Exhibit (c)(2)
Exhibit (c)(2)
CONFIDENTIAL
Presentation to the Special Committee to the Board of Directors:
Regarding the Merger Consideration of CPTH Common Stock
November 19, 2007
FOR DISCUSSION PURPOSES ONLY
Table of Contents
CONFIDENTIAL
I. Executive Summary
II. Transaction Summary
III. Company Overview
IV. Summary Valuation Analyses
V. Appendices
A. Discounted Cash Flow Analysis
B. Comparable Company Analysis
C. Precedent Transaction and Premium Analysis
FOR DISCUSSION PURPOSES ONLY Page 1
CONFIDENTIAL
I. Executive Summary
FOR DISCUSSION PURPOSES ONLY
Executive Summary
CONFIDENTIAL
In arriving at its Opinion, Oppenheimer assumed and relied upon, without independent verification, the accuracy and completeness of the information provided by Company Management
Oppenheimer is pleased to have the opportunity to present to the Special Committee for the Board of Directors of Critical Path (“CPTH”) the Fairness Opinion with regards to the proposed going private transaction. Oppenheimer would like to review the following items with the Special Committee:
Review a summary of the transaction and its mechanics/key terms;
Review a summary of projected financials provided by CPTH management;
Discuss the valuation analyses performed, including, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken;
Delivery of our formal oral opinion;
Q&A from the Board of Directors.
As of November 19,2007, Oppenheimer is of the opinion that, the Merger Consideration of $.102 in cash per share for each outstanding share of unaffiliated (non-”Rollover”) CPTH Common Stock is fair from a financial point of view to the unaffiliated (non-”Rollover”) Common Shareholders of CPTH.
FOR DISCUSSION PURPOSES ONLY Page 3
Executive Summary
CONFIDENTIAL
In arriving at its Opinion, Oppenheimer assumed and relied upon, without independent verification, the accuracy and completeness of the information provided by Company Management
In arriving at our opinion, we have, among other matters:
Reviewed a draft of the Term Sheet dated September 19th, 2007; Draft Merger Agreement dated November 15th, 2007; and Draft of Transaction Steps dated November 1, 2007; M&A Summary dated October 11,2007;
Conducted numerous discussions with management of CPTH about operations and financial condition;
Analyzed financial and other information that was publicly available or furnished to us by CPTH, including information provided to us during discussions with the management of CPTH;
Compared certain financial data of CPTH with various other companies in generally similar industries with generally similar business and financial characteristics whose securities are traded in public markets;
Reviewed and considered historical prices and valuation multiples of the CPTH Common Stock and compared them with those of certain publicly traded companies that we have deemed relevant;
Conducted such other financial studies, analyses and investigations as we deemed appropriate.
We did not rely on any one particular financial analysis or methodology, but formulated our opinion on the whole of such analyses
In conducting our review and analysis, we have relied upon and assumed, without independent verification, the accuracy and completeness of all the financial and other information that was reviewed by us, whether obtained from public sources, provided to us by either CPTH or counsel to the Special Committee, or that was otherwise reviewed by Oppenheimer
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CONFIDENTIAL
II. Transaction Summary
FOR DISCUSSION PURPOSES ONLY
Transaction Background
CONFIDENTIAL
Background/Strategic Rationale for Going Private
The inability to achieve profitability; long history of operating losses; negative net worth; technically insolvent (debt of $25.638 million as of 9/30/07, no means to repay), negative net working capital
Note holders retain right to force Company in to bankruptcy; entitled to all assets of the Company as of June 30, 2008
The need to rationalize the capital structure of the Company
Series D and E Preferred Shares have liquidation rights and accrued dividends totaling more than $156 million (as of 9/30/07) in addition to outstanding debt
In its most recent 10Q dated September 30, 2007, the Company disclosed that its existing capital resources are not sufficient to fund ongoing operations or meet it obligations, and that it has a limited capability to raise additional cash or liquidate assets; as a result, the Company may be forced to seek the protection of applicable bankruptcy laws in the next twelve months
Limited investor interest and lack of Wall Street sponsorship; Company stock remains illiquid and is traded on Bulletin Board
No success in several previous attempts over the course of approximately 28 months to find a buyer with a satisfactory or viable offer
Last audit was completed March 2006. Company avoided going concern opinion at that time but has indicated that an audit or need for consent from auditors would result in a going concern opinion from Burr Pilger Mayer
Excessive costs associated with the accounting, filing and regulatory requirements of being a public company with a $3 million market capitalization
FOR DISCUSSION PURPOSES ONLY Page 6
Transaction Mechanics
CONFIDENTIAL
Group of General Atlantic, Cheung Kong and affiliated entities sign voting agreement to vote in favor of Merger Agreement and all transactions contemplated thereby
Group creates CP Holdings; CP Holdings forms CP Merger Co.
Merger Agreement provides:
An agreed upon portion of Series D Preferred will be converted into common of CPTH. Series D Preferred will execute Voting Agreement in favor of the transaction and a Conversion Agreement to reconvert Series D shares into common shares of CP Holdings upon consummation of the merger;
Merger of CP Merger Co. with and into Critical Path, whereby all outstanding, non-Rollover common is cashed out (as a condition of Closing) at $0.102 per share; common held by CP holdings is canceled and CP Merger Co. shares are converted into common of Critical Path;
All out-of-money options and warrants canceled;
Concurrently with merger, all outstanding Series E Preferred is reverse split on 70,000 to 1 basis; resulting fractional shares are cashed out at $0.102 per share on an as-converted to common basis; the remainder are converted into common of CP Holdings upon vote of majority of Series E Preferred; and
Simultaneously with the conversion of all of the outstanding Series E Preferred, all outstanding Series D Preferred is converted into common of CP Holdings upon vote of majority of Series D Preferred;
Immediately after merger, all 13.9% notes will convert into common of CP Holdings at $0.102 per share, pursuant to the Note Exchange Agreement
Source: provided by counsel to Special Committee
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CONFIDENTIAL
III. Company Overview
FOR DISCUSSION PURPOSES ONLY
Company Summary
CONFIDENTIAL
Critical Path, Inc.
Transaction Analysis Accumulated Preferences Analysis (4) Debt and
(in $000 except for common stock outstanding and per share data) accumulated
preferences (a)
Stock Price @ Close 11/16/07 $0.081 Notes payable
Number of Shares 37,682,065 Principal $ 18,000
Market Cap 3,052 Accrued interest (to 9/30/07) 7,638
Cash (1) 11,341 25,638
Debt (Due 6/30/07) (1) (2) 25,638 Series E preferred stock (accreted value at 9/30/07) 85,954
Enterprise Value (3) 162,170 Series D preferred stock 69,840
EV/2008 Revenue Multiple 3.62x
Total debt and accumulated preferences $ 181,432
(1) As reported on the Balance Sheet as of 9/30/07
(2) If not paid before maturity, total accreted value will be $28.674 million on June 30,2008
(3) Enterprise Value is as reported and includes redeemable preferred stock as an equity investment as reported on Balance Sheet as of 9/30/07
(4) Source: Values provided by Critical Path Management as of 9/30/07
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Major Common Holders
CONFIDENTIAL
Major holders of CPTH outstanding common
Holder Common Shares Held % Of CSO Position Date
Vectis-CP Holdings LLC 5,672,378 15.053 Mar-01-2007
Apex Capital, L.L.C. 4,144,000 10.997 Mar-01-2007
Passport Capital, LLC 2,620,833 6.955 Mar-01-2007
Kellner, Peter 2,155,259 5.72 Mar-01-2007
General Atlantic LLC 1,767,840 4.691 Oct-1 5-2007
Ferrer, Mark J. (Chairman) 1,178,024 3.126 Mar-01-2007
Twohig, Barry (Executive Vice President of Engineering) 59,638 0.158 Mar-01-2007
Palomba, Mark (Chief Executive Officer and Executive Vice President of Worldwide Sales & Field Operations) 41,570 0.11 Mar-01 2007
Clark, James A. (Chief Financial Officer, Principal Accounting Officer and Executive Vice President) 33,880 0.09 Mar-01-2007
Bainco International Investors LLC 17,074 0.045 Jun-30-2007
Credit Suisse Asset Management, LLC 1,187 0.003 Jun-30-2007
Albion Financial Group 25 0 Sep-30-2007
Source: Thomson Financial 11/16/07
FOR DISCUSSION PURPOSES ONLY Page 10
Capitalization Table
Critical Path, Inc.
Capitalization Table: September 30,2007
Liquidation Preferences
09/30/07 Accreted and %of % of Total
Issued and converted preferred total common + Accreted to Accreted to (Series E accreted
outstanding to common series preferred preferred 30-Sep end of term to 8/31 plus D at $22)
Common stock
Outstanding (as per Computershare) 37,682,065 37,682,065 24.5% 26.6%
Canadian exchange shares (as per Computershare) — 0.0% 0.0%
37,682,065 37,682,065 24.5% 26.6%
Preferred stock
Series D
General Atlantic 2,545,455 33,802,611 22.0% 72.3% 4.9% 23.9% $50,703,917 $52,609,959 69,039,820
Cheung Kong 872,727 11,589,460 7.5% 24.8% 1.7% 8.2% 17,384,192 $18,037,691 35,108,566
Vectis — 0.0% 0.0% 0.0% 0.0%
MBCP 102,355 1,168,052 0.8% 2.9% 0.2% 0.8% 1,752,084 1,817,948 5,624,
358 3,520,537 46,560,123 30.3% 100.0% 6.8% 32.9% $69,640,193 $72,465,598
Series E
General Atlantic 7,333,332 8,693,207 5.7% 15.2% 14.1% 6.1% 13,039,810 $13,529,998
Cheung Kong 8,946,667 10,605,715 6.9% 18.5% 17.2% 7.5% 15,908,572 16,506,601
Zaxis 5,673,325 6,725,372 4.4% 11.7% 10.9% 4.8% 10,088,058 10,467,285 10,088,058
Ace Paragon 12,916,667 15,311,901 10.0% 26.7% 24.9% 10.8% 22,967,852 23,831,251 22,967,852
Crosslink 3,445,370 4,084,271 2.7% 7.1% 6.6% 2.9% 6,126,406 6,356,708 6,126,406
Permal 3,334,673 3,953,046 2.6% 6.9% 6.4% 2.8% 5,929,570 6,152,472 5,929,570
Passport 2,620,833 3,106,384 2.0% 5.4% 5.1% 2.2% 4,660,251 4,835,437 4,660,251
Criterion — 0.0% 0.0% 0.0% 0.0% — —
Sagamore — 0.0% 0.0% 0.0% 0.0% — —
Capital Ventures 628,148 744,630 0.5% 1.3% 1.2% 0.5% 1,116,945 1,158,933 1,116,945
MBCP 829,873 983,63 0.6% 1.7% 1.6% 0.7% ,1,475,444, 1,530,916
Guggenheim — 0.0% 0.0% 0.0% 0.0% —
Barclays — 0.0% 0.0% 0.0% 0.0% —
Other E holders (rights offering) 2,617,932 3,093,778 2.0% 5.4% 5.0% 2.2% 4,640,666 4,815,659 4,640,666
48346 820 57,302,383 37.3% 100.0% 93.2% 40.5% 85,953,575 $89,185,258 165,302,493
Total preferred stock 51,867357 103,862,506 67.7%
Preferred stock warrants
Series F
General Atlantic 176,784 1,767,840 1.2%
Cheung Kong 176,784 1,767,840 1.2%
Richmond Capital 32,142 321,420 0.2%
385,710 3,857,100 2.5%
Common stock equivalents
Warrants
Warrants (in-the-money) 0.0%
Warrants (out-of-the-money) 861,362 861,362 0.0%
861,362 861,362 0.6%
Options
1998 Ran (Avg. Price of $1.3795) 6,842,002 6,842,002 4.5%
1999 Plan (Avg. Price of $2.4706) 403,008 403,008 0.3%
Acquired Plans (Avg. Price of $41 .98) 1,855 1,855 0.0%
7,246,865 7,246,865 4.7%
Restricted plans
RU98 (restricted stock units) 4,552 4,552 0.0%
RS98 (restricted stock) [a] — — 0.0%
4,552 4,552 0.0%
Total capitalization 153,514,450 100.0%
FOR DISCUSSION PURPOSES ONLY Source: Critical Path Management Page 11
CPTH Stock Price vs. Volume
CONFIDENTIAL
FOR DISCUSSION PURPOSES ONLY Page 12
Critical Path Projected Income Statement
Financial Statements were prepared by Management, as of 10/31/07, in the ordinary course of business and as part of Critical
Path standard practice
CONFIDENTIAL
Critical Path Consolidated
Statement of Operations Actual Projected
(in OOOs) 2005 2006 2007 E 2008 F 2009 F 2010 F
Statement of Operations:
NET REVENUE
SW licensing $19,078 $12,876 $15,834 $16,400 $17,220 $18,081
Hosted messaging 15,198 4,775 4,365 — — —
Professional services 12,759 10,539 9,776 10,000 10,332 10,849
Maintenance and support 19,797 18,240 18,512 18,400 18,942 19,889
Total net revenue 66,832 46,430 48,487 44,800 46,494 48,818
COST OF REVENUE
SW licensing 4,843 4,447 4,754 4,787 5,166 5,424
Hosted messaging 15,095 3,142 2,959 — — —
Professional services 9,331 8,156 7,758 7,578 7,801 8,191
Maintenance and support 6,060 5,216 5,632 5,726 5,777 6,066
Stock-based expense 15 — — —
Restructure expense 43 136 — —
Total cost of revenue 35,329 20,961 21,161 18,226 18,744 19,681
GROSS PROFIT (LOSS) 31,503 25,469 27,326 26,574 27,750 29,137
OPERATING EXPENSES
Selling and marketing 16,525 12,515 12,392 11,681 11,856 12,449
Research and development 15,251 9,815 9,321 8,325 8,531 8,958
General and administrative 13,453 11,914 10,820 7,786 6,775 7,114
Stock-based expense 1,278 173 — — —
Restructuring expense 2,198 (3,187) 582 897 — —
(Gain) loss on the sale of assets (128) (1,969) (500) —
Total operating expenses 47,427 32,335 33,160 26,719 26,662 28,520
OPERATING INCOME (LOSS) (15,924) (6,866) (5,834) (145) 1,088 617
Operating margin
Other income (expense), net 6,624 421 (513) — — —
Interest income (expense), net (3,414) (3,654) (4,249) (515) — —
Income (loss) before provision for income taxes (12,714) (10,099) (10,596) (661) 1,088 617
Provision for income taxes (938) (867) (646) (1,300) (1,300) (1,300)
NET INCOME (LOSS) (13,652) (10,966) (11,242) (1,961) (212) (683)
Accretion on mandatorily redeemable preferred stock (18,730) (14,117) (14,933) (2,551) — —
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $(32,382) $(25,083) $(26,174) $(4,512) $(212) $(683)
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Critical Path Projected Balance Sheet
CONFIDENTIAL
Financial Statements were prepared by Management, as of 10/31/07, in the ordinary course of business and as part of Critical Path standard practice
Critical Path Consolidated
Balance Sheet
(in 000s)
Actual As of Projected (2)
2005 2006 9/31/2007(1) 2007 E 2008 F 2009 F 2010 F
Balance Sheet:
ASSETS
Cash and equivalents $18,707 $14,542 $11,341 $5,972 $ 6,615 $7,617 $6,810
Accounts receivable 10,096 10,283 10,794 13,163 11,158 11,464 12,037
Prepaids and other current assets 5,193 2,427 2,680 3,288 3,211 3,211 3,211
Total current assets 33,996 27,252 24,815 22,422 20,983 22,292 22,059
Property and equipment 55,344 55,237 55,987 56,737
Accumulated depreciation (53,218) (54,304) (55,240) (56,224)
Property and equipment, net 2,625 2,612 2,325 2,126 933 746 513
Goodwill 7,047 7,460 7,766 7,766 7,766 7,766 7,766
Other assets 1,756 679 379 346 1,199 988 988
Total assets $45,424 $38,003 $35,285 $32,660 $30,881 $31,792 $31,325
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $2,726 $3,995 $4,292 $3,286 $3,189 $4,312 $4,528
Accrued liabilities 19,946 16,837 12,994 12,240 11,525 11,525 11,525
Deferred revenue 6,574 6,848 8,066 7,644 7,877 7,877 7,877
Notes payable 25,638 26,785 — — —
Other current liabilities 106 24 8 11 11 11 11
Total current liabilities 29,352 27,704 50,998 49,966 22,602 23,725 23,941
Long-term liabilities 20,787 23,237 4,690 4,895 660 660 660
Total liabilities 50,139 50,941 55,688 54,861 23,262 24,385 24,601
Redeemable preferred stock 120,293 134,406 144,821 148,597 — — —
Stockholders’ equity (deficit) (125,008) (147,344) (165,224) (170,798) 7,619 7,407 6,725
Total liabilities and stockholders’ deficit $45,424 $38,003 $35,285 $32,660 $30,881 $31,792 $31,325
(1) Unaudited
(2) Company’s projections assume a recapitalization of the Company to continue as a going concern; presuming the benefit of a capital infusion, the repayment of outstanding indebtedness of $28.674 million due on 6/30/08, and the conversion of existing Preferred in to Common which does not accrue to the benefit of Common shareholders
FOR DISCUSSION PURPOSES ONLY Page 14
Critical Path Projected Cash Flow Statement
Financial Statements were prepared by Management, as of 10/31/07, in the ordinary course of business and as part of Critical Path standard practice
Critical Path Consolidated CONFIDENTIAL
Statements of Cash Flow Actual Projected (1)
(in 000s)
2005 2006 2007 E 2008 F 2009 F 2010 F
Statement of Cash Flow:
Net loss (13, 652) (10,966) $(11,240) $(1,961) $(212) $(683)
Cash provided (used) by operating activities
Depreciation, stock-based comp and other 1,900 (883) 437 984
Accounts receivable (2,727) 2,005 (306) (573)
Prepaids and other current assets (672) 77 — —
Goodwill — — — —
Other assets 144 — 211 —
Accounts payable (709) (97) 1,123 216
Accrued liabilities (4,217) (715) — —
Deferred revenue 1,227 233 — —
Other current and long-term liabilities (381) — — —
(5,500) (8,483) (16,674) (1,341) 1,252 (57)
Cash provided (used) by investing activities
Purchases of capital equipment (1,357) (745) (750) (750)
Proceeds from the sale of business operations 126 1,969 500 —
1,227 3,854 (1,231) 1,223 (250) (750)
Cash provided (used) by financing activities 680 (65) 9,411 761 — —
Net cash provided (used) (3,593) (4,694) (8,494) 643 1,002 (807)
Effect of exchange rates (939) 529 (76) — — —
Cash at beginning of period 23,239 18,707 14,542 5,972 6,615 7,617
Cash at end of period $18,707 $14,542 5 5,972 $6,615 $7,617 $6,810
(1) Company’s projections assume a recapitalization of the Company to continue as a going concern; presuming the benefit of a capital infusion, the repayment of outstanding indebtedness of $28.674 million due on 6/30/08, and the conversion of existing Preferred in to Common which does not accrue to the benefit of Common shareholders
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CONFIDENTIAL
IV. Summary Valuation Analyses
FOR DISCUSSION PURPOSES ONLY
Summary Valuation Analysis
CONFIDENTIAL
Value Per Share Based on Various Valuation Methodologies
Simple;
Non-weighted Final Offer:
Average: $.102 or
($1.772) 28% 1 Day Premium
Discounted Cash Flow Analysis $.005 $.032
Comparable Company Analysis ($3.494)
($3.679)
Precedent Transaction Analysis ($3.524)
($3.704)
Precedent Premium Analysis $.086 or 7.9% $.102 27.9%
$(4.0) $(3.5) $(3.0) $(2.5) $(2.0) $(1.5) $(1.0) $(0.5) $- $0.5
Implied Value Per Share
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Summary Valuation Analysis
Value Per Share Based on Various Valuation Methodologies CONFIDENTIAL
($ in millions, except per share data)
DISCOUNTED CASH FLOW ANALYSIS ANALYSIS
Financial Multiple Range (2) Equity Value (3) Per Share Data (3)
Valuation Metric Statistic (1) Min Max Min Max Min Max
2010 Revenue Estimate 48.4 0.7x 0.9x 0.7 4.6 $0.005 $0.032
Reference Range $0.005 $0.032
COMPARABLE COMPANY ANALYSIS
Financial Multiple Range (4) Equity Value (5) Per Share Data (6)
Valuation Metric Statistic (1) Min Max Min Max Min Max
2008 Revenue Estimate 44.8 0.7x 0.9x (138.6) (131.7) $(3.679) $(3.494)
Reference Range $(3.679) $(3.494)
(1) Source: SEC Filings and management estimates
(2) Revenue multiple used in determining terminal value in 2010 and range based on slight premium to precedent transaction group
(3) Based on Company’s projections that assume a recapitalization of the Company to continue as a going concern; presuming the benefit of a capital infusion, the repayment of outstanding indebtedness of $28.674 million due on 6/30/08, and the conversion of existing Preferred in to Common which does not accrue to the benefit of Common shareholders
(4) Multiple range based on 10% above and below the median multiple of peer group as of close 11/16/07
(5) Source: CPTH Balance Sheet as of 9/30/07: ($170.019) million in net cash
(6) Based on common shares outstanding of 37.68 million as of 9/30/07
FOR DISCUSSION PURPOSES ONLY Page 18
Summary Valuation Analysis
Value Per Share Based on Various Valuation Methodologies CONFIDENTIAL
($ in millions, except per share data)
PRECEDENT TRANSACTION ANALYSIS
Financial Multiple Range (2) Equity Value (3) Per Share Data (4)
Valuation Metric Statistic (1) Min Max Min Max Min Max
LTM Revenue 48.4 0.6x 0.8x (139.6) (132.8) $(3.704) $(3.524)
Reference Range $(3.704) $(3.524)
PRECEDENT PREMIUM ANALYSIS
Financial Multiple Range (6) Equity Value (7) Per Share Data (4)
Valuation Metric Statistic (5) Min Max Min Max Min Max
Share Price $0.080 7.9% 27.9% 3.3 3.9 $0.086 $0.102
Reference Range $0.086 $0.102
(1) Source: SEC Filings and management estimates
(2) Multiple range based on 10% above and below the median precedent transaction peer group
(3) Source: CPTH Balance Sheet as of 9/30/07: ($170.019) million in net cash
(4) Based on common shares outstanding of 37.68 million as of 9/30/07
(5) Closing price as of 10/16/07
(6) Premium range based on 10 percentage points above and below precedent transaction peer group
(7) Assumes a simple premium applied to current stock price (as of close 10/16/07)
FOR DISCUSSION PURPOSES ONLY Page 19
Summary Valuation Analysis
CONFIDENTIAL
Discounted Cash Flow Analysis
In determining the theoretical or intrinsic value of CPTH, Oppenheimer calculated the estimated present value of the stand-alone, unlevered, after-tax free cash flows that CPTH could generate for the remainder of 2007 and the calendar years 2008 through 2010. Oppenheimer looked at this based on CPTH’s management model which assumes a recapitalization of the Company to continue as a going concern; presuming the benefit of a capital infusion, the repayment of outstanding indebtedness of $28.674 million due on 6/30/08, and the conversion of existing Preferred in to Common which does not accrue to the benefit of common shareholders
For the purpose of this analysis, Oppenheimer calculated a range of estimated terminal values for CPTH by applying multiples ranging from .7x – .9x to CPTH’s 2010 estimated Revenue
The estimated free cash flows and terminal values were then discounted to present value using a range of discount rates from 23%-25% which reflected:
CPTH’s weighted average cost of capital (“WACC”) calculation is based on a risk free rate of 4.75% based on the Ten Year Treasury, a size premium of 6.36% from Ibbotson Associates for companies with market capitalization under $265 million, a 5% control premium and a 7.1% equity risk premium from Ibbotson’s published historical arithmetic mean of equity returns
Overall, the discount rate range was selected based on, among other considerations, the degree of risk associated with the business and the industry in general, the cost of equity financing for CPTH, assumptions on CPTH’s long-term target debt to equity and debt total capital ratios and certain equity risk premium
FOR DISCUSSION PURPOSES ONLY Page 20
Summary Valuation Analysis
CONFIDENTIAL
Discounted Cash Flow Analysis (continued)
The per share value of CPTH was determined by:
Adding CPTH’s net cash of ($14.29) million to the sum of the present value of CPTH’s cash flows and the present value of CPTH’s terminal value to determine the theoretical equity value of CPTH and dividing that resultant by the number of diluted shares on an as-converted basis outstanding of CPTH
Based on the above assumptions, this analysis indicated an implied per share equity reference range of $.005 to $.032 per share
Assumed Discount Rate 24.0%
Terminal Value EV/Rev Multiple 0.8x
Terminal Value $39,055
Present Value of Terminal Value $19,434
Sum of PV of Unlevered Free Cash Flows (2,439)
Total Enterprise Value $16,994
Plus: Cash @ September 30, 2007 11,341
Less: Debt @ September 30, 2007 (25,638)
Implied Equity Value $2,697
Diluted Shares Outstanding 141,545
Implied Per Share Value $0.019
FOR DISCUSSION PURPOSES ONLY Page 21
Summary Valuation Analysis
Comparable Company Analysis CONFIDENTIAL
Using FirstCall consensus estimates and published Wall Street estimates, Oppenheimer reviewed certain trading and valuation statistics in a selected group of publicly traded companies that Oppenheimer deemed relatively comparable to CPTH in terms of business model and/or size. However, the comparable companies selected are going concerns that trade in relatively more liquid markets
The group of comparable companies included:
EV/Revenues
Company Name Ticket 2008E
Critical Path CPTH 3.6x
Amdocs Ltd. DOX 2.1x
Intervoice Inc. INTV 1.7x
Openwave Systems Inc. OPWV 0.7x
Tucows Inc. TCX 0.8x
Entrust Inc. ENTU 0.8x
Oppenheimer derived, among other things, multiples of enterprise value (equity value plus debt less cash) to projected calendar year 2008 Revenue, to derive an implied equity value for CPTH, and an implied per share price based on CPTH’s diluted shares on an as-converted basis outstanding
Based on 10% above/below the median multiples of the comparable companies (0.8x as of close 11/16/07), these methodologies implied an CPTH per share value of ($3.679) to ($3.494)
FOR DISCUSSION PURPOSES ONLY Page 22
Summary Valuation Analysis
CONFIDENTIAL
Precedent Transaction and Premium Analysis
Oppenheimer reviewed more than 50 transactions of which 20 were deemed appropriate
Oppenheimer then analyzed statistics and public information and determined that 7 transactions were most directly comparable to the proposed offer made by GA and CK
The 7 selected transactions consisted of:
($ in millions) Total Target
Announce Transaction Transaction LTM EV/Rev (1 Day)%
Date Acquirer Target Value EV Rev Multiple Premium
04/25/07 Photochannel Pixology 16.21 5.21 10.09 0.5x 53.4%
12/15/06 British Sky Broadcasting Group 365 Media Group 189.7 169.9 241.5 0.7x 6.0%
12/15/06 Made2Manage Sys Knova Software 49.53 39.9 27.1 1.5x 21.0%
11/30/06 Redstone Plc. IDN Telecom 22.9 23.0 32.2 0.7x 13.0%
09/12/06 RealNetworks WiderThan 256.9 257.0 78.6 3.3x 25.6%
08/05/06 Dada Upoc 7.0 6.1 3.6(1) 1.7x NA
06/22/06 Redstone Plc. Symphony Telecom Holdings 43.1 31.2 110.7 0.3x 14.7%
Oppenheimer noted that the median Enterprise Value/LTM Revenue of the target was 0.7x with a median implied premium of 17.9%. This methodology implied a CPTH per share value of ($3.704) to ($3.524) based on 10% above/below the median multiples of the precedent transactions and a per share value of based on a premium range of 7.9% to 27.9%
FOR DISCUSSION PURPOSES ONLY Page 23
CONFIDENTIAL
V. Appendices
FOR DISCUSSION PURPOSES ONLY
CONFIDENTIAL
A. Discounted Cash Flow Analysis
FOR DISCUSSION PURPOSES ONLY
Discounted Cash Flow
CONFIDENTIAL
CPTH DISCOUNTED CASH FLOW ANALYSIS
(figures in thousands) EBITA (1)
Years Ending December 31,
2007 2008 2009 2010
EBITA (5,834) (145) 1,088 617
Less: Cash Taxes — — — —
Tax-Effected EBITA (5,834) (145) 1,088 617
Plus: Depredation, Stock-based Compensation and Other 1,900 (883) 437 984
Tax-Effected EBITDA (3,933) (1,029) 1,525 1,601
Plus / (Less) Changes in Balance Sheet Accounts (7,335) 1,503 1,027 (358)
Less: Capital Expenditures (1,357) (745) (750) (750)
Unlevered Free Cash Flow (12,626) (270) 1,802 493
Less: YTD Unlevered Free Cash Flow (2) 8,838 — — —
Unlevered Free Cash Flows for Discounting $(3,778) $(270) $1,802 $493
Discounted Period (3)
0.25 1.25 2.25 3.25
Assumed Discount rate 24.0% ($3,590) ($207) $1,112 $246
Terminal Value EV/ Rev Multiple 0.8x
Terminal Value $39,055
Present Value of Terminal Value $19,434
Sum of PV of Unlevered Free Cash Flows (2,439)
Total Enterprise Value $16,994
Plus: Cash @ September 30,2007 11,341
Less: Debt @ September 30, 2007 (25,638)
Implied Equity Value $2,697
Diluted Shares Outstanding 141,545
Implied Per Share Value $0.019
Terminal Value Multiple
0.5x 0.6x 0.7x 0.8x 0.9x 1.0x 1.1x
Discount Rate
19.0% (0.020) (0.001) 0.019 0.039 0.058 0.078 0.098
20.0% (0.023) (0.004) 0.015 0.035 0.054 0.073 0.092
21.0% (0.025) (0.007) 0.012 0.030 0.049 0.068 0.086
22.0% (0.028) (0.010) 0.008 0.027 0.045 0.063 0.081
23.0% (0.030) (0.013) 0.005 0.023 0.040 0.058 0.076
24.0% (0.032) (0.015) 0.002 0.019 0.036 0.053 0.071
25.0% (0.035) (0.018) (0.001) 0.016 0.032 0.049 0.066
26.0% (0.037) (0.020) (0.004) 0.012 0.028 0.045 0.061
27.0% (0.039) (0.023) (0.007) 0.009 0.025 0.041 0.056
28.0% (0.041) (0.025) (0.010) 0.006 0.021 0.037 0.022
29.0% (0.043) (0.028) (0.0013) 0.002 0.018 0.033 0.048
(1) Company’s projections assume a recapitalization of the Company to continue as a going concern; presuming the benefit of a capital infusion, the repayment of outstanding indebtedness of $28.674 million due on 6/28/07 and the conversion of existing Preferred into Common which does not accrue to the benefit of Common shareholders
(2) Assumed 70% of total cash flow has occurred in 2007 based on management projections
(3) Discounted 1 quarter for remaining 2007 cash flow
FOR DISCUSSION PURPOSES ONLY Page 26
Weighted Average Cost of Capital
CONFIDENTIAL
WEIGHTED AVERAGE COST OF CAPITAL CALCULATIONS
Assumptions
Risk-Free Rate (1) 4.75% Adjusted Beta (4) 1.469 Debt/ Equity (6) 20.0%
Small-Cap Premium (2) 6.36% Tax Rate (5) 35.0% Debt /Total Capital 15.7%
Market Risk Premium 7.10% Unlevered Beta 1.30
WACC Calculation
Debt / Equity Levered Beta Cost of Equity Pre-Tax Cost of Debt After-Tax Cost of Debt Debt/ Total Cap. Pre-Control Premium WACC CPTH WACC
15.0% 1.43 21.2% 13.9% 9.0% 15.7% 19.3% 24.3%
17.5% 1.45 21.4% 13.9% 9.0% 18.2% 19.1% 24.1%
20.0% 1.47 21.5% 13.9% 9.0% 20.7% 19.0% 24.0%
22.5% 1.49 21.7% 13.9% 9.0% 23.2% 18.8% 23.8%
25.0% 1.51 21.8% 13.9% 9.0% 25.7% 18.6% 23.6%
27.5% 1.53 22.0% 13.9% 9.0% 28.2% 18.3% 23.3%
(1) Source: Bloomberg. 10-year U.S. Treasury rate
(2) Source: Ibbotson
(3) Based on Ibbotson Associates’ published historical arithmetic mean of equity returns
(4) Source: Bloomberg. Adj. Beta = [(0.67)* Raw Beta]+[(0.33)*1.0]
(5) Oppenheimer assumed normalized tax rate
(6) Based on target ratios
FOR DISCUSSION PURPOSES ONLY Page 27
CONFIDENTIAL
B. Comparable Company Analysis
FOR DISCUSSION PURPOSES ONLY
Comparable Company Analysis
Market Statistics
($ in millions except for per share data)
CONFIDENTIAL
Price @ % of 52 Market Cash& Total Enterprise
Company Name Ticker 11/16/2007 Week High Cap. Equiv. Value Debt
Critical Path CPTH $0.08 22.50% $3.05 $11.34 $170.09(4) $161.80
Amdocs Ltd. DOX 32.30 80.03% 7,312.97 1,179.00 450.00 6,583.97
Intervoice Inc. INTV 10.15 92.02% 408.23 30.62 0.00 377.62
Openwave Systems Inc. OPWV 2.99 28.26% 248.84 202.38 149.22 195.68
Tucows Inc. TCX 0.76 53.90% 56.05 5.92 15.25 65.39
Entrust Inc. ENTU 1.79 38.91% 109.27 21.47 0.00 87.80
Notes:
(1) Source: Wall Street research and First Call estimates.
(2) Market value includes options and warrants in-the-money based on the treasury method.
(3) Cash and cash equivalents include cash, short-term and marketable securities and long-term investments.
(4) EV includes redeemable preferred stock reported on balance sheet as of 9/30/07
FOR DISCUSSION PURPOSES ONLY Page 29
Comparable Company Analysis
Operating Statistics CONFIDENTIAL
($ in millions except for per share data)
Fiscal Revenues EBITDA Calendarized EPS
Company Name Ticker Year 2007E 2008E 2007E 2008E 2007E 2008E
Critical Path CPTH 31-Dec $48.0 $44.8 ($2.3) ($2.5) #NA #NA
Amdocs Ltd. DOX 30-Sep 2,885.4 3,192.7 633.2 728.7 2.2 2.4
Intervoice Inc. INTV 28-Feb 195.8 220.9 14.5 38.3 0.0 0.3
Openwave Systems Inc. OPWV 30-Jun 266.2 273.5 (16.7) 21.2 (0.4) 0.1
Tucows Inc. TCX 31-Dec 75.2 84.2 8.6 9.9 0.0 0.0
Entrust Inc. ENTU 31-Dec 99.7 107.7 #NA #NA (0.0) 0.1
Notes:
(1) Source: Wall Street research and First Call estimates.
(2) Market value includes options and warrants in-the-money based on the treasury method.
(3) Cash and cash equivalents include cash, short-term and marketable securities and long-term investments.
FOR DISCUSSION PURPOSES ONLY Page 30
Comparable Company Analysis
Valuation Statistics CONFIDENTIAL
EV/Revenues EV/EBITDA Price/Earnings
Company Name Ticker 2007E 2008E 2007E 2008E 2007E 2008E
Critical Path CPTH 3.4x 3.6x NM NM NA NA
Amdocs Ltd. DOX 2.3x 2.1x 10.4x 9.0x 15.0x 13.2x
Intervoice Inc. INTV 1.9x 1.7x 26.1x 9.9x NM 29.3x
Openwave Systems Inc. Tucows Inc. OPWV TCX 0.7x 0.9x 0.7x 0.8x NM 7.6x 9.2x 6.6x NM 19.0x 24.5x 19.0x
Entrust Inc. ENTU 0.9x 0.8x NA NA NM 19.6x
Average 1.3x 1.2x 14.7x 8.7x 17.0x 2l.lx
Median 0.9x 0.8x 10.4x 9.1x 17.0x 19.6x
High 2.3x 2.1x 26.1x 9.9x NM 29.3x
Low 0.7x 0.7x 7.6x 6.6x NM 13.2x
Notes:
(1) Source: Wall Street research and First Call estimates.
(2) Market value includes options and warrants in-the-money based on the treasury method.
(3) Cash and cash equivalents include cash, short-term and marketable securities and long-term investments.
FOR DISCUSSION PURPOSES ONLY Page 31
CONFIDENTIAL
C. Precedent Transaction Analysis
FOR DISCUSSION PURPOSES ONLY
Precedent Transaction Analysis
CONFIDENTIAL
($ in millions) Total Target
Announce Target Business Transaction Transaction LTM EV/Rev (1 Day)%
Date Acquirer Target Description Value EV Rev Multiple Premium
04/25/07 Photochannel Pixology Develops personal picture software applications for mobile phones 16.21 5.21 10.09 0.5x 53.4%
12/15/06 British Sky Broadcasting Group 365 Media Group Provides online sports and gaming content to businesses and end consumers including digital wagering 189.7 169.9 241.5 0.7x 6.0%
12/15/06 Made2Manage Sys Knova Software Develops CRM software and mobile device applications for in field service database querying 49.53 39.9 27.1 1.5x 21.0%
11/30/06 Redstone Plc. IDN Telecom Provides fixed and mobile telecommunication services as well as data communication services including mobile voice and data 22.9 23.0 32.2 0.7 13.0%
09/12/06 RealNetworks WiderThan Offers carrier services which enable and facilitate the delivery of mobile entertainment content including ringback tones, games and messaging. 256.9 257.0 78.6 3.3x 25.6%
08/05/06 Dada Upoc Provides wireless SMS and MMS messaging software, WAP software, and other communications software. 7.0 6.1 3.6(1) 1.7x NA
06/22/06 Redstone Plc. Symphony Telecom Holdings Provides mobile data services and offers internet protocol and broadband services 43.1 31.2 110.7 0.3x 14.7%
High $256.90 3.3x
Low 7.00 0.3x
Average $83.62 $76.0 $72.0 1.2x 22.3%
Median 43.12 31.2 32.2 0.7x 17.9%
LTM = Last Twelve Months NA = Not Available NM = Not Meaningful
Notes: (1) Calendar 2005
FOR DISCUSSION PURPOSES ONLY Source: SEC filings, Wall Street research and press releases Page 33