EX-99.(E) 4 d64743_ex99e.txt WY CAMPBELL REPORT CONFIDENTIAL Presentation to: THE RAYTECH CORPORATION BOARD OF DIRECTORS Discussion Materials October 26, 2004 W. Y. CAMPBELL & COMPANY ------------------------ INVESTMENT BANKING EXECUTIVE OVERVIEW ==================-------------------------------------------------------------- [LOGO] RAYTECH CORPORATION -------------------------------------------------------------------------------- EXECUTIVE OVERVIEW 1 VALUATION 2 ACCRETIVE ACQUISITION IDEAS 3 MERGER/STRATEGIC PARTNER IDEAS 4 DIVIDEND STRATEGY 5 LEVERAGE RE-CAP ANALYSIS SALE OF RAYTECH AFTERMARKET SELECTION OF ALTERNATIVES 6 LONG RANGE THINKING 7 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 1 W. Y. CAMPBELL & COMPANY EXECUTIVE OVERVIEW ==================-------------------------------------------------------------- EXECUTIVE OVERVIEW o The purpose of this presentation: o Update WYC&C's valuation of Raytech, o Revisit "high-interest" strategic alternatives. o WYC&C remains committed to working with Raytech on Strategic Options. o In developing a revised outlook, WYC&C included the following: o Detailed review of revenue, new business, and future prospects for the Wet Friction unit; o Appreciation for the hurdles faced by Wet Friction after 2006, pending new business awards; o Updating our valuation with the Company's/Units' "sharpened" financial outlook; o Preparing our own probability adjusted forecast (for valuation purposes), much the way a financial buyer would approach valuing the Company post-management interviews. o Limitations: o We have not yet spoke to any of the various parties who may be interested in Raytech o More aggressive strategic planning, e.g. China strategy for Wet Friction, were not included due to a lack of clear sight on the cost, timing, customer reaction, or benefit of more "out-of-the-box" strategic thinking; o Assumptions as to the cash-generating capability of the Business Unit through 2008; o Decision not to seek independent verification of Raytech's position vis a vis its customers and their perceptions, or their willingness to promote Raytech as a future supplier. -------------------------------------------------------------------------------- PAGE 2 W. Y. CAMPBELL & COMPANY EXECUTIVE OVERVIEW ==================-------------------------------------------------------------- FOCUSING TODAY'S CONVERSATION ... CONSIDERATIONS RELEVANT TO PUBLIC (OR PRIVATE) SHAREHOLDERS: 1) Characteristics for the investment vehicle: i. What is the risk-return relationship? 1. Current outlook 2. Stability of value 3. Risk inherent in company as it stands today ii. What level of return is likely to be realized? 1. Sell vs. Keep iii. Is a sale of the Company a value-attractive alternative? iv. Whether sold or not, how could returns from Raytech ownership be increased? 1. Revisit strategic options and alternatives 2) Recognition of when the future holds value + opportunity vs. when cashing out might be the better part of valor. -------------------------------------------------------------------------------- PAGE 3 W. Y. CAMPBELL & COMPANY EXECUTIVE OVERVIEW ==================-------------------------------------------------------------- CONSIDERATIONS WORTH TAKING ADVANTAGE OF: 1) Tax NOLs create increase the (unusual) ability to sell parts or the whole 2) Raybestos brand continues to have value that Echlin, Dana, and now Cyprus, promote at great annual expense 3) We have taken important steps with Chinese manufacturing. Now we need to develop and explore additional outsourcing (Offer an LTA to a Stamper/Fine Blanker) and further investigate off-shore sourcing. 4) We have a good excuse for not wanting all our eggs in one basket -------------------------------------------------------------------------------- PAGE 4 W. Y. CAMPBELL & COMPANY EXECUTIVE OVERVIEW ==================-------------------------------------------------------------- RANGE OF STRATEGIC ALTERNATIVES - MACRO STRATEGY CONSIDERATIONS
---------------------------------------------------------------------------------------------------------------------------------- Sell All / 50+% / Parts Strategic Partnership / Acquisition Stay The Course/Recap ---------------------------------------------------------------------------------------------------------------------------------- Q: If someone else can do more with the Q: What would we obtain, and what would Q: Are we making substantial progress Company than we can, and puts a reflective obtaining it mean? What would an towards a suitable goal, such that simply value on the table, do we want to cash out acquisition or partnership add to our doing more of the same is our best and let them take the risks? already exciting story? strategy? o Raytech = "high beta" entity o Re-capturing technological Q: If we took a sizable dividend off the leadership in wet would be highly table now, are we be comfortable with the o Uncertainty in Wet applied to accretive to value... but will be current direction? Aftermarket and Dry not long ago time-consuming, uncertain and expensive! o Substantially increasing leverage, o Management team is incomplete or harvesting one of our o Finding our way into Low-Cost cash-producing divisions appears to o Impressive capital required for Producer status would be highly be a high-risk strategy: change and to sustain Dry. accretive to value Aftermarket risks being marginalized o Excellent customer and technical by Wet. o Capital availability could be a position? No. constraint o Great patience required to turn this o Markets evolving in our favor? No. ship around! o Generally acquisitive efforts come as a result of supreme confidence in o Believe in Management's abilities? O Could someone else extract more management (albeit management could No. value? More importantly, will they also be acquired) pay us for the chance? o Capital available for sustaining and revolutionary investment? Doubtful.
-------------------------------------------------------------------------------- PAGE 5 W. Y. CAMPBELL & COMPANY EXECUTIVE OVERVIEW ==================-------------------------------------------------------------- WHEN DOES STRATEGIC PARTNERING LOOK LIKE A SALE MANDATE? -------------------------------- Successful Investigatory Process -------------------------------- --------- -------- ------------------- ------------ ------ Business Strategy Financial Structure Sale Process Timing --------- -------- ------------------- ------------ ------ [GRAPHIC] -------------------------------------------------------------------------------- PAGE 6 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- [LOGO] RAYTECH CORPORATION -------------------------------------------------------------------------------- EXECUTIVE OVERVIEW 1 VALUATION 2 ACCRETIVE ACQUISITION IDEAS 3 MERGER/STRATEGIC PARTNER IDEAS 4 DIVIDEND STRATEGY 5 LEVERAGE RE-CAP ANALYSIS SALE OF RAYTECH AFTERMARKET SELECTION OF ALTERNATIVES 6 LONG RANGE THINKING 7 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 7 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- MANAGEMENT FORECAST
Raytech - Financial Summary - Management Case (US$ in millions) 2004E 2005E 2006E 2007E 2008E CAGR --------------------------------------------------------------------------------------- Sales 217.2 229.3 251.3 267.1 282.3 6.8% Cost of Sales 175.6 183.7 198.6 210.9 221.0 ------------------------------------------------------------------------------- Gross Profit 41.6 45.6 52.7 56.2 61.3 10.2% Gross Margin 19.2% 19.9% 21.0% 21.0% 21.7% SG&A 24.3 25.1 26.3 27.7 29.0 ------------------------------------------------------------------------------- EBIT 17.4 20.5 26.4 28.5 32.4 16.9% EBIT Margin 8.0% 8.9% 10.5% 10.7% 11.5% Depreciation and Amortization 10.9 9.7 9.7 9.5 9.3 ------------------------------------------------------------------------------- Pre-Corporate EBITDA 28.3 30.2 36.1 38.0 41.7 10.2% Corporate Expense (7.9) (6.8) (6.8) (6.8) (6.8) ------------------------------------------------------------------------------- EBITDA 20.4 23.4 29.3 31.2 34.9 14.4% EBITDA Margin 9.4% 10.2% 11.7% 11.7% 12.4% --------------------------------------------------------------------------------------- Enterprise Value $ 118.3 $ 135.5 $ 170.1 $ 180.8 $ 202.3 14.4% Equity Value $ 58.9 $ 73.7 $ 110.2 $ 123.3 $ 148.8 26.0% Equity Value per Share $ 1.41 $ 1.77 $ 2.64 $ 2.95 $ 3.56 26.0% ---------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 8 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- FORECAST SUMMARY o The WYC&C forecast incorporates some key changes versus the Management forecast o Wet Friction Division o Gave full credit for all current business; o Only gave credit to the Automotive segment "potential business" on those platforms in which the sales team believes there is a 50% or greater chance of success. A difference in sales of $1.9 million in 2005, $3.3 million in 2006, $4.3 million in 2007, and $6.6 million in 2008; o WYC&C reduced management's Direct Labor expense by 1% from 2005-2008, and WYC&C reduced management's Variable Overhead expense by 2% from 2005-2008. These expense reductions correspond with the significant sales reductions stated above; o Both management and WYC&C factor in price reduction "give-backs" to the OEM customers in 2007 and 2008 of 1% and 2% respectively. Only GM and Magna did not have these give-backs built into the forecast; o The resultant impact on management's forecast is a decreased revenue and profit forecast (related to new business). Profit impact against forecast is: -12.5% in 2005, -23.0% in 2006, -32.0% in 2007 and -68.0% in 2008 against management's growth forecast; o The Heavy Duty segment assumed minimal new business, WYC&C accepted the Heavy Duty forecast. o Dry Friction Division o WYC&C reduced management's sales forecast slightly (down 1.5% each year from 2005-2008); o The resultant impact is a reduction of management's profit forecast by 11.0% in 2005, 10.0% in 2006 and 2007 and 9.0% in 2008. o Aftermarket Division o WYC&C reduced management's sales forecast slightly (down 2.0% each year from 2005-2008); o The resultant impact is a reduction of management's profit forecast by approximately 12.5% for 2005-2008. -------------------------------------------------------------------------------- PAGE 9 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- o The Downside forecast incorporates the same reduction in sales in the Dry and Aftermarket divisions as in the WYC&C forecast. The Wet Friction Division Automotive segment new business opportunities are only given credit when the probability is greater than 50% (i.e. 50% cases were dropped from the forecast), except for the NV900 Coupler project (projected at 80% probability) that was also struck as having substantially lower probability of success(1) o The Strategic forecast gives full credit to management's Dry and Aftermarket projections. In the Wet Friction division, full credit is given for all potential business, plus 10% cost reduction (highly successful cost containment initiatives) in each of the Material, Direct Labor and Fixed Overhead expenses. This upside forecast also assumes a 10% increase in the sale value (pricing) on steel scrap. ---------- (1) This is currently made in Crawfordsville but is in jeopardy due to NVH issues (Noise, Vibration & Harshness). Sterling Heights test center was working on this until closure. Means has been working on a solution with MTM (GM owns MTM). This project has not been picked up by Crawfordsville test center since Sterling Heights closure in March. Need to discuss during Sept 29 & 30 meeting with L.S. & M. T. (As of 10/7/04, MTM is coming to the realization that this is a systems problem vs. a material problem. Therefore, we will likely keep this business - 100%). -------------------------------------------------------------------------------- PAGE 10 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- WYC&C FORECAST
Raytech - Financial Summary - WYC&C Case (US$ in millions) 2004E 2005E 2006E 2007E 2008E CAGR -------------------------------------------------------------------------------------------------- Sales 217.2 225.2 245.7 260.3 273.2 5.9% Cost of Sales 175.6 182.8 197.8 209.9 220.0 ------------------------------------------------------------------------------------------ Gross Profit 41.6 42.4 47.9 50.4 53.1 6.3% Gross Margin 19.2% 18.8% 19.5% 19.4% 19.4% SG&A 24.3 25.1 26.3 27.7 29.0 ------------------------------------------------------------------------------------------ EBIT 17.4 17.3 21.7 22.7 24.2 8.6% EBIT Margin 8.0% 7.7% 8.8% 8.7% 8.8% Depreciation and Amortization 10.9 9.7 9.7 9.5 9.3 ------------------------------------------------------------------------------------------ Pre-Corporate EBITDA 28.3 27.0 31.4 32.2 33.5 4.3% Corporate Expense (7.9) (6.8) (6.8) (6.8) (6.8) ------------------------------------------------------------------------------------------ EBITDA 20.4 20.2 24.6 25.4 26.7 6.9% EBITDA Margin 9.4% 9.0% 10.0% 9.7% 9.8% -------------------------------------------------------------------------------------------------- Enterprise Value $118.3 $117.0 $142.7 $147.1 $154.7 6.9% Equity Value $ 58.9 $ 55.3 $ 82.8 $ 89.6 $101.2 14.5% Equity Value per Share $ 1.41 $ 1.32 $ 1.99 $ 2.15 $ 2.42 14.5% --------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 11 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- STRATEGIC FORECAST
Raytech - Financial Summary - Strategic Case (US$ in millions) 2004E 2005E 2006E 2007E 2008E CAGR -------------------------------------------------------------------------------------------------- Sales 217.2 239.9 263.2 279.5 295.4 8.0% Cost of Sales 175.6 192.2 208.0 220.7 231.4 ------------------------------------------------------------------------------------------ Gross Profit 41.6 47.6 55.1 58.8 64.0 11.4% Gross Margin 19.2% 19.9% 20.9% 21.0% 21.7% SG&A 24.3 25.1 26.3 27.7 29.0 ------------------------------------------------------------------------------------------ EBIT 17.4 22.5 28.9 31.1 35.0 19.2% EBIT Margin 8.0% 9.4% 11.0% 11.1% 11.9% Depreciation and Amortization 10.9 9.7 9.7 9.5 9.3 ------------------------------------------------------------------------------------------ Pre-Corporate EBITDA 28.3 32.2 38.6 40.6 44.3 11.9% Corporate Expense (7.9) (6.8) (6.8) (6.8) (6.8) ------------------------------------------------------------------------------------------ EBITDA 20.4 25.4 31.8 33.8 37.5 16.5% EBITDA Margin 9.4% 10.6% 12.1% 12.1% 12.7% -------------------------------------------------------------------------------------------------- Enterprise Value $ 118.3 $ 147.4 $ 184.4 $ 195.9 $ 217.7 16.5% Equity Value $ 58.9 $ 85.6 $ 124.5 $ 138.3 $ 164.2 29.2% Equity Value per Share $ 1.41 $ 2.05 $ 2.98 $ 3.31 $ 3.93 29.2% --------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 12 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- DOWNSIDE FORECAST
Raytech - Financial Summary - Downside Case (US$ in millions) 2004E 2005E 2006E 2007E 2008E CAGR --------------------------------------------------------------------------------------- Sales 217.2 225.2 244.0 254.9 261.3 4.7% Cost of Sales 175.6 183.7 198.6 210.9 221.0 ------------------------------------------------------------------------------ Gross Profit 41.6 41.6 45.3 44.0 40.3 -0.8% Gross Margin 19.2% 18.5% 18.6% 17.3% 15.4% SG&A 24.3 25.1 26.3 27.7 29.0 ------------------------------------------------------------------------------ EBIT 17.4 16.4 19.1 16.3 11.4 -10.0% EBIT Margin 8.0% 7.3% 7.8% 6.4% 4.4% Depreciation and Amortization 10.9 9.7 9.7 9.5 9.3 ------------------------------------------------------------------------------ Pre-Corporate EBITDA 28.3 26.1 28.8 25.8 20.7 -7.5% Corporate Expense (7.9) (6.8) (6.8) (6.8) (6.8) ------------------------------------------------------------------------------ EBITDA 20.4 19.3 22.0 19.0 13.9 -9.2% EBITDA Margin 9.4% 8.6% 9.0% 7.4% 5.3% --------------------------------------------------------------------------------------- Enterprise Value $ 118.3 $ 112.1 $ 127.5 $ 110.0 $ 80.6 -9.2% Equity Value $ 58.9 $ 50.4 $ 67.7 $ 52.5 $ 27.0 -17.7% Equity Value per Share $ 1.41 $ 1.21 $ 1.62 $ 1.26 $ 0.65 -17.7% ---------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 13 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- MANAGEMENT CASE VALUATION - DISCOUNTED TO 2004 o Each valuation metric is discounted to year-end 2004 o The valuation highlights the sensitivities to various discount rates, WYC&C used a range of 0% - 20%
Enterprise Value - Management Case ----------------------------------------------- 2004E 2005E 2006E 2007E 2008E ----------------------------------------------- 0% $ 118.3 $ 135.5 $ 170.1 $ 180.8 $ 202.3 5% $ 118.3 $ 129.1 $ 154.2 $ 156.2 $ 166.5 10% $ 118.3 $ 123.2 $ 140.5 $ 135.8 $ 138.2 15% $ 118.3 $ 117.8 $ 128.6 $ 118.9 $ 115.7 20% $ 118.3 $ 112.9 $ 118.1 $ 104.6 $ 97.6
Equity Value - Management Case ----------------------------------------------- 2004E 2005E 2006E 2007E 2008E ----------------------------------------------- 0% $ 58.9 $ 73.7 $ 110.2 $ 123.3 $ 148.8 5% $ 58.9 $ 70.2 $ 99.9 $ 106.5 $ 122.4 10% $ 58.9 $ 67.0 $ 91.1 $ 92.6 $ 101.6 15% $ 58.9 $ 64.1 $ 83.3 $ 81.0 $ 85.1 20% $ 58.9 $ 61.4 $ 76.5 $ 71.3 $ 71.7
Equity Value per Share - Management Case ----------------------------------------------- 2004E 2005E 2006E 2007E 2008E ----------------------------------------------- 0% $ 1.41 $ 1.77 $ 2.64 $ 2.95 $ 3.56 5% $ 1.41 $ 1.68 $ 2.39 $ 2.55 $ 2.93 10% $ 1.41 $ 1.61 $ 2.18 $ 2.22 $ 2.43 15% $ 1.41 $ 1.54 $ 2.00 $ 1.94 $ 2.04 20% $ 1.41 $ 1.47 $ 1.83 $ 1.71 $ 1.72
-------------------------------------------------------------------------------- PAGE 14 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- WYC&C CASE VALUATION - DISCOUNTED TO 2004 o Each valuation metric is discounted to year-end 2004 o The valuation highlights the sensitivities to various discount rates, WYC&C used a range of 0% - 20%
Enterprise Value - WYC&C Case ------------------------------------------------------ 2004E 2005E 2006E 2007E 2008E ------------------------------------------------------ 0% $ 118.3 $ 117.0 $ 142.7 $ 147.1 $ 154.7 5% $ 118.3 $ 111.5 $ 129.5 $ 127.1 $ 127.3 10% $ 118.3 $ 106.4 $ 118.0 $ 110.6 $ 105.7 15% $ 118.3 $ 101.8 $ 107.9 $ 96.8 $ 88.5 20% $ 118.3 $ 97.5 $ 99.1 $ 85.2 $ 74.6
Equity Value - WYC&C Case ------------------------------------------------------ 2004E 2005E 2006E 2007E 2008E ------------------------------------------------------ 0% $ 58.9 $ 55.3 $ 82.8 $ 89.6 $ 101.2 5% $ 58.9 $ 52.6 $ 75.1 $ 77.4 $ 83.2 10% $ 58.9 $ 50.2 $ 68.5 $ 67.3 $ 69.1 15% $ 58.9 $ 48.1 $ 62.6 $ 58.9 $ 57.8 20% $ 58.9 $ 46.1 $ 57.5 $ 51.8 $ 48.8
Equity Value per Share - WYC&C Case ------------------------------------------------------ 2004E 2005E 2006E 2007E 2008E ------------------------------------------------------ 0% $ 1.41 $ 1.32 $ 1.99 $ 2.15 $ 2.42 5% $ 1.41 $ 1.26 $ 1.80 $ 1.85 $ 1.99 10% $ 1.41 $ 1.20 $ 1.64 $ 1.61 $ 1.66 15% $ 1.41 $ 1.15 $ 1.50 $ 1.41 $ 1.39 20% $ 1.41 $ 1.10 $ 1.38 $ 1.24 $ 1.17
-------------------------------------------------------------------------------- PAGE 15 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- WET FRICTION DIVISIONAL VALUATION ANALYSIS [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] DCF Sensitivity Analysis - Total Enterprise Value --------------------------------------------------------------------------------
Terminal Value EBITDA Multiple 4.5x 5.0x 5.5x 6.0x ---------------------------------------------------------------------- 13.0% 32.6 35.1 37.6 40.0 12.5% 33.1 35.6 38.1 40.6 -------------- Discount 12.0% 33.6 36.1 38.7 41.3 Rate 11.5% 34.0 36.7 39.3 41.9 11.0% 34.5 37.2 39.9 42.5 -------------- 10.5% 35.0 37.8 40.5 43.2 10.0% 35.6 38.3 41.1 43.9 ----------------------------------------------------------------------
Trading Comparables Analysis
Multiple Range Equity/Enterprise Value Range FYE 2004E Results Low High Low High ----------------------------------------------------------------------------- Sales $ 103.3 0.5x 0.6x 51.7 62.0 EBITDA $ 10.5 4.5x 5.0x 47.2 52.4 -----------------------------------------------------------------------------
Transaction Comparables Analysis
Multiple Range Equity/Enterprise Value Range FYE 2004E Results Low High Low High ------------------------------------------------------------------------------ Sales $ 103.3 0.7x 0.8x 72.3 82.7 EBITDA $ 10.5 5.0x 5.5x 52.4 57.7 ------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 16 W. Y. CAMPBELL & COMPANY VALUATION =========----------------------------------------------------------------------- VALUATION CONCLUSION o Sold as one company, Raytech's value is likely to approximate $120 million o Sold as three divisions, Raytech's value may be has high as $145 million o There are several issues that make a sale of the three divisions less intuitive than a sale of the whole: o Shared facility in Crawfordsville, IN (sourcing of stamped components, HD vs. auto, R&D, etc.) o Brand and product dependence on the auto side of the Wet Friction Division by the Aftermarket Division o Customer and branding differences between the Automotive and Heavy Duty sub-segments of Wet Friction becomes a potential obstacle o In order to maximize value, and make a sale feasible, WYC&C recommends taking the company to market as a single entity, while also soliciting offers on the divisions independently o WYC&C does not necessarily believe the Company would receive a 5.8x EBITDA multiple (for those of you multiplying our current EBITDA x 5.8 to reach $120 million)... however, we believe the total valuation provided herein could be realized through finding add-backs, one-time adjustments and other cost-savings opportunities -------------------------------------------------------------------------------- PAGE 19 W. Y. CAMPBELL & COMPANY ACCRETIVE ACQUISITION IDEAS ===========================----------------------------------------------------- [LOGO] RAYTECH CORPORATION -------------------------------------------------------------------------------- EXECUTIVE OVERVIEW 1 VALUATION 2 ACCRETIVE ACQUISITION IDEAS 3 MERGER/STRATEGIC PARTNER IDEAS 4 DIVIDEND STRATEGY 5 LEVERAGE RE-CAP ANALYSIS SALE OF RAYTECH AFTERMARKET SELECTION OF ALTERNATIVES 6 LONG RANGE THINKING 7 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 20 W. Y. CAMPBELL & COMPANY ACCRETIVE ACQUISITION IDEAS ===========================----------------------------------------------------- ACQUISITION IDEA #1 -------------------------------------------------------------------------------- Rostra Precision Controls, Inc. Ownership: Private www.rostra.com Entity Type: Subsidiary 2519 Dana Dr. Year Formed: 1989 Laurinburg, NC 28352-4000 Ultimate Parent Company: Rostra Scotland County Technologies Inc United States KeyID(SM) Number: 42749958 Tel: (910) 276-4853 D-U-N-S(R) Number: 16-199-4041 Fax: (910) 276-3865 -------------------------------------------------------------------------------- Reporting Currency: US Dollars Employees: 150 Annual Sales: $30.0 million President: Ray Ford -------------------------------------------------------------------------------- Business Description: Manufacturer of automotive cruise control systems, rear obstacle sensing systems, seating products, and transmission components, including solenoids and modulators and seat support systems. Products are sold to the automotive industry, the automotive aftermarket, and OEMS. -------------------------------------------------------------------------------- RATIONALE FOR ACQUISITION: PROS: CONS: o Complementary value-added o Small size of a Rostra products. acquisition would not generate sufficient interest on the o Automotive electronics is an "Street". area with high growth potential. o Rostra is primarily an o Additional product lines for the aftermarket company; this would OE and Aftermarket segments. not help to improve Wet Friction's prospects. o Penetration in the HD segment would provide Raytech additional o Using stock is unfavorable distribution channels. given the current price; using cash would reduce the ability to reinvest in more core products. -------------------------------------------------------------------------------- PAGE 22 W. Y. CAMPBELL & COMPANY ACCRETIVE ACQUISITION IDEAS ===========================----------------------------------------------------- ACQUISITION IDEA #3 -------------------------------------------------------------------------------- Means Industries, Inc. Ownership: Private www.amsted.com Entity Type: Parent 3715 E Washington Rd Year Formed: 1999 Saginaw, Ml 48601-9623 KeyID(SM) Number: 45191609 Saginaw County United States Tel: (989)754-1433 Fax: (989)754-1103 -------------------------------------------------------------------------------- Annual Sales: $50 million President: D W Shaw Plant Size: 40,000 (square feet) Employees: 89 (at HQ location) -------------------------------------------------------------------------------- Business Description: Manufactures automotive stampings and One-Way Clutches. The Means One-Way Clutch is ideal for the higher demands placed on transmissions in trucks, high-performance cars and sport utility vehicles. At the same time, its remarkably simple design makes it a cost-effective choice for virtually any automatic transmission. -------------------------------------------------------------------------------- RATIONALE FOR ACQUISITION: PROS: CONS: o Product seems to be non-core to o Smaller acquisition based upon Amsted Industries. publicly available information. o Product line acquisition which o How much leverage can be gained gives access to additional by a single product acquisition markets. vs. that of a larger entity? o Provides additional stamping o Using stock is unfavorable given capabilities which could be used the current price; using cash to supplement what is done in would reduce the ability to Crawfordsville. reinvest in more core products. -------------------------------------------------------------------------------- PAGE 24 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- [LOGO] RAYTECH CORPORATION -------------------------------------------------------------------------------- EXECUTIVE OVERVIEW 1 VALUATION 2 ACCRETIVE ACQUISITION IDEAS 3 MERGER/STRATEGIC PARTNER IDEAS 4 DIVIDEND STRATEGY 5 LEVERAGE RE-CAP ANALYSIS SALE OF RAYTECH AFTERMARKET SELECTION OF ALTERNATIVES 6 LONG RANGE THINKING 7 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 25 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- RAYTECH CORPORATION ... OBSERVATIONS ON THE WHOLE o Raytech has clear value as an investment opportunity and as a going concern. The Board needs to carefully consider the long term expected value of the Company versus the opportunity to take advantage of compelling valuations in the Automotive M&A market today. o In seeking a strategic valuation, Raytech will need to defend its position in each market and with each of its key customers. While this is more easily done with Dry and Aftermarket, the auto-OE side of the WET business remains precarious. o Raytech seems to wield a size and critical mass that should allow it to compete. However, the Wet side of the business has fallen to an unenviable 3rd out of three among the North American OE competitors. The ramp-up of the Chinese operation to offer lower OE pricing would be an extremely viable way of changing the playing field on more mature products. o Financial buyers setting a baseline for value would likely be in the 4 to 6x adjusted Trailing Twelve Months EBITDA range. A strategic buyer for one or all of the pieces would need the synergistic aspects of the deal clearly identified (i.e. closure of HQ, full impact of Sterling Heights closure) prior to offering full value. o WET Friction and the visibility of its sales going forward remains difficult. For WET to truly have viable future, considerations should be given toward outsourcing critical processes such as paper manufacture and stamping/fine blanking. By outsourcing these critical manufacturing processes the Company will be able to focus on product development/know-how, engineering, design and assembly. This will also serve to reduce fixed overhead - albeit union considerations will be critical. o Capital spending to sustain and re-take a leadership role could equate to a startlingly large figure. Technology and low-cost producer status are directionally essential targets for the Company to succeed, and maximize shareholder value. o A wide range of possible alternatives has been considered and explored further. We re-cap the various alternatives in the Selection of Alternatives section, but ultimately believe that taking the Company to market in a "cafeteria" style offering memorandum, in the current Automotive M&A marketplace will create the greatest amount of options (i.e. partnering, merger, divestiture) and subsequently allow the shareholders to realize the greatest value. -------------------------------------------------------------------------------- PAGE 26 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- MERGER/PARTNERING UNIVERSE
------------------------------- --------------------------------- ---------------------------------- DESIGN & ASSEMBLY STRATEGY OFF-SHORE (ASIAN) INDUSTRIAL TRANSMISSION SUPPLIERS ------------------------------- --------------------------------- ---------------------------------- Representative Companies (Sample): Representative Companies (Sample): Representative Companies (Sample): o PPH (stamping/fine blanking) o Pacifica o Danaher o Boise Cascade (paper making) o Akebono Brake Industry o Ingersoll-Rand o 3M (resin manufacture) o CMT (China Metal) o Emerson Electric o United Technologies
[GRAPHIC]
------------------------------- --------------------------------- ---------------------------------- OFF-ROAD & LOW VOLUME AUTOMOTIVE OE & HEAVY DUTY TRUCK COMMERCIAL VEHICLES VEHICULAR AFTERMARKET (ON-ROAD) ------------------------------- --------------------------------- ---------------------------------- Representative Companies (Sample): Representative Companies (Sample): Representative Companies (Sample): o Carlisle Industrial Brake & o Cypress (bought Dana's o BorgWarner Friction Aftermarket unit) o Dynax o Eaton o Universal Automotive Industries o JATCO o ArvinMeritor o Perfection Clutch o Valeo o GETRAG o EXEDY o ZF/Sachs
-------------------------------------------------------------------------------- PAGE 27 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- MERGER/PARTNERING SPECTRUM Magna International GKN Plc Metaldyne Boise Cascade 3M MPI International [GRAPHIC] Integrated Auto Technical Product/Process System/Module Suppliers Experts -------------------------------------------------------------------------------- PAGE 28 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- MERGER/STRATEGIC PARTNER IDEA #1 -------------------------------------------------------------------------------- Magna International Inc. Traded: Toronto Stock Exchange: MG.A http://www.magna.com ADR Traded: NYSE: MGA 337 Magna Drive Ownership: Public Aurora, ON L4G 7K1 Entity Type: Parent Canada KeyID(SM) Number: 18074 Tel: (905)726-2462 D-U-N-S(R) Number: 20-151-6002 Fax: (905)726-7164 -------------------------------------------------------------------------------- Reporting Currency: US Dollar President: Mark Hogan Annual Sales: $15.3 billion Employees: 73,000 -------------------------------------------------------------------------------- Business Description: Magna International Inc. is a global supplier of technologically advanced automotive components, systems and modules. The Company designs, engineers and manufactures a range of exterior, interior and powertrain systems. Magna International Inc. designs, engineers and manufactures a range of automotive components, assemblies, modules and systems, and engineers and assembles complete vehicles. -------------------------------------------------------------------------------- RATIONALE FOR MERGER/STRATEGIC PARTNERING: PROS: CONS: o Magna's expertise in o Due to the sheer size and scope designing/developing full of Magna, a partnering with/ systems could prove very acquisition of Raytech may not valuable in assisting Raytech be high on the list of move up the value chain. priorities. o Synergistically, there may be o opportunities to rationalize additional Raytech facilities. o Magna has shown a willingness to partner/acquire with its recent acquisition of New Venture Gear (80% Magna, 20% DCX). -------------------------------------------------------------------------------- PAGE 29 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- MERGER/STRATEGIC PARTNER IDEA #2 -------------------------------------------------------------------------------- GKN plc Traded: London Stock Exchange (SETS): http://www.gknplc.com GKN PO Box 55, Ipsley House, Ipsley Church Company Status: Active Lane Ownership: Public Redditch, United Kingdom B98 OTL Entity Type: Parent United Kingdom KeyID(SM) Number: 45256552 Tel: +44-1527-517715 D-U-N-S(R) Number: 22-172-7360 Fax: +44-1527-517700 -------------------------------------------------------------------------------- Reporting Currency: British Pound Chief Executive Officer, Director: Sterling Kevin Smith Annual Sales: $7.5 billion Employees:35,484 -------------------------------------------------------------------------------- Business Description: The Company operates through two principal business units, Automotive and Aerospace. Automotive consists of GKN Driveline, which specializes in the design and manufacture of driveline system products; Powder Metallurgy, which produces metal powder and sintered products; OffHighway, a supplier of components and systems for agricultural and off-highway equipment; AutoComponents, and Emitec, which manufactures metal substrates. -------------------------------------------------------------------------------- RATIONALE FOR MERGER/STRATEGIC PARTNERING: PROS: CONS: o GKN could provide a unique o The focus on sintered metal platform to leverage our products may prove to be too far existing technology to other removed from Raytech's core parts of the vehicle requiring business - i.e. not applicable friction material. to our specific transmission components. o The ability to take a large global operation and combined o This may not be on GKN's radar with Raytech's emerging global given the environmental footprint could be compelling liabilities and pension from a synergy perspective. liabilities. o GKN is a WYC&C client and has expressed a desire to grow via acquisitions/partnerships. -------------------------------------------------------------------------------- PAGE 30 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- MERGER/STRATEGIC PARTNER IDEA #3 -------------------------------------------------------------------------------- Metaldyne Corp. Ownership: Private www.metaldyne.com Entity Type: Subsidiary 47603 Halyard Dr. Year Formed: 2001 Plymouth, Ml 48170 Ultimate Parent Company: Heartland Wayne County Industrial Partners, LP United States KeyID(SM) Number: 169209 Tel: 734-207-6200 D-U-N-S(R) Number: 11-926-9827 Fax: 734-207-6500 -------------------------------------------------------------------------------- Reporting Currency: US Dollars President/CEO/COB: Timothy D. Leuliette Annual Sales: $2.0 billion Employees: 7,100 -------------------------------------------------------------------------------- Business Description: Provider of metal-based components, assemblies and modules for transportation-related powertrain and chassis applications including engine, transmission/transfer case, wheel-end and suspension, axle and driveline, and noise and vibration control products to the motor vehicle industry. Products are sold to the automotive industry. -------------------------------------------------------------------------------- RATIONALE FOR MERGER/STRATEGIC PARTNERING: PROS: CONS: o Metaldyne produces fine blanked o Metaldyne is under some degree and stamped components that of financial strain at the would be synergistic to Raytech. moment and may not have the wherewithal to make an o A partner/merger with Raytech acquisition. would give Metaldyne the ability to provide a complete o Metaldyne may view Raytech to be transmission, including friction non-core to its assembly and material. module based strategy - i.e. not enough juice for the squeeze. o Metaldyne is owned by Heartland Industrial Partners and has expressed a willingness to merge with synergistic opportunities. -------------------------------------------------------------------------------- PAGE 31 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- MERGER/STRATEGIC PARTNER IDEA #4 -------------------------------------------------------------------------------- Boise Cascade Corporation Traded: NYSE: BCC http://www.bc.com Ownership: Public 1111 West Jefferson St. Entity Type: Parent Boise, ID 83728 KeyID(SM) Number: 4172 Ada County D-U-N-S(R) Number: 00-907-3099 United States Tel: 1-208-384-6161 Fax: 1-208-384-7189 -------------------------------------------------------------------------------- Reporting Currency: U.S. Dollars Chairman of the Board: George Harad Annual Sales: $8.2 billion Employees: 55,618 -------------------------------------------------------------------------------- Business Description: Boise Cascade Corporation is a multinational contract and retail distributor of office supplies and paper, technology products and office furniture. It is also a distributor of building materials and a manufacturer and distributor of paper, packaging and wood products. The Company operates in four segments: Boise Office Solutions, Contract; Boise Office Solutions, Retail; Boise Building Solutions and Boise Paper Solutions. Boise Paper Solutions manufactures and distributes uncoated free sheet papers, containerboard, corrugated containers, newsprint and market pulp. -------------------------------------------------------------------------------- RATIONALE FOR MERGER/STRATEGIC PARTNERING: PROS: CONS: o Boise Cascade could become the o It is not known whether Boise exclusive "paper" supplier to Cascade would want to be an Raytech; similar to the exclusive "paper" supplier - arrangement Borg Warner has with strategically this type of Meade. partnership may not appeal to Boise. o By outsourcing the paper manufacturing, it would allow o Would we generate enough volume Raytech to focus on product relative to Boise's capacity - design, engineering and or would it require significant assembly. capital expenditures on their part which potentially would be bourn by Raytech. -------------------------------------------------------------------------------- PAGE 32 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- MERGER/STRATEGIC PARTNER IDEA #5 -------------------------------------------------------------------------------- 3M Company Traded: NYSE: MMM http://www.mmm.com/ Ownership: Public 3M Center Entity Type: Parent St. Paul, MN 55144 KeyID(SM) Number: 19404 Ramsey County D-U-N-S(R) Number: 00-617-3082 United States Tel: 1-651-733-1110 Fax: 1-651-737-3061 -------------------------------------------------------------------------------- Reporting Currency: U.S. Dollars Chairman of the Board, CEO: W. James Annual Sales: $18.2 billion McNerney, Jr. Employees: 67,072 -------------------------------------------------------------------------------- Business Description: 3M Company is a diversified technology company with a global presence in the following markets: healthcare, industrial, display and graphics, consumer and office, safety, security and protection services, electronics, telecommunications and electrical and transportation. 3M products are sold through numerous distribution channels. 3M Co. manufactures and markets pressure-sensitive adhesive tapes, abrasives and specialty chemicals. 3M also markets electrical & telecommunication products, medical devices, office supplies and major automotive parts. -------------------------------------------------------------------------------- RATIONALE FOR MERGER/STRATEGIC PARTNERING: PROS: CONS: o 3M could become the exclusive o We may not generate a volume resin supplier to Raytech - significant enough for 3M to similar to the strategy with devote processing capacity for Boise Cascade or in concert with our product. the strategy for Boise Cascade. o Again in similar fashion to the o By outsourcing some of our Boise Cascade scenario, if critical processes, Raytech will capital is required to build-out be able to focus attention on capacity to manufacture our design and assembly which would product Raytech will have to presumably reduce overhead. bear some if not all of the cost. -------------------------------------------------------------------------------- PAGE 33 W. Y. CAMPBELL & COMPANY MERGER/STRATEGIC PARTNER IDEAS ==============================-------------------------------------------------- MERGER/STRATEGIC PARTNER IDEA #6 -------------------------------------------------------------------------------- MPI International, Inc. Ownership: Private www.mpi-int.com Entity Type: Subsidiary 2129 Austin Ave. Year Formed: 1969 Rochester Hills, MI 48309 Ultimate Parent Company: Morgenthaler LLP Oakland County KeyID(SM) Number: 272632 United States D-U-N-S(R) Number: 04-809-1730 Tel: 248-853-9010 Fax: 248-853-5107 -------------------------------------------------------------------------------- Reporting Currency: US Dollars President/CEO: Karl A. Pfister Annual Sales: $100.0 million Employees: 950 -------------------------------------------------------------------------------- Business Description: MPI is the largest Fineblanking organization in North America, with respect to dollar volume sold, number of employees, and concentration of heavy tonnage fineblanking equipment. Each facility is a center of excellence, focusing on individual product specialties. MPI products all begin with a fineblanking basis. To provide customers with the finished components, assemblies, and systems required in industry today, MPI offers a diversity of value-added options. -------------------------------------------------------------------------------- RATIONALE FOR MERGER/STRATEGIC PARTNERING: PROS: CONS: o MPI could become the source o The union may not agree with of our reaction plates - the strategy of outsourcing outsourcing a process that manufacturing which would we are admittedly not great cause them to block in performing. any outsourcing attempts. o Combined with the Boise and o The internal shutdown costs 3M strategy, Raytech would incurred by completely operate in a similar fashion outsourcing manufacturing to the OE's by simply may be too high to justify. focusing on product design, engineering and assembly with little to no manufacturing. -------------------------------------------------------------------------------- PAGE 34 W. Y. CAMPBELL & COMPANY DIVIDEND STRATEGY =================--------------------------------------------------------------- [LOGO] RAYTECH CORPORATION -------------------------------------------------------------------------------- EXECUTIVE OVERVIEW 1 VALUATION 2 ACCRETIVE ACQUISITION IDEAS 3 MERGER/STRATEGIC PARTNER IDEAS 4 DIVIDEND STRATEGY 5 LEVERAGE RE-CAP ANALYSIS SALE OF RAYTECH AFTERMARKET SELECTION OF ALTERNATIVES 6 LONG RANGE THINKING 7 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 35 W. Y. CAMPBELL & COMPANY DIVIDEND STRATEGY =================--------------------------------------------------------------- LEVERAGED RE-CAP ANALYSIS o Raytech could support 3.0x it's projected 2004E EBITDA ($20.4 million) in senior debt, for a total of $62 million o On an asset basis, Raytech could borrow approximately $68 million o The debt capital markets for automotive businesses with significant assets, Raytech has over $150 million in net PP&E, net accounts receivable and inventory o Raytech never has EBITDA interest coverage less than 8.3x, assuming the WYC&C forecast, over the life of the senior debt o Due to existing debt of $27.4 million and assumed fees of approximately $1.6 million, Raytech could reap a $33 million dividend in a leveraged recapitalization of 3.0x 2004E EBITDA Coverages & Debt Paydown
-------------------------------------------------------------------------------------------- Fiscal Years Ended December, ------------------------------------------------------- 2004 2005 2006 2007 2008 2009 ----- ----- ----- ----- ----- ----- EBIT Interest Coverage 3.9x 4.3x 6.7x 8.5x 12.1x 20.2x EBITDA Interest Coverage 8.4x 8.3x 11.0x 13.6x 18.6x 30.6x Cumulative Total Debt Repaid 0.0% 3.3% 16.8% 32.4% 52.1% 74.1% Cumulative Senior Term Debt Repaid 0.0% 3.3% 16.8% 32.4% 52.1% 74.1% EBITDA $20.4 $20.2 $24.6 $25.4 $26.7 $28.0 Debt/EBITDA 3.0x 3.0x 2.1x 1.7x 1.1x 0.6x Debt/Total Capitalization 45.4% 42.0% 35.1% 27.7% 19.1% 10.1% --------------------------------------------------------------------------------------------
Capitalization
-------------------------------------------------------------------------------------------- Fiscal Years Ended December, At ----------------------------------------------- Closing 2005 2006 2007 2008 2009 ------- ------- ------ ------ ------ ------ Revolver $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Senior Term Debt 62.0 59.9 51.6 41.9 29.7 16.1 Subordinated Debt 0.0 0.0 0.0 0.0 0.0 0.0 Equity 74.6 82.7 95.4 109.4 125.4 143.0 ------ ------- ------ ------ ------ ------ Total Capitalization $136.6 $142.6 $146.9 $151.3 $155.0 $159.0 ====== ======= ====== ====== ====== ====== Cash Balance $ 0.0 ($ 0.0) $ 0.0 $ 0.0 $ 0.0 $ 0.0 Average Seasonal Debt 0.0 0.0 0.0 0.0 0.0 0.0 --------------------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] Total Debt Level Notes (1) Total current debt of $27.4m would be re-financed, leaving a dividend amount of approximately $33m (2) Fees of approximately $1.6m are assumed (3) Tax rate of 0% is assumed because of the significant NOL carry-forward. (4) Assumes the WYC&C P&L forecast, and the balance sheet as of 9/26/04 DIVIDEND STRATEGY =================--------------------------------------------------------------- DIVEST AFTERMARKET -------------------------------------------------------------------------------- POTENTIAL STAKEHOLDER REACTION -------------------------------------------------------------------------------- o Shareholders - No more or less reactive than to any other partial sale strategy. If they realized the pricing risk, customer concentration risk, and relatively modest technical capabilities working in o Customers (Aftermarket) - Likely to make comments that would not be assuring to a buyer. Customers would not appreciate separation from Wet OE. o Management/Corporate - Requires sale or licensing of Raybestos trade name to an uncontrolled entity. This has risks and could have some very serious blow-back if the licensee reduced the quality of the products. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- KEY FACTORS FOR SUCCESS -------------------------------------------------------------------------------- o Operational - Wet would be linked after the sale to the Aftermarket to sell product. We would want to insist the Aftermarket purchase some % of product from OE to sustain revenues, but buyer would probably seek the option of moving purchasing off-shore. o Trade Name - Risks having our very valuable trade-name sullied. o Customers (Aftermarket) - Will probably not support this idea. Question is how unsupportive will they be? -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PAGE 38 W. Y. CAMPBELL & COMPANY SELECTION OF ALTERNATIVES =========================------------------------------------------------------- [LOGO] RAYTECH CORPORATION -------------------------------------------------------------------------------- EXECUTIVE OVERVIEW 1 VALUATION 2 ACCRETIVE ACQUISITION IDEAS 3 MERGER/STRATEGIC PARTNER IDEAS 4 DIVIDEND STRATEGY 5 LEVERAGE RE-CAP ANALYSIS SALE OF RAYTECH AFTERMARKET SELECTION OF ALTERNATIVES 6 LONG RANGE THINKING 7 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 39 W. Y. CAMPBELL & COMPANY SELECTION OF ALTERNATIVES =========================------------------------------------------------------- THE BEST ALTERNATIVES 1) Sell the Company and distribute/redeploy the proceeds (presumably among a basket of more diversified, more predictable assets). - OR - 2) Define, then explore the possibility of a beneficial technological and/or financial partnership that would allow the Raytech shareholders to extract the upside potential of the company, reduce their risk, and potentially benefit from some much needed help (either as an ongoing entity, or as a private entity with joint ownership). - OR - 3) Double-down on Raytech, with a 100% "we're behind you" message to management. Give management the authority and resources to pursue accretive acquisitions and synergistic "organic" initiatives, while taking a long-term perspective on value. i.e. give management time to realize the "strategic" value curve (5-7 year timeframe). We continue to think selling Aftermarket without Wet is a hard-to-implement strategy. Best case, the value of Aftermarket would be upset by the "siamese-twin" nature of the WET OE relationship. Ultimately, there would be onerous obligations levied on Raytech mandating its support of the OE business, such that the Aftermarket business (under another owner) could continue to thrive. The implications of this agreement would seem unattractive. -------------------------------------------------------------------------------- PAGE 40 W. Y. CAMPBELL & COMPANY LONG RANGE THINKING ===================------------------------------------------------------------- [LOGO] RAYTECH CORPORATION -------------------------------------------------------------------------------- EXECUTIVE OVERVIEW 1 VALUATION 2 ACCRETIVE ACQUISITION IDEAS 3 MERGER/STRATEGIC PARTNER IDEAS 4 DIVIDEND STRATEGY 5 LEVERAGE RE-CAP ANALYSIS SALE OF RAYTECH AFTERMARKET SELECTION OF ALTERNATIVES 6 LONG RANGE THINKING 7 --------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 41 W. Y. CAMPBELL & COMPANY LONG RANGE THINKING ===================------------------------------------------------------------- -------------------------------------------------------------------------------- PAGE 42 W. Y. CAMPBELL & COMPANY APPENDIX ========------------------------------------------------------------------------ COMPARABLE M&A TRANSACTIONS -------------------------------------------------------------------------------- Selected Automotive M&A Transactions (2003-present) (dollars in US millions) --------------------------------------------------------------------------------
Enterprise Enterprise Value Multiples Value -------------------------------- Date Target Name Acquiring Company ($mils.) Sales EBITDA EBIT ------ ---------------------------------------- -------------------------------- -------------------------------------------- Sep-04 Cooper-Standard Automotive Cypress Group/GS Capital $ 1,165 0.7x 4.8x n/a Aug-04 Honsel International Technologies Holdings Sarl Ripplewood Holdings $ 756 1.3x 6.1x n/a Aug-04 Kendrion Automotive Plastics Key Plastics $ 36 0.1x n/a n/a Jul-04 Aftermarket Unit (Dana Corporation) Cypress Group $ 1,100 0.6x 6.5x n/a Jul-04 Stabilus GmbH (Kohlberg Kravis Roberts) Montagu Private Equity n/a n/a n/a n/a Jul-04 Progressive Moulded Products (Oak Hill) Thomas H. Lee Partners $ 528 1.4x 7.0x n/a Jun-04 Jerr-Dan OshKosh Truck Corp. $ 80 0.8x 7.3x n/a Jun-04 Stanadyne Corporation Kohlberg & Company $ 240 0.8x 5.1x n/a Jun-04 Findlay Industries - European Operations Polytec (Capvis Equity Partners) n/a n/a n/a n/a May-04 Heinrich Industrie AG Littelfuse, Inc. $ 51 0.5x 5.7x n/a May-04 Precision Automotive Industries Freudenberg-NOK (Corteco) n/a n/a n/a n/a May-04 Autocam Corporation GS Capital Partners $ 390 1.0x 7.0x n/a May-04 Dynamit Nobel Kunststoff GmbH Flex-N-Gate $ 550 0.5x n/a n/a Mar-04 Burgmann Industries GmbH Freudenberg-NOK n/a n/a n/a n/a Mar-04 Veltri Metal Products Flex-N-Gate $ 67 0.3x n/a n/a Mar-04 WEK Industries Myers Industries n/a n/a n/a n/a Mar-04 Michigan Rubber Company Myers Industries n/a n/a n/a n/a Mar-04 Prestolite Electric First Atlantic Capital $ 180 1.0x 6.0x n/a Mar-04 Guilford Mills Cerberus Capital Management LP $ 244 0.5x 5.3x 12.7x Feb-04 Hirschmann Electronics GmbH HgCapital $ 147 0.4x n/a n/a Feb-04 LDM Technologies Plastech Engineered Products n/a n/a n/a n/a Jan-04 Metzeler Automotive Hose Systems Trelleborg AB $ 37 0.5x n/a n/a Nov-03 Grundig Car InterMedia System GmbH Delphi Corporation $ 67 0.3x n/a n/a Nov-03 Atchison Casting KPS Special Situations Fund $ 40 n/a 4.0x n/a Aug-03 Gates Formed Fibre Morgenthaler $ 25 0.4x 5.2x n/a May-03 Stackpole Ltd. Tomkins plc $ 215 1.2x 6.2x 10.9x May-03 WET Automotive Systems AG HgCapital $ 199 0.8x n/a n/a Apr-03 UIS Inc. The Carlyle Group $ 800 0.9x 6.2x n/a Mar-03 Advanced Accessory Systems Castle Harlan $ 250 0.8x 5.6x n/a Mar-03 Breed Technologies Inc. Carlyle Management Group $ 300 n/a 6.4x n/a Feb-03 Dana - Engine Management Operations Standard Motor Products $ 120 2.4x 4.1x n/a
----------------------------------- Enterprise EV/Sales EV/EBITDA Value Multiple Multiple ----------------------------------- Average $ 473 0.7x 5.7x Median $ 244 0.6x 5.8x
-------------------------------------------------------------------------------- PAGE 43 W. Y. CAMPBELL & COMPANY APPENDIX ========------------------------------------------------------------------------ COMPARABLE PUBLICLY-TRADED COMPANIES -------------------------------------------------------------------------------- Selected Comparable Publicly-Traded Comparable Companies ($ millions, except per share data) --------------------------------------------------------------------------------
Price 52-Week % of Market Ticker Company 10/22/2004 High LTM High Capitalization ------ ------------------- ---------- -------- -------- -------------- JCI Johnson Controls $ 54.16 $ 62.32 86.9% 10,252.6 ETN Eaton $ 61.20 $ 66.78 91.6% 9,309.7 DPH Delphi $ 8.36 $ 11.78 71.0% 4,691.6 LEA Lear $ 50.25 $ 69.20 72.6% 3,516.5 BWA Borg Warner $ 40.13 $ 49.32 81.4% 2,266.6 DCN Dana $ 14.10 $ 23.20 60.8% 2,105.5 TOMK Tomkins plc $ 251.75 $295.00 85.3% 1,907.8 AXL American Axle $ 27.06 $ 42.10 64.3% 1,396.1 ARM Arvin Meritor $ 16.61 $ 26.24 63.3% 1,140.6 HWK Hawk $ 13.05 $ 14.18 92.0% 928.4 VC Visteon $ 6.96 $ 12.50 55.7% 856.5 SUP Superior Industries $ 28.01 $ 45.96 60.9% 717.4 TEN Tenneco Automotive $ 12.20 $ 15.34 79.5% 502.0 TWR Tower Automotive $ 6.64 $ 17.06 38.9% 121.9 DRRA Dura $ 6.55 $ 17.06 38.4% 120.9 TDI Twin Disc $ 7.42 $ 8.60 86.3% 65.6 INMT Intermet $ 0.15 $ 5.80 2.6% 3.8 --------------------------------------------------------------------------------- Mean 66.6% Median 71.0% High 92.0% Low 2.6% --------------------------------------------------------------------------------- RAY Raytech $ 1.80 $ 3.94 45.7% 77.6 Enterprise EV/ EV/ EV/ Total Debt/ Ticker Company Value (EV) LTM Revenue LTM EBITDA LTM EBIT LTM EBITDA ------ ------------------- ---------- ----------- ---------- -------- ----------- JCI Johnson Controls 12,558.6 0.5x 6.9x 10.2x 1.4x ETN Eaton 11,280.1 1.2x 13.4x 18.5x 2.0x DPH Delphi 7,555.6 0.2x 4.2x 12.6x 1.9x LEA Lear 5,789.6 0.3x 4.9x 7.0x 1.9x BWA Borg Warner 2,899.3 0.8x 6.7x 9.4x 1.6x DCN Dana 5,085.8 0.5x 7.2x 17.4x 5.7x TOMK Tomkins plc 2,752.4 n/a n/a n/a 1.2x AXL American Axle 2,402.2 0.5x 3.8x 5.7x 0.9x ARM Arvin Meritor 2,890.2 0.3x 5.1x 8.7x 3.0x HWK Hawk 1,308.1 0.8x 5.6x 10.5x 1.6x VC Visteon 2,319.7 0.1x 3.7x n/a 6.2x SUP Superior Industries 752.3 0.7x n/a 7.1x 0.1x TEN Tenneco Automotive 1,831.7 0.5x 4.9x 9.5x 4.2x TWR Tower Automotive 1,174.9 0.5x 5.6x 9.6x 5.9x DRRA Dura 1,180.0 0.5x 10.7x n/a 10.7x TDI Twin Disc 158.2 0.7x 5.8x 9.9x 3.9x INMT Intermet 355.3 0.5x n/a n/a n/a --------------------------------------------------------------------------------------------- Mean 0.5x 6.3x 10.4x 3.3x Median 0.5x 5.6x 9.6x 2.0x High 1.2x 13.4x 18.5x 10.7x Low 0.1x 3.7x 5.7x 0.1x --------------------------------------------------------------------------------------------- RAY Raytech 97.5 0.5x 8.5x 5.6x 4.3x
-------------------------------------------------------------------------------- PAGE 44 W. Y. CAMPBELL & COMPANY APPENDIX ========------------------------------------------------------------------------ VALUE DRIVER MATRIX
------------------------------------------------------------------------------------------------------------- EBITDA Multiple ---------------------------------------------------------------------- 4.0x 5.0x 6.0x --------------------------------------------------- Raytech Low High Growth (reversal of negative trend) <5% 5% - 7% > 7% Revenue Visibility None Low High Selling Cycle 12 months + 6 - 12 months < 6 months EBITDA Margin <10% 10% - 15% > 15% Capability/Cap Ex High Investment Required Med. Investment Required Low Investment Required Critical Mass < $250 mm $250-$500 > $500 mm Customer Concentration High Medium Low Production Economics GM < 20% 20% < GM < 30% GM > 30% Transplant Business None Mix 100% Design & Engineering Build to Print Grey Box Black Box Customer Perception Negative Mix Positive Material Commodity Engineered Advanced Management Quality Poor Average/New Excellent Core Competence Protection None Proprietary Know How Patented Position with Respect to Next Generation Technology Older Technology Mixed of New & Old Technology Leader -------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- PAGE 45 W. Y. CAMPBELL & COMPANY APPENDIX ========------------------------------------------------------------------------ Raytech Corporation Interim Balance Sheet [As Reported; USD Millions]
27-Jun-2004 28-Mar-2004 28-Dec-2003 28-Sep-2003 29-Jun-2003 Cash & Cash Equivalents 16.0 18.9 16.4 11.6 15.0 Restricted Cash 5.2 4.9 4.9 4.9 4.0 Accounts Receivable 32.9 31.9 26.0 29.6 32.1 Doubtful Accounts -1.0 -1.3 -1.3 -1.1 -0.9 Inventories 33.2 30.1 30.9 33.4 33.2 Taxes Receivable 0.1 1.0 1.1 0.6 1.8 Other Assets 6.4 6.5 5.8 2.5 5.4 Total Current Assets 92.8 92.0 83.8 81.5 90.7 Plant & Equipment, Net 127.0 126.6 126.1 139.9 138.4 Depreciation -43.8 -40.5 -36.8 -37.6 -33.5 Goodwill 5.9 5.9 5.9 NA NA Intangibles 23.7 24.2 24.7 68.9 69.4 Deferred Taxes NA NA 0.0 0.0 21.9 Other 2.6 2.7 2.5 3.0 3.0 Total Assets 208.2 211.0 206.0 255.7 289.9 Notes Payable 11.8 13.6 8.1 12.1 13.6 Current Portion of Pension Obligation 5.2 5.2 5.2 8.0 8.0 Accounts Payable 13.6 14.4 14.6 15.8 15.3 Accrued Liabilities 28.4 26.2 26.6 30.1 24.7 Payable to Trust 3.2 3.8 3.8 3.4 3.8 Total Current Liabilities 62.1 63.2 58.3 69.4 65.4 Long Term Debt 12.7 13.5 14.4 4.2 4.6 Total Long Term Debt 12.7 13.5 14.4 4.2 4.6 Pension Obligations 11.3 12.5 13.5 8.6 11.5 Postretirement Benefits 15.8 15.4 15.1 14.5 14.3 Deferred Payable 11.9 11.9 11.9 18.7 42.4 Deferred Taxes 6.8 6.9 6.9 5.5 NA Other 0.6 0.7 0.7 0.9 0.9 Minority Interest 9.9 9.6 9.4 9.4 9.3 Total Liabilities 131.2 133.7 130.1 131.1 148.4 Capital Stock 41.7 41.7 41.7 41.7 41.7 Paid in Capital 117.6 117.6 117.6 117.6 117.6 Retained Earnings -73.4 -73.5 -74.8 -27.1 -10.0 Comprehensive Income -8.8 -8.6 -8.6 -7.6 -7.8 Total Equity 77.0 77.2 75.9 124.6 141.5 Total Liabilities & Shareholders' Equity 208.2 211.0 206.0 255.7 289.9 S/O-Common Stock 41.7 41.7 41.7 41.7 41.7 Total Common Shares Outstanding 41.7 41.7 41.7 41.7 41.7
-------------------------------------------------------------------------------- PAGE 46 W. Y. CAMPBELL & COMPANY
----- Enterprise Value Discount Rate=========== 15.0% ----- 2004E 2005E 2006E 2007E 2008E 2008E Discn't Management Case $ 118.3 $ 135.5 $ 170.1 $ 180.8 $ 202.3 $ 115.7 WYCC Case $ 118.3 $ 117.0 $ 142.7 $ 147.1 $ 154.7 $ 88.5 Strategic Case $ 118.3 $ 147.4 $ 184.4 $ 195.9 $ 217.7 $ 124.5 Downside Case $ 118.3 $ 112.1 $ 127.5 $ 110.0 $ 80.6 $ 46.1
----- Equity Value Discount Rate=========== 15.0% ----- 2004E 2005E 2006E 2007E 2008E 2008E Discn't Management Case $ 58.9 $ 73.7 $ 110.2 $ 123.3 $ 148.8 $ 85.1 WYCC Case $ 58.9 $ 55.3 $ 82.8 $ 89.6 $ 101.2 $ 57.8 Strategic Case $ 58.9 $ 85.6 $ 124.5 $ 138.3 $ 164.2 $ 93.9 Downside Case $ 58.9 $ 50.4 $ 67.7 $ 52.5 $ 27.0 $ 15.4
----- Equity Value per Share Discount Rate=========== 15.0% ----- 2004E 2005E 2006E 2007E 2008E 2008E Discn't ------- Management Case $ 1.41 $ 1.77 $ 2.64 $ 2.95 $ 3.56 $ 2.04 ------- ------- WYCC Case $ 1.41 $ 1.32 $ 1.99 $ 2.15 $ 2.42 $ 1.39 ------- ------- Strategic Case $ 1.41 $ 2.05 $ 2.98 $ 3.31 $ 3.93 $ 2.25 ------- Downside Case $ 1.41 $ 1.21 $ 1.62 $ 1.26 $ 0.65 $ 0.37 -------------------------- TODAY $ 1.87 --------------------------
Management Case EBITDA Wet 10.5 9.5 12.9 13.6 13.8 Dry 9.3 11.7 13.8 14.6 17.6 Aftermarket 8.5 8.9 9.4 9.7 10.3 Corporate -7.9 -6.8 -6.8 -6.8 -6.8 -------------------------------------------------------------------------------------------------------------------- Total 20.4 23.4 29.3 31.2 34.9 WYCC Case EBITDA Wet 10.5 8.4 10.5 10.3 8.2 Dry 9.3 10.6 12.6 13.2 16.1 Aftermarket 8.5 7.9 8.3 8.7 9.1 Corporate -7.9 -6.8 -6.8 -6.8 -6.8 -------------------------------------------------------------------------------------------------------------------- Total 20.4 20.2 24.6 25.4 26.7 Strategic Case EBITDA Wet 10.5 11.5 15.4 16.2 16.5 Dry 9.3 11.7 13.8 14.6 17.6 Aftermarket 8.5 8.9 9.4 9.7 10.3 Corporate -7.9 -6.8 -6.8 -6.8 -6.8 -------------------------------------------------------------------------------------------------------------------- Total 20.4 25.4 31.8 33.8 37.5 Downside Case EBITDA Wet 10.5 7.6 7.9 3.9 -4.5 Dry 9.3 10.6 12.6 13.2 16.1 Aftermarket 8.5 7.9 8.3 8.7 9.1 Corporate -7.9 -6.8 -6.8 -6.8 -6.8 -------------------------------------------------------------------------------------------------------------------- Total 20.4 19.3 22.0 19.0 13.9
Multiple 5.8x 5.8x 5.8x 5.8x 5.8x Debt 27.4 27.4 27.4 27.4 27.4 Pension 15.4 15.4 15.4 15.4 15.4 Post-Retirement 16.1 16.1 16.1 16.1 16.1 Environmental 6.0 6.0 6.0 6.0 6.0 Minority Interest 10.1 10.1 10.1 10.1 10.1 Cash -15.7 -13.3 -15.2 -17.5 -21.5 ----------------------------------------------------------------------------------------------------------------- Net Debt 59.3 61.8 59.9 57.6 53.5 # of Shares 41.737 41.737 41.737 41.737 41.737
----- Enterprise Value Discounted back to Year-End 2004 Discount Rate=========== 15.0% ----- 2004E 2005E 2006E 2007E 2008E Management Case $118.3 $117.8 $128.6 $118.9 $115.7 WYCC Case $118.3 $101.8 $107.9 $ 96.8 $ 88.5 Strategic Case $118.3 $128.2 $139.4 $128.8 $124.5 Downside Case $118.3 $ 97.5 $ 96.4 $ 72.3 $ 46.1
----- Equity Value Discounted back to Year-End 2004 Discount Rate=========== 15.0% ----- 2004E 2005E 2006E 2007E 2008E Management Case $58.9 $64.1 $83.3 $81.0 $85.1 WYCC Case $58.9 $48.1 $62.6 $58.9 $57.8 Strategic Case $58.9 $74.5 $94.1 $90.9 $93.9 Downside Case $58.9 $43.8 $51.2 $34.5 $15.4
----- Equity Value per Share Discounted back to Year-End 2004 Discount Rate=========== 15.0% ----- 2004E 2005E 2006E 2007E 2008E Management Case $1.41 $1.54 $2.00 $1.94 $2.04 WYCC Case $1.41 $1.15 $1.50 $1.41 $1.39 Strategic Case $1.41 $1.78 $2.26 $2.18 $2.25 Downside Case $1.41 $1.05 $1.23 $0.83 $0.37