Exhibit (b)(9)
December 7, 1999
To each of the Lenders party to the Credit Agreement (as defined below), The
Chase Manhattan Bank, as Administrative Agent, Bankers Trust Company, as
Syndication Agent, and Bank of America, N.A., as Documentation Agent;
The Board of Directors of Big Flower Holdings, Inc.;
The Board of Directors of BFH Merger Corp.; and
Xxxxxx X. Xxx Company
Ladies and Gentlemen:
Pursuant to an amended and restated agreement and plan of merger, dated as of
October 11, 1999 (the "Merger Agreement") between BFH Merger Corp. ("Merger
Sub") and Big Flower Holdings, Inc. ("BF Holdings"), BF Holdings will be
recapitalized in a transaction in which (a) Merger Sub shall be merged with and
into BF Holdings (the "Merger") with BF Holdings as the surviving corporation in
the Merger, (b) certain members of management of BF Holdings and its direct and
indirect subsidiaries will retain equity capital in BF Holdings with a value of
approximately $86.1 million (the "Equity Rollover"), and (c) and each
outstanding share of BF Holdings' common stock (other than shares comprising the
Equity Rollover, shares held by BF Holdings as treasury stock and shares held by
subsidiaries of BF Holdings) shall be converted into the right to receive from
BF Holdings following the Merger an amount of cash equal to $31.50, and each
option to acquire BF Holdings common stock outstanding immediately prior to the
Merger (other than options which will be converted into the right to receive
equity interests in BF Holdings or the Borrower (as defined below)) shall be
converted into the right to receive from BF Holdings following the Merger an
amount of cash equal to $31.50 less the exercise price of such option,
multiplied by the number of shares of BF Holdings common stock subject to such
option, for a total consideration of approximately $576.6 million (the value of
(b) and (c) not to exceed $662.7 million) (the "Recap Distribution") (the
transactions described in clauses (a), (b), and (c) being hereinafter called the
"Recapitalization').
In connection with the Recapitalization and pursuant to a stock purchase
agreement, dated as of the date hereof (the "Acquisition Agreement") among CJDS
Holdings, Inc. ("Holdings") and Big Flower Digital Services, Inc. ("BF
Digital"), Holdings will acquire all of the capital stock of Columbine JDS
Systems, Inc. (the "Borrower") from BF Digital for a total purchase price of
$164,944,437, payable at the closing by a wire
VALUATION RESEARCH CORPORATION
transfer of $30,000,000 and a demand promissory note of Holdings (the
"Acquisition Note") to BF Digital in the amount of $134,944,437 (the
"Acquisition"). In order to consummate the Transaction (as defined below), (a)
Holdings will receive cash proceeds of up to $37.0 million (such amount to be
reduced by the investment by management of the Borrower and its subsidiaries
through the purchase of shares of Holdings common stock or rights in a rabbi
trust to receive shares of Holdings common stock) from the issuance of Holdings
common stock ("Holdings Common Stock") to Xxxxxx X. Xxx Company and its
affiliates ("THL") and Evercore Partners L.P. and its affiliates ("EVP" and,
together with THL, the "Equity Investors") (the "Common Equity Financing"), (b)
the Borrower will receive gross cash proceeds equal to $35.0 million from the
issuance of unsecured subordinated notes to THL due 2009 (the "Mezzanine
Subordinated Debt") and (c) members of senior management of the Borrower and its
subsidiaries (the "Management Participants") and certain other investors will
exchange shares of common stock (and/or options to purchase common stock) of BF
Holdings for shares of Holdings Common Stock or rights in a rabbi trust to
receive shares of Holdings Common Stock (the "Equity Exchange" and, together
with the Common Equity Financing, the "Equity Financing"). Additionally, the
Borrower will obtain $100.0 million from borrowings under a new senior credit
facility (the "Term Loans" and the "Multicurrency Facility Revolving Loans")
pursuant to the Agreement (as defined below). The proceeds of the Term Loans,
the Multicurrency Facility Revolving Loans and the Mezzanine Subordinated Debt
issuance will be used by the Borrower to make a cash dividend of up to $135.0
million to Holdings (the "Acquisition Dividend") immediately after the
consummation of the Acquisition, and Holdings will use the proceeds from the
Acquisition Dividend to repay the Acquisition Note to BF Digital issued in
connection with the Acquisition.
Holdings and the Borrower have entered into a Credit Agreement dated as of the
date hereof (the "Agreement") with various lenders party thereto from time to
time (the "Lenders"), Chase Securities, Inc. and Deutsche Bank Securities Inc.,
as Joint Lead Arrangers and Joint Book Managers, The Chase Manhattan Bank, as
Administrative Agent, Bankers Trust Company, as Syndication Agent, and Bank of
America, N.A., as Documentation Agent, pursuant to which new senior secured
credit facilities will be made available to the Borrower. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
to them in the Agreement.
The facilities made available to the Borrower under the Agreement include (a) up
to $70.0 million of Term Loans, comprised of the Tranche A Term Loans maturing
on the Tranche A Term Loan Maturity Date and the Tranche B Term Loans maturing
on the Tranche B Term Loan Maturity Date and (b) up to $45.0 million of
Multicurrency Facility Revolving Loans (including sublimits for Multicurrency
Facility Swingline Loans and Letters of Credit) maturing on the Multicurrency
Facility Revolving Loan Maturity Date. Loans made available to the Borrower will
be guaranteed by Holdings and the Subsidiary Guarantors.
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VALUATION RESEARCH CORPORATION
For purposes of this letter, the "Transaction" means (a) the consummation of the
Acquisition (including the issuance of the Acquisition Note), (b) the
consummation of the Equity Financing, (c) the incurrence of the Mezzanine
Subordinated Debt, (d) the payment of the Acquisition Dividend and the repayment
of the Acquisition Note, (e) the entering into of the Credit Documents and the
incurrence of the Term Loans and the Multicurrency Facility Revolving Loans
thereunder on the Initial Borrowing Date and (f) the payment of fees and
expenses in connection with foregoing.
This letter is provided by Valuation Research Corporation ("Valuation")
reporting the performance of certain procedures undertaken by Valuation which
form the basis for Valuation's opinion, as of the date hereof, stated below
("Opinion") delivered at the request of the Lenders pursuant to Section 5.07
(i)(y) of the Agreement and at the request of the Board of Directors of BF
Holdings and the Board of Directors of Merger Sub pursuant to Section 6.01(b) of
the Merger Agreement, that immediately after and giving effect to the
consummation of the Transaction:
(a) The Fair Market Value of the assets of the Borrower and its
Subsidiaries, (as defined in the Merger Agreement) on a
consolidated basis, exceeds and will exceed its liabilities
(including, without limitation, New Financing, Stated
Liabilities and Identified Contingent Liabilities, each as
defined below);
(b) The Present Fair Saleable Value of the assets of the Borrower
and its Subsidiaries, on a consolidated basis, exceeds and
will exceed its probable liabilities on its debts (including,
without limitation, New Financing, Stated Liabilities, and
Identified Contingent Liabilities) as such debts become
absolute and mature;
(c) The Borrower and its Subsidiaries, on a consolidated basis, is
and will be able to pay its debts (including, without
limitation, New Financing, Stated Liabilities, and Identified
Contingent Liabilities) as such debts mature during the normal
course of business;
(d) The Borrower and its Subsidiaries, on a consolidated basis,
will not have Unreasonably Small Capital (as defined below)
with which to conduct its present and anticipated business;
and
(e) The Fair Market Value of the assets of the Borrower and its
Subsidiaries, on a consolidated basis, exceeds its liabilities
(including, without limitation, New Financing, Stated
Liabilities and Identified Contingent Liabilities) plus the
total par value of its capital stock.
The Opinion rendered is with respect to the Borrower and its Subsidiaries, on a
consolidated basis, as a going concern, immediately after and giving effect to
the Transaction and the associated indebtedness. In the course of preparing this
Opinion, nothing has come to our attention that causes us to believe that the
Borrower and its Subsidiaries, on a consolidated basis, would not be a going
concern. For the purposes of this Opinion, the following terms are defined:
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VALUATION RESEARCH CORPORATION
(a) Fair Market Value
The amount at which the aggregate assets of an entity would
change hands between a willing buyer and a willing seller,
within a commercially reasonable period of time, each having
reasonable knowledge of the relevant facts, neither being
under any compulsion to act, with equity to both.
(b) Present Fair Saleable Value
The aggregate amount that would be obtained by an independent
willing seller from an independent willing buyer if an
entity's assets are sold as an entirety with reasonable
promptness in an arm's-length transaction under present
conditions for the sale of assets as an entirety of the
business comprising such entity.
(c) Stated Liabilities
The recorded liabilities of the Borrower and its Subsidiaries,
on a consolidated basis, pursuant to its unaudited pro forma
balance sheet as of November 30, 1999, as provided by
management of BF Holdings ("Management"). Stated Liabilities
exclude indebtedness under New Financing (as defined below).
Valuation has made inquiries of Management and has been
advised by Management that there are no material adverse
changes in Stated Liabilities between the date of the
information shown on such balance sheet and the date hereof.
Based on our inquiries with this letter, we have no reason to
believe that there has been any such material adverse change.
(d) New Financing
The indebtedness being incurred, assumed or guaranteed by
Holdings, the Borrower, or the Subsidiary Guarantors, as the
case may be, pursuant to the Agreement and/or the other Credit
Documents and from the issuance of the Mezzanine Subordinated
Debt.
(e) Identified Contingent Liabilities
The maximum amount of contingent liabilities that may result
from pending, threatened and anticipated litigation, asserted,
anticipated and unasserted claims and assessments, guaranties,
environmental conditions, uninsured risks, and other
contingent liabilities as identified and explained to us in
terms of their nature and estimated dollar magnitude by
Management. We do not give any opinion as to whether such
contingent liabilities meet the criteria for accrual under
Statement of Financial Accounting Standards No. 5. Based on
our reasonable inquiries and
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VALUATION RESEARCH CORPORATION
analysis in connection with this letter, we have no reason to
believe that Identified Contingent Liabilities are materially
understated, and nothing has come to our attention suggesting
that material contingent liabilities have not been identified
or disclosed.
(f) Unreasonably Small Capital
This phrase relates to the ability of the Borrower and its
Subsidiaries, on a consolidated basis, after giving effect to
the incurrence of New Financing and after consummation of the
Transaction to continue as a going concern and not lack
sufficient capital for its present and anticipated needs,
including, without limitation, payment of Identified
Contingent Liabilities as they become absolute and matured,
without substantial unplanned disposition of assets outside
the ordinary course of business, restructuring of debt,
externally forced revisions of its operations, or similar
actions.
We believe the foregoing definitions are reasonable and appropriate for purposes
of rendering the Opinion, and we believe that the methodologies we use in our
analyses are appropriate for determining Fair Market Value, Present Fair
Saleable Value and Unreasonably Small Capital as defined herein. Based on our
inquiry, we believe it is appropriate for us to value the Borrower and its
Subsidiaries on a consolidated basis and as going concern as part of our
analyses relating to this Opinion.
In expressing its Opinion, Valuation has relied on information and analyses
furnished by and/or discussions held with Management and the Equity Investors,
which information and analyses have been the subject of review by Valuation and
have been the subject of discussion and inquiry. Valuation does not assume any
responsibility for the sufficiency and accuracy of the information. Nothing has
come to Valuation's attention in the course of its review that would lead it to
believe that any such information is incorrect in any material respect or that
it was unreasonable for Valuation to utilize and rely upon the information. Such
data has been accepted as reasonably reflecting the Transaction, the financial
condition of the Borrower and its Subsidiaries, on a consolidated basis, and its
past and future operations. All items subject to audit pursuant to generally
accepted auditing standards and in conformity with generally accepted accounting
principles ("GAAP") have been relied upon without review, check, or
verification, and nothing has come to our attention that would cause us to
believe the information is incorrect in any material respect or that it was
unreasonable for Valuation to utilize and rely upon the information. Valuation
has performed certain analyses, studies, and investigations more fully described
herein in support of its Opinion. Further, the Opinion expressed herein is
subject to the General Limiting Conditions and Assumptions attached hereto as
Exhibit A.
Valuation has reviewed available historical financial information of the
Borrower and its Subsidiaries, on a consolidated basis, in addition to
background data and material considered appropriate to the Opinion expressed and
referenced below. Such areas of investigation include, but are not limited to: o
5
VALUATION RESEARCH CORPORATION
- An overview of the software industry in which the Borrower competes,
including an analysis of companies engaged in similar lines of business
as the Borrower and a review of acquisitions of companies engaged in
similar lines of business.
- A visit to BF Holdings' corporate headquarters in New York, which visit
included discussion of the business and prospects of the Borrower, with
Management, including discussions of the business, historical and
projected profitability, key competitors, customer relationships,
business risks and key actions to be taken in the near term, among
other factors.
- Review of the Borrower and its Subsidiaries' consolidated balance
sheets as of December 31, 1998 and 1997 and the related consolidated
statements of operations, stockholder's equity (deficit), and cash
flows for the year ended December 31, 1998, the two months ended
December 31, 1997, the ten months ended October 31, 1997, and the year
ended December 31, 1996.
- Review of the Columbine Confidential Information Memorandum dated
November 1999 (the "Columbine Confidential Information Memorandum").
- Review of the Borrower's projected consolidated income statements,
balance sheets, cash flow statements, credit statistics and other
projected financial information for the years 1999 through 2008 (the
"Projections"), and Management assumptions thereto, as provided by
Management and the Equity Investors.
- Performance of sensitivity analyses with respect to the Projections.
- Review of the Agreement and other Credit Documents.
- Review of the Acquisition Documents.
- Inquiries of members of Management who have responsibility for legal,
financial, and accounting matters as to the existence, nature, and
magnitude of Identified Contingent Liabilities. Because the Identified
Contingent Liabilities are estimates of Management, we express no
opinion as to the completeness or propriety of such items. However,
after discussion with Management with respect thereto, and based on our
experience in reviewing such liabilities, nothing has come to our
attention in the course of our review which would suggest that any such
information is incorrect in any material respect or unreasonable for
Valuation to utilize.
For purposes of this Opinion, Valuation has assumed that there will be no
material change in any documents in Valuation's possession as of the date
herein.
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VALUATION RESEARCH CORPORATION
Valuation has discussed financial and operating matters of the Borrower and its
Subsidiaries, on a consolidated basis, with Management. Valuation has reviewed
the Projections prepared by Management and the Equity Investors and discussed
the Projections with Management and the Equity Investors. This review included,
but was not limited to, discussions of basic assumptions made in preparing the
Projections relating to revenue growth, operating margins, and capital
expenditure and working capital requirements. Nothing has come to our attention
that would cause us to believe the basic assumptions made in preparing the
Projections are unreasonable or unattainable. We believe that the review we have
conducted and the analyses and procedures undertaken are those generally
considered appropriate for expressing the Opinion set forth herein.
Based on the foregoing review, procedures and analyses, we express the following
Opinion as of the date hereof, that immediately after and giving effect to the
consummation of the Transaction, subject to the General Limiting Conditions and
Assumptions set forth in Exhibit A hereto:
(a) The Fair Market Value of the assets of the Borrower and its
Subsidiaries, on a consolidated basis, exceeds and will exceed
its liabilities (including, without limitation, New Financing,
Stated Liabilities, and Identified Contingent Liabilities);
(b) The Present Fair Saleable Value of the assets of the Borrower
and its Subsidiaries, on a consolidated basis, exceeds and
will exceed its probable liabilities on its debts (including,
without limitation, New Financing, Stated Liabilities, and
Identified Contingent Liabilities) as such debts become
absolute and mature;
(c) The Borrower and its Subsidiaries, on a consolidated basis, is
and will be able to pay its debts (including, without
limitation, New Financing, Stated Liabilities, and Identified
Contingent Liabilities) as such debts mature during the normal
course of business;
(d) The Borrower and its Subsidiaries, on a consolidated basis,
will not have Unreasonably Small Capital with which to conduct
its present and anticipated business; and
(e) The Fair Market Value of the assets of the Borrower and its
Subsidiaries, on a consolidated basis, exceeds its liabilities
(including, without limitation, New Financing, Stated
Liabilities and Identified Contingent Liabilities) plus the
total par value of its capital stock.
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VALUATION RESEARCH CORPORATION
This letter may be relied upon and disclosed as provided for in Exhibit A.
Respectfully submitted,
VALUATION RESEARCH CORPORATION
/s/ Valuation Research Corporation
Engagement Number: 00-0000-00
8
VALUATION RESEARCH CORPORATION
EXHIBIT A
GENERAL LIMITING CONDITIONS AND ASSUMPTIONS
In accordance with recognized professional standards as generally practiced in
the valuation industry, the fee for these services is not contingent upon the
conclusions contained herein. Valuation has determined to the best of its
knowledge and in good faith that neither it nor any of its agents or employees
have any material financial interest in Holdings, the Borrower or their
Subsidiaries.
Neither Valuation, nor its agents or employees, assume any responsibility for
matters legal in nature, nor do they render any opinion as to any title to, or
legal status of, property which may be involved, both real and personal,
tangible and intangible.
Valuation assumes that all laws, statutes, ordinances, or other regulations, or
regulations of any governmental authority relevant to and in connection with
this engagement are complied with by each relevant party other than Valuation
unless express written noncompliance is brought to the attention of Valuation
and is stated and defined by those relied on by Valuation.
Valuation has relied on certain information furnished by others, including but
not limited to, BF Holdings and the Equity Investors, without verification,
other than the procedures specified in Valuation's letter attached hereto.
Valuation believes such information to be reliable as to accuracy and
completeness but offers no warranty or representation to that effect; however,
nothing has come to our attention in the course of this engagement that would
cause us to believe that any information is inaccurate in any material respect
or that it is unreasonable to utilize and rely upon such information. The
information relied upon generally includes, but is not limited to, financial
analyses and forecasts; historical, pro forma, audited and unaudited financial
statements; and Management analyses and forecasts.
Where there may be real property involved in the Transaction, unless
specifically stated, Valuation has not made a land survey of the property, but
has relied on information furnished by BF Holdings. It is assumed that there are
no hidden or inapparent conditions of the property, subsoil, or structures
thereon that render it more or less valuable except as disclosed in
environmental reports. No responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover them.
Valuation assumes in the case of leases of real and other property that the
Transaction will not trigger any renegotiations of such leases to market rates
based upon the financial condition of the Borrower and its Subsidiaries, on a
consolidated basis, arising out of the Transaction that would, in the aggregate,
be material to the Borrower and its Subsidiaries, on a consolidated basis. In
connection with this matter, we have no reason to believe that there will be any
material adverse effect on the Borrower and its Subsidiaries, on a consolidated
basis, arising from the consummation of the Transaction.
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VALUATION RESEARCH CORPORATION
Valuation is not an environmental consultant or auditor, and it takes no
responsibility for any actual or potential environmental liabilities. Valuation
does not conduct or provide environmental assessments and has not performed one
for any property of the Borrower or its Subsidiaries.
Valuation has asked Management whether the Borrower and its Subsidiaries, on a
consolidated basis, is subject to any present or future liability relating to
environmental matters (including but not limited to CERCLA/Superfund liability).
Valuation has not determined independently whether the Borrower and its
Subsidiaries, on a consolidated basis, is subject to any such liabilities, nor
the scope of any such liabilities. Valuation's Opinion takes no such liabilities
into account except as they have been reported expressly to Valuation by BF
Holdings, or by an environmental consultant working for BF Holdings or the
Equity Investors, and then only to the extent that the liability was reported to
us in an actual or estimated dollar amount. To the extent such information has
been reported to us, Valuation has relied on it without verification and offers
no warranty or representation as to its accuracy or completeness.
In some instances, public information and statistical information have been
obtained from sources Valuation has accepted as being reliable. These sources
include annual reports to shareholders and the Form 10-Ks and Form 10-Qs filed
with the Securities and Exchange Commission of companies reviewed within the
industry in which the Borrower and its Subsidiaries compete, VALUE LINE
INVESTMENT SURVEY, and STANDARD & POOR'S INDUSTRY SURVEYS; however, Valuation
makes no representation as to the accuracy or completeness of such information
and has accepted the information without further verification, but nothing has
come to Valuation's attention which would lead it to believe that such
information is incorrect or incomplete in any material respect.
The Opinion of Valuation does not represent an assurance, guarantee, or warranty
that the Borrower, or the Subsidiary Guarantors will meet all of their
obligations under the Agreement or in connection with the Mezzanine Subordinated
Debt.
Valuation makes no assurance, guarantee, or warranty that the covenants for the
New Financing will not be broken in the future.
Valuation has analyzed and reviewed the Transaction and provided the Opinion for
solvency purposes only and for no other purpose. Valuation's Opinion is in no
way given as an indication of the fairness of the Transaction to any shareholder
of BF Holdings, the Borrower, their Subsidiaries, the Equity Investors or any
equity participant in the Transaction.
The Opinion expressed herein is valid only for the express and stated purposes
of providing information and assistance to the parties to whom it is addressed
and their counsel and specific agents and their respective assignees and
participants in connection with the Transaction and their counsel and specific
agents and is not in any way, implied or expressed, to be construed, used,
circulated, quoted, relied upon or otherwise referred to for any other purpose
without the written consent of Valuation, which will not be unreasonably
withheld. In addition, Valuation hereby consents to (i) the filing and
disclosure of the Opinion with the Securities and Exchange Commission (the
"SEC") and any state securities commission or blue sky authority, or other
10
governmental authority or agency if such filing or disclosure is required
pursuant to the rules, statutes, and regulations thereof, or required by
applicable law, (ii) the disclosure of the Opinion upon demand, order or request
of any court, administrative or governmental agency, regulatory body or examiner
(whether or not such demand, order or request has the force of law) or as may be
required or appropriate in response to any summons, subpoena, or discovery
requests, (iii) the use or disclosure of the Opinion in any pending or
threatened litigation, judicial, or administrative proceeding (including,
without limitation, any proceeding in bankruptcy) or inquiry, or government
investigation, (iv) the attachment of the Opinion as an exhibit to the Credit
Documents governing the senior debt financing by the Lenders and Issuing Lender
or other Lenders and financial institutions who, in the future, may extend
credit to the Borrower as an exhibit to any documents governing debt financing
by other financing sources, (v) the disclosure of the Opinion in connection with
(a) the prospective sale, assignment, participation or any other disposition by
any Lender, Issuing Lender or financing source of any right or interest in the
debt financing by such Lender, Issuing Lender or financing source, (b) an audit
of any Lender, Issuing Lender or financing source by an independent public
accountant or any administrative agency or regulatory body or examiner or (c)
the exercise of any right or remedy by any Lender, or Issuing Lender or
financing source in connection with the debt financing, (vi) the disclosure of
the Opinion as may be requested, required or ordered in, or to protect a
Lender's, Issuing Lender's or financing source's interest in, any litigation,
administrative, judicial or governmental proceeding, or investigation to which
any Lender, Issuing Lender or financing source is subject or purported to be
subject, or (vii) the disclosure of the Opinion as otherwise required by, or as
reasonably determined by any Lender, Issuing Lender or financing source to be
required by, any law, order, statute, regulation or ruling applicable to such
Lender, Issuing Lender or financing source. Valuation has no responsibility to
update the Opinion stated herein for events and circumstances occurring after
the date of this letter.
Any further consultation, testimony, attendance or research in reference to the
present engagement beyond the Opinion expressed herein as of the date herein are
subject to agreement by Valuation in specific written arrangements between the
parties.
No representation is made herein as to the legal sufficiency of the above
definitions (term definitions contained in the body of the Opinion) for any
purpose; such definitions are used solely for setting forth the scope of this
Opinion and Valuation believes such definitions to be reasonable for the
purposes of rendering this Opinion.
The determination of Present Fair Saleable Value and Fair Market Value of the
aggregate assets results from the development and analysis of several value
indications arrived at through the use of accepted valuation procedures as
practiced in the valuation industry. These procedures included the Asset-Based
Approach, the Income Approach and the Market Approach, as described below, which
we believe to be procedures appropriate to express the Opinion herein.
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VALUATION RESEARCH CORPORATION
The Asset-Based Approach is based directly on the value of the underlying assets
of a business. Our procedures in connection with this approach were limited to a
review of the consolidated financial statements of the Borrower and its
Subsidiaries, including a general review of the current assets and intangible
assets of the Borrower and its Subsidiaries, on a consolidated basis, as well as
the other procedures outlined herein.
The Income Approach utilized cash flow projections discounted to a present
value. The discount rates selected were based on risk and return requirements
deemed appropriate by Valuation, given the facts and circumstances surrounding
the Transaction. The discount rates were based upon a weighted average cost of
capital concept, which considers the after-tax cost of debt and equity. The
after-tax costs were derived, among other factors, from our review of the
current credit and equity markets. The discount rate included a risk premium
over and above the required return associated with risk-free investments such as
U.S. Government treasury bonds.
The Market Approach is a valuation technique in which the estimated market value
is based on market prices in actual transactions. The technique consists of
undertaking a detailed market analysis of publicly traded companies and
acquisitions of companies that provide a reasonable basis for comparison to the
relative investment characteristics of the subject entity. Valuation ratios
derived from the guideline companies are then selected and applied to the
subject entity after consideration of adjustments for dissimilarities in
financial position, growth prospects, market position, profitability, capital
structure and other factors. The companies reviewed were generally enagaged in
the software industry.
Material changes in the industry or business segment in which the Borrower
competes or in general market conditions which might affect the Borrower and its
Subsidiaries, on a consolidated basis, from and after the date herein and which
are not reasonably foreseeable are not taken into account.
Our conclusion of Present Fair Saleable Value and Fair Market Value of assets is
for the aggregate or total assets of the Borrower and its Subsidiaries, on a
consolidated basis, after giving effect to the Transaction. Nothing has come to
our attention that would cause us to believe that the Present Fair Saleable
Value of assets is materially different from the Fair Market Value of assets.
Amounts payable with respect to Identified Contingent Liabilities cannot be
predicted with exact certainty. In addition, contingent liabilities exclude
obligations under executory contracts such as operating leases. The exclusion of
such executory contracts, in our opinion, has no material effect on the excess
of Present Fair Saleable Value or Fair Market Value of assets over liabilities.
Valuation has not made a specific compliance study or analysis of the Y2K issue
of the Borrower or its Subsidiaries, their customers or suppliers and the
effect, if any, that the Y2K issue may have on these entities.
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VALUATION RESEARCH CORPORATION
Based on Valuation's review of the Projections, the Borrower and its
Subsidiaries, on a consolidated basis, may not generate sufficient free cash
flow to repay the Multicurrency Facility Revolving Loans in full by the
Multicurrency Facility Revolving Loan Maturity Date. Although it is not
unreasonable to expect that the Borrower will be able to refinance the
Multicurrency Facility Revolving Loans based on the projected capital structure,
there can be no assurance that any such refinancing will be effected. We have
assumed that the Borrower will be able to refinance outstanding Multicurrency
Facility Revolving Loans with a new revolving credit facility. We believe that
it is not unreasonable to make this assumption given the consolidated projected
level of pre-tax operating cash flow, projected interest coverage and leverage
ratios, and current and projected levels of accounts receivables.
