Concerto Software SC 13E3 Going private transaction

Exhibit (c)(4)

DRAFT

FOR INTERNAL USE ONLY

CONFIDENTIAL

Project Castle

Preliminary Discussion of Strategic Alternatives

August 29, 2003

DRAFT FOR INTERNAL USE ONLY  

TABLE OF CONTENTS

1.	OVERVIEW OF STRATEGIC ALTERNATIVES
2.	STANDALONE ANALYSIS
3.	STRATEGIC COMBINATION ANALYSIS
4.	LEVERAGED BUYOUT ANALYSIS
APPENDIX
	A. MANAGEMENT’S PROJECTION MODEL

All Analysis is Highly Preliminary and Subject to Change

Nothing contained herein should be construed as a direct or indirect offer of favorable research, a specific rating or a specific price target in exchange for investment banking business.

DRAFT FOR INTERNAL USE ONLY  

OVERVIEW OF STRATEGIC ALTERNATIVES

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DRAFT FOR INTERNAL USE ONLY OVERVIEW OF STRATEGIC ALTERNATIVES  

OVERVIEW OF STRATEGIC ALTERNATIVES

Standalone	•	Castle remains an independent, publicly traded company executing its existing strategy as reflected in the Management Projections. Its strategy may include acquisitions, which have not been explicitly incorporated into this analysis because of their speculative nature.
Strategic Combination	•	Castle is acquired in a merger with a strategically motivated buyer. For purposes of this analysis, we have examined transactions with Aspect Communications (Ticker: ASPT), NICE-Systems Ltd. (Ticker: NICE) and Avaya (Ticker: AV) assuming 100% stock, 50%/50% cash/stock and 100% cash consideration mixes.
Leveraged Buyout	•	This alternative posits an independent, privately-owned Castle effected by a financial sponsor (private equity investor) in concert with management acquiring 100% of the common stock of the Company and financing the purchase with a combination of the Company’s cash, financial sponsor cash, management investment and debt.

• We have analyzed selected publicly traded comparable companies and selected comparable mergers and acquisitions to assess values in various alternatives. We examine the discounted cash flow and terminal values generated using the Management Projections. Terminal exit multiples of 6 to 8 times EBITDA, and discount rates of 15%, 17.5% and 20% have been used based on market data and a weighted average cost of capital (WACC) analysis.

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DRAFT FOR INTERNAL USE ONLY  

STANDALONE ANALYSIS

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DRAFT FOR INTERNAL USE ONLY STANDALONE ANALYSIS  

COMPARABLE COMPANY ANALYSIS

Comparable Company Trading Statistics

(US$ in millions, except per share data)

Company (Quarter as of)	Price 08/28/03		Ticker	FD Shares	Enterprise Value(a)		Net Cash		Market Value(a)		Enterprise Value as a Multiple of
											Revenues						EBITDA						P/ E
											LTM		CY03E(b)		CY04E(b)		LTM		CY03E(b)		CY04E(b)		LTM		CY03E(b)		CY04E(b)
Aspect Communications (06/03)(c)	$	8.14	ASPT	75.5	$	559	$	56	$	615	1.5	x	1.6	x	1.6	x	8.8	x	7.7	x	7.7	x	24.8	x	23.3	x	22.0	x
NICE (06/03)(d)		14.67	NICE	16.4		154		87		241	0.8		0.7		0.6		8.3		4.2		3.3		NM		17.5		13.6
Witness Systems (06/03)(e)		4.82	WITS	22.5		68		40		108	0.5		0.6		0.6		NM		NM		8.6		NM		NM		37.1
Interactive Intelligence (06/03)(d)		2.96	ININ	16.0		32		15		47	0.6		0.6		0.6		27.2	(f)	11.8		9.6		NM		NM		NM
Primus Knowledge Solutions (06/03)		1.35	PKSI	22.3		20		11		30	1.0		NA		NA		NM		NA		NA		NM		NA		NA
Apropos Technology (06/03)(d)		3.01	APRS	17.6		14		39		53	0.7		0.7		NA		NM		NM		NA		NM		NM		NA
Median											0.7	x	0.7	x	0.6	x	8.5	x	7.7	x	8.1	x	24.8	x	20.4	x	22.0	x
Castle (06/03) @ ($11.50)	$	11.50			$	111	$	27	$	138	1.1	x	1.0	x	1.0	x	13.5	x	10.9	x	9.1	x	36.1	x	26.9	x	20.4	x

Comparable Company Operating Statistics

(US$ in millions, except per share data)

Company	Revenues						EBITDA								LQ Margins				Revenue Growth
	LTM		CY03E(b)		CY04E(b)		LTM			CY03E(b)			CY04E(b)		Gross		Oper.		’02A/’03E(b)		’03E/’04E(b)
Aspect Communications	$	367	$	355	$	358	$	63		$	73		$	73	58	%	15	%	(10	)%	1	%
NICE (d)		198		236		276		19			37			47	51	%	4	%	45	%	17	%
Witness Systems(e)		135		116		112		(12	)		(7	)		8	68	%	(3	)%	(18	)%	(4	)%
Interactive Intelligence(d)		50		51		53		1			3			3	70	%	(10	)%	7	%	4	%
Primus Knowledge Solutions		20		NA		NA		(4	)		NA			NA	65	%	(72	)%	NA		NA
Apropos Technology(d)		20		19		NA		(9	)		(3	)		NA	72	%	(32	)%	(8	)%	NA
Median															66	%	(7	)%	(8	)%	3	%
Castle	$	103	$	108	$	116	$	8		$	10		$	12	61	%	4	%	8	%	8	%

(a) Enterprise value equal to market cap. plus net debt; As of August 28, 2003.

(b) Estimates from SG Cowen where available, otherwise FirstCall or Wall Street research.

(c) Aspect Communications market cap assumes conversion of convertible preferred equity.

(d) Projected EBITDA based on wall street research estimated operating income plus depreciation and amortization calculated based on LTM percent of revenue.

(e) Witness Systems historical results shown proforma for the Erytel acquisition.

(f) Excluded from median calculation.

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DRAFT FOR INTERNAL USE ONLY STANDALONE ANALYSIS  

DISCOUNTED CASH FLOW ANALYSIS—SENSITIVITY^(a)

Present Value of Enterprise

(US$ in millions)

Discount     Rate	Terminal EBITDA Multiple
	6.0x		7.0x		8.0x
15.0%	$	111.8	$	124.7	$	137.6
17.5%		101.3		112.8		124.3
20.0%		92.0		102.3		112.6

Present Value of Equity

(US$ in millions)

Discount     Rate	Terminal EBITDA Multiple
	6.0x		7.0x		8.0x
15.0%	$	138.6	$	151.5	$	164.3
17.5%		128.0		139.5		151.1
20.0%		118.7		129.1		139.4

Implied Perpetual Growth Rate

Discount     Rate	Terminal EBITDA Multiple
	6.0x		7.0x		8.0x
15.0%	4.7	%	6.2	%	7.3	%
17.5%	7.2	%	8.7	%	9.8	%
20.0%	9.7	%	11.2	%	12.3	%

Present Value of Equity Per Share

(US$ in millions)

Discount     Rate	Terminal EBITDA Multiple
	6.0x		7.0x		8.0x
15.0%	$	12.05	$	13.17	$	14.29
17.5%		11.14		12.14		13.14
20.0%		10.33		11.22		12.12

(a) Discount rates are based on a range of rates around the weighted average cost of capital (WACC) of a set of comparable companies.

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DRAFT FOR INTERNAL USE ONLY STANDALONE ANALYSIS  

DISCOUNTED CASH FLOW ANALYSIS

Preliminary Discounted Cash Flow Analysis^(a)(b)

(US$ in millions, except per share data)

Fiscal Years ending December 31,	Historical					Projected																		CAGR (2003-2008)
	2001			2002		2003			2004			2005			2006			2007			2008
Net Sales	$	94.9		$	99.5	$	107.8		$	116.0		$	124.5		$	133.7		$	143.7		$	154.5		7.5	%
EBITDA		2.5			6.8		10.2			12.2			16.3			18.3			22.5			26.8		21.4	%
EBIT		(1.4	)		2.3		6.0			8.4			13.0			15.3			19.5			23.8		31.7	%
Less: Taxes		0.1			0.4		1.2			1.9			4.2			6.0			7.6			9.3
EBIAT(c)		(1.0	)		2.0		4.8			6.6			8.8			9.3			11.9			14.5
Plus: Depreciation and Amortization							4.1			3.8			3.3			3.0			3.0			3.0
Less: Capital Expenditures							(3.2	)		(3.0	)		(3.0	)		(3.0	)		(3.0	)		(3.0	)
Less: Increase in Working Capital							(1.3	)		0.4			0.2			0.4			0.5			0.5
Unlevered Free Cash Flow(d)							1.1			7.7			9.3			9.7			12.3			15.0

Discount Rate(e) Assumed Terminal EBITDA Multiple	15.0%									17.5%									20.0%
	6.0x			7.0x			8.0x			6.0x			7.0x			8.0x			6.0x			7.0x			8.0x
Terminal Year EBITDA	$	26.8		$	26.8		$	26.8		$	26.8		$	26.8		$	26.8		$	26.8		$	26.8		$	26.8
Terminal Value		161.1			187.9			214.8			161.1			187.9			214.8			161.1			187.9			214.8
PV of Terminal Value		77.3			90.2			103.1			69.1			80.6			92.1			61.9			72.2			82.5
PV of Free Cash Flows		34.5			34.5			34.5			32.2			32.2			32.2			30.1			30.1			30.1
Implied Enterprise Value	$	111.8		$	124.7		$	137.6		$	101.3		$	112.8		$	124.3		$	92.0		$	102.3		$	112.6
Less: Total Debt(f)		(0.4	)		(0.4	)		(0.4	)		(0.4	)		(0.4	)		(0.4	)		(0.4	)		(0.4	)		(0.4	)
Plus: Cash & Equivalents(f)		27.2			27.2			27.2			27.2			27.2			27.2			27.2			27.2			27.2
Implied Equity Value	$	138.6		$	151.5		$	164.3		$	128.0		$	139.5		$	151.1		$	118.7		$	129.1		$	139.4
Equity Value per Diluted Share	$	12.05		$	13.17		$	14.29		$	11.14		$	12.14		$	13.14		$	10.33		$	11.22		$	12.12

(a) Valuation date is 9/30/03. Cash flows discounted to present applying the full year convention.

(b) 2003 to 2008 per management estimates.

(c) EBIAT is defined as earnings before interest after tax.

(d) 2003 free cash flow has been pro rated for portion of fiscal year remaining from the valuation date of 9/30/03.

(e) Based on weighted average cost of capital of comparable companies.

(f) Per balance sheet dated 6/30/03.

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DRAFT FOR INTERNAL USE ONLY STANDALONE ANALYSIS  

DISCOUNTED CASH FLOW—CASTLE PROJECTIONS

Income Statement Items

(US$ in millions, except per share data)

	Historical									Projected(a)
	2000			2001			2002			2003			2004			2005			2006			2007			2008
Revenues	$	95.2		$	94.9		$	99.5		$	107.8		$	116.0		$	124.5		$	133.7		$	143.7		$	154.5
%Growth		2.4	%		(0.3	)%		4.8	%		8.4	%		7.6	%		7.3	%		7.4	%		7.5	%		7.5	%
EBITDA	$	6.6		$	2.5		$	6.8		$	10.2		$	12.2		$	16.3		$	18.3		$	22.5		$	26.8
%of Revenues		7.0	%		2.6	%		6.8	%		9.4	%		10.5	%		13.1	%		13.7	%		15.6	%		17.4	%
EBIT	$	2.7		$	(1.4	)	$	2.3		$	6.0		$	8.4		$	13.0		$	15.3		$	19.5		$	23.8
%of Revenues		2.8	%		(1.4	)%		2.3	%		5.6	%		7.3	%		10.4	%		11.4	%		13.5	%		15.4	%
Net Income	$	4.6		$	1.3		$	2.8		$	5.5		$	7.4		$	10.2		$	11.1		$	14.1		$	17.3
%of Revenues		4.9	%		1.3	%		2.8	%		5.1	%		6.4	%		8.2	%		8.3	%		9.8	%		11.2	%

Cash Flow Items

(US$ in millions, except per share data)

	Historical									Projected(a)
	2000			2001			2002			2003			2004			2005			2006			2007			2008
Capital Expenditures	$	1.0		$	2.9		$	4.1		$	3.2		$	3.0		$	3.0		$	3.0		$	3.0		$	3.0
%of Revenues		1.1	%		3.1	%		4.1	%		3.0	%		2.6	%		2.4	%		2.2	%		2.1	%		1.9	%
Depreciation and Amortization	$	4.0		$	3.8		$	4.4		$	4.1		$	3.8		$	3.3		$	3.0		$	3.0		$	3.0
%of Revenues		4.2	%		4.0	%		4.5	%		3.8	%		3.2	%		2.6	%		2.2	%		2.1	%		1.9	%
Changes in Working Capital		NA			NA		$	(1.2	)	$	1.3		$	(0.4	)	$	(0.2	)	$	(0.4	)	$	(0.5	)	$	(0.5	)
%of Change in Revenues		NA			NA			(25.6	)%		15.8	%		(4.4	)%		(2.6	)%		(4.1	)%		(4.5	)%		(4.4	)%
Free Cash Flow(b)										$	1.1		$	7.7		$	9.3		$	9.7		$	12.3		$	15.0
%of Revenues											1.0	%		6.6	%		7.5	%		7.2	%		8.6	%		9.7	%

(a) CY2000-2002 per public filings; 2003 to 2008 per management estimates (the “Management Projections”).

(b) 2003 Free Cash Flow reflects quarter year free cash flow used in valuation

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STRATEGIC COMBINATION ANALYSIS

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DRAFT FOR INTERNAL USE ONLY  

PRECEDENT TRANSACTION ANALYSIS

Comparable M&A Transactions^(a)

(US$ in millions)

	Date Ann.	Target Name	Acquiror Name	Consideration	Ent. Value		LTM Rev. Mult.		1-Day Prem.		30-Day Prem.
1	08/12/03	Broad Daylight	Primus Knowledge Solutions	Cash and Stock	$	3	NA		NA		NA
2	04/29/03	Divine software assets	Golden Gate Capital/Fatwire	Cash		30	0.3	x	NA		NA
3	04/24/03	SpeechWorks International	ScanSoft	Stock		128	3.3		85	%	85	%
4	02/26/03	Eyretel	Witness Systems	Stock		23	0.3		20	%	133	%
5	11/06/02	Syntellect	Enghouse Systems	Cash		8	0.2		243	%	167	%
6	07/31/02	Thales Contact Solutions	Nice Systems	Cash and Stock		56	0.8		NA		NA
7	05/29/02	Telera	Alcatel	Stock		136	NA		NA		NA
8	03/12/02	Delano Technology	Divine	Cash and Stock		23	1.3		7	%	(13	)%
9	01/10/02	CELLIT	Davox	Cash and Stock		17	3.0		NA		NA
			Median				0.8	x	53	%	109	%
			Castle @$11.50 per share		$	110	1.1	x	24	%	35	%
LTM Software M&A Transactions $80—150 Million(a) (US$ in millions)
	Date Ann.	Target Name	Acquiror Name	Consideration	Ent. Value		LTM Rev Mult		1-Day Prem.		30-Day Prem.
1	08/06/03	iManage	Interwoven	Cash and Stock		133	3.1		24	%	26	%
2	08/04/03	Mercator Software	Ascential Software	Cash		98	1.0		22	%	97	%
3	07/23/03	Brio Software	Hyperion	Cash and Stock		122	1.2		14	%	58	%
4	07/16/03	Timberline	Sage Group	Cash		92	1.5		33	%	41	%
5	07/10/03	Sherwood International	Sungard Data Systems	Cash		105	1.2		35	%	37	%
6	06/03/03	Baan	SSA Global Technologies	Cash		135	0.5		NA		NA
7	04/24/03	SpeechWorks International	ScanSoft	Stock		128	3.3		85	%	85	%
8	04/04/03	Entercept Security Technologies	Network Associates	Cash		120	12.0		NA		NA
9	04/03/03	Elite Information Group	Thomson	Cash		97	1.2		40	%	43	%
10	04/01/03	IntruVert	Network Associates	Cash		100	15.0		NA		NA
11	02/18/03	AltaVista	Overture	Cash and Stock		140	5.4		NA		NA
12	02/05/03	H.T.E.	SunGard Data Systems	Cash		97	1.4		48	%	44	%
13	01/21/03	Caminus	SunGard Data Systems	Cash		112	1.3		260	%	235	%
14	10/28/02	Infinium Software	SSA Global Technologies	Cash		95	1.4		21	%	46	%
15	10/03/02	eRoom Technology	Documentum	Cash and Stock		119	3.1		NA		NA
16	09/03/02	Access360	IBM	Cash		128	10.0		NA		NA
			Median		$	112	1.4	x	34	%	45	%

(a) Per SDC, company press releases and SEC filings

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DRAFT FOR INTERNAL USE ONLY  

ARCHER

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DRAFT FOR INTERNAL USE ONLY ARCHER  

SENSITIVITY ANALYSIS—100% STOCK

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Implied Exchange Ratio		1.1044	x		1.4128	x		1.4742	x		1.5356	x		1.5971	x		1.6585	x		1.7199	x
Castle Pro Forma Ownership (based on Treasury Stock Method)		14.4	%		18.3	%		19.1	%		19.8	%		20.6	%		21.3	%		22.0	%
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Archer Shares Issued to Castle		12.7			16.9			17.8			18.7			19.6			20.5			21.3
Pro Forma Shares Outstanding at Close		88.3			92.6			93.5			94.3			95.2			96.1			97.0
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Trading Day Exchange Ratio (1.1044 x)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Exchange Ratio (1.1451 x)		(4	)%		23	%		29	%		34	%		39	%		45	%		50	%
90 Trading Day Moving Average Exchange Ratio (1.5644 x)		(29	)%		(10	)%		(6	)%		(2	)%		2	%		6	%		10	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion /(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.02		$	0.00		$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
%Accretion/(Dilution)		4.5	%		0.3	%		(0.5	)%		(1.3	)%		(2.0	)%		(2.8	)%		(3.5	)%
Surplus/(Pre-tax synergies required for breakeven)	$	2.3		$	0.2		$	(0.3	)	$	(0.7	)	$	(1.1	)	$	(1.6	)	$	(2.0	)

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DRAFT FOR INTERNAL USE ONLY ARCHER  

SENSITIVITY ANALYSIS—50% STOCK

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Implied Exchange Ratio		0.5522	x		0.7064	x		0.7371	x		0.7678	x		0.7985	x		0.8292	x		0.8600	x
Castle Pro Forma Ownership (based on Treasury Stock Method)		7.7	%		10.1	%		10.5	%		11.0	%		11.5	%		11.9	%		12.4	%
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Archer Shares Issued to Castle		6.3			8.5			8.9			9.3			9.8			10.2			10.7
Pro Forma Shares Outstanding at Close		82.0			84.1			84.5			85.0			85.4			85.9			86.3
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Closing Price ($8.99)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Price ($8.92)		1	%		29	%		34	%		40	%		46	%		51	%		57	%
90 Trading Day Moving Average Price ($7.33)		23	%		57	%		64	%		71	%		77	%		84	%		91	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion/(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.04		$	0.03		$	0.03		$	0.03		$	0.02		$	0.02		$	0.02
%Accretion/(Dilution)		11.3	%		8.3	%		7.8	%		7.2	%		6.6	%		6.0	%		5.5	%
Surplus/(Pre-tax synergies required for breakeven)	$	5.5		$	4.1		$	3.8		$	3.6		$	3.3		$	3.0		$	2.8

12

DRAFT FOR INTERNAL USE ONLY ARCHER  

SENSITIVITY ANALYSIS—100% CASH^(a)

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Archer Shares Issued to Castle		0.0			0.0			0.0			0.0			0.0			0.0			0.0
Pro Forma Shares Outstanding at Close		75.6			75.6			75.6			75.6			75.6			75.6			75.6
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Closing Price ($8.99)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Price ($8.92)		1	%		29	%		34	%		40	%		46	%		51	%		57	%
90 Trading Day Moving Average Price ($7.33)		23	%		57	%		64	%		71	%		77	%		84	%		91	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion/(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.05		$	0.03		$	0.03		$	0.03		$	0.02		$	0.02		$	0.02
%Accretion/(Dilution)		12.3	%		8.8	%		8.1	%		7.4	%		6.6	%		5.9	%		5.2	%
Surplus/(Pre-tax synergies required for breakeven)	$	5.5		$	3.9		$	3.6		$	3.3		$	2.9		$	2.6		$	2.3

(a) 100% Cash scenario assumes 50% of transaction financed from existing cash and 50% financed through debt with an interest rate of 7.5%.

13

DRAFT FOR INTERNAL USE ONLY  

AVIGNON

14

DRAFT FOR INTERNAL USE ONLY AVIGNON  

SENSITIVITY ANALYSIS—100% STOCK

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Implied Exchange Ratio		0.8562	x		1.0952	x		1.1429	x		1.1905	x		1.2381	x		1.2857	x		1.3333	x
Castle Pro Forma Ownership (based on Treasury Stock Method)		2.5	%		3.3	%		3.5	%		3.6	%		3.8	%		3.9	%		4.1	%
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Avignon Shares Issued to Castle		9.8			13.1			13.8			14.5			15.2			15.9			16.5
Pro Forma Shares Outstanding at Close		396.1			399.4			400.1			400.7			401.4			402.1			402.8
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Trading Day Exchange Ratio (0.8562 x)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Exchange Ratio (0.9554 x)		(10	)%		15	%		20	%		25	%		30	%		35	%		40	%
90 Trading Day Moving Average Exchange Ratio (1.0352 x)		(17	)%		6	%		10	%		15	%		20	%		24	%		29	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion/(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.01		$	0.01		$	0.01		$	0.01		$	0.01		$	0.01		$	0.00
%Accretion/(Dilution)		3.1	%		2.5	%		2.4	%		2.2	%		2.1	%		2.0	%		1.9	%
Surplus/(Pre-tax synergies required for breakeven)	$	5.0		$	4.0		$	3.9		$	3.7		$	3.5		$	3.3		$	3.1

15

DRAFT FOR INTERNAL USE ONLY AVIGNON  

SENSITIVITY ANALYSIS—50% STOCK

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Implied Exchange Ratio		0.4281	x		0.5476	x		0.5714	x		0.5952	x		0.6190	x		0.6429	x		0.6667	x
Castle Pro Forma Ownership (based on Treasury Stock Method)		1.3	%		1.7	%		1.8	%		1.8	%		1.9	%		2.0	%		2.1	%
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Avignon Shares Issued to Castle		4.9			6.6			6.9			7.2			7.6			7.9			8.3
Pro Forma Shares Outstanding at Close		391.2			392.8			393.2			393.5			393.8			394.2			394.5
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Closing Price ($8.99)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Price ($8.92)		1	%		29	%		34	%		40	%		46	%		51	%		57	%
90 Trading Day Moving Average Price ($7.33)		23	%		57	%		64	%		71	%		77	%		84	%		91	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion/(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.01		$	0.01		$	0.01		$	0.01		$	0.01		$	0.01		$	0.01
%Accretion/(Dilution)		3.7	%		3.2	%		3.1	%		3.0	%		2.9	%		2.8	%		2.7	%
Surplus/(Pre-tax synergies required for breakeven)	$	5.9		$	5.2		$	5.0		$	4.9		$	4.7		$	4.6		$	4.4

16

DRAFT FOR INTERNAL USE ONLY AVIGNON  

SENSITIVITY ANALYSIS—100% CASH

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Avignon Shares Issued to Castle		0.0			0.0			0.0			0.0			0.0			0.0			0.0
Pro Forma Shares Outstanding at Close		386.2			386.2			386.2			386.2			386.2			386.2			386.2
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Closing Price ($8.99)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Price ($8.92)		1	%		29	%		34	%		40	%		46	%		51	%		57	%
90 Trading Day Moving Average Price ($7.33)		23	%		57	%		64	%		71	%		77	%		84	%		91	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion/(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.01		$	0.01		$	0.01		$	0.01		$	0.01		$	0.01		$	0.01
%Accretion/(Dilution)		4.3	%		3.9	%		3.9	%		3.8	%		3.7	%		3.7	%		3.6	%
Surplus/(Pre-tax synergies required for breakeven)	$	6.8		$	6.3		$	6.2		$	6.1		$	5.9		$	5.8		$	5.7

17

DRAFT FOR INTERNAL USE ONLY  

NORMANDY

18

DRAFT FOR INTERNAL USE ONLY NORMANDY  

SENSITIVITY ANALYSIS—100% STOCK

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Implied Exchange Ratio		0.6128	x		0.7839	x		0.8180	x		0.8521	x		0.8862	x		0.9202	x		0.9543	x
Castle Pro Forma Ownership (based on Treasury Stock Method)		30.0	%		36.4	%		37.6	%		38.7	%		39.8	%		40.8	%		41.9	%
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Normandy Shares Issued to Castle		7.0			9.4			9.9			10.4			10.9			11.4			11.8
Pro Forma Shares Outstanding at Close		23.5			25.8			26.3			26.8			27.3			27.8			28.3
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Trading Day Exchange Ratio (0.6128 x)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Exchange Ratio (0.5967 x)		3	%		31	%		37	%		43	%		49	%		54	%		60	%
90 Trading Day Moving Average Exchange Ratio (0.5035 x)		22	%		56	%		62	%		69	%		76	%		83	%		90	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion/(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.00		$	(0.08	)	$	(0.10	)	$	(0.11	)	$	(0.13	)	$	(0.14	)	$	(0.15	)
% Accretion/(Dilution)		0.3	%		(7.5	)%		(8.9	)%		(10.3	)%		(11.6	)%		(12.9	)%		(14.2	)%
Surplus/(Pre-tax synergies required for breakeven)	$	0.1		$	(2.7	)	$	(3.3	)	$	(3.8	)	$	(4.4	)	$	(4.9	)	$	(5.5	)

19

DRAFT FOR INTERNAL USE ONLY NORMANDY  

SENSITIVITY ANALYSIS—50% STOCK

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Implied Exchange Ratio		0.3064	x		0.3920	x		0.4090	x		0.4260	x		0.4431	x		0.4601	x		0.4772	x
Castle Pro Forma Ownership (based on Treasury Stock Method)		17.6	%		22.2	%		23.1	%		24.0	%		24.8	%		25.7	%		26.5	%
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Normandy Shares Issued to Castle		3.5			4.7			4.9			5.2			5.4			5.7			5.9
Pro Forma Shares Outstanding at Close		20.0			21.1			21.4			21.6			21.9			22.1			22.4
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Closing Price ($8.99)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Price ($8.92)		1	%		29	%		34	%		40	%		46	%		51	%		57	%
90 Trading Day Moving Average Price ($7.33)		23	%		57	%		64	%		71	%		77	%		84	%		91	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion/(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.17		$	0.10		$	0.08		$	0.07		$	0.06		$	0.05		$	0.04
%Accretion/(Dilution)		15.5	%		9.1	%		7.9	%		6.7	%		5.5	%		4.4	%		3.3	%
Surplus/(Pre-tax synergies required for breakeven)	$	4.3		$	2.7		$	2.3		$	2.0		$	1.7		$	1.3		$	1.0

20

DRAFT FOR INTERNAL USE ONLY NORMANDY  

SENSITIVITY ANALYSIS—100% CASH^(a)

Sensitivity Analysis

(US$ in millions, except per share data)

Acquisition Structure	Castle At Market
Offer Price/Share for Castle	$	8.99		$	11.50		$	12.00		$	12.50		$	13.00		$	13.50		$	14.00
New Normandy Shares Issued to Castle		0.0			0.0			0.0			0.0			0.0			0.0			0.0
Pro Forma Shares Outstanding at Close		16.4			16.4			16.4			16.4			16.4			16.4			16.4
Transaction Equity Value	$	103		$	138		$	145		$	152		$	159		$	167		$	174
Transaction Enterprise Value	$	77		$	111		$	118		$	125		$	133		$	140		$	147
Premiums based on:
Last Closing Price ($8.99)		—			28	%		33	%		39	%		45	%		50	%		56	%
30 Trading Day Moving Average Price ($8.92)		1	%		29	%		34	%		40	%		46	%		51	%		57	%
90 Trading Day Moving Average Price ($7.33)		23	%		57	%		64	%		71	%		77	%		84	%		91	%
Castle Implied Acquisition Multiples
Enterprise Value/CY 2003E Revenues		0.7	x		1.0	x		1.1	x		1.2	x		1.2	x		1.3	x		1.4	x
Enterprise Value/CY 2004E Revenues		0.7	x		1.0	x		1.0	x		1.1	x		1.1	x		1.2	x		1.3	x
CY 2003E P/E		20	x		26	x		27	x		28	x		29	x		30	x		31	x
CY 2004E P/E		16	x		21	x		22	x		22	x		23	x		24	x		25	x
Accretion/(Dilution) with estimated synergies
CY 2004E—Adjusted for Closing Date
Per Share Accretion/(Dilution)	$	0.26		$	0.18		$	0.17		$	0.15		$	0.14		$	0.12		$	0.11
%Accretion/(Dilution)		23.7	%		17.0	%		15.6	%		14.2	%		12.8	%		11.4	%		10.0	%
Surplus/(Pre-tax synergies required for breakeven)	$	5.5		$	3.9		$	3.6		$	3.3		$	2.9		$	2.6		$	2.3

(a) 100% Cash scenario assumes 50% of transaction financed from existing cash and 50% financed through debt with an interest rate of 7.5%.

21

DRAFT FOR INTERNAL USE ONLY  

LEVERAGED BUYOUT ANALYSIS

22

DRAFT FOR INTERNAL USE ONLY LEVERAGED BUYOUT ANALYSIS  

LEVERAGED BUYOUT TRANSACTION SUMMARY^(a)

CASTLE MBO Sources and Uses of Funds

(Dollars in millions)

Assumes Transaction Closes 12/31/03

Sources			% of Total
Cash		30.0	21.2	%
Revolving Credit		0.0	0.0	%
Senior Notes		35.0	24.8	%
Senior Sub-Debt		0.0	0.0	%
Mgt Rollover		8.8	6.2	%
Preferred Equity		0.0	0.0	%
Common Equity		67.6	47.8	%
Total Sources	$	141.3	100.0	%
Uses			% of Total
Increase in Cash		—	0.0	%
Refinance Debt		0.4	0.3	%
Acquisition of CASTLE Stock		137.9	97.6	%
Transaction Fees		3.0	2.1	%
Total Uses	$	141.3	100.0	%

CASTLE MBO Assumptions

Interest Rates	PIK	Int. Rate			Ownership.
Cash Balances			1.5	%	0.0	%
Revolving Credit			6.5	%	0.0	%
Senior Notes			11.5	%	0.0	%
Senior Sub-Debt			14.0	%	0.0	%
Preferred Equity			10.0	%	0.0	%
Castle Fully-Diluted Shares			12.0
Price per Share		$	11.50
Mgt Equity(b)			0.8		MM Shares
Mgt Rollover as %of Mgt Equity			100	%

Acquisition Multiples

Enterprise Value as a Multiple of
2003E Revenue	1.00	x
2004E Revenue	0.93
2003E EBITDA	10.7	x
2004E EBITDA	8.9

CASTLE Transaction Overview

(Dollars in millions)

Fiscal Year Ending December 31,

			Hist		Projected
			2003		2004			2005			2006			2007			2008			2009			2010			2011			2012			2013
Net Sales			$	107.8	$	116.0		$	124.5		$	133.7		$	143.7		$	154.5		$	169.9		$	186.9		$	205.6		$	226.2		$	248.8
EBITDA				10.2		12.2			16.3			18.3			22.5			26.8			31.3			36.4			42.0			48.3			55.3
Operating Income				4.3		6.7			11.2			15.3			19.5			23.8			28.0			32.7			38.0			43.9			50.4
Total Debt			$	—	$	30.5		$	23.7		$	15.7		$	4.7		$	—		$	—		$	—		$	—		$	—		$	—
Total Net Debt				—		30.5			23.7			15.7			4.7			(9.8	)		(27.2	)		(47.6	)		(71.5	)		(99.1	)		(131.0	)
Total Debt/EBITDA						2.5	x		1.5	x		0.9	x		0.2	x		0.0	x		0.0	x		0.0	x		0.0	x		0.0	x		0.0	x
Total Debt/EBITDA—Capex						3.3			1.8			1.0			0.2			0.0			0.0			0.0			0.0			0.0			0.0
EBITDA/Cash Interest Expense						3.0			4.6			6.7			12.4			49.6			NM			NM			NM			NM			NM
EBITDA—Cap. Ex./Cash Interest						2.3			3.8			5.6			10.7			44.1			NM			NM			NM			NM			NM
Senior Debt/Total Capitalization						30.6	%		24.3	%		16.2	%		4.9	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Senior Debt/Initial Senior Debt						87.2	%		67.6	%		45.0	%		13.4	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Total Debt/Total Capitalization						30.6	%		24.3	%		16.2	%		4.9	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Returns to Senior Notes
EBITDA Exit Multiple:	6.0	x				11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%
	7.0					11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%
	8.0					11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%		11.5	%
Returns to Common Equity
EBITDA Exit Multiple:	6.0	x				4.6	%		11.6	%		17.8	%		20.4	%		21.3	%		21.6	%		21.6	%		21.5	%		21.2	%		NM
	7.0					15.5	%		18.4	%		22.6	%		24.0	%		24.1	%		23.9	%		23.5	%		23.1	%		22.6	%		NM
	8.0					25.5	%		24.5	%		26.9	%		27.2	%		26.6	%		25.9	%		25.2	%		24.5	%		23.8	%		NM

(a) Based on financing assumptions set forth in Guard’s offer model.

(b) Management equity based on management owned shares outstanding plus shares from management options. Management options-related shares are estimated based on the assumption that management has the same percentage of “in the money” options as total outstanding options with a strike price equal to the weighted average strike price of “in the money” options.

23

DRAFT FOR INTERNAL USE ONLY  

APPENDIX

24

DRAFT FOR INTERNAL USE ONLY  

MANAGEMENT’S PROJECTION MODEL

25

DRAFT FOR INTERNAL USE ONLY MANAGEMENT’S PROJECTION MODEL  

MANAGEMENT’S PROJECTION MODEL

	Pro Forma* FY’02 Actual					FY’03 Forecast					FY’04 Forecast					FY’05 Forecast					FY’06 Forecast					FY’07 Forecast					FY’08 Forecast
Product Revenue	$	46,214		46.5	%	$	49,012		45.5	%	$	54,250		46.8	%	$	59,675		47.9	%	$	65,643		49.1	%	$	72,207		50.3	%	$	79,427		51.4	%
Professional Services		14,540					18,148					19,044					19,996					20,996					22,045					23,148
Maintenance		38,736					40,673					42,706					44,842					47,084					49,438					51,910
Service Revenue		53,276		53.5	%		58,821		54.5	%		61,750		53.2	%		64,838		52.1	%		68,079		50.9	%		71,483		49.7	%		75,058		48.6	%
Total Revenue		99,490		100.0	%		107,833		100.0	%		116,000		100.0	%		124,513		100.0	%		133,722		100.0	%		143,690		100.0	%		154,485		100.0	%
Product Margin		36,901		79.8	%		38,267		78.1	%		42,586		78.5	%		47,740		80.0	%		52,842		80.5	%		58,487		81.0	%		64,733		81.5	%
Service Margin		26,293		49.4	%		28,091		47.8	%		29,949		48.5	%		32,419		50.0	%		34,720		51.0	%		36,814		51.5	%		39,030		52.0	%
Gross Margin		63,194		63.5	%		66,358		61.5	%		72,535		62.5	%		80,159		64.4	%		87,563		65.5	%		95,301		66.3	%		103,763		67.2	%
Operating Expenses:
Development		16,412		16.5	%		16,041		14.9	%		16,522		14.2	%		17,018		13.7	%		17,528		13.1	%		18,054		12.6	%		18,596		12.0	%
Sales		25,333		25.5	%		24,655		22.9	%		25,520		22.0	%		27,051		21.7	%		28,674		21.4	%		30,395		21.2	%		32,522		21.1	%
Marketing		4,918		4.9	%		5,107		4.7	%		6,384		5.5	%		6,894		5.5	%		7,584		5.7	%		8,342		5.8	%		9,177		5.9	%
G&A		15,892		16.0	%		16,292		15.1	%		17,432		15.0	%		17,955		14.4	%		18,494		13.8	%		19,049		13.3	%		19,620		12.7	%
Total Operating Expenses		62,555		62.9	%		62,095		57.6	%		65,858		56.8	%		68,919		55.4	%		72,281		54.1	%		75,840		52.8	%		79,915		51.7	%
Operating income/(loss)		639		0.6	%		4,263		4.0	%		6,677		5.8	%		11,240		9.0	%		15,282		11.4	%		19,461		13.5	%		23,848		15.4	%
Other income		839		0.8	%		682		0.6	%		825		0.7	%		1,406		1.1	%		1,781		1.3	%		2,240		1.6	%		2,794		1.8	%
Income/(loss) before taxes		1,478		1.5	%		4,945		4.6	%		7,502		6.5	%		12,646		10.2	%		17,063		12.8	%		21,701		15.1	%		26,642		17.2	%
Tax provision/(benefit)		370		0.4	%		1,248		1.2	%		1,875		1.6	%		4,173		3.4	%		5,972		4.5	%		7,595		5.3	%		9,325		6.0	%
Net income/(loss)	$	1,109		1.1	%	$	3,697		3.4	%	$	5,626		4.9	%	$	8,473		6.8	%	$	11,091		8.3	%	$	14,105		9.8	%	$	17,318		11.2	%
Diluted EPS	$	0.09				$	0.31				$	0.46				$	0.64				$	0.78				$	0.92				$	1.06
Weighted average shares		12,177					11,791					12,300					13,300					14,300					15,300					16,300
EBITDA:
Net income	$	1,109				$	3,697				$	5,626				$	8,473				$	11,091				$	14,105				$	17,318
Less: Interest/other income		(839	)				(682	)				(825	)				(1,406	)				(1,781	)				(2,240	)				(2,794	)
Add: Taxes		370					1,248					1,875					4,173					5,972					7,595					9,325
Add: Depreciation		4,432					4,143					3,750					3,250					3,000					3,000					3,000
Add: Amortization		1,692					1,764					1,764					1,764					0					0					0
	$	6,763		6.8	%	$	10,170		9.4	%	$	12,191		10.5	%	$	16,254		13.1	%	$	18,282		13.7	%	$	22,461		15.6	%	$	26,848		17.4	%

26