
The following is a description of the employment arrangements of the current
executive officers of the Company.
Mr. Baumgardner entered into an employment agreement with the Company (the
"Baumgardner Employment Agreement") effective as of August 17, 1999. Under the
terms of the Baumgardner Employment Agreement, Mr. Baumgardner will serve as the
President and Chief Executive Officer of the Company for a two-year term. Mr.
Baumgardner receives a base salary of $200,000 over each twelve-month period
employed, but such amount will not be subject to adjustment over the term. Upon
achievement of certain performance criteria Mr. Baumgardner will be entitled to
receive a bonus in an amount of up to 75% of his base salary in each year. In
addition, Mr. Baumgardner received a special bonus upon inception of employment
in an aggregate amount equal to $125,000, payable in twelve monthly installments
commencing on September 1, 1999. Mr. Baumgardner's employment may be terminated
immediately by the Company for "cause" (as defined in the Baumgardner Employment
Agreement). If Mr. Baumgardner's employment is terminated by the Company without
cause, then he is entitled to receive a lump sum payment equal to twelve months
of base salary, plus any accrued but unpaid annual bonus which he has earned.
If, within one year from the date of a Change of Control (as defined in the
Baumgardner Employment Agreement), Mr. Baumgardner's employment is terminated by
the Company or its successor entity for any reason other than death, cause or
disability, then he is entitled to receive a lump sum payment equal to (a) the
number of months of base salary remaining in the term of employment in the event
such termination occurs on or prior to August 17, 2000 or (b) twelve months of
base salary in the
17
<PAGE>
event such termination occurs after August 18, 2000, whichever is applicable.
Mr. Baumgardner will be subject to certain non-competition provisions during the
term of his employment. Additionally, on August 17, 1999, the Company granted
Mr. Baumgardner an option to purchase 350,000 shares of the Company's Common
Stock at $.4375 per share. The Company granted this option outside the 1991
Option Plan as an inducement to Mr. Baumgardner entering into his employment
agreement with the Company.
Mr. Hopper entered into an employment agreement with the Company (the
"Hopper Employment Agreement") effective as of June 7, 1999. Under the terms of
the Hopper Employment Agreement, Mr. Hopper served as Vice President of Finance
until July 2, 1999 and as Chief Financial Officer and Treasurer of the Company
thereafter. Mr. Hopper is employed for a period of one year, but the Hopper
Employment Agreement is automatically extended for periods of one year, unless
either party elects not to extend the term. Mr. Hopper receives a base salary of
$150,000 over each twelve-month period employed, but such amount will not be
subject to adjustment over the term. Upon achievement of certain performance
criteria, Mr. Hopper is entitled to receive a bonus in an amount of up to 25% of
his base salary in each year. Mr. Hopper's employment may be terminated
immediately by the Company for "cause" (as defined in the Hopper Employment
Agreement). If Mr. Hopper's employment is terminated by the Company without
cause or if a Terminating Event (as defined in the Hopper Employment Agreement)
occurs within one year from the date of a change of control of the Company, then
he will be entitled to receive, on the date of termination, among other things,
a lump sum payment equal to (a) six months of Base Salary in the event such
termination occurs on or prior to December 7, 1999; (b) seven months of Base
Salary in the event such termination occurs after December 8, 1999 but on or
prior to January 7, 2000; (c) eight months of Base Salary in the event such
termination occurs after January 8, 2000 but on or prior to February 7, 2000;
(d) nine months of Base Salary in the event such termination occurs after
February 8, 2000 but on or prior to March 7, 2000; (e) ten months of Base Salary
in the event such termination occurs after March 8, 2000 but on or prior to
April 7, 2000; (f) eleven months of Base Salary in the event such termination
occurs after April 8, 2000 but on or prior to May 7, 2000; or (g) twelve months
of Base Salary if such termination occurs after May 8, 2000, plus any accrued
but unpaid annual bonus which he has earned prior to his termination.
Additionally, on June 7, 1999, the Company granted Mr. Hopper an option to
purchase 50,000 shares of the Company's Common Stock at $.6875 per share
pursuant to the 1991 Option Plan.
Mr. Poole entered into an employment agreement with the Company (the "Poole
Employment Agreement") effective as of August 25, 1998. Under the terms of the
Poole Employment Agreement, Mr. Poole will serve as Vice President and General
Merchandise Manager of the Company for a two-year term. Mr. Poole receives a
base salary of $135,000 over each twelve-month period employed, but such amount
will not be subject to adjustment over the term. Upon achievement of certain
performance criteria, Mr. Poole is entitled to receive a bonus in an amount of
up to 25% of his base salary in each year. Mr. Poole's employment may be
terminated immediately by the Company for "cause" (as defined in the Poole
Employment Agreement). If Mr. Poole's employment is terminated by the Company
without cause or within one year from the date of a change of control of the
Company, then he will be entitled to receive, on the date of such termination, a
lump sum payment equal to twelve months of base salary plus the pro rata share
of any accrued and unpaid cash bonus Mr. Poole earned prior to his termination.
Additionally, on August 25, 1998, the Company granted Mr. Poole an option to
purchase 50,000 shares of the Company's Common Stock at $2.0625 per share. The
Company granted this option outside of the 1991 Option Plan as an inducement to
enter into his employment agreement. This option automatically vested upon the
execution of the Settlement Agreement pursuant to the terms of his Stock Option
Agreement.
On June 16, 1994, Mr. Canfield entered into an employment agreement with the
Company (the "Canfield Employment Agreement"), pursuant to which Mr. Canfield
serves as the Vice President of Store Operations of the Company for a five-year
term. On November 13, 1998, Mr. Canfield entered into an amendment to the
Canfield Employment Agreement that, in part, extends the term of his employment
until
18
<PAGE>
June 15, 2000. Under the Canfield Employment Agreement, Mr. Canfield receives a
base salary ranging from $157,000 over the twelve-month period ended on June 15,
1996 to $182,000 over the twelve-month period ending on June 15, 2000, and upon
the achievement of certain performance criteria, a bonus in an amount of up to
25% of his base salary in each year. Pursuant to the Canfield Employment
Agreement, Mr. Canfield received a signing bonus equal to $50,000 on the date he
became Vice President of Store Operations of the Company. In the event Mr.
Canfield's employment is terminated by the Company due to his disability, for
non-performance or without cause, Mr. Canfield is entitled to receive the salary
he would have received had he continued his employment for 60 days, 90 days or
12 months, respectively, following the date of such termination. Pursuant to the
amendment to the Canfield Employment Agreement, in the event that Mr. Canfield
is terminated by the Company without cause within one year from the date of a
change of control of the Company, Mr. Canfield will be entitled to receive, on
the date of such termination, a lump sum payment equal to twelve months of base
salary plus the pro rata share of any accrued and unpaid bonus which Mr.
Canfield earned prior to his termination. Mr. Canfield is subject to certain
non-competition provisions during the term of his employment and, in certain
circumstances, for a period of up to one year subsequent to his leaving the
Company.
Mr. Mills entered into a Termination Subsequent of Change in Control
Agreement (the "Mills Termination Agreement") effective as of October 1, 1998.
Under the terms of the agreement, if Mr. Mills' employment is terminated by the
Company pursuant to a Terminating Event (as defined in the Mills Termination
Agreement) within one year from the date of a change of control of the Company,
then as of the date of such Terminating Event he will be entitled to receive a
lump sum payment equal to twelve (12) months base salary plus any accrued and
unpaid annual bonus which he earned prior to his termination. While Mr. Mills
has not entered into an employment agreement with the Company, he is entitled to
receive a bonus in an amount up to 25% of his base salary in each year.
19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table sets forth on the following page, to the best knowledge and belief
of the Company, certain information regarding the beneficial ownership of the
Company's Common Stock as of September 10, 1999 by (i) each person known by the
Company to be the beneficial owner of more than 5% of the outstanding Common
Stock, (ii) each of the Company's Directors, (iii) each of the named executive
officers in the Summary Compensation Table and (iv) all of the Company's current
executive officers and Directors as a group.
<TABLE>
<CAPTION>
Directors, Executive Officers Shares Beneficially Percent of
and 5% Stockholders Owned(1) Class(2)
------------------- -------- -------
<S> <C> <C>
Jewelcor Management, Inc. 1,402,000(3) 14.7%
Seymour Holtzman
Steven Holtzman
Trust F/B/O A. Holtzman Garcia
Custodial Account F/B/O Chelsea Holtzman
100 N. Wilkes-Barre Boulevard
Wilkes-Barre, PA 18702
ValueVest Partners L.P........................ 1,177,400(4) 12.4%
1 Sansome Street, 39 Floor,
San Francisco, CA 94104
Donald L. Sturm
3033 East First Avenue, Suite 200,
Denver, CO 80206
Franklin Advisory Services, Inc............... 813,000(5) 8.5%
One Parker Plaza, 16th Floor
Fort Lee, NJ 07024
Franklin Resources
Charles B. Johnson
Rupert H. Johnson, Jr.
77 Mariners Island Boulevard
San Mateo, CA 94404
C. William Carey.............................. 665,000(6) 6.9%
150 federal Street
Boston, MA 02110
Robert L. Baumgardner......................... 70,000(7) *
William Canfield.............................. 60,000(8) *
Patrick J. Hopper............................. 10,000(9) *
Richard C. Hunter............................. 3,000(10) *
Peter R. McMullin............................. 7,700(11) *
Raoul Mills................................... 5,000(12) *
David J. Nace................................. 75,000(13) *
Alex J. Nobile................................ 0
Michael M. Poole............................. 50,000(14) *
Melanie L. Sturm.............................. 3,000(15) *
John E. Toler, Jr............................. 300,000(16) 3.1%
Kenneth W. Watson............................. 30,000(17) *
All current directors and executive officers
as a group (10 persons)..................... 238,700 2.5%
</TABLE>
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* Less than 1%.
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 under the
Exchange Act. Accordingly, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares the power to vote
such security or the power to dispose of such
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security. The amounts set forth as beneficially owned include shares owned,
if any, by spouses and relatives living in the same home as to which
beneficial ownership may be disclaimed. The amounts set forth as
beneficially owned include shares of Common Stock which such Directors or
officers had the right to acquire within 60 days of September 10, 1999 under
options previously granted pursuant to the 1991 Option Plan and the 1992
Option Plan. Upon the execution of the Merger Agreement with DRHC, all
unvested stock options on the date of the execution of the Merger Agreement
automatically vested pursuant to the terms of the 1991 Option Plan. Upon the
execution of the Settlement Agreement, all unvested Stock Options on the
date of the execution of the Settlement Agreement automatically vested
pursuant to the terms of either the 1991 Option Plan or the Stock Option
Agreements with respect to options granted outside of the 1991 Option Plan.
(2) Percentages are calculated on the basis of 9,532,209 shares of stock
outstanding as of September 10, 1999, which includes 29,000 shares subject
to options exercisable within 60 days of September 10, 1999 granted pursuant
to the 1992 Option Plan, 606,000 shares subject to options exercisable
within 60 days of September 10, 1999 granted pursuant to the 1991 Option
Plan, and 270,000 shares subject to options exercisable within 60 days of
September 10, 1999 granted to Messrs. Carey, Poole and Baumgardner outside
of the 1991 Option Plan.
(3) The above information is based on copies of a statement on Schedule 13D
filed with the SEC on September 4, 1998, as amended by Amendment No. 1 to
Schedule 13D filed with the SEC on September 24, 1999, Amendment No. 2 to
Schedule 13D filed with the SEC on October 15, 1998, Amendment No. 3 to
Schedule 13D filed with the SEC on October 13, 1998, Amendment No. 4 to
Schedule 13D filed with the SEC on January 28, 1999, Amendment No. 5 to
Schedule 13D filed with the SEC on March 1, 1999, Amendment No. 6 to
Schedule 13D filed with the SEC on April 1, 1999 and Amendment No. 7 to
Schedule 13D filed with the SEC on June 18, 1999, which indicates that
Jewelcor Management, Inc. has sole voting and sole dispositive power with
respect to 1,341,000 shares, Seymour Holtzman and Steven Holtzman have
shared voting and shared dispositive power with respect to 48,000 shares,
the Custodial Account F/B/O Chelsea Holtzman, has sole voting and sole
dispositive power with respect to 3,000 shares, and the Trust F/B/O Allison
Holtzman Garcia, has sole voting and sole dispositive power with respect to
10,000 shares. For purposes of the reporting requirements of the Exchange
Act, each of Jewelcor Management, Inc., Jewelcor Inc., S.H. Holdings, Inc.,
Seymour Holtzman, Steven Holtzman, Evelyn Holtzman, the Custodial Account
F/B/O Chelsea Holtzman and the Trust F/B/O Allison Holtzman Garcia may be
deemed to be a beneficial owner of such securities; however, each such
person expressly disclaims beneficial ownership of any Common Stock of the
Company beneficially owned by any other such person, except that Seymour
Holtzman acknowledges beneficial ownership of the Common Stock owned by
Jewelcor Management, Inc.
(4) The above information is based on copies of a statement on Schedule 13D
filed with the SEC on May 5, 1997, as amended by Amendment No. 1 to Schedule
13D filed with the SEC on August 4, 1997, Amendment No. 2 filed with the SEC
on October 30, 1998, and Amendment No. 3 filed with the SEC on March 5,
1999, which indicates that ValueVest Partners L.P. has sole voting and sole
dispositive power with respect to 395,300 shares and Donald L. Sturm has
sole voting and sole dispositive power with respect to 782,100 shares.
(5) The above information is based on copies of a statement on Schedule 13G
filed with the SEC on February 13, 1997, as amended by Amendment No. 1 to
Schedule 13G filed with the Sec on November 12, 1997, Amendment No. 2 to
Schedule 13G filed with the SEC on February 5, 1998, and Amendment No. 3 to
Schedule 13G filed with the SEC on February 2, 1999, which indicates that
the Franklin Advisory Services, Inc. has sole voting power with respect to
513,000 shares and sole dispositive power with respect to all 813,000
shares. These securities are owned by one or more open or closed-end
investment companies or other managed accounts, which are advised by direct
and indirect investment advisory subsidiaries of Franklin Resources, Inc.
For purposes of the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), each of Franklin Advisory Services,
Inc., Franklin Resources, Inc., Charles B. Johnson and Rupert B. Johnson may
be deemed to be a beneficial owner of such securities; however, each such
person expressly disclaims any economic interest or beneficial ownership in
any of such securities.
(6) The above information is based, in part, on a copy of a statement on
Schedule 13D filed with the SEC on September 3, 1999, which indicates that
Mr. Carey has sole voting and sole dispositive power with respect to 515,000
shares. Also, includes 150,000 shares of Common Stock deemed to be
beneficially owned by Mr. Carey which are subject to options previously
granted outside of the 1991 Option Plan.
(7) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Baumgardner which are subject to options previously granted outside the
Company's 1991 Option Plan as an inducement to Mr. Baumgardner entering into
an employment agreement with the Company.
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(8) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Canfield which are subject to options previously granted pursuant to the
1991 Option Plan.
(9) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Hopper which are subject to options previously granted pursuant to the 1991
Option Plan.
(10) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Hunter which are subject to options previously granted pursuant to the 1992
Option Plan.
(11) Includes 3,000 shares of Common Stock deemed to be beneficially owned by
Mr. McMullin which are subject to options previously granted pursuant to
the 1992 Option Plan.
(12) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Mills which are subject to options previously granted pursuant to the 1991
Option Plan.
(13) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Nace which are subject to options previously granted pursuant to the 1991
Option Plan. Pursuant to the terms of the Stock Option Agreement between
the Company and Mr. Nace, due to Mr. Nace's resignation, this option will
expire on September 30, 1999.
(14) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Poole which are subject to options previously granted outside the Company's
1991 Option Plan as an inducement to Mr. Poole entering into an employment
agreement with the Company.
(15) Represents shares of Common Stock deemed to be beneficially owned by Ms.
Sturm which are subject to options previously granted pursuant to the 1992
Option Plan.
(16) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Toler which are subject to options previously granted pursuant to the 1991
Option Plan.
(17) Represents 10,000 shares and 20,000 shares of Common Stock deemed to be
beneficially owned by Mr. Watson which are subject to options previously
granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Carey, a former director and officer of the Company, entered into the
CWC Consulting Agreement with the Company on June 2, 1996, which provided, among
other things, that Mr. Carey would receive in exchange for certain services a
consulting fee at the annual rate of $150,000 over a three-year term, as well as
reimbursement for all reasonable expenses incurred by him on behalf of the
Company in connection with the performance of his obligations thereunder. In
connection with his position as Acting Chief Executive Officer of the Company,
the Company terminated the CWC Consulting Agreement effective September 1, 1998.
Mr. Carey received $37,500 in lieu of the three-month notification necessary
pursuant to the CWC Consulting Agreement to terminate such agreement. See
"Executive Compensation--Compensation Committee Interlocks and Insider
Participation."
On September 1, 1998, the Company entered into an employment agreement with
Mr. Carey with respect to his position as Acting Chief Executive Officer and
President of the Company. For a description of certain terms of such agreement,
see "Executive Compensation--Employment Agreements, Termination of Employment."
In connection with his resignation as Acting Chief Executive Officer of the
Company, Mr. Carey entered into a severance agreement. In addition, Mr. Carey
entered into a new consulting agreement with the Company, which expires on
October 7, 1999. For a description of certain terms of such agreements, see
"Executive Compensation--Compensation Committee Interlocks and Insider
Participation".
To modify a previously existing agreement, on February 23, 1999, the Company
entered into an amended and restated success fee agreement with Mr. Carey (the
"Amended Success Fee Agreement") which narrowed the scope of the Success Fee
Agreement, dated as of January 15, 1999 (the "Old Success Fee Agreement"),
between the Company and Mr. Carey. The Old Success Fee Agreement provided for
the payment of a fee if Mr. Carey actively participated in the negotiation,
structuring and closing of a transaction or a series of related transactions
approved by the Board of Directors of the Company that are a tender or exchange
offer, merger, reorganization, consolidation or other business combination that
directly result in the sale or other disposition of all or substantially all of
the assets of the Company or a sale of all or substantially all of the issued
and outstanding stock of the Company. Under the Amended Success Fee Agreement,
the Company is only obligated to pay Mr. Carey a fee if the Company requests in
writing that he participate in such a transaction. If the Company requests Mr.
Carey's participation in such a transaction, as compensation for all such
services, Mr. Carey is entitled to receive an amount equal to 83.33% of two-
thirds of one percent of the aggregate value (as defined in the Amended Success
Fee Agreement) of any such transaction. In addition, no payment will be due Mr.
Carey if such transaction involves any person, company or entity (i) that is
operated by Mr. Carey, (ii) for which Mr. Carey is performing or has performed,
in the twelve (12) months preceding the execution of the definitive documents
relating to such transaction, any material advisory or consulting services,
(iii) that employs Mr. Carey or (iv) in which Mr. Carey owns or has an agreement
to own more than an one percent (1%) equity interest in a privately-held
corporation or a five percent (5%) equity interest in a publicly-held
corporation. The Amended Success Fee Agreement automatically terminates on
January 15, 2000 if the closing of any such transaction does not occur by such
date.
Mr. Toler, a former director of the Company, served as President and Chief
Executive Officer of the Company until his resignation as such on August 31,
1998. In connection with his resignation, the Company entered into the Toler
Letter Agreement. For a description of the terms of Mr. Toler's employment
agreement and the Toler Letter Agreement, see "Executive Compensation--
Employment Contracts, Termination of Employment."
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Mr. Watson served as Acting Chief Executive Officer of the Company effective
as of April 7, 1999 until his resignation as such effective August 17, 1999. For
a description of the terms of his employment, see "Executive Compensation--
Employment Contracts, Termination of Employment."
During Fiscal 1999, the Company retained and continues to retain, Dudley,
Clark & Chan, of which Ms. Dudley, a former Director of the Company, is the
senior partner, as its local law firm in St. Thomas, U.S.V.I. Based on
information provided to the Company by Ms. Dudley, the fees received by Dudley,
Clark & Chan from the Company during Fiscal 1999 did not exceed 5% of such
firm's gross revenues for its last fiscal year.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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, this 27th day of
September, 1999.
Little Switzerland, Inc.
By: /s/ Patrick J. Hopper
--------------------------
Patrick J. Hopper
Chief Financial Officer
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