<PAGE>
Exhibit 99.(d)
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 to Rule 14a-11(c) or Rule 14a-12
WESTERN BEEF, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant) Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ 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 $.05 per share
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
1,633,929 shares of Common Stock
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(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):
$8.75
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(4) Proposed maximum aggregate value of transaction:
$14,296,879
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(5) Total fee paid:
$2,859.38
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/ / Fee paid previously with preliminary materials.
/X/ 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.
(1) Amount Previously Paid:
$2,859.38
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(2) Form, Schedule or Registration Statement No.:
Schedule 13E-3
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(3) Filing Party:
Western Beef, Inc., 47-05 Metropolitan Avenue,
Ridgewood, NY 11385
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(4) Date Filed:
August 26, 1999
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<PAGE>
[Western Beef Letterhead]
September _, 1999
Dear Western Beef Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Western Beef, Inc. ("Western Beef"), which will be held at
[location to be determined], on October __, 1999 at 10:00 a.m., local time.
At the annual meeting, we will ask you to (1) approve the
merger of Cactus Acquisition, Inc. with and into Western Beef pursuant to an
Agreement and Plan of Merger, dated as of July 29, 1999 (the "Merger
Agreement"), between Western Beef and Cactus Acquisition, Inc. ("Cactus") and
(2) elect directors. Cactus is owned by Peter Castellana, Jr., Frank Castellana,
Joseph Castellana, Michael Castellana, Camile Castellana (all of whom are
siblings and are referred to herein as the "Principal Stockholders"), the
spouses and children of the Principal Stockholders and Ant Holding Corporation
(formerly PSL Foods, Inc.), a corporation owned in equal proportions by the
Principal Stockholders, (collectively, the "Buyer Group"). The Buyer Group
currently owns approximately 72% of Western Beef, and, as a result of the
merger, Western Beef will become 100% owned by the Buyer Group.
Subject to the terms of the Merger Agreement, if the merger is
approved and consummated, holders of Western Beef's common stock (the "Common
Stock") (other than Cactus and any stockholder who properly perfects his or her
appraisal rights under Delaware law) will receive $8.75 in cash for each share
of common stock owned.
Under Delaware law, the Merger Agreement and the merger must
be approved by the affirmative vote of at least a majority of the outstanding
shares of Common Stock. The Buyer Group, which owns a majority of the
outstanding shares of Common Stock, has agreed to vote in favor of the merger
and has advised Western Beef that it intends to vote for the election of the
director nominees presented by the Board of Directors at the annual meeting.
Accordingly, approval of the Merger Agreement, the merger, and the election of
the Board's director nominees at the annual meeting by Western Beef's
stockholders is assured.
Your Board of Directors, based upon the recommendation of an
independent special committee of the Board (the "Special Committee"), has
determined that the terms of the merger are fair to, and in the best interests
of, Western Beef and the holders of Common Stock other than Cactus (the "Public
Stockholders"), and has therefore approved the Merger Agreement and the merger.
In arriving at its decision, the Board of Directors gave careful consideration
to a number of factors described in the accompanying Proxy Statement, including
the opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan
Lokey"), financial advisor to the Special Committee, to the effect that, as of
the date of such opinion and based upon and subject to certain matters stated
therein, the consideration to be received in the merger by the Public
Stockholders is fair to the Public Stockholders from a financial point of view.
A copy of the written opinion of Houlihan Lokey is included as Appendix B to the
accompanying Proxy Statement and should be read in its entirety.
<PAGE>
The Board of Directors, taking into account the recommendation
of the Special Committee, has unanimously approved the Merger Agreement and the
merger. The Board of Directors believes that the merger is in the best interests
of Western Beef's stockholders, and unanimously recommends that you vote FOR
approval of the Merger Agreement and the merger.
The attached Notice of Annual Meeting of Stockholders and
proxy statement explain the proposed merger and provide specific information
concerning the annual meeting. Please read these materials (including the
appendices thereto) carefully. In addition, you may obtain information about
Western Beef from documents that Western Beef has filed with the Securities and
Exchange Commission, including the Schedule 13E-3 Transaction Statement.
If you do not vote in favor of the Merger Agreement and the
merger, you will have the right to dissent and to seek appraisal of the fair
market value of your shares of Common Stock if the merger is consummated. In
order to do so, however, you must properly perfect your appraisal rights under
Delaware law in accordance with the procedures described on page 20 of the
accompanying proxy statement.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, I URGE
YOU TO COMPLETE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD TO ENSURE THAT
YOUR SHARES OF COMMON STOCK WILL BE VOTED AT THE ANNUAL MEETING. If you sign,
date and return your proxy card without indicating how you want to vote, your
proxy will be counted as a vote in favor of the Merger Agreement, the merger and
the other matters to be voted upon at the annual meeting. You may revoke your
proxy at any time before it is voted by submitting to Western Beef's Secretary
a written revocation or a proxy bearing a later date, or by attending the annual
meeting and giving oral notice of your intention to vote in person. However,
attendance at the annual meeting by a stockholder who has executed and delivered
a proxy to Western Beef will not in and of itself constitute a revocation of
such proxy. If you plan to attend the meeting in person, please remember to
bring a form of personal identification with you and, if you are acting as a
proxy for another stockholder, please bring written confirmation from the record
owner that you are acting as proxy.
If you have any questions concerning the merger or the other
matters to be voted on at the annual meeting, or if you will need special
assistance at the meeting, please call Peter Admirand at (718) 417-3770.
On behalf of the Board of Directors, I thank you for your
support and urge you to vote FOR the approval of the Merger Agreement and the
transactions contemplated thereby, as well as FOR the other matters to be voted
upon at the annual meeting.
Sincerely,
Peter Castellana, Jr.
President & Chief Executive Officer
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION, NOR UPON THE ACCURACY OR
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<PAGE>
ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
THIS LETTER, THE NOTICE OF ANNUAL MEETING, THE PROXY STATEMENT
AND ACCOMPANYING FORM OF PROXY ARE FIRST BEING MAILED TO WESTERN BEEF
STOCKHOLDERS ON OR ABOUT SEPTEMBER __, 1999.
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<PAGE>
[ADD WESTERN BEEF LOGO AND ADDRESS]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER __, 1999
To the Stockholders of Western Beef, Inc.:
Notice is hereby given that the 1999 Annual Meeting of
Stockholders of Western Beef, Inc. ("Western Beef"), will be held at [location
to be determined], on October ___, 1999, at 10:00 a.m. local time, for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of July 29, 1999 (the
"Merger Agreement"), between Western Beef and Cactus
Acquisition, Inc., ("Cactus"), a company formed by Peter
Castellana, Jr., Frank Castellana, Joseph Castellana, Michael
Castellana, Camile Castellana (all of whom are siblings and
referred to herein as the "Principal Stockholders"), the
spouses and children of the Principal Stockholders and Ant
Holding Corporation (formerly PSL Foods, Inc.), a corporation
owned in equal proportions by the Principal Stockholders.
Pursuant to the Merger Agreement Cactus will be merged with
and into Western Beef and each share of common stock of
Western Beef (the "Common Stock") (other than shares held by
Cactus and shares held by any stockholder who properly
perfects his or her appraisal rights under Delaware law) will
be converted into the right to receive $8.75 in cash.
2. To elect four directors of Western Beef until the next annual
meeting of stockholders of Western Beef or until their
successors are elected and qualified.
3. To transact such other business as may properly come before
the annual meeting or any adjournment or postponement thereof.
All stockholders of record at the close of business on
September [_], 1999 are entitled to notice of, and to vote at, the annual
meeting. A list of such stockholders will be open to the examination of any
stockholder, for any purpose germane to the meeting, at Western Beef's offices
at 47-05 Metropolitan Avenue, Ridgewood, New York 11385 for a period of ten days
prior to the meeting.
Any stockholder who does not vote in favor of the Merger
Agreement and the transactions contemplated thereby will have the right to
dissent and to seek appraisal of the fair value of his or her shares of Common
Stock if the merger is consummated. In order to do so, however, stockholders
must properly perfect their appraisal rights under Delaware law in accordance
with the procedures described on page 20 of the accompanying proxy statement.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE
URGED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD PROMPTLY IN
THE ENCLOSED POSTAGE PAID ENVELOPE. If you sign, date and return your proxy card
without indicating how you want to vote, your proxy will be
<PAGE>
voted FOR the approval and adoption of the Merger Agreement and the transactions
contemplated thereby, FOR the election to the Board of Directors of those
nominees approved by the current Board of Directors, and will be voted in
accordance with the proxyholder's best judgment as to any other business as may
properly come before the annual meeting. Shares represented by proxies that are
marked "withhold authority" with respect to the election of one or more nominees
for election as directors, proxies that are marked "abstain" on any other
proposal and proxies that are marked to deny discretionary authority on any
other matter will not be counted in determining the number of votes cast for
such matters. You may revoke your proxy at any time before it is voted by
submitting to the Secretary of Western Beef a written revocation or a proxy
bearing a later date, or by attending the annual meeting and giving oral notice
of your intention to vote in person. However, attendance at the annual meeting
by a stockholder who has executed and delivered a proxy to Western Beef will not
in and of itself constitute a revocation of such proxy.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
PROMPTLY FOLLOWING CONSUMMATION OF THE MERGER, YOU WILL BE SENT INSTRUCTIONS
REGARDING THE PROCEDURES FOR EXCHANGING YOUR EXISTING STOCK CERTIFICATES FOR THE
MERGER CONSIDERATION.
If you plan to attend the meeting in person, please remember
to bring a form of personal identification with you and, if you are acting as a
proxy for another stockholder, please bring written confirmation from the record
owner that you are acting as proxy.
If you have any questions concerning the merger or the other
matters to be voted on at the annual meeting, or if you will need special
assistance at the meeting, please call Peter Admirand, at (718) 417-3770.
By Order of the Board of Directors,
SECRETARY
September , 1999
-------
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<PAGE>
WESTERN BEEF, INC.
47-05 METROPOLITAN AVENUE
RIDGEWOOD, NY 11385
---------------------------------
ANNUAL MEETING OF STOCKHOLDERS
OCTOBER __, 1999
---------------------------------
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION?
A: Approximately 72% of the outstanding shares of common stock, par value $.05
per share (the "Common Stock"), of Western Beef, Inc. ("Western Beef") is held
by Peter Castellana, Jr., Frank Castellana, Joseph Castellana, Michael
Castellana, Camile Castellana (all of whom are siblings and referred to herein
as the "Principal Stockholders"), the spouses and children of the Principal
Stockholders and Ant Holding Corporation (formerly PSL Foods, Inc.), a
corporation owned in equal proportions by the Principal Stockholders
(collectively, the "Buyer Group"). Approximately 28% of the Common Stock is held
by members of the public (the "Public Holders"). In the proposed transaction,
Cactus Acquisition, Inc. ("Cactus"), a company formed by the Buyer Group, will
merge with and into Western Beef, and Western Beef will be the surviving
corporation. As a result of the merger, the Buyer Group will own 100% of the
Common Stock of the Western Beef, and the Public Holders will receive cash for
their shares.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Each holder of Common Stock (other than Cactus and any Public Holder who
properly perfects his or her appraisal rights under Delaware law) will receive
$8.75 per share in cash. This merger consideration represents a premium of 25%
over the $7.00 closing market price of the Common Stock on November 13, 1998,
the last full trading day before Western Beef announced it had received a buyout
offer from the Buyer Group.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER
AGREEMENT AND THE MERGER?
A: The Board of Directors has determined that the merger is fair to, and in the
best interests of, Western Beef and its stockholders other than Cactus. The
Board of Directors consists of four members, two of which are members of the
Buyer Group. In order to evaluate the fairness of the merger to the Public
Holders, Western Beef's Board of Directors formed a special committee (the
"Special Committee") consisting of a director who is independent of the Buyer
Group. The Special Committee has concluded, and has so advised and recommended
to the Board of Directors, that the terms of the Merger Agreement be approved
and that the Board of Directors declare its advisability. In arriving at its
conclusion, the Special Committee relied, in part, on the opinion of Houlihan
Lokey Howard & Zukin Financial Advisors, Inc. ("Houlihan Lokey"), its
independent financial advisor, that the merger consideration of $8.75 per share
is fair to the Public Holders from a financial point of view.
<PAGE>
Q: WHAT APPROVALS DOES THE MERGER REQUIRE?
A: Under Delaware law, the Merger Agreement and the merger must be approved by
the affirmative vote of at least a majority of the outstanding shares of Common
Stock. The Buyer Group, which owns a majority of the outstanding shares of
Common Stock, has agreed to vote in favor of the merger. Accordingly, approval
of the Merger Agreement and the merger by Western Beef's stockholders is
assured.
Q: WHAT DO I NEED TO DO NOW?
A: Please sign and mail your proxy card in the enclosed return envelope as soon
as possible so that your shares can be represented at the meeting, even if you
plan to attend the meeting in person.
Q: WHAT RIGHTS DO I HAVE TO DISSENT FROM THE MERGER?
A: If you wish, you may dissent from the merger and seek an appraisal of the
fair value of your shares, but only if you comply with all requirements of
Delaware law summarized on page 20 of this proxy statement. The appraised fair
value of your shares may be more or less than the merger consideration to be
paid in the merger.
Q: WHO CAN VOTE ON THE MERGER?
A: All stockholders of record as of September ___, 1999 will be entitled to
notice of and to vote, either in person or by proxy, at the annual meeting.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. If the merger is completed, we will promptly send you written
instructions for exchanging your stock certificates for the merger
consideration.
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 written 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 in a later-dated, signed proxy card or a written revocation
before the annual meeting or attend the annual meeting and give oral notice of
your intention to vote in person. However, attendance at the annual meeting by a
stockholder who has executed and delivered a proxy to Western Beef will not in
and of itself constitute a revocation of such proxy.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible and expect
to complete the merger promptly following the annual meeting.
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<PAGE>
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A: The merger will be a taxable transaction to you for federal income tax
purposes. A brief review of the possible tax consequences to stockholders is set
forth on page 31 of this proxy statement. You should also consult your tax
advisor as to the tax effect in your particular circumstances.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE ANNUAL MEETING?
A: In addition to voting on the merger, you will be asked to elect a new board
of directors. If you have returned a signed proxy card, your shares will be
voted in the discretion of management identified on the enclosed proxy card for
any other business that may come before the annual meeting. Cactus, which owns a
majority of the outstanding shares of Common Stock, has advised Western Beef
that it intends to vote for the election of the Board's director nominees.
Accordingly, the election of the nominees to the Board of Directors by Western
Beef's stockholders is assured.
WHO CAN HELP ANSWER YOUR QUESTIONS?
The information provided above in "question and answer" format
is for your convenience only and is merely a summary of the information
contained in this proxy statement. YOU SHOULD CAREFULLY READ THIS PROXY
STATEMENT (INCLUDING THE APPENDICES THERETO) IN ITS ENTIRETY.
If you have any questions concerning the merger or the other
matters to be voted on at the annual meeting, if you would like additional
copies of the proxy statement or if you will need special assistance at the
meeting, please call Peter Admirand at (718) 417-3370.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY...........................................................................................................1
INFORMATION CONCERNING THE ANNUAL MEETING.........................................................................5
Date, Time and Place of the Annual Meeting...................................................................5
Purposes of the Annual Meeting...............................................................................5
Record Date; Quorum; Outstanding Common Stock Entitled to Vote...............................................5
Vote Required for the Merger and the Election of Directors; Certain Common Stock Voting in Favor of
the Proposals............................................................................................5
Solicitation and Revocation of Proxies.......................................................................6
SPECIAL FACTORS...................................................................................................8
Background of the Merger.....................................................................................8
Purpose and Reasons for the Merger; Certain Effects of the Merger...........................................10
Recommendation of the Special Committee and the Board of Directors; Fairness of the Merger..................11
Opinion of Houlihan Lokey...................................................................................13
Position of the Buyer Group as to Fairness..................................................................16
Certain Projections.........................................................................................16
Conflicts of Interest.......................................................................................18
Plans for Western Beef After the Merger.....................................................................19
Conduct of the Business of Western Beef if the Merger is Not Consummated....................................19
Financing and Expenses of the Merger........................................................................20
Rights of Dissenting Stockholders...........................................................................20
MARKET PRICE INFORMATION; DIVIDENDS..............................................................................25
PROPOSALS AT THE ANNUAL MEETING..................................................................................26
PROPOSAL ONE -- THE MERGER....................................................................................26
Terms of the Merger.........................................................................................26
Effective Time of the Merger................................................................................27
Exchange and Payment Procedures.............................................................................27
Transfer of Common Stock....................................................................................27
The Parties.................................................................................................27
Representations and Warranties..............................................................................28
Covenants...................................................................................................29
Conditions Precedent........................................................................................29
Termination; Amendment; Waiver..............................................................................30
Survival of Representatives and Warranties..................................................................31
Certain Tax Considerations..................................................................................31
Accounting Treatment........................................................................................32
Regulatory Requirements.....................................................................................32
Litigation Regarding the Merger.............................................................................32
PROPOSAL TWO -- ELECTION OF DIRECTORS.........................................................................33
(i)
<PAGE>
<S> <C>
Nomination..................................................................................................33
Information About Nominees..................................................................................33
Recommendation and Vote.....................................................................................33
Directors and Executive Officers of Western Beef............................................................34
Board of Directors Meetings and Committees..................................................................34
Executive Officer and Director Compensation.................................................................35
Option Grants in Last Fiscal Year........................................................................36
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values........................36
Non-Employee Director Compensation.......................................................................36
Compensation Committee Interlocks and Insider Participation..............................................37
Compensation Committee Report on Executive Compensation..................................................37
Performance Graph...........................................................................................37
Security Ownership of Certain Beneficial Owners and Management..............................................38
Section 16(a) Beneficial Ownership Reporting Compliance.....................................................39
Certain Transactions in the Shares of Common Stock..........................................................39
Certain Relationships and Related Transactions..............................................................39
WESTERN BEEF.....................................................................................................40
Retail Operations...........................................................................................40
Wholesale Operations........................................................................................42
Competition.................................................................................................43
Government Regulation.......................................................................................43
Employees...................................................................................................44
Seasonality.................................................................................................44
Environmental Laws..........................................................................................44
Dependence on Major Customers...............................................................................44
SELECTED FINANCIAL DATA..........................................................................................45
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................46
Overview....................................................................................................46
General..................................................................................................46
Year 2000 Issues.........................................................................................47
Results of Operations.......................................................................................48
Year Ended 1998 Compared to Year Ended 1997..............................................................48
Year Ended 1997 Compared to Year Ended 1996..............................................................49
Twenty-Six Weeks Ended July 3, 1999 Compared to Twenty-Six Weeks Ended July 3, 1998......................51
Liquidity and Capital Resources.............................................................................51
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................................52
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS.......................................................53
OTHER MATTERS....................................................................................................53
Proposals by Western Beef Stockholders......................................................................53
Where You Can Find More Information.........................................................................54
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING.............................................................54
(ii)
<PAGE>
<S> <C>
Financial STATEMENTS ...........................................................................................F-1
APPENDIX A -- THE MERGER AGREEMENT..............................................................................A-1
APPENDIX B -- OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN,
FINANCIAL ADVISORS, INC..............................................................B-1
APPENDIX C -- APPRAISAL RIGHTS, SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW..............................................................C-1
</TABLE>
(iii)
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT. TO UNDERSTAND THE MERGER MORE FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE TERMS AND CONDITIONS OF THE MERGER, YOU SHOULD READ CAREFULLY
THIS ENTIRE PROXY STATEMENT (INCLUDING THE APPENDICES HERETO) AND THE OTHER
DOCUMENTS REFERRED TO HEREIN. THE ACTUAL TERMS AND CONDITIONS OF THE MERGER ARE
CONTAINED IN THE MERGER AGREEMENT, WHICH IS INCLUDED IN THIS PROXY STATEMENT AS
APPENDIX A.
DATE, TIME AND PLACE OF THE ANNUAL MEETING (PAGE 5)
The annual meeting will be held on October __, 1999, at
[location to be determined], at 10:00 a.m., local time.
PURPOSES OF THE ANNUAL MEETING (PAGE 5)
At the annual meeting, the stockholders of Western Beef will
be asked:
- to consider and vote upon a proposal to approve and
adopt the Merger Agreement and the merger;
- to elect four directors of Western Beef until the
next annual meeting of stockholders of Western Beef
or until their successors are elected and qualified;
- to transact such other business as may properly come
before the annual meeting or any adjournment or
postponement thereof.
VOTING (PAGES 5)
The Board of Directors has set the close of business on
September ___, 1999 as the date for determining stockholders entitled to vote at
the annual meeting (the "Record Date"). At the annual meeting, each share of
Common Stock outstanding will be entitled to one vote. As of the Record Date,
there were _______ shares of Common Stock outstanding and entitled to vote. As
of such date, there were approximately _____ holders of record.
Any proxy given by a stockholder may be revoked by the
stockholder at any time before it is voted by delivering a written notice of
revocation to the Secretary of Western Beef, by executing and delivering a
later-dated proxy or by attending the meeting and giving oral notice of your
intention to vote in person. Attendance at the annual meeting by a stockholder
who has executed and delivered a proxy to Western Beef will not in and of itself
constitute a revocation of such proxy.
UNLESS CONTRARY INSTRUCTIONS ARE INDICATED ON THE PROXY, ALL
SHARES OF COMMON STOCK REPRESENTED BY VALID PROXIES WILL BE VOTED FOR THE
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER , FOR THE ELECTION OF THE
BOARD'S DIRECTOR NOMINEES AND, AS TO ANY OTHER PROPOSAL THAT MAY PROPERLY COME
BEFORE THE MEETING, IN THE BEST JUDGMENT OF THE PERSONS NAMED IN THE ENCLOSED
FORM OF PROXY.
REQUIRED VOTE; APPROVAL OF THE PROPOSALS ASSURED (PAGE 5)
The Merger Agreement and the merger will be decided by the
affirmative vote of a majority of the outstanding shares of Common Stock. The
election of directors will be decided by the
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<PAGE>
affirmative vote of a plurality of the shares of Common Stock present, in person
or by proxy, at the annual meeting and entitled to vote thereon. Cactus, which
owns a majority of the outstanding shares of Common Stock, has agreed to vote in
favor of the merger and has advised Western Beef that it intends to vote for the
election of the director nominees presented by the Board of Directors at the
annual meeting. ACCORDINGLY, APPROVAL OF THE MERGER AGREEMENT, THE MERGER AND OF
THE ELECTION OF THE BOARD'S DIRECTOR NOMINEES AT THE ANNUAL MEETING IS ASSURED.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 26)
Each holder of Common Stock (other than Cactus or any Public
Holder who properly perfects his or her appraisal rights under Delaware law)
will receive $8.75 per share in cash. This merger consideration represents a
premium of 25% over the $7.00 closing market price of the Common Stock on
November 13, 1998, the last full trading day before Western Beef announced it
had received the initial buyout offer from the Buyer Group.
BACKGROUND OF THE MERGER; PURPOSE AND REASONS FOR THE MERGER (PAGE 6)
For a description of the events leading to the approval of the
merger by the Board of Directors and the purpose and reasons for the merger, see
"Special Factors -- Background of the Merger" and " -- Purpose and Reasons for
the Merger; Certain Effects of the Merger."
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS (PAGE 11)
The Board of Directors, taking into account the recommendation
of the Special Committee and the opinion of Houlihan Lokey, the Special
Committee's independent financial advisor, has determined that the terms of the
Merger Agreement are fair to, and in the best interests of, Western Beef and its
stockholders and unanimously recommends that you vote FOR approval and adoption
of the Merger Agreement and the merger and declares their advisability. The
Board of Directors also recommends that you vote FOR the election of the
nominated directors for the 1999 fiscal year.
OPINION OF HOULIHAN LOKEY (PAGE 13)
The Special Committee retained Houlihan Lokey as its financial
advisor in connection with its evaluation of the merger. On July 29, 1999,
Houlihan Lokey delivered to the Special Committee its opinion that, as of such
date and based upon and subject to the various limitations, qualifications and
assumptions stated therein, the merger consideration of $8.75 per share of
Common Stock to be received by the Public Holders in connection with the merger
is fair to them from a financial point of view. A copy of Houlihan Lokey's
written opinion, which sets forth the assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is included
as Appendix B to this proxy statement. YOU SHOULD READ HOULIHAN LOKEY'S OPINION
CAREFULLY AND IN ITS ENTIRETY.
CONFLICTS OF INTEREST (PAGE 18)
In considering the recommendation of the Board of Directors
with respect to the merger, you should be aware of certain inherent conflicts of
interest. The members of the Buyer Group (which includes Peter Castellana, Jr.,
Frank Castellana, Joseph Castellana, Michael Castellana, Camile Castellana,
their spouses and children and Ant Holding Corporation) currently own, through
Cactus, approximately 72% of the outstanding Common Stock. Two of the Directors
of Western Beef are members of the Buyer Group.
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CERTAIN EFFECTS OF THE MERGER (PAGE 10)
Following the merger, the Public Holders will receive the
merger consideration of $8.75 in exchange for each share of Common Stock they
own with the result that the Buyer Group will own the entire equity interest
of Western Beef. It is expected that, immediately following the merger, the
business and operations of Western Beef will be continued by Western Beef, as
the surviving company in the merger, substantially as they are currently
being conducted. However, Western Beef and the Buyer Group will continue to
evaluate Western Beef's business and operations after the consummation of the
merger and make such changes as are deemed appropriate from time to time.
Following the merger, the members of the Buyer Group will be
the sole beneficiaries of any future earnings and growth of Western Beef, and
the Public Holders will no longer benefit from any increase in the value of
Western Beef or payment of any dividends on the shares of Common Stock and will
no longer bear the risk of any decrease in the value of Western Beef.
As a result of the merger: (1) the Common Stock will cease to
be listed on the Nasdaq National Market ("Nasdaq"); (2) there will be no public
market for the Common Stock; and (3) Western Beef will terminate registration of
its Common Stock under the Securities Exchange Act of 1934, as amended (the
"Securities Exchange Act").
CONDITIONS TO THE MERGER (PAGE 29)
Consummation of the merger is subject to various conditions,
including, among others: (1) the approval and adoption of the Merger Agreement
by the affirmative vote of holders of a majority of the outstanding shares of
Common Stock entitled to vote thereon; (2) the absence of any injunction
preventing consummation of the merger; and (3) Cactus having obtained financing
for the transactions contemplated by the Merger Agreement on terms and
conditions and in amounts reasonably satisfactory to it. As described above,
Cactus, which owns a majority of the outstanding shares of Common Stock, has
agreed to vote in favor of the merger. Accordingly, approval of the merger by
Western Beef's stockholders is assured.
APPRAISAL RIGHTS (PAGE 20)
Any stockholder who does not wish to accept the merger
consideration has the right under Section 262 of Delaware General Corporation
Law (the "DGCL") to have the "fair value" of his or her shares of Common Stock
determined by the Delaware Court of Chancery. This "right of appraisal" is
subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights:
- the stockholder must NOT vote in favor of the Merger
Agreement and the merger;
- the stockholder must make a written demand for
appraisal BEFORE the vote on the Merger Agreement and
the merger in accordance with the DGCL;
- the stockholder must have been a record owner of
shares of Common Stock on the date of the demand for
appraisal and continue to own them through the
effective time of the merger; and
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- the stockholder, or another stockholder who has
perfected his right of appraisal, or Western Beef,
must have filed an action in the Delaware Court of
Chancery, within 120 days after the effective time of
the merger, seeking an appraisal of dissenting
shares. Western Beef does not intend to file such a
suit.
MERELY VOTING AGAINST THE MERGER AGREEMENT AND THE MERGER WILL NOT PROTECT YOUR
RIGHT OF APPRAISAL. APPENDIX C TO THIS PROXY STATEMENT CONTAINS SECTION 262 OF
THE DGCL REGARDING APPRAISAL RIGHTS.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 31)
The receipt of the merger consideration will be a taxable
transaction to the Public Holders for U.S. federal income tax purposes under the
Internal Revenue Code and may be a taxable transaction for foreign, state and
local income tax purposes as well. Public Holders will recognize gain or loss
measured by the difference between the amount of cash they receive and their tax
basis in the shares of Common Stock exchanged therefor. Public Holders should
consult their own tax advisors regarding the U.S. federal income tax
consequences of the merger, as well as any tax consequences under state, local
or foreign laws.
FINANCING OF THE MERGER (PAGE 20)
At the closing of the merger, the Public Holders will be paid
an aggregate purchase price of approximately $14 million for the shares of
Common Stock, assuming that no Public Holders exercise and perfect their
appraisal rights in connection with the merger. In addition, Western Beef will
incur approximately $__ in expenses in connection with the merger, the financing
of the merger and related transactions. It is a condition to the consummation of
the merger that sufficient funds are available for the foregoing purposes.
Cactus, Western Beef and the Buyer Group have received a
commitment letter (the "Commitment Letter") from North Fork Bank to arrange a
credit facility for up to $8,500,000 to be used toward the cost of the merger.
North Fork Bank will have a first security lien in all accounts receivable and
inventory of Cactus, Western Beef and Ant Holding Corporation. The credit
facility will have a 10-year term and will bear interest for the first five
years at a rate of 225 basis points above the weekly average yield on United
States Treasury securities having a constant maturity of five years and for the
second five years at a rate of 225 basis points above the then average weekly
yield on United States Treasury securities having a constant maturity of five
years.
The remainder of the purchase price will be paid out of
Western Beef's cash on hand.
ACCOUNTING TREATMENT (PAGE 32)
The cost of purchasing the Common Stock from shareholders
other than Cactus will be accounted for as a treasury stock transaction by
Western Beef, the surviving company, under generally accepted accounting
principles. This means that the historical cost basis of the Western Beef's
assets and liabilities will be carried forward with the aggregate cost,
including expenses, of such treasury stock purchase being accounted for as a
charge to stockholders' equity.
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INFORMATION CONCERNING THE ANNUAL MEETING
DATE, TIME AND PLACE OF THE ANNUAL MEETING
This proxy statement is furnished to the holders of the
outstanding shares of Common Stock as of the Record Date in connection with the
solicitation of proxies by the Board of Directors of Western Beef to be voted at
the annual meeting of stockholders to be held at [location to be determined], on
October __, 1999, at 10:00 a.m. local time, or any postponement or adjournment
thereof. This proxy statement, the Notice of Annual Meeting and the accompanying
form of proxy are first being mailed to stockholders on or about September __,
1999.
PURPOSES OF THE ANNUAL MEETING
At the annual meeting, the stockholders of Western Beef will
be asked
- to consider and vote upon a proposal to approve and
adopt the Merger Agreement and the merger;
- to elect four directors of Western Beef until the
next annual meeting of stockholders of Western Beef
or until their successors are elected and qualified;
- to transact such other business as may properly come
before the annual meeting or any adjournment or
postponement thereof.
Additional information concerning the annual meeting, the
Merger Agreement and the merger is set forth below, and a copy of the Merger
Agreement is attached hereto as Appendix A.
RECORD DATE; QUORUM; OUTSTANDING COMMON STOCK ENTITLED TO VOTE
All stockholders of record at the close of business on
September ___, 1999 are entitled to notice of, and to vote at, the annual
meeting. The presence, in person or by proxy, of holders of at least a majority
of the shares of Common Stock issued, outstanding and entitled to vote on the
matters to be considered at the annual meeting is required to constitute a
quorum for the transaction of business. Pursuant to Western Beef's certificate
of incorporation, each holder of Common Stock is entitled to one vote for each
share of Common Stock held on the Record Date on matters properly presented at
the annual meeting. A list of stockholders of record will be open for
examination by any stockholder for any purpose germane to the annual meeting, at
Western Beef's offices at 47-05 Metropolitan Avenue, Ridgewood, NY 11385 for a
period of 10 days prior to the meeting.
As of September [ ], 1999, there were approximately
[____________] shares of outstanding Common Stock and approximately
[____________] holders of record.
VOTE REQUIRED FOR THE MERGER AND THE ELECTION OF DIRECTORS; CERTAIN COMMON STOCK
VOTING IN FAVOR OF THE PROPOSALS
The Merger Agreement and the merger must be approved and
adopted by the affirmative vote of the holders of at least a majority of the
voting power of the issued and outstanding Common Stock entitled to vote. The
election of directors for fiscal 1999 will be decided by the affirmative vote of
a plurality of the shares of Common Stock present, in person or by proxy, at the
annual meeting and entitled
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to vote thereon. Cactus, which owns a majority of the outstanding shares of
Common Stock, has agreed to vote in favor of the Merger Agreement and the merger
and has advised Western Beef that it intends to vote for the election of the
director nominees presented by the Board of Directors at the annual meeting.
ACCORDINGLY, APPROVAL OF THE MERGER AGREEMENT, THE MERGER AND THE ELECTION OF
THE BOARD'S DIRECTOR NOMINEES TO BE CONSIDERED AT THE ANNUAL MEETING IS ASSURED.
SOLICITATION AND REVOCATION OF PROXIES
All proxies in the enclosed form that are properly executed
and returned on or before the date of the annual meeting, and not subsequently
revoked, will be voted at the annual meeting or any adjournment or postponement
thereof in accordance with any instructions thereon, or, if no instructions are
provided, will be voted FOR the approval and adoption of the Merger Agreement
and the merger, FOR the election to the Board of Directors of those nominees
approved by the current Board of Directors, and in accordance with the
proxyholder's best judgment as to any other business as may properly come before
the annual meeting. Shares represented by proxies that are marked "withhold
authority" with respect to the election of one or more nominees for election as
directors, proxies that are marked "abstain" on any other proposal, and proxies
that are marked to deny discretionary authority on any other matter will not be
counted in determining the number of votes cast for such matters.
Brokers are prohibited from exercising discretionary authority
as to a merger for beneficial owners who have not returned proxies to brokers
(so-called "broker non-votes"). Those shares will be counted for the purpose of
determining if a quorum is present but will not be included in the vote totals
for matters as to which discretionary authority is prohibited and, therefore,
will have the effect of a negative vote as to the merger.
Any stockholder who has given a proxy pursuant to this
solicitation may revoke it by attending the annual meeting and giving oral
notice of his or her intention to vote in person, without compliance with any
other formalities. In addition, any proxy given pursuant to this solicitation
may be revoked at any time prior to the annual meeting by delivering to the
Secretary of Western Beef a written statement revoking it or by delivering a
duly executed proxy bearing a later date. Attendance at the annual meeting by a
stockholder who has executed and delivered a proxy to Western Beef will not in
and of itself constitute a revocation of such proxy. A vote in favor of the
Merger Agreement and the merger means that a Public Holder will not have the
right to dissent and seek appraisal of the fair value of such Public Holder's
shares of Common Stock.
Western Beef management does not know of any matters other
than those set forth herein which may come before the annual meeting. If any
other matters are properly presented to the annual meeting for action, it is
intended that the persons named in the enclosed form of proxy and acting
thereunder will vote in accordance with their best judgment on such matters.
Such matters may include an adjournment or postponement of the annual meeting
from time to time in the event the Board of Directors determines so to adjourn
or postpone. If any such adjournment or postponement is made, additional proxies
may be solicited during such adjournment period.
Western Beef will bear the cost of its solicitation of
proxies. Proxies will be solicited initially by mail. Further solicitation may
be made by directors, officers and employees of Western Beef personally, by
telephone or otherwise, but such persons will not be specifically compensated
for such services. Upon request, Western Beef will reimburse brokers, dealers,
banks or similar entities acting as nominees for reasonable expenses incurred in
forwarding copies of the proxy materials relating to the annual meeting to the
beneficial owners of shares of Common Stock which such persons hold of record.
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YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY CARD
PROMPTLY SO YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE
MEETING IN PERSON.
STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
COMMON STOCK WITH THEIR PROXY CARD. IF THE MERGER IS CONSUMMATED, THE PROCEDURE
FOR THE EXCHANGE OF CERTIFICATES REPRESENTING COMMON STOCK WILL BE AS SET FORTH
IN THIS PROXY STATEMENT.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER
In late October 1998, members of the Buyer Group, which
includes two of the four members of the Board of Directors, began to consider
seriously the possibility of a transaction in which they would purchase all of
the outstanding equity securities of Western Beef. The Buyer Group began to
consider such a transaction because its members believed that public ownership
made the company less efficient and added to Western Beef's costs without
providing the corresponding benefits often available to public companies. In
particular, members of the Buyer Group recognized that the Common Stock is
thinly traded and that Western Beef has not had the opportunity usually
available to publicly held corporations to take advantage of the capital
markets. By taking Western Beef private, the Buyer Group would be able to
eliminate the need for management to focus on the requirements imposed on public
companies and would be able to eliminate the costs attendant to those
requirements.
During the first half of November 1998, the Buyer Group
explored with counsel various legal issues associated with a going private
transaction and considered the costs and desirability of proposing such a
transaction. On November 16, 1998, at a meeting of the Board of Directors, the
Buyer Group presented to the Board of Directors a written offer by Cactus to
enter into a merger transaction with Western Beef as a result of which each
share of Common Stock held by the Public Holders would be converted into the
right to receive $7.50 per share in cash and the members of the Buyer Group
would collectively own 100% of Western Beef. Upon receipt of the offer letter,
the Board resolved to establish a Special Committee, consisting of directors
Arnold B. Becker and Steven R. Bokser, to negotiate with Cactus on Western
Beef's behalf, to determine the advisability of the proposed transaction and its
fairness to the Public Holders and to make a recommendation to the Board with
respect to such transaction. At the meeting, it was noted that Mr. Bokser had
significant business relationships with Western Beef and that he might have to
recuse himself if, in the view of counsel to the Special Committee after
discussing the specifics of those relationships, such relationships might be
perceived as calling into question his independence from the Buyer Group. See
"Compensation Committee Interlocks and Insider Participation" and "Certain
Relationships and Related Transactions."
Following the November 16, 1998 Board meeting, the Special
Committee began the process of retaining independent legal and financial
advisors. The Special Committee retained Robinson Silverman Pearce Aronsohn &
Berman LLP as its counsel. Shortly thereafter, following discussions with
counsel for the Special Committee, Mr. Bokser recused himself from serving on
the Special Committee.
During December 1998, the Special Committee contacted numerous
investment banks to discuss their interest in serving as financial advisor to
the Special Committee. On January 5, 1999, the Special Committee advised
Houlihan Lokey that it had been selected, and Houlihan Lokey commenced work on
January 6, 1999.
On February 4, 1999, the Special Committee met with its
counsel and financial advisor. At that meeting, Houlihan Lokey presented an
overview of its analysis of the merger consideration and indicated that it would
not be prepared to render an opinion that the $7.50 per share consideration
initially offered by the Buyer Group was fair from a financial point of view.
On February 9, 1999, a meeting was held at which the Special
Committee explained to representatives of the Buyer Group, representatives of
Western Beef and their respective legal counsel its analysis of the adequacy of
the merger consideration. At that meeting, Houlihan Lokey again indicated that
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it would not be prepared to render an opinion that the $7.50 per share
consideration was fair from a financial point of view.
Subsequent to the February 9, 1999 meeting, representatives of
the Buyer Group and Western Beef sought to provide to the Special Committee and
Houlihan Lokey additional updated information that would support the Buyer
Group's position that a merger consideration of $7.50 per share would be fair to
the Public Holders.
On April 15, 1999, the Special Committee met with its
financial advisor and counsel to discuss the price offered by the Buyer Group.
The Special Committee's financial advisor reiterated that it would not issue a
fairness opinion at a price of $7.50 per share and that the Buyer Group would
have to increase its bid in order for the price to be fair to the Public Holders
from a financial point of view.
Immediately following that meeting, a special meeting of the
Board of Directors was held at which the Special Committee, Houlihan Lokey,
representatives of the Buyer Group and legal advisors to Western Beef, the
Special Committee and the Buyer Group were present. At the meeting, Mr. Becker
advised the Board of Directors that the Special Committee was unable to conclude
that the proposed transaction was fair to the Public Holders. Houlihan Lokey
then reviewed for the Board a portion of the analysis from which it determined
that it would be unable to conclude that the proposed consideration of $7.50 per
share was fair to the Public Holders from a financial point of view. Houlihan
Lokey declined to make a full presentation to the Board because it had been
retained by the Special Committee to assist the Special Committee in negotiating
with the Buyer Group, and members of the Board were also members of the Buyer
Group.
Immediately following the April 15, 1999 Board meeting, Peter
Castellana, Jr., on behalf of the Buyer Group, met with Mr. Becker to discuss
the next steps. During that discussion, Mr. Castellana indicated a willingness
to increase the Buyer Group's bid to approximately $8.75 per share.
Subsequently, Mr. Becker discussed with Houlihan Lokey whether it would be able
to conclude that a merger consideration of approximately $8.75 per share would
be fair to the Public Holders from a financial point of view.
Subsequent to the April 15, 1999 Board meeting, Western Beef
supplied the Special Committee and Houlihan Lokey with additional information
concerning Western Beef's financial status. This additional information
included financial information reflecting the actual performance of Western Beef
for the period ended April 3, 1999 and projections updated to take into account
such information.
In June 1999, counsel to Western Beef prepared a form of
Agreement and Plan of Merger to be entered into between Cactus, a corporation
formed by the Buyer Group, and Western Beef. On June 30, 1999, counsel to
Western Beef distributed to the Special Committee, Cactus, their respective
legal counsel and Houlihan Lokey a form of Agreement and Plan of Merger. During
the period prior to the July 29, 1999 Board meeting, the terms and conditions of
the Merger Agreement were negotiated by Cactus and the Special Committee.
Following the initial announcement of the Merger on November
16, 1998, a lawsuit was initiated on behalf of the Public Holders against
Western Beef and all four of Western Beef's Directors alleging, among other
things, that the merger consideration was inadequate and that certain actions
and negotiations leading up to the proposed merger were not conducted on an
arm's length basis. Prior to the special meeting of the Board of Directors held
on July 29, 1999, counsel for the defendants negotiated a settlement with
counsel to the plaintiff in the stockholder lawsuit arising from the proposed
merger and
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subsequently entered into a memorandum of understanding related to such
settlement on July 29, 1999. The memorandum of understanding provides for the
settlement of the stockholder lawsuit based on the payment of a per share merger
consideration of $8.75 and is subject to, among other things, completion by the
plaintiff of additional discovery, completion of definitive documentation
relating to the settlement, court approval and the dismissal of the lawsuit with
prejudice and without any costs to any party (except as agreed upon).
Additionally, pursuant to the memorandum of understanding, the defendants will
not oppose the plaintiff's application for an award for attorney's fees in the
amount of $150,000 and reimbursement of expenses not to exceed $10,000. The
defendants have also agreed to be responsible for the costs and expenses related
to providing notice of the proposed settlement, regardless of whether the
proposed settlement is approved by the court.
At a meeting of the Board of Directors held on July 29, 1999,
Houlihan Lokey presented its opinion that the proposed merger consideration of
$8.75 per share was fair from a financial point of view. The Special Committee
reported to the Board of Directors that it had concluded, and so advised and
recommended to the Board, that the terms of the Merger Agreement be approved and
that the Board of Directors declare its advisability. After the Special
Committee's recommendation and Houlihan Lokey's opinion and presentation, the
Board determined that the terms of the Merger Agreement were fair to and in the
best interest of Western Beef and the Public Holders. The Merger Agreement was
executed, and its execution was announced, on July 29, 1999.
PURPOSE AND REASONS FOR THE MERGER; CERTAIN EFFECTS OF THE MERGER
The principal results of the merger are that it enables the
Buyer Group to own all of the equity interest in Western Beef, while affording
the Public Holders the opportunity to receive a cash price for their shares of
Common Stock that represents a premium over the market prices at which the
Common Stock traded immediately prior to the announcement of the initial buyout
offer. This will be accomplished by a merger of Cactus with and into Western
Beef, pursuant to which all of the shares of Common Stock held by the Public
Holders will be converted into the right to receive the merger consideration of
$8.75 per share. The Buyer Group proposed the merger because it believed that
public ownership made Western Beef less efficient and added to Western Beef's
costs without providing the corresponding benefits often available to public
companies. Other than as set forth herein, the Buyer Group has no reason for
proposing the merger at this particular time (as opposed to any other time) and
is not aware of any material development affecting the future value of the
Common Stock that is not described in this proxy statement.
The merger will terminate all equity interests of the Public
Holders in Western Beef. Accordingly, the Public Holders will not share in the
future earnings and growth of Western Beef, nor will they bear the risks
associated with achieving such earnings and growth following the merger. The
merger consideration to be received by the Public Holders was the result of
arm's-length negotiations between representatives of the Buyer Group and the
Special Committee and their respective advisors following the receipt of the
initial buyout proposal from the Buyer Group. As a result of the merger, the
Common Stock will be privately held and will cease to be publicly traded.
The Common Stock is currently registered under the Securities
Exchange Act and is listed for trading on Nasdaq under the symbol "BEEF". Upon
consummation of the merger, the Common Stock will be delisted from Nasdaq and
registration of the Common Stock under the Securities Exchange Act will be
terminated. The assumption by Western Beef of the status of a private company
will allow Western Beef to enjoy certain efficiencies by eliminating the time
devoted by its management and certain other employees to complying with the
reporting requirements of the Securities Exchange Act (including the obligation
to comply with the proxy rules thereunder), and its directors, officers and
beneficial owners of
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more than 10% of the shares of Common Stock will be relieved of the reporting
requirements and restrictions on insider trading under Section 16 of the
Securities Exchange Act. In addition, Western Beef will be relieved of Nasdaq
listing and reporting requirements. Accordingly, less information will be
required to be made currently available than is the case at this time. Western
Beef will be able to reduce certain costs, which it estimates to be
approximately $300,000 per year, including the cost of preparing, printing and
mailing certain corporate reports and proxy statements, the expense of a
transfer agent and registrar and the cost of investor relations activities.
The Buyer Group structured the transaction as a one-step
merger because it believed that that transaction structure would result in its
owning 100% of the equity of Western Beef at the earliest time and with the
lowest transaction costs.
Approval of the merger requires the vote of at least a
majority of the outstanding shares of Common Stock but does not require the
separate approval of a majority of the Common Stock held by the Public Holders.
The Buyer Group did not structure the transaction to require the approval of a
majority of the Common Stock held by the Public Holders because such approval is
not required under the Delaware merger statute and because the Buyer Group
believes that the fairness of the transaction was established by other factors,
including the arm's-length bargaining between the Buyer Group and the Special
Committee as to the terms of the transaction.
In connection with the merger and the discussions relating
thereto, the Buyer Group has advised Western Beef that, relating to the
structure of the merger, it did not consider any alternatives that would have
allowed the Public Holders to maintain an equity interest in Western Beef
because no such alternative would have accomplished the purposes of the merger
as set forth in this section.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; FAIRNESS OF
THE MERGER
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS.
On July 29, 1999, the Special Committee concluded, and so
advised and recommended to the Board of Directors, that the terms of the Merger
Agreement be approved and the Board of Directors declare its advisability.
On July 29, 1999, the Board of Directors unanimously: (1)
determined that the terms of the merger are fair to and in the best interests of
the Public Holders; (2) approved the Merger Agreement and authorized the
execution and delivery thereof; and (3) recommended that the stockholders of
Western Beef approve the Merger Agreement, the merger, and the transactions
contemplated thereby.
FAIRNESS OF THE MERGER.
SPECIAL COMMITTEE. In reaching its determinations referred to
above, the Special Committee considered the factors listed below. The following
discussion of the factors considered by the Special Committee is not intended to
be exhaustive but summarizes all material factors considered. The Special
Committee did not assign any relative or specific weights to the following
factors nor did it specifically characterize any factor as positive or negative.
Throughout its deliberations, the Special Committee received the advice of its
financial and legal advisors.
- The fact that the per share price to be received in the merger
is payable in cash, eliminating any uncertainties in valuing
the consideration to be received by the Public Holders.
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- The Buyer Group's ownership of approximately 72% of the
outstanding shares, and its stated unwillingness to sell its
shares to a third party, led the Special Committee to conclude
that exploration of a business combination with or sale to a
third party was not practicable.
- The arm's-length negotiations between the Special Committee
and its representatives and the Buyer Group and its
representatives, which had resulted in an increase from $7.50
to $8.75 per share in the price at which the Buyer Group was
prepared to acquire the shares and in improvements to the
terms of the Merger Agreement from the perspective of the
Public Holders, and the Special Committee's belief that $8.75
was the highest price that could be obtained from the Buyer
Group under the circumstances.
- The opinion of Houlihan Lokey, dated July 29, 1999, that, as
of such date, and subject to the matters stated in the
opinion, the proposed consideration to be received by the
Public Holders in connection with the merger was fair to them
from a financial point of view, and the analyses presented to
the Special Committee by Houlihan Lokey. See "-- Opinion of
Houlihan Lokey." A copy of Houlihan Lokey's written opinion is
attached to this proxy statement as Appendix B and is
incorporated herein by reference.
- The availability of dissenters' rights for stockholders under
the DGCL in connection with the merger.
WESTERN BEEF BOARD OF DIRECTORS. In reaching its
determinations referred to above, the Board of Directors considered the
following factors: (1) the determinations and recommendations of the Special
Committee; (2) the factors referred to above as having been taken into account
by the Special Committee, including the opinion of Houlihan Lokey; and (3) the
fact that the price and the terms and conditions of the Merger Agreement were
the result of arm's-length negotiations between the Special Committee and the
Buyer Group.
In considering the arm's-length nature of the negotiations and
the procedural fairness of the merger, the Board of Directors noted that:
- the Special Committee consisted of an independent director who
represented the interests of the Public Holders;
- the Special Committee selected and was advised by independent
legal counsel; and
- the Special Committee selected and was advised by Houlihan
Lokey as its independent financial advisor to assist it in
evaluating the transaction.
In considering the fairness of the merger, the Special
Committee and the Board of Directors did not consider Western Beef's net book
value or liquidation value materially relevant because they believed those
values were not material indicators of Western Beef's value as a going concern.
The description set forth above of the factors considered by
the Board of Directors is not intended to be exhaustive, but summarizes all
material factors considered. The Board of Directors did not assign any relative
or specific weights to the factors nor did it specifically characterize any
factor as positive or negative, and individual members of the Board of Directors
may have given differing weights to different factors and may have viewed
certain factors more positively or negatively than others.
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OPINION OF HOULIHAN LOKEY
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies utilized by Houlihan Lokey. The summary does not purport to be a
complete statement of the analyses and procedures applied, the judgments made or
the conclusion reached by Houlihan Lokey or a complete description of its
presentation. Houlihan Lokey believes, and so advised the Special Committee,
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create an incomplete view of the process underlying
its analyses and opinions.
On behalf of the Special Committee, Western Beef retained
Houlihan Lokey to render an opinion as to the fairness, from a financial point
of view, of the merger consideration to the Public Holders of Western Beef. At
the July 29, 1999 meeting of the Board of Directors, Houlihan Lokey presented
its analysis regarding the fairness, from a financial point of view, of the
merger consideration.
At the July 29, 1999 meeting, Houlihan Lokey presented its
analysis as hereinafter described and delivered its written opinion that as of
such date and based on the matters described therein, the merger consideration
is fair to the Public Holders from a financial point of view.
THE COMPLETE TEXT OF HOULIHAN LOKEY'S OPINION IS ATTACHED
HERETO AS APPENDIX B. THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH OPINION. THE COMMON STOCKHOLDERS ARE URGED TO
READ SUCH OPINION CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES
FOLLOWED, THE FACTORS CONSIDERED AND THE ASSUMPTIONS MADE BY HOULIHAN LOKEY.
Houlihan Lokey's opinion to the Special Committee addresses
only the fairness from a financial point of view of the merger consideration,
and does not constitute a recommendation to the stockholders as to how such
stockholder should vote at the annual meeting. Houlihan Lokey's opinion does not
address Western Beef's underlying business decision to effect the merger.
Houlihan Lokey has not been requested to, and did not, solicit third party
indications of interest in acquiring all or part of Western Beef. Furthermore,
Houlihan Lokey did not advise the Western Beef Board with respect to
alternatives to the merger.
In connection with the preparation of its opinion, Houlihan
Lokey made such reviews, analyses and inquiries as they deemed necessary and
appropriate under the circumstances. Among other things, Houlihan Lokey: (1)
reviewed Western Beef's audited financial statements on Form 10-K for the three
fiscal years ended January 1, 1999, and unaudited financial statements for the
quarter ended April 3, 1999, which Western Beef's management has identified as
being the most current financial statements available; (2) reviewed a draft of
the Merger Agreement, dated as of July 27, 1999; (3) reviewed with members of
Cactus the status of financing for the merger; (4) met with and had several
telephone conversations with certain members of the senior management of Western
Beef to discuss the operations, financial condition, future prospects and
projected operations and performance of Western Beef; (5) visited certain
facilities and business offices of Western Beef; (6) reviewed forecasts and
projections prepared by Western Beef's management with respect to Western Beef
for the year ending December 31, 1999; (7) reviewed the historical market prices
and trading volume for Western Beef's publicly traded securities; (8) reviewed
certain other publicly available financial data for certain companies that
Houlihan Lokey deemed comparable to Western Beef, and publicly available prices
and premiums paid in other transactions that
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Houlihan Lokey considered similar to the merger; and (9) conducted such other
studies, analyses and inquiries as Houlihan Lokey deemed appropriate.
In assessing the financial fairness of the merger
consideration to Western Beef's public stockholders Houlihan Lokey (1) analyzed
the reasonableness of the trading value of Western Beef's publicly traded
equity securities, (2) independently valued the common equity of Western Beef
using widely accepted valuation methodologies, (3) analyzed the reasonableness
of the merger consideration being offered in the merger, and (4) reviewed the
valuation implications to Western Beef's stockholders of various alternatives
to the merger.
VALUATION OF WESTERN BEEF
ASSESSMENT OF WESTERN BEEF'S PUBLIC STOCK PRICE. As part of
its analysis, Houlihan Lokey analyzed the trading value of the Common Stock.
Houlihan Lokey calculated the ratio of average daily trading volume (over the
most recent 90 days) to float and total shares outstanding for Common Stock.
Houlihan Lokey then compared Western Beef's ratios to similar ratios of
comparable publicly traded companies. Houlihan Lokey considered the trading
volume and float ratios of Albertson, Inc., Arden Group, Inc., Harry's Farmer
Market, Inc., Homeland Holding Corp, Kroger Co., Marsh Supermarkets, Inc.,
Safeway Inc., Schultz Sav-O Stores, Inc., Seaway Food Town, Inc. and Village
Supermarkets, Inc. Houlihan Lokey noted that the median daily trading volume for
the comparable publicly traded companies as a percent of common shares
outstanding was 0.19% compared to 0.02% for Western Beef. Houlihan Lokey also
noted that the median ratio of public float to total shares outstanding was
88.6% for the comparable public companies compared to 29% for Western Beef.
Based on these analyses, it was Houlihan Lokey's opinion that
Western Beef's Common Stock trades less actively than the stock of comparable
public companies and has a significantly smaller float than the stock of
comparable public companies (as a percent of shares outstanding).
DETERMINATION OF WESTERN BEEF'S FULLY DISTRIBUTED STOCK
PRICE. After determining that the trading price of the Common Stock may not
reflect its fully distributed value, Houlihan Lokey completed an independent
valuation of Western Beef using the market multiple approach. This approach
involved the multiplication of various earnings and cash flow measures by
appropriate risk-adjusted multiples. Multiples were determined through an
analysis of certain publicly traded companies, selected on the basis of
operational and economic similarity with the principal business operations of
Western Beef. Earnings and cash flow multiples were calculated for the
comparable companies based upon daily trading prices. A comparative risk
analysis between Western Beef and the public companies formed the basis for the
selection of appropriate risk adjusted multiples for Western Beef. The risk
analysis incorporates both quantitative and qualitative risk factors which
relate to, among other things, the nature of the industry in which Western Beef
and the comparable companies are engaged.
For purposes of this analysis, Houlihan Lokey selected seven
publicly traded, regional supermarket companies. The companies included Arden
Group, Inc., Harry's Farmer Market, Inc., Homeland Holding Corp, Marsh
Supermarkets, Inc., Schultz Sav-O Stores, Inc., Seaway Food Town, Inc. and
Village Supermarkets, Inc.
Houlihan Lokey informed the Special Committee that, because
the market multiple approach is based upon publicly traded prices of equity
securities, the resulting valuation indications are on a fully distributed,
publicly traded equivalent basis. Houlihan Lokey's market multiple approach
produced
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indications of value for the Common Stock in the range of $6.40 to $7.10 per
share, on a fully distributed, publicly traded basis.
FAIRNESS OF CONSIDERATION
In addition to determining the fully distributed, publicly
traded price of the Common Stock, Houlihan Lokey performed an independent
valuation analysis to determine the value of Western Beef on a controlling
interest.
COMPARABLE TRANSACTION APPROACH. The comparable transaction
approach involved multiples of earnings and cash flow. Multiples utilized in
this approach were determined through an analysis of acquisitions of controlling
interests in companies with operations deemed to be reasonably comparable to
Western Beef's principal business operations. For purposes of this analysis
Houlihan Lokey analyzed 43 announced transactions between June 22, 1994 and July
23, 1999. Based on the comparable transaction approach, Houlihan Lokey concluded
that the control value of the Common Stock is reasonably stated in the range of
$8.00 to $8.90 per share. Houlihan Lokey noted that the merger consideration of
$8.75 per share was at the upper end of the control value range for the Common
Stock.
ACQUISITION PREMIUM ANALYSIS. Houlihan Lokey analyzed the
acquisition premiums (the difference between the acquisition price and
unaffected trading price) paid in 19 acquisitions of controlling interests of
companies in the supermarket industry that occurred between June 16, 1995 and
June 14, 1999. Houlihan Lokey noted that the four week acquisition premiums
ranged from a low of 6.0% to a high of 118.2% with a median of 27.6%. Houlihan
Lokey noted that the acquisition premium implied by the merger consideration was
(1) 25.0% relative to Western Beef's unaffected stock price of stock price of
$7.00 on November 13, 1998 and (2) 29.6% relative to the midpoint of Houlihan
Lokey's concluded range of value on a fully distributed publicly traded basis.
Based on this analysis, Houlihan Lokey noted that it was their conclusion that
the merger consideration represents a reasonable acquisition premium.
SQUEEZE-OUT PREMIUM ANALYSIS. Houlihan Lokey analyzed the
premiums paid in 79 "squeeze out" transactions, which are transactions in which
a majority shareholder offers to purchase the shares held by the minority
shareholders. Houlihan Lokey noted that the one month squeeze out premiums
ranged from a low of negative 3.3% to a high of 143.5% with a median of 30.9
percent. Houlihan Lokey noted that the squeeze out premium implied by the merger
consideration was (1) 25.0% relative to Western Beef's unaffected stock price
of stock price of $7.00 on November 13, 1998 and (2) 29.6% relative to the
average of Houlihan Lokey's range of concluded fully distributed stock price of
$6.75. Based on this analysis, Houlihan Lokey concluded that the merger
consideration represents a reasonable squeeze out premium.
ASSESSMENT OF WESTERN BEEF'S STRATEGIC ALTERNATIVES TO THE MERGER
In evaluating the fairness of the merger consideration, from a
financial point of view, Houlihan Lokey considered the expected value to Western
Beef's Public Holders of completing the merger and certain alternatives to the
merger. With regard to each alternative, Houlihan Lokey's analysis qualitatively
considered the valuation implications to Public Holders, the probability of
successfully completing the alternative, and the cost and time to implement
those alternatives.
For purposes of this analysis Houlihan Lokey considered the
following strategic alternatives: (1) status quo; (2) sale to a strategic buyer;
(3) sale to a financial buyer; and (4) liquidation of
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Western Beef. Houlihan Lokey noted that of the strategic alternatives
considered, the merger appears to provide the greatest value to Public Holders
on a present value, risk-adjusted basis.
Houlihan Lokey relied upon and assumed, without independent
verification, that the unaudited financial forecasts and projections provided to
them, and as adjusted based on their discussions with management, were
reasonably prepared and reflected the best currently available estimates of the
future financial results and condition of Western Beef, and that there had been
no material change in the assets, financial condition, business or prospects of
Western Beef since the date of the most recent financial statements made
available to them.
Houlihan Lokey did not independently verify the accuracy and
completeness of the information supplied to it with respect to Western Beef and
does not assume any responsibility with respect to it. Houlihan Lokey has not
made any independent appraisal of any of the properties or assets of Western
Beef. Houlihan Lokey's opinion was necessarily based on business, economic,
market and other conditions as they existed and could be evaluated by them at
the date of their letter.
Houlihan Lokey is a nationally recognized investment banking
firm with special expertise in, among other things, valuing businesses and
securities and rendering fairness opinions. Houlihan Lokey is continually
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, corporate and other
purposes. The Special Committee selected Houlihan Lokey because of its
experience and expertise in performing valuation and fairness analysis. Houlihan
Lokey does not beneficially own nor has it ever beneficially owned any interest
in Western Beef.
FEES AND EXPENSES. Pursuant to an agreement dated January 15,
1999, Houlihan Lokey was retained by Western Beef following its selection by,
and on behalf of, the Special Committee to analyze the fairness of the merger
consideration, from a financial point of view, to the Public Holders. On behalf
of the Special Committee, Western Beef has agreed to pay Houlihan Lokey a fee of
$175,000 plus its reasonable out-of-pocket expenses incurred in connection with
the rendering of a fairness opinion. Western Beef has further agreed to
indemnify Houlihan Lokey against certain liabilities and expenses in connection
with the rendering of its services.
POSITION OF THE BUYER GROUP AS TO FAIRNESS
The Buyer Group has concluded that the terms of the Merger
Agreement and the merger (including the merger consideration of $8.75 per share)
are fair to Western Beef and the Public Holders based on the following factors:
(1) the determinations and recommendations of the Special Committee and the
Board of Directors; (2) the recommendation of the Merger Agreement by the
Special Committee, which consists solely of a director who is independent of the
Buyer Group; (3) the factors referred to above as having been taken into account
by the Special Committee and the Board of Directors, including the opinion of
Houlihan Lokey; and (4) the fact that the price and the terms and conditions of
the Merger Agreement were the result of arm's-length negotiations between the
Special Committee and the Buyer Group.
CERTAIN PROJECTIONS
In the normal course of business, Western Beef management
prepares internal budgets, plans, estimates, unaudited forecasts or projections
as to future revenues, earnings or other financial information in order to be
able to anticipate the financial performance of Western Beef. It does not, as a
matter of course, publicly disclose these internal documents. However, in
connection with the proposed
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merger, to facilitate the financial due diligence by the Special Committee's
financial advisor, Western Beef provided the Special Committee and the Special
Committee's financial advisor with a preliminary 1999 annual budget (a
projection for the fiscal year ending January 1, 2000) which reflected
management's best estimates and good faith judgments as to the future
performance of Western Beef.
The unaudited financial projections were subject to and
prepared on the basis of estimates, limitations, qualifications and assumptions
and involved judgments with respect to, among other things, future economic,
competitive, regulatory and financial market conditions and future business
decisions which may not be realized and are inherently subject to significant
business, economic, competitive and regulatory uncertainties, all of which are
difficult to predict and many of which are beyond Western Beef's control. These
uncertainties include, among others, uncertainties relating to economic
conditions, delays and other hazards inherent in building and construction;
competition in both the retail and wholesale markets; government and regulatory
policies and certifications (in particular those relating to the United States
Department of Agriculture food stamp program); the pricing and availability of
the products Western Beef sells and distributes, including Western Beef label
brand products; potential delays in the implementation of Western Beef's
technological improvement programs; and the effectiveness of such programs upon
the implementation of, and Western Beef's ability to resolve, any and all year
2000 computer applications.
While Western Beef believes these estimates and assumptions to
have been reasonable, there can be no assurance that the unaudited projections
will be accurate, and actual results may vary materially from those shown. In
light of the uncertainties inherent in forward looking information of any kind,
the inclusion of these unaudited projections herein should not be regarded as a
representation by Western Beef, the Buyer Group or any other entity or person
that the anticipated results will be achieved, and investors are cautioned not
to place undue reliance on such information.
On April 19, 1999 and May 24, 1999, Western Beef provided the
Special Committee and its financial advisor with updated unaudited financial
projections, which were based on the actual results of the business through the
period ended April 3, 1999.
Unaudited projections for the year ending January 1, 2000:
<TABLE>
<S> <C>
Sales $318,660,000
Gross profit 80,036,895
Operating expenses (79,157,866)
Other income 2,495,100
Income before taxes 3,374,129
Net income 2,024,478
</TABLE>
The foregoing information is presented in this proxy statement
because it was provided to the Special Committee and its financial advisor in
connection with its engagement described herein. Western Beef does not intend to
update or otherwise revise the unaudited financial projections to reflect
circumstances existing after the date that they were prepared or to reflect the
occurrence of unanticipated events.
Certain matters discussed herein are forward-looking
statements that involve risks and uncertainties. Forward-looking statements
include the financial projections set forth above concerning the projected
income statement data as to the year ending January 1, 2000. Such information
has been
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included in this Proxy Statement for the limited purpose of giving Western
Beef's stockholders access to financial projections by Western Beef's
management. The financial projections were based on assumptions concerning
Western Beef's business prospects through January 1, 2000. The information also
was based on other revenue and operating assumptions. Information of this type
is based on estimates and assumptions that are inherently subject to significant
economic and competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond Western Beef's control.
Accordingly, there can be no assurance that the projected results would be
realized or that actual results would not be significantly higher or lower than
those set forth in the financial projections. In addition, the financial
projection data was not prepared with a view to public disclosure or compliance
with the published guidelines of the SEC or the guidelines established by the
American Institute of Certified Public Accountants regarding projections and
forecasts. PricewaterhouseCoopers LLP, the Company's independent accountants,
has not examined or applied any agreed upon procedures to this information and,
accordingly, assume no responsibility for this information.
CONFLICTS OF INTEREST
In considering the recommendation of the Special Committee and
the Board of Directors with respect to the merger, Western Beef stockholders
should be aware of certain inherent conflicts of interest, including those
referred to below, that give rise to divided interests in considering the
merger. The Special Committee and the Board of Directors were aware of these
actual and potential conflicts of interest.
Following the merger, the Buyer Group will own 100% of the
Western Beef. The directors and officers of Western Beef at the effective time
of the merger will be the directors and officers of Western Beef, as the
surviving corporation, from and after the effective time of the merger. The
merger will terminate the equity interests of the Public Holders in Western
Beef.
Western Beef has agreed, pursuant to the Merger Agreement,
that the indemnification provisions with respect to officers and directors of
Western Beef contained in the current certificate of incorporation and by-laws
of Western Beef will be carried over into the certificate of incorporation and
by-laws of Western Beef following the merger without amendment, repeal or other
modification for a period of six years from the effective time of the merger.
Subject to certain conditions, Western Beef has agreed to maintain in effect,
for a period of six years from the effective time of the merger, directors' and
officers' liability insurance for matters occurring prior to the effective time
of the merger, at the same levels currently provided, but it will not be
required to do so if premiums for such coverage exceed 125% of the current
annual premiums, in which case it will be required to provide the maximum
coverage available at a premium level equal to 125% of the annual premiums
currently paid. See "Proposals at the Annual Meeting -- Proposal One -- The
Merger -- Covenants."
The opportunity to increase their equity interest in Western
Beef following the consummation of the merger may have presented the Directors
who are members of the Buyer Group with actual or potential conflicts of
interest in connection with the merger. In light of these inherent conflicts of
interest, the Board of Directors appointed the Special Committee comprised
solely of a director who is not an employee or affiliate of Cactus or the Buyer
Group and who is not a Western Beef employee, to evaluate the fairness of the
merger to the Public Holders. For his services on the Special Committee, Mr.
Becker received a fee of $20,000.
In making their determinations with respect to the merger in
accordance with their fiduciary duties to the Public Holders, the Special
Committee and the Board of Directors considered the
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actual and potential conflicts of interest of the Buyer Group, along with the
other matters described under " --- Recommendation of the Special Committee and
the Board of Directors; Fairness of the Merger."
PLANS FOR WESTERN BEEF AFTER THE MERGER
It is expected that, following consummation of the merger, the
operations and business of Western Beef will be conducted substantially as they
are currently conducted. Neither Western Beef, nor any member of the Buyer Group
has any present plans or proposals that relate to or would result in an
extraordinary corporate transaction involving Western Beef's corporate
structure, business or management, such as a merger, reorganization,
liquidation, relocation of any operations or sale or transfer of a material
amount of assets. However, Western Beef and the Buyer Group will continue to
evaluate Western Beef's business and operations after the merger from time to
time, and may propose or develop new plans and proposals which either considers
to be in the best interests of Western Beef and its stockholders.
CONDUCT OF THE BUSINESS OF WESTERN BEEF IF THE MERGER IS NOT CONSUMMATED
Consummation of the merger is subject to several conditions,
in addition to the approval of the merger by the holders of a majority of the
Common Stock. These conditions include, among others: (1) absence of any legal
restraints, proceedings or prohibitions that prevent consummation of the merger;
(2) all required governmental consents and approvals having been obtained; and
(3) Cactus having funds available to it at the closing sufficient to pay the
merger consideration. As described below under " -- Financing and Expenses of
the Merger," the Buyer Group has obtained a commitment from a financial
institution with respect to the financing of the merger, although this
commitment remains subject to certain conditions. Accordingly, even if the
requisite stockholder approval is obtained, there can be no assurance that the
merger will be consummated.
If the merger is not consummated for any reason, it is
expected that Western Beef's business and operations will continue to be
conducted by its current management, under the direction of the Board of
Directors, substantially as they are currently being conducted. No other
transaction is currently being considered by the Buyer Group or Western Beef as
an alternative to the merger. If the merger is not consummated, Western Beef may
purchase additional shares of Common Stock on terms more or less favorable to
the Public Holders than the terms of the merger or may offer or sell shares of
Common Stock, from time to time, in each case subject to availability at prices
deemed acceptable to Western Beef, pursuant to a merger transaction, tender
offer, open market or privately negotiated transactions or otherwise.
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FINANCING AND EXPENSES OF THE MERGER
At the closing of the merger, Western Beef, through Cactus,
expects to pay to the Public Holders an aggregate purchase price of
approximately $14 million for the shares of Common Stock, assuming no Public
Holders dissent from the merger and perfect their appraisal rights provided
under the DGCL. In addition, the Buyer Group expects to incur approximately $___
million in costs and expenses in connection with the merger, as set forth in the
table below. However, after completion of the merger, such costs and expenses
will be assumed by Western Beef.
<TABLE>
<CAPTION>
Cost or Fee Estimated Amount
----------- ----------------
<S> <C>
Financial advisory fees............... $ 180,000
Bank commitment fees.................. 50,000
Legal fees............................ 250,000
Accounting fees....................... 25,000
Printing and mailing fees............. 50,000
Solicitation expenses................. 5,000
SEC filing fees....................... 2,859
Other regulatory filing fees.......... 0
Miscellaneous......................... 20,000
------------
Total............................... $
------------
------------
</TABLE>
It is a condition to the consummation of the merger that Cactus shall have funds
available to it at the closing sufficient to pay the aggregate merger
consideration and related fees and expenses.
Cactus, Western Beef and the Buyer Group have received a
commitment letter (the "Commitment Letter") from North Fork Bank to arrange a
credit facility for up to $8,500,000 to be used toward the cost of the merger.
North Fork Bank will have a first security lien in all accounts receivable and
inventory of Cactus, Western Beef and Ant Holding Corporation. The credit
facility will have a 10-year term and will bear interest for the first five
years at a rate of 225 basis points above the weekly average yield on United
States Treasury securities having a constant maturity of five years and for the
second five years at a rate of 225 basis points above the then average weekly
yield on United States Treasury securities having a constant maturity of five
years.
The remainder of the purchase price will be paid out of
Western Beef's cash on hand.
The commitment is subject to certain conditions, including the
absence of any material and uninsured pending or threatened litigation, the
absence of any material adverse change with respect to the borrower and all
guarantors and the completion and correctness of all application documents.
Western Beef expects to repay indebtedness incurred under the credit facility
from operating cash flow.
RIGHTS OF DISSENTING STOCKHOLDERS
Holders of shares of Common Stock are entitled to appraisal
rights under Section 262 of the DGCL. A holder having a beneficial interest in
shares of Common Stock held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record holder to follow the
steps summarized below properly and in a timely manner to perfect whatever
appraisal rights the beneficial owner may have.
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THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE
LAW PERTAINING TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS
ENTIRETY BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS ENTIRETY AS
APPENDIX C TO THIS PROXY STATEMENT.
All references in Section 262 and in this summary to a
"stockholder" are to the record holder of shares of Common Stock as to which
appraisal rights are asserted. As used in this proxy statement, "Surviving
Corporation" means Western Beef, Inc., the corporation surviving the merger.
Holders of shares of Common Stock who do not wish to accept,
pursuant to the merger, the merger consideration provided for in the Merger
Agreement and who follow the procedures set forth in Section 262 of the DGCL
will be entitled to have their shares of Common Stock appraised by the Delaware
Court of Chancery and to receive payment in cash of the "fair value" of such
shares of Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262 of the DGCL, where a merger is to be
submitted for approval and adoption at a meeting of stockholders, as in the case
of the annual meeting, the corporation submitting the proposed merger to a vote
of its stockholders must notify each of its stockholders entitled to appraisal
rights that such appraisal rights are available. Such notice must be given by
the corporation to its stockholders entitled to appraisal rights no less than 20
days prior to the meeting at which the merger proposal will be submitted to the
stockholders for a vote, and such notice must include a copy of Section 262 of
the DGCL. THIS PROXY STATEMENT CONSTITUTES SUCH NOTICE TO THE HOLDERS OF SHARES
OF COMMON STOCK, AND THE APPLICABLE STATUTORY PROVISIONS OF THE DGCL ARE
ATTACHED TO THE PROXY STATEMENT AS APPENDIX C. Any holder who wishes to exercise
such appraisal rights, or who wishes to preserve his or her right to do so,
should review the following discussion and Appendix C carefully because failure
to timely and properly comply with the procedures specified will result in the
loss of appraisal rights under the DGCL.
A HOLDER OF SHARES OF COMMON STOCK WISHING TO EXERCISE HIS OR
HER APPRAISAL RIGHTS MUST DELIVER TO THE SECRETARY OF WESTERN BEEF, BEFORE THE
VOTE ON THE MERGER AGREEMENT AND THE MERGER AT THE ANNUAL MEETING, A WRITTEN
DEMAND FOR APPRAISAL OF HIS OR HER SHARES OF COMMON STOCK AND MUST NOT VOTE HIS
OR HER SHARES OF STOCK IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE MERGER. Because a proxy which does not contain voting instructions will,
unless revoked, be voted for approval and adoption of the Merger Agreement and
the merger, a holder of shares of Common Stock who votes by proxy and who wishes
to exercise his appraisal rights must:
- vote against approval and adoption of the Merger
Agreement and the merger; or
- abstain from voting on approval and adoption of the
Merger Agreement and the merger.
Neither voting (in person or by proxy) against, abstaining
from voting on or failing to vote on the proposal to approve and adopt the
Merger Agreement and the merger will constitute a written demand for appraisal
within the meaning of Section 262 of the DGCL. The written demand for appraisal
must be in addition to and separate from any such proxy or vote. In addition, a
holder wishing to exercise his or her appraisal rights must continue to hold
such shares of Common Stock from the date of the demand for appraisal until the
effective time of the merger.
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Only the person who is the holder of record on the date the
written demand for appraisal is made is entitled to assert appraisal rights for
the Common Stock registered in that holder's name. A demand for appraisal should
be executed by or on behalf of the holder of record, fully and correctly, as his
or her name appears on the stock certificate(s). If the shares of Common Stock
are owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, execution of the demand should be made in that capacity, and if the
shares of Common Stock are owned of record by more than one person, as in a
joint tenancy and tenancy-in-common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or owners.
A record holder such as a broker who holds shares of Common
Stock as nominee for several beneficial owners may exercise appraisal rights
with respect to the shares of Common Stock held for one or more beneficial
owners while not exercising such rights with respect to the shares of Common
Stock held for other beneficial owners; in such case, the written demand should
set forth the number of shares of Common Stock as to which appraisal is sought,
and when no number of shares of Common Stock is expressly mentioned the demand
will be presumed to cover all shares of Common Stock held in the name of the
record owner. Holders who hold their shares of Common Stock in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such a nominee.
All written demands for appraisal should be delivered to the
Secretary of Western Beef, either in person or by mail (certified mail, return
receipt requested, being the recommended form of transmittal) addressed to him
at: Western Beef, Inc., 47-05 Metropolitan Avenue, Ridgewood, NY 11385.
Within ten days after the effective time of the merger, the
Surviving Corporation must send a notice as to the effectiveness of the merger
to each former stockholder of Western Beef who has made such a written demand
for appraisal and who has not voted in favor of approval and adoption of the
Merger Agreement and the merger. Within 120 days after the effective time, but
not thereafter, the Surviving Corporation, or any holder who is entitled to
appraisal rights under Section 262 of the DGCL and has complied with the
requirements of that section, may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the shares of Common
Stock. The Surviving Corporation is under no obligation to and does not
presently intend to file a petition in respect of the appraisal of the fair
value of the shares of Common Stock. Accordingly, it is the obligation of the
holders to initiate all necessary action to perfect their appraisal rights
within the time prescribed in Section 262 of the DGCL.
Within 120 days after the effective time, any holder who has
complied with the requirements under Section 262 of the DGCL for exercise of
appraisal rights will be entitled, upon written request, to receive from the
Surviving Corporation a statement setting forth the aggregate number of shares
of Common Stock with respect to which demands for appraisal have been received
and which have not voted in favor of approval and adoption of the Merger
Agreement and the merger, and the aggregate number of holders of such shares of
Common Stock. Such statements must be mailed within ten days after a written
request therefor has been received by the Surviving Corporation.
If a petition for appraisal is duly filed by a holder of
shares of Common Stock and a copy thereof is delivered to the Surviving
Corporation, the Surviving Corporation will then be obligated within 20 days to
provide the Delaware Court of Chancery with a duly verified list containing the
names and addresses of all holders of shares of Common Stock who have demanded
appraisal of their shares. After notice to such holders, the Delaware Court of
Chancery is empowered to conduct a hearing upon the
-22-
<PAGE>
petition to determine those holders who have complied with Section 262 of the
DGCL and who have become entitled to appraisal rights under that section. The
Delaware Court of Chancery may require the holders who have demanded payment for
their shares of Common Stock to submit their stock certificates to the Register
in Chancery for a notation thereon of the pendency of the appraisal proceedings;
and if any holder fails to comply with such direction, the Delaware Court of
Chancery may dismiss the proceedings as to such holder.
After determining the holders entitled to an appraisal, the
Delaware Court of Chancery will appraise the "fair value" of their shares of
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares of Common
Stock as determined under Section 262 of the DGCL could be more than, the same
as or less than the consideration they would receive pursuant to the Merger
Agreement if they did not seek appraisal of their shares of Common Stock and
that investment banking opinions as to fairness from a financial point of view
are not necessarily opinions as to fair value under Section 262 of the DGCL. The
Delaware Supreme Court has stated that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings. In addition, Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
dissenter's exclusive remedy. The Court also will determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Common Stock have been appraised. The costs of the action may be
determined by the Court and taxed upon the parties as the Court deems equitable.
The Court also may order that all or a portion of the expenses incurred by any
stockholder in connection with an appraisal, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the shares
of Common Stock that have effectively pursued appraisal.
From and after the effective time, a holder who has duly
demanded an appraisal in compliance with Section 262 of the DGCL will not be
entitled to vote the shares of Common Stock subject to the appraisal demand for
any purpose or be entitled to the payment of dividends or other distributions,
if any, on those shares (except dividends or other distributions, other than the
merger consideration, payable to holders of record of shares of Common Stock as
of a date prior to the effective time).
If any holder who demands appraisal of his shares of Common
Stock under Section 262 of the DGCL fails to perfect, or effectively withdraws
or loses, his right to appraisal as provided in the DGCL, the shares of Common
Stock of such stockholder will be converted into the right to receive the merger
consideration in accordance with the Merger Agreement. A holder will fail to
perfect, or effectively lose or withdraw, his or her right to appraisal if he or
she:
- fails to provide a written demand for appraisal of
his or her shares of Common Stock before the taking
of the vote on the merger;
- votes for approval and adoption of the Merger
Agreement and the merger (or submits an executed
proxy without voting instructions);
- does not file a petition for appraisal in the Court
of Chancery within 120 days after the effective time
of the merger; or
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<PAGE>
- delivers to Western Beef (or, after the effective
time, to the Surviving Corporation) a written
withdrawal of his or her demand for appraisal and an
acceptance of the merger, except that any such
attempt to withdraw made more than 60 days after the
effective time will require the written approval of
the Surviving Corporation.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
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<PAGE>
MARKET PRICE INFORMATION; DIVIDENDS
The Common Stock of Western Beef is traded over-the-counter in
the NASDAQ National Market System ("NASDAQ") under the symbol "BEEF".
The range of the high and low bid prices per share of the
Common Stock during the last two years, listed under the name Western Beef, Inc.
as reported by NASDAQ, is set forth below:
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First Quarter...................................... 7 1/2 6 3/8
Second Quarter..................................... 6 5/8 5 1/2
Third Quarter (through September __, 1999) ........ [ ] [ ]
1998 HIGH LOW
- ---- ---- ---
First Quarter...................................... 9 1/2 7
Second Quarter..................................... 8 1/2 7
Third Quarter .................................... 10 7
Fourth Quarter ................................... 8 1/2 6 7/8
1997 HIGH LOW
- ---- ---- ---
First Quarter...................................... 14 10 3/8
Second Quarter..................................... 12 1/4 8
Third Quarter .................................... 10 3/4 7 3/4
Fourth Quarter ................................... 9 1/2 6
</TABLE>
On November 13, the last full trading day prior to the day on
which the initial buyout offer was announced, the per share high and low sales
prices were both $7.00. The closing price of Common Stock was $6 1/8 on July 27,
1999, the last full trading day prior to the day on which the execution of the
Merger Agreement was announced. As of such date, there were approximately [ ]
holders of record of the Common Stock.
Western Beef has never paid cash dividends on its Common
Stock. Payment of dividends, if any, will be within the discretion of Western
Beef's Board of Directors and will depend, among other factors, on earnings,
capital requirements and the operating and financial condition of Western Beef.
At the present time, Western Beef's anticipated capital requirements are such
that it intends to follow a policy of retaining earnings, if any, in order to
finance the development of its business.
-25-
<PAGE>
PROPOSALS AT THE ANNUAL MEETING
PROPOSAL ONE -- THE MERGER
On July 29, 1999, Cactus and Western Beef entered into the
Merger Agreement. At the annual meeting, Western Beef stockholders will be asked
to approve the adoption of the Merger Agreement, pursuant to which each share of
Common Stock that is issued and outstanding immediately prior to the effective
time (other than shares in Western Beef's treasury, shares owned by Cactus and
shares as to which appraisal rights have been perfected under Delaware law) will
be converted into and become the right to receive $8.75 in cash, without
interest thereon. The following description of the material terms of the Merger
Agreement is qualified in its entirety by reference to the Merger Agreement, a
copy of which is attached hereto as Appendix A and is incorporated herein by
reference.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF THE MERGER AGREEMENT AND THE MERGER.
TERMS OF THE MERGER
At the effective time of the merger, Cactus will be merged
with and into Western Beef, Cactus will cease to exist and Western Beef will
continue as the Surviving Corporation. The certificate of incorporation and
by-laws of Western Beef prior to the consummation of the merger will remain the
certificate of incorporation and by-laws of the Surviving Corporation following
the merger. The officers and directors of Western Beef immediately prior to the
effective time will be the officers and directors of the Surviving Corporation
following the merger.
As of the effective time of the merger, by virtue of the
merger and without any action on the part of Cactus, Western Beef or the holders
of any shares of Common Stock,
- each share of common stock, no par value per share, of Cactus,
that is issued and outstanding immediately prior to the
effective time, will be converted into and become one share of
common stock, par value $.05 per share, of the Surviving
Corporation;
- each share of Common Stock that is issued and outstanding
immediately prior to the effective time (other than shares in
Western Beef's treasury, shares owned by Cactus and shares as
to which appraisal rights have been perfected under Delaware
law) will be converted into and become the right to receive
$8.75 in cash, without interest thereon;
- each share of Common Stock that is owned immediately prior to
the effective time by Western Beef or any subsidiary of
Western Beef will be canceled and retired; and
- each share of Common Stock that is owned immediately prior to
the effective time by Cactus will be canceled and retired.
Shares of Common Stock outstanding immediately prior to the
effective time held by a Public Holder who has demanded and perfected his or her
right to appraisal will not be converted. Such Public Holder will instead be
entitled to such rights as are afforded under the DGCL.
At the effective time, each outstanding option to purchase
shares of Common Stock will be terminated and, in exchange for such option, the
holder will be entitled to receive, for each share of
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<PAGE>
Common Stock subject to such option, a cash payment equal to the excess, if any,
of the merger consideration over the applicable exercise price. Prior to the
effective date, Western Beef must use its best efforts to (1) obtain any
consents from the holders of Common Stock options and (2) make any amendments to
the terms of the Western Beef stock option plans that, in the case of either (1)
or (2), are necessary and appropriate to terminate such options. Western Beef
estimates that the aggregate payment to the holders of all outstanding options
pursuant to the Merger Agreement will be $288,770.00.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when the certificate of
merger is duly filed with the Secretary of State of the State of Delaware or at
such other time as is permissible in accordance with the DGCL and as Western
Beef and Cactus will agree and as specified in the certificate of merger.
EXCHANGE AND PAYMENT PROCEDURES
Prior to the effective time of the merger, Western Beef will
appoint a bank or trust company to act as exchange agent for payment of the
merger consideration and will have deposited with the exchange agent for the
benefit of the Public Holders the aggregate amount of the merger consideration
payable pursuant to the Merger Agreement. Promptly after the effective time, the
exchange agent will mail to each Public Holder of record of Common Stock a
letter of transmittal and instructions for use in effecting the surrender of
certificates representing such shares of Common Stock. Upon surrender to the
exchange agent of a certificate formerly representing shares of Common Stock and
acceptance by the exchange agent, the Public Holder of such certificate will be
entitled to the merger consideration. Each certificate for shares of Common
Stock of Western Beef will be deemed at any time after the effective time to
represent only the right to receive the merger consideration. No interest will
be paid or will accrue on any amount payable as merger consideration.
YOU SHOULD NOT DELIVER YOUR COMMON STOCK CERTIFICATES NOW; YOU
SHOULD SEND THEM ONLY PURSUANT TO INSTRUCTIONS SET FORTH IN THE LETTER OF
TRANSMITTAL TO BE MAILED TO YOU PROMPTLY AFTER THE EFFECTIVE TIME OF THE MERGER.
IN ALL CASES, THE MERGER CONSIDERATION WILL BE PROVIDED ONLY IN ACCORDANCE WITH
THE PROCEDURES SET FORTH IN THE MERGER AGREEMENT AND SUCH LETTERS OF
TRANSMITTAL.
Western Beef strongly recommends that certificates for Common
Stock and letters of transmittal be transmitted only by registered United States
mail, return receipt requested, appropriately insured. Holders of Common Stock
whose certificates are lost will be required to make an affidavit claiming such
certificate or certificates lost, stolen or destroyed and, if required by
Western Beef, the posting of a bond in such amount as Western Beef may
reasonably require as indemnity against any claim that may be made against it
with respect to such certificate.
TRANSFER OF COMMON STOCK
No transfer of shares of Common Stock will be made on the
stock transfer books of Western Beef after the effective time of the merger. If,
on or after the effective time, certificates for shares of Common Stock are
presented, they will be canceled and exchanged for the right to receive the
merger consideration, as provided in the preceding section of this proxy
statement.
THE PARTIES
BUYER GROUP. The Buyer Group consists of Peter Castellana,
Jr., Frank Castellana, Joseph Castellana, Michael Castellana, Camile Castellana
(all of whom are siblings), the spouses and
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<PAGE>
children of the Principal Stockholders and Ant Holding Corporation (formerly
known as PSL Foods, Inc.), a corporation owned in equal proportions by the
Principal Stockholders. The individual members of the Buyer Group are citizens
of the United States of America. Ant Holding Corporation is incorporated under
the laws of the State of New York. The principal executive offices of the
members of the Buyer Group are located at 47-05 Metropolitan Avenue, Ridgewood,
NY 11385.
CACTUS. Cactus, a corporation incorporated under the laws of
the state of Delaware, is owned by Peter Castellana, Jr., Frank Castellana,
Joseph Castellana, Michael Castellana, Camile Castellana, the spouses and
children of the Principal Stockholders and Ant Holding Corporation. Cactus is
authorized only to conduct business in connection with the completion of the
merger and will engage in no other operations. Cactus will be merged into
Western Beef and will cease to exist. The principal executive offices of Cactus
are located at 47-05 Metropolitan Avenue, Ridgewood, NY 11385.
WESTERN BEEF. Western Beef is in the retail and wholesale food
business. The principal executive offices of Western Beef are located at 47-05
Metropolitan Avenue, Ridgewood, NY 11385.
ANT HOLDING CORPORATION. Ant Holding Corporation, a New York
corporation formerly known as PSL Foods, Inc., is owned in equal parts by Peter
Castellana, Jr., Frank Castellana, Joseph Castellana, Michael Castellana and
Camile Castellana. The principal executive offices of Ant Holding Corporation
are located at 47-05 Metropolitan Avenue, Ridgewood, NY 11385.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and
warranties of Western Beef to Cactus, including with respect to the following
matters:
- the due organization and valid existence of Western Beef and its
subsidiaries and similar corporate matters;
- the capitalization of Western Beef and its subsidiaries;
- the due authorization, execution and delivery of the Merger
Agreement and its binding effect on Western Beef;
- recommendation of the Special Committee that the Board of Directors
approve the Merger Agreement;
- the adoption of the Merger Agreement by unanimous resolution of the
Board of Directors of Western Beef;
- there are no brokers or finders employed by Western Beef other than
Houlihan Lokey;
- that Western Beef's filings with the Securities and Exchange
Commission ("SEC"), comply in all material respects with the requirements of the
Securities Act of 1933, as amended and the Securities Exchange Act and the rules
and regulations of the SEC promulgated thereunder;
- and the absence of material adverse changes in Western Beef's
business since May 18, 1999.
Such representations and warranties are subject, in certain cases, to specified
exceptions and qualifications.
-28-
<PAGE>
COVENANTS
Western Beef has agreed that the indemnification provisions
with respect to officers and directors of Western Beef contained in the current
certificate of incorporation and by-laws of Western Beef will be carried over
into the certificate of incorporation and by-laws of Western Beef following the
merger without amendment, repeal or other modification for a period of six years
from the effective time of the merger. In addition, Western Beef has agreed to
maintain in effect, for a period of six years from the effective time of the
merger, directors' and officers' liability insurance for matters occurring prior
to the effective time of the merger, at the same levels currently provided, but
it will not be required to do so if premiums for such coverage exceed 125% of
the current annual premiums, in which case it will be required to provide the
maximum available coverage at a premium level equal to 125% of the annual
premiums currently paid.
Western Beef has agreed in the Merger Agreement to seek and
solicit the requisite vote of stockholders at the annual meeting for the
adoption and approval of the Merger Agreement. Cactus has agreed to vote all
shares of Common Stock owned by it at the annual meeting in favor of the
adoption and approval of the Merger Agreement. Each of Cactus and Western Beef
have agreed to use its reasonable best efforts to take all additional actions
necessary in order to complete the merger and related transactions.
Western Beef and Cactus have also agreed:
(1) to consult with each other in advance of making any
public statements concerning the merger;
(2) to give prompt notice of the occurrence or
non-occurrence of any event that is reasonably likely
to cause a representation or warranty in the Merger
Agreement to be untrue or inaccurate in any material
respect; and
(3) to give prompt notice of any material failure to
comply with any covenant, condition or agreement
under the Merger Agreement.
CONDITIONS PRECEDENT
The obligations of each of Western Beef and Cactus to
consummate the merger are subject to the fulfillment or waiver (if permissible)
at or prior to the effective time of certain conditions, including the
following:
(1) no preliminary or permanent injunction, temporary
restraining order or other decree of a court,
legislature or other agency or instrumentality of
federal, state or local government ("Governmental
Entity") shall be in effect; no statute, rule or
regulation, shall have been enacted; and no action,
suit, or proceedings by any Governmental Entity shall
have been instituted or threatened which prohibits
the consummation of the merger or materially changes
the transactions contemplated thereby;
(2) all required consents, approvals and authorizations
of, and filings with Governmental Entities for the
consummation of the transactions contemplated by the
Merger Agreement shall have been obtained;
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<PAGE>
(3) the Merger Agreement and the merger shall have been
adopted by the affirmative vote or written consent of
a majority of the outstanding shares of Common Stock.
The obligation of Western Beef to effect the merger is further
subject to the satisfaction or waiver (if permissible) prior to or at the
closing date of the merger (the "Closing Date") of the following conditions:
(1) the representations and warranties of Cactus in the
Merger Agreement shall be true and correct in all
material respects as of the effective time and
Western Beef shall have received a certificate of the
President of Cactus to that effect; and
(2) Cactus shall have performed and complied with in all
material respects with all its undertakings and
agreements required by the Merger Agreement prior to
the effective Closing Date.
The obligation of Cactus to effect the merger is further
subject to the satisfaction or waiver (if permissible) prior to or at the
Closing Date of the following conditions:
(1) the representations and warranties of Western Beef
contained in the Merger Agreement shall be true and
correct in all material respects as of the effective
time and Cactus shall have received a certificate of
the President and Chief Executive Officer of Western
Beef to that effect;
(2) Western Beef shall have performed and complied with
in all material respects with all of its undertakings
and agreements required by the Merger Agreement prior
to or at the Closing Date;
(3) there shall have been no material adverse change in
the business, assets, liabilities, results of
operations or financial condition of Western Beef
since December 31, 1998, except as set forth in
Western Beef's SEC filings filed on or prior to the
date of the Merger Agreement;
(4) Cactus shall have funds available to it at the
closing sufficient to pay the merger consideration,
pursuant to the Commitment Letter or any other
commitment acceptable to Cactus; and
(5) holders of not more than 5% of the issued and
outstanding shares of Common Stock shall have
exercised their rights of dissent from the merger
under Section 262 of the DGCL.
TERMINATION; AMENDMENT; WAIVER
The Merger Agreement provides that it may be terminated and
the merger abandoned at any time prior to the effective time, before or after
approval and adoption by Western Beef stockholders at the annual meeting:
(1) by mutual written consent of Cactus and Western Beef;
or
(2) by either Cactus or Western Beef if:
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<PAGE>
- the merger shall not have been consummated by
December 31, 1999, provided that the right to
terminate the Merger Agreement in such event is not
available to any party whose failure to fulfill any
of its obligations under the Merger Agreement has
been the cause, or resulted in the failure of the
merger to occur on or before such date; or
- the Special Committee shall have withdrawn, modified
or changed in any manner adverse to Cactus its
approval of the Merger Agreement or the merger after
having concluded in good faith after consultation
with independent legal counsel that there is a
reasonable probability that the failure to take such
action would result in a violation of its fiduciary
obligations under applicable law.
In the event of termination, the Merger Agreement will become
null and void and there will be no liability on the part of Western Beef or
Cactus, except for any liability arising from breach of the Merger Agreement.
The Merger Agreement may be amended by the parties in writing.
At any time prior to the effective time, whether before or
after the approval of the holders of Common Stock, either party may (1) extend
the time for the performance of any of the obligations or other acts of the
other party or (2) waive compliance with any of the agreements of the other
party or fulfillment of any conditions to its own obligations. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party by a
duly authorized officer.
All costs and expenses incurred by Cactus in connection with
the Merger Agreement and the consummation of the merger shall become the
obligations of the Surviving Corporation following the merger.
SURVIVAL OF REPRESENTATIVES AND WARRANTIES
None of the representations and warranties of either Cactus or
Western Beef will survive the effective time of the merger.
CERTAIN TAX CONSIDERATIONS
Receipt by Public Holders of the merger consideration is a
taxable event. Public Holders may recognize gain or loss measured by the
difference between the amount of cash received by any individual stockholder in
the merger and that stockholder's tax basis in the shares of Common Stock
exchanged therefor. If a Public Holder holds shares of Common Stock as capital
assets, the gain or loss may be capital gain or loss (which will be long term if
the shares are held for more than 12 months).
This summary does not discuss all of the tax consequences
which may be relevant to certain types of Public Holders subject to special
treatment under the federal income tax laws (such as individual retirement
accounts and other tax-deferred accounts, life insurance companies, tax-exempt
organizations, dealers in securities and foreign persons). Accordingly, Public
Holders should consult their own tax advisors with respect to the particular
consequences to them of the receipt of the merger
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<PAGE>
consideration in the merger, including the applicability and effect of any
state, local or foreign tax laws to which they may be subject and of any
legislative or administrative changes in law.
ACCOUNTING TREATMENT
The cost of purchasing the Common Stock from shareholders
other than Cactus will be accounted for as a treasury stock transaction by
Western Beef, the surviving company, under generally accepted accounting
principles. This means that the historical cost basis of the Western Beef's
assets and liabilities will be carried forward with the aggregate cost,
including expenses, of such treasury stock purchase being accounted for as a
charge to stockholders' equity.
REGULATORY REQUIREMENTS
Except for the filing of the certificate of merger with the
Secretary of State of the State of Delaware (following the approval and adoption
of the Merger Agreement by Western Beef's Stockholders) and except for
compliance with federal and state securities laws, neither Western Beef nor
Cactus is aware of any material United States federal or state or foreign
governmental regulatory requirement necessary to be complied with or approval
that must be obtained in connection with the merger.
LITIGATION REGARDING THE MERGER
On December 3, 1998, a purported class action, Plumpe v.
Castellana et al., No. 16807 NC, was filed in the Delaware Chancery Court
against Western Beef, Peter Castellana, Jr., Joseph Castellana, Stephen R.
Bokser and Arnold B. Becker. The action seeks to enjoin a transaction pursuant
to which Western Beef would be acquired by an entity formed by certain Company
officials and their family members, on the grounds that the transaction would
create a breach of fiduciary duties to shareholders. The action also seeks
rescission of the transaction if it is consummated, damages, and accountants'
and attorneys' fees. Prior to the special meeting of the Board of Directors held
on July 29, 1999, counsel for the defendants negotiated a settlement with
counsel to the plaintiff in the stockholder lawsuit arising from the merger and
subsequently entered into a memorandum of understanding related to such
settlement on July 29, 1999. The memorandum of understanding provides for the
settlement of the stockholder lawsuit based on the payment of a per share merger
consideration of $8.75 and is subject to, among other things, completion by the
plaintiff of additional discovery, completion of definitive documentation
relating to the settlement, court approval and the dismissal of the lawsuit with
prejudice and without any costs to any party (except as agreed upon).
Additionally, pursuant to the memorandum of understanding, the defendants will
not oppose the plaintiff's application for an award for attorney's fees in the
amount of $150,000 and reimbursement of expenses not to exceed $10,000. The
defendants have also agreed to be responsible for the costs and expenses related
to providing notice of the proposed settlement, regardless of whether the
proposed settlement is approved by the court.
RECOMMENDATION AND VOTE
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF THE MERGER AGREEMENT AND THE MERGER.
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<PAGE>
PROPOSAL TWO -- ELECTION OF DIRECTORS
NOMINATION
The Board of Directors presently consists of four directors
who are elected to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. The Board of Directors has
designated the nominees listed below for election as directors to serve until
the 2000 annual meeting or until their successors are duly elected and
qualified. If any nominees will, prior to the annual meeting, become unavailable
for election as a director, the persons named in the accompanying proxy card
will vote for such other nominee, if any, in their discretion as may be
recommended by the Board of Directors.
INFORMATION ABOUT NOMINEES
The following information has been furnished to Western Beef
by the respective nominees for director:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <S>
Peter Castellana, Jr. 39 President and Chief Executive Officer
Joseph Castellana 42 Executive Vice-President - Retail Operations, Executive
Assistant to the President and Chief Executive Officer
Arnold B. Becker 64 Director
Stephen R. Bokser 56 Director
</TABLE>
PETER CASTELLANA, JR. has been President, Chief Executive
Officer and a Director of Western Beef since March 1995. Mr. Castellana served
as Vice-President and President of Retail Operations of Western Beef from May
1992 until 1995 and as General Manager - Retail Operations of Western Beef for
over five years.
JOSEPH CASTELLANA has been a Director, Executive
Vice-President - Retail Operations and Executive Assistant to the President and
Chief Executive Officer of Western Beef since March 1995. Prior to that, Mr.
Castellana served as Vice-President and Secretary of Western Beef. Mr.
Castellana served as Vice-Chairman of the Board from 1995 until 1997.
ARNOLD B. BECKER has been a Director since 1995. Since
February 1996 Mr. Becker has been President of the Arnold Becker Group, Inc.,
provider of management consulting services to retail companies. Prior to 1996,
Mr. Becker was President of Vendamerica, Inc., the U.S. investment arm of Vendex
International N.V.
STEPHEN R. BOKSER has been a Director of Western Beef since
1993. Mr. Bokser is the President and Chief Executive Officer of White Rose
Food, a wholesale food distributor which is a division of Di Giorgio Corp. Mr.
Bokser also serves as a Director of Di Giorgio Corp.
RECOMMENDATION AND VOTE
Approval of the election of the nominees to the Board of
Directors requires the affirmative vote of a plurality of the shares of Common
Stock present, in person or by proxy, and entitled to vote at the annual
meeting.
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<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
EACH OF THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
DIRECTORS AND EXECUTIVE OFFICERS OF WESTERN BEEF
The table below sets forth the names, ages and titles of the
directors and executive officers of Western Beef.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter Castellana, Jr. (1) 39 President and Chief Executive Officer
Joseph Castellana (1) 42 Executive Vice-President - Retail Operations,
Executive Assistant to the President and Chief
Executive Officer
Arnold B. Becker 64 Director
Stephen R. Bokser 56 Director
Peter R. Admirand 59 Secretary and Controller - Retail Operations
Frank Castellana (1) 44 Executive Vice President - Planning and Development
Michael Castellana (1) 35 Senior Vice President - Retail Operations
Chris Darrow (2) 42 Former Chief Financial Officer
</TABLE>
- ---------------
(1) Peter Castellana, Jr., Frank Castellana, Joseph Castellana and
Michael Castellana are siblings.
(2) Mr. Darrow resigned from Western Beef on February 13, 1999.
PETER R. ADMIRAND has been Controller of Retail Operations
since August 1987 and Secretary of Western Beef since March 1995.
FRANK CASTELLANA has been Executive Vice President of Planning
and Development of Western Beef since February 1997. From 1995 to 1997, Mr.
Castellana served as Chairman and Executive Vice President of Wholesale
Operations of Western Beef. Prior to 1995, Mr. Castellana was President of
Western Beef.
MICHAEL CASTELLANA has been Senior Vice President of Retail
Operations of Western Beef since March 1995. Prior to 1995, Mr. Castellana
served as General Manager of the Produce Division of Western Beef.
CHRIS DARROW served as former Chief Financial Officer of
Western Beef from 1997 until 1999. Prior to 1997, Mr. Darrow was Vice President
and Controller of Waldbaums, Inc., a subsidiary of The Great Atlantic & Pacific
Tea Co., a company engaged in the retail food business.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors held two meetings during fiscal 1998
with every director attending each of the meetings held during his term as
Director, and acted by unanimous written consent on two occasions. The Board of
Directors has a Compensation and Benefits Committee (the "Compensation
Committee"), consisting of Arnold B. Becker and Stephen R. Bokser and an Audit
Committee, consisting of Stephen R. Bokser and Arnold B. Becker. In 1998
non-employee directors received a fee of $1,250 for each of the two meetings
they attended. Neither the Compensation Committee nor the Audit Committee met in
fiscal 1998. The Compensation Committee acted on unanimous written consent on
July 10, 1998, to approve grants of options in 1998 under the Western Beef, Inc.
1995 Stock Option Plan for Employees.
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<PAGE>
EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
The following table sets forth, for the years ended January 1,
1999 ("1998"), January 2, 1998 ("1997") and January 3, 1997 ("1996"), individual
compensation information for the Chief Executive Officer of Western Beef and
each of the four other most highly compensated executive officers of Western
Beef during 1998 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
--------------
Annual Compensation Securities
------------------------- Underlying All Other
Name & Principal Position Year(1) Salary (2) Bonus (2) Options (#) Compensation (3)
- ------------------------------------ ------------ -------------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Peter Castellana, Jr............ 1998 $602,094 $106,203 -- $6,400
President and CEO 1997 613,673 98,735 -- 6,400
1996 591,347 170,285 -- 6,000
Frank Castellana................ 1998 168,493 21,025 -- 6,400
Executive Vice-President 1997 182,308 15,925 -- 6,400
1996 333,320 87,316 -- 6,000
Joseph Castellana............... 1998 387,308 72,920 -- 6,400
Executive Vice-President 1997 387,308 63,700 -- 6,400
1996 369,309 106,376 -- 6,000
Michael Castellana.............. 1998 287,958 58,762 -- 6,400
Senior Vice-President 1997 293,496 56,056 -- 6,400
1996 284,550 82,214 -- 6,000
Chris Darrow.................... 1998 118,437 21,025 3,000 5,578
Former Chief Financial Officer 1997 103,365 12,209 3,000 --
1996 N/A N/A -- --
</TABLE>
- -------------
(1) Western Beef uses a 52-53 week fiscal year. The fiscal years ended
January 1, 1999, January 2, 1998 and January 3, 1997 are referred to as
1998, 1997 and 1996, respectively. Fiscal years 1998 and 1997 include 52
weeks and fiscal year 1996 includes 53 weeks.
(2) Amounts shown include cash compensation earned by the named executive
officers during each respective year covered, including amounts deferred,
if any, at the election of those officers. Bonuses are shown for the year
in which they were earned.
(3) Amounts shown represent Western Beef contributions to its Profit
Sharing Plan on behalf of the named executives.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of
stock options under the Western Beef, Inc. 1995 Stock Option Plan for Employees.
<TABLE>
<CAPTION>
Number of Percentage of Total
Securities Options Granted to
Underlining All Employees Exercise Pric Expiration Grant Date
NAME Options Granted (1) in 1998 Fiscal Year Per Share Date Present Value (2)
- --------------------- --------------------- --------------------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Chris Darrow 3,000 10.15% $8.25 July, 2008 $11,430
</TABLE>
- -------------
(1) The option reflected in the table is a nonqualified stock option under the
Internal Revenue Code and was granted on July 9, 1998. The exercise price
of the option was equal to 100% of the fair market value of the Common
Stock on the date of grant, as determined by the Committee. The option
granted vests in increments of 20% on the first, second, third, fourth and
fifth anniversaries of the date of grant; however, it may not be
exercisable after the expiration of ten (10) years from the date of grant.
The exercise price of the option was equal to 100% of the fair market value
of the Common Stock on the date of grant, as determined by the Committee.
The option granted expired upon Mr. Darrow's resignation from Western Beef.
(2) The option value presented is based on the Black-Scholes option-pricing
model adapted for use in valuing stock options. The actual value, if any,
that an optionee may realize upon exercise will depend on the excess of the
market price of the Common Stock over the option exercise price on the date
the option is exercised. There is no assurance that the actual value
realized by an optionee upon the exercise of an option will be at or near
the value estimated under the Black-Scholes model. The estimated value
under the Black-Scholes model is based on arbitrary assumptions as to
variables such as interest rates and stock price volatility.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises by each of
the named executive officers during the past fiscal year and the value of such
officers' unexercised options at January 1, 1999, the last day of Western Beef's
fiscal year. No SARS were outstanding during this period.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money Options
Shares Acquired Value at Fiscal Year-End (1) at Fiscal Year-End
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Chris Darrow -0- -0- 600 5,400 -0- N/A
</TABLE>
- -------------
(1) All options were granted under the Western Beef, Inc. 1995 Stock Option
Plan for Employees. Mr. Darrow's options terminated upon his resignation
from Western Beef. No other Named Executive Officer has been granted nor
holds options.
NON-EMPLOYEE DIRECTOR COMPENSATION
Pursuant to Western Beef's compensation policy, each non-employee
director will receive:
1. A fee of $1,250 dollars for each Board meeting
attended by such director. Directors are not paid an
annual retainer in addition to such fees.
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<PAGE>
2. A one-time grant of options to purchase 5,000 shares
of Western Beef's Common Stock at a price equal to
the fair market value of the Common Stock on the date
of grant when the non-employee director is first
elected to the Board of Directors. Such options shall
vest and become exercisable in 20% increments on the
first, second, third, fourth and fifth anniversaries
of the date of grant.
In addition, all members of the Board of Directors are indemnified by a
standard Directors' and Officers' liability policy in a manner consistent with
the requirements of Delaware law. Pursuant to the Certificate of Incorporation
of Western Beef, all members of the Board are indemnified to the fullest extent
possible under the Delaware General Corporation Law.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation of the Western Beef executive officers currently is
administered by the Western Beef Compensation Committee, which consists of
Messrs. Arnold B. Becker and Stephen R. Bokser. Mr. Bokser is President and
Chief Executive Officer of White Rose Food. During 1998, 1997 and 1996, Western
Beef purchased various food products in the amounts of $46,287,000, $37,111,000
and $24,423,000 from White Rose Food. As of January 1, 1999 and January 2, 1998,
Western Beef had trade payables of $3,765,000 and $1,997,000 respectively, due
to White Rose Food.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation of Western Beef's executive officers is determined by the
Compensation Committee. From time to time, the Compensation Committee consults
with William M. Mercer, Inc. for advice on compensation matters and information
on competitors' compensation practices. Western Beef's compensation strategy
consists of base salary, annual bonus and long term compensation through stock
options.
Compensation of the executive officers of Western Beef for 1998,
including the Chief Executive Officer, was determined by the Compensation
Committee upon the recommendation of Peter Castellana, Jr. Bonuses earned in
1998 by the Named Executive Officers, including the Chief Executive Officer,
were based on Western Beef's earnings before income taxes ("EBIT"). EBIT
targets and bonus percentages were set by the Chief Executive Officer and bonus
payments were approved by the Compensation Committee. Because compensation paid
to executive officers during 1997 did not exceed the tax deductibility limits of
162(m) of the Internal Revenue Code, Western Beef currently has no policy with
respect thereto.
Compensation Committee
Arnold B. Becker
Stephen R. Bokser
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Common Stock with that of the Dow Jones Equity Market Index, a broad market
index, and the Dow Jones Food Retailers and Wholesalers Index, an index of
operators of supermarkets, food-oriented convenience stores and other food
retailers, both issued by the Dow Jones Company. The comparison for each of the
periods assumes that $100 was invested on January 1, 1993 in each of: (1) the
Common Stock; (2) the stocks included in the
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<PAGE>
Dow Jones Equity Market Index; and (3) the stocks included in the Dow Jones Food
Retailers and Wholesalers Index. These indices, which reflect formulas for
dividend reinvestment and weighing of individual stocks, do not necessarily
reflect returns that could be achieved by individual investors.
Western Beef Inc Del (BEEF)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------------------
12/31/93 12/30/94 12/29/95 1/3/97 1/2/98 1/1/99
-------- -------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
WESTERN BEEF, INC. 100 71 62 122 84 84
DOW JONES EQUITY MARKET 100 101 139 174 230 294
DOW JONES FOOD RETAILERS & WHOLESALERS 100 94 95 120 150 309
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth beneficial ownership (determined in
accordance with Rule 13d-3 under the Securities Exchange Act) of Common Stock
(being Western Beef's only voting securities) by each Director, each Named
Executive Officer designated in the section of this Proxy Statement captioned
"Executive Compensation", all Directors and Named Executive Officers as a group,
and each person (including any "group" as that term is used in Section 13(d)(3)
of the Securities Exchange Act) known by Western Beef to own more than 5% of the
Common Stock as of August 18, 1999. Western Beef has been advised that except as
otherwise indicated in the notes to such table, all those listed have the sole
power to vote and dispose of the number of shares set forth opposite their
respective names, and their respective addresses are in care of Western Beef:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED % OF CLASS
- --------------------------------------------------------------- ------------------ ----------
<S> <C> <C>
Ant Holding Corporation (1) 1,690,007 30.9
Camile Castellana (2)(3) 446,126 8.1
Joseph Castellana (2)(4)(5) 446,126 8.1
Frank Castellana (2)(4)(6) 453,529 8.3
Peter Castellana, Jr. (2)(4)(7) 446,126 8.1
Michael Castellana (2)(4)(8) 446,126 8.1
Fidelity Management and Research 423,400 7.7
Stephen R. Bokser (4) 10,000 *
Arnold B. Becker (4) 10,000 *
Chris Darrow (4) -- *
All directors and executive officers as a group (ten persons) (9) 3,926,714 71.7
---------
</TABLE>
- -------------
* Less than 1% of the outstanding Common Stock.
(1) Ant Holding Corporation, formerly PSL Foods, Inc., is owned in equal
proportions by the individuals named in note (2) below.
(2) Frank Castellana, Joseph Castellana, Peter Castellana, Jr., Michael
Castellana and Camile Castellana are siblings and are referred to
herein as "the Principal Stockholders."
(3) Includes 32,818 shares owned by the minor children of Camile
Castellana.
(4) Member of Western Beef's Board of Directors and/or a named executive
officer of Western Beef. Includes options to purchase 10,000 shares of
Common Stock each for Messrs. Bokser and Becker.
(5) Includes 46,400 shares owned by the wife and minor children of Joseph
Castellana.
(6) Includes 17,528 shares owned by the wife and minor children of Frank
Castellana.
(7) Includes 182,800 shares owned by the wife and minor children of Peter
Castellana, Jr..
(8) Includes 53,984 shares owned by the wife and minor children of Michael
Castellana.
(9) Includes shares owned by Ant Holding Corporation. Also includes options
to purchase 22,200 shares of Common Stock held by certain Directors and
Executive Officers.
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<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires Western Beef's
directors, executive officers and persons who own more than ten percent of a
registered class of Western Beef's equity securities to file with the SEC
initial reports of ownership and reports of changes in beneficial ownership of
Common Stock and other equity securities of Western Beef. Officers, directors
and greater than ten percent stockholders are required by SEC regulation to
furnish Western Beef with copies of all Section 16(a) reports they file.
Based solely upon its review of copies of such reports furnished
Western Beef through the date hereof and written representations that no
reports were required to be filed, Western Beef believes that during the
fiscal year ended January 1, 1999, all filing requirements applicable to its
officers, directors and ten percent stockholders were complied with, subject
to the exceptions set forth below:
Chris Darrow, Former Chief Financial Officer of Western Beef, did not
file a Statement of Beneficial Ownership of Securities on Form 4 in connection
with the grant of an Employee Stock Option on July 9, 1998. Mr. Darrow filed
an Annual Statement of Changes in Beneficial Ownership on Form 5 disclosing
this event on April 26, 1999.
Mr. Peter R. Admirand, Secretary and Controller - Retail Operations of
Western Beef, did not file a Statement of Changes in Beneficial Ownership of
Securities on Form 4 in connection with the grant of an Employee Stock Option
on July 9, 1998. Mr. Admirand filed an Annual Statement of Changes in
Beneficial ownership on Form 5 disclosing this event on April 26, 1999.
CERTAIN TRANSACTIONS IN THE SHARES OF COMMON STOCK
There were no transactions in the shares of Common Stock that were
effected during the past 60 days by Western Beef or Cactus, or any of their
respective subsidiaries, directors, executive officers or controlling persons.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For more than a decade, Western Beef and the Principal Stockholders
have had continuing relationships simultaneously as lessors and lessees,
suppliers and customers and debtors and creditors. They have also shared certain
management personnel and certain administrative functions, such as insurance,
advertising and payrolls, and have attempted to allocate the common costs
fairly. In October 1992, the parties consummated an Agreement of Combination
("the Combination") pursuant to which Western Beef and the food business of the
Principal Stockholders were combined under a publicly traded successor Delaware
corporation. Since the consummation of the Combination, the Principal
Stockholders have held in excess of 70% of the outstanding Common Stock.
Western Beef leases certain retail food stores, offices and warehouse
facilities from the Principal Stockholders. Concurrent with the Combination,
independent appraisals were obtained of the rentals under all then-existing
Western Beef leases in which the Principal Stockholders had an interest as
landlord or tenant (other than one food store lease which was fixed on a formula
basis). Any necessary revisions to the leases were made so that, in the
aggregate, such rentals did not exceed fair market value. Western Beef and the
Principal Stockholders agreed that any future leases from such affiliates would
be based on fair market value as established by independent appraisal. All
Western Beef leases in which the Principal Stockholders
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<PAGE>
had an interest have been amended periodically, so that the rentals thereunder
do not exceed fair market value.
Western Beef leases land, various retail food stores and warehouse
storage and office space from affiliates of the Principal Stockholders under
various leases which expire through January 2017. For fiscal years 1998, 1997
and 1996, rent expense relating to these leases was $3,004,000, $2,829,000 and
$2,737,000 respectively. Western Beef made capital expenditures of approximately
$436,000, $2,022,000 and $725,000 during 1998, 1997 and 1996 respectively, at
leaseholds owned by affiliates of the Principal Stockholders.
The average square foot rental for property leased from the Principal
Stockholders is $3.91 per square foot as compared with an average square foot
rental of $3.93 for property leased from third party landlords.
Western Beef had sales to affiliates controlled by Western Beef's
Principal Stockholders for 1998, 1997 and 1996 of $561,000, $894,000, and
$335,000 respectively.
The Principal Stockholders are members of the Buyer Group and control
100% of Cactus. see "Proposals at The Annual Meeting -- Proposal ONE - The
Merger" and "Special Factors -- Conflicts of Interest."
During 1998, 1997 and 1996 Western Beef purchased various food products
in the amounts of $46,287,000, $37,111,000 and $27,423,000 respectively, from
White Rose Food, of which Stephen R. Bokser, a Director of Western Beef, is an
officer. As of January 1, 1999 and January 2, 1998 Western Beef had trade
payables of $3,765,000 and $1,997,000 respectively, due to White Rose Food.
WESTERN BEEF
Western Beef consists principally of a retail food business that
currently operates 21 high-volume, warehouse-type supermarkets, two outlet-type
food stores and a wholesale food business that primarily deals in beef, pork,
poultry, provisions, produce and private label groceries. Western Beef's
supermarkets serve the New York Metropolitan area, while Western Beef's
wholesale business operates in the New York, New Jersey and Eastern Pennsylvania
markets. In the fiscal years ended January 1, 1999 ("1998"), January 2, 1998
("1997") and January 3, 1997 ("1996") (a fifty-three week fiscal year), the
retail supermarket business accounted for approximately 82%, 73% and 70%
respectively, of Western Beef's total net sales.
The retail and wholesale food businesses are generally characterized by
low-profit margins with earnings primarily dependent on rapid inventory
turnover, careful cost control and the ability to achieve high sales volume.
Since many food products, particularly produce, meat and dairy products, are
subject to spoilage and become unmarketable with the passage of time, it is
important to avoid overstocking and to reduce excess inventories when they
occur. This is usually accomplished by promotional sales at reduced prices. It
is advantageous to combine wholesale and retail businesses under common
ownership because overstocking in the wholesale business can be relieved by
promotional sales in commonly owned retail stores. Commonly owned operations can
also more readily take advantage of opportunities for bargain purchases,
including stocks with shorter than usual shelf life, as they become available in
wholesale markets.
RETAIL OPERATIONS
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<PAGE>
Western Beef operates twenty-one retail supermarkets in the
New York Metropolitan area under the trade name "Western Beef" and two
outlet-type food stores that operate under the trade name "Junior's." Its first
two retail supermarkets were opened in 1973 and 1979. In the late 1980's,
management decided to pursue a more aggressive growth and expansion program
consisting of new supermarket acquisitions and remodeling and/or the closing of
smaller supermarkets. Since that time, Western Beef has continued to search for
suitable locations in the New York Metropolitan area to open new supermarkets.
In 1998, Western Beef opened two Western Beef supermarkets and two Junior's
food-outlet stores. No new supermarkets were opened in 1997 and two supermarkets
were opened in 1996.
During 1998, 1997 and 1996, Western Beef's capital
expenditures for its retail business were $11,359,000, $7,085,000 and
$12,933,000 respectively.
All of Western Beef's supermarkets and outlet-type stores are
operated by Western Beef Retail, Inc., a wholly-owned subsidiary of Western
Beef. Most of Western Beef's supermarkets and stores are free standing. The
supermarkets are open seven days a week, including evenings, and are high-volume
operations. Most of Western Beef's supermarkets have refrigerated,
warehouse-type facilities which are divided into separate areas kept at
different temperatures. Non-perishable items are displayed in an area maintained
at normal room temperatures. In most of Western Beef's supermarkets, meat is
displayed in large refrigerated rooms where Western Beef sells both bulk meat,
which is custom cut by Western Beef's butchers, as well as a full variety of
pre-packaged meats. In nineteen of its supermarkets, Western Beef sells produce
which is displayed in refrigerated cases maintained at 37 degrees Fahrenheit and
where moisture content is regulated by automatic misting equipment. Dairy and
deli products are sold in separate areas of Western Beef's supermarkets,
maintained at 30-40 degrees Fahrenheit. Most of Western Beef's supermarkets
also contain stand-alone freezers, which maintain temperatures suitable for
storage of frozen foods, such as ice cream, vegetables and dinner entrees.
Western Beef's supermarkets also sell a complete line of dry groceries and some
non-food products such as paper products and household utensils.
Four of Western Beef's supermarkets operate scratch brick
oven bakeries, which bake a large variety of old world bread and rolls from
basic ingredients. One of these supermarkets supplies three other Western Beef
supermarkets with fresh baked goods. It is anticipated that, as capacity
permits, these baked goods will be introduced into all of Western Beef's
supermarkets. Fifteen supermarkets also operate full service delicatessen
departments, which cut-to-order the various cheese and processed meats
displayed. Western Beef's other supermarkets have self-service delicatessen
departments.
Western Beef's outlet-type stores are open six days a week
from Monday to Saturday and are open about ten hours a day. From initial
construction to daily operation they are designed and constructed using a
no-frills approach. The building structures, which are approximately 11,000
square feet in size, are made of prefabricated material which reduces
construction costs and are designed to be energy efficient. Refrigerated dairy,
meat and frozen products are merchandised through rear-fed door display units.
Dry grocery products are displayed on floor pallet stacks and "warehouse" type
racking utilizing "cut case" display techniques. This merchandising format is
unlike conventional supermarket formats in that it features approximately 600
different products as compared to the more than 40,000 products featured in
conventional supermarkets. Junior's sells high-turnover food staples with a
heavy emphasis on Western Beef label brand products.
Western Beef promotes its "Western Beef" retail supermarkets
and outlet food stores in full color store circulars and local newspapers,
generally at least once a week. In addition, advertisements are also placed on
local radio stations and smaller cable television networks in both the English
and Spanish languages. Western Beef distributes its weekly circulars
door-to-door in selected neighborhoods
-41-
<PAGE>
and through insertions in local newspapers. Advertising expenditures for 1998
were $2,391,000, covering ad promotion, preparation, placement and distribution.
Western Beef's twenty-one retail supermarkets range in size from 9,000 square
feet to 83,000 square feet, with an average of 30,000 square feet per store.
They are supported by Western Beef's wholesale division warehouses totaling
117,000 square feet. In 1998, approximately 45% of Western Beef's retail
purchases were derived from its warehouses; the remaining purchases were
delivered directly to the stores from manufacturers or outside wholesalers.
White Rose Foods ("White Rose") is Western Beef's largest
outside wholesaler. Western Beef does not have a formal supply agreement with
White Rose. From time to time, Western Beef meets with other wholesale suppliers
to ascertain if the service and prices charged by White Rose are as favorable as
could be received from other sources. Based on these meetings, Western Beef has
determined that purchasing from White Rose continues to be competitive with
other supply sources and in the best interest of Western Beef.
In 1998, White Rose accounted for approximately 22% of Western
Beef's retail division's purchases. In 1998, no other supplier accounted for
more than 10% of Western Beef's purchases. Management believes that the loss of
White Rose as a supplier would not have a long-term adverse effect on Western
Beef's performance since Western Beef has access to several other similar
suppliers.
During 1998, Western Beef increased both the number and
diversity of the products marketed under the Western Beef brand label. These
products are purchased from national and local food manufacturers. Western Beef
brand products are generally well accepted by Western Beef's retail customers
and more Western Beef brand products are expected to be introduced. In general,
Western Beef brand products, which are priced 20% to 50% lower than the
comparable national brand products, generate higher gross profit margins for
Western Beef than brand name merchandise.
WHOLESALE OPERATIONS
Western Beef also conducts a wholesale food business. It
purchases beef, pork, poultry and provisions directly from major
slaughterhouses, meat and poultry processors and other suppliers on a daily
basis to ensure a supply of fresh products and to be responsive to customer
needs. Western Beef does not have formal supply agreements with any of these
entities. It purchases merchandise for its wholesale business by purchase
orders, the terms of which are subject to normal market conditions such as
pricing and availability at the time of purchase. The loss of any of these
suppliers would not be material to Western Beef. Additionally, Western Beef's
wholesale business warehouses and distributes grocery, produce, dairy and frozen
food products to its own retail food stores.
Western Beef distributes products from its warehouses in
Ridgewood, New York, which operate 24 hours a day. On average, the perishable
inventory is turned over approximately once a week. Notwithstanding such
turnover, the wholesale business requires large amounts of working capital for
financing inventory and accounts receivable.
To facilitate its wholesale business and retail distribution,
Western Beef (through a wholly-owned subsidiary) owns and operates a fleet of
tractors, trailers and trucks, most of which are refrigerated. At various times
since 1989, Western Beef has transported food products for others on a limited
basis; however, substantially all trucking operations now are conducted for
Western Beef's own distribution facilities. In addition, to enhance
profitability, Western Beef "back hauls" merchandise inventory to achieve
reduced product cost.
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<PAGE>
COMPETITION
The wholesale and retail segments of the food industry are
competitive throughout the market areas served by Western Beef. These businesses
are generally characterized by low profit margins, with earnings primarily
dependent on rapid inventory turnover, careful cost control and ability to
achieve high sales volume.
Competition manifests itself in virtually every aspect of the
retail food business, including pricing, advertising and promotion, store size,
location and attractiveness, hours of operation, product selection and quality,
employee friendliness, service and parking facilities. Although Management
believes Western Beef's retail stores price their products competitively, such
pricing has been made possible principally because of the low overhead costs
incurred by presenting the food in no-frills, warehouse type, bulk display
settings without the typical shelving, lighting, decor and other amenities
offered by most suburban supermarkets. In the past, Western Beef's retail food
business has grown by opening food supermarkets in locations in Metropolitan New
York City areas where its supermarkets were larger than existing independent
supermarkets and convenience food stores, and where there had been a limited
presence of national or regional chain supermarkets. In recent years, however,
Western Beef has experienced competition from larger supermarket chains, some of
which have greater resources than Western Beef, as well as with other
independent operators. Such competitors have expanded and are likely to continue
expanding by opening retail food stores within Western Beef's markets. Although
Management believes it will be able to continue to compete on the basis of
quality, price and reputation, there can be no assurance that Western Beef will
be able to maintain or improve its current competitive position.
Wholesale competition is based principally on price, quality
and service, including the extension of favorable credit terms. Financially
stronger wholesale competitors may be better suited to take advantage of
distressed, "bargain" price opportunities, which arise during periods of
over-supply, and to finance the cost of carrying large inventories and
receivables during periods of market weakness. The wholesale division competes
with several other companies on the wholesale level, some of which are larger
than Western Beef and may have greater resources. Currently, there are adequate
suppliers and multiple sources of the products which Western Beef distributes
and sells. However, there is a trend toward consolidation in the food industry
with many smaller suppliers being acquired by larger concerns.
GOVERNMENT REGULATION
The food business is subject to, and affected by, substantial
and complex federal, state and local laws and regulations that apply to the sale
of food at both the wholesale and retail levels, and it is required to obtain
certain federal, state and local permits and/or licenses for accepting United
States Department of Agriculture ("USDA") food stamps and Women, Infants and
Children ("WIC") checks (assistance checks which can only be used to purchase
certain dairy and grocery items), operating a bakery, processing meat, selling
produce, beer and wine coolers, and otherwise in order to conduct business. In
addition, such regulation includes unannounced inspections by government
officials investigating sanitary conditions, weights, measures and other
matters. Western Beef believes it currently holds all licenses and permits
required to conduct its business and is in compliance in all material respects
with applicable regulations. For fiscal 1998, 1997 and 1996 respectively, food
stamp redemptions accounted for approximately 19%, 20% and 24% of Western Beef
's retail sales. There would be a material adverse effect on Western Beef if it
were to suffer the loss of its USDA permits to accept food stamps or if the
Government was to reduce or eliminate the food stamp program. Management
believes that the decline in 1998 and 1997 food stamp redemptions resulted from
modifications made by the USDA regarding eligibility requirements for obtaining
food stamps.
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<PAGE>
EMPLOYEES
As of March 17, 1999, Western Beef's retail business employed
approximately 1,700 people and its wholesale business employed approximately 100
people. None of these employees are represented by a labor union.
Western Beef believes that its relationship with its employees
is generally satisfactory.
SEASONALITY
No material portion of Western Beef's business is affected by
seasonal fluctuations, except that sales are generally strongest around
holidays, particularly the Fourth of July and Easter.
ENVIRONMENTAL LAWS
Western Beef is subject to various applicable federal, state
and local laws and regulations relating to environmental matters. Under such
laws, Western Beef is exposed to liability primarily as an owner or operator of
real property and, as such, it may be responsible for the proper management or
remediation of hazardous substances. Such substances for which Western Beef may
be liable could include historic contamination of real property,
asbestos-containing material in improvements and hazardous substances and oil
used in the course of regular business operations. Remediation requirements may
be imposed whether or not the owner or operator knew of, or was responsible for,
the presence of contamination by hazardous substances. Also, the presence of
contamination may hinder the owner or operator's ability to lease or sell
property or to use the property as loan collateral.
Western Beef believes that it does not have any material
environmental liability and that compliance with environmental laws and
regulations will not, individually or in the aggregate, have a material adverse
effect on its operations or its financial condition. There can be no assurance,
however, that new or amended environmental laws or regulations or the future
discovery of environmental conditions will not require additional expenditures
by Western Beef.
DEPENDENCE ON MAJOR CUSTOMERS
The business of Western Beef is not dependent on a single or a
few customers.
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SELECTED FINANCIAL DATA
The selected financial data set forth below is derived from Western
Beef's consolidated financial statements and should be read in conjunction with
the consolidated financial statements and the related notes thereto.
WESTERN BEEF
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- --------------------- ---------------------------- ----------------------------------------------------------------------------
TWENTY-SIX WEEKS
ENDED YEAR ENDED
July 3, July 3, January 1, January 2, January 3, December 29, December 30,
1999 1998 1999 1998 1997(1) 1995 1994
- --------------------- -------------- ------------- ------------ -------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 162,776 $ 146,254 $ 298,990 $ 317,079 $ 340,873 $ 301,387 $ 291,886
Net income $ 1,387 $ 1,806 $ 3,352 $ 3,203 $ 5,989 $ 4,934 $ 4,773
Net income per $ .25 $ .33 $ .61 $ .59 $ 1.10 $ .90 $ .87
share of Common
Stock-basic
Net income per $ .25 $ .33 $ .61 $ .58 $ 1.09 $ .90 $ .87
share of Common
Stock-diluted
Total assets $ 92,113 $ 82,234 $ 86,357 $ 76,254 $ 74,499 $ 63,313 $ 54,731
Long-term $ 10,476 $ 8,954 $ 11,257 $ 8,837 $ 11,011 $ 7,691 $ 7,224
obligations
Other data:
Ratio of earnings 2.55 3.12 2.93 2.91
to fixed charges(3)
Book value per share 9.12 8.86
</TABLE>
(1) Fifty-three week fiscal year. The other fiscal years presented have
fifty-two weeks.
(2) Western Beef has not paid any dividends during the periods presented.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes and extraordinary items,
plus fixed charges. Fixed charges include interest expense on all indebtedness,
amortization of deferred financing fees and one-third of rental expense on
operating leases, which represents that portion of rental expense deemed to be
attributable to interest.
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<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with Western Beef's
financial statements and the related notes included therein.
OVERVIEW
Western Beef expects competition in the retail segment from major
chains as Western Beef expands and continues to open new retail supermarkets.
Several of Western Beef's retail supermarkets have been impacted by this
competition; however, Western Beef believes that its ability to serve its
customers with quality merchandise at the lowest price should allow it to stay
profitable and maintain a significant part of its market share.
GENERAL
Western Beef opened two new retail supermarkets in 1998, bringing the
total number of open supermarkets to twenty-one and two outlet-type food stores
which operate under the trade name Junior's. The two supermarkets were opened in
New Jersey in Manalapan on June 14, 1998 and Rahway on August 12, 1998 at
approximate construction costs of $643,000 and $1,628,000 respectively.
The two Junior's were opened on Rockaway Boulevard in Queens, New York
on March 30, 1998 and Myrtle Avenue in Brooklyn, New York on September 4, 1998
at approximate construction costs of $1,286,000 and $1,742,000. Unlike
conventional supermarkets, these two stores sell a limited selection of food
staples, most of which are Western Beef brand grocery products, as well as
pre-packaged meats and cheese.
On May 4, 1998, Western Beef exercised an option to purchase land and a
building currently occupied by an existing Western Beef supermarket on Empire
Boulevard in Brooklyn, New York from an unrelated party for approximately
$2,124,000.
Because of the favorable response generated by the opening of the two
Junior's, Western Beef decided to convert the space used by its Central Cutting
operation, which had prepared, custom packed and distributed pre-packaged meats
and cheese to Western Beef's supermarkets, to a distribution warehouse to
service the Junior's currently open as well as new Junior's to be opened in the
future.
On December 2, 1998, Western Beef purchased land and a building located
on Prospect Avenue, Bronx, New York from an unrelated party for approximately
$1,705,000 on which Western Beef intends to open a Western Beef supermarket with
satellite rental units. The total cost for the purchase of the land and
renovation of the existing building is estimated to be $5,000,000.
On December 17, 1998, Western Beef purchased a parcel of vacant land
located on Frederick Douglas Boulevard, Manhattan, New York from an unrelated
party for approximately $660,000 on which Western Beef intends to open a
Junior's outlet-type store. The total cost of the land purchase and construction
of this new Junior's is estimated to be $1,900,000.
On December 21, 1998, Western Beef submitted the winning bid with New
York City to purchase a parcel of land on New Lots Avenue, Brooklyn, New York
for approximately $240,000. Western Beef intends to open a Junior's outlet-type
store at a total cost of approximately $1,300,000 including land purchase costs.
This transaction is expected to be completed in the near future.
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<PAGE>
On December 23, 1998, Western Beef purchased all outstanding capital
stock of 814 Jamaica Avenue, Inc. ("Jamaica") from its sole shareholder, who was
unrelated to Western Beef, for approximately $744,000. Jamaica was the owner of
land and buildings on Jamaica Avenue, Brooklyn, New York on which Western Beef
intends to open a new Junior's at an estimated cost of $2,100,000 including the
purchase of capital stock of Jamaica.
On January 29, 1999, Western Beef purchased a parcel of vacant land
located on Wyckoff Avenue, Queens, New York from an unrelated party for
approximately $259,000 on which Western Beef intends to open a Junior's
outlet-type store at a total cost of approximately $1,300,000 including the land
purchase price.
Western Beef plans to utilize most of its available cash flow to fund
capital expenditures for renovating existing stores and for opening new retail
outlets. Additionally, several financial institutions have expressed an interest
in financing the new store equipment that would be required at these new
locations.
The cost of opening a new supermarket is dependent upon the size of the
supermarket and the amount of building renovations necessary to convert the
property into a supermarket. Other factors involved are the amount of equipment
to be installed along with the number of product departments in the store. There
can be no assurance that Western Beef can implement this strategy in a timely
manner or at the costs stated above or that such strategy, when implemented,
will be successful. Western Beef's growth and expansion program is susceptible
to the hazards inherent in building and construction, including delays, cost
overruns and zoning issues. While in the past such issues have not materially
affected Western Beef's growth and expansion program, there can be no assurance
that in the future such issues will not delay the implementation of this program
or have a material effect on this program and Western Beef.
YEAR 2000 ISSUES
Western Beef is executing a plan to ensure that Western Beef's
computer systems and software applications will properly function beyond 1999.
This plan involves identifying year 2000 issues, assigning priorities to items
identified, and correcting or replacing material items that are not year 2000
compliant. The plan also considers year 2000 vulnerability with respect to
Western Beef's major suppliers and third party service providers.
Western Beef is utilizing both internal and external resources to
address year 2000 issues. Costs associated with year 2000 computer system
modifications are currently estimated to be approximately $300,000 of which
$54,000 has been incurred to date. Included in these costs are $150,000 for
certain front-end cash register systems whose upgrade was previously identified
for non-year 2000 operational enhancements.
Western Beef has already installed year 2000 program code on all of its
financial, merchandise and distribution computer software systems. Effective
with the first payroll week of 1999, Western Beef was operating on year 2000
compliant payroll software provided by its third party payroll service company.
Finally, Western Beef has received and completed the testing of the front-end
register system enhancements previously discussed, and expects to complete
company wide implementation of this software before the end of the third quarter
of 1999.
Western Beef has contingency plans in place for its financial,
merchandise and distribution automation systems utilizing internal and major
supplier communication systems. In the event of power
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interruptions, most of its retail outlets are equipped with generators for
its front-end register systems and up to 50% of each store's lighting
requirements. Plans are currently being formulated to provide back-up power
for Western Beef's wholesale and retail divisions' refrigeration equipment.
As part of its goal to achieve year 2000 compliance, Western Beef is
seeking representations and/or warranties from suppliers, vendors and business
partners about their year 2000 compliance. No assurances can be given that
Western Beef will be able to identify and address all year 2000 issues due to
their complexity and its dependence on representations and preparedness of third
parties with whom it does business. Although Western Beef believes that its
efforts and plans will address year 2000 issues that are within its reasonable
control, there can be no assurance that year 2000 issues will not have a
material adverse effect on Western Beef's business or results of operations.
RESULTS OF OPERATIONS
YEAR ENDED 1998 COMPARED TO YEAR ENDED 1997
For 1998, Western Beef achieved net income of $3,352,000, or $.61 per
share, on net sales of $298,990,000 as compared to 1997 net income of
$3,203,000, or $.58 per share, on net sales of $317,079,000.
The 5.7% decrease in net sales in 1998 compared to 1997 resulted from:
(i) a decline in retail and wholesale net sales as a result of lower food stamp
redemptions, which Western Beef believes resulted from modifications made by the
USDA to food stamp eligibility requirements; (ii) a decline of 34.8% in
wholesale net sales as a result of a more restrictive credit policy adopted by
Western Beef; (iii) low food price inflation; and (iv) increased competition.
The decrease was partially offset by the sales of the two supermarkets and two
outlet-type stores that opened in 1998. The retail segment provided 81.5% of
total net sales in 1998, as compared with 73.3% of total net sales in 1997.
Gross profits, as a percentage of net sales, for 1998 and 1997 were
26.8% and 25.0% respectively. The increase in the gross profit percentage for
1998 resulted primarily from the increased ratio of retail to wholesale sales in
1998 as compared with 1997. For the years 1998 and 1997, the retail segment
contributed 94.0% and 90.9% of the gross profit respectively.
Selling, general and administrative expenses expressed as a percentage
of sales increased to 25.3% in 1998 from 23.5% in 1997 primarily as a result of:
(i) the inclusion of the costs in 1998 of the two supermarkets and two
outlet-type stores that opened in 1998; (ii) certain occupancy costs, such as
utilities, rent and depreciation, which do not vary directly with sales
declines, thereby increasing the expense ratio; and (iii) the large decrease in
wholesale sales which generally have much lower related selling, general and
administrative costs.
Income from operations decreased 3.9% to $4,549,000 in 1998 from
$4,732,000 in 1997. This decrease was principally the result of: (i) decreased
sales partially offset by an increase in the gross profit percentage; and (ii)
higher selling, general and administrative expenses.
Income Taxes
The effective tax rate of Western Beef decreased to 37.4% for 1998 from
40.0% for 1997 as a result of the utilization of low income housing tax credits
and lower state and local income taxes resulting from investment tax credits.
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<PAGE>
Western Beef's investment in low income housing credits reduced its
effective tax rate approximately 3.6% in 1998 and 4.3% in 1997. In addition to
the low income housing credits, Western Beef participated in the federally
sponsored Work Opportunity Tax Credit ("WOTC") program which helped to reduce
the 1998 and 1997 effective tax rates by 0.9% and 1.3% respectively.
Retail Segment
Net sales in the retail segment increased 4.9% in 1998 compared to 1997
as a result of the sales generated by the two supermarkets and two outlet-type
stores opened in 1998, but was partially offset by a decline in food stamp
redemptions which Western Beef believes resulted from modifications by the USDA
to food stamp eligibility requirements. Same store sales declined 0.52% in 1998
compared to 1997 due to decreased food stamp redemptions.
Retail gross profits as a percentage of sales were 30.9% and 31.0% in
1998 and 1997 respectively. Retail income from operations decreased 8.8% to
$4,310,000 in 1998 from $4,727,000 in 1997 principally as a result of the costs
associated with opening the two new supermarkets in 1998.
Wholesale Segment
Wholesale net sales decreased 34.8% to $55,178,000 in 1998 from
$84,679,000 in 1997. This decrease in wholesale net sales resulted primarily
from: (i) an adjustment of Western Beef's credit policy to sell only to
customers who have the requisite credit worthiness; (ii) low food price
inflation; and (iii) reduced food stamp redemptions at wholesale customers of
Western Beef. Wholesale gross profits as a percentage of sales for 1998 and 1997
were 8.8% and 8.6% respectively. Wholesale income from operations increased to
$239,000 in 1998 from $5,000 in 1997 due principally to better management of
accounts receivable.
YEAR ENDED 1997 COMPARED TO YEAR ENDED 1996
For 1997, Western Beef achieved net income of $3,203,000, or $.58 per
share, on net sales of $317,079,000 as compared to 1996 net income of
$5,989,000, or $1.09 per share, on net sales of $340,873,000.
The 7.0% decrease in net sales in 1997 compared to 1996 resulted from:
(i) 1996 being a 53-week fiscal year, whereas 1997 was a 52-week fiscal year;
(ii) a decline in retail and wholesale net sales as a result of lower food stamp
redemptions, which Western Beef believes resulted from modifications made by the
USDA to food stamp eligibility requirements; (iii) a decline of 16.3% in
wholesale net sales as a result of a more restrictive credit policy adopted by
Western Beef; (iv) low food price inflation; and (v) increased competition.
These decreases were partially offset by the full year's sales in 1997 of the
two stores that opened in 1996. The retail segment provided 73.3% of total net
sales in 1997, as compared with 70.3% of total net sales in 1996.
Gross profits, as a percentage of net sales, for 1997 and 1996 were
25.0% and 24.2% respectively. The increase in the gross profit percentage for
1996 resulted primarily from the increased ratio of retail to wholesale sales in
1997 as compared with 1996. For the years 1997 and 1996, the retail segment
contributed 90.9% and 89.0% of the gross profit respectively.
Selling, general and administrative expenses expressed as a percentage
of sales increased to 23.5% in 1997 from 21.3% in 1996 primarily as a result of:
(i) the inclusion of the full year's cost in 1997 of the two stores that opened
in 1996; (ii) certain occupancy costs, such as utilities, rent and depreciation
which
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<PAGE>
do not vary directly with sales declines thereby increasing the expense ratio;
and (iii) wage and related benefit costs which were unfavorably impacted by
increases in the federal minimum wage.
Income from operations decreased 51.3% to $4,732,000 in 1997 from
$9,717,000 in 1996. This decrease was principally the result of: (i) decreased
sales partially offset by an increase in the gross profit percentage; and (ii)
higher selling, general and administrative expenses.
Income Taxes
The effective tax rate of Western Beef decreased to 40.0% for 1997 from
43.3% for 1996 as a result of the utilization of low income housing tax credits
and lower state and local income taxes resulting from investment tax credits.
Western Beef's investment in low income housing credits reduced
Western Beef's effective tax rate approximately 4.3% in 1997 and 2.1% in 1996.
In addition to the low income housing credits, Western Beef participated in the
federally sponsored Work Opportunity Tax Credit ("WOTC") program which helped to
reduce the 1997 tax rate by 1.3%.
Retail Segment
Net sales in the retail segment decreased 3.0% in 1997 compared to 1996
as a result of: (i) 1996 being a 53-week fiscal year, whereas 1997 was a 52-week
fiscal year; (ii) a decline in food stamp redemptions, which Western Beef
believes resulted from modifications made by the USDA to food stamp eligibility
requirements; (iii) low food price inflation; and (iv) increased competition.
These declines were partly offset by the inclusion in 1997 net sales of full
year net sales for the two supermarkets opened by Western Beef in 1996. Same
store sales decreased 4.0% in 1997 as compared to 1996 due to 1997 being a
shorter fiscal year and decreased food stamp redemptions.
Retail gross profits as a percentage of sales increased to 31.0% in
1997 from 30.6% in 1996, principally as a result of the increased ratio of
retail to wholesale sales, as well as the capital expansion program, which
increased the selling square footage dedicated to the higher gross profit dairy,
frozen and bakery merchandise categories. Retail income from operations
decreased 46.2% to $4,727,000 in 1997 from $8,793,000 in 1996. This decrease was
principally the result of: (i) decreased net sales; and (ii) higher selling,
general and administrative expenses.
Wholesale Segment
Wholesale net sales decreased 16.3% to $84,679,000 in 1997 from
$101,162,000 in 1996. This decrease in wholesale net sales resulted primarily
from: (i) an adjustment of Western Beef's credit policy to sell only to
customers who have the requisite credit worthiness; (ii) low food price
inflation; and (iii) reduced food stamp redemptions at wholesale customers of
Western Beef. Wholesale gross profit for 1997 and 1996 was 8.6% and 8.9%,
respectively. Wholesale income from operations decreased 99.5% to $5,000 in 1997
as compared with $924,000 in 1996 due principally to increased write-offs of
uncollectible receivables.
Wholesale gross profits as a percentage of sales decreased to 8.6% in
1997 from 8.9% in 1996, principally as a result of: (i) higher purchase costs;
and (ii) increased competition.
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TWENTY-SIX WEEKS ENDED JULY 3, 1999 COMPARED TO TWENTY-SIX WEEKS ENDED
JULY 3, 1998
Western Beef achieved net income of $1,387,000 or $.25 per share on net
sales of $162,776,000 for the twenty-six week period ended July 3, 1999 as
compared to net income of $1,806,000 or $.33 per share on net sales of
$146,254,000 for the twenty-six week period ended July 3, 1998.
Net sales increased $16,522,000 for the year-to-date period ended July
3, 1999 as compared with sales for the comparable period in the prior year.
Western Beef's retail division accounted for $10,432,000 of the sales increase
for the year-to-date period ended July 3, 1999, primarily as a result of the
1998 openings of two Western Beef supermarkets in New Jersey and two Junior's
Food Outlet stores in New York. Year-to-date comparable store retail sales were
basically unchanged from the retail sales for the similar period in 1998.
Wholesale division sales increased $6,090,000 for the year-to-date period ended
July 3, 1999 as compared with sales for the comparable period in the prior year,
resulting from the continued expansion of Western Beef's wholesale sales force
and the acquisition of new credit-worthy customers.
Gross profit decreased to 26.2% for the twenty-six weeks ended July 3,
1999 from 26.9% for the comparable period in the prior year. The decrease in the
gross profit margin for 1999 resulted from increased sales in Western Beef's
wholesale division and Junior's Food Outlet stores which operate at lower gross
profit margins.
Selling, general and administrative expenses increased $3,947,000 for
the year-to-date period ended July 3, 1999 as compared with such expenses for
the comparable period in the prior year. As a percentage of sales, selling,
general and administrative expenses decreased 24.8% for the year-to-date period
ended July 3, 1999 from 24.9% for the similar period in 1998. The increase in
expense resulted primarily from costs associated with the opening of the two new
supermarkets in New Jersey and the two new Junior's Food Outlet stores in New
York and increases in insurance reserves under Western Beef's self-insurance
program. The percentage of sales decreases are attributable to the increased
ratio of wholesale division sales versus retail division sales.
LIQUIDITY AND CAPITAL RESOURCES
YEAR ENDED JANUARY 1, 1999
Net cash flow from operations was $11,725,000 for 1998. Western Beef
had capital expenditures of $11,675,000 for 1998 primarily relating to: (i) the
acquisition of the Empire Boulevard property; (ii) equipment purchases and
improvements at the two supermarkets and two outlet-type stores opened in 1998;
(iii) the four real estate parcels acquired in December 1998 on which Western
Beef intends to open one supermarket and three outlet-type stores; and (iv)
miscellaneous equipment purchases and leasehold improvements at its other
existing store locations. Western Beef also repaid long term debt of $2,704,000
in 1998. As of January 1, 1999, Western Beef had $12,086,000 in cash and cash
equivalents available for acquisitions and expansion.
These additions and improvements were funded by: (i) cash flow from
operations; (ii) the takedown of $913,000 and $1,262,000 on June 30, 1998 and
December 31, 1998 at 7.28% and 6.44% per annum payable in monthly installments
of $13,664 and $18,293 respectively under a sale/leaseback arrangement with
General Electric Capital Corporation; (iii) $2,055,263 borrowed from Hyson Joint
Venture, the prior Empire Boulevard landlord, at 6.25% per annum payable in
monthly installments of $17,622 commencing June 1, 1998 through June 1, 2013;
(iv) $1,700,000 borrowed for the Prospect Avenue location from North
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Fork Bank at its prime rate payable in interest only installments from January
4, 1999 to December 4, 2001, at which time the entire principal balance is due
and payable; (v) $512,000 borrowed for the Frederick Douglas Boulevard location
from North Fork Bank at 6.89% interest per annum payable in monthly installments
of $5,942 commencing February 1, 1999 through January 1, 2009; and (vi) $566,400
borrowed for the Jamaica Avenue location at 6.85% interest per annum from North
Fork Bank payable in monthly installments of $6,562 commencing February 1, 1999
through January 1, 2009.
TWENTY-SIX WEEKS ENDED JULY 3, 1999
Cash flow from operations was $4,611,000 for the twenty-six weeks ended
July 3, 1999 as compared to $6,120,000 for the comparable period in 1998. Such
decrease primarily resulted from higher wholesale division sales, thereby
increasing accounts receivable and an increase in inventories as a result of the
new supermarkets and Junior's Food Outlet stores that opened in 1998.
Capital expenditures of $3,045,000 related principally to the
acquisition of a parcel of land in Queens, NY on which Western Beef intends to
construct a Junior's Food Outlet store, construction costs at a new Western Beef
supermarket to be opened on Prospect Avenue in the Bronx, N.Y. and various
expenditures for equipment and leasehold improvements for its existing stores.
Western Beef funded these expenditures with cash flow from operations. Western
Beef believes that cash on hand and its $3,000,000 bank line of credit which
expires on July 1, 2000 will be sufficient to meet its operational needs. At
July 3, 1999 the entire balance was available for use by Western Beef. Several
financial institutions have expressed an interest in financing the new store
equipment that would be required at these locations.
Western Beef plans to utilize most of its available cash flow to fund
capital expenditures for renovating existing stores and for opening new retail
outlets. There are no restrictions on the transfer of assets between segments,
though Western Beef intends to let each segment develop its own growth. Western
Beef expects that available cash flow from the wholesale segment will be used to
expand its customer base, which should result in higher levels of inventory and
accounts receivable. Although Management believes that these expenditures will
enable Western Beef to expand its customer base, there can be no assurance that
this strategy will be successful.
In 1999, Western Beef intends to commence construction on one Western
Beef supermarket and four Junior's Food Outlet stores. Western Beef expects that
the aggregate 1999 and 2000 capital commitments for these projects will be
approximately $11,600,000. Several financial institutions have expressed an
interest in financing the new store equipment that would be required at these
new locations. See "Overview" for a description of the factors that may affect
the costs of opening a new supermarket and the risks inherent in Western Beef's
growth and expansion plan.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash flows of Western
Beef due to adverse changes in financial rates. Western Beef may be exposed to
market risk in the area of interest rates; however, Western Beef borrows at
fixed rates of interest and Western Beef's management does not believe that
there is a significant market risk to interest rate changes at the present time.
Western Beef does not currently maintain any interest rate hedging arrangements
due to the reasonable risk that near-term interest rates will not rise
significantly. Western Beef is continuously evaluating this risk and will
implement interest rate hedging arrangements when deemed appropriate.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides
a "Safe Harbor" for forward-looking statements. Certain information included in
this Proxy Statement contains or may contain forward-looking statements such as
those statements pertaining to the renovation of Western Beef's existing
stores, the construction or acquisition of new stores, the recoverability of
deferred tax assets, the continued availability of credit lines for capital
expansion, the suitability of facilities, access to suppliers, implementation of
technological improvement programs, year 2000 issues relating to computer
applications and the unaudited financial projections set forth in "Certain
Projections". Such forward-looking information involves important risks and
uncertainties that could significantly affect expected results in the future
from those expressed in any forward-looking statement made by, or on behalf of,
Western Beef. These risks and uncertainties include, but are not limited to,
uncertainties relating to economic conditions; delays and other hazards inherent
in building and construction; competition in both the retail and wholesale
markets and government and regulatory policies and certifications (in particular
those relating to the United States Department of Agriculture Food Stamp
Program); the pricing and availability of the products Western Beef sells and
distributes, including Western Beef label brand products; potential delays in
the implementation of Western Beef's technological improvement programs; and
the effectiveness of such programs upon the implementation of, and Western
Beef's ability to resolve, any and all year 2000 computer applications. The
unaudited financial projections have been included in this Proxy Statement
for the limited purpose of giving Western Beef's stockholders access to
unaudited financial projections by Western Beef's management. The unaudited
financial projections were based on assumptions concerning the Western Beef's
business prospects through January 1, 2000. The information also was based on
other revenue and operating assumptions. Information of this type is based on
estimates and assumptions that are inherently subject to significant economic
and competitive uncertainties and contingencies, all of which are difficult
to predict and many of which are beyond the Western Beef's control.
Accordingly, there can be no assurance that the projected results would be
realized or that actual results would not be significantly higher or lower
than those set forth in the unaudited financial projections. In addition, the
unaudited financial projection data was not prepared with a view to public
disclosure or compliance with the published guidelines of the SEC or the
guidelines established by the American Institute of Certified Public
Accountants regarding projections and forecasts. PricewaterhouseCoopers LLP,
the Company's independent accountants, has not examined or applied any agreed
upon procedures to this information and, accordingly, assume no
responsibility for this information.
OTHER MATTERS
PROPOSALS BY WESTERN BEEF STOCKHOLDERS
If the merger is consummated, there will be no public
stockholders of Western Beef and no public participation in any future meetings
of stockholders of Western Beef. However, if the merger is not consummated,
Western Beef's public stockholders will continue to be entitled to attend and
participate in Western Beef's stockholder meetings. If the merger is not
consummated, the next annual meeting of Stockholders is expected to be held on
or about [ ], 2000. Any Western Beef stockholder who wishes to present a
proposal intended to be presented at the 2000 annual meeting must have been
received by Western Beef no later than [ ], 1999 in order to be considered by
the Board of Directors for inclusion in the proxy statement to be used in
connection with the 2000 annual meeting.
In order for a stockholder to bring other business before a
stockholder meeting, timely notice must be received by Western Beef within the
time limits described above. Such notice must include a description of the
proposed business, the reasons therefor, and other specific matters. These
requirements
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are separate from and in addition to the requirements a stockholder must meet to
have a proposal considered for inclusion in Western Beef's 2000 proxy
statement. Proposals should be sent to the Secretary of Western Beef, whose
address is c/o Western Beef, Inc., 47-05 Metropolitan Avenue, Ridgewood, NY
11385.
WHERE YOU CAN FIND MORE INFORMATION
As required by law, Western Beef files reports, proxy
statements and other information with the SEC. Because the merger is a
"going-private" transaction, Western Beef and the Buyer Group have filed with
the SEC a Rule 13E-3 Transaction Statement on Schedule 13E-3 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, certain parts of which are
omitted in accordance with the rules and regulations of the SEC.
You can inspect and copy these materials at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the SEC: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7
World Trade Center, Suite 1300, New York, New York 10048. For further
information concerning the SEC's public reference rooms, you may call the SEC at
1-800-SEC-0330. Some of this information may also be accessed on the World Wide
Web through the SEC's Internet address at "http://www.sec.gov." Western Beef's
shares are listed on the Nasdaq National Market, and materials may also be
inspected at its offices, 20 Broad Street, New York, New York 10005.
You should rely on the information contained in this proxy
statement. Western Beef has not authorized anyone to give any information
different from the information contained in this proxy statement. This proxy
statement is dated ____________, 1999. You should not assume that the
information contained in this proxy statement is accurate as of any later date,
and the mailing of this proxy statement to stockholders will not create any
implication to the contrary.
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
The Board of Directors knows of no additional matters that will be
presented for consideration at the annual meeting. Execution of the accompanying
proxy, however, confers on the designated proxy holders discretionary authority
to vote the shares of Common Stock covered thereby in accordance with their best
judgment on such other business, if any, that may properly come before, and all
matters incident to the conduct of, the annual meeting or any adjournments or
postponements thereof.
By Order of the Board of Directors,
-----------------------------------
Secretary
, 1999
- ------------
-54-
<PAGE>
WESTERN BEEF, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at July 3, 1999 and
January 1, 1999........................................................................................F-2
Condensed Consolidated Statements of Income for the twenty-six
weeks ended July 3, 1999 and July 3, 1998 and the thirteen weeks
ended July 3, 1999 and July 3, 1998....................................................................F-3
Condensed Consolidated Statements of Cash Flows for the twenty-six
weeks ended July 3, 1999 and July 3, 1998..............................................................F-4
Notes to the Condensed Consolidated Financial Statements...............................................F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Accountants.....................................................................F-8
Consolidated Balance Sheets at January 1, 1999 and January 2, 1998....................................F-10
Consolidated Statements of Income for the fifty two weeks ended January 1, 1999
and January 2, 1998 and the fifty three weeks
ended January 3, 1997.................................................................................F-11
Consolidated Statements of Stockholders' Equity for the fifty two
weeks ended January 1, 1999 and January 2, 1998 and the fifty
three weeks ended January 3, 1997.....................................................................F-12
Consolidated Statements of Cash Flows for the fifty two weeks
ended January 1, 1999 and January 2, 1998 and the fifty three
weeks ended January 3, 1997...........................................................................F-13
Notes to the Consolidated Financial Statements........................................................F-14
Report of Independent Accountants on Consolidated Financial
Statement Schedule....................................................................................F-29
Schedule II -- Valuation and Qualifying Accounts......................................................F-30
</TABLE>
F-1
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
(unaudited)
<TABLE>
<CAPTION>
JULY 3, 1999 JANUARY 1, 1999
------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,582 $ 12,086
Accounts receivable, net of allowance for doubtful
accounts ($715 and $522) 7,054 5,632
Inventories 18,189 15,290
Deferred income taxes 1,682 1,550
Prepaid expenses and other current assets 2,066 2,133
-------- --------
Total current assets 41,573 36,691
Property, plant and equipment, net of accumulated
depreciation and amortization ($26,355 and $24,267) 48,313 47,373
Other assets 2,227 2,293
-------- --------
Total assets $ 92,113 $ 86,357
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,363 $ 1,681
Current portion of obligations under capital leases 719 690
Accounts payable 14,037 10,564
Accounts payable-related party 3,004 3,765
Accrued expenses and other current liabilities 7,218 5,610
-------- --------
Total current liabilities 26,341 22,310
Long-term debt, net of current portion 8,406 8,819
Obligations under capital leases, net of current portion 2,070 2,438
Deferred income taxes 2,697 2,497
Other non-current liabilities 2,663 1,760
-------- --------
Total liabilities 42,177 37,824
-------- --------
Stockholders' equity:
Preferred stock, $.05 par value; 2000 shares
authorized; none issued -- --
Common stock, $.05 par value; 15,000 shares
authorized; 5,475 shares issued and outstanding 274 274
Capital in excess of par value 11,407 11,407
Retained earnings 38,302 36,915
Deferred compensation (47) (63)
-------- --------
Total stockholders' equity 49,936 48,533
-------- --------
Total liabilities and stockholders' equity $ 92,113 $ 86,357
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-2
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended Thirteen Weeks Ended
July 3, 1999 July 3, 1998 July 3, 1999 July 3, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $162,776 $146,254 $ 85,342 $ 76,193
Cost of sales 120,143 106,926 63,289 55,870
-------- -------- -------- --------
Gross profit 42,633 39,328 22,053 20,323
Selling, general and administrative
expenses 40,379 36,432 20,863 18,960
-------- -------- -------- --------
Income before income taxes 2,254 2,896 1,190 1,363
Provision for income taxes 867 1,090 468 505
-------- -------- -------- --------
Net income $ 1,387 $ 1,806 $ 722 $ 858
======== ======== ======== ========
Net income per share of common
stock-basic and diluted $ .25 $ .33 $ .13 $ .16
======== ======== ======== ========
Weighted average shares
outstanding-basic 5,475 5,472 5,475 5,475
======== ======== ======== ========
Weighted average shares
outstanding-diluted 5,495 5,498 5,493 5,498
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
JULY 3, 1999 JULY 3, 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,387 $ 1,806
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,144 2,009
Deferred income tax expense 68 44
Provision for losses on accounts receivable 193 163
Gain on disposal of property, plant and equipment -- (114)
(Increase) decrease in assets:
Accounts receivable (1,615) 381
Inventories (2,899) (1,739)
Prepaid expenses and other current assets 67 137
Other assets 43 (94)
(Decrease) increase in liabilities:
Accounts payable and accounts payable-related party 2,712 2,477
Accrued expenses and other current liabilities 1,608 1,664
Other non-current liabilities 903 (614)
-------- --------
Net cash provided by operating activities 4,611 6,120
-------- --------
Cash flows from investing activities:
Capital expenditures (3,045) (5,579)
Proceeds from sale of property, plant and equipment -- 946
-------- --------
Net cash used in investing activities (3,045) (4,633)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 160 2,055
Payments on long-term debt and capital leases (1,230) (1,470)
Issuance of common stock -- 18
-------- --------
Net cash provided by (used in) financing activities (1,070) 603
-------- --------
Net increase in cash and cash equivalents 496 2,090
Cash and cash equivalents, beginning of period 12,086 7,527
-------- --------
Cash and cash equivalents, end of period $ 12,582 $ 9,617
======== ========
Cash paid for:
Interest $ 541 $ 504
Income taxes $ 260 $ 324
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-4
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting solely of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the twenty-six weeks ended July 3,
1999 are not necessarily indicative of the results that may be expected
for the year ending January 1, 2000. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended January 1,
1999 as filed on March 29, 1999.
(2) LITIGATION:
Except as discussed below, there has been no significant change in
litigation as discussed in Note 7 of Notes to Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year
ended January 1, 1999 as filed on March 29, 1999.
On December 3, 1998, a class action, Plumpe v. Castellana et al., No.
16807 NC, was filed in the Delaware Chancery Court against Western
Beef, Inc., Peter Castellana, Jr., Joseph Castellana, Stephen R. Bokser
and Arnold B. Becker. The action seeks to enjoin a transaction pursuant
to which the Company would be acquired by and merged into, an entity
owned by certain officers of the Company and their family members, on
the grounds that the transaction would create a breach of fiduciary
duties to shareholders. The action also seeks rescission of the
transaction if it is consummated, damages and accounting and
attorneys' fees. By agreement with plaintiff, defendants' time to
answer the complaint has been extended indefinitely, pending possible
settlement discussions with plaintiff.
On July 29, 1999, the acquisition price was increased to $8.75 per
share and the Company entered into a Memorandum of Understanding with
counsel to the plaintiff in the shareholder lawsuit arising from the
merger. The Memorandum of Understanding provides for the settlement of
such lawsuit based on the payment of a per share merger consideration
of $8.75 and is subject to, among other things, completion of
definitive documentation relating to the settlement, court approval and
consummation of the merger.
(3) CHANGE IN FISCAL YEAR-END:
The Company has changed its retail 52-53 week year-end to end on the
Saturday closest to the end of the calendar year from the Friday
closest to the end of the calendar year.
F-5
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(4) SEGMENTS OF BUSINESS
The Company operates in two industry segments. The wholesale segment primarily
sells poultry, beef, pork and provisions to retailers, restaurants and
institutions. The retail segment sells various meat and grocery items to the
general public. All intersegment sales prices are market based. Corporate
overhead costs are allocated to each of its operating segments based on overall
sales. The Company evaluates the performance of its segments based on operating
earnings before taxes of the respective business units. Financial data (in
thousands of dollars) for the three and six months of 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
1999
THREE MONTHS ENDED JULY 3, 1999
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
Net sales $65,578 $19,764 $85,342
Intersegment sales - 14,982 14,982
Net interest expense 235 33 268
Net income before provision
for income taxes 975 215 1,190
Other significant non cash items:
Bad debt expense - 161 161
Capital expenditures 1,245 - 1,245
SIX MONTHS ENDED JULY 3, 1999
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
Net sales $127,777 $34,999 $162,776
Intersegment sales - 27,890 27,890
Net interest expense 473 68 541
Net income before provision
for income taxes 1,967 287 2,254
Other significant non cash items:
Bad debt expense - 193 193
Capital expenditures 3,021 24 3,045
Identifiable assets 78,646 13,467 92,113
</TABLE>
F-6
<PAGE>
WESTERN BEEF, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(4) SEGMENTS OF BUSINESS (CONTINUED)
<TABLE>
<CAPTION>
1998
THREE MONTHS ENDED JULY 3, 1998
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
Net sales $61,406 $14,787 $76,193
Intersegment sales - 13,842 13,842
Net interest expense 190 29 219
Net income before provision
for income taxes 1,145 218 1,363
Other significant non cash items:
Bad debt expense - 95 95
Capital expenditures 4,187 117 4,304
<CAPTION>
SIX MONTHS ENDED JULY 3, 1998
RETAIL WHOLESALE TOTAL
------ --------- -----
<S> <C> <C> <C>
Net sales $117,345 $28,909 $146,254
Intersegment sales - 26,570 26,570
Net interest expense 428 76 504
Net income before provision
for income taxes 2,608 288 2,896
Other significant non cash items:
Bad debt expense - 163 163
Capital expenditures 5,380 199 5,579
Identifiable assets 69,924 12,310 82,234
</TABLE>
F-7
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of Western Beef, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Western Beef, Inc.
and Subsidiaries at January 1, 1999 and January 2, 1998 and the results of their
operations and their cash flows for each of the fifty-two week periods then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 5, 1999
F-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Directors
of Western Beef, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Western Beef, Inc. for the year ended
January 3, 1997. We have also audited the schedule listed in the accompanying
index. These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements and schedule are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements and schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements and schedule. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Western Beef, Inc. for the year ended January 3, 1997, in conformity with
generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein for the year ended January 3, 1997.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 5, 1997
F-9
<PAGE>
Western Beef, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Par Value)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 1, January 2,
1999 1998
Assets
<S> <C> <C>
Current:
Cash and cash equivalents $ 12,086 $ 7,527
Accounts receivable, net of allowance for
doubtful accounts of $522 and $552 5,632 6,275
Inventories 15,290 14,113
Deferred income taxes 1,550 1,235
Prepaid expenses and other current assets 2,133 2,933
-------- --------
Total current assets 36,691 32,083
Property, plant and equipment, net 47,373 41,918
Other assets 2,293 2,253
-------- --------
Total assets $ 86,357 $ 76,254
-------- --------
-------- --------
Liabilities and Stockholders' Equity
Current:
Current portion of long-term debt $ 1,681 $ 1,571
Current portion of obligations under capital leases 690 1,090
Accounts payable 10,564 8,903
Accounts payable-related party 3,765 1,997
Accrued expenses and other current liabilities 5,610 4,834
-------- --------
Total current liabilities 22,310 18,395
Long-term debt, net of current portion 8,819 5,707
Obligations under capital leases, net of current portion 2,438 3,130
Deferred income taxes liability 2,497 2,059
Other non-current liabilities 1,760 1,834
-------- --------
Total liabilities 37,824 31,125
-------- --------
Commitments and contingencies (Note 7)
Stockholders' equity:
Preferred stock, $.05 par value - 2,000 shares
authorized; none issued
Common stock, $.05 par value - 15,000 shares
authorized; 5,475 and 5,466 shares,
respectively, issued and outstanding 274 273
Capital in excess of par value 11,407 11,390
Retained earnings 36,915 33,563
Deferred compensation (63) (97)
-------- --------
Total stockholders' equity 48,533 45,129
-------- --------
Total liabilities and stockholders' equity $ 86,357 $ 76,254
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
Western Beef, Inc. and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales $298,990 $317,079 $340,873
Cost of sales 218,865 237,808 258,402
-------- -------- --------
Gross profit 80,125 79,271 82,471
Selling, general and administrative expenses 75,576 74,539 72,754
-------- -------- --------
Income from operations 4,549 4,732 9,717
Other income, net 814 603 837
-------- -------- --------
Income before provision for income taxes 5,363 5,335 10,554
Provision for income taxes 2,011 2,132 4,565
-------- -------- --------
Net income $ 3,352 $ 3,203 $ 5,989
-------- -------- --------
-------- -------- --------
Net income per share of common stock:
Basic $ .61 $ .59 $ 1.10
-------- -------- --------
-------- -------- --------
Diluted $ .61 $ .58 $ 1.09
-------- -------- --------
-------- -------- --------
Weighted average shares outstanding:
Basic 5,473 5,465 5,463
-------- -------- --------
-------- -------- --------
Diluted 5,507 5,503 5,497
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
Western Beef, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Capital in
--------------------- Excess of Retained Deferred
Shares Par Value Par Value Earnings Compensation
--------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 29, 1995 5,463 $ 273 $11,379 $24,371 $ (164)
Net income for 1996 -- -- -- 5,989 --
Amortization of deferred
compensation -- -- -- -- 34
------- ------- ------- ------- -------
Balance, January 3, 1997 5,463 273 11,379 30,360 (130)
Net income for 1997 -- -- -- 3,203 --
Amortization of deferred
compensation -- -- -- -- 33
Stock options exercised 3 -- 11 -- --
------- ------- ------- ------- -------
Balance, January 2, 1998 5,466 273 11,390 33,563 (97)
------- ------- ------- ------- -------
Net income for 1998 -- -- -- 3,352 --
Amortization of deferred
compensation -- -- -- -- 34
Stock options exercised 9 1 17 -- --
------- ------- ------- ------- -------
Balance, January 1, 1999 5,475 $ 274 $11,407 $36,915 $ (63)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
Western Beef, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,352 $ 3,203 $ 5,989
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,170 4,172 3,395
Provision for losses on accounts receivable 348 955 611
Deferred income taxes 123 593 (316)
Gain on disposal of property, plant and equipment (139) (80) (20)
(Increase) decrease in assets:
Accounts receivable 295 1,204 (291)
Inventories (1,177) 3,555 (1,709)
Prepaid expenses and other current assets 800 (1,472) 559
Other assets (40) (140) (59)
(Decrease) increase in liabilities:
Accounts payable 3,429 (514) (1,720)
Accrued expenses and other current liabilities 638 114 1,530
Non-current liabilities (74) 456 1,142
-------- -------- --------
Net cash provided by operating activities 11,725 12,046 9,111
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (11,675) (7,322) (13,121)
-------- -------- --------
Net cash used in investing activities (11,675) (7,322) (13,121)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of property, plant and equipment 2,361 2,517 112
Proceeds on issuance of long-term debt 4,834 647 6,377
Payments on long-term debt (2,704) (3,006) (2,276)
Issuance of common stock 18 11 --
-------- -------- --------
Net cash provided by financing activities 4,509 169 4,213
-------- -------- --------
Net increase in cash and cash equivalents 4,559 4,893 203
Cash and cash equivalents, beginning of year 7,527 2,634 2,431
-------- -------- --------
Cash and cash equivalents, end of year $ 12,086 $ 7,527 $ 2,634
-------- -------- --------
-------- -------- --------
Cash paid during the year for:
Interest $ 985 $ 1,086 $ 1,071
Income taxes $ 1,509 $ 2,569 $ 4,442
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
Description of Business
Western Beef, Inc. and Subsidiaries, all of which are wholly-owned, (the
"Company") operate high-volume, warehouse-type, retail food stores and a
wholesale meat and poultry business. During 1998, the Company operated
twenty three retail food stores. During 1997 and 1996, the Company
operated nineteen retail stores. The Company also sells poultry, beef,
pork and provisions through its wholesale operations to supermarket
chains, retailers and other distributors. The retail stores serve the New
York/New Jersey metropolitan area and the wholesale business operates
principally in the New York, New Jersey and Eastern Pennsylvania markets.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Fiscal Year
The Company uses a 52-53 week fiscal year. The fiscal years ended January
1, 1999, January 2, 1998 and January 3, 1997 are referred to as 1998, 1997
and 1996, respectively, throughout these financial statements. Fiscal
years 1998 and 1997 include 52 weeks and fiscal year 1996 includes 53
weeks.
Revenue Recognition
Retail revenues are recorded at the time of sale. Wholesale revenues are
recorded at the time the products are shipped.
Inventories
Inventories, consisting of meats, poultry, groceries and other food
products held for resale, are stated at the lower of cost (first-in,
first-out retail method) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization are computed on the straight-line method over the estimated
useful lives of the assets. The buildings under capital lease and
leasehold improvements are being amortized over their useful lives.
Repairs and maintenance are charged to operations. Renewals and
improvements are capitalized.
Estimated Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Disclosure about Fair Value of Financial Instruments", requires
disclosures of fair value information about financial instruments for
which it is practicable to estimate the value, whether or not recognized
on the balance sheet. The fair values of accounts receivable, accounts
payable, accrued expenses and long-term debt approximate their carrying
values.
Income Taxes
Deferred income taxes are recognized for temporary differences between the
basis of assets and liabilities for financial statement and income tax
purposes. Deferred income taxes represent the future tax return
consequences of those differences which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
F-14
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
Other Assets
Included in other assets are investments in two limited liability
partnerships and the net cash surrender value of life insurance policies.
The investments in limited liability partnerships of approximately
$821,000 and $901,000 at January 1, 1999 and January 2, 1998,
respectively, were made by the Company during 1995. These investments have
generated low income housing tax credits to be used to offset future
federal income taxes. In accordance with Emerging Issues Task Force Issue
No. 94-1, "Accounting for Tax Benefits Resulting from Investments in
Affordable Housing Projects", these investments are accounted for under
the effective yield method. The credits are guaranteed by an
indemnification agreement in the partnership contract.
Life insurance policies insure principally the officers of the Company. At
January 1, 1999 and January 2, 1998, the value of these policies totaled
$1,044,000 and $905,000, net of outstanding loans of $405,000 and
$425,000, respectively.
Cash Equivalents
Cash equivalents include all highly liquid debt instruments with an
original maturity of three months or less. Cash equivalents consist
primarily of money market accounts.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of cash and trade accounts
receivable. The Company maintains some of its cash balances in accounts
which exceed federally insured limits, but has not experienced any losses
to date resulting from this policy. The Company sells primarily to retail
customers and wholesale food businesses located in the New York
metropolitan area. Although the Company is directly affected by the
well-being of the food industry, management does not believe significant
credit risk exists.
Store Opening Costs
Costs associated with the opening of new stores are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues, costs and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications
Certain reclassifications have been made to the prior year amounts to
conform to the fiscal 1998 presentation.
F-15
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
2. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Depreciable
life January 1, January 2,
in years 1999 1998
<S> <C> <C> <C>
Land $ 5,740 $ 3,373
Buildings 35 to 39 9,922 6,003
Improvements 10 to 30 31,859 30,241
Machinery and equipment 6 to 30 20,995 19,594
Furniture and fixtures 5 to 7 2,935 2,814
Transportation equipment 5 189 189
------- -------
71,640 62,214
Less: Accumulated Depreciation and Amortization 24,267 20,296
------- -------
$47,373 $41,918
------- -------
------- -------
</TABLE>
Included in land, buildings and machinery and equipment is property under
capital leases totaling $650,000, $1,950,000 and $3,328,000, respectively, at
January 1, 1999 and $650,000, $1,950,000 and $7,341,000, respectively, at
January 2, 1998.
F-16
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
3. Debt
Installment Notes
<TABLE>
<CAPTION>
January 1, January 2,
1999 1998
<S> <C> <C>
Long-term debt consists of the following (in thousands):
Installment notes payable in monthly installments of $127 including
interest, at rates ranging from 7.55% to 10%, expiring at various dates
through 2001 and collateralized by certain accounts receivable,
inventory and equipment. $ 2,065 $ 3,407
Installment notes payable in monthly installments of $77 including
interest, at rates ranging from 6.25% to 9.38%, expiring at various date
through
2013 and collateralized by land and buildings. 6,575 3,711
Mortgage note payable with a lump sum principal payment due in December
2001, monthly interest payments at the Bank's prime rate (7.75% at
1/1/99) and collateralized by
certain land and building. 1,700 --
Installment note payable in annual principal payments of $16, plus
interest at 8%; payments commence in 2001
through 2010. 160 160
------- -------
10,500 7,278
Less: Current maturities 1,681 1,571
------- -------
$ 8,819 $ 5,707
------- -------
------- -------
</TABLE>
As of January 1, 1999, debt matures as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 1,681
2000 1,099
2001 2,267
2002 396
2003 342
Thereafter 4,715
-------
$10,500
-------
-------
</TABLE>
At January 1, 1999, land, property and equipment with a net book value of
$11,612,000 was pledged as collateral for the debt.
F-17
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
For fiscal years 1998, 1997 and 1996, interest expense (net of interest
income of $295,000, $106,000 and $164,000, respectively) was $690,000,
$965,000 and $907,000, respectively.
Bank Facility
During 1998, the Company renewed its agreement for a credit facility that
permits borrowings of up to $3,000,000, expiring June 30, 1999. The
facility is available for working capital purposes and is secured by all
monies possessed by the bank that are at any time credited by or due from
the bank to the Company. Borrowings under the facility bear interest at
the bank's prime rate of 7.75% at January 1, 1999. The facility provides
for an additional fee payable (at the bank's prime rate plus 4%) if and to
the extent that the aggregate average monthly balance in non-interest
bearing deposit accounts is less than $1,000,000. During 1998, the Company
had no borrowings under this facility.
Capital Lease Obligations
The Company utilizes certain land, buildings and equipment in its
operations pursuant to lease agreements which are accounted for as capital
leases. Future minimum lease payments under capital lease obligations,
together with the present value of the net minimum lease payments at
January 1, 1999, were as follows (in thousands):
Fiscal Year
<TABLE>
<S> <C>
1999 $ 932
2000 932
2001 932
2002 553
2003 251
Thereafter 167
------
3,767
Less: Amounts representing interest 639
------
Present value of net minimum lease payments 3,128
Less: Current portion 690
------
$2,438
------
------
</TABLE>
F-18
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
4. Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Federal:
Current $ 1,556 $ 704 $ 2,744
Deferred 91 467 (183)
------- ------- -------
1,647 1,171 2,561
------- ------- -------
State and local:
Current 330 837 2,137
Deferred 34 124 (133)
------- ------- -------
364 961 2,004
------- ------- -------
$ 2,011 $ 2,132 $ 4,565
------- ------- -------
------- ------- -------
</TABLE>
The deferred income tax provision (benefit) results primarily from the
annual change in temporary differences between the basis of assets and
liabilities for financial reporting purposes and such amounts as measured
by income tax laws.
A reconciliation of income taxes at the 34% federal statutory income tax
rate for 1998, 1997 and 1996 to income taxes as reported is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State and local income taxes, net of federal
income tax benefit 7.9 12.2 12.1
Low income housing tax credits (3.6) (4.3) (2.1)
Work opportunity tax credit (0.9) (1.3) --
Other -- (.6) (.7)
---- ---- ----
Effective income tax rate 37.4% 40.0% 43.3%
---- ---- ----
---- ---- ----
</TABLE>
The Company has qualified low income housing tax credits of $1,269,000
which are available to reduce future regular federal income taxes.
F-19
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The components of net deferred tax assets (liabilities) are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
January 1, January 2,
1999 1998
<S> <C> <C>
Deferred tax assets:
Capitalized costs for income tax purposes $ 788 $ 877
Accounts receivable allowance 230 280
Lease obligations 532 78
------- -------
Deferred income taxes included
in current assets $ 1,550 $ 1,235
======= =======
Deferred tax liabilities:
Depreciation and amortization (2,497) (2,059)
------- -------
Deferred income taxes included
in non-current liabilities $(2,497) $(2,059)
------- -------
------- -------
</TABLE>
F-20
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. Reconciliation of Basic and Diluted Net Income per Share (in thousands,
except per share amounts)
<TABLE>
<CAPTION>
Weighted
Average
Net Shares Per Share
Income Outstanding Amounts
<S> <C> <C> <C>
1998
Basic net income per share $3,352 5,473 $ .61
Effect of dilutive securities:
Stock options -- 34 --
------ ----- -------
Diluted net income per share $3,352 5,507 $ .61
====== ===== =======
1997
Basic net income per share $3,203 5,465 $ .59
Effect of dilutive securities:
Stock options -- 38 (.01)
------ ----- -------
Diluted net income per share $3,203 5,503 $ .58
------ ----- -------
------ ----- -------
1996
Basic net income per share $5,989 5,463 $ 1.10
Effect of dilutive securities:
Stock options -- 34 (.01)
------ ----- -------
Diluted net income per share $5,989 5,497 $ 1.09
------ ----- -------
------ ----- -------
</TABLE>
A total of 63,400, 27,700 and 15,000 options were not included in the
1998, 1997 and 1996, respectively, effect of diluted securities due to the
anti-dilutive nature of the options.
6. Stock Options
At January 1, 1999, the Company has two stock option plans which are
described below. The Company applies APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for
the plans. Under APB Opinion No. 25, when the exercise price of the stock
option equals the market price of the underlying stock on the date of
grant, no compensation cost is recognized. Options granted during 1998,
1997 and 1996 were issued at the fair market value on the date of grant.
Pursuant to the 1995 Stock Option Plan (the "Plan"), options to purchase
an aggregate of not more than 1,300,000 shares of common stock may be
granted from time to time to key employees, officers, directors, advisors
and independent consultants to the Company or to any of its subsidiaries.
The total number of shares of common stock for which options may be
granted under the Plan shall
F-21
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
not exceed 2% cumulatively of the number of shares issued as of January 1
of each year. The Plan is administered by a committee of the Board of
Directors. The per share exercise price for incentive stock options
("ISO's") will not be less than 100% of the fair market value of a share
of common stock on the date the option is granted (ISO's may not be
granted if the optionee owns more than 10% of the Company's common stock)
and nonqualified stock options will not be less than 25% of the fair
market value on the date the option is granted. Options may be granted for
a term, to be determined by the committee, of not more than ten years from
the date of grant.
Pursuant to the 1995 Nonemployee Director Stock Option Plan (the
"Directors' Plan"), options to purchase an aggregate of not more than
200,000 shares of common stock may be granted from time to time to
directors who are neither employees nor officers of the Company. The
Directors' Plan is administered by a committee of the Board of Directors.
Each option granted prior to December 31, 1996 shall vest one year from
the date granted and will expire at a term, determined by the committee,
not to exceed ten years. Options granted after January 1, 1997 will vest
over a five year period, at equal percentages, and will expire at a term,
determined by the committee, not to exceed ten years.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), requires the Company, if
material, to provide pro forma information regarding net income and net
income per share as if compensation cost for the Company's stock option
plans had been determined in accordance with the fair value based method
prescribed in SFAS No. 123. The compensation costs associated with the
Company's stock option plan determined in accordance with SFAS No. 123
would have been $55,000, $77,000 and $70,000 for 1998, 1997 and 1996,
respectively.
The fair value of the options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1998, 1997 and 1996: dividend yield of 0; expected
volatility of 44% and expected life of 5 years. The weighted average risk
free interest rate for 1998, 1997 and 1996 was 5.4%, 6.5% and 6.5%,
respectively. The weighted average fair values of options granted during
1998, 1997 and 1996, for which the exercise price equaled the market price
on the grant dates, were $3.81, $4.12 and $3.34 per option, respectively.
F-22
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following table contains information regarding options under both
plans:
<TABLE>
<CAPTION>
Exercise Weighted
Price Range Average
Options Per Share Exercise Price
<S> <C> <C> <C>
Outstanding, December 29, 1995 81,949 $1.50 to $6.00 $ 3.93
Granted during 1996 15,000 $ 9.31 9.31
Canceled during 1996 (7,000) $5.88 to $6.00 5.91
--------
Outstanding, January 3, 1997 89,949 $1.50 to $9.31 4.67
Granted during 1997 32,300 $11.50 11.50
Exercised during 1997 (2,833) $1.50 to $6.00 3.88
Canceled during 1997 (16,600) $6.00 to $11.50 8.52
--------
Outstanding, January 2, 1998 102,816 $1.50 to $11.50 6.22
Granted during 1998 29,550 $8.25 8.25
Exercised during 1998 (9,003) $l.50 to $6.00 2.00
Canceled during 1998 (5,600) $6.00 to $11.50 9.39
--------
Outstanding, January 1, 1999 117,763 $1.50 to $11.50 6.88
--------
--------
</TABLE>
As of January 1, 1999, approximately 51,000 of the options granted were
exercisable and approximately 440,000 options were available for future
grants.
7. Commitments and Contingencies
Operating Leases
The Company has commitments for various noncancellable operating leases
which expire at various dates through January 2017. Certain of the leases
are with related parties (see Note 9). Many of the leases have renewal
options and most contain provisions for passing through incremental costs.
Future minimum rental payments required under noncancellable operating
leases at January 1, 1999 are as follows (in thousands):
F-23
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1999 $ 5,989
2000 5,186
2001 4,576
2002 3,502
2003 3,203
Thereafter 13,873
--------
Total future minimum rentals $ 36,329
--------
--------
</TABLE>
For fiscal years 1998, 1997, 1996, rent expense was $6,057,000, $5,225,000
and $4,838,000, respectively.
The Company has entered into sublease agreements for certain space located
within its various retail facilities. For fiscal years 1998, 1997 and
1996, rental income from subleases was $1,120,000, $997,000 and $906,000,`
respectively. The Company retains the right to sublease the additional
unoccupied space. The subleases currently in effect provide for future
rental income as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1999 $ 1,172
2000 1,053
2001 979
2002 861
2003 613
Thereafter 1,332
--------
$ 6,010
--------
--------
</TABLE>
Litigation
The Company is engaged in various outstanding litigation matters which
arose in the ordinary course of business. In the opinion of management,
the outcome of such matters will not have a material adverse effect on the
Company's financial position or operating results.
Standby Letter of Credit
The Company has outstanding letters of credit totaling $4,350,000 to
collateralize incurred but unpaid insurance claims.
8. Profit Sharing Plans
In 1998, the Company consolidated their profit sharing and 401(k) plans.
The plan allows for salary deferral arrangements under the provisions of
Section 401(k) of the Internal Revenue Code. The Company's funding
requirements for the plan are nonobligatory; however, for fiscal years
1998,
F-24
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1997 and 1996, the profit sharing plan expense was $779,000, $750,000 and
$625,000, respectively.
9. Related Party Transactions
The Company leases land, various retail food stores and warehouse storage
and office space from affiliates of the principal stockholders under
various leases which expire through January 2017. For fiscal years 1998,
1997 and 1996, rent expense relating to these leases was $3,004,000,
$2,829,000 and $2,737,000, respectively (see Note 7). The Company made
capital expenditures of approximately $436,000, $2,022,000 and $725,000
during 1998, 1997 and 1996, respectively, at leaseholds owned by
affiliates of the principal stockholders.
For fiscal years 1998, 1997 and 1996, the Company purchased various food
products in the amounts of $46,287,000, $37,111,000 and $27,423,000,
respectively, from a company in which an officer is also a director of the
Company. As of January 1, 1999 and January 2, 1998, the Company had
accounts payable of $3,765,000 and $1,997,000, respectively, due to such
company.
For fiscal years 1998, 1997 and 1996, the Company had sales to related
parties of $561,000, $894,000 and $335,000, respectively.
During 1998, the Company received an unsolicited proposal from Cactus
Acquisition, Inc. ("Cactus") to acquire, for a price of $7.50 per share in
cash, all of the outstanding capital stock of the Company not currently
owned by Cactus and its affiliates. At January 1, 1999, Cactus and its
affiliates owned approximately 72% of the outstanding shares of Western
Beef common stock.
In response to the Cactus offer, Western Beef's Board of Directors has
appointed a Special Committee of the Board to determine the advisability
and fairness of that offer to Western Beef's stockholders other than
Cactus and its affiliates. The Special Committee will retain independent
investment banking advisers and legal counsel to advise it on the fairness
of the offer from the financial point of view of the stockholders of
Western Beef other than Cactus and its affiliates.
F-25
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
10. Segments of Business
In 1998, the Company adopted Statement of Financial Accounting Standards
No.131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" ("SFAS No.
14"). One of the principal changes under SFAS No. 131 is the method for
reporting segment information, referred to as the "management" approach,
in contrast to the "industry segment" approach of SFAS No. 14. Under the
management approach, operating segments and certain aspects of such, are
identified based on the way that management evaluates the information for
making operating decisions and assessing overall performance of the
segments.
The adoption of SFAS No. 131 did not affect the results of operations or
financial position but did affect the disclosure of segment information
required to be presented. All prior period information has been restated
to conform to the required disclosures.
The Company operates in two industry segments. The wholesale segment
primarily sells poultry, beef, pork and provisions to retailers,
restaurants and institutions. The retail segment sells various meat and
grocery items to the general public.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. All intersegment sales
prices are market based. Corporate overhead costs are allocated to each of
its operating segments based on overall sales. The Company evaluates the
performance of its segments based on operating earnings before taxes of
the respective business units.
F-26
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The tables below present information about reported segments for fiscal
years 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 Retail Wholesale Totals
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $243,812 $ 55,178 $298,990
Intersegment sales -- 55,546 55,546
Interest expense 838 147 985
Interest income 227 68 295
Net interest expense 611 79 690
Depreciation and amortization 4,038 132 4,170
Income from operations 4,310 239 4,549
Other significant non cash items:
Bad debt expense -- 352 352
Identifiable assets 72,642 13,715 86,357
Capital expenditures 11,359 298 11,657
1997 Retail Wholesale Totals
---------- ---------- ----------
Net sales $ 232,400 $ 84,679 $ 317,079
Intersegment sales -- 53,931 53,931
Interest expense 923 148 1,071
Interest income 75 31 106
Net interest expense 848 117 965
Depreciation and amortization 4,034 138 4,172
Income from operations 4,727 5 4,732
Other significant non cash items:
Bad debt expense -- 955 955
Identifiable assets 63,738 12,516 76,254
Capital expenditures 7,085 237 7,322
1996 Retail Wholesale Totals
---------- ---------- ----------
Net sales $ 239,711 $ 101,162 $ 340,873
Intersegment sales -- 60,775 60,775
Interest expense 909 162 1,071
Interest income 125 39 164
Net interest expense 784 123 907
Depreciation and amortization 3,214 181 3,395
Income from operations 8,793 924 9,717
Other significant non cash items:
Bad debt expense -- 611 611
Identifiable assets 60,475 14,024 74,499
Capital expenditures 12,933 188 13,121
</TABLE>
F-27
<PAGE>
Western Beef, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. Quarterly Information (Unaudited)
The summarized quarterly financial data presented below (in thousands
except per share amounts) reflects all adjustments which, in the opinion
of management, are of a normal and recurring nature necessary to present
fairly the results of operations for the periods presented.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
<S> <C> <C> <C> <C>
Fiscal year ended January 1, 1999
Sales $ 70,061 $ 76,193 $ 75,031 $ 77,705
Gross profit 19,005 20,323 20,320 20,477
Net income 948 858 821 725
Net income per share
of common stock - basic .17 .16 .15 .13
----------------------------------------------
----------------------------------------------
Fiscal year ended January 2, 1998
Sales $ 72,795 $ 81,881 $ 86,372 $ 76,031
Gross profit 18,142 19,939 21,605 19,585
Net income 813 779 867 744
Net income per share
of common stock - basic .15 .14 .16 .14
----------------------------------------------
----------------------------------------------
Fiscal year ended January 3, 1997
Sales $ 79,349 $ 84,180 $ 85,167 $ 92,177
Gross profit 19,589 20,014 20,680 22,188
Net income 1,262 1,520 1,522 1,685
Net income per share
of common stock - basic .23 .28 .28 .31
----------------------------------------------
----------------------------------------------
</TABLE>
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of Western Beef, Inc.
Our audit of the consolidated financial statements referred to in our report
dated March 5, 1999 appearing on page F-1 of this 1998 Annual Report on Form
10-K also included an audit of the financial statement schedule listed on page
F-23 of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 5, 1999
F-29
<PAGE>
Western Beef, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Balance at
Beginning of Cost and Charge to End of
Year Expenses Other Accounts Deductions Year
<S> <C> <C> <C> <C> <C>
Year ended January 1, 1999:
Allowance for doubtful accounts $ 552 $ 352 $-- $(382) $ 522
Year ended January 2, 1998:
Allowance for doubtful accounts $ 386 $ 955 $-- $(789) $ 552
Year ended January 3, 1997:
Allowance for doubtful accounts $ 326 $ 611 $-- $(551) $ 386
</TABLE>
F-30
<PAGE>
APPENDIX A
THE MERGER AGREEMENT
A-1
<PAGE>
Appendix A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CACTUS ACQUISITION, INC.
AND
WESTERN BEEF, INC.
Dated as of July 29, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. THE MERGER .........................................................1
Section 1.1. The Merger ................................................1
Section 1.2. Effective Time ............................................1
Section 1.3. Closing ...................................................1
Section 1.4. Certificate of Incorporation; By-laws; Officers
and Directors .............................................1
Section 1.5. Effect on Common Stock ....................................2
Section 1.6. Dissenting Shares .........................................3
Section 1.7. Treatment of Options ......................................3
Section 1.8. Exchange of Certificates ..................................3
Section 1.9. Proxy Statement and Schedule 13E-3 ........................5
Section 1.10. Additional Agreements and Provisions ......................6
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF WESTERN BEEF ....................7
Section 2.1. Organization of Western Beef and its Subsidiaries .........7
Section 2.2. Capitalization of Western Beef; Ownership .................7
Section 2.3. Subsidiaries of Western Beef ..............................7
Section 2.4. Authorization .............................................7
Section 2.5. Fairness Opinion and Approval by the Special Committee ....8
Section 2.6. Brokers and Finders .......................................8
Section 2.7. SEC Documents; Undisclosed Liabilities ....................8
Section 2.8. Absence of Certain Changes or Events ......................9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF CACTUS .........................9
Section 3.1. Organization and Authority of Cactus ......................9
Section 3.2. Capitalization of Cactus ..................................9
Section 3.3. Authorization .............................................9
Section 3.4. Brokers and Intermediaries ................................9
Section 3.5. Proxy Statement ...........................................9
Section 3.6. Financing ................................................10
ARTICLE IV. CERTAIN COVENANTS AND AGREEMENTS .................................10
Section 4.1. Announcement .............................................10
Section 4.2. Notification of Certain Matters ..........................10
Section 4.3. Directors' And Officers' Indemnification .................10
Section 4.4. Proxy Statement and Schedule 13E-3 .......................11
<PAGE>
ARTICLE V. CONDITIONS PRECEDENT ..............................................11
Section 5.1. Conditions to Each Party's Obligation to Effect
the Merger ...............................................11
Section 5.2. Conditions to the Obligation of Western Beef to
Effect the Merger ........................................11
Section 5.3. Conditions to the Obligation of Acquisition to
Effect the Merger ........................................12
ARTICLE VI. TERMINATION, AMENDMENT AND WAIVER ................................12
Section 6.1. Termination ..............................................12
Section 6.2. Effect of Termination ....................................13
Section 6.3. Amendment ................................................13
Section 6.4. Waiver ...................................................13
ARTICLE VII. MISCELLANEOUS ...................................................13
Section 7.1. Non-Survival of Representations and Warranties ...........13
Section 7.2. Expenses .................................................13
Section 7.3. Applicable Law ...........................................14
Section 7.4. Notices ..................................................14
Section 7.5. Entire Agreement .........................................15
Section 7.6. Assignment ...............................................15
Section 7.7. Headings; References .....................................15
Section 7.8. Counterparts .............................................15
Section 7.9. No Third Party Beneficiaries .............................15
Section 7.10. Severability; Enforcement ................................15
-ii-
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of July 29, 1999 (the "Agreement"),
by and between Cactus Acquisition, Inc., a Delaware corporation ("Cactus"), and
Western Beef, Inc., a Delaware corporation ("Western Beef").
WHEREAS, the Board of Directors of Western Beef, upon the recommendation
of the special committee established to consider the fairness of the transaction
contemplated by this Agreement (the "Special Committee"), has unanimously
approved, and deems advisable and in the best interests of its stockholders, the
merger of Cactus with and into Western Beef in accordance with Section 251 of
the Delaware General Corporation Law (the "DGCL") and upon the terms, and
subject to the conditions, of this Agreement (the "Merger");
WHEREAS, the Board of Directors of Cactus has unanimously approved, and
deems advisable and in the best interests of its stockholders, the Merger in
accordance with Section 251 of the DGCL and upon the terms, and subject to the
conditions, of this Agreement;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto, intending to be
legally bound, agree as follows:
ARTICLE I.
The Merger
Section 1.1. The Merger. At the Effective Time (as hereinafter defined),
upon the terms and subject to the conditions set forth in this Agreement and in
accordance with the DGCL, Cactus shall be merged with and into Western Beef, the
separate existence of Cactus shall cease, and Western Beef shall continue as the
surviving corporation (the "Surviving Corporation"). The Merger shall have the
effects as provided by the DGCL and other applicable law.
Section 1.2. Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article V, the parties
shall file with the Secretary of State of the State of Delaware a certificate of
merger (the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed in the Department of State of the State of
Delaware, or at such other time as is permissible in accordance with the DGCL
and as Cactus and Western Beef shall agree and as specified in the Certificate
of Merger (the time the Merger becomes effective being the "Effective Time").
Section 1.3. Closing. The closing of the Merger (the "Closing") will take
place at the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York,
New York 10019 at 9:00 a.m. (New York time) on the date which is no later than
the third business day following satisfaction of the conditions provided in
Article V, or at such other time and place as Cactus and Western Beef shall
agree (the "Closing Date").
Section 1.4. Certificate of Incorporation; By-laws; Officers and
Directors. Pursuant to the Merger: (a) the Certificate of Incorporation and
By-laws of Western Beef as in effect
<PAGE>
immediately prior to the Effective Time shall be the Certificate of
Incorporation and By-laws of the Surviving Corporation following the Merger,
until thereafter changed or amended as provided therein and in accordance with
applicable law; (b) the directors of Cactus shall be the directors of the
Surviving Corporation following the Merger and until the earlier of their death,
resignation or removal or until their respective successors are duly elected or
appointed and qualified; and (c) the officers of Western Beef immediately prior
to the Effective Time shall be the officers of the Surviving Corporation until
the earlier of their death, resignation or removal or until their respective
successors are duly elected or appointed and qualified.
Section 1.5. Effect on Common Stock. As of the Effective Time, by virtue
of the Merger and without any action on the part of Cactus, Western Beef or the
holders of any shares of common stock, par value $.05 per share ("Western Beef
Common Stock"), of Western Beef:
(a) Common Stock of Cactus. Each share of common stock, no par value per
share ("Cactus Common Stock"), of Cactus, which is issued and outstanding
immediately prior to the Effective Time, shall be converted into and become one
share of common stock, par value $.05 per share, of the Surviving Corporation.
(b) Common Stock of Western Beef. Subject to Sections 1.5(c), 1.5(d) and
1.6, each share of Western Beef Common Stock which is issued and outstanding
immediately prior to the Effective Time shall be converted into and become a
right to receive $8.75 in cash (the "Merger Consideration") and, when so
converted, shall automatically be canceled and retired and shall cease to exist,
and each holder of a certificate representing any such shares of Western Beef
Common Stock shall, to the extent such certificate represents such shares, cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration allocable to the shares formerly represented by such certificate
upon surrender of such certificate in accordance with Section 1.8.
(c) Cancellation of Treasury Stock. Each share of Western Beef Common
Stock that is owned immediately prior to the Effective Time by Western Beef or
any Subsidiary of Western Beef (as hereinafter defined) that constitutes
treasury stock in the hands of the holder thereof, shall be canceled and retired
and shall cease to exist, and no consideration shall be delivered in exchange
therefor, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto. The term "Subsidiary" means any
corporation, joint venture, partnership, limited liability company or other
entity of which Western Beef, directly or indirectly, owns or controls capital
stock (or other equity interests) representing more than fifty percent of the
general voting power of such entity under ordinary circumstances.
(d) Western Beef Common Stock Held by Cactus. Each share of Western Beef
Common Stock that is owned immediately prior to the Effective Time by Cactus
shall be canceled and retired and shall cease to exist, and no consideration
shall be delivered in exchange therefor, and Cactus shall cease to have any
rights with respect to any certificates representing any such shares.
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Section 1.6. Dissenting Shares.
(a) Notwithstanding anything in this Agreement to the contrary, shares of
Western Beef Common Stock outstanding immediately prior to the Effective Time
and held by a holder who has demanded and perfected such holder's right to
appraisal of such shares in accordance with Section 262 of the DGCL ("Dissenting
Shares") shall not be converted into the right to receive the Merger
Consideration, but the holder thereof shall instead be entitled to such rights
as are afforded under the DGCL with respect to such holder's Dissenting Shares,
unless such holder fails to perfect or withdraws or otherwise loses such
holder's right to appraisal.
(b) If any holder of shares of Western Beef Common Stock who demands
appraisal of such holder's shares pursuant to the DGCL fails to perfect or
withdraws or otherwise loses such holder's right to appraisal, at the later of
the Effective Time or upon the occurrence of such event, the Dissenting Shares
of such holder shall be converted into and represent the right to receive the
Merger Consideration, without interest thereon, in accordance with Section
1.5(b).
(c) Western Beef shall give Cactus (i) prompt notice of any written demand
for appraisal or payment of the fair value of any shares of Western Beef Common
Stock, withdrawals of such demands, and any other instruments served pursuant to
the DGCL received by the Western Beef and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. Western Beef shall not voluntarily make any payment with respect to any
demand for appraisal and shall not, except with the prior written consent of
Cactus, settle or offer to settle any such demands.
Section 1.7. Treatment of Options.
(a) Pursuant to the Merger, at the Effective Time, each outstanding option
to purchase shares of Western Beef Common Stock (a "Western Beef Stock Option"),
whether or not vested, will be terminated and, in exchange for such Western Beef
Stock Option, the holder will be entitled to receive, for each share of Western
Beef Common Stock subject to such Western Beef Stock Option, a cash payment
equal to the excess, if any, of the Merger Consideration over the applicable
exercise price.
(b) Prior to the Effective Time, Western Beef shall use its best efforts
to (i) obtain any consents from holders of the Western Beef Stock Options and
(ii) make any amendments to the terms of the Western Beef Stock Option Plan and
any options granted thereunder that, in case of either (i) or (ii), are
necessary or appropriate to give effect to the transactions contemplated by this
Section 1.7.
Section 1.8. Exchange of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Western Beef shall
appoint a bank or trust company to act as exchange agent (the "Exchange Agent")
for the payment of the Merger Consideration. As of the Effective Time, Western
Beef shall have deposited with the Exchange Agent, for the benefit of the
holders of shares of Western Beef Common Stock, for exchange in accordance with
this Section 1.8, the aggregate amount of cash payable pursuant to Section
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1.5(b) hereof in exchange for outstanding shares of Western Beef Common Stock
(the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates,
which immediately prior to the Effective Time represented outstanding shares of
Western Beef Common Stock, whose shares were converted into the right to receive
cash pursuant to Section 1.5(b), a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
representing such shares of Western Beef Common Stock shall pass, only upon
delivery of the certificates representing such shares of Western Beef Common
Stock to the Exchange Agent and shall be in such form and have such other
provisions as the Exchange Agent may reasonably specify), and instructions for
use in effecting the surrender of the certificates representing such shares of
Western Beef Common Stock, in exchange for the Merger Consideration. Upon
surrender to the Exchange Agent of a certificate or certificates formerly
representing shares of Western Beef Common Stock and acceptance thereof by the
Exchange Agent, the holder thereof shall be entitled to the amount of cash into
which the number of shares of Western Beef Common Stock formerly represented by
such certificate or certificates surrendered shall have been converted pursuant
to this Agreement. The Exchange Agent shall accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices. After the Effective Time, there shall be no further transfer on the
records of Western Beef or its transfer agent of certificates representing
shares of Western Beef Common Stock and if such certificates are presented to
Western Beef for transfer, they shall be canceled against delivery of the Merger
Consideration allocable to the shares of Western Beef Common Stock represented
by such certificate or certificates. If any Merger Consideration is to be
remitted to a name other than that in which the certificate for the Western Beef
Common Stock surrendered for exchange is registered, it shall be a condition of
such exchange that the certificate so surrendered shall be properly endorsed,
with signature guaranteed, or otherwise in proper form for transfer and that the
person requesting such exchange shall pay to Western Beef, or its transfer
agent, any transfer or other taxes required by reason of the payment of the
Merger Consideration to a name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of Western Beef or its
transfer agent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 1.8, each certificate for shares of
Western Beef Common Stock shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the Merger
Consideration allocable to the shares represented by such certificate as
contemplated by Section 1.5(b). No interest will be paid or will accrue on any
amount payable as Merger Consideration.
(c) No Further Ownership Rights in Western Beef Stock. The Merger
Consideration paid upon the surrender for exchange of certificates formerly
representing shares of Western Beef Common Stock in accordance with the terms of
this Section 1.8 shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares of Western Beef Common Stock formerly
represented by such certificates.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
(including any interest and other income received by the Exchange Agent in
respect of all such funds) which
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remains undistributed to the holders of the certificates formerly representing
shares of Western Beef Common Stock for six months after the Effective Time
shall be delivered to the Surviving Corporation, upon demand, and any holders of
shares of Western Beef Common Stock prior to the Merger who have not theretofore
complied with this Section 1.8 shall thereafter look only to the Surviving
Corporation, and only as general creditors thereof, for payment of their claim
for Merger Consideration to which such holders may be entitled.
(e) No Liability. No party to this Agreement shall be liable to any Person
(as hereinafter defined) in respect of any amount from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. The term "Person" means any individual, corporation,
partnership, trust or unincorporated organization or a government or any agency
or political subdivision thereof.
(f) Lost Certificates. In the event any certificate or certificates
formerly representing shares of Western Beef Common Stock shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such certificate or certificates to be lost, stolen or destroyed, and
if required by the Surviving Corporation, the posting by such Person of a bond
in such amount as the Surviving Corporation may reasonably require as indemnity
against any claim that may be made against it with respect to such certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with this Section 1.8.
(g) Withholding Rights. The Surviving Corporation and the Exchange Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Western Beef
Common Stock such amounts as the Surviving Corporation or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the United States Internal Revenue Code of 1986, as amended (the "Code"), or any
provision of state, local or foreign tax law applicable to the making of such
payment. To the extent that amounts are so withheld by the Surviving Corporation
or the Exchange Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Western
Beef Common Stock in respect of which such deduction and withholding was made by
the Surviving Corporation or the Exchange Agent.
Section 1.9. Proxy Statement and Schedule 13E-3.
(a) Western Beef shall prepare, in consultation with Cactus, the Proxy
Statement on Schedule 14A (the "Proxy Statement") to be distributed to holders
of the Western Beef Common Stock for the purpose of soliciting proxies for use
at the annual or special meeting of stockholders of Western Beef at which the
adoption of this Agreement and the approval of the transactions contemplated
thereby shall be sought. In the Proxy Statement, subject to the fiduciary duties
of its Board of Directors, Western Beef shall recommend to its stockholders the
approval of the Merger, this Agreement and the transactions contemplated hereby.
Western Beef shall file the Proxy Statement with the Securities and Exchange
Commission (the "SEC") as soon as is reasonably practicable after the date
hereof and shall use all reasonable efforts to respond to comments from the SEC
and to cause the Proxy Statement to be mailed to Western Beef's stockholders at
the earliest practicable time.
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(b) None of the information to be supplied by Western Beef for inclusion
in the Proxy Statement will, at the time of the mailing of the Proxy Statement
and any amendments or supplements thereto, 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 are made, not misleading. The Proxy Statement
will, as of its date, comply as to form in all material respects with all
applicable laws, including the provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder. Western Beef will not mail, amend or supplement the Proxy Statement
unless the Proxy Statement or any amendment or supplement thereof is
satisfactory in content to Cactus in the exercise of its reasonable judgment.
(c) As soon as practicable after the date of this Agreement, Cactus, its
stockholders and Western Beef shall file with the SEC a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3 Transaction Statement"), with
respect to the Merger. Each of the parties hereto agrees to use its reasonable
best efforts to cooperate and to provide each other with such information as any
of such parties may reasonably request in connection with the preparation of the
Proxy Statement and the Schedule 13E-3 Transaction Statement. Each party hereto
agrees promptly to supplement, update and correct any information provided by it
for use in the Proxy Statement and the Schedule 13E-3 Transaction Statement if
and to the extent that such information is or shall have become incomplete,
false or misleading.
Section 1.10. Additional Agreements and Provisions. Upon the terms and
subject to the conditions of this Agreement, each of the parties hereto agrees
to use its reasonable best efforts (a) to cause its respective conditions set
forth in Article V of this Agreement to be fulfilled and (b) to take, or cause
to be taken, all additional action and to do, or cause to be done, all
additional things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. If at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of either Western Beef or Cactus, the
proper officers and directors of each corporation that is a party to this
Agreement shall take all such necessary action. The parties hereto agree to use
their respective best efforts to challenge any action brought seeking a
temporary restraining order or preliminary or permanent injunctive relief which
would prohibit, or materially interfere with, the consummation of the
transactions contemplated by this Agreement.
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ARTICLE II.
Representations and Warranties of Western Beef
Western Beef hereby represents and warrants to Cactus as follows:
Section 2.1. Organization of Western Beef and its Subsidiaries. Western
Beef and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has all the requisite corporate power and authority to carry on its business
as now being conducted and to own, lease, use and operate the properties owned
and used by it. Western Beef and each of its Subsidiaries is qualified and in
good standing to do business in each jurisdiction in which the nature of its
business requires it to be so qualified, except to the extent the failure to be
so qualified has not had, and would not reasonably be expected to have, a
Material Adverse Effect. The term "Material Adverse Effect" means a material
adverse effect on the business, assets, liabilities, results of operations or
financial condition of Western Beef and its Subsidiaries, taken as a whole.
Section 2.2. Capitalization of Western Beef; Ownership. The authorized
capital stock of Western Beef consists of 15,000,000 shares of Western Beef
Common Stock, of which 5,475,153 shares are issued and outstanding as of the
date hereof. All of the issued and outstanding shares of capital stock of
Western Beef are duly authorized, validly issued, fully paid and non-assessable
and free of preemptive rights. Except for outstanding Western Beef Stock Options
to purchase an aggregate of no more than 109,763 shares of Western Beef Common
Stock, there are no outstanding options, warrants or other rights of any kind to
acquire (including preemptive rights) any additional shares of capital stock of
Western Beef or securities convertible into or exchangeable for, or which
otherwise confer on the holder thereof any right to acquire, any such additional
shares, nor is Western Beef committed to issue any such option, warrant, right
or security. Following the Merger, Western Beef will have no obligation to
issue, transfer or sell any shares of its capital stock or other securities of
Western Beef pursuant to any employee benefit plan or otherwise.
Section 2.3. Subsidiaries of Western Beef. All outstanding shares of
capital stock or other equity interests of each Subsidiary are owned by Western
Beef, free and clear of any and all liens, claims, security interests or
options, except for restrictions on transfer under federal and state securities
laws. All shares of capital stock of each Subsidiary which is a corporation have
been validly issued and are fully paid and non-assessable. There are no
outstanding options, warrants or other rights of any kind to acquire (including
preemptive rights) any additional equity interests of any Subsidiary or
securities convertible into or exchangeable for, or which otherwise confer on
the holder thereof any right to acquire, any additional equity interests of any
Subsidiary, nor is any Subsidiary committed to issue any such option, warrant,
right or security. Other than the Subsidiaries referred to in this Section 2.3,
Western Beef does not own, directly or indirectly, any equity interest in any
other corporation, joint venture, partnership, limited liability company or
other entity.
Section 2.4. Authorization. Western Beef has all requisite corporate power
and authority to enter into this Agreement and, subject to any necessary
approval of the Merger by the
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stockholders of Western Beef, to carry out its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all requisite corporate action on the part of Western
Beef (other than the approval of this Agreement and the transactions
contemplated hereby by the stockholders of Western Beef). The Board of Directors
of Western Beef has adopted resolutions approving this Agreement and the Merger,
and has determined that the terms of the Merger are fair to, and in the best
interests of Western Beef's stockholders other than Cactus and/or its
stockholders (the "Public Stockholders"). Western Beef has taken all action
necessary to exempt the Merger and the other transactions contemplated hereby
with Cactus and its affiliates from the operation of Section 203 of the DGCL.
This Agreement has been duly executed and delivered by Western Beef and,
assuming the due authorization, execution and delivery hereof by Cactus,
constitutes the valid and binding obligation of Western Beef, enforceable
against Western Beef in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally or by general equitable principles.
Section 2.5. Fairness Opinion and Approval by the Special Committee. On or
prior to the date hereof, the Special Committee recommended that the Board of
Directors of Western Beef approve and authorize this Agreement and declare its
advisability. The Special Committee has received an opinion of Houlihan Lokey
Howard & Zukin to the effect that the consideration to be received by the Public
Stockholders in the Merger is fair to such stockholders from a financial point
of view.
Section 2.6. Brokers and Finders. Other than Houlihan Lockey Howard &
Zukin, neither Western Beef nor any Subsidiary has employed any broker, finder,
advisor or intermediary in connection with the transactions contemplated by this
Agreement which would be entitled to a broker's, finder's or similar fee or
commission in connection therewith or upon the consummation thereof. Any such
fees due to Houlihan Lockey Howard & Zukin shall be paid by Western Beef.
Section 2.7. SEC Documents; Undisclosed Liabilities. Western Beef has
filed all required reports, schedules, forms, statements and other documents
with the Securities and Exchange Commission (the "SEC") since January 1, 1998
(the "SEC Documents"). As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such SEC Documents. Except to
the extent that information contained in any SEC Document has been revised or
superseded by a later filed SEC Document, none of the SEC Documents contains any
untrue statement of a material fact or omits 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. The
financial statements of Western Beef included in the SEC Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by applicable instructions or regulations of the SEC relating to
the preparation of quarterly reports on Form 10-Q) applied on a consistent basis
during the period involved (except as may be indicated in the notes thereto) and
fairly present the
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financial position of Western Beef as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
Section 2.8. Absence of Certain Changes or Events. Except as disclosed in
the SEC Documents filed and publicly available prior to the date of this
Agreement, since the date of the most recent audited financial statements
included in the filed SEC Documents, Western Beef has conducted its business
only in the ordinary course, and there has not been any material adverse change
in the business or financial condition of Western Beef and its Subsidiaries
taken as a whole.
ARTICLE III.
Representations and Warranties of Cactus
Section 3.1. Organization and Authority of Cactus. Cactus is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware. Cactus was incorporated solely for the purpose of merging
with and into Western Beef and since its incorporation, it has conducted no
business of any kind whatsoever.
Section 3.2. Capitalization of Cactus. The authorized capital stock of
Cactus consists of 10,000 shares of Cactus Common Stock, of which 100 shares are
issued and outstanding as of the date hereof. All of the issued and outstanding
shares of capital stock of Cactus are duly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights.
Section 3.3. Authorization. Cactus has all corporate power and authority
to enter into this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all requisite corporate action on the part of Cactus.
This Agreement has been duly executed and delivered by Cactus and, assuming the
due authorization, execution and delivery hereof by Western Beef, constitutes
the valid and binding obligation of Cactus, enforceable against Cactus in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, or similar laws affecting
creditors' rights generally or by general equitable principles.
Section 3.4. Brokers and Intermediaries. Cactus has not employed any
broker, finder, advisor or intermediary in connection with the transactions
contemplated by this Agreement which would be entitled to a broker's, finder's,
or similar fee or commission in connection therewith or upon the consummation
thereof.
Section 3.5. Proxy Statement. None of the information to be supplied by
Cactus or its stockholders for inclusion in the Proxy Statement will, at the
time of the mailing of the Proxy Statement and any amendments or supplements
thereto, 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 are made, not
misleading.
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Section 3.6. Financing. Cactus has received a letter (the "Commitment
Letter") from North Fork Bank committing to provide to Cactus, upon the terms
and subject to the conditions therein, up to $8.5 million in financing in
connection with the Merger. Cactus has furnished a copy of the Commitment Letter
to the Special Committee and its advisers.
Section 3.7. Sale of Western Beef. Neither Cactus nor any of its
affiliates has any agreement, understanding or any present intention to sell
Western Beef or any material part of Western Beef.
ARTICLE IV.
Certain Covenants and Agreements
Section 4.1. Announcement. Neither Western Beef nor Cactus shall issue any
press release or otherwise make any public statement with respect to this
Agreement and the transactions contemplated hereby without the prior consent of
the other (which consent shall not be unreasonably withheld), except as may be
required by applicable law or stock exchange regulation. Notwithstanding
anything in this Section 4.1 to the contrary, Cactus and Western Beef will, to
the extent practicable, consult with each other before issuing, and provide each
other the opportunity to review and comment upon, any such press release or
other public statement with respect to this Agreement and the transactions
contemplated hereby whether or not required by law.
Section 4.2. Notification of Certain Matters. Western Beef shall give
prompt notice to Cactus, and Cactus shall give prompt notice to Western Beef, of
(a) the occurrence or nonoccurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (b) any material failure of Western Beef,
or Cactus, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 4.2 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 4.3. Directors' And Officers' Indemnification.
(a) The Certificate of Incorporation and the By-laws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
limitation of liability of directors and officers set forth in Western Beef's
Certificate of Incorporation and By-laws on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who on or prior to the Effective Time were
directors or officers of Western Beef, unless such modification is required by
law.
(b) The Surviving Corporation shall maintain in effect for six years from
the Effective Time policies of directors' and officers' liability insurance
containing terms and conditions which are not less advantageous to the insured
than any such policies of Western Beef currently in effect
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on the date of this Agreement (the "Western Beef Insurance Policies"), with
respect to matters occurring prior to the Effective Time, to the extent
available, and having the maximum available coverage under any such Western Beef
Insurance Policies; provided, that in no event shall the Surviving Corporation
be required to pay annual premiums for insurance under this Section 4.3(b) in
excess of 125% of the annual premiums currently paid by Western Beef and
provided further, however, that if the annual premiums for such insurance
coverage exceed 125% of the annual premiums currently paid by Western Beef, the
Surviving Corporation shall be obligated to obtain a policy with the greatest
coverage that can be obtained for premiums that are 125% of the annual premiums
currently paid by Western Beef.
Section 4.4. Stockholders Meeting. Western Beef agrees to seek and solicit
the requisite vote of stockholders at the Stockholders Meeting for the adoption
and approval of this Agreement and the transactions contemplated hereby. Cactus
agrees to vote all shares of Western Beef Common Stock owned by it, and to cause
its stockholders to vote any and all shares of Western Beef Common Stock that
they may be entitled to vote, at the Stockholders Meeting in favor of the
adoption and approval of this Agreement and the transactions contemplated
hereby.
ARTICLE V.
Conditions Precedent
Section 5.1. Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction on or prior to the Closing Date of each of the following
conditions (any of which may be waived by the parties hereto in writing, in
whole or in part, to the extent permitted by applicable law):
(a) No Injunction or Proceeding. No preliminary or permanent injunction,
temporary restraining order or other decree of a court, legislature or other
agency or instrumentality of federal, state or local government (a "Governmental
Entity") shall be in effect, no statute, rule or regulation shall have been
enacted by a Governmental Entity and no action, suit or proceeding by any
Governmental Entity shall have been instituted or threatened, which prohibits
the consummation of the Merger or materially challenges the transactions
contemplated hereby.
(b) Consents. Other than filing the Certificate of Merger, all consents,
approvals and authorizations of and filings with Governmental Entities required
for the consummation of the transactions contemplated hereby, shall have been
obtained or effected or filed.
(c) Approval of Holders of Western Beef Common Stock. This Agreement and
the Merger shall have been adopted by the affirmative vote or written consent of
a majority of the shares of Western Beef Common Stock outstanding.
Section 5.2. Conditions to the Obligation of Western Beef to Effect the
Merger. The obligation of Western Beef to effect the Merger is further subject
to the satisfaction or waiver of each of the following conditions prior to or at
the Closing Date:
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(a) Representations and Warranties. The representations and warranties of
Cactus contained in this Agreement shall be true and correct in all material
respects at and as of the Effective Time as though made at and as of the
Effective Time and Western Beef shall have received a certificate of the
President of Cactus to that effect.
(b) Agreements. Cactus shall have performed and complied in all material
respects with all its undertakings and agreements required by this Agreement to
be performed or complied with by it prior to or at the Closing Date.
Section 5.3. Conditions to the Obligation of Cactus to Effect the Merger.
The obligation of Cactus to effect the Merger is further subject to the
satisfaction or waiver of each of the following conditions prior to or at the
Closing Date:
(a) Representations and Warranties. The representations and warranties of
Western Beef contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time as though made at and as of
the Effective Time and Cactus shall have received a certificate of the President
and Chief Executive Officer of Western Beef to that effect.
(b) Agreements. Western Beef shall have performed and complied in all
material respects with all of its undertakings and agreements required by this
Agreement to be performed or complied with by it prior to or at the Closing
Date.
(c) No Material Adverse Change. Except as set forth in the Western Beef
SEC Reports filed on or prior to the date of this Agreement, since December 31,
1998 there shall have been no material adverse change in the business, assets,
liabilities, results of operations or financial condition of Western Beef and
its Subsidiaries, taken as a whole.
(d) Availability of Funds. Cactus shall have funds available to it at the
Closing sufficient to pay the aggregate Merger Consideration, pursuant to the
Commitment Letter or any other commitment acceptable to Cactus.
(e) Appraisal Rights. The holders of not more than 5% of the issued and
outstanding shares of Western Beef Common Stock shall have exercised their
rights to dissent from the Merger in accordance with Section 262 of the DGCL and
pursuant to Section 1.6 of this Agreement.
ARTICLE VI.
Termination, Amendment and Waiver
Section 6.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after stockholder approval thereof:
(a) by the mutual written consent of Cactus and Western Beef;
(b) by either Cactus or Western Beef, in each case by written notice to
the other, if:
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<PAGE>
(i) the Merger has not been consummated on or prior to December 31,
1999; provided, however, that the right to terminate this Agreement under
this Section 6.1(b)(i) shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or prior to such date;
or
(ii) the Special Committee shall have withdrawn, or modified or
changed in any manner adverse to Cactus its approval of this Agreement or
the Merger after having concluded in good faith after consultation with
independent legal counsel that there is a reasonable probability that the
failure to take such action would result in a violation of its fiduciary
obligations under applicable law.
Section 6.2. Effect of Termination. In the event of the termination of
this Agreement as provided in Section 6.1, this Agreement shall become null and
void, and there shall be no liability on the part of Cactus or Western Beef
(except as set forth in Section 7.2 hereof, which shall survive any termination
of this Agreement); provided that nothing herein shall relieve any party from
any liability or obligation with respect to any breach of this Agreement.
Section 6.3. Amendment. This Agreement may be amended in writing by the
parties hereto.
Section 6.4. Waiver. At any time prior to the Effective Time, whether
before or after the approval of the holders of Western Beef Common Stock
referred to in Section 5.1(c) hereof, either party may (i) extend the time for
the performance of any of the obligations or other acts of the other party
hereto or (ii) waive compliance with any of the agreements of the other party or
fulfillment of any conditions to its own obligations hereunder. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party by a
duly authorized officer.
ARTICLE VII.
Miscellaneous
Section 7.1. Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, and neither Cactus,
Western Beef or any Subsidiary, nor any of their respective officers, directors,
employees, advisors or stockholders shall have any liability whatsoever with
respect to any such representation or warranty after such time. This Section 7.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
Section 7.2. Expenses. Except as contemplated by this Agreement, all costs
and expenses incurred in connection with the Agreement and the consummation of
the transactions contemplated hereby shall be the obligation of the party
incurring such expenses. All costs and expenses incurred by Cactus in connection
with the Agreement and the consummation of the
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<PAGE>
transactions contemplated hereby shall, after the Effective Time, be obligations
of the Surviving Corporation.
Section 7.3. Applicable Law. This Agreement shall be governed by the law,
excluding conflicts of law rules, of the State of Delaware.
Section 7.4. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given or made as follows:
(a) if sent by registered or certified mail in the United States return receipt
requested, upon receipt; (b) if sent by reputable overnight air courier, two
business days after being so sent; (c) if sent by telecopy transmission, with a
copy mailed on the same day in the manner provided in clauses (a) or (b) above,
when transmitted and receipt is confirmed by telephone; or (d) if otherwise
actually personally delivered, when delivered, and shall be sent or delivered as
follows:
If to Western Beef; to:
Peter R. Admirand
Controller and Secretary
Western Beef, Inc.
47-05 Metropolitan Avenue
Ridgewood, NY 11385
(718) 628-2356 (facsimile)
with a copy to:
Michael A. Schwartz, Esq.
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
(212) 728-8111 (facsimile)
If to Cactus, to:
Peter Castellana, Jr.
President
Cactus Acquisition, Inc.
47-05 Metropolitan Avenue
Ridgewood, NY 11385
(718) 628-2356 (facsimile)
with a copy to:
Howard W. Muchnick, Esq.
Muchnick, Golieb & Golieb
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<PAGE>
630 Fifth Avenue
New York, NY 10111
(212) 977-5133 (facsimile)
Such names and addresses may be changed by such notice.
Section 7.5. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) contains the entire understanding of the parties
hereto with respect to the subject matter contained herein, and supersedes and
cancels all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting such subject matter.
Section 7.6. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any either party hereto
(whether by operation of law or otherwise) without the prior written consent of
the other party.
Section 7.7. Headings; References. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
Section 7.8. Counterparts. This Agreement may be executed in one or more
counterparts, each counterpart shall be deemed to be an original but all of
which shall be considered one and the same agreement.
Section 7.9. No Third Party Beneficiaries. Except as provided in Sections
1.8 and 4.3, nothing in this Agreement, express or implied, is intended to
confer upon any Person not a party to this Agreement any rights or remedies
under or by reason of this Agreement.
Section 7.10. Severability; Enforcement. Any term or provision of this
Agreement that is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or unenforceability
of any of the terms or provisions of this Agreement in any other jurisdiction.
If any provision of this Agreement is so broad as to be unenforceable, the
provisions shall be interpreted to be only so broad as is enforceable.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
WESTERN BEEF, INC.
By: /s/ Peter Admirand
------------------------------------
Name: Peter R. Admirand
Title: Controller and Secretary
CACTUS ACQUISITION, INC.
By: /s/ Peter Castellana, Jr.
------------------------------------
Name: Peter Castellana, Jr.
Title: President
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<PAGE>
APPENDIX B
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
B-1
<PAGE>
[Houlihan Lokey Letterhead]
July 29, 1999
The Special Committee of the Board of Directors of
Western Beef, Inc.
Dear Sir:
We understand that Cactus Acquisition Inc. ("Cactus") has made an offer to
purchase all of the shares of Common Stock of Western Beef, Inc. ("Western
Beef' or the "Company") not already owned by Cactus for a cash consideration
of $8.75 per share (the "Consideration"). Cactus owns approximately 72% of
Western Beef's Common Stock. We further understand that Cactus is controlled
by certain members of the management of Western Beef. Such transaction and
all related transactions are referred to collectively herein as the
"Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address Western Beef's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of Western
Beef. Furthermore, at your request, we have not negotiated the Transaction or
advised you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's audited financial statements on Form 10-K for
the three fiscal years ended January 1, 1999, and unaudited financial
statements for the quarter ended April 3, 1999, which the Company's
management has identified as being the most current financial
statements available;
2. reviewed the Agreement and Plan of Merger by and between Cactus
Acquisition, Inc. and Western Beef, Inc., dated as of July 29, 1999,
WF&G draft dated 7/27/99;
3. reviewed the commitment letter from North Fork Bank for $8,500,000
dated July 27, 1999;
4. reviewed the Property Appraisal Services, Inc. Appraisal Report dated
January 2, 1996;
5. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and
projected operations and performance of the Company;
6. visited certain facilities and business offices of the Company;
<PAGE>
The Special Committee of the Board of Directors of
Western Beef, Inc.
July 29, 1999
Page 3
7. reviewed forecasts and projections prepared by the Company's
management with respect to the Company for the year ending December
31, 1999;
8. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
9. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Transaction; and
10. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and 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.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
The Company, like other companies and any business entities analyzed by Houlihan
Lokey or which are otherwise involved in any manner in connection with this
Opinion, could be materially affected by complications that may occur, or may be
anticipated to occur, in computer-related applications as a result of the year
change from 1999 to 2000 (the "Y2K Issue"). In accordance with long-standing
practice and procedure, Houlihan Lokey's services are not designed to detect the
likelihood and extent of the effect of the Y2K Issue, directly or indirectly, on
the financial condition and/or operations of a business. Further, Houlihan Lokey
has no responsibility with regard to the Company's efforts to make its systems,
or any other systems (including its vendors and service providers), Year 2000
compliant on a timely basis. Accordingly, Houlihan Lokey shall not be
responsible for any effect of the Y2K Issue on the matters set forth in this
Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
Consideration to be received by the public stockholders of the Company in
connection with the Transaction, is fair to them from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
<PAGE>
APPENDIX C
APPRAISAL RIGHTS
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to Section 228 of this title will be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's shares
of stock under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is ordinarily
meant by those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights will be available for the shares of
any class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251 (other than a merger
effected pursuant to subsection Section 251(g) of this title), Section 252,
Section 254, Section 257, Section 258, Section 263, or Section 264 of this
title:
(1) Provided, however, that no appraisal rights under
this section will be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights will be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the Surviving Corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section will be available for the shares of
any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation
surviving or resulting from such merger or consolidation, or
depository receipts in respect thereof;
b. Shares of stock of any other corporation,
or depository receipts in respect thereof, which shares of
stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security
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<PAGE>
on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs (a) and (b) of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares or
fractional depository receipts described in the foregoing
subparagraphs (a), (b) and (c) of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of
this title is not owned by the parent corporation immediately prior to
the merger, appraisal rights will be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section will be available for the
shares of any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially all
of the assets of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, will apply as nearly as is practicable.
(d) Appraisal rights will be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than
20 days prior to the meeting, will notify each of its stockholders who
was such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsections (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and will include in such notice a copy
of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares will deliver to the corporation, before the
taking of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation will not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation will notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved and
adopted pursuant to Section 228 or Section 253 of this title, each
constituent corporation, either before the effective date of the merger
or consolidation or within ten days thereafter, will notify each of the
holders of any class or series of stock of such constituent corporation
who are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all
shares of such class or series of stock of such constituent
corporation, and will include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of
the merger or consolidation, such notice will be given by the surviving
or resulting corporation to all such holders of any class or series of
stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, will, also notify such stockholders of
the effective date of the
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<PAGE>
merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation will send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation
or (ii) the surviving or resulting corporation will send such a second
notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than
20 days following the sending of the first notice, such second notice
need only to be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given will, in
the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in
advance, a record date that will be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or
after the effective date of the merger or consolidation, the record
date will be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date will be
the close of business on the day next preceding the day on which the
notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder will have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, will be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement will be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof will be made upon the surviving or resulting
corporation, which will within 20 days after such service file in the office of
the Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded payment
for their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting
C-3
<PAGE>
corporation. If the petition will be filed by the surviving or resulting
corporation, the petition will be accompanied by such a duly verified list. The
Register in Chancery, if so ordered by the Court, will give notice of the time
and place fixed for the hearing of such petition by registered or certified mail
to the surviving or resulting corporation and to the stockholders shown on the
list at the addresses therein stated. Such notice will also be given by 1 or
more publications at least 1 week before the day of the hearing, in a newspaper
of general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication will be approved by the Court, and the costs thereof will be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court will determine
the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court will appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. In determining such
fair value, the Court will take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not entitled
to appraisal rights under this section.
(i) The Court will direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment will be so made to each such
stockholder, in the case of holders of uncertified stock forthwith, and the case
of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded such stockholder's appraisal
rights as provided in subsection (d) of this section will be entitled to vote
such stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions payable to
stockholders of record at a date which is prior to the effective date of the
merger or consolidation); provided, however, that if no petition for an
appraisal will be filed within the time provided in subsection (e) of this
section, or if such stockholder will deliver to the surviving or resulting
corporation a written withdrawal of such stockholder's demand for an appraisal
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<PAGE>
and an acceptance of the merger or consolidation, either within 60 days after
the effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation, then
the right of such stockholder to an appraisal will cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery will be dismissed as
to any stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation will have the status of authorized
and unissued shares of the surviving or resulting corporation.
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<PAGE>
WESTERN BEEF, INC.
THIS PROXY IS SOLICITED ON BEHALF OF WESTERN BEEF, INC. IN CONNECTION
WITH ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON October __, 1999.
The undersigned stockholder of Western Beef, Inc. ("Western
Beef"), revoking all previous proxies, hereby constitutes and appoints Peter
Castellana, Jr. and Peter Admirand, and each of them, as proxies with full power
of substitution to vote on behalf of the undersigned all shares of Common Stock
of Western Beef which the undersigned is entitled to vote at the Annual Meeting
of Stockholders of Western Beef to be held on October __, 1999, at 10:00 a.m.,
(local time), at [location to be determined], and at any adjournment and
postponements thereof, upon all matters presented before such annual meeting,
and does hereby ratify and confirm all that said proxies or their substitutes
may lawfully do by virtue hereof. The undersigned hereby acknowledges receipt of
the Notice of the Annual Meeting and hereby instructs said proxies to vote or
refrain from voting such shares of Western Beef Common Stock as marked on the
reverse side upon the matters listed on the reverse side. In their discretion,
such proxies are authorized to vote such shares upon such other business as may
properly come before the annual meeting.
DO NOT SUBMIT ANY STOCK CERTIFICATES WITH THIS PROXY CARD.
-------------
|SEE REVERSE|
| SIDE |
CONTINUED AND TO BE SIGNED ON REVERSE SIDE -------------
<PAGE>
[LOGO]
ANNUAL MEETING OF STOCKHOLDERS OF WESTERN BEEF, INC.
OCTOBER __, 1999, 10:00 A.M. (LOCAL TIME)
[LOCATION TO BE DETERMINED]
DETACH HERE
PLEASE MARK
/X/ VOTES AS IN
THIS EXAMPLE.
FOR AGAINST ABSTAIN
1. To approve and adopt the
Agreement and Plan of Merger,
/ / / / / /
FOR WITHHOLD FOR ALL EXCEPT
/ / / / / /
2. To elect the four nominees
listed below to the Board of
Directors of Western Beef
until the next Annual Meeting
of Stockholders of Western
Beef or until their successors
are elected and qualified.
Peter Castellana, Jr.
Joseph Castellana
Arnold B. Becker
Stephen R. Bokser
If you do not wish your shares
voted "FOR" a particular nominee,
mark the "For All Except" box and
strike a line through the
nominee(s) name. Your shares will
be voted for the remaining
nominee(s).
<PAGE>
3. To transact such other business as
may properly come before the
meeting or any adjournment or
postponement thereof.
MARK MARK HERE
HERE FOR IF YOU PLAN
ADDRESS TO ATTEND
CHANGE / / THE MEETING / /
AND NOTE
AT LEFT
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED
AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE APPROVAL AND ADOPTION
OF THE AGREEMENT AND PLAN OF MERGER, IN FAVOR OF THE NOMINEES FOR DIRECTOR AND
IN ACCORDANCE WITH RECOMMENDATIONS OF WESTERN BEEF'S BOARD OF DIRECTORS.
Please mark, date and sign exactly as
your name appears hereon and return in
the enclosed envelope. If acting as
executor, administrator, trustee,
guardian, etc., you should so indicate
when signing. If the signer is a
corporation, please sign the full
corporate name, by duly authorized
officer. If shares are held jointly,
each stockholder named should sign.
Signature: Date:
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Signature: Date:
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