<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
: Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended February 26, 2000
or
9 Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ___________ to ____________
Commission File No. 0-19369
-------
LITTLE SWITZERLAND, INC.
(Exact name of registrant as specified in its charter)
Delaware 66-0476514
(State of Incorporation) (I.R.S. Employer
Identification No.)
161-B CROWN BAY CRUISE SHIP PORT
ST. THOMAS U.S.V.I. 00804
(Address of Principal Executive Offices) (Zip Code)
(340) 776-2010
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO _____
-----
At April 11, 2000, 8,630,995 shares of $.01 par value common stock of the
registrant were outstanding.
<PAGE>
LITTLE SWITZERLAND, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 26, 2000
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated Balance Sheets as of February 26, 2000 (unaudited) and May 29, 1999 2
Consolidated Statements of Operations (unaudited) for the three and nine months ended
February 26, 2000 and February 27, 1999 3
Consolidated Statements of Cash Flows (unaudited) for the nine months ended
February 26, 2000 and February 27, 1999 4
Notes to Consolidated Financial Statements (unaudited) 5-16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
PART II. OTHER INFORMATION 21
Item 1. Legal Proceedings 21-22
Item 6. Exhibits and Reports of Form 8-K 22-23
Signature Page 24
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
(Unaudited)
February 26, May 29,
Assets 2000 1999
------- -------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................................... $ 2,489 $ 2,739
Accounts receivable................................................ 1,284 560
Inventory.......................................................... 30,732 38,195
Prepaid expenses and other current assets.......................... 1,346 1,111
------- -------
Total current assets.............................................. 35,851 42,605
Property, Plant and Equipment, at Cost.............................. 34,706 36,999
Less -- Accumulated depreciation................................... 19,497 19,051
------- -------
15,209 17,948
Other assets........................................................ 472 291
------- -------
Total assets...................................................... $51,532 $60,844
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Secured demand notes.............................................. $10,175 $13,275
Accounts payable.................................................. 8,733 5,205
Accrued and currently deferred income taxes....................... 637 1,715
Other accrued expenses............................................ 4,468 3,641
------- -------
Total current liabilities......................................... 24,013 23,836
Long-term Debt...................................................... -- --
Deferred Income Taxes............................................... 202 202
------- -------
Total liabilities................................................. 24,215 24,038
------- -------
Commitments and Contingencies.......................................
Minority Interest................................................... 1,619 1,619
Stockholders' Equity:
Preferred stock, $.01 par value --
Authorized--5,000 shares
Issued and outstanding -- none................................. -- --
Common stock, $.01 par value --
Authorized -- 20,000 shares
Issued and outstanding--8,631 and 8,625 shares
at February 26, 2000 and May 29, 1999, respectively............ 87 87
Capital in excess of par.......................................... 15,605 15,601
Retained earnings................................................. 10,006 19,499
------- -------
Total stockholders' equity..................................... 25,698 35,187
------- -------
Total liabilities, minority interest and stockholders' equity.. $51,532 $60,844
======= =======
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
February 26, February 27, February 26, February 27,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales............................ $17,602 $25,787 $41,511 $57,574
Cost of sales (see Note 3)........... 10,153 15,253 26,910 33,444
------- ------- ------- -------
Gross profits....................... 7,449 10,534 14,601 24,130
Selling, general and administrative
expenses............................ 8,622 11,265 22,925 29,751
------- ------- ------- -------
Operating (loss).................... (1,173) (731) (8,324) (5,621)
Interest expense, net................ 277 307 869 1,018
------- ------- ------- -------
(Loss) before income taxes.......... (1,450) (1,038) (9,193) (6,639)
Provision for income taxes........... 100 300 300 900
------- ------- ------- -------
Net loss............................. $(1,550) $(1,338) $(9,493) $(7,539)
======= ======= ======= =======
Basic and diluted (loss)
Per share........................... $ (0.18) $ (.16) $ (1.10) $ (0.87)
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended
February 26, February 27,
2000 1999
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss)........................................................................ $(9,493) $ (7,539)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities--
Depreciation..................................................................... 2,005 1,848
Store closings expense........................................................... --- 1,668
Gains (loss) on dispositions and sales of certain assets, net.................... (775) ---
Changes in assets and liabilities:
Decrease (increase) in accounts receivable..................................... (850) (459)
Decrease (increase) in inventory............................................... 4,490 6,187
(Increase) decrease in prepaid expenses and
other current assets.......................................................... 26 (219)
(Increase) Decrease in other assets............................................ --- 2
(Decrease) increase in accounts payable........................................ 3,528 (2,467)
(Decrease) in other accrued expenses and
deferred income............................................................... 827 547
(Decrease) in accrued and currently deferred
income taxes.................................................................. (1,078) 843
Net cash provided by (used in) operating activities............................... (1,320) 411
Cash flows from investing activities:
Capital expenditures.............................................................. (103) (614)
(Increase) Decrease in other assets............................................... (181) ---
Proceeds from sales of certain assets............................................. 4,450 ---
------- --------
Net cash (used in) investing activities........................................... 4,166 (614)
Cash flows from financing activities:
Proceeds from unsecured notes payable............................................. --- 24,998
Repayments of secured notes payable............................................... (3,100) ---
Repayments of unsecured notes payable............................................. --- (22,623)
Repayments of long term borrowings................................................ --- (1,669)
Issuance of common stock.......................................................... 4 ---
Net cash provided by financing activities........................................ (3,096) 706
Net (decrease) increase in cash and cash equivalents............................. (250) 503
Cash and cash equivalents, beginning of period...................................... 2,739 2,278
Cash and cash equivalents, end of period............................................ $ 2,489 $ 2,781
</TABLE>
During the nine months ended February 26, 2000 and February 27, 1999, the
Company paid income taxes of $1,284 and $56, respectively, and paid interest of
$810 and $1,114, respectively.
See accompanying notes to consolidated financial statements
4
<PAGE>
1. Consolidated Financial Statements
---------------------------------
The accompanying consolidated financial statements include the operations of
Little Switzerland, Inc. (the "Company") and its wholly owned subsidiaries, L.S.
Holding, Inc. and L.S. Wholesale, Inc. All significant intercompany balances
have been eliminated in consolidation. The interim financial statements are
unaudited and, in the opinion of management, contain all adjustments necessary
to present fairly the Company's financial position as of February 26, 2000 and
February 27, 1999 and the results of its operations and cash flows for the
interim periods presented. It is suggested that these interim financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest Annual Report on Form 10-K for the
fiscal year ended May 29, 1999 and latest Quarterly Report on Form 10-Q for the
quarterly periods ended August 28, 1999 and November 27, 1999.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for a full fiscal year, due
to the seasonal nature of the Company's operations.
2. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Management's Plans
------------------
Existing Situation
------------------
The Company continues to operate without a long-term credit facility to fund
its working capital needs. The Company is negotiating a standstill agreement
with its existing lenders which would replace the Forbearance Agreement that
expired on August 31, 1999. (See "Notes to Consolidated Financial Statements
(unaudited) Footnote 5, Credit Arrangements" below). In addition, the Company is
currently in negotiations with an investment bank and an asset based lender to
secure new financing and repay its existing lenders. There is no assurance that
the Company will be able to successfully execute such measures.
The original Forbearance Agreement entered into on April 1, 1999,
effectively froze the Company's existing line of credit at its then level of
$17.5 million. This amount consisted of $13.3 million in outstanding cash
borrowings and approximately $4.2 million in contingent stand-by letters of
credit. The Company has since decreased its existing debt to approximately $12.8
million, consisting of approximately $10.2 million in outstanding cash
borrowings and approximately $2.6 million in contingent stand-by letters of
credit, as of April 11, 2000. This represents approximately a 27% reduction in
the Company's total outstanding debt.
5
<PAGE>
In connection with the Forbearance Agreement, the Company and its
subsidiaries granted a security interest to the lenders against their personal
property. The forbearance period under the Forbearance Agreement expired on
August 31, 1999, and the Company is currently in default under certain of the
covenants contained in such Forbearance Agreement. As a result, the banks may
exercise their rights and remedies under the existing loan documents, including
declaring all amounts immediately due under the loan agreements. If the banks
accelerate the outstanding loans and declare amounts outstanding under such loan
agreements immediately due, the Company does not believe that it will have
sufficient funds available to make such payments and such action by the banks
will have a material adverse effect on the Company. The Company currently is in
the process of finalizing documents and the terms and conditions of a standstill
agreement with its lenders. There, however, is no assurance that such agreement
will be entered into or that the Company will be able to fulfill all of the
conditions to such agreement.
In addition, the Company is attempting to sell its Barbados operations,
which, if achieved, would generate cash for working capital purposes and
facilitate the removal of the remaining $2.6 million in contingent stand-by
letters of credit. If the sale is completed, the lenders have agreed to allow
the Company to use approximately 75% of the cash received from such sale for
working capital purposes and the Company would also anticipate the removal of
the $2.6 million in letters of credit.
Strategic Plan
--------------
Management continues to implement Phase I of its strategic plan to address
the Company's current financial condition and rebuild its business. The major
components of the strategic plan, in the order of priority, and the status of
each initiative are:
. Reduction of the Company's debt to existing lenders through, in part,
strategic sales of non-core assets, liquidation of older and/or
discontinued merchandise and securing a new working capital facility
with an asset based lender.
To date, the Company has successfully reduced its debt to existing
lenders while working to secure a new working capital facility. At
this time, there is no assurance that the Company will be successful
beyond the measures completed to date.
The Company had identified certain discontinued and/or slow moving
merchandise, which it had intended to sell for cash to a third party
liquidator. Due to the Company's inability to obtain a secondary lien
on its inventory for collateral purposes, the Company will not receive
an up-front payment for this transaction and, therefore, has not
entered into such an arrangement. In the alternative, the Company
employed the liquidator as a consultant to liquidate the merchandise
on the Company's behalf. This sale was completed on March 31, 2000.
See "Notes to Consolidated Financial Statements (Unaudited), Footnote
3, Management's Plans--Liquidation of Aged Inventory" below.
. Exiting redundant Eastern Caribbean locations and analyzing expansion
opportunities in the Western Caribbean as desirable space becomes
available.
The Company has determined which of its current markets are either
core, secondary or redundant markets. The Company has decided to exit
the redundant markets of St. Lucia
6
<PAGE>
and Antigua and has sold its stores located on these islands (see
"Notes to Financial Statements (unaudited), Footnote 3, Management's
Plans-Actions Taken through April 11, 2000" below). In addition, due
in part to the requirements to maintain substantial stand-by letters
of credit, the Company has decided to exit the Barbados market and is
attempting to sell its operations there. This is the last of the
markets in which the Company maintains stores requiring stand-by
letters of credit to be maintained.
The Company has preliminarily identified locations in other markets as
expansion opportunities and intends to consider these opportunities
when additional financing becomes available.
Phase II of our Strategic Plan to return the Company to profitability is to
eliminate operating losses through executing a strategy that reduces overhead
expenses, improves margins and increases comparable store sales. This plan
reflects a streamlined business that, if achieved, would return the Company to
profitability over the next two years. This plan incorporates the following:
. Recruiting a senior operations team with a proven track record of
improving retail store sales productivity.
At the end of the third quarter, the Company recruited and hired a
seasoned Senior Vice President of store operations with over 12 years
multi-store operations experience as an Executive Officer. In
addition, the company has recruited and hired a new Director of Retail
Operations.
. Recruiting a seasoned marketing team to improve our market penetration
with the core cruise ship client market and the secondary hotel client
market.
At the beginning of the fourth quarter the Company recruited and hired
a seasoned Divisional Vice president of marketing with over 12 years
of experience in Duty Free Retail in the Eastern and Western
Caribbean. In addition, the Company also recruited and hired a
Director of Marketing with comparable experience with the cruise
industry in the Caribbean.
. Improving margins by improving our merchandise mix and eliminating
unnecessary point of sale markdowns.
The Company continues to receive a fresh mix of new merchandise,
which, when coupled with the clearance of discontinued products has
contributed to our third quarter margin improvement. In the third
quarter of 2000, gross margins improved to 42.3% from the prior year's
quarter of 40.8%.
Phase III of our Strategic Plan, which we plan to implement in the future,
to return the Company to profitability incorporates the following:
. Developing an assortment of branded Little Switzerland merchandise while
importing designer boutiques in existing Little Switzerland stores.
. Developing a new e-commerce strategy to leverage the Little Switzerland
duty free shopping concept.
7
<PAGE>
The Company believes that the actions taken through April 11, 2000 were
necessary to raise cash to substantially pay down its existing lenders, maintain
current in obligations to its suppliers and reduce the exposure for a new
lender. Concurrently, the Company is working to obtain alternative financing
from and is still in active negotiations with an asset based lender that would
provide the Company with additional funds to repay its lenders and to fund the
Company's working capital requirements.
The Company is still in varying levels of discussions with potential
strategic partners regarding a potential investment in the Company. One party
elected not to move forward after completing due diligence. There is no
assurance that the Company will be able to reach a definitive agreement with the
remaining parties.
Finally, the Company is reviewing all aspects of its operations in an effort
to reduce its losses going forward. The Company will continue to take strategic
restructuring related charges into the fourth quarter of fiscal 2000 as it
continues to reduce its operating costs.
Actions Taken Through April 11, 2000
------------------------------------
Sale of St. Barthelmey Store
----------------------------
On August 31, 1999, the Company consummated the sale of all of the fixed
assets and inventory of its store located on the island of St. Barthelmey
pursuant to a purchase and sale agreement with a third party for an aggregate
amount equal to $1.3 million. In the third quarter of fiscal 2000, the Company
used $400,000 in proceeds that had been released from escrow, to pay down its
debt to its existing lenders under its credit facilities. The Company recorded a
gain of $537,000 on this transaction in the second quarter of fiscal 2000.
Sale of Antigua Store
---------------------
On November 12, 1999, the Company consummated the sale of all of the fixed
assets and inventory, of which $0.8 million was inventory, of its store located
on the island of Antigua for an aggregate purchase price of $2.0 million. In
addition, the Company has requested from the customs authority a release of the
Antigua contingent stand-by letter of credit in the amount of $330,000. The
Company anticipates that this contingent stand-by letter of credit will be
released without material exposure to the Company. The Company has received a
$1.5 million payment during the second quarter of fiscal 2000 and the balance of
the purchase price is to be paid in two installments in the spring of 2000. The
first installment payment of $.2 million was received in early March. The
Company used the $1.5 million in proceeds to pay down its debt to its existing
lenders under its credit facilities. The Company recorded a gain of $487,000 on
this transaction in the second quarter of fiscal 2000.
Sale of St. Lucia Fragrance Store
---------------------------------
On December 1, 1999, the Company consummated the sale of all of its
fragrance inventory and fixtures for the fragrance store located on the island
of St. Lucia for an aggregate purchase price of $150,000. In addition, the
Company was able to reduce $180,000 outstanding under a St. Lucia contingent
stand-by letter of credit. The Company used the proceeds from the sale to pay
down its debt to its existing lenders under its credit facilities. The Company
recorded a loss of ($41,000) on this transaction in the third quarter of fiscal
2000.
8
<PAGE>
Sale of Two St. Lucia Stores
----------------------------
On December 28, 1999, the Company consummated the sale of all of the assets,
of which $ 0.6 million was inventory, of its two stores located on the island of
St. Lucia for an aggregate purchase price of approximately $1.0 million. In
addition, the Company has released the remaining $770,000 outstanding under
contingent stand-by letters of credit. Prior to such sale, the Company had
negotiated a reduction in its contingent stand-by letters of credit on the
island of St. Lucia by $330,000. The Company used the $1.0 million proceeds and
removal of the $770,000 contingent stand-by letters of credit to pay down its
debt to its existing lenders under its credit facilities. The Company recorded a
loss of ($208,000) on this transaction in the third quarter of fiscal 2000.
Liquidation of Aged Inventory
-----------------------------
In order to raise funds to pay down its bank debt, the Company decided to
accelerate the liquidation of discontinued and/or slow moving merchandise in a
transaction with a third party liquidator. The Company was to have received an
advance of $2.0 million for such sale, which, upon receipt by the Company, was
to be paid to its existing lenders to reduce its debt under the credit
facilities. Upon completion of the sale, the Company was to receive commissions
on any profits received in excess of the advanced $2.0 million and operational
cost of the sale. In the second quarter of fiscal 2000, the Company recorded a
$1.3 million charge to cost of goods sold reflecting the impairment of this
inventory.
The terms of this transaction were negatively impacted by Hurricane Lenny,
which caused damage to the infrastructure of St. Martin and reduced tourist
traffic to this island. As a result, the Company was required to make certain
concessions to compensate for the increased risk to the third party liquidator.
These concessions included granting a second lien on its inventory as collateral
to compensate for increased risk. The Company's lenders did not approve this
second lien, therefore, the Company was unable to consummate the sale of the
inventory as originally negotiated for an up-front cash payment. Instead, the
Company engaged the liquidator as a consultant to liquidate the merchandise on
the Company's behalf. The third party liquidator conducted the clearance sale
through the end of March 2000 in one of the Company's stores in Aruba and one
store in French St. Martin. Subsequently, the Company has taken control of the
clearance sale and will continue to operate it until its business interruption
claim, filed as a result of disruption due to Hurricane Lenny, is finalized. The
Company plans to request coverage for all concessions required as a result of
Hurricane Lenny in its business interruption insurance claim. See "Notes to
Consolidated Financial Statements (unaudited), Footnote 11, Commitments and
Contingencies" below.
Management Changes
------------------
In the month of February, the Company hired three senior level employees.
Joining the Company are Michael Pepper, Brenda Pepper and Zona Corbin as Senior
Vice President Operations, Director of Retail Operations and Director of
Marketing, respectively. In addition, the Company has also hired Walter Darr
Conradson as Divisional Vice President of Marketing effective April 1, 2000.
Finally, the company has promoted Alfred "Pat" Bailey to Divisional Vice
President Distribution and Store Development. Pat replaces Raoul Mills who
resigned in early March for personal reasons.
9
<PAGE>
Actions In Progress
-------------------
The Company's new management team is committed to continuing progress on the
initiatives taken to date. This team will continue to attempt to secure a
greater range of world class luxury products for sale in the Company's stores.
Included in this process will be a focus on improving gross margin and inventory
turnover.
Through April 11, 2000, the Company has decreased its existing debt under
the credit facilities to approximately $12.8 million, which consists of
approximately $10.2 million in outstanding cash borrowings and approximately
$2.6 million in contingent stand-by letters of credit. This represents
approximately a 27% reduction in the Company's total outstanding debt.
The Company continues to operate without a long-term credit facility to fund
its working capital needs. The Company is negotiating a standstill agreement
with its existing lenders which would replace the Forbearance Agreement that
expired on August 31, 1999. (See "Notes to Consolidated Financial Statements
(unaudited) Footnote 5, Credit Arrangements" below). In addition, the Company is
currently in negotiations with an investment bank and an asset based lender to
secure new financing and repay its existing lenders. There is no assurance that
the Company will be able to successfully execute such measures.
In addition to the above actions, the Company has entered into discussions
to settle both the pending class action and the merger litigation. There,
however, can be no assurances that these discussions will result in settlement
of these actions or that any settlement will be on terms favorable to the
Company. See "Notes to Consolidated Financial Statements (unaudited), Footnote
11, Commitments and Contingencies--Destination Retail Holdings Corporation and--
Class Action Lawsuit" below.
Qualification
-------------
The Company's ability to achieve its operating results included in its
strategic plan is impacted by each of the factors described above. There can be
no assurance that the Company will successfully execute its strategic plan
including securing adequate financing to pay off its existing lenders and to
fund its additional working capital needs.
Included in this Note 3 is a discussion of management's planned actions to
improve its current financial condition. The planned actions include a thorough
review of each location and operation to determine what further actions are
required to return the Company to sustained profitability, including, without
limitation, the continued sale of certain store locations. Although the Company
believes no further impairment losses are required at February 26, 2000, future
strategic actions could result in additional store closings and material
strategic charges and impairment losses.
4. Income Taxes
------------
Under an agreement, which expired at the end of August 1998 (subject to
renewal), L.S. Wholesale benefited from a lower tax rate on its income earned
outside the United States Virgin Islands, which had been taxed at a rate of 3.7%
up through the end of fiscal 1998.
The Company submitted its application for renewal of benefits and was
notified by The Industrial Development Commission ("IDC") in October 1999 that
the IDC had granted such renewal for a five-year period. Thus, as a result of
the renewal, L.S. Wholesale will enjoy the benefit of a 75% exemption from taxes
on income received from activities conducted outside of the United States Virgin
Islands, which results
10
<PAGE>
in an effective tax rate of approximately 9.3%. In addition, L.S. Wholesale will
enjoy a 75% exemption from gross receipts tax.
As the Company operates in multiple tax jurisdictions, it is subject to
various tax exposures. At this time, in the opinion of management any resulting
liability would not have a material impact on the Company's financial position.
5. Credit Arrangements
-------------------
Historically, the Company has utilized unsecured credit facilities with the
Company's two lead banks to support its inventory and capital requirements,
which fluctuate during the year due to the seasonal nature of the Company's
business, and to maintain and remodel its existing stores. As a result of
negotiations with its two lead banks regarding the Company's noncompliance with
certain financial covenants contained in the original loan agreements with the
banks and the nonpayment of amounts totaling approximately $1.5 million due
under the revolving term loan with one of the Company's banks, the Company and
its subsidiaries entered into a Forbearance Agreement, effective as of April 1,
1999 that effectively froze the Company's line of credit at its then and current
level of $17.5 million. This amount consisted of approximately $13.3 million in
outstanding cash borrowings and approximately $4.2 million in contingent stand-
by letters of credit.
Pursuant to the Forbearance Agreement, the banks agreed, through August 31,
1999, not to exercise their rights and remedies under the existing loan
documents with respect to existing defaults and certain expected future
defaults. In exchange, the Company and its subsidiaries granted a security
interest to the banks against their personal property. The Forbearance Agreement
also sets forth certain criteria that the Company had to meet regarding the
Company's inventory levels. The banks indicated that they would not make any
additional borrowings to the Company during the term of the Forbearance
Agreement.
In connection with the Forbearance Agreement, the Company and its
subsidiaries granted a security interest to the lenders against their personal
property. The forbearance period under the Forbearance Agreement expired on
August 31, 1999, and the Company is currently in default under certain of the
covenants contained in such Forbearance Agreement. As a result, the banks may
exercise their rights and remedies under the existing loan documents, including
declaring all amounts immediately due under the loan agreements. If the banks
accelerate the outstanding loans and declare amounts outstanding under such loan
agreements immediately due, the Company does not believe that it will have
sufficient funds available to make such payments and such action by the banks
will have a material adverse effect on the Company. The Company currently is in
the process of finalizing documents and the terms and conditions of a standstill
agreement with its lenders. There, however, is no assurance that such agreement
will be entered into or that the Company will be able to fulfill all of the
conditions to such agreement. The Company currently is actively exploring other
financing alternatives. At this time, however, the Company does not have any
firm commitments from other lenders or third parties to provide it with funds
that would be used to pay off its existing lenders or to finance its working
capital. There is no assurance that the Company will be successful in obtaining
any other financing.
11
<PAGE>
Outstanding borrowings against these aforementioned now secured credit
facilities totaled $12.8 million and $14.4 million as of February 26, 2000 and
February 27, 1999, respectively. Outstanding stand-by letters of credit against
these credit facilities totaled $2.6 million and $4.1 million as of February 26,
2000 and February 27, 1999, respectively. The weighted average interest rates
incurred during fiscal 1999, 1998 and 1997 were approximately 8.4%, 8.1% and
7.9%, respectively.
The Company continues to operate without a long-term credit facility to fund
its working capital needs. The Company is negotiating a standstill agreement
with its existing lenders which would replace the Forbearance Agreement that
expired on August 31, 1999. In addition, the Company is currently in
negotiations with an investment bank and an asset based lender to secure new
financing and repay its existing lenders. There is no assurance that the Company
will be able to successfully execute such measures.
The Company has reduced its existing debt to approximately $12.8 million,
which consists of approximately $10.2 million in outstanding cash borrowings and
approximately $2.6 million in contingent stand-by letters of credit, as of April
11, 2000. This represents approximately a 27% reduction in the Company's total
outstanding debt.
6. Earnings per Share
------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings per Share, effective December 15, 1997. In accordance with the
requirements of SFAS No. 128, basic earnings per share is computed by dividing
net income by the weighted average number of shares outstanding and diluted
earnings per share reflects the dilutive effect of stock options (as calculated
utilizing the "Treasury Method"). The weighted average number of shares
outstanding, the dilutive effects of outstanding stock options, weighted average
number of shares used in diluted earnings calculation, and the shares under
option plans which were anti-dilutive for the periods included in this report
are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ------------------
02/26/00 02/27/99 02/26/00 02/27/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of shares
used in basic earnings per share
calculation.................................. 8,630 8,624 8,628 8,624
Dilutive effects of options................... --- --- --- ---
Weighted average number of shares
used in diluted earnings per share
calculation.................................. 8,630 8,624 8,628 8,624
Shares under and outside the option plans
excluded in computation of diluted earnings
per share due to anti-dilutive effects....... 1,344 904 1,344 904
</TABLE>
7. Accounting for Income Taxes
---------------------------
The Company follows the liability method of accounting for income taxes as
set forth in SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109,
deferred tax assets and liabilities are recognized
12
<PAGE>
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. The amount of deferred tax asset or
liability is based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount that is
realizable, based upon the realization criteria defined in SFAS No. 109.
8. Long-lived Assets
-----------------
The Company accounts for long-lived and intangible assets in accordance with
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets To Be Disposed Of. In accordance with the requirements of SFAS No.
121, the Company periodically assesses whether events or circumstances have
occurred that may indicate the carrying value of its long-lived assets may not
be recoverable. When such events or circumstances indicate the carrying value of
an asset may be impaired, the Company uses an estimate of the future
undiscounted cash flows to be derived from the asset over the remaining useful
life of the asset to assess whether or not the asset is recoverable. If the
future undiscounted cash flows to be derived over the life of the asset do not
exceed the asset's net book value, the Company recognizes an impairment loss for
the amount by which the net book value of the asset exceeds its estimated fair
market value. Due to several factors, including the Company's relationship with
Rolex which is discussed further in Note 11, the Company recognized an
impairment loss relating to the goodwill at the Company's World Gift Imports
(Barbados) Limited subsidiary that totaled approximately $2.5 million during the
fourth quarter of fiscal 1998. The impairment loss was classified as a component
of selling, general and administrative expense for the year ended May 30, 1998.
No other impairment losses were recognized during the quarters ended February
26, 2000.
Included in Note 3 is a discussion of management's planned actions to
improve its current financial condition. The planned actions include a thorough
review of each location and operation to determine what further actions are
required to return the Company to sustained profitability. Although the Company
believes no further impairment losses are required at February 26, 2000, future
strategic actions could result in additional store closings and material
strategic charges and impairment losses.
9. Accounting for Derivative Instruments and Hedging Activities
------------------------------------------------------------
The Financial Accounting Standards Board issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
SFAS No. 133, in July 1999. SFAS No. 133 is now effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000; earlier adoption is
allowed. The statement requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The Company has not yet determined the effect that adoption of SFAS
No. 133 will have or when the provisions of the statement will be adopted.
However, the Company currently expects that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a material
effect on the Company's results of operations or financial position.
13
<PAGE>
10. Advertising
-----------
The Company expenses the costs of advertising as advertisements are printed
and distributed. The Company's advertising expenses consist primarily of
advertisements with local, regional and national travel magazines, which are
produced on a periodic basis and distributed to visiting tourists. Additionally,
fees are expensed as paid for promotional "port lecturer" and other programs
directed primarily at cruise ship passengers.
11. Commitments and Contingencies
-----------------------------
Relationship with Rolex
- -----------------------
The Company had historically operated as the exclusive authorized retailer
for Montrex Rolex, S.A. and its affiliates (collectively, Rolex) on the islands
on which the Company operates. Following execution of the Agreement and Plan of
Merger, dated as of February 4, 1998 (the "Merger Agreement"), with Destination
Retail Holdings Corporation ("DRHC") and certain of its affiliates, Rolex
suspended shipments of its products to the Company and indicated that it did not
believe it would be in its best interest to begin a business relationship with
DRHC. Following termination of the Merger Agreement, on June 9, 1998, the
Company made numerous attempts to rebuild its business relationship with Rolex.
However, on July 15, 1998, the Company announced that it had learned that Rolex
had decided not to resume shipments of its watches to the Company for retail
sale through the Company's stores. The Company received its last shipment of
Rolex products in January 1998.
Sales of Rolex watches accounted for 3%, 26% and 24% of the Company's sales
in fiscal 1999, 1998 and 1997, respectively. Rolex is the only manufacturer
whose products accounted for more than 10% of the Company's sales in fiscal 1998
and 1997. Sales of products from the Swatch Group accounted for 10.4% in fiscal
year 1999. In order to mitigate the impact on sales of the loss of Rolex
products, the Company is exploring opportunities for expanding existing, and
adding new, world class product lines in both watches and jewelry. In addition,
the Company is increasing the showcase space allocated to jewelry in certain of
its larger stores to accommodate a greater variety of moderate to higher priced
fashion merchandise, including diamond, tanzanite, pearl and pearl accent
classifications.
To the extent that the Company is unable to mitigate the impact on sales of
the loss of Rolex products by expanding existing, and adding new, world class
product lines in both watches and jewelry, the Company believes that the loss of
Rolex will continue to have a material adverse effect on the Company's results
of operations for the fiscal year ending May 27, 2000 and beyond.
Employee Defalcation Loss
- -------------------------
On March 11, 1998, the Company filed a civil action in the Territorial Court
of the Virgin Islands against Lorraine Quetel, a former employee of the Company,
Lydia Magras and Bon Voyage Travel, Inc. The Company alleges that such parties
were involved in the employee defalcation that management believes occurred
during the Company's fiscal year ended May 31, 1997. The Company is seeking a
preliminary injunction and damages against the former employee and the other
parties allegedly involved in the theft against the Company.
On January 19, 1999, the defendant, Lydia Magras, filed a petition for
Bankruptcy (Chapter 7) in the United States Bankruptcy Court, District of St.
Thomas. A Notice of Appearance was filed on February 2,
14
<PAGE>
1999 on behalf of the Company. A trustee was appointed in this matter at the
meeting of the creditors held on May 20, 1999.
Destination Retail Holdings Corporation
- ---------------------------------------
On June 10, 1998, the Company filed a civil action in the United States
District Court for the District of Delaware against DRHC, Stephen G.E. Crane,
DRHC's controlling shareholder, Young Caribbean Jewelry Company Limited, a
Cayman Islands corporation, Alliance International Holdings Limited, a Bahamian
corporation, and CEI Distributors Inc., a British Virgin Islands corporation,
each an affiliate of DRHC. The Company alleges breach of the Merger Agreement,
among the Company, DRHC and certain affiliates of DRHC and also alleges claims
of misrepresentation and civil conspiracy, among other causes of action. The
Company is seeking monetary damages, including, without limitation,
consequential damages relating to harm to its business. On July 15, 1998, the
defendants moved to dismiss the complaint on jurisdictional grounds. On March
31, 1999, the court issued an order denying the defendants' motions to dismiss.
On May 21, 1999, the defendants filed their Answer, Affirmative Defenses,
Counterclaims and Third Party Complaint. The defendants allege counterclaims
against the Company and others for fraud, negligent misrepresentations, breach
of the covenant of good faith and fair dealing and breach of the Merger
Agreement, unfair competition and business libel, among others, primarily
stemming from their allegations that the Company was responsible for their
failure to consummate the Merger Agreement.
The Company is still in settlement negotiations with the defendant, however,
there are no assurances that these discussions will result in a settlement of
this action, or that any settlement will be on terms favorable to the Company.
Additionally, as a result of the parties' failure to reach a settlement to date,
the court has scheduled a trial to begin on May 22, 2000.
Class Action Lawsuit
- --------------------
On March 22, 1999, a complaint was filed as a putative class action on
behalf of certain stockholders of the Company in the United States District
Court for the District of Delaware against the Company, certain of its existing
and former officers and directors, DRHC and Stephen G.E. Crane. The complaint
alleges that the defendants violated the federal securities laws by failing to
disclose that DRHC's financing commitment to purchase the Company's shares
expired on April 30, 1998, before the Company's stockholders were scheduled to
vote to approve the merger between the Company and DRHC at the May 8, 1998
special meeting of stockholders. The plaintiffs are seeking monetary damages,
including, without limitation, reasonable expenses in connection with this
action. The plaintiffs amended their complaint on November 10, 1999 and the
Company filed a motion to dismiss the plaintiff's amended complaint on December
7, 1999. On January 28, 2000, the plaintiffs filed their opposition to the
motion to dismiss. The motion remains pending. The Company has entered into
discussions to settle this action. There, however, are no assurances that these
discussions will result in a settlement of this action, or that any settlement
will be on terms favorable to the Company. As a result, at this time, management
of the Company is unable to determine the financial impact this action may have
on the Company's financial condition or results of operations.
The Company is also party to various pending legal claims and proceedings.
In the opinion of management of the Company, these suits and claims should not
result in final judgments or settlements, which, in the aggregate, would have a
material adverse effect on the Company's financial condition or results of
operations. See Part II - Other Information, Item 1 "Legal Proceedings."
15
<PAGE>
Hurricane Damage
- ----------------
On November 30, 1999, the Company announced that Hurricane Lenny, which hit
certain Caribbean islands during the Company's second fiscal quarter of 2000,
caused significant damage to the infrastructure of Dutch St. Maarten and French
St. Martin, including hotels, cruise ship docks and other tourist facilities.
While Little Switzerland sustained minimal property damage to its retail stores,
one of the Company's stores on St. Martin was closed for 24 days and one for 33
days, one store on St. Maarten was closed for 12 days and the four St. Thomas
stores were closed for 2 1/2 days each. As of December 20, 1999, all of the
Company's stores were restored to normal operations.
Interruption of the Company's business as a result of Hurricane Lenny has
had an adverse impact on the Company's plans to accomplish, among others items,
an extension of the Forbearance Agreement, repayment of debt to its existing
lenders, consummating a deal to sell liquidation goods to a third party and
obtaining alternative asset-based financing. In addition, the Hurricane has had
an adverse impact on second quarter and third quarter results. At this time, the
total financial impact on the Company's results of operations cannot be
determined.
The Company is currently in the process of preparing and filing insurance
claims with its insurance carrier in connection with the hurricane damage to
certain of the Company's properties and interruption of its business. In the
third quarter, the Company has received $500,000 in advance proceeds with
respect to such claims. However, at this time, the Company is unable to estimate
the extent of any other insurance proceeds it will collect once these claims
have been processed.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain statements that are
"forward-looking statements" as that term is defined under the Private
Securities Litigation Reform Act of 1995 and releases issued by the Securities
and Exchange Commission. The words "believe," "expect," "anticipate," "intend,"
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressed or implied by such
forward-looking statements. The Company undertakes no obligation to publicly
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
The future operating results and performance trends of the Company may be
affected by a number of factors, including, without limitation, the following:
(i) the Company's ability to obtain alternative financing to provide it with
funds to pay off its existing lenders and to fund its working capital needs,
(ii) the Company's ability to maintain its relationship with its existing
lenders, including with respect to the negotiation of a Standstill Agreement,
(iii) the Company's ability to successfully complete its strategic plan, (iv)
the Company's ability to successfully remove the stand-by letters of credit in
Antigua and in Barbados; (v) the frequency of tourist visits to the locations
where the Company maintains retail stores, (vi) the Company's ability to retain
relationships with its major suppliers of products for resale, (vii) the
Company's ability to mitigate the impact on sales of the loss of Rolex products
by expanding existing, and adding new, world class product lines in both watches
and jewelry, (viii) weather in the Company's
16
<PAGE>
markets, (ix) actions of the Company's competitors and the Company's ability to
respond to such actions and (x) economic conditions that affect the buying
patterns of the Company's customers. In addition to the foregoing, the Company's
actual future results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth in the
Company's various filings with the Securities and Exchange Commission and of
changes in general economic conditions, changes in interest rates and/or
exchange rates and changes in the assumptions used in making such forward-
looking statements.
RECENT DEVELOPMENTS
NASDAQ Listing
- --------------
On November 10, 1999, The Nasdaq Stock Market, Inc. ("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 was 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 was required to evidence a closing bid price at or above
$1.00 per share for a minimum of ten consecutive trading days. The Company also
had to be able to demonstrate compliance with all of the other NASDAQ SmallCap
Market continued listing requirements.
On December 21, 1999, the Company requested an additional extension from
NASDAQ in order to meet all of the continued listing requirements imposed by
NASDAQ. The stockholders of the Company approved a proposed reverse stock split
on December 21, 1999 at the Company's annual meeting of stockholders that was
initiated in an effort to meet the minimum bid price requirement. Subsequently,
on December 22, 1999, NASDAQ notified the Company that, based upon the Company's
failure to meet certain continued listing requirements, including obtaining
alternative asset-based financing to pay down existing debt and for working
capital purposes, NASDAQ had delisted the Company's common stock from the NASDAQ
SmallCap Market effective as of the close of business on December 22, 1999. The
Company's common stock began trading on NASDAQ's Over-the-Counter Bulletin Board
("OTC") beginning with the open of business on December 23, 1999. The trading
symbol for the Company's common stock on OTC is "LSVIC." As a result of Nasdaq's
decision, the Company did not effectuate the reverse stock split which was
approved by the Company's stockholders at its annual meeting held on December
21, 1999.
YEAR 2000 READINESS DISCLOSURE
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning the Year 2000 Information and Readiness
Disclosure Act.
Year 2000. "Y2K Compliance" refers to the ability for information systems,
---------
software programs, computer hardware and other computer enhanced equipment to
properly handle the processing of dated
17
<PAGE>
material properly for the year 2000 and beyond. Many existing computer programs
and databases use two digits to identify a year in the date field (i.e., 98
would represent 1998). These programs and databases were designed and developed
without considering the impact of the millennium. If not corrected, many
computer systems could fail or create erroneous results relating to the year
2000. If the Company or its significant suppliers have failed to make necessary
modifications and conversions, the year 2000 issue could have an adverse effect
on Company operations. The Company believes that its competitors face a similar
risk. Information contained in this Quarterly Report pertains to the initiatives
undertaken by the Company to insure full compliance with Y2K processing prior to
the year 2000 and any subsequent events relating to the year 2000 which have
occurred since January 1, 2000.
Costs to Address Year 2000 Compliance. Costs associated with year 2000
-------------------------------------
compliance were primarily associated with acquiring outside contract personnel
that have been required to modify and implement the various software systems.
Some equipment was necessary as well as travel expense related to the POS roll
out. Estimated total expenses related to the Y2K compliance were approximately
$600,000. It is management's belief that with the actions taken by the Company,
the Company was Y2K compliant before the beginning of year 2000. Continued
testing and re-evaluation occurred to insure full compliance. With efforts for
finalizing compliance, management believes that it has significantly reduced any
adverse effect on the Company's business due to Y2K issues. However, there can
be no assurance that the Company has identified and addressed all year 2000
issues before problems could arise.
Impact of Year 2000. To date, the Company has experienced minimal
-------------------
interruption due to Year 2000 issues. Problems encountered to date related to
customized programs that were inadvertently overlooked in converting to Y2K
compliant programs. The majority of these such programs have since been
converted to Y2K complaint programs and currently are running without problems.
As Y2K problems may arise throughout the calendar year, the Company will
continue to monitor all of its computer equipment and software on a periodic
basis.
The preceding "Year 2000 Readiness Disclosure" contains various forward
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended. These forward-looking statements represent the Company's beliefs or
expectations regarding future events. When used in the "Year 2000 Readiness
Disclosure", the words "believes," "expects," "estimates" and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements include, without limitation, the Company's expectations as to when it
will complete the modification and testing phases of its year 2000 project plan
as well as its year 2000 contingency plans; its estimated cost of achieving Year
2000 readiness; and the Company's belief that its internal systems were year
2000 compliant in a timely manner. All forward-looking statements involve a
number of risks and uncertainties that could cause the actual results to differ
materially from the projected results. Factors that may cause these differences
include, but are not limited to, the availability of qualified personnel and
other information technology resources; the ability to identify and remediate
all date sensitive lines of computer code or to replace embedded computer chips
in affected systems or equipment; and the actions of governmental agencies or
other third parties with respect to year 2000 problems.
18
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED FEBRUARY 26,
2000
General
- -------
The Company operated 18 luxury gift and jewelry stores as of February 26,
2000. The company is initiating various stages of its strategic plan to address
the Company's current financial condition and rebuild its business See "Notes to
Consolidated Financial Statements (unaudited) Footnote 3, Management's Plans"
above.
Net Sales
- ---------
Net sales for the three-month period ended February 26, 2000, were $17.6
million, a 31.7% reduction from net sales of $25.8 million for the corresponding
three-month period last fiscal year. Net sales for the nine-month period ended
February 26, 2000, were $41.5 million, a 27.9% reduction from net sales of $57.6
million for the corresponding nine-month period last fiscal year. Net sales for
comparable stores decreased approximately 21.9% in the three-month period ended
February 26, 2000 and 22.5% in the nine-month period ended February 26, 2000.
Management attributes this reduction in sales primarily to the continuing impact
of Hurricanes Floyd, Jose and Lenny, as well as dramatically reduced tourist
traffic over the millennium due to Y2K and terrorism scares. These reductions
were partially offset by receipt of new merchandise, however, delays in
receiving merchandise at the Company's store locations over the Christmas and
New Year's holidays negatively impacted the sales effort.
Gross Profit
- ------------
Gross profit as a percentage of net sales was 42.3% for the three-month
period ended February 26, 2000 and 35.2% for the nine-month period ended
February 26, 2000, as compared to 40.9% and 41.9%, respectively, for the
corresponding periods last fiscal year. The increase in gross profit margin in
the three-month period ended February 26, 2000 was primarily due to the receipt
of significant new merchandise in the Company's stores and strong sell through
of this new merchandise in the peak-selling season. In the nine-month period
ended February 26, 2000, the Company took a $1.3 million charge for discontinued
and/or slow moving merchandise planned to be liquidated. Excluding the $1.3
million charge, gross profit as a percentage of net sales would have been 38.3%
for the nine-month period ended February 26, 2000. Management attributes the
remaining margin reduction to short term measures taken throughout the first and
second quarter of fiscal 2000 to improve liquidity.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, General and Administrative Expenses ("SG&A") for the three-month
period ended February 26, 2000 were $8.6 million, or approximately 49.0% of net
sales, and for the nine-month period ended February 26, 2000 were $22.9 million,
or approximately 55.2% of net sales. This compares to $11.3 million, or
approximately 43.7% of net sales and $29.8 million or 51.7% of net sales,
respectively, for the corresponding periods last fiscal year. The SG&A expense
for the three-month period ended February 26, 2000 included a $249,000 loss from
the sale of the Company's stores on the island of St Lucia. Excluding this loss,
SG&A expense for the three-month and nine-month periods ended February 26, 2000
would have been 47.6% and 54.6%, respectively. The reduction in sales from the
corresponding periods last year contributed to the higher SG&A cost as a percent
of net sales. In addition, management also attributes the increase in SG&A to
added costs for legal and consulting fees associated with the Company's actions
taken during the three-month and nine-month periods to address the financial
condition of the Company.
19
<PAGE>
Other
- -----
Net interest expense for the three-month period ended February 26, 2000 was
$277,000 and $869,000 for the nine-month period ended February 26, 2000 as
compared to $307,000 and $1,018,000, respectively, for the corresponding periods
last fiscal year. The decrease in net interest expense reflects lower average
borrowings compared to the corresponding period's last fiscal year.
The Company's effective tax rates for the three-month and nine-month periods
ended February 26, 2000 were 0.0% and 0.0%, respectively, as compared to an
effective tax rate of 0.0% for the corresponding periods last fiscal year.
Liquidity and Capital Resources
- -------------------------------
Net cash used in operations during the nine-month period ended February 26,
2000 was $1.3 million as compared to $.4 million net cash provided by operations
for the corresponding period last year. Net cash used was able to remain below
prior year despite increased losses due to reduction in inventory levels.
Historically, the Company has utilized unsecured credit facilities with the
Company's two lead banks to support its inventory and capital requirements,
which fluctuate during the year due to the seasonal nature of the Company's
business, and to maintain and remodel its existing stores. As a result of
negotiations with its two lead banks regarding the Company's noncompliance with
certain financial covenants contained in the original loan agreements with the
banks and the nonpayment of amounts totaling approximately $1.5 million due
under the revolving term loan with one of the Company's banks, the Company and
its subsidiaries entered into a Forbearance Agreement, effective as of April 1,
1999 that effectively froze the Company's line of credit at its then and current
level of $17.5 million. This amount consisted of approximately $13.3 million in
outstanding cash borrowings and approximately $4.2 million in contingent stand-
by letters of credit.
Pursuant to the Forbearance Agreement, the banks agreed, through August 31,
1999, not to exercise their rights and remedies under the existing loan
documents with respect to existing defaults and certain expected future
defaults. In exchange, the Company and its subsidiaries granted a security
interest to the banks against their personal property. The Forbearance Agreement
also sets forth certain criteria that the Company had to meet regarding the
Company's inventory levels. The banks indicated that they would not make any
additional borrowings to the Company during the term of the Forbearance
Agreement.
In connection with the Forbearance Agreement, the Company and its
subsidiaries granted a security interest to the lenders against their personal
property. The forbearance period under the Forbearance Agreement expired on
August 31, 1999, and the Company is currently in default under certain of the
covenants contained in such Forbearance Agreement. As a result, the banks may
exercise their rights and remedies under the existing loan documents, including
declaring all amounts immediately due under the loan agreements. If the banks
accelerate the outstanding loans and declare amounts outstanding under such loan
agreements immediately due, the Company does not believe that it will have
sufficient funds available to make such payments and such action by the banks
will have a material adverse effect on the Company. The Company currently is in
the process of finalizing documents and the terms and conditions of a standstill
agreement with its lenders. There, however, is no assurance that such agreement
will be entered into or that the Company will be able to fulfill all of the
conditions
20
<PAGE>
to such agreement. The Company currently is actively exploring other financing
alternatives. At this time, however, the Company does not have any firm
commitments from other lenders or third parties to provide it with funds that
would be used to pay off its existing lenders or to finance its working capital.
There is no assurance that the Company will be successful in obtaining any other
financing.
Outstanding borrowings against these aforementioned now secured credit
facilities totaled $12.8 million and $14.4 million as of February 26, 2000 and
February 27, 1999, respectively. Outstanding stand-by letters of credit against
these credit facilities totaled $2.6 million and $4.1 million as of February 26,
2000 and February 27, 1999, respectively. The weighted average interest rates
incurred during fiscal 1999, 1998 and 1997 were approximately 8.4%, 8.1% and
7.9%, respectively.
The Company continues to operate without a long-term credit facility to fund
its working capital needs. The Company is negotiating a standstill agreement
with its existing lenders which would replace the Forbearance Agreement
that expired on August 31, 1999. (See "Notes to Consolidated Financial
Statements (unaudited) Footnote 5, Credit Arrangements" above). In addition, the
Company is currently in negotiations with an investment bank and an asset based
lender to secure new financing and repay its existing lenders. There is no
assurance that the Company will be able to successfully execute such measures.
The Company has reduced its existing debt to approximately $12.8 million,
which consists of approximately $10.2 million in outstanding cash borrowings and
approximately $2.6 million in contingent stand-by letters of credit, as of April
11, 2000. This represents approximately a 27% reduction in the Company's total
outstanding debt.
Capital expenditures were approximately $.1 million for the nine-month
period ended February 26, 2000 compared to $.6 million for the corresponding
period last year.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
None.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
There have been no changes in the third quarter of fiscal 2000 in the
Company's civil actions which are pending against Lorraine Quetel, Lydia Magras
and Bon Voyage Travel, Inc. in connection with the employee defalcation which
occurred during the Company's fiscal year ended May 31, 1997. See Part I, Item 1
"Notes to Consolidated Financial Statements (unaudited), Footnote 11,
Commitments and Contingencies--Employee Defalcation Loss."
21
<PAGE>
On June 10, 1998, the Company filed a civil action in the United States
District Court for the District of Delaware (Civil Action No. 98-315-SLR)
against DRHC, Stephen G.E. Crane, DRHC's controlling shareholder, Young
Caribbean Jewelry Company Limited, a Cayman Islands corporation, Alliance
International Holdings Limited, a Bahamian corporation, and CEI Distributors
Inc., a British Virgin Islands corporation, each an affiliate of DRHC. For a
summary of the litigation proceedings with respect to this action, see "Part 1,
Item 1, Notes to Financial Statements (unaudited), Footnote 11, Commitments and
Contingencies--Destination Retail Holdings Corporation." Additionally, as a
result of the failure of the parties to reach a settlement on the merger
litigation to date, the court has scheduled a trial to begin on May 22, 2000.
On March 22, 1999, a complaint was filed as a putative class action on
behalf of certain stockholders of the Company in the United States District
Court for the District of Delaware (Civil Action No.99-176) against the Company,
certain of its former officers and directors, DRHC and Stephen G.E. Crane. For a
summary of the litigation proceedings with respect to this action, see "Part 1,
Item 1, Notes to Financial Statements (unaudited), Footnote 11, Commitments and
Contingencies--Class Action Lawsuit." The plaintiffs amended their complaint on
November 10, 1999 and the Company filed a motion to dismiss the amended
complaint on December 7, 1999. This motion remains pending.
The Company has entered into discussions to settle both the pending class
action and the merger litigation. There, however, can be no assurances that
these discussions will result in settlement of these actions or that any
settlement will be on terms favorable to the Company. The Company is involved in
various other legal proceedings, which, in the opinion of management, are not
likely to result in a material adverse effect on the financial condition or
results of operations.
ITEM 6. Exhibits and Reports of Form 8-K
--------------------------------
(a) Exhibits
3.1 The Amended and Restated Certificate of Incorporation of the
Company is incorporated herein by reference to Exhibit 3.3 to
Amendment No. 1 to the Company's Registration Statement on Form
S-1, Registration No. 33-40907, filed with the Securities and
Exchange Commission on July 10, 1992 ("Amendment No. 1 to the
Form S-1").
3.2 The Second Amended and Restated By-Laws of the Company effective
as of January 26, 2000 are filed herewith as Exhibit 3.2.
10.45 Form of Indemnification Agreement between the Company and its
Directors is filed herewith as Exhibit 10.45.
27.1 Financial Data Schedule is filed herewith as Exhibit 27.1.
(b) Reports on Form 8-K during the quarter ended February 26, 2000. The
registrant filed the following Current Reports on Form 8-K during the
quarter ended February 26, 2000:
1. On January 4, 2000 , the Company filed a Current Report on Form
8-K announcing that on December 22, 1999 the Nasdaq Stock Market
had decided to delist the Company's securities
22
<PAGE>
as of the closing of business that day from the Nasdaq SmallCap
Market. The Company's stock became eligible to trade on the OTC
Bulletin Board commencing on December 23, 1999.
23
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITTLE SWITZERLAND, INC.
Date: April 11, 2000 /s/ Patrick J. Hopper
---------------------
Patrick J. Hopper
Chief Financial Officer,
Vice President and Treasurer
[Authorized Officer and Principal Financial
and Accounting Officer]
<PAGE>
EXHIBIT 3.2
SECOND AMENDED AND RESTATED
BY-LAWS
OF
LITTLE SWITZERLAND, INC.
(as of January 26, 2000)
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
--------------
held at the hour, date and place within or without the United States which is
fixed by the Board of Directors, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-Laws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these By-Laws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. Matters to be Considered at Annual Meeting. At an annual
------------------------------------------
meeting of stockholders, only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been properly brought before the
annual meeting (a) by, or at the direction of, the Board of Directors or a
designated committee thereof or (b) by any holder of record (both as of the time
notice of such proposal is given by the stockholder as set forth below and as of
the record date for the annual meeting in question) of any shares of capital
stock of the Corporation entitled to vote at such annual meeting who complies
with the procedures set forth in this Section. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a holder of record of any shares of capital stock entitled to vote at
such annual meeting, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation as set forth in this Section and
such stockholder or his representative must be present at the annual meeting.
To be timely, a stockholder's notice must be delivered to, or mailed and
received at, the principal executive offices of the Corporation (a) not less
than 75 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders (the "Anniversary Date") or
(b) in the event that the annual meeting of stockholders is called for a date
more than seven days prior to the Anniversary Date, not later than the close of
business on (i) the 20th day (or if that day is not a business day of the
Corporation, on the
<PAGE>
next succeeding business day) following the first date of public disclosure or
(2) the 75th day prior to such scheduled date of such meeting (or if that day is
not a business day for the Corporation, on the next succeeding business day).
Any public disclosure of the scheduled date of the meeting made by the
Corporation by means of a press release, a report or other document filed with
the Securities and Exchange Commission, or a letter or report sent to
stockholders of record of the Corporation, shall be deemed to be sufficient
public disclosure of the date of such meeting for purposes of these By-Laws.
A stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (a) a brief description
of the proposal desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Corporation's stock transfer books, of the stockholder
proposing such business and of the beneficial owners (if any) of the stock
registered in such stockholder's name and the name and address of other
stockholders known by such stockholder to be supporting such proposal on the
date of the stockholder notice, (c) the class and number of shares of the
Corporation's capital stock which are held of record, beneficially owned or
represented by proxy by the stockholder and by any other stockholders known by
such stockholder to be supporting such proposal on the record date for the
annual meeting in question (if such date shall then have been made publicly
available) and on the date of such stockholder's notice, and (d) any material
interest of the stockholder in such proposal.
If the Board of Directors, or a designated committee thereof, determines
that any stockholder proposal was not timely made in accordance with the
provisions of this Section, or that the information provided in a stockholder's
notice does not satisfy the informational requirements of this Section in any
material respect, then such proposal shall not be presented for action at the
annual meeting in question. If neither the Board of Directors nor such
committee makes a determination as to the validity of any stockholder proposal,
the presiding officer of the annual meeting shall determine and declare at the
annual meeting whether the stockholder proposal was made in accordance with the
terms of this Section. If the presiding officer determines that a stockholder
proposal was made in accordance with the terms of this Section, he shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to any such proposal. If the presiding officer determines
that a stockholder proposal was not made in accordance with the terms of this
Section, he shall so declare at the annual meeting and any such proposal shall
not be acted upon at the annual meeting.
The provisions of this By-Law shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, Directors
and committees of the Board of Directors, but in connection with such reports,
no new business shall be acted upon at such annual meeting unless stated, filed
and received as herein provided.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and regulations
thereunder with respect to the matters set forth in this By-Law. Nothing in
this By-Law shall be deemed to affect any rights of
2
<PAGE>
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
----------------
subject to the rights of the holders of any class or series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the Directors then in office; provided, however, that if at the
time of such call there is an Interested Stockholder, any such call shall also
require the affirmative vote of a majority of the Continuing Directors then in
office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
--------------------------------------------
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of all
--------------------------------
annual meetings of stockholders stating the hour, date and place of such annual
meetings shall be given by the Secretary or an Assistant Secretary (or other
person authorized by these By-Laws or by law) not less than 10 days nor more
than 60 days before the meeting, to each stockholder entitled to vote thereat
and to each stockholder who, by law or under the Certificate of Incorporation or
under these By-Laws, is entitled to such notice, by delivering such notice to
him or by mailing it, postage prepaid, addressed to such stockholder at the
address of such stockholder as it appears on the Corporation's stock transfer
books. Such notice shall be deemed to be delivered when hand delivered to such
address or deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings of the stockholders, except that the
written notice of all special meetings shall state the purpose or purposes for
which the meeting has been called.
Notice of an annual or special meeting of stockholders need not be given to
a stockholder if a written waiver of notice is executed before or after such
meeting by such stockholder or such stockholder's authorized attorney, if
communication with such stockholder is unlawful, or if such stockholder attends
such meeting, unless such attendance was for the express purpose of objecting at
the beginning of the meeting to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any annual or special meeting of stockholders
need be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
annual or special meeting of stockholders and any record date with respect
thereto, regardless of whether any notice or public disclosure with respect to
any such meeting has been sent or made pursuant to Section 2 of this Article I
or Section 3 of Article II hereof or otherwise. When any meeting is convened,
the presiding officer may adjourn the meeting if (a) no quorum is present
3
<PAGE>
for the transaction of business, (b) the Board of Directors determines that
adjournment is necessary or appropriate to enable the stockholders to consider
fully information which the Board of Directors determines has not been made
sufficiently or timely available to stockholders, or (c) the Board of Directors
determines that adjournment is otherwise in the best interests of the
Corporation. When any annual or special meeting of stockholders is adjourned to
another hour, date or place, notice need not be given of the adjourned meeting
other than an announcement at the meeting at which the adjournment is taken of
the hour, date and place to which the meeting is adjourned; provided, however,
that if the adjournment is for more than 30 days, or if after the adjournment a
new record date is fixed for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat
and each stockholder who, by law or under the Certificate of Incorporation or
these By-Laws, is entitled to such notice.
SECTION 6. Quorum. The holders of a majority in interest of all stock
------
issued, outstanding and entitled to vote, represented in person or by proxy,
shall constitute a quorum at any annual or special meeting of stockholders; but
if less than a quorum is present at a meeting, a majority in interest of the
stockholders present or the presiding officer may adjourn the meeting from time
to time, and the meeting may be held as adjourned without further notice, except
as provided in Section 5 of this Article I. At such adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed. The stockholders present at a
duly constituted meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one vote for each
------------------
share of stock entitled to vote owned by them of record according to the books
of the Corporation, unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy, but
no proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. Proxies shall be filed with the
Secretary of the meeting before being voted. Except as otherwise limited
therein or as otherwise provided by law, proxies shall entitle the persons
authorized thereby to vote at any adjournment of such meeting, but they shall
not be valid after final adjournment of such meeting. A proxy with respect to
stock held in the name of two or more persons shall be valid if executed by or
on behalf of any one of them unless at or prior to the exercise of the proxy the
Corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid, and the burden of proving invalidity shall rest on the
challenger.
SECTION 8. Action at Meeting. When a quorum is present, any matter before
-----------------
any annual or special meeting of stockholders shall be decided by vote of the
holders of a majority of the shares of stock voting on such matter, except where
a larger vote is required by law, by the Certificate of Incorporation or by
these By-Laws. Any election by stockholders shall be determined by a plurality
of the votes cast, except where a larger vote is required by law, by the
Certificate of Incorporation or by these By-Laws. The Corporation shall not
directly or
4
<PAGE>
indirectly vote any shares of its own stock; provided, however, that the
Corporation may vote shares which it holds in a fiduciary capacity to the extent
permitted by law.
SECTION 9. Action by Consent. Any action required or permitted to be
-----------------
taken by the stockholders of the Corporation must be effected at a duly
constituted annual or special meeting of such holders or by a consent in writing
signed by the holders of all of the outstanding shares authorized to vote at
such meeting.
SECTION 10. Stockholder Lists. The Secretary or an Assistant Secretary
------------------
(or the Corporation's transfer agent or other person authorized by these By-Laws
or by law) shall prepare and make, at least 10 days before every annual or
special meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 11. Presiding Officer. The Chairman of the Board, if one is
------------------
elected, or if not elected or in his absence, such other person who is chosen by
the Board of Directors, shall preside at all annual or special meetings of
stockholders and shall have the power, among other things, to adjourn such
meeting at any time and from time to time, subject to Sections 5 and 6 of this
Article I. The order of business and all other matters of procedure at any
meeting of the stockholders shall be determined by the presiding officer.
SECTION 12. Voting Procedures and Inspectors of Elections. The
---------------------------------------------
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his ability. The inspectors shall perform such duties as are required
by the Delaware General Corporation Law, as amended from time to time, including
the counting of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the performance of the
duties of the inspectors. The presiding officer may review all determinations
made by the inspector(s), and in so doing the presiding officer shall be
entitled to exercise his sole judgment and discretion and he shall not be bound
by any determinations made by the inspector(s). All determinations by the
5
<PAGE>
inspector(s) and, if applicable, the presiding officer shall be subject to
further review by any court of competent jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. All the power of the Corporation shall be exercised by
------
or under the direction of the Board of Directors except as otherwise provided by
the Certificate of Incorporation or required by law. In the event of a vacancy
in the Board of Directors, the remaining Directors, except as otherwise provided
by law, may exercise the powers of the full Board until the vacancy is filled.
SECTION 2. Number and Terms. Except as otherwise fixed pursuant to the
----------------
provisions of Article IV of the Certificate of Incorporation relating to the
rights of the holders of any class or series of preferred stock to elect
Directors, the number of Directors of the Corporation shall be fixed by
resolution duly adopted from time to time by the Board of Directors. The
Directors, other than those who may be elected by the holders of any class or
series of preferred stock, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible as determined by the Board of Directors, with one class to be
elected annually.
The initial Directors of the Corporation shall hold office as follows: the
first class of Directors shall hold office initially for a term expiring at the
annual meeting of stockholders to be held in l992, the second class of Directors
shall hold office initially for a term expiring at the annual meeting of
stockholders to be held in l993, and the third class of Directors shall hold
office initially for a term expiring at the annual meeting of stockholders to be
held in l994, with the members of each class to hold office until their
respective successors are duly elected and qualified. At each annual meeting of
the stockholders of the Corporation, Directors elected to succeed those whose
terms are expiring at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election and until their respective successors are duly
elected and qualified.
SECTION 3. Director Nominations. Nominations of candidates for election
--------------------
as Directors of the Corporation at any annual meeting of stockholders may be
made (a) by, or at the direction of, a majority of the Board of Directors or a
designated committee thereof, or (b) by any holder of record (both as of the
time notice of such nomination is given by the stockholder as set forth below
and as of the record date for the annual meeting in question) of any shares of
the capital stock of the Corporation entitled to vote at such annual meeting who
complies with the procedures set forth in this Section. Any stockholder who
seeks to make such a nomination, or his representative, must be present in
person at the annual meeting.
6
<PAGE>
Only persons nominated in accordance with the procedures set forth in this
Section shall be eligible for election as Directors at an annual meeting of
stockholders.
Nominations, other than those made by, or at the direction of, the Board of
Directors or a designated committee thereof shall be made pursuant to timely
notice in writing to the Secretary of the Corporation as set forth in this
Section. To be timely, a stockholder's notice shall be delivered to, or mailed
and received, at the principal executive offices of the Corporation (a) not less
than 75 days nor more than 120 days prior to the Anniversary Date or (b) in the
event that the annual meeting of stockholders is called for a date more than
seven days prior to the Anniversary Date, not later than the close of business
on (i) the 20th day (or if that day is not a business day for the Corporation,
on the next succeeding business day) following the first date on which the date
of such meeting was publicly disclosed or (ii) if such date of public disclosure
occurs more than 75 days prior to such scheduled date of such meeting, then the
later of (1) the 20th day (or if that day is not a business day for the
Corporation, on the next succeeding business day) following the first date of
public disclosure of the date of such meeting or (2) the 75th day prior to such
scheduled date of such meeting (or if that day is not a business day for the
Corporation, on the next succeeding business day). Any public disclosure of the
scheduled date of the meeting made by the Corporation by means of a press
release, a report or other document filed with the Securities and Exchange
Commission, or a letter or report sent to stockholders of record of the
Corporation, shall be deemed to be sufficient public disclosure of the date of
such meeting for purposes of these By-Laws. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person during the past five years, (iii) the class and number of shares of
the Corporation's capital stock which are beneficially owned by such person on
the date of such stockholder notice, (iv) a description of any of the following
events that has occurred within the last five years and that is material to the
evaluation of the ability or integrity of such proposed nominee: (1) a petition
under Federal bankruptcy laws or any state insolvency laws was filed by or
against such person, (2) such person was convicted in a criminal proceeding or
was a named subject of a criminal proceeding (excluding traffic violations and
other minor offenses), (3) such person was found by any court of competent
jurisdiction to have violated any Federal or state securities law or Federal
commodities law, which judgment or finding has not been subsequently reversed,
suspended or vacated, or (4) such person was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction or of any Federal or state governmental or quasi-
governmental agency, authority or commission enjoining him or otherwise limiting
him from engaging in any type of business practice or in any activity in
connection with the purchase or sale of any security or commodity, (v) the
consent of each nominee to serve as a Director if so elected, and (vi) a
representation that such person qualifies as a nominee for election as a
Director of the Corporation under Section 17 of this Article II, and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's stock transfer books, of such stockholder and of the
beneficial owners (if any) of the stock registered in such stockholder's name
and the name and address of other stockholders known by such stockholder to be
7
<PAGE>
supporting such nominees, (ii) the class and number of shares of the
Corporation's capital stock which are beneficially owned by such stockholder and
such beneficial owners (if any) on the date of such stockholder notice and by
any other stockholders known by such stockholder to be supporting such nominees
on the date of such stockholder notice, (iii) a representation that the
stockholder or his representative intends to appear in person at the meeting to
nominate the person or persons specified in the notice, (iv) a description of
all arrangements or understandings between such stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by such stockholders; provided,
that nothing in subsection (a) or (b) of this Section shall require the
stockholder giving such notice to provide to the Corporation copies of such
stockholder's preliminary or definitive proxy, proxy statement, or other
soliciting material filed with the Securities and Exchange Commission. At the
request of the Board of Directors, any person nominated by, or at the direction
of, the Board of Directors for election as a Director at an annual meeting shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to such nominee.
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of Directors at the annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the annual meeting in accordance with the procedures set forth in this Section
shall be provided for use at the annual meeting.
If the Board of Directors, or a designated committee thereof, determines
that any stockholder nomination was not timely made in accordance with the terms
of this Section or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to the validity of any nominations by a stockholder as set
forth above, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether a nomination was made in accordance with
the terms of this Section. If the presiding officer determines that a
nomination was made in accordance with the terms of this Section, he shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to such nomination. If the presiding officer determines
that a nomination was not made in accordance with the terms of this Section, he
shall so declare at the annual meeting and such nomination shall be disregarded.
SECTION 4. Qualification. No Director need be a stockholder of the
-------------
Corporation. Unless waived by a vote of the Board of Directors, no individual
may be elected as a Director of the Corporation if he has reached the age of
72 years at the time of election.
8
<PAGE>
SECTION 5. Vacancies. Except as otherwise fixed pursuant to the
---------
provisions of Article IV of the Certificate of Incorporation relating to the
rights of the holders of any class or series of preferred stock to elect
Directors, any vacancy occurring on the Board of Directors, including any
vacancy created by reason of an increase in the number of Directors or resulting
from death, resignation, disqualification, removal or other causes, shall be
filled solely by the affirmative vote of a majority of the remaining Directors
then in office, even if less than a quorum of the Board of Directors; provided,
however, that, if there is an Interested Stockholder at the time of such vote,
the filling of such vacancy shall also require the affirmative vote of a
majority of the Continuing Directors then in office. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified. When the number of Directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of Directors shall be apportioned; provided,
however, that no decrease in the number of Directors shall shorten the term of
any incumbent Director. In the event of a vacancy in the Board of Directors,
the remaining Directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
SECTION 6. Removal. Subject to the rights of any class or series of
-------
preferred stock to elect Directors, any Director (including persons elected by
Directors to fill vacancies in the Board of Directors) may be removed from
office only with cause and by the affirmative vote of at least two-thirds of the
total votes eligible to be cast by stockholders at a duly constituted meeting of
stockholders called expressly for such purpose. A Director may not be removed
from office without cause. At least 30 days prior to any meeting of
stockholders at which it is proposed that any Director be removed from office,
written notice shall be sent to the Director whose removal will be considered at
the meeting.
SECTION 7. Resignation. A Director may resign at any time by giving
-----------
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
----------------
Directors shall be held, without other notice than this By-Law, on the same date
and at the same place as the annual meeting of stockholders following the close
of such meeting of stockholders. Other regular meetings of the Board of
Directors may be held at such hour, date and place as the Board of Directors may
by resolution from time to time determine without other notice than such
resolution.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
----------------
may be called, orally or in writing, by or at the request of any two Directors.
The person calling any such special meeting of the Board of Directors may fix
the hour, date and place thereof.
9
<PAGE>
SECTION 10. Notice of Meetings. Notice of the hour, date and place of all
------------------
special meetings of the Board of Directors shall be given to each Director by
the persons calling the special meeting in accordance with Section 9 of this
Article II. Notice of any special meeting of the Board of Directors shall be
given to each Director in person or by telephone, telex, telecopy or other
written form of electronic communication, or by telegram sent to his business or
home address at least 24 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
Director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any
notice of the hour, date or place of any meeting adjourned for less than 30 days
or of the business to be transacted thereat, other than an announcement at the
meeting at which such adjournment is taken of the hour, date and place to which
the meeting is adjourned.
A written waiver of notice executed before or after a meeting by a Director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because such meeting is not lawfully called or convened. Except as otherwise
required by law, by the Certificate of Incorporation or by these By-Laws,
neither the business to be transacted at, nor the purpose of, any meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a majority
------
of the Directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
Directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 10 of
this Article II. Any business which might have been transacted at the meeting
as originally noticed may be transacted at such adjourned meeting at which a
quorum is present.
SECTION 12. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate of Incorporation or by these By-Laws.
SECTION 13. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of
10
<PAGE>
the meetings of the Board of Directors and shall be treated for all purposes as
a vote at a meeting of the Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
-----------------------
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-Laws.
SECTION 15. Committees. The Board of Directors, by vote of a majority of
----------
the Directors then in office, may elect from its number one or more committees,
including an Executive Committee and an Audit Committee, and may delegate
thereto some or all of its powers except those which by law, by the Certificate
of Incorporation or by these By-Laws may not be delegated. Except as the Board
of Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-Laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors may abolish any such committee at any time.
Any committee to which the Board of Directors delegates any of its powers or
duties shall keep records of its meetings and shall report its action to the
Board of Directors. The Board of Directors shall have power to rescind any
action of any committee, but no such rescission shall have retroactive effect.
With approval of the Board of Directors, the Chief Executive Officer may appoint
such other committees consisting of such Directors as the Chief Executive
Officer shall select. Any recommendations of such committees appointed by the
Chief Executive Officer shall be submitted to the Board of Directors.
SECTION 16. Compensation of Directors. Directors shall receive such
-------------------------
compensation for their services as shall be determined by a majority of the
Board of Directors provided that Directors who are serving the Corporation as
officers or employees and who receive compensation for their services as such,
shall not receive any salary or other compensation for their services as
Directors of the Corporation.
SECTION 17. Additional Director Qualifications-Prohibition on Competitive
-------------------------------------------------------------
Activities. In order to protect the best interests of the shareholders of the
- ----------
Corporation, no person shall be qualified to be elected as a Director of the
Corporation or be qualified to continue to serve as such if it is determined in
accordance with this Section that such person is an owner, part-owner,
shareholder, partner, member, officer, manager or employee of any business
organization (whether a corporation, partnership, limited liability company,
proprietorship or any other form) whose activities, products or services are
competitive with those of the Corporation or its subsidiaries; except that any
such person may make passive investments in a competitive enterprise the shares
of which are publicly traded if such investment constitutes less than five (5)
percent of the equity of such enterprise. In furtherance
11
<PAGE>
of the foregoing, each person elected as a Director of the Corporation shall
enter into a confidentiality agreement with the Corporation in the form provided
by the Company.
(a) Any person who, at the time of his/her election as Director of the
Corporation, fails to qualify under the provisions of this Section 17 or to
enter into or comply with the terms of such confidentiality agreement, as
determined by a majority of the Directors in office immediately prior to any
such election (exclusive of any Director under consideration), shall no longer
qualify as a nominee for Director and shall not be elected as a Director of the
Corporation, irrespective of any vote of the stockholders of the Corporation.
(b) Any Director of the Corporation who, at any time during his/her
term of office, fails to qualify under the provisions of this Section 17 or to
enter into or comply with the terms of such confidentiality agreement, as
determined by a majority of the Directors (exclusive of any Director under
consideration), shall automatically cease to be a Director of the Corporation,
without any vote of the stockholders of the Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist of
-----------
a President, a Treasurer, a Secretary and such other officers, including without
limitation a Chairman of the Board, one or more Vice-Presidents (including
Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents,
Assistant Treasurers and Assistant Secretaries, as the Board of Directors may
determine.
SECTION 2. Election. At the regular annual meeting of the Board following
--------
the annual meeting of stockholders, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by
the Board of Directors at such regular annual meeting of the Board of Directors
or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a Director.
-------------
Any person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his duties in such amount and with such sureties as the Board of
Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate of
------
Incorporation or by these By-Laws, each of the officers of the Corporation shall
hold office until the regular annual meeting of the Board of Directors following
the next annual meeting of stockholders and until his successor is elected and
qualified or until his earlier resignation or removal.
12
<PAGE>
SECTION 5. Resignation. Any officer may resign by delivering his written
-----------
resignation to the Corporation addressed to the President or the Secretary, and
such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
-------
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the Directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
SECTION 9. President. Unless otherwise provided by the Board of Directors
---------
or the Certificate of Incorporation, the President shall be the Chief Executive
Officer of the Corporation and shall, subject to the direction of the Board of
Directors, have general supervision and control of the Corporation's business.
The President shall have such other powers and perform such other duties as the
Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 12. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. He shall have custody of all funds, securities, and
valuable documents of the Corporation. He shall have such other duties and
powers as may be designated from time to time by the Board of Directors or the
Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
13
<PAGE>
SECTION 13. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose.
In his absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge
of the stock ledger (which may, however, be kept by any transfer or other agent
of the Corporation). He shall have custody of the seal of the Corporation, and
he, or an Assistant Secretary, shall have authority to affix it to any
instrument requiring it, and, when so affixed, the seal may be attested by his
signature or that of an Assistant Secretary. He shall have such other duties
and powers as may be designated from time to time by the Board of Directors or
the Chief Executive Officer. In the absence of the Secretary, any Assistant
Secretary may perform his duties and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Other Powers and Duties. Subject to these By-Laws and to such
-----------------------
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a
---------------------
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall
bear the Corporation seal and shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by Corporation
officers may be facsimiles if the certificate is manually countersigned by an
authorized person on behalf of a transfer agent or registrar other than the
Corporation or its employee. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed on such certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the time of its
issue. Every certificate for shares of stock which are subject to any
restriction on transfer and every certificate issued when the Corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
---------
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate
14
<PAGE>
theretofore properly endorsed or accompanied by a written assignment or power of
attorney properly executed, with transfer stamps (if necessary) affixed, and
with such proof of the authenticity of signature as the Corporation or its
transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by
--------------
the Certificate of Incorporation or by these By-Laws, the Corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the Corporation in accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the Corporation of his
post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to receive notice of or to vote at any meeting of
stockholders or any adjournments thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than 60 days nor less than
10 days before the date of such meeting, nor more than 60 days prior to any
other action. In such case, only stockholders of record on such record date
shall be so entitled, notwithstanding any transfer of stock on the stock
transfer books of the Corporation after the record date.
If no record date is fixed: (a) the record date for determining
stockholders entitled to receive notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; and (b) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
---------
Indemnification
---------------
SECTION 1. Definitions. For purposes of this Article: (a) "Officer"
-----------
means any person who serves or has served as a Director of the Corporation or in
any other office filled by election or appointment by the stockholders or the
Board of Directors and any heirs or personal representatives of such person;
(b) "Non-Officer Employee" means any person who
15
<PAGE>
serves or has served as an employee of the Corporation, but who is not or was
not an Officer, and any heirs or personal representatives of such person;
(c) "Proceeding" means any action, suit or proceeding, civil or criminal,
administrative or investigative, brought or threatened in or before any court,
tribunal, administrative or legislative body or agency and any claim which could
be the subject of a Proceeding; and (d) "Expenses" means any liability fixed by
a judgment, order, decree or award in a Proceeding, any amount reasonably paid
in settlement of a Proceeding and any professional fees or other disbursements
reasonably incurred in a Proceeding or in settlement of a Proceeding, including
fines, ERISA excise taxes or penalties.
SECTION 2. Officers. Except as provided in Sections 4 and 5 of this
--------
Article V, each Officer of the Corporation shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the General
Corporation Law of Delaware, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses incurred by such Officer in connection with any Proceeding in which
such Officer is involved as a result of serving or having served (a) as an
Officer or employee of the Corporation, (b) as a director, officer or employee
of any wholly-owned subsidiary of the Corporation, or (c) in any capacity with
any other corporation, organization, partnership, joint venture, trust or other
entity at the request or direction of the Corporation, including service with
respect to employee or other benefit plans, and shall continue as to an Officer
who has ceased to be an Officer and shall inure to the benefit of his heirs,
executors and administrators; provided, however, that the Corporation shall
indemnify any such Officer seeking indemnification in connection with a
Proceeding initiated by such Officer only if such Proceeding was authorized by
the Board of Directors of the Corporation.
SECTION 3. Non-Officer Employees. Except as provided in Sections 4 and 5
---------------------
of this Article V, each Non-Officer Employee of the Corporation may, in the
discretion of the Board of Directors, be indemnified by the Corporation to the
fullest extent authorized by the General Corporation Law of Delaware, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment) against any or all Expenses incurred by such
Non-Officer Employee in connection with any Proceeding in which such Non-Officer
Employee is involved as a result of serving or having served (a) as a Non-
Officer Employee of the Corporation, (b) as a director, officer or employee of
any wholly-owned subsidiary of the Corporation, or (c) in any capacity with any
other corporation, organization, partnership, joint venture, trust or other
entity at the request or direction of the Corporation, including service with
respect to employee or other benefit plans, and shall continue as to a Non-
Officer Employee who has ceased to be a Non-Officer Employee and shall inure to
the benefit of his heirs, executors and administrators; provided, however, that
the Corporation shall indemnify any such Non-Officer Employee seeking
indemnification in connection with a Proceeding initiated by such Non-Officer
Employee only if such Proceeding was authorized by the Board of Directors of the
Corporation.
16
<PAGE>
SECTION 4. Service at the Request or Direction of the Corporation.
------------------------------------------------------
No indemnification shall be provided to an Officer or Non-Officer Employee with
respect to serving or having served in any of the capacities described in
Section 2(c) or 3(c) above unless the following two conditions are met: (a) such
service was requested or directed in each specific case by vote of the Board of
Directors prior to the occurrence of the event to which the indemnification
relates, and (b) the Corporation maintains insurance coverage for the type of
indemnification sought. In no event shall the Corporation be liable for
indemnification under Section 2(c) or 3(c) above for any amount in excess of the
proceeds of insurance received with respect to such coverage as the Corporation
in its discretion may elect to carry. The Corporation may but shall not be
required to maintain insurance coverage with respect to indemnification under
Section 2(c) or 3(c) above. Notwithstanding any other provision of this Section
4 but subject to Section 5 of this Article V, the Board of Directors may provide
an Officer or Non-Officer Employee with indemnification under Section 2(c) or
3(c) above as to a specific Proceeding even if one or both of the two conditions
specified in this Section 4 have not been met and even if the amount of the
indemnification exceeds the amount of the proceeds of any insurance which the
Corporation may have elected to carry, provided that the Board of Directors in
its discretion determines it to be in the best interests of the Corporation to
do so.
SECTION 5. Good Faith. No indemnification shall be provided to an Officer
----------
or to a Non-Officer Employee with respect to a matter as to which such person
shall have been adjudicated in any Proceeding not to have acted in good faith in
the reasonable belief that the action of such person was in the best interests
of the Corporation. In the event that a Proceeding is compromised or settled so
as to impose any liability or obligation upon an Officer or Non-Officer
Employee, no indemnification shall be provided to said Officer or Non-Officer
Employee with respect to a matter if there be a determination that with respect
to such matter such person did not act in good faith in the reasonable belief
that the action of such person was in the best interests of the Corporation.
The determination shall be made by a majority vote of those Directors who are
not involved in such Proceeding. However, if more than half of the Directors
are involved in such Proceeding, the determination shall be made by a majority
vote of a committee of three disinterested Directors chosen by the disinterested
Directors at a regular or special meeting. If there are fewer than three
disinterested Directors, the determination shall be based upon the opinion of
the Corporation's regular outside counsel.
SECTION 6. Prior to Final Disposition. Unless otherwise provided by the
--------------------------
Board of Directors or by the committee pursuant to the procedure specified in
Section 5 of this Article V, any indemnification provided for under this Article
V shall include payment by the Corporation of Expenses incurred in defending a
Proceeding in advance of the final disposition of such Proceeding upon receipt
of an undertaking by the Officer or Non-Officer Employee seeking indemnification
to repay such payment if such Officer or Non-Officer Employee shall be
adjudicated or determined not to be entitled to indemnification under this
Article V.
SECTION 7. Contractual Nature of Rights. The foregoing provisions of this
----------------------------
Article V shall be deemed to be a contract between the Corporation and each
Officer and Non-Officer Employee who serves in such capacity at any time while
this Article V is in effect, and any
17
<PAGE>
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts.
SECTION 8. Non-Exclusivity of Rights. The right to indemnification and
-------------------------
the payment of expenses incurred in defending a Proceeding in advance of its
final disposition conferred in this Article V shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation or these By-Laws, agreement, vote
of stockholders or disinterested directors or otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Officer or Non-Officer Employee, or arising out of any such status,
whether or not the Corporation would have the power to indemnify such person
against such liability under the General Corporation Law of Delaware or the
provisions of this Article V.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall end on
-----------
the last Saturday of May of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Bank as the Board of Directors or Executive Committee may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise
--------------------
provides, the Chairman of the Board, if one is elected, the President or the
Treasurer may waive notice of and act on behalf of this Corporation, or appoint
another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
18
<PAGE>
SECTION 6. Corporate Records. The original or attested copies of the
-----------------
Certificate of Incorporation, By-Laws and records of all meetings of the
incorporators, stockholders and the Board of Directors and the stock transfer
books, which shall contain the names of all stockholders, their record addresses
and the amount of stock held by each, may be kept outside the State of Delaware
and shall be kept at the principal office of the Corporation, at the office of
its counsel or at an office of its transfer agent or at such other place or
places as may be designated from time to time by the Board of Directors.
SECTION 7. Definitions. As used in these By-Laws, the terms "Interested
-----------
Stockholder" and "Continuing Director" shall have the same respective meanings
assigned to them in the Certificate of Incorporation. Any determination of
beneficial ownership of securities under these By-Laws shall be made in the
manner specified in the Certificate of Incorporation.
SECTION 8. Certificate of Incorporation. All references in these By-Laws
----------------------------
to the Certificate of Incorporation shall be deemed to refer to the Certificate
of Incorporation of the Corporation, as amended and in effect from time to time.
SECTION 9. Amendments. The Board of Directors shall have the power to
----------
adopt, alter, amend and repeal these By-Laws. Any By-Laws adopted by the
Directors under the powers conferred hereby may be altered, amended or repealed
by the Directors or by the stockholders. Notwithstanding the foregoing or any
other provisions of the Certificate of Incorporation or these By-Laws to the
contrary, such action by the Board of Directors shall require the affirmative
vote of at least two-thirds of the Directors then in office. Notwithstanding
the foregoing or any other provisions of the Certificate of Incorporation or
these By-Laws to the contrary, any action by the stockholders to alter, amend or
repeal these By-Laws of the Corporation shall require the affirmative vote of at
least two-thirds of the total votes eligible to be cast by stockholders with
respect to such alteration, amendment or repeal, voting together as a single
class, at a duly constituted meeting of stockholders called expressly for such
purpose.
19
<PAGE>
Exhibit 10.45
FORM OF INDEMNIFICATION AGREEMENT
This Agreement made and entered into this 14th day of January, 2000
("Agreement"), by and between Little Switzerland, Inc., a Delaware corporation
(the "Company," which term shall include, where appropriate, any Entity (as
hereinafter defined) controlled directly or indirectly by the Company) and
____________ ("Indemnitee"):
WHEREAS, it is essential to the Company that it be able to retain and
attract as directors the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors to
litigation risks and expenses, and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws require it to indemnify its directors to the
fullest extent permitted by law and permit it to make other indemnification
arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of any such Amended and Restated Certificate of Incorporation
and Amended and Restated By-laws or any change in the ownership of the Company
or the composition of its Board of Directors);
WHEREAS, the Company intends that this Agreement provide Indemnitee with
greater protection than that which is provided by the Company's Amended and
Restated Certificate of Incorporation and Amended and Restated By-laws; and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in continuing as a director of the Company:
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. DEFINITIONS.
(a) "Corporate Status" describes the status of a person who is serving
or has served (i) as a director of the Company, (ii) in any capacity
with respect to any employee benefit plan of the Company, or (iii) as
a director, partner, trustee, officer, employee, or agent of any other
Entity at the request of the Company.
<PAGE>
For purposes of subsection (iii) of this Section 1(a), if Indemnitee
is serving or has served as a director, partner, trustee, officer,
employee or agent of a Subsidiary, Indemnitee shall be deemed to be
serving at the request of the Company.
(b) "Entity" shall mean any corporation, partnership, limited
liability company, joint venture, trust, foundation, association,
organization or other legal entity.
(c) "Expenses" shall mean all fees, costs and expenses incurred by
Indemnitee in connection with any Proceeding (as defined below),
including, without limitation, attorneys' fees, disbursements and
retainers (including, without limitation, any such fees, disbursements
and retainers incurred by Indemnitee pursuant to Sections 10 and 11(c)
of this Agreement), fees and disbursements of expert witnesses,
private investigators and professional advisors (including, without
limitation, accountants and investment bankers), court costs,
transcript costs, fees of experts, travel expenses, duplicating,
printing and binding costs, telephone and fax transmission charges,
postage, delivery services, secretarial services, and other
disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those
terms in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities, losses,
penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or completed
claim, action, suit, arbitration, alternate dispute resolution
process, investigation, administrative hearing, appeal, or any other
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, whether formal or informal, including a proceeding
initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture, trust or other Entity of which the
Company owns (either directly or through or together with another
Subsidiary of the Company) either (i) a general partner, managing
member or other similar interest or (ii) (A) 50% or more of the voting
power of the voting capital equity interests of such corporation,
partnership, limited liability company, joint venture or other Entity,
or (B) 50% or more of the outstanding voting capital stock or other
voting equity interests of such corporation, partnership, limited
liability company, joint venture or other Entity.
2
<PAGE>
2. SERVICES OF INDEMNITEE. In consideration of the Company's covenants
and commitments hereunder, Indemnitee agrees to serve or continue to serve as a
director of the Company. However, this Agreement shall not impose any
obligation on Indemnitee or the Company to continue Indemnitee's service to the
Company beyond any period otherwise required by law or by other agreements or
commitments of the parties, if any.
3. AGREEMENT TO INDEMNIFY. The Company agrees to indemnify Indemnitee as
follows:
(a) Subject to the exceptions contained in Section 4(a) below, if
Indemnitee was or is a party or is threatened to be made a party to
any Proceeding (other than an action by or in the right of the
Company) by reason of Indemnitee's Corporate Status, Indemnitee shall
be indemnified by the Company against all Expenses and Liabilities
incurred or paid by Indemnitee in connection with such Proceeding
(referred to herein as "Indemnifiable Expenses" and "Indemnifiable
Liabilities," respectively, and collectively as "Indemnifiable
Amounts").
(b) Subject to the exceptions contained in Section 4(b) below, if
Indemnitee was or is a party or is threatened to be made a party to
any Proceeding by or in the right of the Company to procure a judgment
in its favor by reason of Indemnitee's Corporate Status, Indemnitee
shall be indemnified by the Company against all Indemnifiable
Expenses.
4. EXCEPTIONS TO INDEMNIFICATION. Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than the following:
(a) If indemnification is requested under Section 3(a) and it has been
adjudicated finally by a court of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim
for indemnification has arisen, Indemnitee failed to act (i) in good
faith and (ii) in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, or, with respect to
any criminal action or proceeding, Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful, Indemnitee shall not
be entitled to payment of Indemnifiable Amounts hereunder.
(b) If indemnification is requested under Section 3(b) and
(i) it has been adjudicated finally by a court of competent
jurisdiction that, in connection with the subject of the
Proceeding out of which the claim for indemnification has
arisen, Indemnitee failed to act (A) in good faith and
(B) in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, Indemnitee
shall not be entitled to payment of Indemnifiable Expenses
hereunder; or
3
<PAGE>
(ii) it has been adjudicated finally by a court of competent
jurisdiction that Indemnitee is liable to the Company with
respect to any claim, issue or matter involved in the
Proceeding out of which the claim for indemnification has
arisen, including, without limitation, a claim that
Indemnitee received an improper personal benefit, no
Indemnifiable Expenses shall be paid with respect to such
claim, issue or matter unless the Court of Chancery or
another court in which such Proceeding was brought shall
determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity
for such Indemnifiable Expenses which such court shall deem
proper.
5. PROCEDURE FOR PAYMENT OF INDEMNIFIABLE AMOUNTS. Indemnitee shall
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and the basis
for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee
within sixty (60) calendar days of receipt of the request. At the request of
the Company, Indemnitee shall furnish such documentation and information as are
reasonably available to Indemnitee and necessary to establish that Indemnitee is
entitled to indemnification hereunder.
6. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY
SUCCESSFUL. Notwithstanding any other provision of this Agreement, and without
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
7. EFFECT OF CERTAIN RESOLUTIONS. Neither the settlement or termination
of any Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create an adverse presumption
that Indemnitee is not entitled to indemnification hereunder. In addition, the
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's action was unlawful.
4
<PAGE>
8. AGREEMENT TO ADVANCE EXPENSES; UNDERTAKING. The Company shall advance
all Expenses incurred by or on behalf Indemnitee in connection with any
Proceeding, including a Proceeding by or in the right of the Company, in which
Indemnitee is involved by reason of such Indemnitee's Corporate Status within
ten (10) days after the receipt by the Company of a written statement from
Indemnitee requesting such advance or advances from time to time, whether prior
to or after final disposition of such Proceeding. To the extent required by
Delaware law, Indemnitee hereby undertakes to repay the amount of Indemnifiable
Expenses paid to Indemnitee if it is finally determined by a court of competent
jurisdiction that Indemnitee is not entitled under this Agreement to
indemnification with respect to such Expenses. This undertaking is an
unlimited general obligation of Indemnitee.
9. Procedure for Advance Payment of Expenses. Indemnitee shall submit to
the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no
later than ten (10) calendar days after the Company's receipt of such request.
10. REMEDIES OF INDEMNITEE.
(a) Right to Petition Court. In the event that Indemnitee makes a
-----------------------
request for payment of Indemnifiable Amounts under Sections 3 and 5
above or a request for an advancement of Indemnifiable Expenses under
Sections 8 and 9 above and the Company fails to make such payment or
advancement in a timely manner pursuant to the terms of this
Agreement, Indemnitee may petition the Court of Chancery to enforce
the Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under
---------------
Section 10(a) above, the Company shall have the burden of proving that
Indemnitee is not entitled to payment of Indemnifiable Amounts
hereunder.
(c) Expenses. If Indemnitee is successful in whole or in part in
--------
connection with any action brought by Indemnitee under Section 10(a)
above, the Company agrees to reimburse Indemnitee in full for any
Expenses incurred by Indemnitee in connection with investigating,
preparing for, litigating, defending or settling any such action, or
in connection with any claim or counterclaim brought by the Company in
connection therewith.
(d) Validity of Agreement. The Company shall be precluded from
---------------------
asserting in any Proceeding, including, without limitation, an action
under Section 10(a) above, that the provisions of this Agreement are
not valid, binding and enforceable or that there is insufficient
consideration for this Agreement and shall stipulate in court that the
Company is bound by all the provisions of this Agreement.
5
<PAGE>
(e) Failure to Act Not a Defense. The failure of the Company
----------------------------
(including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination
concerning the permissibility of the payment of Indemnifiable Amounts
or the advancement of Indemnifiable Expenses under this Agreement
shall not be a defense in any action brought under Section 10(a)
above, and shall not create a presumption that such payment or
advancement is not permissible.
11. DEFENSE OF THE UNDERLYING PROCEEDING.
(a) Notice by Indemnitee. Indemnitee agrees to notify the Company
--------------------
promptly upon being served with any summons, citation, subpoena,
complaint, indictment, information, or other document relating to any
Proceeding which may result in the payment of Indemnifiable Amounts or
the advancement of Indemnifiable Expenses hereunder; provided,
however, that the failure to give any such notice shall not disqualify
Indemnitee from the right to receive payments of Indemnifiable Amounts
or advancements of Indemnifiable Expenses unless the Company's ability
to defend in such Proceeding is materially and adversely prejudiced
thereby.
(b) Defense by Company. Subject to the provisions of the last
------------------
sentence of this Section 11(b) and of Section 11(c) below, the Company
shall have the right to defend Indemnitee in any Proceeding which may
give rise to the payment of Indemnifiable Amounts hereunder; provided,
however that the Company shall notify Indemnitee of any such decision
to defend within ten (10) days of receipt of notice of any such
Proceeding under Section 11(a) above. The Company shall not, without
the prior written consent of Indemnitee, consent to the entry of any
judgment against Indemnitee or enter into any settlement or compromise
which (i) includes an admission of fault of Indemnitee or (ii) does
not include, as an unconditional term thereof, the full release of
Indemnitee from all liability in respect of such Proceeding, which
release shall be in form and substance reasonably satisfactory to
Indemnitee. This Section 11(b) shall not apply to a Proceeding
brought by Indemnitee under Section 10(a) above or pursuant to Section
19 below.
(c) Indemnitee's Right to Counsel. Notwithstanding the provisions of
-----------------------------
Section 11(b) above, if in a Proceeding to which Indemnitee is a party
by reason of Indemnitee's Corporate Status, Indemnitee reasonably
concludes that it may have separate defenses or counterclaims to
assert with respect to any issue which may not be consistent with the
position of other defendants in such Proceeding, or if the Company
fails to assume the defense of such proceeding in a timely manner,
Indemnitee shall be entitled to be represented by separate legal
counsel of Indemnitee's choice at the expense of the Company. In
addition, if the
6
<PAGE>
Company fails to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes
any action to declare this Agreement void or unenforceable, or
institutes any action, suit or proceeding to deny or to recover from
Indemnitee the benefits intended to be provided to Indemnitee
hereunder, Indemnitee shall have the right to retain counsel of
Indemnitee's choice, at the expense of the Company, to represent
Indemnitee in connection with any such matter.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
---------
enter into, and be bound by the terms of, this Agreement, and the
execution, delivery and performance of the undertakings contemplated
by this Agreement have been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by
--------------
the Company in accordance with the provisions hereof, shall be a
legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement
of creditors' rights generally.
13. INSURANCE. The Company shall, from time to time, make the good faith
determination whether or not it is practicable for the Company to obtain and
maintain a policy or policies of insurance with a reputable insurance company
providing the Indemnitee with coverage for losses from wrongful acts, and to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's officers and directors. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, or if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit. The Company
shall promptly notify Indemnitee of any good faith determination not to provide
such coverage.
14. CONTRACT RIGHTS NOT EXCLUSIVE. The rights to payment of Indemnifiable
Amounts and advancement of Indemnifiable Expenses provided by this Agreement
shall be in addition to, but not exclusive of, any other rights which Indemnitee
may have at any time under applicable law, the Company's Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws, or any other
agreement, vote of stockholders or directors (or
7
<PAGE>
a committee of directors), or otherwise, both as to action in Indemnitee's
official capacity and as to action in any other capacity as a result of
Indemnitee's serving as a director of the Company.
15. SUCCESSORS. This Agreement shall be (a) binding upon all successors
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law)
and (b) binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee. This Agreement
shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
16. SUBROGATION. In the event of any payment of Indemnifiable Amounts
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
17. CHANGE IN LAW. To the extent that a change in Delaware law (whether
by statute or judicial decision) shall permit broader indemnification or
advancement of expenses than is provided under the terms of the by-laws of the
Company and this Agreement, Indemnitee shall be entitled to such broader
indemnification and advancements, and this Agreement shall be deemed to be
amended to such extent.
18. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
19. INDEMNITEE AS PLAINTIFF. Except as provided in Section 10(c) of this
Agreement and in the next sentence, Indemnitee shall not be entitled to payment
of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect
to any Proceeding brought by Indemnitee against the Company, any Entity which it
controls, any director or officer thereof, or any third party, unless the Board
of Directors of the Company has consented to the initiation of such Proceeding.
This Section shall not apply to counterclaims or affirmative defenses asserted
by Indemnitee in an action brought against Indemnitee.
8
<PAGE>
20. MODIFICATIONS AND WAIVER. Except as provided in Section 17 above with
respect to changes in Delaware law which broaden the right of Indemnitee to be
indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.
21. GENERAL NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
(i) If to Indemnitee, to:
(ii) If to the Company, to:
Little Switzerland, Inc.
161-B Crown Bay Cruise Ship Port
St. Thomas, U.S.V.I. 00804
Fax: (340) 774-9900
or to such other address as may have been furnished in the same manner by
any party to the others.
22. GOVERNING LAW; CONSENT TO JURISDICTION; SERVICE OF PROCESS. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to its rules of conflict of laws. Each of the
Company and the Indemnitee hereby irrevocably and unconditionally consents to
submit to the exclusive jurisdiction of the Court of Chancery of the State of
Delaware and the courts of the United States of America located in the State of
Delaware (the "Delaware Courts") for any litigation arising out of or relating
to this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in the Delaware Courts
and agrees not to plead or claim in any Delaware Court that such litigation
brought therein has been brought in an inconvenient forum. Each of the parties
hereto agrees, (a) to the extent such party is not otherwise subject to service
of process in the State of Delaware, to appoint and maintain an agent in the
State of Delaware as such party's agent for acceptance of legal process, and (b)
that service of process may also be made on such party by prepaid certified mail
with a proof of mailing receipt validated by the United States Postal Service
constituting evidence of valid service. Service made pursuant to (a) or (b)
above shall have the same legal force and effect as
9
<PAGE>
if served upon such party personally within the State of Delaware. For purposes
of implementing the parties' agreement to appoint and maintain an agent for
service of process in the State of Delaware, each such party does hereby appoint
The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801, as such agent and each such party hereby agrees to
complete all actions necessary for such appointment.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
LITTLE SWITZERLAND, INC.
By:
---------------------------------------
Robert L. Baumgardner
President and Chief Executive Officer
INDEMNITEE
------------------------------------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-27-2000
<PERIOD-START> NOV-28-1999
<PERIOD-END> FEB-26-2000
<CASH> 2,489
<SECURITIES> 0
<RECEIVABLES> 1,284
<ALLOWANCES> 0
<INVENTORY> 30,732
<CURRENT-ASSETS> 35,851
<PP&E> 34,706
<DEPRECIATION> 19,497
<TOTAL-ASSETS> 51,532
<CURRENT-LIABILITIES> 24,013
<BONDS> 10,175
0
0
<COMMON> 87
<OTHER-SE> 25,611
<TOTAL-LIABILITY-AND-EQUITY> 51,532
<SALES> 41,511
<TOTAL-REVENUES> 41,511
<CGS> 26,910
<TOTAL-COSTS> 26,910
<OTHER-EXPENSES> 22,925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 869
<INCOME-PRETAX> (9,193)
<INCOME-TAX> 300
<INCOME-CONTINUING> (9,493)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,493)
<EPS-BASIC> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
