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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9/A-1
(RULE 14d-101)
AMENDMENT NO. 1
SOLICITATION/RECOMMENDATION STATEMENT UNDER
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
LITTLE SWITZERLAND, INC.
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(Name of Subject Company)
LITTLE SWITZERLAND, INC.
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(Names of Person Filing Statement)
Common Stock, par value $.01 per share
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(Title of Class of Securities)
537528-10-1
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(CUSIP Number of Class of Securities)
Richard E. Sasso
Member of the Special Committee
of the Board of Directors
c/o Gregory P. Williams, Esq.
Richards, Layton & Finger, P.A.
One Rodney Square
920 North Street
Wilmington, Delaware 19801
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(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of the Person Filing Statement)
With a copy to:
Jack P. Jackson, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036-8299
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company is Little Switzerland, Inc., a Delaware
corporation (the "Company"), the address of the principal executive offices of
the Company is 161-B Crown Bay, St. Thomas, U.S.V.I. 00802 and its phone number
at its principal executive offices is (340) 776-2010.
The title of the class of equity securities to which this Schedule 14D-9
Solicitation/Recommendation Statement (this "Schedule 14D-9") relates is the
common stock, par value $.01 per share, of the Company (the "Shares" or the
"Common Stock"). As of August 16, 2002, there were approximately 16,721,972
Shares issued and outstanding and 1,524,500 Shares reserved for issuance
pursuant to options outstanding on such date under the Company's option plans.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
This Schedule 14D-9 is being filed by the subject company, Little
Switzerland, Inc. The contact information for the Company is listed in Item 1
above and is incorporated herein by reference.
This Schedule 14D-9 relates to the tender offer by TSAC Corp. (the
"Purchaser"), an indirect, wholly owned subsidiary of Tiffany & Co. ("Tiffany"),
to purchase all of the outstanding Shares (the "Publicly Held Shares") which are
not currently owned by the Purchaser, Tiffany or its wholly owned subsidiary,
Tiffany & Co. International ("Tiffany International"), or Seymour Holtzman,
Jewelcor Management, Inc. and certain other affiliates of Seymour Holtzman
(collectively, the "Holtzmans"), at a purchase price of $2.40 per Share (the
"Offer Price"), net to the seller in cash, without interest thereon, less
applicable withholding taxes, if any, and upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated August 15, 2002 (the "Offer
to Purchase"), and in the related Letter of Transmittal (which, together with
the Offer to Purchase, constitute the "Offer"). The Purchaser, Tiffany and
Tiffany International may sometimes be collectively referred to in this Schedule
14D-9 as "Tiffany." On August 12, 2002, Tiffany announced that the Purchaser had
entered into a stock purchase agreement (the "Stock Purchase Agreement") with
the Holtzmans to purchase their Shares, representing approximately 12% of the
outstanding Shares, for $2.40 per share in cash. The Purchaser filed a Schedule
TO Tender Offer Statement (the "Schedule TO") with the Securities and Exchange
Commission (the "Commission") on August 15, 2002, which includes the Offer to
Purchase as an exhibit. The Offer to Purchase is incorporated herein by
reference.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn a sufficient number of Shares which, together with
Shares owned by Tiffany and the Holtzmans, equal at least 90% of the outstanding
Shares on a fully-diluted basis on the expiration date of the Offer (the
"Minimum Condition"). The Offer to Purchase provides that the Purchaser may
waive or reduce the Minimum Condition but that the Purchaser has no expectation
that it will exercise such right. Based on the Schedule TO, as of August 15,
2002, Tiffany and its subsidiaries owned in the aggregate 7,410,000 Shares,
representing approximately 45% of the issued and outstanding Shares. Assuming
that no outstanding Company stock options are
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exercised after August 15, 2002, approximately 7,100,000 of the fully-diluted
Publicly Held Shares must be tendered in order to satisfy the Minimum Condition.
The Offer is also conditioned upon there being validly tendered and not
withdrawn at least a majority of the outstanding Shares, excluding Shares
beneficially owned by Tiffany or the Holtzmans, on the expiration date of the
Offer (the "Majority of the Minority Condition"). The Offer to Purchase provides
that in no event will the Purchaser waive or reduce the Majority of the Minority
Condition. Assuming that no outstanding Company stock options are exercised
after August 15, 2002, approximately 3,800,000 Publicly Held Shares must be
tendered in order to satisfy the Majority of the Minority Condition.
The Schedule TO states that if the Minimum Condition and the Majority of
the Minority Condition are both satisfied, Tiffany will own at least 90% of the
Company's outstanding Shares and intends, promptly following the closing of the
Offer, to contribute all shares not held by Purchaser at the closing of the
Offer to the Purchaser. Tiffany and Tiffany International would then cause the
Purchaser to merge with and into the Company (the "Merger") making the Company a
wholly owned subsidiary of Tiffany International. In the Merger, Shares that are
not purchased in the Offer would be automatically exchanged for an amount in
cash per share equal to the Offer Price. In such event, stockholders of the
Company who have not tendered their Shares in the Offer would not be entitled to
vote in the Merger, but would be entitled to certain dissenters' rights under
Delaware law, as discussed below.
Unless otherwise noted herein, all information contained in this Schedule
14D-9 or incorporated herein by reference concerning (i) the Purchaser, Tiffany,
Tiffany International or their affiliates (other than the Company), and (ii) the
Holtzmans, or actions or events with respect to any of them, was obtained from
reports or statements filed by Tiffany with the Commission, including, without
limitation, the Schedule TO, and the Company takes no responsibility for such
information.
The Purchaser's principal executive offices, as set forth on its Schedule
TO, are located at 600 Madison Avenue, New York, New York, 10022 and its
business phone is (212) 755-8000.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
CERTAIN ARRANGEMENTS AND AGREEMENTS BETWEEN THE COMPANY AND ITS EXECUTIVE
OFFICERS, DIRECTORS AND AFFILIATES. Certain agreements, arrangements or
understandings between the Company and its executive officers, directors and
affiliates are described in the Company's Annual Report for its fiscal year
ended May 25, 2002 (the "2002 Annual Report"), under the following headings:
"Directors and Executive Officers of the Registrant," "Executive Compensation,"
"Security Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions." The 2002 Annual Report is incorporated
by reference in this Schedule 14D-9 as Exhibit (a)(1) and these sections are
incorporated herein by reference.
On August 19, 2002, the board of directors of the Company reconstituted a
special committee of independent directors to consist solely of Richard Sasso
(the "Special Committee" or the "Committee") to review and evaluate the Offer
and determine the Company's position
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with respect to whether holders of Shares should tender their Shares, review and
evaluate any other strategic alternatives available to the Company and conduct
discussions with Tiffany with respect to the terms and conditions of the Offer
if the Special Committee determines to do so. Mr. Sasso joined the Board of
Directors of the Company in March 2002, having been employed as President of
Celebrity Cruises from 1995 to 2001 and having served in other executive
capacities in the cruise industry prior thereto. Pursuant to a consulting
agreement, dated as of March 15, 2002, between the Company and Mr. Sasso, Mr.
Sasso will receive annually the number of shares equal to $20,000 divided by the
average closing price of the Shares for the 20 trading days immediately
preceding the fiscal year end date. In addition, the Company may request that
Mr. Sasso provide certain consulting services to the Company, including
consulting services in the form of special projects. As consideration for such
services, the Company and Mr. Sasso are required to negotiate in good faith as
to the compensation for such services; provided that, unless the parties
otherwise agree, the Company will pay Mr. Sasso a minimum of $1,000 per day for
any such additional services. The Company intends to compensate Mr. Sasso for
his service on the Special Committee. No agreement has been reached between the
Company and Mr. Sasso as to the amount of such compensation.
CERTAIN ARRANGEMENTS AND AGREEMENTS BETWEEN THE COMPANY AND TIFFANY AND ITS
AFFILIATES. Certain arrangements and agreements between the Company and Tiffany
and its affiliates relating to the Company's operations and Tiffany's investment
in the Company in May 2001 are described in the Schedule TO under the following
headings: "Certain Related Party Transactions," "Operating Agreements" and
"Agreements Relating to Tiffany's Initial Investment in Little Switzerland." The
Schedule TO is incorporated by reference in this Schedule 14D-9 as
Exhibit (a)(2) and these sections are incorporated herein by reference.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER. Certain directors
and the executive officers of the Company have actual or potential conflicts of
interest in connection with the Offer, as summarized herein.
Two members of the Company's board of directors, Messrs. James E. Quinn and
Patrick B. Dorsey, are also officers and/or directors of Tiffany and certain of
its affiliates. In addition, Seymour Holtzman, a director of the Company, and
certain of his affiliates have executed the Stock Purchase Agreement to sell
their Shares to Tiffany at the Offer Price. Robert L. Baumgardner, a director
and the Chief Executive Officer of the Company, was formerly a senior manager of
Tiffany, and, as more particularly described in the 2002 Annual Report, is a
party to an employment agreement with the Company through August 24, 2004; if
the Offer is consummated, it is expected that Mr. Baumgardner will become a
full-time employee of a wholly owned subsidiary of Tiffany (i.e., the Company).
Officers and directors of the Company who own Shares and tender such Shares
will receive the Offer Price on the same terms as set forth in the Offer to
Purchase. As of August 16, 2002, the members of the board of directors and
executive officers of the Company owned, in the aggregate, approximately
1,759,937 Shares, including Shares beneficially owned by Seymour Holtzman. (See
the 2002 Annual Report for information regarding the stock ownership of the
officers and directors of the Company.) If the Offer and the Merger are
consummated, all the members of the board of directors (other than Seymour
Holtzman) and all executive officers would receive an aggregate of $4,223,849 in
exchange for their Shares.
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In addition, as of August 16, 2002, the directors and executive officers of
the Company held options to acquire an aggregate of 1,315,500 Shares, of which
100,000 are held by Jewelcor Management, Inc., an affiliate of Seymour Holtzman.
Such Shares are exercisable pursuant to options issued under the Company's stock
option plans and through stand-alone grants and have exercise prices ranging
from $0.44 to $1.84 per Share. According to the Schedule TO, as amended on
August 29, 2002, in the event of the Merger, holders of options (other than the
Holtzmans) will receive notice and will have the opportunity to exercise their
options prior to the consummation of the Merger in accordance with the terms of
their respective option agreements. Any options that are unexercised at the time
of the Merger will be cancelled in accordance with their respective terms..
The positions and equity interests discussed above present the directors
other than Richard Sasso with actual or potential conflicts of interest in
determining whether to recommend that the Public Stockholders tender their
Shares in the Offer. The Special Committee was aware of these actual and
potential conflicts of interest and considered them along with the other matters
described below in "Item 4: The Solicitation or Recommendation -- Factors
Considered by the Special Committee."
Except as discussed herein (including in the Exhibits hereto) or
incorporated herein by reference, to the Company's knowledge, as of the date
hereof there are no material agreements, arrangements or understandings, and no
actual or potential conflicts of interest between the Company or its affiliates
and (i) the Company's executive officers, directors or affiliates, or (ii)
Tiffany, Tiffany International or the Purchaser or any of their respective
executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
As a result of the conflicts of interest due to current or past
affiliations between the members of the Company's board of directors (other
than the sole member of the Special Committee) and Tiffany or the Holtzmans,
the board of directors of the Company delegated to the Special Committee the
authority to consider and make a recommendation regarding the Offer to the
holders of Shares other than Tiffany, Tiffany International, the Purchaser,
the Holtzmans and their affiliates (the "Public Stockholders").
The Special Committee has determined, on behalf of the Company, after
taking into account all of the factors described below, that the Offer is
fair to, and tendering into the Offer is in the best interests of, the Public
Stockholders. Accordingly, the Special Committee recommends, on behalf of the
Company, that the Public Stockholders accept the Offer and tender their
Shares pursuant to the Offer.
INTENT TO TENDER. To the knowledge of the Company, as of the date hereof,
all of its executive officers and directors presently intend to tender, pursuant
to the Offer, all Shares that are held of record or beneficially owned by that
person.
BACKGROUND OF THE OFFER. As stated in the Offer to Purchase, the purpose of
the Offer and the Merger is for Tiffany to acquire those Shares not already
owned by Tiffany and its
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affiliates. Following the closing of the Offer and the Merger, Tiffany intends
to operate the Company as a wholly owned subsidiary. The discussion contained in
the Schedule TO entitled "Background of the Offer" contains additional
information regarding the Offer and is hereby incorporated by reference.
On August 12, 2002, Tiffany announced that it had entered into the Stock
Purchase Agreement with the Holtzmans and that it would make a tender offer for
all of the outstanding Publicly Held Shares at $2.40 per Share in cash.
On August 13, 2002, the board of directors of the Company met
telephonically and resolved to form the Special Committee, initially consisting
of Richard Sasso and Robert L. Baumgardner. The Special Committee was authorized
and directed to prepare the Company's Solicitation/Recommendation Statement on
Schedule 14D-9 to the Public Stockholders regarding the Offer. The Company's
board of directors also authorized the Special Committee to retain its own
counsel and financial advisor. Later in the day, the Special Committee convened
a telephonic meeting during which the members addressed organizational matters,
including the retention of advisors.
On August 16, 2002, the Special Committee met and interviewed the
representatives of two law firms and decided to retain Richards, Layton &
Finger, P.A. of Wilmington, Delaware ("RLF") as its counsel. The Committee also
discussed the engagement of an investment banker. The Committee previously had
conducted discussions with representatives of Ryan, Beck & Co., LLC ("Ryan,
Beck") regarding the possibility of Ryan, Beck serving as financial advisor to
the Special Committee. The Special Committee elected to have those discussions
with Ryan, Beck based on Ryan, Beck's professional experience, qualifications
and familiarity with the Company, resulting in part from the fact that Ryan,
Beck had rendered a fairness opinion to the Company's Board of Directors in
connection with the sale of 7,410,000 shares of common stock to Tiffany in May
2001 and the extension of a line of credit in an amount equal to $2.5 million to
the Company by Tiffany. At its August 16, 2002 meeting, the Special Committee
authorized RLF to review the engagement letter proposed by Ryan, Beck and
comment thereon.
The Special Committee next met, via teleconference, on Monday, August 19,
2002. At that meeting, the Special Committee determined that Mr. Baumgardner
should not serve as a member of the Committee in light of the fact that he had
previously been employed by Tiffany and currently is a full-time employee of the
Company and, if the Offer is consummated, is expected to become a full-time
employee of a wholly owned subsidiary of Tiffany (i.e., the Company).
Accordingly, Mr. Baumgardner resigned from the Special Committee, with Mr. Sasso
agreeing to serve as the sole member of the Special Committee. After discussion
regarding the qualifications of Ryan, Beck and the terms of Ryan, Beck's
engagement, the Special Committee then determined to engage Ryan, Beck as its
financial advisor. The Special Committee then discussed with its advisors a
letter from Mr. Edward Shapiro to Mr. Baumgardner dated August 6, 2002. That
letter inquired whether Mr. Baumgardner would be interested in exploring a cash
sale of the Company. The Special Committee authorized Ryan, Beck to contact Mr.
Shapiro.
In this connection, Mr. Baumgardner contacted Mr. Shapiro to follow-up on
his letter, to discuss a potential meeting date on which they could discuss the
proposal and to express the
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Company's willingness to consider an alternative proposal. In addition, Mr.
Michael J. Kollender of Ryan, Beck contacted Mr. Shapiro on August 19, 2002
regarding his intentions relating to Little Switzerland and the parties that he
represents. Mr. Shapiro informed Mr. Kollender that he is a business broker and
thought the Company would be an interesting acquisition opportunity for a
private equity fund. Mr. Shapiro provided Mr. Kollender with the contact
information for a representative of this private equity fund.
Mr. Kollender attempted to contact such representative that day and
ultimately spoke with him on August 20, 2002. The representative explained to
Mr. Kollender that Mr. Shapiro did not represent the equity fund but acted only
as a business broker targeting companies and attempting to introduce them to
potential investors or acquirers. The representative indicated to Mr. Kollender
that he had some familiarity with the Company based upon work he had completed
relating to another company. The representative stated to Mr. Kollender that,
although he thought the combination of the Company with this other similar
company might have value, based upon his familiarity with the Company and the
current terms of the Offer, including Tiffany's participation, he did not want
to pursue any form of alternative transaction with the Company.
On Thursday, August 22, 2002, the Special Committee met again by telephonic
conference with its legal and financial advisors. The Special Committee
discussed the information gathered by Ryan, Beck and Ryan, Beck's analysis to
date, as well as views expressed by investors in the Company that, for various
reasons, the Offer Price should be increased. The Special Committee also
discussed the possibility of attempting to convince Tiffany to increase the
Offer Price. In addition, Mr. Kollender reported to the Special Committee on a
telephone conversation earlier that day between himself and Seymour Holtzman
regarding the negotiations between the Holtzmans and Tiffany that led to the
Stock Purchase Agreement.
On Friday, August 23, 2002, the Committee met with its advisors in Ft.
Lauderdale, Florida. At that meeting, representatives of Ryan, Beck reviewed
Ryan, Beck's information-gathering processes with respect to its assignment,
various types of information regarding the Company and Ryan, Beck's analysis of
the Offer Price. Ryan, Beck discussed with the Committee the financial analyses
and information prepared by Ryan, Beck for the Special Committee in connection
with rendering its opinion. The representatives of Ryan, Beck stated at the
meeting that Ryan, Beck was prepared to issue its opinion and rendered an oral
opinion to the Special Committee and subsequently confirmed this oral opinion by
rendering a written opinion (the "Fairness Opinion") dated as of August 23, 2002
(a copy of which is attached as Exhibit (c)(1) to this Schedule 14D-9), that, as
of such date, based on and subject to the assumptions, factors, limitations and
other considerations set forth in the attached opinion, the Offer Price per
share in cash to be received by the holders, other than the holders which are
affiliates of the Company, of Shares pursuant to the Offer to Purchase is fair
from a financial point of view to such holders. At that meeting, the Special
Committee authorized Ryan, Beck to contact Lehman Brothers Inc. ("Lehman
Brothers"), financial advisor to Tiffany, to request that Tiffany increase the
Offer Price and to discuss whether Tiffany was willing to consider alternative
transactions or the investment of additional capital in the Company. On Friday,
August 23, 2002, Mr. Kollender of Ryan, Beck discussed those matters with Mr.
Scott Mohr of Lehman Brothers.
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On Monday, August 26, 2002, the Special Committee met telephonically with
its legal and financial advisors and discussed Mr. Kollender's conversation with
Mr. Mohr and other matters relating to the Offer. Later that same day, the
Special Committee held another telephonic meeting wherein Mr. Kollender reported
that Mr. Mohr had stated to him in a telephonic conversation held that day, in
response to Mr. Kollender's inquiries, that Tiffany would not engage at this
time in any dialogue with the Special Committee with respect to the possibility
of pursuing an alternative transaction to the Offer and that Tiffany would not
be interested in investing additional equity in the Company in the event the
Offer was not consummated. Mr. Kollender also reported that he had discussed
again with Mr. Mohr the possibility of Tiffany increasing the Offer Price, but
that Mr. Mohr stated he was not yet in a position to respond definitively on
behalf of Tiffany.
On Tuesday, August 27, 2002, the Special Committee convened a telephonic
meeting with its legal and financial advisors wherein Mr. Kollender reported
that Mr. Mohr of Lehman Brothers had communicated to him that Tiffany would not
increase the Offer Price at this time. The Special Committee then reviewed and
discussed with its advisors various factors relating to the Offer, as discussed
in greater detail in "Factors Considered by the Special Committee" below. At the
conclusion of the meeting, Mr. Sasso stated that he intended to contact Mr.
James E. Quinn, a director of the Company and vice chairman of Tiffany, to again
request that Tiffany increase the Offer Price. Mr. Sasso telephoned Mr. Quinn
that same day and requested that Tiffany increase the Offer Price. Mr. Quinn
stated that Tiffany was not willing to increase the Offer Price.
The Special Committee reconvened another telephonic meeting later on
Tuesday, August 27, 2002. At that meeting, the Special Committee discussed with
its advisors various factors relating to the Offer, as discussed below, and
determined that, in the judgment of the Special Committee, the interests of the
Public Stockholders would be best served by tendering their Shares pursuant to
the Offer. Accordingly, the Committee determined to recommend that Public
Stockholders tender their Shares pursuant to the Offer.
In a letter to the Company, dated September 4, 2002, the Commission
staff made certain comments on the Schedule 14D-9, including comments relating
to the Company's obligation to file a Transaction Statement on Schedule 13E-3.
By unanimous written consent, dated September 11, 2002, the Company's Board of
Directors authorized the Special Committee to make, on behalf of the Company,
the determination regarding the fairness of the Offer required by Schedule
13E-3.
Effective September 11, 2002, the Company executed a supplemental
engagement letter with Ryan, Beck pursuant to which Ryan, Beck was engaged to
conduct additional analyses and procedures as Ryan, Beck deemed appropriate to
update its analysis underlying the Fairness Opinion so that such analyses and
procedures incorporated any additional events, factors and other considerations
occurring after August 23, 2002 which Ryan, Beck deemed relevant.
On Friday, September 13, 2002 the Special Committee convened a
telephonic meeting with its legal and financial advisors to consider the
fairness of the Offer as required by Schedule 13E-3. At that meeting,
representatives of Ryan, Beck provided the Special Committee with an update
to Ryan, Beck's financial analysis underlying the Fairness Opinion
incorporating additional events, factors and other considerations occurring
since August 23, 2002 as Ryan, Beck deemed relevant. Ryan, Beck discussed
with the Special Committee the procedures it had performed in order to update
its analysis, including the additional discussions it had had with
representatives of the Company's management concerning the Company's
performance since August 23, 2002. Ryan, Beck reported to the Special
Committee that there had been no additional events, factors or other
considerations that would cause its opinion as to the fairness of the Offer
Price from a financial point of view to be any different on September 13,
2002 than it was on August 23, 2002. The Special Committee then reconsidered
each of the factors which it had considered in making its August 23, 2002
recommendation with respect to the Offer. The Special Committee also
discussed the press release by Tiffany issued on September 12, 2002
indicating that Tiffany had, at the Company's request, extended the closing
of the Offer until September 27, 2002, and the number of shares the press
release indicated had been tendered as of September 12, 2002. The meeting was
then adjourned while Mr. Sasso telephoned Mr. Quinn to again request that
Tiffany increase the Offer Price.
The meeting then reconvened, and Mr. Sasso reported that he had spoken
with Mr. Quinn and that Mr. Quinn had stated that Tiffany believed the Offer
Price was fair and that Tiffany was not willing to increase the Offer Price.
The Special Committee then determined that, based upon consideration of all
of the foregoing factors, that the Offer is fair to the Public Stockholders.
FACTORS CONSIDERED BY THE SPECIAL COMMITTEE. The Special Committee, prior
to expressing its position with respect to the Offer, received advice from,
opinions of, views or presentations from, and discussed the Offer with RLF,
Ryan, Beck and the Company's management. In making its recommendation respecting
the Offer, the Special Committee considered a number of factors, including the
following:
- COMPANY OPERATING AND FINANCIAL CONDITION. The Special Committee took
into account the current, recent and historical financial condition
and results of operations of the Company, as well as the prospects and
strategic objectives of the Company, including the risks involved in
achieving those prospects and objectives, and the current, recent and
expected conditions in the general economy and in the industry in
which the Company operates. The Special Committee also considered the
impact on the Company of the economic conditions associated with the
terrorist attacks on September 11, 2001.
- MARKET PRICE AND PREMIUM. The Special Committee considered the recent
and historical price and the low volume of trading activity of the
Shares. In particular,
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the Special Committee considered that the price of $2.40 per Share to
be paid in the Offer represents: (a) a 73% premium to the Company's
closing price of $1.39 on August 12, 2002, the last trading day prior
to the announcement of the Offer; (b) a 98% premium to the Company's
52-week low of $1.21 on November 13, 2001; (c) a 2% discount to the
Company's 52-week high of $2.45 on August 21, 2001; and (d) a 43%
premium to the Company's 90-day moving average of $1.68 as of August
12, 2002.
- RYAN, BECK FAIRNESS OPINION AND ANALYSIS. The Special Committee
considered the Fairness Opinion, that as of such date, and based upon
and subject to the assumptions, factors, limitations and other
considerations set forth in the Fairness Opinion, the Offer Price was
fair, from a financial point of view, to the holders of Shares, other
than the holders that are affiliates of the Company, as well as the
presentation by Ryan, Beck to the Special Committee at a meeting of
the Special Committee held on August 23, 2002, rendering its analysis
of the financial terms of the Offer. A copy of the Fairness Opinion
setting forth the assumptions made, matters considered and limitations
on the review undertaken by Ryan, Beck is attached as Exhibit (c)(1)
to this Schedule 14D-9. Stockholders are urged to read the Fairness
Opinion and "Summary of Financial Analyses and Opinion of the Special
Committee's Financial Advisor" below.
- MAJORITY OF THE MINORITY CONDITION. The Special Committee considered
that the Offer is conditioned on the tender of at least a majority of
the outstanding Shares, excluding shares beneficially owned by Tiffany
or by the Holtzmans, and that Tiffany has stated it will not waive
that condition.
- MINIMUM CONDITION. The Special Committee considered that the Minimum
Condition, although waivable by Tiffany, has the effect of requiring
that the Offer not be consummated unless the number of Shares validly
tendered and not withdrawn, when added to the shares already owned by
Tiffany and the Shares owned by the Holtzmans, constitutes at least
90% ownership in the Company.
- OFFER PRICE. The Special Committee considered the fact that it
attempted to convince Tiffany to increase the Offer Price but was
unable to do so.
- TIMING OF COMPLETION. The Special Committee considered the anticipated
timing for the completion of the transactions contemplated by the
Offer, including the structure of the transaction as a tender offer
for all of the Shares followed by the Merger for any Shares not
tendered. The Special Committee considered that the Offer could allow
stockholders to receive the transaction consideration in cash
promptly.
- LIMITED CONDITIONS TO CONSUMMATION. The Special Committee considered
that Tiffany has committed in the Offer to consummate the Offer
subject only to a limited number of conditions (as set forth in
Section 11, "The Offer -- Certain Conditions of the Offer," of the
Offer to Purchase), with no financing condition.
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- COMMUNICATIONS FROM HOLDERS OF SHARES REGARDING THE TENDER OFFER. The
Special Committee considered communications received from holders of
Shares or persons purporting to represent holders of Shares regarding
the Offer to the effect that, for various reasons, the Offer Price
should be increased.
- THE STOCK PURCHASE AGREEMENT. The Special Committee considered the
terms of the Stock Purchase Agreement which had been negotiated by the
Holtzmans and Tiffany and the fact that Tiffany in June 2002 had
proposed to purchase the Shares held by the Holtzmans for $2.50 per
share, but in August 2002 had reduced the amount it was willing to pay
the Holtzmans to $2.40 per share.
- STRATEGIC ALTERNATIVES. The Special Committee considered the
percentage of outstanding Shares of the Company owned by Tiffany
(approximately 45%), Tiffany's stated intention to consummate the
Offer subject to the terms thereof, Tiffany's statement in the Offer
that its representatives informed the Board of Directors of the
Company that Tiffany would have no interest in selling its shares to
the investor group referred to in the August 6, 2002 letter from
Edward Shapiro to Robert L. Baumgardner, and Tiffany's refusal to
discuss with the Special Committee the possibility of any alternative
transaction to the Offer, all of which led the Special Committee to
conclude that soliciting an alternative transaction to the Offer was
not practicable at this time. In that regard, the Special Committee
also considered discussions with Ryan, Beck regarding the viability of
other potential strategic or financial alternatives and the fact that,
since announcement of the Offer, no such acquisition proposals or
inquiries have been made.
- TRANSACTION STRUCTURE. The Special Committee evaluated the benefits of
the transaction being structured as an immediate cash tender offer for
all of the outstanding Shares, followed by the Merger, pursuant to
which Tiffany has stated it intends to pay the same per share
consideration to be paid in the Offer.
- POTENTIAL CONFLICTS OF INTEREST. The Special Committee considered the
interests of certain Company executives in the Offer and the Merger.
See "Item 3. Past Contacts, Transactions, Negotiations and
Agreements."
- LIQUIDITY FOR STOCKHOLDERS. The Special Committee considered the
historically low volume of trading of the Shares, the limited
liquidity in the Shares as a result thereof and the opportunity that
the Offer provides the Public Stockholders to liquidate their holdings
in the Company.
- POSSIBLE CHANGES IN MARKET PRICE OF COMMON STOCK. The Special
Committee considered the possibility that if a transaction with
Tiffany were not completed and the Company remained as a
publicly-owned corporation, it is possible that because of a decline
in the market price of the Shares or the stock market in general, the
price that might be received by the holders of the Shares in the open
market or in a future transaction might be less than the per share
price to be received by Public Stockholders in connection with the
Offer. The Special Committee also considered that, if a transaction
with Tiffany were not completed and the Company remained as
9
<Page>
a publicly-owned company, it is also possible that because of an
increase in the market price of the Shares or the stock market in
general, the price that might be received by the holders of the Shares
in the open market or in a future transaction might be more than the
per Share price to be received by stockholders in connection with the
Offer.
- AVAILABILITY OF DISSENTERS' RIGHTS. The Special Committee considered
the fact that dissenters' rights of appraisal would be available to
the non-tendering holders of Shares under the Delaware General
Corporation Law in connection with the Merger.
- FUTURE PROSPECTS OF THE COMPANY. The Special Committee also considered
the fact that, assuming the Merger is completed, all holders of the
Shares (except for Tiffany) whose Shares are purchased in the Offer or
converted into the right to receive cash in the Merger will not
participate in any future growth of the Company. Moreover, the Special
Committee considered the fact that, if the Offer is not consummated in
accordance with its terms, Tiffany could attempt to acquire Shares at
prices higher or lower than $2.40 per share, attempt to sell its
shares, attempt to cause the Company to be sold or take other courses
of action that may be more or less desirable to holders of Shares than
accepting the Offer Price. In addition, the Special Committee
considered that there can be no assurance that the strategic
partnership between the Company and Tiffany will continue if the Offer
is not consummated.
The description set forth above is not intended to be exhaustive but
summarizes the primary factors considered by the Special Committee. In view of
its many considerations, the Special Committee did not find it practical to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered. After weighing all of these considerations, the Special Committee
determined to recommend that holders of Shares tender their Shares in the Offer.
SUMMARY FINANCIAL PROJECTIONS. In connection with analyzing the Offer,
Ryan, Beck and the Special Committee reviewed non-public financial projections
provided by the Company. The material portions of these projections are set
forth on Schedule 1 to this Schedule 14D-9. These projections do not give effect
to the Offer or the Merger.
The Company does not as a matter of course publicly disclose projections as
to future revenues or earnings. The projections provided to Ryan, Beck and the
Special Committee were not prepared with a view to public disclosure. These
projections were based on a variety of assumptions, including the Company's
ability to achieve strategic goals, objectives and targets over applicable
periods. These assumptions involve judgments with respect to future economic,
competitive and regulatory conditions, financial market conditions and future
business decisions, all of which are difficult or impossible to predict and many
of which are beyond the Company's control. The projections provided to Ryan,
Beck and the Special Committee were not prepared with a view to compliance with
the published guidelines of the Securities and Exchange Commission regarding
projections, and were not prepared in accordance with the guidelines established
by the American Institute of Certified Public Accountants for preparation and
presentation of financial projections. In addition, the projections provided to
Ryan, Beck and the
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Special Committee and set forth on Schedule 1 to this Schedule 14D-9 were not
reviewed by an independent public accounting firm and, accordingly, the
Company's independent accountants assume no responsibility for the accuracy of
the information. The Special Committee did not rely solely on the projections,
but considered the projections as part of its analysis, including consideration
of a variety of factors referenced above. Stockholders are urged not to place
undue reliance on the projections but to consider all relevant factors in their
decision.
The projections provided to Ryan, Beck and the Special Committee and set
forth on Schedule 1 to this Schedule 14D-9 constitute forward-looking statements
which reflect numerous assumptions. In addition, factors such as industry
performance, market acceptance of new products, changes in customer preferences,
general business, economic, regulatory, market and financial conditions, all of
which are difficult or impossible to predict, may cause the projections provided
to Ryan, Beck and the Special Committee and set forth on Schedule 1 or the
underlying assumptions to such projections to be inaccurate. Accordingly, there
can be no assurance that these projections will be realized, and actual results
may be materially greater or less than those contained in these projections.
Neither Ryan, Beck, unless directed to do so by the Special Committee, nor
the Company intends to update or otherwise revise such projections to reflect
circumstances existing after the date when made or to reflect the occurrence of
future events even in the event that any or all of the assumptions underlying
the following projections are shown to be in error.
SUMMARY OF FINANCIAL ANALYSIS AND OPINION OF THE SPECIAL COMMITTEE'S
FINANCIAL ADVISOR
Ryan, Beck was retained by the Special Committee on August 19, 2002 to
assist in evaluating the Offer and, if requested by the Special Committee, to
render an opinion to the Special Committee as to the fairness from a financial
point of view of the Offer to the Company's stockholders, other than the
stockholders that are affiliates of the Company. Ryan, Beck is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, public underwritings, private placements and valuations for
corporate and other purposes. The Special Committee selected Ryan, Beck based on
Ryan, Beck's qualifications, expertise and reputation and its familiarity with
the Company's business and affairs.
Ryan, Beck rendered an oral opinion to the Special Committee on August 23,
2002 and subsequently confirmed this oral opinion by rendering a written opinion
dated as of August 23, 2002 (a copy of which is attached as Exhibit (c)(1) to
this Schedule 14D-9), that, as of such date, based on and subject to the
assumptions, factors, limitations and other considerations set forth in the
attached opinion and as described below, the $2.40 per share in cash to be
received by the holders, other than the holders which are affiliates of the
Company, of Shares pursuant to the Offer is fair from a financial point of view
to such holders. No limitations were imposed by the Special Committee upon Ryan,
Beck with respect to the investigations made or procedures followed by it in
arriving at its opinion.
THE FULL TEXT OF RYAN, BECK'S OPINION, DATED AUGUST 23, 2002, WHICH SETS
FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND
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LIMITATIONS ON THE REVIEW UNDERTAKEN BY RYAN, BECK, IS ATTACHED AS EXHIBIT
(c)(1) TO THIS SCHEDULE 14D-9. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE
ATTACHED RYAN, BECK OPINION IN ITS ENTIRETY. THE OPINION IS DIRECTED TO THE
SPECIAL COMMITTEE AND ADDRESSES ONLY THE FINANCIAL FAIRNESS OF THE CONSIDERATION
TO BE PAID TO THE COMPANY'S STOCKHOLDERS PURSUANT TO THE OFFER AND DOES NOT
ADDRESS ANY OTHER ASPECT OF THE OFFER OR CONSTITUTE A RECOMMENDATION TO THE
COMPANY'S STOCKHOLDERS AS TO WHETHER SUCH STOCKHOLDERS SHOULD TENDER SHARES.
RYAN, BECK DID NOT NEGOTIATE (OTHER THAN AN ATTEMPT, SUBSEQUENT TO THE
COMMENCEMENT OF THE OFFER, TO SEEK FROM TIFFANY AN INCREASE IN THE PER SHARE
CONSIDERATION TO BE PAID IN CONNECTION WITH THE OFFER) OR DETERMINE THE
CONSIDERATION TO BE PAID TO THE COMPANY'S STOCKHOLDERS AND WAS NEITHER ASKED TO
NOR DID IT OFFER ANY OPINION AS TO THE TERMS OR FORM OF THE OFFER AND RYAN,
BECK'S OPINION SHOULD NOT BE CONSTRUED TO NECESSARILY BE AN ASSURANCE OF THE
MAXIMUM VALUE THAT COULD HAVE BEEN OBTAINED BY THE COMPANY'S STOCKHOLDERS IN
CONNECTION WITH THE OFFER. FURTHERMORE, RYAN, BECK EXPRESSED NO OPINION AS TO
WHAT THE VALUE OF THE COMPANY'S STOCK WILL BE AT THE TIME THE OFFER IS COMPLETED
OR THE PRICES AT WHICH IT WILL TRADE IN THE FUTURE. THIS SUMMARY OF THE OPINION
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE FAIRNESS
OPINION WHICH IS INCORPORATED INTO THIS SUMMARY.
In connection with its opinion, Ryan, Beck reviewed, among other things:
- the terms of the Offer;
- the Annual Report on Form 10-K of the Company for the fiscal year
ended May 26, 2001;
- a draft Annual Report on Form 10-K of the Company for the fiscal year
ended May 25, 2002;
- the Company's Proxy Statement on Schedule 14A dated January 4, 2002;
and
- certain internal financial analyses and forecasts for the Company
prepared by its management.
Ryan, Beck also held discussions with members of the senior management of
the Company regarding management's assessment of its past and current business
operations, financial condition, future prospects and financial projections. In
addition, Ryan, Beck:
- reviewed the reported price and trading activity for the Company's
common stock;
- compared certain financial and stock market information for the
Company with similar information for certain other publicly-traded
companies that Ryan, Beck believed were similar to the Company;
- reviewed financial terms of certain recent business combinations in
the retail jewelry industry which Ryan, Beck believed to be generally
relevant;
- performed a discounted cash flow analysis based on the projections of
the Company's operations as prepared by its management;
- analyzed the premiums that stockholders have received in certain other
recent business combinations involving publicly-traded companies which
Ryan, Beck believed to be generally relevant; and
- performed such other studies and analyses and considered such other
information as Ryan, Beck considered appropriate.
12
<Page>
In connection with its review, Ryan, Beck assumed and relied upon the
accuracy and completeness of all financial and other information reviewed by
Ryan, Beck for the purposes of its opinion, whether publicly available or
provided to Ryan, Beck by the Company, and Ryan, Beck did not assume any
responsibility for independent verification of such information. Ryan, Beck
further assumed that the financial budgets and projections provided to Ryan,
Beck were reasonably determined, prepared in good faith, based upon reasonable
assumptions and reflected the best currently available estimates and judgments
of the management of the Company as to the future financial performance of the
Company and that these future financial results will be achieved at the times
and in the amounts projected by the Company's management. Ryan, Beck did not
make or obtain any independent evaluations or appraisals of the assets or
liabilities of the Company nor its subsidiaries, and Ryan, Beck was not
furnished with any such evaluations or appraisals.
Ryan, Beck did not opine on any other aspect of the transaction other than
the fairness of the consideration to be paid to the Company's stockholders
assuming the Offer is consummated in accordance with its terms and conditions.
Additionally, Ryan, Beck was not retained to and did not solicit or contact
other potential buyers.
The preparation of a fairness opinion with respect to a transaction such as
the Offer is a complex analytical process and involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances. Therefore, Ryan,
Beck's opinion is not readily susceptible to summary description. In arriving at
its opinion, Ryan, Beck performed a variety of financial analyses. Ryan, Beck
believes its analyses must be considered as a whole and the consideration of
portions of such analyses and the factors considered therein, or any one method
of analysis, or focusing solely on information presented in tabular format,
without considering all factors and analyses or the narrative description of the
analyses, could create an incomplete view of the analyses and the processes
underlying Ryan, Beck's opinion. No one method of analysis was assigned a
greater significance than any other.
The forecasts and projections discussed with Ryan, Beck by the Company's
management were prepared by the Company's management without input or guidance
by Ryan, Beck. The Company does not publicly disclose internal management
projections of the type provided to Ryan, Beck in connection with the review of
the Offer. Such projections were not prepared with a view towards public
disclosure. The public disclosure of such projections could be misleading
because the projections were based on numerous variables and assumptions that
are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in such projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, general business and economic conditions, and other
matters, many of which are beyond the control of the Company. Any estimates
contained in Ryan, Beck's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals nor
do they necessarily reflect the prices at which companies or their securities
may actually be sold. No company, transaction or business used in Ryan, Beck's
analyses as a comparison is
13
<Page>
identical to the Company or to the Offer, nor is an evaluation of the results of
those analyses entirely mathematical; rather, the analyses involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies involved, market areas in which the companies
operate and other factors that could affect the trading values of the securities
of the company or companies to which they are being compared.
Ryan, Beck's opinion was based solely upon the information available to it
and the economic, market and other circumstances as they existed as of the date
of its opinion. Events occurring after such date could materially affect the
assumptions and conclusions contained in Ryan, Beck's opinion. Ryan, Beck has
not undertaken to reaffirm or revise its opinion.
The following is a brief summary of the analyses and procedures performed
by Ryan, Beck in the course of arriving at its opinion. The summary does not
purport to be a complete description of the material analyses and procedures
performed by Ryan, Beck in the course of arriving at its opinion. The financial
analyses summarized below include information presented in tabular format. In
order to fully understand Ryan, Beck's financial analyses, the tables must be
read together with the text of each summary. The tables alone do not constitute
a complete description of the financial analyses. Considering the data set forth
in the tables below without considering the full narrative description of the
financial analyses, including the methodologies and assumptions underlying the
analyses, could create a misleading or incomplete view of Ryan, Beck's financial
analyses.
ANALYSIS OF COMPARABLE PUBLIC COMPANIES. Ryan, Beck reviewed and analyzed
certain financial and stock market information of selected publicly traded
retail jewelry companies. The jewelry companies consisted of the following:
Mayor's Jewelers
Reeds Jewelers
Whitehall Jewellers
Friedman's
Finlay Enterprises
Zale Corporation
Tiffany & Co.
Because Zale Corporation and Tiffany are significantly larger than the
Company in terms of revenue and have significantly larger market capitalizations
and average trading volumes, Ryan, Beck utilized two groupings of the selected
companies: the group as a whole and a subset of the group which included those
companies with an equity value of less than $500 million (i.e., excluding Zale
Corporation and Tiffany).
Ryan, Beck compared the enterprise values of the comparable companies as
multiples of their latest twelve months ("LTM") revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA") and earnings before
interest and taxes ("EBIT"). Ryan, Beck also compared the closing stock prices
of each of the comparable companies as multiples of its LTM earnings per share
("EPS") and projected fiscal 2002 and 2003 EPS, where available. Ryan, Beck also
compared the equity values of the comparable companies as multiples of their
latest
14
<Page>
available book values. Enterprise value is equity market value plus total debt
and the book value of preferred stock, less cash and cash equivalents.
In each case mentioned above, Ryan, Beck derived the implied price per
share for the Company based on the selected multiples. Projections for the
Company were based upon estimates provided to Ryan, Beck by the Company's
management. Projections for the comparable companies were based upon publicly
available data as well as estimates provided by published research reports. All
multiples were based on closing stock prices on August 21, 2002. The ranges of
the multiples and the median multiples of the two groups of companies were as
follows:
<Table>
<Caption>
COMPARABLE COMPANIES WITH
EQUITY VALUES LESS THAN $500 MM ALL COMPARABLE COMPANIES
------------------------------- ------------------------
RANGES MEDIAN RANGES MEDIAN
-------------- --------------- ---------- -----------
ENTERPRISE VALUE AS MULTIPLE OF:
Latest twelve months revenue......... 0.3x- 0.8x 0.5x 0.3x- 2.5x 0.5x
Latest twelve months EBITDA.......... 6.0x- 8.3x 7.0x 4.6x- 8.3x 6.5x
Latest twelve months EBIT............ 7.5x-10.0x 9.0x 6.2x-12.6x 9.0x
</Table>
<Table>
<Caption>
COMPARABLE COMPANIES WITH
EQUITY VALUES LESS THAN $500 MM ALL COMPARABLE COMPANIES
------------------------------- ------------------------
RANGES MEDIAN RANGES MEDIAN
-------------- --------------- ---------- -----------
EQUITY VALUE AS MULTIPLE OF:
Book value........................... 0.1x- 1.6x 0.6x 0.1x- 3.5x 1.1x
Latest twelve months EPS............. 7.0x-15.2x 9.0x 7.0x-22.0x 11.1x
Projected 2002 EPS................... 7.0x-11.4x 7.1x 7.0x-20.2x 10.1x
Projected 2003 EPS................... 6.5x- 9.3x 6.6x 6.5x-16.8x 9.0x
</Table>
Based on the selected multiples above, Ryan, Beck calculated a per share
price of the common stock of the Company. The Company had negative LTM EBIT,
EBITDA and EPS which limited the calculations to multiples of LTM revenue,
latest available book value and projected 2003 EPS. Based on the median
multiples for revenue, latest available book value and projected fiscal 2003 EPS
of the comparable group of companies with equity values less than $500 million,
the implied valuation range for the Company's common stock is $0.34 per share to
$1.05 per share. Based on the median multiples for LTM revenue, latest available
book value and projected fiscal 2003 EPS of all of the comparable companies, the
implied valuation range for the Company's common stock is $0.47 per share to
$1.24 per share.
ANALYSIS OF COMPARABLE TRANSACTIONS. Ryan, Beck analyzed selected
comparable transactions involving retail jewelers from August 1997 to the date
of its opinion. Nine transactions with publicly-available data and enterprise
values in excess of $20 million were selected. The comparable transactions
included the following:
- Mayor's Jewelers and Henry Birks & Sons
- Little Switzerland and Tiffany (May 2001 acquisition of approximately
45% interest in Little Switzerland)
- Piercing Pagoda and Zale Corporation
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- Marks & Morgan Jewelers and Signet Group
- Watch World International and Sunglass Hut International
- Jay B. Rudolf and Finlay Enterprises
- Movado Group (Piaget Business) and Vendome Luxury Group
- Mayor's Jewelers and Jan Bell Marketing
- Diamond Park Fine Jewelers and Finlay Enterprises
Ryan, Beck analyzed the multiples of the enterprise value in the above
transactions to LTM revenue, EBITDA and EBIT and the multiple of equity value to
LTM Net Income and the latest available book value. This analysis provided the
following results:
<Table>
<Caption>
RANGES MEDIAN
----------- ------
ENTERPRISE VALUE AS MULTIPLE OF:
Latest twelve months revenue....................... 0.2x- 1.7x 0.7x
Latest twelve months EBITDA........................ 7.6x- 8.5x 8.0x
Latest twelve months EBIT.......................... 10.1x-49.7x 11.7x
EQUITY VALUE AS MULTIPLE OF:
Book value......................................... 0.4x- 8.1x 1.8x
Latest twelve months net income.................... 14.6x-19.4x 15.1x
</Table>
The Company had negative LTM EBITDA, EBIT and Net Income which limited the
calculations to multiples of LTM revenue and latest available book value. Based
on the Company's LTM revenue and latest available book value, the implied equity
values for the Company's common stock using this valuation methodology are $1.86
per share and $1.95 per share, respectively.
PREMIUMS PAID ANALYSIS. Ryan, Beck reviewed 128 selected merger and
acquisition transactions completed between August 2000 and the date of its
opinion where the selling company was publicly-traded. Due to the sparse number
of transactions involving retail jewelers that Ryan, Beck believed would be
relevant to their analysis, Ryan, Beck expanded their review to include a broad
range of industries. Ryan, Beck compared the purchase price to the target's
stock price one day, one week and one month prior to the announcement date of
the respective transaction. For the transactions reviewed, the low one day, one
week and one month premiums were -76%, -68% and -76%, respectively, the median
one day, one week and one month premiums were 36%, 40% and 44%, respectively,
and the high one day, one week and one month premiums were 173%, 177% and 216%,
respectively. Using the same time periods for the Company, the Offer Price
represents a 73%, 68% and 43% premium, respectively. Based on the median
premiums observed in the selected transactions, the implied equity values for
the Company's common stock using this valuation methodology for the time periods
set forth above are $1.89 per share, $2.00 per share and $2.42 per share,
respectively.
DISCOUNTED CASH FLOW ANALYSIS. A discounted cash flow analysis was utilized
by Ryan, Beck to establish an implied per share valuation for the Company's
common stock. This methodology is premised on the assumption that a buyer
purchases a time series of free cash
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flows that are generated by the assets of the business. This analysis separates
and ascribes value only to the cash flows that can ultimately be distributed
from the business. Cash that is generated but used to sustain the business (such
as increases in working capital and capital expenditures) creates no incremental
value to the buyer. Similarly, adjustments are made to take into account
non-cash items such as depreciation and amortization. These free cash flows are
then discounted to the present at the business' assumed weighted average cost of
capital. The assumed weighted average cost of capital can be described as the
average price a business must pay to attract both debt and equity to properly
capitalize its growth. It is this series of free cash flows that, when
discounted to the present, and after subtracting claims by debt holders and
others, represents the economic value of a business to its stockholders.
In performing this analysis, Ryan, Beck used base case projections (i.e.,
assuming no future financings or store openings) supplied by the Company's
management. Using a range for assumed weighted average cost of capital, or
discount rate, of 7.8% to 11.8% and a range of terminal multiples of 4.0x to
8.0x which were determined from a review of comparable companies, applied to
projected EBITDA and then discounted to present along with all other free cash
flows, this analysis resulted in a range of implied values for the Company's
common stock of $0.73 per share to $2.08 per share.
With regard to Ryan, Beck's services in connection with the Offer, the
Company has agreed to pay Ryan, Beck aggregate fees of $250,000 and reimburse
Ryan, Beck for its reasonable out-of-pocket expenses. The $250,000 in fees
consists of (i) a non-refundable retainer fee of $75,000 paid in cash upon
execution of the engagement letter between Ryan, Beck and the Special
Committee, (ii) an additional $75,000 paid in cash upon written notification
to the Special Committee of Ryan, Beck's readiness to deliver their opinion,
regardless of the conclusion reached by Ryan, Beck with regard to the
fairness of the Offer, (iii) an additional $50,000 to conduct additional
analyses and procedures as Ryan, Beck deemed appropriate to update its
analyses underlying the Fairness Opinion, and (iv) an additional $50,000 paid
in cash upon the consummation of the Offer or certain alternative
transactions. The Company has also agreed to indemnify Ryan, Beck and certain
related persons against certain liabilities, including liabilities under
federal securities law, incurred in connection with its services. The amounts
of Ryan, Beck's fees were determined by negotiation between the Special
Committee and Ryan, Beck.
Ryan, Beck is familiar with the Company, having provided certain investment
banking services to it from time to time, including having provided a fairness
opinion to the Company's Board of Directors in connection with the sale of
7,410,000 shares of common stock to Tiffany in May 2001 and the extension of a
line of credit in an amount equal to $2.5 million to the Company by Tiffany. In
addition, Peter R. McMullin, a Managing Director at Ryan, Beck served on the
Board of Directors of the Company from April 1999 until May 2001. Ryan, Beck
does not make a market in the Shares. In the ordinary course of Ryan, Beck's
business as a broker-dealer, Ryan, Beck may actively trade equity securities of
the Company for Ryan, Beck's own account and the account of Ryan, Beck's
customers, and, accordingly, may at any time hold a long or short position in
such securities. Ryan, Beck has not had an investment banking relationship with
Tiffany or the Purchaser. Ryan, Beck is not a market maker in Tiffany's common
stock. Ryan, Beck's research department does not provide published investment
analysis regarding Tiffany or the Purchaser.
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Ryan, Beck's opinion was one of the many factors taken into consideration
by the Special Committee in evaluating the Offer. Ryan, Beck's analyses
summarized above should not be viewed as determinative of the views of the
Special Committee with respect to the fairness, from a financial point of view,
of the consideration to be paid in connection with the Offer.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
The Special Committee entered into a letter agreement with Ryan, Beck (the
"Engagement Letter"), pursuant to which the Special Committee engaged Ryan, Beck
to act as its financial advisor in connection with the Offer. Subject to the
terms and conditions of the Engagement Letter, Ryan, Beck agreed to act as a
financial advisor to the Special Committee and, if requested, render an opinion
to the Special Committee with regard to the fairness of the Offer Price, from a
financial point of view, to the Public Stockholders. In connection with the
Engagement Letter, the Company agreed to pay Ryan, Beck the fees described in
"Item 4. The Solicitation or Recommendation -- Summary of Financial Analysis and
Opinion of the Special Committee's Financial Advisor." In addition, the Company
has agreed to reimburse Ryan, Beck for its reasonable out-of-pocket expenses
incurred in connection with its engagement and to indemnify Ryan, Beck against
certain liabilities incurred in connection with its engagement, including
liabilities under federal securities laws.
The Special Committee also retained RLF to act as the legal advisor to the
Special Committee in connection with the Offer.
Except as disclosed herein, neither the Company nor any person acting on
its behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to holders of Shares on the Company's
behalf concerning the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
Other than as disclosed in this Schedule 14D-9, during the past 60 days no
transaction in the Shares has been effected by the Company, or to the best of
the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Except as set forth in this Schedule 14D-9, no negotiations are being
undertaken or are underway by the Company in response to the Offer which relate
to a tender offer or other acquisition of the Company's securities by the
Company, any subsidiary of the Company or any other person.
(b) Except as set forth in this Schedule 14D-9, the Company is not
engaged in any negotiation in response to the Offer which relates to or would
result in (i) an extraordinary transaction such as a merger or reorganization
involving the Company or any subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization,
indebtedness or dividend rate or policy of the Company.
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(c) Except as set forth in this Schedule 14D-9, there are no
transactions, board resolutions, agreements in principle or signed contracts in
response to the Offer which relate to or would result in one or more of the
events referred to in paragraphs (a) and (b) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION.
The information contained in the Exhibits referred to in Item 9 below is
incorporated herein by reference.
ITEM 9. EXHIBITS.
EXHIBIT INDEX
Exhibit (a)(1) The Company's 2002 Annual Report on Form 10-K (incorporated
herein by reference as filed with the Commission on August
26, 2002).
Exhibit (a)(2) Offer to Purchase by the Purchaser filed with the Commission
on August 15, 2002 (incorporated herein by reference to the
Purchaser's Schedule TO filed with the Commission on August
15, 2002).
Exhibit (a)(3) Letter to Stockholders dated August 29, 2002 (previously
filed).
Exhibit (a)(4) Press release issued by the Company on August 29, 2002
(previously filed).
Exhibit (c)(1) Opinion of Ryan, Beck & Co., LLC (previously filed).
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
/s/ Richard E. Sasso
----------------------------------------
Richard E. Sasso
Director and Member of the
Special Committee of the Board
of Directors of Little Switzerland, Inc.
Dated: September 13, 2002
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SCHEDULE 1
INCOME STATEMENT DATA. The Company provided Ryan Beck and the Special
Committee with various sales scenarios for the remaining 10 months of Fiscal
2003 factoring in the performance for the first two months of the fiscal year.
The "Best Case" scenario assumed up to a 5% increase over "Expected Case" in
selected markets with an improvement in margin of 0.9%. The "Unfavorable,"
"Less Favorable," and "Least Favorable" scenarios assumed decreases from
"Expected Case" in selected markets ranging from 5% to 15% as well as
reductions in the Company's gross margin (from 46.0% to 44.7%) as sales
decline. For the data relating to Fiscal 2004, 2005 and 2006, the Company
provided Ryan Beck and the Special Committee with internally generated three
year profit data based on its current number of stores.
<Table>
<Caption>
Fiscal Year Ending May 2003
--------------------------------------------------------------------------------------
Fiscal Year Less Least
Ending May Expected Unfavorable Favorable Favorable
2002 Best Case Case Case Case Case
--------------- --------------- --------------- --------------- --------------- ---------------
Sales............... $ 59,625,000 $ 71,414,000 $ 69,900,000 $ 67,124,000 $ 64,031,000 $ 61,599,000
Gross Profit........ 26,771,000 33,515,000 32,133,000 30,543,000 28,871,000 27,525,000
Margin.............. 44.9% 46.9% 46.0% 45.5% 45.1% 44.7%
Sales, General and
Administration 30,588,000 32,372,000 31,923,000 31,406,000 30,827,000 30,381,000
EBIT (3,817,000) 1,143,000 210,000 (863,000) (1,956,000) (2,856,000)
Interest 570,000 901,000 901,000 901,000 901,000 901,000
Pre-Tax Income
(Loss) (4,387,000) 242,000 (691,000) (1,764,000) (2,857,000) (3,757,000)
Tax Provision
(Benefit) 150,000 200,000 200,000 200,000 200,000 200,000
Net Income (Loss)
52 Weeks............ (4,537,000) 42,000 (891,000) (1,964,000) (3,057,000) (3,957,000)
Week 53 Profit...... -- 225,000 225,000 225,000 225,000 225,000
Net Income (Loss)... (4,537,000) 267,000 (666,000) (1,739,000) (2,832,000) (3,732,000)
<Caption>
Fiscal 2004 Fiscal 2005 Fiscal 2006
Expected Expected Expected
Case Case Case
--------------- --------------- ---------------
Sales............... $ 75,498,000 $ 79,578,000 $ 83,880,000
Gross Profit........ 34,884,000 37,058,000 39,113,000
Margin.............. 46.2% 46.6% 46.6%
Sales, General and
Administration 33,098,000 33,899,000 33,902,000
EBIT 1,786,000 3,159,000 5,211,000
Interest 676,000 300,000 150,000
Pre-Tax Income
(Loss) 1,110,000 2,859,000 5,061,000
Tax Provision
(Benefit) 200,000 700,000 1,000,000
Net Income (Loss) 910,000 2,159,000 4,061,000
</Table>
<Page>
BALANCE SHEET DATA. Data assumes "Expected Case" income statement data and
a margin of 46%.
<Table>
<Caption>
LITTLE SWITZERLAND 25-JUL-2002
BALANCE SHEET FY 2003 TREND CASE
- --------------------------------------------------------------------------------------------------------------------------------
ACTUAL ACTUAL EST EST EST EST EST EST
Y/E Y/E -----------------------------------------------------------------------------
MAY-01 MAY-2002 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 NOV-02
---------------------------------------------------------------------------------------------------------
Cash 1,467 816 300 300 300 300 300 300
Accounts Receivable 806 1,163 818 994 1,042 780 672 997
INVENTORY 35,225 36,390 37,824 36,092 35,365 35,149 35,712 36,382
Prepaids 522 541 427 881 880 847 664 690
---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 38,020 38,910 39,369 38,267 37,587 37,076 37,348 38,369
---------------------------------------------------------------------------------------------------------
Net, PP&E 6,769 6,088 5,961 5,949 6,015 6,277 6,297 6,315
Other assets 544 670 670 670 670 670 670 670
---------------------------------------------------------------------------------------------------------
TOTAL ASSETS 45,333 45,668 45,999 44,886 44,272 44,023 44,315 45,354
=========================================================================================================
Accounts payable 10,042 9,808 10,038 7,810 6,650 6,275 6,683 8,258
Other payable &
accrued exp. 7,695 6,042 5,973 6,263 5,865 5,946 6,027 5,890
Deferred taxes 0 0 0 0 0 0 0 0
---------------------------------------------------------------------------------------------------------
TOTAL CURRENT
LIABILITIES 17,737 15,850 16,011 14,073 12,515 12,221 12,710 14,148
Forbearance Debt 139 0 0 0 0 0 0 0
Barbados Liability 1,672 1,708 1,723 1,739 1,754 1,770 1,785 1,801
TIFFANY CREDIT LINE 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500
CREDIT LINE 0 6,611 7,020 7,736 8,891 9,567 10,044 9,789
---------------------------------------------------------------------------------------------------------
TOTAL DEBT 4,311 10,819 11,243 11,975 13,145 13,837 14,329 14,090
Preferred stock 0 0 300 300 300 300 300 300
Capital stock 165 167 167 167 167 167 167 167
Paid in capital 26,681 26,963 26,963 26,963 26,963 26,963 26,963 26,963
Retained earnings (3,561) (8,131) (8,685) (8,591) (8,818) (9,465) (10,154) (10,314)
---------------------------------------------------------------------------------------------------------
TOTAL EQUITY 23,285 18,999 18,745 18,839 18,612 17,965 17,276 17,116
---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY 45,333 45,668 45,999 44,886 44,272 44,023 44,315 45,354
=========================================================================================================
0 0 0 0 0 0 0
AP Ratio 27.0% 26.5% 21.6% 18.8% 17.9% 18.7% 22.7%
Shares 16,708 16,708 16,708 16,708 16,708 16,708 16,708
Book Value $ 1.14 $ 1.12 $ 1.13 $ 1.11 $ 1.08 $ 1.03 $ 1.02
=========================================================================================================
Accounts Receivable 2.0% 20.0% 16.0% 20.0% 20.0% 16.0% 20.0%
Months Supply Current
Sales 1 18 11 13 18 17 14
<Caption>
LITTLE SWITZERLAND 25-JUL-2002
BALANCE SHEET FY 2003 TREND CASE (continued)
- ------------------------------------------------------------------------------------------------------
EST EST EST EST EST EST
Dec-2002 Jan-03 FEB-03 Mar-03 Apr-03 May-03
-------------------------------------------------------------------------------
Cash 300 300 300 300 300 300
Accounts Receivable 1,288 1,463 1,282 1,237 1,199 909
INVENTORY 36,973 35,226 35,147 35,355 35,668 37,177
Prepaids 700 822 822 764 682 794
-------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 39,261 37,811 37,551 37,656 37,849 39,180
-------------------------------------------------------------------------------
Net, PP&E 6,470 6,542 6,527 6,398 6,338 6,273
Other assets 670 670 670 670 670 670
-------------------------------------------------------------------------------
TOTAL ASSETS 46,401 45,023 44,748 44,723 44,857 46,123
===============================================================================
Accounts payable 10,048 9,070 9,027 9,115 9,940 10,382
Other payable &
accrued exp 5,707 6,372 6,228 5,989 5,947 5,856
Deferred taxes 0 0 0 0 0 0
-------------------------------------------------------------------------------
TOTAL CURRENT
LIABILITIES 15,755 15,442 15,255 15,104 15,887 16,238
Forbearance Debt 0 0 0 0 0 0
Barbados Liability 1,816 1,832 1,847 1,863 1,879 1,894
TIFFANY CREDIT LINE 2,500 2,500 2,500 2,500 2,500 2,500
CREDIT LINE 9,095 7,178 6,896 6,759 5,700 7,184
-------------------------------------------------------------------------------
TOTAL DEBT 13,411 11,510 11,243 11,122 10,079 11,578
Preferred stock 300 300 300 300 300 300
Capital stock 167 167 167 167 167 167
Paid in capital 26,963 26,963 26,963 26,963 26,963 26,963
Retained earnings (10,196) (9,359) (9,180) (8,933) (8,538) (9,123)
-------------------------------------------------------------------------------
TOTAL EQUITY 17,234 18,071 18,250 18,497 18,892 18,307
-------------------------------------------------------------------------------
TOTAL LIABILITIES
AND EQUITY 46,401 45,023 44,748 44,723 44,858 46,123
===============================================================================
0 0 0 0 0 0
AP Ratio 27.2% 25.7% 25.7% 25.8% 27.9% 27.9%
Shares 16,708 16,708 16,708 16,708 16,708 16,708
Book Value $ 1.03 $ 1.08 $ 1.09 $ 1.11 $ 1.13 $ 1.10
===============================================================================
Accounts Receivable 20.0% 16.0% 20.0% 20.0% 16.0% 20.0%
Months Supply Current
Sales 11 7 11 11 9 15
</Table>
<Page>
CASH FLOW DATA. Data assumes "Expected Case" income statement data.
LITTLE SWITZERLAND
STATEMENT OF CASH FLOW
<Table>
<Caption>
Unit: Thousands of dollar EST EST EST EST EST
Jun-2002 Jul-2002 Aug-2002 Sep-2002 Oct-2002
----------------------------------------------------------------------------------
CASH FROM OPERATIONS
Net income (4,616) (553) 94 (227) (647) (690)
Depreciation 1,859 152 145 157 163 154
A/R (357) 346 (176) (48) 262 108
Inventory (1,165) (1,434) 1,732 727 216 (562)
Prepaid Exp (19) 114 (454) 1 33 183
Accounts payable (234) 229 (2,228) (1,161) (374) 408
Other payable & accrued
exp. (1,617) (54) 306 (382) 97 97
Deferred taxes 0 0 0 0 0 0
Loss/ (Gain) AssetSale 124 0 0 0 0 0
----------------------------------------------------------------------------------
Cash provided by Operations (6,025) (1,200) (582) (932) (251) (302)
CASH FROM INVESTMENT
Capital expenditures (1,054) (25) (134) (223) (425) (175)
Proceeds from sales of
assets (248) 0 0 0 0 0
Changes in other
assets (126) 0 0 0 0 0
----------------------------------------------------------------------------------
Cash provided by Investing (1,428) (25) (134) (223) (425) (175)
CASH FLOWS BEFORE FINANCING (7,453) (1,225) (716) (1,155) (676) (477)
CASH FROM FINANCING
Forbearance Debt (139) 0 0 0 0 0
Tiffany Credit Line 0 0 0 0 0 0
Credit Line 6,611 409 716 1,155 676 477
Repurchase Preferred 0 300 0 0 0 0
Issuance of equity 284 0 0 0 0 0
----------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR)
FINANCING 6,756 709 716 1,155 676 477
CASH BALANCES
Increase (Decrease)
in Cash (697) (516) 0 (0) 0 0
Beginning Cash Balance 1,467 816 300 300 300 300
----------------------------------------------------------------------------------
ENDING BALANCES (TO B/S) 770 300 300 300 300 300
==================================================================================
<Caption>
Unit: Thousands of dollar EST EST EST EST EST EST
Nov-2002 Dec-2002 Jan-2003 Feb-2003 Mar-2003 Apr-2003
---------------------------------------------------------------------------------
CASH FROM OPERATIONS
Net income (160) 118 836 179 247 395
Depreciation 150 132 122 128 129 129
A/R (325) (291) (175) 181 45 38
Inventory (670) (591) 1,748 78 (208) (313)
Prepaid Exp (26) (10) (122) 0 58 82
Accounts payable 1,575 1,790 (978) (43) 88 825
Other payable & accrued
exp. (121) (167) 681 (128) (223) (26)
Deferred taxes 0 0 0 0 0 0
Loss/ (Gain) AssetSale 0 0 0 0 0 0
---------------------------------------------------------------------------------
Cash provided by Operations 423 981 2,112 395 136 1,129
CASH FROM INVESTMENT
Capital expenditures (168) (287) (195) (113) 0 (70)
Proceeds from sales of
assets 0 0 0 0 0 0
Changes in other
assets 0 0 0 0 0 0
---------------------------------------------------------------------------------
Cash provided by Investing (168) (287) (195) (113) 0 (70)
CASH FLOWS BEFORE FINANCING 255 694 1,917 282 136 1,059
CASH FROM FINANCING
Forbearance Debt 0 0 0 0 0 0
Tiffany Credit Line 0 0 0 0 0 0
Credit Line (255) (694) (1,917) (282) (136) (1,059)
Repurchase Preferred 0 0 0 0 0 0
Issuance of equity 0 0 0 0 0 0
---------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) (255) (694) (1,917) (282) (136) (1,059)
FINANCING
CASH BALANCES
Increase (Decrease)
in Cash 0 0 0 0 0 0
Beginning Cash Balance 300 300 300 300 300 300
---------------------------------------------------------------------------------
ENDING BALANCES (TO B/S) 300 300 300 300 300 300
=================================================================================
<Caption>
Unit: Thousands of dollar EST
May-2003
-----------
CASH FROM OPERATIONS
Net income (584) (992)
Depreciation 140 1,705
A/R 290 254
Inventory (1,509) (787)
Prepaid Exp (112) (253)
Accounts payable 442 574
Other payable & accrued
exp. (75) 0
Deferred taxes 0 0
Loss/ (Gain) AssetSale 0 0
-----------
Cash provided by Operations (1,409) 501
501
CASH FROM INVESTMENT
Capital expenditures (75) (1,890)
Proceeds from sales of
assets 0 0
Changes in other
assets 0 0
-----------
Cash provided by Investing (75) (1,890)
CASH FLOWS BEFORE FINANCING (1,484) (1,389)
CASH FROM FINANCING
Forbearance Debt 0 0
Tiffany Credit Line 0 0
Credit Line 1,484 573
Repurchase Preferred 0 300
Issuance of equity 0 0
-----------
CASH PROVIDED BY (USED FOR) 1,484 873
FINANCING
CASH BALANCES
Increase (Decrease)
in Cash 0 (516)
Beginning Cash Balance 300 816
----------- ------
ENDING BALANCES (TO B/S) 300 300
=========== ======
</Table>