Pitch Book

Presentation to

Review of Aviator Aviator April 2006

Table of Contents Section Review of Aviator

1 A

Business Overview

B

Historical Stock Price Performance

C

Wall Street Coverage

D

Current Valuation

E

Historical and Projected Financial Review

F

Officer and Director Profile

G

Shareholder Profile

H

Aviator Corporate Profile

Valuation of Aviator

2 A

Aviator Top-Down Valuation

B

Aviator Sum-of-the-Parts Valuation

C

Enterprise Communications Group Valuation Valuation

D

Enterprise Services Valuation

Pro Forma Merger Consequences—Nortel Acquires Aviator Aviator

3 A

Transaction Considerations

B

Pro Forma Merger Consequences

CONFIDENTIAL

8202529, v1

Table of Contents Section Review of Aviator

1 A

Business Overview

B


C


D

Current Valuation

E


F


G

Shareholder Profile

H



2 A


B

Aviator Sum-of-the-Parts Valuation

C

Enterprise Communications Group Valuation Valuation

D


Pro Forma Merger Consequences—Nortel Acquires Aviator Aviator

3 A


B


CONFIDENTIAL

8202529, v1

Section 11

Review Revie w of Aviato Aviatorr

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 %

$4,934.0 21.3 %

$5,316.0 7.7 %

$5,635.0 6.0%

$324.0 8.0 %

$320.7 6.5 %

$393.4 7.4 %

$495.9 8.8%

$63.0 1.7 %

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 Aviator’s 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

Aviator—Global Communications Solutions Summary Income Statement

($ in millions)

FY Ending 9/30


2004A

2005E

2006E

2007E

$2,048.0 NA

$2,275.3 11.1 %

$2,450.1 7.7 %

$2,597.1 6.0%

$71.0 3.5 %

$110.6 4.9 %

$146.0 6.0 %

$189.4 7.3%

Global Communications Solutions Global Communications Solutions sells communications systems and converged voice applications designed for both large and small enterprises. Aviator’s offerings in this segment include IP telephony s ystems, 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



Contact Center Solutions

Media servers for voice applications



 

Extension to Cellular

CONFIDENTIAL


Other applications that facilitate and enhance interaction in an enterprise with customers, partners, suppliers and employees

40

Aviator—Global Services Summary Income Statement

($ in millions)

FY Ending 9/30


2004A

2005E

2006E

2007E

$1,761.0 NA

$2,658.7 60.0 %

$2,865.9 7.8 %

$3,037.9 6.0 %

$249.0 14.1 %

$210.1 7.9 %

$249.0 8.7 %

$306.5 10.1 %

Global Services Global Services is focused on supporting Aviator’s 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 



Monitors and optimizes customers’ network performance to ensure availability. 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.

CONFIDENTIAL

Implementation and Integration Services

Rental and Managed Services



Helps customers leverage and optimize their multi-technology, multi-vendor environments.





Helps enterprises assess, design and install traditional and IP telephony networks, contact centers and unified communications networks.




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

Aviator—Market Share Analysis

Business Area

Voice

Services

Applications

Call Center

CONFIDENTIAL

Geographic Region EMEA

North America

APAC

1

Nortel

26%

1

Siemens

16%

1

NEC

2

Aviator

21

2

Alcatel

15

2

Fujitsu

9

3

NEC

10

3

Aviator

11

3

Oki

7

4

Mitel

5

4

Ericsson

10

4

Samsung

5

5

Cisco

5

5

Nortel

8

5

Nortel

5

6

Inter-Tel

5

6

Samsung

1

Cisco

8%

1

HP

2

Aviator

7

2

NextiraOne

5.0

2

HP

8

3

HP

5

3

Siemens

4.5

3

Cisco

7

4

Northrop Grumman

5

4

Cisco

3.9

4

IBM

5

5

Verizon

4

5

Nokia

3.5

5

NEC

4

6

IBM

3

6

IBM

3.4

4

6

LG Electronics

8.3%

1

Fujitsu

22%

5 11%

1

Nortel

12%

2

Aviator

12

2

Nortel

9

3

Polycom

4

3

Polycom

6

4

Cisco

2

4

IBM

2

5

IBM

1

5

Cisco

1

6

Microsoft

1

6

Microsoft

1

1

Aviator

36%

1

Aviator

31%

1

Aviator

55%

2

Nortel

22

2

Nortel

23

2

Nortel

20

3

Siemens

7

3

Alcatel

11

3

NEC

4

4

Aspect

5

4

Aspect

5

4

Huawei

3

1

Aviator


11%

Not Available

40

Aviator—Product Comparison Review of Large IP PBXs (1,000 + Stations)(1)

Ratings

Architecture(2) (3)

Endpoints

(4)

Management and Admin

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

(5)

20

17.5

17.5

15

17

16.5

(6)

Security

10

8.5

9

5

5

5.5

Performance(7)

20

19

17

20

16.5

13

100

90

87

83.5

78

75.5

Features

Total

Source: McKinsey Report.

CONFIDENTIAL


40

Aviator’s 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, vendor’s 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


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


40

Aviator—Summary of Recent Acquisitions ($ in millions) Date

Target

Amount Paid

Description

2004

12/15/04

Route Science

11/18/04

Tenovis Germany GmbH

371 M

$7 M

A maker of adaptive networking software (ANS) for enterprises and service providers. A European-based provider of enterprise communications systems and services.

10/04/04

Spectel

106 M

A provider of audio and web conferencing solutions.

08/04/04

Tata Telecom (now Aviator GlobalConnect Ltd.)

18M

An India-based communication solutions provider and a distributor of Aviator products in India.

152 M

A provider of converged communications for mid-sized businesses, and one of the largest resellers of Aviator’s products in the United States.

2003

11/26/03

Expanets

10/02/03

VISTA Information Technologies, Inc.

NA

An IT services business unit that develops Java-based software for contact center platforms, interactive voice response systems, and CRM software.

04/12/01

Quintus Corporation

30 M

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

03/07/01

Cyber IQ Systems

02/14/01

VPNet Technologies, Inc.

2001

CONFIDENTIAL

NA

Developer of data networking products including HyperCommerce, CyberSSL and MonsterSSL.

120M

A privately held developer of virtual private network (VPN) solutions and devices.


40

Section 1-23


Aviator Stock Price Performance Daily: May 9, 2004–May 9, 2005 60,000 50,000 40,000 e m u 30,000 l o V 20,000

$20.00 18.00

A

E

16.00 14.00

G B

H

F C

12.00

I

D

10.00

J

10,000

8.00

0 5/04

P r i c e

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.

B

07/06/04:

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 Dece mber 20, 2004. The redemption price was $545.67 per $1,000 principal amount at maturity of LYONs.

H

01/25/05:

Announced Q1 ’05 EPS of 17 cents versus consensus estimates of 18 cents.

I

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.

J

04/19/05:


C

07/27/04:


D

10/26/04:


E

10/28/04:

Provided guidance for fiscal year 2005 including an operating margin between 8.5–9.0% and revenue growth between 25–27% compared to fiscal 2004 revenues of $4.1B.

F

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, 2003–May 9, 2005 130%

130%

120

120

110

110

100

100

90

90

80

80

70

70

60

60

50

50 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

5/05

Global Enterprise Services Composite

(2)

Section 1-34


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 Aviator’s 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 quarter’s EPS and service revenue weakness explains the rest. The Tenovis integration had a highly detrimental effect—contributing 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 company’s 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 p ause 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 Valuation—Aviator ($ 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

Average—Last 30 days

9.00

Analyst Estimates

Net Income

CY 2007E

$396.2

CY 2006E

Equity Value Enterprise Value

$4,663.0 3,996.7

Total Debt

22.0

Shareholders’ Equity Total Debt/Total Capitalization

Revenue

1,238.3 1.7 %

EBITDA

EBIT

$5,719.5

$788.9

$513.8

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


(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

Revenues

($ in millions) 2002

2003

2004

LTM 3/31/2005

$4,387.0

$3,796.0

$4,069.0

% Growth

NA

(13.5 %)

7.2 %

Cost of Sales

$2,523.0

$2,157.0

$2,124.0

$2,330.0

$1,264.0

Gross Profit

$1,864.0

$1,639.0

$1,945.0

$2,132.0

$1,106.0

42.5 %

43.2 %

47.8 %

47.8 %

46.7 %

Operating Expenses

$2,218.0

$1,576.0

$1,621.0

$1,780.0

$966.0

Operating Income

($354.0 )

$63.0

$324.0

$352.0

$140.0

(8.1 %)

1.7 %

7.9 %

7.9 %

5.9 %

1.0

(29.0 )

(15.0 )

(40.0 )

(38.0 )

(51.0 )

(78.0 )

(66.0 )

(41.0 )

(15.0 )

($404.0 )

($44.0 )

$243.0

$271.0

$87.0

$273.0

$84.0

($49.0 )

$43.0

$18.0

% Gross Margin

% Operating Margin

Other Income (expense), net Interest Expense Pretax Income Income Taxes (Benefit) Effective Tax Rate

Net Income from Cont. Operations

NM

(677.0 )

NM (128.0)

$4,462.0

6 Months Ended 3/31/05

NM

NM

292.0

$2,370.0

15.9

NM

%

20.7 %

228.0

69.0

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

6.2 %

11.6 %

12.4 %

12.1 %

(3.6 %)

Aviator Current Balance Sheet Balance Sheet as of March 31, 2005

($ in millions)

Cash and Cash Equivalents Receivables Inventories Deferred Income Taxes, net

$855 793 364 69 139

Other Current Assets Total Current Assets

Property, Plant and Equipment Deferred Income Taxes, net Goodwill Other Intangible Assets Other Assets Total Assets

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

$2,220

$747 360 939 390 187 $4,843

$403 74 289 234 365 $1,365

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


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. D’Ambrosio 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

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

Ravi Sethi President, Avaya Labs

Michael C. Thurk Group Vice President, Enterprise Communications Group

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

Francis M. Scricco

Group Vice President, Avaya Global

Director Profile(1) Board Composition Insiders

1

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 b oard 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%

J ose ph P. L an dy

2 00 3

2 00 7

43

C o-p re sid en t o f Wa rbu rg Pi nc us

M r. L an dy h as be en c o- pr es id ent of Wa rb ur g Pi nc us LL C s inc e J an ua ry 2 002 a nd 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 University—Graduate 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 Mr. Terracciano is vice chairman, American Water Works Company, Inc. a nd is the Works Company 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

49,908 NM

Directors

Position

Description

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.

Director Profile(1) (cont.) Beneficial Ownership/ (% O/S)

Director Since

Term Expires

Age

Dan C. Stanzione

2000

2006

59

President Emeritus, Bell Dr. Stanzione, president emeritus, Bell Laboratories, served as chief operating officer of Laboratories and former COO of Lucent Technologies, Inc. from November 1997 to October 1999 and as the president of Bell Lucent Technologies 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 & Mr. Zarrella is chairman and CEO of Bausch & Lomb. He was president of General Motors Lomb North America before returning to Bausch & Lomb as c hairman 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

Ph il ip A . O de en

2 002

2 00 5

69

R et ir ed Ch ai rma n of TRW In c.

Mr. Ode en is th e r et ir ed cha ir ma n o f T RW Inc . M r. Od ee n w as pr es id en t a nd ch ie f e xe cu tiv e 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 anal ysis and international business and trade advisory firm. She is currently a member of the US President’s 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)

Position

Source: January 4, 2005 Proxy and Company Website.

Description

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

47,955,205

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

% of Total

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 %

Insider Ownership

Donald Peterson Louis D’Ambrosio Michael Thurk

1,250,174 328,500 214,130 1,792,804

Other Officers and Directors Total Insiders

1,013,384 2,806,188

0.3 % 0.1 0.0 0.4 % 0.2 0.6 %

Other Shareholders

109,320,035

22.8

Basic Shares Outstanding

480,014,273

100.0 %

Section 1-89


(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



1,700,000,000 authorized common shares (480,014,016 basic shares outstanding). 200,000 authorized preferred shares (none outstanding).

Capital Stock









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 Company’s 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



Shareholder Action by Written Consent





Actions Requiring Super Majority Shareholder Vote

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 year’s annual meeting. Vacancies: Vacancies and newly created directorships are filled by a majorit y 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. No (default Delaware state statute). Yes; unanimous written consent of shareholders required (default Delaware statute).

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

(1)

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%.


Section 210


(1)


Section 2-111


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

$9.53

$9.53

Stock Price (05/27/05) Premium/(Discount)

10.6 %

47.2 %

Revenues

0.83 x 0.89

EBITDA

CY 2006E/2005E (1)

EBIT

Net Income

EBIT

Net Income

Revenues

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

1.07 x – 1.14

6.6 – x 7.2 –

8.4 x 9.2

10.7 – x 13.3 –

13.7 x 17.0

13.8 – x 17.3 –

17.1 x 21.5

0.83 x 0.89

– 1.02 x – 1.09

6.6 x 7.2

8.0 x 8.8

10.7 – x 13.3 –

13.1 x 16.2

13.8 – x 17.3 –

16.5 x 20.6

1.02 x 1.09

– 1.20 x – 1.29

8.0 x 8.8

9.5 x – 10.4

13.1 – x 16.2 –

15.5 x 19.2

16.5 – x 20.6 –

19.1 x 24.0

0.83 x

– 1.16 x

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

0.89

– 1.24

7.2

– 10.0

13.3

–

18.4

17.3

–

23.2

5,029.5

626.4

338.9

298.7

–

– – –

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

$10.00

$11.00

Potential Price per Share $12.00

$13.00

$14.00

Premium Over:

Stock Price (05/27/05)

$9.53

52-Week High

17.76

52-Week Low Average—Last 30 days

7.76 9.00

0.0 % (46.3 ) 22.8 5.9

4.9%

15.4%

25.9%

36.4%

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

$396.2

CY 2006E Net Income CY 2005E Net Income

367.3 296.8

Enterprise Value as a Multiple of: CY 2007E Revenue

$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 0.70 x 0.74 0.79 5.1 x 5.8 6.4

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

0.74x

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

5.4x

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)


16.00%



PV per Share(1)


17.00%



PV per Share(1)

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


PV per Share(1)

18.00%

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

$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

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

$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

$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

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

$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

$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

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

$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

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

$1,345.3 4,012.3

3,861.6

3,717.9

3,580.6

Free Cash Flow Analysis—WholeCo ($ in millions) Projected FYE September 30, 2005

2006

2007

2008

2009

Revenue

$4,934.0

$5,316.0

$5,635.0

$5,973.1

$6,331.6

$6,711.5

EBITDA

$615.4

$659.5

$769.2

$847.9

$952.8

$1,010.0

Depreciation & Amortization

(294.7 )

(266.1 )

(273.3 )

(280.5 )

(288.0 )

(305.3 )

EBIT

$320.7 %

$393.4 6.5 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 )

$375.8

$388.4

$451.1

$447.1

$517.7

EBIT Margin

Taxes Tax Rate

Unlevered Net Income

Depreciation & Amortization (Increase)/Decrease in Working Capital Capital Expenditures & Additions to Intangible Assets Other Cash Flows

Unlevered Free Cash Flow

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.

2010

% Growth

NA

3 %

16 %

(1 %)

16 %

Comparable Company Trading Analysis—Aviator ($ in millions, except per share amounts) Enterprise Value

$9.08

$4,185.6

$ 3,518.6

0.70 x

5.6 x

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

1.80 x 1.14

9.0 x 10.1

12.0x

1.14 x 0.81 0.82 0.39 0.46

8.3 x 5.6 5.4 6.1 5.6

9.6x

0.72 x 0.81

6.2 x 5.6

12.8x

$10.35 12.69 40.95 9.78 25.07 12.94 24.90 12.98 9.62 9.73 5.38 6.14

Aviator

Stock Price 05/09/05

Enterprise Value/CY 2005E Revenue EBITDA EBIT

Equity Value

Company

10.4x


P/E CY 2005E

CY 2006E

0.65 x

5.1 x

8.4 x

15.7 x

12.7 x

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

1.64 x 1.08

7.5 x 8.5

9.6 x 11.2

18.8 x 18.4

15.3 x 16.9

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

9.6

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

$10.02 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

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

Enterprise Communications

Mean Median

12.6

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

9.1 8.1 9.7 27.3

Aviator—Implied Enterprise Value Enterprise Communications

Alcatel Aspect Cisco Inter-Tel InterVoice Nortel Polycom Enterprise/Telecom Services

Black Box Convergys CGI Group Getronics Unisys


Comparable Transaction Multiples and Implied Valuation—Aviator ($ in millions) Target Acquiror Enterprise Communications

Target

Transaction Date

Equity Value

Enterprise Value

Revenue

ScanSoft

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

Enterprise Value/Forward EBITDA

NA 6.5 x 6.7 26.1 14.7 10.5

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

Enterprise/Telecom Services

Nortel IBM Warburg-Providence Cisco Avaya CGI GTCR

PEC Solutions Corio Telcordia NetSolve Expanets AMS Syniverse

04/26/2005 01/25/2005 11/18/2004 09/09/2004 11/26/2003 03/09/2004 02/14/2002

471.1 182.0 1,350.0 128.0 152.0 858.0 770.0

448.0 174.1 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

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

Aviator—Implied Valuation Acquiror Target Enterprise Communications

ScanSoft Avaya Polycom Alcatel Nortel InterVoice

Nuance Tenovis PictureTel Genesys Periphonics Brite Voice

Enterprise/Telecom Services

Nortel IBM Warburg-Providence Cisco Avaya CGI GTCR

PEC Solutions Corio Telcordia NetSolve Expanets AMS Syniverse

Note: Based on Aviator’s Forward Revenue of $4934.0 million, Forward EBITDA of $615.4 million, Forward EBIT of $320.7 million, and Forward Net I ncome of $276.2 million. Note: Based on Aviator’s Cash of $855.0 million, Debt of $188.0 million, and Option Proceeds of $80.4 million.

Weighted Average Cost of Capital Analysis—Aviator Assumptions

Unlevered Beta Calculation

(1)

Risk-free Rate

4.39 %

Market Risk Premium(2)

7.20

Aviator Marginal Tax Rate

12.0

Barra Beta

Debt/Equity(3)

Unlevered Beta(4)

Alcatel Aspect Cisco Inter-Tel InterVoice Nortel Polycom

1.62 1.64 1.45 1.32 1.41 2.21 1.61

39.1% 0.1 0.0 0.0 2.4 40.1 0.0

1.20 1.64 1.45 1.32 1.38 1.63 1.61

Mean Enterprise/Telecom Services

1.61

11.7%

1.46

Black Box Convergys Corporation CGI Group Getronics Unisys

1.24 1.14 1.00 1.99 1.75

6.7% 18.1 14.7 15.1 45.3

1.17 0.98 0.89 1.76 1.25

Mean

1.43

20.0%

1.21

Consolidated Mean Aviator

1.53 2.44

15.1% 4.5

1.36 2.35

Comparable Company Enterprise Communications

WACC Calculation—Based on Aviator’s Unlevered Beta Debt/ Equity(4)

Debt/ Capitalization

Levered Beta(5)

10.0 % 20.0 30.0 40.0 50.0

9.1%

2.56 2.76 2.97 3.18 3.38

16.7 23.1 28.6 33.3

6.00%

7.00%

Pre-Tax Cost of Debt 8.00%

9.00%

10.00%

22.8%

21.2%

21.3%

21.4%

21.4%

21.5%

24.3 25.8 27.3 28.7

21.1 21.0 21.0 20.9

21.3 21.2 21.2 21.2

21.4 21.4 21.5 21.5

21.6 21.7 21.7 21.8

21.7 21.9 22.0 22.1

6.00%

7.00%


Cost of Equity(6)

WACC Calculation—Based on Industry Average Unlevered Beta Debt/ Equity(4)


Levered Beta(6)

9.00%

10.00%

10.0 % 20.0 30.0 40.0 50.0

9.1%

1.53

15.4%

14.5%

14.6%

14.7%

14.7%

14.8%

1.66 1.78 1.90 2.03

16.3 17.2 18.1 19.0

14.5 14.5 14.4 14.4

14.6 14.7 14.7 14.7

14.8 14.9 14.9 15.0

14.9 15.1 15.2 15.3

15.1 15.3 15.4 15.6

16.7 23.1 28.6 33.3

Cost of Equity(7)

Note: Based on Aviator’s Forward Revenue of $4934.0 million, Forward EBITDA of $615.4 million, Forward EBIT of $320.7 million, and Forward Net I ncome of $276.2 million. Note: Based on Aviator’s Cash of $855.0 million, Debt of $188.0 million, and Option Proceeds of $80.4 million.

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

Globa l Communications Group


$2,000

–

$2,500

Revenues

0.80 x 0.86

Global Services

$2,500

–

$3,750

0.86 0.92

BSC REFERENCE RANGE

$4,500

–

$6,250

0.83 x 0.89 x

–

1.01 x

– 1.08 –

EBITDA

7.8 – x 9.1

1.29

5.8

– 1.38

6.1

–

1.16 x

6.5 x

– 1.24

7.18

– 11.3 –

12.7 – x

15.9 x

16.7

20.9

8.7

9.5

9.2

11.4

9.1 x

10.7 x

– 9.97

13.3

– –


EBIT

9.8 x

– – – –

–

CY 2006E/2005E

14.5

17.1

12.9

14.9 x

12.2 x

18.4

15.1

EBIT


$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

–

19.4

2,710.5

406.7

219.8

193.4

–

16.9 $5,395.8

$689.3

$420.2

$369.8

–

x 20.9

5,029.5

627.1

339.3

298.6

x 19.0 – 10.8

EBITDA

18.1 –

14.2

Revenues

–

Section 2-313

Enterprise Communications Group Valuation

Summary Valuation—Global Communications Group ($ in millions) Global Communicat io ions Solu ti tions Valu e Range as a Multip llee of CY 2006E/2005E Valuation Method


Revenues


$2,000

–

$2,600

0.80 x 0.86

–

Comparable Co C ompany An Analysis

$2,000

–

$2,500

0.80 x 0.86

–

0.88 x 0.95

–

0.80 x 0.86

–


BSC REFERENCE RANGE

$2,200

$2,000

–

–

$2,600

$2,500

–

–

–

–

EBITDA

1.05 x 1.12

7.8 x 9.1

–

1.01 x 1.08

7.8

1.05 x 1.12 1.01 x 1.08

EBIT

12.7 x 16.7

–

–

10.1 x 11.8

–

9.8

12.7

9.1

–

11.3

8.6

–

10.1

–

7.8 9.1

CY 2006E/2005E


14.5 x 19.0

–

–

16.6 x 21.8

–

15.9

14.5

16.7

–

20.9

10.1

14.0

–

11.8

18.4

–

9.8

–

11.3

Revenues

EBITDA

EBIT

$256.3

$156.9


$2,486.8

–

18.8 x 24.7

$138.0

2,319.0

220.4

119.5

105.1

–

18.1

$2,486.8

$256.3

$156.9

$138.0

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

–

21.8

20.9

–

24.7

2,319.0

220.4

119.5

105.1

12.7

–

15.9

14.5

–

18.1

$2,486.8

$256.3

$156.9

$138.0

16.7

–

20.9

19.0

–

23.8

2,319.0

220.4

119.5

105.1

Valuation Matrix at Selected Enterprise Values—Global Communications Segment ($ in millions) $2,000.0

$2,100.0

Enterprise Value $2,200.0 $2,300.0

$2,400.0

$2,500.0

Enterprise Value as a Multiple of:

CY 2007E Unlevered Net Income

$172.6

11.6 x

12.2 x

12.7 x

13.3 x

13.9 x

14.5 x


138.0

14.5

15.2

15.9

16.7

17.4

18.1


105.1

19.0

20.0

20.9

21.9

22.8

23.8

CY 2007E Revenue

$2,636.0

0.76 x

0.80 x

0.83 x

0.87 x

0.91 x

0.95 x

CY 2006E Revenue

2,486.8

0.80

0.84

0.88

0.92

0.97

1.01

CY 2005E Revenue

2,319.0

0.86

0.91

0.95

0.99

1.03

1.08

CY 2007E EB ITDA

$298.3

6.7 x

7.0 x

7.4 x

7.7 x

8.0 x

CY 2006E EB ITDA

256.3

7.8

8.2

8.6

9.0

9.4

9.8

CY 2005E EB ITDA

220.4

9.1

9.5

10.0

10.4

10.9

11.3

CY 2007E EB IT

$196.2

10.2 x

10.7 x

11.2 x

11.7 x

12.2 x

12.7 x

CY 2006E EB IT

156.9

12.7

13.4

14.0

14.7

15.3

15.9

CY 2005E EB IT

119.5

16.7

17.6

18.4

19.2

20.1

20.9 x

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

8.4 x

Discounted Cash Flow Analysis—Global Communications Group ($ in millions, except per share data) WACC

PV of Period Cash Flows PV of Terminal Value

14.50%

PV of Enterprise

Forward Revenue Multiple 1.00x 1.10x 1.20x

$508.7 1,700.2

$508.7 1,870.2

$508.7 2,040.2

$508.7 1,786.1

$508.7 2,009.3

$508.7 2,232.6

$2,208.8

$2,378.9

$2,548.9

$2,294.7

$2,518.0

$2,741.3



8.9%

15.00%

PV of Enterprise

15.50%

PV of Enterprise


9.2%

9.8%

$502.9 1,752.0

$502.9 1,971.0

$502.9 2,190.0

$2,170.7

$2,337.4

$2,504.2

$2,254.9

$2,473.9

$2,692.9

9 .9 %

10.3%

9.7%

10.2%

$497.3 1,799.7

$497.3 1,963.3

$497.3 1,718.7

$497.3 1,933.6

$497.3 2,148.4

$2,133.3

$2,296.9

$2,460.5

$2,216.0

$2,430.8

$2,645.7

10.4%

10.8%

10.1%

10.7%

$491.7 1,765.6

$491.7 1,926.1

$491.7 1,686.2

$491.7 1,897.0

$491.7 2,107.8

$2,096.8

$2,257.3

$2,417.9

$2,177.9

$2,388.7

$2,599.5

10.9%

11.3%

10.6%

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

11.2%

$2,038.0

11.7%

$508.7 1,690.3 $2,198.9

8.3%

$502.9 1,500.1 $2,003.0

$2,359.9

$502.9 1,658.0 $2,160.9

$497.3 1,471.6 $1,968.9

$497.3 1,626.5

9.8%

$497.3 1,781.4 $2,278.7

9.9%

$491.7 1,595.8 $2,087.5

9.8%

$502.9 1,815.9

9 .4 %

9.3%

$1,935.5

9 .4 %

$2,318.8

$2,123.8

$491.7 1,443.8

$508.7 1,851.2

8.9%

8.8%

11.2%

$491.7 1,605.1

10.4%

$508.7 1,529.3

10.7%

$497.3 1,636.1

9.9%

Forward EBIT Multiple 9.5x 10.5x 11.5x

10.2%

$502.9 2,001.3


16.00%

9.8%

$502.9 1,834.5

9.4%

PV of Enterprise


9 .4 %

$502.9 1,667.7



Forward EBITDA Multiple 8.0x 9.0x 10.0x

10.3%

10.3%

$491.7 1,747.7 $2,239.5

10.8%

Free Cash Flow Analysis—Global Communications Group ($ in millions) Projected FYE September 30, 2007 2008

2005

2006

2009

2010

Revenue

$2,275.3

$2,450.1

$2,597.1

$2,752.9

$2,918.1

$3,093.2

EBITDA

$212.3

$244.8

$290.9

$320.4

$359.7

$406.2


(101.7 )

(98.8 )

(101.4 )

(104.1 )

(106.9 )

(113.3 )

EBIT

$110.6 %

$146.0 4.9 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

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, 1, 2005.

Comparable Company Multiples and Implied Valuation—Global Communications Group ($ in millions) Stock Price 05/09/05

Company Aviator

Equity Value

Enterprise Value



P/E CY 2005E

CY 2006E

$9.08

$4,185.6

$3,518.6

0.70 x

5.6

x

10.4 x

0.65

x

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

x

9.6 x

0.85

x

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

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

10.1

12.0 x 12.6

7.5 x 8.5

9.6 x 11.2

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

x

1.08

18.8 x 18.4

13.5

15.3 x 16.9

Group—


Comparable M&A Transaction Multiples and Implied Valuation—Global Communications Group ($ in millions) Acquiror

Target

Transaction Date

Target Equity Value

Enterprise Value

Revenue


EBIT

Forward P/E

ScanSoft Avaya

Nuance Tenovis

05/09/2005 11/18/2004

$212.5 370.5

$113.8 635.5

1.49x 1.00x

NA 6.5x

49.5x NA

42.1x NA

UT Starcom

Commworks (3Com)

04/23/2004

100.0

100.0

0.91x

NA

NA

NA

Cisco

Latitude

11/12/2003

92.5

69.9

2.20x

NA

NA

NA

Melita Polycom

Concerto PictureTel

10/06/2003 05/22/2001

141.9 357.7

113.8 358.4

1.07x 0.92x

18.0x 6.7x

23.0x 15.7x

38.1x 20.7x

Cisco

Active Voice

11/10/2000

295.3

275.8

3.21x

47.6x

96.3x

122.1x

Alcatel

Genesys

09/28/1999

1,526.8

1,465.3

7.25x

26.1x

33.8x

53.0x

Nortel

Periphonics

08/23/1999

419.6

392.0

2.27x

14.7x

19.9x

31.1x

InterVoice Cisco

Brite Voice Geotel

04/26/1999 04/12/1999

172.0 1,914.1

159.5 1,854.4

0.97x 25.73x

10.5x 85.7x

16.8x 92.3x

27.4x 132.5x

Nortel

Bay Networks

Lucent

Octel

06/15/1998 07/17/1997

8,520.3 1,755.8

7,912.7

2.70x

1,665.5

NA

2.74x

NA

NA

14.4x

22.8x

34.7x

NM

Global Communication Group—Implied Valuation Acquiror Target

ScanSoft

Nuance

$3,463.3

NA

NM

Avaya

Tenovis

2,319.0

1,432.8

NA

NA

UT Starcom

Commworks (3Com)

2,110.3

NA

NA

NA

Cisco

Latitude

5,101.8

NA

NA

NA

Melita

Concerto

2,481.3

3,967.6

2,748.1

4,006.0

Polycom

PictureTel

2,133.5

1,476.8

1,875.9

2,176.5

Cisco

Active Voice

7,443.9

NM

NM

NM

Alcatel

Genesys

NM

NM

NM

NM

Nortel

Periphonics

NM

3,240.2

2,377.7

3,270.0

InterVoice

Brite Voice

2,249.4

2,314.5

2,007.3

2,881.0

Cisco

Geotel

NM

NM

NM

Nortel

Bay Networks Lucent

Octel

6,261.2 6,354.0

NA 3,174.1

NA 2,724.2

NM NA 3,648.5

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 Analysis—Enterprise Communications Group Assumptions


Risk-free Rate(1)

4.39 %


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 Aviator

1.62 1.64 1.45 1.32 1.41 2.21 1.61

39.1 0.1 0.0 0.0 2.4 40.1 0.0

%

1.20 1.64 1.45 1.32 1.38 1.63 1.61

1.61

11.7

%

1.46

2.44

4.5

%

2.35

WACC Calculation—Based on Industry Average Unlevered Beta—Global Communications Group Debt/ Equity(4)


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%

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

9.00%

15.1 % 15.3 15.5 15.6 15.7

10.00%

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


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


Revenues


$2,500

–

$3,500

0.80 x 0.86

–

Comparable Company Analysis

$2,500

–

$3,500

0.86 x 0.92

–

0.95 x 1.01

–

0.86 x 0.92

–


BSC REFERENCE RANGE

CONFIDENTIAL

$2,750

$2,500

–

–

$4,000

$3,750

–

–

–

–

EBITDA

1.05 x 1.12

7.8 x 6.1

–

1.20 x 1.29

5.8

EBIT

CY 2006E/2005E


Revenues

10.8 x 12.9

–

$2,908.9

EBITDA

EBIT


$433.0

$263.4

$231.8

9.5 x 11.4

–

–

8.1 x 8.6

–

13.3 x 15.9

–

15.1 x 18.1

2,710.5

406.7

219.8

193.4

–

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


56

Valuation Matrix at Selected Enterprise Values—Global Services ($ in millions) $2,500.0

$2,750.0

Enterprise Value $3,000.0 $3,250.0

$3,500.0

$3,750.0

Enterprise Value as a Multiple of:


$279.5

10.7 x

11.6 x

12.5 x

13.4 x


231.8

10.8

8.9 x

11.9

9.8 x

12.9

14.0

15.1

16.2


193.4

12.9

14.2

15.5

16.8

18.1

19.4

0.81 x

0.89 x

0.97 x

1.05 x

1.14 x

1.22 x

CY 2007E Revenue

$3,083.5

CY 2006E Revenue

2,908.9

0.86

0.95

1.03

1.12

1.20

1.29

CY 2005E Revenue

2,710.5

0.92

1.01

1.11

1.20

1.29

1.38

CY 2007E EBITDA

$491.8

5.1 x

5.6 x

6.1 x

6.6 x

7.1 x

7.6 x

CY 2006E EBITDA

433.0

5.8

6.4

6.9

7.5

8.1

8.7

CY 2005E EBITDA

406.7

6.1

6.8

7.4

8.0

8.6

9.2

CY 2007E EBIT

$317.6

10.2 x

11.0 x

11.8 x

CY 2006E EBIT

263.4

7.9 x 9.5

10.4

8.7 x

11.4

9.4 x

12.3

13.3

14.2

CY 2005E EBIT

219.8

11.4

12.5

13.6

14.8

15.9

17.1

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


56

Discounted Cash Flow Analysis—Global Services ($ in millions) WACC


13.50%

PV of Enterprise

Forward Revenue Multiple 0.80x 0.95x 1.10x

$873.3 1,653.9

$873.3 1,964.0

$873.3 2,274.1

$873.3 1,920.3

$873.3 2,304.3

$873.3 2,688.4

$2,837.4

$3,147.5

$2,793.6

$3,177.7

$3,561.7

4.3%

14.00%

PV of Enterprise

14.50%

PV of Enterprise


5.4%

6.7%

7.6%

$863.5 2,230.4

$863.5 1,883.3

$863.5 2,260.0

$863.5 2,636.7

$2,485.6

$2,789.7

$3,093.8

$2,746.8

$3,123.5

$3,500.1

6.1%

7.1%

5.9%

7.2%

$853.8 2,187.6

$853.8 1,847.3

$853.8 2,216.7

$853.8 2,586.2

$2,444.8

$2,743.1

$3,041.4

$2,701.0

$3,070.5

$3,439.9

5.2%

6.5%

7.6%

6.4%

7.6%

$844.3 2,145.9

$844.3 1,812.0

$844.3 2,174.4

$844.3 2,536.8

$2,405.0

$2,697.6

$2,990.2

$2,656.3

$3,018.7

$3,381.1

8.0%

6.8%

8.1%

$853.8 2,237.5

7.9%

$853.8 2,500.7 $3,354.5

7.7%

$844.3 2,194.8 $3,039.1

7.3%

$863.5 2,549.6

7.2%

6.9%

$844.3 1,936.6

7.4%

$3,413.1

$3,091.3

$2,780.9

9.0%

$863.5 2,281.2 $3,144.7

$853.8 1,974.3

$873.3 2,599.6 $3,472.9

6.8%

6.4%

8.6%

$844.3 1,853.3

7.0%

$863.5 2,012.8

$2,828.1

$844.3 1,560.7

5.6%

5.9%

8.1%

$853.8 1,889.3

$873.3 2,326.0 $3,199.3

$2,876.3

$853.8 1,591.0


15.00%

6.6%

$863.5 1,926.2

4.7%

PV of Enterprise


5.6%

$873.3 2,052.3 $2,925.7

$863.5 1,622.1



Forward EBIT Multiple 7.5x 8.5x 9.5x

$2,527.2



Forward EBITDA Multiple 5.0x 6.0x 7.0x

8.4%

$844.3 2,453.0 $3,297.3

8.2%

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


56

Free Cash Flow Analysis—Global Services ($ in millions) 2005

2006

Projected FYE September 30, 2007 2008

2009

2010

Revenue

$2,658.7

$2,865.9

$3,037.9

$3,220.2

$3,413.5

$3,618.3

EBITDA

$403.1

$417.5

$479.5

$528.7

$594.3

$672.2


(193.0 )

(168.4 )

(173.0 )

(177.6 )

(182.3 )

(193.2 )

EBIT

$210.1 %

$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

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

7.9

Note: Discounted back to May 1, 2005.

CONFIDENTIAL


56

Comparable Company Trading Analysis—Global Services ($ in millions) Enterprise Value/CY 2005E Revenue EBITDA EBIT


P/E

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

Black Box

$34.21

$607.6

$637.4

1.14 x

8.3 x

9.6 x

0.95 x

6.7 x

Convergys

13.04

1,862.9

2,163.4

0.81

5.6

9.1

0.76

5.1

8.2

13.7

12.1

CGI Group

5.61

2,506.0

2,684.5

0.82

5.4

8.1

0.75

4.8

6.8

12.5

10.8

Company Aviator

CY 2005E

CY 2006E

8.4 x

15.7 x

12.7 x

8.0 x

14.8 x

12.5 x

Enterprise Services

Getronics

1.62

1,372.2

1,335.0

0.39

6.1

9.7

0.36

5.1

6.7

11.5

9.0

Unisys

6.88

2,320.6

2,711.2

0.46

5.6

27.3

0.44

4.3

10.0

NM

19.7

0.72 x 0.81

6.2 x 5.6

12.8 x 9.6

0.65 x 0.75

5.2 x 5.1

7.9 x 8.0

$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

Mean Median

13.1 x 13.1

12.8 x 12.1

Global Services—Implied Enterprise Value

Black Box Convergys CGI Group Getronics Unisys

$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


CONFIDENTIAL


56

Aviator—Comparable Transaction Multiples and Implied Valuation— Global Services ($ in millions)

Acquiror

Nortel

Target

PEC Solutions

Transaction Date

4/26/2005

Equity Value

$471.1

Target Enterprise Value

$448.0


EBIT

Forward P/E

x

11.9 x

13.2 x

22.5 x NM

Revenue

1.65

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

Services—Implied Valuation Acquiror

Nortel

Target

PEC Solutions

$3,830.6

$2,623.1

$1,577.2

$2,365.8

IBM

Corio

6,817.8

NA

NA

Warburg-Providence

Telcordia

3,548.0

1,697.3

1,063.4

NA 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


56

Cost of Capital Analysis—Services Assumptions


Risk-free Rate(1)

4.39 %


7.20

Aviator Marginal Tax Rate

12.0

Barra Beta

Debt/ Equity(3)

Unlevered Beta(4)

1.24 1.14 1.00 1.99 1.75

6.7% 18.1 14.7 15.1 45.3

1.17 0.98 0.89 1.76 1.25

Consolidated Mean

1.43

20.0

1.21

Aviator

2.44

4.5

2.35

Comparable Company Global Services

Black Box Convergys Corporation CGI Group Getronics Unisys

WACC Calculation—Based on Industry Average Unlevered Beta—Services Debt/ Equity(4)

10.0 % 20.0 30.0 40.0 50.0


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


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


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


Nortel Merges with Aviator—Strategic 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



Aviator’s channel mix is mostly direc t (65%), whereas Nortel’s enterprise channel strategy is almost entirely indirect



Nortel’s 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 Nortel’s customer base; Nortel could potentially cross-sell its data offerings into Aviator’s 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 Overlap—Nortel 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

Optical Networking ATM Switching 2.0–2.5G Wireless –

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 Considerations—Merger with Aviator Insert Portrait Tabloid 6937031 (Doc. # 6966602) Page 48

Shareholder Overlap Analysis Nortel Shareholders Primecap Management

Aviator Shareholders Position

% Ownership

118.712

2.8 %

Capital Research & Management MFS Investment Management Smith Barney Asset Management Alliance Capital Management McLean Budden TD Asset Management CDP Capital World Markets

98.550 79.074 78.334 67.884 65.775 62.288 53.573

2.3 1.9 1.8 1.6 1.5 1.5 1.3

Barclays Global Investors

52.422

1.2

BC Investment Management

51.264

1.2

Fidelity Management & Research

48.026

1.1

Canadian Pension Plan Investment Board BMO Nesbitt Burns

42.805 37.682

1.0 0.9

Artisan Partners

36.825

0.9

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

36.346 33.866 31.418 29.419 24.508 23.038 21.856 18.811 16.524

0.9 0.8 0.7 0.7 0.6 0.5 0.5 0.4 0.4

Deutsche Bank Investment Management Merrill Lynch Investment Managers

15.758 15.302

0.4 0.4

Letko, Brosseau & Associates Jennison Associates UBS Global Asset Management Goldman Sachs Asset Management Marathon Asset Management

15.174 14.037 13.760 13.554 12.867

0.4 0.3 0.3 0.3 0.3

TIAA-CREF Investment Management

12.146

0.3

11.685 11.517 11.495 11.425 11.193 9.921 9.736 8.994 8.972

0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2

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

Position

Warburg Pincus

% Ownership

Dodge & Cox

24.812

10.0 % 5.2

Fidelity Management & Research

16.979

3.5

Lord, Abbett & Co.

16.215

3.4

Barclays Global Investors

15.083

3.1

Friess Associates SSgA Funds Management Vanguard Group Wellington Management AIM Management Group Calamos Advisors

12.913 11.961 11.883 11.104 10.080 7.283

2.7 2.6 2.5 2.3 2.1 1.5

Artisan Partners

7.013

1.5

Franklin Advisers Trusco Capital Management Victory Capital Management Northern Trust Global Investments Bessemer Investment Management Pioneer Global Asset Management

6.717 5.952 5.751 4.736 4.645 4.537

1.4 1.2 1.2 1.0 1.0 0.9

TIAA-CREF Investment Management

3.838

0.8

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

3.617 3.207 2.944 2.720 2.695 2.339 2.153 2.132 2.100

0.8 0.7 0.6 0.6 0.6 0.5 0.4 0.4 0.4

Merrill Lynch Investment Managers, Inc.

2.056

0.4

American Century Global Investment Management California Public Employees Retirement System

2.050 1.998

0.4 0.4

Deutsche Bank Investment Management

1.971

0.4

1.931 1.874 1.872 1.752 1.744 1.699 1.696 1.668

0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.3

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

47.955

Section 3-217


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

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

$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

Net Income

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

69.7% 68.6 60.9

30.3% 31.4 39.1

Pro Forma Merger Consequences Summary—Nortel Acquires Aviator ($ in millions, except for per share data)

100% Stock Implied Exchange Ratio Premium to Market

$10.00 per Share 25% Cash/ 75% Stock

50% Stock/ 50% Cash

100% Stock


50% Stock/ 50% Cash

100% Stock


50% Stock/ 50% Cash

3.779 x

2.834 x

1.889 x

4.534 x

3.401 x

2.267 x

5.290 x

3.968 x

2.645 x

4.9 %

4.9 %

4.9 %

25.9 %

25.9 %

25.9 %

46.9 %

46.9 %

46.9 %

Earnings (Dilution)/Accretion Per Share ($)

FY 2006E FY 2007E FY 2008E

$0.01 (0.01 ) (0.01 )

$0.02 0.01 0.01

$0.02 0.01 0.01

($0.00 ) (0.02 ) (0.02 )

$0.01 (0.01 ) (0.01 )

$0.00 (0.00 ) (0.00 )

($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 )

Earnings (Dilution)/Accretion Per Share (%)

FY 2006E FY 2007E FY 2008E

7.7 %

13.6 %

11.9 %

(2.7 ) (3.7 )

3.4 2.4

7.0 6.5

(0.6 %) (9.6 ) (10.5 )

4.3 %

0.5 %

(3.6 ) (4.3 )

(0.4 ) (0.6 )

(8.1 %) (15.9 ) (16.6 )

NA 38.3 60.2

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

$4,306.0 692.3 3,870.0 8,663.6

$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

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

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

2.9 x 2.1 1.7 1.6

3.8 x 2.5 2.0 1.9

2.9 x 2.1 1.7 1.6

3.1 x 2.2 1.8 1.7

4.2 x 2.6 2.1 2.0

2.9 x 2.1 1.7 1.6

3.3 x 2.4 1.9 1.8

4.6 x 2.8 2.3 2.2

30.2 %

24.5 %

17.8 %

34.2 %

28.1 %

20.7 %

37.9 %

31.4 %

23.4 %

Total Debt/Capitalization

Closing FY 2006E FY 2007E FY 2008E Total Debt/EBITDA

Closing FY 2006E FY 2007E FY 2008E Pro Forma Ownership—Aviator

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 Aviator—Synergy 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. Earnings (Dilution)/Accretion Share (%) Assumes Nortel stock price of $2.65 and Aviator stock price of $9.53 (as of Ma y 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 Aviator—Synergy 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


FY 2007E FY 2008E


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

FY 2008E Earnings (Dilution)/Accretion Per Share (%)

Pitch Book

Recommend Documents