Exhibit 16c(7)
March 26, 2003
Board of Directors
BCT International, Inc.
3000 NE 30th Place
5th Floor
Fort Lauderdale, Florida 33306
Gentlemen:
The Company has, during the past eighteen to twenty-four months, gone
through some changes and new circumstances that have required increased
attention from our Board and the formation of an Independent Special Committee,
composed of the two of us. The Special Committee was formed by the Board on June
19, 2001 to (i) consider the terms and conditions of a "going private"
transaction proposed by Bill Wilkerson, and (ii) consider any other bona fide
offers made to the Company in this respect.
The "going-private" program, started in mid-2001, was not successfully
completed. At that time, the Board felt that a "going private" transaction would
give shareholders a liquidity opportunity at a difficult time for the Company
and for the market for small company shares. In support, the Board agreed to
underwrite a significant change in the Company's shareholding by employing the
Company's assets to guarantee a $2 million bank loan provided to Bill to enable
him to acquire Company shares. The outcome was that Bill increased his
shareholding from approximately 20% to over 50% of the outstanding stock. One
proviso was that the Company could for a year purchase these newly acquired
shares, at Bill's cost, via an option that expires this April 15th. This was
designed to give the Board flexibility in the event that Bill did not complete
the "going-private" transaction.
In October 2002, several months after the "going-private" transaction had
been terminated, the Company received a letter from New Valley Corporation,
indicating its preliminary interest in acquiring all of the Company's stock at
between $1.25 and $1.75 per share. Since new management and initiatives were
showing promise of significantly increasing the value of the Company and,
presumably, the price that an acquirer would be willing to pay, we elected to
defer a definitive response to New Valley until the Company's new business plan
was fully prepared and an analysis of the Company's value giving effect to the
new business plan could be obtained. The most recent direct contact with New
Valley was a letter from this Special Committee indicating that the Board valued
the Company at a higher level than before given recent performance and the
business plan. They have since verbally indicated to Capitalink a fairly
lukewarm interest given the expiring option and potentially higher price they
would be required to pay.
During this same overall period of time, the Company has achieved a
substantial improvement in operating performance and debt collection under the
"new" day-to-day leadership of Hank Johnson and his team. This current and
potential performance was reflected in the detailed Business Plan created by
management at the end of last year and the beginning of this year.
The business plan was partly developed with input provided by Edison
Partners, a well recognized financial advisory organization. They were also
asked to provide a professional valuation, given the new business plan.
Board of Directors
BCT international, Inc.
March 26,2003
Page 2
Throughout this process, Capitalink and Gardner, Carlton & Douglas have
provided professional guidance and advice to Phil and me. Capitalink has
provided a valuation and some recommendations for the Board to consider. These
are addressed in the attached letter.
It is apparent given the Company's current and potential cash pool,
together with the spread of valuations provided by both Edison and Capitalink,
that there is an opportunity for the Board to unlock some value for the benefit
of all the shareholders, without diminishing the Company's ongoing development.
At a minimum, the Special Committee recommends that the Board immediately
approve the exercise by the Company of its option to purchase for $0.90 per
share the approximately 454,000 shares acquired by Bill at $0.90 per share
during his "going-private" attempt.
As Directors of the Company, we respectfully suggest that during the
remaining option period the Board also seriously consider and act on one or more
of the other suggestions contained in the attached letter from Capitalink
designed to enhance shareholder value, assuming that Bill still does not wish to
extend the option period and given no further interest from New Valley at an
acceptable higher valuation.
We believe that the functions and responsibilities of the Special
Committee as authorized by the Board in June 2001 have now been completed.
Sincerely,
/s/ Jeff Hewson /s/ Philip Pisciotta
--------------- --------------------
Jeff Hewson Philip Pisciotta
Attachment to Exhibit 16c(5)
______________________________
[LOGO] CAPITALINK Columbus Center
Smart Investment Banking(__) One Alhambra Plaza, Suite 1410
Coral Gables, Florida 33134
Phone 305-446-2026
Fax 305-44_-2926
www.capitalinklc.com
March 25, 2003
Mr. Jeffrey K. Hewson
Chairman
Independent Committee of the Board of Directors
BCT International, Inc.
3000 N.E. 30th Place
5th floor
Fort Lauderdale, FL 33306
Dear Jeff:
Pursuant to the Agreement dated January 21, 2003 between Capitalink, L.C.
("Capitalink") and the Independent Committee of the Board of Directors of
BCT International, Inc. (the "Independent Committee"), Capitalink has been
retained to assist and advise the Independent Committee in connection with
the potential purchase of the outstanding shares of common stock of BCT
International, Inc. (the "Company") by merger or otherwise. The Company has
received an indication of interest from New Valley Corporation ("New
Valley") to acquire the Company's outstanding shares of common stock.
In providing the recommendations set forth below, we took into account our
assessment of general economic, market and financial conditions as well as
our experience in similar types of transactions and securities valuations
generally.
We also (i) reviewed publicly available financial information and other
data with respect to the Company, including the quarterly report on Form
10-QSB for the quarterly period ended November 30, 2002, the annual report
on Form l0-KSB for the fiscal year ended February 28, 2002, and the draft
balance sheet as of February 28, 2003 (ii) reviewed and analyzed the
Company's current capitalization table on a basic and fully-diluted basis,
(iii) reviewed certain publicly available information concerning the
trading of, and the trading market for, the common stock of the Company,
(iv) considered the historical financial results and present financial
condition of the Company, (v) reviewed and analyzed the Company's business
plan and financial projections based on three potential scenarios - base
case, Company store case and satellite store case (the "Scenarios") and
varying combinations of the Scenarios, (vi) reviewed and analyzed the
Company's notes receivable, (vii) reviewed and analyzed the Company's
projected unlevered
Mergers & Acquisitions | Fairness Opinions & Valuations | Restructuring |
Capital Raising | Financial Advisory
March 25, 2003
Page 2
free cash flows under each of the Scenarios, and prepared discounted cash
flow analyses based on various assumptions with respect to the Company's
weighted average cost of capital and terminal values, (viii) reviewed and
analyzed certain financial characteristics of companies that were deemed to
have characteristics comparable to those of the Company, (ix) analyzed and
reviewed the impact on the Company's capitalization of various combinations
of (a) the repurchase of certain tranches of shares from Mr. Wilkerson, (b)
the repurchase of shares from the public, and (c) a cash distribution to
shareholders through a dividend, (x) inquired about and discussed the
Company's options and other matters related thereto with Company management
and its legal counsel, and (xi) performed such other analyses and
examinations as were deemed appropriate.
We have relied upon and assumed the accuracy and completeness of all of the
financial and other information that was used without assuming any
responsibility for any independent verification of any such information and
we have further relied upon the assurances of Company management that it is
not aware of any facts or circumstances that would make any such
information inaccurate or misleading. With respect to the financial
projections utilized, we assumed that such projections have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments, and that such projections provide a reasonable basis upon which
we could form a recommendation. We have not made a physical inspection of
the properties and facilities of the Company, and have not made or obtained
any evaluations or appraisals of the assets and liabilities (contingent or
otherwise) of the Company. Further, we have not reviewed existing, or been
requested to make recommendations regarding, management stock option plans,
employment agreements or similar incentive-based information.
The following factors are important in our recommendation of potential
undertakings by the Independent Committee and Board to maximize shareholder
value:
1. We have specifically been asked not to market the Company and
seek out alternative offers.
2. The Company has a significant amount of cash - approximately $4.8
million ($0.94 per share) - as of November 30, 2002.
3. The closing price of the Company's common stock was $0.92 per
share as of March 24, 2003, while an analysis of the discounted
cash flow of the Company's base case financial projections
resulted in an average of the equity value per share equal to
approximately $2.00.
4. The Company has formulated an alternative business plan,
utilizing the Company store and satellite store cases (the
"Alternative Plan"), which indicates a current value of the
Company's common stock of approximately $2.50 per share.
5. The indication of interest from New Valley places a value range
of $1.25 to $1.75 per share.
As discussed in our meeting of February 24, in subsequent conversations,
and as set forth in the analysis attached hereto, we believe that, at a
price of $0.92 per share, the Company is currently undervalued and that the
Board should consider various alternatives in an attempt to "unlock" the
unrecognized value.
March 25, 2003
Page 3
You will recall that the first alternative we recommended to the
Independent Committee was to see if Mr. Wilkerson would attempt to acquire
the balance of the Company's shares that he does not beneficially own by
utilizing the Company's cash balances through a self-tender offer at $2.00
per share. The Independent Committee subsequently informed us that Mr.
Wilkerson rejected this alternative because he felt it would unduly
leverage the Company. It should be noted that our analysis does not
indicate that this would be the case. We then recommended as an alternative
that Mr. Wilkerson extend the expiration date of the options to purchase
shares beneficially owned by Mr. Wilkerson in order to allow the Company to
negotiate with New Valley. The Independent Committee subsequently informed
us that Mr. Wilkerson also rejected this alternative.
Based upon the foregoing, we recommend that the Independent Committee
undertake the following steps:
A. Determine New Valley's interest in acquiring the outstanding
shares of common stock of the Company at a valuation range in
excess of $1.75 per share.
B. Further, we recommend that the Company immediately exercise its
option to purchase approximately 454,000 shares at an exercise
price of $0.90 per share from Mr. Wilkerson.
If the Company receives an indication that New Valley would not be
interested in acquiring the Company at values greater than $1.75 per share,
the Independent Committee has requested we consider (i) the Independent
Committee's preference to buy a portion of Mr. Wilkerson's shares in order
to reduce his ownership interest to approximately 45.0%/l/, and (ii) the
Independent Committee's desire to return cash to its shareholders either
through a public tender offer or cash dividend.
Based upon these additional factors and the foregoing, we would then
recommend the Independent Committee undertake the following steps:
A. The Company should issue a cash dividend of $.60 per share, or
approximately $2.8 million in the aggregate, or
B. The Company exercises its option to purchase approximately
618,400 shares at an exercise price of $1.50 per share from Mr.
Wilkerson/2/. In addition the Company should tender the public
shareholders for approximately 500,000 shares at a purchase price
of $1.50 per share.
- ----------
/1/ It is noted that, although Mr. Wilkinson's ownership interest might drop
below 50%, Capitalink believes he would retain effective control.
/2/ We understand that the Company has made loans to, and guarantees on behalf
of, Mr. Wilkerson. Our recommendations assume that such loans will be satisfied
by Mr. Wilkerson with proceeds from the Company's exercise of the options.
March 25, 2003
Page 4
Subsequent to the initial preparation of this letter in draft form, the
Independent Committee further instructed us to request from the Company
draft financial information for the fiscal year ended February 28, 2003. As
of today's date, we have received a draft balance sheet that indicates a
cash balance of approximately $4.2 million ($0.83 per share), and working
capital of approximately $8.7 million. The draft balance sheet indicates a
similar working capital position to, and stronger current ratio than the
balance sheet as of November 30, 2002. Based upon our limited review of the
draft balance sheet, we do not believe revisions are required to our
recommendations set forth herein.
Our recommendation is for the use and benefit of the Independent Committee
and may not be used by the Company for any other purpose or reproduced,
disseminated, quoted or referred to by the Company at any time. Further,
our recommendation does not consider the requirements, if any, of the
Sarbenes-Oxley Act of 2002, nor have we examined such requirements, if any.
We performed a variety of financial and comparative analyses for the
purpose of rendering these recommendations. We believe that our analyses
must be considered as a whole and that selecting portions of the analyses,
without considering all analyses and factors, could create a misleading
view of the underlying processes. The analyses we performed are not
necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses. In
addition, we do not express any opinion as to the underlying valuation or
future performance of the Company or the price at which the Company's
common stock would trade at any time in the future.
Sincerely yours,
CAPITALINK, L.C.
BCT International, Inc. Confidential
- --------------------------------------------------------------------------------
Step One - Exercise Option on Wilkerson's $0.90 shares.
($ and shares balances in thousands, except per share amounts)
Option
Current Exercise (1) Proforma Post Step One
-------------- ------------ ----------------------
% of % of
Shareholding (Basic) Shares Total Shares Shares Total
------ ----- ------ ------ -----
Wilkerson: $0.90 Shares 454 (454) --
$1.50 Shares 618 -- 618
Other 1,618 -- 1,618
----- ---- -----
2,690 52.5% (454) 2,236 47.9%
Other Shareholders 2,431 47.5% -- 2,431 52.1%
----- ----- ---- ----- -----
5,121 100.0% (454) 4,667 100.0%
===== ===== ==== ===== =====
Shareholding (ITM Diluted) (2)
Wilkerson: $0.90 Shares 454 (454) --
$1.50 Shares 618 -- 618
Other 1,945 -- 1,945
----- ---- -----
3,018 53.1% (454) 2,564 49.0%
Other Shareholders 2,668 46.9% -- 2.668 51.0%
----- ----- ---- ----- -----
5,686 100.0% (454) 5,232 100.0%
===== ===== ==== ===== =====
Proforma
Current (3) Cost of Post Step One
Balance Exercise Balance
----------- -------- -------------
Cash Balances
Cash on Hand $4,805 $(409) $4,396
====== ===== ======
Cash on Hand, Per Share $ 0.94 $ 0.94
====== ======
- --------------------------------------------------------------------------------
(1) Exercise of the Company's option to buyback approximately 454,000 shares
from Wi1kerson at $0.90 per share.
(2) Includes warrants and options assumed to be in-the-money (ITM), ie. <
$2.00.
(3) Based on cash balances as of November 30, 2002.
Sources of information: Company financial statements and management
March 25, 2003 Capitalink, L C
1
BCT International, Inc. Confidential
- --------------------------------------------------------------------------------
Step Two - Comparison of Option A and B
($ and shares balances in thousands, except per share amounts)
Total Cash % of Total Dividend/Cost Shares
Required (1) Cash (2) Per Share (2) Repurchased
------------ ---------- ------------- -----------
Step Two - Option A: Cash Dividend
Wilkerson $1,342 47.9% $0.60 na
Other Shareholders 1,459 52.1% $0.60 na
------ -----
$2,800 100.0% $0.60
====== =====
Cash Balance, Post Step Two - Option A $1,596
======
Step Two - Option B: Exercise Option on
Wilkerson's $1.50 shares and initiate
$1.50 public tender offer
Wilkerson $ 928 52.2% $1.50 618
Other Shareholders 750 42.2% $1.50 500
Estimated Costs of Public Tender Offer 100 5.6%
------ ----- -----
$1,778 100.0% $1.59 1,118
====== ===== =====
Cash Balance, Post Step Two - Option B $2,619
======
% of Total Basic
Shares O/S Issues
---------------- ------------------------------------------------------
Step Two - Option A: Cash Dividend
Wilkerson 47.9% 1) Fast Implementation, requires only board approval
Other Shareholders 52.1% 2) Minimal or no costs
-----
100.0% 3) Dividends subject to investor's ordinary income tax
=====
Cash Balance, Post Step Two - Option A
Step Two - Option B: Exercise Option on
Wilkerson's $1.50 shares and initiate
$1.50 public tender offer
Wilkerson 45.6% 1) Requires SEC filings
Other Shareholders 54.4% 2) Longer implementation
Estimated Costs of Public Tender Offer 3) Costs of public tender (legal, accounting, other)
-----
100.0% 4) Tender offer proceeds subject to capital gains tax.
=====
Cash Balance, Post Step Two - Option B
- --------------------------------------------------------------------------------
(1) See corresponding analysis.
(2) Based on basic shares oustanding post step one, of approximately 4.667
million shares.
Sources of information: Company financial statements and management
March 25, 2003 Capitalink, L C
2
BCT International, Inc. Confidential
- --------------------------------------------------------------------------------
Step Two - Option A: Cash Dividend
($ and shares balances in thousands, except per share amounts)
Proforma
Proforma Cash Post Step Two
Post Step One (1) Dividend Option A
----------------- -------- -------------
Cash Balances
Cash on Hand $4,396 $(2,800) $1,596
====== ======= ======
Cash on Hand, Per Share $ 0.94 $ (0.60) $ 0.34
====== ======= ======
- --------------------------------------------------------------------------------
(1) Assumed share and cash balances after completion of Step One.
(2) Based on basic shares outstanding post step one, of approximately 4.667
million shares.
Sources of information: Company financial statements and management
March 25, 2003 Capitalink, L.C
3
BCT International, Inc. Confidential
- --------------------------------------------------------------------------------
Step Two - Option B: Exercise Option on Wilkerson's $1.50 shares and initiate
$1.50 public tender offer
($ and shares balances in thousands, expect per share amounts)
Proforma Option Exercise & Proforma
Post Step One (1) Public Tender (2) Post Step Two - Option B
----------------- ----------------- ------------------------
%of %of
Shares Total Shares Shares Total
------ ----- ------ ------ -----
Shareholding (Basic)
Wilkerson: $0.90 Shares -- -- --
$1.50 Shares 618 (618) --
Other 1,618 -- 1,618
----- ------ -----
2,236 47.9% (618) 1,618 45.6%
Other Shareholders 2,431 52.1% (500) 1,931 54.4%
----- ----- ------ ----- -----
4,667 100.0% (1,737) 3,549 100.0%
===== ===== ====== ===== =====
Shareholding (ITM Diluted)(3)
Wilkerson: $0.90 Shares -- -- --
$1.50 Shares 618 (618) --
Other 1,945 1,945
----- -----
2,564 49.0% 1,945 47.3%
Other Shareholders 2,668 51.0% (500) 2,168 52.7%
----- ----- ------ ----- -----
5,232 100.0% (1,118) 4,114 100.0%
===== ===== ====== ===== =====
Step 1 Step 2.Opt. B
Proforma Proforma
Balance Cost(4) Balance
-------- ------- -------------
Cash Balances
Cash on Hand $4,396 $(1,778) $2,619
====== ======= ======
Cash on Hand, Per Share $ 0.94 $ 0.74
====== ======
- --------------------------------------------------------------------------------
(1) Assumed share and cash balances after Completion of Step One.
(2) Exercise of the Company's option to buyback approximately 618,000 shares
from Wilkerson at $1.50 per share and public tender offer to buy 500,000
shares at $1.50.
(3) Includes Warrants and options assumed to be in-the-money (ITM),ie. <$2.00.
(4) Total cost of completing $1.50 buyback from Wilkerson and through public
tender offer, plus an additional $100,000 to cover administration costs of
tender offer.
Sources of information: Company financial statements and management
March 25, 2003 Capitalink, L.C
4
BCT International, Inc. Confidential
- --------------------------------------------------------------------------------
Cash Flow Analysis
($ in thousand, except per share amounts)
Base Case Only Full Plan(1)
---------------------------------- ----------------------------------
FYB February 28/29 FYB February 28/29
---------------------------------- ----------------------------------
2004 2005 2006 2007 2004 2005 2006 2007
------- ------ ------ ------ ------- ------ ------ ------
EBITDA
Base Case $ 1,486 $1,204 $ 934 $ 680 $ 1,486 $1,204 $ 934 $ 680
Company Stores -- -- -- -- 180 747 984 1,082
Satellite Stores -- -- -- -- 28 517 751 1,195
------- ------ ------ ------ ------- ------ ------ ------
Total EBITDA 1,486 1,204 934 680 1,693 2,468 2,669 2,957
Less Depreciation & Amort 200 200 200 200 300 300 300 300
------- ------ ------ ------ ------- ------ ------ ------
EBIT 1,286 1,004 734 480 1,393 2,168 2,369 2,657
Less Taxes 502 392 286 187 543 846 924 1,036
Add Depreciation & Amort 200 200 200 200 300 300 300 300
Less Change in Working Capital 233 14 10 10 (336) (700) 77 173
Less Capital Expenditure 150 150 150 150 1,950 1,123 225 225
Add Cash Received From Notes (3) 692 692 692 692 692 692 692 692
------- ------ ------ ------ ------- ------ ------ ------
Free Cash Flow $ 1,759 $1,368 $1,200 $1,045 $ (445) $ 490 $2,289 $2,561
======= ====== ====== ====== ======= ====== ====== ======
Pro Forma Step One
Opening Cash $ 4,805 $6,156 $7,524 $8,724 $ 4,805 $3,952 $4,442 $6,731
Free Cash Flow 1,759 1,368 1,200 1,045 $ (445) $ 490 $2,289 $2,561
Step One (4) (409) -- -- -- (409) -- -- --
------- ------ ------ ------ ------- ------ ------ ------
Closing Cash $ 6,156 $7,524 $8,724 $9,769 $ 3,952 $4,442 $6,731 $9,292
======= ====== ====== ====== ======= ====== ====== ======
Pro Forma Step Two-Option A
Opening Cash $ 4,805 $3,355 $4,724 $5,924 $ 4,805 $1,151 $1,642 $3,_31
Free Cash Flow 1,759 1,368 1,200 1,045 (445) 490 2,289 2,561
Step One (4) (409) -- -- -- (409) -- -- --
Step Two-Option A (5) (2,800) -- -- -- (2,800) -- -- --
------- ------ ------ ------ ------- ------ ------ ------
Closing Cash $ 3,355 $4,724 $5,924 $6,968 $ 1,151 $1,642 $3,931 $6,492
======= ====== ====== ====== ======= ====== ====== ======
Pro Forma Step Two-Option B
Opening Cash $ 4,805 $4,378 $5,747 $6,946 $ 4,805 $2,174 $2,664 $4,953
Free Cash Flow 1,759 1,368 1,200 1,045 (445) 490 2,289 2,561
Step One (4) (409) -- -- -- (409) -- -- --
Step Two - Option B (6) (1,778) -- -- -- (1,778) -- -- --
------- ------ ------ ------ ------- ------ ------ ------
Closing Cash $ 4,378 $5,747 $6,946 $7,991 $ 2,174 $2,664 $4,953 $7,515
======= ====== ====== ====== ======= ====== ====== ======
Full Plan (Deferred Company Store Expansion)(2)
-----------------------------------------------
FYB February 28/29
-----------------------------------------------
2004 2005 2006 2007
------- ------ ------ ------
EBITDA
Base Case $ 1,486 $1,204 $ 934 $ 680
Company Stores 80 496 901 1,049
Satellite Stores 28 517 751 1,195
------- ------ ------ ------
Total EBITDA 1,593 2,217 2,585 2,924
Less Depreciation & Amort 300 300 300 300
------- ------ ------ ------
EBIT 1,293 1,917 2,285 2,624
Less Taxes 504 748 891 1,023
Add Depreciation & Amort 300 300 300 300
Less Change in Working Capital (336) (700) 77 173
Less Capital Expenditure 1,050 1,125 1,125 225
Add Cash Received, From Notes (3) 692 692 692 692
------- ------ ------ ------
Free Cash Flow $ 395 $ 337 $1,338 $2,541
======= ====== ====== ======
Pro Forma Step One
Opening Cash $ 4,805 $4,791 $5,128 $6,466
Free Cash Flow $ 395 $ 337 $1,338 $2,541
Step One (4) (409) -- -- --
------- ------ ------ ------
Closing Cash $ 4,791 $5,128 $6,466 $9,007
======= ====== ====== ======
Pro Forma Step Two - Option A
Opening Cash $ 4,805 $1,9_0 $2,327 $3,665
Free Cash Flow 395 337 1,338 2,541
Step One (4) (409) -- -- --
Step Two - Option A (5) (2,800) -- -- --
------- ------ ------ ------
Closing Cash $ 1,990 $2,327 $3,665 $6,206
======= ====== ====== ======
Pro Forma Step Two - Option B
Opening Cash $ 4,805 $3,013 $3,350 $4,688
Free Cash Flow 395 337 1,338 2,541
Step One (4) (409) -- -- --
Step Two - Option B (6) (1,778) -- -- --
------- ------ ------ ------
Closing Cash $ 3,013 $3,350 $4,688 $7,229
======= ====== ====== ======
- --------------------------------------------------------------------------------
(1) Assumes base case, company owned stores and satellite store initiatives are
implemented.
(2) Assumes the delayed purchase of two company owned stores and assuming only
one store is purchased each year between 2004 and 2006.
(3) Based on company's projections of probable receipts for fiscal year 2004.
(4) Exercise of the company's option to buyback approximately 454,000 shares
from Wilkerson at $0.90 per share.
(5) Cash dividend of approximately $0.60 per share.
(6) Exercise of the Company's option to buyback approximately 618,000 shares
from Wilkerson at $1.50 per share and public lender offer to buy 500,000
shares at $1.50
Sources of information Company Financials, Management and SEC fillings.
March 23, 2003 Capitalink, L C
5