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Digital Link - A. Draft Fairness Opinion Letter
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DAIN RAUSCHER WESSELS
SEPTEMBER 2, 1999
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TAB CONTENTS PAGE --- -------- ---- 1. Financial Overview and Transaction Summary 1
2. Comparable Company Analysis 8
3. Comparable Transaction Analysis 10
4. Discounted Cash Flow Analysis 13
A. Draft Fairness Opinion Letter
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FINANCIAL OVERVIEW AND TRANSACTION SUMMARY -------------------------------------------------------------------------------
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SUMMARY FINANCIAL INFORMATION
- FINANCIAL OVERVIEW (1)(2) -
- Cash & Investments (000s) - 1999 Revenue Estimate (000s)
$36,200 $62,520
- Cash & Investments per Share - 2000 Revenue Estimate (000s)
$4.16 $70,320
- Debt - 1999 EPS
$0 $0.34
- Shareholders Equity (000s) - 2000 EPS
$43,196 $0.35
- - 3 Year Projected Growth
10%
- -
- STOCK PRICE OVERVIEW
- Share Price @ 9/2/99
$8.19 - Market Capitalization (000s)
$71,322
- 52 Week High
$11.13 - Enterprise Value (000s)
$35,122
- 52 Week Low
$3.06 - Enterprise Value/TTM Rev.
0.60
-------------- (1) Balance sheet data as of June 30, 1999. (2) Revenue, EPS and growth estimates provided by Dain Rauscher Wessels
Institutional Research.
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TRANSACTION SUMMARY
- TRANSACTION SUMMARY
- Offer Structure Cash Tender
- Offer Price per Share $10.30
-
- Total Transaction Value $89,724
- Cash and Investments on Hand $36,200
- Transaction Value Less Cash $53,524
-
- Premium to Current Price 26%
- Premium to 1 Week Price 25%
- Premium to 1 Month Price 33%
-
- Enterprise Value/TTM Rev. 0.92x
- Enterprise Value/1999 Est. Rev. 0.87x
- Enterprise Value/2000 Est. Rev. 0.76x
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TWO YEAR DAILY STOCK PRICE AND TRADING VOLUME
[GRAPH]
-------------- Source: Instinet Corporation.
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LAST TWELVE MONTH DAILY STOCK PRICE AND TRADING VOLUME
[GRAPH]
-------------- Source: Instinet Corporation.
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AVERAGE SHARE PRICE INFORMATION
MOVING AVERAGES PERIOD PRICE VOLUME PERIOD PRICE VOLUME 5 DAY $8.79 41,260 60 DAY $8.28 39,738
10 DAY $8.27 35,070 90 DAY $8.02 36,404
20 DAY $7.90 34,095 120 DAY $7.80 41,985
30 DAY $8.18 33,523 180 DAY $7.31 46,211
-------------- Source: Instinet Corporation.
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DAILY STOCK PRICE AND TRADING VOLUME DETAIL - LAST TWELVE MONTHS
DATE DELTA VOLUME DATE DELTA VOLUME DATE DELTA VOLUME 09/03/98 $3.75 25,000 11/03/98 $3.94 9,500 01/05/99 $6.00 52,800 09/04/98 $4.38 25,400 11/04/98 $4.00 25,800 01/06/99 $6.25 25,700 09/08/98 $4.75 7,800 11/05/98 $4.25 37,700 01/07/99 $6.25 55,900 09/09/98 $4.88 21,800 11/06/98 $4.44 316,200 01/08/99 $6.06 44,000 09/10/98 $4.69 8,900 11/09/98 $4.31 34,400 01/11/99 $5.50 96,000 09/11/98 $4.44 13,500 11/10/98 $4.38 43,200 01/12/99 $5.00 84,100 09/14/98 $4.13 25,300 11/11/98 $4.50 68,400 01/13/99 $5.25 68,300 09/15/98 $4.38 17,500 11/12/98 $4.50 400,500 01/14/99 $5.00 99,600 09/16/98 $4.31 32,200 11/13/98 $4.50 188,500 01/15/99 $5.75 47,600 09/17/98 $3.88 34,600 11/16/98 $4.50 53,200 01/19/99 $5.31 62,600 09/18/98 $4.50 49,700 11/17/98 $4.31 102,100 01/20/99 $5.19 42,600 09/21/98 $4.50 11,300 11/18/98 $4.25 69,300 01/21/99 $6.06 61,300 09/22/98 $4.69 11,900 11/19/98 $4.25 26,000 01/22/99 $8.81 327,700 09/23/98 $4.78 22,500 11/20/98 $3.81 53,500 01/25/99 $8.00 200,200 09/24/98 $4.81 16,700 11/23/98 $4.06 47,200 01/26/99 $7.69 56,800 09/25/98 $4.56 47,100 11/24/98 $4.13 29,600 01/27/99 $6.75 77,300 09/28/98 $4.44 15,600 11/25/98 $4.25 24,900 01/28/99 $7.38 59,800 09/29/98 $4.25 55,500 11/27/98 $5.00 48,600 01/29/99 $7.88 96,900 09/30/98 $3.88 37,200 11/30/98 $5.50 35,600 02/01/99 $8.31 97,100 10/01/98 $3.81 67,800 12/01/98 $5.25 16,600 02/02/99 $8.31 13,600 10/02/98 $3.75 49,800 12/02/98 $5.00 42,200 02/03/99 $8.38 63,100 10/05/98 $3.56 85,400 12/03/98 $5.50 113,300 02/04/99 $7.81 46,800 10/06/98 $4.00 67,400 12/04/98 $5.56 55,200 02/05/99 $7.50 25,800 10/07/98 $3.50 88,500 12/07/98 $5.63 58,700 02/08/99 $7.63 29,300 10/08/98 $3.56 15,900 12/08/98 $5.63 35,700 02/09/99 $7.56 44,800 10/09/98 $3.56 20,600 12/09/98 $5.56 40,400 02/10/99 $7.38 14,200 10/12/98 $3.56 36,500 12/10/98 $5.69 41,800 02/11/99 $7.38 24,100 10/13/98 $3.38 62,600 12/11/98 $5.38 45,500 02/12/99 $7.50 11,900 10/14/98 $3.48 41,100 12/14/98 $5.38 36,500 02/16/99 $7.00 15,000 10/15/98 $3.23 47,100 12/15/98 $5.38 22,300 02/17/99 $6.50 30,500 10/16/98 $3.34 91,500 12/16/98 $5.38 28,500 02/18/99 $6.50 61,500 10/19/98 $3.23 39,700 12/17/98 $5.00 21,300 02/19/99 $6.50 60,000 10/20/98 $3.56 75,000 12/18/98 $5.00 50,500 02/22/99 $6.25 78,000 10/21/98 $3.56 68,500 12/21/98 $4.88 41,100 02/23/99 $6.00 75,700 10/22/98 $4.19 321,600 12/22/98 $5.00 19,600 02/24/99 $6.00 126,700 10/23/98 $3.94 42,500 12/23/98 $5.06 107,800 02/25/99 $6.00 27,300 10/26/98 $4.13 19,800 12/24/98 $5.25 16,000 02/26/99 $6.13 22,000 10/27/98 $4.25 32,300 12/28/98 $5.19 35,400 03/01/99 $6.06 27,800 10/28/98 $4.06 26,900 12/29/98 $5.06 21,700 03/02/99 $6.19 23,600 10/29/98 $4.25 800 12/30/98 $5.13 34,900 03/03/99 $6.25 21,800 10/30/98 $4.00 80,800 12/31/98 $5.25 50,500 03/04/99 $6.25 26,900 11/02/98 $3.88 25,000 01/04/99 $5.56 17,800 03/05/99 $6.25 32,800
DATE DELTA VOLUME DATE DELTA VOLUME DATE DELTA VOLUME 03/08/99 $6.13 26,300 05/06/99 $7.53 39,900 07/07/99 $8.13 25,800 03/09/99 $6.13 140,100 05/07/99 $7.69 39,800 07/08/99 $8.63 95,600 03/10/99 $6.44 43,200 05/10/99 $7.56 37,700 07/09/99 $9.06 79,800 03/11/99 $6.34 22,300 05/11/99 $7.69 40,600 07/12/99 $11.13 144,600 03/12/99 $6.31 23,900 05/12/99 $7.44 15,200 07/13/99 $10.25 47,300 03/15/99 $6.25 19,300 05/13/99 $7.69 44,800 07/14/99 $9.50 322,600 03/16/99 $6.00 28,300 05/14/99 $7.50 23,100 07/15/99 $9.75 87,700 03/17/99 $6.31 18,800 05/17/99 $7.44 16,600 07/16/99 $9.50 51,000 03/18/99 $6.50 43,700 05/18/99 $7.81 44,600 07/19/99 $10.63 130,300 03/19/99 $6.38 21,800 05/19/99 $7.88 49,200 07/20/99 $9.75 56,300 03/22/99 $7.00 33,600 05/20/99 $7.50 26,200 07/21/99 $9.94 30,100 03/23/99 $7.44 43,400 05/21/99 $7.75 29,300 07/22/99 $9.38 24,900 03/24/99 $7.25 16,700 05/24/99 $7.44 16,500 07/23/99 $9.50 40,100 03/25/99 $7.19 129,600 05/25/99 $7.31 40,200 07/26/99 $9.38 22,400 03/26/99 $7.13 17,900 05/26/99 $7.44 21,100 07/27/99 $9.25 32,400 03/29/99 $6.38 22,900 05/27/99 $7.41 10,300 07/28/99 $9.00 25,800 03/30/99 $6.38 47,400 05/28/99 $7.34 4,200 07/29/99 $8.50 22,500 03/31/99 $6.00 33,000 06/01/99 $7.38 4,200 07/30/99 $8.75 25,000 04/01/99 $6.25 33,300 06/02/99 $7.25 24,200 08/02/99 $8.88 51,200 04/05/99 $7.50 95,100 06/03/99 $7.38 20,500 08/03/99 $8.44 26,500 04/06/99 $7.03 38,700 06/04/99 $7.56 26,400 08/04/99 $7.94 56,800 04/07/99 $7.06 67,000 06/07/99 $7.75 19,300 08/05/99 $7.75 21,100 04/08/99 $7.00 6,200 06/08/99 $7.38 1,500 08/06/99 $7.75 5,600 04/09/99 $7.19 24,500 06/09/99 $8.06 43,000 08/09/99 $7.94 43,200 04/12/99 $6.94 35,500 06/10/99 $8.00 18,000 08/10/99 $7.56 22,000 04/13/99 $7.13 31,000 06/11/99 $7.97 9,000 08/11/99 $7.63 7,600 04/14/99 $7.25 85,900 06/14/99 $7.63 7,000 08/12/99 $7.63 31,200 04/15/99 $8.13 301,500 06/15/99 $7.50 11,300 08/13/99 $7.56 20,400 04/16/99 $7.75 81,000 06/16/99 $7.50 21,200 08/16/99 $7.56 28,000 04/19/99 $7.25 62,800 06/17/99 $7.25 10,100 08/17/99 $7.25 88,800 04/20/99 $7.94 133,300 06/18/99 $7.06 13,800 08/18/99 $7.38 62,900 04/21/99 $7.88 59,400 06/21/99 $7.28 5,600 08/19/99 $7.13 21,500 04/22/99 $7.94 97,900 06/22/99 $7.50 15,900 08/20/99 $7.28 9,000 04/23/99 $7.88 78,800 06/23/99 $7.06 17,700 08/23/99 $7.44 28,200 04/26/99 $7.94 52,300 06/24/99 $7.47 5,400 08/24/99 $7.75 11,400 04/27/99 $7.88 34,400 06/25/99 $7.19 2,600 08/25/99 $8.00 65,100 04/28/99 $7.88 38,800 06/28/99 $7.63 13,300 08/26/99 $8.25 30,700 04/29/99 $7.63 15,200 06/29/99 $7.31 17,800 08/27/99 $8.38 44,200 04/30/99 $7.25 124,300 06/30/99 $7.50 17,500 08/30/99 $9.50 57,200 05/03/99 $7.00 23,400 07/01/99 $8.00 38,700 08/31/99 $9.13 22,900 05/04/99 $7.13 15,000 07/02/99 $8.06 31,900 09/01/99 $8.75 30,600 05/05/99 $7.19 23,100 07/06/99 $8.06 25,800 09/02/99 $8.19 51,400
-------------- Source: Instinet Corporation.
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HISTORICAL EPS PERFORMANCE: ACTUAL VERSUS ESTIMATED
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OVER/(UNDER) SHARE PRICE QUARTER INITIAL LAST ACTUAL -------------------- --------------------------- ENDED ESTIMATE ESTIMATE EPS TO INITIAL TO LAST BEFORE AFTER % CHANGE ----------------------------------------------------------------------------------------------- 3/31/98 ($0.03) ($0.01) $0.01 $0.04 $0.02 $11.00 $10.06 -8.5% ----------------------------------------------------------------------------------------------- 6/30/98 $0.05 ($0.06) ($0.14) ($0.19) ($0.08) $7.75 $6.88 -11.2% ----------------------------------------------------------------------------------------------- 9/30/98 ($0.13) $0.00 ($0.09) $0.04 ($0.09) $3.88 $4.00 3.1% ----------------------------------------------------------------------------------------------- 12/31/98 $0.06 $0.00 $0.05 ($0.01) $0.05 $5.25 $7.88 50.1% ----------------------------------------------------------------------------------------------- 3/31/99 $0.00 $0.01 $0.11 $0.11 $0.10 $6.00 $7.25 20.8% ----------------------------------------------------------------------------------------------- 6/30/99 $0.05 $0.08 $0.11 $0.06 $0.03 $7.50 $8.75 16.7% -----------------------------------------------------------------------------------------------
----------------- (1) Initial Estimate reflects consensus estimate on first day of quarter,
e.g. January 1 for March 31 quarter. (2) Last Estimate reflects last consensus estimate before actual results were
announced. (3) Before Share Price reflects the share price on last day of quarter. (4) After Share Price reflects the share price on the first day of the first
month after actual results were announced.
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COMPARABLE COMPANY ANALYSIS
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STOCK PRICE INFORMATION EPS AND P/E DATA
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PRICE @ 52 WEEK RANGE EPS P/E
-------------- -------------- -------------- Company Symbol FYE 9/2/99 High Low CY 99 CY 00 CY 99 CY 00 --------------------------------------------- ------ --- ------- ------ ----- ----- ----- ----- ----- -------------------------------------------------------------------------------------------------------------------------- DELTA DEC $8.19 $11.13 $3.94 $0.34 $0.35 24.1x 23.4x -------------------------------------------------------------------------------------------------------------------------- 3Com (R) COMS May $27.06 $51.13 $20.00 $0.96 $1.46 28.2x 18.5x ACT Networks (R) ANET Jun $10.63 $25.63 $4.25 ($0.22) $0.57 NM 18.6x ADTRAN (R) ADTN Dec $38.63 $42.69 $15.63 $1.20 $1.55 32.2x 24.9x Digi International DGII Sep $11.50 $16.38 $6.00 $0.38 $0.80 30.3x 14.4x Larscom Inc. LARS Dec $2.28 $4.25 $0.94 $0.50 NA 4.6x NM Premisys Communications (R) PRMS Jun $6.75 $16.00 $5.38 $0.37 $0.45 18.2x 15.0x Verilink Corp. VRLK Jun $2.16 $6.75 $2.00 ($0.55) $0.22 NM 9.8x Visual Networks (M)(R) VNWK Dec $39.00 $46.38 $17.00 $0.62 $0.82 62.9x 47.6x
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MEAN 29.4x 21.3x
MEDIAN 29.2x 18.5x
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------------------------------------------------------------------------------------ EXCLUDING VISUAL NETWORKS AND ADTRAN MEAN 20.3x 15.3x
MEDIAN 23.2x 15.0x
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VERILINK CORP AND LARSCOM, INC. MEAN 4.6x 9.8x
MEDIAN 4.6x 9.8x
------------------------------------------------------------------------------------ -------------------------------------------------------------------------------------------------------------------------- DELTA AT OFFER PRICE DEC $10.30 $11.13 $3.94 $0.34 $0.35 30.3x 29.4x --------------------------------------------------------------------------------------------------------------------------
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ENTERPRISE VALUE & REVENUE DATA P/E TO GROWTH MULTIPLES
------------------------------------------------------------ -----------------------
ENTERPRISE
MARKET ENTERPRISE REVENUE VALUE / REV. SHARES 3-YR%
-------------- -------------- Company Cap. Value CY 99 CY 00 CY 99 CY 00 Out. Growth 1999 2000 --------------------------------------------- ------ ---------- ----- ----- ----- ----- ------ ------- ---- ---- ---------------------------------------------------------------------------------------------------------------------------------- DELTA $71 $35 $63 $70 0.6x 0.5x 8.7 10% 241% 234% ---------------------------------------------------------------------------------------------------------------------------------- 3Com (R) $10,140 $9,226 $5,721 $6,295 1.6x 1.5x 374.7 25% 113% 74% ACT Networks (R) $107 $70 $54 $66 1.3x 1.1x 10.1 30% NM 62% ADTRAN (R) $1,489 $1,505 $355 $401 4.2x 3.8x 38.6 23% 143% 111% Digi International $169 $124 $196 $215 0.6x 0.6x 14.7 10% 303% 144% Larscom Inc. $42 $25 $103 NA 0.2x NM 18.3 27% 17% NM Premisys Communications (R) $166 $153 $83 NA 1.8x NM 24.6 15% 122% 100% Verilink Corp. $36 $15 $79 $92 0.2x 0.2x 16.7 34% NM 29% Visual Networks (M)(R) $848 $801 $78 $102 10.2x 7.9x 21.8 50% 126% 95%
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MEAN 2.5x 2.5x 137% 88%
MEDIAN 1.4x 1.3x 124% 95%
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-------------------------------------------------------------------------------------------- EXCLUDING VISUAL NETWORKS AND ADTRAN MEAN 1.0x 0.8x 138% 82%
MEDIAN 1.0x 0.8x 117% 74%
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VERILINK CORP AND LARSCOM, INC. MEAN 0.2x 0.2x 17% 29%
MEDIAN 0.2x 0.2x 17% 29%
-------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- DELTA AT OFFER PRICE $90 $54 $63 $70 0.9x 0.8x 8.7 10% 303% 294% ----------------------------------------------------------------------------------------------------------------------------------
--------------------------- Revenue and earnings estimates and growth rates are provided by Dain Rauscher Wessels Institutional Research, First Call and various Wall Street sources. (M) DRW managed a public offering of this company within the last three years. (R) DRW provides research on this company.
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COMPARABLE COMPANY ANALYSIS - STOCK PRICE PERFORMANCE INDEX
[GRAPH]
--------------------------- (1) Indexed Price per Share represents the value of $1.00 invested on 1/2/98.
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COMPARABLE TRANSACTION ANALYSIS -------------------------------------------------------------------------------
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COMPARABLE TRANSACTION ANALYSIS - ACQUISITIONS OF PUBLIC NETWORK TECHNOLOGY COMPANIES
PURCHASE PRICE PREMIUM
-------------------------------- DATE DATE TRANSACTION ENT. VALUE/ ONE DAY ONE WEEK FOUR WEEKS ANNOUNCED EFFECTIVE ACQUIROR NAME TARGET NAME VALUE ($000S) TTM SALES PRIOR PRIOR PRIOR --------- --------- ----------------- -------------------- ------------- ------------ ------- --------- ---------- 8/24/99 Pending Nortel Periphonics $436 3.2 x 15.8% 34.8% -32.2%
Networks Corp.
Corp.
8/17/99 Pending Lucent Excel Switching $1,534 12.4 x 35.1%...
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