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Bill Brady Head of Global Technology Corporate Finance Credit Suisse First Boston Technology Group November 9, 2001

Plop, Plop, Fizz, Fizz, Oh What A Relief It Is! Bill Brady Head of Global Technology Corporate Finance Credit Suisse First Boston Technology Group November 9, 2001 TeleSoft Annual Meeting Agenda Changing Leaders in the Technology Market Taming the Volatile Equity Markets

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Bill Brady Head of Global Technology Corporate Finance Credit Suisse First Boston Technology Group November 9, 2001

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  1. Plop, Plop, Fizz, Fizz, Oh What A Relief It Is! Bill BradyHead of Global Technology Corporate FinanceCredit Suisse First Boston Technology GroupNovember 9, 2001 TeleSoft Annual Meeting

  2. Agenda • Changing Leaders in the Technology Market • Taming the Volatile Equity Markets • The New M&A Environment 4. What to Expect in the Future 5. Implications for Liquidity Options 6. CSFB Technology Group - The Clear Leader

  3. Dramatic Growth in New Companies and Market CapTechnology Companies and Market Cap by Size Now vs. 1990 # Companies Market Cap ($Bn) Category > $1 Bn $100MM - 1Bn < $100MM 322 $2,807 # Companies Market Cap ($Bn) 582 $210 33 $194 118 $38 759 $23 134 $5 2001 1990 $237 1663 All 285 $3,040 16.5% CAGR 24.7% CAGR Source: Factset based on data from 4/9/90 and 10/31/2001.

  4. Technology Group The Mighty Have Fallen…Top 40 US-Traded Technology Companies 1 year ago Market Value ($BN) Market Value ($BN) 10/31/2000 10/31/2001 %Change 10/31/2000 10/31/2001 %Change % % Motorola * Broadcom Compaq TSMC Phillips Qualcomm STMicroelectronics * Siebel Applied Materials Automatic Data Processing * Network Appliance * Marconi PLC * I2 Technologies NEC * Yahoo * Ariba * Palm * Ciena SAP * Gemstar TOTAL Cisco Systems Microsoft Intel Nokia EMC Oracle Sun Microsystems IBM Nortel Networks AOL Time Warner Ericsson Hewlett-Packard Texas Instruments Lucent Technologies JDS Uniphase Dell Siemens * Juniper Networks Veritas Alcatel $387.4 366.1 302.9 186.3 216.9 220.4 178.5 174.8 136.6 117.0 110.9 90.6 84.9 78.9 78.3 76.4 75.5 61.9 57.6 57.5 $123.9 313.2 164.3 96.2 27.2 75.4 33.0 187.7 18.6 209.0 34.4 32.6 48.5 22.9 10.5 62.6 43.1 7.1 11.3 16.1 (68.0) (14.4) (45.7) (48.4) (87.5) (65.8) (81.5) 7.4 (86.4) 78.6 (69.0) (64.0) (42.9) (71.0) (86.6) (18.1) (42.9) (88.5) (80.4) (72.0) $54.5 52.3 51.8 51.3 51.3 48.7 46.0 44.2 43.2 41.2 38.2 35.7 34.0 33.2 32.7 31.3 30.3 30.1 29.9 28.1 $3867.4 $36.2 8.6 14.8 42.3 29.6 37.4 25.0 7.5 27.8 32.2 4.4 1.2 2.0 15.2 6.2 0.8 1.4 5.3 18.2 8.4 $1862.2 (33.6) (83.6) (71.4) (17.5) (42.3) (23.2) (45.7) (83.0) (36.6) (21.8) (88.5) (96.6) (94.1) (54.2) (81.0) (97.4) (95.4) (82.4) (39.1) (70.1) (51.8) * Companies not included in 2001 top 40 list.

  5. This Year’s Leader BoardTop 40 US-Traded Technology Companies Now 10/31/2001 Market Value ($BN) 10/31/2001 Market Value ($BN) EMC * First Data Corp STMicroelectronics Lucent Technologies * UMC Nortel Networks SAP * Computer Associates Alcatel NEC * Maxim Integrated Products Compaq * Ebay * Accenture * Concord EFS * Analog Devices * Micron Technology * Linear Technology Veritas JDS Uniphase $27.2 25.8 25.0 22.9 18.7 18.6 18.2 17.8 16.1 15.2 15.1 14.8 14.3 14.1 13.7 13.7 13.6 12.4 11.3 10.5 Microsoft IBM Intel AOL Time Warner Cisco Systems Nokia Oracle Dell Texas Instruments Siemens TSMC Qualcomm Motorola Ericsson Sun Microsystems Hewlett-Packard Automatic Data Processing Electronic Data Systems Philips Applied Materials $313.2 187.7 164.3 137.8 123.9 96.2 75.4 62.6 48.5 43.1 42.3 37.4 36.2 34.4 33.0 32.6 32.2 30.2 29.6 27.8 * * Companies not included in 2000 top 40 list.

  6. Moore’s Law of Nasdaq Ran Out of Gas in Y2K January 1983 - Present Doubles in 1 year Doubles in 2 years Doubles in 4 years Doubles in 8 years

  7. 66 240 44 168 57 60 61 100 35 51 366 111 124 410 145 40 30 49 206 221 78 295 96 226 27 145 147 Equity New Issue MarketTechnology Equity & Equity-Related Offerings, 1993-2001 $ Billions US and Int’l Technology transactions completed. Source: Securities Data Company as of 10/31/01.

  8. Performance of Top IPOs of 1999 and 2000 Top 50 IPOs of 1999 Top 50 IPOs of 2000

  9. Continued Volatility Results in Short Market Windows # of Negative Pre-Announcements (1) (1)3 weeks into each quarter

  10. M&A MarketTechnology Mergers & Acquisitions, 1993-2001 $ Billions YTD # of Deals 35 65 95 120 164 228 487 833 289 Source: Securities Data Company as of 10/31/2001. Incl. Domestic and Int’l transactions, pending or completed, with transaction value >$50MM, excl. share repurchases.

  11. Acquirors willing to accept significant earnings dilution for promise of significant growth opportunity • Acquirors typically accept zero to small amount of earnings dilution in exchange for growth prospects • Little tolerance for cash burn Accretion/Dilution • Many bidders drove up valuation • Public market offered liquidity events for startups, driving up valuation • Few acquirors in this market • Public market more stringent; therefore, fewer startups obtaining liquidity Valuation • Revenue could be more than one year away • Clear path to revenue and profitability • Must be at least in customer trial phase of development Time to revenue • Potential for customers • Small base, many in trial stage • Highly concentrated revenue • Quality, well-financed and diversified customer base with recurring revenue stream Customer base Perceptions Towards Strategic Transactions Have Changed in This Difficult Market Environment… THEN: MAY 1999 NOW: OCTOBER 2001

  12. …Resulting in a Challenging Near-Term Environment Current Status • Consolidation activity has slowed significantly from the torrid pace of early 2000 • Operating issues have forced many traditional acquirers to focus internally • Market volatility has created uncertainty as to “true values” and hesitancy to make commitments • Uncertainty over proper valuation levels remains • Many sellers focused on last year’s valuations • Valuation analysis has returned to traditional earnings and cash flow based methodologies • Consolidators no longer playing with “funny-money” Valuation • Public equity markets have become less forgiving of ill conceived or poorly executed transactions • Heightened scrutiny of both long term strategic and near term financial implications of any transaction • Integration plans must be well thought out and expertly communicated to the market at time of announcement • Earnings dilution is a major concern Public MarketScrutiny

  13. Many Potential Buyers Have Seen Their Share Prices Plummet Over the Last Year PERCENTAGE CHANGE IN STOCK PRICE SINCE MARCH 1, 2000 Comm. Equipment eBusiness Internet Infrastructure Nortel Lucent Alcatel Cisco i2 Ariba C1 Siebel Inktomi Akamai VeriSign InfoSpace Semiconductors Optical Internet JDSUniphase New Focus Intel Broadcom PMC-Sierra Conexant Sycamore Corvis Amazon Yahoo! AOL eBay Note: Corvis and New Focus data is from IPO Pricing of $36.00 and $20.00, respectively. Let’s not forget the companies that have gone bankrupt:

  14. As a Result, Companies Have Begun to Use Cash ToFund Their Acquisitions • With stock prices at record lows, the notion that cash is king is being reinforced • In particular, large cap companies with depressed P/Es are using cash as their preferred acquisition currency • Sellers prefer liquidity in these uncertain times • Interest rates are at unprecedented lows • Many companies are taking advantage of the convertible market’s tremendous appetite for technology issues to build “war chests” SELECTED ACQUIRORS USING CASH AS ACQUISITION CURRENCY

  15. Pooled IRR average % (09/30/00) Pooled IRR average % (03/31/01) Pooled IRR average % (12/31/00) VC Returns Under PressureCumulative Vintage Year Performance of U.S. Venture Capital Funds Source: Venture Economics Information Services

  16. Market Rallies and Subsequent Downturns 8/1/82 - 12/13/84 - 10/28/87 - 10/11/90 - 12/9/94 - 10/8/98 - MARKET RALLIES 6/22/83 8/21/87 10/9/89 3/18/94 7/20/98 3/10/00 Length 11 33 24 42 44 17 Trough to Peak: NASDAQ 96% 91% 66% 147% 180% 256% S&P 500 60% 108% 54% 59% 165% 45% Range of S&P 11x – 13x 10x – 22x 11x – 15x 14x – 26x 15x – 29x 28x - 34x (1) 500P/E Multiples AND SUBSEQUENT 6/22/83 - 8/21/87 - 10/9/89 - 3/18/94 - 7/20/98 - 3/10/00 - DOWNTURNS 12/13/84 10/28/87 10/11/90 12/9/94 10/8/98 10/31/01 Length 18 2 12 9 3 20 Peak to Trough: NASDAQ -27% -36% -33% -11% -30% -67% S&P 500 -5% -31% -18% -5% -19% -24% Range of S&P 500 9x – 13x 15x – 20x 14x – 16x 15x – 20x 24x – 28x 23x – 29x (1) P/E Multiples Net Market Move Net Market Move % CAGR % % CAGR % NASDAQ 95% 8.5% 419% 16.1% S&P 500 176% 13.2% 259% 12.3% (1) Trailing P/E multiples.

  17. Recessions Are Followed by Market Rallies • There have been 5 recessions in the U.S. since 1969 • The average recession lasted for 12 months and resulted in a 2% contraction in GDP • During recessionary times, the S&P 500 has not demonstrated significant drops, except in ‘73 - ’75 (-23%) • Markets begin to recover one quarter before the trough and gain an average of 23% in the following 6 months • CSFB Technology Research anticipates that tech sectors should experience a recovery in the next 6 quarters, with a concentration during Q2 - Q3 of 2001 Overviews of Previous Recessions Expected Timing of Recovery by Sector

  18. Implications Don’t Count On: • Return to “irrational exuberance” any time soon • Indefinite losses will be bankable • Me-too, undifferentiated companies will be bankable • Valuations on private financings will hold up Plan To: • Focus on business model, sponsorship, uniqueness, barriers • Develop alternative financing plans, merger partners • Shift business models to accelerate profitability and cash flow • Finance ahead of needs when windows present themselves

  19. Revenue Base (in quarter going public) $2 - 5MM $10MM Time to Profitability 6 - 8 Quarters 2 - 3 Quarters Valuation Metrics Revenue Multiples P/E Multiples The Bar is Set Higher for IPOs 20002001

  20. Equity Private Placement Market Overview • Flat to down rounds • Months, not weeks to complete • Fully-funded business plans only • Fewer buyers • 3-5x returns to IPO within 1-2 years

  21. Current M&A Environment • Strategic rationale for M&A stronger than ever • Few deals near-term due to “reality distortion field” • Strategic buyers’ currency and confidence reduced • Sellers’ value expectations need to adjust • Financial buyers’ interest growing • Expect strong rebound in M&A as reality sets in

  22. The Clear Leader in Technology Investment Banking 2000- 2001 Total Technology Financing and M&A (Number of Deals) 2000- 2001 Total Technology Financing and M&A (Dollars in Billions) Notes: Transactions announced 1/1/00 through10/31/01. Includes private placement deals. (1) JP Morgan deals include deals completed by H&Q.

  23. CSFB: Clear Winners Do Not Need Recounts Reuters’ Survey of Fund Managers* Ranking Category 1st Place 2nd Place Morgan Stanley DLJ Goldman Sachs Morgan Stanley Morgan Stanley Morgan Stanley Quality of new equity issues Pricing of new equity issues Quality of research product and service in the aftermarket Aftermarket performance of equity issues Equitable allocation of new issue product Due diligence on new issues * In a survey dated July 19, 2000, Reuter’s surveyed 75 of the largest institutional managers of active US equity funds. Responses have been weighted by fund size.

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