Exhibit (c)(7)
Investment Banking Division
Presentation to
Keystone Holdings LLC
CONFIDENTIAL
December 11, 2002
Table of Contents
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III |
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IV |
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| Project Keystone |
2
Overview of process
• Presented final proposed offer of $26.00 to the company’s advisors on Tuesday December 10, contingent upon final structure and contract issues being satisfactorily settled
• $26.00 price is contingent on receiving Trustee approval and final Board approval
• One step merger versus tender offer
| Project Keystone |
4
Chart of stock price from spin-off
• Overview of Keystone stock price from spin-off from ACX
| Project Keystone |
5
Control premiums
• Latest offer represents a control premium of 70.8%
— Company traded at approximately 36% of 52 week high prior to announcement
| Project Keystone |
6
Management’s revised financial model
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Management’s revised financial model
• McDonald Investments received Management’s revised financial model on December 3
• Company’s Board was unwilling to provide model until the two parties were within acceptable range
• A number of changes but generally close to old model
— Projected revenue reduction of $2.5 million in 2003 and $22.7 million in 2004
— Projected EBITDA reduction of $2.6 million in 2003 and $5.1 million in 2004
| Project Keystone |
8
Management’s revised financial model ($ in thousands)
• Analyzing downside/organic growth case only
— Management model does not include approximately $2.0 million of public company SG&A expense savings
— Assumes no transaction
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| McDonald Model |
| Management Model |
| Difference |
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| Budgeted |
| Budgeted |
| Budgeted |
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| 2002P |
| 2003P |
| 2004P |
| 2002P |
| 2003P |
| 2004P |
| 2002P |
| 2003P |
| 2004P |
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Revenue |
| 352,087 |
| 362,476 |
| 400,732 |
| 352,083 |
| 360,000 |
| 378,100 |
| (4 | ) | (2,476 | ) | (22,632 | ) |
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Gross Profit |
| 49,799 |
| 63,566 |
| 67,181 |
| 50,074 |
| 60,390 |
| 61,806 |
| 275 |
| (3,176 | ) | (5,375 | ) |
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Operating Expenses |
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Research & Development |
| 10,194 |
| 10,331 |
| 12,093 |
| 10,106 |
| 9,188 |
| 9,200 |
| (88 | ) | (1,143 | ) | (2,893 | ) |
SG&A |
| 45,382 |
| 42,421 |
| 41,073 |
| 45,855 |
| 46,777 |
| 46,000 |
| 473 |
| 4,356 |
| 4,927 |
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Other |
| 20,678 |
| 2,000 |
| 2,000 |
| 0 |
| 0 |
| 0 |
| (20,678 | ) | (2,000 | ) | (2,000 | ) |
Total Operating Expenses |
| 76,254 |
| 54,752 |
| 55,166 |
| 55,961 |
| 55,965 |
| 55,200 |
| 20,293 |
| (1,213 | ) | (34 | ) |
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Operating Income |
| (26,455 | ) | 8,814 |
| 12,016 |
| (5,887 | ) | 4,425 |
| 6,606 |
| 20,568 |
| (4,389 | ) | (5,410 | ) |
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Net Income |
| (22,200 | ) | 2,655 |
| 4,767 |
| (22,176 | ) | (2,111 | ) | (726 | ) | 24 |
| (4,766 | ) | (5,493 | ) |
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EBITDA |
| 18,696 |
| 32,975 |
| 37,713 |
| 16,968 |
| 30,425 |
| 32,606 |
| (1,728 | ) | (2,550 | ) | (5,107 | ) |
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| Project Keystone |
9
Management’s revised financial model ($ in thousands)
• Analyzing downside/organic growth case only
— Management model has approximately $4 million less in cash and $3 million less in capital expenditures
— Assumes no SG&A savings and no transaction
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| McDonald Model |
| Management Model |
| Difference |
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| Budgeted |
| Budgeted |
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| 2002P |
| 2003P |
| 2004P |
| 2002P |
| 2003P |
| 2004P |
| 2002P |
| 2003P |
| 2004P |
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Assets |
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Cash |
| 57,051 |
| 66,881 |
| 78,346 |
| 56,840 |
| 63,252 |
| 74,426 |
| (211 | ) | (3,629 | ) | (3,920 | ) |
Total Current Assets |
| 165,564 |
| 176,704 |
| 196,927 |
| 166,281 |
| 177,019 |
| 191,954 |
| 717 |
| 315 |
| (4,973 | ) |
P,P&E |
| 146,397 |
| 136,972 |
| 126,643 |
| 146,797 |
| 132,797 |
| 118,797 |
| 400 |
| (4,175 | ) | (7,846 | ) |
Total Assets |
| 373,962 |
| 375,675 |
| 385,570 |
| 375,078 |
| 361,816 |
| 362,751 |
| 1,116 |
| (13,859 | ) | (22,819 | ) |
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Total Liabilities and Equity |
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Total Current Liabilities |
| 96,672 |
| 95,730 |
| 100,859 |
| 52,650 |
| 50,250 |
| 51,911 |
| (44,022 | ) | (45,480 | ) | (48,948 | ) |
Long-term debt |
| 100,000 |
| 100,000 |
| 100,000 |
| 100,000 |
| 100,000 |
| 100,000 |
| 0 |
| 0 |
| 0 |
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Total Liabilities |
| 199,321 |
| 198,379 |
| 203,508 |
| 199,319 |
| 187,919 |
| 189,580 |
| (2 | ) | (10,460 | ) | (13,928 | ) |
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Stockholder’s Equity |
| 174,640 |
| 177,296 |
| 182,063 |
| 175,759 |
| 173,898 |
| 173,171 |
| 1,119 |
| (3,398 | ) | (8,892 | ) |
Total Liabilities and Equity |
| 373,962 |
| 375,675 |
| 385,570 |
| 375,078 |
| 361,817 |
| 362,751 |
| 1,116 |
| (13,858 | ) | (22,819 | ) |
| Project Keystone |
10
Proposed transaction financing
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Proposed transaction financing
• Wells Fargo facility has been verbally amended
Summary terms:
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| Permanent size: |
| $140 million |
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| Interest rate: |
| 3-month LIBOR plus 80-145 (2.20%—2.85%) |
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| Term: |
| 5 year bullet |
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| Coverage: |
| 2.5x$200 million (7.7 million RKY shares) |
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| Margin call: |
| Collateral at $280 million (RKY shares at $36) |
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| Compensating balance: |
| $5-$25 million (includes several entities) |
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| RKY Dividend flow: |
| To Trusts through control accounts |
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| Closing: |
| After signed merger agreement |
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| Funding: |
| At closing |
| Project Keystone |
12
Proposed transaction financing ($ in thousands)
• Sources and uses analysis
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| Amount |
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Sources: |
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Trust |
| $ | 50,000 |
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Company |
| 34,652 |
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Borrowings |
| 140,000 |
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Total Sources |
| $ | 224,652 |
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Uses: |
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Shares Outstanding |
| 11,734 |
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Family Shares (28%) |
| 3,285 |
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Shares to be Purchased (1) |
| 8,448 |
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Price |
| $ | 26.00 |
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Total Price |
| $ | 219,652 |
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Transaction Expenses (2) |
| 5,000 |
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Total Uses |
| $ | 224,652 |
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(1) Exact number unkown but expected to be lower.
(2) Exact amount unknown.
| Project Keystone |
13
Proposed transaction financing ($ in thousands)
• Debt and interest expense analysis
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| Amount |
| Rate |
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Debt Schedule: |
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Existing Trust Debt |
| $ | 100,000 |
| 7.5 | % |
New Trust Debt |
| 50,000 |
| 7.5 | % | |
Total Trust Debt |
| 150,000 |
| 7.5 | % | |
Bank Debt |
| 140,000 |
| 2.2 | % | |
Total Debt |
| $ | 290,000 |
| 4.9 | % |
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| Existing |
| New |
| Total |
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Interest Expense |
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Trust |
| $ | 7,500 |
| $ | 3,750 |
| $ | 11,250 |
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Bank Debt |
| 0 |
| 3,080 |
| 3,080 |
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Total Interest Expense |
| $ | 7,500 |
| $ | 6,830 |
| $ | 14,330 |
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| Project Keystone |
14
Proposed transaction financing ($ in thousands)
• Interest coverage
— Adjusted net income for additional interest expense and SG&A savings
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| 2003 |
| 2004 |
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EBT |
| (3,325 | ) | (1,144 | ) |
S,G & A Savings |
| 2,000 |
| 2,000 |
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Additional Interest Expense |
| (6,830 | ) | (6,830 | ) |
Adjusted EBT |
| (8,155 | ) | (5,974 | ) |
Tax Rate |
| 0.0 | % | 0.0 | % |
Adjusted Net Income |
| (8,155 | ) | (5,974 | ) |
Free Cash Flow (1) |
| 5,845 |
| 8,026 |
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(1) Defined as adjusted net income plus dep. and amortization less cap. ex.
| Project Keystone |
15
Proposed transaction financing ($ in thousands)
• Interest coverage sensitivity analysis (2003)
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| Free Cash Flow |
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| Interest Rate |
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| 2.0% |
| 3.0% |
| 4.0% |
| 5.0% |
| 6.0% |
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$25.00 |
| 6,294 |
| 4,978 |
| 3,663 |
| 2,347 |
| 1,032 |
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$26.00 |
| 6,125 |
| 4,725 |
| 3,325 |
| 1,925 |
| 525 |
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Change |
| (169 | ) | (253 | ) | (338 | ) | (422 | ) | (507 | ) |
• Interest coverage sensitivity analysis (2004)
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| Free Cash Flow |
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| Interest Rate |
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| 2.0% |
| 3.0% |
| 4.0% |
| 5.0% |
| 6.0% |
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$25.00 |
| 8,475 |
| 7,159 |
| 5,844 |
| 4,528 |
| 3,213 |
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$26.00 |
| 8,306 |
| 6,906 |
| 5,506 |
| 4,106 |
| 2,706 |
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Change |
| (169 | ) | (253 | ) | (338 | ) | (422 | ) | (507 | ) |
| Project Keystone |
16
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Debt retirement options
• Limited ability to retire debt from operations in 2003 and 2004
• Company is highly unlikely to have retired all debt by 2007 from operations
Possible debt retirement options:
• Refinance at company level
• Possible sale of assets
| Project Keystone |
18
Debt retirement options - example ($ in thousands)
• Sensitivity of Semiconductor business revenues and potential sale multiples
— $26.00 per share purchase price leads to $140 million of new bank debt
— Semiconductor peaked at $266 million in 2000
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| Semiconductor Transaction Proceeds |
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| Revenue Multiple |
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| 0.4x |
| 0.5x |
| 0.6x |
| 0.7x |
| 0.8x |
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$180,000 |
| 72,000 |
| 90,000 |
| 108,000 |
| 126,000 |
| 144,000 |
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$200,000 |
| 80,000 |
| 100,000 |
| 120,000 |
| 140,000 |
| 160,000 |
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$220,000 |
| 88,000 |
| 110,000 |
| 132,000 |
| 154,000 |
| 176,000 |
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$240,000 |
| 96,000 |
| 120,000 |
| 144,000 |
| 168,000 |
| 192,000 |
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$260,000 |
| 104,000 |
| 130,000 |
| 156,000 |
| 182,000 |
| 208,000 |
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$280,000 |
| 112,000 |
| 140,000 |
| 168,000 |
| 196,000 |
| 224,000 |
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$300,000 |
| 120,000 |
| 150,000 |
| 180,000 |
| 210,000 |
| 240,000 |
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| Project Keystone |
19
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Next steps/discussion
• Trustee consideration of $26.00 per share offer
• McDonald fairness opinion contingent on committee approval
• If Trustees so instruct, merger agreement is likely to be fully negotiated on or around Saturday December 14
• Company put in play
— Topping fee of $5 million sought for Keystone Holdings if company sold to another bidder
• One step merger process likely to be completed in March
| Project Keystone |
21
Investment Banking Division
Presentation to
Keystone Holdings LLC
CONFIDENTIAL
December 11, 2002