AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 2001
Registration No. 333-41026
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4A
POST EFFECTIVE
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PEPPERMILL CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 1081 98-0186841
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
PEPPERMILL CAPITAL CORPORATION
1819 CLARKSON, SUITE 204
CHESTERFIELD, MISSOURI 63017
(636) 530-4532
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CLAYTON VARNER
1819 CLARKSON ROAD, SUITE 204
CHESTERFIELD, MISSOURI 63017
(636) 530-4532
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
John M. Klimek, Esq.
Scott P. Slykas, Esq.
Merrick & Klimek, P.C.
401 South LaSalle, Suite 1302
Chicago, Illinois 60605
(312) 294-6044
(312) 294-6045 (Facsimile)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger described herein (the "Merger").
----------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
----------
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. _____________
----------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ______________
CALCULATION OF REGISTRATION FEE
- -------------------------------------------- ------------------- ----------------------- -------------------- ----------------------
Proposed Proposed
Title of Each Class Maximum Maximum
Of Securities to Which Amount to be Offering Price Aggregate Amount of
Transaction Applies Registered Per Share(5) Offering Price Registration Fee(6)
- -------------------------------------------- ------------------- ----------------------- -------------------- ----------------------
Peppermill Capital Corporation Common
Stock, par value $.001 per share 80,032,275(1) $ .0011 $88,924.75 $22.23
- -------------------------------------------- ------------------- ----------------------- -------------------- ----------------------
Peppermill Capital Corporation Preferred
Stock, par value $.001 per share 10,000,000(2) $.00066 $ 6,600.00 $ 1.65
- -------------------------------------------- ------------------- ----------------------- -------------------- ----------------------
Peppermill Capital Corporation Common
Stock, par value $.001 per share 4,494,800(3) $0 $0 $0
- -------------------------------------------- ------------------- ----------------------- -------------------- ----------------------
Peppermill Capital Corporation Common
Stock, par value $.001 per share 10,000,000(4) $0 $0 $0
- -------------------------------------------- ------------------- ----------------------- -------------------- ----------------------
TOTAL
$23.88
----------------------
(1) The maximum number of shares of common stock, par value $.001 per share, of
Peppermill Capital Corporation ("Peppermill") that may be issued and
distributed to shareholders of Varner Technologies, Inc., a Missouri
corporation ("Varner"), pursuant to the agreement and plan of merger to
which this proxy statement-prospectus relates, based on (a) 16,868,078
shares of Varner voting common stock, par value $.01 per share, currently
outstanding and 9,809,347 shares of Varner non-voting common stock, par
value $.01 per share, currently outstanding; and (b) multiplied by the
conversion ratio of three (3) shares of Peppermill common stock for each
share of Varner voting common stock and non-voting common stock, and
assuming the exchange of all shares of Varner common stock.
(2) The maximum number of shares of preferred stock, par value $.001 per share,
of Peppermill that may be issued and distributed to shareholders of Varner
pursuant to the agreement and plan of merger to which this proxy
statement-prospectus relates, based on (a) up to 2,000,000 shares of Varner
preferred stock, par value $.01 per share, currently authorized; and (b)
multiplied by a conversion ratio of five (5) shares of Peppermill preferred
stock for each share of Varner preferred stock, and assuming the exchange
of all shares of Varner preferred stock.
(3) The maximum number of shares of common stock of Peppermill to be issued to
current holders of Peppermill common stock as a stock dividend as part of
the merger.
(4) The maximum number of shares of common stock of Peppermill to be issued
upon conversion of the Peppermill preferred stock.
(5) Estimated solely for the purpose of computing the registration fee, based
upon the par value of Varner's capital stock of $.01, in accordance with
Rule 457(f)(2) under the Securities Act of 1933, as amended (the "Act").
(6) Calculated pursuant to Rule 457(f)(2) under the Securities Act.
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. |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
ii
(Peppermill Shareholder Letter)
PEPPERMILL CAPITAL CORPORATION
1819 Clarkson Road, Suite 205
Chesterfield, Missouri 63017
(636) 530-4532
TO THE SHAREHOLDERS OF PEPPERMILL CAPITAL CORPORATION
A MERGER PROPOSAL
Dear Shareholders:
As you may have learned from press reports, Varner Technologies, Inc.
has purchased 10,116,000 shares or approximately 90% of the outstanding shares
of common stock of Peppermill Capital Corporation. The companies have also
signed an agreement providing for the merger of Varner into Peppermill.
Immediately after the merger, the surviving entity will be renamed Varner
Technologies, Inc.
As a result of the merger:
o each holder of one share of common stock or one share of
non-voting common stock of Varner will receive three shares of
Peppermill common stock for a total of 80,032,275 shares;
o each holder of one share of preferred stock of Varner will
receive five shares of a newly created class of Peppermill
preferred stock for a total of 10,000,000 shares; and
o each current holder of one share of Peppermill common stock will
receive a dividend of four additional shares of Peppermill common
stock for a total of 4,494,800 shares.
After the merger, Varner common shareholders will own approximately 93% of the
common stock of Peppermill and former shareholders of Peppermill will then own
approximately 7% of Peppermill common stock. The holders of Varner preferred
stock will own 100% of Peppermill preferred stock after the merger.
Peppermill common stock is listed on the OTC Bulletin Board under the
trading symbol PEPM. Peppermill common stock began trading on November 25, 1999,
shortly after the announcement of the purchase by Varner of Peppermill's capital
stock and the signing of the letter of intent regarding the merger. On June, 19
2001, Peppermill common stock closed at $1.00.
You are being asked to provide your written consent to the merger and
related matters. The accompanying proxy statement-prospectus contains detailed
information concerning Peppermill, Varner, the stock purchase and the merger.
You are also being asked to approve Peppermill's 2001 stock option plan. I urge
you to read carefully the proxy statement-prospectus, in particular the
discussion in the section entitled Risk Factors which begins on page ___ and in
the section entitled Dissenters Rights which begins on page ____.
Please use this opportunity to make your preferences known. Please
complete, sign, date and return the accompanying written consent in the enclosed
self-addressed stamped envelope.
Very truly yours,
Clayton Varner, president and
chairman of Peppermill Capital
Corporation
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this proxy statement-prospectus. Any representation to
the contrary is a criminal offense.
This proxy statement-prospectus is dated _________________, 2001 and was
first mailed to shareholders on or about ______________, 2001.
iii
(Varner Shareholder Letter)
VARNER TECHNOLOGIES, INC.
1819 Clarkson Road, Suite 205
Chesterfield, Missouri 63017
(636) 530-4532
TO THE SHAREHOLDERS OF VARNER TECHNOLOGIES, INC.
A MERGER PROPOSAL
Dear Shareholders:
As you may have learned from press reports, Varner Technologies, Inc. has
purchased 10,116,000 shares or approximately 90% of the outstanding shares of
common stock of Peppermill Capital Corporation. The companies have also signed
an agreement providing for the merger of Varner into Peppermill. Immediately
after the merger, the surviving entity will be renamed Varner Technologies, Inc.
As a result of the merger:
o each holder of one share of common stock or one share of
non-voting common stock of Varner will receive three shares of
Peppermill common stock for a total of 80,032,275 shares;
o each holder of one share of preferred stock of Varner will
receive five shares of a newly created class of Peppermill
preferred stock which will contain rights and restrictions
substantially equal to the shares of Varner preferred stock for a
total of 10,000,000 shares; and
o each current holder of one share of Peppermill common stock will
receive a dividend of four additional shares of Peppermill common
stock for a total of 4,494,800 shares.
After the merger, Varner common shareholders will own approximately 93% of the
common stock of Peppermill and former shareholders of Peppermill will then own
approximately 7% of Peppermill common stock. The holders of Varner preferred
stock will own 100% of Peppermill preferred stock after the merger.
The merger has been approved by the board of directors of Varner. Under
Missouri law and Varner's corporate documents no vote is required of Varner
shareholders. This prospectus is being distributed to you as a Varner
shareholder to provide full disclosure of the transaction and your rights as a
Peppermill shareholder should the merger be completed. The accompanying
prospectus contains detailed information concerning Peppermill, Varner, the
stock purchase and the merger. I urge you to read carefully the prospectus, in
particular the discussion in the section entitled Risk Factors which begins on
page ___.
Peppermill common stock is listed on the OTC Bulletin Board under the
trading symbol PEPM. Peppermill common stock began trading on November 25, 1999,
shortly after the announcement of the purchase by Varner of Peppermill's capital
stock and the signing of the letter of intent regarding the merger. On June 19,
2001, Peppermill common stock closed at $1.00.
Very truly yours,
Clayton Varner, president and
chairman of Varner Technologies, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
This prospectus is dated _________, 2001 and was first mailed to
shareholders on or about ________, 2001.
iv
(TO BE SENT TO PEPPERMILL SHAREHOLDERS ONLY)
Peppermill Capital Corporation
1819 Clarkson Road
Suite 205
Chesterfield, Missouri 63017
NOTICE
To the shareholders of Peppermill Capital Corporation:
You are hereby being solicited, to provide your written consent, to the
following matters:
1. The authorization of a merger of Varner Technologies, Inc. into
Peppermill in accordance with the terms and conditions contained in
the merger agreement dated as of June 2, 2000.
2. An amendment to the articles of incorporation of Peppermill to
increase the authorized number of shares of common stock and to
authorize two classes of preferred stock.
3. An amendment to the articles of incorporation to change the name of
the company to Varner Technologies, Inc.
4. Approval of the Peppermill Capital Corporation 2001 stock option
plan.
Written consent is being solicited in lieu of holding a special meeting of
shareholders. Only owners of voting common stock as shown on Peppermill's
records at the close of business on June 19, 2001 will be entitled to notice
of and to provide their consent. On the record date there were 11,239,700 shares
of Peppermill common stock outstanding held by approximately 17 holders of
record. The proposed actions require the written consent of a majority of the
outstanding shares of Peppermill's common stock. It is important that you sign,
date and return the enclosed consent card in the envelope provided as soon as
possible. Prompt notice of the taking of the action will be given in writing to
those shareholders who have not consented, once Peppermill has obtained the
necessary number of consents.
By order of the board of directors
--------------------------------
Clayton Varner, chairman and president
YOUR VOTE IS IMPORTANT
It is important that as many shares as possible consent to the
proposed action. Please date, sign, and promptly return the consent
card in the enclosed envelope.
i
TABLE OF CONTENTS
SUMMARY OF THE PROXY STATEMENT-PROSPECTUS......................................
The companies.............................................................
Summary of the merger.....................................................
Proxy statement-prospectus............................................
Purpose of written consents...........................................
Structure of the transaction..........................................
Why did Varner purchase Peppermill common stock and why
are Peppermill and Varner proposing to merger....................
What will I receive in the merger.....................................
Peppermill shareholder approval.......................................
Recommendation of Peppermill's board of directors (Peppermill
document only)...................................................
Procedure for casting your vote (Peppermill document only)............
You do not have to exchange your stock certificates...................
(Peppermill and Varner)
You have dissenter's rights (Peppermill)..............................
Varner shareholders will not vote on merger or have
dissenter's rights....................................................
Completion and effectiveness of the merger............................
Conditions to completion of the merger................................
Interests of certain persons in the merger............................
U.S. federal income tax consequence of the merger.....................
Restrictions on the ability to sell Peppermill stock..................
UNAUDITED COMPARATIVE PER SHARE INFORMATION....................................
COMPARATIVE MARKET PRICE INFORMATION...........................................
RISK FACTORS
Risk factors relating to the merger between Peppermill and Varner.........
The value of the shares of Peppermill common stock received
in the merger may fluctuate greatly and if it fluctuates
downward would result in the value of the stock you receive
in the merger decreasingly sharply...............................
The merger may not result in Varner being able to enter into
mergers and acquisitions or achieve other benefits as hoped
which will negatively affect the value and liquidity of the
stock you receive in the merger..................................
Risk factors relating to Varner's business................................
Varner is not profitable and does not expect to be profitable
in the near future...............................................
Varner's liquidity and capital resources are limited and if we are
unable to raise more money in the future we will have to limit
or discontinue our operations....................................
Varner's limited operating history makes it difficult to predict
whether we will be successful in the telecommunications
and internet market..............................................
Varner's proposed acquisitions of other companies or assets
may result in losses.............................................
Varner resells telecommunication services provided by third
parties and the availability and/or costs of these services
will affect our sales and profits and may affect the value
of the stock you receive in the merger...........................
Varner contracts third parties to provide the internet services
it sells and the availability and cost of these services will
affect our sales and profits and may affect the value of the
stock you receive in the merger..................................
ii
A disruption in the telecommunication services that carry our
internet services will affect our sales and profits and may
affect the value of the stock you receive in the merger..........
Varner does not currently have sufficient management to meet our
proposed business plans and our inability to obtain management
personnel will negatively affect our operations and the value
of the stock you receive in the merger...........................
Varner's inability to retain internet customers will negatively
affect our profitability .........................................
Varner's inability to recruit independent sales representatives may
result in discontinuance of our network marketing program to
recruit subscribers which would negatively affect our sales and
profits and the value of the stock you receive in the merger.....
Governmental agencies that regulate multilevel marketing companies
may impose restrictions on our business that can adversely
affect our ability to sell our products which would negatively
affect our sales and profits and the value of the stock you
receive in the merger............................................
Risk factors relating to the Peppermill stock.............................
Peppermill stock may be difficult to resell due to the limited
market for the stock.............................................
FORWARD LOOKING STATEMENT......................................................
THE MERGER
Background of the merger..................................................
Peppermill's reasons for the merger.......................................
Recommendation of Peppermill's board of directors.........................
Varner's reasons for the merger...........................................
Completion and effectiveness of the merger................................
Structure of the merger and conversion of Varner capital stock............
Exchange of Peppermill stock certificates (Peppermill Document Only)......
As a Peppermill shareholder there is no need to exchange your
stock certificates for new certificates, even after the merger
and change in Peppermill's name..................................
Exchange of Varner stock certificates (Varner Document Only)..............
You do not have to exchange Varner stock certificates for
Peppermill stock certificates (Varner Document Only)..................
Material United States federal income tax consequences
of the merger.........................................................
Tax implications to Peppermill shareholders (Peppermill Document
Only)............................................................
Tax implications to Varner shareholders (Varner Document Only)........
Tax implications to Peppermill and Varner.............................
Regulatory filings and approvals required to complete the merger..........
Restrictions on sales of shares by affiliates of Peppermill and Varner....
Conditions to completion of the merger....................................
Termination of the merger agreement.......................................
Extension, waiver and amendment of the merger agreement...................
Operations after the merger...............................................
DISSENTER'S AND APPRAISAL RIGHTS (Peppermill Document Only)....................
BUSINESS OF PEPPERMILL.........................................................
Historical overview of Peppermill.........................................
Employees.................................................................
Peppermill's discussion and analysis or plan of operation.................
General...............................................................
Plan of operation.....................................................
Liquidity and capital resources.......................................
Accounting and audit..................................................
iii
Assessment work.......................................................
Bank charges..........................................................
Consulting fees.......................................................
Incorporation costs written off.......................................
Amortization of mining rights.........................................
Legal.................................................................
Office and miscellaneous..............................................
Report preparation....................................................
Transfer agent's fees.................................................
Travel................................................................
Security ownership in Peppermill of certain beneficial ownership
and management........................................................
Description of securities.................................................
Common stock..........................................................
Preferred stock.......................................................
Options outstanding...................................................
Market information........................................................
Holders
Dividends.................................................................
Legal proceedings.........................................................
Disagreement with accountants and financial disclosure....................
2001 stock option plan....................................................
General...............................................................
The plan and participants.............................................
Options terms and grants..............................................
Federal tax aspects of the plan.......................................
Vote required for approval of the plan................................
VARNER'S BUSINESS..............................................................
Overview
Networking People with Technology, L.L.C..................................
Varner's current products and services....................................
Internet access.......................................................
Prepaid calling card services.........................................
Computer hardware and third party software............................
Nationwide cellular services on a prepaid basis.......................
Voice-x-Net...........................................................
Proprietary computer software.........................................
Future product and services under consideration...........................
Varner's current channels of sales and distribution.......................
Varner's future plans for sales and distribution..........................
Mergers and acquisitions..................................................
Competition...............................................................
Competition for retail internet access................................
Competition for wholesale internet access.............................
Competition for prepaid long distance companies.......................
Network marketing companies...............................................
Marketing.................................................................
Network marketing.........................................................
Management of independent representatives.................................
Training and marketing support............................................
Employees.................................................................
iv
Market information........................................................
Holders
Dividends.................................................................
Legal proceedings.........................................................
VARNER MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................
Revenues
Results of operations.....................................................
Revenues..............................................................
Cost of sales.........................................................
Operating Expenses....................................................
Commissions...........................................................
Salaries and compensation.............................................
Other operating expenses..............................................
Other income and expense..............................................
Net loss..............................................................
Liquidity and capital resources...........................................
Material commitments......................................................
VARNER'S MANAGEMENT............................................................
Management and the interrelationship of Peppermill's management...........
Stock ownership by management and others..................................
Executive compensation....................................................
Employment agreements.....................................................
Compensation of directors.................................................
Section 16(a) beneficial ownership reporting compliance...................
Board of directors affiliations and related transactions..................
COMPARISON OF RIGHTS OF HOLDERS OF VARNER CAPITAL
STOCK AND PEPPERMILL CAPITAL STOCK........................................
Classes of common stock of Varner and Peppermill..........................
Stock options and warrants................................................
Dividends.................................................................
Voting rights.............................................................
Classified board of directors.............................................
Number of directors, quorum...............................................
Removal of directors......................................................
Filling vacancies of the board of directors...............................
Interested directors......................................................
Limits on shareholder action by written consent...........................
Ability to call special meeting...........................................
Notice of shareholder meeting given by the corporation....................
Amendment of articles of incorporation....................................
Amendment of by-laws......................................................
Shareholder right to inspect books and records............................
Derivative actions........................................................
Indemnification of directors and officers.................................
Shareholder liability.....................................................
Business combinations.....................................................
Shareholder rights plan...................................................
Exchange of assets, mergers and consolidations............................
Short form merger.........................................................
Dissenter's Rights........................................................
v
Preferred stock...........................................................
Peppermill series A preferred stock.......................................
Non-voting............................................................
Liquidation preference................................................
Dividends.............................................................
Conversion rights.....................................................
Preemptive rights.....................................................
Redemption............................................................
LEGAL OPINION
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION............................................
This proxy statement-prospectus incorporates documents by reference which
are not presented in or delivered with this proxy
statement-prospectus..................................................
You should rely only on the information contained in this document
or that we have referred you to. We have not authorized
anyone to provide you with information that is different..............
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES............................................
This proxy statement-prospectus incorporates important business and financial
information about Varner and Peppermill that is not included in or delivered
with the document. This information is available to you at no charge upon
written or oral request to Clayton Varner, Peppermill Capital Corporation, 1819
Clarkson, Suite 204, Chesterfield, Missouri 63017, (636) 530-4532. Please allow
at least 5 days from the date you request such information for delivery. The
merger, change in authorized capital, name change and approval of the stock
option plan will be approved upon receipt of written consents of at least a
majority of Peppermill's outstanding common stock. There is no time period set
for the receipt of the necessary consents.
vi
VARNER TECHOLOGIES, INC.
PEPPERMILL CAPITAL CORPORATION
PROPOSED MERGER
SUMMARY OF THE PROXY
STATEMENT-PROSPECTUS
This summary may not contain all of the information that is important to
you. You should carefully read this entire document and the other documents we
refer to for a more complete understanding of the merger. In particular, you
should read the documents attached to this proxy statement-prospectus, including
the merger agreement, which is attached as Appendix A.
The companies
Peppermill Capital Corporation
1819 Clarkson, Suite 204
Chesterfield, Missouri 63017
Peppermill Capital Corporation, a Nevada corporation, was incorporated on
April 9, 1998. Peppermill has generated no revenues to date and at present has
no operations or assets.
Peppermill has registered its common stock on a Form 10-SB and has obtained
approval to list its common stock for trading on the OTC Bulletin Board.
Peppermill common stock commenced trading on November 25, 1999, and trades under
the symbol PEPM.
Varner Technologies, Inc.
1819 Clarkson Road
Suite 205
Chesterfield, Missouri 63017
http://www.varner.com
Varner Technologies, Inc., a Missouri corporation, incorporated on November
17, 1994, markets and sells internet access services, prepaid calling cards,
select computer hardware and software and wireless telephone services. Varner
markets these products and services through a wholly-owned subsidiary,
Networking People with Technology, L.L.C. or NPWT. NPWT in turn markets the
products and services to a network of independent contractors through multilevel
marketing.
Varner's proposed future products and services include long distance
telephone services, voice over internet access, website development for
independent distributors and proprietary software development and sale.
Summary of the merger
Proxy statement-prospectus [Peppermill document only]
This proxy statement-prospectus is being furnished to Peppermill
shareholders in connection with the solicitation of written consent by the
Peppermill board of directors regarding the proposed merger.
1
Purpose of the written consents [Peppermill document only]
Written consents of the shareholders of Peppermill are being solicited for
the following matters:
o a proposal to adopt the merger agreement, dated as of June 2,
2000, by and among Peppermill and Varner;
o an amendment to Peppermill's articles of incorporation to
increase the authorized number of shares of common stock and to
authorize two classes of preferred stock; and
o an amendment to Peppermill's articles of incorporation to change
the name of Peppermill to Varner Technologies, Inc.
o approval of the Peppermill 2001 stock option plan.
Adoption of the merger agreement will also constitute approval of the merger and
other transactions contemplated by the merger.
Structure of the transaction (see page __).
Varner has purchased 10,116,000 shares, approximately 90% of the
outstanding common stock of Peppermill from certain shareholders of Peppermill.
Immediately upon the completion of the stock purchase, Varner and Peppermill
entered into a letter of intent relating to the merger of the two companies. The
companies then negotiated an agreement and plan of merger which provides that
holders of Varner voting common stock and non-voting common stock will receive
Peppermill common stock and holders of Varner preferred stock will receive
Peppermill preferred stock.
Why did Varner purchase Peppermill common stock and why are Peppermill and
Varner proposing to merge? (see page ____)
The Varner board considered a variety of factors in making its decision to
purchase 90% of the common stock of Peppermill and to approve the merger
agreement. The Varner board determined that it was important for Varner to be a
publicly traded company for the following reasons:
o to allow Varner access to funding sources often available only to
public companies.
o to allow Varner the ability to structure acquisitions or merge with
other companies using its publicly traded securities as consideration.
o to provide liquidity to Varner shareholders.
The Varner board considered several different methods for becoming a public
company and determined that a merger with Peppermill was the preferred and
fastest method. Due to the competition in the markets in which Varner competes,
Varner's ability to accomplish its goals of
2
acquiring or merging with other companies in the industry as soon as possible
was a critical concern.
The Peppermill board has determined that the Peppermill shareholders will
have a better chance of realizing potential appreciation in their shareholdings
by being owners of an operating company.
What will I receive in the merger?
If you are a Peppermill shareholder. If the merger is completed, as a
Peppermill shareholder, you will retain your shares in Peppermill, which will be
the surviving company and you will receive a dividend of four additional shares
of Peppermill common stock for every one share you currently own.
If you are a Varner shareholder. If the merger is completed, as a Varner
shareholder, you will receive three shares of Peppermill common stock for each
share of Varner voting common stock and/or Varner non-voting common stock you
own. This prospectus is being distributed to you as a Varner shareholder to
provide you with full disclosure of the transaction and your rights as a
Peppermill shareholder should the merger be completed. If you are a holder of
Varner preferred stock, and the merger is completed, you will receive five
shares of Peppermill preferred stock for each share of Varner preferred stock
you own. The rights and preferences of holders of the Peppermill preferred stock
will be substantially equal to the rights and preferences of holders of the
Varner preferred stock.
Prior to the merger there are 11,239,700 shares of Peppermill common stock
outstanding. After the merger there will be approximately 85,650,775 shares of
common stock and 10,000,000 shares of preferred stock. Initially, there will be
no warrants or options to purchase shares of Peppermill common stock. The
holders of Varner preferred stock will own 100% of Peppermill preferred stock
after the merger.
For a period of thirty days after the merger is effective, holders of
Peppermill preferred stock will be able to convert those shares into shares of
common stock of Peppermill on a one for one basis. After such period, shares of
Peppermill preferred stock cannot be converted to shares of Peppermill common
stock and cannot be sold for a period of one year. By converting to common
stock, holders of preferred stock will receive shares that are listed on the OTC
Bulletin Board, but will lose the preferences granted to the preferred stock,
including certain preemptive rights to participate in a future public offering
of Peppermill's common stock. See "Comparison of Rights of Holders of Varner
Capital Stock and Peppermill Capital Stock."
The number of shares of Peppermill common stock to be issued for each share
of Varner common stock is fixed and will not be adjusted based upon changes in
the price of the Peppermill shares at the time of the merger. As a result, to
the extent a Varner shareholder receives Peppermill common stock, the value of
the shares he receives in the merger will not be known at the time of this proxy
statement-prospectus and may go up or down as the market price of Peppermill
common stock goes up or down. Based on the number of Varner and Peppermill
shares outstanding as of the date of this proxy statement-prospectus, the former
shareholders of Varner common stock will own approximately 93% of Peppermill
common stock after the merger.
3
Peppermill shareholder approval (see page ___).
Under Nevada law, and in accordance with the articles of incorporation of
Peppermill as amended, the merger will need to be approved by the holders of a
majority of the common stock of Peppermill. The Peppermill board has already
approved the merger and Varner holds the vast majority of Peppermill common
stock. It is expected that approval of the merger will be obtained.
Recommendation of Peppermill's board of directors (see page ___).
[Peppermill Document Only]
After careful consideration, the Peppermill board of directors determined
the merger to be fair to you and in your best interests and declared the merger
advisable. The board has also obtained a fairness opinion finding that the
merger is fair to Peppermill shareholders. Peppermill's board of directors
approved the merger agreement and recommends that you provide your written
consent for it. Abstentions and failures to vote will have the same effect as a
vote against the merger, the amendments to the articles of incorporation and the
adoption of Peppermill's 2000 stock option plan.
Procedure for casting your vote (see page ___) [Peppermill Document Only]
Peppermill shareholders should mail their signed written consent in the
enclosed return envelope as soon as possible so that their shares of Peppermill
common stock may be counted. If you do not include instructions on how to vote
your properly executed written consent, your shares will be voted:
o For adoption of the merger agreement;
o For the amendment to the articles of incorporation authorizing an
increase in the authorized shares of common stock and the creation of
two classes of preferred stock;
o For the amendment to the articles of incorporation authorizing the
change in the company name; and
o For approval of Peppermill's 2001 stock option plan.
Peppermill will assume the expenses incurred in connection with the printing and
mailing of this proxy statement-prospectus.
You do not have to exchange your stock certificates (see page ___)
[Peppermill Document Only]
There will be no need for Peppermill shareholders to exchange their current
Peppermill stock certificates after the merger. If the merger is adopted, you
will receive a stock certificate representing additional shares issued as part
of the stock dividend. If you have a brokerage account and would like your
certificates transferred to your account electronically, please contact
Peppermill's transfer agent at:
4
Florida Atlantic Stock Transfer, Inc.
7130 Nob Hill Road
Tamarac, Florida 33321
(954) 726-4954
(954) 726-6305 (Facsimile)
You do not have to exchange your stock certificates (see page ___) [Varner
Document Only]
After the merger is completed, there will be no need to exchange your
current stock certificates. Each certificate representing shares of Varner
voting common stock or non-voting common stock will represent an equal number of
shares of Peppermill common stock. Each certificate representing shares of
Varner preferred stock will represent an equal number of shares of Peppermill
preferred stock. You will be issued certificates representing the balance of
Peppermill common stock and Peppermill preferred stock you own after the merger.
For example, if you own one share of Varner common stock and one share of Varner
preferred stock, after the merger your certificates will now represent one share
of Peppermill common stock and one share of Peppermill preferred stock, and you
will receive certificates representing two additional shares of Peppermill
common stock and four additional shares of Peppermill preferred stock. Do not
dispose of your Varner stock certificates. If you have a brokerage account and
would like your certificates transferred to your account electronically, please
contact Peppermill's transfer agent at:
Florida Atlantic Stock Transfer, Inc.
7130 Nob Hill Road
Tamarac, Florida 33321
(954) 726-4954
(954) 726-6305 (Facsimile)
You have dissenter's rights (see page ___) [Peppermill Document Only]
If you do not vote for the merger and you follow the notice provisions set
forth on page ___, you have the right to receive the fair market value of your
Peppermill shares.
Varner shareholders will not vote on the merger or have dissenter's rights
Under Missouri corporate law and Varner's corporate documents, Varner
shareholders will not be required to approve the merger nor will Varner
shareholders have dissenter's rights. Dissenter's right are rights given to
shareholders who vote against a corporate act, like a merger, to receive the
cash value of their shares instead of receiving securities in the merger.
Completion and effectiveness of the merger (see page ___)
We will complete the merger when all of the conditions to the merger are
satisfied or waived. The merger will become effective when we file articles of
merger with the states of Missouri and Nevada. We are working toward completing
the merger as quickly as possible.
5
Conditions to completion of the merger (see page ___)
The conditions that must be satisfied or waived before the completion of
the merger include the following:
o the merger agreement must be adopted by Peppermill shareholders
o the registration statement must be effective under the securities laws
Interests of certain persons in the merger (see page __)
As of the record date, Varner beneficially owned approximately 90% of the
outstanding common shares of Peppermill entitled to vote. Mr. Varner, the
president and a director of Peppermill, is also the president and a director of
Varner. All of the directors of Peppermill are also directors of Varner.
Directors and executive officers of Varner own a majority of Varner's common
stock.
U.S. federal income tax consequence of the merger (see page __)
We have structured the merger so that, in general, Management of Peppermill
and Varner believe that Peppermill, Varner and their respective shareholders
will not recognize gain or loss for United States federal income tax purposes in
the merger.
Restrictions on the ability to sell Peppermill stock (see page __)
Shares of Peppermill common stock retained by current Peppermill
shareholders will be freely tradable. Any shares of Peppermill common stock
received in connection with the merger will be freely transferable unless the
holder is considered an "affiliate" of either Varner or Peppermill under the
Securities Act of 1933. Shares of Peppermill common stock held by affiliates may
only be sold through a registration statement or exemption under the Securities
Act.
There will be no market for the Peppermill preferred stock and the stock
will not be able to be sold for a period of one year from the date of the
merger. For a period of thirty days after the merger is effective, holders of
Peppermill preferred stock will be able to convert their shares into shares of
common stock of Peppermill on a one for one basis. After such period, shares of
Peppermill preferred stock will not be able to convert to shares of Peppermill
common stock and will not be able to be sold for a period of one year. By
converting to common stock, holders of preferred stock will receive shares that
are listed on the OTC Bulletin Board, but will lose the preferences granted to
the preferred stock, including certain preemptive rights to participate in a
future public offering of Peppermill's common stock. See "Comparison of Rights
of Holders of Varner Capital Stock and Peppermill Capital Stock."
6
UNAUDITED COMPARATIVE PER SHARE INFORMATION
As of and for the year ended As of and for the year ended As of and for the three
December 31, 1999 December 31, 2000 months ended March 31, 2001
----------------------------- ----------------------------- ----------------------------
PEPPERMILL VARNER(1) PEPPERMILL VARNER(1) PEPPERMILL VARNER(1)
Book value per share - net (unaudited) $ 0 $ (.034) $ 0 $ (.041) $ -- $ (.025)
cash dividends per share (unaudited) $ 0 $ 0 $ 0 $ 0 $ -- $ --
Loss per share $ 0 $ (.084) $ 0 $ (.144) $ -- $ (.024)
(1) Computation calculated using the weighted average common shares outstanding
for the period presented.
COMPARATIVE MARKET PRICE INFORMATION
Peppermill common stock is traded on the OTC Bulletin Board under the
symbol "PEPM." Peppermill common stock commenced trading on November 25, 1999,
after the purchase by Varner of 90% of Peppermill common stock and the signing
of a letter of intent regarding the merger. Varner common stock is not traded
publicly.
The following table sets forth historical trading information for
Peppermill common stock on the first trading day of each month since trading
commenced including the price of Peppermill common stock the last full trading
day prior to the printing of this proxy statement-prospectus.
Peppermill
common stock
Date closing price
- --------------------------------------------------------------------------------
December 1, 1999 ........................................... $9.00
January 3, 2000 ........................................... $7.25
February 1, 2000 ........................................... $6.50
March 1, 2000 ........................................... $6.25
April 3, 2000 ........................................... $5.00
May 1, 2000 ........................................... $3.69
June 1, 2000 ........................................... $3.38
July 1, 2000 ........................................... $1.625
August 1, 2000 ........................................... $1.6875
September 1, 2000 ........................................... $2.00
October 1, 2000 ........................................... $1.625
November 1, 2000 ........................................... $1.625
December 1, 2000 ........................................... $ .5625
January 1, 2001 ........................................... $ .625
February 1, 2001 ........................................... $ .5312
March 1, 2001 ........................................... $ .3125
April 1, 2001 ........................................... $ .25
May 1, 2001 ........................................... $ .32
June 1, 2001 ........................................... $ .67
7
RISK FACTORS
An investment in Peppermill common stock involves a high degree of risk. In
addition to other information contained in or incorporated by reference into
this proxy statement-prospectus, you should carefully consider the following
risk factors in deciding whether to provide your written consent for the merger.
Risk factors relating to the merger between Peppermill and Varner
The value of the shares of Peppermill common stock received in the merger
may fluctuate greatly and if it fluctuates downward would result in the
value of the stock you receive in the merger decreasing sharply.
Due to the limited public market for Peppermill common stock and due to the
limited shares available for trading, the market price of the Peppermill common
stock can be expected to fluctuate greatly and may be low. Due to the
announcement of the merger, the value of the Peppermill common stock will be
influenced to a great extent by Varner's operations. The specific dollar value
of Peppermill common stock to be received by Varner shareholders upon completion
of the merger will depend on the market value of Peppermill common stock at the
time of completion of the merger.
The merger may not result in Varner being able to enter into mergers and
acquisitions or achieve other benefits as hoped which will negatively
affect the value and liquidity of the stock you receive in the merger.
Varner has entered into the merger agreement expecting that the merger will
result in benefits, including allowing Varner to enter into mergers and
acquisitions utilizing its publicly traded securities as consideration, making
investment capital more readily available to Varner and providing its
shareholders with liquidity for their shares. Achieving the benefits of the
merger will depend in part on a public trading market developing for shares.
While Peppermill shares are listed on the OTC Bulletin Board, they have been
trading for a very short period of time and there is no assurance that a market
for these shares will continue or that the shares will trade at a price or at a
volume that will provide the benefits listed above.
Risk factors relating to Varner's business
Varner is not profitable and does not expect to be profitable in the near
future.
Varner has incurred net losses since its inception, and has an accumulated
deficit of approximately $9,277,000 as of March 31, 2001 representing, in large
part, the sum of our historical net losses. We have not achieved profitability
in any quarterly or annual period, and we expect to continue to incur net losses
for the foreseeable future.
8
Varner's liquidity and capital resources are limited and if we are unable
to raise more money in the future we will have to limit or discontinue our
operations.
Varner will require significant capital resources to develop and expand our
existing businesses, acquire or develop additional internet and
telecommunications-related businesses, and fund near term operating losses. Thus
far, we have paid for our near term capital expenses, operating losses and
working capital requirements from sales of our capital stock in private
placements. Longer term, it is likely that we will need to raise additional
money to fully implement our goals.
We will need to seek additional capital from public or private equity or
debt sources to fund our growth and operating plans. We cannot be certain that
we will be able to raise additional capital in the future on terms acceptable to
us or at all. If alternative sources of financing are insufficient or
unavailable, we will be required to modify our growth and operating plans in
accordance with the extent of available financing or discontinue operations.
Varner's limited operating history makes it difficult to predict whether we
will be successful in the telecommunications and internet market.
Varner was incorporated on November 17, 1994, and began offering services
to the public in March of 1997. Varner will encounter challenges in the new and
rapidly evolving telecommunications and internet market, especially given our
limited operating history. These risks include our inability to:
o expand our subscriber base and increase subscriber revenues;
o compete favorably in a highly competitive market;
o access sufficient capital to support our growth;
o recruit and retain qualified employees and independent
representatives; and
o introduce new products and services.
We cannot be certain that we will successfully address any of these risks.
Varner's proposed acquisitions of other companies or assets may result in
losses.
As a key component of our growth strategy, we intend to acquire companies
and assets that we feel will enhance our revenue growth, operations and
profitability. Acquisitions may result in the use of significant amounts of
cash, potentially dilutive issuances of equity securities and expenses, each of
which could materially and adversely affect our business. These acquisitions
involve numerous risks, including:
o the difficulties in the integration and assimilation of the
operations, technologies, products and personnel of the acquired
business;
o the diversion of management's attention from other business
concerns;
9
o the availability of favorable financing for future acquisitions;
and
o the potential loss of key employees of any acquired business.
We will need to be able to successfully integrate our acquired businesses.
The failure to do so could have a material adverse effect on our business,
results of operations and financial condition.
Varner resells telecommunication services provided by third parties and the
availability and/or costs of these services will affect our sales and
profits and may affect the value of the stock you receive in the merger.
Varner does not own any part of a local exchange network or a long distance
network. As a result, for our long distance and prepaid phone card business, we
depend entirely on third parties for resale of their services. The termination,
disruption or rate changes for these services would have a material adverse
effect on our resales of these services.
Varner contracts with third parties to provide the internet services it
sells and the availability and cost of these services will affect our sales
and profits and may affect the value of the stock you receive in the
merger.
Varner does not own all of our internet service networks. As a result, we
must contract for these services with third parties. The interruption or
termination of these services would have a material adverse effect on our
business. Network capacity constraints may occur in the future, both at the
level of particular dial-up points of presence or POPs which affect only members
attempting to use that particular POP, and in connection with system-wide
services, such as e-mail, which can affect all members. These capacity
constraints would result in slowdowns, delays or inaccessibility when members
try to use particular services. Poor network performance could cause members to
terminate their membership with us.
A disruption in the telecommunication services that carry our internet
services will affect our sales and profits and may affect the value of the
stock you receive in the merger.
We rely on telecommunications carriers to transmit our internet traffic
over local and long distance networks. These networks may experience disruptions
that are not easily remedied. In addition, we depend on certain suppliers of
hardware and software. If our suppliers fail to provide us with network
services, equipment or software at the quantities, at the quality levels or
times we require, or if we cannot develop alternative sources of supply, it will
be difficult, if not impossible, for us to provide our services.
Varner does not currently have sufficient management to meet our proposed
business plans and our inability to obtain management personnel will
negatively affect our operation and the value of the stock you receive in
the merger.
While the current management of Varner has experience in network marketing,
software and systems development, retailing, internet operations and operating
companies, the combined management experience of the principals will not meet
all of the requirements or the demands of the day to day operations of a
developing internet provider and telecommunications company. It will be
necessary to retain the services of consultants and additional management level
staff. Competition for experienced persons in these fields is intense and our
inability to find additional management personnel will limit our growth.
10
Varner's inability to retain internet customers will negatively affect our
profitability.
Our new member acquisition costs are substantial relative to the monthly
fees we charge. Our long-term success depends on our retention of existing
members. It is relatively easy for internet users to switch to competing
providers. Any significant loss of members will substantially decrease our
revenue and cause our business to suffer.
Varner's inability to recruit independent sales representatives may result
in discontinuance of our network marketing program to recruit subscribers
which would negatively affect our sales and profits and the value of the
stock you receive in the merger.
We employ a network marketing program that entails the use of independent
representatives to sell our internet access and telecommunications services and
to recruit other independent representatives to sell these services. The success
of our network marketing program will depend on our ability to attract, retain
and motivate a large base of independent representatives, who, in turn, are
expected to recruit both subscribers for our services as well as other
independent sales representatives. Our ability to attract and retain independent
representatives could be negatively affected by:
o adverse publicity relating to our services or operations,
including our network marketing program;
o our program structure, which may include modifications in
commission rates and training fees;
o the quality and range of our product offerings;
o the level of support services we provide to our independent
representatives; and
o the availability of competing network marketing opportunities.
Governmental agencies that regulate multilevel marketing companies may
impose restrictions on our business that can adversely affect our ability
to sell our products which would negatively affect our sales and profits
and the value of the stock you receive in the merger.
Varner's network marketing program is affected by extensive government
regulation, such as federal and state regulation of the offer and sale of
business franchises, business opportunities and securities. We also may fail to
comply with existing statutes or regulations as a result of misconduct by our
independent representatives, the ambiguous nature of some of the regulations and
the considerable interpretive and enforcement discretion given to regulators.
The Federal Trade Commission and the Attorneys General of several states have
been very active against companies they believe have violated existing law, and
have imposed fines and burdensome reporting and operating requirements, which in
some cases has resulted in the termination of such businesses. Any assertion or
determination that our company or our independent representatives are not in
compliance with existing statutes or regulations could have a material adverse
effect on our business and operations.
11
Risk factors relating to the Peppermill stock
Peppermill stock may be difficult to resell due to the limited market for
the stock.
Prior to the acquisition by Varner of Peppermill common stock, you could
not buy or sell Peppermill common stock publicly. An active public market for
Peppermill common stock may not develop or be sustained due to a limited number
of purchasers and sellers for the stock.
FORWARD-LOOKING STATEMENTS
Included in this prospectus are various forward-looking statements within
the provisions of the Private Securities Litigation Return Act of 1995, which
can be identified by the use of forward looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "believe" or other
similar words. We have made forward-looking statements with respect to the
following, among others:
o our goals and strategies;
o the importance and expected growth of internet technology;
o the pace of change in internet and telecommunications
marketplace;
o the demand for internet and telecommunications services; and
o our product offerings.
These statements are forward-looking and reflect our current expectations.
They can be affected by a number of risks and uncertainties, including but not
limited to, changes in technology and changes in the internet and
telecommunications marketplace. Due to the many risks and uncertainties
surrounding the internet and telecommunications marketplace, shareholders should
keep in mind that we cannot guarantee that the forward-looking statements
described in this prospectus will occur.
THE MERGER
This section of the proxy statement-prospectus describes material aspects
of the proposed merger, including the stock purchase agreement and the merger
agreement. You should read this entire document and the other documents we refer
to carefully for a more complete understanding of the merger.
Background of the merger
In October of 1999, Mr. Clayton Varner, president of Varner, met with Doug
Aguililla of Emerson Bennett & Associates, L.L.C., a consultant engaged to
assist Varner in seeking financing and obtaining a public market for its capital
stock. The costs of an underwriting of Varner's common stock seemed prohibitive
and Mr. Aguililla suggested merger or acquisition for Varner to accomplish
Varner's goals.
Brent Martin, of Emerson Bennett & Associates, L.L.C., indicated to Doug
Aguililla and Clay Varner that he had been approached in September of 1999, by a
large shareholder in Peppermill Capital Corporation by the name of Brent
Vickers. Mr Martin had been assisting Peppermill Capital Corporation in
attaining a public listing of its Common Stock on the OTC Bulletin Board since
October of 1998. Mr. Vickers had been in constant contact with Michael
Mitsiadis, the president and a director of Peppermill, Richard Haderer, a
director of Peppermill and Raymon Paquette, the secretary, treasurer and a
director of Peppermill since late 1998, regarding the Company's operations and
prospects. For reasons expanded upon below, in September of 1999, these
individuals contacted Mr. Vickers to approach Mr. Martin about merger or
acquisition opportunities. Peppermill had conducted a limited amount of business
at and surrounding the Northeast portion of Canada, where several of its
principals and prior employees currently reside. Brent Vickers indicated that
Peppermill was looking to acquire a percentage of a private company to
complement or replace their operations. During late October and early November
of 1999, Mr. Varner had several meetings with Brent Vickers to discuss an
acquisition or merger between Peppermill and Varner.
At the time of the filing of Peppermill's Form 10-SB registration
statement, neither Mr. Vickers nor any of Peppermill's officers or directors
were anticipating any such merger. In September, 1999, it became evident to
Peppermill's management that active engagement in any mineral exploration would
not be feasible due to a lack of financial support. Specifically, the market
price for gold, the principal ore to be explored in the mineral claims, had
experienced a downward turn, and Peppermill was unable to convince additional
investors to contribute the sums necessary to conduct viable mining
explorations. It was around this time that Peppermill was presented with the
possibility of a merger with Varner Technologies, Inc. in order to increase the
value of Peppermill's capital stock.
The material terms of the purchase of Peppermill stock by Varner
Technologies, Inc. were negotiated on behalf of Peppermill's shareholders by Mr.
Vickers and on behalf of Varner by Clayton Varner. Mr. Aguililla of Emerson
Bennett & Associates was also present during these negotiations. Mr. Varner
based his valuation of Peppermill on its status as a public company, and the
costs of alternative methods of creating a public market for Varner
Technologies, Inc.'s capital stock. In this regard, Mr. Varner determined that
it would be more cost-effective to merge with Peppermill than to engage in any
other method of creating a public market for Varner Technologies, Inc.'s capital
stock. Mr. Vickers based his valuation of Peppermill on the fact that Peppermill
was a public company, the public market price for Peppermill's common stock, and
the fact that Peppermill would not be engaging in any mineral exploration or
mining activities in the foreseeable future.
12
On November 19, 1999, Varner entered into an agreement with Peppermill to
purchase 10,116,000 shares (or approximately 90% of Peppermill common stock) for
$300,000 from certain shareholders of Peppermill, and said purchase was
completed on November 22, 1999. The following is a list of the persons
transferring shares of Peppermill common stock to Varner and their relationship
to Peppermill (none of the individuals had a relationship with Varner):
Name Number of Shares Relationship Consideration
- --------------------- --------------------- --------------------- ---------------------
BC, Limited(1) 500,000 N/A $14,828
BC, Limited(1) 500,000 N/A $14,828
Archer Investment Inc. 500,000 N/A $14,828
Brookside Estates SA 490,000 N/A $14,531
L. Gordon 500,000 N/A $14,828
Bruce Kennedy 10,000 N/A $ 297
Rene Payne 16,000 N/A $ 474
Chris Acheson 500,000 N/A $14,828
A. Beitel 500,000 N/A $14,828
Nancy Mitsiadis 500,000 N/A $14,828
John Purdon 500,000 N/A $14,828
Lorie Holt 500,000 N/A $14,828
Genie Kouris 500,000 N/A $14,828
Michael Mitsiadis 1,000,000 former president $29,656
Rayman Paquette 2,000,000 former director $59,312
Richard Haderer 1,000,000 former director $29,656
Keith Decoursey 500,000 N/A $14,828
Dawn Vickers 100,000 affiliated with former $ 2,966
president (brother of Brent
Vickers)
- --------------------------
(1) BC, Limited is a British Columbia, Canada corporation. Mr. John Purden
is the owner of BC, Limited.
Emerson Bennett & Associates was paid $25,000 by Varner Technologies, Inc.
in connection with its services. Emerson Bennett & Associates was not paid any
cash or non-cash consideration by Peppermill in connection with its services.
Emerson Bennett & Associates may have had a conflict of interest in providing
services to both Varner Technologies, Inc. and Peppermill. In addition, Mr.
Vickers was issued options to purchase 416,667 shares of Varner's common stock
at a price of $.01 per share.
On November 19, 1999, Clayton Varner was appointed as president and
director of Peppermill.
On November 19, 1999, Varner entered into a letter of intent relating to
the merger of Varner into Peppermill. On November 24, 1999, Peppermill publicly
announced the stock purchase agreement and the signing of the letter of intent.
Between November, 1999 and June, 2000, Varner began preparing for the
merger which consisted primarily of completing audited financial statements
suitable for filing in this disclosure document and obtaining a fairness opinion
regarding the terms of the merger to both Varner and Peppermill shareholders.
Clayton Varner, after the purchase of the Peppermill shares, was the president
of both Varner and Peppermill and effectively negotiated the merger terms. There
was a potential conflict of interest between Mr. Varner's duties to Varner
shareholders and his duties to Peppermill shareholders. The terms of the merger
were structured to roughly maintain the 90/10 ownership of Peppermill before the
merger as well as after. A fairness opinion was also obtained to support the
structure.
On June 2, 2000, Varner held a board of directors meeting where senior
management of Varner discussed the proposed merger and the proposed principal
terms and conditions of the transaction. After extensive discussion regarding
the merger proposal, the Varner board of directors unanimously determined that
the merger, upon the terms contained in the merger agreement, is fair to and in
the best interests of Varner's shareholders and adopted the merger agreement.
On June 2, 2000, Peppermill held a board of directors meeting to discuss
the proposed merger and the proposed principal terms of and conditions of the
transactions. After extensive discussion regarding the merger proposal, the
Peppermill board of directors unanimously determined that the merger, upon the
terms contained in the merger agreement, is fair to and in the best interests of
Peppermill shareholders, adopted the merger agreement and recommended that its
shareholders vote in favor of the merger.
On June 2, 2000, the parties negotiated the final changes in the definitive
merger agreement, and the merger agreement and the related documents were
executed.
On July 17, 2000, David Vickers, the son of Brent Vickers, was issued
416,667 shares of Varner non-voting common stock, at a price of $.01 per share.
These shares will translate into 1,250,000 shares of Peppermill common stock if
the merger is completed.
Peppermill's reasons for the merger
Peppermill has generated no revenues. The board of directors has determined
that following the merger the shareholders of Peppermill will be the owners of
an operating company, and that they will have the potential to realize
appreciation in their share holdings. Peppermill engaged Evans & Evans, Inc. to
prepare a valuation report and related fairness opinion with respect to the
terms of the proposed merger transaction with Varner. Evans &
13
Evans was founded in 1989 and has been extensively involved in the financial
service and management consulting fields. Evans & Evans has offices in
Vancouver, British Columbia; Calgary, Alberta; Toronto, Ontario; Kanata,
Ontario; Halifax, Nova Scotia and Portland, Oregon. Evans & Evans was selected
due to certain consulting work they had performed for Varner in evaluating
potential acquisition targets. There is no relationship between Evans & Evans
and Varner or Peppermill or their respective principals, nor is any relationship
anticipated.
Evans & Evans was asked to evaluate the fairness of the merger transaction,
the terms of which were negotiated by Peppermill and Varner. The report found
the terms of the proposed merger fair, from a financial point of view, to the
shareholders of Peppermill. In assessing the fairness of the merger transaction,
the report compared the fair market value of the outstanding shares of
Peppermill as of October 31, 1999, to the fair market value of Peppermill common
shareholders' interest in Peppermill after the merger. Evans & Evans found the
value of the shares of Peppermill after the proposed merger to be higher than
the shares of Peppermill prior to the merger. The report also identified, but
did not attempt to quantify, certain other benefits to Peppermill's
shareholders. These additional benefits of merger included participation in an
operating company, access to new business opportunities and the ability of
Varner to bring business development to Peppermill.
In determining the fair market value of Varner's shares, the primary
valuation approach was to determine the enterprise value of Varner based upon
the number of subscribers Varner had for its internet and e-mail services. Evans
& Evans used a rule of thumb approach, involving the number of subscribers
multiplied by the industry standard revenue dollar value per subscriber as
determined by Evans & Evans in an interview process of individuals within the
industry. As a back-up approach, Evans & Evans compared Varner with other
companies in the internet service provider industry whose shares trade on North
American stock exchanges. The value of Peppermill's common stock was valued on
its book value per share, adjusted for the fact that Peppermill is a public
company.
Recommendation of Peppermill's board of directors
After careful consideration, the Peppermill board of directors unanimously
determined the merger to be fair to Peppermill shareholders and in their best
interests and declared the merger advisable. Peppermill's board of directors
approved the merger agreement and unanimously recommends adoption of the merger
agreement.
Varner's reasons for the merger
Varner's board of directors believes that the merger will be beneficial to
Varner and its shareholders for the following reasons:
o The merger will result in Varner being a publicly traded company,
which may make public financing more readily available.
o The public trading market for the Peppermill shares may allow
Varner to negotiate mergers and/or acquisitions using its capital
stock as consideration.
o The merger may provide liquidity for holders of Varner shares,
which will be listed and traded.
14
o Varner's board of directors determined that the merger was fair,
from a financial point of view, to the Varner shareholders.
o Varner's board weighed Varner's strategic alternatives to the
merger, including remaining a non-public company and determined
the merger was the best alternative.
In the course of its deliberations, the Varner board reviewed with Varner
management a number of additional factors relevant to the merger, including:
o Varner's business, financial condition, results of operations and
prospects;
o the impact of the merger on Varner's customers and independent
representatives; and
o Varner's evaluation of other, potential strategic relationships.
Varner's board of directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
o the risk that the potential benefits sought in the merger might
not be fully realized, including, the possibility that
Peppermill's stock might not attain or maintain a public trading
market;
o the costs involved in the merger; and
o the other risks described under Risk Factors on page ____ of this
proxy statement-prospectus.
Varner's board of directors believed that these risks were outweighed by
the potential benefits of the merger.
The foregoing discussion is not exhaustive of all factors considered by
Varner's board of directors. Each member of Varner's board may have considered
different factors. Varner's board evaluated these factors as a whole and did not
qualify or otherwise assign relative weights to factors considered.
Completion and effectiveness of the merger
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including adoption of the merger agreement
by the shareholders of Peppermill. The merger will become effective upon filing
the articles of merger in Nevada and Missouri.
We are working towards completing the merger as quickly as possible.
15
Structure of the merger and conversion of Varner capital stock.
In accordance with the merger agreement and Missouri and Nevada law, Varner
will be merged into Peppermill. As a result of the merger, the separate
corporate existence of Varner will cease and Peppermill will survive the merger.
Upon completion of the merger, the name of Peppermill will be changed to Varner
Technologies, Inc.
Upon completion of the merger, each outstanding share of Varner voting
common stock and Varner non-voting common stock will be converted into three
shares of Peppermill common stock. Each share of Varner preferred stock will be
converted into five shares of newly created Peppermill preferred stock. The
holders of Varner preferred stock will own 100% of Peppermill preferred stock
after the merger.
Peppermill shareholders will also be asked to consent to an amendment to
Peppermill's articles of incorporation. The amendment will increase the
authorized shares of Peppermill common stock to 600,000,000, authorize the
issuance of 100,000,000 shares of preferred stock and change the name of
Peppermill to Varner Technologies, Inc. A form of certificate of amendment to
the articles of incorporation of Peppermill is attached to this proxy
statement-prospectus as Appendix B.
Exchange of Peppermill stock certificates ]PEPPERMILL DOCUMENT ONLY]
As a Peppermill shareholder there is no need to exchange your stock
certificates for new certificates, even after the merger and change in
Peppermill's name.
Your stock certificate will continue to represent the same number of shares
of Peppermill common stock. After the merger you will receive a certificate
representing the stock dividend of four additional shares of Peppermill common
stock for every share you own. If you prefer, after the merger you can send your
old stock certificate to the transfer agent, with any required documentation,
and receive a new stock certificate containing the new name of the company for a
fee of $15.00 per transaction. If you have a brokerage account and would like
your certificates transferred to your account electronically, please contact
Peppermill's transfer agent at:
Florida Atlantic Stock Transfer, Inc.
7130 Nob Hill Road
Tamarac, Florida 33321
(954) 726-4954
(954) 726-6305 (Facsimile)
Exchange of Varner stock certificates [VARNER DOCUMENT ONLY]
You do not have to exchange Varner stock certificates for Peppermill stock
certificates [Varner document only]
When the merger is completed, each certificate representing shares of
Varner voting common stock or non-voting common stock will represent an equal
number of shares of Peppermill common stock. Each certificate representing
shares of Varner preferred stock will represent an equal number of shares of
Peppermill preferred stock. There is no need to exchange your current Varner
certificates, and they will be treated as certificates for shares of Peppermill.
You will be issued additional certificates representing the balance of
Peppermill common stock
16
and Peppermill preferred stock that you own after the merger. If you prefer,
after the merger is complete, you can send your old Varner stock certificates to
the transfer agent, with any required documentation, and receive new
certificates, for a fee of $15.00 per transaction. If you have a brokerage
account and would like your certificates transferred to your account
electronically, please contact Peppermill's transfer agent at:
Florida Atlantic Stock Transfer, Inc.
7130 Nob Hill Road
Tamarac, Florida 33321
(954) 726-4954
(954) 726-6305 (Facsimile)
Material United States federal income tax consequences of the merger
The following are material United States federal income tax consequences of
the merger. The following discussion is based on the internal revenue code of
1986, and related regulations, existing administrative interpretations and court
decisions and any related laws, all of which could change, possibly with
retroactive effect. This discussion does not address all aspects of United
States federal income taxation that may be important to you in light of your
particular circumstances or special rules that may apply to you, such as rules
relating to:
o shareholders who are not citizens or residents of the United
States;
o financial institutions;
o tax exempt organizations;
o insurance companies;
o dealers in securities; or
o shareholders who acquired their shares of Varner or Peppermill
common stock through exercise of options or similar derivative
securities or otherwise as compensation
This discussion assumes you hold your shares of Varner or Peppermill
capital stock as capital assets within the meaning of Section 1221 of the
internal revenue code.
Both Peppermill and Varner have discussed the tax consequences of the
merger with their respective legal advisors. An opinion of Varner's and
Peppermill's counsel has been obtained regarding material United States federal
income tax consequences of the merger.
Specifically, Varner's and Peppermill's counsel has provided a written
opinion that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1)(A) of the internal
revenue code, and that Varner and Peppermill will each be a party to that
reorganization within the meaning of Section 368(b) of the internal revenue
code. Varner's and Peppermill's counsel has also provided its written opinion
that the information contained in this section entitled "Material United States
Federal Income Tax Consequences of the Merger" is correct in all material
respects to the extent that it constitutes matters of law or legal conclusions.
17
Tax implications to Peppermill shareholders [Peppermill document only]
Tax counsel for Peppermill has provided its written opinion that current
shareholders of Peppermill will not recognize gain or loss for United States
federal income tax purposes as a result of the merger.
Tax implications to Varner shareholders [Varner document only]
Tax counsel for Varner has provided its written opinion that Varner
shareholders will not recognize gain or loss for United States federal income
tax purposes when they exchange Varner voting common stock or non-voting common
stock solely for Peppermill common stock or they exchange their Varner preferred
stock solely for Peppermill preferred stock through the merger. The aggregate
tax basis of the Peppermill stock they receive as a result of the merger will be
the same as the aggregate tax basis in the Varner stock they surrender in the
exchange. The holding period of the Peppermill stock received as a result of the
exchange will include the period during which the Varner stock exchanged in the
merger was held.
Tax implications to Peppermill and Varner
Varner's and Peppermill's counsel has provided its written opinion that
since Varner will no longer exist as a result of its merger into and becoming
one with Peppermill, neither shareholders of Peppermill nor Varner will
recognize gain or loss for United States federal income tax purposes.
This foregoing discussion is not intended to be a complete analysis or
description of all potential United States federal income tax consequences or
any other consequences of the merger. In addition, this discussion does not
address tax consequences which may vary with, or are contingent on, your
individual circumstances. Moreover, this discussion does not address any
non-income tax or any foreign, state or local tax consequences of the merger.
Accordingly, you are strongly urged to consult with your tax advisor to
determine the particular United States federal, state, local or foreign income
or other tax consequences to you of the merger.
Regulatory filings and approvals required to complete the merger
Neither Peppermill nor Varner is aware of any material governmental or
regulatory approval required for completion of the merger, other than compliance
with applicable corporate laws of Missouri and Nevada.
Restrictions on sales of shares by affiliates of Peppermill and Varner
The shares of Peppermill common stock to be issued in connection with the
merger will be registered under the Securities Act of 1933, and will be freely
transferable under the Securities Act, except for shares of Peppermill common
stock issued to any person who is deemed to be an affiliate of either Varner or
Peppermill. Persons deemed to be affiliates include individuals or entities that
control, are controlled by, are under common control with Peppermill or Varner,
which may include some of our officers and directors, as well as our principal
shareholders. Affiliates may not sell their shares of Peppermill common stock
acquired in connection with the merger except through:
o an effective registration statement under the Securities Act
covering the resale of those shares;
18
o an exemption under Rule 144 of the Securities Act; or
o any other applicable exemption under the Securities Act.
Peppermill's registration statement on Form S-4, of which this proxy
statement-prospectus forms a part, does not cover the resale of shares of
Peppermill preferred stock or shares of Peppermill common stock to be received
by affiliates in the merger.
Conditions to completion of the merger
Varner and Peppermill's obligations to complete the merger and the other
transactions contemplated by the merger agreement are dependent on the
satisfaction or waiver of each of the following conditions before completion of
the merger:
o Peppermill's registration statement on Form S-4 must be
effective;
o the merger agreement must be adopted by the holders of a majority
of the outstanding shares of Peppermill common stock;
o no action, suit or proceeding shall be threatened or pending
which has the effect of prohibiting completion of the merger
substantially on the terms contemplated by the merger agreement;
o the Peppermill shares will be listed on the OTC Bulletin Board;
o all applicable approvals and consents required to complete the
merger must be received, the failure of which would have a
material adverse effect on Peppermill or Varner or would result
in a violation of any laws; and
o Varner's and Peppermill's representations and warranties must be
true and correct as of the date the merger is to be completed,
and must conform or comply in all material respects with all of
their obligations required by the merger agreement.
Termination of the merger agreement
The merger agreement may be terminated at any time prior to completion of
the merger, whether before or after adoption of the merger agreement by
Peppermill shareholders:
o by mutual consent of Peppermill and Varner;
o by Varner, upon a material breach of any covenant or agreement on
the part of Peppermill which is set forth in the merger
agreement, or if any of Peppermill's representations or
warranties are or become untrue or inaccurate so that the
corresponding condition to completion of the merger would not be
met; or
o by Peppermill, upon a material breach of any covenant or
agreement on the part of Varner which is set forth in the merger
agreement, or if any of
19
Varner's representations or warranties are or become untrue or
inaccurate so that the corresponding condition to completion of
the merger would not be met.
Extension, waiver and amendment of the merger agreement
Peppermill and Varner may amend the merger agreement at any time before or
after Peppermill shareholders' approval of the merger, provided that the
amendment does not require further shareholder approval.
Operations after the merger
Following the merger, Varner will continue its operations as a Nevada
corporation. The board of directors of Peppermill which is currently in office
will remain in office after the merger. The shareholders of Varner will become
shareholders of Peppermill and their rights as shareholders will be governed by
Peppermill's articles of incorporation, as currently in effect, Peppermill's
bylaws and the laws of Nevada. See "Comparison of Rights of Holders of Varner
Capital Stock and Peppermill Capital Stock" on page ____.
DISSENTER'S AND APPRAISAL RIGHTS
[PEPPERMILL DOCUMENT ONLY]
Under Nevada law, if you are a Peppermill shareholder and you comply with
certain requirements of Nevada law, you are entitled to dissenter's rights in
the merger. However, it is a condition of Varner and Peppermill's obligations to
consummate the merger that shareholders holding no more than 1% of Peppermill's
common stock exercise dissenters' rights.
You have the right to dissent to the approval of the merger under Section
92A.380 of the Nevada Act and the right to be paid the "fair value" of your
shares in cash by complying with the procedures set forth in Sections 92A.420
and 92A.440 of Nevada law. To qualify, you must dissent with respect to all of
the shares beneficially owned by you. You may assert dissenter's rights as to
fewer than all the shares recorded in your name only if you dissent with respect
to all shares beneficially owned by any one person and notify Peppermill in
writing of the name and address of each person on whose behalf you assert
dissenter's rights. If you partially dissent, your rights are determined as if
the shares as to which dissent is made and the remaining shares were recorded in
the name of different shareholders. If you are the beneficial owner of shares,
you may dissent only if the record owner consents in writing and you give that
consent to Peppermill. Set forth below is a summary of the procedures relating
to the exercise of dissenter's rights. This summary does not purport to be a
complete statement of the provisions of Sections 92A.380, 92A.420 and 92A.440 of
Nevada law and is qualified in its entirety by reference.
To assert dissenter's rights, you must:
1. deliver to Peppermill, before __________, written notice of your
intent to demand payment for your shares if the merger is completed;
and
2. not vote your shares in favor of the merger.
20
If the proposed merger creating dissenters' rights is authorized,
Peppermill shall deliver a written dissenter's notice to all shareholders who
satisfied the above requirements 1-2. The dissenter's notice must be sent no
later than 10 days after the completion of the merger, and must:
1. state where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
2. inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand
for payment is received;
3. supply a form for demanding payment that includes the date of the
first announcement to the news media or to the shareholders of the
terms of the proposed action and requires that the person asserting
dissenter's rights certify whether or not he acquired beneficial
ownership of the shares before that date;
4. set a date by which Peppermill 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
5. be accompanied by a copy of Sections 92A.300 to 92A.500 of Nevada law.
A shareholder to whom a dissenter's notice is sent must:
1. demand payment;
2. 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
3. deposit his certificates, if any, in accordance with the terms of the
notice.
A shareholder who demands payment and deposits his certificates, if any,
before the proposed merger occurs retains all other rights of a shareholder
until those rights are canceled or modified by the taking of the proposed
merger. A shareholder who does not demand payment or deposit his certificates
where required is not entitled to payment for his shares.
Within 30 days after receipt of a demand for payment, Peppermill shall pay
each dissenter who complied with 1-3 above the amount Peppermill estimates to be
the fair value of the shares, plus accrued interest.
If you withdraw the written demand to be paid the fair value of your
shares, or if the merger is abandoned or terminated, or if a court determines
that the holders of Peppermill common stock are not entitled to receive payment
in exchange for shares, or if you otherwise lose your dissenter's rights, then
you will be reinstated to all of your rights as a holder of Peppermill common
stock as of the filing of your written objection.
A dissenter may notify Peppermill 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, or reject Peppermill's offer and demand payment of the fair value
of his shares and interest due, if he
21
believes that the amount paid is less than the fair value of his shares or that
the interest due is incorrectly calculated.
A dissenter waives his right to demand payment unless he notifies
Peppermill of his demand in writing within 30 days after Peppermill made or
offered payment for his shares.
If a demand for payment remains unsettled, Peppermill 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 Peppermill does
not commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
BUSINESS OF PEPPERMILL
Historical overview of Peppermill
Peppermill Capital Corporation, a Nevada corporation, was incorporated on
April 9, 1998. Peppermill has no subsidiaries and no affiliated companies.
Peppermill's executive offices were located at 2500-1177 West Hastings Street,
Vancouver, B.C., Canada, V6E 2K3. After the stock purchase, the offices were
moved to Varner's offices located at 1819 Clarkson Road, Suite 205,
Chesterfield, Missouri 63017.
Peppermill has obtained quotation on the OTC Bulletin Board and its common
stock commenced trading under the symbol PEPM on November 25, 1999.
Peppermill has not been a party to bankruptcy, receivership or any similar
proceedings.
Peppermill was initially engaged in the exploration and development of
mineral properties.
Peppermill has no revenue to date from the development of its mineral
claims or otherwise. It is anticipated that after the merger, management efforts
will be focused primarily on the business of Varner. At least for the immediate
future little or no effort will be made to develop Peppermill's mining business
further.
Employees
As of the date of this proxy statement-prospectus, a minimal amount of
services had been performed by Clayton W. Varner, Peppermill's president.
Peppermill is not a party to any employment contracts or collective bargaining
agreements.
Peppermill's discussion and analysis or plan of operation
General.
Peppermill has not yet received revenues from operations and has no assets.
After the merger it is anticipated that management's primary focus will be on
the business of Varner and that Peppermill's operations will not be developed
further.
22
Plan of operation.
Peppermill has had limited operations and no revenues to date.
Liquidity and capital resources.
Peppermill had no assets and no liabilities as of December 31, 1999, no
assets and liabilities of $38,416 as of December 31, 2000 and no assets and
accrued liabilities of $44,411 as of March 31, 2001.
Peppermill will require significant additional financing in order to
continue. No financing has been arranged. If Peppermill is unable to raise
additional capital, it will not be able to engage in any future operations.
An analysis of the expenses for the year ended December 31, 1999, and
December 31, 2000, are as follows:
For the year ended For the year ended
December 31, 1999 December 31, 2000
----------------- ------------------
Accounting and audit $ 2,798 $28,703
Bank charges 36 --
Consulting fees 13,200 --
Filing fee - EDGAR 1,634 $6,328
Amortization of mining rights 2,129 --
Legal -- $3,385
Office and miscellaneous 267 --
Transfer agent's fees 1,435 --
------- -------
TOTAL EXPENSES $21,499 $38,416
======= =======
An analysis of the above expenses is as follows:
Accounting and audit.
Peppermill has expended funds for accounting and auditing in connection
with a Form 15C-211B submitted to NASD in connection with the listing of its
common stock on the OTC Bulletin Board. Peppermill has also been required to
file quarterly reports on Form 10-QSB.
23
Bank charges.
Represents bank service charges during the period.
Consulting fees.
Consulting fees include payments for preparation of various securities
subscription agreements, offering memoranda, corporate minutes and various other
documents required by Peppermill, and expenses incurred in identifying a market
maker for Peppermill.
Amortization of mining rights.
Peppermill has amortized costs of obtaining mining rights which were
previously capitalized.
Legal.
Legal fees were incurred in connection with the filing of various periodic
reports under the U.S. Securities Exchange Act of 1934.
Office and miscellaneous.
Office and miscellaneous represents charges paid for photocopying, faxing
and delivery.
Transfer agent's fees.
Transfer agent's fees include an annual fee of $1,200, printing of share
certificates and obtaining CUSIP.
Peppermill has no contractual obligations for either leased premises,
employment agreements or work commitments and has made no commitments to acquire
any asset of any nature.
The majority of the general and administrative expenses relate to filing
costs, transfer agent's fees and audit and accounting.
24
Management does not believe Peppermill's operations have been materially
affected by inflation.
Security ownership in Peppermill of certain beneficial ownership and management
The following table sets forth certain information with respect to the
beneficial ownership of each person who is known to be an executive officer,
director or the beneficial owner of more than 5% of Peppermill's common stock as
of the date of this proxy statement-prospectus.
Amount and nature
Name and address of beneficial Percent
of beneficial owner ownership(1)(2) ownership
------------------- ----------------- --------
Varner Technologies, Inc. 10,116,000 90%
1809 Clarkson
Suite 205
Chesterfield, MO 63017
Clayton W. Varner 4,252(3) *
Tjody Varner 0(4) *
Robert W. Rapp 0(5) *
All officers and directors as a group 3 4,252 *
persons
- ----------------------
* Less than 1%.
(1) As of the date of this proxy statement-prospectus, there were 11,239,700
Peppermill common shares outstanding. Unless otherwise noted, the security
ownership disclosed in this table is of record and beneficial.
(2) Under Rule 13-d of the Exchange Act, shares not issued, but under options,
warrants, rights, conversion privileges where such shares may be acquired
in the next 60 days, are deemed to be outstanding for the purpose of
computing the percentage of shares owned by the persons having such rights,
but not for other persons.
(3) Mr. Varner is the beneficial owner of 5,480,000 shares, comprising
approximately 21%, of Varner common stock.
(4) Ms. Varner is the beneficial owner of 3,500,000 shares, comprising
approximately 13% of Varner common stock.
25
(5) Mr. Rapp is the beneficial owner of 3,205,741 shares, comprising
approximately 12% of Varner common stock.
Description of securities
Peppermill's articles of incorporation currently provide that Peppermill is
authorized to issue 200,000,000 shares of common stock, par value $0.001 per
share. As of the date of this proxy statement-prospectus, 11,239,700 shares were
outstanding. Peppermill shareholders will be voting on an amendment to
Peppermill's articles of incorporation that would authorize 600,000,000 shares
of common stock, par value $0.001 per share, and 100,000,000 shares of preferred
stock, par value $0.001 per share. See Appendix B.
Common stock.
Each holder of record of Peppermill's common stock is entitled to one vote
per share in the election of Peppermill's directors and all other matters
submitted to Peppermill's shareholders for a vote. Holders of Peppermill's
common stock are also entitled to share in all dividends when declared by
Peppermill's board of directors, and to share ratably in all assets distributed
to Peppermill's shareholders upon liquidation or dissolution limited in both
cases to any preference that may be applicable to any outstanding preferred
stock. There are no preemptive rights to subscribe to any of Peppermill's
securities, and no conversion rights or sinking fund provisions applicable to
the common stock.
Neither Peppermill's articles of incorporation nor its bylaws provide for
cumulative voting. Accordingly, persons who own or control a majority of the
shares outstanding may elect all of the board of directors. Persons owning less
than a majority could be foreclosed from electing any.
Preferred stock.
Holders of Peppermill preferred stock, when authorized and issued, will
have rights equal, to the extent possible, to those of holders of Varner
preferred stock. See "Comparison of Rights of Holders of Varner Capital Stock
and Peppermill Capital Stock."
Options outstanding.
There are currently no options, warrants or rights to purchase Peppermill's
common stock.
Market information
Peppermill's common stock began trading on the National Association of
Securities Dealers, Inc. OTC Bulletin Board on November 25, 1999.
26
The high and low bid prices for Peppermill's common stock since the start
of trading is as follows:
Period High Low
November 25, 1999 (the inception of
trading) to December 31, 1999 $9.00 $6.875
January 1, 2000 to March 31, 2000 $7.250 $4.875
April 1, 2000 to June 30, 2000 $5.00 $1.50
July 1, 2000 to September 30, 2000 $2.906 $1.375
October 1, 2000 to December 31, 2000 $1.875 $0.3437
January 1, 2001 to March 31, 2001 $0.9375 $0.25
The Securities and Exchange Commission has adopted regulations which define
a penny stock to be equity securities that have a market price of less than
$5.00 per share with certain exemptions. Peppermill's common stock may be deemed
a penny stock and come under rules that impose additional sales practice
requirements on broker/dealers who sell such securities to persons other than
established customers and accredited investors. If the common stock is listed on
The NASDAQ SmallCap Market in the future, the penny stock rules would no longer
apply.
Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell Peppermill's securities, and may adversely affect the
ability of holders of Peppermill's common stock to resell their shares in the
secondary market.
Holders
The number of record holders of Peppermill common stock at June 19,
2001, was 17 of which one was a director.
Dividends
Peppermill has never paid cash dividends on its common stock and does not
intend to do so in the foreseeable future.
Legal proceedings
There are no legal proceedings to which Peppermill is a party or to which
its property is at risk. To the best of management's knowledge there are no
material legal proceedings contemplated.
27
Disagreement with accountants and financial disclosure
From inception to April 7, 2000, Peppermill's principal accountant was
Andersen Andersen & Strong, L.C. of Salt Lake City, Utah. On April 7, 2000,
Peppermill voluntarily changed its independent accountants from Andersen
Andersen & Strong, L.C. to Kaufman, Rossin & Company This change was approved by
Peppermill's board of directors on March 23, 2000. The financial statements for
the years ended December 31, 2000 and December 31, 1999 were audited by Kaufman,
Rossin & Company. The report of Andersen Andersen & Strong, L.C. for the period
from inception to February 28, 1999 contained no adverse opinion or disclaimer
of opinion and was not qualified or modified as to uncertainty, audit scope or
application of accounting principles. The reports of Andersen Andersen & Strong,
L.C. and Kaufman, Rossin & Company contain an explanatory paragraph that states
that due to the need for additional working capital for its planned activities,
there is substantial doubt about its ability to continue as a going concern.
Through the date of replacement, there were no disagreements with Andersen
Andersen & Strong, L.C. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
2001 stock option plan
General
In the opinion of the board of directors, Peppermill and its shareholders
will benefit substantially from having certain officers, key employees,
consultants and advisors acquire shares of Peppermill's common stock through
options granted under Peppermill's 2000 stock option plan. Such options, in the
opinion of the board, will be a highly effective incentive, and will create a
commonality of purpose between Peppermill's officers, key employees,
consultants, advisors and shareholders with respect to Peppermill's strategies
for profitable growth and share-value appreciation. In the opinion of
Peppermill's board, Peppermill's ability to provide these stock options to its
officers and other key employees in the future will benefit Peppermill's
long-term financial performance. In addition, Peppermill's board believes
Peppermill's interests would best be served if options could be granted to
consultants, advisors and other individuals who can contribute to the success of
Peppermill's business.
The plan and participants
On September 14, 2000, Peppermill's board of directors approved for
adoption the 2001 stock option plan. The plan enables Peppermill to grant
incentive stock options, as defined under Section 422 of the internal revenue
code of 1986, as amended, and non-qualified stock options. It authorizes the
grant of options to purchase up to an aggregate of 10,000,000 shares of
Peppermill's common stock to officers and other full-time salaried employees of
Peppermill and its subsidiaries with managerial, professional or supervisory
responsibilities and consultants and advisors who render bona fide services to
Peppermill and its subsidiaries.
28
The purposes of the plan are:
o to enable Peppermill to attract and retain persons of ability as
officers and other key employees with managerial, professional or
supervisory responsibilities;
o to retain able consultants and advisors; and
o to motivate such persons to use their best efforts on behalf of
Peppermill by providing them with an equity participation in
Peppermill.
The full text of the plan is set forth as a exhibit to the registration
statement to which this proxy statement-prospectus forms a part and the
following description of the plan is qualified in its entirety by reference to
the plan.
The plan will be administered by the board or a stock option committee,
which will be appointed by Peppermill's board of directors. The committee must
consist of two or more members of the board of directors, each of whom must be a
"non-employee director" person within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934. Under the terms of the plan, the board or stock
option committee will have the authority to determine, in accordance with the
terms and conditions of the plan, the persons to whom options are granted, the
number of options granted to each optionee and the terms and conditions of each
option, including its duration.
The plan can be amended, suspended, reinstated or terminated by
Peppermill's board of directors. However, without approval of Peppermill's
shareholders, no amendment shall be made which:
o increases the maximum number of shares of Peppermill common stock
which may be acquired through stock options granted under the plan,
except for specified adjustment provisions;
o extends the term of the plan;
o increases the period during which a stock option may be exercised
beyond ten years from the date of the grant;
o materially increases the benefits accruing to optionees under the
plan;
o materially modifies the requirements as to eligibility for
participation in the plan; or
o will cause stock options granted under the plan to fail to meet the
requirements of Rule 16(b)-3.
Unless previously terminated by Peppermill's board of directors, the plan will
terminate ten years after the date upon which it is approved by Peppermill's
shareholders. No additional options may be granted under the plan after that
date.
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Options terms and grants
Non-qualified stock options may be granted to purchase common stock under
the plan at a purchase price to be determined from time to time by Peppermill's
board of directors, in their sole and absolute discretion. Incentive stock
options may be granted to purchase common stock under the plan at not less than
the fair market value of the shares as of the date of grant, or 110% of fair
market value in the case of incentive stock options granted to any officer or
employee holding in excess of 10% of the combined voting power of all classes of
Peppermill's stock as of the date of grant.
No optionee may be granted incentive stock options under the plan to
purchase common stock having a fair market value, determined as of the date of
grant, which exceeds $100,000. This rule applies to incentive stock options
which are exercisable for the first time by such optionee in any calendar year,
under all Peppermill stock option plans as of the date of grant. The maximum
number of shares for which options may be issued to a Peppermill employee during
any calendar year may not exceed 200,000. Other than the limitations set forth
above, there is no limitation on the number of non-qualified stock options which
may be granted to any optionee under the plan.
Incentive stock options may be granted for a term of up to five years in
the case of optionees who own in excess of 10% of the combined voting power of
all classes of Peppermill's stock. In the case of all other optionees, incentive
stock options may be granted for a term of up to ten years. Non-qualified stock
options may be granted for a term of up to ten years.
The plan provides that if a stock option or portion thereof expires or is
terminated, cancelled or surrendered for any reason without being exercised in
full, the unpurchased shares of common stock which were associated with such
stock option or portion thereof shall be available for future grants of stock
options under the plan.
As of the date hereof, no options have been granted under the plan.
Options granted under the plan will not be assignable or transferable
except by will or the laws on interstate succession. Options acquired under the
plan may be exercised by the optionee or the optionee's legal representative
only while the optionee is employed by Peppermill, or within six months after
termination of employment due to a permanent disability, or within three months
after termination of employment due to retirement. The executor or administrator
of a deceased optionee's estate, or the person or persons to whom the deceased
optionee's rights have passed by will or by the laws of descent or distribution,
shall be entitled to exercise the option during the sixth months after the
decedent's death. Options expire immediately in the event an optionee is
terminated with or without cause, or resigns. However, in the event Peppermill
terminates the employment of an optionee who at the time of such termination was
an officer of Peppermill, and had been continuously employed by Peppermill
during the two-year period immediately preceding such termination, for any
reason except "good cause" each stock option held by such optionee shall be
exercisable for a period of three months after such termination if
30
exercisable during that period. This rule for officers applies for stock options
which have not previously lapsed or expired and which had been held by such
officer for more than six months prior to such termination. In any event, an
option shall not be exercisable beyond its stated expiration date.
The purchase price and the number and kind of shares that may be purchased
upon exercise of options granted under the plan, and the number of shares which
may be granted under the plan, will be adjusted upon the occurrence of certain
events, including stock splits, recapitalizations and reorganizations.
Federal tax aspects of the plan
Set forth below is a general summary of the federal income tax consequences
associated with the plan.
A Peppermill employee will not realize income upon the grant of an
incentive stock option or, except as noted below, upon the exercise of such
option. Unless shares of Peppermill common stock acquired upon exercise are
disposed of within two years of the date of grant or within one year of
exercise, upon the sale of such shares, the optionee will generally recognize
capital gain or loss. This gain or loss is measured by the difference between
the amount realized on the sale and the price paid for the shares. If a sale is
made prior to either of such dates, an optionee's gain on the sale of the shares
will be treated as ordinary income to the extent of the lesser of the excess of
the fair market value of the shares at the time of exercise over the option
price and the excess of the amount realized on the sale of stock over the option
price. Peppermill will be allowed a deduction at the time of sale in the amount
of ordinary income recognized by the optionee. The balance of any gain realized
will be treated as long-term or short-term capital gain depending upon the
length of time the shares were held by the optionee.
Generally, the excess of the fair market value of an incentive stock option
at the time of exercise over the option price constitutes an item of tax
preference for purposes of calculating "alternative minimum taxable income" and
may result in imposition of the "alternative minimum tax" for the participant in
accordance with Section 55 of the internal revenue code. In the case of stock
which is restricted within the meaning of internal revenue code section 83, the
time at which fair market value is established is not the day of exercise.
Rather, it is the time when such shares become transferable or are no longer
susceptible to a substantial risk of forfeiture.
Non-qualified options granted under the plan are not intended to qualify
for the favorable federal income tax treatment accorded to incentive stock
options under the plan. An optionee should not recognize any income for federal
income tax purposes at the time of the grant of non-qualified options under the
plan. When non-qualified options are exercised, however, the excess of the fair
market value of the shares of common stock acquired through such exercise,
determined at the time of exercise, over the option price will constitute
ordinary income to the optionee. Peppermill is entitled to a corresponding
income tax deduction equal to the amount of such ordinary income for the taxable
year in which the optionee is required to recognize such income for federal
income tax purposes.
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Vote required for approval of the plan
Peppermill's board of directors has approved the plan. However, the plan
will not be adopted unless the holders of at least a majority of the shares of
common stock vote for approval of the plan.
The board of directors recommends a vote for approval of the plan.
VARNER'S BUSINESS
Overview
Varner Technologies, Inc. a Missouri corporation, was incorporated on
November 17, 1994. Varner's headquarters are located at 1819 Clarkson Road,
Suite 204, Chesterfield, Missouri 63017. Varner's telephone number is (636)
530-4532 and fax number is (636) 530-9049. Varner's internet sites are
www.varner.com the home page and www.npwt.com, which is used by the marketing
and sales division.
From inception through the beginning of 1996, Varner was in a development
stage. During this period Varner developed the necessary infrastructure,
technology and support for products and computer software. The software
development group created proprietary software for managing and tracking sales
through levels of independent distributors. The technology infrastructure for
voice and data products and services was put in place during this period.
Varner then expanded its management team and additional staff was hired and
trained to execute the necessary functions and activities. Once operations were
in place, employees' trained, initial products selected and tested, and the
corporate infrastructure functioning, the sales and marketing plan was
implemented.
In March of 1997, Networking People with Technology, L.L.C. or NPWT, was
established to sell Varner's products and services and test the internal
proprietary software. Network marketing, which utilizes independent
representatives to sell products, was chosen as the method by which sales would
be conducted.
Networking People with Technology, L.L.C.
Varner licenses the rights to market its products, services and computer
software to Networking People with Technologies, L.L.C., which is a wholly owned
subsidiary of Varner. NPWT in turn enters into agreements with independent
representatives who market Varner's products and services. NPWT currently has
approximately 10,000 independent representatives, of which management estimates
20% are active in the marketing of Varner's products and services.
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Substantially, all revenue is generated by and within NPWT and paid out to
Varner as a royalty. The diagram (D1) below outlines the organizational
structure.
-------------------------
Varner Technologies, Inc.
-------------------------
| |
| |
| | --------------------------------------
| | Licenses right to use Varner name and
| ----------- sell Varner products and services in
| | turn for royalty payment
| | --------------------------------------
| |
| |
- --------------------------------------
Networking People with Technology, LLC
- --------------------------------------
|
|
---------------------------
Independent Representatives
---------------------------
|
|
---------
End Users
---------
Varner's current products and services
Internet access
Varner's goal has been to provide reliable, high-speed low-cost access to
the internet across the United States in both rural and metropolitan locations.
Varner is an internet service provider, or ISP, offering a range of internet
access services to individuals and organizations. Varner services approximately
60,000 e-mail accounts, through 7,500 dial up customers. Independent
representatives represent approximately 500 customers, or less than 10% of the
total retail base. The retail program offered provides unlimited internet access
for $9.95 per month, which must be paid for one year in advance with a $30 setup
fee for local access service. The business program provides unlimited internet
access for $380 per month, with a $1,000 set-up fee.
The infrastructure for the ISP dial-up services is supplied through points
of presence or POP sites. Varner provides ISP dial-up internet access through
4,200 POPs nationwide. Varner's network is built on a multi-tier platform. Tier
one access POP sites are installed and are operated by Varner. The tier two
access POPs are supplied through local, regional and national POP site
providers. To provide this nationwide access Varner entered into agreements with
OneMain.Com, Millenium, Starnet, UUNet, MegaPops and several other regional
providers.
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Varner's internet service covers 96% of the United States. The radius, e-mail
and web-hosting servers were established along with the infrastructure to
support the dial up services and Varner's local area network.
Varner's immediate goals for its internet service are:
o to create a nationwide internet network through consolidation of
ISP's;
o to develop nationwide high-speed access; and
o to provide multiple interfaces to allow consumers and business to
access the internet.
Prepaid calling card services
Varner offers a wide variety of prepaid calling cards for both domestic and
international long distance voice transmissions. Prepaid calling cards range in
prices from 5 cents to 8.9 cents per minute for domestic calls. International
calling rates vary by country. The price range of these products is $3.00 to
$100.00 with 65% of the sales being at the $10.00 price level or less.
Competitive international rates are also offered. Cards are marketed as clean
cards with no connection or service charges. Telephone access is supplied
through switchbased LEC providers using long distance carriers such as AT&T,
Qwest, MCI/WorldCom and Global Crossing among others. From inception through
December 2000, approximately 750,000 prepaid calling cards have been retailed.
A new plan is being test marketed which combines prepaid Internet with
prepaid calling cards. It is named the VMSN $6.99 with 6.9 cent long distance.
Once test marketing is completed, the plan will be rolled out nationally through
current channels of distribution.
Computer hardware and third party software
Varner markets computer hardware and software to internet users and
independent representatives. These computer systems come bundled with third
party software and either 1 or 2 years of internet access packages.
Nationwide cellular services on a prepaid basis
Varner markets prepaid cellular phone services. Varner bundles 322 minutes
of usage with a phone and accessories. Activation is available in major cities.
Voice-x-Net
Varner markets an auto-dialer capable of storing 20 phone numbers that
initiates dialing with the push of a button
Proprietary computer software
Varner's proprietary computer software has only been licensed to NPWT or
used for its own internal purposes. This software can be offered on a licensing
basis to other companies in the network marketing industry. Varner is in the
process of developing and acquiring additional technology and computer software.
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Future product and services under consideration
Varner is also developing the following products and services:
o 1+ long distance dialing services;
o Direct satellite link dial up platform;
o Post paid cellular program and other wireless technologies;
o Voice over internet, converting the ISP to an internet local exchange
carrier making it possible to make long distance calls over the
internet with only a connection fee and no cost per minute; and
o A Computer Pal support center to aid the growing number of PC users in
obtaining the advice of hardware, software, and internet technicians
and experts through the use of a prepaid service plan;
o Website development program and hosting for Varner's independent
representatives using a web site tool kit;
o Video conferencing;
o Virtual technical service, through a network of technicians connected
by the internet or voice services;
o Internet emergency backup service allowing for the backup of computer
data at any point on the internet;
o E-commerce and account payables processing service to assist companies
in marketing services and products over the internet;
o Lay-It-Away, a service permitting customers to purchase a product for
the future and pay for it over a period of time with an identified
delivery date;
o 2nd Trade, a conduit for matching buyers and sellers of business
interests; and
o E-commerce transaction processing computer hardware and software for
handling commercial business transactions.
Varner plans are to evaluate and utilize new technologies, as they become
available from our suppliers. Varner's ability to develop new products and
services and the timing of such development will depend on the amount and timing
of additional funds. At this point, Varner cannot predict when any of the above
products or projects will be developed. Varner will also explore the use of
cable for internet and telecommunications services. Competition in this area may
make entry difficult.
Varner's current channels of sales and distribution
NPWT is the major customer for Varner's products. Internet dial up services
are also sold on a wholesale and/or commercial basis to non-affiliated
companies.
VMSN Varner's new combo plan of Internet and long distance is being
test marketed to traditional channels of retail as well as network marketing.
35
Varner's future plans for sales and distribution
Varner plans to increase and expand its sales and distribution through:
NPWT, by:
o Increasing the size of the independent representative organization.
o Adding new products and services in the internet and
telecommunications markets.
Alternative distribution channels by:
o Sales of selective products and services to corporate end-users,
wholesalers and retail accounts in niche markets. Potential customers
would include internet dial-up marketers looking for a turn-key
operation and niche retail outlets.
o Promoting sales of product through the internet.
o Increasing services available over the internet including banking,
prepaid telephone services, and computer hardware/software sales and
service.
Mergers and acquisitions
Varner's strategic plan is to identify opportunities that will allow it to
grow its sales, increase customers, increase its sales force, lower its costs
and gain valuable access to new technology in internet and telecommunication.
While expenses will increase with acquisitions, economies of scale and our
method of operations are anticipated to create a decrease in the ratio of
expenses to revenues.
Varner expects to grow and expand through mergers and/or acquisitions with
companies that offer some or all of the following benefits:
o Increased customer base for products and services currently offered by
Varner.
o Increased product and service offerings including companies with
compatible ISP dial-up capabilities or other technology.
o Increased distribution through other channels of retail and wholesale
for compatible products and services.
o Existing telecommunication infrastructure which will allow for lower
costs and more control over products and services.
o Product expertise and management experience.
o Proprietary software and/or software developers that have synergistic
products.
36
The size of the companies that will be considered will range from under one
hundred thousand dollars to over twenty-five million dollars in sales. Varner
plans to concentrate in North America but will also look to Europe and the
Pacific Rim when it is financially feasible to move into these areas.
Competition
Competition for retail internet access
NPWT competes in the retail segment of the communication industry.
America Online, Inc., located in Dulles, Virginia, is a nationwide retail
internet provider to metropolitan and rural areas. The world's largest in
interactive services, web brands, internet technologies and e-commerce services,
America Online, Inc. operates two worldwide internet services, America Online
and CompuServe. Through its strategic alliance with Sun Microsystems, AOL also
develops and offers end-to-end e-commerce and enterprise solutions for companies
operating in the Net Economy.
Internet America, located in Dallas, Texas, is an internet service provider
that provides internet services tailored to meet the needs of individual and
business subscribers. Its primary service offering is dial-up and broadband
internet access and related value-added services. For its business subscribers,
Internet America offers dedicated high speed internet access, web hosting and
other services. The services Internet America provides are offered in various
prices and packages so that subscribers may customize their subscription. As of
June 30, 1999, it serviced approximately 100,000 subscribers in the southwestern
United States.
Earthlink, Inc., located in Atlanta, Georgia, is an interest service
provider providing nationwide internet access and related value-added services
to individual and business members. The company formed in February 2000 as a
result of the merger of Earthlink Network, Inc. and MindSpring Enterprises, Inc.
The combined member base grew from approximately 1.7 million paying members on
December 31, 1998 to approximately 3.1 million paying members on December 31,
1999.
FGI, located in Springfield, Illinois, originally a division of OneMain.Com
who was recently purchased by Earthlink, is a regional wholesale and retail
internet provider and bandwidth provider located in central Illinois and
servicing the greater Illinois areas.
Competition for wholesale internet access
Most of Varner's competition is from companies that sell their services on
a wholesale basis.
37
CTNet, located in Carlinville, Illinois, is a local wholesaler and retail
internet provider and bandwidth provider located in central Illinois and
servicing central Illinois only.
Socket Net, located in Columbia, Missouri, is a regional wholesaler and
retail internet provider located in southwest Missouri and servicing the states
of Missouri, Illinois, Arkansas and Tennessee.
Mid America Internet Services, located in Jefferson City, Missouri is a
regional wholesale and retail internet provider located in central Missouri and
servicing Missouri and Illinois.
Competition for prepaid long distance companies
The standard for prepaid pricing is set by AT&T, Sprint, MCI, World Com and
other major telecommunication companies. They are the largest competitor in
prepaid cards. There are numerous wholesalers and retailers of prepaid phone
cards.
Devine is a San Francisco based prepaid card retailer servicing the west
coast and larger metropolitan areas such as Chicago.
ILD Communications is an Atlanta based prepaid card retailer and wholesaler
servicing the southeast and midwest United States.
Bee Line Long Distance is a wholesale and retail retailer of prepaid cards
located in Orlando, Florida.
Network marketing companies
NPWT is subject to competition in the recruiting of independent
representatives from other network marketing organizations including those
marketing long distance services, such as Excel, Big Planet, American
Communications Network, TDG Communications, and Cognigent, Inc. NPWT also
competes for independent representatives with other networking marketing
companies selling nutritional products, cosmetics, and other products including,
Amway, Reliv, Inc., Herbalife International, Inc. and Mary Kay, Inc. Varner's
principal means of competing with these other companies is by providing products
and a compensation plan that are more attractive.
Marketing
NPWT has spread the sale of our products and service through network
marketing into 49 states. Our greatest market share is in Illinois and Missouri
with a majority of users located in those states. We have established pockets of
influence in Maryland, Pennsylvania, Virginia, Nebraska, Arkansas, and
California. We have implemented creative motivational packages and will continue
to improve them by providing prizes and incentives including Mercedes
automobiles, Rolex watches, vacations, and cash prizes. We have developed
entertaining and motivational conferences to increase interest in being a part
of Varner.
38
We plan, in addition to our current network marketing strategy, to utilize
traditional marketing strategies, including but not limited to advertising on
television, radio and print, as well as utilizing the infinite capacities of
telecommunications.
Network marketing
NPWT currently markets Varner's internet and telecommunications products
and service through a network of independent representatives. NPWT does not
restrict marketing regions or geographical territories for its independent
representatives. NPWT provides independent representatives with ongoing training
and management support services.
NPWT's marketing plan encourages independent representatives to enroll
customers with whom the independent representative has an ongoing relationship
as a result of being a family member, friend, business associate, neighbor, or
otherwise. Independent representatives market products through these personal
contacts with friends and family and through responses to advertisements,
informational meetings and telephone solicitation. The network marketing
strategy has been selected because it reduces advertising and marketing costs
and customers will be more likely to remain with us because they have been
enrolled by someone with whom they have an ongoing relationship. We also believe
that the network marketing system will continue to build a base of potential
customers for additional services and products. We do not require a person to be
an independent representative in order to be a customer.
Persons enter the compensation plan as independent representatives and as
they sponsor other independent representatives and sell products they reach
higher levels in the program. The levels in order are independent
representative, manager director, regional manager, and executive manager. At
each higher level, independent representatives are entitled to purchase certain
products, like prepaid phone cards, at an increasingly higher discount. At the
first level independent representatives obtain a 10% discount, at the second and
third level a 20% discount, at the fourth level a 25% discount, at the fifth
level a 30% discount and at the sixth level a 40% discount. Independent
representatives receive retail profits equal to the difference between the price
they sell the products to customers and the discounted price they paid for the
product. Independent representatives also earn wholesale commissions on products
purchased by other independent representatives sponsored by the independent
representative, equal to the difference between the price at which the
independent representative is entitled to purchase product and the price at
which the downline independent representative purchased the product.
Certain levels of independent representatives are also entitled to receive
additional compensation payments of 2% to 5% of the retail sales volume of
certain products or services, like internet usage fees, sold by their downline
independent representatives.
Independent representatives also receive bonus payments for assisting their
sponsored independent representatives in attaining specified levels of sales and
recruitment during their initial sixty (60) days in the business. Upper levels
of independent representatives are also eligible to participate in these
bonuses.
39
NPWT's sales growth is based upon the continued development of our
independent representative force. NPWT strives to maintain an active and
motivated network through a combination of quality products, discounts,
commissions and bonus payments, sales conventions and training, personal
recognition and a variety of publications and promotional materials.
NPWT's marketing plan and commission structure is designed to provide
independent representatives an opportunity for income which compares favorably
with the income opportunities available from other network marketing
organizations.
One of the typical characteristics of network marketing companies is a high
attrition rate of independent representatives. It is not unusual for a company
to have attrition rates in excess of 50%. We believe that our level of attrition
is comparable to that experienced by other companies that use direct selling to
market their products and services. As a result, we have an ongoing emphasis on
recruiting new independent representatives to replace independent
representatives who quit and to grow the company. We will make an effort to
reduce attrition by bundling services which encourage independent
representatives to remain active.
Varner establishes a suggested retail price for each of our products, but
independent representatives are free to determine the price at which they will
sell our products. Independent representatives are not assigned territories and
there are no restrictions on marketing areas.
Management of independent representatives
Because independent representatives are independent contractors, and not
our employees, we are unable to provide them the same level of direction and
oversight as we could our employees. While we will develop policies and rules to
govern independent representatives' behavior as part of our network marketing
plan, it is difficult to enforce such policies and rules for the independent
representatives since they are not employees. Violations of these policies and
rules could reflect negatively on us and have led to complaints to various
federal and state regulatory authorities at other network marketing companies.
We will seek to limit statements that independent representatives make
about our business by requiring independent representatives giving presentations
to potential new independent representatives to adhere to the guidelines
developed by us and documented in our network marketing plan policies and
procedures. Each independent representative will receive policies and procedures
that must be followed in order to maintain the independent representative's
status in the organization. These policies and procedures forbid independent
representatives from making representations to potential independent
representatives about possible earnings, other than statements prepared by us
indicating the typical range of earnings by independent representatives.
Independent representatives will also be prohibited from creating any marketing
literature that has not been pre-approved by us. We rigorously enforce these
policies and procedures by either suspending or terminating violators.
40
Training and marketing support
Varner provides training to all independent representatives either directly
or through existing independent representatives. We also plan to offer for sale
a wide variety of marketing tools, audio and videotapes, visual aids, disk
accessories, and clothing and novelty items designed to assist independent
representatives in their marketing efforts and to promote name recognition of
Varner. Varner personnel also participate throughout the country in meetings
that current independent representatives and potential new independent
representative attend.
Employees
As of the date of this proxy statement-prospectus, Varner and all
subsidiaries had approximately 10 full-time employees, comprised of 6
executives, 2 technical support, 2 clerical and administrative support, as well
as 2 part-time employees.
Market information
Varner's capital stock is not presently traded or listed on any public
market.
Holders
The number of record holders of Varner's capital stock as of the date of
this proxy statement-prospectus, including holders of common stock, non-voting
common stock, and preferred stock was approximately 400.
Dividends
Varner has never paid cash dividends on its common stock and does not
intend to do so in the foreseeable future. We currently intend to retain any
earnings for the operation and expansion of our business.
Legal proceedings
Varner is not involved in any material pending legal proceedings.
VARNER MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of certain factors affecting Varner
Technologies, Inc.'s results for the two fiscal years ended December 31, 2000
and December 31, 1999, and for the three months ended March 31, 2000 and March
31, 2001 and its liquidity and capital resources. This discussion should be read
along with the financial statements and notes. These results are not necessarily
indicative of any future results.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed
in the forward-looking statements as a result of certain factors, including
those set forth under
41
"risk factors". The following discussion and analysis should be read with
"selected consolidated financial data," and financial statements and the
attached notes, appearing elsewhere in this document.
Varner Technologies, Inc.'s fiscal year ends on December 31. The years
mentioned throughout this discussion are fiscal years.
Revenues
Our revenues are generated from the following sources:
o internet access services revenues, both consumer and business;
o prepaid telecommunication services revenues;
o sign-up fees and other revenues.
Internet access services revenues consist of annual prepaid and, to a
lesser extent, monthly subscriptions for consumer dial-up access to the
internet. We offer prepaid and monthly subscribers a full money-back guarantee
upon cancellation of their service if made within 30 days of initiating service.
Amounts received upon the sale or renewal of prepaid annual or monthly
subscriptions are recorded as deferred revenue through the 30 day money-back
cancellation period and then amortized over the remaining period in which
service is provided. Subscribers may cancel their subscriptions at any time
following the initial 30 day period, in which case we charge the subscriber
according to our monthly service rates for services provided through the end of
the month in which the cancellation occurs, plus an additional set-up fee, and
refund any remaining prepaid amounts after such charges. Amounts received upon
the sale or renewal of prepaid internet services are recorded as deferred
revenue and then amortized over the remaining period in which service is
provided.
Business services consisting of dedicated access services also are offered
on a prepaid annual and monthly subscription basis. The revenue recognition
policies and customer guarantee practices described above for consumer access
services also apply to dedicated access business services. Revenues from the
sale of other business services typically involve set-up fees and a service
contract that provides for monthly billing. These business services revenues are
recognized as services are provided. Set-up fees are charged to new consumer and
business services customers. These one-time set-up fees are non-refundable and
are deferred and amortized over a one-year period.
Prepaid telecommunication service revenues consist of the purchase of
minutes from Varner. Sales of prepaid phone cards from third party providers of
which we act as a distributor are recorded as deferred revenue upon sale of the
card and then recognized into revenue upon usage or the card's expiration.
Varner obtains rights to activation codes, and is not charged by the provider
until the customer activates the card. Varner may not resell any unused minutes
on cards sold. The provider has primary liability for purchased minutes not
Varner. However, to
42
maintain good relations with customer and independent representatives Varner has
replaced cards that have been defective and pursued the supplier for
satisfaction.
Varner also earns revenues through sign-up and renewal fees from
independent representatives. Non-refundable fees are paid by representatives at
the commencement of participation in the program and for renewal of
participation on each anniversary of the representative's commencement date.
These fees are deferred and amortized over a one-year period following the month
of initial sign-up or renewal, as the case may be. Sales materials in the form
of duplicator kits are sold to independent representatives and revenue
recognized at the time of sale.
In addition, fees generated from advertising are recognized as services are
provided. Revenues are generated through the sale of computer software and
hardware and revenues are recognized at the time of sale.
During 1997, Varner and its major shareholder formed a limited liability
company, NPWT. This limited liability company, owned 60% by Varner, was formed
to serve as the marketing subsidiary for Varner's products and services. For
financial reporting purposes, the assets, liabilities, and operations of NPWT
have been included in Varner's financial statements. The interest owned by the
major shareholder has not been recorded as a minority interest due to the
accumulated operating losses that have been incurred by NPWT. All significant
intercompany accounts and transactions have been eliminated. As of December 31,
1999, Varner obtained the 40% of NPWT not previously owned for $1.00.
Results of operations
We have incurred annual and quarterly losses from our operations since our
inception, and we expect to continue to incur operating losses on both a
quarterly and annual basis for the foreseeable future. At December 31, 1999, the
accumulated deficit was approximately $5,485,000 and was $8,677,000 as of
December 31, 2000 and was $9,277,000 as of March 31, 2001.
Revenues:
Revenues for 2000 decreased slightly by $130,000, from $2,512,000 in 1999,
to $2,382,000, a decrease of approximately 5%. Revenues for 1999 consisted
primarily of $1,270,000 or 51% from the sale of prepaid phone cards, $692,000 or
28% from sign up and training fees and $482,000 or 19% from internet access
sales.
Revenues for 2000 consisted primarily of $1,277,000 or 54% from the sale of
prepaid phone cards, $642,000 or 27% from sign up and training fees and $320,000
or 13% from internet access sales. Revenues for the first quarter of 2001 were
$321,000, compared to $739,000 in the first quarter of 2000, a decrease of 57%.
The decrease was due primarily to service problems by one internet provider.
There were approximately 5,800 and 10,000 independent representatives as of
December 31, 1999 and 2000, respectively, of which management estimates 20% are
active in the marketing of Varner's products and services.
43
Cost of sales:
Cost of sales is composed mainly of the cost associated with the purchase
of internet access, purchases of long distance minutes and purchases of training
videos and material. The percentages and amounts detailed below result from
changing economies of scale, changes in internet access providers, more
effective utilization of the points of presence and restructuring of the prepaid
telecommunications pricing and purchasing.
Cost of sales for 2000 increased by $418,000, from $1,173,000 or 47% of
revenues in 1999, to $1,591,000 or 67% of revenue. Cost of sales for 1999
consisted primarily of $643,000 or 55% related to the cost of purchasing long
distance minutes from third party service providers, $260,000 or 22% related to
the cost incurred recruiting independent representatives and providing related
training material and $235,000 or 20% related to the cost of purchasing internet
access from third party service providers. Costs of sales for 2000 consisted
primarily of $947,000 or 63% related to the cost of purchasing long distance
minutes from third party service providers, $294,000 or 18% related to the cost
incurred recruiting independent representatives and providing related training
material and $225,000 or 14% related to the cost of purchasing internet access
from third party service providers. Cost of sales was $201,000, or 63% of
revenues in the first quarter of 2001, compared to $417,000, or 57% of revenues
for the first quarter of 2000.
Operating expenses:
Total operating expenses for 2000 increased by $1,242,000, from $2,738,000,
or 109% of revenues, in 1999, to $3,980,000, or 167% of revenues. In 1999,
Varner hired additional employees and consultants to support the expansion of
its network and operations plus to support the continuing growth. In 2000, the
increase was primarily due to fees paid to consultants to support the expansion
of Varner's network, operations and various business transactions that were
undertaken. Total operating expenses for the first quarter of 2001 were
$722,000, compared to $815,000 for the first quarter of 2000, a decrease of 11%.
The decrease was due primarily to a decrease in commissions due to lower sales
offset by higher salaries and commissions.
Commissions:
Commissions paid to independent representatives were $1,371,000 for 2000
and $1,318,000 for 1999. Commissions were $165,000 for the first quarter of 2001
and $474,000 for the first quarter of 2000. These expenses are directly related
to sales revenues.
Salaries and compensation:
Salaries and compensation expense consists of personnel, consultants, and
related costs associated with our executive and administrative functions.
Salaries and compensation expense for 2000 increased $695,000 to $1,238,000, or
52% of revenues, from $543,000, or 22% of revenues, in 1999. Salaries and
compensation expense for the first quarter at 2001 increased $196,000 to
$350,000 or 109% of revenues, from $155,000 or 21% of revenues for the first
quarter of 2000. The increase in salaries and compensation was primarily due to
fees paid to consultants to support the expansion of Varner's network,
operations and various business transactions that were undertaken.
Other operating expenses:
Other operating expenses consist of expenses associated with support of our
internet and prepaid telecommunications customers, including customer service
and technical support, and marketing expenses, including meetings and
conferences. Varner also had costs related to the purchase of Peppermill common
stock and costs of implementing the merger with Peppermill including
professional fees paid to accountants and lawyers. Other operating expenses in
2000 increased $489,000, to $1,264,000, or 53% of revenues, from $775,000, or
31% of revenues, in 1999. Other operating expenses in the first quarter of 2001
increased slightly to $190,000, or 59% of revenues, from $161,000, or 22% of
revenues, in the first quarter of 2000.
44
Other income and expense:
Varner's interest expense decreased from $6,700, in 1999 to $5,600, in
2000. The expense results from the utilization of a $100,000 line of credit and
capital lease payments. Varner earned interest income of $3,100 in 2000, as
compared to $6,900 in 1999.
Net loss:
Varner incurred a net loss of $3,192,000 for 2000, as compared to a net
loss of $1,399,000 for 1999. Varner incurred a net loss of $600,000 for the
first quarter of 2001, as compared to a net loss of $493,000 for the first
quarter of 2000.
Liquidity and capital resources
Varner has not generated net cash from operations since its inception. Our
primary source of cash has come from private sales of equity securities, loan
proceeds and other financing activities. Total cash from financing activities
for 2000 was $2,527,000 including $2,645,000 raised from the sale of stock.
During 2000, $2,590,000 were used in operations. In 1999, total cash provided
through financing activities was $2,013,000 including $1,940,000 raised from the
sale of stock. During 1999, $1,591,000 were used in operations and $300,000 used
in the purchase of Peppermill stock.
Varner's cash balance as of December 31, 2000 was approximately $17,000 and
was $131,000 as of March 31, 2001.
Clay Varner has lent Varner $233,000 in the second quarter of 2001. Varner
believes that its current funds and commitments are adequate to fund its
operations through the third quarter of 2001. Additional financing will be
required to fund operations and planned mergers and acquisitions. Public and
private alternative sources of capital will be sought based on whether the
merger with Peppermill is completed and the timing thereof.
The independent auditors' report of KPMG LLP covering the December 31,
1999 and 2000 consolidated financial statements contains an explanatory
paragraph that states that Varner's recurring losses from operations and net
capital deficiency raise substantial doubts about the entity's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of that uncertainty.
Material commitments
Varner has the following material commitments in the ordinary course of
business including:
o a contract with Network Enhanced Telecom for the purchase of
prepaid minutes for resale by Varner.
45
o ongoing service agreements with local internet service providers,
including MidAmerica Internet Services, CTNet, SocketNet,
OneMain.com, and KDSI.
o ongoing service agreements with nationwide internet service
providers, including UUNet, PSINet, Millenium, MegaPops, and
SouthNet.
o capital lease obligations of $14,000 and operating lease
obligations of approximately $80,000 outstanding as of
December 31, 2000.
VARNER'S MANAGEMENT
Management and the interrelationship of Peppermill's management
Upon the purchase of 90% of Peppermill's common stock by Varner, Clayton
Varner was appointed as president and sole director of Peppermill. Mr. Varner
filled the remaining open directorships with persons who were directors of
Varner, and also appointed certain executive officers of Varner to hold similar
positions with Peppermill. After the merger, it is expected that these persons
will continue to hold these positions with Peppermill. The following is a
listing of the officers and directors of Varner and Peppermill. All directors
will hold offices until the next annual shareholders meeting of Peppermill.
POSITION WITH POSITION WITH
NAME AGE VARNER PEPPERMILL
Clayton Varner 42 chairman of the board, chairman of the board,
president, chief executive president, chief executive
officer, director officer, director
Robert Rapp 53 executive vice president, executive vice president,
secretary, director secretary, director
Tjody Varner 44 director, president of sales director, president of sales
and marketing of NPWT and marketing of NPWT
Jessica Varner 22 vice president of public vice president of public
relations, director relations of NPWT
James Craig 49 director
G. Bryan Thomas 37 director
46
The following is a description of the business experience of the
individuals who will serve as directors and officers of Peppermill after the
merger:
Clayton W. Varner is the founder has been the president and chief executive
officer and director of Varner since inception. Mr. Varner will serve in the
same capacity for the surviving company after the merger. Mr. Varner has been
with the company since it's inception in 1994. Prior to founding Varner
Technologies, Mr. Varner held an executive position in the information
technology department of Reliv' International, Inc., a network marketer of
nutritional supplements. Mr. Varner studied business administration and computer
science.
Robert W. Rapp has been director and executive vice president of Varner
since January 1997 and will hold the same positions with the surviving company
after the merger. From June 1990 to January, 1997, Mr. Rapp was self-employed as
a consultant in areas of capitalization and investment in start-up companies.
Prior to that, he was senior vice-president and director of American Life
Investors, a holding company and predecessor of Reliv International, Inc. from
June 1984 to June 1990.
Tjody Varner was a founding independent representative upon the
establishment of Varner's marketing arm, Networking People with Technology,
established in March 1997. In July 1999, Ms. Varner was appointed president of
sales and marketing in order to implement her successful sales and marketing
techniques company-wide. From April, 1990 to January, 1997, Ms. Varner owned and
operated Unique Creations a successful sales and marketing firm, where she
developed extensive experience and knowledge in sales and marketing by designing
and marketing her own designs.
Jessica Varner holds the position of vice president of public relations for
NPWT. Ms. Varner manages communication and relations with independent
representatives, as well as overseeing customer service. Ms. Varner also acts as
officer manager of NPWT. Ms. Varner attended Maryville University for a degree
in communications/public relations. She has held management positions with
Varner since 1995.
Stock ownership by management and others
The following table reports the beneficial ownership of Varner's capital
stock, as of the date of this proxy statement-prospectus by each shareholder who
is known by Varner to be the beneficial owner of more than 5% of Varner's
capital stock, each director and executive officer of Varner who owns any shares
of Varner's capital stock, and all executive officers and directors as a group.
Except as otherwise indicated, Varner believes that the beneficial owners of the
shares listed below have sole investment and voting power with respect to such
shares.
47
Shares of voting common Shares of non-voting common
stock beneficially stock beneficially Percent of
Name and address(1) owned(2)(3) owned(2)(3) Common stock(2)(3)(4)
- ------------------- ----------------------- --------------------------- ---------------------
Clayton Varner 5,480,000 0 20.66%
Robert Rapp 3,205,741 0 12.09%
Tjody Varner 3,500,000 0 13.20%
Jessica Varner 0 77,410 *
James Craig 100,000 20,000 *
G. Bryan Thomas 125,000 119,156 *
All directors and executive
officers as a group (6
persons) 12,410,741 216,566 47.62%
- ----------------
* Less than one percent
(1) Except as otherwise indicated, the address of each shareholder listed above
is c/o Varner Technologies, Inc., 1819 Clarkson Road, Suite 204,
Chesterfield, Missouri 63017.
(2) As of the date of this proxy statement-prospectus, there were 16,868,078
shares of voting common stock outstanding and 9,809,347 shares of
non-voting common stock outstanding. Unless otherwise noted, the security
ownership disclosed in this table is of record and beneficial.
(3) Under Rule 13-d of the Exchange Act, shares not issued but issuable under
options, warrants, rights, conversion privileges in the next 60 days are
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares owned by the persons having those rights, but are not
deemed outstanding for computing the percentage for other persons.
(4) Calculations do not take into account up to 2,000,000 shares of Varner
preferred stock, which are convertible into shares of Varner common stock
on a one for one basis upon the listing of the common stock on a national
exchange or NASDAQ. No officer or director owns Varner preferred stock.
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Executive compensation
The following table sets forth certain information with respect to the
compensation paid or accrued by Varner during the last three fiscal years to its
president, chief executive officer and any other officer who received
compensation in excess of $100,000 ("Named Executive Officers").
Summary Compensation Table
Annual compensation
-----------------------------
Name and Other annual All other
principal position Year Salary Bonus compensation Compensation
- ------------------ ---- ------ ----- ------------ ------------
($) ($)
Clayton Varner, 2000 $40,000 $0 $47,658(1) $0
president, chief executive 1999 $0 $0 $88,100(1) $0
officer 1998 $0 $0 $31,800(1) $0
Tjody Varner, president of 2000 $54,562 $0 $132,587(1) $0
sales of Networking People 1999 $0 $0 $175,900(1) $0
with Technology, L.L.C. 1998 $0 $0 $123,200(1) $0
Robert Rapp 2000 $105,000 $0 $0 $0
1999 $ 874 $0 $0 $0
1998 $ 11,000 $0 $0 $0
- ----------------
(1) Represents incentive compensation based on sales revenue.
There were no options granted to or exercised by the named executives
during 2000, and the named executives held no options at the end of 2000.
Employment agreements
Varner does not currently have employment agreements with its key
executives. Varner does maintain a key man life insurance policy in the amount
of $1,000,000 on Mr. Clay Varner. Varner also maintains an errors and omissions
policy covering Varner's officers and directors.
Compensation of directors
Directors are not paid for serving as directors, but are reimbursed for
travel expenses.
Section 16(a) beneficial ownership reporting compliance
Not applicable.
Board of directors affiliations and related transactions
During 1999, Varner converted a subordinated debt of $487,000 owing to an
affiliate of Clay Varner into 3,000,000 shares of voting common stock.
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During 2000, Varner sold 1,000,000 shares of voting common stock to Clay
Varner, 1,000,000 shares of voting common stock to Robert Rapp, and in the
second quarter of 2001 sold 480,000 shares of voting common stock to a company
owned by Clay Varner all at a price of $.10 per share.
During 2000 and 2001 Varner issued the following shares of its non-voting
common stock to certain directors, officers and/or consultants:
o 175,000 shares were issued to G. Bryan Thomas, a director, at a price of
$.10 per share.
o 900,000 shares were issued to Ray Heflin, a former employee, at a price of
$.10 per share.
o 150,000 shares were issued to Martin Gerber, a consultant, at a price of
$.10 per share. Mr. Gerber has provided and continues to provide assistance
to Varner in operations and in pursuing potential merger/acquisition
opportunities.
o 100,000 shares were issued to Speechmakers, a company owned by Fred Jaroz,
a former director of the Company, at a price of $.10 per share. Mr. Jaroz,
through Speechmakers, provided motivational speeches at numerous NPWT
conferences.
o 150,000 shares were issued to Terry Techmirer, a former distributor of
Varner products, at a price of $.10 per share, in consideration for Mr.
Techmirer's services as a distributor.
o 125,000 shares were issued to Mark Schleuter, a distributor of Varner
products, at a price of $.10 per share, in consideration for Mr.
Schleuter's services as a distributor.
o 50,000 shares were issued to Walter Stockbury, a consultant, at a price of
$.10 per share. Mr. Stockbury provided consulting services related to
Varner attaining a public market.
o 1,578,529 shares were issued to Jan Skola, a consultant, at a price of $.10
per share. Since October of 2000, Mr. Skola has provided consulting
services related to operations, assisting Varner in completing the merger
with Peppermill and attaining and maintaining a public market for its
stock, and marketing of Varner's products.
o 90,000 shares were issued to Lyndell Parks, a consultant, at a price of
$.10 per share. Mr. Parks has provided consulting services related to
shareholder communications , including responding to shareholder inquiries.
o 375,250 shares were issued to Bob Ponder, a consultant, at a price of $.10
per share. Mr. Ponder has assisted Varner in marketing products, including
arranging meetings with potential customers.
o 416,667 shares were issued to David Vickers, the son of Brent Vickers, a
former principal shareholder of Peppermill, at a price of $.01 per share,
with additional paid in capital and compensation expenses recorded at $.09
per share. Mr. Vickers will assist Varner in expanding its operations into
Canada.
COMPARISON OF RIGHTS OF HOLDERS OF
VARNER CAPITAL STOCK AND
PEPPERMILL CAPITAL STOCK
This section describes certain differences between the rights of holders of
Varner common stock and Peppermill common stock. It will also discuss the rights
of the holders of Peppermill preferred stock which, to the extent possible, will
be equal to the rights of current holders of Varner preferred stock. While this
description covers the material differences between the two, this summary may
not contain all of the information that is important to you. You should
carefully read this entire document and the other documents referred to for a
more complete understanding of the difference between being a shareholder of
Varner and being a shareholder of Peppermill.
Varner shareholders are governed by Varner's articles of incorporation, as
currently in effect, and Varner's bylaws, both of which adhere to the
requirements of Missouri law. After completion of the merger, Varner
shareholders will become shareholders of Peppermill. As a Peppermill
shareholder, your rights will be governed by Peppermill's articles of
incorporation and Peppermill's bylaws, both of which adhere to the requirements
of Nevada law.
Classes of common stock of Varner and Peppermill
Varner has two classes of common stock, which include 17,000,000 authorized
shares of voting common stock, $.01 par value, and 10,000,000 authorized shares
of non-voting common stock, $.01 par value. Peppermill has one class of common
stock which consists of 200,000,000 authorized shares.
Stock options and warrants
At present, Varner has no options and warrants outstanding.
There are no outstanding options or warrants to purchase Peppermill's
common stock.
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Dividends
The board of directors of Varner and Peppermill may declare and each
company may pay dividends on its outstanding shares in the manner, and upon the
terms and conditions provided by law and the articles of incorporation.
Dividends may be paid in cash, in property or in shares of the capital stock.
Before payment of any dividend, there may be set aside out of any funds
available for dividends such sum as the directors of Varner or Peppermill think
proper as a reserve to meet contingencies or for such other purpose as the
directors shall determine.
Voting rights
At any Varner or Peppermill meeting, only business specified in the notice
of the meeting or otherwise directed by the board of directors may be
transacted. As a shareholder of Varner or Peppermill, each outstanding share
entitled to vote shall be entitled to one vote upon each matter submitted to a
vote at a meeting of the shareholders.
At all meetings of shareholders of Varner or Peppermill, a shareholder may
vote in person or by proxy. Any proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. Under Missouri law, no proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy. Under Nevada law, no proxy is valid after the
expiration of 6 months from the date of its creation.
A majority of the outstanding shares of Varner or Peppermill entitled to
vote, represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders. For Varner, a majority of such quorum shall be valid as
a corporate act unless a different vote is required by law, the articles of
incorporation or bylaws. Peppermill's bylaws provide that when a quorum is
present or represented at any meeting, the vote of the holders of 10% of the
stock having voting power shall be sufficient to elect directors or to decide
any question brought before such meeting, unless Nevada law or the articles of
incorporation require a different vote.
Varner's bylaws provide for cumulative voting. In all elections for
directors, shareholders entitled to vote shall have the right to cast as many
votes in the aggregate as shall equal the number of voting shares held by the
shareholder, multiplied by the number of directors to be elected. Each
shareholder may cast the whole number of votes, either in person or by proxy,
for one candidate, or distribute them among two or more candidates. Unlike
Varner, Peppermill's shareholders shall not possess cumulative voting rights for
the purpose of electing a board of directors.
Classified board of directors
Both Missouri and Nevada law provide that a corporation's board of
directors may be divided into various classes with staggered terms of office.
Neither Varner nor Peppermill's boards of directors are divided into classes.
Instead, each director shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected and qualified.
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Number of directors, quorum
Varner's board of directors currently consists of six directors. The bylaws
provide that the number of directors of Varner shall be fixed from time to time
by resolution of the board of directors. Peppermill's board of directors
currently consists of three directors. The number of Peppermill' s directors may
not be less than one and not more than eight, and will be set by the board of
directors. The number of directors may be changed by an amendment to
Peppermill's bylaws by the vote of holders of a majority of the outstanding
shares or by a majority vote of the board of directors.
Under both Missouri and Nevada law, a majority of the full board of
directors shall constitute a quorum for the transaction of business unless a
greater number is required by the articles of incorporation or the bylaws. The
act of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the board of directors.
Removal of directors
Under Varner's bylaws, directors may be removed, with or without cause, at
a meeting of the shareholders called expressly for that purpose. The entire
board of directors may be removed by a vote of the holders of a majority of
shares then entitled to vote at an election of directors. If less than the
entire board is to be removed, no one of the directors may be removed if the
votes cast against the director's removal would be sufficient to elect the
director if then cumulatively voted at an election of the entire board of
directors.
Under Peppermill's bylaws, the holders of two-thirds of the outstanding
shares of stock entitled to vote may at any time remove directors by vote at a
meeting called for such purpose or by a written statement filed with the
secretary or, in his absence, with any other officer. Removal shall be effective
immediately, even if successors are not elected simultaneously. Vacancies on the
board of directors resulting from removal shall only be filled by the
shareholders.
Filling vacancies of the board of directors
Under both Varner's and Peppermill's bylaws, a majority of the remaining
members of the board of directors may fill a vacancy or vacancies resulting from
an increase in the number of seats or resignation until the successor or
successors are elected at a shareholders' meeting.
Interested directors
Transactions between Varner and Peppermill and interested directors are not
voidable by Varner or Peppermill and those directors are not liable to Varner or
Peppermill for any profit realized under such transaction if the nature of the
interest is disclosed at the first opportunity at a meeting of directors, and a
majority of disinterested directors or shareholders entitled to vote ratify the
transaction.
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Limits on shareholder action by written consent
Under Varner's bylaws, any action required to be taken at a meeting of the
shareholders, or any action which may be taken at a meeting of the shareholders,
may be taken without a meeting if consents in writing, setting forth the action
so taken, shall be signed by all of the shareholders entitled to vote. Consents
shall have the same force and effect as a unanimous vote of the shareholders at
a meeting duly held.
Under Peppermill's bylaws, any action which may be taken by the vote of the
shareholders at a meeting may be taken without a meeting if authorized by the
written consent of shareholders holding at least a majority of the voting power.
Nevada law or the articles of incorporation may require a greater percentage
vote for certain actions.
Ability to call special meetings
Special meetings of Varner shareholders may be called by Varner's
president, by the board of directors, or by the holders of not less than a
majority of all shares entitled to vote at a meeting.
Special meetings of Peppermill shareholders may be called by Peppermill's
president or secretary, by resolution of the board of directors or at the
request in writing of shareholders owning a majority of the shares entitled to
vote. Such request shall state the purpose of the proposed meeting.
Notice of shareholder meeting given by the corporation
Varner and Peppermill must give their shareholders written notice of a
meeting stating the place, day and hour of the meeting and the purpose or
purposes for which the meeting is called. The written notice shall be delivered
not less than 10 or more than 70 days before the date of the meeting in the case
of Varner and not less than 10 or more than 60 days before the date of the
meeting in the case of Peppermill.
Amendment of articles of incorporation
Amendments to both Varner's and Peppermill's articles of incorporation
require the affirmative vote of a majority of the shares entitled to vote.
Amendment of bylaws
The Varner bylaws may be altered, amended or replaced and new bylaws
adopted by a majority of the directors at any regular or special meeting of the
directors. The shareholders always have the power to adopt, amend or repeal
bylaws, even though the board may also be delegated such power.
The Peppermill bylaws may be amended by a majority vote of the shares
entitled to vote at any annual or special meeting of the shareholders, provided
notice of intention to amend shall
53
have been contained in the notice of the meeting. In addition, the Peppermill
board of directors by a majority vote of the whole board at any meeting may
amend the bylaws, including bylaws adopted by the shareholders, but the
shareholders may from time to time specify portions of the bylaws which shall
not be amended by the board.
Shareholder right to inspect books and records
Varner shareholders may at all proper times have access to and examine the
books and records of Varner which include the amount of assets and liabilities,
minutes of board of directors and shareholder proceedings, names and addresses
of officers, and stock ledger which lists the names of shareholders and the
number of shares owned by them.
Peppermill must keep books and records available at its registered office
for its shareholders to inspect including a certified copy of its articles of
incorporation and bylaws and all amendments as well as a stock ledger containing
the names of shareholders and the number of shares held by each. In order to be
entitled to inspect the books and records of Peppermill during normal business
hours, a person must give no less than five days written notice and have been a
shareholder of record of Peppermill for at least six months immediately
preceding the demand or hold, or be authorized in writing by the holders of, at
least five percent of Peppermill's outstanding shares.
Derivative actions
Varner and Peppermill shareholders do not have a direct and individual
right to enforce rights which could be asserted by the corporation, but may do
so derivatively on behalf of the corporation. Under Missouri and Nevada law, a
shareholder may institute a derivative suit in the right of the corporation
against the present or former officers or directors of a corporation because the
corporation refused to enforce rights that could be asserted by the corporation.
He or she must have been a shareholder at the time of the transaction complained
of.
Indemnification of directors and officers
Missouri law and Nevada law permit a corporation to indemnify its directors
or officers for loss or liability resulting from any negligence, default, breach
of duty or breach of trust committed in good faith.
Varner's and Peppermill's bylaws provide that every person who is or was a
director or officer shall be indemnified by the corporation against any
liability, judgment, fine, amount paid in settlement, cost and expense,
including attorneys' fees, asserted or threatened against and incurred by such
person in his capacity as or arising out of his status as a director or officer
of the corporation.
Peppermill's bylaws require Peppermill to advance the expenses of directors
and officers incurred in defending a civil or criminal action, suit, or
proceeding upon the receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court that he is
not entitled to be indemnified by the corporation.
54
In addition, Nevada law allows, and the articles of incorporation of
Peppermill provide that no director or officer of Peppermill shall have any
personal liability for damages for breach of his fiduciary duty except for acts
or omissions involving intentional misconduct, fraud or a knowing violation of
law or payments of dividends in violation of Nevada law.
Shareholder liability
Shareholders of Varner and Peppermill shall be under no obligation to the
corporation or its creditors or be individually liable for any liabilities or
debt with respect to the shares held other than the obligation to pay to the
corporation the full consideration for which said shares were issued.
Business combinations
Under Missouri law and Nevada law, a business combination includes the
following transactions:
o any merger or consolidation with an interested shareholder or any
affiliate of an interested shareholder;
o any sale, lease, exchange, mortgage, pledge, transfer, or other
disposition to or with an interested shareholder or any affiliate of
an interested shareholder of assets having an aggregate market value
equal to 10% or more of the aggregate market value of all the assets
of the corporation;
o any issuance or transfer of any stock, which has a market value equal
to 5% or more of the market value of all the outstanding stock, to any
interested shareholder or any affiliate of an interested shareholder;
o adoption of any plan for the liquidation or dissolution of the
corporation proposed by an interested shareholder or an affiliate of
an interested shareholder;
o any reclassification of securities, recapitalization, merger or
consolidation with any subsidiary, or any other transaction which has
the effect, directly or indirectly, of increasing the proportionate
share of any class of outstanding stock owned by an interested
shareholder; and
o any receipt by an interested shareholder or any affiliate of an
interested shareholder of any loans, advances, guarantees, pledges, or
other financial assistance or any tax credits or other tax advantages
provided by or through the corporation.
55
Under Missouri and Nevada law, no corporation shall engage in any business
combination with any interested shareholder of such corporation for a specified
period following such interested shareholder's stock acquisition date unless
such business combination is approved by the corporation. Approval can be
obtained by the board of directors of the corporation prior to the interested
shareholder's stock acquisition date or the vote of the holders of a majority of
the outstanding voting stock not beneficially owned by such interested
shareholder or any affiliate of such interested shareholder. In Missouri, the
period of time a corporation shall not engage in a business combination with an
interested shareholder is five years. In Nevada, the period is three years.
Shareholder rights plan
Neither Varner nor Peppermill has a rights plan in place. A rights plan
discourages takeovers because they will cause substantial dilution to a person
or group that acquires a substantial interest in the corporation without the
prior approval of the board of directors.
Exchange of assets, mergers and consolidations
Under Missouri law, a plan of merger or consolidation shall be approved
upon the vote of the holders of at least two-thirds of the outstanding shares
entitled to vote at such meeting.
Under Nevada law, a plan of merger or exchange must be approved by a
majority of the voting power unless the articles of incorporation or the board
of directors require a greater vote.
Under both Missouri law and Nevada law, written notice stating the purpose,
or one of the purposes, of the meeting is to consider the plan of merger,
together with a copy or a summary of the plan of merger, shall be given to each
shareholder of record entitled to vote at the meeting.
Short form merger
Missouri law permits certain mergers without shareholder approval if at
least ninety percent of the outstanding shares of a corporation is owned by
another corporation. The controlling corporation may either merge the other
corporation into itself and assume all of its obligations, or merge itself into
the other corporation without any vote of the shareholders.
Nevada law permits certain mergers without shareholder approval if:
o the articles of incorporation after the merger will not differ
from the articles before the merger;
o each shareholder whose shares were outstanding immediately before
the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations and
relative rights immediately after the merger; and
o the number of voting shares outstanding after the merger does not
exceed by more than 20 percent the total number of voting shares
of the surviving corporation outstanding immediately before the
merger.
56
Dissenters' rights
Under Missouri law, a shareholder is entitled to dissent from a sale or
exchange of all or substantially all of the property and assets of a
corporation, other than in the usual and regular course of its business.
Under Nevada law, a shareholder 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:
o consummation of a plan of merger to which the domestic
corporation is a party;
o consummation of a plan of exchange where interests of the
domestic corporation will be acquired; and
o any corporate action taken by a vote of the shareholders to the
extent that the articles of incorporation, bylaws or a resolution
of the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their
shares.
Preferred stock
Varner has 2,000,000 authorized shares of preferred stock, $.01 par value.
The board of directors of Varner established by resolution one series of
preferred stock and the powers, preferences, rights, qualifications, limitations
and restrictions of the preferred stock.
Peppermill does not have preferred stock. The shareholders of Peppermill
will be voting to authorize two classes of preferred stock, 10,000,000 shares of
series A and 90,000,000 shares of series B. Upon completion of the merger with
Varner, holders of Varner preferred stock will receive five shares of Peppermill
series A preferred stock for each share of Varner preferred stock held. The
Peppermill series A preferred stock will have, to the extent possible, rights
and preferences equal to Varner preferred stock. These rights are summarized
below. The series B preferred stock shall have such rights and preferences as
shall be established by the board of directors by resolution without any further
vote of shareholders.
Peppermill series A preferred stock
Non-voting. The series A preferred stock will be non-voting.
Liquidation preference. Upon liquidation, each share of series A preferred
stock will be entitled to receive up to $.40 per share, to the extent funds are
available, before any distribution is made to holders of common stock.
Dividends. Holders of series A preferred stock shall not be entitled to
dividends.
Conversion rights. For a period of thirty days after the merger is
effective, holders of Peppermill preferred stock will be able to convert their
shares into shares of common stock of Peppermill on a one-for-one basis. After
such period, shares of Peppermill preferred stock will
57
not be able to convert to shares of Peppermill common stock and will not be able
to be sold for a period of one year. By converting to common stock, holders of
preferred stock will receive shares that are listed on the OTC Bulletin Board,
but will lose the preferences granted to the preferred stock, including certain
preemptive rights to participate in a future public offering of Peppermill's
common stock.
Preemptive rights. The holders of series A preferred stock shall have the
right to purchase in any initial public offering of Peppermill's common stock
that number of shares in such offering equal to the number of shares of series A
preferred stock then held. This right may be limited by restrictions placed by
the underwriter of the public offering. There is no guarantee that a public
offering will ever occur.
Redemption. Peppermill shall have the right upon the earlier of an initial
public offering of Peppermill's common stock or two years from the date of the
filing of the certificate of amendment establishing the series A preferred
stock, to redeem the shares of series A preferred stock for $.40 per share. The
holder has the right to convert the shares to common stock prior to the
effective date of redemption.
This is a summary of the terms of the certificate of amendment to the
articles of incorporation of Peppermill attached as Appendix B.
LEGAL OPINION
The validity of the shares of Peppermill common stock offered by this proxy
statement-prospectus will be passed upon by Merrick & Klimek, P.C., 401 South
LaSalle Street, Suite 1302, Chicago, Illinois, counsel to Varner and Peppermill.
An opinion concerning the material United States federal income tax consequences
of the merger shall be produced by Merrick and Klimek, P.C.
EXPERTS
KPMG LLP, independent certified public accountants, has audited the
consolidated balance sheets of Varner Technologies, Inc. and subsidiaries as of
December 31, 1999 and December 31, 2000, and the related consolidated statements
of operations, stockholders' equity (deficit) and cash flows for the two years
ended December 31, 2000. These audited financials for Varner Technologies, Inc.
and subsidiaries are included as pages F-1 to _____ of this proxy
statement-prospectus. These consolidated financial statements are included in
reliance on the independent auditors' report of KPMG LLP, given their authority
as experts in accounting and auditing.
Kaufman, Rossin & Company, independent certified public accountants, has
audited the balance sheets of Peppermill Capital Corporation as of December 31,
1999 and December 31, 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for the two years ended December
31, 1999 and December 31, 2000. These audited financial statements for
Peppermill Capital Corporation are included as pages F__ to ____ of this proxy
statement-prospectus. These consolidated financial statements are included in
reliance on the independent auditors' reports of Kaufman, Rossin & Company,
given their authority as experts in accounting and auditing.
58
WHERE YOU CAN FIND MORE INFORMATION
This proxy statement-prospectus incorporates documents by reference which
are not presented in or delivered with this proxy statement-prospectus.
All documents filed by us as required by Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this proxy
statement-prospectus and before the effective date of the taking of action by
written consent are incorporated by reference into and to be a part of this
proxy statement-prospectus from the date of filing of those documents.
You should rely only on the information contained in this document or that
we have referred you to. We have not authorized anyone to provide you with
information that is different.
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this proxy statement-prospectus will be deemed to
be modified or superseded for purposes of this proxy statement-prospectus by any
other subsequently filed document that is deemed to be incorporated by reference
into this proxy statement-prospectus that modifies or supersedes the statement.
Any statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this proxy statement-prospectus.
The documents incorporated by reference into this proxy
statement-prospectus are available from us upon request. We will provide a copy
of any and all of the information that is incorporated by reference in this
proxy statement-prospectus, not including exhibits to the information unless
those exhibits are specifically incorporated by reference into this proxy
statement-prospectus, to any person, without charge, upon written or oral
request.
Requests for documents should be directed to:
Varner Technologies, Inc.
1819 Clarkson Road, Suite 204
Chesterfield, Missouri 63017
Peppermill files reports, proxy statements and other information with the
Securities and Exchange Commission. Copies of its reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the SEC at:
Judiciary Plaza Citicorp Center
Room 1024 500 West Madison Street
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
Reports, proxy statements and other information concerning Peppermill may
be inspected at:
The National Association of Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
59
Copies of these materials can also be obtained by mail at prescribed rates
from the public reference section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at (800) SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC website is
http://www.sec.gov.
Peppermill has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to
Peppermill's common stock to be issued to Varner shareholders in the merger.
This proxy statement-prospectus constitutes the prospectus of Peppermill filed
as part of the registration statement. This proxy statement-prospectus does not
contain all of the information set forth in the registration statement because
certain parts of the registration statement are omitted in accordance with the
rules and regulations of the SEC. The registration statement and its exhibits
are available for inspection and copying as set forth above.
If you have any questions about the merger, please call Varner at (636)
530-4532.
This proxy statement-prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this proxy
statement-prospectus, or the solicitation of a proxy, in any jurisdiction to or
from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this proxy statement-prospectus nor any distribution of securities
pursuant to this proxy statement-prospectus shall, under any circumstances,
create any implications that there has been no change in the information set
forth or incorporated into this proxy statement-prospectus by reference or in
our affairs since the date of this proxy statement-prospectus. The information
contained in this proxy statement-prospectus with respect to Varner and its
subsidiaries was provided by Varner and the information contained in this proxy
statement-prospectus with respect to Peppermill was provided by Peppermill.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Peppermill
pursuant to the foregoing provisions or otherwise, Peppermill has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such act, and is
therefore unenforceable.
60
Outside back cover page
Dealer Prospectus Delivery Obligation. Until 90 days after the effective
date of the registration statement registering the shares described in this
prospectus, all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
61
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2000 and 1999
(With Independent Auditors' Report Thereon)
Independent auditors' report F-2
Consolidated balance sheets F-3
Consolidated statements of operations F-4
Consolidated statements of changes in F-5
stockholders equity (deficit)
Consolidated statements of cash flows F-6
Notes to consolidated financial statements F-7
F-1
Independent Auditors' Report
The Board of Directors
Varner Technologies, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Varner
Technologies, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 Varner Technologies,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ KPMG LLP
St. Louis, Missouri
March 2, 2001
F-2
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
2000 1999
----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 16,783 111,202
Accounts receivable 20,637 25,548
Amounts due from related parties 10,000 --
Inventory 38,035 23,041
Prepaid expenses and other assets 25,558 5,873
----------- -----------
Total current assets 111,013 165,664
Property and equipment, net 141,988 216,431
Other assets -- 112,615
----------- -----------
Total assets $ 253,001 494,710
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 902,193 483,002
Accrued expenses 83,720 130,910
Amounts due to related parties 11,657 --
Unearned revenue 162,484 318,466
Line of credit -- 100,000
Current installments of capital lease obligations 5,700 20,131
----------- -----------
Total current liabilities 1,165,754 1,052,509
Capital lease obligations, excluding current installments 8,141 13,841
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 2,000,000 shares authorized; 1,776,475 and
671,000 shares issued and outstanding at
December 31, 2000 and 1999, respectively 17,765 6,710
Common stock - Class A voting, $0.01 par value; 17,000,000
shares authorized; 14,827,828 and 12,827,828 shares issued and
outstanding at December 31, 2000 and 1999, respectively 148,279 128,279
Common stock - Class B non-voting, $0.01 par value;
10,000,000 shares authorized; 9,809,347 and 5,937,333 shares
issued and outstanding at December 31, 2000 and 1999, respectively 98,093 59,373
Additional paid-in capital 7,492,261 4,718,908
Retained deficit (8,677,292) (5,484,910)
----------- -----------
Total stockholders' equity (deficit) (920,894) (571,640)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 253,001 494,710
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2000 and 1999
2000 1999
------------ ------------
Sales $ 2,381,888 2,511,571
Cost of sales 1,591,211 1,173,032
------------ ------------
Gross profit 790,677 1,338,539
------------ ------------
Operating expenses:
Commissions 1,371,346 1,318,298
Salaries and compensation 1,237,833 543,246
Depreciation and amortization 107,727 102,177
Other operating expenses 1,263,639 774,530
------------ ------------
Total operating expenses 3,980,545 2,738,251
------------ ------------
Loss from operations (3,189,868) (1,399,712)
------------ ------------
Other income (expense):
Interest income 3,128 6,901
Interest expense (5,642) (6,665)
------------ ------------
Total other income (expense) (2,514) 236
------------ ------------
Net loss $ (3,192,382) (1,399,476)
============ ============
Basic and diluted loss per share $ (0.14) (0.08)
============ ============
Weighted-average common shares outstanding, basic and diluted 22,222,431 16,612,464
============ ============
See accompanying notes to consolidated financial statements.
F-4
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Years ended December 31, 2000 and 1999
Common stock - Common stock -
Preferred stock Class A Class B
----------------------- ----------------------- -----------------------
Number of Number of Number of
shares Amount shares Amount shares Amount
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 -- $ -- 9,672,755 $ 96,728 5,253,604 $ 52,536
Proceeds from sale of stock -- -- 3,155,073 31,551 521,589 5,216
Issuance of stock for services rendered -- -- -- -- 162,140 1,621
Proceeds from sale of stock 671,000 6,710 -- -- -- --
Business acquisition cost -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 671,000 6,710 12,827,828 128,279 5,937,333 59,373
Issuance of stock for services rendered -- -- -- -- 1,531,514 15,315
Proceeds from sale of stock 1,105,475 11,055 2,000,000 20,000 2,340,500 23,405
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2000 1,776,475 $ 17,765 14,827,828 $ 148,279 9,809,347 $ 98,093
========== ========== ========== ========== ========== ==========
Additional
paid-in Retained
capital deficit Total
---------- ---------- ----------
Balance at December 31, 1998 3,023,808 (4,085,434) (912,362)
Proceeds from sale of stock 760,861 -- 797,628
Issuance of stock for services rendered 98,949 -- 100,570
Proceeds from sale of stock 1,135,290 -- 1,142,000
Business acquisition cost (300,000) -- (300,000)
Net loss -- (1,399,476) (1,399,476)
---------- ---------- ----------
Balance at December 31, 1999 4,718,908 (5,484,910) (571,640)
Issuance of stock for services rendered 182,812 -- 198,127
Proceeds from sale of stock 2,590,541 -- 2,645,001
Net loss -- (3,192,382) (3,192,382)
---------- ---------- ----------
Balance at December 31, 2000 7,492,261 (8,677,292) (920,894)
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-5
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000 and 1999
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $(3,192,382) (1,399,476)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 107,727 102,177
Compensation expense for issuance of stock 198,127 100,570
Changes in operating assets and liabilities,
exclusive of acquisition:
Accounts receivable (1,339) 35,979
Inventory (14,994) 15,478
Prepaid expenses (13,436) (611)
Other assets 109,824 (103,439)
Accounts payable 419,191 (93,309)
Accrued expenses (47,190) (47,504)
Unearned revenue (155,982) (200,663)
----------- -----------
Net cash used in operating activities (2,590,454) (1,590,798)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (30,492) (11,337)
Cash paid for acquisition -- (300,000)
----------- -----------
Net cash used in investing activities (30,492) (311,337)
----------- -----------
Cash flows from financing activities:
Advances from related parties 1,657 --
Proceeds (payments) on borrowings from note payable (100,000) 100,000
Proceeds from sale of stock 2,645,001 1,939,628
Payments on capital lease obligations (20,131) (26,291)
----------- -----------
Net cash provided by financing activities 2,526,527 2,013,337
----------- -----------
Net increase (decrease) in cash and cash equivalents (94,419) 111,202
Cash and cash equivalents, beginning of year 111,202 --
----------- -----------
Cash and cash equivalents, end of year $ 16,783 111,202
=========== ===========
See accompanying notes to consolidated financial statements.
F-6
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(1) Summary of Significant Accounting Policies
(a) Description of Business
Varner Technologies, Inc. and subsidiaries (the Company) is a Missouri
corporation incorporated on November 17, 1994. The Company markets and
sells Internet services, e-commerce, long-distance telephone services,
wireless telephone services and products, prepaid telephone cards, and
other telecommunications products and services. In March 1997, the
Company and its major stockholder founded Networking People with
Technology, L.L.C. (NPWT) to distribute products and services via the
Internet. In November 1999, the Company acquired controlling interest
in Peppermill Capital Corporation (Peppermill), a Nevada company
engaged in the business of mineral development. The Company operates
throughout the United States, with its greatest market share in
Illinois and Missouri.
(b) Basis of Presentation
During 1997, the Company and its major stockholder formed a limited
liability company, NPWT. This limited liability company, owned 60% by
the Company, was formed to serve as the marketing subsidiary for the
Company's products and services. On December 31, 1999, the Company
obtained the 40% of NPWT not previously owned for $1. For financial
reporting purposes, the assets, liabilities, and operations of NPWT
have been included in the Company's consolidated financial statements.
All significant intercompany accounts and transactions have been
eliminated.
The Company acquired controlling interest in Peppermill as of November
22, 1999. The transaction included the purchase of 90% of the
outstanding shares of common stock of Peppermill at $0.001 per share,
which resulted in a total purchase price of $300,000. The transaction
has been accounted for as a capital transaction because Peppermill was
a non-operating public shell corporation. Accordingly, no goodwill or
other intangibles were recorded in the acquisition, and the investment
made by the Company to purchase the controlling interest in Peppermill
has been recorded as a reduction to additional paid-in capital.
(c) Use of Estimates
The presentation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosures of contingent
assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(d) Cash and Cash Equivalents
The Company considers all short-term investments with an original
maturity of three months or less at the time of purchase to be cash
equivalents.
(Continued)
F-7
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(e) Inventory
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventory is comprised of
marketing materials and other items required in the Company's normal
course of business.
(f) Property and Equipment
Property and equipment, consisting of office furniture, equipment, and
Internet hub sites are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets
of five to seven years.
(g) Revenue Recognition
Sales of prepaid phone cards from third-party providers for which the
Company acts as a distributor are recorded as deferred revenue upon
sale of the card and then recognized into revenue upon usage or the
card's expiration. Amounts received upon the sale or renewal of
prepaid Internet services are recorded as deferred revenue and then
recognized ratably into revenue over the remaining period in which
service is provided.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment dates.
(i) Loss Per Share
Basic loss per share is calculated by dividing the loss for the year
available to shareholders by the weighted-average number of common
shares outstanding during the year. Diluted loss per share reflects
the potential dilution that could occur if other contracts to issue
common stock were exercised and resulted in the issuance of common
stock that shared in the earnings of the Company. The Company did not
have any contracts which contained potential dilutive shares during
any of the years presented.
(Continued)
F-8
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(2) Liquidity
The Company's consolidated financial statements for the years ended
December 31, 2000 and 1999 have been prepared on a going-concern basis,
which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The Company
incurred a net loss of approximately $3,192,000 and $1,399,000 for the
years ended December 31, 2000 and 1999, respectively, and, as of December
31, 2000 and 1999, had an accumulated deficit of approximately $8,677,000
and $5,485,000, respectively. Management recognizes the Company must
generate or obtain additional resources to enable it to continue
operations.
(3) Inventory
Inventory consists of the following:
2000 1999
------- -------
Promotional materials $ 3,382 10,797
Company products 34,653 12,244
------- -------
$38,035 23,041
======= =======
(4) Property and Equipment
Property and equipment consist of the following:
Useful life
in years 2000 1999
-------- -------- --------
Furniture and fixtures 7 $ 7,175 7,175
Office equipment 5 15,855 15,855
Internet equipment 5 60,671 38,494
Computer hardware and software 5 479,415 471,100
======== -------- --------
563,116 532,624
Less accumulated depreciation 421,128 316,193
-------- --------
$141,988 216,431
======== ========
(5) Line of Credit
During 1999, the Company entered into a line of credit with a commercial
bank. The line of credit bore interest at 8.5% annually and matured May
2000. The line of credit was secured by the personal guarantees of two
officers of the Company. The line of credit was paid off by the Company in
May 2000.
(Continued)
F-9
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(6) Income Taxes
Due to the recognition of net operating losses, no income tax expense has
been recorded for the years ended December 31, 2000 and 1999. Income tax
benefit differed from the amount computed by applying the statutory Federal
corporate income tax rate of 34% to income before income tax benefit as a
result of the following:
2000 1999
----------- -----------
Expected income tax benefit $(1,085,410) (475,822)
State income tax benefit (123,399) (53,192)
Meals and entertainment 1,986 537
Investment in NPWT -- (16,063)
Change in valuation allowance 1,206,823 544,540
----------- -----------
Actual income tax expense $ -- --
=========== ===========
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2000
and 1999 are as follows:
2000 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforward $ 2,731,726 1,687,758
Accrual to cash conversion 403,207 183,541
Deferred revenue -- 72,610
Research credit 34,528 34,528
----------- -----------
Total gross deferred tax assets 3,169,461 1,978,437
Less valuation allowance on deferred tax assets (3,158,943) (1,952,120)
----------- -----------
Net deferred tax assets 10,518 26,317
Deferred tax liabilities - property and equipment,
principally due to differences in depreciation 10,518 26,317
----------- -----------
Net deferred tax asset/liability $ -- --
=========== ===========
(Continued)
F-10
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The valuation allowance for deferred tax assets as of December 31, 1999 was
approximately $2,000,000. The net change in the total valuation allowance
for the year ended December 31, 2000 was an increase of approximately
$1,200,000 to a balance of approximately $3,200,000. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion of all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies in
making this assessment. Based upon the level of historical taxable losses
and projections for future losses over the period which the deferred tax
assets are deductible, management does not believe it is more likely than
not the Company will realize the benefits of these deductible differences;
therefore, a 100% valuation allowance of net deferred tax assets is
appropriate as of December 31, 2000 and 1999.
At December 31, 2000, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $7,200,000, which are
available to offset future Federal taxable income, if any. These net
operating loss carryforwards expire between 2011 and 2019. The Company also
has research credit carryforwards for Federal income tax purposes of
approximately $35,000, which are available to reduce future regular income
taxes, if any. These research tax credits expire in 2011.
(7) Leases
The Company has entered into noncancelable lease agreements for certain
computer equipment that are accounted for as a capital lease. The following
is an analysis of the leased property under capital leases by major class:
2000 1999
--------- ---------
Computer equipment $ 110,951 110,951
Less accumulated amortization (97,110) (76,979)
--------- ---------
$ 13,841 33,972
========= =========
Amortization of assets held under capital leases is included with
depreciation expense in the accompanying consolidated statements of
operations.
(Continued)
F-11
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The Company has also entered into leases for sales and administrative
offices and various equipment which are accounted for as operating leases.
Rent expense for operating leases in 2000 and 1999 totaled approximately
$89,000 and $109,000, respectively. At December 31, 2000, the Company's
future minimum lease payments under noncancelable operating leases and
future minimum rental payments due under capital leases were as follows:
Capital Operating
leases leases
------- -------
Year ended December 31:
2001 $ 7,272 73,615
2002 5,052 6,366
2003 4,352 --
------- -------
Total minimum lease payments 16,676 $79,981
=======
Less amount representing interest 2,835
-------
Present value of net minimum lease payments 13,841
Less current installments 5,700
-------
Capital lease obligations, excluding current installments $ 8,141
=======
(8) Loss Per Share
A reconciliation of the number of shares used in the calculation of basis
and diluted loss per share and the calculated amounts of loss per share
follows:
Year ended December 31,
-----------------------------
2000 1999
------------ ------------
Shares outstanding - beginning of period 18,765,161 14,926,359
Weighted-average number of common shares issued 3,457,270 1,686,105
------------ ------------
Weighted-average number of common share outstanding -
end of period 22,222,431 16,612,464
Dilutive shares -- --
------------ ------------
Dilutive shares outstanding 22,222,431 16,612,464
============ ============
Net loss (in thousands) $ (3,192) (1,399)
============ ============
Basic and diluted earnings per share $ (0.14) (0.08)
============ ============
(Continued)
F-12
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(9) Stockholders' Equity
The Company has two classes of common stock, which include 17,000,000
authorized shares of voting common stock, $0.01 par value, and 10,000,000
authorized shares of non-voting common stock, $0.01 par value. Dividends
can be declared on outstanding common shares at the discretion of the
Company's board of directors.
The Company has 2,000,000 authorized shares of preferred stock, $0.01 par
value. The shares of preferred stock shall have a liquidation preference
whereby in the event of voluntary or involuntary liquidation, dissolution,
or winding up of the Company, the holders of the preferred stock shall be
entitled to be paid out of the assets of the Company available for
distribution to its shareholders, whether from equity or earnings, an
amount of $2.00 per share. No distributions shall be made on any common
stock by reason of any voluntary or involuntary liquidation, dissolution,
or winding up of the Company unless each shareholder of preferred shares
receives the full liquidated value for each share held. The holders of the
preferred shares shall have no right to participate in distributions on
liquidation in excess of the $2.00 per share liquidation preference. The
holders of preferred shares shall have a conversion right effective for two
years beginning after the common shares become publicly traded on a
national securities exchange. The conversion right will allow the preferred
shareholders to exchange one common share for one preferred share. The
converted shares may not be sold for a period of one year from the date on
which the shares become publicly traded on a national securities exchange.
The holders of preferred shares have no right to receive dividends.
(10) Supplemental Cash Flow Information
For the years ended December 31, 2000 and 1999, the Company paid
approximately $5,600 and $6,000, respectively, in cash for interest
expense.
During 1999, capital lease obligations of approximately $25,000 were
incurred when the Company entered into leases for new computer equipment.
During 1999, the Company converted a $487,000 payable to a stockholder into
Class A voting common stock.
(11) Commitments and Contingencies
The Company is involved in certain litigation which occurs in the normal
course of business. In the opinion of management, the ultimate results of
these matters will not have a material impact on the financial position of
the Company.
(12) Related Party Transactions
During 2000 and 1999, the Company paid consulting fees and sales-based
performance commissions of approximately $286,000 and $264,000,
respectively, to two officers of the Company and a family member of the
officers.
During 2000 and 1999, the Company paid consulting fees of approximately
$271,000 and $95,000, respectively, to stockholders of the Company.
(Continued)
F-13
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
During 2000 and 1999, approximately $198,000 and $101,000, respectively, of
services were provided by stockholders and consultants of the Company in
exchange for shares of Class B non-voting common stock of the Company.
During 2000, the Company borrowed $45,000 from an entity which is majority
owned by an officer of the Company. The amount was outstanding at December
31, 2001, and is included in accounts payable in the accompanying
consolidated balance sheet.
During 2000, an officer of the Company incurred business expenses of
$19,000 which the Company repaid $7,000 and the remaining $12,000 was
outstanding at December 31, 2000 and is included in accounts payable in the
accompanying consolidated balance sheet.
(13) Stock Option Plan
In January 2000, the Company's Board of Directors approved the 1999 Varner
Technologies, Inc. Stock Option Plan, which authorizes the Company to issue
stock options for up to 4,000,000 shares of Class A voting common stock and
3,500,000 shares of Class B non-voting common stock of the Company to
executives, employees, directors, and consultants of the Company. As of
December 31, 2000, the Company has not issued any stock options.
(14) Events Subsequent to the Balance Sheet Date
On February 14, 2001, the Company signed a letter of intent with a third
party to purchase certain telecommunications equipment for $100,000 in cash
and the issuance of stock. If the acquisition occurs, the third party will
have the right to put, and the Company will have the right to call, 35% of
the stock in exchange for $500,000 in cash. The Company anticipates funding
this potential acquisition through expected additional capital infusions.
F-14
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
March 31, 2001 and 2000 (unaudited)
Consolidated balance sheets F-16
Consolidated statements of operations F-17
Consolidated statements of changes in F-18
stockholders equity (deficit)
Consolidated statements of cash flows F-19
Notes to unaudited consolidated financial statements F-20
F-15
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and March 31, 2001 (unaudited)
December 31, March 31,
2000 2001
----------- -----------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 16,783 131,101
Accounts receivable 20,637 80,662
Amounts due from related parties 10,000 11,750
Inventory 38,035 40,735
Prepaid expenses and other assets 25,558 53,198
----------- -----------
Total current assets 111,013 317,446
Property and equipment, net 141,988 133,674
----------- -----------
Total assets $ 253,001 451,120
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 902,193 800,859
Accrued expenses 83,720 67,089
Amounts due to related parties 11,657 9,657
Unearned revenue 162,484 172,157
Current installments of capital lease obligations 5,700 3,654
----------- -----------
Total current liabilities 1,165,754 1,053,416
Capital lease obligations, excluding current installments 8,141 7,176
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value; 2,000,000 shares authorized; 1,776,475 and
1,882,975 shares issued and outstanding at
December 31, 2000 and March 31, 2001, respectively 17,765 18,830
Common stock - Class A voting, $0.01 par value; 17,000,000
shares authorized; 14,827,828 and 16,288,078 shares issued and
outstanding at December 31, 2000 and March 31, 2001, respectively 148,279 162,881
Common stock - Class B non-voting, $0.01 par value;
10,000,000 shares authorized; 9,809,347 shares
issued and outstanding at December 31, 2000 and March 31, 2001 98,093 98,093
Additional paid-in capital 7,492,261 8,387,618
Retained deficit (8,677,292) (9,276,894)
----------- -----------
Total stockholders' equity (deficit) (920,894) (609,472)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 253,001 451,120
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
F-16
VARNER TECHNOLOGIES, INC.
Consolidated Statements of Operations
Three months ended March 31, 2000 and 2001 (unaudited)
Three months ended
March 31,
---------------------------
2000 2001
----------- -----------
(unaudited)
Sales 738,863 321,094
Cost of sales 417,255 200,789
----------- -----------
Gross profit 321,608 120,305
----------- -----------
Operating expenses:
Commissions 473,523 165,445
Salaries and compensation 154,546 350,392
Depreciation and amortization 25,942 16,029
Other operating expenses 160,755 189,916
----------- -----------
Total operating expenses 814,766 721,782
----------- -----------
Loss from operations (493,158) (601,477)
----------- -----------
Other income (expense):
Interest income 538 2,018
Interest expense (533) (143)
----------- -----------
Total other income (expense) 5 1,875
----------- -----------
Net loss (493,153) (599,602)
=========== ===========
Basic and diluted loss per share (0.03) (.02)
=========== ===========
Weighted-average common shares
outstanding, basic and diluted 18,813,119 24,922,433
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
F-17
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Year ended December 31, 2000
and three months ended March 31, 2001 (unaudited)
Common stock - Common stock -
Preferred stock Class A Class B
----------------------- ----------------------- -----------------------
Number of Number of Number of
shares Amount shares Amount shares Amount
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1999 671,000 $ 6,710 12,827,828 $ 128,279 5,937,333 $ 59,373
Issuance of stock for services rendered -- -- -- -- 1,531,514 15,315
Proceeds from sale of stock 1,105,475 11,055 2,000,000 20,000 2,340,500 23,405
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2000 1,776,475 $ 17,765 14,827,828 $ 148,279 9,809,347 $ 98,093
========== ========== ========== ========== ========== ==========
Issuance of stock for services
rendered -- $ -- 980,250 $ 9,802 -- $ --
Exchange of preferred stock
for Class A stock (300,000) (3,000) 480,000 $ 4,800 -- --
Proceeds from sale of stock 406,500 $ 4,065 -- -- -- --
Net loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
March 31, 2001 1,882,975 $ 18,830 16,288,078 $ 162,881 9,809,347 $ 98,093
========== ========== ========== ========== ========== ==========
Additional
paid-in Retained
capital deficit Total
---------- ---------- ----------
Balance at December 31, 1999 4,718,908 (5,484,910) (571,640)
Issuance of stock for services rendered 182,812 -- 198,127
Proceeds from sale of stock 2,590,541 -- 2,645,001
Net loss -- (3,192,382) (3,192,382)
---------- ---------- ----------
Balance at December 31, 2000 7,492,261 (8,677,292) (920,894)
========== ========== ==========
Issuance of stock for services rendered 88,222 -- 98,024
Exchange of preferred stock
for Class A stock (1,800) -- --
Proceeds from sale of stock 808,935 -- 813,000
Net loss -- (599,602) (599,602)
---------- ---------- ----------
March 31, 2001 8,387,618 (9,276,894) (609,472)
========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
F-18
VARNER TECHNOLOGIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended March 31, 2000 and 2001 (unaudited)
Three months ended
March 31,
-----------------------
2000 2001
-------- --------
(unaudited)
Cash flows from operating activities:
Net loss (493,153) (599,602)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 25,942 16,029
Compensation expense for issuance of stock 23,979 98,024
Changes in operating assets and liabilities,
exclusive of acquisition:
Accounts receivable 3,583 (61,775)
Inventory (14,066) (2,700)
Prepaid expenses 1,176 (27,640)
Other assets (49,173) --
Accounts payable (80,970) (101,334)
Accrued expenses (58,201) (18,631)
Unearned revenue (77,528) 9,673
-------- --------
Net cash used in operating activities (718,411) (687,956)
-------- --------
Cash flows from investing activities
Purchases of property and equipment (11,998) (7,715)
Cash paid for acquisition -- --
-------- --------
Net cash used in investing activities (11,998) (7,715)
-------- --------
Cash flows from financing activities:
Payments from (advances to) stockholders -- --
Proceeds on borrowings from note payable -- --
Proceeds from sale of stock 692,450 813,000
Payments on capital lease obligations (7,683) (3,011)
-------- --------
Net cash provided by financing activities 684,767 809,989
-------- --------
Net increase (decrease) in cash and cash equivalents (45,642) 114,318
Cash and cash equivalents, beginning of period 111,202 16,783
-------- --------
Cash and cash equivalents, end of period 65,560 131,101
======== ========
See accompanying notes to unaudited consolidated financial statements.
F-19
VARNER TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited financial statements of Varner Technologies,
Inc. have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information
and, therefore, do not include all information and footnotes necessary for
a complete presentation of financial position, results of operations and
cash flows in conformity with accounting principles generally accepted in
the United States of America.
In the opinion of management, all adjustments considered necessary for a
fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
Operations for the period ended March 31, 2001, are not necessarily
indicative of the results that can be expected for the year ended December
31, 2001.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates.
The financial data at December 31, 2000 is derived from audited financial
statements which are included in this prospectus and should be read in
conjunction with the audited financial statements and the notes thereto.
(2) BUSINESS COMBINATION/MERGER
On November 22, 2000, in a private transaction, the Company purchased
approximately 90% of Peppermill Capital Corporation, Inc's (Peppermill)
stock. The final terms of this business combination/merger have been
negotiated, and are contained in a formal Acquisition Agreement, which was
executed on June 2, 2000. This merger is contingent upon and will not
become effective until such time as Peppermill completes the registration
of the underlying stock.
F-20
(3) LOSS PER SHARE
Basic and diluted net loss per common share was computed by dividing the
net loss by the weighted number of shares of common stock outstanding
during each period. A reconciliation of the number of shares used in the
calculation of basic and diluted loss per share and the calculated amounts
of loss per share follows:
Three months ended
March 31,
--------------------------
2000 2001
----------- -----------
Shares outstanding - beginning of period 18,765,161 24,637,175
Weighted average number of common
shares issued 47,958 285,258
----------- -----------
Weighted average number of common
shares outstanding - end of period 18,813,119 24,922,433
Dilutive shares -- --
----------- -----------
Dilutive shares outstanding 18,813,119 24,922,433
=========== ===========
Net loss (in thousands) (493,153) (599,600)
=========== ===========
Basic and diluted earnings per share (.03) (.02)
=========== ===========
(4) GOING CONCERN UNCERTAINTIES
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations and has a net capital deficiency
that raise substantial doubt about its ability to continue as a going
concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
(5) PREFERRED STOCK EXCHANGE
During the three months ended March 31, 2001, various shareholders
exchanged 300,000 shares of preferred stock, at an exchange rate of 1.6 per
share, for 480,000 shares of Class A voting common stock.
(6) SUBSEQUENT EVENTS
During June, 2001, an officer of the Company loaned the Company
$233,000.
During June, 2001, the Company sold 480,000 shares of Class A voting
common stock to a company owned by an officer of the Company.
F-21
C O N T E N T S
Page
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT F-23
FINANCIAL STATEMENTS
Balance sheet F-24
Statements of operations F-25
Statements of deficiency in assets F-26
Statements of cash flows F-27
Notes to financial statements F-28
F-22
INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------------------------------------
To the Stockholders
Peppermill Capital Corporation
Chesterfield, Missouri
We have audited the accompanying balance sheet of Peppermill Capital Corporation
as of December 31, 2000, and the related statements of operations, deficiency in
assets and cash flows for each of the two years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Peppermill Capital Corporation
as of December 31, 2000, and the results of its operations, and its cash flows
for each of the two years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company does not have working capital as of December
31, 2000. This raises substantial doubt about the Company's ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
KAUFMAN, ROSSIN & CO.
Miami, Florida
March 23, 2001
F-23
PEPPERMILL CAPITAL CORPORATION
BALANCE SHEET
DECEMBER 31, 2000
================================================================================
LIABILITIES AND DEFICIENCY IN ASSETS
================================================================================
CURRENT LIABILITIES
Accrued liabilities, to related parties (Note 2) $ 38,416
- -------------------------------------------------------------------------------
DEFICIENCY IN ASSETS
Common stock, 200,000,000 shares authorized, at $0.001
par value; 11,239,700 shares issued and outstanding 11,240
Additional paid-in capital 33,291
Accumulated deficit (82,947)
- -------------------------------------------------------------------------------
Total deficiency in assets 38,416
- -------------------------------------------------------------------------------
$ --
================================================================================
See accompanying notes.
F-24
PEPPERMILL CAPITAL CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
===================================================================================================
2000 1999
===================================================================================================
REVENUE $ -- $ --
EXPENSES 38,416 21,499
- ---------------------------------------------------------------------------------------------------
NET LOSS ($ 38,416) ($ 21,499)
===================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 11,239,700 11,239,700
===================================================================================================
NET LOSS PER SHARE - BASIC AND DILUTED $ -- $ --
===================================================================================================
See accompanying notes.
F-25
PEPPERMILL CAPITAL CORPORATION
STATEMENTS OF DEFICIENCY IN ASSETS
YEARS ENDED DECEMBER 31, 2000 AND 1999
=================================================================================================================================
Common Stock
------------------------- Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
=================================================================================================================================
BALANCE - DECEMBER 31, 1998 11,239,700 $ 11,240 $ 21,930 ( $ 23,032) $ 10,138
Contribution of capital -- -- 11,361 -- 11,361
Net loss for the year ended December 31, 1999 -- -- -- ( 21,499) ( 21,499)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1999 11,239,700 11,240 33,291 ( 44,531) --
Net loss for the year ended December 31, 2000 -- -- -- ( 38,416) ( 38,416)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 2000 11,239,700 $ 11,240 $ 33,291 ( $ 82,947) ( $ 38,416)
=================================================================================================================================
See accompanying notes.
F-26
PEPPERMILL CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000 AND 1999
===========================================================================================================
2000 1999
===========================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ( $38,416) ($21,499)
- -----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization -- 2,129
Change in accounts payable and accrued liabilities 38,416 3,245
- -----------------------------------------------------------------------------------------------------------
Total adjustments -- 5,374
- -----------------------------------------------------------------------------------------------------------
Net cash used in operating activities -- (16,125)
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable -- 15,000
- -----------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH -- (1,125)
CASH AT BEGINNING OF YEAR -- 1,125
- -----------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ -- $ --
===========================================================================================================
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
- -----------------------------------------------------------------------------------------------------------
During 1999, certain stockholders of the Company converted amounts owed to
them into capital $ -- $ 11,361
===========================================================================================================
See accompanying notes.
F-27
PEPPERMILL CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Organization and Business Activity
Peppermill Capital Corporation (the Company) was incorporated in April
1998, under the laws of the State of Nevada for the purpose of exploration
and development of mineral properties. The Company was considered to be in
the development stage through December 31, 1998.
On November 22, 1999, in a private transaction, Varner Technologies, Inc.
(Varner) purchased approximately 90% of the Company's outstanding common
stock. The final terms of this business combination/merger have been
negotiated, and are contained in a formal Acquisition Agreement, which was
executed on June 2, 2000. This merger is contingent upon and will not
become effective until such time as the Company completes the registration
of the underlying stock. In connection therewith, the Company filed a
Registration Statement on Form S-4 with the Securities and Exchange
Commission on July 7, 2000, and is currently in the process of revising the
content and disclosures made in said Registration Statement pursuant to
comments received from the SEC, in order to achieve the effectiveness of
said Registration Statement.
At December 31, 2000, the Company had no planned operations and was not
considered to be in the development stage.
Use of Estimates
The preparation of these financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
Income Taxes
The Company accounts for income taxes according to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under
the liability method specified by SFAS No. 109, deferred income taxes are
recognized for the future tax consequences of temporary differences between
the financial statement carrying amounts and tax bases of assets and
liabilities.
Net Loss Per Share
The Company applies Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (FAS 128). Net loss per share is computed by dividing
net loss by the weighted average number of common shares outstanding during
the reported period. There were no potentially dilutive securities
outstanding at December 31, 2000 or 1999.
F-28
- --------------------------------------------------------------------------------
NOTE 2. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
Varner Technologies, Inc. (90% owner of the Company) paid $38,416 of
expenses on behalf of the Company during 2000.
- --------------------------------------------------------------------------------
NOTE 3. INCOME TAXES
- --------------------------------------------------------------------------------
At December 31, 2000 the Company had a deferred tax asset of approximately
$31,000, resulting from net operating losses of approximately $83,000. The
deferred tax asset is offset entirely by a valuation allowance. The net
operating losses will expire in through 2020.
Deferred tax assets are reduced by a valuation allowance if, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Management's valuation procedures
consider projected utilization of deferred tax assets prospectively over
the next several years, and continually evaluate new circumstances
surrounding the future realization of such assets.
The income tax benefit differs from the amount computed by applying the
federal statutory tax rate to loss before income taxes principally due to
an increase in the deferred tax asset valuation allowance of approximately
$14,000.
- --------------------------------------------------------------------------------
NOTE 4. GOING CONCERN UNCERTAINTIES
- --------------------------------------------------------------------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation
of the Company as a going concern. The Company has sustained losses and
negative cash flows from inception and has no working capital available to
fund any possible future expenditures necessary to remain in business. The
Company believes any future capital requirements will be provided by the
majority stockholder.
F-29
PEPPERMILL CAPITAL CORPORATION
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
THREE MONTHS ENDED
MARCH 31, 2001
Condensed balance sheets F-31
Condensed statement of operations (unaudited) F-32
Condensed statements of cash flows (unaudited) F-33
Notes to condensed financial statements (unaudited) F-34
F-30
PEPPERMILL CAPITAL CORPORATION
CONDENSED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(Unaudited)
March December
LIABILITIES AND DEFICIENCY IN ASSETS 31, 2001 31, 2000
- --------------------------------------------------------------------------------
CURRENT LIABILITIES
Accrued liabilities, to related parties (Note 2) $ 44,411 $ 38,416
- --------------------------------------------------------------------------------
DEFICIENCY IN ASSETS
Common stock, 200,000,000 shares authorized,
at $0.001 par value; 11,239,700 shares
issued and outstanding 11,240 11,240
Additional paid-in capital 33,291 33,291
Accumulated deficit (88,942) (82,947)
------- -------
Total deficiency in assets (44,411) (38,416)
- --------------------------------------------------------------------------------
$ -- $ --
================================================================================
See notes to condensed financial statements - unaudited.
F-31
PEPPERMILL CAPITAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
Three months ended
March
2001 2000
- --------------------------------------------------------------------------------
REVENUE $ -- $ --
OPERATING EXPENSES
General and administrative 5,995 11,656
- --------------------------------------------------------------------------------
NET LOSS ($ 5,995) ($ 11,656)
================================================================================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 11,239,700 11,239,700
================================================================================
NET LOSS PER SHARE - BASIC AND DILUTED $ -- $ --
================================================================================
See notes to condensed financial statements - unaudited.
F-32
PEPPERMILL CAPITAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
Three months ended
March
2001 2000
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($5,995) ($11,656)
Adjustment to reconcile net loss to net cash
used in operating activities:
Increase in accounts payable and accrued expenses 5,995 11,656
- --------------------------------------------------------------------------------
Net cash provided by operating activities,
representing the net increase in cash
for the period -- --
- --------------------------------------------------------------------------------
CASH - BEGINNING OF PERIOD -- --
- --------------------------------------------------------------------------------
CASH - END OF PERIOD $ -- $ --
================================================================================
See notes to condensed financial statements - unaudited.
F-33
PEPPERMILL CAPITAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
Basis of Presentation
The accompanying (unaudited) financial statements of Peppermill Capital
Corporation have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information
and with the instructions to Form 10-QSB and, therefore, do not include all
information and footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles.
In the opinion of management, all adjustments considered necessary for a
fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
Operations for the period ended March 31, 2001, are not necessarily
indicative of the results that can be expected for the year ended December
31, 2001.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from these estimates.
The financial data at December 31, 2000 is derived from audited financial
statements which are included in the Company's form 10-KSB and should be
read in conjunction with the audited financial statements and the notes
thereto.
- --------------------------------------------------------------------------------
NOTE 2. BUSINESS COMBINATION/MERGER
- --------------------------------------------------------------------------------
On November 22, 2000, in a private transaction, Varner Technologies, Inc.
(Varner) purchased approximately 90% of the Company's outstanding common
stock. The final terms of this business combination/merger have been
negotiated, and are contained in a formal Acquisition Agreement, which was
executed on June 2, 2000. This merger is contingent upon and will not
become effective until such time as the Company completes the registration
of the underlying stock.
F-34
- --------------------------------------------------------------------------------
NOTE 3. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
Varner Technologies, Inc. (90% owner of the Company) paid certain expenses
on behalf of the Company aggregating $5,995 for the three month period
ended March 31, 2001.
- --------------------------------------------------------------------------------
NOTE 4. NET LOSS PER COMMON SHARE
- --------------------------------------------------------------------------------
Basic and diluted net loss per common share was computed by dividing the
net loss by the weighted number of shares of common stock outstanding
during each period.
- --------------------------------------------------------------------------------
NOTE 5. GOING CONCERN UNCERTAINTIES
- --------------------------------------------------------------------------------
The Company has sustained losses and negative cash flows from inception and
has no working capital available to fund any possible future expenditures
necessary to remain in business. The Company believes any future capital
requirements will be provided by the majority stockholder.
F-35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Section 78.751 of the Nevada general corporation law allows domestic
corporations such as Peppermill to indemnify any person who was or is threatened
to be made a party to any threatened, pending, or completed action, suit, or
proceeding, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of any corporation,
partnership, joint venture, trust, or other enterprise. Peppermill's bylaws
provide that such persons shall be indemnified and held harmless to the fullest
extent permitted by Nevada law.
Nevada law permits domestic corporations such as Peppermill to advance
expenses in connection with defending any such proceedings, provided that the
person being indemnified undertakes to repay any such advances if it is later
determined that he was not entitled to be indemnified by the corporation.
Peppermill's bylaws requires that Peppermill advance such funds upon receipt of
such an undertaking with respect to repayment.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of Peppermill
pursuant to the foregoing provisions or otherwise, Peppermill has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in such act, and is
therefore unenforceable.
Item 21. Exhibits and Financial Statement Schedules
(a)
Exhibits Description
- -------- -----------
2.1 Stock Purchase Agreement, dated as of November 19, 1999, between
Varner Technologies, Inc. and certain Peppermill Capital
Corporation shareholders.(1)
2.2 Agreement and Plan of Merger, dated as of June 2, 2000, between
Peppermill Capital Corporation and Varner Technologies, Inc.
(included as Appendix A to the proxy statement-prospectus forming
a part of this Registration Statement and incorporated herein by
reference).(1)
3.1 Bylaws of Peppermill Capital Corporation.(2)
3.2 Articles of Incorporation of Peppermill Capital Corporation.(2)
3.3 Form of Certificate of Amendment to Articles of Incorporation for
Peppermill Capital Corporation (included as Appendix B to the
proxy statement-prospectus forming a part of this Registration
Statement and incorporated herein by reference).(1)
62
Exhibits Description
- -------- -----------
4.1 Text of Common Stock Certificate for Peppermill Capital
Corporation (renamed Varner Technologies, Inc.).(1)
4.2 Text of Preferred Stock Certificate for Peppermill Capital
Corporation (renamed Varner Technologies, Inc.) (1)
5.1 Opinion of Merrick & Klimek, P.C. as to the legality of the
shares of Peppermill Capital Corporation Common Stock being
registered hereby.
8.1 Tax Opinion of Merrick & Klimek, P.C.
10.1 Valuation and Related Fairness Opinion prepared by Evans & Evans,
Inc.(1)
10.2 Peppermill Capital Corporation 2001 Stock Option Plan (1)
16.1 Letter of Andersen, Andersen & Strong re: change in certified
accountant.(3)
23.1 Consent of KPMG LLP.
23.2 Consent of Merrick & Klimek, P.C. (included as part of its
opinion filed as Exhibit 5.1 and incorporated herein by
reference).
23.3 Consent of Kaufman, Rossin & Co.
23.4 Consent of Evans and Evans, Inc.(1)
24.1 Power of Attorney (contained in signature page).
99.1 Text of Proxy Card. (1)
- ------------------
(1) Previously filed.
(2) Incorporated by reference from Peppermill's Registration Statement on Form
10-SB File No.000-25989, filed on May 6, 1999.
(3) Incorporated by reference from Peppermill's Current Report on Form 8-K
dated April 7, 2000.
(b) Not Applicable.
Item 22. Undertakings
Peppermill hereby undertakes:
(1) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of
this Form S-4 under the Securities Act of 1933, within one business
day of receipt of any such request, and to send the incorporated
documents by first class mail or other equally prompt means, including
information contained in documents filed after the effective date of
the registration statement through the date of responding to such
request.
(2) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective; and
63
(3) insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons
of Peppermill pursuant to the provisions described in Item 20 above,
or otherwise, Peppermill has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable. If a claim of indemnification against such liabilities
(other than the payment by Peppermill of expenses incurred or paid by
a director, officer or controlling person of Peppermill in a
successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, Peppermill will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of
such issue.
64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Peppermill had duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of
Chesterfield, State of Missouri, on the 19th day of June, 2001.
Peppermill Capital Corporation
By: /s/ Clayton W. Varner
------------------------------------
Clayton W. Varner,
Chief Executive Officer and Chairman
65
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Clayton W. Varner his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Clayton W. Varner Chairman, Chief Executive June 19, 2001
- ---------------------- Officer, Chief Financial
Clayton W. Varner Officer, Director
/s/ Tjody Varner President of Sales and
- ---------------------- Marketing of Networking
People with Technology,
L.L.C., Director June 19, 2001
/s/ Robert Rapp Executive Vice President,
- ---------------------- Secretary, Director June 19, 2001
66
EXHIBIT INDEX
Exhibits Description
- -------- -----------
2.1 Stock Purchase Agreement, dated as of November 19, 1999, between
Varner Technologies, Inc. and certain Peppermill Capital
Corporation shareholders.(1)
2.2 Agreement and Plan of Merger, dated as of June 2, 2000, between
Peppermill Capital Corporation and Varner Technologies, Inc.
(included as Appendix A to the proxy statement-prospectus forming
a part of this Registration Statement and incorporated herein by
reference).(1)
3.1 Bylaws of Peppermill Capital Corporation(2)
3.2 Articles of Incorporation of Peppermill Capital Corporation(2)
3.3 Form of Certificate of Amendment to Articles of Incorporation for
Peppermill Capital Corporation (included as Appendix B to the
proxy statement-prospectus forming a part of this Registration
Statement and incorporated herein by reference).(1)
4.1 Text of Common Stock Certificate for Peppermill Capital
Corporation (renamed Varner Technologies, Inc.).(1)
4.2 Text of Preferred Stock Certificate for Peppermill Capital
Corporation (renamed Varner Technologies, Inc.) (1)
5.1 Opinion of Merrick & Klimek, P.C. as to the legality of the
shares of Peppermill Capital Corporation Common Stock being
registered hereby.
8.1 Tax Opinion of Merrick & Klimek, P.C.
10.1 Valuation and Related Fairness Opinion prepared by Evans & Evans,
Inc.(1)
10.2 Peppermill Capital Corporation 2001 Stock Option Plan (1)
16.1 Letter of Andersen, Andersen & Strong re: change in certified
accountant.(3)
23.1 Consent of KPMG LLP.
23.2 Consent of Merrick & Klimek, P.C. (included as part of its
opinion filed as Exhibit 5.1 and incorporated herein by
reference).
23.3 Consent of Kaufman, Rossin & Co.
23.4 Consent of Evans and Evans, Inc. (1)
24.1 Power of Attorney (contained in signature page).
99.1 Text of Proxy Card.(1)
- ------------------
(1) Previously filed.
(2) Incorporated by reference from Peppermill's Registration Statement on Form
10-SB File No.000-25989, filed on May 6, 1999.
(3) Incorporated by reference from Peppermill's Current Report on Form 8-K
dated April 7, 2000.
67