EX-99.(C)(2) 4 dex99c2.txt PRESENTATION MATERIALS DATED 08/05/2002 Exhibit (C)(2) I. Introduction -------------------------------------------------------------------------------- [LOGO] LEGG Investment MASON Banking 1 Confidential - not for duplication. A. Legg Mason's Engagement -------------------------------------------------------------------------------- [_] Legg Mason Wood Walker, Incorporated ("Legg Mason") has been engaged by the Independent Committee of the Board of Directors ("Board") of Dynamite Company ("Dynamite" or the "Company") to provide its opinion as to the fairness, from a financial point of view, to the holders of the Company's common stock (other than holders who are participants in the transaction, the "Rollover Shareholders") of the amount of consideration to be received by such holders in a proposal presented by Cadigan Investment Partners, Inc. and Gryphon Partners II L.P. (the "Investor Group"). The Investor Group has proposed the following: . The purchase of 93.73% of the common stock of the Company for $7.75 per share in cash in a merger transaction (the "Transaction" or "Project Pulitzer"). . The remaining 6.27% of the common stock of the Company (the "Rollover Shares") is owned by the Rollover Shareholders and will be converted to shares of the newly merged company in the Transaction. [_] This summary presentation is intended as an overview of our analysis of Dynamite. It is comprised of the following sections: . Overview of the Transaction . Valuation Analysis: - Comparable public company - Premium paid analysis - Comparable M&A transactions - Discounted cash flow analysis - Leveraged buyout analysis [LOGO] LEGG Investment MASON Banking 2 Confidential - not for duplication. A. Legg Mason's Engagement -------------------------------------------------------------------------------- In connection with our review of the proposed Transaction, we have assumed and relied upon the accuracy and completeness of all financial information supplied to us by or on behalf of the management of the Company, and all publicly available information, and management's assurance that they are unaware of any facts that would make the information provided to us misleading. We have not independently verified such information. We have also relied upon the management of the Company as to the reasonableness and achievability of the financial projections (and the assumptions and bases thereof) provided to us, and we have assumed that such projections have been reasonably prepared on bases reflecting the best currently available estimates and judgments as to the future operating performance of Dynamite. Our work is necessarily based upon information made available to us by Company management and economic and other conditions and circumstances as of July 31, 2002. The analysis which Legg Mason performed was based on the most recent financial information provided by the management of the Company. It is understood that subsequent developments may affect our analysis, and that we have no obligation to update, reissue or reaffirm our analysis. This summary of information does not constitute an opinion and is provided for informational purposes only. We believe that our analysis should be considered as a whole, and that selecting portions of our analysis and of the factors considered by us, without considering all factors and analyses, could create a misleading view of the processes underlying our opinion. In our analysis, we 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. Further, we are not making a recommendation to the shareholders as to whether or not they should vote for or against the Transaction or seek their statutory dissenters' rights in respect of the Transaction. Also, this analysis does not constitute a recommendation of the Transaction over any other alternative transaction (including the alternative not to effect the Transaction) that may be available to Dynamite. [LOGO] LEGG Investment MASON Banking 3 Confidential - not for duplication. B. Overview of Dynamite -------------------------------------------------------------------------------- [_] The investment community's view of Dynamite: . Inconsistent financial performer . Market has not validated business model . Size limits institutional involvement . Investor skepticism of K-12 public companies [LOGO] LEGG Investment MASON Banking 4 Confidential - not for duplication. B. Overview of Dynamite -------------------------------------------------------------------------------- Dynamite Stock Price (Trailing 12 Months) [GRAPHIC OMITTED] ________________________ Note: Dotted line represents the Investor Group's proposed share purchase price of $7.75. [LOGO] LEGG investment MASON Banking 5 Confidential - not for duplication. B. Overview of Dynamite -------------------------------------------------------------------------------- Dynamite 60 Day Moving Average Stock Price (Trailing 12 Months) [GRAPHIC OMITTED] ------------------------ Note: Dotted line represents the Investor Group's proposed share purchase price of $7.75. [LOGO] LEGG Investment MASON Banking 6 Confidential - not for duplication. B. OVerview of Dynamite ------------------------------------------------------------------------------- [_] Based on a 12 month trading volume analysis, 93.1% of Dynamite shares have traded below $7.80. 12 Month Trading Volume Analysis 3 Month Trading Volume Analysis [CHART OMITTED] [CHART OMITTED] _______________ Source: FactSet Research Systems. [LOGO] LEGG Investment MASON Banking 7 Confidential - not for duplication. B. Overview of Dynamite -------------------------------------------------------------------------------- Historical and Projected Income Statement ----------------------------------------- ($ in thousands)
For the years ending June 30 TTM 2001A 3/31/02 2002P 2003P 2004P 2005P --------- --------- --------- --------- --------- --------- Sales $147,952 $154,597 $155,862 $171,090 $185,218 $207,822 School Operating Expenses 129,786 134,506 135,775 150,277 160,211 178,868 --------- --------- --------- --------- --------- --------- School Operating Profit 18,166 20,091 20,086 20,814 25,007 28,954 % of Sales 12.3% 13.0% 12.9% 12.2% 13.5% 13.9% G & A 11,004 11,879 11,733 12,786 13,891 15,587 Minority Interest Expense & Other (Income) (401) (218) (86) 96 96 96 --------- --------- --------- --------- --------- --------- Operating Income 7,563 8,430 8,439 7,932 11,019 13,272 % of Sales 5.1% 5.5% 5.4% 4.6% 5.9% 6.4% Net Interest Expense 4,171 3,732 3,643 3,563 3,137 2,682 Loss from Sale of Discontinued Operations - - - - 995 - --------- --------- --------- --------- --------- --------- Earnings Before Taxes 3,392 4,698 4,796 4,369 6,888 10,589 Taxes 1,596 2,063 1,966 1,792 2,824 4,342 --------- --------- --------- --------- --------- --------- Net Income 1,796 2,635 2,831 2,577 4,064 6,248 % of Sales 1.2% 1.7% 1.8% 1.5% 2.2% 3.0% Preferred Stock Dividends 81 82 82 82 82 82 Cumulative Effect of Change in Accounting Principle 295 - - - - - --------- --------- --------- --------- --------- --------- Net Income Available to Common Shareholders $ 1,420 $ 2,553 $ 2,749 $ 2,495 $ 3,982 $ 6,166 Other Operating Data: -------------------------------------------------- EBIT $ 7,563 $ 8,430 $ 8,439 $ 7,932 $ 11,019 $ 13,272 % of Sales 5.1% 5.5% 5.4% 4.6% 5.9% 6.4% Plus: Depreciation & Amortization 7,061 6,519 6,076 7,322 8,114 9,728 EBITDA $ 14,624 $ 14,949 $ 14,516 $ 15,253 $ 19,133 $ 22,999 % of Sales 9.9% 9.7% 9.3% 8.9% 10.3% 11.1% Number of Schools 169 174 174 187 201 214 2006P 2007P --------- -------- Sales $233,603 $260,590 School Operating Expenses 198,979 220,157 --------- --------- School Operating Profit 34,624 40,432 % of Sales 14.8% 15.5% G & A 17,520 19,544 Minority Interest Expense & Other (Income) 96 96 --------- --------- Operating Income 17,007 20,792 % of Sales 7.3% 8.0% Net Interest Expense 1,716 537 Loss from Sale of Discontinued Operations - - --------- --------- Earnings Before Taxes 15,291 20,255 Taxes 6,269 8,305 --------- --------- Net Income 9,022 11,951 % of Sales 3.9% 4.6% Preferred Stock Dividends 82 82 Cumulative Effect of Change in Accounting Principle - - --------- --------- Net Income Available to Common Shareholders $ 8,940 $ 11,869 Other Operating Data: ------------------------------------------------------ EBIT $ 17,007 $ 20,792 % of Sales 7.3% 8.0% Plus: Depreciation & Amortization 11,381 13,186 EBITDA $ 28,388 $ 33,978 % of Sales 12.2% 23.0% Number of Schools 227 240
__________________ Note: 2002-2007 projected income statements provided by Company management. 2004 EBIT and EBITDA exclude the loss from sale of discontinued operations. [LOGO] LEGG Investment MASON Banking 8 Confidential - not for duplication. C. OVERVIEW OF THE TRANSACTION -------------------------------------------------------------------------------- [_] The Company has participated in two recent unsuccessful attempts to raise capital or merge with another entity. . In the spring of 2000, First Union was engaged to raise $20 million of equity financing for the Company. - The Company received two term sheets from First Union Capital and Leeds Weld, which were ultimately rejected. . In the summer of 2001, Knowledge Universe, a 29% holder of Dynamite stock, offered to divest Children's Discovery Centers of America (Nasdaq: CDCR) to Dynamite and merge the two companies. Management determined that the terms and time frame of the offer presented by Knowledge Universe were unacceptable and, as a result, terminated negotiations. . In the past year, the Company has also retained two non-exclusive financial advisors to assist it in pursuing strategic alternatives. To date, this effort has had no result. Historical Balance Sheet ------------------------ ($ in thousands)
3/31/02 ---------- Assets Cash $ 1,910 Accounts Receivable 2,890 Notes Receivable 235 Prepaid Expenses 4,546 ---------- Current Assets 9,581 Net Property, Plant and Equipment 34,216 Property, Plant and Equipment Held for Sale 5,597 Goodwill and Intangibles 49,620 Other Assets 4,155 ---------- Total Assets $103,169 ========== Liabilities and Shareholder's Equity Current Portion of Debt $ 3,780 Cash Overdraft Liability 2,678 Accounts Payable and Other Current Liabilities 18,041 ---------- Current Liabilities 24,499 Long-Term Debt 26,519 Long-Term Subordinated Debt 10,408 Deferred Gain on Sale/Leaseback 34 Deferred Taxes 307 Minority Interest in Consolidated Subsidiary 223 ---------- Total Liabilities 61,990 Stockholders' Equity Preferred Stock 5 Common Stock 6 Treasury Stock (1,375) Additional Paid In Capital 41,312 Retained Earnings 1,462 Accumulated Other Comprehensive Loss (231) ---------- Total Stockholder's Equity 41,179 ---------- Total Liabilities and Shareholder's Equity $103,169 ----------
[LOGO] LEGG Investment MASON Banking 9 Confidential - not for duplication. C. Overview of the Transaction -------------------------------------------------------------------------------- [_] On April 9, 2002, the Investor Group presented the Special Committee with an offer to buy Dynamite for $8.00 per share. At the time, Dynamite had actual 12 months trailing revenues and EBITDA of $153.1MM and $15.1MM, respectively, and was forecasting fiscal 2002 revenues and EBITDA of $156.7MM and $15.7MM, respectively. [_] On May 15, 2002, Dynamite released its third quarter (quarter ended March 31, 2002) results, which were lower than the projections presented to the Investor Group. The 2002 EBITDA shortfall of 7.8%, depicted below, caused the Investor Group to renegotiate the price of the Transaction, finally arriving at a $7.75 per share price. For the years ending June 30
2002P % 2003P % --------------------------- --------------------------- Original Revised Variance Original Revised Variance ------------ ------------ ------------ ------------ ------------ ------------ Sales $ 156,745 $ 155,862 -0.6% $ 168,149 $ 171,090 1.7% Operating Income 9,711 8,439 -13.1% 8,104 7,932 -2.1% Net Income 3,772 2,831 -25.0% 2,923 2,577 -11.8% Other Operating Data: ------------------------------- EBIT $ 9,711 $ 8,439 -13.1% $ 8,104 $ 7,932 -2.1% EBITDA $ 15,741 $ 14,516 -7.8% $ 14,674 $ 15,253 3.9% Number of Schools 174 174 0.0% 189 187 -1.1%
[LOGO] LEGG investment MASON Banking 10 Confidential - not for duplication. C. Overview of the Transaction -------------------------------------------------------------------------------- The analyses included in this presentation assume the following information related to the proposed Transaction: [_] Recapitalization of Dynamite. The Investor Group proposes that Socrates Acquisition Corporation acquire 93.73% of the outstanding capital stock of the Company for $7.75 per share in a merger transaction. Dynamite's capital stock includes warrants and options that, based on the share price offered, are "in the money". Preferred shareholders would also receive $7.75 per share for each share of common stock on an "as converted" basis. [_] Certain members of the management team would be invited to invest on a tax-efficient basis in Socrates Acquisition Corporation. In conjunction with the recapitalization of the Company, the Rollover Shares, 6.27% of the Company, will be converted to shares of the newly merged company in the Transaction. [_] Financing. The Investor Group has received a signed financing letter from BNP Paribas to provide senior debt and mezzanine financing. This letter of indication together with the equity investment from the Investor Group would provide sufficient capital to complete the acquisition. The proposed mix of debt and equity is as follows:
Sources and Uses (a) Implied Multiples -------------------- ----------------- ($ in millions) ($ in millions) TTM TTM TTM Sources Uses Revenues EBITDA EBIT ----------------------------------- -------------------------- -------- ------ ---- $ 35.0 Senior debt $ 37.4 Existing debt Dynamite Parameters $ 154.60 $ 14.95 $ 8.43 2.0 Revolving credit 1.7 Seller notes 20.0 Subordinated debt 59.8 Equity Proposed Purchase Price 109.30 109.30 109.30 1.7 Seller notes 1.5 One time costs 50.6 Equity 8.9 Fees and expenses Implied Dynamite Multiples 0.7x 7.3x 13.0x ----------------- ----------------- -------- ----------------- $ 109.3 Total 109.3 Total
------------------ a) Sources and uses of equity include the Rollover Shares. [LOGO] LEGG Investment MASON Banking 11 Confidential - not for duplication. C. Overview of the Transaction -------------------------------------------------------------------------------- Summary of Terms ---------------- Issuer: Dynamite Purchaser: Socrates Acquisition Corporation together with an investment group led by Cadigan Investment Partners, Inc, Gryphon Partners II, L.P. and including certain members of the management of Dynamite. Acquisition Consideration: Cash Type of Offering: Acquisition by Merger Size of Investment: $109.3 million Purchase Price: $7.75 per share common stock [LOGO] LEGG Investment MASON Banking 12 Confidential - not for duplication. II. Valuation Analysis -------------------------------------------------------------------------------- [LOGO] LEGG Investment MASON Banking 13 Confidential - not for duplication. A. Summary Analysis -------------------------------------------------------------------------------- We utilized several approaches to estimate the value of Dynamite, including: (i) Comparable Public Company Analysis; (ii) Comparable M&A Transactions Analysis; (iii) Premium Paid Analysis; (iv) Discounted Cash Flow ("DCF") Analysis; and (v) Leveraged Buyout ("LBO") Analysis. In this section, we discuss each analysis individually and derive implied share prices for Dynamite based on each analysis. Summary Valuation Analysis -------------------------- --------------------------------------------------------- Analysis Implied Per Share Range -------- ----------------------- Comparable Public Company ($3.29) - $ 2.43 Premium Paid Analysis $ 7.00 - $ 7.32 Comparable M&A Transactions $ 7.38 - $14.05 Discounted Cash Flow $10.78 - $16.25 Leveraged Buyout Analsis $ 5.74 - $ 7.85 --------------------------------------------------------- ________________ Note: In each valuation analysis we assumed that the diluted number of shares outstanding equals 7,710,779. We derived this figure by adding the following numbers of shares: common stock of 6,322,316, preferred stock on an as-converted basis of 1,191,924 and shares assumed issued under the Treasury method of 196,539. [LOGO] LEGG Investment MASON Banking 14 Confidential - not for duplication. B. Comparable Public Company Analysis -------------------------------------------------------------------------------- [_] A comparable public company analysis reviews, analyzes and compares publicly available financial data and stock market performance data of publicly traded companies in the same or similar industries as the Company. We compared the performance of these selected public companies and their implied multiples to Dynamite's financial results. This analysis illustrates how financial markets may value businesses in the same economic and market environment based on varying financial performance. [LOGO] LEGG Investment MASON Banking 15 Confidential - not for duplication. B. Comparable Public Company Analysis -------------------------------------------------------------------------------- [_] We reviewed five publicly traded K-12 education companies that we considered most comparable to Dynamite. . We eliminated one potential comparable public company -- Sylvan Learning Systems, Inc. (Nasdaq: SLVN) -- because more than half of its revenues are derived from services not offered by Dynamite and therefore have different valuation characteristics (63% of Sylvan's revenue is derived from its postsecondary assets). . Of the four remaining companies, New Horizons Kids Quest, Inc. (OTC: KIDQ.PK) is significantly smaller than Dynamite and was therefore eliminated. . While we determined that Bright Horizons Family Solutions, Inc. (Nasdaq: BFAM), Childtime Learning Centers, Inc. (Nasdaq: CTIM) and Edison Schools, Inc. (Nasdaq: EDSN) were the most appropriate comparable public companies, there is no direct public comparable company for Dynamite. [_] The closest public comparable company is Childtime Learning Centers, Inc. (Nasdaq: CTIM). This company, like Dynamite, is characterized by: . Lack of research analyst coverage . Low trading volume . Market capitalization below $100 million . Announcement of organizational changes and the pursuit of strategic alternatives [LOGO] LEGG Investment MASON Banking 16 Confidential - not for duplication. B. Comparable Public Company Analysis -------------------------------------------------------------------------------- [_] The chart below demonstrates selected financial and investment characteristics of the comparable group of public companies that we factored into our analysis. [_] The data in this analysis is compromised by the lack of a clear comparable public company universe. For example, Bright Horizons Family Solutions, Inc., a solid and consistent financial performer with broad analyst coverage, is the only comparable public company that yields an EBITDA multiple. The lack of ample data points thus skews the mean and median calculations toward the high end.
# of Firms One year Two Year No. of Providing Debt/ Earnings Earnings Float Company Analyst Coverage Equity Beta Growth Growth Shares -------------------------------------- ---------------- ------ ---- ------ ------ ------ Bright Horizons Family Solutions, Inc. 7 0.91 % 1.11 25.13% 20.59% 11.56MM Childtime Learning Centers, Inc. 0 15.71 0.61 (151.31) NA 1.69 Edison Schools, Inc. 11 19.88 0.72 (2.19) NA 41.46 ------------------------------------------------------------------------------------------------------------------------------- Dynamite Company 0 98.87 % 0.88 (40.73)% (3.03)% 4.23MM ------------------------------------------------------------------------------------------------------------------------------- Daily Volume Shares Traded Float Three Mo. Market Company % Average Cap. -------------------------------------- - ------- ---- Bright Horizons Family Solutions, Inc. 93.45% 49,200 $361.35MM Childtime Learning Centers, Inc. 32.34 2,045 10.45 Edison Schools, Inc. 77.04 1,020,000 52.74 --------------------------------------------------------------------------------- Dynamite Company 64.63% 8,455 $39.27MM ---------------------------------------------------------------------------------
------------------------------------ Note: Earnings are adjusted to exclude restructuring and one-time expenses. [LOGO] LEGG Investment MASON Banking 17 Confidential - not for duplication. B. Comparable Public Company Analysis -------------------------------------------------------------------------------- Summary Comparison of Operating and Valuation Data for Selected --------------------------------------------------------------- Companies within the K-12 Education Industry -------------------------------------------- ($ in millions, except per share data)
Diluted Closing % of 52 Equity Mkt. Enterprise Symbol Company Price Week High Cap. Value ------ --------------------------------------- ----------- ----------- ------------ ------------ 07/31/02 (millions) BFAM Bright Horizons Family Solutions, Inc. $ 27.40 82.8% $ 361.3 $ 346.8 CTIM Childtime Learning Centers, Inc. 2.00 22.1 10.5 12.4 EDSN Edison Schools, Inc. 0.98 4.7 52.7 66.2 ------------------------------------------------------------------------------------------------ Mean 36.5% $ 141.5 $ 141.8 Childtime Learning Center, Inc 22.1 10.5 12.4 ================================================================================================ ------------------------------------------------------------------------------------------------ Dynamite $ 6.00 66.7% $ 39.3 $ 78.1 ------------------------------------------------------------------------------------------------
Enterprise Value as a Multiple of: Average ------------------------------------------------ TTM TTM TTM 2002E 2002E LT Growth Symbol Company Revenues EBITDA EBIT Revenues EBITDA Rate ------ ---------------------------------------- --------- --------- --------- --------- -------- ---------- BFAM Bright Horizons Family Solutions, Inc. 1.0 x 11.1 x 16.1 x 0.8 x 9.5 x 23.3% CTIM Childtime Learning Centers, Inc. 0.1 3.8 NMF NA NA NA EDSN Edison Schools, Inc. 0.2 NMF NMF 0.1 7.7 28.8 ------------------------------------------------------------------------------------------------------------ Mean 0.4 x 7.5 x 16.1 x 0.5 x 8.6 x 26.0% Childtime Learning Center, Inc. 0.1 3.8 NMF NA NA NA ============================================================================================================ ------------------------------------------------------------------------------------------------------------ Dynamite 0.5 x 5.2 x 9.3 x 0.5 x 5.2 x NA ------------------------------------------------------------------------------------------------------------
Sources: Consensus estimates, company filings, company press releases and Legg Mason research. TTM - Trailing twelve months. Enterprise Value is equal to Diluted Equity Market Cap. plus Total Debt less Cash & Equivalents. [LOGO] LEGG Investment MASON Banking 18 Confidential - not for duplication. B. Comparable Public Company Analysis -------------------------------------------------------------------------------- Summary Comparison of Operating and Valuation Data for Selected Companies ------------------------------------------------------------------------- within the K-12 Education Industry ---------------------------------- ($ in millions, except per share data)
Trailing Twelve Months (TTM) ----------------------------------------------------------------------------- Gross Gross EBITDA EBIT Symbol Company Revenue Profit Margin EBITDA Margin EBIT Margin Net Income ------- ------------------------------------- ------- ------ ------ ------ ------ ---- ------ ---------- BFAM Bright Horizons Family Solutions, Inc. $358.6 $52.8 14.7 % $31.3 8.7 % $ 21.6 6.0 % $ 12.5 CTIM Childtime Learning Centers, Inc. 142.4 13.2 9.3 3.2 2.3 (1.6) Neg. (1.4) EDSN Edison Schools, Inc. 429.1 47.4 11.0 (9.6) Neg. (45.6) Neg. (51.4) ------------------------------------------------------------------------------------------------------------------------------- Mean $310.0 $37.8 11.7 % $ 8.3 5.5 % ($8.6) 6.0 % ($13.4) Childtime Learning Centers, Inc. 142.4 13.2 9.3 3.2 2.3 (1.6) Neg. (1.4) ------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------- Dynamite $154.6 $20.1 13.0 % $14.9 9.7 % $ 8.4 5.5 % $ 2.6 ------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------- Net Income 2002E 2002E 2002E Symbol Company Margin EPS Revenue EBITDA EPS ------- ------------------------------------- ------ --- ------- ------ --- BFAM Bright Horizons Family Solutions, Inc. 3.5 % $ 1.00 $415.3 $36.5 $ 1.18 CTIM Childtime Learning Centers, Inc. Neg. (0.26) NA NA NA EDSN Edison Schools, Inc. Neg. (0.87) 548.0 8.6 (0.71) --------------------------------------------------------------------------------------------------------- Mean 3.5 % ($0.04) $481.7 $22.5 $ 0.23 Childtime Learning Centers, Inc. Neg. (0.26) NA NA 0.23 --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------- Dynamite 1.7 % $ 0.33 $163.5 $14.9 $ 0.41 ---------------------------------------------------------------------------------------------------------
Sources: Consensus estimates, company filings, company press releases and Legg Mason research. TTM - Trailing twelve months. Enterprise Value is equal to Diluted Equity Market Cap. plus Total Debt less Cash & Equivalents. Financials are adjusted to exclude restructuring charges and one-time expenses. [LOGO] LEGG Investment 19 Confidential - not for duplication. MASON Banking B. Comparable Public Company Analysis -------------------------------------------------------------------------------- Summary Comparison of Operating and Valuation Data for Selected Companies ------------------------------------------------------------------------- within the K-12 Education Industry ---------------------------------- ($ in millions, except per share data)
Total Shareholders' Book Value/ Total Debt/ Symbol Company Assets Equity Share Debt Equity Cash ------- -------------------------------------- --------- -------------- ------------ -------- -------- -------- BFAM Bright Horizons Family Solutions, Inc. $ 164.2 $ 93.6 $ 7.10 $ 0.9 0.9 % $ 15.4 CTIM Childtime Learning Centers, Inc. 74.1 43.5 8.32 6.8 15.7 4.9 EDSN Edison Schools, Inc. 413.6 295.4 5.49 58.7 19.9 45.3 --------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------- Mean $ 217.3 $144.2 $ 6.97 $ 22.1 12.2 % $ 21.8 Childtime Learning Centers, Inc. 74.1 43.5 8.32 6.8 15.7 4.9 =========================================================================================================================== --------------------------------------------------------------------------------------------------------------------------- Dynamite $ 103.2 $ 41.2 $ 6.29 $ 40.7 98.9 % $ 1.9 ---------------------------------------------------------------------------------------------------------------------------
Sources: Consensus estimates, company filings, company press releases and Legg Mason research. TTM - Trailing twelve months. Enterprise Value is equal to Diluted Equity Market Cap. plus Total Debt less Cash & Equivalents. [LOGO] LEGG Investment MASON Banking 20 Confidential - not for duplication. B. Comparable Public Company Analysis -------------------------------------------------------------------------------- Comparison Multiples for Selected Companies within the K-12 Education Industry ------------------------------------------------------------------------------ ($ in millions, except per share data)
TTM TTM TTM Revenues EBITDA EBIT -------- ------- ------- Dynamite Parameters $154.60 $ 14.95 $ 8.43 Enterprise Value Multiples Mean 0.4x 7.5x 16.1x Childtime Learning Centers, Inc. 0.1 3.8 NMF Implied Dynamite Enterprise Value Mean $ 62.27 $111.63 $135.59 Childtime Learning Centers, Inc. 13.45 57.54 NMF Implied Dynamite Equity Value Mean $ 23.47 $ 72.84 $ 96.79 Childtime Learning Centers, Inc. (25.35) 18.74 NMF Implied Dynamite Share Price Mean $ 3.04 $ 9.45 $ 12.55 Childtime Learning Centers, Inc. (3.29) 2.43 NMF
__________________________________ Note: TTM data as of 3/31/02. Net debt of $38.8MM for Dynamite was calculated using total cash and total debt from the Company's 3/31/02 10Q filing. [LOGO] LEGG Investment MASON Banking 21 Confidential - not for duplication. C. Premium Paid Analysis -------------------------------------------------------------------------------- [_] A premium paid analysis reviews and analyzes transactions and the resulting implied share prices, involving comparable public companies that have been acquired. By comparing a target's share price prior to the announcement date of the acquisition to the price at which it is acquired, a premium paid analysis determines what percentage of a premium or discount the acquiror paid. [_] We analyzed the same five public target acquisitions that we used in the comparable M&A transactions analysis (to follow in Section IID) to derive average and median percentage premiums paid on a one day, one week and one month prior to announcement date and compared these results to Dynamite's price on July 31, 2002. [LOGO] LEGG Investment MASON Banking 22 Confidential - not for duplication. C. Premium Paid Analysis -------------------------------------------------------------------------------- Premium Paid Analysis ---------------------
Date Date Price Ann. Effective Acquiror Target Paid ---------- ----------- ----------------------------------------------- ---------------------------------------- -------- 8/9/01 1/3/02 Kids Holdings, Inc. & Ameris Acquisition, Inc. Children's Comprehensive Services, Inc. $ 6.00 9/24/98 4/1/99 Correctional Services Corp. Youth Services International, Inc. $ 4.17 4/27/98 7/27/98 Corporate Family Solutions, Inc. Bright Horizons, Inc. $29.33 3/19/98 5/14/98 Chase Manhattan Corp./Chase Capital Partners La Petite Academy, Inc. NA 3/30/98 5/4/98 Knowledge Universe, LLC Children's Discovery Centers of America $12.25 10/3/96 2/13/97 Kohlberg Kravis Roberts & Co. KinderCare Learning Centers, Inc. $19.00 % Premium Prior to Price Prior to Announcement Announcement Date Date --------------------------- ---------------------------- Ann. 1 Day 1 Week 1 Month 1 Day 1 Week 1 Month ---------- -------- -------- --------- ------- -------- ---------- 8/9/01 $ 4.29 $ 4.55 $ 5.00 39.9% 31.9% 20.0% 9/24/98 $ 3.91 $ 3.63 $ 6.50 6.8% 15.1% NMF 4/27/98 $27.25 $28.00 $25.00 7.6% 4.8% 17.3% 3/19/98 NA NA NA NA NA NA 3/30/98 $10.13 $10.50 $ 9.88 21.0% 16.7% 24.1% 10/3/96 $16.13 $16.00 $15.00 17.8% 18.8% 26.7% --------------------------------------- Mean 18.6% 17.4% 22.0% Median 17.8% 16.7% 22.0% ---------------------------------------
[LOGO] LEGG Investment MASON Banking 23 Confidential - not for duplication. C. Premium Paid Analysis -------------------------------------------------------------------------------- Premium Paid Analysis --------------------- (Based on premium paid to stock price one day, one week and one month prior to announcement date)
One Day One Week One Month Prior Prior Prior ----------- ------------ ------------- % Premium Mean 18.6% 17.4% 22.0% Median 17.8% 16.7% 22.0% Implied Dynamite Share Price Mean $7.12 $7.05 $7.32 Median $7.07$ 7.00 $7.32
[LOGO] LEGG Investment MASON Banking 24 Confidential - not for duplication. D. Comparable M&A Transactions Analysis -------------------------------------------------------------------------------- [_] A comparable M&A transactions analysis reviews and analyzes similar transactions, and the resulting implied enterprise value multiples, involving companies in the same or similar industries as the Company. We utilized this analysis for Dynamite, and we analyzed the acquisitions of publicly traded and privately held targets and applied the range of multiples of these transactions to the financial results of Dynamite. [_] In this analysis, we identified six comparable transactions. Five of these transactions involved public targets of a similar or greater size than Dynamite and were operating in areas comparable to Dynamite. [LOGO] LEGG Investment MASON Banking 25 Confidential - not for duplication. D. Comparable M&A Transactions Analysis -------------------------------------------------------------------------------- Comparable Transaction Implied Valuation ---------------------------------------- ($ in millions, except per share data)
Date Date Enterprise Ann. Effective Acquiror Target Value Equity Value Revenue --------- --------- ------------------------------------ ------------------------------- ---------- ------------ --------- 8/9/01 1/3/02 Kids Holdings, Inc. & Ameris Children's Comprehensive $ 67.27 $ 43.30 $ 133.17 Acquisition, Inc. Services, Inc. 9/24/98 4/1/99 Correctional Services Corp. Youth Services International, $ 67.05 $ 34.85 $ 84.81 Inc. 4/27/98 7/27/98 Corporate Family Solutions, Inc. Bright Horizons, Inc. $ 148.28 $ 162.93 $ 100.60 3/19/98 5/14/98 Chase Manhattan Corp./Chase Capital La Petite Academy, Inc. $ 283.00 $ 254.70 $ 300.00 Partners 3/30/98 5/4/98 Knowledge Universe, LLC Children's Discovery Centers of $ 84.98 $ 82.62 $ 93.02 America 10/3/96 2/13/97 Kohlberg Kravis Roberts & Co. KinderCare Learning Centers, $ 586.81 $ 433.99 $ 541.26 Inc. Company Valuation to: Date TTM Financial Data ----------------------------------- Ann. EBITDA EBIT Revenue EBITDA EBIT --------- ---------- -------- ----------------------------------- 8/9/01 $ 12.89 $ 8.03 0.5x 5.2x 8.4x 9/24/98 $ 1.81 ($1.69) 0.8x 37.0x * NMF 4/27/98 $ 5.69 $ 3.26 1.5x 26.1x * 45.5x * 3/19/98 NA NA 0.9x NA NA 3/30/98 $ 10.53 $ 4.49 0.9x 8.1x 18.9x 10/3/96 $ 85.93 $ 51.71 1.1x 6.8x 11.3x ------------------------------------------------- Mean 1.0x 6.7x 12.9x Median 0.9x 6.8x 11.3x -------------------------------------------------
________________ Note: Transactions denoted with an * have been excluded from mean and median calculations. [LOGO] LEGG Investment MASON Banking 26 Confidential - not for duplication. D. Comparable M&A Transactions Analysis -------------------------------------------------------------------------------- Comparison Multiples for Selected Transactions within the K-12 Education ------------------------------------------------------------------------ Industry -------- (January 1, 1997 - July 30, 2002)
TTM TTM TTM Revenues EBITDA EBIT ---------- -------- ------ Dynamite Parameters $154.60 $ 14.95 $ 8.43 Enterprise Value Multiples Mean 1.0x 6.7x 12.9x Median 0.9x 6.8x 11.3x Implied Dynamite Enterprise Value Mean $147.15 $100.27 $108.68 Median 143.54 102.08 95.67 Implied Dynamite Equity Value Mean $108.35 $ 61.47 $ 69.89 Median 104.74 63.29 56.87 Implied Dynamite Share Price Mean $ 14.05 $ 7.97 $ 9.06 Median 13.58 8.21 7.38
----------------- Note: TTM data as of 3/31/02. The Corporate Family Solutions/Bright Horizons and the Correctional Services Corp./Youth Services International, Inc. transactions were excluded from the EBITDA, EBIT and Net Income multiples. Net debt of $38.8MM for Dynamite was calculated using total cash and total debt from the Company's 3/31/02 10Q filing. [LOGO] LEGG Investment MASON Banking 27 Confidential - not for duplication. E. Discounted Cash Flow Analysis -------------------------------------------------------------------------------- [_] A discounted cash flow analysis ("DCF") derives the value for a company that is equal to the present value of its future free cash flows plus the present value of the terminal value. A DCF valuation focuses on the future effects of existing business strategies on cash flows and deals specifically with a number of key factors, including revenue growth, profitability, reinvestment in fixed assets and working capital and the payment of all debt. [_] In order to derive the discount rate used in the DCF, we calculated the Company's weighted average cost of capital ("WACC"). WACC is the calculation of a firm's cost of capital that is determined by weighting each category of capital proportionately then adding them together. Included in the WACC calculation are all capital sources including: common stock, preferred stock, bonds, and any other long term debt. [LOGO] LEGG Investment MASON Banking 28 Confidential - not for duplication. E. Discounted Cash Flow Analysis -------------------------------------------------------------------------------- Weighted Average Cost of Capital Calculation --------------------------------------------
--------------------------------------------------- ----------------- ------------------------------------------------- Capital Asset Pricing Model Cost of Equity Cost of Debt --------------------------------------------------- ----------------- ------------------------------------------------- Small and Specific After-Tax Risk-Free Market Risk Company Cost of Equity Cost of Tax Cost of Rate/(1)/ Relevered Premium/(3)/ Premium/(4)/ Equity/(5)/ Weighting/(6)/ Debt /(7)/ Rate/(8)/ Debt (R\\f\\) Beta/(2)/ (R\\m\\-R\\f\\) (R\\s\\) (R\\e\\) (R\\d\\) (T) (R\\d\\+P\\r\\) --------- --------- --------------- ----------- ----------- -------------- ---------- -------- --------------- 4.45% 0.79% 7.80% 4.63% 15.24% 49.10% 7.76% 41.00% 4.58% ----------- --------------- ------------------ --------------------- WACC ------------------ --------------------- Weighted Average Cost of Debt Capital Rounded Weighting/(9)/ (WACC) WACC (R\\c\\) (R\\c\\) --------------- -------- ------- 50.90% 9.81% 10.00% -------
---------- 1) Represents the U.S. Government 10-year Treasury bond as of July 31, 2002. 2) Beta has been re-levered based on the derived debt and equity weightings for the Company. 3) Source: Ibbotson Associates: Stocks, Bonds, Bills and Inflation: Yearbook 2001. 4) Source: Ibbotson Associates: Low capitalization size premium (10th decile). 5) Derived through calculation of CAPM. Rf + Beta*(Rm - Rf) + Rs. 6) Estimated optimal capital structure based on the Company's capital structure. 7) Provided by management. 8) Average effective tax rate for the Company. 9) Derived from the average interest-bearing debt to total capital for the Company. [LOGO] LEGG Investment MASON Banking 29 Confidential - not for duplication. E. Discounted Cash Flow Analysis -------------------------------------------------------------------------------- ($ in millions, except per share data)
A. Projected Cash Flow ------------------- Year 1 Year 2 Year 3 Year 4 Year 5 Ending June 30 2003 2004 2005 2006 2007 -------- -------- -------- -------- -------- EBITDA $ 15.25 $ 19.13 $ 23.00 $ 28.39 $ 33.98 Less: Depreciation 7.06 8.03 9.67 11.35 13.13 Less: Amort. of Intangibles 0.26 0.08 0.06 0.03 0.06 -------- -------- -------- -------- -------- EBIT 7.93 11.02 13.27 17.01 20.79 Less: Taxes 41.0% 3.25 4.52 5.44 6.97 8.52 -------- -------- -------- -------- -------- After Tax Income 4.68 6.50 7.83 10.03 12.27 Depreciation 7.06 8.03 9.67 11.35 13.13 Amortization 0.26 0.08 0.06 0.03 0.06 Cash provided by (used in) Working Capital 0.53 0.74 1.51 1.52 1.71 Capital Expenditures (7.62) (8.26) (8.77) (9.63) (10.44) -------- -------- -------- -------- -------- Unlevered Cash Flow 4.92 7.09 10.30 13.30 16.72 Terminal Value 169.89 -------- -------- -------- -------- -------- Total Cash Flow $ 4.92 $ 7.09 $ 10.30 $ 13.30 $ 186.62 ======== ======== ======== ======== ========
B. Net Present Value Analysis -------------------------- Discount Rate 10.0% Exit Multiple of EBITDA 5.0 ------------------------------------- ----------------------------------------- Enterprise Value Net Equity Value ------------------------------------- ----------------------------------------- PV of Annual Cash Flow $ 37.54 Enterprise Value $ 143.03 PV of Terminal Value 105.49 Cash 2.00 --------- Debt (39.44) --------- Enterprise Value $ 143.03 ========= Net Equity Value $ 105.59 =========
C. Enterprise Value Sensitivity Analysis ------------------------------------- Discount Post 2007 EBITDA Multiple ---------------------------------------------------- Rate 3.0x 4.0x 5.0x 6.0x 7.0x -------- -------- -------- -------- -------- -------- 12.0% $ 93.16 $ 112.44 $ 131.72 $ 151.00 $ 170.28 11.0% 96.90 117.07 137.23 157.40 177.56 10.0% 100.84 121.93 143.03 164.13 185.23 9.0% 104.98 127.07 149.15 171.23 193.32 8.0% 109.35 132.47 155.60 178.72 201.85 D. Implicit Transaction Multiples Sensitivity Analysis --------------------------------------------------- Enterprise Value / 2003 EBITDA Discount Post 2007 EBITDA Multiple ---------------------------------------------------- Rate 3.0x 4.0x 5.0x 6.0x 7.0x -------- -------- -------- -------- -------- -------- 12.0% 6.1x 7.4x 8.6x 9.9x 11.2x 11.0% 6.4 7.7 9.0 10.3 11.6 10.0% 6.6 8.0 9.4 10.8 12.1 9.0% 6.9 8.3 9.8 11.2 12.7 8.0% 7.2 8.7 10.2 11.7 13.2 Enterprise Value / 2002 EBITDA Discount Post 2007 EBITDA Multiple ---------------------------------------------------- Rate 3.0x 4.0x 5.0x 6.0x 7.0x -------- -------- -------- -------- -------- -------- 12.0% 6.4x 7.7x 9.1x 10.4x 11.7x 11.0% 6.7 8.1 9.5 10.8 12.2 10.0% 6.9 8.4 9.9 11.3 12.8 9.0% 7.2 8.8 10.3 11.8 13.3 8.0% 7.5 9.1 10.7 12.3 13.9 _____________ Note: Discount rate derived from WACC calculation on page 29. Net debt of $37.4MM for Dynamite was calculated using Company projections for 6/30/02. Implied Dynamite share prices calculate equity value based on net debt of $38.8MM, which come from the Company's 3/31/02 10Q filing. [LOGO] LEGG Investment MASON Banking 30 Confidential - not for duplication. E. Discounted Cash Flow Analysis -------------------------------------------------------------------------------- Discounted Cash Flow Analysis Summary ------------------------------------- ($ in millions, except per share data) Low High ------------ ---------- Implied Dynamite Enterprise Value $ 121.93 $ 164.13 Implied Dynamite Equity Value 83.14 125.33 Implied Dynamite Share Price 10.78 16.25 ------------------- Note: Discount rate derived from WACC calculation. Data does not assume a capital raise for the Company. Data relies on Company projections. Net debt of $38.8MM for Dynamite was calculated using total cash and total debt from the Company's 3/31/02 10Q filing. Discounted Cash Flow Analysis utilized range of discount rates from 8.0% to 12.0% and a range of 2007 EBITDA multiples of 3.0x to 7.0x. [LOGO] LEGG Investment MASON Banking 31 Confidential - not for duplication. F. Leveraged Buyout Analysis -------------------------------------------------------------------------------- [_] A leveraged buyout analysis ("LBO") is a means of establishing the value of a company assuming that it was purchased by a financial buyer. An LBO analysis involves the acquisition or recapitalization of a company financed primarily by incurring debt that is serviced by the post-LBO operating cash flow of the company. We utilized the LBO analysis to value Dynamite. [LOGO] LEGG Investment MASON Banking 32 Confidential - not for duplication. F. Leveraged Buyout Analysis -------------------------------------------------------------------------------- Leveraged Buyout Analysis - Scenario 1 --------------------------------------
Sources and Uses of Funds For Transaction: Interest ------------------------------------------ Sources: Rate Millions Sources Ownership ---------- ---------- ---------- ------------ Assumed Long-Term Debt 11.00% $ 0.00 0.0% 0.0% Assumed Capitalized Leases 11.00% 0.00 0.0% 0.0% Working Capital Revolver 5.36% 0.00 0.0% 0.0% Senior Bank Financing 5.36% 37.00 44.6% 0.0% Senior Debentures 8.25% 0.00 0.0% 0.0% Subordinated Debt 12.00% 20.00 24.1% 12.7% Seller's Note 9.00% 0.00 0.0% 0.0% Excess Cash 2.00% 0.00 0.0% 0.0% New Preferred Stock 5.00% 0.00 0.0% 0.0% New Common Stock 26.05 31.4% 87.3% ---------- ---------- ------------ Total Sources: $83.05 100.0% 100.0% ---------- ---------- ------------ Uses: Millions ---------- Cash Purchase Price $32.68 Existing Debt: Refinance Existing Long-Term Debt 39.44 Refinance Existing Deferred Taxes 0.00 Refinance Existing Capitalized Leases 0.00 Working Capital Revolver 0.00 Expansion Capital 0.00 Increase Cash Balance to Min. Requirement 0.50 ---------- Total Consideration 72.62 Financing Fees 1.71 Transaction Expenses 8.72 ---------- Total Uses: $83.05
Summary Five Year IRR Analysis: Debt Retired: ------------------------------- ------------- EBITDA Multiple 5 Years 7 Years 10 Years ---------------------- --------- --------- --------- 4.0x 5.0x 6.0x ------ ------ ------ Equity Investors 33.0% 39.6% 45.1% Senior Bank Financing 100.0% 100.0% 100.0% Subordinated Debt 22.0% 24.2% 26.3% Subordinated Debt 28.9% 100.0% 100.0% --------- --------- --------- Total Debt 75.1% 100.0% 100.0% Interest Coverages: Ending June 30 2002 2003 2004 2005 2006 2007 -------- -------- -------- -------- -------- -------- EBITDA / Senior Interest 7.3 x 8.0 x 11.1 x 16.7 x 33.8 x NMF EBITDA / Total Interest 3.3 3.5 4.6 6.1 8.8 14.7 Senior Debt / EBITDA 2.5 2.3 1.6 0.9 0.3 NMF Total Debt / EBITDA 3.9 3.6 2.6 1.8 1.1 0.4
[LOGO] LEGG Investment MASON Banking 33 Confidential - not for duplication. F. Leveraged Buyout Analysis -------------------------------------------------------------------------------- Leveraged Buyout Analysis - Scenario 2 --------------------------------------
Sources and Uses of Funds For Transaction: Interest Sources: Rate Millions Sources Ownership ---------- --------- --------- ----------- Assumed Long-Term Debt 11.00% $ 0.00 0.0% 0.0% Assumed Capitalized Leases 11.00% 0.00 0.0% 0.0% Working Capital Revolver 5.36% 0.00 0.0% 0.0% Senior Bank Financing 5.36% 37.00 40.6% 0.0% Senior Debentures 8.25% 0.00 0.0% 0.0% Subordinated Debt 12.00% 20.00 21.9% 10.0% Seller's Note 9.00% 0.00 0.0% 0.0% Excess Cash 2.00% 0.00 0.0% 0.0% New Preferred Stock 5.00% 0.00 0.0% 0.0% New Common Stock 34.20 37.5% 90.0% --------- -------- -------- Total Sources: $ 91.20 100.0% 100.0% --------- -------- -------- Uses: Millions ---------- Cash Purchase Price $40.83 Existing Debt: Refinance Existing Long-Term Debt 39.44 Refinance Existing Deferred Taxes 0.00 Refinance Existing Capitalized Leases 0.00 Working Capital Revolver 0.00 Expansion Capital 0.00 Increase Cash Balance to Min. Requirement 0.50 -------- Total Consideration 80.77 Financing Fees 1.71 Transaction Expenses 8.72 -------- Total Uses: $91.20
Summary Five Year IRR Analysis: Debt Retired: ------------------------------- ------------- EBITDA Multiple 5 Years 7 Years 10 Years --------------------------------- ------- ------- -------- 4.0x 5.0x 6.0x --------- ---------- -------- Equity Investors 26.7% 33.0% 38.3% Senior Bank Financing 100.0% 100.0% 100.0% Subordinated Debt 20.1% 22.0% 23.8% Subordinated Debt 28.9% 100.0% 100.0% --------- --------- --------- Total Debt 75.1% 100.0% 100.0% Interest Coverages: Ending June 30 2002 2003 2004 2005 2006 2007 ------ ------ ------ ------ ------ ------ EBITDA / Senior Interest 7.3 x 8.0 x 11.1 x 16.7 x 33.8 x NMF EBITDA / Total Interest 3.3 3.5 4.6 6.1 8.8 14.7 Senior Debt / EBITDA 2.5 2.3 1.6 0.9 0.3 NMF Total Debt / EBITDA 3.9 3.6 2.6 1.8 1.1 0.4
[LOGO] LEGG Investment MASON Banking 34 Confidential - not for duplication. F. Leveraged Buyout Analysis -------------------------------------------------------------------------------- Leveraged Buyout Analysis - Scenario 3 --------------------------------------
Sources and Uses of Funds For Transaction: Interest ------------------------------------------ Sources: Rate Millions Sources Ownership ---- -------- ------- --------- Assumed Long-Term Debt 11.00% $ 0.00 0.0% 0.0% Assumed Capitalized Leases 11.00% 0.00 0.0% 0.0% Working Capital Revolver 5.36% 0.00 0.0% 0.0% Senior Bank Financing 5.36% 37.00 37.3% 0.0% Senior Debentures 8.25% 0.00 0.0% 0.0% Subordinated Debt 12.00% 20.00 20.1% 8.2% Seller's Note 9.00% 0.00 0.0% 0.0% Excess Cash 2.00% 0.00 0.0% 0.0% New Preferred Stock 5.00% 0.00 0.0% 0.0% New Common Stock 42.30 42.6% 91.8% ------- ----- ----- Total Sources: $ 99.30 100.0% 100.0% ------- ----- ----- Uses: Millions -------- Cash Purchase Price $ 48.93 Existing Debt: Refinance Existing Long-Term Debt 39.44 Refinance Existing Deferred Taxes 0.00 Refinance Existing Capitalized Leases 0.00 Working Capital Revolver 0.00 Expansion Capital 0.00 Increase Cash Balance to Min. Requirement 0.50 -------- Total Consideration 88.87 Financing Fees 1.71 Transaction Expenses 8.72 -------- Total Uses: $ 99.30
Summary Five Year IRR Analysis: Debt Retired: ------------------------------- ------------- EBITDA Multiple 5 Years 7 Years 10 Years --------------- ------- ------- -------- 4.0x 5.0x 6.0x ---- ---- ---- Equity Investors 21.9% 28.0% 33.0% Senior Bank Financing 100.0% 100.0% 100.0% Subordinated Debt 18.8% 20.4% 22.0% Subordinated Debt 28.9% 100.0% 100.0% ----- ----- ----- Total Debt 75.1% 100.0% 100.0% Interest Coverages: Ending June 30 2002 2003 2004 2005 2006 2007 ---- ---- ---- ---- ---- ---- EBITDA / Senior Interest 7.3 x 8.0 x 11.1 x 16.7 x 33.8 x NMF EBITDA / Total Interest 3.3 3.5 4.6 6.1 8.8 14.7 Senior Debt / EBITDA 2.5 2.3 1.6 0.9 0.3 NMF Total Debt / EBITDA 3.9 3.6 2.6 1.8 1.1 0.4
[LOGO] LEGG Investment MASON Banking 35 Confidential - not for duplication. F. Leveraged Buyout Analysis -------------------------------------------------------------------------------- Leveraged Buyout Analysis Summary --------------------------------- ($ in millions, except per share data) Scenario 1 2 3 -------- -------- -------- Implied Dynamite Enterprise Value $83.05 $91.20 $99.30 Implied Dynamite Equity Value 44.25 52.40 60.50 Implied Dynamite Share Price $ 5.74 $ 6.80 $ 7.85 -------------------------- Note: Net debt of $38.8MM for Dynamite was calculated using total cash and total debt from the Company's 3/31/02 10Q filing. Scenario 1 assumes that at a 4.0x EBITDA multiple, there will be a 33.0% rate of return to equity investors and a 22.0% return to subordinated debt holders. Scenario 2 assumes that at a 5.0x EBITDA multiple, there will be a 33.0% rate of return to equity investors and a 22.0% return to subordinated debt holders. Scenario 3 assumes that at a 6.0x EBITDA multiple, there will be a 33.0% rate of return to equity investors and a 22.0% return to subordinated debt holders. [LOGO] LEGG Investment MASON Banking 36 Confidential - not for duplication. Addendum A - Legg Mason Fairness Opinion Letter -------------------------------------------------------------------------------- [LOGO] LEGG Investment MASON Banking 37 Confidential - not for duplication. -------------------------------------------------------------------------------- [LOGO] LEGG Investment MASON Banking Findings as Presented to the Special Committee of the Board of Directors of Dynamite August 5, 2002 Legg Mason Wood Walker Incorporated Proprietary - not for duplication. -------------------------------------------------------------------------------- Table of Contents -------------------------------------------------------------------------------- I. Introduction A. Legg Mason's Engagement B. Overview of Dynamite C. Overview of the Transaction II. Valuation Analysis A. Summary Analysis B. Comparable Public Company Analysis C. Premium Paid Analysis D. Comparable M&A Transactions Analysis E. Discounted Cash Flow Analysis F. Leveraged Buyout Analysis Addenda A. Legg Mason Fairness Opinion Letter
[LOGO] LEGG Investment MASON Banking Confidential - not for duplication.