UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
CURRENT REPORT
PURSUANT TO SECTION 14(C)
of the
SECURITIES EXCHANGE ACT OF 1934
Date of Report: December 19, 2000
ERLY INDUSTRIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA
----------
(State or other jurisdiction of incorporation or organization)
26883910 95-2312900
-------- ----------
(CUSIP Number) (IRS Employer Identification Number)
268 West 300 South, Suite 300
Salt Lake City, Utah 84101
----------------------------------------
(Address of principal executive offices)
(801) 575-8073
--------------
(Registrant's telephone number, including area code)
We Are Not Asking You For a Proxy
AND
You Are Requested Not to Send Us A Proxy
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2)
[X] Definitive Information Statement
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules
14(c)-5(g) and 0-11. 1) Title of each class of securities to
which transaction applies: 2) Aggregate number of securities
to which transaction applies: 3) Per unit price or other
underlying value of transaction computed pursuant to Exchange
Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid: $125.00
1
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing. 1) Amount Previously
Paid:
2) Form, Schedule or Registration No.:
3) Filing Party:
4) Date Filed
- --------------------------------------------------------------------------------
ERLY INDUSTRIES, INC.
268 West 400 South, Suite 300
Salt Lake City, Utah 84101
Notice of Proposed Action by Written Consent
of a
Majority of the Outstanding Common Stock
to be taken on or about January 12, 2001.
To the Stockholders of Erly Industries, Inc.
Notice is hereby given that by Written Consent by the holders of a majority of
the outstanding common stock of Erly Industries, Inc. (the "Company") it has
been proposed that the Company Change its State of Domicile from the State of
California to the State of Delaware.
Only stockholders of record at the close of business on December 1, 2000 will be
given Notice of the Action by Written Consent. The Company is not soliciting
proxies.
By Order of the Board of Directors
/s/ Richard D. Surber
-------------------------------
Secretary of the Company
2
ERLY INDUSTRIES, INC.
268 West 300 South, Suite 300
Salt Lake City, Utah 84101
Telephone (801) 575-8073
INFORMATION STATEMENT
ACTION BY A MAJORITY OF STOCKHOLDERS
This Information Statement is furnished to all holders of the Common Stock, $.01
par value per share, of the Company, in connection with proposed action by
holders of a majority of the issued and outstanding shares of common voting
stock of Erly Industries, Inc., a California Corporation (the "Company") to
change the domicile of the Company from the State of California to the State of
Delaware. This action is proposed to occur on or about January 12, 2001. This
Information Statement is first being mailed to stockholders on or about December
20, 2000.
Only stockholders of record at the close of business on December 1, 2000 are
entitled to notice of the action to be taken. There will be no vote on the
matters by the shareholders of the Company because the proposed action will be
accomplished by the written consent of a majority of the shares of the Company
as allowed by Section 603 of the California Corporations Code.
The Company has entered into an Agreement and Plan of Merger with Torchmail
Communications, Inc., Inc., a Delaware Corporation, pursuant to which the
Company will merge with the Delaware Corporation for the purpose of changing the
domicile of the Company from the State of California to the State of Delaware.
WE ARE NOT ASKING YOU FOR A PROXY
AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
SECURITY OWNERSHIP OF EXECUTIVE OFFICERS, DIRECTORS AND FIVE
PERCENT STOCKHOLDERS
The following table sets forth certain information concerning the ownership of
the Company's outstanding Common Stock as of December 1, 2000, with respect to:
(i) each person known to the Company to be the beneficial owner of more than
five percent of the Company's outstanding Common Stock; (ii) all directors; and
(iii) directors and executive officers of the Company as a group. The notes
accompanying the information in the table below are necessary for a complete
understanding of the figures provided below. As of December 1, 2000, there were
15,000,000 shares of Common Stock issued and outstanding.
3
AMOUNT
AND
NATURE OF
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT OF
CLASS BENEFICIAL OWNER OWNERSHIP CLASS
=============================================================================================================
Common Stock Richard D. Surber, President 9,237,912 61.58%
($0.01 par value) 268 West 400 South, Suite 300 (beneficial)
Salt Lake City, Utah 84101
Common Stock Hudson Consulting Group, Inc. 9,237,912 61.58%
($0.01 par value) 268 West 400 South, Suite 300
Salt Lake City, Utah 84101
Common Stock All Officers and Directors as a 9,237,912 61.58%
($0.01 par value) Group
Common Stock Gerald D. Murphy 1,028,254 6.85%
($0.01 par value) 10990 Wilshire Boulevard, # 120
Los Angeles, California 90024-
3955
Common Stock Farmers Rice Milling Company, 804,030 5.36%
($0.01 par value) Inc.
P.O. Box D
Lake Charles, Louisiana 70602-
3704
=============================================================================================================
CHANGE OF CONTROL SINCE END OF LAST FISCAL YEAR
On the 12th day of September, 2000, Hudson Consulting Group, Inc., a Nevada
Corporation ("Hudson") contracted to buy nine million two hundred thirty seven
thousand nine hundred twelve (9,237,912) shares of the Company's $0.01 par value
common stock from the Company for a cash payment of $120,000. Hudson used its
operating funds to make the purchase. The purchase of these shares gave
effective control of the Company to Hudson because the said shares represent
61.58% of the issued and outstanding shares of the Company. The transaction was
consummated and 9,237,912 shares of the Company's stock were delivered to Hudson
on December 5, 2000.
CHANGING THE COMPANY'S STATE OF INCORPORATION FROM CALIFORNIA
TO DELAWARE (the "REINCORPORATION")
By consent of persons holding a majority in excess of 50% of the issued and
outstanding shares of the Company's $0.01 par value voting stock, as allowed by
Section 603 of the California Corporations Code, Erly Industries, Inc. ("Erly"),
which presently is a California Corporation, will be merged with and into
Torchmail Communications, Inc. ("Torchmail"), a Delaware Corporation, a wholly
4
owned subsidiary of the Corporation, newly organized under Delaware law, with
Torchmail Communications, Inc., a Delaware Corporation becoming the surviving
Corporation. We sometimes refer to Torchmail Communications, Inc., a Delaware
Corporation as the Delaware Corporation. The Delaware Corporation's principal
executive office is located at 268 West 400 South, Suite 300, Salt Lake City,
Utah 84101, and its telephone number is (801) 575-8073.
Effective December 1, 2000, the Board of Directors approved the reincorporation
proposal pursuant to the terms of the Agreement and Plan of Merger, which is
attached as Appendix "A," by which Erly Industries, Inc., a California
Corporation will be merged with and into Torchmail Communications, Inc., a
Delaware Corporation. Shareholders of Erly Industries, Inc. common stock are not
being requested to consider and approve the reincorporation proposal at a
shareholder's meeting and will not vote on the proposal because it has already
been approved by a majority of the Erly shareholders pursuant to Section 603(a)
of the California Corporations Code which allows for shareholder action without
notice and a meeting. We have summarized the material terms of the Agreement and
Plan of Merger below. This summary is subject to, and qualified in its entirety,
by reference to the text of the Agreement and Plan of Merger itself. No vote of
holders of outstanding shares of the Company's common stock, other than those
majority shareholders who have approved the proposed action, is necessary for
approval of the reincorporation proposal.
WE ARE NOT ASKING YOU FOR A PROXY
AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
NO CHANGE IN BUSINESS OR PHYSICAL LOCATION
The proposed merger will effect a change in the legal domicile and name of Erly
Industries, Inc. and other changes of a legal nature, the most significant of
which are described below. However, the merger will not result in any change in
our business, management, location of our principal executive offices, assets,
liabilities or net worth (other than as a result of the costs incident to the
merger, which are immaterial). Our management, including all directors and
officers, will remain the same after the merger and will assume identical
positions with the Delaware Corporation.
THE DELAWARE CORPORATION
The Delaware Corporation that will be the surviving corporation was incorporated
under the Delaware Corporations Laws ("DCL") on December 7, 2000, exclusively
for the purpose of merging with Erly Industries, Inc. Prior to the merger, the
Delaware Corporation will have no material assets or liabilities and will not
have carried on any business.
The Delaware Corporation's Articles of Incorporation are substantially identical
to the current Articles of Incorporation of Erly Industries, Inc., except for
statutory references necessary to conform to the DCL and other differences
attributable to the differences between the DCL and the CCC. A copy of the
Delaware Corporation's Articles of Incorporation are attached as Appendix "B".
5
THE AGREEMENT AND PLAN OF MERGER
The Agreement and Plan of Merger provides that Erly Industries, Inc. will merge
with and into the Delaware Corporation, with the Delaware Corporation then
becoming the surviving corporation. The Delaware Corporation will assume all
assets and liabilities of Erly Industries, Inc., including obligations under our
outstanding debts and contracts. Our existing Board of Directors and officers
will become the board of directors and officers of the Delaware Corporation for
identical terms of office.
Upon the effective date of the merger, each ten shares of the Company's issued
and outstanding common stock will automatically be converted into one (1) fully
paid and nonassessable share of common stock, $0.001 par value per share, of the
Delaware Corporation. Fractional shares will be rounded upward. We intend to
issue new stock certificates to shareholders of record upon the effective date
of the merger. Each certificate representing ten (10) issued and outstanding
shares of our common stock immediately prior to the effective date of the merger
will be exchanged for one (1) share of common stock of the Delaware Corporation
after the effective date of the merger(1).
PLEASE NOTE: Shareholders need not exchange their existing stock certificates
for stock certificates of the Delaware Corporation. However, after consummation
of the merger, any shareholders desiring new stock certificates representing
common stock of the Delaware Corporation may submit their existing stock
certificates to Computershare Investment Services, 2 North LaSalle Street,
Chicago, Illinois 60602, the surviving corporation's transfer agent, for
cancellation, and obtain new certificates.
DESCRIPTION OF CAPITAL STOCK AND VOTING RIGHTS
The Company's authorized capital consists of 15,000,000 shares of Common Stock,
$0.01 par value. As of December 1, 2000 there were 15,000,000 shares of Common
Stock outstanding. The holders of Common Stock are entitled to vote on all
matters to come before a vote of the shareholders of the Company. Torchmail
Communications, Inc., a Delaware Corporation, the company which will be the
surviving entity of the Merger, is capitalized for 200,000,000 shares of $0.001
par value common stock. The effect of the Merger will be to increase the number
of authorized shares of the Company from 15,000,000 to 200,000,000.
[THIS SPACE INTENTIONALLY LEFT BLANK]
- ----------------------
(1)Since the company intends to round up any fractional shares created by
the merger, persons owning fewer than 10 shares will receive 1 share, and
persons owning odd numbers of shares will have any fractional share resulting
from the merger rounded to the next higher whole number.
6
COMPARISON OF SHAREHOLDER RIGHTS UNDER DELAWARE AND
CALIFORNIA CORPORATE LAW AND CHARTER DOCUMENTS BEFORE AND
AFTER REINCORPORATION
The Company is incorporated in the State of California, and the surviving
corporation in the merger is incorporated in the State of Delaware. The
Company's shareholders, whose rights are currently governed by the California
Corporations Code ("CCC") and the Company's articles of incorporation and
bylaws, will, upon consummation of the merger, become shareholders of the
Delaware Corporation and their rights will be governed by the Delaware
Corporation Law ("DCL") and the articles of incorporation and bylaws of the
Delaware Corporation. Upon the filing with and acceptance by the Secretary of
State of Delaware of Articles of Merger in Delaware, the Company will become
Torchmail Communications, Inc., a Delaware Corporation, and the outstanding
shares of Company Common Stock will be deemed for all purposes to evidence
ownership of, and to represent, shares of Torchmail Communications, Inc. Common
Stock.
The Delaware Charter Documents will replace the Company's current Articles of
Incorporation, as amended ("California Articles") and the California bylaws
(together, the "California Charter Documents") including providing officers,
directors and agents of Torchmail Communications, Inc. with certain
indemnification rights in addition to those currently provided for the Company.
The following summary table is qualified by the discussion which follows the
table:
ERLY TORCHMAIL
INDUSTRIES COMMUNICATIONS
====================================================================================================
State of Incorporation California Delaware
Authorized Common 15,000,000 200,000,000
Authorized Preferred 6,000 10,000,000
Issued Common 15,000,000 1
Meeting Quorum Requirements Majority Majority
Shareholder Action w/o Meeting Majority Majority
Dividends When Declared When Declared
Votes One Per Share One Per Share
Cumulative Voting No No
Vote Required for Sale of Assets Majority Majority
Vote Required for Amendment of Articles Majority Majority
Vote Required for Removal of Director Majority Majority
Preemptive Rights No No
Dissolution Rights Yes Yes
Limitation of Director Liability Yes Yes
Assessment No No
Redemption of Common No No
Rights to Inspect Records Yes Yes
Right to File Derivative Action Yes Yes
Shareholder Liability for Derivative Actions Possibly Possibly
====================================================================================================
7
Description of Shares
Torchmail Communications, Inc. is authorized to issue 200,000,000 shares of
$.001 par value common stock and 10,000,000 shares of $.001 par value Preferred
Stock. There is one share of Torchmail Communications, Inc. common stock issued
and outstanding. The Torchmail Preferred shares may be issued into one or more
series, with the Torchmail Board of Directors fixing the designation,
preferences and relative, participating, optional or other special rights, or
qualification, limitations or restrictions thereof of the shares of each series,
including dividend rate, whether dividends shall be cumulative, voting rights,
conversion rights, redemption rights, and liquidation or dissolution rights. No
series of Torchmail Preferred shares is issued and outstanding. Erly is
authorized to issue 15,000,000 shares of its $0.01 par value common stock of
which 15,000,000 shares were issued and outstanding as of the record date. Erly
is authorized to issue 6,000 shares of $100 par value Preferred Stock of which
no shares are presently issued and outstanding.
Dividend Rights
When and as dividends, payable in cash, stock or other property, are declared by
the Board of Directors of Torchmail or Erly, as the case may be, the holders of
Erly shares or Torchmail shares, respectively, are entitled to share equally,
share for share, in such dividends.
Under California law, no dividends may be given unless (1) the amount of
retained earnings of the corporation immediately prior thereto equals or exceeds
the amount of the proposed distribution, and (2) the sum of the assets of the
corporation would be equal to a least 1 1/4 times its liabilities and the
current assets would be at least equal to its current liabilities. Further,
under California law, no dividends may be given if the corporation, as a result
of the dividends, would be likely to be unable to meet its liabilities as they
mature, or if required, the corporation has not satisfied the preferential
rights of stockholders whose rights are superior to those receiving the
distribution.
8
A Delaware Corporation may pay dividends out of "surplus" or, if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared or for the preceding fiscal year. Surplus is defined as the net assets
of the corporation over the corporation's capital.
Voting Rights
Those who hold Erly shares on the date the Merger is consummated will be
entitled as a group to hold one-fifth (1/10th) the number of Torchmail common
shares. Holders of Torchmail shares and Erly shares are entitled to one vote for
each share on all matters voted upon by shareholders of Erly or Torchmail,
respectively.
Pursuant to Torchmail's Articles of Incorporation, holders of a majority of the
outstanding shares entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Shareholders. Pursuant to Erly' Articles of
Incorporation, at all meetings of shareholders, a majority of the shares
entitled to vote at such meeting, represented in person or by proxy, shall
constitute a quorum.
Pursuant to California law, holders of Erly shares may take action without a
meeting only upon written consent of the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Special Meetings of the Shareholders of Erly may be
called by the President, the Chairman of the Board, the Board of Directors or
shareholders holding not less than ten percent of the shares entitled to vote.
Special Meetings of the Shareholders of Torchmail may be called by the
President, the majority of the Board of Directors, or shareholders holding a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote.
Pursuant to Delaware law, holders of Torchmail's shares may take action without
a meeting, and without prior notice, upon the written consent of shareholders
holding at least a majority of the voting power, except that if a greater
proportion is required for the action to be taken at a meeting, then the greater
proportion of written consents is required.
Erly's Articles of Incorporation require the approval of a majority of all
outstanding Erly shares entitled to vote for amendment of the Articles of
Incorporation and the approval of a majority of all of the outstanding Erly
shares for the merger, consolidation, sale, or disposition of all or
substantially all of Erly's assets and voluntary dissolution. The statutory
provisions applicable to (1) the amendment of the Torchmail Certificate of
Incorporation, (2) the approval of merger, consolidation, or dissolution of
Torchmail, and (3) the sale of substantially all of Torchmail's assets are
similar to those applicable to Erly actions. Delaware law requires the vote of a
majority of Torchmail shares to effect any of the actions referenced in (1),
(2), or (3) above.
Removal of a director under California law requires the affirmative vote of a
majority of the outstanding Erly shares. The DCL provides that, except with
respect to corporations with classified boards or cumulative voting, a director
may be removed, with or without cause, by the holders of the majority in voting
9
power of the shares entitled to vote at an election of directors. In the event
the corporation's board of directors is classified, stockholders may effect such
removal only for cause, unless the corporation's charter provides otherwise.
Liability of Directors.
The DCL permits a Delaware Corporation to include in its charter a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breaches of fiduciary duty,
including conduct that could be characterized as negligence or gross negligence.
However, the DCL provides that the charter can not eliminate or limit liability
for (a) breaches of the director's duty of loyalty, (b) acts or omissions not in
good faith or involving intentional misconduct or knowing violation of the law,
(c) an unlawful distribution, or (d) the receipt of improper personal benefits.
The DCL further provides that no such provision will eliminate or limit the
liability of a director for any act or omission occurring prior to the date when
such provision becomes effective. Our current charter includes a provision
eliminating director liability for monetary damages for breaches of fiduciary
duty to the maximum extent permitted by the DCL.
California law is more restrictive in the circumstances under which the
liability of a director may be limited or eliminated. Erly's Articles of
Incorporation provide that the liability of a director shall be eliminated to
the fullest extent permitted under applicable California law. California
Corporation Code sections 204(10) and 309(c) provide that the corporation may
eliminate or limit the personal liability of a director to the corporation and
to its shareholders for monetary damages for breach of fiduciary duty as a
director; except that the liability of a director shall not be eliminated or
limited for any breach of the director's duty of loyalty to the corporation or
to its shareholders, for acts or omissions not in good faith or which involve
intentional misconduct, for a knowing violation of law, for acts or omissions
that show a reckless disregard for the director's duty to the corporation or its
shareholders, for acts or omissions that constitute an unexcused pattern of
inattentiveness that amounts to an abdication of the director's duties,
violation of sections 310 or 316 of the Code or for any transaction from which
the director directly or indirectly derived an improper benefit.
Dissenters Rights
Under Delaware Law, dissenters' rights are afforded to stockholders who follow
prescribed statutory procedures in connection with a merger or consolidation
(subject to restrictions similar to those provided by the California Law, as
described below). Under the DCL, there are no appraisal rights in connection
with sales of substantially all the assets of a corporation, reclassifications
of stock or other amendments to the charter that adversely affect a class of
stock, unless specifically provided in the charter. Our current charter does not
provide for dissenters' rights in these circumstances. Dissenters' rights do not
apply to a stockholder of a Delaware Corporation if the stockholder's shares
were (a) listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Security Dealers, Inc. or (b) held of record by more than 2,000
stockholders. Notwithstanding the foregoing sentence, however, under the DCL, a
stockholder does have dissenters' rights if the stockholder is required by the
terms of the agreement of merger or consolidation to accept anything for his
shares other than (a) shares of stock of the corporation surviving or resulting
10
from the merger or consolidation, (b) shares of stock of any other corporation
which is so listed or designated or held of record by more than 2,000
stockholders, (c) cash in lieu of fractional shares, or (d) any combination of
the foregoing.
Under California law, if the approval of outstanding shares of a corporation is
required for a reorganization, then each shareholder entitled to vote on the
transaction and each shareholder of a subsidiary in a short-form merger is
entitled to dissent. There is no right of dissent with respect to a plan of
merger or exchange if at the record date fixed to determine stockholders
entitled to receive notice and to vote at the meeting at which the plan of
merger or exchange is to be acted upon the shares were listed on a national
securities exchange, designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held by at least 2,000 stockholders of record.
Assessment and Redemption
Torchmail shares to be issued upon consummation of the Merger will be fully paid
and non- assessable. Erly shares, for which full consideration has been paid,
are deemed to be fully paid and non-assessable. Neither Torchmail nor Erly
common shares have any redemption provisions.
Transfer Agent
The transfer agent for Erly's shares is Computershare Investment Services,
located at 2 North LaSalle Street, Chicago, Illinois 60602. When the Merger is
consummated, the transfer agent for Torchmail shares will be the same.
Inspection Rights
Under California law a shareholder may inspect and copy Erly's accounting
records and minutes of proceedings of the shareholders at any reasonable time
during usual business hours for a purpose reasonably related to such holder's
interests as a shareholder. Under Delaware law, any stockholder has the right,
during usual business hours, to inspect and copy the corporation's stock ledger,
stockholder's list and other books and records for any proper purpose upon
written demand under oath stating the purpose thereof.
Derivative Rights
Delaware Law provides that:
- a person may not bring a derivative action unless the person was a
stockholder of the corporation at the time of the challenged transaction or
unless the stock thereafter devolved on such person by operation of law;
- a complaint in a derivative proceeding must set out the efforts made by a
person, if any, to obtain the desired action from the directors or comparable
authority and the reason for the failure to obtain such action or for not making
the effort; and
11
- a derivative proceeding may be settled or discontinued only with court
approval.
In addition, under the DCL, a court may dismiss a derivative proceeding if:
- the court finds that a committee of independent directors has determined
in good faith after conducting a reasonable investigation that the maintenance
of the action is not in the best interests of the corporation; and
- the court determines in its own business judgment that the action should
be dismissed.
California Law provides that:
- a person may not bring a derivative action unless the person was a
stockholder of the corporation at the time of the challenged transaction or
unless the stock thereafter devolved on such person by operation of law;
Provided that any shareholder who does not meet this requirement may be allowed
to maintain the action if a court determines that:
(1) There is a strong prima facie case in favor of the claim asserted on
behalf of the corporation;
(2) No similar action has been, or is likely to be, filed for the
corporation;
(3) Plaintiff acquired the shares prior to public notice of the wrongdoing
complained of;
(4) Unless the action is maintained, defendant may retain a gain derived
from a willful breach of fiduciary duty; and
(5)There will be no unjust enrichment of the corporation or plaintiff due
to the action.
- a complaint in a derivative proceeding must set out the efforts made by a
person, if any, to obtain the desired action from the directors or comparable
authority and the reason for the failure to obtain such action or for not making
the effort; and
Issuance of Additional Shares: Possible Dilution
Erly is authorized to issue 15,000,000 shares of $.01 par value common stock.
There are 15,000,000 shares now issued and outstanding leaving no shares
available for issuance. Erly is authorized to issue 6,000 shares of $100 par
value preferred stock. There are no shares of preferred stock now issued and
outstanding leaving 6,000 shares available for issuance. If the Merger is
consummated, Torchmail will be authorized to issue 200,000,000 shares of $.001
par value common stock. There will be approximately 3,000,000 shares issued and
outstanding leaving 197,000,000 shares available for issuance.
12
Torchmail will also be authorized to issue 10,000,000 shares of $.001 par value
preferred stock. There will be no preferred shares issued and outstanding
leaving 10,000,000 shares available for issuance. If the Merger is consummated,
significant dilution of current common stockholders is possible upon the
issuance of more common shares.
INCORPORATION BY REFERENCE OF CERTAIN FINANCIAL INFORMATION
The following portions of the Company's Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2000, are incorporated herein by reference: "Item 1.
Business", "Item 5. Market Information for Common Equity and Related Shareholder
Matters", and "Item 7. Financial Statements."' The following portions of the
Company's Quarterly Report on Form 10-QSB for the period ended September 30,
2000 are also incorporated herein by reference: "Part I. Item 1: Financial
Statements" and "Part I. Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations."' Copies of these documents are
available without charge to any person, including any beneficial holder of the
Company's Common Stock to whom this Information Statement was delivered, on
written or oral request to Erly Industries, Inc. 268 West 400 South, Suite 300,
Salt Lake City, Utah 84101, Attention: Secretary (telephone number: (801)
575-8073). Any statement contained in a document all or a portion of which is
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Information Statement to the extent that a statement
contained herein or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed to constitute a
part of this Information Statement except as so modified or superseded.
INCREASE IN CAPITALIZATION
The Company currently has 15,000,000 authorized shares of Common Stock, par
value $0.01 per share, of which 15,000,000 shares were outstanding on December
1, 2000. The Company currently has 6,000 authorized shares of Preferred Stock,
par value $100 per share, of which no shares were outstanding on December 1,
2000.
Torchmail Communications, Inc., a Delaware Corporation, into which the Company
will merge to accomplish its change of domicile, if approved by the
stockholders, is authorized to issue 200,000,000 shares of common stock par
value $0.001 and 10,000,000 shares of preferred stock par value $0.001. The
effect of the merger will be to increase the number of authorized common shares
which may be issued by the Company from 15,000,000 to 200,000,000 and the number
of authorized preferred shares from 6,000 to 10,000,000.
Since currently authorized shares are not sufficient to meet anticipated needs
in the immediate future, the Board considers it desirable that the Company have
the flexibility to issue an additional amount of Common Stock without further
stockholder action, unless otherwise required by law or other regulations. The
availability of these additional shares will enhance the Company's flexibility
in connection with any possible acquisition or merger, stock splits or
dividends, financings and other corporate purposes and will allow such shares to
be issued without the expense and delay of a special stockholders' meeting,
unless such action is required by applicable law or rules of any stock exchange
on which the Company's securities may then be listed.
13
Presently, the Company has issued only one of its two authorized classes of
stock, Common Stock, par value $0.01 per share. All of such common shares are
voting shares and have the same voting rights. However, none of such common
shares confers any preemptive rights on the holders thereof to purchase or
receive any additional shares of the Company's Common Stock or any other
securities, rights or options for the Company's securities authorized or
acquired by the Company in the future. The Board may issue the Common Stock
authorized by the Company's Charter for such consideration as may be fixed by
the Board and for any corporate purpose without further action by the
stockholders, except as may be required by law. Each share of Common Stock has
equal dividend rights and participates equally upon liquidation
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The merger and resulting reincorporation of Erly Industries, Inc. from
California to Delaware will constitute a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Accordingly, for federal income tax purposes, no gain or loss will be recognized
by shareholders upon the conversion of Erly Industries, Inc. common stock into
the Delaware Corporation's common stock. Each shareholder whose shares are
converted into the Delaware Corporation's common stock will have the same basis
in the common stock of the Delaware Corporation as such shareholder had in the
common stock of Erly Industries, Inc. held immediately prior to the effective
date of the merger. The shareholder's holding period in the Delaware
Corporation's common stock will include the period during which the
corresponding shares of Erly Industries, Inc. common stock were held.
PLEASE NOTE: No information is provided in this Information Statement regarding
the tax consequences, if any, under applicable state, local or foreign laws, and
each shareholder is advised to consult his or her personal attorney or tax
advisor as to the federal, state, local or foreign tax consequences of the
proposed reincorporation in view of the shareholder's individual circumstances.
In addition, neither the Company nor Torchmail will recognize gain or loss as a
result of the Reincorporation, and Torchmail will generally succeed, without
adjustment, to the tax attributes of the Company. Delaware has no corporate
income tax, no taxes on corporate shares, no franchise tax, no personal income
tax, no I.R.S. information sharing agreement, nominal annual fees, minimal
reporting and disclosure requirements, and shareholders are not public record.
The foregoing summary of federal income tax consequences is included for general
information only and does not address all income tax consequences to all of the
Company's shareholders. The Company's shareholders are urged to consult their
own tax advisors as to the specific tax consequences of the Reincorporation with
respect to the application and effect of state, local and foreign income and
other tax laws.
14
SECURITIES ACT CONSEQUENCES
The shares of the Delaware Corporation's common stock to be issued in exchange
for shares of Erly Industries, Inc. common stock are not being registered under
the Securities Act of 1933. In that regard, the Delaware Corporation is relying
on Rule 145(a)(2) under the Securities Act of 1933, which provides that a merger
which has "as its sole purpose" a change in the domicile of a corporation does
not involve the sale of securities for purposes of the Securities Act of 1933,
and on interpretations of the Rule by the Securities and Exchange Commission
which indicate that the making of certain changes in the Delaware Corporation's
articles of incorporation which could otherwise be made only with the approval
of the shareholders of either corporation does not render Rule 145(a)(2)
inapplicable.
After the merger, the Delaware Corporation will continue to file periodic
reports and other documents with the Securities and Exchange Commission and
provide to its shareholders the same types of information that we have
previously filed and provided. Shareholders holding restricted shares of common
stock will have shares of the Delaware Corporation's stock which are subject to
the same restrictions on transfer as those to which their present shares of
common stock are subject, and their stock certificates, if surrendered for
replacement certificates representing shares of the Delaware Corporation's
common stock will bear the same restrictive legend as appears on their present
stock certificates. For purposes of computing compliance with the holding period
requirement of Rule 144 under the Securities Act of 1933, shareholders will be
deemed to have acquired their shares of the Delaware Corporation's common stock
on the date they acquired their shares of Erly Industries, Inc.'s common stock.
In summary, the Delaware Corporation and its shareholders will be in the same
respective positions under the federal securities laws after the merger as were
Erly Industries, Inc. and its shareholders prior to the merger.
AMENDMENT TO THE MERGER AGREEMENT; TERMINATION
The Merger Agreement may be terminated and the Reincorporation abandoned,
notwithstanding shareholder approval, by the Board of Directors of the Company
at any time before consummation of the Reincorporation if the Board of Directors
of the Company determines that in its judgment the Reincorporation does not
appear to be in the best interests of the Company or its shareholders. In the
event the Merger Agreement is terminated, the Company would remain as a
California Corporation.
INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED
UPON
No person who has been a director or officer of the Company at any time since
the beginning of the last fiscal year, nominee for election as a director of the
Company, nor associate of the foregoing persons has any substantial interest,
direct or indirect, in the Company's change of domicile which differs from that
of other shareholders of the Company. No director of the Company opposes the
proposed action of changing domicile of the Company.
15
10-KSB AND 10-QSB REPORTS
THE COMPANY WILL PROVIDE EACH BENEFICIAL OWNER OF ITS SECURITIES WITH A COPY OF
ITS ANNUAL REPORT ON FORM 10-KSB, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE COMPANY'S MOST RECENT FISCAL YEAR, AND ITS MOST RECENT
QUARTERLY REPORT ON FORM 10-QSB, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE COMPANY'S MOST RECENT QUARTER, WITHOUT CHARGE, UPON RECEIPT
OF A WRITTEN REQUEST FROM SUCH PERSON. SUCH REQUEST SHOULD BE DIRECTED TO CHIEF
FINANCIAL OFFICER, ERLY INDUSTRIES, INC., 268 WEST 400 SOUTH, SUITE 300, SALT
LAKE CITY, UTAH 84101.
Dated: December 19, 2000
By Order of the Board of Directors
/s/ Richard D. Surber
----------------------------
Secretary of the Company
16