The Current Technology M&A and Capital Market Environment CONFIDENTIAL DRAFT NEW YORK SILICON VALLEY BOSTON LONDON BROADVIEW INTERNATIONAL A DIVISION OF JEFFERIES & COMPANY, INC Prepared for TeleSoft Partners Annual Venture Capital EcoSystem Meeting Robert Abbe, Managing Director Broadview International October 29, 2004

2 CONFIDENTIAL DRAFT The Changing Landscape For Emerging Growth Technology Companies IT Companies Must Adapt Their Exit Strategies To The New Environment 2004 forecast IT spending up 3.9%…but a $2.1 trillion market 1 NASDAQ up slightly over last twelve months IPO market thawed but “bar” remains very high M&A continues to rebound…sector specific Regulatory / structural changes driving rationalization of US public companies 1 Source: Gartner Dataquest Global Market Sizing – January 2004

33 CONFIDENTIAL DRAFT 33 Despite a stable equity market and lots of liquidity, relatively few companies have been able to go public Disconnect between what Wall Street says it can do and what it can do (resulting in a growing backlog) Technology IPO Market Trends ($ Billions) As of September 24, Source: Jefferies Broadview capital markets. Technology defined per SDC Platinum high technology industry classification Technology IPO Backlog Has Grown Dramatically Amount Filed Amount Offered LTM IPO Issuances by Subsector 1 Software 23% IT & Network Services 15% Semiconductors 21% Network Infrastructure 10% Computing Equipment 4% Other 27%

44 CONFIDENTIAL DRAFT 44 QUARTERLY IPO ISSUANCESIPO PRICING VS. FILING RANGE QUARTERLY FOLLOW-ON ISSUANCESFOLLOW-ON PRICING VS. FILING RANGE US IPO v. Follow-On Technology Market Stats As of October 18, 2004 Source: Jefferies Broadview capital market. Technology defined per SDC Platinum high technology industry classification Below Filing RangeWithin Filing RangeAbove Filing Range 0% 20% 40% 60% 80% 100% Jan-03Apr-03Jul-03Oct-03Jan-04Apr-04 Aug-04 Below Filing RangeAbove Filing Range 0% 20% 40% 60% 80% 100% Jan-03Apr-03Jul-03Oct-03Jan-04Apr-04 Aug Q3 '02Q4 '02Q1 '03Q2 '03Q3 '03Q4 '03Q1 '04Q2 '04Q3 '04Q4 '04 Number of Deals $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Amount Raised (millions) Q3 '02Q4 '02Q1 '03Q2 '03Q3 '03Q4 '03Q1 '04Q2 '04Q3 '04Q4 '04 Number of Deals $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 Amount Raised ($millions)

5 CONFIDENTIAL DRAFT The “Bar” for Tech IPOs Remains High in 2004, But The Quality And Performance Is Suspect % of Companies with Revenue < $25MM11%14% % of Companies Unprofitable11% % of Companies Trading Below IPO53%68% Q3-Q vs YTD 1 IPO Performance Q3-Q Median Performance$85,000$72, %64.5%0.4% 2004 YTD Median Performance$86,000$87, %5 7.5%2.2% Offering Amount TTM Revenue TTM Revenue Growth Quarters of Profitability EBIT Margin % Change From IPO 1 TTM 1 As of 09/17/04. Source: Broadview’s IPO Database / Hoover’s IPO Central / Capital IQ

66 CONFIDENTIAL DRAFT 66 The Current IT M&A Environment Has Returned To 1996 Levels M&A Activity 1992 – Q Number Of Transactions North America - IT, Media, Communications Source: Broadview's Global Mergers & Acquisitions database ,000 1,500 2,000 2,500 3,000 3,500 4, Q $0 $100 $200 $300 $400 $500 $600 $700 $800 Number of Deals Total Consideration ($B) ,593 2,079 2,844 2,994 3,763 3,801 2,343 2,327 1, ,156

7 CONFIDENTIAL DRAFT The Number Of Transactions Above $50 Million Remains Stable Source: Broadview’s Global Mergers and Acquisitions Database. Data includes announced North American transactions with transaction value greater than $50MM. 1 Data compiled based on deals where the value was known. >$500MM $250MM - $500MM $100MM - $250MM $50MM - $100MM North American M&A Transactions >$50MM

8 CONFIDENTIAL DRAFT 39 of These Companies Were Venture Capital-Backed 10 of These Companies Were Venture Capital-Backed 15 of These Companies Were Venture Capital-Backed 50 of These Companies Were Venture Capital-Backed The Venture Capital Industry Has Seen A Reduction In Higher Value Private Company Exits but some recovery in 2004 Source: Broadview's Global Mergers & Acquisitions database. North American private seller transactions. Middle Market Transactions Will Drive Venture Capital Returns In The Current Environment H >$20MM >$50MM >$150MM

9 CONFIDENTIAL DRAFT Public Company Rationalization Continues to Be a Major Driver of Technology M&A 1 Source: NASDAQ 2 Source: CapitalIQ 3 Source: Thomson Financial First Call Number Of NASDAQ Listed Public Companies 1 Mar 2000 – Sep 2004 (35%) (1,838) 5,000 DEC ,800 DEC ,500 DEC 2002 CHANGE ’00-’04 3,300 DEC 2003 Trading Values <Cash <$100m <$250m # Companies ,136 1,882 1% 34% 56% % of Total 5,181 MAR ,343 SEP % of NASDAQ Listed Public Companies Have No Research Coverage 3

10 CONFIDENTIAL DRAFT Late Stage Private Equity and Buyout Market is an Increasingly Important Factor Secular Changes  Large private equity capital pools focused on technology  Hedge funds entering the private market  Acceptance of sponsors selling companies to other sponsors  Historically low borrowing costs  Sarbanes-Oxley and lack of research and trading support hollowing out low end of public market  Reduced required rate of return / IRR driving pricing higher  Sponsors more comfortable about ultimate exit as other sponsors provide safety net  Companies valued between $100 and $300m have an attractive alternative to an IPO Implications

11 CONFIDENTIAL DRAFT The Quest For Growth In EARNINGS Is Driving Even “Strategic” M&A Higher gross margins Leveraging sales/channel costs Responding to customers rationalizing vendors Access to new/larger markets Make vs. Buy (avoiding P&L hit)

12 CONFIDENTIAL DRAFT STAGEVALUE/ PROOF Most Buyers Are Seeking Acquisitions At A Later Stage Of Company Development Technical Feasibility Product Functionality Customer Acceptance Business Model Works Economic Model Works Scalability Proven 5 6 Product is possible to do Product does what it is supposed to do Customers care Customers are willing to pay a rational economic price Company can be profitable Increasingly profitable growth is possible Size Of Addressable Market Drives Valuation Business Acquisition 3 4 Product Acquisition 1 2 Technology Acquisition

13 CONFIDENTIAL DRAFT The M&A Environment: The Challenges Proven business model (not just technology) a requirement for most buyers Few Buyers can stomach dilution, pursue early stages companies (Cisco, Symantec, etc.) Bias towards partnership versus M&A Mid-cap buyers only beginning to consider M&A again Valuation disconnect and preference structures

14 CONFIDENTIAL DRAFT The M&A Environment: The Good News Convergence, open standards are driving renewed focus on growth verses consolidation (in some segments) Positive Wall Street reaction to recent M&A – Computer Associates / Netegrity – Verisign / Jamba – Juniper / Netscreen Many large and mid caps substantially reduced R&D as they right sized their businesses Customers seek complete solutions from fewer vendors Lines between software and hardware are blurring – Many software companies open to selling standards based appliances – Systems companies increasingly look like software and services companies

15 CONFIDENTIAL DRAFT The Resulting “New Rules of the Road” Restructure liquidation preferences NOW Target IRR on the first $75MM of enterprise value … the best deals will use <$20MM total investment VCs Drive to profitability first Develop visibility and partnerships with marketplace gorillas Don’t fight industry rationalization … like fighting the rising/falling tide Young Company CEOs

16 CONFIDENTIAL DRAFT 16 CONFIDENTIAL DRAFT August 2004 $160,000,000 has been acquired by has divested its XGS enterprise technology platform and the associated software licenses to June 2004 $28,000,000 Hewlett-Packard Company July 2004 $242,000,000 has been acquired by April 2004 $20,000,000 OMR Systems Corporation and OMR Systems International, Ltd. to has divested September 2003 has sold substantially all of its operating assets to Confidential January 2004 has been acquired by April 2004 has been acquired by €475,000,000 June 2004 has been acquired by $497,000,000 Confidential February 2003 has sold its virtual machine assets to $120,000,000 March 2003 has been acquired by $150,000,000 April 2003 $122,000,000 May 2003 has been acquired by Confidential August 2003 has been acquired by Recent M&A Activity Reflects Access To Today’s Dominant Technology Firms September 2004 $123,000,000 has been acquired by Pending $445,000,000 has agreed to be acquired by