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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 3)
SEVEN J STOCK FARM, INC.
Common Stock, $1 par value
CUSIP # 817851-10-8
John R. Parten, R.F. Pratka, William C. Bennett and Bruce Franke, Filing Persons
John R. Parten, President
Seven J Stock Farm, Inc.
16945 Northchase Drive, Suite 1800
Houston, Texas 77060
281-874-2101
This statement is filed in connection with (check the appropriate box):
a. /X/ The filing of solicitation materials or an information statement
subject to Regulation 14A (Sections 240.14a-1 through 240.14b-2),
Regulation 14C (Sections 240.14c-1 through 240.14c-101) or Rule 13e-
3(c)(Section 240.13e-3(c)) under the Securities Exchange Act of 1934
("the Act").
b. / / The filing of a registration statement under the Securities Act of
1933.
c. / / A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: / /
Check the following box if the filing is a final amendment reporting the results
of the transaction: / /
Calculation of Filing Fee
Transaction Valuation* Amount of Filing Fee
- --------------------------------------------------------------------------------
$ 225,620 $ 18.25
* The "Transaction Valuation" amount referred to above is approximately the
product of 58,000 fractional shares of old common stock to be purchased and
$3.89, the cash price per share to be paid for fractional shares of old common
stock.
** In accordance with Rule 0-11 under the Securities Act of 1934, as amended,
the Filing Fee is determined by multiplying the Transaction Valuation by
..0000809.
/X/ Check the box if any part of the fee is offset as provided by Section
240.0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
Amount Previously Paid: $18.61
Form or Registration Number: Schedule 14A, preliminary proxy statement
Filing Party: Seven J Stock Farm, Inc.
Date Filed: November 6, 2002
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INTRODUCTION
This Third Amended Going-Private Transaction Statement (the "Statement") is
being filed by SEVEN J STOCK FARM, INC., a Texas corporation (the "Company")
and John R. Parten, R.F. Pratka, William C. Bennett and Bruce Franke
(collectively the "Directors" and with the Company, the "Filing Persons")
jointly as filing persons, pursuant to Section 13(e) of the Securities
Exchange Act of 1934 (the "Exchange Act"), as amended and Rule 13e-3
thereunder in connection with a 1 for 1,000 reverse split of the Company's
common stock, par value $1 (the "Old Common Stock"), with a cash payment of
$3.89 per share of Old Common Stock in lieu of fractional shares (the
"Reverse Stock Split"). This Statement is intended to satisfy the reporting
requirements by each filing person of Section 13(e) of the Exchange Act.
A definitive proxy statement of the Company relating to the solicitation of
proxies for the Special Meeting of the Shareholders (the "Proxy Statement")
is being filed concurrently with this filing. Except as otherwise set forth
below, the information set forth in the Proxy Statement, including all
appendices thereto, is hereby expressly incorporated herein by reference in
response to the items of this Schedule 13e-3.
The Company will not solicit proxies over the Internet. The Company does not
currently have any other written solicitation materials. If the Company creates
any further materials, such other all written soliciting materials used to
solicit proxies will be filed under cover of the Proxy Statement.
Item 1. SUMMARY TERM SHEET
This summary describes the most material terms of the proposed Reverse Stock
Split and may not contain all of the information that is important to you. To
better understand the terms and conditions of the Reverse Stock Split, as well
as the consequent amendments to our Articles of Incorporation, you should
carefully read this entire document and the Proxy Statement, their attachments
and the other documents to which we refer.
Please refer to the Proxy Statement under the caption "PROXY STATEMENT FOR
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD SEPTEMBER 24, 2003" for additional
Information about the time, place and date of meeting.
o The one for one thousand Reverse Stock Split and purchase of fractional
shares resulting has been unanimously approved by our Board of Directors
and is proposed to take us private by reducing the number of shareholders
of record to fewer than 300, thereby: (i) relieving us of the costs of
filing public documents, (ii) relieving the Company from the ongoing and
increasing risks and obligations of regulation under the Securities
Exchange Act of 1934, as amended, and (iii) allowing us to continue our
long-term business plans.
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Please refer to the discussion set forth in the Proxy Statement under the
caption "PURPOSE AND REASONS FOR THE REVERSE STOCK SPLIT."
o If the Reverse Stock Split is approved by the shareholders and implemented:
-Each share of Old Common Stock will be exchanged for 1/1,000 of a share of
new common stock, par value $1,000 (the "New Common Stock").
-No new certificates representing fractional shares will be issued.
Instead, fractional shares will be purchased from holders at a rate of $3.89 per
whole share of Old Common Stock. This transaction will not involve commissions
or transaction fees that would be charged if you sold shares on the open market.
We estimate that up to an aggregate of approximately $225,620 will be paid to
approximately 730 of our shareholders for their resulting fractional shares.
A detailed discussion is set forth in the Proxy Statement under the
captions "EXCHANGE OF CERTIFICATES AND PAYMENT OF FRACTIONAL SHARES,"
"CERTAIN EFFECTS OF REVERSE STOCK SPLIT PROPOSAL ON THE COMPANY'S
SHAREHOLDERS," and "FEDERAL INCOME TAX CONSEQUENCES."
o Our Articles of Incorporation will be amended to reduce the number of
authorized shares of our Old Common Stock in the same one for one thousand
ratio, from 1,500,000 shares to 1,500 authorized shares, which is in
proportion to the Reverse Stock Split.
See the information set forth in the Proxy Statement under the caption
"SPECIAL FACTORS."
o If the Reverse Stock Split is approved, after the transaction is
completed, we estimate we will have approximately 33 shareholders, which
is fewer than 300 shareholders of record of our New Common Stock
remaining. Therefore registration of our Old Common Stock under the
Securities Exchange Act of 1934, as amended, will be terminated. As a
result, after the registration is terminated, our Old Common Stock will no
longer be traded over-the-counter in the Pink Sheets, and there will be no
public market for the New Common Stock.
See the Proxy Statement under the caption "CERTAIN EFFECTS OF REVERSE
STOCK SPLIT PROPOSAL ON THE COMPANY'S SHAREHOLDERS."
o Additionally, once our registration is terminated, we will not have to
provide our shareholders with information that we currently provide, such
as annual, quarterly and other reports required to be filed by us with the
Securities and Exchange Commission (the "SEC").
See the Proxy Statement under the caption "CERTAIN EFFECTS OF REVERSE
STOCK SPLIT PROPOSAL ON THE COMPANY'S SHAREHOLDERS."
o Under Texas law, the law governing the Reverse Stock Split, you do not
have the right to demand the appraised value of your shares (dissenter's
rights) if you vote against the proposed transaction.
More detailed information is set forth in the Proxy Statement under the
caption "APPRAISAL RIGHTS AND DISSENTER'S RIGHTS."
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Item 2. Subject Company Information
(a) NAME AND ADDRESS. Seven J Stock Farm, Inc. is a Texas corporation with
its principal place of business located at 16945 Northchase, Suite 1800,
Houston, Texas 77060-2151. The telephone number of its principal place of
business is 281-874-2101.
(b) SECURITIES. As of August 1, 2003, Seven J Stock Farm, Inc. had
1,451,000 shares of issued and outstanding Old Common Stock, par value $1.00.
(c) TRADING MARKET AND PRICE. The Company's securities are not traded on
any public exchange, but are traded over the counter in the Pink Sheets. There
is no established trading market for the securities, except for limited or
sporadic quotations. The prices reflect interdealer prices without retail
mark-ups, markdowns or commissions, and may not necessarily represent actual
transactions. The high and low trading prices for the previous two years are as
follows:
QUARTER 2003 2002 2001
High Low High Low High Low
-------------------------------------------------------
First $4.008 $3.509 $2.50 $2.50 $3.00 $3.00
Second $4.008 $3.01 $3.50 $2.50 $3.00 $2.00
Third $4.008 $3.125 $3.50 $3.50 $3.00 $2.00
Fourth $3.50 $3.45 $2.50 $2.50
(d) DIVIDENDS. The Company has not paid any dividends with respect to any
of its securities during the fiscal years ended October 31, 2002 and 2001.
Although no restrictions exist for the payment of dividends, any future payment
of cash dividends will depend upon the Company's earnings, financial condition,
capital requirements, and other factors deemed relevant by the Board of
Directors.
(e) PRIOR PUBLIC OFFERINGS. The Company has not made any underwritten
public offerings for cash in the past three years.
(f) PRIOR STOCK PURCHASES. The Company has not purchased any of the subject
securities in the past two years.
Item 3. Identity and Background of Filing Person
(a) NAME AND ADDRESS. The filing persons are the subject company, Seven J
Stock Farm, Inc., 16945 Northchase Drive, Suite 1800, Houston, Texas 77060,
phone number is 281-874-2101, and the following affiliates:
John R. Parten, director and shareholder
16945 Northchase Drive, Suite 1800
Houston, Texas 77060
281-874-2101
R.F. Pratka, director and shareholder
16945 Northchase Drive, Suite 1800
Houston, Texas 77060
281-874-2101
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William C. Bennett, director and shareholder
P.O. Box 666
Madisonville, Texas 77864
936-348-2711
Bruce Franke, director and shareholder
P.O. Box 557
Willis, Texas 77378
936-856-3040
The executive officers of the Company are:
John R. Parten, Chairman of the Board and President
16945 Northchase Drive, Suite 1800
Houston, Texas 77060
281-874-2101
R.F. Pratka, Vice President and Treasurer
16945 Northchase Drive, Suite 1800
Houston, Texas 77060
281-874-2101
Virginia O. Cortinas, Secretary
16945 Northchase Drive, Suite 1800
Houston, Texas 77060
281-874-2101
The Board of Directors of the Company are:
John R. Parten
16945 Northchase Drive, Suite 1800
Houston, Texas 77060
281-874-2101
R.F. Pratka
16945 Northchase Drive, Suite 1800
Houston, Texas 77060
281-874-2101
William C. Bennett
P.O. Box 666
Madisonville, Texas 77864
936-348-2711
Bruce Franke
P.O. Box 557
Willis, Texas 77378
936-856-3040
(b) BUSINESS AND BACKGROUND OF ENTITIES. Not applicable.
(c) BUSINESS AND BACKGROUND OF NATURAL PERSONS.
John R. Parten is currently a Director, President and Chairman of
the Company. His principal occupation is the President and Director of
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Parten Operating, Inc. located at 16945 Northchase Drive, Suite 1800,
Houston, TX 77060 (1997-Present). Parten Operating, Inc. is an operator of
96 oil and gas wells in Houston County, Texas and surrounding counties. In
the past five years he has also been a director of the Madison Pipe Line
Company, a wholly-owned subsidiary of the Company engaged in natural gas
gathering and compression (1997-Present), Trinity Valley Pecan Company, a
50% subsidiary of the Company engaged in pecan processing and seasonal
gift pack sales (1998-Present), Farmers Oil Company, an oil and gas
exploration company focused in the East Texas area (1997-Present), Rainbow
Pipe Line Company, a natural gas gathering and compression company
(1997-Present), The Parten Foundation, a charitable foundation
(1997-Present), and Saturn Gas Systems (a vehicle lessor and operator of a
fueling station), each of which is located at 16945 Northchase Drive,
Suite 1800, Houston, TX 77060.
R. F. Pratka is currently a Director, Vice President and Treasurer
of the Company (1997-Present). His principal occupation is Co-Trustee of
the J. R. Parten Ranch Trust, a testamentary trust established under the
will of Jubal R. Parten, founder of the Company, engaged in the business
of buying hay, owning ranch land adjacent to the Company in Houston
County, Texas and owning certain gas royalty interests (1998-Present). In
the past five years he has also been a director of the Madison Pipe Line
Company (1997-Present), Trinity Valley Pecan Company (1997-Present),
Farmers Oil Company (1997-Present), Rainbow Pipe Line Company
(1997-Present) and The Parten Foundation (1997-Present), each of which is
located at 16945 Northchase Drive, Suite 1800, Houston, TX 77060.
William C. Bennett is currently a Director and Shareholder of the
Company. His principal occupation is President and Director of the
Madisonville State Bank located at P.O. Box 666, Madisonville, Texas 77864
(1997-Present). Madisonville State Bank is a state chartered bank in
Madisonville, Texas. Additionally, in the past five years he has been a
director for the Madison St. Joseph Health Center, a local hospital in
Madisonville, Texas (1997-Present), Brazos Valley Affordable Housing
Corp., a local low income housing authority (1997-Present) and the
Director and President of the Madison County Economic Development
Corporation, a local economic development agency (1997-Present).
Bruce Franke is currently a Director of the Company (2002). His
principal occupation for the last five years is one of the owners of
Franke Interests, a company that owns working and royalty interests in oil
and gas wells in Texas, located at P.O. Box 557, Willis, Texas 77378. Mr.
Franke also serves on the Board of Directors of Central Natural Resources,
a company engaged in oil and gas, real estate holdings, coal reserves and
stock equities businesses, located in Kansas City, Missouri
(1997-Present).
Virginia O. Cortinas was elected Secretary of the Company on March
20, 2001. Her principal occupation for the last five years has been as an
assistant to John R. Parten. For the past five years, she has served as
the Vice President and Director of Parten Operating, Inc. located at 16945
Northchase Drive, Suite 1800, Houston, TX 77060 (1997-Present). She is
also on the Board of Directors of Farmers Oil Company (1997-Present),
Rainbow Pipe Line Company (1997-Present) and Saturn Gas Systems, Inc., a
vehicle lessor and fueling station operator in Sand Ridge, Texas
(1997-Present).
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None of the Company's executive officers or directors was convicted in a
criminal proceeding during the past five years (excluding traffic violations or
similar misdemeanors).
None of the Company's executive officers or directors has been a party to a
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.
All of the Company's executive officers and directors are citizens of the
United States.
(d) TENDER OFFER. Not applicable.
Item 4. TERMS OF THE TRANSACTION
(a) TERMS. The Board of Directors of the Company has approved for
presentation to and approval of the shareholders of the Company an amendment to
its Articles of Incorporation that would effect a one for one thousand Reverse
Stock Split of its Old Common Stock. A copy of the proposed amendment to the
Articles of Incorporation is attached as an exhibit to the Proxy Statement.
Pursuant to the proposed amendment, each holder of 1,000 shares of the Company's
Old Common Stock will receive one share of the Company's New Common Stock. All
shareholders holding fractional shares as of the effective date of the Reverse
Stock Split will receive a cash payment for their fractional shares equal to
$3.89 per share of Old Common Stock in lieu of fractional shares.
Approval of the transaction will require the affirmative vote of
two-thirds of the shares present, in person or by proxy, at the Special Meeting.
Mr. Parten, the President and a member of the Board of Directors owns 74.25% of
the issued and outstanding Old Common Stock.
Refer to the information set forth in the Proxy Statement under the
captions "PURPOSE AND REASONS FOR THE REVERSE STOCK SPLIT," "EXCHANGE OF
CERTIFICATES AND PAYMENT OF FRACTIONAL SHAREHOLDERS, and "CERTAIN EFFECTS OF THE
REVERSE STOCK SPLIT ON THE COMPANY'S SHAREHOLDERS" and "FEDERAL INCOME TAX
CONSEQUENCES."
(b) DIFFERENT TERMS. There are no terms or arrangements in the transaction
that treat any holders of Old Common Stock differently from other holders of Old
Common Stock.
(c) APPRAISAL RIGHTS. The shareholders do not have the right to demand the
appraised value of their shares (dissenter's rights) in conjunction with the
proposed transaction.
Refer to the information set forth in the Proxy Statement under the
caption "APPRAISAL RIGHTS AND DISSENTER'S RIGHTS."
(d) PROVISIONS FOR UNAFFILIATED SECURITIES HOLDERS. Unaffiliated securities
holders will have the right to request copies of the HFBE fairness opinion from
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Howard, Frazier, Barker & Elliot, Inc. ("HFBE")and the underlying appraisals
from James Connor Smith ("Smith"), B.P. Huddleston & Co., Inc. ("Huddleston")
and Hawkins, James & Still Equipment Co. ("Hawkins") and will have all rights of
inspection of the books and records of the Company that they currently have
under applicable Texas statutes.
Refer to the information set forth in the Proxy Statement under the
caption "REPORTS RELATING TO THE REVERSE STOCK SPLIT."
(e) ELIGIBILITY FOR LISTING OR TRADING. Following the Reverse Stock Split,
no securities of the Company will be eligible for trading on an
automated quotations system or over the counter.
(f) PURCHASES. Certain officers, directors and affiliated persons own stock
in the Company and will have their shares converted or cashed out
pursuant to the terms and conditions of the Reverse Stock Split as
follows:
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Shares Shares
Name Total Shares Cashed Out Converted
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Farmers Oil Company(1) 29,457 457 29,000
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Betty Anne Franke Trust(2) 58,614 614 58,000
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John R. Parten (3)(4) 1,077,425 425 1,077,000
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Bruce Franke (4) 84 84 0
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William C. Bennett (4) 142 142 0
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Robert F. Pratka (3)(4) 131 131 0
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(1) Farmers Oil Company is an affiliate. Its majority shareholder is John R.
Parten.
(2) Bruce Franke is the life expectancy beneficiary of the Betty Anne Franke
Trust.
(3) Executive officer of the Company.
(4) Director of the Company.
Item 5. PAST CONTRACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS
(a) TRANSACTIONS. John R. Parten and Robert F. Pratka, officers, directors
and shareholders of the Company are co-trustees of the J.R. Parten Ranch Trust,
a trust created under the will of J.R. Parten, as well as several oil and gas
pipeline and operating companies, and certain ranch land ventures.
Information concerning guarantees of certain debts and ranch leases and
ventures with related parties, and other sales transactions concerning the
products of the Company are also disclosed in the Form 10-KSB for the year ended
October 31, 2002, in "Business" and "MD&A" and also in the notes to consolidated
financial statements all incorporated hereto by reference to the Form 10-KSB for
the year ended October 31, 2002, as amended.
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The following is a description of significant related party transactions
for the fiscal years ended October 31, 2002 and 2001:
YEAR ENDED
OCTOBER 31,
2002 2001
-------- --------
(in thousands)
DESCRIPTION OF RELATED PARTY TRANSACTIONS:
50% share in revenue from gathering systems
operated by pipeline company owned by
John R. Parten $ 515 $ 632
50% share of operating expenses of gathering
systems operated by pipeline company owned
by John R. Parten $ 384 $ 531
Net oil and gas royalties from companies
owned by a current stockholder and
by a company owned by John R. Parten $ 228 $ 308
Ranch lease rentals received from the J.R.
Parten Ranch Trust created under the will
of J.R. Parten $ 100 $ 100
Farm produce sales received from the J.R.
Parten Ranch Trust $ 91 $ 83
Allocated salaries, payroll taxes,
office rent, and other operating expenses by
the J.R. Parten Ranch Trust $ 38 $ 36
Rental income received from:
Pipeline company owned by John R. Parten $ 8 $ 8
Company owned by John R. Parten $ 37 $ 37
Other related parties $ 10 $ 10
Trinity Valley Pecan Co. $ 18 $ 18
The Company borrowed $610,000 on October 28, 2002 from Capital Farm
Credit at 6.65% annual interest pursuant to a 15-year note (the "Note").
Approximately $200,000 of the Note will be used to fund the repurchase of shares
pursuant to this going private transaction. The Company advanced $400,000 as
capital to Trinity Valley Pecan Company, an entity in which the Company has a
50% ownership interest, in connection with transactions not related to the
Reverse Stock Split. The capital contribution allowed Trinity Valley Pecan
Company to repay certain outstanding bank debt (on which the Company was a
guarantor) and outstanding payables, including approximately $120,000 in
outstanding payables owed to the Company. Simultaneously with the loan
transaction, the Company paid off a note in the original principal amount of
$210,000 with the proceeds from the outstanding payables owed to the Company and
cash flow from the Company. John R. Parten, the President and Chairman of the
Board of the Company personally guaranteed the Note and was a guarantor on the
$210,000 note that was repaid. The other 50% owner of Trinity Valley Pecan
Company previously advanced an additional $400,000 in capital.
The information set forth in the Form 10-KSB for the year ended October
31, 2002 under the caption "DESCRIPTION OF BUSINESS" is incorporated herein by
reference.
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(b) SIGNIFICANT CORPORATE EVENTS. None.
(c) NEGOTIATIONS OR CONTACTS. None.
(d) AGREEMENTS INVOLVING THE SUBJECT COMPANY'S SECURITIES. None.
Item 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS
(a) USE OF SECURITIES ACQUIRED. Outstanding shares of the Company's Old
Common Stock, par value $1.00, that would otherwise be converted into a
fractional share of the Company's New Common Stock, $1,000 par value, will be
cancelled; otherwise, no securities will be acquired in the transaction.
(b) PLANS.
1) There are no plans, proposals or negotiations that might result in
any extraordinary transactions involving the Company or its subsidiaries, aside
from the going private transaction described herein.
2) There are no plans, proposals or negotiations that might result in
any purchase, sale or transfer of a material amount of assets of the Company.
3) There are no plans, proposals or negotiations that might result in
any change in the present dividend rate or policy, or any indebtedness or
capitalization of the Company.
4) There are no plans, proposals or negotiations that might result in
any change in the present board of directors or management of the Company except
in the normal course of board member retirement and replacement.
5) There are no plans, proposals or negotiations that might result in
any change in the Company's corporate structure or business.
6) The securities of the Company are not currently listed on any
national securities exchange or quoted on an automated quotations system
operated by a national securities association.
7) The Company has only one class of securities, and, if the Reverse
Stock Split is approved, the transaction will result in the securities becoming
eligible for termination of registration under Section 12(g)(4) of the Act.
8) If the transaction is approved, the Company's obligation to file
periodic reports under Section 15(d) of the Act will be suspended.
Item 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS
a) PURPOSES.
Refer to the information set forth in the Proxy Statement under the
caption "PURPOSE AND REASONS FOR THE REVERSE STOCK SPLIT."
b) ALTERNATIVES.
Refer to the information set forth in the Proxy Statement under the
captions "BOARD OF DIRECTORS DETERMINATION", "PRICE RANGE OF COMMON STOCK AND
DIVIDENDS" and "FAIRNESS OF THE REVERSE STOCK SPLIT PROPOSAL."
c) REASONS.
Refer to the information set forth in the Proxy Statement under the
caption "PURPOSE AND REASONS FOR THE REVERSE STOCK SPLIT."
d) EFFECTS.
Refer to the information set forth in the Proxy Statement under the
captions "EXCHANGE OF CERTIFICATES AND PAYMENT OF FRACTIONAL SHARES," "CERTAIN
EFFECTS OF REVERSE STOCK SPLIT PROPOSAL ON THE COMPANY'S SHAREHOLDERS," and
"FEDERAL INCOME TAX CONSEQUENCES."
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Item 8. FAIRNESS OF THE TRANSACTION
(a) FAIRNESS.
Refer to the information set forth in the Proxy Statement under the
caption "FAIRNESS OF THE REVERSE STOCK SPLIT PROPOSAL."
(b) FACTORS CONSIDERED IN DETERMINING FAIRNESS.
Refer to the information set forth in the Proxy Statement under the
caption "FAIRNESS OF THE REVERSE STOCK SPLIT PROPOSAL."
(c) APPROVAL OF SECURITY HOLDERS. The transaction does not require the
approval of a majority of the unaffiliated shareholders voting as a separate
class. The transaction will require the approval of two-thirds of the shares
present in person or by proxy at the Special Meeting.
(d) UNAFFILIATED REPRESENTATIVE. A majority of the directors who are not
employees of the Company have not retained an unaffiliated representative to act
solely on behalf of unaffiliated shareholders for purposes of negotiating the
terms of this transaction. Proxy statements for approximately 370 of the 730
shareholders of the Company who would receive fractional shares have been
returned with incorrect addresses at least two consecutive years. Due to the
large number of unaffiliated shareholders that the Company cannot locate, the
Board determined that it was not practical to retain an unaffiliated
representative to act solely on behalf of unaffiliated shareholders.
(e) APPROVAL OF DIRECTORS. This transaction was unanimously approved by the
Directors, including all directors who are not employees of the Company.
(f) OTHER OFFERS. There have been no firm offers made by an unaffiliated
person during the last two years to merge or consolidate with the Company,
acquire significant part of the Company's assets, or acquire a controlling
interest of the Company's securities.
Item 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS
(a) REPORT, OPINION OR APPRAISAL.
Refer to the information set forth in the Proxy Statement under the
captions REPORTS RELATING TO THE STOCK SPLIT and in Exhibits (c)(1)-(8) attached
hereto.
(b) PREPARER AND SUMMARY OF THE REPORT, OPINION OR APPRAISAL.
Refer to the information set forth in the Proxy Statement under the
caption REPORTS RELATING TO THE STOCK SPLIT and in Exhibits (c)(1)-(8) attached
hereto.
(c) AVAILABILITY OF DOCUMENTS.
The original reports of HFBE, Smith, Huddleston and Hawkins are
attached as Exhibits (c)(1)-(4) hereto. The amended reports of HFBE and
Huddleston are attached as Exhibits (c)(5), (6), (7) and (8). The original and
amended reports are also available for inspection and copying at the principal
executive offices of the Company during regular business hours by any interested
security holder of the Company or their representative who has been so
designated in writing. These reports consist of all the materials reviewed by
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the Board of Directors and there were no other board books, experts or other
underlying materials. In addition, the Company will provide a copy of the
reports to any interested equity security holder of the Company or their
representative who has been so designated in writing upon written request at the
expense of the requesting security holder.
Item 10. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) The Company has arranged for a loan to finance most of the payments for
fractional shares. The Company believes that if additional cash is required, it
will be able to used existing cash flow to pay the purchase price and related
expenses.
(b) The Company completed the loan transaction on October 28, 2002, and
there are no outstanding material conditions to complete the financing. The
Company has no alternative financing plans.
(c) The cost of the transaction is expected to be approximately $216,500,
not including the payment to cashed out shareholders. The expenses of the
transaction are estimated as follows:
Legal fees $103,500
Solicitation materials $ 5,000
Valuation expenses $ 46,500
Accounting expenses $ 56,500
Mailing expenses $ 5,000
-------------------------------------------
Total $ 216,500
On November 20, 2002, the Company received a current report from CEDE &
Company showing the actual individual holdings as of November 7, 2002 held by
CEDE. Based on this report and internal Company shareholder records, the Company
has determined that as of November 7, 2002, approximately 58,000 shares of Old
Common Stock will be cashed out. If the transaction were completed as of
November 7, 2002, the cash payment that would have been issued to cashed out
shareholders would have been $225,620 based on 58,000 shares of stock being
cashed out at $3.89 per share. The actual number of shares to be purchased will
depend on the shareholders of record on the final record date established by the
Company.
(d) The Company borrowed $610,000 on October 28, 2002 from Capital Farm
Credit pursuant to a 15-year note (the "Note") secured by real estate of the
Company. The stated interest rate of the Note is 6.650% and the effective
interest rate is 6.8287%. Of the $610,000 borrowed, approximately $200,000 will
be used to fund the repurchase of shares. The Company plans to repay the Note
out of the operating cash flow of the Company.
The remaining proceeds of the Note have been contributed to Trinity
Valley Pecan Company, an entity in which the Company has a 50% ownership
interest, in connection with transactions not related to the Reverse Stock
Split. The Company contributed capital of $400,000 to Trinity Valley Pecan
Company in two installments: $156,683.34 on October 29, 2002 and $243,316.66 on
October 31, 2002. The capital contribution allowed Trinity Valley Pecan Company
to repay certain outstanding bank debt (on which the Company was a guarantor)
and outstanding payables, including approximately $120,000 in outstanding
12
<Page>
payables owed to the Company. The other 50% owner of Trinity Valley Pecan
Company previously contributed an additional $400,000 in capital.
Item 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY
(a) SECURITIES OWNERSHIP.
The information set forth in the Proxy Statement under the caption
"OWNERSHIP OF VOTING SECURITIES OF THE COMPANY" is incorporated herein by
reference.
(b) SECURITIES TRANSACTIONS. None.
Item 12. THE SOLICITATION OR RECOMMENDATION
As all of the Directors believe this transaction is in the best interests of the
Company and all of its unaffiliated shareholders, and all of the Directors
intend to vote their shares in favor of this transaction. The Board of Directors
controls approximately 74.28% of the issued and outstanding stock of the
Company.
No Director or executive officer has made a recommendation separate from the
unanimous resolutions adopted by the directors either in support of or opposed
to this transaction to any other party.
Item 13. FINANCIAL STATEMENTS.
Audited financial statements for the two previous fiscal years required to be
filed with the Company's most recent annual report under Sections 13 and 15(d)
of the Exchange Act, have been filed with the Company's most recent annual
report on Form 10-KSB for the fiscal year ended October 31, 2002, found under
the heading Item 7 Financial Statements. The financial statements for the
quarters ended January 31, 2003 and April 30, 2003 have been filed on Forms
10-QSB, also found under the heading Item 1, Financial Statements. The financial
statements in the Form 10-KSB for the year ended October 31, 2002, and in the
Forms 10-QSB for the quarters ended January 31, 2003 and April 30, 2003 are
incorporated herein by reference. The Annual Report on Form 10-KSB was filed on
January 29, 2003 and amended in June 2003, the Form 10-QSB for the quarter ended
January 31, 2003 on March 17, 2003, and the Form 10-QSB for the quarter ended
April 30, 2003 on June 17, 2003. The Annual Report for the year ended October
31, 2002 is included with the mailing of the proxy statement to shareholders.
Copies of the Company's reports are available for review from the EDGAR filings
obtained through the SEC's Internet Website (http://www.sec.gov). Upon request
to the Company's offices at 16945 Northchase Drive, Suite 1800, Houston, Texas
77060, phone 281-874-2101, the Company will provide to any shareholder of the
Company, without charge, a copy of any and all documents filed with the SEC
incorporated by reference herein that are not included with this Proxy
Statement.
In addition to the financial statements incorporated by reference, supplementary
financial information follows:
13
<Page>
SEVEN J STOCK FARM, INC. AND
SUBSIDIARY
PRO FORMA CONSOLIDATED
BALANCE SHEET
(IN THOUSANDS EXCEPT FOR
SHARE DATA)
APRIL 30, 2003
<Table>
<Caption>
Pro Forma
Adjustments
Historical * ** Pro Forma
------------ ---------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 165 $ (72) $ 93
Accounts receivable - trade 28 -- 28
Accounts receivable - related parties 177 -- 177
Deferred income taxes 20 -- 20
Other current assets 1 -- 1
------- ------- -------
TOTAL CURRENT ASSETS 391 (72) 319
PROPERTY AND EQUIPMENT, net 1,476 -- 1,476
OTHER ASSETS 55 -- 55
------- ------- -------
TOTAL ASSETS $ 1,922 $ (72) $ 1,850
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 95 -- $ 95
Accounts payable - related parties 104 -- 104
Bank overdrafts 8 154 162
Accrued expenses 40 -- 40
Accrued taxes other
than income taxes 23 -- 23
Accrued income taxes 5 -- 5
Note payable 1 -- 1
Current maturities of long-term debt 36 -- 36
------- ------- -------
TOTAL CURRENT
LIABILITIES 312 154 466
</Table>
14
<Page>
<Table>
<Caption>
LONG-TERM DEBT 625 -- 625
DEFERRED INCOME TAXES 39 -- 39
ACCRUED LOSS CONTINGENCY FOR 50% OWNED AFFILIATE 246 -- 246
DEFERRED REVENUES 3 -- 3
------- ------- -------
TOTAL LIABILITIES 1,225 154 1,379
SHAREHOLDERS' EQUITY
Common stock 1,451{A1} (58) 1,393{B1}
Accumulated deficit (754) (168) (922)
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY 697 (226) 471
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,922 $ (72) $1850
======= ======= =======
BOOK VALUE PER SHARE $ 0.48{A2} $338.12{B2}
======= =======
</Table>
15
<Page>
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
FOR THE YEAR ENDED OCTOBER 31, 2002
<Table>
<Caption>
Pro Forma
Historical, Adjustments
as restated * ** Pro Forma
--------------- --------------- -------------
REVENUES
Pipeline operations $ 515 -- $ 515
Net oil and gas royalties 228 -- 228
Ranch lease rentals 199 -- 199
Farm produce sales 393 -- 393
Contract and irrigation service 39 -- 39
Other revenues -- -- --
------ ------ ------
TOTAL REVENUES 1,374 -- 1,374
COSTS AND EXPENSES
Operating expenses 740 -- 740
General and administrative expenses 302 -- 302
Depreciation, amortization, and impairment 170 -- 170
Equity in loss of 50% owned affiliate 73 -- 73
Interest expense 14 -- 14
Taxes - other than income taxes 45 -- 45
------ ------ ------
TOTAL COSTS AND EXPENSES 1,344 -- 1,344
INCOME BEFORE BENEFIT FOR INCOME TAXES 30 -- 30
INCOME TAX BENEFIT (PROVISION) 37 -- 37
------ ------ ------
NET INCOME $ 67 -- $ 67
====== ====== ======
NET INCOME PER SHARE - BASIC AND DILUTED $(0.05){A3} $(48.10){B3}
====== =======
</Table>
16
<Page>
SEVEN J STOCK FARM, INC. AND SUBSIDIARY PRO FORMA
CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS EXCEPT FOR
SHARE DATA) FOR THE SIX MONTHS ENDED APRIL 30, 2003
<Table>
<Caption>
Pro Forma
Adjustments
Historical *, ** Pro Forma
--------------- --------------- --------------
REVENUES
Pipeline operations $ 327 -- $ 327
Net oil and gas royalties 118 -- 118
Ranch lease rentals 95 -- 95
Farm produce sales 29 -- 29
Contract and irrigation service 13 -- 13
Other revenues 3 -- 3
----- ----- -----
TOTAL REVENUES 585 -- 585
COSTS AND EXPENSES
Operating expenses 433 -- 433
General and administrative expenses 201 -- 201
Depreciation, amortization, and impairment 86 -- 86
Equity in loss of 50% owned affiliate 28 -- 28
Interest expense 22 -- 22
Taxes - other than income taxes 23 -- 23
----- ----- -----
TOTAL COSTS AND EXPENSES 793 -- 793
LOSS BEFORE PROVISION FOR INCOME TAXES (208) (208)
INCOME TAX
BENEFIT 7 -- 7
----- ----- -----
NET
LOSS $(201) -- $(201)
===== ===== =====
NET LOSS PER SHARE - BASIC AND DILUTED $(0.14){A3} $(144.29){B3}
====== ========
</Table>
17
<Page>
*The pro forma adjustments above represent the adjustments reflecting the
approval of the 1000 for 1 reverse stock split in which each share of $1 par
value Old Common Stock is reclassified into 1/1000 of a share of $1,000 par
value New Common Stock. As part of the reverse stock split, 58,000 fractional
shares are to be cashed-out and payments made to shareholders in lieu of
fractional shares at a per share price of $3.89 totaling $225,620. The pro forma
adjustment of $225,620 for the purchase of the fractional shares reduces cash
and cash equivalents and increases bank overdrafts. The pro forma adjustment of
58,000 represents the purchase of the fractional shares at par value
($1.00/share)and is charged to common stock. The pro forma adjustment of
$167,620 charged to accumulated deficit represents the excess purchase price
($3.89/share) over the par value ($1.00/share) of the fractional shares in
accordance with the retirement method of acquiring treasury stock.
**The pro forma basic and diluted weighted average number of shares outstanding
and net income (loss) per share information has been restated to reflect the
effects of the Reverse Stock Split. The nonrecurring costs associated with legal
and other professional fees associated with the Reverse Stock Split of
approximately $216,500, except for the costs that are included in the historical
amounts, are not included as pro forma adjustments since they do not have a
continuing impact on operations.
{A1} Common stock, par value $1 per share: authorized 1,500,000 shares;
issued and outstanding 1,451,000 shares
{B1} Common stock, par value $1,000 per share: authorized 1,500 shares;
issued and outstanding 1,393 shares
{A2} 1,451,000 shares outstanding.
{B2} 1,393 shares outstanding.
{A3} 1,451,000 weighted average shares outstanding.
{B3} 1,393 weighted average shares outstanding.
Seven J Stock Farm, Inc and Subsidiary
Financial Information as required under Item 1010(a)(3) & (b) (2)
RATIOS OF CONSOLIDATED EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of earnings to
fixed charges for the periods as shown:
Historical Historical, as restated
Six Months ended Year Ended October 31,
APRIL 30, 2003 2002 2001
------------------------------------------------------
Actual (1) (2) (5.03) 1.75 0.41
The Company's consolidated ratios of earnings to fixed charges were computed by
dividing earnings by fixed charges. For this purpose, earnings are the sum of
income (loss) from continuing operations before income taxes, including equity
method losses, since the Company guarantees the debt of the investee, and fixed
charges. Fixed charges include interest, whether expensed or capitalized, such
portion of rental expense that can be demonstrated to be representative of the
interest factor in the particular case, and the associated estimated fixed
18
<Page>
charges associated with the debt of Trinity Valley Pecan Company, Inc., its 50%
owned affiliate, since the Company has guaranteed the debt and it is probable
that the Company will be required to honor the guarantee. For the six months
ended April 30, 2003, earnings were insufficient to cover fixed charges as
evidenced by a less than one-to-one coverage ratio as shown above. Additional
earnings of $208,000 would be necessary for the six months ended April 30, 2003
to provided a one-to-one coverage ratio.
The deficiency in the ratio of consolidated earnings to fixed charges for the
six months ended April 30, 2003 is due to the increase in operating and general
and administrative expenses. Operating expenses increased $130,000 or 43% for
the six months ended April 30, 2003 as compared to the six months ended April
30, 2002. The increase was primarily due to increases in pipeline operating
expenses from an increase in compressor fuel costs and ranch operating expenses
from an increase in repair and maintenance costs. General and administrative
expenses increased $105,000 or 109% for the six months ended April 30, 2003. The
increase was primarily due to increased consulting and legal fees associated
with the costs of taking the Company private.
For the year ended October 31, 2001, earnings were insufficient to cover fixed
charges as evidenced by a less than one-to-one coverage ratio as shown above,
Additional earnings of $40,000 was necessary for the year ended October 31, 2001
to provide a one-to-one coverage ratio.
The deficiency in the ratio of consolidated earnings to fixed charges for the
year ended October 31, 2001 is due to the equity loss of a 50% owned affiliate
and an increase in operating and general and administrative expenses. The
Company's consolidated financial statements reflect an equity method loss of
$139,000 to the extent of its investment, loan, advances and future commitments
to its 50% owned affiliate. The Company jointly and severally guarantees certain
of the Trinity Valley Pecan Company's debt; and therefore, is continuing to
record losses attributable to such investment even though the basis of such
investment has been reduced to zero. Operating expenses increased $120,000 or
16% for fiscal year 2001 as compared to fiscal year 2000. The increase was
primarily due to repairs and maintenance of a tractor and pivot irrigation
system, fertilizer, and the costs of operating HAYCO, a hay-producing joint
venture, formed during June 2001.
(1) The ratios of consolidated earnings to fixed charges is equivalent to the
pro forma calculation since the Company's historical consolidated statements of
operations have no pro forma adjustments.
(2) The Company has guaranteed certain bank loans of Trinity. The guaranteed
loans include a plant construction loan and working capital lines-of-credit with
principal balances totaling approximately $361,000, $367,000 and $933,000 at
April 30, 2003, October 31, 2002 and 2001, respectively. The loans bear interest
at rates ranging from 7.95% to 9.50% and mature beginning August 2004 through
October 2005. The loans are also guaranteed jointly and severally by another
related party. The Company has included its estimated associated fixed rate
charges of $10,500, $21,000 and $44,000 for the six months and years ended April
30, 2003, October 31, 2002 and 2001, respectively, in the consolidated ratios of
earnings to fixed charges.
19
<Page>
SEVEN J STOCK FARM, INC. AND SUBSIDIARY
FINANCIAL INFORMATION AS REQUIRED UNDER ITEM 1010(a)(3)&(b)(2)
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
<Table>
<Caption>
HISTORICAL: HISTORICAL, HISTORICAL,
SIX MONTHS AS RESTATED: AS RESTATED:
ENDED APRIL YEAR ENDED YEAR ENDED
DESCRIPTION 30, 2003 10/31/2002 10/31/2001
- ------------------------------------------------------------------ ------------- ------------- -------------
EARNINGS:
Pretax income (loss) from continuing operations after minority
interest and equity method losses $ (208,000) $ 30,000 $ (40,000)
ADD BACK:
Minority interest -- -- --
Equity method losses (not added back due to debt guarantee) -- -- --
--------- --------- ---------
Pretax income from continuing operations before minority
interest and equity method losses (208,000) 30,000 (40,000)
PLUS:
Fixed charges:
Interest expense 22,000 14,000 23,000
Capitalized interest -- -- --
Amortization of debt discount or premium -- -- --
Amortization of capitalized expenses related to debt -- -- --
An estimate of the interest component of rent expense 2,000 5,000 1,000
The Company's share of pretax losses for which charges arising
from guarantees of a equity method investee's debt 10,500 21,000 44,000
Other earnings adjustments:
Amortization of capitalized interest -- -- --
Distributed income of equity investees -- -- --
Preferred dividend requirements of consolidated subsidiaries -- -- --
--------- --------- ---------
(173,500) 70,000 28,000
MINUS:
Capitalized interest -- -- --
Preferred dividend requirements of consolidated subsidiaries -- -- --
Minority interest in pretax income of subsidiaries that have not
incurred fixed charges -- -- --
--------- --------- ---------
</Table>
20
<Page>
<Table>
<Caption>
EARNINGS $(173,500) $ 70,000 $ 28,000
========= ========= =========
FIXED CHARGES:
Interest expense $ 22,000 $ 14,000 $ 23,000
Capitalized interest -- -- --
Amortization of debt discount or premium -- -- --
Amortization of capitalized expenses related to debt -- -- --
An estimate of the interest component of rent expense 2,000 5,000 1,000
The Company's share of pretax losses for which charges arising
from guarantees of a equity method investee's debt 10,500 21,000 44,000
--------- --------- ---------
FIXED CHARGES $ 34,500 $ 40,000 $ 68,000
========= ========= =========
RATIO OF EARNINGS TO FIXED CHARGES (5.03) 1.75 0.41
========= ========= =========
AMOUNT OF RATIO DEFICIENCY $ 208,000 $ -- $ 40,000
========= ========= =========
</Table>
Item 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
No person or class of persons are directly or indirectly employed, retained, or
are to be compensated to make solicitations or recommendations in connection
with this transaction.
The services of the Company's President, Secretary and other staff will be used
in connection with the Reverse Stock Split. These employees will assist in the
preparation of documents filed with the SEC as well as the preparation of a
shareholders list and other items in conjunction with the Special Meeting.
Item 15. ADDITIONAL INFORMATION.
No additional material is required under this item.
Item 16. EXHIBITS.
(a) Definitive Proxy Statement of the company filed with Commission on the
date hereof and incorporated herein as reference;
(b)* Promissory Note dated October 28, 2002;
(c)
(1)* Valuation of Howard Frazier, Barker & Elliott, Inc. and related
fairness opinion, prepared by HFBE on behalf of the Board of
Directors, all dated as of October 29, 2002;
21
<Page>
(2)* Appraisal of James Conner Smith, M.A. ARA, dated September 18, 2002;
(3)* Estimated Future Reserves and Revenues Report from Huddleston & Co.,
Inc., dated as of January 1, 2002;
(4)* Equipment Values from Hawkins, James & Still Equipment Co, dated
August 19, 2002;
(5)* Amended Opinion Letter of Howard, Frazier, Barker & Elliott, Inc.
and related written materials presented to the Board of Directors,
dated February 14, 2003;
(6)* Letter from Howard, Frazier, Barker & Elliott, Inc., concerning the
restatement of the financial statements, dated June 24, 2003.
(7)* Estimated Fair Market Value Report from Huddleston & Co., Inc. as of
January 1, 2003 dated February 11, 2003. (Item ( c)(6).
(8)* Estimated Reserves and Revenues as of January 1, 2003, pursuant to
Regulation 5-K, Item 102, and Regulation S-X Rule 4-10 and Financial
Accounting Standards Board Statement No. 69., dated February 10,
2003. (Item ( c)(7).
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
* Previously filed.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the
information set forth in this statement is true, complete and correct.
/s/ JOHN R.PARTEN
- --------------------------------------
John R.Parten, Chairman and President
August 20, 2003
/s/ JOHN R. PARTEN
- --------------------------------------
John R. Parten, Individually
August 20, 2003
/s/ ROBERT F. PRATKA
- --------------------------------------
Robert F. Pratka, Vice President and Treasurer
August 20, 2003
/s/ BRUCE FRANKE
- --------------------------------------
Bruce Franke, Director
August 20, 2003
/s/ WILLIAM C. BENNETT
- --------------------------------------
William C. Bennett, Director
August 20, 2003
22