Exhibit (c)
CONFIDENTIAL
PROJECT SAPPHIRE
Situation Update
May 29, 2002
LEHMAN BROTHERS
OVERVIEW OF SAPPHIRE
INTRODUCTION
- - Lehman Brothers is pleased to have the opportunity to share with Topaz our
updated views on the acquisition of the remaining equity of Sapphire (or
the "Company")
- - Sapphire's share price continues to reflect concern over the impact of
September 11th on the travel and luxury goods industries. It has moved
only slightly (up $0.03) since we last presented our views on this subject
-- Currently, Sapphire is trading 25% below its 52-week high of August
21, 2001, and 77% below its 5-year high of April 30, 1998
- - While this discount may be indicative of an opportune moment for Topaz to
acquire the balance of the company, it remains unclear as to the
satisfactory exit price for selling shareholders
- - However, recent shareholder actions indicate that Sapphire is willing to
entertain offers
- - On February 15, 2002, the shareholders approved changes which
significantly strip away protective measures in the areas of merger
approval requirements, the ability for shareholders to initiate corporate
actions, election and removal of directors and amendment procedures
LEHMAN BROTHERS 1
OVERVIEW OF SAPPHIRE
COMPANY HISTORY
- - In July 1991, Sapphire was spun-off by its parent, Town & Country
Corporation
- - After peaking at 27 stores in 1996, Sapphire's total number of stores
declined to 18 by the end of fiscal 2001. The Company has expanded into
the Key West market with 3 new locations over the past nine months and is
currently operating 19 stores
HISTORICAL STORE LOCATIONS
Fiscal Year Ended May 31,
--------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
TOTAL STORES 17 17 18 23 24 27 27
-- -- -- -- -- -- --
Aruba (7) Aruba (5) Aruba (5) Aruba (6) Aruba (6) Aruba (8) Aruba (7)
St. Thomas (4) St. Thomas (5) St. Thomas (5) St. Thomas (7) St. Thomas (6) St. Thomas (4) St. Thomas (4)
St. Croix St. Croix St. Croix St. Croix St. Croix St. Croix St. Croix
St. Martin St. Martin St. Martin St. Martin St. Martin (2) St. Martin (2) St. Martin (2)
St. Barts St. Barts St. Barts St. Barts St. Barts St. Barts St. Barts
St. Maarten St. Maarten St. Maarten St. Maarten St. Maarten St. Maarten St. Maarten
Curacao Curacao Curacao Curacao (2) Curacao (2) Curacao (2) Curacao
Antigua Antigua Antigua Antigua (2) Antigua (2) Antigua (2) Antigua (2)
St. Kitts St. Kitts St. Kitts St. Kitts St. Kitts St. Kitts
St. Lucia St. Lucia St. Lucia St. Lucia St. Lucia (2)
Ketchikan, AK Barbados (2) Barbados (2)
Ketchikan, AK Ketchikan, AK
Juneau, AK Juneau, AK
Skagway, AK
--------------------------------------------------------------------------------------------------------------
ADDED STORES: St. Kitts St. Lucia Curacao St. Martin Aruba (2) St. Lucia
St. Thomas St. Thomas (2) Ketchikan, AK Juneau, AK Skagway, AK
Aruba Barbados (2)
Antigua
--------------------------------------------------------------------------------------------------------------
DISPOSED STORES: Aruba (2) St. Thomas St. Thomas (2) Curacao
Aruba
Fiscal Year Ended May 31,
-------------------------------------------------------------- As of 2/23
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Total Stores 26 22 18 18 19
-- -- -- -- --
Aruba (6) Aruba (6) Aruba (6) Aruba (6) Aruba (6)
St. Thomas (4) St. Thomas (4) St. Thomas (4) St. Thomas (4) St. Thomas (3)
St. Croix St. Martin (2) St. Martin (2) St. Martin St. Martin
St. Martin (2) St. Barts St. Maarten St. Maarten St. Maarten
St. Barts St. Maarten Curacao Curacao Curacao
St. Maarten Curacao Barbados (2) Barbados Barbados
Curacao Antigua Juneau, AK Juneau, AK Juneau, AK
Antigua (2) St. Lucia (2) Skagway, AK Skagway, AK (2) Skagway, AK (2)
St. Kitts Barbados (2) Ketchikan, AK Key West (3)
St. Lucia (2) Juneau, AK
Barbados (2) Skagway, AK
Ketchikan, AK
Juneau, AK
Skagway, AK
-----------------------------------------------------------------------------
Added Stores: Skagway, AK Key West (3)
Ketchikan, AK
-----------------------------------------------------------------------------
Disposed Stores: Aruba Ketchikan, AK St. Barts St. Martin St. Thomas(a)
St. Croix Antigua Barbados Ketchikan, AK(a)
Antigua St Lucia (2)
St. Kitts
(a) To be closed on or before May 31, 2002.
LEHMAN BROTHERS 2
OVERVIEW OF SAPPHIRE
SAPPHIRE PRESENCE
- - Currently, Sapphire has a presence in 6 popular Caribbean destinations,
and three locations in Alaska
-- On December 18, 2001 Sapphire opened a Topaz boutique in its
Barbados store
- - Since its primary competitors are independently-owned local merchants,
Sapphire is well-positioned to benefit from its relative scale and
exclusive distribution arrangements with certain luxury brands
CURRENT RETAIL STORE LOCATIONS
[ALASKA MAP] [CARIBBEAN MAP]
LEHMAN BROTHERS 3
OVERVIEW OF SAPPHIRE
TRADING HISTORY
- - Sapphire is currently trading at $1.84, a 25% discount to its 52-week
high, and a 1% premium to its 52-week average
[FIVE-YEAR HISTORICAL INDEXED STOCK PRICE PERFORMANCE CHART]
Source: Factset.
Lehman Brothers Small-Cap Luxury Retail Composite includes Zale, Finlay
Enterprises, Reeds Jewelers, Whitehall Jewelers, Friedman's, and Mayor's
Jewelers.
LEHMAN BROTHERS 4
OVERVIEW OF SAPPHIRE
TRADING HISTORY (CONT'D)
[FIVE-YEAR HISTORICAL STOCK PRICE PERFORMANCE CHART]
Source: Factset.
LEHMAN BROTHERS 5
OVERVIEW OF SAPPHIRE
TRADING HISTORY (CONT'D)
[1 YEAR HISTORICAL TRADING VOLUME ANALYSIS CHART]
[5 YEAR HISTORICAL TRADING VOLUME ANALYSIS CHART]
LEHMAN BROTHERS 6
OVERVIEW OF SAPPHIRE
FINANCIAL HISTORY
(US$ in millions)
- - In the five years following its 1991 IPO, Sapphire added ten stores, but
began to suffer deteriorating financial results
- - The Company was significantly impacted by Rolex's decision in 1999 to
terminate its exclusive sales relationship. Sales of Rolex watches had
previously accounted for as much as 26% of Sapphire revenues
- - It appears that the Company's sales results are beginning to stabilize,
attributable in part to the working capital impact of the investment by
Topaz
HISTORICAL FINANCIAL SUMMARY
FISCAL YEAR ENDED MAY 31, LTM AS OF
------------------------------------------------------------------------------------------------------ ---------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2/23/2002
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---------
Sales $53.4 $57.1 $63.4 $64.3 $72.2 $62.9 $88.3 $100.4 $76.4 $55.0 $56.3 $59.4
% Growth -- 6.9% 10.9% 1.4% 12.3% (12.9%) 40.4% 13.6% (23.8%)(a) (28.0%)(b) 2.3% -
% Same Store -- 4.9% 6.2% 0.6% 4.1% 17.3% (14.3%) 8.7% (21.7)% (18.2%) 11.7% NA
EBITDA $9.2 $9.6 $8.3 $7.1 $6.9 $4.2 $5.7 $2.2 ($5.7) ($10.4) ($5.7) ($3.7)
% Margin 17.3% 16.8% 13.1% 11.0% 9.5% 6.6% 6.5% 2.2% NM NM NM NM
EBIT $7.9 $8.4 $6.6 $5.2 $4.7 $1.7 $2.7 ($1.2) ($8.9) ($13.3) ($7.9) ($5.7)
% Margin 14.8% 14.6% 10.3% 8.1% 6.6% 2.6% 3.0% NM NM NM NM NM
Net Income $6.1 $6.7 $5.2 $4.1 $3.7 $0.9 $1.2 ($3.8) ($11.4) ($15.5) ($9.0) ($6.4)
% Margin 11.5% 11.8% 8.2% 6.4% 5.1% 1.5% 1.3% NM NM NM NM NM
- ----------
Source: Company filings
(a) The primary reason for the decrease in net sales between 1998 and 1999 was
the termination of the Company's sales agreement with Rolex products, per
1999 10K.
(b) The decrease in sales between 1999 and 2000, per 2000 10K, was attributed
to several factors, including "the Company's decision to reduce new
product purchases in an effort to control its inventory position;
Constraints were also placed on buying due to the Company's inability to
obtain a working capital facility."
LEHMAN BROTHERS 7
OVERVIEW OF SAPPHIRE
FINANCIAL UPDATE
LATEST QUARTERLY PERFORMANCE SUMMARY
($ in thousands) Q301 Q302 % CHANGE
---- ---- --------
Net Sales $19,186 $19,212 0.1%
Gross Profit 7,465 8,704 16.6%
Operating Income (Loss) (2,075) 343 NM
Interest Expense, Net 282 128 -54.6%
Taxes 0 50 NM
------ ------
Net Income ($2,357) $165 NM
Diluted EPS ($0.27) $0.01 NM
Other Data:
- -----------
EBITDA (1,501) 739 NM
Cash 1,249 835 -33.1%
Inventory 31,720 32,666 3.0%
Total Assets 43,651 42,573 -2.5%
Total Debt 10,245 7,811 -23.8%
Shareholders' Equity 16,969 19,671 15.9%
Total Capitalization 27,214 27,482 1.0%
Comparable Store Sales 17.0% -8.9%
COMMENTS
- - Since September 11, 2001, comparable store sales have continued to be
negatively impacted primarily by reduced tourist travel due to the
terrorist attacks, unseasonably warm weather on the East Coast of the U.S.
and the sluggish U.S. economy
- - Sapphire's sales were positively impacted by its three new locations in
Key West
- - During the third quarter, Sapphire shifted its focus toward margin and
inventory management to offset weakening top line sales, resulting in a
stronger Gross Margin for the period
- - Contributing to the decrease in SG&A expense were reductions in
advertising costs, insurance premiums and professional fees
- - Sapphire announced on March 22, 2002 that it had closed a new $12 million
senior secured credit facility with Congress Financial Corporation. The
facility would be used to repay approximately $3.6 million in outstanding
indebtedness under Sapphire's existing facility with J.P. Morgan Chase,
which was scheduled to expire in June 2002, as well as for ongoing working
capital purposes
LEHMAN BROTHERS 8
OVERVIEW OF SAPPHIRE
EQUITY MARKET VALUATION
(US$ in millions, except per share data)
- - On April 10, 2001, Topaz announced the acquisition of 45% of the equity of
Sapphire for $1.25 per common share
- - Based on this purchase price, the implied market value of the remaining
common equity of Sapphire was $11.6 million; currently, the implied market
value of the remaining common equity is $18.3 million
MARKET VALUATION COMPARISON
TOPAZ INVESTMENT CURRENT
4/10/01 (b) 5/24/02
----------- ---------
Share Price $ 1.25 $ 1.84
Basic Shares Outstanding 16.5 16.7
Fully Diluted Shares Outstanding (a) 16.7 17.4
------ ------
Market Value of Topaz Equity Stake $ 9.3 $13.6
MARKET VALUE OF REMAINING FLOAT $11.6 $18.3
------ ------
Market Capitalization $20.9 $32.0
====== ======
Premium/(Discount) to 52 Week High (49.0%) (24.9%)
Premium/(Discount) to 52 Week Low 3.3% 52.1%
- ----------
(a) Fully diluted shares outstanding based on 1.77 million in the money
options as of April 10, 2001 and May 24, 2002, and weighted average
exercise price of $1.09 at May 26, 2001.
(b) Share price and fully diluted share total based on Topaz offer price of
$1.25 per share. Basic shares outstanding includes 7.4 million shares
issued to Topaz in the transaction.
Note: Sapphire net debt was $9.0 million at April 10, 2001 (pre-Topaz
investment), $2.6 million at May 26, 2001 (post-Topaz investment), and
$7.0 million currently.
LEHMAN BROTHERS 9
OVERVIEW OF SAPPHIRE
COMPARABLE COMPANIES ANALYSIS
(US$ in millions, except per share data)
TRADING ANALYSIS
Enterprise Value/LTM
LTM Stock Price Equity Market Enterprise ------------------------
Company as of 5/24/2002 Value Value Revenue EBITDA EBIT
- ------- ----- --------- ----- ----- ------- ------ ----
Zale 04/30/02 $ 44.20 $1,567 $1,518 0.70x 6.7x 8.8x
Whitehall Jewelers 01/31/02 $ 22.09 $ 343 $ 386 1.14x 11.7x 17.1x
Friedman's 03/30/02 $ 12.18 $ 227 $ 363 0.85x 8.7x 12.7x
Finlay Enterprises 02/2/02 $ 15.50 $ 149 $ 325 0.34x 4.1x 5.1x
Mayor's Jewelers 02/2/02 $ 0.58 $ 11 $ 62 0.38x NM NM
Reeds Jewelers 02/28/02 $ 1.10 $ 9 $ 24 0.21x 18.9x NM
Average 0.60x 10.0x 10.9x
Median 0.54x 8.7x 10.7x
Sapphire 2/23/2002 $ 1.84 $ 32 $ 39 0.66x NM NM
Equity Market Value/
-------------------- Total Debt/ Total Debt /
Company LTM NI Book Value Total Cap LTM EBITDA
- ------- ------ ---------- --------- ----------
Zale 13.9x 1.66x 9.5% 0.4x
Whitehall Jewelers 31.7x 3.02x 28.7% 1.4x
Friedman's 9.2x 0.81x 32.9% 3.3x
Finlay Enterprises 7.6x 1.00x 60.1% 2.8x
Mayor's Jewelers NM 0.19x 46.7% NM
Reeds Jewelers NM 0.31x 34.8% 12.3x
15.6x 1.17x 35.4% 2.0x
11.6x 0.91x 33.8% 2.1x
Sapphire NM 1.63x 28.4% NM
- ----------
Average and median for total debt / EBITDA exclude Reeds Jewelers.
LEHMAN BROTHERS 10
OVERVIEW OF SAPPHIRE
COMPARABLE TRANSACTIONS ANALYSIS
(US$ in millions)
TRANSACTIONS ANALYSIS
Date Approx. Trans. Trans Value/ Trans Value/ Trans Value/
Announced Target Acquiror Value (mm) Sales EBITDA EBIT
- --------- ------ -------- ---------- ----- ------ ----
9/3/97 Diamond Park Fine Jewelers Finlay Enterprises $ 63.0 0.50x NA NA
9/24/97 Pop Bijoux Marc Orian 31.9 NA NA NA
2/18/98 Mayor's Jewelers Inc. Jan Bell Marketing 91.2 0.62x NM NM
6/22/98 Carlye & Co.-Jewelry Stores Marks Brothers Jewelers 22.0 NA NA NA
3/16/99 Peoples Jewellers Ltd. Zale Corp. 96.0 0.69x NA NA
3/18/99 Goldsmiths Group PLC Mildghosts Ltd. 71.5 NA NA NA
2/11/00 Jay B Rudolph Inc. Finlay Enterprises 20.6 0.24x 2.3x 2.8x
5/4/00 Watch World International Sunglass Hut International 30.0 0.71x NA NA
8/11/00 Piercing Pagoda Inc. Zale Corp. 265.6 0.94x 7.6x 10.1x
4/10/01 Sapphire (45% interest) Topaz 11.8 0.46x NM NM
AVERAGE 0.60x 4.9x 6.4x
MEDIAN 0.62x 4.9x 6.4x
LEHMAN BROTHERS 11
OVERVIEW OF SAPPHIRE
SALES MULTIPLE VALUATION
(US$ in millions, except per share data)
- - Sapphire currently trades at 0.66x LTM sales
- - The following table implies a preliminary valuation of the common equity
of Sapphire based on comparable companies trading and transaction multiple
averages of 0.60x LTM sales
SALES MULTIPLE VALUATION
ACTUAL
VALUATION MULTIPLE RANGE 0.60x 0.65x 0.66x 0.70x 0.75x 0.80x
----- ----- ----- ----- ----- -----
LTM Sales $ 59.4 $ 59.4 $ 59.4 $ 59.4 $ 59.4 $ 59.4
Enterprise Value $ 35.7 $ 38.6 $ 38.9 $ 41.6 $ 44.6 $ 47.6
Less: Net Debt (7.0) (7.0) (7.0) (7.0) (7.0) (7.0)
------ ------ ------ ------ ------ ------
Implied Equity Value 28.7 31.7 32.0 34.6 37.6 40.6
Implied Value of Remaining 57.4% Stake (a) $ 16.5 $ 18.2 $ 18.3 $ 19.9 $ 21.6 $ 23.3
====== ====== ====== ====== ====== ======
Implied Per Share Value $ 1.65 $ 1.82 $ 1.84 $ 1.99 $ 2.16 $ 2.34
% Premium/(Discount) to Current Share Price (10.3%) (1.0%) -- 8.3% 17.6% 26.9%
% Discount to 52 Week High (32.6%) (25.6%) (24.9%) (18.6%) (11.7%) (4.7%)
% Premium to 52 Week Low 36.5% 50.6% 52.1% 64.7% 78.9% (93.0%)
- ----------
(a) Based on Topaz current ownership of 7.41 million shares out of a total of
17.357 million fully diluted shares outstanding (treasury method) as of
May 24, 2002.
Net debt as of February 23, 2002.
LEHMAN BROTHERS 12
OVERVIEW OF SAPPHIRE
BOOK VALUE MULTIPLE VALUATION
(US$ in millions, except per share data)
- - Sapphire currently trades at 1.63x book value
- - The following table implies a preliminary valuation of the common equity
of Sapphire based on comparable companies trading multiple average of
1.17x book value
BOOK VALUE MULTIPLE VALUATION
ACTUAL
VALUATION MULTIPLE RANGE 1.20x 1.35x 1.50x 1.63x 1.65x 1.80x
----- ----- ----- ----- ----- -----
Book Value $ 19.7 $ 19.7 $ 19.7 $ 19.7 $ 19.7 $ 19.7
Implied Equity Value $ 23.6 $ 26.6 $ 29.5 $ 32.0 $ 32.5 $ 35.4
Implied Value of Remaining 57.4% Stake (a) $ 13.5 $ 15.2 $ 16.9 $ 18.3 $ 18.6 $ 20.3
====== ====== ====== ====== ====== ======
Implied Per Share Value $ 1.36 $ 1.53 $ 1.70 $ 1.84 $ 1.87 $ 2.04
% Premium/(Discount) to Current Share Price (26.2%) (16.9%) (7.7%) -- 1.5% 10.8%
% Discount to 52 Week High (44.5%) (37.6%) (30.7%) (24.9%) (23.8%) (16.8%)
% Premium to 52 Week Low 12.3% 26.3% 40.4% 52.1% 54.4% 68.4%
- ----------
(a) Based on Topaz current ownership of 7.41 million shares out of a total of
17.357 million fully diluted shares outstanding (treasury method) as of
May 24, 2002.
LEHMAN BROTHERS 13
OVERVIEW OF SAPPHIRE
PURCHASE PRICE RATIO ANALYSIS
(US$ in millions, except per share data)
PURCHASE PRICE RATIO ANALYSIS
CURRENT (5/24/02) PURCHASE PRICE
----------------- ----------------------------------------------------
PRICE PER SHARE: $ 1.84 $ 2.00 $ 2.15 $ 2.25 $ 2.35 $ 2.45
Premium to Current Market Price 8.7% 16.8% 22.3% 27.7% 33.2%
Discount to 52-week High $ 2.45 (18.4%) (12.2%) (8.2%) (4.1%) --
Premium to 52-week Low $ 1.21 65.3% 77.7% 86.0% 94.2% 102.5%
Premium to Jewelcor Cost Basis (a) $ 1.57 27.2% 36.7% 43.1% 49.4% 55.8%
Fully Diluted Equity Value (b) $ 33.9 $ 36.9 $ 39.6 $ 41.5 $ 43.3 $ 45.1
Less: Option Proceeds (c) (1.9) (1.9) (1.9) (1.9) (1.9) (1.9)
------ ------ ------ ------ ------ ------
Net Diluted Equity Value $ 32.0 $ 34.9 $ 37.7 $ 39.5 $ 41.4 $ 43.2
Implied Value of Remaining 57.4% Stake (d) $ 18.3 $ 19.9 $ 21.4 $ 22.4 $ 23.4 $ 24.4
Net Debt (e) $ 7.0 $ 7.0 $ 7.0 $ 7.0 $ 7.0 $ 7.0
------ ------ ------ ------ ------ ------
ENTERPRISE VALUE $ 38.9 $ 41.9 $ 44.7 $ 46.5 $ 48.3 $ 50.2
ENTERPRISE VALUE AS A MULTIPLE OF:
LTM Revenue $59.4 0.66x 0.70x .075x 0.78x 0.81x 0.84x
EQUITY VALUE AS A MULTIPLE OF:
Book Value $19.7 1.63x 1.78x 1.92x 2.01x 2.10x 2.20x
- ----------
(a) Based on Lehman Brothers analysis of Jewelcor's historical purchases and
sales of Sapphire common stock.
(b) Based on 16.651 million basic common shares outstanding as of Company
filing dated April 5, 2002 and 1.775 in-the-money options.
(c) Based on 1.775 in-the-money options and weighted average exercise price of
$1.09 as of May 26, 2001.
(d) Based on Topaz current ownership of 7.41 million shares out of a total of
17.374 million fully diluted shares outstanding (treasury method) as of
May 24, 2002.
(e) Per Sapphire's most recent 10Q as of February 23, 2002.
LEHMAN BROTHERS 14
OVERVIEW OF SAPPHIRE
RECENT CHANGES TO ANTI-TAKEOVER PROVISIONS
- - At the Company's most recent annual shareholder meeting on February 15,
2002, the Board of Directors recommended actions to eliminate certain
anti-takeover devices from Sapphire's Certificate of Incorporation
- - Broadly, the actions repealed protective measures in the areas of merger
approval requirements, the ability for shareholders to initiate corporate
actions, election and removal of directors and amendment procedures
-- Six of the 11 original articles of Sapphire's Certificate of
Incorporation were repealed
- - Specifically, the following actions were taken which improve Topaz's
ability to approach Sapphire's shareholders and initiate a transaction:
-- Elimination of the staggered board; all board seats to be re-elected
at each annual shareholder meeting
-- No super-majority vote required to engage in certain transactions
with "interested stockholders", as defined as holders of 15% or more
of Sapphire's voting securities
-- Special shareholder meetings may be called by a majority of
shareholders, as opposed to only the Board of Directors, Chairman or
President
-- Repeal of the article allowing the Board of Directors, in evaluating
potential merger or acquisition offers, to consider the social and
economic effects of the proposal, suppliers, customers, the regional
economy and other factors; fiduciary responsibility will be the
paramount concern
-- No super-majority vote required to amend provisions of the
Certificate of Incorporation or By-Laws
LEHMAN BROTHERS 15
OVERVIEW OF SAPPHIRE
SUMMARY DEFENSIVE PROFILE
- - Overall, the shareholder actions significantly reduced the Company's
ability to repel a takeover offer
SUMMARY
DEFENSIVE STRENGTHS
|X| Blank check preferred stock
|X| Delaware takeover statutes
|X| Two significant shareholders control more than 15% of common stock
DEFENSIVE WEAKNESSES
|X| No shareholder rights plan
|X| Two of five Directors from Topaz
|X| No staggered Board of Directors
|X| No super-majority voting required to approve transactions with
"interested stockholders"
|X| Special meetings may be called by a majority of shareholders
|X| No super-majority voting required for amendments to Certificate of
Incorporation or By-Laws
LEHMAN BROTHERS 16
OVERVIEW OF SAPPHIRE
OWNERSHIP SUMMARY
- - Two significant shareholders, Seymour Holtzman and Donald Sturm control
over 15% of Sapphire's diluted common shares (nearly 26% of Sapphire
shares not held by Topaz)
SAPPHIRE OWNERSHIP
INSTITUTION BASIC SHARES HELD % OWNERSHIP OPTIONS(a) DILUTED SHARES(b) % DILUTED OWNERSHIP
- ----------- ----------------- ----------- ---------- ----------------- -------------------
William Harris Investors Inc 717,100 4.3% -- 717,100 4.0%
Performance Capital LLC 505,500 3.0% -- 505,500 2.8%
Royce and Associates, Inc. 443,900 2.7% -- 443,900 2.5%
Bedford Oak Partners, LLC 138,500 0.8% -- 138,500 0.8%
University of Chicago 16,000 0.1% -- 16,000 0.1%
Earnest Partners LLC 15,000 0.1% -- 15,000 0.1%
Deutsche Asset Management 12,500 0.1% -- 12,500 0.1%
Thomas Herzfeld & Co. 2,500 0.0% -- 2,500 0.0%
Northern Trust Investments Inc. 1,200 0.0% -- 1,200 0.0%
- ------------------------------- ----------------- ----------- ---------- ----------------- -------------------
TOTAL INSTITUTIONAL OWNERSHIP 1,852,200 11.1% -- 1,852,200 10.3%
SIGNIFICANT OWNER
- -----------------
Topaz 7,410,000 44.5% -- 7,410,000 41.4%
Donald L. Sturm (c) 782,100 4.7% -- 782,100 4.4%
ValueVest Partners (c) 130,200 0.8% -- 130,200 0.7%
Lionheart Group (Duncan Soukup) 445,100 2.7% -- 445,100 2.5%
- ------------------------------- ----------------- ----------- ---------- ----------------- -------------------
TOTAL OTHER SIGNIFICANT OWNERS 8,767,400 52.7% -- 8,767,400 48.9%
INSIDER
- -------
Jewelcor Management (Seymour Holtzman
and family)(d) 1,749,692 10.5% 233,000 1,982,692 11.1%
Charles M. Pepper 60,343 0.4% 36,667 97,010 0.5%
Robert L. Baumgardner -- 0.0% 476,667 476,667 2.7%
Patrick J. Hopper -- 0.0% 316,667 316,667 1.8%
Patrick J. Heron II -- 0.0% 38,667 38,667 0.2%
James E. Quinn -- 0.0% 5,000 5,000 0.0%
Patrick B. Dorsey -- 0.0% 5,000 5,000 0.0%
----------------- ----------- ---------- ----------------- -------------------
TOTAL INSIDER OWNERSHIP 1,810,035 10.9% 1,111,668 2,921,703 16.3%
REMAINING PUBLIC SHAREHOLDERS 4,221,435 25.4% 153,664 4,375,099 24.4%
----------------- ----------- ---------- ----------------- -------------------
TOTAL 16,651,070 100.0% 1,265,332 17,916,402 100.0%
================= =========== ========== ================= ===================
- ----------
Source: Thomson Financial, Company filings (14A dated January 4, 2002).
(a) Based on exercisable options at fiscal year end per Company 10K dated
September 10, 2001.
(b) Assumes full dilution of exercisable options. Weighted average exercise
price of exercisable options was $1.09 at May 26, 2001.
(c) As of April 23, 2001, ValueVest and Donald Sturm agreed to no longer act
together as a group.
(d) Includes 48,000 shares of Common Stock over which Seymour Holtzman and
Steven Holtzman share voting and dispositive power. Also includes 10,000
shares of Common Stock owned by Allison Holtzman Garcia and 3,000 shares
of Common Stock owned by Chelsea Holtzman, for which Jewelcor Management,
Inc. and Seymour Holtzman disclaim all beneficial ownership.
LEHMAN BROTHERS 17
OVERVIEW OF SAPPHIRE
OWNERSHIP SUMMARY (CONT'D)
- - In recent years, Holtzman has developed a reputation as a shareholder
activist
-- In February 1999, Sapphire reached a settlement with Holtzman and
Sturm, two of its largest shareholders, to avoid a potential proxy
battle
- - As a result of the settlement, Sapphire's Board of Directors was
restructured
-- Holtzman gained a seat on Sapphire's Board, and was appointed its
Chairman
-- Sturm was granted the right to attend and observe all Board meetings
as long as he beneficially owns at least 5% of outstanding common
shares
- - We have analyzed Holtzman's historical purchases and sales of Sapphire
stock and estimate that his cost basis is $1.57 per share
- - We estimate that Sturm's cost basis is $4.03 per share
- - We estimate that Duncan Soukup, Sapphire's third largest individual
shareholder (through his company, Lionheart Group) has a cost basis of
$0.65 per share
LEHMAN BROTHERS 18
OVERVIEW OF SAPPHIRE
BOARD OF DIRECTORS
- - Following Topaz's investment, Sapphire restructured its Board of
Directors, replacing two of its prior Directors with representatives of
Topaz
- - The fifth and final seat on the Board, also vacated as a result of the
Topaz investment, was just filled at the end of March by Richard Sasso.
Mr. Sasso has over 30 years experience in the cruise industry
SAPPHIRE BOARD OF DIRECTORS AS OF MAY 26, 2001
NAME (AGE) POSITION (ONE YEAR TERMS)
---------- -------------------------
Seymour Holtzman (65) Director & Chairman of the Board
Chairman & CEO of Jewelcor Management
Robert L. Baumgardner (55) Director, President & CEO
President & CEO of Sapphire
James E. Quinn (49) Director
Vice Chairman of Topaz
Patrick B. Dorsey (50) Director
Senior Vice President of Topaz
Richard Sasso Director
Former President, Celebrity Cruises (a)
- ----------
Source: Sapphire 10K, FY 2001.
(a) Source: Sapphire 8-K, dated March 26, 2002.
LEHMAN BROTHERS 19