T.L. Stebbins Managing Director Co-Head of Investment Banking Adams, Harkness & Hill, Inc. T.L. Stebbins Managing Director Co-Head of Investment Banking Adams, Harkness & Hill, Inc. MIT Enterprise Forum January 18, 2001 MIT Enterprise Forum January 18, 2001 “Valuation: What’s My Company Really Worth?” “Valuation: What’s My Company Really Worth?”

Adams, Harkness & Hill is a Boston-based investment bank focused exclusively on emerging growth companies in the technology, healthcare and specialty consumer sectors. Backed by our world-class industry research, we offer each client a complete array of investment banking, sales and trading, asset management and corporate services. We have recently opened an office in San Francisco. Adams, Harkness & Hill Overview

Valuation and the Public Market All corporate valuation's are influenced by the public market Similar companies and/or industries support similar valuations An IPO cannot deviate from “industry valuation” +/-20% Therefore, find tight “control group” as your guide

Minimum Metrics for IPO Valuation Assume Control Group simplistically produces: Revenue Multiple = 4X Price/Earnings Multiple = 35X (Next 12 months) Projected Revenue Growth = +25% Assume Minimum Requirements for IPO: Company’s Value at Transaction Date = +/-$150MM Minimum Float Post Transaction = +/-$50MM Maximum Percentage of Company on IPO = +/-30% Maximum Secondary Selling up to 33%

Minimum Metrics for IPO Valuation Produces a Minimum $40 MM IPO Today, a company must be profitable at time of 30X Next Fiscal Earnings = $5MM Net After Tax Assuming 10% Net Margins = $50MM Revenue ($40MM + $6MM “Green Shoe” + 15% Aftermarket Appreciation = $53MM Float 6% above $50MM float minimum) (17.5% below Average of 35X)

IPO Market Today Average 2000 IPO Traded at 72% of the offer price at 12/31/00 Over 100 IPOs withdrawn or delayed in 4Q00 Active filed backlog year-end = 170 Is IPO marketing sleeping? In a coma? Or dead? Is IPO marketing sleeping? In a coma? Or dead? Completed transactions in 4Q00 = 36 +/-120 of backlog will not get done

Significant M&A Activity Technology advancing at lightning speed = Opportunity and risk Distribution is expensive and channels are scarce Financial markets are volatile and fickle Virtually all public company acquisitions must be “accretive”

What is Accretive? buys for $2.7BB in stock P/E ratio = 164X NTM earnings M&A optimally provides a mutually beneficial result for both the acquiring and target companies P/E ratio = 120X NTM earnings NTM earnings = $22.4MM “before efficiencies” “creates” additional $986MM in market value ( ) X $22.4MM = $985.6MM created in market value)

What is Accretive? pays $120MM in stock for P/E ratio = 101X NTM earnings M&A also offers an alternative liquidity route to the public market for private companies employs +/-20 people, has spent half of raised venture capital and is “working on prototype” saves $10MM R&D over 2 years and time to market “saves” additional $300MM in market value ($5MM - 40% Tax) X 101 multiple = $303MM saved in market value)

Conclusions Get a tight “control group” Understand why “Street” values one higher than the rest Plot all of the ratios Manage to that profile IPO or M&A = Surrogate of market value