May 14, 1999
Board of Directors
The Network Connection, Inc.
0000 Xxxxx Xxxx Xxxx
Xxxxxxxxxx, XX 00000
Attention: Xx. Xxxxxx Xxxxx
Dear Sirs:
We understand that The Network Connection, Inc. (the "Company" or
"TNCI"), and Interactive Flight Technologies, Inc. ("IFT") have entered into an
Asset Purchase and Sale Agreement, (the "Agreement"), whereby, among other
things, the Company will purchase all, or substantially all, of the tangible and
intangible assets relating to the IFT interactive entertainment device business
(the "Business") and assume specific liabilities relating to the business (the
"Transaction"). The difference between the purchased assets and assumed
liabilities is defined herein as the "Net Assets".
As consideration for the Transaction, (the "Consideration") the Company
will issue to IFT (i) 1,055,745 restricted shares of its voting common stock
$.001 par value ("Common Stock"); and (ii) a number of shares of Series D
Preferred Stock such that the total of the number of shares of Common Stock into
which the Series D Preferred Stock is convertible plus the number of shares of
Common Stock issued to IFT set forth in subparagraph (i) is equal to sixty
percent (60%) of the outstanding shares of capital stock of TNCI immediately
following the Closing Date, taking into account the issuance of such Common
Stock to IFT under subparagraph (i.) and the conversion of Series D Preferred
Stock into Common Stock, and treating all convertible securities, options,
warrants or other rights to acquire securities of TNCI as if converted or
exercised as of the close of business on the date immediately preceding the
Closing Date without consideration of any limits on conversion imposed under
rules of the Nasdaq Stock Market, Inc. without stockholder approval (whether or
not actually converted or exercised as of the Closing Date) into Common Stock.
The shares of Common Stock and Series D Preferred Stock to be issued to IFT as
consideration for the transaction contemplated in the Agreement are collectively
referred to as the "TNCI Shares".
The Network Connection, Inc.
May 14, 1999
Page 2
You have requested our opinion, as financial advisors, as to the
fairness, from a financial point of view, to the Company and its stockholders of
the Consideration to be paid in the Transaction.
In conducting our analysis of the Company and arriving at our opinion
as expressed herein, we have reviewed and analyzed certain financial and other
information of the Company that was publicly available; including filings made
with the Securities and Exchange Commission (the "SEC"). The documents reviewed
by Valuemetrics include, but are not limited to:
(i) Forms 10-KSB for the years ended December 31, 1996, December 31, 1997,
December 31, 1998;
(ii) Forms 10-QSB for the quarter ended September 30, 1998;
(iii) Forms S-3 Registration Statements filed on May 17, 1996, June 28, 1996
and May 1, 1998;
(iv) Form 8-K filed with SEC on June 9, 1998 in connection with the sale of
Convertible Debentures;
(v) Form DEF - 14A Proxy Statement as of April 30, 1998, filed on June 11,
1998;
(vi) Internally prepared list of Promissory Notes, Stock Options and Warrants
outstanding;
(vii) TNCI Investor Information Kit;
(viii) Turnkey Agreement between TNCI and Carnival Cruise Lines;
(ix) Financial forecast for TNCI on a stand-alone basis for the fiscal years
ending December 31, 1999, December 31, 2000 and December 31, 2001;
(x) Articles of Amendment to the Articles of Incorporation of TNCI in
connection with issuance of Series C and Series D Preferred Stock
(xi) Publicly reported trading activity in the common stock of TNCI for the
period from February 1, 1997 through May 14, 1999; and
(xii) Public news releases by TNCI for the period from February 1, 1998 through
May 14, 1999.
In addition, Valuemetrics has reviewed available industry and market
research and publicly available financial and stock performance data of
companies that we deemed comparable to the Company.
In conducting our analysis and arriving at our opinion as expressed
herein, we have reviewed and analyzed certain financial and other information of
the Company and IFT. The documents reviewed by Valuemetrics include, but are not
limited to:
(i) Form DEF 14A Proxy Statement of IFT filed as of January 20, 1999;
(ii) Form 10 KSB of IFT filed with SEC as of January 20, 1999 for the fiscal
year ended October 31, 1998;
(iii) Form 10 QSB of IFT filed with SEC as of February 26, 1999 for the quarter
ended January 31, 1999;
The Network Connection, Inc.
May 14, 1999
Page 3
(iv) Presentation to IFT Shareholders as of February 4, 1999 in connection
with the Proposed Transaction;
(v) Forecasted Financial performance of TNCI post Transaction for the years
ended December 31, 1999, December 31, 2000 and December 31, 2001;
(vi) Complaint filed by Xxxxxx Xxxxxxx, individually surviving father and in
his representative capacity as the Administrator of the Estate of Xxxxxxx
Xxxxxxx Xxxxxxxxx against SIAR GROUP, SWISSAIR TRANSPORT COMPANY, SR
TECHNICS LTD., DELTA AIRLINES, INC., XxXXXXXXX XXXXXXX CORPORATION, THE
BOEING COMPANY and IFT ("Arnaldi v. IFT")
(vii) Aviation Products - Completed Operations and Grounding Liability
Insurance Policy produced by Near North Insurance Brokerage, policy
number APG 156315;
(viii) Draft Schedule 1.1.1 - Assets of the Asset Purchase and Sale Agreement as
of April 22. 1999;
(ix) Internally Prepared List of all Fixed Assets and Inventory owned by IFT
as of April 22, 1999;
(x) A detailed internally prepared list of Fixed Assets of IFT as of October
31, 1999;
(xi) Letter of Intent as of February 4, 1999 that documents the mutual intent
of TNCI and IFT regarding the Proposed Transaction;
(xii) Asset Purchase and Sale Agreement as of April 29, 1999 in connection with
the Proposed Transaction
(xiii) Asset Purchase and Sale Agreement as amended as of May 14, 1999 in
connection with the Proposed Transaction
(xiv) Exhibits to Asset Purchase and Sale Agreement as of May 14, 1999 in
connection with the Proposed Transaction
(xv) Securities Purchase Agreement as of May 10, 1999 between TNCI and IFT;
(xvi) Supporting Data for IFT claim v. Avnet, Inc. prepared by management of
IFT;
(xvii) Memo from Xxxxx, Xxxxxxxx, Xxxxxx & Xxxxx LLP in connection with IFT
claim v. Avnet;
(xviii)Fourth, Fifth and Sixth Alonges to Secured Promissory Note between TNCI
and IFT;
(xix) TNCI Pro Forma Capital Structure schedule prepared by IFT
In addition, we have reviewed available industry and market research pertaining
to IFT's operations and various assets.
In rendering our opinion, we have conducted on site due diligence and
held discussions with certain officers, employees and representatives (including
counsel) of the Company and IFT, respectively, concerning the business and
operations, assets, present condition and future prospects of the Company and
IFT and undertook such other studies, analyses and investigations as we have
deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information supplied to or
otherwise used by us in arriving at our opinion and have not attempted
independently to verify such information. We have not assumed any responsibility
The Network Connection, Inc.
May 14, 1999
Page 4
for the independent verification of any such information or projections provided
to us and we have further relied upon the assurance of the management of the
Company and IFT that they are unaware of any facts that would make the
information or projections provided to us incomplete or misleading. In arriving
at our opinion, we have not performed or obtained any independent appraisal of
the assets or liabilities of the Company, the Purchased Assets or Assumed
Liabilities. We have also assumed that the transactions described in the
Agreement, as amended, would be consummated on the terms set forth therein,
without waiver of any such terms.
We have assumed, with the consent of the Company and IFT, that the
Transaction will comply with applicable federal and state laws, including,
without limitation laws relating to bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer or other similar laws now or
hereafter in effect affecting creditors' rights generally.
As part of our professional services, we are regularly engaged in the
valuation of businesses and securities in connection with mergers, acquisitions,
leveraged buyouts, sales of unlisted securities, and valuations for estate,
corporate and other purposes. We have also taken into account our assessment of
general economic, market and financial conditions and our experience in similar
transactions, as well as our experience in securities valuation in general. Our
opinion necessarily is based upon conditions as they exist and can be evaluated
on the date hereof. Subsequent developments may affect this opinion, and we
disclaim any obligation to update, revise or reaffirm this opinion.
This letter and our opinion as expressed herein are for the benefit and
use of the Board of Directors of the Company in its consideration of the
Transaction. The Board of Directors of the Company may rely upon this opinion
with respect to the Transaction. This letter does not constitute a
recommendation of the Transaction over any other alternative transactions which
may be available to the Company and does not address the underlying business
decision of the Board of Directors of the Company to proceed with or effect the
Transaction. In addition, in rendering this opinion, we do not express any view
as to the prices at which the Company's securities may trade prior to or
following the Transaction. This letter does not constitute a recommendation by
our firm to any particular member of the Board of Directors or to any
stockholder as to how such member or stockholder should vote in connection with
the Transaction. We understand that this Opinion will be filed with the SEC and
distributed to IFT stockholders as part of a Proxy Statement relating to the
Transaction. We hereby consent to the foregoing use of this letter. Otherwise,
this letter and the contents hereof may not be published, disseminated, referred
to, summarized, described or otherwise used, nor shall any public reference to
Valuemetrics, Inc. be made, without our prior written consent (except in
documents or communications filed with SEC and NASDAQ, including any proxy
statements). As you are aware, we will receive a fee for our services to the
Board of Directors in connection with rendering this opinion, and the Company
has indemnified Valuemetrics for certain liabilities arising out of this
engagement including the rendering of this opinion.
The Network Connection, Inc.
May 14, 1999
Page 5
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration to be paid under the terms of the Agreement
and in connection with the Transaction is fair, from a financial point of view,
to the Company and to its stockholders.
Very truly yours,
VALUEMETRICS, INC.
