oard considerations in going private am s cross-border acquisition of powerscreen plc, s.c....

©2007 Foley & Lardner LLP

BOARD CONSIDERATIONS IN GOING PRIVATE 10:00 AM OR GOING DARK

Cary Kochman, UBS Securities, LLC

Edward Pendergast, Pendergast & Company

James Reddinger, UBS Securities, LLC

Mark Tresnowski, Madison Dearborn Partners, LLC

Peter Underwood, Foley & Lardner LLP


CARY A. KOCHMAN MANAGING DIRECTOR UBS INVESTMENT BANK

Cary Allan Kochman is a Managing Director, Co-Head of Americas Mergers & Acquisitions, and serves as Co-Head of the Investment Banking Department’s (IBD’s) Chicago office and Midwest Region. He is a member of the Americas IBD Executive Committee. Mr. Kochman is also a member of the Business Review Group.

Mr. Kochman advised on numerous recent transactions including ISCAR’s $5 billion sale to Berkshire Hathaway, ADESA’s pending $3.7 billion LBO transaction, JLG’s $3.1 billion sale to Oshkosh Truck, Zimmer Holdings’ unsolicited, cross-border $3.7 billion takeover of Centerpulse AG, the successful defense of Cooper Industries, Banta Corporation’s White Knight sale to R.R. Donnelley & Sons, the merger of Case Equipment Company with New Holland N.V., Flowserve’s acquisition of IDP, Hussmann’s corporate sale to Ingersoll-Rand, Terex’s cross-border acquisition of Powerscreen Plc, S.C. Johnson’s acquisitions of DowBrands and Drackett, Giddings & Lewis’ cross-border white knight sale to Thyssen AG, Whitman’s realignment with PepsiCo and subsequent acquisition of Pepsi Americas, Goodyear’s acquisition of Debica, the LBO of Jostens by Investcorp, the defense of Clark Equipment, as well as the sale of Specialty Equipment to United Technologies.

Before joining UBS, Mr. Kochman worked at Credit Suisse for 14 years where he was head of the U.S. M&A Department for his last 2 years. He holds both his J.D. and M.B.A. from the University of Chicago. He also has a B.S. in Accounting from the University of Illinois at Chicago. Mr. Kochman is a member of the Illinois Bar and is both a C.P.A. and C.M.A. Mr. Kochman is a Trustee of the Shedd Aquarium. He serves as a member of the Visiting Committee of The Law School of the University of Chicago. He is a member of the Business Advisory Council to the University of Illinois at Chicago College of Business. Mr. Kochman is also a member of The Economic Club of Chicago, The Executive’s Club of Chicago and The Commercial Club of Chicago. He is also a frequent lecturer at Northwestern University’s MergerWeek.


EDWARD PENDERGAST PRESIDENT PENDERGAST & COMPANY

Ed Pendergast has been a director of many public and private companies. Particular to this program, he served as a Director with a company when it went public, went private and was subsequently sold. He is a Corporate Financial Consultant helping companies develop and implement financial strategies. He is President of the New England Chapter of the National Association of Corporate Directors. Ed also consults with Board of Directors and Advisory Boards. He is viewed as the "Veteran Director" who has been involved in all elements of corporate governance and has served on all committees. Ed serves as Chair of a small public company and has had a role in class action suits, shareholder derivative suits and many other aspects of Board service. Ed holds a Bachelors degree in accountancy and a Masters degree in taxation. He is a frequent lecturer on corporate governance. He is a CPA and Past President of the Massachusetts Society of Certified Public Accountants


JAMES REDDINGER EXECUTIVE DIRECTOR UBS SECURITIES LLC

James C. Reddinger is a Director in UBS’ Chicago Investment Banking office. Mr. Reddinger covers a wide variety of Midwest regional and diversified industrial companies and has significant capital raising and strategic transaction execution experience..

Mr. Reddinger’s corporate finance transaction experience includes high yield debt, investment grade debt, and equity as well as private placements and bank financings. Selected recent corporate finance executions include: high yield notes for United Rentals, Jacuzzi Brands, Fedders North America, B/E Aerospace, H&E Equipment, and Trimas; common equity for Chicago Bridge & Iron, United Rentals, and B/E Aerospace; investment grade notes for Deere & Co., Cargill, and Goodyear Tire and Rubber; and private placements for Spartech Corporation, International Education,University Access, and ECollege. Mr. Reddinger has also structured a number of leveraged and investment grade bank facilities.

Mr. Reddinger’s M&A transaction experience includes corporate acquisitions, divestitures, and hostile defense advisory. Selected recent M&A transactions include: Illinois Tool Work’s divestiture of its consumer products businesses (Precor, West Bend and Florida Tile); United Rentals’ acquisition of National Equipment Services’ Trench Shoring Business; Edgewater Technology’s divestiture of its ClinForce, Strategic Legal Resources, and Staffmark businesses, and; Deere & Co.’s acquisition of Timberjack

Prior to joining UBS, Mr. Reddinger worked at Credit Suisse First Boston for six years, most recently as a Vice President in its Global Industrial and Services Group. Mr. Reddinger was previously a Research Associate with Furash & Company, a strategic consulting firm

Mr. Reddinger received an A.B. cum laude in Philosophy from Harvard University and an M.B.A from the J.L. Kellogg Graduate School of Management at Northwestern University.


MARK TRESNOWSKI MANAGING DIRECTOR &

GENERAL COUNSEL MADISON DEARBORN

PARTNERS, LLC

Mark B. Tresnowski is a Managing Director and the General Counsel of Madison Dearborn Partners, LLC. Prior to joining MDP, Mark was a partner at Kirkland & Ellis LLP, a firm he had been with from 1986 through 1999 and rejoined in August 2004 after having served as Executive Vice President and General Counsel of Allegiance Telecom Inc., a nationwide competitive local exchange carrier, from February 1999 through June 2004. Mr. Tresnowski is responsible for MDP's legal and regulatory matters.

Mark has lectured and written extensively on the corporate and securities law aspects of mergers and acquisitions, participating as a faculty member in numerous Practicing Law Institute seminars and publishing articles in Venture Capital Journal, Buyouts and The M&A Lawyer. He is also co-author of High Yield Offerings: An Issuer's Perspective, Merrill Corp. Publication (2006).

Mark received a Bachelor of Arts degree from the University of Illinois and his Juris Doctor from the University of Virginia School of Law. He is a Certified Public Accountant.


PETER C. UNDERWOOD PARTNER FOLEY & LARDNER LLP

Peter C. Underwood is a partner with Foley & Lardner LLP and a member of the Transactional & Securities Practice and the Energy Industry Team.

Mr. Underwood has experience representing both underwriters and issuers in public debt and equity offerings, effecting private placements and working with venture capitalists, investment banks and other financing sources to raise capital for start-up companies. He also has structured and negotiated numerous acquisitions and divestitures for both public and private clients.

Mr. Underwood received his bachelor's degree in international relations (Soviet Area studies) from the University of Wisconsin - Madison in 1992, where he was Phi Beta Kappa and named to the Academic All Big Ten football team. He earned his J.D. degree, cum laude, from Harvard Law School in 1996.

THE SIXTH ANNUAL NATIONAL DIRECTORS INSTITUTE


Board Considerations in Going Private and Going Dark

Cary Kochman, UBS SecuritiesJames Reddinger, UBS SecuritiesMark Tresnowski, Madison Dearborn

Partners Inc.Ed Pendergast, Pendergast & CompanyPeter C. Underwood, Foley & Lardner LLP


What is “Going Private”?

Causing a public company to no longer be public through a cash-out transaction Pre-SOX, generally used as a term of art to refer to a “13E-3” transaction initiated by a significant shareholder, the board or managementPost-SOX, increasingly used to refer to any acquisition of a public company following which it is no longer public (e.g., acquisition by a private equity firm), regardless of whether a “13E-3” transaction is involved


What is “Going Dark”?

Causing a public company to no longer be public by simply deregistering from Section 12 of the Securities Exchange Act of 1934Must satisfy eligibility requirements under 1934 ActDifferent from “going private” in that no transaction or cash-out occurs

No disclosure document filed with the SEC or distributed to shareholders




Why do Companies Go Private?

To eliminate the significant costs of being a public company (including SOX 404 costs, still an issue for small issuers)Perception that stock is not fully valued by the market or inability to fully unlock benefits of being publicReduces or eliminates obligation to disclose competitive business and other sensitive information Allows for additional corporate governance flexibilityCompany requires additional capital for growth that it cannot reasonably obtain in the public markets


Why do Companies Go Private?

Allows management to focus more on long-term goals and objectives rather than short-term management of market expectationsAllows for a greater knowledge of and control over shareholder baseReduces potential liability for acts of directors and officers, especially in light of SOX reformsProvides liquidity to minority shareholders without brokerage fees and at capital gains tax rates


Important Considerations / Actions in Going Private

Classic “conflict of interest” for directors and shareholders involved in the buy-out groupJudicial review may be subject to a test of “entire fairness,” a higher legal standard than the “business judgment rule”

Meaning transaction must be “entirely fair,” both in terms of procedure as well as price, to the minority shareholders





As a result, all suggested procedural and substantive fairness actions must be considered in connection with any going private transaction, including

Obtaining proper (and independent) legal guidance and background information for directorsHaving all negotiations and evaluations conducted by truly independent directors or a special committee of truly independent directors (or a special independent representative of the minority shareholders)

Committee must be empowered to “just say no,” must consider all alternatives and must actively negotiate and evaluate



Thoroughly documenting all meetings and actions of the special committee and other involved partiesTimely releasing information to the public (aids in addressing disclosure obligations while also “window shopping” the proposal) – must be prompt but not prematureSubjecting transaction to one of the various “majority of the minority” voting standards in addition to the vote required by lawObtaining an independent valuation and/or fairness opinion to establish a fair minority price



Consider the relative costs and benefits of being public vs. going private

Does the company “take advantage” of its public status?

Does it use stock as incentive compensation or acquisition currency? Does it frequently access the public debt and equity markets for capital? Does it rely on the prestige of being public?

Consider effects on benefit plans





Consider potential financing for the transaction and the going-forward effect on the company’s balance sheetConsider what you know about the company’s shareholder base – is it large and fragmented? Dominated by institutional holders? May impact likelihood of litigation related to the transactionSEC does not like going private transactions, so disclosure must be thorough and accurate - SEC WILL comment extensively on going private filings and pick apart “hot buttons” in detail



Hot buttons include:ValuationIndependence/conflicts with respect to fairness opinion providerTransaction background, negotiation history, alternatives considered and relationships between partiesIndependence of directors/special committeeWhy price is fair (must have detailed discussion)Repetitive information/unclear summaries

Plan to spend 4-6 weeks or more clearing comments



There is nothing private about going private – all written proposals, budgets, projections, opinions (other than legal) and other information used to determine price may be subject to disclosure, and all discussion and negotiations of the parties must be summarized in detailDue to nature of transaction, must ensure adequate D&O coverage and potentially enter into special indemnification and/or compensation arrangements with directors on the special committeeUnderstand application of minority discounts and how they are used in determining fair price




Tips for Success

Run a good process – right process leads to right price and offers better protection from liabilityEnsure the independence of and fully empower the special committeeRetain experienced legal, financial and accounting advisorsEnsure truly arms’ length negotiations between special committee and buy-out group; plaintiffs’ lawyers look hard for, and will spot, “sweetheart” deals


Tips for Success

Keep detailed and accurate records of all proceedingsPrepare and file thorough and accurate disclosure documents – anticipate plaintiffs’ and SEC hot buttons and proactively address


Traps for the UnwaryIf a financial advisor is used or fairness opinion rendered, NEARLY ALL handouts, drafts, discussions, etc. regarding valuation will be subject to disclosure –be careful about what is discussed or given by the advisor to the special committeeWatch out for inadvertent “first step”

Must file disclosure material as soon as a going private transaction commencesSince going private rules apply to not just a single transactionbut also a “series” of transactions, must be aware of any transactions in company stock within the last two years (e.g., stock repurchase plan) and avoid any possibility that such earlier transactions could be deemed the “first step” in going private




Traps for the UnwaryPublic announcement of transaction proposal may put company “in play”

If buyout group does not control the company, may not be able to control the process or outcome

Appropriate form of transaction can have fairness and other implications

Especially for small companies, more dollars spent on transaction costs and delays means fewer dollars to minority shareholders in priceMergers (including back-end mergers following tender offer) and/or reverse stock split may have appraisal rights


Traps for the Unwary

Beware of “filing person” trapSEC takes expansive view of who is required to file Schedule 13E-3 and when discussions among parties creates a “group” and triggers a filing requirementCan include not just primary buyer, but equity sponsors, members of senior management, subsidiaries, or other proximate parties

Keep detailed and accurate records of all proceedingsPrepare and file thorough and accurate disclosure documents – anticipate plaintiffs’ and SEC hot buttons and proactively addressSee SEC Release No. 33-7760 for important drafting information and Q&A

2007 National Directors Institute

March 2007

Going Private Considerations

STRICTLY CONFIDENTIAL

1

250+

0

50

100

150

200

250

1990 1992 1994 1996 1998 2000 2002 2004 2006E

(US$

bn)

59 59

21 18 22

40

61

98

42

23 20

36

81

98

60

3526

19

36

77

66

90

50

3241

46

77

0

50

100

150

2000 2001 2002 2003 2004 2005 2006

(US$

bn)

Q1 Q2 Q3 Q4

Continuing Strong Financial Sponsor Purchasing PowerDespite the most active investing period in history for financial sponsors, total uninvested capital exceeds $250 billion with sponsors raising over $200 billion in the first three quarters of 2006

♦ In 2006, financial sponsors completed nearly $600 billion in transactions

♦ While this investment surge was taking place, activity in raising new funds was at an all-time high– beginning in the 4th quarter of 2003, sponsor fundraising entered a new period, averaging over $50 billion raised per quarter

2000: $307 bn

2001: $186 bn

2002: $102 bn

2003: $98 bn

2004: $140 bn

US and Europe Cumulative Uninvested Capital Global Funds Raised By Year

Source: Thompson Financial and Financial Times Source: Thompson Financial

2005: $275bn

2006YTD: $224bn

2

Leveraged Buyout EBITDA Multiples Have Rebounded to Pre-2000 Levels

Global M&A market continues to be supported by significant LBO activity

Source: Standard & Poor’s PMD (average purchase multiples are for Leveraged Buyouts with total sources of $500mm or greater). LTM figures as of 9/30/06

US Leveraged Buyouts Are Increasing as a Percentage of Overall Activity

♦ Total uninvested capital continues to exceed US$230 billion ♦ Recent industrial LBOs have been completed at historically high leverage levels (6.0x+ common)

Significant Leveraged Buyout Activity

56.7 51.940.5

19.5

47.0

130.3

171.3

22.1

94.4

6%

10%

14%

4% 4% 3% 3%

13%

18%

020406080

100120140

1998 1999 2000 2001 2002 2003 2004 2005 LTM2006

LBO

Vol

ume

(US$

bn)

0%2%4%6%8%10%12%14%16% LB

O V

olume as a %

of Total M

&A Volume

18%160

Significantly higher if financial institutions are

excluded

5.44.7

4.2 4.1 4.04.6 4.9

5.3 5.05.6

33%33%30%

33%35%35%34%

32%28%

37%

0

1

2

3

4

5

6

1998 1999 2000 2001 2002 2003 2004 2005 2006 LTM2006

Tota

l Deb

t / L

TM E

BITD

A (x

)

15%

20%

25%

30%

35%

40%

45% Equity Contribution (%

)

3

8.89.5

7.8 7.3

5.8

9.5

8.07.3

8.9

0

2

4

6

8

10

12

Computer &Electronics

Healthcare Industrial< 500

Industrial= > 500

Metals &Mining

Printing &Publishing

Restarurants Retail Services &Leasing

9.2

9.9

8.27.6

6.1

9.9

8.4

7.6

9.2

1H 2006 Leveraged Buyouts

Source: Standard & Poor’s

1H06 Average Purchase Price as a Multiple of Pro Forma Trailing Non-Adjusted EBITDA by Industry

4

Date Announced Target Name

Rank Value of Deal ($mm)

Date Announced Target Name

Rank Value of Deal ($mm)

10/24/88 RJR Nabisco Inc 30,205 11/19/06 Equity Office Properties Trust 34,718

10/16/85 Beatrice Companies Inc 8,175 07/24/06 HCA Inc 32,147

07/25/86 Safeway Stores Inc 5,502 10/24/88 RJR Nabisco Inc 30,205

09/15/88 Hospital Corp of America 5,285 02/08/06 BAA PLC 30,190

07/03/87 Southland Corp 5,177 05/29/06 Kinder Morgan Inc 27,490

07/05/89 Elders IXL Ltd 5,168 10/02/06 Harrah's Entertainment Inc 27,389

07/29/02 Legrand SA 5,060 11/16/06 Clear Channel Commun Inc 26,700

08/16/04 Intelsat Ltd 5,000 11/13/05 Georgia-Pacific Corp 20,460

09/13/04 Metro-Goldwyn-Mayer Inc 4,812 10/08/06 Cablevision Systems Corp 18,635

09/12/94 Borden Inc 4,643 03/17/06 Vodafone KK 17,531

Competing for “Mega” DealsEight of the ten largest LBOs in history have been announced in the past year

Top 10 LBOs as of 1/25/07Top 10 LBOs as of 12/31/04

5

Evolution of the Corporate Raider Events:

Impact:

♦ 1980s:– Unprecedented number of

highly-levered takeovers and restructurings

– Emergence of junk bond market– Peak of the hostile takeover

and materialization of the corporate raider

– Late ‘80s market “bust”

– Creation of poison pill and rise of takeover defense

– Increased shareholder activisim– Council of Institutional

Investors (CII) formed in 1985– Institutional Shareholder

Services (ISS) also formedin 1985

– Anti-poison pill resolutions– Declassification of Boards– Opposition to takeover defenses

– Shareholder proposals on poison pills are regularly approved

– More US companies adhereto investor demands to halt takeover defenses

– Increasing Director vulnerability

♦ 1990s:– End of cash bids and hostile

deals– New era of stock deals, synergy

claims and MOEs– Foundations of new corporate

governance activism movement

♦ 2000s:– Continued corporate governance

activism– New ISS policy concerning

shareholder votes and poison pills– SEC proposed rule to allow

shareholder direct access to proxiesto nominate directors

– Corporate scandals– Hedge funds emerge as new

M&A sharks

Takeover Boom Shifting Balance of Power Rising Shareholder Activism 2006 1980 2000 1990

Raiders Seen As “Enemies” Of Public

Investor

Hedge Funds/Activists Seen As “Friends” Of

Public Investor

6

Differences Between Hedge Funds Today and Raiders of the 1980s

♦ General positive perception of “hostile” deals– Post-scandal era has led to increased corporate activism and the desire to eradicate all corporate

malfeasance, which is thought to be a common goal of hedge funds– Investors have a higher level of support for hedge funds as opposed to their 1980s predecessors– Benefit to shareholders in that pressure is put on boards to explain why their chosen course will create

the most value

Control of Capital

ParallelInvesting

DiminishingTarget Takeover

Defenses

ChangingAttitudes About

Hostile M&AActivity

♦ Hedge funds control vast pools of capital — total AUM of approximately $2.5 trillion– Raider of 1980s had to rely on third party financing, while hedge funds control their own assets– Approximately $120 billion in assets controlled by hedge funds is invested in “event driven” strategies– Limited exposure to fluctuations in credit markets– Enhances credibility in M&A realm

♦ “Wolf pack” tactics– Hedge funds network extensively and take similar positions in other funds’ targets– Success of takeover efforts have worked despite relatively small stakes in targets– Have avoided being treated as a “group” for Regulation 13D purposes

♦ Director’s increased sensitivity to shareholder activism– Corporate governance activists’ voices are increasingly heeded by Directors– Evidence that growing number of governance changes are initiated by hedge funds

2007 and Beyond

♦ Activist investors have performed well over last 12-18 months which should drive continued activist investing– Success of recent proxy fights will drive future activity during upcoming proxy season– Lower profile investors to search for activists to pursue selected situations– Successful acquisition of a company by an activist hedge fund will lead to further convergence of private

equity and public equity worlds

Continued corporate governance activism, increasing social acceptance to hostile activity, rapid accumulation of un-invested capital and the emergence of new low-risk / high-return investment strategies have reshaped the hostile M&A market and led to a wave of aggressive hedge fund activist investing

7

The OpportunityA Going Private transaction provides certain potential benefits, but entails meaningful risks

Benefits

+ Allows pursuit of aggressive and innovative growth strategies that may not be supported by the market

+ Frees management from the diversion of public company administration to focus on the business

+ Removes distraction of daily share price movements

+ Allows management to focus purely on cash and value creation without regard to short term earnings reports

+ Private equity partner will actively contribute towards strategic direction of the business

+ Ability to leverage off the acquisition and business opportunities provided by the private equity partner’s network of investee companies and contacts

+ Access to funds for expansion opportunities

+ Ability to incentivize management and employees with equity in the business

Issues

– Return targets have trended down to ~20% for major transactions but will still constrain the LBO price

– Higher levels of leverage reduce margin for error and may constrain flexibility to pursue growth opportunities

– Private equity investors will seek control/influence and Board representation

– Could put company “in play”

8

♦ Size of equity commitment required– influences identification of potential buyers

♦ Leverage– financial sponsors will seek to maximize leverage– exposure to economic and sector cycles and seasonality

♦ Debt and equity should be structured to provide capital for future growth

♦ Replacement of existing debt– make whole provisions

♦ Post transaction access to capital markets– equity sponsor becomes main capital provider

Issues for the Company

Process Issues

♦ Examination of alternatives– consideration of a range of alternatives to deliver value to shareholders– self-help alternatives (acquisitions, recapitalizations)– appetite of potential strategic acquirors

♦ Process– role of management– role of special committee– seek to design optimal process for specific situation– timing (particularly in light of BGG seasonality)

Financing Issues

9

Issues for Management

Process Issues

Financial Implications

♦ Significant management time and effort

♦ Preparation of detailed business plan with full assumptions

♦ Separate committee of independent directors created to evaluate final process outcomes

♦ Financial structure will be based on management projections (verified by due diligence)

♦ The Company will be operating in a highly levered environment and will need to focus on cash management

Management Investment

♦ Management will typically have a meaningful stake in the business– equity contribution will be less than the resultant ownership stake– potential for ratchet to increase share of equity for outperformance

♦ Investment required to be meaningful to appropriately incentivize management

♦ Timing of exit will depend on the performance of the business and the global economic environment

Risks

♦ If a bid is launched, and fails, the cost can be considerable

♦ Any public transaction will include an implicit “market check”

♦ Confidential information likely to be given to any other “bona fide” offerors

10

“Going Private” Transaction Issues

Issue Comment Approach

Due Diligence ♦ Buyers will require detailed due diligence

♦ Company will require basis to release confidential information

♦ Insider trading issues

♦ Confidentiality agreement and standstill

♦ Two stage process of preliminary discussions and indicative proposals

♦ Indicative proposal provides basis for release of confidential information

♦ Followed by detailed due diligence and business plan development

Directors Dut ies ♦ Director’s have a duty to act in the best interests of the shareholders

♦ Board may desire some form of pre-announcement “ market check”

♦ Board sub-committee of independent directors formed at some point in process

♦ Appoint independent financial advisor, possibly counsel

Disclosure ♦ Will require shareholder approval and preparation of detailed information for shareholders

♦ Disclosure of financial projections and business strategy going forward is required

♦ 13e-3 disclosure requirements

♦ Irrespective of technical legal requirements, commercial situation will drive relatively full disclosure

11

Stapled Financing Considerations

♦ Stapled financing provider (lead bank(s)) provide staple package details at the direction of sell-side adviser

♦ Stapled financing package intended to act as floor for potential leverage available to financial buyers

Description Process

♦ Stapled financing team performs credit due diligence after M&A team has completed its review

♦ Stapled financing package receives full credit approval subject to buyer acquisition strategy

♦ Staple disclosed to bidders during first round; refined in laterrounds

♦ Positive impact on sale price– good signal about the quality of the asset and credibility of

management forecasts– improves competitive tension by generating interest among

larger group of buyers– better leverage through elimination of financing conditions– sets a minimum (often aggressive) financing threshold for

competing banks to meet (i.e. encourages them to stretch)♦ Better control over process

– early due diligence provides feedback on financing issues so they can be addressed early

– forces other banks to respond quickly in order to secure role in the process, resulting in a smoother M&A execution with fewer stumbling blocks

– prevents confusion of bids being submitted based on different financing assumptions

♦ Greater certainty of closing– addresses potential sale structure concerns before putting

asset on the market– early preparation expedites closing process

Pros

♦ Strict controls on information flow critical to maintaining integrity of sale process– requires separate financing “trees” for each buyer and strict

information barriers– sellers sometimes choose to further separate lead M&A and

lead financing roles to guarantee separation of information flows

♦ Staple that is too aggressive too early in the process can scare away potential buyers (i.e. implies too high a purchase price)– staples are often “talked up” during the process

♦ Staple must be made available to all potential buyers on equal terms

♦ Process must permit buyers to freely choose their preferred source of financing– pressure to use staple should not influence sale process– some sellers prefer that sell-side advisory and fairness opinions

come from banks other than the lead stapled financing providers

Potential Issues?

12

Process TypeDate Special Exclusive Sponsor Broad Solicitation Public

Company Name / Buyer Announced Committee Auction Auction Period Announcement

Freescale Semiconductor / Blackstone; Carlyle; Permira Advisers; Texas Pacific Group 9/15/2006 1 1 2

Intergraph / Hellman & Friedman; Texas Pacific Group 8/31/2006 3

Kinder Morgan / GS Capital Partners; AIG; Carlyle; Riverstone Holdings 8/28/2006 4 5

ARAMARK / GS Capital Partners; JP Morgan Partners; THL Partners; Warburg 8/8/2006Aleris International / Texas Pacific Group 8/8/2006 6

HCA / Bain; KKR; Merrill Lynch Global PE 7/24/2006 7

Petco Animal Supplies / Leonard Green & Partners; Texas Pacific Group 7/14/2006 8

Michaels Stores / Bain; Blackstone 6/30/2006Univision / Saban Capital; Madison Dearborn; Providence Equity; Texas Pacific; THL 6/26/2006Trizec Properties / Brookfield Properties and Blackstone 6/5/2006West Corp. / Thomas H Lee Partners; Quadrangle Group 5/31/2006

Aztar / Columbia 5/19/2006SSA Global Technologies / Golden Gate 5/8/2006Education Management Corp / Providence Equity Partners; Goldman Sachs Group 3/6/2006CarrAmerica Realty / Blackstone 3/6/2006 9 10

Thomas Nelson Inc / Intermedia Partners 2/21/2006MeriStar Hospitality Corp / Blackstone 2/21/2006 11 12

Sports Authority Inc / Green Equity Investors (a unit of Leonard Green Partners) 1/23/2006Water Pik Technologies Inc / (Carlyle, Zodiac) 1/6/2006 13 13

Notes:1 As part of the go-shop provision, six potential parties were identified as potential strategic partners; however no party had submitted a proposal as of the date of the proxy. Solicitation period of 20 business days2 On Sept. 10, 2006, news began to publicly leak that the Company was engaged in discussions regarding a possible sale of the Company. In order to pre-empt any inaccurate disclosure, the Company confirmed by way of press release on Sept. 11 that it was in talks with parties regarding a possible transaction3 Independent directors met in executive sessions, however no Special/Independent Committee was established4 Richard Kinder, at the request of Goldman Sachs Capital Partners, executed a letter providing that, for a period of 90 days, so long as GSCP was pursuing a potential transaction involving Kinder Morgan, Mr. Kinder would not engage in any discussions or negotiations with any third party related to Mr. Kinder's service in connection with a bid5 Approached other third parties, but none expressed interest sufficient to pursue a transaction6 Aleris and Texas Pacific Group entered into an exclusivity agreement providing that Aleris would not negotiate with any person or entity other than TPG from July 14, 2006–Aug. 7, 20067 During the period July 24, 2006–Sept. 12, 2006, parties were contacted as part of the go-shop period8 Limited to one strategic and one financial group9 The adoption of and amendments to the Change of Control Severance Pay Plan was evaluated by the Executive Compensation Committee which consisted of only independent Directors10 Initially entered into a period of exclusivity with a private real estate investment fund, but after that period expired and the Company rejected its offer, the Company solicited bids from 4 parties11 A formal auction was never undertaken, but the Company was in talks with over 10 potentially interested parties who made unsolicited offers or were approached by the Company 12 Rumors in industry publications alerted uninvolved industry players and sponsors to a transaction, which led to additional unsolicited offers13 Initiated a broad auction in January 2005, but then in May 2005 decided to pursue sale of individual businesses. In November 2005, received an offer from Carlyle and Zodiac that was continge on a period of exclusivity. The Company granted this exclusivity

Recent Selected US Financial Sponsor Transactions

13

Process TypeDate Special Exclusive Sponsor Broad Solicitation Public

Company Name / Buyer Announced Committee Auction Auction Period Announcement

Beverly Enterprises Inc / Fillmore Capital Partners 1 11/21/2005 2 3 4 3

Enterasys Networks Inc / Investor Group (Gore, Tennenbaum) 11/14/2005SERENA Software / Silver Lake Partners 11/11/2005Linens n Things / Investor Group (Apollo, Silver Point, NRDC) 11/8/2005Capital Automotive REIT / DRA Advisors 9/2/2005SS&C Technologies / Carlyle 7/28/2005 5

School Specialty / Bain Capital 5/31/2005Maytag Corp / Whirlpool 6 5/19/2005Neiman Marcus Group / TPG and Warburg Pincus 5/2/2005 5

DoubleClick / Hellman & Friedman Capital Partners 4/25/2005SunGard Data Systems / Investor Group (Silver Lake) 3/28/2005Insight Communications Co / Carlyle 3/7/2005MAPICS / Infor 1/27/2005Polaroid / Petters Company Inc.) 1/7/2005 7

Boca Resorts / Blackstone 10/20/2004Select Medical / Welsh Carson 10/18/2004 8

LNR Property / Cerebus 8/27/2004 9

Prime Hospitality / Blackstone 8/18/2004 10

US Oncology / Welsh Carson 3/22/2004 8

Extended Stay America / Blackstone 3/5/2004Duane Reade / Oak Hill 12/22/2003UniSource Energy / Investor Group (JPM, KKR, WCP) 11/21/2003 11

Plains Resources 11/20/2003Right Mgmt Consultants / Manpower 6 9/23/2003Prime Retail / Lighthouse 7/8/2003Insignia Financial Group / CBRE Holding 2/18/2003 12

Notes:1 Fillmore Capital Partners worked with NASC and assumed NASC's obligations under the merger agreement2 No Special Committee was formed, but the Board did hold executive sessions where only independent Directors participated3 Began with a hostile bid from the Formation group 4 The Company initially signed a merger agreement with NASC, which allowed a 7-day period following the execution of an agreement in which the Company could accept a superior proposal5 Contacted strategic buyers but received no bids from potential strategic buyers6 Going private transaction not completed. Sold to strategic buyer7 Contacted other strategic and financial parties, received no interest8 Did not contact other parties until post-signing active solicitation period9 Exclusivity agreement signed after auction process10 Contacted strategic and financial buyers, including Blackstone, regarding sale of select properties. Blackstone contacted Prime Hospitality regarding purchase of entire company. Upon receiving offer from Blackstone, no other parties were contacted11 Had engaged numerous parties in informal acquisition talks over 5 year period; no auction process conducted 12 Received unsolicited interest from another industry participant, which it allowed to complete limited due diligence. This party never made a definitive offer

Recent Selected US Financial Sponsor Transactions

14

Going Private Case Study: Maytag

Overview of the Offer

♦ On May 19, 2005, Maytag announced it had entered into a definitive agreement to sell the Company to Ripplewood Holdings

♦ Offer price of $14 per share represented 21% premium to the prior day’s close, but a 45% discount to the LTM high

♦ Maytag did not conduct a “market check” prior to entering into the agreement

♦ Ripplewood and Maytag agreed to a 30-day “shopping period” for the Board to consider any other bona fide offers

♦ Ripplewood was provided a $40 million break-fee (3.6% of the equity value of the offer)

Pre-Offer LTM Share Price

Process Outcome

♦ Maytag immediately contacted several potential competing bidders; no competing bid emerged prior to the June 19 deadline

♦ On June 21, a consortium including Haier, Blackstone and Bain submitted a preliminary bid of $16 per share– Maytag allowed Haier group to continue work; Ripplewood asserted that

offer was not bona fide

♦ On July 17, Whirlpool proposed an acquisition of Maytag for $17 per share– Whirlpool subsequently increased the offer to $18 per share on July 22– Whirlpool was provided diligence information and eventually made a

formal proposal to acquire Maytag for $20 per share on August 8, which was amended to $21 per share on August 10

– Whirlpool asserted that the transaction would receive regulatory approval and refused to contractually agree to hold separate and divest problem assets

♦ On August 22, Maytag and Whirlpool signed a definitive agreement; the regulatory process is ongoing

♦ Key issue: Board was forced to choose between higher value offer with regulatory risk and a lower value, less conditional offer

LTM Trading Analysis

$0

$5

$10

$15

$20

$25

$30

May-04 Jul-04 Aug-04 Oct-04 Dec-04 Feb-05 Mar-05 May-05

Sto

ck P

rice

0

4,000

8,000

12,000

16,000

20,000

Volum

e (000s)

$14 offer price

16.0%

31.9%29.4%

17.2%

5.4%

$8.00–12.00

$12.00–16.00

$16.00–20.00

$20.00–24.00

$24.00–28.00

Cumulative Shares 16.0 48.0 77.3 94.6 100.0Traded (%)

15

Going Private Case Study: Sungard


♦ On March 28, 2005, Sungard Data Systems announced it had entered into a definitive agreement to sell the Company to a consortium of private equity firms comprised of Blackstone, KKR, Bain, Goldman Sachs, Silver Lake, Providence, and Texas Pacific

♦ Offer price of $36 per share represented 44% premium to the last closing price before the public announcement of merger talks on March 21

♦ Silver Lake Partners initated sale dialogue on November 19, 2004, six weeks following the announcement by Sungard that it planned to spin off the Company’s availability services business

♦ Sungard conducted an exclusive negotiation during the entire process based on the both the request of the Consortium and the desire not to release strategic information to any competitors

♦ The Consortium was provided a $300 million break-fee (2.7% of the equity value of the offer)


Process Outcome

♦ On March 21, 2005, The New York Post reported that the Company was in talks with a consortium of private equity firms to sell the company.

– At the time, Silver Lake had not secured all required equity commitments

♦ On March 22, the Board instructed Silver Lake that the Consortium had until March 24 to confirm its willingness to pay $36 per share, or the Company would terminate merger discussions– This represented one of several occasions that Sungard threatened to

call off merger discussions and proceed with its original plan to spin off the availability services business

♦ On March 24, Silver Lake Partners confirmed its willingness to pay $36 per share, and the Board approved the merger on March 27

♦ On July 28, 2005, stockholders approved the merger, and the transaction closed on August 11


Cumulative Shares 16.2 42.3 96.3 100.0Traded (%)

16.2%

26.1%

54.0%

3.7%

$22.00–24.00

$24.00–26.00

$26.00–28.00

$28.00–30.00

Mar-04 Jun-04 Aug-04 Nov-04 Jan-05 Mar-0520222426283032343638

Pric

e ($

US

D)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Vol

ume

()

Volume Price

$36 offer price

16

Going Private Case Study: US Oncology

Overview of the Offer Pre-Offer LTM Share Price

Process Outcome

♦ On March 22, 2004, US Oncology, Inc. announced that it had signed an agreement to be acquired by Welsh, Carson, Anderson & Stowe

♦ Offer price of $15.05 per share in cash represented an 18.5% premium above the March 19, 2004 closing price of $12.70 and a 28.1% premium over the 90 day average

♦ Welsh Carson, which already owned approximately 14.5% of its common stock before the transaction, initiated sale dialogue.

– Terms of the merger allowed for a number of market check mechanisms, included a 15-day post-signing active solicitation period and the ability to consider unsolicited proposals at any time before a shareholder vote

♦ US Oncology held an active solicitation period in order to maximize offer price in a high-volatility pricing environment.

♦ Welsh Carson was provided a $12 million break-fee (1.0% of equity value)

♦ Between March 20 and April 6, US Oncology contacted 39 potential interested parties (32 strategic buyers and 7 financial buyers) as part of the active solicitation period

– Two parties responded with interest and entered into confidentiality agreements

♦ After conducting due diligence, neither party made a bid in excess of Welsh Carson’s

♦ No unsolicited bidders emerged

♦ Shareholders approved the merger, and the transaction closed on August 20, 2004.



34.0%

21.0% 20.6%17.5%

6.9%

$6.00–8.00

$8.00–10.00

$10.00–12.00

$12.00–14.00

$14.00–16.00

Mar-03 May-03 Aug-03 Oct-03 Jan-04 Mar-046789

10111213141516

Pric

e ($

US

D)

0

1,000

2,000

3,000

4,000

5,000

6,000

Volum

e (000s)

Volume Price

$15.05 offer price

17

Going Private Case Study: Duane Reade


♦ On December 23, 2003, Duane Reade announced it had entered into a definitive agreement to sell the Company to Oak Hill Capital Management

♦ Offer price of $17 per share represented 12% premium to the prior day’s close, but a 23% premium to the 30-day average

♦ Duane Reade contacted five other private equity firms potentially interested in purchasing the Company

– Three companies declined to bid after conducting preliminary diligence

– Two companies placed bids that were lower than that of Oak Hill

♦ Duane Reade did not hold an auction for strategic buyers due to “the potential adverse consequences to the company that could result from sharing competitively sensitive information with industry participants”

♦ Oak Hill was provided a $12 million break-fee (3% of the equity value of the offer)


Process Outcome

♦ On April 21, 2004, Duane Reade reported declining YOY net income and same-store sales, prompting Oak Hill to threaten to withdraw its bid

♦ On June 21, Oak Hill amended the merger agreement, revising its bid downward from $17 per share to $16.50 per share

– As part of the revised terms of the transaction, Duane Reade was allowed to solicit competing bids until August 18

♦ No new bidders emerged during the two month open-bid window

♦ On July 26, 2004, stockholders approved the merger, and the transaction closed on August 2


1.1%

40.1%35.2%

22.6%

0.9%

$10.00–12.00

$12.00–14.00

$14.00–16.00

$16.00–18.00

$18.00–20.00


Dec-02 Mar-03 May-03 Jul-03 Oct-03 Dec-0310111213141516171819

Pric

e ($

US

D)

0

1,000

2,000

3,000

4,000

5,000

6,000

Volum

e (000s)

Volume Price

$17 offer price

18

Illustrative Process Outline

Detailed review of Strategic Alternatives with Board of Directors

Initial marketing phase based on publicly available information

Make decision to proceed and commence preparation of marketing materials, financial data and financing plan

Formal, detailed due diligence with chosen parties

Review of final bids and final negotiations with selected buyer(s)

Detailed review of Strategic Alternatives with Management Team

oard considerations in going private am s cross-border acquisition of powerscreen plc, s.c....

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