SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
schedule 14A information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the Com-
mission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
MILLER DIVERSIFIED CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11).
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
$1,133.06
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
$1,133.06
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY - 04/18/03
Preliminary Proxy Statement
Miller Diversified Corporation
5754 West 11th Street
Greeley, Colorado 80634
Telephone: (970) 356-1200
Facsimile: (970) 356-1574
- --------------------------------------------------------------------------------
May 5, 2003
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Miller Diversified Corporation to be held on May 23, 2003, commencing at 2:00
p.m. (Mountain Time) at 5754 West 11th Street, Greeley, Colorado. The board of
directors and management look forward to personally greeting those stockholders
able to attend the meeting.
At the Special Meeting you will be asked to consider and vote on the election of
three directors to serve until the next Annual Meeting. The three directors
nominated are the present directors of the Company. Since we have not had an
annual meeting for the election of directors since 1997, we are asking that you
confirm the present directors for another year.
In addition to electing directors, you are being asked to consider and vote on a
proposal to sell substantially all the assets of the Company to Miller Feed Lots
Inc., an affiliate company. As explained in the proxy statement, Miller Feed
Lots is owned and controlled by your board of directors. That creates a conflict
of interest for the board of directors, which is explained in the proxy
statement. The proxy statement also explains that the Company's line of
financing to purchase feeder cattle for both the Company and cattle feeders has
been terminated because of the history of losses in the cattle feeding business,
and the Company in particular. Your board of directors thinks it is in the best
interest of stockholders to sell the cattle feeding business and attempt to
merge the Company with another entity, where stockholders will have the
possibility of being in a profitable business. As explained in the proxy
statement, your board of directors is seeking other opportunities for the
Company, but there is no assurance other opportunities will be found for
combination with a profitable enterprise, and it is unknown what share of such
enterprise Company stockholders might have.
Your board of directors recommends a vote FOR the election of directors, and FOR
the sale of assets.
Regardless of the number of shares you own and whether or not you plan to
attend, it is important that your shares are represented and voted at the
Special Meeting. Accordingly, you are requested to sign, date and mail the
enclosed proxy at your earliest convenience.
On behalf of the board of directors, thank you for your cooperation and support.
Sincerely,
/s/ James E. Miller
James E. Miller
President and Chief Executive Officer
MILLER DIVERSIFIED CORPORATION
5754 WEST 11TH STREET
GREELEY, Colorado 80634
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held May 23, 2003
To the Stockholders of
Miller Diversified Corporation:
You are hereby notified that a Special Meeting of Stockholders of Miller
Diversified Corporation will be held on May 23, 2003 at 2:00 p.m. (Mountain
Time) at 5754 West 11th Street, Greeley, Colorado, for the following purposes:
Item 1. to elect three persons to the Company's board of directors to serve
until the next Annual Meeting of stockholders or until their successors are duly
elected and qualified;
Item 2. to consider and vote on the sale of substantially all the assets of
the Company pursuant to an Asset Purchase Agreement dated April 17, 2003,
between Miller Feed Lots Inc., as Buyer, and Miller Diversified Corporation, as
Seller, for a promissory note to us for the net purchase price and the
assumption of certain liabilities; and
Item 3. to consider and act upon such other business as may properly be
presented for action at the Special Meeting or any adjournment thereof.
The board of directors has fixed the close of business on April 3, 2003 as the
Record Date for the Special Meeting. Only stockholders of record at the close of
business on the Record Date will be entitled to notice of and to vote at the
Special Meeting. Our transfer books will not be closed.
The board of directors extends a cordial invitation to all stockholders to
attend the Special Meeting, as it is important that your shares be represented
at the meeting. Even if you plan to attend the Special Meeting, you are strongly
encouraged to mark, date, sign and mail the enclosed proxy card in the return
envelope provided as promptly as possible.
You may revoke your proxy by following the procedures set forth in the
accompanying proxy statement. If you are unable to attend, your written proxy
will assure that your vote is counted.
By Order of the Board of Directors
/s/ Clark A. Miller
Clark A.Miller
Greeley, Colorado Secretary
May 5, 2003
TABLE OF CONTENTS
Page
----
PROXY STATEMENT..............................................................1
QUORUM AND VOTING RIGHTS.....................................................1
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS...................2
SUMMARY TERM SHEET...........................................................3
QUESTIONS AND ANSWERS ABOUT THE ELECTION OF DIRECTORS AND SALE OF ASSETS.....6
ITEM 1: ELECTION OF DIRECTORS...............................................7
MANAGEMENT RECOMMENDS A VOTE FOR EACH NOMINEE NAMED..........................8
SECURITY OWNERSHIP OF MANAGEMENT.............................................9
EXECUTIVE COMPENSATION.......................................................9
PURCHASER...................................................................10
CONFLICTS OF INTEREST.......................................................10
RISK FACTORS................................................................11
COMPANY'S BUSINESS..........................................................15
GENERAL..................................................................15
PRODUCTS AND SERVICES....................................................15
RAW MATERIALS............................................................16
MAJOR CUSTOM feedERS.....................................................17
COMPETITION..............................................................17
GOVERNMENT REGULATIONS...................................................17
EMPLOYEES................................................................18
FEEDLOT FACILITIES.......................................................18
TRANSACTIONS WITH MANAGEMENT.............................................18
BORROWED FUNDS...........................................................19
PROFIT/LOSS SHARING AGREEMENT WITH MILLER FEED LOTS......................19
MARKETS FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS...............19
ITEM 2. THE SALE OF ASSETS TRANSACTION....................................20
BOARD OF DIRECTORS RECOMMENDATION........................................20
REASONS FOR THE SALE OF ASSETS...........................................21
SUMMARY OF the ASSET PURCHASE AGREEMENT.....................................21
CONSIDERATION............................................................21
ASSETS SOLD..............................................................22
ASSUMED LIABILITIES......................................................22
EXCLUDED LIABILITIES.....................................................23
CLOSING..................................................................23
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................23
REPRESENTATIONS AND WARRANTIES OF MILLER FEED LOTS.......................24
COVENANTS OF MILLER FEED LOTS............................................24
covenants of the COMPANY.................................................24
CONDITIONS TO CLOSING....................................................25
CONDITIONS TO OBLIGATIONS OF THE COMPANY.................................25
i
TERMINATION, AMENDMENT, WAIVER, RELIEF...................................25
ARBITRATION..............................................................26
ACCOUNTING TREATMENT OF THE SALE OF ASSETS TRANSACTION......................26
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SALE OF ASSETS TRANSACTION.26
GENERAL..................................................................26
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY...........................27
USE OF PROCEEDS.............................................................27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.............28
ITEM 3. OTHER MATTERS......................................................32
INDEPENDENT PUBLIC ACCOUNTANT...............................................32
STOCKHOLDERS' PROPOSALS FOR 2004 ANNUAL MEETING.............................32
EXHIBITS....................................................................33
APPENDIX A - ASSET PURCHASE AGREEMENt......................................A-1
APPENDIX B - FORM OF PROXY.................................................B-1
ii
MILLER DIVERSIFIED CORPORATION
5754 WEST 11TH STREET
GREELEY, COLORADO 80634
PROXY STATEMENT
This proxy statement and the accompanying proxy card are being furnished to
the holders of common stock of Miller Diversified Corporation in connection with
the solicitation of proxies by the board of directors to be voted at the Special
Meeting of stockholders to be held on May 23, 2003 at 2:00 p.m. (Mountain Time)
at 5754 West 11th Street, Greeley, Colorado. The Special Meeting is called for
the purposes set forth in the accompanying Notice of Special Meeting of
Stockholders. This proxy statement and the accompanying proxy card are intended
to be mailed to stockholders on or about May 5, 2003.
QUORUM AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of a majority of the
voting power, regardless of whether the proxy has authority to vote on all
matters, constitutes a quorum for the transaction of business at this Special
Meeting. Directors are elected by a plurality of the votes cast (Item 1). The
affirmative vote of stockholders holding stock in the Company entitling them to
exercise at least a majority of the voting power is required for the approval of
the sale of assets (Item 2). The Record Date for determination of stockholders
entitled to notice of, and to vote at, the Special Meeting is the close of
business on April 3, 2003. As of the Record Date, there were 6,404,640 shares of
common stock outstanding, each of which is entitled to one vote at the Special
Meeting. Therefore, a quorum will consist of at least 3,202,321 shares, and at
least that number will be required to approve the sale of assets. A plurality of
the votes cast is required to elect directors so withholding authority
(including broker non-votes) will not affect the election of directors. Since
the sale of assets requires the approving vote to be measured against all shares
of common stock entitled to vote, withholding authority (including broker
non-votes) from that vote is the equivalent of a vote against the sale of
assets.
Under applicable rules, brokers who hold shares of common stock in a street
name have the authority to vote the shares in the broker's discretion on
"routine matters" even if they have not received specific instructions from the
beneficial owner of the shares. Routine matters involve ordinary course events
of limited significance. In uncontested situations, the election of directors is
considered a routine matter and brokers may vote for the directors as nominated
without the stockholders' direction. The sale of assets represents a fundamental
change WHICH IS NOT a "routine" matter for this purpose. Therefore, with respect
to the sale of assets, brokers may not vote shares held in a street name without
specific instructions from the beneficial owner. It is important that
stockholders of shares held in street name indicate their desire to vote FOR
Item 2.
Broker non-votes are shares held in street name for which the instructions
have not been received by the broker from the beneficial owners or other persons
entitled to vote, and the broker does not have discretionary voting authority.
Broker non-votes and abstentions are considered to be present to determine
whether a quorum is present, but with respect to non-routine matters (such as
the sale of assets) they are not counted in favor of such matters.
1
All shares of common stock represented by properly executed proxies will,
unless such proxies have been revoked previously, be voted in accordance with
the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted FOR the election of the three nominees for
director (Item 1), FOR the approval of the sale of assets (Item 2), and in the
discretion of the proxy holders on any other matter that may properly come
before the Special Meeting (Item 3). The board of directors does not know of
matters other than the election of directors and the sale of assets that are to
come before the Special Meeting.
Any holder of common stock has the unconditional right to revoke his or her
proxy at any time prior to the voting thereof at the Special Meeting by (i)
filing with the Company's corporate secretary written revocation of his or her
proxy prior to the voting thereof, (ii) giving a duly executed proxy bearing a
later date, or (iii) voting in person at the Special Meeting. If a stockholder's
shares are held by a nominee and the stockholder seeks to vote shares in person
at the Special Meeting, THE STOCKHOLDER MUST BRING TO THE SPECIAL MEETING A
WRITTEN STATEMENT FROM THE NOMINEE CONFIRMING THE STOCKHOLDER'S BENEFICIAL
OWNERSHIP OF A STATED NUMBER OF SHARES AND THAT SUCH SHARES HAVE NOT BEEN VOTED
BY THE NOMINEE. Attendance by a stockholder at the Special Meeting will not in
itself revoke his or her proxy.
If a quorum is not present, or for any other good reason, the stockholders
entitled to vote who are present in person or represented by proxy at the
Special Meeting have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present or
other reasons for adjournment are satisfied. At any adjourned meeting at which a
quorum is present, any business may be transacted that might have been
transacted at the Special Meeting as originally called.
Solicitation of proxies for use at the Special Meeting may be made in
person or by mail, telephone or telegram, by our directors, officers and regular
employees. Such persons will receive no special compensation for any
solicitation activities. We will request banking institutions, brokerage firms,
custodians, trustees, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of common stock held of record by such entities, and we
will, upon the request of such record holders, reimburse reasonable forwarding
expenses. The costs of preparing, printing, assembling and mailing the proxy
statement, proxy card and all materials used in the solicitation of proxies to
stockholders, and all clerical and other expenses of such solicitation, will be
borne by the Company.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
This proxy statement contains forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations, cash flows, business strategies,
capital and other expenditures, growth opportunities, and plans and objectives
of management. Forward looking statements include, without limitation, any
statement that may predict, forecast, indicate, or imply future results,
performance, or achievements. Forward looking statements involve known and
unknown risks and uncertainties that may cause our actual results to differ
materially from the forward looking statements. These statements appear in a
number of places in this proxy statement, and include all statements that are
not historical facts. Investors are cautioned that such forward looking
statements are not guarantees of future performance, and involve risks and
2
uncertainties. Important factors that could cause actual results to differ
materially include: (i) the results of appraisals, which may reduce the amount
of net proceeds available to us which, in turn, may result in a lower value of
common stock; (ii) actions of customers and competitors; and (iii) other risks
and contingencies described in the section entitled RISK FACTORS and other risk
factors included in our Forms 10-KSB and 10-QSB filed with the Securities and
Exchange Commission.
SUMMARY TERM SHEET
The following is a brief summary of the material terms of this proxy
statement. This summary highlights selected information in this proxy statement
and may not contain all the information that may be important to you. You should
carefully read this entire proxy statement and the other documents referenced
herein for a more complete understanding of the matters being considered at the
Special Meeting.
Time, Place and Date of the The Special Meeting will be held on May
Special Meeting (page 1) 23, 2003 at 2:00 p.m. Mountain Time at
5754 West 11th Street, Greeley,
Colorado.
Purpose of the Meeting (page ii) We are holding this meeting:
o to elect directors of the Company;
and
o to approve the sale of assets of the
Company to Miller Feed Lots, which is
under common control with the
Company.
Record Date and stockholders You are entitled to vote at the Special
Entitled to Vote (page 1) Meeting if you owned shares of common
stock on the Record Date for the Special
Meeting. You will have one vote for each
share of common stock that you owned on
the Record Date.
Vote Required (page 1) In order to elect directors, directors
must receive a plurality of the votes.
In order to approve the sale of assets
we will need the affirmative vote of the
holders of a majority of the shares of
common stock. James E. Miller, Norman M.
Dean, and Clark E. Miller have indicated
their intent to vote all shares of
common stock held by them to approve the
sale of assets.
Recommendations (pages 8 and 20) The board of directors of the Company
have nominated themselves to serve on
the board of directors and will vote
shares of common stock held by them in
favor of their election to the board of
directors. The board of directors, upon
determining its terms are fair and in
the best interest of stockholders,
approved, and recommends that you
approve, the sale of assets.
3
Miller Diversified The Company is publicly traded over the
Corporation (page 15) counter under the symbol MILR. Its sole
business is to purchase feed and market
cattle owned by it or consigned to it
for feeding by custom feeders. If the
sale of assets is approved, the Company
will have no further business to conduct
and will be a "shell" corporation
available to be acquired by another
entity.
The Company's executive offices are
located at 5754 West 11th Street,
Greeley, Colorado 80634. The telephone
number is (970) 356-1200. The Company's
administrative offices are located at
23360 Weld County Road 35, La Salle,
Colorado 80645. And its telephone number
is (970) 284-5556.
Risk Factors (page 11) There are risk factors associated with
the cattle feeding business. There will
also be risk factors associated with the
Company's position after the sale of
assets as it searches for other entities
with which to associate.
Consideration (page 21) Miller Feed Lots has agreed to purchase
substantially all of the assets of the
Company for a purchase price based on
fair value of inventory (including
cattle) at the Closing Date, and the
fair value of other assets, plus the
assumption of certain liabilities for a
payment evidenced by Miller Feed Lots'
promissory note bearing interest at the
rate of 5% per year, with annual
payments of principal of $100,000 per
year, together with interest, until
paid. We expect the closing to occur
before May 31, 2003.
Reasons for the Sale of In arriving at the determination to sell
Assets (page 21) the assets of the Company, the board of
directors considered a number of
factors, including, without limitation,
the following:
o The Company has incurred losses in
the cattle feeding business in each
of the past three years, with no
foreseeable prospect that the cattle
market will improve in the near
future to the point that Company
operations could become profitable
o Because of the losses, Farm Credit
Services which had provided a credit
line of $3,000,000 has advised the
Company that the line of credit which
matured December 31, 2002 will not
be renewed. The Company has been
unable to secure capital for cattle
feeding from other sources. Without
sufficient capital, it is not
possible to continue in the cattle
feeding business.
4
o Stockholders may be better served by
investment in a different business.
Security Ownership of As of April 3, 2003, Company directors
Management (page 9) and executive officers owned
beneficially, in the aggregate,
2,669,434 shares of the Company's
outstanding common stock, representing
an aggregate of approximately 41.9% of
our outstanding shares. Each of our
directors and executive officers has
indicated his intention to vote in favor
of the election of the directors as
nominated and for the sale of assets.
Asset Purchase Agreement A copy of the Asset Purchase Agreement
(Appendix A) is attached to this proxy statement as
Appendix A. We encourage you to read the
Asset Purchase Agreement in its
entirety, as it is the legal document
that governs the proposed sale of
assets.
Representations and Warranties The Asset Purchase Agreement contains
of the Parties (pages 23-24) various representations and warranties
made by each of the parties to the
Agreement. Conditions to Completion of
the Sale of The completion of the sale
of assets depends upon the Assets (page
25) satisfaction of a number of
conditions including, among other
things:
o Approval of the sale of assets by our
stockholders; and
o The representations and warranties
made in the Asset Purchase Agreement
being true and correct.
Material Federal Income The company is unable to determine at
Tax Consequences (page 26) this time whether there will be a gain
or loss from the sale of assets.
Accounting Treatment of the The sale of assets will be accounted for
Sale of Assets (page 26) under accounting principles generally
accepted in the United States.
This summary may not contain all the information that may be important to
you. You should read carefully this entire document and the other documents
referred to for a complete understanding of the sale of assets. In particular,
you should read the Asset Purchase Agreement, a copy of which is attached as
Appendix A.
5
QUESTIONS AND ANSWERS ABOUT THE ELECTION OF
DIRECTORS AND SALE OF ASSETS
Q. WHY ARE DIRECTORS BEING ELECTED AT THIS TIME?
A. Under Nevada law, directors should be elected each year at an annual
meeting of stockholders. If directors are not so elected their terms do not
expire, but they continue in office until a successor is elected or their
death, replacement, removal or resignation. The Company has not had an
annual meeting since May 1997. Directors in office at that time have
continued in office to the present time. Directors are being elected at
this Special Meeting to confirm them in office at this time.
Q. WHAT IS THE SALE OF ASSETS TRANSACTION?
A. Because the cattle feeding business has not been profitable for the past
several years and because the company has been unable to secure financing
necessary to continue feeding cattle, the board of directors thought it in
the best interests of stockholders of the Company to sell the cattle
feeding business and make the Company available for acquisition in another
business.
Q. WILL ANY OF THE SALE PROCEEDS BE DISTRIBUTED TO STOCKHOLDERS?
A. No. Part of the proceeds will be applied to obligations to Miller Feed Lots
and others. Any remaining proceeds will be retained by the Company.
Management believes that having significant cash in the Company or a
promissory note which will be paid in cash will make the Company more
attractive to prospective acquirers, and may increase the proportionate
interest stockholders of the Company would acquire in any acquiring entity.
There is no assurance that the presence of a significant cash position in
the Company will favorably affect the participation stockholders might
receive in an acquiring entity.
Q. WHAT WILL THE COMPANY DO IF ITS STOCKHOLDERS DO NOT APPROVE THE PROPOSED
SALE OF ASSETS?
A. In the event stockholders do not approve the proposed sale of assets, we
will sell cattle as they finish in the feeding process and hold assets
other than cattle while we seek another business opportunity.
Q. HOW DO I VOTE?
A. You may vote by indicating on the enclosed proxy card how you want to vote,
and by signing and mailing the proxy card in the enclosed prepaid return
envelope. Please vote as soon as possible to ensure that your shares are
represented at the Special Meeting and to avoid the necessity to adjourn
the meeting until more votes are received.
6
Q. IF MY SHARES ARE HELD IN STREET NAME BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker may vote your shares for you on the election of directors, but
will vote your shares on the sale of assets only if you provide
instructions on how to vote. You should follow the directions provided by
your broker regarding how to instruct your broker to vote your shares.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED IN MY SIGNED PROXY FORM?
A. Yes. You can change your vote in one of three ways at any time before we
vote your proxy at the Special Meeting. First, you may file with the
Company's corporate secretary the written revocation of your proxy prior to
the voting thereof. Second, you may complete a new proxy form and send it
to the secretary, and a new proxy form will automatically replace any
earlier proxy form you returned. Third, you may attend and vote in person
at the Special Meeting. See page 2 for information on voting in person.
You should send any written notice or new proxy to the secretary at the
following address: Clark E. Miller, secretary, Miller Diversified
Corporation, P.O. Box 237, La Salle, Colorado 80645.
Q. WHO DO I CONTACT IF I HAVE ADDITIONAL QUESTIONS OR WOULD LIKE ADDITIONAL
COPIES OF THE PROXY STATEMENT OR THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB
A. The Company will provide without charge pursuant to a written request a
copy of its most recent annual report on Form 10-KSB, including the
financial statements and the financial statements schedules required to be
filed with the Commission pursuant to Rule 13(a)-1 for the Company's most
recent fiscal year. You may contact: Miller Diversified Corporation, 5754
West 11th Street, Greeley, Colorado 80634, Norman Dean, at (970) 356-1200.
ITEM 1: ELECTION OF DIRECTORS
The Company has a board of three directors, all of whom are to be elected
annually and to serve until the next Annual Meeting of stockholders and until
death, their successors are elected and qualified, or until resignation or
removal. If directors are not elected at an Annual Meeting of stockholders, they
may be elected at any Special Meeting of stockholders which is called and held
for that purpose. If replacement directors are not elected at an annual or
special meeting of stockholders the directors in office continue to serve.
All incumbent directors have been nominated to succeed themselves as
directors. To be elected directors must receive a plurality of the votes cast.
Unless authority is withheld, the shares represented by proxy at the Special
Meeting will be voted FOR the three nominees named below. All nominees have
agreed to serve if elected.
If any nominee becomes unable or unwilling to serve at the time of the
Special Meeting, the shares of common stock represented by proxy at the Special
Meeting will be voted for the election of such other person as the board of
directors of the Company may recommend.
7
MANAGEMENT RECOMMENDS A VOTE FOR EACH NOMINEE NAMED
Nominees
The following information concerning the nominees for election as directors
has been provided by the respective nominee:
Name Age Position with the Company
- ---- --- -------------------------
James E. Miller 64 president, chief executive officer,
chief financial officer, director
Norman M. Dean 82 chairman of the board of directors,
director
Clark A. Miller 33 secretary; treasurer; director
The president of the Company, James E. Miller, is also the father of the
secretary and treasurer, Clark A. Miller. These are the only two employees in
the Company who are related.
James E. Miller has been the president and a director of the Company (and
its predecessor) from January 1987 until the present. He is also a major
shareholder, president and Chief Operating Officer of Miller Feed Lots Inc.
since 1960. Mr. Miller also serves as president of Central Weld County Water
District, Greeley, Colorado. He works full time for the Company.
Mr. Dean has been a director of the Company and its predecessor since
January 1987, treasurer of the Company from December 1988 until October 1989,
and chairman of the board of directors since October 1989. He is currently
president and a director of Foothills Financial Corporation, Greeley, Colorado,
and is a chairman of the board of directors of Alaris Medical Systems, Inc., San
Diego, California, and Miller Feed Lots Inc., La Salle, Colorado. The Company
employs Mr. Dean part-time.
Clark A. Miller has been secretary and treasurer of the Company since
October 2000. The Company has employed him since 1999 as the marketing manager
for Company-owned cattle and grains purchased. Purina Mills employed him as the
Western Director of Cattle and Grain Risk Management for seven years prior to
his employment at the Company.
Meetings of the Board of Directors
The board of directors held 1 regular meeting and 20 special meetings
during the fiscal year ended August 31, 2002. Each director attended or
participated in 100% of the total number of meetings of the board held during
the year. The board of directors has not established an Audit Committee and
serves as the Compensation Committee. No Nominating Committee has been
established. The board of directors selects the Company's nominees for election
to the board. The board will consider nominees recommended by stockholders.
8
Executive Officers
Set forth below is information regarding the Executive Officers of the Company.
Name Age Position with the Company
- ---- --- -------------------------
James E. Miller 64 president, chief executive officer,
chief financial officer, director
Norman M. Dean 82 chairman of the board of directors,
director
Information with respect to Messrs. Miller's and Dean's employment
experience is provided above.
SECURITY OWNERSHIP OF MANAGEMENT
The following table and notes set forth, as of the record date, the
beneficial ownership, as defined by the regulations of the Securities and
Exchange Commission, of common stock of each director and nominee, the Executive
Officers, and all persons who serve as Executive Officers and directors of the
Company as a group. No person is known to the Company to be the beneficial owner
of more than 5% of the outstanding shares of common stock (based on records of
the Company's stock transfer agent).
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of Class
- ------------------- ------------------------ --------
James E. Miller 973,210 (2) 15.2
23402 Weld County Rd. 35
La Salle, CO 80645
Norman M. Dean 1,571,786(3) 24.7
5754 West 11th St., #201
Greeley, CO 80634
Clark A. Miller 124,438 1.9
8039 Castle Court
Fort Collins, CO 80528
All directors and executive 2,669,434 41.9
officers as a group (3 persons)
(1) All beneficial ownership is sole and direct unless otherwise noted.
(2) Includes 45,906 shares owned by Mr. Miller's wife.
(3) Includes 45,905 shares owned by Mr. Dean's wife.
EXECUTIVE COMPENSATION
Compensation of Directors
The directors of the Company are entitled to receive fees of $500 per
quarter for meetings attended, and reimbursement for travel expenses. During the
fiscal year ended August 31, 2002, there was $4,000 paid out in director fees.
9
Indemnification
The Company indemnifies its directors and officers to the fullest extent
permitted by law so they will serve free from undue concerns that they will not
be indemnified. Indemnification is required under the Company's bylaws.
Compensation of Executive Officers
The following table shows the compensation earned by the president and
chief executive officer of the Company during fiscal year 2000 to 2002.
Name and Principal Position Fiscal Year Salary Annual Bonus
- --------------------------- ----------- ------ ------------
James E. Miller, 2000 $72,000 -
president and chief 2001 $72,000 -
executive officer 2002 $72,000 -
There were no other executive officers of the Company whose salary and
bonuses for the year ended August 31, 2002 exceeded $100,000.
PURCHASER
Miller Feed Lots' principal offices are at 23360 Weld County Road 35, La
Salle, Colorado 80645; telephone number: (970) 284-5556. Miller Feed Lots was
incorporated in April 1966. Miller Feed Lots owns a 20,000 head feedlot in La
Salle, Weld County, Colorado, that is currently being leased to the Company
under a long-term lease. The feedlot facility includes approximately 165 acres.
Miller Feed Lots also owns numerous pieces of equipment that are necessary
for the feedlot operations, but are not leased to the Company. These items
include three semi tractors and eight trailers which are used for transporting
grain, feed supplements and livestock. Miller Feed Lots provides trucking
services for the Company, the feedlot customers of the Company, and other
outside parties. Miller Feed Lots derives 25-30% of its gross revenues from its
trucking operations.
CONFLICTS OF INTEREST
James E. Miller is the president and chief executive officer of the
Company. Norman M. Dean is the chairman of the board of directors of the
Company. Clark A. Miller is secretary and treasurer of the Company. James E.
Miller and Norman M. Dean own all the issued and outstanding common shares of
Miller Feed Lots (the "Purchaser"). The three individuals (James E. Miller,
Norman M. Dean and Clark A. Miller) are the beneficial owners of 2,669,434
shares (41.9%) of the common stock of the Company. On April 2, 2003, the
business day prior to the date on which the Agreement was approved by the board
of directors of the Company, the closing bid price of the common stock of the
Company was $ 0.06.
Under Nevada General Corporation Law, a contract or other transaction is
not void or voidable solely because the contract or transaction is between a
corporation (such as the Company) and one or more of its directors or officers
(such as Dean or the Millers) or another corporation (such as Miller Feed Lots),
10
in which one or more of its directors are directors or officers or are
financially interested. Neither are such contracts or other transactions void or
voidable solely because a common or interested director or officer is present at
the meeting of the board of directors of the corporation (the Company) which
authorized or approved the contract or transaction. The vote of a common or
interested director may be counted for the purpose of authorizing or approving
the contract or transaction. In order for the contract or transaction between a
corporation and its directors or officers, or between a corporation and another
corporation in which one or more of its board of directors are directors or
officers or are financially interested, the fact of the common directorship,
office or financial interest must be known to the stockholders at the time they
approve or ratify the contract or transaction in good faith by a majority vote
of the stockholders holding a majority of the voting power. The votes of the
common or interested directors or officers must be counted in any such vote of
stockholders. The contract or transaction may also be valid if it is fair to the
Company at the time it is authorized or approved.
The 2,577,623 shares of common stock directly owned by James E. Miller,
Norman M. Dean and Clark A. Miller will be counted as present at the Special
Meeting for purposes of determining a quorum. The three directors intend to vote
the shares owned directly by them at the meeting for their election as directors
and in favor of the proposal to approve the sale of assets and adopt the
Agreement.
The Company has not adopted a code of ethics that applies to its principal
executive officers, principal financial officer, principal accounting officer or
persons performing similar function. The proposed sale of assets transaction
effectively puts the Company out of business. The Company will make itself
available for acquisition by another business which presumably will have such a
code of ethics.
Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the filing date of this proxy statement and based
on the completion of a comprehensive review as of the filing date, our principal
executive officer and principal financial officer concluded that these controls
and procedures, when supplemented with a comprehensive review and reconciliation
process, are effective.
Disclosure controls and procedures are the controls and other procedures
designed to ensure that information that we are required to disclose under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded,
processed, summarized and reported within the time periods required. To date we
have relied heavily on comprehensive review and reconciliation procedures
applied to our periodic reports on Forms 10-KSB and 10-QSB as a critical element
of our disclosure controls and procedures. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information we are required to disclose in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
RISK FACTORS
The cattle feeding business involves a high degree of risk. In determining
whether to vote for the sale of assets transaction, stockholders should consider
the following risk factors:
11
1. The Company has a history of losses for tax purposes. We have reported
losses for the past three years. The company's auditors have advised the company
that as of August 31, 2002, there was a tax loss carry forward of $738,230 which
will expire from 2012 to 2022. There is an additional tax loss carry forward of
$1,133,362 subject to limitation of use of $53,710 per year. This net operating
loss expires 2003 to 2012. If there is a gain on the sale of assets, any such
gain would be a capital gain, which may not be written off against operating
loss carry forwards. The actual amount of (profit-loss) will not be known until
the Acquired Assets are valued as of the Closing Date and results of operation
for the year are known. There can be no assurance the Company will be able to
show profit sufficient to utilize the existing tax loss carry-forwards. (See USE
OF PROCEEDS).
2. Success Dependent on Management. Success of the Company depends on the
active participation of James E. Miller, president, who does not have an
employment agreement with the Company. The Company does not have key man life
insurance on Mr. Miller. Loss of the services of Mr. Miller could adversely
affect the development of the Company's business and its operations. (See
COMPANY BUSINESS and SECURITY OWNERSHIP OF MANAGEMENT).
3. Competition. The Company competes with a number of local, regional and
national companies which provide similar products and services. Some of these
companies are better established and/or have greater financial resources than
does the Company. (See COMPANY BUSINESS - COMPETITION).
4. Market Fluctuations. Generally, the prices associated with all segments
of agriculture and livestock production are subject to substantial fluctuations
over both long periods and short periods of time. A significant change in
consumption in the United States or abroad of beef and/or cattle feed may
adversely affect the number of cattle being fed in Company feed lots, and thus
affect the profitability of the Company. Grain shortages can increase the price
of feed and decrease the profitability of finishing cattle which may also result
in fewer cattle being fed for customers by the Company. The Company has not
experienced grain shortages in the past and does not anticipate shortages of
grain in the foreseeable future. However, corn prices have increased due to the
2002 and 2003 drought in the country's corn belt. Changes in the price of feed,
feeder cattle and fed cattle may significantly affect the Company's profits.
Certain segments of the cattle industry have experienced significant
losses from operations. During certain periods in the past there have been times
when total costs of feeder cattle plus the feed to finish the cattle have
exceeded the market price for finished cattle. These fluctuations have caused
the Company and its custom feeders to suffer losses.
There are no governmental price support payments for cattle and no
restrictions on volume of production. Although finished cattle are readily
marketable, they must be sold when they reach slaughter weight at the then
prevailing market price because to continue feeding beyond such time is not
economical. The risks associated with such market fluctuations and the rapid
changes in supply and demand of agricultural products can adversely affect the
Company and its custom feeders, and may indirectly affect the Company's revenues
and profits. (See COMPANY BUSINESS - GENERAL).
5. Commodity Hedging. Hedging transactions may be utilized with respect to
feed purchases and/or with respect to purchases or sales of livestock and other
commodities. Hedging involves a present commitment to a future price. Due to
12
unforeseen market changes, such hedging may reduce profits, rather than increase
them, or could produce losses for the Company and its custom feeders. The
Company engages in commodity futures or option trading and there are potential
losses from such trading. Some of the Company's custom feeders elect to prepay
for certain feed ingredients (primarily corn and silage) and thereby "lock in"
the price they must pay to feed those ingredients to cattle. In such cases, if
the Company does not already have the prepaid commodity in inventory, it enters
into a purchase contract with scheduled future deliveries at a price that will
allow the Company to make a profit when selling in the future at the customer's
"locked-in" price. The Company regards such transactions as a service to its
custom feeders. The purchase contracts the Company enters into are in substance
done for the custom feeders so the custom feeder's "locked-in" price can be
agreed to by the Company. Such purchase contracts are generally for one to seven
months and have never been more than one year. (See COMPANY BUSINESS - GENERAL
and GOVERNMENT REGULATIONS)
6. Inherent Business Risks. Agricultural operations are subject to risks of
disease, epidemic, accident, weather, theft and unavailability of
transportation, among others. It is possible that the Company will not carry
sufficient insurance to cover such losses should they occur. Securing insurance
to cover all such losses in many cases would be uneconomical or unavailable to
the Company. (See COMPANY BUSINESS - GENERAL)
7. Regulation. Cattle feeding arrangements entered into with certain
investors under various circumstances have been found to be securities, and,
thus, subject to regulation under the Securities Act of 1933, as amended. Cattle
feeding arrangements have been found to be securities where: (1) investments
have been made by passive investors, unsophisticated regarding cattle feeding;
(2) those investors substantially relied on the efforts and abilities of the
feedlot operator to make a profit; (3) the profits of the operator were linked
to the profits of the investor; and (4) where the investor did not have control
over his investment. While the Company's management does not believe that the
arrangements with its cattle feeding customers are securities, there is a risk
that a court could determine otherwise. If this should occur, the Company could
be subject to certain liabilities and additional regulations. If, in the future,
the Company's arrangements with some of its custom feeders are deemed to be
securities, compliance with federal and state securities laws could result in
the Company not being able to compete effectively with others in the industry
and could result in indeterminable potential liabilities. Such potential
liabilities could result from a court allowing certain customers to rescind
their investments, thus forcing the Company to be responsible for losses
incurred by such custom feeders.
In addition, the Company is subject, directly and indirectly, to
various federal and state governmental regulations in its operations. The U.S.
Food and Drug Administration is responsible for regulating the use of animal
growth hormones and veterinary drugs, medicines and vaccines. The cattle which
are fed at the Company's feedlot are treated with hormones, unless otherwise
requested by the owner. The U.S. Department of Agriculture is responsible for
regulating certain other aspects of the agriculture business in which the
Company may be engaged. Specifically, the activities of the Company are subject
to the Packers and Stockyards Act, 1921, as amended, and regulated by the
Packers and Stockyards Administration. The Environmental Protection Agency is
responsible for minimizing the environmental impact of animal pollutants. Cattle
operations are subject to additional regulations from other federal and state
agencies and there is no assurance that the Company's operations will not be
adversely affected, depending on the nature and extent of such regulations. (See
COMPANY BUSINESS - GOVERNMENT REGULATIONS)
13
8. Affiliated Transactions. The Company has entered into a number of
transactions with affiliates. The Company has purchased its equipment and
business from a commonly controlled private company (Miller Feed Lots, the
Purchaser of the Company's assets in the sale of assets transaction). The
Company has entered into a lease agreement with Miller Feed Lots whereby it
acquired the use of its feedlot facilities. In the past the Company loaned money
to Miller Feed Lots and entered into an unsecured revolving credit agreement,
whereby Miller Feed Lots had further borrowings from the Company. The Company
entered into a profit-loss sharing agreement with Miller Feed Lots, whereby
Miller Feed Lots assumed $514,323 of losses for the Company in 2002. That loss
is being repaid by the Company from the proceeds of the sale of assets
transaction. In addition, the Company will deduct $250,000 from the purchase
price of the sale of assets transaction to compensate Miller Feed Lots for
cancellation of the feedlot lease. The lease has minimum payments due of
$1,655,500 with a present value to Miller Feed Lots as determined by the
company's auditors of $1,152,610. The Company will pay another $250,000 to
Miller Feed Lots to cover any possible loss by the Purchaser on the feeder
cattle included in the Acquisition Assets. Because of the war in Iraq, the
prolonged drought in Colorado, and the wide fluctuations in the grain market,
Miller Feed Lots is assuming significant risk in purchasing the cattle on feed.
These and other related party transactions described elsewhere in this proxy
statement were not negotiated on an arm's-length basis. (See CONFLICTS OF
INTEREST and COMPANY'S BUSINESS -TRANSACTIONS WITH MANAGEMENT
9. Conflicts of Interest. Officers and directors of the Company engage in
various aspects of the agriculture industry, as well as cattle feeding for their
own account. The Company does not have a policy prohibiting transactions between
it and officers and directors or their affiliates. Financial arrangements
between the Company and its officers and directors, as cattle feeders, are the
same as arrangements with non-affiliated cattle feeders.
All officers and directors make available to the Company any
agricultural opportunities presented to them in their capacities as such. If an
opportunity is rejected by a disinterested majority of a quorum of directors,
then an officer or director may avail himself of such opportunity. A
disinterested director is one who is not a party to and has no beneficial
financial interest in a proposed transaction or contract, either directly,
indirectly or as an affiliate of a corporation, firm or association which is to
be a party to the proposed transaction or contract.
Officers and directors of the Company may be presented with situations
or opportunities which give rise to apparent conflicts of interest which cannot
be resolved by arm's-length negotiations, but only through exercise by the
officers and directors of such judgment as is consistent with their fiduciary
duties to the Company which arise under Nevada General Corporation Law. All
directors are aware of their fiduciary responsibilities under Nevada corporate
law. (See CONFLICTS OF INTEREST)
10. Federal and State Taxation. Federal income tax laws are of particular
significance to the Company's cattle feeding customers. Legislation has eroded
previous benefits related to the prepayment of feed costs and have defined
cattle feeding as a passive activity unless the feeder has substantial other
14
agricultural involvements, and additional legislation could be enacted which
would have further adverse effects. Cattle feeding customers who are found to be
passive investors cannot offset income derived from salary or active business
income against passive losses. This tax legislation has resulted in fewer
customers feeding cattle primarily for a tax deferral and fewer cattle being fed
in the Company's feedlot in recent years. Most of the Company's custom feeders
now analyze cattle feeding based on profit potential without significant regard
to tax considerations. Management believes that the cattle feeding industry will
benefit from fewer "tax oriented" customers.
11. Shell Corporation. After closing the asset sale transaction, the
Company will no longer be in the feed lot business. Because the Company has a
substantial number of stockholders and will have significant cash or notes
receivables, management believes it will be attractive to other companies
desiring to merge with or acquire a public company. There can be no assurance an
acquisition offer will be made at all and on terms that will afford the
stockholders of the Company a beneficial interest in another business.
Management has made inquiries in an effort to locate a company that may be
interested in acquiring the Company, but as of the date of this proxy statement,
no negotiations have been undertaken and there is no assurance that any
desirable prospects will develop.
COMPANY'S BUSINESS
GENERAL
The Company is a publicly held Nevada corporation that was formed in 1987
as the result of several transactions and mergers of predecessor companies. In
1987, the Company acquired the commercial cattle feeding business of Miller Feed
Lots (the Purchaser in this sale of assets transaction). The Company's principal
business is commercial cattle feeding that is operated on a feedlot facility,
and with equipment leased or rented from Miller Feed Lots. The Company has a
wholly owned subsidiary, Miller Feeders, Inc. ("MFI"), which was acquired in
1987. MFI is a cattle brokerage company that earns commissions from the
purchasing of feeder cattle and selling finished cattle for the Company's cattle
feeding customers, and for brokering certain "outside" cattle purchases and
sales. MFI has the required bond to enable it to receive and distribute the sale
proceeds from the sale of feeding customers' cattle. The Company is
headquartered near La Salle, Colorado, at the site of its cattle feeding
operations. The address of the Company's principal executive offices is 5754
West 11th Street, #201, Greeley, Colorado 80645. The Company's mailing address
is 5754 West 11th Street, #201, Greeley, Colorado 80645. The Company's telephone
number at that address is (970) 356-1200.
PRODUCTS AND SERVICES
The Company's principal business is cattle feeding, which includes the
selling of feed and services to customers who place their cattle in the
Company's feedlot, as well as also feeding cattle for its own account.
Typically, customers are ranchers and experienced cattle feeders. Cattle feeding
customers are charged for feed consumed by their cattle and at a flat amount per
head per day, referred to as "yardage," for the use of the feedlot facilities.
Feed sales usually account for 30% to 50% of the Company's revenues. The Company
and its Subsidiary provide complete feedlot services, which include assisting
customers with outside financing, purchasing feeder cattle, making trucking
arrangements, selling finished cattle, and assisting with hedging transactions.
The Seller, through its Subsidiary, derives commissions and fees from hedging
transactions and buying and selling customers' cattle.
15
Most customers have their cattle delivered to the feedlot or authorize the
Company to purchase feeder cattle for them. Feeder cattle are usually delivered
at weights between 500 and 900 pounds. Lighter weight feeder cattle may be "back
grounded," that is, placed in smaller farmer/feeder operations until they reach
the size that entry into the feedlot is deemed most beneficial. These local
farmer/feeders typically have small sheltered facilities and feed a growing
ration until the cattle reach the desired size to place them in the finishing
feedlot.
After cattle enter the feedlot to be finished, they are usually fed from
three to six months, depending upon a variety of factors. The customer and
Company's management, often with the assistance of a nutritionist, plan custom
rations for the cattle considering such variables as size, sex, breed, and age
of the feeder cattle. Feed ingredients are purchased by the Company, stored on
the premises, mixed into rations and sold to the customer. The Company marks up
its cost of the feed for sale to customers. The customer is invoiced at least
twice per month for feed and yardage, and payment is due upon receipt of the
invoice, except for ingredients the customer may have prepaid. The Company
follows certain procedures in managing its operations which include among
others: (i) physically identifying cattle as they are delivered by brand or ear
tags so that all customers' cattle are distinguishable; (ii) all cattle, feed
and funds of customers are strictly accounted for with specific identification
utilizing sophisticated and specialized computerized methods; (iii) billing
procedures are fully automated and current so that customers are sent an
itemized billing with a complete breakdown of costs for each lot of cattle they
own; (iv) weighing of all feed and cattle to be sold is done on sealed scales,
certified by the Colorado Department of Agriculture; (v) environmental standards
of the feedlot is maintained to exceed all government regulation; and (vi)
adhering to all laws and regulations pertaining to the cattle feeding industry.
Cattle fed at the Company's feedlot are given growth promoter unless otherwise
requested by the custom feeder.
After cattle reach finished weights, it is not economically feasible to
hold and feed those animals any longer, as further weight gains do not justify
additional feed and feedlot costs. As a result, cattle feeders are subject to
prevailing market prices of cattle at the time of finishing. When the cattle are
finished, the Company often delivers them to a purchaser (usually a meat packer)
designated by the custom feeder or assists the custom feeder in selling the
cattle. Finished cattle are sold to any of several packers, most of whom have
buyers who visit the Company's feedlot on a regular basis. One major meat
packing plant is about 15 miles from the Company's feedlot.
Feeder cattle, finished cattle, and feed are moved by truck, and excellent
trucking services are available because Weld County is a major feed crop and
cattle feeding area. The Company's cattle feeding business is somewhat seasonal
because most calves from the Rocky Mountains and northern plains areas are
weaned and ready to go to a feedlot in the fall. The cows are bred to calve in
the spring and wean their calves in the fall. However, the Company can and does
purchase feeder cattle from southern and west coast ranches at nearly any time
of the year and, in conjunction with its increased feeding cattle for its own
account, is taking measures, including buying heavier yearling cattle, to lessen
the seasonal impact.
RAW MATERIALS
The Company's main raw materials are cattle feed consisting primarily of
silage, hay, corn, wheat, protein supplement, and a variety of by-products that
are seasonally available in the area. The Company purchases most of its feed
from local farmers or brokers. Northern Colorado, which includes Weld County, is
16
a major crop production area with a reputation for quality crops and consistent
yields. Because most of the land is irrigated, local farmers do not have to
depend exclusively on rainfall, and drought is not often a factor. Shortages of
feed crops are rare in the United States, and especially in Weld County.
While there have been significant price fluctuations for certain feed
ingredients, especially corn, shortages have not developed. Although most feed
comes from local sources, excellent truck and rail systems give the Company
access to feed produced in Nebraska and Iowa.
MAJOR CUSTOM feedERS
During the fiscal year ended August 31, 2002, the Company had one custom
feeder (Charles Micale d/b/a My Way Land and Cattle) to whom sales accounted for
$1,722,862 or 15% of total revenue. Major customers may vary from year to year.
COMPETITION
Custom cattle feeding is a highly competitive business in which stability
and quality services and facilities are more important than size. The Company's
feedlot is well laid out and in good repair, and, therefore, "shows well" to
custom feeders. The Company's management has been engaged in cattle feeding at
the site of the Company's feedlot for over 30 years and is known for stable,
quality operations. The Company offers a full range of feedlot services, as
described above, and seeks to be attentive to the inquiries and wishes of its
custom feeders. The Company has an active marketing program of calls, visits,
mailings, and seminars directed at attracting and developing new custom feeders.
Some custom feeders have been with the Company for many years. However, other
custom feeders, some with greater resources, are also engaged in marketing
programs which often are directed at the same custom feeders the Company is
seeking. The Company's principal competitors in Weld County, Colorado include
Swift & Company and Horton Cattle Company. Substantial feedlots outside Weld
County, but which may still be considered to be competitive with the Company,
are Continental Grain at Lamar, Colorado and Swift & Company near Yuma,
Colorado. There are many smaller feedlot operations, some of which are
commercial and some of which are private, which also compete with the Company.
The Company's strategy is to provide complete quality service, conduct feeding
operations to optimize the custom feeders' cattle weight gains at the lowest
cost possible, and continuously seek new custom feeders to maintain and increase
its competitive position.
GOVERNMENT REGULATIONS
The Company is subject, directly and indirectly, to various federal and
state governmental regulations. The U.S. Food and Drug Administration (USDA) are
responsible for regulating the use of animal growth promoter and veterinary
drugs, medicines, and vaccines. The USDA is responsible for regulating certain
other aspects of the agriculture business in which the Company may be engaged.
Specifically, the activities of the Company and Miller Feeders are subject to
the Packers and Stockyards Act of 1921, as amended, and regulated by the Packers
and Stockyards Administration. The Environmental Protection Agency is
responsible for minimizing the environmental impact of animal pollutants. The
Company does not believe it incurs any expenses in addition to its normal
17
operating costs to specifically meet the requirements of environmental laws.
Since some of the Company's custom feeders participate in commodity futures
transactions, certain activities may come under the jurisdiction of the Chicago
Mercantile Exchange on livestock transactions, the Chicago board of Trade on
grain transactions, and the Commodity Futures Trading Commission and National
Futures Association which oversees compliance on futures transactions. In
addition, the Company is or may be subject to other regulations such as changes
in freight rates, increases or decreases in exports or imports, and animal
health inspection and brand inspection.
EMPLOYEES
The Company employs between 20 and 30 persons at any given time. As of
March 31, 2003, the Company had 22 full and part-time employees.
FEEDLOT FACILITIES
On February 1, 1991, the Company executed a 25-year lease with an
affiliated company, Miller Feed Lots (the Purchaser in the asset sale
transaction), to lease its feedlot facility. Norman M. Dean and James E. Miller,
who are officers, directors and stockholders of the Company, own all of the
common stock of Miller Feed Lots. The feedlot has a capacity of approximately
20,000 head of cattle. The monthly rent is 2-1/3 cents per head per day, with a
minimum of $10,750 and maximum of $13,300 per month. The Company has an option
to purchase the feedlot it leases for $1,300,000. The lease requires that the
Company pay for all property taxes, insurance, and maintenance on the feedlot
being leased. In the opinion of management, the leased feedlot is adequately
covered by insurance. The property taxes on the leased feedlot facility amounted
to $8,912 for the year ended August 31, 2002.
TRANSACTIONS WITH MANAGEMENT
In addition to the lease of feedlot facilities, described above, the
Company has other transactions with its managers and Miller Feed Lots. Among the
Company's cattle feeding customers are the three directors. During fiscal year
2002, Norman M. Dean fed cattle with the Company for a market value of
approximately $2,000,000. James E. Miller fed cattle with the Company for a
market value of approximately $2,000,000, and Clark A. Miller fed cattle with
the Company for a market value of approximately $1,000,000. Substantial losses
were incurred by all three directors.
The Company has a note payable to Foothills Financial Corporation, which is
owned by Bonnie Dean (spouse of Norman Dean) in the principal amount of
$106,134.44 at March 31, 2003. This note matures in September 2004, and has
monthly payments of principal and interest at 10% per year. The note is
unsecured. This note was incurred for the purpose of investing in a water
purification project which was not profitable.
In addition to the feedlot lease, the Company also leases equipment from
Miller Feed Lots on which it paid $191,993 in 2002. The Company utilizes trucks
owned by Miller Feed Lots to transport grain and cattle. During fiscal year
2002, the Company paid $168,556 in trucking fees to Miller Feed Lots. There are
other trucking facilities available, but charges by Miller Feed Lots for
trucking services are competitive with charges that would be available from
other trucking companies.
18
The Company is a co-signer on a loan from Farm Credit Services in the
original principal amount of $400,000, which was incurred for the purpose of
providing working capital to Miller Feed Lots. The outstanding balance on the
loan is now $264,087. The loan is secured by a security interest in Miller Feed
Lot equipment, which is used by the Company in operating the feedlot facility.
The Company co-signed the loan because of the importance to the Company of the
equipment securing the loan.
The Company may use equipment leased from Miller Feed Lots as collateral
for its own operating loans.
BORROWED FUNDS
The Company has an operating line of credit with Farm Credit Services for
$300,000, and a procurement line of credit for $300,000. In addition, the
Company had a cattle feeding line of credit with Farm Credit Services for
$3,000,000, and an investor feeding line for $2,000,000. The procurement lines
give the Company the ability to buy feeder cattle for the feed yard prior to
assigning them to a customer. The cattle feeding line was for the Company's own
cattle on feed for slaughter, and the investor feeding line is for customers
needing financing to feed cattle within the feed yard. Each line of credit bears
interest 1/2 % over the prime interest rate.
The Farm Credit Services lines of credit matured in December 2002, but the
Company may feed out cattle which were acquired with funds available under the
credit line. The credit line was collateralized by inventories, accounts
receivable, and cattle financing notes receivable. They are also guaranteed by
Norman M. Dean and James E. Miller, directors of the Company and of Miller Feed
Lots, and are subject to various covenants, including a minimum working capital
and cash margins per head. Farm Credit Services has refused to renew the
$3,000,000 cattle feeding line of credit.
PROFIT/LOSS SHARING AGREEMENT WITH MILLER FEED LOTS
During the second quarter of 2002, the Company and Miller Feed Lots agreed
to share profits and losses from the Company's fed cattle sales, retroactive to
September 1, 2001. For the year end of August 31, 2002, Miller Feed Lot's
participation from losses from the Company's fed cattle sales was $514,373. This
amount equals 50% of the Company's total losses from fed cattle operations in
2002.
MARKETS FOR THE COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The number of record holders of the Company's common stock as of April 3,
2003 was 1439 according to information furnished by the Company's transfer
agent.
The following table sets forth the high and low bid quotations for the
Company's common stock, as reported by OTC Market Report. Accordingly, the stock
quotations listed below are not necessarily indicative of future trading
activity or price trends.
19
Quarter Ended High Bid Low Bid
------------- -------- -------
2003
November 30, 2002 $.09 $.06
February 28, 2003 $.09 $.06
2002
November 30, 2001 $.09 $.07
February 28, 2002 $.09 $.07
May 31, 2002 $.09 $.06
August 31, 2002 $.09 $.06
2001
November 30, 2000 $.10 $.01
February 28, 2001 $.085 $.05
May 31, 2001 $.12 $.06
August 31, 2001 $.12 $.07
The above prices are believed to be representative interdealer quotations,
without retail markup, markdown, or commissions, and may not represent actual
transactions. The Company's stock is traded on the NASD Over-the Counter
Bulletin Board under the trading symbol MILR.
The Company has not paid any dividends on its common stock and the board of
directors presently intends to continue a policy of retaining earnings, with the
expectation it will be a more attractive entity for acquisition or merger into
another business. The Company may authorize dividends in the future if it
believes a distribution would be in the best interest of stockholders. The terms
of the Company's preferred stock give it a preference on the payment of
dividends in any given year, but such dividends are not cumulative. There are
currently no Preferred Shares issued and outstanding. No leasing, financing, or
similar arrangements to which the Company is a party preclude or limit in any
manner the payment of any dividend.
ITEM 2. THE SALE OF ASSETS TRANSACTION
This section of the proxy statement describes certain aspects of the sale
of substantially all our assets. We recommend that you read carefully the
complete Asset Purchase Agreement for the terms of the sale and other
information that may be important to you. The Asset Purchase Agreement is
included in this proxy statement as Appendix A.
BOARD OF DIRECTORS RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS TO THE STOCKHOLDERS THAT THE STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO SELL SUBSTANTIALLY ALL THE ASSETS OF THE COMPANY TO MILLER
FEED LOTS FOR A PROMISSORY NOTE, PAYABLE $100,000 PER YEAR PRINCIPAL, PLUS
INTEREST, AND THE ASSUMPTION OF CERTAIN LIABILITIES. THE BOARD HAS DETERMINED
THAT THE SALE OF ASSETS TRANSACTION PROPOSAL IS IN THE BEST INTEREST OF THE
STOCKHOLDERS.
20
REASONS FOR THE SALE OF ASSETS
In reaching its determination to approve the sale of assets transaction,
the board considered, among other factors, (i) management's concern with the
continuing losses incurred by the Company in the cattle feeding business, (ii)
management's desire to get the Company into another business by means of a
merger or acquisition transaction in which stockholders may have an opportunity
to own stock in a company that may show profits, but of which there is no
assurance. The other material positive factors considered by the board of
directors in reaching this determination are:
1. Management's belief that the IRS provisions limiting losses in the
cattle feeding business to passive investors is a deterrent to acquiring new
custom feeders.
Material negative factors considered by the board of directors in reaching
its determination are:
1. Stockholders invested in the Company knowing it was in the cattle
feeding business and that such business was a high risk activity. The proposal
to sell assets of the Company will take stockholders out of the cattle feeding
business, which is a business in which they may want to be invested.
2. Farm Credit Services which had provided a credit line of $3,000,000 has
advised the company that the line of credit which matured December 31, 2002 will
not be renewed. The company has been unable to secure capital for cattle feeding
from other sources. Without sufficient capital, it is not possible to continue
in the cattle feeding business.
3. When the Company is a "shell corporation" (See RISK FACTORS - Shell
Corporation), it will be attractive to a potential acquirer because of its large
number of stockholders, and possibly because of its significant cash or note
receivable position. Nevertheless, that factor cannot be expected to warrant an
acquisition proposal to the Company that will give the Company's stockholders a
significant ownership in a new company.
SUMMARY OF the ASSET PURCHASE AGREEMENT
We believe this summary describes the material terms of the Agreement,
whereby the Company sells substantially all of its assets to Miller Feed Lots.
Much of the information provided in this section is summarized from the
Agreement. We recommend that you read carefully the complete Agreement for the
terms of the sale of assets transaction and other information that may be
important to you. The Asset Purchase Agreement is included in this proxy
statement as Appendix A.
CONSIDERATION
The consideration we will receive in the sale of assets transaction is the
Purchaser's promissory note. The amount of this note is unknown because it
depends upon the market value of assets to be sold, which will be determined on
the Closing Date. The value of cattle and inventory as of February 28, 2003 will
21
change before the Closing Date because their fair value will change. The value
of other assets to be sold, which is property and equipment, certain receivables
and other assets, will also be adjusted to fair value at the Closing Date. The
total value of all assets to be sold will be adjusted down by $599,776 to repay
Miller Feed Lots for its assumption of our losses in 2002 and to the Closing
Date in 2003. This adjustment is pursuant to an agreement between the Company
and Miller Feed Lots, which allowed them to reclaim their portion of the assumed
loss at their election. The value of the Acquired Assets will also be adjusted
down by $250,000 to compensate Miller Feed Lots for the cancellation of the
feedlot facility's lease. This adjustment is based on a letter received from the
Company's auditors, Anderson & Whitney, stating that while they had not been
provided with a recent appraisal of the Lease Agreement, subject to the effect
of any such appraisal on their consideration, they believe that, to the relative
position of the Company stockholders, the $250,000 termination fee is reasonable
under the circumstances. The value of the Acquired Assets will be adjusted down
by another $250,000, which is an agreed amount to cover the risk of loss to
Purchaser on the feeder cattle transferred. This adjustment is based on a letter
received from Dennis Stuehm, who operates a feedlot in Ault, Colorado, which is
near the Company's feedlot facilities, advising Miller Feed Lots that after the
past two years of losses, the Company should pay $250,000 to Miller Feed Lots to
assume all responsibility for the feeder cattle to be sold. Mr. Stuehm recites a
number of factors affecting potential losses, including the war in Iraq, large
beef buyers cutting back on purchases, two years of historical losses at $75 to
$150 per head, concerns of health in the beef industry caused by packer
concentration, and historically the markets for the summer months are very weak.
Mr. Stuehm concluded that the potential loss could be in excess of $250,000.
Because of this adjustment we will bear no further risk of loss on the feeder
cattle included in the Acquired Assets.
If there is a balance due us, it will be represented by Miller Feed Lots'
promissory note, which will bear interest at the rate of 5% per year and will be
payable $100,000 per year plus interest annually until fully paid. Payment of
the note will be secured by a second mortgage on the feedlot facilities to be
acquired by Miller Feed Lots.
ASSETS SOLD
Subject to, and upon the terms and conditions of, the Asset Purchase
Agreement, we are selling to Miller Feed Lots substantially all our operating
assets, including trade accounts receivable, notes receivable with respect to
financing customers, receivables from affiliates and related parties, and
inventory consisting of our cattle on feed in the feedlot and contracts with
customers to feed customer cattle in the feedlot facility, and equipment.
Presently we lease the feedlot facilities from Miller Feed Lots and that lease
will be cancelled. We will retain cash and all assets not related to the feedlot
business. Those assets to be retained consist of office equipment, vehicles,
water tanks and miscellaneous items.
ASSUMED LIABILITIES
Miller Feed Lots will assume all our liabilities related to the feedlot
business consisting of notes payable to third parties, notes payable to related
parties, trade accounts payable, accounts payable to related parties, accrued
expenses, customer feed contracts, long-term debt, long-term debt to related
parties, and lease obligations on feedlot equipment.
22
EXCLUDED LIABILITIES
Miller Feed Lots will not assume liabilities that are not related to
feedlot operations. The principal liability to be retained by the Company is an
obligation to Foothills Financial Corporation for $106,134.44. (See COMPANY'S
BUSINESS - TRANSACTIONS WITH MANAGEMENT)
CLOSING
The closing of the sale of assets transaction will take place on the second
day following the satisfaction or waiver of all conditions to closing, as stated
in Article VII of the Agreement, or at such other time and date as we and Miller
Feed Lots may mutually agree. We expect the closing to occur before May 31,
2003.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In the Agreement we represent and warrant to Miller Feed Lots with respect
to the matters set forth below
o We are a corporation duly organized, validly existing, and in good
standing under the laws of the State of Nevada.
o We have a total of 6,404,640 shares of common stock issued and
outstanding.
o The Agreement has been duly authorized and delivered by us and is
binding on us, subject to approval of our stockholders.
o Our performance of the Agreement will not violate our corporate
documents or any contract or law to which we are subject.
o We have delivered certain financial statements to Miller Feed Lots,
which accurately reflect our financial position at and as of the dates
thereof.
o Except as we have specifically disclosed to Miller Feed Lots, we have
no undisclosed liabilities; there have been no material adverse
changes in our financial condition since the date of our latest
balance sheet provided to Miller Feed Lots; we have paid all required
taxes; we are not involved in any material litigation; we have
provided to Miller Feed Lots a list of all employees; we are in
compliance with all laws applicable to the feedlot business being
transferred; we own all the assets being transferred, free and clear
of all claims by other parties; we do not own any trademarks or trade
names or other proprietary rights, and are not unlawfully using
proprietary rights of other parties; we have no employee benefit plans
other than health insurance to which employees contribute 50% of the
premium.
o The assets being transferred are in good operating condition, subject
to ordinary wear and tear; accounts receivable being transferred are
valid and collectible as shown on our balance sheet; inventories being
transferred are of quality and quantity usable in the business; the
assets being transferred are not subject to undisclosed contracts or
agreements; accounts payable being assumed were fairly incurred
liabilities; and we have such insurance for coverages which are usual
and customary in the feedlot business.
23
o All written material being furnished to Miller Feed Lots do not
contain any untrue statements of material facts, or omit to state
facts necessary to make the statements made in the light of the
circumstances under which they are made, not misleading.
o Since the date of our latest balance sheet provided to Miller Feed
Lots, we have taken no actions that would be prohibited under the
Agreement without the prior consent of Miller Feed Lots.
REPRESENTATIONS AND WARRANTIES OF MILLER FEED LOTS
In the Agreement, Miller Feed Lots represents and warrants to us with
respect to the following matters:
o Miller Feed Lots is a Colorado corporation, with power and authority
to enter into the Agreement.
o The Agreement has been approved by Miller Feed Lots and constitutes a
binding agreement of Miller Feed Lots.
o No consent of any third party is required for Miller Feed Lots to
perform the Agreement and it does not conflict with any of its
corporate documents, contracts or any law by which it is bound or any
agreement that would prevent consummation of the Agreement.
o Miller Feed Lots has delivered to us its unaudited financial
statements as at February 2003, and for the 11 months then ended. Such
financial statements accurately reflect the financial position of
Miller Feed Lots.
COVENANTS OF MILLER FEED LOTS
Miller Feed Lots has covenanted with us that they will take every action
reasonably required of it to satisfy the conditions to the Closing; that it will
cooperate with us in carrying out the transactions required in the Asset
Purchase Agreement; that it will bear all its own expenses in connection with
the Asset Purchase Agreement; and that it will continue health insurance
benefits for employees in the form provided by Pacific Life and Annuity.
COVENANTS OF THE COMPANY
We have agreed that we will take all actions reasonably required to satisfy
conditions to Closing; that we will afford to Miller Feed Lots reasonable access
to the feedlot facilities; that prior to the Closing we will conduct the feedlot
operations only in the ordinary course of business, unless Miller Feed Lots
consents in writing to other action; we will cooperate with Miller Feed Lots in
carrying out the transactions contemplated by the Agreement; we will bear our
costs and expenses in connection with the Agreement; we will update our exhibits
and disclosure documents to reflect any changes prior to the Closing; and we
will timely pay all unassumed liabilities.
24
CONDITIONS TO CLOSING
The obligations of Miller Feed Lots to effect the sale of assets
transaction is subject to fulfillment of the following conditions unless Miller
Feed Lots waives such fulfillment:
o The Agreement and the sale of assets transaction shall have received
all approvals, consents, authorizations and waivers required to
consummate the transaction;
o There shall not be in effect a preliminary or permanent injunction
which prohibits the transaction;
o We shall have performed each of our agreements and obligations
contained in the Agreement and required to be performed by us prior to
the Closing;
o There shall have been no material adverse change in the Acquired
Business or the Acquired Assets between the date of our Balance Sheet
and the Closing;
o Our representations and warranties set forth in the Asset Purchase
Agreement shall be true in all material respects as of the date of the
Agreement and as of the Closing Time;
CONDITIONS TO OBLIGATIONS OF THE COMPANY
Our obligation under the Agreement is subject to fulfillment prior to the
Closing of the following conditions:
o The Agreement and the sale of assets transaction shall have received
all necessary approvals, consents, authorizations and waivers;
o There shall not be effect a preliminary or permanent injunction
prohibiting consummation of the transaction;
o Miller Feed Lots shall have performed all its obligations required to
be performed prior to the Closing;
o The representations and warranties of Miller Feed Lots shall be true
as of the date of the Agreement and as of the Closing Time.
TERMINATION, AMENDMENT, WAIVER, relief
The Agreement and the Sale of Assets Transaction may be terminated at any
time prior to the Closing, whether before or after any approval by stockholders
in either of the following ways:
o By mutual consent of Miller Feed Lots and the Company;
o By either Miller Feed Lots or the Company, upon written notice to the
other, if the conditions to such party's obligations to consummate the
asset purchase transaction as provided in the Agreement were not, or
cannot reasonably be, satisfied on or before 30 days after the date of
the Agreement, unless the failure of condition is the result of the
material breach of the Agreement by the party seeking to terminate.
25
The Asset Purchase Agreement may be amended by us or by Miller Feed Lots by
action taken at any time, but after the asset purchase transaction has been
approved by our stockholders, no amendment shall be made which materially
reduces the Consideration, or which in any way materially and adversely affects
our rights or the rights of our stockholders without the further approval of our
stockholders. Any amendment must be in writing and signed by us and Miller Feed
Lots.
At any time prior to the Closing, we or Miller Feed Lots by action taken by
the respective boards of Directors, may extend the time for performance of any
of the obligations or other acts of the parties, or waive compliance with any of
the agreements or conditions contained in the Asset Purchase Agreement. Any
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of the party granting the waiver.
In the event of liability of Miller Feed Lots or us prior to the Closing,
we and Miller Feed Lots acknowledge that monetary damages will not reasonably be
calculable, and agree that specific performance and injunctive relief should be
available to Miller Feed Lots. If for any reason the asset sale transaction
shall be terminated before the Closing, the Purchaser and we shall be restored
to our positions before the Agreement and each shall pay his own expenses
relating to this Agreement.
ARBITRATION
Any dispute between us and Miller Feed Lots arising out of the Agreement or
the sale of assets transaction shall be submitted to binding arbitration in
Greeley, Colorado, before a tribunal of three arbitrators, one to be selected by
us, and one to be selected by Miller Feed Lots, and the third to be selected by
the first two arbitrators. Any award issued as a result of such arbitration
shall be final and binding, and enforceable by any court having jurisdiction
over the party against whom the enforcement is sought.
Neither we nor Miller Feedlots shall bring any action with respect to the
Agreement or the sale of assets transaction unless the aggregate amount of all
claims so asserted exceeds $10,000, but this shall not prevent actions seeking
injunctions or other equitable forms of relief.
ACCOUNTING TREATMENT OF THE SALE OF ASSETS TRANSACTION
The gain or loss on the sale of assets will be recorded in accordance with
FASB standards.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE SALE OF ASSETS TRANSACTION
GENERAL
The following summary of the anticipated material federal income tax
consequences to us on the sale of assets transaction to Miller Feed Lots is not
intended to be a complete description of the federal income tax consequences of
the proposed sale of assets transaction. This summary is based upon the Internal
Revenue Code of 1986, as amended, the regulations promulgated thereunder, and
the administrative and judicial interpretations thereof, all as presently in
effect. Each of these authorities is subject to change, possibly with
retroactive effects; thus, we cannot assure you that future legislation,
26
regulations, administrative interpretations or court decisions will not
significantly change the federal income tax consequences discussed herein.
No rulings have been requested or received from the Internal Revenue
Service as to the matters discussed in this proxy statement, and there is no
intent to seek any rulings. Accordingly, we can provide no assurance that the
Internal Revenue Service will not challenge the tax treatment of certain matters
discussed, or, if it does challenge the tax treatment, that it will not be
successful.
FEDERAL INCOME TAX CONSEQUENCES TO the company
A determination whether the Company will recognize a gain or loss for
federal income tax purposes upon the Sale of Assets Transaction and transfer of
certain liabilities to Miller Feedlots pursuant to the Asset Purchase Agreement
will be made as of the Closing Date when values can be fixed for the various
assets being transferred. The determination of whether gain or loss is
recognized will be made with respect to each of the assets to be sold.
Accordingly, we may recognize gain on the sale of some assets and a loss on the
sale of others. The amount of gain or loss recognized by us with respect to the
sale of a particular asset will be measured by the difference between the amount
realized by us on the sale of that asset, and our tax basis in that asset. The
amount realized on the sale will include the amount of cash received, plus the
amount of liabilities assumed by Miller Feed Lots. For purposes of determining
the amount realized by us with respect to specific assets, the total amount
realized will generally be allocated among the assets according to the rules
prescribed under the Internal Revenue Code.
We cannot compute the amount of gain that we might recognize as a result of
the sale of the assets transaction until gains and losses from other
transactions during the taxable year are known. Based on the UNAUDITED PROFORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS appearing below, it seems fairly
certain the Company will show a loss on the sale of assets transaction. Those
proforma calculations are computed as if the asset sale transaction occurred on
February 28, 2003, or on September 1, 2002. The identity of assets has changed
since those dates, and will change more prior to the Closing Date.
The sale of assets transaction may subject us to state or local income,
sales, or other tax liabilities.
USE OF PROCEEDS
The net proceeds to the Company upon closing the Asset Purchase Transaction
cannot be accurately determined at this time. The net proceeds will be applied
to the payment of liabilities not assumed by Miller Feed Lots. These liabilities
may be carried until annual payments on the Miller Feed Lots purchase money
promissory note are paid. After all liabilities have been satisfied, payments
made on the Miller Feed Lots promissory note will be retained by the Company in
interest-bearing accounts or investments, to be held by the Company until an
acceptable acquisition proposal is made. It is expected that the retention of
the note receivable will make the Company a more attractive candidate for
acquisition and that stockholders will realize greater value in an acquisition
transaction than they would benefit from an immediate distribution of the
Company's remaining capital. There can be no assurance that retention of the
note receivable will make the Company a more attractive candidate for
acquisition.
27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements give effect to the proposed sale of substantially all assets and
liabilities to Miller Feed Lots, Inc. pursuant to an Asset Purchase Agreement
dated April 17, 2003. This pro forma information has been prepared using the
historical consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet as of February
28, 2003 sets forth the effect of the sales transaction as if it occurred on
February 28, 2003. This presentation uses an estimated adjusted sales price
calculated as of February 28, 2003 of $431,947 and corresponding loss on sale of
$1,052,952.
The unaudited pro forma condensed consolidated statement of operations for
the six month ended February 28, 2003 sets forth the effect of the sales
transaction as if it occurred on September 1, 2002. This presentation uses an
estimated adjusted sales price calculated as of September 1, 2002 of $78,704 and
corresponding loss on sale of $1,390,540.
28
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
- ---------------------------------------------------------------------------------------------------------------- ----------------
Pro forma
February 28, 2003 Historical Adjustments Pro forma
- ---------------------------------------------------------------------------------------------------------------- ----------------
ASSETS
- ------
Current Assets:
Cash $ 185,956 [1] $ (183,745) $ 2,211
Receivables:
Trade accounts 343,881 [1] (343,881) --
Accounts receivable - related parties 899,434 [1] (899,434) --
Notes - cattle financing 287,504 [1] (287,504) --
Inventories 3,116,544 [1] (3,116,544) --
Prepaid expenses and other 99,314 [1] (99,314) --
- ---------------------------------------------------------------------------------------------------------------- ----------------
Total Current Assets 4,932,633 (4,930,422) 2,211
- ---------------------------------------------------------------------------------------------------------------- ----------------
Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 [2] (1,497,840) --
Equipment 198,494 [1] (198,494) --
Leasehold improvements 187,767 [1] (187,767) --
----------- ------------ ----------------
1,884,101 (1,884,101) --
Less: Accumulated depreciation
and amortization 999,035 [2] (723,963) --
[1] (275,072)
- ---------------------------------------------------------------------------------------------------------------- ----------------
Total Property and Equipment 885,066 (885,066) --
- ---------------------------------------------------------------------------------------------------------------- ----------------
Other Assets:
Note receivable - Miller Feed Lots, Inc. -- [1] 1,446,320 346,544
[2] (250,000)
[3] (599,776)
[4] (250,000)
Notes receivable - related parties 300,000 [1] (300,000) --
Deferred income taxes 350,756 [5] (350,756) --
Deposits and other 11,495 [1] (11,495) --
- ---------------------------------------------------------------------------------------------------------------- ---------------
Total Other Assets 662,251 (315,707) 346,544
- ---------------------------------------------------------------------------------------------------------------- ----------------
TOTAL ASSETS $ 6,479,950 $(6,131,195) $ 348,755
================================================================================================================ ================
B-29
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -
- ---------------------------------------------------------------------------------------------------------------- ----------------
Pro forma
February 28, 2003 Historical Adjustments Pro forma
- ---------------------------------------------------------------------------------------------------------------- ----------------
LIABILITIES
- -----------
Current Liabilities:
Cash overdraft $ 662,372 [1] $ (662,372) $ --
Notes payable 3,008,120 [1] (3,008,120) --
Trade accounts payable 510,684 [1] (510,684) --
Accrued expenses 37,787 [1] (37,787) --
Current portion of:
Capital lease obligations - related party 31,227 [2] (31,227) --
Long-term debt - related party 65,087 65,087
---------------------------------------------- ----------------
Total Current Liabilities 4,315,277 (4,250,190) 65,087
Capital Lease Obligation - Related Party 856,448 [2] (856,448) --
Long-Term Debt - Related Party 41,047 41,047
- ----------------------------------------------------------------------------------------------------------------- ----------------
Total Liabilities 5,212,772 (5,106,638) 106,134
- ----------------------------------------------------------------------------------------------------------------- ----------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock -- --
Common Stock 636 636
Additional Paid-In Capital 1,351,693 1,351,693
Retained Earnings (26,776) [1] 312,177 (1,051,333)
[2] (136,202)
[3] (599,776)
[4] (250,000)
[5] (350,756)
Accumulated Other Comprehensive Income (Loss) (58,375) (58,375)
- ----------------------------------------------------------------------------------------------------------------- ----------------
Total Stockholders' Equity 1,267,178 (1,024,557) 242,621
- ----------------------------------------------------------------------------------------------------------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,479,950 $(6,131,195) $ 348,755
=============================================================================================================== ================
Explanatory Notes:
Pro forma condensed consolidated balance sheet assumes sales transaction
occurred on February 28, 2003.
[1] Record sale of identified assets and assumption of identified liabilities
for unadjusted sales price of $1,446,320 (adjustments recorded per [2,3,4]).
[2] Record cancellation of the capital lease obligation, including termination
fee of $250,000.
[3] Record deduction from sales price for Purchaser's participation in losses
from Seller's fed cattle sales from September 1, 2001 to February 28, 2003.
[4] Record $250,000 adjustment to sales price for risk of loss on cattle being
transferred from Seller to Purchaser.
[5] Record 100% allowance for deferred tax assets due to the sale transaction.
B-30
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
- ------------------------------------- ------------ --- ------------------- ------------------------- ------------------
Pro forma
Six Months Ended February 28, 2003 Historical Adjustments Pro forma
- ------------------------------------------------------ ------------------- ------------------------- ------------------
Revenue:
Feed and related sales $ 2,024,259 [2] $(2,024,259) $ --
Fed cattle sales 1,538,455 [2] (1,538,455) --
Feedlot services 303,287 [2] (303,287) --
Interest income 2,193 [2] (2,193) --
Interest income - related party 9,000 [2] (9,000) 1,968
[3]
1,968
Other income 33,920 [2] (33,920) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Revenue 3,911,114 (3,909,146) 1,968
- ------------------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of:
Feed and related sales 1,693,116 [2] (1,693,116) --
Fed cattle sold 1,623,857 [2] (1,623,857) --
Feedlot services 368,882 [2] (368,882) --
Selling, general, and administrative 336,381 [2] (335,381) 1,000
Interest 20,094 [2] (20,094) --
Interest on note payable - related party 55,560 [2] (49,314) 6,246
- ------------------------------------------------------------------------------------------------------------------------------------
Total Costs and Expenses 4,097,890 (4,090,644) 7,246
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Income Taxes (186,776) 181,498 (5,278)
Income Tax Expense (Benefit) 25,411 [2] (25,411) --
- ------------------------------------------------------ -----------------------------------------------------------------------------
Net Income (Loss) before Disposition of Business (161,365) 156,087 (5,278)
Loss on Disposition of Business -- [1] (1,390,540) (1,390,540)
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (161,365) $(1,234,453) $ (1,395,818)
====================================================================================================================================
INCOME (LOSS) PER COMMON SHARE $ (0.03) $ (0.22)
========================================================================== ================
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
====================================================== =================== ================
Explanatory Notes:
Pro forma condensed consolidated statement of operations assumes the sales
transaction occurred September 1, 2002.
[1] Record sale of identified assets and assumption of identified liabilities as
if it occurred September 1, 2002 for an estimated sales price at that date of
$78,704. Includes increasing valuation allowance for deferred tax assets by
$376,167 due to sale transaction.
[2] Remove revenue and expenses related to assets sold and liabilities assumed.
[3] Record interest income on $78,704 note receivable from Purchaser.
B-31
ITEM 3. OTHER MATTERS
The board of directors knows of no business to be presented for action at
the special meeting except as described above. If other matters are properly
presented for a vote, the proxies will be voted upon such matters (including
matters incident to the conduct of the meeting) in accordance with the judgment
of the persons acting under the proxies.
INDEPENDENT PUBLIC ACCOUNTANT
A representative of Anderson & Whitney P.C. is expected to be present at
the special meeting. He will have an opportunity to make a statement if he so
desires, and is expected to be available to respond to appropriate questions.
STOCKHOLDERS' PROPOSALS FOR 2004 ANNUAL MEETING
Stockholders' proposals for the 2004 annual meeting of stockholders must be
submitted in writing to the secretary at the address set forth on the first page
of this proxy statement a reasonable time before the Company begins to print and
mail its proxy materials. Based on the Company's usual schedule for preparing
its proxy statement for annual meetings, shareholder proposals should be
submitted before August 11, 2004, in order to be presented at the annual meeting
or be considered for inclusion in the Company's 2004 proxy statement and proxy
card.
PLEASE SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY CARD.
May 5, 2003 Miller Diversified Corporation
B-32
EXHIBITS
3.1 Articles of Incorporation and Bylaws and Amendments (except the Amendment
described in 3.2 below) thereto (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement No. 33-26285)
3.2 Amendment to Articles of Incorporation dated January 22, 1990, providing for
1:250 reverse stock split and reduction in number of authorized shares
(incorporated by reference to Exhibit 3.2 to Registrant's Registration Statement
No. 33-40461)
10.1 Long-Term Lese of Feedlot Facilities dated August 1, 1992 that constitutes
an amendment to the original lease dated February 1, 1991 (incorporated by
reference to Exhibit 10.1 to Registrant's Form 10-K for the year ended August
31, 1992)
10.2 Equipment Sale and Purchase Agreement dated August 13, 1992 (incorporated
by reference to Exhibit 10.2 to Registrant's Form 10-K for the year ended August
31, 1992)
10.3 Equipment Lease dated August 15, 1992 (incorporated by reference to
Registrant's Form 10-K for the year ended August 31, 1992)
10.4 Asset Purchase Agreement dated April 17, 2003 appears at Appendix A to this
Proxy Statement
B-33
APPENDIX A
ASSET PURCHASE AGREEMENT
Between
MILLER FEED LOTS, INC.
(Purchaser)
and
MILLER DIVERSIFIED CORPORATION
(Seller)
Dated: April 17, 2003
table of contents
Page
Article I DEFINITIONS.......................................................A-1
1.1 Acquired Assets.................................................A-1
1.2 Acquired Business...............................................A-1
1.3 Acquired Business Disclosure Document...........................A-2
1.4 Acquired Facilities.............................................A-2
1.5 Affiliate.......................................................A-2
1.6 Agreement.......................................................A-2
1.7 Asset Sale Transaction..........................................A-2
1.8 Assumed Liabilities.............................................A-2
1.9 Audited Financial Statements....................................A-2
1.10 Auditors........................................................A-2
1.11 Closing.........................................................A-2
1.12 Closing Date....................................................A-2
1.13 Closing Time....................................................A-2
1.14 Consideration...................................................A-3
1.15 Derivative Instruments..........................................A-3
1.16 Control.........................................................A-3
1.17 Entity..........................................................A-3
1.18 Exchange Act....................................................A-3
1.19 GAAP............................................................A-3
1.20 Inventories.....................................................A-3
1.21 Liabilities.....................................................A-3
1.22 Payables........................................................A-3
1.23 Proprietary Rights..............................................A-3
1.24 Proxy Statement.................................................A-3
1.25 Purchaser.......................................................A-4
1.26 Purchaser's Balance Sheet.......................................A-4
1.27 Receivables.....................................................A-4
1.28 SEC.............................................................A-4
1.29 Securities Act..................................................A-4
1.30 Seller..........................................................A-4
1.31 Seller's Balance Sheet..........................................A-4
1.32 Subsidiary......................................................A-4
1.33 Unaudited Financial Statements of Seller........................A-4
Article II THE ASSET SALE TRANSACTION.......................................A-4
2.1 The Asset Sale Transaction......................................A-4
2.2 Consideration...................................................A-5
2.3 Adjustments.....................................................A-5
2.4 Manner of Payment...............................................A-5
2.5 Closing.........................................................A-5
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Article III REPRESENTATIONS AND WARRANTIES OF PURCHASER......................A-6
3.1 Organization and Qualification...................................A-6
3.2 Authority Relative to This Agreement.............................A-6
3.3 Absence of Breach; No Consents...................................A-6
3.4 Purchaser's Financial Statements.................................A-6
Article IV REPRESENTATIONS AND WARRANTIES OF SELLER..........................A-7
4.1 Organization and Qualification...................................A-7
4.2 Capitalization...................................................A-7
4.3 Authority Relative to This Agreement.............................A-7
4.4 Absence of Breach; No Consents...................................A-7
4.5 Financial Statements.............................................A-8
4.6 Acquired Business Disclosure Document............................A-8
4.7 Absence of Material Differences From Disclosure Document.........A-8
4.8 Full Disclosure.................................................A-11
4.9 Actions Since Balance Sheet Date................................A-11
Article V COVENANTS OF THE PURCHASER........................................A-11
5.1 Affirmative Covenants...........................................A-11
5.2 Cooperation.....................................................A-11
5.3 Expenses........................................................A-11
5.4 Health Insurance................................................A-11
5.5 Assumed Liabilities.............................................A-12
Article VI COVENANTS OF THE SELLER..........................................A-12
6.1 Affirmative Covenants...........................................A-12
6.2 Access and Information..........................................A-12
6.3 Conduct of Business Pending the Closing.........................A-12
6.4 Cooperation.....................................................A-12
6.5 Expenses........................................................A-12
6.6 Updating of Exhibits and Disclosure Documents...................A-12
6.7 Payment of Unassumed Liabilities................................A-13
Article VII CONDITIONS TO CLOSING...........................................A-13
7.1 Conditions to Obligation of Purchaser...........................A-13
7.2 Conditions to Obligation of the Seller..........................A-13
Article VIII SECURITIES AND SECURITY HOLDERS................................A-14
8.1 Meeting of Stockholders.........................................A-14
8.2 Proxy Statement.................................................A-14
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Article IX TERMINATION, AMENDMENT, WAIVER, RELIEF...........................A-14
9.1 Termination.....................................................A-14
9.2 Amendment.......................................................A-15
9.3 Waiver..........................................................A-15
9.4 Relief..........................................................A-15
9.5 Failure to Close................................................A-15
Article X GENERAL PROVISIONS................................................A-15
10.1 Arbitration.....................................................A-15
10.2 Notices.........................................................A-16
10.3 Interpretation..................................................A-16
10.4 Survival of Representations, Warranties.........................A-16
10.5 De Minimis Claims...............................................A-16
10.6 Miscellaneous...................................................A-16
EXHIBIT A - Purchaser's Financial Statement A-18
EXHIBIT B - Seller's Unaudited Financial Statements A-21
SCHEDULE 2.1 - Acquired Assets A-29
SCHEDULE 2.4 - Promissory Note A-31
SCHEDULE 4.6 - Acquired Business Disclosure Document A-32
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Execution Copy - 04/17/03
ASSET PURCHASE AGREEMENT
Between
MILLER FEED LOTS, INC.
(Purchaser)
and
MILLER DIVERSIFIED CORPORATION
(Seller)
THIS ASSET PURCHASE AGREEMENT is made this 17th day of April, 2003, by and
among Miller Feed Lots Inc. (MFL) (the Purchaser), a Colorado corporation, and
Miller Diversified Corporation (MDC) (the Seller), a Nevada corporation, and
provides for the Purchaser to acquire substantially all of the assets of the
Seller, subject to the liabilities assumed in this Agreement by the Purchaser
and no other liabilities.
RECITALS
1. The Purchaser desires to acquire, on the terms and subject to the
conditions reflected below, the business of the Seller insofar as the same is
conducted through the use of the Acquired Assets; and
2. The Seller believes that it is desirable and in the best interests of
the Seller and its stockholders that it sell the Acquired Assets to the
Purchaser;
AGREEMENT
NOW, THEREFORE, the parties to this Asset Purchase Agreement do hereby
agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the terms identified below in this Article I
shall have the meanings indicated, unless a different and common meaning of the
term is clearly indicated by the context, and variants and derivatives of the
following terms shall have correlative meanings.
1.1 Acquired Assets: The assets of the Seller being acquired by the
Purchaser pursuant to the terms hereof, as identified on Schedule 2.1 hereto,
and all other assets of the Seller, tangible or intangible (including
contractual, warranty, and other rights), the use or value of which is
inextricably linked to the assets so identified, or which relate to or arise out
of transactions of the Seller involving the assets so identified.
1.2 Acquired Business: The businesses conducted by the Seller in which the
Seller utilized the Acquired Assets, as described on Schedule 2.1 hereto,
commonly known, described, or identified as the Seller's cattle feeding business
or feedlot facility.
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1.3 Acquired Business Disclosure Document: The document delivered by the
Seller to the Purchaser containing certain disclosures regarding the Acquired
Business as described in Section 4.6 hereof.
1.4 Acquired Facilities: All storage facilities, feedlot facilities,
processing facilities, fixtures, and improvements owned or leased by the Seller
or otherwise used by the Seller in connection with the operation of its business
or leased or subleased by the Seller, but only to the extent that the same
consist of Acquired Assets.
1.5 Affiliate: When used with respect to a person, an "affiliate" of that
person is a person Controlling, Controlled by, or under common Control with that
person.
1.6 Agreement: This Asset Purchase Agreement, including all of its
schedules and exhibits and all other documents specifically referred to in this
Agreement that have been or are to be delivered by a party to this Agreement to
another such party in connection with the Asset Purchase Transaction or this
Agreement, and including all duly adopted amendments, modifications, and
supplements to or of this Agreement and such schedules, exhibits and other
documents.
1.7 Asset Sale Transaction: The Sale of the Acquired Assets, subject to the
Assumed Liabilities, for the Consideration as contemplated by, and subject to
the terms and conditions of, this Agreement.
1.8 Assumed Liabilities: The Liabilities of the Seller incurred or accrued
in the operation of the Acquired Business prior to the Closing Time and being
assumed by the Purchaser pursuant to this Agreement, as specifically identified
in Schedule 2.1 to this Agreement, and no other Liabilities of the Seller.
Assumed Liabilities does not include any liabilities of the Seller incurred or
accrued in activities other than the Acquired Business.
1.9 Audited Financial Statements: The balance sheet, income statement,
statement of stockholders' equity and statement of cash flows or, in each
instance, equivalent statements of the Seller as at August 31, 2002 and for the
year then ended, in each instance as reported on by Auditors.
1.10 Auditors: With respect to the Seller and the Acquired Business,
Anderson & Whitney, P.C. , Certified Public Accountants, 5801 West 11th Street,
Suite 300, Greeley, Colorado 80634-4813.
1.11 Closing: The completion of the Asset Purchase Transaction, to take
place as described in Article II.
1.12 Closing Date: The date on which the Closing actually occurs, which
shall not in any event be prior to satisfaction or waiver of the conditions to
Closing set forth in Article VII hereof.
1.13 Closing Time: The time at which the Closing actually occurs. All
events that are to occur at the Closing Time shall, for all purposes, be deemed
to occur simultaneously, except to the extent, if at all, that a specific order
of occurrence is otherwise described.
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1.14 Consideration: The net sum to be paid by the Purchaser to the Seller
at the Closing for the Acquired Assets, subject to modification and adjustment
as provided herein.
1.15 Derivative Instruments. Instruments used for the purchase of hedging
commodity prices that exist as part of the Acquired Business.
1.16 Control: Generally, the power to direct the management or affairs of
an Entity.
1.17 Entity: A corporation, partnership, sole proprietorship, joint
venture, or other form of organization formed for the conduct of a business,
whether active or passive.
1.18 Exchange Act: The Securities Exchange Act of 1934, as amended to the
date as of which any reference thereto is relevant under this Agreement,
including any substitute or replacement statute adopted in place or lieu
therefor.
1.19 GAAP: Generally Accepted Accounting Principles, as in effect on the
date of any statement, report or determination that purports to be, or is
required to be, prepared or made in accordance with GAAP. All references herein
to financial statements prepared in accordance with GAAP shall mean in
accordance with GAAP consistently applied throughout the periods to which
reference is made.
1.20 Inventories: The stock of feed, grain, veterinary supplies, feeder
cattle, and cattle procured for feeding purposes but not yet consigned to custom
feeders, held by the Seller for use in the Acquired Business (including the
Miller Feeders, Inc., a Subsidiary of Seller), from time to time in the ordinary
course of the business of the Seller. Inventories are valued as provided in
Section 2.2.
1.21 Liabilities: At any point in time (the Determination Time), the
obligations of a person or Entity, whether known or unknown, contingent or
absolute, recorded on its books or not, arising or resulting in any way from
facts, events, agreements, obligations or occurrences that existed or transpired
at a prior point in time, or resulted from the passage of time to the
Determination Time, but not including obligations accruing or payable after the
Determination Time to the extent (but only to the extent) that such obligations
(i) arise under previously existing agreements for services, benefits, or other
considerations, and (ii) accrue or become payable with respect to services,
benefits, or other considerations received by the person or Entity after the
Determination Time.
1.22 Payables: Liabilities of a party arising from the borrowing of money
or the incurring of obligations for merchandise or goods purchased.
1.23 Proprietary Rights: Trade secrets, copyrights, patents, trademarks,
service marks, customer lists, and all similar types of intangible property
developed, created or owned by the Seller, or used by the Seller in connection
with the Acquired Business, whether or not the same are entitled to legal
protection.
1.24 Proxy Statement: The document prepared by the Seller for submission to
its shareholders soliciting their proxies to permit the persons to whom proxies
are thereby granted to vote upon the consummation of the Asset Purchase
Transaction.
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1.25 Purchaser: Miller Feed Lots, Inc., a Colorado corporation which, under
the terms of this Agreement is acquiring the Acquired Assets of the Seller.
1.26 Purchaser's Balance Sheet. The balance sheet included in the unaudited
financial statements of the Purchaser referred to in Section 3.4.
1.27 Receivables: Accounts Receivable, notes receivable, and other
obligations appearing as assets on the books of the Seller, and customarily
reflected as assets in balance sheets of entities prepared in accordance with
GAAP, indicating moneys owed to the entity. No allowance for doubtful accounts
receivable from custom feeders has been recorded based on the history of the
Company and its ability to place an agister's lien on customers' cattle in the
feedlot.
1.28 SEC: The Securities And Exchange Commission.
1.29 Securities Act: The Securities Act of 1933, as amended to the date as
of which any reference thereto is relevant under this Agreement, including any
substitute or replacement statute adopted in place or lieu thereof
1.30 Seller: Miller Diversified Corporation, a Nevada corporation, as the
seller of the Acquired Assets.
1.31 Seller's Balance Sheet. The balance sheet included in the unaudited
financial statements of the Seller referred to in Section 4.5(2).
1.32 Subsidiary: With respect to Seller, its sole subsidiary is Miller
Feeders, Inc. With respect to any other Entity, another Entity of which fifty
percent (50%) or more of the effective voting power, or the effective power to
elect a majority of the board of directors or similar governing body, or fifty
percent (50%) or more of the true equity interest; is owned by such first
Entity, directly or indirectly.
1.33 Unaudited Financial Statements of Seller : The balance sheet, income
statement, statement of stockholders' equity, and statement of cash flows or, in
each instance, equivalent statements as commonly prepared, as at February 28,
2003, and for the six months then ended for the Acquired Business with
comparable statements for the similar period of the prior fiscal year.
ARTICLE II
THE ASSET SALE TRANSACTION
2.1 The Asset Sale Transaction. On the Closing Date, and at the Closing
Time, subject in all instances to each of the terms, conditions, provisions and
limitations contained in this Agreement, the Seller shall sell, transfer,
convey, and assign to the Purchaser, by instruments satisfactory in form and
substance to the Purchaser and its counsel, and the Purchaser shall acquire from
the Seller, the Acquired Assets, identified on Schedule 2.1, subject to the
Assumed Liabilities, and only those Liabilities and no others, in exchange for
the Consideration. Neither the Purchaser nor any of its Affiliates is assuming,
becoming liable for, agreeing to discharge or in any manner becoming in any way
responsible for any of the Liabilities of the Seller other than those expressly
identified on Schedule 2.1 and accepted by the Purchaser in this Section 2.1.
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2.2 Consideration. The net sum to be paid by the Purchaser to the Seller
for the Acquired Assets after the adjustments provided in Section 2.3.
(a) All feeder cattle being transferred from Seller to Purchaser will
be valued on the Closing Date by an independent person experienced in buying
feeder cattle for packers. Values will be based on the weight and sex of feeder
cattle being transferred.
(b) Equipment will be appraised at fair market value by an independent
third party experienced in valuing equipment of the kind being transferred by
Seller to Purchaser.
(c) Inventory other than cattle being transferred by Seller to
Purchaser will be valued at the lower of cost or market. Cost is determined
using the weighted average cost method for feed and grain inventories while the
first in, first out and specific identification methods are used for all other
inventories.
(d) All receivables will be valued at their book value at the accounts
of Seller on the Closing Date, without adjustment for doubtful accounts.
(e) Derivative Instruments.
(f) No value will be given to the feed lot lease.
2.3 Adjustments. The total Consideration computed as provided in Section
2.2 shall be adjusted down for the following items:
(a) The sum of $514,373 shall be deducted from the Consideration
representing Purchaser's contribution to losses for Seller's fed cattle sale
from September 1, 2001 to February 28, 2002. (b) The sum of $250,000 shall be
deducted from the Consideration, representing a fee to Purchaser for the
termination of Seller's lease of feedlot facilities from Purchaser.
(c) The sum of $250,000 shall be deducted from the Consideration
representing Seller's portion of the risk of loss on cattle being transferred
from Seller to Purchaser.
2.4 Manner of Payment. Payment of the Consideration by the Purchaser shall
be by promissory note bearing interest at the rate of 5% per annum on the unpaid
principal, payable annually, with installments of principal of $100,000 each
year, such promissory note to be substantially in the form of the promissory
note attached hereto in Schedule 2.4. Payment of such promissory note shall be
secured by a second deed of trust on feedlot facilities owned by Purchaser. The
form of deed of trust shall be satisfactory to Purchaser and Seller.
2.5 Closing. The Closing hereunder shall take place at the offices of
Seller at 5754 West 11th Street, Greeley, Colorado 80634, or at such other place
as the Purchaser and the Seller may agree upon, on the Closing Date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Seller:
3.1 Organization and Qualification. The Purchaser is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Colorado and has the requisite corporate power and authority to enter into and
to perform this Agreement.
3.2 Authority Relative to This Agreement. The Purchaser has the requisite
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the Asset Purchase Transaction contemplated hereby have been
duly authorized and approved by the requisite level of corporate authority of
Purchaser and no other corporate proceedings on the part of the Purchaser are
necessary to approve and adopt this Agreement or to approve the consummation of
the Asset Purchase Transaction contemplated hereby, including delivery of the
Consideration. This Agreement has been duly and validly executed and delivered
by the Purchaser and constitutes a valid and binding Agreement of the Purchaser,
enforceable in accordance with its terms.
3.3 Absence of Breach; No Consents. The execution, delivery and performance
of this Agreement, and the performance by Purchaser of its obligations hereunder
(except for compliance with any regulatory or licensing laws applicable to the
business of the Purchaser, all of which, to the extent applicable to Purchaser
(and to the extent within its control), will be satisfied in all material
respects prior to the Closing) do not, (i) conflict with, and will not result in
a breach of, any of the provisions of Purchaser's articles of incorporation or
bylaws; (ii) contravene any law, rule or regulation of any State or of the
United States, or any order, writ, judgment, injunction, decree, determination,
or award affecting or binding upon the Purchaser in such a manner as to provide
a basis for enjoining or otherwise preventing consummation of the Asset Purchase
Transaction; (iii) conflict with or result in a material breach of or default
under any material loan or credit agreement or any other material agreement or
instrument to which Purchaser is a party, in such a manner as to provide a basis
for enjoining or otherwise preventing consummation of the Asset Purchase
Transaction; or (iv) require the authorization, consent, approval or license of
any third party of such a nature that the failure to obtain the same would
provide a basis for enjoining or otherwise preventing consummation of the Asset
Purchase Transaction.
3.4 Purchaser's Financial Statements. Purchaser has heretofore delivered to
the Seller its unaudited financial statements as at February 28, 2003, and for
the 11 months then ended. And a copy of such financial statement is attached
hereto as Exhibit A. Such financial statements were prepared from the books and
records of Purchaser in accordance with GAAP, and fairly and accurately reflect
the financial position and condition of Purchaser as at the dates and for the
periods indicated. Without limiting the foregoing, at the date of the
Purchaser's Balance Sheet, the Purchase owned each of the assets included in
preparation of such balance sheet, and the valuation of such assets in the
Purchaser's balance sheet is not more than their fair saleable value (on an
item-by-item basis) at that date, and the Purchase had no liabilities other than
those included in Purchaser's Balance Sheet, nor any liabilities in amounts in
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excess of the amounts included for them in Purchaser's Balance Sheet. From the
date hereof until the promissory note referred to in Section 2.4 has been paid,
the Purchaser will continue to prepare financial statements for the Purchaser on
the same basis that it has done so in the past, will promptly deliver the same
to the Seller, and agrees that from and after such delivery the foregoing
representations will be applicable to each financial statement so prepared and
delivered.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller represents and warrants to the Purchaser as follows:
4.1 Organization and Qualification. The Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Nevada and the character of Seller's business and the nature of its activity are
such that it is not required to qualify to do business as a foreign corporation
in any other jurisdiction.
4.2 Capitalization. Seller is authorized to issue 25,000,000 shares of
Common Stock, $.0001 par value. A total of 6,404,640 shares of Common Stock have
been issued and are outstanding. Seller is authorized to issue 1,000,000 shares
of 8% noncumulative Preferred Stock, $ 2.00 par value. No shares of Preferred
Stock have been issued.
4.3 Authority Relative to This Agreement. This Agreement has been duly and
validly executed and delivered by the Seller and constitutes a valid and binding
Agreement of the Seller enforceable in accordance with its terms, subject,
however, to the approval of stockholders of Seller as provided for elsewhere in
this Agreement. The Seller has all requisite corporate power and authority to
enter into this Agreement and to carry out the Asset Purchase Transaction
contemplated hereby, and its doing so has been duly and sufficiently authorized,
subject only to stockholder approval and to governmental regulatory approvals as
and to the extent specifically set forth elsewhere in this Agreement.
4.4 Absence of Breach; No Consents. The execution, delivery, and
performance of this Agreement, and the performance by the Seller of its
obligations hereunder, do not, except as disclosed in Schedule 4.4, (i) conflict
with or result in a breach of any of the provisions of the articles of
incorporation or bylaws of the Seller or of its Subsidiary; (ii) contravene any
law, ordinance, rule, or regulation of any State or political subdivision
thereof or of the United States (except for compliance with regulatory or
licensing laws all of which, to the extent applicable to the Seller (and to the
extent within the control of the Seller), will be satisfied in all material
respects prior to the Closing), or contravene any order, writ, judgment,
injunction, decree, determination, or award of any court or other authority
having jurisdiction, or cause the suspension or revocation of any authorization,
consent, approval, or license, presently in effect, which affects or binds, the
Seller or all or any part of the Acquired Business or any material properties of
the Acquired Business, except in any such case where such contravention will not
have a material adverse effect on the business, condition (financial or
otherwise), operations or prospects of the Acquired Business and will not have a
material adverse effect on the validity of this Agreement or on the validity of
the consummation the Asset Purchase Transaction; (iii) conflict with or result
in a material breach of or default under any material loan or credit agreement
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or any other material agreement or instrument to which the Seller or any of part
of the Acquired Business is a party or by which any of the material properties
of the Acquired Business may be affected or bound; (iv) other than consents
disclosed on the Acquired Business Disclosure Document, require the
authorization, consent, approval, or license of any third party; or (v)
constitute grounds for the loss or suspension of any permits, licenses, or other
authorizations used in the Acquired Business.
4.5 Financial Statements. The Seller has heretofore delivered to the
Purchaser the following:
(1) The Audited Financial Statements of the Seller;
(2) The Unaudited Financial Statements of the Seller attached hereto as
Exhibit B.
All of the historical financial statements contained in such documents were
prepared from the books and records of the Seller. The Audited Financial
Statements were prepared in accordance with GAAP, and fairly and accurately
reflect the financial position and condition of the Seller as at the dates and
for the periods indicated. Without limiting the foregoing, at the date of the
Seller's Balance Sheet the Seller owned each of the assets included in
preparation of the Seller's Balance Sheet, and the valuation of such assets in
the Seller's Balance Sheet is not more than their fair saleable value (on an
item by item basis) at that date; and the Seller had no Liabilities for which
the Acquired Business or any part of the Acquired Assets is responsible or
liable, other than those included in the Seller's Balance Sheet, nor any
Liabilities in amounts in excess of the amounts included for them in the
Seller's Balance Sheet. The Unaudited Financial Statements included in the
documents described above in this Section were prepared in a manner consistent
with the basis of presentation used in the Audited Financial Statements, and
fairly present the financial position and condition of the Seller as at and for
the periods indicated, subject to normal year-end adjustments, none of which
will be material. From the date hereof through the Closing Date the Seller will
continue to prepare financial statements for the Seller on the same basis that
it has done so in the past, will promptly deliver the same to the Purchaser, and
agrees that from and after such delivery the foregoing representations will be
applicable to each financial statement so prepared and delivered.
4.6 Acquired Business Disclosure Document. Seller has provided and attached
hereto as Schedule 4.6 its Acquired Business Disclosure Document which lists all
matters of disclosure which Seller makes to Purchaser hereunder which are not
reflected in this Agreement. The Acquired Business Disclosure Document may be
supplemented by Seller at any time after the date of this Agreement but any
disclosure made thereon in addition to the disclosures included in the Acquired
Business Disclosure Document attached hereto shall not affect any
representation, warranty, covenant or other agreement of the Seller contained in
this Agreement.
4.7 Absence of Material Differences From Disclosure Document. Except as
specifically disclosed in the Acquired Business Disclosure Document:
(1) No Undisclosed Liabilities. Neither the Seller nor its Subsidiary
has any Liabilities relating to or affecting the Acquired Business or the
Acquired Assets which are not adequately reflected or reserved against on the
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face of the Seller's Balance Sheet, except Liabilities incurred since the date
of the Seller's Balance Sheet in the ordinary course of business of the Acquired
Business and consistent with past practice. Without limiting the foregoing, (i)
there are no unpaid leasehold improvements at the feedlot facility leased by
Seller from Purchaser, at which Seller's cattle were fed, for which the Acquired
Business is or will be responsible, and (ii) there are no deferred rents due to
lessors at or with respect to any of such Acquired Facilities.
(2) No Material Adverse Change. Since the date of the Seller's Balance
Sheet, other than as contemplated or caused by this Agreement, there has not
been any material adverse change in the business, condition (financial or
otherwise), operations, or prospects of the Acquired Business.
(3) Taxes. The Seller and its Subsidiary have properly filed or caused
to be filed all federal, state and local, income and other tax returns, reports,
and declarations that are required by applicable law to be filed by them and
that relate to or in any way affect the Acquired Business or the Acquired
Assets, and have paid, or made full and adequate provision for the payment of,
all federal, state, and local income and other taxes properly due for the
periods covered by such returns, reports, and declarations, except such taxes,
if any, as are adequately reserved against in the Seller's Balance Sheet.
(4) Litigation. No material investigation or review by any governmental
entity with respect to the Acquired Business or any of the Acquired Assets or
the use thereof is pending or, to the best of the knowledge of the Seller,
threatened (other than inspections and reviews customarily made of businesses
such as the Acquired Business).
(5) Employees, Etc. There are no collective bargaining, bonus, profit
sharing, compensation, or other plans, agreements, trusts, funds, or
arrangements maintained by the Seller or the Subsidiary of the Seller for the
benefit of directors, officers or employees of, or whose principal
responsibilities relate to, the Acquired Business, and there are no employment,
consulting, severance, or indemnification arrangements, agreements, or
understandings between the Seller or its Subsidiary, on the one hand, and any
current or former directors, officers or other employees (or Affiliates thereof)
of, or whose principal responsibilities relate to, the Acquired Business, on the
other hand. Seller has delivered to Purchaser a list of employees of the
Acquired Business, together with the rate of pay for each employee as of the
date of this Agreement.
(6) Compliance With Laws. The Acquired Business and each of the
Acquired Assets is in substantial compliance with all, and has received no
notice of any violation of any, laws or regulations applicable to its
operations, including, without limitation, the laws and regulations relevant to
the use or utilization of premises, or with respect to which compliance is a
condition of engaging in any aspect of the business of the Acquired Business,
and the Acquired Business has all permits, licenses, zoning rights, and other
governmental authorizations necessary to conduct its business as presently
conducted. All such permits, licenses, zoning rights, and other governmental
authorizations will, as a part and consequence of the Asset Purchase
Transaction, be transferred to the Purchaser at the Closing.
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(7) Ownership of Assets. Neither the Seller nor its Subsidiary have any
real property and no real property is included in the Acquired Assets. Each of
the Seller and its Subsidiary has good, marketable title to all personal
property owned or leased by it, and comprising a part of the Acquired Assets or
the Acquired Business, or used by it in the conduct of the Acquired Business in
such a manner as to create the appearance or reasonable expectation that the
same is owned or leased by it; such ownership is free and clear of all liens,
claims, encumbrances and charges, except liens for taxes not yet due and minor
imperfections of title and encumbrances, if any, which, singly and in the
aggregate, are not substantial in amount and do not materially detract from the
value of the property subject thereto or materially impair the use thereof.
(8) Proprietary Rights. The Seller and its Subsidiary between them
possess full ownership of, or adequate and enforceable long-term licenses or
other rights to use (without payment), all Proprietary Rights used in the
Acquired Business or utilized in conjunction with the Acquired Assets, and all
such ownership, license or other rights shall be conveyed to the Purchaser at
the Closing pursuant to the Asset Purchase Transaction; the Seller has not
received any notice of conflict which asserts the rights of others with respect
thereto; and each of the Seller and its Subsidiary has in all material respects
performed all of the obligations required to be performed by it, and is not in
default in any material respect, under any agreement relating to any such
Proprietary Right.
(9) Employee Benefit Plans. Neither Seller nor its Subsidiary maintain
any Pension Plan or any Welfare Plan for the benefit of employees of Seller.
Seller provides health insurance for employees with Pacific Life. Employees
contribute 50% of the premium and Seller contributes 50% of the premium.
(10) Facilities. None of the Acquired Facilities, nor any of the
vehicles or other equipment used by the Acquired Business in connection with its
business, has any material defects and all of them are in all material respects
in good operating condition and repair and are adequate for the uses to which
they are being put. The Seller is not in breach, violation or default of any
lease affecting the Acquired Business or the Acquired Assets with respect to, or
as a result of, which the other party (whether lessor, lessee, sublessor, or
sublessee) thereto has the right to terminate the same, and the Seller has not
received notice of any claim or assertion that it is or may be in any such
breach, violation or default.
(11) Accounts Receivable. All accounts receivable of the Seller,
whether or not reflected in the Seller's Balance Sheet, represent transactions
in the ordinary course of business, and are current and collectible.
(12) Inventories. All Inventories of the Seller, whether or not
reflected in the Seller's Balance Sheet, are of a quality and quantity usable
and salable in the ordinary course of business..
(13) Contracts. The Acquired Assets and the Acquired Business are not
parties to or affected by any contracts, agreements or understandings, whether
express or implied, written or verbal, except contracts for the purchase of
grain and cattle, which are identified in the Lease Agreement for Equipment
identified on Schedule 2.1 and other contracts or agreements with respect to the
operation of the Acquired Business or Acquired Assets of which Seller has
knowledge.
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(14) Accounts Payable. The accounts payable reflected on the Seller's
Balance Sheet do, and those reflected on the books of the Seller at the time of
the Closing will, reflect all amounts owed by the Seller in respect of trade
accounts due and other Payables of the Acquired Business or relating to the
Acquired Assets, and the actual Liability of the Seller in respect of such
obligations was not, and will not be, on any of such dates, in excess of the
amounts so reflected on the balance sheets or the books of the Seller, as the
case may be.
(15) Insurance. The Seller and its Subsidiary have insurance policies
in full force and effect insuring the Acquired Assets and the Acquired Business,
and such insurance policies provide for coverages which are usual and customary
in the business of the Acquired Business and its Subsidiary as to amount and
scope, and are adequate to protect the Acquired Business against any reasonably
foreseeable risk of loss.
4.8 Full Disclosure. The documents, certificates, and other writings
furnished or to be furnished by or on behalf of the Seller to the Purchaser
pursuant to the provisions of this Agreement, taken together in the aggregate,
do not and will not contain any untrue statement of a material fact, or omit to
state any material fact necessary to make the statements made, in the light of
the circumstances under which they are made, not misleading.
4.9 Actions Since Balance Sheet Date. Since the date of the Seller's
Balance Sheet, the Seller has taken no actions that would be prohibited under
the provisions of this Agreement (without the prior consent of the Purchaser)
after the date of this Agreement.
ARTICLE V
COVENANTS OF THE PURCHASER
5.1 Affirmative Covenants. From the date hereof through the Closing Date,
the Purchaser will take every action reasonably required of it in order to
satisfy the conditions to closing set forth in this Agreement and otherwise to
ensure the prompt and expedient consummation of the Asset Purchase Transaction
substantially as contemplated by this Agreement.
5.2 Cooperation. The Purchaser shall cooperate with the Seller and its
counsel, accountants and agents in every way in carrying out the Asset Purchase
Transaction contemplated herein, and in delivering all documents and instruments
deemed reasonably necessary or useful by Counsel to the Seller.
5.3 Expenses. Whether or not the Asset Purchase Transaction is consummated,
all costs and expenses incurred by the Purchaser in connection with this
Agreement and the Asset Purchase Transaction contemplated hereby shall be paid
by the Purchaser except as otherwise provided (directly or indirectly) herein.
5.4 Health Insurance. Purchaser will continue health insurance benefits for
employees as provided by Seller.
A-11
5.5 Assumed Liabilities. Purchaser will satisfy in accordance with their
terms all Assumed Liabilities listed on Schedule 2.1 Purchaser will complete
cattle feeding contracts of feeder cattle identified in paragraph 1 of Schedule
2.1. With respect to feeder cattle acquired by Purchaser, it will continue the
feeding program commenced by Seller, including ration and other care obligations
of a feedlot operator.
ARTICLE VI
COVENANTS OF THE SELLER
6.1 Affirmative Covenants. From the date hereof through the Closing Date,
the Seller will take every action reasonably required of it to satisfy the
conditions to closing set forth in this Agreement and otherwise to ensure the
prompt and expedient consummation of the Asset Purchase Transaction
substantially as contemplated hereby.
6.2 Access and Information. The Seller shall afford to the Purchaser and to
the Purchaser's accountants, counsel, and other representatives reasonable
access during normal business hours throughout the period prior to the Closing
to all of its and its Subsidiary's properties, books, contracts, commitments,
records (including, but not limited to, tax returns), and personnel relating to
the Acquired Assets or the Acquired Business.
6.3 Conduct of Business Pending the Closing.(1) Prior to the Closing of the
Asset Purchase Transaction or the termination of this Agreement pursuant to its
terms, unless the Purchaser shall otherwise consent in writing, which consent
shall not be unreasonably withheld or delayed, and except as otherwise
contemplated by this Agreement, the Seller will conduct the Acquired Business
and other businesses of Seller that relate to, or use or effect the Acquired
Assets only in the ordinary and usual course, and will use all reasonable
efforts to keep in tact the business organization and good will of the Acquired
Business. Before undertaking any activity affecting the value of the Acquired
Business or the Acquired Assets, Seller will consult with Purchaser.
6.4 Cooperation. The Seller will cooperate with the Purchaser and its
counsel, accountants, and agents in every way in carrying out the Asset Purchase
Transaction contemplated by this Agreement and in delivering all documents and
instruments deemed reasonably necessary or useful by the Purchaser or its
counsel.
6.5 Expenses. Whether or not the Asset Purchase Transaction is consummated,
all costs and expenses incurred by the Seller in connection with this Agreement
and the Asset Purchase Transaction shall be paid by the Seller except as
otherwise provided (directly or indirectly) herein.
6.6 Updating of Exhibits and Disclosure Documents. The Seller shall notify
the Purchaser of any changes, additions, or events which may cause any change in
or addition to the Schedules or Exhibits delivered by it under this Agreement
promptly after the occurrence of the same and again at the Closing by delivery
of appropriate updates to Schedules and Exhibits. No such notification made
pursuant to this Section shall be deemed to cure any breach of any
representation or warranty made in this Agreement unless the Purchaser
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specifically agrees thereto in writing nor shall any such notification be
considered to constitute or give rise to a waiver by the Purchaser of any
condition set forth in this Agreement.
6.7 Payment of Unassumed Liabilities. The Seller agrees promptly to pay
when due, or otherwise to discharge, without cost or expense to the Purchaser,
each and every Liability of the Seller that is not specifically assumed by the
Purchaser pursuant to this Agreement, as described in Section 2.1 above.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligation of Purchaser. The obligation of the Purchaser
to effect the Asset Purchase Transaction shall be subject to the fulfillment at
or prior to the Closing of the following conditions, unless Purchaser shall
waive such fulfillment:
(1) This Agreement and the Asset Purchase Transaction contemplated
hereby shall have received all approvals, consents, authorizations, and waivers
from governmental and other regulatory agencies and other third parties
(including customers, lenders, holders of debt securities and lessors) required
to consummate the Asset Purchase Transaction.
(2) There shall not be in effect a preliminary or permanent injunction
or other order by any federal or state court which prohibits the consummation of
the Asset Purchase Transaction.
(3) The Seller shall have performed in all material respects each of
its agreements and obligations contained in this Agreement and required to be
performed on or prior to the Closing and shall have complied with all material
requirements, rules, and regulations of all regulatory authorities having
jurisdiction relating to the Asset Purchase Transaction.
(4) No material adverse change shall, in the reasonable judgment of the
Purchaser, have taken place in the business, condition (financial or otherwise),
operations, or prospects of the Acquired Business or the Acquired Assets since
the date of the Seller's Balance Sheet other than those, if any, that result
from the changes permitted by, and transactions contemplated by, this Agreement.
(5) The representations and warranties of the Seller set forth in this
Agreement shall be true in all material respects as of the date of this
Agreement and, except in such respects as, in the reasonable judgment of the
Purchaser, do not materially and adversely affect the business, condition
(financial or otherwise), operations, or prospects of the Acquired Business or
the Acquired Assets, as of the Closing Time as if made as of such time.
7.2 Conditions to Obligation of the Seller. The obligation of the Seller to
effect the Asset Purchase Transaction shall be subject to the fulfillment at or
prior to the Closing of the following conditions, unless the Seller shall waive
such fulfillment:
(1) This Agreement and the Asset Purchase Transaction shall have
received all approvals, consents, authorizations, and waivers from governmental
and other regulatory agencies and other third parties (including lenders,
holders of debt securities, lessors, and the stockholders of the Seller)
required by law to consummate the Asset Purchase Transaction.
A-13
(2) There shall not be in effect a preliminary or permanent injunction
or other order by any federal or state authority which prohibits the
consummation of the Asset Purchase Transaction.
(3) The Purchaser shall have performed in all material respects its
agreements and obligations contained in this Agreement required to be performed
on or prior to the Closing.
(4) The representations and warranties of the Purchaser set forth in
this Agreement shall be true in all material respects as of the date of this
Agreement and, except in such respects as do not materially and adversely affect
the business of the Purchaser and its Subsidiaries, taken as a whole, as of the
Closing Date as if made as of such time.
ARTICLE VIII
SECURITIES AND SECURITY HOLDERS
8.1 Meeting of Stockholders. As soon as practicable after the execution of
this Agreement, Seller will, in conjunction with the Purchaser, commence
activities toward convening a meeting of stockholders of the Seller to vote upon
the approval by such stockholders of the Asset Purchase Transaction. Such
activities shall include, without limitation, preparation of the Proxy
Statement; filing of the Proxy Statement with the SEC as required by law;
responding to any comments thereon by the SEC in a prompt manner; establishing a
record date for stockholders entitled to vote on the Asset Purchase Transaction;
complying with applicable legal requirements under state law and the Exchange
Act regarding the giving of notice as to such record date; mailing a notice of
the meeting, Proxy Statement and form of proxy to stockholders; and in all other
respects taking all action required by law to authorize the consummation of the
Asset Purchase Transaction insofar as authorization thereof by stockholders is
required.
8.2 Proxy Statement. The Seller represents and agrees that the Proxy
Statement, including, without limitation, the contents thereof, and the timing
and manner of use thereof, will comply with all requirements of the Exchange Act
and of any state law applicable thereto, and, without limiting the foregoing,
will not, at the time the same is mailed to stockholders, contain any untrue
statement of a material fact regarding the Seller or omit to state any material
fact necessary to make the statements regarding the Seller therein, in light of
the circumstances under which they are made, not misleading.
ARTICLE IX
TERMINATION, AMENDMENT, WAIVER, RELIEF
9.1 Termination. This Agreement and the Asset Purchase Transaction may be
terminated at any time prior to the Closing, whether before or after any
approval by shareholders:
(1) By mutual consent of the Purchaser and the Seller; or
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(2) By either Purchaser or the Seller, upon written notice to the
other, if the conditions to such party's obligations to consummate the Asset
Purchase Transaction, in the case of Purchaser, as provided in Section 7.1, or,
in the case of the Seller, as provided in Section 7.2, were not, or cannot
reasonably be, satisfied on or before 30 days after the date of this Agreement,
unless the failure of condition is the result of the material breach of this
Agreement by the party seeking to terminate.
9.2 Amendment. This Agreement may be amended by the Seller and the
Purchaser by action taken at any time, but after the Asset Purchase Transaction
has been approved by the stockholders of the Seller no amendment shall be made
which materially reduces the Consideration or which in any way materially and
adversely affects the rights of the Seller or its stockholders without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of the Seller and the Purchaser.
9.3 Waiver. At any time prior to the Closing Date, the Purchaser or the
Seller, by action taken by their respective Boards of Directors, may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or
(iii) waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
9.4 Relief. In the event of liability on the part of the Seller to the
Purchaser in accordance with the provisions of this Agreement prior to the
Closing, the parties recognize and acknowledge that monetary measures of damages
will not reasonably be calculable because of the volatility of prices for feeder
cattle, and that specific performance and injunctive relief should therefore be
available to the Purchaser.
9.5 Failure to Close. If, for any reason, this Agreement, and the Asset
Purchase Transaction contemplated hereby, shall be terminated without the
Closing having occurred, each party shall be restored to its position before
this Agreement and each party shall pay its own expenses relating to this
Agreement.
ARTICLE X
GENERAL PROVISIONS
10.1 Arbitration. In the event that there shall be a dispute arising out of
or relating to this Agreement, the Transaction, any document referred to herein
or centrally related to the subject matter hereof, or the subject matter of any
of the same, the parties agree that such dispute shall be submitted to binding
arbitration in Greeley, Colorado, under the auspices of, and pursuant to the
rules of, the American Arbitration Association as then in effect, or such other
procedures as the parties may agree to at the time, before a tribunal of three
arbitrators, one of which shall be selected by each of the parties to the
dispute, and the third of which shall be selected by the two arbitrators so
selected. Any award issued as a result of such arbitration shall be final and
binding between the parties, and shall be enforceable by any court having
jurisdiction over the party against whom enforcement is sought.
A-15
10.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice given at least five (5) days prior thereto):
If to the Purchaser:
Miller Feedlots Inc.
P.O. Box 237
La Salle, Colorado 80645
Attention: James E. Miller
If to the Seller:
Miller Diversified Corporation
5754 West 11th Street
Greeley, Colorado 80645
Attention: Norman M. Dean
10.3 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.4 Survival of Representations, Warranties. The representations,
warranties, covenants, and agreements of the parties contained herein shall
survive the Closing and any investigation of the other party made prior thereto.
Representations and warranties shall so survive for a period of two (2) years
from the Closing. Covenants and agreements shall survive for the longer of two
(2) years from the Closing or one (1) year after they were to have been
performed and were capable of performance. Any action for breach shall be
brought, if at all, prior to the end of the two-year period specified.
10.5 De Minimis Claims. No party shall bring any action against any other
party hereto with respect to the subject matter hereof unless the aggregate
amount of all claims so brought in relation to the subject matter of this
Agreement exceeds $10,000, provided, however, that the foregoing shall not
prevent or preclude actions seeking injunctive or other equitable forms of
relief.
10.6 Miscellaneous. This Agreement (i) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
between the parties, with respect to the subject matter hereof, except as
specifically provided otherwise or referred to herein, so that no such external
or separate agreements relating to the subject matter of this Agreement shall
have any effect or be binding, unless the same is referred to specifically in
this Agreement or is executed by the parties after the date hereof; (ii) is not
intended to confer upon any other person (other than stockholders of the Seller)
any rights or remedies hereunder; (iii) shall not be assigned by operation of
law or otherwise except for assignment of all or any part of the rights of the
Purchaser hereunder, which may be freely assigned by the Purchaser so long as
A-16
the obligations of the Purchaser under this Agreement remain obligations of, or
their performance is guaranteed by, the Purchaser; and (iv) shall be governed in
all respects, including validity, interpretation and effect, by the internal
laws of the State of Colorado, without regard to the principles of conflict of
laws thereof. This Agreement may be executed in two or more counterparts which
together shall constitute a single agreement.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be signed
on the date first written above by their respective officers thereunto duly
authorized.
The Purchaser:
MILLER FEED LOTS, INC.
By: /S/ James E. Miller
-------------------------------
James E. Miller
President
The Seller:
MILLER DIVERSIFIED CORPORATION
By: /S/ Norman M. Dean
-------------------------------
Norman M. Dean
Chairman
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EXHIBIT A
Purchaser's Financial Statement
PAGE 1
MILLER FEEDLOTS, INC.
ALL DIVISIONS
PROFIT & LOSS STATEMENT
FOR THE PERIOD 02/01/2003 TO 02/28/2003
CURRENT-PERIOD YEAR-TO-DATE
AMOUNT AMOUNT
Revenues
Freight Services Income 42,525.04 424,823.05
Rent & Lease Income 22,064.00 242,704.00
Net Earnings of Subsidiaries 1,848.96 (17,290.01)
Interest Income-Related Pty 2,017.53 17,903.24
Other Income 86.61 224,255.43
------------- --------------
Total Revenues $ 68,542.14 $ 892,395.71
Costs and Expenses
Fed Cattle COS 2,780.51 328,302.48
Feedlot Services Expense .00 (622.02)
Freight Services Expenses 29,762.79 339,370.94
COS Lease & Rent Income 3,440.48 25,375.78
Selling, General & Admin 8,041.58 118,777.98
Equity Gain/Loss Investee (1,280.63) (35,584.04)
Interest Expense 5,019.82 60,956.27
Interest-Related Party 2,499.87 27,248.24
------------- --------------
Total Costs and Expenses $ 50,264.42 $ 863,825.63
Earnings Before Taxes $ 18,277.72 $ 28,570.08
Total Income Tax Expenses $ 497.00 $ 5,491.00
------------- --------------
Net Income (or Loss) $ 17,780.72 $ 23,079.08
============= ==============
A-18
MILLER FEEDLOTS, INC. PAGE 1
ALL DIVISIONS
BALANCE SHEET
AS OF 02/28/2003
ASSETS
Current Assets
Cash $4,585.22
Trade Accounts Receivable 312,786.05
Officers/Directors Receivables 748,004.64
MDC Intercompany Due To/From (736,382.73)
MFL Intercompany Due To/From (135,741.42)
Prepaid Expenses and Other 30,110.93
--------------
Total Current Assets $223,362.69
Property & Equipment
Land $56,924.00
Buildings & Improvements 801,931.83
Equipment 1,145,714.78
--------------
Subtotal Property & Equipment $2,004,570.61
Less Accumulated Depreciation $(1,757,698.88)
--------------
Total Property & Equipment $246,871.73
Other Assets
Other Investments 294,892.49
Investments in Subsidiaries 103,488.36
Notes Receivable-Related Party 263,000.00
Deferred Income Tax Benefit 51,000.00
Goodwill 10,888.95
Total Other Assets $723,269.80
-----------
Total Assets $1,193,504.22
=============
A-19
MILLER FEEDLOTS, INC. PAGE 2
ALL DIVISIONS
BALANCE SHEET
AS OF 02/28/2003
LIABILITIES
Current Liabilities
Trade Accounts Payable 55,583.21
Accrued Expenses 19,287.07
C/P-Notes Payable 141,528.26
C/P-Notes Pay Related Pty 39,900.06
-----------
Total Current Liabilities $ 256,298.60
Long Term Notes Payable 738,678.60
Long Term Notes Pay-Related 408,027.10
-----------
Total Long Term Liabilities $1,146,705.70
-------------
Total Liabilities $1,403,004.30
Stockholders' Equity
Common Stock $101,600.00
Paid-In Capital 11,860.29
Retained Earnings (322,960.37)
-----------
Total Stockholders' Equity $(209,500.08)
------------
Total Liabilities & Equity $1,193,504.22
=============
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EXHIBIT B
Seller's Unaudited Financial Statements
Report on Review by Independent Accountants
To the Board of Directors Miller
Diversified Corporation
We have reviewed the accompanying consolidated balance sheet of Miller
Diversified Corporation and its subsidiary as of February 28, 2003, and the
related consolidated statements of operations for each of the three-month and
six-month periods ended February 28, 2003 and 2002, and the consolidated
statement of cash flows for the six-month periods ended February 28, 2003 and
2002. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial statements for
them to be in conformity with accounting principles generally accepted in the
United States.
We previously audited in accordance with auditing standards generally
accepted in the United States the consolidated balance sheet as of August 31,
2002, and the related consolidated statements of operations, of shareowners'
equity, and of cash flows for the year then ended (not presented herein), and in
our report dated October 9, 2002 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of August 31, 2002 is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
/s/ ANDERSON & WHITNEY, P.C.
----------------------------------
ANDERSON & WHITNEY, P.C.
Greeley, Colorado
April 10, 2003
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
Feb. 28, Aug. 31,
2003 2002
---------- ----------
ASSETS
- ------
Current Assets:
Cash $ 185,956 $ 214,345
Receivables:
Trade accounts 246,905 636,125
Trade accounts - related parties 96,976 165,761
Accounts receivable - related parties 899,434 900,609
Notes - cattle financing 287,504 611,869
Notes - cattle financing - related parties -- --
Inventories 3,116,544 1,616,291
Deferred income taxes -- 25,411
Prepaid expenses and other 99,314 29,524
---------- ----------
Total Current Assets 4,932,633 4,199,935
---------- ----------
Property and Equipment:
Feedlot facility under capital lease -
related party 1,497,840 1,497,840
Equipment 198,494 198,494
Leasehold improvements 187,767 187,767
---------- ----------
1,884,101 1,884,101
Less: Accumulated depreciation
and amortization 999,035 951,819
---------- ----------
Total Property and Equipment 885,066 932,282
---------- ----------
Other Assets:
Notes receivable - related parties 300,000 300,000
Deferred income taxes 350,756 350,756
Deposits and other 11,495 11,495
---------- ----------
Total Other Assets 662,251 662,251
---------- ----------
TOTAL ASSETS $6,479,950 $5,794,468
========== ==========
Continued on Next Page
A-22
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Continued)
- --------------------------------------------------------------------------------
Feb. 28, Aug. 31,
2003 2002
----------- -----------
LIABILITIES
- -----------
Current Liabilities:
Cash overdraft $ 662,372 $ 193,323
Notes payable 3,008,120 2,572,120
Trade accounts payable 510,684 442,806
Accounts payable - related party -- --
Accrued expenses 37,787 75,281
Customer advance feed contracts -- --
Current portion of:
Capital iease obligations - related party 31,227 31,227
Long-Term Debt -- --
Long-Term Debt - related party 65,087 65,087
----------- -----------
Total Current Liabilities 4,315,277 3,383,069
Capital Lease Obligation - Related Party 856,448 871,634
Long-Term Debt -- --
Long-Term Debt - Related Party 41,047 73,045
----------- -----------
Total Liabilities 5,212,772 4,327,748
----------- -----------
Commitments
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock -- --
Common Stock, par value $.0001 per share
25,000,000 Shares Authorized;
6,364,640 Shares Issued and Outstanding 636 636
Additional Paid-In Capital 1,351,693 1,351,693
Retained Earnings (26,776) 185,411
Accumulated Other Comprehensive Income (Loss) (58,375) (71,020)
----------- -----------
Total Stockholders' Equity 1,267,178 1,466,720
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,479,950 $ 5,795,468
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
A-23
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------
Six Months Ended February 28 2003 2002
----------- -----------
Revenue:
Feed and related sales $ 2,024,259 $ 1,686,460
Fed cattle sales 1,538,455 3,295,479
Feedlot services 303,287 447,187
Interest income 2,193 20,489
Interest income - related parties 9,000 9,000
Other income 33,920 38,643
----------- -----------
Total Revenue 3,911,114 5,497,258
----------- -----------
Costs and Expenses
Cost of:
Feed and related sales 1,693,116 1,325,790
Fed cattle sold 1,709,260 3,838,425
Participation Company cattle sold - related parties (85,403) (271,473)
Feedlot Services 368,882 481,568
Selling, general and administrative 336,381 386,373
Interest 20,094 22,081
Interest on note payable - related party 55,560 60,406
----------- -----------
Total Costs and Expenses 4,097,890 5,843,170
----------- -----------
Income (Loss) Before Income Taxes (186,776) (345,912)
Income Tax Expense (Benefit) 25,411 (79,173)
----------- -----------
NET INCOME (LOSS) $ (212,187) $ (266,739)
=========== ===========
INCOME (LOSS) PER COMMON SHARE $ (0.03) $ (0.04)
=========== ===========
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
A-24
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------
Three Months Ended February 28 2003 2002
----------- -----------
Revenue:
Feed and related sales $ 832,013 $ 769,718
Fed cattle sales 2,713 1,357,871
Feedlot Services 139,766 213,155
Interest income (5,145) 7,802
Interest income - related parties 4,500 4,500
Other Income 7,221 13,062
----------- -----------
Total Revenue 981,068 2,366,108
----------- -----------
Costs and Expenses
Cost of:
Feed and related sales 668,250 591,097
Fed Cattle Sold 8,274 1,574,413
Participation Company cattle sold - related parties (2,781) (271,473)
Feedlot Services 178,015 236,303
Selling, general and administrative 159,085 184,573
Interest 10,501 10,861
Interest on note payable - related party 27,477 29,931
----------- -----------
Total Costs and Expenses 1,048,821 2,355,705
Income (Loss) Before Income Taxes (67,753) 10,403
Income Tax Expense (Benefit) -- 9,906
----------- -----------
NET INCOME (LOSS) $ (67,753) $ 497
=========== ===========
INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.00
=========== ===========
Weighted Average Number of Common
Shares Outstanding 6,364,640 6,364,640
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
A-25
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------
Six Months Ended February 28 2003 2002
----------- -----------
Cash Flows from Operating Activities:
Cash received from customers $ 4,359,101 $ 5,675,556
Cash paid to suppliers and employees (5,462,508) (5,306,637)
Interest received 11,193 29,489
Interest paid (115,181) (134,876)
Income taxes paid -- --
----------- -----------
Net Cash Provided (Utilized) by Operating Activities (1,207,395) 263,532
----------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment -- (5,900)
Loans to related party -- --
Collections from cattle financing 1,413,169 82,992
Loans for cattle financing (1,088,804) (566,776)
----------- -----------
Net Cash Provided (Used) by Investing Activities 324,365 (489,684)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from:
Notes payable 6,107,522 5,957,615
Long-term debt - related party -- --
Long-term Debt -- --
Principal payments on:
Notes Payable (5,671,522) (5,660,589)
Capital lease obligations - related party (15,186) (13,613)
Long-term debt - related party (31,998) (28,725)
Long-term debt (3,225) (2,938)
Change in cash overdraft 469,049 (48,358)
----------- -----------
Net Cash Provided (Used) by Financing Activities 854,640 203,392
----------- -----------
Net Increase (Decrease) in Cash (28,390) (22,760)
Cash, Beginning of Period 214,345 272,915
----------- -----------
Cash, End of Period $ 185,955 $ 250,155
=========== ===========
Continued on Next Page
A-26
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
- --------------------------------------------------------------------------------
Six Months Ended February 28 2003 2002
----------- -----------
Reconciliation of Net Income (Loss) to Net Cash
Provided (Used) by Operating Activities:
Net Income (Loss) $ (212,187) $ (266,739)
Adjustments:
Depreciation and amortization 47,216 47,216
Gain on sale of other investments -- --
Deferred income taxes 25,411 (79,173)
Unrealized hedging losses 12,645 81,546
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 389,220 344,125
Trade accounts receivable - related party 68,785 36,496
Accounts Receivable - related party 1,175 (444,307)
Inventories (1,500,253) 763,279
Prepaid expenses (69,790) (32,440)
Deposits and other -- (1,000)
Increase (Decrease) in:
Trade accounts payable and accrued expenses 30,383 (185,471)
Trade accounts payable - related parties -- --
Customer advance feed contracts -- --
----------- -----------
Net Cash Provided (Used) by Operating Activities $(1,207,395) $ 263,532
=========== ===========
See Accompanying Notes to Consolidated Financial Statements
A-27
MILLER DIVERSIFIED CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
_____________________
The consolidated balance sheets as of February 28, 2003 and August 31, 2002, the
consolidated statements of earnings for the three months and six months ended
February 28, 2003 and 2002 and the consolidated statements of cash flows for the
three months ended February 28, 2003 and 2002 have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements have been condensed or omitted as allowed by
the rules and regulations of the Securities and Exchange Commission.
In preparation of the above-described financial statements, all adjustments of a
normal and recurring nature have been made. The Company believes that the
accompanying financial statements contain all adjustments necessary to present
fairly the results of operations and cash flows for the periods presented.
Further, management believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the annual financial statements and the
notes thereto. The operations for the six-month period ended February 28, 2003
are not necessarily indicative of the results to be expected for the year.
A-28
SCHEDULE 2.1
Acquired Assets
1. 4,323 Feeder Cattle as follows:
- ----------------------- ----------- ---------- ---------- ----------- ----------
Lot Number 2138 2139 2140 2143 2147
- ----------------------- ----------- ---------- ---------- ----------- ----------
Sex Mixed Steer Steers Steers Steers
- ----------------------- ----------- ---------- ---------- ----------- ----------
Date In 5-Sept-02 2-Oct-02 3-Oct-02 8-Oct-02 17-Oct-02
- ----------------------- ----------- ---------- ---------- ----------- ----------
Head-Original 52.5 344 84.5 272
- ----------------------- ----------- ---------- ---------- ----------- ----------
Original Weight 430 670 532 437
- ----------------------- ----------- ---------- ---------- ----------- ----------
Head-Current 52.5 344 84.5 272
- ----------------------- ----------- ---------- ---------- ----------- ----------
Current Weight-lbs 962.8 1154 1012 897
- ----------------------- ----------- ---------- ---------- ----------- ----------
Weight Gain Per Day 3.6 4.0 4.0 4.0
- ----------------------- ----------- ---------- ---------- ----------- ----------
February 28, 2003 Closing
----------------- -------
2. Cash. $ 185,956
3. Receivable.
Trade Accounts 246,905
Trade Accounts-Related Parties 96,976
Accounts Receivable-Related Parties 899,434
Notes Cattle Financing 287,504
4. Inventory 3,116,544
5. Prepaid Expenses and other 99,314
6. Notes receivable-Related Parties 300,000
7. Deposits and others 11,495
A-29
Assumed Liabilities
February 28, 2003 Closing
----------------- -------
1. Current Liabilities
Cash overdraft $ 662,372
Notes payable: 3,008,120
Trade Accounts payable: 510,684
Accrued Expenses: 37,787
Capital Lease Obligations-Related Party 31,227
Long-Term Debt-Related Party 65,087
Long Term Liabilities
Capital Lease Obligation Related Party 856,448
Long Term Debt Related Party 41,047
A-30
SCHEDULE 2.4
PROMISSORY NOTE
U.S. $____________ Greeley, Colorado
May ___, 2003
FOR VALUE RECEIVED, Miller Feed Lots, Inc., a Colorado corporation
("Company") promises to pay to Miller Diversified Corporation, a Nevada
corporation ("Holder"), its successors and assigns, at its offices in Greeley,
Colorado, in lawful money of the United States of America, the unpaid principal
sum of ______________________ (the "Principal Amount"), or such lesser amount as
shall equal the outstanding Principal Amount hereof, together with interest from
the date of this Promissory Note on the unpaid Principal Amount balance at the
rate of 5% per year, computed on the basis of the actual number of days elapsed
and a year of 365 days, payable in installments of $100,000 principal, plus
interest on all remaining unpaid Principal Amount on each annual anniversary
date of this Promissory Note. Payment of this Promissory Note is secured by a
deed of trust of even date covering the Company's feedlot facilities in La
Salle, Colorado.
At the option of the Holder, the entire Principal Amount and interest on
this Promissory Note shall become immediately due and payable upon the
occurrence of any one of the following events or conditions: (i) default in the
payment of any installment of principal or interest due under this Promissory
Note within five days after such payment was due; (ii) any event which gives any
person the right to accelerate the maturity of any indebtedness of the Company
to any person under any security or loan agreement, indenture, promissory note,
or other undertaking; (iii) the dissolution, insolvency, however expressed or
indicated, termination of existence of, appointment of a receiver of any part of
the property of, assignment for the benefit of creditors by, or the commencement
of any proceeding under any bankruptcy, reorganization, insolvency or other law
relating to the relief of debtors by or against the Company; (iv) if the Holder
in good faith believes that the prospect of payment of this Note is impaired; or
(v) any breach of the terms of the Asset Purchase Agreement between the Company
and Holder dated ___________________, 2003. If all or any portion of the
Principal Amount or interest is not paid when due or declared due by Holder, the
overdue amount shall bear interest at the rate of 10% per year. In addition to
the foregoing remedies, upon the occurrence or existing of any event of default,
Holder may exercise any other right, power or remedy granted to it by the deed
of trust securing payment of this Promissory Note.
The Company hereby waives presentment for payment, protect, notice of
nonpayment under protest, and agrees to one or more extensions of time of
payment of any length and partial payments before, or after maturity. In the
event this Note is placed for collection in the hands of an attorney, not a
salaried employee of the Holder, the Company agrees to pay, in addition to all
sums hereunder, a reasonable attorney's fee, not exceeding 10% of the unpaid
principal amount.
Upon two (2) days prior written notice to Holder, Company may prepay this
Promissory Note in whole or in part; provided that any such prepayment will be
applied first to the payment of expenses due under this Promissory Note, second
to interest accrued on this Promissory Note and third, if the amount of
prepayment exceeds the amount of all such expenses and accrued interest, to the
payment of Principal Amount.
Neither this Promissory Note nor any of the rights, interests or
obligations hereunder may be assigned, by operation of law or otherwise, in
whole or in part, by Company without the prior written consent of Holder. The
rights and obligations of Holder of this Promissory Note shall be binding upon
and benefit the successors, assigns and transferees of Holder.
IN WITNESS WHEREOF, the Company has caused this Promissory Note to be
issued as of the date first written above.
MILLER FEED LOTS, INC.
By: /s/
--------------------------------
James E. Miller
President
A-31
SCHEDULE 4.6
Acquired Business Disclosure Document
Pursuant to Section 4.6 of the above Asset Purchase Agreement, Miller
Diversified Corporation, as Seller, makes disclosure to Miller Feed Lots, Inc.,
as Purchaser, of the following matters:
1. Cattle Feeding Contracts. Seller conducts cattle feeding operations as a
part of the Acquired Business for cattle feeders identified below, together with
the number of cattle on feed as of April 15, 2003. No written contracts exist
with these custom cattle feeders. At the Closing, Seller will assign to
Purchaser the Seller's rights and obligations with respect to unwritten cattle
feeder contracts.
Custom Feeders Cattle on Feed
-------------- --------------
Miller Diversified Corporation 3,578
Bill Barney 41
Cobb Cattle Co. 80
Norman Dean 558
Bonnie Dean 963
Ferris Mountain Ranch 90
Flying Y Cattle Co. 183
Francis Livestock 116
Dave Gardner 172
John Gill 74
Richard Graham 291
JVCO 432
Group 1 165
Lee & Donna Jons 198
Keller Land & Livestock 57
Kelley Cattle Company, LLC 146
Lazy 3L Ranch 80
Lynch Ranch LLP 127
Leroy Mclaughlin 312
Robert Medow 113
James E. Miller 958
Norm & Maxine Munk 177
Salsbery Ranch Inc. 198
Bruce Tonn 102
Weld County Livestock Association 65
2. The feedlot facilities under lease by Seller from Purchaser are in good
condition, subject to ordinary wear and tear, except for the following matters
requiring repair or maintenance action: Most in good to fair condition.
A-32
3. Feeder cattle being transferred to Seller by Purchaser are in good
health, except for approximately 200 head of cattle, which are held in a
hospital pen pending recovery from various causes of illness common to cattle,
which are not expected to be fatal.
4. Seller has outstanding contracts to purchase grain and cattle, which
Purchaser will assume. The name of the contracting entity and the commodity to
be purchased are described below.
Dried Distillers Grain
----------------------
Name Commodity
Colorado Commodities 2,375 ton @ $116/ton, delivery Mar thru Aug.
Corn
----
Name Commodity
Roggen 30,000 Bu @$2.84/Bu, Apr thru May delivery
Roggen 40,000 Bu @ $2.90/Bu, June thru July
delivery
Scoular 15,000 Bu @ $2.80/Bu, March delivery
Scoular 15,000 Bu @ $2.78/Bu, March delivery
Scoular 40,000 Bu @ $2.87/Bu, Apr thru May delivery
Scoular 30,000 Bu @ $2.90/Bu, June thru July
delivery
Silage
------
Name Commodity
Strohauer Farms Inc. 9,000 Tons @ $28/Ton, Mar thru Sept delivery
5. All feed and grain held in inventory is of a quality capable for use in
cattle feeding operations with the exception of the following: All are in good
condition
6. All veterinary medicine supplies held in inventory are of usable
quality, except the following: All usable.
7. Seller is not aware of any custom cattle feeders in financial
difficulties, such that they may not be in a financial condition to pay costs of
feeding cattle as invoiced in Seller's ordinary business practice, except the
following. All are ok to the best of our knowledge.
A-33
APPENDIX B
MILLER DIVERSIFIED CORPORATION
P.O. 237
LA SALLE, cOLORADO 80645
The undersigned hereby appoints Norman M. Dean and James E. Miller, or
either of them, proxies of the undersigned, each with the power of substitution
and hereby authorizes them to vote as designated below, all the shares of common
stock, $.0001 par value, of the undersigned at the Special Meeting of
Stockholders of Miller Diversified Corporation (the "Company") to be held on May
20, 2003, and at all adjournments thereof, with respect to the following:
Item 1. Election of Directors - Nominees:
Norman M. Dean, James E. Miller, Clark A. Miller
[ ] FOR all nominees (except as indicated to the contrary below]
[ ] WITHHOLD AUTHORITY for all nominees
INSTRUCTIONS:To withhold authority to vote for any individual nominee,
print that nominee's name in the space provided below. IF AUTHORITY IS NOT
EXPRESSLY WITHHELD IT SHALL BE DEEMED GRANTED.
- --------------------------------------------------------------------------------
Item 2. to consider and vote on the sale of substantially all the assets of the
Company, including our consent to the sale of substantially all the property of
our wholly owned subsidiary, Miller Feeders, Inc., pursuant to an Asset Purchase
Agreement dated April 17, 2003, between Miller Feed Lots, Inc., as Purchaser,
and the Company, as Seller, for a promissory note payable to us and the
assumption of certain related liabilities.
____ (FOR) ____ (AGAINST) ____ (ABSTAIN)
Item 3. In the proxy's discretion, on such other business as may properly be
presented for action at the Special Meeting.
This proxy is solicited on behalf of the Board of Directors of the Company and
may be revoked prior to its exercise. This proxy when properly executed, will be
voted as directed above by the undersigned shareholder. If no direction is made,
it will be voted FOR the nominees named in Item 1, FOR approval of the proposed
disposition of substantially all the assets of the Company in Item 2, and in the
proxy's discretion, on such other business as may properly come before the
Special Meeting in Item 3.
-----------------------------------
By:
--------------------------------
Your signature should appear exactly
as your name appears in the space at
the left. For joint accounts, all
owners should sign. When signing in
a fiduciary or representative
capacity, please give your full
title as such.
Date: , 2003
---------------
PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS PROMPTLY AS POSSIBLE.
B-1