-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nk3IRFJxuOdgLXNEWJVno6YcjOPnSmDlFAwboo3zpdHUvC+6XiJEebVIfY7ovja5 PDhG9/J/6RUzE/s1BdIxbw== /in/edgar/work/20000919/0000927356-00-001814/0000927356-00-001814.txt : 20000923 0000927356-00-001814.hdr.sgml : 20000923 ACCESSION NUMBER: 0000927356-00-001814 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20000919 GROUP MEMBERS: BI INC GROUP MEMBERS: DAVID J. HUNTER GROUP MEMBERS: JACQUELINE A. CHAMBERLIN GROUP MEMBERS: JONATHAN M. HINEBAUCH GROUP MEMBERS: MCKINLEY C. EDWARDS, JR. GROUP MEMBERS: STEVEN P. MERREFIELD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: BI INC CENTRAL INDEX KEY: 0000716629 STANDARD INDUSTRIAL CLASSIFICATION: [7380 ] IRS NUMBER: 840769926 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: SEC FILE NUMBER: 005-34634 FILM NUMBER: 725176 BUSINESS ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3032181000 MAIL ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BI INC CENTRAL INDEX KEY: 0000716629 STANDARD INDUSTRIAL CLASSIFICATION: [7380 ] IRS NUMBER: 840769926 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3032181000 MAIL ADDRESS: STREET 1: 6400 LOOKOUT RD CITY: BOULDER STATE: CO ZIP: 80301 SC 13E3 1 0001.txt SCHEDULE 13E-3 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ---------------- SCHEDULE 13E-3 Rule 13e-3 Transaction Statement Under Section 13(e) of the Securities Exchange Act of 1934 BI INCORPORATED (Name of Issuer) BI Incorporated DAVID J. HUNTER JACQUELINE A. CHAMBERLIN MCKINLEY C. EDWARDS, JR. JONATHAN M. HINEBAUCH STEVEN P. MERREFIELD (Name of Person(s) Filing Statement) Common Stock, no par value 055467 20 3 (Title of Class of Securities) (CUSIP Number of Class of Securities) ---------------- DAVID J. HUNTER President 6400 Lookout Drive Boulder, Colorado 80301 (303) 218-1000 (Name, address and telephone number of person authorized to receive notices and communications on behalf of the person(s) filing statement) ---------------- Copy to: JOHN G. LEWIS, ESQ. Ireland, Stapleton, Pryor & Pascoe, P.C. 1675 Broadway, 26th Floor Denver, Colorado 80202 (303) 623-2700 This statement is filed in connection with (check the appropriate box): a.[_] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934 (the "Act"). b. [_]The filing of a registration statement under the Securities Act of 1933. c. [X]A tender offer. d. [_]None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [_] Check the following box if the filing is a final amendment reporting the results of the transaction: [_] CALCULATION OF FILING FEE - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Transaction Valuation: * Amount of filing fee: - ----------------------------------------------------------------------------- $79,281,147 $15,857 - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- * For purposes of calculating fee only. This amount is based on a per share offering price of $8.25 for 7,968,818 shares of common stock and for options to purchase 1,641,018 shares of common stock. As of August 10, 2000, BI Incorporated had 7,968,818 shares of common stock and options to purchase 1,641,018 shares of common stock issued and outstanding. The amount of the filing fee, calculated in accordance with Rule 0-11 under the Securities Exchange Act of 1934, as amended, equals 1/50 of one percent of the aggregate of the cash offered by Offeror. [X] Check box if any part of the fee is offset as provided by Rule 0-11 (a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid:.................. $15,857 Form or Registration No.:................... Schedule TO and Schedule TO/A Filing Party:........... KBII Acquisition Company, Inc. and KBII Holdings, Inc. Date Filed:............. August 18, 2000 and September 11, 2000. Introduction This Rule 13E-3 Transaction Statement (the "Statement") is filed by certain "filing persons" listed in Item 3 below (the "Filing Persons"), and relates to a tender offer by KBII Acquisition Company, Inc., a Colorado corporation ("Offeror") and a wholly-owned subsidiary of KBII Holdings, Inc., a Delaware corporation ("Parent"), to purchase all of the outstanding shares of Common Stock, no par value (the "Shares"), of BI Incorporated, a Colorado corporation (the "Company"), at a price of $8.25 net to the seller in cash, (less any required withholding taxes), without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated August 18, 2000, (the "Offer to Purchase") and the related Letter of Transmittal (collectively the "Offer"), and is intended to satisfy the reporting requirements of Section 13(e) of the Securities Exchange Act of 1934. Copies of the Offer to Purchase and the related Letter of Transmittal are filed as Exhibits (a)(1), (a)(2) and (a)(8) hereto and are incorporated by reference from the Schedule TO filed by Offeror and Parent on August 18, 2000, and amended August 23, September 11 and September 19, 2000 (the "Schedule TO"). In response to the Offer, the Company filed a Solicitation/Recommendation Statement on Schedule 14D-9 on August 18, 2000, and amended and supplemented on August 23, August 25 and September 19, 2000 (the "Schedule 14D-9"). Pursuant to General Instruction F to Schedule 13E-3, except as otherwise set forth below, information contained in the Schedule 14D-9 is expressly incorporated by reference in response to the items of this Schedule 13E-3. Certain information contained in the Schedule TO is incorporated by reference as specifically referenced below. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Offer to Purchase. Item 1. Summary Term Sheet. The information set forth under the caption "Summary Term Sheet" in the Offer to Purchase is incorporated herein by reference. Item 2. Subject Company Information. Name and address. The information set forth at Item 1 under the caption "Subject Company Information" in the Schedule 14D-9 is incorporated herein by reference. Securities. The information set forth at Item 1 under the caption "Subject Company Information" in the Schedule 14D-9 is incorporated herein by reference. Trading market and price. The information set forth under the caption "Price Range of Shares; Dividends on the Shares" in the Offer to Purchase is incorporated herein by reference. Dividends. The information set forth under the following captions in the Offer to Purchase is incorporated herein by reference: Price Range of Shares; Dividends on the Shares The Transaction Documents--The Merger Agreement--Conduct of Company's Business Pending Merger 2 Prior public offerings. Neither the Company nor any other Filing Person has made an underwritten public offering of the subject securities for cash during the past three years that was registered under the Securities Act of 1933 or exempt from registration under Regulation A thereunder. Prior stock purchases. The information set forth in Annex D to the Schedule 14D-9 is incorporated herein by reference. Item 3. Identity and Background of Filing Person. Name and address. This Schedule 13E-3 is filed jointly by the Company, which is the subject company, and David J. Hunter, Jacqueline A. Chamberlin, Mckinley C. Edwards, Jr., Jonathan M. Hinebauch and Steven P. Merrefield (the "Management Shareholders"), who are executive officers of the Company. Messrs. Hunter and Edwards are also directors of the Company. The Company and the Management Shareholders are the "Filing Persons." The name, business address and business telephone number of the Company are set forth in Item 2 above. The name, business address and business telephone number of each of the Management Shareholders and the name, business address and business telephone number of each of the Company's directors and executive officers are set forth under the caption "Information Concerning Current Directors, Officers and Director Designees" in the Information Statement pursuant to Section 14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1 thereunder (the "Information Statement") that is attached as Annex B to the Schedule 14D-9, and is incorporated herein by reference. Business and background of entities. Not applicable. Business and background of natural persons. The current principal occupation or employment, and five-year employment history of each of the Management Shareholders and of the executive officers and directors of the Company are set forth under the caption "Information Concerning Current Directors, Officers and Director Designees" in the Information Statement and are incorporated herein by reference. During the last five years, no Management Shareholder, director or executive officer of the Company has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), and no director or executive officer of the Company has been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. The Management Shareholders, directors and executive officers of the Company are all United States citizens, except for Jeremy N. Kendall, who is a Canadian citizen. 3 Item 4. Terms of the Transaction. Material terms. The information set forth under the following captions in the Offer to Purchase is incorporated herein by reference: Introduction Summary Term Sheet Term of the Offer; Expiration Date Acceptance for Payment and Payment for Shares Procedure for Tendering Shares Withdrawal Rights Transaction Documents Federal Income Tax Consequences Different terms. The information set forth under the following captions in the Offer to Purchase is incorporated herein by reference: The tenth paragraph of the Introduction Special Factors--Interest of Certain Persons in the Offer and the Merger Purpose of the Offer; The Merger; Plans for the Company Appraisal rights. The information set forth under the caption "Purpose of the Offer; The Merger; Plans for the Company--Dissenters' Rights" in the Offer to Purchase, and at Item 8 under the caption "Shareholder Dissenters' Rights" in the Schedule 14D-9 is incorporated herein by reference. Provisions for unaffiliated security holders. The Filing Persons have not made any provisions to grant unaffiliated security holders access to the corporate files of the Company or to obtain counsel or appraisal services at the expense of the Filing Persons in connection with the transaction. Eligibility for listing or trading. Not applicable. Item 5. Past Contacts, Transactions, Negotiations and Agreements. Transactions. The information set forth at Item 3 under the caption "Past Contacts, Transactions, Negotiations and Agreements" in the Schedule 14D-9 is incorporated herein by reference. Significant corporate events. None. Negotiations or contacts. None. 4 Agreements involving the subject company's securities. The information set forth under the following captions in the Offer to Purchase is incorporated herein by reference: The Transaction Documents--The Merger Agreement The Transaction Documents--Stock Voting and Tender Agreement The Transaction Documents--Side Letter Item 6. Purposes of the Transaction and Plans or Proposals. Use of securities acquired. The only securities being acquired by Filing Persons are certain options to be issued by Parent in exchange for options held by the Management Shareholders, as described under the caption entitled "Special Factors-- Interests of Certain Persons in the Offer and the Merger in the Offer to Purchase" and incorporated herein by reference. The Manager Shareholders intend to hold such options for investment purposes and may exercise them from time to time as they deem appropriate. Plans. The information set forth under the following captions in the Offer to Purchase is incorporated herein by reference: Purpose of the Offer; The Merger; Plans for the Company Effect of Offer on Market for Shares; Nasdaq Listing; SEC Registration; Margin Regulations Item 7. Purposes, Alternatives, Reasons and Effects. The information set forth at Item 4 under the caption "The Solicitation or Recommendation--Background" in the Schedule 14D-9 is incorporated herein by reference. Purposes. The information set forth under the following captions in the Offer to Purchase is incorporated herein by reference: Purpose of the Offer; The Merger; Plans for the Company Special Factors--Interests of Certain Persons in the Offer and the Merger The information set forth under the caption in the Schedule 14D-9 entitled "Special Factors--Purposes, Alternatives, Reasons and Effects--Purposes" is incorporated herein by reference. Alternatives. The information set forth at Item 4 under the following captions in the Schedule 14D-9 is incorporated by reference: The Solicitation or Recommendation--Background The Solicitation or Recommendation--Reasons for Rejection of Alternatives Reasons. The information set forth at Item 4 under the caption "The Solicitation or Recommendation--Background" in the Schedule 14D-9 is incorporated herein by reference. 5 Effects. The information set forth at Item 4 under the captions "The Solicitation or Recommendation--Benefits and Detriments of the Offer and Merger to the Company and the Company's Shareholders" in the Schedule 14D-9 is incorporated herein by reference. The information set forth under the following captions in the Offer to Purchase is incorporated herein by reference: Effect of the Offer and Merger; Market for Shares; Nasdaq Listing; SEC Registration; Margin Regulations Certain Federal Tax Consequences Item 8. Fairness of the Transaction. Fairness. The information set forth under the caption in the Schedule 14D-9 entitled "Special Factors--Fairness of the Transaction--Fairness" is incorporated herein by reference. Factors considered in determining fairness. The information set forth at Item 4 under the caption "The Solicitation or Recommendation--Fairness Opinion" in the Schedule 14D-9 is incorporated herein by reference. Approval of security holders. The information set forth under the caption in the Schedule 14D-9 entitled "Special Factors--Fairness of the Transaction--Approval of Security Holders" is incorporated herein by reference. Unaffiliated representative. The information set forth under the caption in the Schedule 14D-9 entitled "Special Factors--Fairness of the Transaction--Unaffiliated Representative" is incorporated herein by reference. Approval of directors. The information set forth under the caption in the Schedule 14D-9 entitled "Special Factors--Fairness of the Transaction--Approval of Directors" is incorporated herein by reference. Other offers. The information set forth at Item 4 under the following captions in the Schedule 14D-9 is incorporated by reference: The Solicitation or Recommendation--Background The Solicitation or Recommendation--Reasons for Rejection of Alternatives Item 9. Reports, Opinions, Appraisals and Negotiations. Report, opinion or appraisal. The information set forth under the caption in the Schedule 14D-9 entitled "Special Factors--Reports, Opinions, Appraisals and Negotiations--Report, Opinion or Appraisal" is incorporated herein by reference. Preparer and summary of the report opinion or appraisal. The information set forth at Item 4 under the caption "The Solicitation or Recommendation--Opinion of Financial Advisor" in the Schedule 14D-9 and the fairness opinion of SunTrust Equitable Securities attached to the Schedule 14D-9 as Annex A are incorporated herein by reference. 6 Availability of documents. The information set forth under the caption in the Schedule 14D-9 entitled "Special Factors--Reports, Opinions, Appaisals and Negotiations--Availability of documents" is incorporated herein by reference. Item 10. Source and Amounts of Funds or Other Consideration. Source of funds. The information set forth under the caption "Source and Amount of Funds" in the Offer to Purchase is incorporated herein by reference. Conditions. The information set forth under the caption "Source and Amount of Funds" in the Offer to Purchase is incorporated herein by reference. Expenses. The information set forth under the caption "Fees and Expenses" in the Offer to Purchase is incorporated herein by reference. The Company will be responsible for approximately $1,685,000 of the fees and expenses, consisting of approximately $1,325,000 in investment banking fees and expenses, $275,000 in legal fees and expenses, $50,000 in printing and mailing costs, $10,000 in accounting fees and $25,000 in miscellaneous fees and expenses. Borrowed funds. The information set forth under the caption "Source and Amount of Funds" in the Offer to Purchase is incorporated herein by reference. Item 11. Interest in Securities of the Subject Company. Securities ownership. The information set forth under the caption "Beneficial Ownership of Common Stock and Possible Change in Control" in the Information Statement is incorporated herein by reference. Neither the Company nor the Management Shareholders had any relationship with KBII, LLC, KBII, L.P., Kohlberg, Parent or Offeror prior to the commencement of the discussions which led to the execution of the Merger Agreement. Each of the Company and the Management Shareholders disclaims that they are an "affiliate" of KBII, LLC, KBII, L.P., Kohlberg, Parent or Offeror within the meaning of Rule 13e-3 under the Exchange Act. Securities transactions. The information set forth at Item 6 under the caption "Interest in Securities of the Subject Company" in the Schedule 14D-9 is incorporated herein by reference. Item 12. The Solicitation or Recommendation. Intent to tender or vote in a going-private transaction. The information set forth at Item 4 under the caption "The Solicitation or Recommendation--Intent to Tender" in the Schedule 14D-9 is incorporated herein by reference. 7 Recommendation of others. The information set forth at Item 4 under the caption "The Solicitation or Recommendation--Recommendation of the Board of Directors" in the Schedule 14D- 9 is incorporated herein by reference. Item 13. Financial Statements. Financial information. Certain financial information relating to the Company is hereby incorporated by reference to the audited financial statements for the Company's 1998 and 1999 fiscal years set forth in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998, and June 30, 1999, respectively, under the caption "Financial Statements and Supplementary Data," and for the nine months ended March 31, 1999 and 2000, set forth in the Company's Quarterly Report on Form 10-Q for the nine months ended March 31, 2000, under the caption "Financial Statements," are incorporated herein by reference. These statements may be obtained in the manner described at Item 8 to the Schedule 14D-9 under the caption "Available Information." Based on the foregoing reports, the Company's ratio of earnings to fixed charges was 6.9 and 6.1 for the fiscal years ended June 30, 1998 and 1999, respectively, and 6.6 and 2.7 for the nine months ended March 31, 1999 and 2000, respectively. As of March 31, 2000, the Company's net book value per share was $6.06 (on a non-diluted basis). Pro forma information. Not applicable. Item 14. Persons/Assets, Retained, Employed, Compensated or Used. Solicitations or recommendations. The information set forth at Item 5 under the caption "Persons/Assets Retained, Employed, Compensated or Used" in the Schedule 14D-9 is incorporated herein by reference. Employees and corporate assets. Certain of the Company's officers and certain employees have been involved in the facilitation of certain actions in conjunction with the transaction including responding to due diligence requests from Offeror, preparing documents, and responding to shareholder inquiries and similar matters. Item 15. Additional Information. The information set forth at Item 8 under the caption "Additional Information" in the Schedule 14D-9 is incorporated herein by reference. Other material information. None. 8 Item 16. Exhibits.
Exhibit No. Description ----------- ----------- (a)(1) Offer to Purchase dated August 18, 2000 (incorporated by reference to Exhibit (a)(1)(A) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (a)(2) Form of Letter of Transmittal (incorporated by reference to Exhibit (a)(1)(B) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (a)(3) Letter from the Chairman of the Company to the Company's shareholders dated August 18, 2000 (incorporated by reference to the Schedule 14D-9 filed August 18, 2000). (a)(4) Press Release issued by the Company on August 11, 2000 (incorporated by reference to Exhibit 99.1 to the Schedule 14D-9-C filed August 11, 2000). (a)(5) Form of Letter to Clients from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated by reference to Exhibit (a)(1)(E) to the Schedule TO filed by Parent and Offeror on August 18, 2000. (a)(6) Letter from the Chairman of the Company to the Company's shareholders dated September 19, 2000 (incorporated by reference to the Schedule 14D-9 filed September 19, 2000). (a)(7) Press Release issued by Offeror and Parent on September 18, 2000, announcing the extension of the tender offer to October 3, 2000 (incorporated by reference to Exhibit (a)(1)(I) to the Schedule TO/A filed by Parent and Offeror on September 19, 2000). (a)(8) Supplement to Offer to Purchase (incorporated by reference to Exhibit (a)(1)(J) to the Schedule TO/A filed by Parent and Offeror on September 19, 2000). (c)(1) Opinion of SunTrust Equitable Securities dated August 9, 2000 (incorporated by reference to Annex A of the Schedule 14D-9 filed August 18, 2000). (c)(2) Presentation of SunTrust Equitable Securities to the Board of Directors of BI Incorporated as of August 9, 2000 (filed herewith). (e)(1) Agreement and Plan of Merger dated as of August 10, 2000 among Parent, Offeror and the Company (incorporated by reference to Exhibit (d)(1) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(2) Pages 1-16 of the Company's Annual Meeting Proxy Statement filed on September 27, 1999 (incorporated by reference from the filing made as of such date; SEC File No. 000-12410). (e)(3) Pages 7-8 of the Company's Annual Report on Form 10-K filed on September 27, 1999 (incorporated by reference from the filing made as of such date; SEC File No. 000-12410). (e)(4) Form of side letter, to be entered into in substantially same form at or prior to the consummation of the Merger among Offeror, Parent and certain shareholders of the Company (incorporated by reference to Exhibit (d)(2) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(5) Stock Voting and Tender Agreement dated as of August 10, 2000, among Offeror, Parent and certain shareholders of the Company (incorporated by reference to Exhibit (d)(3) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(6) Form of Separation Policy, to be entered into in substantially same form at or prior to the consummation of the Merger (incorporated by reference to Exhibit (d)(4) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(7) Confidentiality Agreement between Kohlberg & Co., L.L.C. and the Company, dated as of January 21, 2000 (incorporated by reference to Exhibit (d)(5) to the Schedule TO filed by Parent and Offeror on August 18, 2000). (e)(8) Amended and Restated Rights Plan dated December 1, 1999, as amended August 9, 2000 (incorporated by reference to the Schedule 14D-9 filed August 18, 2000). (e)(9) Form of Stockholders' Agreement for KBII Holdings, Inc., to be entered into in substantially same form at or prior to the consummation of the Merger (incorporated by reference to Exhibit (d)(6) to the Schedule TO filed by Parent and Offeror on August 18, 2000).
9
Exhibit No. Description ----------- ----------- (e)(10) Summons and Complaint of M. Dean Briggs, dated August 14, 2000, against BI Incorporated, et. al. (incorporated by reference to the Schedule 14D-9 filed August 23, 2000). (e)(11) Memorandum to BI Employees dated August 24, 2000 (incorporated by reference to the Schedule 14D-9 filed August 25, 2000). (e)(12) Motion for Extension of Time in Which to Answer or Otherwise Move of BI Incorporated, dated September 1, 2000, in response to Complaint (incorporated by reference to Exhibit (a)(5)(B) to the Schedule TO/A filed by Parent and Offeror on September 11, 2000). (e)(13) Order dated September 13, 2000, granting Motion for Extension of Time in Which to Answer or Otherwise Move of BI Incorporated, dated September 1, 2000, in response to Complaint (incorporated by reference to Exhibit (e)(13) to the Schedule 14D-9 filed on September 19, 2000).
10 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: September 19, 2000 BI INCORPORATED By:/s/ David J. Hunter ----------------------------------- David J. Hunter, President /s/ David J. Hunter ----------------------------------- David J. Hunter /s/ Jackqueline A. Chamberlin ----------------------------------- Jacqueline A. Chamberlin /s/ Mckinley C. Edwards, Jr. ----------------------------------- Mckinley C. Edwards, Jr., /s/ Jonathan M. Hinebauch ----------------------------------- Jonathan M. Hinebauch /s/ Steven P. Merrefield ----------------------------------- Steven P. Merrefield 11 EX-99.(C)(2) 2 0002.txt PRESENTATION OF SUNTRUST EQUITABLE SECURITIES, INC Exhibit 99.(c)(2) - -------------------------------------------------------------------------------- Materials Prepared for the Board of Directors regarding: BI Incorporated August 9, 2000 - -------------------------------------------------------------------------------- [SunTrust Equitable Logo Goes here] THE FOLLOWING MATERIALS ARE BASED UPON SUNTRUST EQUITABLE SECURITIES CORPORATION'S ANALYSIS OF THE TRANSACTION AS DESCRIBED IN THE DRAFT AGREEMENT AND PLAN OF MERGER DATED AUGUST 3, 2000. IN THE EVENT OF MATERIAL CHANGES TO THIS DOCUMENT WHICH ARE NOT REFLECTED IN THESE MATERIALS, THE ENCLOSED ANALYSIS AND OUR CONCLUSIONS MAY BE AFFECTED. Certain portions of the enclosed analysis are based upon projected financial results and other sections describe plans and strategies which may not materialize. Any projected financial results are based upon analyst forecasts, internal projections and discussions with management. A number of factors, including industry conditions, changes in costs, labor issues and other factors which are beyond the scope of these projections and out of the control of BI Incorporated and SunTrust Equitable may cause actual results to differ materially from these projections. Table of Contents 1. Executive Summary 2. Summary Operating Statistics 3. Stock Price Performance and Ownership 4. Valuation Analysis A. Comparable Public Companies Analysis B. Comparable Acquisitions C. Discounted Cash Flow Analysis D. Leveraged Buyout Analysis 5. Premiums Paid Analysis Exhibit - ------- A. Leveraged Buyout Model Section 1 Executive Summary Executive Summary . We understand that Kohlberg & Company ("Kohlberg") intends to commence an offer to purchase all of the outstanding shares of BI Incorporated ("BI" or the "Company") common stock at a price of $8.25 per share, net to the seller for such shares in cash, through a tender offer to be commenced as promptly as practicable (the "Proposed Transaction"). . SunTrust Equitable Securities Corporation ("STES") has been retained by the Company to serve as financial advisor and to render an opinion to the Board of Directors of BI with regard to the Proposed Transaction. As such, STES has been requested to render an opinion as investment bankers (the "Opinion") as to the fairness, from a financial point of view, of the consideration to be paid to the Company's shareholders under the terms of the Proposed Transaction. Scope of Engagement . In connection with our engagement, STES has, among other things: . reviewed the draft merger agreement dated August 3, 2000; . reviewed certain historical and projected financial information regarding BI; . reviewed certain information relating to comparable acquisition transactions; . reviewed certain financial and other information with respect to certain other corrections/treatment companies; . compared certain financial positions and operating results of the Company; and . conducted such other financial studies, analyses and investigations and reviewed such other factors as we deemed appropriate. 1 Executive Summary Scope of Engagement (Cont'd) . We held discussions with senior management of the Company concerning the historical and current operations of the business, its financial condition and prospects, as well as the present strategic and operating issues facing the Company. . We have assumed (i) the accuracy of the Company's audited historical financial statements as prepared by the Company's management and subject to audit by Arthur Andersen LLP and/or Pricewaterhouse Coopers LLP, (ii) the accuracy of the Company's unaudited interim historical financial statements as prepared by the Company's management and (iii) the financial forecasts which we examined were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company. . We have also assumed that all material assets and liabilities (contingent or otherwise) of the Company are as set forth in the financial statements of the Company or as otherwise disclosed by BI. . Our methodologies included: - A review and comparison of trading multiples for comparable publicly- traded companies in the corrections industry; - A review of recently completed precedent transaction multiples for merger and acquisition transactions in the corrections industry (i.e., multiples of revenues, gross profit, and EBITDA as available); - Performing a discounted cash-flow analysis of the Company including sensitivity analyses utilizing a range of assumptions; - Performing a stand-alone leveraged buyout analysis of the Company including sensitivity analyses utilizing a range of assumptions; and - Performing a premiums paid analysis for cash offers during the past year with enterprise values ranging from $25 million to $250 million. 2 Executive Summary Overview of the Proposal Consideration: $8.25 per share in cash Mechanism: Tender offer for 90% of fully diluted shares outstanding. Target or Acquiror may extend for two additional 20 business day periods. If more than 75%, but less than 90% of shares are tendered, Long Form Merger can be undertaken. Financing: Cash, senior bank debt, senior subordinated debt and equity Termination Fee: Expenses of Acquiror plus $2 million if Company enters into an alternative transaction within 18 months. Indemnification for Board of Directors: Existing indemnification for four years with attempt to renew thereafter. No Solicitation: Company cannot solicit, initiate, or encourage any action that facilitates an alternative transaction except as allowed under fiduciary out. Fiduciary Out Provisions: The Board may withdraw, modify or amend its recommendation of the merger agreement or approve, determine to be advisable or recommended a Superior Proposal if a majority of the Board determines in good faith, after considering applicable provisions of state law and after consultation with outside counsel, that the failure to do so could reasonably be expected to constitute a breach of its fiduciary duties to its stockholders under applicable law. Tax Implications: Taxable to BI shareholders Accounting Treatment: Purchase 3 Executive Summary Overview of the Proposal (cont'd) Significant Conditions: . No statutes or other laws or orders prohibiting consummation of the merger; . No injunctions; . Stockholder agreements and options; and . Stockholder approval, if necessary. Major Covenants: . Conduct of business Termination: . By mutual consent; . By either party if Effective time shall not have occurred on or before November 15, 2000, or in the event of Long Form Merger, February 15, 2001; . By either party if prohibited by a governmental entity; . By the Company if a Superior Offer is accepted; . By the Company if there is a material breach of the merger agreement by the Acquiror; . By either party if the offer expired with no shares being purchased; . By Acquiror if the Board withdraws, modifies or proposes publicly to withdraw or modify its recommendation of the offer; . By Acquiror if the Company materially breaches the merger agreement; 4 Section 2 Summary Operating Statistics Summary Operating Statistics ($ in millions, except percentages)
Fiscal Year End June 30, ---------------------------------------------------------------------------------- 1998A 1999A 2000E/(1)/ 2001 2002 2003 2004 2005 ------- ------- ---------- ------- ------- ------- ------- ------- Revenue: Service, Monitoring & Rental $ 44.8 $ 57.0 $ 67.1 $ 78.0 $ 93.2 $ 111.0 $ 130.9 $ 153.2 Direct Sales 13.8 11.4 10.3 9.3 9.0 9.0 9.0 9.0 ------- ------- ---------- ------- ------- ------- ------- ------- Total Revenue 58.6 68.4 77.4 87.3 102.2 120.0 139.9 162.2 % growth 30.8% 16.6% 13.2% 12.8% 17.1% 17.3% 16.6% 15.9% Cost of Sales: Service, Monitoring & Rental 22.7 28.9 39.3 45.6 54.5 64.4 75.3 87.3 Direct Sales 6.0 4.9 6.3 6.0 5.4 5.2 5.0 5.0 ------- ------- ---------- ------- ------- ------- ------- ------- Total Cost of Sales 28.7 33.8 45.6 51.6 59.9 69.6 80.3 92.4 Gross Profit: Service, Monitoring & Rental 22.1 28.1 27.8 32.4 38.7 46.6 55.6 65.9 Direct Sales 7.9 6.5 4.0 3.3 3.6 3.8 4.0 4.0 ------- ------- ---------- ------- ------- ------- ------- ------- Total Gross Profit 30.0 34.6 31.8 35.7 42.3 50.4 59.6 69.8 Gross Profit % 51.1% 50.6% 41.1% 40.9% 41.4% 42.0% 42.6% 43.1% SG&A 21.5 23.7 26.3 26.2 30.0 34.9 40.3 44.4 Interest Expense -- -- 1.0 0.8 0.4 0.3 0.2 0.1 Amortization expense 7.1/(2)/ 7.4/(2)/ 1.7 1.5 1.6 1.6 1.6 1.6 ------- ------- ---------- ------- ------- ------- ------- ------- NIBT 1.3 3.6 2.8 7.2 10.3 13.6 17.5 23.7 % revenue 2.3% 5.2% 3.6% 8.2% 10.1% 11.3% 12.5% 14.6% ------- ------- ---------- ------- ------- ------- ------- ------- EBITDA $ 8.5 $ 10.9 $ 12.2 $ 17.1 $ 19.7 $ 22.9 $ 27.0 $ 30.9 ======= ======= ========== ======= ======= ======= ======= =======
- -------------------------------------- (1) Pro forma to reflect Intervention acquisition. (2) Includes depreciation. Source: Company projections 5 Summary Operating Statistics Selected Quarterly Growth Information --------------------------------------------------------------- GRAPH: Relative Growth Quarter vs. Year Ago Quarter (%) --------------------------------------------------------------- 6 Section 3 Stock Price Performance and Ownership Stock Price Performance and Ownership BIAC 1 Year Weekly Price/Volume Graph ----------------------------------------------- GRAPH ----------------------------------------------- Source: Factset 7 Stock Price Performance and Ownership Volume Distribution ------------------------------------------------------------------ GRAPHS: 90 Day and 1 Year Volume Distribution ------------------------------------------------------------------ . Over the 90 Day period ended August 7, 2000, 774 thousand shares traded representing approximately 9.7% of total shares outstanding. The weighted average stock price over this period was $5.44. Over the year ended August 7, 2000 3.85 million shares traded representing 48.5% of total shares outstanding and a weighted average stock price of $7.25. - ----------- Source: Factset 8 Stock Price Performance and Ownership BIAC Shareholder Analysis - -------------------------------------------------------------------- Institutional Holders /(1)/ - -------------------------------------------------------------------- As a % of Total Shares Holder Shares Held Outstanding - ----------------------------------- ------------- ------------ Merrill Lynch Asset Management 722,200 9.1% Dimensional Fund 591,300 7.4% Wynnefield Capital Management 315,125 4.0% United Missouri Bank of Kansas City 240,555 3.0% Barclays Bank PLC 82,219 1.0% Reich & Tang Asset Management 72,500 0.9% Mellon Bank Corporation 20,300 0.3% Bank of New York 20,000 0.3% Sloate, Weisman, Murray & Co. 15,000 0.2% Northern Trust Corporation 14,500 0.2% AXA Financial 10,000 0.1% United States Trust Co. of NY 7,000 0.1% CIBC Securities 2,100 0.0% Norwest Bank of Minnesota 2,000 0.0% Banc One Corporation 916 0.0% First Virginia Bank 500 0.0% Gray Seifert & Company 100 0.0% Taunus Corporation 100 0.0% International Strategy & Investment 100 0.0% ------------- ------------ Total Institutional Holdings 2,116,510 26.6% ============= ============ - -------------------------------------------------------------------- Insiders/(2)/ - -------------------------------------------------------------------- As a % of Total Shares Holder Shares Held Outstanding - ----------------------------------- ------------- ------------ David J. Hunter 144,926 1.8% Mckinley C. Edwards, Jr. 58,563 0.7% Jackie A. Chamberlin 30,872 0.4% Byam K. Stevens 20,950 0.3% Steven P. Merefield 20,165 0.3% Jeremy N. Kendall 11,150 0.1% Jonathan M. Hinebauch 6,830 0.1% Perry M. Johnston 3,000 0.0% Beverly J. Haddon 1,000 0.0% ------------- ------------ Total Insider Holdings 297,456 3.7% ============= ============ - -------------------------------------------------------------------- Total BIAC Shareholders - -------------------------------------------------------------------- Total Institutional 2,116,510 26.6% Total Insider 297,456 3.7% Other 5,534,596 69.6% ------------- ------------ Total Shares Outstanding/(3)/ 7,948,562 100.0% ============= ============ - ---------------------- (1) Source: Bloomberg as of August 7, 2000. (2) Source: Proxy dated November 16, 1999. (3) Per BIAC 10-Q for Quarter ended March 31, 2000. 9 Section 4 Valuation Analysis Valuation Analysis Valuation Matrix ----------------------------------------------------------- Offer Price per Share $8.25 ----------------------------------------------------------- ($ in thousands, Current Price/Implied Premium $4.13 8/7/00 100% except per share data) Shares Outstanding 7,949 $65,576 Options $1,867 Equity Purchase Price $67,443 Net Debt Assumed $12,128 ----------------------------------------------------------- Implied Firm Value $79,571 ----------------------------------------------------------- Firm Value/Total Revenue Trailing Twelve Months/(1)/ $ 72,195 1.1x Fiscal year 2000/(2)/ $ 77,400 1.0x Projected 2001/(2)/ $ 87,300 0.9x Projected 2002/(2)/ $102,200 0.8x ----------------------------------------------------------- Firm Value/EBITDA Trailing Twelve Months/(1)/ $ 11,724 6.8x Fiscal year 2000/(2)/ $ 12,200 6.5x Projected 2001/(2)/ $ 17,100 4.7x Projected 2002/(2)/ $ 19,700 4.0x ----------------------------------------------------------- Firm Value/EBIT Trailing Twelve Months/(1)/ $ 3,856 20.6x Fiscal year 2000/(2)/ $ 3,800 20.9x Projected 2001/(2)/ $ 8,000 9.9x Projected 2002/(2)/ $ 10,700 7.4x ----------------------------------------------------------- Equity Price/EPS Trailing Twelve Months/(1)/ $ 0.26 31.7x ----------------------------------------------------------- Equity Value/Book Equity Fiscal year 2000/(1)/ $ 48,625 1.4x ----------------------------------------------------------- (1) Source: Company filings. (2) Source: Company projections. 10 Valuation Analysis Relative Valuation Summary Enterprise Value as a Multiple of TR12: Equity Value ----------------------- as a Multiple of Comparable Public Company Analysis Revenues EBITDA EBIT TR12 P/E -------- ------ ---- ---------------- Average Multiple Excluding BI 0.7x 5.4x 7.5x 8.7x Median Multiple Excluding BI 0.4x 5.6x 7.8x 7.3x Comparable Acquisition Analysis Average Multiple Excluding High and Low 1.1x 9.1x Median Multiple 0.8x 6.0x - -------------------------------------------------------------------------------- Implied BI Transaction Multiple/(2)/ 1.1x 6.8x 20.6x 31.7x - -------------------------------------------------------------------------------- Premium Prior to Announcement ---------------------------------- Premiums Paid Analysis 1 Day 1 Week 4 Weeks ----- ------ ------- Average Premium 28.0% 30.2% 38.8% Average Premium Excluding High and Low 26.3% 27.6% 36.3% - -------------------------------------------------------------------------------- Implied BI Premiums Relative to August 7, 2000/(3)/ 106.3% 83.3% 46.7% - -------------------------------------------------------------------------------- Range of Implied Values -------------------------------- Discounted Cash Flow Analysis Low High --------------- --------------- Management Case Implied Value per Share 6.76 17.42 Sensitivity Case Implied Value per Share/(4)/ 4.07 12.21 Return at an Exit Multiple of: ------------------------------ Leveraged Buyout Analysis 6.0x 7.0x ------------- ------------- Equity Return to Sponsor 32.1% 36.8% - ---------------------- (1) Average purchase transaction multiple excludes pooling transactions. (2) Based on a share price of $8.25 and trailing twelve month data. (3) Premiums based on a share price of $8.25. (4) Sensitivity case based on a 30.0% reduction of operating income. 11 Section 4A Comparable Public Companies Analysis Comparable Public Companies Analysis . We have examined the trading and valuation characteristics of a group of publicly-traded companies in the corrections/treatment industry. None of these companies are identical to BI. . The companies examined were: - America Service Group - Avalon Correctional Services - Children's Comprehensive Services - Cornell Companies - Correctional Services Corporation - Ramsay Youth Services - Res-Care - Wackenhut Corrections Corporation . Each company's valuation must be analyzed in context with its business focus and trading history relative to BI. The schedules on the following pages present an assessment of each company's operating performance and trading history relative to BI. 12 Comparable Public Companies Analysis Description of Comparable Companies America Service Group (ASGR-NASDAQ) contracts to provide managed healthcare services to correctional facilities and military installations throughout the United States through its subsidiaries Prison Health Services Inc. (PHS), EMSA Correctional Care Inc. (EMSA Correctional) and EMSA Military Services Inc. (EMSA Military). The company, through PHS and EMSA Correctional, contracts with state, county and local governmental agencies to provide comprehensive healthcare services to inmates of prisons and jails, with a focus on those facilities that maintain an average daily population of over 300 inmates. EMSA Military provides a broad range of emergency medicine and primary healthcare services to active and retired military personnel and their dependents in medical facilities operated by the United States Department of Defense and the United States Veterans Administration. Avalon Correctional Services (CITY-NASDAQ) specializes in operating private community correctional facilities and providing intensive correctional programming. Avalon currently owns and operates 1,185 private corrections beds. The company owns and operates three minimum-security correctional facilities in Oklahoma, one medium security juvenile facility in Oklahoma, one medium security correctional facility in Texas, and an additional medium-security correctional facility is currently being constructed in Texas. The facilities provide numerous programs for offenders generally serving the last six months of their sentence. Avalon provides contract agencies the basic services relating to the security, detention and care of inmates, and a broad range of rehabilitative programs to reduce recidivism. The programming includes substance abuse treatment and counseling, vocational training, work release programs, basic educational programs, job and life skill training, and reintegration services. Children's Comprehensive Services (KIDS - NASDAQ) and its subsidiaries provide a continuum of services to at-risk and troubled youth. The company emphasizes education, treatment and juvenile justice services, primarily to federal, state and local governmental entities charged with the responsibility for providing such services. The company offers these services through the operation and management of education and treatment programs and both open and secured residential treatment centers in Alabama, Arkansas, California, Florida, Hawaii, Kentucky, Louisiana, Michigan, Montana, Ohio, Pennsylvania, Tennessee, Texas and Utah. The company also provides a limited range of adult behavioral services at certain of its locations in response to community demand. In addition, the company provides consulting, management and marketing services to other entities. 13 Comparable Public Companies Analysis Description of Comparable Companies Cornell Companies (CRN - NYSE) is one of the leading providers of privatized correctional, detention, pre-release, and treatment services in the United States. The company currently operates facilities in 13 states and the District of Columbia. The company provides integrated facility development, design, construction and operational services to governmental agencies within three operating divisions: secure institutional correctional and detention services; juvenile treatment, educational and detention services; and pre-release correctional and treatment services. As of December 31, 1999, the company had contracts to operate 72 facilities with a total service capacity of 14,845. Cornell Companies residential facilities have a total service capacity of 12,317 beds, with 49 facilities currently in operation. Correctional Services Corporation (CSCQ - NASDAQ) incorporated on October 28, 1993, is a comprehensive provider of juvenile rehabilitative services and a developer and operator of adult correctional facilities. The company has 35 juvenile facilities and approximately 3,800 juveniles in its care, and operates 18 adult facilities representing approximately 7,100 beds. On a combined basis, as of December 31, 1999, the company provided services in 20 states and Puerto Rico, representing approximately 10,900 beds excluding aftercare services. In addition, CSC operates a wide range of correctional facilities targeted toward solving the specialized needs of governmental agencies. On March 31, 1999, the company acquired Youth Services International, a national provider of private educational, developmental and rehabilitative programs to adjudicated juveniles, through a merger. Ramsay Youth Services (RYOU - NASDAQ) is a provider and manager of diversified education, treatment and community-based programs and services for at-risk and troubled youth in residential and non-residential settings nationwide. The company offers its full spectrum of programs and services in Alabama, Florida, Missouri, Michigan, Nevada, North Carolina, South Carolina, Texas, Utah and the Commonwealth of Puerto Rico. The company also provides a limited range of adult behavioral services at certain of its locations in response to community demand. The programs and services provided by the company are designed through a comprehensive continuum that is directed to address the specific needs of each youth. 14 Comparable Public Companies Analysis Description of Comparable Companies Res-Care (RSCR - NASDAQ) is a provider of residential, training, educational and support services to populations with special needs, including persons with developmental and other disabilities and at-risk and troubled youths. The company's programs include an array of services provided in both residential and non-residential settings for adults and youths with mental retardation or other developmental disabilities (MR/DD) and disabilities caused by acquired brain injury (ABI). The company also provides programs for youths who have special educational or support needs, are from disadvantaged backgrounds, or have severe emotional disorders. The company has three reportable operating segments: disabilities services; Job Corps program; and other youth services programs. Wackenhut Corrections Corporation (WHC - NYSE) operates privatized correctional facilities. The company is a 56%-owned subsidiary of the Wackenhut Corporation, a provider of professional security services. As of January 2, 2000, the company had 56 correctional, detention and healthcare facilities either under contract or award with an aggregate design capacity of 39,930 beds. Of these 56 facilities, 50 are currently in operation, and the company is developing six. Of the facilities being developed, three are expected to commence operations during 2000 (two in the second quarter and one in the third quarter). Wackenhut offers governmental agencies a comprehensive range of correctional and related institutional services to federal, state, local and overseas government agencies. 15 Comparable Public Companies Analysis ----------------------------------------------------- GRAPH: Indexed Performance (%) - Comparable Companies ----------------------------------------------------- Source: Factset 16 Comparable Public Companies Analysis ---------------------------------------------------------------- GRAPH: Indexed Performance (%) - Comparables Index, BIAC, NASDAQ ---------------------------------------------------------------- Source: Factset - ----------------------- (1) The comparable company index includes ASGR, CITY, KIDS, CRN, CSCQ, RYOU, RSCR and WHC and is market cap weighted. 17
Comparable Public Companies Analysis Corrections/Treatment Companies ($ in thousands, except per share data) Enterprise Value as a Multiple of TR12: 2001 P/E 8/7/00 Equity ---------------------------- P/E as a % of Closing Enterprise Market Net ----------------------- Trendlin Company Name Price Value/(1)/ Value Revenues EBITDA EBIT TR 12 CY 00E CY 01E Growth - ---------------------------- ------- ---------- -------- -------- ------- ------- ------ ------ ------ --------- America Service Group $ 19.00 $120,019 $ 70,890 $290,814 $16,625 $12,649 $ 1.34 $ 1.36 $ 1.70 24.0% 0.4x 7.2x 9.5x 14.2x 14.0x 11.2x 46.6% Avalon Correctional Services 1.52 37,403 7,147 19,624 5,110 3,620 0.11 N/A N/A N/A 1.9x 7.3x 10.3x 14.2x N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ BI Incorporated 4.13 40,598 32,788 72,195 11,724 3,856 0.26 N/A N/A N/A 0.6x 3.5x 10.5x 15.9x N/A N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Children's Comprehensive 3.06 44,172 21,962 127,088 14,816 10,447 0.67 N/A N/A N/A 0.3x 3.0x 4.2x 4.6x N/A N/A N/A Cornell Companies, Inc. 6.69 204,280 63,291 192,079 31,543 25,163 0.92 1.03 1.23 25.0% 1.1x 6.5x 8.1x 7.3x 6.5x 5.4x 21.7% Correctional Services Corp. 4.63 85,231 52,600 228,693 21,285 15,876 0.69 0.95 1.09 15.0% 0.4x 4.0x 5.4x 6.7x 4.9x 4.2x 28.2% Ramsay Youth Services 1.19 24,486 10,813 86,037 5,716 3,089 0.16 0.15 0.20 35.0% 0.3x 4.3x 7.9x 7.4x 7.9x 5.9x 16.8% Res-Care, Inc. 6.16 448,424 149,692 848,674 81,190 59,075 0.87 1.12 1.40 22.5% 0.5x 5.5x 7.6x 7.0x 5.5x 4.4x 19.5% Wackenhut Corrections 8.31 179,920 186,092 471,561 31,201 25,067 1.00 1.00 1.25 26.3% 0.4x 5.8x 7.2x 8.3x 8.3x 6.7x 25.4% - ------------------------------------------------------------------------------------------------------------------------------------ Average Multiple/(2)/ 0.7x 5.4x 7.5x 8.7x 7.8x 6.3x 26.4% Average Multiple Excluding High and Low/(2)/ 0.5x 5.5x 7.6x 8.5x 7.1x 5.6x 23.7% Median/(2)/ 0.4x 5.6x 7.8x 7.3x 7.2x 5.7x 23.6% - ------------------------------------------------------------------------------------------------------------------------------------ (1) Enterprise Value equals the sum of the Equity Market Value and Total Debt less Cash. (2) Excludes BI Incorporated.
18 Comparable Public Companies Analysis Summary Operational Results ($ in thousands)
Net Revenues EBITDA Net Income -------------------- -------------------- -------------------- TR12 CAGR/(1)/ TR12 Margin TR12 CAGR/(1)/ -------- --------- -------- --------- -------- --------- America Service Group 290,814 45.3% 16,625 5.7% 3,543 60.3% Avalon Correctional Services 19,624 69.1% 5,110 26.0% 453 N/M - ------------------------------------------------------------------------------------------------------------------ BI Incorporated 72,195 20.6% 11,724 16.2% 2,236 30.1% - ------------------------------------------------------------------------------------------------------------------ Children's Comprehensive 127,088 76.0% 14,816 11.7% 4,846 (10.6%) Cornell Companies, Inc. 192,079 58.7% 31,543 16.4% 8,837 52.9% Correctional Services Corp. 228,693 15.3% 21,285 9.3% 7,685 N/A Ramsay Youth Services 86,037 (22.2%) 5,716 6.6% 1,572 (4.4%) Res-Care, Inc. 848,674 33.1% 81,190 9.6% 25,264 19.0% Wackenhut Corrections 471,561 45.6% 31,201 6.6% 21,890 35.9% - ------------------------------------------------------------------------------------------------------------------ Average/(2)/ $283,071 40.1% $25,936 11.5% $ 9,261 25.5% Average Excluding High and Low/(2)/ $232,712 44.5% $20,198 10.0% $ 8,062 25.9% Median/(2)/ $210,386 45.5% $18,955 9.4% $ 6,266 27.5% - ------------------------------------------------------------------------------------------------------------------ Return on Average Assets Return on Avg. Equity ------------------------ --------------------- Debt/Total TR12 Avg./(1)/ TR12 Avg./(1)/ Capitalization ---------- ---------- -------- --------- -------------- America Service Group 3.4% 7.4% 11.2% 21.9% 45.3% Avalon Correctional Services 1.2% (0.0%) 9.9% 0.0% 82.0% - ------------------------------------------------------------------------------------------------------------------ BI Incorporated 3.3% 4.9% 4.8% 7.0% 14.6% - ------------------------------------------------------------------------------------------------------------------ Children's Comprehensive 4.9% 6.6% 8.5% 10.1% 31.1% Cornell Companies, Inc. 3.2% 3.5% 9.0% 8.2% 58.7% Correctional Services Corp. 7.0% (0.4%) 14.9% 0.2% 39.8% Ramsay Youth Services 3.9% (6.9%) 9.0% (17.8%) 46.3% Res-Care, Inc. 4.7% 5.0% 15.2% 15.5% 64.8% Wackenhut Corrections 10.4% 11.5% 18.5% 18.7% 15.1% - ------------------------------------------------------------------------------------------------------------------ Average/(2)/ 4.8% 3.3% 12.0% 7.1% 47.9% Average Excluding High and Low/(2)/ 4.5% 3.7% 11.5% 8.8% 47.7% Median/(2)/ 4.3% 4.3% 10.5% 9.1% 45.8% - ------------------------------------------------------------------------------------------------------------------ (1) Computed for the three most recent fiscal years. (2) Excludes BI Incorporated.
19 Comparable Public Companies Analysis Historical Stock Price Performance ($ in thousands, except per share data)
Closing Stock Price 1 Year ------------------- Average Daily Price Percentage Company Ticker 8/6/99 8/7/00 Volume Change Price Change - ----------------------------------- ----------- -------- --------- ------------- ------ ------------ America Service Group ASGR/NASDAQ $14.44 $19.00 15,866 $ 4.56 31.6% Avalon Correctional Services CITY/NASDAQ 2.78 1.52 4,151 (1.27) (45.5%) - ------------------------------------------------------------------------------------------------------------------------- BI Incorporated BIAC/NASDAQ 8.00 4.13 19,700 (3.88) (48.4%) - ------------------------------------------------------------------------------------------------------------------------- Children's Comprehensive KIDS/NASDAQ 5.81 3.06 19,192 (2.75) (47.3%) Cornell Companies, Inc. CRN/NYSE 15.44 6.69 33,174 (8.75) (56.7%) Correctional Services Corp. CSCQ/NASDAQ 9.19 4.63 58,386 (4.56) (49.7%) Ramsay Youth Services RYOU/NASDAQ 3.00 1.19 11,987 (1.81) (60.4%) Res-Care, Inc. RSCR/NASDAQ 20.38 6.16 19,768 (14.22) (69.8%) Wackenhut Corrections WHC/NYSE 19.25 8.31 67,725 (10.94) (56.8%) - ------------------------------------------------------------------------------------------------------------------------- Average/(1)/ (44.3%) Average Excluding High and Low/(1)/ (52.7%) Median/(1)/ (53.2%) - -------------------------------------------------------------------------------------------------------------------------
- -------------------- (1) Average excludes BIAC. 20 Comparable Public Companies Analysis Historical Market Capitalization
Market Value (000's) Closing Stock Price -------------------------------------------- ------------------- Price Percentage Company Ticker 8/6/99 8/7/00 8/6/99 8/7/00 Change Price Change - ----------------------------------- ----------- -------- --------- -------- -------- ---------- ------------ America Service Group ASGR/NASDAQ $14.44 $19.00 $ 51,817 $ 70,890 $19,073 36.8% Avalon Correctional Services CITY/NASDAQ 2.78 1.52 12,990 7,147 (5,843) (45.0%) - ---------------------------------------------------------------------------------------------------------------------------- BI Incorporated BIAC/NASDAQ 8.00 4.13 63,290 32,788 (30,503) (48.2%) - ---------------------------------------------------------------------------------------------------------------------------- Children's Comprehensive KIDS/NASDAQ 5.81 3.06 42,431 21,962 (20,470) (48.2%) Cornell Companies, Inc. CRN/NYSE 15.44 6.69 147,930 63,291 (84,640) (57.2%) Correctional Services Corp. CSCQ/NASDAQ 9.19 4.63 104,490 52,600 (51,890) (49.7%) Ramsay Youth Services RYOU/NASDAQ 3.00 1.19 27,247 10,813 (16,434) (60.3%) Res-Care, Inc. RSCR/NASDAQ 20.38 6.16 495,136 149,692 (345,444) (69.8%) Wackenhut Corrections WHC/NYSE 19.25 8.31 430,950 186,092 (244,858) (56.8%) - ---------------------------------------------------------------------------------------------------------------------------- Average/(1)/ $164,124 $ 70,311 ($93,813) (43.8%) Average Excluding High and Low/(1)/ $134,144 $ 61,541 ($70,689) (52.9%) Median/(1)/ $ 78,154 $ 57,946 ($36,180) (53.2%) - ----------------------------------------------------------------------------------------------------------------------------
- -------------------- (1) Average excludes BIAC. 21 Section 4B Comparable Acquisitions Comparable Acquisitions . We reviewed and analyzed certain publicly-available financial and structural information for selected merger and acquisition transactions involving companies in the corrections industry. . We examined these transactions and calculated the multiples of revenues, gross profit and EBITDA implied by the total transaction value. . No company or transaction is identical to BI or the Proposed Transaction. None of the transactions involved companies that have the same focus as BI. . In addition, several of the companies acquired in these transactions were engaged in aggressive consolidation strategies prior to their acquisition that may distort the suggested transaction valuation multiples. 22 Comparable Acquisitions ($ in thousands)
Multiples of Total Consideration to TR12: ------------------------- Transaction Total Net Gross Date Acquiror / Target Type Consideration Revenue Profit EBITDA - ----- ------------------------------------------ -------------- ------------- ------- ------ ------ 2/93 Youth Services International, Inc. Asset Purchase $ 1,767 N/A N/A N/A Forest Ridge Community Youth Services 11/93 Youth Services International, Inc. Asset Purchase 4,930 2.6x 4.5x 6.0x Prestige Developments, Inc. 1/94 Youth Services International, Inc. Stock Purchase 350 0.2x 0.5x N/M Western Youth, Inc. 3/94 Cornell Corrections, Inc. Stock Purchase 10,000 0.7x 3.6x 54.1x Eclectic Communications, Inc. 8/94 Youth Services International, Inc. Asset Purchase 923 0.3x N/A N/A Parc Place Limited Partnership 10/94 Youth Services International, Inc. Stock Purchase 686 N/A N/A N/A Promise House, Inc. 12/94 Corrections Corporation of America Pooling 20,963 2.7x 11.1x 18.7x TransCor America, Inc. 4/95 Corrections Corporation of America Pooling 40,023 1.7x 11.5x 21.0x Concept Incorporated 6/95 Youth Services International, Inc. Stock Purchase 1,338 N/A N/A N/A Developmental Behavioral Consultants, Inc. 7/95 Youth Services International, Inc. Asset Purchase 5,119 1.1x 1.9x 11.0x Desert Hills Center, New Mexico 8/95 Corrections Corporation of America Pooling 29,838 3.6x N/A N/A Corrections Partners, Inc. 3/96 Youth Services International, Inc. Asset Purchase 3,825 0.4x 1.0x 1.8x Tampa Bay Academy, Ltd. 5/96 Cornell Corrections, Inc. Stock Purchase 2,000 0.6x N/M N/M The Reid Center
- --------------------- Source: CommScan, Bloomberg and SEC filings 23 Comparable Acquisitions ($ in thousands)
Multiples of Total Consideration to TR12: ------------------------- Transaction Total Net Gross Date Acquiror / Target Type Consideration Revenue Profit EBITDA - ----- ------------------------------------------ -------------- ------------- ------- ------ ------ 7/96 Cornell Corrections, Inc. Asset Purchase $22,700 1.3x 3.4x 4.5x MidTex Detentions, Inc. 7/96 Youth Services International, Inc. Stock Purchase 800 N/A N/A N/A Youth Quest, Inc. 9/96 Res-Care, Inc. Asset Purchase N/A N/A N/A N/A Community Learning Centers, Inc. 9/96 Youth Services International, Inc. Asset Purchase N/A N/A N/A N/A Introspect Healthcare Corp. 10/96 BI Incorporated Stock Purchase 6,000 0.7x 1.3x 3.0x Community Corrections Corporation 2/97 Cornell Corrections, Inc. Asset Purchase 6,000 0.8x 3.7x 6.0x Interventions Co. 2/97 BI Incorporated Stock Purchase 2,337 N/A N/A N/A Peregrine Corrections, Inc. 4/97 Children's Comprehensive Services, Inc. Stock Purchase 990 0.8x N/A N/A AR&D, Inc. 6/97 Children's Comprehensive Services, Inc. Asset Purchase 25,600 0.4x N/M N/M Vendell Healthcare, Inc. 7/97 Healthcare America, Inc. Mgmt. Buyout 90,000 0.8x 1.7x 8.3x Healthcare America, Inc. 7/97 Wackenhut Corrections Corporation Stock Purchase 6,000 0.9x N/A N/A Psychiatric hospital 9/97 Cornell Corrections, Inc. Stock Purchase 18,000 0.6x 2.4x 7.2x The Abraxas Group 10/97 Youth and Family Centered Services, Inc. Stock Purchase 20,500/(1)/ 0.5x 4.5x 5.9x YSI Behavioral Health Operations
- --------------------- (1) Includes a $4.5 million earn-out. Source: CommScan, Bloomberg and SEC filings 24 Comparable Acquisitions ($ in thousands)
Multiples of Total Consideration to TR12: ------------------------- Transaction Total Net Gross Date Acquiror / Target Type Consideration Revenue Profit EBITDA - ----- ------------------------------------------ -------------- ------------- ------- ------ ------ 1/98 Children's Comprehensive Services, Inc. Pooling $ 2,700 N/A N/A N/A Ventures Management Services 2/98 Children's Comprehensive Services, Inc. Stock Purchase 2,250 0.9x N/A N/A Chad Youth Enhancement Center 4/98 Corrections Corporation/CCA Prison Realty Stock Purchase 265,000 N/A N/A N/A U.S. Corrections Corporation 6/98 Youth Services International, Inc. Pooling 6,826 0.7x N/A 5.8x Community Corrections, Inc. 8/98 Cornell Corrections, Inc. Stock Purchase 20,000 1.9x N/A 3.9x Allvest, Inc. 9/98 Children's Comprehensive Services, Inc. Stock Purchase 12,500 0.9x N/A N/A Ameris Health Systems, Inc. 12/98 CCA Prison Realty Trust Stock Purchase 1,598,760 3.9x 13.9x 17.3x Corrections Corporation of America 1/99 Correctional Properties Trust Stock Purchase 45,000 N/A N/A N/A Lawton, Ohio Correctional Facility 3/99 Correctional Services Corporation Stock Purchase N/A N/A N/A N/A Youth Services International, Inc. 5/99 Avalon Correctional Services, Inc. Stock Purchase N/A N/A N/A N/A Adams Community Corrections 6/99 Avalon Correctional Services, Inc. Stock Purchase 8,600 0.5x N/A N/A Villa at Greeley, LLC 11/99 Cornell Companies, Inc. Asset Purchase N/A N/A N/A N/A Interventions/BHS Consulting Corporation 1/00 Correctional Properties Trust Stock Purchase 15,200 1.8x N/A N/A Jena Juvenile Justice Center
- --------------------- Source: CommScan, Bloomberg and SEC filings 25 Comparable Acquisitions ($ in thousands)
Multiples of Total Consideration to TR12: ------------------------- Transaction Total Net Gross Date Acquiror / Target Type Consideration Revenue Profit EBITDA - ----- ------------------------------------------ -------------- ------------- ------- ------ ------ 3/00 America Service Group Inc. Asset Purchase $14,000 N/A N/A N/A PA & NY Operations (Correctional Physician Servs. Inc.) 5/00 America Service Group Inc. Stock Purchase 17,000 0.9x N/A N/A Correctional Health Services, Inc. - ---------------------------------------------------------------------------------------------------------------------- Average (Excluding High/Low) 1.1x 4.2x 9.1x - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Median 0.8x 3.5x 6.0x - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Average Purchase Acquisition Multiples 1.0x 3.5x 10.8x - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Averae Pooling Acquisition Multiples 2.2x 11.3x 15.2x - ----------------------------------------------------------------------------------------------------------------------
- --------------------- Source: CommScan, Bloomberg and SEC filings 26 Section 4C Discounted Cash Flow Analysis Discounted Cash Flow Analysis . The discounted cash flow analysis presents a valuation for the equity of the Company based upon projected cash flows. The analysis seeks to evaluate the intrinsic value of a business without considering a sale or other transaction with the Company. . The analysis is presented under two scenarios using five year projections provided by Company management ("Management Case") and a scenario with EBIT discounted by 30.0% ("Sensitivity Case"). . The final year of projections is utilized to calculate the "terminal value," an estimate of the value of the Company at the end of the projection period. This value is estimated by using a range of EBITDA multiples. The range is based upon current and recent trading multiples for the Company. . The projections are utilized to calculate free cash flow that is discounted to the present time utilizing discount rates ranging from 9.3% to 11.3%. The discount rates reflect the uncertainty of the projections and are estimated from the Company's theoretical cost of capital. . Inherent in any discounted cash flow analysis are the use of a number of assumptions, including the accuracy of projections, and the subjective determination of an appropriate terminal value and discount rate to apply to the projected cash flows of the entity under examination. Variations in any of these assumptions or judgments could significantly alter the results of a discounted cash flow analysis. 27 Discounted Cash Flow Analysis Discounted Cash Flow Analysis Management Case
2001 2002 2003 2004 2005 -------- -------- -------- -------- -------- Earnings Before Interest & Taxes $ 8,000 $ 10,700 $ 13,900 $ 17,700 $ 23,800 EBITDA 17,100 19,700 22,900 27,000 30,900 Income Tax Effect 42.5% 42.5% 42.5% 42.5% 42.5% -------- -------- -------- -------- -------- Net Operating Earnings Less Taxes 4,600 6,153 7,993 10,178 13,685 Plus Depreciation & Amortization 9,100 9,000 9,000 9,300 7,100 -------- -------- -------- -------- -------- Cash Flow From Operations 13,700 15,153 16,993 19,478 20,785 Change in Net Working Captial 168 (2,789) (9,413) (12,653) (15,373) Capital Expenditures (8,300) (8,000) (5,100) (5,100) (5,100) -------- -------- -------- -------- -------- Free Cash Flow $ 5,568 $ 4,364 $ 2,480 $ 1,724 $ 312 ======== ======== ======== ======== ========
Terminal Value as a Multiple of EBITDA (1) ------------------------------------------------------------- 3.0x 4.0x 5.0x 6.0x 7.0x --------- --------- --------- --------- --------- $ 92,700 $ 123,600 $ 154,500 $ 185,400 $ 216,300 Net Obligations (2) $12,128 Example of DCF Calculations Free Cash Flow -------------- 2001 $ 5,568 2002 4,364 2003 2,480 2004 1,724 2005 312 Terminal Value (5.0x) 154,500 Discount Rate (4) 10.3% Discounted Value $ 106,393 Less: Net Obligations (12,128) -------------- Net Value $ 94,265 ============== Shares Outstanding 7,949 Net Value Per Share $ 11.86 ==============
Present Value of Equity (3) Discount Terminal Value Multiple Rate (4) ----------------------------------------------------------------------------------- 3.0x 4.0x 5.0x 6.0x 7.0x ---------- --------------- -------------- -------------- --------------- --------------- 9.3% 59,300 79,093 98,886 118,678 138,471 10.3% 56,442 75,354 94,265 113,177 132,089 11.3% 53,731 71,808 89,885 107,963 126,040 Per Share Present Value of Equity (3) ---------- ----------------------------------------------------------------------------------- 9.3% 7.46 9.95 12.44 14.93 17.42 10.3% 7.10 9.48 11.86 14.24 16.62 11.3% 6.76 9.03 11.31 13.58 15.86
- ----------------------- (1) STES estimate. (2) Includes long-term debt and capitalized leases less cash. (3) Adjusted to deduct outstanding obligations. (4) Based on estimated cost of capital. 28 Discounted Cash Flow Analysis Discounted Cash Flow Analysis Sensitivity Case, 30.0% Operation Income Reduction
2001 2002 2003 2004 2005 -------- -------- -------- -------- -------- Earnings Before Interest & Taxes $ 5,600 $ 7,490 $ 9,730 $ 12,390 $ 16,660 EBITDA 14,700 16,490 18,730 21,690 23,760 Income Tax Effect 42.5% 42.5% 42.5% 42.5% 42.5% -------- -------- -------- -------- -------- Net Operating Earnings Less Taxes 3,220 4,307 5,595 7,124 9,580 Plus Depreciation & Amortization 9,100 9,000 9,000 9,300 7,100 -------- -------- -------- -------- -------- Cash Flow From Operations 12,320 13,307 14,595 16,424 16,680 Change in Net Working Captial 168 (2,789) (9,413) (12,653) (15,373) Capital Expenditures (8,300) (8,000) (5,100) (5,100) (5,100) -------- -------- -------- -------- -------- Free Cash Flow $ 4,188 $ 2,518 $ 82 $ (1,329) $ (3,794) ======== ======== ======== ======== ========
Terminal Value as a Multiple of EBITDA (1) ------------------------------------------------------------- 3.0x 4.0x 5.0x 6.0x 7.0x --------- --------- --------- --------- --------- $ 71,280 $ 95,040 $ 118,800 $ 142,560 $ 166,320 Net Obligations (2) $12,128 Example of DCF Calculations Free Cash Flow -------------- 2001 $ 4,188 2002 2,518 2003 82 2004 (1,329) 2005 (3,794) Terminal Value (5.0x) 118,800 Discount Rate (4) 10.3% Discounted Value $ 75,416 Less: Net Obligations (12,128) -------------- Net Value $ 63,288 ============== Shares Outstanding 7,949 Net Value Per Share $ 7.96 ==============
Present Value of Equity (3) Discount Terminal Value Multiple Rate (4) ----------------------------------------------------------------------------------- 3.0x 4.0x 5.0x 6.0x 7.0x ---------- --------------- -------------- -------------- --------------- --------------- 9.3% 36,170 51,389 66,608 81,828 97,047 10.3% 34,205 48,746 63,288 77,830 92,372 11.3% 32,342 46,242 60,142 74,042 87,943 Per Share Present Value of Equity (3) ---------- ----------------------------------------------------------------------------------- 9.3% 4.55 6.47 8.38 10.29 12.21 10.3% 4.30 6.13 7.96 9.79 11.62 11.3% 4.07 5.82 7.57 9.32 11.06
- ----------------------- (1) STES estimate. (2) Includes long-term debt and capitalized leases. (3) Adjusted to deduct outstanding obligations. (4) Based on estimated cost of capital. 29 Discounted Cash Flow Analysis Weighted Average Cost of Capital
Levered Debt-to- Unlevered Betas for Comparable Companies Beta (BI) Market Equity Beta (BU)(1) - ------------------------------ --------- ------------- ------------ America Service Group 0.51 52.5% 0.39 Avalon Correctional Services 0.14 432.5% 0.04 Children's Comprehensive 0.80 118.2% 0.48 Cornell Companies, Inc. 0.60 223.2% 0.26 Correctional Services Corp. 0.89 66.1% 0.64 Ramsay Youth Services 0.47 141.3% 0.26 Res-Care, Inc. 0.44 208.9% 0.20 Wackenhut Corrections 0.78 11.3% 0.73 --------- ------------- ------------ Average 0.58 156.7% 0.38
Market Assumptions Implied Risk-Free Rate (5-Year T-Note 08/07/00) 6.1% Risk Premium for Common Stocks (2) 8.1% Small Capitalization Premium (2) 2.2% Levered Cost of Equity for Comparables (3) 10.7% Unlevered Cost of Equity for Comparables 9.1% Marginal Tax Rate 42.5% Debt-to-Equity Ratio 26.8%
Common Assumptions for Debt Equity (CE) - ------------------------------------ --------- --------------- Cost 8.50% 11.8% Value $ 12,928 $ 48,325 Total Value of Company $ 61,253 Total Value = Debt + Common Equity Relevered Beta (4) 0.43 Based on the Unlevered Beta from the Comparables and the Company's Debt-to-Equity-Equity Ratio Cost of Common Equity 11.8% Company Cost of Equity = Risk-Free Rate + (Relevered Beta x Risk Premium) + Private Equity Risk Premium Weighted Average Cost of Capital 10.3% WACC = [(cost D) x (value D/V) x (1-tax rate)] + [(cost PE) x (value PE/V)] + [(cost CE) x (value CE/V)]
- ------------------------ (1) BU = BI/[1 + (1 - tax rate) x (debt/equity ratio)]. Assumes an average tax rate of 42.5% (2) Provided by Ibbotsen Associates. (3) Cost of equity = risk free rate + (BI x risk premium for common stocks). (4) Relevered Beta = average Bu x [1 + (1 - tax rate) x (debt/equity ratio)]. 30 Section 4D Leveraged Buyout Analysis Leveraged Buyout Analysis . The leveraged buyout model presents an analysis of the stand-alone value for the equity of the Company. The analysis focuses upon the price which could be paid for the Company's equity in a leveraged transaction while achieving an adequate internal rate of return on investment. . The analysis is presented utilizing Company provided projections and is assumed to be a stock purchase with the assumption of existing liabilities. . Goodwill is created in the transaction and is assumed to be amortized over 20 years and is not deductible for tax purposes. . The transaction is assumed to be funded with a capital structure consisting of equity, subordinated debt and senior bank financing. The senior term A bank debt is assumed to have an interest rate of 9.96%, the senior term B bank debt is assumed to have an interest rate of 10.46%, while the subordinated debt is assumed to have an interest rate of 12.0% with a 1.0% PIK. . Under the two scenarios, the value of equity acquired is calculated assuming an $8.25 purchase price. The return is calculated over a five-year time period with an assumed exit valuation of 6.0x and 7.0x EBITDA. . Summary information appears on the following page with the entire model presented in Exhibit A. 31 Leveraged Buyout Analysis ($ in millions) SUMMARY PURCHASE ASSUMPTIONS: - -------------------- Purchase of Stock $ 74.9 Transaction Fees 6.0 Payoff Existing Senior Debt 12.8 Existing Debt - Assumed - Less: Options Outstanding (8.4) Non-Compete Agreement - Plus: Required Cash (Excess) - ---------- Financing Requirements $ 85.4 ========== Purchase Multiples: 2000 EBITDA 7.0x 2001 EBITDA 5.0x CAPITALIZATION - -------------- % Common Amount % Total Equity ------ ------- -------- Senior Term Debt - A $ 15.0 17.6% 0.0% Senior Term Debt - B 22.5 26.4% 0.0% Revolving Credit - 0.0% 0.0% ---------------------------------- Total Senior Debt 37.5 43.9% 0.0% Mezzanine - 0.0% 0.0% Senior Subordinated Debt 19.0 22.3% 12.5% Seller Note - ---------------------------------- Total Debt 56.5 66.2% 12.5% Preferred Stock - 0.0% 0.0% Equity - Sponsors 28.9 33.8% 72.5% Equity - Management - 0.0% 15.0% Equity - STES - 0.0% 0.0% ---------------------------------- Total Equity 28.9 33.8% 87.5% TOTAL CAPITALIZATION $ 85.4 100.0% 100.0% ================================== CALCULATION OF PURCHASE PRICE: - ----------------------------- Offer Price Per Share $ 8.25 Current Share Price $ 4.13 Premium Offered 100.0% CALCULATION OF INTANGIBLES: - -------------------------- Purchase Price $ 66.6 Less Net Worth 48.6 -------- Goodwill 17.9 Years of Amortization 20.0 -------- Annual Goodwill Expense 0.9 Transaction Costs 6.0 Years of Amortization 7.0 -------- Annual Transaction Expense 0.9 Total Amortization of Intang. per Year 1.8 RETURNS TO INVESTORS: - -------------------- Multiple of EBITDA ---------------------------------------------------- 6.0x 6.5x 7.0x 7.5x 8.0x ---------------------------------------------------- Net Terminal Value $ 161.1 $ 176.5 $ 192.0 $ 207.4 $ 222.9 Senior Subordinated Debt 25.4% 26.3% 27.2% 28.1% 29.0% Sponsors 32.1% 34.6% 36.8% 39.0% 41.0% - ---------------------------------------------------------- COVERAGE RATIOS: - ---------------- Closing 2001 ------------------ Total Debt/Total Capitalization 66.2% 65.5% Senior Debt/Total Capitalization 43.9% 26.8% EBITDA/Interest 12.2x 2.4x EBITDA/Senior Interest 12.2x 4.4x Senior Debt/EBITDA 3.1x 2.1x Senior Debt/EBIT 9.9x 5.1x Senior Debt/Operating Cash Flow 3.9x Total Debt/EBITDA 4.6x 3.2x Total Debt/EBIT 14.9x 7.7x Total Debt/Operating Cash Flow 6.0x - ---------------------------------------------------------- 32 Section 5 Premiums Paid Analysis Premiums Paid Analysis . We reviewed and analyzed publicly available information including transaction prices and historical stock prices for: . going private transactions; . completed between 1997 and 2000; and . with a transaction value between $25 and $250 million. . We examined these transactions and calculated the premiums of take-out prices relative to historical stock prices at intervals of one day, one week, four weeks and one year prior to the announcement date of the individual transaction. . We performed a regression analysis on the premium relative to one day prior to the announcement versus the percentage change in stock price from one year prior to announcement to the lowest price during the year preceding the announcement. 33 Premiums Paid Analysis GRAPH: 1997-Present Completed Going Private Transactions Valued Between $25 and $250 Million, Premium Paid 1 Day Prior to Announcement vs. % Change in Stock Price from 1 Year Prior to Announcement to Lowest Price 1 Year Prior to Announcement - ----------- Source: CommScan 34 Premiums Paid Analysis
Target Target Price Revised Initial Offer to Stock Price: Initially Price ------------------------------ Offered Offered 1 Announcement Transaction Acquisition Per Per 1 Day 1 Week Month 1 Year Date Target Value (mm) Technique Share Share Prior Prior Prior Prior - ------------ ---------------------------------- ----------- ---------------- --------- ------- ------ ------ ------ ------ 7/23/96 Osborn Communications Corp. $ 100.00 Tender Offer $ 15.38 $ 15.38 28.1% 50.0% 30.9% 119.6% 10/17/96 Triad Systems Corp. 221.58 Tender Offer 9.25 9.25 68.2% 60.9% 85.0% 74.1% 4/11/97 Ero Inc. 201.89 Tender Offer 11.25 11.25 9.8% 16.9% 32.4% 66.7% 5/30/97 Integrated Living Communities Inc. 77.00 Tender Offer 11.50 11.50 26.9% 21.1% 53.3% N/A 6/16/97 Fredericks of Hollywood 68.65 Tender Offer 6.14 7.75 17.0% 14.2% 22.8% 22.8% 7/01/97 Kerr Group Inc. 27.30 Tender Offer 5.40 5.40 39.4% 39.4% 127.4% 27.1% 7/03/97 Krystal Company 145.40 Cash Acquisition 14.50 14.50 132.0% 169.8% 176.2% 182.9% 7/31/97 Bucyrus International Inc. 189.60 Tender Offer 18.00 18.00 33.3% 46.9% 71.4% 108.7% 8/15/97 T-SF Communications Corp. 145.00 Tender Offer 40.25 40.25 3.9% 4.2% 6.3% 102.5% 9/05/97 National Picture & Frame Co. 63.00 Tender Offer 12.00 12.00 11.6% 11.0% 9.1% 10.3% 9/16/97 Tescorp Inc. 132.40 Tender Offer 4.50 4.50 33.3% 33.3% 38.5% 50.0% 9/23/97 El Chico Restaurants Inc. 47.32 Tender Offer 12.75 12.75 21.4% 17.2% 22.9% 54.5% 10/01/97 Alpine Lace Brands Inc. 56.69 Tender Offer 9.13 9.13 (8.8%) 5.8% 15.9% 43.1% 10/17/97 Tranzionic Cos. 101.44 Tender Offer 29.00 29.00 (1.5%) (2.9%) 5.5% 88.6% 12/23/97 Union Corp. 182.67 Tender Offer 31.50 31.50 14.5% 13.5% 29.2% 41.6% 1/29/98 Monroe, Inc. 48.62 Tender Offer 10.77 10.77 5.1% 10.5% 7.7% 74.1% 2/17/98 Bell Sports Corp. 141.98 Tender Offer 10.50 10.25 16.7% 15.9% 11.3% 102.4% 3/11/98 Portec Inc. 71.26 Cash Acquisition 16.00 16.00 8.9% 14.3% 11.3% 45.5% 3/16/98 Norwood Promotional Products 162.47 Tender Offer 20.70 20.70 19.1% 19.1% 23.6% 38.0% 4/03/98 Bertucci's Inc. 97.16 Tender Offer 10.50 10.50 35.5% 35.5% 33.3% 86.7% 5/21/98 National Gas & Oil Co. 93.04 Tender Offer 13.00 13.00 7.2% 18.2% 26.1% 52.7% 6/02/98 Housecall Medical Resources, Inc. 50.15 Tender Offer 1.50 1.50 23.2% 2.7% 14.3% (63.1%) 6/16/98 Personnel Management Inc. 34.70 Tender Offer 16.00 16.00 25.5% 23.1% 23.1% 66.2% 6/22/98 GT Bicycles Inc. 168.63 Tender Offer 8.00 8.00 68.4% 77.8% 36.2% (1.5%) 7/17/98 Decrane Aircraft Holdings Inc. 183.54 Tender Offer 23.00 23.00 30.5% 28.7% 31.4% 33.3% 7/28/98 Compdent Corp. 151.70 Tender Offer 18.00 18.00 33.3% 30.9% 23.6% (15.8%) 7/29/98 E-Z Serve Corp. 41.61 Tender Offer 0.60 0.60 37.1% 20.0% 37.1% (20.0%) 9/18/98 Spaghetti Warehouse, Inc. 60.00 Tender Offer 8.00 8.00 39.1% 32.0% 2.4% 13.3% 11/09/98 Global Motorsport Group, Inc. 100.87 Tender Offer 19.50 19.50 15.6% 14.7% 44.4% 35.7% 1/19/99 Audits & Surveys Worldwide, Inc. 42.50 Cash Acquisition 3.24 3.24 32.9% 36.4% 44.0% 12.7%
- -------------------- Source: CommScan 35 Premiums Paid Analysis
Target Target Price Revised Initial Offer to Stock Price: Initially Price ------------------------------ Offered Offered 1 Announcement Transaction Acquisition Per Per 1 Day 1 Week Month 1 Year Date Target Value (mm) Technique Share Share Prior Prior Prior Prior - ------------ ---------------------------------- ----------- ---------------- --------- ------- ------ ------ ------ ------ 2/22/99 Oacis Healthcare Holdings 47.42 Tender Offer 4.45 4.45 36.9% 42.4% 42.4% 31.9% 2/23/99 Damen Financial Corp. 51.75 Tender Offer 18.35 18.35 20.3% 28.8% 24.4% 1.2% 3/08/99 Analysis & Technology Inc. 102.30 Tender Offer 26.00 26.00 18.9% 16.2% 23.8% 21.6% 3/15/99 Haskel International, Inc. 62.82 Tender Offer 12.90 12.90 42.3% 49.6% 51.8% 26.6% 3/25/99 Sheridan Healthcare Inc. 125.29 Tender Offer 9.25 9.25 8.8% 12.1% 17.5% (39.8%) 4/26/99 Bridgeport Machines Inc. 55.93 Cash Acquisition 10.00 10.00 67.5% 77.8% 81.8% (20.8%) 5/07/99 Instron Corp. 182.09 Tender Offer 22.00 22.00 36.4% 29.4% 37.5% 9.7% 5/12/99 Optek Technology, Inc. 190.97 Tender Offer 25.50 25.50 29.9% 47.8% 96.2% 13.6% 5/19/99 Fulton Bancorp, Inc. 31.67 Tender Offer 19.15 19.15 12.6% 12.6% 41.9% (14.9%) 7/22/99 White Cap Industries, Inc. 229.93 Tender Offer 16.50 16.50 49.2% 45.1% 50.0% (13.2%) 9/03/99 Digital Link Corp. 86.92 Tender Offer 10.30 10.85 25.8% 23.0% 22.1% 174.7% 9/27/99 TEAM America Corp. 33.68 Tender Offer 7.75 7.75 29.2% 26.5% 53.1% 24.0% 2/25/00 Spanlink Communications Inc. 56.13 Tender Offer 10.50 10.50 (2.3%) 6.3% 28.2% 194.7% - ------------------------------------------------------------------------------------------------------------------------------------ Average 28.0% 30.2% 38.8% 44.3% Average Excluding High and Low 26.3% 27.6% 36.3% 43.3% Median 25.8% 23.0% 30.9% 34.5% First Quartile 36.0% 37.9% 44.2% 72.2% Third Quartile 13.6% 14.3% 22.4% 10.9% - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------- Source: CommScan 36 SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 1 of 11 - -------------------------------------------------------------------------------- SUMMARY - ---------------------------------------- - ---------------------------------------------------- PURCHASE ASSUMPTIONS: - --------------------- Purchase Of Stock $ 74.9 Transaction Fees 6.0 Payoff Existing Senior Debt 12.8 Existing Debt - Assumed - Less: Options Outstanding (8.4) Non-Compete Agreement - Plus: Required Cash (Excess) - ------------ Financing Requirements $ 85.4 ============ Purchase Multiples: 2000 EBITDA 7.0 x 2001 EBITDA 5.0 x - ---------------------------------------------------- - -------------------------------------------------------------------- CAPITALIZATION: - --------------- % Common Amount % Total Equity ------ ------- -------- Senior Term Debt - A $ 15.0 17.6% 0.0% Senior Term Debt - B 22.5 26.4% 0.0% Revolving Credit - 0.0% 0.0% --------------------------------- Total Senior Debt 37.5 43.9% 0.0% Mezzanine - 0.0% 0.0% Senior Subordinated Debt 19.0 22.3% 12.5% Seller Note - --------------------------------- Total Debt 56.5 66.2% 12.5% Preferred Stock - 0.0% 0.0% Equity - Sponsors 28.9 33.8% 72.5% Equity - Management - 0.0% 15.0% Equity - STES - 0.0% 0.0% --------------------------------- Total Equity 28.9 33.8% 87.5% TOTAL CAPITALIZATION $ 85.4 100.0% 100.0% ================================= - -------------------------------------------------------------------- - --------------------------------------- CALCULATION OF PURCHASE PRICE: - ------------------------------ Offer Price Per Share $ 8.25 Current Share Price $ 4.13 Premium Offered 100.0% - --------------------------------------- - --------------------------------------- CALCULATION OF INTANGIBLES: - --------------------------- Purchase Price $66.6 Less: Net Worth 48.6 -------- Goodwill 17.9 Years of Amortization 20.0 -------- Annual Goodwill Expense 0.9 Transaction Costs 6.0 Years of Amortization 7.0 -------- Annual Transaction Expense 0.9 Total Amort. of Intang. per Year 1.8 - --------------------------------------- - -------------------------------------------------------------------------------- RETURNS TO INVESTORS: - --------------------- Multiple of EBITDA -------------------------------------------------------- 6.0x 6.5x 7.0x 7.5x 8.0x -------------------------------------------------------- Net Terminal Value $161.1 $176.5 $192.0 $207.4 $222.9 Senior Subordinated Debt 25.4% 26.3% 27.2% 28.1% 29.0% Sponsors 32.1% 34.6% 36.8% 39.0% 41.0% - -------------------------------------------------------------------------------- - --------------------------------------------------------------------- COVERAGE RATIOS: - ---------------- CLOSING 2001 ------------------ Total Debt/ Total Capitalization 66.2% 65.5% Senior Debt/ Total Capitalization 43.9% 26.8% EBITDA/Interest 12.2x 2.4x EBITDA/Senior Interest 12.2x 4.4x Senior Debt/EBITDA 3.1x 2.1x Senior Debt/EBIT 9.9x 5.1x Senior Debt/Operating Cash Flow 3.9x Total Debt/EBITDA 4.6x 3.2x Total Debt/EBIT 14.9x 7.7x Total Debt/Operating Cash Flow 6.0x - --------------------------------------------------------------------- SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 2 of 11 ================================================================================ PRO FORMA CAPITALIZATION - --------------------------------------------------- - -------------------------------------------------------------------------------- SOURCES OF FUNDS ================================================================================ -------------------------------------------------- % Equity Amount % Owned ---------------- ------------- --------------- Revolving Credit $ - 0.0% 0.0% Existing Debt - 0.0% 0.0% Senior Term Debt - A 15.0 17.6% 0.0% Senior Term Debt - B 22.5 26.4% 0.0% Mezzanine - 0.0% 0.0% Senior Subordinated Debt 19.0 22.3% 12.5% Seller Note - 0.0% 0.0% Preferred Stock - 0.0% 0.0% Common Equity: Sponsors 28.9 33.8% 72.5% Management - 0.0% 15.0% STES - 0.0% 0.0% Excess Cash on Balance Sheet - 0.0% 0.0% ---------------- ------------- --------------- TOTAL SOURCES $ 85.4 100.0% 100.0% ================ ============= =============== ================================================================================ - ----------------------------------------------------------------------- USES OF FUNDS ======================================================================= -------------------------------- Amount % ---------------- ------------- Purchase Of Stock $ 74.9 87.8% Less: Options Outstanding (8.4) (9.8%) Payoff Existing Senior Debt 12.8 15.0% Existing Debt - Assumed - 0.0% Transaction Fees 6.0 7.0% Tender And/Or Consent Costs - 0.0% Non-Compete Agreement - 0.0% Required Cash (Excess) - 0.0% ---------------- ------------- TOTAL USES $ 85.4 100.0% ================ ============= ======================================================================= SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 3 of 11 ================================================================================ ASSUMPTIONS - --------------------------------------------- - --------------------------------------------- OPERATING RATIOS - ---------------------------------------------
PRO FORMA PROJECTED ---------- ---------------------------------------------- 2000 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ ------ Revenue Growth 12.8% 17.1% 17.4% 16.6% 15.9% Cost of Goods Sold 54.6% 54.8% 55.0% 54.9% 54.6% 55.3% Gross Margin 45.4% 45.2% 45.0% 45.1% 45.4% 44.7% General & Administrative 29.7% 25.7% 25.7% 26.0% 26.0% 25.7% Depreciation 8.7% 7.9% 6.5% 5.6% 5.1% 3.1% Operating Margin 7.1% 11.7% 12.8% 13.5% 14.2% 16.0% EBITDA Margin 15.8% 19.6% 19.3% 19.1% 19.3% 19.1% Accounts Rec. (Days of Revenue) 64.79 68.57 67.50 66.31 65.36 64.25 Inventories (Days of COGS) 45.65 34.36 25.98 22.15 19.10 16.29 Prepaid Expenses (% of Revenue) 1.88% 1.55% 1.08% 0.79% 0.70% 0.62% Other Current Assets (% of Revenue) 1.21% 0.92% 0.83% 0.71% 0.64% 0.55% Accounts Payable (Days of COGS) 20.33 14.51 18.33 22.91 27.49 32.83 Accrued Expenses (Days of COGS) 27.88 27.49 31.31 34.36 38.18 42.00 Other Current Liab. (Days of COGS) 26.05 21.00 20.62 20.24 20.62 21.00 Depreciation $ 6.9 $ 6.6 $ 6.7 $ 7.1 $ 5.0 Capital Expenditures - PP&E $ 8.3 $ 8.0 $ 5.1 $ 5.1 $ 5.1 Taxes Rates - ----------- Tax Rate 42.50% 42.50% 42.50% 42.50% 42.50%
SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 4 of 11 =============================================================================== INCOME STATEMENTS - ------------------------------------------
PRO FORMA PROJECTED ---------- ---------------------------------------------- FYE 6/30 FISCAL YEAR ENDED 06/30 ---------- ---------------------------------------------- 2000 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ ------ Revenue $ 77.4 $ 87.3 $102.2 $120.0 $139.9 $162.2 Cost of Goods Sold 42.3 47.8 56.2 65.9 76.4 89.6 ---------- ---------------------------------------------- Gross Margin 35.2 39.5 46.0 54.1 63.5 72.6 General & Administrative 23.0 22.4 26.3 31.2 36.4 41.6 Depreciation 6.7 6.9 6.6 6.7 7.1 5.0 ---------- ---------------------------------------------- Operating Profit 5.5 10.2 13.1 16.2 19.9 25.9 EBITDA 12.2 17.1 19.7 22.9 27.0 30.9 Goodwill Amortization - (0.9) (0.9) (0.9) (0.9) (0.9) Amortization of Intagibles (1.7) (2.2) (2.4) (2.3) (2.2) (2.1) ---------- ---------------------------------------------- EBIT 3.8 7.1 9.8 13.0 16.8 22.9 Interest Expense - ---------------- Existing Debt 1.0 - - - - - Senior Term Debt - A - 1.5 1.3 1.1 0.8 0.4 Senior Term Debt - B - 2.4 2.4 2.3 2.3 2.3 Transaction Cost Amort. - 0.9 0.9 0.9 0.9 0.9 Senior Subordinated Debt - 2.3 2.3 2.3 2.3 2.3 ---------- ---------------------------------------------- Total Interest Expense 1.0 7.0 6.8 6.6 6.3 5.9 Pretax Income 2.8 0.1 3.0 6.4 10.5 17.0 Provision for Income Taxes 1.1 0.1 1.3 2.7 4.5 7.2 ---------- ---------------------------------------------- Net Income $ 1.7 $ 0.1 $ 1.7 $ 3.7 $ 6.0 $ 9.8 ========== ============================================== Preferred Dividends - - - - - - Net to Retained Earnings $ 1.7 $ 0.1 $ 1.7 $ 3.7 $ 6.0 $ 9.8 ========== ==============================================
SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 5 of 11 =============================================================================== COMMON SIZED INCOME STATEMENTS - --------------------------------------------------------------
PRO FORMA PROJECTED ---------- ---------------------------------------------- FYE 6/30 FISCAL YEAR ENDED 06/30 ---------- ---------------------------------------------- 2000 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ ------ Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Goods Sold 54.6% 54.8% 55.0% 54.9% 54.6% 55.3% ---------- ---------------------------------------------- Gross Margin 45.4% 45.2% 45.0% 45.1% 45.4% 44.7% Labor Expense 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Operating Expense 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% General & Administrative 29.7% 25.7% 25.7% 26.0% 26.0% 25.7% Depreciation 8.7% 7.9% 6.5% 5.6% 5.1% 3.1% ---------- ---------------------------------------------- Operating Profit 7.1% 11.7% 12.8% 13.5% 14.2% 16.0% EBITDA 15.8% 19.6% 19.3% 19.1% 19.3% 19.1% Miscellaneous Income (Expense) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Gain (Loss) on Assets Sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Asset Write-up Depreciation 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Transaction Cost Amort. 0.0% 1.0% 0.8% 0.7% 0.6% 0.5% Goodwill Amortization 0.0% (1.0%) (0.9%) (0.7%) (0.6%) (0.6%) ---------- ---------------------------------------------- EBIT 7.1% 11.6% 12.8% 13.4% 14.2% 15.9% Interest Expense - ---------------- Existing Debt 1.3% 0.0% 0.0% 0.0% 0.0% 0.0% Overflow Debt 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Revolving Credit 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Senior Term Debt - A 0.0% 1.7% 1.3% 0.9% 0.6% 0.3% Senior Term Debt - B 0.0% 2.7% 2.3% 2.0% 1.7% 1.4% Mezzanine 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Senior Subordinated Debt 0.0% 2.6% 2.2% 1.9% 1.6% 1.4% ---------- ---------------------------------------------- Seller Note 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ---------- ---------------------------------------------- Total Interest Expense 1.3% 7.0% 5.8% 4.8% 3.9% 3.1% Pretax Income 5.8% 4.6% 6.9% 8.6% 10.3% 12.8% Provision for Income Taxes 1.4% 0.1% 1.2% 2.3% 3.2% 4.5% ---------- ---------------------------------------------- Net Income 4.4% 4.6% 5.7% 6.4% 7.1% 8.4% ========== ============================================== Preferred Dividends 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Net to Retained Earnings 4.4% 4.6% 5.7% 6.4% 7.1% 8.4% ========== ==============================================
SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 6 of 11 =============================================================================== BALANCE SHEETS - ----------------------------------------- - ----------------------------------------- ASSETS - -----------------------------------------
PRO FORMA PROJECTED ------------ ---------------------------------------------- As of 6/30 ADJUST CLOSING As of 06/30 ------------ ------ ------- ---------------------------------------------- 2000 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ ------ Current Assets: Cash & Marketable Securities $ 0.8 $ - $ 0.8 $ 0.8 $ 1.5 $ 5.7 $ 10.9 $ 16.9 Accounts Receivable 13.7 13.7 16.4 18.9 21.8 25.1 28.6 Inventory 5.3 5.3 4.5 4.0 4.0 4.0 4.0 Investments in Sales-Type Leases 3.3 3.3 3.0 3.0 3.0 3.0 3.0 Prepaid Expenses 1.5 1.5 1.4 1.1 1.0 1.0 1.0 Deferred Income Taxes 0.9 0.9 0.8 0.9 0.9 0.9 0.9 ------------ ---------------------------------------------------------- TOTAL CURRENT ASSETS 25.6 25.6 26.9 29.4 36.3 44.8 54.4 Net PPE 20.4 - 20.4 21.3 21.5 18.7 15.5 14.4 Other Assets 5.0 5.0 4.8 5.3 5.6 6.4 7.1 Investments in Sales-Type Leases 3.9 3.9 3.4 3.4 3.4 3.4 3.4 Intangible Assets 17.3 17.3 15.6 14.4 13.3 12.3 11.4 Transaction Costs - 6.0 6.0 5.1 4.3 3.4 2.6 1.7 Acquisition Goodwill - 17.9 17.9 17.1 16.2 15.3 14.4 13.5 ------------ ---------------------------------------------------------- TOTAL FIXED ASSETS 46.6 70.6 67.3 65.0 59.7 54.6 51.5 TOTAL ASSETS $ 72.2 $ 96.1 $ 94.2 $ 94.4 $ 95.9 $ 99.4 $ 105.8 ============ ==========================================================
SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 7 of 11 =============================================================================== BALANCE SHEETS - ----------------------------------------- - ----------------------------------------- LIABILITIES & EQUITY - -----------------------------------------
PRO FORMA PROJECTED ------------ ---------------------------------------------- As of 6/30 ADJUST CLOSING As of 06/30 ------------ ------ ------- ---------------------------------------------- 2000 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ ------ Current Liabilities: Accounts Payable $ 2.4 $ 2.4 $ 1.9 $ 2.4 $ 3.0 $ 3.6 $ 4.3 Accrued Expenses 3.2 3.2 $ 3.6 $ 4.1 $ 4.5 $ 5.0 $ 5.5 Other Current Liabilities 3.0 3.0 $ 2.8 $ 2.7 $ 2.7 $ 2.7 $ 2.8 ------------ ---------------------------------------------------------- TOTAL CURRENT LIABILITIES 8.6 8.6 8.3 9.2 10.2 11.3 12.6 Deferred Revenue 2.0 2.0 1.9 1.7 1.6 1.6 1.6 Long Term Debt: Existing Debt 12.8 (12.8) - - - - - - Senior Term Debt - A - 15.0 15.0 13.5 11.3 8.3 4.5 - Senior Term Debt - B - 22.5 22.5 22.5 22.5 22.4 22.4 22.4 Senior Subordinated Debt - 19.0 19.0 19.0 19.0 19.0 19.0 19.0 ------------ ---------------------------------------------------------- TOTAL LONG TERM DEBT 12.8 56.5 55.0 52.7 49.7 45.9 41.4 TOTAL LIABILITIES 23.4 67.1 65.1 63.6 61.4 58.8 55.5 Net Worth: Equity - Common 36.0 (7.2) 28.9 28.9 28.9 28.9 28.9 28.9 Retained Earnings 12.6 (12.6) - 0.1 1.8 5.4 11.5 21.3 ------------ ---------------------------------------------------------- NET WORTH 48.6 28.9 28.9 30.6 34.3 40.4 50.1 ------------ ---------------------------------------------------------- LIABILITIES & NET WORTH $ 72.0 $ 95.9 $ 94.0 $ 94.2 $ 95.7 $ 99.2 $ 105.6 ============ ==========================================================
SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 8 of 11 =============================================================================== CASH FLOW STATEMENT - ----------------------------------------------------
PROJECTED ---------------------------------------------- FISCAL YEAR ENDED 06/30 ---------------------------------------------- 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ NET TO RETAINED EARNINGS $ 0.1 $ 1.7 $ 3.7 $ 6.0 $ 9.8 Non-Cash Adjustments: Depreciation and Amortization 9.1 9.0 9.0 9.3 7.1 Transaction Cost Amort. 0.9 0.9 0.9 0.9 0.9 Goodwill Amortization 0.9 0.9 0.9 0.9 0.9 ---------------------------------------------- FUNDS FROM OPERATIONS 10.9 12.5 14.4 17.1 18.6 Net Working Capital Requirements: Accounts Receivable (2.7) (2.5) (2.9) (3.3) (3.5) Inventory 0.8 0.5 - - - Investments in Sales-Type Leases 0.3 - - - - Prepaid Expenses 0.1 0.3 0.2 (0.0) (0.0) Deferred Income Taxes 0.1 (0.0) - (0.1) - Accounts Payable (0.5) 0.5 0.6 0.6 0.7 Accrued Expenses 0.4 0.5 0.4 0.5 0.5 Deferred Revenues (0.1) (0.2) (0.1) - - Other Current Liabilities (0.3) (0.0) (0.1) 0.1 0.0 ---------------------------------------------- (INCREASE) IN NET WORKING CAPITAL (1.8) (1.0) (1.9) (2.2) (2.3) CASH FROM OPERATIONS 9.1 11.5 12.5 14.9 16.3 Capital Expenditures - PP&E (8.3) (8.0) (5.1) (5.1) (5.1) (Increase)/Decrease in Sales-Type Leases 0.5 - - - - (Increase)/Decrease in Other Assets 0.2 (0.5) (0.2) (0.9) (0.7) ---------------------------------------------- CASH AVAILABLE FOR AMORTIZATION $ 1.6 $ 3.0 $ 7.2 $ 9.0 $ 10.6 ==============================================
SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 9 of 11 =============================================================================== DEBT ANALYSIS - -------------------------------------------------- Interest Rates & Coupon - ----------------------- Existing Debt 9.50% Senior Term Debt - A 9.96% Senior Term Debt - B 10.46% Revolving Credit 9.50% Mezzanine 12.00% Senior Subordinated Debt 12.00%
PROJECTED ---------------------------------------------- FISCAL YEAR ENDED 06/30 ---------------------------------------------- 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ CASH AVAILABLE FOR AMORTIZATION 1.6 3.0 7.2 9.0 10.6 ---------------------------------------------- Cash For Retirement of Senior Term Debt - A 1.6 3.0 7.2 9.0 10.6 Senior Term Debt - A Retired (1.5) (2.3) (3.0) (3.8) (4.5) ---------------------------------------------- Cash For Retirement of Senior Term Debt - B 0.1 0.7 4.2 5.2 6.1 Senior Term Debt - B Retired (0.0) (0.0) (0.0) (0.0) (0.0) ---------------------------------------------- CHANGE IN CASH ACCOUNT 0.0 0.7 4.1 5.2 6.1 ==============================================
PRO FORMA PROJECTED -------------- ------------------------------------------------------- As of 06/30 As of 06/30 -------------- ------------------------------------------------------- 2000 CLOSING 2001 2002 2003 2004 2005 ---- ------- ---- ---- ---- ---- ---- CAPITALIZATION SUMMARY Existing Debt $ 12.8 $ - $ - $ - $ - $ - $ - Senior Term Debt - A - 15.0 13.5 11.3 8.3 4.5 - Senior Term Debt - B - 22.5 22.5 22.5 22.4 22.4 22.4 Senior Subordinated Debt - 19.0 19.0 19.0 19.0 19.0 19.0 Common Equity 48.6 28.9 28.9 30.6 34.3 40.4 50.1 ------ ----- ------------------------------------------------------- BOOK CAPITALIZATION $ 61.4 $ 85.4 $ 83.9 $ 83.3 $ 84.0 $ 86.3 $ 91.5 TOTAL DEBT $ 12.8 $ 56.5 $ 55.0 $ 52.7 $ 49.7 $ 45.9 $ 41.4 BOOK EQUITY $ 48.6 $ 28.9 $ 28.9 $ 30.6 $ 34.3 $ 40.4 $ 50.1
SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 10 of 11 =============================================================================== RATIO ANALYSIS - -------------------------------
HISTORICAL PROJECTED ----------------- ----------------------------------------------- As of 06/30 As of 06/30 ----------------- ----------------------------------------------- 2000 CLOSING 2001 2002 2003 2004 2005 ---- ------- ---- ---- ---- ---- ---- Total Debt/ Total Capitalization 20.8% 66.2% 65.5% 63.2% 59.2% 53.2% 45.2% Senior Debt/ Total Capitalization 20.8% 43.9% 26.8% 26.9% 26.7% 26.0% 24.5% EBITDA/Interest - 12.2 2.4 2.9 3.5 4.3 5.2 EBITDA/Senior Interest - 12.2 4.4 5.3 6.6 8.5 11.1 Senior Debt/EBITDA - 3.1 2.1 1.7 1.3 1.0 0.7 Senior Debt/EBIT - 9.9 5.1 3.4 2.4 1.6 1.0 Senior Debt/Operating Cash Flow - - 3.9 2.9 2.5 1.8 1.4 Total Debt/EBITDA - 4.6 3.2 2.7 2.2 1.7 1.3 Total Debt/EBIT - 14.9 7.7 5.4 3.8 2.7 1.8 Total Debt/Operating Cash Flow - - 6.0 4.6 4.0 3.1 2.5
SunTrust Equitable Securities PROJECT BARS 08/08/2000 Case: Leveraged Buyout Analysis, Purchase of Stock 12:48 PM ($ in millions) Page 11 of 11 =============================================================================== RETURN ANALYSIS - --------------------------- - ---------------------------------------- EXIT YEAR 2005 EXIT EBITDA MULTIPLE 7.0x - ---------------------------------------- - ------------------------------------------------------ PROCEEDS ALLOCATION - ----------------------------------------- Exit Year EBITDA 30.9 x EBITDA Multiple 7.0x -------------- EXIT VALUATION $ 216.4 PLUS: Excess Cash 16.9 LESS: Total Remaining Debt (41.4) LESS: 1% PIK on Subordinated Debt (1.0) -------------- NET PROCEEDS TO ALLOCATE $ 191.0 ============== Sponsors $ 138.5 Management $ 28.7 Senior Subordinated Debt $ 23.9 - ------------------------------------------------------
- ------------------------------------------------------------------------------------------ EQUITY ALLOCATION Semi- Fully- - ---------------------------------- Investment % Diluted Diluted -------------------------------------------------- Sponsors $ 28.9 100.0% 85.3% 72.5% Management - 0.0% 0.0% 0.0% STES - 0.0% 0.0% 0.0% Senior Subordinated Debt 19.0 * 14.7% 12.5% Management Performance Option * * * 15.0% -------------------------------------------------- TOTAL EQUITY ALLOCATION $ 47.9 100.0% 100.0% 100.0% ================================================== - ------------------------------------------------------------------------------------------
PROJECTED ------------------------------------------------------------- CLOSING 2001 2002 2003 2004 2005 ------- ---- ---- ---- ---- ---- Senior Subordinated Debt - ------------------------------------------ Investment $(19.0) $ - $ - $ - $ - $ 19.0 Interest 2.3 2.3 2.3 2.3 3.2 Participation - - - - 23.9 ----------------------------------------------------------------------------- IRR = 27.24% $(19.0) $ 2.3 $2.3 $2.3 $2.3 $ 46.1 ============================================================================= Sponsors - ------------------------------------------ Investment $(28.9) $ - $ - $ - $ - $ - Participation - - - - 138.5 ----------------------------------------------------------------------------- IRR = 36.84% $(28.9) $ - $ - $ - $ - $138.5 =============================================================================
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