SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant {X}
Filed by a Party other than the Registrant { }
Check the appropriate box:
{x} Preliminary Proxy Statement { } Confidential, for Use of the
{ } Definitive Proxy Statement Commission Only, (as Permitted
{ } Definitive Additional Materials by Rule 14A-6(e)(2))
{ } Soliciting Material Pursuant to ss.240.14a-11(C) or ss.240.14a-12
Miller Diversified Corporation.
-------------------------------
(Name of Registrant as Specified in its Charter)
------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
{ } No fee required
{ } Fee computed on table below per Exchange Act Rules 14a-6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
{x} Fee paid previously with preliminary materials.
{ } Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date filed:
Notes:
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MILLER DIVERSIFIED CORPORATION
23360 Weld County Road #35
LaSalle, Colorado 80645
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
--------------------------------------------
A Special Meeting of Shareholders of Miller Diversified Corporation (the
"Company") will be held at __________________, Mountain Daylight Time, on
____________________, 2000 at __________________________, Greeley, Colorado, for
the following purposes:
1. To consider and vote upon an amended Agreement and Plan of Exchange
under which the Company would acquire, by way of exchange, all of the
issued and outstanding common stock of Miller Feed Lots, Inc. for
common stock of the Company.
2. To transact such other business as may properly come before the
Special Meeting and any adjournment thereof to the extent that the
Company was not aware of the intended presentation of such business on
or prior to the date of the Proxy Statement.
The Board of Directors has fixed ____________, ____ as the record for
determining the shareholders of the Company entitled to notice of and to vote at
the meeting and any adjournment of the meeting. The transfer books of the
Company will not be closed, but only shareholders of the Company of record on
such date will be entitled to notice of and to vote at the meeting or
adjournment.
Dissenting shareholders are entitled to appraisal rights with respect to
proposal number 1. In order to preserve their dissenter's rights, dissenting
shareholders must submit their written notice to exercise such rights prior to
the Shareholder Meeting date and must not vote in favor of proposal number 1 or
submit an executed but unmarked proxy. See "Dissenter's Rights" in the Proxy
Statement that accompanies this Notice.
Shareholders are cordially invited to attend the meeting in person. Whether
or not you plan to attend the meeting in person, please sign and date the
accompanying proxy and return it promptly in the enclosed envelop. No additional
postage is required if the envelope is mailed in the United States. The giving
of a proxy will not affect your right to vote in person if you attend the
meeting and will assure that your shares are voted if you are unable to attend.
By Order of the Board of Directors
Stephen R. Story (Secretary)
- -------------------, ----
LaSalle, Colorado
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MILLER DIVERSIFIED CORPORATION
23360 Weld County Road #35
LaSalle, Colorado 80645
(970) 284-5556
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
_____ , 2000
Proxy Solicitation
The enclosed Proxy is solicited by and on behalf of the Board of Directors
of Miller Diversified Corporation, a Nevada corporation (the "Company"), to be
voted at a Special Meeting of Shareholders to be held at ____, Mountain Standard
Time, on _____, _____, 2000 at ___________________, and at any and all
adjournments of the meeting. The enclosed materials are first being sent to
Shareholders on or about __________, 2000.
The cost of soliciting proxies will be borne by the Company and will
consist of printing, postage and handling, including the expenses of brokerage
house custodians, nominees and fiduciaries in forwarding documents to beneficial
owners. Solicitation may also be made by the Company's officers, directors and
regular employees personally or by telephone.
The matters listed below will be considered and acted upon at the meeting:
1. The adoption and approval of an amended Agreement and Plan of Exchange
(the "Plan") under which the Company would, by way of exchange, acquire all of
the issued and outstanding shares of common stock of Miller Feed Lots, Inc., a
Colorado corporation, for 7,000,000 shares of common stock of the Company.
2. Such other business as may properly come before the Special Meeting or
any adjournments thereof.
Voting At The Meeting
The total number of outstanding shares of the Company's $.0001 par value
Common Stock entitled to vote at the meeting, based upon the shares of record as
of _____, 2000 (the "Record Date"), is 6,364,640. As of the Record Date, the
only outstanding voting securities of the Company were shares of Common Stock,
each of which is entitled to one vote on each matter to come before the meeting.
The presence, in person or by properly executed proxy, of holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Meeting is necessary to constitute a quorum at the Meeting. The affirmative vote
by the holders of a majority of the shares issued and outstanding is required to
approve and adopt the Agreement and Plan of Exchange (Item 1).
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Shares of Common Stock represented by a properly signed, dated and returned
proxy will be treated as present at the Meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. The aggregate number of votes cast by all stockholders present in
person or by proxy at the Meeting will be used to determine whether a motion
will carry. Accordingly, an abstention from voting on the proposal to approve
and adopt the Agreement and Plan of Exchange (Item 1) by a stockholder present
in person or by proxy at the Meeting has the same effect as a vote against such
item. In addition, although broker "non-votes" will be counted for purposes of
attaining a quorum, they will not be treated as shares having voted at the
Meeting and, accordingly, will have the same effect as a vote against Item 1.
Proxies may be revoked by the person executing the proxy at any time before
the authority thereby granted is exercised, upon written notice to such effect
received by the Secretary of the Company prior to the Meeting. Attendance at the
Meeting will not in and of itself constitute revocation of a proxy, although
proxies may be revoked at the Meeting by written notice delivered to the
Secretary, in which case the shares represented thereby may be voted in person.
Proxies may also be revoked by the submission of subsequently dated proxies.
Shares represented by a valid unrevoked proxy will be voted at the Meeting or
any adjournment thereof as specified therein by the person giving the proxy. If
no specification is made the shares represented by such proxy will be voted: (i)
FOR approval and adoption of the Agreement and Plan of Exchange.
Management may, in its discretion, seek an adjournment of the special
Meeting to a specific time and place if sufficient votes are not cast for the
approval and adoption of the Agreement and Plan of Exchange. Management may also
recommend that the meeting be adjourned if a quorum is not present, although
Management has not determined whether to do so. Management will not use any
discretionary authority which it may have been granted by proxy with respect to
an adjournment motion except as follows: if Management moves for an adjournment
to solicit additional votes, the proxy holder will vote all proxies it receives
which have directed a vote FOR adoption and approval of the Agreement and Plan
of Exchange in favor of the adjournment for the purpose of soliciting additional
votes; the proxy holder will vote all proxies which voted AGAINST the proposal
to approve and adopt the Agreement and Plan of Exchange against any such
adjournment; all proxies which direct an abstention with respect to the vote on
the Agreement and Plan of Exchange will abstain from voting on any adjournment
proposed for the purpose of soliciting additional votes.
Dissenting stockholders are entitled to appraisal rights in respect of the
Agreement and Plan of Exchange. In order to preserve their dissenter's rights,
dissenting shareholders must submit their written notice to exercise such rights
prior to the Shareholder Meeting date and must not vote in favor of the Plan or
submit an executed but unmarked proxy. See "Dissenter's Rights."
Conflicts of Interest
James E. Miller is the President and Chief Executive Officer of the
Company. Norman M. Dean is the Chairman of the Board of Directors of the
Company. These two individuals also own all of the issued and outstanding common
shares of Miller Feed Lots, Inc. ("MFL"). The Company proposes to acquire MFL
pursuant to the Agreement and Plan of Exchange. Mr. Miller and Mr. Dean are the
beneficial owners of 2,104,492 shares of the Company's Common Stock (33.07% of
the Common Stock). The 7,000,000 shares of Common Stock issuable pursuant to the
Plan to Mr. Miller and Mr. Dean will represent 52.38% of the Common Stock and,
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together with the shares of Common Stock currently beneficially owned by Mr.
Miller and Mr. Dean, will represent approximately 68.1% of the outstanding
Common Stock of the Company. Given the fact that shareholders of the Company are
not entitled to cumulative voting rights with respect to the election of
directors, such ownership would vest in Mr. Miller and Mr. Dean the voting power
to elect all of the directors of the Company (See "The Plan of Exchange
Background of and Reasons for the Plan" below). On June 19, 1998, the business
day prior to the date on which the original Plan was approved by the Board of
Directors of the Company, the closing bid price of the Common Stock was $.11. On
January 28, 1999, the date prior to the date on which the amended Plan was
approved by the Board of Directors, the closing bid price of the Common Stock
was $.09.
As the Chairman of the Board and Chief Executive Officer of the Company, as
well as principal shareholders of the Company, Mr. Dean and Mr. Miller had a
conflict of interest in connection with the negotiations between the Company and
MFL concerning the Plan. Accordingly, although Mr. Miller and Mr. Dean
participated in meetings of the Board of Directors of the Company held to
discuss and consider the Plan, at such Board meetings they abstained from voting
on the proposal to approve and adopt the Plan. See "Background and Reasons for
the Exchange".
The 2,104,492 shares of Common Stock directly owned by Mr. Miller and Mr.
Dean will be counted as present at the Meeting for purposes of determining a
quorum. Mr. Dean and Mr. Miller intend to vote the shares owned directly by them
at the meeting in favor of the proposal to approve and adopt the amended
Agreement and Plan of Exchange (Item 1).
Dilution of Common Stock
As described in "Conflicts of Interest" above, Mr. James E. Miller and Mr.
Norman M. Dean, either directly or indirectly, own 33.07% of the Common Stock of
the Company. The 7,000,000 shares of Common Stock issuable upon consummation of
the Plan of Exchange will represent, when issued, 52.38% of the Common Stock of
the Company issued and outstanding. Together with the shares of Common Stock
already beneficially owned by Mr. Miller and Mr. Dean, such individuals, after
completion of the Plan of Exchange, would own approximately 9,104,492 shares of
Common Stock, or 68.12% of the Common Stock.
The following table sets forth as of the Record Date information regarding
the beneficial ownership of the Common Stock and the potential dilution to
existing shareholders in connection with the Plan of Exchange.
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Shares Percentage
Shares Percentage Beneficially Total After
Beneficially of Owned After Plan of
Owned Total Plan of Exchange Exchange
----- ----- ---------------- --------
James E. Miller 994,706(1) 15.63% 4,494,706 33.63%
Norman M. Dean 1,109,786(2) 17.44% 4,609,786 34.49%
All other
shareholders 4,350,148 68.35% 4,260,148 31.88%
(1) Includes 45,906 shares owned by Mr. Miller's wife.
(2) Includes 45,905 shares owned by Mr. Dean's wife.
THE PLAN OF EXCHANGE
(Item 1)
General
- -------
To the extent that the following discussion describes the amended Exchange
Agreement and Plan of Exchange, it is qualified by the more detailed information
appearing in this Proxy Statement under the caption "The Exchange Agreement and
Plan of Exchange" and in the Exchange Agreement (and the amendment thereto) and
Plan of Exchange attached as Annex I and Annex II to this Proxy Statement,
respectively, and which constitutes part hereof.
At the meeting, the only item stockholders will be asked to consider and
vote upon is a proposal to approve and adopt the amended Exchange Agreement and
Plan of Exchange (the "Plan") dated January 29, 1999.
The Plan provides, among other things, that on or before January 31, 2000,
subject to shareholder approval, the Company will issue 7,000,000 shares of its
Common Stock to the two shareholders of MFL in exchange for all of the issued
and outstanding common stock of MFL. Thereafter, MFL would be operated as a
wholly owned subsidiary of the Company. The two shareholders of MFL are James E.
Miller and Norman M. Dean, who are the President and Chief Executive Officer of
the Company and Chairman of the Board of Directors of the Company, respectively.
See "Conflicts of Interest." Upon completion of the Plan, Mr. Miller and Mr.
Dean together would own 9,104,492 or approximately 68.12% of the Common Stock
outstanding. The exchange rate of 6,889.76 shares of Common Stock for each share
of common stock of MFL was a negotiated exchange rate between the Company and
MFL. The closing bid price of the Common Stock, as quoted on the OTC
Bulletinboard on January 29, 1999 was $.09. The closing bid price on __________,
2000, three business days prior to the first mailing of this Proxy Statement,
was $____ .
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Miller Feed Lots, Inc.
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Feedlot Operations
- ------------------
Miller Feed Lots, Inc. ("MFL"), a Colorado corporation, 23360 Weld County
Road 35, LaSalle, Colorado 80645, telephone number (970) 284-5556, was
incorporated in April 1966. MFL owns a 20,000 head feedlot in LaSalle, Weld
County, Colorado that is currently being leased to the Company under a long term
lease. The feedlot facility includes approximately 165 acres. The following
assets are also included as part of the feedlot operations owned by MFL:
o Fences, feed tanks and waterers that comprise the "pens"
o Small office building with truck scale
o Mill facility for mixing ingredients into rations, which includes the
mill building, hopper (clam) and scale, storage tanks, overhead bins,
grain rollers, conveyor boxes, 3 8,000 bushel grain storage tanks, 2
1,000 bushel supplement storage tanks and 2 liquid supplement storage
tanks and associated delivery systems.
o Loading/unloading chute with holding pens and ground scale
o Employee break room/storage building
o Cattle processing area with squeeze chute and crowding pens
o 3 bay shop building for maintenance of MFL equipment
o Hospital area with enclosed working area with crowding alley and
squeeze chute for treating and segregating sick cattle
o Storage shed for MFL's trucks and loaders
o Separate storage shed for MFL's semi-tractors
o Wash building and associated equipment for maintaining MFL equipment
o Dirt roads and alleys for the movement of equipment and livestock
o 3 water wells which are used primarily for irrigation and dust
control. Water for consumption by livestock is purchased from a local
water company due to high nitrate levels in the water from the MFL
water.
MFL also owns numerous pieces of equipment that are necessary for the
feedlot operations. MFL owns 3 semi-tractors and 8 trailers which are used for
transporting grain, feed supplements and livestock. MFL provides trucking
services for the Company, the feedlot customers of the Company and other outside
parties. MFL derives 25-30% of its gross revenues from its trucking operations.
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MFL also owns a house and adjacent horse corrals and outbuildings that are
located approximately 3 miles from the main feedlot facility. An employee of the
Company lives in the house and the Company pays a month rental of $750 to MFL.
Subsidiary Operations
- ---------------------
D and M Feeders, Inc., a Colorado corporation, is a wholly owned subsidiary of
MFL. It has been used in the past by MFL as its cattle feeding enterprise and
for speculative commodity trading. It currently is not engaged in any
activities, nor are there any plans for it to become active in cattle feeding,
commodity trading or any other activity.
LaSalle Commodity and Cattle Services Co., ("LaSalle") a Colorado corporation,
is a wholly owned subsidiary of MFL. It is actively engaged in commodity trading
services for commercial clients under the rules of the National Futures
Association and the Commodity Futures Traders Association. Its business is
regulated by the Commodity Futures Trading Commission and, to the extent it
executes commodity trades, may come under the jurisdiction of the Chicago Board
of Trade on grain transactions and the Chicago Mercantile Exchange on livestock
transactions. LaSalle provides hedging assistance and expertise for feedlot
customers of the Company as well as outside agriculture based clients. LaSalle's
offices are located in LaSalle, Colorado. LaSalle is an introducing broker for
RB&H Financial Services, a non-related Futures Clearing Merchant brokerage house
and clearing member of the Chicago Mercantile Exchange. LaSalle is not currently
providing any services to unrelated parties in connection with the purchase and
sale of cattle, although such services have been provided in the past. The
change in policy was the result of an employee who provided such services
leaving the employment of LaSalle. LaSalle is not seeking a replacement for the
departed employee nor does it contemplate any change in its activities in the
near future. As a matter of policy, LaSalle does not make speculative trades for
its own account.
Miller Trading Co., a Colorado corporation, is actively engaged in providing
retail commodity trading services. It is regulated by the same entities that
regulate LaSalle and it is also an introducing broker for RB &H Financial
Services, a non-related party. It provides assistance and expertise in
speculative commodity trading to a variety of retail customers nationwide and in
Canada. Miller Trading Co. continues to seek additional brokers to expand its
operations. It is also utilizing its internet web page to provide faster
services to its clients, including information about the markets, although
direct trading over the internet is not currently offered. Its offices are also
located in LaSalle, Colorado. As a matter of policy, Miller Trading Co. does not
make speculative trades for its own account.
Background Of And Reasons For The Plan.
- ---------------------------------------
For several years, the management of the Company has sought, thus far
unsuccessfully, to expand the business of the Company, to increase its
profitability and to enhance shareholder value. However, management has
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increasingly become aware that its efforts to expand the business of the Company
have been hampered by a lack of assets and volume. To address these problems,
management seeks to acquire MFL and believes that such acquisition could enhance
the Company's ability to expand and also make future acquisitions more
attractive. In addition, the Company has had a long standing and intertwined
relationship with MFL, which owns many of the hard assets that the Company uses
in its operations. Both enterprises have common management in James E. Miller,
Norman M. Dean and Stephen R. Story. Management now believes that future growth
and the ability to attract a wide variety of potential business combinations and
opportunities would be enhanced if all of the business activities and assets of
the two entities were folded under the Company's publicly owned umbrella.
In the summer of 1998, the Company undertook to examine in more detail the
possible acquisition of MFL. An initial issue was the need to conserve cash for
ongoing operations. Accordingly, the Company determined that in lieu of a cash
buyout, it would issue its common stock to acquire MFL. Based upon a then
recently completed appraisal by Mr. Gary Wieck (see "Appraisal/Lack of Fairness
Opinion" below) the Company determined that the net fair market value of MFL was
approximately $1,550,000. In July of 1998, the Board of Directors, with Messrs.
Dean and Miller abstaining, approved an Agreement and Plan of Exchange with MFL
which provided for the issuance of 15,000,000 shares of common stock for all of
the issued and outstanding common stock of MFL. The number of shares to be
issued was arrived at by taking the then current market price of the Company's
common stock (approximately $.10) and dividing it into the appraised net value
of $1,550,000. The Company's third and sole outside director agreed with this
exchange ratio but reserved the right to re-examine the question of the number
of shares to be issued once MFL and Miller Diversified had completed their
respective audits for the year ended August 31, 1998. These audits were
completed in November of 1998. The outside director also wanted time to analyze
and assess the effect of the proposed merger on the Company and its
shareholders.
Renegotiation of Exchange Ratio.
- --------------------------------
In December of 1998, the outside director determined that the issuance of
15,000,000 shares of common stock to acquire MFL might not be in the best
interests of the Company and its shareholders because of the dilutive effect of
issuing so many shares, irrespective of the fact that, based upon the market
price of the Company's common stock, the issuance of 15,000,000 shares appeared
to be warranted. The Company's outside director then joined with the Company's
legal counsel to form an ad hoc committee to renegotiate the exchange ratio with
the goal of eliminating or at least reducing the dilution on a net equity per
share basis to the existing shareholders. During these negotiations, the Company
was represented solely by the outside director and the Company's legal counsel
in an effort to offset, to the extent possible, the inherent conflict of
interest of Messrs. Dean and Miller. This ad hoc negotiating committee agreed
with the basic valuation of MFL as summarized in the Wieck appraisal (see
"Appraisal/Lack of Fairness Opinion") but believed that the price of the common
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stock of the Company which was being used to acquire MFL might be undervalued as
a measure of the true worth of the Company vis-a-vis MFL and that seeking to
minimize the dilutive effect on the equity of the shareholders of the Company
provided a better method of insuring that shareholder value would be preserved.
The audits, which were completed in November 1998, were never intended to be the
sole reason or even the most significant reason for the ad hoc committee's
decision to support any particular number of shares to be issued, but were
simply one factor among many. In fact, the companies' respective audit results
did not provide any particular basis for reducing the exchange ratio. Rather,
the ad hoc committee simply believed that 15,000,000 shares was too many shares
to issue under the circumstances and Mr. Dean and Mr. Miller agreed to the new
figure of 7,000,000 shares. At no point did Mr. Miller or Mr. Dean negotiate on
behalf of the Company or attempt to influence the decision making process of the
ad hoc committee. As a result of these negotiations, the Company and MFL entered
into an amended Exchange Agreement and Plan which reduced the number of shares
to be issued under the Plan from 15,000,000 to 7,000,000. See "Board
Recommendation" below.
Management has identified several specific advantages to combining the
operations of the Company and MFL.
o First and foremost, the Company is currently paying a minimum of
$129,000 per year to MFL for use of the feedlot facilities owned by
MFL. These payments are made under a long-term lease that does not
expire until February 1, 2016.
o In addition, the Company makes equipment lease payments of $96,000 per
year to MFL.
o Further savings would be obtained from eliminating payments involving
commodity trading operations of $20,000 per year.
o Approval of the Plan by the shareholders and the subsequent operation
of MFL as a wholly owned subsidiary of the Company would eliminate
this outflow of cash that could otherwise be utilized by the Company
to expand its operations. However, this reduction in outgoing cash
flow would be offset somewhat by the fact that the Company would
become responsible for MFL's operating expenses.
o The resulting additional income and reduced expenses would provide the
Company with the means to better utilize its net tax operating loss
carry forward.
o Management also believes that the elimination of "dual control" of the
feedlot facilities will eliminate a major stumbling block with
creditors and eliminate confusion.
o Financial reporting would be simplified since related party disclosure
and analysis including the Company and MFL would be eliminated.
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o Another important factor, in management's opinion, would be the
elimination of the possible appearance of any conflict of interest
between the Company and MFL relating to the actions of directors
common to the Board of Directors of both companies.
o Finally, management believes that the acquisition of MFL would expand
and diversify the Company's business and operations. See "Board
Recommendation" below for a more detailed discussion of some of these
points.
Appraisal / Lack of Fairness Opinion.
-------------------------------------
The Board of Directors initially sought to obtain a "fairness opinion" from
a reputable investment banking firm which would analyze the fairness of the
proposed transaction with MFL to the shareholders of the Company. They
determined that such an opinion would cost anywhere from $5,000 to $25,000
depending upon the detail and scope of the opinion and the relative prominence
of the investment banking firm rendering the opinion. Because of the expense
involved, the Board of Directors decided not to obtained an opinion from any
investment banking or other similar firm as to the fairness of the proposed
exchange to the shareholders of the Company. However, as part of the valuation
and due diligence process, the Company obtained, for $2,235, an appraisal of MFL
as a going concern from Gary Wieck, C.P.A. Mr. Wieck, who was engaged to provide
his appraisal in May 1998, has been President of Countryman Associates, P.C. of
Grand Island, Nebraska since 1981. Mr. Wieck specializes in the valuation and
appraisal of feedlot operations. He has been a Certified Public Accountant since
1967 and a Certified Valuation Analyst since 1995. He is past president of the
Nebraska Society of CPA's, past member of the Council of the American Institute
of CPA's and past Chairman of the Board of Accounting Firms Associated. He
provides services in business planning, tax preparation and planning, business
valuation and litigation support. He received a BA degree from Hastings College
in 1963 and an MBA degree from the University of Nebraska - Kearney in 1982. He
has no affiliation or material relationship with the Company, MFL or Mr. Dean or
Mr. Miller nor has he had such an affiliation or material relationship within
the past two years. He was chosen because of his long standing expertise in
feedlot operations and his professional reputation. In conducting the valuation,
he considered various factors enumerated in IRS Revenue Ruling 59-60 for the
valuation of a closely held business interest. These factors include:
o The nature of the business and its history from its inception;
o The economic outlook in general and the condition outlook of the
specific industry in particular;
o The book value of the stock and the financial condition of the
business;
o The earning capacity of the company;
o The dividend-paying capacity;
o Whether the enterprise has goodwill or other intangible value;
o Sales of the stock and the size of the block of stock to be valued;
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o The market value of stock corporations engaged in a manner or similar
line of business having their stocks actively traded in a free and
open market, either on an exchange or over-the-counter.
Mr. Wieck also reviewed, analyzed and interpreted a variety of external and
internal factors that might influence the fair value of MFL. Internal factors
included MFL's financial position, results of operations and the size and
marketability of the interest being valued. External factors included, among
other things, the status of the cattle feeding industry and the position of MFL
relative to the industry.
Mr. Wieck's analysis of the above listed factors is as follows:
Dividend paying capacity of MFL. Mr. Wieck concluded that MFL's policy of
not paying dividends is appropriate for a small private company that is owned by
shareholders who never rely upon nor expect dividend income. Decisions not to
pay dividends were not considered by Mr. Wieck to be a negative consideration.
Sales of the stock and the size of the block of stock to be valued. Mr.
Wieck concluded that there had been no recent arm's length, negotiated sales of
MFL stock. Consequently, recent sales of stock was not used by Mr. Wieck as an
evaluation criterion.
The market value of stock corporations in a manner or similar line of
business. Mr. Wieck determined that the concept of using available information
concerning publicly traded comparable companies as an evaluation criterion was
not appropriated for an evaluation of MFL because he was unable to identify any
publicly traded companies whose business operations or size were similar to the
scope and operations of MFL.
Nature and history of business. Mr. Wieck reiterated the nature and history
of MFL's business in his report but did not attach any positive or negative
consideration solely to the nature or history of MFL's business.
The earning capacity of MFL. Mr. Wieck apparently took into consideration
the earning capacity of MFL because he recognized that MFL had an after tax
earnings average for the previous five years of approximately $85,800.
The economic outlook in general and the specific industry in particular.
Mr. Wieck did not make special reference to the economic outlook in general or
the cattle feeding industry in particular in his report, except to note that the
industry is cyclical in nature,
Whether MFL has goodwill or other intangible value. Mr. Wieck eliminated
goodwill and other intangible assets when formulating his valuation of MFL.
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Book value of the stock and the financial condition of MFL. Mr. Wieck
assumed that the financial statements for the previous five years upon which he
evaluated the financial condition of MFL were accurate even though the financial
statements presented to him were unaudited. He further recognized that, as is
typical in the livestock industry, the prior years earnings and cash flows of
MFL were cyclical. He also concluded that MFL's average after tax earnings for
the previous five years ending March 31, 1998 had been $85,000 and that MFL's
cash flows (net income plus depreciation) for the previous five years had been
approximately $228,000.
In analyzing the value of MFL, Mr. Wieck started with an initial book value
of a negative $33,773, based upon the financial statements of MFL as of March
31,1998. He then made adjustments in the book value that included the following:
o The feedlot property was adjusted upward to $1,300,000. He had been
furnished information by the Company of a prior estimate of value that
the feedlot facility had a market value of $2,000,000, but discounted
that value down to $1,300,000, primarily because Miller Diversified
had a purchase option to acquire the facility at that price. The prior
estimate of value that Mr. Wieck took into consideration had been
furnished to Miller Diversified by Luke Lind of Eaton, Colorado in
December 1997.
o MFL owned a condominium located in Keystone, Colorado that had an
estimated value of approximately $120,000. This estimated value was
based upon comparable sales of similar condominium units located in
the same condominium complex.
o Personal property owned by MFL, including trucks, equipment and
machinery, had an appraised value of approximately $816,000. Mr.
William Miller (no relation to James Miller, the Company's President)
of Wagner Equipment Co. of Denver Colorado provided the appraisal of
the heavy equipment (Cat loaders, etc.) in December 1997 from its data
base on actual sales of Cat equipment and machinery. The estimated
value for MFL's water wagon was provided, via telephone, from Klein
Products of California, the manufacturer of the water wagon. Estimated
values for the transport equipment were provided by Steve Lundvall of
Northern Colorado Truck & Equipment Sales, a local dealer of used over
the road equipment. The estimated values for the pickups, SUV's and
heavy trucks were provided by Chuck Fagerberg of Mountain States Ford
in Denver, Colorado, the dealer from whom MFL had purchased the feed
trucks.
o Rental property owned by MFL (the "Russell property") had an estimated
value of approximately $130,000.
o The book value of all of the assets discussed above had a book value
of approximately $500,000. Mr. Wieck adjusted their value upward by
$1,866,400 to $2,366,700 to reflect more accurately their market
value.
11
<PAGE>
o MFL had a receivable from officers in the amount of $150,000. Because
there had been no recent payment of that liability plus the fact that
MFL resources, such as a bonus, would probably be used to repay such
indebtedness, Mr. Wieck reduced the value of the asset of the book of
MFL to $50,000, which approximated the tax benefit to MFL if the
indebtedness was repaid through the use of bonuses.
After eliminating goodwill in the amount of $17,333 and taking into
consideration the deficit owners equity, Mr. Wieck concluded that the adjusted
value of MFL was $1,715,286. He then discounted by 40% the previously arrived at
adjusted value of all assets except the feed lot facility itself (which was
already valued at the purchase option price of $1,300,000 rather than the
appraised value of $2,000,000). The 40% adjustment was based in part on the
potential reduction in marketability of the assets because of a reduction in
their tax basis. This, in turn, would mean that a prospective purchaser could
only realize these values by a subsequent sale of the assets, which would result
in a higher tax liability to him. After all of this adjustments and reductions,
Mr. Wieck arrived at a total valuation of MFL of $1,549,172.
To the extent Mr. Wieck did not specifically address certain factors which
he indicated he took into consideration when arriving at a valuation of MFL, the
Company concluded that because he was an expert in feedlot valuations, he
believed that such factors, even though relevant, had no impact on his
valuation. Also, because he was an expert, the Company saw no reason to question
either his methodology or his conclusions. Finally, based upon what the Company
believed was a thorough valuation process, the Company saw no reason or
justification to substitute its judgement as to the valuation of MFL for the
valuation arrived at by Mr. Wieck.
Shareholders are cautioned that while Mr. Wieck is an experienced and
certified appraiser who is familiar with cattle feeding operations in general
and the operations of MFL in particular, other or more knowledgeable or
sophisticated appraisers might arrive at a different and perhaps lower estimate
of the fair value of MFL. The Company has subsequently determined that 7,000,000
shares of Common Stock is an appropriate number of shares to issue to acquire
MFL. This determination was based upon several factors, including the appraisal
of Mr. Wieck. While there was little disagreement between the ad hoc negotiating
committee and the owners of MFL as to the value of MFL as reflected in the Wieck
appraisal, negotiations centered upon the value that should be placed upon the
Company's common stock which was being used to acquire MFL. The resulting figure
of 7,000,000 was based upon the fact that the ad hoc negotiating committee was
unwilling to offer more than 7,000,000 shares for the acquisition of MFL and the
owners of MFL were unwilling to accept less than 7,000,000 shares. The complete
appraisal of Mr. Wieck, as well as the estimates of value provided by those
people described above, are available for inspection and copying at the
12
<PAGE>
principal executive offices of the Company during its regular business hours by
any interested shareholder or his representative who has been so designated in
writing. A copy of such appraisal or other estimates of value will also be
transmitted by the Company to any interested shareholder or his representative
who has been so designated in writing upon written request and at the expense of
the requesting shareholder.
Board Recommendation
- --------------------
The Board recommends that the stockholders vote for approval and
adoption of the Plan because the Board believes the proposed acquisition of MFL
is in the best interests of the Company and its public shareholders. The Board
(certain members of which [Mr. James E. Miller and Mr. Norman M. Dean] are
subject to certain conflicts of interest with respect to the proposal to acquire
MFL) (see "Conflicts of Interest") considered the following material factors in
making its recommendation, all of which were deemed relevant to such
recommendations as they bear on the ability of the Company's stockholders to
determine the effect of approval of the Plan on their investment:
(i) Relative stockholder equity. When weighing the number of shares of
the common stock of the Company to be issued to MFL pursuant to the Plan,
the Board of Directors was particularly cognizant of the possible dilution
that might be suffered by the existing shareholders of the Company, not
only in terms of their reduced percentage of ownership of the Company but
also their reduced net equity per share. At May 31, 1999, MFL had a
negative shareholders equity of $108,559 as reflected on the balance sheet
of MFL. The Board was aware, however, that the balance sheet of MFL on that
date may not have realistically reflected the actual market value of the
MFL feedlot and other assets. Using the financial statements and the Wieck
appraisal as a starting point, the Board considered the following
information:
Based upon appraisals obtained in 1998, the Board believed the assets were
understated as to value as follows.
Depreciated Book Appraisal Understatement
---------------- --------- --------------
Feedlot facilities $ 59,620 $1,300,000 $1,240,380
Feedlot equipment 138,389 559,700 421,311
Employee house 89,615 130,000 40,385
Transport equipment 58,918 257,000 198,082
Keystone property 90,867 120,000 29,133
Goodwill 17,333 0 0
TOTAL $ 454,742 $2,366,700 $1,929,291
When the above calculated understatement of MFL's assets was added to the
deficit equity as of May 31, 1999 of $108,559 and adjusted downward by $166,114
pursuant to the Wieck appraisal, MFL's value modified stockholders equity was
$1,654,618. Using the 15,000,000 shares initially proposed by the Board in the
summer of 1998, the equivalent price per share would have equaled $.11 per
share, which was still above the then current market price of the Company's
common stock of $.07 bid. However, as discussed above, the ad hoc negotiating
13
<PAGE>
committee ultimately decided that the issuance of 15,000,000 shares was overly
dilutive to the current shareholders. The renegotiated exchange of 7,000,000
shares equated to a value modified price per share of $.236 per share,
approximately 130% above the market price range of the common stock that
prevailed during 1998. This exchange rate still has a small dilutive effect on
shareholders' net modified equity per share, bringing the $.298 book value per
share down to $.267 per share (assuming adjusted full value is ascribed to the
MFL assets). Without ascribing any added value to the book value of the MFL
assets, the new book value per share to the current shareholders would be $.132.
For purposes of this discussion, it should be noted that "value modified"
figures are not values accepted by, nor presented in accordance with Generally
Accepted Accounting Principles, but are instead presented to give the reader a
better understanding of the effect that the actual written down "under valued"
MFL's assets had on the proposed acquisition of MFL and reflects the information
the ad hoc negotiating committee considered in making its determination as to
the number of shares the Company should issue to acquire MFL.
(ii) Elimination of long-term lease payments. For the years ended August
31, 1998 and 1997, the Company made total lease and rental payments of $269,638
and $255,286 respectively. This includes the minimum annual amount of $129,000
payable to MFL under the lease obligation that does not expire until February
2016. Although the Company would become responsible for the payment of MFL's
operating expenses, the acquisition of MFL would reduce this outflow of funds by
approximately $129,000 per year and allow the Company to use the resulting
savings of cash for more productive and growth oriented purposes. For example,
the Company would like to increase its ownership of cattle fed to slaughter. The
operational savings of a combined Miller Diversified/MFL entity would be
expected to provide the Company with enough cash to purchase and feed up to an
additional 2,000 head of cattle.
(iii) Elimination of related party transactions and conflicts of interest.
The Company as tenant and MFL as landlord are both managed by the same
management team. This relationship necessarily involves conflicts of interest,
particularly for James E. Miller as President and Chief Executive Officer of the
Company and Norman M. Dean as Chairman of the Board of Directors. See "Conflicts
of Interest." The acquisition of MFL by the Company would significantly reduce
actual or potential conflicts of interest and allow Mr. Miller and Mr. Dean to
devote all of their efforts on behalf of the Company, rather then splitting
their efforts between the Company & MFL.
(iv) Expand the size and scope of the Company's business. The Company, by
acquiring MFL and its subsidiaries, would significantly expand its asset base
and diversify its business. Management believes the resulting increase in size
of the Company would make it easier to grow the Company and put the Company in
the position to entertain more attractive business opportunities. In addition,
in prior years the Company had the opportunity to invest in or acquire small
14
<PAGE>
business as diverse as a retail rental company and a specialty flour mill, but
was unable to do so because of a lack of cash. Management expects to be able to
act on future opportunities that may appear from time to time if the Company is
able to retain additional cash assets.
(v) Other considerations. The Board also considered the following factors:
(a) the current business, property and prospects of the Company and its
subsidiaries, the financial and operational condition of the Company and its
subsidiaries and the long term strategy of the Company; (b) exchange rate of the
Company's Common Stock in light of the market price of the Common Stock, taking
into consideration with respect thereto the restrictions on public sale placed
upon Common Shares to be issued to Mr. Miller and Mr. Dean upon consummation of
the Plan (which restrictions prohibit a sale of such shares for a period of one
year after their acquisition and a limitation on the number of shares which may
be sold in any three month period equal to the greater of one percent of the
total number of shares issued and outstanding or an amount equal to the average
weekly trading volume for the four weeks immediately preceding the sale. The one
year limitation applies only to the shares acquired pursuant to the Plan and the
volume limitation applies to all shares owned by Messrs. Dean and Miller,
regardless of the manner acquired); (c) the terms of the Exchange Agreement and
Plan of Exchange; (d) the effects of the Plan on the Company and its
shareholders as described above; and (e) the disparity in revenues between the
Company and MFL. The ad hoc negotiating committee did not believe that the
relative disparity in revenues between the two companies was a significant
factor because it believed that revenues, in and of themselves, are a less
significant factor than the amount of earnings that are derived from such
revenues. For example, for the nine month period ended May 31, 1999 MFL had net
earnings of $88,330 on revenues of $805,690 while the Company had net earnings
of $132,581 on revenues of $7,865,300. For the nine month period ended May 31,
1998, MFL had net loss of $8,935 on revenues of $788,354 while the Company had
net income of $23,926 on revenues of $8,719,533.
To support its recommendation that the stockholders vote FOR approval and
adoption of the Exchange Agreement and Plan, the Board relied upon the factors
described above, as well as an analysis of the relative financial positions of
the two companies both before and following the acquisition.
MILLER FEED LOTS, INC.
----------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
MFL had a net profit for the nine months ended May 31, 1999 of $88,330
compared to a net loss of $8,935 for the comparable period of the prior year.
This improvement is attributable to the following:
15
<PAGE>
Freight service $ 2,668
Rent and lease operations 26,167
Commodity sales (31,924)
Speculative trading 47,524
General and administrative expenses 61,643
Other (8,813)
--------
$ 97,265
========
MFL's four distinct and independent sources of revenue are further discussed
below:
1. Freight services are provided to Miller Diversified Corporation ("MDC") (a
related party) and various non-related third parties. MFL's semi-trucks haul
feeder cattle from ranches and sale barns throughout the states of Colorado,
Wyoming, Montana, and Idaho and other western states into primarily MDC's
feedlot facility in LaSalle, Colorado. MFL also hauls fed cattle from various
feedlots, including MDC's, to beef packing plants in Colorado. MFL also has the
necessary trailers to haul feed corn and wheat and dry protein supplements as
well as liquid feed supplements to MDC's feedlot. With the flexibility that MFL
has in the types of services provided and delivery schedules, its trucks are
productive year around. A summary of the freight services is as follows:
Freight Services Operation Nine Months Ended May 31 Year Ended August 31
- -------------------------- ------------------------ --------------------
1999 1998 1998 1997
---- ---- ---- ----
Freight Services Income $259,892 $247,255 $317,085 $314,548
Cost of Freight Services $186,411 $176,442 232,079 252,371
-------- -------- -------- --------
Gross Margin $ 73,481 $ 70,813 85,006 62,177
Gross Margin Percentage 28.3% 28.6% 26.8% 19.8%
The most significant factor that affects freight services is miles driven.
MFL has been plagued, as has the trucking industry in the region, of retaining
qualified drivers. One of MFL's three trucks was idle during the year ended
August 31, 1997. This idleness lowers the gross margin and gross margin
percentage due to the fixed costs associated with the truck. MFL is actively
seeking a replacement driver and does not expect the condition to continue on an
ongoing basis.
During the quarter ended May 31, 1999, MFL added a fourth truck to its
fleet. The addition of the fourth truck is the primary reason for the increase
in revenues and associated cost of sales for the nine-month interim period.
2. Rent and lease income is derived from leasing of the feedlot facilities
that MFL owns in LaSalle, Colorado, leasing of equipment and vehicles for the
use and operation of the feedlot facilities, the rental of equipment and
vehicles for the use and operation of the feedlot facilities and the rental of a
residence owned by MFL. All leases and rentals are with/to MDC (a related
party). A summary of the rental and lease operations is as follows:
16
<PAGE>
Rental and Lease Operation Nine Months Ended May 31 Year Ended August 31
- -------------------------- ------------------------ --------------------
1999 1998 1998 1997
---- ---- ---- ----
Rent and lease Income $197,352 $188,309 $252,618 $219,276
Cost of rent and lease income 44,888 62,012 80,754 59,853
-------- -------- -------- --------
Gross Margin 152,464 126,297 171,864 159,423
Gross Margin Percentage 77.3% 67.1% 68% 72.7%
The single variable factor that affects rent and lease income is equipment
rental. MFL rents equipment on a month to month basis to MDC as needed for the
operation of the feedlot facilities. This has only had minor variances on a
month to month basis. The lease income on the feedlot facilities is based on the
head count of the cattle on feed in the feedlot, with a minimum of $10,750 per
month. The feedlot inventory has exceeded the minimum only occasionally, but not
to the extent as to have a major impact on net earnings. The single factor that
affects the cost of rent and lease operations is depreciation. MFL uses
accelerated depreciation methods, which are the same methods used for income tax
determination to simplify its accounting procedures.
3. Commodity sales commissions are earned by MFL's two wholly owned
subsidiaries, LaSalle Commodity and Cattle Services ("LCCS") and Miller Trading
Co. ("MTC"), from transactions dealing with the placements of commodity futures
contracts on, among others, the Chicago Board of Trade. LCCS is categorized as a
commercial brokerage company because its clients are small in number, relatively
regional in origin, and deal in predominately one category of commodities, which
is agriculture and with which the brokers have a relatively high degree of
expertise. MTC, in contrast, is classed as a retail commodity broker as a result
of a very large number of clients who are dispersed throughout the United States
and Canada and trade in a wide variety of commodities, with which the brokers
may have only limited knowledge. As a matter of policy, neither of the
subsidiaries makes speculative trades in the name of or for the accounts of LCCS
or MTC.
Commodity Sales Operations Nine Months Ended May 31 Year Ended August 31
-------------------------- ------------------------ --------------------
1999 1998 1998 1997
---- ---- ---- ----
Commodity sales commission $328,283 $351,943 $451,464 $521,345
Cost of commodity sales $166,801 $158,537 204,800 308,282
-------- -------- -------- --------
Gross Margin $161,482 $193,406 246,664 213,063
Gross Margin Percentage 49.2% 55.0% 54.6% 40.9%
Commissions per trade vary by client and type of contract. The only factor
that affects the cost of commodity trade commissions is the commission paid to
the brokers, which is based on a varying percentage of the commodity commission
income. The more senior brokers receive a higher percentage of the commission,
so the higher their percentage is of the total, the lower the gross margin and
gross margin percentage. Each subsidiary company has a stable base of senior
brokers.
17
<PAGE>
4. From time to time MFL made speculative trades in the commodities markets.
These trades were in live cattle, feeder cattle and corn futures contracts.
Management limited the trades to those commodities, because it believed it had
expertise in those markets. A summary of the gains and losses from speculative
trading through May 31, 1999 is as follows:
Speculative Trading Operations Nine Months Ended May 31 Year Ended August 31
- ------------------------------ ------------------------ --------------------
1999 1998 1998 1997
---- ---- ---- ----
Speculative trading gains (losses) $ 3,444 $ (44,080) $(104,854) $ 29,864
After February 28, 1999, Management reexamined its policies and procedures
with respect to speculative trading and decided to eliminate all speculative
trading. By May 31, 1999, MFL had closed out all of its positions on all
speculative contracts and no longer conducts any speculative trading for its own
account.
Interest income is almost exclusively interest imputed on loans made to the
MFL's directors and is offset by dividends "paid" to the same directors.
A summary of the major components of selling, general, and administrative
expenses is as follows:
<TABLE>
<CAPTION>
Selling, general and administrative expenses Nine Months Ended May 31 Year Ended August 31
- -------------------------------------------- ------------------------ --------------------
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Brokerage Business:
Telephone $24,570 $32,799 $41,760 $53,430
Advertising $16,940 $20,161 24,460 24,480
Director fees and bonuses $39,599 $55,203 59,190 92,660
Legal and accounting $16,100 $ 9,600 22,260 4,230
</TABLE>
The commodity businesses (LCCS and MTC) are conducted exclusively by
telephone, which explains the relatively high telephone expenses. MFL expects to
see some further declines in this expense now that customers can access LCCS and
MTC's web sites to obtain market information, which was previously only
available by calling the LCCS and MTC "800" numbers, which they were responsible
for. The advertising expenses are fairly consistent although such expenses are
not a fixed type of expense. The level of business generated by the existing
advertising program is generating enough business to keep the brokers supplied
with adequate leads to increase their productivity. The director fees and
bonuses are based solely on the decisions of the Board, which is comprised of
the two owners of all of MFL's outstanding stock. Legal and accounting fees have
increased due to the contemplated acquisition by MDC, which required additional
legal consultation and audits of MFL's books.
18
<PAGE>
Interest expense - non-related is incurred though a mortgage on the feedlot
facilities, which is held by an insurance company. This expense will decline as
the balance of the mortgage declines. Interest expense - related parties- is
incurred by a note payable to MDC and for financing MFL has received from other
related parties for real estate in Keystone, Colorado, a mortgage on a residence
that MFL owns and rents to MDC which along with several notes for various
equipment and vehicle purchases which have been made through a financing company
controlled by a related party. This expense will also decline as the balance of
the various notes decline. A summary of the interest expenses is as follows:
Interest Expense Nine Months Ended May 31 Year Ended August 31
---------------- ------------------------ --------------------
1999 1998 1998 1997
---- ---- ---- ----
Non-related $23,692 $26,051 $33,360 $44,230
Related parties 41,312 50,763 64,664 78,769
Income taxes are directly related to the net earnings before income taxes
and certain assumptions that are made with the estimation and prevailing income
tax regulations. A summary of the before tax earnings and income taxes is as
follows:
Earnings and Income Taxes Nine Months Ended May 31 Year Ended August 31
------------------------- ------------------------ --------------------
1999 1998 1998 1997
---- ---- ---- ----
Earnings (Loss) Before Taxes $109,539 $(24,221) $(40,100) $ 51,505
Income tax expense (Benefit) 21,209 (15,286) 42,751 15,773
Income tax expense for the year ended August 31, 1998 includes the effects of
nondeductible expenses and an allowance against deferred tax assets for capital
loss carryforwards.
Liquidity and Capital Resources
- -------------------------------
For the nine months ended May 31, 1999, operating activities provided cash
of $307,805 compared to $191,587 for the same period the prior year, an increase
of $116,218. Of the amount provided by operations for the nine months ended May
31, 1999, $166,946 is related to an increase in accounts payable to MDC, a
related party. Similarly, $71,055 of the amount provided by operations for the
nine months ended May 31, 1998 resulted from an increase in accounts payable to
MDC. Operating funds provided from other (unrelated) sources were $140,859 and
$120,532 for the nine months ended May 31, 1999 and 1998, respectively.
For the nine months ended May 31, 1999 investing activities required
$212,596, compared to providing funds of $148,056 during the same period the
previous year, a decrease in funds provided of $360,652. MFL made net advances
to officers/directors in the amount of $187,250 for the period ended May 31,
1999, compared to receiving net payments received from the officers of $152,273
during the same period the previous year, a net increase in funds utilized of
$339,523. These advances are made to enable the officers/d directors to purchase
cattle that will be fed in MDC's commercial feedlot.
19
<PAGE>
For the nine months ended May 31, 1999 financing activities required
$87,987 compared to $328,371 during the nine months ended May 31, 1998, a
decrease of $240,384. Financing uses of cash for the none months ended May 31,
1998 included a $250,000 payment to MDC while no payments were made to MDC
during the nine months ended May 31, 1999. MFL's working capital (current assets
minus current liabilities) was a negative $33,806 for the nine months ended May
31, 1999 compared to negative working capital of $66,644 at August 31, 1998, a
decrease in the deficit of $32,838. This meant that the Company could not pay
current liabilities with current assets. Included in current liabilities are
payables to MDC and its affiliates, which are related parties totaling $370,083
and $203,137 for May 31, 1999 and August 31, 1998 respectively. Without this
related party payable, MFL would have positive working capital of $336,277 and
$134,493 at May 31, 1999 and August 31, 1998 respectively This notation is made
solely to make the reader aware of the working capital position of MFL should
the proposed merger of MFL and MDC, as noted below, be consummated.
The major current asset is notes receivable from officers/directors, which
had a balance of $475,094 at May 31, 1999 and $287,844 at May 31, 1998. These
advances have been made to the officers/directors over a period of time
primarily to finance their cattle feeding programs at MDC's commercial feedlot.
The balance fluctuates month to month as cattle are sold and indebtedness is
repaid and additional funds are advanced for additional purchases.
Other than routine notes payable for equipment and vehicles purchased and
rented or leased to MDC, a mortgage on the feedlot facility, which had a balance
of $284,763 and $311,219 at May 31, 1999 and August 31, 1998 respectively, and a
mortgage on a residence that MFL owns and rents to MDC, which had balances of
$75,094 and $79,216 at May 31, 1999 and August 31, 1998 respectively. MFL's
largest single creditor is MDC. MFL has a longstanding agreement with MDC under
which MDC provides cash flow as needed by MFL for normal operations. Since MDC
leases and operates MFL's feedlot facilities and has a lease financing statement
filed with the State of Colorado, it has been difficult for MFL to obtain any
financing for its operations. This is further evidenced by the fact that MDC is
a co-signer of MFL's mortgage on the feedlot facilities and MFL is a guarantor
on MDC's operating lines of credit.
MFL had no material commitments for capital expenditures at May 31, 1999.
Management believes it has adequate financial resources to conduct
operations at present and reasonably anticipated levels.
Year 2000 Compliance
- --------------------
MFL is aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. The "Year 2000" problem is
concerned with whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Year 2000 problem is pervasive and complex as virtually every
20
<PAGE>
company's computer operations will be affected in some way. MFL's computer
programs which process financial transactions, were designed and developed
without consideration of the impact of the upcoming change in century and are
currently being upgraded to reduce or eliminate any serious impact on its
reporting capabilities. MFL's computer programs which process operational
transactions, specifically its commodities trading operations, may have been
designed and developed with consideration of the impact of the upcoming change
in century, but MFL is, never-the-less, analyzing their capabilities to reduce
or eliminate any serious impact on their operational capabilities. MFL's ongoing
analysis of it's operational computer programs and operations is not complete,
so MFL has not reached any conclusion concerning the impact of "Year 2000"
problems on its expenses, business or operations.
It is possible that "Year 2000" problems incurred by the customers or
suppliers of MFL could have a negative impact on future operations and financial
performance of MFL, although MFL has not been able to specifically identify any
such problems among its suppliers. Since MFL is and will be dependent upon only
two suppliers for some of its equipment, market information and futures trading
capabilities, it is in the process of contacting these primary suppliers to
determine if they are developing plans to address processing transactions which
may impact MFL in the year 2000. MFL has received statements for its two
suppliers (DTN Corp and FutureSource) stating that they are addressing the Year
2000 problem and expect to have revisions in place prior to year end. However,
there can be no assurance that Year 2000 problems will not occur with respect to
MFL's computer systems. Furthermore, the Year 2000 problem may impact other
entities with which MFL transacts business and MFL cannot predict the effect on
its business or operations. MFL is developing a contingency plan to operate in
the event that any non-compliant customer or supplier systems have a material
impact on MFL if not remedied by January 1, 2000. Due to the specialized nature
of some of MFL's computer programs and equipment, all potential problems and
their contingencies may not be identified in a manner timely enough to take
preventative and/or corrective actions. Therefore, MFL concedes that it is
possible the Year 2000 issue could have a potentially material adverse effect on
its business, financial condition and results of operation.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements give
effect to the acquisition by the Company of all of the outstanding shares of MFL
stock pursuant to the Exchange Agreement and Plan of Exchange and are based on
the estimates and assumptions set forth herein and in the notes to such
statements. This pro forma information has been prepared utilizing the
historical consolidated financial statements. The pro forma financial data is
provided for comparative purposes only and does not purport to be indicative of
the results which actually would have been obtained if the exchange had been
effected on the date indicated or of those results which may be obtained in the
future.
The pro forma financial information treats the proposed exchange as a
reverse acquisition of the Company by MFL since the MFL shareholders acquire a
controlling interest in the Company. Pro forma adjustments are described in the
notes accompanying the pro forma financial statements. The unaudited pro forma
consolidated balance sheet assumes the acquisition occurred on May 31, 1999. The
unaudited pro forma consolidated income statements assume the acquisition
occurred on September 1, 1997.
21
<PAGE>
<TABLE>
<CAPTION>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
AND MILLER FEED LOTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Historical Pro Forma
------------------------------- --------------------------
May 31, 1999 Miller Diversified Miller Feed
Corporation Lots, Inc.
Consolidated Consolidated Adjustments Consolidated
------------ ------------ ----------- ------------
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 57,175 $ 28,918 $ 86,093
Trade accounts receivable 1,080,979 72,716 1,153,695
Notes receivable-customer financing 440,461 -- 440,461
Receivable from officers/directors -- 475,094 475,094
Accounts receivable - related parties 370,143 -- [c4] (370,143) --
Income tax refunds receivable -- 24,313 24,313
Inventories 1,383,927 -- 1,383,927
Prepaid expenses 17,771 -- 17,771
----------- ----------- ----------- -----------
Total Current Assets 3,350,456 601,041 (370,143) 3,581,354
----------- ----------- ----------- -----------
Property and Equipment:
Land -- 56,924 56,924
Buildings and improvements -- 892,799 [d] 103,510 996,309
Feedlot facilities under capital lease 1,497,840 -- [c1] (1,497,840) --
Equipment 100,336 854,289 [b] 35,000 1,212,580
[d] 27,533
[e] 195,422
Equipment under capital leases - related party 30,649 -- [c2] (30,649) --
Leasehold improvements 131,043 -- [d] (131,043) --
----------- ----------- ----------- -----------
1,759,868 1,804,012 (1,298,067) 2,265,813
Less: Accumulated depreciation and amortization 645,505 1,280,314 [c1] (499,283) 1,597,437
[c2] (24,521)
[e] 195,422
----------- ----------- ----------- -----------
Total Property and Equipment 1,114,363 523,698 (969,685) 668,376
Other Assets:
Net investment in sales-type leases -- 7,819 [c2] (7,819) --
Securities available for sale 10,775 -- 10,775
Other investments 376,435 78,500 454,935
Investment in MFL [a] 1,500,000 --
[b] (1,500,000)
Notes receivable - related party 300,000 -- [c4] (300,000) --
Goodwill -- -- [b] 774,056 774,056
Deferred income taxes 233,142 51,000 284,142
Deposits and other 16,500 27,889 [c3] (15,889) 28,500
----------- ----------- ----------- -----------
Total Other Assets 936,852 165,208 450,348 1,552,408
----------- ----------- ----------- -----------
TOTAL ASSETS $ 5,401,671 $ 1,289,947 $ (889,480) $ 5,802,138
----------- ----------- ----------- -----------
22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------- --------------------------
May 31, 1999 Miller Diversified Miller Feed
Corporation Lots, Inc.
Consolidated Consolidated Adjustments Consolidated
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
Current Liabilities:
Bank overdraft $ 40,089 $ -- $ 40,089
Notes payable 1,725,476 -- 1,725,476
Notes payable - officer/director -- 13,000 13,000
Trade accounts payable 391,720 71,195 [c4] (60) 462,855
Accounts payable - related parties -- 370,083 [c4] (370,083) --
Accrued expenses 54,935 3,688 58,623
Income taxes payable 75,356 -- 75,356
Customer advance feed contracts 148,482 -- 148,482
Current portion: --
Long-term debt -- 38,070 38,070
Long-term debt - related parties -- 138,811 138,811
Capital lease obligations - related party 27,075 -- [c1] (20,153) --
[c2] (6,922)
----------- ----------- ----------- -----------
Total Current Liabilities 2,463,133 634,847 (397,218) 2,700,762
Long-term debt -- 246,694 246,694
Long-term debt - related parties -- 516,965 [c4] (300,000) 216,965
Capital lease obligations - related party 964,411 -- [c1] (963,514) --
[c2] (897)
Total Liabilities 3,427,544 1,398,506 (1,661,629) 3,164,421
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock -- -- --
Common Stock 636 101,600 [a] 700 1,336
[b] (101,600)
Additional Paid-in Capital 1,351,693 11,860 [a] 1,499,300 2,051,490
[b] (811,363)
Unrealized Loss - Securities Available for Sale (9,325) -- (9,325)
Retained Earnings (Deficit) 631,123 (222,019) [b] 222,019 594,216
[c1] (14,890)
[c2] (6,128)
[c3] (15,889)
Total Stockholders' Equity 1,974,127 (108,559) 772,149 2,637,717
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,401,671 $ 1,289,947 $ (889,480) $ 5,802,138
23
</TABLE>
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The following note is included to assist the reader in understanding the
adjustments needed to illustrate the business combination of the Company and MFL
as if it occurred as of May 31, 1999.
[a] To record issuance of 7,000,000shares of the Company's Common Stock in
exchange for all outstanding shares of MFL.
[b] To allocate the purchase price and recognize goodwill related to the
effective acquisition of a 35% interest in the Company by the shareholders of
MFL and eliminate MFL stockholder's equity balances.
[c] To eliminate intercompany balances as follows:
[c1] Feedlot facilities under capital lease between the Company and
MFL.
[c2] Equipment under capital lease between the Company and MFL.
[c3] MFL goodwill on acquisition of subsidiaries LCCS and MTC from the
Company.
[c4] Accounts and notes receivable
[d] Reclassify leasehold improvements to equipment and facilities
[e] Reinstate value of fully depreciated assets originally leased from MFL
but not purchased by the Company.
24
<PAGE>
<TABLE>
<CAPTION>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
AND MILLER FEED LOTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
Historical Pro Forma
------------------------------- -----------------------
Miller Miller
Diversified Feed
Corporation Lots, Inc.
Nine Months Ended May 31, 1999 Consolidated Consolidated Adjustment Combined
- ------------------------------ ------------ ------------ ---------- --------
<S> <C> <C> <C> <C>
Revenue:
Feed and related sales $ 5,070,556 $ -- $ 5,070,556
Fed cattle sales 1,577,505 -- 1,577,505
Feedlot services 1,111,521 -- 1,111,521
Freight services income -- 259,892 -- 259,892
Rent and lease income -- 197,352 [c1] (98,543) --
[c2] (883)
[c5] (91,176)
[c6] (6,750)
Commodity sales commissions -- 328,283 328,283
Speculative trading gains -- 3,444 3,444
Interest income 38,902 540 39,442
Interest income - related party 13,500 -- [c4] (13,500) --
Other 53,316 16,179 [c6] (1,350) 68,145
----------- ----------- ----------- -----------
Total Revenue 7,865,300 805,690 (212,202) 8,458,788
----------- ----------- ----------- -----------
Costs and Expenses:
Cost of:
Feed and related sales 4,366,623 -- 4,366,623
Fed cattle sold 1,498,874 -- 1,498,874
Feedlot services 1,097,403 -- [c1] (46,729) 949,682
[c2] (3,066)
[c5] (91,176)
[c6] (6,750)
Freight services income -- 186,411 186,411
Rent and lease income -- 44,888 44,888
Commodity sales commissions -- 166,801 166,801
Selling, general, and administrative 574,548 233,047 [c3] (889) 834,383
[c6] (1,350)
Interest 37,188 23,692 60,880
Interest - related parties -- 41,312 [c4] (13,500) 27,812
Interest on capital leases - related party 82,727 [c1] (81,844) --
[c2] (883)
----------- ----------- ----------- -----------
Total Costs and Expenses 7,657,363 696,151 (217,160) 8,136,354
----------- ----------- ----------- -----------
Earnings Before Taxes 207,937 109,539 [g] 4,958 322,434
Income Tax Expense 75,356 21,209 [h] 96,565
----------- ----------- ----------- -----------
NET EARNINGS $ 132,581 $ 88,330 $ 4,958 $ 225,869
25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
AND MILLER FEED LOTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED INCOME STATEMENT
Historical Pro Forma
-------------------------------- --------------------------
Miller Miller
Diversified Feed
Corporation Lots, Inc.
Year Ended August 31, 1999 Consolidated Consolidated Adjustment Combined
- -------------------------- ------------ ------------ ---------- --------
<S> <C> <C> <C> <C>
Revenue:
Feed and related sales $ 8,211,839 $ -- $ 8,211,839
Fed cattle sales 1,373,688 -- 1,373,688
Feedlot services 1,524,310 -- 1,524,310
Freight services income -- 317,085 -- 317,085
Rent and lease income -- 252,618 [c1] (129,000) --
[c5] (123,618)
Commodity sales commissions -- 451,464 451,464
Speculative trading gains (losses) -- (104,854) (104,854)
Interest income 27,319 25,515 52,834
Interest income - related party 24,000 -- [c4] (24,000) --
Other 23,005 9,115 [c5] (1,800) 30,320
------------ ------------ ------------ ------------
Total Revenue 11,184,161 950,943 (278,418) 11,856,686
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of:
Feed and related sales 7,372,392 -- 7,372,392
Fed cattle sold 1,477,479 -- 1,477,479
Feedlot services 1,386,796 -- [c1] (59,914) 1,195,593
[c2] (7,671)
[c5] (123,618)
Freight services income -- 232,079 232,079
Rent and lease income -- 80,754 80,754
Commodity sales commissions -- 204,800 204,800
Selling, general, and administrative 773,055 375,386 [c3] (1,294) 1,184,050
[c5] (1,800)
[f] 38,703
Loss on write down of inventory 140,416 140,416
Interest 31,563 33,360 64,923
Interest - related parties -- 64,664 [c4] (24,000) 40,664
Interest on capital leases - related party 112,997 [c1] (110,937) --
[c2] (2,060)
------------ ------------ ------------ ------------
Total Costs and Expenses 11,294,698 991,043 (292,591) 11,993,150
------------ ------------ ------------ ------------
Earnings (Loss) Before Taxes (110,537) (40,100)[g] 14,173 (136,464)
Income Tax Expense (56,180) 42,751 [h] (13,429)
------------ ------------ ------------ ------------
NET EARNINGS (Loss) $ (54,357) $ (82,851) $ 14,173 $ (123,035)
26
</TABLE>
<PAGE>
Miller Diversified Corporation and Subsidiary
Notes to Unaudited Pro Form consolidated Income Statements
The following note is included to assist the reader in understanding the
adjustment needed to illustrate the business combination of the Company and MFL
as if it occurred as of September 1, 1997.
[c] To eliminate intercompany balances as follows:
[c1] Feedlot facilities under capital lease between the Company and
MFL.
[c2] Equipment under capital lease between the Company and MFL.
[c3] MFL goodwill on acquisition of LCCS and MTC from the Company. .
[c4] Accounts and notes receivable.
[c5] Equipment rentals between the Company and MFL
[c6] Accounting fees and equipment rental between the Company and MFL.
[f] Record amortization of goodwill using straight-line method over 20
years.
[g] Included in the eliminations of the Unaudited Pro-Forma Consolidated
Income Statements for the year ended August 31, 1998 and the nine months ended
May 31, 1999 are the following amounts:
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended May 31, August 31,
1999 1998
--------- ---------
<S> <C> <C>
Effect of different methods of accounting for leases
Eliminated MDC expenses:
------------------------
Interest expense on facilities lease $ 81,844 $ 110,937
Interest expense on equipment leases 883 2,060
Straight line amortization of:
Leased feedlot facility 44,937 59,914
Leases equipment 1,792 --
Additional facilities rental over minimum 1,792 --
--------- ---------
132,522 180,582
Eliminated MFL income
---------------------
Lease income:
Feedlot facility (98,543) (129,000)
Leased equipment (883) --
Increase in income due to different
methods of accounting for lease 33,096 51,582
Record amortization of goodwill by the Company (29,027) (38,703)
Eliminate MFL expenses:
Amortization of goodwill 889 1,294
--------- ---------
Total Increase in Income on Pro Forma Income Statements $ 4,958 $ 14,173
</TABLE>
[h] No income tax adjustment has been made
27
<PAGE>
THE EXCHANGE AGREEMENT AND PLAN OF EXCHANGE
The following description of all of the material terms of the Exchange
Agreement and Plan of Exchange, as amended, is qualified in its entirety by
reference to the full text of these documents, copies of which are attached as
Annex I and Annex II, respectively, to this Proxy Statement and constitute a
part hereof.
Upon consummation of the Exchange, 6,889.76 shares of the Company's common
stock will be issued in exchange for each share of MFL common stock currently
outstanding. In the aggregate, 7,000,000 shares of the Company's common stock
will be issued in exchange for the 1,016 shares of MFL common stock issued and
outstanding. The exchange ratio of the common stock was based upon several
factors, including the net asset value of MFL, its value as a going concern, the
fair market value of MFL assets as determined by appraisal and the market price
of the Company's common stock. The Boards of Directors of the Company and MFL
mutually determined the exchange ratio, although both boards, for the most part,
are made up of the same individuals. See "Conflicts of Interest."
Until surrendered, all certificates representing ownership of MFL common
stock will be deemed to be exchanged and the holders thereof will be entitled
only to the shares of the Company common stock for which they have been
exchanged. Mr. James Miller and Mr. Norman Dean are the only two shareholders of
MFL. By executing the Exchange Agreement, they specifically agreed to the
transaction contemplated therein and will not invoke their dissenter's rights,
whether as shareholders of MFL or the Company.
If adopted by the requisite stockholder's vote of the Company and unless
terminated as provided in the Exchange Agreement, the Exchange will become
effective when a certificate of exchange is issued by the Secretary of the State
of Colorado.
The Exchange Agreement contains representations of the Company and MFL.
These include, among others, representations concerning the financial condition
of MFL and the accuracy of its financial statements, representations and
warranties with respect to information contained in their Proxy Statement and
the corporate power of the Company and MFL to enter into the Exchange Agreement
and perform their obligations thereunder.
The Company and MFL have agreed that prior to consummation of the Exchange,
each will continue to conduct their respective businesses in conformity with
established industry practice in a diligent manner.
The Exchange Agreement, as amended, provided that it would terminate
automatically if the Effective Time did not occur by April 30, 1999 unless
otherwise extended by mutual agreement pending a shareholder vote by the
Company's shareholders. This deadline was subsequently extended by mutual
agreement to January 31, 2000. The Company may terminate the Exchange Agreement
if holders of more than 10% of the Company's issued and outstanding common stock
of the Company give notice of their intention to demand payment for their
shares. The Company has made no determination as to whether it would terminate
the Exchange Agreement if greater than 10% of its shareholders perfect their
dissenter' rights. See "Dissenter's Rights." If any condition precedent, as set
forth in the Exchange Agreement, to the obligation of either the Company or MFL
is not met by January 31, 2000, that party may terminate the Exchange Agreement
or waive the condition. The conditions precedent include the requirements that
all representations and warranties set forth in the Exchange Agreement shall be
true and correct in all material respects as of the Effective Time and that the
covenants and actions of each party required to be fulfilled before that date
have been fulfilled. There are no federal or state regulatory requirements which
must be complied with, nor is any federal or state regulatory approval necessary
to consummate the proposed acquisition of MFL as contemplated in the Plan.
28
<PAGE>
Dissenter's Rights
- ------------------
Stockholders of the Company's Common Stock have a right to dissent and
obtain payment in cash for their shares by complying with the terms of Sections
78.491 to 78.494 of the Nevada General Corporation Law. Such sections are each
reprinted in their entirety as Annex III to this Proxy Statement. A person who
desires to dissent and who has a beneficial interest in shares of the Company's
Common Stock that are held of record in the name of another person, such as a
broker or nominee, should act promptly to cause the record holder timely and
properly to follow those steps summarized below to perfect whatever right to
payment such beneficial owner may have. Alternatively, a beneficial owner of
shares of the Company's Common Stock may assert his or her own right to dissent
and obtain payment with respect to shares held on his or her behalf by
submitting a written consent of the record holder to the Company prior to
assertion of such right and by then following the steps summarized below to
perfect whatever right to payment such beneficial owner may have.
The following discussion is not a complete statement of the law relating to
the right to dissent and obtain payment and is qualified in its entirety by
Annex III. This discussion and Annex III should be reviewed carefully by any
stockholder who wishes to exercise the statutory right to dissent and obtain
payment for shares since failure to comply with the procedures set forth will
result in the loss of such right.
Pursuant to Sections 78.481 and 78.482 of the Nevada General Corporation
Law, holders of the Company's Common Stock may obtain payment for their shares
if such holders do not approve the Exchange. The Exchange Agreement provides
that it may be terminated by the Company if holders of more than 10% of the
Company's Common Stock have acted to perfect such right to obtain payment. In
order to perfect the right to obtain payment for shares, a stockholder must
satisfy each of the conditions of Sections 78.491 and 78.494 of the Nevada
General Corporation Law as summarized below.
First, prior to the vote on the Plan of Merger, a stockholder who desires
to dissent and obtain payment for shares must file with the Company a written
notice of intention to demand payment (the "Notice of Intention") if the
proposed action is effectuated for the stockholder's shares of the Company's
Common Stock. (It is recommended that the Notice of Intention be addressed to
Stephen R. Story, Secretary, Miller Diversified Corporation, 23360 Weld County
Rd. 35, P.O. Box 937, LaSalle, Colorado 80645.) In addition, such stockholder
must not vote in favor of or otherwise consent to adoption of the Plan of
Exchange (a failure to vote will satisfy the condition that the stockholder not
vote in favor of the adoption of the Plan of Exchange.) Voting in favor of the
Plan of Exchange, delivering a signed unmarked proxy or delivering a proxy in
favor of the Plan of Exchange will constitute a waiver of the stockholder's
right to obtain payment and will nullify any previous Notice of Intention
submitted by the stockholder.
If the proposed Plan of Exchange is approved by the shareholders of the
Company at the meeting called for that purpose, the Company shall deliver a
written dissenter's notice to all stockholders who sent written notice to the
Company of intent to demand payment as above described. The dissenter's notice
will be sent within 10 days of the shareholder meeting approving the Plan of
Exchange and will state where the demand for payment must be sent and where and
when the Company's stock certificates must be deposited. Such notice will also
include a form for demanding payment that includes that date of the first
announcement to the news media or to the stockholders of the Company of the
terms of the Plan of Exchange and requiring that the shareholder asserting
dissenter's rights certify whether or not he or she acquired beneficial
ownership of the Company's shares prior to such date. Finally, the dissenter's
notice shall set a date by which the Company must receive the demand for
payment, which shall be not less than 30 or more than 60 days after the date the
notice is delivered.
A stockholder who receives a dissenter's notice must (1) demand payment of
the Company; (2) certify whether he or she acquired beneficial ownership of the
Company's shares before the date required to be set forth in the dissenter's
notice for this certification; and (3) deposit his or her stock certificate in
accordance with the terms of the notice. The dissenting stockholder who demands
payment and deposits his or her certificate retains all other rights as a
shareholder of the Company until the rights are canceled or modified by the Plan
of Exchange. Stockholders who do not comply with the above stated requirements
are not entitled to payment for their shares.
29
<PAGE>
Within 30 days after the Demand for Payment or upon the Effective Time of
the Exchange, whichever is later, the Company shall pay to the dissenting
stockholder the Fair Cash Value of his or her shares as of the day before the
stockholder vote on the Exchange exclusive of any element of value arising from
the expectation or accomplishment of the Exchange. The term "Fair Cash Value"
means the intrinsic value of the dissenting stockholder's interest determined
from the assets and liabilities of the Company considered in the light of every
factor bearing on value.
If there is a dispute between the Company and the dissenting shareholder as
to the Fair Cash Value of the dissenting shareholder's stock, Nevada statutes
provide that the Company shall commence a judicial proceeding within 60 days
after receiving the demand from the dissenting shareholder to petition the Court
to determine the fair value of the shares and accrued interest. Failure of the
Company to commence such a proceeding within 60 days shall result in the Company
paying the amount demanded. In such event the dissenting shareholder shall be
deemed to be a judgment creditor to the Company for the amount demanded. See
Annex III.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with MFL
- ---------------------
The Company is affiliated through partial common ownership with MFL. James
E. Miller, a Director and President of the Company, and Norman M. Dean, a
Director and Chairman of the Board of Directors of the Company, together
beneficially own 33.1% of the Company's stock. Together, Mr. Dean and Mr. Miller
own all of the outstanding stock of MFL. The Company leases its feedlot
facilities and most of its equipment, rents some equipment on a month to month
basis and purchases some of its transportation services from MFL. Mr. Miller
manages the operations of MFL as well as the feedlot operations of the Company.
On February 1, 1991, the Company executed a 25-year capital lease of its
facilities (see Part I, Item 2, Properties) from MFL. As they negotiated for a
long-term lease, the Company's Board of Directors undertook considerable
analyses and comparisons to insure the lease was consistent with the Company's
objectives and that the terms were fair and reasonable. The lease was
unanimously approved by the Board of Directors, including all disinterested
directors. From February 1, 1987 through January 31, 1991, the Company leased
the feedlot facilities from MFL under a short-term operating lease, and
amendments and extensions thereof. The monthly rent under the short-term
operating leases was the same as it was under the long-term lease, and the
Company was responsible for the same property expenses as under the new
long-term lease. Effective August 1, 1992, the Company amended its lease with
MFL to lease only one of the two feedlots initially leased. The feedlot being
leased after the amendment has a capacity of 20,000 head of cattle. The Company
has continued to lease one feedlot under the 25-year lease term at the same rent
of 2 1/3(cent) per head per day, but with a minimum of $10,750 and maximum of
$13,300 per month. The Company has an option to purchase the feedlot it leases
for $1,300,000.
30
<PAGE>
The above-described transactions were entered into on terms the Company
believes were at least as favorable as would have been available from
unaffiliated third parties.
On May 31, 1993 the Company loaned $250,000 to MFL pursuant to a note that
matured May 31, 1998 and was paid in full on that date. On May 31, 1997 the
Company loaned an additional $300,000 to MFL pursuant to a note that matures May
31, 2002. The note is unsecured and bears interest at 6% per annum, payable
monthly. MFL used the proceeds from the loan to acquire additional feeder cattle
to place in the Company's feedlot. The note is subordinated to MFL's mortgagor.
BENEFICIAL OWNERSHIP OF COMPANY COMMON STOCK
The table set forth below shows, as of the Record Date, the shares of
Common Stock beneficially owned by each director of the Company, by all
directors and officers of the Company as a group, and by each person who was
known to the Company to own beneficially more than five percent of the Common
Stock.
Amount and Nature Percent
Name of Beneficial Owner of Beneficial Ownership of Class(1)
- ------------------------ ----------------------- -----------
James E. Miller 994,706(2) 15.6%
23402 Weld County Road 35
LaSalle, CO 80645
Norman M. Dean 1,109,786(3) 17.4%
1858 26th Avenue
Greeley, CO 80631
Alan D. Gorden 50,000(4) .8%
4570 Old Ranch Road
Colorado Springs, CO 80908
Stephen R. Story 1,810 0.03%
2322 45th Avenue
Greeley, CO 80634
All Directors and Executive
Officers as a Group (4 persons) 2,156,302 33.8%
- ----------
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d), shares
not outstanding which are subject to options, warrants, rights or conversion
privileges exercisable within 60 days are deemed outstanding for the purpose of
calculating the number and percentage owned by such person, but are not deemed
outstanding for the purpose of calculating the percentage owned by each other
person listed.
(2) Includes 45,906 shares owned by Mr. Miller's wife.
(3) Includes 45,905 shares owned by Mr. Dean's wife.
(4) Includes 100,000 shares owned by Gorden Properties LLC. Mr. Gorden is the
general partner and owns 50% of the ownership interest of Gorden Properties LLC.
Mr. Gorden may be deemed to have indirect voting and investment power of 50 % of
the shares of common stock owned by Gorden Properties LLC.
31
<PAGE>
MARKET INFORMATION AND RELATED MATTERS
The Company's Common Stock is listed on the OTC Electronic Bulletin Board
under the symbol MILR. The following table sets forth the high and low bid
prices for the Common Stock as reported by the National Quotation Bureau, LLC
for the quarters indicated.
High Low
---- ---
1997
First Quarter................... .1875 .09
Second Quarter.................. .20 .13
Third Quarter................... .15 .12
Fourth Quarter.................. .12 .11
1998
First Quarter................... .12 .09
Second Quarter.................. .10 .10
Third Quarter................... .11 .10
Fourth Quarter.................. .09 .075
1999
First Quarter................... .09 .07
Second Quarter.................. .09 .09
Third Quarter................... .09 .09
On the Record Date, there were approximately 1,475 record owners of Common
Stock. The reported high bid, low bid and last sales price of the Common Stock
on July 2, 1998, the day prior to the public announcement of the proposed
Transaction, was .11 per share. The reported closing sale price on December __,
1999, three business days prior to the first mailing of this Proxy Statement,
was $___ per share.
The Company has not paid any dividends on its Common Stock since
organization, and it is not contemplated that it will pay any dividends on the
Common Stock in the foreseeable future. No leasing, financing, or similar
arrangements to which the Company is a party preclude or limit in any manner the
payment of any dividend.
MFL is a privately held company and its shares are not publicly traded.
32
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
- --------------------------
The following table sets forth information concerning the compensation of
the Chief Executive Officer of the Company for the three year period ended
August 31, 1998. There were no other executive officers of the Company whose
salary and bonuses for the year ended August 31, 1998 exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Restricted Other
Name and Year Ended Annual Compen- Stock Options/ LTIP Compen-
Principal Position August 31 Salary($) Bonus($) sation($) Awards($) SARs(#) Payouts($) sation($)
- ------------------ --------- --------- -------- --------- --------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Miller 1998 $72,000 $ - $ - $ - $ - $ - $ -
Chief Executive 1997 72,000 - - - (300,000) - -
Officer 1996 72,000 10,000 - - (300,000) - -
</TABLE>
In January 1997, the Board of Directors rescinded the following options,
which had been granted in the year ended August 31, 1996:
James E. Miller 300,000 shares of common stock at .0605/share
Norman M. Dean 300,000 shares of common stock at .0605/share
Alan D. Gorden 100,000 shares of common stock at .0605/share
The Board rescinded the options when it was discovered that the stock
option plan under which they had been granted had expired.
- --------------------------------------------------------------------------------
OPTIONS/SAR GRANTS IN YEAR ENDED AUGUST 31, 1998
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
Options/SARs
Name and Granted to Exercise or
Principal Options/SARs Employees in Base Price Expiration
Position Granted (#) Fiscal Year ($/Share) Date
- --------------------------------------------------------------------------------
James E. Miller -0- .0% .0000
President
Norman M. Dean -0- .0% .0000
Chairman of the Board
Alan D. Gorden -0- .0% .0000
33
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN YEAR ENDED AUGUST 31, 1998
AND OPTION/SAR VALUE AS OF AUGUST 31, 1998
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
- --------------------------------------------------------------------------------
James E. Miller 0 $0 0/0 $0/$0
Norman M. Dean 0 $0 0/0 $0/$0
Alan D. Gorden 0 $0 0/0 $0/$0
Compensation of Directors
- -------------------------
The Directors of the Company are entitled to receive fees of $500 per
quarter for meeting attended, and reimbursement for travel expenses. During the
fiscal year ended August 31, 1998, each Director received a total of $1,500 in
director fees. These fees may be increased or decreased from time-to-time by a
majority vote of the Board of Directors. Norman M. Dean is a part-time employee
of the Company at a salary of $3,000 per month.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
The Company has no compensation plan or arrangement with any of its current
or former Officers or Directors which results or will result from the
resignation, retirement, or any other termination of such individual of
employment with the Company.
AUDITORS
It is anticipated that a representative of the Company's independent
accountant. Anderson & Whitney, P.C., will be present at the Meeting to answer
questions and make a statement if such representative so desires.
34
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference the financial statements,
supplemental financial information and management's discussion and analysis of
the financial condition and results of operations regarding the Company included
in the Company's Annual Report on Form 10-KSB for the year ended August 31,
1998, its Quarterly Reports on Form 10-QSB for the quarters ended November 30,
1998, February 28, 1999 and May 31, 1999, and its Form 8-K filed February 3,
1999. Copies of the Company's Annual Report of Form 10-KSB for the year ended
August 31, 1998 as well as the Form 10-QSB for the quarter ended May 31, 1999
are enclosed.
The statements contained in a document incorporated by reference in this
Proxy Statement will be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained in this Proxy Statement
or in any other subsequently filed document which is also incorporated by
reference in this Proxy Statement modifies or supersedes such statement. Any
statement so modified or superseded will not be deemed, except as modified or
superseded, to constitute a part of this Proxy Statement.
The Company will provide, without charge, to each person to whom this Proxy
Statement is delivered, upon written or verbal request of such person, by first
class mail or other equally prompt means within one business day of receipt of
such request, a copy of any and all information that has been incorporated by
reference in the Proxy Statement (not including the exhibits to the information
that is incorporated by reference unless such exhibits are specifically
incorporated by reference to the information that this Proxy Statement
incorporates). Written requests should be addressed to:
Corporate Secretary
Miller Diversified Corporation
23360 Weld County Road 35
P.O. Box 937
LaSalle, Colorado 80645
35
<PAGE>
OTHER MATTERS
The Board of Directors does not intend to bring any other business before
the meeting, and so far as is known to the Board, no matters are to be brought
before the meeting except as specified in the notice of the meeting. However, as
to any other business that may properly come before the meeting, it is intended
that proxies, in the form enclosed, will be voted in respect thereof in
accordance with the judgment of the persons voting such proxies to the extent
discretionary authority has been granted in such proxies.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2000 annual
meeting of stockholders must be received by the Company on or before September
15, 2000, in order to be eligible for inclusion in the Company's proxy statement
and form of proxy. To be so included, a proposal must also comply with all
applicable provisions of Rule 14a-8 under the Securities Exchange Act of 1934.
The Company reserves the right to reject, rule out of order, or take other
appropriate action with respect to any proposal that does not comply with these
requirements. Proposals should be sent to Steve Story, Corporate Secretary,
Miller Diversified Corporation, 23360 Weld County Road 35, P.O. Box 937,
LaSalle, Colorado 80645.
36
<PAGE>
Miller Diversified Corporation
23360 Weld County Road 35
LaSalle, Colorado 80645
---------------------------------------------
This Proxy is Solicited by the Board of Directors
Of Miller Diversified Corporation
---------------------------------------------
The undersigned having received the Notice of Special Meeting of
Stockholders and Proxy Statement dated ____________, 2000, hereby appoints
Norman Dean or his designee with full power of substitution and revocation to
represent the undersigned and to vote all the shares of the common stock of
Miller Diversified Corporation (the "Company") which the undersigned is entitled
to vote at the Special Meeting of the Shareholders of the Company to be held on
__________________, 2000 and any postponement or adjournment thereof.
(1) PROPOSAL TO ADOPT AN AGREEMENT AND PLAN OF EXCHANGE TO ACQUIRE ALL OF
THE OUTSTANDING COMMON STOCK OF MILLER FEED LOTS, INC.
FOR__________ AGAINST_________ ABSTAIN_________
(2) IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
FOR__________ AGAINST_________ ABSTAIN_________
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned Shareholder. If no direction is made, this Proxy will
be voted for proposals 1 and 2.
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned, and ratifies and confirms all that said attorneys and
proxies may lawfully do by virtue hereof.
IF SO DESIGNATED UNDER PROPOSAL 2 ABOVE, THIS PROXY WILL CONFER
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE SPECIAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Shareholders and Proxy Statement furnished therewith.
Dated_________, 2000 ______________________________
Signature(s) of Shareholder(s)
Signatures should agree with
the names appearing hereon.
Attorneys should submit powers
of attorney.
Exhibit 1
AMENDED EXCHANGE AGREEMENT
THIS AMENDED EXCHANGE AGREEMENT is dated as of January 29, 1999 and is
entered into by and between Miller Diversified Corporation, a Nevada corporation
("Miller"), and Miller Feed Lots, Inc. ('MFL").
WHEREAS, the parties hereto have determined that it is desirable to amend
that certain Exchange Agreement dated as of June 20, 1998 between the parties
hereto (the "Exchange Agreement").
THEREFORE IN CONSIDERATION of the mutual promises and agreements contained
herein, the parties hereby amend the Exchange Agreement as follows:
1. The Recital to the Exchange Agreement is amended to read as follows:
The Boards of Directors of Miller and MFL have adopted resolutions
approving the exchange pursuant to Section 78.450 of the Nevada
General Corporation Act (the "Exchange") of the issued and outstanding
capital stock of MFL, consisting solely of 1,000 shares of common
stock, for 7,000,000 shares of Miller common stock in accordance with
this Agreement and the Plan of Exchange (the "Plan") in the form of
Exhibit "A" attached hereto and by this reference made a part hereof.
2. Article II, Section 2.3 is amended as follows:
Subsections (C) and (d) are to have inserted the date November 30,
1998 wherever the date of February 28, 1998 had previously appeared.
3. Article V, Section 5.4(b) is hereby amended to read as follows:
(b) Lapse of Time. By the Board of Directors of Miller or MFL if the
Effective Time of the Exchange has not occurred on or prior to
August 31, 1999.
4. Article VII, Section 7.2 is amended as follows:
7.2 Closing. The Closing of the Exchange contemplated by this
Agreement shall take place at the offices of Miller at such time as
may be convenient to all the parties but in no event later than
January 31, 2000. At the Closing MFL shall deliver share certificates
in amounts representing all of the issued and outstanding common
shares of MFL to Miller and Miller shall deliver 7,000,000 of its
common shares to James E. Miller and Norman M Dean or to their assigns
as Miller is directed at Closing.
<PAGE>
5. Section B (I) of the Plan of Exchange of Miller Diversified
Corporation and Miller Feed Lots, Inc. attached to the Exchange
Agreement and made a part thereof is amended to read as follows:
(i) Each outstanding share of MFL stock shall by operation of law be
exchanged for 7,000 shares of previously unissued common stock of
Miller.
6. As amended above, the Exchange Agreement shall remain in full force
and effect.
Dated and Signed as of the Date First Above Written:
Miller Diversified Corporation
By:
-----------------------------------------
Norman M. Dean
And By:
-------------------------------------
James E. Miller
Miller Feed Lots, Inc.
By:
----------------------------------------
James E. Miller
And By:
------------------------------------
Norman M. Dean
2
Exhibit 2
DISSENTERS' RIGHTS - MILLER
11-12-91
NEVADA General Corporation Law Corp.-73
78.480 DOMESTIC AND FOREIGN CORPORATIONS: AGREEMENT FOR MERGER OR
CONSOLIDATION.-(Repealed by Ch. 442, L.'91, eff. 10-1-91.)
Prior to its repeal by Ch. 442. L. '91. eff. 10-1-91, this section read as
follows: "1. All the constituent corporations must enter into an agreement in
writing which must prescribe:
(a) The terms and conditions of the merger or consolidation.
(b) The mode of carrying the merger or consolidation into effect.
(c) The manner of converting the shares of each of the constituent
corporations into shares or other securities of the corporation surviving or
resulting from the merger or consolidation and the other consideration which the
holders of shares in the constituent corporations may receive in exchange for,
or upon the conversion of, those shares, or the certificates evidencing them
which may be in addition to or in lieu of shares or other securities of the
surviving or consolidated corporation.
(d) Such other details and provisions as are deemed necessary or proper,
including, without limitation, any of the provisions permitted by NRS 78.455.
78.460 and 78.465.
2. The agreement must also set forth such other facts as are required in
certificates of incorporation by the laws of the state or foreign country, which
are stated in the agreement to be the laws that govern the surviving or
consolidated corporation and that can be stated in the case of a consolidation
or merger.
3. If the agreement is for a merger and the surviving corporation is a
corporation organized under the laws of this state. the agreement must state any
matters with respect to which the certificate or articles of incorporation of
the surviving corporation are to be amended, and the certificate or articles of
incorporation shall be deemed to be amended accordingly upon the effective date
of the merger.
4. If the agreement is for a consolidation and the consolidated corporation
is to be governed by the laws of this state, the agreement must state the
matters required or permitted by NRS 78.035 to be set forth in a certificate or
articles of incorporation, and such statements shall be deemed to be the
certificate or articles of incorporation of the consolidated corporation upon
the effective date of the consolidation."
[Dissenters' Rights]
78.481 [STOCKHOLDER'S RIGHT TO DISSENT AND OBTAIN PAYMENT: CONDITIONS;
CHALLENGE OF ACTION].-1. Except as otherwise provided in NRS 78.482, a
stockholder is entitled to dissent from, and obtain payment of the fair value of
his shares in the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
(1) If approval by the stockholders is required for the merger by section
11 of this act or the articles of incorporation and the stockholder is entitled
to vote on the merger; or
(2) If the corporation is a subsidiary and is merged with its parent under
NRS 78.457.
(b) Consummation of a plan of exchange to which the corporation is a party
as the corporation whose shares will be acquired, if the stockholder is entitled
to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders to
the extent that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
<PAGE>
74-Corp. NEVADA General Corporation Law 11-12-91
2. A stockholder who is entitled to dissent and obtain payment under NRS
78.471 to 78.502 may not challenge the corporate action creating his entitlement
unless the action is unlawful or fraudulent with respect to the stockholder or
the corporation. (Added by Ch. 442, L. '91, eff. 10-1-91.)
78.4,92 [RIGHT TO DISSENT WITH RESPECT TO PLAN OF MERGER OR SHARE
EXCHANGE].-There is no right of dissent with respect to a plan of merger or
exchange in favor of holders of shares of any class or series which, at the
record date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting at which the plan of merger or exchange is to be
acted on, were either listed on a national securities exchange or held by at
least 2,000 stockholders of record, unless in either case:
1. The articles of incorporation of the corporation issuing the shares
provide otherwise; or
2. The holders of the class or series are required under the plan of merger
or exchange to accept for such shares anything except:
(a) Cash, shares or shares and cash in lieu of fractional shares of:
(1) The surviving or acquiring corporation; or
(2) Any other corporation which, at the effective date of the plan of
merger or exchange. were either listed on a national securities exchange or held
of record by at least 2,000 stockholders of record; or
(b) A combination of cash and shares of the kind described in subparagraphs
(1) and (2) of paragraph (a). (Added by Ch.442, L.'91, eff. 10-1-91.)
78.483 [ASSERTING DISSENTER'S RIGHTS].-1. A stockholder of record may
assert dissenter's rights as to fewer than all of the shares registered in his
name only if he dissents with respect to all shares beneficially owned by any
one person and notifies the corporation in writing of the name and address of
each person on whose behalf he asserts dissenter's 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
stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the corporation the written consent of the stockholder of
record to the dissent not later than the time the beneficial stockholder asserts
dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote. (Added by Ch.442.
L.'91, eff.10-1-91.)
78.485 DOMESTIC AND FOREIGN CORPORATIONS: APPROVAL OF AGREEMENT.-Repealed
by Ch. 442, L.'91, eff. 10-1-91.)
- ---
Prior to its repeal by Ch. 442. L. 91. eff. 10-1-91, this section read as
follows: "1. The agreement must be authorized, adopted, approved, signed and
acknowledged by each of the constituent corporations in accordance with the laws
under which it is formed, and, in the case of a corporation organized under the
laws of this state, in the manner provided in NRS 78.455, 78.46O, 78.465 and
78.470.
<PAGE>
11-12-91 NEVADA General Corporation Law Corp.-75
2. The agreement so authorized, adopted, approved, signed and acknowledged
must be filed in the office of the secretary of state and shall be deemed to be
the agreement and act or merger or consolidation of the constituent corporations
for all purposes of the laws of this state. Unless a later effective date is
specified in the agreement, the merger or consolidation shall be deemed to be
effective when the agreement is filed. The effective date must be more than 90
days after the agreement is filed.
3. A certified copy of the agreement is prima facie evidence of the
performance of all conditions precedent to the merger or consolidation, and of
the continued existence of the surviving corporation or of the creation and
existence of the consolidated corporation."
78.486 DOMESTIC AND FOREIGN CORPORATIONS: SIMPLIFIED MERGER; OWNERSHIP OF
90 PERCENT OF OUTSTANDING STOCK BY PARENT CORPORATION.-Repealed by Ch.442.
L.'91, eff. 10-1-91.)
- ---
Prior to its repeal by Ch. 442, L. '91, eff. 10-1-91, this section read as
follows: "1. If at least 90 percent of the outstanding shares of each class of
the stock of a corporation or corporations is owned by another corporation, and
one of the corporations is a corporation of this state and the other or others
are corporations of this state or are organized under the laws of a jurisdiction
whose laws permit such a merger, whether or not the jurisdiction is one of the
United States, the corporation having such stock ownership may either merge the
other corporation or corporations into itself and assume all of its or their
obligations, or merge itself, or itself and one or more of the other
corporations, into one of the other corporations by filing with the secretary of
state a certificate of such ownership and merger, setting forth a copy of the
resolution of its board of directors to merge and the date of the adoption
thereof. Unless a later effective date is specified in the certificate, the
merger or consolidation shall be deemed to be effective when the certificate is
filed. The effective date must not be more than 90 days after the certificate is
filed. The certificate must be signed by its president or a vice-president and
its secretary or treasurer, and acknowledged in the manner prescribed by NRS
111.270.
2. If any of the corporation is organized under the laws of a jurisdiction
other than one of the United States or the District of Columbia, it is a further
condition of merger under this section that the surviving corporation be a
corporation of this state.
3. If the parent corporation does not own all the outstanding stock of all
the subsidiary corporations which are parties to a merger pursuant to this
section, the resolution of the board of directors of the parent corporation must
state the terms and conditions of the merger, including the securities, cash or
other property to be issued, paid or delivered by the surviving corporation upon
surrender of each share of the subsidiary corporation or corporations not owned
by the parent corporation.
4. If the parent corporation is not the surviving corporation, the
resolution must include provisions for the pro rata issuance of stock of the
surviving corporation to the holders of the stock of the parent corporation or
surrender of any certificates therefor, and the certificate of ownership and
merger must state that the proposed merger has been approved by the holders of a
majority of the stock of the parent corporation at a meeting of its stockholders
called and held after 20 days' notice of the purpose of the meeting mailed to
each of its stockholders at his address as it appears on the records of the
corporation.
78-487 DOMESTIC AND FOREIGN CORPORATIONS: SIMPLIFIED MERGER; POWERS OF
SURVIVING NEVADA CORPORATION.-(Repealed by Ch. 442, L. '91, eff. 10-1-91.)
- ---
Prior to its repeal by Ch. 442. L.'91. eff. 10-1-91, this section read as
follows: "If the surviving corporation is a Nevada corporation:
1. It may change its corporate name by the inclusion of a provision to that
effect in the resolution of merger adopted by the directors of the parent
corporation and set forth in the certificate of ownership and merger. and upon
the effective date of the merger, the name of the corporation shall be so
changed.
<PAGE>
Corp.-76 NEVADA General Corporation Law 11-12-91
2. The certificate of incorporation of the surviving corporate . on shall
automatically be amended to the extent, if any, that changes in its certificate
of incorporation are set forth in the certificate of ownership and merger."
78.488 DOMESTIC AND FOREIGN CORPORATIONS: SIMPLIFIED MERGER; APPROVAL OF
PUBLIC SERVICE COMMISSION OF NEVADA.-(Repealed by Ch. 442, L. '91, eff.
10-1-91.)
- ---
Prior to its repeal by Ch. 442, L.'91. eff. 10.1-91, this section read as
follows: "If the parent corporation is subject to the jurisdiction of the public
service commission of Nevada, the approval of the merger by the commission shall
be endorsed on or annexed to the certificate of ownership and merger before
filing."
78.490 DOMESTIC AND FOREIGN CORPORATIONS: SERVICE OF PROCESS IN NEVADA IN
CERTAIN PROCEEDINGS.-(Repealed by Ch. 442, L.'91, eff. 10-1-91.)
- ---
Prior to its repeal by Ch. 442, L.'91. eff. 10-1-91, this section read as
follows: "1. If the surviving or consolidated corporation will be governed by
the laws of a state other than this state or by the laws of a foreign country,
it must agree that it may be served with process in this state in any proceeding
for enforcement of any obligation of any constituent corporation organized and
existing, before the merger or consolidation, under the laws of this state,
including any amount fixed by appraisers or the district court pursuant to the
provisions of NRS 78.510, and must irrevocably appoint the secretary of state as
its agent to accept service of process in an action for the enforcement of
payment of any such obligation or any amount fixed by the appraisers, and must
specify the address to which a copy of the process may be mailed by the
secretary of state.
2. Service of such process must be made by personally delivering to and
leaving with the secretary of state duplicate copies of such process and the
payment of a fee of $1O for accepting and transmitting the process. The
secretary of state shall forthwith send by registered mail one of the copies to
the surviving or consolidated corporation at its specified address, unless the
surviving or consolidated corporation has designated in writing to the secretary
of state a different address for that purpose, in which case it must be mailed
to the last address so designated."
Decision Under Prior Law
.1 Registered mail.-Where federal statute required giving of notice by
registered mail and notice was given by ordinary mail, notice was sufficient;
statute "was intended to be highly remedial," hence was "to be construed
liberally." Fleisher Eng & Const Co v US, 311 US 15 (1940).
78.491 [DISSENTERS' RIGHTS: NOTICE OF STOCKHOLDERS' MEETING; PROPOSED
CORPORATE ACTION TO CREATE RIGHTS].-1.If the proposed corporate action creating
dissenters' rights is submitted to a vote at a stockholders' meeting, the notice
of the meeting must state that stockholders are or may be entitled assert
dissenters' rights under NRS 78.471 to 78.502, inclusive, and be accompanied by
a copy of those sections.
2. If the corporate action creating dissenters' rights is taken without a
vote of the stockholders, the corporation shall notify in writing all
stockholders entitled to assert dissenters' rights that the action was taken and
send them the dissenter's notice described in NRS 78.4%)3. (Added by Ch. 442, L.
'91. eff. 10-1-91.)
<PAGE>
11-12-91 NEVADA General Corporation Law Corp.-77
78.492 [DISSENTERS' RIGHTS: NOTICE OF STOCKHOLDER'S MEETING; WRITTEN NOTICE
OF INTENT TO DEMAND PAYMENT OF SHARES].-1. If the proposed corporate action
creating dissenters' rights is submitted to a vote at a stockholders' meeting, a
stockholder who wishes to asset dissenter's rights;
(a) Must deliver to the corporation, before the vote is taken, written
notice of his intention to demand payment for his shares if the proposed action
if effectuated;
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter. (Added by Ch. 442, L.
'91, eff. 10-1-91.)
78.493 [DISSENTERS' NOTICE: STOCKHOLDERS WHO SATISFIED REQUIREMENTS TO
ASSERT RIGHTS].-1. If the proposed corporate action creating dissenter=s rights
is authorized at a stockholder's meeting, the corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements to
assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform the holders of uncertificated shares as to what extent the
transfer of the shares will be restricted after the demand for payment is
received;
(c) Supply a form for demanding payment that includes the date of the first
announcement to the news media or to the stockholders of the terms of the
proposed corporate action requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the corporation must receive the demand for
payment, which may not be less than 30 nor more than 60 days after the date the
notice is delivered; and
(e) Be accompanied by a copy of NRS 78.471 to 78.502, inclusive. (Added by
Ch. 442, L. '91, eff. 10-1-91.)
78.494 [DISSENTERS' NOTICE: DEMAND PAYMENT; DEPOSIT OF DISSENTER'S
CERTIFICATES].-1. A stockholder to whom a dissenter's notice was sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of the shares before
the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates in accordance with the terms of the notice.
2. The stockholder who demands payment and deposits his certificates where
required, each by the date set forth in the dissenter's notice, is not entitled
to payment for his shares under NRS 78.471 to 78.502, inclusive. (Added by Ch.
442, L. '91, eff. 10-1-91.)
78.495 STATUS, RIGHTS, LIABILITIES AND PRIVILEGES OF SURVIVING OR
CONSOLIDATED CORPORATIONS FOLLOWING MERGER OR CONSOLIDATION.-(Repealed by Ch.
442, L. '91, eff. 10-1-91.)
<PAGE>
11-12-91 NEVADA General Corporation Law Corp.-77
- ---
Prior to its repeal by Ch. 442, L. '91, eff. 10-1-91, this section read as
follows: "1. When an agreement of merger or consolidation, or a certificate of
ownership and merger, has been signed, acknowledged and filed, as required by
this chapter, and the merger or consolidation has become effective, for all
purposes of the laws of this state the separate existence of all the constituent
corporations, except that of the surviving corporation in case of merger,
ceases, and the constituent corporations thereupon merge into the surviving
corporation, in case of merger, ceases, and the constituent corporations
thereupon merge into the surviving corporation, in the case of merger, or become
the consolidated corporation, in the case of consolidation, and possess all the
rights, privileges, powers and franchises as well of a public as of a private
nature, and are subject to all the restrictions, disabilities and duties of each
of the constituent corporations so merged or consolidated, and all and singular,
the rights, privileges, powers and franchise of each of the constituent
corporations, and all property, real, personal and mixed, and all debts due to
any of the constituent corporations on whatever account, as well for stock
subscriptions as all other things or belongings to each of the constituent
corporations, are vested in the surviving or consolidated corporation.
2. All property, rights, privileges, powers and franchises, and every other
interest is thereafter as effectually the property of the surviving or
consolidated corporation as they were of the several and respective constituent
corporations, and the title to any real or personal property, whether by deed or
otherwise, vested in any of the respective constituent corporations, and the
title to any real or personal property, whether by deed or otherwise, vested in
any of the constituent corporations, does not revert or is in any way impaired
by reason of the merger or consolidation, except:
(a) That all rights of creditors and all liens upon any property of any of
the constituent corporations are preserved unimpaired, limited in lien to the
property affected by such liens immediately before the time of the merger or
consolidation, and all debts, liabilities and duties of the respective
constituent corporations thenceforth attach by the surviving or consolidated
corporation and may be enforced against it to the same extent as if the debts,
liabilities and duties had been incurred or contracted by it; and
(b) That the directors of any or all of the constituent corporations may,
in their discretion, abandon the merger or consolidation subject to the right of
third parties under any contracts relating thereto, without further action or
approval by the stockholders of their respective corporation or corporations, at
anytime before the merger or consolidation becomes effective as provided by the
laws of the states governing the respective constituent corporations and the
surviving or consolidated corporations."
Decision Under Prior Law
.1 Debts of selling corporation.-Corporation buying assets of another
corporation is not liable for debts of seller, when (1) purchaser does not
expressly or impliedly agree to assume such debts; (2) transaction is not
consolidation or merger; (3)purchasing corporation is not continuation of
selling corporation; and (4) transaction is not fraudulently made to escape
liability for such debts. Lamp v Leroy Corp, 454 P2d 24 (1969).
78.496 [RESTRICTION ON TRANSFER OF UNCERTIFICATED SHARES].-1. The
corporation may restrict the transfer of uncertificated shares from the date the
demand for their payment is received.
2. The person for whom dissenter's rights are asserted as to uncertificated
rights retains all other rights of a stockholder until those rights are canceled
or modified by the taking of the proposed corporate action. (Added by Ch. 442,
L. '91, eff. 10-1-91.)
78.497 [PAYMENT TO DISSENTER AFTER RECEIPT OF DEMAND FOR PAYMENT OF AMOUNT
ESTIMATED TO BE FAIR VALUE OF SHARES].-1. Except as otherwise provided in NRS
78.498, within 30 days after receipt of a demand for payment, the corporation
shall pay each dissenter who complied with NRS 78.494 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the corporation under this subsection may be enforced by the
district court;
<PAGE>
Corp.-78 NEVADA General Corporation Law 11-12-91
(a) Of the county where the corporation's registered office is located; or
(b) At the election of any dissenter residing or having its registered
office in Nevada, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, a statement of income for
that year, a statement of changes in the stockholders' equity for that year, and
the latest available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair value of the
shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter=s rights to demand payment under NRS
78.499; and
(e) A copy of NRS 78.471 to 78.502, inclusive. (Added by Ch. 442, L. '91,
eff. 10-1-91.)
78.498 [ELECTION BY CORPORATION TO WITHHOLD PAYMENT FROM A DISSENTER].-1. A
corporation may elect to withhold payment from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenter=s
notice as the date of the first announcement to the news media or to the
stockholders of the terms of the proposed corporate action.
2. To the extent the corporation elects to withhold payment, after taking
the proposed corporate action, it shall estimate the fair value of the shares,
plus accrued interest, and shall offer to 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 stares,
an explanation of how the interest was calculated, and a statement of the
dissenters' right to demand payment pursuant to NRS 78.499. (Added by Ch. 442,
L. '91, eff. 10-1-91.)
78.499 [WRITTEN NOTIFICATION OF DISSENTER TO CORPORATION OF DISSENTER'S
ESTIMATE OF FAIR VALUE OF HIS SHARES; WAIVER OF RIGHT TO DEMAND PAYMENT].-1. A
dissenter may notify the corporation in writing of his own estimate of the fair
value of his shares and the amount of interest due, and demand payment of his
estimate, less any payment pursuant to NRS 78.497, or reject the corporation's
offer pursuant to NRS 78.498 and demand payment of the fair value of his shares
and interest due, if he believes that the amount paid pursuant to NRS 78.497 or
offered pursuant to NRS 78.498 is less than the fair value of his shares or that
the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the corporation of his demand in writing within 30 days after
the corporation made or offered payments for his shares. (Added by Ch. 442, L.
'91, eff. 10-1-91.)
78.500 POWER OF DIRECTORS AND OFFICERS OF CONSTITUENT CORPORATIONS TO
EXECUTE NECESSARY INSTRUMENTS OF TITLE AFTER MERGER OR CONSOLIDATION.-(Repealed
by Ch. 442, L. '91, eff. 10-1-91.)
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Prior to its repeal by Ch. 442, L. '91, eff. 10-1-91, this section read as
follows: AIf at any time the surviving or consolidated corporation shall deem or
be advised that any further grants, assignments, confirmations or assurance are
necessary or desirable to vest or to perfect or confirm of record or otherwise
in such surviving or consolidated corporation the title to any property of any
constituent corporation, the officers or any of them and directors of such
constituent corporation may execute and deliver any and all such deeds,
assignments, confirmations and assurances and do all things necessary or proper
so as to best prove, confirm and ratify title to such property in the surviving
or consolidated corporation or to otherwise carry out the purposes of the merger
or consolidation and the terms of the agreement of merger or consolidation or
both. The surviving or consolidated corporation shall have the same power and
authority to act in respect to any debts, liabilities and duties of the
constituent corporations as the constituent corporations would have had, had
they continued in existence."
78.501 [DEMAND FOR PAYMENT; PROCEEDING; VENUE; PARTIES TO PROCEEDING;
JUDGMENT].-1. If a demand for payment remains unsettled, the corporation shall
commence a proceeding within 60 days after receiving the 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 60 day-day period, it
shall pay each dissenter whose demand remains unsettled the amount demanded.
<PAGE>
11-12-91 NEVADA General Corporation Law Corp.-79
2. A corporation shall commence the proceeding in the district court of the
county where a corporation's registered office is located. If the corporation is
a foreign corporation without a resident agent in the state, it shall commence
the proceeding in the county where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
3. The corporation shall make all dissenters, whether or not residents of
Nevada, whose demands remain unsettled, parties to the proceeding as in an
action against their shares. All parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For 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
(b) For the fair value, plus accrued interest, of his after-acquired shares
for which the corporation elected to withhold payment pursuant to NRS 78.498.
(Added by Ch.442, L. '91, eff. 10-1-91.)
78.502 [PROCEEDING TO DETERMINE FAIR VALUE; ASSESSMENT OF COSTS, FEES AND
EXPENSES: EXCEPTIONS].-1. The court in a proceeding to determine fair value
shall determine all of the costs of the proceeding, including the reasonable
compensation and expenses of any 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.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of all dissenters if the court
finds the corporation did not substantially comply with the requirements of NRS
78.491 to 78.499, inclusive: or
(b) 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 NRS 78.471 to 78.502, inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated. and that the fees
for those services should not be assessed against the corporation, the court may
award to those counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
4. In a proceeding commenced pursuant to subsection I of NRS 78.497, the
court may assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 78.501 or subsection I of NRS 78.497 from applying the
provisions of N.R.C.P. 68 or NRS 17.115. (Added by Ch.442, L.'91 eff. 10-1-91.)
