SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-
5(d)(2))
[ ] Definitive Information Statement
BIRCH FINANCIAL, INC.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A.
(2) Aggregate number of securities to which transaction applies: N/A.
(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): N/A.
(4) Proposed maximum aggregate value of transaction: N/A.
(5) Total fee paid: N/A.
[ ] 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 number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $0.
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
Contact Persons: Leonard W. Burningham, Esq.
Branden T. Burningham, Esq.
Suite 205, 455 East 500 South Street
Salt Lake City, Utah 84111
Tel: 801-363-7411; Fax: 801-355-7126
BIRCH FINANCIAL, INC.
17029 Chatsworth Street, Suite 100
Granada Hills, California 91344
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND A PROXY
INTRODUCTION
This Information Statement is being furnished to the stockholders
of Birch Financial, Inc., a Nevada corporation (the "Company," "Birch," "we",
"our" or "us" or words or similar import), in connection with certain
corporate actions (the "Proposals") unanimously approved by our Board of
Directors. Golden Oak Cooperative Corporation, a California corporation
("Golden Oak"), which owns in excess of a majority of our outstanding voting
securities, has adopted a consent authorizing both of the Proposals. No other
votes are required or necessary to adopt and complete the Proposals.
The Proposals are as follows:
Proposal No. 1. To amend our Articles of Incorporation to effect a
reverse split of Birch's outstanding common stock on a 100,001-for-one basis,
such that stockholders owning less than 100,001 shares of common stock will
have their shares canceled and converted into the right to receive the cash
consideration set forth herein (the "Reverse Stock Split").
Our Amended Articles of Incorporation will become effective on the
opening of business on _______, 2005, or a date that is at least 21 days from
the mailing of this Information Statement to our stockholders.
Proposal No. 2. The Boards of Directors of Birch and Landscape
Contractors Insurance Services, Inc., a California corporation ("LCIS"), have
approved an Agreement and Plan of Merger dated October 10, 2005, including the
Plan of Merger set forth therein (the "Merger Agreement"), under which LCIS
Acquisition Corp., a Nevada corporation, a wholly owned subsidiary of LCIS
("Merger Subsidiary"), will merge with and into Birch, and Birch will continue
as a wholly-owned subsidiary of LCIS. If the merger described in the Merger
Agreement is consummated, following the consummation of the merger:
1. The Birch stockholders that remain following the proposed
Reverse Stock Split will exchange their Birch shares for LCIS shares
on a 7.32-for-one basis and will own approximately 31% of the
outstanding shares of LCIS immediately following the merger,
estimated to be 2,250 shares of LCIS common stock; and
2. On the closing date of the merger, LCIS will hold all of the
outstanding shares of Birch immediately following the merger.
These figures are based on the number of shares of each company
outstanding on October 10, 2005, or required to be issued upon closing of the
merger.
APPROXIMATE DATE OF MAILING: _________, 2005.
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TABLE OF CONTENTS
SUMMARY TERM SHEET ..................................................... 4
Questions and Answers Regarding the Proposal to Amend our
Articles or Incorporation to Effect the Reverse Stock Split ...... 4
Questions and Answers about the Merger ............................ 9
PROPOSAL NO. 1: AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
EFFECT THE REVERSE STOCK SPLIT ......................................... 10
General ........................................................... 10
Reasons for the Reverse Stock Split ............................... 11
Effect of the Reverse Stock Split ................................. 12
Effects on the Stockholders with Fewer Than 100,001 Shares
of Common Stock ................................................... 12
Effects on Stockholders with 100,001 or More Shares of
Common Stock ...................................................... 13
Effects on the Company ............................................ 14
No Change in Par Value ............................................ 15
Material Federal Income Tax Consequences of the
Reverse Stock Split ............................................... 15
Advantages of the Reverse Stock Split ............................. 15
Disadvantages of the Reverse Stock Split .......................... 17
Dissenters' Appraisal Rights with Respect to the
Reverse Stock Split ............................................... 18
Interest of Certain Persons in Matters to Be Acted Upon ........... 21
Escheat Laws ...................................................... 22
Financial Information ............................................. 22
PROPOSAL TWO: THE MERGER ............................................... 24
General ........................................................... 24
What Birch Stockholders Will Receive .............................. 25
Ownership of Birch and LCIS Following the Merger .................. 25
Background of and Reasons for the Merger .......................... 26
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Interests of the Directors, Executive Officers and
Affiliates of Birch and LCIS in the Merger ........................ 27
Material Federal Income Tax Consequences of the Merger ............ 27
Accounting Treatment of the Merger ................................ 29
Dissenters' Rights with Respect to the Merger ..................... 29
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS ................ 29
Business Experience ............................................... 30
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF ................... 31
Voting Securities ................................................. 31
Security Ownership of Principal Holders and Management ............ 31
Changes in Control ................................................ 33
MARKET INFORMATION ................................................ 33
Dividends ......................................................... 34
TRANSACTIONS WITH MANAGEMENT AND OTHERS ........................... 34
VOTE REQUIRED FOR APPROVAL OF THE PROPOSALS ....................... 34
The Reverse Stock Split ........................................... 34
The Merger ........................................................ 34
NOTICE ............................................................ 35
APPENDIX A: NEVADA DISSENTERS' RIGHTS STATUTE .......................... 35
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SUMMARY TERM SHEET
This summary term sheet highlights selected information from this
Information Statement about the Reverse Stock Split and the merger. This
summary term sheet may not contain all of the information that is important to
you. For a more complete description of these transactions, you should
carefully read this Information Statement, including the appendices hereto.
Questions and Answers Regarding the Proposal to Amend Our Articles of
Incorporation to Effect the Reverse Stock Split.
- ------------------------------------------------
Q: What is the purpose of the transaction?
A: If approved, the transaction will enable the Company to go private and
thus terminate its obligations to file annual and periodic reports and make
other filings with the Commission. The purpose behind the proposal and the
benefits of going private include:
* eliminating the costs associated with filing documents with the
Commission under the Exchange Act;
* eliminating the costs of compliance with the Sarbanes-Oxley Act of
2002 and related regulations;
* reducing the direct and indirect costs of administering
stockholder accounts and responding to stockholder requests; and
* affording stockholders holding fewer than 100,001 shares
immediately before the transaction the opportunity to receive cash for their
shares without having to pay brokerage commissions and other transaction
costs.
Q: What does "going private" mean?
A: Following the transaction, the Company will have fewer than 35
stockholders of record, and will be eligible to terminate the registration of
its common stock under the Exchange Act, and will become a "private company."
In this regard, the Company, by going private, will no longer have to file
periodic reports such as annual, quarterly, and other reports, with the
Commission, and its executive officers, directors, and 10% stockholders will
no longer be required to file reports relating to their transactions in the
Company's common stock. Additionally, any trading in our common stock will
occur only in the "Pink Sheets" or in privately negotiated sales.
Q: What will I receive in the transaction?
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A: If you own fewer than 100,001 shares of the Company's common stock
immediately before the effective time of the transaction, you will receive
$0.27 in cash, without interest, from the Company for each share that you own.
If you own 100,001 or more shares of the Company's common stock at the
effective time of the transaction, you will not receive any cash payment for
your shares in connection with the transaction, and you will hold one share of
the Company's common stock for every 100,001 shares that you held immediately
before the transaction.
Q: What if I hold shares in street name?
A: The Company intends to treat stockholders holding common stock in
street name through a nominee (such as a bank or broker) in the same manner as
stockholders whose shares are registered in their name. However, nominees may
have different procedures and stockholders holding common stock in street name
should contact their nominees.
Q: How will the Company be operated after the transaction?
A: Assuming that the Company has fewer than 35 stockholders after the
transaction, the Company will file a Form 15 to deregister its common stock
under federal securities laws. Upon such filing, the Company would no longer
be subject to the reporting and related requirements under the federal
securities laws that are applicable to public companies. The Company expects
its business and operations to continue as they are currently being conducted
and, except as disclosed in this information statement, the transaction is not
anticipated to have any effect upon the conduct of such business. As a result
of the transaction, stockholders who receive cash for their shares in the
transaction will no longer have a continuing interest as stockholders of the
Company and will not share in any future earnings and growth of the Company.
Also, any trading in our Common Stock will only occur in the "Pink Sheets" or
in privately negotiated sales, which will adversely affect the liquidity of
the common stock.
Q: What are the federal income tax consequences of the transaction to me?
A: The receipt of the cash in the transaction will be taxable for federal
income tax purposes. Stockholders who do not receive cash in the transaction
should not be subject to taxation as a result of the transaction.
Q: If I own fewer than 100,001 shares, is there any way I can continue to
be a stockholder of the Company after the transaction?
A: If you own fewer than 100,001 shares before the reverse stock split,
the only way you can continue to be a stockholder of the Company after the
transaction is to purchase, prior to the effective date, sufficient additional
shares to cause you to own a minimum of 100,001 shares on the effective date.
However, we cannot assure you that any shares will be available for purchase,
particularly in light of the extremely limited historical trading volume for
our common stock on the OTC Bulletin Board.
Q: Is there anything I can do if I own 100,001 or more shares, but would
like to take advantage of the opportunity to receive cash for my shares as a
result of the transaction?
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A: If you own 100,001 or more shares before the transaction, you can only
receive cash for all of your shares if, prior to the effective date, you
reduce your stock ownership to fewer than 100,001 shares by selling or
otherwise transferring shares. However, we cannot assure you that any
purchaser for your shares would be available.
Q: What happens if I own a total of 100,001 or more shares beneficially,
but I hold fewer than 100,001 shares of record in my name and fewer than
100,001 shares with my broker in "street name"?
A: An example of this would be that you have 40,001 shares registered in
your own name with our transfer agent, and you have 60,000 shares registered
with your broker in "street name." Accordingly, you are the beneficial owner
of a total of 100,001 shares, but you do not own 100,001 shares of record or
beneficially in the same name. If this is the case, as a result of the
transaction, you would receive cash for the 40,001 shares you hold of record.
You will also receive cash for the 60,000 shares held in street name if your
broker or other nominee accepts our offer for each beneficial owner of fewer
than 100,001 shares of common stock held in the broker's or nominee's name to
receive cash for fractional shares. If the broker or nominee does not accept
our offer, you would continue to own a beneficial fractional interest in a
share of our common stock. However, there will be no liquidity for such
fractional interest, and if the merger is completed as contemplated, the
merger value per Birch share will be less than the $0.27 per share pre-split
value.
Q: Should I send in my stock certificates now?
A: No. After the transaction is completed, we will send instructions on
how to receive any cash payments you may be entitled to receive.
Q: What happens if I sell shares before the effective date of the Reverse
Stock Split?
A: If you sell a sufficient number of shares so that you own fewer than
100,001 shares at the effective time of the transaction, you will receive
$0.27 cash for each share that you own immediately before the effective time.
Q: Am I entitled to dissenters' rights?
A: Under Nevada law, stockholders are not entitled to dissenter's rights
in connection with the transaction. However, the Company is granting you
these rights, as more fully discussed below.
Q: What are some of the advantages of the Reverse Stock Split?
A: The Board of Directors believes that the Reverse Stock Split will
have, among others, the following advantages:
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* The Company will terminate the registration of its Common Stock under
the Exchange Act, which will eliminate the significant tangible and intangible
costs of being a public company. We estimate that we will have tangible costs
savings of approximately $72,000 before taxes annually, consisting of: (i)
approximately $40,000 per year in legal fees and expenses that we have
historically incurred in connection with the preparation and filing of reports
required by the Exchange Act and with quotation of our common stock on the OTC
Bulletin Board, and with other legal requirements associated with being a
public company; (ii) approximately $12,000 in accounting fees associated with
the preparation of the annual and quarterly financial statements that are
included with our periodic reports; and (iii) approximately $20,000 per year
in audit and audit-related fees associated with the year-end financial
statements that are filed with the Commission with our Annual Reports on Form
10-KSB;
* Management will be able to focus its time and resources on the
business' long-term goals and objectives; and
* Stockholders holding fewer than 100,001 shares will be able to realize
complete liquidity at a premium to the market price and the net tangible book
value per share of our common stock, and will do so through a transaction that
will not include brokerage commissions and fees.
Q: What are some of the disadvantages of the Reverse Stock Split?
A: The Board of Directors believe that the Reverse Stock Split will have,
among others, the following disadvantages:
* Stockholders owning less than 100,001 shares of the Company's common
stock will not have an opportunity to liquidate their shares at a time and for
a price of their choosing; instead, they will be cashed out and will no longer
be stockholders of the Company and will not have the opportunity to
participate in or benefit from any future potential appreciation in the
Company's value.
* Stockholders remaining in the Company following the Reverse Stock
Split will no longer have available all of the information regarding the
Company's operations and results that is currently available in the Company's
filings with the Commission. The transaction will result in the loss of
financial transparency for unaffiliated stockholders that remain stockholders
in the Company after the transaction. The Company will no longer be subject
to the liability provisions of the Exchange Act, and it will no longer be
subject to the provisions of the Sarbanes-Oxley Act. As a result, the
Company's officers will no longer be required to certify the accuracy of its
financial statements.
* Stockholders remaining in the Company following the Reverse Stock
Split will no longer be able to trade their securities on a public market,
resulting in a loss of liquidity for their shares.
* The elimination of a trading market for our common stock may result in
the Company having less flexibility in attracting and retaining executives and
other employees because equity-based incentives (such as stock options) tend
not to be viewed as having the same value in a private company.
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* The Company will be less likely to be able to use stock to acquire
other companies.
* It will be more difficult for the Company to access the public equity
markets.
See "Effect of the Reverse Stock Split."
Q: The Company has been publicly held since 1999; what are some of the
reasons for going private now?
A: Our Board of Directors believes that the Company currently derives no
material benefit from its public company status. In addition to the direct
financial burden from being a public company, the extremely thin trading
market in our common stock has not provided liquidity to our stockholders.
During the period from January 1, 2003, through July 1, 2005, a total of only
about 126,331 shares of our common stock were traded on the OTC Bulletin
Board. Furthermore, our stock was only traded on 40 days during this period,
with an average volume per trading day of only about 3,158 shares. As a
result of this infrequency in trading, we do not expect that we will be able
to use our stock as currency for acquisitions or other transactions in the
future. Additionally, the scarce trading volume results in substantial spikes
in the trading price when actual trades are made in the market.
Q: What are some of the factors supporting the Board of Directors'
determination to approve the Reverse Stock Split?
A: The Board based its determination to approve the Reverse Stock Split
was based on several factors. Importantly, the Board considered the relative
advantages and disadvantages discussed above and under "Reasons for the
Amendment to the Articles of Incorporation to Effect the Reverse Stock Split."
The Board also considered certain other factors, including:
* the Board's determination of the fairness of paying the Cashed Out
Stockholders $0.27 per pre-split share in light of the low recent market price
of the Company's common stock and the Company's low net tangible book value
per share. See "Advantages of the Reverse Stock Split;"
* the projected tangible and intangible cost savings to the Company by
terminating its public company status; and
* the fact that attempts of the Company's stockholders to achieve
liquidity in the existing trading market would be frustrated due to the low
average daily trading volume of the Company's common stock, with the result
that only a small number of shares could be purchased or sold without the risk
of significantly increasing or decreasing the trading price for our shares.
Q: What are the interests of the Company's directors and officers in the
Reverse Stock Split?
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A: As a result of the transaction, the Company estimates that its
directors and officers, collectively, will beneficially own approximately 25%
of the Company's outstanding common stock immediately before the Reverse Stock
Split and approximately 26% after the Reverse Stock Split. This small
increase is due to the fact that only an estimated 1,235,043 pre-split
shares of our common stock will be eliminated.
Q: What is the total cost of the Reverse Stock Split to the Company?
A: The Company estimates that the total cost of the Reverse Stock Split
to the Company will be approximately $368,461.61, of which the Company will
pay approximately $333,461.61 to cash out fractional shares and approximately
$35,000 of legal and accounting fees and other costs to effect the Reverse
Stock Split. This total amount could be larger or smaller if the estimated
number of fractional shares that will be outstanding after the Reverse Stock
Split changes as a result of purchases or sales of common stock by
unaffiliated stockholders. Birch will borrow these funds from LCIS pursuant
to a demand note bearing interest at 9% per annum. As of the date hereof, the
parties have not executed any such note.
Questions and Answers about the Merger.
---------------------------------------
Q: Why is Birch proposing to enter into the merger?
A: Approximately 90% of Birch's insurance premium financing revenue comes
from LCIS. If Birch were to lose this revenue source, it would lose its
viability as a business. In addition, Golden Oak owns the majority of each
company's common stock and each of Birch's directors also serves on the Board
of Directors of LCIS. Due to each of these factors our Board of Directors
believes it is more appropriate for Birch to operate as a wholly-owned
subsidiary of LCIS than as an independent publicly-held company.
Q: How is the merger being structured?
A: If all of the conditions to the merger are satisfied (or waived),
Merger Subsidiary will be merged into Birch, with Birch becoming a wholly-
owned subsidiary of LCIS and Birchs's stockholders receiving in exchange for
their Birch shares, LCIS common stock.
Q: What are the tax consequences to the Birch stockholders of the
merger?
A: Birch stockholders who exchange their shares or LCIS common stock will
not recognize any gain or loss for United States federal income tax purposes.
Your tax basis in your total shares of LCIS common stock received in the
merger will equal your tax basis in your Birch stock.
Q: If I am a Birch stockholder, should I send in my stock certificates
now?
A: No. After the merger is completed, Birch will send written
instructions to its stockholders explaining how to exchange their stock
certificates.
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Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible,
and we expect that it will be completed immediately after the completion of
the Reverse Stock Split.
Q: Where can I find more information about the merger?
A: Please contact:
Birch Financial, Inc.
17029 Chatsworth Street, Suite 100
Granada Hills, California 91344
Phone: 818-832-9664
Facsimile: 818-362-9872
Attention: Nelson Colvin
Golden Oak, which owns in excess of a majority of our outstanding voting
securities has agreed to vote in favor of the Reverse Stock Split and the
merger. No other votes are required or necessary to adopt and complete these
transactions.
Golden Oak is a cooperative corporation that is owned by the employee
members of LCIS. It provides safety products and administrative services to
LCIS' members. None of Golden Oak's directors or executive officers was
convicted in any criminal proceeding during the past five years (excluding
traffic violations or similar misdemeanors), or was a party to any judicial or
administrative proceeding during the past five years (except for matters that
were dismissed without sanction or settlement) that resulted in a judgment,
decree or final order enjoining that person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
PROPOSAL NO. 1: AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO
EFFECT THE REVERSE STOCK SPLIT
General.
--------
Our Board of Directors has unanimously authorized the Reverse Stock
Split, which will consist of an amendment of our Articles of Incorporation to
effect a reverse split of our outstanding common stock on a 100,001-for-one
basis, such that stockholders owning less than 100,001 shares of common stock
will have their shares canceled and converted into the right to receive cash
consideration equal to $0.27 per pre-split share. The Reverse Stock Split
will take effect on the date that we file a Certificate of Amendment to our
Articles of Incorporation with the Secretary of State of Nevada, or on any
later date that we specify in the Certificate of Amendment. At that time,
each holder of 100,001 shares of our common stock immediately before the
Reverse Stock Split will receive one share of our common stock in exchange for
such pre-split shares, with fractional shares to be received in exchange for
blocks of shares that are not evenly divisible into 100,001. For example, a
stockholder holding 150,000 pre-split shares will receive 1.5 shares as a
result of the Reverse Split.
10
Any stockholder holding less than 100,001 shares of our common stock
immediately before the Reverse Stock Split will have the right to receive cash
in exchange for the resulting fractional share thereof and will no longer be a
stockholder of the Company. This cash payment will be equal to $0.27 for
every share of common stock held by such stockholder immediately prior to the
Reverse Stock Split.
As of September 12, 2005, the most recent practicable date prior to the
date of this Information Statement, there were 32,076,846 outstanding shares
of our common stock and approximately 526 stockholders of record. As of that
date, approximately 503 holders of record held less than 100,001 shares of
common stock. As a result, we believe that the Reverse Stock Split will
reduce the number of record holders to approximately 23. The foregoing
figures take into account our recent buyback of a total of 33,000 shares from
11 stockholders to whom we had sold shares in a private placement in 2001, at
a price of $1.00 per share. In the interest of fairness to these
stockholders, we repurchased these shares at the original offering price of
$1.00 per share.
Reasons for the Reverse Stock Split.
------------------------------------
We incur direct and indirect costs in complying with the filing and
reporting obligations imposed on public companies by the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The cost of compliance has
increased significantly with the implementation of the Sarbanes-Oxley Act of
2002. We also incur substantial indirect costs as a result of, among other
things, the executive time expended to prepare and review our public filings.
As we have relatively few executive personnel, these indirect costs can be
substantial.
In addition, management believes that many of the common benefits of
being a public company do not apply to Birch. For example:
* there has never been an established trading market for our common stock
(During the 2-1/2 year period from January 1, 2003, through July 1, 2005,
there were approximately 40 trades in our common stock, for total trading
volume of 126,331 shares), resulting in very limited liquidity for our
investors;
* the vast majority of stockholders that acquired their shares when we
went public in 1999 continue to hold those shares, indicating a general lack
of desire to trade our common stock; and
* unlike most public companies, our operations are narrowly focused on
providing insurance premium financing services, with over 90% of our insurance
premium financing revenue coming from LCIS.
The primary purpose of the Reverse Stock Split is to enable Birch to "go
private" and thus terminate its obligations to file annual and periodic
reports and make other filings with the Securities and Exchange Commission
(the "Commission"). The benefits of going private include:
* eliminating the costs associated with filing our periodic reports and
other documents with the Commission;
11
* eliminating the costs of compliance with the Sarbanes-Oxley Act and
related regulations;
* reducing the direct and indirect costs of administering stockholder
accounts and responding to stockholder requests; and
* affording stockholders holding fewer than 100,001 shares immediately
before the Reverse Stock Split the opportunity to receive cash for their
shares without having to pay brokerage commissions and other transaction
costs.
By purchasing the shares of the holders of fewer than 100,001 shares, we
will:
* reduce the number of the Company's stockholders of record to fewer than
500 persons, which will allow us to terminate the registration of our common
stock under Section 12(g) of the Exchange Act, and suspend our duty to file
periodic reports with the Commission;
* eliminate the administrative burden and expense of maintaining small
stockholder accounts;
* permit these small stockholders to liquidate their shares of common
stock at a fair price, without having to pay brokerage commissions, as we will
pay all transaction costs in connection with the Reverse Stock Split; and
* cause minimal disruption to stockholders owning 100,001 or more shares
of common stock.
Effect of the Reverse Stock Split.
----------------------------------
If the Reverse Stock Split is consummated, we intend to apply for
termination of registration of our common stock under the Exchange Act as soon
as practicable after completion of the Reverse Stock Split. The Reverse Stock
Split is expected to reduce the number of stockholders of record of the
Company from approximately 537 to approximately 23. Upon the termination of
our reporting obligations under the Exchange Act, our common stock may be
eligible for listing and trading in the "Pink Sheets," as described below.
However, the completion of the Reverse Stock Split and the deregistration of
our common stock under the Exchange Act will likely cause the trading market
for shares of the common stock to be eliminated.
Effects on Stockholders With Fewer Than 100,001 Shares of Common Stock.
-----------------------------------------------------------------------
If the Reverse Stock Split is implemented, stockholders holding fewer
than 100,001 shares of common stock immediately before the Reverse Stock Split
("Cashed Out Stockholders"):
* will not receive a fractional share of common stock as a result of the
Reverse Stock Split;
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* will instead receive cash equal to $0.27 per pre-Reverse Stock Split
share for each such share of common stock held immediately before the Reverse
Stock Split in accordance with the procedures described in this information
statement;
* will have no further ownership interest in Birch with respect to
cashed out shares, and will no longer be entitled to vote as stockholders;
* will not be required to pay any service charges or brokerage
commissions in connection with the Reverse Stock Split; and
* will not receive any interest on the cash payments made as a result of
the Reverse Stock Split.
Cash payments to Cashed Out Stockholders as a result of the Reverse Stock
Split will be subject to income taxation. For a discussion of the federal
income tax consequences of the Reverse Stock Split, please see the section of
this information statement entitled " Material Federal Income Tax Consequences
of the Reverse Stock Split."
If you would otherwise be a Cashed Out Stockholder as a result of your
owning less than 100,001 shares of our common stock, but you would rather
continue to hold common stock after the Reverse Stock Split and not be cashed
out, you may do so by taking either of the following actions:
(1) Purchase a sufficient number of additional shares of common stock on
the open market and have them registered in your name and consolidated with
your current record account, if you are a record holder, or have them entered
in your account with a nominee (such as your broker or bank) in which you hold
your current shares so that you hold at least 100,001 shares of common stock
in your record account immediately before the effective date of the Reverse
Stock Split; or
(2) If applicable, consolidate your accounts so that together you hold at
least 100,001 shares of common stock in one record account immediately before
the effective date of the Reverse Stock Split.
You will have to act far enough in advance so that the purchase of any
common stock and/or consolidation of your accounts containing common stock is
completed by the close of business prior to the effective date of the Reverse
Stock Split.
Effects on Stockholders With 100,001 or More Shares of Common Stock.
--------------------------------------------------------------------
If the Reverse Stock Split is implemented, stockholders, which we refer
to as Continuing Stockholders, holding 100,001 or more shares of common stock
immediately before the Reverse Stock Split:
* will have the number of shares of common stock held immediately after
the Reverse Stock Split reduced by a factor of 100,001 to one;
* will be the only persons entitled to vote as stockholders after the
consummation of the Reverse Stock Split; and
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* will not receive cash for any portion of their shares (and will not
receive any other consideration, including options).
One of the purposes of the Reverse Stock Split is to terminate the
registration of our common stock under the Exchange Act. In this event, we
will no longer be required to file public reports of our financial condition
and other aspects of our business with the Commission. Unless otherwise
required by law, we do not currently intend to distribute any more financial
and other Company information to stockholders. As a result, stockholders and
brokers will have less access to information about the Company's business and
results of operations than they had prior to the Reverse Stock Split.
Nevertheless, we may decide in our sole discretion to provide certain
financial and other information on our website at some time in the future.
In addition, in the event that we terminate the registration of our
common stock under the Exchange Act, the common stock will cease to be
eligible for trading on any securities market except the "Pink Sheets," which
may not be available as a source of liquidity. In order for our common stock
to be quoted on the "Pink Sheets" (a centralized quotation service that
collects and publishes market maker quotes for securities), one or more
broker-dealers must act as a market maker and sponsor the common stock on the
"Pink Sheets." Following consummation of the Reverse Stock Split and the
absence of current information about the Company being filed under the
Exchange Act, there can be no assurance that any broker-dealer will be willing
to act as a market maker in the Common stock. There is also no assurance that
shares of the common stock will be available for purchase or sale after the
Reverse Stock Split has been consummated.
Effects on the Company.
-----------------------
If consummated, the Reverse Stock Split will affect the registration of
our common stock under the Exchange Act, as we intend to apply for termination
of such registration as soon as practicable after the Reverse Stock Split.
The Reverse Stock Split is intended to reduce the number of stockholders
of the Company to less than 35. The completion of the Reverse Stock Split and
the deregistration of our common stock under the Exchange Act will render the
common stock ineligible for listing or quotation on any stock exchange or
other automated quotation system. After the Reverse Stock Split, we may be
able to list the Common Stock in the "Pink Sheets." However, we do not intend
to pursue that option, as we expect that Continuing Stockholders holding a
majority of the outstanding post-Reverse Stock Split shares of our common
stock will vote to make the Company a wholly-owned subsidiary of LCIS, as
outlined in Proposal 2, below. Consequently, Continuing Stockholders should
expect the public market for shares of Common Stock to be eliminated.
We expect that upon the completion of the Reverse Stock Split, the shares
beneficially owned by our directors and executive officers will comprise
approximately 26% of the then-issued and outstanding shares of common stock,
compared to approximately 25% owned prior to the Reverse Stock Split. In
addition, Golden Oak, which currently owns approximately 52% of our
outstanding common stock, will own approximately 54% of our post-Reverse Stock
Split shares.
14
No Change in Par Value.
-----------------------
The par value of our common stock will remain $0.01 per share following
consummation of the Reverse Stock Split.
Material Federal Income Tax Consequences of the Reverse Stock Split.
--------------------------------------------------------------------
We have not decided to engage in the Reverse Stock Split as a result of
any tax consequences of the transaction. We believe that the Reverse Stock
Split will not result in material federal income tax consequences to the
Company. In addition, Continuing Stockholders who do not receive any cash as
a result of the Reverse Stock Split should not recognize any gain or loss as a
result of the Reverse Stock Split. A Continuing Stockholder's tax basis and
holding period in the common stock should remain unchanged after the Reverse
Stock Split. On the other hand, Cashed Out Stockholders generally will
recognize capital gain or loss for federal income tax purposes as a result of
the Reverse Stock Split. Such gain or loss will be measured by the difference
between the cash received by such Cashed Out Stockholder and the aggregate
adjusted tax basis in such Cashed Out Stockholder's stock.
Advantages of the Reverse Stock Split.
--------------------------------------
(1) Opportunity for unaffiliated stockholders holding less than 100,001
shares of common stock to sell holdings at a premium.
Historical Market Prices - In connection with the Reverse Stock Split,
the Board of Directors has set the price to be paid to the cashed out
stockholders at $0.27 per share. This consideration represents: (i)a 59%
premium over the closing price for our common stock on July 1, 2005 (the most
recent practicable date prior to the announcement of the Reverse Stock Split)
which was $0.17 per share; (ii) an 86% premium over the average closing price
of the common stock over the 30 days prior to and including July 1, 2005,
which was $0.145 per share; (iii) a 77% premium over the one year average
closing price of the common stock, which was $0.152 per share; and (iv) a 0.3%
premium over the average closing price of our common stock during the period
from January 1, 2003, through July 1, 2005, which was $0.269 per share.
The foregoing calculations were derived from the trading history of the
Company's common stock during the period from January 1, 2003, through July 1,
2005. It should be noted that during this period: (i) there were only 40 days
during which any shares of the Company's common stock were traded at all; (ii)
a total of only 126,331 shares were traded; and (iii) the average trading
volume during these 40 trading days was only about 3,133 shares per day.
The following table summarizes certain indications of value, including
the aforementioned current and historical market prices of the common stock,
each as defined above. The column labeled "Percentage Premium" indicates the
percentage premium that the $0.27 cash out consideration represents in
relation to the applicable indication of value.
15
Dollar
Value Amount Premium
----- ------ -------
Most Recent Closing Price $ 0.17 59 %
Thirty Day Average Closing Price 0.145 86
One-year Average Closing Price 0.152 77
Two-and-one-half year Average Closing Price 0.269 0.3
Net tangible book value per share
at June 30, 2005* 0.062 435
* Net tangible book value consists of the Company's tangible assets minus
its liabilities.
The Company has not retained any unaffiliated representative to act
solely on behalf of unaffiliated security holders for purposes of negotiating
the Reverse Stock Split or to prepare any report concerning its fairness. Nor
have we received any report, opinion or appraisal from any outside party that
is materially related to the Reverse Split.
(2) Significant cost and time savings for the Company.
By reducing the number of stockholders of record to less than 35 and
deregistering our common stock under the Exchange Act, we expect to save: (i)
approximately $40,000 per year in legal fees and expenses that we have
historically incurred in connection with the preparation and filing of reports
required by the Exchange Act and with quotation of our common stock on the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. (the
"NASD"), and with other legal requirements associated with being a public
company; (ii) approximately $12,000 in accounting fees associated with the
preparation of the annual and quarterly financial statements that are included
with our periodic reports; and (iii) approximately $20,000 per year in audit
and audit-related fees associated with the year-end financial statements that
are filed with the Commission with our Annual Reports on Form 10-KSB. The
termination of reporting obligations will also alleviate a significant amount
of time and effort previously required of our executive officers to prepare
and review these ongoing reports and filings.
(3) Ability to control decision to remain a holder of common stock or to
liquidate common stock.
Another factor considered by the Board of Directors in determining the
fairness of the transaction to all unaffiliated stockholders, individually, is
that current holders of fewer than 100,000 shares of our common stock may
elect to remain stockholders of the Company following the Reverse Stock Split
by acquiring additional shares so that they own at least 100,001 shares of the
common stock immediately before the Reverse Stock Split. Conversely,
stockholders that own 100,001 or more shares of common stock who desire to
liquidate their shares in connection with the Reverse Stock Split at the
premium price offered may reduce their holdings to less than 100,001 shares by
selling shares prior to the Reverse Stock Split. The Board of Directors
considers the structure of the going private transaction to be fair to
16
unaffiliated stockholders individually, because it allows them a measure of
control over the decision of whether to remain stockholders after the Reverse
Stock Split or to receive the cash consideration offered in connection with
the Reverse Stock Split.
(4) No material change in percentage ownership of Continuing
Stockholders.
Because only an estimated 1,235,043 out of 32,076,846 shares of our
common stock will be eliminated as a result of the Reverse Stock Split, the
percentage ownership of Continuing Stockholders will be approximately the same
as it was prior to the Reverse Stock Split. For example, our directors and
executive officers currently beneficially own approximately 25% of our
outstanding common stock and will beneficially own approximately 26% of our
common stock following completion of the Reverse Stock Split. We believe that
structuring the transaction in a manner that preserves the approximate
percentage ownership of the Continuing Stockholders, whether affiliated or
unaffiliated, supports the fairness of the transaction to the unaffiliated
stockholders.
Disadvantages of the Reverse Stock Split.
-----------------------------------------
(1) Complete reduction of public sale opportunities.
Following the Reverse Stock Split and the deregistration of our common
stock under the Exchange Act, we anticipate that the public market for the
common stock will be eliminated altogether. Stockholders of the Company likely
no longer will have the opportunity to sell their shares of common stock in
any public market. While shares may be listed in the "Pink Sheets," any
public market for our common stock would probably be highly illiquid after the
suspension of our periodic reporting obligations.
Our Board of Directors believes that the foregoing disadvantage is
somewhat ameliorated by the extremely limited market for our common stock over
the past several years. For example, in the two-and-one-half year period from
January 1, 2003, through July 1, 2005, a total of 126,331 shares of our common
stock have been traded on the OTC Bulletin Board, and our shares have been
traded a total of 40 days during this period.
(2) Termination of publicly available information.
Upon terminating the registration of our common stock under the Exchange
Act, our duty to file periodic reports with the Commission will be suspended.
Information about our operations and financial results that is currently
available to the general public and our investors will not be available after
we have terminated the registration of our common stock. Upon the termination
of our filing obligations with the Commission, investors seeking information
about us will have to contact us directly to receive such information. We can
not assure you that we will provide the requested information to an investor.
While our directors acknowledge the circumstances in which such termination of
publicly available information may be disadvantageous to our stockholders,
they believe that the overall benefits to the Company of no longer being a
public reporting company substantially outweigh the disadvantages thereof,
17
and, accordingly, the Company believes that termination of publicly available
information does not outweigh the advantages of going private, which is in the
best interests of the Company's stockholders.
(3) Termination of public company obligations.
Once our common stock ceases to be registered under the Exchange Act, the
Company will no longer be subject to public company obligations, such as the
provisions of Sarbanes-Oxley or the liability provisions of the Exchange Act.
Although we will no longer be required to file financial statements with the
Commission or to provide such information to stockholders, any financial
statements we choose to provide will no longer be required to be certified by
the officers of the Company.
(4) Possible significant decline in the value of the common stock.
Because of the limited liquidity for our common stock (as described in
paragraph (1) above), the termination of the Company's obligation to make
public financial and other information expected to result following the
Reverse Stock Split and the deregistration of the Common Stock under the
Exchange Act (as described in paragraph (2) above), and the diminished
opportunity for stockholders of the Company to monitor the management of the
Company due to the lack of public information, Continuing Stockholders may
experience a significant decrease in the value of their shares of Common
Stock.
(5) Inability to participate in any future increases in the value of our
common stock.
Cashed Out Stockholders will have no further financial interest in the
Company with respect to their cashed out shares and thus will not have the
opportunity to participate in the potential appreciation in the value of such
shares. However, those unaffiliated stockholders who wish to remain
stockholders after the Reverse Stock Split can do so by acquiring additional
shares so that they own at least 100,001 shares of common stock immediately
before the Reverse Stock Split.
Dissenters' Appraisal Rights with Respect to the Reverse Stock Split.
---------------------------------------------------------------------
Under Nevada law, Company stockholders who dissent from the Reverse Stock
Split are not entitled to any appraisal rights with respect to their shares.
However, in the interest of fairness and giving our stockholders additional
options with respect to the Reverse Stock Split, our Board of Directors has
determined to grant dissenter's rights of appraisal in this matter. If you
wish to dissent and you comply strictly with the applicable provisions of
Section 92A.440 of the Nevada Revised Statutes (the "NRS"), you will have the
right to dissent and be paid cash for the fair value of your shares of the
Company's common stock. To perfect these appraisal rights with respect to the
Reverse Stock Split, you must follow the required procedures precisely. A
copy of Sections 92A.300 to 92A.500 of the NRS is attached to this Information
Statement as Appendix A.
18
Under the NRS, stockholders who dissent from the Reverse Stock Split are
not entitled to appraisal or dissenter's rights. However, in the interests of
fairness and of giving our stockholders as many options as possible with
respect to the Reverse Stock Split, our Board of Directors has decided to
grant our stockholders dissenter's rights for this matter. These rights will
be governed by applicable provisions of the NRS.
Sections 92A.300 to 92A.500 the NRS entitle any Company stockholder who
objects to the Reverse Stock Split and who follows the procedures prescribed
by Section 92A.440 to receive cash equal to the "fair value" of such
stockholder's shares of the Company. Set forth below is a summary of the
procedures relating to the exercise of such dissenters' rights. This summary
does not purport to be a complete statement of dissenters' rights and is
qualified in its entirety by reference to Sections 92A.300 to 92A.500 of the
NRS, which are reproduced in full as Appendix A to this Information Statement.
Any stockholder contemplating the possibility of dissenting from the
Reverse Stock Split should carefully review the text of Appendix A
(particularly the specified procedural steps required to perfect the
dissenters' rights, which are complex) and should also consult such
stockholder's legal counsel. Such rights will be lost if the procedural
requirements of Section 92A.440 of the NRS are not fully and precisely
satisfied.
The Company has granted dissenters' rights for any stockholder who
objects to the Reverse Stock Split and who meets the requisite statutory
requirements contained in the NRS. Under the NRS, any objecting stockholder
shall be entitled, once the Reverse Stock Split is consummated, to receive a
cash payment of the fair value of such stockholder's shares of Company stock
upon compliance with the applicable statutory procedural requirements. A
stockholder who does not so object will have no dissenters' rights with
respect thereto. A stockholder who does not satisfy each of the requirements
of Section 92A.440 of the NRS is not entitled to payment for such
stockholder's shares under the dissenters' rights provisions of the NRS and
will be bound by the terms governing the subject transaction.
The Company must send written notice to all objecting stockholders. The
notice must be sent no later than 10 days after the effectuation of the
Reverse Stock Split, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
19
(d) Set a date by which the Company must receive the demand for payment,
which may not be less than 30 nor more than 60 days after the date the notice
is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
Prior to the effective time of the Reverse Stock Split, a stockholder
exercising dissenters' rights retains all the other rights of a Company
stockholder. From and after such effective time, dissenting shareholders will
no longer be entitled to any rights of a Company stockholder, including, but
not limited to, the right to receive notice of meetings, to vote at any
meetings or to receive dividends, and will only be entitled to any rights to
appraisal as provided by the NRS.
After the effective time of the Reverse Stock Split, or upon receipt of a
valid demand for payment, whichever is later, the Company must remit to each
dissenting shareholder who complied with the requirements of the NRS the
amount that the Company estimates to be the fair value of such stockholder's
shares of common stock, plus interest accrued from the effective time of the
sale to the date of payment. The payment also must be accompanied by certain
financial data relating to the Company, the Company's estimate of the fair
value of the shares and a description of the method used to reach such
estimate, and a copy of the applicable provisions of the NRS with a brief
description of the procedures to be followed in demanding supplemental
payment. The dissenting stockholder may decline the offer and demand payment
for the fair value of the Company's stock. The dissenting shareholder waives
his right to demand payment unless he notifies the Company of his demand in
writing within 30 days after the Company makes or offers payment for his
shares.
If demand for payment remains unsettled, the Company shall, within 60
days after receiving the demand, file in court a petition requesting that the
court determine the fair value of the Company's stock. If the proceeding is
not filed within the 60 day period, the Company shall pay each dissenter whose
demand remains unsettled the amount demanded.
The court may appoint one or more appraisers to receive evidence and make
recommendations to the court on the amount of the fair value of the shares.
The court shall determine whether the dissenting shareholder has complied with
the requirements of Section 92A.440 of the NRS and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant.
Costs of the court proceeding shall be determined by the court and
assessed against the Company, except that part or all of the costs may be
assessed against any dissenting shareholders whose actions in demanding
supplemental payments are found by the court to be arbitrary, vexatious or not
in good faith.
If the court finds that the Company did not substantially comply with the
relevant provisions of the NRS, the court may assess the fees and expenses, if
any, of attorneys or experts as the court deems equitable against the Company.
Such fees and expenses may also be assessed against any party in bringing the
proceedings if the court finds that such party has acted arbitrarily,
20
vexatiously or not in good faith, and may be awarded to a party injured by
those actions. The court may award, in its discretion, fees and expenses of
an attorney for the dissenting shareholders out of the amount awarded to such
shareholders, if any.
A stockholder of record may assert dissenters' rights as to fewer than
all of the shares registered in such stockholder's name only if he or she
dissents with respect to all shares beneficially owned by any one beneficial
stockholder and notifies the Company in writing of the name and address of
each person on whose behalf he or she asserts dissenters' rights. The rights
of such a partial dissenting shareholder are determined as if the shares as to
which he or she dissents and his or her other shares were registered in the
names of different shareholders.
Interest of Certain Persons in Matters to Be Acted Upon.
--------------------------------------------------------
The Company's executive officers and directors have interests in the
Reverse Stock Split that are in addition to, or different from, the
stockholders generally. These interests may create potential conflicts of
interest and include the following:
* Eight of our 10 directors and executive officers hold more than 100,000
shares and will, therefore, retain shares of common stock after the Reverse
Stock Split;
* After the Reverse Stock Split, the directors and officers of the
Company will continue to hold the offices and positions they held immediately
prior to the Reverse Stock Split. Accordingly, any compensation agreements in
effect prior to the Reverse Stock Split will remain in effect after the
Reverse Stock Split;
* The stockholders who own more than 100,000 shares of our common stock
on the effective date of the Reverse Stock Split, including eight of the
Company's 10 directors and executive officers, will slightly increase their
percentage ownership interest in the Company because only an estimated
1,235,043 shares of common stock will be eliminated as a result of the Reverse
Stock Split. Based on information and estimates of record ownership and shares
outstanding and other ownership information and assumptions as of July 1,
2005, the beneficial ownership percentage of the Company's directors and
executive officers will increase from approximately 25% to approximately 26%;
* The legal exposure for board members of public companies has increased
significantly, especially in the aftermath of the Sarbanes-Oxley Act. While
there are still significant controls, regulations and liabilities for
directors and executive officers of private companies, the legal exposure for
the Company's directors and executive officers will be reduced after the
Reverse Stock Split.
Certain persons who own in excess of a majority of our outstanding voting
securities have agreed to vote in favor of the Reverse Stock Split. No other
votes are required or necessary to adopt and complete the Reverse Stock Split.
21
Escheat Laws.
-------------
The unclaimed property and escheat laws of each state provide that under
circumstances defined in that state's statutes, holders of unclaimed or
abandoned property must surrender that property to the state. Cashed Out
Stockholders whose shares are eliminated and whose addresses are unknown to
us, or who do not return their stock certificates and request payment,
generally will have a limited period of time after the transaction in which to
claim the cash payment. For example, with respect to Cashed Out Stockholders
whose last known addresses are in Delaware, as shown by the Company's records,
the period is five years. Following the expiration of that five-year period,
Delaware law would likely cause the cash payments to escheat to the State of
Delaware. For stockholders who reside in other states or whose last known
addresses, as shown by our records, are in states other than Delaware, such
states may have abandoned property laws which call for either (i) such state
to obtain custodial possession of property that has been unclaimed until the
owner reclaims it; or (ii) escheat of such property to the state. Under the
laws of such other jurisdictions, the "holding period" or the time period
which must elapse before the property is deemed to be abandoned may be shorter
or longer than as set forth under Delaware law.
Financial Information.
----------------------
The Company hereby incorporates by reference (a) the financial statements
and the notes thereto contained in its Annual Report on Form 10-KSB-A1 for the
calendar year ended December 31, 2004 (including the report of independent
certified public accountants thereon); (b) Management's Discussion and
Analysis or Plan of Operation contained in its Annual Report on Form 10-KSB-A1
for the calendar year ended December 31, 2004; (c) the financial statements
and notes thereto contained in its Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 2005, and June 30, 2005; and (d) Management's
Discussion and Analysis or Plan of Operation contained in its Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 2005, and June 30,
2005.
The following combined consolidated pro forma balance sheet reflects all
of the transactions contemplated by the merger as though they had been
effectuated as of June 30, 2005.
22
LANDSCAPE CONTRACTORS INSURANCE SERVICES, INC
BIRCH FINANCIAL, INC,
COMBINED CONSOLIDATED PRO FORMA BALANCE SHEET
Reported Pro Forma
6/30/05 %TA Adjustment Consolidated
ASSETS
Current Assets
Cash in Banks and on Hand $ 10,848,306 38.9% ($ 33,000) $ 10,815,306
Certificates of Deposit 1,352,716 4.8% 1,352,716
Available for Sale
Securities 233,425 0.8% 233,425
Advances to Parent Company 306,869 1.1% 306,869
Loan Receivable 75,851 0.3% 75,851
Accounts Receivable 14,142,523 #DIV/0! 14,142,523
Other Current Assets 24,124 0.1% 24,124
------------------------------------------------
Total Current Assets $ 26,983,814 96.6% $ 26,950,814
Property and
Equipment - Net $ 303,559 1.1% $ 303,559
Other Assets
Accounts Receivable -
Long Term $ 559,754 2.0% $ 559,754
Cash Surrender
Value Life Ins. 63,362 0.2% 63,362
Investment - Partnership 3,614 0.0% 3,614
Security Deposit 2,575 0.0% 2,575
Deferred Tax 2,715 0.0% 2,715
-------------------------------------------------
$ 632,020 2.3% $ 632,020
23
TOTAL ASSETS $ 27,919,393 100.0% $ 27,886,393
- -----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current Liabilities
Accounts Payable $ 9,477,088 33.9% $ 9,477 088
Line of Credit 7,316,500 26.2% 7,316,500
Notes Payable 661,084 2.4% 661,084
Rebates Payable 5,448,600 19.5% 5,448,600
Security Deposits 68,937 0.2% 68,937
Accrued Liabilities 192,311 0.7% 192,311
Dividend Payable 350,000 1.3% 350,000
Income Tax Payable 177,112 0.6% 177,112
Note Payable-Parent 82,259 0.3% 333,462 415,721
--------------------------------------------------
Total Current
Liabilities $ 23,773,891 85.2% $ 24,107,353
Shareholders' Equity
Common Stock $ 326,098 1.2% $ 326,098
Additional Paid
in Capital 251,643 0.9% 251,643
Retained Earnings 3,567,761 12.8% (366,462) 3,201,299
--------------------------------------------------
Total Shareholders' Equity $ 4,145,502 14.8% $ 3,779,040
TOTAL LIABILITY
AND EQUITY $27,919,393 100.0% $ 27,919,393
PROPOSAL TWO: THE MERGER
General.
--------
Our Board of Directors has unanimously approved a merger in which LCIS
Acquisition Corp., a Nevada corporation ("Merger Subsidiary"), a wholly-owned
subsidiary of LCIS, will be merged with and into Birch, with Birch emerging as
the surviving corporation and as a wholly-owned subsidiary of LCIS. At the
24
closing of the merger, all of the current officers and directors of Birch will
remain in the capacities in which they served prior to the closing, and LCIS's
present directors and executive officers will continue to serve in their pre-
merger capacities. Both Birch and LCIS will also retain their current
Articles of Incorporation and Bylaws.
The merger will be completed upon filing of Articles of Merger with the
Secretary of State of Nevada. We expect that this will occur immediately
after the filing of the Certificate of Amendment by which we will effectuate
the Reverse Stock Split. The Merger Agreement is attached as Appendix B to
this Information Statement and is incorporated herein by reference. We
encourage you to read the Merger Agreement because it is the legal document
that governs the merger.
What Birch Stockholders Will Receive.
-------------------------------------
Birch's Continuing Stockholders will receive 7.32 shares of LCIS for
every post-split share that they own immediately before the closing of the
merger. Cashed Out Stockholders will not receive any LCIS shares in
connection with the merger, because their Birch shares will already have been
cashed out as part of the Reverse Stock Split.
As a result of the merger, all of the outstanding shares of Birch common
stock (other than dissenting shares) will be converted into a total of 2,250
shares of LCIS common stock, which will represent approximately 31% of the
outstanding shares of LCIS common stock following the merger.
The numbers set forth above are calculated based upon 5,000 outstanding
shares of LCIS common stock immediately prior to the date of the merger. If
that number changes before the closing of the merger, the per-share
consideration will be changed accordingly.
All shares of LCIS common stock received in the merger will be
"restricted securities," as defined in Rule 144 promulgated under the
Securities Act of 1933, as amended, and will be subject to restrictions on
transfer and will bear appropriate legends evidencing the restrictions on
transfer required by governing securities laws. Furthermore, because there is
no public market for LCIS' common stock, we expect that Birch stockholders who
exchange their Birch shares for LCIS shares will have virtually no liquidity
for the shares that they receive in the merger.
LCIS has never paid cash dividends. It expects to pay a dividend to
Golden Oak during 2005, but management of LCIS does not expect that the Birch
stockholders will participate therein. LCIS does not have any plans to pay
any additional dividend in the foreseeable future.
Ownership of Birch and LCIS Following the Merger.
-------------------------------------------------
Following the completion of the merger, LCIS will own all of the
outstanding shares of Birch, and Birch's former Continuing Stockholders will
own approximately 31% of LCIS. Golden Oak, which currently owns 100% of LCIS'
outstanding shares, will own approximately 69% of its outstanding shares
25
immediately after the closing of the merger. These figures are calculated
based upon 7,250 shares of LCIS common stock being outstanding immediately
after the merger. If the number of outstanding shares changes between that
date and the closing date, the per-share consideration will be changed
accordingly.
Background of and Reasons for the Merger.
-----------------------------------------
There is a long-standing and close relationship between Birch and LCIS.
For example, LCIS provides Birch with approximately 90% of its insurance
premium financing revenue. If it were to lose LCIS' business, Birch's Board
of Directors does not believe that Birch would have a viable business. In
addition, Golden Oak owns a majority of both companies' pre-merger outstanding
share, It owns all of LCIS' shares and approximately 52% of Birch's common
stock. In addition, all of our directors also serve on LCIS' Board of
Directors. Due to these factors, our Board of Directors does not believe that
Birch merits its status as a public company independent of LCIS. We also
believe that both companies' accounting would be simplified, and that
potential conflicts of interest among their directors and officers would be
reduced, if Birch were to become a wholly-owned subsidiary of LCIS.
Furthermore, due to the overlap of both companies' Boards of Directors, each
company has a full understanding of the other's operations and history. We
believe that this will virtually eliminate the potential for unforeseen
problems resulting from the merger.
The Boards of Directors of Birch and LCIS have unanimously approved the
Merger Agreement. In addition to the foregoing factors, the respective boards
considered the following material factors in reaching their determinations:
* The long-term interests of each company and its stockholders;
* Each company's extensive knowledge of the business, earnings,
operations, financial condition and prospects of the other, and of both
companies on a combined basis;
* The terms of the Merger Agreement, including the fact that the merger
will likely qualify as a tax-free reorganization for federal income tax
purposes;
* The projected relative ownership interests of Birch's Continuing
Stockholders and Golden Oak in LCIS immediately following the merger; and
* The likelihood that the merger will be consummated.
The discussion above sets forth the material information and factors
considered by the companies' respective Boards of Directors in their
consideration of the Merger Agreement. In view of the wide variety of factors
considered, the boards did not find it practicable to, and did not make
specific assessments of, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching their determinations.
These determinations were made after consideration of all of the factors as a
whole. In addition, each board and individual members of each board, may have
given different weights to different factors.
26
Interests of the Directors, Executive Officers and Affiliates of Birch
and LCIS in the Merger.
- -----------------------
The directors, executive officers and affiliates of Birch and LCIS have
interests in the merger that are in addition to, or different from, those of
Birch's stockholders generally. These interests may create potential conflicts
of interest and include the following:
* After the merger, Birch's directors and executive officers will
continue to hold the offices and positions they held immediately prior to the
merger. Accordingly, any compensation agreements in effect prior to the merger
will remain in effect after the merger;
* Due to the exchange ratio of Birch shares for LCIS shares, Birch's
former stockholders will have a lower percentage interest in LCIS, both
individually and in the aggregate, than they held in Birch immediately prior
to the merger, and Golden Oak will continue to own a controlling interest in
LCIS.
Material Federal Income Tax Consequences of the Merger.
-------------------------------------------------------
The following discussion summarizes the principal United States federal
income tax consequences of the proposed merger of Merger Subsidiary and Birch
and the exchange of shares of Birch's common stock for shares of LCIS' common
stock under the Internal Revenue Code. It is not feasible to comment on all of
the federal income tax consequences of the merger. The following summary does
not include any discussion concerning the application of foreign, state or
local taxation laws and regulations to the merger. Each holder of Birch's
common stock should consult his own tax advisor regarding the tax consequences
of the proposed merger in light of such stockholder's own situation with
respect to the application and effect of any state, local or foreign income
and other laws.
Special tax consequences not described below may be applicable to
particular classes of taxpayers, including financial institutions, broker-
dealers, persons who are not citizens of the United States or which are
foreign corporations, foreign partnerships or foreign estates or trusts,
insurance companies, tax-exempt organizations, some retirement plans, and
persons who acquired their Birch stock through the exercise of an employee
stock option or otherwise as compensation.
The merger has been structured to qualify as a tax-free reorganization
under the provisions of section 368(a) of the Internal Revenue Code (the
"Code"). No rulings from the IRS as to the tax consequences of the merger or
any other matter discussed herein has been or will be requested. Thus, there
can be no assurance that the Internal Revenue Service will agree with the
interpretations of the Code and the regulations set forth below.
Subject to the limitations referred to herein, qualification of the
merger as a reorganization is expected to result in the following federal
income tax consequences:
27
* The merger will be treated for federal income tax purposes as a
reorganization meeting the requirements of section 368(a) of the Code;
* Birch, LCIS and Merger Subsidiary will each be a "party to the
reorganization," within the meaning of section 368(b) of the Code, with
respect to the Merger;
* No gain or loss will be recognized by Birch, LCIS or Merger Subsidiary
as a result of the merger;
* The basis of the common stock of Birch, as the corporation surviving
the merger, received by LCIS in the merger will, in the aggregate, be the same
as the aggregate basis for the common stock of Merger Subsidiary surrendered;
* No gain or loss will be recognized for federal income tax purposes by
the holders of the Birch common stock on their receipt of LCIS stock in
exchange for their Birch shares;
* The basis of the common stock of LCIS received by the holders of the
Birch common stock in the merger will, in the aggregate, be the same as the
aggregate basis for the Birch common stock surrendered;
* The holding period for federal income tax purposes of the LCIS common
stock received by the Birch stockholders will include the period during which
the exchanged Birch shares were held, assuming that the Birch stock was held
as a capital asset; and
* A Birch stockholder who exercises dissenter's rights and receives
payment of the fair market value of the shares, or who receives cash in lieu
of a fractional share, will be treated as having sold such stock to LCIS. Such
holder of Birch common stock will generally recognize a capital gain or loss
equal to the difference between (a) the basis he had in the shares sold or
would have had for the fractional share of common stock; and (b) the cash
received by the shareholder.
The foregoing summary of the tax consequences is not based on a private
letter ruling from the IRS nor does it have a binding effect on the IRS or the
courts. This discussion is based on the Code, regulations under the Code,
administrative rulings and court decisions as of the date of this document.
The Code, the regulations, and the interpretations thereof by the IRS and the
courts are subject to change, which may adversely affect the tax treatment of
the merger. Any change in the regulations and/or interpretation of the Code
may be given retroactive effect. The IRS may take a position contrary to the
description of the tax effects set forth above and, if the matter is
litigated, a court may reach a decision contrary to conclusions contained in
the summary.
The preceding material is intended to be only a summary of certain income
tax consequences relating to the merger. This discussion is not intended as
tax advice. We urge Birch stockholders to consult their own tax advisors
concerning federal, state, local and foreign tax consequences to them of the
merger.
28
Accounting Treatment of the Merger.
-----------------------------------
In accordance with the intent that the merger qualify as a reorganization
within the meaning of Section 368(a)(1)(A) and (a)(2)(E) of the Internal
Revenue Code of 1986, as amended, the following summarizes the accounting
treatment of the merger. Birch's remaining stockholders, following the
Reverse Stock Split, will account for the shares of LCIS stock acquired in the
merger by debiting their LCIS investment account and crediting their Birch
investment account by the balance in their Birch investment account prior to
the exchange. LCIS will account for the merger by debiting its investment in
LCIS Acquisition Corp. and by crediting equity, split between common stock at
par value for the number of shares issued and the balance to be paid in
capital, by the net book value of Birch prior to the merger.
Dissenters' Rights with Respect to the Merger.
----------------------------------------------
Under the NRS, stockholders who dissent from the merger are not entitled
to appraisal or dissenter's rights. However, in the interests of fairness and
of giving our stockholders as many options as possible with respect to the
merger, our Board of Directors has decided to grant our stockholders
dissenter's rights for this matter. These rights will be governed by
applicable provisions of the NRS, which are attached hereto as Appendix A.
For a general discussion of these provisions, see the caption "Dissenters'
Rights with Respect to the Reverse Stock Split."
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names of all current directors
and executive officers of Birch. These persons will serve until the next
annual meeting of the stockholders or until their successors are elected
or appointed and qualified, or their prior resignation or termination.
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
- ---- ---- ----------- --------------
Nelson L. Colvin Vice President 1/14/00 1/16/04
President 1/16/04 *
Secretary 1/14/00 1/14/04
Director 1/14/00 1/14/04
Keith L. Walton Vice President 1/14/00 *
Secretary 1/14/04 *
Treasurer 1/14/04 *
Director 1/14/00 *
Barry L. Cohen Chairman of the 1/14/00 *
Board of Directors
Lebo Newman Director 1/14/00 *
Timothy F. Nord Director 1/14/00 *
29
Ronald H. Dietz Director 1/14/00 *
Richard L. Angelo Director 1/14/00 *
Frank D. Quaresma Director 1/14/00 *
Mickey D. Strauss Director 11/6/01 *
Jon R. Alsdorf Director 11/6/01 *
* These persons presently serve in the capacities
indicated.
Business Experience.
- --------------------
Nelson L. Colvin. In addition to his duties as President, Secretary
and Director of Birch, Mr. Colvin, age 66, is President/CEO of Golden Oak, and
Secretary of Oakwood Insurance Co., Ltd. and LCIS. He has been the executive
director of the CLCA Insurance Trust since 1994. From 1959 to 1961, Mr.
Colvin attended Los Angeles City College, where he studied accounting and real
estate. He is a licensed landscape contractor and has been a member of the
California Landscape Contractors Association since 1971. Mr. Colvin is also a
past President of the California Landscape
Contractors' Association.
Keith L. Walton. Mr. Walton is 64 years old. In addition to his
duties as Vice President and Director of Birch, Mr. Walton is President of
Oakwood Insurance Co., Ltd., Director of Golden Oak and LCIS and President of
Land Care Corp. and Brookside Olympic. He is also the owner of Chapman Woods
Nursery, Inc., which was founded in 1975.
Barry L. Cohen. In addition to his duties as Chairman of the
Board of Directors of Birch, Mr. Cohen, age 63, is Vice President of Oakwood
Insurance Co., Ltd., Director of Golden Oak, director of LCIS and owner of
Diablo Landscape Co. He has owned B. L. Cohen Landscape, Inc., since 1972.
Mr. Cohen is a past President of the California Landscape Contractors
Association.
Lebo Newman. Mr. Newman is 50 years of age. In addition to his
duties as a Director of Birch, Mr. Newman is a Director and Chairman of
Finance Committee of Golden Oak, Oakwood Insurance Co., Ltd. and LCIS. He is
also Chairman of the Board of LCIS. Mr. Newman owns Liberty Enterprises.
Since 1974, he has been the President and sole stockholder of R. L. Company,
Inc., a California corporation doing business as Redwood Landscaping, which
was sold to Service Master. Mr. Newman is a past President of the California
Landscape Contractors' Association.
Timothy F. Nord. Mr. Nord is 58 years old. In addition to his
duties as Director of Birch, Mr. Nord is a Director of Golden Oak, Oakwood
Insurance Co., Ltd. and LCIS. He has also owned Nord Landscape Services
since 1971. Mr. Nord is a past President of the California Landscape
Contractors' Association.
30
Ronald H. Dietz. Mr. Dietz is 53 years of age. In addition to
his duties as Director of Birch, Mr. Dietz is a Director of Golden Oak,
Oakwood Insurance Co., Ltd. and LCIS. He has been the President and CEO of
Dietz Hydroseeding Co. since 1979. Mr. Dietz is a licensed contractor. He
was the President of the California Landscape Contractors Association in 1989.
Richard L. Angelo. In addition to his duties as Director of Birch,
Mr. Angelo, age 61, is a Director of Golden Oak, Oakwood Insurance Co., Ltd.
and L.C.I.S. He has been the President of Stay Green Inc. since 1970. Mr.
Angelo is a past President of the California Landscape Contractors
Association.
Frank D. Quaresma. In addition to his duties as Director of Birch,
Mr. Quaresma, age 50, is Chairman of the Board of Golden Oak, and a Director
of Oakwood Insurance Co., Ltd. and LCIS. He has owned Live Oak Landscape
since 1977.
Mickey D. Strauss. Mr. Strauss, age 59, has been the Chief
Executive Officer of American Landscape, Inc., since 1973. He is a past
President of the California Landscape Contractors Association and has been
voted Man of the Year by the San Fernando Valley chapter of that association.
Jon R. Alsdorf. Mr. Alsdorf is 59 years of age. He has been a
licensed contractor in Fresno, California since 1984. He is a Director of
Golden Oak and LCIS.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Voting Securities.
------------------
The securities that would have been entitled to vote if a meeting
was required to have been held regarding these two proposals consist of shares
of our common stock. Each share of our common stock is entitled to one vote.
The number of outstanding shares of our common stock at the close of business
on October 10, 2005, the record date for determining our stockholders who
would have been entitled to notice of and to vote on two proposals, was
32,076,846 shares.
Security Ownership of Principal Holders and Management.
- -------------------------------------------------------
The following table sets forth certain information as of October
10, 2005, regarding current beneficial ownership of the shares of our common
stock by (i) each person known by us to own more than 5% of the outstanding
shares of our common stock, (ii) each of our executive officers and directors,
and (iii) all of our executive officers and directors as a group. Except as
noted, each person has sole voting and sole investment or dispositive power
with respect to the shares shown. The information presented is based upon
32,076,846 outstanding shares of our common stock.
31
Number of Shares Percentage
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
Golden Oak Cooperative
Corporation 16,694,362 52.0%
17029 Chatsworth St.
Granada Hills, CA 91344
Keith L. Walton 2,257,864 7.0%
800 N. Meadowpass Rd.
Walnut, CA 91789
Lebo Newman 1,726,213 5.4%
2540 Bennett Ridge Rd.
Santa Rosa, CA 95404
Nelson L. Colvin 606,194 (1) 1.9%
8754 Jumilla Av
Northridge, CA 91324
Barry L. Cohen 351,931 (2) 1.1%
19519 Kenosha Court
Saratoga, CA 95070
Timothy F. Nord 149,248 (3) 0.5%
2425 Alder Street
Bakersfield, CA 93301
Ronald H. Dietz 300,000 (4) 0.9%
8244 E. Hillsdale Drive
Orange, CA 92869
Richard L. Angelo 49,227 0.2%
11774 Monte Leon Way
Northridge, CA 91326
Frank D. Quaresma 1,382,178 4.3%
3342 McDonald Ave.
Modesto, CA 95358
Mickey D. Strauss 1,146,656 (5) 3.6%
7949 Deering Avenue
Canoga Park, CA 91304
Jon R. Alsdorf 36,938 0.1%
4235 West Alamos
Fresno, CA 93722
TOTALS: 24,700,311 77.0%
(1) These shares are held jointly with Mr. Colvin's wife.
(2) These shares are held jointly with Mr. Cohen's wife.
32
(3) These shares are held jointly with Mr. Nord's wife.
(4) These shares are held of record by the Doherty Dietz 1998 Loving
Family Trust, which Mr. Dietz controls.
(5) These shares are owned by American Landscape Retirement Trust,
of which Mr. Strauss is the President.
Changes in Control.
-------------------
Golden Oak currently beneficially owns approximately 52% of our
outstanding common stock. Upon completion of the merger, LCIS will own all of
our outstanding shares.
MARKET INFORMATION
Our common stock is quoted on the OTC Bulletin Board of the NASD. Our
symbol is "BRFL."
The National Quotations Bureau provided the following quotations.
They do not represent actual transactions, and they do not reflect dealer
markups, markdowns or commissions.
CLOSING BID
Quarter ended: High Low
- -------------- ---- ---
March 31, 2003 0.05 0.01
June 30, 2003 0.20 0.03
September 30, 2003 0.21 0.20
December 31, 2003 0.30 0.21
March 31, 2004 0.27 0.22
June 30, 2004 0.22 0.15
September 30, 2004 0.18 0.18
December 31, 2004 0.18 0.12
March 31, 2005 0.45 0.22
June 30, 2005 0.22 0.15
Due to the extremely limited volume of trading in our common stock, we do
not believe that the market for our shares may be deemed to be an "established
trading market."
33
Dividends.
---------
The Company has not declared any cash dividends with respect to its
common stock and does not intend to declare dividends in the foreseeable
future. There are no material restrictions limiting, or that are likely to
limit, the Company's ability to pay dividends on its common stock.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Each year, we pay Golden Oak an administration fee, plus expenses.
During 2004, we paid Golden Oak $24,800. As of December 31, 2004, and 2003,
we had unfunded premium financing payables to LCIS of $717,485 and $957,486,
respectively. As of December 31, 2004, and 2003, we had a cancellation
receivable from LCIS of $114,760 and $342,093, respectively.
As of December 31, 2004, we had a note payable to Golden Oak in the
amount of $826,990. The note is payable on demand and bears interest at the
rate of 5.25%. These funds have been used to fund our equipment financing
business.
VOTE REQUIRED FOR APPROVAL OF THE PROPOSALS
The Reverse Stock Split.
------------------------
Section 390 of the NRS provides that every amendment to the articles of
incorporation of a Nevada corporation shall first be adopted by the resolution
of the Board of Directors and then be subject to the approval of persons
owning a majority of the securities entitled to vote on any such amendment.
Sections 315 and 320, respectively, provide that the Board of Directors and
persons owning the required majority of voting securities necessary to adopt
any action that would otherwise be required to be submitted to a meeting of
stockholders, may adopt such action without a meeting by written consent.
Resolutions to amend our Articles of Incorporation to effect the Reverse
Stock Split were unanimously adopted by our Board of Directors and by Golden
Oak, our majority stockholder. Golden Oak owns approximately 52% of our
outstanding voting securities. No other votes or consents are required or
necessary to effect the amendment to our Articles of Incorporation or to adopt
the Reverse Stock Split. The effective date of the Reverse Stock Split will
be on the opening of business on _______, 2005, or 21 days from the mailing of
this Information Statement to our stockholders.
The Merger.
-----------
Because the Birch stockholders will hold shares of LCIS, rather than
Birch shares, after the merger, the NRS requires that we obtain stockholder
approval for the merger. As with the Reverse Stock Split, the vote
requirements for the merger are governed by Sections 315 (directors' approval)
and 320 (stockholder approval) of the NRS. Resolutions to effectuate the
merger were unanimously adopted by our Board of Directors and Golden Oak. No
other votes or consents are required or necessary to adopt the merger. The
effective date of the merger will be on the opening of business on _______,
34
2005, or 21 days from the mailing of this Information Statement to our
stockholders. The merger will take effect immediately after completion of the
Reverse Stock Split.
NOTICE
GOLDEN OAK, THE MAJORITY STOCKHOLDER OF OUR COMPANY, HAS CONSENTED TO THE
REVERSE STOCK SPLIT AND THE MERGER IN ACCORDANCE WITH NEVADA LAW. NO FURTHER
CONSENTS, VOTES OR PROXIES ARE NEEDED, AND NONE ARE REQUESTED.
BY ORDER OF THE BOARD OF DIRECTORS
October 10, 2005 /s/Nelson Colvin
Nelson Colvin, President
35
Appendix A
SECTIONS 92A.300 to 92A.500 OF THE NEVADA REVISED STATUTES
Set forth below are Sections 92A.300 to 92A.500 of the Nevada Revised
Statutes, which provide that stockholders may dissent from, and obtain the
fair value of their shares in the event of certain corporate actions, and
establish procedures for the exercise of such dissenters' rights.
RIGHTS OF DISSENTING OWNERS
NRS 92A.300 Definitions. As used in NRS 92A.300 to 92A.500, inclusive,
unless the context otherwise requires, the words and terms defined in NRS
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those
sections. (Added to NRS by 1995, 2086)
NRS 92A.305 "Beneficial stockholder" defined. "Beneficial stockholder"
means a person who is a beneficial owner of shares held in a voting trust or
by a nominee as the stockholder of record. (Added to NRS by 1995, 2087)
NRS 92A.310 "Corporate action" defined. "Corporate action" means the
action of a domestic corporation. (Added to NRS by 1995, 2087)
NRS 92A.315 "Dissenter" defined. "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and
who exercises that right when and in the manner required by NRS 92A.400 to
92A.480, inclusive. (Added to NRS by 1995, 2087; A 1999, 1631)
NRS 92A.320 "Fair value" defined. "Fair value," with respect to a
dissenter's shares, means the value of the shares immediately before the
effectuation of the corporate action to which he objects, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable. (Added to NRS by 1995, 2087)
NRS 92A.325 "Stockholder" defined. "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation. (Added to NRS by
1995, 2087)
NRS 92A.330 "Stockholder of record" defined. "Stockholder of record"
means the person in whose name shares are registered in the records of a
domestic corporation or the beneficial owner of shares to the extent of the
rights granted by a nominee's certificate on file with the domestic
corporation. (Added to NRS by 1995, 2087)
NRS 92A.335 "Subject corporation" defined. "Subject corporation" means
the domestic corporation which is the issuer of the shares held by a dissenter
before the corporate action creating the dissenter's rights becomes effective
or the surviving or acquiring entity of that issuer after the corporate action
becomes effective. (Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest. Interest payable pursuant to NRS
92A.300 to 92A.500, inclusive, must be computed from the effective date of the
action until the date of payment, at the average rate currently paid by the
entity on its principal bank loans or, if it has no bank loans, at a rate that
is fair and equitable under all of the circumstances. (Added to NRS by 1995,
2087)
NRS 92A.350 Rights of dissenting partner of domestic limited
partnership. A partnership agreement of a domestic limited partnership or,
unless otherwise provided in the partnership agreement, an agreement of merger
or exchange, may provide that contractual rights with respect to the
partnership interest of a dissenting general or limited partner of a domestic
limited partnership are available for any class or group of partnership
interests in connection with any merger or exchange in which the domestic
limited partnership is a constituent entity. (Added to NRS by 1995, 2088)
NRS 92A.360 Rights of dissenting member of domestic limited-liability
company. The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity. (Added to NRS by
1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit
corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his
resignation and is thereby entitled to those rights, if any, which would have
existed if there had been no merger and the membership had been terminated or
the member had been expelled.
2. Unless otherwise provided in its articles of incorporation or
bylaws, no member of a domestic nonprofit corporation, including, but not
limited to, a cooperative corporation, which supplies services described in
chapter 704 of NRS to its members only, and no person who is a member of a
domestic nonprofit corporation as a condition of or by reason of the ownership
of an interest in real property, may resign and dissent pursuant to subsection
1. (Added to NRS by 1995, 2088)
NRS 92A.380 Right of stockholder to dissent from certain corporate
actions and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, any
stockholder is entitled to dissent from, and obtain payment of the fair value
of his shares in the event of any of the following corporate actions:
(a) Consummation of a conversion or plan of merger to which the domestic
corporation is a constituent entity:
(1) If approval by the stockholders is required for the
conversion or merger by NRS 92A.120 to 92A.160, inclusive, or the articles of
incorporation, regardless of whether the stockholder is entitled to vote on
the conversion or plan of merger; or
(2) If the domestic corporation is a subsidiary and is merged
with its parent pursuant to NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic corporation
is a constituent entity as the corporation whose subject owner's interests
will be acquired, if his shares are to be acquired in the plan of exchange.
(c) Any corporate action taken pursuant to a vote of the stockholders to
the extent that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are entitled
to dissent and obtain payment for their shares.
2. A stockholder who is entitled to dissent and obtain payment pursuant
to NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with
respect to him or the domestic corporation. (Added to NRS by 1995, 2087; A
2001, 1414, 3199; 2003, 3189)
NRS 92A.390 Limitations on right of dissent: Stockholders of certain
classes or series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu
of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the
plan of merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National Association
of Securities Dealers, Inc., or held of record by a least 2,000 holders of
owner's interests of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph
(b).
2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require action
of the stockholders of the surviving domestic corporation under NRS 92A.130.
(Added to NRS by 1995, 2088)
NRS 92A.400 Limitations on right of dissent: Assertion as to portions
only to shares registered to stockholder; assertion by beneficial stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer
than all of the shares registered in his name only if he dissents with respect
to all shares beneficially owned by any one person and notifies the subject
corporation in writing of the name and address of each person on whose behalf
he asserts dissenter's rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his
other shares were registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares
held on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
(b) He does so with respect to all shares of which he is the beneficial
stockholder or over which he has power to direct the vote. (Added to NRS by
1995, 2089)
NRS 92A.410 Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, the notice of the meeting must
state that stockholders are or may be entitled to assert dissenters' rights
under NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy of those
sections.
2. If the corporate action creating dissenters' rights is taken by
written consent of the stockholders or without a vote of the stockholders, the
domestic corporation shall notify in writing all stockholders entitled to
assert dissenters' rights that the action was taken and send them the
dissenter's notice described in NRS 92A.430. (Added to NRS by 1995, 2089; A
1997, 730)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is
submitted to a vote at a stockholders' meeting, a stockholder who wishes to
assert dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1
and NRS 92A.400 is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089; 1999, 1631)
NRS 92A.430 Dissenter's notice: Delivery to stockholders entitled to
assert rights; contents.
1. If a proposed corporate action creating dissenters' rights is
authorized at a stockholders' meeting, the subject corporation shall deliver a
written dissenter's notice to all stockholders who satisfied the requirements
to assert those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to what
extent the transfer of the shares will be restricted after the demand for
payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the subject corporation must receive the demand
for payment, which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 Demand for payment and deposit of certificates; retention of
rights of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
(b) Certify whether he or the beneficial owner on whose behalf he is
dissenting, as the case may be, acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates,
if any, before the proposed corporate action is taken retains all other rights
of a stockholder until those rights are cancelled or modified by the taking of
the proposed corporate action.
3. The stockholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the dissenter's
notice, is not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2090; A 1997, 730; 2003, 3189)
NRS 92A.450 Uncertificated shares: Authority to restrict transfer after
demand for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are cancelled or modified by the taking of the proposed corporate
action. (Added to NRS by 1995, 2090)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is located;
or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement of
income for that year, a statement of changes in the stockholders' equity for
that year and the latest available interim financial statements, if any;
(b) A statement of the subject corporation's estimate of the fair value
of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive. (Added to NRS by 1995,
2090)
NRS 92A.470 Payment for shares: Shares acquired on or after date of
dissenter's notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment,
after taking the proposed action, it shall estimate the fair value of the
shares, plus accrued interest, and shall offer to pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
subject corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenters' right to demand payment
pursuant to NRS 92A.480. (Added to NRS by 1995, 2091)
NRS 92A.480 Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value
of his shares and interest due, if he believes that the amount paid pursuant
to NRS 92A.460 or offered pursuant to NRS 92A.470 is less than the fair value
of his shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this
section unless he notifies the subject corporation of his demand in writing
within 30 days after the subject corporation made or offered payment for his
shares. (Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and
petition the court to determine the fair value of the shares and accrued
interest. If the subject corporation does not commence the proceeding within
the 60-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it
shall commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy
of the petition. Nonresidents may be served by registered or certified mail or
by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or any amendment thereto. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to
a judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject corporation;
or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant
to NRS 92A.470. (Added to NRS by 1995, 2091)
NRS 92A.500 Legal proceeding to determine fair value: Assessment of
costs and fees.
1. The court in a proceeding to determine fair value shall determine
all of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily, vexatiously or
not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with the
requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the subject
corporation, the court may award to those counsel reasonable fees to be paid
out of the amounts awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may
assess the costs against the subject corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court
finds that such parties did not act in good faith in instituting the
proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115. (Added to NRS by 1995, 2092)