Exhibit(c)(5)
Presentation to the
Special Committee of the
Board of Directors of
High Speed Access Corporation
September 21, 2001
Houlihan Lokey Howard & Zukin
Financial Advisors, Inc.
685 Third Avenue, 15th Floor
New York, NY 10017-4024
Tel. (212) 497-4100 • Fax: (212) 661-3070 • http://www.hlhz.com
New York • Los Angeles • Chicago • San Francisco • Washington, D.C. • Minneapolis • Dallas • Atlanta • Toronto • Hong Kong
Table of Contents
| Section | ||||
| Executive Summary | A | |||
| Valuation Analysis | B | |||
| Supporting Exhibits | C | |||
Houlihan Lokey Howard & Zukin
Executive Summary
High Speed Access Corporation
Executive Summary
| Summary Description Of Transaction |
| We understand that High Speed Access Corp. (the “Company”) is considering selling (“the Sale”) a portion of its assets (the “Assets”) to Charter Communications, Inc. (“Charter”) for an aggregate consideration of (i) approximately $81.1 million, consisting of cash, which is subject to certain adjustments, and the assumption of certain liabilities, (ii) the cancellation of 75,000 shares of the Company’s Series D Preferred Stock and (iii) the cancellation of the Amended and Restated Securities Purchase Warrant dated as of May 12, 2000. The consideration described in clause (i) of the preceding sentence is referred to herein as the “Cash and Assumption Consideration”. Such transaction and other related transactions disclosed to Houlihan Lokey are referred to collectively herein as the “Transaction.” | |
| Houlihan Lokey’s Engagement |
| Houlihan Lokey has been retained on behalf of the Special Committee (the “Special Committee”) of the Board of Directors of the Company to render an opinion (the “Opinion”) to the Special Committee as to whether the Cash and Assumption Consideration constitutes fair consideration and reasonably equivalent value for the Assets. | |
| Limiting Conditions |
| • | We have not been engaged to identify prospective purchasers or to ascertain the actual prices at which and terms on which the Assets can currently be sold, and, other than the Transaction, we know of no such efforts by others. Because the sale of any business enterprise involves numerous assumptions and uncertainties, not all of which can be quantified or ascertained prior to engaging in an actual selling effort, we express no opinion as to whether the Assets would actually be sold for the amount we believe to be its fair consideration and reasonably equivalent value. | ||
| • | We have relied upon and assumed, without independent verification, that as of the date of our Opinion, the financial forecasts and projections provided to us have been reasonably prepared and reflect the best currently available estimates of the future financial results and condition of the Company and the Assets, and that as of the date of our Opinion, there has been no material adverse change in the assets, financial condition, business or prospects of the Company or the Assets since the date of the most recent financial statements made available to us. |
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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High Speed Access Corporation
Executive Summary
| • | We have not independently verified the accuracy and completeness of the information supplied to us with respect to the Company or the Assets, and do not assume any responsibility with respect to it. We have not made any physical inspection or independent appraisal of any of the properties or assets of the Company or of the Assets. Our Opinion is necessarily based on business, economic, market and other conditions as they exist and can be evaluated by us at the date of the Opinion. | ||
| • | This presentation and the Opinion are furnished solely for your benefit and may not be relied upon by any other person without our prior written consent. This Opinion is delivered to the Special Committee subject to the conditions, scope of engagement, limitations and understandings set forth in this valuation report and our engagement letter dated September 19, 2001. |
| DUE DILIGENCE PERFORMED |
| We have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the circumstances. Our investigations included: |
| 1. | reviewed the Company’s annual reports to shareholders and on Form 10-K for the fiscal years ended December 31, 1999 and 2000 and quarterly reports on Form 10-Q for the two quarters ended June 30, 2001, and Company-prepared interim financial statements for the period ended July 31, 2001, which the Company’s management has identified as being the most current financial statements available; | ||
| 2. | reviewed a proforma balance sheet and the stated value of the Assets and of certain liabilities to be assumed by Charter in the Transaction. | ||
| 3. | reviewed the Asset Purchase Agreement between High Speed Access Corporation and Charter Communications Holding Company, LLC, draft dated September 20, 2001; | ||
| 4. | met with certain of the senior management of the Company to discuss the operations, financial condition, future prospects and projected operations and performance of the Company and the Assets; | ||
| 5. | reviewed forecasts and financial projections prepared by the Company’s management with respect to the Company and the Assets for the years ended December 30, 2001 through 2010; | ||
| 6. | reviewed the historical market prices and trading volume for the Company’s publicly traded securities; |
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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High Speed Access Corporation
Executive Summary
| 7. | reviewed certain other publicly available financial data for certain companies that we deem comparable to the Company, and publicly available prices and premiums paid in other transactions that we considered similar to the Transaction; and | ||
| 8. | conducted such other studies, analyses and inquiries as we have deemed appropriate. |
| CONCLUSION |
| Based upon the foregoing, and in reliance thereon, it is our opinion that the Cash and Assumption Consideration constitutes fair consideration and reasonably equivalent value for the Assets. |
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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Valuation Analysis
High Speed Access Corporation
Valuation Analysis
| In determining the value of the Assets the following methods were used: market multiple, discounted cash flow, comparable transactions and a book value analysis. | |||
| MARKET MULTIPLE METHODOLOGY | |||
| • | The market multiple method typically involves the multiplication of various earnings and cash flow and asset value measures by appropriate risk-adjusted multiples. Multiples are determined through an analysis of certain publicly traded companies, which are selected on the basis of operational and economic similarity with the principal business operations of the Company and the Assets. Earnings and cash flow multiples for the comparable companies are calculated based upon daily trading prices. | ||
| • | In analyzing the comparable companies, we found that none have any meaningful levels of earnings or cash flow, and, therefore, those measurements produce no meaningful multiples. We, therefore, analyzed the relevant multiples of the tangible asset value, tangible book value and revenues of the comparable companies, and the Assets. A comparative risk analysis between the Company and the Assets and the public companies formed the basis for the selection of appropriate risk adjusted multiples for the Assets. The risk analysis incorporates both quantitative and qualitative risk factors, which relate to, among other things, the nature of the industry in which the Company and the Assets and other comparable companies are engaged. |
| DISCOUNTED CASH FLOW METHODOLOGY |
| • | In the discounted cash flow approach, financial projections prepared by management were used. The present value of interim cash flows and the terminal value were determined using a risk-adjusted rate of return or “discount rate.” The discount rate, in turn, was developed through an analysis of rates of return on alternative investment opportunities on investments in companies with similar risk characteristics to the Company and the Assets. We estimated the terminal value of the Assets by using a multiple of EBITDA in the final year of the projections. | ||
| • | Management’s financial projections assume that all of the Company’s contracts with Charter’s cable systems are extended past their initial expiration dates, which occur at various times between 2004 and 2006. This assumption is not a certainty, so in 2005 and after, we added an incremental 5% to the “base” discount rate used from 2002 to 2004. |
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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High Speed Access Corporation
Valuation Analysis
| • | In our analysis of management’s financial projections, we determined in addition to the contract rollover assumption that certain other underlying assumptions of the projections were aggressive. Based on discussions with management of the Company, we adjusted certain assumptions (specifically the number of new cable systems launched per year, and the incremental penetration rate. |
| TRANSACTION MULTIPLE METHODOLOGY |
| • | The comparable transactions methodology, also involves multiples of earnings and cash flow and other financial measures. Multiples used in this approach are determined through an analysis of transactions involving controlling interests in companies with operations similar to the principal business operations of the Company and the Assets. | ||
| • | We were unable to identify any transactions we considered comparable to the Transaction, and, therefore were unable to use the transaction methodology to develop an indication of value for the Assets. |
| BOOK VALUE METHODOLOGY |
| • | Lastly, we compared the stated value of the Assets, adjusted by certain liabilities to be assumed by Charter, to the purchase price to be paid by Charter in the Transaction. |
VALUATION SUMMARY
($ in 000’s, except per share)
($ in 000’s, except per share)
| Low | High | |||||||
| Valuation Method | Indication | Indication | ||||||
| Market Multiple Value | $ | 30,936 | $ | 40,788 | ||||
| Discounted Cash Flow Value | $ | 21,104 | $ | 56,527 | ||||
| Book Value | $ | 27,568 | $ | 27,568 | ||||
| Comparable Transaction Value | NA | NA | ||||||
| HLHZ Concluded Range of Value of Assets | $ | 21,104 | $ | 56,527 | ||||
| Cash and Assumption Consideration | $ | 74,010 | $ | 74,010 | ||||
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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Supporting Exhibits
High Speed Access Corporation
Supporting Exhibits
MARKET MULTIPLE EVALUATION OF ASSETS
(figures in thousands)
| Add: | ||||||||||||||||||||||||||||||||
| Representative | Selected | Total | Indicated | |||||||||||||||||||||||||||||
| Level | Multiple Range | Debt | Asset Value Range | |||||||||||||||||||||||||||||
FYE 12/31/00 | ||||||||||||||||||||||||||||||||
| Revenues | $ | 8,456 | 2.00x | — | 2.50x | $ | 16,913 | — | $ | 21,141 | ||||||||||||||||||||||
Projected 12/13/01 | ||||||||||||||||||||||||||||||||
| Revenues | $ | 23,307 | 1.50x | — | 1.75x | $ | 34,961 | — | $ | 40,788 | ||||||||||||||||||||||
| Net Asset Value | $ | 29,908 | 0.8x | — | 1.0x | $ | 23,926 | — | $ | 29,908 | ||||||||||||||||||||||
| Net Book Value | $ | 27,568 | 1.3x | — | 1.9x | $ | 3,678 | $ | 35,839 | — | $ | 52,380 | ||||||||||||||||||||
Projected 12/31/02 | ||||||||||||||||||||||||||||||||
| Revenues | $ | 39,127 | 1.10x | — | 1.25x | $ | 43,040 | — | $ | 48,909 | ||||||||||||||||||||||
| Median | $ | 34,961 | — | $ | 40,788 | |||||||||||||||||||||||||||
| Mean | $ | 30,936 | — | $ | 38,625 | |||||||||||||||||||||||||||
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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High Speed Access Corporation
Supporting Exhibits
REPRESENTATIVE EARNINGS OF ASSETS
(figures in thousands)
| Fiscal Year Ended | Projected | |||||||||||
| 2000 | 2001 | 2002 | ||||||||||
Reported Revenue | $ | 8,456 | $ | 23,307 | $ | 39,127 | ||||||
| Less: Internet Access and Line Charges | $ | 12,227 | $ | 8,026 | $ | 7,280 | ||||||
| Gross Profit | (3,770 | ) | 15,281 | 31,847 | ||||||||
| Less: Selling, General & Administrative (1) | 79,992 | 67,271 | 63,914 | |||||||||
| Less: Other Operating Expenses | 0 | 0 | 0 | |||||||||
Adjusted EBITDA | (83,763 | ) | (51,990 | ) | (32,067 | ) | ||||||
| Less: Depreciation and Amortization | NA | $ | 179 | $ | 1,582 | |||||||
| Adjusted EBIT | ($83,763 | ) | ($52,169 | ) | ($33,649 | ) | ||||||
| Less: Interest Expense | 1,899 | 1,884 | 815 | |||||||||
| Adjusted Pre-tax Income | (85,662 | ) | ($54,054 | ) | ($34,464 | ) | ||||||
| Less: Taxes | 0 | 0 | 0 | |||||||||
Adjusted Net Income | (85,662 | ) | ($54,054 | ) | ($34,464 | ) | ||||||
| Add: Depreciation and Amortization | NA | $ | 179 | $ | 1,582 | |||||||
Adjusted Cash Flow | ($85,662 | ) | ($53,875 | ) | ($32,882 | ) | ||||||
Net Asset Value (2) | NA | $ | 29,908 | $ | 29,908 | |||||||
Net Book Value (3) | NA | $ | 27,568 | $ | 27,568 | |||||||
Footnotes:
| (1) | Includes Field Expenses less Internet Access and Line Charges plus Operating Expenses | |
| (2) | Assets net of depreciation | |
| (3) | Net of those liabilities to be assumed and assets to be acquired in the Transaction |
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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High Speed Access Corporation
Supporting Exhibits
COMPARABLE PUBLIC COMPANY MULTIPLES
(figures in thousands)
| EV / EBITDA | ||||||||||||||||
| EV | 3-yr Avg. | FYE | LTM | |||||||||||||
| AT HOME CORP (1) | $ | 1,464,891 | (9.2x | ) | (9.5x | ) | (10.9x | ) | ||||||||
| AT HOME CORP (TIC) (2) | $ | 282,580 | (1.8x | ) | (1.8x | ) | (2.1x | ) | ||||||||
| EXODUS COMMUNICATIONS INC(1) | $ | 3,745,022 | NMF | NMF | NMF | |||||||||||
| EXODUS COMM. (TIC) (2) | $ | 1,210,977 | (106.8x | ) | 23.4x | 23.1x | ||||||||||
| FASTNET CORP | $ | 29,832 | (3.9x | ) | (1.6x | ) | (1.9x | ) | ||||||||
| INTERNET AMERICA INC | $ | 4,625 | NMF | (5.3x | ) | NMF | ||||||||||
| JUNO ONLINE SERVICES INC | $ | 33,496 | (0.5x | ) | (0.3x | ) | (0.7x | ) | ||||||||
| LOG ON AMERICA INC | $ | 19,853 | (2.5x | ) | (1.0x | ) | (1.0x | ) | ||||||||
| PRODIGY COMMUN CORP -CL A | $ | 688,426 | (5.3x | ) | (2.8x | ) | (3.2x | ) | ||||||||
| Low | -106.8x | -5.3x | -3.2x | |||||||||||||
| High | -0.5x | 23.4x | 23.1x | |||||||||||||
| Median | -3.2x | -1.6x | -1.5x | |||||||||||||
| Mean | -20.1x | 1.5x | 2.4x | |||||||||||||
| Price / Net Book Value | ||||||||||||||||
| MVE | 3-yr Avg. | FYE | LTM | |||||||||||||
| AT HOME CORP | $ | 143,735 | 0.1x | NMF | NMF | |||||||||||
| EXODUS COMMUNICATIONS INC | $ | 227,915 | NMF | 6.5x | NMF | |||||||||||
| FASTNET CORP | $ | 19,112 | 4.4x | 0.9x | 1.3x | |||||||||||
| INTERNET AMERICA INC | $ | 4,290 | NMF | NMF | NMF | |||||||||||
| JUNO ONLINE SERVICES INC | $ | 32,601 | 1.1x | 1.1x | 1.9x | |||||||||||
| LOG ON AMERICA INC | $ | 2,375 | 0.3x | 0.3x | NMF | |||||||||||
| PRODIGY COMMUN CORP -CL A | $ | 366,500 | NMF | NMF | NMF | |||||||||||
| Low | 0.1x | 0.3x | 1.3x | |||||||||||||
| High | 4.4x | 6.5x | 1.9x | |||||||||||||
| Median | 0.7x | 1.0x | 1.6x | |||||||||||||
| Mean | 1.4x | 2.2x | 1.6x | |||||||||||||
| EV / Revenue | ||||||||||||||||
| EV | 3-yr Avg. | FYE | LTM | |||||||||||||
| AT HOME CORP (1) | $ | 1,464,891 | 4.4x | 2.4x | 2.4x | |||||||||||
| AT HOME CORP (TIC) (2) | $ | 282,580 | 0.8x | 0.5x | 0.5x | |||||||||||
| EXODUS COMMUNICATIONS INC(1) | $ | 3,745,022 | NMF | 4.6x | 3.2x | |||||||||||
| EXODUS COMM. (TIC) (2) | $ | 1,210,977 | 3.3x | 1.5x | 1.0x | |||||||||||
| FASTNET CORP | $ | 29,832 | 3.4x | 2.4x | 2.1x | |||||||||||
| INTERNET AMERICA INC | $ | 4,625 | 0.2x | 0.2x | 0.1x | |||||||||||
| JUNO ONLINE SERVICES INC | $ | 33,496 | 0.5x | 0.3x | 0.3x | |||||||||||
| LOG ON AMERICA INC | $ | 19,853 | 3.5x | 1.6x | 1.4x | |||||||||||
| PRODIGY COMMUN CORP -CL A | $ | 688,426 | 3.0x | 1.8x | 1.6x | |||||||||||
| Low | 0.2x | 0.2x | 0.1x | |||||||||||||
| High | 3.5x | 2.4x | 2.1x | |||||||||||||
| Median | 3.0x | 1.5x | 1.0x | |||||||||||||
| Mean | 2.1x | 1.2x | 1.0x | |||||||||||||
| EV / Total Assets | ||||||||||||||||
| EV | 3-yr Avg. | FYE | LTM | |||||||||||||
| AT HOME CORP (1) | $ | 1,464,891 | 1.3x | 1.2x | 1.3x | |||||||||||
| AT HOME CORP (TIC) (2) | $ | 282,580 | 0.2x | 0.2x | 0.3x | |||||||||||
| EXODUS COMMUNICATIONS INC(1) | $ | 3,745,022 | 2.0x | 1.0x | 0.9x | |||||||||||
| EXODUS COMM. (TIC) (2) | $ | 1,210,977 | 0.6x | 0.3x | 0.3x | |||||||||||
| FASTNET CORP | $ | 29,832 | 1.4x | 0.6x | 0.8x | |||||||||||
| INTERNET AMERICA INC | $ | 4,625 | 0.7x | 0.7x | 0.8x | |||||||||||
| JUNO ONLINE SERVICES INC | $ | 33,496 | 0.5x | 0.4x | 0.6x | |||||||||||
| LOG ON AMERICA INC | $ | 19,853 | 1.0x | 0.6x | 2.8x | |||||||||||
| PRODIGY COMMUN CORP -CL A | $ | 688,426 | 4.1x | 3.3x | 4.3x | |||||||||||
| Low | 0.2x | 0.2x | 0.3x | |||||||||||||
| High | 4.1x | 3.3x | 4.3x | |||||||||||||
| Median | 0.7x | 0.6x | 0.8x | |||||||||||||
| Mean | 1.2x | 0.9x | 1.4x | |||||||||||||
Footnotes:
| (1) | Enterprise Value calculated based on face value of debt. These indications are excluded from Low, High, Mean and Median. | |
| (2) | Enterprise Value calculated based on public trading value of debt, not face value. These indications are included in the calculations of Low, High, Mean and Median |
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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High Speed Access Corporation
Supporting Exhibits
RISK RANKING ANALYSIS
| Size | ||||
| (Revenue, thousands) | ||||
| EXODUS COMMUNICATIONS | $ | 1,175,633 | ||
| AT HOME CORP | $ | 611,025 | ||
| PRODIGY COMMUN CORP -C | $ | 434,980 | ||
| JUNO ONLINE SERVICES INC | $ | 118,492 | ||
| INTERNET AMERICA INC | $ | 34,663 | ||
High Speed Access | $ | 25,753 | ||
| FASTNET CORP | $ | 14,165 | ||
| LOG ON AMERICA INC | $ | 14,053 | ||
| Size | ||||
| (Enterprise Value, thousands) | ||||
| EXODUS COMMUNICATIONS | $ | 3,745,022 | ||
| AT HOME CORP | $ | 1,464,891 | ||
| PRODIGY COMMUN CORP -C | $ | 688,426 | ||
| LOG ON AMERICA INC | $ | 19,853 | ||
| FASTNET CORP | $ | 29,832 | ||
| INTERNET AMERICA INC | $ | 4,625 | ||
| JUNO ONLINE SERVICES INC | $ | 33,496 | ||
| Historical Growth | ||||
| (2-Year Revenue) | ||||
High Speed Access | 549.1 | % | ||
| LOG ON AMERICA INC | 308.7 | % | ||
| EXODUS COMMUNICATIONS | 293.9 | % | ||
| AT HOME CORP | 258.2 | % | ||
| JUNO ONLINE SERVICES INC | 129.3 | % | ||
| PRODIGY COMMUN CORP -C | 66.3 | % | ||
| FASTNET CORP | 51.3 | % | ||
| INTERNET AMERICA INC | 44.4 | % | ||
| Historical Growth | ||||
| (1-Year Revenue) | ||||
High Speed Access | 312.1 | % | ||
| LOG ON AMERICA INC | 280.0 | % | ||
| EXODUS COMMUNICATIONS | 238.0 | % | ||
| JUNO ONLINE SERVICES INC | 119.3 | % | ||
| PRODIGY COMMUN CORP -C | 117.0 | % | ||
| AT HOME CORP | 82.9 | % | ||
| INTERNET AMERICA INC | 62.0 | % | ||
| FASTNET CORP | 50.9 | % | ||
| Profitability | ||||
| (EBIT to Revenue) | ||||
| EXODUS COMMUNICATIONS | -34.8 | % | ||
| INTERNET AMERICA INC | -46.3 | % | ||
| JUNO ONLINE SERVICES INC | -46.4 | % | ||
| PRODIGY COMMUN CORP -C | -68.1 | % | ||
| FASTNET CORP | -156.5 | % | ||
| LOG ON AMERICA INC | -183.6 | % | ||
| AT HOME CORP | -274.2 | % | ||
High Speed Access | -651.2 | % | ||
| Profitability | ||||
| (EBITDA to Revenue) | ||||
| EXODUS COMMUNICATIONS | 4.5 | % | ||
| INTERNET AMERICA INC | -0.2 | % | ||
| AT HOME CORP | -22.0 | % | ||
| JUNO ONLINE SERVICES INC | -42.9 | % | ||
| PRODIGY COMMUN CORP -C | -49.8 | % | ||
| FASTNET CORP | -109.6 | % | ||
| LOG ON AMERICA INC | -138.8 | % | ||
High Speed Access | -506.2 | % | ||
| Relative Depreciation | ||||
| (Depreciation to EBITDA) | ||||
| EXODUS COMMUNICATIONS | 878.9 | % | ||
| JUNO ONLINE SERVICES INC | -8.1 | % | ||
High Speed Access | -28.7 | % | ||
| LOG ON AMERICA INC | -32.2 | % | ||
| PRODIGY COMMUN CORP -C | -36.9 | % | ||
| FASTNET CORP | �� | -42.8 | % | |
| AT HOME CORP | -1149.1 | % | ||
| INTERNET AMERICA INC | -19337.1 | % | ||
| Internal Investment | ||||
| (Capital Expenditures to Revenue) | ||||
| EXODUS COMMUNICATIONS | 175.5 | % | ||
High Speed Access | 84.7 | % | ||
| FASTNET CORP | 44.0 | % | ||
| AT HOME CORP | 23.5 | % | ||
| LOG ON AMERICA INC | 6.5 | % | ||
| PRODIGY COMMUN CORP -C | 2.2 | % | ||
| INTERNET AMERICA INC | 2.0 | % | ||
| JUNO ONLINE SERVICES INC | 1.1 | % | ||
| Liquidity | ||||
| (Current Ratio) | ||||
High Speed Access | 2.0 | |||
| JUNO ONLINE SERVICES INC | 1.4 | |||
| FASTNET CORP | 1.1 | |||
| EXODUS COMMUNICATIONS | 0.9 | |||
| AT HOME CORP | 0.6 | |||
| PRODIGY COMMUN CORP -C | 0.4 | |||
| LOG ON AMERICA INC | 0.4 | |||
| INTERNET AMERICA INC | 0.3 | |||
| Leverage | ||||
| (Debt to EV) | ||||
| EXODUS COMMUNICATIONS | 93.9 | % | ||
| AT HOME CORP | 73.4 | % | ||
| FASTNET CORP | 35.9 | % | ||
| PRODIGY COMMUN CORP -C | 20.7 | % | ||
| INTERNET AMERICA INC | 7.2 | % | ||
| LOG ON AMERICA INC | 4.3 | % | ||
| JUNO ONLINE SERVICES INC | 2.7 | % | ||
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
9
High Speed Access Corporation
Supporting Exhibits
BOOK VALUE OF ASSETS1
($ in thousands)
| Purchase | ||||||||
| Long Term Assets Assumed | Net Asset Value | Price | ||||||
| Charter One-Way | $ | 4,139 | ||||||
| Charter Two-Way | 10,726 | |||||||
| Charter-Louisville | 7,906 | |||||||
| DC Data Center | 483 | |||||||
| Denver Data Centers | 1,131 | |||||||
| Kipling - 2nd Floor | 42 | |||||||
| Kipling Lab | 988 | |||||||
| Capitalized Freight on Purchases | 1,185 | |||||||
| Kipling Software | 102 | |||||||
| Arapahoe Software | 33 | |||||||
| Capitalized Software - Non-Portal | 3,171 | |||||||
Total Assets to be Transferred | $ | 29,908 | $ | 81,100 | ||||
Liabilities Assumed | ||||||||
| Capital Lease Obligations: | ||||||||
| SteelCase Financial | ($1,310 | ) | ($1,310 | ) | ||||
| Insight Financial Corporation | (1,968 | ) | ($1,968 | ) | ||||
| Dell Financial | (399 | ) | ($399 | ) | ||||
Adj. for Long Term Liabilities | ($3,678 | ) | ($3,678 | ) | ||||
Assumed Current Liabilities | ||||||||
| Accrued Vacation | ($193 | ) | ($193 | ) | ||||
| Sick Pay | (117 | ) | (117 | ) | ||||
| Bonus | (750 | ) | (750 | ) | ||||
Adj. for Total Liabilities | ($4,737 | ) | ($4,738 | ) | ||||
Assets Acquired | ||||||||
| CCI Receivables | $ | 1,425 | $ | 1,425 | ||||
| Non-CCI Receivables | 618 | 618 | ||||||
| Assigned Security Deposits | 355 | 355 | ||||||
Total Current Assets | $ | 2,398 | $ | 2,398 | ||||
| Less: Adjustment Holdback | ($750 | ) | ||||||
| Less: Indemnification Holdback Amount | (4,000 | ) | ||||||
Net Book Value(1) | $ | 27,568 | $ | 74,010 | ||||
| 1As of June 30, 2001 |
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
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High Speed Access Corporation
Supporting Exhibits
DISCOUNTED CASH FLOW VALUATION — BASELINE
($ in thousands)
| Fiscal Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| Terminal | |||||||||||||||||||||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | Value | ||||||||||||||||||||||||||||||||
| EBITDA | ($32,067 | ) | ($10,435 | ) | $ | 3,683 | $ | 23,059 | $ | 46,681 | $ | 73,034 | $ | 105,996 | $ | 142,710 | $ | 178,992 | |||||||||||||||||||||||
| D&A | (1,582 | ) | (3,944 | ) | (6,199 | ) | (7,481 | ) | (8,306 | ) | (9,563 | ) | (10,570 | ) | (11,577 | ) | (12,584 | ) | |||||||||||||||||||||||
| EBIT | (33,649 | ) | (14,379 | ) | (2,517 | ) | 15,578 | 38,375 | 63,471 | 95,427 | 131,133 | 166,408 | |||||||||||||||||||||||||||||
| Less: NOLs Used (1) | 0 | 0 | 0 | (15,578 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | ||||||||||||||||||||||||||
| Taxable EBIT | (33,649 | ) | (14,379 | ) | (2,517 | ) | 0 | 22,375 | 47,471 | 79,427 | 115,133 | 150,408 | |||||||||||||||||||||||||||||
| Taxes @ 40% | 0 | 0 | 0 | 0 | (8,950 | ) | (18,989 | ) | (31,771 | ) | (46,053 | ) | (60,163 | ) | |||||||||||||||||||||||||||
| Income After Taxes | (33,649 | ) | (14,379 | ) | (2,517 | ) | 15,578 | 29,425 | 44,483 | 63,656 | 85,080 | 106,245 | |||||||||||||||||||||||||||||
| D&A | 1,582 | 3,944 | 6,199 | 7,481 | 8,306 | 9,563 | 10,570 | 11,577 | 12,584 | ||||||||||||||||||||||||||||||||
| Cap Ex | (8,620 | ) | (5,551 | ) | (8,052 | ) | (9,059 | ) | (10,066 | ) | (11,073 | ) | (12,080 | ) | (13,088 | ) | (14,095 | ) | $ | 178,992 | |||||||||||||||||||||
| W/C | (1,151 | ) | (5,173 | ) | (1,076 | ) | (1,028 | ) | (234 | ) | (2,531 | ) | (1,888 | ) | (2,460 | ) | (1,238 | ) | 6.0 | ||||||||||||||||||||||
| Operating Cash Flow | (41,837 | ) | (21,159 | ) | (5,445 | ) | 12,972 | 27,431 | 40,441 | 60,257 | 81,108 | 103,496 | |||||||||||||||||||||||||||||
| Additional Financing Allocated (2) | (69,640 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||
| Net Cash Flow | ($111,478 | ) | ($21,159 | ) | ($5,445 | ) | $ | 12,972 | $ | 27,431 | $ | 40,441 | $ | 60,257 | $ | 81,108 | $ | 103,496 | $ | 1,073,951 | |||||||||||||||||||||
| Base Discount Factor 20.0% | 0.872 | 0.727 | 0.606 | ||||||||||||||||||||||||||||||||||||||
| Extended Discount 25.0% | 0.433 | 0.346 | 0.277 | 0.222 | 0.177 | 0.142 | 0.127 | ||||||||||||||||||||||||||||||||||
| Present Value of Cash Flow | ($97,230 | ) | ($15,379 | ) | ($3,298 | ) | $ | 5,618 | $ | 9,504 | $ | 11,209 | $ | 13,362 | $ | 14,388 | $ | 14,688 | $ | 136,322 | |||||||||||||||||||||
| NPV of Existing Assets | $ | 89,185 | |||||||||||||||||||||||||||||||||||||||
| Terminal EBITDA Multiple | ||||||||||||||||||||||||||||||||
| 5.0 | 5.5 | 6.0 | 6.5 | 7.0 | ||||||||||||||||||||||||||||
| 22.0 | % | $ | 45,814 | $ | 55,623 | $ | 65,431 | $ | 75,240 | $ | 85,049 | |||||||||||||||||||||
| Base | 21.0 | % | 55,721 | 66,274 | 76,827 | 87,380 | 97,933 | |||||||||||||||||||||||||
| Discount | 20.0 | % | 66,465 | 77,825 | 89,185 | 100,545 | 111,905 | |||||||||||||||||||||||||
| Rate | 19.0 | % | 78,120 | 90,356 | 102,593 | 114,829 | 127,065 | |||||||||||||||||||||||||
| 18.0 | % | 90,770 | 103,958 | 117,146 | 130,335 | 143,523 | ||||||||||||||||||||||||||
| Fiscal Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||||||||||||
| (1) | Beginning NOL Available | $ | 182,000 | $ | 182,000 | $ | 182,000 | $ | 182,000 | $ | 166,422 | $ | 150,422 | $ | 134,422 | $ | 118,422 | $ | 102,422 | |||||||||||||||||||
| Maximum Annual NOL Available | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | |||||||||||||||||||||||||||||
| NOL Used This Year | 0 | 0 | 0 | 15,578 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | |||||||||||||||||||||||||||||
| Ending NOL | $ | 182,000 | $ | 182,000 | $ | 182,000 | $ | 166,422 | $ | 150,422 | $ | 134,422 | $ | 118,422 | $ | 102,422 | $ | 86,422 | ||||||||||||||||||||
| (2) | Assumes Company will raise $102 million capital in 2002. Allocated to Assets based on projected EBITDA, CapEx & W/C of consolidated Company of -$100.2 million through 2004 compared to projected EBITDA, CapEx &W/C allocated to the Assets servicing Charter through 2004 of -$68.4 million (68% of total). | |||||||||||||||||||||||||||||||||||||
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
11
High Speed Access Corporation
Supporting Exhibits
DISCOUNTED CASH FLOW VALUATION — MODIFICATION #1
($ in thousands)
| Fiscal Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| Terminal | |||||||||||||||||||||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | Value | ||||||||||||||||||||||||||||||||
| EBITDA | ($32,188 | ) | ($11,708 | ) | $ | 777 | $ | 17,739 | $ | 37,972 | $ | 59,864 | $ | 88,098 | $ | 121,963 | $ | 157,678 | |||||||||||||||||||||||
| D&A | (1,582 | ) | (3,944 | ) | (6,199 | ) | (7,481 | ) | (8,306 | ) | (9,563 | ) | (10,570 | ) | (11,577 | ) | (12,584 | ) | |||||||||||||||||||||||
| EBIT | (33,771 | ) | (15,652 | ) | (5,422 | ) | 10,258 | 29,666 | 50,301 | 77,528 | 110,386 | 145,094 | |||||||||||||||||||||||||||||
| Less: NOLs Used (1) | 0 | 0 | 0 | (10,258 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | ||||||||||||||||||||||||||
| Taxable EBIT | (33,771 | ) | (15,652 | ) | (5,422 | ) | 0 | 13,666 | 34,301 | 61,528 | 94,386 | 129,094 | |||||||||||||||||||||||||||||
| Taxes @ 40% | 0 | 0 | 0 | 0 | (5,466 | ) | (13,721 | ) | (24,611 | ) | (37,754 | ) | (51,638 | ) | |||||||||||||||||||||||||||
| Income After Taxes | (33,771 | ) | (15,652 | ) | (5,422 | ) | 10,258 | 24,200 | 36,581 | 52,917 | 72,631 | 93,456 | |||||||||||||||||||||||||||||
| D&A | 1,582 | 3,944 | 6,199 | 7,481 | 8,306 | 9,563 | 10,570 | 11,577 | 12,584 | ||||||||||||||||||||||||||||||||
| Cap Ex | (8,620 | ) | (5,551 | ) | (8,052 | ) | (9,059 | ) | (10,066 | ) | (11,073 | ) | (12,080 | ) | (13,088 | ) | (14,095 | ) | $ | 157,678 | |||||||||||||||||||||
| W/C | (1,136 | ) | (5,076 | ) | (958 | ) | (876 | ) | (25 | ) | (2,249 | ) | (1,593 | ) | (2,280 | ) | (1,258 | ) | 6.0 | ||||||||||||||||||||||
| Operating Cash Flow | (41,944 | ) | (22,335 | ) | (8,232 | ) | 7,804 | 22,415 | 32,821 | 49,813 | 68,840 | 90,688 | |||||||||||||||||||||||||||||
| Additional Financing Allocated (2) | (71,235 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||
| Net Cash Flow | ($113,178 | ) | ($22,335 | ) | ($8,232 | ) | $ | 7,804 | $ | 22,415 | $ | 32,821 | $ | 49,813 | $ | 68,840 | $ | 90,688 | $ | 946,067 | |||||||||||||||||||||
| Base Discount Factor 20.0% | 0.872 | 0.727 | 0.606 | ||||||||||||||||||||||||||||||||||||||
| Extended Discount 25.0% | 0.433 | 0.346 | 0.277 | 0.222 | 0.177 | 0.142 | 0.127 | ||||||||||||||||||||||||||||||||||
| Present Value of Cash Flow | ($98,714 | ) | ($16,234 | ) | ($4,986 | ) | $ | 3,380 | $ | 7,766 | $ | 9,097 | $ | 11,046 | $ | 12,212 | $ | 12,870 | $ | 120,089 | |||||||||||||||||||||
| NPV of Existing Assets | $ | 56,527 | |||||||||||||||||||||||||||||||||||||||
| Terminal EBITDA Multiple | ||||||||||||||||||||||||||||||||
| 5.0 | 5.5 | 6.0 | 6.5 | 7.0 | ||||||||||||||||||||||||||||
| 22.0 | % | $ | 18,989 | $ | 27,630 | $ | 36,271 | $ | 44,912 | $ | 53,553 | |||||||||||||||||||||
| Base | 21.0 | % | 27,389 | 36,685 | 45,982 | 55,278 | 64,574 | |||||||||||||||||||||||||
| Discount | 20.0 | % | 36,513 | 46,520 | 56,527 | 66,535 | 76,542 | |||||||||||||||||||||||||
| Rate | 19.0 | % | 46,426 | 57,205 | 67,985 | 78,764 | 89,543 | |||||||||||||||||||||||||
| 18.0 | % | 57,203 | 68,820 | 80,438 | 92,056 | 103,673 | ||||||||||||||||||||||||||
| Fiscal Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||||||||||||
| (1) | Beginning NOL Available | $ | 180,000 | $ | 180,000 | $ | 180,000 | $ | 180,000 | $ | 169,742 | $ | 153,742 | $ | 137,742 | $ | 121,742 | $ | 107,742 | |||||||||||||||||||
| Maximum Annual NOL Available | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | |||||||||||||||||||||||||||||
| NOL Used This Year | 0 | 0 | 0 | 10,258 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | |||||||||||||||||||||||||||||
| Ending NOL | $ | 180,000 | $ | 180,000 | $ | 180,000 | $ | 169,742 | $ | 153,742 | $ | 137,742 | $ | 121,742 | $ | 105,742 | $ | 89,742 | ||||||||||||||||||||
| (2) | Assumes Company will raise $102 million capital in 2002. Allocated to Assets based on projected EBITDA, CapEx & W/C of consolidated Company of -$103.8 million through 2003 compared to projected EBITDA, CapEx &W/C allocated to Assets servicing Charter through 2004 of -$72.5 million (70% of total). | |||||||||||||||||||||||||||||||||||||
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
12
High Speed Access Corporation
Supporting Exhibits
DISCOUNTED CASH FLOW VALUATION — MODIFICATION #2
($ in thousands)
| Fiscal Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| Terminal | |||||||||||||||||||||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | Value | ||||||||||||||||||||||||||||||||
| EBITDA | ($32,330 | ) | ($13,170 | ) | ($3,284 | ) | $ | 10,174 | $ | 25,804 | $ | 42,112 | $ | 62,975 | $ | 88,202 | $ | 114,883 | |||||||||||||||||||||||
| D&A | (1,582 | ) | (3,944 | ) | (6,199 | ) | (7,481 | ) | (8,306 | ) | (9,563 | ) | (10,570 | ) | (11,577 | ) | (12,584 | ) | |||||||||||||||||||||||
| EBIT | (33,913 | ) | (17,114 | ) | (9,483 | ) | 2,693 | 17,498 | 32,550 | 52,406 | 76,625 | 102,299 | |||||||||||||||||||||||||||||
| Less: NOLs Used (1) | 0 | 0 | 0 | (2,693 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | (16,000 | ) | ||||||||||||||||||||||||||
| Taxable EBIT | (33,913 | ) | (17,114 | ) | (9,483 | ) | 0 | 1,498 | 16,550 | 36,406 | 60,625 | 86,299 | |||||||||||||||||||||||||||||
| Taxes @ 40% | 0 | 0 | 0 | 0 | (599 | ) | (6,620 | ) | (14,562 | ) | (24,250 | ) | (34,520 | ) | |||||||||||||||||||||||||||
| Income After Taxes | (33,913 | ) | (17,114 | ) | (9,483 | ) | 2,693 | 16,899 | 25,930 | 37,843 | 52,375 | 67,780 | |||||||||||||||||||||||||||||
| D&A | 1,582 | 3,944 | 6,199 | 7,481 | 8,306 | 9,563 | 10,570 | 11,577 | 12,584 | ||||||||||||||||||||||||||||||||
| Cap Ex | (8,620 | ) | (5,551 | ) | (8,052 | ) | (9,059 | ) | (10,066 | ) | (11,073 | ) | (12,080 | ) | (13,088 | ) | (14,095 | ) | $ | 114,883 | |||||||||||||||||||||
| W/C | (1,082 | ) | (5,001 | ) | (764 | ) | (652 | ) | (748 | ) | 94 | (2,120 | ) | (1,719 | ) | (779 | ) | 6.0 | |||||||||||||||||||||||
| Operating Cash Flow | (42,032 | ) | (23,722 | ) | (12,100 | ) | 463 | 14,391 | 24,513 | 34,212 | 49,145 | 65,490 | |||||||||||||||||||||||||||||
| Additional Financing Allocated (2) | (73,122 | ) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||
| Net Cash Flow | ($115,154 | ) | ($23,722 | ) | ($12,100 | ) | $ | 463 | $ | 14,391 | $ | 24,513 | $ | 34,212 | $ | 49,145 | $ | 65,490 | $ | 689,300 | |||||||||||||||||||||
| Base Discount Factor 17.5% | 0.886 | 0.754 | 0.642 | ||||||||||||||||||||||||||||||||||||||
| Extended Discount 22.5% | 0.467 | 0.381 | 0.311 | 0.254 | 0.207 | 0.169 | 0.153 | ||||||||||||||||||||||||||||||||||
| Present Value of Cash Flow | ($102,035 | ) | ($17,889 | ) | ($7,766 | ) | $ | 216 | $ | 5,488 | $ | 7,632 | $ | 8,695 | $ | 10,196 | $ | 11,091 | $ | 105,475 | |||||||||||||||||||||
| NPV of Existing Assets | $ | 21,104 | |||||||||||||||||||||||||||||||||||||||
| Terminal EBITDA Multiple | ||||||||||||||||||||||||||||||||
| 5.0 | 5.5 | 6.0 | 6.5 | 7.0 | ||||||||||||||||||||||||||||
| 19.5 | % | ($11,213 | ) | ($3,646 | ) | $ | 3,921 | $ | 11,487 | $ | 19,054 | |||||||||||||||||||||
| Base | 18.5 | % | (4,165 | ) | 3,987 | 12,140 | 20,293 | 28,446 | ||||||||||||||||||||||||
| Discount | 17.5 | % | 3,525 | 12,315 | 21,104 | 29,894 | 38,683 | |||||||||||||||||||||||||
| Rate | 16.5 | % | 11,919 | 21,401 | 30,883 | 40,365 | 49,847 | |||||||||||||||||||||||||
| 15.5 | % | 21,083 | 31,319 | 41,554 | 51,789 | 62,024 | ||||||||||||||||||||||||||
| Fiscal Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||||||||||||
| (1) | Beginning NOL Available | $ | 180,000 | $ | 180,000 | $ | 180,000 | $ | 180,000 | $ | 177,307 | $ | 161,307 | $ | 145,307 | $ | 129,307 | $ | 113,307 | |||||||||||||||||||
| Maximum Annual NOL Available | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | |||||||||||||||||||||||||||||
| NOL Used This Year | 0 | 0 | 0 | 2,693 | 16,000 | 16,000 | 16,000 | 16,000 | 16,000 | |||||||||||||||||||||||||||||
| Ending NOL | $ | 180,000 | $ | 180,000 | $ | 180,000 | $ | 177,307 | $ | 161,307 | $ | 145,307 | $ | 129,307 | $ | 113,307 | $ | 97,307 | ||||||||||||||||||||
| (2) | Assumes Company will raise $102 million capital in 2002. Allocated to Assets based on projected EBITDA, CapEx & W/C of consolidated Company of -$108.6 million through 2004, compared to projected EBITDA, CapEx &W/C allocated to the Assets servicing Charter through 2004 of -$77.9 million (72% of total). | |||||||||||||||||||||||||||||||||||||
Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
13