PROJECT DELTA
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XXXX XXXXXXXX XXXXXXX
SEPTEMBER 2, 1999
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TAB CONTENTS PAGE
--- -------- ----
1. Financial Overview and Transaction Summary 1
2. Comparable Company Analysis 8
3. Comparable Transaction Analysis 10
4. Discounted Cash Flow Analysis 13
A. Draft Fairness Opinion Letter
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FINANCIAL OVERVIEW AND TRANSACTION SUMMARY
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SUMMARY FINANCIAL INFORMATION
- FINANCIAL OVERVIEW (1)(2) -
- Cash & Investments (000s) - 1999 Revenue Estimate (000s)
$36,200 $62,520
- Cash & Investments per Share - 2000 Revenue Estimate (000s)
$4.16 $70,320
- Debt - 1999 EPS
$0 $0.34
- Shareholders Equity (000s) - 2000 EPS
$43,196 $0.35
- - 3 Year Projected Growth
10%
- -
- STOCK PRICE OVERVIEW
- Share Price @ 9/2/99
$8.19 - Market Capitalization (000s)
$71,322
- 52 Week High
$11.13 - Enterprise Value (000s)
$35,122
- 52 Week Low
$3.06 - Enterprise Value/TTM Rev.
0.60
--------------
(1) Balance sheet data as of June 30, 1999.
(2) Revenue, EPS and growth estimates provided by Xxxx Xxxxxxxx Xxxxxxx
Institutional Research.
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TRANSACTION SUMMARY
- TRANSACTION SUMMARY
- Offer Structure Cash Tender
- Offer Price per Share $10.30
-
- Total Transaction Value $89,724
- Cash and Investments on Hand $36,200
- Transaction Value Less Cash $53,524
-
- Premium to Current Price 26%
- Premium to 1 Week Price 25%
- Premium to 1 Month Price 33%
-
- Enterprise Value/TTM Rev. 0.92x
- Enterprise Value/1999 Est. Rev. 0.87x
- Enterprise Value/2000 Est. Rev. 0.76x
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TWO YEAR DAILY STOCK PRICE AND TRADING VOLUME
[GRAPH]
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Source: Instinet Corporation.
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LAST TWELVE MONTH DAILY STOCK PRICE AND TRADING VOLUME
[GRAPH]
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Source: Instinet Corporation.
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AVERAGE SHARE PRICE INFORMATION
MOVING AVERAGES
PERIOD PRICE VOLUME PERIOD PRICE VOLUME
5 DAY $8.79 41,260 60 DAY $8.28 39,738
10 DAY $8.27 35,070 90 DAY $8.02 36,404
20 DAY $7.90 34,095 120 DAY $7.80 41,985
30 DAY $8.18 33,523 180 DAY $7.31 46,211
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Source: Instinet Corporation.
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DAILY STOCK PRICE AND TRADING VOLUME DETAIL - LAST TWELVE MONTHS
DATE DELTA VOLUME DATE DELTA VOLUME DATE DELTA VOLUME
09/03/98 $3.75 25,000 11/03/98 $3.94 9,500 01/05/99 $6.00 52,800
09/04/98 $4.38 25,400 11/04/98 $4.00 25,800 01/06/99 $6.25 25,700
09/08/98 $4.75 7,800 11/05/98 $4.25 37,700 01/07/99 $6.25 55,900
09/09/98 $4.88 21,800 11/06/98 $4.44 316,200 01/08/99 $6.06 44,000
09/10/98 $4.69 8,900 11/09/98 $4.31 34,400 01/11/99 $5.50 96,000
09/11/98 $4.44 13,500 11/10/98 $4.38 43,200 01/12/99 $5.00 84,100
09/14/98 $4.13 25,300 11/11/98 $4.50 68,400 01/13/99 $5.25 68,300
09/15/98 $4.38 17,500 11/12/98 $4.50 400,500 01/14/99 $5.00 99,600
09/16/98 $4.31 32,200 11/13/98 $4.50 188,500 01/15/99 $5.75 47,600
09/17/98 $3.88 34,600 11/16/98 $4.50 53,200 01/19/99 $5.31 62,600
09/18/98 $4.50 49,700 11/17/98 $4.31 102,100 01/20/99 $5.19 42,600
09/21/98 $4.50 11,300 11/18/98 $4.25 69,300 01/21/99 $6.06 61,300
09/22/98 $4.69 11,900 11/19/98 $4.25 26,000 01/22/99 $8.81 327,700
09/23/98 $4.78 22,500 11/20/98 $3.81 53,500 01/25/99 $8.00 200,200
09/24/98 $4.81 16,700 11/23/98 $4.06 47,200 01/26/99 $7.69 56,800
09/25/98 $4.56 47,100 11/24/98 $4.13 29,600 01/27/99 $6.75 77,300
09/28/98 $4.44 15,600 11/25/98 $4.25 24,900 01/28/99 $7.38 59,800
09/29/98 $4.25 55,500 11/27/98 $5.00 48,600 01/29/99 $7.88 96,900
09/30/98 $3.88 37,200 11/30/98 $5.50 35,600 02/01/99 $8.31 97,100
10/01/98 $3.81 67,800 12/01/98 $5.25 16,600 02/02/99 $8.31 13,600
10/02/98 $3.75 49,800 12/02/98 $5.00 42,200 02/03/99 $8.38 63,100
10/05/98 $3.56 85,400 12/03/98 $5.50 113,300 02/04/99 $7.81 46,800
10/06/98 $4.00 67,400 12/04/98 $5.56 55,200 02/05/99 $7.50 25,800
10/07/98 $3.50 88,500 12/07/98 $5.63 58,700 02/08/99 $7.63 29,300
10/08/98 $3.56 15,900 12/08/98 $5.63 35,700 02/09/99 $7.56 44,800
10/09/98 $3.56 20,600 12/09/98 $5.56 40,400 02/10/99 $7.38 14,200
10/12/98 $3.56 36,500 12/10/98 $5.69 41,800 02/11/99 $7.38 24,100
10/13/98 $3.38 62,600 12/11/98 $5.38 45,500 02/12/99 $7.50 11,900
10/14/98 $3.48 41,100 12/14/98 $5.38 36,500 02/16/99 $7.00 15,000
10/15/98 $3.23 47,100 12/15/98 $5.38 22,300 02/17/99 $6.50 30,500
10/16/98 $3.34 91,500 12/16/98 $5.38 28,500 02/18/99 $6.50 61,500
10/19/98 $3.23 39,700 12/17/98 $5.00 21,300 02/19/99 $6.50 60,000
10/20/98 $3.56 75,000 12/18/98 $5.00 50,500 02/22/99 $6.25 78,000
10/21/98 $3.56 68,500 12/21/98 $4.88 41,100 02/23/99 $6.00 75,700
10/22/98 $4.19 321,600 12/22/98 $5.00 19,600 02/24/99 $6.00 126,700
10/23/98 $3.94 42,500 12/23/98 $5.06 107,800 02/25/99 $6.00 27,300
10/26/98 $4.13 19,800 12/24/98 $5.25 16,000 02/26/99 $6.13 22,000
10/27/98 $4.25 32,300 12/28/98 $5.19 35,400 03/01/99 $6.06 27,800
10/28/98 $4.06 26,900 12/29/98 $5.06 21,700 03/02/99 $6.19 23,600
10/29/98 $4.25 800 12/30/98 $5.13 34,900 03/03/99 $6.25 21,800
10/30/98 $4.00 80,800 12/31/98 $5.25 50,500 03/04/99 $6.25 26,900
11/02/98 $3.88 25,000 01/04/99 $5.56 17,800 03/05/99 $6.25 32,800
DATE DELTA VOLUME DATE DELTA VOLUME DATE DELTA VOLUME
03/08/99 $6.13 26,300 05/06/99 $7.53 39,900 07/07/99 $8.13 25,800
03/09/99 $6.13 140,100 05/07/99 $7.69 39,800 07/08/99 $8.63 95,600
03/10/99 $6.44 43,200 05/10/99 $7.56 37,700 07/09/99 $9.06 79,800
03/11/99 $6.34 22,300 05/11/99 $7.69 40,600 07/12/99 $11.13 144,600
03/12/99 $6.31 23,900 05/12/99 $7.44 15,200 07/13/99 $10.25 47,300
03/15/99 $6.25 19,300 05/13/99 $7.69 44,800 07/14/99 $9.50 322,600
03/16/99 $6.00 28,300 05/14/99 $7.50 23,100 07/15/99 $9.75 87,700
03/17/99 $6.31 18,800 05/17/99 $7.44 16,600 07/16/99 $9.50 51,000
03/18/99 $6.50 43,700 05/18/99 $7.81 44,600 07/19/99 $10.63 130,300
03/19/99 $6.38 21,800 05/19/99 $7.88 49,200 07/20/99 $9.75 56,300
03/22/99 $7.00 33,600 05/20/99 $7.50 26,200 07/21/99 $9.94 30,100
03/23/99 $7.44 43,400 05/21/99 $7.75 29,300 07/22/99 $9.38 24,900
03/24/99 $7.25 16,700 05/24/99 $7.44 16,500 07/23/99 $9.50 40,100
03/25/99 $7.19 129,600 05/25/99 $7.31 40,200 07/26/99 $9.38 22,400
03/26/99 $7.13 17,900 05/26/99 $7.44 21,100 07/27/99 $9.25 32,400
03/29/99 $6.38 22,900 05/27/99 $7.41 10,300 07/28/99 $9.00 25,800
03/30/99 $6.38 47,400 05/28/99 $7.34 4,200 07/29/99 $8.50 22,500
03/31/99 $6.00 33,000 06/01/99 $7.38 4,200 07/30/99 $8.75 25,000
04/01/99 $6.25 33,300 06/02/99 $7.25 24,200 08/02/99 $8.88 51,200
04/05/99 $7.50 95,100 06/03/99 $7.38 20,500 08/03/99 $8.44 26,500
04/06/99 $7.03 38,700 06/04/99 $7.56 26,400 08/04/99 $7.94 56,800
04/07/99 $7.06 67,000 06/07/99 $7.75 19,300 08/05/99 $7.75 21,100
04/08/99 $7.00 6,200 06/08/99 $7.38 1,500 08/06/99 $7.75 5,600
04/09/99 $7.19 24,500 06/09/99 $8.06 43,000 08/09/99 $7.94 43,200
04/12/99 $6.94 35,500 06/10/99 $8.00 18,000 08/10/99 $7.56 22,000
04/13/99 $7.13 31,000 06/11/99 $7.97 9,000 08/11/99 $7.63 7,600
04/14/99 $7.25 85,900 06/14/99 $7.63 7,000 08/12/99 $7.63 31,200
04/15/99 $8.13 301,500 06/15/99 $7.50 11,300 08/13/99 $7.56 20,400
04/16/99 $7.75 81,000 06/16/99 $7.50 21,200 08/16/99 $7.56 28,000
04/19/99 $7.25 62,800 06/17/99 $7.25 10,100 08/17/99 $7.25 88,800
04/20/99 $7.94 133,300 06/18/99 $7.06 13,800 08/18/99 $7.38 62,900
04/21/99 $7.88 59,400 06/21/99 $7.28 5,600 08/19/99 $7.13 21,500
04/22/99 $7.94 97,900 06/22/99 $7.50 15,900 08/20/99 $7.28 9,000
04/23/99 $7.88 78,800 06/23/99 $7.06 17,700 08/23/99 $7.44 28,200
04/26/99 $7.94 52,300 06/24/99 $7.47 5,400 08/24/99 $7.75 11,400
04/27/99 $7.88 34,400 06/25/99 $7.19 2,600 08/25/99 $8.00 65,100
04/28/99 $7.88 38,800 06/28/99 $7.63 13,300 08/26/99 $8.25 30,700
04/29/99 $7.63 15,200 06/29/99 $7.31 17,800 08/27/99 $8.38 44,200
04/30/99 $7.25 124,300 06/30/99 $7.50 17,500 08/30/99 $9.50 57,200
05/03/99 $7.00 23,400 07/01/99 $8.00 38,700 08/31/99 $9.13 22,900
05/04/99 $7.13 15,000 07/02/99 $8.06 31,900 09/01/99 $8.75 30,600
05/05/99 $7.19 23,100 07/06/99 $8.06 25,800 09/02/99 $8.19 51,400
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Source: Instinet Corporation.
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HISTORICAL EPS PERFORMANCE: ACTUAL VERSUS ESTIMATED
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OVER/(UNDER) SHARE PRICE
QUARTER INITIAL LAST ACTUAL -------------------- ---------------------------
ENDED ESTIMATE ESTIMATE EPS TO INITIAL TO LAST BEFORE AFTER % CHANGE
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3/31/98 ($0.03) ($0.01) $0.01 $0.04 $0.02 $11.00 $10.06 -8.5%
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6/30/98 $0.05 ($0.06) ($0.14) ($0.19) ($0.08) $7.75 $6.88 -11.2%
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9/30/98 ($0.13) $0.00 ($0.09) $0.04 ($0.09) $3.88 $4.00 3.1%
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12/31/98 $0.06 $0.00 $0.05 ($0.01) $0.05 $5.25 $7.88 50.1%
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3/31/99 $0.00 $0.01 $0.11 $0.11 $0.10 $6.00 $7.25 20.8%
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6/30/99 $0.05 $0.08 $0.11 $0.06 $0.03 $7.50 $8.75 16.7%
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-----------------
(1) Initial Estimate reflects consensus estimate on first day of quarter,
e.g. January 1 for March 31 quarter.
(2) Last Estimate reflects last consensus estimate before actual results were
announced.
(3) Before Share Price reflects the share price on last day of quarter.
(4) After Share Price reflects the share price on the first day of the first
month after actual results were announced.
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COMPARABLE COMPANY ANALYSIS
----------------------- --------------------------------
STOCK PRICE INFORMATION EPS AND P/E DATA
----------------------- --------------------------------
PRICE @ 52 WEEK RANGE EPS P/E
-------------- -------------- --------------
Company Symbol FYE 9/2/99 High Low CY 99 CY 00 CY 99 CY 00
--------------------------------------------- ------ --- ------- ------ ----- ----- ----- ----- -----
--------------------------------------------------------------------------------------------------------------------------
DELTA DEC $8.19 $11.13 $3.94 $0.34 $0.35 24.1x 23.4x
--------------------------------------------------------------------------------------------------------------------------
3Com (R) COMS May $27.06 $51.13 $20.00 $0.96 $1.46 28.2x 18.5x
ACT Networks (R) ANET Jun $10.63 $25.63 $4.25 ($0.22) $0.57 NM 18.6x
ADTRAN (R) ADTN Dec $38.63 $42.69 $15.63 $1.20 $1.55 32.2x 24.9x
Digi International DGII Sep $11.50 $16.38 $6.00 $0.38 $0.80 30.3x 14.4x
Larscom Inc. XXXX Dec $2.28 $4.25 $0.94 $0.50 NA 4.6x NM
Premisys Communications (R) PRMS Jun $6.75 $16.00 $5.38 $0.37 $0.45 18.2x 15.0x
Verilink Corp. VRLK Jun $2.16 $6.75 $2.00 ($0.55) $0.22 NM 9.8x
Visual Networks (M)(R) VNWK Dec $39.00 $46.38 $17.00 $0.62 $0.82 62.9x 47.6x
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MEAN 29.4x 21.3x
MEDIAN 29.2x 18.5x
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EXCLUDING VISUAL NETWORKS AND ADTRAN MEAN 20.3x 15.3x
MEDIAN 23.2x 15.0x
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
VERILINK CORP AND LARSCOM, INC. MEAN 4.6x 9.8x
MEDIAN 4.6x 9.8x
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DELTA AT OFFER PRICE DEC $10.30 $11.13 $3.94 $0.34 $0.35 30.3x 29.4x
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------------------------------------------------------------ -----------------------
ENTERPRISE VALUE & REVENUE DATA P/E TO GROWTH MULTIPLES
------------------------------------------------------------ -----------------------
ENTERPRISE
MARKET ENTERPRISE REVENUE VALUE / REV. SHARES 3-YR%
-------------- --------------
Company Cap. Value CY 99 CY 00 CY 99 CY 00 Out. Growth 1999 2000
--------------------------------------------- ------ ---------- ----- ----- ----- ----- ------ ------- ---- ----
----------------------------------------------------------------------------------------------------------------------------------
DELTA $71 $35 $63 $70 0.6x 0.5x 8.7 10% 241% 234%
----------------------------------------------------------------------------------------------------------------------------------
3Com (R) $10,140 $9,226 $5,721 $6,295 1.6x 1.5x 374.7 25% 113% 74%
ACT Networks (R) $107 $70 $54 $66 1.3x 1.1x 10.1 30% NM 62%
ADTRAN (R) $1,489 $1,505 $355 $401 4.2x 3.8x 38.6 23% 143% 111%
Digi International $169 $124 $196 $215 0.6x 0.6x 14.7 10% 303% 144%
Larscom Inc. $42 $25 $103 NA 0.2x NM 18.3 27% 17% NM
Premisys Communications (R) $166 $153 $83 NA 1.8x NM 24.6 15% 122% 100%
Verilink Corp. $36 $15 $79 $92 0.2x 0.2x 16.7 34% NM 29%
Visual Networks (M)(R) $848 $801 $78 $102 10.2x 7.9x 21.8 50% 126% 95%
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MEAN 2.5x 2.5x 137% 88%
MEDIAN 1.4x 1.3x 124% 95%
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--------------------------------------------------------------------------------------------
EXCLUDING VISUAL NETWORKS AND ADTRAN MEAN 1.0x 0.8x 138% 82%
MEDIAN 1.0x 0.8x 117% 74%
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--------------------------------------------------------------------------------------------
VERILINK CORP AND LARSCOM, INC. MEAN 0.2x 0.2x 17% 29%
MEDIAN 0.2x 0.2x 17% 29%
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----------------------------------------------------------------------------------------------------------------------------------
DELTA AT OFFER PRICE $90 $54 $63 $70 0.9x 0.8x 8.7 10% 303% 294%
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---------------------------
Revenue and earnings estimates and growth rates are provided by Xxxx Xxxxxxxx
Xxxxxxx Institutional Research, First Call and various Wall Street sources.
(M) DRW managed a public offering of this company within the last three years.
(R) DRW provides research on this company.
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COMPARABLE COMPANY ANALYSIS
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COMPARABLE COMPANY ANALYSIS - STOCK PRICE PERFORMANCE INDEX
[GRAPH]
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(1) Indexed Price per Share represents the value of $1.00 invested on 1/2/98.
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COMPARABLE TRANSACTION ANALYSIS
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COMPARABLE TRANSACTION ANALYSIS - ACQUISITIONS OF PUBLIC NETWORK
TECHNOLOGY COMPANIES
PURCHASE PRICE PREMIUM
--------------------------------
DATE DATE TRANSACTION ENT. VALUE/ ONE DAY ONE WEEK FOUR WEEKS
ANNOUNCED EFFECTIVE ACQUIROR NAME TARGET NAME VALUE ($000S) TTM SALES PRIOR PRIOR PRIOR
--------- --------- ----------------- -------------------- ------------- ------------ ------- --------- ----------
8/24/99 Pending Nortel Periphonics $436 3.2 x 15.8% 34.8% -32.2%
Networks Corp.
Corp.
8/17/99 Pending Lucent Excel Switching $1,534 12.4 x 35.1% 46.7% 9.9%
Technologies Corp.
Inc.
8/10/99 Pending Lucent International $3,052 17.8 x 13.6% 23.9% 25.4%
Technologies Network
Inc. Services
7/15/99 Pending Lucent Spectran Corp. $98 1.3 x -21.7% -22.6% 5.1%
Technologies
Inc.
6/22/99 Pending Newbridge Stanford $392 2.4 x 12.4% 27.0% 37.9%
Networks Telecommunications,
Corp. Inc.
6/1/99 7/13/99 Intel Corp. Dialogic Corp. $817 2.3 x 31.8% 34.4% 57.5%
4/13/99 6/25/99 Cisco Geotel $2,042 39.1 x 36.7% 33.5% 42.1
Systems Communications
Inc. Corporation
4/5/99 7/16/99 Lucent Mosaix Inc $157 1.4 x 35.6% 43.1% 39.8%
Technologies
Inc.
3/4/99 8/10/99 Intel Corp. Level One $2,482 10.6 x 52.3% 40.7% 35.8%
Communications Inc.
3/2/99 4/27/99 Alcatel Sa Xylan Corp. $1,823 5.7 x 37.4% 42.3% 89.1%
(Remaining 93.5%
Interest)
1/13/99 6/24/99 Lucent Ascend $21,423 16.3 x 29.9% 39.4% 61.7%
Technologies Communications,
Inc. Inc.
10/19/98 3/1/99 Intel Corp. Shiva Corp. $182 1.1 x 41.2% 92.0% 52.4%
8/3/98 10/20/98 Ascend Stratus Computer $970 1.7 x 24.4% 63.2% 43.6%
Communications, Inc.
Inc
7/28/98 11/5/98 Cisco Systems Summa Four Inc. $116 2.7 x 31.6% 45.2% 61.9%
Inc.
6/22/98 9/25/98 Cabletron Netvantage Inc. $127 8.9 x 142.4% 120.6% 60.9%
Systems, Inc.
6/15/98 8/31/98 Northern Bay Networks Inc $6,673 2.7 x 6.2% -6.7% 14.3%
Telecom Ltd.
6/4/98 9/7/98 Alcatel Dsc Communications
Alsthom Sa Corp. $4,685 3.3 x 35.6% 58.2% 48.3%
4/27/98 5/29/98 Lucent Yurie Systems Inc $1,044 16.7 x 11.1% 17.4% 47.4%
Technologies
Inc.
2/16/98 8/4/98 Tellabs Inc Coherent $664 1.3 x 30.4% 43.2% 81.4%
Communications Sys
7/30/97 9/18/97 Fujitsu Ltd. Xxxxxx Corp $925 0.9 x 5.0% 22.5% 40.7%
(Remaining 55%
Interest)
7/28/97 1/21/98 Intel Corp. Chips And $405 2.2 x 25.0% 32.1% 69.7%
Technologies Inc.
7/17/97 9/29/97 Lucent Octel $1,801 2.9 x 15.9% 37.4% 40.5%
Technologies Communications
Inc. Corporation
8/31/97 6/30/97 Ascend Cascade $3,529 10.2 x -1.2% 13.0% -9.2%
Communications, Communications,
Inc Corp
2/26/97 6/12/97 3Com Us Robotics $6,511 3.2 x 29.3% 31.4% 18.0%
Corporation Corporation
------------------------------------------------------------------------------------------------------------------------------
Mean $2,579 7.1 x 28.2% 38.0% 39.3%
Median $1,007 3.0 x 29.6 36.1% 41.4%
High $21,423 39.1 x 142.4% 120.6% 89.1%
Low $98 0.9 x -21.7% -22.6% -32.2%
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
DELTA AT OFFER PRICE $89.7 0.9 x 26.0% 25.0% 33.0%
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----------
Source: CommScan LLC
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COMPARABLE TRANSACTION ANALYSIS - GOING PRIVATE TRANSACTIONS
TRANSACTION PREMIUM
DATE DATE VALUE ENTERPRISE PAID
ANNOUNCED EFFECTIVE TARGET NAME ACQUIRER NAME ($MILS) VALUE/SALE 1 WEEK
--------- --------- ---------------------------- -------------------- ------------- ------------ --------
5/14/99 Pending Kentek Information Systems, Inc. Undisclosed Acquiror $41.19 1.1x 8.7%
5/12/99 6/16/99 Optek Technology, Inc. Xxxxx-Xxxxxxx-Xxxxx
Corp. $190.97 2.1x 47.8%
5/7/99 Pending Instron Corp. Kirtland Capital
Partners $182.09 0.9x 29.4%
3/31/99 Pending Precision Systems, Inc. Anschutz Corp. $27.23 0.8x 23.1%
3/8/99 Pending Enstar Inc. (Remaining 35%) Investor Group $12.79 0.8x 58.7%
1/20/99 Pending Integrated Circuit Systems Inc. Investor Group $259.19 1.4x 14.9%
11/18/98 Failed Oak Technology Inc Investors (Xxxxx Xxxxx) $182.95 1.0x 20.0%
12/19/97 5/1/98 Ipc Information Systems Inc Cable Systems Holding,
(90% Stake) Llc. $292.43 1.2x 31.3%
7/21/97 2/27/98 Zilog, Inc. Texas Pacific Group $404.32 1.3x -9.1%
1/23/97 5/19/97 Amphenol Corp. (90% Stake) Kohlberg Kravis Xxxxxxx
& Co. $1,346.45 1.9x 16.9%
12/2/96 Withdrawn Zycon Corp. Xxxxx, Xxxx, Xxxx, And
Xxxxx $179.66 1.0x 35.4%
4/6/95 8/31/95 Intermetrics, Inc. Apollo Holding, Inc. $27.20 0.5x 60.0%
12/6/94 3/19/95 General Computer Corporation Inc. Xxxxx, Xxxxxx, Xxxxxxxx
& Xxxxx $16.42 NA 34.6%
10/18/93 3/1/94 Corporate Software Inc. Investor Group $94.33 0.2x 36.4%
---------------------------------------
MEAN 1.1x 29.1%
MEDIAN 1.0x 30.3%
HIGH 2.1x 60.0%
LOW 0.2x -9.1%
---------------------------------------
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DELTA AT OFFER PRICE $89.72 0.9x 25.0%
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----------
Source: CommScan LLC
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COMPARABLE TRANSACTION ANALYSIS - ACQUISITIONS OF UNDER-PERFORMING(1)
TECHNOLOGY COMPANIES
TRANSACTION
DATE DATE VALUE ENTERPRISE
ANNOUNCED EFFECTIVE ACQUIROR NAME TARGET NAME ($MILS) VALUE/SALES
--------- --------- -------------------------------------- ---------------------------------- ----------- -----------
7/28/99 pending Dicom Group Plc Kofax Image Products $70.5 1.6x
7/7/99 pending Saturn Electronics & Engineering, Inc. Smartflex Systems, Inc. $67.9 0.6x
6/25/99 pending Answerthink Consulting Group, Inc. Think New Ideas, Inc. $192.8 4.3x
6/22/99 pending S3 Inc. Diamond Multimedia Systems Inc. $172.2 N/A
5/12/99 6/16/99 Xxxxx-Xxxxxxx-Xxxxx Corp. Optek Technology, Inc. $191.0 2.1x
5/11/99 pending Quantum Corp Meridian Data Inc $77.6 3.7x
5/10/99 pending Act Manufacturing Inc. Omc Industries Inc. $66.2 0.2x
4/30/99 8/3/99 Box Hill Systems Corp Artecon Inc $60.7 0.9x
3/30/99 5/3/99 Sterling Software Inc. Interlink Computer Sciences Inc. $58.0 1.3x
1/13/99 pending Undisclosed Acquiror Axsys Technologies, Inc. $80.1 0.7x
12/14/98 5/13/99 3Dfx Interactive, Inc. Stb Systems Inc. $160.0 0.6x
9/16/98 11/6/98 Adc Telecommunications, Inc. Teledata Communications Ltd. $197.9 2.4x
9/13/98 pending Winbond Electronics Corp. Information Storage Devices Inc. $74.4 1.6x
7/28/98 11/5/98 Cisco Systems Inc. Summa Four Inc. $116.2 2.7x
6/4/98 11/30/98 World Access Inc. Telco Systems Inc. $137.4 1.2x
3/9/98 4/13/98 Ask Asa Proxima Corp. $82.0 0.5x
11/25/97 2/3/98 Davel Communications Group Inc Communications Central, Inc. $102.4 1.0x
4/15/97 6/30/97 Lemout & Hauspie Speech Products Nv Kurzweil Applied Intelligence Inc. $53.4 6.0x
4/10/97 7/2/97 Compaq Computer Corp. Microcom Inc $280.0 1.6x
--------------------------
MEAN: 1.8x
MEDIAN: 1.4x
HIGH: 6.0x
LOW: 0.2x
--------------------------
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DELTA AT
OFFER PRICE $89.7 0.9x
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PREMIUM
--------------------------- YEARS FROM
DATE ONE DAY ONE WEEK 4 WEEKS CALC. ANNUAL IPO TO
ANNOUNCED PRIOR PRIOR PRIOR RETURN ACQUISITION
--------- ------- -------- ------- ------------ -----------
7/28/99 36.0% 30.8% 32.5% (7.2%) 1.8
7/7/99 108.7% 217.0% 197.3% (26.7%) 3.9
6/25/99 17.7% 13.0% 40.0% (0.3%) 2.6
6/22/99 (13.7%) 21.7% (3.7%) (25.0%) 4.2
5/12/99 29.9% 47.8% 96.2% 2.1% 1.9
5/11/99 169.0% 189.6% 220.5% (20.5%) 6.1
5/10/99 24.0% 42.9% 57.8% (10.9%) 5.4
4/30/99 1.1% 6.7% 140.0% (59.8%) 2.1
3/30/99 5.7% 21.7% 133.3% (36.8%) 2.6
1/13/99 91.6% 81.8% 60.0% (1.5%) 2.6
12/14/98 108.0% 96.3% 96.3% 3.7% 3.8
9/16/98 17.8% 46.5% 53.7% (1.1%) 6.4
9/13/98 12.1% 15.4% 6.2% (18.9%) 3.6
7/28/98 31.6% 45.2% 61.9% (8.8%) 4.8
6/4/98 29.5% 20.8% 20.8% (15.8%) 1.8
3/9/98 32.3% 29.4% 22.2% (7.0%) 5.1
11/25/97 23.5% 32.3% 13.5% (17.2%) 4.1
4/15/97 75.0% 61.5% 57.0% (25.8%) 3.7
4/10/97 54.8% 91.2% 42.9% (16.8%) 1.7
-----------------------------------------------------
45.0% 58.5% 71.0% (15.5%) 3.6
29.9% 42.9% 57.0% (15.8%) 3.7
169.0% 217.0% 220.5% 3.7% 6.4
(13.7%) 6.7% (3.7%) (59.8%) 1.7
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DELTA AT
OFFER PRICE 26.0% 25.0% 33.0% (7.4%) 5.6
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------------------
(1) Under-performing was defined as a compound annual share price return
since IPO of less than 10%.
Source: CommScan LLC
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DISCOUNTED CASH FLOW ANALYSIS
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DISCOUNTED CASH FLOW ANALYSIS
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TERMINAL MULTIPLE(1) 1.0x
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CAPITAL ASSET PRICING MODEL (CAPM):
Comparable Company Beta (2) 1.5
5 Year Treasury Note (Maturity-September 2004) = Rf(3) 6.0%
Average Market Risk Premium = Rm-Rf(4) 13.4%
Rate of Return on a Market Portfolio of Micro-Cap Stocks (Systematic Market Risk) = Rm(5) 19.4%
CAPM CALCULATION(6): = Rf+(Rm-Rf) * Beta
CAPM MARKET DISCOUNT RATE FOR CASH FLOWS AND TERMINAL VALUE(7): 26.1%
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-----------------------
(1) Terminal revenue multiple has been normalized to reflect comparable company
multiples
(2) Average Beta as calculated by Bloomberg as of 8/24/99 adjusted up 25% to
reflect incremental risk of private venture backed business.
(3) Source: Wall Street Journal as of August 24, 1999.
(4) Source: Xxxxxxx Xxxxxx and Xxxxxxx Xxxxxx, "Principles of Corporate
Finance (The XxXxxx-Xxxx Companies, Inc., 1996).
(5) Source: Xxxxxxx Xxxxxx and Xxxxxxx Xxxxxx, "Principles of Corporate
Finance (The XxXxxx-Xxxx Companies, Inc., 1996).
(6) Definition: At theoretical equilibrium, a security's expected rate of
return equals the expected return of a risk-less security plus a premium
for risk taking.
(7) Reflects implied rate of return for investors investing in Delta's stock
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DISCOUNTED CASH FLOW ANALYSIS - CONTINUED
----------------------------- ----------------------------------------------------------------
ACTUAL MANAGEMENT PROJECTIONS
----------------------------- ----------------------------------------------------------------
YEAR ENDING 6 MONTHS ENDING YEAR ENDING
------------------- ------------------- -----------------------------------------------------
INCOME STATEMENT 12/31/97 12/31/98 6/30/99 12/31/99 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
--------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------
Net sales 66,008 54,627 30,855 33,145 64,000 72,000 83,000 91,300 100,430
Cost of sales 29,078 31,442 14,345 14,955 29,300 33,120 38,180 41,998 46,198
--------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------
Gross profit 36,930 23,185 16,510 18,190 34,700 38,880 44,820 49,302 54,232
--------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------
Total operating expense 36,675 36,101 15,028 15,472 30,500 33,000 37,800 42,226 46,449
--------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------
EBIT 255 (12,916) 1,482 2,718 4,200 5,880 7,020 7,076 7,783
ASSUMPTIONS
Revenue Growth 26.7% -17.2% NA NA 17.2% 12.5% 15.3% 10.0% 10.0%
COGS as a % of Revenue 44.1% 57.6% 46.5% 45.1% 45.8% 46.0% 46.0% 46.0% 46.0%
Gross profit as a % of
Revenue 55.9% 42.4% 53.5% 54.9% 54.2% 54.0% 54.0% 54.0% 54.0%
R&D as a % of Revenue 16.7% 23.0% 16.8% 17.2% 17.0% 16.7% 17.1% 17.0% 17.0%
SG&A as a % of Revenue 33.4% 34.3% 31.9% 29.4% 30.6% 29.2% 28.4% 29.3% 29.3%
Other Charges as a % of
Revenue 5.5% 8.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
OPEX as a % of Revenue 55.6% 66.1% 48.7% 46.7% 47.7% 45.8% 45.5% 46.3% 46.3%
EBIT as a % of Revenue 0.4% -23.6% 4.8% 8.2% 6.6% 8.2% 8.5% 7.8% 7.7%
----------------------------- ----------------------------------------------------------------
ACTUAL MANAGEMENT PROJECTIONS
----------------------------- ----------------------------------------------------------------
YEAR ENDING 6 MONTHS ENDING YEAR ENDING
------------------- ------------------- -----------------------------------------------------
FREE CASH FLOW 12/31/97 12/31/98 6/30/99 12/31/99 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
--------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------
EBIT 255 (12,916) 1,482 2,718 4,200 5,880 7,020 7,076 7,783
Taxes on EBIT 34% 87 (4,391) 504 924 1,428 1,999 2,387 2,406 2,646
--------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------
Net Income Unlevered Firm 168 (8,525) 978 1,794 2,772 3,881 4,633 4,670 5,137
Change in Working Capital (1,476) 2,270 3,327 17 3,344 100 100 (784) (976)
Less Capital Expenditures (2,402) (2,616) (490) (884) (1,374) (1,656) (1,500) (1,500) (1,500)
Plus Depreciation 1,224 3,359 870 786 1,656 1,556 1,400 1,300 1,200
--------- ---------- --------- ---------- ---------- ---------- ---------- ---------- ---------
Free Cash Flow (2,486) (5,512) 4,685 1,712 6,398 3,881 4,633 3,686 3,861
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AUGUST
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DISCOUNTED CASH FLOW ANALYSIS - CONTINUED
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MANAGEMENT PROJECTIONS
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6 MONTHS YEAR ENDING
-------- ------------------------------------------------
6/30/99 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
------- -------- -------- -------- -------- --------
Free Cash Flow - $1,712 $3,881 $4,633 $3,686 $3,861
Year (6/30/99 = Year 0) - 0.5 1.5 2.5 3.5 4.5
Discount Factor - 0.890 0.705 0.559 0.444 0.352
Present Value of Future Free Cash Flows - $1,524 $2,737 $2,591 $1,635 $1,358
Discount rate 26%
Year 2003 Projected Revenue $100,430
Terminal Value Revenue Multiple 1.0x
Terminal Value $100,430
Present Value of Terminal Value $35,327
Presnt Value of Firm =
Sum of P.V.s of future free cash flows and terminal value $45,172
Plus Market Value of Cash and Marketable Securities $36,200
DCF Valuation of Equity $81,372
Fully Diluted Shares (000s) 8,711.07
DCF Valuation of Equity per Share $9.34
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DISCOUNTED CASH FLOW ANALYSIS - CONTINUED
YEAR 2003 TERMINAL VALUE REVENUE MULTIPLE
0.50x 0.60x 0.70x 0.80x 0.90x 1.00x 1.10x 1.20x 1.30x 1.40x 1.50x
-------------------------------------------------------------------------------------------------------------
24% $7.52 $7.96 $8.39 $8.83 $9.27 $9.70 $10.14 $10.58 $11.02 $11.45 $11.89
25% $7.42 $7.84 $8.26 $8.68 $9.10 $9.53 $9.95 $10.37 $10.79 $11.21 $11.64
26% $7.32 $7.73 $8.14 $8.54 $8.95 $9.36 $9.76 $10.17 $10.58 $10.98 $11.39
27% $7.23 $7.62 $8.02 $8.41 $8.80 $9.19 $9.59 $9.98 $10.37 $10.76 $11.16
DISCOUNT 28% $7.14 $7.52 $7.90 $8.28 $8.66 $9.04 $9.42 $9.79 $10.17 $10.55 $10.93
RATE 29% $7.06 $7.42 $7.79 $8.15 $8.52 $8.89 $9.25 $9.62 $9.98 $10.35 $10.72
30% $6.97 $7.33 $7.68 $8.04 $8.39 $8.74 $9.10 $9.45 $9.80 $10.16 $10.51
31% $6.90 $7.24 $7.58 $7.92 $8.26 $8.60 $8.94 $9.29 $9.63 $9.97 $10.31
32% $6.82 $7.15 $7.48 $7.81 $8.14 $8.47 $8.80 $9.13 $9.46 $9.79 $10.12
33% $6.75 $7.07 $7.39 $7.71 $8.02 $8.34 $8.66 $8.98 $9.30 $9.62 $9.94
34% $6.68 $6.99 $7.30 $7.60 $7.91 $8.22 $8.53 $8.84 $9.15 $9.45 $9.76
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DRAFT FAIRNESS OPINION LETTER
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