-----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, O8ULYi+B5sSIQD1bu3V1+Mzv52UmAkguv/L4BCfU5Oba5iyhTBcNO93eeGyXNITZ Le3EK/LZdgSiSw0UUtAf0Q== 0001012870-97-002112.txt : 19971104 0001012870-97-002112.hdr.sgml : 19971104 ACCESSION NUMBER: 0001012870-97-002112 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19971103 SROS: NONE GROUP MEMBERS: CAMBRIDGE SOUNDWORKS INC GROUP MEMBERS: CREATIVE TECHNOLOGY LTD. GROUP MEMBERS: CSW ACQUISITION CORPORATION SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE SOUNDWORKS INC CENTRAL INDEX KEY: 0000919234 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 042998824 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: SEC FILE NUMBER: 005-45217 FILM NUMBER: 97706863 BUSINESS ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 BUSINESS PHONE: 6173325936 MAIL ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CAMBRIDGE SOUNDWORKS INC CENTRAL INDEX KEY: 0000919234 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 042998824 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 BUSINESS PHONE: 6173325936 MAIL ADDRESS: STREET 1: 311 NEEDHAM ST CITY: NEWTON STATE: MA ZIP: 02164 SC 13E3 1 SCHEDULE 13E-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- SCHEDULE 13E-3 RULE 13e-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) CAMBRIDGE SOUNDWORKS, INC. (NAME OF ISSUER) CAMBRIDGE SOUNDWORKS, INC. CSW ACQUISITION CORPORATION CREATIVE TECHNOLOGY LTD. (NAME OF PERSONS FILING STATEMENT) COMMON STOCK, NO PAR VALUE (TITLE OF CLASS OF SECURITIES) 132514100 (CUSIP NUMBER OF CLASS OF SECURITIES) ---------------- NG KEH LONG THOMAS J. DEVESTO CREATIVE TECHNOLOGY LTD. CAMBRIDGE SOUNDWORKS, INC. & CSW ACQUISITION CORPORATION 311 NEEDHAM STREET 31 INTERNATIONAL BUSINESS PARK NEWTON, MASSACHUSETTS 02164 CREATIVE RESOURCE SINGAPORE 609921
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF PERSONS FILING STATEMENT) Copies to: JOHN D. DANFORTH STEVEN J. TONSFELDT JOSEPH D.S. HINKLEY CREATIVE LABS, INC. VENTURE LAW GROUP PEABODY & ARNOLD 1901 MCCARTHY BLVD. A PROFESSIONAL CORPORATION 50 ROWES WHARF MILPITAS, CALIFORNIA 95035 2800 SAND HILL ROAD BOSTON, MASSACHUSETTS 02110 (408) 428-6600 MENLO PARK, CALIFORNIA 94025 (617) 951-2100 (650) 854-4488
---------------- NOVEMBER 3, 1997 (DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS) THIS STATEMENT IS FILED IN CONNECTION WITH A TENDER OFFER CALCULATION OF FILING FEE - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TRANSACTION VALUATION AMOUNT OF FILING FEE - ------------------------------------------------------------------------------- $37,051,942* $7,411**
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- * For purposes of fee calculation only. The total transaction value is based on 3,804,824 Shares outstanding as of October 23, 1997 less 912,294 Shares owned by Parent and Purchaser, plus 576,573 Shares reserved for future issuance pursuant to outstanding stock options, multiplied by the offer price of $10.68 per Share. ** The amount of the filing fee calculated in accordance with Regulation 240.0-11 of the Securities Exchange Act of 1934 equals 1/50 of 1% of the value of the shares to be purchased. [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2). Amount Previously Paid: $7,411 Filing Parties: Creative Technology Ltd., CSW Acquisition Corporation Form or Registration No.: Schedule 14D-1 Date Filed: November 3, 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- INTRODUCTION This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E- 3") is being filed by (i) Creative Technology Ltd., a Singapore corporation ("Parent"), (ii) CSW Acquisition Corporation ("Purchaser"), a Massachusetts corporation and a wholly owned subsidiary of Parent, and (iii) Cambridge SoundWorks, Inc., a Massachusetts corporation (the "Company"), pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended, and Rule 13e- 3 thereunder in connection with the tender offer by Purchaser to purchase all outstanding shares of common stock, no par value (the "Shares"), of the Company, upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 3, 1997 (the "Offer to Purchase") and the related Letter of Transmittal (which together constitute the "Offer"), copies of which are filed as Exhibits (d)(1) and (d)(2) hereto, respectively. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 30, 1997, by and among Parent, Purchaser and the Company, which provides, among other things, that as promptly as practicable after the satisfaction or, if permissible, waiver of the conditions set forth therein, Purchaser will be merged with and into the Company, with the Company continuing as the surviving corporation, and each issued and outstanding Share (other than any Shares held in the treasury of the Company or owned by the Purchaser, the Parent or any subsidiary of the Parent or the Company, and other than Shares held by stockholders who shall not have voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing appraisal for such Shares in accordance with the Business Corporation Law of the Commonwealth of Massachusetts) will be converted into the right to receive in cash, without interest, an amount equal to the price paid per Share in the Offer. The information contained in this Schedule 13E-3 concerning the Company, including, without limitation, information concerning the background of the transaction, the deliberations, approvals and recommendations of the Board of Directors of the Company in connection with the transaction, the opinion of the Company's financial advisor, and the Company's capital structure and historical financial information, was supplied by the Company. Parent and Purchaser take no responsibility for the accuracy of such information. The following Cross Reference Sheet, prepared pursuant to General Instruction F to Schedule 13E-3, shows the location in the Tender Offer Statement on Schedule 14D-1 filed by Parent and Purchaser (the "Schedule 14D-1") with the Securities and Exchange Commission (the "SEC") on the date hereof of the information required to be included in this Schedule 13E-3. The information set forth in the Schedule 14D-1, including all exhibits thereto, is hereby expressly incorporated herein by reference as set forth in the Cross Reference Sheet and the responses in this Schedule 13E-3, and such responses are qualified in their entirety by reference to the information contained in the Offer to Purchase and the annexes thereto. 2 CROSS REFERENCE SHEET
ITEM IN WHERE LOCATED IN SCHEDULE 13E-3 SCHEDULE 14D-1 - -------------- ---------------- Item 1(a)-(c)............................................... Item 1(a)-(c) Item 1(d)................................................... * Item 1(e)................................................... ** Item 1(f)................................................... * Item 2...................................................... Item 2, Schedule II Item 3(a)................................................... Item 3(a)-(b) Item 3(b)................................................... Item 3(b) Item 4(a)................................................... * Item 4(b)................................................... ** Item 5...................................................... Item 5 Item 6(a)................................................... Item 4(a)-(b) Item 6(b)................................................... * Item 6(c)................................................... ** Item 6(d)................................................... ** Item 7(a)................................................... Item 5 Item 7(b)................................................... * Item 7(c)................................................... * Item 7(d)................................................... * Item 8(a)-(c)............................................... * Item 8(d)................................................... ** Item 8(e)-(f)............................................... * Item 9...................................................... * Item 10(a).................................................. Item 6(a) Item 10(b).................................................. ** Item 11..................................................... Item 7 Item 12..................................................... * Item 13(a).................................................. * Item 13(b)-(c).............................................. ** Item 14(a).................................................. * Item 14(b).................................................. ** Item 15(a).................................................. * Item 15(b).................................................. Item 8 Item 16..................................................... Item 10(f) Item 17..................................................... Item 11
- -------- * The Item is located in the Schedule 13E-3 only. ** The Item is inapplicable or the answer thereto is in the negative. 3 ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a)-(c) The response to Item 1(a)-(c) of the Schedule 14D-1 is incorporated herein by reference. (d) The information set forth in the Offer to Purchase under "THE OFFER-- Price Range of the Shares" is incorporated herein by reference. (e) Not applicable. (f) The information set forth in the Offer to Purchase under "SPECIAL FACTORS--Background of the Offer and the Merger" and "THE OFFER--Certain Information Concerning the Purchaser and Parent" is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) This Statement is being filed by the Purchaser, Parent and the Company. The response to Item 2 of the Schedule 14D-1 is incorporated herein by reference. (e)-(f) The response to Item 2 of the Schedule 14D-1 is incorporated herein by reference with respect to Parent and the Purchaser. During the last five years, neither the Company nor, to the best knowledge of the Company, Parent or the Purchaser or any director or executive officer of the Company (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. (g) The response to Item 2 of the Schedule 14D-1 is incorporated herein by reference with respect to Parent and the Purchaser. The citizenship of the directors and executive officers of the Company are set forth in Schedule II to the Offer to Purchase and are incorporated herein by reference. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a)-(b) The response to Item 3 of the Schedule 14D-1 is incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in the Offer to Purchase on the cover page thereof and under "INTRODUCTION," "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--The Merger Agreement," "THE OFFER--Terms of the Offer," "THE OFFER--Procedure for Accepting the Offer and Tendering Shares," "THE OFFER--Acceptance for Payment and Payment for Shares," "THE OFFER--Withdrawal Rights," "THE OFFER--Dividends and Distributions," "THE OFFER--Certain Conditions of the Offer," "THE OFFER--Certain Legal Matters" and "THE OFFER-- Miscellaneous" is incorporated herein by reference. (b) Not applicable. ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(e) The response to Item 5(a)-(e) of the Schedule 14D-1 is incorporated herein by reference. (f)-(g) The response to Item 5(f)-(g) of the Schedule 14D-1 is incorporated herein by reference. 4 ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) The response to Item 4(a)-(b) of the Schedule 14D-1 is incorporated herein by reference. (b) The information set forth in the Offer to Purchase under "THE OFFER-- Fees and Expenses" is incorporated herein by reference. (c) Not applicable. (d) Not applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a) The response to Item 5 of the Schedule 14D-1 is incorporated herein by reference. (b) The information set forth in the Offer to Purchase under "SPECIAL FACTORS--Recommendations of the Company Board; Fairness of the Offer and the Merger" and "SPECIAL FACTORS--Purpose and Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the Offer and the Merger" is incorporated herein by reference. (c)-(d) The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--Recommendations of the Company Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS--Purpose and Structure of the Offer and the Merger; Reasons of Parent and Purchaser for the Offer and the Merger," "SPECIAL FACTORS--Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger," "THE OFFER--Certain Federal Income Tax Consequences" and "THE OFFER--Effect of the Offer on the Market for the Shares; NASDAQ Quotation and Exchange Act Registration" is incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a)-(c) The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--Recommendations of the Company Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS--Opinion of Financial Advisor to the Company," "SPECIAL FACTORS--Purpose and Structure of the Offer and the Merger; Reasons of Parent and the Purchaser for the Offer and the Merger" is incorporated herein by reference. In recognition of Parent's interest in the Offer and the Merger, Craig L. McHugh, a designee of Parent on the Company's Board of Directors, abstained from voting on the Offer and the Merger. (d) Not applicable. (e)-(f) The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--Recommendations of the Company Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS--Opinion of Financial Advisor to the Company," "SPECIAL FACTORS--Purpose and Structure of the Offer and the Merger; Reasons of Parent and the Purchaser for the Offer and the Merger" is incorporated herein by reference. In recognition of Parent's interest in the Offer and the Merger, Craig L. McHugh, a designee of Parent on the Company's Board of Directors, abstained from voting on the Offer and the Merger. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a)-(c) The information set forth in the Offer to Purchase under "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS-- Recommendations of the Company Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS--Opinion of Financial Advisor to the Company," "SPECIAL FACTORS--Position of Parent and the Purchaser Regarding the Fairness of the Offer and the Merger" and in Annex A is incorporated herein by reference. 5 ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a) The response to Item 6(a) of the Schedule 14D-1 and the information set forth in the Offer to Purchase under "SPECIAL FACTORS--Beneficial Ownership of Shares" and "SPECIAL FACTORS--Interests of Certain Persons in the Offer and the Merger" are incorporated herein by reference. (b) Not applicable. ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES. The response to Item 7 of the Schedule 14D-1 and the information set forth in the Offer to Purchase under "SPECIAL FACTORS--Beneficial Ownership of Shares" are incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION. (a)-(b) The information set forth in the Offer to Purchase under "INTRODUCTION," "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS--Recommendations of the Company Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS--Interests of Certain Persons in the Offer and the Merger" and "SPECIAL FACTORS--Beneficial Ownership of Shares" is incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE TRANSACTION. (a) The information set forth in the Offer to Purchase under "SPECIAL FACTORS--Rights of Stockholders in the Merger," "SPECIAL FACTORS--The Merger Agreement" and Annex B is incorporated herein by reference. (b) Not applicable. (c) Not applicable. ITEM 14. FINANCIAL INFORMATION. (a) The information set forth in the Offer to Purchase under "THE OFFER-- Certain Information Concerning the Company" is incorporated herein by reference. In addition, the Company's audited financial statements for the fiscal years ended June 29, 1997 and June 30, 1996 are attached to the Offer to Purchase as Schedule III thereto, and are incorporated herein by reference. (b) Not applicable. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a) The information set forth in the Offer to Purchase under "SPECIAL FACTORS--Background of the Offer and the Merger," "SPECIAL FACTORS-- Recommendations of the Company Board; Fairness of the Offer and the Merger," "SPECIAL FACTORS--Plans for the Company After the Offer and the Merger; Certain Effects of the Offer and the Merger" and "THE OFFER--Effect of the Offer on the Market for the Shares; NASDAQ Quotation and Exchange Act Registration" is incorporated herein by reference. (b) The response to Item 8 of the Schedule 14D-1 is incorporated herein by reference. ITEM 16. ADDITIONAL INFORMATION. The response to Item 10(f) of the Schedule 14D-1 is incorporated herein by reference. 6 ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. (a) Not applicable. (b)(1) Opinion of Hambrecht & Quist LLC, dated October 30, 1997 (included as Annex A to Exhibit (d)(1)). (b)(2) Presentation of Hambrecht & Quist LLC, dated October 27, 1997. (c)(1) Agreement and Plan of Merger, dated as of October 30, 1997, by and among Creative Technology Ltd., CSW Acquisition Corporation and Cambridge SoundWorks, Inc. (incorporated herein by reference to Exhibit (c)(1) to the Schedule 14D-1). (c)(2) Employment Agreement, dated February 18, 1997, between the Company and Thomas J. DeVesto, as amended and restated effective October 29, 1997 (incorporated herein by reference to Exhibit (c)(2) to the Schedule 14D-1) (c)(3) Common Stock and Warrant Purchase Agreement, dated as of February 20, 1997, by and between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A). (c)(4) Common Stock Purchase Warrant, dated as of February 28, 1997, having Creative Technology Ltd. as Registered Holder(A). (c)(5) Investors' Rights Agreement, dated as of February 28, 1997, between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A) (c)(6) Exclusive Distribution Agreement, dated as of February 28, 1997, between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A) (c)(7) Voting Agreement, dated as of February 28, 1997, by and among Creative Technology Ltd., Cambridge SoundWorks, Inc., Henry E. Kloss and Thomas J. DeVesto (incorporated herein by reference to Exhibit 1 to the Schedule 13D filed by Creative Technology Ltd. with the SEC on March 19, 1997). (c)(8) Mutual Confidentiality and Non-Disclosure Agreement, dated October 18, 1996, between Creative Labs, Inc. and Cambridge SoundWorks, Inc. (incorporated herein by reference to Exhibit (c)(8) to the Schedule 14D-1). (d)(1) Form of Offer to Purchase, dated November 3, 1997 (incorporated herein by reference to Exhibit (a)(1) to the Schedule 14D-1). (d)(2) Form of Letter of Transmittal (incorporated herein by reference to Exhibit (a)(2) to the Schedule 14D-1). (d)(3) Form of Letter from Georgeson & Company Inc. to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated herein by reference to Exhibit (a)(3) to the Schedule 14D-1). (d)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients (incorporated herein by reference to Exhibit (a)(4) to the Schedule 14D-1). (d)(5) Form of Notice of Guaranteed Delivery (incorporated herein by reference to Exhibit (a)(5) to the Schedule 14D-1). (d)(6) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (incorporated herein by reference to Exhibit (a)(6) to the Schedule 14D-1). (d)(7) Summary Advertisement as published in The Wall Street Journal on November 3, 1997 (incorporated herein by reference to Exhibit (a)(7) to the Schedule 14D-1). (d)(8) Text of Press Release, dated October 6, 1997, issued by Cambridge SoundWorks, Inc. (incorporated herein by reference to Exhibit 1 to the Schedule 13D (Amendment No. 1) filed by Creative Technology Ltd. with the SEC on October 8, 1997). (d)(9) Text of Joint Press Release, dated October 31, 1997, issued by Cambridge SoundWorks, Inc. and Creative Technology Ltd. (incorporated herein by reference to Exhibit (a)(9) to the Schedule 14D-1).
7 (d)(10) Text of Press Release, dated November 3, 1997, issued by Creative Technology Ltd. (incorporated herein by reference to Exhibit (a)(10) to the Schedule 14D-1). (e) Description of Appraisal Rights (included as Annex B to Exhibit (d)(1)). (f) Not applicable.
- -------- (A) Incorporated herein by reference to the Report on Form 10-Q for the fiscal quarter ended March 30, 1997, filed by Cambridge SoundWorks, Inc. with the SEC on May 14, 1997. 8 SIGNATURES After due inquiry and to the best of his knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. CAMBRIDGE SOUNDWORKS, INC. By: /s/ Thomas J. DeVesto ___________________________________ Name: Thomas J. DeVesto Title: President and Chief Executive Officer CREATIVE TECHNOLOGY LTD. By: /s/ Ng Keh Long ___________________________________ Name: Ng Keh Long Title: Vice President, Corporate Treasurer and Acting Chief Financial Officer CSW ACQUISITION CORPORATION By: /s/ Ng Keh Long ___________________________________ Name: Ng Keh Long Title: Vice President and Treasurer Dated: November 3, 1997 9 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ------- ----------- (a) Not applicable. (b)(1) Opinion of Hambrecht & Quist LLC, dated October 30, 1997 (included as Annex A to Exhibit (d)(1)). (b)(2) Presentation of Hambrecht & Quist LLC, dated October 27, 1997. (c)(1) Agreement and Plan of Merger, dated as of October 30, 1997, by and among Creative Technology Ltd., CSW Acquisition Corporation and Cambridge SoundWorks, Inc. (incorporated herein by reference to Exhibit (c)(1) to the Schedule 14D-1). (c)(2) Employment Agreement, dated February 18, 1997, between the Company and Thomas J. DeVesto, as amended and restated effective October 29, 1997 (incorporated herein by reference to Exhibit (c)(2) to the Schedule 14D-1) (c)(3) Common Stock and Warrant Purchase Agreement, dated as of February 20, 1997, by and between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A). (c)(4) Common Stock Purchase Warrant, dated as of February 28, 1997, having Creative Technology Ltd. as Registered Holder(A). (c)(5) Investors' Rights Agreement, dated as of February 28, 1997, between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A). (c)(6) Exclusive Distribution Agreement, dated as of February 28, 1997, between Creative Technology Ltd. and Cambridge SoundWorks, Inc.(A). (c)(7) Voting Agreement, dated as of February 28, 1997, by and among Creative Technology Ltd., Cambridge SoundWorks, Inc., Henry E. Kloss and Thomas J. DeVesto (incorporated herein by reference to Exhibit 1 to the Schedule 13D filed by Creative Technology Ltd. with the SEC on March 19, 1997). (c)(8) Mutual Confidentiality and Non-Disclosure Agreement, dated October 18, 1996, between Creative Labs, Inc. and Cambridge SoundWorks, Inc. (incorporated herein by reference to Exhibit (c)(8) to the Schedule 14D-1). (d)(1) Form of Offer to Purchase, dated November 3, 1997 (incorporated herein by reference to Exhibit (a)(1) to the Schedule 14D-1). (d)(2) Form of Letter of Transmittal (incorporated herein by reference to Exhibit (a)(2) to the Schedule 14D-1). (d)(3) Form of Letter from Georgeson & Company Inc. to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees (incorporated herein by reference to Exhibit (a)(3) to the Schedule 14D-1). (d)(4) Form of Letter from Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees to Clients (incorporated herein by reference to Exhibit (a)(4) to the Schedule 14D-1). (d)(5) Form of Notice of Guaranteed Delivery (incorporated herein by reference to Exhibit (a)(5) to the Schedule 14D-1). (d)(6) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (incorporated herein by reference to Exhibit (a)(6) to the Schedule 14D-1). (d)(7) Summary Advertisement as published in The Wall Street Journal on November 3, 1997 (incorporated herein by reference to Exhibit (a)(7) to the Schedule 14D-1). (d)(8) Text of Press Release, dated October 6, 1997, issued by Camridge SoundWorks, Inc. (incorporated herein by reference to Exhibit 1 to the Schedule 13D (Amendment No. 1) filed by Creative Technology, Ltd. with the SEC on October 8, 1997). (d)(9) Text of Joint Press Release, dated October 31, 1997, issued by Cambridge SoundWorks, Inc. and Creative Technology Ltd. (incorporated herein by reference to Exhibit (a)(9) to the Schedule 14D-1).
10
EXHIBIT NO. DESCRIPTION ------- ----------- (d)(10) Text of Press Release, dated November 3, 1997, issued by Creative Technology Ltd. (incorporated herein by reference to Exhibit (a)(10) to the Schedule 14D-1). (e) Description of Appraisal Rights (included as Annex B to Exhibit (d)(1)). (f) Not applicable.
- -------- (A) Incorporated herein by reference to the Report on Form 10-Q for the fiscal quarter ended March 30, 1997, filed by Cambridge SoundWorks, Inc. with the SEC on May 14, 1997. 11 EX-99.(B)(2) 2 PRESENTATION OF HAMBRECHT & QUIST DTD 10/27/97 EXHIBIT (B)(2) PRELIMINARY DRAFT/WORK IN PROGRESS HAMBRECHT & QUIST Presentation to FEVER BOARD OF DIRECTORS REGARDING PROJECT DISCO October 27, 1997 Preliminary Draft/Work in Progress TABLE OF CONTENTS 1. Transaction Summary 2. Fever Financial Information 3. Review of Fever Market Performance and Shareholders 4. Analysis of Potential Future Share Prices 5. Indicated Value Based on Publicly Traded Companies 6. Indicated Value Based on Comparable M&A Transactions 7. Discounted Cash Flow Analysis 8. Summary of Implied Equity Valuations 9. Proposed Transaction Multiples 10. Pro Forma Impact on Night 11. Form of Fairness Opinion - ---------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress 1.TRANSACTION SUMMARY - ---------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress TRANSACTION SUMMARY * Disco tender offer to purchase Fever common stock for $10.68 per share in cash * Tender offer is conditioned on, among other things, at least a two-thirds of the outstanding Fever shares being tendered * Second-step merger to convert remaining shares into right to receive $10.68 per share in cash * Transaction to be accounted for as a purchase - ----------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress TRANSACTION SUMMARY Continued * Proceeds from the tender offer or merger to be taxable to the Fever shareholder (unless otherwise a tax-exempt entity) * Agreement contains customary "no shop" provision subject to fiduciary obligations * Fever stock options to be cashed out at the effective time * Agreement provides that a "Termination Fee" will be payable to Fever under certain circumstances - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress TRANSACTION SUMMARY ($MM, Except per share values) Per share $10.68 Shares outstanding (MM) [a] 4.1 Offer for equity $44.1 LESS CASH [b] (0.1) PLUS DEBT [b] 1.9 ----------- OFFER FOR ENTERPRISE $46.0 ===========
[a] Based on treasury stock method of accounting. Assumes 3.8MM shares and 0.6MM options with an average exercise price of $4.60 per share based on option schedule dated 10/15/97. [b] Based on Fever 10Q dated June 30, 1997. - --------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress IMPLIED EQUITY VALUATION SUMMARY
Category Total Equity Valuation Per Share Valuation Range ($MM) Range ----------------------------------------------------------- A. Implied Valuation Based on Comparable Public Companies Stereo Retailers/Peripherals & Manufactures $ 9.1 - $ 61.0 $2.21 - $14.76 Branded Retail Companies 10.4 - 107.9 2.51 - 26.57 B. Implied Valuation Based on Comparable M&A Transactions Implied Valuation Based on Comparable Consumer M&A Transactions 28.8 - 99.3 6.97 - 24.04 Implied Valuation Based on Comparable Technology M&A Transactions 26.2 - 70.4 6.35 - 17.04 C. Discounted Cash Flow Analysis 20.8 - 65.0 5.02 - 15.74 D. Implied Valuation Based on 52 Week Trading Range 13.8 - 29.2 3.37 - 7.13 E. Implied Valuation Based on Historic Trading Range 13.3 - 40.0 3.25 - 9.75 F. Implied Valuation Based on Potential Future Share Price Range Management Estimates 25.0 - 71.7 6.10 - 17.48 H&Q Estimates 17.4 - 42.6 4.25 - 10.40 - --------------------------------------------------------------------------------------------------------------------------------- Purchase Price for FEVER $ 44.1 $ 10.68 - ---------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress IMPLIED EQUITY VALUATION SUMMARY [GRAPH APPEARS HERE] - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress 2. FEVER FINANCIAL INFORMATION - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress FEVER HISTORICAL AND PROJECTED INCOME STATEMENT ($MM) [GRAPH APPEARS HERE] Source: FY 1998-2001 estimates derived by H&Q based on discussions with - ----------------------------------------------------------------------- management. - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress FEVER HISTORICAL AND PROJECTED INCOME STATEMENT ($MM) [GRAPH APPEARS HERE] Source: FY 1998-2001 estimates derived by H&Q based on discussions with management. - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress FEVER HISTORICAL AND PROJECTED INCOME STATEMENT ($MM, except per share values)
- -------------------------------------------------------------------------------------------------------------------------------- Fiscal Year ended June 30 [a] 1993 1994 1995 1996 1997 1998 E(b) 1999 E(b) 2000 E(b) 20001 E(b) - -------------------------------------------------------------------------------------------------------------------------------- REVENUES $ 12.6 $ 15.3 $ 27.2 $ 43.6 $ 51.3 $ 79.3 $ 95.5 $ 102.1 $ 108.3 Cost of revenues 5.0 7.8 19.2 25.9 31.0 49.6 59.5 63.4 67.3 ---------------------------------------------------------------------------------------------- Gross profit 7.6 7.5 8.0 17.7 20.3 29.7 36.0 38.7 41.0 Total operating expenses 6.2 6.5 8.6 17.0 21.1 26.8 30.8 32.8 34.7 EBIT 1.5 0.9 (0.6) 0.7 (0.8) 2.8 5.3 5.9 6.3 Other income (expense) (0.0) 0.1 0.2 (0.3) (0.2) (0.4) (0.7) (0.7) (0.3) ---------------------------------------------------------------------------------------------- PRETAX PROFIT 1.5 1.0 (0.4) 0.4 (1.0) 2.4 4.5 5.2 6.0 Taxes (0.6) (0.4) (0.4) (0.2) 0.4 1.0 1.8 2.1 2.4 ---------------------------------------------------------------------------------------------- NET INCOME $ 0.9 $ 0.6 $ 0.8 $ 0.3 ($0.6) $ 1.5 $ 2.7 $ 3.1 $ 3.6 ============================================================================================= EARNINGS PER SHARE $ 0.59 $0.22 ($0.27) $0.09 ($0.19) $0.36 $0.67 $0.78 $0.89 Shares outstanding 1.5 2.6 2.9 2.9 3.2 4.0 4.0 4.0 4.0 Depreciation & amortization $ 0.3 $ 0.6 $ 0.5 $ 0.7 $ 1.1 $ 1.4 $ 2.0 $2.5 $ 2.6 EBITDA 1.7 1.6 (0.1) 1.5 0.3 4.2 7.3 8.4 9.0 Margins Gross margin 60.4% 48.9% 29.4% 40.6% 39.6% 37.4% 37.7% 37.9% 37.8% EBITDA margin 13.7% 10.2% (0.3%) 3.4% 0.6% 5.3% 7.6% 8.2% 8.3% EBIT margin 11.5% 6.1% (2.1%) 1.6% (1.6%) 3.5% 5.5% 5.8% 5.8% Net margin 6.9% 3.8% (2.8%) 0.6% (1.2%) 1.8% 2.8% 3.1% 3.3% Effective tax rate nm nm nm nm nm 40.0% 40.0% 40.0% 40.0% Growth rates Revenues (95.2%) 20.9% 78.3% 60.2% 17.7% 54.6% 20.4% 7.0% 6.1% Gross profit (95.5%) (2.1%) 7.1% 121.6% 14.7% 46.0% 21.5% 7.5% 5.9% EBITDA (96.1%) (9.9%) (104.6%) 2128.4% (80.1%) 1341.7% 73.9% 14.8% 6.9% EBIT (95.1%) (36.5%) (161.8%) 225.6% (212.0%) 449.3% 86.9% 12.3% 7.3% Net income (96.7%) (32.9%) (232.7%) 132.5% (345.0%) 316.7% 87.4% 15.4% 14.5% Earnings per share 8.5% (62.0%) (220.6%) 132.0% (322.3%) 273.7% 87.4% 15.4% 14.5%
[a] Effective March 23, 1995, the Company assumed a June fiscal year end. Fiscal years prior to that date have been adjusted to reflect a June fiscal year end. [b] FY 1998-2001 uses estimates derived by H&Q based on discussions with management. - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress FEVER HISTORICAL EARNINGS VERSUS H&Q ESTIMATES [GRAPH APPEARS HERE] - ---------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress FEVER PROJECTED EARNINGS VERSUS H&Q PROJECTED EARNINGS [GRAPH APPEARS HERE] - ---------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress 3. REVIEW OF FEVER MARKET PERFORMANCE AND SHAREHOLDERS - ---------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress REVIEW OF FEVER COMMON STOCK PRICE HISTORY
TRADING PRICE ------------- 52-week high $7.13 52-week low $3.37 All-time high $9.75 All-time low $3.25 AVERAGE CLOSING PRICE /[A]/ --------------------- Previous week $6.95 Previous month $6.14 Previous 3 months $5.29 Previous 6 months $5.16 Previous 12 months $5.13
/[A]/ Assumes average prices as of 10/3/97. - ---------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress STOCK PRICE PERFORMANCE AND VOLUME HISTORY IPO to 10/3/97 Announcement of discussions with Night regarding potential acquisition [GRAPH APPEARS HERE] - -------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress ANALYSIS OF VOLUME TRADED AT SPECIFIC PRICES 1995 to Present [GRAPH APPEARS HERE] - ---------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress ANALYSIS OF VOLUME TRADED AT SPECIFIC PRICES 1995 to Present
1997 YTD 1996 1995 --------------------------------------------------------------------------------------------------------------- % Total % Total % Total % Total % Total % Total at or at or at or at or at or at or Stock Price Range Days below Volume below Days below Volume below Days below Volume below ----------------- ---- ----- ------ ----- ---- ----- ------ ----- ---- ----- ------ ----- $9.70 - $10.00 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 $9.40 - 9.70 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 $9.10 - 9.40 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 $8.80 - 9.10 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 $8.50 - 8.80 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 - ------------------------------------------------------------------------------------------------------------------------------------ $8.20 - 8.50 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 $7.90 - 8.20 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 100.0 $7.60 - 7.90 0 100.0 0 100.0 0 100.0 0 100.0 1 100.0 30,700 100.0 $7.30 - 7.60 0 100.0 0 100.0 0 100.0 0 100.0 3 99.6 89,500 99.4 $7.00 - 7.30 2 100.0 109,500 100.0 0 100.0 0 100.0 7 98.4 48,500 97.6 - ------------------------------------------------------------------------------------------------------------------------------------ $6.70 - 7.00 6 99.0 177,000 97.0 0 100.0 0 100.0 12 95.6 466,600 96.6 $6.40 - 6.70 3 95.8 104,600 92.2 1 100.0 3,600 100.0 24 90.9 692,700 87.4 $6.10 - 6.40 3 94.3 92,500 89.3 6 99.6 120,000 99.9 35 81.3 624,000 73.6 $5.80 - 6.10 1 92.7 39,500 86.8 9 97.2 371,200 95.7 21 67.5 305,500 61.2 $5.50 - 5.80 4 92.2 597,900 85.7 4 93.7 77,900 82.7 32 59.1 508,900 55.2 - ------------------------------------------------------------------------------------------------------------------------------------ $5.20 - 5.50 50 90.1 996,400 69.4 32 92.1 519,700 80.0 66 46.4 987,100 45.0 $4.90 - 5.20 54 64.1 726,300 42.2 21 79.5 248,500 61.9 27 20.2 466,500 25.4 $4.60 - 4.90 42 35.9 306,300 22.4 13 71.3 134,400 53.2 11 9.5 276,200 16.2 $4.30 - 4.60 12 14.1 171,500 14.0 14 66.1 309,200 48.5 6 5.2 141,300 10.7 $4.00 - 4.30 5 7.8 161,300 9.3 29 60.6 280,700 37.7 6 2.8 224,500 7.9 - ------------------------------------------------------------------------------------------------------------------------------------ $3.70 - 4.00 9 5.2 176,400 4.9 85 49.2 566,700 27.9 0 0.4 0 3.4 $3.40 - 3.70 0 0.5 0 0.1 29 15.7 175,400 8.1 1 0.4 171,800 3.4 $3.10 - 3.40 1 0.5 3,700 0.1 11 4.3 58,000 2.0 0 0.0 0 0.0 $2.80 - 3.10 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 $2.50 - 2.80 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 - ------------------------------------------------------------------------------------------------------------------------------------ $2.20 - 2.50 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 $1.90 - 2.20 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 $1.60 - 1.90 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 $1.30 - 1.60 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 $1.00 - 1.30 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 $0.70 - 1.00 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 192 3,662,900 254 2,865,300 252 5,033,800 ---------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress ANALYSIS OF FEVER SHAREHOLDERS
Number of % of Institutions [a] Shares Shares - -------------------------------- ------------ ---------- Dimensional Funds Advs 104,000 2.7% Alex Brown, Inc. 10,000 0.3% Anb Investment Management 2,700 0.1% ------------ ---------- Total Institutional Holdings 116,700 3.1% Insiders [b,c] - -------------------------------- Creative Technology Ltd 1,169,608 30.8% Thomas J. DeVesto 338,605 8.9% William R. Hambrecht 337,000 8.9% Henry E. Kloss 322,766 8.5% Thomas J. Hannaher 25,394 0.7% Wayne P. Garrett 21,666 0.6% Sandy Ruby 21,666 0.6% Robert S. Mainiero 15,000 0.4% Leo Kahn 14,300 0.4% Thomas E. Brew, Jr. 8,000 0.2% Franklin S. Browning, Jr. 8,000 0.2% Peter B. Seamans 8,000 0.2% ------------ ---------- Total Insider Holdings 2,290,005 60.2% Total Public Holdings 1,396,322 36.7% Total Shares Outstanding [d] 3,803,027 100.0% ============ ==========
[a] Based on the latest SEC 13(F) filings of June 30, 1997 of ownership by major institutions with equity assets of $100MM or more. [b] Based on shareholder's proxy statement of September 29, 1997. [c] Includes 230,235 shares issuable upon exercise of options that were exercisable at June 30, 1997. [d] As of June 30, 1997 based on Fever 10K. - ----------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress 4. ANALYSIS OF POTENTIAL FUTURE SHARE PRICES - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress ANALYSIS OF POTENTIAL FUTURE SHARE PRICES
FUTURE VALUE BASED ON IMPLIED PRESENT VALUE AT SELECTED DISCOUNT RATES --------------------------------------------------------------------------------------- FISCAL FORWARD P/E MULTIPLE 14.0% 16.0% 18.0% ----------------------------- ----------------------------- ----------------------------- ---------------------------- YEAR EPS 17.0 x 20.0 x 23.0 x 26.0 x 17.0 x 20.0 x 23.0 x 26.0 x 17.0 x 20.0 x 23.0 x 26.0 x 17.0 x 20.0 x 23.0 x 26.0 x - ------------ ----------------------------- ----------------------------- ----------------------------- ---------------------------- Fever Management Estimates [a] ----------------------------- ----------------------------- ---------------------------- 1998 $0.36 $6.10 $7.17 $8.25 $9.33 $6.10 $7.17 $8.25 $9.33 $6.10 $7.17 $8.25 $9.33 $6.10 $7.17 $8.25 $9.33 ---------------------- ---------------------- --------------------- 1999 0.67 11.43 13.44 15.46 17.48 10.02 11.79 13.56 15.33 9.85 11.59 13.33 15.07 9.68 11.39 13.10 14.81 ------- ------- ------- H&Q Estimates ----------------------------- ----------------------------- ---------------------------- 1998 $0.25 $4.25 $5.00 $5.75 $6.50 $4.25 $5.00 $5.75 $6.50 $4.25 $5.00 $5.75 $6.50 $4.25 $5.00 $5.75 $6.50 1999 0.40 6.80 8.00 9.20 10.40 5.96 7.02 8.07 9.12 5.86 6.90 7.93 8.97 5.76 6.78 7.80 8.81 ----------------------------- ----------------------------- ----------------------------
Note: Boxed values are below the offer price of $10.68 per share. [a] Estimates derived by H&Q based on discussions with the Company. - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress 5. INDICATED VALUE BASED ON PUBLICLY TRADED COMPANIES - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress INDICATED VALUE BASED ON PUBLICLY TRADED COMPANIES ($MM, except per share data) Stereo Retailers/Peripherals & Manufacturers
FEVER Implied Implied LTM Selected Public Enterprise Equity Financials[a] Stereo Retailers/Peripherals & Manufacturers Value Value [c] ($MM) Multiple [b] ($MM) ($MM) - ------------------------------------------------------------------------------------------------------------------------------ LTM Revenues $51.3 x 1.1 $56.5 $54.6 LTM EBITDA 0.3 x 12.6 NM NM LTM EBIT (0.8) x 17.2 NM NM Projected CY97 Net Income - Mgmt. 0.4 x 22.9 11.0 9.1 Projected CY98 Net Income - Mgmt. 1.9 x 17.4 35.2 33.3 Projected CY97 Net Income - H&Q (0.6) x 22.9 NM NM Projected CY98 Net Income - H&Q 1.2 x 17.4 22.2 20.4 Book Value (as of 6/30/97) 15.4 x 4.0 62.8 61.0 - ----------------------------------------------------------------------------------------------------------------------------- PURCHASE PRICE OF FEVER $46.0 $44.1 - ----------------------------------------------------------------------------------------------------------------------------- Inplied Equity Value Per Share [d] - ---------------------------------------------------------- LTM Revenues $13.22 LTM EBITDA NM LTM EBIT NM Projected CY97 Net Income - Mgmt. 2.21 Projected CY98 Net Income - Mgmt. 8.07 Projected CY97 Net Income - H&Q NM Projected CY98 Net Income - H&Q 4.93 Book Value (as of 6/30/97) 14.76 - ---------------------------------------------------------- PURCHASE PRICE OF FEVER $10.68 - ----------------------------------------------------------
_____________________________________ [a] Information based on projected twelve month results for period ending 6/30/97. [b] Uses mean value from relevant page. [c] Equity Value equals Enterprise Value plus $.1 million in cash less $1.9 million in debt. [d] Assumes 3.8 million shares of FEVER and 0.6 million options with an average exercise price of $4.60 per share outstanding on the effective date. - ---------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress INDICATED VALUE BASED ON PUBLICLY TRADED COMPANIES ($MM, except per share data) Branded Retail Companies
FEVER Implied Implied LTM Selected Public Enterprise Equity Inplied Financials [a] Branded Retail Value Value [c] Equity ($MM) Multiple [b] ($MM) ($MM) Value Per Share [d] - ----------------------------------------------------------------------------------------------------------------------------- LTM Revenues $ 51.3 x 2.1 $109.8 $107.9 $26.57 LTM EBITDA 0.3 x 12.9 NM NM NM LTM EBIT (0.8) x 17.9 NM NM NM Projected CY97 Net Income - Mgmt. 0.4 x 25.9 12.2 10.4 2.51 Projected CY98 Net Income - Mgmt. 1.9 x 20.8 41.7 39.8 9.64 Projected CY97 Net Income - H&Q (0.6) x 25.9 NM NM NM Projected CY98 Net Income - H&Q 1.2 x 20.8 26.2 24.4 5.89 Book Value (as of 6/30/97) 15.4 x 6.2 96.8 95.0 22.99 - ----------------------------------------------------------------------------------------------------------------------------- PURCHASE PRICE OF FEVER $46.08 $44.1 $10.68 - -----------------------------------------------------------------------------------------------------------------------------
_____________________________________ [a] Information based on projected twelve month results for period ending 6/30/97. [b] Uses mean value from relevant page. [c] Equity Value equals Enterprise Value plus $.1 million in cash less $1.9 million in debt. [d] Assumes 3.8 million shares of FEVER and 0.6 million options with an average exercise price of $4.60 per share outstanding on the effective date. - ---------------------------------------------------------------------------H&Q Preliminar Draft/Work in Progress TRADING STATISTICS OF SELECTED COMPARABLE COMPANIES ($MM, except per share values)
Fiscal Shares Market Value on 10/23/97 ------------------------------------------ Year Out. Per % of 52 Market Company Ticker End (MM) Share Wk High Cap. - -------------------------------------------- -------- -------- -------- ---------- -------- ---------- Stereo Retailers/Peripherals & Manufacturers Boston Acoustics, Inc. BOSA Mar 3 $31.50 88% $ 104 Circuit City Stores, Inc. [d] CC Feb 98 41.70 92% 4,106 Good Guys, Inc. [e] GGUY Sep 14 7.25 81% 100 Harman International Industries, Inc. HAR Jun 18 53.70 94% 992 Iomega Corp. IOM Dec 130 28.60 95% 3,708 Recoton Corp. RCOT Dec 11 13.50 79% 154 Zenith Electronics Corp. [f] ZE Dec 67 9.40 62% 626 Earnings Per Share [a] P/E Multiples ---------------------------------------- ------------------------ Company CY96 CY97E CY98E CY97E CY98E - -------------------------------------------- -------- -------- -------- -------- -------- Stereo Retailers/Peripherals & Manufacturers Boston Acoustics, Inc. $1.28 $1.68 $2.45 18.8 x 12.9 x Circuit City Stores, Inc. [d] 1.52 1.28 1.45 32.6 28.8 Good Guys, Inc. [e] (0.63) (0.74) na nm na Harman International Industries, Inc. 3.29 3.08 4.28 17.4 12.5 Iomega Corp. 0.47 0.87 1.22 32.9 23.4 Recoton Corp. 0.72 1.07 1.40 12.6 9.6 Zenith Electronics Corp. [f] na na na na na ----------------------------------------------- Mean: 22.9 x 17.4 x Median: 18.8 12.9 ----------------------------------------------- (96-98) 1998 EPS Grow P/E to Enterprise Enterprise Value/LTM [c] ----------------------------- Company Rate Growth Value [b] Revs EBITDA EBIT - -------------------------------------------- -------- --------- ------------- -------- ---------- -------- Stereo Retailers/Peripherals & Manufacturers Boston Acoustics, Inc. 38 % 0.3 x $ 101 2.0 x 10.8 x 12.8 x Circuit City Stores, Inc. [d] (2) nm 3,812 0.5 11.0 15.7 Good Guys, Inc. [e] nm nm 87 0.1 nm nm Harman International Industries, Inc. 14 0.9 1,295 0.9 8.4 12.7 Iomega Corp. 61 0.4 3,584 2.4 21.9 27.0 Recoton Corp. 39 0.2 282 1.2 10.8 17.8 Zenith Electronics Corp. [f] nm nm 828 0.6 nm nm -------------------------------------------------------------------------------- Mean: 30.1 % 0.5 x 1.1 x 12.6 x 17.2 x Median: 38.3 0.4 1.0 10.8 15.7 -------------------------------------------------------------------------------- Market Cap/ Book Company Value - -------------------------------------------- -------- Stereo Retailers/Peripherals & Manufacturers 6.6 x Boston Acoustics, Inc. 2.5 Circuit City Stores, Inc. [d] 0.8 Good Guys, Inc. [e] 2.1 Harman International Industries, Inc. 9.6 Iomega Corp. 1.2 Recoton Corp. 4.9 Zenith Electronics Corp. [f] --------------------- Mean: 4.0 x Median: 2.3 ---------------------
________________________________________ [a] Earnings estimates from H&Q Research where available, otherwise First Call. [b] Enterprise value equals market value plus long and short-term debt, capitalized leases, redeemable preferred stock and minority interest less cash and marketable securities. [c] Last Twelve Months financial information excludes non-recurring charges. [d] Information excludes results for CarMax Group Subsidiary. [e] Operating expenses exclude $3.7 million in early retirement of assets for FY 1996. [f] Operating expenses exclude $9.3 million related to severance costs associated with employment reductions and the shutdown of the Canadian wholy-owned subsidiary fro FY 1996. Operating expenses exclude income of $26.3 million from royalty payments related to the tuning system patents for FY 1996, and $3.1 million for 2Q97.
Fiscal Shares Market Value on 10/23/97 ------------------------------------------ Year Out. Per % of 52 Company Ticker End (MM) Share Wk High Total - -------------------------------------------- -------- -------- -------- ---------- -------- ---------- Branded Retail Gap GPS Jan 268 $52.10 98% $13,969 Gucci GUC Jan 61 40.25 50% 2,459 Gymboree GYMB Jan 25 24.00 68% 590 Starbucks SBUX Sep 81 36.75 82% 2,988 Tiffany TIF Jan 35 45.25 93% 1,585 Williams-Sonoma WSGC Jan 26 40.25 81% 1,038 - ------------------------------------------------------------------------------------------------------------------------------ Fever [d] Jun 4 $7.13 100% $ 29 - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ Night Jun 92 $26.38 94% $ 2,437 - ------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share [a] P/E Multiples ---------------------------------------- ------------------------ Company CY96 CY97E CY98E CY97E CY98E - -------------------------------------------- -------- -------- -------- -------- -------- Branded Retail Gap $ 1.60 $ 1.92 $ 2.26 27.1 x 23.1 x Gucci 2.76 3.00 3.40 13.4 11.7 Gymboree 1.24 1.44 1.75 16.7 13.7 Starbucks 0.52 0.80 1.10 45.9 33.4 Tiffany 1.66 2.02 2.35 22.4 19.3 Williams-Sonoma 0.86 1.34 1.68 30.0 24.0 ----------------------------------------------------------- Mean: 25.9 x 20.8 x Median: 24.8 21.2 ----------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Fever [d] 0.15 ($0.16) $0.30 nm x 23.8 x - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Night 0.00 $2.25 $2.55 11.7 x 10.3 x - ----------------------------------------------------------------------------------------------------------------------------------- (96-98) 1998 EPS Grow P/E to Enterprise Enterprise Value/LTM [c] ----------------------------- Company Rate Growth Value [b] Revs EBITDA EBIT - -------------------------------------------- -------- --------- ------------- -------- ---------- -------- Branded Retail Gap 19 % 1.2 x $13,801 2.5 x 14.3 x 18.8 x Gucci 12 1.0 2,267 2.6 9.0 9.5 Gymboree 19 0.7 540 1.6 7.9 9.3 Starbucks 45 0.7 2,825 3.2 21.6 36.5 Tiffany 19 1.0 1,671 1.7 11.4 13.3 Williams-Sonoma 40 0.6 1,101 1.3 13.5 20.2 --------------------------------------------------------------------------------- Mean: 25.6 % 0.9 x 2.1 x 12.9 x 17.9 x Median: 18.9 0.9 2.1 12.4 16.1 --------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Fever [d] 41 % 0.6 x $ 31 0.6 x 106.1 x nm x - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Night nm % nm x $ 2,110 1.7 x 16.1 x 19.4 x - ---------------------------------------------------------------------------------------------------------------------------------- Cap/ Book Company Value - -------------------------------------------- -------- Branded Retail Gap 9.0 x Gucci 7.5 Gymboree 3.9 Starbucks 5.9 Tiffany 3.9 Williams-Sonoma 6.9 ---------------------- Mean: 6.2 x Median: 6.4 ---------------------- - -------------------------------------------------------------------------------- Fever [d] 1.9 x - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Night 9.1 - --------------------------------------------------------------------------------
- -------------------------------------------- [a] Earnings estimates from H&Q Research where available, otherwise First Call. [b] Enterprise value equals market value plus long and short-term debt, capitalized leases, redeemable preferred stock and minority interest less cash and marketable securities. [c] Last Twelve Months financial information excludes non-recurring charges. [d] Fever share price based on close at 10/3/97. Preliminary Draft/Work in Progress LATEST TWELVE MONTHS OPERATING STATISTICS FOR SELECTED COMPARABLE COMPANIES ($MM)
Latest Twelve Latest Twelve Months [a] Margins ---------------------------------------------------------------- Company Ticker Months Revenue EBITDA EBIT Net Gross EBITDA EBIT - -------------------------------------------- -------- -------- --------- -------- -------- -------- -------- -------- --------- Stereo Retailers/Peripherals & Manufacturers Boston Acoustics, Inc. BOSA Jun $51.7 $9.4 $7.9 $5.3 42.8% 18.1% 15.3% Circuit City Stores, Inc. [d] CC May 7,905.4 347.3 242.5 132.4 23.0 4.4 3.1 Good Guys, Inc. [e] GGUY Jun 898.5 (10.6) (20.3) (11.5) 24.8 (1.2) (2.3) Harman International Industries, Inc. HAR Jun 1,474.1 155.1 102.0 54.8 28.5 10.5 6.9 Iomega Corp. IOM Jun 1,468.6 164.0 132.5 82.3 28.7 11.2 9.0 Recoton Corp. RCOT Jun 233.8 26.2 15.8 8.9 36.6 11.2 6.8 Zenith Electronics Corp. [f] ZE Jun 1,289.3 (145.1) (179.9) (174.7) 3.0 (11.3) (14.0) ----------------------------------------- Mean: 26.8 % 6.1% 3.6% Median: 28.6 10.8 6.8 ----------------------------------------- Operating Costs Balance Sheet Info. CapEx/ -------- ----------------- ----------------------- -------- Company Net R&D S,G&A Cash [b] Debt [c] Sales - -------------------------------------------- -------- -------- -------- ---------- ------------ -------- Stereo Retailers/Peripherals & Manufacturers Boston Acoustics, Inc. 10.3% 6.6% 20.8% $5.4 $2.8 3.3% Circuit City Stores, Inc. [d] 1.7 na 19.9 728.7 434.5 6.9 Good Guys, Inc. [e] (1.3) na 27.0 12.7 0.0 1.2 Harman International Industries, Inc. 3.7 na 21.6 4.2 306.9 4.6 Iomega Corp. 5.6 3.8 15.9 135.4 11.9 4.4 Recoton Corp. 3.8 na 29.9 12.0 139.9 4.1 Zenith Electronics Corp. [f] (13.5) 3.5 13.5 0.0 202.4 12.9 -------------------------------------------------------------------------- Mean: 1.5% nm 21.2% 5.3% Median: 3.8 nm 21.2 4.3 --------------------------------------------------------------------------
- -------------------------------------------- [a] Last Twelve Months financial information excludes non-recurring charges. [b] Includes short-term securities. [c] Includes any short and long-term debt, capitalized leases, redeemable preferred stock and minority interest. [d] Information excludes results for CarMax Group Subsidiary. [e] Operating expenses excludes $3.7 million in early retirement of assets for FY1996. [f] Operating expenses exclude $9.3 million related to severance costs associated with employment reductions and the shutdown of the Canadian wholy-owned subsidiary fro FY 1996. Operating expenses exclude income of $26.3 million from royalty payments related to the tuning system patents for FY1996, and $3.1 Million for 2Q97.
Twelve Latest Twelve Months [a] Margins -------------------------------------- --------------------------- Company Ticker Months Revenue EBITDA EBIT Net Gross EBITDA EBIT - -------------------------------------------- -------- -------- ----------- -------- -------- -------- -------- -------- -------- Branded Retail Gap GPS Jul $5,627.3 $968.3 $732.9 $459.3 37.1% 17.2% 13.0% Gucci GUC Jan 880.7 250.6 239.1 168.4 64.5 28.5 27.2 Gymboree GYMB Jul 333.0 68.7 57.8 32.1 44.9 20.6 17.4 Starbucks SBUX Jun 892.6 130.5 77.3 45.7 54.5 14.6 8.7 Tiffany TIF Jul 955.5 146.5 125.3 64.4 54.7 15.3 13.1 Williams-Sonoma WSGC Jul 857.8 81.7 54.6 23.5 39.9 9.5 6.4 ---------------------------------------- Mean: 49.3% 17.6% 14.3% Median: 49.7 16.3 13.1 ---------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Fever Jun $ 51.3 $ 0.3 ($0.8) ($0.6) 39.6% 0.6% (1.6)% - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Night [d] Mar $1,245.2 $130.9 $109.0 $129.5 21.9% 10.5% 8.8% - ------------------------------------------------------------------------------------------------------------------------------------ Operating Costs Balance Sheet Info. CapEx/ -------- ----------------- --------------------- Company Net R&D S,G&A Cash [b] Debt [c] Sales - -------------------------------------------- -------- -------- -------- ---------- ---------- ------- Branded Retail Gap 8.2 % na% 24.1 $257.6 $90.2 7.7% Gucci 19.1 na 37.4 230.9 38.1 1.7 Gymboree 9.6 na 27.6 50.8 0.0 14.3 Starbucks 5.1 na 45.8 182.8 19.9 17.7 Tiffany 6.7 na 41.6 76.5 162.2 3.9 Williams-Sonoma 2.7 na 33.5 27.3 89.7 5.5 ---------------------------------------------------------------------- Mean: 8.6% na 35.0% 8.5% Median: 7.4 na 35.5 6.6 ---------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- Fever (1.2)% 1.1% 40.0% $0.1 $1.9 4.1% - -------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------- Night [d] 10.4% 2.6% 10.5% $338.4 $10.8 2.7% - -------------------------------------------------------------------------------------------------------
____________________________________________ [a] Last Twelve Months financial information excludes non-recurring charges. [b] Includes short-term securities. [c] Includes any short and long-term debt, capitalized leases, redeemable preferred stock and minority interest. [d] FY96 Net Income excludes $18.78 million of special one time charges. - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress 6. INDICATED VALUE BASED ON COMPARABLE M&A TRANSACTIONS - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress INDICATED VALUE BASED ON COMPARABLE TECHNOLOGY M&A TRANSACTIONS ($MM, except per share data)
FEVER Implied Implied LTM Selected Enterprise Equity Implied Financials [a] M&A Transaction Value Value [c] Equity ($MM) Multiple [b] ($MM) ($MM) Value Per Share [d] - ------------------------------------------------------------------------------------------------------------------------------------ LTM Revenues $51.3 x 1.4 $72.3 $70.4 $17.04 LTM EBITDA 0.3 x 13.5 NM NM NM LTM EBIT (0.8) x 22.4 NM NM NM LTM Net Income (0.6) x 33.3 NM NM NM Book Value (as of 6/30/97) 15.4 x 4.2 66.8 65.0 15.73 Premium One Trading Day Prior to Announcement (10/03/97) [d] $ 7.1 x 22.8% 38.0 36.2 8.75 Premium Twenty Trading Days Prior to Announcement (9/04/97) [d] $ 5.0 x 27.1% 28.1 26.2 6.35 - ------------------------------------------------------------------------------------------------------------------------------------ Purchase Price of FEVER $46.0 $44.1 $10.68 - ------------------------------------------------------------------------------------------------------------------------------------
____________________________________ [a] Information based on projected twelve month results for period ending 6/30/97. [b] Uses mean value from relevant page. [c] Equity Value equals Enterprise Value plus $.1 million in cash less $1.9 million in debt. [d] Assumes 4.1 million shares of FEVER and 0.6 million options with an average exercise price of $4.60 pershare outstanding on the effective date. - ----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress INDICATED VALUE BASED ON COMPARABLE CONSUMER M&A TRANSACTIONS ($MM, except per share data)
FEVER LTM Selected Implied Implied Implied Financials [a] M&A Transaction Enterprise Equity Equity ($MM) Multiple [b] Value Value [c] Value Per Share [d] - -------------------------------------------------------------------------------------------------------------------------------- LTM Revenues $51.3 x 2.0 $101.2 $99.3 $24.04 LTM EBITDA 0.3 x 15.6 NM NM NM LTM EBIT (0.8) x 20.6 NM NM NM LTM Net Income (0.6) x 30.0 NM NM NM Book Value (as of 6/30/97) 15.4 x 4.3 68.7 66.8 16.17 Premium One Trading Day Prior to $7.1 x 25.1% 38.7 36.8 8.92 Announcement (10/03/97) [d] Premium Twenty Trading Days Prior to $5.0 x 39.4% 30.6 28.8 6.97 Announcement (9/04/97) [d] - -------------------------------------------------------------------------------------------------------------------------------- PURCHASE PRICE OF FEVER $46.0 $44.1 $10.68 - --------------------------------------------------------------------------------------------------------------------------------
______________________________ (a) Information based on projected twelve month results for period ending 6/30/97. (b) Uses mean value from relevant page. (c) Equity Value equals Enterprise Value plus $.1 million in cash less $1.9 million in debt. (d) Assumes 4.1 million shares of FEVER and 0.6 million options with an average exercise price of $4.60 per share outstanding on the effective date. - ---------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress SELECTED COMPARABLE M&A TRANSACTIONS
- ---------------------------------------- Selected Comparable M&A Transactions [a] - ---------------------------------------- Date Ann. Target Acquiror Business of Target - ---------------------------------------------- ----------------------------- ----------------------------------------------- 9/5/97 Stairmaster Sports/Medical Products John Rutledge Partners Mnfr. of fitness equipment (Stairclimbers, Gravitron) 12/23/96 Starsight Telecast, Inc. Gemstar International, Inc. Pvd cable programming svcs 11/26/96 Armor All Clorox Automotive consumer products 9/12/96 Duracell International, Inc. The Gillette Company Mnfr and sells alkaline batteries. 1/3/96 International Jensen, Inc. Recoton Corporation Mnfr. home & automotoive loudspeakers. 9/28/95 Marietta Corporation BFMA Holding, Corp. Mnfr guest amenity programs to travel & lodging industry. 9/22/94 Neutrogena Corp. Johnson & Johnson Mnfr and distributes skin care & hair care products. 5/24/94 Mr. Coffee, Inc. Signature Brands USA, Inc. Mnfr coffee makers 5/21/94 Gerber Products Sandoz Ltd. Produces and distributes baby foods. 8/2/93 Goody Products Newell Co. Mnfr hair care and cosmetic products Offer for Multiple of: Offer for Multiple of: % Prem. to Mkt. -------------------------- --------------------------------------------------------- Equity Net Book Cash Flow Assets [b] Net Oper. (Trading Days) ($MM) Income Value From Oper. ($MM) Revenue EBITDA EBIT Assets 1 Day 20 Days - ----------------------------------------------------------------------------------------------------------------------------------- Private $42.2 6.8x 2.2x 3.8x $42.0 0.8x 4.5x 5.9x 2.2x nm nm Public 233.8 nm 11.2x nm 211.8 19.4x nm nm nm 0.7% 25.5% Public 410.4 52.6x 3.3x 14.6x 355.5 1.9x 22.2x 29.7x 2.9x 9.1% 14.0% Public 8,773.8 34.1x 6.1x 35.8x 9,342.7 4.0x 16.9x 20.5x 4.6x 43.5% 57.6% Public 56.8 nm 1.0x nm 102.3 0.4x 15.0x 37.7x 1.0x 63.0% 46.7% Public $39.6 nm 0.8x 10.3x $77.9 1.0x 23.5x nm 1.7x 13.9% 24.2% Public 953.0 37.7x 6.9x 71.6x 934.5 3.1x 20.7x 24.0x 7.8x 22.6% 78.5% Public 136.7 20.5x 2.2x 12.9x 160.0 0.9x 8.2x 10.9x 1.9x nm nm Public 3,747.4 27.4x 10.3x 27.2x 3,832.1 3.2x 15.4x 18.5x 8.5x 53.1% 68.3% Public 174.8 nm 2.8x 14.0x 187.7 0.9x 10.6x 20.2x 2.5x 8.2% 8.8% - ---------------------------------------------------------------------------------------------------------------------------------- Average [c] $719.4 30.0x 4.3x 19.1x $732.7 2.0x 15.6x 20.6x 3.4x 25.1% 39.4% Median $204.3 30.8x 3.0x 14.3x $199.7 1.5x 15.4x 20.4x 2.5x 18.2% 36.1% - ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------- Selected Comparable Technology M&A Transactions - ----------------------------------------------- 09/19/97 Sterling Electronics Corporation [d] Marshall Industries Whl electronic components 07/03/97 Wyle Electronics [d] Raab Karcher, AG Whl high tech electronics 04/10/97 Microcom Compaq Computer Mnfr. Modem and related products 02/26/97 Compression Labs V-TEL Mnfr. videoconferencing equipment 2/26/97 U.S. Robootics 3Com Mnfr. modem and related hardware 10/4/96 Augat, Inc. Thomas & Betts Corp. Mnfr electrical components for elect. industry. 07/01/96 Brooktree Corp. Rockwell International Mnfr ASICs for graphics systems 11/09/96 NetWorth Compaq Dvlps peripheral systems 10/03/95 Conner Peripherals, Inc. Seagate Technology, Inc. Mnfr hard disk drives 4/27/95 Acuity Imaging, Inc. Robotic Visions Systems, Inc. Mnfr machine-vision based inspection and meas. products Public $162.3 18.7x 2.7x nm $208.5 0.6x 10.9x 12.6x 2.0x 16% 57% Public 633.0 17.1x 2.8x 936.4x 751.3 0.6x 9.8x 11.2x 2.2x 17% 35% Public 360.6 54.3x 3.3x nm 366.2 2.1x 19.7x 39.6x 3.2x 54.8% 41.3% Public 52.7 nm 4.0x nm 64.7 0.7x nm nm 3.4 -32.4% -34.3% Public $6,814.1 23.4x 7.9x 145.5x $6,892.3 2.8x 14.7x 15.7x 7.3x 11.9% 0.0% Public 585.8 52.3x 2.1x 26.7x 624.9 1.1x 14.0x 29.3x 2.0x 35.9% 49.3% Public 258.5 63.4x 1.8x 83.3x 269.0 1.8x 13.2x 49.2x 13.2x 42.9% 16.5% Public 350.6 nm 9.1x 120.1x 390.9 6.8x nm nm 16.9x 21.7% 111.3% Public 322.9 6.1x 0.8x 2.7x 507.9 0.2x 3.2x 7.8x 0.9x -18% -5% Public 33.4 33.7x 17.7x nm 33.0 1.6x 18.5x 26.1x 22.0x 55.0% 21.9% - ---------------------------------------------------------------------------------------------------------------------------------- Average [c] $340.8 33.3x 4.2x 93.9x $397.9 1.4x 13.5x 22.4x 6.3x 22.8% 27.1% Median 336.8 28.6x 3.1x 101.7x 378.5 1.4x 13.6x 20.9x 3.3x 19.2% 28.5% - ---------------------------------------------------------------------------------------------------------------------------------- _____________________________________________________________________________ [a] Selected consumer and technology deals. Source: SDC, H&Q [b] Offer for Assets equals Offer for Equity plus debt less cash. [c] Average excludes the highest and lowest values. [d] Deal pending.
Preliminary Draft/Work in Progress 7. DISCOUNTED CASH FLOW ANALYSIS - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress DISCOUNTED CASH FLOW ANALYSIS ($MM)
-------------- -------------- -------------- -------------- ------------ FY 1998 E FY 1999 E FY 2000 E FY 2001 E FY 2002 E -------------- -------------- -------------- -------------- ------------ Revenue [a] $ 79.3 $ 95.5 $ 102.1 $ 108.3 $ 113.8 EBIT [a] Taxes at effective rate $ 2.8 $ 5.3 $ 5.9 $ 6.3 $ 6.4 Tax effected EBIT (1.1) (2.1) (2.4) (2.5) (2.6) --------------- --------------- -------------- -------------- ------------ 1.7 3.2 3.5 3.8 3.8 Net changes in working capital [a] (11.2) (6.0) (1.8) (1.9) (2.0) --------------- --------------- -------------- -------------- ------------ OPERATING CASH FLOW (9.5) (2.8) 1.7 1.9 1.8 + Depreciation and amortization [a] 1.4 2.0 2.5 2.6 2.8 - - Capital expenditures [a] (1.3) (4.5) (0.8) (0.8) (0.8) --------------- --------------- -------------- -------------- ----------- FREE CASH FLOW $ (9.4) $ (5.3) $ 3.4 $ 3.7 $ 3.8 =============== =============== ============== ============== =========== TERMINAL VALUE: (based on 2002 Revenue) 0.50 x Revenue $ 56.9 0.75 x Revenue 85.3 1.00 x Revenue 113.8 ------------------- -------------- ---------------- ----------------- DISCOUNT RATE CALCULATION [B] Equity risk premium Risk free rate Beta Discount rate ------------------- -------------- ---------------- ----------------- (CAPM) 10.79% 5.96% 0.89 15.56% ------------------- -------------- ---------------- -----------------
- -----------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress DISCOUNTED CASH FLOW ANALYSIS ($MM)
DISCOUNT RANGE ----------- ---------- -------------- -------- -------- 12.0% 14.0% 16.0% 18.0% 20.0% ----------- ---------- -------------- -------- -------- A. Net present value of free cash flow [c] $ (1.5) $ (1.8) $ (2.0) $ (2.2) $ (2.4) B. Present value or terminal value [c] ----------- ---------- -------------- -------- -------- 0.50 x Revenue $ 34.2 $ 31.6 $ 29.2 $ 27.0 $ 25.1 0.75 x Revenue 51.3 47.3 43.8 40.5 37.6 1.00 x Revenue 68.3 63.1 58.4 54.1 50.1 ----------- ---------- -------------- -------- -------- C. Total debt less cash and short-term investments $ 1.9 $ 1.9 $ 1.9 $ 1.9 $ 1.9 D. Net present value of equity (A+B-C) ----------- ---------- -------------- -------- -------- 0.50 x Revenue $ 30.8 $ 27.9 $ 25.3 $ 22.9 $ 20.8 0.75 x Revenue 47.9 43.7 39.9 36.4 33.3 1.00 x Revenue 65.0 59.5 54.5 50.0 45.8 ----------- ---------- -------------- -------- -------- F. Percentage of value derived from terminal value ----------- ---------- -------------- -------- -------- 0.50 x Revenue 110.8% 113.0% 115.3% 117.9% 120.7% 0.75 x Revenue 107.0% 108.3% 109.7% 111.3% 112.9% 1.00 x Revenue 105.1% 106.1% 107.1% 108.2% 109.4% ----------- ---------- -------------- -------- --------
______________________ [a] Estimates derived by H&Q based on discussions with management. [b] Historic market premium on the Nasdaq and other small-cap stocks. Risk free rate is current yield on 5-year Treasury bond. Beta is from Barra. [c] Assumes transaction closes at end of CY1997. - --------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress 8. SUMMARY OF IMPLIED EQUITY VALUATIONS - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress IMPLIED EQUITY VALUATION SUMMARY
CATEGORY TOTAL EQUITY VALUATION PER SHARE VALUATION RANGE ($MM) RANGE ------------------------------------------------------------- A. Implied Valuation Based on Comparable Public Companies Stereo Retailers/Peripherals & Manufacturers $9.1 - $ 61.0 $2.21 - $14.76 Branded Retail Companies 10.4 - 107.9 2.51 - 26.57 B. Implied Valuation Based on Comparable M&A Transactions Implied Valuation Based on Comparable Consumer M&A Transactions 28.8 - 99.3 6.97 - 24.04 Implied Valuation Based on Comparable Technology M&A Transactions 26.2 - 70.4 6.35 - 17.04 C. Discounted Cash Flow Analysis 20.8 - 65.0 5.02 - 15.74 D. Implied Valuation Based on 52 Week Trading Range 13.8 - 29.2 3.37 - 7.13 E. Implied Valuation Based on Historic Trading Range 13.3 - 40.0 3.25 - 9.75 F. Implied Valuation Based on Potential Future Share Price Range Management Estimates 25.0 - 71.7 6.10 - 17.48 H&Q Estimates 17.4 - 42.6 4.25 - 10.40 - ------------------------------------------------------------------------------------------------------------------------------------ PURCHASE PRICE FOR FEVER $ 44.1 $ 10.68 - ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress IMPLIED EQUITY VALUATION SUMMARY VALUATION METHODOLOGY [GRAPH APPEARS HERE] - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress 9. PROPOSED TRANSACTION MULTIPLES - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress PROPOSED TRANSACTION MULTIPLES ($MM, except per share data)
AVERAGE CLOSING TRANSACTION TIME PERIOD PRICE VALUE PREMIUM - ----------------------------------------------------------------------------- 10/3/1997 $7.13 $10.68 50% Previous week $6.95 $10.68 54% Previous month $6.14 $10.68 74% Previous 3 months $5.29 $10.68 102% Previous 6 months $5.16 $10.68 107% Previous 12 months $5.13 $10.68 108% CURRENT TRADING TRANSACTION METRIC [A] ($MM) MULTIPLES [B] MULTIPLES PREMIUM - ----------------------------------------------------------------------------- REVENUES LTM Results $51.3 0.6x 0.9x 47% FY 1998 $79.3 0.4x 0.6x 47% FY 1999 $95.5 0.3x 0.5x 47% EBIT LTM Results ($0.8) nm nm nm FY 1998 $2.8 11.1x 16.3x 47% FY 1999 $5.3 6.0x 8.7x 47% NET INCOME LTM Results ($0.6) nm nm nm FY 1998 $1.5 20.3x 30.4x 50% FY 1999 $2.7 11.5x 16.2x 41%
[A] Last twelve months as of June 30, 1997. Projected FY1998 and FY1999 results based on H&Q/Management Estimates. [B] Based on a closing market price of $7.13 on 10/3/1997. - ----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress 10. PRO FORMA IMPACT ON NIGHT - ----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress PRO FORMA IMPACT ON NIGHT Assumptions ($MM, except per share data)
COMPANY NIGHT FEVER - ------------------------------------------------------------- Closing Price on October 3, 1997 [a] $25.50 $10.68 Shares Outstanding [b] 92.4 3.8 Options [c] 0.4 0.6 Weighted-Average Exercise Price [c] $13.05 $3.92 EPS FY 1997 [d,e] $1.84 ($0.19) FY 1998 [d,e] 2.38 $0.36 FY 1999 [d,e] 2.63 $0.67 P/E FY 1997 13.9x mm FY 1998 10.7x 29.8x FY 1999 9.7x 15.9x ACQUISITION (PURCHASE ACCOUNTING) CASE A CASE B -------------------------------------------------------------- % Purchased R&D Write-off 20% 30% Value of Acquisition [f] $45 $45 Less Fever Book Value [g] (15) (15) -------------------- Excess of Purchase Price over Book Value 29 29 Less Purchased R&D Write-off (6) (9) -------------------- Goodwill $23 $20 ==================== Goodwill Amortization Period 7 7 Annual Goodwill Charge $3 $3 Pretax Opportunity Cost of Cash 5.50% Tax Rate 10.0% Annual After-tax Opportunity Cost of Cash $2
[a] Fever price reflects offer price. [b] Night shares as of March 31, 1997 10Q. Fever shares outstanding as of June 29, 1997 10K. [c] Night exercisable options outstanding and weighted average exercise price per June 30, 1996 10K. Fever options outstanding and weighted average exercise price per Fever June 29, 1997 10K. [d] Night estimates based on First Call median for fiscal years ending, June. [e] Estimates derived by H&Q based on discussions with the Company. [f] Based on $10.68 per share. [g] Fever book value based on June 29, 1997 10K. - --------------------------------------------------------------------------- H&Q Preliminary Draft/Work in Progress PRO FORMA IMPACT ON NIGHT Accretion/(Dilution) ($MM, except per share data)
CASE A: 20% R&D WRITE-OFF FY 1998 FY 1999 CASE B: 30% R&D WRITE-OFF FY 1998 FY 1999 - -------------------------------------------------------------- --------------------------------------------------------------- Acquisition P\E 29.8 x 15.9 x Acquisition P\E 29.8 x 15.9 x Pro Forma EPS $ 2.33 $ 2.60 Pro Forma EPS $ 2.34 $ 2.60 Accretion/(Dilution)$ ($ 0.05) ($ 0.03) Accretion/(Dilution)$ ($ 0.04) ($ 0.03) Accretion/(Dilution)% (1.9%) (1.2%) Accretion/(Dilution)% (1.7%) (1.1%) Pretax Synergies to Break Even [a] $ 4.6 $ 3.3 Pretax Synergies to Break Even [a] $ 4.2 $ 2.8
SYNERGY SENSITIVITY PRICE FY 1998 FY 1999 SYNERGY SENSITIVITY PRICE FY 1998 FY 1999 - -------------------------------------------------------------- --------------------------------------------------------------- $ 7.13 $ 1.8 $ 0.5 $ 7.13 $ 1.6 $ 0.3 8.13 2.6 1.3 8.13 2.3 1.0 9.13 3.4 2.1 9.13 3.0 1.7 10.13 4.2 2.9 10.13 3.8 2.4 11.13 5.0 3.7 11.13 4.5 3.2 ACCRETION/(DILUTION) SENSITIVITY SYNERGIES FY 1998 FY 1999 ACCRETION/(DILUTION) SENSITIVITY SYNERGIES FY 1998 FY 1999 - -------------------------------------------------------------- ---------------------------------------------------------------- $ 0 (1.9%) (1.2%) $ 0 (1.7%) (1.1%) 5 0.1% 0.6% 5 0.3% 0.8% 10 2.2% 2.5% 10 2.4% 2.6% 15 4.2% 4.3% 15 4.4% 4.5% 20 6.3% 6.2% 20 6.5% 6.4%
[a] Assumes a tax rate of 10.0% - -----------------------------------------------------------------------------H&Q Preliminary Draft/Work in Progress 11. FORM OF FAIRNESS OPINION - -----------------------------------------------------------------------------H&Q [LETTERHEAD OF HAMBRECHT & QUIST LLC] DRAFT ONE BUSH STREET ----- SAN FRANCISCO, CA 94104 (415) 576-3300 October 30, 1997 Confidential - ------------ The Board of Directors Cambridge SoundWorks, Inc. 333 Needham Street Newton, Massachusetts 02164 Gentlemen: You have requested our opinion as to the fairness from a financial point of view to the holders of the outstanding shares of common stock, no par value per share (the "Common Stock"), Cambridge Soundworks Inc. (the "Company") of the consideration to be received by such holders in connection with a proposed transaction as set forth below. We understand that the Company, Creative Technology Ltd. ("Creative") and CSW Acquisition Corporation (the "Purchaser") propose to enter into an Agreement and Plan of Merger (the "Agreement") dated as of October 30, 1997. The terms of the Agreement provide, among other things, that (i) the Purchaser will promptly commence a tender offer (the "Offer") to purchase for cash all of the outstanding shares of Common Stock at a purchase price of $10.68 per share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Agreement and certain ancillary documents to be filed with the Securities and Exchange Commission; and (ii) the Purchaser will subsequently be merged (the "Merger") with and into the Company in a transaction which will provide all remaining holders of shares of Common Stock (other than the Company, Creative the Purchaser or their respective subsidiaries, and holders who have perfected their appraisal rights under Massachusetts law) with $10.68 per share in cash. The Offer and the Merger constitute the "Proposed Transaction." Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment banking services, is regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, strategic transactions, corporate restructurings, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. We have acted as a financial advisor to the Board of Directors of the Company in connection with the Proposed Transaction, and we will receive a fee for our services, which include the rendering of this opinion. The Board of Directors Cambridge SoundWorks, Inc. Page 2 In the past, we have provided investment banking and other financial advisory services to the Company and have received fees for rendering these services. In particular, Hambrecht & Quist acted as lead managing underwriter in the Company's initial public offering in 1994. In the ordinary course of business, Hambrecht & Quist acts as a market maker and broker in the publicly traded securities of the Company and receives customary compensation in connection therewith, and also provides research coverage for the Company. In the ordinary course of business, Hambrecht & Quist actively trades in the equity and derivative securities of the Company for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Hambrecht & Quist and its affiliates currently own approximately 337,000 shares of Company Common Stock. In connection with our review of the Proposed Transaction, and in arriving at our opinion, we have, among other things: (i) reviewed the publicly available consolidated financial statements of Creative for recent years and interim periods to date and certain other relevant financial and operating data of Creative made available to us from published sources; (ii) reviewed the financial statements of the Company for recent years and interim periods to date and certain other relevant financial and operating data of the Company made available to us from published sources and from the internal records of the Company; (iii) reviewed certain internal financial and operating information relating to the Company, including certain financial projections, prepared by the management of the Company; (iv) discussed the business, financial condition and prospects of the Company with certain of its officers; (v) reviewed the recent reported prices and trading activity for the common stock of the Company and compared such information and certain financial information for the Company with similar information for certain other companies engaged in businesses we consider comparable; (vi) reviewed the financial terms, to the extent publicly available, of certain comparable merger and acquisition transactions; (vii) reviewed the Agreement; and (viii) performed such other analyses and examinations and considered such other information, financial studies, analyses and investigations and financial, economic and market data as we deemed relevant. In rendering our opinion, we have assumed and relied upon the accuracy and completeness of all of the information concerning the Company or Creative considered in connection with our review of the Proposed Transaction, and we have not assumed any responsibility for independent verification of such information. We have not undertaken any independent valuation or appraisal of any of the assets or liabilities of the Company or Creative; nor have we conducted a physical inspection of the properties and facilities of either company. With respect to the financial forecasts and projections used in our analysis, we have assumed that they reflect the best currently available estimates and judgments of the expected future financial performance of the Company. For purposes of this Opinion, we have assumed that neither the Company nor Creative is a party to any The Board of Directors Cambridge SoundWorks, Inc. Page 3 pending transactions, including external financings, recapitalizations or material merger discussions, other than the Proposed Transaction and those activities undertaken in the ordinary course of conducting their respective businesses. Our opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date of this letter and any change in such conditions would require a reevaluation of this opinion. We were not requested to, and did not, formally solicit indications of interest from any other parties in connection with a possible acquisition of, or business combination with, the Company. It is understood that this letter is addressed to and for the information of the Board of Directors in connection with their evaluation of the Proposed Transaction and may not be used for any other purpose without our prior written consent; provided, however, that this letter may be reproduced in full in any filing with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. This letter does not constitute a recommendation to any stockholder of the Company as to whether such stockholder should accept the Offer. Based upon and subject to the foregoing and after considering such other matters as we deem relevant, we are of the opinion that as of the date hereof the consideration to be received by the holders of Company Common Stock in the Proposed Transaction is fair to such holders from a financial point of view. We express no opinion, however, as to the adequacy or financial fairness of any consideration received in the Proposed Transaction by Creative or any of its affiliates. Very truly yours, HAMBRECHT & QUIST LLC /s/ David Golden By ____________________________ David Golden Managing Director -----END PRIVACY-ENHANCED MESSAGE-----