<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:
[_]Preliminary Proxy Statement
[_]CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-
6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Little Switzerland, Inc.
-------------------------------------------
(Name of Registrant as Specified In Its Charter)
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 is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number
of the Form or Schedule and the date of its filing.
(1) Amount Previously paid:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------
(3) Filling Party:
--------------------------------------------------------------------------
(4) Date Filed:
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<PAGE>
LITTLE SWITZERLAND, INC.
161-B CROWN BAY CRUISE SHIP PORT
ST. THOMAS, U.S.V.I. 00804
November 29, 1999
Dear Fellow Stockholder:
The Annual Meeting of Stockholders of Little Switzerland, Inc. (the
"Company") scheduled for Tuesday, December 21, 1999 has been called for the
purposes of electing two Class II Directors, each for a term expiring at the
2002 annual meeting, voting upon a proposal to effect a one-for-five reverse
stock split of the Company's common stock and considering and voting upon such
other business as may properly come before the Annual Meeting or any
adjournments or postponements thereof.
Your Board of Directors has recommend the one-for-five reverse stock split
in an effort to allow the Company to remain eligible for continued listing on
the Nasdaq SmallCap Market. Nasdaq previously informed the Company that it
would not remain eligible for trading on Nasdaq unless it could show
compliance with the continued listing requirements, including the $1.00 per
share minimum bid price requirement and certain other criteria. The Board of
Directors believes that if the proposed reverse stock split is approved, the
Company should regain compliance with the $1.00 per share minimum bid price
requirement.
Your Board of Directors recommends that you vote "FOR" the one-for-five
reverse stock split of the Company's common stock. Your Board of Directors
also recommends that you vote "FOR" the election of Peter R. McMullin and
Kenneth W. Watson as Class II Directors, the two nominees of your Board of
Directors.
On behalf of your Board of Directors, your continued interest and support
are greatly appreciated.
Very truly yours,
/s/ Robert L. Baumgardner
Robert L. Baumgardner
President & Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO SIGN, DATE AND PROMPTLY MAIL THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN
IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. IF YOU HAVE ANY QUESTIONS
OR NEED ASSISTANCE, PLEASE CALL D.F. KING & CO., INC., WHICH IS ASSISTING
US, TOLL FREE AT (800) 431-9645.
<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 TUESDAY, DECEMBER 21, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Little
Switzerland, Inc. (the "Company") will be held on Tuesday, December 21, 1999
at 10:00 a.m., local time, at The Fort Lauderdale Marriott North, 6650 North
Andrews Avenue, Fort Lauderdale, Florida (the "Annual Meeting") for the
purpose of considering and voting upon:
1. The election of two Class II Directors, each for a term expiring at the
2002 annual meeting and until each Director's successor is duly elected
and qualified;
2. The amendment to the amended and restated certificate of incorporation
of the Company to effectuate a one-for-five reverse stock split of the
Company's common stock, par value $.01 per share; 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 November 26, 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
/s/ Patrick J. Hopper
Patrick J. Hopper
Secretary
St. Thomas, U.S.V.I.
November 29, 1999
<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 TUESDAY, DECEMBER 21, 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 Tuesday, December 21, 1999, at 10:00 a.m., local time, at The Fort
Lauderdale Marriott North, 6650 North Andrews Avenue, Fort Lauderdale,
Florida, 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, you will be asked to consider and vote upon the
following matters:
1. The election of two Class II Directors, each for a term to continue
until the 2002 annual meeting and until each Director's successor is
duly elected and qualified;
2. An amendment to the amended and restated certificate of incorporation of
the Company (the "Certificate of Incorporation") to effectuate a one-
for-five reverse stock split of the common stock of the Company, par
value $.01 per share ("Common Stock"); and
3. Such other business as may properly come before the Annual Meeting and
any adjournments or postponements thereof.
The Notice of Annual Meeting, Proxy Statement and Proxy Card are first being
mailed to stockholders of the Company on or about November 29, 1999. The Board
of Directors has fixed the close of business on November 26, 1999 as the
record date (the "Record Date") for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting. Only holders of the Company's
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 8,627,209 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.
Stockholders of the Company are requested to sign, date and promptly mail
the accompanying Proxy Card in the enclosed envelope. Common Stock represented
by properly executed proxies received by the Company and not revoked will be
voted at the Annual Meeting in accordance with the instructions contained
therein. If instructions are not given therein, properly executed proxies will
be voted "FOR" the election of Peter R. McMullin and Kenneth W. Watson as
Class II Directors and "FOR" the reverse stock split. It is not anticipated
that any matters other than the election of directors and the reverse stock
split 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.
<PAGE>
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 29, 1999 ("Fiscal 1999"), is being mailed to stockholders of
the Company concurrently with this Proxy Statement. The Annual Report,
however, is not a part of the proxy solicitation material.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Board of Directors of the Company currently consists of six members, and
is divided into three classes, with two Directors in each of classes I, II and
III. Effective as of December 21, 1999, the Board of Directors will be
expanded to eight members, with one new member added to each of classes I and
III. Directors serve for three-year terms, with one class of Directors being
elected by the Company's stockholders at each annual meeting.
At the Annual Meeting, Class II Directors will be elected, each to serve
until the 2002 annual meeting, and until each such Director's successor is
duly elected and qualified. The Board of Directors has nominated Peter R.
McMullin and Kenneth W. Watson for election as Class II Directors. Unless
otherwise specified in the proxy, it is the intention of the persons named in
the proxy to vote the shares represented by each properly executed proxy for
the election of Peter R. McMullin and Kenneth W. Watson as Class II 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 such Board of
Directors' nominee fails to stand for election or is unable to accept
election, properly executed proxies voting in favor of such nominee of the
Board of Directors will be voted for the election of such other person as the
Board of Directors may nominate.
The Board of Directors of the Company recommends that you vote FOR its
proposal to elect Peter R. McMullin and Kenneth W. Watson as Class II
Directors of the Company.
INFORMATION REGARDING DIRECTORS
The Board of Directors of the Company held thirty-three (33) meetings during
Fiscal 1999 to deal with, among other things, settlement of a proxy contest
and internal restructuring initiatives. During Fiscal 1999, each of the
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.
During certain portions of Fiscal 1999, the Audit Committee consisted of the
following Directors: C. William Carey, Timothy B. Donaldson, Kenneth W.
Watson, Richard C. Hunter and Melanie L. Sturm. The current members of the
Audit Committee are Messrs. Hunter and Watson and Ms. Sturm. 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 1999.
During certain portions of Fiscal 1999, the Compensation Committee of the
Board of Directors of the Company consisted of the following Directors:
Timothy B. Donaldson, Ilene B. Jacobs, C. William Carey, Melanie L. Sturm,
Peter R. McMullin and Adriane J. Dudley. The current members of the
Compensation Committee are Ms. Sturm and Mr. McMullin. The Compensation
Committee approves Company compensation
2
<PAGE>
policies and procedures and establishes compensation levels for executive
officers. The Compensation Committee also administers and grants awards under
the 1991 Option Plan (the "1991 Option Plan") and the Company's 1992 Employee
Stock Purchase Plan (the "1992 ESPP"). The Compensation Committee met once
during Fiscal 1999. The Board of Directors does not maintain a nominating
committee. Instead, its functions are carried out by the entire Board of
Directors.
COMPENSATION OF DIRECTORS
Directors who are officers or employees of the Company receive no
compensation for service as Directors. Directors who are not officers or
employees of the Company receive such compensation for their services as the
Board of Directors may from time to time determine. Non-employee Directors
each receive an annual retainer of $5,000, plus a fee of $2,500 for each Board
of Directors meeting attended ($500 if such meeting is held via telephone
conference) and $1,000 for each committee meeting attended ($500 if such
meeting is held via telephone conference) if such meeting does not take place
in conjunction with a regularly scheduled Board of Directors meeting. All
Directors are reimbursed for expenses incurred in connection with attendance
at meetings.
In order to more closely align stockholder and Director interests, in 1992
the Board of Directors established the 1992 Non-Employee Directors'
Nonqualified Stock Option Plan (the "1992 Option Plan"). Pursuant to the 1992
Option Plan, each eligible non-employee Director automatically receives an
option to purchase 3,000 shares of Common Stock on the last day of the
Company's fiscal year. All options granted pursuant to the 1992 Option Plan
vest and are immediately exercisable upon grant. All options granted under the
1992 Option Plan have an exercise price equal to 100% of the fair market value
of a share of Common Stock on the grant date. On May 29, 1999, the then
eligible non-employee Directors of the Company each received an option to
purchase 3,000 shares of Common Stock at an exercise price of $.84375 per
share, the fair market value of the Common Stock on May 28, 1999.
For a description of the consulting arrangement with Mr. Carey, a former
Director of the Company, during Fiscal 1999, see "--Compensation Committee
Interlocks and Insider Participation."
Set forth below is certain information regarding the Directors of the
Company as of November 15 1999, based on information furnished by them to the
Company.
<TABLE>
<CAPTION>
Director
Name Age Since
- - ---- --- --------
<S> <C> <C>
CLASS I--TERM EXPIRES 2001
Robert L. Baumgardner.............................................. 53 1999
Alex J. Nobile..................................................... 47 1999
Richard Siegel(2).................................................. 34 1999
CLASS II--TERM EXPIRES 1999
Peter R. McMullin(1)............................................... 56 1999
Kenneth W. Watson(1)............................................... 56 1991
CLASS III--TERM EXPIRES 2000
Richard C. Hunter.................................................. 54 1999
Melanie L. Sturm................................................... 38 1999
Seymour Holtzman(2)................................................ 64 1999
</TABLE>
- - --------
(1) Nominees of the Board of Directors as Class II Directors.
(2) These appointments will be effective as of December 21, 1999.
3
<PAGE>
The principal occupation and business experience during at least the last
five years for each current Director of the Company and appointees of the
Board of Directors is set forth below.
CLASS I
Mr. Baumgardner joined the Company as its Chief Executive Officer and
President effective as of August 17, 1999. Mr. Baumgardner was Senior Vice
President of Zale Corporation's Bailey Banks and Biddle Division in Dallas
from September 1998 to August 1999. Prior to his tenure with Zale Corporation,
Mr. Baumgardner held senior management positions with Mayors of Coral Gables,
Florida from May 1994 to September 1998, and with Tiffany of New York from May
1987 to June 1994. Mr. Baumgardner began his retail career in 1971 at Bailey
Banks and Biddle, as Vice President of Stores.
Mr. Nobile has been an attorney and investment professional with Berkeley
International Capital Corporation, the venture capital arm of London Pacific
Group Limited, a diversified international financial services firm, since
January 1997. Prior to joining Berkeley International Capital Corporation, Mr.
Nobile was Executive Vice President, General Counsel and Corporate Secretary
for Gruen Marketing Corporation ("Gruen") from 1991 to 1996. Mr. Nobile joined
Gruen after serving as Senior Vice President, Corporate Counsel and Secretary
at Gruen's predecessor, Jewelcor Inc. from 1978 to 1991.
Mr. Siegel has been General Counsel of Sturm Group, Inc., a private equity
firm headed by Donald L. Sturm, since March 1999. From 1997 to 1999, Mr.
Siegel was an attorney with Koch Industries, Inc., a diversified energy
company, where he specialized in major acquisitions and joint ventures. From
1992 to 1996, Mr. Siegel was an associate with Sullivan & Cromwell in both
their New York and Melbourne, Australia offices. Mr. Siegel is a graduate of
the University of Maryland and Georgetown University Law Center and was a
judicial clerk to the Honorable Andrew G.T. Moore, II, of the Supreme Court of
Delaware.
CLASS II
Mr. McMullin is the co-founder of Southeast Research Partners, Inc.
("Southeast") and has been an Executive Vice President and a managing director
of Southeast since its inception in June 1990. On June 30, 1999, Southeast was
acquired by Ryan, Beck & Co. and Mr. McMullin is now Senior Managing Director
of Ryan, Beck & Co.--Southeast Research Group. Ryan, Beck & Co. is a company
that provides institutional research, investment banking, securities brokerage
and trading services through its principal subsidiaries. Prior to being
nominated as a director of the Company, Mr. McMullin followed and wrote about
the Company since its initial public offering in 1991.
Mr. Watson was the Acting Chief Executive Officer of the Company from April
7, 1999 until his resignation as of August 17, 1999. Mr. Watson also served as
Chief Executive Officer and President of the Company from January 1994 to
October 1994. Mr. Watson is currently serving as the Chief Operating Officer
of CyberSettle.com, an internet dispute resolution company, with which he has
been associated since March 1999. From October 1996 to March 1999, Mr. Watson
served as Vice President-Consumer Marketing of the New York Times Magazine
Group, a subsidiary of the New York Times Company. Mr. Watson served as
Executive Vice President of K-Mart Corporation from October 1994 through March
1996. Mr. Watson was President of Louis Vuitton Stores, Inc. from July 1992 to
March 1993. Previously, he was Chairman and Chief Executive Officer of Gump's,
a retailer of jewelry, art and gift items from September 1989 to June 1992 and
President and Chief Executive Officer of Cartier, Inc. from 1985 to September
1989.
4
<PAGE>
CLASS III
Mr. Hunter was the Senior Vice President for International Operations &
Development of Williams Sonoma, Inc. from November 1996 to April 1999. From
March 1996 to October 1996, Mr. Hunter was the President of RCH Consulting,
Inc., from January 1995 to February 1996 he was the Executive Vice President
of DFS Group Limited and from June 1992 to December 1994 he was the President
of DFS North America Division of DFS Group Limited.
Ms. Sturm is a private equity investor and serves on the Board of Directors
of FirstWorld Communications, an internet solutions and telecommunications
provider, and MD Network, a healthcare company, each based in Denver,
Colorado. From 1990 to 1996, Ms. Sturm served as an Investment Officer at
International Finance Corporation, the private sector affiliate of the World
Bank, where she specialized in project finance. From 1984 to 1988, Ms. Sturm
specialized in mergers and acquisitions at Morgan Stanley and Drexel Burnham
Lambert. Ms. Sturm holds a B.S. degree in Economics and a B.A. degree in
International Relations from Tufts University and a MBA from INSEAD in
Fontainebleau, France.
Mr. Holtzman is the founder and Chief Executive Officer of Jewelcor, Inc.
and the founder and former Chief Executive Officer of Gruen Marketing
Corporation. Since 1990, Mr. Holtzman has served as Chairman and Chief
Executive Officer of each of Jewelcor Management & Consulting, Inc., C.D.
Peacock, Inc., Central European Capital Investors, Inc. and S.A. Peck &
Company. Mr. Holtzman is the President and founder of Financial Thrift Value
Fund and since 1972 has been an investor in the banking and thrift industry.
Messrs. Hunter and McMullin and Ms. Sturm were nominated as Directors of the
Company pursuant to the terms of the Settlement Agreement, dated as of
February 23, 1999, among the Company, Donald L. Sturm, ValueVest Partners
L.P., Seymour Holtzman, Jewelcor Management, Inc. and the other parties
identified therein (the "Settlement Agreement"). Pursuant to the terms of the
Settlement Agreement, Mr. Watson was appointed as the Acting Chief Executive
Officer of the Company effective as of April 7, 1999 until a successor was
found. Mr. Baumgardner succeeded Mr. Watson effective August 17, 1999. In
addition, in connection with the Settlement Agreement, Mr. Sturm was granted
the right to attend and observe all meetings of the Board of Directors for so
long as he beneficially owns at least 5% of the outstanding shares of the
Common Stock of the Company.
5
<PAGE>
EXECUTIVE OFFICERS
The names and ages of all executive officers of the Company and the
principal occupation and business experience during at least the last five
years for each of the executive officers who are not Directors of the Company
are set forth below as of November 15, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <S> <C>
Robert L. Baumgardner....... 53 President, Chief Executive Officer and Director
Patrick J. Hopper........... 37 Chief Financial Officer, Vice President and Treasurer
William Canfield............ 52 Vice President of Store Operations
Michael M. Poole............ 56 Vice President and General Merchandise Manager
Raoul Mills................. 38 Vice President, Distribution
</TABLE>
Mr. Hopper joined the Company as its Vice President-Finance on June 7, 1999
and subsequently became the Chief Financial Officer, Vice President and
Treasurer of the Company on July 3, 1999. Prior to joining the Company, Mr.
Hopper was with Tesco PLC, serving as the Director of Central European
Projects from January 1998 to January 1999, and as Chief Financial Officer of
Tesco PLC for the Czech and Slovak Republic from April 1996 to January 1998.
From January 1994 to April 1996, Mr. Hopper served as Director of Finance and
Administration of K-Mart Corporation in the Czech and Slovak Republic.
Mr. 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. Poole has been the Vice President and General Merchandise Manager of the
Company since August 1998. Mr. Poole was the Director of Licensing for Combine
International Inc., a jewelry manufacturing company, from August 1996 to
August 1998. From September 1991 to July 1996, Mr. Poole was the President of
NXP, d/b/a Jewels at A.H. Riise, a retail jewelry store in St. Thomas,
U.S.V.I.
Mr. Mills has been Vice President of Distribution since December 1998. In
that position, he has been responsible for streamlining the Company's
logistics process. Mr. Mills joined the Company in February 1995 as Director
of Distribution, and served as Divisional Vice President of Distribution from
February 1997 to December 1998. Prior to joining the Company, Mr. Mills served
as General Manager for Sea Chest Hardware, Inc.
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.
6
<PAGE>
EXECUTIVE COMPENSATION
As required by the rules of the Securities and Exchange Commission (the
"SEC"), the following sections of this Proxy Statement set forth and discuss
the compensation paid or awarded to (i) any individual who served as either
the Company's Chief Executive Officer or Acting Chief Executive Officer during
Fiscal 1999 and (ii) the three most highly compensated executive officers who
were serving as executive officers at the end of Fiscal 1999 and who earned in
excess of $100,000 during Fiscal 1999. Accordingly, this Proxy Statement
contains information concerning certain individuals who are no longer employed
by the Company.
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended May 31, 1997, May 30,
1998 and May 29, 1999 compensation paid by the Company to (i) any individual
who served as either the Company's Chief Executive Officer or Acting Chief
Executive Officer during Fiscal 1999 and (ii) the three most highly
compensated executive officers who were serving as executive officers at the
end of Fiscal 1999 and who earned in excess of $100,000 during Fiscal 1999.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------------- --------------------------------
Awards Payouts
---------- ---------------------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Bonus Compensation Award(s) Options Payouts Compensation
Position Year Salary ($) ($) ($) ($) (#) ($) ($)
- - ------------------ ---- ---------- -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr. ...... 1999 $ 91,154 $ 4,000(5) -- -- -- -- $ 43,833(12)
President and Chief 1998 $300,000 $140,000 $4,000(6) -- -- -- $ 6,688(13)(14)
Executive Officer(1) 1997 $300,000 -- $3,000(6) -- 300,000(7) -- $ 3,894(13)
C. William Carey......... 1999 $211,347 $ 91,250 -- -- 150,000(8) -- $359,162(15)
Acting Chief 1998 -- -- -- -- -- -- --
Executive Officer(1) 1997 -- -- -- -- -- -- --
Kenneth W. Watson........ 1999 $ 45,692 -- -- -- --(9) -- $ 60,750(16)
Acting Chief 1998 -- -- -- -- -- -- --
Executive Officer(1) 1997 -- -- -- -- -- -- --
David J. Nace............ 1999 $140,000 $ 50,000 -- -- --(10) -- $ 50,000(17)
Chief Financial Officer, 1998 -- -- -- -- -- -- --
Executive Vice President 1997 -- -- -- -- -- -- --
and Treasurer
William Canfield......... 1999 $181,446 -- -- -- -- -- $ 8,684(18)
Vice President of 1998 $173,000 $ 28,000 -- -- -- -- $ 8,659(19)
Store Operations 1997 $173,000 -- -- -- -- -- --
Michael M. Poole......... 1999 $100,731 -- -- -- 50,000(11) -- --
Vice President and 1998 -- -- -- -- -- -- --
General Merchandise 1997 -- -- -- -- -- -- --
Manager
</TABLE>
- - -------
(1) Mr. Toler resigned as the President and Chief Executive Officer of the
Company effective August 31, 1998. Mr. Toler continued to serve as a
Director of the Company until April 7, 1999.
(2) Mr. Carey assumed the role of Acting Chief Executive Officer of the
Company effective September 1, 1998 and resigned as such effective April
7, 1999.
(3) Mr. Watson assumed the role of Acting Chief Executive Officer of the
Company effective April 7, 1999 and resigned as such effective August 17,
1999. Mr. Watson is currently serving as a Class II Director of the
Company.
(4) Mr. Nace resigned as the Chief Financial Officer, Executive Vice President
and Treasurer of the Company effective July 2, 1999.
(5) This amount represents a one-time stay bonus that Mr. Toler was awarded in
connection with his resignation as President and Chief Executive Officer
of the Company.
7
<PAGE>
(6) These amounts represent the cost to the Company for one year of certain
automobile allowances.
(7) In connection with his appointment as President and Chief Executive
Officer of the Company, the Company granted Mr. Toler an option to
purchase 300,000 shares of the Company's Common Stock pursuant to the
1991 Option Plan. Pursuant to the terms of the Letter Agreement between
the Company and Mr. Toler, in connection with Mr. Toler's resignation,
this option will expire on September 1, 2000.
(8) In connection with his appointment as Acting Chief Executive Officer of
the Company, the Company granted Mr. Carey an option to purchase 150,000
shares of the Company's Common Stock outside of the 1991 Option Plan as
an inducement for him entering into his employment agreement with the
Company. Pursuant to the terms of the Stock Option Agreement between the
Company and Mr. Carey, this option will expire on April 7, 2001.
(9) In connection with his directorship, since 1991, the Company has granted
Mr. Watson options to purchase an aggregate of 20,000 shares of the
Company's Common Stock pursuant to the 1992 Option Plan and an option to
purchase 10,000 shares of the Company's Common Stock pursuant to the 1991
Option Plan.
(10) In connection with his appointment as Chief Financial Officer, Executive
Vice President and Treasurer of the Company, the Company granted Mr. Nace
an option to purchase 75,000 shares of the Company's Common Stock
pursuant to the 1991 Option Plan. This option expired on September 30,
1999.
(11) In connection with his appointment as Vice President and General
Merchandise Manager of the Company, the Company granted Mr. Poole an
option to purchase 50,000 shares of the Company's Common Stock outside of
the 1991 Option Plan as an inducement for him entering into his
employment agreement with the Company.
(12) This amount includes $19,833 Mr. Toler was entitled to receive in
connection with his resignation as President and Chief Executive Officer
for, among other things, moving expenses, attorney's fees and living
expenses. It also includes $24,000 Mr. Toler received as compensation for
his duties as a Director of the Company while not also employed as
President and Chief Executive Officer during Fiscal 1999.
(13) Effective June 1, 1996, the Company replaced its tax-qualified
discretionary contribution retirement plan with a 401(k) Plan under which
the Company matches each employee's contribution up to 3% of
compensation. In fiscal 1998, the Company contributed $2,423 to the
individual account maintained on behalf of Mr. Toler pursuant to the
401(k) Plan. In fiscal 1997, the Company contributed $3,894 to an
individual account maintained on behalf of Mr. Toler pursuant to the
401(k) Plan.
(14) This amount includes $4,265 in insurance premiums paid by the Company
with respect to term life insurance for the benefit of Mr. Toler.
(15) This amount includes $21,138 reimbursed by the Company for the payment of
taxes, $30,357 reimbursed by the Company for living expenses, one month
severance of $29,167, consulting fees of $180,000 in connection with the
New Consulting Agreement (as defined below) and $50,000 in connection
with the CWC Consulting Agreement (as defined below), $37,500 in lieu of
the three-month notification necessary pursuant to the CWC Consulting
Agreement to terminate such agreement and $11,000 as compensation for his
duties as a Director of the Company while not employed as Acting Chief
Executive Officer during Fiscal 1999.
(16) This amount reflects compensation received by Mr. Watson for his duties
as a Director of the Company while not also employed as Acting Chief
Executive Officer during Fiscal 1999.
(17) This amount reflects $50,000 reimbursed by the Company for moving
expenses.
(18) This amount represents $1,017 in insurance premiums paid by the Company
with respect to term life insurance for the benefit of Mr. Canfield and
$7,667 in insurance premiums paid by the Company with respect to whole
life insurance for the benefit of Mr. Canfield.
(19) This amount represents $1,092 in insurance premiums paid by the Company
with respect to term life insurance for the benefit of Mr. Canfield and
$7,567 in remainder of premiums paid by the Company due to Mr. Canfield's
interest in the cash surrender value under one such insurance policy.
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the number of shares underlying stock options
granted during Fiscal 1999 to any person who acted as the Chief Executive
Officer or Acting Chief Executive Officer of the Company and each other
executive officer named in the Summary Compensation Table and certain other
information regarding such stock options.
<TABLE>
<CAPTION>
Individual Grants Realizable Value Alternative To
---------------------------------------------------------- At Assumed Annual (f) and (g):
Rates Of Stock Grant Date
Price Value
Appreciation for --------------
Option Term
-----------------
Number of
Securities Percent of Total Exercise
Underlying Options/ Sars Granted Or Base Grant Date
Option/Sars To Employees In Price Expiration Present Value
Name Granted (#) Fiscal Year ($/sh)(1) Date 5% ($) 10% ($) $
- - ---- ----------- --------------------- --------- ---------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
John E. Toler, Jr....... -- -- -- -- -- -- --
C. William Carey........ 150,000(2)(5) 55% $ 2.25 4/7/01 $213,000 $538,500 --
Kenneth W. Watson....... -- -- -- -- -- -- --
David J. Nace........... 75,000(3)(5) 27% $ 2.50 9/30/99 $117,500 $298,827 --
William K. Canfield..... -- -- -- -- -- -- --
Michael M. Poole........ 50,000(4)(5) 18% $2.0625 8/25/08 $ 68,000 $172,000 --
</TABLE>
- - --------
(1) The exercise price is equal to the fair market value of a share of Common
Stock on the grant date. The amounts shown as potential realizable value
illustrate what might be realized upon exercise immediately prior to
expiration of the option term using the 5% and 10% appreciation rates
established in regulations of the SEC, compounded annually. The potential
realizable value is not intended to predict future appreciation of the
price of the Company's Common Stock. The values shown do not consider
nontransferability, vesting or termination of the options upon termination
of employment.
(2) Granted outside the Company's 1991 Option Plan as an inducement to Mr.
Carey entering into his employment agreement with the Company. Pursuant to
the terms of the Stock Option Agreement between the Company and Mr. Carey,
this option will expire on April 7, 2001.
(3) Pursuant to the terms of the Stock Option Agreement between the Company
and Mr. Nace, this option expired on September 30, 1999.
(4) Granted outside the Company's 1991 Option Plan as an inducement to Mr.
Poole entering into an employment agreement with the Company.
(5) Upon the execution of the Settlement Agreement, all unvested stock options
on the date of the execution of the Settlement Agreement automatically
vested. As such, each of Messrs. Carey, Nace and Poole's stock options
automatically vested on February 23, 1999.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
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. The current
members of the Compensation Committee are Melanie L. Sturm and Peter R.
McMullin.
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
9
<PAGE>
outstanding performance through a combination of cash bonuses and stock option
grants and, through stock option grants, to provide a competitive compensation
package that will enable the Company to attract and retain the executives
needed to achieve such performance. The Compensation Committee also has
determined that any stock option or other equity-based compensation should
involve long-term vesting to encourage long-term tenure and enhancement of
shareholder value over the long-term.
Base salaries for executive officers are targeted according to the salaries
of employees holding similar offices and having similar responsibilities
within the local retail industry. The Compensation Committee also considers
the relative cost of living within the United States Virgin Islands. Annual
salary adjustments for executive officers are determined by evaluating the
competitive marketplace, the performance of the Company, the performance of
the executive officer and any change in the responsibilities assumed by the
executive officer. Salary adjustments, if any, are normally determined and
made on an annual basis. The base salary and salary adjustments for John E.
Toler, Jr., President and Chief Executive Officer of the Company during a
portion of Fiscal 1999, were established pursuant to his employment agreement,
as described below under "--Employment Contracts, Termination of Employment."
See "--Compensation of John E. Toler, Jr., Former Chief Executive Officer"
below. The base salary and salary adjustments for C. William Carey, Acting
Chief Executive Officer of the Company during a portion of Fiscal 1999, were
established pursuant to his employment agreement, as described below under "--
Employment Contracts, Termination of Employment." See "--Compensation of
C. William Carey, Former Acting Chief Executive Officer" below. The base
salary for Kenneth W. Watson, Acting Chief Executive Officer of the Company
during a portion of Fiscal 1999, was established pursuant to the terms of his
employment arrangement, as described below under "--Employment Contracts,
Termination of Employment." See "--Compensation of Kenneth W. Watson, Former
Acting Chief Executive Officer" below. The terms of employment of William K.
Canfield, Vice President of Store Operations, Michael M. Poole, Vice President
and General Merchandise Manager, and David J. Nace, the Chief Financial
Officer, Executive Vice President and Treasurer of the Company at the end of
Fiscal 1999, were determined by the terms of their respective employment
agreements. The terms of employment of Raoul Mills, Vice President of
Distribution, were determined by the Compensation Committee and approved by
the Board of Directors.
Cash bonuses paid to executive officers generally are earned primarily
through the achievement of financial goals relative to each officer's
responsibilities. Such financial goals include targeted sales and profit
levels, earnings before interest and taxes ratios, selling, general and
administrative expense ratios, return on assets, inventory shrinkage and
inventory turns. Cash bonuses may also be paid to executive officers in
accordance with the terms of their employment agreements. Bonuses payable
pursuant to such agreements generally are earned through the achievement of
the financial goals similar to those discussed above and may also be awarded
for executive retention purposes in the sole discretion of the Compensation
Committee. Pursuant to their respective employment or termination contracts,
Messrs. Nace, Poole, Canfield and Mills were each eligible to earn a bonus of
up to 25% of their respective base salaries for Fiscal 1999. In addition, Mr.
Toler was eligible to earn a bonus of up to 50% of his base salary for Fiscal
1999 and Mr. Carey was eligible to earn a bonus of up to a maximum of $50,000
per quarter for Fiscal 1999, therefore Mr. Carey received cash bonuses of
$41,250 for the second quarter of Fiscal 1999 and $50,000 for the third
quarter of Fiscal 1999. See "--Compensation of John E. Toler, Jr., Former
Chief Executive Officer," "--Compensation of C. William Carey, Former Acting
Chief Executive Officer" and "--Employment Contracts, Termination of
Employment" below. Mr. Watson was not entitled to receive a bonus for his
services rendered as Acting Chief Executive Officer of the Company during
Fiscal 1999. Occasionally, cash bonuses are paid to 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
10
<PAGE>
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.
Compensation Of John E. Toler, Jr., Former Chief Executive Officer
The base salary for Mr. Toler, the Company's President and Chief Executive
Officer during a portion of Fiscal 1999, was established by Mr. Toler's
employment agreement, dated as November 1, 1995 (the "Toler Employment
Agreement"). For a complete description see "--Employment Contracts,
Termination of Employment." In connection with his resignation, the Company
entered into a Letter Agreement, dated August 14, 1998 (the "Toler Letter
Agreement"), pursuant to which Mr. Toler received an aggregate amount equal to
$19,883 as payment for certain fees and expenses upon his resignation as
President and Chief Executive Officer of the Company. In addition, pursuant to
the Toler Letter Agreement, Mr. Toler received a one time stay bonus equal to
$4,000 and was entitled to purchase any and all of the Company's merchandise,
at the Company's cost, up to a maximum aggregate amount equal to $20,000 until
August 31, 1999. See "--Employment Contracts, Termination of Employment"
below. Additionally, pursuant to the terms of the Toler 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 Agreement and Plan of Merger, dated as of February 4, 1999, with
Destination Retail Holdings Corporation ("DRHC") and certain of its affiliates
pursuant to the terms of the 1991 Option Plan. In connection with his
resignation, the Board of Directors amended Mr. Toler's option agreement so
that he may exercise this option after the termination of his employment with
the Company at any time prior to September 1, 2000, upon which date the option
shall expire.
Compensation Of C. William Carey, Former Acting Chief Executive Officer
The base salary for Mr. Carey, Acting Chief Executive Officer of the Company
during a portion of Fiscal 1999, was established by Mr. Carey's Employment
Agreement, effective as of September 1, 1998 (the "CWC Employment Agreement").
For a complete description see "--Employment Contracts, Termination of
Employment." In connection with his resignation, the Company entered into a
Severance Agreement, dated February 23, 1999 (the "CWC Severance Agreement"),
pursuant to which Mr. Carey received an aggregate amount equal to $29,167 in
base salary on the effective date of his resignation as Acting Chief Executive
Officer of the Company. In addition, pursuant to the terms of the CWC
Severance Agreement, Mr. Carey (i) received $50,000 as a bonus for the
Company's third quarter of Fiscal 1999, (ii) is entitled to purchase any and
all of the Company's merchandise, at the Company's cost, for his personal use
until April 7, 2002, (iii) will be reimbursed for the premiums associated with
continuation of medical coverage under COBRA and (iv) was reimbursed for the
legal expenses he incurred in connection with the negotiation of the CWC
Severance Agreement. In connection with his appointment as the Acting Chief
Executive Officer of the Company, the Company granted Mr. Carey an option to
purchase 150,000 shares of the Company's Common Stock at $2.25 per share
outside of the 1991 Option Plan as an inducement to Mr. Carey entering into
his employment agreement with the Company. Pursuant to the terms of Mr.
Carey's Stock Option Agreement, this option automatically vested as a result
of the execution of the Settlement Agreement. In connection with his
resignation and pursuant to the terms of the Stock Option Agreement, Mr. Carey
may exercise this option until April 7, 2001.
Compensation Of Kenneth W. Watson, Former Acting Chief Executive Officer
The base salary for Mr. Watson, Acting Chief Executive Officer of the
Company during a portion of Fiscal 1999, was established by terms set forth in
Schedule C of the Settlement Agreement. Mr. Watson received a monthly salary
of $30,000 per month. In addition, Mr. Watson received reimbursement for all
reasonable living expenses. Mr. Watson was not entitled to receive a bonus for
his services rendered as Acting Chief Executive Officer of the Company.
11
<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.
The report of the Compensation Committee of the Board of Directors on
executive compensation is made by each of the current members of the
Compensation Committee listed below:
/s/ Melanie L. Sturm /s/ Peter R. McMullin
Compensation Committee Interlocks And Insider Participation
Mr. Carey served as a member of the Compensation Committee of the Board of
Directors of the Company during a portion of Fiscal 1999. Mr. Carey also
served as the Chairman of the Board of Directors of the Company until
September 1, 1998 and, on such date, became the Acting Chief Executive Officer
of the Company. Mr. Carey resigned as the Acting Chief Executive Officer of
the Company effective as of April 7, 1999 and did not stand for re-election as
a Director of the Company at the Annual Meeting of Stockholders held on April
7, 1999.
On June 2, 1996, Mr. Carey entered into a consulting agreement with the
Company (the "CWC Consulting Agreement"). Pursuant to the CWC Consulting
Agreement, Mr. Carey provided consulting services to the Company, including,
without limitation, advice with respect to business and product planning,
marketing strategy, leasing and new store development and executive
recruitment, in exchange for a consulting fee at the annual rate of $150,000,
payable in monthly installments. In addition, Mr. Carey was entitled to
receive reimbursement for all reasonable expenses incurred by him on behalf of
the Company in connection with the performance of his obligations thereunder.
In connection with his position as Acting Chief Executive Officer of the
Company, the Company terminated the CWC Consulting Agreement effective
September 1, 1998. Mr. Carey received $37,500 in lieu of the three-month
notification necessary pursuant to the CWC Consulting Agreement to terminate
such agreement.
In connection with his resignation as Acting Chief Executive Officer, the
Company entered into a severance agreement with Mr. Carey. For a description
of certain terms of this severance agreement see "--Employment Agreements,
Termination of Employment."
In connection with his resignation as Acting Chief Executive Officer,
effective April 7, 1999, the Company entered into a new consulting agreement
with Mr. Carey (the "New Consulting Agreement"), which expired on October 7,
1999. Pursuant to this New Consulting Agreement, Mr. Carey agreed to provide
consulting services to the Company similar to those he provided under the CWC
Consulting Agreement in exchange for a consulting fee equal to an aggregate of
$180,000, which was paid on April 7, 1999. Mr. Carey also was entitled to
receive reimbursement for all reasonable expenses incurred by him on behalf of
the Company in connection with such consulting services.
On February 23, 1999, the Company entered into an amended and restated
success fee agreement with Mr. Carey, which expires on January 15, 2000.
Pursuant to the terms of this agreement, under certain circumstances, Mr.
Carey will be entitled to receive a fee upon the successful completion of
certain transactions involving the Company. For a more detailed description of
this agreement, see "Certain Relationships and Related Transactions."
The other members of the Compensation Committee of the Board of Directors of
the Company during portions of Fiscal 1999 were Timothy B. Donaldson, Ilene B.
Jacobs, Melanie L. Sturm, Peter R. McMullin and Adriane Dudley. Messes. Jacobs
and Dudley and Mr. Donaldson each resigned as a member of the Board of
Directors and the Compensation Committee of the Board of Directors effective
September 14, 1998, June 4, 1999 and April 7, 1999, respectively. During
Fiscal 1999, the Company retained and continues to retain, Dudley, Clark &
Chan, of which Ms. Dudley is the senior partner, as its local law firm in St.
Thomas, U.S.V.I. Messrs. Donaldson and McMullin, and Messes. Jacobs, Dudley
and Sturm have never been officers or employees
12
<PAGE>
of the Company and, except as otherwise described herein, have never 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,
Inc. ("NASDAQ") stock market and the companies within the NASDAQ Retail Trade
Stocks Index prepared by the Center for Research in Security Prices at The
University of Chicago Graduate School of Business. The calculation of total
cumulative return assumes a $100 investment in the Company's Common Stock, the
NASDAQ stock market and the NASDAQ Retail Stocks Index on May 31, 1994.
<TABLE>
<CAPTION>
05/31/94 05/31/95 05/31/96 05/30/97 05/29/98 05/28/99
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Little Switzerland, Inc. 100.0 73.1 90.4 88.5 85.6 13.0
Nasdaq Stock Market (US Companies) 100.0 119.0 172.9 194.8 247.1 347.1
Nasdaq Retail Trade Stocks 100.0 102.0 140.0 135.1 180.9 183.3
</TABLE>
13
<PAGE>
Employment Contracts, Termination of Employment
The following is a description of the employment arrangements with the
persons who were officers of the Company during portions of Fiscal 1999, but
who are no longer officers of the Company.
On November 1, 1995, Mr. Toler entered into the Toler Employment Agreement
with the Company, pursuant to which Mr. Toler was to serve as President and
Chief Executive Officer of the Company for a five-year term. Mr. Toler
resigned as Chief Executive Officer and President of the Company effective
August 31, 1998. Under the Toler Employment Agreement, Mr. Toler received a
base salary of $300,000 over each twelve-month period employed. The Toler
Employment Agreement did not provide for any adjustment of base salary over
the term. Pursuant to the Toler Employment Agreement, Mr. Toler was entitled
to receive a bonus if certain performance criteria were satisfied, ranging
from 33.33% of base salary for fiscal 1996 to 50% of base salary for Fiscal
1999 and each fiscal year thereafter. In the event the Company terminated Mr.
Toler's employment without cause, Mr. Toler was entitled to receive the salary
plus the pro rata share of any cash bonus he would have received if he had
continued his employment for 18 months following the date of such termination.
Mr. Toler was subject to certain non-competition provisions during the term of
his employment and, in certain circumstances, for a period of 18 months
subsequent to his leaving the Company. On August 14, 1998, Mr. Toler entered
into the Toler Letter Agreement with the Company, pursuant to which Mr. Toler
received an aggregate amount equal to $19,883 as payment for certain fees and
expenses upon his resignation as President and Chief Executive Officer of the
Company. In addition, pursuant to the Toler Letter Agreement, Mr. Toler
received a one time stay bonus equal to $4,000 and was entitled to purchase
any and all of the Company's merchandise, at the Company's cost, up to a
maximum aggregate amount equal to $20,000 until August 31, 1999. For a
description of the options granted to Mr. Toler see "--Report of the
Compensation Committee of the Board of Directors on Executive Compensation--
Compensation of John E. Toler, Jr., Former Chief Executive Officer."
Mr. Carey entered into the CWC Employment Agreement with the Company
effective as of September 1, 1998. Under the terms of the CWC Employment
Agreement, Mr. Carey was to serve as Acting Chief Executive Officer and
President of the Company for a one-year term, or until such time as a
successor Chief Executive Officer and President of the Company commenced
employment. Mr. Carey was to receive a base salary of $350,000 over the
twelve-month period employed, but such amount was not subject to adjustment
over the term. In addition, Mr. Carey was entitled to receive a minimum of six
months' salary if the Company employed him for more than three months of the
term of the employment (minus the amount of base salary actually paid to Mr.
Carey). Upon the achievement of certain performance and other criteria, Mr.
Carey was entitled to receive up to a maximum of $50,000 per quarter (and up
to 100% of such amount for each quarter or part thereof worked) as a quarterly
bonus. The Board of Directors authorized a payment of $41,250 to Mr. Carey as
a bonus for the second quarter of Fiscal 1999. Mr. Carey also received payment
for certain expenses, including living expenses, relocation expenses and
travel related expenses. Mr. Carey was subject to certain non-competition
provisions during the term of this employment. Additionally, on September 1,
1998, the Company granted Mr. Carey an option to purchase 150,000 shares of
the Company's Common Stock at $2.25 per share. The Company granted this option
outside of the 1991 Option Plan as an inducement to Mr. Carey entering into
his employment agreement with the Company.
Mr. Carey resigned as the Acting Chief Executive Officer of the Company
effective April 7, 1999. In connection with his resignation, on February 23,
1999, Mr. Carey entered into the CWC Severance Agreement with the Company.
Pursuant to the terms of the CWC Severance Agreement, Mr. Carey received an
aggregate amount equal to $29,167 in base salary on the effective date of his
resignation as Acting Chief Executive Officer of the Company. In addition,
pursuant to the terms of the CWC Severance Agreement, Mr. Carey (i) received
$50,000 as a bonus for the Company's third quarter of Fiscal 1999, (ii) is
entitled to purchase any and all of the Company's merchandise, at the
Company's cost, for his personal use until April 7, 2002, (iii) will be
reimbursed for the premiums associated with continuation of medical coverage
under COBRA and (iv) was reimbursed for the legal expenses he incurred in
connection with the negotiation of the CWC Severance Agreement. Pursuant to
the terms of his Stock Option Agreement, the option granted to Mr. Carey in
connection with his appointment as the Acting Chief Executive Officer of the
Company automatically vested as a result of the execution of the Settlement
Agreement and is exercisable until April 7, 2001.
14
<PAGE>
Mr. Watson was appointed as the Acting Chief Executive Officer of the
Company effective as of April 7, 1999 and resigned on August 17, 1999. Mr.
Watson served as the Acting Chief Executive Officer of the Company from month
to month until a successor President and Chief Executive Officer of the
Company commenced employment. Mr. Watson received a salary equal to $30,000
per month for each month employed, but such amount was not subject to
adjustment over the term. Mr. Watson also received reimbursement of his
reasonable living expenses during his term as Acting Chief Executive Officer.
Mr. Nace entered into an employment agreement with the Company (the "Nace
Employment Agreement") effective as of September 10, 1998 pursuant to which
Mr. Nace was to serve as the Chief Financial Officer, Executive Vice President
and Treasurer of the Company for a two-year term. Mr. Nace resigned as such
effective July 2, 1999. Mr. Nace received a base salary of $200,000 over each
twelve-month period employed, but such amount was not subject to adjustment
over the term. Upon achievement of certain performance criteria, Mr. Nace was
entitled to receive a bonus in an amount of up to 25% of his base salary in
each year. Mr. Nace's employment could have been terminated immediately by the
Company with "cause" (as defined in the Nace Employment Agreement). If Mr.
Nace's employment was terminated by the Company due to his disability, without
cause or within one year from the date of a change of control of the Company,
then he was entitled to receive, on the date of such termination, a lump sum
payment equal to twelve months of base salary plus the pro rata share of any
accrued and unpaid cash bonus Mr. Nace earned prior to his termination. Mr.
Nace was subject to certain non-competition provisions during the term of his
employment. Additionally, on September 10, 1998, the Company granted Mr. Nace
an option to purchase 75,000 shares of the Company's Common Stock at $2.50 per
share pursuant to the 1991 Option Plan. Due to his resignation, this option
expired on September 30, 1999.
The following is a description of the employment arrangements of the current
executive officers of the Company.
Mr. Baumgardner entered into an employment agreement with the Company (the
"Baumgardner Employment Agreement") effective as of August 17, 1999. Under the
terms of the Baumgardner Employment Agreement, Mr. Baumgardner will serve as
the President and Chief Executive Officer of the Company for a two-year term.
Mr. Baumgardner receives a base salary of $200,000 over each twelve-month
period employed, but such amount will not be subject to adjustment over the
term. Upon achievement of certain performance criteria Mr. Baumgardner will be
entitled to receive a bonus in an amount of up to 75% of his base salary in
each year. In addition, Mr. Baumgardner received a special bonus upon
inception of employment in an aggregate amount equal to $125,000, payable in
twelve monthly installments, which commenced on September 1, 1999. Mr.
Baumgardner's employment may be terminated immediately by the Company for
"cause" (as defined in the Baumgardner Employment Agreement). If Mr.
Baumgardner's employment is terminated by the Company without cause, then he
is entitled to receive a lump sum payment equal to twelve months of base
salary, plus any accrued but unpaid annual bonus which he has earned. If,
within one year from the date of a Change of Control (as defined in the
Baumgardner Employment Agreement), Mr. Baumgardner's employment is terminated
by the Company or its successor entity for any reason other than death, cause
or disability, then he is entitled to receive a lump sum payment equal to (a)
the number of months of base salary remaining in the term of employment in the
event such termination occurs on or prior to August 17, 2000 or (b) twelve
months of base salary in the event such termination occurs after August 18,
2000, whichever is applicable. Mr. Baumgardner will be subject to certain non-
competition provisions during the term of his employment. Additionally, on
August 17, 1999, the Company granted Mr. Baumgardner an option to purchase
350,000 shares of the Company's Common Stock at $.4375 per share. The Company
granted this option outside the 1991 Option Plan as an inducement to Mr.
Baumgardner entering into his employment agreement with the Company.
Mr. Hopper entered into an employment agreement with the Company (the
"Hopper Employment Agreement") effective as of June 7, 1999. Under the terms
of the Hopper Employment Agreement, Mr. Hopper served as Vice President of
Finance until July 2, 1999 and as Chief Financial Officer and Treasurer of the
Company thereafter. Mr. Hopper is employed for a period of one year, but the
Hopper Employment Agreement is automatically extended for periods of one year,
unless either party elects not to extend the term. Mr. Hopper receives a base
salary of $150,000 over each twelve-month period employed, but such amount
will not be subject
15
<PAGE>
to adjustment over the term. Upon achievement of certain performance criteria,
Mr. Hopper is entitled to receive a bonus in an amount of up to 25% of his
base salary in each year. Mr. Hopper's employment may be terminated
immediately by the Company for "cause" (as defined in the Hopper Employment
Agreement). If Mr. Hopper's employment is terminated by the Company without
cause or if a Terminating Event (as defined in the Hopper Employment
Agreement) occurs within one year from the date of a change of control of the
Company, then he will be entitled to receive, on the date of termination,
among other things, a lump sum payment equal to (a) six months of base salary
in the event such termination occurs on or prior to December 7, 1999; (b)
seven months of base salary in the event such termination occurs after
December 8, 1999 but on or prior to January 7, 2000; (c) eight months of base
salary in the event such termination occurs after January 8, 2000 but on or
prior to February 7, 2000; (d) nine months of base salary in the event such
termination occurs after February 8, 2000 but on or prior to March 7, 2000;
(e) ten months of base salary in the event such termination occurs after
March 8, 2000 but on or prior to April 7, 2000; (f) eleven months of base
salary in the event such termination occurs after April 8, 2000 but on or
prior to May 7, 2000; or (g) twelve months of base salary if such termination
occurs after May 8, 2000, plus any accrued but unpaid annual bonus which he
has earned prior to his termination. Additionally, on June 7, 1999, the
Company granted Mr. Hopper an option to purchase 50,000 shares of the
Company's Common Stock at $.6875 per share pursuant to the 1991 Option Plan.
Mr. Poole entered into an employment agreement with the Company (the "Poole
Employment Agreement") effective as of August 25, 1998. Under the terms of the
Poole Employment Agreement, Mr. Poole will serve as Vice President and General
Merchandise Manager of the Company for a two-year term. Mr. Poole receives a
base salary of $135,000 over each twelve-month period employed, but such
amount will not be subject to adjustment over the term. Upon achievement of
certain performance criteria, Mr. Poole is entitled to receive a bonus in an
amount of up to 25% of his base salary in each year. Mr. Poole's employment
may be terminated immediately by the Company for "cause" (as defined in the
Poole Employment Agreement). If Mr. Poole's employment is terminated by the
Company without cause or within one year from the date of a change of control
of the Company, then he will be entitled to receive, on the date of such
termination, a lump sum payment equal to twelve months of base salary plus the
pro rata share of any accrued and unpaid cash bonus Mr. Poole earned prior to
his termination. Additionally, on August 25, 1998, the Company granted Mr.
Poole an option to purchase 50,000 shares of the Company's Common Stock at
$2.0625 per share. The Company granted this option outside of the 1991 Option
Plan as an inducement to Mr. Poole entering into his employment agreement.
This option automatically vested upon the execution of the Settlement
Agreement pursuant to the terms of Mr. Poole's Stock Option Agreement.
On June 16, 1994, Mr. Canfield entered into an employment agreement with the
Company (the "Canfield Employment Agreement"), pursuant to which Mr. Canfield
serves as the Vice President of Store Operations of the Company for a five-
year term. On November 13, 1998, Mr. Canfield entered into an amendment to the
Canfield Employment Agreement that, in part, extends the term of his
employment until June 15, 2000. Under the Canfield Employment Agreement, Mr.
Canfield receives a base salary of $182,000 over the twelve-month period
ending on June 15, 2000, and upon the achievement of certain performance
criteria, a bonus in an amount of up to 25% of his base salary in each year.
Pursuant to the Canfield Employment Agreement, Mr. Canfield received a signing
bonus equal to $50,000 on the date he became Vice President of Store
Operations of the Company. In the event Mr. Canfield's employment is
terminated by the Company due to his disability, for non-performance or
without cause, Mr. Canfield is entitled to receive the salary he would have
received had he continued his employment for 60 days, 90 days or 12 months,
respectively, following the date of such termination. Pursuant to the
amendment to the Canfield Employment Agreement, in the event that Mr. Canfield
is terminated by the Company without cause within one year from the date of a
change of control of the Company, Mr. Canfield will be entitled to receive, on
the date of such termination, a lump sum payment equal to twelve months of
base salary plus the pro rata share of any accrued and unpaid bonus which Mr.
Canfield earned prior to his termination. Mr. Canfield is subject to certain
non-competition provisions during the term of his employment and, in certain
circumstances, for a period of up to one year subsequent to his leaving the
Company.
16
<PAGE>
Mr. Mills entered into a Termination Subsequent of Change in Control
Agreement (the "Mills Termination Agreement") effective as of October 1, 1998.
Under the terms of this agreement, if Mr. Mills' employment is terminated by
the Company pursuant to a Terminating Event (as defined in the Mills
Termination Agreement) within one year from the date of a change of control of
the Company, then as of the date of such Terminating Event he will be entitled
to receive a lump sum payment equal to twelve (12) months base salary plus any
accrued and unpaid annual bonus which he earned prior to his termination.
While Mr. Mills has not entered into an employment agreement with the Company,
pursuant to the terms of the Mills Termination Agreement he is entitled to
receive a bonus in an amount up to 25% of his base salary in each year.
17
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Carey, a former director and officer of the Company, entered into the
CWC Consulting Agreement with the Company on June 2, 1996, which provided,
among other things, that Mr. Carey would receive in exchange for certain
services a consulting fee at the annual rate of $150,000 over a three-year
term, as well as reimbursement for all reasonable expenses incurred by him on
behalf of the Company in connection with the performance of his obligations
thereunder. In connection with his position as Acting Chief Executive Officer
of the Company, the Company terminated the CWC Consulting Agreement effective
September 1, 1998. Mr. Carey received $37,500 in lieu of the three-month
notification necessary pursuant to the CWC Consulting Agreement to terminate
such agreement. See "Executive Compensation--Compensation Committee Interlocks
and Insider Participation."
In connection with his resignation as Acting Chief Executive Officer of the
Company, Mr. Carey entered into a severance agreement. In addition, Mr. Carey
entered into a new consulting agreement with the Company, which expired on
October 7, 1999. For a description of certain terms of such agreements, see
"Executive Compensation--Compensation Committee Interlocks and Insider
Participation" and "--Employment Contracts, Termination of Employment."
To modify a previously existing agreement, on February 23, 1999, the Company
entered into an amended and restated success fee agreement with Mr. Carey (the
"Amended Success Fee Agreement") which narrowed the scope of the Success Fee
Agreement, dated as of January 15, 1999 (the "Old Success Fee Agreement"),
between the Company and Mr. Carey. The Old Success Fee Agreement provided for
the payment of a fee if Mr. Carey actively participated in the negotiation,
structuring and closing of a transaction or a series of related transactions
approved by the Board of Directors of the Company that are a tender or
exchange offer, merger, reorganization, consolidation or other business
combination that directly result in the sale or other disposition of all or
substantially all of the assets of the Company or a sale of all or
substantially all of the issued and outstanding stock of the Company. Under
the Amended Success Fee Agreement, the Company is only obligated to pay Mr.
Carey a fee if the Company requests in writing that he participate in such a
transaction. If the Company requests Mr. Carey's participation in such a
transaction, as compensation for all such services, Mr. Carey is entitled to
receive an amount equal to 83.33% of two-thirds of one percent of the
aggregate value (as defined in the Amended Success Fee Agreement) of any such
transaction. In addition, no payment will be due Mr. Carey if such transaction
involves any person, company or entity (i) that is operated by Mr. Carey, (ii)
for which Mr. Carey is performing or has performed, in the twelve (12) months
preceding the execution of the definitive documents relating to such
transaction, any material advisory or consulting services, (iii) that employs
Mr. Carey or (iv) in which Mr. Carey owns or has an agreement to own more than
an one percent (1%) equity interest in a privately-held corporation or a five
percent (5%) equity interest in a publicly-held corporation. The Amended
Success Fee Agreement automatically terminates on January 15, 2000 if the
closing of any such transaction does not occur by such date.
Mr. Toler, a former director of the Company, served as President and Chief
Executive Officer of the Company until his resignation as such on August 31,
1998. In connection with his resignation, the Company entered into the Toler
Letter Agreement. For a description of the terms of Mr. Toler's employment
agreement and the Toler Letter Agreement, see "Executive Compensation--
Employment Contracts, Termination of Employment."
During Fiscal 1999, the Company retained and continues to retain, Dudley,
Clark & Chan, of which Ms. Dudley, a former Director of the Company, is the
senior partner, as its local law firm in St. Thomas, U.S.V.I. Based on
information provided to the Company by Ms. Dudley, the fees received by
Dudley, Clark & Chan from the Company during Fiscal 1999 did not exceed 5% of
such firm's gross revenues for its last fiscal year.
18
<PAGE>
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
Beneficial Ownership
The table sets forth below, to the best knowledge and belief of the Company,
certain information regarding the beneficial ownership of the Company's Common
Stock as of November 15, 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 current Directors, (iii) each of the named executive officers in
the Summary Compensation Table and (iv) all of the Company's current executive
officers and Directors as a group.
<TABLE>
<CAPTION>
Directors, Executive Officers and 5% Shares Beneficially Percent of
Stockholders Owned(1) Class(2)
- - ------------------------------------ ------------------- ----------
<S> <C> <C>
Jewelcor Management, Inc. .................... 1,402,000(3) 16.3%
Seymour Holtzman
Steven Holtzman
Trust F/B/O A. Holtzman Garcia
Custodial Account F/B/O Chelsea Holtzman
100 N. Wilkes-Barre Boulevard
Wilkes-Barre, PA 18702
ValueVest Partners L.P. ...................... 1,177,400(4) 13.6%
1 Sansome Street, 39th Floor,
San Francisco, CA 94104
Donald L. Sturm
3033 East First Avenue, Suite 200,
Denver, CO 80206
Franklin Advisory Services, Inc. ............. 813,000(5) 9.4%
One Parker Plaza, 16th Floor
Fort Lee, NJ 07024
Franklin Resources
Charles B. Johnson
Rupert H. Johnson, Jr.
77 Mariners Island Boulevard
San Mateo, CA 94404
C. William Carey.............................. 765,000(6) 8.7%
150 Federal Street
Boston, MA 02110
Robert L. Baumgardner......................... 70,000(7) *
William Canfield.............................. 60,000(8) *
Patrick J. Hopper............................. 10,000(9) *
Richard C. Hunter............................. 3,000(10) *
Peter R. McMullin............................. 7,700(11) *
Raoul Mills................................... 5,000(12) *
David J. Nace................................. 0(13)
Alex J. Nobile................................ 0
Michael M. Poole.............................. 50,000(14) *
Melanie L. Sturm.............................. 3,000(15) *
John E. Toler, Jr............................. 300,000(16) 3.4%
Kenneth W. Watson............................. 30,000(17) *
All current directors and executive officers
as a group (10 persons)...................... 238,700 2.7%
</TABLE>
- - --------
*Less than 1%.
19
<PAGE>
(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 above 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 persons had the right to
acquire within 60 days of November 15, 1999, pursuant to stock options.
(2) Percentages are calculated on the basis of 8,627,209 shares of Common
Stock outstanding as of November 15, 1999.
(3) The above information is based on copies of a statement on Schedule 13D
filed with the SEC on September 4, 1998, as amended by Amendment No. 1 to
Schedule 13D filed with the SEC on September 24, 1999, Amendment No. 2 to
Schedule 13D filed with the SEC on October 15, 1998, Amendment No. 3 to
Schedule 13D filed with the SEC on October 13, 1998, Amendment No. 4 to
Schedule 13D filed with the SEC on January 28, 1999, Amendment No. 5 to
Schedule 13D filed with the SEC on March 1, 1999, Amendment No. 6 to
Schedule 13D filed with the SEC on April 1, 1999 and Amendment No. 7 to
Schedule 13D filed with the SEC on June 18, 1999, which indicates that
Jewelcor Management, Inc. has sole voting and sole dispositive power with
respect to 1,341,000 shares, Seymour Holtzman and Steven Holtzman have
shared voting and shared dispositive power with respect to 48,000 shares,
the Custodial Account F/B/O Chelsea Holtzman, has sole voting and sole
dispositive power with respect to 3,000 shares, and the Trust F/B/O
Allison Holtzman Garcia, has sole voting and sole dispositive power with
respect to 10,000 shares. For purposes of the reporting requirements of
the Exchange Act, each of Jewelcor Management, Inc., Jewelcor Inc., S.H.
Holdings, Inc., Seymour Holtzman, Steven Holtzman, Evelyn Holtzman, the
Custodial Account F/B/O Chelsea Holtzman and the Trust F/B/O Allison
Holtzman Garcia may be deemed to be a beneficial owner of such
securities; however, each such person expressly disclaims beneficial
ownership of any Common Stock of the Company beneficially owned by any
other such person, except that Seymour Holtzman acknowledges beneficial
ownership of the Common Stock owned by Jewelcor Management, Inc.
(4) The above information is based on copies of a statement on Schedule 13D
filed with the SEC on May 5, 1997, as amended by Amendment No. 1 to
Schedule 13D filed with the SEC on August 4, 1997, Amendment No. 2 filed
with the SEC on October 30, 1998, and Amendment No. 3 filed with the SEC
on March 5, 1999, which indicates that ValueVest Partners L.P. has sole
voting and sole dispositive power with respect to 395,300 shares and
Donald L. Sturm has sole voting and sole dispositive power with respect
to 782,100 shares.
(5) The above information is based on copies of a statement on Schedule 13G
filed with the SEC on February 13, 1997, as amended by Amendment No. 1 to
Schedule 13G filed with the SEC on November 12, 1997, Amendment No. 2 to
Schedule 13G filed with the SEC on February 5, 1998, and Amendment No. 3
to Schedule 13G filed with the SEC on February 2, 1999, which indicates
that the Franklin Advisory Services, Inc. has sole voting power with
respect to 513,000 shares and sole dispositive power with respect to all
813,000 shares. These securities are owned by one or more open or closed-
end investment companies or other managed accounts, which are advised by
direct and indirect investment advisory subsidiaries of Franklin
Resources, Inc. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), each of
Franklin Advisory Services, Inc., Franklin Resources, Inc., Charles B.
Johnson and Rupert B. Johnson may be deemed to be a beneficial owner of
such securities; however, each such person expressly disclaims any
economic interest or beneficial ownership in any of such securities.
(6) The above information is based, in part, on copies of a statement on
Schedule 13D filed with the SEC on September 3, 1999, as amended by
Amendment No. 1 to Schedule 13D filed with the SEC on November 15, 1999,
which indicates that Mr. Carey has sole voting and sole dispositive power
with respect to 615,000 shares. Also, includes 150,000 shares of Common
Stock deemed to be beneficially owned by Mr. Carey which are subject to
options previously granted outside of the 1991 Option Plan. This option
expires on April 7, 2001.
(7) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Baumgardner which are subject to options previously granted outside the
Company's 1991 Option Plan as an inducement to Mr. Baumgardner entering
into an employment agreement with the Company.
(8) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Canfield which are subject to options previously granted pursuant to the
1991 Option Plan.
(9) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Hopper which are subject to options previously granted pursuant to the
1991 Option Plan.
(10) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Hunter which are subject to options previously granted pursuant to the
1992 Option Plan.
(11) Includes 3,000 shares of Common Stock deemed to be beneficially owned by
Mr. McMullin which are subject to options previously granted pursuant to
the 1992 Option Plan.
20
<PAGE>
(12) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Mills which are subject to options previously granted pursuant to the
1991 Option Plan.
(13) In connection with Mr. Nace's appointment as Chief Financial Officer, the
Company granted him an option for 75,000 shares pursuant to the 1991
Option Plan. This option expired on September 30, 1999.
(14) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Poole which are subject to options previously granted outside the
Company's 1991 Option Plan as an inducement to Mr. Poole entering into an
employment agreement with the Company.
(15) Represents shares of Common Stock deemed to be beneficially owned by Ms.
Sturm which are subject to options previously granted pursuant to the
1992 Option Plan.
(16) Represents shares of Common Stock deemed to be beneficially owned by Mr.
Toler which are subject to options previously granted pursuant to the
1991 Option Plan. This option expires on September 1, 2000.
(17) Represents 10,000 shares and 20,000 shares of Common Stock deemed to be
beneficially owned by Mr. Watson which are subject to options previously
granted pursuant to the 1991 Option Plan and 1992 Option Plan,
respectively.
21
<PAGE>
PROPOSAL NUMBER 2
REVERSE STOCK SPLIT
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION TO
EFFECTUATE A ONE-FOR-FIVE REVERSE STOCK SPLIT
The Board of Directors has determined and declared that it is advisable, and
is therefore submitting to you for your approval, a proposed amendment to the
Certificate of Incorporation that will exchange each five shares of the
Company's issued and outstanding Common Stock into one new share of post split
common stock, par value $.05 per share (the "Post Split Common Stock"). The
text of the proposed certificate of amendment is set forth in Exhibit A to
this Proxy Statement. The Company's five million (5,000,000) shares of
authorized preferred stock will not be affected by the proposed reverse stock
split. Presently there are no outstanding shares of preferred stock. If the
stockholders of the Company approve this proposal, then the reverse stock
split will become effective as of 5:00 p.m. on the close of business, on the
date that the certificate of amendment to the Company's Certificate of
Incorporation is filed with the Secretary of the State of Delaware (the
"Effective Date"). If for any reason the Board of Directors deems it
advisable, the proposed amendment may be abandoned at any time before the
Effective Date, whether before or after the Annual Meeting (even if the
proposal has been approved by the stockholders).
New shares of Post Split Common Stock will be issued in connection with the
reverse stock split. As soon as practicable after the Effective Date, the
Company will send a letter to each holder of record of a stock certificate or
certificates which represent issued Common Stock outstanding on the Effective
Date. The letter will instruct you on how to surrender your certificate(s) to
State Street Bank and Trust Company, the Company's transfer agent, in exchange
for certificates representing the number of shares of the Post Split Common
Stock into which your shares of Common Stock have been converted as a result
of the reverse stock split. You will not receive any new certificates or, if
applicable, cash payment for fractional interests, until you have surrendered
your old certificate(s) together with a completed and executed form letter
(which the Company will provide, along with the instructions) to the transfer
agent. See "--Exchange of Stock Certificates and Elimination of Fractional
Shares."
The Board of Directors of the Company recommends that you vote FOR the
proposed amendment to the Company's Certificate of Incorporation that, if
approved, will effect a one-for-five reverse stock split of the Company's
Common Stock.
Purposes and Effect of Reverse Stock Split
On June 7, 1999, NASDAQ notified the Company that the Company would not
remain eligible for continued listing on The Nasdaq National Market System
("NMS") unless its Common Stock demonstrated compliance with NASDAQ's $1.00
minimum bid price requirement during the period ending September 6, 1999. On
July 9, 1999, NASDAQ notified the Company that the Company also was not in
compliance with NASDAQ's $5 million minimum public float value requirement for
listing on NMS. The Company requested a panel hearing as permitted by
applicable NASDAQ procedure, which was held on October 14, 1999. Prior to the
hearing, the Company was notified that the NASDAQ staff had recommended that
the hearing panel delist the Company from NMS as a result of its belief that
the Company did not provide a definitive plan to achieve near term compliance
with the continued listing requirements or to sustain such compliance over an
extended period of time. At the hearing, the Company presented a plan to
transfer from NMS to the NASDAQ SmallCap Market and effectuate a one-for-five
reverse stock split of the Company's Common Stock. On November 10, 1999,
NASDAQ informed the Company that it would permit the transfer of the Company's
Common Stock to the NASDAQ SmallCap Market, effective as of the open of
business on November 12, 1999. The Company's continued listing on the NASDAQ
SmallCap Market is subject to certain conditions, including obtaining asset-
based financing to pay down its existing debt and for working capital purposes
and demonstrating a closing bid price at or above $1.00 per share prior to
December 22, 1999; immediately thereafter, the Company must evidence a closing
bid price at or above $1.00 per share for a minimum of ten consecutive trading
days. The Company must also be able to demonstrate
22
<PAGE>
compliance with all of the other NASDAQ SmallCap Market continued listing
requirements. However, the Company cannot guarantee that these conditions will
be met and that the Company will not be delisted from the NASDAQ SmallCap
Market, that even with the reverse stock split it will meet all of the NASDAQ
SmallCap Market's continued listing criteria, or that the price for shares of
the Company's Common Stock after the reverse stock split will be five times
the price for shares immediately before the split or will be maintained for
any period of time.
The Board believes that if the proposed amendment is approved at the Annual
Meeting and the reverse stock split is effected, the Company should regain
compliance with the $1.00 per share minimum bid price required to remain
listed on the NASDAQ SmallCap Market. However, the Company also needs to
satisfy other criteria to meet the maintenance requirements. These other
criteria consist of maintaining (i) a market capitalization of at least
$35,000,000, or net tangible assets of $2,000,000, or net income of $500,000
in the latest fiscal year or two of the last three fiscal years, (ii) a public
float (i.e., shares held other than by officers, directors and owners of more
than 10% of the total shares outstanding) of at least 500,000 shares, (iii) a
market value of the public float of at least $1 million, (iv) at least 300
stockholders (round lot holders), (v) at least two market makers and (vi)
compliance with certain corporate governance requirements. At this time, the
Company believes it will be able to satisfy these requirements. However, even
if the proposed amendment is approved and the reverse stock split is effected,
there can be no assurance that the Company will continue to satisfy these
maintenance criteria.
The delisting of the Company's Common Stock from the NASDAQ SmallCap Market
could adversely affect the liquidity of the Company's Common Stock. If the
Company's Common Stock were to be delisted from the NASDAQ SmallCap Market, it
would likely be quoted in the "pink sheets" maintained by the National
Quotation Bureau, Inc. or the OTC Bulletin Board maintained by NASDAQ. If the
Company's Common Stock is listed on the OTC Bulletin Board or the pink sheets,
then the spread between the bid and ask price of shares of the Company's
Common Stock is likely to be greater than at present and stockholders may
experience a greater degree of difficulty engaging in trades of shares of the
Company's Common Stock.
As long as the Company's Common Stock has a market price of less than $5.00
per share, if it is not traded on NASDAQ and another exception is not
available, it will be considered a "penny stock" within the meaning of
relevant SEC regulations. Under these regulations, any transaction involving a
penny stock, unless exempt, requires the delivery, prior to the transaction,
of a disclosure schedule prepared by the SEC relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both
the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market-maker, the broker-
dealer must disclose this fact and the broker dealer's presumed control over
the market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. These penny stock rules may restrict the
ability of broker-dealers to sell the Company's securities and may affect the
ability of purchasers to sell the Company's securities in the secondary
market, particularly if the Company is delisted from the NASDAQ SmallCap
Market.
In addition, the Board of Directors believes that the present market price
of the Company's Common Stock makes it less attractive to members of the
financial community and the investing public. Theoretically, the number of
shares outstanding should not, by itself, affect the marketability of the
stock, the type of investor who acquires it or a company's reputation in the
financial community. However, in practice, this is not necessarily the case,
as many investors look upon low priced stock as unduly speculative in nature
and, as a matter of policy, avoid investment in such stocks. Certain policies
and practices of the securities industry also may tend to discourage
individual brokers within brokerage firms from dealing in lower-priced stocks.
Some of those policies and practices involve time-consuming procedures that
make the handling of lower-priced stocks economically unattractive. In
addition, the structure of trading commissions also tends to have an adverse
impact upon holders of low priced stock because the brokerage commission on a
sale of low priced stock generally represents a higher percentage of the sales
price than the commission on higher priced issues. The reverse stock split may
lessen these adverse effects if it results in a higher price per share of the
Company's Post Split Common Stock.
23
<PAGE>
The Board of Directors believes that the decrease in the number of shares of
Post Split Common Stock outstanding as a consequence of the proposed reverse
stock split and the resulting anticipated increased price level could
encourage greater interest in the Post Split Common Stock by the financial
community and promote greater liquidity for the holders of the Post Split
Common Stock. It is possible, however, that liquidity could be affected
adversely by the reduced number of shares outstanding after the proposed
reverse stock split.
The Board of Directors caution you that the effect of the reverse stock
split upon the market prices for the Company's Post Split Common Stock cannot
be accurately predicted. In particular, there is no assurance that the market
prices for the Company's Post Split Common Stock will be five times the market
prices immediately prior to the reverse stock split. Furthermore, the Company
cannot be certain that the proposed reverse stock split will achieve the
desired results which have been outlined above, nor can the Company be certain
that the reverse stock split will not adversely impact the market price of the
Post Split Common Stock or, alternatively, that any increase in the market
price of the Company's Post Split Common Stock immediately after the reverse
stock split will be sustained. In addition, the reverse stock split may have
the effect of creating odd lots of stock for some stockholders, i.e., a number
of shares less than 100. Odd lots may be more difficult to sell or have higher
brokerage commissions associated with their sale.
A further effect of the reverse stock split would be adjustments in the
number of shares granted and reserved under the Company's 1991 Option Plan,
and 1992 Option Plan and reserved under the 1992 ESPP. These plans provide
that the number of shares granted and/or reserved thereunder are to be
adjusted appropriately to give effect to any reverse stock split. If the
reverse stock split is approved, the number of shares reserved for issuance
under the 1991 Option Plan will be decreased from 900,000 to 180,000 shares,
which does not take into account any shares previously issued pursuant to the
exercise of existing options. The number of shares reserved for issuance under
the 1992 Option Plan also will be decreased from 150,000 to 30,000. In
addition, stock options granted outside of the 1991 Option Plan also would be
decreased accordingly. Thus, adoption of Proposal Number Two would require
adjustments in the outstanding options granted, which would decrease the
number of shares issuable upon exercise of the options and increase the
exercise price per share, each by a factor of five. Adoption of Proposal
Number Two also would require adjustment to the number of shares available for
issuance under the Company's 1992 ESPP. As such, the number of shares reserved
for issuance under the 1992 ESPP will be decreased from 100,000 to 20,000
shares, which number does not take into account any shares previously issued
pursuant the ESPP.
An additional effect of the adoption of Proposal Number Two would be a
change in the par value of the Company's Common Stock to $.05 per share. This
change is being made to ensure that shares of Post Split Common Stock will not
be confused with shares of the old Common Stock. The change in par value is
not expected to have a material effect upon the Company and its stockholders.
Par value represents the minimum consideration which may be received by the
Company for the issuance of a share of stock.
As a result of the reverse stock split, the number of shares of Common Stock
which you hold as of the close of business on the Effective Date will be equal
to the number of shares you hold immediately prior to the close of business on
the Effective Date divided by five, ignoring any fractional shares resulting
from the reverse stock split which will be converted into cash as a result of
the transfer agent's sale of any fractional shares. The number of shares of
Post Split Common Stock issued and outstanding will be reduced. The reverse
stock split will not affect your percentage ownership interest in the Company
or proportional voting power, except for minor differences resulting from the
payment of cash in lieu of fractional shares. The terms of the Company's
Common Stock and preferred stock, and the rights and privileges of the holders
of such shares, will be unaffected by the reverse stock split.
No scrip or fractional share certificates for the new shares of Post Split
Common Stock will be issued in connection with the reverse stock split.
Instead, a certificate or certificates evidencing the aggregate of all
fractional shares otherwise issuable will be issued to the Company's transfer
agent or its nominee, as agent for the accounts of all holders of the Post
Split Common Stock otherwise entitled to have a fraction of a share issued to
them in connection with the reverse stock split. The Company's transfer agent
will sell the fractional interests
24
<PAGE>
as soon as practicable on the basis of prevailing market prices of the
Company's Post Split Common Stock on the NASDAQ SmallCap Market at the time of
sale. After the Effective Date, the transfer agent will pay to such
stockholders, promptly after they have surrendered their stock certificate(s),
their pro rata share of the net proceeds derived from the sale of their
fractional interests. Stockholders will not have to pay any service charges or
brokerage commissions in connection with the sale of fractional interests. The
Company will bear those costs.
Dissenting stockholders will not have appraisal rights under Delaware law or
under the Company's Certificate of Incorporation or By-laws.
The Company's Common Stock is currently registered under Section 12(g) of
the Exchange Act and, as a result, the Company is subject to the periodic
reporting and other requirements of the Exchange Act. The reverse stock split
will not affect the registration of the Company's Common Stock under the
Exchange Act and the Company has no current intention of terminating its
registration under the Exchange Act.
Exchange of Stock Certificates and Elimination of Fractional Shares
As soon as practicable after the Effective Date, the Company will ask you to
exchange your stock certificates ("Old Certificates") for new certificates
("New Certificates") representing the number of shares of the Post Split
Common Stock into which your shares of Common Stock have been converted as a
result of the reverse stock split or, if applicable, cash payment (for
fractional shares). At the appropriate time the Company will furnish you with
the necessary materials and instructions for the surrender and exchange of
your stock certificates by the Company's transfer agent. The Company will not
require any stockholder to exchange his or her certificate(s) of old Common
Stock for Post Split Common Stock. You will not be required to pay a transfer
or other fee in connection with the exchange of certificates. You should not
submit any certificates to the Exchange Agent until requested to do so.
As discussed above, no scrip or fractional share certificates for the Post
Split Common Stock will be issued in connection with the reverse stock split.
Instead, a certificate or certificates evidencing the aggregate of all
fractional shares otherwise issuable shall be issued to the Company's transfer
agent or its nominee, as agent for the accounts of all holders of the Post
Split Common Stock otherwise entitled to have a fraction of a share issued to
them in connection with the reverse stock split. The Company's transfer agent
will sell the fractional interests as soon as practicable on the basis of
prevailing market prices of the Post Split Common Stock on the NASDAQ SmallCap
Market at the time of sale. After the Effective Date, the transfer agent will
pay to such stockholders their pro rata share of the net proceeds derived from
the sale of their fractional interests upon surrender of their stock
certificate(s). You will not have to pay any service charges or brokerage
commissions in connection with the sale of fractional interests. The Company
will bear all such costs.
Federal Income Tax Consequences of the Reverse Stock Split
The following is a general discussion of the material federal income tax
consequences of the proposed reverse stock split. This discussion does not
purport to deal with all aspects of federal income taxation that may be
relevant to you as a holder of the Company's Common Stock. It is also not
intended to be applicable to all categories of investors, some of which, such
as dealers in securities, banks insurance companies, tax-exempt organizations
and foreign persons, may be subject to special rules. Furthermore, the
following discussion is based upon federal income tax law as currently in
effect. Please consult with your own tax advisor regarding the federal, state,
local and foreign tax consequences of the reverse stock split.
The Company believes that the reverse stock split will constitute a
reorganization within Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, you will recognize no gain or loss upon
your exchange of old shares of Common Stock for shares of the Post Split
Common Stock. If however, you receive cash in respect of a fractional share of
the Post Split Common Stock, you will generally be treated as having received
that cash as a distribution in redemption of the fractional share, as provided
in Section 302 of the Code. You should consult your own tax advisor for the
tax effect of such redemption (i.e., capital gain or dividend treatment) in
light of your particular facts and circumstances.
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Your aggregate basis in the shares of Post Split Common Stock you receive in
exchange for the old Common Stock will equal your aggregate adjusted basis in
your shares of old Common Stock immediately prior to the reverse stock split,
reduced by the amount of cash, if any, that you receive in exchange for
fractional interests and increased by any gain you recognize as a result of
the receipt of that cash. Your holding period for the Post Split Common Stock
will include your holding period for your old shares of Common Stock which you
exchanged for the new shares, provided that all such shares exchanged were
held as capital assets immediately prior to the reverse stock split.
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. The Company has retained D.F. King at a fee estimated not to exceed
$10,000 plus reimbursement of reasonable out-of-pocket expenses, to assist in
the solicitation of proxies. The Company has also agreed to indemnify D.F.
King against certain liabilities and expenses, including liabilities under the
Federal securities laws.
SUBMISSION OF STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Stockholder proposals intended to be presented at the 2000 annual meeting
must be received by the Company on or before July 30, 2000 in order to be
considered for inclusion in the Company's proxy statement and form of proxy
for that meeting. These proposals must also comply with the rules of the SEC
governing the form and content of proposals in order to be included in the
Company's proxy statement and form of proxy. Any such proposals should be
mailed to: Secretary, Little Switzerland, Inc., 161-B Crown Bay Cruise Port,
St. Thomas, U.S.V.I. 00804.
A record stockholder who wishes to present a proposal at the next annual
meeting, other than a proposal to be considered for inclusion in the Company's
proxy statement described above, must provide written notice of such proposal
and appropriate supporting documentation, as set forth in the Company's 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. Proxies solicited by the Board of Directors
will confer discretionary voting authority with respect to these proposals,
subject to SEC rules governing the exercise of this authority. 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 27, 2000. 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.
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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 SEC and NASDAQ. Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no Section 16(a) reports were required for those
persons, the Company believes that during Fiscal 1999, Jewelcor Management,
Inc., Seymour Holtzman, Steven Holtzman, Trust F/B/O/A, Holtzman Garcia and
Custodial Account F/OB/O Chelsea Holtzman and ValueVest Partners L.P. and
Donald L. Sturm inadvertently failed to timely file the requisite Section
16(a) reports. Each of these reporting persons may be deemed to beneficially
own more than 10% of the Company's outstanding shares of Common Stock. See
"Principal and Management Stockholders--Beneficial Ownership." Each of these
reports has been filed. In addition, the Company believes that during Fiscal
1999, Messrs. Mills, Poole, McMullin and Hunter and Ms. Dudley inadvertently
each failed to timely file a Form 3. Messrs. Mills, Poole, McMullin and Hunter
and Ms. Dudley each subsequently filed the required forms.
VOTING INFORMATION
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,
Directors will be elected by a plurality of the votes cast and the affirmative
vote of a majority of the outstanding shares of Common Stock is necessary to
approve the amendment to the Certificate of Incorporation to effectuate the
reverse stock split. Shares that reflect abstentions or "broker non-votes"
(i.e., shares represented at the meeting held by brokers or nominees as to
which instructions have not been received from the beneficial owners or
persons entitled to vote such shares and with respect to which the broker or
nominee does not have discretionary voting power to vote such shares) will be
counted for purposes of determining whether a quorum is present for the
transaction of business at the 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.
Your vote is important. Please sign, date and mail promptly the enclosed
proxy card in the enclosed self-addressed stamped envelope. Your Board of
Directors recommends that you vote "FOR" the election of Peter R. McMullin and
Kenneth W. Watson as Class II Directors of the Company and FOR the one-for-
five reverse stock split of the Company's Common Stock on the enclosed 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 election of the Class II nominees of the Board of Directors and "FOR" the
reverse stock split.
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If your shares are registered in your name, please mail your 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 proxy card on your behalf. You should also sign, date and mail your
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) 431-9645
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. PLEASE
ACT TODAY.
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EXHIBIT A
RESOLVED: The following paragraphs shall be inserted (i) in lieu of sentence
one of Article IV, Section 1 and (ii) after the last paragraph of Article IV,
Section 1, respectively, of the amended and restated certificate of
incorporation of Little Switzerland, Inc. (the "Corporation"):
(i) this sentence will be inserted in lieu of the first sentence of
Article IV, Section 1, "As of 5:00 PM, Eastern time, on the date on which
this amendment is filed with the Secretary of State of the State of
Delaware (the "Effective Date"), the total number of shares of capital
stock which the Corporation shall have the authority to issue is twenty-
five million (25,000,000) shares, of which (a) twenty million (20,000,000)
shares shall be common stock, par value $.05 per share and (b) five million
(5,000,000) shares shall be preferred stock, par value $.01 per share."
(ii) this paragraph shall be inserted after the last paragraph of Article
IV, Section 1, "As of the Effective Date, each FIVE outstanding shares of
old common stock, par value $.01 per share ("Old Common Stock"), shall
thereupon be reclassified and changed into one new share of common stock,
par value $.05 per share ("New Common Stock"). Upon such Effective Date,
each holder of Old Common Stock shall thereupon automatically be and become
the holder of ONE share of New Common Stock for every FIVE shares of Old
Common Stock then held by such holder prior thereto, ignoring any fraction
thereof. Upon such Effective Date, each certificate formerly representing a
stated number of shares of Old Common Stock shall thereupon be deemed for
all corporate purposes to evidence ownership of common stock in the
appropriately reduced whole number of shares. Stockholders as of the date
of the reclassification will be notified thereof and upon their delivery of
their certificates of Old Common Stock to the Corporation or its designated
agent, will be sent stock certificates representing their shares of New
Common Stock."
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P
R
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X
Y
C
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LITTLE SWITZERLAND, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF LITTLE SWITZERLAND, INC. FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON TUESDAY, DECEMBER 21, 1999
The undersigned hereby constitutes and appoints Robert L. Baumgardner and
Richard C. Hunter, 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, par value $.01 per share, of Little
Switzerland, Inc. (the "Company") held of record by the undersigned as of the
close of business on November 26, 1999 at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held at The Fort Lauderdale Marriott North, 6650
North Andrews Avenue, Fort Lauderdale, Florida, at 10:00 a.m. local time, on
Tuesday, December 21, 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). Neither Proposal is conditioned on the
approval of the other Proposal. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 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 VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE.
Please sign name exactly as shown hereon. If 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, indicating title or
authority.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- - ------------------------------- -------------------------------
- - ------------------------------- -------------------------------
- - ------------------------------- -------------------------------
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
FOR ALL
FOR WITHHOLD EXCEPT
Proposal 1. Election of (01) Kenneth W. Watson [ ] [ ] [ ]
and (02) Peter R. McMullin as
Class II Directors, each for a term
expiring at the 2002 annual meeting.
TO WITHHOLD AUTHORITY TO VOTE FOR A
PARTICULAR NOMINEE, MARK THE "FOR ALL
EXCEPT" BOX AND STRIKE A LINE THROUGH
THE NAME(S) OF THE NOMINEE(S). YOUR
SHARES WILL BE VOTED FOR THE REMAINING
NOMINEE(S).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Proposal 2. The amendment to the amended and
restated certificate of incorporation
to effectuate a one-for-five reverse
stock split of the common stock.
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.
Mark box at right if an address change [ ]
or comment has been noted on the reverse
side of this card.
Please be sure to sign and date this Proxy.
Date:___________________________________________________
___________________________________________________
Stockholder sign here Co-owner sign here
