SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
SCHEDULE 14A INFORMATION
Information Required in Proxy Statement 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:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
/x / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11 or Rule 14a-12
WESTERN STANDARD CORPORATION
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(Name of Registrant as Specified in its Charter)
NONE
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(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.05 per share, of Western Standard Corporation
(2) Aggregate number of securities to which transaction applies:
4,524,803 shares of common stock
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state
how it was determined):
The filing fee of $183.45 was determined based upon the product of 4,524,802
shares of common stock and the merger consideration of $0.32 per share. In
accordance with Rule 0-11 under the Securities Exchange Act of 1934, as amended,
the filing fee was determined by multiplying the amount calculated pursuant to the
preceding sentence by .0001267 of one percent.
(4) Proposed maximum aggregate value of transaction: $1,447,937
(5) Total fee paid herewith:
/x/ Fee paid previously with preliminary materials: $ 183.45
/ / 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.
PROXY STATEMENT
WESTERN STANDARD CORPORATION
400 East Snow King Avenue
Post Office Box 1846
Jackson, Wyoming 83001
(307) 733-5200
Dear Stockholder: January 21, 2005
You are cordially invited to attend a special meeting of stockholders of
Western Standard Corporation ("Westan") to be held at the Snow King Resort, 400
East Snow King Avenue, Jackson, Wyoming on Friday, February 25, 2005 at 10:00
a.m., Mountain Time.
At the special meeting, you will be asked to consider and vote upon the
approval of the Agreement and Plan of Merger, dated as of November 15, 2004, by
and among Snow King Interests LLC ("SKI"), LZ Acquisition Inc. and Westan,
providing for the merger of LZ Acquisition, Inc., a wholly owned subsidiary of
SKI, with and into Westan with Westan as the surviving corporation. Pursuant to
the merger agreement, you will be entitled to receive $0.32 in cash, without
interest, for each of your shares of common stock of Westan. SKI is, and after
the merger, will be controlled by Manuel B. Lopez, and James M. Peck, officers
and directors of Westan. The accompanying proxy statement explains the proposed
merger and provides specific information concerning the special meeting. Please
read these materials carefully.
In light of the conflicting interests of Messrs. Lopez and Peck, Westan's
board of directors formed a special committee consisting of Stanford E. Clark,
its sole independent director to evaluate this merger proposal and to negotiate
the proposal on behalf of Westan.
The board of directors of Westan, considering among other things the
recommendation of the special committee, has approved the merger agreement and
determined the merger to be advisable. Approval of the three member board was
unanimous and included the concurrence of Mr. Lopez and Mr. Peck, two of three
directors who disclosed their personal interests in the proposed transaction.
The special committee and the board of directors believe that the terms and
provisions of the merger agreement and the proposed merger are fair to and in
the best interests of Westan's unaffiliated stockholders (which means the
holders of Westan stock other than SKI, LZ Acquisition and their affiliates,
i.e., Messrs. Lopez and Peck). Therefore, the board of directors recommends that
you vote in favor of the approval of the merger agreement and the transactions
contemplated thereby. Ehrhardt Keefe Steiner & Hottman PC, the special
committee's financial advisor, has provided its written opinion that, as of
November 15, 2004, based on and subject to the limitations, assumptions and
qualifications stated in its opinion, the $0.32 per share cash consideration to
be received by Westan's unaffiliated stockholders in the proposed merger was
fair to Westan's unaffiliated stockholders from a financial point of view.
The proposed merger is an important decision for Westan and its
stockholders. The proposed merger cannot occur unless, among other things, the
merger agreement is approved by the affirmative vote of the holders of a
majority of all outstanding shares of common stock of Westan. Messrs. Lopez,
Peck and their affiliates and Westan have entered into voting agreements under
which they will vote their 5,438,213 shares or 54% of Westan's outstanding
shares in accordance with the majority of the shares held by unaffiliated
stockholders voted in person or by proxy at the special meeting.
Whether or not you plan to attend the special meeting, we urge you to sign,
date and promptly return the enclosed proxy card to ensure that your shares will
be voted at the special meeting. Failure to return an executed proxy card will
constitute, in effect, a vote against approval of the merger agreement and the
transactions contemplated thereby.
Your board of directors urges you to consider the enclosed materials
carefully and, based on among other things the recommendation of the special
committee and the board, recommends that you vote "for" approval of the merger
agreement and the transactions contemplated thereby.
The special committee's work was completed on November 15, 2004. On
December 5, 2004, Stanford E. Clark, the sole member of the special committee,
died unexpectedly in Riverton, Wyoming. Your board of directors wishes to extend
its condolences to Mr. Clark's family and express how grateful we are for his
long and dedicated service to Westan and its stockholders.
Sincerely,
Your Board of Directors
The proposed merger has not been approved or disapproved by the Securities
and Exchange Commission or any state securities regulator nor has the Commission
or any state securities regulator passed upon the fairness or merits of the
proposed merger or upon the accuracy or adequacy of the information contained in
this document. Any representation to the contrary is unlawful.
This proxy statement and proxy are being mailed to Westan's stockholders on
or about January 21, 2005.
WESTERN STANDARD CORPORATION
400 East Snow King Avenue
Post Office Box 1846
Jackson, Wyoming 83001
(307) 733-5200
Notice of Special Meeting of Stockholders
Date: February 25, 2005
Time: 10:00 a.m., Mountain Time
Place: Snow King Resort, 400 East Snow King Avenue, Jackson, Wyoming 83001
A special meeting of the stockholders of Western Standard Corporation is
being held for the following purposes:
o To consider and vote upon the Agreement and Plan of Merger, dated as of
November 15, 2004, by and among Snow King Interests LLC, LZ Acquisition
Inc. and Western Standard Corporation ("Westan"), and the transactions
contemplated thereby, including the merger of LZ Acquisition with and into
Westan, with Westan as the surviving corporation and with the unaffiliated
stockholders of Westan entitled to receive $0.32 in cash, without interest,
for each share of Westan's common stock that they own.
o If necessary, to adjourn the special meeting for the purpose of soliciting
additional proxies in connection with the proposed merger or to satisfy the
conditions to completing the proposed merger.
o To consider any other matter that may properly be brought before the
special meeting or any adjournment or postponement thereof.
Only stockholders of record on January 7, 2005 are entitled to notice of,
and to vote at, the special meeting. During the ten day period prior to the
special meeting, any stockholder may examine a list of Westan's stockholders of
record, for any purpose related to the special meeting, during ordinary business
hours at the offices of Westan located at 400 East Snow King Avenue, Jackson,
Wyoming 83001.
Stockholders of Westan who do not vote in favor of the merger agreement
will have the right to dissent and to seek appraisal of the fair value of their
shares if the merger is completed and they comply with the procedures under
Wyoming law explained in the accompanying proxy statement.
The merger is described in the accompanying proxy statement, which you are
urged to read carefully. A copy of the Agreement and Plan of Merger, as amended,
is attached as Annex A to the accompanying proxy statement.
By Order of the Board of Directors
James M. Peck, Secretary
Jackson, Wyoming
January 21, 2005
TABLE OF CONTENTS
SUMMARY TERM SHEET
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
Principals of the Buyers
The Special Meeting
Special Factors
Reasons for Engaging in the Transaction
Recommendations of the Special Committee and our Board of Directors
Opinion of Ehrhardt Keefe Steiner & Hottman PC
Westan's Position as to the Fairness of the Merger
Interests of our Directors and Executive Officers in the Merger
Primary Benefits and Detriments to Unaffiliated Stockholders
Plans for Westan after the Merger
The Merger Agreement
The Merger Consideration
Conditions to the Merger
Termination of the Merger Agreement
Acquisition Proposals
Fees and Expenses
Dissenters' Rights of Appraisal
Financing of Merger
Selected Consolidated Financial Data of Westan
THE PARTIES
Western Standard Corporation
SKI and LZ Acquisition, Inc.
INFORMATION CONCERNING THE SPECIAL MEETING
Time, Place and Date
Purpose of the Special Meeting
Record Date; Voting at the Meeting; Quorum
Required Vote
Voting and Revocation of Proxies
Action to be Taken at the Special Meeting
Proxy Solicitation
SPECIAL FACTORS
Background of the Merger
Recommendation of the Special Committee and Board of Directors; Fairness of
the Merger
Special Committee
Board of Directors of Westan
SKI's Position as to the Fairness of the Merger to Unaffiliated Stockholders
Benefits and Detriments of the Merger
To Westan's Unaffiliated Stockholders
To the Buyers and Westan
Opinion of Financial Advisor to the Special Committee
Opinion and Analysis of Ehrhardt Keefe Steiner & Hottman PC
Related Entities
Comparable Companies Analysis
Discounted Cash Flow Analysis
Asset-Based Approach
Conclusion of the Value of Snow King Resort, Inc.
Oil and Gas Interest
Snow King Resort Center, Inc.
Asset-Based Approach of the Company
Market Approach
Other Factors
SKI's Purpose and Reasons for the Merger
Interests of Certain Persons in the Merger; Certain Relationships
Retained Equity Interest
Directors and Management of the Surviving Corporation
Directors and Officers Indemnification
Certain Effects of the Merger
Plans for Westan after the Merger
Conduct of the Business of Westan if the Merger is not Consummated
Accounting Treatment
Financing of the Merger
Regulatory Requirements; Third Party Consents
Material Federal Income Tax Consequences of the Merger
Sales Treatment for Holders of Common Stock
Redemption Treatment for Dissenters and Other Stockholders
Constructive Ownership of Stock and Other Issues
Section 302 Tests
Backup Withholding
Fees and Expenses
THE MERGER AGREEMENT
The Merger; Merger Consideration
Treatment of Certain Shares Held by the Buyers
The Exchange Fund; Payment for Shares of Westan Common Stock
Transfers of Common Stock
Conditions
Representations and Warranties
Covenants
Termination
Fees and Expenses
Amendment/Waiver
THE VOTING AGREEMENTS
DISSENTERS' RIGHTS OF APPRAISAL
Right to Dissent
Procedure for Exercise of Dissenters' Rights
Dissenters' Notice
Procedure to Demand Payment
Payment
If Dissenter is Dissatisfied with Offer
Judicial Appraisal of Shares
Court and Counsel Fees
MARKET FOR THE COMMON STOCK
Common Stock Market Price Information; Dividend Information
Common Stock Purchase Information
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
DIRECTORS AND MANAGEMENT
Westan
SKI and LZ Acquisition
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
INDEPENDENT AUDITORS
FINANCIAL STATEMENTS
WHERE YOU CAN FIND MORE INFORMATION
OTHER BUSINESS
STOCKHOLDER MEETINGS AND PROPOSALS
AVAILABLE INFORMATION
ANNEX A Agreement and Plan of Merger dated November 15, 2004 by and among Snow King
Interests LLC, LZ Acquisition, Inc. and Western Standard Corporation
ANNEX B Opinion of Ehrhardt Keefe Steiner & Hottman PC dated November 15, 2004
ANNEX C Sections of the Wyoming Business Corporation Act Regarding Dissenters' Rights
(Article 13, Sections 17-16-1301 through 1331)
SUMMARY TERM SHEET
The following summarizes the principal terms of the proposed merger of
Western Standard Corporation, a Wyoming corporation ("Westan" ), with LZ
Acquisition, Inc., a Wyoming corporation ("Merger Sub"), which is a wholly-owned
subsidiary of Snow King Interests LLC, a Wyoming limited liability company
("SKI" or "Parent"). This summary term sheet does not contain all of the
information that may be important for you to consider when evaluating the merits
of the merger. You are encouraged to read this proxy statement, including the
annexes and the documents that have been incorporated by reference into this
proxy statement, in their entirety before voting. Section references are
included below to direct you to a more complete description of the topics
discussed in this summary term sheet.
o You are being asked to approve and adopt an Agreement and Plan of Merger,
dated as of November 15, 2004, which provides the merger of Merger Sub into
Westan. As a holder of Westan common stock, you and all other such holders,
other than Messrs. Lopez and Peck and their affiliates, will be entitled to
receive $0.32 in cash, without interest (the "cash merger consideration"),
for each share of Westan common stock that you own. See "Information
Concerning the Special Meeting," page 13.
o Because Merger Sub was created only to facilitate the merger, it has no
assets. SKI will fund approximately $1.5 million to effect the payment of
the total cash merger consideration to Westan's unaffiliated stockholders.
o The merger must be approved and adopted by a majority of our outstanding
shares of common stock. Messrs. Lopez and Peck and their affiliates own
approximately 54% of Westan's common stock and will not receive cash
consideration in the merger. These persons have agreed to vote their shares
in accordance with the majority of shares cast for or against the merger by
unaffiliated stockholders voting in person or by proxy at the special
meeting.
o This is a "going private" transaction. As a result of the merger:
o SKI will hold all of our common stock and equity interest;
o Our current stockholders will no longer have an interest in any future
earnings or growth of the business;
o We will no longer be a publicly-traded company; and
o Our common stock will no longer be traded on the OTC Bulletin Board. See
"Special Factors--Certain Effects of the Merger," page 43.
o The proposed merger involves a potential conflict of interest because
Messrs. Lopez and Peck, the organizers and owners of SKI, are both members
of our now two member board of directors. As a result, the board formed a
special committee, consisting of Stanford E. Clark, the sole independent
director, for the purposes of considering, negotiating and making a
recommendation regarding the proposed merger. See "Special
Factors--Background of the Merger," page 16.
o In August 2004, we retained the services of Ehrhardt Keefe Steiner &
Hottman PC ("EKS&H"), as the financial advisor to the special committee, to
give it an opinion as to the fairness of a proposed transaction to our
stockholders. See "Special Factors--Opinion of Financial Advisor to the
Special Committee," page 29.
o On November 15, 2004, EKS&H rendered its opinion to the special committee
that, as of that date and subject to the assumptions, qualifications and
limitations set forth in its opinion, the $0.32 per share cash merger
consideration to be paid in the merger was fair, from a financial point of
view, to the holders of Westan common stock other than Messrs. Lopez and
Peck and their affiliates. The full extent of EKS&H's opinion is attached
to this proxy statement as Annex B. The summary of EKS&H's opinion which is
located in the section of this proxy statement entitled "Special
Factors--Opinion of Financial Advisor to the Special Committee," page 29,
is qualified by reference to the full text of the opinion, which we urge
you to read carefully in its entirety. The opinion was directed to Westan's
special committee and does not constitute a recommendation as to how any
holder of our common stock should vote on the merger. See "Special
Factors--Opinion of Financial Advisor to the Special Committee," page 29.
o The special committee determined that the merger is fair to and in the best
interests of our common stockholders, other than Messrs. Lopez and Peck and
their affiliates, and has recommended to our board that the merger should
be completed under the terms of the merger agreement. See "Special
Factors--Recommendation of the Special Committee and Board of Directors,"
page 21.
o Acting on the recommendation of the special committee, our board of
directors has approved and adopted the merger agreement and authorized the
merger and recommends that you vote FOR approval and adoption of the merger
agreement and the merger. See "Special Factors--Recommendation of the
Special Committee and Board of Directors," page 21.
o The merger agreement may be terminated at any time before the completion of
the merger by mutual written consent of both SKI and us or by either party
in certain instances. See "The Merger Agreement--Termination," page 58.
o If the merger agreement is terminated by SKI in certain circumstances,
including in the event that we breach the "no shop" provision of the merger
agreement, or the board withdraws its recommendation of the merger or
recommends an alternative transaction to the merger, then Westan will be
obligated to pay SKI a termination or "break-up" fee in the amount of
$50,000. See "The Merger Agreement--Termination," page 58.
o If you choose not to vote in favor of the merger, Wyoming law entitles you
to a judicial appraisal of the fair value of your shares of common stock.
There are procedural requirements that you will have to follow if you
decide to pursue a judicial appraisal. Unless such expenses are assessed
against us by the court, we will not pay any expenses that you might incur
in this regard. See "Dissenters' Rights of Appraisal," page 62.
o Your receipt of cash as a result of the merger will generally be a taxable
transaction to you. See "Special Factors--Material Federal Income Tax
Consequences of the Merger," page 45.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What is the proposed transaction?
A: SKI will acquire Westan by merging LZ Acquisition, Inc., a wholly-owned
subsidiary of SKI, into Westan. As a result of the merger, Westan will
become a wholly-owned subsidiary of SKI.
Q: Who are SKI and LZ Acquisition?
A: SKI and LZ Acquisition were formed in connection with the proposed merger
by Manuel B. Lopez and James M. Peck, two directors and officers of Westan.
Messrs. Lopez and Peck and certain of their affiliated trusts presently own
approximately 54% of Westan's outstanding common stock which will be
transferred to SKI simultaneously with the merger. SKI is referred to
herein as the "Buyer" and depending on the context, Messrs. Lopez and Peck
are sometimes identified as the natural persons representing the Buyer.
Collectively, SKI and these persons are referred to as the Buyers.
Q: What will I receive in the merger?
A: Stockholders of Westan, other than the Buyers and stockholders who dissent
and seek appraisal of the fair value of their shares, will be entitled to
receive $0.32 in cash, without interest, for each share of Westan's common
stock that they own.
Q: Why is the board of directors recommending that I vote for the merger at
this time?
A: The board believes that it is in the best interests of Westan's
unaffiliated stockholders to accept and the opportunity presented by the
Buyers at this time to sell their shares at a substantial premium over the
market price of Westan's shares in recent years. Approval of the board of
directors was unanimous, although Messrs. Lopez and Peck are not
independent for purposes of the merger. To review the background and
reasons for the merger in greater detail, see pages 21 to 27.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as quickly as possible. If the merger
agreement is approved and the other conditions to the merger are satisfied,
we expect to complete the merger in early 2005.
Q: What are the income tax consequences of the merger to me?
A: The merger will be a taxable transaction to you for federal income tax
purposes. To review a brief description of the federal income tax
consequences to stockholders, see pages 45 to 49.
Q: What conflicts of interest does the board of directors have in recommending
approval of the merger agreement?
A: Both of the members of our board of directors, Manuel B. Lopez and James M.
Peck have a conflict of interest in recommending approval of the merger
agreement because they are beneficial owners of SKI. In light of the
conflicting interests of Messrs. Lopez and Peck with Westan's unaffiliated
stockholders as described immediately above, the board of directors formed
a special committee consisting of the single independent director to
evaluate the proposed merger. To review the factors considered by the
special committee and the board of directors in approving the merger
agreement, see pages 23 to 27.
Q: What did the board of directors do to make sure the price per share I will
receive in the proposed merger is fair to me?
A: The board of directors formed a special committee which consisted of its
single independent director to negotiate the terms of the merger agreement
with the Buyers. The special committee independently selected and retained
separate legal and financial advisors to assist in this process, and
received an opinion from its financial advisor, on which the special
committee relied, stating that based on and subject to the limitations,
assumptions and qualifications stated in that opinion, as of November 15,
2004, the $0.32 per share the unaffiliated stockholders of Westan will
receive in the proposed merger was fair to those stockholders from a
financial point of view.
Q: What are the disadvantages to me of merging Westan with LZ Acquisition?
A: Following the merger, you will no longer benefit from any earnings,
expansion, diversification or growth of Westan.
Q: What vote is required to approve the merger agreement?
A: The holders of a majority of all outstanding shares of Westan's common
stock must vote to approve the merger agreement. The Buyers currently own
approximately 54% of Westan's common stock and have agreed to vote their
shares in accordance with the majority of shares cast for or against the
proposed merger by unaffiliated stockholders voting in person or by proxy
at the special meeting.
Q: What do I need to do now?
A: Please mark your vote on, sign, date and mail your proxy card in the
enclosed return envelope as soon as possible, so that your shares may be
represented at the special meeting.
Q: What rights do I have if I oppose the merger?
A: Stockholders who oppose the merger may dissent and seek judicial appraisal
of the fair value of their shares (which could be more or less than $0.32
per share), but only if they comply with all of the procedures under
Wyoming law explained on pages 62 to 65 and in Annex C to this proxy
statement. It is a condition to the Buyer's obligation to consummate the
merger that holders of not more than 5% of the common stock exercise their
dissenters' rights.
Q: Who can vote on the merger?
A: All Westan stockholders of record as of the close of business on January 7,
2005 will be entitled to notice of, and to vote at, the special meeting to
approve the merger agreement and the transactions contemplated thereby.
Q: Should I send in my stock certificates right now?
A: No. After the merger is completed, we will send you a transmittal form and
written instructions for exchanging your share certificates for cash.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. Just send a written revocation or another signed proxy card with a
later date to Computershare Trust Company, Inc., Westan's transfer agent,
before the special meeting or simply attend the special meeting and vote in
person if you voted your proxy directly. If your shares are held in "street
name," you should contact your broker to obtain instructions as to how to
cancel or change your vote. Computershare's address is Post Office Box
1596, Denver, Colorado 80201.
SUMMARY
The following summarizes the material aspects of the proposed merger and
highlights selected information contained elsewhere in this proxy statement.
This summary may not contain all of the information that is important to you,
and is qualified in its entirety by the more detailed information contained
elsewhere in this proxy statement, including the annexes to it, and in the
documents incorporated by reference. To understand the proposed merger fully and
for a more complete description of the terms of the proposed merger, you should
carefully read this entire proxy statement, including the annexes to it, and the
documents incorporated by reference.
Principals of the Buyers
SKI, is a limited liability company organized by two of our directors,
Manuel B. Lopez and James M. Peck, to acquire the ownership interests of our
unaffiliated stockholders. Mr. Lopez proposed the merger transaction to Westan's
board of directors and negotiated all aspects of the transaction on behalf of
SKI and LZ Acquisition. For more information in this regard, see "The Parties"
below.
The Special Meeting (see page 13)
A special meeting of stockholders of Westan will be held at 10:00 a.m.,
Mountain Time, on Friday, February 25, 2005 at the Snow King Resort, 400 East
Snow King Avenue, Jackson, Wyoming 83001. At the special meeting, you will be
asked to consider and vote on a proposal to approve the merger agreement
described in this proxy statement.
Only Westan stockholders of record at the close of business on the record
date, January 7, 2005, will be entitled to notice of, and to vote at, the
special meeting. On the record date, there were 9,963,015 shares of common stock
outstanding and entitled to one vote per share at the special meeting. Our
shares are held by approximately 3,500 stockholders of record, although there
are a number of other beneficial owners of our common stock.
Wyoming law requires that the holders of a majority of the outstanding
shares of Westan common stock vote to approve the merger agreement. The Buyers
currently own 5,438,213 shares of Westan common stock, representing
approximately 54% of the outstanding shares of common stock as of the record
date and have agreed to vote their shares in accordance with the majority of
shares cast for or against the proposed transaction by unaffiliated stockholders
voting in person or by proxy at the special meeting.
Special Factors (see page 16)
There are a number of factors that you should consider in connection with
deciding how to vote your shares. They include:
o the background of the merger;
o the factors considered by the special committee and the board of directors;
o the opinion of the financial advisor to the special committee;
o the recommendation of the special committee and the board of directors;
o the purpose and effect of the merger; and
o the interests of certain persons in the merger.
These factors, in addition to several other factors to be considered in
connection with the merger, are described in this proxy statement. For a
detailed discussion of each of these factors, see pages 16 to 29.
Reasons for Engaging in the Transaction
The sole reason for engaging in the merger, from your perspective, is to
provide you the opportunity to receive a cash price for your shares at a
significant premium over the market price at which our common stock traded
before the November 16, 2004 announcement of the Buyers' merger proposal.
Q: What other matters will be voted on at the special meeting?
A: We do not expect that any other matter will be voted on at the special
meeting.
Q: Who can help answer my questions?
A: If you have more questions about the merger or would like additional copies
of this proxy statement, you should contact Manuel Lopez, President of
Westan at (307) 734-3003.
Q: What happens if I do not return a proxy card?
A: You may attend the meeting in person and vote your shares. If you do not
attend and do not return a proxy, your shares will not be counted in
determining whether a quorum is present for the meeting or for any other
purpose. Since two-thirds of Westan's outstanding common shares are
required to approve the merger, your failure to return an executed proxy
card or to vote in person at the special meeting or by abstaining from the
vote will, in effect, constitute a vote against approval of the merger.
Similarly, broker non-votes will have the same effect as a vote against
approval of the merger.
Recommendation of the Special Committee and Board of Directors (see page 21)
The special committee of our board of directors, consisting of one
independent director, was formed to consider and evaluate the merger. The
special committee approved the merger agreement and determined that the merger
is in the best interests of Westan and its unaffiliated stockholders. The
special committee recommended to our board of directors that the board determine
that the merger is advisable and in the best interests of Westan and our
unaffiliated stockholders and that the merger consideration is fair to our
unaffiliated stockholders. The special committee also recommended that the board
of directors approve the merger agreement and that the board of directors
determine to submit the merger to our stockholders and recommend that our
stockholders vote to adopt the merger agreement. Even though two of three
members of our board of directors are not independent with respect to the
proposed merger, our board of directors determined that the merger is advisable
and in the best interests of Westan and our unaffiliated stockholders and that
merger consideration is fair to Westan and our unaffiliated stockholders.
Accordingly, our board of directors approved the merger agreement and recommends
that you vote FOR the proposal to adopt the merger agreement.
Opinion of Ehrhardt Keefe Steiner & Hottman PC (see pages 29 to 39) and Annex B
In connection with the merger, the special committee considered the opinion
of the special committee's financial advisor, Ehrhardt Keefe Steiner & Hottman
PC, as to the fairness of the merger consideration to our unaffiliated
stockholders from a financial point of view. EKS&H delivered its opinion to the
special committee on November 15, 2004 that, as of that date and based on and
subject to the assumptions, limitations and qualifications stated in the
opinion, the consideration to be received by our unaffiliated stockholders
pursuant to the merger agreement was fair to those stockholders from a financial
point of view. EKS&H's opinion was provided for the information of the special
committee and does not constitute a recommendation to any stockholder with
respect to any matter relating to the proposed merger. EKS&H's full opinion is
attached as Annex B.
Westan's Position as to the Fairness of the Merger (see page 21)
We believe the merger and the merger consideration to be fair to our
unaffiliated stockholders. In reaching this determination we considered a number
of factors, including:
o the fact that the merger consideration of $0.32 per share represents a
substantial premium over the $0.12 price of our common stock on the last
full trading day prior to our November 16, 2004 announcement of the offer
by Buyers and substantially exceeds the historical market prices of
Westan's common stock for the last three years;
o the fact that Westan's common stock trades only sporadically in the
over-the-counter market. No established trading market for Westan's common
stock currently exists. The merger consideration of $0.32 per share
represents an opportunity for unaffiliated stockholders to achieve
liquidity;
o the fact that EKS&H delivered an opinion to the special committee to the
effect that as of November 15, 2004, and based on and subject to the
limitations, assumptions and qualifications contained in that opinion, the
merger consideration to be received by our unaffiliated stockholders in the
merger was fair to those stockholders from a financial point of view;
o the fact that the purchase price was proposed after EKS&H had provided its
valuation analyses, and that no specific guidance was provided to EKS&H
with respect to expectations of value;
o the fact that the merger was approved and recommended by the special
committee following its negotiations with Manuel Lopez on behalf of the
Buyers; and
o Westan's board of directors determined that the transaction would be
structured with a majority of the minority approval provisions which
obligates the Buyers to vote for or against the proposal in accordance with
the majority vote of Westan's unaffiliated stockholders.
Interests of our Directors and Executive Officers in the Merger (see page 42)
In considering the recommendation of our board of directors with respect to
the merger agreement and the transactions contemplated thereby, you should be
aware that, in addition to the matters discussed above, two members of our board
of directors have interests in the merger that are in addition to or different
from the interests of our stockholders generally and that such interests create
potential conflicts of interest
Messrs. Lopez and Peck, two of our directors and executive officers, own
all of the membership interests of the Buyer, SKI. Although they will receive no
cash in the merger, they will share in benefits accruing to the Buyer's full
ownership of Westan and its assets.
Indemnification arrangements for our present and former directors and
officers will be continued by the surviving corporation after the merger.
Primary Benefits and Detriments to Unaffiliated Stockholders (see page 28)
Our unaffiliated stockholders will receive a cash payment for their shares
at a premium above the market price of our shares prior to announcement of the
merger proposal and for the last several years. After the merger, our
unaffiliated stockholders will no longer have an interest in Westan or any of
its future earnings growth or increase in value.
Plans for Westan After the Merger
The Buyers expect that after the Merger, Westan's business will continue to
be operated substantially as it is currently being conducted. Neither the Buyers
nor Westan has any definite material plans or proposals that would take place
after the Merger. However, after the Merger Westan may consider possibilities
and alternatives with respect to its operations and development activities. In
addition, the Buyers intend to suspend Westan's obligation to file reports under
Section 13 of the Exchange Act, as a result of which Westan would no longer be
publicly traded on the over-the-counter market.
The Merger Agreement (see page 50).
The Merger Consideration (see page 50)
If the merger is completed, you will be entitled to receive $0.32 per share
in cash for each share of Westan common stock you own, without interest.
Conditions to the Merger (see page 52)
Certain nonwaivable conditions must be satisfied before any of Westan, SKI
or LZ Acquisition is obligated to complete the merger, including the following:
o the merger must be approved by the holders of a majority of the outstanding
shares of common stock of Westan; and
o there must be no legal or judicial restraint or prohibition preventing
completion of the merger;
Other conditions which must be satisfied unless waived by SKI include:
o the absence of any occurrence which would reasonably be expected to result
in a material adverse effect on Westan; and
o holders of not more than 5% of Westan's common stock shall have dissented
from the merger in accordance with the Wyoming Business Corporation Act.
Finally, other conditions, including compliance with representations,
warranties and covenants, must be satisfied by Westan or waived by SKI and LZ
Acquisition before either SKI or LZ Acquisition is obligated to complete the
merger. Similarly, compliance with additional representations, warranties and
covenants must be satisfied by SKI and LZ Acquisition or waived by Westan before
Westan is obligated to complete the merger. No party anticipates waiving any
condition to the merger. Proxies would not be resolicited from stockholders upon
the waiver of any of representation, warranty or covenant unless the waiver
would be material to the voting decision of stockholders.
Termination of the Merger Agreement (see page 58)
Westan and SKI may agree at any time (including any time after the special
meeting but before consummation of the merger) to terminate the merger
agreement. In addition, the merger agreement may be terminated:
o by either Westan or SKI if the merger is not completed by March 31, 2005
unless such date is extended by the parties;
o by either Westan or SKI if a court or governmental agency or authority
issues a non-appealable final ruling permanently restraining or prohibiting
the merger or if a legal action is pending challenging the merger;
o by either Westan or SKI if the merger agreement is not adopted by a
majority of all outstanding shares of Westan or by SKI if holders of more
than 5% of Westan's common stock dissent from the merger;
o by either Westan or SKI, if (x) there has been a breach by the other party
of any representation or warranty contained in the merger agreement, or (y)
there has been a breach of any of the covenants or agreements set forth in
the merger agreement on the part of the other party;
o by Westan if, prior to receiving stockholder approval, Westan receives and
resolves to accept a proposal superior to the merger and pays SKI the fee
described below under "Fees and Expenses"; or
o by SKI, if the board of directors of Westan shall have failed to recommend,
or shall have withdrawn, modified or amended in any material respect its
approval or recommendation of, the merger, shall have recommended a
different acquisition proposal, shall have resolved to accept a proposal it
deems superior to the proposed merger, or shall have recommended to
Westan's stockholders that they tender their shares in an offer commenced
by a third party.
Acquisition Proposals (see page 23)
The merger agreement provides that neither Westan nor any of its
representatives may take any action to initiate, solicit, negotiate, encourage
or provide confidential information to facilitate any proposal competing with
the merger except as described below.
Westan may, prior to receipt of stockholder approval of the merger and in
response to an unsolicited bona fide written offer which Westan's board of
directors determines, in good faith and after consultation with the independent
financial advisor to the special committee, would reasonably be expected to
result in a transaction more favorable to Westan's unaffiliated stockholders
than the merger:
o furnish confidential or non-public information to, and negotiate with a
potential acquirer;
o terminate the merger agreement; and
o enter into another proposal which Westan's board of directors, in good
faith, has determined is reasonably likely to be consummated.
We have agreed to keep SKI informed of the status of any other proposals
and negotiations.
Fees and Expenses (see page 59)
Each party will pay the costs and expenses incurred by it in connection
with the merger.
Westan will pay SKI a fee of $50,000 if:
o prior to obtaining stockholder approval, Westan determines to accept a
proposal superior to the merger and terminates the merger agreement; or
o Westan's board of directors fails to recommend the merger proposal, or
withdraws, modifies or amends its recommendation or recommends a competing
proposal; or
o prior to the special meeting a competing proposal is announced,
stockholders do not approve the merger proposal and the announced proposal
is consummated within 12 months after termination of the merger agreement.
SKI will release Westan from loans made to Westan in the approximate amount of
$100,000 if SKI:
o fails to consummate the merger by March 31, 2005, unless extended by the
parties, if the conditions to SKI's obligation to close the merger have
been satisfied (other than such conditions not satisfied because of a
breach of a representation, warranty or covenant of SKI or LZ Acquisition
under the merger agreement).
Any payment by Westan or SKI of the applicable fee or forgiveness described
above will constitute the other party's sole remedy for the circumstances giving
rise to that payment or forgiveness (see page 44).
Dissenters' Rights of Appraisal (see page 62)
Any stockholder who does not wish to accept the $0.32 per share cash
consideration in the merger has the right under Wyoming law to have his, her or
its shares appraised by a Wyoming state district court. This "right of
appraisal" is subject to a number of restrictions and technical requirements.
Generally, in order to exercise appraisal rights, among other things:
o you must not vote in favor of the merger agreement; and
o you must make a written demand for appraisal in compliance with Wyoming law
before the vote on the merger agreement.
Merely voting against the merger agreement will not preserve your right of
appraisal under Wyoming law. Annex C to this proxy statement contains the
Wyoming statute relating to your right of appraisal. Failure to follow all of
the steps required by this statute will result in the loss of your right of
appraisal.
Financing of the Merger (see page 44)
SKI will pay the cash consideration to Westan's unaffiliated stockholders
from funds to be obtained through borrowings from a bank.
Selected Consolidated Financial Data of Westan
The following table sets forth selected consolidated financial data for
Westan and its subsidiaries as of and for each of the five years in the period
ended December 31, 2003, and as of and for the nine months ended September 30,
2003 and 2004. No pro forma data giving effect to the proposed merger is
provided because Westan does not believe such information is material to
stockholders in evaluating the proposed merger since (1) the proposed merger
consideration is all cash and (2) if the proposed merger is completed, the
common stock of Westan would cease to be publicly traded.
The financial information for Westan as of and for each of the five years
in the period ended December 31, 2003 has been derived from the consolidated
financial statements of Westan which have been audited by our independent
certified public accountants. The financial information for Westan as of and for
the nine months ended September 30, 2003 and 2004 has been derived from the
unaudited consolidated financial statements of Westan which, in the opinion of
Westan's management, include all adjustments necessary for a fair presentation
of Westan's financial position and results of operations. All such adjustments
are of a normal recurring nature. The results of operations for the nine months
ended September 30, 2004 are not necessarily indicative of the results that may
be achieved for the full year, and cannot be used to indicate financial
performance for the entire year. The following financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and the Consolidated Financial Statements of
Westan and the notes thereto included in Westan's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 2003, and Quarterly Report on Form 10-Q
for the period ended September 30, 2004 which are enclosed with this proxy
statement and incorporated by reference. Also please refer to "Available
Information."
As of or for the
Nine Months Ended
As of or for the Year Ended September 30,
---------------------------- -------------
December 31,
------------
1999 2000 2001 2002 2003 2003 2004
----------- ----------- ----------- ----------- ----------- ----------- -----------
Statements of Operations Data:
Gross revenues $ 8,877,837 $10,017,284 $ 9,600,115 $ 9,803,306 $10,260,678 $ 8,762,208 $ 8,938,611
Nonoperating revenues 0 0 0 1,496,455 0 0 0
Total Revenues 8,660,995 10,017,284 9,600,115 11,299,761 10,260,678 8,762,208 8,938,611
Costs and expenses 9,585,701 10,254,637 10,136,435 10,221,836 10,722,651 8,199,900 8,816,970
Income (Loss) before
taxes (707,864) (237,353) (536,320) 1,077,925 (461,973) 562,218 121,641
Provision for income
taxes 0 0 0 0 0 0 0
Minority interest 162,821 52,708 119,495 263,349 101,759 137,787 38,930
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income $ (545,043) $ (184,645) $ (416,825) $ 814,576 $ (360,214) $ 424,431 82,711
=========== =========== =========== =========== =========== =========== ===========
Income (Loss) per
common share - basic
and diluted $ (0.06) $ (0.02) $ (0.04) $ 0.08 $ (0.04) $ 0.04 $ 0.01
=========== =========== =========== =========== =========== =========== ===========
Fixed Charge:
Coverage ratio 0.266 0.699 0.336 2.934 0.050 2.685 1.341
One/One Coverage:
Ratio deficiency $ 707,864 $ 237,353 $ 536,320 $ 0 $ 461,973 $ 0 $ 0
Balance Sheet Data:
Current assets $ 840,423 $ 883,234 $ 836,198 $ 967,961 $ 896,026 N-A $ 1,201,520
Property and equipment 9,374,111 9,487,802 9,254,166 8,908,204 9,016,325 9,001,879
Other assets 638,608 612,244 513,643 465,949 497,873 1,341,658
----------- ----------- ----------- ----------- ----------- -----------
Total assets $10,853,142 $10,983,280 $10,604,007 $10,342,114 $10,410,224 $11,545,057
=========== =========== =========== =========== =========== ===========
Current liabilities $ 2,010,700 $ 1,808,133 $ 2,208,538 $ 2,374,492 $ 3,112,676 $ 2,088,266
Long term liabilities 8,402,327 8,972,385 8,729,127 7,223,356 7,015,255 9,052,859
Minority interest in
subsidiary 2,071,635 2,018,927 1,899,432 2,162,780 2,061,021 2,100,367
Shareholders' equity
(deficit) (1,631,520) (1,816,165) (2,233,090) (1,418,514) (1,778,728) (1,696,435)
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
Shareholders' equity
(deficit) $10,853,142 $10,983,280 $10,604,007 $10,342,114 $10,410,224 $11,545,057
=========== =========== =========== =========== =========== ===========
Book value per common
share (deficit) $ (0.18) $ (0.17)
=========== ===========
THE PARTIES
Western Standard Corporation
Westan was organized as a Wyoming corporation in 1955 for the purpose of
engaging in the natural resources business, particularly uranium and oil and gas
exploration. On November 2, 2004, we sold our minor interests in our remaining
oil and gas leases, which had been providing only a minimal amount of revenue.
These properties were sold to an unaffiliated oil and gas company for $65,000.
In 1971 and 1972 we acquired real estate, including the Snow King ski area
in Jackson, Wyoming. Construction of a 204 room hotel and convention center on
the property began in 1973, became operational in 1976 and was completed in
1977. In 1981, 50% of the Snow King property was sold to Pick-Jackson Corp. and
the remaining 50% was transferred to two partnerships.
In 1992 Snow King Resort, Inc. ("SKRI") reacquired the land, ski area and
the hotel. We own approximately 76% of the voting power of SKRI and
approximately 39% of its common stock. SKRI's operations have been consolidated
in our financial statements. We have essentially no operations or business
except for our ownership interest in SKRI.
Our properties, which we call the Snow King Resort, consist of
approximately 52 acres of fee land and 404 acres of land leased from the United
States Forest Service (370 acres) and the Town of Jackson, Wyoming (34 acres).
We operate a hotel, ski area and conduct other recreational activities on these
properties. Our resort is located about six blocks from the Jackson Town Square
and about 10 miles from the Jackson Hole Airport.
Our address is 400 East Snow King Avenue, Post Office Box 1846, Jackson,
Wyoming 83001 and our telephone number is (307) 734-3177.
SKI and LZ Acquisition, Inc.
Snow King Interests LLC ("SKI") is a Wyoming limited liability company
organized by Manuel B. Lopez and James M. Peck. SKI was formed to own and
conduct the business of Westan, which will be a wholly-owned subsidiary of SKI
following the merger. LZ Acquisition, Inc. is a Wyoming corporation and owned by
SKI. LZ Acquisition, Inc. was organized for the sole purpose of effecting the
merger and will be merged with and into Westan. The address of both SKI and LZ
Acquisition is 4950 Beaver Pond Drive, Box 1131, Wilson, Wyoming 83014.
INFORMATION CONCERNING THE SPECIAL MEETING
Time, Place and Date
This proxy statement is furnished in connection with the solicitation by
the board of directors of proxies from Westan stockholders for use at a special
meeting of stockholders to be held at 10:00 a.m., Mountain Time, on Friday,
February 25, 2005, at the Snow King Resort, 400 East Snow King Avenue, Jackson,
Wyoming 83001, or at any adjournment or postponement thereof, pursuant to the
enclosed Notice of Special Meeting of Stockholders.
Purpose of the Special Meeting
At the special meeting, the stockholders of Westan will be asked to
consider and vote upon the approval of the merger agreement and the transactions
contemplated thereby. A copy of the merger agreement is attached to this proxy
statement as Annex A. Pursuant to the merger agreement, each outstanding share
of common stock other than (1) common stock held by Messrs. Lopez and Peck and
their affiliates, SKI or LZ Acquisition, or (2) common stock held by
stockholders who perfect their rights under Wyoming law to dissent from the
merger and seek a judicial appraisal of the fair value of their shares will be
converted into $0.32 per share, without interest.
Based on the factors described below under "Special Factors--Recommendation
of the Special Committee and Board of Directors" and on the unanimous
recommendation of its special committee, the board of directors of Westan
recommends that stockholders vote "FOR" approval of the merger agreement and the
transactions contemplated thereby.
Record Date; Voting at the Meeting; Quorum
The board has fixed the close of business on January 7, 2005 as the record
date for the special meeting. Only stockholders of record as of the close of
business on the record date will be entitled to notice of and to vote at the
special meeting.
As of the close of business on the record date, Westan had outstanding
9,963,015 shares of its common stock, held of record by approximately 3,500
registered holders, although Westan believes it has other beneficial owners of
its common stock. Holders of the common stock are entitled to one vote per
share. The presence in person or by proxy of the holders of not less than
one-half of the voting power of the outstanding common stock entitled to vote at
the special meeting constitutes a quorum. Broker non-votes and shares present or
represented but as to which a stockholder abstains from voting will be included
in determining whether there is a quorum at the special meeting.
Required Vote
Under Wyoming law, the merger agreement must be approved by the affirmative
vote of the holders of a majority of the voting power of the outstanding shares
of common stock. The affirmative vote of 4,981,508 shares of common stock will
be necessary to satisfy this voting requirement. Messrs. Lopez and Peck and
their affiliates have agreed to vote their shares in accordance with the
majority of shares cast for or against the proposed transaction by unaffiliated
stockholders voting in person or by proxy at the special meeting. SKI and
Messrs. Lopez and Peck, and their affiliates, currently own 5,438,213 shares of
common stock in the aggregate, representing approximately 54% of our outstanding
shares of common stock as of the Record Date.
Because Westan's merger agreement must be approved by the affirmative vote
of the holders of a majority of the voting power of the outstanding shares of
common stock, failure to return an executed proxy card or to vote in person at
the special meeting or abstaining from the vote will constitute, in effect, a
vote against approval of the merger agreement and the transactions contemplated
thereby. Similarly, broker non-votes will have the same effect as a vote against
approval of the merger agreement and the transactions contemplated thereby.
Voting and Revocation of Proxies
The enclosed proxy card is solicited on behalf of Westan's board of
directors. The giving of a proxy does not preclude the right to vote in person
should any stockholder giving the proxy so desire. Stockholders have an
unconditional right to revoke their proxy at any time prior to its exercise,
either by filing with Westan's secretary at Westan's principal executive offices
a written revocation or a duly executed proxy bearing a later date or by voting
in person at the special meeting. Attendance at the special meeting without
casting a ballot will not, by itself, constitute revocation of a proxy. Any
written notice revoking a proxy should be sent to Computershare Trust Company,
Inc., Post Office Box 1596, Denver, Colorado 80201.
Action to be Taken at the Special Meeting
All shares of common stock represented at the special meeting by properly
executed proxies received prior to or at the special meeting, unless previously
revoked, will be voted at the special meeting in accordance with the
instructions on the proxies. Unless contrary instructions are indicated, proxies
will be voted FOR the approval of the merger agreement and the transactions
contemplated thereby. As explained below in the section entitled "Dissenters'
Rights of Appraisal," a vote in favor of the merger agreement means that the
stockholder owning those shares will not have the right to dissent and seek
judicial appraisal of the fair value of such stockholder's shares. Westan does
not know of any matters, other than as described in the Notice of Special
Meeting of Stockholders, which are to come before the special meeting. If any
other matters are properly presented at the special meeting for action, the
persons named in the enclosed proxy card and acting thereunder generally will
have discretion to vote on such matters in accordance with their best judgment.
Pursuant to our bylaws, any adjournment of the special meeting may be made
without notice, other than by an announcement made at the special meeting, by
approval of the holders of a majority of the shares of Westan's common stock
present in person or represented by proxy at the special meeting, whether or not
a quorum exists. The proposal granting to the proxies the authority to vote to
adjourn the special meeting to satisfy conditions to the closing of the merger
agreement must be approved and adopted by the holders of a majority of the
shares of our common stock present in person or represented by proxy at the
special meeting. Although it is not currently anticipated, the most likely
reason for adjournment would be to solicit additional votes to approve and adopt
the merger agreement and to authorize the merger.
Proxy Solicitation
Westan is requesting that banks, brokers and other custodians, nominees and
fiduciaries forward copies of the proxy material to their principals and request
authority for the execution of proxies. Westan may reimburse such persons for
their expenses in so doing. In addition to the solicitation of proxies by mail,
the directors, officers and employees of Westan and its subsidiaries may,
without receiving any additional compensation, solicit proxies by telephone,
telefax, telegram or in person.
No person is authorized to give any information or make any representation
not contained in this proxy statement, and if given or made, such information or
representation should not be relied upon as having been authorized.
Westan stockholders should not send any certificates representing shares of
common stock with their proxy card. If the merger is consummated, the procedure
for the exchange of certificates representing shares of common stock will be as
set forth in this proxy statement. See "The Merger Agreement--The Exchange Fund;
Payment for Shares of Common Stock" and "The Merger Agreement--Transfers of
Common Stock."
SPECIAL FACTORS
Background of the Merger
As discussed above, Westan developed and built the Snow King Resort hotel
and convention center facilities and has operated the resort, either alone or
with partners, during the last 27 years. Westan owns approximately 76% of the
voting common stock and approximately 39% of the total stock (including common
and preferred) of Snow King Resort, Inc. ("SKRI") which in turn owns all of the
resort's operating assets and approximately 52 acres of fee land. SKRI's
operations over the years have largely been unprofitable, except in the year
2002 when the sale of real estate lots turned an operating loss into net income
for that year. See Westan's Annual Report on form 10-KSB for the year ended
December 31, 2003 and its Quarterly Report on Form 10-QSB for the nine months
ended September 30, 2004, both included with this proxy statement, for further
discussion of Westan's business and results of operations.
Given its history of losses and sizeable debt burden, Westan sought to
attract a buyer for the SKRI assets in 2001. In the summer of 2001, Westan
engaged the real estate brokerage firm of Sonnenblick-Goldman Company to prepare
a presentation which included SKRI's assets and approximately 8 acres of fee
land owned by others contiguous to or near the Snow King resort. Westan believed
the larger package might offer a more attractive development opportunity for a
large, well capitalized company. On November 13, 2001, Sonnenblick-Goldman
summarized the results of its marketing efforts in a letter to Westan: three
persons inspected the property, one person submitted a letter of intent subject
to several conditions but covering only a part of the property, seven persons
submitted letters indicating an interest (two of whom made verbal offers) and 74
persons declined the opportunity. The one person submitting a one page letter of
intent indicated an offer of $11 million for the fee simple interest and the
leasehold interest in the events center owned by the Town of Jackson. A verbal
offer of $9 million from another party for the same fee and leasehold properties
was relayed to Westan by Sonnenblick-Goldman. The other parties submitting
letters of interest suggested various things: a management agreement
arrangement, a joint venture, a vacation time share development, and a potential
debt or equity investment in a buyer or in a joint venture. There were no offers
for the entire package as presented by Sonnenblick-Goldman. After careful
consideration by Westan's board of each indication of interest, and some
follow-up by Sonnenblick-Goldman, it was determined that the consideration
offered or discussed was inadequate and, after payment of debt and other
expenses, would leave Westan stockholders with little or nothing. Also, the
board determined that the other proposals discussed involving management
agreements, joint ventures and proposals involving only select portions of the
properties would not enhance Westan's stockholders' values.
Given the results of Sonnenblick-Goldman's marketing efforts, the fact that
no indications of interest have been received since, and the fact that Westan
owns only 39% of the common stock of the operating entity, it concluded that it
had few, if any, viable strategic alternatives to enhance stockholder's value.
In 2003, Stanford E. Clark, President of Westan until January 6, 2004,
turned 86 years of age. He indicated to Manuel B. Lopez, President of SKRI, that
he wished to retire and sell his stake in Westan which consisted of 1,847,018
shares or approximately 18.5% of Westan's outstanding common stock. Several
months of negotiations concluded in November 2003, when Mr. Lopez agreed to buy
Mr. Clark's Westan shares for approximately $535,000 or $0.29 per share.
Mr. Lopez then began to consider ways he might arrange for the purchase of
Westan shares held by unaffiliated stockholders. He approached Mr. Peck, a
stockholder and fellow director of Westan. Mr. Lopez began this consideration
because he believed that if fiduciary duties to public stockholders were
eliminated, conflicts of interest which would otherwise hamper or preclude
future conflicted transactions and master development of SKRI's properties, and
perhaps smaller land positions owned in part by him and by unaffiliated persons,
would be significantly reduced. Further, he believed that he had the financial
ability to purchase the Westan shares held by unaffiliated stockholders.
Finally, Westan's lenders were unwilling to continue to extend credit to Westan
and SKRI given their precarious financial position and operational issues
without personal guarantees of Messrs. Lopez, Peck and others. At present, Mr.
Lopez and his wife are guarantors of $6,425,000 in mortgage, land,
infrastructure and construction loans to SKRI. Mr. Lopez is increasingly
reluctant to continue to provide personal guarantees to SKRI, to benefit Westan,
a publicly-held company.
In July, 2004, Mr. Lopez formed SKI and employed legal counsel to consider
the proposed purchase of shares from Westan's unaffiliated stockholders.
Westan's board of directors formed a special committee consisting of Mr. Clark,
its only independent director. Mr. Clark engaged legal counsel and Ehrhardt
Keefe Steiner & Hottman PC ("EKS&H") an accounting and financial advisory firm
to assist in his efforts to obtain a fair value for the shares of Westan held by
unaffiliated stockholders. The financial advisor engaged by the special
committee had begun to conduct preliminary analyses in July 2004 when two of its
principals visited the Jackson, Wyoming area and the Snow King Resort. The
principals met with Mr. Lopez who showed them the Snow King and contiguous
properties and they talked in general terms about hotel operations, local
development and related matters. No discussions with regard to values or
valuations occurred. Again, in August 2004 a principal and an associate of EKS&H
visited Jackson, Wyoming to obtain a more in-depth understanding of SKRI, its
operations and properties. During this visit, EKS&H retained Rocky Mountain
Appraisals, a well known local real estate appraisal firm to assist it in its
various analyses. There were no discussions as to value or valuation of SKRI's
properties. During this period, a form of Agreement and Plan of Merger which was
prepared by SKI and its counsel and presented to the special committee and its
counsel and financial advisor. There was no price mentioned in the draft merger
agreement.
A conference was held on September 10, 2004 at the offices of EKS&H.
Attending were representatives of that firm, Mr. Lopez and legal counsel
representing SKI and legal counsel representing the special committee. A general
discussion ensued in which Mr. Lopez explained the capitalization of SKRI, the
relative rights of the Class A and Class B common stockholders and the Class A
preferred stockholders. Westan owns 12,000 Class B common shares which represent
approximately 76% of the voting power of SKRI and approximately 39% of its
equity ownership. Mr. Lopez noted that Westan's 39% ownership of SKRI would be
critical in the valuation of Westan's shares. EKS&H then discussed the
methodology it intended to use in preparation of its valuation report. That firm
advised the group that it believed that a sales or liquidation valuation, a
discounted cash flow analysis, and a comparable company analysis appeared to be
appropriate. EKS&H also advised that it would take several weeks to complete
work necessary to render a preliminary evaluation to the special committee and
its counsel. The parties agreed to keep in touch, to provide any additional
information and to arrange a meeting to discuss the results of EKS&H work.
On October 14, 2004, a meeting was held at the offices of EKS&H. In
attendance were representatives of EKS&H, counsel to the special committee (Mr.
Clark, the sole member of the special committee was available by telephone). Mr.
Lopez and counsel to SKI. The purpose of the meeting was to receive a
preliminary report from EKS&H in order to enable the special committee to
determine whether it wished to pursue a transaction with SKI and to enable SKI
to decide whether it wished to pursue a transaction with Westan.
EKS&H discussed the nature and scope of its work to date, the appraisal
information it had received from Rocky Mountain Appraisals, the Jackson, Wyoming
real estate appraiser it had engaged, the valuation methodologies it intended to
use if a transaction were to be proposed and a range of preliminary valuations.
EKS&H stated that its work to date was preliminary only and subject to further
work and refinement.
EKS&H informed the group that using an asset based, sale and liquidation
model, the aggregate net value attributable to stockholders of Westan would be
$3.2 million or $0.32 per Westan share. Using a discounted cash flow model EKS&H
estimated an aggregate valuation of $1.6 million or $0.16 per share. Using a
comparable company transaction, EKS&H estimated an aggregate valuation from
$1.57 million to $3.4 million or between $0.157 and $0.34 per share. Based on
all of its analyses, EKS&H stated that its preliminary conclusion indicated a
net valuation (after tax of $225,000) of $3.2 million or $0.32 per Westan common
share. EKS&H cautioned that these preliminary estimations were for discussion
purposes only and that they could change if it were directed to fully complete
its work.
Also at this October 14, 2004 meeting, counsel to SKI outlined the legal
methodology of a typical going private, or management buyout, transaction.
Counsel stated that SKI would form a transitory wholly owned subsidiary that
would be merged with and into Westan with Westan as the surviving corporation.
All stockholders except Messrs. Lopez and Peck would receive cash for their
shares and Westan would be a wholly owned subsidiary of SKI. Counsel also
discussed the advisability of a fiduciary out provision enabling Westan to
accept a better offer. In that connection, counsel stated that a break-up fee is
customarily demanded by the Buyers to compensate for their time, effort, and
expense should a better offer be accepted, but that the break-up fee should not
be so large as to discourage other possible buyers. Counsel stated that it would
be appropriate to consider compensation payable to Westan should the Buyers be
unable to perform. Finally, counsel to the special committee stated that because
of the number of shares owned and controlled by Messrs. Lopez and Peck and their
potential conflict of interest, a plan of neutralized voting should be
considered, which would obligate Messrs. Lopez and Peck to vote their shares in
accordance with the majority of shares cast for or against the proposal by
unaffiliated stockholders.
SKI indicated that it would take EKS&H's preliminary work under advisement,
along with the issues raised by counsel, and if it wished to proceed, would
either propose a transaction to Westan's special committee, or not, within one
month.
On November 10, 2004, a meeting was convened to discuss a possible
transaction. Persons present at that meeting were Mr. Clark, the sole member of
the special committee, the special committee's counsel and representatives of
the special committee's financial advisor, EKS&H, Messrs. Lopez and Peck and
SKI's legal counsel. Messrs. Clark, Lopez and Peck were also present in their
capacities as directors of Westan. Messrs. Lopez and Peck had previously fully
disclosed the nature and extent of their personal interest in SKI and in the
proposed merger to the board of directors. The members of the board of directors
discussed the merger agreement, asked questions of counsel, and agreed that the
material issues presented in the previous discussions (i.e., primarily break-up
fees, expense reimbursements, and neutralized voting) had been satisfactorily
resolved.
EKS&H presented to the board and special committee a report discussing the
methods and results of EKS&H's valuation work. The valuations indicated by EKS&H
ranged from a low of $0.157 per share of Westan to a high of $0.34, depending on
the method of valuation used. Considering all methods of analyses, EKS&H stated
that the asset based and liquidation sale approach appeared to be the most
objectively determinable and accordingly indicated a valuation of $3.2 million
net after taxes of $225,000 or approximately $0.32 per share of Westan common
stock.
Mr. Lopez stated that SKI would be willing to offer $0.30 per share to
unaffiliated stockholders of Westan pursuant to the terms and conditions of the
merger agreement. He noted that this was one cent more per share than the amount
he paid for Mr. Clark's large block of shares in November 2003.
Messrs. Lopez, Peck and SKI's legal counsel were asked to temporarily leave
the meeting while Mr. Clark, the member of the special committee, conferred with
its legal counsel and the representatives of EKS&H. The special committee
believed the comparable company valuation approach, which indicated such a wide
range of values from approximately $0.16 per share to approximately $0.34 per
share, might not be as reliable as the asset-based valuation approach, which
yielded a net valuation of approximately $0.32 per share. Likewise, the special
committee believed that the market value approach was not as reliable as the
asset-based approach because of the sporadic, illiquid market in Westan's
shares. And finally, the special committee did not believe the discounted cash
flow analysis, which was projected out to 2014, was as reliable as the
asset-based approach because of Westan's history of operating losses and its
probable lack of ability to provide its share of requisite future financing.
The meeting of the board and special committee was subsequently reconvened
and counsel to the special committee indicated that the special committee would
feel more comfortable if SKI's offer could be raised to the top of the range
indicated in EKS&H's asset based and liquidation sale valuation approach, or
$0.32 per share. Messrs. Lopez and Peck stated that they were willing to raise
SKI's offer to $0.32 per share payable only to Westan's unaffiliated
stockholders.
EKS&H then delivered to the special committee its oral opinion,
subsequently confirmed in a written opinion dated as of November 15, 2004, that
as of that date and based on the assumptions made, matters considered and the
limitations on the review undertaken as described in the written opinion, the
$0.32 per share merger consideration was fair from a financial point of view to
the unaffiliated stockholders of Westan. The opinion was premised on the
material terms of the November 10, 2004 draft of the merger agreement which were
not altered by any subsequent changes in the final merger agreement dated
November 15, 2004.
After considering among other things the factors set forth immediately
below under the caption "Recommendation of the Special Committee and Board of
Directors; Fairness of the Merger," and EKS&H's oral opinion, the special
committee determined that the merger of LZ Acquisition with and into Westan,
with Westan as the surviving corporation, was in the best interests of Westan
and its unaffiliated stockholders and that the $0.32 per share merger
consideration was fair to Westan's unaffiliated stockholders. Counsel to the
special committee made it clear that the merger agreement provides for
neutralized voting so that Messrs. Lopez and Peck will be obligated to vote
their shares in accordance with the majority vote of unaffiliated stockholders.
The special committee approved the merger agreement and recommended that the
board determine that the merger is advisable and in the best interests of Westan
and its unaffiliated stockholders and that the merger consideration is fair to
the unaffiliated stockholders. The special committee also recommended that the
board approve the merger agreement and determine to submit the merger agreement
to Westan's stockholders and recommend that its stockholders vote to adopt the
merger agreement.
The board of Westan held a meeting on November 10, 2004. The special
committee discussed the information and oral opinion provided by EKS&H and the
draft merger agreement with SKI. Therefore, considering, among other things, the
recommendation of the special committee as more fully discussed immediately
below, the board of directors, with Messrs. Lopez and Peck participating after
fully disclosing their conflicting interest in the proposed transaction,
determined that the merger and merger agreement and the transactions
contemplated therein were advisable, fair to and in the best interests of
Westan's unaffiliated stockholders. It was resolved that the merger agreement
should be signed as soon as possible to become effective on Monday, November 15,
2004.
Recommendation of the Special Committee and Board of Directors; Fairness of the Merger
Special Committee
Factors Supporting Decision to Approve the Merger.
In recommending approval of the merger agreement and the merger to the full
board of directors on (as described above), the special committee considered a
number of factors. The material factors, both negative and positive, are
summarized below.
The material positive factors include:
o Market Price and Premium. The special committee considered the fact that
the merger would provide Westan's unaffiliated stockholders with a premium
for their shares compared to the market price of Westan's common stock
because (1) the $0.32 per share to be received by Westan's unaffiliated
stockholders in the merger would exceed by $0.17 (113%) the highest closing
price of $0.15 per share of Westan's common stock, as quoted on the OTC
Bulletin Board for the period from January 1, 2004 to November 15, 2004;
(2) the $0.32 per share represented a 167% premium to the $0.12 closing
price of the shares of common stock on November 15, 2004, the day prior to
the public announcement of SKI's proposal; and (3) the $0.32 per share
represented a 248% premium to the average bid price of $0.092 per share for
the period between January 1, 2003 and November 15, 2004;
o Advantage of Liquidity Given Public Company Limitations. The special
committee considered the limitations Westan suffered and would likely
continue to suffer as a public company, including its limited trading
volume, lack of institutional sponsorship, low public float, small market
capitalization, and complete lack of research attention from analysts, all
of which adversely affect the trading market for and the value of Westan
common stock in view of the liquidity offered by the merger;
o Increasing Competition. The special committee considered the increasing
competition faced by the Snow King Resort in Jackson, Wyoming, including
two large developments that were opened or expanded in Jackson, Wyoming in
2002 and 2003, and that such competition could potentially erode Westan's
market share, making it a good time to consider alternatives to maintaining
and operating Westan as a publicly held company;
o Transaction Value in Excess of Public Company Value. The special committee
considered the risks and factors identified above which are associated with
remaining an independent public company and the special committee's belief
that the proposed transaction values Westan's prospects more highly than
would the public markets for the foreseeable future;
o Presentations of the Financial Advisor. The special committee considered
the presentations and opinion of EKS&H as to the fairness, from a financial
point of view, of the merger consideration to the unaffiliated stockholders
of Westan;
o Financial Condition and Operating Prospects. The special committee
considered its knowledge of Westan's business, operations, assets,
financial condition, operating results and prospects, in light of the
premium offered under the terms of the merger agreement including Westan's
history of continued operating losses and substantial indebtedness and
interest costs;
o Debt Guarantees. Manuel B. Lopez and James M. Peck have, along with others,
guaranteed bank debts on behalf of Westan and its subsidiaries. The special
committee was aware that these persons have no obligation to continue to
guarantee any future debts and their refusal to do so could result in a
highly material adverse effect on Westan's consolidated financial position;
o Form of Merger Consideration. The special committee considered the fact
that the consideration to be received by Westan's stockholders in the
merger will consist entirely of cash, providing stockholders with complete
liquidity of their investment;
o Effect of Termination Fee. The special committee considered the $50,000
termination fee payable to SKI if the merger agreement terminated because
of, among other things, the board of directors' withdrawal or modification,
in a manner adverse to SKI, of its recommendation of the merger or its
recommendation of an alternative transaction, or its entry into a
definitive agreement for an alternative transaction, and determined that
the termination fee was low enough that it should not unduly discourage
superior third-party offers; and
o Absence of a Financing Out. The special committee considered the fact that
if SKI is unable to obtain the financing necessary to complete the
transaction, it could not unilaterally terminate the merger agreement
without consequence, thereby making the proposed transaction more likely to
occur. Any failure to obtain financing would entitle Westan to liquidated
damages of up to $100,000 in the form of forgiveness of loans and advances
made by SKI to Westan to fund Westan's legal, financial advisory fees and
other costs incurred in pursuing the proposed merger and related
stockholder's meeting.
Factors Detracting From Decision to Approve the Merger.
The special committee also considered a variety of risks and other
potentially negative factors concerning the merger. The material negative
factors consist of:
o Limited Ability to Entertain Proposals From Other Potential Buyers. The
special committee considered the fact that the merger agreement, which
generally prohibits Westan from entertaining any proposal that would
compete with the merger, does permit Westan to consider an unsolicited
acquisition proposal and to modify or withdraw its recommendation of the
merger or recommend an alternative acquisition proposal and terminate the
merger agreement, if the board of directors determines after consultation
with its financial advisors that the alternative proposal would be more
favorable to the Westan stockholders;
o Lack of Significant Bidding Process. The special committee considered the
fact that, though Westan had engaged a national real estate brokerage firm
to "test the waters" in 2001, in connection with the possibility of
strategic alternatives, Westan did not initiate a process whereby
potentially interested third parties were engaged in an active bidding
process for ownership of Westan or the sale of SKRI's assets;
o Taxation of Merger Consideration. The special committee considered that the
transaction would be a taxable event to Westan's unaffiliated stockholders
for federal income tax purposes which could have an adverse impact on those
with a tax basis of less than $0.32 per share;
o Loss of Equity Interest. The special committee considered the fact that if
the merger is consummated, Westan's unaffiliated stockholders will not
participate in the future growth of Westan. Because of the risks and
uncertainties associated with Westan's future prospects, the special
committee concluded that the merger was preferable to preserving for the
holders of such stock a speculative potential future return; and
o Interests of Certain Parties. The special committee also recognized that
SKI, owned and controlled by Messrs. Lopez and Peck, would have an
opportunity, subject to the risks of Westan's business, to benefit from any
increases in the value of Westan following the merger. The special
committee recognized that this represented a conflict between the interests
of SKI and Westan's unaffiliated stockholders.
Federal securities laws require disclosure of whether transaction
participants considered specified factors in evaluating a transaction such as
the merger. For the reasons described below, the following factors in addition
to the positive and negative factors discussed above were also considered by the
special committee:
o Liquidation Value and Merger Consideration. The special committee believed
that the liquidation value as estimated by EKS&H was a somewhat more
persuasive analysis than other methods, because it seemed to provide a more
immediate and objective value with fewer attendant risks than the
longer-term valuation analysis provided by the discounted cash flow method.
The special committee further recognized that the merger consideration
offered was equal to EKS&H's estimate of value under the liquidation
method;
o Relationship Between Merger Consideration and Net Book Value. The special
committee did not consider whether the merger consideration offered to
Westan's unaffiliated stockholders constitutes fair value in relation to
the net book value of Westan, because Westan has a negative book value;
o Going Concern Value. The special committee did not consider Westan's going
concern value as persuasive as its liquidation value, since it has suffered
operating losses for several years, except in the year 2002 when net income
was achieved through the sale of an asset; and since it would be difficult
for Westan to provide its share of requisite future financing; and
o Relationship Between Merger Consideration and Recent Acquisitions of Westan
Stock. The special committee considered whether the merger consideration
offered to Westan's unaffiliated stockholders constitutes fair value in
relation to the prices paid by Westan or SKI or any of their affiliates in
connection with purchases of Westan's common stock by any of such persons
during the last two full fiscal years of Westan, and determined that the
merger consideration was about 10% more than that negotiated at
arm's-length by Mr. Clark, a director of Westan and sole member of the
special committee, in the sale of his large block of Westan shares to Mr.
Lopez in November, 2003.
The foregoing discussion of the information and factors considered by the
special committee is not meant to be exhaustive, but includes all material
factors, both positive and negative, considered by the special committee to
support its decision to recommend the approval of the merger agreement and to
determine that the transactions contemplated thereby are in the best interests
of Westan and fair to Westan's unaffiliated stockholders. The special committee
did not assign relative weights or other quantifiable values to the above
factors; rather, the special committee viewed its position and recommendations
as being based on the totality of the information presented to and considered,
and that on balance, the positive factors discussed above outweighed the
negative factors discussed above.
The special committee believes that the merger consideration is fair, in
part, based on the opinion of EKS&H as to the fairness, from a financial point
of view, of the proposed transaction. The analysis underlying the EKS&H opinion,
which was expressly adopted by the special committee, is summarized below.
The special committee also believes the process it followed in approving
the merger agreement was procedurally fair because:
o the special committee consisted of an independent director who was not an
officer or controlling stockholder of Westan;
o the member of the special committee will not personally benefit from the
consummation of the merger contemplated by the merger agreement;
o the special committee retained independent legal and financial advisors
that assisted it in its evaluation of the SKI proposal; and
o the special committee and its counsel insisted on a voting process that
required SKI and its affiliates to vote their shares for or against the
merger proposal in accordance with the majority of unaffiliated Westan
stockholders.
Board of Directors of Westan
The board formed the special committee to act solely on behalf of the
unaffiliated stockholders of Westan for purposes of considering and negotiating
the merger agreement and related matters. The board appointed Stanford E. Clark,
its only independent director, to the special committee. Mr. Clark had been
associated with Westan for approximately 30 years as an officer, director and
former stockholder. After formation of the special committee, the special
committee retained EKS&H as its financial advisor and EKS&H provided its opinion
to the special committee as to the fairness from a financial point of view of
the merger consideration of $0.32 cash per share to Westan's unaffiliated
stockholders as of November 15, 2004, subject to the limitations, assumptions
and qualifications stated therein.
The board reviewed each of the factors presented by the special committee
as described above and considered the special committee's process and actions in
arriving at its recommendation to the board. In reaching its determination, the
board considered the special committee's determinations, recommendations,
approval of the merger agreement, and declaration of the merger agreement's
advisability. It also carefully considered the report and fairness opinion
delivered by EKS&H to the special committee. The board, however, did not attempt
to determine what weight should be given to each of the factors described above.
Westan is undertaking the transaction with SKI at this time as a result of
the special committee's consideration of the factors outlined above relating to
the limitations on Westan's growth as a public company, its recent financial
performance, its substantial bank and other indebtedness, the need for
continuing personal guarantees of that debt, the potential impact of competition
on its future prospects, the long-standing concerns of the entire board
(including the special committee) regarding the continuing depressed price of
Westan's common stock, the weakness in the market for its stock, and because the
$0.32 per share offered by SKI at this time represents a substantial premium
over the price of Westan's stock in the market at virtually any time during the
past several years. Westan is also undertaking the transaction at this time
because it does not have, and cannot afford to obtain, the financial and
personnel resources to: (1) continue to comply on a timely basis with its
periodic reporting requirements under the Securities Exchange Act of 1934; and
(2) become compliant during 2005 with Section 404 of the Sarbanes-Oxley Act of
2002. In this regard, Westan estimates that the annual expenses it pays in
connection with its public reporting responsibilities aggregate approximately
$50,000. These expenses include fees of an outside accountant, annual audit and
quarterly review fees of its independent auditor, legal fees, and edgarization
costs. Westan estimates, based on discussions with consultants, that Section 404
implementation costs could be an additional $50,000 or more.
The board believes that sufficient procedural safeguards to ensure fairness
of the transaction and to permit the special committee to effectively represent
the interests of the holders of Westan's unaffiliated stockholders were present,
and therefore there was no need to retain any additional unaffiliated
representative to act on behalf of Westan's unaffiliated stockholders. The board
reached this conclusion in view of:
o the independent status of the member of the special committee, whose sole
purpose was to represent the interests of Westan's unaffiliated
stockholders; .
o retention by the special committee of independent financial advisors and
legal counsel; .
o the commitment of Mr. Lopez and Mr. Peck, principals of SKI, to vote their
shares and affiliates' shares (approximately 54% of Westan's outstanding
shares) in accordance with the majority of shares voted for or against the
proposed merger transaction by unaffiliated stockholders; and .
o the fact that the special committee, even though consisting of a director
of Westan and therefore not completely unaffiliated with Westan, is a
mechanism well recognized under corporate law to provide for fairness in
transactions of this type.
The merger agreement was approved by the three members of Westan's board of
directors. Neither Westan nor SKI have made any provision to grant Westan's
unaffiliated stockholders access to their corporate files or to obtain counsel
or appraisal services at their expense.
The board believes that the merger is advisable and is fair to and in the
best interests of Westan and its unaffiliated stockholders and, based upon the
analysis and the opinion of the special committee's financial advisor as set
forth above (which the board expressly adopts) and on the recommendation of the
special committee, recommends to Westan's unaffiliated stockholders that they
vote FOR approval of the merger agreement and the transactions contemplated
thereby.
SKI's Position as to the Fairness of the Merger to Unaffiliated Stockholders
The SEC's rules require SKI and its principals to state whether it and they
believe the merger is fair or unfair to Westan's unaffiliated stockholders, to
indicate the extent, if any, to which that belief is based on specific factors
enumerated in the rules, and to specify, to the extent practicable, the weight
assigned to each such factor.
Each of SKI, Mr. Lopez, and Mr. Peck (collectively the "Buyers") state that
it and they believe that the merger is fair to Westan's unaffiliated
stockholders based on the factors supporting its fairness set forth below,
without having quantified or otherwise assigned relative weights to those
factors:
o The special committee considered the fact that the merger would provide
Westan's unaffiliated stockholders with a premium for their shares compared
to the market price of Westan's common stock because (1) the $0.32 per
share to be received by Westan's unaffiliated stockholders in the merger
would exceed by $0.17 (113%) the highest closing price of $0.15 per share
of Westan's common stock as quoted on the OTC Bulletin Board for the period
from January 1, 2004 to November 15, 2004; (2) the $0.32 per share
represented a 167% premium to the $0.12 closing price of the shares of
common stock on November 15, 2004, the day prior to the public announcement
of SKI's proposal; and (3) a 248% premium to the average bid price of
$0.092 per share for the period between January 1, 2003 and November 15,
2004;
o The $0.32 per share merger consideration exceeds the per share net book
value of Westan (which value is a deficit);
o EKS&H has rendered its opinion to the special committee that, based on and
subject to the limitations, assumptions and qualifications stated in the
opinion, the $0.32 per share merger consideration is fair, from a financial
point of view, to Westan's unaffiliated stockholders (while the Buyers did
not have the benefit of receiving, and are not entitled to rely on, EKS&H's
opinion, analysis or presentation to the special committee, the Buyers
believe that the rendering of such an opinion by a firm of EKS&H's
expertise and reputation supports the fairness of the merger); and
o The Buyers considered the $0.29 per share purchase price of Westan's common
stock purchased by Mr. Lopez from Mr. Clark in November, 2003; none of the
Buyers purchased any other shares of Westan in the last two years.
Each of SKI, Mr. Lopez, and Mr. Peck state that it and they believe the
merger is procedurally fair to Westan's unaffiliated stockholder because:
o Westan's board of directors took effective steps to ensure the procedural
fairness of the merger, by the formation of an independent special
committee to consider and negotiate solely on behalf of Westan's
unaffiliated stockholders the price and terms of the transaction, including
specifically the special committee's retention of independent legal and
financial advisors; and
o The Buyers agreed to a requirement that approval of a majority of Westan's
unaffiliated stockholders who vote be obtained in order to effect the
merger and considered that as a factor supporting the procedural fairness
of the merger.
Benefits and Detriments of the Merger
To Westan's Unaffiliated Stockholders
Westan and SKI believe that the primary benefit of the merger to Westan's
unaffiliated stockholders is the realization of the value of their investment in
Westan in cash at a price that represents a substantial premium over current and
historical market prices for the Westan common stock. In addition, the merger
will eliminate the risk to those stockholders of a possible future market
decline or complete loss of value of Westan's common stock.
The primary detriment of the merger to Westan's unaffiliated stockholders
is that they will cease to participate in any future earnings of Westan or to
benefit from any increase in Westan's value. In addition, each of Westan's
unaffiliated stockholders will recognize a taxable gain on consummation of the
merger if and to the extent that the amount of cash he, she or it receives in
the merger exceeds his, her or its tax basis in his, her or its Westan common
stock. Westan is also committed to pay various fees and expenses associated with
the merger and if it does not occur, the approximate $100,000 liquidated damages
fee SKI may have to pay to Westan may not fully compensate it for those expenses
and diversions of management time expended in the merger effort.
To the Buyers and Westan
The primary benefit to SKI of the merger is that it will participate in all
of any future earnings of Westan and will benefit from any increase in Westan's
value. SKI believes that Westan will benefit from the merger by gaining more
operating flexibility, because it will no longer need to consider the public
trading market or potential conflicts of interest, and by reducing its operating
and administrative costs because of a reduction in its public reporting
obligations arising principally from its equity securities being privately
rather than publicly held after the merger.
The Buyers have guaranteed certain bank debts of Westan and its
subsidiaries, generally for no consideration. They believe it is inequitable to
continue to personally guarantee debts of a public company and believe that
inequity would be ameliorated if the merger occurs.
The primary detriments of the merger to SKI and Westan are the cash outlay
required to pay the merger consideration, and diminution of Westan's ability to
use Westan common stock as currency for acquisitions, capital-raising efforts,
incentive option or other purposes.
Opinion of Financial Advisor to the Special Committee
The special committee engaged EKS&H to provide financial advisory services
to the special committee in connection with its consideration of the proposed
merger. Pursuant to its engagement, EKS&H rendered an opinion as to the fairness
from a financial point of view of the consideration to be received in the merger
by stockholders of Westan, other than the Buyers, SKI, LZ Acquisition, and
affiliates of the Buyers. See Annex B for a copy of the full opinion.
On November 10, 2004, at a meeting of the special committee held to
evaluate the proposed merger, EKS&H delivered to the special committee its oral
opinion, subsequently confirmed in a written opinion dated as of November 15,
2004, that as of that date and based on the assumptions made, matters considered
and the limitations on the review undertaken described in the written opinion,
the merger consideration to be paid in connection with the merger was fair from
a financial point of view to the stockholders of Westan.
You should consider the following when reading the discussion of the
opinion of EKS&H in this document:
o We urge you to read carefully the entire opinion of EKS&H, which is set
forth in Annex B to this proxy statement.
o The EKS&H opinion was prepared for the information of the special committee
in connection with its evaluation of the merger and does not constitute a
recommendation to the stockholders of Westan as to how they should vote, or
take any other action, with respect to the merger.
o The EKS&H opinion did not address the relative merits of the merger and the
other business strategies that Westan's board of directors has considered
or may be considering, nor does it address the decision of the special
committee or Westan's board of directors to proceed with the merger.
The EKS&H opinion was necessarily based upon market, economic and other
conditions that were in effect on, and information made available to EKS&H as
of, the date of the opinion. You should understand that subsequent developments
may affect the conclusion expressed in the EKS&H opinion, and that EKS&H
disclaims any undertaking or obligation to advise any person of any change in
any matter affecting its opinion which may come or be brought to EKS&H's
attention after the date of its opinion.
Opinion and Analysis of Ehrhardt Keefe Steiner & Hottman PC
In connection with the preparation of the EKS&H opinion, EKS&H:
o Reviewed certain publicly available financial statements and other business
and financial information of Western Standard Corporation (the "Company");
o Reviewed certain internal financial statements and other financial and
operating data, including certain financial forecasts and projections,
concerning the Company, its investment in Snow King Resort, Inc and Snow
King Resort Center, Inc. prepared by the management of the Company;
o Held discussions with the management of the Company concerning the
businesses, past and current operations, financial condition and future
prospects of the Company and its subsidiaries and investments;
o Reviewed the financial terms and conditions set forth in a draft, dated
November 10, 2004, of the merger agreement; reviewed the stock price and
trading history of the Company's common stock;
o Compared the financial performance of the Company with that of certain
other publicly traded resort companies deemed comparable with the Company;
o Compared the financial terms of the merger with the financial terms, to the
extent publicly available, of other transactions that EKS&H deemed
relevant;
o Participated in discussions and negotiations among representatives of the
Company, the Buyers and their financial and legal advisors;
o Made such other studies and inquiries, and reviewed such other data,
including independent real estate appraisals, as EKS&H deemed relevant; and
o Relied as to all legal matters relevant to rendering its opinion on the
advice of counsel.
Related Entities
The Company owns investments in two entities, Snow King Resort, Inc. and
Snow King Resort Center, Inc. In 1992 Snow King Resort, Inc. ("SKRI") reacquired
the land, ski area and the hotel. The Company owns approximately 76% of the
common stock of SKRI; however, SKRI has shares of preferred stock outstanding
that share equally with its common stock leaving the Company an approximate 39%
economic interest in SKRI. The Company owns approximately 49% of the voting
stock of Snow King Resort Center, Inc. ("SKRCI"). SKRCI leases the Snow King
Center from the Town of Jackson and operates a variety of for profit activities
on the premises. Snow King Center is located at the base of Snow King Mountain,
approximately 200 yards west of the hotel. This facility opened in May 1993 and
serves as a meeting and event venue in summer and an ice rink in the winter. The
ice rink can be converted into a Pavilion, with 18,900 square feet of dry-floor
meeting and exhibit space. The Cougar (680 square feet) and Lodge (2,360 square
feet) are other meeting room options. Other winter facilities include a food and
beverage concession and a pro shop offering equipment rentals. The Company's
lease with the Town of Jackson for Snow King Center expires May 1, 2033.
Schedules of the ownership of the above entities are as follows:
Snow King Resort, Inc.
Class A and Class B
Common Class A Preferred
Shareholders Shares Owned Shares Owned
----------------------------- ------------------ ------------------
Western Standard 12,000 0
Bar B Bar Corp 1,110 4,440
Richard Sugden 740 2,960
Creed & Clarene Law Trusts 740 2,960
Paintbrush Partners (Wold) 370 1,480
Peck Trust 370 1,480
Manuel & Deborah Lopez Trusts 370 1,480
Snow King Resort, Center Inc.
Shareholders Shares Owned
----------------------------- ------------------
Western Standard 480
Bar B Bar Corp 150
Richard Sugden 100
Creed & Clarene Law Trusts 100
Paintbrush Partners (Wold) 50
Peck Trust 50
Manuel & Deborah Lopez Trusts 50
In its review and analysis, and in arriving at its opinion, EKS&H assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to it (including information furnished to it orally or
otherwise discussed with it by the management of the Company) or publicly
available and neither attempted to verify, nor assumed responsibility for
verifying, any of such information. EKS&H relied upon the assurances of the
management of the Company that they were not aware of any facts that would make
such information inaccurate or misleading. Furthermore, EKS&H did not obtain or
make, or assume any responsibility for obtaining or making, any independent
evaluation or appraisal of the properties, assets or liabilities (contingent or
otherwise) of the Company.
With respect to the financial forecasts and projections (and the
assumptions and bases therefore) for the Company that EKS&H reviewed, EKS&H has
assumed that the forecasts and projections:
o Were reasonably prepared in good faith on the basis of reasonable
assumptions;
o Reflect the best currently available estimates and judgments as to the
future financial condition and performance of the Company; and
o Would be realized in the amounts and in the time periods currently
estimated.
In addition, EKS&H assumed that:
o The merger will be consummated upon the terms set forth in the draft of the
merger agreement, dated November 15, 2004, without material alteration
thereof; and
o The historical financial statements of the Company were audited by Clifford
H. Moore and Company.
EKS&H expressed no opinion as to:
o Any tax or other consequences that may result from the merger.
The following is a summary of the material aspects of the financial
analyses performed by EKS&H in connection with rendering its opinion. The
summary of the financial analyses is not a complete description of all of the
analyses performed by EKS&H. Certain of the information in this section is
presented in tabular form. In order to better understand the financial analyses
performed by EKS&H, these tables must be read together with the text
accompanying each table. The opinion is based upon the totality of the various
analyses performed by EKS&H and no particular portion of the analyses should be
considered standing alone.
Comparable Companies Analysis
The Company has minimal operations outside its investment in Snow King
Resort, Inc. (the "Subsidiary"). The Subsidiary includes the operations from the
hotel, ski resort, and real estate development in Jackson, Wyoming. Due to this,
EKS&H utilized the financial information from Snow King Resort, Inc. in order to
arrive at the value of the investment and resulting value of the Company's
shares.
Using publicly available information, EKS&H analyzed, among other things,
the trading multiples of the following small capitalization regional operators
in the resort industry which EKS&H believed to be reasonably comparable to the
Subsidiary:
o American Skiing Company - American Skiing Company is an operator of alpine
ski and snowboard resorts in the United States. The company develops, owns
and operates a range of hospitality-related businesses, including skier
development programs, hotels, golf courses, restaurants and retail
locations. The company also develops markets and operates ski-in/ski-out
alpine villages, townhouses, condominiums and quarter share ownership
hotels. The company manages its operations in two business segments, ski
resort operations and mountainside real estate development.
o Blue Ridge Real Estate Company - Blue Ridge Real Estate Company owns 18,581
acres of land in Northeastern Pennsylvania, which are predominately located
in the Pocono Mountains. Of this acreage, 13,843 acres are held for
investment and 4,738 are held for development. Income is derived from these
lands through leases, selective timbering by others, condemnation, sales
and other dispositions. Blue Ridge also owns the Jack Frost Mountain Ski
Area, which is leased to its subsidiary, Jack Frost Mountain Company, a
225-site campground, a retail store leased to Wal-Mart, a shopping center
and 12 residential investment properties. In addition to Jack Frost
Mountain Company, the company's other wholly owned subsidiaries are
Northeast Land Company, Boulder Creek Resort Company and BRRE Holdings,
Inc.
o Vail Resorts, Inc. - Vail Resorts, Inc. is a holding company that operates,
through various subsidiaries in three business segments: Mountain, Lodging
and Real Estate, which represented approximately 69%, 25% and 6%
respectively, of the company's revenues for the fiscal year ended July 31,
2004 (fiscal 2004). The company's Mountain segment owns and operates five
premier ski resort properties that provide a comprehensive resort
experience throughout the year to a diverse clientele with an attractive
demographic profile. The Lodging segment owns and/or manages a collection
of luxury hotels, a destination resort at Grand Teton National Park, and a
series of strategic lodging properties located in proximity to the
company's mountain operations
The foregoing analysis indicated that recent market prices for common stock
of these companies represented price/sales ratios for both an equity and
enterprise level, as set forth below. In all cases, balance sheet and income
statements results for the comparable companies were obtained from generally
available third-party sources. In general, the enterprise value of a company is
equal to the value of its fully-diluted common equity plus debt, minus cash.
Enterprise Equity
Value/ Assets Price/ Assets
Ratio Ratio
2003 2003
-------------- ---------------
High 1.41 1.01
Low 0.75 0.01
Mean 1.09 0.48
Median 1.10 0.40
The following table shows the range of implied values per share of the
Company common stock calculated by multiplying the Company's 2003 sales by
ranges of multiples derived from the trading multiples of the comparable
companies identified above. In determining the ranges of trading multiples,
EKS&H applied its experience and judgment to develop the following multiple
ranges after a review of each of the above named comparable companies. However,
these multiple ranges were not the results of any mathematical calculation
applied to these comparable companies.
Minority
Subject's Selected interest
assets multiple value Round
----------------------------------------------
Equity capital multiples
of 3 companies:
Market value/sales $10,216,973 1.01 10,332,969 $10,300,000
Less:
Interest- Minority
Subject's Selected Invested bearing interest
assets multiple capital Debt value Round
-------------------------------------------------------------------------
Equity capital multiples
of 3 companies:
Market value/sales $10,310,287 1.41 14.537.505 (8,676,861) 5,860,644 $5,900,000
The comparable companies' analysis suggested a range of values of the Snow
King Resort, Inc. common stock from $125.51 per share to $269.77 per share of
which the Company owns 12,000 shares indicating a value of the investment from
$1,568,852 to $3,372,125. These values were utilized when valuing the investment
of Snow King Resort, Inc.
Discounted Cash Flow Analysis
EKS&H performed a discounted cash flow analysis on the after- tax free cash
flows of Snow King Resort, Inc. for calendar years December 31, 2004 through
December 31, 2014 using estimates prepared by the Company's management. The
proposed real estate development has been approved by the city, as discussed in
the Master Plan prepared by the Company. Detailed assumptions have been included
in the model in regards to the real estate development and the Master Plan of
the Company. EKS&H first discounted the estimated after-tax free cash flows
through the calendar years ending December 31, 2014 using discount rate of
18.5%. EKS&H then added to the present value of these after-tax free cash flows
the terminal value of Snow King Resort, Inc. in the calendar year ending
December 31, 2014 based on 6.5% ongoing sustainable growth, discounted back to
the present at the same discount rates. The 6.5% factor is the long-term growth
that the Company should be able to obtain. The growth is based on the long-term
inflation rate plus long-term national GDP growth, according to Ibbotson &
Associates (projected real GDP of 3.6% and long-term inflation of 2.9%). The
capitalization rate is the discount rate of 18.5% less the long-term growth of
6.5%, resulting in a 12% capitalization rate.
The discounted cash flow analysis suggested a value of the Snow King
Resort, Inc. common stock of $135.34 per share of which the Company owns 12,000
shares indicating a value of the investment from $1,624,131. This value was
utilized when valuing the investment of Snow King Resort, Inc.
Asset-Based Approach
EKS&H performed a balance sheet analysis, included receiving appraisals for
the real estate owned by Snow King Resort, Inc. Value is derived by analysis of
the individual assets and liabilities comprising the business. In this approach,
the tangible and intangible assets of the business are individually appraised
using the Cost, Market, and Income Approaches. The Cost Approach involves
estimation of the current reproduction cost of the asset, less an estimate of
accrued depreciation to reflect physical, functional, and economic obsolescence.
The Subsidiary owns various parcels of real estate in the Jackson, Wyoming
area, in addition the shareholders and officers own interests in related parties
which own land connecting to the Subsidiary, see exhibit at the end of the
report.
The Company's shareholders and officers hold investments in the following
entities:
o Love Ridge Development, LLC is a partnership formed to develop 10 lots
purchased from SK Land Limited Liability Company. Love Ridge is building
condominiums adjacent to Snow King Resort, Inc. The condominiums have been
and will be rented to Resort guests. The ownership of Love Ridge
Development, LLC is as follows:
Percentage
Shareholders Owned
---------------------------- ------------------
Manuel & Deborah Lopez Trusts 46%
Law Trusts & Cache Creek Kids 34%
Wold Brothers, Inc. 12%
Joseph Byron 8%
o SK Land Limited Liability Company was formed by the shareholders of Snow
King Resort, Inc. (except for the Company) to acquire approximately five
acres of land adjacent to the Resort. During 2000, SK Land sold most of its
land holdings to Love Ridge Development, LLC.
The ownership of SK Land Limited Liability Company is as follows:
Percentage
Shareholders Owned
---------------------------- ------------------
Manuel & Deborah Lopez Trusts 28.00%
Bar B Bar Corp 23.88%
Richard Sugden 16.06%
Creed & Clarene Law Trusts 16.06%
Paintbrush Partners (Wold) 8.00%
Peck Trust 8.00%
o KM6 holds a 4.92 acres parcel of land, indicated as Parcel 6 on the
attached exhibit. The ownership of KM6 is as follows:
Percentage
Shareholders Owned
---------------------------- ------------------
Bill Resor and Story Clark 66.67%
Manuel & Deborah Lopez Trusts 30.82%
SK Land, LLC 2.51%
o Jackson Hole Springs Water Company was organized to bottle and sell spring
water on the Resort's property. It is a wholly owned subsidiary of Snow
King Resort, Inc. Testing and water rights expenses have been incurred.
These expenses have been recorded as an investment in Jackson Hole Springs
Water Company.
In order to determine the value of the real estate owned by the Company,
EKS&H utilized a third party real estate appraiser. EKS&H obtained appraisals
from Andrew Cornish, SRA of Rocky Mountain Appraisals, located in Jackson,
Wyoming. The appraisals included values for the 14.57 acres including the hotel
and fixed assets included on the parcel of land. EKS&H have reviewed the
appraisal and determined the approached utilized appears to be appropriate;
EKS&H do not place an opinion on the final value but will rely on the value
based on the appraisers experience and knowledge of real estate. The indicated
value based on Mr. Cornish's appraisal is $20,020,000. The second appraisal
obtained included two parcels of land totaling 37.29 acres. The appraisal was
completed by the same appraiser, EKS&H have reviewed the appraisal and
determined the approached utilized appears to be appropriate; EKS&H do not place
an opinion on the final value. The indicated value based on the Mr. Cornish's
appraisal for the 37.29 acres is $5,695,000.
In addition to the real estate appraisals above, the Subsidiary owns an
alpine slide and ski resort equipment that is located on leased land. This
equipment was not included in the appraisals above. As of December 31, 2003 the
equipment had a book value of $29,665; based on our analysis of the projected
net margins derived from the ski operations EKS&H determined that there is no
value in addition to the book value of the assets. Consequently, EKS&H did not
adjust the assets utilized in the ski operations.
In addition to the above fair market value adjustments, Ehrhardt, Keefe,
Steiner, & Hottman PC adjusted the liabilities for capital gains tax associated
with the built-in gains of the above real estate and the cumulative preferred
dividend owed to the preferred shareholders of Snow King Resort, Inc.
The asset-based analysis suggested a value of the Snow King Resort, Inc.
common stock of $276.33 per share of which the Company owns 12,000 shares
indicating a value of the investment of $3,315,934. This value was utilized when
valuing the investment of Snow King Resort, Inc.
Conclusion of the Value of Snow King Resort, Inc.
Based on our above analyses of the public companies, the cash flow, and the
assets held by Snow King Resort, Inc. EKS&H have determined the value of the
Company's investment in Snow King Resort is $3,315,934.
Oil and Gas Interest
In addition to the above investment in Snow King Resort, the Company owns
working interests in oil and gas properties; these interests currently have an
offer presented by RIM Operating, Inc. On November 2, 2004, the oil and gas
interests were sold for their assumed value of $65,000.
Snow King Resort Center, Inc.
As stated above, the Company has a 49% interest in Snow King Resort Center,
Inc. ("SKRCI") Revenues from the investment are derived from ice floor rentals,
dry floor rentals, food and beverage. As of December 31, 2003, SKRCI has
negative equity of approximately $1,600,000 and operates at a net loss. Snow
King Resort, Inc. transfers funds to the entity in order to continue operations.
EKS&H analyzed the projections obtained from the Company in order to determine
the value of the investment and found that SKRCI has no foreseeable net profit.
Consequently, the investment has no value; outside of the promotional value to
SKRI.
Asset-Based Approach of the Company
The above investments in Snow King Resort, Inc. and the oil and gas
interest total $3,380,934. However, the distribution of the Snow King Resort,
Inc. share value would create a tax on the dividend of $225,484. The total
equity in the Company from the investments would be approximately $3,200,000,
based on outstanding shares of the Company of 9,963,015; the concluded value of
the investments would be $0.32 per share, as compared to the $0.32 per share
cash consideration in the merger.
Market Approach
The best indication of value for a company would be the market
capitalization of its publicly-traded stock. The market capitalization of a
company can be calculated based on its current stock price times the total
outstanding shares. However, the shares of the Company are not actively traded.
EKS&H analyzed the Company's trading price over the last year, the stock
traded as follows:
Stock
Price
--------------
High $ 0.25
Low 0.01
Mean 0.05
Median 0.03
The stock price analysis suggested a range of values of the Company's
common stock from $0.01 per share to $0.25 per share, as compared to the $0.32
per share cash consideration in the merger.
Other Factors
Portions of the EKS&H financial analyses incorporated projections of Snow
King Resort, Inc adjusted EBITDA net income that were provided by the Company's
management, with certain adjustments made by EKS&H. In preparing the discounted
cash flow analysis, EKS&H made certain assumptions regarding the Subsidiary's
projected tax rate, projected capital expenditures and projected changes in
working capital, which assumptions were based on the Subsidiary's historical
experience.
No company, business or transaction referred to in any of the above
analyses is identical to Snow King Resort, Inc., the Company or the merger.
Accordingly, consideration of the analyses described above is not entirely
mathematical. Rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the public trading, acquisition and other values of the comparable
companies, precedent transactions or the business segment, company or
transaction to which they are being compared. These estimates may or may not
prove to be accurate.
While this summary describes the analysis and factors that EKS&H deemed
material in its presentation to the Company special committee, it is not a
comprehensive description of all analyses and factors considered by EKS&H. As
part of its valuation, EKS&H obtained and analyzed the following information:
o Real estate development - including the Company's Master Plan created by
VLA, Inc.
o Real estate appraisals - two appraisals prepared by Rocky Mountain
Appraisals for the appraisal of the hotel and the land surrounding the
hotel. These appraisals also take into account the proposed real estate
development.
o 10 year forecast which includes the projected cash flows that may be
obtained through the real estate development, over the estimated
development time period obtained from management of Snow King Resort, Inc.
The preparation of a fairness opinion is a complex process that involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances. Therefore, a fairness opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, EKS&H did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, EKS&H believes 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 analyses and factors could
create a misleading or incomplete view of the evaluation process underlying its
opinion. Several analytical methodologies were employed and no one method of
analysis should be regarded as critical to the overall conclusion reached by
EKS&H. Each analytical technique has inherent strengths and weaknesses, and the
nature of the available information may further affect the value of particular
techniques. The conclusion reached by EKS&H is based on all analyses and factors
taken as a whole and also on application of EKS&H's own experience and judgment.
This conclusion may involve significant elements of subjective judgment and
qualitative analysis. EKS&H expresses no opinion as to the value or merit
standing alone of any one or more parts of the analysis it performed. In
performing its analyses, EKS&H made numerous assumptions with respect to
industry performance, general business and other conditions and matters, many of
which are beyond the control of the Company or EKS&H. Any estimates contained in
these analyses are not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
those suggested by these analyses. Accordingly, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which
these businesses actually may be sold in the future, and these estimates are
inherently subject to uncertainty.
The engagement letter among EKS&H, the special committee and the Company
provides that, for its services, EKS&H is entitled to receive a fee of
approximately $49,000 upon delivery of the fairness opinion, and with respect to
the fee payable upon delivery of the fairness opinion, such fee was paid without
regard to the conclusion reached in the opinion. The payment of EKS&H's fee was
not contingent upon the consummation of the merger. The Company has also agreed
to reimburse EKS&H for its reasonable and customary out-of-pocket expenses
related to this work, estimated at $2,900, consulting and edgarization fees of
approximately $12,000, and to indemnify and hold harmless EKS&H and its
affiliates and any other person, director, employee or agent of EKS&H or any of
its affiliates, or any person controlling EKS&H or its affiliates, for certain
losses, claims, damages, expenses and liabilities relating to or arising out of
services provided by EKS&H. The terms of the fee arrangement with EKS&H, which
the Company and EKS&H believe are customary in transactions of this nature, were
agreed between the special committee and EKS&H, and the board of directors
approved these fee arrangements.
EKS&H is a regionally recognized accounting, auditing and financial
advisory firm and was retained based on its experience as a financial advisor in
connection with mergers and acquisitions and in securities valuations generally.
As part of its business, EKS&H is frequently engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and for other purposes.
The fairness opinion states that the opinion may not be summarized,
described or referred to or furnished to any party except with EKS&H's prior
written consent. EKS&H has consented to the inclusion of this description and to
the inclusion of it fairness opinion, dated November 15, 2004, as an annex to
this proxy statement.
SKI's Purpose and Reasons for the Merger
SKI's purpose in undertaking the merger is to obtain the benefits to SKI
and Westan described under "Special Factors--Benefits and Detriments of the
Merger." SKI chose the merger structure because it was the most efficient means
to acquire the entire equity interest in Westan and provide cash to Westan's
unaffiliated stockholders.
SKI has considered to undertake the merger since late 2003 for the reasons
referred to above, and chose to undertake the merger at the time because of its
belief that financing would be available for the merger. Also, affiliates of SKI
are considering whether or not to extend any further guarantees of Westan's and
its subsidiaries' bank debts if Westan remains a public company with a large
minority ownership that is not guaranteeing such debts.
Interests of Certain Persons in the Merger; Certain Relationships
In considering the recommendation of the special committee and the board of
directors with respect to the merger, you should be aware that two members of
the board and of Westan's management have interests that may present actual or
potential conflicts of interest in connection with the merger. The special
committee and the board were aware of these potential or actual conflicts of
interest and considered them along with other matters described under "Special
Factors--Recommendation of the Special Committee and Board of Directors."
Retained Equity Interest
Manuel B. Lopez and James M. Peck and their affiliates beneficially own an
aggregate of 5,438,213 shares of Westan's common stock, representing
approximately 54% of the total outstanding shares. If the merger is consummated,
they will own directly or indirectly all of the outstanding common stock of
Westan and will therefore participate in all of its future earnings and any
increase in value.
Directors and Management of the Surviving Corporation
After the merger, Manuel B. Lopez and James M. Peck will comprise the board
of directors of Westan. Manuel B. Lopez will continue to serve as President and
James M. Peck will continue to serve as secretary and treasurer. See "Directors
and Management of the Surviving Corporation" for additional information.
Directors and Officers Indemnification
SKI and Westan have agreed to provide, or cause to be provided,
indemnification to each director, officer, employee and agent of Westan against
any costs, expenses, losses, claims and damages arising out of or relating to
their activities on behalf of Westan prior to or in connection with the merger.
SKI and Westan have agreed not to amend, repeal or otherwise modify the
indemnification provisions of Westan's articles of incorporation or bylaws for a
period of six years from completion of the merger.
Certain Effects of the Merger
If the merger is consummated, Westan's unaffiliated stockholders will no
longer have any interest in, and will not be stockholders of, Westan and,
therefore, will not benefit from any future earnings of Westan or from any
increase in its value and will no longer bear the risk of any decrease in its
value. Instead, each unaffiliated stockholder will have the right to receive
upon consummation of the merger $0.32 in cash for each share of common stock he,
she or it holds, without interest. The benefit of the transaction to our
unaffiliated stockholders is the payment of a premium, in cash, above the market
price for such stock prior to the announcement of the transaction, and a premium
based on prices in several years. This cash payment assures that all
unaffiliated stockholders will receive the same amount for their shares, rather
than taking the risks associated with attempting to sell their shares in the
open market. The detriment to such holders is their inability to participate as
continuing stockholders in the possible future growth of Westan.
If the merger is consummated, SKI will hold the entire equity interest in
Westan and will therefore be the sole beneficiary of any future earnings of
Westan and any increases in Westan's value. However, SKI will bear the risk of
any decrease in value of Westan and the risks associated with the significant
amount of debt burdening Westan and the lack of liquidity in its investment in
Westan. See "Special Factors--Benefits and Detriments of the Merger."
Westan's common stock is currently registered under the Securities Exchange
Act of 1934, and is traded on the OTC Bulletin Board. As a result of the merger,
the registration of the common stock under the Exchange Act will be terminated,
and the common stock will no longer be quoted on the OTC Bulletin Board. Westan
will thereafter be relieved of its obligation to comply with the proxy rules of
Regulation 14A under Section 14 of the Exchange Act, and its officers, directors
and beneficial owners of more than 10% of the common stock will be relieved of
the reporting requirements and "short swing" trading provisions under Section 16
of the Exchange Act. Further, Westan will no longer be subject to periodic
reporting requirements under Section 13 of the Exchange Act and will cease
filing information with the SEC.
Plans for Westan after the Merger
SKI expects that, except as described in this proxy statement, the business
and operations of Westan will be continued substantially as they are currently
being conducted by Westan and its subsidiaries. However, SKI expects that it
may, from time to time, evaluate and review Westan's business, operations and
properties and make such changes as it considers appropriate.
Except as described in this proxy statement, neither the Buyers nor Westan
have any present plans or proposals involving Westan which relate to or would
result in an extraordinary corporate transaction such as a merger,
reorganization, liquidation, sale or transfer of a material amount of assets, or
any material change in the present indebtedness or capitalization, or any other
material change in Westan's corporate structure or business. After the merger,
SKI will review proposals or may propose the acquisition or disposition of
assets or other changes in Westan's business, corporate structure,
capitalization, management or dividend policy which they consider to be in the
best interests of Westan and its stockholders.
Conduct of the Business of Westan if the Merger is not Consummated
If the merger is not consummated, the board of directors expects to seek to
retain Westan's current management and continue business as usual and attempt to
meet its substantial debt obligations. There can be no assurance of success in
the latter regard nor can there be any assurance that Messrs. Lopez and Peck
will continue to provide bank guarantees of Westan and its subsidiaries' debt.
There are no plans in such circumstances to operate Westan's business in a
manner substantially different than the manner in which it is presently
operated.
Accounting Treatment
The merger will be accounted for in accordance with the purchase/related
party methods of accounting under U.S. generally accepted accounting principles.
Financing of the Merger
It is estimated that approximately $1.5 million will be required to
complete the merger and pay related fees and expenses. See "The Merger
Agreement--Fees and Expenses." The Buyers anticipate that financing for the
merger will be provided by bank borrowings. In this regard, on December 29,
2004, the Buyers received a $1.6 million loan commitment letter from a Wyoming
bank for purposes of financing the proposed merger transaction. The loan will be
made to SKI with the personal guarantees of Messrs. Lopez and Peck and after the
proposed Merger, both the shares of Westan and the membership interests of SKI
will be pledged as collateral on the loan. The loan will bear interest at the
prime rate plus 1% per year with interest payable monthly. The loan is expected
to be paid in due course from the Buyers' personal funds, or refinanced over
time. At present, the Buyers do not have any alternative financing plans in
place if the bank financing falls through. The merger is not contingent on
financing, although if the merger is not consummated through SKI's inability to
finance it, damages to Westan are limited to debt forgiveness by the Buyers in
an amount approximating $100,000. SKI will loan Westan approximately $100,000
which will be used by Westan to defray its merger costs. The loan with interest
at 6% per annum will be repayable on demand although SKI recognizes that Westan
has little or no present ability to repay the loan. If the merger is not
consummated through the fault of SKI, the loan obligation will be cancelled. See
"The Merger Agreement--Fees and Expenses."
Regulatory Requirements; Third Party Consents
Westan does not believe that any material federal or state regulatory
approvals, filings or notices are required by Westan or SKI in connection with
the merger other than:
o such clearances, approvals, filings or notices required pursuant to federal
and state securities laws; and
o the filing of the articles of merger with the Secretary of State of the
State of Wyoming.
Westan does not believe any other material third party consents will be
required by Westan in connection with the merger.
Material Federal Income Tax Consequences of the Merger
The following discussion is a summary of the material federal income tax
consequences expected to result to stockholders whose shares of common stock are
converted to cash in the merger. This summary does not purport to be a complete
analysis of all potential tax effects of the merger. For example, the summary
does not consider the effect of any applicable state, local or foreign tax laws.
In addition, the summary does not address all aspects of federal income taxation
that may affect particular stockholders in light of their particular
circumstances and is not intended for stockholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
stockholders who hold their common stock as part of a hedge, straddle or
conversion transaction, stockholders who acquired their common stock pursuant to
the exercise of an employee stock option or otherwise as compensation, and
stockholders who are not citizens or residents of the United States or that are
foreign corporations, foreign partnerships or foreign estates or trusts as to
the United States) that may be subject to special federal income tax rules not
discussed below. The following summary also does not address tax consequences to
the Buyers. The following summary assumes that stockholders have held their
common stock as "capital assets" (generally, property held for investment) under
the Internal Revenue Code of 1986.
This summary is based on the current provisions of the Code, applicable
Treasury Regulations, judicial authority and administrative rulings and
practice. No ruling from the IRS has been or will be sought nor will an opinion
of counsel be obtained with respect to any aspect of the transactions described
herein. Accordingly, there can be no assurance that the IRS will not challenge
the tax consequences expressed in this discussion or that a court would not
sustain this type of challenge. Future legislative, judicial or administrative
changes or interpretations could alter or modify the statements and conclusions
set forth herein, and any such changes or interpretations could be retroactive
and could affect the tax consequences of the merger to stockholders. We cannot
predict at this time whether any current proposed tax legislation will be
enacted or, if enacted, whether any tax law changes contained therein would
affect the tax consequences of the merger to stockholders. It is therefore
possible that the federal income tax treatment may differ from that described
below.
State and local tax laws may also impose income or other taxes upon stockholders
whose shares of common stock are converted to cash in the merger. State and local income
tax laws vary from state to state and this discussion does not address state or local tax
issues.
Sales Treatment for Holders of Common Stock
Except as provided below, the conversion of common stock in the merger will
be fully taxable to stockholders as a sale or exchange of such stock.
Accordingly, a stockholder who, pursuant to the merger, converts such holder's
common stock into cash will recognize a gain or loss equal to the difference
between (1) the amount of cash received in the merger and (2) such stockholder's
tax basis in the common stock. Generally, a stockholder's tax basis in his
common stock will be equal to such stockholder's cost therefor. In the case of a
stockholder who is an individual, such capital gain will be taxable at a maximum
capital gains rate of 15% if the holder held the common stock for more than one
year at the time of consummation of the merger. If the holder held the common
stock for less than one year at the time of consummation of the merger, in
general the capital gain would be taxed at ordinary income tax rates. Certain
limitations apply to the deductibility of capital losses by stockholders. Gain
or loss must be determined separately for each block of common stock acquired at
the same cost in a single transaction.
Redemption Treatment for Dissenters and Other Stockholders
For federal income tax purposes, Westan may be deemed to be the source of a
portion of the cash consideration issued in the merger (particularly if debt
used to fund the merger is assumed by Westan in the merger) and Westan will be
deemed to be the source of cash consideration for payments in satisfaction of
dissenters' rights. Therefore, to the extent that cash received by a stockholder
is from Westan or deemed to be from Westan, the receipt of cash in exchange for
such stockholder's common stock in the merger or in satisfaction of dissenters'
rights will be treated as a redemption of common stock taxable for federal
income tax purposes as determined under section 302 of the Code.
Section 302(d) of the Code provides that if the receipt of redemption
payments has the effect of a distribution of property, then cash distributed
will be treated as a dividend taxable under section 301 of the Code as ordinary
income to a stockholder receiving such cash payments, generally to the extent of
the stockholder's share of undistributed accumulated earnings and profits of the
company. The remainder, if any, will be treated first as a recovery of basis in
a stockholder's common stock, and second as capital gain arising from the sale
or exchange of property. The determination of whether or not the receipt of cash
payments has the effect of a distribution of a dividend will depend on each
stockholder's particular circumstances and is made by applying the dividend
equivalency tests of section 302 of the Code.
Under section 302 of the Code, a stockholder receiving a cash payment as a
redemption will not be treated as having received a dividend equivalent
distribution if the transaction:
o results in a "complete redemption" of the stockholder's equity interest in
the company;
o results in a "substantially disproportionate" redemption with respect to
the stockholder; or
o is "not essentially equivalent to a dividend" with respect to the
stockholder.
Each of these section 302 tests is explained more fully below.
Constructive Ownership of Stock and Other Issues
In applying each of the section 302 tests, stockholders must take into
account not only shares that they actually own but also shares they are treated
as owning under the constructive ownership rules of section 318 of the Code.
Pursuant to the constructive ownership rules, a stockholder is treated as owning
any shares that are owned, actually and in some cases constructively, by certain
related individuals and entities as well as shares that the stockholder has the
right to acquire by exercise of an option or by conversion or exchange of a
security. Due to the factual nature of the section 302 tests described below,
stockholders should consult their tax advisors to determine whether the
conversion of their shares and receipt of a payment pursuant to the merger will
be deemed dividend equivalent in their particular circumstances.
Section 302 Tests
One of the following tests must be satisfied in order for the distribution
not to be treated as the equivalent of a dividend for federal income tax
purposes.
o Complete Termination Test. The distribution will result in a "complete
redemption" of the stockholder's equity interest in the company only if all
of the common stock that is actually owned by the stockholder is sold
pursuant to the merger and the shares that are constructively owned by the
stockholder are sold or, with respect to shares owned by certain related
individuals, the stockholder effectively waives, in accordance with section
302(c) of the Code, attribution of shares which otherwise would be
considered as constructively owned by the stockholder. Certain restrictions
apply to the waiver of attribution of shares. Stockholders wishing to
satisfy the "complete redemption" test through waiver of the constructive
ownership rules should consult their tax advisors.
o Substantially Disproportionate Test. The distribution will result in a
"substantially disproportionate" redemption with respect to the stockholder
if, among other things, the stockholder owns actually and constructively
less than 50% of the total combined voting power of all classes of stock
after the redemption, and the percentage of the then outstanding voting
common stock actually and constructively owned by the stockholder
immediately after the purchase is less than 80% of the percentage of the
previously outstanding voting common stock actually and constructively
owned by the stockholder immediately before the purchase.
o Not Essentially Equivalent to a Dividend Test. The distribution will be
treated as "not essentially equivalent to a dividend" if the reduction in
the stockholder's proportionate interest actually and constructively owned
constitutes a "meaningful reduction" given the stockholder's particular
circumstances. Whether the receipt of a cash payment will be "not
essentially equivalent to a dividend" will depend upon the stockholder's
particular facts and circumstances. Stockholders should consult their tax
advisors as to the application of this test in their particular
circumstances.
If a stockholder receives only cash payments and satisfies any of the
section 302 tests described above, the stockholder will be treated as if it sold
its common stock and will recognize capital gain or loss as described above.
If a stockholder does not satisfy any of the section 302 tests described
above, the purchase of a stockholder's common stock will not be treated as a
sale or exchange under section 302 of the Code. Instead, the amount received by
a stockholder in the redemption will be treated as a dividend distribution under
section 301 of the Code, taxable at ordinary income tax rates, to the extent,
first, of the stockholder's applicable share of Westan's current earnings and
profits, as defined for U.S. federal income tax purposes, and, second, of the
U.S. stockholder's applicable share of Westan's current earnings and profits, as
defined for U.S. federal income tax purposes. To the extent the amount exceeds
the stockholder's applicable share of current and accumulated earnings and
profits, the excess first will be treated as a tax free return of capital to the
extent of the stockholder's basis in its common stock and any remainder will be
treated as capital gain, which may be long term capital gain as described above.
The determination of whether a corporation has earnings and profits is complex
and the legal standards to be applied are subject to uncertainties and
ambiguities. Additionally, the amount of current earnings and profits can be
determined only at the end of the taxable year. Accordingly, it is unclear
whether Westan will have sufficient current and accumulated earnings and profits
to cover the amount of any payment made to stockholders. To the extent that a
redemption is treated as the receipt by the stockholder of a dividend, the
stockholder's tax basis in the redeemed shares will be added to any shares of
common stock retained or sold by the stockholder, and may be lost if the
stockholder does not actually retain any stock ownership in Westan.
Backup Withholding
A stockholder whose common stock is converted to cash pursuant to the
merger may be subject to backup withholding equal to the fourth lowest tax rate
under section 1(c) of the Code with respect to the gross proceeds from the
conversion of such common stock unless such stockholder (1) is a corporation or
other exempt recipient and, when required, establishes this exemption or (2)
provides its correct taxpayer identification number, certifies that it is not
currently subject to backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder who does not provide
Westan with its correct taxpayer identification number may be subject to
penalties imposed by the IRS. Any amount withheld under these rules will be
credited against the stockholder's federal income tax liability.
Westan will report to stockholders and to the IRS the amount of any
reportable payments, including payments made to stockholders pursuant to the
merger, and any amount withheld pursuant to the merger.
Each stockholder should consult his, her or its own tax advisor with
respect to the particular tax consequences to it of the transactions described
herein, including the applicability and effect of state, local and foreign tax
law.
Fees and Expenses
Whether or not the merger is consummated, except as otherwise described
herein, all fees and expenses incurred in connection with the merger will be
paid by the party incurring such fees and expenses.
Estimated fees and expenses (rounded to the nearest thousand, except for
the SEC filing fee) incurred or to be paid by Westan or SKI in connection with
the merger, the financing and related transactions are as follows:
Westan SKI
------ ---
Special Committee's financial advisor's fees and
expenses (1) $ 61,400 $ --
Special Committee's fees 5,000 --
Legal and accounting fees and expenses 30,000 30,000
Printing and solicitation fees and expenses 20,000 --
SEC filing fees 183 --
---
Total $116,583 $30,000
======== =======
- ----------
(1) See "Special Factors--Opinion of Financial Advisor to the Special Committee."
To the extent not paid by SKI or Westan prior to consummation of the
merger, all such fees and expenses will be paid by SKI if the merger is
consummated. If the merger is not consummated, each party will bear its
respective fees and expenses, as provided in the merger agreement. SKI will loan
Westan approximately $100,000 which will be used by Westan to defray its merger
costs. The loan with interest at 6% per annum will be repayable on demand
although SKI recognizes that Westan has little or no present ability to repay
the loan. If the merger is not consummated through the fault of SKI, the loan
obligation will be cancelled. See "The Merger Agreement--Fees and Expenses."
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement and the amendment thereto, copies of which are attached as Annex A to
this proxy statement. This summary is qualified in its entirety by reference to
the full text of the merger agreement.
The Merger; Merger Consideration
The merger agreement provides that the merger will become effective upon
the filing of articles of merger with the Secretary of State of the State of
Wyoming or at such other time, not to exceed 30 days after such filing, as the
parties may agree and specify in the certificate of merger (the "effective
time"). If the merger is approved at the special meeting by the holders of at
least a majority of all outstanding shares of common stock, and the other
conditions to the merger are satisfied, it is currently anticipated that the
merger will be consummated in early 2005; however, there can be no assurance as
to the timing of the consummation of the merger or that the merger will be
consummated.
At the effective time of the merger, LZ Acquisition will be merged with and
into Westan, the separate corporate existence of LZ Acquisition will cease and
Westan will continue as the surviving corporation. At the effective time:
o each share of Westan common stock, issued and outstanding immediately prior
to the effective time (other than common stock held by Messrs. Lopez and
Peck and their affiliates, SKI, LZ Acquisition, or dissenting stockholders)
will, by virtue of the merger and without any action on the part of the
holder thereof, be converted into and become the right to receive $0.32 per
share, without interest;
o each share of Westan common stock issued and outstanding immediately prior
to the effective time that is owned by SKI or LZ Acquisition will
automatically be canceled, retired and cease to exist and no payment will
be made with respect thereto;
o each share of common stock of LZ Acquisition issued and outstanding
immediately prior to the effective time will be converted into and become
one share of common stock of Westan as the surviving corporation and will
constitute the only outstanding share of capital stock of Westan;
o dissenting stockholders who do not vote to approve the merger agreement and
who otherwise strictly comply with the provisions of the Wyoming Business
Corporation Act regarding statutory appraisal rights have the right to seek
a determination of the fair value of the shares of common stock and payment
in cash therefor in lieu of the merger consideration of $0.32 per share
(see "Dissenters' Rights of Appraisal"); and
o each certificate representing shares of Westan common stock that have been
converted to cash under the terms of the merger agreement will, after the
effective time, evidence only the right to receive, upon the surrender of
such certificate, an amount of cash per share equal to $0.32, without
interest.
Treatment of Certain Shares Held by the Buyers
On or immediately prior to the effective time, Messrs. Lopez and Peck and
their affiliates will contribute his or their interests in Westan to SKI in
exchange for membership interests of SKI. The shares of Westan common stock held
by SKI will, pursuant to the merger agreement, be canceled in the merger and no
consideration will be paid therefor. The one share of LZ Acquisition now held by
SKI will automatically be converted into one share of Westan which will be the
only Westan share outstanding after the effective time of the merger.
The Exchange Fund; Payment for Shares of Westan Common Stock
On or before the closing date of the merger, SKI will enter into an
agreement with a bank, trust company or other exchange agent selected by SKI and
reasonably satisfactory to Westan (the "exchange agent"). As of the effective
time, SKI or Westan will deposit or cause to be deposited with the exchange
agent cash in the amount equal to the aggregate merger consideration (such
amount being defined as the number of shares to be purchased multiplied by
$0.32, and hereinafter referred to as the "exchange fund") for the benefit of
holders of shares of Westan common stock (other than common stock held by
dissenting stockholders and shares to be canceled without consideration pursuant
to the merger agreement).
Within five days following the effective time, the exchange agent will mail
to each holder of record of shares of common stock that have been converted
pursuant to the merger agreement into the right to receive merger consideration,
a letter of transmittal and instructions for use in surrendering certificates in
exchange for the merger consideration. No stockholder should surrender any
certificate until the stockholder receives the letter of transmittal and other
instructions relating to surrender. Upon surrender of a certificate for
cancellation to the exchange agent, together with a letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to the
instructions, the holder of such certificate will be entitled to receive in
exchange therefor the merger consideration into which the number of shares of
common stock previously represented by such certificate shall have been
converted pursuant to the merger agreement, without any interest thereon, and
the certificates so surrendered will be canceled.
If payment of the merger consideration is to be made to a person other than
the person in whose name the certificate surrendered is registered, it will be a
condition of payment that the certificate so surrendered will be properly
endorsed (together with signature guarantees on such certificate) or otherwise
be in proper form for transfer and that the person requesting such payment pay
to the exchange agent any transfer or other taxes required by reason of the
payment of the merger consideration to a person other than the registered holder
thereof or establish to the satisfaction of the exchange agent that such tax has
been paid or is not applicable.
Stockholders should not send their certificates now and should send them
only pursuant to instructions set forth in the letter of transmittal to be
mailed to stockholders promptly after the effective time. In all cases, the
merger consideration will be paid only in accordance with the procedures set
forth in this proxy statement and the letter of transmittal.
After three hundred and sixty-five days from the effective time, the
exchange agent will deliver to Westan, or otherwise at the direction of Westan,
any portion of the exchange fund that remains undistributed to or unclaimed by
the holders of certificates (including the proceeds of any investments thereof).
Any holders of certificates who have not theretofore complied with the above-
described procedures to receive payment of the merger consideration may then
look only to Westan for payment of the merger consideration to which they are
entitled.
Transfers of Common Stock
At the effective time, Westan's stock transfer books will be closed, and
there will be no further transfers of certificates on the records of Westan or
its transfer agent. If, after the effective time certificates are presented to
the exchange agent or Westan, they will be canceled and exchanged for the merger
consideration as provided above and pursuant to the terms of the merger
agreement (subject to applicable law in the case of dissenting stockholders).
Conditions to the Merger
The respective obligations of SKI and LZ Acquisition and of Westan to
consummate the merger are subject to the fulfillment or waiver (to the extent
permitted by applicable law) at or prior to the effective time of certain
conditions including the following:
o the merger agreement shall have been adopted by the requisite vote of the
stockholders of Westan in accordance with Wyoming Business Corporation Act;
and
o none of the parties to the merger agreement shall be subject to any order
or injunction of any governmental authority of competent jurisdiction that
prohibits the consummation of the merger; if any such order or injunction
shall have been issued, each party has agreed to use its reasonable best
efforts to have such order overturned or injunction lifted.
Unless waived by Westan, the obligation of Westan to effect the merger is
also subject to the following additional conditions:
o SKI and LZ Acquisition shall have performed in all material respects their
agreements contained in the merger agreement required to be performed on or
prior to the effective time and the representations and warranties of SKI
and LZ Acquisition contained in the merger agreement shall be true and
correct on and as of the effective time as if made at and as of such date
(except to the extent that such representations and warranties speak as of
an earlier date), except for failures to perform or to be true and correct
that would not reasonably be expected to have a material adverse effect on
SKI or LZ Acquisition, and Westan shall have received a certificate of the
chief executive officer or chief financial officer of SKI to that effect.
Unless waived by SKI and LZ Acquisition, the obligations of SKI and LZ
Acquisition to effect the merger are subject to the following additional
conditions:
o Westan shall have performed in all material respects its agreements
contained in the merger agreement required to be performed on or prior to
the effective time and the representations and warranties of Westan
contained in the merger agreement shall be true and correct on and as of
the effective time as if made at and as of such date (except to the extent
that such representations and warranties speak as of an earlier date),
except for failures to perform and to be true and correct that would not
reasonably be expected to have a material adverse effect on Westan, and SKI
shall have received a certificate of the chief executive officer or the
chief financial officer of Westan to that effect;
o no suit, action or other claim shall have been instituted by any
shareholder or third party challenging the merger; and
o the number of dissenting shares shall constitute not more than 5% of the
shares of Westan outstanding immediately prior to the effective time.
Representations and Warranties
The merger agreement contains representations and warranties of SKI and LZ
Acquisition and Westan.
The representations and warranties of SKI and LZ Acquisition relate to,
among other things:
o their respective organization and qualification to do business;
o their authority to enter into and consummate the merger agreement and the
transactions contemplated thereby;
o the absence of a conflict between the merger agreement and the transactions
contemplated thereby, with laws applicable to, and material agreements of,
SKI and LZ Acquisition;
o the consents and filings required with respect to the merger agreement and
the transactions contemplated thereby;
o the accuracy of the information provided by SKI and LZ Acquisition for
inclusion in this proxy statement and in filings to be made with the SEC
with respect to the proposed merger;
o approval of the merger agreement by the stockholders of SKI and LZ
Acquisition; and
o the lack of brokers used by SKI and LZ Acquisition.
The representations and warranties of Westan relate to, among other things:
o the organization and qualification to do business of Westan and its
subsidiaries;
o the capitalization of Westan;
o Westan's and its subsidiaries' authority to enter into and consummate the
merger agreement and the transactions contemplated thereby;
o the absence of a conflict between the merger agreement and the transactions
contemplated thereby, with laws applicable to, and material agreements of,
Westan and its subsidiaries;
o the consents and filings required with respect to the merger agreement and
the transactions contemplated thereby;
o the accuracy of previous filings made with the SEC;
o compliance with law and contracts;
o the accuracy of the proxy statement and filings made with the SEC with
respect to the proposed merger;
o the absence of undisclosed liabilities and changes in the business of
Westan;
o the status of litigation;
o compliance with respect to taxes, employee plans and environmental matters;
o title to properties;
o the required vote of stockholders of Westan with respect to the proposed
merger; and
o the lack of brokers used by Westan.
Covenants
Westan has agreed to operate, and to cause each of its subsidiaries to
operate, their respective businesses in the ordinary and usual course prior to
the effective time. In this regard, Westan has agreed that it will not, without
the consent of SKI, engage in certain types of transactions. Specifically,
Westan has agreed that prior to the effective time, Westan shall, and shall
cause its subsidiaries to:
o conduct their respective businesses in the ordinary and usual course of
business and consistent with past practice;
o not (a) amend or propose to amend their respective articles of
incorporation or bylaws or equivalent constitutional documents, (b) split,
combine or reclassify their outstanding capital stock, or (c) declare, set
aside or pay any dividend or distribution payable in cash, stock, property
or otherwise, except for the payment of dividends or distributions to
Westan or a wholly-owned subsidiary of Westan by a director or indirect
wholly-owned subsidiary of Westan;
o not issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or any options, warrants or rights of
any kind to acquire any shares of, their capital stock of any class or any
debt or equity securities convertible into or exchangeable for any such
capital stock, except that Westan may issue shares upon the exercise of
options outstanding on the date hereof;
o not (a) incur or become contingently liable with respect to any
indebtedness for borrowed money other than borrowings in the ordinary
course of business or borrowings under the existing credit facilities of
Westan or of any of its subsidiaries up to the existing borrowing limit,
and borrowings to refinance existing indebtedness on terms which are
reasonably acceptable to SKI; (b) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock other than in
connection with the exercise of outstanding options pursuant to the terms
of Westan's option plans; (c) without SKI's consent, or except as
previously disclosed to SKI, make any acquisition of any assets or
businesses other than expenditures for current assets in the ordinary
course of business and expenditures for fixed or capital assets in the
ordinary course of business; (d) without SKI's consent acquire any property
in Wyoming; (e) sell, pledge, dispose of or encumber any assets or
businesses other than sales of businesses or assets disclosed to SKI,
pledges or encumbrances pursuant to existing edit facilities or other
permitted borrowings, sales of real estate assets or facilities for cash
consideration (including any debt assumed by the buyer of such real estate,
assets or facilities) to non-affiliates of Westan of less than $100,000 in
each such case and $500,000 in the aggregate, sales or dispositions of
businesses or assets as may be required by applicable law, and sales or
dispositions of assets in the ordinary course, or (f) enter into any
binding contract, agreement, commitment or arrangement with respect to any
of the foregoing;
o use all reasonable efforts to preserve intact their respective business
organizations and goodwill, keep available the services of their respective
present officers and key employees, and preserve the goodwill and business
relationships with customers and others having business relationships with
them, other than as expressly permitted by the terms of the merger
agreement;
o not enter into, amend, modify or renew any employment, consulting,
severance or similar agreement with, or grant any salary, wage or other
increase in compensation or increase in any employee benefit to, any
director or officer of Westan or of any of its subsidiaries, except (a) for
changes that are required by applicable law, (b) to satisfy existing
obligations, or (c) in the ordinary course of business consistent with past
practice;
o not enter into, establish, adopt, amend or modify any pension, retirement,
stock purchase, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare
plan, agreement, program or arrangement, in respect of any director,
officer or employee of Westan or of any of its subsidiaries, except in each
such case as may be required by applicable law or by the terms of
contractual obligations existing as of the date hereof, including any
collective bargaining agreement;
o not make expenditures, including, but not limited to, capital expenditures,
or enter into any binding commitment or contract to make expenditures,
except (a) expenditures which Westan or its subsidiaries are currently
contractually committed to make, (b) other expenditures not exceeding
$250,000 individually or $500,000 in the aggregate, (c) for emergency
repairs and other expenditures necessary in light of circumstances not
anticipated as of the date of the merger agreement which are necessary to
avoid significant disruption to Westan's business or operations consistent
with past practice (and, if reasonably practicable, after consultation with
SKI), or (d) for repairs and maintenance in the ordinary course of business
consistent with past practice;
o not make, change or revoke any material tax election unless required by law
or make any agreement or settlement with any taxing authority regarding any
material amount of taxes or which would reasonably be expected to
materially increase the obligations of Westan to pay taxes in the future;
and
o not settle or compromise any litigation to which Westan or any of its
subsidiaries is a party or with respect to which they may incur liability
in excess of $250,000 per action or claim or $500,000 for all actions and
claims in the aggregate.
Nothing contained in the merger agreement is intended to give SKI, directly
or indirectly, rights to control or direct Westan's operations prior to the
effective time. Prior to the effective time, Westan will exercise, consistent
with the terms and conditions of the merger agreement, complete control and
supervision of its operations.
Westan and SKI have made further agreements regarding, among other things,
advising each other of representations or warranties contained in the merger
agreement becoming untrue, of their respective failure to comply with or satisfy
covenants, conditions or agreements contained in the merger agreement, and of
any change, event or circumstance that could reasonably be expected to have a
material adverse effect on such party or on its ability to consummate the
proposed merger, cooperating in the preparation of required governmental
filings, in obtaining required permits and regulatory approvals and in the
release of public announcements, and granting access to information and
maintaining confidentiality.
The merger agreement provides that, prior to the effective time or earlier
termination of the merger agreement, except as described below, Westan will not,
and will not permit any of its subsidiaries to, initiate, solicit, negotiate,
encourage or provide confidential information to facilitate, and Westan will use
all reasonable efforts to cause any officer, director or employee of Westan, or
any attorney, accountant, investment banker, financial advisor or other agent
retained by it or any of its subsidiaries not to, initiate, solicit, negotiate,
encourage or provide non-public or confidential information to facilitate, any
proposal or offer to acquire all or any substantial part of the business,
properties or capital stock of Westan, whether by merger, purchase of assets,
tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transactions being referred to
herein as an "Acquisition Transaction").
Notwithstanding the limitations described above, Westan may, prior to
receipt of Westan's stockholders' approval of the merger agreement, in response
to an unsolicited bona fide written offer or proposal with respect to a
potential or proposed Acquisition Transaction ("Acquisition Proposal") from a
corporation, partnership, person or other entity or group (a "Potential
Acquirer") which Westan's board of directors determines in good faith and after
consultation with the special committee's independent financial advisor, could
reasonably be expected to result (if consummated pursuant to its terms) in an
Acquisition Transaction more favorable to Westan's stockholders than the merger
(a "Qualifying Proposal"), furnish (subject to the execution of a
confidentiality agreement) confidential or non-public information to, and
negotiate with, such Potential Acquirer, may resolve to accept, or recommend,
and, upon termination of the merger agreement and after payment to SKI of the
fee described under "--Termination" below, enter into agreements relating to, a
Qualifying Proposal which Westan's board of directors, in good faith, has
determined is reasonably likely to be consummated. Westan's board of directors
may also take and disclose to Westan's stockholders a position contemplated by
Rule 14e-2 under the Exchange Act (stating Westan's position on any third-party
tender offers) or otherwise make disclosure required by the federal securities
laws.
Termination of the Merger Agreement
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the effective time (notwithstanding any approval of the merger
agreement by the stockholders of Westan):
o by mutual written consent of Westan and SKI;
o by either Westan or SKI, if the merger has not been consummated by March
31, 2005, unless extended by the parties, provided that the right to
terminate the merger agreement is not available to any party whose failure
to fulfill any of its obligations under the merger agreement has been the
cause of or resulted in the failure to consummate the merger by such date;
o by either Westan or SKI if any judgment, injunction, order or decree of a
court or governmental agency or authority of competent jurisdiction
restrains or prohibits the consummation of the merger, and such judgment,
injunction, order or decree becomes final and nonappealable and was not
entered at the request of the terminating party;
o by either Westan or SKI, if (a) there has been a breach by the other party
of any representation or warranty contained in the merger agreement which
has not been cured in all material respects within 30 days after written
notice of such breach by the terminating party, or (b) there has been a
breach of any of the covenants or agreements set forth in the merger
agreement on the part of the other party, which is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the terminating party to the other party;
o by Westan if, prior to receipt of Westan stockholders' approval of the
merger agreement, Westan receives a superior proposal, resolves to accept
such superior proposal, and gives SKI two days' prior written notice of its
intention to terminate the merger agreement, however such termination will
not be effective until such time as the payment discussed below under
"--Fees and Expenses" has been received by SKI;
o by SKI, if the board of directors of Westan has failed to recommend, or
withdraws, modifies or amends in any material respect its approval or
recommendation of the merger or resolves to do any of the foregoing, or has
recommended another Acquisition Proposal or if the board of directors of
Westan has resolved to accept a superior proposal or has recommended to the
stockholders of Westan that they tender their shares in a tender or an
exchange offer commenced by a third party (excluding any affiliate of SKI
or any group of which any affiliate of Westan is a member);
o by SKI, if any suit, action or other claim shall have been instituted by
any shareholder or third party challenging the merger; or
o by Westan or SKI if the stockholders of Westan fail to approve the merger
at a duly held meeting of stockholders called for such purpose (including
any adjournment or postponement thereof) or by SKI if holders of more than
5% of Westan's outstanding shares vote against the merger and exercise
their dissenters' rights.
Fees and Expenses
All costs and expenses incurred in connection with the merger agreement and
the transactions contemplated thereby will be paid by the party incurring such
expenses.
Westan agreed to pay SKI a fee in the amount of $50,000 if:
o Westan terminates the merger agreement because, prior to receipt of
Westan's stockholders' approval, it has received a superior proposal from a
third party and resolves to accept the superior proposal;
o SKI terminates the merger agreement because the board of directors of
Westan has failed to recommend, or withdraws, modifies or amends in any
material respect its approval of the merger, has recommended a superior
proposal, has resolved to accept a superior proposal or has recommended a
third party tender or exchange offer to stockholders; or
o the merger agreement is terminated for any reason at a time at which SKI
was not in material breach of its representations, warranties, covenants
and agreements contained in the merger agreement and was entitled to
terminate the merger agreement because Westan stockholders failed to
approve the merger at a duly called meeting and (a) prior to the time of
the stockholders' meeting a proposal by a third party relating to an
Acquisition Transaction had been publicly proposed or publicly announced,
and (b) on or prior to the 12 month anniversary of the termination of the
merger agreement Westan or any of its subsidiaries or affiliates enters
into an agreement or letter of intent (or resolves or announces an
intention to do so) with respect to an Acquisition Transaction involving a
person, entity or group if such person, entity, group (or any member of
such group, or any affiliate of any of the foregoing) made a proposal with
respect to an Acquisition Transaction on or after the date of the merger
agreement and prior to the stockholders' meeting and such Acquisition
Transaction is consummated.
SKI will release Westan from loans made to Westan in the approximate amount
of $100,000 if SKI fails to consummate the merger by 12:00 noon Mountain Time on
March 31, 2005, unless extended by the parties, if Westan has satisfied the
conditions to closing the merger required of it, unless the failure to do so
resulted from breach of a representation, warranty or covenant of SKI or LZ
Acquisition under the merger agreement. If SKI fails to close the merger,
release of the loans will be considered Westan's liquidated damages.
Amendment/Waiver
Before or after approval of the merger agreement by the stockholders, the
merger agreement may be amended by the written agreement of the parties thereto
at any time prior to the effective time if such amendment is approved by their
respective boards of directors.
At any time prior to the effective time, Westan, SKI and LZ Acquisition may
extend the time for performance of any of the obligations or other acts of the
other parties to the merger agreement, waive any inaccuracies in the
representations and warranties contained in the merger agreement or in any
document delivered pursuant to the merger agreement, or waive compliance with
any agreements or conditions contained in the merger agreement. Any extension or
waiver will be valid only if set forth in writing and signed by the party making
such extension or waiver.
THE VOTING AGREEMENTS
Manuel B. Lopez, James M. Peck, officers and directors of Westan and their
affiliates, entered into voting agreements on November 15, 2004. The agreements
cover 5,438,213 shares, or approximately 54% of Westan's outstanding shares.
These persons have agreed that they will vote in accordance with the majority of
shares cast for or against the proposed transaction by unaffiliated stockholders
voting in person or by proxy at the special meeting. The agreements will
terminate automatically on the earliest of:
o the date on which the merger agreement is terminated;
o the closing of the merger agreement; and
o March 31, 2005 unless extended by the parties.
DISSENTERS' RIGHTS OF APPRAISAL
The following is a summary of dissenters' rights available to Westan
stockholders, which summary is not intended to be a complete statement of
applicable Wyoming law and is qualified in its entirety by reference to Article
13 of the Wyoming Business Corporation Act ("WBCA"), which is set forth in its
entirety as Annex C.
Right to Dissent
Westan stockholders are entitled to dissent from the merger and obtain
payment of the fair value of their shares if and when the merger is effectuated.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effective time of the merger, excluding any
appreciation or depreciation in anticipation of the merger except to the extent
that exclusion would be inequitable. Under Article 13 of the WBCA, a stockholder
entitled to dissent and obtain payment for his, her or its shares may not also
challenge the corporate action creating the right to dissent unless the action
is unlawful or fraudulent with respect to the stockholder or the corporation.
Under Section 7-16-1303(a) of the WBCA a record stockholder may assert
dissenters' rights as to fewer than all shares registered in the record
stockholder's name only if the record stockholder dissents with respect to all
shares beneficially owned by any one person and causes the corporation to
receive written notice which states such dissent and the name, address and
federal taxpayer identification number, if any, of each person on whose behalf
the record stockholder asserts dissenters' rights.
Section 7-16-1303(b) of the WBCA provides that a beneficial stockholder may
assert dissenters' rights as to the shares held on the beneficial stockholder's
behalf only if (a) the beneficial stockholder causes the corporation to receive
the record stockholder's written consent to the dissent not later than the time
the beneficial stockholder asserts dissenters' rights and (b) the beneficial
stockholder dissents with respect to all shares beneficially owned by the
beneficial stockholder.
Westan will require that, when a record stockholder dissents with respect
to the shares held by any one or more beneficial stockholders, each such
beneficial stockholder must certify to Westan that the beneficial stockholder
has asserted, or will timely assert, dissenters' rights as to all such shares as
to which there is no limitation on the ability to exercise dissenters' rights.
Procedure for Exercise of Dissenters' Rights
The notice accompanying this proxy statement states that stockholders of
Westan are entitled to assert dissenters' rights under Article 13 of the WBCA. A
Westan stockholder who wishes to assert dissenters' rights shall: (a) cause
Westan to receive before the vote is taken on the merger at the special meeting,
written notice of the stockholder's intention to demand payment for the
stockholder's shares if the merger is effectuated; and (b) not vote the shares
in favor of the merger. A Westan stockholder who does not satisfy the foregoing
requirements will not be entitled to demand payment for his or her shares under
Article 13 of the WBCA.
Dissenters' Notice
If the merger is approved at the special meeting, Westan will send written
notice to dissenters who are entitled to demand payment for their shares. The
notice required by Westan will be given no later than 10 days after the
effective time and will: (a) state that the merger was authorized and state the
effective time or proposed effective date of the merger, (b) set forth an
address at which Westan will receive payment demands and the address of a place
where certificates must be deposited, (c) supply a form for demanding payment,
which form shall request a dissenter to state an address to which payment is to
be made, (d) set the date by which Westan must receive the payment demand and
certificates for shares, which date will not be less than 30 days nor more than
60 days after the date the notice is given, (e) state that if a record Westan
stockholder dissents with respect to the shares held by any one or more
beneficial stockholders each such beneficial stockholder must certify to Westan
that the beneficial stockholder and the record stockholder or record
stockholders of all shares owned beneficially by the beneficial stockholder have
asserted, or will timely assert, dissenters' rights as to all such shares as to
which there is no limitation of the ability to exercise dissenters' rights, and
(f) be accompanied by a copy of Article 13 of the WBCA.
Procedure to Demand Payment
A stockholder who is given a dissenters' notice to assert dissenters'
rights will, in accordance with the terms of the dissenters' notice, (a) cause
Westan to receive a payment demand (which may be a demand form supplied by
Westan and duly completed or other acceptable writing) and (b) deposit the
stockholder's stock certificates. A stockholder who demands payment in
accordance with the foregoing retains all rights of a stockholder, except the
right to transfer the shares until the effective time, and has only the right to
receive payment for the shares after the effective time. A demand for payment
and deposit of certificates is irrevocable except that if the effective time
does not occur within 60 days after the date set by Westan by which it must
receive the payment demand, Westan will return the deposited certificates and
release the transfer restrictions imposed. If the effective time occurs more
than 60 days after the date set by Westan by which it must receive the payment
demand, then Westan will send a new dissenters' notice. A Westan stockholder who
does not demand payment and deposit his or her Westan share certificates as
required by the date or dates set forth in the dissenters' notice will not be
entitled to demand payment for his, her or its Westan shares under Article 13 of
the WBCA, in which case, pursuant to the merger agreement, he, she or it will
receive cash consideration for each of his, her or its shares equal to the per
share price received by non-dissenting stockholders.
Payment
At the effective time or upon receipt of a payment demand, whichever is
later, Westan will pay each dissenter who complied with the notice requirements
referenced in the preceding paragraph, the Westan estimate of the fair value of
the dissenter's shares plus accrued interest. Payment shall be accompanied by an
audited balance sheet as of the end of the most recent fiscal year of Westan or,
an audited income statement for that year, and an audited statement of changes
in stockholders' equity for that year and an audited statement of cash flow for
that year, as well as the latest available financial statements, if any, for the
interim period, which interim financial statements will be unaudited. Payment
will also be accompanied by a statement of the estimate by Westan of the fair
value of the shares and an explanation of how the interest was calculated, along
with a statement of the dissenter's right to demand payment and a copy of
Article 13 of the WBCA. With respect to a dissenter who acquired beneficial
ownership of his, her or its shares after Westan's first announcement of the
terms of the transaction on November 15, 2004, or who does not certify that his,
her or its shares were acquired before that date, Westan may, in lieu of making
the payment described above, offer to make such payment if the dissenter agrees
to accept it in full satisfaction of the demand.
If Dissenter is Dissatisfied with Offer
If a dissenter disagrees with the Westan payment or offer, such dissenter
may give notice to Westan in writing of the dissenter's estimate of the fair
value of the dissenter's shares and of the amount of interest due and may demand
payment of such estimate, less any payment made prior thereto, or reject the
offer of Westan and demand payment of the fair value of the shares and interest
due if: (a) the dissenter believes that the amount paid or offered is less than
the fair value of the shares or that the interest due was incorrectly
calculated, (b) Westan fails to make payment within 60 days after the date set
by Westan by which it must receive the payment demand or (c) Westan does not
return deposited certificates if the effective time is 60 days after the date
set by Westan by which the payment demand must be received by the stockholder
asserting dissenter's rights. A dissenter waives the right to demand payment
under this paragraph unless he or she causes Westan to receive the notice
referenced in this paragraph within 30 days after Westan makes or offers payment
for the shares of the dissenter, in which event, such dissenter will receive all
cash for his or her Westan shares in an amount equal to the amount paid or
offered by Westan.
Judicial Appraisal of Shares
If a demand for payment made by a dissenter as set forth above is
unresolved, Westan may, within 60 days after receiving the payment demand,
commence a proceeding and petition a court to determine the fair value of the
shares and accrued interest. If Westan does not commence the proceeding within
the 60 day period, it shall pay to each dissenter whose demand remains
unresolved the amount demanded. Westan must commence any proceeding described
above in the District Court of the County of Teton, Wyoming. Westan must make
all dissenters whose demands remain unresolved parties to the proceeding as in
an action against their shares, and all parties shall be served with a copy of
the petition. Jurisdiction in which the proceeding is commenced is plenary and
exclusive. One or more persons may be appointed by the court as appraisers to
receive evidence and recommend a decision on the question of fair value. The
appraisers will have the power described in the court order appointing them. The
parties to the proceeding will be entitled to the same discovery rights as
parties in other civil proceedings. Each dissenter made a party to the
proceeding will be entitled to judgment for the amount, if any, by which the
court finds the fair value of the dissenter's shares, plus interest, to exceed
the amount paid by Westan, or for the fair value, plus interest, of a
dissenter's shares for which Westan elected to withhold payment.
Court and Counsel Fees
The court in an appraisal proceeding shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court will assess the costs against Westan; except
that the court may assess costs against all or some of the dissenters, in the
amount the court finds equitable, to the extent the court finds that the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable: (a) against
Westan and in favor of the dissenters if the court finds that Westan did not
substantially comply with its obligations under the dissenter's rights statute,
or (b) against either Westan or one or more dissenters, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect to the
rights provided by Article 13 of the WBCA. If the court finds that the services
of counsel for any dissenter were of substantial benefit to the other dissenters
similarly situated, and that the fees for those services should not be assessed
against Westan, the court may award to such counsel reasonable fees to be paid
out of the amount awarded to the dissenters who were benefited.
Any written notice required to be sent to Westan by a Westan stockholder
electing to exercise his or her dissenter's rights under Article 13 of the WBCA
should be to James M. Peck at the offices of Westan, 400 East Snow King Avenue,
Post Office Box 1846, Jackson, Wyoming 83001.
MARKET FOR THE COMMON STOCK
Common Stock Market Price Information; Dividend Information
Westan's common stock is traded on the OTC Bulletin Board and in the pink
sheets under the symbol "WSTD." The following table shows, for the calendar
quarters indicated, the per share high and low closing prices of the common
stock based on published financial sources. WSTD trading volume has been
extremely low, and trading transactions have been isolated and sporadic in the
last several years. Westan has not paid any dividends on its common stock since
its inception in 1955.
Total
2002 Low High Share
---- Volume
------
First Quarter $0.05 $ 0.07 39,600
Second Quarter 0.06 0.05 29,200
Third Quarter 0.06 0.03 46,500
Fourth Quarter 0.05 0.03 90,200
Total
2003 Low High Share
---- Volume
------
First Quarter $0.03 $ 0.05 56,600
Second Quarter 0.03 0.05 14,700
Third Quarter 0.01 0.03 223,500
Fourth Quarter 0.01 0.25 360,260
Total
2004 Low High Share
---- Volume
------
First Quarter $0.11 $ 0.13 69,892
Second Quarter 0.08 0.11 75,400
Third Quarter 0.08 0.15 119,540
Fourth Quarter) 0.08 0.30 198,990
On November 15, 2004, the last day Westan's stock traded prior to the
public announcement of the merger transaction described in this proxy statement,
the closing price of its common stock on the OTC Bulletin Board was $0.12. On
November 20, 2004, the closing prices for the common stock on the OTC Bulletin
Board was $0.30. The market price for Westan common stock is subject to
fluctuation and stockholders are urged to obtain current market quotations.
As of November 20, 2004, there were 9,963,015 shares of our $0.05 par value
common stock issued and outstanding.
Common Stock Purchase Information
Neither Westan nor any of its executive officers or directors, or the
Buyers or any of their affiliates, has engaged in any transaction with respect
to Westan's common stock within the past 60 days. Since December 31, 2001, none
of the foregoing persons has purchased any of Westan's common stock, except that
on November 14, 2003 Manuel B. Lopez purchased 1,847,018 shares held by Stanford
E. Clark and his affiliates at a price of $0.29 per share.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Westan's common stock as of December 31, 2004 for: (a) each of its
directors and executive officers, (b) all of the directors and executive
officers as a group, and (c) each person known by Westan to be a beneficial
owner of more than 5% of its common stock. All information with respect to
beneficial ownership by our directors, executive officers or beneficial owners
has been furnished by the respective director, officer or beneficial owner, as
the case may be. Unless indicated otherwise, each of the stockholders has sole
voting and investment power with respect to the shares of common stock
beneficially owned.
Amount and Nature of Percent
Beneficial Ownership of
Name Direct Indirect Class
---- ------ -------- ----------
Stanford E. Clark................... -0- -0- -0-
Deborah Wilson Lopez &
Manuel B. Lopez, TTEES
Deborah Wilson Lopez
Living Trust, dated
February 25, 1997................... 1,500,000(1) 15.1%
Manuel B. Lopez &
Deborah Wilson Lopez, TTEES
Manuel B. Lopez
Living Trust, dated
February 25, 1997
P.O. Box 928
Jackson, Wyoming 83001.............. 2,582,122(1) -- 25.9%
James M. Peck.......................
Box 1233
Jackson, Wyoming 83001.............. 688,046(2) 668,045(2) 13.6%
David Peck
924 Nevada
Lovell, Wyoming 82431............... 668,046 -- 6.8%
John Peck
Box 1137
Jackson, Wyoming 83001.............. 668,045 -- 6.8%
Directors and executive
officers as a group
(three persons)................... 3,270,168 2,168,045 54.6%
- -------------
(1) These shares are owned by the respective trusts, dated February 25, 1997.
Manuel B. Lopez is a trustee of both trusts and may be deemed to have
voting and/or investment powers over the shares.
(2) James M. Peck, owns 688,046 shares directly and is the trustee of the
Elizabeth Ann Christensen Trust, a trust for his sister's benefit, that
owns 668,045 shares. Mr. Peck disclaims beneficial ownership of the shares
held by the Trust.
We have no shares authorized for issuance under any option, equity
compensation, or similar plan.
DIRECTORS AND MANAGEMENT
Westan
Set forth below are the name of each director and executive officer of
Westan and his position with Westan. Their business addresses are the same as
Westan: 400 East Snow King Avenue, Post Office Box 1846, Jackson, Wyoming 83001.
Each is a citizen of the United States of America. None of these persons has
been convicted in a criminal proceeding in the last five years nor has any of
them been a party to any judicial or administrative proceeding during that time
which resulted in a judgment, decree or final order enjoining the person from
future violations of or prohibiting activities subject to federal or state
securities laws or a finding of any violation of federal or state securities
laws. Also set forth below are the material occupations, positions, offices and
employment of each such person and the name of any corporation or other
organization in which any material occupation, position, office or employment of
each such person was held during the last five years. All directors and officers
are citizens of the United States.
Name Age Position(s) Held
---- --- ----------------
Manuel B. Lopez 61 President, Treasurer and a
director
James M. Peck 40 Secretary and a director
Stanford E. Clark* 87 A director
- -------------------
* On December 5, 2004, Mr. Clark died unexpectedly. No person has been
nominated or elected to fill his position as of the date of this proxy
statement.
Manuel B. Lopez was a Vice President and a director of Westan since 1979.
He became President upon the retirement of Mr. Clark on January 6, 2004. He has
also been the President and a director of Snow King Resort, Inc. ("SKRI") since
February, 1992. SKRI is our principal subsidiary. He has been President and a
director of Snow King Resort Management, Inc. ("SKRMI") since 1986. This company
is a management company which was co-owned by Messrs. Lopez and Clark until Mr.
Clark's retirement in 2004. It is now owned by Mr. Lopez.
James M. Peck has been a director of Westan since January 1, 1988,
corporate Secretary since 1999 and our Treasurer since January 6, 2004. Mr. Peck
also owns and operates a miniature golf course in Jackson, Wyoming. He acquired
a company that provides float trips on the Snake River near Jackson in 1993. He
has been a director and employee of SKRI since February, 1992.
Stanford E. Clark was President, Treasurer, Comptroller and a director of
Westan from 1957 through 1969 and from 1974 to January 6, 2004 when he retired
in all capacities except as one of our three directors. He was Treasurer and a
director of SKRI since February, 1992. He was Vice President and a director of
SKRMI from 1986 until his retirement in 2004.
No family relationships exist between or among any of our director and
executive officers. No director serves as a director of any other company with a
class of equity securities registered under the Securities Exchange Act of 1934
or a company registered as an investment company under the Investment Company
Act of 1940.
SKI and LZ Acquisition
Manuel B. Lopez and James M. Peck own 100% of SKI and Mr. Lopez is the
manager of SKI. Mr. Lopez and Mr. Peck comprise the board of directors of LZ
Acquisition. After the merger, Mr. Lopez and Mr. Peck will comprise the board of
directors of Westan. Mr. Lopez will continue to serve as Westan's President and
Mr. Peck will continue to serve as Secretary and Treasurer. The resumes of Mr.
Lopez and Mr. Peck are set forth above.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference certain forward-
looking statements and information relating to Westan that are based on the
beliefs of management as well as assumptions made by and information currently
available to Westan. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events or performance, and
underlying assumptions and other statements which are other than statements of
historical facts, including statements regarding the completion of the proposed
merger. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," "plan," "intend," "project," "predict," "may," and
"should" and similar expressions, are intended to identify forward-looking
statements. Such statements reflect the current view of Westan with respect to
future events, including the completion of the proposed merger, and are subject
to numerous risks, uncertainties and assumptions. Many factors could cause the
actual results, performance or achievements of Westan to be materially different
from any future results, performance or achievements that may be expressed or
implied by such forward-looking statements, including:
o the failure of stockholders to approve the merger agreement; intensity of
competition, particularly including the opening of new hotels and
recreational facilities by competitors in Westan's market area in 2002,
2003 and those to be opened in the future;
o adverse weather conditions;
o levels of tourism activity in general and in Jackson, Wyoming and the State
of Wyoming in particular;
o continued operating losses;
o working capital deficits;
o Westan's ability to meet significant debt obligations and covenants; and
o effects of national and regional economic and market conditions, labor and
marketing costs.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected, planned or
intended. Westan does not intend, or assume any obligation, to update these
forward-looking statements to reflect actual results, changes in assumptions or
changes in the factors affecting such forward-looking statements.
INDEPENDENT AUDITORS
The firm of Clifford H. Moore and Company has served as Westan's
independent auditors for more than 20 years. The consolidated financial
statements of Westan for each of the years in the two year period ended December
31, 2003 included in Westan's Annual Report on Form 10-KSB for the year ended
December 31, 2003 enclosed with this proxy statement, have been audited by
Clifford H. Moore and Company as stated in their reports appearing therein. It
is expected that representatives of Clifford H. Moore and Company will be
present at the special meeting, both to respond to appropriate questions of
stockholders of Westan and to make a statement if they so desire.
FINANCIAL STATEMENTS
See the financial statements for Westan included in its Annual Report on
Form 10-KSB for the year ended December 31, 2003 and in its Quarterly Report on
Form 10-QSB for the quarterly and nine months periods ended September 30, 2004,
both of which are enclosed with this proxy statement.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows Westan to "incorporate by reference" information into this
proxy statement, which means that Westan can disclose important information by
referring you to another document filed separately with the SEC. The following
documents previously filed by Westan with the SEC are included with this proxy
statement for your convenient review, and are incorporated by reference in this
proxy statement and are deemed to be a part hereof:
(1) Westan's Annual Report on Form 10-KSB for the year ended December 31, 2003;
(2) Westan's Quarterly Report on Form 10-QSB for the quarter and nine months
ended September 30, 2004; and
(3) Westan's Current Reports on Form 8-K dated November 15, 2004.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in this proxy statement modifies or replaces such
statement. The forward-looking statements made in the incorporated documents are
not protected by the safe harbor for forward-looking statements.
OTHER BUSINESS
Westan's board of directors does not know of any other matters to be
presented for action at the special meeting other than as set forth in this
proxy statement. If any other business should properly come before the special
meeting, the persons named in the enclosed proxy card intend to vote thereon in
accordance with their best judgment on the matter.
STOCKHOLDER MEETINGS AND PROPOSALS
Westan has decided not to hold an annual meeting of stockholders, because
of the merger proposal described in this proxy statement and the related special
meeting of stockholders. If the merger is consummated, there will no longer be
any unaffiliated stockholders of Westan and no public participation in any
future meetings of stockholders. However, if the merger is not consummated,
Westan's unaffiliated stockholders will continue to be entitled to attend and
participate in Westan's stockholders' meetings. In such case, its next annual
meeting would be held in May or June 2005. Pursuant to Rule 14a-8 under the
Exchange Act promulgated by the SEC, any stockholder of Westan who wished to
present a proposal at the next annual meeting of stockholders of Westan (in the
event the merger is not consummated), and who wished to have such proposal
included in Westan's proxy statement for that meeting, must have delivered a
copy of such proposal to Westan at 400 East Snow King Avenue, Post Office Box
1846, Jackson, Wyoming 83001, Attention: Secretary, so that it is received no
later than January 1, 2005. A stockholder proposal submitted outside the Rule
14a-8 process will be considered untimely if not received by Westan within a
reasonable time prior to the mailing of proxy material relating to the annual
meeting.
AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this proxy statement, in connection
with the merger agreement or the merger, and, if given or made, such information
or representations may not be relied upon as having been authorized by Westan,
SKI or LZ Acquisition. The delivery of this proxy statement shall not, under any
circumstances, create any implication that there has been no change in the
information set forth herein or in the affairs of Westan since the date hereof.
Because the merger is a "going private" transaction, SKI, LZ Acquisition,
the Buyers and Westan have filed with the SEC a Rule 13e-3 Transaction Statement
on Schedule 13E-3 under the Exchange Act with respect to the merger. This proxy
statement does not contain all of the information set forth in the Schedule
13E-3 and the exhibits thereto. Copies of the Schedule 13E-3 and the exhibits
thereto are available for inspection and copying at the principal executive
offices of Westan during regular business hours by any interested stockholder of
Westan, or a representative who has been so designated in writing, and may be
inspected and copied, or obtained by mail, by written request directed to
Secretary, Western Standard Corporation, 400 East Snow King Avenue, Post Office
Box 1846, Jackson, Wyoming 83001.
Westan is currently subject to the information requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy statements and
other information with the SEC relating to its business, financial and other
matters. Copies of such reports, proxy statements and other information, as well
as the Schedule 13E-3 and the exhibits thereto, may be copied (at prescribed
rates) at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
For further information concerning the SEC's public reference room, 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."
ANNEX A
Agreement and Plan of Merger
AGREEMENT AND PLAN OF MERGER
DATED AS OF
November 15, 2004
AMONG
WESTERN STANDARD CORPORATION
SNOW KING INTERESTS LLC
AND
LZ ACQUISITION, INC.
TABLE OF CONTENTS
ARTICLE I
THE MERGER; CLOSING
Section 1.01..................................................The Merger
Section 1.02..............................................Effective Time
Section 1.03.......................................Effects of the Merger
Section 1.04........................................Conversion of Shares
Section 1.05...........................................Payment of Shares
Section 1.06.................................................The Closing
Section 1.07..........................................Dissenters' Rights
ARTICLE II
THE SURVIVING CORPORATION; DIRECTORS AND OFFICERS
Section 2.01...................................Articles of Incorporation
Section 2.02......................................................Bylaws
Section 2.03......................................Directors and Officers
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Section 3.01..............................Organization and Qualification
Section 3.02.....................Authority; Non-Contravention; Approvals
Section 3.03.......................Proxy Statement and Other SEC Filings
Section 3.04.........................................Brokers and Finders
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.01..............................Organization and Qualification
Section 4.02..............................................Capitalization
Section 4.03................................................Subsidiaries
Section 4.04.....................Authority; Non-Contravention; Approvals
Section 4.05............................Reports and Financial Statements
Section 4.06..........................Absence of Undisclosed Liabilities
Section 4.07........................Absence of Certain Changes or Events
Section 4.08..................................................Litigation
Section 4.09.......................Proxy Statement and Other SEC Filings
Section 4.10.........................................No Violation of Law
Section 4.11..................................Compliance with Agreements
Section 4.12.......................................................Taxes
Section 4.13...............................Employee Benefit Plans; ERISA
Section 4.14.........................................Labor Controversies
Section 4.15.......................................Environmental Matters
Section 4.16.............................................Title to Assets
Section 4.17..........Company Stockholders' Approval; Neutralized Voting
Section 4.18.........................................Brokers and Finders
ARTICLE V
COVENANTS
Section 5.01.......Conduct of Business by the Company Pending the Merger
Section 5.02.........................Control of the Company's Operations
Section 5.03....................................Acquisition Transactions
Section 5.04.......................................Access to Information
Section 5.05...................................Notices of Certain Events
Section 5.06.......................Meeting of the Company's Stockholders
Section 5.07.......................Proxy Statement and Other SEC Filings
Section 5.08........................................Public Announcements
Section 5.09...........................................Expenses and Fees
Section 5.10......................................Agreement to Cooperate
Section 5.11....................Directors' and Officers' Indemnification
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.01.................Conditions to the Obligations of Each Party
Section 6.02Conditions to Obligation of the Company to Effect the Merger
Section 6.03Conditions to Obligations of Parent and Subsidiary to Effect the Merger
ARTICLE VII
TERMINATION
Section 7.01.................................................Termination
ARTICLE VIII
MISCELLANEOUS
Section 8.01.......................................Effect of Termination
Section 8.02...............Nonsurvival of Representations and Warranties
Section 8.03.....................................................Notices
Section 8.04..............................................Interpretation
Section 8.05...............................................Miscellaneous
Section 8.06................................................Counterparts
Section 8.07......................................Amendments; No Waivers
Section 8.08............................................Entire Agreement
Section 8.09................................................Severability
Section 8.10........................................Specific Performance
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
November 15, 2004 by and among Snow King Interests LLC, a Wyoming limited
liability company ("Parent"), LZ Acquisition, Inc., a Wyoming corporation wholly
owned by Parent ("Merger Subsidiary"), and Western Standard Corporation, a
Wyoming corporation (the "Company"). Parent, Merger Subsidiary and the Company
are referred to collectively herein as the "Parties."
WHEREAS, the respective Managers and Boards of Directors of Parent, Merger
Subsidiary and the Company have each approved the merger of Merger Subsidiary
with and into the Company on the terms and subject to the conditions set forth
in this Agreement (the "Merger");
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER; CLOSING
Section 1.01 The Merger. Upon the terms and subject to the conditions of
this Agreement, and in accordance with the Wyoming Business Corporation Act,
Sections 17-16-101 to 1803 of Chapter 16 of the Wyoming Statutes (the "WBCA"),
Merger Subsidiary shall be merged with and into the Company at the Effective
Time (as defined in Section 1.02). Following the Merger, the separate existence
of Merger Subsidiary shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") wholly-owned by Parent, and shall
succeed to and assume all the rights and obligations of Merger Subsidiary in
accordance with the WBCA.
Section 1.02 Effective Time. The Merger shall become effective when
articles of merger (the "Articles of Merger"), executed in accordance with the
relevant provisions of the WBCA, are filed with the Secretary of State of the
State of Wyoming; provided, however, that, upon mutual consent of the
constituent corporations to the Merger, the Articles of Merger may provide for a
later date of effectiveness of the Merger not more than 30 days after the date
the Articles of Merger are filed. When used in this Agreement, the term
"Effective Time" shall mean the date and time at which the Articles of Merger
are accepted for record or such later time established by the Articles of
Merger. The filing of the Articles of Merger shall be made on the date of the
Closing (as defined in Section 1.06).
Section 1.03 Effects of the Merger. The Merger shall have the effects set
forth in Section 17-16-1106 of the WBCA.
Section 1.04 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Subsidiary, the
Company or the holders of any of the following securities:
(a) each issued and outstanding share of the Company's common stock,
par value $0.05 per share ("Company Common Stock"), held by the Company as
treasury stock and each issued and outstanding share of Company Common
Stock owned by any subsidiary of the Company, Parent, Merger Subsidiary or
any other subsidiary of Parent shall be canceled and retired and shall
cease to exist, and no payment or consideration shall be made with respect
thereto;
(b) each issued and outstanding share of Company Common Stock, other
than shares of Company Common Stock referred to in paragraph (a) above,
shall be converted into the right to receive an amount in cash, without
interest, equal to $0.32 (the "Merger Consideration"). At the Effective
Time, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares of
Company Common Stock shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration, without interest; and
(c) each issued and outstanding share of capital stock or ownership
interest of Merger Subsidiary shall be converted into one fully paid and
nonassessable share of common stock, par value $0.05 per share, of the
Surviving Corporation.
Section 1.05 Payment of Shares. (a) Prior to the Effective Time, Parent
shall appoint a bank, trust company or transfer agent reasonably satisfactory to
the Company to act as disbursing agent (the "Disbursing Agent") for the payment
of Merger Consideration upon surrender of certificates representing the shares
of Company Common Stock. Parent will enter into a disbursing agent agreement
with the Disbursing Agent, in form and substance reasonably acceptable to the
Company. At or prior to the Effective Time, Parent shall deposit or cause to be
deposited with the Disbursing Agent in trust for the benefit of the Company's
stockholders cash in an aggregate amount necessary to make the payments pursuant
to Section 1.04 to holders of shares of Company Common Stock (such amounts being
hereinafter referred to as the "Exchange Fund"). The Disbursing Agent shall
invest the Exchange Fund, as the Surviving Corporation directs, in direct
obligations of the United States of America, obligations for which the full
faith and credit of the United States of America is pledged to provide for the
payment of all principal and interest or commercial paper obligations receiving
the highest rating from either Moody's Investors Service, Inc. or Standard &
Poor's, a division of The McGraw Hill Companies, or a combination thereof,
provided that, in any such case, no such instrument shall have a maturity
exceeding three months. Any net profit resulting from, or interest or income
produced by, such investments shall be payable to the Surviving Corporation. The
Exchange Fund shall be used only as provided in this Agreement.
(b)...Promptly (but no later than five days) after the Effective Time, the
Surviving Corporation shall cause the Disbursing Agent to mail to each person
who was a record holder as of the Effective Time of an outstanding certificate
or certificates which immediately prior to the Effective Time represented shares
of Company Common Stock (the "Certificates"), and whose shares were converted
into the right to receive Merger Consideration pursuant to Section 1.04(b), a
form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Disbursing Agent) and instructions
for use in effecting the surrender of the Certificates in exchange for payment
of the Merger Consideration. Upon surrender to the Disbursing Agent of a
Certificate, together with such letter of transmittal duly executed and such
other documents as may be reasonably required by the Disbursing Agent, the
holder of such Certificate shall be paid promptly in exchange therefor cash in
an amount equal to the product of the number of shares of Company Common Stock
represented by such Certificate multiplied by the Merger Consideration, and such
Certificate shall forthwith be canceled. No interest will be paid or accrue on
the cash payable upon the surrender of the Certificates. If payment is to be
made to a person other than the person in whose name the Certificate surrendered
is registered, it shall be a condition of payment that the Certificate so
surrendered be properly endorsed or otherwise be in proper form for transfer and
that the person requesting such payment pay any transfer or other taxes required
by reason of the payment to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
in accordance with this Section 1.05, each Certificate (other than Certificates
representing shares of Company Common Stock owned by any subsidiary of the
Company, Parent, Merger Subsidiary or any other subsidiary of Parent and shares
of Company Common Stock held in the treasury of the Company, which have been
canceled) shall represent for all purposes only the right to receive the Merger
Consideration in cash multiplied by the number of shares of Company Common Stock
evidenced by such Certificate, without any interest thereon.
(c)...From and after the Effective Time, there shall be no registration of
transfers of shares of Company Common Stock which were outstanding immediately
prior to the Effective Time on the stock transfer books of the Surviving
Corporation. From and after the Effective Time, the holders of shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock except as
otherwise provided in this Agreement or by applicable law. All cash paid upon
the surrender of Certificates in accordance with this Article I shall be deemed
to have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock previously represented by such Certificates. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, such Certificates shall be canceled and exchanged for cash as provided
in this Article I. At the close of business on the day of the Effective Time the
stock ledger of the Company shall be closed.
(d)...At any time more than 365 days after the Effective Time, the
Surviving Corporation shall be entitled to require the Disbursing Agent to
deliver to it any funds which had been made available to the Disbursing Agent
and not disbursed in exchange for Certificates (including, without limitation,
all interest and other income received by the Disbursing Agent in respect of all
such funds). Thereafter, holders of shares of Company Common Stock shall look
only to the Surviving Corporation (subject to the terms of this Agreement,
abandoned property, escheat and other similar laws) as general creditors thereof
with respect to any Merger Consideration that may be payable, without interest,
upon due surrender of the Certificates held by them. If any Certificates shall
not have been surrendered prior to five years after the Effective Time (or
immediately prior to such time on which any payment in respect hereof would
otherwise escheat or become the property of any governmental unit or agency),
the payment in respect of such Certificates shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
Notwithstanding the foregoing, none of Parent, the Company, the Surviving
Corporation nor the Disbursing Agent shall be liable to any holder of a share of
Company Common Stock for any Merger Consideration in respect of such share of
Company Common Stock delivered to a public official pursuant to any abandoned
property, escheat or other similar law.
(e)...If any Certificate has been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen, or destroyed and, if required by the Surviving Corporation, the
posting by such person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made against
the Surviving Corporation with respect to such Certificate, the Disbursing Agent
will deliver in exchange for such lost, stolen, or destroyed Certificate, the
appropriate Merger Consideration with respect to the shares of Company Common
Stock formerly represented by that Certificate.
(f)...The Surviving Corporation or the Disbursing Agent, as the case may
be, may deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of shares of Company Common Stock such amounts as
the Surviving Corporation or the Disbursing Agent, as the case may be, may be
required to deduct and withhold with respect to the making of any such payment
under the Internal Revenue Code of 1986, as amended, or any provision of state,
local, or foreign tax law. To the extent withheld by the Surviving Corporation
or the Disbursing Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holders of the shares of Company
Common Stock in respect of which such deduction and withholding was made.
Section 1.06 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the executive offices of the
Company in Jackson, Wyoming, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the Parties will take at the
Closing) or such other place and date as the Parties may mutually determine (the
"Closing Date").
Section 1.07 Dissenters' Rights. Notwithstanding anything in this Agreement
to the contrary, shares of Company Common Stock outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Merger
and who has dissented from the Merger in accordance with Chapter 16 of the WBCA
("Dissenting Shares") shall not be converted into the right to receive the
Merger Consideration as provided in Section 1.04(b), unless and until such
holder fails to perfect or withdraws or otherwise loses his right to payment
under the WBCA. If, after the Effective Time, any such holder fails to perfect
or withdraws or loses his right to such payment, such Dissenting Shares shall
thereupon be treated as if they had been converted as of the Effective Time into
the right to receive the Merger Consideration, if any, to which such holder is
entitled, without interest thereon. The Company shall give Parent and Merger
Subsidiary prompt notice of any notice of dissent received by Company and, prior
to the Effective Time, Parent and Merger Subsidiary shall have the right to
participate in all negotiations and proceedings with respect to such dissents.
Prior to the Effective Time, Company shall not, except with the prior written
consent of Parent and Merger Subsidiary, make any payment with respect to, or
settle or offer to settle, any such dissents.
ARTICLE II
THE SURVIVING CORPORATION; DIRECTORS AND OFFICERS
Section 2.01 Articles of Incorporation. The Articles of Incorporation of
the Company in effect at the Effective Time shall be the articles of
incorporation of the Surviving Corporation until amended in accordance with
applicable law and this Agreement.
Section 2.02 Bylaws. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation, until amended
in accordance with applicable law and this Agreement.
Section 2.03 Directors and Officers. The directors of Merger Subsidiary
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation as of the Effective Time. The officers of the Merger Subsidiary
shall be the officers of the Surviving Corporation as of the Effective Time,
subject to the right of the Board of Directors of the Surviving Corporation to
appoint or replace officers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary jointly and severally represent and warrant to
the Company that, except as set forth in the Disclosure Schedule dated as of the
date hereof and signed by an authorized officer of Parent (the "Parent
Disclosure Schedule"), it being agreed that disclosure of any item on the Parent
Disclosure Schedule shall be deemed disclosure with respect to all Sections of
this Agreement if the relevance of such item is reasonably apparent from the
face of the Parent Disclosure Schedule:
Section 3.01 Organization and Qualification. Parent is a limited liability
company and Merger Subsidiary is a corporation, in each case duly organized,
validly existing and in good standing under the laws of the state of its
organization and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted. Each of Parent and Merger Subsidiary is qualified to transact
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing would not reasonably be expected to have Parent Material
Adverse Effect. In this Agreement, the term "Parent Material Adverse Effect"
means an effect that is materially adverse to (i) the business, financial
condition or ongoing operations of Parent and its subsidiaries, taken as a whole
or (ii) the ability of Parent or any of its subsidiaries to obtain financing for
or to consummate any of the transactions contemplated by this Agreement.
Section 3.02 Authority; Non-Contravention; Approvals.
(a) Each of Parent and Merger Subsidiary has full power and authority
to enter into this Agreement and to consummate the transactions
contemplated hereby, including without limitation, the consummation of the
financing of the Merger. This Agreement and the Merger have been approved
and adopted by the Managers and Board of Directors of Parent and Merger
Subsidiary and Parent as the sole stockholder of Merger Subsidiary, and no
other proceeding on the part of Parent or Merger Subsidiary is necessary to
authorize the execution and delivery of this Agreement or the consummation
by Parent and Merger Subsidiary of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by each of Parent and
Merger Subsidiary and, assuming the due authorization, execution and
delivery hereof by the Company, constitutes a valid and legally binding
agreement of each of Parent and Merger Subsidiary enforceable against each
of them in accordance with its terms, except that such enforcement may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) general equitable principles.
(b)...The execution, delivery and performance of this Agreement by
each of Parent and Merger Subsidiary and the consummation of the Merger and
the transactions contemplated hereby, do not and will not violate, conflict
with or result in a breach of any provision of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security
interest or encumbrance upon any of the properties or assets of Parent or
any of its subsidiaries under any of the terms, conditions or provisions of
(i) the respective certificates of incorporation or bylaws of Parent or any
of its subsidiaries, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court
or governmental authority applicable to Parent or any of its subsidiaries
or any of their respective properties or assets, subject, in the case of
consummation, to obtaining (prior to the Effective Time) the Parent
Required Statutory Approvals (as defined in Section 3.02(c)), or (iii) any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of
any kind (each a "Contract" and collectively "Contracts") to which Parent
or any of its subsidiaries is now a party or by which Parent or any of its
subsidiaries or any of their respective properties or assets may be bound
or affected, except, with respect to any item referred to in clause (ii) or
(iii), for any such violation, conflict, breach, default, termination,
acceleration or creation of liens, security interests or encumbrances that
would not reasonably be expected to have a Parent Material Adverse Effect
and would not materially delay the consummation of the Merger.
(c)...Except for (i) applicable filings with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) filing of Articles of Merger
with the Secretary of State of the State of Wyoming in connection with the
Merger, and (iii) filings with and approvals by any regulatory authority
with jurisdiction over the Company's, Parent's or any Parent affiliate's
real estate operations required under any Federal, state, local or foreign
statute, ordinance, rule, regulation, permit, consent, approval, license,
judgment, order, decree, injunction or other authorization governing or
relating to the current or contemplated activities and operations of the
Company, Parent or any Parent affiliate (the filings and approvals referred
to in clauses (i) through (iii) being collectively referred to as the
"Parent Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by Parent or Merger Subsidiary, or
the consummation by Parent or Merger Subsidiary of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or
obtained, as the case may be, would not reasonably be expected to have a
Parent Material Adverse Effect and would not materially delay the
consummation of the Merger.
Section 3.03 Proxy Statement and Other SEC Filings. None of the information
supplied by Parent or its subsidiaries for inclusion in (i) any proxy statement
to be distributed in connection with the Company's meeting of stockholders to
vote upon this Agreement and the transactions contemplated hereby (the "Proxy
Statement"), at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, or at the time of the meeting of stockholders
of the Company to be held in connection with the transactions contemplated by
this Agreement, or (ii) the Schedule 13E-3 with respect to the transactions
contemplated hereby (the "Transaction Statement") at the time of the filing
thereof with the SEC or at any time the Transaction Statement is amended or
supplemented, will 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 the light of the circumstances under which they
are made, not misleading.
Section 3.04 Brokers and Finders. Except as disclosed in the Parent
Disclosure Schedule, Parent has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of the
Company to pay any investment banking fees, finder's fees or brokerage fees in
connection with the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Subsidiary that,
except as set forth in the disclosure schedule dated as of the date hereof and
signed by an authorized officer of the Company (the "Company Disclosure
Schedule"), it being agreed that disclosure of any item on the Company
Disclosure Schedule shall be deemed disclosure with respect to all Sections of
this Agreement if the relevance of such item is reasonably apparent from the
face of the Company Disclosure Schedule:
Section 4.01 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Wyoming and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. The Company is qualified to transact business and is in
good standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing would not reasonably be expected to have a Company Material Adverse
Effect. In this Agreement, the term "Company Material Adverse Effect" means an
effect that is materially adverse to (i) the business, financial condition or
ongoing operations of the Company and its subsidiaries, taken as a whole or (ii)
the ability of the Company to consummate any of the transactions contemplated by
this Agreement. True, accurate and complete copies of the Company's Articles of
Incorporation and bylaws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to Parent.
Section 4.02 Capitalization.
(a) The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock, par value $0.05 per share. As of September
30, 2004, (i) 9,963,015 shares of Company Common Stock were issued and
outstanding, all of which shares of Company Common Stock were validly
issued and are fully paid, nonassessable and free of preemptive rights,
(ii) no shares of Company Common Stock were held in the treasury of the
Company, and (iii) no shares of Company Common Stock were reserved for
issuance upon exercise of Options issued and outstanding. Since September
30, 2004, except as permitted by this Agreement or as set forth in the
Company Disclosure Schedule, (i) no shares of capital stock of the Company
have been issued and (ii) no options, warrants, securities convertible
into, or commitments with respect to the issuance of, shares of capital
stock of the Company have been issued, granted or made.
(b)...As of the date hereof, there are no outstanding subscriptions,
options, calls, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement and
including any rights plan or other anti-takeover agreement, obligating the
Company or any subsidiary of the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital
stock of the Company or obligating the Company or any subsidiary of the
Company to grant, extend or enter into any such agreement or commitment.
There are no outstanding stock appreciation rights or similar derivative
securities or rights of the Company or any of its subsidiaries. Except as
disclosed in the Company SEC Reports or as otherwise contemplated by this
Agreement, there are no voting trusts, irrevocable proxies or other
agreements or understandings to which the Company or any subsidiary of the
Company is a party or is bound with respect to the voting of any shares of
capital stock of the Company.
Section 4.03 Subsidiaries. Each direct and indirect subsidiary of the
Company is duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization and has the requisite power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted and each subsidiary of the Company
is qualified to transact business, and is in good standing, in each jurisdiction
in which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary; except, in all
cases, where the failure to be so organized, existing, qualified and in good
standing would not, singly or in the aggregate with all other such failures,
reasonably be expected to have a Company Material Adverse Effect. All of the
outstanding shares of capital stock of or other equity interests in each
subsidiary of the Company are validly issued, fully paid, nonassessable and free
of preemptive rights. There are no subscriptions, options, warrants, rights,
calls, contracts or other commitments, understandings, restrictions or
arrangements relating to the issuance or sale with respect to any shares of
capital stock of or other equity interests in any subsidiary of the Company,
including any right of conversion or exchange under any outstanding security,
instrument or agreement. For purposes of this Agreement, the term "subsidiary"
means, with respect to any specified person (the "Owner") any other person of
which more than 50% of the total voting power of shares of capital stock or
other equity interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, trustees or other
governing body thereof is at the time owned or controlled, directly or
indirectly, by such Owner or one or more of the other subsidiaries of such
Owner.
Section 4.04 Authority; Non-Contravention; Approvals.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and, subject to the Company Stockholders'
Approval (as defined in Section 6.01(a)) with respect solely to the Merger,
to consummate the transactions contemplated hereby. This Agreement and the
Merger have been approved and adopted by the Board of Directors of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement or,
except for the Company Stockholders' Approval with respect solely to the
Merger, the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company,
and, assuming the due authorization, execution and delivery hereof by
Parent and Merger Subsidiary, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
(ii) general equitable principles.
(b)...The execution, delivery and performance of this Agreement by the
Company and the consummation of the Merger and the transactions
contemplated hereby do not and will not violate, conflict with or result in
a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, contractually
require any offer to purchase or any prepayment of any debt, or result in
the creation of any lien, security interest or encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries under any of
the terms, conditions or provisions of (i) the respective articles or
certificates of incorporation or bylaws or other governing instruments of
the Company or any of its Material Subsidiaries, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or governmental authority applicable to the
Company or any of its subsidiaries or any of their respective properties or
assets, subject, in the case of consummation, to obtaining (prior to the
Effective Time) the Company Required Statutory Approvals (as defined in
Section 4.04(c)) and the Company Stockholders' Approval, or (iii) any
Contract to which the Company or any of its subsidiaries is now a party or
by which the Company or any of its subsidiaries or any of their respective
properties or assets may be bound or affected, subject, in the case of
consummation, to obtaining (prior to the Effective Time) consents required
from commercial lenders, lessors or other third parties as specified in
Section 4.04(b) of the Company Disclosure Schedule, except, with respect to
any item referred to in clause (ii) or (iii), for any such violation,
conflict, breach, default, termination, acceleration or creation of liens,
security interests or encumbrances that would not reasonably be expected,
individually or in the aggregate, to have a Company Material Adverse Effect
and would not materially delay the consummation of the Merger.
(c)...Except for (i) the filing of the Proxy Statement and the
Transaction Statement with the SEC pursuant to the Exchange Act, (ii) the
filing of Articles of Merger with the Secretary of State of the State of
Wyoming in connection with the Merger, and (iii) any filings with or
approvals from authorities required solely by virtue of the jurisdictions
in which Parent or its subsidiaries conduct any business or own any assets
(the filings and approvals referred to in clauses (i) through (iii) and
those disclosed in Section 4.04(c) of the Company Disclosure Schedule being
collectively referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as
the case may be, would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect and would not
materially delay the consummation of the Merger.
Section 4.05 Reports and Financial Statements. Since January 1, 2001, the
Company has filed with the SEC all forms, statements, reports and documents
(including all exhibits, post-effective amendments and supplements thereto) (the
"Company SEC Reports") required to be filed by it under each of the Securities
Act, the Exchange Act and the respective rules and regulations thereunder, all
of which, as amended if applicable, complied when filed in all material respects
with all applicable requirements of the applicable act and the rules and
regulations thereunder. As of their respective dates, the Company SEC Reports
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements of the Company
included in its Annual Report on Form 10-KSB for the year ended December 31,
2003 (the "Company Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes thereto) and present fairly in all
material respects the financial position of the Company and its subsidiaries as
of the dates thereof and the results of their operations and changes in
financial position for the periods then ended.
Section 4.06 Absence of Undisclosed Liabilities. Except as disclosed in the
Company SEC Reports or the Company Disclosure Schedule, neither the Company nor
any of its subsidiaries had at December 31, 2003, or has incurred since that
date and as of the date hereof, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except (a)
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Company Financial Statements or reflected in the notes thereto or
(ii) which were incurred after December 31, 2003 in the ordinary course of
business and consistent with past practice, (b) liabilities, obligations or
contingencies which (i) would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect, or (ii) have been
discharged or paid in full prior to the date hereof in the ordinary course of
business, and (c) liabilities, obligations and contingencies which are of a
nature not required to be reflected in the consolidated financial statements of
the Company and its subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied.
Section 4.07 Absence of Certain Changes or Events. Since the date of the
most recent Company SEC Report filed prior to the date of this Agreement that
contains consolidated financial statements of the Company, there has not been
any Company Material Adverse Effect.
Section 4.08 Litigation. Except as referred to in the Company SEC Reports,
there are no claims, suits, actions or proceedings pending or, to the knowledge
of the Company, threatened against, relating to or affecting the Company or any
of its subsidiaries, before any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator that would reasonably be
expected, individually or in the aggregate, to have a Company Material Adverse
Effect. Except as referred to in the Company SEC Reports, neither the Company
nor any of its subsidiaries is subject to any judgment, decree, injunction, rule
or order of any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator which prohibits the consummation
of the transactions contemplated hereby or would reasonably be expected,
individually or in the aggregate, to have a Company Material Adverse Effect.
Section 4.09 Proxy Statement and Other SEC Filings. None of the information
supplied by the Company or any of its subsidiaries for inclusion in (i) the
Proxy Statement, at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, or at the time of the meeting of stockholders
of the Company to be held in connection with the transactions contemplated by
this Agreement, or (ii) the Transaction Statement at the time of the filing
thereof with the SEC or at any time the Transaction Statement is amended or
supplemented, will 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 the light of the circumstances under which they
are made, not misleading. The Proxy Statement and the Transaction Statement will
comply as to form in all material respects with all applicable laws, including
the provisions of the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by the Company with respect to
information supplied by Parent, Merger Subsidiary or any stockholder of Parent
for inclusion therein.
Section 4.10 No Violation of Law. Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, neither the Company nor any
of its subsidiaries is in violation of or has been given written (or, to the
knowledge of the Company's executive officers, oral) notice of any violation of,
any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable environmental law, ordinance or regulation)
of any governmental or regulatory body or authority, except for violations which
would not reasonably be expected, individually or in the aggregate, to have a
Company Material Adverse Effect. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement, to the knowledge of the Company, no
investigation or review by any governmental or regulatory body or authority is
pending or threatened, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same, other than, in each case, those the
outcome of which would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect. The Company and its
subsidiaries are not in violation of the terms of any permit, license,
franchise, variance, exemption, order or other governmental authorization,
consent or approval necessary to conduct their businesses as presently conducted
(collectively, the "Company Permits"), except for delays in filing reports or
violations which would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect.
Section 4.11 Compliance with Agreements. Except as disclosed in the Company
SEC Reports, neither the Company nor any of its subsidiaries is in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, would result in a default under, any Contract to which the Company
or any of its subsidiaries is a party or by which any of them is bound or to
which any of their property is subject, other than breaches, violations and
defaults which would not reasonably be expected, individually or in the
aggregate, to have a Company Material Adverse Effect.
Section 4.12 Taxes.
(a) The Company and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns required to be filed
by them, and such Tax Returns are true, correct and complete, and (ii) duly
paid in full or reserved in accordance with generally accepted accounting
principles on the Company Financial Statements all Taxes required to be
paid, except in each such case as would not, individually or in the
aggregate, have a Company Material Adverse Effect. Except as would not,
individually or in the aggregate, have a Company Material Adverse Effect,
there are no liens for Taxes upon any property or asset of the Company or
any subsidiary thereof, other than liens for Taxes not yet due or Taxes
contested in good faith and reserved against in accordance with generally
accepted accounting principles. There are no unresolved issues of law or
fact arising out of a notice of deficiency, proposed deficiency or
assessment from the Internal Revenue Service (the "IRS") or any other
governmental taxing authority with respect to Taxes of the Company or any
of its subsidiaries which would individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. Except as
would not, individually or in the aggregate, have a Company Material
Adverse Effect, neither the Company nor any of its subsidiaries has agreed
to an extension of time with respect to a Tax deficiency, other than
extensions which are no longer in effect. Except as would not, individually
or in the aggregate, have a Company Material Adverse Effect, neither the
Company nor any of its subsidiaries is a party to any agreement providing
for the allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned subsidiary of the Company, other
than agreements the consequences of which are fully and adequately reserved
for in the Company Financial Statements.
(b)...Except as would not, individually or in the aggregate, have a
Company Material Adverse Effect, the Company and each of its subsidiaries
has withheld or collected and has paid over to the appropriate governmental
entities (or is properly holding for such payment) all material Taxes
required to be collected or withheld.
(c)...For purposes of this Agreement, "Tax" (including, with
correlative meaning, the term "Taxes") means all federal, state, local and
foreign income, profits, franchise, gross receipts, environmental, customs
duty, capital stock, communications services, severance, stamp, payroll,
sales, employment, unemployment, disability, use, property, withholding,
excise, production, value added, occupancy and other taxes, duties or
assessments of any nature whatsoever, together with all interest, penalties
and additions imposed with respect to such amounts and any interest in
respect of such penalties and additions, and includes any liability for
Taxes of another person by contract, as a transferee or successor, under
Treas. Reg. 1.1502-6 or analogous state, local or foreign law provision or
otherwise, and "Tax Return" means any return, report or similar statement
(including attached schedules) required to be filed with respect to any
Tax, including without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
Section 4.13 Employee Benefit Plans; ERISA. The Company SEC Reports or the
Company Disclosure Letter set forth each employee or director benefit plan,
arrangement or agreement, including without limitation any employee welfare
benefit plan within the meaning of Section 3(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), any employee pension benefit
plan within the meaning of Section 3(2) of ERISA (whether or not such plan is
subject to ERISA) and any bonus, incentive, deferred compensation, vacation,
stock purchase, stock option, severance, employment, change of control or fringe
benefit plan, program or agreement (excluding any multi-employer plan as defined
in Section 3(37) of ERISA (a "Multi-employer Plan") and any multiple employer
plan within the meaning of Section 413(c) of the Code) that is sponsored,
maintained or contributed to by the Company or any of its subsidiaries or by any
trade or business, whether or not incorporated, all of which together with the
Company would be deemed a "single employer" within the meaning of Section 4001
of ERISA (the "Company Plans").
Section 4.14 Labor Controversies. Except as disclosed in the Company SEC
Reports, (a) there are no significant controversies pending or, to the knowledge
of the Company, threatened between the Company or any of its subsidiaries and
any representatives (including unions) of any of their employees, and (b) to the
knowledge of the Company, there are no organizational efforts presently being
made involving any of the presently unorganized employees of the Company or any
of its subsidiaries.
Section 4.15 Environmental Matters.
(a) Except as disclosed in the Company SEC Reports or the Company
Disclosure Schedule and for other matters that would not, singly or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect, (i) the Company and its subsidiaries have conducted their
respective businesses in compliance with all applicable Environmental Laws,
including, without limitation, having all permits, licenses and other
approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties
owned by the Company or any of its subsidiaries contain any Hazardous
Substance in amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) since January 1, 2000, neither the Company nor
any of its subsidiaries has received any notices, demand letters or
requests for information from any Federal, state, local or foreign
governmental entity indicating that the Company or any of its subsidiaries
may be in violation of, or liable under, any Environmental Law in
connection with the ownership or operation of their businesses, (iv) there
are no civil, criminal or administrative actions, suits, demands, claims,
hearings, investigations or proceedings pending or threatened, against the
Company or any of its subsidiaries relating to any violation, or alleged
violation, of any Environmental Law, (v) no Hazardous Substance has been
disposed of, released or transported in violation of any applicable
Environmental Law from any properties owned by the Company or any of its
subsidiaries as a result of any activity of the Company or any of its
subsidiaries during the time such properties were owned, leased or operated
by the Company or any of its subsidiaries, and (vi) neither the Company,
its subsidiaries nor any of their respective properties are subject to any
liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement,
judgment or claim asserted or arising under any Environmental Law.
(b)...As used herein, "Environmental Law" means any federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface land, subsurface land,
plant and animal life or any other natural resource) or to human health or
safety, or (y) the exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production,
release or disposal of Hazardous Substances, in each case as amended and as
in effect at the Effective Time. The term "Environmental Law" includes,
without limitation, (i) the Federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid
Waste Amendments thereto), the Federal Solid Waste Disposal Act and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide
and Rodenticide Act, and the Federal Occupational Safety and Health Act of
1970, each as amended and as in effect at the Effective Time, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries or damages
arising from or threatened as a result of, the presence of, effects of or
exposure to any Hazardous Substance.
(c)...As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under
any Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos, or asbestos-containing material,
urea formaldehyde foam insulation, lead or polychlorinated biphenyls.
Section 4.16 Title to Assets. The Company and each of its subsidiaries has
good and valid title in fee simple to all its real property and good title to
all its leasehold interests and other properties, as reflected in the most
recent balance sheet included in the Company Financial Statements, except for
properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i) the
lien for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value, or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Company's business
operations (in the manner presently carried on by the Company), or (iii) as
disclosed in the Company SEC Reports, and except for such matters which would
not reasonably be expected, individually or in the aggregate, to have a Company
Material Adverse Effect. All leases under which the Company or any of its
subsidiaries leases any real or personal property are in good standing, valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event which with notice or lapse of
time or both would become a default other than failures to be in good standing,
valid and effective and defaults under such leases which would not reasonably be
expected, individually or in the aggregate, to have a Company Material Adverse
Effect.
Section 4.17 Company Stockholders' Approval; Neutralized Voting. The
affirmative vote of stockholders of the Company required for approval and
adoption of this Agreement and the Merger is two-thirds of the outstanding
shares of Company Common Stock entitled to vote thereon; provided however, that
shares of Company Common Stock owned beneficially by Manuel Lopez and James Peck
shall be voted in accordance with the majority of all other votes cast in person
or by proxy at the Stockholder's Meeting.
Section 4.18 Brokers and Finders. The Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company to pay any investment banking fees, finder's
fees or brokerage fees in connection with the transactions contemplated hereby,
other than fees payable to Ehrhardt Keefe Steiner & Hottman PC (the "Special
Committee Financial Advisor"), or as disclosed in Section 4.18 of the Company
Disclosure Schedule. An accurate copy of any fee agreement with the Company
Financial Advisor has been made available to Parent.
ARTICLE V
COVENANTS
Section 5.01 Conduct of Business by the Company Pending the Merger. Except
as otherwise contemplated by this Agreement or disclosed in Section 5.01 of the
Company Disclosure Schedule, after the date hereof and prior to the Effective
Time or earlier termination of this Agreement, unless Parent shall otherwise
agree in writing, the Company shall, and shall cause its subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective articles of
incorporation or bylaws or equivalent constitutional documents, (ii) split,
combine or reclassify their outstanding capital stock or (iii) declare, set
aside or pay any dividend or distribution payable in cash, stock, property
or otherwise, except for the payment of dividends or distributions to the
Company or a wholly-owned subsidiary of the Company by a direct or indirect
wholly-owned subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any
class or any debt or equity securities convertible into or exchangeable for
any such capital stock, except that the Company may issue shares upon the
exercise of Options outstanding on the date hereof;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary
course of business or borrowings under the existing credit facilities of
the Company or of any of its subsidiaries up to the existing borrowing
limit on the date hereof, and (B) borrowings to refinance existing
indebtedness on terms which are reasonably acceptable to Parent, (ii)
redeem, purchase, acquire or offer to purchase or acquire any shares of its
capital stock or any options, warrants or rights to acquire any of its
capital stock or any security convertible into or exchangeable for its
capital stock other than in connection with the exercise of outstanding
Options pursuant to the terms of the Company Option Plans, (iii) except as
disclosed in Section 5.01(d)(i) of the Company Disclosure Schedule, make
any acquisition of any assets or businesses other than expenditures for
current assets in the ordinary course of business and expenditures for
fixed or capital assets in the ordinary course of business, (iv) sell,
pledge, dispose of or encumber any assets or businesses other than (A)
sales of businesses or assets disclosed in Section 5.01 of the Company
Disclosure Schedule, (B) pledges or encumbrances pursuant to Existing
Credit Facilities or other permitted borrowings, (C) sales of real estate,
assets or facilities for cash consideration (including any debt assumed by
the buyer of such real estate, assets or facilities) of less than $100,000
in each such case and $500,000 in the aggregate, (D) sales or dispositions
of businesses or assets as may be required by applicable law, and (E) sales
or dispositions of assets in the ordinary course or (vi) enter into any
binding contract, agreement, commitment or arrangement with respect to any
of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill
and business relationships with customers and others having business
relationships with them other than as expressly permitted by the terms of
this Agreement;
(f) not enter into, amend, modify or renew any employment, consulting,
severance or similar agreement with, or grant any salary, wage or other
increase in compensation or increase in any employee benefit to, any
director or officer of the Company or of any of its subsidiaries, except
(i) for changes that are required by applicable law, (ii) to satisfy
obligations existing as of the date hereof, or (iii) in the ordinary course
of business consistent with past practice;
(g) not enter into, establish, adopt, amend or modify any pension,
retirement, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare plan, agreement, program or arrangement, in respect of any
director, officer or employee of the Company or of any of its subsidiaries,
except, in each such case, as may be required by applicable law or by the
terms of contractual obligations existing as of the date hereof, including
any collective bargaining agreement;
(h) not make expenditures, including, but not limited to, capital
expenditures, or enter into any binding commitment or contract to make
expenditures, except (i) expenditures which the Company or its subsidiaries
are currently contractually committed to make, (ii) other expenditures not
exceeding $250,000 individually or $500,000 in the aggregate, (iii) for
emergency repairs and other expenditures necessary in light of
circumstances not anticipated as of the date of this Agreement which are
necessary to avoid significant disruption to the Company's business or
operations consistent with past practice (and, if reasonably practicable,
after consultation with Parent), or (iv) for repairs and maintenance in the
ordinary course of business consistent with past practice. With respect to
the subject matter of this paragraph (h), if the Company requests approval
of Parent to exceed the limits set forth herein, Parent shall respond to
such request and grant or withhold approval promptly following receipt of
such request;
(i) not make, change or revoke any material Tax election unless
required by law or make any agreement or settlement with any taxing
authority regarding any material amount of Taxes or which would reasonably
be expected to materially increase the obligations of the Company or the
Surviving Corporation to pay Taxes in the future; and
(j) not settle or compromise any litigation to which the Company or
any Company subsidiary is a party or with respect to which the Company or
any Company subsidiary may have or incur liability, at an aggregate cost to
the Company in excess of $250,000 with respect to any action or claim or in
excess of $500,000 with respect to all applicable actions and claims in the
aggregate.
Section 5.02 Control of the Company's Operations. Nothing contained in this
Agreement shall give to Parent, directly or indirectly, rights to control or
direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
Section 5.03 Acquisition Transactions.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, except in accordance with Section 5.03(b),
the Company shall not, and shall not permit any of its subsidiaries to,
initiate, solicit, negotiate, encourage or provide confidential information
to facilitate, and the Company shall use all reasonable efforts to cause
any officer, director or employee of the Company, or any attorney,
accountant, investment banker, financial advisor or other agent retained by
it or any of its subsidiaries, not to initiate, solicit, negotiate,
encourage or provide non-public or confidential information to facilitate,
any proposal or offer to acquire all or any substantial part of the
business, properties or capital stock of the Company, whether by merger,
purchase of assets, tender offer or otherwise, whether for cash, securities
or any other consideration or combination thereof (any such transactions
being referred to herein as an "Acquisition Transaction").
(b)...Notwithstanding the provisions of paragraph (a) above, (i) the
Company may, prior to receipt of the Company Stockholders' Approval, in
response to an unsolicited bona fide written offer or proposal with respect
to a potential or proposed Acquisition Transaction ("Acquisition Proposal")
from a corporation, partnership, person or other entity or group (a
"Potential Acquirer") which the Company's Board of Directors determines, in
good faith and after consultation with its independent financial advisor,
would reasonably be expected to result (if consummated pursuant to its
terms) in an Acquisition Transaction more favorable to the Company's
stockholders than the Merger (a "Qualifying Proposal"), furnish (subject to
the execution of a confidentiality agreement) confidential or non-public
information to, and negotiate with, such Potential Acquirer, may resolve to
accept, or recommend, and, upon termination of this Agreement in accordance
with Section 7.01(v) and after payment to Parent of the fee pursuant to
Section 5.09(b), enter into agreements relating to, a Qualifying Proposal
which the Company's Board of Directors, in good faith, has determined is
reasonably likely to be consummated (such Qualifying Proposal being a
"Superior Proposal") and (ii) the Company's Board of Directors may take and
disclose to the Company's stockholders a position contemplated by Rule
14e-2 under the Exchange Act or otherwise make disclosure required by the
federal securities laws. It is understood and agreed that negotiations and
other activities conducted in accordance with this paragraph (b) shall not
constitute a violation of paragraph (a) of this Section 5.03.
(c)...The Company shall promptly notify Parent after receipt of any
Acquisition Proposal, indication of interest or request for non-public
information relating to the Company or its subsidiaries in connection with
an Acquisition Proposal or for access to the properties, books or records
of the Company or any subsidiary by any person or entity that informs the
Board of Directors of the Company or such subsidiary that it is considering
making, or has made, an Acquisition Proposal. Such notice to Parent shall
be given orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the material terms and conditions of such
proposal, inquiry or contact.
Section 5.04 Access to Information. The Company and its subsidiaries shall
afford to Parent and Merger Subsidiary and their respective accountants,
counsel, financial advisors, sources of financing and other representatives (the
"Parent Representatives") reasonable access during normal business hours with
reasonable notice throughout the period prior to the Effective Time to all of
their respective properties, books, contracts, commitments and records
(including, but not limited to, Tax Returns) and, during such period, shall
furnish promptly (i) a copy of each report, schedule and other document filed or
received by any of them pursuant to the requirements of federal or state
securities laws or filed by any of them with the SEC in connection with the
transactions contemplated by this Agreement, and (ii) such other information
concerning its businesses, properties and personnel as Parent or Merger
Subsidiary shall reasonably request and will obtain the reasonable cooperation
of the Company's officers, employees, counsel, accountants, consultants and
financial advisors in connection with the investigation of the Company by Parent
and the Parent Representatives. All nonpublic information provided to, or
obtained by, Parent or any Parent Representative in connection with the
transactions contemplated hereby shall be confidential information and shall not
be used by Parent for any purpose, provided that Parent, Merger Subsidiary and
the Company may disclose such information as may be necessary in connection with
seeking the Parent Required Statutory Approvals, the Company Required Statutory
Approvals and the Company Stockholders' Approval. Notwithstanding the foregoing,
the Company shall not be required to provide any information which it reasonably
believes it may not provide to Parent by reason of applicable law, rules or
regulations, which constitutes information protected by attorney/client
privilege, or which the Company or any subsidiary is required to keep
confidential by reason of contract, agreement or understanding with third
parties entered into prior to the date hereof.
Section 5.05 Notices of Certain Events.
(a) The Company shall as promptly as reasonably practicable after
executive officers of the Company acquire knowledge thereof, notify Parent
of: (i) any notice or other communication from any person alleging that the
consent of such person (or another person) is or may be required in
connection with the transactions contemplated by this Agreement which
consent relates to a material Contract to which the Company or any of its
subsidiaries is a party or which if not obtained would materially delay
consummation of the Merger; (ii) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement; and (iii) any actions, suits,
claims, investigations or proceedings commenced or, to the best of its
knowledge threatened against, relating to or involving or otherwise
affecting the Company or any of its subsidiaries that, if pending on the
date of this Agreement, would have been required to have been disclosed
pursuant to Section 4.08 or 4.10 or which relate to the consummation of the
transactions contemplated by this Agreement.
(b)...Each of Parent and Merger Subsidiary shall as promptly as
reasonably practicable after executive officers of the Parent acquire
knowledge thereof, notify the Company of: (i) any notice or other
communication from any person alleging that the consent of such person (or
other person) is or may be required in connection with the transactions
contemplated by this Agreement which consent relates to a material Contract
to which Parent or any of its subsidiaries is a party or which if not
obtained would materially delay the Merger, (ii) any notice or other
communication from any governmental or regulatory agency or authority in
connection with the transactions contemplated by this Agreement, and (iii)
any actions, suits, claims, investigations or proceedings commenced or, to
the best of its knowledge threatened, against Parent or Merger Subsidiary,
which relate to consummation of the transactions contemplated by this
Agreement.
(c)...Each of the Company, Parent and Merger Subsidiary agrees to give
prompt notice to each other of, and to use commercially reasonable efforts
to remedy, (i) the occurrence or failure to occur of any event which
occurrence or failure would be likely to cause any of its representations
or warranties in this Agreement to be untrue or inaccurate at the Effective
Time unless such failure or occurrence would not have a Company Material
Adverse Effect or a Parent Material Adverse Effect, as the case may be, and
(ii) any failure on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder
unless such failure or occurrence would not have a Company Material Adverse
Effect or a Parent Material Adverse Effect, as the case may be. The
delivery of any notice pursuant to this Section 5.05(c) shall not limit or
otherwise affect the remedies available hereunder to the party receiving
such notice.
Section 5.06 Meeting of the Company's Stockholders. The Company shall as
promptly as practicable after the date of this Agreement take all action
necessary in accordance with the WBCA and its Articles of Incorporation and
bylaws to convene a meeting of the Company's stockholders (the "Company
Stockholders' Meeting") to act on this Agreement. The Board of Directors of the
Company shall recommend that the Company's stockholders vote to approve the
Merger and adopt this Agreement; provided, however, that the Company may change
its recommendation in any manner if its recommendation of the Merger would be
inconsistent with the board of directors' fiduciary duties under applicable law,
as determined by the board of directors in good faith after consultation with
its financial and legal advisors.
Section 5.07 Proxy Statement and Other SEC Filings. As promptly as
practicable after execution of this Agreement, the parties shall cooperate and
promptly prepare and the Company shall file the Proxy Statement and the
Transaction Statement with the SEC under the Exchange Act, and the parties shall
use all reasonable efforts to have the Proxy Statement and the Transaction
Statement cleared by the SEC. The Company shall notify Parent of the receipt of
any comments of the SEC with respect to the Proxy Statement or Transaction
Statement and of any requests by the SEC for any amendment or supplement thereto
or for additional information, and shall provide to Parent promptly copies of
all correspondence between the Company or any representative of the Company and
the SEC. The Company shall give Parent and its counsel the opportunity to review
the Proxy Statement and Transaction Statement prior to their being filed with
the SEC and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and Transaction Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of the Company,
Parent and Merger Subsidiary agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC. As promptly as practicable after the Proxy
Statement and Transaction Statement have been cleared by the SEC, the Company
shall mail the Proxy Statement to the stockholders of the Company. Prior to the
date of approval of the Merger by the Company's stockholders, each of the
Company, Parent and Merger Subsidiary shall correct promptly any information
provided by it to be used specifically in the Proxy Statement or the Transaction
Statement that shall have become false or misleading in any material respect and
the Company shall take all steps necessary to file with the SEC and cleared by
the SEC any amendment or supplement to the Proxy Statement or the Transaction
Statement so as to correct the same and to cause the Proxy Statement as so
corrected to be disseminated to the stockholders of the Company, in each case to
the extent required by applicable law.
Section 5.08 Public Announcements. Parent and the Company will consult with
each other before issuing any press release or making any public statement with
respect to this Agreement and the transactions contemplated hereby and, except
as may be required by applicable law, will not issue any such press release or
make any such public statement prior to such consultation.
Section 5.09 Expenses and Fees.
(a) All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party
incurring such expenses; provided that Parent will loan approximately
$100,000 to the Company on terms acceptable to the Company to be used by
the Company solely to pay its expenses related to the Merger.
(b)...The Company agrees to pay to Parent a fee equal to $50,000 if:
(i) the Company terminates this Agreement pursuant to clause (e)
of Section 7.01;
(ii) Parent terminates this Agreement pursuant to clause (f) of
Section 7.01, which fee shall be payable within two business days of
such termination;
(iii) this Agreement is terminated for any reason at a time at
which Parent was not in material breach of its representations,
warranties, covenants and agreements contained in this Agreement and
was entitled to terminate this Agreement pursuant to clause (g) of
Section 7.01, and (A) prior to the time of the Company Stockholders'
Meeting a proposal by a third party relating to an Acquisition
Transaction had been publicly proposed or publicly announced, and (B)
on or prior to the 12 month anniversary of the termination of this
Agreement the Company or any of its subsidiaries or affiliates enters
into an agreement or letter of intent (or resolves or announces an
intention to do) with respect to an Acquisition Transaction involving
a person, entity or group if such person, entity, group (or any member
of such group, or any affiliate of any of the foregoing) made a
proposal with respect to an Acquisition Transaction on or after the
date hereof and prior to the Company Stockholders' Meeting and such
Acquisition Transaction is consummated.
(c)...Parent agrees to forgive the principal amount and accrued
interest on any loans made by Parent to the Company under Section 5.09(a)
above if Parent fails to consummate the transactions contemplated by this
Agreement on or before 12:00 noon, Mountain Time, on the Outside Date
assuming the satisfaction of the conditions to Parent's obligation to
consummate the transactions contemplated by this Agreement on or before the
Outside Date (not including conditions whose failure to be satisfied is the
result of a breach of a representation, warranty or covenant of Parent or
Merger Subsidiary hereunder) or if Parent terminates this Agreement
pursuant to Section 7.01(h) below.
Section 5.10 Agreement to Cooperate. Subject to the terms and conditions of
this Agreement, including Section 5.03, each of the parties hereto shall use all
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its reasonable best efforts to
obtain all necessary or appropriate waivers, consents or approvals of third
parties required in order to preserve material contractual relationships of
Parent and the Company and their respective subsidiaries, all necessary or
appropriate waivers, consents and approvals to effect all necessary
registrations, filings and submissions and to lift any injunction or other legal
bar to the Merger (and, in that case, to proceed with the Merger as
expeditiously as possible). In addition, subject to the terms and conditions
herein provided and subject to the fiduciary duties of the respective boards of
directors of the Company and Parent, none of the parties hereto shall knowingly
take or cause to be taken any action (including, but not limited to, in the case
of Parent, (x) the incurrence of material debt financing, other than the
financing in connection with the Merger and related transactions and other than
debt financing incurred in the ordinary course of business, and (y) the
acquisition of businesses or assets) which would reasonably be expected to delay
materially or prevent consummation of the Merger.
Section 5.11 Directors' and Officers' Indemnification.
(a) The indemnification provisions of the Articles of Incorporation
and bylaws of the Company as in effect at the Effective Time 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 at the Effective Time were directors,
officers, employees or agents of the Company.
(b)...Without limiting Section 5.11(a), after the Effective Time, the
Surviving Corporation shall, and Parent shall cause the Surviving
Corporation to, to the fullest extent permitted under applicable law,
indemnify and hold harmless, each present and former director, officer,
employee and agent of the Company or any of its subsidiaries (each,
together with such person's heirs, executors or administrators, an
"Indemnified Party" and collectively, the "Indemnified Parties") against
any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and amounts paid in settlement in
connection with any actual or threatened claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative
(collectively, "Costs and Expenses"), arising out of, relating to or in
connection with (i) any action or omission occurring or alleged to occur
prior to the Effective Time (including, without limitation, acts or
omissions in connection with such persons serving as an officer, director,
special committee member, or other fiduciary in any entity if such service
was at the request or for the benefit of the Company) or (ii) the Merger
and the other transactions contemplated by this Agreement or arising out of
or pertaining to the transactions contemplated by this Agreement or the
events and developments between Parent and the Company leading up to this
Agreement. Any Indemnified Party hereunder will (1) give prompt notice to
the Surviving Corporation of any claim which arises from or after the
Effective Time with respect to which it seeks indemnification and (2)
permit the Surviving Corporation to assume the defense of such claim with
counsel reasonably satisfactory to a majority of the Indemnified Parties.
In connection with the selection of counsel to represent the Indemnified
Parties in connection with clause (2) above, the Surviving Corporation
shall propose counsel to represent the Indemnified Parties. The applicable
Indemnified Parties shall have the right to approve such counsel, but such
approval shall not be unreasonably withheld. If the proposed counsel is not
approved, the Surviving Corporation shall continue to propose counsel until
counsel is approved by the applicable Indemnified Parties. Any Indemnified
Party shall have the right to employ separate counsel and to participate in
the defense of such claim, but the fees and expenses of such counsel shall
be at the expense of such person unless: (x) the Surviving Corporation has
agreed, in writing, to pay such fees or expenses; (y) the Surviving
Corporation shall have failed to assume the defense of such claim after the
receipt of notice from the Indemnified Party as required above and failed
to employ counsel reasonably satisfactory to a majority of the Indemnified
Parties or (z) based upon advice of counsel to such Indemnified Party and
concurrence therewith by counsel for the group of Indemnified Parties in
such matter, there shall be one or more defenses available to such
Indemnified Party that are not available to the Surviving Corporation or
there shall exist conflicts of interest between such Indemnified Party and
the Surviving Corporation or the other Indemnified Parties (in which case,
if the Indemnified Party notifies the Surviving Corporation in writing that
such Indemnified Party elects to employ separate counsel at the expense of
the Surviving Corporation, the Surviving Corporation shall not have the
right to assume the defense of such claim on behalf of such Indemnified
Party), in each of which events the reasonable fees and expenses of such
counsel (which counsel shall be reasonably acceptable to the Surviving
Corporation) shall be at the expense of the Surviving Corporation.
(c)...If the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation or Parent shall assume the obligations of the Surviving
Corporation or the Parent, as the case may be, set forth in this Section
5.11.
(d)...The indemnification rights of the Indemnified Parties granted
under (i) this Agreement, (ii) the Articles and Bylaws of the Surviving
Corporation, as amended, and (iii) the WBCA, are the only indemnification
rights available to the Indemnified Parties and supersede any other rights
to indemnification under any other agreement. The provisions of this
Section 5.11 shall survive the consummation of the Merger and expressly are
intended to benefit and be binding upon each of the Indemnified Parties.
(e)...Parent hereby fully and unconditionally guarantees the
performance of the Surviving Corporation's obligations under Sections
5.11(a)-(c).
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.01 Conditions to the Obligations of Each Party. The obligations
of the Company, Parent and Merger Subsidiary to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) this Agreement and the Merger shall have been adopted by the
requisite vote of the stockholders of the Company in accordance with WBCA
and this Agreement (the "Company Stockholders' Approval"); and
(b) none of the parties hereto shall be subject to any order or
injunction of any governmental authority of competent jurisdiction that
prohibits the consummation of the Merger. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable
best efforts to have any such order overturned or injunction lifted.
Section 6.02 Conditions to Obligation of the Company to Effect the Merger.
Unless waived by the Company, the obligation of the Company to effect the Merger
shall be subject to the fulfillment at or prior to the Effective Time of the
following additional conditions:
(a) Parent and Merger Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be
performed on or prior to the Effective Time and the representations and
warranties of Parent and Merger Subsidiary contained in this Agreement
shall be true and correct on and as of the Effective Time as if made at and
as of such date (except to the extent that such representations and
warranties speak as of an earlier date), except for such failures to
perform or to be true and correct that would not reasonably be expected to
have a Parent Material Adverse Effect, and the Company shall have received
a certificate of the chief executive officer or the chief financial officer
of Parent to that effect; and
(b) all Parent Statutory Approvals and Company Statutory Approvals
required to be obtained in order to permit consummation of the Merger under
applicable law shall have been obtained, except for any such Parent
Statutory Approvals or Company Statutory Approvals whose unavailability
would not, singly or in the aggregate, reasonably be expected to (i) have a
Company Material Adverse Effect after giving effect to the Merger, or (ii)
result in the Company or its subsidiaries failing to meet the standards
relating to the conduct of Parent's or the Company's business which (after
taking into account the anticipated impact of such failure to so meet such
standards on other authorities) would reasonably be expected to have a
Company Material Adverse Effect (after giving effect to the Merger).
Section 6.03 Conditions to Obligations of Parent and Subsidiary to Effect
the Merger. Unless waived by Parent and Merger Subsidiary, the obligations of
Parent and Merger Subsidiary to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional following
conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Effective Time and the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the
Effective Time as if made at and as of such date (except to the extent that
such representations and warranties speak as of an earlier date), except
for such failures to perform and to be true and correct that would not
reasonably be expected to have a Company Material Adverse Effect or, in the
case of Section 4.02(a), shall be true and correct when made except for
immaterial exceptions thereto, and Parent shall have received a certificate
of the chief executive officer or the chief financial officer of the
Company to that effect;
(b) all Parent Statutory Approvals and Company Statutory Approvals
required to be obtained in order to permit consummation of the Merger under
applicable law shall have been obtained, except for any such Parent
Statutory Approvals or Company Statutory Approvals whose unavailability
would not reasonably be expected to (i) have a Parent Material Adverse
Effect, or (ii) result in Parent or its subsidiaries failing to meet the
standards relating to the conduct of Parent's or the Company's business
which (after taking into account the anticipated impact of such failure to
so meet such standards on other authorities) would reasonably be expected
to have a Parent Material Adverse Effect (after giving effect to the
Merger);
(c) the number of Dissenting Shares shall constitute not more than 5%
of the shares of Company Common Stock outstanding immediately prior to the
Effective Time; and
(d) no suit, action or other claim shall have been instituted by any
shareholder or third party challenging the proposed Merger.
ARTICLE VII
TERMINATION
Section 7.01 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(a) by mutual written consent of the Company, Parent and Merger
Subsidiary;
(b) by either the Company or Parent, if the Merger has not been
consummated by March 31, 2005, provided that the right to terminate this
Agreement under this clause (ii) shall not be available to any party whose
failure to fulfill any of its obligations under this Agreement has been the
cause of or resulted in the failure to consummate the Merger by such date
(the "Outside Date");
(c) by either the Company or Parent if any judgment, injunction, order
or decree of a court or governmental agency or authority of competent
jurisdiction shall restrain or prohibit the consummation of the Merger, and
such judgment, injunction, order or decree shall become final and
nonappealable and was not entered at the request of the terminating party;
(d) by either the Company or Parent, if (x) there has been a material
breach by the other party of any representation or warranty contained in
this Agreement which has not been cured in all material respects within 30
days after written notice of such breach by the terminating party, or (y)
there has been a breach of any of the covenants or agreements set forth in
this Agreement on the part of the other party, which is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by the terminating party to the other party;
(e) by the Company if, prior to receipt of the Company Stockholders'
Approval, the Company receives a Superior Proposal, resolves to accept such
Superior Proposal, and shall have given Parent two days' prior written
notice of its intention to terminate pursuant to this provision; provided,
however, that such termination shall not be effective until such time as
the payment required by Section 5.09(b) shall have been received by Parent;
(f) by the Parent, if the Board of Directors of the Company shall have
failed to recommend, or shall have withdrawn, modified or amended in any
material respect its approval or recommendation of the Merger or shall have
resolved to do any of the foregoing, or shall have recommended another
Acquisition Proposal or if the Board of Directors of the Company shall have
resolved to accept a Superior Proposal or shall have recommended to the
stockholders of the Company that they tender their shares in a tender or an
exchange offer commenced by a third party (excluding any affiliate of
Parent or any group of which any affiliate of Parent is a member);
(g) by Parent or the Company if the stockholders of the Company fail
to approve the Merger pursuant to the WBCA at a duly held meeting of
stockholders called for such purpose (including any adjournment or
postponement thereof); or
(h) by Parent if any suit, action or other claim shall have been
instituted by any shareholder or third party challenging the proposed
Merger.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company pursuant to Section 7.01, this
Agreement shall forthwith become void and there shall be no liability or further
obligation on the part of the Company, Parent, Merger Subsidiary or their
respective officers or directors (except as set forth in this Section 8.01, in
the second sentence of Section 5.04 and in Section 5.09, all of which shall
survive the termination). Nothing in this Section 8.01 shall relieve any party
from liability for any breach of any representation, warranty, covenant or
agreement of such party contained in this Agreement, except that if the fee
provided for in Section 5.09(b) or the forgiveness provided for in Section
5.09(c) becomes payable in accordance therewith, that fee or forgiveness will
constitute the exclusive remedy of and the sole amount payable to the party
entitled thereto with respect to the event or circumstances in connection with
which that fee becomes so payable.
Section 8.02 Nonsurvival of Representations and Warranties. No
representation, warranty or agreement in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Merger, and after
effectiveness of the Merger neither the Company, Parent, Merger Subsidiary nor
any of their respective officers or directors shall have any further obligation
with respect thereto except for the agreements contained in Articles I, II and
VIII and Section 5.11.
Section 8.03 Notices. All notices and other communications hereunder shall
be in writing and shall be considered given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
If to the Company:
Western Standard Corporation
400 East Snow King Avenue
Post Office Box 1846
Jackson, Wyoming 83001
Attention: Manuel B. Lopez, President
Telephone: 307-734-3003
Telecopier: 307-734-3300
with a copy to:
Stanford E. Clark
Special Committee of the Board of Directors
of Western Standard Corporation
2205 West Main
Riverton, Wyoming 82501
Telephone: 307-856-6939
Gilbert L. McSwain
300 South Jackson Street, Suite 100
Denver, Colorado 80209
Telephone: 303-398-7067
Telecopier: 303-398-7001
If to Parent or Merger Subsidiary:
Snow King Interests LLC
Post Office Box 928
Jackson, Wyoming 83001
Attention: Manuel B. Lopez
Telephone: 307-734-3003
Telecopier: 307-734-3300
with a copy to:
Samuel E. Wing, Esq.
Jones & Keller, P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
Telephone: 303-573-1600
Telecopier: 303-573-0769
Section 8.04 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, (ii) "knowledge" shall mean actual
knowledge of the executive officers of the Company or Parent, as applicable, and
(iii) reference to any Article or Section means such Article or Section hereof.
Section 8.05 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) shall not be assigned by operation of law or
otherwise except that Merger Subsidiary may assign its obligations under this
Agreement to any other wholly-owned subsidiary of Parent subject to the terms of
this Agreement, in which case such assignee shall become the "Merger Subsidiary"
for all purposes of this Agreement. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF WYOMING APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE, WITHOUT REGARD TO THE CONFLICTS OF LAWS OF THAT STATE.
Section 8.06 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered to be an original, but all of
which shall constitute one and the same agreement.
Section 8.07 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to
the Effective Time if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by the Company, Parent and Merger
Subsidiary or, in the case of a waiver, by the party against whom the
waiver is to be effective; however, any waiver or amendment shall be
effective against a party only if the board of directors of such party
approves such waiver or amendment.
(b)...No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
Section 8.08 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings and negotiations, both written
and oral, between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto. Neither this Agreement nor any provision hereof is intended to confer
upon any person other than the parties hereto any rights or remedies hereunder,
except Articles I and II, which are intended for the benefit of the Company's
stockholders.
Section 8.09 Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
Section 8.10 Specific Performance. The parties hereto agree that
irreparable damage would occur if any of the provisions of this Agreement were
not to be performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof in addition to any
other remedies at law or in equity.
[Signature page to follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed
by their respective authorized officers as of the day and year first above written.
Company: WESTERN STANDARD CORPORATION
By: /s/ Manuel B. Lopez
---------------------------------
Name: Manuel B. Lopez
----------------
Title: President
---------------
Parent: SNOW KING INTERESTS LLC
By: /s/ Manuel B. Lopez
---------------------------------
Name: Manuel B. Lopez
Title: Manager
Merger Subsidiary:
LZ ACQUISITION, INC.
By: /s/ Manuel B. Lopez
---------------------------------
Name: Manuel B. Lopez
Title: President
Approved by the Special Committee of the Board of Directors of the Company
/s/ Stanford E. Clark
- ------------------------------------
Stanford E. Clark, Member
Disclosure Schedule
to
Agreement and Plan of Merger
dated
November 15, 2004
Among
Western Standard Corporation,
LZ Acquisition, Inc.
and
Snow King Interests LLC
ANNEX B
Opinion of Ehrhardt Keefe Steiner & Hottman PC
October 11, 2004
Special Committee of the Board of Directors
Western Standard Corporation
Post Office Box 1846
400 E. Snow King Ave.
Jackson, Wyoming 83001
Gentlemen:
In accordance with your request, Ehrhardt Keefe Steiner & Hottman, PC's
assignment was to provide an Independent Opinion (the "Opinion") as to the
fairness, from a financial point of view, of the merger of Snow King Interests,
LLC (the "Parent"), LZ Acquisition, Inc. (the "Merger Subsidiary) and Western
Standard Corporation (the "Company" or "WSTD").
The Merger Subsidiary will be merged with and into the Company. Following the
Merger, the separate existence of Merger Subsidiary shall cease and the Company
shall continue as the surviving corporation (the "Surviving Corporation")
wholly-owned by the Parent, and shall succeed to and assume all the rights and
obligations of Merger Subsidiary.
In connection with our engagement, we were not requested to, and we did not: (a)
actively solicit third-party indications of interest in any sale transaction; or
(b) evaluate the advisability of the Merger from the perspective of WSTD.
In connection with our Opinion, we do not express an opinion with respect to any
of the following: (a) WSTD's underlying business decision to proceed with the
Merger; and (b) the fairness of the terms of any financing required to complete
the Merger.
The closing bid price of the Company's common stock as of December 31, 2003 was
$0.13 per share, resulting in an equity market value of $1,295,192, based on
9,963,015 common shares outstanding. From January 1, 2003 through December 31,
2003, WSTD shares (OTCBB: WSTD) traded at a low of $0.01 per share and a high of
$0.25 per share. The 52-week high was $0.25 per share in December 2003 and the
52-week low was $0.01 in August 2003. From January 2, 2004 to November 15, 2004,
the high and low trading prices were $0.15 and $0.08, respectively.
We have undertaken such reviews, analysis, and inquiries as we deemed necessary
and appropriate under the circumstances. Among other things, we have:
1. Reviewed the Agreement and Plan of Merger dated November 15, 2004;
2. Reviewed WSTD's last Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003, and other financial information supplied by WSTD's
management;
3. Analyzed projected financial information based on assumptions provided by
management of WSTD, in addition, we reviewed the overall assumptions for
reasonableness;
4. Conducted discussions with the senior management of WSTD concerning the
Company's business prospects, historical financial results, and projected
financial information;
5. Obtained and reviewed real estate appraisals for the real estate owned by
WSTD and its subsidiaries.
6. Reviewed and researched economic and industry analysis reports deemed
relevant to WSTD and compared the performance and projections of WSTD
relative to both;
7. Analyzed the public trading multiples of companies which we deemed
comparable to WSTD, and applied these multiples to WSTD's financials as of
December 31, 2003, and compared the results to the current trading price
range of WSTD's common stock and the price offered by WSTD;
8. Performed a discounted cash flow analysis for WSTD based on projections,
and compared it to the current trading price range of WSTD's common stock
and the price offered by WSTD;
9. Analyzed market premiums in order to arrive at minority discounts
applicable to investments held by the Company;
10. Analyzed real estate development plans and ownership structure based on the
"Master Plan" created by the Company and approved by the city.
Assumptions and Limiting Conditions:
- -----------------------------------
Our analysis, reports and Opinion includes the following assumptions and
limiting conditions:
Our analysis, reports and Opinion will include the following limiting
conditions.
1. Information, estimates, and opinions contained in the report are obtained
from sources considered to be reliable. However, we assume no liability for
such sources. Our services constitute neither an audit nor a verification
of the underlying financial records of the Company. Our services relate
solely to the valuation of the business interest, and the Opinion described
herein.
2. WSTD and its representatives warranted to us that the information they
supplied was complete and accurate to the best of their knowledge and that
the financial statement information reflects the Company's results of
operations and financial condition in accordance with U.S. generally
accepted accounting principles, unless otherwise noted. Information
supplied by management has been accepted as correct without further
verification, and we express no opinion on that information.
3. Possession of this report, or a copy thereof does not carry with it the
right of publication of all or part of it, nor may it be used for any
purpose by anyone but WSTD without the previous written consent of WSTD or
us and, in any event, only with proper attribution.
4. We are not required to give testimony in court, or be in attendance during
any hearings or depositions, with reference to the Company being valued,
unless previous arrangements have been made.
5. The various estimates of value presented in this report and the Opinion
applies to this engagement only and may not be used out of the context
presented herein. This valuation and the Opinion are valid only for the
purpose or purposes specified herein.
6. This valuation reflects facts and conditions existing as of the date of the
reports and the Opinion. Subsequent events have not been considered, and we
have no obligation to update our report for such events and conditions.
7. This report was prepared under the direction of Paul K. Edwards, CPA/ABV,
ASA. Neither the professionals who worked on this engagement nor the
principals of EKS&H have any present or contemplated future interest in
WSTD or any personal interest with respect to the parties involved, or any
other interest that might prevent us from performing an unbiased valuation
and fairness opinion. Our compensation is not contingent on an action or
event resulting from the analyses, opinions, or conclusions in, or the use
of, this report. Conclusion
Based upon and subject to all the foregoing, in our opinion, as of November 15,
2004, the date of the Merger Agreement, the Merger Consideration offered to
Western Standard Corporation's shareholders by Snow King Interests, LLC is fair,
from a financial point of view, to such shareholders.
Delivery of this Opinion is subject to the conditions, limitations and
assumptions set forth in this Opinion.
Sincerely,
Ehrhardt Keefe Steiner & Hottman, PC
/s/ Paul K. Edwards
--------------------------------
Paul K. Edwards, CPA/ABV, ASA
Principal
Ehrhardt Keefe Steiner & Hottman PC
ANNEX C
Dissenters' Rights Under the Wyoming Business Corporation Act
17-16-1301. Definitions.
(a) As used in this article:
(i) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder;
(ii) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving, new, or acquiring
corporation by merger, consolidation, or share exchange of that issuer;
(iii) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under W.S. 17-16-1302 and who exercises that right when
and in the manner required by W.S. 17-16-1320 through 17-16-1328;
(iv) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable;
(v) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at a rate that is
fair and equitable under all the circumstances;
(vi) "Record shareholder" means the person in whose names shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation;
(vii) "Shareholder" means the record shareholder or the beneficial
shareholder.
17-16-1302. Right to dissent.
(a) A shareholder is entitled to dissent from, and to obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(i) Consummation of a plan of merger or consolidation to which the
corporation is a party if:
(A) Shareholder approval is required for the merger or the
consolidation by W.S. 17-16-1103 or 17-16-1111 or the articles of
incorporation and the shareholder is entitled to vote on the merger or
consolidation; or
(B) The corporation is a subsidiary that is merged with its
parent under W.S. 17-16-1104.
(ii) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(iii)Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one (1) year after the date of sale;
(iv) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under W.S. 17-16-604.
(v) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
17-16-1303. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(i) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(ii) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
17-16-1320. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under W.S. 17-16-1302
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in W.S. 17-16-1322.
17-16-1321. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall deliver to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and shall not vote his shares in favor of the
proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
of this section is not entitled to payment for his shares under this article.
17-16-1322. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of W.S. 17-16-1321.
(b) The dissenters' notice shall be sent no later than ten (10) days after
the corporate action was taken, and shall:
(i) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(ii) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(iii) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date;
(iv) Set a date by which the corporation shall receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty
(60) days after the date the notice required by subsection (a) of this
section is delivered; and
(v) Be accompanied by a copy of this article.
17-16-1323. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in W.S. 17-16-1322
shall demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to W.S. 17-16-1322(b)(iii), and deposit his certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
17-16-1324. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under W.S. 17-16-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
17-16-1325. Payment.
(a) Except as provided in W.S. 17-16-1327, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with W.S. 17-16-1323 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by:
(i) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(ii) A statement of the corporation's estimate of the fair value of
the shares;
(iii) An explanation of how the interest was calculated;
(iv) A statement of the dissenter's right to demand payment under W.S.
17-16-1328; and
(v) A copy of this article.
17-16-1326. Failure to take action.
(a) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under W.S. 17-16-1322 and repeat the payment demand
procedure.
17-16-1327. After-acquired shares.
(a) A corporation may elect to withhold payment required by W.S. 17-16-1325
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
W.S. 17-16-1328.
17-16-1328. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate, less any payment under W.S. 17-16-1325, or reject the
corporation's offer under W.S. 17-16-1327 and demand payment of the fair value
of his shares and interest due, if:
(i) The dissenter believes that the amount paid under W.S. 17-16-1325
or offered under W.S. 17-16-1327 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(ii) The corporation fails to make payment under W.S. 17-16-1325
within sixty (60) days after the date set for demanding payment; or
(iii)The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set
for demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty (30) days after the corporation made or offered
payment for his shares.
17-16-1330. Court action.
(a) If a demand for payment under W.S. 17-16-1328 remains unsettled, the
corporation shall commence a proceeding within sixty (60) days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty (60) day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office, or if none in this state, its
registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one (1) or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in the amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for:
(i) The amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation; or
(ii) The fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under W.S.
17-16-1327.
17-16-1331. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under W.S. 17-16-1330
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under W.S. 17-16-1328.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(i) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of W.S. 17-16-1320 through 17-16-1328; or
(ii) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
WESTERN STANDARD CORPORATION
400 East Snow King Avenue
Post Office Box 1846
Jackson, Wyoming 83001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF WESTERN STANDARD CORPORATION
The undersigned stockholder of Western Standard Corporation, a Wyoming
corporation (the "Company"), hereby appoints Manuel B. Lopez and James M. Peck,
and each of them, as proxies, each with the power to appoint his substitute, and
hereby authorizes each of them to represent, and to vote as designated on the
reverse side, all the shares of common stock of the Company held of record by
the undersigned on January 7, 2005 at the Special Meeting of Stockholders of the
Company, to be held at the Snow King Resort, 400 East Snow King Avenue, Jackson,
Wyoming at 10:00 a.m., Mountain Time February 25, 2005 and at all adjournments
or postponements thereof upon the following matters, as set forth in the Notice
of Special Meeting of Stockholders and Proxy Statement, each dated January 21,
2005, copies of which have been received by the undersigned, hereby revoking any
proxy heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND FOR PROPOSAL 2.
The board of directors of the Company recommends a vote for the Agreement
and Plan of Merger.
1. Proposal to approve and adopt the Agreement and Plan of Merger dated as of
November 15, 2004, by and among Snow King Interests LLC, LZ Acquisition,
Inc. and the Company, as hereafter amended, and the transactions
contemplated thereby:
/ / FOR / / AGAINST / / ABSTAIN
2. Proposal, if necessary, to adjourn the Special Meeting of Stockholders for
the purpose of soliciting additional proxies in connection with the
proposed merger or to satisfy the conditions to completing the proposed
merger.
/ / FOR / / AGAINST / / ABSTAIN
3. The proxies are hereby authorized to vote in their discretion upon all
other business as may properly come before the Special Meeting.
Please sign exactly as your name appears on this proxy. If
the shares represented by this proxy are held by joint
tenants, both must sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title
as such. If the stockholder is a corporation, please sign in
full corporate name by president or other authorized
officer. If stockholder is a partnership, please sign in
partnership name by authorized person.
DATED:_______________ 2005
------------------------------------------
SIGNATURE
DATED:_______________ 2005
------------------------------------------
SIGNATURE
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED POSTAGE PREPAID ENVELOPE.
