PARK CAPITAL SECURITIES LLC
000 XXXX 00XX XXXXXX, 0XX XXXXX
XXX XXXX, XXX XXXX 10016
000 000 0000
January 31, 2003
Board of Directors
9278 Communications, Inc.
0000 Xxxxxxxxxxxxxx Xxxx
Xxxxx, Xxx Xxxx 00000
Members of the Board of Directors:
We understand that 9278 Communications, Inc. (the "Company"), has
entered into an Agreement and Plan of Merger dated as of January , 2003 (the
"Agreement"), providing for, among other things, the acquisition by NTSE Holding
Corp., (the "Purchaser") a Delaware corporation wholly-owned by Xxxxx Xxxxxxx
("Xxxxxxx") of all of the outstanding common shares of the the Company not
presently owned by Xxxxxxx or members of his family (the "Merger"). Pursuant to
the Agreement as of the date of effectiveness of the Merger, each share of the
Company's common stock, will be purchased by the Purchaser at a price of $0.10
per share to be paid in cash to holders of such shares. The specific terms and
conditions of the Merger are set forth in detail in the Agreement.
You have requested our opinion, as a financial advisor, with respect to
the fairness, from a financial point of view, of the consideration to be
received by the stockholders of the Company in the Merger. We have not been
requested to opine as to, and our opinion does not in any manner address, the
Company's underlying business decision to proceed with or effect the Merger.
In arriving at our opinion, we have reviewed and analyzed:
1) the Agreement and the terms of the Merger;
2) publicly available information concerning the Company which
we deemed to be relevant to our inquiry and analysis;
including the company's Annual Report for 2001, Securities
and Exchange Commission 10 Q-SB Reports for the periods
ended March 31, 2002, June 30,2002 and September 30, 2002,
press releases, proxy statements, and internally prepared
financial projections of the Company for the fiscal year end
December 31,2004.
Member of the NASD
3) financial and operating information with respect to the
business, operations and prospects of the Company furnished
to us by management, and held discussions with various
members of the Boards of Directors and senior management of
the Company concerning the historical and current
operations, financial conditions, and future prospects of
the Company ;
4) the prices and trading histories of the common stock of the
Company;
5) an analysis of the historical financial results and present
financial condition of the Company
6) such other financial studies, analyses, investigations and
other factors as we deemed appropriate or necessary for the
purpose of rendering the opinion as expressed herein.
We have assumed and relied upon the accuracy and completeness of the
financial and other information provided to us or discussed with us by the
Company or other-wise used by us in arriving at our opinion without independent
verification and have further relied upon the assurances of management of the
Company that they are not aware of any facts that would make such information
inaccurate or misleading with respect to the financial forecasts (including on a
pro forma basis) of the Company. Upon advice of the Company , we have assumed
that such forecasts have been reasonably prepared reflecting the best currently
available estimates and judgments of the management of the Company as to the
future financial performance of the Company (including on a pro forma basis),
and that the Company reasonably expect to perform in accordance with such
forecasts. In arriving at our opinion, we have not conducted physical
inspections of the properties and facilities of the Company and have not made or
obtained any evaluations or appraisals of the assets or liabilities of the
Company. Additionally, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Our opinion is necessarily
based upon market, economic and other considerations as they exist on, and can
be evaluated as of, the date of this letter. We have acted as financial advisor
to the Company and will receive a fee for our services in the rendering of this
opinion whether or not a transaction occurs. We have not previously performed
investment banking services for the Company, and to the best of our knowkedge we
have not executed brokerage transactions in the securities of the Company and do
not maintain a long or short position in such securities.
This opinion is solely for the use and benefit of the Board of
Directors of the Company and shall not be disclosed publicly or made available
to, or relied upon by, any third party without our prior approval. The Company
may include the Opinion and a description thereof in any document required to be
filed with the Securities and Exchange Commission and distributed to the
Company's stockholders in connection with the Merger and may refer to Park
Capital Securities LLC in such document, provided that any such description and
references have been submitted to and are reasonably acceptable to Park Capital
Securities LLC. This opinion is not intended to be and does not constitute a
recommendation to any stockholder as to whether to vote for the Merger or to
accept the consideration offered to such stockholder in connection with the
Merger.
Based upon and subject to the foregoing, we are of the opinion that, as
of the date hereof, the consideration to be received by the Company's
stockholders in the Merger is fair, from a financial point of view, to such
stockholders.
Very truly yours,
Park Capital Securities LLC
Member: National Association of Securities Dealers (NASD)
PARK CAPITAL SECURITIES LLC
000 XXXX 00XX XXXXXX, 0XX XXXXX
XXX XXXX, XXX XXXX 10016
000 000 0000
JANUARY 30, 2003
OPINION OF FINANCIAL ADVISOR
Park Capital Securities LLC has served as a financial advisor to 9278
Communications, Inc. (hereinafter referred to as the "Company") in connection
with the transaction contemplated by the Merger Agreement and has been asked to
render its opinion as to the fairness, from a financial point of view, to the
Company's stockholders of the Consideration to be received by such stockholders
in the Merger.
On January 31 , 2003, in connection with the evaluation of the Merger
Agreement by the Board of Directors of the Company, Park Capital Securities LLC
made a presentation to the Board with respect to the Merger Consideration and
rendered its opinion (confirmed in a written opinion dated the date of this
Joint Proxy Statement/Prospectus) that, as of the date of each such opinion, and
subject to assumptions, factors, and limitations set forth in such opinion as
described below, the Merger Consideration to be received by the the Company's
stockholders in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
No limitations were imposed by the Company on the scope of Park Capital
Securities LLC's investigation or the procedures to be followed by Park Capital
Securities LLC in rendering its opinion. Park Capital Securities LLC's opinion
is directed to the Board of Directors and does not constitute a recommendation
to any stockholder of the Company as to how such stockholder should vote at the
Company Meeting. Park Capital Securities LLC was not requested to opine as to,
and does not address, the Company's underlying business decision to proceed with
or effect the Merger.
In arriving at its opinion, Park Capital Securities LLC reviewed and
analyzed (i) the Merger Agreement; (ii) publicly available information
concerning the Company that Park Capital Securities LLC believed to be relevant
to its inquiry; (iii) financial and operating information with respect to the
business, operations and prospects of the Company furnished to Park Capital
Securities LLC by the management of the Company, and discussions held with
various members of the senior management of the Company concerning the
historical and current operations, financial conditions, and future prospects of
the Company (iv) the prices and trading history of the common
Member: National Association of Securities Dealers (NASD)
stock of the Company (v) an analysis of the historical financial results and
present financial condition of the Company; and (vi) such other financial
studies, analyses, investigations and other factors as Park Capital Securities
LLC deemed relevant or appropriate.
In connection with its review, Park Capital Securities LLC assumed and
relied upon the accuracy and completeness of the financial and other information
provided to it or discussed with it by the Company or otherwise used by it in
arriving at its opinion, without independent verification. Paprk Capital
Securities LLC further relied upon the assurances of the management of the
Company that such management was not aware of any facts that would make such
information inaccurate or misleading with respect to the financial plan of the
Company. With respect to the financial plan provided to Park Capital Securities
LLC by the Company, Park Capital Securities LLC assumed that such plan was
reasonably prepared and reflects the best currently available estimates and
judgment of the management of the Company. In arriving at its opinion, Park
Capital Securities LLC did not conduct physical inspections of the properties,
or inventories of the facilities of the Company with the goal of arriving at a
valuation of the Company. Park Capital Securities LLC's opinion was necessarily
based upon market, economic and other conditions as they existed on, and could
be evaluated as of, the date hereof.
In connection with its presentation to the Company's Board of Directors
advising the Board of its opinion on January 30 , 2003, Park Capital Securities
LLC performed a variety of financial and comparative analyses, including those
described below. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances,
and therefore such an opinion is not readily susceptible to summary description.
Park Capital Securities LLC has used several methods to arrive at a fair value
for the Company's common stock, with each method requiring different assumptions
and calculations and, therefore resulting in different values. Furthermore, in
arriving at its fairness opinion, Park Capital Securities LLC did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor, Accordingly, Park Capital Securities LLC believes that its analysis
must be considered as a whole and that considering any portions of such analyses
and of the factors considered, without considering all the analyses and factors,
could create a misleading or incomplete view of the process underlying the
opinion. In its analyses, Park Capital Securities LLC made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of the Company. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses relating
to the value of the businesses do not purport to be appraisals or to reflect
prices at which businesses may actuallv be sold.
PURCHASE PRICE ANALYSIS. The proposed Xxxxxx was proposed to the Board
of Directors of the Company on October 30, 2002. On that date, the Company's
shares traded on the Nasdaq OTC Bulletin Board at a closing price of $0.55 per
share of common stock. Subsequent to the offer being proposed, the shares have
traded at various prices with a low closing price of $0.02 and a high closing
price of $ 0.08 on November 4, 2002. Based on these pre-announcement closing
prices, the aggregate high and low market capitalilzation for the equity of the
company as represented by 23,932,912 outstanding shares was $478,658 at the low
end and $1,675,303 at the higher end in November of 2002. The current offer from
NTSE Holding Corp. of $0.10 per share in cash values the company's common stock
equity at $2,393,291 which represents a premium of 42.8% over the highest
publicly-traded valuation of the company's stock since the date of the offer as
represented by the $0.07 per share price of November 4, 2002 and a premium of
400% over the current share price as traded on the Nasdaq Pink Sheet Quotation
System.
Additionally, the average daily trading volume of the company's shares
as recorded by the Nasdaq system has dropped precipitously over the last several
months with a range of daily trading volume of as low as 100 shares per day to a
high 167,700 shares per day. These trading volumes represent a limited aggregate
level of financial liquidity to current or prospective shareholders ranging from
$200.00 to $11,000 per day or less than 2% of the maximum aggregate market
capitalization achieved during the period covered since the submission of the
proposed
Member: National Association of Securities Dealers (NASD)
offer to merge on October 30, 2002. The proposed offer to merge as submitted by
NTSE Holding Corp. will provide the current shareholders with the opportunity to
receive immediate cash in exchange for their shres in an aggregeate amount of 5
times as much as the current market will provide. At present, with the shares
trading at such light volumes and at such a low price,any significant attempt by
the present shareholders to achieve cash liquidity for their shares could cause
a further decline in the current share price. As an exampleof the lack of
liquidity, during the 51 day trading period from October 31, 2002 through
January 10, 2003, 918,500 shares traded representing an average of only 18,009
shares per trading day. At prices of as low as $0.02 per share to as high as
$0.08 per share, the financial liquidity of the stock was $1,440.00 on average
or .3% of the total current market capitalization.
EBITDA MULTIPLE APPROACH. A rough "rule of thumb" valuation technique
frequently employed is to simply apply a multiple to the latest twelve months
EBITDA. The company has not yet issued its most recent quarter financial results
for the period ended 12/31/02. Therefore, Park Capital Securities LLC simply
used the nine months ended 9/30/02 and adjusted them to an annual rateof
operations for the 12 month period ended 12/31/02. However, the company recorded
significant losses for the period covered and such an approach rendered a
meaningless comparative result.
DISCOUNTED CASH FLOW. Park Capital Securities LLC calculated the future
potential earnings of 9278 Communications, Inc. for the years 2003, 2004 and
2005, using the company's projections for fiscal year 2003 and certain
assumptions for growth in revenue, the rate of return an investor would expect
for taking the risk of owning the company's securities during that period
(discount rate), and the potential net profit margin. Park Capital Securities
LLC then placed a terminal value on the projected 2005 free cash flow to be
generated by multiplying free cash flow by a multiple of 3.3X . This terminal
value was then discounted to the present by using a discount rate of 30% as the
weighted average cost of capital using a capital asset pricing model, which
takes into account the Beta values of similar publicly traded companies, the
current return on the S&P 500 and the current return on long-term, risk-free
treasury securities. Using this method, Park Capital Securities LLC determined
the present value of 2005 terminal value and the accumulated free cash flow
values for the years 2003, 2004 and 2005 to be as high as $1.8 million or $0.07
per share. Howeever, it should be noted that the method used to estimate this
present value assumed that the company could reverse its most recent operating
history and bexome cash flow positive for the years 2004 and 2005. There can be
no assurances that such results can be realized. The company's recent results
have resulted in accumulated losses and cash flow deficits.
ADJUSTED BOOK VALUE. As part of its analysis and to attempt to
determine the fair market value of 9278 Communications, Inc.'s total
capitalization, Park Capital Securities LLC reviewed the value to a potential
buyer of the assets and liabilities in comparison to their book values. The
results of an "adjusted book value analysis" indicated a fair market value of
approximately negative ($5,600,000) as of 12/31/2002 and a potential negative
net worth in excess of ($7,000,000) based upon the company's projections for the
year ending 2003 resulting from the accumulated earnings deficit and the charge
back of unamortized goodwill. Therefore, the cash consideration to be received
by the shareholders of 9278 Communications, Inc. from the proposed merger
transaction of $2.3 million dollars is significantly in excess of the value to
be derived under this approach.
Park Capital Securities LLC is a private, regional independent
investment banking firm founded in 1999 and located in New York, New York. The
firm is a member of the National Association of Securities Dealers. As part of
its business activities, the firm provides investment banking services,
including the evaluation of businesses and their securities in connection with
mergers and acquisitions, underwritings, competitive bids, initial and secondary
distributions of listed and unlisted securities, private placements of both debt
and equity securities and valuations for corporate and other purposes. The Board
of Directors of 9278 Communication, Inc. selected Park Capital Securities LLC
because of its expertise, reputation and familiarity with similar type
transactions.
Member: National Association of Securities Dealers (NASD)
Pursuant to a letter agreement dated December 10, 2002, 9278
Communications, Inc. has agreed to pay Park Capital Securities LLC (i) a fee of
thirty thousand ($30,000.00) dollars upon delivery of a fairness opinion ( the
"Opinion Fee") which fee will be paid whether or not a transaction occurs.
RESPECTFUFLY SUBMITTED,
PARK CAPITAL SECURITIES LLC
Member: National Association of Securities Dealers (NASD)
BOOK VALUE ANALYSIS
(in millions, except per share amounts)
PROJECTED
12/31/2001 6/30/2002 9/30/2002 12/31/2003
TOTAL ASSETS $37.90 $38.10 $39.30 $55
ADJUSTED FOR GOODWILL ($3.60) ($3.60) ($3.60) ($3.60)
NET ASSETS $31.30 $34.50 $35.70 $51.40
LIABILITIES $35.80 $38 $41.40 $62.30
SHAREHOLDER EQUITY ($4.50) ($3.50) ($5.70) ($10.90)
PER SHARE ($0.19) ($0.15) ($0.24) ($0.46)
Member: National Association of Securities Dealers (NASD)
RANGE OF VALUES
METHOD VALUATION PER SHARE PRICE
CURRENT MARKET $478,658 $0.02
PROPOSED OFFER $2,393,291 $0.10
ADJUSTED BOOK VALUE ($7,000,000) N/A
EBITDA MULTIPLE NEGATIVE N/A
DISCOUNTED CASH FLOW $1,800,000 $0.07
Member: National Association of Securities Dealers (NASD)
