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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
SCHEDULE 14A
Information Required in Proxy Statement Schedule 14A
Information Proxy Statement Pursuant to
Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. 3)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use Of The Commission Only
(As Permitted By Rule 14a- 6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ]Soliciting Material Pursuant Rule to 14a-11 or Rule 14a-12
__________________
PAK MAIL CENTERS OF AMERICA, INC.
----------------------------------------------
(Name of Registrant as Specified in its Charter)
None
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.001 per share, of Pak Mail Centers of
America, Inc.
(2) Aggregate number of securities to which transaction applies:
980,659 shares of common stock and 108,160 options to purchase shares
of common stock.
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
The filing fee of $11.00 was determined based upon the product of 980,659
shares of common stock and the merger consideration of $0.0516 per share.
In accordance with Rule 0-11 under the Securities Exchange Act of 1934, as
amended, the filing fee was determined by multiplying the amount calculated
pursuant to the preceding sentence by 1/50 of one percent.
(4) Proposed maximum aggregate value of transaction: $50,602
(5) Total fee paid herewith:
[X] Fee paid previously with preliminary materials: $ 11
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
Filed: March 18, 2003
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PROXY STATEMENT
PAK MAIL CENTERS OF AMERICA, INC.
7173 South Havana Street
Suite 600
Englewood, Colorado 80112
(303) 957-1000
_____________, 2003
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders of Pak
Mail Centers of America, Inc. ("Pak Mail"). The special meeting will be held on
___________, 2003, at 9:00 a.m., Mountain Time, at the offices of Pak Mail, 7173
South Havana Street, Suite 600, Englewood, Colorado 80112. At the special
meeting, you will be asked to consider and vote upon a proposal to approve the
Agreement and Plan of Merger, dated as of October 17, 2002, as amended as of
October 28, 2002, by and among Pak Mail and Pak Mail Acquisition Corp., a
Colorado corporation wholly-owned by Pak Mail Investment Partnership L.P. and
D.P. Kelly & Associates, L.P., our two largest shareholders, and to approve the
merger. The accompanying proxy statement explains the proposed merger and
provides specific information concerning the special meeting. Please read these
materials carefully.
Under the merger agreement, Pak Mail Acquisition Corp. will be merged with and
into Pak Mail, and following such merger, Pak Mail Investment Partnership L.P.
and D.P. Kelly & Associates, L.P. will own all of our capital stock. If the
merger agreement is approved and the transactions it contemplates, including the
merger, are approved, then at the effective time of the merger, each outstanding
share of our common stock, other than shares held by Pak Mail Acquisition Corp.,
or held by shareholders who perfect their dissenters' rights under Colorado law,
will be converted into the right to receive $0.0516 in cash, without interest
and less any applicable withholding taxes, for a total transaction value of
approximately $50,602. In order for a shareholder to perfect its dissenters'
rights under Colorado law, the shareholder wishing to exercise such rights must
comply with the requirements of Colorado law provided in Annex F to the
accompanying proxy statement, and must not vote in favor of the merger
agreement. A copy of the merger agreement is attached as Annex A to the
accompanying proxy statement and a copy of the amendment to the merger agreement
is attached as Annex B to the accompanying proxy statement. We encourage you to
read the documents in their entirety.
You should also carefully read the written opinion of Duff & Phelps that is
attached as Annex C to the accompanying proxy statement as well as the
presentation of the fairness analysis by Duff & Phelps to Pak Mail's Board of
Directors on October 17, 2002, attached as Annex D to the accompanying proxy
statement, and the valuation analysis of Pak Mail by Duff & Phelps, dated July
11, 2002, attached as Annex E to the accompanying proxy statement.
The proposed merger is an important decision for Pak Mail and its shareholders.
It cannot occur unless, among other things, the merger agreement is approved by
the affirmative vote of the holders of a majority of all outstanding shares of
common stock of Pak Mail. Pak Mail Acquisition Corp. owns approximately 74.7% of
Pak Mail's common stock. It has indicated that it will vote its shares to
approve the merger.
Pak Mail's Board of Directors, based in part on the opinion rendered by Duff &
Phelps, has unanimously determined that the merger agreement and the merger are
advisable and fair to and in the best interests of our shareholders other than
Pak Mail Acquisition Corp. and its affiliates. Accordingly, our Board of
i
Directors has unanimously adopted the merger agreement and the transactions it
contemplates, including the merger, and unanimously recommends that you vote
"FOR" approval of the merger agreement and the merger.
Whether or not you plan to attend the special meeting, we urge you to sign, date
and promptly return the enclosed proxy card to ensure that your shares will be
voted at the special meeting.
Your Board of Directors urges you to consider the enclosed materials carefully
and unanimously recommends that you vote "FOR" approval of the merger agreement
and the merger.
Sincerely,
P. Evan Lasky, President and Chief Executive Officer
This transaction has not been approved or disapproved by the Securities and
Exchange Commission or any state securities regulator nor has the
Commission or any state securities regulator passed upon the fairness or
merits of the transaction or upon the accuracy or adequacy of the
information contained in this document.
Any representation to the contrary is a criminal offense.
This proxy statement and proxy are being mailed to Pak Mail's shareholders
on or about ___________, 2003.
ii
PAK MAIL CENTERS OF AMERICA, INC.
7173 South Havana Street, Suite 600
Englewood, Colorado 80112
(303) 957-1000
Notice of Special Meeting of Shareholders
To be held on ___________, 2003
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Pak Mail
Centers of America, Inc., a Colorado corporation ("Pak Mail"), will be held at
the offices of Pak Mail, 7173 South Havana Street, Suite 600, Englewood,
Colorado 80112, on _________, 2003, at 9:00 a.m. Mountain Time, for the purpose
of considering and voting on proposals to:
o Consider and vote upon the Agreement and Plan of Merger, dated as of
October 17, 2002, as amended as of October 28, 2002, by and between
Pak Mail and Pak Mail Acquisition Corp., and the merger of Pak Mail
Acquisition Corp. with and into Pak Mail, with Pak Mail as the
surviving corporation and with the shareholders of Pak Mail, other
than Pak Mail Acquisition Corp., entitled to receive $0.0516 in cash,
without interest, for each share of Pak Mail's common stock that they
own, for a total transaction value of $50,602; and
o Transact such other business as may properly come before the special
meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on __________, 2003 are
entitled to notice of, and to vote at, the special meeting. During the ten day
period prior to the special meeting, any shareholder may examine a list of Pak
Mail's shareholders of record, for any purpose related to the special meeting,
during ordinary business hours at the offices of Pak Mail located at 7173 South
Havana Street, Suite 600, Englewood, Colorado 80112.
Shareholders of Pak Mail who do not vote in favor of the merger agreement will
have the right to dissent and to seek appraisal of the fair value of their
shares if the merger is completed and they comply with the procedures under
Colorado law explained in the accompanying proxy statement.
The merger is described in the accompanying proxy statement, which you are urged
to read carefully. A copy of the Agreement and Plan of Merger is attached as
Annex A to the accompanying proxy statement and a copy of the First Amendment to
the Agreement and Plan of Merger is attached as Annex B to the accompanying
proxy statement.
The enclosed proxy is solicited by and on behalf of the Board of Directors of
Pak Mail. All shareholders are cordially invited to attend the special meeting
in person. Whether you plan to attend or not, please date, sign and return the
accompanying proxy in the enclosed return envelope. The giving of a proxy will
not affect your right to vote in person if you attend the special meeting.
By Order of the Board of Directors
P. Evan Lasky, Secretary
iii
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET........................................................1
QUESTIONS AND ANSWERS ABOUT THE MERGER....................................6
THE PARTIES..............................................................11
INFORMATION CONCERNING THE SPECIAL MEETING...............................13
SPECIAL FACTORS..........................................................15
THE MERGER AGREEMENT.....................................................35
The Merger; Merger Consideration....................................36
The Exchange Fund; Payment for Shares of Pak Mail Common Stock......36
Transfers of Common Stock...........................................37
Treatment of Stock Options..........................................37
Conditions..........................................................38
Representations and Warranties......................................39
Covenants...........................................................40
Other Provisions....................................................41
Termination.........................................................41
Fees and Expenses...................................................41
Amendment/Waiver....................................................42
DISSENTER'S RIGHTS.......................................................42
MARKET FOR THE COMMON STOCK..............................................45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........45
DIRECTORS AND MANAGEMENT.................................................48
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................50
INDEPENDENT AUDITORS.....................................................50
SHAREHOLDER MEETINGS AND PROPOSALS.......................................50
AVAILABLE INFORMATION....................................................51
FINANCIAL STATEMENTS.....................................................51
PRO FORMA INFORMATION....................................................52
WHERE YOU CAN FIND MORE INFORMATION......................................52
ANNEX A.................................................................A-1
ANNEX B.................................................................B-1
ANNEX C.................................................................C-1
ANNEX D.................................................................D-1
ANNEX E.................................................................E-1
ANNEX F.................................................................F-1
iv
ANNEX A Agreement and Plan of Merger dated as of October 17, 2002 by and
between Pak Mail Centers of America, Inc. and Pak Mail
Acquisition Corp.
ANNEX B First Amendment to Agreement and Plan of Merger dated as of
October 28, 2002 by and between Pak Mail Centers of America, Inc.
and Pak Mail Acquisition Corp.
ANNEX C Opinion of Duff & Phelps, LLC dated October 17, 2002
ANNEX D Duff & Phelps Fairness Analysis - Presentation to the Board of
Directors of Pak Mail Centers of America, Inc. dated October 17,
2002
ANNEX E Valuation Analysis of Duff & Phelps, LLC dated July 11, 2002
ANNEX F Sections of the Colorado Business Corporation Act Regarding
Dissenter's Rights (Sections 7-113-101 through 7-113-302)
v
SUMMARY TERM SHEET
The following summarizes the material aspects of the proposed merger and
highlights selected information contained elsewhere in this proxy statement.
This summary may not contain all of the information that is important to you,
and is qualified in its entirety by the more detailed information contained
elsewhere in this proxy statement, including the annexes to it, and in the
documents incorporated by reference. To understand the proposed merger fully and
for a more complete description of the terms of the proposed merger, you should
carefully read this entire proxy statement, including the annexes to it, and the
documents incorporated by reference.
Overview of the Merger (pages 35-42)
We are furnishing this proxy statement to allow shareholders of Pak Mail Centers
of America, Inc. ("Pak Mail") to consider and vote on a proposal to approve the
merger of Pak Mail Acquisition Corp., a newly-formed corporation wholly-owned by
two significant shareholders of Pak Mail common shares, D.P. Kelly & Associates,
L.P. ("D.P. Kelly") and Pak Mail Investment Partnership L.P. ("PMIP"), with and
into Pak Mail.
Pak Mail Acquisition Corp. is a Colorado corporation organized by D.P. Kelly and
PMIP to acquire the ownership interests of Pak Mail's unaffiliated shareholders.
Norcross Partners L.P. ("Norcross Partners") is the general partner of PMIP, and
Norcross Corporation ("Norcross Corp.") is the general partner of Norcross
Partners. C&G Management Company, Inc. ("C&G Management") is the general partner
of D.P. Kelly. Messrs. Donald P. Kelly and F. Edward Gustafson are executive
officers and directors of, and Messrs. Kelly, Gustafson and J.S. Corcoran own
the entire equity interest in, Norcross Corp. Messrs. Kelly and Gustafson are
executive officers and directors of, and own the entire equity interest in, C&G
Management. In each case, Mr. Kelly's interest is held through his revocable
trust. Messrs. Gustafson and Corcoran, and Ms. Laura K. McGrath, are directors
of Pak Mail.
Under the terms of the merger agreement attached to this proxy statement as
Annex A, and as amended in Annex B, shareholders of Pak Mail Acquisition Corp.
will acquire Pak Mail by merging Pak Mail Acquisition Corp. into Pak Mail. As a
result of the merger, the owners of common shares of Pak Mail (other than Pak
Mail Acquisition Corp. and Pak Mail shareholders that properly exercise
dissenters' rights) will receive $0.0516 per share of common stock, in cash,
without interest for a total transaction value of approximately $50,602. The
shareholders of Pak Mail Acquisition Corp. will then become the owners of all of
the outstanding common shares in the surviving corporation.
The Special Meeting (pages 13-15)
A special meeting of shareholders of Pak Mail will be held at 9:00 a.m.,
Mountain Time, on __________, 2003 at the offices of Pak Mail, 7173 South Havana
Street, Suite 600, Englewood, Colorado 80112. At the special meeting, you will
be asked to consider and vote on a proposal to approve the merger agreement
described in this proxy statement.
Only Pak Mail shareholders of record at the close of business on the record
date, __________, 2003, will be entitled to notice of, and to vote at, the
special meeting. On the record date, there were 3,877,737 shares of common stock
outstanding and entitled to one vote per share at the special meeting held by
approximately 1,153 shareholders of record.
The merger agreement and Colorado law require that the holders of a majority of
the outstanding shares of Pak Mail common stock vote to approve the merger
agreement. Pak Mail Acquisition Corp. currently owns approximately 2,897,078
common shares of Pak Mail, representing approximately 74.7% of the outstanding
common shares as of the record date and has agreed to vote its shares to approve
the merger agreement.
Recommendation of the Board of Directors (pages 19-22)
Our Board of Directors considered and evaluated Pak Mail's strategic
alternatives, including strategic alternatives involving third parties other
than Pak Mail Acquisition Corp., and also evaluated the merger. The Board of
Directors has unanimously determined that the merger is advisable and in the
best interests of Pak Mail and our unaffiliated shareholders and that the merger
consideration is fair to our unaffiliated shareholders. The Board of Directors
has also unanimously adopted the merger agreement and determined to submit the
merger to our shareholders and to recommend that our shareholders vote to
approve the merger agreement. Accordingly, our Board of Directors unanimously
recommends that you vote "FOR" the proposal to approve the merger agreement.
Factors Considered by the Board of Directors as to the Fairness of the Merger
(pages 19-23)
We believe the merger and the merger consideration to be fair to our
unaffiliated shareholders. In reaching this determination we considered a number
of factors, including:
o the fact that Pak Mail's common stock trades only sporadically in the
over-the-counter market. No established trading market for Pak Mail's
common stock currently exists. The merger consideration of $0.0516 per
share represents an opportunity for unaffiliated shareholders to
achieve liquidity;
o the fact that Duff & Phelps, LLC ("Duff & Phelps") delivered an
opinion to the Board of Directors dated October 17, 2002, to the
effect that and based upon the assumptions made, matters considered
and limitations on the review described in the written opinion, the
merger consideration to be received by the unaffiliated shareholders
of Pak Mail in connection with the transaction is fair, from a
financial point of view;
o the fact that the $0.0516 per share price in the merger agreement is
near the high end of the valuation range provided by Duff & Phelps of
$50,000 to $250,000 for 100% of the common shares of Pak Mail;
o the fact that the purchase price was proposed after Duff & Phelps had
provided its valuation range, and that no specific guidance was
provided to Duff & Phelps with respect to expectations on value; and
o Pak Mail's Board of Directors also determined that the transaction
would not be structured with a `majority of the minority approval'
provision, nor would Pak Mail establish a special committee of
independent directors to negotiate the transaction. Pak Mail's Board
determined that it would utilize a valuation for the common shares of
Pak Mail at the high end of the valuation range provided by Duff &
Phelps in order to provide a fair price to Pak Mail's unaffiliated
shareholders.
The Parties (pages 11-13)
Pak Mail is a Colorado corporation that is principally engaged in franchising
retail service centers which specialize in the packaging and shipping business.
2
Pak Mail Acquisition Corp. is a Colorado corporation organized by D.P. Kelly and
PMIP to acquire the ownership interests of Pak Mail's unaffiliated shareholders.
Norcross Partners is the general partner of PMIP, and Norcross Corp. is the
general partner of Norcross Partners. C&G Management is the general partner of
D.P. Kelly. Messrs. Kelly and Gustafson are executive officers and directors of,
and Messrs. Kelly, Gustafson and Corcoran own the entire equity interest in,
Norcross Corp. Messrs. Kelly and Gustafson are executive officers and directors
of, and own the entire equity interest in, C&G Management. In each case, Mr.
Kelly's interest is held through his revocable trust. Messrs. Gustafson and
Corcoran, and Ms. McGrath, are directors of Pak Mail. Each of Pak Mail
Acquisition Corp., D.P. Kelly, PMIP, Norcross Partners, Norcross Corp., C&G
Management, Donald P. Kelly, F. Edward Gustafson, J.S. Corcoran and Laura K.
McGrath is referred to herein individually as a "Principal" and collectively as
the "Principals." See "The Parties."
Special Factors (pages 15-35)
There are a number of factors that you should consider in connection with
deciding how to vote your shares. They include, without limitation:
o the background of the merger;
o the factors considered by the Board of Directors;
o the opinion of the financial advisor to the Board of Directors;
o the recommendation of the Board of Directors;
o the purpose and effect of the merger; and
o the interests of certain persons in the merger.
These factors, in addition to other factors to be considered in connection with
the merger, are described in this proxy statement.
Opinion of Duff & Phelps (pages 23-29 and Annexes C-E)
In connection with its evaluation of the merger and the merger agreement, the
Board of Directors retained Duff & Phelps to render an opinion as to the
fairness, from a financial point of view, to Pak Mail's unaffiliated
shareholders, meaning its shareholders other than Pak Mail Acquisition Corp. and
its affiliates, of the consideration to be received by them in connection with
the merger. Duff & Phelps has delivered to the Board of Directors its opinion
dated October 17, 2002 to the effect that, as of that date and based upon the
assumptions made, matters considered and limitations on the review described in
the written opinion, the merger consideration to be received by the unaffiliated
shareholders of Pak Mail in connection with the transaction is fair, from a
financial point of view. Duff & Phelps's opinion, a full copy of which is
attached as Annex C, was provided for the information of the Board of Directors
and does not constitute a recommendation to any shareholder with respect to any
matter relating to the proposed merger. The presentation of the valuation
analysis by Duff & Phelps to Pak Mail's Board of Directors on October 17, 2002
is attached as Annex D to this proxy statement, and the valuation analysis
provided by Duff & Phelps to Pak Mail on July 11, 2002 is attached as Annex E to
this proxy statement.
Interests of the Principals and our Directors and Executive Officers in the
Merger (page 31)
In considering the recommendation of our Board of Directors with respect to the
merger agreement and the merger, you should be aware that, in addition to the
matters discussed above, some of our executive officers and members of our Board
of Directors have interests in the merger that are in addition to or different
from the interests of our shareholders generally and that such interests create
potential conflicts of interest.
3
Messrs. Kelly, Gustafson and Corcoran and Ms. McGrath have indirect ownership
interests in Pak Mail Acquisition Corp. The general partner of PMIP is Norcross
Partners, and the general partner of Norcross Partners is Norcross Corp. Messrs.
Kelly and Gustafson are executive officers and directors of, and Messrs. Kelly,
Gustafson and Corcoran own the entire equity interest in, Norcross Corp. Mr.
Kelly's interest is held through his revocable trust. As a result of the shared
control by Messrs. Kelly, Gustafson and Corcoran over Norcross Corp., the
control exercised by Norcross Corp., over Norcross Partners and the control
exercised by Norcross Partners over PMIP, Messrs. Kelly, Gustafson and Corcoran
control PMIP. Because PMIP owns a majority of the issued and outstanding Pak
Mail common stock, PMIP controls Pak Mail, and Messrs. Kelly, Gustafson and
Corcoran may therefore be deemed to control Pak Mail.
Messrs. Kelly and Gustafson are executive officers and directors of, and own the
entire equity interest in, C&G Management. Mr. Kelly's interest is held through
his revocable trust. C&G Management is the general partner of D.P. Kelly. As a
result of the shared control of C&G Management, and the ability of C&G
Management to control D.P. Kelly, Messrs. Kelly and Gustafson may be deemed to
share the beneficial ownership of the Pak Mail common stock owned by D.P. Kelly.
Ms. McGrath is a general partner and a trust for the benefit of her children is
a limited partner of KMK and Associates, an Illinois general partnership engaged
in investment activities. KMK and Associates and Messrs. Kelly, Gustafson and
Corcoran are limited partners of Norcross Partners, which is the general partner
of PMIP. KMK and Associates and Messrs. Kelly and Gustafson are limited partners
of D.P. Kelly. In addition, D.P. Kelly, C&G Management, KMK and Associates and
Messrs. Kelly, Gustafson and Corcoran are limited partners of Grand Mesa
Partners L.P., which in turn is a limited partner of PMIP. Mr. Kelly's interests
are owned through his revocable trust. Ms. McGrath is the daughter of Mr. Kelly.
See "The Parties" and "Security Ownership of Certain Beneficial Owners and
Management."
As a result of these ownership interests, Messrs. Kelly, Gustafson and Corcoran
and Ms. McGrath will have an indirect beneficial interest in Pak Mail after the
merger is consummated, in contrast with Pak Mail's unaffiliated shareholders.
See "Directors and Management" on pages 47-49 for additional details. As a
result of these interests, Messrs. Gustafson and Corcoran and Ms. McGrath, who
are directors of Pak Mail, and Mr. Kelly may have conflicting interests with Pak
Mail's unaffiliated shareholders. Messrs. Gustafson and Corcoran were involved
in structuring the transaction as representatives of D.P. Kelly and PMIP, while
they were members of Pak Mail's Board of Directors. In light of the potential
conflicting interests of Messrs. Kelly, Gustafson and Corcoran and Ms. McGrath
with Pak Mail's unaffiliated shareholders as described immediately above, the
Board of Directors solicited the opinion of Duff & Phelps to provide a
determination of the fairness of the merger to Pak Mail's unaffiliated
shareholders, from a financial point of view. To review the factors considered
by Duff & Phelps in its opinion, and the factors considered by the Board of
Directors in approving the merger agreement, see pages 19-28.
Aside from shares beneficially owned through Pak Mail Acquisition Corp., D.P.
Kelly and PMIP, Mr. Kelly, Mr. Gustafson and Mr. Corcoran beneficially own
100,000 shares, 28,500 shares and 1,000 shares, respectively, of Pak Mail common
stock. These shares will be converted into the right to receive $0.0516 per
share in the merger.
Our executive officers and directors as a group hold in the aggregate options to
purchase approximately 52,000 shares. In connection with the merger, these
options will be canceled. See "Shares and Stock Options" on pages 30-31 for
additional details.
4
All of our executive officers, directors and affiliates have indicated that they
currently intend to vote their shares in favor of the merger agreement and the
merger because they believe that it is in the best interests of Pak Mail, and is
the best decision in order to maximize the return on their investments in Pak
Mail.
Primary Benefits and Detriments to Unaffiliated Shareholders (page 30)
Our unaffiliated shareholders will receive a cash payment of $0.0516 per share
for each of their shares for a total transaction value of approximately $50,602.
After the merger, our unaffiliated shareholders will no longer have an interest
in Pak Mail or any future earnings growth or increase in value.
Principals' Position as to Fairness of the Transaction (pages 29-30)
Each of the Principals believes that the merger is fair to Pak Mail's
unaffiliated shareholders.
The Merger Agreement (pages 35-42)
The Agreement and Plan of Merger by and between Pak Mail and Pak Mail
Acquisition Corp. dated as of October 17, 2002, as amended as of October 28,
2002, contains standard representations and warranties, covenants and other
terms and conditions. The October 28, 2002 amendment to the merger agreement
contained technical, non-substantive corrections to the merger agreement.
The Merger Consideration (pages 35-36)
If the merger is completed, you will be entitled to receive $0.0516 per share in
cash for each share of Pak Mail common stock you own, without interest and
subject to applicable withholding taxes, for a total transaction value of
$50,602.
Conditions to the Merger (pages 38-39)
Certain conditions that are common in merger agreements must be satisfied before
Pak Mail or Pak Mail Acquisition Corp. is obligated to complete the merger. A
majority of shares of common stock of Pak Mail must be voted to approve the
merger agreement. There must be no order, decree, ruling, judgment or injunction
that would prohibit the merger and the consummation of the transactions
contemplated by the merger agreement substantially on the terms contemplated by
the merger agreement.
In addition, other conditions, including compliance with representations,
warranties and covenants, must be satisfied by Pak Mail or waived by Pak Mail
Acquisition Corp. before Pak Mail Acquisition Corp. is obligated to complete the
merger. Similarly, compliance with additional representations, warranties and
covenants must be satisfied by Pak Mail Acquisition Corp. or waived by Pak Mail
before Pak Mail is obligated to complete the merger. No party anticipates
waiving any condition to the merger. Proxies would not be resolicited from
shareholders upon the waiver of any of representation, warranty or covenant
unless the waiver would be material to the voting decision of shareholders.
5
Termination of the Merger Agreement (page 41)
Pak Mail and Pak Mail Acquisition Corp. may agree at any time (including any
time after the special meeting but before consummation of the merger) to
terminate the merger agreement. In addition, the merger agreement may be
terminated:
o by either Pak Mail or Pak Mail Acquisition Corp. if the merger is not
completed by January 31, 2003;
o by either Pak Mail or Pak Mail Acquisition Corp. if a court or
governmental agency or authority issues a non-appealable final ruling
permanently restraining or prohibiting the merger;
o by either Pak Mail or Pak Mail Acquisition Corp. if the merger
agreement is not adopted by a majority of all outstanding shares of
Pak Mail;
o by either Pak Mail or Pak Mail Acquisition Corp. if (a) there has been
a breach in any material respect by the other party of any
representation or warranty contained in the merger agreement, or (b)
there has been a breach in any material respect of any of the
covenants or agreements set forth in the merger agreement on the part
of the other party;
o by Pak Mail Acquisition Corp., if the Board of Directors of Pak Mail
shall have failed to recommend, or shall have withdrawn its
recommendation of the merger; or
o by Pak Mail Acquisition Corp. if certain legal actions are commenced
that relate to the merger agreement or that otherwise may have a
material adverse effect on Pak Mail.
Fees and Expenses (page 41)
Each party will pay the costs and expenses incurred by it in connection with the
merger, whether or not the merger is consummated.
Dissenter's Rights (pages 42-45 and Annex F)
Any shareholder who does not wish to accept the $0.0516 per share cash
consideration in the merger has the right under Colorado law to have his, her or
its shares appraised by a Colorado state district court. This "right of
appraisal" is subject to a number of restrictions and technical requirements.
Generally, in order to exercise appraisal rights, among other things:
o you must not vote in favor of the merger agreement; and
o you must make a written demand for appraisal in compliance with
Colorado law before the vote on the merger agreement.
Merely voting against the merger agreement will not preserve your right of
appraisal under Colorado law. Annex F to this proxy statement contains the
Colorado statute relating to your right of appraisal. Failure to follow all of
the steps required by this statute will result in the loss of your right of
appraisal.
6
Plans for Pak Mail After the Merger (page 33)
The Principals expect that after the merger, Pak Mail's business will continue
to be operated substantially as it is currently being conducted. Neither the
Principals nor Pak Mail has any material plans or proposals that would take
place after the merger. However, after the merger Pak Mail may continue to
consider the possibility of a strategic combination or pursuing other strategic
alternatives. In addition, the Principals intend to suspend Pak Mail's
obligation to file reports under Section 13 of the Exchange Act, as a result of
which Pak Mail would no longer be publicly traded on the over-the-counter
market.
Financing of the Merger (pages 33-34)
The Principals presently anticipate that the cash consideration payable to
unaffiliated shareholders (expected to total approximately $50,602) will
primarily be provided by a $50,000 capital contribution provided by D.P. Kelly
to Pak Mail Acquisition Corp.
Tax Treatment (pages 34-35)
The cash you receive for your shares of our common stock generally will be
taxable for federal and state income tax purposes. Any gain or loss will be
measured by the difference between $0.0516 per share and your tax basis in the
shares.
QUESTIONS AND ANSWERS ABOUT THE MERGER
This section of the proxy statement is included for those readers that prefer a
question and answer format to answer their questions concerning the proposed
merger. For a more detailed discussion of the issues discussed in this question
and answer section, please review the Summary Term Sheet provided above as well
as the other sections of this proxy statement.
Q: What is the proposed transaction?
A: Shareholders of Pak Mail Acquisition Corp. will acquire Pak Mail by merging
Pak Mail Acquisition Corp. into Pak Mail. As a result of the merger, the owners
of shares of common stock of Pak Mail (other than Pak Mail Acquisition Corp. and
shareholders that properly exercise dissenters' rights under Colorado law) will
receive $0.0516 per share of common stock, in cash, without interest for a total
transaction value of approximately $50,602. The shareholders of Pak Mail
Acquisition Corp. will then become the owners of all of the outstanding common
shares in the surviving corporation.
Q: Who is Pak Mail Acquisition Corp.?
A: Pak Mail Acquisition Corp. was formed by PMIP, the beneficial owner of
approximately 62.0% of Pak Mail's common stock, and D.P. Kelly, the beneficial
owner of approximately 12.7% of Pak Mail's common stock, in order to acquire all
of the issued and outstanding shares of Pak Mail that they do not already own.
Pak Mail Acquisition Corp. is a Colorado corporation organized by D.P. Kelly and
PMIP to acquire the ownership interests of Pak Mail's unaffiliated shareholders.
Norcross Partners is the general partner of PMIP, and Norcross Corp. is the
general partner of Norcross Partners. C&G Management is the general partner of
D.P. Kelly. Messrs. Kelly and Gustafson are executive officers and directors of,
and Messrs. Kelly, Gustafson and Corcoran own the entire equity interest in,
Norcross Corp. Messrs. Kelly and Gustafson are executive officers and directors
of, and own the entire equity interest in, C&G Management. In each case, Mr.
Kelly's interest is held through his revocable trust. Messrs. Gustafson and
Corcoran, and Ms. McGrath, are directors of Pak Mail. See "The Parties."
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Q: What will I receive in the merger?
A: Shareholders of Pak Mail, other than Pak Mail Acquisition Corp., will be
entitled to receive $0.0516 in cash, without interest, for each share of Pak
Mail common stock that they own. If you own stock options of Pak Mail, they will
be canceled.
Q: Why is the Board of Directors unanimously recommending that I vote for the
merger at this time?
A: The Board of Directors believes that it is in the best interests of Pak
Mail's unaffiliated shareholders to accept the opportunity presented by the
Principals, due to, among other things, the lack of marketability of shares in
Pak Mail, the unlikelihood that there will be a substantial increase in trading
volume in the near-term future, and the opinion of Duff & Phelps, the financial
advisor of Pak Mail, that the merger is fair to Pak Mail's unaffiliated
shareholders from a financial point of view. In addition, based on discussions
with potential strategic partners, it is possible that Pak Mail's status as a
public company may make it more difficult for Pak Mail to engage in a strategic
combination. Accordingly, Pak Mail believes that it is unlikely that Pak Mail's
unaffiliated shareholders would benefit from a strategic transaction in the near
future. The merger will provide immediate liquidity to Pak Mail's unaffiliated
shareholders. The Board of Directors unanimously adopted the merger and
recommends the merger to Pak Mail's shareholders. To review the background and
reasons for the merger in greater detail, including the opinion of Duff &
Phelps, see pages 22-28 of this proxy statement and Annexes C, D & E to this
proxy statement.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as quickly as possible. If the merger
agreement is approved and the other conditions to the merger are satisfied, we
expect to complete the merger shortly after receiving shareholder approval.
Q: What are the income tax consequences of the merger to me?
A: The cash you receive for your shares in excess of your basis in such shares
generally will be taxable for federal and state income tax purposes. To review a
brief description of the federal income tax consequences to shareholders, see
pages 33-34 of this proxy statement.
Q: What conflicts of interest do the Board of Directors have in recommending
approval of the merger agreement?
A: Messrs. Gustafson and Corcoran and Ms. McGrath, directors of Pak Mail, have
an indirect beneficial interest in Pak Mail Acquisition Corp. The general
partner of PMIP is Norcross Partners, and the general partner of Norcross
Partners is Norcross Corp. Mr. Gustafson is an executive officer and director
of, and Messrs. Gustafson and Corcoran are stockholders in, Norcross Corp. As a
result of the shared control by Messrs. Gustafson and Corcoran over Norcross
Corp., the control exercised by Norcross Corp. over Norcross Partners and the
control exercised by Norcross Partners over PMIP, Messrs. Gustafson and Corcoran
may be deemed to control PMIP. Because PMIP owns a majority of the issued and
outstanding Pak Mail common stock, PMIP controls Pak Mail, and Messrs. Gustafson
and Corcoran may therefore be deemed to control Pak Mail.
Mr. Gustafson is an executive officer and director of and is a stockholder in,
C&G Management. C&G Management is the general partner of D.P. Kelly. As a result
of Mr. Gustafson's shared control of C&G Management, and the ability of C&G
Management to control D.P. Kelly, Mr. Gustafson may be deemed to share the
beneficial ownership of the Pak Mail common stock owned by D.P. Kelly.
8
Ms. McGrath is a general partner and a trust for the benefit of her children is
a limited partner of KMK and Associates, an Illinois general partnership engaged
in investment activities. KMK and Associates and Messrs. Gustafson and Corcoran
are limited partners of Norcross Partners, which is the general partner of PMIP.
KMK and Associates and Mr. Gustafson are limited partners of D.P. Kelly. In
addition, D.P. Kelly, C&G Management, KMK and Associates and Messrs. Gustafson
and Corcoran are limited partners of Grand Mesa Partners L.P., which in turn is
a limited partner of PMIP. As a result of these interests, Messrs. Gustafson and
Corcoran and Ms. McGrath may have conflicting interests with Pak Mail's
unaffiliated shareholders.
In addition, Messrs. Gustafson and Corcoran were involved in structuring the
transaction as representatives of D.P. Kelly and PMIP, while they were members
of Pak Mail's Board of Directors.
Q: What did the Board of Directors do to ensure that the price per share I will
receive in the proposed merger is fair to me?
A: In connection with its evaluation of the merger and the merger agreement,
the Board of Directors retained Duff & Phelps to render an opinion as to the
fairness, from a financial point of view, to Pak Mail's unaffiliated
shareholders, meaning its shareholders other than Pak Mail Acquisition Corp. and
its affiliates, of the consideration to be received by them in connection with
the merger. Duff & Phelps has delivered to the Board of Directors its opinion
dated October 17, 2002 to the effect that, as of that date and based upon the
assumptions made, matters considered and limitations on the review described in
the written opinion, the merger consideration to be received by the unaffiliated
shareholders of Pak Mail in connection with the transaction is fair, from a
financial point of view. A copy of the Duff & Phelps opinion is attached as
Annex C to this proxy statement, and the accompanying presentation of the
valuation analysis by Duff & Phelps to Pak Mail's Board of Directors on October
17, 2002 is attached as Annex D to this proxy statement. The valuation analysis
provided by Duff & Phelps to Pak Mail's Board of Directors on July 11, 2002 is
attached as Annex E to this proxy statement.
The Board of Directors had previously retained Duff & Phelps to provide the
Board of Directors with an analysis of the value of the shares of common stock
in Pak Mail, on a controlling interest basis. By valuing the shares on a
controlling interest basis, Duff & Phelps did not apply a minority discount (a
form of discounting of minority blocks of shares based on the fact the minority
position exercises a disproportionately lower degree of control over a company's
affairs than a majority position) to the shares of Pak Mail common stock held by
Pak Mail's unaffiliated shareholders. Rather, the Duff & Phelps analysis was for
an equity interest which carried sufficient votes to be able to elect a majority
of the members of the Board of Directors and thereby exercise the ability to
effect changes in the overall business structure and to influence business
policies. In connection with such valuation, the Board of Directors solicited
and received a valuation report from Duff & Phelps stating that based on and
subject to the limitations, assumptions and qualifications stated in that report
dated as of July 11, 2002, as of May 31, 2002, the fair market value of 100% of
the common stock of Pak Mail was between $50,000 and $250,000. A copy of the
Duff & Phelps valuation report is attached as Annex E to this proxy statement.
The $0.0516 per share price to be provided in the merger agreement represents a
valuation of $200,000 for 100% of the common stock of Pak Mail, placing the
price per share provided by the merger agreement near the high end of the
valuation range. The Board of Directors and the Principals determined that the
merger consideration is fair to Pak Mail's unaffiliated shareholders.
Q: What did the Board of Directors do to ensure the procedural fairness of the
merger?
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A. In its consideration of the merger, the Board of Directors discussed
procedural issues, including the possibilities that a special committee of
independent directors could be appointed to negotiate the transaction on behalf
of Pak Mail's minority shareholders, or that a 'majority of the minority'
approval requirement could be included in any such going-private transaction, in
order to provide some procedural safeguards and in order to increase the chance
that a reviewing court might decide to shift the burden of proof regarding
'entire fairness' from the defendant to the plaintiff. With respect to the
formation of a special committee, the Board of Directors considered whether or
not John E. Kelly and John W. Grant could potentially constitute independent
directors. John E. Kelly is the Chairman of the Board of Pak Mail and is
currently receiving compensation from Pak Mail. John W. Grant has a longstanding
personal relationship and has had other business relationships with the
Principals. While these factors would not necessarily prevent John E. Kelly and
John W. Grant from serving on a special committee, the relationships of Mr.
Kelly and Mr. Grant to Pak Mail and the Principals were a negative factor in
considering whether or not to establish a special committee. With respect to a
'majority of the minority' provision, Pak Mail's recent shareholder meetings
have been characterized by low participation on the part of Pak Mail
shareholders other than PMIP and D.P. Kelly. As a result, conditioning the
transaction on a 'majority of the minority' vote could subject the approval or
disapproval of the transaction to a small number of shareholders whose views do
not represent the views of their minority shareholders as a whole. As a result
of these factors, the Board of Directors elected to satisfy the entire fairness
test by obtaining a fairness opinion from an independent financial advisor,
recognizing that the Board of Directors would bear the burden of proof to
demonstrate the entire fairness of the merger if the transaction were
challenged. In addition, the Principals reviewed the fairness opinion and
valuation analysis of Duff & Phelps, and explicitly adopted its analysis. On the
basis of this analysis, Pak Mail's Board of Directors, and the Principals, made
a determination that the procedures followed by Pak Mail were fair to Pak Mail's
unaffiliated shareholders. The Board of Directors and the Principals determined
that this process is fair to Pak Mail's unaffiliated shareholders.
Q: What are the disadvantages to me of merging Pak Mail with Pak Mail
Acquisition Corp.?
A: Following the merger, unaffiliated shareholders will no longer benefit from
any earnings, expansion, diversification or growth of Pak Mail. While there are
no imminent or foreseeable strategic transactions available to Pak Mail in the
near future, Pak Mail has from time to time engaged in discussions with
potential strategic partners, and Pak Mail's unaffiliated shareholders would not
be able to participate in the benefits of any such strategic transaction
following the merger.
Q: What vote is required to approve the merger agreement?
A: The holders of a majority of all outstanding shares of Pak Mail's common
stock must vote to approve the merger agreement. Pak Mail Acquisition Corp.
currently owns approximately 74.7% of Pak Mail's common stock and has indicated
that it will vote its shares for the merger. The votes required to approve the
merger are assured if Pak Mail Acquisition Corp. votes its shares as it has
indicated.
Q: What do I need to do now?
A: Please mark your vote on, sign, date and mail your proxy card in the enclosed
return envelope as soon as possible, so that your shares may be represented at
the special meeting.
Q: What rights do I have if I oppose the merger?
A: Shareholders who oppose the merger may dissent and seek appraisal of the fair
value of their shares (which could be more or less than the $0.0516 per share
consideration provided in the merger agreement), but only if they comply with
10
all of the procedures under Colorado law explained on pages 41-44 of this proxy
statement and in Annex F to this proxy statement. Among other things, in order
to properly exercise their dissenters' rights, shareholders must not vote in
favor of the merger agreement.
Q: Who can vote on the merger?
A: Shareholders of record of Pak Mail as of the close of business on __________,
2003 will be entitled to notice of, and to vote at, the special meeting to
approve the merger agreement and the merger.
Q: Should I send in my stock certificates right now?
A: No. After the merger is completed, we will send you a transmittal form and
written instructions for exchanging your share certificates for cash.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how to
instruct your broker to vote your shares.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. Just send a written revocation or another signed proxy card with a later
date to Pak Mail's Secretary at Pak Mail's principal executive offices before
the special meeting or simply attend the special meeting and vote in person.
Q: What other matters will be voted on at the special meeting?
A: We do not expect that any other matter will be voted on at the special
meeting.
Q: Who can help answer my questions?
A: If you have more questions about the merger or would like additional copies
of this proxy statement, you should contact Pak Mail's Secretary at (303)
957-1000.
Q: What happens if I do not return a proxy card?
A: You may attend the meeting in person and vote your shares. If you do not
attend and do not return a proxy, your shares will not be counted in determining
whether a quorum is present for the meeting or for any other purpose.
THE PARTIES
Pak Mail Centers of America, Inc.
Pak Mail was incorporated in the State of Colorado on January 27, 1984. Pak Mail
is principally engaged in franchising retail service centers which specialize in
the packaging and shipping business ("Pak Mail Centers"). Pak Mail Centers
typically provide mailbox service, parcel shipping and receiving, packaging,
freight forwarding and other communications and information products and
services to commercial and residential customers through a variety of carriers
and may offer a variety of related items such as stamps, greeting cards,
stationery supplies, keys and passport photographs.
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Pak Mail's principal business is the marketing of Pak Mail Center franchises.
Its principal source of revenues is derived from royalties and franchise fees as
well as from the sale of certain equipment, supplies, forms and materials to
franchisees. As of August 31, 2002, there were 338 domestic and 45 international
individual franchises and 22 domestic and 8 international area agreements in
existence.
Pak Mail offers individual franchise agreements and area marketing agreements.
Individual franchisees are granted the nonexclusive right, within a specified
area, to use the Pak Mail trademarks as well as Pak Mail's proprietary operating
procedures, techniques, forms, equipment and advertising materials in the
operation of a Pak Mail Center. Area marketers and, under a previously offered
area franchise program, area developers, are granted rights to sell individual
franchises for Pak Mail in designated areas and are required to provide site
selection and start up assistance and continuing support for individual
franchisees within those areas. Pak Mail locates prospective franchisees through
advertising, referrals from existing franchisees and the marketing efforts of
its area marketers and developers.
The principal executive offices of Pak Mail are located at 7173 South Havana
Street, Suite 600, Englewood, Colorado 80112. The telephone number is (303)
957-1000. Pak Mail's website is located at http://www.pakmail.com.
Pak Mail Acquisition Corp.
Pak Mail Acquisition Corp. is a Colorado corporation organized by PMIP and D.P.
Kelly for the purpose of accomplishing the transaction contemplated by the
merger agreement. PMIP and D.P. Kelly are significant beneficial owners of Pak
Mail common stock, and together own approximately 74.7% of Pak Mail. Mr.
Gustafson is the sole director and president of Pak Mail Acquisition Corp. Mr.
Arthur H. Krantz is executive vice president, secretary and treasurer of Pak
Mail Acquisition Corp.
In connection with the merger, D.P. Kelly and PMIP entered into a subscription
agreement whereby PMIP agreed to contribute 2,404,264 shares of common stock in
Pak Mail in exchange for 2,404,264 shares of common stock in Pak Mail
Acquisition Corp., and D.P. Kelly agreed to contribute 492,814 shares of common
stock in Pak Mail and $50,000 in cash in exchange for 1,473,473 shares of common
stock in Pak Mail Acquisition Corp. The principal executive offices of Pak Mail
Acquisition Corp. are located at 701 Harger Road, Oak Brook, Illinois 60523 and
the telephone number is (630) 571-4433.
Pak Mail Investment Partnership L.P.
PMIP is a Delaware limited partnership that, prior to the subscription agreement
entered into in connection with the merger, owned 2,404,264 shares of common
stock in Pak Mail, or approximately 62.0% of Pak Mail.
Norcross Partners L.P.
Norcross Partners is a Delaware limited partnership that acts as the general
partner of PMIP. As a result of the ability of Norcross Partners to control
PMIP, Norcross Partners may be deemed to share the beneficial ownership of the
Pak Mail common stock owned by PMIP.
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Norcross Corporation
Norcross Corp. is a Delaware corporation that acts as the general partner of
Norcross Partners. As a result of the ability of Norcross Partners to control
PMIP and the ability of Norcross Corp. to control Norcross Partners, Norcross
Corp. may be deemed to share the beneficial ownership of the Pak Mail common
stock owned by PMIP.
D.P. Kelly & Associates, L.P.
D.P. Kelly is a Delaware limited partnership that, prior to the subscription
agreement entered into in connection with the merger, owned 492,814 shares of
common stock in Pak Mail, or approximately 12.7% of Pak Mail.
C&G Management Company, Inc.
C&G Management is a Delaware corporation that acts as the general partner of
D.P. Kelly. As a result of the ability of C&G Management to control D.P. Kelly,
C&G Management may be deemed to share the beneficial ownership of Pak Mail
common stock owned by D.P. Kelly.
Messrs. Kelly, Gustafson and Corcoran and Ms. McGrath
Messrs. Kelly and Gustafson are executive officers and directors of, and Messrs.
Corcoran, Gustafson and Kelly own the entire equity interest in, Norcross Corp.
Mr. Kelly's interest is held through his revocable trust. As a result of the
shared control of Norcross Corp., and the ability of Norcross Corp. to control
PMIP through Norcross Partners, Messrs. Kelly, Gustafson and Corcoran may be
deemed to share the beneficial ownership of Pak Mail common stock owned by PMIP.
Messrs. Kelly and Gustafson are executive officers and directors of, and own the
entire equity interest in, C&G Management. Mr. Kelly's interest is held through
his revocable trust. As a result of the shared control of C&G Management, and
the ability of C&G Management to control D.P. Kelly, Messrs. Kelly and Gustafson
may be deemed to share the beneficial ownership of the Pak Mail common stock
owned by D.P. Kelly.
Ms. McGrath is a general partner and a trust for the benefit of her children is
limited partner of KMK and Associates, an Illinois limited partnership engaged
in investment activities. KMK and Associates and Messrs. Kelly, Gustafson and
Corcoran are limited partners of Norcross Partners, which is the general partner
of PMIP. KMK and Associates and Messrs. Kelly and Gustafson are limited partners
of D.P. Kelly. In addition, D.P. Kelly, C&G Management, KMK and Associates, and
Messrs. Kelly, Gustafson and Corcoran are limited partners of Grand Mesa
Partners L.P., which in turn is a limited partner of PMIP. Mr. Kelly's interests
are owned through his revocable trust. Ms. McGrath is the daughter of Mr. Kelly.
INFORMATION CONCERNING THE SPECIAL MEETING
Time, Place and Date
This proxy statement is furnished in connection with the solicitation by the
Board of Directors of proxies from Pak Mail shareholders for use at a Special
Meeting of Shareholders to be held at the offices of Pak Mail Centers of
America, Inc., 9:00 a.m., Mountain Time, on ___________, 2003, at 7173 South
Havana Street, Suite 600, Englewood, Colorado 80112, or at any adjournment or
postponement thereof, pursuant to the enclosed Notice of Special Meeting of
Shareholders.
13
Purpose of the Special Meeting
At the Special Meeting, the shareholders of Pak Mail will be asked to consider
and vote upon the approval of the merger agreement and the merger. A copy of the
merger agreement is attached to this proxy statement as Annex A to this proxy
statement and a copy of an amendment to the merger agreement is attached as
Annex B to this proxy statement. Pursuant to the merger agreement, each
outstanding share of common stock other than (1) shares held by Pak Mail
Acquisition Corp., or (2) shares held by shareholders who perfect their rights
under Colorado law to dissent from the merger and seek an appraisal of the fair
value of their shares, will be converted into $0.0516 per share, without
interest.
Based on the factors described later in this proxy statement under "Special
Factors - Recommendation of the Board of Directors; Fairness of the Merger", the
Board of Directors of Pak Mail unanimously recommends that shareholders vote
"FOR" approval of the merger agreement and the merger.
13
Record Date; Voting at the Meeting; Quorum
The Board has fixed the close of business on __________, 2003 as the record date
for the Special Meeting. Only shareholders of record as of the close of business
on the record date will be entitled to notice of and to vote at the Special
Meeting.
As of the close of business on the record date, Pak Mail had outstanding
3,877,737 shares of its $.001 par value common stock, held of record by
approximately 1,153 holders of record. Holders of the common stock are entitled
to one vote per share. The presence in person or by proxy of the holders of a
majority of the voting power of the outstanding common stock entitled to vote at
the Special Meeting constitutes a quorum. Broker non-votes and shares present or
represented but as to which a shareholder abstains from voting will be included
in determining whether there is a quorum at the Special Meeting.
Required Vote
Under Colorado law and by the terms of the merger agreement, the merger
agreement must be approved by the affirmative vote of the holders of a majority
of the voting power of the outstanding shares of common stock. Each share of
common stock of Pak Mail has one vote. Accordingly, the affirmative vote of
1,938,869 shares of common stock will be necessary to satisfy this voting
requirement. Approval of the merger agreement does not require the affirmative
vote of a majority of the outstanding shares of common stock held by persons
other than the Principals. The Principals currently own 3,026,578 shares of
common stock in the aggregate, representing approximately 78.1% of the
outstanding shares of common stock as of the record date. If the Principals vote
as they have indicated they intend to, approval of the merger agreement will be
assured. See "The Merger Agreement" on pages 34-41.
Voting and Revocation of Proxies
The enclosed proxy card is solicited on behalf of the Board of Directors. The
giving of a proxy does not preclude the right to vote in person should any
shareholder giving the proxy so desire. Shareholders have an unconditional right
to revoke their proxy at any time prior to its exercise, either by filing with
Pak Mail's Secretary at Pak Mail's principal executive offices a written
revocation or a duly executed proxy bearing a later date, or by voting in person
at the Special Meeting. Attendance at the Special Meeting without casting a
ballot will not, by itself, constitute revocation of a proxy. Any written notice
revoking a proxy should be sent to Pak Mail's Secretary at Pak Mail's principal
executive offices at 7173 South Havana Street, Suite 600, Englewood, Colorado
80112.
14
Action to be Taken at the Special Meeting
All shares of common stock represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, unless previously
revoked, will be voted at the Special Meeting in accordance with the
instructions on the proxies. Unless contrary instructions are indicated, proxies
will be voted "FOR" the approval of the merger agreement and the merger. As
explained below in the section entitled "Dissenter's Rights," a vote in favor of
the merger agreement means that the shareholder owning those shares will not
have the right to dissent and seek appraisal of the fair value of such
shareholder's shares. Pak Mail does not know of any matters, other than as
described in the Notice of Special Meeting of Shareholders, which are to be
acted upon at the Special Meeting. If any other matters are properly presented
at the Special Meeting for action, except consideration of a motion to adjourn
such meeting to another time and/or place for the purpose of soliciting
additional proxies or allowing additional time for the satisfaction of
conditions to the merger, and if the persons named in the enclosed proxy card
did not know a reasonable time before the solicitation that such matters were to
be presented at the special meeting, the persons named in the enclosed proxy
card and acting thereunder generally will have discretion to vote on such
matters in accordance with their best judgment. The merger is also subject to a
number of conditions in addition to shareholder approval. See "The Merger
Agreement - Conditions."
Proxy Solicitation
The cost of preparing this proxy statement will be borne by Pak Mail. Pak Mail
is requesting that banks, brokers and other custodians, nominees and fiduciaries
forward copies of the proxy material to their principals and request authority
for the execution of proxies. Pak Mail may reimburse such persons for their
expenses in so doing. In addition to the solicitation of proxies by mail, the
directors, officers and employees of Pak Mail and its subsidiaries may, without
receiving any additional compensation, solicit proxies by telephone, facsimile,
telegram, electronic mail or in person. However, neither Pak Mail or its
affiliates nor Pak Mail Acquisition Corp. or its affiliates will solicit proxies
on the Internet.
No person is authorized to give any information or make any representation not
contained in this proxy statement, and if given or made, such information or
representation should not be relied upon as having been authorized.
Pak Mail shareholders should not send any certificates representing shares of
common stock with their proxy card. If the merger is consummated, the procedure
for the exchange of certificates representing shares of common stock will be as
set forth in this proxy statement and in the merger agreement. See "The Merger
Agreement - The Exchange Fund; Payment for Shares of Pak Mail Common Stock,"
"The Merger Agreement - Transfers of Common Stock" and Annexes A and B to this
proxy statement.
SPECIAL FACTORS
Background of the Merger
Pak Mail was incorporated in the State of Colorado on January 27, 1984. Since
that time, Pak Mail has developed into one of the nation's leaders in providing
franchises of shipping and packing centers. In order to increase economies of
scale and market share, among other reasons, the Board of Directors of Pak Mail
has informally considered the possibility of strategic combinations within the
shipping and packing franchise industry, or with some other strategic partner,
for approximately the past five years. Discussions regarding the possibility of
considering a strategic combination increased in March 2001 when Mail Boxes Etc.
announced it was to be acquired by United Parcel Service.
15
In late 2001 or early 2002, Pak Mail was approached by another company, "Company
A," in an informal manner, concerning the possibility of meeting to discuss
potential strategic combinations. During these informal conversations with
Company A, a second company, "Company B," was identified as a potential
participant for a strategic combination. Company A and Pak Mail approached
Company B, and the three companies agreed to meet on January 17, 2002. Pak Mail
is unable to disclose the names of Company A or Company B because of
confidentiality agreements entered into in connection with the meetings.
At the January 17, 2002 meeting, Pak Mail Board members Mr. John E. Kelly (who
was the Chief Executive Officer of Pak Mail at the time and who is not related
to Donald P. Kelly), Mr. Gustafson and Mr. Corcoran and Vice Presidents Mr. P.
Evan Lasky and Mr. Alex Zai met with representatives of Company A and Company B
in order to discuss the possibility of entering into some form of strategic
combination. Pak Mail, Company A and Company B were the only participants at the
meeting. In connection with these discussions, Company A and Company B, each of
which was privately-held, indicated that Pak Mail's status as a public company
would be detrimental to engaging in a merger or other strategic combination and
that they would be unwilling to proceed so long as Pak Mail were a public
company. However, at the January 17, 2002 meeting all three companies agreed to
continue to consider the possibility of entering into some form of a strategic
alliance or strategic combination. Pak Mail, Company A and Company B agreed that
an appropriate methodology for determining their respective interests in a
combined entity would be to have their respective entities appraised. In the
event a combined entity were formed, the shareholders of each former entity
would then receive a percentage interest in the combined entity commensurate to
the percentage of appraised value their former entity would contribute to the
combined entity. In concept, each of the three parties agreed that it should
seek to have a valuation of its business performed, although no specific terms
for a strategic combination had been proposed and there was no agreement in
principle or other obligation to proceed.
After the January 17, 2002 meeting, Pak Mail contemplated the next steps
associated with a transaction involving Company A and Company B. This included
the valuation work discussed at the January 17, 2002 meeting and the possibility
that Pak Mail might need to be taken private in a transaction involving D.P.
Kelly and/or PMIP, in order to complete a transaction with Company A and Company
B. Similarly, D.P. Kelly and PMIP began to contemplate a going-private
transaction at that time. Because a valuation analysis would be important to
either of the possibilities under consideration, Pak Mail solicited a valuation
analysis from Duff & Phelps. Duff & Phelps was engaged to provide a valuation
analysis for each of these purposes, but neither Pak Mail nor any of the
Principals provided any other specific instructions or guidance as to their
valuation expectations. Duff & Phelps provided a valuation report dated July 11,
2002 showing a fair market value of 100% of the common stock on a controlling
interest basis in the range of $50,000 to $250,000. It is important to note that
a single valuation analysis was requested in connection with the possibility of
two different types of transactions, namely the strategic combination and the
going private transaction, and that in connection with the strategic combination
all of the directors would have an interest in establishing a high valuation.
Thus, Duff & Phelps provided its valuation analysis without any special
instructions regarding the structure of the transaction or the particular
interests of Pak Mail or its controlling shareholders. A copy of the July 11,
2002 valuation analysis is attached as Annex E to this proxy statement.
In connection with the valuation analysis, Pak Mail provided the following
projections to Duff & Phelps:
- -----------------------------------------------------------------------------------------
Fiscal Years Ended November 30,
2002 2003 2004 2005 2006
- -----------------------------------------------------------------------------------------
Revenues $4,308,633 $4,582,242 $4,870,730 $5,175,125 $5,496,527
- -----------------------------------------------------------------------------------------
Operating Profit 215,216 253,689 585,307 686,977 941,960
- -----------------------------------------------------------------------------------------
Net Profit (533,639) 59,288 416,905 518,574 773,556
- -----------------------------------------------------------------------------------------
16
Net profit is calculated net of dividends payable with respect to the Series C
preferred stock. The foregoing projections are subject to substantial
uncertainties, and Pak Mail can provide no assurances that its actual
performance will approximate the projections set forth above.
While the valuation analysis was being conducted, Pak Mail continued discussions
with Company A and Company B regarding the possibility of entering into some
form of strategic combination. Various informal telephone conversations between
Pak Mail and either Company A or Company B took place between January 17, 2002
and September 2002, but no detailed call records were kept. During these
subsequent informal conversations, Pak Mail was represented by Mr. John Kelly,
Mr. Gustafson and Mr. Corcoran. After further discussions, it was determined
that with respect to a strategic combination with Company A, there were
conflicting contractual arrangements that would make it difficult to structure
the transaction. More specifically, an important component of a franchisor's
business, like Pak Mail's, are the various contracts with individual franchisees
and area developers (those contracted to develop a particular geographic area).
After further research, Pak Mail and Company A determined that the overlapping
territories awarded to area developers of Pak Mail and Company A in a key
geographic area might result in unacceptable expense and possible litigation.
This determination was made jointly by representatives of Pak Mail and
representatives of Company A. On September 10, 2002, representatives of Pak Mail
met with representatives of Company B. At the meeting, Pak Mail was represented
by Mr. John Kelly, Mr. Gustafson and Mr. Lasky. After further discussion, it was
determined that a strategic combination with Company B raised structuring issues
that could not be resolved to the mutual satisfaction of Pak Mail and Company B.
In particular, Pak Mail and Company B discussed issues such as corporate
location in the event of a merger and how the management of a combined entity
would be structured. Pak Mail and Company B had corporate headquarters in
different geographic locations. A strategic combination would eventually require
the selection of one of the locations as the corporate headquarters of the
combined entity. Pak Mail and Company B had differing views on which corporate
location would be the most cost-effective, and would be most beneficial to
franchisees, and correspondingly to the combined entity's shareholders. Pak Mail
and Company B both had different views regarding how to structure the management
of a combined entity in order to maximize the performance of the combined
entity. Specifically, Pak Mail and Company B discussed the number of senior
management positions that would be required, and which individual managers would
be best suited for each position. The parties could not agree on these issues.
Pak Mail and Company B considered the management composition of the combined
entity to be of critical importance to the success of the combined entity. Pak
Mail and Company B had strongly divergent views on these subjects, and it was
clear that neither party was willing to move from its position. Each party
considered the position of the other to be unacceptable. The discussions with
Company A and Company B did not proceed to the point of discussing financial
terms. There are no ongoing negotiations with Company A or Company B.
After discontinuing the dialogue with Company A and Company B, Pak Mail's Board
of Directors continued to consider the advisability of having Pak Mail engage in
a going private transaction. As a result of Pak Mail's relatively small size and
the illiquidity in the market for Pak Mail's stock, Pak Mail had not experienced
certain of the benefits typically associated with public ownership, such as
enhanced access to capital markets, a viable form of consideration for
transactions and useful component for executive compensation programs. At the
same time, the costs associated with public ownership, including legal and
accounting fees, as well as the administrative activities associated with public
ownership, were detrimental factors to the continued public ownership of Pak
Mail. Pak Mail management estimates that Pak Mail's status as a public company
costs Pak Mail approximately $37,000 to $45,000 per year. While these factors
had been applicable to Pak Mail for at least several years, the valuation work
necessary for the consideration of a strategic combination with Company A and
Company B would also be an important component in demonstrating the fairness of
the going private transaction. Because this valuation work had been completed,
the Board of Directors believed that it would be appropriate to consider a going
private transaction at this time.
17
At telephone meetings of the Pak Mail Board of Directors held on March 7, 2002,
March 25, 2002, August 6, 2002, September 23, 2002 and October 17, 2002, the
Board of Directors discussed the status of the discussions with Company A and
Company B, the Duff & Phelps valuation work, and the going private transaction.
During these meetings the Board of Directors discussed their fiduciary duties
and the `entire fairness' test that would apply as a result of the interests of
certain directors in the transaction. None of the directors abstained from
participating in these meetings or voting on the matters presented. Other
procedural structures were discussed, including the possibilities that a special
committee of independent directors could be appointed to negotiate the
transaction on behalf of Pak Mail's minority shareholders, or that a `majority
of the minority' approval requirement could be included in any such
going-private transaction, in order to provide some procedural safeguards and in
order to increase the chance that a reviewing court might decide to shift the
burden of proof regarding `entire fairness' from the defendant to the plaintiff.
With respect to the formation of a special committee, the Board of Directors
considered whether or not John E. Kelly and John W. Grant could potentially
constitute independent directors. John E. Kelly is the Chairman of the Board of
Pak Mail and is currently receiving compensation from Pak Mail. John W. Grant
has a longstanding personal relationship and has had other business
relationships with the Principals. While these factors would not necessarily
prevent Messrs. Kelly and Grant from serving on a special committee, the
relationships of Mr. Kelly and Mr. Grant to Pak Mail and the Principals were
negative factors in considering whether or not to establish a special committee.
With respect to a `majority of the minority' provision, Pak Mail's recent
shareholder meetings have been characterized by low participation on the part of
Pak Mail shareholders other than PMIP and D.P. Kelly. As a result, conditioning
the transaction on a `majority of the minority' vote could subject the approval
or disapproval of the transaction to a small number of shareholders whose views
do not represent the views of the minority shareholders as a whole. As a result
of these factors, the Board of Directors elected to satisfy the entire fairness
test by obtaining a fairness opinion from an independent financial advisor,
recognizing that the Board of Directors would have the burden of proof to
demonstrate the entire fairness of the merger if the transaction were
challenged. Pak Mail's Board of Directors did not discuss other alternatives
with respect to the fulfillment of fiduciary or other duties and, except for the
engagement of an independent financial advisor and receipt of a fairness
opinion, did not engage in other procedures to address potential conflicts of
interest. The Board of Directors and the Principals believe that this process is
fair to Pak Mail's unaffiliated shareholders.
Pak Mail's Board of Directors also analyzed PMIP and D.P. Kelly's ownership of
all of the issued and outstanding Pak Mail Series C preferred stock, and the
promissory note issued to D.P. Kelly, on a proposed transaction. Pak Mail's
Board of Directors considered whether D.P. Kelly and PMIP's ownership of
substantial amounts of debt and preferred stock with a liquidation preference
superior to that of Pak Mail's common shares could have a detrimental effect on
Pak Mail's ability to entertain offers that would exceed the value of that which
may be offered by D.P. Kelly and PMIP in some form of going-private transaction.
The Duff & Phelps valuation analysis had applied a discount to the liquidation
preference of the Series C preferred stock, although the holders of the Series C
preferred stock are not obligated to accept a discount with respect to the
liquidation preference or to approve a transaction that does not recognize the
full amount of the liquidation preference. Without the application of a discount
on the Series C preferred stock, the valuation of Pak Mail, as reported by Duff
& Phelps, would have been insufficient to allocate value to the Pak Mail common
stock.
In September 2002, representatives of D.P. Kelly and PMIP continued discussions
with Pak Mail concerning the possibility of a going-private transaction pursuant
to which a corporation organized by D.P. Kelly and PMIP would acquire all of the
outstanding common shares of Pak Mail. In September 2002, representatives of
D.P. Kelly and PMIP provided Pak Mail with a draft of a merger agreement whereby
a corporation organized by D.P. Kelly and PMIP would provide cash consideration
to Pak Mail's unaffiliated shareholders of $0.0516 per common share, the
18
corporation organized by D.P. Kelly and PMIP would merge with and into Pak Mail,
with Pak Mail as the surviving corporation, and D.P. Kelly and PMIP would then
become the sole shareholders of the surviving corporation. The price per share
of $0.0516 was chosen because it represented a total valuation for 100% of Pak
Mail's common shares of $200,000, near the high end of the valuation range of
$50,000 to $250,000 previously provided by Duff & Phelps. D.P. Kelly and PMIP
had selected the proposed price after the receipt of the Duff & Phelps valuation
analysis, and neither D.P. Kelly, PMIP nor any of the other Principals attempted
to influence the valuation range provided by Duff & Phelps. In late September
2002, a draft of the merger agreement was provided to Perkins Coie, Pak Mail's
outside counsel. During the following several weeks, Perkins Coie reviewed and
commented on the draft merger agreement, and the draft merger agreement was
revised to reflect Perkins Coie's comments.
On October 17, 2002, Pak Mail's Board of Directors met to evaluate the merger
proposal presented by D.P. Kelly and PMIP and to consider the revised merger
agreement. At the October 17, 2002 Board meeting, Board members again discussed
their fiduciary duties in connection with a going-private transaction. Duff &
Phelps gave a presentation to Pak Mail's Board of Directors at the October 17,
2002 meeting, summarizing the valuation analysis previously conducted, and
concluding that the proposed price of $0.0516 was fair to Pak Mail's
unaffiliated shareholders. A copy of the October 17, 2002 presentation is
attached as Annex D to this proxy statement. Upon completion of the Duff &
Phelps presentation and after further discussion, Pak Mail's Board of Directors
then unanimously adopted the Agreement and Plan of Merger by and between Pak
Mail Centers of America, Inc. and Pak Mail Acquisition Corp. dated as of October
17, 2002. A copy of the merger agreement is attached as Annex A to this proxy
statement.
The merger agreement subsequently was amended as of October 28, 2002. The
amendment on October 28, 2002 was prepared in order to correct Pak Mail's
representation and warranty as to the number of its outstanding shares and was
agreed to by Pak Mail Acquisition Corp. The amendment also revised the par value
of Pak Mail's Series C preferred stock to reflect its status as "no par value,
$1,000 redemption value," rather than $1,000 par value. A copy of the amendment
to the merger agreement is attached as Annex B to this proxy statement. The
merger structure for the transaction was selected as an appropriate mechanism
for the transaction because it would permit the Pak Mail common shares held by
parties other than Pak Mail Acquisition Corp. to be converted into the merger
consideration, while the Pak Mail common stock held by Pak Mail Acquisition
Corp. would be converted into common stock of the surviving corporation.
Recommendation of the Board of Directors; Fairness of the Merger
Factors Supporting Decision by Board of Directors to Approve the Merger
The Board believes that the merger is advisable and is fair to and in the best
interests of Pak Mail and its unaffiliated shareholders and, based upon the
opinion of the Board of Directors' financial advisor, Duff & Phelps (which the
Board expressly adopts), the Board unanimously recommends to Pak Mail's
unaffiliated shareholders that they vote "FOR" approval of the merger agreement
and the merger. On the basis of its analysis of the procedures followed in
evaluating the fairness of the merger to Pak Mail's unaffiliated shareholders,
Pak Mail's Board of Directors, and the Principals, made a determination that the
procedures followed by Pak Mail were fair to Pak Mail's unaffiliated
shareholders. The Board of Directors and the Principals determined that this
process is fair to Pak Mail's unaffiliated shareholders. No director of Pak Mail
has informed Pak Mail that he or she intends to oppose any action intended to be
taken by Pak Mail in connection with the merger agreement.
In choosing to unanimously recommend approval of the merger agreement, the Board
of Directors considered a number of factors. The material factors, both negative
and positive, are summarized below.
19
The material positive factors include:
o Limitations as a Public Company. The Board of Directors considered the
limitations Pak Mail has experienced and could likely continue to
experience as a public company, including its limited trading volume,
lack of institutional sponsorship, low public float, small market
capitalization, and lack of research attention from analysts, all of
which adversely affect the trading market for and the value of Pak
Mail common stock in view of the liquidity offered by the merger. For
example, Pak Mail's common stock traded on only 18 days during the
period from January 1, 2002 through the October 17, 2002 date of the
Duff & Phelps fairness opinion, and the total trading volume during
that time was 10,000 shares. At Pak Mail's 52-week high of $0.15 per
share, the total value of the 980,659 publicly held shares of common
stock was $147,099, and at the 52-week low of $0.03 per share, the
total value of the 980,659 shares was $29,420. The Board of Directors
also considered the fact that Pak Mail's common shares are only
sporadically traded, and no consistent trading market for Pak Mail's
common shares currently exists;
o Fees and Expenses. The Board of Directors considered the fees and
expenses associated with remaining a public company, and the lack of
corresponding benefits that would justify the significant expenditures
associated with public company status;
o Realization of Liquidity. The Board of Directors considered the lack
of liquidity in the over-the-counter market for Pak Mail's stock, and
considered the fact that consummation of the merger would provide an
opportunity for unaffiliated shareholders to realize liquidity on
their original investment for an amount of cash consideration that
represented the high end of the valuation range provided by the
financial advisor;
o Engagement of Financial Advisor. Pak Mail's Board of Directors engaged
Duff & Phelps to provide a valuation of Pak Mail's common shares on a
controlling interest basis. The valuation analysis presented to the
Board of Directors by Duff & Phelps showed a valuation range of
$50,000 to $250,000 for 100% of Pak Mail's outstanding common shares.
A copy of the valuation report is set forth as Annex E to this proxy
statement. Pak Mail's Board of Directors, after considering a wide
range of factors, determined that the merger consideration which
values 100% of Pak Mail's common stock at $200,000, near the high end
of the valuation range, was fair to Pak Mail's unaffiliated
shareholders, from a financial point of view. This valuation results
in a total transaction value of approximately $50,602 for the shares
not already owned by D.P. Kelly and PMIP. Pak Mail's Board of
Directors also retained Duff & Phelps to provide an opinion on the
fairness, from a financial point of view, of the transaction to Pak
Mail's unaffiliated shareholders and Duff & Phelps provided an opinion
that the merger consideration to be received by the unaffiliated
shareholders of Pak Mail in connection with the merger is fair, from a
financial point of view.
o Presentation of the Financial Advisor. The Board of Directors
considered the dialogue with Duff & Phelps and the presentation of
Duff & Phelps at the October 17, 2002 Board meeting, including the
oral and written presentation opinion of Duff & Phelps to the effect
that, as of that date and based upon the assumptions made, matters
considered and limitations on the review described in the written
opinion, the merger consideration to be received by the unaffiliated
shareholders of Pak Mail in connection with the transaction is fair,
from a financial point of view;
o Going Concern Value. The Board of Directors considered Duff & Phelps'
analysis of Pak Mail's value as a going concern in connection with
Duff & Phelps' valuation analysis, and also considered Pak Mail's
going concern value based on the knowledge of Pak Mail's Board of
Directors concerning Pak Mail's ability to generate cash flow as a
going concern;
20
o Financial Condition and Operating Prospects. The Board of Directors
considered its knowledge of Pak Mail's business, operations, assets,
financial condition, operating results and prospects, in light of the
price offered under the terms of the merger agreement, and based upon
the Board of Directors' knowledge concerning the future prospects of
Pak Mail's business, primarily the projections related to the Duff &
Phelps analysis (which are set forth under "Special Factors -
Background of the Merger"), determined that the merger consideration
is fair to the unaffiliated shareholders;
o Form of Merger Consideration. The Board of Directors considered the
fact that the consideration to be received by Pak Mail's shareholders
in the merger will consist entirely of cash, providing shareholders
with complete liquidity of their investment at a time when the volume
of trading in Pak Mail common stock is sporadic and extremely limited;
o Negative Liquidation Value. The Board of Directors considered the fact
that analysis provided by Duff & Phelps indicated that in the event of
a liquidation of Pak Mail, Pak Mail's common shareholders were
unlikely to receive any cash payment; and
o Discount of Preferred Stock. The Board of Directors considered the
fact that while the Duff & Phelps valuation analysis discounted the
value of Pak Mail's Series C preferred stock below its face amount,
the holders of Series C preferred stock are not contractually
obligated to accept a discount on the value of their Series C
preferred stock, and in the event of a liquidation of Pak Mail the
holders of the Series C preferred stock would be entitled to be paid
in full before any distribution could be made to the common
shareholders.
Factors Detracting From Decision to Approve the Merger
The Board of Directors also considered a variety of risks and other potentially
negative factors concerning the merger. The material negative factors consist
of:
o Limited Ability to Entertain Proposals From Other Potential Buyers.
The Board of Directors considered the fact that the merger agreement
requires Pak Mail's Board of Directors to recommend the merger unless
otherwise required by applicable law in order to satisfy its fiduciary
duties, thus limiting the ability of Pak Mail to entertain proposals
from other potential buyers;
o Lack of Significant Bidding Process. The Board of Directors considered
the fact that, though Pak Mail conducted negotiations with various
third parties in connection with the possibility of strategic
alternatives, Pak Mail did not initiate a process whereby potentially
interested third parties were engaged in an active bidding process for
ownership of Pak Mail;
o Absence of Special Committee or Similar Procedure. The transaction has
not been structured so that approval of at least a majority of
unaffiliated security holders is required. Pak Mail's Board of
Directors elected not to include such a provision because of concerns
that there would be a significantly low response rate such that the
results of the voting would not be indicative of the unaffiliated
shareholders as a whole. The slight possibility also was considered
that there could be zero voter turnout by Pak Mail's unaffiliated
shareholders. Pak Mail's Board of Directors did not establish a
special committee to negotiate the transaction on behalf of Pak Mail's
unaffiliated shareholders because of concerns over the perceived
independence of the potential members of such a committee. No
unaffiliated representative was specifically retained to act solely on
behalf of the unaffiliated shareholders because of the absence of an
easily identifiable shareholder willing to act in such capacity. Pak
Mail's Board of Directors instead elected to obtain a valuation
analysis and ascertain a fair price for shares owed by Pak Mail's
unaffiliated shareholders.
21
o Loss of Equity Interest. The Board of Directors considered the fact
that if the merger is consummated, Pak Mail's unaffiliated
shareholders will not participate in the future growth of Pak Mail.
Because of the risks and uncertainties associated with Pak Mail's
future prospects, the Board of Directors concluded that the merger was
a superior alternative to preserving for the holders of such stock a
speculative potential future return;
o Interests of Certain Parties. The Board of Directors recognized that a
majority of its members have interests in Pak Mail Acquisition Corp.
that may conflict with the unaffiliated shareholders of Pak Mail. The
general partner of PMIP is Norcross Partners, and the general partner
of Norcross Partners is Norcross Corp. Messrs. Kelly and Gustafson are
executive officers and directors of, and Messrs. Kelly, Gustafson and
Corcoran own the entire equity interest in, Norcross Corp. Mr. Kelly's
interest is held through his revocable trust. As a result of the
shared control by Messrs. Kelly, Gustafson and Corcoran over Norcross
Corp., the control exercised by Norcross Corp. over Norcross Partners
and the control exercised by Norcross Partners over PMIP, Messrs.
Kelly, Gustafson and Corcoran control PMIP. Because PMIP owns a
majority of the issued and outstanding Pak Mail common stock, PMIP
controls Pak Mail, and Messrs. Kelly, Gustafson and Corcoran may
therefore be deemed to control Pak Mail. Messrs. Kelly and Gustafson
are executive officers and directors of, and own the entire equity
interest in, C&G Management. Mr. Kelly's interest is held through his
revocable trust. C&G Management is the general partner of D.P. Kelly.
As a result of the shared control of C&G Management, and the ability
of C&G Management to control D.P. Kelly, Messrs. Kelly and Gustafson
may be deemed to share the beneficial ownership of the Pak Mail common
stock owned by D.P. Kelly. Ms. McGrath is a general partner and a
trust for the benefit of her children is a limited partner of KMK and
Associates, an Illinois general partnership engaged in investment
activities. KMK and Associates and Messrs. Kelly, Gustafson and
Corcoran are limited partners of Norcross Partners, which is the
general partner of PMIP. KMK and Associates and Messrs. Kelly and
Gustafson are limited partners of D.P. Kelly. In addition, D.P. Kelly,
C&G Management, KMK and Associates and Messrs. Kelly, Gustafson and
Corcoran are limited partners of Grand Mesa Partners L.P., which in
turn is a limited partner of PMIP. Mr. Kelly's interests are owned
through his revocable trust. Ms. McGrath is the daughter of Mr. Kelly.
The Board of Directors also recognized that the current shareholders
of Pak Mail Acquisition Corp. would have an opportunity, subject to
the risks of Pak Mail's business, to be the sole beneficiaries of any
increases in the value of Pak Mail following the merger; and
o Possibility of Strategic Alternatives. The Board of Directors
considered the fact that Pak Mail recently had discussions with third
parties that were interested in pursuing strategic alternatives with
Pak Mail if Pak Mail was a private company, and that in the event Pak
Mail ceased to be a public company and subsequently entered into a
strategic transaction, Pak Mail's unaffiliated shareholders would not
be beneficiaries of any increase in value of Pak Mail resulting from
such a strategic transaction.
Federal securities laws require disclosure of whether transaction participants
considered specified factors in evaluating a transaction such as the merger. The
following factors either were not considered by the Board of Directors or were
considered but not considered an important factor in approving the merger:
22
o Capitalization of Acquiring Entity. The Board of Directors did not
consider that Pak Mail's only recourse in the event of a wrongful
termination or material breach of the merger agreement is against Pak
Mail Acquisition Corp. if it wrongfully fails to close the merger;
o Taxation of Merger Consideration. The Board of Directors was aware
that the cash consideration to be received by Pak Mail's unaffiliated
shareholders could be taxable to them;
o Current or Historical Market Prices. The Board of Directors did not
explicitly consider how the merger agreement compared to Pak Mail's
current or historical market prices, due to the fact that the sporadic
trading volume may have rendered such information less meaningful than
it otherwise would with a company whose securities have a higher
trading volume. Specifically, from the beginning of 2002 until October
17, 2002, Pak Mail's stock traded on only 18 days, with a total of
only 10,000 shares changing hands. The Board of Directors does not
recall any other reasons why they considered historical or market
prices not to be a meaningful indicator of the current market value of
Pak Mail other than the sporadic trading volume;
o Net Book Value. The Board of Directors did not explicitly consider the
relationship between Pak Mail's net book value and the price per share
provided by the merger agreement because Pak Mail's net book value as
of August 31, 2002 was negative $848,000; and
o Prior Purchases. The Board of Directors did not consider prior
purchases by Pak Mail Acquisition Corp. or any of its affiliates in
the course of their evaluation of the proposed transaction.
The foregoing discussion of the information and factors discussed by the Board
of Directors is not meant to be exhaustive, but includes all material factors,
both positive and negative, considered by the Board of Directors to support its
decision to unanimously recommend the approval of the merger agreement and to
determine that the merger agreement and the merger are in the best interests of
Pak Mail and fair to Pak Mail's unaffiliated shareholders. The Board of
Directors did not assign relative weights or other quantifiable values to the
above factors; rather, the Board of Directors viewed its position and
recommendations as being based on the totality of the information presented to
and considered by it, and that on balance, the positive factors discussed above
outweighed the negative factors discussed above. The Board of Directors and the
Principals have determined that the merger consideration is fair to Pak Mail's
unaffiliated shareholders.
Opinion of the Financial Advisor to the Board of Directors
Duff & Phelps is a nationally recognized investment banking firm that is
regularly engaged to render financial opinions in connection with mergers and
acquisitions, tax matters, corporate planning, and other purposes. Previously,
Duff & Phelps has provided financial advisory services to Pak Mail.
Duff & Phelps was retained by the Board of Directors of Pak Mail under an
engagement letter dated April 24, 2002. As compensation for its services as
financial advisor to the Board of Directors in connection with the Merger, Pak
Mail agreed to pay Duff & Phelps a fixed fee upon rendering its opinion. No
portion of the fee paid to Duff & Phelps is contingent upon the conclusion
reached in its opinion. In addition, Pak Mail has agreed to reimburse Duff &
Phelps for its reasonable out-of-pocket expenses, including the fees and
expenses of its legal counsel, and to indemnify Duff & Phelps against certain
liabilities, including liabilities under the federal securities laws, relating
to, arising out of or in connection with its engagement. Duff & Phelps has
consented to the inclusion of its fairness opinion and valuation analyses in
this proxy statement.
23
The opinion and presentation of Duff & Phelps to Pak Mail's Board of Directors,
in connection with which Duff & Phelps was requested to evaluate the fairness,
from a financial point of view, of the transaction to the minority holders of
Pak Mail common shares, was only one of many factors taken into consideration by
the Pak Mail Board of Directors in making its determination to approve the
transaction. No limitations were imposed by the Pak Mail Board of Directors upon
Duff & Phelps with respect to the investigation made or the procedures followed
by Duff & Phelps in rendering its opinion.
Duff & Phelps' opinion should be read carefully and in its entirety. It is
directed only to the fairness, from a financial point of view, of the
transaction to the minority holders of Pak Mail common shares, and it does not
address the underlying business decision of Pak Mail to effect the transaction
or constitute a recommendation to any Pak Mail shareholder as to any action that
should be taken with respect to the transaction.
Valuation analyses of Duff & Phelps were provided to Pak Mail's Board of
Directors on July 11, 2002 and on October 17, 2002. Copies of these valuation
analyses are attached to this proxy statement as Annex E & Annex F. Duff &
Phelps has consented to the inclusion of these two valuation analyses, and has
consented to the inclusion of the fairness opinion, in this proxy statement.
In connection with rendering its opinion, Duff & Phelps reviewed selected
publicly available business and financial information concerning Pak Mail as
well as certain other financial and operating data and forecasts that were
provided to Duff & Phelps by Pak Mail. Duff & Phelps discussed the business,
operations and prospects of Pak Mail as well as other matters it believed
relevant to its inquiry, with officers and employees of Pak Mail. Duff & Phelps
reviewed and considered historical trading prices and volume for Pak Mail's
common stock. Duff & Phelps also considered such other information, analyses,
investigations and financial, economic and market criteria that it deemed
appropriate.
In its review and analysis and in arriving at its opinion, Duff & Phelps assumed
and relied upon, without assuming any responsibility for independent
verification, the accuracy and completeness of the financial statements and
other information reviewed by it. With respect to the financial forecasts of Pak
Mail, Duff & Phelps assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of Pak Mail's
management as to the future financial performance of Pak Mail, and Duff & Phelps
expressed no opinion with respect to such forecasts or the assumptions on which
such forecasts were based. The financial forecasts and other information
provided by Pak Mail to Duff & Phelps had previously been reviewed by Pak Mail.
Duff & Phelps also assumed that the transaction will be consummated in
accordance with the draft Agreement and Plan of Merger dated September 13, 2002
provided for its review. Duff & Phelps did not make or assume any responsibility
for making or obtaining any independent evaluations or appraisals of any of the
assets or liabilities, contingent or otherwise, of Pak Mail.
Duff & Phelps' fairness opinion was necessarily based upon an analysis of the
foregoing in light of its assessment of the general, economic and financial
market conditions, as they could be evaluated by Duff & Phelps, as of October
17, 2002. Events occurring after October 17, 2002 could materially affect the
assumptions used in preparing its opinion.
In connection with rendering its opinion to the Pak Mail Board of Directors,
Duff & Phelps performed several financial analyses which it presented to the
Board of Directors, the material portions of which are summarized below. Duff &
Phelps believes that its analysis must be considered as a whole and that
selecting portions of such analysis and the factors it considered, without
considering all such analysis and factors, could create an incomplete view of
the analysis and the process underlying its opinion. While the conclusions
reached in connection with each analysis were considered carefully by Duff &
Phelps in arriving at its opinion, Duff & Phelps made various subjective
judgments in arriving at its opinion and did not consider it practicable to, nor
did it attempt to, assign relative weights to the individual analysis and
specific factors considered in reaching its opinion.
24
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In addition,
the process of preparing a fairness opinion necessarily requires a broad range
of subjective judgments with respect to appropriate comparable companies and
transactions, appropriate multiples of various selected financial data,
appropriate discount rates and other financial and other factors. Analysis and
estimates of the values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities actually
may be sold. No public company, and no company used on the comparative
transaction analysis, utilized as a comparison is identical to Pak Mail.
Accordingly, any analysis of publicly traded comparable companies or comparable
business combinations is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies involved and other factors that could affect
the public trading value of the companies or company to which they are being
compared. The following is a summary of the material financial analysis used by
Duff & Phelps in connection with providing its opinion to the Pak Mail Board of
Directors. Certain summaries below include information presented in tabular
format. In order to fully understand such financial analysis used by Duff &
Phelps, the tables must be read with the text of each summary. The tables alone
do not constitute a complete description of the financial analysis.
Duff & Phelps' concluded equity value of Pak Mail's common stock, on a
controlling interest basis, ranged from $0.013 to $0.063 per share. The
estimated proceeds per share in the proposed transaction is $0.052. The
following table outlines these values:
Pak Mail Valuation Summary
- --------------------------------------------------------------------------------
Control Equity Value Indications Range
--------------------------
Discounted Cash Flow Analysis $1,478,320 $1,695,920
Comparable Public Company Analysis $1,212,000 $1,432,000
---------- ----------
Concluded Control Equity Value Range: $1,350,000 to $1,550,000
Less: Value of Preferred Stock $1,300,000 $1,300,000
---------- ----------
Concluded Control Equity Value Range (Common): $50,000 to $250,000
Fully Diluted Shares Outstanding as of 8/31/02 3,985,897 3,985,897
---------- ----------
Concluded Control Price per Share ($) $0.013 to $0.063
========== ==========
- --------------------------------------------------------------------------------
Estimated Proceeds per share (Proposed Transaction) $0.052
- --------------------------------------------------------------------------------
Pak Mail Valuation Analysis - Going Concern Basis
Duff & Phelps prepared a valuation analysis of Pak Mail on a going concern basis
which assumes that Pak Mail continues to operate into the future and the value
is based on the Company's income and cash flows. Duff & Phelps arrived at a
range of enterprise values and total equity values for Pak Mail by using two
principal valuation methodologies: a discounted cash flow analysis and a market
multiple analysis. Enterprise value refers to the value of the entire capital
structure of a business entity (value of common equity + total debt outstanding
+ value of preferred stock + minority interest). Total equity value refers to
the value of all ownership interests in a corporation in the form of common
stock and preferred stock.
25
Duff & Phelps then valued Pak Mail's preferred stock in order to allocate total
equity value between preferred and common shareholders. Duff & Phelps' market
multiple analysis was based, in part, on a combination of: (1) valuation
multiples observed in market trading of comparable public companies, and (2)
valuation multiples observed in the merger and acquisition marketplace. No
company used in the public market analysis or precedent transaction analysis
described below is identical to Pak Mail. Accordingly, an analysis of the data
described below necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
businesses and other factors that could affect the public trading value or the
acquisition value of the companies to which they are being compared. A
discounted cash flow analysis provides insight into the intrinsic value of a
business based on the projected earnings and capital requirements and the net
present value of the subsequent unlevered free cash flows to be generated by the
assets of such business. A preferred stock analysis is based on discounting the
future expected dividend payments over a period of time and redemption of the
outstanding principal at the end of the period to a present value.
Comparable Public Companies. In the selection of comparable public companies,
Duff & Phelps used multiple databases to identify companies whose principal
source of revenue is derived from royalties and franchise fees as well as from
the sale of certain equipment, supplies, forms and materials to franchisees.
Duff & Phelps further screened this initial group to identify those companies
whose operations are characterized by the following criteria:
o Companies that sell franchise businesses within a myriad of
industries, including printing, shipping and packaging, restaurants
and others.
o Companies that generate a large portion of revenues from royalties and
fees from franchisees.
o Companies that are based in the United States.
Duff & Phelps ultimately identified 8 companies that are considered to be
reasonably comparable to Pak Mail in terms of investment risks and attributes.
Some of the comparable companies generate a large portion of their reinvested
earnings from company-owned operations and incur large capital outlays in order
to support store operations. Therefore, some of the comparable companies had
substantially different capital and cost structures. Duff & Phelps compared
selected financial information of Pak Mail with corresponding data of the
selected comparable public companies. All of the selected comparable companies
are relatively small. Out of the 8 companies selected, 6 reported less than $50
million in revenue for the latest twelve month period. Duff & Phelps' analysis
of valuation multiples focused on the multiple of total enterprise value to last
twelve months revenue, earnings before interest, taxes, depreciation and
amortization ("EBITDA") and earnings before interest and taxes ("EBIT"). The
table below presents a summary of selected financial and market data for the
comparable public companies:
Company Name Stock Equity Enterprise LTM Enterprise Value
Price at Value Value Revenue ---------------
Oct. 10, 2002 (in $mil) (in $mil) (in $mil) Revenue EBITDA EBIT
- --------------------------------------------------------------------------------------------------------------
BCT International, Inc. $0.71 3.6 3.9 17.3 0.2x 6.1x 9.5x
Dwyer Group, Inc. 3.55 25.1 29.3 22.9 1.3 7.0 10.5
Emerging Vision, Inc. 0.04 1.0 2.4 17.9 0.1 NM NM
Global Business Services, Inc. 0.67 6.2 6.7 4.5 1.5 NM NM
Nathan's Famous, Inc. 3.26 20.4 22.1 41.6 0.5 7.0 28.7
Noble Roman's, Inc. 0.90 14.4 29.7 5.8 5.1 13.8 14.2
Pizza Inn, Inc. 1.68 16.9 34.0 65.4 0.5 5.4 6.9
Schlotzsky's, Inc. 3.75 27.4 57.4 61.6 0.9 5.7 10.0
- --------------------------------------------------------------------------------------------------------------
Mean 1.3x 7.5x 13.3x
Median 0.7x 6.6x 10.2x
Pak Mail (Implied Multiples)* $0.05 $0.2 $1.9 $4.1 0.5x 5.9x 7.0x
26
NM = Not Meaningful
LTM = Latest Twelve Months
*Implied multiples for Pak Mail are based on the proposed transaction price of
$0.0516 per share
Comparable Transactions. Duff & Phelps searched for all transactions involving
companies similar to Pak Mail. The only pertinent transaction identified in the
past five years was United Parcel Service, Inc. purchase of Mail Boxes, Etc. in
March 2001. However, no financial information was available for this
transaction.
Application of Market Multiples. Duff & Phelps based the application of market
multiples on its analysis of Pak Mail relative to the comparable companies. Duff
& Phelps determined that Pak Mail exhibits lower profitability and slower
revenue growth relative to the comparable companies and is significantly smaller
in terms of revenue and total assets. In addition, Duff & Phelps determined that
Pak Mail has a relatively high degree of uncertainty regarding its future
earnings and serves a niche industry. Based on its analysis of Pak Mail and the
selected comparable companies, Duff & Phelps determined that multiples to apply
to Pak Mail's representative levels should be below the mean and median
exhibited by those of the comparable companies. Based on the factors cited
above, Duff & Phelps determined that a revenue multiple of 0.45x, an EBITDA
multiple of 5.0x and an EBIT multiple of 6.0x were reasonable and appropriate
for Pak Mail. Duff & Phelps applied the 0.45x multiple to Pak Mail's revenue,
the 5.0x multiple to Pak Mail's adjusted EBITDA and the 6.0x multiple to Pak
Mail's adjusted EBIT.
The application of these three different multiples to Pak Mail's financial
results provided a range of total enterprise values from approximately $1.63
million to $1.85 million. Duff & Phelps then deducted the outstanding August 31,
2002 balance of Pak Mail's interest-bearing debt, at $412,880, to arrive at a
total equity value range of $1.21 million to $1.43 million.
Discounted Cash Flow Analysis. Duff & Phelps performed a discounted cash flow
analysis of Pak Mail to derive an indication of going-concern value. The
analysis referenced below represents only a portion of the overall analysis
performed by Duff & Phelps, and Duff & Phelps expresses no judgment as to the
appropriateness or accuracy of any assumptions or projections provided by
management. Duff & Phelps' discounted cash flow analysis was based on
projections provided by Pak Mail management and certain independently derived
assumptions, as well as discussions with management with respect to Pak Mail's
future outlook.
Duff & Phelps' discounted cash flow analysis was based on projected unleveraged
free cash flows of Pak Mail for the 2002 through 2006 period. Unleveraged free
cash flows, sometimes referred to as debt-free net cash flows, are the
hypothetical after tax cash flows generated by the business before considering
any deductions for interest expense or principal payments related to debt or
dividends related to preferred stock. Duff & Phelps applied a range of discount
rates from 17% to 19% to projected unleveraged free cash flows of Pak Mail for
the 2002 through 2006 period. The selected range of discount rates from 17% to
19% represents Duff & Phelps estimate of Pak Mail's weighted average cost of
capital, which reflects the costs of attracting Pak Mail's various capital
components, including long-term debt, preferred equity and common equity. Duff &
Phelps' estimates of the various capital components costs were based on its
assessment of Pak Mail's actual borrowing costs, the general level of current
market interest rates, historical market rates of return generated by
investments in alternative asset classes, and an assessment of the specific
risks surrounding an investment in Pak Mail. Duff & Phelps analysis calculated a
terminal value at the end of 2006 using a constant growth dividend discount
model, incorporating a perpetuity growth rate of 3%.
27
Duff & Phelps' discounted cash flow analysis resulted in indications of total
enterprise value ranging from $1.86 million to $2.08 million for Pak Mail. Duff
& Phelps then deducted the outstanding August 31, 2002 balance of Pak Mail's
interest-bearing debt, at $412,880, to arrive at a total equity value range of
$1.45 million to $1.67 million.
Based on the market multiple analysis and the discounted cash flow analysis,
Duff & Phelps concluded at a total equity value (common and preferred stock) for
Pak Mail in the range of $1.35 million to $1.55 million
Preferred Stock Analysis. On February 4, 1998, Pak Mail issued 1,000 shares of
Series C preferred stock, without par value, to D.P. Kelly, and 1,216.668 shares
of Series C preferred stock, without par value, to PMIP. The Series C preferred
stock has not been transferred since its initial issuance. The shares of Series
C preferred stock carry a 6% stated dividend payable on March 31 of each year.
Pak Mail must pay the dividends on the Series C preferred stock before paying
dividends on the common stock or making distributions to the common
shareholders. The Series C preferred stock is not publicly traded and no
transactions in the Series C preferred stock have occurred since issuance. The
Series C preferred stock is redeemable and has a redemption value and
liquidation value of $2,216,668, which exceeds the total equity value determined
by Duff & Phelps of $1.35 million to $1.55 million. Duff & Phelps valued the
Series C preferred stock by discounting the future expected dividend payments
over a period of time and redemption of the outstanding principal at the end of
the period to a present value using a time horizon of more than 3 years but less
than 10. The discount rate used was based on yields observed for preferred
stocks with "C" ratings ranging from 5.8% to 62.3%, as well as alternative
investments and the overall risk of Pak Mail. A discount rate range of 18.0% to
20.0% was deemed reasonable for Pak Mail's Series C preferred stock. Duff &
Phelps concluded at a fair market value of $1.3 million for Pak Mail's Series C
preferred stock.
The financial information, forecasts, assumptions and other information provided
by Pak Mail's management to Duff & Phelps was reviewed by Pak Mail for accuracy
and completeness.
Duff & Phelps deducted the fair market value of preferred stock, at $1.3
million, from the total equity value range of $1.35 million to $1.55 million, to
arrive at a total common equity value in the range of $50,000 to $250,000.
Pak Mail Valuation Analysis - Orderly Liquidation Basis
Duff & Phelps prepared a liquidation analysis to arrive at a range of value that
might be available to the common shareholders of Pak Mail assuming: (1) a sale
of Pak Mail's assets on an orderly basis, (2) the payment of outstanding
liabilities and other claims that have a priority position over Pak Mail's
common stock, and (3) the distribution of any net proceeds to holders of common
stock.
Duff & Phelps' starting point for its hypothetical liquidation analysis was Pak
Mail's management-prepared balance sheet as of August 31, 2002, which was
identified as the most current financial statement available for Duff & Phelps'
review. Duff & Phelps then adjusted the book value of certain assets to reflect
values that might be realized in an orderly liquidation proceeding and adjusted
the book value of certain liabilities to reflect amounts likely to be paid. In
making these adjustments, Duff & Phelps considered management's estimates of
certain asset values and actual liabilities, among other factors. Certain
assumptions underlying Duff & Phelps' liquidation analysis and its treatment of
individual assets and liabilities are summarized as follows:
28
Off Balance Sheet Liabilities. In addition to the liabilities recorded on Pak
Mail's balance sheet, Duff & Phelps' liquidation analysis included additional
liabilities for lease obligations related to Pak Mail's office facilities. Under
the high valuation scenario of the liquidation analysis, Duff & Phelps estimated
that Pak Mail is able to reduce its total operating lease obligations to
approximately $720,000, while the low value scenario included Pak Mail's
estimated total operating lease obligations of $1,000,000.
Interim Cash Flow. Duff & Phelps assumed a three month liquidation period and
therefore included an estimate of interim expenses during the winding down
period. Projected cash outflows included general and administrative expenses for
internal operations, salary and related payroll expenses for certain employees
deemed necessary during the liquidation period, and interest payable on Pak
Mail's notes payable over the three month period. Estimates of Pak Mail's
general and administrative expenses were based upon estimates provided to Duff &
Phelps by Pak Mail management.
Duff & Phelps' liquidation analysis indicated a negative total common equity
valuation ranging from ($1.2) million to ($1.6) million. Duff & Phelps therefore
concluded that the liquidation analysis did not provide any indication that
shareholders would receive any payment for Pak Mail common stock in a
liquidation scenario.
Historical Share Price Information
Pak Mail's latest closing share price prior to the delivery of Duff & Phelps
opinion was $0.06 per share on September 19, 2002. However, trading activity in
Pak Mail's stock is extremely thin. From January 1, 2002 to October 14, 2002,
Pak Mail's stock traded on only 18 days with a total of 10,000 shares changing
hands, with a high of $.15 per share and a low of $.06 per share. Based on its
analysis of share prices and trading activity, Duff & Phelps does not believe
that the latest available closing price or the high and low trading prices
provide an accurate indication of the value of Pak Mail's common stock.
Principals' Position as to Fairness of the Merger to Unaffiliated Shareholders
The Securities and Exchange Commission's (the "SEC") rules require each of the
Principals to state whether it or he or she believes the merger is fair or
unfair to Pak Mail's unaffiliated shareholders, to indicate the extent, if any,
to which that belief is based on specific factors enumerated in the rules, and
to specify, to the extent practicable, the weight assigned to each such factor.
Each of the Principals believes that the merger is fair to Pak Mail's
unaffiliated shareholders based on the factors supporting its fairness set forth
in the Duff & Phelps fairness opinion as well as the factors listed in "Special
Factors - Recommendation of the Board of Directors; Fairness of the Merger",
without having quantified or otherwise assigned relative weights to those
factors.
In addition, although Duff & Phelps's fairness opinion and valuation analysis
are not addressed to the Principals, the Principals are aware that Duff & Phelps
has rendered its fairness opinion and valuation analysis to the Board of
Directors, and each of the Principals explicitly adopts the analysis of the
fairness opinion and valuation analysis of Duff & Phelps. The Principals believe
that the rendering of such an opinion by a firm of Duff & Phelps expertise and
reputation supports the fairness of the merger and explicitly adopt the analysis
therein. The Principals also adopt the analysis of Pak Mail's Board of Directors
as described in pages 19-23 of this proxy statement.
For the reasons set forth under "Special Factors - Background of the Merger,"
the Principals did not arrange for other procedural safeguards in connection
with the merger other than the Duff & Phelps fairness opinion and valuation
29
analysis, such as a majority of the minority approval provision in the merger
agreement, or the utilization of a special committee comprised of independent
directors. The Principals determined that the combination of the fact that Duff
& Phelps provided a valuation analysis and fairness opinion in a completely
independent manner, and that the merger agreement provides for a valuation in
the high end of the valuation range provided by Duff & Phelps evidences that the
merger agreement is fair to Pak Mail's unaffiliated shareholders, from a
financial point of view. The Principals also determined that the retention of an
independent financial advisor, and the establishment of a purchase price based
on a valuation range established by the financial advisor, was procedurally fair
to Pak Mail's unaffiliated shareholders.
Benefits and Detriments of the Merger to Pak Mail's Unaffiliated Shareholders
To summarize the various factors considered by the Principals, the Principals
believe that the primary benefit of the merger to Pak Mail's unaffiliated
shareholders is the realization of the value of their investment in Pak Mail in
cash at a price that represents a fair valuation of such shareholders' shares.
In addition, the merger will eliminate the risk to those shareholders of a
possible future decline in the market value of Pak Mail's common stock. The
Principals considered the other benefits listed in "Special Factors -
Recommendation of the Board of Directors; Fairness of the Merger".
The Principals believe the primary detriment of the merger to Pak Mail's
unaffiliated shareholders is that they will cease to participate in any future
earnings growth of Pak Mail and will cease to benefit from any increase in Pak
Mail's value. In addition, each of Pak Mail's unaffiliated shareholders will
recognize a taxable gain on consummation of the merger if and to the extent that
the amount of cash it receives in the merger exceeds its tax basis in its Pak
Mail common stock. Further, there have been recent discussions with third
parties that compete in Pak Mail's line of business. These discussions included
indications of interest to enter into a strategic combination or engage in some
other strategic alternative. It is possible that similar strategic alternatives
may be considered in the near-term or long-term future. There are no imminent or
foreseeable strategic alternatives available. In the event a strategic
alternative takes place in the future, the Principals may benefit and Pak Mail's
unaffiliated shareholders would not receive a similar benefit. The Principals
also considered other detriments listed in "Special Factors - Recommendation of
the Board of Directors; Fairness of the Merger".
Benefits and Detriments of the Merger to the Principals and Pak Mail
The Principals believe the primary benefit of the merger to the Principals is
that they will participate in all of the future earnings growth of Pak Mail, if
any, will benefit from all of any increase in Pak Mail's value and that the
pursuit of strategic alternatives may be easier as a private company rather than
as a public company. The Principals believe that Pak Mail will benefit from the
merger by gaining more operating flexibility and by reducing its operating and
administrative costs because of a reduction in its public reporting obligations
arising principally from its equity securities being privately rather than
publicly held after the merger. The Principals expect to benefit from these
increases in efficiency and reductions in operating and administrative costs.
PMIP and D.P. Kelly own approximately 62.0% and 38.0%, respectively, of Pak Mail
Acquisition Corp., and accordingly each of such parties would have such
percentage interests in Pak Mail's net book value and net earnings following the
merger. As a result, PMIP's ownership interest will correspond with a net book
value of approximately negative $525,760 as of August 31, 2002, and net earnings
for the nine months ended August 31, 2002 of approximately negative $420,111.
D.P. Kelly's ownership interest will correspond with a net book value of
approximately negative $322,240 as of August 31, 2000, and net earnings for the
nine months ended August 31, 2002 of approximately negative $257,488.
30
The Principals believe that the primary detriments of the merger to the
Principals are the cash outlay and the potential diminution of Pak Mail's
ability to use Pak Mail common stock as currency for acquisitions, substantial
capital-raising efforts and incentive option purposes. Pak Mail files a
consolidated return for tax purposes, and accordingly, none of the Principals
will be able to benefit directly from Pak Mail's net operating loss
carryforwards.
Interests of Certain Persons in the Merger; Certain Relationships
Messrs. Kelly, Gustafson and Corcoran and Ms. McGrath have indirect ownership
interests in Pak Mail Acquisition Corp. The general partner of PMIP is Norcross
Partners, and the general partner of Norcross Partners is Norcross Corp. Messrs.
Kelly and Gustafson are executive officers and directors of, and Messrs. Kelly,
Gustafson and Corcoran own the entire equity interest in, Norcross Corp. Mr.
Kelly's interest is held through his revocable trust. As a result of the shared
control by Messrs. Kelly, Gustafson and Corcoran over Norcross Corp., the
control exercised by Norcross Corp. over Norcross Partners and the control
exercised by Norcross Partners over PMIP, Messrs. Kelly, Gustafson and Corcoran
control PMIP. Because PMIP owns a majority of the issued and outstanding Pak
Mail common stock, PMIP controls Pak Mail, and Messrs. Kelly, Gustafson and
Corcoran may therefore be deemed to control Pak Mail.
Messrs. Kelly and Gustafson are executive officers and directors of, and own the
entire equity interest in, C&G Management. Mr. Kelly's interest is held through
his revocable trust. C&G Management is the general partner of D.P. Kelly. As a
result of the shared control of C&G Management, and the ability of C&G
Management to control D.P. Kelly, Messrs. Kelly and Gustafson may be deemed to
share the beneficial ownership of the Pak Mail common stock owned by D.P. Kelly.
Ms. McGrath is a general partner and a trust for the benefit of her children is
a limited partner of KMK and Associates, an Illinois general partnership engaged
in investment activities. KMK and Associates and Messrs. Kelly, Gustafson and
Corcoran are limited partners of Norcross Partners, which is the general partner
of PMIP. KMK and Associates and Messrs. Kelly and Gustafson are limited partners
of D.P. Kelly. In addition, D.P. Kelly, C&G Management, KMK and Associates and
Messrs. Kelly, Gustafson and Corcoran are limited partners of Grand Mesa
Partners L.P., which in turn is a limited partner of PMIP. Mr. Kelly's interests
are owned through his revocable trust. Ms. McGrath is the daughter of Mr. Kelly.
As a result of these interests, Messrs. Kelly, Gustafson and Corcoran and Ms.
McGrath may have conflicting interests with Pak Mail's unaffiliated
shareholders.
Messrs. Gustafson and Corcoran were involved in structuring the transaction as
representatives of D.P. Kelly and PMIP, while they were members of Pak Mail's
Board of Directors. In light of the potential conflicting interests of Messrs.
Kelly, Gustafson and Corcoran and Ms. McGrath with Pak Mail's unaffiliated
shareholders, the Board of Directors solicited the opinion of Duff & Phelps to
provide a determination of the fairness of the merger to Pak Mail's unaffiliated
shareholders, from a financial point of view. To review the factors considered
by Duff & Phelps in its opinion, and the factors considered by the Board of
Directors in approving the merger agreement, see pages 15-28.
Shares and Stock Options
Pak Mail stock options will be canceled as a result of the merger. The value of
Pak Mail stock held by members of the Board of Directors as of October 31, 2002,
which will or may be realized upon consummation of the merger is as follows:
- --------------------------------------------------------------------------------
Number of Shares and Amount of
Nature of Consideration to
Name of Beneficial Owner Ownership be Received
- --------------------------------------------------------------------------------
J. S. Corcoran 1,000 $51.60
John W. Grant 800 $41.28
F. Edward Gustafson 28,500 $1,470.60
- --------------------------------------------------------------------------------
31
There are no current plans for any transfer of any of the Series C preferred
stock currently owned by D.P. Kelly and PMIP to any other entity.
Directors and Management of the Surviving Corporation
After the merger, the Board of Directors of the surviving corporation will be
comprised of the Board of Directors of Pak Mail. The officers of Pak Mail will
comprise the officers of the surviving corporation. P. Evan Lasky will continue
to serve as President and Chief Executive Officer. Alex Zai will continue to
serve as Executive Vice President.
Other Arrangements with Affiliates
In connection with a recapitalization, on February 4, 1998, Pak Mail issued 1000
shares of Series C preferred stock, without par value, to D.P. Kelly, and
1,216.668 shares of Series C preferred stock, without par value, to PMIP. These
shares of Series C preferred stock have a 6% dividend payable on March 31 of
each year. Pak Mail must pay the dividends on the Series C preferred stock
before paying dividends on the common stock or making distributions to the
common shareholders.
On August 11, 2000, in order to obtain working capital, Pak Mail executed a
promissory note for $400,000 pursuant to which Pak Mail promises to pay to the
order of D.P. Kelly the principal and any accrued interest thereon. The
promissory note is payable on demand subsequent to December 4, 2003.
Directors and Officers Indemnification
Indemnification arrangements for our present directors and officers will be
continued by the surviving corporation after the merger.
Certain Effects of the Merger
If the merger is consummated, Pak Mail's unaffiliated shareholders will no
longer have any interest in, and will not be shareholders of, Pak Mail and,
therefore, will not benefit from any future earnings growth of Pak Mail or from
any increase in its value and will no longer bear the risk of any decrease in
its value. Instead, each unaffiliated shareholder will have the right to
receive, upon consummation of the merger, $0.0516 in cash for each share of
common stock he, she or it holds, without interest and net of any applicable
withholding taxes. A primary benefit of the transaction to our unaffiliated
shareholders is the ability to realize liquidity on their investment. This cash
payment also assures that all unaffiliated shareholders will receive the same
amount for their shares, rather than taking the risks associated with attempting
to sell their shares in the open market. However, following the merger, the
unaffiliated shareholders will be unable to participate in the possible future
growth of Pak Mail.
If the merger is consummated, the Principals will directly or indirectly hold
the entire equity interest in Pak Mail and will therefore be the sole
beneficiaries of any future earnings growth of Pak Mail and any increases in Pak
Mail's value. However, the Principals will bear the risk of any decrease in
value of Pak Mail and the potential lack of liquidity in the Principals'
investment in Pak Mail.
32
Pak Mail's common stock is currently subject to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and is sporadically traded on the
over-the-counter market under the trading symbol ("PMCX"). As a result of the
merger, the common stock will no longer be subject to the Exchange Act. Pak Mail
will thereafter be relieved of its obligation to comply with the proxy rules of
Regulation 14A under Section 14 of the Exchange Act, and its officers, directors
and beneficial owners of more than 10% of the common stock will be relieved of
the reporting requirements and "short swing" trading provisions under Section 16
of the Exchange Act. Further, Pak Mail will no longer be subject to periodic
reporting requirements under Section 13 of the Exchange Act and will cease
filing information with the SEC.
As a result of the merger, the ownership stake of D.P. Kelly in the common
shares of Pak Mail will increase from approximately 12.7% to approximately
38.0%. Accordingly, D.P. Kelly's interests in Pak Mail's net book value and net
earnings could be said to increase from approximately 12.7% to approximately
38.0%, not taking into account the effects of Pak Mail's preferred shares or the
$400,000 note payable to D.P. Kelly into consideration.
Plans for Pak Mail After the Merger
The Principals expect that, except as described in this proxy statement, the
business and operations of Pak Mail will be continued substantially as they are
currently being conducted by Pak Mail. However, the Principals expect that they
may, from time to time, evaluate and review Pak Mail's business, operations and
properties and make such changes as they consider appropriate.
Except as described in this proxy statement, neither the Principals nor Pak Mail
has any present plans or proposals involving Pak Mail or its subsidiaries which
relate to or would result in an extraordinary corporate transaction such as a
merger, reorganization, liquidation, sale or transfer of a material amount of
assets, or any material change in the present dividend policy, indebtedness or
capitalization, or any other material change in Pak Mail's corporate structure
or business. After the merger, the Principals may review proposals or may
propose the acquisition or disposition of assets or other changes in Pak Mail's
business, corporate structure, capitalization, management or dividend policy
which they consider to be in the best interests of Pak Mail and its
shareholders. During the past 12 months, Pak Mail has considered the possibility
of a strategic combination or pursuing other strategic alternatives. Pak Mail
may continue to consider the possibility of a strategic combination or pursuing
other strategic alternatives after the consummation of the merger. The
Principals intend to suspend Pak Mail's obligation to file reports under Section
13 of the Exchange Act, as a result of which Pak Mail will no longer be publicly
traded on the over-the-counter market.
Conduct of the Business of Pak Mail if the Merger is not Consummated
If the merger is not consummated, the Board expects to seek to retain Pak Mail's
current management team and continue business as usual. There are no plans in
such circumstances to operate Pak Mail's business in a manner substantially
different than the manner in which it is presently operated.
Accounting Treatment
The merger will be accounted for in accordance with the purchase method of
accounting under generally accepted accounting principles.
33
Financing of the Merger
It is estimated that approximately $175,000 will be required to complete the
merger and pay related fees and expenses. See "Special Factors - Fees and
Expenses." The Principals anticipate that funds for the total merger
consideration of $50,600 and for the costs and expenses of Pak Mail Acquisition
Corp. will be provided by capital contributions from PMIP and/or D.P. Kelly to
Pak Mail Acquisition Corp. A subscription agreement entered into by D.P. Kelly
provides, among other things, that D.P. Kelly will contribute $50,000 to the
capital of Pak Mail Acquisition Corp. Many of the other fees and expenses have
already been paid, and to the extent that any additional funds are required to
pay the expenses of Pak Mail Acquisition Corp. incurred in connection with the
merger agreement and the merger, D.P. Kelly has sufficient cash and other liquid
assets to satisfy all reasonably anticipated fees and expenses.
Regulatory Requirements; Third Party Consents
Pak Mail does not believe that any material federal or state regulatory
approvals, filings or notices are required by Pak Mail or Pak Mail Acquisition
Corp. in connection with the merger other than:
o such approvals, filings or notices required pursuant to federal and
state securities laws; and
o the filing of the articles of merger with the Secretary of State of
the State of Colorado.
Pak Mail does not believe any other material third party consents will be
required by Pak Mail in connection with the merger.
Material Federal Income Tax Consequences of the Merger
The following discussion summarizes the material U.S. federal income tax
consequences of the merger. This discussion is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated under the Code, Internal Revenue Service rulings, and judicial and
administrative rulings in effect as of the date of this proxy statement, all of
which are subject to change, possibly with retroactive effect. This discussion
does not address all aspects of U.S. federal income taxation that may be
relevant to a holder of our common stock in light of that holder's particular
circumstances, or to those holders of our common stock subject to special rules,
such as shareholders who are not citizens or residents of the United States,
shareholders that are financial institutions, broker-dealers, tax-exempt
organizations, insurance companies, dealers in securities, or foreign
corporations, shareholders who acquired their common stock through the exercise
of options, warrants or similar derivative securities or shareholders who hold
their common stock as part of a straddle or conversion transaction. This
discussion also does not address the U.S. federal income tax consequences to
holders of options exercisable to acquire shares of our common stock. This
discussion assumes that holders of our common stock hold their respective shares
as capital assets within the meaning of Section 1221 of the Code. No ruling from
the Internal Revenue Service will be applied for with respect to the U.S.
federal income tax consequences discussed herein, and accordingly there can be
no assurance that the Internal Revenue Service will agree with the positions
described in this proxy statement.
We intend this discussion to provide only a summary of the material U.S. federal
income tax consequences of the merger. We do not intend it to be a complete
analysis or description of all potential U.S. federal income tax consequences of
the merger. We also do not address all of the non-income tax or foreign, state
or local tax consequences of the merger. We strongly urge you to consult your
tax advisor to determine your particular U.S. federal, state, local or foreign
income or other tax consequences resulting from the merger, with respect to your
individual circumstances.
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The receipt of cash for shares of our common stock pursuant to the merger will
be a taxable exchange of stock for U.S. federal income tax purposes and possibly
for state and local income tax purposes as well. In general, a shareholder who
receives cash in exchange for shares pursuant to the merger will recognize gain
or loss for U.S. federal income tax purposes equal to the difference, if any,
between the amount of cash received and the shareholder's adjusted tax basis for
the shares surrendered for cash pursuant to the merger. Gain or loss will be
determined separately for each block of shares (i.e., shares acquired at the
same cost in a single transaction) that is surrendered for cash pursuant to the
merger.
Net capital gain recognized by non-corporate taxpayers from the sale of property
held more than one year will generally be taxed at a rate not to exceed 20% for
U.S. federal income tax purposes. Net capital gain from property held for one
year or less will be subject to tax at ordinary income tax rates. Capital gains
recognized by a corporate taxpayer will be subject to tax at the ordinary income
tax rates applicable to corporations. In general, capital losses are deductible
only against capital gains and are not available to offset ordinary income.
However, individual taxpayers are allowed to offset a limited amount of net
capital losses against ordinary income.
The receipt of cash, if any, pursuant to the exercise by a holder of shares of
our common stock of dissenter's rights under the Colorado Business Corporation
Act, will be taxable. We encourage any holder of shares of our common stock
considering the exercise of any dissenter's rights to consult a tax advisor to
determine the tax consequence of exercising such dissenter's rights.
Certain non-corporate holders of shares of our common stock may be subject to
backup withholding (currently at a rate of 27% but subject to periodic
adjustment) on cash payments received pursuant to the merger. Backup withholding
will not apply, however, to a holder of shares of our common stock who furnishes
a taxpayer identification number and certifies that he or she is not subject to
backup withholding on the substitute Form W-9 included in the transmittal
letter, who provides a certificate of foreign status on Form W-8BEN or W-8ECI,
or who is otherwise exempt from backup withholding. A holder of shares of common
stock who fails to provide the correct tax identification number on Form W-9 may
be subject to a penalty imposed by the Internal Revenue Service.
Fees and Expenses
The merger agreement provides that whether or not the merger is consummated, the
fees and expenses incurred in connection with the merger agreement and the
merger will be paid by the party incurring such fees and expenses. Estimated
fees and expenses (rounded to the nearest thousand) incurred or to be paid by
Pak Mail or Pak Mail Acquisition Corp. in connection with the merger, the
financing and related transactions are approximately $125,000. The fees and
expenses of Duff & Phelps and of counsel for PMIP and D.P. Kelly have been paid
for by PMIP and D.P. Kelly. The fees and expenses of counsel for Pak Mail have
been paid by Pak Mail. Fees and expenses related to the distribution of the
proxy statement, the holding of the Special Meeting of Shareholders and the
exchange agreement for this merger are expected to be paid by Pak Mail.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger agreement,
as amended. A copy of the merger agreement is attached as Annex A to this proxy
statement and a copy of the amendment to the merger agreement is attached as
Annex B to this proxy statement. This summary is qualified in its entirety by
reference to the full text of the merger agreement, and any subsequent
amendments.
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The Merger; Merger Consideration
The merger agreement provides that the merger will become effective upon the
filing of articles of merger with the Secretary of State of the State of
Colorado or at such other time as the parties may agree and specify in the
articles of merger (the "Effective Time"). If the merger is approved at the
Special Meeting by the holders of a majority of all outstanding shares of common
stock, and the other conditions to the merger are satisfied, it is currently
anticipated that the merger will be consummated in early 2003; however, there
can be no assurance as to the timing of the consummation of the merger or that
the merger will be consummated.
At the Effective Time, Pak Mail Acquisition Corp. will be merged with and into
Pak Mail, the separate corporate existence of Pak Mail Acquisition Corp. will
cease and Pak Mail will continue as the surviving corporation. At the Effective
Time:
o each share of Pak Mail common stock, issued and outstanding
immediately prior to the Effective Time (other than common stock held
by Pak Mail Acquisition Corp. or held by dissenting shareholders that
strictly comply with the provisions of the Colorado Business
Corporation Act regarding statutory appraisal rights) will, by virtue
of the merger and without any action on the part of the holder
thereof, be converted into and become the right to receive $0.0516 per
share, without interest and less any applicable withholding taxes (the
"Merger Consideration");
o each share of Pak Mail common stock issued and outstanding immediately
prior to the Effective Time that is owned by Pak Mail Acquisition
Corp. will automatically be canceled and extinguished;
o each issued and outstanding share of Series C preferred stock, without
par value, of Pak Mail, will become one issued and outstanding share
of Series C preferred stock, without par value, of the surviving
corporation;
o each share of common stock of Pak Mail Acquisition Corp. issued and
outstanding immediately prior to the Effective Time will be converted
into and become one share of common stock of the surviving corporation
and will constitute the only outstanding shares of capital stock of
the surviving corporation;
o dissenting shareholders who do not vote to approve the merger
agreement and who otherwise strictly comply with the provisions of the
Colorado Business Corporation Act regarding statutory appraisal rights
have the right to seek a determination of the fair value of the shares
of common stock and payment in cash therefor in lieu of the Merger
Consideration (see "Dissenter's Rights" and Annex F of this proxy
statement); and
o each certificate representing shares of Pak Mail common stock (a
"Certificate") that have been converted to cash under the terms of the
merger agreement will, after the Effective Time, evidence only the
right to receive, upon the surrender of such Certificate, an amount in
cash per share equal to $0.0516, without interest.
The Exchange Fund; Payment for Shares of Pak Mail Common Stock
On or before the closing date of the merger, Pak Mail Acquisition Corp. will
enter into an agreement with a bank, trust company or other exchange agent
selected by Pak Mail Acquisition Corp. (the "Exchange Agent"). As of the
Effective Time, Pak Mail Acquisition Corp. or Pak Mail will deposit or cause to
be deposited with the Exchange Agent cash in an amount equal to the aggregate
Merger Consideration of $50,600 for the benefit of holders of shares of Pak Mail
common stock (other than common stock held by dissenting shareholders and shares
to be canceled and extinguished without consideration pursuant to the merger
agreement).
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As soon as reasonably practicable after the Effective Time, Pak Mail Acquisition
Corp. will instruct the Exchange Agent to mail to each record holder of a
Certificate (i) a letter of transmittal (which will specify that delivery will
be effected, and risk of loss and title to such Certificates will pass, only
upon delivery of Certificates to the Exchange Agent, and will be in such form
and have such other provisions as Pak Mail Acquisition Corp. will reasonably
specify) and (ii) instructions for use in effecting the surrender of
Certificates for the Merger Consideration. No shareholder should surrender any
Certificate until the shareholder receives the letter of transmittal and other
instructions relating to surrender. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with a letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to the
instructions, the holder of such Certificate will be entitled to receive in
exchange therefor the Merger Consideration into which the number of shares of
common stock previously represented by such Certificate shall have been
converted pursuant to the merger agreement, without any interest thereon, and
the Certificates so surrendered will be canceled.
Shareholders should not send their Certificates now and should send them only
pursuant to instructions set forth in the letter of transmittal to be mailed to
shareholders promptly after the Effective Time. In all cases, the Merger
Consideration will be paid only in accordance with the procedures set forth in
this proxy statement, the merger agreement and the letter of transmittal.
One hundred and eighty days after the Effective Time, the Exchange Agent will
deliver to Pak Mail, or otherwise at the direction of Pak Mail, any portion of
the aggregate Merger Consideration that remains undistributed to or unclaimed by
the holders of Certificates (including the proceeds of any investments thereof).
Any holders of Certificates who have not yet complied with the above-described
procedures to receive payment of the Merger Consideration may then look only to
Pak Mail for payment of the Merger Consideration to which they are entitled.
Transfers of Common Stock
After the Effective Time, Pak Mail's stock transfer books will be closed, and
there will be no further transfers of Certificates on any of the stock transfer
books. In the event of a transfer of ownership of any Pak Mail common stock
prior to the Effective Time that is not registered in the stock transfer records
of Pak Mail at the Effective Time, the Merger Consideration into which such
common stock has been converted in the merger will be paid to the transferee in
accordance with the provisions of the merger agreement only if the Certificate
is surrendered as provided in the merger agreement and accompanied by all
documents required to evidence and effect such transfer (including evidence of
payment of any applicable stock transfer taxes). If, after the Effective Time,
Certificates are presented to the Exchange Agent or Pak Mail, they will be
canceled and exchanged for the Merger Consideration as provided above and
pursuant to the terms of the merger agreement (subject to applicable law in the
case of dissenting shareholders).
Treatment of Stock Options
The merger agreement directs Pak Mail's Board of Directors to take such actions
as may be required and appropriate such that all stock options for Pak Mail
common stock will be canceled and extinguished and will cease to exist as of the
date the merger is consummated.
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Conditions
The respective obligations of Pak Mail Acquisition Corp. and Pak Mail to
consummate the merger are subject to the fulfillment or waiver (to the extent
permitted by applicable law) at or prior to the Effective Time of certain
conditions including the following:
o Pak Mail will have obtained the shareholder approval; and
o no order, decree, ruling, judgment or injunction will have been
enacted, entered, promulgated or enforced by any governmental entity
of competent jurisdiction that prohibits the merger and the
consummation of the transactions contemplated by the merger agreement
substantially on the terms contemplated by the merger agreement.
Unless waived by Pak Mail, the obligation of Pak Mail to effect the merger is
also subject to the following additional conditions:
o the representations and warranties of Pak Mail Acquisition Corp. set
forth in the merger agreement will be true and correct in all material
respects, in each case as of the Effective Time (except to the extent
expressly made as of an earlier date, in which case, as of such date);
o Pak Mail Acquisition Corp. will have performed or complied with in all
material respects all covenants and obligations required to be
performed or complied with by it under the merger agreement at or
prior to the Effective Time; and
o Pak Mail Acquisition Corp. will have delivered to Pak Mail a
certificate, dated as of the closing date and signed by an executive
officer, certifying the satisfaction of the conditions set forth.
Unless waived by Pak Mail Acquisition Corp., the obligations of Pak Mail
Acquisition Corp. to effect the merger are subject to the following additional
conditions:
o the representations and warranties of Pak Mail set forth in certain
portions of the merger agreement will be true and correct in all
material respects, in each case as of the Effective Time (except to
the extent expressly made as of an earlier date, in which case, as of
such date);
o Pak Mail will have performed or complied with in all material respects
all obligations required to be performed or complied with by it under
the merger agreement at or prior to the Effective Time;
o from the date of the merger agreement to the Effective Time, there
will not have been any event or development that has or could,
individually or in the aggregate, have a material adverse effect with
respect to Pak Mail;
o Pak Mail will have delivered to Pak Mail Acquisition Corp. a
certificate, dated as of the closing date and signed by an executive
officer, certifying the satisfaction of the conditions set forth
above; and
o no new claim, action, suit, proceeding or investigation will be
pending or threatened against Pak Mail or Pak Mail Crating & Freight
Service, Inc. that relates to the transactions contemplated by the
merger agreement or that otherwise may reasonably be expected to have
a material adverse effect with respect to Pak Mail.
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Representations and Warranties
The merger agreement contains representations and warranties of Pak Mail
Acquisition Corp. and Pak Mail. The representations and warranties of Pak Mail
relate to, among other things:
o the organization and qualification to do business of Pak Mail and its
subsidiary, Pak Mail Crating & Freight Service, Inc.;
o Pak Mail's authority to enter into and consummate the merger agreement
and the transactions contemplated thereby;
o the absence of a conflict between the merger agreement and the
transactions contemplated thereby, with laws applicable to, and
material agreements of, Pak Mail and its subsidiary;
o the consents and filings required with respect to the merger agreement
and the transactions contemplated thereby;
o the creation or imposition of liens as a result of entering into the
merger agreement;
o the capitalization of Pak Mail;
o the ownership of Pak Mail's subsidiary;
o the accuracy of previous filings made with the SEC;
o the accuracy of its financial statements;
o the accuracy of the proxy statement and filings made with the SEC with
respect to the proposed merger;
o the absence of undisclosed liabilities and changes in the business of
Pak Mail;
o the status of litigation;
o the validity and enforceability of various contracts that are material
to Pak Mail;
o compliance with respect to taxes, employee plans and labor matters;
o title to property, including intellectual property; and
o the brokers used by Pak Mail.
The representations and warranties of Pak Mail Acquisition Corp. relate to,
among other things:
o its organization and qualification to do business;
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o its authority to enter into and consummate the merger agreement and
the transactions contemplated thereby;
o its ownership of 2,897,078 shares of Pak Mail;
o the absence of a conflict between the merger agreement and the
transactions contemplated thereby, with laws applicable to, and
material agreements of, Pak Mail Acquisition Corp.;
o the status of litigation;
o the accuracy of the information provided by Pak Mail Acquisition Corp.
for inclusion in this proxy statement and in filings to be made with
the SEC with respect to the proposed merger;
o the brokers used by Pak Mail Acquisition Corp.; and
o the availability of funds by Pak Mail Acquisition Corp. to finance the
merger.
Covenants
The merger agreement contains covenants typically found in a merger agreement
that govern the activities of Pak Mail and Pak Mail Acquisition Corp. after
signing and before consummation of the merger. These covenants include the
following:
o Each party will use its reasonable best efforts to take whatever
actions are necessary, proper or advisable to consummate the merger
and related transactions, including giving all required notices to
third parties and obtaining all consents from third parties that are
required to be obtained in connection with the merger agreement;
o Pak Mail has agreed to operate, and to cause its subsidiary to
operate, its respective business in the ordinary course, consistent
with past practice, prior to the consummation of the merger;
o Pak Mail will duly call, give notice of, and convene a special meeting
of its shareholders as soon as reasonably practicable;
o Pak Mail will file a proxy statement with the SEC and mail the proxy
statement as promptly as reasonably practicable, and if necessary,
promptly circulate amended proxy material;
o Pak Mail Acquisition Corp. will cause the surviving corporation to
indemnify Pak Mail's officers and directors against certain losses
arising from the Merger;
o The parties will cooperate in issuing press releases regarding the
merger; and
o Pak Mail will provide Pak Mail Acquisition Corp. with access to
company information and each party will notify the other party of any
event that could reasonably be expected to result in a material
adverse affect on either party.
Nothing contained in the merger agreement is intended to give Pak Mail
Acquisition Corp., directly or indirectly, any right to control or direct Pak
Mail's operations prior to the Effective Time. Prior to the Effective Time, Pak
Mail will, consistent with the terms and conditions of the merger agreement,
control its operations.
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Other Provisions
Pak Mail and Pak Mail Acquisition Corp. have made further agreements regarding,
among other things, advising each other of representations or warranties
contained in the merger agreement becoming untrue, of their respective failure
to comply with or satisfy covenants, conditions or agreements contained in the
merger agreement, and of any change, event or circumstance that could reasonably
be expected to have a material adverse effect on such party or on its ability to
consummate the proposed merger, cooperating in the preparation of required
governmental filings, in obtaining required permits and regulatory approvals and
in the release of public announcements, and granting access to information and
maintaining confidentiality.
Termination
The merger agreement may be terminated and the merger may be abandoned at any
time prior to the Effective Time (notwithstanding any approval of the merger
agreement by the shareholders of Pak Mail):
o by mutual written consent of Pak Mail and Pak Mail Acquisition Corp.;
o by either party if the merger has not been consummated by January 31,
2003, provided that the right to terminate the merger agreement is not
available to any party who breached the merger agreement in a material
respect that substantially contributed to the failure to consummate
the Merger;
o by either party if shareholder approval is not obtained at the
Shareholder Meeting unless such failure to obtain the shareholder
approval is the result of a material breach of the merger agreement by
the party seeking to terminate the merger agreement;
o by either party if an order, decree, ruling or judgment has been
entered by a governmental entity permanently restraining, enjoining or
otherwise prohibiting the merger, and the party seeking termination
has used reasonable best efforts to remove the order;
o by either party if the other party breaches or fails to comply with a
material covenant, agreement or representation, and fails to cure
within 20 days of written notice;
o by Pak Mail Acquisition Corp. if Pak Mail's Board of Directors
withdraws its recommendation of the merger; and
o by Pak Mail Acquisition Corp. if a claim, action, suit, proceeding or
investigation is filed, instituted, commenced or threatened against
Pak Mail or its subsidiary that relates to the merger agreement or
that otherwise may reasonably be expected to have a material adverse
effect on Pak Mail.
Fees and Expenses
All costs and expenses incurred in connection with the merger agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses.
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Amendment/Waiver
Before approval of the merger agreement by the shareholders, the merger
agreement may be amended by the written agreement of the parties if such
amendment is approved by their respective boards of directors. After approval of
the merger agreement by the shareholders, amendments may not be made unless
shareholder approval is obtained, if such approval is required by the Colorado
Business Corporation Act. The parties may in writing waive compliance with
certain covenants, agreements or conditions of the other party.
At any time prior to the Effective Time, Pak Mail and Pak Mail Acquisition Corp.
may extend the time for performance of or waive compliance with any of the
obligations or other acts of the other parties to the merger agreement, and may
waive any breach of the representations and warranties contained in the merger
agreement or in any document delivered pursuant to the merger agreement. Any
extension or waiver will be valid only if set forth in writing and signed by the
party against which it is sought to be enforced.
DISSENTER'S RIGHTS
The following is a summary of dissenter's rights available to Pak Mail
shareholders, which summary is not intended to be a complete statement of
applicable Colorado law and is qualified in its entirety by reference to Article
113 of the Colorado Business Corporation Act ("CBCA"), which is set forth in its
entirety as Annex F to this proxy statement.
Right to Dissent
Pak Mail shareholders are entitled to dissent from the merger and obtain payment
of the fair value of their shares if and when the merger is effectuated. "Fair
value," with respect to a dissenter's shares, means the value of the shares
immediately before the Effective Time of the merger, excluding any appreciation
or depreciation in anticipation of the merger except to the extent that
exclusion would be inequitable. Under Article 113 of the CBCA, a shareholder
entitled to dissent and obtain payment for his, her or its shares may not also
challenge the corporate action creating the right to dissent unless the action
is unlawful or fraudulent with respect to the shareholder or the corporation.
Under Section 7-113-103 of the CBCA a record shareholder may assert dissenter's
rights as to fewer than all shares registered in the record shareholder's name
only if the record shareholder dissents with respect to all shares beneficially
owned by any one person and causes the corporation to receive written notice
which states such dissent and the name, address and federal taxpayer
identification number, if any, of each person on whose behalf the record
shareholder asserts dissenter's rights.
Section 7-113-103(2) of the CBCA provides that a beneficial shareholder may
assert dissenter's rights as to the shares held on the beneficial shareholder's
behalf only if (a) the beneficial shareholder causes the corporation to receive
the record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenter's rights and (b) the beneficial
shareholder dissents with respect to all shares beneficially owned by the
beneficial shareholder.
Pak Mail will require that, when a record shareholder dissents with respect to
the shares held by any one or more beneficial shareholders, each such beneficial
shareholder must certify to Pak Mail that the beneficial shareholder has
asserted, or will timely assert, dissenter's rights as to all such shares as to
which there is no limitation on the ability to exercise dissenter's rights.
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Procedure for Exercise of Dissenter's Rights
The notice accompanying this proxy statement states that shareholders of Pak
Mail are entitled to assert dissenter's rights under Article 113 of the CBCA. A
Pak Mail shareholder who wishes to assert dissenter's rights shall: (a) cause
Pak Mail to receive before the vote is taken on the merger at the special
meeting, written notice of the shareholder's intention to demand payment for the
shareholder's shares if the merger is effectuated; and (b) not vote the shares
in favor of the merger. A Pak Mail shareholder who does not satisfy the
foregoing requirements will not be entitled to demand payment for his or her
shares under Article 113 of the CBCA.
Dissenter's Notice
If the merger is approved at the special meeting, Pak Mail will send written
notice to dissenters who are entitled to demand payment for their shares. The
notice required by Pak Mail will be given no later than 10 days after the
Effective Time and will: (a) state that the merger was authorized and state the
Effective Time or proposed effective date of the merger, (b) set forth an
address at which Pak Mail will receive payment demands and the address of a
place where certificates must be deposited, (c) supply a form for demanding
payment, which form shall request a dissenter to state an address to which
payment is to be made, (d) set the date by which Pak Mail must receive the
payment demand and certificates for shares, which date will not be less than 30
days after the date the notice is given, (e) state that if a record Pak Mail
shareholder dissents with respect to the shares held by any one or more
beneficial shareholders each such beneficial shareholder must certify to Pak
Mail that the beneficial shareholder and the record shareholder or record
shareholders of all shares owned beneficially by the beneficial shareholder have
asserted, or will timely assert, dissenter's rights as to all such shares as to
which there is no limitation of the ability to exercise dissenter's rights, and
(f) be accompanied by a copy of Article 113 of the CBCA.
Procedure to Demand Payment
A shareholder who is given a dissenter's notice to assert dissenter's rights
will, in accordance with the terms of the dissenter's notice, (a) cause Pak Mail
to receive a payment demand (which may be a demand form supplied by Pak Mail and
duly completed or other acceptable writing) and (b) deposit the shareholder's
stock certificates. A shareholder who demands payment in accordance with the
foregoing retains all rights of a shareholder, except the right to transfer the
shares, until the Effective Time, and has only the right to receive payment for
the shares after the Effective Time. A demand for payment and deposit of
certificates is irrevocable except that if the Effective Time does not occur
within 60 days after the date set by Pak Mail by which it must receive the
payment demand, Pak Mail will return the deposited certificates and release the
transfer restrictions imposed. If the Effective Time occurs more than 60 days
after the date set by Pak Mail by which it must receive the payment demand, then
Pak Mail will send a new dissenter's notice. A Pak Mail shareholder who does not
demand payment and deposit his or her Pak Mail share certificates as required by
the date or dates set forth in the dissenter's notice will not be entitled to
demand payment for his, her or its Pak Mail shares under Article 113 of the
CBCA, in which case, pursuant to the merger agreement, he, she or it will
receive cash consideration for each of his, her or its shares equal to the per
share price received by non-dissenting shareholders.
Payment
At the Effective Time or upon receipt of a payment demand, whichever is later,
Pak Mail will pay each dissenter who complied with the notice requirements
referenced in the preceding paragraph, the Pak Mail estimate of the fair value
of the dissenter's shares plus accrued interest. Payment shall be accompanied by
an audited balance sheet as of the end of the most recent fiscal year of Pak
Mail or, an audited income statement for that year, and an audited statement of
43
changes in shareholders' equity for that year and an audited statement of cash
flow for that year, as well as the latest available financial statements, if
any, for the interim period, which interim financial statements will be
unaudited. Payment will also be accompanied by a statement of the estimate by
Pak Mail of the fair value of the shares and an explanation of how the interest
was calculated, along with a statement of the dissenter's right to demand
payment and a copy of Article 113 of the CBCA. With respect to a dissenter who
acquired beneficial ownership of his, her or its shares after Pak Mail's first
announcement of the terms of the transaction on October 17, 2002, or who does
not certify that his, her or its shares were acquired before that date, Pak Mail
may, in lieu of making the payment described above, offer to make such payment
if the dissenter agrees to accept it in full satisfaction of the demand.
If Dissenter is Dissatisfied with Offer
If a dissenter disagrees with the Pak Mail payment or offer, such dissenter may
give notice to Pak Mail in writing of the dissenter's estimate of the fair value
of the dissenter's shares and of the amount of interest due and may demand
payment of such estimate, less any payment made prior thereto, or reject the
offer of Pak Mail and demand payment of the fair value of the shares and
interest due if: (a) the dissenter believes that the amount paid or offered is
less than the fair value of the shares or that the interest due was incorrectly
calculated, (b) Pak Mail fails to make payment within 60 days after the date set
by Pak Mail by which it must receive the payment demand or (c) Pak Mail does not
return deposited certificates if the Effective Time is 60 days after the date
set by Pak Mail by which the payment demand must be received by the shareholder
asserting dissenter's rights. A dissenter waives the right to demand payment
under this paragraph unless he or she causes Pak Mail to receive the notice
referenced in this paragraph within 30 days after Pak Mail makes or offers
payment for the shares of the dissenter, in which event, such dissenter will
receive all cash for his or her Pak Mail shares in an amount equal to the amount
paid or offered by Pak Mail.
Judicial Appraisal of Shares
If a demand for payment made by a dissenter as set forth above is unresolved,
Pak Mail may, within 60 days after receiving the payment demand, commence a
proceeding and petition a court to determine the fair value of the shares and
accrued interest. If Pak Mail does not commence the proceeding within the 60 day
period, it shall pay to each dissenter whose demand remains unresolved the
amount demanded. Pak Mail must commence any proceeding described above in the
District Court of the County of Arapahoe, Colorado. Pak Mail must make all
dissenters whose demands remain unresolved parties to the proceeding as in an
action against their shares, and all parties shall be served with a copy of the
petition. Jurisdiction in which the proceeding is commenced is plenary and
exclusive. One or more persons may be appointed by the court as appraisers to
receive evidence and recommend a decision on the question of fair value. The
appraisers will have the power described in the court order appointing them. The
parties to the proceeding will be entitled to the same discovery rights as
parties in other civil proceedings. Each dissenter made a party to the
proceeding will be entitled to judgment for the amount, if any, by which the
court finds the fair value of the dissenter's shares, plus interest, to exceed
the amount paid by Pak Mail, or for the fair value, plus interest, of a
dissenter's shares for which Pak Mail elected to withhold payment.
Court and Counsel Fees
The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court will assess the costs against Pak Mail; except
that the court may assess costs against all or some of the dissenters, in the
amount the court finds equitable, to the extent the court finds that the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
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payment. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable: (a) against
Pak Mail and in favor of the dissenters if the court finds that Pak Mail did not
substantially comply with its obligations under the dissenter's rights statute,
or (b) against either Pak Mail or one or more dissenters, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by Article 113 of the CBCA. If the court finds that the services
of counsel for any dissenter were of substantial benefit to the other dissenters
similarly situated, and that the fees for those services should not be assessed
against Pak Mail, the court may award to such counsel reasonable fees to be paid
out of the amount awarded to the dissenters who were benefited.
Any written notice required to be sent to Pak Mail by a Pak Mail shareholder
electing to exercise his or her dissenter's rights under Article 113 of the CBCA
should be sent to P. Evan Lasky at the offices of Pak Mail Centers of America,
Inc., 7173 South Havana Street, Suite 600, Englewood, Colorado 80112.
MARKET FOR THE COMMON STOCK
Common Stock Market Price Information; Dividend Information
Pak Mail's common stock is sporadically traded on the over-the-counter market
under the trading symbol "PMCX". The following table sets forth for the periods
indicated the high and low sales prices for Pak Mail's common stock:
High Low
---- ---
2002
- ----
1st Quarter $0.15 $0.06
2nd Quarter 0.15 0.06
3rd Quarter 0.06 0.06
4th Quarter 0.15 0.03
Pak Mail has been unable to identify reliable sales price information for 2001,
and accordingly information for 2001 has been omitted. Dividends have not been
declared on Pak Mail's common stock in the past two years, and we do not expect
dividends to be declared in the foreseeable future.
Common Stock Purchase Information
Neither Pak Mail nor any of its executive officers or directors, or the
Principals or any of their affiliates, has engaged in any transaction with
respect to Pak Mail's common stock within the past 60 days. In addition, since
October 17, 2000 none of the foregoing persons has purchased any of Pak Mail's
common stock.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our common stock as
of __________, 2003, the record date for determining which of our shareholders
are entitled to vote at the special meeting or any adjournment or postponement
thereof, by each person or group known by us to beneficially own more than five
percent of outstanding common stock, each director and named executive officer,
and by all directors and executive officers as a group. Beneficial ownership was
calculated on the basis of the amount of outstanding securities, plus securities
deemed outstanding under the Exchange Act. Unless otherwise indicated, the
45
holders of all shares shown in the table have sole voting and investment power
with respect to such shares. As of the record date, there were 3,877,737 issued
and outstanding shares of our common stock, and 2,216.688 shares of our Series C
preferred stock were issued and outstanding.
- --------------------------------------------------------------------------------
Name and Address Amount and Nature of Percent
of Beneficial Holder Beneficial Ownership(1) of Class
- --------------------------------------------------------------------------------
J. S. Corcoran 2,898,078(2) 74.7%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
John W. Grant 800 (3)
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
F. Edward Gustafson 2,925,578(2) 75.4%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
P. Evan Lasky 22,000(4) (3)
7173 South Havana Street, Suite 600
Englewood, Colorado 80112
303-957-1000
- --------------------------------------------------------------------------------
Laura K. McGrath 0 (3)
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
All directors and executive officers as 2,949,378(2)(4) 75.6%
a group (5 persons)
- --------------------------------------------------------------------------------
Donald P. Kelly 2,997,078(2) 77.3%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
C&G Management Company, Inc. 2,897,078(2) 74.7%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
46
- --------------------------------------------------------------------------------
Name and Address Amount and Nature of Percent
of Beneficial Holder Beneficial Ownership(1) of Class
- --------------------------------------------------------------------------------
D.P. Kelly and Associates, L.P. 2,897,078(2) 74.7%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
Norcross Corporation 2,897,078(2) 74.7%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
Norcross Partners L.P. 2,897,078(2) 74.7%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
Pak Mail Investment Partnership L.P. 2,897,078(2) 74.7%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
Pak Mail Acquisition Corp. 2,897,078(2) 74.7%
701 Harger Road, Suite 190
Oak Brook, Illinois 60523
630-571-4433
- --------------------------------------------------------------------------------
(1) Beneficial ownership is calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934 as amended, and the rules promulgated
thereunder. Accordingly, the "Amount and Nature of Beneficial Ownership"
and the "Percent of Class" for each person listed in the table are based
upon the assumption that stock options which are exercisable currently or
within 60 days after the date of this proxy statement held by such person
have been exercised. Unless otherwise indicated, the persons listed in the
table have sole voting and investment power of the shares listed for such
person.
(2) Includes 2,897,078 shares owned by Pak Mail Acquisition Corp., 2,404,264 of
which were contributed by PMIP and 492,814 of which were contributed by
D.P. Kelly. PMIP and D.P. Kelly together own 100% of the equity interest in
Pak Mail Acquisition Corp. and may therefore, pursuant to Rule 13d-3 under
the Exchange Act, be deemed to constitute a "group" and to jointly
beneficially own the 2,897,478 shares of Pak Mail common stock owned by Pak
Mail Acquisition Corp. Norcross Partners is the general partner of PMIP,
and Norcross Corp. is the general partner of Norcross Partners. Messrs.
Kelly and Gustafson are executive officers and directors of, and Messrs.
Kelly, Gustafson and Corcoran own the entire equity interest in, Norcross
Corp. Mr. Kelly's ownership interest is held through his revocable trust.
As a result of the control exercised by Messrs. Kelly, Gustafson and
Corcoran over Norcross Corp., the control exercised by Norcross Corp. over
Norcross Partners and the control exercised by Norcross Partners over PMIP,
each of Messrs. Kelly, Gustafson and Corcoran and each of Norcross Corp.
and Norcross Partners may be deemed to share the beneficial ownership of
Pak Mail common stock beneficially owned by PMIP. C&G Management is the
general partner of D.P. Kelly. Messrs. Kelly and Gustafson are executive
officers and directors of, and own the entire equity interest in, C&G
Management. Mr. Kelly's ownership interest is held through his revocable
trust. As a result of the control exercised by Messrs. Kelly and Gustafson
over C&G Management and the control exercised by C&G Management over D.P.
Kelly, each of Messrs. Kelly and Gustafson and C&G Management may be deemed
to share the beneficial ownership of the Pak Mail common stock beneficially
owned by D.P. Kelly.
(3) Less than 1%.
(4) Includes 22,000 shares of common stock subject to stock options.
47
None of the persons listed in the table above have been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) during the
past five years, nor were any of the persons listed in the table above a party
to any judicial or administrative proceeding during the past five years that
resulted in a judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state securities laws.
All of our executive officers, directors and affiliates have indicated that they
currently intend to vote their shares in favor of the merger agreement and the
merger because they believe that it is in the best interests of Pak Mail, and is
the best decision in order to maximize the return on their investments in Pak
Mail.
DIRECTORS AND MANAGEMENT
Pak Mail Centers of America, Inc.
Set forth below are the name of each director and executive officer of Pak Mail
and his or her position with Pak Mail. The table below also sets forth the
material occupations, positions, offices and employment of each executive
officer and director of Pak Mail and the name of any corporation or other
organization in which any material occupation, position, office or employment of
each such person was held during the last five years. All directors and officers
are citizens of the United States.
- --------------------------------------- ---------------------- -------------------------------------------------------
Name, Age and Position Director or Principal Occupations During
in Pak Mail Officer Since the Last Five Years
- --------------------------------------- ---------------------- -------------------------------------------------------
P. Evan Lasky, 61 March 1988 President and Chief Executive Officer of Pak Mail
(President, Chief Executive Officer since March, 2002. Executive Vice President of Pak
and Secretary) Mail from March, 1988 through February, 2002.
- --------------------------------------- ---------------------- -------------------------------------------------------
Alex Zai, 43 May 1996 Executive Vice President of Pak Mail since May,
(Executive Vice President) 1996. Director of store operations of Pak Mail since
April, 1994.
- --------------------------------------- ---------------------- -------------------------------------------------------
J.S. Corcoran, 58 September 1989 Self-employed as a business consultant since October,
(Director) 1996.
- --------------------------------------- ---------------------- -------------------------------------------------------
John W. Grant, 77 September 1989 Retired since September, 1987.
(Director)
- --------------------------------------- ---------------------- -------------------------------------------------------
F. Edward Gustafson, 61 September 1989 Executive officer of D.P. Kelly & Associates, L.P., a
(Director) firm offering management services, and related
entities, since November, 1988. Executive officer of
Viskase Companies, Inc., a manufacturer of food
products used in the preparation and packaging of
processed meat products, since June, 1989. Director
of Viskase Companies, Inc. since December, 1993.
Executive officer of Viskase Corporation, a
wholly-owned subsidiary of Viskase Companies, Inc.,
from February, 1990 to August, 1993 and June, 1998 to
present.
- --------------------------------------- ---------------------- -------------------------------------------------------
48
- --------------------------------------- ---------------------- -------------------------------------------------------
Name, Age and Position Director or Principal Occupations During
in Pak Mail Officer Since the Last Five Years
- --------------------------------------- ---------------------- -------------------------------------------------------
Laura K. McGrath, 46 September 1989 General Partner of KMK & Associates, a general
(Director) partnership engaged in investment activities, since
May, 1986. President of Emerald Valley Farms, Inc.,
a farm land acquisition and management company since
March, 1999. Treasurer of the Donald P. and Byrd M.
Kelly Foundation, a family foundation that focuses on
educational support for non-profit organizations,
since November, 1988.
- --------------------------------------- ---------------------- -------------------------------------------------------
None of the persons listed in the table above have been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) during the
past five years, nor were any of the persons listed in the table above a party
to any judicial or administrative proceeding during the past five years that
resulted in a judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state securities laws.
Pak Mail Acquisition Corp.
Set forth below are the name of each director and executive officer of Pak Mail
Acquisition Corp. and his position with Pak Mail Acquisition Corp. The table
below also sets forth the material occupations, positions, offices and
employment of each executive officer and director of Pak Mail Acquisition Corp.
and the name of any corporation or other organization in which any material
occupation, position, office or employment of each such person was held during
the last five years. All directors and officers are citizens of the United
States.
- --------------------------------------- ---------------------- -------------------------------------------------------
Name, Age and Position Director or Officer Principal Occupation During
in Pak Mail Acquisition Corp. Since the Last Five Years
- --------------------------------------- ---------------------- -------------------------------------------------------
F. Edward Gustafson, 61 October 2002 President and Director of Pak Mail Acquisition Corp.
(Director and President) since October, 2002. Executive officer of D.P.
Kelly & Associates, L.P., a firm offering management
services, and related entities since November, 1988.
Executive officer of Viskase Companies, Inc., a
manufacturer of food products used in the preparation
and packaging of processed meat products, since June,
1989. Director of Viskase Companies, Inc. since
December, 1993. Executive officer of Viskase
Corporation, a wholly-owned subsidiary of Viskase
Companies, Inc., from February, 1990 to August, 1993
and June 1998 to present.
- --------------------------------------- ---------------------- -------------------------------------------------------
Arthur H. Krantz, 56 October 2002 Executive Vice President, Secretary and Treasurer of
(Executive Vice President, Secretary Pak Mail Acquisition Corp. since October 2002.
and Treasurer) Executive officer of C&G Holdings Inc., a holding
company for investments, for more than the past five
years.
- --------------------------------------- ---------------------- -------------------------------------------------------
None of the persons listed in the table above have been convicted in a criminal
proceeding during the past five years (excluding traffic violations or similar
misdemeanors), nor were any of the persons listed in the table above a party to
any judicial or administrative proceeding during the past five years that
resulted in a judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state securities laws.
49
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference certain
forward-looking statements and information relating to Pak Mail that are based
on the beliefs of management as well as assumptions made by and information
currently available to Pak Mail. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements which are other than statements
of historical facts, including statements regarding the completion of the
proposed merger. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," "plan," "intend," "project," "predict," "may," "should"
and similar expressions, are intended to identify forward-looking statements.
Such statements reflect the current view of Pak Mail with respect to future
events, including the completion of the proposed merger, and are subject to
numerous risks, uncertainties and assumptions. Many factors could cause the
actual results, performance or achievements of Pak Mail to be materially
different from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements, including:
o delays in receiving any required regulatory and other approvals;
o the failure of shareholders to approve the merger agreement;
o intensity of competition in Pak Mail's market;
o taxation levels;
o effects of national and regional economic and market conditions, labor
and marketing costs; and
o various other factors, otherwise referenced in this proxy statement
and the annexes and exhibits attached hereto.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected, planned or
intended. Pak Mail does not intend, or assume any obligation, to update these
forward-looking statements to reflect actual results, changes in assumptions or
changes in the factors affecting such forward-looking statements.
Forward-looking statements made in connection with a going-private transaction
are excluded from the safe harbor forward-looking statements.
INDEPENDENT AUDITORS
The consolidated financial statements of Pak Mail for each of the years in the
three year period ended November 30, 2002 included in Pak Mail's Annual Report
on Form 10-KSB for the fiscal year ended November 30, 2002 enclosed with this
proxy statement, have been audited by Ehrhardt Keefe Steiner & Hottman, P.C.,
independent accountants, as stated in their reports appearing therein. It is not
expected that representatives of Ehrhardt Keefe Steiner & Hottman, P.C. will be
present at the Special Meeting.
SHAREHOLDER MEETINGS AND PROPOSALS
In the event the merger agreement is approved by a majority of Pak Mail's
shareholders, the Principals do not intend to have additional shareholder
meetings. However, in the event that there are additional shareholder meetings,
pursuant to Rule 14a-8 under the Exchange Act promulgated by the SEC, any
50
shareholder of Pak Mail who wishes to present a proposal at the next Annual
Meeting of Shareholders of Pak Mail (in the event the merger is not
consummated), and who wish to have such proposal included in Pak Mail's proxy
statement for that meeting, must deliver a copy of such proposal to Pak Mail at
7173 South Havana Street, Suite 600, Englewood, Colorado 80112, Attention:
Corporate Secretary within thirty (30) days following Pak Mail's first public
announcement regarding the date for any such annual meeting. There is no
specific deadline for submitting proposals outside of Rule 14a-8.
AVAILABLE INFORMATION
No person is authorized to give any information or to make any representations,
other than as contained in this proxy statement, in connection with the merger
agreement or the merger, and, if given or made, such information or
representations may not be relied upon as having been authorized by Pak Mail or
any of the Principals. The delivery of this proxy statement shall not, under any
circumstances, create any implication that there has been no change in the
information set forth herein or in the affairs of Pak Mail since the date
hereof.
Neither Pak Mail nor the Principals have made provisions to grant unaffiliated
shareholders access to their respective corporate files or to provide counsel or
appraisal services to any unaffiliated shareholder at the expense of either Pak
Mail or the Principals. Because the merger is a "going private" transaction, Pak
Mail Acquisition Corp. and Pak Mail have filed with the SEC a Rule 13e-3
Transaction Statement on Schedule 13E-3 under the Exchange Act with respect to
the merger. This proxy statement does not contain all of the information set
forth in the Schedule 13E-3 and the exhibits thereto. Copies of the Schedule
13E-3 and the exhibits thereto are available for inspection and copying at the
principal executive offices of Pak Mail during regular business hours by any
interested shareholder of Pak Mail, or a representative who has been so
designated in writing, and may be inspected and copied, or obtained by mail, by
written request directed to P. Evan Lasky, Pak Mail Centers of America, Inc.,
7173 South Havana Street, Suite 600, Englewood, Colorado 80112.
Pak Mail is currently subject to the information requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy statements and
other information with the SEC relating to its business, financial and other
matters. Copies of such reports, proxy statements and other information, as well
as the Schedule 13E-3 and the exhibits thereto, may be reviewed on the SEC's
website at http://www.sec.gov. The mailing address for the SEC is 450 Fifth
Street, N.W., Washington, DC 20549.
FINANCIAL STATEMENTS
The following financial information is incorporated by reference to Pak Mail's
Annual Report on Form 10-KSB for the fiscal year ended November 30, 2002, as
amended by the Form 10-KSB/A filed with the SEC on March 18, 2003, and its
Quarterly Report on Form 10-QSB for the quarterly period ended August 31, 2002,
as amended by the Form 10-QSB/A filed with the SEC on January 8, 2003, all of
which are enclosed with this proxy statement:
(1) Audited financial statements for the fiscal years ending November 30, 2001
and November 30, 2002;
(2) Unaudited balance sheets, comparative year-to-date income statements and
related earnings per share data, statements of cash flows, and
comprehensive income required to be included in Pak Mail's 10-QSB for the
quarter ended August 31, 2002; and
51
(3) Pak Mail's book value per share as of November 30, 2002, after giving
effect to the aggregate liquidation preference of $2,482,668 with respect
to the Series C preferred stock, was $(.80).
PRO FORMA INFORMATION
We have not provided any pro forma data giving effect to the proposed merger. We
do not believe such information is material to you in evaluating the merger
proposal because:
o the proposed merger consideration is all cash; and
o if the proposed merger consideration is completed, our common stock
would cease to be publicly traded and unaffiliated shareholders would
not retain or receive a continuing interest in our business.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows Pak Mail to "incorporate by reference" information into this
proxy statement, which means that Pak Mail can disclose important information by
referring you to another document filed separately with the SEC. The following
documents previously filed by Pak Mail with the SEC are incorporated by
reference in this proxy statement and are deemed to be a part hereof:
(1) Pak Mail's Annual Report on Form 10-KSB for the fiscal year ended November
30, 2002, as amended by the Form 10-KSB/A filed with the SEC on March 18,
2003;
(2) Pak Mail's Quarterly Report on Form 10-QSB for the fiscal quarter ended
February 28, 2002, as amended by the Form 10-QSB/A filed with the SEC on January
8, 2003;
(3) Pak Mail's Quarterly Report on Form 10-QSB for the fiscal quarter ended May
31, 2002, as amended by the Form 10-QSB/A filed with the SEC on January 8,
2003;
(4) Pak Mail's Quarterly Report on Form 10-QSB for the fiscal quarter ended
August 31, 2002, as amended by the Form 10-QSB/A filed with the SEC on January
8, 2003; and
(5) Pak Mail's Current Report on Form 8-K filed October 21, 2002.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained in this proxy statement modifies or replaces such statement.
Forward-looking statements made in connection with a going-private transaction
generally are excluded from the safe harbor for forward-looking statements.
Pak Mail undertakes to provide by first class mail, without charge and within
one business day of receipt of any written or oral request, to any person to
whom a copy of this proxy statement has been delivered, a copy of any or all of
the documents referred to above which have been incorporated by reference in
this proxy statement, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference herein). Requests for such
copies should be directed to P. Evan Lasky, Pak Mail Centers of America, Inc.,
7173 South Havana Street, Suite 600, Englewood, Colorado 80112; (303) 957-1000.
52
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
October 17, 2002
by and between
PAK MAIL CENTERS OF AMERICA, INC.
and
PAK MAIL ACQUISITION CORP.
TABLE OF CONTENTS
Page
----
BACKGROUND.....................................................................1
ARTICLE I - THE MERGER.........................................................1
SECTION 1.1 THE MERGER...................................................1
SECTION 1.2 THE CLOSING..................................................1
SECTION 1.3 EFFECTIVE TIME...............................................1
SECTION 1.4 EFFECTS OF THE MERGER........................................1
SECTION 1.5 ORGANIZATIONAL DOCUMENTS.....................................2
SECTION 1.6 DIRECTORS AND OFFICERS.......................................2
SECTION 1.7 CONVERSION OF SHARES.........................................2
SECTION 1.8 PURCHASER COMMON STOCK.......................................2
ARTICLE II - PAYMENT...........................................................3
SECTION 2.1 SURRENDER OF CERTIFICATES....................................3
SECTION 2.2 EXCHANGE AGENT; CERTIFICATE SURRENDER PROCEDURES.............3
SECTION 2.3 TRANSFER BOOKS...............................................3
SECTION 2.4 TERMINATION OF FUNDS.........................................4
SECTION 2.5 LOST CERTIFICATES............................................4
SECTION 2.6 NO RIGHTS AS SHAREHOLDER.....................................4
SECTION 2.7 WITHHOLDING..................................................4
SECTION 2.8 OPTIONS......................................................4
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................5
SECTION 3.1 CORPORATE EXISTENCE AND POWER................................5
SECTION 3.2 CORPORATE AUTHORIZATION; APPROVALS...........................5
SECTION 3.3 GOVERNMENTAL AUTHORIZATION...................................5
SECTION 3.4 NON-CONTRAVENTION............................................6
SECTION 3.5 CAPITALIZATION...............................................6
SECTION 3.6 SUBSIDIARY...................................................6
SECTION 3.7 SEC DOCUMENTS................................................7
SECTION 3.8 FINANCIAL STATEMENTS; LIABILITIES............................7
SECTION 3.9 INFORMATION TO BE SUPPLIED...................................8
SECTION 3.10 ABSENCE OF CERTAIN CHANGES..................................8
SECTION 3.11 LITIGATION AND LEGAL COMPLIANCE.............................8
SECTION 3.12 TAXES.......................................................8
SECTION 3.13 CONTRACTS...................................................9
SECTION 3.14 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.......................9
SECTION 3.15 INTELLECTUAL PROPERTY......................................10
SECTION 3.16 REAL PROPERTY..............................................10
SECTION 3.17 BROKERS' FEES; OPINION OF FINANCIAL ADVISOR................10
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................11
SECTION 4.1 CORPORATE EXISTENCE AND POWER...............................11
SECTION 4.2 CORPORATE AUTHORIZATION; APPROVALS..........................11
SECTION 4.3 SHARE OWNERSHIP.............................................11
SECTION 4.4 GOVERNMENTAL AUTHORIZATION..................................11
SECTION 4.5 NON-CONTRAVENTION...........................................11
SECTION 4.6 INFORMATION TO BE SUPPLIED..................................12
SECTION 4.7 LITIGATION..................................................12
SECTION 4.8 AVAILABILITY OF FUNDS.......................................12
SECTION 4.9 BROKERS' FEES...............................................12
-i-
ARTICLE V - COVENANTS.........................................................12
SECTION 5.1 REASONABLE BEST EFFORTS.....................................12
SECTION 5.2 INTERIM OPERATIONS..........................................13
SECTION 5.3 SHAREHOLDER MEETING.........................................13
SECTION 5.4 CERTAIN FILINGS.............................................13
SECTION 5.5 DIRECTOR AND OFFICER LIABILITY..............................14
SECTION 5.6 PUBLIC ANNOUNCEMENTS........................................15
SECTION 5.7 ACCESS TO INFORMATION.......................................15
SECTION 5.8 NOTICE OF DEVELOPMENTS......................................16
ARTICLE VI - CONDITIONS TO THE CONSUMMATION OF THE MERGER.....................16
SECTION 6.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.................16
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY................16
SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER..............16
ARTICLE VII - TERMINATION.....................................................17
SECTION 7.1 TERMINATION.................................................17
SECTION 7.2 EFFECT OF TERMINATION.......................................18
SECTION 7.3 FEES AND EXPENSES...........................................18
ARTICLE VIII - MISCELLANEOUS..................................................18
SECTION 8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES...............18
SECTION 8.2 SUCCESSORS AND ASSIGNS......................................18
SECTION 8.3 AMENDMENT...................................................18
SECTION 8.4 SEVERABILITY................................................18
SECTION 8.5 EXTENSION OF TIME; WAIVER...................................18
SECTION 8.6 COUNTERPARTS................................................19
SECTION 8.7 DESCRIPTIVE HEADINGS........................................19
SECTION 8.8 NOTICES.....................................................19
SECTION 8.9 NO THIRD-PARTY BENEFICIARIES................................19
SECTION 8.10 ENTIRE AGREEMENT...........................................19
SECTION 8.11 GOVERNING LAW..............................................20
-ii-
TABLE OF DEFINED TERMS
Affiliates Section 3.9
Agreement Preamble
Articles of Merger Section 1.3
Certificate Section 2.1
Closing Section 1.2
Closing Date Section 1.2
Colorado Business Corporation Act Background
Company Preamble
Constituent Corporations Section 1.1
Contracts Section 3.13(a)
Disclosure Schedules Article III
Dissenting Shares Section 1.7(c)
Effective Time Section 1.3
Employee Plan Section 3.14(a)
ERISA Section 3.14(a)
Exchange Act Section 3.2(b)
Exchange Agent Section 2.2
Financial Advisor Section 3.17(a)
Financial Statements Section 3.8(a)
GAAP Section 3.8(a)
Governmental Entity Section 3.3
Indemnified Parties Section 5.5(a)
Intellectual Property Section 3.15
Knowledge of the Company Section 3.11(a)
Laws Section 3.11(a)
Lien Section 3.6
Material Adverse Effect Section 3.1
Merger Background
Merger Consideration Section 1.7(a)
Options Section 2.8(a)
Option Plans Section 2.8(a)
Outside Date Section 7.1
Purchaser Preamble
Preferred Shares Section 3.5(a)
Proxy Statement Section 5.4(a)
Recommendation Section 5.3
SEC Section 3.7
SEC Documents Section 3.7
Securities Act Section 3.3
Shareholder Approval Section 3.2(c)
Shareholder Meeting Section 5.3
Shares Section 1.7(a)
Subsidiary Section 3.1
Surviving Corporation Section 1.1
Tax Section 3.12(a)
Tax Returns Section 3.12(a)
-iii-
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
October 17, 2002 is made by and between Pak Mail Centers of America, Inc., a
Colorado corporation (the "Company"), and Pak Mail Acquisition Corp., a Colorado
corporation (the "Purchaser").
BACKGROUND
The Board of Directors of each of the Company and the Purchaser deem
it advisable and in the best interests of their respective companies and
shareholders to consummate the merger of the Purchaser with and into the
Company, upon the terms and subject to the conditions set forth herein (the
"Merger"), and have adopted resolutions in accordance with Articles 101 to 117
of Title 7 of the Colorado Revised Statutes, as amended (the "Colorado Business
Corporation Act"), adopting and approving this Agreement, the Merger and the
other transactions contemplated herein.
NOW THEREFORE, in consideration of the mutual agreements contained in
this Agreement, and for other good and valuable consideration, the value,
receipt and sufficiency of which are acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3) the Purchaser will
be merged with and into the Company in accordance with the provisions of the
Colorado Business Corporation Act. Following the Merger, the Company will
continue as the surviving corporation (the "Surviving Corporation") and the
separate corporate existence of the Purchaser will cease. The Purchaser and the
Company are sometimes referred to collectively as the "Constituent
Corporations."
Section 1.2 The Closing. Unless this Agreement has been terminated
pursuant to Section 7.1, the closing of the transactions contemplated by this
Agreement (the "Closing") will take place at 10:00 a.m., local time, on a date
to be specified by the parties that is no later than the third business day
following satisfaction or waiver of the conditions set forth in Article VI (the
"Closing Date"), at the offices of Jenner & Block, LLC, One IBM Plaza, Chicago,
Illinois, unless another date, time or place is agreed to in writing by the
parties.
Section 1.3 Effective Time. Upon the terms and subject to the
conditions of this Agreement, on the Closing Date (or on such other date as the
parties may agree) the Company will file with the Colorado Secretary of State
appropriate articles of merger (the "Articles of Merger") and make all other
filings or recordings required by the Colorado Business Corporation Act in
connection with the Merger. The Merger will be consummated on the later of the
date on which the Articles of Merger have been filed with the Colorado Secretary
of State or such time as is agreed upon by the parties and specified in such
Articles of Merger. The time the Merger becomes effective in accordance with the
Colorado Business Corporation Act is referred to in this Agreement as the
"Effective Time."
Section 1.4 Effects of the Merger. The Merger will have the effects
set forth in this Agreement and Article 111 of the Colorado Business Corporation
Act. Without limiting the generality of the foregoing, as of the Effective Time,
the Surviving Corporation will succeed to all the properties, rights,
privileges, powers, franchises and assets of the Constituent Corporations, and
all debts, liabilities and duties of the Constituent Corporations will become
debts, liabilities and duties of the Surviving Corporation.
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Section 1.5 Organizational Documents. At the Effective Time, the
articles of incorporation and bylaws of the Company (as in effect immediately
prior to the Effective Time), will become the articles of incorporation and
bylaws of the Surviving Corporation until thereafter amended in accordance with
their respective terms and the Colorado Business Corporation Act.
Section 1.6 Directors and Officers. The directors and the officers of
the Company at the Effective Time will be the initial directors and officers of
the Surviving Corporation and will hold office from the Effective Time in
accordance with the articles of incorporation and bylaws of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified.
Section 1.7 Conversion of Shares. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company or the Purchaser
or their respective shareholders:
(a) each share of the Company's common stock, par value $0.001 per
share, issued and outstanding immediately prior to the Effective Time (the
"Shares"), other than Shares owned by the Purchaser that are to be canceled
pursuant to (b) below and Dissenting Shares (as defined in (c) below) will be
converted into the right to receive, upon the surrender of the certificate
formerly representing such Share in accordance with this Agreement, $0.0516 in
cash, without interest (the "Merger Consideration");
(b) each Share owned immediately prior to the Effective Time by the
Purchaser will be canceled and extinguished; and
(c) notwithstanding anything in this Agreement to the contrary, Shares
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
complied with all of the relevant provisions of Article 113 of the Colorado
Business Corporation Act regarding appraisal for such Shares ("Dissenting
Shares"), will not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect or withdraws or otherwise
loses its right to appraisal. The Company will give the Purchaser prompt written
notice of any and all demands for appraisal rights, withdrawal of such demands
and any other communications delivered to the Company pursuant to Article 113 of
the Colorado Business Corporation Act, and the Company will give the Purchaser
the opportunity, to the extent permitted by applicable Law (as defined in
Section 3.11), to participate in all negotiations and proceedings with respect
to such demands. Except with the prior written consent of the Purchaser, the
Company will not voluntarily make any payment with respect to any demand for
appraisal rights and will not settle or offer to settle any such demand. Each
holder of Dissenting Shares who becomes entitled to payment for such Dissenting
Shares under the provisions of Article 113 of the Colorado Business Corporation
Act, will receive payment thereof from the Surviving Corporation and such
Dissenting Shares will no longer be outstanding and will automatically be
canceled and retired and will cease to exist.
(d) At the Effective Time, each issued and outstanding share of Series
C preferred stock, par value $1,000 per share, of the Company will become one
issued and outstanding share of Series C preferred stock, par value $1,000 per
share, of the Surviving Corporation.
Section 1.8 Purchaser Common Stock. Each share of common stock, par
value $0.001 per share, of the Purchaser outstanding immediately prior to the
Effective Time will be automatically canceled at the Effective Time, and the
holders thereof shall receive in exchange therefore, one share of common stock
in the Surviving Corporation for each such canceled share.
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ARTICLE II
PAYMENT
Section 2.1. Surrender of Certificates. From and after the Effective
Time, each holder (except for Purchaser) of a certificate that immediately prior
to the Effective Time represented an outstanding Share (a "Certificate") will be
entitled to receive in exchange therefor, upon surrender thereof to the Exchange
Agent (as defined in Section 2.2), the Merger Consideration into which the
Shares evidenced by such Certificate were converted pursuant to the Merger. No
interest will be payable on the Merger Consideration to be paid to any holder of
a Certificate irrespective of the time at which such Certificate is surrendered
for exchange.
Section 2.2 Exchange Agent; Certificate Surrender Procedures.
(a) On or prior to the Effective Time, the Purchaser and the Company
will designate (and enter into an agreement with) an institution or trust
company to act as exchange agent for the Merger Consideration (the "Exchange
Agent"). As soon as reasonably practicable after the Effective Time, the
Surviving Corporation will deposit with the Exchange Agent, for the benefit of
the holders of Shares, the aggregate Merger Consideration required to be paid
hereunder. Pending payment of such funds to the holders of Certificates, the
Merger Consideration will be held and may be invested by the Exchange Agent as
the Surviving Corporation directs (so long as such directions do not impair the
rights of holders of Shares) in direct obligations of the United States for
which the full faith and credit of the United States is pledged to provide for
the payment of principal and interest, or commercial pape of the highest quality
by Moody's Investors Services, Inc. or Standard & Poor's Corporation. Any net
profit resulting from, or interest or income produced by, such investments will
be payable to the Surviving Corporation or its designee, in the Surviving
Corporation's sole discretion. The Purchaser will promptly replace any funds
lost through any investment made pursuant to this section. The Exchange Agent
will, pursuant to irrevocable instructions, deliver to each holder of Shares
under and in accordance with (b) below, the Merger Consideration payable to each
such holder. The Merger Consideration deposited with the Exchange Agent will not
be used for any purpose other than as set forth in this Agreement.
(b) As soon as reasonably practicable after the Effective Time, the
Surviving Corporation will instruct the Exchange Agent to mail to each record
holder of a Certificate (i) a letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title to such Certificates will
pass, only upon delivery of Certificates to the Exchange Agent, and will be in
such form and have such other provisions as the Surviving Corporation will
reasonably specify) and (ii) instructions for use in effecting the surrender of
Certificates for the Merger Consideration. Upon the surrender to the Exchange
Agent of such Certificates together with a duly executed and completed letter of
transmittal and all other documents and other materials required by the Exchange
Agent to be delivered in connection therewith, the holder will be entitled to
receive the Merger Consideration into which the Certificates so surrendered have
been converted in accordance with the provisions of this Agreement. Until so
surrendered, each outstanding Certificate will be deemed from and after the
Effective Time, for all corporate purposes, to evidence the right to receive the
Merger Consideration into which the Shares represented by such Certificate have
been converted in accordance with the provisions of this Agreement.
Section 2.3 Transfer Books. The stock transfer books of the Company
will be closed at the Effective Time, and no transfer of any Shares will
thereafter be recorded on any of the stock transfer books. In the event of a
transfer of ownership of any Shares prior to the Effective Time that is not
registered in the stock transfer records of the Company at the Effective Time,
the Merger Consideration into which such Shares have been converted in the
Merger will be paid to the transferee in accordance with the provisions of
Section 2.2 only if the Certificate is surrendered as provided in Section 2.1
and accompanied by all documents required to evidence and effect such transfer
(including evidence of payment of any applicable stock transfer taxes).
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Section 2.4 Termination of Funds. Any portion of the Merger
Consideration that remains undistributed one hundred eighty (180) days after the
Effective Time will be delivered to the Surviving Corporation upon demand, and
each holder of Shares who has not previously surrendered Certificates in
accordance with the provisions of this Article II will thereafter look only to
the Surviving Corporation for satisfaction of any claims for the Merger
Consideration such holder may have. Notwithstanding the foregoing, neither the
Purchaser nor the Surviving Corporation will be liable to any former holder of
Shares for any portion of the Merger Consideration delivered to any public
official pursuant to any applicable abandoned property, escheat or similar Law.
Section 2.5 Lost Certificates. If any Certificate has been lost,
stolen or destroyed, upon the making of an affidavit (in form and substance
reasonably acceptable to the Exchange Agent and the Surviving Corporation) of
that fact by the person making such a claim, and, if required by the Surviving
Corporation, the posting by such person of a bond in such reasonable amount as
the Surviving Corporation may direct as indemnity against any claim that may be
made against or with respect to such Certificate, and after fulfillment of any
other conditions required by the Exchange Agent or the Surviving Corporation,
the Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration pursuant to Section 2.2.
Section 2.6 No Rights as Shareholder. From and after the Effective
Time, the holders of Certificates will cease to have any rights as shareholders
of the Surviving Corporation except as otherwise expressly provided in this
Agreement or by applicable Laws, and the Surviving Corporation will be entitled
to treat each Certificate that has not yet been surrendered for exchange solely
as evidence of the right to receive the Merger Consideration into which the
Shares evidenced by such Certificate have been converted pursuant to the Merger.
Section 2.7 Withholding. The Surviving Corporation will be entitled to
deduct and withhold from the Merger Consideration otherwise payable to any
former holder of Shares all amounts required by Law to be deducted or withheld
therefrom. To the extent that amounts are so withheld by the Surviving
Corporation, such withheld amounts will be treated for all purposes of this
Agreement as having been paid to the holder of the Shares in respect of which
such deduction and withholding was made by the Purchaser.
Section 2.8 Options.
(a) As soon as reasonably practicable following the date of this
Agreement, the Company's Board of Directors and any committee administering any
Option Plan (as defined in (b) below), will adopt such resolutions and/or take
such other actions as may be required or appropriate in the reasonable
discretion of the Company to effect the provisions of this section. Each option
to purchase Shares under any Option Plan unexercised and outstanding immediately
prior to the Effective Time (the "Options"), whether or not vested or
exercisable, will at the Effective Time be canceled and extinguished and will
cease to exist.
(b) Prior to the Effective Time, the Purchaser and the Company will
use their reasonable best efforts to take all actions (including, if
appropriate, amending the terms of the Company's 1999 Incentive and
Non-statutory Employee Stock Option Plan, as amended prior to the date hereof
(collectively, the "Option Plans") or stock option or compensation plans or
arrangements of the Purchaser) that are necessary to give effect to the
transactions contemplated by, and the terms contained in, this section.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the disclosure schedules of the Company (the
"Disclosure Schedules") or the SEC Documents (as defined in Section 3.7), the
Company represents and warrants to the Purchaser as follows:
Section 3.1 Corporate Existence and Power. The Company and the
Subsidiary are each corporations duly organized, validly existing and in good
standing under the Laws of their respective jurisdictions of incorporation, and
have all requisite corporate power and authority to own, lease and operate their
respective properties and assets and to carry on their respective businesses as
presently being conducted. The Company and the Subsidiary are each duly
qualified or licensed to conduct business as a foreign corporation in each
jurisdiction where such qualification or licensing is necessary, except where
the failure to be so qualified would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect (as defined below). For
purposes of this Agreement, the term "Material Adverse Effect" means any change,
effect, occurrence or state of facts that is materially adverse to the business,
financial condition, operations or results of operations of the Company and Pak
Mail Crating & Freight Service, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company (the "Subsidiary"), taken as a whole, or the
Purchaser, as the case may be; provided, however, that the following are
excluded from the definition of "Material Adverse Effect" and from the
determination of whether such a Material Adverse Effect has occurred: (i) any
change, effect or occurrence that is generally applicable to the shipping,
receiving and packaging industry or the economy in general; or (ii) changes in
Laws (as defined in Section 3.11) (including common law, rules and regulations
or the interpretation thereof) or applicable accounting regulations and
principles.
Section 3.2 Corporate Authorization; Approvals.
(a) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
hereby are within the Company's corporate powers and, except for the Shareholder
Approval (as defined in (c) below), have been duly authorized by all necessary
corporate action. Assuming that this Agreement constitutes the valid and binding
obligation of the Purchaser, this Agreement constitutes a valid and binding
agreement of the Company, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights, or by general equity
principles, including principles of commercial reasonableness, good faith and
fair dealing).
(b) The Company's Board of Directors, or an appropriate committee
thereof, has taken (or will take prior to the Merger) all action necessary so
that the exemption contemplated by Rule 16b-3(e) promulgated pursuant to the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act") is applicable to the
disposition of Shares and Options in or in connection with the Merger by all
directors and/or officers of the Company.
(c) The affirmative vote of the holders of a majority of the
outstanding Shares on the applicable record date (the "Shareholder Approval") is
the only vote of the holders of any class or series of the Company's capital
stock necessary to approve the Merger and the consummation of the transactions
contemplated hereby.
Section 3.3 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby do not require any filing or
registration with, notification to, or authorization, consent or approval of,
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any federal, state or local governmental authority, court, administrative or
regulatory agency or commission (each a "Governmental Entity"), other than: (a)
the filing of (i) the Articles of Merger with the Secretary of State of Colorado
in accordance with the Colorado Business Corporation Act and (ii) appropriate
documents with the relevant authorities of other states or jurisdictions in
which the Company or the Subsidiary is qualified to do business; (b) compliance
with any applicable requirements of the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the "Securities
Act"), and the Exchange Act; (c) such actions as may be required under any
applicable state securities or blue sky Laws; and (d) such other actions or
filings that, if not obtained or made, would not, individually or in the
aggregate, reasonably be expected to have either a Material Adverse Effect, or
to prevent or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement.
Section 3.4 Non-Contravention. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not (a) contravene or conflict with the
Company's articles of incorporation or bylaws, or (b) violate, result in a
breach of, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of,
accelerate the performance required by, result in the creation or imposition of
any Lien (as defined in Section 3.6) upon any of the properties or assets of the
Company under, or require any consent, approval, notice or filing under, any of
the Contracts (as defined in Section 3.13), other than any of the foregoing that
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Section 3.5 Capitalization.
(a) The authorized capital stock of the Company consists of
200,000,000 Shares and 10,000,000 shares of the Company's preferred stock,
without par value, of which 1,500 are designated as Series A preferred stock,
1,000 are designated as Series B preferred stock and 2,500 are designated as
Series C preferred stock. As of the close of business on October 15, 2002, (i)
3,650,921 Shares were issued and outstanding and no Shares were held in treasury
and (ii) no shares of Series A Preferred Stock were issued, outstanding or held
in treasury, (iii) no shares of Series B Preferred Stock were issued,
outstanding or held in treasury and (iv) 2,216.668 shares of Series C Preferred
Stock (the "Preferred Shares") were issued and outstanding and no Preferred
Shares were held in treasury. As of the close of business on October 15, 2002,
Options to acquire an aggregate of 172,227 Shares are outstanding under the
Option Plans. All outstanding shares of the capital stock of the Company have
been duly authorized and validly issued, and are fully paid, non-assessable and
free of preemptive rights.
(b) Except as described above, as of the date hereof there are no
outstanding (i) shares of capital stock or other voting securities of the
Company; (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company; or (iii) options,
warrants or other rights to acquire from the Company, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company. There are no outstanding obligations of the
Company to repurchase, redeem or otherwise acquire any Shares.
Section 3.6 Subsidiary.
(a) All of the outstanding shares of capital stock of the Subsidiary
are owned directly by the Company free and clear of any Liens and free of any
other limitation or restriction, including any limitation or restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interest (other than any of the foregoing that may exist under the
Securities Act or any state securities Laws) with such exceptions as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. For purposes of this Agreement, "Lien" means any mortgage, lien,
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pledge, charge, security interest or encumbrance of any kind in respect of an
asset, provided, however, that the term "Lien" will not include (i) liens for
water and sewer charges and current Taxes (as defined in Section 3.12) not yet
due and payable or being contested in good faith, (ii) mechanics', carriers',
workers', repairers', materialmen's, warehousemen's and similar liens, (iii)
purchase money liens and liens securing rental payments under capital lease
arrangements and (iv) other liens arising in the ordinary course of business and
not incurred in connection with the borrowing of money.
(b) All outstanding shares of the capital stock of the Subsidiary have
been duly authorized and validly issued, and are fully paid and non-assessable.
(c) The Subsidiary does not own or control directly or indirectly, or
have any direct or indirect equity participation in, any corporation,
partnership, limited liability company, joint venture or other entity.
Section 3.7 SEC Documents. The Company has filed all material forms,
reports and documents required to be filed by it with the Securities and
Exchange Commission ("SEC") after January 1, 2000 and prior to the date of this
Agreement (together with the amendments and supplements to such filings, the
"SEC Documents"). Each SEC Document, as of its filing date (or if amended, as of
the date of its last amendment) complied as to form in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, as
the case may be. No SEC Document filed pursuant to the Exchange Act or the
Securities Act, as of its filing date or effective date, as applicable (or if
amended or supplemented, as of the filing date or effective date, as applicable,
of its last amendment or supplement), contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
Section 3.8 Financial Statements; Liabilities.
(a) Each of the consolidated balance sheets included in the SEC
Documents fairly presents in all material respects the consolidated financial
position of the Company and the Subsidiary as of the respective dates thereof,
and the other related consolidated financial statements (including the notes
thereto) included therein fairly present in all material respects the results of
operations and cash flows of the Company and the Subsidiary for the respective
periods or as of the respective dates set forth therein (collectively, the
"Financial Statements"). As of the respective filing date for the applicable SEC
Document in which it was included, each of the Financial Statements (including
the notes thereto) complied in all material respects with the then-applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, and was prepared in accordance with accounting principles
generally accepted in the United States ("GAAP") applied on a consistent basis
during the periods or as of the respective dates involved, except as otherwise
noted therein and subject, in the case of unaudited interim financial
statements, to normal year-end adjustments.
(b) There are no material liabilities or obligations of the Company or
the Subsidiary of any kind whatsoever, whether accrued or unaccrued, absolute or
contingent, liquidated or unliquidated, or due or to become due, in each case,
other than liabilities or obligations referenced (whether by value or otherwise)
or reflected in the SEC Documents, the Financial Statements or disclosed in the
notes thereto (i) incurred since November 30, 2001 in the ordinary course of
business; (ii) under this Agreement or in connection with the transactions
contemplated hereby; (iii) of the Company and the Subsidiary under the
agreements, Contracts, leases, or licenses to which they are parties; and (iv)
which would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
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Section 3.9 Information to Be Supplied. The information to be supplied
by the Company expressly for inclusion or incorporation by reference in the
Proxy Statement (as such term is defined in Section 5.4) will comply with the
applicable provisions of Section 5.4. The Proxy Statement will (with respect to
the Company) comply as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act. Notwithstanding the
foregoing, the Company makes no representations or warranties with respect to
any information supplied by, or related to, the Purchaser or any of its
Affiliates (as such term is defined in Rule 12b-2 of the regulations promulgated
under the Exchange Act, "Affiliates") or advisors that is contained in, or
incorporated by reference into, the Proxy Statement.
Section 3.10 Absence of Certain Changes. Except as otherwise
contemplated by this Agreement, since November 30, 2001 the Company and the
Subsidiary have conducted their businesses in the ordinary course consistent
with past practice, and there has not been (a) any damage, destruction or other
casualty loss (whether or not covered by insurance) affecting the business or
assets of the Company or the Subsidiary that would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect or (b) any
action, event, occurrence, development or state of circumstances or facts that
would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Section 3.11 Litigation and Legal Compliance.
(a) As of the date hereof, there are no claims, actions, suits,
proceedings or investigations pending or to the actual knowledge of the
executive officers of the Company ("Knowledge of the Company"), threatened by or
against the Company or the Subsidiary that could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. For
purposes of this Section 3.11, routine litigation with franchisees that do not
involve significant dollar amounts and that are in the ordinary course for a
franchisor, will not be deemed to have a Material Adverse Effect. Neither the
Company nor the Subsidiary is subject to any outstanding judgment, injunction,
order or decree of any Governmental Entity that could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. There are
no judicial or administrative actions, proceedings or investigations pending, or
to the Knowledge of the Company, threatened, which question the validity of this
Agreement or any action taken or to be taken by the Company in connection with
this Agreement.
(b) To the Knowledge of the Company, except for instances of
noncompliance that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, the Company and the Subsidiary are
in compliance with each federal, state and local law, statute, rule, regulation,
ordinance, permit, order or writ (collectively "Laws") to which the Company, the
Subsidiary or any of their respective assets or properties is subject.
(c) To the Knowledge of the Company, each of the Company and the
Subsidiary has all permits, licenses, approvals, authorizations of, and
registrations with and under all Laws, and from all Governmental Entities
required by the Company and the Subsidiary to carry on their respective
businesses as currently conducted, except where the failure to have any of the
foregoing could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
Section 3.12 Taxes.
(a) To the Knowledge of the Company, the Company and the Subsidiary
have each filed (after taking into account any extensions) all material reports,
returns, declarations or other filings required by any taxing authority
(collectively, the "Tax Returns") relating to any federal, local and state
income, sales, use, transfer, real property, personal property, social security,
unemployment, disability, payroll, employee or other withholding or other tax
("Tax") required by any applicable Laws relating to Taxes. All such Tax Returns
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were correct and complete in all material respects when filed, and all Taxes
shown to be owed by the Company or the Subsidiary on such Tax Returns have been
paid. Other than any reserve for deferred Taxes established to reflect timing
differences between book and Tax treatment, the Company has made accruals for
Taxes on the Financial Statements that are adequate to cover, in all material
respects, any Tax liability of the Company and the Subsidiary determined in
accordance with GAAP through the date of the Financial Statements.
(b) To the Knowledge of the Company, the Company and the Subsidiary
have each withheld with respect to its employees, creditors, independent
contractors, shareholders or other parties, all material federal and state
income taxes, FICA, FUTA and other Taxes required to be withheld.
(c) To the Knowledge of the Company, there is no Tax deficiency
outstanding, assessed, or to the Knowledge of the Company, proposed against the
Company or the Subsidiary, except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Neither the
Company nor the Subsidiary has executed or requested any waiver of any statute
of limitations on or extending the period for the assessment or collection of
any material federal or material state Tax that is still in effect. There are no
liens for Taxes on the assets of Company or of the Subsidiary other than with
respect to Taxes not yet due and payable.
(d) To the Knowledge of the Company, no claim has ever been made by a
Governmental Entity in a jurisdiction where any of the Company and the
Subsidiary do not file Tax Returns that it is or may be subject to Taxes in that
jurisdiction.
(e) No material federal or state Tax audit or other examination of the
Company or the Subsidiary is presently in progress, nor has the Company or the
Subsidiary been notified either in writing or, to the Knowledge of the Company,
orally of any request for any such federal or state Tax audit or other
examination.
Section 3.13 Contracts.
(a) Each material contract of the Company or the Subsidiary (each, a
"Contract") is a valid, binding and enforceable obligation of the Company, and,
to the Knowledge of the Company, of the other party or parties thereto (except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights, or by general equity
principles, including principles of commercial reasonableness, good faith and
fair dealing), and to the Knowledge of the Company, each Contract is in full
force and effect.
(b) Neither the Company nor, to the Knowledge of the Company any other
party thereto, is in breach of or default under any term of any Contract or has
repudiated any term of any Contract, except for such breaches, defaults or
repudiations that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(c) The Company has not received any notice of termination,
cancellation or non-renewal with respect to any Contract, and to the Knowledge
of the Company, no other party to a Contract plans to terminate, cancel or not
renew any such agreement.
Section 3.14 Employee Benefit Plans; Labor Matters.
(a) Schedule 3.14(a) of the Disclosure Schedules contains an accurate
and complete list of each material "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
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("ERISA"), each employment, severance or similar contract, plan, arrangement or
policy and each other plan or arrangement providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, health or medical benefits, disability
benefits, workers' compensation, supplemental unemployment benefits and
post-employment or retirement benefits which is maintained or contributed to by
the Company or the Subsidiary and covers any employee or former employee of the
Company or the Subsidiary ("Employee Plan"). The Company has complied in all
material respects with ERISA and all other applicable Laws in connection with
the Employee Plans.
(b) Neither the Company nor the Subsidiary is a party to a collective
bargaining agreement or other labor union agreement and, as of the date hereof,
with respect to the Company and the Subsidiary, (i) to the Knowledge of the
Company, there is no union organizing activity currently underway; (ii) no
complaints of discrimination (including charges relating to sex, age, race,
national origin, disability or veteran status) are pending before any
Governmental Entity; and (iii) no work stoppage or labor dispute is pending.
(c) None of the Employee Plans will obligate the Company or the
Subsidiary to pay any separation, severance, termination or similar benefit
solely as a result of any transaction contemplated by this Agreement or solely
as a result of a change in control or ownership within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended.
(d) There are no pending or, to the Knowledge of the Company,
threatened actions, suits, investigations or claims with respect to any Employee
Plan (other than routine claims for benefits) which would reasonably be expected
to result in any material liability to the Company or the Subsidiary (whether
direct or indirect), and to the Knowledge of the Company, there are no facts
which would reasonably be expected to give rise to any such actions, suits,
investigations or claims.
Section 3.15 Intellectual Property. The Company and the Subsidiary own
or have adequate rights to use all patents, trademarks, service marks, trade
names, copyrights, trade secrets and other intellectual property rights
(collectively, the "Intellectual Property") necessary to carry on their
respective businesses as currently conducted, except where the failure to own or
have adequate rights would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Neither the Company nor the
Subsidiary has received any written notice of infringements of or conflict with,
the rights of others with respect to the use of any Intellectual Property, other
than such as would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
Section 3.16 Real Property. Neither the Company nor the Subsidiary
owns any real property.
Section 3.17 Brokers' Fees; Opinion of Financial Advisor.
(a) Except for Duff & Phelps, LLC (the "Financial Advisor"), there is
no investment banker, broker or finder that has been retained by, or is
authorized to act on behalf of, the Company or the Subsidiary who might be
entitled to any fee or commission from the Company, the Subsidiary or the
Purchaser upon consummation of the transactions contemplated by this Agreement.
(b) The Company has received (i) a report of the Financial Advisor
dated July 11, 2002 that, as of May 31, 2002 and based on and subject to the
assumptions, qualifications and limitations of such opinion, the fair market
value of the Shares on a controlling interest basis is reasonably stated in the
range of $50,000 to $250,000, and (ii) an opinion from the Financial Advisor
dated October 17, 2002 that the Merger Consideration is fair to the Company's
shareholders, other than the Purchaser and its affiliates, from a financial
point of view.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
Section 4.1 Corporate Existence and Power. The Purchaser is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of Colorado, and has all requisite corporate power and authority to
own, lease and operate its properties and assets and to carry on its business as
presently being conducted. The Purchaser is duly qualified or licensed to
conduct business as a foreign corporation in each jurisdiction where such
qualification or licensing is necessary, except where the failure to be so
qualified would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on its ability to consummate the transactions
contemplated by this Agreement. Since the date of its incorporation, the
Purchaser has not engaged in any activities other than in connection with or as
contemplated by this Agreement.
Section 4.2 Corporate Authorization; Approvals. The execution,
delivery and performance by the Purchaser of this Agreement and the consummation
by the Purchaser of the transactions contemplated hereby are within the
Purchaser's corporate powers and have been duly authorized by all necessary
corporate action. Assuming that this Agreement constitutes the valid and binding
obligation of the Company, this Agreement constitutes a valid and binding
agreement of the Purchaser, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights, or by general equity
principles, including principles of commercial reasonableness, good faith and
fair dealing).
Section 4.3 Share Ownership. 2,897,078 Shares are owned directly by
the Purchaser free and clear of any Liens with such exceptions as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 4.4 Governmental Authorization. The execution, delivery and
performance by the Purchaser of this Agreement and the consummation by the
Purchaser of the transactions contemplated hereby do not require any filing or
registration with, notification to, or authorization, consent or approval of any
Governmental Entity on behalf of the Purchaser, other than (a) the filing of the
Articles of Merger in accordance with the Colorado Business Corporation Act; (b)
compliance with any applicable requirements of the Securities Act and the
Exchange Act; (c) such actions as may be required under any applicable state
securities or blue sky Laws, and (d) such other actions or filings that, if not
obtained or made, would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the ability of the Purchaser to
consummate the transactions contemplated by this Agreement.
Section 4.5 Non-Contravention. The execution, delivery and performance
by the Purchaser of this Agreement and the consummation by the Purchaser of the
transactions contemplated hereby do not contravene or conflict with the
Purchaser's articles of incorporation or bylaws in any manner which would,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the ability of the Purchaser to consummate the transactions
contemplated by this Agreement.
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Section 4.6 Information To Be Supplied. The information to be supplied
by the Purchaser expressly for inclusion or incorporation by reference in the
Proxy Statement will comply with the applicable provisions of Section 5.4. The
Proxy Statement will (with respect to the Purchaser) comply as to form in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act. Notwithstanding the foregoing, the Purchaser makes no
representations or warranties with respect to any information supplied by, or
related to, the Company or any of its advisors that is contained in, or
incorporated by reference into, any of the foregoing documents.
Section 4.7 Litigation. As of the date hereof, there are no claims,
actions, suits, proceedings or investigations pending or to the knowledge of the
Purchaser, threatened by or against the Purchaser that would, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on its
ability to consummate the transactions contemplated by this Agreement. The
Purchaser is not subject to any outstanding judgment, injunction, order or
decree of any Governmental Entity that would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on its ability to
consummate the transactions contemplated by this Agreement. There are no
judicial or administrative actions, proceedings or investigations pending, or to
the knowledge of the Purchaser, threatened, which question the validity of this
Agreement or any action taken or to be taken by the Purchaser in connection with
this Agreement.
Section 4.8 Availability of Funds. The Purchaser has, or has received
a financing commitment pursuant to which it will have, sufficient funds
available to enable it to consummate the transactions contemplated by this
Agreement as of the Effective Date of the Merger.
Section 4.9 Brokers' Fees. No investment banker, broker or finder has
been retained by, or is authorized to act on behalf of, the Purchaser, or might
be entitled to any fee or commission from the Purchaser, the Company or the
Subsidiary upon consummation of the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS
Section 5.1 Reasonable Best Efforts.
(a) Subject to the terms and conditions hereof, each party will use
its reasonable best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable to consummate
the transactions contemplated by this Agreement as promptly as reasonably
practicable, provided that nothing in this section will require the Company to
take any action which would be inconsistent with the fiduciary duties of its
Board of Directors as such duties would exist under applicable Law in the
absence of this section.
(b) Prior to the Closing Date, each of the parties will (i) give all
required notices to third parties and Governmental Entities and use its
reasonable best efforts to obtain all third party and governmental consents and
approvals that it is required to obtain in connection with this Agreement, the
Merger and the other transactions contemplated hereby and (ii) use its
reasonable best efforts to prevent any preliminary or permanent injunction or
other order by a Governmental Entity that seeks to modify, delay or prohibit the
consummation of the transactions contemplated by this Agreement and, if issued,
to appeal any such injunction or order through the appellate court or body for
the relevant jurisdiction. In connection with the foregoing, each party (y) will
promptly notify the other party in writing of any communication received by that
party or its Affiliates from any Governmental Entity, and subject to applicable
Law, provide the other party with a copy of any such written communication (or
written summary of any oral communication), and (z) not participate in any
substantive meeting or discussion with any Governmental Entity in respect of any
filing, investigation or inquiry concerning the transactions contemplated by
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this Agreement unless it consults with the other party in advance, and to the
extent permitted by such Governmental Entity, give the other party the
opportunity to attend and participate thereat.
(c) In connection with and without limiting the foregoing, the
Purchaser and the Company will (i) take all action reasonably necessary to
ensure that no state takeover statute or similar statute or regulation is or
becomes applicable to the Merger, this Agreement or any of the other
transactions contemplated hereby and (ii) if any such statute or regulation
becomes applicable hereto, take all action reasonably necessary to ensure that
the Merger and the other transactions contemplated hereby may be consummated as
promptly as reasonably practicable on the terms contemplated by this Agreement
and otherwise to minimize or eliminate the effect of such statute or regulation
on the Merger and the other transactions contemplated by this Agreement. The
Company and the Purchaser will each furnish to one another and to their
respective counsel all such information as may be required in order to
accomplish the foregoing actions.
Section 5.2 Interim Operations. Except as set forth in Schedule 5.2 of
the Disclosure Schedules or as otherwise expressly contemplated or permitted
hereby or as consented to in writing by the Purchaser, from the date hereof
until the Effective Time, the Company will, and will cause the Subsidiary to,
conduct its business in all material respects in the ordinary course consistent
with past practice and will use its reasonable best efforts to preserve intact
its present business organization, assets, licenses, permits, Contracts and
relationships with suppliers, customers and others having business relations
with it.
Section 5.3 Shareholder Meeting. As soon as reasonably practicable,
the Company will duly call, give notice of, convene and hold a special meeting
of its shareholders (the "Shareholder Meeting") for the purpose of obtaining the
Shareholder Approval. The Company will set the date for the Shareholder Meeting.
Except as required in order to satisfy the fiduciary duties of the Company's
Board of Directors under applicable Law, the Company's Board of Directors will
recommend approval by its shareholders of this Agreement (the "Recommendation"),
will take all lawful action to solicit the Shareholder Approval and will not
withdraw the Recommendation.
Section 5.4 Certain Filings.
(a) As promptly as reasonably practicable, the Company will prepare
and file with the SEC a proxy statement relating to the Shareholder Meeting
(together with any amendments thereof or supplements thereto, the "Proxy
Statement"). Each of the Company and the Purchaser will furnish all information
concerning it and the holders of its capital stock as the other may reasonably
request in connection with the preparation of the Proxy Statement. The Company
will mail the Proxy Statement to its shareholders as promptly as reasonably
practicable and, if necessary, after the Proxy Statement has been so mailed,
promptly circulate amended, supplemental or supplemented proxy material, and, if
required in connection therewith, resolicit proxies.
(b) No amendment or supplement to the Proxy Statement will be made by
the Company without the approval of the Purchaser. The Company will advise the
Purchaser, promptly after it receives notice thereof, of any request by the SEC
for amendment of the Proxy Statement, or comments thereon and responses thereto,
or requests by the SEC for additional information. The Company will use its
reasonable best efforts to prepare and file any such amendments and/or respond
to any such requests as promptly as reasonably practicable.
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(c) The Company agrees that the information supplied by the Company
for inclusion in the Proxy Statement will not, at (i) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the shareholders of the Company; (ii) the time of the Shareholder Meeting; and
(iii) the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(d) The Purchaser agrees that the information supplied by the
Purchaser for inclusion in the Proxy Statement will not, at (i) the time the
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to the shareholders of the Company; (ii) the time of the Shareholder Meeting;
and (iii) the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(e) If at any time prior to the Effective Time, the Company or the
Purchaser discovers any information relating to either party or any of their
respective officers or directors that should be set forth in an amendment or
supplement to the Proxy Statement, so that such document would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party that discovers such information will promptly
provide written notice to the other party hereto and the Company will prepare an
appropriate amendment or supplement describing such information that will be
promptly filed with the SEC and, to the extent required by Law, disseminated to
the shareholders of the Company.
Section 5.5 Director and Officer Liability.
(a) From and after the Closing Date, the Purchaser will cause the
Surviving Corporation to indemnify, defend and hold harmless each person who is
now, or has been at any time prior to the Effective Time, a director or officer
of the Company or the Subsidiary (collectively, the "Indemnified Parties") from
and against all losses, claims, damages and expenses (including reasonable
attorney's fees and expenses) arising out of or relating to actions or
omissions, or alleged actions or omissions, occurring at or prior to the
Effective Time to the fullest extent permitted from time to time by the Colorado
Business Corporation Act.
(b) Any initial determination required to be made with respect to
whether any Indemnified Party may be entitled to indemnification will, if
requested by such Indemnified Party, be made by independent legal counsel
selected by the Indemnified Party and reasonably satisfactory to the Surviving
Corporation.
(c) Subject to the remainder of this section, to the fullest extent
permitted from time to time under the Colorado Business Corporation Act, the
Purchaser will cause the Surviving Corporation to pay on an as-incurred basis
the reasonable fees and expenses of each Indemnified Party (including reasonable
attorney's fees and expenses) in advance of the final disposition of any action,
suit, proceeding or investigation that is the subject of the right to
indemnification, subject to reimbursement in the event such Indemnified Party is
not entitled to indemnification.
(d) The provisions providing for director and officer indemnification,
abrogation of liability and advancement of expenses set forth in the articles of
incorporation or bylaws of the Company or any other applicable existing
agreement in effect as of the date hereof, will apply to each Indemnified Party
with respect to all matters occurring on or prior to the Effective Time. The
foregoing will not be deemed to restrict the right of the Surviving Corporation
to modify the provisions of its articles of incorporation relating to director
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and officer indemnification, abrogation of liability or advancement of expenses
with respect to events or occurrences after the Closing Date, but such
modifications will not adversely affect the rights of the Indemnified Parties
hereunder. The Purchaser will cause the Surviving Corporation to honor the
provisions of this subsection.
(e) Subject to any requirements pursuant to applicable insurance
policies that might conflict with the provisions of this subsection, in the
event any action, suit, investigation or proceeding is brought against any
Indemnified Parties and under applicable standards of professional conduct there
is a conflict of interest on any significant issue between the position of the
Purchaser (or the Surviving Corporation) and an Indemnified Party, the
Indemnified Parties may retain counsel, which counsel will be reasonably
satisfactory to the Purchaser, and the Purchaser will cause the Surviving
Corporation to pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received, provided,
however, that (i) the Purchaser or the Surviving Corporation will have the right
to assume the defense thereof (which right will not affect the right of the
Indemnified Parties to be reimbursed for separate counsel as specified in the
preceding sentence); (ii) the Purchaser and the Indemnified Parties will
cooperate in the defense of any such matter; and (iii) neither the Purchaser nor
the Surviving Corporation will be liable for any settlement effected without its
prior written consent which requires either such party to pay any sum of money.
(f) Upon learning of any loss, claim, damage or expense that may give
rise to a claim for indemnity hereunder, any Indemnified Party will promptly
notify the Purchaser thereof in writing, but any failure to give such notice
will not affect the indemnification obligations of any party under this section
unless such failure jeopardizes or prejudices the Purchaser or the Surviving
Corporation in any material respect.
(g) The rights of each Indemnified Party hereunder will be in addition
to any other rights such Indemnified Party may have under the articles of
incorporation or bylaws of the Surviving Corporation or any of their respective
subsidiaries, under the Colorado Business Corporation Act, under agreements in
effect as of the date hereof or otherwise. Notwithstanding anything to the
contrary contained in this Agreement or otherwise, the provisions of this
section will survive the consummation of the Merger, and each Indemnified Party
will, for all purposes, be a third party beneficiary of the covenants and
agreements contained in this section and, accordingly, will be treated as a
party to this Agreement for purposes of the rights and remedies relating to
enforcement of such covenants and agreements and will be entitled to enforce any
such rights and exercise any such remedies directly against the Purchaser and
the Surviving Corporation.
Section 5.6 Public Announcements. The initial press releases, if any,
issued by each party announcing the Merger and the transactions contemplated by
this Agreement will be in a form that is mutually acceptable to the Purchaser
and the Company. Thereafter, the Purchaser and the Company will consult with one
another before issuing any press releases or otherwise making any public
announcements (including communications with employees) with respect to the
transactions contemplated by this Agreement, and except as may be required by
fiduciary duties, applicable Law or by the rules and regulations of the SEC or
of the National Association of Securities Dealers in connection with the trading
of the Shares on the over-the-counter market, will not issue any such press
release or make any such announcement prior to such consultation.
Section 5.7 Access to Information. The Company will, and will cause
the Subsidiary to, afford the Purchaser and its officers, employees, agents and
representatives full access to all premises, properties, employees, information,
books, records, Contracts and documents of or pertaining to the Company and the
Subsidiary.
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Section 5.8 Notice of Developments. The Company and the Purchaser will
each give prompt written notice to the other of the occurrence of any event that
would reasonably be expected to result in a Material Adverse Effect on either
party. Each of the Company and the Purchaser will give prompt written notice to
the other of the occurrence or failure to occur of an event that would, or, with
the lapse of time would reasonably be expected to cause any condition to the
consummation of the Merger not to be satisfied.
ARTICLE VI
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Section 6.1 Conditions to the Obligations of Each Party. The
respective obligations of each party to consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction at or prior to
the Closing Date of each of the following conditions:
(a) the Company will have obtained the Shareholder Approval; and
(b) no order, decree, ruling, judgment or injunction will have been
enacted, entered, promulgated or enforced by any Governmental Entity of
competent jurisdiction that prohibits the Merger and the consummation of the
transactions contemplated by this Agreement substantially on the terms
contemplated hereby, and continue to be in effect.
Section 6.2 Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be waived by the
Company:
(a) the representations and warranties of the Purchaser set forth in
Article IV will be true and correct in all material respects, in each case as of
the Effective Time (except to the extent expressly made as of an earlier date,
in which case, as of such date);
(b) the Purchaser will have performed or complied with in all material
respects all covenants and obligations required to be performed or complied with
by it under this Agreement at or prior to the Effective Time; and
(c) the Purchaser will have delivered to the Company a certificate,
dated as of the Closing Date and signed by an executive officer, certifying the
satisfaction of the conditions set forth.
Section 6.3 Conditions to the Obligations of the Purchaser. The
obligations of the Purchaser to consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be waived by the
Purchaser:
(a) the representations and warranties of the Company set forth in
Article III will be true and correct in all material respects, in each case as
of the Effective Time (except to the extent expressly made as of an earlier
date, in which case, as of such date);
(b) the Company will have performed or complied with in all material
respects all obligations required to be performed or complied with by it under
this Agreement at or prior to the Effective Time;
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(c) from the date of this Agreement to the Effective Time, there will
not have been any event or development that has or could, individually or in the
aggregate, have a Material Adverse Effect with respect to the Company;
(d) the Company will have delivered to the Purchaser a certificate,
dated as of the Closing Date and signed by an executive officer, certifying the
satisfaction of the conditions set forth above; and
(e) no new claim, action, suit, proceeding or investigation will be
pending or threatened against the Company or the Subsidiary that relates to the
transactions contemplated by this Agreement or that otherwise may reasonably be
expected to have a Material Adverse Effect with respect to the Company.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual written agreement of the Purchaser and the Company;
(b) by either the Purchaser or the Company, if:
(i) the Merger has not been consummated by January 31, 2003 (the
"Outside Date") provided that the party seeking to terminate this Agreement
pursuant to this clause has not breached in any material respect its obligation
under this Agreement in any manner that has substantially contributed to the
failure to consummate the Merger on or before the Outside Date;
(ii) (A) an order, decree, ruling, judgment or injunction has
been entered by a Governmental Entity of competent jurisdiction permanently
restraining, enjoining or otherwise prohibiting the consummation of the Merger
and such order, decree, ruling, judgment or injunction has become final and
non-appealable, and (B) the party seeking to terminate this Agreement pursuant
to this clause has used its reasonable best efforts to remove such order,
decree, ruling, judgment or injunction; or
(iii) at the Shareholder Meeting (including any adjournment or
postponement thereof), the Shareholder Approval will not have been obtained,
unless such failure to obtain the Shareholder Approval is the result of a
material breach of this Agreement by the party seeking to terminate this
Agreement;
(c) by the Company if (i) the Purchaser (A) breaches or fails to
perform or comply with any of its material covenants and agreements contained
herein, or (B) breaches its representations and warranties in any material
respect such that the conditions in Section 6.1 or 6.2 would not be satisfied,
and such breach is not cured within 20 days after written notice of such breach
is given by the Company, or (ii) subject to compliance with the provisions of
Section 5.3, if the Company's Board of Directors has withdrawn the
Recommendation; and
(d) by the Purchaser if (i) the Company (A) breaches or fails to
perform or comply with any of its material covenants and agreements contained
herein, or (B) breaches its representations and warranties in any material
respect such that the conditions in Section 6.1 or 6.3 would not be satisfied,
and such breach is not cured within 20 days after written notice of such breach
is given by the Purchaser, (ii) the Company's Board of Directors has withdrawn
the Recommendation, or (iii) a claim, action, suit, proceeding or investigation
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is filed, instituted, commenced or threatened against the Company or the
Subsidiary on or after the date of this Agreement that relates to the
transactions contemplated by this Agreement or that otherwise may reasonably be
expected to have a Material Adverse Effect with respect to the Company.
Section 7.2 Effect of Termination. If any party terminates this
Agreement pursuant to Section 7.1, all rights and obligations of the parties
hereunder will terminate without any liability of any party to any other party,
except for any liability of any party then in breach, provided that the
provisions of this section, Section 7.3 and Article VIII will remain in full
force and effect and survive any termination of this Agreement.
Section 7.3 Fees and Expenses. All fees and expenses incurred in
connection with the transactions contemplated hereby will be paid by the party
incurring such expenses, whether or not the Merger is consummated.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties contained in this Agreement or in any
certificate, instrument or other writing delivered pursuant to this Agreement
will survive the Merger or the termination of this Agreement. Only the covenants
contained in Article I and Article II, Section 5.5, Section 7.2, Section 7.3 and
Article VIII will survive the Effective Time.
Section 8.2 Successors and Assigns. Neither this Agreement nor any of
the rights, interests or obligations provided by this Agreement will be assigned
by any of the parties (whether by operation of Law or otherwise) without the
prior written consent of the other parties; provided, however, that the
Purchaser may assign all or any portion of its rights, interests or obligations
hereunder to one or more Affiliates of the Purchaser. Subject to the preceding
sentence, this Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Section 8.3 Amendment. This Agreement may be amended by the execution
and delivery of a written instrument by or on behalf of the Purchaser and the
Company at any time before or after the Shareholder Approval, provided that
after obtaining the Shareholder Approval, no amendment to this Agreement will be
made without the approval of the shareholders of the Company if and to the
extent such approval is required under the Colorado Business Corporation Act.
Section 8.4 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable Law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable Law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
Section 8.5 Extension of Time; Waiver. At any time prior to the
Effective Time, the parties may extend the time for performance of or waive
compliance with any of the covenants, agreements or conditions of the other
party to this Agreement, and may waive any breach of the representations or
warranties of such other party. No agreement extending or waiving any provision
of this Agreement will be valid or binding unless it is in writing and is
executed and delivered by or on behalf of the party against which it is sought
to be enforced.
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Section 8.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but all such
counterparts taken together will constitute one and the same Agreement.
Section 8.7 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and will not constitute a part of
this Agreement.
Section 8.8 Notices. Any notice, request, instruction or other
document to be given hereunder will be in writing and delivered personally or
sent by registered or certified mail (postage prepaid) or by facsimile,
according to the instructions set forth below. Such notices will be deemed
given: at the time delivered by hand, if personally delivered; three business
days after being sent by registered or certified mail; and at the time when
receipt is confirmed by the receiving facsimile machine if sent by facsimile, as
follows:
If to the Purchaser, to: Pak Mail Acquisition Corp.
701 Harger Road
Oak Brook, Illinois 60523
Attn.: F. Edward Gustafson
Facsimile: (630) 571-0959
With a copy (which will
not constitute notice), to: Jenner & Block, LLC
One IBM Plaza
Chicago, Illinois 60611
Attn.: Thomas A. Monson
Facsimile: (312) 840-8711
If to the Company, to: Pak Mail Centers of America, Inc.
7173 South Havana Street
Suite 600
Englewood, Colorado 80112
Attn.: P. Evan Lasky
Facsimile: (800) 336-7363
With a copy (which will
not constitute notice), to: Perkins Coie LLP
1899 Wynkoop, Suite 700
Denver, CO 80202-1043
Attn.: Kim I. McCullough
Facsimile: (303) 291-2400
or to such other address or to the attention of such other party that the
recipient party has specified by prior written notice to the sending party in
accordance with the preceding.
Section 8.9 No Third-Party Beneficiaries. Except as provided pursuant
to Section 5.5, the terms and provisions of this Agreement will not confer
third-party beneficiary rights or remedies upon any person or entity other than
the parties hereto and their respective successors and permitted assigns.
Section 8.10 Entire Agreement. This Agreement, the Disclosure
Schedules and the other documents referred to herein collectively constitute the
entire agreement among the parties and supersede any prior and contemporaneous
understandings, agreements or representations by or among the parties, written
or oral, that may have related in any way to the subject matter hereof.
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Section 8.11 Governing Law. THIS AGREEMENT AND THE DISCLOSURE
SCHEDULES WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF COLORADO, WITHOUT GIVING EFFECT TO ANY LAW OR RULE THAT WOULD CAUSE THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF COLORADO TO BE APPLIED.
* * * * *
A-20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date first
set forth above.
PAK MAIL CENTERS OF AMERICA, INC.
By: /s/ P. Evan Lasky
--------------------------------
P. Evan Lasky
Its: President and Chief Executive
-----------------------------
Officer
-----------------------------
PAK MAIL ACQUISITION CORP.
By: /s/ F. Edward Gustafson
--------------------------------
F. Edward Gustafson
Its: President
-----------------------------
A-21
ANNEX B
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of October 28, 2002, is made by and between Pak Mail Centers of
America, Inc., a Colorado corporation (the "Company"), and Pak Mail Acquisition
Corp., a Colorado corporation (the "Purchaser").
RECITALS
--------
A.The parties hereto (the "Parties") are the Parties to that certain
Agreement and Plan of Merger, dated as of October 17, 2002 (the "Merger
Agreement") by and between the Company and the Purchaser.
B.The Parties now wish to amend the Merger Agreement to modify the
capitalization information provided therein.
NOW THEREFORE, in consideration of the mutual agreements contained in this
Amendment and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
Section 1. Definitions. Unless otherwise defined herein, capitalized terms
used herein have the respective meanings set forth in the Merger Agreement.
Section 2. Amendments to the Merger Agreement. Section 1.7(d) is hereby
deleted in its entirety, and the following is inserted in place thereof:
"(d) At the Effective Time, each issued and outstanding share of
Series C preferred stock, without par value, of the Company will become one
issued and outstanding share of Series C preferred stock, without par
value, of the Surviving Corporation."
Section 3.5(a) of the Merger Agreement is hereby deleted in its entirety, and
the following is inserted in place thereof:
"(a) The authorized capital stock of the Company consists of
200,000,000 Shares and 10,000,000 shares of the Company's preferred stock,
without par value, of which 1,500 are designated as Series A preferred
stock, 1,000 are designated as Series B preferred stock and 2,500 are
designated as Series C preferred stock. As of the close of business on
October 15, 2002, (i) 3,877,737 Shares were issued and outstanding and no
Shares were held in treasury and (ii) no shares of Series A preferred stock
were issued, outstanding or held in treasury, (iii) no shares of Series B
preferred stock were issued, outstanding or held in treasury and (iv)
2,216.668 shares of Series C preferred stock (the "Preferred Shares") were
issued and outstanding and no Preferred Shares were held in treasury. As of
the close of business on October 15, 2002, Options to acquire an aggregate
of 108,160 Shares were outstanding under the Option Plans. All outstanding
shares of the capital stock of the Company have been duly authorized and
validly issued, and are fully paid, non-assessable and free of preemptive
rights."
B-1
Section 3. Effect. Except as amended hereby, the Merger Agreement shall
remain in full force and effect in all respects.
Section 4. Representations. Each of the Parties hereto represents to the
other that (i) the execution, delivery and performance of this Amendment are
within its corporate powers, (ii) except for the adoption of this Amendment by
the affirmative vote of a majority in voting interests of the outstanding shares
of the Parties, this Amendment has been duly authorized by all necessary
corporate action, and (iii) this Amendment has been duly and validly executed
and delivered.
Section 5. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts taken together shall constitute one and the same agreement.
Section 6. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO, WITHOUT GIVING EFFECT TO
ANY LAW OR RULE THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF COLORADO TO BE APPLIED.
***
B-2
IN WITNESS WHEREOF, the Amendment has been duly executed by the Parties
hereto as of the day and year first written above.
PAK MAIL CENTERS OF AMERICA, INC.
By : /s/ P. Evan Lasky
------------------------------
P. Evan Lasky
President and Chief Executive Officer
PAK MAIL ACQUISITION CORP.
By : /s/ F. Edward Gustafson
------------------------------
F. Edward Gustafson
President
B-3
ANNEX C
* 2029 CENTURY PARK EAST, SUITE 820 * LOS ANGELES, CA 90067 *310-284-8008
* FAX 310-284-8130 *
DUFF & PHELPS
October 23, 2002
Board of Directors
Pak Mail Centers of America, Inc.
7173 S. Havana Street, Suite 600
Englewood, CO 80112
Ladies and Gentleman:
Duff & Phelps ("Duff & Phelps") has been engaged by Pak Mail Centers of America,
Inc. ("Pak Mail" or the "Company") to act as financial advisor to the Board of
Directors of the Company in connection with a contemplated transaction (the
"Transaction"), as summarized below. Specifically, Duff & Phelps has been
engaged to provide an opinion (the "Opinion") as to whether the price to be paid
to the minority common shareholders of the Company is fair to the minority
common shareholders from a financial point of view.
Transaction Overview
- --------------------
It is our understanding that the Transaction will be structured as a merger
whereby an acquisition subsidiary formed by D.P. Kelly & Associates, L.P. and
Pak Mail Investment Partnership L.P. (collectively the "Purchasers") would merge
with and into the Company. According to the Company's filings with the United
States Securities and Exchange Commission, the Company has 3,877,737 shares of
common stock outstanding and 2,216.668 shares of Series C Preferred Stock
outstanding. The Purchasers together own 2,897,078 shares (74.7%) of the
Company's common stock and 2,216.668 shares (100%) of the Series C Preferred
Stock. In the merger, each share of the Company's common stock, other than
shares owned by the Purchasers or their affiliates, totaling 980,659 shares or
(25.3%), would be canceled and converted into the right to receive $0.0516 in
cash.
In connection with the Transaction, we understand that the Company intends to
file a certificate with the United States Securities and Exchange Commission to
terminate its public company reporting obligations under Section 15(d) of the
Securities Exchange Act of 1934. Pak Mail also intends to de-list its common
stock and terminate public market trading therein.
Due Diligence
- -------------
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Our due diligence with regards to the Transaction is summarized below.
o Met with certain members of senior management of Pak Mail to discuss the
history, financial condition, future prospects and projected performance of
the Company;
C-1
o Visited the Company's headquarters and training centers in Englewood,
Colorado and Pak Mail retail stores located in Englewood, Colorado and
Anaheim, California;
o Reviewed the Company's audited financial statements for fiscal year 1996
through 2001 and internal financial statements for the nine months ended
August 31, 2002;
o Reviewed the Company's financial projections for fiscal years 2002 through
2006, as prepared by management;
o Reviewed various other Company documents including, but not limited to SEC
filings (10Ks, 10Qs, etc.), franchise agreements, offering circulars and
other relevant Company information; and
o Reviewed the historical trading price and trading volume of Pak Mail common
stock;
o Reviewed certain articles and press releases regarding Pak Mail;
o Reviewed agreement and plan of merger related to the Transaction as
provided by management of Pak Mail;
o Reviewed economic and industry information and conducted such studies,
analyses and investigations as we deemed appropriate.
Our Opinion is based upon an analysis of the foregoing in light of our
assessment of the general, economic and financial market conditions, as they can
be evaluated by us, as of the date hereof. Events occurring after the date
hereof could materially affect the assumptions used in preparing our Opinion.
Duff & Phelps has not previously provided financial advisory services to the
Company.
In connection with our Opinion, with your permission and without any independent
verification, we have assumed that all information reviewed by us with respect
to the Company, whether supplied by Pak Mail or obtained by us from publicly
available sources, is true, correct and complete in all material respects and
does not contain any untrue statements of material fact or omit to state a
material fact necessary to make the information supplied to us not misleading.
Any inaccuracies in or omissions from the information on which we relied could
materially affect our Opinion. Furthermore, we have assumed that there has been
no material change in the assets, financial condition, business, or prospects of
the Company since the date of the most recent financial statements made
available to us.
In rendering this Opinion, we have assumed that the Transaction occurs on terms
that are described in the Agreement and Plan of Merger and that Pak Mail has
complied with all applicable federal, state, and local regulations and laws. It
should be recognized that we are not making any recommendation as to whether the
shareholders of the Company should vote in favor of the Transaction or any other
matter. Any summary of, or reference to, the Opinion, any verbal presentation
with respect thereto, or other references to Duff & Phelps in connection with
the Transaction, will in each instance be subject to Duff & Phelps' prior review
and written approval (which shall not be unreasonably withheld). The Opinion
will not be included in, summarized or referred to in any manner in any
materials distributed to the public or the security holders of the Company, or
filed with or submitted to any governmental agency, without Duff & Phelps'
express, prior written consent (which shall not be unreasonably withheld).
The Opinion is delivered subject to the conditions, scope of engagement,
limitations and understandings set forth in the Opinion and our engagement
letter, and subject to the understanding that the obligations of Duff & Phelps
in the Transaction are solely corporate obligations, and no officer, director,
employee, agent, shareholder or controlling person of Duff & Phelps shall be
subjected to any personal liability whatsoever to any person, nor will any such
claim be asserted by or on behalf of you or your affiliates.
C-2
Conclusion
- ----------
Based on our analysis, and relying on the accuracy and completeness of all
information provided to us, it is our opinion that, as of this date, the price
to be paid to the minority common shareholders of the Company is fair to the
minority common shareholders from a financial point of view.
Respectfully submitted,
/s/ Duff & Phelps
-----------------------------------
Duff & Phelps
DUFF & PHELPS
C-3
ANNEX D
DUFF & PHELPS, LLC
F A I R N E S S A N A L Y S I S
P R E S E N T A T I O N T O T H E B O A R D O F D I R E C T O R S O F
P A K M A I L C E N T E R S O F A M E R I C A , IN C .
O C T O B E R 1 7 , 2 0 0 2
CORPORATE ADVISORS SINCE 1932
CHICAGO | | LOS ANGELES | | NEW YORK | | SEATTLE
The information contained herein is of a confidential nature and is intended for
the exclusive use of the persons
or firm to whom it is furnished by us. Reproduction, publication, or
dissemination of portions hereof
may not be made without prior approval of Duff & Phelps, LLC.
D-1
Table of Contents
I. Summary of Engagement
II. Fairness Considerations
III. Summary of Due Diligence
IV. Qualitative Factors Considered
V. Analysis of Going Concern Value
A. Discounted Cash Flow Analysis
B. Market Multiple Analysis
C. Preferred Stock Analysis
VI. Hypothetical Liquidation Analysis
VII. Current and Historical Trading Prices
VIII. Conclusions
Appendix
A. Comparable Company Business Descriptions
D-2
Summary of Engagement
Duff & Phelps, LLC ("Duff & Phelps") has been engaged by Pak Mail Centers of
America, Inc. ("Pak Mail" or the "Company") to act as financial advisor to the
Board of Directors of the Company in connection with a contemplated transaction
(the "Transaction"), as summarized below. Specifically, Duff & Phelps has been
engaged to provide an opinion (the "Opinion") as to whether the price to be paid
to the minority common shareholders of the Company is fair from a financial
point of view.
It is our understanding that the Transaction will be structured as a merger
whereby an acquisition subsidiary formed by D.P. Kelly & Associates, L.P. and
Pak Mail Investment Partnership L.P. (collectively the "Purchasers") would merge
with and into the Company. According to the Company's filings with the United
States Securities and Exchange Commission, the Company has 3,877,737 shares of
common stock outstanding. The Purchasers together own 2,897,078 shares (74.7%)
of the Company's common stock. In the merger, each share of the Company's common
stock, other than shares owned by the Purchasers or their affiliates, totaling
980,659 shares or (25.3%), would be canceled and converted into the right to
receive $0.0516 in cash.
In connection with the Transaction, we understand that the Company intends to
file a certificate with the United States Securities and Exchange Commission to
terminate its public company reporting obligations under Section 15(d) of the
Securities Exchange Act of 1934. Pak Mail also intends to de-list its common
stock and terminate public market trading therein.
Our Opinion is based upon an analysis of the foregoing in light of our
assessment of the general, economic and financial market conditions, as they can
be evaluated by us, as of the date hereof. Events occurring after the date
hereof could materially affect the assumptions used in preparing our Opinion.
D-3
In connection with our Opinion, with your permission and without any independent
verification, we have assumed that all information reviewed by us with respect
to the Company, whether supplied by Pak Mail or obtained by us from publicly
available sources, is true, correct and complete in all material respects and
does not contain any untrue statements of material fact or omit to state a
material fact necessary to make the information supplied to us not misleading.
Any inaccuracies in or omissions from the information on which we relied could
materially affect our Opinion. Furthermore, we have assumed that there has been
no material change in the assets, financial condition, business, or prospects of
the Company since the date of the most recent financial statements made
available to us.
It should be recognized that we are not making any recommendation as to any
specific actions that might be taken by the Company's shareholders.
Duff & Phelps was not engaged to render, nor are we purporting to render, any
appraisal or definitive report as to the value (under an orderly liquidation
scenario or otherwise) of the Company's securities or individual assets or
liabilities. The enclosed estimates have been prepared based upon the
information we have obtained from the Company and their representatives, which
information we have assumed is reliable. Furthermore, the conditions affecting
the value of the assets we have reviewed, including the market for such assets,
have changed significantly over the past two years and may continue to change
significantly in the future.
In rendering this Opinion, we have assumed that the Transaction occurs on terms
that are described in the Agreement and Plan of Merger and that Pak Mail has
complied with all applicable federal, state, and local regulations and laws.
D-4
This Opinion is delivered subject to the conditions, scope of engagement,
limitations and understandings set forth in the Opinion and our engagement
letter, and subject to the understanding that the obligations of Duff & Phelps
in the Transaction are solely corporate obligations, and no officer, director,
employee, agent, shareholder or controlling person of Duff & Phelps shall be
subjected to any personal liability whatsoever to any person, nor will any such
claim be asserted by or on behalf of you or your affiliates.
D-5
Fairness Considerations
Considered qualitative factors related to engaging in this transaction.
Analyzed the consideration to be received by the common shareholders in the
Transaction, relative to:
o Going Concern Value (Discounted Cash Flow Analysis and Market Multiple
Analysis)
o Hypothetical Liquidation Value
o Current and Historical Trading Prices and Volume
o Net Book Value
o Amounts that might be received by shareholders in alternative
transactions
D-6
Summary of Due Diligence
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Our due diligence with regards to the Transaction is summarized below.
Met with certain members of senior management of Pak Mail to discuss the
history, financial condition, future prospects and projected performance of the
Company;
Visited the Company's headquarters and training centers in Englewood, Colorado
and Pak Mail retail stores located in Englewood, Colorado and Anaheim,
California;
Review of the Company's audited financial statements for fiscal year 1996
through 2001 and internal financial statements for the nine months ended August
31, 2002;
Review of the Company's financial projections for fiscal years 2002 through
2006, as prepared by management;
Review of various other Company documents including, but not limited to SEC
filings (10Ks, 10Qs, etc.), franchise agreements, offering circulars and other
relevant Company information; and
Reviewed the historical trading price and trading volume of Pak Mail common
stock;
D-7
Reviewed certain articles and press releases regarding Pak Mail;
Reviewed agreement and plan of merger related to the Transaction as provided by
management of Pak Mail;
Reviewed economic and industry information and conducted such studies, analyses
and investigations as we deemed appropriate.
D-8
Qualitative Factors Considered
Financial Performance and Condition of Pak Mail
Over the five-year period ended November 30, 2001 and the nine months ended
August 31, 2002, Pak Mail recorded aggregate revenues of $26.9 million, and
aggregate net losses of $1.35 million.
Through funding from the Purchasers, the Company issued $1.2 million in Series A
Preferred Stock in 1991 and issued $1.0 million in Series B Preferred Stock in
1993. In 1997, Pak Mail converted its Series A and B Preferred Stock into Series
C Preferred Stock totaling $2.2 million. In 2000, the Company borrowed $400,000
from the Purchasers.
The Purchasers provided this $2.2 million in Preferred Stock funding to support
losses incurred during the early 1990's. The Company borrowed the $400,000 in
2000 to fund an investment in a point of sale software program.
From 1997 to early 2001, the Company developed a point of sale software program
for inclusion in the Pak Mail operating system. In April 2001, the Company
determined it did not have the resources necessary to update and maintain
software and management decided to abandon the project. The Company spent
approximately $1.3 million on costs associated with the development of the point
of sale software.
Subsequently, these capitalized costs have been written off and charged to
earnings in 2000 and 2002.
The Company's net book value as of August 31, 2002 was negative $848,000.
D-9
Industry Conditions and Competition
The business in which Pak Mail operates is highly fragmented and competitive.
According to management estimates, the industry presently consists of more than
9,000 stores of which approximately 55% are franchised and 45% are independents.
Pak Mail's competition comes from national franchisors, independents and
specialty service providers and the United States Postal Service which competes
with Pak Mail on several fronts. The following table illustrates the five
largest franchisors in terms of number of stores:
Top 5 Franchisors
Packaging and Shipping
Company Name Stores
Mail Boxes, Etc. 4,527
PostNet Postal & Business Centers 650
Pak Mail Center of America, Inc. 384
Postal Annex+ 241
Handle With Care Packaging Stores 152
Source: International Franchise Association
Given Pak Mail's historical results, and the current investment environment, the
Company has been unable to attract a strategic alliance partner or obtain
additional outside funding that management believes is necessary to develop
critical mass and compete effectively. Potential strategic partners and
investors have been unwilling to pursue a business combination as long as Pak
Mail remains a publicly traded entity.
D-10
Pak Mail does not benefit from being a public Company.
No analyst coverage exists for the Company's common stock. Analyst coverage
typically provides for increased awareness/interest in a stock among the
investment community.
Pak Mail's stock is thinly traded. While the Company's shareholders do not enjoy
the liquidity benefits typically associated with public stocks, they incur the
costs associated with Pak Mail's public status.
The Company spends approximately $50,000 in annual legal, accounting and other
miscellaneous fees associated with Pak Mail's public status. These fees could be
eliminated in a going-private scenario.
In light of the preceding, Pak Mail's board of directors has determined that the
current "going private" Transaction offers liquidity to minority shareholders,
cost savings by eliminating public company expenses and provides operational
flexibility to the Company going forward.
D-11
Analysis of Going Concern Value
Our going concern analysis of Pak Mail common stock consisted of the following:
Discounted Cash Flow Analysis
Public Market Price Analysis
Preferred Stock Analysis
D-12
Discounted Cash Flow Analysis
Primary components to value in using the Discounted Cash Flow approach:
o The present value of interim cash flows plus the present value of the
terminal value (i.e., value at the end of the projection period).
o Terminal value, or continuing value of operations beyond the last
projection year, was determined at the end of the projection period using a
Gordon Growth Model.
Assumptions for Projections
o Projections of income and expenses, including capital expenditure and
certain balance sheet assumptions for 2002 through 2006, were provided by
management. The projections exclude the cost of being a public company.
o Other cash flow items, including changes in working capital and future
capital expenditures were projected by Duff & Phelps.
o Duff & Phelps added the present value of the tax-affected portion of the
net operating loss carryforwards to our concluded value of invested
capital.
o The terminal value was calculated using a long-term growth rate of 3% and
discount rates ranging from 17% to 19% based on Pak Mail's capital
structure assumed to consist of 20% debt, 10% common equity and 70%
preferred.
Conclusion
o The DCF analysis provides total enterprise value indications ranging from
$1.45 million to $1.67 million.
D-13
Discounted Cash Flow Analysis (cont'd)
--------------------------------------------------------------
Actual Adjusted (1)
For Fiscal Years Ended November 30, 1997 1998 1999 2000 9 Mo. 8/31/02
--------------------------------------------------------------
INCOME STATEMENT SUMMARY
Total Revenues 4,147,607 4,596,089 5,076,144 5,146,140 3,143,676
Cost of Sales: 1,967,689 2,090,656 2,421,735 2,322,590 1,524,330
Gross Profit 2,179,918 2,505,433 2,654,409 2,823,550 1,619,345
Operating Expenses
General & Administrative 1,765,735 1,859,272 2,061,493 2,596,832 1,326,489
Advertising 178,783 166,698 143,429 171,844 76,238
Total Operating Expenses: 1,944,518 2,025,970 2,204,922 2,768,676 1,402,727
Operating Cashflow (EBITDA) 235,400 479,463 449,487 54,874 216,618
Total Depreciation & Amortization 57,810 85,446 85,446 224,839 47,607
Operating Income (EBIT) 177,590 413,000 364,041 (169,965) 169,011
Debt-Free Income 327,920 569,586 368,789 (786,583) 178,870
(1) Adjusted for unusual or nonrecurring items including discontinued computer
and software operations.
--------------------------------------------------------------
Projected
For Fiscal Years Ended November 30, 2002 2003 2004 2005 2006
--------------------------------------------------------------
INCOME STATEMENT SUMMARY
Total Revenues 4,152,795 4,335,481 4,618,366 4,901,452 5,184,738
Cost of Sales: 1,976,700 2,078,539 2,212,250 2,345,632 2,478,686
Gross Profit 2,176,095 2,256,941 2,406,116 2,555,820 2,703,052
Operating Expenses
General & Administrative 1,798,160 1,864,257 1,939,714 2,058,610 2,177,590
Advertising 105,000 108,150 111,395 114,736 118,178
Total Operating Expenses: 1,903,160 1,972,407 2,051,108 2,173,346 2,295,768
Operating Cashflow (EBITDA) 272,935 284,535 355,008 382,474 407,284
Total Depreciation & Amortization 53,671 51,672 45,673 22,202 19,202
Operating Income (EBIT) 219,264 232,863 309,335 360,272 388,082
Debt-Free Income 229,264 242,863 319,335 370,272 398,082
D-14
Discounted Cash Flow Analysis (con'td)
Projected
-------------------------------------------------------- Terminal
For Fiscal Years Ended November 30, 2002 2003 2004 2005 2006 Value
--------------------------------------------------------
3 Months
Debt-Free Net Cash Flow (DFNCF) 49,195 219,282 324,926 352,353 377,125
Debt-Free Income Before Taxes 387,582
Less: Income Taxes 40% (155,033)
Plus: (Increase) in Net Working Capital (15,159)
----------
Normalized Debt Free Net Cash Flow (DFNCF) 217,390
2006 DFNCF 217,390 (a)
Growth Rate into Perpetuity 3.0%
Terminal Value using Discount Rate (19%) 1,399,448
Terminal Value using Discount Rate (17%) 1,599,369
--------------------------------------------------------
Discount Period 0.125 0.750 1.750 2.750 3.750
--------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Discount Factor at 19% 0.9785 0.8777 0.7376 0.6198 0.5208 0.5208
--------------------------------------------------------------------------
Discounted Interim DFNCFs 48,137 192,461 239,650 218,386 196,419
Discounted Terminal Value 728,879
Total Discounted Interim DFNCFs 895,052
Discounted Terminal Value 728,879
Discounted Net Operating Loss Carryforwards 237,344 (b)
----------
Indicated Value of Invested Capital 1,861,275
Less: Interest-Bearing Debt 412,880
Indicated Equity Value $1,448,395
==========
- --------------------------------------------------------------------------------------------------------------------------------
Discount Factor at 17% 0.9806 0.8889 0.7598 0.6494 0.5550 0.5550
--------------------------------------------------------------------------
Discounted Interim DFNCFs 48,239 194.923 246.865 228,806 209,806
Discounted Terminal Value 887,670
Total Discounted Interim DFNCFs 928,141
Discounted Terminal Value 887,670
Discounted Net Operating Loss Carryforwards 262,751 (b)
----------
Indicated Value of Invested Capital 2,078,563
Less: Interest-Bearing Debt 412,880
Indicated Equity Value $1,665,683
==========
- --------------------------------------------------------------------------------------------------------------------------------
(a) Reflects debt-free net cash flow projected for 2006, adjusted to reflect a
normalized level of taxes and to reconcile terminal year capital expenditures
with terminal year depreciation. (b) Reflects the tax affected portion of the
net operating loss carryforwards (totaling $674,000) available to offset taxable
income after the terminal year discounted back to present.
D-15
Market Multiple Analysis
Utilized pricing indications from comparable public companies
Evaluated financial performance and investment characteristics of selected
companies versus Pak Mail.
Determined projected levels of Company's earnings and cash flow generating
capability going forward and adjusted for unusual or nonrecurring items
including, professional fees associated with being a publicly traded company and
discontinued computer and software operations.
Applied appropriate multiples to Pak Mail's adjusted historical and projected
levels as follows:
- ------------------------------------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANY ANALYSIS
- ------------------------------------------------------------------------------------------------------------
Representative Selected Enterprise Total Equity Value
Level Multiple Value Debt (rounded)
- ------------------------------------------------------------------------------------------------------------
Revenue 4,100,000 x 0.45x = 1,845,000 - 412,880 = 1,432,120
Adjusted EBITDA 325,000 x 5.0x = 1,625,000 - 412,880 = 1,212,120
Adjusted EBIT 275,000 x 6.0x = 1,650,000 - 412,880 = 1,237,120
-------------------------------------------------------
Indicated Equity Value Range Low 1,212,120 Mean 1,293,800
High 1,432,120 Median 1,237,100
D-16
Market Multiple Analysis - Comparable Public Companies
Requires the careful screening and selection of public companies that are
similar to Pak Mail from an investment perspective.
The identification of closely comparable companies is made even more difficult
by the unique nature of Pak Mail, which operates as a marketer of Pak Mail store
franchises. The Company's principal source of revenue is derived from royalties
and franchise fees as well as from the sale of certain equipment, supplies,
forms and materials to franchisees.
Screening criteria:
Selected companies that sell franchise businesses within a myriad of industries,
including printing, shipping and packaging, restaurants and others.
Selected companies that generate a large portion of revenues from royalties and
fees from franchisees. The company was not a foreign company.
Identified 8 companies that are considered to have some of the same investment
risks and attributes as Pak Mail, and therefore, considered these companies'
valuation multiples.
Some of the comparable franchise companies generate a portion of their earnings
from owned franchises and have large capital outlays in order to support store
operations. Therefore, some of the comparable franchise companies have
substantially different capital and cost structures.
D-17
Market Multiple Analysis - Comparable Public Companies
To better evaluate the group of comparable public companies, we segregated them
by company-owned stores, franchised stores and industry focus of the businesses
as follows:
- ----------------------------------------------------------------------------------------------------------------------
Company
Owned Total Industry
Company Franchises Franchises Stores Focus
- ----------------------------------------------------------------------------------------------------------------------
BCT International, Inc. (BCTI) 84 0 84 Printing
Dwyer Group, Inc. (DWYR) 994 6 1,000 Specialty Services*
Emerging Vision, Inc. (ISEE) 169 34 203 Optical/Eyecare
Global Business Services, Inc. (GBSS) 35 20 55 Postal and Business Services
Nathan's Famous, Inc. (NATH) 386 25 411 Restaurant
Noble Roman's Inc. (NROM) 27 3 30 Restaurant
Pizza Inn, Inc. (PZZI) 131 66 197 Restaurant
Schlotzsky's Inc. (BUNZ) 44 10 54 Restaurant
* Specialty services include, plumbing, carpet, electrical, appliances, air and glass.
D-18
Market Multiple Analysis - Comparable Public Companies
Common Equity Capitalized LTM Common Stock Price as a Multiple of
Stock Price Value Value Debt / Revenues LTM Projected Book Value
Company (10/10/02)(in millions)(in millions)MVIC* (in millions) EPS EPS Per Share
- ------------------------------------------------------------------------------------------------------------------------------
BCT INTERNATIONAL INC (BCTI) $0.71 $4 $4 7.8% $17 4.7x NA 0.2x
DWYER GROUP INC (DWYR) 3.55 25 29 14.4 23 10.1 7.7 1.3
EMERGING VISION INC (ISEE) 0.04 1 2 53.8 18 NM NA NM
GLOBAL BUSINESS SERVICES (GBSS)** 0.67 6 7 6.8 4 NM NA 0.9
NATHANS FAMOUS INC (NATH) 3.26 20 22 7.8 42 15.7 NA 1.0
NOBLE ROMANS INC (NROM) 0.90 14 30 34.7 6 30.0 NA -3.7
PIZZA INN INC (PZZI) 1.68 17 34 50.3 65 7.2 NA 5.8
SCHLOTZSKY'S INC (BUNZ) 3.75 27 57 52.1 62 12.1 25.0 0.4
Highest 27 57 53.8 65 30.0 25.0 5.8
Lowest 1 2 6.8 4 4.7 7.7 -3.7
Mean 14 23 28.5 30 13.3 16.4 0.8
Median 16 26 24.5 20 11.1 16.4 0.9
Capitalized Value as a Multiple of Growth Rates
LTM Projected LTM Projected LTM LTM 3-yr. CAGR LTM 3-yr. CAGR Long-term
Company EBITDA EBITDA EBIT EBIT Revenues Revenues Revenues EBITDA EBITDA Proj. EPS
- --------------------------------------------------------------------------------------------------------------------------
BCT INTERNATIONAL INC (BCTI) 6.1 NA 9.5x NA 0.2 -5.6% -1.8% NM -52.9% NA
DWYER GROUP INC (DWYR) 7.0 5.2 10.5 6.9 1.3 18.9 15.6 25.1 NM NA
EMERGING VISION INC (ISEE) NM NA NM NA 0.1 -11.5 -15.8 NM NM NA
GLOBAL BUSINESS SERVICES (GBSS)** NM NA NM NA 1.5 NM NA NM NA NA
NATHANS FAMOUS INC (NATH) 7.0 NA 28.7 NA 0.5 -6.6 13.2 -39.5 3.2 NA
NOBLE ROMANS INC (NROM) 13.8 NA 14.2 NA 5.1 -3.1 -39.4 -19.8 NM NA
PIZZA INN INC (PZZI) 5.4 NA 6.9 NA 0.5 3.1 -0.3 9.3 6.3 NA
SCHLOTZSKY'S INC (BUNZ) 5.7 7.0 10.0 15.1 0.9 0.1 12.6 10.3 1.6 NA
Highest 13.8 7.0 28.7 15.1 5.1 18.9 15.6 25.1 6.3 NA
Lowest 5.4 5.2 6.9 6.9 0.1 -11.5 -39.4 -39.5 -52.9 NA
Mean 7.5 6.1 13.3 11.0 1.3 -0.7 -2.3 -2.9 -10.5 NA
Median 6.6 6.1 10.2 11.0 0.7 -3.1 -0.3 9.3 2.4 NA
Margin Analysis Return Analysis
LTM 3-yr. CAGR LTM 3-yr. Avg. LTM 3-yr. Avg. LTM 3-yr. Avg.
Company EBITDA EBITDA Net Income Net Income ROE ROE ROI ROI
- ---------------------------------------------------------------------------------------------------------------------
BCT INTERNATIONAL INC (BCTI) 3.7% 3.7% 4.2% 3.6% 4.9% 4.8% 4.8% 4.6%
DWYER GROUP INC (DWYR) 18.2 16.4 10.9 10.9 14.4 13.2 12.6 11.6
EMERGING VISION INC (ISEE) -20.3 -27.8 -33.0 -34.0 NM NM NM -88.7
GLOBAL BUSINESS SERVICES (GBSS)**-20.5 NA -22.7 NA -11.5 NA -.02 NA
NATHANS FAMOUS INC (NATH) 7.6 8.4 3.4 2.3 4.9 2.9 5.1 3.1
NOBLE ROMANS INC (NROM) 37.2 39.0 9.4 4.1 -16.3 -5.8 11.0 11.2
PIZZA INN INC (PZZI) 9.6 9.7 3.5 3.9 NM NM 16.5 21.4
SCHLOTZSKY'S INC (BUNZ) 16.4 15.8 3.7 4.7 3.0 3.5 3.6 4.1
Highest 37.2 39.0 10.9 10.9 14.4 13.2 16.5 21.4
Lowest -20.5 -27.8 -33.0 -34.0 -16.3 -5.8 -0.2 -88.7
Mean 6.5 9.3 -2.6 -.07 -0.1 3.7 7.6 -4.7
Median 8.6 9.7 3.6 3.9 4.0 3.5 5.1 4.6
* MVIC - Market Value of Invested Capital (market value of equity + book
value of debt + minority interest + deferred taxes + preferred stock)
** Revenues are based on nine months ended March 31, 2002 figures annualized
due to limited financial results available Source: Standard & Poor's
Commustat Services, Inc., Duff & Phelps LLC and First Call Corporation
D-19
Market Multiple Analysis - Comparable Public Companies
The following chart highlights the comparable public companies performance
indexed relative to the Dow Jones Industrial Average, S&P 500 and Russell 2000
indexes from September 30, 2001 to September 30, 2002:
(graphic omitted)
D-20
Market Multiple Analysis - Comparable Transactions
Analyzed information from controlling interest transactions involving companies
similar to Pak Mail.
The only pertinent transaction we identified in the past five years was United
Parcel Service, Inc. purchase of Mail Boxes, Etc. in March 2001. However, no
financial information was available for this transaction.
D-21
Preferred Stock Analysis
Preferred Stock Rights & Privileges
The Company has 2,216.668 of Series C Preferred Stock outstanding with a par and
stated value of $1,000 per share.
Holders of preferred shares are entitled to receive cumulative dividends at the
rate of $60.00 per twelve-month period paid annually.
The Company has the right to redeem part or all of the outstanding preferred
shares at a price per share equal to $1,000 plus all dividends accrued and
unpaid to the date of redemption.
Holders of preferred shares are not entitled to vote for the election of
directors. However, the Company may not engage in certain activities without the
approval of a majority of the total number of preferred shares outstanding.
In the event of a liquidation or dissolution, the proceeds shall be distributed
in the following priority:
o Preferred shareholders are entitled to receive assets of the Company in an
amount per share equal to $1,000 plus all dividends accrued and unpaid.
o Any remaining assets will be distributed to common shareholders.
D-22
Preferred Stock Analysis
Based on discussions with management, there are no near-term plans to redeem the
preferred stock, nor does the Company have the wherewithal to fund a redemption
in the next year or two.
The fair market value of the Series C Preferred Stock value is significantly
less than its stated liquidation value, based on the stated dividend rate of 6
percent relative to the risk of Pak Mail in general and the Series C Preferred
specifically, as well as yields available on preferred stocks and the lack of
redemption plan in the near future.
Our concluded total equity value range of $1.35 million to $1.55 million is
lower than the $2.2 million redemption value and liquidation preference value of
the Series C Preferred Stock, further indicating that the fair market value of
the Preferred Stock is less than its redemption value.
We valued the Series C Preferred Stock by discounting the future expected
dividend payments over a period of time and redemption of the outstanding
principal at the end of the period to a present value. We believe a time horizon
of more than 3 years but less than 10 best reflects how an investor would
perceive the Preferred Stock and when the Company could likely be sold or able
to redeem the Preferred Stock.
The discount rate used in our analysis was based on yields observed for
preferred stocks with "C" ratings ranging from 5.8% to 62.3%, as well as
alternative investments and the overall risk of Pak Mail. A discount rate range
of 18.0% to 20.0% was deemed reasonable for Pak Mail's Series C Preferred Stock.
D-23
Preferred Stock Analysis
The following illustrates our concluded range of value for the Series C
Preferred Stock:
Discount Rate
` --------------------------------------------
PV of Series C Preferred Stock 20.0% 19.0% 18.0%
3 Year Redemption 1,563,000 1,600,000 1,638,000
5 Year Redemption 1,289,000 1,336,000 1,385,000
7 Year Redemption 1,098,000 1,149,000 1,203,000
10 Year Redemption 916,000 966,000 1,021,000
- ------------------------------------------------------------------------------------------------------
Overall Range of Series C Preferred Stock 916,000 - 1,638,000
- ------------------------------------------------------------------------------------------------------
We have concluded at a fair market value of $1.3 million for the Series C
Preferred Stock, representing 58.6% of face value.
D-24
Hypothetical Liquidation Value
Provides high and low case scenarios on timing of liquidation, asset recovery
levels and actual liabilities incurred.
o Used the Company's August 30, 2002 balance sheet as a starting point and
adjusted assets and liabilities to estimated orderly liquidation values.
o Estimation of recovery value for assets and expected actual payments
required on liabilities are based on discussions with management.
o In addition to liabilities recorded on Pak Mail's balance sheet, the
liquidation analysis includes additional liabilities for leases on the
Company's office facilities.
o Convertible preferred stock is adjusted to reflect current liquidation
preference, including accrued and unpaid dividends.
The analysis assumes a three-month liquidation period and includes an estimate
of interim expenses during the winding-up period.
Based on our analysis, Pak Mail's liabilities and interim expenses would exceed
the realizable value of its assets by $1.6 to $1.2 million. Therefore, the
liquidation analysis does not provide any positive indication of value for the
Company's preferred or common shareholders.
D-25
Book Value Low High
Hypothetical Liquidation Value 8/30/02 ----- Range -----
- ----------------------------------------------------------------------------------------------------------
ASSETS
- ------
Cash and Equivalents 59,569 59,569 59,569
Restricted Cash 90,759 - -
Accounts Receivable 535,991 187,597 348,394
Notes Receivable 187,455 59,324 59,324
Inventories 53,532 5,353 10,706
Property & Equipment 58,389 33,057 33,057
Deferred Franchise Costs 50,310 - -
Prepaid Expenses and Other Assets 25,167 12,595 12,595
Deposits and Other Assets 111,334 111,334 111,334
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,172,506 $468,829 $634,979
LIABILITIES
- -----------
Accounts Payable 84,708 84,708 84,708
Accrued Expenses 332,035 215,823 215,823
Deferred Rent 59,415 - -
Due to Advertising Fund 90,759 - -
Post Employment Benefit 272,238 272,238 272,238
Lease Obligations - 1,000,000 720,000
Notes Payable Related Party 400,000 400,000 400,000
Deferred Revenue 535,302 - -
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $1,774,457 $1,972,769 $1,692,769
INTERIM CASH FLOWS - (103,027) (103,027)
- ----------------------------------------------------------------------------------------------------------
AVAILABLE FOR SHAREHOLDERS ($601,951) ($1,606,968) ($1,160,817)
D-26
Analysis of Market Trading Prices
The Company's common stock has been sporadically traded in the over-the-counter
market since 1985.
No trading market for Pak Mail's common stock has been established and no
reliable information as to quoted prices with respected to the common stock has
been available.
No market equity value indication is available from Pak Mail's traded common
stock.
o Since the beginning of the year, the Company's stock traded on only 18
days.
o For the eighteen days that the Company's stock did trade since the
beginning of the year, a total of only 10,000 shares changed hands.
D-27
Analysis of Market Trading Prices (cont'd)
The following table highlights the trading activity for the Company's common
stock from September 1994 through September 2002 and from September 2001 through
September 2002:
DAILY PRICES
9/94 - 9/02 9/01 - 9/02
----------- -----------
High $3.125 $0.300
Low $0.005 $0.060
Average $0.584 $0.099
Median $0.500 $0.120
Days Traded 279 31
No Activity 1,801 229
Total Trading Days 2,080 260
D-28
Analysis of Market Trading Prices (cont'd)
The following chart highlights Pak Mail's stock and volume performance from
September 1994 through September 2002:
Monthly Closing Stock Price and Volume
September 1994 through September 2002
(graphic omitted)
D-29
Conclusion
The table below summarizes the indicated range of fair market value for Pak
Mail's common equity on a going concern basis.
Control Equity Value Indications: Range
-------------------------------------------
Discounted Cash Flow Analysis $1,448,000 $1,666,000
Comparable Public Company Analysis $1,212,000 $1,432,000
Concluded Control Equity Value Range: $1,350,000 to $1,555,000
Less: Value of Preferred Stock $1,300,000 $1,300,000
Concluded Control Equity Value Range (common): $50,000 to $250,000
Fully Diluted Shares Outstanding as of 8/31/02 3,985,897 3,985,897
- ---------------------------------------------------------------------------------------------------------------
Concluded Control Price per Share($) $0.013 to $0.063
- ---------------------------------------------------------------------------------------------------------------
Our hypothetical liquidation analysis indicated no value to equity shareholders.
No market equity value indication is available from Pak Mail's traded common
stock.
D-30
Conclusion
Based on our analysis and relying upon the accuracy and completeness of all
information provided to us, it is our opinion that, as of this date, the price
to be paid to the minority common shareholders of Pak Mail Centers of America,
Inc. is fair from a financial point of view.
D-31
BCT International, Inc.
Stock Price vs. the S&P 500 Index
(graphic omitted)
This omitted graphic shows the performance of BCT International, Inc. compared
to the S&P 500 from 9/28/2001 to 9/20/2002 and provides a brief business
overview of BCT International, Inc.
D-32
Dwyer Group, Inc.
Stock Price vs. the S & P 500 Index
(graphic omitted)
This omitted graphic shows the performance of Dwyer Group, Inc. compared to the
S&P 500 from 9/28/2001 to 9/20/2002 and provides a brief business overview of
Dwyer Group, Inc.
D-33
Emerging Vision, Inc.
Stock Price vs. the S & P 500 Index
(graphic omitted)
This omitted graphic shows the performance of Emerging Vision, Inc. compared to
the S&P 500 from 9/28/2001 to 9/20/2002 and provides a brief business overview
of Emerging Vision, Inc.
D-34
Global Business Services, Inc.
Stock Price vs. the S & P 500 Index
(graphic omitted)
This omitted graphic shows the performance of Global Business Services, Inc.
compared to the S&P 500 from 9/28/2001 to 9/20/2002 and provides a brief
business overview of Global Business Services, Inc.
D-35
Nathan's Famous, Inc.
Stock Price vs. the S & P 500 Index
(graphic omitted)
This omitted graphic shows the performance of Nathan's Famous, Inc. compared to
the S&P 500 from 9/28/2001 to 9/20/2002 and provides a brief business overview
of Nathan's Famous, Inc.
D-36
Noble Roman's, Inc.
Stock Price vs. the S & P 500 Index
(graphic omitted)
This omitted graphic shows the performance of Noble Roman's Inc. compared to the
S&P 500 from 9/28/2001 to 9/20/2002 and provides a brief business overview of
Noble Roman's Inc.
D-37
Pizza Inn, Inc.
Stock Price vs. the S & P 500 Index
(graphic omitted)
This omitted graphic shows the performance of Pizza Inn, Inc. compared to the
S&P 500 from 9/28/2001 to 9/20/2002 and provides a brief business overview of
Pizza Inn, Inc.
D-38
Schlotzky's, Inc.
Stock Price vs. the S & P 500 Index
(graphic omitted)
This omitted graphic shows the performance of Schlotsky's, Inc. compared to the
S&P 500 from 9/28/2001 to 9/20/2002 and provides a brief business overview of
Schlotsky's, Inc.
D-39
ANNEX E
PAK MAIL CENTERS OF AMERICA, INC.
VALUATION ANALYSIS
AS OF MAY 31, 2002
E-1
PAK MAIL CENTERS OF AMERICA, INC.
Table of Contents
================================================================================
I. OPINION LETTER
II. BUSINESS OVERVIEW AND RISK ANALYSIS
III. FINANCIAL PERFORMANCE
IV. DISCOUNTED CASH FLOW ANALYSIS
V. COMPARABLE PUBLIC COMPANY ANALYSIS
VI. COMPARABLE CONTROL TRANSACTION ANALYSIS
VII. PREFERRED STOCK RIGHTS & PRIVILEGES
VIII. CONCLUSION
APPENDIX:
A. ECONOMIC OVERVIEW
COMPARABLE PUBLIC COMPANY DESCRIPTIONS
COMPARABLE PUBLIC COMPANY INDEX
B. ANALYSTS RESUMES
LIST OF SOURCES
E-2
July 11, 2002
Mr. John E. Kelly Chairman of the Board
Pak Mail Centers of America, Inc.
7173 S. Havana Street
Suite 600
Englewood, CO 80112
Dear Mr. Kelly:
Duff & Phelps, LLC ("Duff & Phelps") has been retained by Pak Mail Centers of
America, Inc. ("Pak Mail" or "the Company") to provide a determination (the
"Opinion") of the fair market value of the common stock of Pak Mail on a
controlling interest basis. It is our understanding that this Opinion may be
used in connection with possible transactions involving one or more mergers and
in connection with a possible transaction to take the Company private. The
effective date of value for our analysis is May 31, 2002.
For purposes of this analysis, we define the term "fair market value" as the
amount at which capital stock would change hands between a willing buyer and a
willing seller, each having reasonable knowledge of all relevant facts, neither
being under any compulsion to act, with equity to both.
We considered the application of the three approaches to value: cost, income and
market. We believe that the income and market approaches are the most
appropriate for the valuation of the Company. The cost approach does not
accurately reflect the value of the Company on a going-concern basis. The cost
approach is more commonly and appropriately used in the valuation of fixed
assets, asset holding companies or operating companies in financial distress.
Consequently, our value conclusions were based on: (i) the income approach,
which entailed a discounted cash flow analysis, and (ii) the market approach,
which entailed an analysis of public market prices of companies considered
similar to Pak Mail from an investment standpoint.
E-3
Mr. John E. Kelly
July 11, 2002
Page 2
Due Diligence
Duff & Phelps relied on the information provided by Pak Mail management and its
representatives without independent verification thereof by Duff & Phelps. Duff
& Phelps assumed that the information provided fairly represents the results of
the operations and financial position of the Company. Due diligence activities
carried out as part of the valuation process included the following:
o Interviews with John E. Kelly, Chairman of the Board; P. Evan Lasky,
President and Chief Executive Officer; James Race, Controller; Alex Zai,
Vice President of Operations;
o Visited the Company's headquarters and training centers in Englewood,
Colorado and Pak Mail retail stores located in Englewood, Colorado and
Anaheim, California;
o Review of the Company's audited financial statements for fiscal year 1996
through 2001 and internal financial statements for the five months ended
April 30, 2002;
o Review of the Company's financial projections for fiscal years 2002 through
2006, as prepared by management;
o Review of various other Company documents including, but not limited to SEC
filings (10Ks, 10Qs, etc.), franchise agreements, offering circulars and
other relevant Company information; and
o Review of pertinent industry and economic information.
Conclusion
Based on our analysis, and relying on the accuracy and completeness of all
information provided to us, it is our opinion that the fair market value of the
common stock on a controlling interest basis of Pak Mail Centers of America,
Inc. is reasonably stated in the range of $50,000 and $250,000.
This valuation report has been prepared in conformance with the "Uniform
Standards of Professional Appraisal Practice" of the Appraisal Foundation. This
valuation report, as well as the valuation conclusion stated herein, is subject
to the attached Statement of Contingent and Limiting Conditions. Duff & Phelps
E-4
Mr. John E. Kelly
July 11, 2002
Page 3
assumes no responsibility for the accuracy or completeness of any information
provided by or on behalf of the Company or any other information regarding the
Company provided or otherwise made available to Duff & Phelps.
Respectfully submitted,
DUFF & PHELPS, LLC
E-5
STATEMENT OF CONTINGENT AND LIMITING CONDITIONS
-----------------------------------------------
This valuation report is made subject to the following contingent and limiting
conditions:
1. We assume no responsibility for the legal description or other matters
including legal or title considerations of the business interest being
valued. Title to the subject business interest is assumed to be good
and marketable unless otherwise stated.
2. We assume that the subject business interest is free and clear of any
or all liens or encumbrances unless otherwise stated.
3. The information furnished by others, upon which all or portions of
this report is based, is believed to be reliable, but has not been
verified except as set forth in this report. We issue no warranty or
other form of assurance as to the accuracy of such information.
4. We assume no hidden or unapparent conditions regarding the subject
business interest.
5. This report has been made only for the purpose stated and shall not be
used for any other purpose. Neither all nor any part of the contents
of this report shall be disseminated to the public by any means
without prior written consent and approval, including, without
limitation, any conclusions as to value, the identity of Duff &
Phelps, LLC or any individuals signing or associated with this report,
or the professional associations or organizations with which they are
affiliated.
6. Neither Duff & Phelps, LLC nor any individual signing or associated
with this report shall be required by reason of this report to furnish
additional analyses, or to give testimony, or to be in attendance in
court with reference to the business interest in question unless
specific arrangements therefore have been made.
7. We take no responsibility for changes in market conditions and we
assume no obligation to revise this report to reflect events or
conditions which occur subsequent to the date hereof.
8. The date of value to which the opinion expressed in this report
applies is set forth in the opinion letter at the beginning of this
report. Our value opinion is based on the purchasing power of the
United States dollar as of that date.
9. We assume that all required licenses, certificates of occupancy,
consents, or other legislative or administrative authority from any
local, state, or national government or private entity or organization
have been or can readily be obtained or renewed for any use on which
the opinion contained in this report is based.
E-6
10. We assume that there is full compliance with all applicable federal,
state and local laws and regulations, unless the lack of compliance is
otherwise stated.
11. We assume responsible ownership and competent management with respect
to the subject business interest.
12. The analyses, opinions, and conclusions presented in this report apply
to this engagement only and may not be used out of the context
presented herein. This report is valid only for the effective date
specified herein and only for the purpose specified herein.
13. Unless otherwise stated in this report, we have no knowledge of the
existence of hazardous materials with respect to the subject business
interest. We were not engaged nor are we qualified to detect such
materials. The presence of potentially hazardous substances may affect
the value of the subject business interest. The value estimate herein
is predicated on the assumption that there is no such material on, in,
or near the subject business interest's property that would cause a
loss in value. No responsibility is assumed for any such conditions or
for any expertise or engineering knowledge required to discover them.
The client should retain an expert in this field if further
information is desired.
14. Possession of this report does not carry with it the right of
publication. It may not be used for any purpose by any person other
than the client to whom it is addressed without our written consent,
and in any event, only with proper written qualifications and only in
its entirety.
E-7
CERTIFICATION
-------------
We certify that, to the best of our knowledge and belief:
o The statements of fact contained in this report are true and correct.
o The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions.
o The reported analyses, opinions, and conclusions are our personal,
impartial, unbiased professional analyses, opinions, and conclusions.
o We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest with respect
to the parties involved.
o We have no bias with respect to the property that is the subject of
this report or to the parties involved with this assignment.
o Our compensation is not contingent on an action or event resulting
from the analyses, opinions, or conclusions in, or the use of, this
report.
o Our analyses, opinions, and conclusions were developed, and this
report has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice.
o No one provided significant professional assistance to the person(s)
signing this report.
--------------------- --------------------- ---------------------
Gregory P. Range Kenneth A. Nofziger Guy Shvartz
Managing Director Vice President Associate
Duff & Phelps, LLC Duff & Phelps, LLC Duff & Phelps, LLC
E-8
PAK MAIL CENTERS OF AMERICA, INC.
Business Overview
================================================================================
HISTORY
Pak Mail Centers of America, Inc. was incorporated in the State of Colorado on
January 27, 1984 as a marketer of Pak Mail store franchises that specialize in
the packaging and shipping business. In 1985, the Company became a public
entity, trading on the over-the-counter market. In October 1989, an affiliate of
D.P. Kelly & Associates acquired a majority interest in the Company to
capitalize on growth in the packaging and shipping industries. With later
investments, D.P. Kelly & Associates own approximately 75% of the Company's
issued and outstanding common stock and 100% of the Company's issued and
outstanding Series C Preferred Stock. In addition, D.P. Kelly & Associates has
lent $400,000 to the Company on a demand note basis. During the next few years,
the Company's franchise store operations were unable to generate a profit as
intended. By fiscal year 1995, the Company achieved a break-even level and
reported profit for the fiscal years 1996 through 1999. The Company reported
substantial losses in fiscal years 2000 and 2001, primarily attributable to a
failed software project. The Company's strategy continues to be expanding its
franchisee base throughout the United States and Internationally, and increasing
the average store volume of individual units.
BUSINESS
The Company's principal business is the marketing of Pak Mail store franchises
and its primary source of revenues is derived from royalties and franchise fees.
Pak Mail also generates revenues from the sale of certain equipment, supplies,
forms and materials to franchisees. Pak Mail stores provide mailbox service,
parcel shipping and receiving, packaging, freight forwarding and other
communications and information products and services to commercial and
residential customers through a variety of carriers. Stores may also offer a
variety of related items such as stamps, greeting cards, stationery supplies,
keys and passport photographs.
As of February 28, 2002, the Company had 337 domestic and 47 international Pak
Mail stores in existence, 28 area franchise agreements and 9 international
master license agreements in existence. The following illustrates the number of
domestic Pak Mail retail stores in operation over the past five fiscal years,
including estimates for fiscal year 2002:
(GRAPHIC OMITTED)
As of November 30, 2001, Pak Mail retail stores were located in 42 states with
average annual sales per store over 2 years old of $219,226. As of November 30,
2001, there were international franchise agreements in existence located in the
E-9
PAK MAIL CENTERS OF AMERICA, INC.
Business Overview
================================================================================
Mexican cities of Mexico City and Guadalajara, the Mexican states of Baja
California and Sonora and the countries of Chile, Argentina, Venezuela,
Honduras, Panama, Nicaragua, El Salvador, Costa Rica, Belize, Guatemala,
Australia, New Zealand and Japan.
FRANCHISE AGREEMENTS
The Company offers individual franchise agreements, area marketing agreements
and international area franchise agreements. The following describes each
franchise agreement in detail:
Individual franchise agreements - Individual franchises are granted the
nonexclusive right, within a specified area, to use the Pak Mail trademarks
as well as Pak Mail's proprietary operating procedures, techniques, forms,
equipment and advertising materials in the operation of a Pak Mail store.
The Company's current individual franchise Agreement has a term of ten
years. Franchise fees are payable as follows:
o Initial franchise fee of $27,950.
o Initial fee ranging between $580 and $900 for a grand opening
advertising and marketing program.
o Sliding scale monthly royalty in each calendar year of five
percent of the first $200,000 of the franchisee's royalty based
revenues, plus four and one-half percent for the next $50,000 of
royalty based revenues, plus four percent for the next $50,000 of
royalty based revenues, plus three and one-half percent for the
next $50,000 of royalty based revenues, plus three percent for
all subsequent royalty based revenues received in that calendar
year.
o No royalty fee is paid with respect to revenues from postage
stamps.
o Individual franchisees are also required to pay an advertising
fee each month in the amount of two percent of royalty based
revenues. The advertising fees are held in a separate legal trust
controlled by Pak Mail. These fees are used for national
advertising and other marketing purposes.
Area marketing agreements - The area marketing agreements grant the right
to market franchises within a specified territory using certain Pak Mail
trademarks. When an area marketer successfully markets an individual
franchise in its territory, the Company typically pays the area marketer
40% to 60% of the franchise fee paid by the individual franchisee. The area
marketer receives 50% to 60% of the royalties paid to the Company by
individual franchisees in its territory. If an individual franchise is sold
in an area where there is no area marketer, Pak Mail retains 100% of all
fees and royalties paid by the franchisee.
E-10
PAK MAIL CENTERS OF AMERICA, INC.
Business Overview
================================================================================
International area franchise agreements - The Company's international area
franchise agreements require the payment of an initial franchise fee based
upon several factors including population and other demographic factors in
the designated country or geographic region. The Company often finances a
portion of the area franchise fee. The international area franchisee is
responsible for individual franchise marketing, site selection assistance
and lease negotiation, on-site training and continuing local support of the
individual franchisees within their areas.
TRAINING AND SUPPORT
Pak Mail provides various training and support to its franchisees. The Company
provides each franchisee an operations manual, which includes many of the
Company's standards and specifications and contains certain provisions designed
to ensure uniformity in the quality of the Pak Mail store. The manual is
designed to be a complete "A to Z" how-to manual for running the Pak Mail store.
Additionally, each franchisee attends a nine day training class in the Denver
area with regard to packaging, pricing and available shipping and mailing
services; preparation and execution of marketing and placement of advertising;
record keeping and systems operation; the Company's required software;
soliciting and servicing customers; selecting and training personnel; and store
location and operation. There is no charge for the class, but franchisees pay
their own expenses, including travel, lodging and meals. The Company also
provides three days of on-the-job training in an individual franchisee's Pak
Mail store and ongoing phone support for shipping and systems issues.
SERVICES AND PRODUCTS
The typical Pak Mail store offers a wide range of services and products for
personal and business support, communications services and convenience items and
services. The type and importance of particular services and products vary from
store to store. Prices for services and products are set by individual
franchisees and depend on competitive conditions in their respective franchise
locations. Major services and products offered at typical retail Pak Mail stores
include the following:
Shipping and Receiving. Pak Mail stores offer shipping services through a
variety of carriers and can assist the customer in selecting the fastest
and most cost effective method of sending goods. Pak Mail stores also act
as receiving agents for goods shipped to their customers. Pak Mail stores
advise customers as to the packaging requirements of the various carriers,
provide packaging of items for shipment and sell packaging materials. Pak
Mail differentiates itself from competitors in the private postal center
business through expertise in packaging, shipping and receiving.
Business Support Products and Services. Small businesses are often major
users of a Pak Mail store. Pak Mail stores provide a small business with a
variety of business services and products such as mailbox rental, telecopy
transmission, copying and office supplies.
E-11
PAK MAIL CENTERS OF AMERICA, INC.
Business Overview
================================================================================
Communications Services. Pak Mail stores may offer customers a wide range
of communications services such as telecopies, wire transfer of funds and
electronic mail and Internet access.
Convenience Items and Services. Pak Mail stores generally offer convenience
items such as postage stamps, envelopes, custom rubber stamps, laminating,
passport and identification photos and keys. Most Pak Mail stores also
offer office supplies, greeting cards, gift wrapping and other gift items.
Declared Value Coverage. Also available at the customer's option is loss
damage coverage on items shipped and/or packed.
Private Mailbox Service. Pak Mail stores offer private mailbox rentals.
Mailbox rental fees vary based on the size of the box, the rental terms and
the location of the Pak Mail Store.
SYSTEMS
In fiscal 1997, the Company began developing a point of sale software program
("PSS") for inclusion in the Pak Mail operating system. At the time, management
decided that the original third party software used in the Pak Mail system did
not handle specific industry requirements or meet the requirements of the
Company's unique markets. The PSS software contained all of the shipping rates
of various carriers, assisted the franchisee in selecting the most efficient and
cost effective way to ship a package and recorded the transaction for accounting
purposes. Release of the PSS software started in September 1999. The Company
began writing version 2 in February 2000. In April 2001, the Company decided it
did not have the necessary resources to finish and maintain the program. The
Company decided to reestablish its relationship with a 3rd party software
provider and have certain PSS proprietary code written into their software.
Since inception, the Company has spent approximately $1.3 million on research
and development costs associated with the software program, which has
predominantly been abandoned.
INDUSTRY
Private postal and business service centers form a highly fragmented industry.
According to management's estimates, the industry presently consists of more
than 9,000 stores of which approximately 55% are franchised and 45% are
independents. Growth in the postal and business service center industry is
expected to be flat over the next few years due to a saturated retail store
market domestically. International growth in the postal and business service
E-12
PAK MAIL CENTERS OF AMERICA, INC.
Business Overview
================================================================================
center industry is unknown as it is too difficult to quantify. As the world
moves toward a global economy and trade tariffs continue to break down, new
shipping markets and small business opportunities will develop which will
translate into increased demand for packaging, shipping and logistic services.
MARKET INFORMATION
The Company's common stock has been sporadically traded in the over-the-counter
market since 1985. No trading market for Pak Mail's common stock has been
established and no reliable information as to quoted prices with respected to
the common stock has been available. Therefore, no market equity value
indication is available from Pak Mail's traded common stock. The following graph
illustrates Pak Mail's stock price and volume as available:
(GRAPHICS OMITTED)
The omitted graphic illustrates Pak Mail's stock price and trading volume from
April 1994 to April 2002.
OWNERSHIP
Pak Mail is authorized to issue two securities as part of its capital structure:
one class of common stock and preferred stock.
Common Stock. As of February 28, 2002, there were 3,877,737 shares of
common stock issued and outstanding with a par value of $0.001 per share.
The common stock has voting rights to its shareholders and has not recently
declared cash dividends. Stock options issued and outstanding to employees
totaled 108,160 as of February 28, 2002.
E-13
PAK MAIL CENTERS OF AMERICA, INC.
Business Overview
================================================================================
Preferred Stock. As of February 28, 2002, there were 2,216 shares of Series
C preferred stock outstanding with a par value of $1,000. The shares are
dividend-paying (6%), cumulative, non-convertible preferred shares. Further
details on the rights and privileges of the Company's preferred shares are
located in Section VII, Preferred Stock Rights and Privileges.
The following tables illustrates the Company's ownership structure for its two
securities, common stock and preferred stock:
Shares %
Common Stock Shareholders Held Ownership
- ------------------------- ------ ---------
Pak Mail Investment Partnerships 2,404,264 62.0%
D.P. Kellyy & Associates 492,814 12.7%
CEDE & Co. 444,558 11.5%
Other 536,101 13.8%
--------- ------
Total Shares Outstanding 3,877,737 100.0%
Options Weighed Average
Option Shareholders Held Exercise Price
- ------------------- ------- ---------------
Total Outstanding Options 108,160 $0.75
Total Full Dilutive Shares Outstanding 3,985,897
Shares %
Series C Preferred Stock Shareholders Held Ownership
- ------------------------------------- ------ ---------
D.P. Kelly & Associates 1,000 45.1%
Pak Mail Investment Partnerships 1,216 54.9%
------- --------
Total Shares Outstanding 2,216 100.0%
COMPETITION
Pak Mail and its franchisees face competition primarily from independent
packaging and shipping service stores and other franchised operations offering
similar products and services. The Company's largest competitors are Mail Boxes,
Etc., who was acquired by UPS in May 2001, and the U.S. Postal Service. Although
the Company and its franchisees offer services similar to those offered by the
U.S. Postal Service, such as private mail box service and parcel handling, the
U.S. Postal Service does not offer certain of the business support,
communications and personal services offered by most Pak Mail Stores. In
addition to MBE, the Company competes against a number of franchisors with
packaging and shipping products and services. The five largest franchisors in
terms of number of stores are as follows:
E-14
PAK MAIL CENTERS OF AMERICA, INC.
Business Overview
================================================================================
Top 5 Franchisors
Packaging and Shipping
Company Name Stores
--------------------------------------------------
Mail Boxes, Etc 4,527
PostNet Postal & Business Cenerts 650
Pak Mail Center of America Inc. 384
Postal Annex+ 241
Handle With Care Packaging Stores 152
MANAGEMENT / BOARD OF DIRECTORS
The Company's management team is comprised of the following individuals:
Name Title
--------------------------------------------------------------------
P. Evan Lasky President and Chief Executive Officer
Alex Zai Vice President of Operations
The Company's Board of Directors meets regularly and is comprised of the
following individuals:
Name Title
--------------------------------------------------------------------
John E. Kelly Chairman of the Board
J. S. Corcoran Director
Ed Gustafson Director
John Grant Director
Laura McGrath Director
EMPLOYEES
As of February 28, 2002, Pak Mail had 13 full-time employees and 1 part-time
employee. The Company has a 401(k) profit sharing plan for all employees of the
Company who are 21 years of age and have completed one year of service may
participate. The Company contributes an amount equal to 100% of each employee's
contribution, limited to 3% of the employee's compensation.
E-15
PAK MAIL CENTERS OF AMERICA, INC.
Risk Analysis
================================================================================
KEY VALUATION CONSIDERATIONS
Pak Mail Brand. The Pak Mail brand is well regarded in the franchisor
industry for packaging and shipping. Over the past several years, Pak Mail
has consistently ranked among the top franchise investment opportunities in
Entrepreneur, Success Magazine, Franchise Times and Income Opportunities.
Niche Services. Pak Mail's stores provide niche services that are unique to
its competitors including custom packaging and specialty crating. The
Company focuses its marketing efforts on specialty shipping and packaging
services to its customers. Pak Mail stores have the capabilities to meet
small business specialty packaging and shipping needs efficiently and
economically.
Top Quality Training. Pak Mail offers a comprehensive initial and ongoing
training program to all franchisees of Pak Mail stores. Management
considers its training program one of the best in the industry due to its
extensive coursework. Upon completion of the training, franchisees are
familiar with all areas of running a Pak Mail store including, carriers,
vendors, packaging techniques, accounting principles, franchising, computer
systems and marketing. Hands on training in crating and packing provides
its franchisees with a unique training facility unlike its competitors.
Low Initial Investment. Pak Mail provides a low initial investment to its
franchisees. The minimum investment to open a Pak Mail store is as low as
$60,000.
Growth Opportunities. Currently, Pak Mail has limited presence in the New
England, southern California and Chicago metropolitan markets. These
underserved markets provide Pak Mail the opportunity to expand and gain
market share through new area development agreements or individual
franchise sales. Additionally, the international markets are currently
underserved and could provide additional growth opportunities for the
Company.
Management. The Company's management team has extensive experience in the
franchisor industry. John Kelly, Chairman of the Board, and P. Evan Lasky,
President, have been with the Company on a combined basis for over 25
years. Prior to working for the Company's management team, Alex Zai, Vice
President of Operations, owned a Pak Mail franchised retail store for over
seven years.
Lack of Control over Franchise. Pak Mail is limited in the amount of
control it may exercise over its licensed franchisees, as is true in the
overall franchising industry. All Company stores are owned and operated by
franchisees licensed directly by Pak Mail. This lack of direct control by
Pak Mail may limit its ability to test new programs, introduce new goods
and services, establish system wide purchasing programs and change the
general image or focus of the Pak Mail system going forward.
E-16
PAK MAIL CENTERS OF AMERICA, INC.
Risk Analysis
================================================================================
Fluctuations in Profitability. The Company's operating results are affected
by a wide range of factors that could adversely affect its revenues and
profitability including, customer demand, general economic conditions,
competition and saturated market conditions. Due to slower growth of its
franchises and unprofitable computer operations, the Company generated
negative operating income of approximately $169,000 in fiscal year 2000 and
break-even operating income of approximately $4,000 in fiscal year 2001.
Competition. The businesses in which Pak Mail operates is highly
competitive. Pak Mail competes from two main sources. (1) Direct
competition from other national chains and independents and specialty
service providers and (2) the United States Postal Service which compete
with on several fronts with Pak Mail.
Software. For the fiscal year 1996 through 2001, the Company developed a
point of sale software program for inclusion in the Pak Mail operating
system. In April 2001, the Company determined it did not have the resources
necessary to update and maintain software into perpetuity. As a result,
management decided to abandon the project completely. During this period,
the Company spent approximately $1.3 million on costs associated with the
development.
E-17
PAK MAIL CENTERS OF AMERICA, INC.
Financial Performance
================================================================================
A summary of Pak Mail's audited income statements, balance sheet and cash flow
statements for the fiscal years ended November 30, 1997 through 2001 are
presented in this section. A summary of Pak Mail's unaudited income statement,
balance sheet and cash flow statement for the three months ended February 28,
2002 is also presented in this section. A margin analysis is included, along
with a comparative financial analysis.
INCOME STATEMENT
Total revenues decreased 12.7% to $4.5 million in 2001 from $5.2 million in
2000. The decrease in total revenues is primarily attributable to a drop in area
franchise fees, a decrease in the sale of equipment, supplies and services, and
lower software licensing fees.
Franchise fee revenues, including individual and area developer sales,
decreased from $1.1 million in 2000 to $0.9 million in 2001, a decrease of
17.7%. The decrease is due to fewer individual franchises sold during the
year. The Company recognized 24 individual franchises in 2001 compared with
33 in 2000 and 48 in 1999.
Equipment, supplies and service revenues decreased to approximately
$600,000 in 2001 from $800,000 in 2000. The decrease is the result of fewer
store build-outs, the delayed launch of the PSS software and management's
decision to exit the computer software and hardware business during the
second half of 2001.
Software licensing fees and service revenues decreased from approximately
$300,000 in 2000 to $100,000 in 2001. The decrease is due to management's
decision to discontinue developing its proprietary software, PSS. The
Company, therefore, generated no revenue from this business during the
second half of 2001.
Total cost of sales (cost of products and services, royalties paid to
franchisees, and commissions on franchise sales) decreased slightly from $2.3
million in 2000 to $2.2 million in 2001. The decrease was primarily attributable
to cost of products and services decreasing as a result of fewer store
build-outs and management's decision to depart from the computer and software
businesses in the second half of 2001. The Company's gross profit margin
decreased from 55.0% in 2000 to 50.7% in 2001 as a result of franchises being
sold through area developers rather than the Company.
Total operating expenses decreased from $2.8 million in 2000 to $2.1 million in
2001. The decrease is attributable to a decrease in wage expense as a result of
a reduction in personnel, the elimination of software service costs and lower
advertising expenses. As a result, the Company's EBIT margins improved from
(3.0)% in 2000 to 0.5% in 2001 and EBITDA margins were 3.6% in 2001 compared to
1.4% in 2000. Net loss to common shareholders, excluding capitalized software
costs and the loss on disposal of assets in 2000, increased by approximately
E-18
PAK MAIL CENTERS OF AMERICA, INC.
Financial Performance
================================================================================
$20,000 in 2001 due to an increase in income tax expense of approximately
$200,000 as a result of reducing the value of the deferred income tax asset on
the Company's balance sheet. The Company continued to pay $133,000 in dividends
(6% yield) on its Series C preferred stock in 2001.
BALANCE SHEET
Total current assets increased slightly from approximately $980,000 in 2000 to
$1.0 million in 2001 attributable primarily to an increase in notes receivables.
Conversely, total assets declined from $2.1 million in 2000 to $2.0 million in
2001 due primarily to payments made on notes due from franchisees, depreciation
of fixed assets and amortization of intangible assets. Working capital deficit
was unchanged at ($200,000) in 2001. The Company continued to finance its
working capital requirements in 2001 with receivables due to the Company from
franchisees. The receivables consist of franchise fees and area marketer fees
financed by the Company.
Interest bearing debt, including capital-lease obligations and notes due to
shareholder, remained unchanged at approximately $400,000 in 2001. Shareholders'
equity decreased from approximately $400,000 in 2000 to $70,000 in 2001.
E-19
PAK MAIL CENTERS OF AMERICA, INC.
Discounted Cash Flow Analysis
================================================================================
The discounted cash flow (DCF) analysis is based on the theory that the current
value of an investment is based on the expected receipt of future economic
benefits. In the valuation of the equity of a company, indications of value are
developed by discounting projected debt-free net cash flows to their present
value at a rate that reflects both the current return requirements of the market
and the risks inherent in the specific investment. The present value of these
cash flows represents the invested capital value (debt plus equity) of a
company.
There are two primary components to value in using the discounted cash flow
approach: the present value of the interim cash flows plus the present value of
the terminal value (i.e., value at the end of the projection period). Typically,
the terminal value, or continuing value of operations beyond the last projection
year may be determined at the end of the projection period using a perpetuity
growth model called the Gordon Growth Model.
This section outlines the steps taken to formulate the discounted cash flow
analysis. These steps include the development of realistic cash flow
projections, the determination of appropriate discount rates and the final
determination of invested capital value indications.
Development of Realistic Cash Flow Projections
The assumptions made in the discounted cash flow analysis consider the Company's
historical growth and profitability, management's expectations going forward,
and the current economic outlook. Management provided a detailed five-year
forecast of income and expenses, including capital expenditure and balance sheet
assumptions. Additionally, we forecasted certain revenue and expense assumptions
and balance sheet items in the cash flow projections that we deemed fair and
reasonable. Certain key assumptions are summarized as follows:
o Royalty from franchise revenues are projected to remain flat at $2.7
million in 2002. Royalty revenues are expected to grow to $3.5 million in
2006, a five-year compound annual growth rate of 5.4%. Royalty from
franchise revenues are based on the growth of new store openings and
existing stores revenue base. Management estimates the number of stores to
increase from 346 in 2002 to 398 in 2006.
o Franchise fee revenues are projected to increase from approximately
$900,000 in 2001 to $1.1 million in 2006, a five-year compound annual
growth rate of 4.9%.
o Product and services revenues are projected to decrease from approximately
$600,000 million in 2001 to $300,000 in 2002, a decrease of 46.7%. The
decline in revenues is due to management's decision to exit the computer
software and hardware businesses. Thereafter, product and services revenues
are projected to increase slightly to $400,000 in 2006.
E-20
PAK MAIL CENTERS OF AMERICA, INC.
Discounted Cash Flow Analysis
================================================================================
o Other revenues are expected to increase slightly throughout the projected
period from $90,000 in 2002 to $108,000 in 2006.
o Gross profit margin is expected to be 52.4% in 2002 and decrease to 52.1%
thereafter.
o Total operating expenses as a percent of revenues are expected to decrease
from 46.2% in 2002 to 43.8% in 2006.
o Management expects maintenance capital expenditures to be approximately
$25,000 per year throughout the projected period.
o Projected depreciation expense is based on the assumption that the
Company's asset additions will have average lives of five years.
o Pak Mail is a C-corporation and, therefore, pays federal income taxes. As
of November 30, 2001, the Company had $4.4 million in net operating loss
carryforwards expiring in varying amounts over varying time periods.
Therefore, income taxes were not included in the projected period. However,
in order to normalize the Company's earnings after the projected period, we
have used an estimated 40% tax rate in the terminal year. After the
terminal year, approximately $1.1 million in net operating loss
carryforwards are estimated to be available to offset taxable income. In
order to capture this amount in our valuation analysis, we added the
present value of the tax-affected portion of the net operating loss
carryforwards to our concluded value of invested capital.
o Working capital assumptions are based on historical levels of current
assets and current liabilities.
Determination of an Appropriate Discount Rate
o The range of discount rates applied in our analysis is based on the
Company's estimated weighted average cost of capital ("WACC"), which
reflects the costs of debt, preferred and equity as well as the Company's
existing capital structure.
o The cost of preferred and equity is the rate of return an equity investor
would require to invest in the Company.
o Alternate investment opportunities with varying risk profiles were
considered and compared to the risk of an equity investment in the Company.
Some of the perceived risks of an investment in the Company are outlined in
the section of this report titled "Key Valuation Considerations."
E-21
PAK MAIL CENTERS OF AMERICA, INC.
Discounted Cash Flow Analysis
================================================================================
o The Capital Asset Pricing Model was used in the development of the cost of
equity.
o The cost of debt is taken as the Company's weighted average interest rate
on outstanding debt, or 8.0%.
o For the purpose of the WACC calculation, Pak Mail's capital structure is
assumed to consist of 20% debt, 10% common equity and 70% preferred.
o The weighted average cost of capital is estimated to be 18.0%.
o The concluded discount rates for applying to the Company's DCF analysis
ranges from 17.0% to 19.0%.
Determination of Continuing Value
o Discounted the estimated 2006 valuation of Pak Mail to the present, using
appropriate discount rates, to determine the present value of the terminal
valuation.
Determine Current Fair Market Value of Total Invested Capital
o The net present value of the free cash flows generated during the
projection period was calculated.
o The net present value of the interim cash flows is added to the present
value of the terminal value and the present value of the net operating
carryforwards (as mentioned above) to arrive at an indication of total
invested capital.
o In order to determine an indication of the fair market value of equity, we
subtracted interest-bearing debt.
o The concluded total equity value is stated on a controlling interest basis.
o Pak Mail's concluded total equity value indications using the DCF approach
range from approximately $1.3 million to $1.5 million.
E-22
PAK MAIL CENTERS OF AMERICA, INC.
Comparable Public Company Analysis
================================================================================
Overview of Methodology
Analyze comparable public companies and subject company
o Select comparable companies
o Evaluate financial performance and investment characteristics of selected
companies versus Pak Mail
Determine representative level of earnings and cash flow
o Determine projected levels of Company's earnings and cash flow generating
capability going forward
o Adjust for unusual or nonrecurring items including, professional fees
associated with being a publicly traded company and discontinued computer
and software operations.
Select market multiples to apply to historical and projected levels
o Comparable public companies were used as a guide.
o Investment attributes of Pak Mail were contrasted with those of the
comparable companies.
Apply appropriate multiples to Pak Mail's historical and projected levels
o Representative Revenue ("Revenue")
o Representative Operating Cash Flow ("EBITDA")
o Representative Operating Income ("EBIT")
E-23
PAK MAIL CENTERS OF AMERICA, INC.
Comparable Public Company Analysis
================================================================================
Comparable Company Selection
The comparable public company analysis involves the careful screening and
selection of public companies that are the most similar to the subject company
from an investment perspective. It is unusual that any public company is
identical, or even a close substitute, for a private company. In this case, the
identification of closely comparable companies is made even more difficult by
the unique nature of Pak Mail, which operates as a marketer of Pak Mail store
franchises and its principal source of revenues is derived from royalties and
franchise fees as well as from the sale of certain equipment, supplies, forms
and materials to franchisees. The following illustrates the comparable company
selection process vis-a-vis Pak Mail:
o Selected companies that sell franchise businesses within a myriad of
industries, including printing, shipping and packaging, restaurants
and others.
o Selected companies that generate a large portion of revenues from
royalties and fees from franchisees.
o Selected shipping and parcel and mail equipment companies as a
secondary source of data.
Due to the nature of publicly traded companies in general, a number of the
comparable franchise public companies chosen are larger companies that own and
franchise stores. While various private companies exist that compete directly
with Pak Mail, there is no meaningful market value data available for these
companies.
Applying these screening criteria resulted in the selection of the following 8
comparable franchise companies:
ETM
Revenues
Company (in millions)
--------------------------------------------------------------
BCT International, Inc. (BCTI) $18
Dwyer Group, Inc. (DWYR) 22
Emerging Visions, Inc. (ISEE) 20
Global Business Services, Inc.(GBSS)* 4
Nathan's Famous, Inc. (NATH) 43
Noble Roman's, Inc. (NROM) 6
Pizza Inn, Inc. (PZZI) 63
Schlotzsky's, Inc (BUNZ) 62
Highest 63
Lowest 4
Mean 30
Median 21
* Revenues are based on nine months ended March 31, 2002 figures
annualized due to limited financial results available
--------------------------------------------------------------
E-24
PAK MAIL CENTERS OF AMERICA, INC.
Comparable Public Company Analysis
================================================================================
Comparative Analysis
As previously mentioned, the selected comparable franchise companies sell
franchise businesses within numerous industries. Additionally, some of the
comparable franchise companies generate a portion of their earnings from owned
franchises and have large capital outlays in order to support store operations.
Therefore, some of the comparable franchise companies have substantially
different capital and cost structures. The following table illustrates the
number of company-owned and franchised stores held by the comparable franchise
companies and the industry focus of the businesses.
Company
Owned Total Industry
Company Franchies Franchies Stores Focus
- --------------------------------------------------------------------------------------------------------------
BCT International, Inc. (BCTI) 84 0 84 Printing
Dwyer Group, Inc. (DWYR) 994 6 1,000 Specialty Services*
Emerging Vision, Inc. (ISEE) 169 34 203 Optical/Eyecare
Global Business Services, Inc. (GBSS) 35 20 55 Postal and Business Services
Nathan's Famous, Inc. (NATH) 386 25 411 Restaurant
Noble Roman's Inc. (NROM) 27 3 30 Restaurant
Pizza Inn, Inc (PZZI) 131 66 197 Restaurant
Schlotzsky's Inc. (BUNZ) 44 10 54 Restaurant
* Specialty services include plumbing, carpet, electrical, appliances, air and glass
With such a diverse range of industries exhibited by the comparable franchise
companies, Pak Mail's financial performance characteristics are not directly
comparable to this group of companies. However, given the limited universe of
potential comparable companies, these entities represent the best available
indications of market valuations within Pak Mail's industry.
The various schedules on the following pages detail the valuation multiples and
financial performance of the comparable franchise companies. A comparison of
some of the key financial performance characteristics of Pak Mail and the
comparable franchise companies follows.
Size With latest twelve months (LTM) revenue of $4.1 million and
total assets of $2.2 million, Pak Mail is the smallest
company relative to the comparable companies with sales and
total assets ranging from $4.5 million to $63.3 million and
$7.0 million to $113.1 million, respectively.
E-25
PAK MAIL CENTERS OF AMERICA, INC.
Comparable Public Company Analysis
================================================================================
Growth Pak Mail LTM adjusted revenue growth ranked 4th out of 7
comparable companies with meaningful data. The Company's
three-year compound annual growth rate of revenues ranked
6th out of 7 comparable companies with meaningful data. Pak
Mail's three-year compound annual growth rate of EBITDA
ranked 4th out of 5 comparable companies with meaningful
data.
Profitability The Company ranked 6th in terms of LTM EBITDA margin, 7th in
terms of three-year average EBITDA margin and 6th in terms
of three-year average EBIT margin.
Returns As a result of the Company's discontinuation of its computer
and software operations, returns on equity and assets were
not meaningful for Pak Mail. Therefore, no comparison was
made to the comparable companies.
Conclusion Based on the factors analyzed above, Pak Mail exhibits lower
profitability and average top line growth relative to the
comparable companies. Pak Mail is also significantly smaller
in terms of revenues and total assets, and serves a niche
industry. Overall, Pak Mail has a relatively high degree of
uncertainty regarding its future earnings, as do most of the
comparable companies within our group. Therefore, multiples
chosen to apply to Pak Mail's representative levels were
below the average exhibited by the comparable companies.
Selection of Appropriate Multiples
As shown on the following tables, the selected comparable franchisor companies
reflect a wide range of market valuation multiples. The market-based multiples
of invested capital value to revenues range from 0.2 to 5.2, with a mean and
median of 0.9 and 1.3. The market-based multiples of invested capital to EBITDA
ranging from 6.1 to 13.7, with a mean and median of 6.9 and 8.4, respectively,
while the multiples of invested capital value to EBIT ranging from 8.2 to 16.4,
with a mean and median of 14.0 and 12.8, respectively.
With respect to the selected shipping and parcel and mail equipment companies,
overall mean and median invested capital value to revenue multiples were 2.7 and
1.3, respectively. Overall mean and median invested capital to EBITDA multiples
were 21.6 and 13.3, respectively, while the mean and median invested capital
value to EBIT multiples were 33.4 and 18.5, respectively.
E-26
PAK MAIL CENTERS OF AMERICA, INC.
Comparable Public Company Analysis
================================================================================
The discussion above presents a quantitative comparison of Pak Mail's' financial
profile to those of the comparable companies. Based on that comparison, we have
determined that the appropriate multiples to apply to Pak Mail lie below the
average exhibited by the comparable companies.
Based on the factors discussed above, the range of valuation multiples exhibited
by the selected comparable companies, and other relevant considerations, it is
Duff & Phelps' opinion that the appropriate valuation multiples for application
to Pak Mail are 0.5 times representative revenues, 6.0 times representative
EBITDA and 7.5 times representative EBIT. The application of these multiples
results in a range of equity values between $1.4 million and $1.6 million.
E-27
PAK MAIL CENTERS OF AMERICA, INC.
Comparable Control Transaction Analysis
================================================================================
We analyzed information from controlling interest transactions involving
companies similar to Pak Mail. The Securities Data Corporation's database was
searched for companies operating under the following Standard Industrial
Classification (SIC) Codes that consummated controlling interest transactions:
5812 - Restaurants
6794 - Patent Owners and Lessors
7389 - Business Services, Not Elsewhere Classified
We also searched this database using keywords such as: franchise, franchisor,
franchisee, franchising, mailbox, postal and shipping. In addition, we looked
for controlling interest transactions including any of the comparable companies
mentioned in the previous section of this report.
A total of 10 controlling interest transactions were identified as having
occurred during the time between January 1997 through May 2002. Based on these
10 transactions, the following range of transaction multiples were observed:
o Transaction Value to Revenues: 0.2x - 5.4x
o Transaction Value to EBITDA: 2.1x - 28.7x
o Transaction Value to EBIT: 4.2x - 32.1x
o Equity Value to Net Income: 10.4x - 43.3x
It should be noted that the above multiples were calculated before any
adjustments were made to the financial statements of the acquired companies. If
adjustments were made for market compensation levels, special bonuses,
nonrecurring expenses, etc., lower valuation multiples would likely result.
Due to the unavailability of detailed financial and valuation information
related to the controlling interest transactions identified, the range of
valuation multiples identified from the controlling transaction search was not
used to directly value Pak Mail. Instead, the range of transaction value
multiples was examined in conjunction with the discounted cash flow and
comparable company analyses to assess the reasonableness of the concluded equity
value of the Company.
E-28
PAK MAIL CENTERS OF AMERICA, INC.
Preferred Stock Rights & Privileges
================================================================================
Preferred Stock Valuation
Our concluded total equity value range of $1.35 million to $1.55 million, shown
in Section VIII Conclusions, is lower than the redemption value and liquidation
preference value of the Series C Preferred Stock of approximately $2.2 million.
This indicates that the fair market value of the Preferred Stock is less than
its redemption value. The common shares are secondary to the Preferred shares in
priority and will realize value only after value accrues to the Preferred. We
note that there are no near-term plans to redeem the preferred stock, nor does
the Company have the wherewithal to fund a redemption in the next year or two.
Based on the stated dividend rate of 6 percent relative to the risk of Pak Mail
in general and the Series C Preferred specifically, as well as yields available
on preferred stocks and the lack of redemption plan in the near future, we
believe the fair market value of the Series C Preferred Stock value is
significantly less than its stated liquidation value.
We valued the Series C Preferred Stock by discounting the future expected
dividend payments over a 3 to 10 year time period and redemption of principal
occurring at the end of the period to their present value. This time frame
utilized reflects our assessment of a reasonable period before the Company would
be sold or the Preferred Stock redeemed. We believe a time horizon of more than
3 years but less than 10 best reflects how an investor would perceive the
Preferred Stock.
The discount rate used in our analysis was based on yields observed for
preferred stocks with "C" ratings ranging from 5.8% to 62.3%, as well as
alternative investments and the overall risk of Pak Mail. A discount rate range
of 18.0% to 20.0% was deemed reasonable for Pak Mail's Series C Preferred Stock.
This is consistent with the discount rate used in the DCF approach.
The following illustrates our concluded range of value for the Series C
Preferred Stock:
Discount Rate
---------------------------------------
PV of Series C Preferred Stock 20.0% 19.0% 18.0%
3 Year Redemption 1,562,956 1,600,015 1,638,311
5 Year Redemption 1,288,581 1,335,559 1,384,840
7 Year Redemption 1,098,042 1,148,810 1,202,801
10 Year Redemption 915,603 966,331 1,021,240
- --------------------------------------------------------------------------------
Overall Range of Series C Preferred Stock 915,603 -- 1,638,311
- --------------------------------------------------------------------------------
The above analysis of the Series C Preferred Stock yielded a range of value
between $900,000 and $1.6 million. We have concluded at a fair market value of
$1.3 million for the Series C Preferred Stock. This represents 58.6% of face
value, which we believe to be reasonable based upon our review of the Preferred
Stock and the Company.
E-29
PAK MAIL CENTERS OF AMERICA, INC.
Preferred Stock Rights & Privileges
================================================================================
The following lists the rights and privileges for Pak Mail's Series C Preferred
stock, per the preferred stock agreement:
Par Value: $1,000
Stated Value: $1,000 per share
Outstanding: 2,216.668 shares
Dividends: Holders of preferred shares are entitled to receive
cumulative dividends at the rate of $60.00 per twelve-month
period paid annually.
Redemption: The Company has the right to redeem part or all of the
outstanding preferred shares at a price per share equal to
$1,000 plus all dividends accrued and unpaid to the date of
redemption.
Voting: Holders of preferred shares are not entitled to vote for the
election of directors. However, the Company may not engage
in any of the following activities without the approval of a
majority of the total number of preferred shares
outstanding:
1. Alter the rights, preferences, or privileges of
the preferred stock
2. Increase the authorized number of preferred
shares
3. Create any new class of shares that have
preferences over the preferred stock, with
respect to dividends or assets, unless the
purpose and the proceeds are to retire all the
preferred stock outstanding
4. Issuance of shares of Common Stock of the
Company
5. Merge and/or consolidate with another
corporation
6. Sell, liquidate or dispose of the Company's
assets
Liquidation
Rights: In the event of a liquidation or dissolution, the proceeds
shall be distributed in the following priority:
1. Preferred shareholders are entitled to receive
assets of the Company in an amount per share
equal to $1,000 plus all dividends accrued and
unpaid.
2. Any remaining assets will be distributed to
common shareholders.
E-30
PAK MAIL CENTERS OF AMERICA, INC.
Conclusion
================================================================================
The preceding analysis employed both the DCF method and the comparable public
company method in the valuation of Pak Mail. The DCF analysis yielded a range of
equity value between $1.3 and $1.5 million. The comparable public company
analysis yielded a range of equity value from $1.4 to $1.6 million. The analysis
indicates an overall valuation range between $1.3 million and $1.6 million, and
we have concluded at the range $1.35 million to $1.55 million. Upon subtracting
the value of preferred stock from our equity value range, the concluded value on
a controlling interest basis ranges from $50,000 to $250,000.
Based on our analysis, and relying on the accuracy and completeness of all
information provided to us, it is our opinion that as of May 31, 2002, the fair
market value of Pak Mail Center of America, Inc. equity value, on a controlling
interest basis, is reasonably stated in the range of $50,000 to $250,000.
- --------------------------------------------------------------------------------
Control Equity Value Indications:
Discounted Cash Flow Analysis $1,251,352 -- $1,469,746
Comparable Public Company Analysis $1,381,218 -- $1,581,218
Concluded Control Equity Value Range: $1,350,000 -- $1,550,000
Less Value of Preferred Stock $1,300,000
Concluded Control Equity Value Range (common) $50,000 $ 250,000
- --------------------------------------------------------------------------------
E-31
PAK MAIL CENTERS OF AMERICA, INC.
Economic Overview
================================================================================
April 2002
ECONOMIC OVERVIEW
The purpose of this economic overview is to provide a review of the
current condition of the national economy and the outlook for the year
to come. The overview reflects the consensus forecast of the Blue Chip
Economic Indicators panel (the "Consensus") and our examination of
other pertinent economic analyses. As these sources are generally
published mid-month, this overview reflects the economic outlook as of
that time.
Overall Economic Growth
The Consensus has revised its estimate of inflation-adjusted (real) GDP growth
during the first quarter of 2002, to 4.5%, on an annualized basis, up by almost
two percentage points from last month's prediction. The major contributor to the
sudden acceleration in real GDP growth, which would be the fastest growth in
real GDP since the second quarter of 2000, is believed to be a sharp reduction
in the rate of business inventory liquidation, which is expected to add about
three percentage points to real GDP growth in the first quarter of this year.
Other factors contributing to the rapid growth during the first quarter are
continued strength in consumer spending and renewed investment in business
equipment and software.
In the second quarter of this year, the contribution from business inventories
is expected to be smaller, and consumer spending is expected to grow at a slower
rate. Nevertheless, the Consensus has adjusted its forecast of real GDP growth
in the second quarter of 2002 to an annualized rate of 3.4%, up by 0.2 of a
percentage point from last month's forecast, and expects real GDP growth to
reach 3.7% in both the third and fourth quarters of 2002, in response to
stronger labor markets and business investment resulting from improvement in
corporate profits.
The Institute for Supply Management's new orders index rose to 65.3 in March,
its highest level in 16 years, indicating that industrial activity, too, may be
experiencing an upswing. Total industrial production, which declined by 3.8%
last year, is expected to grow 0.3% in 2002 and 4.7% in 2003. As businesses
begin building up their inventories again, however, inflation may accelerate, as
wholesalers and retailers that had been cutting prices of products that were
overstocked have trimmed their inventory levels to correspond more closely to
customer demand, and thus have less incentive to keep prices low.
The Consensus expects real GDP to grow 2.6% in 2002 and 3.5% in 2003.
Current-dollar (nominal) GDP, meanwhile, is expected to grow 4.0% in 2002 and
5.5% in 2003.
E-32
PAK MAIL CENTERS OF AMERICA, INC.
Economic Overview
================================================================================
Consumption and Investment
Real personal consumption expenditures (PCE) grew at a revised annual rate of
6.1% in the fourth quarter of 2001, mainly as the result of record vehicle sales
encouraged by zero-financing offers from auto manufacturers. For the entire
year, however, PCE grew by only 3.1% in 2001 after growing by an average of 4.9%
in the prior three years. The Consensus believes real PCE growth will slow down
in the coming months, but will be much stronger than previously expected,
registering annualized gains of 2.9% in the first quarter, 2.3% in the second
quarter, 2.8% in the third quarter, and 3.1% in the fourth quarter of 2002.
The Consensus predicts new housing starts will total 1.61 million units in 2002
and 1.58 million units in 2003, compared to 1.60 million units in 2001. Total
vehicle sales are expected to number 16.2 million units in 2002 and 16.5 million
units in 2003, compared to 17.5 million units in 2001. Nonresidential investment
is expected to decline by 2.8% in 2002 and grow 7.0% in 2003 after declining
3.2% during 2001.
Inflation and Unemployment
Inflation is expected to remain relatively low in the near future, mainly as the
result of last year's plunge in energy prices. However, as energy prices rebound
due to renewed global economic growth, the Consensus has begun to ratchet
slightly upward its forecast for the Consumer Price Index (CPI), which rose 2.8%
in 2001, predicting increases in the CPI of 1.5% in 2002 and 2.5% in 2003, an
increase of 0.1 from last month's forecast for both years. The chained-GDP price
index, meanwhile, is expected to rise 1.4% in 2002 and 1.9% in 2003, after
increasing 2.2% in 2001.
Unemployment is expected to reach an average of 5.7% during 2002 before falling
again to 5.3% during 2003, compared to 4.8% in 2001.
Interest Rates
On April 16, 2002, Fed funds were trading at 1.75%, three-month T-bills at 1.7%,
and ten-year T-notes at 5.2%, while the dollar was trading at 131 yen and
$0.88/euro. At its last meeting on March 17, 2001, the Federal Open Market
Committee (FOMC) decided to leave the Fed funds rate target unchanged. Analysts
believe the FOMC will make no further changes in the Fed funds target until
August 2002, at which point they expect the Fed to begin shifting the target
rate slightly upward.
- --------------------------------------------------------------------------------
Sources: Blue Chip Economic Indicators, April 10, 2002
Standard & Poor's Trends & Projections, April 18, 2002
E-33
PAK MAIL CENTERS OF AMERICA, INC.
Analysts Resumes
================================================================================
GREGORY P. RANGE
Managing Director
GREGORY P. RANGE is a Managing Director and manages the West Coast office of
Duff & Phelps, LLC. Mr. Range advises owners of private companies, boards of
directors of public companies, financial institutions, charitable foundations,
ERISA-covered trusts and other professionals on issues including acquisitions,
mergers, divestitures, investment viability, estate planning, valuation, and
obtaining liquidity for closely held business owners. Additionally, he has
extensive experience in structuring, advising and arranging financing for
leveraged ESOP transactions and authored a chapter entitled "Advanced Valuation
Issues in ESOP LBO's" in Employee Stock Ownership Plans. His responsibilities
with Duff & Phelps include general management and administration of Duff &
Phelps Los Angeles office, project management and business development. Prior to
joining Duff & Phelps in 1990, he was a senior vice president with Houlihan,
Lokey, Howard & Zukin, having spent seven years with that firm. Mr. Range has
been a frequent speaker to groups and professional organizations on a variety of
topics and teaches continuing education courses to both legal and accounting
professionals on transaction related issues.
Mr. Range received a B.A. in Economics from Stanford University and an M.B.A. in
Finance from the University of California, Los Angeles. He is a member of the
Board of Trustees of the Alliance Healthcare Foundation and is a member of the
Board of Governors of Portals, a not for profit rehabilitation agency for the
homeless and mentally ill.
KENNETH A. NOFZIGER
Vice President
KENNETH A. NOFZIGER is a Vice President in the Los Angeles office of Duff &
Phelps, LLC. Mr. Nofziger advises corporations, business owners, accountants and
attorneys on issues related to determining, increasing and realizing value. He
is responsible for a wide variety of mergers and acquisition, business valuation
and financing engagements for middle market and emerging growth companies. Prior
to joining Duff & Phelps, Mr. Nofziger was with EquiCo, LLC a boutique
investment bank specializing in the sale of small and middle market companies.
Previously he was a senior manager with RSM McGladrey, Inc. and McGladrey &
Pullen, LLP where he provided financial, operations and strategic consulting
services to middle-market and owner-managed companies.
Mr. Nofziger received a B.S. in Accounting from Western Illinois University and
a M.B.A. with an emphasis in Strategic Management from DePaul University. He is
a member of the American Institute of Certified Public Accountants, the
California Society of Certified Public Accountants and the National Association
of Certified Valuation Analysts.
E-34
PAK MAIL CENTERS OF AMERICA, INC.
Analysts Resumes
================================================================================
GUY SHVARTZ
Associate
GUY SHVARTZ is an Associate of Duff & Phelps, LLC. Mr. Shvartz has worked on a
variety of financial transactions including mergers and acquisitions, fairness
opinions, and securities valuation services. Prior to joining Duff & Phelps, Mr.
Shvartz worked as an analyst at Union Bank of California in the Corporate
Banking Group. He focused heavily on merger and acquisition financing
transactions involving public companies spanning various industries. Mr. Shvartz
holds a B.A. in economics from the University of California Irvine.
E-35
1. Pak Mail's audited financial statements for the fiscal years ended December
31, 1997 through 2001 and unaudited financial statements for the first
quarter of 2002.
2. Projections provided by management for the fiscal years ended December 31,
2002 through 2006.
3. Various leases and other agreements.
4. Following search resources: ValueLine; Hoovers Online; Market Guide Online;
Bloomberg; Dun & Bradstreet; and Global Researcher.
5. Following financial data resources: Standard & Poor's Compustat Services,
Inc.; First Call Corporation; Ibbotson Associates; and Securities Database
Corporation.
6. Various SEC filings for the following companies: BCT International, Dwyer
Group, Emerging Vision, Global Business Services, Nathan's Famous, Noble
Roman's, Pizza Inn, Schlotzsky's.
7. Various financial market data and new articles published by Bloomberg L.P.
8. Various analytical and industry reports supplied by Multex Online.
E-36
ANNEX F
TITLE 7. CORPORATIONS AND ASSOCIATIONS
CORPORATIONS
COLORADO BUSINESS CORPORATIONS
ARTICLE 113. DISSENTERS' RIGHTS
PART 1. RIGHT OF DISSENT - PAYMENT FOR SHARES
7-113-101. Definitions
For purposes of this article:
(1) "Beneficial Shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record Shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring domestic or foreign corporation,
by merger or share exchange of that issuer.
(3) "Dissenter" means a Shareholder who is entitled to dissent from corporate
action under section 7-113-102 and who exercises that right at the time and in
the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at the legal rate as specified in
section 5-12-101, C.R.S.
(6) "Record Shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares that are
registered in the name of a nominee to the extent such owner is recognized by
the corporation as the Shareholder as provided in section 7-107-204.
(7) "Shareholder" means either a record Shareholder or a beneficial Shareholder.
7-113-102. Right to dissent
(1) A Shareholder, whether or not entitled to vote, is entitled to dissent and
obtain payment of the fair value of the Shareholder's shares in the event of any
of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party if:
(I) Approval by the Shareholders of that corporation is required for the merger
by section 7-111-103 or 7-111-104 or by the articles of incorporation; or
(II)
The corporation is a subsidiary that is merged with its parent corporation under
section 7-111-104;
F-1
(b) Consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of the corporation for which a Shareholder
vote is required under section 7-112-102(1); and
(d) Consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of an entity controlled by the corporation if
the Shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to section 7-112-102(2).
(1.3) A Shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or were held of record by more than two thousand
Shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the Shareholders
entitled to receive notice of the Shareholders' meeting at which the corporate
action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine Shareholders
entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action is
authorized other than by a vote of Shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall not
apply if the Shareholder will receive for the Shareholder's shares, pursuant to
the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of merger
or share exchange;
(b) Shares of any other corporation which at the effective date of the plan of
merger or share exchange either will be listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or will be held of record by more than two thousand
Shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2) Deleted by Laws 1996, H.B.96-1285, (S) 30, eff. June 1, 1996.
(2.5) A Shareholder, whether or not entitled to vote, is entitled to dissent and
obtain payment of the fair value of the Shareholder's shares in the event of a
reverse split that reduces the number of shares owned by the Shareholder to a
fraction of a share or to scrip if the fractional share or scrip so created is
to be acquired for cash or the scrip is to be voided under section 7-106-104.
F-2
(3) A Shareholder is entitled to dissent and obtain payment of the fair value of
the Shareholder's shares in the event of any corporate action to the extent
provided by the bylaws or a resolution of the Board of Directors.
(4) A Shareholder entitled to dissent and obtain payment for the Shareholder's
shares under this article may not challenge the corporate action creating such
entitlement unless the action is unlawful or fraudulent with respect to the
Shareholder or the corporation.
7-113-103. Dissent by nominees and beneficial owners
(1) A record Shareholder may assert dissenter's rights as to fewer than all the
shares registered in the record Shareholder's name only if the record
Shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record Shareholder asserts dissenter's
rights. The rights of a record Shareholder under this subsection (1) are
determined as if the shares as to which the record Shareholder dissents and the
other shares of the record Shareholder were registered in the names of different
Shareholders.
(2) A beneficial Shareholder may assert dissenter's rights as to The shares held
on the beneficial Shareholder's behalf only if: (a) The beneficial Shareholder
causes the corporation to receive the record Shareholder's written consent to
the dissent not later than the time the beneficial Shareholder asserts
dissenter's rights; and (b) The beneficial Shareholder dissents with respect to
all shares beneficially owned by the beneficial Shareholder. (3) The corporation
may require that, when a record Shareholder dissents with respect to the shares
held by any one or more beneficial Shareholders, each such beneficial
Shareholder must certify to the corporation that the beneficial Shareholder and
the record Shareholder or record Shareholders of all shares owned beneficially
by the beneficial Shareholder have asserted, or will timely assert, dissenter's
rights as to all such shares as to which there is no limitation on the ability
to exercise dissenter's rights. Any such requirement shall be stated in the
dissenter's notice given pursuant to section 7-113-203.
TITLE 7. CORPORATIONS AND ASSOCIATIONS
CORPORATIONS
COLORADO BUSINESS CORPORATIONS
ARTICLE 113. DISSENTERS' RIGHTS
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
7-113-201. Notice of dissenter's rights
(1) If a proposed corporate action creating dissenter's rights under section
7-113-102 is submitted to a vote at a Shareholders' meeting, the notice of the
meeting shall be given to all Shareholders, whether or not entitled to vote. The
notice shall state that Shareholders are or may be entitled to assert
dissenter's rights under this article and shall be accompanied by a copy of this
article and the materials, if any, that, under articles 101 to 117 of this
title, are required to be given to Shareholders entitled to vote on the proposed
action at the meeting. Failure to give notice as provided by this subsection (1)
F-3
shall not affect any action taken at the Shareholders' meeting for which the
notice was to have been given, but any Shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the Shareholder's shares under this article by reason of the Shareholder's
failure to comply with the provisions of section 7- 113-202(1).
(2) If a proposed corporate action creating dissenter's rights under section
7-113-102 is authorized without a meeting of Shareholders pursuant to section
7-107-104, any written or oral solicitation of a Shareholder to execute a
writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that Shareholders are or may
be entitled to assert dissenter's rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to Shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
Shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any Shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the Shareholder's shares under this article by reason of the Shareholder's
failure to comply with the provisions of section 7- 113-202(2).
7-113-202. Notice of intent to demand payment
(1) If a proposed corporate action creating dissenter's rights under section
7-113-102 is submitted to a vote at a Shareholders' meeting and if notice of
dissenter's rights has been given to such Shareholder in connection with the
action pursuant to section 7-113-201(1), a Shareholder who wishes to assert
dissenter's rights shall:
(a) Cause the corporation to receive, before the vote is taken, written notice
of the Shareholder's intention to demand payment for the Shareholder's shares if
the proposed corporate action is effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenter's rights under section
7-113-102 is authorized without a meeting of Shareholders pursuant to section
7-107-104 and if notice of dissenter's rights has been given to such Shareholder
in connection with the action pursuant to section 7-113-201(2) a Shareholder who
wishes to assert dissenter's rights shall not execute a writing consenting to
the proposed corporate action.
(3) A Shareholder who does not satisfy the requirements of subsection (1) or (2)
of this section is not entitled to demand payment for the Shareholder's shares
under this article.
7-113-203. Dissenter's notice
(1) If a proposed corporate action creating dissenter's rights under section
7-113-102 is authorized, the corporation shall give a written dissenter's notice
to all Shareholders who are entitled to demand payment for their shares under
this article.
F-4
(2) The dissenter's notice required by subsection (1) of this section shall be
given no later than ten days after the effective date of the corporate action
creating dissenter's rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the effective date
or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands and
the address of a place where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a dissenter to
state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand and
certificates for certificated shares, which date shall not be less than thirty
days after the date the notice required by subsection (1) of this section is
given;
(f) State the requirement contemplated in section 7-113-103(3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204. Procedure to demand payment
(1) A Shareholder who is given a dissenter's notice pursuant to section 7- 113-
203 and who wishes to assert dissenter's rights shall, in accordance with the
terms of the dissenter's notice:
(a) Cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in section 7-113-203(2)(d), duly completed, or
may be stated in another writing; and
(b) Deposit the Shareholder's certificates
for certificated shares.
(2) A Shareholder who demands payment in accordance with subsection (1) of this
section retains all rights of a Shareholder, except the right to transfer the
shares, until the effective date of the proposed corporate action giving rise to
the Shareholder's exercise of dissenter's rights and has only the right to
receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209(1)(b), the demand for
payment and deposit of certificates are irrevocable.
(4) A Shareholder who does not demand payment and deposit the Shareholder's
share certificates as required by the date or dates set in the dissenter's
notice is not entitled to payment for the shares under this article.
F-5
7-113-205. Uncertificated shares
(1) Upon receipt of a demand for payment under section 7-113-204 from a
Shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to Shareholders who own uncertificated shares.
7-113-206. Payment
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenter's rights under section 7-113- 102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
Shareholders for the record Shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent fiscal year
or, if that is not available, the corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the date of payment, an
income statement for that year, and, if the corporation customarily provides
such statements to Shareholders, a statement of changes in Shareholders' equity
for that year and a statement of cash flow for that year, which balance sheet
and statements shall have been audited if the corporation customarily provides
audited financial statements to Shareholders, as well as the latest available
financial statements, if any, for the interim or full-year period, which
financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
7-113-209; and
(e) A copy of this article.
7-113-207. Failure to take action
(1) If the effective date of the corporate action creating dissenter's rights
under section 7-113-102 does not occur within sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If the effective date of the corporate action creating dissenter's rights
under section 7-113-102 occurs more than sixty days after the date set by the
corporation by which the corporation must receive the payment demand as provided
in section 7-113-203, then the corporation shall send a new dissenter's notice,
as provided in section 7-113-203, and the provisions of sections 7-113-204 to
7-113-209 shall again be applicable.
F-6
7-113-208. Special provisions relating to shares acquired after announcement of
proposed corporate action
(1) The corporation may, in or with the dissenter's notice given pursuant to
section 7-113-203, state the date of the first announcement to news media or to
Shareholders of the terms of the proposed corporate action creating dissenter's
rights under section 7-113-102 and state that the dissenter shall certify in
writing, in or with the dissenter's payment demand under section 7-113-204,
whether or not the dissenter (or the person on whose behalf dissenter's rights
are asserted) acquired beneficial ownership of the shares before that date. With
respect to any dissenter who does not so certify in writing, in or with the
payment demand, that the dissenter or the person on whose behalf the dissenter
asserts dissenter's rights acquired beneficial ownership of the shares before
such date, the corporation may, in lieu of making the payment provided in
section 7-113-206, offer to make such payment if the dissenter agrees to accept
it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall include
or be accompanied by the information required by section 7- 113-206(2).
7-113-209. Procedure if dissenter is dissatisfied with payment or offer
(1) A dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, less any payment made
under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section 7-113- 206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within sixty
days after the date set by the corporation by which the corporation must receive
the payment demand; or
(c) The corporation does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares as required by section
7-113-207(1).
(2) A dissenter waives the right to demand payment under this section unless the
dissenter causes the corporation to receive the notice required by subsection
(1) of this section within thirty days after the corporation made or offered
payment for the dissenter's shares.
TITLE 7. CORPORATIONS AND ASSOCIATIONS
CORPORATIONS
COLORADO BUSINESS CORPORATIONS
ARTICLE 113. DISSENTERS' RIGHTS
PART 3. JUDICIAL APPRAISAL OF SHARES
7-113-301. Court action
(1) If a demand for payment under section 7-113-209 remains unresolved, the
corporation may, within sixty days after receiving the payment demand, commence
a proceeding and petition the court to determine the fair value of the shares
F-7
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay to each dissenter whose demand remains
unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection (1) of
this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered office, it shall commence the proceeding in the county
where the registered office of the domestic corporation merged into, or whose
shares were acquired by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unresolved parties to the proceeding commenced under
subsection (2) of this section as in an action against their shares, and all
parties shall be served with a copy of the petition. Service on each dissenter
shall be by registered or certified mail, to the address stated in such
dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of Shareholders
for the record Shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to such order. The parties to the
proceeding are entitled to the same discovery rights as parties in other civil
proceedings.
(5) Each dissenter made a party to the proceeding commenced under subsection (2)
of this section is entitled to judgment for the amount, if any, by which the
court finds the fair value of the dissenter's shares, plus interest, exceeds the
amount paid by the corporation, or for the fair value, plus interest, of the
dissenter's shares for which the corporation elected to withhold payment under
section 7-113-208.
7-113-302. Court costs and counsel fees
(1) The court in an appraisal proceeding commenced under section 7-113-301 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation; except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court finds
the corporation did not substantially comply with the requirements of part 2 of
this article; or
(b) Against either the corporation or one or more dissenters, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
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(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
F-9
PROXY
PAK MAIL CENTERS OF AMERICA, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD __________, 2003
The undersigned hereby constitutes and appoints P. Evan Lasky the true and
lawful attorney and proxy of the undersigned with full power of substitution and
appointment, for and in the name, place and stead of the undersigned, to act for
and to vote all of the undersigned's shares of $0.001 par value common stock of
Pak Mail Centers of America, Inc. (the "Company") at the Special Meeting of
Shareholders (the "Special Meeting") to be held at the offices of Pak Mail, 7173
South Havana Street, Suite 600, Englewood, Colorado 80112, on ____, _______,
2003, at 9:00 a.m. Mountain Time, and at all adjournments thereof for the
following purposes:
1. To vote in favor of the Agreement and Plan of Merger, dated as of
October 17, 2002, as amended as of October 28, 2002, by and between
Pak Mail and Pak Mail Acquisition Corp. (the "Merger Agreement"), and
the merger of Pak Mail Acquisition Corp. with and into Pak Mail
pursuant to the Merger Agreement
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
2. In his discretion, the Proxy is authorized to vote upon such other
business as properly may come before the Special Meeting, if it was
not known to the Proxy a reasonable time before the solicitation that
such matters would properly come before the Special Meeting.
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned and ratifies and confirms all that said attorney and
proxy lawfully may do by virtue hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THEN THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AT THE SPECIAL MEETING AS DIRECTED BY THE BOARD OF DIRECTORS.
It is understood that this proxy confers discretionary authority in respect
to matters not known or determined at the time of the mailing of the Notice of
Special Meeting of Shareholders to the undersigned. The proxy and attorney
intend to vote the shares represented by this proxy on such matters, if any, as
determined by the Board of Directors.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and the Proxy Statement furnished therewith.
Dated and Signed:
_________________________, 2003
Signature(s) should agree with the
name(s) stenciled hereon.
Executors, administrators,
trustees, guardians and attorneys
should so indicate when signing.
Attorneys should submit powers of
attorney.