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Highly Confidential
----------------------------------------------------
Presentation to the Special
Committee of the Board of
Directors
February 16, 1999
----------------------------------------------------
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TABLE OF CONTENTS
I. Transaction Overview
II. Marketing Process Summary
III. Company Overview
IV. Valuation Summary
Appendices
A. Comparable Companies Descriptions
B. Weighted Average Cost of Capital
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I. Transaction Overview
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Transaction Overview
Synopsis: On July 6, 1998, Chargeback (the "Company") retained
Prudential Securities to seek a buyer for the Company.
After an extensive marketing process, Bedrock, together
with members of the Company's management (the
"Management Investors"), have agreed to acquire
Chargeback through a leveraged recapitalization (the
"Recapitalization").
The Recapitalization: Pursuant to the Recapitalization Agreement and Plan of
Merger, MergerCo, a newly-formed, acquisition company
wholly-owned by Bedrock (the "Investor"), will merge
with and into Chargeback, and each Chargeback share of
common stock, $0.01 par value (the "Common Stock"), will
be converted into the right to receive $25.25 per share
in cash.
Management Investors: ▇▇▇▇ ▇▇▇▇, Chairman of the Board of Directors, ▇▇▇▇▇▇
▇▇▇▇▇▇, President and Chief Executive Officer and
certain other senior executives of the Company will
exchange a portion of their Common Stock and options to
acquire Common Stock for an equity interest in the
surviving company.
Accounting Treatment: Recapitalization accounting. The historical basis of the
Company's assets and liabilities will not be affected.
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Transaction Overview
Tax Treatment: Fully taxable transaction to selling shareholders.
Options: All existing Company stock options will vest upon the
consummation of the transaction. A portion of the
options held by the Management Investors will be
converted into options in the surviving company. All
other options will be cashed out by the Company at the
closing of the transaction at their "in-the-money"
value.
New Management Options: It is expected that the management of the surviving
company will receive new performance-based stock options
accounting for 12% of the Company's stock.
Timing: Consummation of the transaction will require the
preparation of a merger proxy followed by shareholder
approval. Closing of the transaction is expected by May
31, 1999 (the "Effective Time").
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THE RECAPITALIZATION
Step 1: Prior to the Effective time
-----------------
| Public |
| Shareholders and |
| Management |
| Investors |
-----------------
|
|
| Common Stock
|
|
|
Equity Contribution | Reinvested
---------- (Cash) ------------ Common Stock ------------
| Bedrock |----------------+ | Chargeback |+---------------| Management |
| |+---------------- | |---------------+| Investors |
--------- Preference Stock ------------ Preference Stock ------------
o Bedrock contributes o Management
cash in exchange for Investors convert
Preference Stock some of their
Common Stock to
Preference Stock
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THE RECAPITALIZATION
Step 2: At the Effective time
MergerCo Merges With and Into the Company:
o All Preference Stock converted into "new" common and preferred stock
o The Company consummates debt financing
o All existing Common Stock canceled in exchange for $25.25 per share in cash
-----------------
| Public |
| Shareholders and |
| Management |
| Investors |
-----------------
| +
| |
"Existing"| | Cash at
Common | | $25.25 per
Stock | | Share
| |
+ |
--------- Preference Stock ------------ Preference Stock -----------
| Bedrock |-----------------+| Chargeback |+------------------| Management |
| |+-----------------| |------------------+| Investors |
--------- "New" Common Stock ------------ "New" Common Stock -----------
and Preferred + and Preferred
Stock | Cash Stock
|
--------
| Lenders|
--------
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SIGNIFICANT CONTRACT TERMS
Voting Agreement: To be delivered at the signing by ▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇, representing approximately 35 percent of the
outstanding Common Stock.
"No Shop" The Company may not, directly or indirectly, solicit,
Provision: initiate, or encourage a Competing Transaction.
Fiduciary Out: The Company's board of directors may terminate the
merger agreement to accept an unsolicited, superior
third party offer.
Significant Closing (1) Funding obtained as contemplated by the commitment
Conditions: letters, (2) Approval by a majority of the Company's
shareholders, (3) No Company Material Adverse Effect,
(4) The Company shall have entered into a satisfactory
employment agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇ and terminated
the existing employment agreement with ▇▇▇▇ ▇▇▇▇.
Ongoing The Company's existing management is expected to
Management: remain in place, with the exception of ▇▇▇▇ ▇▇▇▇,
who will resign as Chairman upon the closing of
the transaction.
Ongoing Board Seven member board. Members will include ▇▇▇▇ ▇▇▇▇,
Composition: ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇, and two additional members to be mutually
decided upon.
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SOURCES AND USES OF FUNDS
(000's, except per share data)
-------------------------------------------------------- ---------------------------------------------------------
Sources Uses
-------------------------------------------------------- ---------------------------------------------------------
Excess Cash(1) $ 14,158 Diluted Common Shares Outstanding 3,899
Revolver 5,112
Term Debt 35,000 Offer Price Per Share $ 25.25
Subordinated Debt 10,000
Purchase Price of Equity $98,449
Sponsor Group Equity
Preferred Stock $ 22,553 Plus: Outstanding Debt --
Common Stock 7,447
--------
$ 30,000
Management Investors Rollover Equity
Preferred Stock $6,884
Common Stock 2,295 Transaction Costs 5,000
-------- --------
$ 9,179
TOTAL SOURCES OF FUNDS $103,449 TOTAL USES OF FUNDS $103,449
-------------------------------------------------------- ---------------------------------------------------------
(1) Estimated 5/31/99 cash balance, per management's projection.
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INITIAL CAPITALIZATION
(000's)
---------------------------------------------------------------------
% of Total
Initial Capitalization Amount Sources
---------------------------------------------------------------------
Revolver $5,112 5.7%
Term Debt 35,000 39.2%
Subordinated Debt 10,000 11.2%
TOTAL DEBT $50,112 56.1%
Equity Contribution 39,179 43.9%
Total Sources of Funds $89,291 100.0%
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Valuation Multiples at Offer Price
(000's, except offer price)
Price Premium Diluted Shares Outstanding 3,899
Offer Price $25.25
Closing Price Enterprise Value Calculation
2/12/1999 (One Day) $20.25 24.7% Equity Market Value $98,449
2/8/99 (Five Days) $19.50 29.5% Net Debt ($12,988)
1/19/99 (Four Weeks) $18.63 35.6% Enterprise Value: $85,461
Pro Forma (1) Estimated Estimated Pro Forma (1) Estimated
Latest Twelve Months (2) FYE 2/28/99 FYE 2/28/99 FYE 2/29/00
----------------------- ----------------------- ----------------------- -----------------------
Chargeback Amount (3) Multiple Amount (3) Multiple Amount (3) Multiple Amount (3) Multiple
Revenues (4) $50,564 1.7x $55,991 1.5x $51,935 1.6x $64,054 1.3x
EBITDA (4) $9,852 8.7x $10,308 8.3x $10,507 8.1x $16,411 5.2x
EBIT (4) $6,386 13.4x $6,672 12.8x $6,887 12.4x $12,146 7.0x
EBITDA - Capex (4) $5,245 16.3x $5,058 16.9x $5,257 16.3x $12,411 6.9x
Net Income (5) $4,515 21.8x $5,121 19.2x $4,739 20.8x $8,164 12.1x
(1) Pro Forma figures exclude ECS operations and gain on sale of ECS division.
(2) Latest Twelve Months ended 11/30/98.
(3) Source: Company management.
(4) Enterprise value mutltiples.
(5) Equity value multiples.
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II. Marketing Process
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Chronology of Events
Marketing Activity Time Period
-------------------------------------------------------- -----------------------------------
Preparation of Marketing Materials July - September 1998
Discussions with Strategic and Financial Buyers September - November
Preliminary Indications of Interest Due (9 received) November 12
Detailed Management Presentations to Six Bidders December 9 - 11
Second Round Indications of Interest Due (3 received) December 22
Finalist Due Diligence January 11 - February 8, 1999
Final Bids Due (3 received) February 8
Negotiations with Bedrock February 9 - 16
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REVIEW OF THE MARKETING PROCESS
Received Submitted Initial Submitted Initial
Number Selling Indication of Indication of Submitted
Contacted Memo Interest Interest Final Bid
--------- -------- ---------------- ----------------- ---------
Strategic Buyers 13 3 0 0 0
Financial Buyers 29 24 9 3 3
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SUMMARY OF INDICATIONS RECEIVED
Bidder Preliminary Value Indication Revised Value Indication Final Value Indication
------------------- ----------------------------- -------------------- ----------------------
Bedrock $22.00 - $24.00 $23.50 - $24.50 $24.75 (1)
Bidder #2 $22.00 - $25.00 $25.00 - $26.00 $24.00
Bidder #3 $21.50 - $24.40 $23.00 - $24.00 $23.50
Bidder #4 $21.00 - $23.50
Bidder #5 $21.00 - $23.00
Bidder #6 $20.00 - $23.00
Bidder #7 $20.00 - $21.00
Bidder #8 $20.00
Bidder #9 $20.00
(1) Subsequently raised to $25.25.
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PROPOSED CAPITAL STRUCTURE
Bidder Bidder #2 Bidder #3 Bedrock Initial Bedrock as Revised
Offer Price $24.00 $23.50 $24.75 $25.25
---------------------- ----------------------- ----------------------- ----------------------
Amount Percent Amount Percent Amount Percent Amount Percent
Senior Debt $42,500 50.9% $42,500 52.5% $40,000 45.9% $40,112 44.9%
Subordinated Debt 15,000 18.0% 10,000 12.4% 10,000 11.5% 10,000 11.2%
Total Debt $57,500 68.9% $52,500 64.9% $50,000 57.4% $50,112 56.1%
Equity 26,000 31.1% 28,400 35.1% 37,100 42.6% 39,179 43.9%
Total Capital $83,500 100.0% $80,900 100.0% $87,100 100.0% $89,291 100.0%
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III. Company Overview
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MARKET DATA SUMMARY
(000's, except per share data)
Chargeback
----------
Closing Price as of 2/12/99 $20.25
52 Week High (4/16/98) $24.00
52 Week Low (10/29/98) $16.50
Diluted Shares Outstanding (at current price) 3,827
Enterprise Value Calculation
Equity Market Value $77,503
Net Debt ($12,988)
-------------
Enterprise Value: $64,515
EPS
Growth
EPS P/E Rate
FY1998 Actual $0.85 23.8x 16.4%
FY1999 Estimated $1.21 (1) 16.8x 42.1%
FY2000 Projected $2.13 9.5x 76.6%
FY2001 Projected $3.29 6.2x 54.3%
Source: Historical results from Form 10-Q dated 11/30/98. Projected results are
management estimates, including $900,000 of expected cost reductions.
(1) Excludes gain on sale of ECS.
Fiscal year ends February 28.
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Historical and Projected Consolidated Income Statements
(000's, except per share data)
1999 Quarterly Summary
--------------------------------------------------------
1998 Q1A Q2A Q3A Q4E
-------- -------- -------- -------- --------
Revenues
Sales $ 22,528 $ 5,988 $ 7,552 $ 6,913 $ 6,473
Total Service, Support & Rental 27,256 7,270 7,472 7,517 6,804
-------- -------- -------- -------- --------
Total Revenues $ 49,784 $ 13,258 $ 15,025 $ 14,430 $ 13,278
Expenses
Cost of System Sales $ 7,986 $ 1,994 $ 3,289 $ 2,149 $ 1,807
Cost of Service and Support 12,567 3,293 3,507 3,806 3,249
Product Development 2,982 762 711 731 745
Selling Expenses 7,153 1,907 2,003 1,870 1,792
General & Administrative 14,609 3,929 3,894 4,195 3,686
-------- -------- -------- -------- --------
Total Expenses $ 45,297 $ 11,885 $ 13,404 $ 12,750 $ 11,280
Operating Income $ 4,487 $ 1,373 $ 1,621 $ 1,680 $ 1,998
======== ======== ======== ======== ========
Growth Rate 20.3%
Margin 9.0% 10.4% 10.8% 11.6% 15.0%
Depreciation $ 2,688 $ 688 $ 645 $ 761 $ 773
Amortization 1,160 249 171 177 172
-------- -------- -------- -------- --------
EBITDA $ 8,335 $ 2,310 $ 2,437 $ 2,618 $ 2,943
======== ======== ======== ======== ========
Depreciation $ 2,688 $ 688 $ 645 $ 761 $ 773
Amortization 1,160 249 171 177 172
-------- -------- -------- -------- --------
EBIT $ 4,487 $ 1,373 $ 1,621 $ 1,680 $ 1,998
======== ======== ======== ======== ========
Interest Income/(Expense) 616 188 190 185 194
Gain on Asset Disposition 830
Income before Income Taxes 5,102 1,561 1,811 2,695 2,192
Income Taxes (1,944) (593) (688) (1,011) (833)
-------- -------- -------- -------- --------
Net Income $ 3,158 $ 968 $ 1,123 $ 1,684 $ 1,359
======== ======== ======== ======== ========
Growth Rate 21%
Earnings per Share:
Basic $ 0.91 $ 0.28 $ 0.32 $ 0.48 $ 0.38
Diluted $ 0.85 $ 0.25 $ 0.29 $ 0.45 $ 0.36
{TABLE CONTINUED)
For The Year Ended February 28,
------------------------------------------------------------------------
Forecasted
1999E 2000(1) 2001 2002 2003
-------- -------- -------- -------- --------
Revenues
Sales $ 26,927 $ 35,079 $ 45,336 $ 51,926 $ 58,513
Total Service, Support & Rental 29,064 28,975 31,701 34,758 38,155
-------- -------- -------- -------- --------
Total Revenues $ 55,991 $ 64,054 $ 77,036 $ 86,684 $ 96,668
Expenses
Cost of System Sales $ 9,239 $ 10,712 $ 14,175 $ 15,840 $ 17,267
Cost of Service and Support 13,855 13,593 14,492 15,442 16,792
Product Development 2,948 3,350 3,775 4,200 4,575
Selling Expenses 7,572 8,473 9,414 10,178 10,966
General & Administrative 15,704 15,779 16,337 16,881 17,428
-------- -------- -------- -------- --------
Total Expenses $ 49,319 $ 51,908 $ 58,192 $ 62,541 $ 67,029
Operating Income $ 6,672 $ 12,146 $ 18,844 $ 24,143 $ 29,640
======== ======== ======== ======== ========
Growth Rate 48.7% 82.0% 55.1% 28.1% 22.8%
Margin 11.9% 19.0% 24.5% 27.9% 30.7%
Depreciation $ 2,867 $ 3,512 $ 3,522 $ 3,547 $ 3,642
Amortization 769 753 653 551 339
-------- -------- -------- -------- --------
EBITDA $ 10,308 $ 16,411 $ 23,019 $ 28,241 $ 33,621
======== ======== ======== ======== ========
Depreciation $ 2,867 $ 3,512 $ 3,522 $ 3,547 $ 3,642
Amortization 769 753 653 551 339
-------- -------- -------- -------- --------
EBIT $ 6,672 $ 12,146 $ 18,844 $ 24,143 $ 29,640
======== ======== ======== ======== ========
Interest Income/(Expense) 757 1,021 1,476 2,179 3,108
Gain on Asset Disposition 830
Income before Income Taxes 8,259 13,168 20,320 26,322 32,748
Income Taxes (3,138) (5,004) (7,721) (10,002) (12,444)
-------- -------- -------- -------- --------
Net Income $ 5,121 $ 8,164 $ 12,598 $ 16,320 $ 20,304
======== ======== ======== ======== ========
Growth Rate 62% 59% 54% 30% 24%
Earnings per Share:
Basic $ 1.46 $ 2.31 $ 3.56 $ 4.61 $ 5.74
Diluted $ 1.34 $ 2.13 $ 3.29 $ 4.26 $ 5.30
Source: Historical data from SEC filings. Projected data from management
estimates.
(1) Fiscal Year 2000 ends on February 29.
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Historical and Projected Consolidated Balance Sheets
(000's, except per share data)
1999 Quarterly Summary
---------- -------------------------------------
1998 Q1A Q2A Q3A Q4E
---------- -------------------------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 5,819 $ 4,993 $2,473 $2,701 $14,276
Restricted Cash - - - - 150
Short Term Investment Securities 5,208 6,770 6,121 6,600 -
Accounts Receivable 8,178 8,243 9,454 10,864 10,106
Inventories 2,465 3,694 3,940 3,530 3,900
Deferred Income Taxes 234 832 1,014 1,130 1,198
Other Current Assets 444 379 409 388 425
------ ------- ------ ------- -------
Total Current Assets 22,348 24,911 23,411 25,213 30,056
NON-CURRENT ASSETS
Investment Securities 2,497 2,490 3,905 3,687 -
Property Plant & Equipment 6,418 6,647 7,306 8,009 8,751
Intangible Assets, Net 3,111 2,862 2,654 2,468 2,296
Deferred Income Taxes 556 648 623 637 649
Other Assets 184 187 203 238 238
------- ------- ------- ------- -------
Total Non-Current Assets 12,766 12,834 14,691 15,039 11,933
TOTAL ASSETS: 35,114 37,745 38,102 40,252 41,989
======= ======= ======= ======= =======
LIABILITIES
Accounts Payable 1,720 1,999 2,255 1,426 1,800
Accrued Expenses 3,878 4,880 4,714 6,179 6,115
Unearned Income 1,337 1,213 979 781 849
Total Liabilities 6,935 8,092 7,948 8,386 8,764
OWNERS' EQUITY
Common Stock and Addt'l Paid in Capital 11,529 12,090 12,559 12,730 12,730
Retained Earnings 18,830 19,798 20,921 22,605 23,964
Cumulative Translation Adjustment (45) (48) (153) (92) (92)
Unrealized Gain on Investment Securities, Net 52 - - - -
Treasury Stock (2,187) (2,187) (3,173) (3,377) (3,377)
------- ------- ------- ------- -------
Total Owners' Equity 28,179 29,653 30,154 31,866 33,225
TOTAL LIABILITIES & EQUITY: 35,114 37,745 38,102 40,252 41,989
======= ======= ======= ======= =======
(TABLE CONTINUED)
For The Year Ended by February 28,
-----------------------------------------------------------
Forecasted
1999 2000(1) 2001 2002 2003
-----------------------------------------------------------
CURRENT ASSETS
Cash and Cash Equivalents $14,276 $21,727 $30,513 $46,611 $63,404
Restricted Cash 150 - - - -
Short Term Investment Securities - - - - -
Accounts Receivable 10,106 9,652 11,608 13,062 14,566
Inventories 3,900 4,035 6,274 5,246 7,312
Deferred Income Taxes 1,198 1,975 3,048 3,948 4,912
Other Current Assets 425 576 693 780 870
------- ------- ------- ------- -------
Total Current Assets 30,056 37,965 52,136 69,647 91,064
NON-CURRENT ASSETS
Investment Securities - - - - -
Property Plant & Equipment 8,751 9,239 9,467 9,670 9,778
Intangible Assets, Net 2,296 1,543 890 339 -
Deferred Income Taxes 649 1,317 2,032 2,632 3,275
Other Assets 238 256 308 347 387
------- ------- ------- ------- -------
Total Non-Current Assets 11,933 12,354 12,697 12,988 13,440
TOTAL ASSETS: 41,989 50,320 64,833 82,635 104,504
======= ======= ======= ======= =======
LIABILITIES
Accounts Payable 1,800 2,284 2,560 2,752 2,949
Accrued Expenses 6,115 4,672 5,237 5,629 6,033
Unearned Income 849 1,975 3,048 3,948 4,912
Total Liabilities 8,764 8,931 10,846 12,329 13,894
OWNERS' EQUITY
Common Stock and Addt'l Paid in Capital 12,730 12,730 12,730 12,730 12,730
Retained Earnings 23,964 32,128 44,726 61,046 81,349
Cumulative Translation Adjustment (92) (92) (92) (92) (92)
Unrealized Gain on Investment Securities, Net - - - - -
Treasury Stock (3,377) (3,377) (3,377) (3,377) (3,377)
-------- ------- ------- ------- -------
Total Owners' Equity 33,225 41,389 53,987 70,307 90,610
TOTAL LIABILITIES & EQUITY: 41,989 50,320 64,833 82,635 104,504
======== ======== ======== ======== ========
Source: Historical data from SEC filings. Projected data from management
estimates.
(1) Fiscal Year 2000 ends on February 29.
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Chargeback Price Volume Chart
(Graphic omitted)
Graph depicting the daily prices of shares of Chargeback from February 13, 1998
to February 12, 1999.
Graph depicting the trading volume of shares of Chargeback from February 13,
1998 to February 12, 1999.
Source: IDD Information Services/Tradeline
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Chargeback Trading Volume
(Graphic omitted)
Graph depicting what percent of the total volume of shares, traded from February
13, 1998 to February 12, 1999, traded at specified prices.
Graph shows aggregate trading volume of 1,310,300 cumulative shares, which
represents 37% of the 3,540,000 shares outstanding as reported on 2/12/99.
Source: IDD Information Services/Tradeline
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Chargeback vs. Nasdaq Composite Index
(Based on Closing Prices for last 5 years)
(Graphic omitted)
Graph comparing the closing price of Chargeback to the closing price of the
NASDAQ from February 14, 1994 to February 12, 1999.
Source: IDD Information Services/Tradeline
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Chargeback vs. Various Indices
(Graphic omitted)
Graph depicting the closing prices from February 13, 1998 to February 12, 1999
of Chargeback, the S&P 500, and the NASDAQ as a percentage of what their
respective closing prices were on February 13, 1998.
Source: IDD Information Services/Tradeline
Ownership Summary
--------------------------------------------------------------------------------
Chargeback Affiliates
--------------------------------------------------------------------------------
Common % of
Beneficial Owner Stock Owned (1) Outstanding
------------------------------------- ------------------ -------------
▇▇▇▇ ▇. ▇▇▇▇ 727,750 20.6%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ Family Partnership 116,414 3.3%
▇▇▇▇ Family Trust 35,200 *
Owned Outright 372,500 10.5%
------------------ -------------
Total Executives 1,251,864 35.4%
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 1,800 *
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 2,500 *
▇▇▇ ▇▇▇▇▇▇▇ 9,400 *
▇▇▇▇ ▇. ▇▇▇▇▇ 5,400 *
------------------ -------------
Total Employees 1,270,964 35.9%
------------------ -------------
▇▇▇▇ ▇. ▇▇▇▇▇▇ 3,000 0.1%
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 8,000 0.2%
------------------- -------------
Outside Board Members 11,000 0.3%
------------------ ---------------
Total Employees and Board Members 1,281,964 36.2%
================== ===============
--------------------------------------------------------------------------------
Chargeback Institutional Investors
--------------------------------------------------------------------------------
Common % of
Beneficial Owner Stock Owned(2) Outstanding
------------------------------------ -------------------- -------------------
FMR Corporation 349,000 9.9%
SafeCo Corporation 314,000 8.9%
▇▇▇▇▇▇ Capital Management, Inc. 304,000 8.6%
Dimensional Fund Advisors Inc. 120,000 3.4%
Barclays Bank PLC 69,000 1.9%
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Investments, Inc. 26,000 *
Mellon Bank Corporation 15,000 *
Bear, ▇▇▇▇▇▇▇ & Company 2,000 *
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, Inc. 1,000 *
Bankers Trust Company 1,000 *
-------------------- -------------------
Total Institutional Holdings 1,201,000 33.9%
==================== ===================
Ownership Summary
-----------------
Total Employees and Board Members 1,281,964 36.2%
Total Institutional Holdings 1,201,000 33.9%
Retail Float 1,056,536 29.8%
-------------------- ------------------
Total Shares Outstanding (3) 3,539,500 100.0%
==================== ==================
--------------------------------------------------
* Less than 0.1%.
(1)Source: Ownership numbers provided by the Company.
Excludes outstanding options.
(2)Source: ▇▇▇▇▇▇▇ database on February 10, 1999
(3)Source: Form 10-Q dated November 30, 1998.
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IV. Valuation Summary
----------------------------------------------------
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----------------------------------------------------
A. Methodology
----------------------------------------------------
Methodology
o Reviewed historical and projected operational information provided by
▇▇▇▇▇▇▇▇▇▇'s management. Discussed the Company's historical results, future
growth opportunities, and other matters which we considered relevant to our
analysis with management.
o Reviewed the Company's historical and projected financial information, as
provided by the Company.
o Analyzed qualitative factors associated with the transaction, including
existing management profile and stock ownership.
o Analyzed the stock trading history of Chargeback.
o Valued the Company based on a discounted cash flow analysis.
o Compared and analyzed the Company's financial and operational performance
with selected publicly traded small-capitalization technology and business
services companies and valued the Company based on implied multiples from
these companies.
o Analyzed recent mergers and acquisitions involving small-capitalization
technology and business services companies and valued the Company based on
implied multiples from these transactions.
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B. Composite Implied
Valuation
----------------------------------------------------
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Composite Valuation Summary
(Graphic omitted)
Graph depicting the offer price to the range and median of the implied share
prices under the following valuations methods: DCF analysis, comparable
companies, comparable transaction multiples, and comparable transaction
premiums.
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Summary of Implied Prices of All Valuation Methodologies
--------------------------------------
Offer Price $ 25.25
--------------------------------------
High Median Mean Low
------- ------- ------- -------
Discounted Cash Flows $ 30.48 $ 26.28 $ 26.30 $ 22.46
Comparable Company Multiples
LTM Revenue $ 35.05 $ 17.75 $ 18.92 $ 9.76
LTM EBITDA 33.79 22.56 22.04 12.42
LTM EBIT 37.44 23.33 22.12 11.01
LTM EBITDA - Capex 31.34 16.15 17.99 9.64
LTM Net Income 44.26 19.54 21.54 7.61
1999 EPS 48.41 28.55 28.19 14.35
2000 EPS 45.79 36.06 35.51 25.12
------- ------- ------- -------
Mean $ 39.44 $ 23.42 $ 23.76 $ 12.84
Comparable Transaction Multiples
LTM Revenue $ 48.57 $ 24.97 $ 27.92 $ 15.08
LTM EBITDA 33.41 26.94 27.32 18.83
LTM EBIT 35.74 24.01 24.93 16.30
LTM EBITDA - Capex 31.56 21.49 22.64 12.83
LTM Net Income 34.50 19.74 21.37 14.11
------- ------- ------- -------
Mean $ 36.76 $ 23.43 $ 24.84 $ 15.43
Comparable Transaction Premiums
One Day Earlier $ 36.12 $ 23.31 $ 25.67 $ 20.25
One Week Earlier 35.75 28.09 27.32 19.50
Four Weeks Earlier 34.20 24.94 24.82 18.63
------- ------- ------- -------
Mean $ 35.36 $ 25.45 $ 25.94 $ 19.46
30
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-------------------------------------------------------------------------------
----------------------------------------------------
C. Discounted Cash Flow
Analysis
----------------------------------------------------
31
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-------------------------------------------------------------------------------
Projected Unlevered Free Cash Flows
(000's) Fiscal Years Ended February 28,
-------------------------------------------------
2000 (1) 2001 2002 2003
Free Cash Flow:
Operating Income (EBIT) $12,146 $18,844 $24,143 $29,640
Less: Income Taxes @ 38.0% (4,616) (7,161) (9,174) (11,263)
------- -------- -------- --------
Tax-Adjusted Operating Income $ 7,531 $11,683 $14,969 $18,377
Plus: Depreciation & Amortization 4,265 4,175 4,098 3,981
Less: Capital Expenditures (4,000) (3,750) (3,750) (3,750)
-------- -------- -------- --------
Cash Flow before Changes to Working Capital 7,796 12,108 15,316 18,607
(Increase)/Decrease in Working Capital (1,129) (4,237) (569) (3,742)
-------------------------------------------------
Free Cash Flow $ 6,667 $ 7,871 $14,748 $14,866
-------------------------------------------------
Source: Management projections.
(1) Fiscal Year 2000 ends February 29.
32
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-------------------------------------------------------------------------------
Discounted Cash Flow Implied Valuation
(000's, except per share data)
Terminal PV of PV of
Value Free PV of Aggregate Less: PV of Equity
Multiple of Discount Cash Flow Terminal Present Total Plus: Equity per
2003 EBITDA Rate(1) 1999-2003(2) Value Value Debt Cash (4) Value Share(3)
----------- ------- ------------ ----- ----- ---- -------- ----- --------
15.9% 31,593 49,503 81,096 - 12,988 94,084 24.13
---------------------
6.0x 17.4% 30,719 47,020 77,739 - 12,988 90,727 23.27
---------------------
18.9% 29,885 44,691 74,576 - 12,988 87,564 22.46
15.9% 31,593 61,878 93,472 - 12,988 106,460 27.30
---------------------
7.5x 17.4% 30,719 58,775 89,494 - 12,988 102,482 26.28
---------------------
18.9% 29,885 55,864 85,749 - 12,988 98,737 25.32
15.9% 31,593 74,254 105,847 - 12,988 118,835 30.48
---------------------
9.0x 17.4% 30,719 70,530 101,249 - 12,988 114,237 29.30
---------------------
18.9% 29,885 67,036 96,922 - 12,988 109,910 28.19
-----------------------------
Mean $ 26.30
-----------------------------
(1) As of 2/12/99, weighted average cost of capital was 17.36% based on
company's industry peer group. See calculation in appendix.
(2) Free cash flow discounted using the half year convention.
(3) Assumes diluted shares outstanding as of 2/12/99 of 3.899 million.
(4) Based on the quarter ended 11/30/98.
33
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-------------------------------------------------------------------------------
----------------------------------------------------
D. Comparable Companies
Analysis
----------------------------------------------------
34
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-------------------------------------------------------------------------------
Comparable Companies Summary Valuation
[Graphic omitted]
Graph comparing the offer price to the mean and range of the implied share price
of comparable companies based on the following operating parameters:
LTM Revenue, LTM EBITDA, LTM EBIT, LTM EBITDA-Capex, LTM Net Income, CY1999E
EPS, and CY2000E EPS.
35
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-------------------------------------------------------------------------------
Comparable Companies Summary Valuation Matrix
(000's, except per share data)
Offer Price $25.25
Enterprise Value / Equity Value /
----------------------------------------------- -----------------------------------------
LTM LTM
LTM LTM LTM EBITDA - Net CY1999E CY2000E
Revenue EBITDA EBIT Capex Income EPS EPS
------- ------ ---- ----- ------ --- ---
-----------------------------------------------------------------------------------------
Chargeback Operating Parameters (1) $50,564(2) $9,852(2) $6,386(2) $5,245(2) $4,515(2) $2.13(3) $3.29(3)
-----------------------------------------------------------------------------------------
Comparable Companies Valuation Multiples
-----------------------------------------------------------------------------------------
High 2.4x 12.1x 20.8x 20.8x 38.2x 22.7x 13.9x
Median 1.1x 7.6x 12.2x 9.5x 16.9x 13.4x 11.0x
Mean 1.2x 7.4x 11.5x 10.9x 18.6x 13.2x 10.8x
Low 0.5x 3.6x 4.7x 4.7x 6.6x 6.7x 7.6x
-----------------------------------------------------------------------------------------
-------------------------------------------
Plus: Cash (4) $12,988 $12,988 $12,988 $12,988
-------------------------------------------
-----------------------------------------------------
Diluted Shares Outstanding (5) 3,899 3,899 3,899 3,899 3,899
-----------------------------------------------------
Implied Equity Value Per Share Mean
-----------------------------------------------------------------------------------------
High $35.05 $33.79 $37.44 $31.34 $44.26 $48.41 $45.79 $39.44
Median 17.75 22.56 23.33 16.15 19.54 28.55 36.06 23.42
Mean 18.92 22.04 22.12 17.99 21.54 28.19 35.51 23.76
Low 9.76 12.42 11.01 9.64 7.61 14.35 25.12 12.84
-----------------------------------------------------------------------------------------
(1) Parameters exclude ECS figures.
(2) Chargeback financial information for the latest twelve months is for the
twelve months ended 11/30/98.
(3) Chargeback financial projections for CY1999 and CY2000 are for the fiscal
years ended 2/29/00 and 2/28/01, respectively.
(4) Based on the quarter ended 11/30/98.
(5) Calculated using the treasury stock method and an offer price of $25.25.
36
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-------------------------------------------------------------------------------
Comparable Companies Summary Valuation Matrix
(000's, except per share data)
Market Values (1) EBITDA Three-Year Growth
--------------------------------- ----------------
Per
Ticker Share Equity Enterprise Margin Revenue EBITDA
---------------------------------- --------------------------------- -------- -----------------
Billing Concepts Corp. BILL $10.00 $348,166 $232,429 27.4% 25.7% 26.5%
Brooktrout Technology, Inc. BRKT $10.94 $123 $110,682 10.9% 37.6% 13.1%
Checkpoint Systems, Inc. CKP $9.31 $294,004 $424,046 15.4% 21.0% 19.5%
Digi International Inc. DGII $6.59 $96,741 $108,481 15.7% 3.5% 1.1%
FLIR Systems, Inc. FLIR $20.88 $255,350 $290,655 17.7% 23.3% 27.4%
Kofax Image Products, Inc. KOFX $8.69 $46,884 $23,397 18.1% 16.5% 18.9%
Omtool, Ltd. OMTL $4.31 $55,319 $34,586 10.3% 99.3% 88.6%
Peerless Systems Corp. PRLS $9.25 $105,282 $78,396 23.6% 38.3% NM
PSC Inc. PSCX $8.63 $115,650 $202,678 18.2% 35.4% 54.2%
Sensormatic Electronics Corp. SRM. $10.44 $781,897 $1,200,697 13.1% 3.5% (4.7%)
Telxon Corp. TLXN $9.38 $151,165 $242,822 13.0% 7.1% 12.0%
---------------------------------- --------------------------------- -------- -----------------
---------------------------------- --------------------------------- -------- ------------------
Chargeback (Trading Multiples) $20.25 $ 77,503 $ 64,515 19.5% 16.8% 21.4%
---------------------------------- --------------------------------- -------- ------------------
-------- ---------------
High 27.4% 99.3% 88.6%
Median 15.7% 23.3% 19.2%
Mean 16.7% 28.3% 25.7%
Low 10.3% 3.5% (4.7%)
------ ---------------
Chargeback (Implied Multiple at Offer Price)
(TABLE CONTINUED)
37
------------------------------------------------- -----------------
Based on
Based on Latest Twelve Months Results Forward Results
------------------------------------------------- -----------------
Equity
Value Equity Value
Enterprise Value Multiples Multiples Multiples
--------------------------------------- --------- ----------------
EBITDA - Net CY1999E CY2000E
(000's, except per share data) Revenue EBITDA EBIT CAPEX Income EPS EPS
------------------------------ -------------------------------------- ------ -----------------
Billing Concepts Corp. 1.4x 5.0x 5.8x 6.7x 12.5x 11.5x N/A
Brooktrout Technology, Inc. 1.1x 10.1x 13.9x 13.9x 16.9x 12.9x 10.2x
Checkpoint Systems, Inc. 1.2x 7.6x 14.1x 9.5x 17.0x 13.9x 11.0x
Digi International Inc. 0.6x 3.6x 5.1x 5.1x 6.6x 6.7x N/A
FLIR Systems, Inc. 2.1x 12.1x 16.4x 16.4x 32.5x 11.7x N/A
Kofax Image Products, Inc. 0.7x 3.6x 4.7x 4.7x 12.3x 9.7x N/A
Omtool, Ltd. 1.1x 10.7x 20.8x 20.8x 30.0x 22.7x 13.9x
Peerless Systems Corp. 2.4x 10.4x 12.2x 12.2x 19.7x 17.5x N/A
PSC Inc. 0.9x 5.1x 7.7x 7.7x 11.0x 9.1x 7.6x
Sensormatic Electronics Corp. 1.2x 9.4x 19.1x 16.5x 38.2x 16.6x 11.2x
Telxon Corp. 0.5x 3.8x 6.4x 6.4x 8.0x 42.6x * N/A
------------------------------ -------------------------------------- ------ -----------------
------------------------------ -------------------------------------- ------- -------------------
Chargeback (Trading Multiples) 1.3x 6.5x 10.1x 12.3x 17.2x 9.5x(2) 6.2x(2)
------------------------------ -------------------------------------- ------- -------------------
-------------------------------------- ------- -------------------
2.4x 12.1x 20.8x 20.8x 38.2x 22.7x 13.9x
1.1x 7.6x 12.2x 9.5x 16.9x 13.4x 11.0x
1.2x 7.4x 11.5x 10.9x 18.6x 13.2x 10.8x
0.5x 3.6x 4.7x 4.7x 6.6x 6.7x 7.6x
-------------------------------------- ------- -------------------
-------------------------------------- ------- --------------------
1.7x 8.7x 13.4x 16.3x 21.8x 11.8x 7.7x
-------------------------------------- ------- --------------------
* Outliers excluded from summary statistics.
Summary Statistics Exclude Chargeback.
(1) As of February 12, 1999.
(2) Chargeback financial projections for CY1999 and CY2000 are for the fiscal
years ended 2/29/00 and 2/28/01, respectively.
See footnotes in Appendix A.
38
Project Chargeback
-------------------------------------------------------------------------------
----------------------------------------------------
E. Comparable Companies
Analysis - Multiples
----------------------------------------------------
39
Project Chargeback
-------------------------------------------------------------------------------
Comparable Transactions Summary Valuation
(Graphic omitted)
Graph comparing the offer price to the mean and range of the implied share price
of comparable transactions based on the following operating parameters:
LTM Revenue, LTM EBITDA, LTM EBIT, LTM EBITDA-Capex, LTM Net Income.
40
Project Chargeback
-------------------------------------------------------------------------------
Comparable Transactions Summary Valuation Matrix
(000's, except per share data)
-------------------------
Offer Price $ 25.25
-------------------------
Enterprise Value / Equity Value /
------------------------------------------------------ -------------
LTM LTM
LTM LTM LTM EBITDA - Net
Revenue EBITDA EBIT Capex Income
--------- ------- ------- -------- -------------
---------------------------------------------------------------------
Chargeback Operating Parameters (1)(2) $50,564 $ 9,852 $ 6,386 $ 5,245 $ 4,515
---------------------------------------------------------------------
Comparable Transaction Valuation Multiples
---------------------------------------------------------------------
High 3.5x 11.9x 19.8x 21.0x 29.8x
Median 1.7x 9.3x 12.6x 13.5x 17.0x
Mean 1.9x 9.5x 13.2x 14.4x 18.5x
Low 0.9x 6.1x 7.9x 7.1x 12.2x
---------------------------------------------------------------------
---------------------------------------------------
Plus: Cash(3) $12,988 $12,988 $12,988 $12,988
---------------------------------------------------
---------------------------------------------------------------------
Diluted Shares Outstanding(4) 3,899 3,899 3,899 3,899 3,899
---------------------------------------------------------------------
Implied Equity Value Per Share Mean
--------------------------------------------------------------------- -------
High $ 48.57 $ 33.41 $ 35.74 $ 31.56 $ 34.50 $ 36.76
Median 24.97 26.94 24.01 21.49 19.74 23.43
Mean 27.92 27.32 24.93 22.64 21.37 24.84
Low 15.08 18.83 16.30 12.83 14.11 15.43
--------------------------------------------------------------------- -------
(1) Chargeback financial information for the latest twelve months ended
11/30/98.
(2) Parameters exclude ECS figures.
(3) Based on the quarter ended 11/30/98.
(4) Calculated using the treasury stock method and an offer price of $25.25.
41
Project Chargeback
-------------------------------------------------------------------------------
Comparable Transactions Valuation Summary (1)
(000's, except per share data)
Target Target
Acquiror Description
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
Trident International Inc (3) Designs, manufactures and markets piezoelectric
impulse ink jet subsystems including printheads
inks and other related components
Illinois Toolworks Inc.
---------------------------------------------------------------------------------------
Microdyne Corp Designs products for use in data gathering and
analysis, and provides outsourced technical
services for electronic product companies.
L-3 Communications Holdings
---------------------------------------------------------------------------------------
Donnelley Enterprise Solutions Single-source provider of integrated information
management services to professional service
organizations, primarily law firms, investment
▇▇▇▇▇ & Company, Inc. banks and accounting firms.
---------------------------------------------------------------------------------------
IPC Information Systems Inc. Leader in providing integrated telecommunications
equipment and services that facilitate the execution
of transactions by the financial trading
Cable Systems International community.
---------------------------------------------------------------------------------------
▇▇▇▇▇▇ Protection Group Inc. Provider of security alarm monitoring services
and designs, sells, installs and services
Tyco International Ltd. electronic security systems.
---------------------------------------------------------------------------------------
(TABLE CONTINUED)
42
LTM Valuation Multiplier
(000's, except per share data)
Shares Out.
Announced EV Revenue EBITDA EBIT EBITDA-CAPEX Net Income
Target Effective PP EV/Rev. EV/EBITDA EV/EBIT EV/EBITDA-CAPEX PP/Net Inc.
Acquiror Attitude Price/Share Hist Growth(2) Hist Growth(2) Hist Growth(2)
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Trident International Inc 1/6/99 7.3 $32,832 $11,422 $10,187 $10,325 $7,066
Pending $114,534 3.5x 10.0x 11.2x 11.1x 17.0x
Illinois Toolworks Inc. Friendly $120,421 12.5% 24.2% 29.3%
$16.500
-----------------------------------------------------------------------------------------------------------------------------------
Microdyne Corp 12/3/98 13.1 $58,310 $7,307 $5,673 $4,305 $4,688
1/8/99 $86,982 1.5x 11.9x 15.3x 20.2x 14.0x
L-3 Communications Holdings Friendly $65,519 36.1% 13.7% 5.4%
$5.000
-----------------------------------------------------------------------------------------------------------------------------------
Donnelley Enterprise Solutions 5/27/98 5.1 $113,543 $2,558 ($3,964) ($3,520) ($3,282)
7/7/98 $105,915 0.9x 41.4x* NM NA NM
▇▇▇▇▇ & Company, Inc. Friendly $106,126 29.6% NM NM
$21.000
-----------------------------------------------------------------------------------------------------------------------------------
IPC Information Systems Inc. 12/19/97 11.0 $272,927 $28,550 $17,649 $11,785 $7,775
4/30/98 $247,298 0.9x 8.7x 14.0x 21.0x 29.8x
Cable Systems International Friendly $231,634 14.5% NM NM
$21.000
-----------------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ Protection Group Inc. 12/28/97 6.9 $62,354 $4,440 ($6,420) ($5,862) ($4,070)
2/19/98 $142,486 2.3x 32.1x* NM NM NM
Tyco International Ltd. Friendly $117,141 NM NM NM
$17.000
-----------------------------------------------------------------------------------------------------------------------------------
* Outliers excluded from summary statistics.
(1) Financial data excludes the results of discontinued operations,
extraordinary gains and one-time charges. Diluted shares outstanding
calculated using the treasury stock method.
(2) Historical growth rate is based on the three fiscal years preceeding the
transaction.
(3) Pending transaction multiples are not included in summary statistics.
43
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-------------------------------------------------------------------------------
Comparable Transactions Valuation Summary (1)
(000's, except per share data)
------------------------------------------------------------------------------------
Target Target
Acquiror Description
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
Shared Technologies ▇▇▇▇▇▇▇▇▇ Inc. Provider of shared telecommunication services
and telecommunication system to tenants of
Intermedia Communications Inc. modern, multi-tenant office buildings.
------------------------------------------------------------------------------------
DH Technology Inc Leading designer, manufacturer and marketer of
impact transaction printing mechanisms, impact
Axiohm S.A. and thermal transaction printers.
------------------------------------------------------------------------------------
Colonial Data Technologies Designs, develops and markets telecommunications
products that support network services being
US Order Inc developed and implemented by
telephone operating companies.
------------------------------------------------------------------------------------
(TABLE CONTINUED)
44
(000's, except per share data) Shares Out.
-------------------------------- Announced EV
Target Effective PP
Acquiror Attitude Price/Share
------------------------------------------------------------
Shared Technologies ▇▇▇▇▇▇▇▇▇ Inc. 11/20/97 17.2
12/29/97 $513,180
Intermedia Communications Inc. Friendly $257,642
$15.000
------------------------------------------------------------
DH Technology Inc 7/15/97 8.5
8/21/97 $172,089
Axiohm S.A. Friendly $213,114
$25.000
------------------------------------------------------------
Colonial Data Technologies 8/7/96 15.5
11/8/96 $135,059
US Order Inc Friendly $146,055
$9.437
------------------------------------------------------------
(TABLE CONTINUED)
45
-----------------------------------------------------------------------
LTM Valuation Multiplier
(000's, except per share data)
-----------------------------------------------------------------------
Revenue EBITDA EBIT EBITDA-CAPEX Net Income
Target EV/Rev. EV/EBITDA EV/EBIT EV/EBITDA-CAPEX PP/Net Inc.
Acquiror Hist Growth(2) Hist Growth(2) Hist Growth(2)
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Shared Technologies ▇▇▇▇▇▇▇▇▇ Inc. $188,125 $44,232 $25,933 $32,254 ($6,765)
2.7x 11.6x 19.8x 15.9x NM
Intermedia Communications Inc. 86.2% 141.3% 190.9%
-------------------------------------------------------------------------------------------------------------------------
DH Technology Inc $106,773 $19,935 $15,901 $15,804 $11,048
1.6 x 8.6x 10.8x 10.9x 19.3x
Axiohm S.A. 21.9% 28.6% 29.0%
-------------------------------------------------------------------------------------------------------------------------
Colonial Data Technologies $ 78,288 $22,014 $17,053 $19,125 $11,990
1.7x 6.1x 7.9x 7.1x 12.2x
US Order Inc 106.3% 148.7% 203.4%
-------------------------------------------------------------------------------------------------------------------------
Summary Statistics
---------------------------- -------------------------------------------------------------------------
Legend
------ High 3.5x 11.9x 19.8x 21.0x 29.8x
LTM = Latest Twelve Months Median 1.7x 9.3x 12.6x 13.5x 17.0x
PP = Purchase Price Mean 1.9x 9.5x 13.2x 14.4x 18.5x
EV =Enterprise Value Low 0.9x 6.1x 7.9x 7.1x 12.2x
--------------------------- ------------------------------------------------------------------------
------------------------------------------------------------------------
Chargeback's Implied Multiple at Offer Price 0.7x 8.7x 13.4x 16.3x 21.8x
------------------------------------------------------------------------
* Outliers excluded from summary statistics.
(1) Financial data excludes the results of discontinued operations,
extraordinary gains and one-time charges. Diluted shares outstanding
calculated using the treasury stock method.
(2) Historical growth rate is based on the three fiscal years preceeding the
transaction.
(3) Pending transaction multiples are not included in summary statistics.
46
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-------------------------------------------------------------------------------
----------------------------------------------------
F. Comparable Companies
Premiums Analysis
----------------------------------------------------
47
Project Chargeback
-------------------------------------------------------------------------------
Comparable Transactions Premiums Summary Valuation
(Graphic omitted)
Graph comparing the offer price to the range and medium of comparable
transaction premiums one day, one week, and four weeks earlier.
48
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-------------------------------------------------------------------------------
Comparable Transactions Premiums Summary Valuation Matrix
------------------------
Offer Price $25.25
------------------------
Offer Price as a Premium to
Closing Stock Price
-------------------------------
One One Four
Day Week Weeks
Earlier ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------- ------- -------
------------------------------
Chargeback Closing Price (1)(2) $20.25 $19.50 $18.63
------------------------------
Comparable Companies Valuation Multiples
---------------------------
High 78.4% 83.3% 83.6%
Median 15.1% 44.1% 33.9%
Mean 26.8% 40.1% 33.3%
Low (14.2%) (5.6%) (27.4%)
---------------------------
Implied Equity Value Per Share Mean
---------------------------- ------
High $36.12 $35.75 $34.20 $35.36
Median $23.31 $28.09 $24.94 $25.45
Mean $25.67 $27.32 $24.82 $25.94
Low $20.25 $19.50 $18.63 $19.46
---------------------------- ------
(1) Source: Bloomberg.
(2) Chargeback closing prices on 2/12/99, 2/8/99 and 1/19/99, respectively.
49
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-------------------------------------------------------------------------------
Comparable Transactions Premiums Summary Valuation Matrix
---------------------------- --------------------------
Closing Price Prior to Offer Premium /
Announcement (Discount)
---------------------------- ------------------------
Effective Announce Target Name Share 1 Day 1 Week 4 Weeks 1 Day 1 Week 4 Weeks
Date Date Acquiror Name Price ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---- ---- ------------------------------- ----- ------- ------- ------- ------- ------- -------
Pending 01/06/99 Trident International Inc. $16.50 $9.25 $9.00 $9.25 78.4% 83.3% 78.4%
Illinois Toolworks Inc.
01/08/99 12/03/98 Microdyne Corp. $5.00 $4.31 $3.13 $3.47 15.9% 60.0% 44.1%
L-3 Communications Holdings
07/07/98 05/27/97 Donnelley Enterprise Solutions $21.00 $13.06 $13.00 $11.44 60.8% 61.5% 83.6%
▇▇▇▇▇ & Company, Inc.
4/30/98 12/19/97 IPC Information Systems Inc. $21.00 $18.38 $16.00 $18.38 14.3% 31.3% 14.3%
Cable Systems International
02/19/98 12/28/97 ▇▇▇▇▇▇ Protection Group Inc. $17.00 $18.00 $18.00 $18.50 (5.6%) (5.6%) (8.1%)
Tyco International Ltd.
12/29/97 11/20/97 Shared Technologies ▇▇▇▇▇▇▇▇▇ Inc. $15.00 $14.00 $11.38 $12.13 7.1% 31.9% 23.7%
Intermedia Communications Inc.
08/21/97 7/15/97 DH Technology Inc. $25.00 $15.88 $16.00 $15.88 57.5% 56.3% 57.5%
Axiohm S.A.
11/08/96 08/07/96 Colonial Data Technologies $9.44 $11.00 $9.25 $13.00 (14.2%) 2.0% (27.4%)
US Order Inc.
------------------------------------------------------ -------- ---------------------------- ------------------------
2/16/99 Chargeback (1) $25.25 $20.25 $19.50 $18.63 24.7% 29.5% 35.6%
Bedrock
------------------------------------------------------ -------- ---------------------------- ------------------------
-----------------------
High 78.4% 83.3% 83.6%
Median 15.1% 44.1% 33.9%
Mean 26.8% 40.1% 33.3%
Low (14.2%) (5.6%) (27.4%)
-----------------------
Source: Stock prices from Bloomberg.
Summary Statistics Exclude Chargeback.
(1) Chargeback closing prices on 2/12/99, 2/8/99 and 1/19/99, respectively.
50
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-------------------------------------------------------------------------------
----------------------------------------------------
Appendices
----------------------------------------------------
51
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-------------------------------------------------------------------------------
----------------------------------------------------
A. Comparable Companies
Descriptions
----------------------------------------------------
52
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-------------------------------------------------------------------------------
Comparable Company Descriptions
Billing Concepts Corp. Billing Concepts Corp. ("BCC") is a third-party
billing clearinghouse and information management
services provider to the telecommunications
industry. BCC also develops, sells and supports
sophisticated billing systems for
telecommunications service providers, and provides
direct billing services through an in-house
service bureau. BCC's customers include direct
dial long distance telephone companies, operator
services providers, information providers,
telecommunications equipment suppliers and other
telecommunication services providers.
Brooktrout Technology Inc. Brooktrout Technology, Inc. is a Massachusetts
corporation founded in 1984 to design, manufacture
and market computer hardware and software for use
in electronic messaging applications in
telecommunications and networking environments.
Brooktrout is a supplier of advanced software and
hardware products for system vendors and service
providers in the electronic messaging market. The
Company's products enable its customers to deliver
a wide range of solutions for the integration and
management of image (fax), voice and data
communications in telecommunications and
networking environments. The Company sells its
products primarily to service providers, original
equipment manufacturers and value added resellers
both domestically and internationally through a
direct sales force.
53
Project Chargeback
-------------------------------------------------------------------------------
Comparable Company Descriptions
Checkpoint Systems, Inc. Checkpoint is a designer, manufacturer and
distributor of integrated electronic security
systems - utilizing proprietary radio frequency
technologies - designed primarily to help
retailers prevent losses caused by theft of
merchandise. The Company markets a wide range of
these systems, including electronic article
surveillance (EAS) systems, closed circuit
television systems, point-of-sale monitoring
systems and electronic access control systems.
Digi International Inc. Digi International Inc. is a leading ISO
9001-compliant provider of data communications
hardware and software that delivers seamless
connectivity solutions for multiuser environments,
open systems, server-based remote access and local
area network markets. The two major product areas
include: 1) communications interface cards for
multiuser and remote access environments, and 2)
"physical layer" capabilities of a local area
network.
54
Project Chargeback
-------------------------------------------------------------------------------
Comparable Company Descriptions
FLIR Systems, Inc. FLIR Systems, Inc. designs, manufactures, and
markets thermal imaging and broadcast camera
systems worldwide for a wide variety of
applications in the commercial and government
markets. Thermal imaging systems detect infrared
radiation, or heat, emitted directly by all
objects and materials and enable the operator to
see objects in total darkness, in adverse weather
conditions and through obscurants such as smoke
and haze. Government applications include public
safety (law enforcement and drug interdiction,
search and rescue, border patrol and maritime
patrol, and environmental protection) and defense
(surveillance, reconnaissance and navigation
assistance). Commercial applications include
electronic news-gathering, non-destructive testing
and evaluation, research and development,
manufacturing process control, condition
monitoring and image analysis.
Kofax Image Kofax Image Products, Inc. is a leading supplier
Products, Inc. of both application software and scanner
enhancement products for the imaging, workflow and
document management market. The Company
specializes in the document capture segment of the
market, which involves converting paper documents
to digital electronic images, enhancing and
indexing the images, and then compressing them for
routing and storage. The Company's products are
used in conjunction with industry standard
personal computers and personal computer operating
systems. The Company sells its products to a wide
variety of document imaging, workflow and document
management solution providers including
value-added resellers, system integrators,
independent software vendors and computer
companies.
55
Project Chargeback
-------------------------------------------------------------------------------
Comparable Company Descriptions
Omtool, Ltd. Omtool, Ltd. designs, develops, markets and
supports open, client/server facsimile software,
delivering solutions which automate and integrate
fax communication throughout the enterprise.
Omtool's Fax Sr. product family, licensed
typically on a shrink-wrap basis, provides users
with an extensive, flexible feature set for
transmitting and receiving faxes and improves an
organization's management of its fax
communications processes by providing a suite of
utility and control functions. Fax Sr. is
available on the Windows NT, Sun Solaris, HP UNIX
and DEC UNIX and VMS server operating systems, and
Windows 95, Windows NT, Windows 3.1.x, Macintosh,
Java, Activex and MS-DOS clients.
Peerless Systems Peerless Systems Corporation is a leading provider
Corporation of software-based embedded imaging systems to
original equipment manufacturers ("OEM"s) of
digital document products. Digital document
products include printers, copiers, fax machines,
scanners and emerging color products, as well as
multifunction products that perform a combination
of these imaging functions. In order to process
digital text and graphics, digital document
products rely on a core set of imaging software
and supporting electronics, collectively known as
an embedded imaging system. The Company markets
its solutions directly to OEM customers such as
Adobe, Canon, IBM and Xerox.
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Comparable Company Descriptions
PSC Inc. PSC Inc. manufactures the world's broadest line of
laser based handheld and fixed position bar code
readers, verifiers, integrated sortation and
point-of-sale ("POS") scanning systems for the
worldwide Automatic Identification and Data
Capture ("AIDC") market. The Company's products
serve as the "front end" of terminals or host
computers and are used to identify, capture,
process and transmit data. The Company has
developed products for AIDC at every stage of the
product supply chain from raw material,
manufacturing and warehousing, to logistics,
transportation, inventory management and POS. The
Company's products are used throughout the world
in food, general retail, health care and other
industries, and in government.
Sensormatic Electronics Sensormatic Electronics Corporation is a fully
Corporation integrated supplier of electronic security systems
to retailers and commercial, industrial and
governmental users worldwide. The Company designs,
manufactures, markets and services Electronic
Article Surveillance ("EAS") systems (including
the reusable hard tags and disposable labels used
with such systems), and Integrated Security
Systems which include Closed Circuit Television
("CCTV") systems (including
microprocessor-controlled CCTV systems and
exception monitoring systems), Access Control
systems and Intelligent Tagging and Tracking
("ITT") systems utilizing radio frequency
identification. The Company's EAS and CCTV systems
and products are used by retailers to deter
shoplifting and internal theft. Sensormatic's
CCTV, Access Control and ITT systems are used by
retail and commercial/industrial customers to
protect assets, information and people. The
Company's products are marketed by an extensive
worldwide sales and service organization
complemented by a broad network of independent
distributors and dealers.
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Comparable Company Descriptions
Telxon Corporation Telxon Corporation designs, manufactures,
integrates, markets and supports transaction-based
wireless workforce automation systems. The
Company's mobile computing devices and wireless
local area network products are integrated with
its customers' host enterprise computer systems
and third-party wide area networks, enabling
mobile workers to process data on a real-time
basis at the point of transaction. Telxon's
products are sold worldwide for use in key supply
chain vertical markets, including retail,
manufacturing, warehouse/ distribution,
transportation/logistics and route sales.
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COMPARABLE COMPANY STATISTICS
LTM FYE Shares
(millions, except per share data) Notes Date Date Out.
----------------------------------- ------------------------------------------------------
Billing Concepts Corp. (a) (b) 12/31/98 9/30/98 34.4
Brooktrout Technology, Inc. (c) 12/31/98 12/31/98 10.8
Checkpoint Systems, Inc. (c) 12/31/98 12/31/98 31.2
Digi International Inc. (a)(c)(d)(e) 12/31/98 9/30/98 14.6
FLIR Systems, Inc. (e) (f) (g) 9/30/98 12/31/97 11.9
Kofax Image Products, Inc. (c) 12/31/98 6/30/98 5.3
Omtool, Ltd. (c) (e) (h) 12/31/98 12/31/98 12.5
Peerless Systems Corp. (i) 10/31/98 1/31/98 11.0
PSC Inc. (c) (e) (j) 12/31/98 12/31/98 11.9
Sensormatic Electronics Corp. (c) 12/31/98 6/30/98 74.9
Telxon Corp. (g) (k) (l) 9/30/98 3/31/98 16.1
----------------------------------- ------------------------------------------------------
----------------------------------- ------------------------------------------------------
Chargeback (Trading Multiples) (m) (n) 11/30/98 2/28/98 3.8
----------------------------------- ------------------------------------------------------
---------------------------------------------------------------------------------
Latest Twelve Month Results
---------------------------------------------------------------------------------
Results
----------------------------------- ---------------------------------------------------------------------------------
EBITDA - Net Tangible Total
(millions, except per share data) Revenue EBITDA EBIT CAPEX Income Book Value Debt
----------------------------------- ---------------------------------------------------------------------------------
Billing Concepts Corp. $167.8 $46.0 $38.2 $34.7 $27.9 $88.3 $2.6
Brooktrout Technology, Inc. $100.9 $11.0 $8.0 $6.5 $7.3 $49.4 $0.0
Checkpoint Systems, Inc. $362.4 $55.7 $30.1 $44.5 $17.3 $249.1 $166.0
Digi International Inc. $191.7 $30.2 $21.3 $25.0 $14.7 $63.5 $22.1
FLIR Systems, Inc. $136.1 $24.1 $17.8 $8.7 $7.9 $103.8 $37.9
Kofax Image Products, Inc. $35.7 $6.4 $5.0 $5.3 $3.8 $29.2 $0.0
Omtool, Ltd. $31.1 $3.2 $1.7 $1.8 $1.8 $27.0 $0.0
Peerless Systems Corp. $32.0 $7.6 $6.4 $3.5 $5.3 $38.6 $0.0
PSC Inc. $217.2 $39.6 $26.3 $34.1 $10.5 ($6.9) $93.2
Sensormatic Electronics Corp. $975.4 $127.8 $62.8 $72.9 $20.5 $340.7 $526.2
Telxon Corp. $490.1 $63.5 $38.0 $23.2 $18.8 $122.2 $137.0
----------------------------------- ------------------------------------------------------------------------------------
----------------------------------- ------------------------------------------------------------------------------------
Chargeback (Trading Multiples) $50.6 $9.9 $6.4 $5.2 $4.5 $29.4 $0.0
----------------------------------- ------------------------------------------------------------------------------------
------------------------------------
Latest Fiscal Year Results
------------------------------------
Results Per Share Results
------------------------------------ ------------------------
(millions, except per share data) Revenue EBITDA EBIT CY1999 CY2000
----------------------------------- ------------------------------------ ------------------------
----------------------------------- ------------------------------------ ------------------------
Billing Concepts Corp. $160.8 $47.5 $39.0 $0.87 N/A
Brooktrout Technology, Inc. $100.9 $11.0 $8.0 $0.85 $1.07
Checkpoint Systems, Inc. $362.4 $55.7 $30.1 $0.67 $0.85
Digi International Inc. $182.9 $31.9 $24.1 $0.98 N/A
FLIR Systems, Inc. $91.8 $14.4 $11.0 $1.78 N/A
Kofax Image Products, Inc. $33.4 $5.9 $4.4 $0.90 N/A
Omtool, Ltd. $31.1 $3.2 $1.7 $0.19 $0.31
Peerless Systems Corp. $25.4 $6.9 $6.0 $0.53 N/A
PSC Inc. $217.2 $39.6 $26.3 $0.95 $1.13
Sensormatic Electronics Corp. $986.9 $126.3 $62.0 $0.63 $0.93
Telxon Corp. $465.9 $59.5 $34.3 $0.22 N/A
----------------------------------- ------------------------------------ ----------------------
----------------------------------- ------------------------------------ ----------------------
Chargeback (Trading Multiples) $44.4 $9.1 $5.9 $2.13 $3.29
----------------------------------- ------------------------------------ ----------------------
See explanation of footnotes on the following page.
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COMPARABLE COMPANY FOOTNOTES
Abbreviations:
LTM Latest twelve months.
EBIT Earnings before interest and taxes (operating income). EBITDA
Earnings before interest, taxes, depreciation and amortization.
CAGR Compound annual growth rate.
EPS Earnings per share. Assumes fully diluted shares.
CY Calendar year.
NM Not meaningful.
N/A Not available.
Notes:
EPS estimates for CY1999 and CY2000 are from First Call, unless noted otherwise.
LTM results are from reports on Forms 10-K and 10-Q and company press releases,
unless noted otherwise.
(a) Balance sheet amounts are as of September 30, 1998.
(b) Capital expenditures for the quarter ended December 31, 1998 are estimated
to be the same as for the quarter ended September 30, 1998.
(c) Depreciation, amortization and capital expenditures for the quarter ended
December 31, 1998 are estimated to be the same as the corresponding
amounts for the quarter ended September 30, 1998.
(d) Digi acquired two private companies in July 1998. LTM results include the
operating results of those companies from the acquisition dates through
9/30/98 but exclude nonrecurring charges of $40.2 million for write-off of
acquired in-process research & development and restructuring. LTM results
also exclude nonrecurring gains of $1.4 million from the reversal of a
previously written off investment in subsidiary.
(e) Interest expense is estimated based information disclosed in reports on
Forms 10-Q and 10-K.
(f) FLIR acquired a private company on 12/1/97. LTM results include the
operating results of those companies from the acquisition date through
9/30/98, but exclude nonrecurring charges of $52.5 million for write-off
of acquired in-process research & development and write-off of duplicative
inventory.
(g) Capital expenditures includes capitalized software costs.
(h) Total debt is as of September 30, 1998.
(i) The three-year CAGR is for the 3.08-year period from the year ended
12/31/94 to the year ended 1/31/98.
(j) Market value of preferred stock is estimated to be its liquidation value.
(k) LTM results exclude nonrecurring charges of $5.5 million for takeover
defenses and transactions with a business partner, and nonrecurring gains
of $0.5 million for other nonoperating income.
(l) LTM results exclude the cumulative effect of an accounting change.
(m) LTM results exclude the operating results from, and gain on sale of, a
division sold on 11/30/98.
(n) CY1999 and CY2000 EPS projections are prepared by management and represent
the fiscal years ending 2/29/00 and 2/28/01, respectively.
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---------------------------------------
B. Weighted Average Cost
of Capital
---------------------------------------
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CAPITAL STRUCTURE ANALYSIS
(millions)
------------------------------------------------------------------------------------------------------
Market Value Market Value Enterprise Debt/ Equity/ Debt/ Historic Unlevered
of Total Debt of Equity (1) Value(2) Ent. Value Ent. Value Equity Beta (3) Beta (4)
------------------------------------------------------------------------------------------------------
Billing Concepts Corp. 2.6 348.2 350.7 0.7% 99.3% 0.7% 1.53 1.53
Brooktrout Technology Inc. - 123.0 123.0 0.0% 100.0% 0.0% 1.57 1.57
Checkpoint Systems, Inc. 166.0 294.0 460.0 36.1% 63.9% 56.5% 0.65 0.57
Digi International Inc. 22.1 96.7 118.8 18.6% 81.4% 22.8% 1.33 1.24
FLIR Systems, Inc. 37.9 255.4 293.2 12.9% 87.1% 14.8% 1.17 1.12
Kofax Image Products, Inc. - 46.9 46.9 0.0% 100.0% 0.0% 0.58 0.58
Omtool, Ltd. 0.0 55.3 55.3 0.0% 100.0% 0.0% 1.99 1.99
Peerless Systems Corp. - 105.3 105.3 0.0% 100.0% 0.0% 2.62 2.62
PSC Inc. 93.2 115.6 208.9 44.6% 55.4% 80.6% 0.93 0.80
Sensormatic Electronics
Corp. 526.2 781.9 1,308.1 40.2% 59.8% 67.3% 1.08 0.94
Telxon Corp. 129.2 151.2 280.4 46.1% 53.9% 85.5% 1.14 0.97
----------------------------------------------------------------------------------------------------------------------------------
Mean $88.8 $215.8 $304.6 18.1% 81.9% 29.8% 1.33 1.27
Median $22.1 $123.0 $208.9 12.9% 87.1% 14.8% 1.17 1.12
----------------------------------------------------------------------------------------------------------------------------------
Notes:
--------------------------------------------------------------------------------
(1) Market value of equity as of 02/12/99.
(2) Market value of equity plus market value of total debt.
(3) Based on Bloomberg adjusted beta calculation from two years of historical
(weekly) price information compared to the S&P 500.
(4) Unlevered Beta=Beta/[1+((total debt)*(1-tax rate))/total equity value)]
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WACC Calculation
WACC Calculation Inputs: Selected Unlevered Beta (Mean Value) 1.27
% Equity (%E) 81.88% Risk-Free Rate (Rf) (1) 5.58%
% Debt (%D) 18.12% Risk Premium (Rm-Rf) (2) 7.80%
Debt/Equity 22.13% Tax Rate 38.00%
Small Stock Risk Premium (SSR) (3) 3.30%
Beta (Levered)
-------
BL=Bu*[1+((1-t)*D/E)] 1.44 Cost of Debt
-------
Pre-Tax Cost of Debt (Kd) (4) 8.00%
Cost of Equity
------- --------------------------------------------------
Ke=Rf+BL*(Rm-Rf)+SSR 20.10% WACC=[((Kd)*(%D))*(1-t)]+((Ke*(%E)) 17.36%
------- --------------------------------------------------
---------------------------------------------------------------------------------------------------------------
(1) 20-year Treasury as of 2/12/99.
(2) Ibbotson Associates. Stock Bonds and Inflation, 1997 Yearbook. Large
company common stocks total returns minus long term government bond total
returns.
(3) Ibbotson Associates. Stock Bonds and Inflation, 1997 Yearbook. Expected
small capitalization equity size premium (capitalization under $261
million).
(4) Based on 300 basis points over the 3-month LIBOR Rate as of 2/12/99.
