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Presentation to

Review of Aviator
April 2006

Table of Contents
Section
1

Review of Aviator
A

Business Overview

Historical Stock Price Performance

Wall Street Coverage

Current Valuation

Historical and Projected Financial Review

Officer and Director Profile

Shareholder Profile

Aviator Corporate Profile

Valuation of Aviator
A

Aviator Top-Down Valuation

Aviator Sum-of-the-Parts Valuation

Enterprise Communications Group Valuation

Enterprise Services Valuation

Pro Forma Merger ConsequencesNortel Acquires Aviator


A

Transaction Considerations

Pro Forma Merger Consequences

CONFIDENTIAL

8202529, v1

Section 11

Review of Aviator

Section 1-12

Business Overview

Snapshot of Aviator
Summary Income Statement
FY Ending 9/30

Revenue
Growth %
EBIT
Operating Margin %

($ in millions)
2003A

2004A

2005E

2006E

2007E

$3,796.0
NA

$4,069.0
7.2
%
$324.0
8.0
%

$4,934.0
21.3
%
$320.7
6.5
%

$5,316.0
7.7
%
$393.4
7.4
%

$5,635.0
6.0%

$63.0
1.7
%

$495.9
8.8%

Aviator
Aviator is a leading provider of communications systems, applications and services that help enterprises transform their businesses by redefining the way they work and interact with their
customers, employees, business partners, suppliers and others. Aviator aims to help its customers optimize their enterprises in order to serve their own customers better, enabling them to reduce
costs and grow revenue while preserving the security and reliability of their networks. A key component of Aviators strategy is to leverage its substantial experience and expertise in traditional
voice communications systems to capitalize on the transition of these traditional voice systems to IP telephony systems. Aviator believes its comprehensive suite of IP telephony systems,
communications applications and appliances transforms the enterprise communications system into a strategic asset of its customers.

Global Communications Solutions (51% Revenue)

Global Services (49% Revenue)

Large Communications Systems

Maintenance

Small Communications Systems

Implementation and Integration Services

Converged Voice Applications

Rental and Managed Services

CONFIDENTIAL

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

40

AviatorGlobal Communications Solutions


Summary Income Statement
FY Ending 9/30

Revenue
Growth %
EBIT
Operating Margin %

($ in millions)
2004A

2005E

2006E

2007E

$2,048.0
NA

$2,275.3
11.1
%
$110.6
4.9
%

$2,450.1
7.7
%
$146.0
6.0
%

$2,597.1
6.0%

$71.0
3.5
%

$189.4
7.3%

Global Communications Solutions


Global Communications Solutions sells communications systems and converged voice applications designed for both large and small enterprises. Aviators
offerings in this segment include IP telephony systems, multi-media contact center infrastructure and applications in support of customer relationship
management, unified communications applications and appliances, and traditional communications systems.

Large Communications Systems

Small Communications Systems

Converged Voice Applications

Media servers

Aviator IP Office

Voice messaging

Media gateways

Telephone handsets

Unified messaging products

Telephone handsets

Media servers for voice


applications

Other applications that facilitate


and enhance interaction in an
enterprise with customers,
partners, suppliers and employees

Contact Center Solutions


Extension to Cellular

CONFIDENTIAL

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

40

AviatorGlobal Services
Summary Income Statement
FY Ending 9/30

Revenue
Growth %
EBIT
Operating Margin %

($ in millions)
2004A

2005E

2006E

2007E

$1,761.0
NA

$2,658.7
60.0
%
$210.1
7.9
%

$2,865.9
7.8
%
$249.0
8.7
%

$3,037.9
6.0
%
$306.5
10.1
%

$249.0
14.1
%

Global Services
Global Services is focused on supporting Aviators customer base with comprehensive, end-to-end global service offerings that enable customers to plan,
design, implement, monitor and manage their converged communications networks worldwide.

Maintenance

Implementation and Integration Services

Monitors and optimizes customers


network performance to ensure
availability.

Helps customers leverage and optimize


their multi-technology, multi-vendor
environments.

Keeps enterprise communications


networks current with the latest software
releases, and, in the event of an outage,
provides on-site support to help
customers recover rapidly.

Helps enterprises assess, design and


install traditional and IP telephony
networks, contact centers and unified
communications networks.

CONFIDENTIAL

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

Rental and Managed Services


Supports customers in-house staff and
manages complex, multi-vendor, multitechnology networks.
Optimizes network performance and
configurations, backs up systems,
detects and resolves faults, performs
moves, adds and changes and manages
customers trouble tickets and
inventories.

40

AviatorMarket Share Analysis


Business Area

Voice

Services

Applications

Call Center

CONFIDENTIAL

Geographic Region
EMEA

North America

APAC

Nortel

26%

Siemens

16%

NEC

Aviator

21

Alcatel

15

Fujitsu

NEC

10

Aviator

11

Oki

Mitel

Ericsson

10

Samsung

Cisco

Nortel

Nortel

Inter-Tel

Samsung

LG Electronics

Cisco

8%

HP

8.3%

Fujitsu

Aviator

NextiraOne

5.0

HP

HP

Siemens

4.5

Cisco

Northrop Grumman

Cisco

3.9

IBM

Verizon

Nokia

3.5

NEC

IBM

IBM

3.4

Nortel

12%

Aviator

12

Nortel

Polycom

Polycom

Cisco

IBM

IBM

Cisco

Microsoft

Microsoft

Aviator

36%

Aviator

31%

Aviator

55%

Nortel

22

Nortel

23

Nortel

20

Siemens

Alcatel

11

NEC

Aspect

Aspect

Huawei

Aviator

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

11%

22%

11%

Not Available

40

AviatorProduct Comparison
Review of Large IP PBXs (1,000 + Stations)(1)
Ratings

Architecture(2)
Endpoints(3)
Management and Admin
Features

(5)

Security(6)
(7)

Performance
Total

(4)

Aviator S8710
Media Server,
G650 Gateway

Cisco IP
Communications
System

Alcatel
OmniPCX
Enterprise

ShoreTel
ShoreTel5

Siemens
HiPath 4000

15

14

12

12

10.5

11

20

20

19.5

19

17.5

18

15

11

12

12.5

11.5

11.5

20

17.5

17.5

15

17

16.5

10

8.5

5.5

20

19

17

20

16.5

13

100

90

87

83.5

78

75.5

Source: McKinsey Report.

CONFIDENTIAL

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

40

Aviators Challenges in Enterprise Voice

Source: BCR, January 2005.


(1) Nortel declined the invitation to participate.
(2) Includes: Call-control survivability; redundancy and fallover; IP-to-PSTN re-routing, VoIP bandwidth control; QOS support; scalability, standards support and interoperability; and
distributed-system networking.
(3) Includes verification of endpoint support: IP hard phone, softphone, wireless, analog/fax support, Power-over-Ethernet; unique, specialty and advanced endpoint features, including video.
(4) Based on management task completion, interface navigability and intuitiveness, on-screen help, real-time monitoring, reports and reporting.
(5) Includes: Validation of 16 basic phone features; verification of common add-on subsystems (E911, voice mail, voice recognition/response, etc.), and evaluation of special and unique advanced
features.
(6) Includes: Verification of encrypted call control, VoIP/RTP stream encryption, secure management access, vendors security documentation, services, security-infrastructure offerings and
affiliations.
(7) Includes: Traffic load/call-completion testing, interactive/MOS voice-quality tests, latency measurements, verification of high-availability features.

CONFIDENTIAL

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

40

Protecting its current installed base of voice customers

Risk of technology substitution from open standard IP-based technologies that could
eliminate the need for specialized voice vendors (Commoditization Effect)

Dealing with the threat from IP-Centrex offerings, especially as service providers look for
new revenue platforms

Well funded competitors like Cisco with significant data credibility

Changing financial metrics as customers migrate to IP

CONFIDENTIAL

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

40

AviatorSummary of Recent Acquisitions


($ in millions)
Date

2004
12/15/04
11/18/04
10/04/04
08/04/04
2003
11/26/03
10/02/03
2001
04/12/01
03/07/01
02/14/01

CONFIDENTIAL

Target

Amount
Paid

Description

Route Science
Tenovis Germany GmbH
Spectel
Tata Telecom (now Aviator
GlobalConnect Ltd.)

$7 M
371 M
106 M
18 M

A maker of adaptive networking software (ANS) for enterprises and service providers.
A European-based provider of enterprise communications systems and services.
A provider of audio and web conferencing solutions.
An India-based communication solutions provider and a distributor of Aviator products in
India.

Expanets

152 M

A provider of converged communications for mid-sized businesses, and one of the largest
resellers of Aviators products in the United States.
An IT services business unit that develops Java-based software for contact center
platforms, interactive voice response systems, and CRM software.

VISTA Information
Technologies, Inc.

NA

Quintus Corporation
Cyber IQ Systems

30 M
NA

VPNet Technologies, Inc.

120M

A provider of electronic customer relationship management (eCRM) solutions.


Developer of data networking products including HyperCommerce, CyberSSL and
MonsterSSL.
A privately held developer of virtual private network (VPN) solutions and devices.

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

40

Section 1-23

Historical Stock Price


Performance

Aviator Stock Price Performance


Daily: May 9, 2004May 9, 2005
60,000
50,000

$20.00
A

18.00

16.00

30,000
20,000

14.00

F
C

12.00

0
5/04

8.00
6.00
7/04

9/04

11/04

Volume
A

05/24/04:

Announced a voluntary contribution of approx. $111M of its


common stock to its pension plan.

07/06/04:

07/27/04:

10.00

10,000

Price

Volume

40,000

1/05

3/05

5/05

Price
G

11/18/04:

Announced it had completed cash repurchases of $131.6 million


in principal amount of its 11 1/8% senior secured notes during the
third fiscal quarter.

Announced a redemption for cash all of its outstanding Liquid


Yield Option Notes due 2021 (LYONs) on December 20,
2004. The redemption price was $545.67 per $1,000 principal
amount at maturity of LYONs.

01/25/05:

Announced Q3 04 EPS of 16 cents versus consensus estimates of


12 cents.

Announced Q1 05 EPS of 17 cents versus consensus estimates


of 18 cents.

02/24/05:

Announced the successful completion of a new $400 million


five-year unsecured revolving credit facility and the reduction
of secured floating rate notes associated with the Tenovis
acquisition.

04/19/05:

Announced Q2 05 EPS of 9 cents versus consensus estimates


of 18 cents.

10/26/04:

Announced Q4 04 EPS of 19 cents versus consensus estimates of


18 cents.

10/28/04:

Provided guidance for fiscal year 2005 including an operating


margin between 8.59.0% and revenue growth between 2527%
compared to fiscal 2004 revenues of $4.1B.

11/01/04:

Commenced a cash tender offer for any and all of its 11-1/8%
Senior Secured Notes due 2009.

Indexed Stock Price Performance


Indexed Comparison Graph
Daily: May 9, 2003May 9, 2005
130%

130%

120

120

110

110

100

100

90

90

80

80

70

70

60

60

50

50
5/05

5/04

7/04

Aviator

NASDAQ

Source: Thomson One Banker and Company press releases.

9/04

11/04

1/05

Global Communications Equipment Composite

(1)

3/05

Global Enterprise Services Composite

(2)

Section 1-34

Wall Street Coverage

Source: Thomson One Banker.


(1) Peer group includes Alcatel, Aspect, Cisco, Inter-Tel, InterVoice, Nortel and Polycom.
(2) Peer group includes Black Box, Convergys, CGI Group, Getronics and Unisys.

Wall Street Commentary


Despite the earnings miss and pressure on the shares this morning, we still see some downside risk in sales and margins for the
next several quarters. We believe that the year-over-year decline for core Aviators sales highlights sales of IP telephony products
mostly just cannibalizes sales of traditional telephony products and the enterprise telephony industry as a whole has shown and is
likely to continue to show limited growth.
Jiong Shao, Lehman Brothers (April 20, 2005)
We believe that most of the issues are temporary, the Tenovis integration wiped out almost 50% of this quarters EPS and service
revenue weakness explains the rest. The Tenovis integration had a highly detrimental effectcontributing a loss of $28m in the
quarter. The integration of this company is clearly proving to be a more challenging task than envisioned by the company.
Tal Liani, Merrill Lynch & Co. (April 20, 2005)
Despite these reductions to our top-line forecast and an assumed market-even growth outlook in our discounted cash flow model
we still view the shares as grossly undervalued by the market. While we certainly acknowledge a lower bar has been set with the
disappointing results for F2Q, we do not believe the current stock price fairly represents the companys cash-generating potential
over the longer term.
Timm Bechter, Legg Mason (April 20, 2005)
We are maintaining our Neutral rating as we expect the current pause in VoIP demand to continue through calendar 2005. We
believe that organic growth could be flat year-over-year with flat-to-down gross and net margins. We do not expect VoIP sales to
be robust enough to overcome the declining legacy TDM business, in order to give Aviator significant growth to warrant a
buy rating.
Gina Sockolow, The Buckingham Research Group (April 20, 2005)

Aviator Analyst Coverage


Analyst

Bank

Rating

Price Target

Date

Market Perform

NA

05/03/05

Tavis McCourt

Morgan Keegan

Gina Sockolow

Buckingham Research Group

Neutral

NM

04/25/05

Jiong Shao

Lehman Brothers

Neutral

$7.40

04/21/05

Scott Coleman

Morgan Stanley

Attractive

16.00

04/20/05

Long Jiang

UBS

Buy 2

13.00

04/20/05

Frank Marsala

First Albany

Neutral

NA

04/20/05

Ehud Gelblum

JP Morgan

Neutral

NA

04/20/05

Manuel Recarey

Kaufman Brothers

Buy

12.00

04/20/05

Timm Bechter

Legg Mason

Buy

21.00

04/20/05

Eric Buck

Janco Partners

Market Perform

9.00

04/20/05

Jason Ader

Thomas Weisel

Peer Perform

NA

04/20/05

Christin Armacost

SG Cowen

NA

NA

04/20/05

Samuel Wilson

JMP Securities

Strong Buy

20.00

04/20/05

Inder Singh

Prudential

Overweight

14.00

04/20/05

B. Alex Henderson

Smith Barney

Buy

20.00

04/13/05

Section 1-45

Current Valuation

Current ValuationAviator
($ in millions, except per share data)
Stock Price

Stock Price (5/27/05)

Current Value

$9.53

Fully Diluted Shares

Selected Balance Sheet Items (3/31/05)

489.298

Cash

$688.3

(1
)

52-week High

17.76

52-week Low

7.76

AverageLast 30 days

9.00

Analyst Estimates

Net Income

CY 2007E

Equity Value
Enterprise Value

$4,663.0
3,996.7

Total Debt

22.0

Shareholders Equity
Total Debt/Total Capitalization

1,238.3
1.7 %

Revenue

EBITDA

EBIT

$396.2

$5,719.5

$788.9

$513.8

CY 2006E

367.3

5,395.8

686.9

419.0

CY 2005E

296.8

5,029.5

626.4

338.9

Current Value as
a Multiple of:

Equity Value/
Net Income

Revenue

Enterprise Value/
EBITDA

EBIT

CY 2007E

11.8x

0.70x

5.1x

7.8x

CY 2006E

12.7

0.74

5.8

9.5

CY 2005E

15.7

0.79

6.4

11.8

Section 1-56

Historical and Projected


Financial Review

(1)

Based on 477.043 million basic shares and 20.696 million in-the-money options with a weighted average strike price of $3.89.

Aviator Historical Financial Review


Historical Income Statement Data
Fiscal Year Ending September 30

($ in millions)
2003

2004

Revenues
% Growth

$4,387.0
NA

$2,370.0
NM

$2,523.0

$4,069.0
7.2
%
$2,124.0

$4,462.0
NM

Cost of Sales

$3,796.0
(13.5
%)
$2,157.0

$2,330.0

$1,264.0

Gross Profit
% Gross Margin

$1,864.0
42.5
%

$1,639.0
43.2
%

$1,945.0
47.8
%

$2,132.0
47.8
%

$1,106.0
46.7
%

Operating Expenses

$2,218.0

$1,576.0

$1,621.0

$1,780.0

$966.0

Operating Income

($354.0
)
(8.1
%)

$63.0

$324.0

$352.0

$140.0

1.7
%

7.9
%

7.9
%

5.9
%

1.0
(51.0
)

(29.0
)
(78.0
)

(15.0
)
(66.0
)

(40.0
)
(41.0
)

(38.0
)
(15.0
)

($404.0
)

($44.0
)

$243.0

$271.0

$87.0

$273.0

$84.0

$43.0

$18.0

NM

NM

($49.0
)
NM

15.9
%

20.7
%

(677.0
)

(128.0)

292.0

228.0

69.0

% Operating Margin
Other Income (expense), net
Interest Expense
Pretax Income
Income Taxes (Benefit)
Effective Tax Rate
Net Income from Cont. Operations

LTM 3/31/2005

6 Months Ended
3/31/05

2002

Diluted EPS
EBITDA
% EBITDA Margin

($2.47
)

($0.34
)

$0.64

$0.48

$0.15

($158.0
)

$234.0

$471.0

$567.4

$287.4

(3.6
%)

6.2
%

11.6
%

12.4
%

12.1
%

Aviator Current Balance Sheet


Balance Sheet as of March 31, 2005

($ in millions)

Cash and Cash Equivalents


Receivables
Inventories
Deferred Income Taxes, net
Other Current Assets

$855
793
364
69
139

Total Current Assets

$2,220

Property, Plant and Equipment


Deferred Income Taxes, net
Goodwill
Other Intangible Assets
Other Assets
Total Assets

$747
360
939
390
187
$4,843

Accounts Payable
Debt Maturing within one year
Payroll and Benefit Obligations
Deferred Revenue
Other Current Liabilities
Total Current Liabilities

$403
74
289
234
365
$1,365

Long-Term Debt
Benefit Obligations
Deferred Income Taxes, net
Other Liabilities
Total Non Current Liabilities
Total Shareholders Equity
Total Liabilities and Shareholders Equity

Source: Company 10-K for period ended September 30, 2004 and Press release for period ended March 31, 2005. Shown as reported.

114
1,595
119
411
$2,239
1,239
$4,843

Aviator Financial Review


Income Statement Summary
FYE September 30,

($ in millions, except per share data)


2003A

2004A

2005E

2006E

2007E

Revenue
% Growth

$3,769.0
NA

$4,069.0
8.0
%

$4,934.0
21.3
%

$5,316.0
7.7
%

$5,635.0
6.0
%

EBITDA
% Margin

$229.0
6.1
%

$471.0
11.6
%

$615.4
12.5
%

$659.5
12.4
%

$769.2
13.7
%

EBIT
% Margin

$58.0
1.5
%

$324.0
8.0
%

$320.7
6.5
%

$393.4
7.4
%

$495.9
8.8
%

Diluted EPS(1)
% Growth

NA
NA

$0.64
NA

$0.54
(15.5
%)

$0.70
29.4
%

$0.78
11.3
%

First Call EPS LTGR

Source: Earnings release for period ended March 31, 2005.

10.0
%

Section 1-67

Officer and Director Profile

Source: Aviator public filings, Wall Street research, and Bear Stearns estimates.
(1) Based on 480.014 million basic shares and 20.696 million in-the-money options with a weighted average strike price of $3.89.

Aviator Organizational Chart


Donald K. Peterson
Chairman &
Chief Executive Officer

Jocelyne J. Attal
Chief Marketing Officer

Pamela F. Craven
Sr. Vice President,
General Counsel & Secretary

Louis J. DAmbrosio
Group Vice President,
Global Sales and Channels
and Marketing

Maryanne DiMarzo
Sr. Vice President,
Human Resources

Patricia R. Hume
Global Vice President,
Small and Medium Business
Solutions

David P. Johnson
Group Vice President,
Europe, Middle East and
Africa

Thomas A. Lesica
Group Vice President,
Global Information
Technology and Business
Operations

Karyn Mashima
Sr. Vice President,
Strategy and Technology

Garry K. McGuire
Chief Financial Officer
and Sr. Vice President,
Corporate Development

Francis M. Scricco
Group Vice President,
Avaya Global

Ravi Sethi
President,
Avaya Labs

Michael C. Thurk
Group Vice President,
Enterprise Communications
Group

Director Profile(1)
Board Composition
Insiders

Outsiders
Total

9.1
%

10

90.9

11

100.0
%

Beneficial
Ownership/
(% O/S)

Director
Since

Term
Expires

Age

Donald K. Peterson

2002

2007

55

Chairman and CEO

Previously, Mr. Peterson had been executive vice president and chief financial officer of
Lucent Technologies from 1996-2000. He has also served in various capacities at
Northern Telecom, State Mutual Life Assurance Company and Nortel. He is a member
of the board of directors of Reynolds and Reynolds Co.; a member of the board of
trustees of Worcester Polytechnic Institute; a member of the Council on Foreign
Relations; a member of the World Economic Forum; a member of the board of overseers
of the Amos Tuck School of Business Administration, and a trustee for the Committee
for Economic Development.

5,784,834
1.3%

Joseph P. Landy

2003

2007

43

Co-president of Warburg Pincus

Mr. Landy has been co-president of Warburg Pincus LLC since January 2002 and a
managing general partner since October 2002. Mr. Landy is also a member of the board
of Indus International Inc., Neustar, Inc., The Cobalt Group and ezGov, Inc.

70,095
NM

Mark Leslie

2001

2007

58

Managing director of Leslie


Ventures

Mr. Leslie is currently the managing director of Leslie Ventures, a private investment
company. He is also an adjunct professor at Stanford Graduate School of Business and
Stanford UniversityGraduate Engineering. Mr. Leslie served as chairman of the board
of Veritas Software Corporation until December 2001 and remains on the board as a
director. Mr. Leslie has also worked at Leslie Consulting (owner) and Rugged Digital
Systems (CEO). Mr. Leslie is a director of WebEx Communications, Inc. and a number
of privately held high-technology corporations.

98,721
NM

Anthony P. Terracciano

2003

2007

65

Vice Chairman, American Water


Works Company

Mr. Terracciano is vice chairman, American Water Works Company, Inc. and is the
former chairman of Dime Bancorp. He has held executive positions with First Union
Corporation, First Fidelity Bancorporation, Mellon Bank Corp. and Chase Manhattan
Bank.

148,343
NM

Bruce R. Bond

2002

2006

58

Former chairman and CEO of


PictureTel Corporation

Mr. Bond is the former chairman and CEO of PictureTel Corporation. Mr. Bond is a
retired global telecommunications executive with 23 years of experience in the Bell
System, including Ohio Bell, AT&T, US West and Mountain Bell. He has also spent six
years with British Telecom, in London, UK, responsible for transforming the Products
and Services Group as well as leading the National Business Communications Group.

49,908
NM

Directors

Position

Description

Director Profile(1) (cont.)


Beneficial
Ownership/
(% O/S)

Director
Since

Term
Expires

Age

Position

Description

Dan C. Stanzione

2000

2006

59

President Emeritus, Bell


Laboratories and former COO of
Lucent Technologies

Dr. Stanzione, president emeritus, Bell Laboratories, served as chief operating officer of
Lucent Technologies, Inc. from November 1997 to October 1999 and as the president of Bell
Laboratories at Lucent. Dr. Stanzione is also a director of Quest Diagnostics, Inc.

125,942
NM

Ronald L. Zarrella

2002

2006

54

Chairman and CEO of Bausch &


Lomb

Mr. Zarrella is chairman and CEO of Bausch & Lomb. He was president of General Motors
North America before returning to Bausch & Lomb as chairman and CEO in November
2001. He was previously with Bausch & Lomb from 1985 through 1994, first as president of
its international division, then as president and COO. Mr. Zarrella is also a member of the
board of US FIRST (For Inspiration and Recognition of Science and Technology).

64,939
NM

Philip A. Odeen

2002

2005

69

Retired Chairman of TRW Inc.

Mr. Odeen is the retired chairman of TRW Inc. Mr. Odeen was president and chief executive
officer of BDM, which TRW acquired in 1997, and directed its growth and evolution as a
multi-national information technology (IT) firm. Mr. Odeen has served in senior positions
with the Office of the Secretary of Defense and the National Security Council staff. Mr.
Odeen is also a member of the board of Convergys Corporation, The Reynolds and Reynolds
Company and WGL Holdings, Inc.

125,131
NM

Hellene S. Runtagh

2003

2005

56

Former President and CEO of


Berwind Group

Ms. Runtagh is the former president and CEO of Berwind Group, an enterprise with
businesses in multiple industries. Prior to joining Berwind, from 1997 to 2001, Ms. Runtagh
held senior level positions at Universal Studios and General Electric Company. Ms. Runtagh
is also a member of the board of Covad Communications Group and Lincoln Electric
Holdings.

51,908
NM

Paula Stern

2002

2005

59

Chairwoman of The Stern


Group, Inc.

Dr. Stern is chairwoman of The Stern Group, Inc., an economic analysis and international
business and trade advisory firm. She is currently a member of the US Presidents Advisory
Committee for Trade Policy and Negotiations and previously served as chairwoman of the
US International Trade Commission. Dr. Stern is also a member of the board of Avon
Products, Inc., Hasbro, Inc. and The Neiman Marcus Group.

51,213
NM

Richard F. Wallman

2003

2005

53

Former Senior Vice President


and Chief Financial Officer of
Honeywell International Inc.

Mr. Wallman is the former senior vice president and chief financial officer of Honeywell
International Inc. Mr. Wallman previously served as chief financial officer of AlliedSignal
Inc., prior to its merger with Honeywell. He also held various positions at IBM Corporation
and Chrysler Corporation. Mr. Wallman is also a member of the board of Ariba, Inc.,
ExpressJet Holdings, Inc., Hayes-Lemmerz and Lear Corporation.

14,016
NM

Directors

(1)

Source: January 4, 2005 Proxy and Company Website.

Section 1-78

Shareholder Profile

(1)

Source: January 4, 2005 Proxy and Company Website.

Aviator Shareholder Profile


Institutional Ownership(1)

Warburg Pincus(2)

Shares Held

% of Total

47,955,205

10.0
%
5.2
3.5
3.4
3.1
2.7
2.5
2.5
2.3
2.1
1.5
38.8
%
45.1
49.3
27.4
76.6
%

Dodge & Cox


Fidelity Management & Research
Lord, Abbett & Co.
Barclays Global Investors
Friess Associates
SSgA Funds Management
Vanguard Group
Wellington Management
AIM Management Group
Calamos Advisors
Top 10 Institutions

24,811,519
16,979,323
16,214,594
15,082,667
12,913,000
11,960,949
11,883,167
11,103,715
10,080,020
7,282,718
186,266,877

Top 15 Institutions
Top 20 Institutions
All Other Institutions
Total Institutions

216,434,130
236,594,164
131,293,886
367,888,050

Insider Ownership
Donald Peterson
Louis DAmbrosio
Michael Thurk

Other Officers and Directors


Total Insiders

1,250,174
328,500
214,130
1,792,804
1,013,384
2,806,188

0.3
%
0.1
0.0
0.4
%
0.2
0.6
%

Other Shareholders
Basic Shares Outstanding

109,320,035
480,014,273

22.8
100.0
%

Section 1-89

Aviator Corporate Profile

(1)
(2)

Source: LionShares.
Holdings obtained at a cost basis of approximately $9.16 per share.

Aviator Profile(1)
State of Incorporation

Delaware

Headquarters

Basking Ridge, NJ

Capital Stock

1,700,000,000 authorized common shares (480,014,016 basic shares outstanding).


200,000 authorized preferred shares (none outstanding).

Shareholder Meetings

Annual Meeting: Exact date and time determined by Board of Directors (usually
February).
Special Meeting: Special shareholder meetings can be called by (i) the Chairman of the
Board or (ii) the majority of the directors of the Board. Shareholders can not call special
meetings.
Notice: Notice of a meeting must be given to all shareholders entitled to vote at least 10
business days but not more than 60 days in advance of the meeting.
Record Date: Determined by the Board of Directors; may not be more than 60 days
prior to nor less than 10 days before the related shareholder meeting, dividend, or other
distribution.
Business: Must be brought before meeting by (i) Board of Directors or presiding officer
or (ii) on behalf of any stockholder of record who submits a timely request by certified
mail (return receipt requested) that the proposal be included in the Companys proxy
statement. Such shareholder requests must comply with the provisions of Rule 14a-8 of
the SEC act of 1934, as amended.

Aviator Profile (cont.)(1)

Directors

Cumulative Voting

No (default Delaware state statute).

Shareholder Action by
Written Consent

Yes; unanimous written consent of shareholders required (default Delaware statute).

Actions Requiring Super


Majority Shareholder Vote

(1)

Number: Currently eleven directors; number determined by majority vote of directors


then in office. Board must consist of at least three directors.
Staggered Terms: Yes.
Nomination: New Directors can be nominated by (i) the Board or (ii) any shareholder
who provides proper and timely notice. For notice to be proper and timely, written
notice must be made to the Secretary of the Corporation not later than the close of
business on the 45th calendar day nor earlier than the close of business on the 75th
calendar day prior to the first anniversary of the preceding years annual meeting.
Vacancies: Vacancies and newly created directorships are filled by a majority of the
directors then in office, including vacancies as a result of removal or an enlargement of
the board.
Removal: Any or all Directors may be removed for cause by a majority of
shareholders at any annual or special shareholder meeting.

80% shareholder vote required to amend articles V, VIII and IX of the Charter
including:

Election of directors
Re-election/removal of directors

Sources: SharkRepellent.net, Company Corporate Charter as amended on 1/12/03 and Amended and Restated By-laws.

Aviator Profile (cont.)(1)

(1)

Corporate Charter: As seen above, 80% vote required to amend certain provisions of
relating to director voting and constituency.

Amendments

By-laws: The by-laws may be amended by at least a majority of the total number of
directors then necessary to constitute a full Board. Any by-law may be further amended
or reinstated by a majority of shareholders by vote at either an annual or special
shareholder meeting (provided the amendment is timely included in order of business).

Officer and Director


Indemnification

All Officers and Directors of the Company are fully indemnified by the Company
unless they are found to have not acted in good faith.

Shareholder Rights Plan

Yes, triggered at 15%.

Sources: SharkRepellent.net, Company Corporate Charter as amended on 1/12/03 and Amended and Restated By-laws.

Section 210

Valuation of Aviator

(1)

Sources: SharkRepellent.net, Company Corporate Charter as amended on 1/12/03 and Amended and Restated By-laws.

Section 2-111

Aviator Top-Down Valuation

Summary Valuation of Aviator


Calendar Year Ending December 31,

($ in millions)
Aviator Enterprise Value Range as a Multiple of CY 2006E/2005E

Valuation Method

Discounted Cash Flow Analysis

Comparable Company Analysis

Comparable Acquisition Analysis

BSC REFERENCE RANGE

Enterprise Value Range

$4,500

$4,500

$5,500

$4,500

$5,750

$5,500

$6,500

$6,250

Add:
Cash
Option Proceeds

$688.3
80.4

$688.3
212.0

Less:
Total Debt
Minority Interest
Total Adjustments

$22.0
0.0
$746.7

$22.0
0.0
$878.3

Gross Equity Value

$5,246.7

$7,128.3

Gross Diluted Shares (M)

497.739

508.173

Equity Value Per Share

$10.54

$14.03

Stock Price (05/27/05)

$9.53

$9.53

Premium/(Discount)

10.6
%

47.2 %

Revenues

0.83
x
0.89

EBITDA

1.07
x
1.14

6.6
x
7.2

0.83
x
0.89

1.02
x
1.09

6.6
x
7.2

1.02
x
1.09

1.20
x
1.29

8.0
x
8.8

0.83
x

1.16
x

0.89

1.24

CY 2006E/2005E

Net Income(1)

EBIT

EBITDA

$5,395.8

$686.9

$419.0

$374.8

5,029.5

626.4

338.9

298.7

$5,395.8

$686.9

$419.0

$374.8

5,029.5

626.4

338.9

298.7

$5,395.8

$686.9

$419.0

$374.8

5,029.5

626.4

338.9

298.7

8.4
x
9.2

10.7

x
13.3

13.7
x
17.0

13.8
x
17.3

8.0
x
8.8

10.7
x
13.3

13.1
x
16.2

13.8
x
17.3

9.5
x
10.4

13.1
x
16.2

15.5
x
19.2

16.5
x
20.6

6.6
x

9.1
x

10.7
x

14.9
x

13.8
x

18.5
x

$5,395.8

$686.9

$419.0

$374.8

7.2

10.0

13.3

18.4

17.3

23.2

5,029.5

626.4

338.9

298.7

17.1
x
21.5

EBIT

Net
Income

Revenues

16.5
x
20.6
19.1
x
24.0

Assumes 20.696 million in-the-money options at a weighted average strike price of $3.89 and
31.130 million in-the-money options at a weighted average strike price of $6.81.

Valuation Matrix
($ in millions, except per share data)
Market
$9.53

Premium Over:
Stock Price (05/27/05)
52-Week High
52-Week Low
AverageLast 30 days

$9.53
17.76
7.76
9.00

0.0
%
(46.3
)
22.8
5.9

$10.00

4.9%

$11.00

15.4%

Potential Price per Share


$12.00

25.9%

$13.00

36.4%

$14.00

46.9%

(43.7)

(38.1)

(32.4)

(26.8)

(21.2)

28.9
11.2

41.8
22.3

54.6
33.4

67.5
44.5

80.4
55.6

x Shares Outstanding plus Exercisable Options


- Option Proceeds
Equity Value

497.739
$80.4
$4,663.0

497.739
$80.4
$4,896.9

497.739
$80.4
$5,394.7

497.739
$80.4
$5,892.4

508.173
$212.0
$6,394.2

508.173
$212.0
$6,902.4

+ Debt
+ Minority Interest
- Cash
Enterprise Value

$22.0

688.3
$3,996.7

$22.0

688.3
$4,230.6

$22.0

688.3
$4,728.4

$22.0

688.3
$5,226.1

$22.0

688.3
$5,727.9

$22.0

688.3
$6,236.1

Equity Value as a Multiple of:


CY 2007E Net Income
CY 2006E Net Income
CY 2005E Net Income
Enterprise Value as a Multiple of:
CY 2007E Revenue

$396.2
367.3
296.8
$5,719.5

CY 2006E Revenue
CY 2005E Revenue

5,395.8
5,029.5

CY 2007E EBITDA

$788.9

CY 2006E EBITDA
CY 2005E EBITDA

686.9
626.4

11.8
x
12.7
15.7

12.4x

13.6x

14.9x

16.1x

17.4x

13.3
16.5

14.7
18.2

16.0
19.9

17.4
21.5

18.8
23.3

0.70
x
0.74
0.79

0.74x

0.83x

0.91x

1.00x

1.09x

0.78
0.84

0.88
0.94

0.97
1.04

1.06
1.14

1.16
1.24

5.1
x
5.8
6.4

5.4x

6.0x

6.6x

7.3x

6.2
6.8

6.9
7.5

7.6
8.3

8.3
9.1

9.1
10.0

9.2x

10.2x

11.1x

12.1x

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.
CY 2007E EBIT
$513.8
7.8
8.2x
(1) Multiple of Equity Value.

7.9x

CY 2006E EBIT
CY 2005E EBIT

419.0
338.9

x
9.5
11.8

10.1
12.5

11.3
14.0

12.5
15.4

13.7
16.9

14.9
18.4

Discounted Cash Flow Analysis


($ in millions, except per share data)
WACC
PV of Period Cash Flows

15.00%

PV of Terminal Value
PV of Enterprise
Implied FCF Growth Rate
PV per Share(1)

PV of Period Cash Flows

16.00%

TV-Forward Revenue Multiple


0.85x
1.00x
1.15x

TV-Forward EBITDA Multiple


6.5x
7.5x
8.5x

TV-Forward EBIT Multiple


9.0x
10.0x
11.0x

TV-Forward Unlevered NI Multiple


14.0x
15.0x
16.0x

$1,345.3

$1,345.3

$1,345.3

$1,345.3

$1,345.3

$1,345.3

$1,345.3

$1,345.3

$1,345.3

$1,345.3

$1,345.3

3,075.8

3,618.6

4,161.3

3,539.5

4,084.1

4,628.6

3,419.5

3,799.5

4,179.4

3,510.7

3,761.5

$1,345.3
4,012.3

$4,421.11

$4,963.89

$5,506.68

$4,884.87

$5,429.41

$5,973.95

$4,764.87

$5,144.82

$5,524.77

$4,856.06

$5,106.82

$5,357.59

6.8
%

7.9
%

8.8
%

7.8
%

8.7
%

9.4
%

7.6
%

8.3
%

8.8
%

7.7
%

8.2
%

8.6
%

$10.32

$11.41

$12.49

$11.25

$12.34

$13.42

$11.01

$11.77

$12.53

$11.19

$11.69

$12.19

$1,315.7

$1,315.7

$1,315.7

$1,315.7

$1,315.7

$1,315.7

$1,315.7

$1,315.7

$1,315.7

$1,315.7

$1,315.7

$1,315.7

PV of Terminal Value

2,960.3

3,482.7

4,005.1

3,406.6

3,930.7

4,454.8

3,291.2

3,656.8

4,022.5

3,378.9

3,620.3

3,861.6

PV of Enterprise

$4,276.0

$4,798.4

$5,320.8

$4,722.3

$5,246.4

$5,770.5

$4,606.8

$4,972.5

$5,338.2

$4,694.6

$4,935.9

$5,177.3

7.7
%

8.9
%

9.8
%

8.7
%

9.6
%

10.4
%

8.5
%

9.2
%

9.8
%

8.7
%

9.1
%

9.5
%

$10.03

$11.08

$12.12

$10.92

$11.97

$13.02

$10.69

$11.42

$12.15

$10.87

$11.35

$11.83

$1,287.0

Implied FCF Growth Rate


PV per Share(1)

PV of Period Cash Flows

$1,287.0

$1,287.0

$1,287.0

$1,287.0

$1,287.0

$1,287.0

$1,287.0

$1,287.0

$1,287.0

$1,287.0

$1,287.0

PV of Terminal Value

17.00%

2,850.1

3,353.0

3,856.0

3,279.8

3,784.4

4,289.0

3,168.6

3,520.7

3,872.8

3,253.1

3,485.5

3,717.9

PV of Enterprise

$4,137.1

$4,640.1

$5,143.1

$4,566.9

$5,071.5

$5,576.0

$4,455.7

$4,807.7

$5,159.8

$4,540.2

$4,772.5

$5,004.9

8.6
%

9.8
%

10.7
%

9.7
%

10.6
%

11.3
%

9.4
%

10.1
%

10.7
%

9.6
%

10.1
%

10.5
%

$9.76

$10.76

$11.76

$10.61

$11.62

$12.63

$10.39

$11.09

$11.80

$10.56

$11.02

$11.49

$1,259.5

Implied FCF Growth Rate


PV per Share(1)

PV of Period Cash Flows

$1,259.5

$1,259.5

$1,259.5

$1,259.5

$1,259.5

$1,259.5

$1,259.5

$1,259.5

$1,259.5

$1,259.5

$1,259.5

PV of Terminal Value

2,744.9

3,229.3

3,713.6

3,158.7

3,644.7

4,130.6

3,051.6

3,390.7

3,729.8

3,133.0

3,356.8

3,580.6

PV of Enterprise

$4,004.3

$4,488.7

$4,973.1

$4,418.2

$4,904.1

$5,390.1

$4,311.1

$4,650.2

$4,989.2

$4,392.5

$4,616.3

$4,840.1

9.6
%

10.8
%

11.7
%

10.6
%

11.5
%

12.3
%

10.4
%

11.1
%

11.7
%

10.6
%

11.0
%

11.4
%

$9.49

$10.46

$11.42

$10.32

$11.29

$12.26

$10.10

$10.78

$11.46

$10.27

$10.71

$11.16

Implied FCF Growth Rate


PV per Share(1)

18.00%

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.

Free Cash Flow AnalysisWholeCo


($ in millions)
Projected FYE September 30,
2007
2008

2005

2006

Revenue

$4,934.0

$5,316.0

$5,635.0

EBITDA

$615.4

$659.5

Depreciation & Amortization

(294.7
)

EBIT
EBIT Margin
Taxes
Tax Rate
Unlevered Net Income
Depreciation & Amortization
(Increase)/Decrease in Working Capital
Capital Expenditures & Additions to Intangible Assets
Other Cash Flows

2009

2010

$5,973.1

$6,331.6

$6,711.5

$769.2

$847.9

$952.8

$1,010.0

(266.1
)

(273.3
)

(280.5
)

(288.0
)

(305.3
)

$320.7
6.5
%

$393.4
7.4
%

$495.9
8.8
%

$567.4
9.5
%

$664.8
10.5
%

$704.7
10.5
%

($38.7
)
12.1
%

($42.8
)
10.9
%

($109.1
)
22.0
%

($192.9
)
34.0
%

($226.0
)
34.0
%

($239.6
)
34.0
%

$282.0

$350.6

$386.8

$374.5

$438.8

$465.1

$294.7
(49.1
)
(155.2
)
3.4

$266.1
(65.2
)
(172.7
)
9.6

$273.3
(26.0
)
(171.6
)
(11.4
)

$280.5
(25.5
)
(173.5
)
(9.0
)

$288.0
(23.8
)
(175.4
)
(9.8
)

$451.1

$447.1

$517.7

Unlevered
Free Cash Flow
$375.8
$388.4
Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.
Note: Discounted back to May 01, 2005.
(1) Assumes $855.0 million cash, $80.4 million option proceeds, $188.0 million debt and 500.710 gross diluted shares.

% Growth

NA

3
%

16
%

(1
%)

16
%

Comparable Company Trading AnalysisAviator


($ in millions, except per share amounts)
Company

Stock Price
05/09/05

Equity
Value

Enterprise
Value

Enterprise Value/CY 2005E


Revenue
EBITDA
EBIT

Enterprise Value/CY 2006E


Revenue
EBITDA
EBIT

P/E
CY 2005E

CY 2006E

Aviator

$9.08

$4,185.6

$ 3,518.6

0.70
x

5.6
x

10.4x

0.65
x

5.1
x

8.4
x

15.7
x

12.7
x

Enterprise Communications
Alcatel

10.95

15,286.5

14,812.2

6.8x

9.6x

Aspect
Cisco
Inter-Tel
InterVoice
Nortel
Polycom

9.02
18.21
19.23
11.00
2.62
15.66

575.3
117,893.7
588.3
434.9
9,330.1
1,562.4

415.5
101,368.7
373.4
394.7
10,079.1
1,347.5

0.88
x
1.12
3.93
0.83
2.35
1.14
2.33

4.9
11.1
5.8
11.7
12.6
10.1

6.6
12.6
6.4
15.1
19.9
13.9

0.85
x
1.06
3.53
0.77
2.11
1.08
2.10

6.4
x
4.3
9.9
5.1
9.2
9.1
8.5

9.0
x
5.4
11.2
5.8
11.4
12.5
11.5

14.5
x
15.8
19.3
13.8
18.4
29.7
20.3

12.0
x
13.5
17.0
12.0
16.9
18.6
17.2

1.80
x
1.14

9.0
x
10.1

12.0x

1.64
x
1.08

7.5
x
8.5

9.6
x
11.2

18.8
x
18.4

15.3
x
16.9

1.14
x
0.81
0.82
0.39
0.46

8.3
x
5.6
5.4
6.1
5.6

9.6x

0.95
x
0.76
0.75
0.36
0.44

6.7
x
5.1
4.8
5.1
4.3

8.0
x
8.2
6.8
6.7
10.0

14.8
x
13.7
12.5
11.5
NM

12.5
x
12.1
10.8
9.0
19.7

0.72
x
0.81

6.2
x
5.6

12.8x

0.65
x
0.75

5.2
x
5.1

7.9
x
8.0

13.1
x
13.1

12.8
x
12.1

$10.35
12.69
40.95
9.78
25.07
12.94
24.90

$10.02
7.59
15.35
8.80
16.10
17.31
14.18

$7.99
5.94
10.03
5.85
11.75
14.96
10.93

$10.63
12.87
39.51
9.78
24.28
13.12
24.17

$10.35
7.35
15.19
8.49
14.20
14.06
13.16

$9.06
6.01
10.89
6.40
11.05
12.01
11.14

$10.08
10.86
12.91
9.68
12.38
19.09
13.53

$10.33
11.37
13.98
10.32
13.89
15.12
14.12

12.98
9.62
9.73
5.38
6.14

11.90
8.51
8.30
9.15
8.55

7.98
7.64
6.95
8.09
20.02

11.74
9.68
9.58
5.42
6.28

10.66
8.55
8.11
8.56
7.36

8.17
8.38
7.21
7.13
9.88

10.26
9.62
8.89
8.27
NA

10.65
10.36
9.40
8.10
15.92

Mean
Median
Enterprise / Telecom Services
Black Box

34.21

607.6

637.4

Convergys
CGI Group
Getronics
Unisys

13.04
5.61
1.62
6.88

1,862.9
2,506.0
1,372.2
2,320.6

2,163.4
2,684.5
1,335.0
2,711.2

Mean
Median
AviatorImplied Enterprise Value
Enterprise Communications
Alcatel
Aspect
Cisco
Inter-Tel
InterVoice
Nortel
Polycom
Enterprise/Telecom Services
Black Box
Convergys
CGI Group
Getronics
Unisys

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.

12.6

9.1
8.1
9.7
27.3

9.6

Comparable Transaction Multiples and Implied ValuationAviator


($ in millions)
Target
Target

Transaction
Date

Equity
Value

Enterprise
Value

Nuance

05/09/2005

$212.5

$113.8

Avaya

Tenovis

11/18/2004

370.5

635.5

1.49
x
1.00

Polycom
Alcatel
Nortel
InterVoice

PictureTel
Genesys
Periphonics
Brite Voice

05/22/2001
09/28/1999
08/23/1999
04/26/1999

357.7
1,526.8
419.6
172.0

358.4
1,465.3
392.0
159.5

0.92
7.25
2.27
0.97

6.5
x
6.7
26.1
14.7
10.5

Enterprise/Telecom Services
Nortel

PEC Solutions

04/26/2005

471.1

448.0

IBM
Warburg-Providence
Cisco
Avaya
CGI
GTCR

Corio
Telcordia
NetSolve
Expanets
AMS
Syniverse

01/25/2005
11/18/2004
09/09/2004
11/26/2003
03/09/2004
02/14/2002

182.0
1,350.0
128.0
152.0
858.0
770.0

174.1
1,350.0
89.0
152.0
795.7
770.0

1.65
x
2.94
1.53
2.21
0.36
0.78
2.45

AviatorImplied Valuation
Acquiror
Target
Enterprise Communications
ScanSoft
Nuance
Avaya
Tenovis
Polycom
PictureTel
Alcatel
Genesys
Nortel
Periphonics
InterVoice
Brite Voice
Enterprise/Telecom Services
Nortel
PEC Solutions
IBM
Corio
Warburg-Providence
Telcordia
Cisco
NetSolve
Avaya
Expanets
CGI
AMS
GTCR
Syniverse

Revenue

Enterprise Value/Forward
EBITDA

Acquiror
Enterprise Communications
ScanSoft

NA

EBIT

Forward
P/E

49.5
x
NA

42.1
x
NA

15.7
33.8
19.9
16.8

20.7
53.0
31.1
27.4

11.9
x
NA
7.7
NA
NA
8.9
6.3

13.2
x
NM
8.9
NM
NM
17.3
7.4

22.5
x
NM
NA
NM
NA
31.3
NA

$16.21
11.35
10.56
72.93
23.86
11.05

NA
9.48
9.73
33.57
19.56
14.40

NM
NA
11.55
23.14
14.24
12.25

NM
NA
11.58
29.39
17.31
15.27

$17.77
30.46
16.57
23.27
5.02
9.21
25.64

$16.12
NA
10.96
NA
NA
12.37
9.24

$9.95
NA
7.19
NA
NA
12.57
6.23

$12.57
NA
NA
NA
NA
17.42
NA

Note: Based on Aviators Forward Revenue of $4934.0 million, Forward EBITDA of $615.4 million, Forward EBIT of $320.7 million, and Forward Net Income of $276.2 million.
Note: Based on Aviators Cash of $855.0 million, Debt of $188.0 million, and Option Proceeds of $80.4 million.

Weighted Average Cost of Capital AnalysisAviator


Assumptions

Unlevered Beta Calculation

(1)

Risk-free Rate

4.39 %

Market Risk Premium(2)

7.20

Aviator Marginal Tax Rate

12.0

Comparable Company
Enterprise Communications
Alcatel
Aspect
Cisco
Inter-Tel
InterVoice
Nortel
Polycom
Mean
Enterprise/Telecom Services
Black Box
Convergys Corporation
CGI Group
Getronics
Unisys
Mean
Consolidated Mean
Aviator

Barra Beta

Debt/Equity(3)

Unlevered Beta(4)

1.62
1.64
1.45
1.32
1.41
2.21
1.61
1.61

39.1%
0.1
0.0
0.0
2.4
40.1
0.0
11.7%

1.20
1.64
1.45
1.32
1.38
1.63
1.61
1.46

1.24
1.14
1.00
1.99
1.75
1.43
1.53
2.44

6.7%
18.1
14.7
15.1
45.3
20.0%
15.1%
4.5

1.17
0.98
0.89
1.76
1.25
1.21
1.36
2.35

WACC CalculationBased on Aviators Unlevered Beta


Debt/
Equity(4)
10.0
%
20.0
30.0
40.0
50.0

Debt/
Capitalization
9.1%
16.7
23.1
28.6
33.3

Levered
Beta(5)
2.56
2.76
2.97
3.18
3.38

Cost of
Equity(6)
22.8%
24.3
25.8
27.3
28.7

6.00%
21.2%

7.00%
21.3%

21.1
21.0
21.0
20.9

21.3
21.2
21.2
21.2

Pre-Tax Cost of Debt


8.00%
21.4%
21.4
21.4
21.5
21.5

9.00%
21.4%
21.6
21.7
21.7
21.8

10.00%
21.5%
21.7
21.9
22.0
22.1

WACC CalculationBased on Industry Average Unlevered Beta


Debt/
Equity(4)
10.0
%
20.0
30.0
40.0
50.0

Debt/
Capitalization
9.1%
16.7
23.1
28.6
33.3

Levered
Beta(6)
1.53
1.66
1.78
1.90
2.03

Cost of
Equity(7)
15.4%
16.3
17.2
18.1
19.0

6.00%
14.5%

7.00%
14.6%

14.5
14.5
14.4
14.4

14.6
14.7
14.7
14.7

Pre-Tax Cost of Debt


8.00%
14.7%
14.8
14.9
14.9
15.0

9.00%
14.7%
14.9
15.1
15.2
15.3

Note: Based on Aviators Forward Revenue of $4934.0 million, Forward EBITDA of $615.4 million, Forward EBIT of $320.7 million, and Forward Net Income of $276.2 million.
Note: Based on Aviators Cash of $855.0 million, Debt of $188.0 million, and Option Proceeds of $80.4 million.

10.00%
14.8%
15.1
15.3
15.4
15.6

Section 2-212

Aviator Sum-of-the-Parts
Valuation
Note: Barra Beta as of May 9, 2005.
WACC = Kd * D/(D+E) + Ke * E/(D+E) .
(1) Yield on 20-year Treasury Bond as of March 9, 2005.
(2) Long-term horizon expected equity risk premium. Source: Ibbotson Associates.
(3) Total debt divided by market value of equity.
(4) Unlevered Beta = Predicted Beta / (1+ (1-tax)*D/E).
(5) Levered Beta = Unlevered Beta * (1+(1-tax)*D/E)).
(6) Cost of Equity = Risk-free Rate + (Levered Beta * Market Risk Premium) + Market Capitalization Premium.

Sum-of-the-Parts Valuation
($ in millions)
Value Range as a Multiple of CY 2006E/2005E
Valuation Method

Global Communications Group

Global Services

Enterprise Value Range

$2,000

$2,500

$2,500

$3,750

Revenues

$4,500

$6,250

EBIT

0.80
x

1.01
x

7.8
x

9.8
x

12.7

15.9
x

0.86

1.08

9.1

11.3

16.7

20.9

0.86
0.92

BSC REFERENCE RANGE

EBITDA

0.83
x
0.89
x

1.29

5.8

1.38

6.1

1.16
x

6.5
x

1.24

7.18

8.7

9.5

9.2

11.4

9.1
x

10.7
x

9.97

13.3

CY 2006E/2005E
Unlevered Net
Income

14.5

Revenues

EBITDA

EBIT

Unlevered
Net Income

18.1

x
19.0

$2,486.8

$256.3

$156.9

$138.0

x
23.8

2,319.0

220.4

119.5

105.1

16.2

2,908.9

433.0

263.4

231.8

2,710.5

406.7

219.8

193.4

$5,395.8

$689.3

$420.2

$369.8

5,029.5

627.1

339.3

298.6

14.2

10.8

17.1

12.9

19.4

14.9
x

12.2
x

16.9

18.4

15.1

x
20.9

Section 2-313

Enterprise Communications
Group Valuation

Summary ValuationGlobal Communications Group


($ in millions)
Global Communications Solutions Value Range as a Multiple of CY 2006E/2005E
Valuation Method
Discounted Cash Flow Analysis

Comparable Company Analysis

Comparable Acquisition Analysis

BSC REFERENCE RANGE

Enterprise
Value Range
$2,000

$2,000

$2,200

$2,000

$2,600

$2,500

$2,600

$2,500

Revenues
0.80
x
0.86

0.80
x
0.86

0.88
x
0.95

0.80
x
0.86

EBITDA
1.05
x
1.12

7.8
x
9.1

1.01
x
1.08
1.05
x
1.12
1.01
x
1.08

EBIT
12.7
x
16.7

10.1
x
11.8

7.8

9.8

9.1

8.6

CY 2006E/2005E

Unlevered Net Income


14.5
x
19.0

16.6
x
21.8

12.7

15.9

11.3

16.7

10.1

14.0

10.1

11.8

7.8

9.1

Revenues

EBITDA

EBIT

Unlevered
Net Income

$2,486.8

$256.3

$156.9

$138.0

18.8
x
24.7

2,319.0

220.4

119.5

105.1

14.5

18.1

$2,486.8

$256.3

$156.9

$138.0

20.9

19.0

23.8

2,319.0

220.4

119.5

105.1

16.6

15.9

18.8

$2,486.8

$256.3

$156.9

$138.0

18.4

21.8

20.9

24.7

2,319.0

220.4

119.5

105.1

9.8

12.7

15.9

14.5

18.1

$2,486.8

$256.3

$156.9

$138.0

11.3

16.7

20.9

19.0

23.8

2,319.0

220.4

119.5

105.1

Valuation Matrix at Selected Enterprise ValuesGlobal Communications


Segment
($ in millions)
Enterprise Value
$2,200.0
$2,300.0

$2,000.0

$2,100.0

$2,400.0

$2,500.0

$172.6
138.0
105.1

11.6 x
14.5
19.0

12.2 x
15.2
20.0

12.7 x
15.9
20.9

13.3 x
16.7
21.9

13.9 x
17.4
22.8

14.5 x
18.1
23.8

CY 2007E Revenue
CY 2006E Revenue
CY 2005E Revenue

$2,636.0
2,486.8
2,319.0

0.76 x
0.80
0.86

0.80 x
0.84
0.91

0.83 x
0.88
0.95

0.87 x
0.92
0.99

0.91 x
0.97
1.03

0.95 x
1.01
1.08

CY 2007E EBITDA
CY 2006E EBITDA
CY 2005E EBITDA

$298.3
256.3
220.4

6.7 x
7.8
9.1

7.0 x
8.2
9.5

7.4 x
8.6
10.0

7.7 x
9.0
10.4

8.0 x
9.4
10.9

8.4 x
9.8
11.3

CY 2007E EBIT
CY 2006E EBIT
CY 2005E EBIT

$196.2
156.9
119.5

10.2 x
12.7
16.7

10.7 x
13.4
17.6

11.2 x
14.0
18.4

11.7 x
14.7
19.2

12.2 x
15.3
20.1

12.7 x
15.9
20.9 x

Enterprise Value as a Multiple of:


CY 2007E Unlevered Net Income
CY 2006E Unlevered Net Income
CY 2005E Unlevered Net Income

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.
Note: EBITDA, EBIT, and Unlevered Net Income are all adjusted for allocation of corporate overhead.

Discounted Cash Flow AnalysisGlobal Communications Group


($ in millions, except per share data)
WACC
PV of Period Cash Flows
PV of Terminal Value
PV of Enterprise

14.50%

Implied FCF Growth Rate


PV of Period Cash Flows
PV of Terminal Value
PV of Enterprise

15.00%

Implied FCF Growth Rate

$502.9
1,667.7
$2,170.7
9.4%

15.50%

Implied FCF Growth Rate


PV of Period Cash Flows
PV of Terminal Value
PV of Enterprise

$508.7
1,700.2
$2,208.8
8.9%

Implied FCF Growth Rate


PV of Period Cash Flows
PV of Terminal Value
PV of Enterprise

Forward Revenue Multiple


1.00x
1.10x
1.20x

$497.3
1,636.1
$2,133.3
9.9%

16.00%

$491.7
1,605.1
$2,096.8
10.4%

$508.7
1,870.2
$2,378.9
9.4%
$502.9
1,834.5
$2,337.4
9.9%
$497.3
1,799.7
$2,296.9
10.4%
$491.7
1,765.6
$2,257.3
10.9%

$508.7
2,040.2
$2,548.9
9.8%
$502.9
2,001.3
$2,504.2
10.3%
$497.3
1,963.3
$2,460.5
10.8%
$491.7
1,926.1
$2,417.9
11.3%

Forward EBITDA Multiple


8.0x
9.0x
10.0x
$508.7
1,786.1
$2,294.7
9.2%
$502.9
1,752.0
$2,254.9
9.7%
$497.3
1,718.7
$2,216.0
10.1%
$491.7
1,686.2
$2,177.9
10.6%

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.
Note: EBITDA, EBIT, and Unlevered Net Income are all adjusted for allocation of corporate overhead.

$508.7
2,009.3
$2,518.0
9.8%
$502.9
1,971.0
$2,473.9
10.2%
$497.3
1,933.6
$2,430.8
10.7%
$491.7
1,897.0
$2,388.7
11.2%

$508.7
2,232.6
$2,741.3
10.2%
$502.9
2,190.0
$2,692.9
10.7%
$497.3
2,148.4
$2,645.7
11.2%
$491.7
2,107.8
$2,599.5
11.7%

Forward EBIT Multiple


9.5x
10.5x
11.5x
$508.7
1,529.3
$2,038.0
8.3%
$502.9
1,500.1
$2,003.0
8.8%
$497.3
1,471.6
$1,968.9
9.3%
$491.7
1,443.8
$1,935.5
9.8%

$508.7
1,690.3
$2,198.9
8.9%
$502.9
1,658.0
$2,160.9
9.4%
$497.3
1,626.5
$2,123.8
9.9%
$491.7
1,595.8
$2,087.5
10.3%

$508.7
1,851.2
$2,359.9
9.4%
$502.9
1,815.9
$2,318.8
9.8%
$497.3
1,781.4
$2,278.7
10.3%
$491.7
1,747.7
$2,239.5
10.8%

Free Cash Flow AnalysisGlobal Communications Group


($ in millions)
Projected FYE September 30,
2007
2008

2005

2006

Revenue

$2,275.3

$2,450.1

$2,597.1

EBITDA

$212.3

$244.8

Depreciation & Amortization

(101.7
)

EBIT
EBIT Margin
Taxes
Tax Rate
Unlevered Net Income
Depreciation & Amortization
Deferred Taxes
(Increase)/Decrease in Working Capital
Capital Expenditures
Other Cash Flows
Unlevered Free Cash Flow

Note: Discounted back to May 1, 2005.

2009

2010

$2,752.9

$2,918.1

$3,093.2

$290.9

$320.4

$359.7

$406.2

(98.8
)

(101.4
)

(104.1
)

(106.9
)

(113.3
)

$110.6
4.9
%

$146.0
6.0
%

$189.4
7.3
%

$216.3
7.9
%

$252.8
8.7
%

$292.9
9.5
%

($13.3
)
12.1
%

($15.9
)
10.9
%

($41.7
)
22.0
%

($73.5
)
34.0
%

($86.0
)
34.0
%

($99.6
)
34.0
%

$97.3

$130.1

$147.8

$142.8

$166.8

$193.3

$101.7

(16.9
)
(53.5
)
1.2

$98.8

(24.2
)
(64.1
)
3.6

$101.4

(9.6
)
(63.7
)
(4.2
)

$104.1

(9.4
)
(64.4
)
(3.3
)

$106.9

(8.8
)
(65.1
)
(3.6
)

$129.6

$144.2

$171.6

$169.7

$196.2

Comparable Company Multiples and Implied ValuationGlobal


Communications Group
($ in millions)
Stock
Price
05/09/05

Company
Aviator

Equity
Value

Enterprise
Value

Enterprise Value/CY 2005E


Revenue
EBITDA
EBIT

Enterprise Value/CY 2006E


Revenue
EBITDA
EBIT

P/E
CY 2005E

CY 2006E

$9.08

$4,185.6

$3,518.6

0.70
x

5.6

10.4
x

0.65

5.1
x

8.4
x

15.7
x

12.7 x

10.95

15,286.5

14,812.2

0.88
x

6.8

9.6
x

0.85

6.4
x

9.0
x

14.5
x

12.0 x

Enterprise Communications
Alcatel
Aspect

9.02

575.3

415.5

1.12

4.9

6.6

1.06

4.3

5.4

15.8

13.5

Cisco

18.21

117,893.7

101,368.7

3.93

11.1

12.6

3.53

9.9

11.2

19.3

17.0

Inter-Tel

19.23

588.3

373.4

0.83

5.8

6.4

0.77

5.1

5.8

13.8

12.0

InterVoice

11.00

434.9

394.7

2.35

11.7

15.1

2.11

9.2

11.4

18.4

16.9

2.62

9,330.1

10,079.1

1.14

12.6

19.9

1.08

9.1

12.5

29.7

18.6

15.66

1,562.4

1,347.5

2.33

10.1

13.9

2.10

8.5

11.5

20.3

17.2

1.80
x
1.14

9.0

1.64x
1.08

7.5
x
8.5

9.6
x
11.2

18.8
x
18.4

15.3 x

10.1

12.0
x
12.6

Alcatel

$2,045.3

$1,501.5

$1,145.4

$2,108.1

$1,649.2

$1,414.7

$1,525.8

$1,662.8

Aspect

2,585.7

1,072.9

783.4

2,626.5

1,091.5

844.6

1,663.9

1,858.5

Cisco

9,108.5

2,438.6

1,505.0

8,773.4

2,549.4

1,757.1

2,027.0

2,348.5

Inter-Tel

1,913.5

1,286.1

768.6

1,912.3

1,302.3

917.0

1,454.6

1,659.1

InterVoice

5,443.4

2,570.3

1,809.1

5,257.9

2,366.2

1,785.7

1,934.1

2,331.9

Nortel

2,643.3

2,784.2

2,375.0

2,682.5

2,339.8

1,965.8

3,125.2

2,562.3

Polycom

5,402.9

2,233.3

1,664.8

5,234.1

2,172.2

1,802.9

2,138.4

2,375.6

Nortel
Polycom
Mean
Median
Global Communications
Implied Enterprise Value

16.9

Group

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.

Comparable M&A Transaction Multiples and Implied ValuationGlobal


Communications Group
($ in millions)
Acquiror
ScanSoft
Avaya
UT Starcom
Cisco
Melita
Polycom
Cisco
Alcatel
Nortel
InterVoice
Cisco
Nortel
Lucent

Target
Nuance
Tenovis
Commworks (3Com)
Latitude
Concerto
PictureTel
Active Voice
Genesys
Periphonics
Brite Voice
Geotel
Bay Networks
Octel

Transaction
Date
05/09/2005
11/18/2004
04/23/2004
11/12/2003
10/06/2003
05/22/2001
11/10/2000
09/28/1999
08/23/1999
04/26/1999
04/12/1999
06/15/1998
07/17/1997

Target
Equity
Value
$212.5
370.5
100.0
92.5
141.9
357.7
295.3
1,526.8
419.6
172.0
1,914.1
8,520.3
1,755.8

Enterprise
Value
$113.8
635.5
100.0
69.9
113.8
358.4
275.8
1,465.3
392.0
159.5
1,854.4
7,912.7
1,665.5

Revenue
1.49x
1.00x
0.91x
2.20x
1.07x
0.92x
3.21x
7.25x
2.27x
0.97x
25.73x
2.70x
2.74x

Enterprise Value/Forward
EBITDA
NA
6.5x
NA
NA
18.0x
6.7x
47.6x
26.1x
14.7x
10.5x
85.7x
NA
14.4x

$3,463.3
2,319.0
2,110.3

NA
1,432.8
NA

NM
NA
NA

NM
NA
NA

5,101.8
2,481.3
2,133.5
7,443.9
NM
NM
2,249.4
NM
6,261.2
6,354.0

NA
3,967.6
1,476.8
NM
NM
3,240.2
2,314.5
NM
NA
3,174.1

NA
2,748.1
1,875.9
NM
NM
2,377.7
2,007.3
NM
NA
2,724.2

NA
4,006.0
2,176.5
NM
NM
3,270.0
2,881.0
NM
NA
3,648.5

EBIT
49.5x
NA
NA
NA
23.0x
15.7x
96.3x
33.8x
19.9x
16.8x
92.3x
NA
22.8x

Forward
P/E
42.1x
NA
NA
NA
38.1x
20.7x
122.1x
53.0x
31.1x
27.4x
132.5x
NA
34.7x

Global Communication GroupImplied Valuation


Acquiror
Target
ScanSoft
Avaya
UT Starcom

Nuance
Tenovis
Commworks (3Com)

Cisco
Melita
Polycom
Cisco
Alcatel
Nortel
InterVoice
Cisco
Nortel
Lucent

Latitude
Concerto
PictureTel
Active Voice
Genesys
Periphonics
Brite Voice
Geotel
Bay Networks
Octel

Note: The P/E multiple is applied to Unlevered Net Income.


Note: Based on Enterprise Communications segment Forward Revenue of $2319.0 million, Forward EBITDA of $220.4 million, Forward EBIT of $119.5 million, and Forward Net Income of $105.1
million.

Cost of Capital AnalysisEnterprise Communications Group


Assumptions

Unlevered Beta Calculation

Risk-free Rate(1)

4.39 %

Market Risk Premium(2)

7.20

Harris Marginal Tax Rate

12.0

Comparable Company

Barra
Beta

Debt/
Equity(3)

Unlevered
Beta(4)

Global Communications Group


Alcatel
Aspect
Cisco
Inter-Tel
InterVoice
Nortel
Polycom
Consolidated Mean

1.62
1.64
1.45
1.32
1.41
2.21
1.61
1.61

39.1
0.1
0.0
0.0
2.4
40.1
0.0
11.7

1.20
1.64
1.45
1.32
1.38
1.63
1.61
1.46

Aviator

2.44

4.5

2.35

WACC CalculationBased on Industry Average Unlevered BetaGlobal Communications Group


Debt/
Equity(4)

Debt/
Capitalization

10.0 %
20.0
30.0
40.0
50.0

9.1 %
16.7
23.1
28.6
33.3

Levered
Beta(5)
1.59
1.72
1.85
1.98
2.11

Cost of
Equity(6)

6.00%

7.00%

Pre-Tax Cost of Debt


8.00%

9.00%

10.00%

15.9 %
16.8
17.7
18.6
19.6

14.9 %
14.9
14.8
14.8
14.8

15.0 %
15.0
15.0
15.1
15.1

15.1 %
15.2
15.3
15.3
15.4

15.1 %
15.3
15.5
15.6
15.7

15.2 %
15.5
15.7
15.8
16.0

Note: The P/E multiple is applied to Unlevered Net Income.


Note: Based on Enterprise Communications segment Forward Revenue of $2319.0 million, Forward EBITDA of $220.4 million, Forward EBIT of $119.5 million, and Forward Net Income of $105.1
million.

Section 2-414

Enterprise Services Valuation

Note: Barra Beta as of May 9, 2005.


WACC = Kd * D/(D+E) + Ke * E/(D+E) .
(1) Yield on 20-year Treasury Bond as of May 9, 2005.
(2) Long-term horizon expected equity risk premium. Source: Ibbotson Associates.
(3) Total debt divided by market value of equity.
(4) Unlevered Beta = Predicted Beta/(1+ (1-tax)*D/E).
(5) Levered Beta = Unlevered Beta * (1+(1-tax)*D/E).
(6) Cost of Equity = Risk-free Rate + (Levered Beta * Market Risk Premium) + Market Capitalization Premium.

Summary ValuationGlobal Services


($ in millions)
Global Services Value Range as a Multiple of CY 2006E/2005E
Valuation Method
Discounted Cash Flow Analysis

Comparable Company Analysis

Comparable Acquisition Analysis

BSC REFERENCE RANGE

CONFIDENTIAL

Enterprise
Value Range
$2,500

$2,500

$2,750

$2,500

$3,500

$3,500

$4,000

$3,750

Revenues
0.80
x
0.86

0.86
x
0.92

0.95
x
1.01

0.86
x
0.92

EBITDA
1.05
x
1.12

7.8
x
6.1

1.20
x
1.29

EBIT

CY 2006E/2005E

Unlevered Net Income

Revenues

10.8
x
12.9

15.1
x
18.1

Unlevered
Net Income

EBITDA

EBIT

$2,908.9

$433.0

$263.4

$231.8

2,710.5

406.7

219.8

193.4

9.5
x
11.4

8.1
x
8.6

13.3
x
15.9

5.8

8.1

9.5

13.3

10.8

15.1

$2,908.9

$433.0

$263.4

$231.8

6.1

8.6

11.4

15.9

12.9

18.1

2,710.5

406.7

219.8

193.4

1.38
x
1.48

6.4

9.2

10.4

15.2

11.9

17.3

$2,908.9

$433.0

$263.4

$231.8

6.8

9.8

12.5

18.2

14.2

20.7

2,710.5

406.7

219.8

193.4

1.29
x
1.38

5.8

8.7

9.5

14.2

10.8

16.2

$2,908.9

$433.0

$263.4

$231.8

6.1

9.2

11.4

17.1

12.9

19.4

2,710.5

406.7

219.8

193.4

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56

Valuation Matrix at Selected Enterprise ValuesGlobal Services


($ in millions)
Enterprise Value
$3,000.0
$3,250.0

$2,500.0

$2,750.0

$3,500.0

$3,750.0

$279.5
231.8
193.4

8.9 x
10.8
12.9

9.8 x
11.9
14.2

10.7 x
12.9
15.5

11.6 x
14.0
16.8

12.5 x
15.1
18.1

13.4 x
16.2
19.4

CY 2007E Revenue
CY 2006E Revenue
CY 2005E Revenue

$3,083.5
2,908.9
2,710.5

0.81 x
0.86
0.92

0.89 x
0.95
1.01

0.97 x
1.03
1.11

1.05 x
1.12
1.20

1.14 x
1.20
1.29

1.22 x
1.29
1.38

CY 2007E EBITDA
CY 2006E EBITDA
CY 2005E EBITDA

$491.8
433.0
406.7

5.1 x
5.8
6.1

5.6 x
6.4
6.8

6.1 x
6.9
7.4

6.6 x
7.5
8.0

7.1 x
8.1
8.6

7.6 x
8.7
9.2

CY 2007E EBIT
CY 2006E EBIT
CY 2005E EBIT

$317.6
263.4
219.8

7.9 x
9.5
11.4

8.7 x
10.4
12.5

9.4 x
11.4
13.6

10.2 x
12.3
14.8

11.0 x
13.3
15.9

11.8 x
14.2
17.1

Enterprise Value as a Multiple of:


CY 2007E Unlevered Net Income
CY 2006E Unlevered Net Income
CY 2005E Unlevered Net Income

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.
Note: EBITDA, EBIT, and Unlevered Net Income are all adjusted for allocation of corporate overhead.

CONFIDENTIAL

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56

Discounted Cash Flow AnalysisGlobal Services


($ in millions)
WACC
PV of Period Cash Flows
PV of Terminal Value
PV of Enterprise

13.50%

Implied FCF Growth Rate


PV of Period Cash Flows
PV of Terminal Value
PV of Enterprise

14.00%

Implied FCF Growth Rate

$863.5
1,622.1
$2,485.6
4.7%

14.50%

Implied FCF Growth Rate


PV of Period Cash Flows
PV of Terminal Value
PV of Enterprise

$873.3
1,653.9
$2,527.2
4.3%

Implied FCF Growth Rate


PV of Period Cash Flows
PV of Terminal Value
PV of Enterprise

Forward Revenue Multiple


0.80x
0.95x
1.10x

$853.8
1,591.0
$2,444.8
5.2%

15.00%

$844.3
1,560.7
$2,405.0
5.6%

$873.3
1,964.0
$2,837.4
5.6%
$863.5
1,926.2
$2,789.7
6.1%
$853.8
1,889.3
$2,743.1
6.5%
$844.3
1,853.3
$2,697.6
7.0%

$873.3
2,274.1
$3,147.5
6.6%
$863.5
2,230.4
$3,093.8
7.1%
$853.8
2,187.6
$3,041.4
7.6%
$844.3
2,145.9
$2,990.2
8.0%

Forward EBITDA Multiple


5.0x
6.0x
7.0x
$873.3
1,920.3
$2,793.6
5.4%
$863.5
1,883.3
$2,746.8
5.9%
$853.8
1,847.3
$2,701.0
6.4%
$844.3
1,812.0
$2,656.3
6.8%

$873.3
2,304.3
$3,177.7
6.7%
$863.5
2,260.0
$3,123.5
7.2%
$853.8
2,216.7
$3,070.5
7.6%
$844.3
2,174.4
$3,018.7
8.1%

$873.3
2,688.4
$3,561.7
7.6%
$863.5
2,636.7
$3,500.1
8.1%
$853.8
2,586.2
$3,439.9
8.6%
$844.3
2,536.8
$3,381.1
9.0%

Forward EBIT Multiple


7.5x
8.5x
9.5x
$873.3
2,052.3
$2,925.7
5.9%
$863.5
2,012.8
$2,876.3
6.4%
$853.8
1,974.3
$2,828.1
6.9%
$844.3
1,936.6
$2,780.9
7.3%

$873.3
2,326.0
$3,199.3
6.8%
$863.5
2,281.2
$3,144.7
7.2%
$853.8
2,237.5
$3,091.3
7.7%
$844.3
2,194.8
$3,039.1
8.2%

$873.3
2,599.6
$3,472.9
7.4%
$863.5
2,549.6
$3,413.1
7.9%
$853.8
2,500.7
$3,354.5
8.4%
$844.3
2,453.0
$3,297.3
8.9%

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.
Note: EBITDA, EBIT, and Unlevered Net Income are all adjusted for allocation of corporate overhead.

CONFIDENTIAL

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56

Free Cash Flow AnalysisGlobal Services


($ in millions)
Projected FYE September 30,
2007
2008

2005

2006

Revenue

$2,658.7

$2,865.9

$3,037.9

EBITDA

$403.1

$417.5

Depreciation & Amortization

(193.0
)

EBIT
EBIT Margin
Taxes
Tax Rate
Unlevered Net Income
Depreciation & Amortization
Deferred Taxes
(Increase)/Decrease in Working Capital
Capital Expenditures
Other Cash Flows
Unlevered Free Cash Flow

2009

2010

$3,220.2

$3,413.5

$3,618.3

$479.5

$528.7

$594.3

$672.2

(168.4
)

(173.0
)

(177.6
)

(182.3
)

(193.2
)

$210.1
7.9
%

$249.0
8.7
%

$306.5
10.1
%

$351.1
10.9
%

$412.0
12.1
%

$478.9
13.2
%

($25.3
)
12.1
%

($27.1
)
10.9
%

($67.4
)
22.0
%

($119.4
)
34.0
%

($140.1
)
34.0
%

($162.8
)
34.0
%

$184.7

$221.9

$239.1

$231.7

$271.9

$316.1

$193.0

(32.2
)
(101.7
)
2.2

$168.4

(41.3
)
(109.3
)
6.1

$173.0

(16.4
)
(108.6
)
(7.2
)

$177.6

(16.1
)
(109.8
)
(5.7
)

$182.3

(15.1
)
(111.0
)
(6.2
)

$246.2

$245.9

$279.8

$277.7

$321.9

Note: Discounted back to May 1, 2005.

CONFIDENTIAL

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56

Comparable Company Trading AnalysisGlobal Services


($ in millions)
Company
Aviator
Enterprise Services
Black Box
Convergys
CGI Group
Getronics
Unisys
Mean
Median
Global ServicesImplied Enterprise Value
Black Box
Convergys
CGI Group
Getronics
Unisys

Enterprise Value/CY 2005E


Revenue
EBITDA
EBIT

Enterprise Value/CY 2006E


Revenue
EBITDA
EBIT

Stock Price
05/09/05

Equity
Value

Enterprise
Value

$9.08

$4,185.6

$3,518.6

0.70
x

5.6
x

10.4
x

0.65
x

5.1
x

$34.21

$607.6

$637.4

13.04
5.61
1.62
6.88

1,862.9
2,506.0
1,372.2
2,320.6

2,163.4
2,684.5
1,335.0
2,711.2

1.14
x
0.81
0.82
0.39
0.46
0.72
x
0.81

8.3
x
5.6
5.4
6.1
5.6
6.2
x
5.6

9.6
x
9.1
8.1
9.7
27.3
12.8
x
9.6

0.95
x
0.76
0.75
0.36
0.44
0.65
x
0.75

$3,098.5
2,192.2
2,221.5
1,048.3
1,255.1

$3,379.4
2,280.0
2,211.0
2,487.2
2,290.1

$2,102.8
1,994.9
1,769.5
2,140.8
6,008.5

$2,767.3
2,209.1
2,183.4
1,058.8
1,292.4

P/E
CY 2005E

CY 2006E

8.4
x

15.7
x

12.7
x

6.7
x
5.1
4.8
5.1
4.3
5.2
x
5.1

8.0
x
8.2
6.8
6.7
10.0
7.9
x
8.0

14.8
x
13.7
12.5
11.5
NM
13.1
x
13.1

12.5
x
12.1
10.8
9.0
19.7
12.8
x
12.1

$2,884.3
2,218.4
2,081.2
2,224.2
1,845.8

$2,095.5
2,161.6
1,793.4
1,770.4
2,630.5

$2,864.5
2,655.0
2,417.9
2,215.6
NA

$2,891.1
2,798.4
2,496.6
2,086.0
4,556.0

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.

CONFIDENTIAL

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56

AviatorComparable Transaction Multiples and Implied Valuation


Global Services
($ in millions)

Acquiror

Target

Transaction Date

Equity Value

4/26/2005

$471.1

Target
Enterprise Value

Revenue

Enterprise Value/Forward
EBITDA

EBIT

Forward P/E

$448.0

1.65
x

11.9
x

13.2
x

22.5
x
NM

Nortel

PEC Solutions

IBM

Corio

1/25/2005

182.0

174.1

2.94

NA

NM

Warburg-Providence

Telcordia

11/18/2004

1,350.0

1,350.0

1.53

7.7

8.9

NA

Cisco

NetSolve

9/9/2004

128.0

89.0

2.21

NA

NM

NM

Avaya

Expanets

11/26/2003

152.0

152.0

0.36

NA

NM

NA

CGI

AMS

3/9/2004

858.0

795.7

0.78

8.9

17.3

31.3

GTCR

Syniverse

2/14/2002

770.0

770.0

2.45

6.3

7.4

NA

ServicesImplied Valuation
Acquiror

Target

Nortel

PEC Solutions

$3,830.6

$2,623.1

$1,577.2

$2,365.8

IBM

Corio

6,817.8

NA

NA

NA

Warburg-Providence

Telcordia

3,548.0

1,697.3

1,063.4

NA

Cisco

NetSolve

5,124.9

NA

NA

NA

Avaya

Expanets

829.4

NA

NA

NA

CGI

AMS

1,815.9

1,950.9

2,067.0

3,291.0

GTCR

Syniverse

5,681.5

1,388.7

884.2

NA

Note: The P/E multiple is applied to Unlevered Net Income.


Note: Based on Global Services segment Forward Revenue of $2319.0 million, Forward EBITDA of $220.4 million, Forward EBIT of $119.5 million, and Forward Net Income of $105.1 million.

CONFIDENTIAL

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

56

Cost of Capital AnalysisServices


Assumptions

Unlevered Beta Calculation

Risk-free Rate(1)

4.39 %

Market Risk Premium(2)

7.20

Aviator Marginal Tax Rate

12.0

Comparable Company
Global Services
Black Box
Convergys Corporation
CGI Group
Getronics
Unisys
Consolidated Mean
Aviator

Barra
Beta

Debt/
Equity(3)

Unlevered
Beta(4)

1.24
1.14
1.00
1.99
1.75
1.43
2.44

6.7%
18.1
14.7
15.1
45.3
20.0
4.5

1.17
0.98
0.89
1.76
1.25
1.21
2.35

WACC CalculationBased on Industry Average Unlevered BetaServices


Debt/
Equity(4)
10.0 %
20.0
30.0
40.0
50.0

Debt/
Capitalization
9.1 %
16.7
23.1
28.6
33.3

Levered
Beta(5)

Cost of
Equity(6)

6.00%

7.00%

1.32
1.42
1.53
1.64
1.74

13.9%
14.6
15.4
16.2
16.9

13.1%
13.1
13.1
13.1
13.1

13.2%
13.2
13.3
13.3
13.4

Pre-Tax Cost of Debt


8.00%
13.3%
13.4
13.5
13.6
13.6

9.00%

10.00%

13.3%
13.5
13.7
13.8
13.9

13.4%
13.7
13.9
14.1
14.2

Note: The P/E multiple is applied to Unlevered Net Income.


Note: Based on Enterprise Communications segment Forward Revenue of $2319.0 million, Forward EBITDA of $220.4 million, Forward EBIT of $119.5 million, and Forward Net Income of
$105.1 million.
(1) Excludes Cisco/Active Voice, Alcatel/Genesys and Cisco/Geotel.

CONFIDENTIAL

Draft of 8202529, v1, printed 10/14/2008 10/14/2008

56

Section 315

Pro Forma Merger Consequences


Nortel Acquires Aviator
Note: Barra Beta as of May 9, 2005.
WACC = Kd * D/(D+E) + Ke * E/(D+E).
(1) Yield on 20-year Treasury Bond as of May 2, 2005.
(2) Long-term horizon expected equity risk premium. Source: Ibbotson Associates.
(3) Total debt divided by market value of equity.
(4) Unlevered Beta = Predicted Beta/(1+ (1-tax)*D/E).
(5) Levered Beta = Unlevered Beta * (1+(1-tax)*D/E)).
(6) Cost of Equity = Risk-free Rate + (Levered Beta * Market Risk Premium) + Market Capitalization Premium.

Section 3-116

Transaction Considerations

Nortel Merges with AviatorStrategic Rationale

Dominant Legacy
PBX Vendor
Globally

Different Channel
and Portfolio
Strategies Create
Opportunities for
Cross Selling

Similar Geographic
Footprint Creates
Potential for Cost
Synergies

Potential to create the largest PBX vendor globally, with combined enterprise revenue of $8.1
billion and well-entrenched customer relationships

Nortel/Aviator will be the #1 vendor in the North American enterprise voice market, with a
combined market share of approximately 47%

Nortel/Aviator will be the #1 vendor in the global contact center market, with market shares of
56%, 54% and 75% in North America, Europe and Asia respectively

Could potentially have the scale and the R&D capabilities to take on Cisco in the enterprise
PBX portion of the overall enterprise market as it transforms from circuit to IP

Aviators channel mix is mostly direct (65%), whereas Nortels enterprise channel strategy is
almost entirely indirect

Nortels enterprise business generates approximately 30% of revenue from sale of data
networking equipment; Aviator currently generates no revenue from sale of data networking
equipment

Aviator could potentially cross-sell its service offerings into Nortels customer base; Nortel
could potentially cross-sell its data offerings into Aviators customer base

Significant opportunities for cost synergies exist through reductions in cost of sales, overlapping
R&D platforms and redundant G&A functions

Geographic proximity of Nortel and Aviator should allow for efficient execution of these
synergies.

Pro Forma Revenue Mix Analysis


Nortel

Nortel + Aviator

Enterprise
24%

Wireline
Infrastructure
16%

Wireline
Infrastructure
25%
Enterprise
50%

Wireless
Infrastructure
51%

Total 2005E Revenues = $10.6 Billion

Wireless
Infrastructure
34%

Total 2005E Revenues = $15.6 Billion

Review of Portfolio OverlapNortel Merges with Aviator

Nortel

Lucent

Siemens

Alcatel

Cisco

Aviator

Juniper

Nortel+
Aviator

Growth Businesses
Carrier IP Routing

Carrier VoIP Gateways and Softswitches

Enterprise Convergence

3G Wireless
Broadband Access

Security, Storage, WLAN

Home Networking/Mobile Phones

Mature Businesses

ATM Switching

2.02.5G Wireless

Optical Networking

Enterprise Data Networking

Declining Businesses

Digital Cross Connect


Circuit Switching

Legacy PBX

Leadership/Strong Position

Source: Wall Street Research and Bear Stearns Investment Banking estimates.
Note: Fiscal year ending December 31.

Weak Position

Review of Key ConsiderationsMerger with Aviator


Insert Portrait Tabloid 6937031 (Doc. # 6966602) Page 48

Shareholder Overlap Analysis


Nortel Shareholders
Primecap Management
Capital Research & Management
MFS Investment Management
Smith Barney Asset Management
Alliance Capital Management
McLean Budden
TD Asset Management
CDP Capital World Markets
Barclays Global Investors
BC Investment Management
Fidelity Management & Research
Canadian Pension Plan Investment Board
BMO Nesbitt Burns
Artisan Partners
RBC Asset Management
Ontario Teachers Pension Plan Board
Equinox Capital Management
Ontario Municipal Employee Retirement System
TAL Global Asset Management
Phillips, Hager & North Investment Management
Connor, Clark & Lunn Investment Management
I. G. Investment Management
HOOPP Investment Management
Deutsche Bank Investment Management
Merrill Lynch Investment Managers
Letko, Brosseau & Associates
Jennison Associates
UBS Global Asset Management
Goldman Sachs Asset Management
Marathon Asset Management
TIAA-CREF Investment Management
T. Rowe Price Associates
AIM Trimark Investments
Morgan Stanley
Natcan Investment Management
C. I. Mutual Funds
Deutsche Bank Securities
Courage Capital Management
Norges Bank Kapitalforvaltning
Goldman Sachs

Aviator Shareholders
Position
118.712
98.550
79.074
78.334
67.884
65.775
62.288
53.573
52.422
51.264
48.026
42.805
37.682
36.825
36.346
33.866
31.418
29.419
24.508
23.038
21.856
18.811
16.524
15.758
15.302
15.174
14.037
13.760
13.554
12.867
12.146
11.685
11.517
11.495
11.425
11.193
9.921
9.736
8.994
8.972

% Ownership
2.8 %
2.3
1.9
1.8
1.6
1.5
1.5
1.3
1.2
1.2
1.1
1.0
0.9
0.9
0.9
0.8
0.7
0.7
0.6
0.5
0.5
0.4
0.4
0.4
0.4
0.4
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.2
0.2
0.2
0.2

Warburg Pincus
Dodge & Cox
Fidelity Management & Research
Lord, Abbett & Co.
Barclays Global Investors
Friess Associates
SSgA Funds Management
Vanguard Group
Wellington Management
AIM Management Group
Calamos Advisors
Artisan Partners
Franklin Advisers
Trusco Capital Management
Victory Capital Management
Northern Trust Global Investments
Bessemer Investment Management
Pioneer Global Asset Management
TIAA-CREF Investment Management
BNP Paribas Asset Management
Fifth Third Asset Management
Dreyfus Investment Advisors
AXA Rosenberg Investment Management
Mellon Bank Asset Management
JPMorgan Investment Management
Northern Capital Management
Perkins, Wolf, McDonnell & Co.
US Bancorp Asset Management
Merrill Lynch Investment Managers, Inc.
American Century Global Investment Management
California Public Employees Retirement System
Deutsche Bank Investment Management
Northwestern Investment Management
PDR Services
Akanthos Capital Management
Citadel Investment Group
Fred Alger Management
Teacher Retirement System of Texas
HSBC Asset Management
Geode Capital Management

Position
47.955
24.812
16.979
16.215
15.083
12.913
11.961
11.883
11.104
10.080
7.283
7.013
6.717
5.952
5.751
4.736
4.645
4.537
3.838
3.617
3.207
2.944
2.720
2.695
2.339
2.153
2.132
2.100
2.056
2.050
1.998
1.971
1.931
1.874
1.872
1.752
1.744
1.699
1.696
1.668

% Ownership
10.0
%
5.2
3.5
3.4
3.1
2.7
2.6
2.5
2.3
2.1
1.5
1.5
1.4
1.2
1.2
1.0
1.0
0.9
0.8
0.8
0.7
0.6
0.6
0.6
0.5
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.3

Section 3-217

Pro Forma Merger Consequences

Relative Contribution Analysis


($ in millions)
Nortel

$
Aviator

Total

%
Nortel

Aviator

Revenues

FY 2008E
FY 2007E
FY 2006E

$13,305.9
12,672.3
12,061.7

$6,062.8
5,719.5
5,395.8

$19,368.7
18,391.9
17,457.4

68.7%
68.9
69.1

31.3%
31.1
30.9

EBITDA

FY 2008E
FY 2007E
FY 2006E

$1,481.0
1,429.4
1,130.1

$874.2
788.9
686.9

$2,355.2
2,218.3
1,817.0

62.9%
64.4
62.2

37.1%
35.6
37.8

EBIT

FY 2008E
FY 2007E
FY 2006E

$1,075.3
1,023.9
738.8

$591.8
513.8
419.0

$1,667.1
1,537.6
1,157.8

64.5%
66.6
63.8

35.5%
33.4
36.2

Net Income

FY 2008E
FY 2007E
FY 2006E

$933.5
867.2
571.6

$406.7
396.2
367.3

$1,340.1
1,263.4
938.9

69.7%
68.6
60.9

30.3%
31.4
39.1

$3,386.4
3,870.0
630.0
3,766.7

$1,040.1
20.5
0.0
1,535.3

$4,426.5
3,890.5
630.0
5,302.0

76.5%
99.5
100.0
71.0

23.5%
0.5
0.0
29.0

Equity Value(2)
Enterprise Value

$11,315.9
12,361.9

$4,663.0
3,996.7

$15,978.9
16,358.6

70.8%
75.6

29.2%
24.4

Equity Value at $10.00 per Share


Equity Value at $12.00 per Share
Equity Value at $14.00 per Share

$11,315.9
11,315.9
11,315.9

$4,896.9
5,892.4
6,902.4

$16,212.9
17,208.4
18,218.3

69.8%
65.8
62.1

30.2%
34.2
37.9

Cash(1)
Total Debt(1)
Minority Interest(1)
Shareholders Equity(1)

Pro Forma Merger Consequences SummaryNortel Acquires Aviator


($ in millions, except for per share data)
100% Stock

$10.00 per Share


25% Cash/
75% Stock

50% Stock/
50% Cash

Implied Exchange Ratio


Premium to Market
Earnings (Dilution)/Accretion Per Share ($)
FY 2006E
FY 2007E
FY 2008E
Earnings (Dilution)/Accretion Per Share (%)
FY 2006E

3.779 x
4.9 %

2.834 x
4.9 %

1.889 x
4.9 %

$0.01
(0.01 )
(0.01 )

$0.02
0.01
0.01

$0.02
0.01
0.01

FY 2007E
FY 2008E
Additional Pre-Tax Earnings for 0% Dilution
FY 2006E
FY 2007E
FY 2008E
Closing Balance Sheet
Cash
Incremental Identifiable Intangible Assets
Total Debt
Equity
FFO/Debt
FY 2006E
FY 2007E
FY 2008E
Total Debt/Capitalization
Closing
FY 2006E
FY 2007E
FY 2008E
Total Debt/EBITDA
Closing
FY 2006E
FY 2007E
FY 2008E
Pro Forma OwnershipAviator

(2.7 )
(3.7 )

3.4
2.4

NA
38.3
60.2
$4,306.0
692.3
3,870.0
8,663.6

7.7 %

13.6 %

11.9 %

100% Stock
4.534 x
25.9 %
($0.00 )
(0.02 )
(0.02 )

$12.00 per Share


25% Cash/
75% Stock

50% Stock/
50% Cash

3.401 x
25.9 %

2.267 x
25.9 %

$0.01
(0.01 )
(0.01 )

$0.00
(0.00 )
(0.00 )

4.3 %

0.5 %

100% Stock
5.290 x
46.9 %

$14.00 per Share


25% Cash/
75% Stock
3.968 x
46.9 %

50% Stock/
50% Cash
2.645 x
46.9 %

($0.01 )
(0.03 )
(0.04 )

($0.01 )
(0.02 )
(0.03 )

($0.01 )
(0.02 )
(0.02 )

(5.5
%)
(11.6 )
(11.9 )

(10.4
%)
(8.0 )
(7.7 )

7.0
6.5

(0.6
%)
(9.6 )
(10.5 )

(3.6 )
(4.3 )

(0.4 )
(0.6 )

(8.1
%)
(15.9 )
(16.6 )

NA
NA
NA

NA
NA
NA

$5.4
145.9
178.8

NA
49.7
66.9

NA
5.6
8.0

$81.8
255.0
299.1

$50.2
168.5
194.6

$85.5
104.6
113.1

$3,081.7
692.3
3,870.0
7,439.4

$3,001.2
692.3
5,030.0
6,215.1

$4,306.0
891.4
3,870.0
9,659.1

$3,000.0
891.4
4,038.7
8,186.0

$3,011.6
891.4
5,545.0
6,712.9

$4,306.0
1,093.4
3,870.0
10,669.1

$3,021.4
1,093.4
4,320.0
8,943.5

$3,023.3
1,093.4
6,070.0
7,217.9

41.5 %
50.5
52.7

41.0 %
50.0
52.2

33.6 %
41.9
43.9

41.6 %
50.6
52.8

40.1 %
49.2
51.4

31.2 %
39.4
41.3

41.6 %
50.6
52.9

35.9 %
44.1
46.1

28.4 %
36.1
37.9

29.4 %
27.6
25.4
23.4

32.4 %
30.2
27.7
25.4

42.4 %
37.0
33.9
31.0

27.3 %
25.8
23.9
22.1

31.4 %
28.9
26.6
24.5

43.0 %
36.9
34.0
31.4

25.5 %
24.2
22.5
21.0

31.1 %
29.4
27.3
25.4

43.6 %
37.3
34.7
32.2

2.9 x
2.1
1.7
1.6
30.2 %

2.9 x
2.1
1.7
1.6
24.5 %

3.8 x
2.5
2.0
1.9
17.8 %

2.9 x
2.1
1.7
1.6
34.2 %

3.1 x
2.2
1.8
1.7
28.1 %

4.2 x
2.6
2.1
2.0
20.7 %

2.9 x
2.1
1.7
1.6
37.9 %

3.3 x
2.4
1.9
1.8
31.4 %

4.6 x
2.8
2.3
2.2
23.4 %

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.
Note: Fiscal year ending December 31.
(1) As of December 31, 2005.
(2) As of May 27, 2005.

Nortel Acquires AviatorSynergy Sensitivity Analysis


Assuming 50% Stock/50% Cash

($ in millions, except per share data)


Pretax Synergies
$250

$300

$350

$400

$450

$500

$0.06
0.06
0.06

$0.07
0.07
0.06

$0.08
0.07
0.07

$0.09
0.08
0.08

$0.09
0.09
0.09

$0.10
0.10
0.10

44.5
%
28.0
10.0

51.1
%
32.2
13.5

57.6
%
36.4
17.0

64.1
%
40.6
20.6

70.7
%
44.8
24.1

77.2
%
49.0
27.7

$0.04
0.04
0.04

$0.05
0.05
0.05

$0.06
0.06
0.05

$0.07
0.06
0.06

$0.08
0.07
0.07

$0.09
0.08
0.08

32.1
%
19.8
17.7

38.4
%
23.9
21.4

44.7
%
27.9
25.1

51.0
%
32.0
28.7

57.3
%
36.0
32.4

63.6
%
40.1
36.1

$0.03
0.02
0.02

$0.03
0.03
0.03

$0.04
0.04
0.04

$0.05
0.05
0.04

$0.06
0.06
0.05

$0.07
0.06
0.06

$10/share
Earnings (Dilution)/Accretion Per Share ($)
FY 2006E
FY 2007E
FY 2008E
Earnings (Dilution)/Accretion Per Share (%)
FY 2006E
FY 2007E
FY 2008E
$12/share
Earnings (Dilution)/Accretion Per Share ($)
FY 2006E
FY 2007E
FY 2008E
Earnings (Dilution)/Accretion Per Share (%)
FY 2006E
FY 2007E
FY 2008E
$14/share
Earnings (Dilution)/Accretion Per Share ($)
FY 2006E
FY 2007E
FY 2008E

Note: Financial projections based on Wall Street equity research and Bear Stearns Investment Banking estimates.
Assumes December
31, 2005 closingPer
date.Share (%)
Earnings
(Dilution)/Accretion
Assumes
Nortel stock price of $2.65 and Aviator stock price of $9.53 (as
of May 27, 2005). 26.1
FY 2006E
20.0
32.2
38.3
44.4
50.5
Assumes 20% of Excess of Purchase Price over Book Value is allocated to Incremental Identifiable Intangible Assets and is amortized (straight-line) over 10 years for book purposes.
%
%
%
%
%
%
Assumes purchase funded with balance sheet cash subject to a $3.0 billion minimum cash balance; excess, if any, funded with a combination of bank debt at L+350 and senior notes at 8.19% for 50/50
FY
11.5
15.4
19.4
23.3
27.2
31.1
and 2007E
25/75 scenarios.

FY 2008E

10.0

13.5

17.0

20.6

24.1

27.7

Nortel Acquires AviatorSynergy Sensitivity Analysis


Assuming 100% Stock

($ in millions, except per share data)


Pretax Synergies
$250

$300

$350

$400

$450

$500

$0.05
0.03
0.03

$0.05
0.04
0.03

$0.06
0.05
0.04

$0.07
0.05
0.05

$0.08
0.06
0.06

$0.08
0.07
0.06

35.5
%
15.1
(2.2
)

41.0
%
18.7
0.6

46.6
%
22.3
3.5

52.1
%
25.8
6.4

57.7
%
29.4
9.2

63.2
%
33.0
12.1

$0.03
0.01
0.01

$0.04
0.02
0.02

$0.05
0.03
0.02

$0.06
0.03
0.03

$0.06
0.04
0.04

$0.07
0.05
0.04

25.6
%
7.2
4.7

30.8
%
10.5
7.7

36.0
%
13.9
10.8

41.3
%
17.2
13.8

46.5
%
20.6
16.8

51.7
%
24.0
19.9

$0.02
(0.00
)
(0.00
)

$0.03
0.01

$0.04
0.01

$0.04
0.02

$0.05
0.03

$0.06
0.03

0.00

0.01

0.01

0.02

0.03

$10/share
Earnings (Dilution)/Accretion Per Share ($)
FY 2006E
FY 2007E
FY 2008E
Earnings (Dilution)/Accretion Per Share (%)
FY 2006E
FY 2007E
FY 2008E

$12/share
Earnings (Dilution)/Accretion Per Share ($)
FY 2006E
FY 2007E
FY 2008E
Earnings (Dilution)/Accretion Per Share (%)
FY 2006E
FY 2007E
FY 2008E
$14/share
Earnings (Dilution)/Accretion Per Share ($)
FY 2006E
FY 2007E
FY 2008E
Earnings (Dilution)/Accretion Per Share (%)

FY 2006E
FY 2007E
FY 2008E

16.6
%
(0.0
)
(2.2
)

21.6
%
3.1

26.5
%
6.3

31.4
%
9.5

36.4
%
12.7

41.3
%
15.8

0.6

3.5

6.4

9.2

12.1