<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy statement pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a party other than the Registrant [_]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [_] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
</TABLE>
Little Switzerland, Inc.
------------------------
(Name of Registrant as Specified In Its Charter)
Little Switzerland, Inc.
------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee if offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number
of the Form or Schedule and the date of its filing.
- --------------------------------------------------------------------------------
(1) Amount Previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
Little Switzerland
161-B Crown Bay Cruise Ship Port
St. Thomas, U.S.V.I. 00804
February __, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Little Switzerland, Inc. (the "Company") to be held on Thursday, February 25,
1999, at [_____], local time, at State Street Bank and Trust Company, 225
Franklin Street, 33rd Floor, Boston, Massachusetts (the "Annual Meeting"). Your
Board of Directors and management look forward to greeting personally those
stockholders able to attend the Annual Meeting.
The Annual Meeting has been called for the purpose of electing one Class III
Director for a term expiring at the 2000 annual meeting, one Class I Director
for a term expiring at the 2001 annual meeting and considering and voting upon
such other business as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
CAUTION
As more fully described in the enclosed proxy statement, two different
stockholders of the Company have nominated their own candidates for election as
Directors of the Company.
For the reasons discussed in the enclosed proxy statement, your Board of
Directors recommends that you reject these nominees and vote "FOR" the election
of C. William Carey and Adriane J. Dudley, the two nominees of your Board of
Directors, as Directors of the Company.
On behalf of your Board of Directors, your continued interest and support
are greatly appreciated.
Very truly yours,
C. William Carey
Acting Chief Executive Officer
and President
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE
REQUESTED TO SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED BLUE PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR BLUE PROXY CARD.
<PAGE>
LITTLE SWITZERLAND, INC.
161-B Crown Bay Cruise Ship Port
St. Thomas, U.S.V.I. 00804
(340) 776-2010
_____________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
_______________________________
To Be Held on Thursday, February 25, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Little
Switzerland, Inc. (the "Company") will be held on Thursday, February 25, 1999,
at [____], local time, at State Street Bank and Trust Company, 225 Franklin
Street, 33rd Floor, Boston, Massachusetts (the "Annual Meeting") for the purpose
of considering and voting upon:
1. The election of one Class III Director for a term expiring at the 2000
annual meeting and until the Director's successor is duly elected and
qualified;
2. The election of one Class I Director for a term expiring at the 2001
annual meeting and until the Director's successor is duly elected and
qualified; and
3. Such other business as may properly come before the Annual Meeting and
any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on January 8, 1999 as
the record date for determination of stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournments or postponements thereof. Only
holders of common stock of record at the close of business on that date will be
entitled to notice of and to vote at the Annual Meeting and any adjournments or
postponements thereof.
By Order of the Board of Directors
Richard E. Floor
Secretary
St. Thomas, U.S.V.I.
February __, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED BLUE PROXY CARD IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR BLUE PROXY CARD. IF YOU HAVE ANY QUESTIONS OR
NEED ASSISTANCE, PLEASE CALL D.F. KING & CO., INC., WHICH IS ASSISTING US, TOLL
FREE AT (800) ___-____.
<PAGE>
LITTLE SWITZERLAND, INC.
161-B Crown Bay Cruise Ship Port
St. Thomas, U.S.V.I. 00804
(340) 776-2010
____________
PROXY STATEMENT
____________
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on Thursday, February 25, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Little Switzerland, Inc., a corporation
incorporated under the laws of the state of Delaware on May 23, 1991 (the
"Company"), for use at the Annual Meeting of Stockholders of the Company to be
held on Thursday, February 25, 1999, at [____], local time, at 225 Franklin
Street, 33rd Floor, Boston, Massachusetts, and any adjournments or postponements
thereof (the "Annual Meeting"). Unless otherwise indicated, references to the
"Company" in this Proxy Statement include its various subsidiaries.
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon the following matters:
1. The election of one Class III Director for a term to continue until
the 2000 annual meeting and until the Director's successor is duly
elected and qualified;
2. The election of one Class I Director for a term to continue until the
2001 annual meeting and until the Director's successor is duly
elected and qualified; and
3. Such other business as may properly come before the Annual Meeting
and any adjournments or postponements thereof.
The Notice of Annual Meeting, Proxy Statement and Proxy Card are first being
mailed to stockholders of the Company on or about February [__], 1999 in
connection with the solicitation of proxies for the Annual Meeting. The Board
of Directors has fixed the close of business on January 8, 1999 as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting (the "Record Date"). Only holders of the Company's common
stock, par value $.01 per share ("Common Stock"), of record at the close of
business on the Record Date will be entitled to notice of and to vote at the
Annual Meeting. As of the Record Date, there were 8,624,202 shares of the
Company's Common Stock outstanding and entitled to vote at the Annual Meeting.
Each holder of a share of Common Stock outstanding as of the close of business
on the Record Date will be entitled to one vote for each share held of record
for each matter properly submitted at the Annual Meeting.
The presence, in person or by proxy, of a majority of the total number of
outstanding shares of Common Stock is necessary to constitute a quorum for the
transaction of business at the Annual Meeting. A quorum being present, the
affirmative vote of a plurality of the votes cast is necessary to elect a
nominee as a Director of the Company and the affirmative vote of a majority of
the shares of stock voting on a matter is necessary to approve any proposal
presented at the Annual Meeting. Shares that reflect abstentions or "broker
non-votes" (i.e., shares represented at the meeting held by brokers or nominees
as to which instructions have not been received from the beneficial owners or
persons entitled to vote such shares and with respect to which the broker
<PAGE>
or nominee does not have discretionary voting power to vote such shares) will be
counted for purposes of determining whether a quorum is present for the
transaction of business at the Annual Meeting. In addition, abstentions will be
treated as votes cast against a particular proposal while broker non-votes will
have no impact on the outcome of the vote on a particular proposal. With respect
to the election of Directors, votes may only be cast in favor of or withheld
from the nominee; there is no ability to abstain. In addition, broker non-votes
will have no effect on the outcome of the election of Directors.
Stockholders of the Company are requested to sign, date and promptly mail
the accompanying Blue Proxy Card in the enclosed envelope. Common Stock
represented by properly executed proxies received by the Company and not revoked
will be voted at the Annual Meeting in accordance with the instructions
contained therein. If instructions are not given therein, properly executed
proxies will be voted "FOR" the election of C. William Carey and Adriane J.
Dudley, the Board of Directors' two nominees, for Directors. It is not
anticipated that any matters other than the election of Directors will be
presented at the Annual Meeting. If other matters are presented, proxies will
be voted in accordance with the discretion of the proxy holders.
Any properly completed proxy may be revoked at any time before it is voted
on any matter (without, however, affecting any vote taken prior to such
revocation) by giving written notice of such revocation to the Secretary of the
Company at Little Switzerland, Inc., 161-B Crown Bay Cruise Port, St. Thomas,
U.S.V.I. 00804, or by signing and duly delivering a proxy bearing a later date,
or by attending the Annual Meeting and voting in person.
The Company's Annual Report, including financial statements for the fiscal
year ended May 30, 1998 ("Fiscal 1998"), is being mailed to stockholders of the
Company concurrently with this Proxy Statement. The Annual Report, however, is
not a part of the proxy solicitation material.
RECENT DEVELOPMENTS; POTENTIAL PROXY CONTEST
In February 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Destination Retail Holdings Corporation ("DRHC")
and certain of its affiliates, pursuant to which DRHC would acquire all of the
issued and outstanding shares of the Common Stock of the Company at the
effective time of the proposed merger for $8.10 per share in cash. At the
Special Meeting of Stockholders held on May 8, 1998, the stockholders of the
Company approved this proposed merger. On June 9, 1998, the Company terminated
the Merger Agreement because of DRHC's inability to raise the financing
necessary to consummate the proposed merger and announced that it would continue
to transact business as an independent entity. Following termination of the
Merger Agreement, the Company commenced legal action against DRHC, certain of
its affiliates and Stephen Crane, DRHC's controlling stockholder, in the United
States District Court for the District of Delaware seeking damages caused by the
defendants' breach of the Merger Agreement. This action is still pending.
Prior to entering into the Merger Agreement with DRHC, the Company was the
exclusive authorized retailer for Rolex watches on the islands on which the
Company operates. Following the execution of the Merger Agreement with DRHC,
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. The Company received its last shipment of Rolex
products in January, 1998.
On August 14, 1998, the Company announced the resignation of John E. Toler,
Jr., the former President and Chief Executive Officer of the Company, effective
August 31, 1998. The Company has commenced the selection process for a new
President and Chief Executive Officer, and has selected a nationally recognized
executive search firm to assist in this process. The Board of Directors
appointed C. William Carey as Acting Chief Executive Officer until such time as
a successor President and Chief Executive Officer is identified.
Following the termination of the Merger Agreement with DRHC, management and
the Board of Directors actively sought to rebuild the Company's business.
Management of the Company has explored and pursued opportunities for expanding
existing, and adding new 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 watches to its
flagship store in Aruba. In addition, the Company has
2
<PAGE>
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. Management of the Company also has endeavored to reassure
vendors and employees concerning the Company's future prospects, and has
successfully recruited a number of talented senior executives, including its
Chief Financial Officer and new General Merchandise Manager.
In December 1998, two different stockholders of the Company nominated their
own candidates (collectively, the "Stockholder Nominees") for election as
Directors of the Company at the Annual Meeting. Donald L. Sturm has nominated
Melanie L. Sturm for election as a Class III Director and Richard C. Hunter for
election as a Class I Director. Mr. Sturm has advised the Company that he
intends to solicit proxies from the Company's stockholders to authorize him or
his representative to vote shares to elect Ms. Sturm and Mr. Hunter as Directors
of the Company. Jewelcor has nominated Seymour Holtzman for election as a Class
I Director and Peter R. McMullin for election as a Class III Director. Mr. Sturm
and Jewelcor each have notified the Company that they, or their duly authorize
representatives, intend to appear in person at the Annual Meeting to nominate
their respective Stockholder Nominees. To date, neither Mr. Sturm nor Jewelcor
has filed proxy materials with the SEC or given the Company reasons for the
election of their respective Stockholder Nominees.
The Company believes that any changes in the membership of the Board of
Directors will be disruptive to management's plans to rebuild the Company's
business and could continue to impede the Company's growth and rebuilding
initiatives. For these reasons, your Board of Directors recommends that you
reject the Stockholder Nominees and vote "FOR" the Board's nominees on the
enclosed blue proxy card.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of five members and
is divided into three classes, with one Director in Class I and two Directors in
each of Class II and III. John E. Toler, Jr., a Class III Director, will not
stand for re-election. Therefore, after the Annual Meeting, the Board of
Directors of the Company will consist of four members divided into three
classes, with one Director in each of Class I and III and two Directors in Class
II. Directors serve for three-year terms, with one class of Directors being
elected by the Company's stockholders at each annual meeting. However, because
no annual meeting of stockholders was held for 1997, the Class III Director up
for re-election at the Annual Meeting will serve for a term ending at the 2000
annual meeting.
At the Annual Meeting, one Class III Director will be elected to serve until
the 2000 annual meeting and one Class I Director will be elected to serve until
the 2001 annual meeting, each until their successors are duly elected and
qualified. The Board of Directors has nominated C. William Carey for re-
election as Class III Director and Adriane J. Dudley for election as Class I
Director. Unless otherwise specified in the proxy, it is the intention of the
persons named in the proxy to vote the shares represented by each properly
executed proxy for the re-election of C. William Carey and the election of
Adriane J. Dudley as Directors. Each of the nominees of the Board of Directors
has agreed to stand for election and to serve if elected as a Director. However,
if any of the persons nominated by the Board of Directors fails to stand for
election or is unable to accept election, properly executed proxies voting in
favor of the nominees of the Board of Directors will be voted for the election
of such other person or persons as the Board of Directors may recommend.
3
<PAGE>
Vote Required For Approval
A quorum being present, the affirmative vote of a plurality of the votes
cast is necessary to elect a Board's Nominee as a Director of the Company.
The Board of Directors of the Company recommends that you vote FOR the
election of the nominees of the Board of Directors, C. William Carey and Adriane
J. Dudley, as Directors of the Company.
INFORMATION REGARDING DIRECTORS
The Board of Directors of the Company held thirty-one (31) meetings during
Fiscal 1998 to deal with, among other things, the Merger Agreement and its
subsequent termination. During Fiscal 1998, each of the incumbent Directors
attended at least 75% of the total number of meetings of the Board of Directors
and of the committees of which he or she was a member. The Board of Directors
has established an Audit Committee and a Compensation Committee to assist it in
discharging its duties. During Fiscal 1998 a majority of the members of all
committees were outside directors. The current members of the Audit Committee
are Messrs. Carey and Donaldson. The Audit Committee reviews the financial
statements of the Company and the scope of the annual audit, monitors the
Company's internal financial and accounting controls and recommends to the Board
of Directors the appointment of independent certified public accountants. The
Audit Committee met once during Fiscal 1998. The current members of the
Compensation Committee are Messrs. Carey and Donaldson. The Compensation
Committee recommends the compensation levels of officers and employees of the
Company to the Board of Directors and is responsible for administering the
Company's stock option plans pursuant to authority delegated to it by the Board
of Directors. The Compensation Committee met twice during Fiscal 1998. The Board
of Directors does not maintain a nominating committee. Instead, its functions
are carried out by the entire Board 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) if such meeting does not take place in conjunction with a regularly
scheduled Board of Directors meeting. In addition, non-employee Directors who
are members of committees each receive $1,000 for each committee meeting
attended ($500 if such meeting is held via telephone conference). All Directors
are reimbursed for expenses incurred in connection with attendance at meetings.
In addition to the above compensation, in May, 1998, the Company awarded each
person who was a Director of the Company at the end of Fiscal 1998 a gold watch
for services provided during Fiscal 1998. The aggregate gross value of such
watches was approximately $51,000.
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 30, 1998, 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 $5.5625 per share, the fair market value of the Common Stock
on May 29, 1998. In addition, on December 23, 1998, in connection with her
appointment to the Board of Directors, Ms. Dudley received an option granted
pursuant to the 1992 Option Plan to purchase 5,000 shares of Common Stock at an
exercise price of $2.50 per share, the fair market value of the Common Stock on
December 23, 1998.
4
<PAGE>
Set forth below is certain information regarding the Directors of the
Company as of December 28, 1998, including each of the Directors who have been
nominated for election at the Annual Meeting, based on information furnished by
them to the Company.
<TABLE>
<CAPTION>
Name Age Director Since
- ---- --- --------------
<S> <C> <C>
Class I-Term Expires 2001
Adriane J. Dudley /(1)(2)/................... 50 1998
Class II-Term Expires 1999
Timothy B. Donaldson......................... 64 1991
Kenneth W. Watson............................ 56 1991
Class III-Term Expires 2000
C. William Carey /(1)/....................... 61 1991
John E. Toler, Jr./(3)/...................... 55 1995
</TABLE>
- -----------------------
(1) Nominee of the Board of Directors.
(2) Ms. Dudley was appointed as a Class I Director of the Company on December 1,
1998 and her term expires at the Annual Meeting.
(3) Mr. Toler will not stand for re-election at the Annual Meeting.
The principal occupation and business experience during at least the last
five years for each Director of the Company is set forth below.
Mr. Carey resigned as the Chairman of the Board of Directors of the Company
effective September 1, 1998 and, on such date, became the Acting Chief Executive
Officer of the Company. Since January 1997, Mr. Carey has been President of
Carey Associates, Inc., a company engaged in international marketing and
finance, management consulting and Russian business development. From 1965
through January 3, 1997, he served as Chairman, Chief Executive Officer,
President and Treasurer of Town & Country Corporation ("Town & Country"), which
was the sole stockholder of the Company prior to the public offering of
approximately 68% of the Company's Common Stock in July 1991. Town & Country is
a public company specializing in the international design, manufacture and
distribution of jewelry. On November 11, 1997, Town & Country filed a petition
under chapter 11 of the federal bankruptcy laws with the United States
Bankruptcy Court for the District of Massachusetts (Case No: 97-20872-WCH).
Town & Country's Fourth Amended Plan of Reorganization, dated April 16, 1998,
was confirmed on May 26, 1998. Mr. Carey is also a Director of Prospect Street
High Income Portfolio, Inc.
Mr. Donaldson has been Chairman and Chief Executive Officer of Dynamo M.
Ltd., an investment trading company, since 1995 and has been a Director since
1991. Presently, Mr. Donaldson is also Chairman of the Bahamas Securities and
Exchange Commission. He has been Ambassador to the United States, Government of
the Bahamas (1993 to 1995); Chairman, Bank of Montreal (Bahamas & Caribbean
Ltd.) (1980 to 1983); Governor, the Central Bank of The Bahamas (1968 to 1980);
Governor, International Monetary Fund (1974 to 1980); Governor, The World Bank
(1974 to 1980); and Governor, Caribbean Development Bank (1975 to 1980).
Ms. Dudley has been an attorney with Dudley, Clark & Chan, a Caribbean law
firm of which she is the senior partner since 1985, and has been a Director
since 1998. Presently, Ms. Dudley is a member of the Board of Directors of the
American Bar Association and is also a member of the Board's Finance Committee.
5
<PAGE>
She is also a member of the Board of Directors of the Foundation for the
University of the Virgin Islands and serves on its Investment Committee (1996-
present). She has served as President of the St. Thomas-St. John Chamber of
Commerce (1986, 1989 and 1993), and continues to serve on its Board of
Directors. She has also served on the Boards of the V.I. Public Television
Stations (WTJX) (1979 to 1984); the Queen Louise Home for Children (1980 to
1983); Legal Services of the Virgin Islands (1978 to 1980); and the United Way
(1991 to 1992).
Mr. Toler served as President and Chief Executive Officer of the Company
until his resignation as such effective August 31, 1998. Mr. Toler has served
as a Director of the Company since November 1, 1995, but will not stand for re-
election at the Annual Meeting. Prior to joining the Company, Mr. Toler was
Director of Merchandising of Trimingham's, Bermuda, from May 1995 through
October 1995 and President and Chief Executive Officer of Sage-Dey, Inc. from
August 1991 to May 1993. From October 1990 through July 1991, Mr. Toler was
President and Chief Executive Officer of Sage-Allen, Inc. Mr. Toler was a 15-
year employee of May Department Stores Company where he served as President and
Chief Executive Officer of several regional department store divisions.
Mr. Watson served as Chief Executive Officer and President of the Company
from January 1, 1994 to October 21, 1994, and has been a Director since 1991.
Since October 1996, Mr. Watson has 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.
EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company and the
principal occupation and business experience during at least the last five years
for each are set forth below as of December 28, 1998.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
C. William Carey............. 61 Acting Chief Executive Officer
David J. Nace................ 52 Chief Financial Officer, Executive
Vice President and Treasurer
William Canfield............. 51 Vice President of Store Operations
Michael M. Poole............. 56 Vice President and General
Merchandise Manager
</TABLE>
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. Nace has been the Chief Financial Officer, Executive Vice President and
Treasurer of the Company since September 1998. Mr. Nace was the Executive Vice
President, Chief Financial Officer and Treasurer for Gart Sports Company, a
publicly held, full-line sporting goods retailer, from October 1993 to January
1998. From June 1981 to June 1993, Mr. Nace was the Vice President, Controller
of Child World, 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
6
<PAGE>
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.
Subject to the terms of their respective employment agreements, 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.
EXECUTIVE COMPENSATION
The following sections of this Proxy Statement set forth and discuss the
compensation paid or awarded during the last three years to (i) the Company's
Chief Executive Officer and the two most highly compensated executive officers
who earned in excess of $100,000 during Fiscal 1998 and (ii) one other
individual for whom disclosure would have been provided but for the fact that he
was not serving as an executive officer at the end of Fiscal 1998.
Summary Compensation Table
The following table shows for the fiscal years ended June 1, 1996, May 31,
1997 and May 30, 1998 compensation paid by the Company to (i) the Chief
Executive Officer and the two most highly compensated executive officers who
earned in excess of $100,000 during Fiscal 1998 and (ii) one other individual
for whom disclosure would have been provided but for the fact that he was not
serving as an executive officer at the end of Fiscal 1998.
<TABLE>
<CAPTION>
Annual compensation Long Term Compensation
-------------------------------------------------- -------------------------------
Awards Payouts
-------- ---------
Other Annual Restricted Securities LTIP All Other
Salary Bonus Compensation Stock Award(s) Underlying Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) Options (#) ($) ($)
- --------------------------- ---------- ------------ ---------- -------- ------------ ------------ --- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr.......... 1998 $300,000 $140,000 $4,000(7) - - - $6,688(12)(13)
President and Chief 1997 $300,000 - $3,000(7) - 300,000(10) - $3,894(12)
Executive Officer(1) 1996 $177,804 $ 50,000 $1,750(8) - -
Thomas S. Liston........... 1998 $ 81,845 - - 25,000(11) - -
Chief Financial Officer, 1997 - - - - - -
Vice President and 1996 - - - - - -
Treasurer(2)
William Canfield........... 1998 $173,000 $ 28,000 - - - - $8,659(14)
Vice President of 1997 $173,000 - - - - - -
Store Operations 1996 $156,327 $ 15,000 - - - - -
Ronald J. Lataille......... 1998 $ 74,077 $ 50,000(4) - - - - -
President and Chief 1997 $150,000 $ 44,202(5) - - - - -
Executive Officer, 1996 $110,000 $ 70,000(6) $1,250(9) - - - -
Chief Financial Officer
and Vice President(3)
</TABLE>
___________________
(1) Mr. Toler resigned as the Chief Executive Officer and President of the
Company effective August 31, 1998.
(2) Mr. Liston resigned as the Chief Financial Officer, Vice President and
Treasurer of the Company effective September 10, 1998.
(3) Mr. Lataille resigned as the acting Chief Executive Officer and President of
the Company on October 31, 1995, and resigned as the Chief Financial Officer
and Vice President of the Company on October 31, 1997.
(4) Mr. Lataille was awarded a one time stay bonus of $50,000 during Fiscal
1998.
(5) Mr. Lataille was awarded a bonus of $44,202 as compensation for certain
services to the Company performed during the fiscal year ended May 31, 1997.
Specifically, Mr. Lataille provided additional services to the Company in
connection with (i) the preparation and filing of an insurance claim on
behalf of the Company in connection with hurricane damage to certain of the
Company's properties and (ii) the initial analysis for the disposition and
redevelopment of assets of the Company, to be used later by Wasserstein
Perella & Co., Inc., the Company's financial advisor, in the development of
a strategic plan for the Company.
7
<PAGE>
(6) Mr. Lataille was awarded a bonus of $50,000 as compensation for his services
to the Company as its acting President and Chief Executive Officer from
October 21, 1994 to October 31, 1995.
(7) This amount represents the cost to the Company for one year of certain
automobile allowances.
(8) This amount represents the cost to the Company for seven months of certain
automobile allowances.
(9) This amount represents the cost to the Company for five months of certain
automobile allowances.
(10) 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").
(11) In connection with his appointment as Chief Financial Officer, Vice
President and Treasurer of the Company, the Company granted Mr. Liston an
option to purchase 25,000 shares of the Company's Common Stock pursuant to
the 1991 Option Plan. Pursuant to the terms of the Incentive Stock Option
Agreement between the Company and Mr. Liston, due to Mr. Liston's
resignation, this option expired on December 10, 1998.
(12) Effective June 1, 1996, the Company replaced its tax-qualified
discretionary contribution 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.
(13) This amount includes $4,265 in insurance premiums paid by the Company with
respect to term life insurance for the benefit of Mr. Toler.
(14) 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
$7,567 in remainder of premiums paid by the Company due to Mr. Canfield's
interest in the cash surrender value under one such insurance policy.
Option Grants in Last Fiscal Year
The following table sets forth the number of shares underlying stock options
granted during Fiscal 1998 to the Chief Executive Officer and each other
executive officer named in the Summary Compensation Table and certain other
information regarding such stock options.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Realizable Value Alternative
Number of Percent of At Assumed Annual To (f) and
Securities Total Rates Of Stock (g): Grant
Underlying Options/ Price Appreciation Date Value
Option SARs Granted Exercise for Option Term -----------
/SARs To Employees Or Base ------------------ Grant Date
Granted In Fiscal Price Present
Name (#) Year ($/Sh)(1) Expiration Date 5% ($) 10% ($) Value $
- --------------------- ------- ------------ --------- --------------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr.... - - - - - - -
Thomas S. Liston(2).. 25,000 100% $6.4375 9/29/07 101,213 256,493 -
William Canfield..... - - - - - - -
Ronald J. Lataille... - - - - - - -
</TABLE>
_____________
(1) The exercise price is equal to the fair market value of a share of Common
Stock on the grant date. The amounts shown as potential realizable value
illustrate what might be realized upon exercise immediately prior to
expiration of the option term using the 5% and 10% appreciation rates
established in regulations of the Securities and Exchange Commission (the
"SEC"), compounded annually. The potential realizable value is not
intended to predict future appreciation of the price of the Company's
Common Stock. The values shown do not consider nontransferability, vesting
or termination of the options upon termination of employment.
8
<PAGE>
(2) In connection with his appointment as Chief Financial Officer, Vice
President and Treasurer of the Company, the Company granted Mr. Liston an
option to purchase 25,000 shares of the Company's Common Stock pursuant to
the 1991 Option Plan. This option vested and became immediately
exercisable upon the execution of the Merger Agreement with DRHC and
certain of its affiliates pursuant to the terms of the 1991 Option Plan.
Pursuant to the terms of the Incentive Stock Option Agreement between the
Company and Mr. Liston, due to Mr. Liston's resignation, this option
expired on December 10, 1998.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Values
The following table sets forth the shares acquired and the value realized
upon exercise of stock options during Fiscal 1998 by the Chief Executive Officer
and each other executive officer named in the Summary Compensation Table and
certain information concerning the number and value of unexercised options.
<TABLE>
<CAPTION>
Value of Unexercised
In-the-Money
Number of Securities Options at
Underlying Unexercised FY-End($)(2)
Shares Acquired on Value Options at FY-End(#) -------------------------------
Name Exercise(#) Realized($) Exercisable(1) Unexercisable Exercisable Unexercisable
- ---------------------- ----------- ----------- -------------- ------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr..... - - 300,000 - $618,750 $0
Thomas S. Liston...... - - 25,000(3) - $ 0 $0
William Canfield...... - - 60,000 - $ 8,125 $0
Ronald J. Lataille.... 70,000 196,750 - - - -
- ------------------
</TABLE>
(1) All of the unvested options on the date of the execution of the Merger
Agreement with DRHC automatically vested and became immediately exercisable
pursuant to the terms of the 1991 Option Plan.
(2) Equal to the market value of shares covered by in-the-money options on May
30, 1998 (based on the market value of $5.5625 per share as reported by the
NASDAQ National Market as of May 29, 1998) less the aggregate option
exercise price. Options are in-the-money if the market value of the shares
covered thereby is greater than the option exercise price.
(3) Pursuant to the terms of the Incentive Stock Option Agreement between the
Company and Mr. Liston, due to Mr. Liston's resignation, this option expired
on December 10, 1998.
Report of the Compensation Committee of the Board of Directors on Executive
Compensation
During Fiscal 1998, the Compensation Committee of the Board of Directors of
the Company consisted of C. William Carey, Timothy B. Donaldson and Ilene B.
Jacobs, all of whom were outside directors during Fiscal 1998. 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. The Compensation Committee approves Company compensation
policies and procedures and establishes compensation levels for executive
officers. The Compensation Committee also administers and grants awards under
the 1991 Option Plan and the Company's Employee Stock Purchase Plan.
Compensation Policies for Executive Officers
The Compensation Committee's executive compensation philosophy is to provide
competitive levels of compensation, integrate management's pay with Company
performance, reward above average individual performance, and assist the Company
in attracting and retaining qualified management. The Compensation Committee
has determined that base salaries of executive officers should be set at levels
that are competitive within the local retail industry. In addition, the
Compensation Committee believes that it is appropriate to reward outstanding
performance through a combination of cash bonuses and stock option grants and,
through stock option grants, to provide a competitive compensation package that
will enable the Company to attract and retain the executives needed to achieve
such performance. The Compensation Committee also has determined that any stock
option or other equity-based compensation should involve long-term vesting to
encourage long-term tenure and enhancement of shareholder value over the long-
term.
Base salaries for executive officers are targeted according to the salaries
of employees holding similar offices and having similar responsibilities within
the local retail industry. The Compensation Committee also considers the
relative cost of living within the United States Virgin Islands. Annual salary
adjustments for executive officers are determined by evaluating the competitive
marketplace, the performance of the Company,
9
<PAGE>
the performance of the executive officer and any change in the responsibilities
assumed by the executive officer. Salary adjustments are normally determined and
made on an annual basis.
The base salary and salary adjustments for John E. Toler, Jr., President and
Chief Executive Officer of the Company during Fiscal 1998 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 terms of employment of Thomas
S. Liston, the Chief Financial Officer, Vice President and Treasurer of the
Company as of the end of Fiscal 1998, 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. Based on this criteria for Fiscal 1998, Mr. Toler and Mr.
Canfield received $140,000 and $28,000, respectively, as a bonus. Cash bonuses
may also be paid to executive officers in accordance with the terms of their
employment agreements. Bonuses payable pursuant to such agreements generally
are earned through the achievement of the financial goals similar to those
discussed above and may also be awarded for executive retention purposes in the
sole discretion of the Compensation Committee. Pursuant to their respective
employment contracts, Messrs. Toler, Liston and Canfield were each eligible to
earn a bonus of up to 45.83%, 25% and 25%, respectively, of their respective
base salaries for Fiscal 1998. See "--Compensation of John E. Toler, Jr.,
Former Chief Executive Officer" and "--Employment Contracts, Termination of
Employment" below. Occasionally, cash bonuses are paid to 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 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.
Compensation of John E. Toler, Jr., Former Chief Executive Officer
The base salary and bonus for Mr. Toler, the Company's President and Chief
Executive Officer during Fiscal 1998 were established by Mr. Toler's employment
agreement. See "--Employment Contracts, Termination of Employment" below.
During Fiscal 1998, there were no adjustments made to Mr. Toler's base salary,
and he received a cash bonus equal to $140,000, in accordance with the terms of
his employment agreement. 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
has 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.
10
<PAGE>
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.
C. William Carey Timothy B. Donaldson
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 Fiscal 1998. 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 was the controlling stockholder of Town & Country during a portion
of calendar year 1997 and was President, Chief Executive Officer and Chairman of
the Board of Town & Country until January 3, 1997. On November 11, 1997, Town &
Country filed a petition under chapter 11 of the federal bankruptcy laws with
the United States Bankruptcy Court for the District of Massachusetts (Case No.
97-20872-WCH). Town & Country's Fourth Amended Plan of Reorganization, dated
April 16, 1998, was confirmed on May 26, 1998. Town & Country and certain of its
subsidiaries supply the Company with jewelry. The aggregate amount of purchases
by the Company from these entities totaled approximately $1.4 million, $640,000
and $560,000, in fiscal 1996, 1997 and 1998, respectively. Pursuant to written
agreements among Town & Country, these subsidiaries and the Company, Town &
Country and the subsidiaries have agreed to supply jewelry to the Company at the
Company's option, on the terms and conditions in effect prior to the Company's
initial public offering. These agreements are automatically renewed each year
unless either party terminates upon 60 days' notice prior to the end of a year.
The Company believes that all jewelry purchased pursuant to these agreements
with Town & Country and its subsidiaries can be readily purchased from other,
unrelated third party suppliers on comparable terms, and that these agreements
do not restrict the Company from purchasing from other sources. See "Certain
Relationships and Related Transactions."
On June 2, 1996, Mr. Carey entered into a consulting agreement with the
Company (the "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 Agreement effective September 1,
1998. Mr. Carey has received $37,500 in lieu of the three-month notification
necessary pursuant to the CWC Consulting Agreement to terminate such agreement.
The Company has entered into an employment agreement with Mr. Carey with
respect to his position as acting Executive Officer and President of the
Company. For a description of certain terms of such employment agreement, see
"--Employment Agreements, Termination of Employment."
The Company has terminated the Success Fee Agreement, dated as of February
4, 1998, with Mr. Carey. Subsequently, on January 15, 1999, the Company entered
into a new success fee agreement with Mr. Carey pursuant to which, under certain
circumstances, he 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 "Certain Relationships and Related
Transactions."
11
<PAGE>
The other members of the Compensation Committee of the Board of Directors of
the Company during Fiscal 1998 were Timothy B. Donaldson and Ilene B. Jacobs.
Ms. Jacobs resigned as a member of the Board of Directors effective September
14, 1998. Neither Mr. Donaldson nor Ms. Jacobs has ever been an officer or
employee of the Company or has ever had any other reportable relationship with
the Company other than through his/her position as a Director of the Company.
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 July 18, 1991.
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
LEGEND
CRSP TOTAL RETURNS INDEX FOR: 05/28/93 05/31/94 05/31/95 05/31/96 05/30/97 05/29/98
- ---------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Little Switzerland, Inc. 100.0 65.0 47.5 58.8 57.5 55.6
Nasdaq Stock Market
(US Companies) 100.0 105.3 125.3 182.0 205.0 260.5
Nasdaq Retail Trade Stocks 100.0 101.5 103.5 142.1 137.2 183.8
SIC 5200-5599, 5700-5799,
5900-5999 US & Foreign
</TABLE>
12
<PAGE>
Employment Contracts, Termination of Employment
On November 1, 1995, Mr. Toler entered into an employment agreement with the
Company (the "Toler Employment Agreement"), 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 a letter agreement (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 an employment agreement with the Company (the "CWC
Employment Agreement") effective as of September 1, 1998. Under the terms of
the CWC Employment Agreement, Mr. Carey will 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 commences
employment. Mr. Carey will receive a base salary of $350,000 over the twelve-
month period employed, but such amount will not be subject to adjustment over
the term. In addition, Mr. Carey will be entitled to receive a minimum of six
months' salary if the Company employs 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 will
be 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 has authorized a payment of $41,250 to Mr. Carey as a bonus
for the second quarter of the Company. Mr. Carey will also receive payment for
certain expenses, including living expenses, relocation expenses and travel
related expenses. Mr. Carey's employment may be terminated (i) immediately by
the Company with "cause" (as defined in the CWC Employment Agreement) and (ii)
upon 30 days' written notice and the two-thirds vote of all members of the Board
of Directors without cause. Mr. Carey will be 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.
On November 12, 1997, Mr. Liston entered into an employment agreement with
the Company, which was subsequently amended on June 14, 1998 (the "Liston
Employment Agreement"), pursuant to which Mr. Liston was to serve as the Chief
Financial Officer, Vice President and Treasurer of the Company for a two-year
term. Mr. Liston resigned as the Chief Financial Officer, Vice President and
Treasurer of the Company effective September 10, 1998. Under the Liston
Employment Agreement, Mr. Liston received a base salary ranging from $65,000 to
$160,000 (depending on whether or not Mr. Liston rendered services under the
Liston Employment Agreement at the main offices of the Company). Mr. Liston
also was entitled to receive, upon the achievement of certain financial
performance criteria, a bonus in an amount of up to 25% of his base salary in
each year. Mr. Liston was subject to certain non-competition provisions during
the term of his employment.
Mr. Nace entered into an employment agreement with the Company (the "Nace
Employment Agreement") effective as of September 10, 1998. Under the terms of
the Nace Employment Agreement, Mr. Nace will serve as the Chief Financial
Officer, Executive Vice President and Treasurer of the Company for a two-year
term. Mr. Nace will receive a base salary of $200,000 over each twelve-month
period employed, but such amount will not
13
<PAGE>
be subject to adjustment over the term. Upon achievement of certain performance
criteria, Mr. Nace will be entitled to receive a bonus in an amount of up to 25%
of his base salary in each year. Mr. Nace's employment may be terminated
immediately by the Company with "cause" (as defined in the Nace Employment
Agreement). If Mr. Nace's employment is terminated by the due to his disability,
without cause or in the event of a change of control of the Company and Mr. Nace
is not retained by the new 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 cash bonus he would have received if he
had continued his employment. Mr. Nace will be 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.
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 will receive
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 with "cause" (as defined in the Poole
Employment Agreement). If Mr. Poole's employment is terminated by the Company
without cause, 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 cash bonus he would have received if he had continued his
employment. 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.
On June 16, 1994, Mr. Canfield entered into an employment agreement with the
Company (the "Canfield Employment Agreement"), pursuant to which Mr. Canfield
serves as the Vice President of Store Operations of the Company for a five-year
term. Under the Canfield Employment Agreement, Mr. Canfield receives a base
salary ranging from $157,000 over the twelve-month period ended on June 15, 1996
to $182,000 over the twelve-month period ending on June 15, 1999, 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. 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Carey, a Director and the former Chairman of the Board of Directors of
the Company, was the controlling stockholder of Town & Country during a portion
of calandar year 1997 and was Chairman, President and Chief Executive Officer of
Town & Country until January 3, 1997. Effective September 1, 1998, Mr. Carey
resigned as Chairman of the Board of Directors of the Company and, on such date,
became the Acting Chief Executive Officer of the Company. On October 22, 1997,
Mr. Carey exchanged 25,000 shares of Town & Country Exchangeable Preferred
Stock, which he acquired on June 9, 1994 at $7.1875 pre share, on a share-for-
share basis into 25,000 shares of the Company's Common Stock.
Town & Country and certain of its subsidiaries supply the Company with
jewelry. The aggregate amount of purchases by the Company from these entities
totaled approximately $1.4 million, $640,000 and $560,000 in fiscal 1996, 1997
and 1998, respectively. Pursuant to written agreements among Town & Country,
these subsidiaries and the Company, Town & Country and the subsidiaries have
agreed to supply jewelry to the Company at the Company's option, on the terms
and conditions in effect prior to the Company's initial public offering. These
agreements are automatically renewed each year unless either party terminates
upon 60 days' notice prior to the end of a year. The Company believes that all
jewelry purchased pursuant to these agreements
14
<PAGE>
with Town & Country and its subsidiaries can be readily purchased from other,
unrelated third party suppliers on comparable terms, and that these agreements
do not restrict the Company from purchasing from other sources.
Mr. Carey was, as of the end of Fiscal 1998, also a Director of Solomon
Brothers, Limited which, until termination on November 1, 1998, operated eight
stores in the Bahamas under a franchise agreement with the Company. In
addition, Mr. Carey 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 has 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."
The Company has 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 employment agreement, see
"Executive Compensation--Employment Agreements, Termination of Employment."
To modify a previously existing agreement, on January 15, 1999, the Company
entered into a new success fee agreement with Mr. Carey (the "New Success Fee
Agreement") which narrows the scope of the Success Fee Agreement, dated as of
February 4, 1998 (the "Old Success Fee Agreement"), between the Company and Mr.
Carey. Whereas, the Old Success Fee Agreement provided for the payment of a fee
upon the successful completion of any transaction, including a sale, purchase,
merger, joint venture or combination thereof, by the Company, under the New
Success Fee Agreement the Company is only obligated to pay Mr. Carey a fee if he
actively participates in the negotiation, structuring and closing of certain
specific transactions. These transactions are limited to 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. 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 New Success Fee Agreement) of any such transaction. However, the Company
is only obligated to make such payment if Mr. Carey is either employed by the
Company or is a member of the Board of Directors of the Company on the closing
date of any such transaction or transactions, unless the closing date occurs
within three months of the date on which Mr. Carey ceases to neither be an
employee nor a Director of the Company (unless such occurrence is due to Mr.
Carey's resignation as an employee or director of the Company, in which case no
payment will be due under the New Success Fee Agreement). 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 New Success Fee Agreement automatically
terminates on January 15, 2000 if the closing of any such transaction does not
occur by such date.
The Company has retained during Fiscal 1998, 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. Based on information provided to the Company
by Ms. Dudley, the fees received by Dudley, Clark & Chan from the Company during
Fiscal 1998 did not exceed 5% of such firm's gross revenues for its last fiscal
year.
15
<PAGE>
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
Beneficial Ownership
The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of the Company's
Common Stock as of January 8, 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 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>
ValueVest Partners L.P. ............ 1,177,400(3) 12.6%
1 Sansome Street, 39 Floor,
San Francisco, CA 94104
Donald L. Sturm
3033 East First Avenue, Suite 200,
Denver, CO 80206
Jewelcor Management, Inc............ 1,092,000(4) 11.7%
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
Franklin Advisory Services, Inc. ... 843,000(5) 9.1%
One Parker Plaza,
Sixteenth Floor,
Ft. Lee, NJ 07024
Franklin Resources, Inc.
Charles B. Johnson
Rupert H. Johnson, Jr.
777 Mariners Island Boulevard,
San Mateo, CA 94404
The TCW Group, Inc. ................ 637,300(6) 6.8%
Robert Day
865 South Figueroa Street,
Los Angeles, CA 90017
1838 Investment Advisors, LP. ...... 439,795(7) 4.7%
5 Radnor Corp. Ctr., Suite 320
Radnor, PA 19087
William Canfield.................... 60,000(8) *
C. William Carey.................... 278,000(9) 2.9%
Timothy B. Donaldson................ 24,000(10) *
Adriane J. Dudley................... 5,000(11) *
Ronald J. Lataille.................. 1,158 *
Thomas S. Liston.................... 0(12) *
John E. Toler, Jr................... 300,000(13) *
Kenneth W. Watson................... 30,000(14) *
All directors and executive officers
as a group (8 persons)............ 722,000(15) 7.8%
- -----------
</TABLE>
* 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 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
16
<PAGE>
Directors or officers had the right to acquire within 60 days of January 8,
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.
(2) Percentages are calculated on the basis of 9,318,202 shares of stock
outstanding as of January 8, 1999, which includes 62,000 shares subject to
options exercisable within 60 days of January 8, 1999 granted pursuant to
the 1992 Option Plan, 592,000 shares subject to options exercisable within
60 days of January 8, 1999 granted pursuant to the 1991 Option Plan, and
40,000 shares subject to options exercisable within 60 days of January 8,
1999 granted to Messrs. Carey and Poole 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 May 5, 1997, as amended by Amendment No. 1 to
Schedule 13D filed with the SEC on August 4, 1997, as amended by Amendment
No. 2 to Schedule 13D filed with the SEC on October 30, 1998, which
indicates that ValueVest Partners L.P. has sole voting and dispositive
power with respect to 395,300 shares and Donald L. Sturm has sole voting
and dispositive power with respect to 782,100 shares.
(4) 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, 1998, as amended by
Amendment No. 2 to Schedule 13D filed with the SEC on October 5, 1998, as
amended by Amendment No. 3 to Schedule 13D filed with the SEC on
October 13, 1998, which indicates that Jewelcor Management, Inc. has sole
voting and sole dispositive power with respect to 1,031,000 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 Securities Exchange Act of 1934, as amended
(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.
(5) The above information is based on copies of a statement on Schedule 13G
filed with the SEC on February 5, 1998, which indicates that the Franklin
Advisory Services, Inc. has sole voting power with respect to 543,000
shares and sole dispositive power with respect to all 843,000 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 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 on copies of a statement on Schedule 13G
filed with the SEC on February 12, 1998, which indicates that The TCW
Group, Inc. and Robert Day each has sole voting and dispositive power with
respect to all 637,300 shares. The filing of this Schedule 13D was also
made on behalf of Robert Day, 200 Park Avenue, Suite 2200, New York, New
York 10166.
(7) The above information is based on copies of a statement on Schedule 13G
filed with the SEC on February 12, 1998, which indicates that 1838
Investment Advisors, LP has sole voting power with respect to 374,995
shares and sole dispositive power with respect to all 439,795 shares.
(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) Includes 10,000 shares and 23,000 shares of Common Stock deemed to be
beneficially owned by Mr. Carey which are subject to options previously
granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively. Includes 30,000 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. Includes 25,000 shares of Common
Stock which were acquired pursuant to the one-for-one exchange on October
22, 1997 of 25,000 shares of Town & Country Exchangeable Preferred Stock,
which Mr. Carey purchased on June 9, 1994 for $7.1875 per share. Includes
190,000 shares of Common Stock acquired by Mr. Carey in September 1998.
(10) Represents 10,000 shares and 14,000 shares of Common Stock deemed to be
beneficially owned by Mr. Donaldson which are subject to options
previously granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively.
(11) Represents shares of Common Stock deemed to be beneficially owned by Ms.
Dudley which are subject to options previously granted pursuant to the 1992
Option Plan.
(12) In connection with his appointment as Chief Financial Officer, Vice
President and Treasurer, the Company granted Mr. Liston an option to
purchase 25,000 shares of the Company's Common Stock pursuant to the 1991
Option Plan. Pursuant to the terms
17
<PAGE>
of the Incentive Stock Option Agreement between the Company and Mr. Liston,
due to Mr. Liston's resignation, this option expired on December 10, 1998.
(13) 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.
(14) 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.
(15) Amount does not include beneficial ownership of the Company's Common Stock
by Mr. Lataille of 1,158 shares of Common Stock. Amount does include
beneficial ownership of the Company's Common Stock by Messrs. Nace and
Poole of 15,000 and 10,000 shares of Common Stock, respectively, which are
subject to options previously granted pursuant to the 1991 Option Plan and
outside of the 1991 Option Plan, respectively.
LITIGATION
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 the election of four
directors at the Annual Meeting. 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.
MARKET VALUE
On January 8, 1999, the closing price of a share of the Company's Common
Stock on NASDAQ was $2.4375.
PARTICIPANTS ON BEHALF OF THE COMPANY
As a result of the potential proxy contest initiated against the Company by
Mr. Sturm and Jewelcor Management, Inc., the rules of the SEC require the
Company to provide to its stockholders certain additional information, including
with respect to participants (as defined in Schedule 14A promulgated pursuant to
the Exchange Act). Pursuant to those rules, the members of the Board are, and
certain employees and agents of the Company may be deemed to be, participants.
Unless otherwise indicated below, the address of the participants described
below is the address of the Company's principal executive offices. Except as
indicated below, no participant has purchased or sold or otherwise acquired or
disposed of any shares of Common Stock of the Company in the last two (2) years.
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. As of the end of Fiscal 1998, each
person who was a Director of the Company on such date, other than Mr. Toler, was
eligible for, and received, such option grant. See, "Information Regarding
Directors."
C. William Carey is a Director and the Acting Chief Executive Officer and
President of the Company. Since January 1997, Mr. Carey has been President of
Carey Associates, Inc., a company involved in international marketing and
finance, management consulting and Russian business development, located at 150
Federal Street, 12th Floor, Boston, Massachusetts. He is the beneficial owner
of 278,000 shares of the Common Stock of the Company, including (a) 10,000
shares of Common Stock deemed to be beneficially owned by Mr. Carey which are
subject to options previously granted pursuant to the 1991 Option Plan, (b)
23,000 shares of Common Stock deemed to be beneficially owned by Mr. Carey which
are subject to options previously granted pursuant to the 1992 Option Plan, (c)
25,000 shares of Common Stock, which were acquired pursuant to the one-for-one
exchange on October 22, 1997 of 25,000 shares of Town & Country Exchangeable
Preferred Stock, which Mr. Carey purchased on June 9, 1994 for $7.1875 per
share, (d) 190,000 shares of Common Stock which includes (i) 75,000 shares
acquired on September 4, 1998, 50,000 shares acquired on September 8, 1998,
15,000 shares acquired on
18
<PAGE>
September 10, 1998 and 25,000 shares acquired on September 23, 1998, each at
$2.50 per share and (ii) 25,000 shares acquired on September 24, 1998 at $2.5625
per share and (e) 30,000 shares of Common Stock deemed to be beneficially owned
by Mr. Carey which are subject to options previously granted outside of the
Company's option plans. Pursuant to his employment agreement, the Company
granted Mr. Carey an option to purchase 150,000 shares of the Company's Common
Stock at $2.25 per share, one-fifth of which vests each September 1, commencing
on September 1, 1998.
Timothy B. Donaldson is a Director of the Company. Since 1995, he has been
Chairman and Chief Executive Officer of Dynamo M. Ltd., an investment trading
company located at Saffrey Square Building, Second Floor, Bank Lane, P.O. Box N-
4927, Nassau, Bahamas. Mr. Donaldson is the beneficial owner of 24,000 shares
of Common Stock of the Company, which represents 10,000 shares and 14,000 shares
of Common Stock deemed to be beneficially owned by Mr. Donaldson which are
subject to options previously granted pursuant to the 1991 Option Plan and 1992
Option Plan, respectively.
Kenneth W. Watson is a Director of the Company. Since October 1996, Mr.
Watson has served as Vice President-Consumer-New York Times Magazine Group of
the New York Times Company, a major diversified media company with operations in
newspapers, magazines, broadcasting, information services and forest products,
located at 5520 Park Avenue, Trumbull, Connecticut. The magazine business
consists of ten sports and leisure magazines and related sports marketing
activities. Mr. Watson is the beneficial owner of 30,000 shares of Common Stock
of the Company, which 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.
John E. Toler, Jr. is a Director of the Company and served as President and
Chief Executive Officer of the Company until his resignation as such on
September 1, 1998. Mr. Toler is the beneficial owner of 300,000 shares of
Common Stock of the Company, which 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.
Adriane J. Dudley is a Director of the Company. Since 1985 she has been a
senior partner with Dudley, Clark & Chan, a Caribbean law firm, located at 9720
Estate Thomas, St. Thomas, U.S.V.I. Ms. Dudley is the beneficial owner of
5,000 shares of Common Stock of the Company, which are subject to options
previously granted pursuant to the 1992 Option Plan. The Company granted Ms.
Dudley this option to purchase 5,000 shares of the Company's Common Stock on
December 23, 1998 at a price of $2.50 per share. Pursuant to the terms of the
1992 Option Plan, this option vested on the grant date.
Michael M. Poole joined the Company on August 25, 1998 as the Company's Vice
President and General Merchandise Manager. Pursuant to his employment
agreement, the Company granted Mr. Poole an option outside of the Company's
option plans to purchase 50,000 shares of the Company's Common Stock at $2.0625
per share, one-fifth of which vests each on August 25, commencing on August 25,
1998.
David J. Nace joined the Company on September 10, 1998 as the Company's
Chief Financial Officer, Executive Vice President and Treasurer. Pursuant to
his employment agreement, the Company granted Mr. Nace an option pursuant to the
1991 Option Plan to purchase 75,000 shares of the Company's Common Stock at
$2.50 per share, one-fifth of which vests each on September 10, commencing on
September 10, 1998.
William Canfield has been Vice President of Store Operations since June
1994. Mr. Canfield is the beneficial owner of 60,000 shares of Common Stock of
the Company, which represents shares of Common Stock deemed to be beneficially
owned by Mr. Canfield which are subject to options previously granted pursuant
to the 1991 Option Plan.
19
<PAGE>
SOLICITATION OF PROXIES
This solicitation of proxies for use at the Annual Meeting is being made by
the Board of Directors of the Company. The cost of this proxy solicitation will
be borne by the Company. In addition to solicitations by mail, solicitations
also may be made by advertisement, telephone, telegram, facsimile transmission
or other electronic media, and personal meetings and interviews. In addition to
solicitation services to be provided by D.F. King & Co., Inc. ("D.F. King"), as
described below, proxies may be solicited by the Company and its directors,
officers and employees (who will receive no compensation therefor in addition to
their regular salaries). Arrangements also will be made with brokerage houses
and other custodians, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of the Common Stock of the Company, and such persons
will be reimbursed for their expenses. Although no precise estimate can be made
at the present time, it is currently estimated that the aggregate amount to be
spent in connection with the solicitation of proxies by the Company (excluding
the salaries and fees of officers and employees) will be approximately
[$_________], which amount includes costs associated with the litigation in
connection with the solicitation, and that the total cash expenditures to date
relating to the solicitation have been under [$____________]. These estimates
include fees for attorneys, accountants, advisers, proxy solicitors,
advertising, printing, distribution and other costs incidental to the
solicitation.
The Company has retained D.F. King at a fee estimated not to exceed
[$___________], plus reimbursement of reasonable out-of-pocket expenses, to
assist in the solicitation of proxies (which amount is included in the estimate
of total expenses above). The Company has also agreed to indemnify D.F. King
against certain liabilities and expenses, including liabilities under the
Federal securities laws. It is anticipated that approximately [__] employees of
D.F. King may solicit proxies.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals intended to be presented at the 1999 annual meeting
must be received by the Company no earlier than October 28, 1999 and no later
than December 31, 1999 in order to be considered for inclusion in the Company's
proxy statement and form of proxy for that meeting. The Company's By-laws
provide that any stockholder of record wishing to have a stockholder proposal
considered at an annual meeting must provide written notice of such proposal and
appropriate supporting documentation, as set forth in the By-laws, to the
Company at its principal executive office not less than 75 days nor more 120
days prior to the first anniversary of the date of the preceding year's annual
meeting; provided, however, that in the event the annual meeting is advanced by
more than seven days from the anniversary date, notice must be so delivered not
later than (i) the 20th day after public disclosure of the date of such meeting
or (ii) if such public disclosure occurs more than 75 days prior to such
scheduled date of such meeting, then the later of the 20th day after the date of
public disclosure or the 75th day prior to such scheduled date of such meeting.
Any such proposal should be mailed to: Secretary, Little Switzerland, Inc.,
161-B Crown Bay Cruise Port, St. Thomas, U.S.V.I. 00804.
INDEPENDENT ACCOUNTANTS
The Company has selected Arthur Andersen LLP as the independent public
accountants for the Company for the fiscal year ending May 29, 1999. The firm
of Arthur Andersen LLP has served as the Company's independent public
accountants since its incorporation and has served as the accountant for certain
of its subsidiaries since 1980. A representative of Arthur Andersen LLP will be
present at the Annual Meeting and will be given the opportunity to make a
statement if he or she so desires. The representative will be available to
respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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
Securities and Exchange Commission and NASDAQ. Officers, directors and greater
than
20
<PAGE>
ten percent stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms received by it, or written representations from certain
reporting persons that no Section 16(a) reports were required for those persons,
the Company believes that during the fiscal year ended May 30, 1998, Mr. Carey
inadvertently failed to timely file a Form 4 with respect to the exchange of
25,000 shares of Town & Country Exchangeable Preferred Stock on a share-for-
share basis into 25,000 shares of the Company's Common Stock. Mr. Carey
subsequently filed the required form.
VOTING INFORMATION
Your vote is important. Please sign, date and mail promptly the enclosed
blue proxy card in the enclosed self-addressed stamped envelope. Your Board of
Directors recommends that you vote "FOR" C. William Carey and Adriane J. Dudley
on the enclosed blue proxy card.
The Board of Directors does not know of any matters other than those
described in this Proxy Statement which will be presented for action at the
Annual Meeting. If any other matters properly come before the Annual Meeting,
the proxy holders intend to vote such proxies in accordance with their best
judgment. Unrevoked proxy cards returned without direction will be voted "FOR"
the nominees of the Board of Directors for election to the Board of Directors.
If your shares are registered in your name, please mail your blue proxy card
at your earliest convenience. If your shares are held in "street name,"
immediately instruct your broker or the person responsible for your account to
sign a blue proxy card on your behalf. You should also sign, date and mail your
blue proxy card immediately upon receipt from your broker or bank, using the
postage-paid envelope provided. Please do so for each account you maintain. If
you have further questions or need assistance, please call:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
CALL TOLL FREE (800) ____________
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO SIGN, DATE AND MAIL THE ENCLOSED BLUE PROXY CARD IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. PLEASE ACT
TODAY.
21
<PAGE>
PROXY CARD
LITTLE SWITZERLAND, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
LITTLE SWITZERLAND, INC. FOR THE
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, FEBRUARY 25, 1999
The undersigned hereby constitutes and appoints C. William Carey and Kenneth W.
Watson, and each of them, as Proxies of the undersigned, with full power to
appoint his substitute, and authorizes each of them to represent and to vote all
shares of Common Stock of Little Switzerland, Inc. (the "Company") held of
record by the undersigned as of the close of business on Friday, January 8,
1999, at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at
State Street Bank and Trust Company, Board Room 33rd Floor, 225 Franklin Street,
Boston, Massachusetts, at [_____] local time, on Thursday, February 25, 1999,
and at any adjournments or postponements thereof.
When properly executed, this proxy will be voted in the manner directed herein
by the undersigned stockholder(s). If no direction is given, this proxy will be
voted FOR the nominee of the Board of Directors listed in Proposal 1 and FOR the
nominee of the Board of Directors listed in Proposal 2. In their discretion,
the Proxies are each authorized to vote upon such other business as may properly
come before the Annual Meeting and any adjournments or postponements thereof. A
stockholder wishing to vote in accordance with the Board of Directors'
recommendations need only sign and date this proxy and return it in the enclosed
envelope.
The undersigned hereby acknowledge(s) receipt of a copy of the accompanying
Notice of Annual Meeting of Stockholders, the Proxy Statement with respect
thereto and the Company's Annual Report to Stockholders and hereby revoke(s) any
proxy or proxies heretofore given. This proxy may be revoked at any time before
it is exercised.
PLEASE SIGN AND DATE ON REVERSE SIDE
AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.
<PAGE>
FOR WITHHOLD
Proposal 1. Election of C. William Carey as Class III [_] [_]
Director for a term expiring at the 2000
annual meeting.
Proposal 2. Election of Adriane J. Dudley as Class I [_] [_]
Director for a term expiring at the 2001
annual meeting.
____________________________
In their discretion, the Proxies are each authorized to vote upon such other
business as may properly come before the Annual Meeting and any adjournments or
postponements thereof.
Please be sure to sign and date this Proxy.
Date:________________________
Shareholder(s) signature(s): _________________________________________________
_________________________________________________
Please sign name exactly as shown on reverse. Where there is more than one
holder, each should sign. When signing as an attorney, administrator, executor,
guardian or trustee, please add your title as such. If executed by a
corporation or partnership, the proxy should be signed by a duly authorized
person, stating his or her title or authority.
PLEASE, SIGN, DATE AND PROMPTLY MAIL YOUR PROXY.
