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Letter: Leveraged into insolvency

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In 1994 Golden Oval was started as a farmer-owned co-op to add value to members' corn. In 2004 the investment was paying off with a $4.22 dividend paid per unit.

Management made two memorable decisions that year:

First, take $4 million in bonuses, then push turning the co-op into a LLC.

When asked about the extraordinary bonuses, the chairman of the board explained it was "industry standard."

Next, Golden Oval became a LLC in order for shares to be more easily bought and sold.

To date, there is "no public market for our Class A units, and no public market is expected to develop."

From 2004 to 2008, current and long-term debt has risen from $54 million to over $105 million, of which $99.5 million is due.

Big picture from board and management: Profits be damned; expansion is everything.

Golden Oval's lenders are not happy. So management went to work getting extensions.

First idea was to issue stock, cranking out 692,000 shares for Land O'Lakes with a warrant for another 880,492.

For the shares, Land O'Lakes knocked $17 million off the $60 million purchase price of MoArk, an investment that has done nothing for Golden Oval's bottom line.

Sixty-seven thousand shares went to board members and 313,000 more were issued as "executive compensation."

Only interest is being paid on the staggering debt, with lenders only agreeing to that if "the company consider and pursue a strategic transaction, such as sale of all or substantially all of the company's assets, in order to allow complete repayment of the company's lenders."

Enter Rembrandt Enterprises, Incorporated, $123.75 million for everything. In per unit terms $4.25 to $4.75. Transition expenses could be $0.50 per share or more.

Now the investors are waiting to see what kind of egg the proxy lays.

What we do know, a viable business was leveraged to insolvency. Stock units went from 4,581,762 to 5,933,995 with none being sold and management believes in bonuses.

Looks like Rembrandt is the only game in town, and Golden Oval will follow MCP into the history books.

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