<PAGE>
August 3, 2000
The Special Committee of the Board of Directors (the "Special Committee")
PDK Labs, Inc.
145 Ricefield Lane
Hauppauge, NY 11788
Gentlemen:
We understand that PDK Labs, Inc., a New York corporation, ("PDK" or
the "Company") proposes to enter into an Agreement and Plan of Merger (the
"Agreement") by and between PDK and PDK Acquisition Corp., a special acquisition
corporation formed by certain members of PDK's senior management team ("Newco"),
pursuant to which Newco will merge with and into the Company and, upon the
effectiveness of such merger, each issued and outstanding share of the Company's
common stock (other than shares held by Newco) will be converted into the right
to receive $5.00 in cash and each issued and outstanding share of the Company's
preferred stock (other than shares held by Newco) will be converted into the
right to receive $8.00 plus accrued dividends in cash (the "Transaction"). For
the purposes of this letter, the Agreement will constitute only the draft
delivered to us dated August 3, 2000, which draft the Special Committee's legal
counsel has advised us will be furnished to PDK's Board of Directors for
approval, and which included no schedules or exhibits. The terms of the
Transaction are more fully described in the Agreement.
You have requested our opinion as to whether or not the consideration
to be received by the Company's shareholders other than Newco (the "Public
Shareholders") in the Transaction pursuant to the Agreement (the
"Consideration") is fair, from a financial point of view, to the Public
Shareholders as of the date hereof. In arriving at the opinion set forth herein,
we have, among other things:
a) reviewed the financial terms of the Agreement;
b) reviewed and analyzed certain business and financial information
with respect to PDK, including financial forecasts, prepared by
the Company (the Special Committee has advised us that it has no
reason to believe that management has changed its position with
respect to such information; additionally, management has advised
us that it has not changed its position with respect to such
information);
c) held discussions with certain members of the management of the
Company concerning its business, operations and prospects and
visited the Company's facility;
d) reviewed the Company's Annual Reports on Forms 10-K for the four
fiscal years ended November 30, 1999 and the Company's Quarterly
Report on Form 10-Q for the period ended May 31, 2000;
e) reviewed the price and public trading history of the Company's
common stock and preferred stock; and
f) reviewed certain publicly available information provided to us by
the Company regarding the industry in which the Company competes.
<PAGE>
In connection with our opinion, we have assumed and relied upon the
accuracy and completeness of all financial and other information supplied or
otherwise made available by the Company. We have neither attempted independently
to verify nor have we assumed any responsibility for verification of such
information. We have not made or obtained or assumed any responsibility for
making or obtaining independent evaluations or appraisals of PDK or its assets
or liabilities (contingent or otherwise), nor have we been furnished with any
such evaluations or appraisals. With respect to the financial forecasts referred
to above, we have assumed, upon the advice of the Company, that they have been
reasonably prepared on bases reflecting the best available good faith estimate
and judgment of the management of the Company as to the future financial
performance of the Company, and that the Company will perform substantially in
accordance with such forecasts. We assume no responsibility for and express no
view as to such forecasts or the assumptions on which they are based. We have
assumed that the Transaction will be consummated on the terms described in the
Agreement without any waiver of or modification to any of the material terms and
conditions relating to PDK.
As part of our engagement, we were authorized to, and did, solicit
third party indications of interest in acquiring all or part of PDK. We
identified 47 potential financial and strategic (industry) acquirers (the
"Acquirers") whom we contacted. To those who were interested, we sent a
"no-names" two-page executive summary of the Company, its operations, its
prospects and its finances. With one exception, all of the Acquirers advised us
after reviewing such executive summary that they were not interested in
proceeding with a further evaluation of the Company for the purpose of a
transaction. The one party which expressed interest signed a confidentiality
agreement and was informed of the Company's name. Upon its review of PDK's
public filings, the party declined to proceed unless PDK's management requested
such party's involvement, and PDK's management advised us that it would make no
such request.
Because we did not receive any indications of value from any of the
Acquirers, we were not asked to consider, and our opinion does not address, the
consideration the Company might receive from third party purchasers, the
relative merits of the Transaction as compared to any alternative business
strategies that might exist for the Company or the effect of any other
transaction in which PDK might engage. In certain cases, investment banks
sometimes utilize two other analyses, a market multiples analysis, based upon
comparable publicly-traded companies, and an acquisition multiples analysis,
based upon acquisitions of comparable companies during recent years. We
determined that these two other analyses were not feasible in this circumstance,
because we were unable to identify any other publicly-traded company (or any
company acquired during the past three years) subject to the high level of risk
associated with the relative near-term possibility that the federal government
could interrupt or end the Company's main business functions. Our conclusions
are based solely on information available to us on or before the date hereof and
reflect economic, market and other conditions as of such date.
This opinion has been prepared solely for the benefit and use of the
Special Committee and the Board of Directors in connection with its
consideration of the Transaction. This opinion does not constitute a
recommendation to any shareholder as to whether or not such investor should vote
for or against the Transaction. We have acted as financial advisor to the
Special Committee in connection with the Transaction and will receive a fee for
our services that will be paid in part upon the delivery of this opinion, but
which is not contingent upon the consummation of the Transaction. PDK has agreed
to indemnify JWGenesis Capital Markets, Inc. for certain liabilities that may
arise in connection with the rendering of this opinion.
<PAGE>
In rendering this opinion, we have not been engaged to act as an agent
or fiduciary of the Company's shareholders or any other third party, and the
Special Committee and the Board of Directors have expressly waived to the
fullest extent permitted by law any duties or liabilities we may otherwise be
deemed to have had in this regard.
This opinion speaks as of its date only, and we have no obligation to
update this opinion to take into account new facts and circumstances. This
opinion is intended for distribution only to the Special Committee and the Board
of Directors and may not be distributed or disclosed in whole or part to any
other party without our express written consent, except as provided in the June
2, 2000 letter agreement between the undersigned and the Company.
On the basis of, and subject to, the foregoing, it is our opinion as of
the date hereof that the Consideration is fair, from a financial point of view,
to the Public Shareholders.
Very truly yours,
s/
JWGenesis Capital Markets, Inc.
