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, Inc.
----------------------------------------------
(Name of Registrant as Specified in its Charter)
------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
{x} 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:
{ } 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:
<PAGE>
MILLER DIVERSIFIED CORPORATION
23360 Weld County Road #35
LaSalle, Colorado 80645
--------------------------------------
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
____________________, 1999 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 ____________, 1999 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)
___________________, 1999
LaSalle, Colorado
<PAGE>
MILLER DIVERSIFIED CORPORATION
23360 Weld County Road #35
LaSalle, Colorado 80645
(970) 284-5556
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
, 1999
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 Daylight
Time, on , , 1999 at , and at any and all adjournments of the meeting. The
enclosed materials are first being sent to Shareholders on or about , 1999.
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 and
any adjournment of the meeting to the extent that the Company was not aware of
the intended presentation of such business on or prior to the date of this Proxy
Statement.
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 , 1999 (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).
<PAGE>
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.
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 2,014,492 shares of the Company's Common Stock (31.65% 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,
together with the shares of Common Stock currently beneficially owned by Mr.
Miller and Mr. Dean, will represent approximately 67.45% 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".
2
<PAGE>
The 2,014,492 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 31.65% 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 9,014,492 shares of
Common Stock, or 67.45% 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.
<TABLE>
<CAPTION>
Shares Percentage
Shares Percentage Beneficially Total After
Beneficially of Owned After Plan of
Owned Total Plan of Exchange Exchange
------------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
James E. Miller 994,706(1) 15.63% 4,494,706 33.63%
Norman M. Dean 1,019,786(2) 16.02% 4,519,786 33.82%
All other
shareholders 4,350,148 68.35% 4,350,148 32.55%
</TABLE>
(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.
3
<PAGE>
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 April 30, 1999,
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 9,014,492 or approximately 67.45% 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 28, 1999 was $.09. The closing bid price on April__,
1999, three business days prior to the first mailing of this Proxy Statement,
was $___________ .
Miller Feed Lots, Inc.
----------------------
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:
Fences, feed tanks and waterers that comprise the "pens"
Small office building with truck scale
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.
Loading/unloading chute with holding pens and ground scale
Employee break room/storage building
Cattle processing area with squeeze chute and crowding pens
3 bay shop building for maintenance of MFL equipment
Hospital area with enclosed working area with crowding alley and squeeze
chute for treating and segregating sick cattle
Storage shed for MFL's trucks and loaders
Separate storage shed for MFL's semi-tractors
Wash building and associated equipment for maintaining MFL equipment
Dirt roads and alleys for the movement of equipment and livestock
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
4
<PAGE>
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.
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
---------------------
Dand 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.
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 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.
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
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
5
<PAGE>
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. 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 rate with the goal of eliminating entirely or at least
reducing any dilution on a net equity per share basis to the existing
shareholders. As a result of these negotiations, Miller Diversified and MFL
entered into an amended Exchange Agreement and Plan which reduced the number of
shares to be issued under the amended Plan from 15,000,000 to 7,000,000. 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 concluded that the price of the common stock of Miller
Diversified might be undervalued as a measure of the true worth of Miller
Diversified vis-a-vis MFL and that seeking to maintain the equity of the
shareholders of the Company provided a better method of insuring that
shareholder value was preserved. See "Board Recommendation" below.
Management has identified several specific advantages to combining the
operations of the Company and MFL. 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. In addition, the Company makes equipment lease
payments of $96,000 per year to MFL as well as payments involving commodity
trading operations of $20,000 per year. 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. The resulting additional income and reduced
expenses would provide the Company with the means to better utilize its net tax
operating loss carry forward. Management also believes that the elimination of
"dual control" of the feedlot facilities will eliminate a major stumblinb block
6
<PAGE>
with creditors and eliminate confusion. In addition, financial reporting would
be simplified since related party disclosure and analysis including the Company
and MFL would be eliminated. 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. Finally, management believes that the
acquisition of MFL would expand and diversify the Company's business and
operations.
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:
The nature of the business and its history from its inception;
The economic outlook in general and the condition outlook of the specific
industry in particular;
The book value of the stock and the financial condition of the business;
The earning capacity of the company;
The dividend-paying capacity;
Whether the enterprise has goodwill or other intangible value;
Sales of the stock and the size of the block of stock to be valued;
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 which 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.
7
<PAGE>
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. This initial determination was based primarily upon the fact that MFL
had written down its feed lot assets on its balance sheet several years earlier.
He then made adjustments in the book value which included the following:
The feedlot property was adjusted upward to $1,300,000. He had been
furnished information from a prior appraisal 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.
MFL owned property located in Keystone, Colorado that had an appraised
value of approximately $120,000.
Personal property owned by MFL, including trucks, equipment and machinery,
had an appraised value of approximately $816,000.
Rental property owned by MFL (the "Russell property") had an appraised
value of approximately $130,000.
The book value of all of the assets discussed above had a book value of
approximately $500,000. Mr. Wieck adjusted their value upward to $1,866,400
to reflect more accurately their market value.
Goodwill in the amount of $17,333 was eliminated.
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.
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.
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, 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, in large part, upon the appraisal of Mr. Wieck. The
complete appraisal of Mr. Wieck is available for inspection and copying at the
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 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.
8
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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 November 30, 1998, MFL had a
negative shareholders equity of $185,155 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:
Due to various accounting standards and tax regulations, MFL had written
down the book value of its assets several years earlier. 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 November 30, 1998 of $185,155 and adjusted downward by
$166,114 pursuant to the Wieck appraisal, MFL's adjusted total stockholders
equity was $1,578,022. Using the 15,000,000 shares initially proposed by the
Board in the summer of 1998, the equivalent price per share would have equaled
$.105 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 Board
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 price per share of $.225 per share, approximately double the market price
range that prevailed during 1998. This exchange rate still has a small dilutive
effect on shareholders' net equity per share, bringing the $.299 book value per
share down to $.256 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 $.128.
9
<PAGE>
(ii) Elimination of long-term lease payments. The Company is currently
paying to MFL lease payments in the minimum annual amount of $129,000 for
use of the feedlot. This lease obligation does not expire until February 1,
2016. In addition, the Company makes equipment lease and rental payments to
MFL of $96,000 per year, as well as certain other payments to MFL which,
when combined with the above described feedlot lease and equipment lease
payments, total approximately $245,000 per year. 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 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; and (d) the effects of the Plan on
the Company and its shareholders as described above.
10
<PAGE>
To support its recommendations 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
- ---------------------
Miller Feed Lots, Inc.(MFL) has four distinct and independent sources of
revenue:
1. Freight services which are provided to Miller Diversified Corporation
("MDC") (a related party) and various non-related third parties. The
Company'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 They also haul fed cattle from various feedlots, including
MDC's, to beef packing plants in Colorado. The Company also has the
necessary trailers to haul feed corn and wheat and dry protein
supplements and well as liquid feed supplements to MDC's feedlot. With
the flexibility that the Company 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
- --------------------------
Quarter Ended Year Ended Year Ended
11/30/98 08/31/98 08/31/97
------------------------------------------------
Freight Services Income $ 80,156 $ 317,085 $ 314,548
Cost of Freight Services $ 61,560 $ 232,079 $ 252,371
----------------------------------------------------------------------------
Gross Margin $ 18,596 $ 85,006 $ 62,177
Gross Margin Percentage 23.2% 26.8% 19.8%
The most significant factor that affects freight services is miles driven.
The Company has been plagued, as has the trucking industry in the region, of
retaining qualified drivers. On of the Company's three trucks was idle during
the year ended August 31, 1997 and has been idle sporadically during the quarter
ended November 30, 1998. This idleness lowers the gross margin and gross margin
percentage due to the fixed costs associated with the truck. The Company is
actively seeking a replacement driver and does not expect the condition to be on
going.
2. Rent and lease income is derived from leasing of the feedlot
facilities the Company 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 the Company owns. All
leases and rentals are with/to MDC (a related party). A summary of the
rental and lease operations is as follows:
11
<PAGE>
Rental and Lease Operation
Quarter Ended Year Ended Year Ended
11/30/98 08/31/98 08/31/97
----------------------------------------------
Rent and lease Income $ 5,563 $ 252,618 $219,276
Cost of rent and lease income $16,980 $ 80,754 $ 59,853
- --------------------------------------------------------------------------------
Gross Margin $48,583 $ 171,864 $159,423
Gross Margin Percentage 74.1% 68.0% 72.7%
The single factor that affects rent and lease income is equipment rental.
The Company 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. The Company 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 the Company'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.
Commodity Sales Operations
- --------------------------
Quarter Ended Year Ended Year Ended
11/30/98 08/31/98 08/31/97
-----------------------------------------------
Commodity sales commission $ 116,849 $ 451,464 $521,345
Cost of commodity sales $ 61,130 $ 204,800 $308,282
-------------------------------------------------------------------------------
Gross Margin $ 48,583 $ 171,864 $159,423
Gross Margin Percentage 74.1% 68.0% 72.7%
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. The companies have a stable base of senior brokers.
4. From time to time the Company makes speculative trades in the
commodities markets. These trades are in live cattle, feeder cattle
and corn futures contracts. Management limits the trades to these
12
<PAGE>
commodities, because it feels it has expertise in the markets. A
summary of the gains and losses from speculative trading is as
follows:
Speculative Trading Operations
- ------------------------------
Quarter Ended Year ended Year Ended
11/30/98 08/31/98 08/31/97
----------------------------------------
Speculative trading gains (losses) $1,252 $(104,854) $29,864
Management is currently reexamining its policies and procedures in
speculative trading and may reduce or eliminate them in future quarters.
Interest income is almost exclusively interest "charged" on loans made to
the Company'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:
Selling, general and administrative expenses
--------------------------------------------
Quarter Ended Year ended Year Ended
11/30/98 08/31/98 08/31/97
------------------------------------------
Telephone - brokerage business $ 9,260 $41,760 $ 53,430
Advertising -brokerage business $ 5,430 $24,460 $ 24,480
Director fees and bonuses $ 7,840 $59,190 $ 92,660
Legal and accounting $ 11,000 $22,260 $ 4,230
The commodity businesses (LCCS and MTC) are conducted exclusively by
telephone, which explains the high cost. The Company expects to see some further
declines in this expense now that customers can access the companies web sites
to obtain market information, which was previously only available by calling the
companies on their "800" number, which the Company was responsible for. The
advertising expenses are fairly consistent although they 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 the
Company's outstanding stock. Legal and accounting fees have increased due to the
proposed acquisition by MDC, which required additional legal consultation and
audits of the Company's books.
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 the Company's has received
from other related parties for real estate in Keystone, Colorado, a mortgage on
a residence that the Company owns and rents to MDC which along with several
notes for various equipment and vehicles 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:
13
<PAGE>
Interest Expense
----------------
Quarter Ended Year Ended Year Ended
11/30/98 08/31/98 08/31/97
--------------------------------------
Interest expense - non-related $13,079 $33,360 $44,230
Interest expense - related parties $14,280 $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
-------------------------
Quarter Ended Year ended Year Ended
11/30/98 08/31/98 08/31/97
---------------------------------------------
Earnings (Loss) Before Taxes $ 9,168 $ (40,100) $ 51,505
Income tax expense (Benefit) $ (2,567) $ 42,751 $ 15,773
Liquidity and Capital Resources
- -------------------------------
For the three months ended November 30, 1998 operating activities provided
$111,910. Of the amount provided by operations, $88,729 was provided by advances
from MDC, a related party, which means that actual operations provided $23,181
for use in financing and investing activities.
For the three months ended November 30, 1998 investing activities required
$19,567. The Company made advances to officers/directors in the amount of
$22,600 to enable the officers/directors to purchase cattle that will be fed in
MDC's commercial feedlot. The Company received $1,587 in additional funds from
MDC for equipment leases which are recorded as sales typo leases.
For the three months ended November 30, 1998 financing activities required
$29,256. All of these funds were used to make principal payments on long-term
debt to both related and unrelated parties. None of the related party payments
were made to MDC.
The Company's working capital (current assets minus current liabilities)
was a negative $54,304 for the three months ended November 30, 1998. This meant
that the Company could not pay current liabilities with current assets. Included
in current liabilities is $291,866 payable to MDC and its affiliates, which are
related parties. Without this related party payable, the Company would have
working capital of $237,562.
The major current asset is notes receivable from officers/directors, which
had a balance of $310,444 at November 30, 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.
14
<PAGE>
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 $303,156 at November 30, 1998, and a mortgage a residence that the Company
owns and rents to MDC, which had a balance of $78,206 at November 30, 1998, the
Company's largest single creditor is MDC The Company has a long standing
agreement with MDC by which MDC provides cash flow as needed by the Company for
normal operations. Since MDC leases and operates the Company's feedlot
facilities and has a lease financing statement filed with the State of Colorado,
it has been difficult for the Company to obtain any financing for its
operations. This is further evidenced by the fact that MDC is a co-signer of the
Company's mortgage on the feedlot facilities and the Company is a guarantor on
MDC's operating lines of credit.
The Company had no material commitments for capital expenditures at
November 30, 1998.
Management believes it has adequate financial resources to conduct
operations at present and reasonably anticipated levels.
Year 2000 Compliance
- --------------------
The Company 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 company's computer operations will be affected in some way. The Company's
computer programs which process financial transactions, were designed and
developed without considering the impact of the upcoming change in century. and
are currently being upgraded to reduce or eliminate any serious impact on its
reporting capabilities. The Company's computer programs which process
operational transactions, specifically its commodities trading operations, may
have been designed and developed with considerations of the impact of the
upcoming change in century, but the Company is, never the less, analyzing their
capabilities to reduce or eliminate any serious impact on their operational
capabilities. The Company's on going analysis of it's operational computer
programs and operations is not complete, so the Company has not reached the a
conclusion concerning the impact of "Year 2000" problems on the Company's
expenses, business or operations.
It is possible that "Year 2000" problems incurred by the customers or
suppliers of the Company could have a negative impact on future operations and
financial performance of the Company, although the Company has not been able to
specifically identify any such problems among its suppliers. Since the Company
is dependent upon any single supplier for some its equipment, market information
and futures trading capabilities, in the Year 2000, is in the process of
contacting its primary suppliers to determine if they are developing plans to
address processing transactions which may impact the Company in the year 2000.
However, there can be no assurance that Year 2000 problems will not occur with
respect to the Company's computer systems. Furthermore, the Year 2000 problem
may impact other entities with which the Company transacts business and the
Company cannot predict the effect on the Company. The Company is developing a
contingency plan to operate in the event that any non-compliant customer or
supplier systems that materially impact the Company are not remedied by January
1, 2000. Due to the specialized nature of some of the Company's computer
15
<PAGE>
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, the Company concedes that the Year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operation.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined 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
reorganization of entities under common control. As such, the acquisition of MFL
shares by the Company is accounted for in a manner similar to a pooling of
interests. Pro forma adjustments are described in the accompanying Note to
Unaudited Pro Forma Combined Financial Statements. The unaudited pro forma
combined income statements assume that the acquisition of MFL had occurred on
September 1, 1997 (combining the results for the year ended August 31, 1998 for
the Company and MFL, and the three months ended November 30, 1998, for the
Company and MFL).
16
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
AND MILLER FEED LOTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
Historical Pro Form
----------------------------- ----------------------
Miller Miller
Diversified Feed
Corporation Lots, Inc.
November 30, 1998 Consolidated Consolidated Adjustments Combined
=======================================================================================================================
ASSETS
- ------
<S> <C> <C> <C> <C>
Current Assets
Cash 66,298 84,782 -- 151,080
Trade accounts receivable 848,547 82,705 -- 931,252
Notes receivable-customer financing 176,174 -- -- 176,174
Receivable from officers/directors -- 310,444 -- 310,444
Accounts receivable - related parties 291,865 -- (291,865)(C4) --
Income tax refunds receivable -- 1,891 -- 1,891
Inventories 714,532 -- -- 714,532
Prepaid expenses 18,006 -- -- 18,006
-----------------------------------------------------------------------------------------------------------
Total Current Assets 2,115,422 479,822 (291,865) 2,303,379
Property and Equipment
Land -- 56,924 -- 56,924
Buildings and improvements -- 243,136 -- 243,136
Feedlot facilities under capital lease 1,497,840 -- (1,497,840)(C1) --
Equipment 77,453 700,129 -- 777,582
Equipment under capital leases - relasted party 30,649 -- (30,649)(C2) --
Leasehold improvements 131,043 -- -- 131,043
improvements
---------------------------------------------------
1,736,985 1,000,189 (1,528,489) 1,208,685
---------------------------------------------------
Less: Accumulated depreciation 602,466 556,170 (469,325)(C1) 667,856
and amortization (21,455)(C2)
-----------------------------------------------------------------------------------------------------------
Total Property and Equipment 1,134,519 444,019 (1,037,709) 540,829
Other Assets:
Net investment in sales type leases -- 11,366 (11,366)(C2) --
Securities available for sale 9,050 -- 9,050
Other investments 273,389 78,500 -- 351,889
Notes receivable-related party 300,000 -- (300,000)(C4) --
Deferred income taxes 233,142 51,000 -- 284,142
Deposits and other 16,500 28,556 (16,556)(C3) 28,500
-----------------------------------------------------------------------------------------------------------
Total Other Assets 832,081 169,422 (327,922) 673,581
TOTAL ASSETS 4,082,022 1,093,263 (1,657,496) 3,517,789
======================================================================================================================
Continued on next page
17
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
AND MILLER FEED LOTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET - Continued
Historical Pro Form
----------------------------- ----------------------
Miller Miller
Diversified Feed
Corporation Lots, Inc.
November 30, 1998 Consolidated Consolidated Adjustments Combined
=======================================================================================================================
LIABILITIES
- -----------
Current Liabilities:
Bank overdraft 22,877 -- -- 22,877
Notes Payable 460,418 -- -- 460,418
Notes payable - officer/director -- 13,000 -- 13,000
Trade accounts payable 611,063 33,526 -- 644,589
Accounts payable - related parties -- 291,865 (291,865)(C4) --
Accrued expenses 29,209 40,756 -- 69,965
Income taxes payable 36,814 -- -- 36,814
Customer advance feed contracts 14,907 -- -- 14,907
Current portion:
Long-term debt -- 30,520 -- 30,520
Long-term debt - related parties -- 124,460 -- 124,460
Capital lease obligations - related 27,094 -- (20,153)(C1) --
(6,941)(C2)
-------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,202,382 534,127 (318,959) 1,417,550
Current
Liabilities
Long-term Debt -- 303,156 -- 303,156
Long-term Debt - related parties -- 441,135 (300,000)(C4) 141,135
Capital Lease Obligations - related parties 977,934 -- (973,587)(C1) --
(4,347)(C2)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 2,180,316 $ 1,278,418 $(1,596,893) $ 1,861,841
======================================================================================================================
Commitments -- -- -- --
- -----------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock -- -- -- --
Common Stock 636 101,600 700 (a) 1,336
(101,600)(b)
Additional Paid-In Capital 1,351,693 11,860 (185,855)(a) 1,165,838
Unrealized Loss - Securities Available for Sale (11,049) -- -- (11,049)
Retained Earnings (Deficit) 560,426 (298,615) 298,615 (b) 499,824
(34,774)(C2)
(9,272)(C2)
(16,556)(C3)
- ----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,901,706 (185,155) (60,602) 1,655,949
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,082,022 $ 1,093,263 $ 1,657,495 $ 3,517,790
=====================================================================================================================
See Accompanying Note to Unaudited
Pro Forma Combined Financial Statements
18
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
AND MILLER FEED LOTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET - Continued
Historical Pro Form
----------------------------- ----------------------
Miller Miller
Diversified Feed
Corporation Lots, Inc.
November 30, 1998 Consolidated Consolidated Adjustments Combined
=======================================================================================================================
Revenue:
Feed and related sales 1,702,717 -- -- 1,702,717
Fed cattle sales 1,151,238 -- -- 1,151,238
Feedlot services 257,055 -- -- 257,055
Freight services income -- 80,156 -- 80,156
Rent and lease income -- 65,563 (32,402)(C1) --
(419)(C2)
(32,742)(C5)
Commodity sales commissions -- 116,849 -- 116,849
Speculative trading gains -- 1,446 -- 1,446
Interest income 8,491 120 -- 8,611
Interest income - related party 4,500 -- (4,500)(C4)
Other 18,051 1,132 (450)(C5) 18,733
---------------------------------------------------------------------------------------------------------------
Total Revenue 3,142,052 265,266 (70,513) 3,336,805
===============================================================================================================
Costs and Expenses
Cost of:
Feed and related sales 1,467,614 -- -- 1,467,614
Fed cattle sold 1,090,341 -- -- 1,090,341
Feedlot services 272,704 -- (15,132)(C1) 217,160
Freight services -- 61,560 -- 61,560
Rent and lease income -- 15,895 -- 15,895
Commodity sales commissions -- 66,130 -- 66,130
Selling, general, and administrative 171,265 85,154 (222)(C3) 255,747
(450)(C5)
Interest 13,672 13,079 -- 26,751
Interest - related parties -- 14,280 (4,500)(C4) 9,780
Interest on capital leases - related party 27,758 -- (27,339)(C1) --
(419)(C2)
---------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 3,043,354 256,098 (88,474) 3,210,978
Earnings Before Taxes 98,698 9,168 17,961 125,827
Income Tax Expense (Benefit) 36,814 (2,567) -- 34,247
- ----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 36,814 $ 11,735 $ 17,961 $ 91,580
======================================================================================================================
See Accompanying Note to Unaudited Pro Forma Combined Financial Statement
19
</TABLE>
<PAGE>
NOTE TO UNAUDITED PRO FORMA
COMBINED FINANCIAL 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.
(a) To record issuance of 7,000,000 of the Company's Common Stock to acquire
all outstanding shares of MFL.
(b) To eliminate MFL stockholders' equity balances.
(c) To eliminate intercompany transactions as identified below:
(c1) Feedlot facilities under capital lease between MDC and MFL.
(c2) Equipment under capital lease between MDC and MFL.
(c3) MFL goodwill on acquisition of LCCS and MTC from MDC.
(c4) Accounts and notes receivable on MDC with accounts and notes payable
on MFL.
(c5) Accounting fees and equipment rentals between MDC and MFL.
THE EXCHANGE AGREEMENT AND PLAN OF EXCHANGE
The following description 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.
20
<PAGE>
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, provides that it will terminate
automatically if the Effective Time does not occur by April 30, 1999 unless
otherwise extended by mutual agreement pending a shareholder vote by the
Company's shareholders. 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.
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
April 30, 1999, 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.
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.
21
<PAGE>
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.
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.
22
<PAGE>
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 31.6% 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.
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.
23
<PAGE>
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) 15.63%
23402 Weld County Road 35
LaSalle, CO 80645
Norman M. Dean 1,019,786(3) 16.02%
1858 26th Avenue
Greeley, CO 80631
Alan D. Gorden -0- 0%
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) 2,016,302 31.68%
- -----------
(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.
24
<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
On the Record Date, there were approximately 1475 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 April __,
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.
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 $100,000.
25
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h)
Other All
Restricted Other
Name and Year Ended Annual Compen- Stock Options/ LTIP Compen-
Principal Position August 31 Salary($) 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.
26
<PAGE>
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 ($/Share) Date
- -------- ----------- ----------- --------- ----
James E. Miller -0- .0% .0000
President
Norman M. Dean -0- .0% .0000
Chairman of the Board
Alan D. Gorden -0- .0% .0000
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN YEAR ENDED AUGUST 31, 1998
AND OPTION/SAR VALUE AS OF AUGUST 31, 1998
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
- ------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
27
<PAGE>
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.
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
, and its Quarterly Reports on Form 10-QSB for the quarter ended November 30,
1998.
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
OTHER MATTERS
Management does not know of any other matters that will be presented at the
Meeting other than matters incident to the conduct thereof. However, if any
matters properly come before the
28
<PAGE>
Meeting or any adjournments, the holders of the proxies named in the
accompanying form of proxy have discretionary authority to vote on such matters
to the extent that the Company did not know that such matters would be presented
at the Meeting for a reasonable time prior to the date of this Proxy Statement.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1999 annual
meeting of stockholders must be received by the Company on or before September
15, 1999, 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.
29
<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 ____________. 1999, 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
__________________, 1999 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.
(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.
THIS PROXY CONFERS 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
----------------- ------------------------------
Signature(s) of Shareholder(s)
Signatures should agree with
the names Appearing hereon.
Attorneys should submit powers
of attorney.
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1998
ASSETS
- ------
Current Assets:
Cash $ 84,782
Trade accounts receivable 82,705
Receivable from officers/directors 310,444
Income tax refunds receivable 1,891
- --------------------------------------------------------------------------------
Total Current Assets 479,822
Property and equipment:
Land 56,924
Buildings and improvements 243,136
Equipment 700,129
---------
1,000,189
Less: Accumulated depreciation and amortization 556,170
- --------------------------------------------------------------------------------
Total Property and Equipment 444,019
- --------------------------------------------------------------------------------
Other Assets:
Net investment in sales type leases 11,366
Other investments 78,500
Deferred income taxes 51,000
Deposits and other 28,556
- --------------------------------------------------------------------------------
Total Other Assets 169,422
- --------------------------------------------------------------------------------
TOTAL ASSETS $1,093,263
================================================================================
Continued on next page.
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
NOVEMBER 30, 1998
LIABILITIES
- -----------
Current Liabilities:
Note Payable - officer/director $ 13,000
Trade accounts payable 33,525
Accounts payable - related parties 291,866
Accrued expenses 40,756
Current portion:
Long-term debt 30,520
Long-term debt - related parties 124,460
--------------------------------------------------------------------------
Total Current Liabilities 534,127
Long-term debt 303,156
Long-term Debt - related parties 441,135
---------------------------------------------------------------------------
TOTAL LIABILITIES 1,278,418
- --------------------------------------------------------------------------------
Commitments
---------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, par value $100 per share,
2,500 shares authorized;
1,016 shares issued and outstanding 101,600
Additional Paid-In Capital 11,860
Retained Earnings (Deficit) (298,615)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (185,155)
---------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,093,263
================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1998
Revenue:
Freight services income $ 80,156
Rent and lease income 65,563
Commodity sales commissions 116,849
Speculative trading gains 1,446
Interest income 120
Other 1,132
-----------------------------------------------------------------------
Total Revenue 265,266
Costs and Expenses:
Cost of:
Freight services 61,560
Rent and lease income 15,895
Commodity sales commissions 66,130
Selling, general and administrative 85,154
Interest 13,079
Interest - related parties 14,280
-----------------------------------------------------------------------
Total Costs and Expenses 256,098
Earnings Before Taxes 9,168
Income Tax Benefit (2,567)
- --------------------------------------------------------------------------------
NET EARNINGS $ 11,735
================================================================================
Net Earnings per common Shares $ 11.55
================================================================================
Weighted Average Number of
Common Shares Outstanding 1,016
================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1998
Cash Flows from Operating Activities:
Cash received from customers $ 335,698
Cash paid to suppliers and employees (196,430)
Interest paid (27,358)
------------------------------------------------------------------------
Net Cash Provided by Operating Activities 111,910
=====================================================================
Cash Flows from Investing Activities:
Decrease in receivables from officers/directors (22,600)
Payments received on sales type leases 1,587
Proceeds from other investments 1,446
-------------------------------------------------------------------------
Net Cash Used by Investing Activities (19,567)
====================================================================
Cash Flows from Financing Activities:
Payments on:
Long-term debt (984)
Long-term debt - related (28,273)
-------------------------------------------------------------------------
Net Cash Used by Financing Activities (29,257)
====================================================================
Net Increase in Cash 63,086
Cash, beginning of year 21,696
Cash, end of year $ 84,782
================================================================================
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings $ 11,735
Adjustments:
Proceeds from other investments (1,446)
Depreciation 22,981
Amortization 222
Decrease in:
Trade accounts receivable (16,852)
Income tax refunds receivable (1,891)
Increase (decrease) in:
Accounts payable 97,972
Accrued expenses (135)
Income taxes payable (676)
----------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 111,910
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
Independent Auditors' Report
----------------------------
Board of Directors
Miller Feed Lots, Inc.
La Salle, Colorado
We have audited the accompanying consolidated balance sheets of Miller Feed
Lots, Inc. and subsidiaries as of August 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Miller Feed
Lots, Inc. and subsidiaries as of August 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Anderson & Whitney, P.C.
-----------------------------
June 29, 1998
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
August 31 1997 1996
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 18,219 $ 21,581
Trade accounts receivable 60,877 66,963
Receivable from officers/directors 426,715 386,265
Income tax refunds receivable 7,995 --
Inventories 40,892 40,892
Prepaid expenses -- 99
- --------------------------------------------------------------------------------
Total Current Assets 554,698 515,800
- --------------------------------------------------------------------------------
Property and equipment:
Land 56,924 56,924
Buildings and improvements 243,136 243,136
Equipment 563,157 418,300
------------------------
863,217 718,360
Less: Accumulated depreciation and amortization 415,914 309,503
- --------------------------------------------------------------------------------
Total Property and Equipment 447,303 408,857
- --------------------------------------------------------------------------------
Other Assets:
Net investment in sales type leases 27,915 59,605
Other investments 30,415 61,226
Deferred income taxes 51,016 59,177
Deposits and other 94,972 45,019
- --------------------------------------------------------------------------------
Total Other Assets 204,318 225,027
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 1,206,319 $ 1,149,684
================================================================================
Continued on next page.
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
August 31 1997 1996
- --------------------------------------------------------------------------------
LIABILITIES
Current Liabilities:
Note payable - related party $ 13,000 $ 13,000
Trade accounts payable 59,613 86,021
Accounts payable - related parties 9,415 81,102
Accrued expenses 25,389 28,978
Income taxes payable -- 116,765
Current portion:
Long-term debt 125,571 67,672
Long-term debt - related party 333,722 98,819
- --------------------------------------------------------------------------------
Total Current Liabilities 566,710 492,357
Long-term Debt 316,012 444,955
Long-term Debt - related party 414,044 318,056
- --------------------------------------------------------------------------------
Total Liabilities 1,296,766 1,255,368
- --------------------------------------------------------------------------------
Commitments
STOCKHOLDERS' EQUITY
Common Stock, par value $100 per share; 2,500 shares
authorized; 1,016 shares issued and outstanding 101,600 101,600
Additional Paid-In Capital 11,860 11,860
Retained Earnings (Deficit) (203,907) (219,144)
- -------------------------------------------------------------------------------
Total Stockholders Equity (90,447) (105,684)
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,206,319 $ 1,149,684
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
Additional Retained
Common Paid-In Earnings
Years Ended August 31, 1996 and 1997 Stock Capital (Deficit) Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances, September 1, 1995 $ 101,600 $ 11,660 $ (308,467) $ (195,007)
Net earnings for the year ended
August 31, 1996 -- -- 114,549 114,549
Dividends paid -- -- (25,226) (25,226)
- --------------------------------------------------------------------------------------------------
Balances August 31, 1996 101,600 11,860 (219,144) (105,684)
Net earnings for the year ended
August 31, 1997 -- -- 35,732 35,732
Dividends paid -- -- (20,495) (20,495)
- --------------------------------------------------------------------------------------------------
Balances, August 31, 1996 $ 101,600 $ 11,860 $ (203,907) $ (90,447)
==================================================================================================
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Years Ended August 31 1997 1996
- --------------------------------------------------------------------------------
Revenue:
Freight services income $ 314,548 $ 320,644
Cattle sales -- 671,557
Rent and lease income 219,276 165,165
Commodity sales commissions 521,345 196,881
Speculative trading gains 29,864 236,822
Interest income 24,814 32,230
Other 9,598 43,504
- -------------------------------------------------------------------------------
Total Revenue 1,119,445 1,666,803
- -------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Freight services 252,371 237,822
Cattle sold -- 714,323
Rent and lease income 59,853 47,698
Commodity sales commissions 308,282 108,852
Selling, general, and administrative 324,435 219,092
Interest 122,999 142,536
- -------------------------------------------------------------------------------
Total Costs and Expenses 1,067,940 1,470,323
- -------------------------------------------------------------------------------
Earnings Before Taxes 51,505 196,480
Income Tax Expense 15,773 81,931
- -------------------------------------------------------------------------------
NET EARNINGS $ 35,732 $ 114,549
===============================================================================
Net Earnings per Common Share $ 35.17 $ 112.75
===============================================================================
Weighted Average Number
of Common Shares Outstanding 1,016 1,016
===============================================================================
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------
Years Ended August 31 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 1,060,267 $ 1,523,957
Cash paid to suppliers and employees (939,714) (574,264)
Interest received 24,814 32,230
Interest paid (123,457) (163,783)
Income taxes paid (132,372) (77,326)
- ---------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities (110,462) 740,814
- --------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (144,800) (182,027)
Payments received on sales type leases 31,690 94,518
Proceeds from other investments 30,811 --
Payments for other investments -- (31,658)
Payment of other deposits (49,953) (10,244)
- ---------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities (132,252) (129,411)
- ---------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Advances on:
Long-term debt -- 29,110
Long-term debt - related parties 402,000 174,500
Payments on:
Notes payable -- (529,989)
Notes payable - related parties -- (146,781)
Long-term debt (55,690) (44,675)
Long-term debt - related parties (86,463) (59,358)
Dividends paid (20,495) (25,226)
- ---------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 239,352 (602,419)
- ---------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (3,362) 8,984
Cash, beginning of year 21,581 12,597
- --------------------------------------------------------------------------------------------
Cash, end of year $ 18,219 $ 21,581
============================================================================================
Continued on next page.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
- ----------------------------------------------------------------------------------------------
Years Ended August 31 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of Net Earnings to Net Cash Provided
(Used) by Operating Activities:
Net earnings $ 35,732 $ 114,549
Adjustments:
Depreciation and amortization 106,354 89,949
Deferred income taxes 8,161 (20,062)
(Increase) decrease in:
Trade accounts receivable 6,086 (36,803)
Receivable from officer/directors (40,450) (73,813)
Income tax refunds receivable (7,995) --
Inventories -- 680,542
Prepaid expenses 99 19,995
Increase (decrease) in:
Accounts payable (98,095) (22,673)
Accrued expenses (3,589) (35,537)
Income taxes payable (116,765) 24,667
- ----------------------------------------------------------------------------------------------
Net Cash Provided (Used) by Operating Activities $ (110,462) $ 740,814
==============================================================================================
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies:
The accounting and reporting policies of Miller Feed Lots, Inc.
(the Company) and its subsidiaries conform to generally accepted
accounting principles. The following summary of significant
accounting policies is presented to assist the reader in evaluating
the Company's consolidated financial statements.
-------------------------------------------------------------------
Description of Business:
The Company's primary business is a trucking operation for a
feedlot facility near La Salle, Colorado. Most of the customers
to which the Company has granted credit either operate in the
cattle industry or feed cattle as an investment.
-------------------------------------------------------------------
Principles of Consolidation:
The consolidated financial statements include Miller Feed Lots,
Inc. and its wholly-owned subsidiaries, D & M Feeders (D&M - a
cattle feeding operation), Miller Trading Company (MTC - a
commission agent for the execution of retail commodities
contracts), and La Salle Commodity and Cattle Services Co. (LCCS
- a commission agent for the execution of commercial commodities
contracts). During the year ended August 31, 1996, MTC and LCCS
were purchased from an affiliate. All material intercompany
profits, transactions, and balances have been eliminated.
-------------------------------------------------------------------
Cash Equivalents:
The Company considers all highly-liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
-------------------------------------------------------------------
Trade Accounts Receivable:
No allowance for doubtful accounts receivable has been recorded
based on the history of the Company and the nature of the
receivables.
-------------------------------------------------------------------
Concentration of Credit Risk:
At August 31, 1997 and 1996, the Company has trade accounts
receivable from an unrelated customer, totaling $38,103 and
$51,662, respectively, which exceeded 10% of the Company's total
trade accounts receivable.
-------------------------------------------------------------------
Inventories:
Inventories are stated at the lower of cost (weighted average)
or market.
-------------------------------------------------------------------
Property and Equipment:
Property and equipment are recorded at acquisition cost.
Depreciation is computed using the accelerated and straight line
methods over the estimated useful lives of the assets.
-------------------------------------------------------------------
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 - Summary of Significant Accounting Policies - Continued:
Income Taxes:
Deferred tax assets or liabilities, net of any applicable
valuation allowance for deferred tax assets, are recognized for
the estimated future tax effects attributable to temporary
differences and carryforwards. Deferred tax assets and
liabilities are classified as current or noncurrent based on the
classification of the asset and liability to which they relate.
Deferred tax assets and liabilities not related to an asset or
liability for financial reporting, including deferred tax assets
related to carryforwards, are classified as current or
noncurrent according to the expected reversal date of the
temporary difference. The Company and its subsidiaries file
consolidated corporate income tax returns.
-------------------------------------------------------------------
Earnings per Common Share:
Earnings per common share is computed by using the weighted
average number of common shares outstanding during the period
presented. Fully diluted earnings per share amounts are not
presented for 1997 and 1996 as there are no stock options or
warrants outstanding.
-------------------------------------------------------------------
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
- --------------------------------------------------------------------------------
Note 2 - Sales-type Leases:
The Company leases various pieces of equipment to an affiliate,
Miller Diversified Corporation, under various agreements expiring
through 2000. Following is a summary of the components of the
Company's investment in the sales-type leases
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
August 31 1997 1996
----------------------------------------------------------------------------
<S> <C> <C>
Total minimum lease payments to be received $ 31,971 $ 70,619
Less: Unearned income 4,056 11,014
----------------------------------------------------------------------------
Net Investment $ 27,915 $ 59,605
============================================================================
</TABLE>
Minimum lease payments to be received as of August 31, 1997 for
each of the next three years are: 1998, $14,086; 1999, $12,646;
2000, $6,305.
- --------------------------------------------------------------------------------
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3 - Note Payable - Related Party:
The Company has a $13,000 note payable with an officer/director
that is payable on demand. The note is non-interest bearing and
without collateral.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 4 - Long-term Debt:
----------------------------------------------------------------------------------------------------
August 31 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Unrelated:
Mortgage payable to an insurance company maturing
in April 2005, with quarterly payments of principal and
interest at 10.25%, collateralized by feedlot facilities $ 341,738 $ 369,320
Note payable to bank maturing in September 1997, with monthly
payments of principal and interest at 8.75%,
collateralized by a house near the feedlot facilities 84,206 85,103
Various notes payable to a financing company maturing in various
amounts from 1997 to 2001, monthly payments of principal and
interest at from 7.5% to 14%,
collateralized by equipment 15,639 58,204
---------------------------------------------------------------------------------------------------
441,583 512,627
Less: Current portion 125,571 67,672
---------------------------------------------------------------------------------------------------
$ 316,012 $ 444,955
===================================================================================================
Related Parties:
Notes payable to Miller Diversified Corporation, interest
payable monthly at 6%, $250,000 due May 1998, $300,000 due May
2002, without collateral,
subordinated to mortgager $ 550,000 $ 250,000
Various notes payable to a related party maturing in varying
amounts from 1998 to 2008 with monthly payments of principal and
interest at 12% to 14%,
collateralized by equipment 152,766 81,875
Note payable to a related party maturing in 2007, with monthly
payments of principal and interest at 8%,
collateralized by a condominium 45,000 85,000
---------------------------------------------------------------------------------------------------
747,766 416,875
Less: Current portion 333,722 98,819
---------------------------------------------------------------------------------------------------
$ 414,044 $ 318,056
===================================================================================================
</TABLE>
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4 - Long-term Debt - Continued:
The current maturities of long term debt for each of the next five
years and thereafter are as follow:
---------------------------------------------------
Year Ending August 31 Amount
---------------------------------------------------
1998 $ 464,918
1999 84,420
2000 82,270
2001 59,457
2002 45,751
2003 - 2007 452,533
---------------------------------------------------
- --------------------------------------------------------------------------------
Note 5 - Income Taxes:
-------------------------------------------------------------------
Years Ended August 31 1997 1996
-------------------------------------------------------------------
Current income taxes $ 7,612 $ 101,993
Deferred income taxes 8,161 (20,062)
-------------------------------------------------------------------
Income Tax $ 15,773 $ 81,931
===================================================================
Significant components and the related tax effect of temporary
differences and carryforwards are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
August 31 1997 1996
---------------------- --------------------------
Current Long-Term Current Long-Term
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred Tax Assets:
Capital loss carryforward $ -- $ 14,473 $ 8,161 $ 14,473
Allowance for Note Receivable -- 51,000 -- 51,000
Deferred Tax Liabilities:
D & M Cash basis for tax -- (14,457) -- (14,457)
----------------------------------------------------------------------------------------------
Net Deferred Tax Asset $ -- $ 51,016 $ 8,161 $ 59,177
=============================================================================================
</TABLE>
The capital loss carryforward expires in 1999.
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5 - Income Taxes - Continued:
The differences between income tax expense (benefit) and the amount
computed by applying the federal statutory rates are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Years Ended August 31 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C>
Computed at expected federal statutory rate $ 9,938 $ 69,700
Change in deferred tax asset 8,161 (20,062)
Cash conversion for subsidiary -- 115,585
Capital loss carryover utilized (8,161) (76,118)
Tax credits -- (22,180)
Other 5,835 15,005
-----------------------------------------------------------------------------
Income Tax $ 15,773 $ 81,931
=============================================================================
Note 6 - Related Party Transactions:
The Company is affiliated through partial common ownership and
management with Miller Diversified Corporation (MDC). The following
schedule summarizes transactions between the Company and MDC.
-------------------------------------------------------------------------
Years Ended August 31 1997 1996
-------------------------------------------------------------------------
Paid by MDC:
Freight $ 274,302 $ 163,080
Operating lease of feedlot facility 129,000 129,000
Capital lease of equipment 36,010 101,454
Operating lease of equipment 75,844 24,000
Housing rent 9,000 9,000
Paid to MDC:
Interest expense on long-term debt 18,000 15,000
</TABLE>
In August 1992, the Company purchased substantially all of MDC's
operating equipment and leased a portion of the equipment back to
MDC under a lease which terminated during the year ended August 31,
1997.
- --------------------------------------------------------------------------------
<PAGE>
MILLER FEED LOTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7 - Operating Leases:
The Company leases feedlot facilities to MDC under an operating
lease agreement expiring in 2016. Monthly lease payments are two
and one-third cents (21/3(cent)) per head per day for cattle
actually in the feedlot, subject to a minimum of $10,750 and
maximum of $13,300. MDC is responsible for all maintenance,
insurance, utilities, and taxes on the property, and has the option
to purchase the feedlot facility for $1,300,000 during the lease
term. The feedlot facilities consist of $48,014 of land and $52,066
of buildings and improvements, less accumulated depreciation of
$37,594.
Future minimum lease payments for the feedlot facilities are
$129,000 per year through 2016, totaling $2,375,750.
The Company also leases certain equipment and a house to MDC on a
month-to-month basis. Rents received during the years ended August
31, 1997 and 1996 were $84,844 and $33,000, respectively.
- --------------------------------------------------------------------------------
Note 8 - Fair Value of Financial Instruments:
The Company's financial instruments include cash, accounts
receivable, notes receivable, accounts payable, and notes payable.
The Company estimates that the fair value of all financial
instruments at August 31, 1997 and 1996 does not differ materially
from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet.
The estimated fair value amounts have been determined using
available market information and appropriate valuation
methodologies. The carrying amount of cash, accounts receivable,
and accounts payable approximates fair value because of the short
maturity of these instruments. The carrying amount of notes
receivable and notes payable approximates fair value as interest
rates approximate current rates for loans with similar terms and
remaining maturities.
- --------------------------------------------------------------------------------
Note 9 - Purchase of subsidiaries:
Effective May 1, 1996, the Company purchased LCCS and MTC from MDC.
The companies were purchased for $50,010 of which $20,000 is
recorded as goodwill, which is being amortized on a straight line
basis over fifteen years. The business combination was recorded as
a purchase, with the operating results of the acquired companies
from May 1, 1996 included in these financial statements.
- --------------------------------------------------------------------------------
Note 10 - Subsequent Events:
On May 26, 1998, the officers and shareholders of the Company and
MDC approved a merger agreement. The Company and subsidiaries will
be merged into MDC upon approval of the shareholders.
- --------------------------------------------------------------------------------
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined 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 is based on the pooling of interests
method of accounting for the proposed exchange. The pro forma adjustments are
described in the accompanying Note to Unaudited Pro Forma Combined Financial
Statements. The unaudited pro forma combined income statements assume that the
acquisition of MFL had occurred on September 1, 1996 (combining the results for
the year ended August 31, 1997 for the Company and MFL, and the nine months
ended May 31, 1998, for the Company and MFL).
<PAGE>
<TABLE>
<CAPTION>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
AND MILLER FEED LOTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------------
Historical Pro Forma
---------------------------- --------------------------------
Miller Miller
Diversified Feed
Corporation Lots, Inc.
May 31, 1998 Consolidated Consolidated Adjustments Combined
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
- ------
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 68,009 $ 29,491 $ -- $ 97,500
Trade accounts receivable 886,939 43,813 -- 930,752
Receivable from officers/directors -- 274,442 -- 274,442
Accounts receivable - related parties 80,470 -- (80,470)(C) --
Current portion of note receivable 50,000 -- -- 50,000
Income tax refunds receivable -- 24,545 -- 24,545
Inventories 1,230,730 -- -- 1,230,730
Prepaid expenses 14,325 4,238 -- 18,563
- ---------------------------------------------------------------------------------------------------------------------
Total Current Assets 2,330,473 376,529 (80,470) 2,626,532
- ---------------------------------------------------------------------------------------------------------------------
Property and Equipment:
Land -- 56,924 -- 56,924
Buildings and improvements -- 243,137 -- 243,137
Feedlot facilities under capital lease -
related party 1,497,840 -- (1,497,840)(C)
Equipment 77,454 672,168 -- 749,622
Equipment under capital lease -- 4,547 -- 4,547
Equipment under capital lease - related party 30,649 -- (30,649)(C)
Leasehold improvements 92,335 -- -- 92,335
-------------------------------------------------------------------
1,698,278 976,776 (1,528,489) 1,146,565
Less: Accumulated depreciation and
amortization 559,248 505,080 (457,371)(C) 606,957
- ---------------------------------------------------------------------------------------------------------------------
Total Property and Equipment 1,139,030 471,696 (1,071,118) 539,608
- ---------------------------------------------------------------------------------------------------------------------
Other Assets:
Net investment in sales type leases -- 14,572 (14,572)(C) --
Securities available for sale 16,382 -- -- 16,382
Other investments 118,418 82,566 -- 200,984
Notes receivable:
Miscellaneous 15,000 12,000 -- 27,000
Related party 300,000 -- (300,000)(C) --
Deferred income taxes 176,962 51,016 -- 227,978
Deposits and other 15,886 17,511 (17,112)(C) 16,285
- ---------------------------------------------------------------------------------------------------------------------
Total Other Assets 642,648 177,665 (331,684) 488,629
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,112,151 $ 1,025,890 $(1,483,272) $ 3,654,769
=====================================================================================================================
Continued on next page.
<PAGE>
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
AND MILLER FEED LOTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
- ----------------------------------------------------------------------------------------------------------------------
Historical Pro Forma
----------------------------- -----------------------------------
Miller Miller
Diversified Feed
Corporation Lots, Inc.
May 31, 1998 Consolidated Consolidated Adjustments Combined
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------
Current Liabilities:
Bank overdraft $ 2,757 $ -- $ -- $ 2,757
Notes payable 474,024 40,481 -- 514,505
Notes payable - officers/directors -- 13,000 -- 13,000
Trade accounts payable 604,551 20,315 -- 624,866
Accounts payable - related parties -- 80,470 (80,470)(C) --
Accrued expenses 28,432 14,029 -- 42,461
Income taxes payable 6,195 -- -- 6,195
Customer advance feed contracts 52,906 -- -- 52,906
Current portion:
Capital lease obligations - related party 24,284 -- (24,284)(C) --
Notes payable -- 158,906 -- 158,906
- ----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,193,149 327,201 (104,754) 1,415,596
Long-Term Notes Payable -- 498,072 -- 498,072
Long-Term Notes Payable - related party -- 300,000 (300,000)(C) --
Capital Lease Obligations - related party 993,565 -- (993,565)(C) --
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,186,714 1,125,273 (1,398,319) 1,913,668
- ----------------------------------------------------------------------------------------------------------------------
Commitments
- ----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock -- -- -- --
Common Stock 636 101,600 (100,100)(A) 2,136
Additional Paid-In Capital 1,351,693 11,860 (112,743)(A)(B) 1,250,810
Unrealized Loss - Securities Available
for Sale (3,718) -- -- (3,718)
Retained Earnings 576,826 (212,843) 127,890(B)(C) 491,873
- ----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,925,437 (99,383) (84,953) 1,741,101
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,112,151 $ 1,025,890 $(1,483,272) $ 3,654,769
======================================================================================================================
See Accompanying Note to Unaudited
Pro Forma Combined Financial Statements.
</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
For the Nine Months Corporation Lots, Inc.
Ended May 31, 1998 Consolidated Consolidated Adjustments Combined
- -------------------------------------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C>
Feed and other sales $ 7,417,840 $ -- $ -- $ 7,417,840
Feedlot services 1,235,426 -- -- 1,235,426
Freight services income -- 247,255 -- 247,255
Rent and lease income -- 188,309 (188,309)(C) --
Commodity sales commissions -- 351,943 -- 351,943
Interest income 21,775 847 -- 22,622
Interest income - related party 19,750 -- (19,750)(C) --
Other 24,742 -- (1,350)(C) 23,392
- -------------------------------------------------------------------------------------------------------------------
Total Revenue 8,719,533 788,354 (209,409) 9,298,478
- -------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and other sales 6,844,964 -- -- 6,844,964
Feedlot services 1,091,950 -- (140,573)(C) 951,377
Freight services -- 176,442 -- 176,442
Rent and lease income -- 62,012 -- 62,012
Speculative trading losses -- 44,080 -- 44,080
Selling, general, and administrative 649,746 453,227 (2,311)(C) 1,100,662
Interest 17,688 57,064 -- 74,752
Interest - related party 85,064 19,750 (104,814)(C) --
- -------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 8,689,412 812,575 (247,698) 9,254,289
- -------------------------------------------------------------------------------------------------------------------
Earnings Before Taxes 30,121 (24,221) 38,289 44,189
Income Tax Expense (Benefit) 6,195 (15,286) -- (9,091)
- -------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 23,926 $ (8,935) $ 38,289 $ 53,280
===================================================================================================================
See Accompanying Note to Unaudited
Pro Forma Combined Financial Statement.
</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
For the Year Ended Corporation Lots, Inc.
August 31, 1997 Consolidated Consolidated Adjustments Combined
- ----------------------------------------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C>
Feed and other sales $ 9,215,851 $ -- $ -- $ 9,215,851
Feedlot services 2,040,105 -- -- 2,040,105
Freight services income -- 314,548 -- 314,548
Rent and lease income -- 219,276 (219,276)(C) --
Speculative trading gains -- 24,004 -- 24,004
Commodity sales commissions -- 555,757 -- 555,757
Interest income 23,561 -- -- 23,561
Interest income - related party 18,000 -- (18,000)(C) --
Other 80,052 -- (1,800)(C) 78,252
- ----------------------------------------------------------------------------------------------------------------------
Total Revenue 11,377,569 1,113,585 (239,076) 12,252,078
- ----------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and other sales 8,483,551 -- -- 8,483,551
Feedlot services 1,844,037 -- (179,840)(C) 1,664,197
Freight services -- 252,371 -- 252,371
Rent and lease income -- 59,853 -- 59,853
Selling, general, and administrative 704,296 626,857 (10,342)(C) 1,320,811
Loss of sale of land and water rights 178,452 -- -- 178,452
Interest 12,146 96,754 -- 108,900
Interest - related party 117,130 18,000 (135,130)(C) --
- ----------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 11,339,612 1,053,835 (325,312) 12,068,135
- ----------------------------------------------------------------------------------------------------------------------
Earnings Before Taxes 37,957 59,750 86,236 183,943
Income Tax Expense (Benefit) (141,284) 24,018 -- (117,266)
- ----------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 179,241 $ 35,732 $ 86,236 $ 301,209
======================================================================================================================
See Accompanying Note to Unaudited
Pro Forma Combined Financial Statement.
</TABLE>
<PAGE>
NOTE TO UNAUDITED PRO FORMA
COMBINED FINANCIAL 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.
(a) To record issuance of 15,000,000 of the Company's Common Stock to acquire
all outstanding shares of MFL.
(b) To eliminate MFL retained earnings.
(c) To eliminate intercompany transactions.
ANNEX 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
April 30, 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 that April
30, 1999. 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
<PAGE>
PLAN OF EXCHANGE
OF
MILLER DIVERSIFIED CORPORATION
AND
MILLER FEED LOTS, INC.
A. The parties to the exchange are Miller Diversified Corporation, a Nevada
corporation ("Miller"), and Miller Feed Lots, Inc., a Colorado corporation
("MFL"). Miller is the acquiring corporation.
B. When the exchange becomes effective:
(i) Each outstanding share of MFL stock shall by operation of law be
exchanged for 15,000 shares of previously unissued common stock of Miller.
(ii) Miller shall become the owner and holder of all of the
outstanding stock of MFL.
C. After the exchange becomes effective:
(a) Until surrendered, each outstanding certificate which prior to the
exchange represented shares of MFL stock shall be deemed for all corporate
purposes to evidence the number of shares of Miller common stock for which such
MFL stock shall have been exchanged. There shall be no further registry of
shares on the records of MFL of MFL stock, and, if certificates representing
such shares are presented to MFL, they shall be cancelled and the holder thereof
shall receive the common stock of Miller for which the shares represented were
exchanged. Unless waived by Miller, no voting rights shall vest and no dividends
or distributions will be paid to persons entitled to receive certificates for
shares of Miller common stock until such persons shall have surrendered their
MFL stock certificates; provided, however, that when such certificates shall
have been so surrendered in exchange for certificates representing Miller common
stock, there shall be paid to the holders thereof, but without interest thereon,
all dividends and other distributions payable subsequent to and in respect to
any record date after the effective date of the exchange on the shares of Miller
common stock that have not been paid as a result of the foregoing.
1. (b) If any certificate of Miller is to be issued in a name other
than that in which the certificate for MFL stock surrendered for exchange
is registered, it shall be a condition of such exchange that the
certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange shall
pay to the transfer agent any transfer or other taxes required by reason of
the issuance of such Miller common stock in any name other than that of the
registered holder of the certificate surrendered, or establish to the
satisfaction of the transfer agent that such tax has been paid or is not
applicable.
<PAGE>
4. This exchange may be terminated at any time before the filing of
Articles of Exchange, whether before or after approval of this plan by the
stockholders of MFL and Miller in the manner specified in the Agreement of
Exchange Agreement by and between Miller and MFL dated June 20, 1998.
5. The date of this Plan of Exchange shall be June 20, 1998.
DISSENTERS' RIGHTS - MILLER ANNEX II
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.)
- ---
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.)
