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To: George Dawson who wrote (9490)	7/24/1998 2:17:00 PM
From: signist	Respond to of 42804

Hi George, I was glad to see this: We discussed with management the rationale behind the recent private placement of the $100 million convertible notes transaction. Some investors are puzzled by this move given that the company has about $60 million in cash and no acquisitions are imminent. Management explained that the Xyplex acquisition has been going extremely well and the company is seeing a lot of incremental opportunities that it would not have had without Xyplex. As a result, it wanted to have the immediate financial flexibility to make future acquisitions. In our view, the convertible transaction should not be viewed as negative by investors. First, the company has good track record of acquiring companies with good technologies at very good price - Fibronics in 1996 and Xyplex in January 1998 are prime examples. Second, it is also true that the company now has better financial flexibility to make acquisitions should a decision has to be made in a short period of time - some of the technology M&A transactions only take a few days to complete from the initiation of discussion to the signing of agreement. Third, we think the dilution effect is not significant on forward estimates. The conversion price is $27.0475 with interest expense of 5% totally paid by interest income on the proceeds. Should the convertible notes be treated as debt (stock price substantially lower than conversion price), there is no dilution impact on earnings. Should the notes be treated as equity equivalents (stock price substantially higher than conversion price), interest expense should not be included in the EPS calculation and the dilution on 1999 EPS is only 0.10 (to $1.65 from $1.75). Immediately however, we need to add $2.80 per share to cash - to a total cash position of $4.80 per share. Consequently, from a financial structuring standpoint, the convertible transaction was quite attractive, in our view. John