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FORM 10-KSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from January 1, 1997 to June 30, 1997
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Commission File Number 0-29258
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AQUAPRO CORPORATION
(Name of small business issuer in its charter)
Tennessee 62-1598919
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4307 Central Pike, Hermitage, Tennessee 37076
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(Address of Principal executive offices) (Zip Code)
Issuer's telephone number (615) 889-0804
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, no par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes No X
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year $ 1,203,468
The aggregate market value of the voting stock held by nonaffiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of September 1, 1997 was $17,198,669,
based on recent sales by issuer at a price of $6.25 per share for 2,188,587
outstanding shares of common stock and $10.00 per share for 352,000
outstanding shares of Series A Preferred Stock held by non-affiliates.
As of September 1, 1997, Registrant had outstanding 2,670,667 shares of
common stock, its only class of common equity outstanding.
Transitional Small Business Disclosure Format
(check one): Yes No. X
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TABLE OF CONTENTS
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Page
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PART I ..............................................................................................................-1-
Item 1. Description of Business.....................................................................-1-
Item 2. Description of Property....................................................................-17-
Item 3. Legal Proceedings..........................................................................-19-
Item 4. Submission of Matters to a Vote of Security Holders........................................-19-
PART II .............................................................................................................-19-
Item 5. Market for Common Equity and Related Stockholder Matters...................................-19-
Item 6. Management's Discussion and Analysis or Plan of Operation..................................-21-
Item 7. Financial Statements.......................................................................-24-
Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.......-24-
PART III .............................................................................................................-25-
Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance with Section
16(a) of the Exchange Act..................................................................-25-
Item 10. Executive Compensation..............................................................................-27-
Item 11. Security Ownership of Certain Beneficial Owners and Management......................................-29-
Item 12. Certain Relationships and Related Transactions......................................................-30-
Item 13. Exhibits and Reports on Form 8-K....................................................................-42-
FINANCIAL STATEMENTS......................................................................................... F-1
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PART I
Item 1. Description of Business
General
The Company. AquaPro Corporation ("Registrant," "AquaPro" or the
"Company") was incorporated on March 20, 1995. The Company engages in the
business of owning and managing catfish aquaculture farms directly and through
its two wholly-owned subsidiaries, American Fisheries Corporation, a Mississippi
Corporation ("American") and Circle Creek Aquaculture, Inc., a Tennessee
Corporation ("Circle Creek"). The Company currently owns 1,843 water acres of
aquaculture ponds. All of the Company's catfish farming activities are conducted
in the State of Mississippi and are conducted through Circle Creek and American.
Mr. Hastings, the Company's Chairman and Chief Executive Officer caused
Circle Creek to be incorporated in 1983 under the name of Hastings & Company,
Inc. It changed to its current name in March 1995. Until 1996, the business of
Circle Creek was primarily the sponsorship and operation of catfish farming
investment limited partnerships. Circle Creek sponsored eight such limited
partnerships which engaged in catfish farming (the "Circle Creek
Partnerships"), Circle Creek Aquaculture, L.P. ("CCA I"), Circle Creek
Aquaculture II, L.P. ("CCA II"), Circle Creek Aquaculture III, L.P. ("CCA
III"), Circle Creek Aquaculture IV, L.P. ("CCA IV"), Circle Creek Aquaculture
V, L.P. ("CCA V"), Circle Creek Aquaculture VI, L.P. ("CCA VI"), Circle Creek
Aquaculture VII, L.P. ("CCA VII"), and Circle Creek Aquaculture VIII, L.P.
("CCA VIII"), (collectively, the "Circle Creek Partnerships"). Each of the
Circle Creek Partnerships was organized under the laws of the State of
Tennessee.
Mr. Hastings acquired all of the outstanding stock of American in
February 1994. American had been formed in 1988 by unrelated persons to manage
catfish farming operations. At the time it was acquired by Mr. Hastings,
American served as manager for each of the six Circle Creek Partnerships then
existing. In 1995, Mr. Hastings and Ms. Hastings transferred all of their
interest in the stock of American and Circle Creek to the Company. Effective on
December 31, 1995, the Company acquired all of the assets of CCA I, CCA II, CCA
III and CCA IV, pursuant to certain merger transactions (the "Prior
Consolidation"). Effective June 30, 1997, the Company acquired all of the assets
of CCA V, CCA VI, CCA VII, and CCA VIII (the "Recent Consolidation"). See Part
III, Item 12, "Certain Relationships and Related Transactions."
Mr. Hastings sponsored and acted as sole general partner for the first
six Circle Creek Partnerships which were formed between 1989 and 1994. In 1995
and 1996, Mr. Hastings and the Company co-sponsored, and acted as co-general
partners of, CCA VII and CCA VIII. Effective December 31, 1995, Mr. Hastings
assigned all of his economic interest as general partner of each of the eight
Circle Creek Partnerships to the Company. These interests consisted of a one
percent (1%) interest in Partnership capital, profits and losses and a
promotional contingent interest of twenty-five percent (25%) of Partnership
distributions following a minimum cumulative return to the limited partners. To
date, neither AquaPro or the general partner are entitled to receive any
distributions pursuant to this contingent promotional interest in any of the
Circle Creek Partnerships.
The Company has changed its fiscal year to June 30 commencing with the
period ended June 30, 1997. The Company is now on a June 30 fiscal year.
Management believes the change in fiscal year will allow its accounting period
to better reflect operations during the normal catfish Aquaculture business
cycle and thus more accurately reflect the Company's performance in its business
segment.
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The Company's corporate offices are located at 4307 Central Pike,
Hermitage, Tennessee 37076. The Company's catfish farms are located in the north
central area of Mississippi in the region known as the "Mississippi Delta" or
the "Delta." The address of the Company's farm management offices is 1100
Highway 3, Sunflower, MS 38778.
The Catfish Farming Industry
The Company grows channel catfish for ultimate sale and processing.
Channel catfish account for substantially all of the commercial catfish
production within the United States. The channel catfish has many qualities
making it a superior candidate for commercial production over other species of
catfish. These qualities include ease of spawning, easily controlled
reproduction, relatively simple dietary needs, a relatively hardy constitution,
the ability to survive over a wide range of temperatures and the ability to
adapt well to commonly used culture systems.
According to the National Fisheries Institute, farm-raised catfish now
ranks as the fifth most popular seafood in America, with a per capita annual
consumption of one pound. The National Agricultural Statistic Service ("NASS")
of the Agricultural Statistic Board, U.S. Department of Agriculture, has
released its annual survey data for the catfish farming industry for 1996. NASS
reports that catfish growers in the fifteen (15) major producing states had
total sales of $417 million during 1996, up 4% from $400 million in 1995. Sales
of all food-size catfish totaled $389 million in 1996, up 3% from $378 million
in 1995, and in 1996, sales of fingerling and fry totaled $21.6 million compared
to $16.1 million during 1995. During 1996 direct sales to processors accounted
for 96% of total sales of food-size catfish. NASS also reports that on January
1, 1997, the total number of catfish Aquaculture operations was 1,302, down 2%
from the 1,328 operations reported at January 1, 1996. However, the number of
operations in the top four (4) catfish producing states, Alabama, Arkansas,
Louisiana and Mississippi increased by 1% during this time. NASS also reports
that on January 1, 1997, water acres used for catfish Aquaculture totaled
177,000 acres, up 6% from July 1, 1996, and that an additional 4,650 acres are
currently under construction and are expected be in use by July 1, 1997. NASS
reports all food-size catfish on-hand at January 1, 1997 total 271 million, up
19% from 228 million on-hand the previous year. Medium food-size showed the
largest increase of the three categories from January 1, 1996, increasing by
30%. Also, 872 million fingerlings were reported on January 1, 1997, up 6% from
823 million on-hand at January 1, 1996.
The Food and Drug Administration ("FDA") funded a study in 1991, which
showed farm-raised catfish to be the fourth most popular seafood in the U.S. The
average prices paid by major processors per pound for farm-raised catfish during
the past thirteen years, according to the U.S. Department of Agriculture, are as
follows:
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Historic Average Processor Price for Catfish
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Year Average Price Per Pound
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1984 69.2(cent)
1985 72.6
1986 66.8
1987 61.8
1988 76.4
1989 71.5
1990 77.3
1991 63.1
1992 60.0
1993 71.0
1994 78.9
1995 78.8
1996 77.0
1997 (through 7/31) 72.6
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There are two major channels of distribution for farm-raised catfish:
retail grocery store outlets and the food service sector. Each accounts for
approximately half of total catfish sales. Catfish farmers can access these
markets directly only if they process their own production. The vast majority of
farmers, including the Company, do not have processing capability and thus must
sell their products to either cooperatively owned or independent processors. The
Company sells its catfish to a limited number of cooperative and independent
catfish processors. The terms of sale generally permit payment within 6 weeks of
delivery and does not require collateral for payment. For the six-month period
ended June 30, 1997, one processor represented 90% of net sales. Three
processors represented 55%, 25% and 11%, respectively, of the Company's net
sales for the year ended December 31, 1996 and 51%, 25% and 18%, respectively,
for the year-ended December 31, 1995. These cooperatives sell processed catfish
both to retail grocers and to the food service industry.
The Company's Catfish Farming Operations
Catfish Aquaculture. Channel catfish are grown in outdoor ponds in
which the water is about four to five feet deep. The Company's operations are
conducted in ponds ranging from 10 to 20 water acres in size. Each pond is
separated by levees that must be large and strong enough to support a semi truck
and trailer hauling up to 40,000 pounds of catfish. The levee system provides
access to the ponds for feeding, oxygen checking (oxygen level regulation),
aeration and other maintenance chores. Ponds are supplied with water from
underground sources (wells). The water does not flow back and forth between the
ponds because of the higher, heavy clay levees. The ponds have relatively flat,
regular sides and bottoms, since this shape facilitates harvesting. Individual
ponds average 13 land acres and 4 to 5 feet in depth from the bottom of the pond
to the top of the levee.
Successful catfish farming requires stocking the ponds and feeding the
fish at the highest rate possible, while still maintaining a healthy living
environment. Management believes that 5,000 stocker fish and 8,000-10,000 5" to
6" fingerlings per acre for the initial stocking, and 7,000 to 10,000 5" to 6"
fingerlings each year thereafter, is the optimum number of fish to maintain
maximum production levels. Management believes only stocking rates greater than
7,000 head per acre are cost-effective on a long-term basis in the present
industry environment. Current stocking rates in the industry range from
approximately 3,000 head to more than 10,000 head per acre. Once fully stocked,
a well-managed catfish farm can produce 6,500
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pounds of catfish per water acre per year, although the industry average is
less. Catfish farms in the Mississippi Delta average 4,000 to 5,000 pounds of
catfish production per acre per year.
The time period required for a catfish to progress from fingerling to
its optimum weight of 1 to 1-1/2 pounds is 8 to 12 growing months, depending on
the feeding, health, density of population and other factors, many of which,
including climatic conditions, will be outside the control of Management. There
are normally eight growing months during a calendar year (March through October)
so fish are generally in the water over a two calendar year period.
Historically, most catfish were harvested and processed in the months of June
through October. However, as a result of an active marketing campaign by the
catfish industry and consistent year-round production, consumer demand for
catfish has become more year-round in recent years.
Channel catfish grow fastest and healthiest under certain environmental
conditions. The optimal temperature for channel catfish growth is about
85(degree). Because the growing of catfish in outdoor ponds is by far the most
economical (cultivation in tanks or heated water is much more expensive and is
commercially feasible only when some unique circumstance exists, such as the
opportunity to sell fish at an exceptional price), catfish are most easily grown
in a location where average daily water temperatures are above 70(degree) for at
least 180 days a year, with at least 120 days above 80(degree). Thus, climate is
one reason for choosing the Mississippi Delta region to grow the fish. When the
water approaches 50(degree) Fahrenheit, feeding activity slows, almost stopping
as temperature drops further. In the Mississippi Delta region, the heaviest
feeding times are spring, summer, and fall. (Channel catfish can survive,
however, for long periods of time at water temperatures ranging from just above
freezing to about 104(degree)).
The Company cultures its fingerlings until they reach marketable size
(or weight). Within the catfish farming industry, three sizes of food-size fish
are recognized. Large food-size catfish are 3 pounds and above. Medium food-size
catfish are 1-1/2 to 3 pounds, and small food-size catfish are 3/4 to 1-1/2
pounds. While catfish of 3/4 of a pound or more are considered market weight,
Management intends to market the Company's catfish at a weight of 1 to 1-1/2
pounds. In Management's experience, this is the optimum size for marketing
because it yields the best fillet when processed. The highest demand for catfish
production is for fillet cuts. Accordingly, the catfish will be fed and
maintained until they weigh 1 to 1-1/2 pounds before any will be ready to
harvest and sell to a processor. As catfish are sold, additional fingerlings
will be purchased periodically to restock the ponds. Generally, the Company
would replace inventory with 5" to 6" fingerlings. This is because, for
production during a full growing season, it is generally more efficient to
purchase 5" to 6" fingerlings than to devote one or more of the Company's ponds
to catfish spawning. The price paid for fingerlings ranges between .75(cent) and
1.50(cent) per inch. Management anticipates that this price range will remain
fairly constant. However, fry are much less costly than larger stock-size fish,
and where ponds are newly refurbished or reworked they are sterile and ideal for
growing fry-size fish. As the Company refurbishes several of its ponds in 1997
and 1998, management plans to stock 270 acres of its Hidden Lakes farm with
fry to supply its fingerling needs on its other seven farms.
Necessary Resources and Materials. As discussed in further detail
below, the raw materials necessary for the Company's agriculture operations
consist primarily of stock fish, feed, electricity and gasoline. The Company
also requires equipment and general supplies to maintain its operations. The
Company purchases its feed principally through cooperatives. The price of feed
closely reflects the costs of the raw materials used in the synthesis thereof,
including soybean, corn and other agricultural products. Accordingly, the price
of feed fluctuates in response to the prices of these commodities on the world
markets. The Company uses significant amounts of electricity and gasoline in
operating its aerators, particularly during the warmer months (principally
spring and summer) during which fish increase activity and thus, oxygen
consumption is greatest. Thus, the Company is subject to fluctuations in
electricity and gasoline prices.
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The Company uses both unspecialized equipment, such as tractors, trucks, etc.,
and specialized equipment, aerators, seining equipment, etc., in its operations.
New and used equipment in the past have been available at competitive prices and
terms to the Company, primarily because of the concentration of catfish farming
in the Delta area and as a result of the historic high rate of turnover of
catfish farming operators. The Company anticipates this trend will continue and
anticipates that both new and used equipment will continue to be readily
available to the Company as needed. Another major expense of the Company's
business is labor. The Company currently employs a non-organized labor field
staff. Most of the Company's field staff requires low level skills and training
and thus, the Company believes that competent labor at competitive prices will
continue to be available to the Company in the area of its operations.
Feed. Catfish are fed a diet of "puffed" high protein, floating food
pellets which are a mixture of soybean, corn, wheat, vitamins, minerals and fish
meal, produced by fish mills. The food is scientifically formulated, not only to
provide an optimal level of nutrition to the individual fish but also to produce
a meat of a mild, sweet flavor and the absence of any "fishy" odor during
cooking. One of the advantages of catfish Aquaculture is the higher
feed/conversion ratio of this meat source. Laboratory studies have shown
conversion ratios for channel catfish as high as 1.75 pounds of feed per one
pound of fish produced. However, based on its experience, Management believes
the "real life" conversion rate for catfish grown under commercial conditions,
including mortality, is closer to 2.5:1 and management uses this rate in its
inventory control and monitoring procedures. By comparison, chicken has a
conversion ratio of approximately 3:1; pork has a conversion ratio of
approximately 4:1; and beef has a conversion ratio of approximately 8:1.
Feed prices can vary greatly from year to year. In 1995, feed prices
averaged $235 per ton. Increases in soybean, corn and wheat prices in 1996 and
early 1997 pushed feed prices to $287 per ton in early 1997. Higher feed prices
directly resulted in increased costs of products sold. The price of feed is
subject to crop yields, which cannot be predicted with certainty. In order to
help control its feed costs, the Company owns shares in Indi-Bell Feed Mill
Cooperative ("Delta Western"). As a member of this Cooperative, the Company has
the opportunity to buy feed at wholesale prices and to purchase feed on an "as
needed" basis on two days' prior notice. Thus, the Company can avoid having to
purchase and store large amounts of catfish feed in order to lock in current
prices. The Delta Western Cooperative has over 250 members. This cooperative
hedges against price fluctuations for its members through the purchase of
futures option contracts on the Chicago Board of Trade Futures Exchange. The
Company has contracted to purchase at a price of $252 per ton for approximately
85% of its budgeted feed consumption for calendar year 1997.
Oxygen Levels. Catfish are sensitive to water oxygen levels which
fluctuate on a more or less predictable cycle during a 24-hour period. Oxygen
levels are supplemented by algae growth during the daylight hours, and are
depleted during the dark hours as algae are dormant. Because the fish remain
active during both daylight and dark hours, the ponds must be constantly
monitored and aerated as necessary in order to maintain acceptable oxygen
levels.
Disease. Diseases affecting catfish are a constant risk. A vaccine is
presently available to treat enteric septicemia, which is currently the leading
cause of mortality among catfish (approximately 40% of all catfish disease is a
form of enteric septicemia). The most efficient safeguard against this disease
is constant monitoring and the purchase of fingerlings which have been fed the
oral vaccine. Once the disease is detected, medicated feed may be provided to
the infected fish to prevent a serious outbreak. Those diseases which cannot be
successfully treated can often be contained in the infected pond, since the Farm
ponds, as is typical with catfish ponds, are separated by levees, and water from
one pond does not normally
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cross over into another pond. Frequent monitoring is also necessary in order to
maintain proper water chemistry.
Harvesting and Restocking. When Management determines that the catfish
of a particular pond are ready for market, the pond is seined using a net of
appropriate size, which will allow the smaller catfish to escape while trapping
the larger catfish in the net. The catfish will then be loaded live on trucks
and transported to the processor where the fish are cleaned, processed, and
chilled or frozen in less than three minutes. The processing plants pay an
agreed upon price per pound for the delivered fish. The Company owns shares in
the Delta Pride processing cooperative where most of its catfish are sold for
processing. The Company primarily contracts with unaffiliated firms for the
harvesting and transportation of its fish production.
The Company seeks to restock its ponds annually in order to maintain
the optimum population within each pond. At any time, each pond will have fish
at various stages of growth. The cycle from fingerlings to ideal processing size
(1.0 lbs. to 1.5 lbs.) generally takes 18 months.
Inventory Control Procedures. Husbandry of its live fish inventories is
probably the most important aspect of the Company's Aquaculture business.
Ongoing knowledge of live fish inventories is critical to management's ability
to make accurate and timely decisions regarding their feeding, care and
harvesting. For instance, accurate estimates of the number of fish and their
respective size are used in determining the amount and timing of feedings and
necessary aeration, restocking and harvesting. Live fish inventory control and
estimation procedures have historically employed both quantitative and more
subjective, qualitative procedures. Current industry estimation practices employ
the simultaneous use of two general estimation techniques: physical inventory
sampling (counting techniques) and statistical models. Typically, farmers will
use both techniques and cross-check the results to determine consistent
estimates.
The most certain physical sampling method would be the draining of
ponds and physical counting of fish inventory. However, this is only done at
such times as ponds are drained for rehabilitation because physical removal of
fish results in significant loss and is not a practical method of inventory
determination. Therefore, typical sampling involves periodic seining of ponds
and observation of fish population number and size, observed actual mortality,
and observed food consumption patterns and rates. These physical sampling
techniques involve different degrees of subjective judgment and non-random
procedures. However, when used in conjunction with statistical estimations,
they serve as important cross-checks or verification of the statistical
estimates.
Management employs statistical techniques to estimate inventory based
on known factors, such as number and size of fingerling introduction, amounts
and timing of feed, and amounts harvested. Management estimates inventory size
and number based on these factors using statistical models. The Company
currently uses two statistical estimation procedures; its historical,
empirically evolved statistical procedures and the Fishy statistical program
developed in Mississippi under the leadership of Dr. Wallace E. Killcreas,
professor and economist at Mississippi State University. The latest version of
the Fishy program, Fishy 3.1, is quickly becoming a standard in the fish farming
industry. Fishy is a micro-computer program designed to help fish producers make
better production management decisions. The program is a complete fish
production management system designed for pond-raised catfish. When properly and
diligently used, the program's creators believe it will accumulate the end
report data needed to make economically efficient decisions. It allows users to
enter and analyze all information needed to compute out-of-pocket costs of
growing catfish. The general features of the program include gathering and
reporting historical production data, such as food purchased and fish stocked
and fed, lost, harvested and marketed.
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The program also allows water quality data assimilation, reporting and graphing.
The program calculates information such as feed conversion ratios, percentages
of body weight to feed, and projections of fish growth and feed needed for
future production.
While Management believes that its inventory control and estimating
procedures are consistent with the most advanced available to the Aquaculture
industry, its degree of accuracy is difficult to quantify. In the past, physical
inventory counts made by Management in conjunction with pond drainings and
reconstruction have varied significantly from statistically derived inventory
estimates for the same ponds. Management now estimates a mortality rate of 1.6%
per month, based on the Fishy program. Management then compares these estimates
against its expected conversion of fingerlings to pounds of production marketed
using a lower than industry average conversion factor of one pound of growth
per 2.5 pounds of feed used. While Management believes that it has determined
the basis of these variances and has made adjustments to its statistical
procedures, including mortality rates and food conversion rates, in order to
eliminate these variances in the future, there is no assurance that it has been
able to do so. It is reasonably possible that the Company's actual live fish
mortality will vary significantly from estimated mortality.
Employees. The Company currently employs 32 full-time persons.
Recent Developments
Community Bank Credit Line. Effective April 16, 1997, the Company has
obtained a revolving credit line in the amount of $750,000 from Community Bank,
Indianola. The purpose of the credit line is to provide financing for catfish
feed purchases from Delta Western. Borrowings under the credit line bear
interest at the rate of prime plus 165 basis points (1.65%). The credit line
matures on March 5, 1998. The Company paid a commitment fee of 1% ($7,500).
Under the credit line, the Company has established an operating deposit account
with the Bank's Indianola Branch into which the Company must deposit proceeds
from pledged inventory sales and accounts receivable. One-half of these amounts
are applied to repayment of the credit line balance and the remaining balance
is then available to the Company. The credit line is represented by the
Company's promissory note which is secured by a first lien on certain stock in
processing cooperatives owned by the Company, and a first lien on inventory and
accounts receivable of the Company and the Partnerships. Mr. George S. Hastings
has personally guaranteed the credit line.
Assessments by Delta Pride Cooperative. Delta Pride Catfish, Inc.
("Delta Pride") has assessed the Company and its other members. The assessment
is made on a 'per pound' basis for fish processed by Delta Pride pursuant to
each member's live fish deliveries during the year ended June 30, 1997. The
current assessment is three cents ($0.03) per pound processed, and payable in
installments of $0.01 per pound each on July 31, August 29, and September 30,
1997. In addition, Delta Pride has informed its members of an additional
assessment of up to five cents ($0.05) per pound, which would be payable in
installments over the period from late 1997 through early 1998. The assessment
is necessary primarily to cover operating losses incurred by Delta Pride during
the year ended June 30, 1997. The Company's share of Delta Pride's operating
losses for the year ended June 30, 1997 have been reflected as a redemption in
the Company's investment in Delta Pride stock as of June 30, 1997. The total of
these losses has only been recently determined and were previously undetected
and unexpected by the Delta Pride Board of Directors due to internal accounting
irregularities. Delta Pride is the largest catfish processor in the United
States. The Company is among the ten largest member shareholders of Delta Pride
and Delta Pride is the Company's largest customer.
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The members' obligations to pay these installments are non-recourse,
but, until the installments are paid, the Company cannot deliver fish under its
delivery rights to Delta Pride. In general, Delta Pride members are responsible
for paying all assessments relating to their delivery rights during the year
ended June 30, 1997, whether or not the delivery rights were used by the member
or by an assignee of the member. During the year ended June 30, 1997, the
Company assigned its Delta Pride delivery rights for approximately 580,000
pounds of catfish to other party farmers because it could not use the rights a
scheduled. In general, these assignees are contractually obligated to the
Company to pay any assessments relating to their use of the Company's Delta
Pride delivery rights, and the Company believes it can successfully recover
these amounts from these contractees. The Company has paid each of its July,
August and September assessment installments. Payment of the Delta Pride
assessments will materially reduce the Company's cash flow for the year ending
June 30, 1998 while the charges increased its net loss by $272,000 for the year
ended June 30, 1997.
Resignation of Mr. Jones. Mr. Austin Jones, the Company's Vice
President - Production, has resigned effective August 1, 1997. The Company does
not intend to immediately replace Mr. Jones, who was an officer and part-time
employee of the Company. At the time of his departure, Mr. Jones served as an
administrative level consultant to the Company. Most of his field duties were
assumed by the Company's area managers pursuant to its staff reorganization in
1996 and management does not expect Mr. Jones' departure to adversely affect the
Company's production, staffing or performance. Mr. Jones was a co- founder of
American Fisheries Corporation in 1987, a predecessor of the Company, and
continued to be employed in a supervisory production capacity after American was
acquired in 1989.
Adjustment to Mr. Hastings' Salary. Effective August 1, 1997, Mr.
Hastings has agreed and the Board of Directors has approved a change in Mr.
Hastings' compensation whereby his salary is reduced to $1 per year and the
Board increased the number of stock options granted to Mr. Hastings to 50,000
per quarter, with a maximum of 200,000 per year, to be exercisable over a seven
year period. The option exercise price will be $5.63 per Share (i.e. 90% of the
$6.25 price on which the Consolidation Units were based). The exercise price
will be adjusted to the average trading price of the Common Stock for the first
65 days after listing on a national exchange, as defined for the purposes of the
Series A Preferred Stock.
Risk Factors
The Company and its securities are subject to a number of risks. Set
forth below is a description of the more material of these risks.
Risks Associated With the Aquaculture Business
General Risks of Catfish Farming. The Company faces three general types
of risk in connection with its catfish farming business.
- Risks involving the price and availability of equipment
and supplies,
- Climatic, environmental and biological risks such as weather,
natural catastrophes and disease, and
- Market risks regarding the price and strength of the consumer
market for the Company's catfish production.
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<PAGE> 11
The risk exposure in each of these categories is amplified by
competition between the Company and other catfish producers, particularly those
located within the Mississippi Delta. If the Company is unable to maintain its
operating costs at levels which allow it to realize a profit in its catfish
sales, the Company will not be profitable and, if this condition persists, it
would fail and the Shareholders would lose some or all of their investment.
Certain risks, such as adverse climatic conditions, natural disasters,
disease, consumer demand and competition, are outside the Management's control
and, to a varying extent, cannot be planned for or avoided. The occurrence of
one or more of these events could deplete the Company's operating reserves and
resources and thereby result in the need for additional capital.
Availability and Price of Stock Fish and Supplies. The price
of stock fish, supplies such as feed, and labor are subject to fluctuations due
to availability and varying demands. Increased competition for supplies and
services within the catfish farming industry in general, and the Mississippi
Delta in particular, could cause temporary or prolonged price increases for
feed, labor or other items necessary to the Company's farming operations. While
Management will attempt to obtain lower supply and labor costs through
cooperative purchasing, there is no assurance that it will be able to do so or
that future price increases will not occur. Prolonged increases in one or more
of these categories would negatively affect the Company's profitability and
ability to remain in business.
Consumer Demand. The Company's profitability will depend
substantially on the price at which it can sell its catfish. In the past years,
prices have fluctuated substantially and will likely continue to do so in the
future. Prices are dependent upon the demand for catfish by consumers and the
supply of catfish available at any given time. While catfish consumption is in
general increasing, there continues to be substantial consumer reluctance to eat
catfish. Also, catfish continues to incur substantial competition from other
seafood, beef, pork and chicken. While foreign-produced catfish currently
accounts for less than one percent of the total catfish consumed in the United
States, increased foreign competition could negatively impact the price at which
the Company can sell its catfish production. Any continued depression of the
price the Company can receive for its catfish will negatively affect the
Company's profitability and its ability to remain in business.
Loss Due to Disease. The single highest cause of loss in
catfish farming is disease. Disease has accounted for more than sixty percent of
catfish loss each year since 1990. The Company will attempt to control the more
common catfish diseases through the purchase of disease resistant or vaccinated
fingerlings, and will monitor its fish for disease so that a diseased pond can
be quickly quarantined. Nevertheless, catfish are susceptible to a number of
viral and bacterial diseases, many of which cannot be effectively treated, even
if diagnosed early. A number of these diseases cannot be prevented. Also, it is
possible that new diseases may occur in the future for which effective treatment
does not exist. There is no assurance that the Company will be able to limit
disease. A loss of a substantial amount of the Company's inventory due to
disease will negatively affect its profitability and its ability to remain in
business.
Water Oxygenation. Catfish survival is dependent upon the
maintenance of adequate oxygen levels in the catfish ponds on a 24-hour basis.
Typically, oxygen levels will fluctuate throughout a 24-hour period. Oxygen
levels are enhanced by photo synthetic bacteria during the daylight hours and
depleted during the nighttime hours by catfish activity. In order to maintain
adequate oxygen levels, catfish ponds must be aerated mechanically during times
of low oxygen levels. If oxygen levels are not monitored regularly or if low
levels are not discovered in time, the catfish will be lost. The Company will
maintain a regular oxygen monitoring schedule and will have on its premises
sufficient electric aerators to maintain
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<PAGE> 12
pond oxygen levels under anticipated conditions. Nevertheless, unanticipated
conditions such as prolonged loss of electric power may render unavailable the
electric aerating equipment. A substantial loss of the Company catfish inventory
due to a failure to maintain oxygen levels would negatively impact the Company's
profitability and its ability to remain in business.
Price of Catfish Feed. Catfish feed, which is the greatest
single production cost in catfish farming operations, is subject to large
fluctuations. Industry groups report in recent years, fluctuation between $180
and $300 per ton. Feed prices are currently as high as $252 per ton. Currently,
catfish feed is produced by a small number of producers, some of which are
cooperatives. The Company owns shares in Delta Western, a cooperative catfish
food producer, which allows the Company a limited preferential right to purchase
feed. These shares, however, do not assure the availability of feed or the price
at which feed can be purchased. While the Company attempts to budget for
anticipated feed costs in its operations, such costs are not predictable with
certainty and the Company has no control over the market price of feed. There is
no assurance that the Company will be able to purchase feed in the future as
needed at a cost that will allow it to operate profitably or remain in business.
Climatic Conditions. While channel catfish are tolerant to a
wide range of climatic and temperature conditions, these catfish become immobile
below 32(degree) Fahrenheit. Catfish ponds cannot economically be heated.
Accordingly, prolonged cold weather conditions could lower pond temperatures to
below 32(degree) and result in a substantial loss of the Company's catfish
inventory, thereby negatively impacting its profitability and its ability to
remain in business.
Water Contamination. Non-catfish farming operations in the
Mississippi Delta have in the past used and continue to use chemical fertilizers
and pesticides in their crop production. Even small concentrations of certain
chemicals and pesticides can significantly affect catfish production and can
result in loss of the entire catfish population in the pond affected. While
Management has from time to time tested the Partnerships' ponds and found no
dangerous levels of any chemical or pesticide present, there is no assurance
that contamination from these chemicals may not occur in the future, either
through penetration of ground water or surface application. Management will
continue to monitor and test the ponds for possible contamination. Additionally,
in order to reduce the risk of contamination, the Company has adopted a policy
whereby it will not purchase land where certain crops have been grown.
Natural Hazards. Excessive amounts of aquatic weeds reduce
catfish production. The only method of aquatic weed control is chemical control,
which can result in oxygen depletion and accompanying loss of catfish in the
treated pond. Further, the chemicals used to destroy weeds are expensive to
purchase and are not always completely effective. Catfish population loss can
also occur as a result of predators, including naturally occurring birds, snakes
and turtles. The occurrence of such predators is common in the Mississippi Delta
area and Management will limit the damage caused by such predators by continuing
its policy of early detection and removal.
Water Availability. Catfish production requires large,
reliable sources of water. In general, the Mississippi Delta is supplied by a
large and readily accessible ground water source. The Partnerships' farms are
served by wells, capable of producing sufficient water to meet the anticipated
needs of the Company's catfish farming operations. Nevertheless, the water
available to the Company may be limited by natural courses or by chemical or
fertilizer contamination as described above. Further, there is no assurance that
the State of Mississippi, the U.S. Army Corps of Engineers or other governmental
authority will not in the future place limitations on the amount of water which
may be withdrawn by well. Nonavailability of
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<PAGE> 13
sufficient water would substantially and negatively impact the Company's
profitability and ability to remain in business.
Quality of Catfish. Management intends to follow farming
procedures which have been shown to result in the palatable, clean tasting,
"non-fishy" catfish demanded by the consumer market. Nevertheless, for reasons
which usually cannot be controlled before they are discovered, catfish in any
particular pond may acquire an "off-flavor" taste. A number of factors, many of
which often work together, may cause this result. A common cause is certain
types of algae which are difficult to control in catfish ponds, particularly in
late summer and early fall. Fortunately, a catfish pond will become "off-flavor"
only for a limited period of time, even if no affirmative corrective action is
taken. However, there may be several months during which one or more of the
Company's ponds may be "off-flavor," thereby preventing the Company from selling
catfish from that pond but requiring the Company to continue to incur expenses
in feeding and maintaining the catfish population. Catfish industry groups are
currently conducting studies to determine the cause and treatment of
"off-flavor" conditions.
Uninsured Losses. Management maintains liability and casualty
coverage for its farms and its major equipment in amounts it deems appropriate.
However, certain losses from significant risks, such as disease, chemical
contamination, climatic conditions or natural disasters, such as ice storms,
floods, droughts or hurricanes, are either uninsurable or are not economically
feasible to insure. Should the Company incur a loss from such an uninsured
event, the Company could sustain a loss of its catfish farming business. In such
event, the Shareholders would lose all or substantially all of their investment
in the Company.
Ability to Sell its Fish Production. The Company does not have
the capability to process its own fish. The Company sells its catfish primarily
to two cooperative processors of which it is a member. Members of cooperative
processors are allocated fish delivery rights or sale allocations requiring the
cooperative to purchase an amount of fish in proportion to the number of shares
owned. The price received depends on the price paid by the processor at the time
of delivery. Cooperatives are managed by boards of directors elected by their
members. To the extent the cooperative processors operate profitably, the
members are benefited through price concessions, rebates and/or distributions.
To the extent cooperatives operate unprofitably, members are subject to
assessments to fund such losses. The failure to pay assessments generally
results in a loss of delivery rights and sometimes in the loss of membership
interests. Accordingly, the Company's ability to market its catfish in volumes
and at prices necessary for profitable operations substantially depends on the
ability of management of the cooperative processors of which the Company is a
member to operate their processors in an efficient manner. Moreover, fish the
Company cannot sell to its cooperative processors must be sold to other
processors on a negotiated basis in competition with other catfish producers.
While there are a number of processors located in the Mississippi Delta,
management does not believe there is sufficient competition among processors to
provide any substantial leverage to the catfish producers in negotiating prices.
These circumstances do not allow the Company to depend on stable catfish prices
for its future production. Thus, there is no assurance that the Company will be
able to sell its catfish production at a price which will allow it to realize a
profit.
Assessments By Delta Pride. The Company's principal catfish
processing cooperative, Delta Pride Catfish, Inc. has assessed its member
stockholders, including the Company, $.03 per pound of catfish processed to
cover operating losses sustained by Delta Pride during its fiscal year ended
June 30, 1997. Delta Pride has also notified its members that it may assess up
to an additional $.05 per pound of catfish processed which would be payable in
installments over a period from the end of 1997 through early 1998. As a member
of this cooperative, the Company must pay these assessments in order to retain
its member catfish delivery rights. In 1996, and for
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<PAGE> 14
the six months ended June 30, 1997, the Company sold 55% and 90%, respectively,
of its total catfish production to Delta Pride. The assessments were recorded as
a $272,000 charge to earnings during the six-month period ended June 30, 1997
and are expected to be paid out and thereby reduce the cash flow of the
Company during the next year. Moreover, although Delta Pride has instituted
significant measures, including a change in executive management, to end future
operating losses, there is no assurance it will be able to do so. Should Delta
Pride continue to operate at a loss, its members, including the Company, can
anticipate additional assessments in the future.
Should Delta Pride continue to sustain significant losses and/or should
a significant number of its members fail to pay their assessments as due, Delta
Pride's ability to continue to operate as a fish processing concern could be
suspended or terminated. In this event, the Company would be unable to market a
substantial percentage of its catfish unless it established alternative
processing arrangements. Also, in such event, the Company's significant
investment in Delta Pride cooperative stock would be significantly impaired or
possibly rendered valueless.
Availability and Price of Stock Fish and Supplies. The price
of stock fish, supplies such as feed, and labor are subject to fluctuations due
to availability and varying demands. Increased competition for supplies and
services within the catfish farming industry in general, and the Mississippi
Delta in particular, could cause temporary or prolonged price increases for
feed, labor or other items necessary to the Company's farming operations. While
management will attempt to obtain lower supply and labor costs through
cooperative purchasing, there is no assurance that it will be able to do so or
that future price increases will not occur. Prolonged increases in one or more
of these categories would negatively affect the Company's profitability and
ability to remain in business.
Effect of Competition. The catfish farming industry is
intensely competitive, particularly in terms of costs of production and price,
and to a lesser extent in terms of quality and marketing. Many of the Company's
competitors are better established, have substantially greater financial,
marketing and other resources than the Company, and some may have more
efficiencies in cost of production. The existence of any of these facts could
give such competitors an advantage over the Company. Moreover, one or more
competitors may develop and successfully commercialize catfish farming
techniques or procedures that provide them with an advantage over the Company in
terms of costs of production, price and quality of catfish production. As a
consequence, such competition may result in the Company's inability to compete
with such farming operations on a continuing basis.
Impact of Environmental Laws and Regulations. As a food,
catfish is subject to federal and state laws and regulations regulating the
cultivating and growing of edible products and the content of regulated or
restricted substances therein. For example, various herbicides, algaecides,
fungicides and other mineral and chemical supplements and treatments which the
Company may otherwise in controlling algae, fungi and other pests, are
restricted or prohibited under prevailing federal and state laws and
regulations. The chemical content of catfish is subject to federal standards and
the Company is susceptible to inclusions of restricted or prohibited substances
in its catfish through means beyond its control. For instance, such substances
may be included by feed or ground water utilized by the Company in cultivating
its catfish. In the event restricted or prohibited substances or chemicals are
discovered to be present in the Company's ponds or catfish in amounts exceeding
permissible levels, the Company could be prohibited from selling all or a
significant portion of its catfish for an extended period of time, and may be
required to destroy all or a substantial portion of its then-current catfish
production. Also, under certain circumstances, the Company could be required to
pay monetary damages and/or take remedial measures to remove or prevent
occurrence contamination by the restricted or prohibited substance or chemical.
In July, the FDA advised the catfish
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<PAGE> 15
industry that excessive levels of dioxin had been detected. Dioxin is a toxic
industrial byproduct thought to affect the human immune system and to cause
human reproductive disorders and cancer in the catfish and poultry feed
manufactured and distributed by one producer. The FDA proposed to immediately
ban all further shipments of catfish, eggs and poultry on a nationwide basis
that may have been contaminated by the trace levels of dioxin. The catfish
industry was able to delay FDA action until catfish producers had an opportunity
to test their catfish for dioxin levels. The Company, among other catfish
producers, had sufficient time to receive negative test results for dioxin
levels in their catfish production and avoid delaying shipment and sales of
their catfish after the ban implementation date. However, had the FDA not
delayed imposition of the ban, the Company and other catfish producers would
have experienced a delay in the sale and shipment of their catfish production
until such time as they could produce negative test results.
Also, under various federal, state and local laws, ordinances and
regulations, the owner of real estate generally is liable for the costs of
removal or amelioration of certain hazardous or toxic substances located on or
in, or emanating from, such property, as well as related costs of investigation
and property damage. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. Further, the presence of such substances, or the
failure to properly ameliorate such substances, may adversely affect the
Company's ability to operate or sell or rent a property or its catfish, or to
borrow funds using the property as collateral. Noncompliance with environmental,
health or safety requirements may result in the need to cease or alter the
Company's operations. Also, certain environmental laws impose liability on a
previous owner of property to the extent that hazardous or toxic substances were
present during the prior ownership period. Transfer of the property will not
relieve a prior owner of this liability. Thus, the Company could have liability
with respect to a property after it is sold.
The Company will not obtain its own environmental inspection of the
Company's properties. Based on management's previous inspections, general
familiarity with the Company's properties and its knowledge of the area,
management believes that the properties are in compliance in all material
respects with all applicable federal, state and local ordinances and regulations
regarding hazardous or toxic substances. Nevertheless, there is no assurance or
guarantee that hazardous or toxic substances will not later be found on a
property or that a property will not subsequently be found in violation of any
federal, state or local environmental law or regulation.
The Company may find it difficult or impossible to sell a property
prior to or following any such cleanup. If such substances are discovered after
the Company sells a property, the Company could be liable to the purchaser
thereof if the Company knew or had reason to know that such substances or
sources existed. In such case, the Company could also be subject to the costs
described above.
Risks Associated With the Company and the Securities
Ability to Achieve Profitable Operations. The Company reported
a net loss for the six-month period ended June 30, 1997 of $1,487,525 and had an
accumulated deficit of $5,484,760 as of such date. Also, none of the individual
Circle Creek Partnerships whose farming operations the Company has acquired has
achieved profitable operations. Based on current and historical industry data,
management believes the Company's ability to achieve profitable operations will
require it to maximize production on its farms and to achieve more efficient and
cost-effective farming operations so that its costs of production as a
percentage of gross revenues are minimized. Management believes this strategy is
necessary to meet the demands of the farm grown catfish industry where profit
margins are expected to narrow because wholesale fish prices are expected to
remain flat and inventory costs, particularly feed and fuel costs, are expected
to continue to
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<PAGE> 16
fluctuate and competition is expected to intensify. However, there is no
assurance that Management will be able to implement this strategy, or if
implemented that it will prove successful; and there is no assurance that the
Company will be able to operate at a profit in the future.
No Assurance of Proposed or Future Acquisitions. The Company
intends to acquire the farming operations of its four affiliated limited
partnerships in consideration for the issuance of its equity and debt securities
(the "Recent Consolidation"). The Company believes the acquisition of these
additional properties is necessary for it to achieve efficiencies of scale of
operations and will facilitate its ability to achieve profitable operations. See
Part III, Item 12 "Certain Relationships and Related Transactions." There can be
no assurance, however, that the Company will successfully complete the Recent
Consolidation. The Company's inability to acquire additional properties and/or
to expand its operations could adversely affect the Company's ability to achieve
necessary economies of scale of operations.
Adequacy of Capital. There is no assurance that the Company
has capital resources sufficient to meet its operating expenses and general and
administrative expenses in the future if anticipated revenues from fish
inventory sales are not realized. During the next twelve months, the Company
anticipates that it will incur substantial costs in its restocking and
rehabilitation of the farms acquired from Circle Creek Partnerships as it
endeavors to maximize production on those farms. In the event anticipated
operating revenues realized during this period, when added to current cash
reserves and proceeds, if any, from the Rights Offering, are not sufficient to
pay these costs, the Company may need to defer some or all of these
expenditures. In such event, it is unlikely such additional farms can be
operated profitably. Even if the Company, in the future, realizes a positive
cash flow from its operations, as to which there can be no assurance, it may
still require substantial capital to acquire additional farming properties and
further expand its farming operations. Such additional capital may not be
available when needed or on terms acceptable to the Company. The Company
anticipates seeking additional capital through public or private sales of its
securities, including equity securities. Future financings may result in the
issuance of equity securities and dilution to current shareholders. There are no
assurances that any additional debt or equity capital will be available to the
Company, or that, if such additional debt or capital is available, that the
terms would be favorable or acceptable to the Company. Insufficient funds may
require the Company to delay, reduce or eliminate certain or all of its
operations and development activities.
Disproportionate Effect of Inaccurate Valuation. The estimated
exchange values upon which the consideration paid to the partnerships
participating in the Recent Consolidation were based on consideration paid by
the Company in the Prior Consolidation. There is no assurance that such values
are not greater than those which would result from arms-length negotiations
between unrelated parties. The values used are one of a number of possible
reasonable estimates of the fair value of the net assets of the Company and the
participating partnerships. Therefore, it is likely that these estimated values
would differ from the actual value which would be paid by Shareholders of the
Company for each partnership's net assets to an unrelated party. In the event
these estimated values of the net assets of these partnerships are greater than
such actual fair value, the overvaluation would favor the limited partners of
those Partnerships over the Company. See Part III, Item 12.
Restrictions on Payment of Dividends. The terms of the
Company's 10.35% Notes and 7.15% Convertible Notes, and present institutional
credit arrangements restrict the Company from paying dividends on its capital
stock, in certain circumstances. Also, the Company may, in the future, enter
into credit arrangements which restrict the Company's ability to pay dividends
on its Series A Preferred Stock. In general, these credit agreements provide
that for as long as there is no default in the payment of principal or interest
or any other default causing the acceleration of indebtedness, the Company will
be
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<PAGE> 17
permitted to pay dividends on its Series A Preferred Stock. The restrictions on
the payment of dividends could prevent the payment of dividends on the Series A
Preferred Stock in the event the Company were unable to make the payment of
principal or interest as required by its credit agreements.
Absence of Earnings and Profits. Because the Company presently
has a deficit in accumulated earnings and profits for United States federal
income tax purposes, in general, unless the Company generates earnings and
profits each year in an amount at least equal to the amount of dividends payable
on the Series A Preferred Stock (and all other stock ranking senior thereto or
on parity therewith), all or part of the distributions made by the Company on
the Series A Preferred Stock will be treated as returns of capital rather than
dividends eligible for the dividends-received deduction. No assurance can be
given that the Company will be able to generate sufficient earnings and profits
to prevent all or a part of the distributions on the Series A Preferred Stock
from being treated as returns of capital.
Dependence on Management. The feasibility and profitability of
the Company will depend significantly upon the continued participation of Mr.
Hastings, Ms. Hastings and Mr. Braschwitz. Each of these persons is expected to
continue in his or her position with the Company. However, one or more of these
persons may in the future be unable or unwilling to continue with the Company.
The unavailability of any of these persons would likely have significant adverse
effect on the Company and its business. The success of the Company's future
operations depends in large part on the Company's ability to recruit and retain
qualified personnel over time, and there can be no assurance that the Company
will be able to retain its existing personnel or attract additional qualified
employees in the future.
Effect of Anti-Takeover Measures. The Company's Restated
Certificate of Incorporation includes certain notice and meeting procedures and
super-majority voting rights of stockholders regarding approval of certain
merger, consolidation and other business combination transactions. These
provisions could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of the Company by deferring certain mergers, tender offers or future takeover
attempts. Also, such provisions could limit the price that certain investors
might be willing to pay in the future for the Company's securities. Certain of
such provisions allow the Board of Directors to impose various procedural and
other requirements that could make it more difficult for stockholders to effect
certain corporate actions.
No Dividends on Common Stock. The Company has adopted a policy
of reinvesting its cash flow, if any, to expand its catfish farming operations
and expects to follow this policy in the future. Accordingly, shareholders
should anticipate not receiving regular dividends or distributions with respect
to their Shares.
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<PAGE> 18
Risks of Leverage. The use of leverage to purchase property
and/or operate a business involves substantial risks. While the effects of
leveraging are to increase the number of properties purchased or number or
amount of operations conducted by the Company, thereby increasing the potential
for gain to the Company's Shareholders, the financial risk to the Company and
thus the Shareholder's investment is substantially increased. One reason for
this is because the Company will be required to pay fixed payments to retire the
debt, irrespective of the success of its operations. To the extent that the
Company does not have funds available to repay its debt, holders of the debt may
call a default and, if the debt is secured by the assets of the Company, such
debt holders may foreclose on such assets. Nonsecured debt holders may seek
repayment from the Company's assets through legal process. In any event, a
default on its debt could result in the Company's loss of all or a material
portion of its assets which could, in turn, result in the loss of all or a
substantial portion of the Shareholder's investment in the Company.
The Company has used significant financing to acquire its farming
properties and assets in the Consolidation and may incur additional financing to
expand its operations and/or to acquire additional farming properties. The use
of such financing ("leveraging") will allow the Company to expand its operations
and acquire additional property with a smaller cash investment by the
Shareholders, and thereby provides the Shareholders with the opportunity of
participating in correspondingly greater proceeds from the operations. However,
leveraging will also expose the Company (and thus the Shareholders) to
correspondingly larger potential losses. In the event a farm is operated at a
loss or sold for an amount less than the principal amount of such financing,
plus accrued interest payable thereon, a Shareholder could lose all or part of
his or her investment.
The Company has substantial obligations with respect to its 10.35%
Notes and its institutional credit agreements. Leverage has significant
consequences including the following: (i) dedication of a portion of the
Company's cash flow from operations to the payment of interest in respect of its
debt obligations, which reduces the funds available to the Company for its
operations and future business opportunities; (ii) potential impairment of the
Company's ability to obtain additional financing in the future; and (iii)
potential vulnerability of the Company to a downturn in its business or the
United States economy generally. A high degree of leverage would also make it
difficult for the Company to generate sufficient working capital which could
adversely affect the Company's ability to fund its continuing operations at
necessary levels.
Risks of Balloon Payments. Generally, the Company's debt
obligations require balloon payments at the end of their term. The Company's
credit line with Community Bank is due in March 1998 and its other significant
debt is due between 1998 and 2002. In the event the Company is unable to
refinance these obligations or is otherwise unable to raise funds sufficient to
repay these obligations as scheduled, the Company would be in default of these
obligations. The Company's ability to repay these obligations when they mature
will be dependent upon its ability to obtain adequate refinancing or to
negotiate an extension. The Company's ability to obtain replacement financing
for these obligations will be dependent on, among other things, its financial
condition at the time and the economic conditions in general. Accordingly, there
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<PAGE> 19
is no assurance that, if necessary, AquaPro will be able to obtain replacement
financing for any of these obligations upon their maturity.
Item 2. Description of Property
Real Property. The Company owns eight non-contiguous farms having a
total of 137 ponds comprising 1,843 water acres situated on a total of 2,417
land acres. The farms are located in the Mississippi Delta area of Mississippi.
The table below sets forth information regarding these properties.
<TABLE>
<CAPTION>
Information Regarding The Company's Real Property
-------------------------------------------------
Name Unpaid Balance of
(Location of Total Acres Number Mortgage Loan at
Property) (Water Acres) of Ponds June 30, 1997
------------ ------------- -------- ------------------
<S> <C> <C> <C>
Circle Creek 275(210) 15 $ None
(Sunflower County, MS)
Panther Run 278(211) 15 None
(LeFlore County, MS)
Balmoral 318(270) 21 304,000(1)
(Sunflower County, MS)
Cypress Lake 254(193) 13 212,500(2)
(LeFlore County, MS)
Hidden Lakes 668(443) 43 1,055,244(3)
(Bolivar County, MS)
Stillwater 170(140) 8 134,700(4)
(Sunflower County, MS)
Crystal Waters 212(189) 11 267,100(5)
(Bolivar County, MS)
Niagara 242(188) 11 244,995(6)
(Bolivar County, MS)
</TABLE>
- ---------------------------------
(1) Note payable to an insurance company with current annual principal
payments of $16,000 through 2000 and the final installment of $256,000
due in 2001, with interest payable semi-annually at 7.7%. Note is
secured by real property with a book value of $830,000.
(2) Note payable to insurance company requiring annual principal payments
of $7,500 through 2002 and a final principal payment of $182,500 due in
2002 with interest payable semi-annually at 8.1%. Note is secured by
real property with a book value of $580,000.
(3) Note payable to a bank monthly principal and interest payments of
$11,754 through March 2000 and a final payment of approximately
$970,000 due April 2000 with interest at Prime plus 2 1/4%. Note is
secured by real property and equipment with a book value of $1,060,000.
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(4) Note payable to Metropolitan Life Insurance Company requiring annual
payments of $6,100 through March 2004 and a final payment of $92,000
due September 2004 with interest payable semi-annually at 9.5%. Note is
secured by real property with a book value of $240,000.
(5) Note payable to a bank collateralized by land with a book value of
$370,000 requiring annual payments of $34,307, including interest at
variable rates (9.05% at June 30, 1997) through 2015.
(6) Note payable to a bank collateralized by land with a book value of
$500,000 requiring annual payments of $31,732, including interest at
variable rates (9.05% at June 30, 1997) through 2015.
The Mississippi Delta is an approximately 10,000 square mile area lying
predominately on the east side of the Mississippi River, beginning in the
vicinity of Memphis, Tennessee and extending into Mississippi. The portion of
the Delta where the Partnership's farms are located is approximately 44 feet
above sea level and is located approximately 5-1/2 hours by car from the Gulf of
Mexico and 1-1/2 hours by car from the Mississippi River. Accordingly, the farms
are not likely to be susceptible to flooding. The farms are located within
approximately 45 minutes of each other.
Equipment. The Company owns certain equipment; including tractors,
implements (including portable aerator attachments), utility trucks and electric
aerators. It also owns various lesser pieces of equipment, including electric
pumps and power units, and miscellaneous equipment.
Cooperative Memberships. The Company belongs to the following
cooperatives.
Processing Cooperatives. AquaPro is a member of and owns
stock in the catfish cooperatives Delta Pride Catfish, Inc. ("Delta Pride") and
Fishco, Inc. ("Fishco"). Membership in these cooperatives provides the Company
with delivery rights for its catfish in amounts proportionate to its share
ownership. Prices paid by the cooperatives are not fixed in advance and are
determined at the time of delivery.
Feed Mill Cooperative. The Company is a member of and owns
stock in Indi-Bell (Delta Western) Feed Mill Cooperative. The Delta Western
Cooperative is one of the oldest and largest feed mill cooperatives with over
250 members. As a member of this cooperative, the Company is able to buy feed at
prices lower than are generally available from feed retailers. Also, for a
nominal charge, the Company is able to reserve or "lock-in" specified amounts
and at set prices. This cooperative hedges against price fluctuations for its
members through the purchase of futures option contracts on the Chicago Board of
Trade Futures Exchange. As a member of this cooperative, the Company can
purchase feed on an "as needed" basis on two days' prior notice. It is thus not
necessary for the Company to purchase and store large amounts of catfish feed.
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<PAGE> 21
Item 3. Legal Proceedings
The Company was not a party to any material legal proceeding during the
period covered by this report.
Item 4. Submission of Matters to a Vote of Security Holders
The Company submitted the following matters to its shareholders for
approval and/or ratification at their annual meeting held on April 16, 1997.
1. To elect four persons to the Company's Board of Directors
(the "Board"). Each of Management's nominees was elected to office.
2. Approval of the recent consolidation, including the merger
transactions involving the four affiliated Circle Creek Partnerships. See Part
III, Item 12, "Certain Relationships and Related Transactions."
3. Approval and ratification of the following two amendments
to the Company's Articles of Incorporation, each of which was approved by the
shareholders.
(a) Increase the authorized number of Preferred Shares
of the Company to 2,000,000 (two million) Shares.
(b) Approve and ratify the Board's authority to
designate one or more series or classes of the authorized preferred stock.
4. Approve and ratify the Company's Share Purchase Rights Plan
(the "Rights Plan"), subject to approval by the Board. The shareholders approved
this proposal. A Rights Plan has not yet been approved by the Board.
5. Approve the Company's Stock Option Plan, subject to approval
by the Company's Board of Directors. The shareholders approved the proposal. An
option plan has not yet been approved by the Board.
6. Ratify the Board's selection of Ernst & Young LLP as
independent accountants for the Company. The shareholders approved this
proposal.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market for the Company's Common Equity: The Company's equity securities
are not currently registered or traded on any exchange or in any market.
Recent Sales of Unregistered Securities: Set forth below is information
for all securities that the Company has sold in the past three (3) years without
registering said securities under the Securities Act of 1933 (the "1933 Act").
Share numbers and prices have not been adjusted to reflect the one for five
stock split effective September 18, 1996. See Part I, Item 8 above.
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<PAGE> 22
Between December 31, 1995 and June 15, 1996, Registrant issued the
following securities in connection with its acquisition of four (4) affiliated
partnerships. See Part III, Item 12 above.
The Company issued 404,764 units of its equity securities, and $149,098
in principal amount of its 10.35% Notes, to approximately 240 limited partners
of the four partnerships acquired in the Prior Consolidation. The units were
issued at a price of $10.00 per unit. The notes were issued at par. The units
and notes were issued for net assets valued at $4,199,210 for the purposes of
the transaction.
The Company issued 167,876 units to approximately 25 persons who were
holders of certain debt obligations of the Partnerships acquired in the Prior
Consolidation. These units were issued at the rate of $10.00 per unit in unpaid
balance of debt obligation exchanged. A total of $1,678,762 in principal amount
of the notes were exchanged.
The Company issued 362,704 shares of its common stock upon the exercise
of stock rights issued as part of the units in the Prior Consolidation. The
exercise price of the stock rights was $7.25. Net cash proceeds in the amount
of $2,137,928 were received from the Rights Offering. The Company paid
commissions of 5% of the exercise price of the stock rights exercised to
broker-dealers who provided solicitation services in the exercise of the stock
rights. As additional compensation to these persons, the Company issued
five-year options to purchase a total of 39,117 shares at a price of $9.38.
The Company issued 2,994 units at $10.00 per unit and 18,864 shares at
a price of $7.25 per share to Mr. Hastings in consideration of the cancellation
of a total of $166,704 of indebtedness.
Each unit issued in the Prior Consolidation was comprised of one Common
Share; one stock right entitling the holder to purchase one Common Share at
$7.25; one warrant entitling the holder to purchase one Common Shares for $8.25
within twelve (12) months following the Closing Date; and one warrant entitling
the holder to purchase one Common Share for $10.50 within twenty-four (24)
months following the closing date, which warrant, if not exercised prior to
expiration, is converted into three-tenths (0.3) Common Shares.
The 10.35% Notes in the Prior Consolidation are due December 31, 2002
and bear interest at the rate of 10.35% per annum for the period from and
including the date of original issuance. The 10.35% Notes are convertible into
common stock at a price of $10.42 per share.
In issuing its securities in the Prior Consolidation the Company relied
on the exemptions set forth in Section 3(a)(10) of the 1933 Act by reason of a
fairness hearing duly noticed and held by the California Commissioner of
Corporations pursuant to Section 25142 of the California Corporate Securities
Law of 1968, as canceled.
During the years ended December 31, 1995 and 1996 and during the six
month period ended June 30, 1997, the Company issued seven year, $6.25 stock
options to officers for 54,000, 54,000 and 51,000 shares, respectively, and
9,000, 12,000 and 12,000 shares, respectively, to directors. The options were
issued as compensation to the Company's Officers and Board of Directors. Also,
during the years ended December 31, 1995 and 1996 and during the six month
period ended June 30, 1997, the Company issued a total of 20,000, 20,000 and
22,500 restricted common shares valued at approximately $3.125 each,
respectively, to officers. In issuing the foregoing shares and options, the
Company relied on the exemptions under Section 4(2) of the 1933 Act and Rule
701, promulgated thereunder. Each transaction effected in reliance upon the
exemption under Section 4(2) shares or options were issued either to an officer
or director of the Company. In the case of directors and executive officers, as
control persons, and their familiarity with
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<PAGE> 23
the Company, the Company felt determined that their level of sophistication was
sufficient to support the exemption. With respect to the three issuances to
lower level executive personnel, the Company relies on the exemption under Rule
701.
Over the past three years, the Company issued options which, when
exercisable, will entitle the holders thereof to purchase a total of 1,476
shares at a price of $9.38 as additional underwriting compensation to
broker-dealer firms which placed L.P. Units and/or Investor Notes in CCA V, CCA
VII and CCA VIII. These options were issued upon reliance on the exemption under
Section 4(2) of the 1933 Act.
Pursuant to the September 18 Dividend, the Company issued 218,994
shares as a one-for-five stock dividend to shareholders of record on September
18, 1996.
Commencing on September 10, 1996 through June 30, 1997, Company sold a
total of 235,507 Preferred Units, each Unit consisted of one share of the
Company's Series A Preferred Stock and one, $7.50 Common Stock Purchase Warrant,
which expires on December 31, 1998 and is converted into 0.3 share of common
stock if it expires unexercised. Units were sold at $10 per Unit to a total of
90 accredited persons and not more than 35 non-accredited persons within the
meaning of Rule 506 of the 1933 Act. The Company offered and sold the Series A
Preferred Stock and $7.50 Common Stock Purchase Warrants in reliance upon the
exemption set forth in Rule 506 of Regulation D promulgated under the 1933 Act.
Pursuant to this exemption, sales were made only to accredited persons or
non-accredited persons who either alone or together with their purchaser
representatives, were sophisticated for the purposes of Rule 506.
On June 30, 1997, the Company issued a total of 708,926 Units of its
Common Stock and stock rights and $68,582 of its 7.15% Notes to the
approximately 340 Limited Partners of CCA V, CCA VI, CCA VII and CCA VIII in the
Recent Consolidation. The issuances were on the terms and conditions described
under Part III, Item 12. In issuing these securities the Company relied upon the
exemption from registration under Section 3(a)10 of the 1933 Act pursuant to a
fairness hearing duly noticed and held by the California Commissioner of
Corporations on March 31, 1997.
Item 6. Management's Discussions and Analysis of Financial Condition
and Results of Operations
Introduction
AquaPro Corporation consists of the combination of eight catfish farms
which, individually, were Limited Partnerships prior to December 31, 1995 (CCA
I, CCA II, CCA III and CCA IV), American Fisheries Corporation (the farm
management company), and Circle Creek Aquaculture, Inc. (the syndication
company for the catfish farming limited partnerships) or June 30, 1997 (CCA V,
CCA VI, CCA VII, and CCA VIII). The mergers of these entities with AquaPro
have been accounted for as though they were a pooling of interests because of
the common control of the entities and AquaPro. Prior to these mergers, the
limited partnerships pursued short-term goals of pass-through tax benefits and
maximum cash distributions rather than focusing on longer-term plans and goals.
AquaPro owns and manages catfish aquaculture farms with the purpose of raising
and selling catfish to food processors.
In 1996, AquaPro began the implementation of plans that could not be
accomplished as individual partnerships before consolidation:
- Cost reduction through economies of scale
- Improved risk management through spreading the risks inherent
in catfish aquaculture over more geographical areas, farms and
ponds.
- Improved production capacity through investment in farm
capital improvement projects.
- Long-term increases in sales volume on existing farms through
increased stocking levels of fry and fingerlings and intensified
management practices.
- Reduced interest costs from retirement of debt.
- Growth in market share and further efficiencies from acquisition of
other catfish farms including CCA V, CCA VI, CCA VII and CCA VIII.
The Limited Partnerships were not profitable as individual entities.
Also, the financial statements show that AquaPro, even after the first
consolidation, has not been profitable since inception. This discussion should
be read in conjunction with the Financial Statements and the Notes to the
Financial Statements included elsewhere herein.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements based on the
Company's current expectations. The actual performance of the Company could
differ materially from that indicated by the forward-looking statements because
of various risks and uncertainties including, without limitation, cost and
availability of feed, market price received for the Company's fish, mortality
of fish from disease or low oxygen levels, inability to acquire fry and
fingerlings at reasonable costs, changes in consumer demand for catfish,
difficult climatic conditions, the extent to which the number of "off flavor"
fish occur and delay fish sales to processors, the availability of adequate
financing for AquaPro and its terms as well as the impact that credit
limitations would have on competitors to force them to sell fish at or below
market or cost, inability to acquire more farms at competitive prices, the
catfish industry's ability to gain increased market acceptance for its existing
product line, the ability for the Company to scale up its production and reduce
costs per pound, the potential of quarterly variations in demand, production
and sales, the impact of new and changes in government regulations on food
products and general economic conditions. These risks and uncertainties cannot
be controlled by the Company. When used herein, the words "believe,"
"estimate," "plans," "goals," "expects," "should," "outlook," "anticipates,"
and similar expressions as they relate to the Company or its management are
intended to identify forward-looking statements.
Results of Operations Six Months Ended June 30, 1997 Compared to Six Months
Ended June 30, 1996
Revenue. Net sales during the six month period ended June 30, 1997
totaled $1,203,468 compared to $1,891,390 for the same period in 1996. This
represents a decline of $687,922 or 36.4%. Volume decreased 755,000 pounds to
1,638,000 pounds of fish sold compared to 2,393,000 pounds sold during the six
month period ended June 30, 1996. Accordingly, volume represented a 31.5%
decline during the six months ended June 30, 1997 compared to the same period in
1996. The remainder of the decline was due to a price decrease of approximately
6 cents a pound to 73 cents realized in 1997 compared to 1996 when the average
price of fish sold was 79 cents. This decrease in average price resulted from
lower prices received by the Company's major customers from food distributors,
restaurants, and grocers due to an increase in competitive pricing policies as
processors attempted to increase their market share. The Company's major
customers in turn passed on the lower prices to the catfish farmers, including
the Company. This trend did not follow historical price patterns since,
typically, catfish prices increase during the Lenten season. Furthermore, the
trend of these lower prices has continued into the summer months, and the
Company cannot predict when more favorable prices will occur.
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<PAGE> 24
During the first six months of 1996, the Company increased its efforts
and expenditures to adequately stock its ponds for future sales growth. Due to
the 12 to 18 month grow-out period for catfish to reach marketable size, this
stocking was not ready for market by the second calendar quarter of 1997.
Additionally, unusually cool spring weather prevented normal feeding and growth
patterns of catfish and, accordingly, fewer fish were of food size and available
for sale by June 30, 1997. Management expects to substantially increase sales
beginning July 1, 1997 as a result of the availability of the stocking in
the first half of 1996 discussed above. Sales for the first fiscal quarter
ending September 30, 1997 are expected to total approximately 1,800,000 pounds
which compares to 1,683,000 pounds sold during the first six months of 1997.
However, due to the unusually cool spring weather and poor feeding season,
optimal production and sales levels of 2,200,000 pounds of fish per quarter are
not expected to be achieved until April 11998 when the feeding season begins
next year. Catfish grow to marketable size during the warmer weather months from
the middle of March through the Middle of October.
Cost of Products Sold and Margin. Cost of Products Sold was $1,188,159,
a decrease of $425,751 or 26.4% compared to the first six months of 1996, while
net sales decreased 36.4%. Margin from fish sales was 1.3% during the six month
period ended June 30, 1997 as compared to 14.7% in the same period in 1996.
These margin levels were both below expected margins of 20 to 25% based on
recent price and cost structures. During the first six months of 1997, the
Company recorded $244,000 of additional reserves for mortality. These reserves
were deemed necessary as spring weather approached and inventory was physically
observed, indicating that winter kill of catfish was higher than previously
estimated. Had this reserve not been required, margin from fish sales would
have been 21.6% for the six month period ended June 30, 1997. In the six months
ended June 30, 1996, certain ponds were emptied for refurbishing and mortality
adjustments of approximately $220,000 were recorded in cost of products sold.
Had these mortality adjustments not occurred, margin from fish sales would have
been 26.3%. The lower margin from fish sales was due, in part, to the higher
cost of feed for the six months ended June 30, 1997 compared to the same period
in 1996. The Company's average cost of feed in 1997 was $263 per ton compared
to $244 per ton in 1996. Management believes that these reserve and mortality
adjustments were unusual and of a nonrecurring nature but cannot predict with
certainty due to risks beyond its control that such adjustments will not be
necessary in the future.
Selling, General and Administrative. Selling, General and
Administrative expenses during the first six months were $1,055,540 or $390,557
higher than in the six month period ended June 30, 1996. This increase was
primarily due to an increase in legal and accounting fees of approximately
$213,000 incurred during 1997 to facilitate the acquisition of the four
remaining catfish farming limited partnerships by the Company. This acquisition
was accomplished effective June 30, 1997. Additionally, legal and accounting
fees increased in 1997 compared to the same period in 1996 as the Company
prepared to become a public company registered with the Securities and Exchange
Commission.
Delta Pride Assessment. During the six month period ended June 30,
1997, the Company was required to record a net charge of $272,000 for its share
of losses of Delta Pride's operations. In 1996, the charge was $79,969. About
April 15, 1997, Delta Pride disclosed that it was experiencing significant
operating losses and that, since it operates as a cooperative, shareholders are
allocated these operating losses during the year ending June 30, 1998.
Management had previously expected a chargeback of $80,000 or less. Most recent
information from Delta Price indicates that operating losses will be incurred
during the year ending June 30, 1998 and the Company's portion of these loses
will total $80,000 or more. The Company cannot predict with any certainty what
its share of Delta Price's losses will be, and unless major
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<PAGE> 25
changes occur at Delta Pride, the charge for the year ending June 30, 1998 could
be substantially higher than $80,000. The Company is taking steps to reduce its
dependency on Delta Pride as a major customer but, because of the limited number
of catfish processors, there can be no assurance that it will be able to do so.
Interest Expense. Interest expense decreased $17,485 or 7.6% to
$212,685 in the six month period ended June 30, 1997 compared to the same period
in 1996. Debt levels were slightly lower during the 1997 period compared to 1996
and interest rates were slightly lower due to variable rate adjustments on
ceratin debt effective January 1, 1997. Management anticipates higher levels of
debt and interest expense during the year ending June 30, 1998 due to higher
than anticipated borrowings for catfish feed resulting from the delay in
production and sales discussed above, partially offset by a reduction in the
balance of Investor Notes converted to Preferred Stock (see Liquidity and
Capital Resources discussion below).
Income taxes as of June 30, 1997. The Company had net operating loss
carry-forwards of approximately $2,600,000 available to reduce taxable income
through the year 2012.
Seasonality of Operating Results. In prior years, the revenues of
AquaPro have fluctuated from quarter to quarter depending on stocking levels and
results of feeding. Also, prices for live fish have tended to rise during the
first part of the year and drift downward during the summer, only to rise again
in September and October and fall in November and December before beginning the
annual price cycle again. Accordingly, quarterly operating results of the
Company may vary from quarter to quarter and year to year and cannot be
predicted with certainty.
Results of Operations 1996 Compared to 1995
Revenue. Net sales in 1996 increased to $3,906,954, an increase of
$914,667 or 30.6% over 1995. The increase resulted from a 1,167,000 pound or
30.5% increase resulting in 4,999,000 pounds of fish being sold in 1996.
The net price per pound was 78 cents in 1996 and 1995.
The increase in net sales was attributable to more food-sized fish
available for sale, additional processing rights available to the Company in
1996, and the opportunity to sell more fish to processors in excess of
contractual rights. AquaPro anticipates increased revenues in 1997 as a result
of the grow-out of an increased number of fingerlings placed into pond
inventory in early 1996. Also, in early 1997 the Company contracted to sell an
additional 1,500,000 pounds of fish during 1997. This contractual arrangement
will allow the Company to increase sales beyond existing delivery agreements.
Cost of Products Sold. Cost of products sold was $3,525,405, an increase
of $1,222,211 or 53.1% over 1995, while net sales increased only 30.6%. Margin
from fish sales was 9.8% in 1996 compared to 23.0% in 1995. As ponds were
emptied for refurbishing during 1996, mortality adjustments of approximately
$438,000 were required to be recorded in cost of products sold. Had these
mortality adjustments not occurred, margin from fish sales would have been
21.0%, which was lower than in 1995 principally due to higher feed costs in
1996 compared to 1995.
Catfish feed is a major portion of cost of products sold. Uncertainties
in the grain futures markets and high demand for soybean and corn resulted in
higher feed costs during the second half of 1996. The Company has contracted
to purchase approximately 85% of its 1997 feed needs at an average cost of $252
per ton which was lower than the $287 per ton cost on the spot market in March
1997.
Selling, General and Administrative. Selling, General and Administrative
("SG&A") expenses were $1,349,499 in 1996, $27,539 higher than in 1995. During
1995, approximately $132,000 of legal and accounting expenses were incurred in
connection with the Prior Consolidation. Selling costs increased in 1996 over
1995 due to the increase in sales volume.
Interest Expense. Interest expense decreased in 1996 to $555,974 from
$674,149 in 1995. This decrease resulted from $1,932,103 reduction in debt
during 1996 principally from the conversion of $1,678,762 in investor notes to
the Company's common stock, rights, and warrants in AquaPro as part of the
Prior Consolidation. The balance of the debt reduction resulted from
application of part of the proceeds of exercise of the Company's Rights
Offering in 1996.
Liquidity and Capital Resources
As of June 30, 1997, the Company had a current ratio of 3.4 to 1, as
compared to 3.9 to 1 at December 31, 1996. Current assets exceeded current
liabilities by $4,289,944 compared to $4,405,922 in December 1996. Cash and cash
equivalents decreased during the six month period ended June 30, 1997 by
$556,163.
Cash and cash equivalents were used primarily to fund operating losses
and grow live fish inventories. Live fish inventories increased by almost
$1,200,000 during the six month period ended June 30, 1997. As discussed above,
net sales declined when compared to the previous year and the increase in live
fish inventories was funded by a $533,298 decrease in trade accounts receivable
and a $318,368 increase in accounts payable since December 31, 1996 as well as
cash on hand. Inventories normally increase during this period but the increase
was greater than normal due to the decline in sales.
During the six month period ended June 30, 1997, the Company purchased
approximately $530,000 in property and equipment. The Company's budget for the
calendar year 1997 was $750,000 and these purchases were within the planned
expenditures. For the fiscal year ending June 30, 1998, the Company's budget for
capital expenditures is $900,000. To increase production capacity, certain major
pond reworking programs are scheduled to be completed at a cost of approximately
$400,000. Management believes that in order to maintain productive catfish
farming operations over the long-term, 10 percent of ponds need to be reworked
each year and that capital will be required to maintain high levels of
production. The remaining $500,000 in property and equipment purchases planned
during the next year include additional aeration equipment to provide double
aeration to the refurbished ponds and vehicles and tractors to replace older
equipment. Also, in August 1997, the Company moved its administrative offices in
Mississippi to one of its farms from an office facility it had previously shared
with another catfish farming operation. This move required the purchase and
installation of double wide mobile trailer homes on the Company's farm land in
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<PAGE> 26
Sunflower, Mississippi. The total cost of this move was approximately $150,000,
including the trailers, utility hook-ups, well construction, and ground
preparation.
During the six month period ended June 30, 1997, the Company realized
proceeds from the sale of preferred stock and additional long-term borrowings of
$1,089,239 and $312,722, respectively. These funds were used to fund the
Company's operations and to increase its inventory as discussed above.
Additionally, principal payments totaling $149,708 were made to reduce long-term
debt and preferred stock dividends of $65,427 were paid during the six months
ended June 30, 1997.
The Company intends to fund its operations primarily through fish
sales, cash reserves, $925,000 in feed credit lines, the proceeds of sales from
the Company's stock rights offering, additional credit lines and long and
short-term debt, if needed. On April 16, 1997, a $750,000 credit line was
established with a bank in Mississippi as a revolving line of credit for catfish
feed purchases. Borrowings (which totaled $497,571 at June 30, 1997) are
secured by shares of the Company's cooperative processing stock and all
accounts receivable and live fish inventories on and related to seven of the
Company's eight farms. Interest is paid monthly and principal is paid with 50
percent of all collections of accounts receivable from sales of the seven
farms. Interest accrues at the prime rate plus 165 basis points and the
commitment expires March 8, 1998 with no prepayment penalty. During the quarter
ending December 31, 1997, the Company intends to attempt to obtain an
additional credit facility of up to $3,000,000. The Company anticipates its
cash needs during the year ending June 30, 1998 will exceed its current
borrowing capacity. It is anticipated any new credit facility obtained will
replace the revolving line of credit mentioned above. This new credit facility,
if obtained, will give the Company added flexibility to access funds for
general corporate purposes in addition to catfish feed purchases.
In addition to the $750,000 credit line described above, the Company
has a $175,000 revolving feed credit line with a feed and processing company.
Approximately $31,000 was used at June 30, 1997. The interest rate is 10.25%
and the lender applies 34 cents for each pound of fish sold from the Balmoral
Farm as payment on the credit line. The collateral is a first lien on the
catfish inventory of the Balmoral Farm.
Management believes that additional capital will be necessary to
support the Company's growth. Management believes that the net proceeds from the
1997 stock rights offering, combined with its existing cash and cash
equivalents, long and short term debt and product sales, will be adequate to
fund its planned existing operations and capital requirements discussed above
through June 30, 1998. Subsequent to June 30, 1997, $900,000 of the Company's
10.35% convertible notes were exchanged by debt holders into preferred stock.
Also, approximately $525,000, net of offering expenses, was raised from the
Preferred Stock rights offering. However, the Company may require additional
capital, which it may seek through equity or debt financing, collaborative
arrangements with corporate partners, equipment lease financing or funds from
other sources. No assurance can be given that these funds will be available to
the Company on acceptable terms, if at all. In addition, because of the
Company's need for funds to support future operations, it may seek to obtain
funds when conditions are favorable, even if it does not have an immediate need
for additional capital at such time.
Item 7. Financial Statements and Supplementary Data
The financial statements are attached hereto beginning on page F-1.
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
The Company had no disagreements with or changes in its independent
accountants.
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<PAGE> 27
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons, Compliance with Section 16(a) of the Exchange Act.
Set forth below are the Directors and Executive Officers of AquaPro and
their ages, positions held and length of service.
<TABLE>
<CAPTION>
An Officer of the Director of the
Company (or a Company (or
Name and Age Position Predecessor of the Predecessor) Since
------------ -------- Company) Since ------------------
------------------
<S> <C> <C> <C>
George S. Hastings, Jr. Chairman of the Board 1983 1983
Age 50 Chief Executive Officer
President
Patricia G. Hastings Executive Vice President, 1983 1983
Age 49 Secretary and Director
Eric P. Braschwitz Chief Financial Officer 1997 --
Age 40
Debra D. Kelly Vice President/National 1994 --
Age 40 Marketing Director
Roger Daley* Director -- 1996
Age 74
Joseph Duncan, Sr.* Director -- 1995
Age 70
</TABLE>
* Independent director, i.e. director who is not an officer or employee of the
Company.
- ----------------------
None of the persons named are directors of any Reporting Companies.
"Reporting Companies" include companies with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or subject to the requirements of Section 15(d) of the 1934 Act, or
any company registered as an investment company under the Investment Company Act
of 1940, as amended (the "1940 Act").
Set forth below is a description of the business and employment
background of the Company's Directors and Executive Officers.
George S. Hastings, Jr. has been involved in the catfish
Aquaculture industry since 1986. Mr. Hastings has sponsored eight catfish
farming programs, including the Partnerships. Mr. Hastings has substantial
experience in all levels of catfish farm management. Mr. Hastings serves as an
officer and director of the Company's wholly-owned subsidiaries, American and
Circle Creek, the predecessor of which he co-founded in 1983. From 1976 through
1983, Mr. Hastings worked in various capacities for Advanced Financial Planning
Corporation in Nashville, Tennessee, a financial planning firm emphasizing the
formation and sale of real estate investment programs. From 1983 to 1995 Mr.
Hastings owned 50% of and operated the Hastings/Huntingdon Companies which
provided financial planning, advisory and brokerage services to private
individuals and organizations. Mr. Hastings received his B.S. Degree in Finance
with a minor in accounting from the University of Tennessee and holds a J.D.
Degree from the University of Tennessee
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<PAGE> 28
College of Law. Mr. Hastings has been a member of the State Bar of Tennessee and
the U.S. Tax Court since 1976.
Patricia G. Hastings has been involved in the catfish
Aquaculture industry since 1986. Ms. Hastings also serves as an officer and
director of American and Circle Creek, which she co-founded in 1983. From 1983
to 1995, Ms. Hastings owned 50% of and operated the Hastings/Huntingdon
Companies which provided financial planning, advisory and brokerage services to
private individuals and organizations. Ms. Hastings and Mr. Hastings are
married. Ms. Hastings holds a B.A. Degree in English magna cum laude, Phi Beta
Kappa from the University of Tennessee and a J.D. Degree from the University of
Tennessee College of Law. Ms. Hastings was admitted to the Tennessee State Bar
in 1976.
Eric P. Braschwitz joined the Company on March 3, 1997.
Previously, Mr. Braschwitz served as assistant controller for Camping World,
Inc., a $200 million retailer with 25 store locations. At Camping World, Mr.
Braschwitz was responsible for all accounting and financial reporting and
directly supervised a staff of twelve and indirectly managed eighteen others.
Prior to joining Camping World in 1993, Mr. Braschwitz served for fourteen years
in progressively more responsible positions at Ernst & Young LLP and its
predecessor firms. Mr. Braschwitz has performed auditing services for a number
of public companies and has extensive experience in, among other fields,
Securities and Exchange Commission accounting and reporting. He has been a
certified public accountant since 1981. Mr. Braschwitz is 40 years old and
received his Bachelors degree in Business Administration with Option in
Accounting degree from The University of Texas at El Paso.
Debra D. Kelly has served as an officer of the Company since
1994. Previously, Ms. Kelly worked as an international commodities trader in
precious metals and foreign currency for ten years. She also has financial
planning experience in mutual funds and annuities and was an independent public
relations coordinator for an internationally recognized firm for over five
years. Ms. Kelly is listed in Who's Who in Women of Finance and Marquis Who's
Who of American Women.
Roger A. Daley served as a Director of the Company effective
September 16, 1996. Prior to his retirement in 1986, Mr. Daley served as General
Manager and President of the Knoxville News Sentinel, which he first joined as
an advertising sales representative in 1946. During his service with the News
Sentinel, the newspaper expanded five times and became agent for the Knoxville
Journal. Mr. Daley has also served as a guest consultant on business and
marketing for Taiwan and West Germany. He served as a charter member of and is
past president of the Knoxville Sales Executives Club and the Greater Knoxville
Advertising Club. He received the Printer Ink "Man of the Year" award and is a
charter member and served on the Board of the Better Business Bureau. Mr. Daley
has also served as a member of the American Newspaper Publishers Association and
of the Southern Newspaper Publishers Association, for which he served on several
committees and served three years on that Board. In addition, he has served in
various capacities for numerous charitable and civic organizations, including
service on the Executive Council of the United Fund as a past president of the
Tourist Bureau and as vice president of the Chamber of Commerce.
Joseph Duncan, Sr. has been elected and has served as a
Director since December 30, 1995. Mr. Duncan previously served as Chairman of
the Board of Security Alarms & Services Inc. ("SAS") until it was acquired by
National Guardian Services Corporation. Prior to that time, SAS was the largest
independently-owned, full-line security company in the Central South United
States, specializing in burglar and fire alarm systems, access control and
security guard services. Mr. Duncan is past president of the National Burglar &
Fire Alarm Association, and served as a member of the board of directors of that
trade
-26-
<PAGE> 29
association for fourteen years. In addition, Mr. Duncan served as a board member
or advisor to a number of national and regional trade associations including the
National Council of Investigation & Security Services, the Central Station Alarm
Association, and the Tennessee Burglar & First Alarm Association. Mr. Duncan
became a shareholder of the Company pursuant to the Prior Consolidation and is
also an investor in Circle Creek V.
Based upon a review on the Forms 3 furnished to the Company with
respect to its most recent fiscal year, each of the Company's Directors,
Executive Officers, Promoters and Control Persons failed to timely file his or
her initial Form 3 under Section 16(a) of the Securities and Exchange Act of
1934. Each person filed his or her report on or about September 29, 1997.
Item 10. Executive Compensation
The following table sets forth remuneration to be paid by the Company
and/or its subsidiaries to its Chief Executive Officer and to its other highly
compensated executive officers of which there is only one whose annual salary
and bonus exceeds $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Value of Securities
Name and Restricted Underlying
Principal Position Year Salary Bonus Stock(2) Options(3)
- ------------------ ---- ------ ----- ---------- -----------
<S> <C> <C> <C> <C> <C>
George Hastings, Jr. 1997(1) $75,000 $10,400 $28,125 36,000
Chief Executive Officer(3) 1996 150,000 56,000 28,125 36,000
1995 56,931 None 28,125 36,000
Patricia G. Hastings 1997(1) $37,500 $5,200 $18,750 9,000
General Counsel, Vice President, 1996 75,000 6,000 18,750 9,000
Secretary(3)(4) 1995 56,931 None 18,750 9,000
</TABLE>
- ---------------------------------
(1) A transitional six-month fiscal year.
(2) Shares issuable on April 1, but subject to 2-year vesting whereby
shares will be lost if employee voluntarily terminates employment or is
terminated for cause before the vesting period ends. Shares were valued
at $3.13 per Share, which is 50% of current value of $6.25.
(3) Options are exercisable for a 7-year period commencing on the date of
issuance at a price of $6.25 per Common Share. See discussion below.
(4) Mr. Hastings and Ms. Hastings have agreed between themselves to share
equally their combined compensation from the Company.
- ---------------------------------
The following table sets forth certain information regarding stock
options and warrants granted to each named Executive Officer by reason of their
employment during the Company's 1997 fiscal year.
-27-
<PAGE> 30
Option/Warrant Grants in 1997(a)
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------------
Number of Securities % of Total Options/Warrants
Underlying Grants to Employees Exercise or Base Expiration
Name Options/Warrants Granted in Fiscal Year Price ($/Share) Date
---- ------------------------ --------------------------- ---------------- -----------
<S> <C> <C> <C> <C>
George S. Hastings, Jr. 36,000 70.6% $6.25 3/31/2004
Patricia G. Hastings 9,000 17.6% $6.25 3/31/2004
</TABLE>
- ---------------------------
(a) Six-months ended June 30, 1997.
- ---------------------------
The following table sets forth the value of all unexercised employee
stock options and Director Options held by the Named Executive Officers as of
June 30, 1997.
Aggregated Option and Warrant Value Table
-----------------------------------------
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
------------------------------ --------------------
Name Exercisable/Unexercisable(1) Exercisable/Unexercisable
- ---- --------------------------- -------------------------
<S> <C> <C>
George S. Hastings, Jr. 117,000/None None/None(1)
Patricia S. Hastings 36,000/None None/None(1)
</TABLE>
- ---------------------------
(1) No Options are in-the-money based on the value of the Company's Common
Stock, which, as of June 30, 1997, is estimated to be $6.25 per Share
for the purposes of this table, as adjusted for the September 18
Dividend.
- ---------------------------
Employment Contracts. The Company has entered into separate written
employment agreements with Mr. George Hastings and Ms. Patricia Hastings.
Pursuant to their agreements each receives a base salaries of $150,000 per annum
and $75,000 per annum, respectively. In addition each is entitled to awards of
restricted stock and stock options and medical insurance coverage and to such
annual bonus compensation as determined by the Board of Directors. The award of
any bonus compensation, however, is dependent on the achievement of certain
performance levels by the Company, including growth in funds from operations
and/or water acres under management. The stock options awarded pursuant to such
employment contracts are exercisable for a term of seven years at an exercise
price equal to $6.25 per share and are exercisable upon issuance. Each agreement
has an initial three-year term and is automatically extended for an additional
year at the end of each year of the agreement, subject to the right of the
Company to terminate the contract for cause upon notice or voluntarily by giving
at least three months' prior written notice and the payment of severance payment
equal to three years of compensation.
Explanation of Long-Term Compensation. The employment contracts for
each of the executive employees provide for yearly issuances of Restricted
Stock, in the amounts stated, during the term of their contracts. Thus, total
stock of approximately 3% of the total outstanding will be issued each year.
Under their respective employment contracts, each of the executive employees is
awarded stock options in the amount stated entitling the holder to purchase
shares at a price of $6.25 per share. These options are for a term of seven
years.
-28-
<PAGE> 31
Compensation of Directors. The Company does not pay its Directors cash
remuneration for their service but does reimburses each Director for his or her
out-of-pocket expenses incurred in connection with attending meetings. In
addition, commencing for its fiscal year 1995, the Company annually awards each
Director (including Directors who are officers of the Company) options for the
purchase of 3,000 Shares (the "Director Options"). The Director Options have a
term of seven years and are exercisable at a price equal to the estimated market
value of the common shares on the date of issuance. These options have a term of
seven years.
Stock Option Plan. The shareholders have approved and authorized a
stock option plan for officers, directors, employees and consultants to the
Company. The Plan is designed to comply with Rule 16b-3 under the 1934 Act. The
purpose of the stock option plan is to encourage stock ownership by current and
future officers, directors, employees and consultants to the Company, and
certain other persons judged by the committee who would administer the plan to
be instrumental to the success of the Company, and to give such persons a
greater personal interest in the Company achieving continued growth and success.
The stock option plan would be administered by persons who are "disinterested
persons" within the meaning of paragraph (c)(2) of Rule 16b-3. The Plan has not
yet been approved by the Board and has not yet been implemented.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of June 30, 1997,
by each person or entity who is known to the Company to be the beneficial owner
of more than 5% of the Company's Common Stock, the beneficial ownership by each
officer, Director and the beneficial ownership of all Directors and Officers as
a group:
<TABLE>
<CAPTION>
Amount and Nature of
Name & Position Beneficial Ownership
Officers and Directors Number of Common Shares(%)(1)
- ---------------------- -----------------------------------------
<S> <C> <C>
George S. Hastings, Jr. 369,774(2)(3) (11.76%)
President, Chief Executive Officer and Chairman of the Board
Patricia G. Hastings 369,774(2)(3) (11.76%)
Executive Vice President, Secretary and Director
Debra Kelly 18,000(4) (0.57%)
Vice President of Marketing
Roger Daley 61,373(5) (1.95%)
Director
Joseph F. Duncan, Sr. 32,933(6) (1.00%)
Director
All officers and directors as a group (five persons) 482,080 (15.33%)
- ---------------------------------------------
</TABLE>
(1) In accordance with Rule 13d-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), Common Shares which are not
outstanding but which are subject to vested options, warrants, rights
or conversion privileges have been deemed to be outstanding for the
purpose of computing the percentage of outstanding Common Shares owned
by the individual having such right, but have not been deemed
outstanding for the purpose of computing the percentage for any
-29-
<PAGE> 32
other person. The $6.25 Compensatory Options and Director Options
referenced in the table and below, are adjusted to reflect the
September 18 Dividend and previous to such adjustments had an exercise
price of $7.50.
The total number of Common Shares outstanding is 3,144,609 as of June
30, 1997, which includes 2,670,667 Common Shares issued and
outstanding, 313,224 Common Shares issuable on the mandatory conversion
of 235,507 shares of Series A Preferred Stock outstanding at June 30,
1997 and 160,718 issuable upon conversion of the Investor Notes assumed
by the Company in the Recent Consolidation. Neither Mr. Hastings nor
Ms. Hastings owns any shares of the Series A Convertible Preferred
Stock. No shares of the Series A Preferred Stock will remain
outstanding after the mandatory conversion date.
The number of Common Shares owned by each person equals the Common
Shares outstanding beneficially owned plus Common Shares issuable to
the beneficial holder upon the exercise of the rights, warrants and/or
options deemed to be outstanding.
(2) Includes the following Common Shares, warrants and options held of
record by Mr. Hastings: 108,776 Common Shares and 117,000 Common Shares
issuable upon the exercise of 108,000 $6.25 Compensatory Options and
9,000 Director Options.
(3) Includes the following Common Shares, warrants and options held of
record by Ms. Hastings: 107,998 Common Shares and 36,000 Common Shares
issuable upon the exercise of 27,000 $6.25 Compensatory Options and
9,000 Director Options.
(4) Includes 9,000 Common Shares held of record and 9,000 Common Shares
issuable upon the exercise of $6.25 Compensatory Options.
(5) Includes 55,373 Common Shares held of record and 6,000 Common Shares
issuable upon the exercise of Director Options.
(6) Includes 23,993 Common Shares held of record and 9,000 Common Shares
issuable upon the exercise of $6.25 Director Options.
- ---------------------------
Item 12. Certain Relationships and Related Transactions
Formation of Registrant
At December 31, 1995, the Company became sole owner of American and
Circle Creek. Mr. Hastings and Ms. Hastings were the sole owners of American and
Circle Creek (formerly Hastings and Company, Inc.) at the time of their
acquisition. Mr. Hastings and Ms. Hastings received 105,334 shares of Common
Stock of the Company in connection with the Company's acquisition of American
and Circle Creek. In connection with the Company's acquisition of American and
Circle Creek, Mr. Hastings and Ms. Hastings assigned all of their right and
title to the economic interest of the general partner in each of the Circle
Creek Partnerships to the Company.
Pursuant to the Prior Consolidation, the Company acquired all of the
assets and liabilities of CCA I, CCA II, CCA III, and CCA IV. Pursuant to such
transaction, Mr. Hastings and Ms. Hastings received 4,584 units of Common Stock
and Common Stock purchase rights from the Company in exchange for their limited
partnership interest in these partnerships on the same basis as the other
limited partners. In addition, Mr. Hastings and Ms. Hastings received 2,994
units at $10.00 per unit and purchased 18,864 shares at $7.25 per share in
cancellation of $166,704 of debt owing to them by these partnerships.
-30-
<PAGE> 33
The Prior Consolidation
General. On December 31, 1995 (the "Closing Date"), Registrant (i)
acquired by statutory merger all of the assets and liabilities of the four
participating partnerships (CCA I, CCA II, CCA III, and CCA IV) in consideration
for the issuance of units of its equity securities and/or 10.35% convertible
Notes (the "Prior Consolidation") and (ii) retired certain debt obligations of
the participating partnerships ("Investor Notes") in exchange for the 10.35%
Notes.
The foregoing prices and amounts of the securities issued in the Prior
Consolidation have been adjusted to reflect the September 18, 1996 stock
dividend. Each unit issued in the Prior Consolidation was comprised of one stock
right entitling the holder to purchase one and two-tenths (1.2) share of the
Company's no par value common stock (a "common share") for $6.04; one warrant
entitling the holder to purchase one and two-tenths (1.2) common share for
$6.875 within twelve (12) months following the Closing Date; and one warrant
entitling the holder to purchase one common share for $8.75 within twenty-four
(24) months following the closing date, which warrant, if not exercised prior to
expiration, is converted into thirty-six one hundredths (0.36) common share.
Terms of Acquisition. The table below sets forth the following with
respect to the Prior Consolidation: (a) the estimated Net Asset Value ("NAV") at
the Closing Date for each of the partnerships; (b) the maximum number of units
allocable to each of the partnerships; and (c) the maximum number of units
allocable to the participating limited partners and the maximum number of 10.35%
Notes that the participating limited partners could receive in lieu of units.
<TABLE>
<CAPTION>
Allocation Per $1,000 of
Maximum Allocation Original Investment by
to Limited Partners Limited Partners in Either
in Units or 10.35% Notes Units or 10.35% Notes (5)
------------------------ --------------------------
Estimated Net Percentage of Aggregate Number of Face Value Number of Face Value
Partnership Asset Value Est. Net Asset Value(1),(2) Units(3) of Notes(4) Units(3) of Notes
- ----------- ------------- --------------------------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
CCA I $ 659,735 13.22% 79,168 $ 263,894 57.72 $481
CCA II $ 868,805 17.42% 104,257 $ 347,522 74.88 $624
CCA III $ 1,126,041 22.57% 135,124 $ 450,416 82.80 $690
CCA IV $ 1,544,627 30.96% 185,354 $ 617,850 100.08 $834
---------------- ----- ------- ----------- ------ ----
TOTAL Units
Offered to
Partnerships: $ 4,199,208 84.17% 503,903 $1,679,682
</TABLE>
- ---------------------------
(1) "Percentage of Aggregate Estimated Net Asset Value" represents the
percentage of the total Net Asset Value of the consolidated AquaPro
corporation, of which the partnerships together represented 84.17%.
(2) Neither the General Partner nor AquaPro received units or 10.35% Notes
in connection with the general partner interest or a sponsor's
"promotional" interest in a participating partnership.
(3) This represents the maximum number of units which could have been
issued by AquaPro to the limited partners with respect to their
interest in the partnership. Based upon the respective partnership NAV
and computed by dividing the partnership's NAV by the price per unit.
Calculations use a unit price of $8.33 per unit.
(4) The issuance of the 10.35% Notes was subject to the Note Restriction
and, as a result, the total face value of the 10.35% Notes is shown as
40% of the estimated aggregate Net Asset Value of a participating
partnership. Based upon the estimates of Net Asset Value used in the
Allocation Table, this represents the maximum aggregate principal
amount of the 10.35% Notes that AquaPro could have issued to the
limited partners of the partnerships in lieu of the units to which the
limited partners would otherwise be entitled. The Table does not
reflect units which were issued in exchange for Investor Notes or in
exchange for short-term debt owed Mr. Hastings by CCA III.
(5) The initial capital contribution for investment L.P. Unit in a
partnership was $19,895 for each of the partnerships. All comparisons
have been made in reference to an original capital contribution of
$1,000. Calculations use a unit price of $10 per unit.
- ---------------------------
In the Prior Consolidation, the limited partners of the participating
partnerships received the Company's units and 10.35% notes through their
respective New Corps as follows:
-31-
<PAGE> 34
<TABLE>
<CAPTION>
New Corp Units 10.35% Notes
- -------- ----- ------------
<S> <C> <C>
CCA I 64,318 $ 16,746.60
CCA II 83,146 $ 37,243.50
CCA III 108,412 $ 41,182.70
CCA IV 148,888 $ 53,925.30
------- -----------
404,764 $149,098.10
======= ===========
</TABLE>
The 10.35% Notes issued in the Prior Consolidation are due December 31,
2002 and bear interest at the rate of 10.35% per annum for the period from and
including the date of original issuance. The 10.35% Notes are convertible into
Common Shares at a price of $10.42 per share.
The number of units issued in the Prior Consolidation was derived by
dividing the NAV of each partnership by a $8.33 unit price, as adjusted for the
September 18 Dividend. A unit price of $8.33 was chosen based on a value of
$6.25 per common share, which was the price used for the purposes of the Prior
Consolidation and was not based on any market or trading price. The 10.35% Notes
were offered in exchange at their par.
On the closing date, each of the four participating partnerships were
incorporated and were merged into the Company in accordance with the Amended
Plan and Agreement of Consolidation. In accordance with this agreement, each
participating partnership organized a new corporation (a "New Corp"), and, on
the Closing Date, transferred all of its assets and liabilities to its New Corp
in consideration for the New Corp's stock and debt obligations. The Respective
New Corps were then merged into Registrant. In the mergers, each limited partner
received a pro rata share of Registrant's units or 10.35% Notes for their
limited partner interests. Following the Closing Date, each participating
partnership dissolved and liquidated in compliance with Tennessee law.
The Investor Note exchange phase of the Prior Consolidation expired on
January 30, 1996. As a result, holders of the Investor Notes elected to receive
units or 10.35% Notes in the exchange for their Investor Notes. As a result of
the Investor Note exchange offer, the Company issued a total of 163,753 units
and a total of $214,495 principal amount of 10.35% Notes to the holders of the
Investor Notes.
Neither Mr. Hastings or Ms. Hastings nor the Company received units or
10.35% Notes in connection with the General Partner interest in the
participating partnerships. The Hastings received no other compensation in
connection with the Prior Consolidation other than units in exchange for the
L.P. units they owned in the participating partnerships. Mr. Hastings owned 1.25
L.P. units in CCA II, 1.0 L.P. units in CCA III and 1.0 L.P. units in CCA IV and
elected to receive units for his limited partnership interests in the Prior
Consolidation. In addition, Mr. Hastings exchanged approximately $136,764 of
debt owed to him for cash advances by the participating partnerships for units
and for Stock upon the exercise of $7.25 Stock Rights received thereby.
Description of The Acquired Partnerships. Each of CCA I, CCA II, CCA
III, CCA IV was sponsored by Mr. Hastings, as sole General Partner, for the
purpose of acquiring a specified farming property and operating thereon a
catfish Aquaculture business. Each of these partnerships was intended to operate
its catfish farm for a period of approximately ten (10) years after which the
General Partner would, if practical, attempt to sell or otherwise dispose of the
Partnership's farming property and business for a profit.
-32-
<PAGE> 35
Accordingly, each of the Partnerships was formed for long-term investment with a
life cycle ranging from 10 to 15 years or longer. Each of the Partnerships was
organized under Tennessee law. The following tables provide selected information
regarding the Investments of the Prior Partnerships.
Partnership Organization and Capitalization
-------------------------------------------
<TABLE>
<CAPTION>
Name of No. of Date of Original Limited Partner Investor Notes Mortgage Debt (1)
Partnership Partners Organization Capital (L.P. Units) at 7/31/1995(1) at 7/31/1995
----------- -------- ------------ ------------------------ --------------- -----------------
<S> <C> <C> <C> <C> <C>
CCA I 56 3-31-1989 $1,372,755 $1,189,500 --
CCA II 63 4-16-1990 $1,392,650 $ 962,600 --
CCA III 59 9-23-1990 $1,631,390 $ 260,951 $336,000
CCA IV 80 5-30-1991 $1,850,235 -- $227,500
</TABLE>
Information Regarding Partnership Properties
--------------------------------------------
<TABLE>
<CAPTION>
Appraised
Total Acres Purchase Price Value of Farm
Name of (Water Acres) Number of of Farm Property at
Partnership Owned Ponds Owned Property(1) 7/31/1995
----------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
CCA I 275 (210) 15 $204,875 $482,479
CCA II 278 (211) 15 $222,400 $466,700
CCA III 318 (270) 14 $625,100 $524,700
CCA IV 254 (193) 13 $488,813 $387,550
</TABLE>
Information Regarding Partnership Tangible Assets
-------------------------------------------------
<TABLE>
<CAPTION>
Cash and
Accounts Catfish Investments in Equipment and Total Tangible
Name of Receivable at Inventory at Cooperatives Real Property Assets at
Partnership 7-31-1995(1) 7-31-1995(1) at 7-31-1995(1) at 7-31-1995(1)(2) 7/31/1995(1)
----------- ------------- ------------ --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
CCA I $ 77,787 $556,426 $134,123 $541,220 $1,309,556
CCA II $106,238 $711,939 $181,135 $594,512 $1,593,824
CCA III $106,243 $661,313 $311,665 $689,568 $1,768,789
CCA IV $ 47,975 $472,345 $334,442 $548,880 $1,403,642
</TABLE>
- ---------------------------
(1) Unaudited. July 31, 1995 was the appraisal date for the Prior
Consolidation.
(2) Net of accumulated depreciation.
The Recent Consolidation
As of June 30, 1997 (the "Closing Date"), each of CCA V, CCA VI, CCA
VII and CCA VIII was merged into the Company under the laws of the state of
Tennessee. As a result thereof, the Company assumed all of the assets and
liabilities of the merged Partnership and the Company's Units and Notes, as
described below, were distributed to the limited partners of the merged
Partnerships in accordance with their elections.
The Company and the partners of each Participating Partnership approved
the Consolidation on April 16, 1997 and June 30, 1997, respectively. The
Company's Shareholders approved the Consolidation by a greater than 85% vote.
More than 98% of the Limited Partners of each Partnership approved the
-33-
<PAGE> 36
Consolidation by written consent. No Shareholder of the Company elected to
exercise his or her dissenter's rights with respect to the Consolidation as may
have been provided under Tennessee corporate law.
In the Consolidation, AquaPro (i) acquired by merger all of the assets
and assumed all of the liabilities of the four Participating Partnerships in
consideration for the issuance of its Units and its 7.15% Notes, (ii) offered
the holders of the Investor Notes the opportunity to exchange their investor
Notes for shares of the Preferred Stock, and (iii) is offering the Preferred
Stock upon exercise of the Stock Rights in the subject Offering.
Terms of the Mergers. The Company offered up to 722,232 Units and/or up
to $658,606 in principal amount of its 7.15% Notes to acquire the assets of the
Partnerships. Participating Limited Partners will have the right to elect either
Units or Notes with respect to the L. P. Units. The amount of Units and Notes
the Company offered to the Partnerships in the Consolidation was determined in
accordance with two sets of procedures: first, procedures for the external
allocation of the consideration among the Participating Partnerships; and
second, procedures for the internal allocation of the consideration payable to
each Participating Partnership among the Participating Limited Partners.
Each Unit was comprised of One (1) Share; One (1) Stock Right; One (1)
$7.50 Warrant entitling the holder to purchase one share for $7.50 within twelve
(12) months following the Closing Date; and One (1) $9.50 Warrant entitling the
holder to purchase one share for $9.50 within twenty-four (24) months following
the Closing Date. Each of the $7.50 Warrants and the $9.50 Warrants is converted
into three-tenths (3/10) Share if not exercised before they expire and upon
exercise, the holder will receive a credit against the exercise price equal to
the greater of 30% of the Exercise Price or 30% of the then market value of the
common shares, as defined. The 7.15% Notes issued in the Consolidation are due
December 31, 2003 and bear interest at the rate of 7.15% per annum for the
period from and including the date of original issuance. The Notes are
convertible at a price of $10.50 per share.
Both of the $7.50 Warrants and the $9.50 Warrants were called
immediately upon issuance. As a result, each Unit as issued was composed of 1.6
common shares and one $9.50 Stock Right.
The 7.15% Notes. The Notes will bear interest at the rate of
7.15% per annum for the period from and including the date of original issuance
(expected to be the Closing Date). The Notes are convertible into common shares
at any time at the election of the holder at a price of $10.00 per share. The
Notes are redeemable at any time, or from time to time, by AquaPro for a
Redemption Price equal to their unpaid principal balance plus accrued interest
to the date called for prepayment. The extent to which the Company issues Notes
in place of Units in the Recent Consolidation will depend upon elections of the
Dissenting Partners whose elections to receive Notes will be honored in full
prior to elections for Notes by other Participating Limited Partners.
The Series A Preferred Stock. The Series A Preferred Stock
(the"Preferred Stock") which underlie the $9.50 Stock Rights are part of a
series of up to 2,000,000 shares of Preferred Stock the Company is authorized to
issue. As of September 1, 1997, there were 352,000 shares of Preferred Stock
outstanding. The Preferred Stock pays cumulative dividends at the annual rate
of $.70.
-34-
<PAGE> 37
The Company has relied upon the exemption from registration under the
Securities Act of 1933 (the "1933 Act") contained in Section 3(a)10 thereof. The
Company bases its reliance upon the fairness hearing held by the California
Commissioner of Corporations pursuant to Section 25142 of the California
Corporate Securities Law of 1968 on March 31, 1997, and on the Certificate of
Issuance of Permit and the issuance of permit dated April 30, 1997. For your
information, we supplementally enclose copies of the Notice of Hearing mailed to
all shareholders of the Company and limited partners and investor note holders
of each the subject Partnerships. We note that the Commission has held in
numerous no-action letters that fairness hearings pursuant to Section 25142 of
the California Corporate Securities Law satisfy the fairness hearing
requirements for the 3(a)10 exemption.
Neither the General Partner nor the Company received Shares or Notes in
connection with the General Partner interest in the Participating Partnerships.
The General Partner will receive no other compensation in connection with the
Recent Consolidation other than Units in exchange for the L.P. Units owned by
Affiliates. Ms. Patricia Hastings holds 314 L.P. Units in CCA VI. The General
Partner and his Affiliates own no other L.P. Units in the Partnerships.
Participating Limited Partners who are subject to income tax will
realize taxable gain or loss in the Recent Consolidation. The amount of any gain
or loss recognized by Participating Limited Partners who are subject to income
tax will be based upon the allocation provisions of the Partnership Agreement,
as amended, of their Partnership as of the date of the Recent Consolidation. No
special distributions of cash will be made to Participating Limited Partners for
the payment of any tax. In general, any gain or loss will be recognized in the
year of the Recent Consolidation. The gain or loss from a Recent Consolidation
generally will be treated as arising from the sale of assets used in a trade or
business and will be characterized as capital gain or loss or ordinary income or
loss, depending upon the amount of each Participating Limited Partner's gains or
losses attributable to any sales of assets used in a trade or business.
Participating Limited Partners who are not subject to income tax will not
recognize a material amount of unrelated business taxable income (UBTI) in the
Recent Consolidation.
The Company intends to use the net proceeds from the sale of the Series
A Preferred Stock pursuant to the exercise of the Stock Rights, if any, for
operating expenses, scheduled maintenance and capital improvements on farming
properties, the repayment of debt, and, to the extent such proceeds are
available, for expansion of its catfish inventories and working capital. There
is no assurance that the Company will realize proceeds from the Stock Rights
Offering or that such proceeds to the extent realized will be sufficient to
accomplish one or more of the foregoing.
Under the terms of the Consolidation, the Company acquired the assets
and liabilities of each Participating Partnership by statutory merger under the
laws of the state of Tennessee. Pursuant thereto, the limited partners of each
Partnership elected to receive either Units or 7.15% Notes in consideration for
their Partnership interests. As a result of the Consolidation, the Company
issued its Units and 7.15% Notes to the limited partners of the Partnerships as
follows:
<TABLE>
<CAPTION>
Partnership Number of Units 7.15% Notes
- ---------------------------------------------------------------
<S> <C> <C>
CCA V 340,662 $37,056
CCA VI 152,773 23,379
CCA VII 109,518 None
CCA VIII 105,973 8,147
------- -------
Total 708,926 $68,582
</TABLE>
-35-
<PAGE> 38
The transactions constituting the Consolidation were approved by the
shareholders of the Company at their annual meeting on April 16, 1997. Under the
Corporations Law of the state of Tennessee, shareholders who either vote against
certain mergers or abstain from voting have the right to elect by written notice
to dissent and receive cash payment for their shares ("Dissenters' Rights"). The
holders of approximately 155,000 shares of the Company's common stock voted
against or abstained from voting on the transactions. The Company gave notice to
these shareholders of their possible Dissenters' Rights; no shareholders have
delivered notice of their election of such Dissenters' Rights.
Pursuant to the Recent Consolidation, the Company assumed a total of
$1,147,513 of collateralized notes of the Partnerships (the "Investor Notes").
The Investor Notes were convertible into Partnership interests, and by reason of
the Consolidation, into Units of the common stock of the Company at prices
ranging from $10.56 to $12.26 per share. The Investor Notes bear interest at a
rate of 10.35% per annum and are payable interest only on a quarterly basis
until maturity, when they are due and payable in full. Maturities of the
Investor Notes occur in 1999 and 2000. Payment of the Investor Notes is secured
by liens on the catfish inventories of the issuing Partnership.
Pursuant to the terms of the Recent Consolidation, the Company is
offering to retire the Investor Notes in exchange for shares of its Series A
Preferred Stock (the "Investor Note Exchange"). This offer will terminate on or
before September 5, 1997. In the Investor Note Exchange, the Company is offering
to exchange shares of its Preferred Stock for the Investor Notes at the rate of
1.30 shares of Preferred Stock per $10.00 of unpaid balance of principal and
interest on the Investor Note as of the date of exchange. Up to 149,176 shares
of the Series A Preferred Stock could be issued in the Investor Note Exchange.
The Investor Notes of those persons electing not to exchange their Investor
Notes will remain outstanding and will be assumed by AquaPro pursuant to the
Consolidation.
Allocation of Units. The number of Units offered to each Partnership
was derived by dividing the Net Exchange Value ("NEV") of that Partnership by
the Exchange Ratio. See "Terms of the Mergers Computation of Net Exchange
Values" below. The Units (and the Notes) were allocated among the Partnerships
in accordance with their respective NEV, subject to adjustment in limited
circumstances. Under the Consolidation Agreement with each Partnership, each
participating Limited Partner was entitled to his or her pro rata share of the
consideration allocated to the Partnership based upon the participating Limited
Partners' relative percentage ownership of L.P. Units in his or her Partnership.
Each participating Limited Partner could elect to receive Notes subject to
satisfaction of elections by any Dissenting Partners and subject to the Note
Restriction.
The Table below sets forth: (a) the NEV of each Partnership for the
purposes of the offer; (b) the maximum number of Units allocable to each
Partnership; and (c) the maximum number of Units allocable to the participating
Limited Partners of each Partnership and the maximum number of Notes that the
Participating Limited Partners could receive in lieu of Units.
-36-
<PAGE> 39
<TABLE>
<CAPTION>
Maximum Offered to Limited Amount Offered Per $1,000 of Original
Partners Investment by Limited Partners in
in Either Units or Notes Either Shares or Notes(4)
------------------------ -------------------------
Net Exchange Number of Face Value
Partnership Value(1) Number of Face Value Units of Notes
Units(2) of Notes(3)
<S> <C> <C> <C> <C> <C>
CCA V $1,582,104 346,989 $316,421 102.95 $469.38
CCA VI 719,962 157,903 143,992 157.90 719.96
CCA VII 499,338 109,515 99,868 103.25 470.76
CCA VIII 491,628 107,825 98,326 119.14 543.24
TOTAL $3,293,032 722,232 $658,607 --- ---
100%
Partnership
Participation
</TABLE>
- ---------------------------
(1) These amounts were subject to adjustment at the Closing under limited
circumstances.
(2) This represents the maximum number of Units issuable by AquaPro to the
Limited Partners with respect to their L.P. Units in the Partnership
based upon the respective Partnership NEV and computed by multiplying
the Partnership's NEV by the Exchange Ratio.
(3) The issuance of the Notes was subject to the Note Restriction and as a
result the total face value of the Notes is shown as 20% of the
estimated aggregate Net Exchange Value of a Participating Partnership.
Based upon the estimates of Net Exchange Value used in the Allocation
Table, this represents the maximum aggregate principal amount of the
Notes that AquaPro was prepared to issue to the Limited Partners of the
Partnerships in lieu of the Units to which the Limited Partners would
otherwise be entitled.
(4) All comparisons have been made in reference to an original capital
contribution of $100 per L.P. Unit.
- ---------------------------
Terms of Acquisition
The number of Units offered to each Partnership for its assets was
determined by the following formula:
Number of Units = Partnership's NEV x EXCHANGE RATIO
Where: EXCHANGE RATIO = (Total Units Offered by AquaPro in Prior Consolidation)
-------------------------------------------------------
Total NEV of CCA I, CCA II, CCA III and CCA IV
The Units and the Notes were allocated among the Partnerships in
accordance with the NEV of each Partnership (subject to adjustment in limited
circumstances, as described below). Under the merger agreements, each
Participating Limited Partner is entitled to his or her pro rata share of the
consideration allocated to his or her Participating Partnership based upon his
or her percentage Limited Partner interest in the Participating Partnership.
Each Participating Limited Partner had the opportunity to elect to receive Notes
rather than Units subject to satisfaction of elections by any Dissenting
Partners and subject to restriction that the Notes issued to a Participating
Partnership could not exceed 20% of that Partnership's NEV ("the Note
Restriction").
-37-
<PAGE> 40
The fairness of the methodology of determining the respective values of
the Partnerships and AquaPro for the purposes of the Consolidation and the
determination of the amount of Units offered to the Partnerships in the
Consolidation was reviewed by Bishop-Crown Investment Research, Inc.
("Bishop-Crown"), an independent investment valuation and research firm.
Bishop-Crown rendered its Fairness Opinion for the Consolidation. Bishop-Crown
also issued a fairness opinion in the consolidation of CCA I-IV.
Determination of Exchange Ratio. The Exchange Value was
determined based on the ratio of units issued for the value of the net assets of
CCA I, CCA II, CCA III and CCA IV in the prior consolidation principally because
the Company and Bishop-Crown believed that this ratio was the simplest and most
reasonably likely method of assuring equal treatment of all of the Circle Creek
Partnerships. Because the businesses and assets of each of the eight Circle
Creek Partnerships were essentially qualitatively the same, the ratio of units
to unit of Net Asset Value for each of the Partnerships should have been the
same. This assumes that the method of determining the Net Asset Value of each of
the Partnerships was equally applicable and consistently applied to each
Partnership. Any bias in the method towards a higher or lower value would be
more or less equally applied to each of the Partnerships and equally reflected
in the exchange ratio.
Allocation of Units. The company offered up to 722,232 Units to the
Partnerships in the merger transactions. The number of Units offered to each
Partnership was derived by dividing the total of the NEV of that Partnership by
the Exchange Ratio. See "Determination of Net Exchange Values" below. The Units
(and the Notes) were allocated among the Partnerships in accordance with their
respective NEV, subject to adjustment in limited circumstances. Under the
Consolidation Agreement with each Partnership, each participating Limited
Partner was entitled to his or her pro rata share of the consideration allocated
to the Partnership based upon the participating Limited Partners' relative
percentage ownership of L.P. Units in his or her Partnership. Each participating
Limited Partner could elect to receive Notes subject to satisfaction of
elections by any Dissenting Partners and subject to the Note Restriction.
Computation of Net Exchange Values. The NEV of each of CCA I, CCA II,
CCA III, and CCA IV ("CCA I - CCA IV") was determined as of December 31, 1995
(the Closing Date of the Prior Recent Consolidation) in the same manner as
described above for CCA V, CCA VI, CCA VII, and CCA VIII in the Recent
Consolidation.
The NEV of each Partnership was calculated as the sum of the fair value
of the respective assets of each Partnership as of September 30, 1996 (the
"Appraisal Date"), less their respective Liabilities on the Appraisal Date,
including the Partnership's Investor Notes. For the purposes of allocating Units
in the Recent Consolidation, the estimated Net Exchange Value of CCA I -CCA IV
were calculated as of December 31, 1995, the closing date of the Prior
Consolidation. These estimated Net Exchange Values were calculated in the same
manner as those for the Partnerships. The value of the assets of each
Partnership was calculated based on the appraised values of the Partnerships'
real and personal property, as described below.
Adjusted Cash. A total of $131,678 of Consolidation costs were
charged to CCA I-IV and reflected on their respective December 31, 1995
financial statements. Consolidation expenses have not been charged to the
Partnerships and are not reflected in their respective NEVs. Thus, these charges
to CCA I-IV were credited to cash to determine their combined NEV. A total of
$149,136 was included in Adjusted Cash. This amount represents pond
improvement/reconstruction expenditures by CCA III and CCA IV during 1995 which
were not reflected in the Appraisals for those Partnerships.
-38-
<PAGE> 41
Live Fish Inventory. The market value of each Partnership's
live fish inventory was determined by estimating the number and respective size
by weight of the Partnership's inventory fish at December 31, 1995 for CCA I-IV
and September 30, 1996 for CCA V, CCA VI, CCA VII and CCA VIII. The market value
was then calculated based on the prevailing wholesale price per pound for food
fish and a fingerling price of $1.20 per pound at the time of estimation. The
estimated number of each size of fish is based on the Company's inventory
accounting procedures, actual inventory sampling and the FISHY program
statistical estimates. In valuing the inventory, rates of loss by reason of
future mortality or delays in the sale and/or delivery of inventory were
ignored. The inventory values reflect all adjustments to the date of valuation
by reason of mortality loss rate and reserve changes. Adjustments after the
respective valuation dates are not taken into account. Thus, the inventory for
CCA I-IV at December 31, 1995 does not reflect the subsequent adjustments of
$450,923 for mortality loss and loss reserves against future mortality loss made
to certain of the CCA I-IV inventories. Even though such adjustments were, at
least in part, made as of December 31, 1995, they were not included in valuing
the CCA I-IV inventory because, among other things (1) they were made after the
closing of the Prior Consolidation, (2) the consolidation agreement for the
Prior Consolidation placed the risk of subsequent asset adjustments on the
Company, not the transferring Partnership, and (3) the terms of the Prior
Consolidation did not provide for adjustment of the consideration (i.e. number
of Units) paid by reason of the Consolidation in the event of subsequent asset
adjustments. Moreover, in the Recent Consolidation, the same terms will apply
and none of the Participating Partnerships will be at risk for inventory or
other asset adjustments occurring after the closing date.
Machinery and Equipment. The value of the machinery and
equipment of each Partnership and the CCA I-IV Partnerships is the highest
estimated market value realizable upon resale of the Partnership's farm
equipment and machinery. The Value for each Partnership (and CCA I-IV as a
group) was determined as a fraction of undepreciated costs. The fraction applied
was determined based on the general condition and age. The following fractions
were applied.
<TABLE>
Partnership CCA I-IV CCA V CCA VI CCA VII CCA VIII
<S> <C> <C> <C> <C> <C>
Value as fraction of 0.60 0.60 0.50 0.60 0.60
undepreciated cost.
</TABLE>
Investment in Circle Creek Seining Partnership. Circle Creek
Seining Partnership ("CCSP") is a cooperative partnership formed and operated to
share inventory, transportation and certain maintenance equipment costs among
its partners. Its assets consist almost entirely of machinery and equipment
which for the valuation purposes were valued at 50% of its original cost on the
same basis as the valuation of the machinery and equipment of each Partnership.
See discussion above. Because each Partnership's investment in CCSP represents
the depreciated cost of its investment in CCSP, for valuation purposes, each
Partnership's investment in CCSP was treated as a direct interest in CCSP's
machinery and equipment.
Real Property. The value of the real property of each
Partnership and of the CCA I-IV Partnerships is the appraised value of the
property determined by Mr. William J. Toler, independent real estate appraiser,
and is supported by an appraisal report by Mr. Toler.
Cooperative Stock. The cooperative stock owned by each
Partnership and the CCA I-IV Partnerships was valued at its cost.
The table below sets forth the calculation of the NEV for each
Partnership.
-39-
<PAGE> 42
<TABLE>
<CAPTION>
At 12/31/1995 (Unaudited) At 9/30/1996 (Unaudited)
------------------------ ------------------------------------------------------
Partnerships
(CCA I-IV) CCA V CCA VI CCA VII CCA VIII
<S> <C> <C> <C> <C> <C>
ASSETS
Adj. Cash(1) $ 356,538 $ 30,786 $ 22,302 $ 25,848 $ 21,188
Acc. Receivable 100,503 37,146 52,419 25,392 43,407
Prepaid Expenses 65,100 -0- -0- -0- -0-
Inventory (at Market Value) 3,019,915 1,931,450 574,430 526,430 693,240
Coop Stock 659,912 319,755 145,900 43,950 60,000
C.C. Seining (at Market Value) 61,712 52,224 25,054 30,000 32,465
Machinery & Equip.(at Mkt Value) 364,268 171,689 60,902 108,520 141,641
Real Property (at appraised value) (2) 1,861,429 950,000 268,300 359,740 445,197
---------- ---------- ---------- ---------- ----------
Total Assets at Fair Market Value $6,489,377 $3,493,050 $1,149,307 $1,119,880 $1,437,138
LIABILITIES
Current Liabilities $ 267,650 $ 110,776 $ 27,118 $ 28,432
Long-Term Liab. 1,643,295 318,569 593,424 917,078
---------- ---------- ---------- ---------- ----------
Total Liabilities $4,191,814 $1,910,945 $ 429,345 $620,542 $945,510
---------- ---------- ---------- ---------- ----------
Net Exchange Value (NEV)(3) $2,297,563 $1,582,105 $ 719,962 $499,338 $491,628
---------- ---------- ---------- ---------- ----------
EXCHANGE RATIO
Original Capital $3,370,550 $1,000,000 $1,060,700 $ 905,000
---------- ---------- ---------- ----------
NEV per original $1000 investment $ 469.39 $ 719.96 $ 470.76 $ 543.24
Units Offered(4) 419,921
Ex Div-x1.20 503,905
Units Offered (5) 346,989 157,903 109,515 107,825
Units Offered per original $1000 investment 102.95 157.90 103.25 119.14
---------- ---------- ---------- ----------
7.15% Note/$1000 inv.(6) $ 469.39 $ 719.96 $ 470.76 $ 543.24
---------- ---------- ---------- ----------
</TABLE>
- ---------------------------
Notes:
(1) Includes cash equivalents and certain adjustments. See discussion
above.
(2) Based on independent appraisals.
(3) Net Exchange Value equals "Total Assets (appraised)" less "Total
Liabilities."
(4) The maximum number of Units offered to L.P.s of CCA I-IV in the Prior
Consolidation.
(5) The number of Units to be offered to each of CCA V, VI, VII and VIII is
based on the same ratio of Units per amount of Net Exchange Value (the
"Exchange Ratio") offered to CCA I, CCA II, CCA III and CCA IV, as a
group, in the Prior Consolidation as follows:
(NEV of Partnership) X (the Exchange Ratio)
-40-
<PAGE> 43
(6) The principal amount of 7.15% Notes offered to dissenting Limited
Partners equals their Partnership's NEV per $1,000 of their original
investment.
- ----------------------------
Description of the Partnerships. Each of the Partnerships was sponsored
by the Company or its predecessor. The Company owns all of the General Partner's
economic interest in each Partnership. The investment objectives of the
Partnerships are to acquire and operate a single catfish farm with a view
towards potential capital gain from appreciation of the farming operations and
real estate. Each Partnership was initially capitalized through the issuance of
its L.P. Units which constitute units of Limited Partner interests. The rights,
preferences and privileges of the L.P. Units are set forth in the Agreements of
Limited Partnership of their respective Partnership (the "Partnership
Agreements"). The Partnership Agreements of each Partnership have substantially
the same material terms and conditions. Each Partnership sold its L.P. Units to
its partners at a price of $100 per L.P. Unit. Set forth in the Table below is
certain information concerning each of the Partnerships.
Partnership Organization and Capitalization
<TABLE>
<CAPTION>
Original
Limited Partner Investor Mortgage
Name of No. of Date of Capital Notes at Debt at
Partnership Partners Organization (L.P. Units) 3/31/1997 3/31/1997
<S> <C> <C> <C> <C> <C>
CCA V 196 04/01/1993 $3,397,300 $ 312,700 $1,070,349(1)
CCA VI 41 05/27/1994 1,000,000 -0- $ 140,800(2)
CCA VII 51 12/31/1994 1,060,700 239,292 $ 267,100(3)
CCA VIII 60 08/15/1995 905,000 595,521 $ 244,995(4)
</TABLE>
- ----------------------------
(1) Note payable to a bank monthly principal and interest payments of
$11,754 through April 2000 and a final payment of $1,012,802 due April
2000 with interest at Prime plus 2 1/2%.
(2) Note payable to Metropolitan Life Insurance Company requiring annual
payments of $6,100 through March 2004 and a final payment of $92,000
due September 2004 with interest payable semi-annually at 9.5%.
(3) Note payable to a bank collateralized by land and equivalent requiring
annual payments of $34,307, including interest at variable rates (9.05%
at June 30, 1997) through 2015.
(4) Note payable to a bank collateralized by land and equipment requiring
annual payments of $31,732, including interest at variable rates
(9.05% at June 30, 1997) through 2015.
- ----------------------------
Information Regarding Partnership Real Property
<TABLE>
<CAPTION>
Cost of Real Appraised
Total Acres Property Before by Value of
Name of (Water Acres) Number of Depreciation at Real Property
Partnership Owned Ponds Owned 12/31/1996 At 9/30/1996
------------ ----- ----------- ---------- ------------
<S> <C> <C> <C> <C>
CCA V 668 (443) 43 $950,654 $950,000
CCA VI 170 (140) 8 281,846 268,300
CCA VII 212 (189) 11 325,586 359,740
CCA VIII 242 (188) 11 451,393 445,197
</TABLE>
-41-
<PAGE> 44
Information Regarding Partnership Tangible Assets
<TABLE>
<CAPTION>
Investments in
Cash and Cooperatives & Machry., Equip.
Accounts Circle Creek & Real Property Tangible
Name of Receivable at Catfish Inventory Seining Net of Acc. Depr. Assets
Partnership 12/31/1996(1) at 12/31/1996(1) at 12/31/1996 at 12/31/1996 at 12/31/1996
- ---------------- ------------- ---------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
CCA V $139,143 $1,145,621 $407,922 $1,125,910 $2,818,596
CCA VI 246,963 249,635 $194,023 343,336 1,033,957
CCA VII 2,569 504,616 $101,286 404,104 1,012,575
CCA VIII 1,531 565,229 $124,066 538,771 1,229,597
</TABLE>
Historical Cash Distribution and Estimated Net Exchange Values per $1,000
Original Investment
<TABLE>
<CAPTION>
Cumulative Distribution to Limited Total Received
Year of First Partners Through 12/31/1996 per as a Percent of
Partnership Name Investment $1,000 Original Investment(1) 1,000 Invested
- ---------------- ------------- ---------------------------------- ---------------
<S> <C> <C> <C>
CCA V 1993 119 11.9%
CCA VI 1994 113 11.3%
CCA VII 1994 78 7.8%
CCA VIII 1995 42 4.2%
</TABLE>
- ---------------------
(1) This column represents the amount of cumulative distributions per
$1,000 of original investment that were received by investors in excess
of the amount of cumulative net income per $1,000 of original
investment. Depreciation on the Partnerships' properties is the primary
component of the return of capital.
- ---------------------
Item 13. Exhibits and Reports on Form 8-K
A List of Exhibits is included with this Report and is attached hereto.
No Reports on Form 8-K were filed by the Company during the last
quarter covered by this Report.
-42-
<PAGE> 45
AquaPro Corporation
Consolidated Financial Statements
Six months ended June 30, 1997 and years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors...........................................................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets..............................................................................F-3
Consolidated Statements of Operations....................................................................F-5
Consolidated Statements of Changes in Stockholders' Equity...............................................F-6
Consolidated Statements of Cash Flows....................................................................F-8
Notes to Consolidated Financial Statements...............................................................F-9
</TABLE>
F-1
<PAGE> 46
Report of Independent Auditors
The Board of Directors and Stockholders
AquaPro Corporation
We have audited the accompanying consolidated balance sheets of AquaPro
Corporation and subsidiaries as of June 30, 1997 and December 31, 1996 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the six months ended June 30, 1997 and the years ended
December 31, 1996 and 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
AquaPro Corporation and subsidiaries at June 30, 1997 and December 31, 1996,
and the consolidated results of their operations and their cash flows for the
six months ended June 30, 1997 and the years ended December 31, 1996 and 1995
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Jackson, Mississippi
August 21, 1997
F-2
<PAGE> 47
AquaPro Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 202,894 $ 759,057
Trade accounts receivable (Note 5) 108,009 598,307
Receivables from affiliates 27,998 27,998
Live fish inventories (Note 5) 5,740,124 4,549,528
Prepaid expenses 10,516 3,753
----------- -----------
Total current assets 6,089,541 5,938,643
Property, buildings and equipment (Note 5):
Land 1,781,078 1,781,078
Ponds and improvements 3,014,785 2,925,494
Buildings 346,416 280,103
Machinery and equipment 2,364,743 1,989,925
----------- -----------
7,507,022 6,976,600
Accumulated depreciation 1,867,269 1,550,735
----------- -----------
5,639,753 5,425,865
Investments in cooperatives (Notes 4 and 5) 883,518 1,198,517
Delivery rights and other intangible assets, net 104,161 110,522
----------- -----------
Total assets $12,716,973 $12,673,547
=========== ===========
</TABLE>
F-3
<PAGE> 48
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996
--------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 5):
Bank $ 497,571 $ -
Officer and director 161,254 161,254
Others 30,637 576,292
Accounts payable 523,255 184,076
Accrued salaries 239,994 240,662
Accrued interest and other 74,628 94,771
Current maturities of long-term debt 272,258 275,666
----------- -----------
Total current liabilities 1,799,597 1,532,721
Long-term debt, less current maturities (Note 5) 4,102,980 3,867,976
Stockholders' equity:
Series A Preferred Stock, no par value - authorized
1,900,000 shares, cumulative, convertible, issued and
outstanding 235,507 at June 30, 1997 and 104,534
at December 31, 1996 (Note 8) 1,837,408 748,169
Preferred stock, par value to be determined by the
Board of Directors - authorized 100,000 shares, none
issued - -
Common stock, no par value - authorized 100,000,000
shares, issued and outstanding 2,670,667 shares at
June 30, 1997 and 2,452,819 shares at December 31,
1996 (Note 6) 10,588,311 10,568,989
Unearned compensation (126,563) (112,500)
Retained earnings (deficit) (5,484,760) (3,931,808)
----------- -----------
Total stockholders' equity 6,814,396 7,272,850
----------- -----------
Total liabilities and stockholders' equity $12,716,973 $12,673,547
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 49
AquaPro Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $ 1,203,468 $ 3,906,954 $ 2,992,287
Management fees from affiliates (Note 10) 9,000 18,000 18,000
----------- ----------- -----------
1,212,468 3,924,954 3,010,287
Cost of products sold 1,188,159 3,525,405 2,303,194
Selling, general and administrative (Note 6) 1,055,540 1,349,499 1,321,960
Impairment loss on long-lived assets -- 1,019,000 --
----------- ----------- -----------
Operating loss (1,031,231) (1,968,950) (614,867)
Other income (expense):
Equity in losses on investment
in cooperatives (272,000) (109,969) (69,501)
Interest expense (212,685) (555,974) (674,149)
Other, net 28,391 128,038 91,836
----------- ----------- -----------
(456,294) (537,905) (651,814)
----------- ----------- -----------
Net loss $(1,487,525) $(2,506,855) $(1,266,681)
=========== =========== ===========
Net loss per common share $ (.51) $ (1.02) $ (0.64)
=========== =========== ===========
Weighted average common shares outstanding 2,910,620 2,467,764 1,972,315
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 50
AquaPro Corporation
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
AquaPro Corporation
-------------------------------
General Limited
Partners' Partners' Common Stock
Capital Capital Shares Amount
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $(402,848) $ 2,523,502 510,099 $ 2,315,357
Capital contributions 1,000 --
Sale of limited partnership units -- 2,654,008
Reorganization and merger (Note 2) 442,784 (4,717,030) 1,134,282 4,178,915
--------- ----------- --------- ----------
40,936 460,480 1,644,381 6,494,272
Net loss for the year ended December 31, 1995
Cash distributions (30,085) (368,341)
Retirement of limited partnership units
Common stock issued to employees for services 20,000 150,000
Amortization of unearned compensation
Conversion of limited partnership units
to notes payable (149,098)
--------- ----------- --------- ----------
Balance at December 31, 1995 10,851 92,139 1,664,381 6,495,174
Net loss for the year ended December 31, 1996
Cash distributions (10,851) (97,665)
Retirement of limited partnership units
Sale of limited partnership units 5,526
Common stock issued to employees
for future services 20,000 150,000
Amortization of unearned compensation
Conversion of debt to stock (Note 5) 186,740 1,717,305
Sale of common stock (Note 6) 362,704 2,137,928
Sale of preferred stock (Note 8)
One-for-five common stock split 218,994
Preferred stock-cash dividend
--------- ----------- --------- ----------
Balance at December 31, 1996 -- -- 2,452,819 10,500,407
Net loss for the six months ended June 30, 1997
Common stock issued to employees for services 22,500 140,625
Cancellation of common stock
granted to former employees (9,000) (56,250)
Amortization of unearned compensation
Conversion of warrants to common stock 203,834
Sale of common stock (Note 6) 514 3,529
Sale of preferred stock (Note 8)
Preferred stock cash dividend
--------- ----------- --------- -----------
Balance at June 30, 1997 $ -- $ -- 2,670,667 $10,588,311
========= =========== ========= ===========
</TABLE>
F-6
<PAGE> 51
<TABLE>
<CAPTION>
AquaPro Corporation
- -------------------------------------------------------------------------------
Additional Retained Total
Preferred Stock Paid-In Unearned Earnings Stockholders'
Shares Amount Capital Compensation (Deficit) Equity
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-- $ -- $ 19,894 $ -- $ (153,047) $4,302,858
1,000
2,654,008
26,749 (68,582)
- ---------- ---------- ---------- -------- ------------ ----------
-- -- 46,643 -- (153,047) 6,889,284
(1,266,681) (1,266,681)
(398,426)
(19,894) (19,894)
(150,000) --
56,250 56,250
(149,098)
- ---------- ---------- ---------- --------- ------------ ----------
-- -- 26,749 (93,750) (1,419,728) 5,111,435
(2,506,855) (2,506,855)
(108,516)
(26,749) (26,749)
5,526
(150,000) --
131,250 131,250
1,717,305
2,137,928
104,534 748,169 748,169
(5,225) (5,225)
- ---------- ---------- ---------- -------- ---------- ----------
104,534 748,169 -- (112,500) (3,931,808) 7,204,268
(1,487,525) (1,487,525)
(131,250) 9,375
56,250 --
60,937 60,937
--
3,529
130,973 1,089,239 1,089,239
(65,427) (65,427)
- ---------- ---------- ----------- --------- ----------- ----------
235,507 $1,837,408 $ -- $(126,563) $(5,484,760) $6,814,396
========== ========== =========== ========= =========== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE> 52
AquaPro Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,487,525) $ (2,506,855) $ (1,266,681)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 400,706 692,351 505,835
Impairment loss on long-lived assets - 1,019,000 -
Equity in losses on investment in cooperatives 272,000 109,969 69,501
Payments of loss allocations on investment in cooperative - (79,969) -
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts receivable 533,298 (366,935) (3,423)
Increase in live fish inventories (1,190,596) (276,659) (820,029)
Increase in prepaid expenses and other assets (14,263) (17,969) (36,173)
Increase in accounts payable and accrued expenses 318,368 11,653 285,774
-------------- -------------- --------------
Net cash used in operating activities (1,168,012) (1,415,414) (1,265,196)
INVESTING ACTIVITIES
Purchase of certain assets of Fat Cat Corporation (Note 3) - - (1,850,358)
Purchases of property and equipment (530,422) (591,474) (1,348,680)
Purchases of cooperative stock - (62,000) (300,500)
-------------- -------------- --------------
(530,422) (653,474) (3,499,538)
FINANCING ACTIVITIES
Net increase (decrease) in notes payable (48,084) (743,758) 505,310
Principal payments on long-term borrowings (149,708) (741,152) (78,717)
Proceeds from long-term borrowings 312,722 503,178 2,594,771
Proceeds from exercise of common stock purchase rights - 2,137,928 -
Proceeds from issuance of preferred stock 1,089,239 748,169 -
Proceeds from exercise of common stock warrants 3,529 - -
Proceeds from sale of limited partnership units - 5,525 2,654,008
Capital contributions from general partners - - 1,000
Cash distributions to partners - (108,516) (398,426)
Retirement of limited partnership units - (26,749) (19,894)
Payments of preferred stock dividends (65,427) (5,225) -
-------------- -------------- --------------
Net cash provided by financing activities 1,142,271 1,769,400 5,258,052
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (556,163) (299,488) 493,318
Cash and cash equivalents at beginning of period 759,057 1,058,545 565,227
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 202,894 $ 759,057 $ 1,058,545
============== ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION-
Interest paid $ 238,394 $ 501,960 $ 691,877
============== ============== ==============
NON-CASH FINANCING ACTIVITIES-
Conversion of notes payable and long-term debt to common stock $ - $ 1,717,305 $ -
============== ============== ==============
Common stock issued to employees for future services $ 140,625 $ 150,000 $ 150,000
============== ============== ==============
Conversion of long-term debt to 10.35% convertible notes payable $ - $ 214,495 $ -
============== ============== ==============
Conversion of limited partnership units to notes payable $ 68,582 $ - $ 149,098
============== ============== ==============
</TABLE>
See accompanying notes.
F-8
<PAGE> 53
AquaPro Corporation
Notes to Consolidated Financial Statements
June 30, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND BUSINESS
AquaPro Corporation (the "Company") and its wholly owned subsidiaries American
Fisheries Corporation ("American") and Circle Creek Aquaculture, Inc. ("Circle
Creek") own and operate eight catfish farms located in the delta area of the
State of Mississippi. The Company acquired the catfish farms by merger with
eight affiliated limited partnerships (see Note 2). These mergers have been
accounted in a manner similar to a pooling of interests because of common
control. The accompanying consolidated financial statements as of and for the
six months ended June 30, 1997 and as of December 31, 1996 and for the years
ended December 31, 1996 and 1995 have been restated to give effect to the
mergers described above and in Note 2. All material intercompany transactions
and balances have been eliminated in consolidation.
Effective January 1, 1997, the Company changed its fiscal year end to June 30
from December 31. Accordingly, the most recent financial statements presented
are as of June 30, 1997 and for the six month period then ended.
The Company conducts catfish farming activities on 1,843 water acres within the
State of Mississippi. Catfish farming is concentrated in a few southern states,
principally Mississippi, Louisiana, Alabama and Arkansas. Catfish are sold
principally to retail grocery stores and restaurants by catfish processors. The
Company's sales are to a limited number of processors and collateral is
generally not required. One processor represented 90% of the Company's net
sales for the six months ended June 30, 1997 and three processors represented
55%, 25% and 11%, respectively, for the year ended December 31, 1996 and 51%,
25%, and 18%, respectively, for the year ended December 31, 1995.
Fish prices are affected by changes in market demand and supply and may
fluctuate significantly from period to period.
F-9
<PAGE> 54
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
LIVE FISH INVENTORIES
Live fish inventories are stated at the lower of average cost or market. Market
value is determined as estimated selling price less estimated costs of
disposal. Revenue is recognized when catfish are delivered live to the
processor.
Live fish inventories are purchased as "fingerlings" (generally, 5 to 6 inches
in length) and are grown out to a marketable size over 9 to 18 months. Because
the Company's production cycle for fish generally exceeds one year, management
anticipates certain live fish inventories on hand at June 30, 1997 may not be
sold during the year ending June 30, 1998. Live fish inventories are classified
as a current asset in the accompanying balance sheets which is consistent with
the industry practice. The quantities of live fish inventories are determined
based upon estimated growth from feed fed to each pond and are reduced for the
actual quantities sold and estimated mortality. The Company estimates fish
grow-out based upon 2.5 pounds of feed fed per one pound of live fish growth.
Cost associated with live fish production are accumulated during the growing
period and consist principally of feed, labor and overhead costs required to
grow the live fish to a marketable size. Each pond is closed periodically and
the estimated pounds are adjusted to the actual harvest. Live catfish are
highly susceptible to disease, oxygen depletion and extreme temperatures which
could result in high mortality. Management continually monitors each pond and
attempts to take appropriate actions to minimize the risk of loss from
mortality. Given the nature of the live fish inventories, it is reasonably
possible that the Company's
F-10
<PAGE> 55
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LIVE FISH INVENTORIES (CONTINUED)
actual live fish mortality will vary significantly from estimates. The cost of
producing fish for harvest is subject to the cost of grains which is
susceptible to significant fluctuations in the commodity markets. The Company
establishes prices for a portion of its anticipated feed purchases over
specified periods of time through various feed purchase agreements.
PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment are stated at cost. Depreciation is provided
by the straight-line method over the assets' estimated useful lives (15 years
for ponds and improvements, 15 years for buildings, and 3 to 7 years for
machinery and equipment).
INVESTMENTS IN COOPERATIVES
Investments in cooperatives are stated at original cost adjusted for allocation
of earnings or losses, net of distributions.
PROFIT-SHARING PLAN
Effective January 1, 1997, the Company established a profit sharing plan for
substantially all employees. This plan provides for monthly contributions based
on employee deferrals. The Company made contributions of approximately $9,100
to the plan for the six month period ended June 30, 1997.
INCOME TAXES
Income taxes are accounted for by the Company using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Deferred income taxes relate to temporary differences between
assets and liabilities recognized differently for financial reporting and
income tax purposes.
F-11
<PAGE> 56
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to estimated fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and, generally,
recognizes no compensation expenses for the stock option grants.
STOCK SPLIT
During 1996, the Company's Board of Directors declared a one-for-five stock
split effected in the form of a stock dividend. All historical share and per
share data presented herein have been restated for the effect of the stock
split.
NET LOSS PER COMMON SHARE
Net loss per share is computed by dividing net loss applicable to common stock
(net loss less dividend requirements for preferred stock of $65,427 in 1997 and
$5,225 in 1996) by the weighted average number of common shares outstanding
(2,910,620 shares in 1997, 2,467,764 shares in 1996 and 1,972,315 shares in
1995, adjusted for the one-for-five stock split). As a result of the mergers
described in Note 2, the common stock outstanding on December 31, 1995 is
considered outstanding for the entire year in 1995 for purposes of the weighted
average shares calculation. Common equivalent shares (stock options and
warrants) outstanding have not been included, due to their antidilutive
effects.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption by the Company of
Statement 121 resulted in a non-cash charge of $1,019,000 from the write-down
of land, ponds and improvements, buildings and goodwill to their estimated fair
F-12
<PAGE> 57
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
values. The charge represents the adjustment required to remeasure long-lived
assets at the lower of the carrying amount or fair value based upon 1996
appraisals obtained from an independent appraiser in connection with the merger
as described in Note 2.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate any prior periods. Under the new
requirements for calculating earnings per share, the dilutive effect of stock
options will be excluded. The impact of Statement 128 on the calculation of
earnings per share is not expected to be material.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to 1997 presentation.
2. MERGERS
Effective June 30, 1997, the Company acquired the assets and assumed the
liabilities of Circle Creek Aquaculture V, L.P., Circle Creek Aquaculture VI,
L.P., Circle Creek Aquaculture VII, L.P., and Circle Creek Aquaculture VIII,
L.P., ("Circle Creek V-VIII"). Circle Creek V-VIII are engaged in catfish
farming in the State of Mississippi and were previously managed by the Company
pursuant to management agreements. In consideration for the assets and
liabilities of Circle Creek V-VIII, the Company issued 708,926 "Units" and
$68,582 of 7.15% Convertible Notes based upon the relative fair value of the
net assets of the Company and Circle Creek V-VIII. A Unit consisted of 1.6
shares of common stock and one 90-day right to purchase one share of the
Company's 7.0% Series A Preferred Stock for $9.50 (the "Preferred Stock
Rights"). Also, as part of the merger, the Company offered its Series A
Preferred Stock in exchange for $1,147,513 in principal amount of certain
10.35% notes of Circle Creek V-VIII (the "Investor Notes"). This exchange offer
commenced subsequent to June 30, 1997 and each holder of Investor Notes was
offered 1.3 shares of Series A Preferred Stock for each $10 of
F-13
<PAGE> 58
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
Investor Notes. In the aggregate, approximately $900,000 of Investor Notes were
exchanged for approximately 117,000 shares of Series A Preferred Stock.
2. MERGERS (CONTINUED)
Separate revenues and net loss of the merged entities are presented in the
following table.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Revenues:
AquaPro Corporation $ 604,805 $ 2,837,274 $ 2,701,451
Circle Creek V-VIII 1,129,114 1,667,751 997,021
Elimination of intercompany
transactions (521,451) (580,071) (688,185)
----------- ----------- -----------
Total $ 1,212,468 $ 3,924,954 $ 3,010,287
=========== =========== ===========
Net loss:
AquaPro Corporation $ (972,102) $ (886,786) $ (691,936)
Circle Creek V-VIII (482,522) (1,592,813) (408,721)
Elimination of intercompany
transactions (32,901) (27,256) (166,024)
----------- ----------- -----------
Net loss, as reported $(1,487,525) $(2,506,855) $(1,266,681)
=========== =========== ===========
</TABLE>
Effective as of the close of business on December 31, 1995, The Company issued
105,334 shares of its common stock in exchange for all of the outstanding
common stock of American and Circle Creek, Inc.
Also, effective as of the close of business on December 31, 1995, all assets
and liabilities of Circle Creek Aquaculture, L.P., Circle Creek Aquaculture II,
L.P., Circle Creek Aquaculture III, L.P., and Circle Creek Aquaculture IV, L.P.
("Circle Creek I-IV") were merged into the Company by vote of the limited
partners of Circle Creek I-IV. In consideration for the Merger, AquaPro issued
404,764 "Units" to the limited partners (see Note 6) and $149,098 of 10.35%
convertible notes due on December 31, 2002 (see Note 5).
F-14
<PAGE> 59
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
2. MERGERS (CONTINUED)
The mergers are accounted for as a reorganization of the entities under common
control into the Company. Accordingly, the transactions are accounted for on
the historical cost basis of American, Circle Creek, Inc., Circle Creek I-IV
and Circle Creek V-VIII. The carrying amounts for common stock of American and
Circle Creek, Inc. and the general and limited partners' capital of Circle
Creek I-IV and Circle Creek V-VIII were transferred to the Company's common
stock as of January 1, 1995.
In connection with the mergers, approximately $213,000 and $132,000 of merger
costs and expenses were incurred and have been included in selling, general and
administrative expenses in the accompanying consolidated statements of
operations for the six months ended June 30, 1997 and for the year ended
December 31, 1995, respectively. The merger costs and expenses consisted
principally of legal and consulting fees.
3. PURCHASES OF BUSINESS
In April 1993, Circle Creek Aquaculture V, L.P. ("Circle Creek V") entered into
a two-year agreement for the lease of substantially all of the land, ponds and
improvements, machinery and equipment, and other assets used in the
partnership's operations. Pursuant to the lease agreement, Circle Creek V had
the option to purchase for fair value the leased assets at the end of the lease
term. In March 1995, the Partnership exercised its option to purchase the
leased assets for $1,972,852 including acquisition costs of $174,852 of which
$122,494 was paid in 1994. The acquisition was accounted for by the purchase
method of accounting. Lease payments for 1995 totaled $45,000 and were included
in the cost of producing live fish inventories.
4. INVESTMENTS IN COOPERATIVES
Investments in cooperatives consist of the following:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996
------------------------
<S> <C> <C>
Delta Pride Catfish, Inc. $714,278 $1,029,277
Fishco, Inc. 112,000 112,000
Indi-Bell, Inc. 57,240 57,240
-------- ----------
$883,518 $1,198,517
======== ==========
</TABLE>
F-15
<PAGE> 60
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS IN COOPERATIVES (CONTINUED)
The ownership of Delta Pride Catfish, Inc. ("Delta Pride") and Fishco, Inc.
("Fishco") stock provides the Company the right to sell live catfish to Delta
Pride and Fishco. Delta Pride is the Company's most significant customer.
Substantially all of the Company's catfish feed purchases were from Indi-Bell,
Inc. during the six month period ended June 30, 1997 and the years ended
December 31, 1996 and 1995.
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable-bank consists of borrowings under a $750,000 revolving line of
credit used solely to fund purchases of feed. Interest accrues at the prime
rate plus 1.65% and the revolving line of credit expires March 8, 1998.
Interest is paid monthly and principal is paid with 50 percent of all
collections of accounts receivable from sales of seven of the Company's eight
farms.
The notes payable-officer and director are unsecured and bear interest at prime
plus 1/2%. Included in notes payable-others were borrowings of $30,636 at June
30, 1997 and $176,925 at December 31, 1996 under a revolving $175,000 credit
facility for feed purchases from one of the Company's customers who is also a
feed supplier. Borrowings accrue interest at 10.25%.
Also included in notes payable-other were borrowings of $376,190 at December
31, 1996 under a revolving $376,190 line of credit with one of the Company's
major feed suppliers. This line of credit was replaced in April 1997 by the
arrangement with the bank described above.
F-16
<PAGE> 61
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996
------------------------------------
<S> <C> <C>
Note payable to a bank with monthly principal and interest
payments of $11,754 through March 2000 and a final payment of
approximately $970,000 due April 2000 with interest at prime plus
2 1/2% (11% at June 30, 1997) $1,055,244 $1,070,349
Convertible notes payable with interest due quarterly at 10.35% and
principal due December 1999 ($551,992) and December 2000
($595,521) 1,147,513 1,147,513
Convertible notes payable with interest due quarterly at 10.35% and
principal due in December 2002 363,593 363,593
Convertible notes payable with interest due quarterly at 7.15% and
principal DUE December 2003 68,582 -
Note payable to an insurance company with annual principal
payments of $16,000 through June 2000 and a final installment of
$256,000 due in June 2001 with interest payable seminannually at
7.7% 304,000 320,000
Note payable to an insurance company with annual principal
payments of $7,500 through February 2002 and a final payment of
$182,500 due in February 2002 with interest payable seminannually
at 8.1% 212,500 220,000
Note payable to an insurance company with annual principal
payments of $6,100 through March 2004 and a final payment of
$92,000 due September 2004 with interest payable seminannually
at 9.5% 134,700 140,800
Note payable to the Federal Land Bank with annual payments of
$34,307 including interest at variable rates (9.05% at June 30,
1997) through January 2015 267,100 267,100
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Note payable to the Federal Land Bank with annual payments of
$31,732 including interest at variable rates (9.05% at June 30,
1997) through January 2015 $244,995 $244,995
</TABLE>
F-17
<PAGE> 62
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
<TABLE>
<S> <C> <C>
Notes payable to a finance company with annual payments aggregating
approximately $72,000 including interest at rates ranging from 6% to 10.65%,
maturing at various dates from July 1998 through March 2001 200,603 228,476
Capital lease obligations to Farm Credit Leasing Services Corporation with
quarterly payments aggregating $12,185 including interest at an effective rate
of 8.5% through June 2002 180,300 -
Notes payable to various finance companies with monthly payments aggregating
$9,400 including interest at rates ranging from 8.25% to 9%, maturing at
various dates through January 2000 141,931 140,816
Note payable to a bank with monthly payments of $1,156 including interest at
prime plus 1.65% (10.4% at June 30, 1997) through June 2002 54,177 -
-------- --------
Less current maturities 4,375,238 4,143,642
272,258 275,666
--------- ---------
$4,102,980 $3,867,976
========== ==========
</TABLE>
The 10.35% convertible notes payable due in 2002 are convertible into shares of
the Company's common stock at a price of $10.42 per share at the noteholders'
option at any time prior to maturity. The notes may be paid by the Company at
any time without penalty. The 7.15% convertible notes are convertible into
shares of the Company's stock at a price of $10 per share at the noteholders'
option at any time prior to maturity. The notes may be paid by the Company at
any time without penalty.
During 1996, certain holders of the unsecured and convertible (prime plus 3%)
notes payable converted notes with a principal balance of $1,678,762 into
167,876 units (see Note 5). Also in 1996, certain holders of the unsecured
notes payable and convertible notes payable (prime plus 3%) converted notes
with a principal balance of $214,495 into the 10.35% convertible notes payable.
The remaining unsecured notes payable and convertible (prime plus 3%) totaling
$505,356 were paid in 1996.
F-18
<PAGE> 63
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
5. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
During 1996, the Company issued 18,864 shares of its common stock to certain
officers and directors for the cancellation of $136,764 in notes payable to
officers and directors.
Substantially all trade accounts receivable, live fish inventories and
property, buildings and equipment are pledged as collateral to the note payable
to bank and long-term debt.
The aggregate annual maturities of long-term debt at June 30, 1997 are as
follows:
<TABLE>
<S> <C>
1998 $ 272,258
1999 770,871
2000 1,752,686
2001 394,402
2002 616,444
Thereafter 568,577
----------
$4,375,238
==========
</TABLE>
Subsequent to June 30, 1997, the holders of the 10.35% convertible notes
payable due in 1999 and 2000 were offered 1.3 shares of the Company's Series A
Preferred Stock for each $10 of principal in an exchange offer which expired
August 31, 1997 (see Note 2). In the aggregate, approximately $900,000 of these
notes were exchanged for approximately 117,000 shares of preferred stock.
Convertible notes not converted pursuant to this offer are convertible into
shares of the company's common stock at the noteholders' option any time prior
to maturity at a price of $6.56 to $8.08 per share.
6. COMMON STOCK
Effective December 31, 1995, AquaPro issued 404,764 "Units" in connection with
the merger with Circle Creek I-IV described in Note 2. In 1996, certain holders
of unsecured notes payable converted notes with principal balances totaling
$1,678,762 into 167,876 units. A Unit consisted of one share of the Company's
common stock, one $7.25 stock purchase right, one $8.25 stock purchase warrant
and one $10.50 stock purchase warrant. The stock rights expired on June 14,
1996 which allowed the holder to purchase one share of the Company's common
stock for $7.25. The $8.25 stock purchase warrants, which allowed the holder to
purchase one share of the Company's common stock for $8.25 (1.2 shares at
$6.875 post split), expired on December 31, 1996. The $10.50 stock purchase
warrants had an expiration date of December 31, 1997 and allowed the holder to
purchase one share of the Company's common stock for $10.50 (1.2 shares at
$8.75 post split);
F-19
<PAGE> 64
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
6. COMMON STOCK (CONTINUED)
however, on June 30, 1997, the Company exercised its option to convert the
$10.50 stock purchase warrants into 203,834 shares of the Company's common
stock. None of the $8.25 stock purchase warrants or the $10.50 stock purchase
warrants were outstanding at June 30, 1997. There were 235,507 $7.50 stock
purchase warrants outstanding at June 30, 1997 pertaining to preferred stock
issued in 1997 and 1996 (see Note 8.)
During 1996, the Company received $2,137,928, net of related expenses
pertaining to broker-dealer commissions, legal, printing, travel and other,
from the sale of 358,221 shares (429,865 shares post split) of common stock at
$7.25 per share pursuant to the exercise of the $7.25 stock purchase rights and
4,483 shares (5,380 shares post split) of common stock at $8.25 per share
pursuant to the exercise of the $8.25 stock purchase warrants. In connection
with the exercise of the $7.25 stock purchase rights, the Company granted
broker-dealers options to purchase 32,598 shares of the Company's common stock
at $11.25 per share (39,117 shares at $9.38 per share post split). The options
are exercisable at any time through June 2001. None of the options have been
exercised as of June 30, 1997.
During the six months ended June 30, 1997, the Company granted 22,500 shares of
common stock to key employees. The Company granted 20,000 shares (24,000 shares
post split) of common stock to key employees during the year ended December 31,
1996 and 1995, respectively. The shares generally vest after a two-year period.
Unearned compensation expense is amortized to selling, general and
administrative expenses in the accompanying consolidated statements of
operations over the vesting period. Common shares totaling 9,000 were canceled
during the six-month period ended June 30, 1997.
F-20
<PAGE> 65
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE STOCK OPTIONS
The Company granted directors and certain key employees options to purchase
shares of common stock at $6.25 per share as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Outstanding-beginning of period 129,000 63,000 -
Granted 63,000 66,000 63,000
Exercised - - -
Forfeited (12,000) - -
------- ------- ------
Outstanding-end of period 180,000 129,000 63,000
======= ======= ======
</TABLE>
All outstanding options at June 30, 1997 were exercisable. The options were
granted for a seven-year period and, accordingly, the 1997 options, the 1996
options, and the 1995 options are exercisable at any time through March 31,
2004, March 31, 2003, and March 2002, respectively.
Pro forma information regarding net income and earnings per share is required
by FASB Statement No. 123, Accounting for Stock-Based Compensation, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of the Statement. The fair value was estimated at
the date of the grant using a Black-Scholes option pricing model with the
following weighted-average assumptions: volatility factor of .01 for the six
months ended June 30, 1997, and the years ended December 31, 1996 and 1995;
weighted-average expected life of options of three years; risk-free interest
rate of 6%; and no dividend yield.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value
F-21
<PAGE> 66
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE STOCK OPTIONS (CONTINUED)
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the options
granted for the six months ended June 30, 1997, and the years ended December
31, 1996 and 1995 is amortized to expense over the vesting period. The
Company's pro forma net losses were $1,538,525, $2,572,855 and $1,329,681 for
the six months ended June 30, 1997 and the years ended December 31, 1996 and
1995, respectively, and the Company's pro forma loss per common share was
$(.53), $(1.04) and $(.67), respectively, for those same periods. The
weighted-average fair value of options granted during the six months ended June
30, 1997 and the years ended December 31, 1996 and 1995, respectively, was
$1.00.
8. PREFERRED STOCK
During the six months ended June 30, 1997, the Company received $1,089,239, net
of related expenses pertaining to broker-dealer-commissions, legal, printing,
travel and other, from the sale of 130,973 "Preferred Units." In 1996, the
Company received $748,169, net of related expenses pertaining to
broker-dealer-commissions, legal, printing, travel and other, from the sale of
104,534 "Preferred Units". A Preferred Unit consists of one share of the
Company's Series A Preferred Stock and one $7.50 common stock purchase warrant.
The $7.50 stock purchase warrants (235,507 warrants outstanding at June 30,
1997) allow the holder to purchase one share of the Company's common stock for
$7.50 prior to the expiration date of December 31, 1998. The warrants will be
automatically converted into three-tenths of a share of the Company's common
stock if not exercised by that date.
At June 30, 1997, 708,926 Preferred Stock Rights (see Note 2) were outstanding.
Subsequent to June 30, 1997, the Company received approximately $525,000, net
of offering expenses, from the exercise of approximately 75,000 Preferred Stock
Rights.
The Series A Preferred Stock has cumulative annual dividends of $0.175 per
share, payable quarterly. Each share (235,507 shares outstanding at June 30,
1997) may be converted, at the option of the holder, into 1.33 shares of the
Company's common stock. The Company may redeem the Series A Preferred stock at
any time on or after January 1, 2000 at $10 per share plus accrued dividends.
The Series A Preferred Stock will be
F-22
<PAGE> 67
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
mandatorily converted into the Company's common stock on the sixty-sixth
trading day following the listing of the Company's common stock on a national
exchange. On the
8. PREFERRED STOCK (CONTINUED)
mandatory conversion date, each share of Series A Preferred Stock will
automatically be converted into the greater of 1.33 shares of the Company's
common stock or $10 divided by the current market price, as defined. In the
event of the Company's liquidation, the holders of the Series A Preferred Stock
are entitled to $10 per share plus accrued dividends.
The Series A Preferred Stock has no voting rights. However, in the event that
three consecutive quarterly dividend payments are in arrears, each share of
Series A Preferred Stock will have 25 votes.
9. INCOME TAXES
For the year ended December 31, 1995, taxable income and losses of Circle Creek
I-IV and Circle Creek V-VIII were reported on the tax returns of the partners.
For the year ended December 31, 1996 and the six months ended June 30, 1997,
taxable income and losses of Circle Creek V-VIII were reported on the tax
returns of the partners. Accordingly, income taxes have not been provided in
the accompanying consolidated financial statements applicable to losses of
Circle Creek I-IV and Circle Creek V-VIII for 1995 or losses of Circle Creek
V-VIII for 1996 and for the six months ended June 30, 1997 . The merger
described in Note 2 was treated as a taxable transaction by the partners with
the excess of the fair value of the related assets and liabilities over the tax
basis reported as taxable income to the partners.
The Company had net operating loss carryovers of approximately $2,600,000 at
June 30, 1997, to reduce future taxable income through 2012.
AquaPro and its wholly-owned subsidiaries, American and Circle Creek, Inc.,
file a consolidated federal income tax return with operations subject to income
taxes at the corporate level.
F-23
<PAGE> 68
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Components of the Company's deferred tax assets consisted of the following:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1997 1996
---------------------------
<S> <C> <C>
Deferred tax assets - current:
Inventories $ 80,000 $ 168,000
Accrued expenses 89,000 89,000
Deferred tax assets - noncurrent:
Goodwill for income tax purposes 2,440,000 457,000
Net operating loss carryforward 960,000 575,000
Other 37,000 11,000
----------- -----------
3,606,000 1,300,000
Valuation allowance for deferred tax assets (3,606,000) (1,300,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
Deferred income taxes were reinstated for temporary differences between
financial and income tax basis in connection with the merger of the Company and
Circle Creek I-IV, effective December 31, 1995 and in connection with the
merger of the Company and Circle Creek V-VIII, effective June 30, 1997.
10. RELATED PARTY TRANSACTIONS
Management fees from affiliates consist of management fees of $9,000 for the
six month period ended June 30, 1997 and $18,000 for the years ended December
31, 1996 and 1995, respectively, received from a catfish production farm in
which an officer of the Company is an owner of the catfish production farm.
For the years ended December 31, 1996 and 1995, the Company purchased
fingerling fish at prevailing market rates totaling $38,758 and $50,356,
respectively, from an affiliate.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash and cash equivalents approximate their fair
values at June 30, 1997 and December 31, 1996. The carrying amount for
investments in cooperatives approximates their fair value at June 30, 1997 and
December 31, 1996 based upon estimates of recent sales of stock of the
cooperation obtained by management.
F-24
<PAGE> 69
AquaPro Corporation
Notes to Consolidated Financial Statements (continued)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Notes payable to banks and officers and directors were at variable rates which
approximated fair value at June 30, 1997 and December 31, 1996. The fair value
of notes payable-other and long-term debt, which was estimated using discounted
cash flow analysis based upon the Company's incremental borrowing rates for
similar borrowings arrangements, approximated their carrying amounts at June
30, 1997 and at December 31, 1996.
F-25
<PAGE> 70
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AQUAPRO CORPORATION
Date: September 26, 1997 By: /s/ George S. Hastings, Jr.
----------------------------------
George S. Hastings, Jr.
Chairman of the Board, Chief Executive
Officer, President and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ George S. Hastings, Jr. Chairman of the Board, Chief September 26, 1997
- --------------------------- Executive Officer, President,
George S. Hastings, Jr. and Director (Principal
Executive Officer)
/s/ Patricia G. Hastings Vice President, General September 26, 1997
- --------------------------- Counsel, Secretary, and
Patricia G. Hastings Director
/s/ Eric P. Braschwitz Chief Financial Officer September 26, 1997
- --------------------------- (Principal Financial
Eric P. Braschwitz and Accounting Officer)
/s/ Joseph Duncan, Sr. Director September 26, 1997
- ---------------------------
Joseph Duncan, Sr.
/s/ Roger A. Daley Director September 26, 1997
- ---------------------------
Roger A. Daley
</TABLE>
<PAGE> 71
AQUAPRO CORPORATION
<TABLE>
<CAPTION>
ITEM EXHIBIT
NO.
<S> <C>
AquaPro's Charter (1) 3.1
AquaPro's Amended and Restated Charter (1) 3.2
AquaPro's Articles of Correction to Charter (1) 3.3
AquaPro's Articles of Amendment to Charter (1) 3.4
AquaPro's First Amended and Restated Bylaws (1) 3.5
Plan and Agreement of Consolidation for CCA I - IV (1) 3.6
Plan and Agreement of Consolidation for CCA V - VIII (1) 3.7
Articles of Merger of CCA I - IV and AquaPro Corporation (1) 3.8
Amended Plan and Agreement of Merger of CCA V - VIII and
AquaPro Corporation 3.9
Articles of Merger of CCA V - VIII and AquaPro Corporation 3.10
Form of Common Stock Certificate (1) 4.1
Form of $10.50 Common Stock Warrant (1) 4.2
Form of $10.50 Warrant Agreement (1) 4.3
Form of 10.35% Debenture (1) 4.4
Form of 10.35% Loan Note Agreement (1) 4.5
Form of Series A Preferred Stock Certificate (1) 4.6
Form of $7.50 Common Stock Warrant (1) 4.7
Form of $9.50 Stock Right 4.8
Form of $9.50 Stock Rights Agreement 4.9
Exchange Form for Investor Notes 4.10
Form of 10.35% Collateralized Convertible Note 4.11
Form of Agency Agreement 10.35% Collateralized
Convertible Notes 4.12
Form of Security Agreement 10.35% Collateralized
Convertible Notes 4.13
Marketing Agreement with Delta Pride (1) 10.1
Agreements with Delta Western ("Indi Bell") (1) 10.2
Security Agreement, Guaranty, Note with Community Bank (1) 10.3
</TABLE>
<PAGE> 72
<TABLE>
<S> <C>
Note, Deed of Trust, Security Agreement with Met Life
(Balmoral) (1) 10.4
Note and Deed of Trust with Met Life (Cypress Lake) (1) 10.5
Employment Agreement with George S. Hastings, Jr. (1) 10.6
Employment Agreement with Patricia G. Hastings (1) 10.7
Note and Deed of Trust with Sunburst Bank (CCA V) 10.8
Note, Deed of Trust, Loan Agreement, and Finance Charge
Agreement with Metropolitan Life (CCA VI) 10.9
Deed of Trust, Assumption Agreements, Modification and
Loan Agreements and other communications with Federal
Land Bank (CCA VII and VIII) 10.10
Unaudited Condensed Consolidated Financial Statements
for June 1996 28
</TABLE>
- --------------------------------------------------------------------------------
(1) Incorporated by reference to the corresponding Exhibit previously filed as
an Exhibit to Registrant's Form 10-SB (File # 000-29258).
<PAGE> 1
Exhibit 3.9
AMENDMENT TO
PLAN AND AGREEMENT OF CONSOLIDATION
This Amendment to the Agreement and Plan of Consolidation dated as of
June 30, 1997 (the "Consolidation Agreement"), is by and between AquaPro
Corporation (the "Company"), Circle Creek Aquaculture V, L.P. (the
"Participating Partnership"), and CCA V, Inc. (the "Participating Corporation")
hereinafter sometimes together referred to as the "Parties", effective June 30,
1997.
WITNESSETH:
WHEREAS, the Company desires to consolidate the business of the
Participating Partnership with its own pursuant to its acquisition of all of the
assets and assumption of all of the liabilities of the Participating Partnership
pursuant to a series of transactions (the "Consolidation") as set forth in the
Prospectus And Consent Solicitation Statement of the Company, dated May 28,
1997, and any and all supplements or amendments thereto (the "Prospectus"); and
WHEREAS, the Company and the Participating Partnership have entered
into the Consolidation Agreement with the Participating Partnership and the
Participating Corporation, which is wholly owned by the Participating
Partnership; and
WHEREAS, the Parties had agreed to the terms and conditions of the
Consolidation transactions provided for in the Consolidation Agreement with
reference to certain laws of the state of Tennessee and federal securities laws
then in effect; and
WHEREAS, the Parties have determined that, at the time of this
Amendment, compliance by the Consolidation with the corporate laws of the state
of Tennessee, the federal securities laws and the applicable securities laws of
certain states would no longer require the intermediate transfer of the
Participating Partnership's assets and liabilities to its Participating
Corporation from which such assets would be purchased and such liabilities
assumed by the Company and have determined that under the applicable federal and
state securities laws and the corporate and partnership laws of the state of
Tennessee, the Consolidation can be effected and the limited partners of the
Participating Partnership can receive the consideration proposed pursuant to a
merger of the Participating Partnership and the parties hereto now desire to
amend the Consolidation Agreement to so provide; and
WHEREAS, the consolidation transactions, including the Consolidation
Agreement, have been approved by the Company's shareholders and the required
number of limited partners of the Participating Partnership; and
WHEREAS, the Consolidation Agreement in Article XII, Section 3 thereof,
expressly provides that the parties may amend this Agreement in their discretion
from time to time, by their mutual agreement, provided that no such amendment
shall alter or change the amount or kind of consideration which the shareholders
or holders of debt obligations of the Participating Corporation are entitled to
receive, or shall alter or change the terms and conditions of the Agreement if
such alteration or change would have a material adverse affect on the
shareholders or the holders of any debt obligations of the Participating
Corporation or the shareholders of the Company; and
WHEREAS, the Parties now desire to amend the Consolidation Agreement in
the manner allowed in Article XII, Section 3 thereof, whereas the transactions
constituting the consolidation, as amended, by the parties pursuant hereto are
expressly authorized by the Tennessee Business Corporation Act (the "Corporation
Act") and the Tennessee Revised Uniform Limited Partnership Act ("RULPA"); and
<PAGE> 2
WHEREAS, the charter and bylaws of the Company and the Agreement of
Limited Partnership of the Participating Partnership permit, and resolutions by
the general partners of the Participating Partnership, and the Board of
Directors of the Company authorize, this Amendment to the Consolidation
Agreement (this "Amendment") and the consummation of the Consolidation;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby amend the Consolidation Agreement as follows:
1. PARTICIPATING CORPORATION NO LONGER A PARTY. The Parties agree that
upon the effective date of this Amendment, the Participating Corporation shall
no longer be party to the Consolidation Agreement, and the Participating
Corporation shall have no further responsibility, duties or liabilities
thereunder.
2. AMENDMENT TO ARTICLES I THROUGH IV, INCLUSIVE. Article I,
Article II, Article III and Article IV of the Consolidation Agreement are hereby
amended and restated in their entirety to read as follows.
ARTICLE I
THE MERGER
1.01 THE CONSOLIDATION; SURVIVING CORPORATION. Subject to the terms and
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.02 below), the assets and liabilities of the Participating Partnership
shall become the assets and liabilities of the Company by purchase, transfer,
assignment and assumption pursuant to the Corporation Act and the Participating
Partnership shall immediately as of the Effective Time, as defined below, be
merged into the Company and the Limited Partner Interests (the "L.P. Units") of
each Participating Partnership then outstanding shall thereupon become Units and
Notes of the Company, as each is defined herein by reference to the Prospectus,
as a result of the Consolidation as provided in Article III below. The Surviving
Corporation, as defined below, shall continue to be governed by the Corporation
Act.
1.02 EFFECTIVE TIME. In accordance with the Corporation Act, the
Consolidation shall become effective (the "Effective Time") upon the date of the
closing of the Consolidation as described herein effective as of June 30, 1997.
Any filings or recordings required by Tennessee law in connection with the
Consolidation shall also be made and the formal closing of the Consolidation
(the "Closing Date") shall occur contemporaneously with or as soon as practical
after the Effective Time.
1.03 EFFECT OF THE CONSOLIDATION. The Consolidation shall have the
effects set forth in this Agreement and in the Corporation Act.
ARTICLE II
THE SURVIVING CORPORATION
2.01 SURVIVING CORPORATION. The Surviving Corporation shall be the
Company.
2.02 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and Bylaws of the
Company at the Effective Time.
<PAGE> 3
2.03 OFFICERS AND DIRECTORS. The officers of the Company immediately
prior to the Effective Time shall continue as officers of the Surviving
Corporation and remain officers until their successors are duly appointed or
their prior resignation, removal or death. The directors of the Company
immediately prior to the Effective Time shall continue as directors of the
Surviving Corporation and shall remain directors until their successors are duly
elected and qualified or their prior resignation, removal or death.
ARTICLE III
CONSIDERATION FOR PARTICIPATING PARTNERSHIP ASSETS
3.01 CONSIDERATION PAID BY THE COMPANY. At or as of the Effective
Time, the assets and the liabilities of the Participating Partnership shall by
the assets and liabilities of Company.
3.02 CONSIDERATION TO PARTICIPATING PARTNERSHIP AS A RESULT OF THE
CONSOLIDATION.
(1) Units. Except as provided in subsection 3.02(ii), as of
the Effective Time, each L.P. Unit of the Participating Partnership in
the Consolidation shall become ten and two hundred ninety-five one
thousandths (10.295) Units. No fractional Units shall be issued. Any
Limited Partner of a Participating Partnership who would be entitled to
a fractional Unit will receive the next whole Unit greater than such
fraction. A Unit of the Company shall consist of one share of the
Company's no par value Common Stock, one 90-Day $9.50 Series A
Preferred Stock Purchase Right, one 12-Month $7.50 Stock Purchase
Warrant and one 24-Month $9.50 Stock Purchase Warrant, as each is
defined in the Prospectus.
(2) Issuance of Notes. As of the Effective Time, each Limited
Partner Unit of the Participating Partnership held of record by a
holder who does not vote in favor of the Consolidation or who does not
otherwise elect to receive Units shall become entitled to receive the
Company's unsecured, convertible 7.15% Note due December 31, 2003, as
further described in the Prospectus (the "Notes") in a principal amount
of forty-six and ninety-four one hundredths dollars ($46.94).
3.04 ISSUANCE OF CERTIFICATE FOR UNITS AND NOTES. Upon or as soon as
practicable after the Effective Time, the Company shall distribute in accordance
with this Agreement to the holders of the L.P. Units of each Participating
Partnership the Unit Certificates and 7.15% Notes to which they are entitled
pursuant hereto.
ARTICLE IV
TRANSFER AND CONVEYANCE OF ASSETS
AND ASSUMPTION OF LIABILITIES
-3-
<PAGE> 4
4.01 TRANSFER, CONVEYANCE AND ASSUMPTION. At the Effective Time, the
Company shall continue its existence as the Surviving Corporation, and by
conveyance, transfer and assumption, succeed to and possess all the rights,
privileges and powers of the Participating Partnership, and all the assets and
property of whatever nature and character of the Participating Partnership shall
vest in the Company; thereafter the Company shall be liable for all of the
liabilities and obligations of the Participating Partnership, and any claim or
judgment against the Participating Partnership may be enforced against the
Company. The Company and such Participating Partnership shall execute such
documents as either of them shall deem necessary to effect the foregoing.
4.02 CONSISTENT INTERPRETATION. The parties agree that the Articles of
the Consolidation Agreement not expressly amended by the foregoing, to the
extent that they may be inconsistent with the foregoing amendments, shall be
interpreted and enforced in a manner that is consistent with Article I, Article
II, Article III, and Article IV as herein amended. The parties agree to execute
such additional instruments and to take such further action as may be judged
necessary or appropriate by any of them in order to implement the transactions
provided for in the Consolidation Agreement as amended.
4.03 FURTHER ASSURANCES. If at any time the Company shall consider or
be advised that any further assignment, conveyance or assurance is necessary or
advisable to vest, perfect or confirm of record its title to any property or
right of the Participating Partnership or otherwise to carry out the provisions
hereof, the proper representatives of the Participating Partnership as of the
Effective Time shall execute and deliver any and all proper deeds, assignments
and assurances, and do all things necessary and proper to vest, perfect or
convey title to such property or right in the Company and otherwise to carry out
the provisions hereof.
4.04 NO IMPLIED CHANGES. Except as expressly provided for above, there
shall be no other changes in the terms and conditions of the Consolidation
Agreement by this Amendment.
4.05 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, which counterpart agreement shall together constitute a single
original agreement.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed by an officer duly authorized to do so, all as of the date and year
first above written.
"THE COMPANY" "THE PARTICIPATING
PARTNERSHIP"
AQUAPRO CORPORATION,
-4-
<PAGE> 5
A TENNESSEE CORPORATION CIRCLE CREEK AQUACULTURE V, L.P.
By: /s/ George S. Hastings, Jr. By: /s/ George S. Hastings
------------------------------------ -----------------------------
George S. Hastings, Jr., President George S. Hastings, Jr.,
General Partner
By: /s/ Patricia G. Hastings "THE PARTICIPATING CORPORATION"
------------------------------------
Patricia G. Hastings, Secretary
CCA V. INC.
A TENNESSEE CORPORATION
By: /s/ George S. Hastings, Jr.
-----------------------------
George S. Hastings, Jr.,
President
By: /s/ Patricia G. Hastings
-----------------------------
Patricia G. Hastings,
Secretary
-5-
<PAGE> 6
AMENDMENT TO
PLAN AND AGREEMENT OF CONSOLIDATION
This Amendment to the Agreement and Plan of Consolidation dated as of
June 30, 1997 (the "Consolidation Agreement"), is by and between AquaPro
Corporation (the "Company"), Circle Creek Aquaculture VI, L.P. (the
"Participating Partnership"), and CCA VI, Inc. (the "Participating Corporation")
hereinafter sometimes together referred to as the "Parties", effective June 30,
1997.
WITNESSETH:
WHEREAS, the Company desires to consolidate the business of the
Participating Partnership with its own pursuant to its acquisition of all of the
assets and assumption of all of the liabilities of the Participating Partnership
pursuant to a series of transactions (the "Consolidation") as set forth in the
Prospectus And Consent Solicitation Statement of the Company, dated May 28,
1997, and any and all supplements or amendments thereto (the "Prospectus"); and
WHEREAS, the Company and the Participating Partnership have entered
into the Consolidation Agreement with the Participating Partnership and the
Participating Corporation, which is wholly owned by the Participating
Partnership; and
WHEREAS, the Parties had agreed to the terms and conditions of the
Consolidation transactions provided for in the Consolidation Agreement with
reference to certain laws of the state of Tennessee and federal securities laws
then in effect; and
WHEREAS, the Parties have determined that, at the time of this
Amendment, compliance by the Consolidation with the corporate laws of the state
of Tennessee, the federal securities laws and the applicable securities laws of
certain states would no longer require the intermediate transfer of the
Participating Partnership's assets and liabilities to its Participating
Corporation from which such assets would be purchased and such liabilities
assumed by the Company and have determined that under the applicable federal and
state securities laws and the corporate and partnership laws of the state of
Tennessee, the Consolidation can be effected and the limited partners of the
Participating Partnership can receive the consideration proposed pursuant to a
merger of the Participating Partnership and the parties hereto now desire to
amend the Consolidation Agreement to so provide; and
WHEREAS, the consolidation transactions, including the Consolidation
Agreement, have been approved by the Company's shareholders and the required
number of limited partners of the Participating Partnership; and
WHEREAS, the Consolidation Agreement in Article XII, Section 3 thereof,
expressly provides that the parties may amend this Agreement in their discretion
from time to time, by their mutual agreement, provided that no such amendment
shall alter or change the amount or kind of consideration which the shareholders
or holders of debt obligations of the Participating Corporation are entitled to
receive, or shall alter or change the terms and conditions of the Agreement if
such alteration or change would have a material adverse affect on the
shareholders or the holders of any debt obligations of the Participating
Corporation or the shareholders of the Company; and
WHEREAS, the Parties now desire to amend the Consolidation Agreement in
the manner allowed in Article XII, Section 3 thereof, whereas the transactions
constituting the consolidation, as amended, by the parties pursuant hereto are
expressly authorized by the Tennessee Business Corporation Act (the "Corporation
Act") and the Tennessee Revised Uniform Limited Partnership Act ("RULPA"); and
<PAGE> 7
WHEREAS, the charter and bylaws of the Company and the Agreement of
Limited Partnership of the Participating Partnership permit, and resolutions by
the general partners of the Participating Partnership, and the Board of
Directors of the Company authorize, this Amendment to the Consolidation
Agreement (this "Amendment") and the consummation of the Consolidation;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby amend the Consolidation Agreement as follows:
1. PARTICIPATING CORPORATION NO LONGER A PARTY. The Parties agree that
upon the effective date of this Amendment, the Participating Corporation shall
no longer be party to the Consolidation Agreement, and the Participating
Corporation shall have no further responsibility, duties or liabilities
thereunder.
2. AMENDMENT TO ARTICLES I THROUGH IV, INCLUSIVE. Article I, Article
II, Article III and Article IV of the Consolidation Agreement are hereby amended
and restated in their entirety to read as follows.
ARTICLE I
THE MERGER
1.01 THE CONSOLIDATION; SURVIVING CORPORATION. Subject to the terms and
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.02 below), the assets and liabilities of the Participating Partnership
shall become the assets and liabilities of the Company by purchase, transfer,
assignment and assumption pursuant to the Corporation Act and the Participating
Partnership shall immediately as of the Effective Time, as defined below, be
merged into the Company and the Limited Partner Interests (the "L.P. Units") of
each Participating Partnership then outstanding shall thereupon become Units and
Notes of the Company, as each is defined herein by reference to the Prospectus,
as a result of the Consolidation as provided in Article III below. The Surviving
Corporation, as defined below, shall continue to be governed by the Corporation
Act.
1.02 EFFECTIVE TIME. In accordance with the Corporation Act, the
Consolidation shall become effective (the "Effective Time") upon the date of the
closing of the Consolidation as described herein effective as of June 30, 1997.
Any filings or recordings required by Tennessee law in connection with the
Consolidation shall also be made and the formal closing of the Consolidation
(the "Closing Date") shall occur contemporaneously with or as soon as practical
after the Effective Time.
1.03 EFFECT OF THE CONSOLIDATION. The Consolidation shall have the
effects set forth in this Agreement and in the Corporation Act.
ARTICLE II
THE SURVIVING CORPORATION
2.01 SURVIVING CORPORATION. The Surviving Corporation shall be the
Company.
2.02 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and Bylaws of the
Company at the Effective Time.
<PAGE> 8
2.03 OFFICERS AND DIRECTORS. The officers of the Company immediately
prior to the Effective Time shall continue as officers of the Surviving
Corporation and remain officers until their successors are duly appointed or
their prior resignation, removal or death. The directors of the Company
immediately prior to the Effective Time shall continue as directors of the
Surviving Corporation and shall remain directors until their successors are duly
elected and qualified or their prior resignation, removal or death.
ARTICLE III
CONSIDERATION FOR PARTICIPATING PARTNERSHIP ASSETS
3.01 CONSIDERATION PAID BY THE COMPANY. At or as of the Effective Time,
the assets and the liabilities of the Participating Partnership shall by the
assets and liabilities of Company.
3.02 CONSIDERATION TO PARTICIPATING PARTNERSHIP AS A RESULT OF THE
CONSOLIDATION.
(1) Units. Except as provided in subsection 3.02(ii), as of
the Effective Time, each L.P. Unit of the Participating Partnership in
the Consolidation shall become fifteen and seventy-nine one thousandths
(15.79) Units. No fractional Units shall be issued. Any Limited Partner
of a Participating Partnership who would be entitled to a fractional
Unit will receive the next whole Unit greater than such fraction. A
Unit of the Company shall consist of one share of the Company's no par
value Common Stock, one 90-Day $9.50 Series A Preferred Stock Purchase
Right, one 12-Month $7.50 Stock Purchase Warrant and one 24-Month $9.50
Stock Purchase Warrant, as each is defined in the Prospectus.
(2) Issuance of Notes. As of the Effective Time, each Limited
Partner Unit of the Participating Partnership held of record by a
holder who does not vote in favor of the Consolidation or who does not
otherwise elect to receive Units shall become entitled to receive the
Company's unsecured, convertible 7.15% Note due December 31, 2003, as
further described in the Prospectus (the "Notes") in a principal amount
of seventy-two dollars ($72.00).
3.04 ISSUANCE OF CERTIFICATE FOR UNITS AND NOTES. Upon or as soon as
practicable after the Effective Time, the Company shall distribute in accordance
with this Agreement to the holders of the L.P. Units of each Participating
Partnership the Unit Certificates and 7.15% Notes to which they are entitled
pursuant hereto.
ARTICLE IV
TRANSFER AND CONVEYANCE OF ASSETS
AND ASSUMPTION OF LIABILITIES
4.01 TRANSFER, CONVEYANCE AND ASSUMPTION. At the Effective Time, the
Company shall continue its existence as the Surviving
-3-
<PAGE> 9
Corporation, and by conveyance, transfer and assumption, succeed to and possess
all the rights, privileges and powers of the Participating Partnership, and all
the assets and property of whatever nature and character of the Participating
Partnership shall vest in the Company; thereafter the Company shall be liable
for all of the liabilities and obligations of the Participating Partnership, and
any claim or judgment against the Participating Partnership may be enforced
against the Company. The Company and such Participating Partnership shall
execute such documents as either of them shall deem necessary to effect the
foregoing.
4.02 CONSISTENT INTERPRETATION. The parties agree that the Articles of
the Consolidation Agreement not expressly amended by the foregoing, to the
extent that they may be inconsistent with the foregoing amendments, shall be
interpreted and enforced in a manner that is consistent with Article I, Article
II, Article III, and Article IV as herein amended. The parties agree to execute
such additional instruments and to take such further action as may be judged
necessary or appropriate by any of them in order to implement the transactions
provided for in the Consolidation Agreement as amended.
4.03 FURTHER ASSURANCES. If at any time the Company shall consider or
be advised that any further assignment, conveyance or assurance is necessary or
advisable to vest, perfect or confirm of record its title to any property or
right of the Participating Partnership or otherwise to carry out the provisions
hereof, the proper representatives of the Participating Partnership as of the
Effective Time shall execute and deliver any and all proper deeds, assignments
and assurances, and do all things necessary and proper to vest, perfect or
convey title to such property or right in the Company and otherwise to carry out
the provisions hereof.
4.04 NO IMPLIED CHANGES. Except as expressly provided for above, there
shall be no other changes in the terms and conditions of the Consolidation
Agreement by this Amendment.
4.05 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, which counterpart agreement shall together constitute a single
original agreement.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed by an officer duly authorized to do so, all as of the date and year
first above written.
"THE COMPANY" "THE PARTICIPATING PARTNERSHIP"
AQUAPRO CORPORATION,
A TENNESSEE CORPORATION CIRCLE CREEK AQUACULTURE VI, L.P.
-4-
<PAGE> 10
By: /s/ George S. Hastings, Jr.
------------------------------------- By: /s/ George S. Hastings, Jr.
George S. Hastings, Jr., President ---------------------------
George S. Hastings, Jr.,
General Partner
By: /s/ Patricia G. Hastings "THE PARTICIPATING CORPORATION"
-------------------------------------
Patricia G. Hastings, Secretary CCA VI, INC.
A TENNESSEE CORPORATION
By: /s/ George S. Hastings, Jr.
----------------------------
George S. Hastings, Jr.,
President
By: /s/ Patricia G. Hastings
----------------------------
Patricia G. Hastings,
Secretary
-5-
<PAGE> 11
AMENDMENT TO
PLAN AND AGREEMENT OF CONSOLIDATION
This Amendment to the Agreement and Plan of Consolidation dated as of
June 30, 1997 (the "Consolidation Agreement"), is by and between AquaPro
Corporation (the "Company"), Circle Creek Aquaculture VII, L.P. (the
"Participating Partnership"), and CCA VII, Inc. (the "Participating
Corporation") hereinafter sometimes together referred to as the "Parties",
effective June 30, 1997.
WITNESSETH:
WHEREAS, the Company desires to consolidate the business of the
Participating Partnership with its own pursuant to its acquisition of all of the
assets and assumption of all of the liabilities of the Participating Partnership
pursuant to a series of transactions (the "Consolidation") as set forth in the
Prospectus And Consent Solicitation Statement of the Company, dated May 28,
1997, and any and all supplements or amendments thereto (the "Prospectus"); and
WHEREAS, the Company and the Participating Partnership have entered
into the Consolidation Agreement with the Participating Partnership and the
Participating Corporation, which is wholly owned by the Participating
Partnership; and
WHEREAS, the Parties had agreed to the terms and conditions of the
Consolidation transactions provided for in the Consolidation Agreement with
reference to certain laws of the state of Tennessee and federal securities laws
then in effect; and
WHEREAS, the Parties have determined that, at the time of this
Amendment, compliance by the Consolidation with the corporate laws of the state
of Tennessee, the federal securities laws and the applicable securities laws of
certain states would no longer require the intermediate transfer of the
Participating Partnership's assets and liabilities to its Participating
Corporation from which such assets would be purchased and such liabilities
assumed by the Company and have determined that under the applicable federal and
state securities laws and the corporate and partnership laws of the state of
Tennessee, the Consolidation can be effected and the limited partners of the
Participating Partnership can receive the consideration proposed pursuant to a
merger of the Participating Partnership and the parties hereto now desire to
amend the Consolidation Agreement to so provide; and
WHEREAS, the consolidation transactions, including the Consolidation
Agreement, have been approved by the Company's shareholders and the required
number of limited partners of the Participating Partnership; and
WHEREAS, the Consolidation Agreement in Article XII, Section 3 thereof,
expressly provides that the parties may amend this Agreement in their discretion
from time to time, by their mutual agreement, provided that no such amendment
shall alter or change the amount or kind of consideration which the shareholders
or holders of debt obligations of the Participating Corporation are entitled to
receive, or shall alter or change the terms and conditions of the Agreement if
such alteration or change would have a material adverse affect on the
shareholders or the holders of any debt obligations of the Participating
Corporation or the shareholders of the Company; and
WHEREAS, the Parties now desire to amend the Consolidation Agreement in
the manner allowed in Article XII, Section 3 thereof, whereas the transactions
constituting the consolidation, as amended, by the parties pursuant hereto are
expressly authorized by the Tennessee Business Corporation Act (the "Corporation
Act") and the Tennessee Revised Uniform Limited Partnership Act ("RULPA"); and
<PAGE> 12
WHEREAS, the charter and bylaws of the Company and the Agreement of
Limited Partnership of the Participating Partnership permit, and resolutions by
the general partners of the Participating Partnership, and the Board of
Directors of the Company authorize, this Amendment to the Consolidation
Agreement (this "Amendment") and the consummation of the Consolidation;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby amend the Consolidation Agreement as follows:
1. PARTICIPATING CORPORATION NO LONGER A PARTY. The Parties agree that
upon the effective date of this Amendment, the Participating Corporation shall
no longer be party to the Consolidation Agreement, and the Participating
Corporation shall have no further responsibility, duties or liabilities
thereunder.
2. AMENDMENT TO ARTICLES I THROUGH IV, INCLUSIVE. Article I, Article
II, Article III and Article IV of the Consolidation Agreement are hereby amended
and restated in their entirety to read as follows.
ARTICLE I
THE MERGER
1.01 THE CONSOLIDATION; SURVIVING CORPORATION. Subject to the terms and
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.02 below), the assets and liabilities of the Participating Partnership
shall become the assets and liabilities of the Company by purchase, transfer,
assignment and assumption pursuant to the Corporation Act and the Participating
Partnership shall immediately as of the Effective Time, as defined below, be
merged into the Company and the Limited Partner Interests (the "L.P. Units") of
each Participating Partnership then outstanding shall thereupon become Units and
Notes of the Company, as each is defined herein by reference to the Prospectus,
as a result of the Consolidation as provided in Article III below. The Surviving
Corporation, as defined below, shall continue to be governed by the Corporation
Act.
1.02 EFFECTIVE TIME. In accordance with the Corporation Act, the
Consolidation shall become effective (the "Effective Time") upon the date of the
closing of the Consolidation as described herein effective as of June 30, 1997.
Any filings or recordings required by Tennessee law in connection with the
Consolidation shall also be made and the formal closing of the Consolidation
(the "Closing Date") shall occur contemporaneously with or as soon as practical
after the Effective Time.
1.03 EFFECT OF THE CONSOLIDATION. The Consolidation shall have the
effects set forth in this Agreement and in the Corporation Act.
ARTICLE II
THE SURVIVING CORPORATION
2.01 SURVIVING CORPORATION. The Surviving Corporation shall be the
Company.
2.02 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and Bylaws of the
Company at the Effective Time.
<PAGE> 13
2.03 OFFICERS AND DIRECTORS. The officers of the Company immediately
prior to the Effective Time shall continue as officers of the Surviving
Corporation and remain officers until their successors are duly appointed or
their prior resignation, removal or death. The directors of the Company
immediately prior to the Effective Time shall continue as directors of the
Surviving Corporation and shall remain directors until their successors are duly
elected and qualified or their prior resignation, removal or death.
ARTICLE III
CONSIDERATION FOR PARTICIPATING PARTNERSHIP ASSETS
3.01 CONSIDERATION PAID BY THE COMPANY. At or as of the Effective Time,
the assets and the liabilities of the Participating Partnership shall by the
assets and liabilities of Company.
3.02 CONSIDERATION TO PARTICIPATING PARTNERSHIP AS A RESULT OF THE
CONSOLIDATION.
(1) Units. Except as provided in subsection 3.02(ii), as of
the Effective Time, each L.P. Unit of the Participating Partnership in
the Consolidation shall become ten and three hundred twenty-five one
thousandths (10.325) Units. No fractional Units shall be issued. Any
Limited Partner of a Participating Partnership who would be entitled to
a fractional Unit will receive the next whole Unit greater than such
fraction. A Unit of the Company shall consist of one share of the
Company's no par value Common Stock, one 90-Day $9.50 Series A
Preferred Stock Purchase Right, one 12-Month $7.50 Stock Purchase
Warrant and one 24-Month $9.50 Stock Purchase Warrant, as each is
defined in the Prospectus.
(2) Issuance of Notes. As of the Effective Time, each Limited
Partner Unit of the Participating Partnership held of record by a
holder who does not vote in favor of the Consolidation or who does not
otherwise elect to receive Units shall become entitled to receive the
Company's unsecured, convertible 7.15% Note due December 31, 2003, as
further described in the Prospectus (the "Notes") in a principal amount
of forty-seven and eight one hundredths dollars ($47.08).
3.04 ISSUANCE OF CERTIFICATE FOR UNITS AND NOTES. Upon or as soon as
practicable after the Effective Time, the Company shall distribute in accordance
with this Agreement to the holders of the L.P. Units of each Participating
Partnership the Unit Certificates and 7.15% Notes to which they are entitled
pursuant hereto.
ARTICLE IV
TRANSFER AND CONVEYANCE OF ASSETS
AND ASSUMPTION OF LIABILITIES
4.01 TRANSFER, CONVEYANCE AND ASSUMPTION. At the Effective Time, the
Company shall continue its existence as the Surviving
-3-
<PAGE> 14
Corporation, and by conveyance, transfer and assumption, succeed to and possess
all the rights, privileges and powers of the Participating Partnership, and all
the assets and property of whatever nature and character of the Participating
Partnership shall vest in the Company; thereafter the Company shall be liable
for all of the liabilities and obligations of the Participating Partnership, and
any claim or judgment against the Participating Partnership may be enforced
against the Company. The Company and such Participating Partnership shall
execute such documents as either of them shall deem necessary to effect the
foregoing.
4.02 CONSISTENT INTERPRETATION. The parties agree that the Articles of
the Consolidation Agreement not expressly amended by the foregoing, to the
extent that they may be inconsistent with the foregoing amendments, shall be
interpreted and enforced in a manner that is consistent with Article I, Article
II, Article III, and Article IV as herein amended. The parties agree to execute
such additional instruments and to take such further action as may be judged
necessary or appropriate by any of them in order to implement the transactions
provided for in the Consolidation Agreement as amended.
4.03 FURTHER ASSURANCES. If at any time the Company shall consider or
be advised that any further assignment, conveyance or assurance is necessary or
advisable to vest, perfect or confirm of record its title to any property or
right of the Participating Partnership or otherwise to carry out the provisions
hereof, the proper representatives of the Participating Partnership as of the
Effective Time shall execute and deliver any and all proper deeds, assignments
and assurances, and do all things necessary and proper to vest, perfect or
convey title to such property or right in the Company and otherwise to carry out
the provisions hereof.
4.04 NO IMPLIED CHANGES. Except as expressly provided for above, there
shall be no other changes in the terms and conditions of the Consolidation
Agreement by this Amendment.
4.05 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, which counterpart agreement shall together constitute a single
original agreement.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed by an officer duly authorized to do so, all as of the date and year
first above written.
"THE COMPANY" "THE PARTICIPATING PARTNERSHIP"
AQUAPRO CORPORATION,
A TENNESSEE CORPORATION CIRCLE CREEK AQUACULTURE VII, L.P.
-4-
<PAGE> 15
By: /s/ George S. Hastings, Jr.
----------------------------------- By: /s/ George S. Hastings, Jr.
George S. Hastings, Jr., President ----------------------------
George S. Hastings, Jr.,
General Partner
By: /s/ Patricia G. Hastings "THE PARTICIPATING CORPORATION"
-----------------------------------
Patricia G. Hastings, Secretary CCA VII, INC.
A TENNESSEE CORPORATION
By: /s/ George S. Hastings, Jr.
----------------------------
George S. Hastings, Jr.,
President
By: /s/ Patricia G. Hastings
-----------------------------
Patricia G. Hastings,
Secretary
-5-
<PAGE> 16
AMENDMENT TO
PLAN AND AGREEMENT OF CONSOLIDATION
This Amendment to the Agreement and Plan of Consolidation dated as of
June 30, 1997 (the "Consolidation Agreement"), is by and between AquaPro
Corporation (the "Company"), Circle Creek Aquaculture VIII, L.P. (the
"Participating Partnership"), and CCA VIII, Inc. (the "Participating
Corporation") hereinafter sometimes together referred to as the "Parties",
effective June 30, 1997.
WITNESSETH:
WHEREAS, the Company desires to consolidate the business of the
Participating Partnership with its own pursuant to its acquisition of all of the
assets and assumption of all of the liabilities of the Participating Partnership
pursuant to a series of transactions (the "Consolidation") as set forth in the
Prospectus And Consent Solicitation Statement of the Company, dated May 28,
1997, and any and all supplements or amendments thereto (the "Prospectus"); and
WHEREAS, the Company and the Participating Partnership have entered
into the Consolidation Agreement with the Participating Partnership and the
Participating Corporation, which is wholly owned by the Participating
Partnership; and
WHEREAS, the Parties had agreed to the terms and conditions of the
Consolidation transactions provided for in the Consolidation Agreement with
reference to certain laws of the state of Tennessee and federal securities laws
then in effect; and
WHEREAS, the Parties have determined that, at the time of this
Amendment, compliance by the Consolidation with the corporate laws of the state
of Tennessee, the federal securities laws and the applicable securities laws of
certain states would no longer require the intermediate transfer of the
Participating Partnership's assets and liabilities to its Participating
Corporation from which such assets would be purchased and such liabilities
assumed by the Company and have determined that under the applicable federal and
state securities laws and the corporate and partnership laws of the state of
Tennessee, the Consolidation can be effected and the limited partners of the
Participating Partnership can receive the consideration proposed pursuant to a
merger of the Participating Partnership and the parties hereto now desire to
amend the Consolidation Agreement to so provide; and
WHEREAS, the consolidation transactions, including the Consolidation
Agreement, have been approved by the Company's shareholders and the required
number of limited partners of the Participating Partnership; and
WHEREAS, the Consolidation Agreement in Article XII, Section 3 thereof,
expressly provides that the parties may amend this Agreement in their discretion
from time to time, by their mutual agreement, provided that no such amendment
shall alter or change the amount or kind of consideration which the shareholders
or holders of debt obligations of the Participating Corporation are entitled to
receive, or shall alter or change the terms and conditions of the Agreement if
such alteration or change would have a material adverse affect on the
shareholders or the holders of any debt obligations of the Participating
Corporation or the shareholders of the Company; and
WHEREAS, the Parties now desire to amend the Consolidation Agreement in
the manner allowed in Article XII, Section 3 thereof, whereas the transactions
constituting the consolidation, as amended, by the parties pursuant hereto are
expressly authorized by the Tennessee Business Corporation Act (the "Corporation
Act") and the Tennessee Revised Uniform Limited Partnership Act ("RULPA"); and
<PAGE> 17
WHEREAS, the charter and bylaws of the Company and the Agreement of
Limited Partnership of the Participating Partnership permit, and resolutions by
the general partners of the Participating Partnership, and the Board of
Directors of the Company authorize, this Amendment to the Consolidation
Agreement (this "Amendment") and the consummation of the Consolidation;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereby amend the Consolidation Agreement as follows:
1. PARTICIPATING CORPORATION NO LONGER A PARTY. The Parties agree that
upon the effective date of this Amendment, the Participating Corporation shall
no longer be party to the Consolidation Agreement, and the Participating
Corporation shall have no further responsibility, duties or liabilities
thereunder.
2. AMENDMENT TO ARTICLES I THROUGH IV, INCLUSIVE. Article I, Article
II, Article III and Article IV of the Consolidation Agreement are hereby amended
and restated in their entirety to read as follows.
ARTICLE I
THE MERGER
1.01 THE CONSOLIDATION; SURVIVING CORPORATION. Subject to the terms and
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.02 below), the assets and liabilities of the Participating Partnership
shall become the assets and liabilities of the Company by purchase, transfer,
assignment and assumption pursuant to the Corporation Act and the Participating
Partnership shall immediately as of the Effective Time, as defined below, be
merged into the Company and the Limited Partner Interests (the "L.P. Units") of
each Participating Partnership then outstanding shall thereupon become Units and
Notes of the Company, as each is defined herein by reference to the Prospectus,
as a result of the Consolidation as provided in Article III below. The Surviving
Corporation, as defined below, shall continue to be governed by the Corporation
Act.
1.02 EFFECTIVE TIME. In accordance with the Corporation Act, the
Consolidation shall become effective (the "Effective Time") upon the date of the
closing of the Consolidation as described herein effective as of June 30, 1997.
Any filings or recordings required by Tennessee law in connection with the
Consolidation shall also be made and the formal closing of the Consolidation
(the "Closing Date") shall occur contemporaneously with or as soon as practical
after the Effective Time.
1.03 EFFECT OF THE CONSOLIDATION. The Consolidation shall have the
effects set forth in this Agreement and in the Corporation Act.
ARTICLE II
THE SURVIVING CORPORATION
2.01 SURVIVING CORPORATION. The Surviving Corporation shall be the
Company.
2.02 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation and Bylaws of the
Company at the Effective Time.
<PAGE> 18
2.03 OFFICERS AND DIRECTORS. The officers of the Company immediately
prior to the Effective Time shall continue as officers of the Surviving
Corporation and remain officers until their successors are duly appointed or
their prior resignation, removal or death. The directors of the Company
immediately prior to the Effective Time shall continue as directors of the
Surviving Corporation and shall remain directors until their successors are duly
elected and qualified or their prior resignation, removal or death.
ARTICLE III
CONSIDERATION FOR PARTICIPATING PARTNERSHIP ASSETS
3.01 CONSIDERATION PAID BY THE COMPANY. At or as of the Effective
Time, the assets and the liabilities of the Participating Partnership shall by
the assets and liabilities of Company.
3.02 CONSIDERATION TO PARTICIPATING PARTNERSHIP AS A RESULT OF THE
CONSOLIDATION.
(1) Units. Except as provided in subsection 3.02(ii), as of
the Effective Time, each L.P. Unit of the Participating Partnership in
the Consolidation shall become eleven and nine hundred fourteen one
thousandths (11.914) Units. No fractional Units shall be issued. Any
Limited Partner of a Participating Partnership who would be entitled to
a fractional Unit will receive the next whole Unit greater than such
fraction. A Unit of the Company shall consist of one share of the
Company's no par value Common Stock, one 90-Day $9.50 Series A
Preferred Stock Purchase Right, one 12-Month $7.50 Stock Purchase
Warrant and one 24-Month $9.50 Stock Purchase Warrant, as each is
defined in the Prospectus.
(2) Issuance of Notes. As of the Effective Time, each Limited
Partner Unit of the Participating Partnership held of record by a
holder who does not vote in favor of the Consolidation or who does not
otherwise elect to receive Units shall become entitled to receive the
Company's unsecured, convertible 7.15% Note due December 31, 2003, as
further described in the Prospectus (the "Notes") in a principal amount
of fifty-four and thirty-two one hundredths dollars ($54.32).
3.04 ISSUANCE OF CERTIFICATE FOR UNITS AND NOTES. Upon or as soon as
practicable after the Effective Time, the Company shall distribute in accordance
with this Agreement to the holders of the L.P. Units of each Participating
Partnership the Unit Certificates and 7.15% Notes to which they are entitled
pursuant hereto.
ARTICLE IV
TRANSFER AND CONVEYANCE OF ASSETS
AND ASSUMPTION OF LIABILITIES
-3-
<PAGE> 19
4.01 TRANSFER, CONVEYANCE AND ASSUMPTION. At the Effective Time, the
Company shall continue its existence as the Surviving Corporation, and by
conveyance, transfer and assumption, succeed to and possess all the rights,
privileges and powers of the Participating Partnership, and all the assets and
property of whatever nature and character of the Participating Partnership shall
vest in the Company; thereafter the Company shall be liable for all of the
liabilities and obligations of the Participating Partnership, and any claim or
judgment against the Participating Partnership may be enforced against the
Company. The Company and such Participating Partnership shall execute such
documents as either of them shall deem necessary to effect the foregoing.
4.02 CONSISTENT INTERPRETATION. The parties agree that the Articles of
the Consolidation Agreement not expressly amended by the foregoing, to the
extent that they may be inconsistent with the foregoing amendments, shall be
interpreted and enforced in a manner that is consistent with Article I, Article
II, Article III, and Article IV as herein amended. The parties agree to execute
such additional instruments and to take such further action as may be judged
necessary or appropriate by any of them in order to implement the transactions
provided for in the Consolidation Agreement as amended.
4.03 FURTHER ASSURANCES. If at any time the Company shall consider or
be advised that any further assignment, conveyance or assurance is necessary or
advisable to vest, perfect or confirm of record its title to any property or
right of the Participating Partnership or otherwise to carry out the provisions
hereof, the proper representatives of the Participating Partnership as of the
Effective Time shall execute and deliver any and all proper deeds, assignments
and assurances, and do all things necessary and proper to vest, perfect or
convey title to such property or right in the Company and otherwise to carry out
the provisions hereof.
4.04 NO IMPLIED CHANGES. Except as expressly provided for above,
there shall be no other changes in the terms and conditions of the Consolidation
Agreement by this Amendment.
4.05 COUNTERPARTS. This Amendment may be executed in two or more
counterparts, which counterpart agreement shall together constitute a single
original agreement.
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed by an officer duly authorized to do so, all as of the date and year
first above written.
"THE COMPANY" "THE PARTICIPATING PARTNERSHIP"
AQUAPRO CORPORATION, CIRCLE CREEK AQUACULTURE VIII, L.P.
-4-
<PAGE> 20
A TENNESSEE CORPORATION
By: /s/ George S. Hastings, Jr. By: /s/ George S. Hastings, Jr.
---------------------------------- -------------------------------
George S. Hastings, Jr., President George S. Hastings, Jr.,
General Partner
"THE PARTICIPATING CORPORATION"
By: /s/ Patricia G. Hastings
----------------------------------
Patricia G. Hastings, Secretary CCA VIII, INC.
A TENNESSEE CORPORATION
By: /s/ George S. Hastings, Jr.
-------------------------------
George S. Hastings, Jr.,
President
By: /s/ Patricia G. Hastings
-------------------------------
Patricia G. Hastings,
Secretary
-5-
<PAGE> 1
Exhibit 3.10
ARTICLES OF MERGER
OF
CIRCLE CREEK AQUACULTURE V, L.P.
AND
AQUAPRO CORPORATION
THESE ARTICLES OF MERGER are executed this 30th day of June 1997, among
Circle Creek Aquaculture V, L.P., a Tennessee Limited Partnership, (hereinafter
"CCA") and AquaPro Corporation, a Tennessee corporation (hereinafter "AquaPro").
1. CCA is a Tennessee Limited Partnership organized on January 23, 1992
and its authorized and outstanding partner interests are as follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Limited Partnership interests (the "L.P. 33,705 33,705
Units"), each L.P. Unit requiring an
original capital contribution of $100.
General Partner Interest 1.0 1.0
</TABLE>
2. AquaPro is a Tennessee corporation organized on January 11, 1981 and
its authorized and outstanding shares are as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Common Stock (no par value): 100,000,000 1,332,551
Preferred Stock: 2,000,000 235,507
</TABLE>
3. CCA shall be merged into AquaPro.
a. Upon such merger, each outstanding Unit of CCA Limited Partner
Interest, other than Limited Partners who elect or otherwise are entitled to
receive a 7.15% Note as described below, shall be converted into units of
AquaPro's securities as described below (the "AquaPro Units") on the basis of
10.295 Units for each L.P. Unit. Those Limited Partners electing or otherwise
entitled to receive a 7.15% Note shall receive a 7.15% in the principal amount
of $46.94 for each L.P. Unit.
b. Each AquaPro Unit is to consist of the following securities of
AquaPro:
<PAGE> 2
(i.) One share of common stock (no par value) of AquaPro (the "Common
Stock"); and
(ii.) One right to purchase one share of Series A Preferred Stock of
AquaPro for a price of $9.50, expiring 90 days following the date
of its issuance; and
(iii.) One Warrant for the purchase of one share of Common Stock at a
price of $7.50, expiring twelve months from the date of
issuance, which is mandatorily convertible into 0.3 share of
Common Stock if unexercised upon expiration (or if sooner
redeemed by AquaPro); and
(iv.) One Warrant for the purchase of one share of Common Stock at a
price of $9.50, expiring twenty-four months from the date of
issuance, which if unexercised upon expiration (or if sooner
redeemed by AquaPro) is mandatorily convertible into 0.3 share
of Common Stock.
c. The 7.15% Note shall bear interest at the rate of 7.15% per
annum, payable quarterly until December 31, 2003 on which date the entire unpaid
balance of principal and interest shall be due and payable. Each 7.15% Note
shall be unsecured and shall be convertible at the election of its holder into
Common Stock at a price of $10.00 per share.
d. No Units, 7.15% Notes or other payment shall be made with respect
to the General Partner interest in CCA.
4. The Charter of AquaPro is not amended by the merger.
5. The conversion of limited partner interests as provided by these
Articles of Merger shall occur automatically upon the effective date, without
action by the Holders thereof. Each Holder of such limited partner interests
thereupon shall surrender his L.P. Unit certificate or certificates to AquaPro,
and shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares into which his shares, stock
rights and Warrants therefor represented by a certificate or certificates so
surrendered shall have been converted as aforesaid.
6. No fractional Units shall be issued.
7. Upon such merger, the separate existence of CCA ceases and AquaPro
shall succeed without other transfer to all the rights and property of CCA, and
shall be subject to all the debts and liabilities thereof in the same manner as
if AquaPro had itself incurred them. All rights of creditors and all liens upon
the property of each of CCA and AquaPro shall be preserved unimpaired, provided
that such liens upon property of either shall be limited to the property
affected thereby immediately prior to the time the merger is effective.
8. After the merger becomes effective, CCA, through the persons who
were its General Partner(s) immediately prior to the merger, shall execute or
cause to be executed such further assignments, assurances or other documents as
may be necessary or desirable to confirm title to properties, assets and rights
in AquaPro.
9. The parties to these Articles of Merger are also parties to that
certain Amended Plan and Agreement of Consolidation dated June 30, 1997. The two
agreements are intended to be construed together in order to effectuate their
purposes. Copies of the two agreements shall be maintained at the offices of
-2-
<PAGE> 3
AquaPro, located at 4307 Central Pike, Hermitage, Tennessee 37076, and will be
made available to the limited partners of CCA and shareholders of AquaPro,
without expense, upon request.
10. The effective date of the merger is the date upon which a copy of
this Agreement is filed with the Secretary of State of Tennessee.
JOINT OFFICERS' AND GENERAL PARTNERS'
CERTIFICATE OF MERGER
FOR
CIRCLE CREEK AQUACULTURE, L.P.
11. On April 16, 1997, the principal terms of the merger described in
these Articles of Merger (the "Merger Agreement") were approved by AquaPro by a
vote or written consent of a number of shares of each class which equaled or
exceeded the vote required under Chapter 21 of the Tennessee Business
Corporation Act for approval of the principal terms of the merger described
herein by the outstanding shares of each class of said Corporation.
12. On June 30, 1997, the principal terms of the merger described in
the Merger Agreement were approved by CCA by the vote and written consent of a
number of limited partners which equaled or exceeded the vote or written consent
required under Section 62-2-211 of the Tennessee Revised Uniform Limited
Partnership Act for approval of the principal terms of the merger described
herein by the limited partners of each class of partner interests of said
limited partnership.
13. The total number of the outstanding amount of partner interests of
each class of CCA entitled to vote on the merger was and is thirty-three
thousand seven hundred and five (33,705) L.P. Units and one Circle Creek
Aquaculture General Partner interest (the "G.P. Interest").
14. Each class of partners of CCA entitled to vote on the Merger
Agreement, the percentage vote required by each class, and the number and
percentage of affirmative votes cast by each class are as follows:
<TABLE>
<CAPTION>
CLASS PERCENTAGE PERCENTAGE
OF VOTES AFFIRMATIVE VOTES
INTERESTS REQUIRED VOTES CAST OBTAINED
--------- ---------- ----------- -----------
<S> <C> <C> <C>
Limited Partner More than 50% 33,128 98.29%
Interests (L.P. Units)
General Partner More than 50% 1.0 100%
Interests (G.P.
Interest)
</TABLE>
15. The total number of outstanding shares of each class of AquaPro
entitled to vote on the merger was and is 1,312,340 shares of Common Stock.
-3-
<PAGE> 4
16. Each class of shares of AquaPro entitled to vote on the Merger
Agreement, the percentage vote required by each class, and the number and
percentage of affirmative votes cast by each class are as follows:
<TABLE>
<CAPTION>
CLASS PERCENTAGE PERCENTAGE
OF VOTES AFFIRMATIVE VOTES
STOCK REQUIRED VOTES CAST OBTAINED
----- ---------- ----------- ----------
<S> <C> <C> <C>
Common 50% plus 1 1,110,734 84.6%
</TABLE>
/s/ George S. Hastings, Jr.
--------------------------------
GEORGE S. HASTINGS, JR.
President of AquaPro Corporation
/s/ Patricia G. Hastings
--------------------------------
PATRICIA G. HASTINGS,
Secretary of AquaPro Corporation
IN WITNESS WHEREOF, the undersigned do hereby certify that the
foregoing is true and correct and the undersigned parties have executed this
Agreement on the date first stated above.
AQUAPRO CORPORATION, CIRCLE CREEK AQUACULTURE V, L.P.
A TENNESSEE CORPORATION A TENNESSEE LIMITED PARTNERSHIP
By: /s/ George S. Hastings, Jr. By: /s/ George S. Hastings, Jr.
------------------------------- ---------------------------------
GEORGE S. HASTINGS, JR. GEORGE S. HASTINGS, JR.
President
By: /s/ Patricia G. Hastings By AquaPro Corporation, a Tennessee
------------------------------ Corporation
PATRICIA G. HASTINGS,
Secretary By: /s/ George S. Hastings, Jr.
-----------------------------------
George S. Hastings, Jr., President
By: /s/ Patricia G. Hastings
----------------------------------
Patricia G. Hastings, Secretary
-4-
<PAGE> 5
ARTICLES OF MERGER
OF
CIRCLE CREEK AQUACULTURE VI, L.P.
AND
AQUAPRO CORPORATION
THESE ARTICLES OF MERGER are executed this 30th day of June 1997, among
Circle Creek Aquaculture VI, L.P., a Tennessee Limited Partnership, (hereinafter
"CCA") and AquaPro Corporation, a Tennessee corporation (hereinafter "AquaPro").
1. CCA is a Tennessee Limited Partnership organized on April 22, 1994
and its authorized and outstanding partner interests are as follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Limited Partnership interests (the "L.P. 10,000 10,000
Units"), each L.P. Unit requiring an
original capital contribution of $100.
General Partner Interest 1.0 1.0
</TABLE>
2. AquaPro is a Tennessee corporation organized on January 11, 1981 and
its authorized and outstanding shares are as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Common Stock (no par value): 100,000,000 1,332,551
Preferred Stock: 2,000,000 235,507
</TABLE>
3. CCA shall be merged into AquaPro.
a. Upon such merger, each outstanding Unit of CCA Limited Partner
Interest, other than Limited Partners who elect or otherwise are entitled to
receive a 7.15% Note as described below, shall be converted into units of
AquaPro's securities as described below (the "AquaPro Units") on the basis of
15.79 Units for each L.P. Unit. Those Limited Partners electing or otherwise
entitled to receive a 7.15% Note shall receive a 7.15% in the principal amount
of $72.00 for each L.P. Unit.
b. Each AquaPro Unit is to consist of the following securities
of AquaPro:
<PAGE> 6
(i.) One share of common stock (no par value) of AquaPro (the "Common
Stock"); and
(ii.) One right to purchase one share of Series A Preferred Stock of
AquaPro for a price of $9.50, expiring 90 days following the date
of its issuance; and
(iii.) One Warrant for the purchase of one share of Common Stock at a
price of $7.50, expiring twelve months from the date of
issuance, which if unexercised upon expiration (or if sooner
redeemed by AquaPro) is mandatorily convertible into 0.3 share
of Common Stock; and
(iv.) One Warrant for the purchase of one share of Common Stock at a
price of $9.50, expiring twenty-four months from the date of
issuance, which if unexercised upon expiration (or if sooner
redeemed by AquaPro) is mandatorily convertible into 0.3 share
of Common Stock.
c. The 7.15% Note shall bear interest at the rate of 7.15% per
annum, payable quarterly until December 31, 2003 on which date the entire unpaid
balance of principal and interest shall be due and payable. Each 7.15% Note
shall be unsecured and shall be convertible at the election of its holder into
Common Stock at a price of $10.00 per share.
d. No Units, 7.15% Notes or other payment shall be made with
respect to the General Partner interest in CCA.
4. The Charter of AquaPro is not amended by the merger.
5. The conversion of limited partner interests as provided by these
Articles of Merger shall occur automatically upon the effective date, without
action by the Holders thereof. Each Holder of such limited partner interests
thereupon shall surrender his L.P. Unit certificate or certificates to AquaPro,
and shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares into which his shares, stock
rights and Warrants therefor represented by a certificate or certificates so
surrendered shall have been converted as aforesaid.
6. No fractional Units shall be issued.
7. Upon such merger, the separate existence of CCA ceases and AquaPro
shall succeed without other transfer to all the rights and property of CCA, and
shall be subject to all the debts and liabilities thereof in the same manner as
if AquaPro had itself incurred them. All rights of creditors and all liens upon
the property of each of CCA and AquaPro shall be preserved unimpaired, provided
that such liens upon property of either shall be limited to the property
affected thereby immediately prior to the time the merger is effective.
8. After the merger becomes effective, CCA, through the persons who
were its General Partner(s) immediately prior to the merger, shall execute or
cause to be executed such further assignments, assurances or other documents as
may be necessary or desirable to confirm title to properties, assets and rights
in AquaPro.
9. The parties to these Articles of Merger are also parties to that
certain Amended Plan and Agreement of Consolidation dated June 30, 1997. The two
agreements are intended to be construed together in order to effectuate their
purposes. Copies of the two agreements shall be maintained at the offices of
-2-
<PAGE> 7
AquaPro, located at 4307 Central Pike, Hermitage, Tennessee 37076, and will be
made available to the limited partners of CCA and shareholders of AquaPro,
without expense, upon request.
10. The effective date of the merger is the date upon which a copy of
this Agreement is filed with the Secretary of State of Tennessee.
JOINT OFFICERS' AND GENERAL PARTNERS'
CERTIFICATE OF MERGER
FOR
CIRCLE CREEK AQUACULTURE, L.P.
11. On April 16, 1997, the principal terms of the merger described in
these Articles of Merger (the "Merger Agreement") were approved by AquaPro by a
vote or written consent of a number of shares of each class which equaled or
exceeded the vote required under Chapter 21 of the Tennessee Business
Corporation Act for approval of the principal terms of the merger described
herein by the outstanding shares of each class of said Corporation.
12. On June 30, 1997, the principal terms of the merger described in
the Merger Agreement were approved by CCA by the vote and written consent of a
number of limited partners which equaled or exceeded the vote or written consent
required under Section 62-2-211 of the Tennessee Revised Uniform Limited
Partnership Act for approval of the principal terms of the merger described
herein by the limited partners of each class of partner interests of said
limited partnership.
13. The total number of the outstanding amount of partner interests of
each class of CCA entitled to vote on the merger was and is ten thousand
(10,000) L.P. Units and one Circle Creek Aquaculture General Partner interest
(the "G.P. Interest").
14. Each class of partners of CCA entitled to vote on the Merger
Agreement, the percentage vote required by each class, and the number and
percentage of affirmative votes cast by each class are as follows:
<TABLE>
<CAPTION>
CLASS PERCENTAGE PERCENTAGE
OF VOTES AFFIRMATIVE VOTES
INTERESTS REQUIRED VOTES CAST OBTAINED
--------- ---------- ----------- ----------
<S> <C> <C> <C>
Limited Partner More than 50% 9,675.27 96.75%
Interests (L.P. Units)
General Partner More than 50% 1.0 100%
Interests (G.P.
Interest)
</TABLE>
15. The total number of outstanding shares of each class of AquaPro
entitled to vote on the merger was and is 1,312,340 shares of Common Stock.
-3-
<PAGE> 8
16. Each class of shares of AquaPro entitled to vote on the Merger
Agreement, the percentage vote required by each class, and the number and
percentage of affirmative votes cast by each class are as follows:
<TABLE>
<CAPTION>
CLASS PERCENTAGE PERCENTAGE
OF VOTES AFFIRMATIVE VOTES
STOCK REQUIRED VOTES CAST OBTAINED
----- ---------- ----------- ----------
<S> <C> <C> <C>
Common 50% plus 1 1,110,734 84.6%
</TABLE>
/s/ George S. Hastings, Jr.
--------------------------------
GEORGE S. HASTINGS, JR.
President of AquaPro Corporation
/s/ Patricia G. Hastings
-------------------------------
PATRICIA G. HASTINGS,
Secretary of AquaPro Corporation
IN WITNESS WHEREOF, the undersigned do hereby certify that the
foregoing is true and correct and the undersigned parties have executed this
Agreement on the date first stated above.
AQUAPRO CORPORATION, CIRCLE CREEK AQUACULTURE VI, L.P.
A TENNESSEE CORPORATION A TENNESSEE LIMITED PARTNERSHIP
By: /s/ George S. Hastings, Jr. By: /s/ George S. Hastings, Jr.
----------------------------- ----------------------------------
GEORGE S. HASTINGS, JR. GEORGE S. HASTINGS, JR.
President General Partner
By: /s/ Patricia G. Hastings By AquaPro Corporation, a Tennessee
---------------------------- Corporation
PATRICIA G. HASTINGS,
Secretary By: /s/ George S. Hastings, Jr.
----------------------------------
George S. Hastings, Jr., President
By: /s/ Patricia G. Hastings
---------------------------------
Patricia G. Hastings, Secretary
-4-
<PAGE> 9
ARTICLES OF MERGER
OF
CIRCLE CREEK AQUACULTURE VII, L.P.
AND
AQUAPRO CORPORATION
THESE ARTICLES OF MERGER are executed this 30th day of June 1997, among
Circle Creek Aquaculture VII, L.P., a Tennessee Limited Partnership,
(hereinafter "CCA") and AquaPro Corporation, a Tennessee corporation
(hereinafter "AquaPro").
1. CCA is a Tennessee Limited Partnership organized on December 14,
1994 and its authorized and outstanding partner interests are as follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Limited Partnership interests (the "L.P.
Units"), each L.P. Unit requiring an
original capital contribution of $100. 10,607 10,607
General Partner Interest 1.0 1.0
</TABLE>
2. AquaPro is a Tennessee corporation organized on January 11, 1981
and its authorized and outstanding shares are as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Common Stock (no par value): 100,000,000 1,332,551
Preferred Stock: 2,000,000 235,507
</TABLE>
3. CCA shall be merged into AquaPro.
a. Upon such merger, each outstanding Unit of CCA Limited Partner
Interest, other than Limited Partners who elect or otherwise are entitled to
receive a 7.15% Note as described below, shall be converted into units of
AquaPro's securities as described below (the "AquaPro Units") on the basis of
10.325 Units for each L.P. Unit. Those Limited Partners electing or otherwise
entitled to receive a 7.15% Note shall receive a 7.15% in the principal amount
of $47.08 for each L.P. Unit.
b. Each AquaPro Unit is to consist of the following securities of
AquaPro:
<PAGE> 10
(i) One share of common stock (no par value) of AquaPro
(the "Common Stock"); and
(ii) One right to purchase one share of Series A Preferred
Stock of AquaPro for a price of $9.50, expiring 90 days following
the date of its issuance; and
(iii) One Warrant for the purchase of one share of Common
Stock at a price of $7.50, expiring twelve months from the date of
issuance, which if unexercised upon expiration (or if sooner
redeemed by AquaPro) is mandatorily convertible into 0.3 share of
Common Stock; and
(iv) One Warrant for the purchase of one share of Common
Stock at a price of $9.50, expiring twenty-four months from the
date of issuance, which if unexercised upon expiration (or if
sooner redeemed by AquaPro) is mandatorily convertible into 0.3
share of Common Stock.
c. The 7.15% Note shall bear interest at the rate of 7.15% per
annum, payable quarterly until December 31, 2003 on which date the entire unpaid
balance of principal and interest shall be due and payable. Each 7.15% Note
shall be unsecured and shall be convertible at the election of its holder into
Common Stock at a price of $10.00 per share.
d. No Units, 7.15% Notes or other payment shall be made with
respect to the General Partner interest in CCA.
4. The Charter of AquaPro is not amended by the merger.
5. The conversion of limited partner interests as provided by these
Articles of Merger shall occur automatically upon the effective date, without
action by the Holders thereof. Each Holder of such limited partner interests
thereupon shall surrender his L.P. Unit certificate or certificates to AquaPro,
and shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares into which his shares, stock
rights and Warrants therefor represented by a certificate or certificates so
surrendered shall have been converted as aforesaid.
6. No fractional Units shall be issued.
7. Upon such merger, the separate existence of CCA ceases and AquaPro
shall succeed without other transfer to all the rights and property of CCA, and
shall be subject to all the debts and liabilities thereof in the same manner as
if AquaPro had itself incurred them. All rights of creditors and all liens upon
the property of each of CCA and AquaPro shall be preserved unimpaired, provided
that such liens upon property of either shall be limited to the property
affected thereby immediately prior to the time the merger is effective.
8. After the merger becomes effective, CCA, through the persons who
were its General Partner(s) immediately prior to the merger, shall execute or
cause to be executed such further assignments, assurances or other documents as
may be necessary or desirable to confirm title to properties, assets and rights
in AquaPro.
-2-
<PAGE> 11
9. The parties to these Articles of Merger are also parties to that
certain Amended Plan and Agreement of Consolidation dated June 30, 1997. The two
agreements are intended to be construed together in order to effectuate their
purposes. Copies of the two agreements shall be maintained at the offices of
AquaPro, located at 4307 Central Pike, Hermitage, Tennessee 37076, and will be
made available to the limited partners of CCA and shareholders of AquaPro,
without expense, upon request.
10. The effective date of the merger is the date upon which a copy of
this Agreement is filed with the Secretary of State of Tennessee.
JOINT OFFICERS' AND GENERAL PARTNERS'
CERTIFICATE OF MERGER
FOR
CIRCLE CREEK AQUACULTURE, L.P.
11. On April 16, 1997, the principal terms of the merger described in
these Articles of Merger (the "Merger Agreement") were approved by AquaPro by a
vote or written consent of a number of shares of each class which equaled or
exceeded the vote required under Chapter 21 of the Tennessee Business
Corporation Act for approval of the principal terms of the merger described
herein by the outstanding shares of each class of said Corporation.
12. On June 30, 1997, the principal terms of the merger described in
the Merger Agreement were approved by CCA by the vote and written consent of a
number of limited partners which equaled or exceeded the vote or written consent
required under Section 62-2-211 of the Tennessee Revised Uniform Limited
Partnership Act for approval of the principal terms of the merger described
herein by the limited partners of each class of partner interests of said
limited partnership.
13. The total number of the outstanding amount of partner interests of
each class of CCA entitled to vote on the merger was and is ten thousand six
hundred and seven (10,607) L.P. Units and one Circle Creek Aquaculture General
Partner interest (the "G.P. Interest").
14. Each class of partners of CCA entitled to vote on the Merger
Agreement, the percentage vote required by each class, and the number and
percentage of affirmative votes cast by each class are as follows:
<TABLE>
<CAPTION>
CLASS PERCENTAGE PERCENTAGE
OF VOTES AFFIRMATIVE VOTES
INTERESTS REQUIRED VOTES CAST OBTAINED
--------- ---------- ----------- ----------
<S> <C> <C> <C>
Limited Partner More than 50% 10,607 100%
Interests (L.P. Units)
General Partner More than 50% 1.0 100%
Interests (G.P.
Interest)
</TABLE>
-3-
<PAGE> 12
15. The total number of outstanding shares of each class of AquaPro
entitled to vote on the merger was and is 1,312,340 shares of Common Stock.
16. Each class of shares of AquaPro entitled to vote on the Merger
Agreement, the percentage vote required by each class, and the number and
percentage of affirmative votes cast by each class are as follows:
<TABLE>
<CAPTION>
CLASS PERCENTAGE PERCENTAGE
OF VOTES AFFIRMATIVE VOTES
STOCK REQUIRED VOTES CAST OBTAINED
----- ---------- ----------- -----------
<S> <C> <C> <C>
Common 50% plus 1 1,110,734 84.6%
</TABLE>
/s/ George S. Hastings, Jr.
--------------------------------
GEORGE S. HASTINGS, JR.
President of AquaPro Corporation
/s/ Patricia G. Hastings
---------------------------------
PATRICIA G. HASTINGS,
Secretary of AquaPro Corporation
IN WITNESS WHEREOF, the undersigned do hereby certify that the
foregoing is true and correct and the undersigned parties have executed this
Agreement on the date first stated above.
AQUAPRO CORPORATION, CIRCLE CREEK AQUACULTURE VII, L.P.
A TENNESSEE CORPORATION A TENNESSEE LIMITED PARTNERSHIP
By: /s/ George S. Hastings, Jr. By: /s/ George S. Hastings, Jr.
-------------------------------- ------------------------------
GEORGE S. HASTINGS, JR. GEORGE S. HASTINGS, JR.
President General Partner
By: /s/ Patricia G. Hastings By AquaPro Corporation, a Tennessee
------------------------------- Corporation
PATRICIA G. HASTINGS,
Secretary By: /s/ George S. Hastings, Jr.
---------------------------------
George S. Hastings, Jr., President
By: /s/ Patricia G. Hastings
---------------------------------
Patricia G. Hastings, Secretary
-4-
<PAGE> 13
ARTICLES OF MERGER
OF
CIRCLE CREEK AQUACULTURE VIII, L.P.
AND
AQUAPRO CORPORATION
THESE ARTICLES OF MERGER are executed this 30th day of June 1997, among
Circle Creek Aquaculture VIII, L.P., a Tennessee Limited Partnership,
(hereinafter "CCA") and AquaPro Corporation, a Tennessee corporation
(hereinafter "AquaPro").
1. CCA is a Tennessee Limited Partnership organized on December 19,
1994 and its authorized and outstanding partner interests are as follows:
<TABLE>
<CAPTION>
AMOUNT AMOUNT
AUTHORIZED OUTSTANDING
---------- ------------
<S> <C> <C>
Limited Partnership interests (the "L.P. 9,050 9,050
Units"), each L.P. Unit requiring an
original capital contribution of $100
General Partner Interest 1.0 1.0
</TABLE>
2. AquaPro is a Tennessee corporation organized on January 11, 1981
and its authorized and outstanding shares are as follows:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING
---------- -----------
<S> <C> <C>
Common Stock (no par value): 100,000,000 1,332,551
Preferred Stock: 2,000,000 235,507
</TABLE>
3. CCA shall be merged into AquaPro.
a. Upon such merger, each outstanding Unit of CCA Limited Partner
Interest, other than Limited Partners who elect or otherwise are entitled to
receive a 7.15% Note as described below, shall be converted into units of
AquaPro's securities as described below (the "AquaPro Units") on the basis of
11.914 Units for each L.P. Unit. Those Limited Partners electing or otherwise
entitled to receive a 7.15% Note shall receive a 7.15% in the principal amount
of $54.32 for each L.P. Unit.
b. Each AquaPro Unit is to consist of the following securities of
AquaPro:
<PAGE> 14
(i) One share of common stock (no par value) of AquaPro (the
"Common Stock"); and
(ii) One right to purchase one share of Series A Preferred Stock
of AquaPro for a price of $9.50, expiring 90 days following the date
of its issuance; and
(iii) One Warrant for the purchase of one share of Common Stock
at a price of $7.50, expiring twelve months from the date of issuance,
which if unexercised upon expiration (or if sooner redeemed by
AquaPro) is mandatorily convertible into 0.3 share of Common Stock;
and
(iv) One Warrant for the purchase of one share of Common Stock at
a price of $9.50, expiring twenty-four months from the date of
issuance, which if unexercised upon expiration (or if sooner redeemed
by AquaPro) is mandatorily convertible into 0.3 share of Common Stock.
c. The 7.15% Note shall bear interest at the rate of 7.15% per annum,
payable quarterly until December 31, 2003 on which date the entire unpaid
balance of principal and interest shall be due and payable. Each 7.15% Note
shall be unsecured and shall be convertible at the election of its holder into
Common Stock at a price of $10.00 per share.
d. No Units, 7.15% Notes or other payment shall be made with respect
to the General Partner interest in CCA.
4. The Charter of AquaPro is not amended by the merger.
5. The conversion of limited partner interests as provided by these
Articles of Merger shall occur automatically upon the effective date, without
action by the Holders thereof. Each Holder of such limited partner interests
thereupon shall surrender his L.P. Unit certificate or certificates to AquaPro,
and shall be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares into which his shares, stock
rights and Warrants therefor represented by a certificate or certificates so
surrendered shall have been converted as aforesaid.
6. No fractional Units shall be issued.
7. Upon such merger, the separate existence of CCA ceases and AquaPro
shall succeed without other transfer to all the rights and property of CCA, and
shall be subject to all the debts and liabilities thereof in the same manner as
if AquaPro had itself incurred them. All rights of creditors and all liens upon
the property of each of CCA and AquaPro shall be preserved unimpaired, provided
that such liens upon property of either shall be limited to the property
affected thereby immediately prior to the time the merger is effective.
8. After the merger becomes effective, CCA, through the persons who
were its General Partner(s) immediately prior to the merger, shall execute or
cause to be executed such further assignments, assurances or other documents as
may be necessary or desirable to confirm title to properties, assets and rights
in AquaPro.
-2-
<PAGE> 15
9. The parties to these Articles of Merger are also parties to that
certain Amended Plan and Agreement of Consolidation dated June 30, 1997. The two
agreements are intended to be construed together in order to effectuate their
purposes. Copies of the two agreements shall be maintained at the offices of
AquaPro, located at 4307 Central Pike, Hermitage, Tennessee 37076, and will be
made available to the limited partners of CCA and shareholders of AquaPro,
without expense, upon request.
10. The effective date of the merger is the date upon which a copy of
this Agreement is filed with the Secretary of State of Tennessee.
JOINT OFFICERS' AND GENERAL PARTNERS'
CERTIFICATE OF MERGER
FOR
CIRCLE CREEK AQUACULTURE, L.P.
11. On April 16, 1997, the principal terms of the merger described in
these Articles of Merger (the "Merger Agreement") were approved by AquaPro by a
vote or written consent of a number of shares of each class which equaled or
exceeded the vote required under Chapter 21 of the Tennessee Business
Corporation Act for approval of the principal terms of the merger described
herein by the outstanding shares of each class of said Corporation.
12. On June 30, 1997, the principal terms of the merger described in
the Merger Agreement were approved by CCA by the vote and written consent of a
number of limited partners which equaled or exceeded the vote or written consent
required under Section 62-2-211 of the Tennessee Revised Uniform Limited
Partnership Act for approval of the principal terms of the merger described
herein by the limited partners of each class of partner interests of said
limited partnership.
13. The total number of the outstanding amount of partner interests of
each class of CCA entitled to vote on the merger was and is nine thousand and
fifty (9,050) L.P. Units and one Circle Creek Aquaculture General Partner
interest (the "G.P. Interest").
14. Each class of partners of CCA entitled to vote on the Merger
Agreement, the percentage vote required by each class, and the number and
percentage of affirmative votes cast by each class are as follows:
<TABLE>
<CAPTION>
CLASS PERCENTAGE PERCENTAGE
OF VOTES AFFIRMATIVE VOTES
STOCK REQUIRED VOTES CAST OBTAINED
- ----- ---------- ----------- -----------
<S> <C> <C> <C>
Limited Partner More than 50% 8,895 98.29%
Interests (L.P. Units)
General Partner More than 50% 1.0 100%
Interests (G.P.
Interest)
</TABLE>
-3-
<PAGE> 16
15. The total number of outstanding shares of each class of AquaPro
entitled to vote on the merger was and is 1,312,340 shares of Common Stock.
16. Each class of shares of AquaPro entitled to vote on the Merger
Agreement, the percentage vote required by each class, and the number and
percentage of affirmative votes cast by each class are as follows:
<TABLE>
<CAPTION>
CLASS PERCENTAGE PERCENTAGE
OF VOTES AFFIRMATIVE VOTES
STOCK REQUIRED VOTES CAST OBTAINED
----- ---------- ----------- ----------
<S> <C> <C> <C>
Common 50% plus 1 1,110,734 84.6%
</TABLE>
/s/ George S. Hastings, Jr.
--------------------------------
GEORGE S. HASTINGS, JR.
President of AquaPro Corporation
/s/ Patricia G. Hastings
---------------------------------
PATRICIA G. HASTINGS,
Secretary of AquaPro Corporation
IN WITNESS WHEREOF, the undersigned do hereby certify that the
foregoing is true and correct and the undersigned parties have executed this
Agreement on the date first stated above.
AQUAPRO CORPORATION, CIRCLE CREEK AQUACULTURE VIII, L.P.
A TENNESSEE CORPORATION A TENNESSEE LIMITED PARTNERSHIP
By: /s/ George S. Hastings, Jr. By: /s/ George S. Hastings, Jr.
------------------------------ ----------------------------------
GEORGE S. HASTINGS, JR. GEORGE S. HASTINGS, JR.
President General Partner
By: /s/ Patricia G. Hastings By AquaPro Corporation, a Tennessee
----------------------------- Corporation
PATRICIA G. HASTINGS,
Secretary By: /s/ George S. Hastings, Jr.
----------------------------------
George S. Hastings, Jr., President
By: /s/ Patricia G. Hastings
-----------------------------------
Patricia G. Hastings, Secretary
-4-
<PAGE> 1
Exhibit 4.8
NO. PSR-
AQUAPRO CORPORATION
$9.50 STOCK RIGHT
RIGHT TO PURCHASE SHARES SERIES A PREFERRED STOCK OF
AQUAPRO CORPORATION.
Exercisable upon issuance
Void after October 21, 1997
THIS CERTIFIES that, for value received, the undersigned holder (the
"Registered Holder"), or registered assignee, is entitled, subject to the new
expiration date hereof and otherwise subject to the terms and conditions set
forth in the Amended $9.50 Stock Rights Agreement dated July 24, 1997 (the
"Stock Rights Agreement") to purchase from AQUAPRO CORPORATION, a Tennessee
corporation (the "Company"), the above-stated number of Shares of the Company's
Series A Preferred Stock (the "Shares"). This Stock Right may be exercised at
any time during the period commencing on July 24, 1997 and continuing up to 5:00
p.m., Central Standard Time, on October 21, 1997, at a price of Nine and Fifty
One-Hundredths Dollars ($9.50) per Share, subject to adjustment from time to
time as set forth in the Stock Rights Agreement and subject to all the terms
thereof, including the limitations on transferability set forth therein.
THIS STOCK RIGHT may be exercised by the holder thereof, in whole or in
part (but not as to a fractional Share), by the presentation and surrender of
this Stock Right with the form of Election to Purchase duly executed, with
signature(s) guaranteed, at the principal office of the Company (or at such
other address as the Company may designate by notice to the holder hereof at the
address of such holder appearing on the books of the Company), and upon payment
to the Company of the purchase price in cash or by certified check or bank
cashier's check. The Shares so purchased shall be deemed to be issued to the
holder hereof as the record owner of such Shares as of the close of business on
the date on which this Stock Right shall have been surrendered and payment made
for such Shares. The Shares so purchased shall be registered to the holder (and,
if requested, certificates issued) promptly after this Stock Right shall have
been so exercised and unless this Stock Right has expired or has been exercised,
in full, a new Stock Right certificate identical in form, but representing the
number of Shares with respect to which this Stock Right shall not have been
exercised, shall also be issued to the holder hereof.
NOTHING CONTAINED herein shall be construed to confer upon the
Registered Holder of this Stock Right, as such, any of the rights of a
Shareholder of the Company.
REGISTERED HOLDER COMPANY
AQUAPRO CORPORATION,
a Tennessee corporation
By: /s/ George S. Hastings, Jr.
-------------------------------
President
By: /s/ Patricia G. Hastings
-------------------------------
Secretary
<PAGE> 2
ELECTION TO PURCHASE
(AQUAPRO CORPORATION $9.50 STOCK RIGHT)
AquaPro Corporation
4307 Central Pike
Hermitage, Tennessee 37076
The undersigned hereby irrevocably elects to exercise the right of
purchase ___________ Shares represented by the attached AquaPro $9.50 Stock
(number)
Right Certificate No.__________ and hereby tenders $_______________ in payment
of the actual exercise price thereof, and requests that certificates
evidencing the Shares be issued in the name of
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(Please Print Name, Address and SSN or EIN of Assignee)
and, if said number of Shares shall not be the total possible number of Shares
purchasable hereunder, that a new $9.50 Stock Right Certificate for the balance
of the Shares purchasable under the attached Certificate be registered in the
name of the undersigned Registered Holder or his or her assignee as indicated
below and delivered at the address stated below:
Dated: ____________, 1997
Name of Registered Holder or Assignee:
---------------------------------
(Please Print)
Address:
----------------------------------------------
----------------------------------------------
Signature:
---------------------------------------------
Signature Guaranteed:
-----------------------------------------
Note: The above signature must correspond
with the name as written upon the face of
the attached Stock Right certificate in
every particular respect, without
alteration or enlargement or any change
whatever, unless this Stock Right has been
duly assigned.
<PAGE> 3
ASSIGNMENT
(AquaPro Corporation $9.50 Stock Right)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(Please Print Name, Address and SSN or EIN of Assignee)
the right to purchase __________ shares of the Series A Preferred Stock of
(number)
AquaPro Corporation (the "Company"), represented by $9.50 Stock Right
Certificate No. _____________ and hereby irrevocably constitutes and appoints
the Company and/or its transfer agent as its attorney to transfer said $9.50
Stock Rights on the books of the Company, with full power of substitution.
Dated: _______________, 1997
----------------------------------------
Signature of Registered Holder
Signature Guaranteed:
-----------------------------------------
Note: The above signature must correspond
with the name as written upon the face of
the attached Stock Right certificate in
every particular respect, without
alteration or enlargement or any change
whatever, unless this Stock Right has
been duly assigned.
<PAGE> 1
Exhibit 4.9
AQUAPRO CORPORATION
$9.50 STOCK RIGHTS AGREEMENT
THIS AGREEMENT, dated this ____ day of July 1997, is entered into by
AQUAPRO CORPORATION (the "Company") for the benefit of each of the Registered
Holders of the Company's $9.50 Stock Purchase Rights (the "Stock Rights") which
the Company may from time to time issue pursuant hereto.
WITNESSETH
WHEREAS, in connection with the issuance of up to _______ Units (the
"Units") pursuant to the consolidation of the Company with the four
participating partnerships and up to _______ Units issued in exchange for the
Investor Notes, all of which as described in Company's Prospectus and Consent
Solicitation Agreement dated May 14, 1997 (the "Prospectus"), as described in
the Prospectus, each Unit is comprised of certain of the Company's securities
including one Stock Right which entitles the Registered Holder thereof to
purchase one share of the Company's Series A Preferred Stock for $9.50 on or
before _____________; and
WHEREAS, the Company desires to issue certificates representing the
Stock Rights in registered form.
NOW, THEREFORE, in consideration of the purchase and payment in full
for their Units by the Registered Holders in the manner described in the
Prospectus in compliance with the terms and conditions described therein, and
for the purpose of defining the terms and provisions of the Stock Rights and the
Company's rights and obligations thereunder the Company agrees as follows:
SECTION I. - DEFINITIONS
As used herein, the following terms have the following meanings, unless
the context shall otherwise require:
A. "CORPORATE OFFICE" shall mean the office of the Company at which at
any particular time its principal business shall be administered, which office
is located on the date hereof at 4307 Central Pike, Hermitage, Tennessee 37076.
B. "EXERCISE DATE" shall mean the date a certificate representing a
Stock Right is surrendered for exercise or is otherwise exercised pursuant to
the terms hereof.
C. "REGISTERED HOLDER" shall mean the person in whose name any
certificate representing Stock Rights shall be registered on the books
maintained by the Company (or at its sole election, its duly appointed stock
registrar or transfer agent) pursuant to Section VI.
D. "SHARES" shall mean shares of the Company's Series A Preferred Stock
or its successor class or series of stock, whether now or hereafter authorized,
which has the right to participate in the distribution of earnings and assets of
the Company as set forth in the Certificate of Determination of the Series A
Preferred Stock.
<PAGE> 2
E. "SUBSIDIARY" or "SUBSIDIARIES" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the Board of Directors of such corporation (regardless of whether
or not at the time stock of any other class or classes of such corporation shall
have or may have voting power by reason of the happening of any contingency) is
at the time directly or indirectly owned by the Company or by one or more
subsidiaries.
F. "STOCK RIGHT CERTIFICATE" shall mean a certificate representing
Stock Rights.
G. "STOCK RIGHT EXERCISE PERIOD" shall mean the period commencing on
the date of issuance thereof and continuing until the Stock Right Expiration
Date defined below.
H. "STOCK RIGHT EXPIRATION DATE" shall mean 5 p.m. (Central Standard
Time) on October ____, 1997; if such date shall be in the State of Tennessee a
holiday or a day on which banks are authorized to close, then 5 p.m. (Central
Standard Time) on the next following day which in the State of Tennessee is not
a holiday or a day on which banks are authorized to close. Unless exercised
during the exercise period, the Stock Rights will thereafter automatically
expire.
I. "PURCHASE PRICE" shall mean $9.50. Each Stock Right is exercisable
for one Share upon payment of the Stock Right Purchase Price at any time during
the Stock Right Exercise Period.
SECTION II. - STOCK RIGHTS AND ISSUANCE OF STOCK RIGHT CERTIFICATES
A. Each Stock Right shall initially entitle the Registered Holder
thereof to purchase one Share upon the exercise thereof. The Stock Rights are
immediately separately transferable upon issuance.
B. Upon execution of this Agreement, the Company shall establish and
maintain all necessary records relating to the registered ownership of Stock
Rights outstanding on such date and shall from time to time thereafter, maintain
therein the name, address and number of Stock Rights purchased by each person
who is to be a Registered Holder of Stock Rights. The aggregate Stock Rights
shall not exceed 149,176 Stock Rights to purchase an aggregate of up to 149,176
Shares. The Company will, if so requested by any Registered Holder, deliver
Certificates representing the requesting Registered Holder's Stock Rights.
C. From time to time, up to the Stock Right Expiration Date, the
Company shall issue of record to the Registered Holders (and as requested by any
Registered Holder, deliver certificates to such Registered Holder) representing
up to an aggregate up to 149,176 Shares upon exercise of the Stock Rights
pursuant to the terms of this Agreement at the rate of one Share for each Stock
Right. Stock Rights will be exercisable only in whole increments and multiples
thereof.
D. From time to time until the Stock Right Expiration Date, the Company
shall, upon request from the Registered Holder thereof, promptly transfer of
record and as requested, deliver Stock Right Certificates in required whole
number denominations only to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement. Except as provided in
Section VII hereof, no such transfer of record shall be made (and no Stock Right
Certificates shall be issued) except (i) Stock Rights initially issued
hereunder, (ii) Stock Rights issued upon the exercise of any Stock Rights, to
evidence the unexercised Stock Rights held by the exercising Registered Holder,
and (iii) Stock Rights issued upon any transfer or exchange of Stock Rights or
Units of which the Stock Rights are a part.
-2-
<PAGE> 3
E. The holders of the Stock Rights do not have voting or other rights
of Shareholders of the Company and are not entitled to receive Shareholder
communications, dividends or other distributions.
SECTION III. - FORM AND EXECUTION OF STOCK RIGHT CERTIFICATES
The Stock Right Certificates are and shall be substantially in the form
annexed hereto as Exhibit A (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Stock Rights may be listed, or to
conform to usage. The Stock Right Certificates shall be dated the date of
issuance thereof (whether upon initial issuance, transfer, exchange or in lieu
of mutilated, lost, stolen or destroyed Stock Right Certificates). Stock Rights
shall be numbered serially with the letters "SR-" on Stock Rights of all
denominations. Stock Right Certificates shall be executed on behalf of the
Company by its Chairman of the Board, or any Vice President and its President,
Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal, if it shall have adopted
one. Stock Right Certificates shall be manually signed by the Company and shall
not be valid for any purpose unless so signed.
SECTION IV. - EXERCISE
A. Each Stock Right represented by a Stock Right Certificate may be
exercised during the Stock Right Exercise Period, upon the terms and subject to
the conditions herein and in the applicable Stock Right Certificate. A Stock
Right shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date, provided that the Stock Right Certificate
representing such Stock Right, with the exercise form thereon duly executed by
the Registered Holder thereof or his or her attorney duly authorized in writing
(or if a Stock Right Certificate has not been issued to the Registered Holder
thereof, by such other means as the Company shall agree) together with payment
in cash or by personal check, or certified check made payable to an escrow or
segregated account to be designated by the Company, or an amount equal to the
applicable Purchase Price, has been received by the Company. Payment must be
made in United States funds. The person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of such securities as of the close of business on the Exercise Date. As soon as
practicable, on or after the Exercise Date, and in any event within thirty (30)
days after such date, if a Stock Right has been exercised, the Company shall
promptly cause to be issued to the person or persons entitled to receive the
same, the Series A Preferred Stock on the Company's books and records (and, if
requested, shall deliver certificates for the required whole number
denominations to the persons entitled thereto). No adjustment shall be made in
respect of dividends on any shares delivered upon exercise of any Stock Right.
B. The Company shall not issue any fractional Share interests upon the
exercise of any Stock Right. In place of fractional Share interests, the Company
shall issue to the Registered Holder, at his or her written election, either (i)
a cash payment for such fractional interest equal to a pro rata portion of the
Purchase Price, or (ii) one additional whole share or option or warrant
interest, as the case may be, upon the payment of the Registered Holder in the
manner described above of an additional cash payment equal to the Purchase Price
less the cash payment he or she would otherwise receive pursuant to the
foregoing alternative (i).
-3-
<PAGE> 4
SECTION V. - RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES, ETC.
A. The Company covenants that it will at all times reserve and keep
available out of its authorized Shares, solely for the purpose of issue upon
exercise of the Stock Rights, such number of Shares as shall then be issuable
upon the exercise of all outstanding Stock Rights. The Company covenants that
all Shares which shall be issuable upon exercise of the Stock Rights shall be
duly and validly issued and fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof.
B. If any Shares to be reserved for the purpose of exercise or
expiration of the Stock Rights hereunder require registration with or approval
of any governmental authority under any federal or state law, before such
securities may be validly issued or delivered upon such exercise, then the
Company covenants that it will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may be, provided,
however, that the Company need not endeavor to seek such registration or
approval in a state in which Units to which the Stock Rights relate were not
sold by the Company pursuant to the Registration Statement unless an exemption
from registration under such state's laws is available or such registration or
approval may be obtained with reasonable efforts and expenses, and provided
further, that Stock Rights may not be exercised by, or shares of Series A
Preferred Stock issued to, any Registered Holder in any state in which such
exercise would be unlawful.
C. The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance of
the Stock Rights, or the issuance or delivery of any Shares upon exercise of the
Stock Rights; provided, however, that if Shares are to be delivered in a name
other than the name of the Registered Holder of any Stock Right being exercised,
then no such delivery shall be made unless the person requesting the same has
paid to the Company the amount of transfer taxes or charges incident thereto, if
any.
SECTION VI. - EXCHANGE AND REGISTRATION OF TRANSFER
A. Stock Right registration may be changed (and Certificates may be
exchanged for other Stock Right Certificates) if such change does not result in
a change in the aggregate number of Stock Rights outstanding. Subject to any
restrictions or transfer set forth elsewhere herein, Stock Right ownership may
be transferred in whole or in part. Any request to the Company for a change in
Stock Right ownership registration shall be accompanied by a transfer power in
the form approved by the Company (and the certificates, if any, representing the
Stock Rights, duly endorsed and/or countersigned) and delivered to the Company
at its Corporate Office, and the Company shall transfer ownership of record
(and, if requested, countersign and deliver Stock Right certificates in the
required whole number denominations) to the persons entitled thereto.
B. The Company shall keep at such office books in which, subject to
such reasonable regulations as it may prescribe, it shall maintain a list of
Registered Holders (and register Stock Right Certificates) and changes thereto.
Upon due presentment for registration of transfer of any notice of change of
Registered Holder (or Stock Right Certificate) at such office, the Company
shall, if requested, issue and deliver to the transferee or transferee a new
Stock Right Certificate or Certificates representing an equal aggregate number
of Stock Rights.
C. With respect to all Stock Right Certificates presented for
registration or transfer, or for exchange or exercise, the exercise form on the
reverse thereof shall be duly endorsed, or be accompanied
-4-
<PAGE> 5
by a written instrument or instruments of transfer and registration, in form
satisfactory to the Company, duly executed by the Registered Holder thereof or
his or her attorney duly authorized in writing. All Stock Right Certificates so
surrendered for exercise or for exchange in case of mutilation shall be promptly
canceled by the Company and thereafter retained by the Company for the duration
of this Agreement. A service charge may be made of the Registered Holder for any
exchange or registration or transfer of Stock Right registration and
Certificates. In addition, the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith.
D. Prior to due presentment for registration of transfer thereof, the
Company may deem and treat the Registered Holder of any Stock Right as the
absolute owner thereof and of each Stock Right represented thereby
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary.
SECTION VII. - LOSS OR MUTILATION
Upon receipt by the Company of evidence satisfactory to them of the
ownership of and the loss, theft, destruction or mutilation of any Stock Right
Certificate and (in the case of loss, theft or destruction) of indemnity
satisfactory to them, and (in the case of mutilation) upon surrender and
cancellation thereof, the Company shall execute and deliver in lieu thereof a
new Stock Right Certificate representing an equal aggregate number of Stock
Rights. Applicants for a substitute Stock Right Certificate shall also comply
with such other reasonable regulations and pay such other reasonable charges as
the Company may prescribe.
SECTION VIII. - ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES DELIVERABLE
A. After each adjustment of the Purchase Price pursuant to this Section
VIII, the number of Shares purchasable upon the exercise of each whole Stock
Right shall be the number resulting from the division of the applicable adjusted
Purchase Price into the applicable original Purchase Price as defined in
Subsection 1.10.
B. The Purchase Price shall be subject to adjustment as set forth
below:
(1) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its Shares in shares of its capital stock (whether Shares
or shares of capital stock of any other class); (ii) subdivide its outstanding
Shares; (iii) combine its outstanding Shares into a smaller number of shares; or
(iv) issue by reclassification of its Shares any shares of capital stock of the
Company, the Purchase Price in effect immediately prior to such action shall be
adjusted so that the Registered Holder of any Stock Right thereafter exercised
shall be entitled to receive the number of Shares of the Company which he or she
would have owned immediately following such action had such Stock Right been
exercised immediately prior thereto.
(2) An adjustment made pursuant to this subsection shall become
effective immediately after the Record Date in the case of a dividend and shall
become effective immediately after the Effective Date in the case of a
subdivision, combination, reclassification or issue. If, as a result of an
adjustment made pursuant to this subsection, the Registered Holder of any Stock
Right thereafter exercised shall become entitled to receive shares of two or
more classes of capital stock of the Company, the Board of
-5-
<PAGE> 6
Directors (whose determination shall be conclusive) shall determine the
allocation of the adjusted Purchase Price between or among shares of such
classes of capital stock.
(3) No adjustment in the Purchase Price shall be required to be
made unless such adjustment would require an increase or decrease of at least
5%; provided, however, that any adjustments which by reason of this subsection
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section VIII shall be
made to the nearest one-hundredth of a share, as the case may be, but in no
event shall the Company be obligated to issue fractional shares upon the
exercise of any Stock Right.
(4) In the event that at any time as a result of an adjustment
made pursuant to this Section VIII, the Registered Holder of any Stock Right
thereafter exercised shall become entitled to receive any Shares of the Company
other than Shares, thereafter the Purchase Price of such other shares so
receivable upon exercise of any Stock Right shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Shares contained herein.
C. In case of any reclassification or change of outstanding Shares
issuable upon exercise of the Stock Rights or in case of any consolidation or
merger of the Company with or into another corporation (other than a merger with
a Subsidiary or any merger in which the Company is the continuing corporation
and which does not result in any reclassification or change of the then
outstanding Shares or other capital stock issuable upon exercise of the Stock
Rights), or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety or, then,
as a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby the Registered
Holder of each Stock Right then outstanding shall have the right thereafter to
receive on exercise of such Stock Right the kind and amount of securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance and shall forthwith file at the corporate office of the
Company a statement signed by its Chairman of the Board or a Vice President and
its President, Treasurer or an Assistant Secretary evidencing such provisions.
Such provisions shall include provisions for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section VIII. The above provisions shall similarly apply to the successive
reclassification and changes of the Shares and to successive consolidations,
mergers, sales or conveyances.
D. Before taking any action which would cause an adjustment reducing
the Purchase Price of the Shares issuable upon exercise of the Stock Rights, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of such Shares at such adjusted Purchase Price.
E.(1) Upon any adjustment of the Purchase Price required to be made
pursuant to this Section VIII, the Company within 30 days thereafter shall (i)
cause to be placed in the Company's records a certificate of a firm of
independent Certified Public Accountants (which may be the Company's independent
accounting firm) setting forth the Purchase Price after such adjustment and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based, which certificate shall be conclusive evidence
of the correctness of such adjustment, and (ii) cause to be mailed to each of
the Registered Holders of Stock Right Certificates written notice of such
adjustment. Where
-6-
<PAGE> 7
appropriate, such notice may be given in advance and included as a part of any
other notice required or permitted under the provisions of this Agreement.
(2) In case at any time:
(i) The Company shall declare any dividend upon the
Shares payable otherwise than in cash or in Shares of the Company; or
(ii) The Company shall offer for subscription to all
the holders of its Shares, but not to the public generally, any additional
Shares or any class or any other securities convertible into shares of stock or
any rights to subscribe thereto; or
(iii) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or a sale of all or
substantially all of the assets of the Company, or a consolidation or merger of
the Company with another corporation (other than a merger with a Subsidiary in
which merger the Company is the surviving or continuing corporation and which
does not result in any reclassification of then outstanding Shares or other
capital stock issuable upon exercise of the Stock Rights other than as a result
of subdivision or combination); or
(iv) There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the
Company shall cause to be mailed to each of the Registered Holders of Stock
Rights, at the earliest practicable time (and, in any event, not less than
twenty (20) days before any record date or other date set for definitive
action), written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or such reorganization, reclassification, sale, consolidation, merger,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also set forth such facts as shall indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Purchase Price and the kind and amount of the shares of stock and other
securities and property deliverable upon exercise of the Stock Rights. Such
notice shall also specify the date as of which the holders of record of the
Shares shall participate in said dividend, distribution or subscription rights
or shall be entitled to exchange their Series A Preferred Stock for securities
or other property deliverable upon such reorganization, reclassification, sale,
consolidation, merger, dissolution, liquidation or winding up, as the case may
be (on which date, in the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, the right to exercise the Stock Rights
shall terminate).
F. Without limiting the obligation of the Company to provide notice to
the Registered Holders of corporate actions hereunder, it is agreed that failure
of the Company to give notice shall not invalidate such corporate action of the
Company.
-7-
<PAGE> 8
SECTION IX. - MODIFICATION OF AGREEMENT
The Company may amend this Agreement or make any changes or corrections
in this Agreement (i) that it may deem appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) that it may deem necessary or desirable and which
shall not adversely affect the interests of the Registered Holders of Stock
Rights; provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders of Stock Rights representing more than 50% of the Stock
Rights then outstanding; and provided, further, that no change in the number or
nature of the securities purchasable upon the exercise of any Stock Right, or
any increase in the Purchase Price therefor, or the acceleration of the Stock
Right Expiration Date, shall be made without the consent in writing of the
Registered Holders of the Stock Right Certificate representing such Stock Right,
other than such changes as are specifically prescribed by this Agreement as
originally executed.
SECTION X. - MISCELLANEOUS
A. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed, first-class postage prepaid, or delivered to a telegraph
office for transmission: if to the Registered Holder of the Stock Right, at the
address of such holder as shown on the registry books maintained by the Company
and if to the Company, at 4307 Central Pike, Hermitage, Tennessee 37076,
Attention: Patricia G. Hastings, Secretary, or at such other address as may have
been furnished to the Registered Holders in writing by the Company.
B. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
C. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the Company and the Registered Holders of Stock Rights and their
respective successors and assigns. Nothing in this Agreement is intended or
shall be construed to confer upon any other person any right, remedy or claim or
to impose upon any other person any duty, liability or obligation.
IN WITNESS WHEREOF, the Company hereby executes this Agreement on and
as of the date first above-written.
"AQUAPRO CORPORATION"
By: /s/ George S. Hastings, Jr.
------------------------------------
George S. Hastings, Jr.,
President
By: /s/ Patricia G. Hastings
-------------------------------------
Patricia G. Hastings,
Secretary
-8-
<PAGE> 1
Exhibit 4.10
EXCHANGE FORM
OF
CIRCLE CREEK AQUACULTURE V, L.P.
FOR
INVESTOR NOTE
This exchange offer relates to your 10.35% Note(s) ("Investor Note[s]")
issued by Circle Creek AquaCulture V, L.P. (The "Partnership") for which AquaPro
Corporation, a Tennessee corporation ("AquaPro") is offering to exchange your
Investor Note(s) for shares of its 7.0% convertible Series A Preferred Stock
(the "Preferred Stock"). Reference is made to the Prospectus dated May 28, 1997
(the "Prospectus") and the Letter of Instructions dated June 30, 1997. This
Exchange Form incorporates by reference the representations, warranties,
covenants and agreements set forth in the Letter of Instructions. Your
Partnership has participated in the Consolidation and AquaPro has assumed the
obligations under your Investor Note.
The undersigned hereby elects to exchange $___________ of principal amount
of my Investor Note(s) for shares of the Series A Preferred Stock at the
rate of 1.30 shares of Series A Preferred Stock for each $10.00 of unpaid
balance of my Investors Note(s).
By signing this Exchange Form, you hereby covenant and agree (a) to be
bound by the terms of the Exchange Offer described in the Prospectus, and (b) to
execute and deliver (and you are hereby irrevocably appoint George S. Hastings,
Jr. as your attorney-in-fact to execute and deliver on your behalf) such
additional documents and instruments as may be reasonably required to consummate
the Exchange of your Investor Notes as elected herein. The foregoing power of
attorney is hereby declared to be irrevocable and a power coupled with an
interest, and it shall survive your subsequent death, incompetency, dissolution,
disability, incapacity, bankruptcy or termination and shall extend to your
heirs, successors and assigns. Each person signing this Exchange Form also
affirms and makes the other representations, warranties, covenants and
agreements set forth in the Letter of Instructions.
IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE IN COMPLETING THE EXCHANGE
FORM, PLEASE CALL AQUAPRO CORPORATION, THE INFORMATION AGENT, TOLL-FREE AT
1-800-264-3456.
PLEASE DATE, SIGN, AND MAIL THIS EXCHANGE FORM EXACTLY AS YOUR NAME APPEARS ON
THE MAILING LABEL, UNLESS YOUR NAME IS PRINTED INCORRECTLY. NO POSTAGE REQUIRED
IF MAILED IN THE UNITED STATES.
- -------------- --------------------- --------------------
SIGNATURE SIGNATURE
D Signature (Second Signature, if necessary)
<PAGE> 1
Exhibit 4.11
10.35% COLLATERALIZED CONVERTIBLE NOTE
CIRCLE CREEK AQUACULTURE VIII, L.P.
NOTE NO. _______________ $__________________________________
MATURITY DATE: December 31, 2000
DATE OF ISSUANCE: ________, 19__
NASHVILLE, TENNESSEE
CIRCLE CREEK AQUACULTURE VIII, L.P. (the "Partnership") promises to pay to:
-----------------------------------------------------------------
-----------------------------------------------------------------
("Registered Holder") the principal sum of $____________________, together with
interest at the rate of TEN AND THIRTY-FIVE ONE-HUNDREDTHS PERCENT (10.35%) PER
ANNUM, in the manner and at the times specified herein.
THIS NOTE IS ONE of a class of up to $700,000 of Collateralized
Convertible 10.35% Notes of the Partnership (the "Notes"). Each Note is issued
pursuant to the terms of the LOAN AGREEMENT (the "Loan Agreement") wherein each
Registered Holder has agreed to make a loan to the Partnership.
THIS FORM OF NOTE IS A FACSIMILE AND NOT NEGOTIABLE. THE OWNERSHIP OF
THIS NOTE IS DOCUMENTED ON THE PARTNERSHIP'S BOOKS AND RECORDS IN THE
NAME OF REGISTERED HOLDER, WHICH SHALL CONSTITUTE THE SOLE EVIDENCE OF
OWNERSHIP THEREOF.
1. PAYMENT
(a) The Partnership agrees to pay interest on the principal amount of
the Note as follows:
(i) Interest shall accrue on the unpaid principal amount of
the Notes from the Date of Issuance and thereafter at the rate of ten and
thirty-five one hundredths percent (10.35%) per annum, simple interest.
(ii) Interest shall be payable quarterly, in arrears, on the
first day of the first month following the quarter to which the interest payment
relates (the "Payment Date"). Interest shall be computed on the basis of a
360-day year comprised of four 90-day quarters, except for the quarter in which
the Note is issued or if the Note is redeemed prior to maturity, interest shall
be calculated on the actual number of days the Note is outstanding during the
month it is redeemed. The Partnership may pay interest by check mailed to the
Registered Holder's address of record as of the Payment Date.
(iii) Any accrued but unpaid interest shall be due in full
upon such date as the principal balance of the Note is due and payable.
EXHIBIT "C"
to
Memorandum
(iv) Anything herein to the contrary notwithstanding, the rate
of interest provided herein shall not exceed the maximum rate permitted by
applicable usury laws.
<PAGE> 2
(b) The principal amount of this Note, together with any accrued and
unpaid interest thereon, shall be payable in full to the Registered Holder
thereof on the Principal Payment Date. The Principal Payment Date shall be the
earlier of: (i) December 31, 2000; or (ii) the Call Date called pursuant to
Section 2 below; or (iii) the Redemption Date pursuant to Section 3 below. The
Registered Holder need not surrender this form of Note, which is a facsimile and
not of legal tender.
2. THE PARTNERSHIP'S RIGHT TO PREPAY THE NOTE
The Partnership may prepay ("Call") all or any portion of the
indebtedness represented by this Note at any time, or from time to time, by
giving written notice to the Registered Holder not less than 30 days nor more
than 60 days prior to the date set for such prepayment (the "Call Date").
3. NOTEHOLDER'S OPTION TO REDEEM THE NOTE
(a) At any time after January 1, 1998, the Registered Noteholder may
cause the Partnership to redeem this Note on the next following December 31 (the
"Redemption Date") by delivery of a written request to the Partnership at least
one hundred twenty (120) days prior to the requested Redemption Date. Upon
receipt of the redemption request, the Partnership will be required to redeem
this Note as of the respective Redemption Date by the payment of the unpaid
balance of principal and accrued interest adjusted to reflect a reduced
effective annual yield set forth below for the respective Redemption Date.
<TABLE>
<CAPTION>
Redemption Date Adjusted Effective Yield
--------------- ------------------------
<S> <C>
December 31, 1998 8.35%
December 31, 1999 9.35%
</TABLE>
Any request for early redemption must be delivered to the Partnership
at its principal business office address.
4. THE AGENCY AGREEMENT
The Partnership, CHG Properties, Inc. (the "Agent"), and the Registered
Holder have entered into the Agency Agreement dated August 15, 1995 (the "Agency
Agreement") wherein the Agent is authorized to act as the exclusive Agent of
Registered Holder and all Registered Holders of the Notes in exercising any
rights of Registered Holder upon the occurrence of a default or Event of
Default. The Agency Agreement, as it may from time to time be amended, provides
for the rights, limitation of rights, obligations, duties, indemnities and
immunities of Agent, the Partnership and Registered Holder. In the event Agent's
services are terminated and no replacement Agent is elected, any action an Agent
could take under the Agency Agreement may be taken by a Majority Vote of the
Registered Holders (i.e., the written vote or consent of the Registered Holders
holding more than fifty percent (50%) of the unpaid principal balance of the
Notes then outstanding).
5. CONTINUING COVENANTS
C-2
<PAGE> 3
(a) Limitation On Partnership Debt. Nothing in this Note shall in any
way restrict or prevent the Partnership from incurring any debt, including
secured debt, to operate its business except:
(i) During the period the Notes are outstanding, the
Partnership shall not, at any time, voluntarily incur aggregate debt (as defined
below), excluding collateralized, secured debt, in an amount exceeding fifty
percent (50%) of the Partnership's total equity at the end of each fiscal
quarter of the Partnership as shown on its applicable report on Form 10-Q or
10-K (or, if the Partnership is not required to file such reports, then on its
financial statements); and
(ii) The Partnership shall not be in default with respect to
any other of its debt obligations including any payment of principal or
interest. For the purposes hereof, "default" means the Partnership's failure to
cure any default under the terms of any debt obligation within thirty (30) days
of notice of such default by creditor under the respective debt obligations.
For the purposes of the foregoing, "debt" means any unsecured
indebtedness, contingent or otherwise, with respect to borrowed money (whether
or not the recourse of the lender is to the whole of the assets of the
Partnership or only to a portion thereof), or evidenced by bonds, notes,
debentures or similar instruments or letters of credit, except any such balance
that constitutes a trade payable, if and to the extent such indebtedness would
appear as a liability upon the balance sheet of the Partnership in accordance
with generally accepted accounting principles.
(b) Limitation On Merger, Consolidation Or Sale Of Assets. During the
time any principal or interest is owing on the Notes, the Partnership shall not
merge, consolidate with or transfer all or substantially all of its assets to
another corporation, Partnership, person or entity, unless (i) the successor is
organized under the laws of the United States or a state thereof, (ii) the
successor assumes all obligations of the Partnership with respect to the Notes,
and (iii) after such transaction no Event of Default under the Notes exists.
6. EVENTS OF DEFAULT
(a) An "Event of Default" under the terms of the Notes, is one or more
of:
(i) a default for 30 days in the payment of interest on the
Notes; or
(ii) a default for 30 days in payment of principal on the
Notes; or
(iii) failure by the Partnership for 60 days after written
notice from Agent to comply with any of its covenants set forth in Sections 5
above or Section 7 below hereof; or
(iv) an event of the Partnership's bankruptcy or insolvency;
or
(v) the Partnership's failure to maintain the Collateral (as
defined in Section 7 below) as required under the terms of a Security Agreement;
or
(vi) Any default by the Partnership under the Agency
Agreement.
(b) For the purposes of this Note, "bankruptcy" or "insolvency" means
the filing in any court pursuant to any statute of the United States or of any
state, a petition in bankruptcy or insolvency, or filing
C-3
<PAGE> 4
for reorganization or for the appointment of a receiver or trustee of all or a
material portion of the Partnership's assets, an assignment for the benefit of
creditors, if the Partnership admits in writing its inability to pay its debts
as they fall due or the seeking, consenting to, or acquiescing in the
appointment of a trustee, receiver or liquidator of any material portion of its
property. Bankruptcy or insolvency shall also include the filing against the
Partnership, in any court, pursuant to any statute of the United States or of
any state, of a petition in bankruptcy or insolvency, or for reorganization, or
for appointment of a receiver or trustee of all or a substantial portion of the
Partnership's property, and within 90 days after such commencement of any such
proceeding against the Partnership such petition shall not have been dismissed.
(c) Upon the occurrence of an "Event of Default", the principal amount
hereof together with all accrued but unpaid interest thereon may, at the
discretion of Registered Holder, through the Agent as provided in the Agency
Agreement, be declared and upon such declaration shall become due and payable in
the manner, with the effect and subject to the conditions provided in the Agency
Agreement. All interest and principal payable under this Note shall be payable
in lawful money of the United States of America. In the event the Partnership
fails to make any payment of principal or interest hereunder when due,
Registered Holders of the Notes shall be entitled to recover from the
Partnership all costs of effecting collection, including, but not limited to,
reasonable attorneys' fees and costs.
(d) As a condition to the purchase of the Notes, Registered Holder
hereby agrees to execute the Loan Agreement whereby that person appoints Agent
to act as Registered Holder's exclusive agent for the exercise of his/her
remedies in the event of a default or if an Event of Default occurs. Registered
Holder may not take actions to enforce the terms of the Notes, except as
provided in the Note and the Agency Agreement.
7. SECURITY
The payment of these Notes shall be secured by one or more Security
Instruments to be held by Agent as trustee pursuant to the Agency Agreement. The
Security Instruments shall constitute liens on the catfish inventory of the
Partnership at the Partnership's real property in Bolivar County, Mississippi
(the "Collateral").
During all times the Notes are outstanding, the Partnership shall have
delivered to Agent fully executed and duly assigned Security Instruments on
behalf of all Registered Holders of the Notes. The Security Instruments shall
have been properly recorded in the public records and shall constitute a valid,
enforceable, and duly recorded senior lien on the Collateral. Each Security
Instrument shall be given as security for the payment of the Notes. As set forth
in the Agency Agreement, Agent shall have the exclusive right to reject one or
more of the Security Instruments on behalf of Registered Holder and to act as
trustee thereunder.
8. CONVERSION
(a) This Note will be convertible, in whole but not in part, at the
option of Registered Holder at any time from and after the date of issuance and
prior to its maturity, except if: (i) this Note is called for redemption at any
time from and after the date of its issuance and prior to its maturity, or (ii)
there is a merger, reorganization, consolidation involving the Partnership or
the Partnership sells all or substantially all of its assets (a
"reorganization"), then this Note will be so convertible at any time prior to
the close of business on the fifteenth (15th) day preceding the date fixed for
such redemption.
C-4
<PAGE> 5
(b) This Note is convertible into fully paid and nonassessable Units of
Limited Partner interest of the Partnership, as defined in the Partnership
Agreement, at the rate of $125.00 per Unit. In order to exercise the conversion
privilege granted, the Registered Holder will surrender this Note to the Company
with a duly executed form for conversion hereinafter provided. The Company shall
not be obligated to issue fractional Units but shall pay in cash such fractional
amount. To the extent the unpaid principal of this Note is not sufficient to
purchase an even multiple of Units under the terms hereof, Registered Holder
shall have the option to purchase the fraction of a Unit created by such
insufficiency by paying cash at the rate of $125.00 per Unit.
(c) To convert this Note into Units, Registered Holder must deliver to
the Partnership a duly executed Election to Convert, together with this Note and
the additional cash payment, if any, at the principal business office of the
Partnership. The Partnership will promptly issue to the holder the Units into
which this Note is to be convertible. Units of the Partnership issued upon the
conversion of this Note will not be entitled to any distribution declared upon
such Unit(s) prior to the date of the receipt by the Partnership of such
Election To Convert and of this Note, and upon such conversion Registered Holder
will not be entitled to any interest on this Note not due and payable at or
prior to the date such Notice is received by the Partnership.
(d) This Note will be deemed to have been surrendered for conversion
and converted at the close of business on the date on which it is received by
the Partnership or a designated agent of the Partnership with the Election To
Convert duly executed, and on such receipt the Partnership will promptly issue
and deliver to the person or person entitled a certificate or certificates
evidencing the number of Units into which this Note will have been converted.
The Partnership will then cancel this Note. The Partnership agrees to reserve
for issuance sufficient Units of its authorized but unissued Units as will be
necessary to satisfy its obligation to issue such Units upon conversion of this
Note in accordance with its terms.
9. REGISTERED HOLDER OF NOTE
(a) The Partnership may deem and treat any person in whose name this
Note is registered on its records as the absolute owner of this Note, for the
purpose of making payments and giving notices hereunder, and for all other
purposes. Neither the Partnership nor the Agent shall be affected by any notice
to the contrary.
(b) The Registered Holder of this Note, or such person's address of
record, may be changed only upon prior written notice to the Partnership and a
showing of compliance with Section 10 below. The Partnership shall reflect any
such change no later than ten (10) business days after its receipt of such
written notice and showing of compliance with Section 10, whichever is the last
to occur.
10. TRANSFER OF NOTE
Registered Holder may transfer this Note, or any interest therein, only
in the event that either (i) all the Notes are registered under the Securities
Act of 1933, or (ii) there exists an exemption from registration under federal
or applicable state securities laws for such transaction. In the event the
Registered Holder asserts such an exemption, the Partnership may request an
opinion of legal counsel at the expense of the Registered Holder. This Note may
be transferred only on the records of the Partnership upon written request to
transfer in the form specified by the Partnership, delivered to the Partnership
at its principal business offices, together with this facsimile of the Note.
Transfer of the Note or any interest therein may be denied
C-5
<PAGE> 6
by the Partnership if, in its sole discretion, it
determines the foregoing restrictions on transfer have not been satisfied.
11. NATURE OF NOTE OBLIGATION
This Note constitutes a secured, general obligation of the Partnership.
The payment of any amounts owing on this Note remaining after the application of
the value of the Security in payment thereof (the "Deficiency"), shall be pari
passu in right of payment to the payment in full of all other unsecured debts of
the Partnership, whether outstanding on the date this Note is issued or
thereafter created, incurred, assumed or guaranteed.
Registered Holder shall be entitled to have recourse only against the
Collateral and the Partnership for payment of any principal and interest on this
Note, or for any recovery of attorneys' fees and/or costs, or for any other
claim based hereon, or otherwise in respect hereof, or based on, or in respect
of, the Agency Agreement, any amendment thereto or indenture supplemental
thereto; and Registered Holder may not seek to impose any personal liability for
any indebtedness on Agent, its successor or any General Partner, employee,
contractor, or agent of the Partnership by reason of this Note.
12. MISCELLANEOUS PROVISIONS
(a) Applicable Law. This Note shall be construed in accordance with the
laws of the State of Tennessee.
(b) Amendment. The terms and conditions of this Note may not be amended
or modified without the written consent of a Majority Vote of the Registered
Holders and the Partnership, except as provided in the Agency Agreement.
(c) Binding On Assignor. The terms and conditions hereof shall be
binding upon Registered Holder, his or her heirs, assigns and successors in
interest to the same extent and in the same manner as the terms and conditions
are binding on all Registered Holders.
(d) Attorneys' Fees, Costs
Should a dispute arise from this Note, the parties agree that the
prevailing party or parties shall be entitled to recover from the non-prevailing
party their costs, including reasonable attorneys' fees.
THE RIGHTS, LIMITATION OF RIGHTS, OBLIGATIONS, DUTIES, INDEMNITIES AND
IMMUNITIES OF THE PARTIES UNDER THIS NOTE ARE FURTHER DEFINED AND SET
FORTH IN THE AGENCY AGREEMENT, INCLUDING AMENDMENTS THERETO. THE AGENCY
AGREEMENT IS HEREBY INCORPORATED BY REFERENCE HEREIN.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR CERTAIN APPLICABLE STATE SECURITIES
ACTS. THIS NOTE MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT
WITH A VIEW TOWARD DISTRIBUTION OR RESALE. THIS NOTE MAY NOT BE
TRANSFERRED UNLESS REGISTERED OR
C-6
<PAGE> 7
QUALIFIED FOR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER
FEDERAL AND STATE SECURITIES LAWS.
CIRCLE CREEK AQUACULTURE VIII, L.P.
By: /s/ George S. Hastings, Jr.
----------------------------------------
GEORGE S. HASTINGS, JR., General Partner
By: Circle Creek Aquaculture, Inc.,
a Tennessee corporation
By: /s/ George S. Hastings, Jr.
----------------------------------------
GEORGE S. HASTINGS, JR., President
C-7
<PAGE> 1
Exhibit 4.12
AGENCY AGREEMENT
10.35% COLLATERALIZED CONVERTIBLE NOTES
CIRCLE CREEK AQUACULTURE VIII, L.P.
THIS AGENCY AGREEMENT is entered into by and among CIRCLE CREEK
AQUACULTURE VIII, L.P., a Tennessee Limited Partnership (hereinafter referred to
as the "Partnership"), and the undersigned, a Registered Holder of one or more
of the Partnership's 10.35% Collateralized Convertible Notes, each of whom is
referred to herein as "Noteholder" and together referred to as "Noteholders"),
and CHG Properties, Inc., a California corporation (the "Agent").
PREFACE
A. The Noteholder is payee of one or more of the Notes (the "Notes")
issued by the Partnership. Up to $700,000 of the Notes are, or may be, issued by
the Partnership.
B. A copy of the form of the Notes is set forth as Exhibit "A" to this
Agreement.
C. The Notes were offered and sold by the Partnership to the
Noteholder, pursuant to a Private Placement Memorandum dated August 15, 1995
(the "Memorandum"). The Agent has been provided with copies of the Memorandum
and form of the Notes, and will hold the Security Instruments as they are, from
time to time, created. Certain terms used herein have the same meanings as those
set forth in the Memorandum, which is incorporated herein by reference.
D. The Notes are, or will be, secured by the Collateral by means of
one or more chattel mortgages, or other security agreements ("Security
Instruments").
E. The Noteholder desires that the Agent act as Noteholder's exclusive
agent under this Agreement for the sole purposes of providing the services and
performing the duties specified in Section 1 of this Agreement, and of enforcing
the obligations of the Partnership under the Notes and the Security Instruments
as provided herein.
F. The Agent understands the purposes of its appointment as
Noteholder's agent and accepts the appointment as such for the stated purposes
only, and on the terms and conditions of this Agreement.
AGREEMENT
SECTION 1. AGENT'S DUTIES
(a) The Noteholder hereby authorizes the Agent to:
(i) act on behalf of the Noteholder, and as the Noteholder's
exclusive agent, upon the occurrence of an Event of Default, as defined herein;
(ii) have the Security Instruments executed in its own name as
trustee thereunder and to hold and release the same upon the Agent's
signature alone, as provided herein. The Agent is authorized and
directed to take all appropriate steps to release the Collateral, or
any part thereof, from time to time, upon payment of the Notes, or part
thereof, and to otherwise release portions of the Collateral pursuant
to the terms of this Agreement including, but not limited to, the
substitution therefor by other Security Instruments upon the
Partnership's request.
EXHIBIT "D"
to
<PAGE> 2
Memorandum
(b) The authority given the Agent hereunder to take the acts provided
herein, constitutes a limited power of attorney given by Noteholder to the Agent
to carry out the actions for the Noteholder authorized herein, which limited
power of attorney is coupled with an interest and is irrevocable, so long as
this Agreement remains in effect.
(c) Nothing herein shall act to appoint the Agent as depository for the
Notes and the Agent shall have no authority to establish or maintain the records
of the Registered Holders of the Notes, hold Noteholder's original Note(s), nor
to accept any payments made to Noteholder with respect to the Note(s) except as
Noteholder authorizes the Agent to hold any funds received for the benefit of
the Noteholders pursuant to instructions received from the Noteholders pursuant
to Section 3 hereof.
(d) The Agent shall act upon the written instructions of the
Noteholders then holding of record a majority of the outstanding unpaid
principal balance of the Notes ("a Majority Vote"). The Noteholders shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to them only through the Agent and shall have the right to
direct the Agent to exercise any trust or power conferred on it pursuant to this
Agency Agreement only by written instructions approved by a Majority Vote.
(e) The Agent shall promptly provide Noteholder a copy of notice the
Agent receives respecting the Notes in its capacity as the Agent hereunder.
SECTION 2. THE PARTNERSHIP'S DEFAULT
(a) In the event that:
(i) The Agent receives written notice from one or more
Noteholders stating that: a breach or an Event of Default (as defined in the
Note) has occurred; the facts and circumstances constituting such Event of
Default; the breach or default occurred more than thirty (30) days before the
date of such notice and that the Event of Default has not been cured; or
(ii) The Partnership shall fail to timely deliver to the Agent
the Registered Holder Records pursuant to Section 5(a) below, any Notice of
Payment so required to be delivered pursuant to Section 5(a) below, or to timely
deliver any report required to be delivered pursuant to Section 5(b) or 5(c)
below or if any such Notice of Payment, if timely delivered, shows a default in
the payment of interest or principal on the Notes; or
(iii) The Partnership shall fail to timely make a payment owed
the Agent under the terms of this Agreement; or
(iv) There is issued against the Collateral any levy of
attachment, execution, tax assessment or other similar process and it is not
released within thirty (30) days of the date of issuance; or
(v) The Partnership shall fail to deliver or maintain to the
Agent, Collateral Instruments of a form acceptable to the Agent in an aggregate
amount sufficient to maintain the Collateral in the principal amount required,
and the Partnership has failed to deliver or maintain said Collateral
Instruments within thirty (30) days of written notice of such failure by the
Agent to the Partnership;
D-2
<PAGE> 3
then the Agent shall promptly give written notice thereof to the Noteholders and
to the Partnership, and request that the Noteholders give the Agent their
written instructions. Such instructions may include, but are not limited to,
judicial action, action in arbitration, or judicial or private sale of all or a
part of the Collateral.
(b) The Agent may rely on written notice to it of any of the foregoing
and shall have no obligation to independently investigate or determine whether
any act, failure to act, or occurrence constitutes a breach or Event of Default
by the Partnership with respect to its obligations and duties under the Notes.
(c) The Agent may, but shall not be required to, advance costs,
expenses or other payments on behalf of Noteholder; provided, however, that any
monies advanced by the Agent on behalf of Noteholder shall be reimbursed to the
Agent immediately upon the Agent's written notice to Noteholder. The Agent shall
not be required to do any further act or take any further action, except in
accordance with specific written instructions from a Majority Vote, which
written instructions may authorize the Agent, among other things, to retain on
behalf of the Noteholders such attorneys, accountants or other persons as the
Agent shall deem necessary or appropriate to effect such action; provided,
however, that the Agent shall be indemnified against its expense and liability
from such action in form and substance satisfactory to the Agent.
(d) The Agent shall have no liability for any act done by the Agent or
any action taken by the Agent in accordance with such written instructions.
Notwithstanding any other provisions of this Agreement, at any time after the
Agent gives the Partnership and Noteholder notice as provided in this section,
the Agent, at its election, may resign by mailing written notice of its
resignation to the Partnership and to Noteholder by U.S. Mail, postage prepaid.
After mailing such notice of resignation, the Agent shall have no further
obligation to do any further acts or take or prosecute any further action.
SECTION 3. LIMITATIONS AND QUALIFICATIONS TO THE AGENT'S DUTIES
(a) The Agent shall perform such duties, and only such duties, as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into this Agreement against the Agent; and the Agent, in the
absence of bad faith, may conclusively rely on all reports received from the
Partnership or instructions received from Noteholder as true and correct and
signed by the persons purporting to sign them.
(b) No provision of this Agreement shall require the Agent to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or powers
unless it shall have reasonable grounds for believing that repayment of such
funds will be made and such repayment is adequate indemnity against such risk or
liability.
(c) The Agent may consult with counsel and the written advice of such
counsel shall be full and complete authorization and protection with respect to
any action taken, suffered or omitted by it hereunder, if in good faith and in
reliance thereon.
D-3
<PAGE> 4
(d) The Agent shall have the right to decline to follow any such
direction if the Agent, having been advised by counsel, shall determine that the
action so directed may not be lawfully taken, or if the Agent determines that
the action so directed would be unduly prejudicial to the Noteholders not taking
part in such direction. The Noteholders may waive any past default under the
Notes and its consequences, except a default on the payment of principal or
interest on any of the Notes, by written instructions approved by a Majority
Vote. In the case of any such waiver, the Partnership, the Agent and the
Noteholder shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend any subsequent or other default or
impair any right consequent thereon.
(e) In performing its duties hereunder, the Agent may rely solely on
the Registered Holder Records and other documents provided to it by the
Partnership pursuant to Section 5 below. Also, the Agent may rely and shall be
protected in acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, appraisal, bond,
Note, or other paper, or document believed by it to be genuine and to have them
signed or presented by the proper party or parties.
(f) The Agent may execute any of its powers or perform any of its
duties hereunder, either directly or by or through its agents or attorneys, and
the Agent shall not be responsible for any misconduct or negligence on the part
of any agent or attorney appointed by it in good faith and with due care.
(g) The Agent and/or its Affiliates may invest in the Notes for their
own account, and hold any such Notes in their own name or the name of a
designee. Any actions taken by the Agent and/or its Affiliates with regard to
their own Notes shall be in their own best interests and shall not be deemed to
conflict with the Agent's duties or obligations to the other Noteholders
hereunder.
SECTION 4. MAINTENANCE OF COLLATERAL
(a) Under the terms of the Notes, the Partnership shall maintain the
Collateral as security for payment of interest and principal on the Notes. The
security interests in the Collateral shall be comprised of Security Instruments
delivered to the Agent and naming the Agent trustee thereunder. The Security
Instruments shall consist of chattel mortgages or other security instruments
constituting senior liens on security interests in the Collateral as described
in the Memorandum.
(b) The Partnership shall, at all times, maintain the Collateral in
good condition within the standards of the catfish farming industry.
(c) The Partnership may, from time to time, substitute one or more
Security Instruments for existing Security Instruments upon written request and
presentation to the Agent of an acceptable substitute Security Instrument(s).
Upon such written request and delivery to the Agent of the substitute Security
Instrument(s), the Agent shall forthwith reconvey the Security Instrument(s)
requested.
(d) In the event one or more Security Instruments becomes of no value,
the Partnership shall, upon request of the Agent, promptly deliver to the Agent
an acceptable Security Instrument(s) in replacement thereof.
D-4
<PAGE> 5
(e) All Security Instruments delivered by the Partnership to the Agent
shall be in proper form and shall be delivered with proof of recordation in the
appropriate public records. With each such Security Instrument, the Partnership
shall deliver to the Agent a description of the property secured by the Security
Instrument. The Agent shall have the right to reject any such Security
Instrument only if the Security Instruments are in a form unacceptable to the
Agent.
(f) The Agent's determination not to accept any Security Instrument
shall be in its sole discretion, and Noteholder shall have no recourse against
the Agent with respect to such determination. Noteholder, severally but not
jointly, and with all of the Noteholders, agrees to hold the Agent harmless and
to indemnify it against any loss or damage resulting from the failure of the
Noteholders to obtain or realize value for the Security Instrument, or any of
them, equal to or exceeding the amount of interest and principal owing on the
Notes.
SECTION 5. REPORTS BY THE PARTNERSHIP
(a) The Partnership shall, by the tenth (10th) day of each month in
which Notes remain outstanding, deliver to the Agent a schedule of the
Registered Holders of the Notes as of the last day of the preceding month
listing each Registered Holder's name, designated mailing address, and amount of
Notes held of record (the "Registered Holder Records").
(b) The Partnership shall, within ten (10) days following the end of
each calendar quarter in which any of the Notes remain outstanding, deliver to
the Agent by certified mail or express or registered mail, or its equivalent,
Notice of Payment which shall consist of a written schedule of the Notes
outstanding as of the payment record date for such calendar quarter and the
amount of interest and principal, if any, paid by the Partnership with respect
to each such Registered Holder for such calendar quarter.
(c) The Partnership shall, within ten (10) business days of the Agent's
written notice of request to the Partnership, provide the Agent with a report,
certified to be true and complete by the Partnership, as to the place, book
number and page number wherein any Security Instrument has been recorded and any
other information reasonably requested by the Agent as necessary and proper to
the exercise of its duties and authority hereunder.
(d) Within ten (10) business days of their preparation, the Partnership
shall provide the Agent with copies of its quarterly and annual financial
statements and its annual report to the Limited Partners, along with a
certificate duly executed by an officer of the Partnership that as of the date
of execution, no Event of Default by the Partnership exists under the terms of
the Notes.
SECTION 6. RESIGNATION AND REPLACEMENT OF THE AGENT
Subject to Section 3 hereof, the Agent may terminate this Agreement by
giving thirty (30) days prior written notice of such termination. In such event,
Noteholder, along with all other Noteholders, may by a Majority Vote elect a
replacement Agent to serve under the terms of this Agreement. In the event this
Agreement is terminated and the Agent is not replaced, any action the Agent can
take under this Agreement may be taken by a Majority Vote.
D-5
<PAGE> 6
SECTION 7. COMPENSATION
The Agent shall be entitled to reasonable compensation and to be
reimbursed, upon request, for all of its reasonable costs, expenses and/or
disbursements incurred or made in accordance with any provision of this
Agreement. The Agent's regular compensation shall be an amount payable in
advance on the first of January of each year equal to the greater of $1,000 or
an amount equal to two-tenths of one percent (0.2%) of the principal amount of
the Notes issued which is subject to this Agreement and outstanding on the
January first on which payment is due. Provided, however, that payment for 1995
shall be $500, which amount shall be payable upon execution of this Agreement.
SECTION 8. INDEMNIFICATION
Noteholder hereby agrees, severally but not jointly with the other
Noteholders, to indemnify the Agent and to hold it harmless against, any loss,
liability or expense incurred without gross negligence or bad faith on its part,
or arising out of or in connection with the acceptance or administration of this
Agreement.
SECTION 9. TERM
(a) This Agreement shall continue for the term of the Notes, and shall
be terminated only upon final payment of all principal and interest due and
payable on the Notes and full release of the Collateral for the Notes.
(b) As between the Noteholder, the Agent and the Partnership, this
Agreement shall be deemed coupled with an interest and may not be terminated;
except that the Agent may, from time to time, be removed and replaced as herein
provided.
SECTION 10. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with the
laws of the State of Tennessee.
SECTION 11. NOTICES
Except as otherwise provided in this Agreement, all notices shall be in
writing and shall be personally delivered or mailed first class, postage
prepaid, addressed as follows:
To Noteholder:
At the address set forth on the Noteholder's executed and accepted Loan
Agreement of even date herewith, or if of a later date in the Registered
Holder's Records referenced in Section 5(a) above.
D-6
<PAGE> 7
To The Partnership:
George S. Hastings, Jr.
General Partner
Circle Creek Aquaculture, Inc.
4307 Central Pike
Hermitage, Tennessee 37076
To the Agent:
CHG Properties, Inc.
11545 West Bernardo Court, Suite 100
San Diego, California 92127
SECTION 12. BINDING ON NOTEHOLDERS
By entering into this Agreement, Noteholder agrees that all of the
terms and conditions hereof shall be binding upon Noteholder, its assigns, heirs
and successors in interest, to the same extent and in the same manner as such
terms and conditions are binding on all Noteholders. Noteholder agrees that the
Agent's duties hereunder are owed to all Noteholders or holders of Notes.
SECTION 13. RECOGNITION OF TRANSFERS
The Notes are restricted as to transfer. The Agent acknowledges that
during the term of this Agreement, the Notes may be transferred to certain
individuals and/or entities, and that such transfers shall be effective, and the
transferee substituted as a Noteholder hereunder, only upon the Agent's receipt
from the Partnership of written notice of such transfer, setting forth the full
name and address of such transferee, who shall thereafter be deemed to be a
Noteholder hereunder, and without the necessity of any further amendment to this
Agreement.
SECTION 14. AMENDMENTS
This Agreement may be amended, from time to time, by the Majority Vote
of the Noteholders, the Partnership and the Agent; or by the Agent and the
Partnership, without the consent of the Noteholders, to:
(a) Conform to the requirements of federal and state laws and
regulations, provided that such amendment is for the benefit of and not adverse
to the interests of the Noteholders;
(b) Add to the representations, duties or obligations of the
Agent or the Partnership, or to surrender any rights or powers granted to the
Agent or the Partnership herein, for the benefit of the Noteholders; or
(c) Cure any ambiguity and to correct or to supplement any
inconsistent provision in this Agreement.
D-7
<PAGE> 8
SECTION 15. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the
Partnership, Noteholder and the Agent with respect to the matters addressed
herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the _____ day of _______________ 1995.
THE AGENT THE PARTNERSHIP
CHG PROPERTIES, INC. CIRCLE CREEK AQUACULTURE VIII, L.P.
By: By:
--------------------- ---------------------------------------
GEORGE S. HASTINGS, JR.
General Partner
By: Circle Creek AquaCulture, Inc.,
a Tennessee corporation, General Partner
By:
---------------------------------------
GEORGE S. HASTINGS, JR., President
NOTEHOLDER:
Execution by Noteholder of the Loan Agreement for the Note(s),
reciting that it constitutes the signature page for the Agency
Agreement, shall constitute Noteholder's execution of this
Agreement.
D-8
<PAGE> 1
Exhibit 4.13
SECURITY AGREEMENT
CIRCLE CREEK AQUACULTURE VIII, L.P.
10.35% COLLATERALIZED CONVERTIBLE NOTES
1. CREATION OF SECURITY INTEREST. CIRCLE CREEK AQUACULTURE VIII, L.P.,
a Tennessee Limited Partnership conducting business in Bolivar County,
Mississippi (the "Debtor") hereby grants to CHG PROPERTIES, INC., a California
corporation (the "Agent") as agent, under that certain Agency Agreement of even
date herewith for the holders of that certain series of promissory notes in the
original principal amount of up to $700,000 entitled the "10.35% Collateralized
Convertible Notes" issued by the Debtor (the "Notes"), a present security
interest in the Collateral and its proceeds described in Paragraph 3 of this
Agreement.
2. ATTACHMENT AND OBLIGATION SECURED. This security interest is
intended to secure the Debtor's obligation and indebtedness to the holders of
the Notes (collectively, the "Secured Party"). The Debtor's obligation and
indebtedness to the Secured Party is evidenced by the Notes and includes any
further advances to the Debtor by the Secured Party pursuant to the Notes.
3. DESCRIPTION OF COLLATERAL. The collateral in which this security
interest is granted and transferred to the Secured Party is farm products (the
"Collateral") described as follows:
All of the channel catfish raised, fed, fattened, or otherwise held by
Debtor, and any additional acquisitions by, but not limited to,
natural increase, replacement, or subsequent purchase including, the
farm accounts and proceeds arising from the sale of those channel
catfish or the products thereof.
4. LICENSE TO USE ACCOUNTS AND PROCEEDS. Until default shall have
occurred as defined in Section 12 below, Debtor may continue to collect the
accounts and proceeds arising from the sale of the channel catfish or products
thereof described above as part of the Collateral, so long as any cash proceeds
received by the Debtor from such accounts or proceeds are used by or for the
Debtor to purchase or to otherwise pay for goods, materials or services supplied
by or to Debtor in connection with its catfish farming business, the payment of
interest and/or principal on such other debt obligations of the Debtor as may be
incurred in connection with the Debtor's business, and/or the payment of
distributions to the Limited Partners of the Debtor in compliance with the
Debtor's Agreement of Limited Partnership.
5. DEBTOR'S COVENANTS RELATING TO LOAN. The Debtor agrees to pay to
the Secured Party the amounts indicated in the Notes specified in this
Agreement according to the terms of this Agreement and the obligation
described above.
6. DEBTOR'S WARRANTIES. The Debtor represents and warrants to the
Secured Party that Debtor is the full legal and equitable owner of the
Collateral, except for the security interest created by this Agreement, and no
other lien or security interest enforceable against the Collateral exists. The
Debtor also represents and warrants to the Secured Party that the Collateral
will, when acquired by the Debtor, be located at that certain approximately 242
acre catfish Farm situated in Bolivar County, Mississippi, as more fully
described in Exhibit "A" hereto which is hereby incorporated herein by
reference, and that while this Agreement is in effect, Debtor will not remove
Collateral from that location except in the ordinary course of Debtor's business
of operating a catfish production farm without the prior written consent of the
Agent.
EXHIBIT "E"
to
Memorandum
<PAGE> 2
7. CARE OF COLLATERAL. The Debtor shall maintain the Collateral in the
following manner:
(a) The Debtor shall keep the Collateral free from any unpaid
claims and demands, including rent and taxes, and not allow any interest in the
Collateral to be created or transferred, except in the ordinary course of the
Debtor's business to or by any third person without the prior written consent of
the Agent;
(b) The Debtor shall keep the Collateral in good condition and
health. The Debtor shall care for and attend to the Collateral, and take
necessary measures to properly raise, grow, and maintain the Collateral in a
manner consistent with the customary course of husbandry practiced in the
Bolivar County, Mississippi;
(c) The Debtor shall at all times keep the Collateral and the
proceeds from any authorized disposition of the Collateral identifiable and
separate from any other catfish stock belonging to the Debtor or any other
party.
(d) If the value of the Collateral is substantially affected by any
event, or the ability to market or dispose of the Collateral is substantially
impaired by any event, the Debtor shall notify the Agent immediately. Also, the
Debtor shall notify the Agent immediately if the Collateral becomes subject to
any impairment that may affect Secured Party's rights and remedies in relation
to the Collateral. The notice required by this Paragraph shall be given in the
manner set forth in Paragraph 14 of this Agreement.
8. LIST OF POTENTIAL BUYERS. Pursuant to the Food Security Act of 1985
as codified in Section 1631 of Title 7 of the United States Code, Debtor shall
furnish to the Agent the names and addresses of all persons to whom the Debtor
may sell any of the Collateral, and all Commission Merchants and Selling Agents,
as defined in the Act, to whom Debtor may sell the Collateral or otherwise
engage in any transaction relating to it. The lists required under this
Paragraph shall be submitted to the Agent within ten (10) days of the execution
of this Agreement, and shall thereafter be supplemented with any additional
names and addresses of potential buyers, Commissions Merchants, or Selling
Agents on the first day of each month this Agreement is in force.
9. SALE OF COLLATERAL TO PARTY NOT LISTED. Before the sale or contract
to sell any part of the Collateral to a person whose name and address has not
been provided to the Agent under Paragraph 8, and before any transaction
relating to the Collateral conducted between Debtor and a Commission Merchant or
Selling Agent, as defined by the Food Security Act of 1985 [7 U.S.C. ss.1631],
the Debtor shall give notice of the intended transaction and provide the Agent
with the name and address of the person with whom the Debtor intends to
contract. Notice under this Paragraph shall be given in the manner provided for
in Paragraph 14 of this Agreement, and with sufficient time so that the Agent is
notified not less than five (5) days before the transaction.
10. INSURANCE. During the continuation of this Security Agreement, the
Debtor, at the Debtor's own cost and expense, shall keep the Collateral, and all
parts thereof, insured against all hazards for the full amount of indebtedness
owed to the Agent but only if and to the extent such insurance is customarily
obtained by operators of catfish farms in Bolivar County, Mississippi.
11. INSPECTION BY THE AGENT. The Agent shall have the right, but not
the obligation, to enter the premises on which the Collateral is located for the
purpose of inspecting the Collateral at any reasonable times and intervals.
E-2
<PAGE> 3
12. DEFAULT. Any of the following events constitute a default under
this Agreement:
(a) A breach by the Debtor of any of the terms, provisions,
covenants, warranties, or representations of this Agreement or of the Notes that
this Agreement secures;
(b) If the Debtor fails to make any payment owed the Agent covered
by this Agreement;
(c) If the Debtor should dissolve, become insolvent or unable
to pay debts as they become due, or if a trustee or receiver is appointed to
take all or a substantial portion of the Debtor's assets, or if the Debtor makes
a general assignment for the benefit of creditors; or
(d) If there is issued against the Collateral any lien of
attachment, execution, tax assessment, or other similar process and it is not
released with thirty (30) days of the date of issuance.
13. REMEDIES ON DEFAULT. If any of the above events of default occur,
in addition to the statutory remedies provided under Sections 9501-9505 of the
Uniform Commercial Code, the Secured Party may:
(a) Declare any obligation or indebtedness of the Debtor to the
Secured Party secured by this Agreement to be immediately due and payable;
(b) Enter the Debtor's premises to assemble and take possession of
the Collateral;
(c) Require the Debtor to assemble the Collateral and make its
possession available to the Agent on behalf of the Secured Party at a place
designated by the Agent that is reasonably convenient to both the Agent and the
Debtor;
(d) Apply the proceeds received from the sale or other disposition
of the Collateral on default of the Debtor, in addition to the items specified
in the Uniform Commercial Code of the State of Mississippi, to the payment of
reasonable attorneys' fees and legal expenses incurred by the Secured Party as a
result of the Debtor's default.
14. NOTICES. Except as otherwise expressly provided by law, any and all
notices or other communications required or permitted by this Agreement or by
law to be served on or given to either party by the other party shall be in
writing and shall be deemed duly served and given when personally delivered to
the party to whom they are directed, or instead of such personal service, when
deposited in the United States mail, first-class postage prepaid, addressed to
the parties at their respective addresses below. Either party may change its
address for the purpose of this Paragraph by giving written notice of the change
to the other party in the manner provided in this Paragraph.
If to Debtor:
Circle Creek Aquaculture VIII, L.P.
c/o: George S. Hastings, Jr., General Partner
4307 Central Pike
E-3
<PAGE> 4
Hermitage, Tennessee 37076
If to Agent or the Secured Party:
CHG Properties, Inc.
11545 West Bernardo Court, Suite 100
San Diego, California 92127
15. TIME OF ESSENCE. Time is of the essence of this Agreement and of
each provision contained in it.
16. EFFECT ON HEIRS AND SUCCESSORS. This Agreement and each of its
provisions shall be binding on and shall inure to the benefit of the respective
heirs, devisees, legatees, executors, administrators, trustees, successors, and
assigns of the parties to this Agreement. Nothing contained in this Paragraph
shall be construed as a consent by the Secured Party to any assignment of the
Collateral or any interest therein by the Debtor.
17. AMENDMENTS TO AGREEMENT. This Agreement may be amended only by a
writing signed by the party against whom or against whose successors and assigns
enforcement of the change is sought.
18. EFFECT OF PARTIAL INVALIDITY. If any term or provision of this
Agreement or any application thereof shall be held invalid or unenforceable, the
remainder of this Agreement and any application of the terms and provisions
shall not be affected thereby, but shall remain valid and enforceable.
19. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Mississippi.
20. WAIVER. Neither the acceptance of any partial or delinquent
payment by the Secured Party nor the Secured Party's failure to exercise any of
its rights or remedies on default by the Debtor shall be a waiver of the
default, a modification of this Agreement, or a waiver of any subsequent default
by the Debtor.
Executed on ____________________ at ___________________________,
Tennessee.
"DEBTOR"
CIRCLE CREEK AQUACULTURE, VIII, L.P.
By:
---------------------------------------
GEORGE S. HASTINGS, JR.,
General Partner
By: Circle Creek AquaCulture, Inc.,
a Tennessee corporation, General Partner
E-4
<PAGE> 5
By:
---------------------------------------
GEORGE S. HASTINGS, JR., President
E-5
<PAGE> 1
EXHIBIT 10.8
<TABLE>
<S> <C> <C>
Borrower(s) CIRCLE CREEK AQUACULTURE V Lender's [LOGO SUNBURST BANK] Inception
-------------------------- Date March 28, 1996
Name(s) 4397 Central Pike Name -------------------
-------------------------- Maturity
& Hermitage, TN 37076 & Box 548 Date April 1, 2000
-------------------------- --------------------------- -------------- ----
Address(es) Address Moorhead, MS 38761 Loan Amt. 1,100,000.00
--------------------------- ---------------
Off initial
===============================================================================================================
</TABLE>
The undersigned Borrower(s) (If more than one jointly and severally and
hereinafter, whether one or more, called Borrower) promises to pay to the order
of the above-named Lender (at the Lender's address shown above) the Principal
Sum of ---One million one hundred thousand and no/100-------Dollars, plus
interest from Date until final maturity at the rate of 11.5* per cent per
annum, payable according to the following payment schedule (select only one)
<TABLE>
<S> <C>
(a) [ ] Upon demand. (b) [ ] Upon demand, but if no demand is made on _________,19___ (c) [ ] On ___________,19___
Accrued interest is due and payable _______________________________________________________________and at the maturity indicated.
(d) [ ] If checked, this Note is payable in equal _________________installments of $______________each, beginning________,19____,
and on the same day of each _____________________thereafter until _____________________,19___, when the unpaid balance of
principal and interest shall be due and payable.
(e) [X] Sixty (60) monthly payments of $11,754.00 due on the 1st of each month, beginning May 1, 1995 and a final payment of
$1,017,491.78 due April 1, 2000.
VARIABLE INTEREST RATE: [] If checked, the interest rate on this Note is subject to change from that stated above, so as to be
2 1/2 above percentage points above the following selected Index Rate:
[ ] The prime rate of ___________________________________________________________________________________________________
[x] Sunburst Bank's Variable Prime Rate, as set at the discretion of its Credit Committee.
and an increase in the interest rate will cause an increase in [ ] this amount due at maturity [x] the amount of each scheduled
payment. [ ] the number of payments.
[x]The rate may not increase or decrease more than once a year, and during this period stated, may not increase more than n/a%
and/or decrease more than n/a%. At no time during the life of this loan will the rate be less than n/a% or more than n/a%.
Changes in the Index rate shall take effect on this Note: [ ] on the same day such changes in the Index Rate take effect:
[x] on the first day of April each year.
</TABLE>
APPLICATION OF PAYMENTS; Borrower and Lender agree that Lender may in its sole
discretion, apply sums received from Borrower to principal only, with or
without the consent or request of Borrower, and regardless of whether or not
Borrower is in defult as defined herein.
POST-MATURITY INTEREST: Interest will accrue after maturity on the unpaid
balance of this note on the same basis as interest accrues prior to maturity,
unless a specific post-maturity interest rate is agreed to in the next sentence.
[ ] If checked, interest will accrue at the rate of __________% per year on the
balance of this note not paid at maturity, including maturity by acceleration.
PREPAYMENT:[ ] If checked, Lender has the right to impose a penalty upon
prepayment, if not checked, Borrower may prepay this Note at any time prior to
maturity without penalty.
Any partial prepayments shall not relieve or diminish any scheduled
subsequent payments of principal or interest until all obligations are paid in
full.
COSTS OF COLLECTION:Except where prohibited by law, the Borrower promises to pay
all costs of collection, including but not limited to reasonable attorney's fees
paid or incurred by the Lender on account of such collection, whether or not
suit is filed with respect thereto.
WAIVER: Demand, presentment, protest, notice of non-payment and dishonor of this
Promissory Note are hereby waived. Lender may release any party or security,
make future loans to any party or contractually change its relationship to or
the obligation of any party without waiving or affecting the obligation of any
other party to this Note, A party to this Note is any maker, surety, endorser
or guarantor, Waiver by the Lender of any right conferred by this Note or any
agreement securing same will not affect the Lender's future exercise of said
right or any other.
[x] If checked. I agree to pay a late charge on any payment made more than 15
days after it is due equal to 4% of the amount of the payment, or $5.00,
whichever is greater, up to $50.00. However, it the Loan exceeds $100,000.00 or
has a maturity of more than 5 years, the maximum of $50.00 does not apply.
SET-OFF: Lender may at any time before or after Default exercise its right to
set-off all or any pertion of the Indebtedness evidenced hereby against any
liability or indebtedness of the Lender to the Borrower (whether owned by the
Borrower alone or in conjunction with any other person or entity, provided that
the Borrower has a beneficial interest therein) without prior notice to the
Borrower. This right applies to and includes but is not limited to any funds on
deposit with the Lender provisionally, in escrow (subject to the terms of any
special agreement therefore) for collection, or in any time or open accounts.
DEFAULT AND ACCELERATION:The Borrower shall be in Default upon the occurrence of
any one or more of any of the following events:(1) the Borrower shall fail to
pay, when due, any amount required hereunder or any other indebtedness of the
Borrower to the Lender or any third parties; (2) any warranty or representation
made by the Borrower shall prove to be false or misleading in any respect; (3)
the Borrower or any guarantor of this Promissory Note shall liquidate, merge,
dissolve, terminate its existence, suspend business operations, die (if an
individual), have a receiver appointed for all or any part of its property make
an assignment for the benefit of its creditors, or file or have filed against it
any petition under any existing or future bankruptcy or insolvency law; (4) any
change occurs in the condition or affairs financial or otherwise) of the
Borrower or any guarantor of this Promissory Note which, in the opinion of the
Lender, impairs the Lender's security or increases its risk with respect to this
Promissory Note; (5) Borrower fails to keep any promise under any agreements
intended to secure the repayment of this Promissory Note; or (6) Lender
reasonably deems itself insecure. Unless prohibited by law, the Lender may, at
its option, declare the entire unpaid balance of principal and interest
immediately due and payable without notice or demand at any time after Default,
as such term is defined in this paragraph.
- --------------------------------------------------------------------------------
SECURITY: (a) In addition to Lender's right of set-off set forth above, Lender
is secured by the proceeds and unearned premiums of any insurance policy
purchased by the Borrower in connection with the Loan evidenced hereby, Borrower
agrees to keep any Colleteral securing this Note insured against such risks,
with such limits, and upon such additional terms and conditions as Lender may
resonably require. Lender shall be named as additional loss payee under said
policies. Lender is hereby authorized (but not required or obligated) to act as
attorney in fact for Borrower in making and settling claims under said policies
and endorsing Borrower's name on any drafts or checks paying losses under said
policies. (b) This Note may be secured by prior or subsequent security documents
notwithanding that such security is not indicated hereon (c) Borrower hereby
grants to Lender a Security interest in all other personal property of the
Borrower of every dind and description which is now or hereafter comes into the
possession of the Lender for any reason, including but not limited to property
delivered to Lender for safekeeping, or for collection or exchange, and all
dividends and distributions on and other rights in connection with such
property.
(d) [x] If checked, this Note is secured by a Deed of Trust dated March 28, 1995
(e) [ ] If checked, this Note is secured by the Security Agreement hereafter and
Borrower hereby grants to the Lender a Security Interest under
the Uniform Commercial Code in the following described Collateral:
[ ] INVENTROY: All inventory of the Borrower, whether now owned or
hereafter acquired and whereever located
[x] EQUIPMENT: All equipment of the Borrower, whether now owned or
hereafter acquired, including but not limited to all present
and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, farm machinery and equipment, shop
equipment, office and record keeping equipment, parts and
tools, and the goods described in any equipment list or schedule
herewith or hereafter furnished to Lender by Borrower (but no
such schedule or list need be furnished in order for the
Security Interest granted herein to be valid as to all
Borrower's equipment).
[ ] FARM PRODUCTS; All farm products of the Borrower, whether now
owned or hereafter acquired, including but not limited to (i)
all poultry and livestock and their young products thereof and
produce (ii) of all crops, whether annual or perennial, and the
products thereof and (iii) all food, seed, fertillizer medicines
and other supplies used or produced by Borrower in farming
operations
[x] ACCOUNTS AND OTHER RIGHTS TO PAYMENT Each and every right of the
Borrower to the payment of money, whether such right to payment
now exists or hereafter arises, whether such right to payment
arises out of a sale, lease or other disposition of goods or
other property by the Borrower, out of a rendering of services
by the Borrower, out of a loan by the Borrower, out of the
overpayment of taxes or other liabilities by the Borrower or
otherwise arises under any contract or agreement, whether such
right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced together with
all of the rights and interest (including all liens and security
interest) which Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make
any such payment or against any of the property of such account
debtor or other obligor; all including by not limited to all
present and future debt instruments, chattel papers, accouonts,
loans and obligations receivable and tax refunds.
[x] GENERAL INTANGIBLES: All general intangibles of the Borrower,
whether now owned or hereafter acquired, including but not
limited to, applications for patents, copyrights, trademarks,
trade secrets, goodwill, trade names, customer lists, permits
and franchises, and the right to use Borrower's name.
[x] In addition to any property generally described above, the
following Collateral:
Continuing Guaranties of H. Austin Jones, Elray Woolverton and
George Hastings. All equipment now owned or herafter acquired
per attached list, together with all parts, accessories,
repairs, improvements and accessions thereto and evidenced by
UCCs filed with Bolivar County, Dist. I and the Secretary of
State. Mortage on approximately 668 acres of real estate located
in the First District of Bolivar County, MS, more fully
described in Deed or Trust dated March 28, 1995. One
certificate of deposit from Elray Woolverton in the amount of
$5,000.00 represented by collateral receipt number 54581. One
certificate of deposit from H. Austin Jones in the amount of
$5,000.00 represented by receipt number 54582.
/s/
together with all parts, accessories, repairs, improvements and accessions
thereto; and proceeds, products and issue therefrom now or hereafter at any
time made or acquired. (See other side for additional terms).
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
[x] If checked, this is a Purchase Money Loan. Description of Real Estate if above Collateral is crops,
Purpose of Credit: Purchase assets of Fat Cat Corporation growing or to be grown, timber, minerals (including oil or
gas) or fixtures ____________________________________________
- ----------------------------------------------------------- _____________________________________________________________
_____________________________________________________________
- ----------------------------------------------------------- _____________________________________________________________
If other than Borrower,
Borrower will use Collateral listed on this Security Agreement name of Record Owner
for: _________________________________________
[x] Farming operations
[ ] Business purposes
[ ] _______________________________________________________ By signing below, the Borrower(s) signs this Note & Security
Agreement and agrees to the Terms and Conditions on the
Any person who signs within this enclosure hereby grants to the reverse side as hereof.
Secured Party a Security interest in the Collateral listed in CIRCLE CREEK AQUACULTURE V. L.P.,
Paragraph (a) but assumes no personal obligation to repay this
Loan. a Tennesse Limited Partnership (Borrower)
---------------------------------------
SIGN HERE /s/ George S. Hastings, Jr. (Borrower)
Signed Date ----------------------------------------
by: George S. Hastings, Jr., its General
Partner
- ----------------------------------------------------------- ----------------------------------------(Borrower)
(AUTHORIZED SIGNATURE OF LENDER-SIGN ONLY IF NECESSARY FOR
FILING THIS DOCUMENT OR A COPY HEREOF)
PROMISSORY NOTE & SECURITY AGREEMENT - NOTICE: See other side for important
information which is part of this Document
L-19-600-000(R-1-92) BUSINESS AND AGRICULTURE
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
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BORROWER INTEREST
DATE OF PRINCIPAL INITIALS PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE (not required) PAYMENTS BALANCE RATE PAYMENTS THROUGH
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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</TABLE>
Until terminated in writing, this Security Agreement secures this
Note, all extensions and renewals thereof, and all prior contemporaneous and
future debts owed to the Lender by Borrower, whether originally owned or
transferred to Lender, PROVIDED HOWEVER, that this Security Agreement shall not
secure such other indebtedness incurred primarily for personal, family, or
household purposes, and which is thereby within the regulatory scheme of Truth
in Lending, unless this Security Agreement is disclosed as required by Truth in
Lending; and, provided further, even though this Security Agreement is properly
disclosed as required by Truth in Lending, it will not secure such other
indebtedness if the Borrower is entitled to a Right of Rescission, unless such
Right of Rescission is given as required and Borrower fails to elect to rescind
within the time provided by law.
Borrower warrants, represents and agrees that:
1. Borrower is the owner of the Collateral free from any prior
lien, security interest or encumbrance, except for the Security Interest
granted herein; and Borrower will defend the Collateral against all claims and
demands at any time claiming the same or any interest therein.
2. Borrower will not sell or offer to sell or otherwise transfer or
encumber the Collateral or any interest therein without the prior written
consent of the Lender, unless said Collateral is the inventory of the Borrower
(as such term in defined by the Uniform Commercial Code) and it is so indicated
on the Security Agreement.
3. The Borrower will immediately notify the Lender in writing of
any change of address from that shown in this Agreement and will also, upon
demand, furnish to the Lender such further information and will execute and
deliver to the Lender such financing statements, mortgages and other papers and
will do all such acts and things as the Lender may at any time or from time to
time reasonably request and/or as may be necessary or appropriate to establish
and maintain a valid Security Interest in the Collateral as Security for the
obligations, subject to no prior liens or encumbrances.
4. The Collateral is or will be located at the address of Borrower
herein set forth and will not be permanently removed from such address unless,
prior to such removal, Borrower has given written notice to the Lender of the
location or locations to which Borrower desires to remove the Collateral and the
Lender has not objected in writing to such removal.
5. The Borrower will keep the Collateral in good order and repair,
will not waste or destroy the Collateral or any part thereof, and will not use
or permit anyone else to use the Collateral in violation of any applicable
statute, ordinance or policy of insurance thereon. The Lender may examine and
inspect the Collateral at any reasonable time or times wherever located.
6. The Borrower will pay promptly when due all taxes and
assessments upon the Collateral or for its use or operation or upon this
Agreement or any notes evidencing any of the obligations.
7. A carbon, photographic or other reproduction of this Security
Agreement may be used and shall be as effective for filing as the original.
In the event of Default under the Terms and Conditions of this Note,
Lender shall have all the rights under the Uniform Commercial Code to realize on
the Collateral. These rights include the right to take possession of the
Collateral, and to require the Borrower to make the Collateral available to the
Lender at a place to be designated by the Lender which is reasonably convenient
to both parties. The Borrower and the Lender agree that as to any reasonable
notice requirement under the Uniform Commercial Code, that such reasonable
notice requirements shall consist of seven days written notice mailed to the
last known address of the Borrower. Expenses of retaking, holding, preparing
for sale, selling or the like will first be paid from the proceeds before the
balance will be applied toward the indebtedness.
GUARANTY
The undersigned (if more than one, jointly and severally) hereby
unconditionally guarantees the prompt payment of the within Promissory Note
(and all extensions and renewals thereof) and of all sums stated or agreed to
be payable therein, when due, at maturity, by acceleration or otherwise, and
hereby consents that from time to time, without notice to the undersigned, said
Promissory Note may be extended or renewed in whole or in part for any period
(whether or not longer than the original period of said Promissory Note),
additional credit separate fom this transaction may be extended to original
Borrower by the Holder; and the Holder of said Note may at any time surrender,
release, renew, extend or exchange all or any part of the property securing
said Note, or take any of the actions set forth in said Note all without
affecting the liability of the undersigned. The Lender may, at its option, at
any time after an Event of Default by the Borrower, exercise its right to
set-off of all or any portion of this Note against any liability or
indebtedness of the Lender to the Guarantor (except a liability or indebtedness
in which Guarantor, as a Fidcuiary, has no beneficial interest), without any
prior notice. The release of any party liable upon or in respect of said Note
shall not release any other such party. Each of the undersigned hereby waives
presentment, demand of payment and notice of non-payment and of protest and any
and all other notices and demands whatsoever.
- ----------------------------------- -----------------------------------
GUARANTOR GURANTOR
<PAGE> 3
DEED OF TRUST
-------------
THIS INDENTURE made and entered into this day by and between Circle Creek
------------
Aquaculture V, L.P., a Tennessee Limitd Partnership
- -------------------------------------------------------------------------
whose address is 4307 Central Pike Hermitage
- -------------------------------------------------------------------------
(Street No. or RFD No. and Box) (City) (County)
Tennessee 37076 , as Grantor (herein designated as
- ----------------------------------------------
(State) (Zip)
"Debtor), and W. Dean Belk , as Trustee and SUNBURST BANK,
------------------------------
Moorehead , Mississippi, as Beneficiary (herein designated as
- ---------------------
"Secured Party"): WITNESSETH:
WHEREAS, Debtor is indebted to Secured Party in the full sum of One
---
Million One Hundred Thousand
- ---------------------------------------------------------------------------
Dollars ($ 1,100,000.00 ), evidenced by one promissory
------------------------------ -----------
note(s) of even date herewith in favor of Secured Party, bearing interest at
the rate specified in the note(s), providing for payment of attorney's fees for
collection if not paid according to the terms thereof, and being due and
payable as follows:
a) Sixty (60) monthly amortized payments of principal and interest
(based upon a 20 year amortization schedule) beginning May 1,
1995.
b) One (1) final balloon payment of all unpaid principal and
interest due April 1, 2000.
[X] If checked, the note contains provisions allowing for changes in
the interest rate. Increases in the interest rate will result in higher
payments; decreases in the interest rate will result in lower payments.
WHEREAS, Debtor desires to secure prompt payment of (a) the
indebtedness described above according to its terms and any renewals and
extensions thereof, (b) any additional and future advances with interest
thereon which Secured Party may make to Debtor as provided in Paragraph 1, (c)
any other indebtedness which Debtor may now or hereafter owe to Secured Party as
provided in Paragraph 2, and (d) any advances with interest which Secured
Party may make to protect the property herein conveyed as provided in
Paragraphs 3, 4, 5 and 6 (all being herein referred to as the
"Indebtedness," whether now existing or hereafter arising).
NOW THEREFORE, in consideration of the Indebtedness herein recited, and
to secure the same, the undersigned, consisting of the debtor and of any other
party who, by execution and delivery hereof, pledges the property or any
interest therein as security for the said Indebtedness, said other party hereby
acknowledging the receipt and sufficiency of good and valuable consideration
for execution and delivery hereof, hereby conveys and warrants unto the Trustee
aforesaid the following described property, situated in Bolivar (First Judicial
Dist) County, Mississippi, to-wit:
See Exhibit "A: attached hereto for a complete description of the
subject property.
<PAGE> 4
together with any improvements and appurtenances now or hereafter erected on,
and all fixtures of any and said description, now or hereafter attached to,
said land (all being herein referred to as the "Property"). Notwithstanding
any provision in this agreement or in any other agreement with Secured Party,
the Secured Party shall not have a nonpossessory security interest in and its
Collateral or Property shall not include any household goods (as defined in
Federal Reserve Board Regulation AA, Subpart B), unless the household goods are
identified in a security agreement and are acquired as a result of a purchase
money obligation. Such household goods shall only secure said purchase money
obligation (including any refinancing thereof).
THIS CONVEYANCE, HOWEVER, IS IN TRUST to secure prompt payment of all
existing and future indebtedness due by Debtor to Secured Party under the
provisions of this Deed of Trust. If Debtor shall pay said indebtedness
promptly when due and shall perform all covenants made by Debtor, then this
conveyance shall be void and of no effect. If Debtor shall be in default
as provided in Paragraph 9, then, in that event, the entire Indebtedness,
together with all interest accrued thereon, shall, at the option of Secured
Party, be and become at once due and payable without notice to Debtor, and
Trustee shall, at the request of Secured Party, sell the Property conveyed, or a
sufficiency thereof, to satisfy the Indebtedness at public outcry to the
highest bidder for cash. Sale of the Property shall be advertised for three
consecutive weeks preceding the sale in a newspaper published in the county
where the Property is situated, or if none is so published, then in some
newspaper having a general circulation therein, and by posting a notice for the
same time at the courthouse of the same county. The notice and advertisement
shall disclose the names of the original debtors in this Deed of Trust. Debtors
waive the provisions of Section 89-1-55 of the Mississippi Code of 1972 as
amended, if any, as far as this section restricts the right of Trustee to offer
at sale more than 160 acres at a time, and Trustee may offer the Property
herein conveyed as a whole, regardless of how it is described.
If the Property is situated in two or more counties, or in two judicial
districts of the same county, Trustee shall have full power to select in which
county, or judicial district, the sale of the Property is to be made, newspaper
advertisement published and notice of sale posted, and Trustee's selection
shall be binding upon Debtor and Secured Party. Should Secured Party be a
corporation or an unincorporated association, then any officer thereof may
declare Debtor to be in default as provided in Paragraph 9 and request Trustee
to sell the Property. Secured Party shall have the same right to purchase the
Property at the foreclosure sale as would a purchaser who is not a party to this
Deed of Trust.
From the proceeds of the sale Trustee shall first pay all costs of the
sale including reasonable compensation to Trustee; then the Indebtedness due
Secured Party by Debtor, including accrued interest and attorney's fees due for
collection of the debt; and then, lastly, any balance remaining to Debtor.
IT IS AGREED that this conveyance is made subject to the covenants,
stipulations and conditions set forth below which shall be binding upon all
parties hereto.
1. This Deed of Trust shall also secure all future and additional
advances which Secured Party may make to Debtor from time to time upon the
security herein conveyed. Such advances shall be optional with Secured Party
and shall be on such terms as to amount, maturity and rate of interest as may
be mutually agreeable to both Debtor and Secured Party. Any such advance may be
made to any one of the Debtors should there be more than one, and if so made,
shall be secured by this Deed of Trust to the same extent as if made to all
Debtors.
2. This Deed of Trust shall also secure any and all other Indebtedness
of Debtor due to Secured Party with interest thereon as specified, or of any
one of the Debtors should there be more than one, whether direct or contingent,
primary or secondary, sole, joint or several, now existing or hereafter arising
at any time before cancellation of this Deed of Trust. Such Indebtedness may be
evidenced by note, open account, overdraft, endorsement, guaranty or otherwise.
REGARDLESS OF ANY STATEMENT IN THIS OR THE PRECEDING PARAGRAPH TO THE
CONTRARY, THIS DEED OF TRUST WILL NOT SECURE ANY FORM OF CREDIT GIVEN BY
SECURED PARTY TO THE DEBTOR OR TO THE UNDERSIGNED UNLESS THE INSTRUMENT OR
DOCUMENT EVIDENCING SAID CREDIT INDICATES AND DISCLOSES, PURSUANT TO TRUTH IN
LENDING, THAT THE CREDIT IS SECURED BY THIS DEED OF TRUST.
3. Debtor shall keep all improvements on the land herein conveyed
insured against fire, all hazards included within the term "extended coverage,"
flood in areas designated by the U. S. Department of Housing and Urban
Development as being subject to overflow and such other hazards as Secured
Party may reasonably require in such amounts as Debtor may determine but for
not less than the Indebtedness secured by this Deed of Trust. All policies
shall be written by reliable insurance companies acceptable to Secured Party,
shall include standard loss payable clauses in favor of Secured Party and shall
be delivered to Secured Party. Debtor shall promptly pay when due all premiums
charged for such insurance, and shall furnish Secured Party the premium
receipts for inspection. Upon Debtor's failure to pay the premiums, Secured
Party shall have the right, but not the obligation, to pay such premiums. In the
event of a loss covered by the insurance in force, Debtor shall promptly notify
Secured Party who may make proof of loss if timely proof is not made by
Debtor. All loss payments shall be made directly to Secured Party as loss payee
who may either apply the proceeds to the repair or restoration of the damaged
Improvements or to the Indebtedness of Debtor, or release such proceeds in whole
or in part to Debtor.
4. Debtor shall pay all taxes and assessments, general or special,
levied against the Property or upon the Interest of Trustee or Secured Party
therein, during the term of this Deed of Trust before such taxes or assessments
become delinquent, and shall furnish Secured Party the tax receipts for
inspection. Should Debtor fail to pay all taxes and assessments when due,
Secured Party shall have the right, but not the obligation, to make these
payments.
5. Debtor shall keep the Property in good repair and shall not permit
or commit waste, impairment or deterioration thereof. Debtor shall use the
Property for lawful purposes only. Secured Party may make or arrange to be made
entries upon and inspections of the Property after first giving Debtor notice
prior to any inspection specifying a just cause related to Secured Party's
Interest in the Property. Secured Party shall have the right, but not the
obligation, to cause needed repairs to be made to the Property after first
affording Debtor a reasonable opportunity to make the repairs.
Should the purpose of the primary Indebtedness for which this Deed of Trust
is given as security be for construction of Improvements on the land herein
conveyed, Secured Party shall have the right to make or arrange to be made
entries upon the Property and Inspections on the construction in progress.
Should Secured Party determine that Debtor is failing to perform such
construction in a timely and satisfactory manner, Secured Party shall have the
right, but not the obligation, to take charge of and proceed with the
construction at the expense of Debtor after first affording Debtor a reasonable
opportunity to continue the construction in a manner agreeable to Secured Party.
6. Any sums advanced by Secured Party for insurance, taxes, repairs or
construction as provided in Paragraphs 3, 4 and 5 shall be secured by this Deed
of Trust as advances made to protect the Property and shall be payable by Debtor
to Secured Party, with interest at the rate specified in the note representing
the primary Indebtedness, within thirty days following written demand for
payment sent by Secured Party to Debtor by certified mail. Receipts for
insurance premiums, taxes and repair or construction costs for which Secured
Party has made payment shall serve as conclusive evidence thereof.
7. As additional security Debtor hereby assigns to Secured Party all
rents accruing on the Property. Debtor shall have the right to collect and
retain the rents as long as the Debtor is not in default as provided in
Paragraph 9. In the event of default, Secured Party in person, by an agent or
by a judicially appointed receiver, shall be entitled to enter upon, take
possession of and manage the Property and collect the rents. All rents so
collected shall be applied first to the costs of managing the Property and
collecting the rents, including fees for a receiver and an attorney,
commissions to rental agents, repairs and other necessary related expenses and
then to payments on the Indebtedness.
8. If all or any part of the Property, or an interest therein, is sold
or transferred by Debtor, excluding (a) the creation of a lien subordinate to
this Deed of Trust, (b) a transfer by devise, by descent or by operation of law
upon the death of a joint owner or (c) the grant of a leasehold interest of
three years or less not containing an option to purchase, secured Party may
declare all the Indebtedness to be immediately due and payable. Secured Party
shall be deemed to have waived such option to accelerate if, prior or
subsequent to the sale or transfer, Secured Party and Debtor's successor in
interest reach agreement in writing that the credit of such successor in
interest is satisfactory to Secured Party and that the successor in interest
will assume the Indebtedness so as to become personally liable for the payment
thereof. Upon Debtor's successor in interest executing a written assumption
agreement accepted in writing by Secured Party, Secured Party shall release
Debtor from all obligations under the Deed of Trust and the Indebtedness.
<PAGE> 5
If the conditions resulting in a waiver of the option to accelerate are not
satisfied, and if Secured Party elects not to exercise such option, then any
extension or modification of the terms of repayment from time to time by
Secured Party shall not operate to release Debtor or Debtor's successor in
interest from any liability imposed by this Deed of Trust or by the
indebtedness.
If Secured Party elects to exercise the option to accelerate, Secured
Party shall send Debtor notice of acceleration by certified mail. Such notice
shall provide a period of thirty days from the date of mailing within which
Debtor may pay the indebtedness in full. If Debtor fails to pay such
indebtedness prior to the expiration of thirty days. Secured Party may, without
further notice to Debtor, invoke any remedies set forth in this Deed of Trust.
9. Debtor shall be in default under the provisions of this Deed of Trust
in Debtor (a) shall fail to comply with any of Debtor's covenants or
obligations contained herein, (b) shall fail to pay any of the indebtedness
secured hereby, or any installment thereof or interest thereon, as such
indebtedness. Installment or interest shall be due by contractual agreement or
by acceleration, (c) shall become bankrupt or insolvent or be placed in
receivership, (d) shall, if a corporation, a partnership or an unincorporated
association, be dissolved voluntarily or involuntarily, or (e) if Secured Party
in good faith deems itself insecure and its prospect of repayment seriously
impaired.
10. Secured Party may at any time, without giving formal notice to the
original or any successor Trustee, or to Debtor, and without regard to the
willingness or inability of any such Trustee to execute this trust, appoint
another person or succession of persons to act as Trustee, and such appointee
in the execution of this trust shall have all the powers vested in and
obligations imposed upon Trustee. Should Secured Party be a corporation or an
unincorporated association, then any officer thereof may make such appointment.
11. Each privilege, option or remedy provided in this Deed of Trust to
Secured Party is distinct from every other privilege, option or remedy contained
herein or afforded by law or equity, and may be exercised independently,
concurrently, cumulatively or successively by Secured Party or by any other
owner or holder of the indebtedness. Forbearance by Secured Party in
exercising any privilege, option or remedy after the right to do so has accrued
shall not constitute a waiver of Secured Party's right to exercise such
privilege, option or remedy in event of any subsequent accrual.
12. The words "Debtor" or "Secured Party" shall each embrace one
individual, two or more individuals, a corporation, a partnership or an
unincorporated association, depending on the recital herein of the parties to
this Deed of Trust. The covenants herein contained shall bind, and the benefits
herein provided shall inure to, the respective legal or personal
representatives, successors or assigns of the parties hereto subject to the
provisions of Paragraph 8. If there be more than one Debtor, then Debtor's
obligations shall be joint and several. Whenever in this Deed of Trust the
context so requires, the singular shall include the plural and the plural the
singular. Notices required herein from Secured Party to Debtor shall be sent to
the address of Debtor shown in this Deed of Trust.
IN WITNESS WHEREOF, Debtor has executed this Deed of Trust on the 28 day
of March, 1995.
<TABLE>
<CAPTION>
<S> <C>
CORPORATE, PARTNERSHIP OR ASSOCIATION SIGNATURE INDIVIDUAL SIGNATURES
Circle Creek Aquaculture V, L.P., -------------------------------------------------------
a Tennessee Limited Partnership
------------------------------------------------ -------------------------------------------------------
(Name of Debtor)
-------------------------------------------------------
By /s/ G. S. Hastings
------------------------------------------------ -------------------------------------------------------
GEORGE HASTING (Title)
-------------------------------------------------------
Attest its General Partner
------------------------------------------- -------------------------------------------------------
(Title)
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF MISSISSIPPI
COUNTY OF _________________________________
Personally appeared before me, the undersigned authority in and for the said county and state, on this __________________
day of ____________________, 19______, within my jurisdiction, the within named ____________________________________, who
acknowledged that ______________ he _____________ executed the above and foregoing instrument.
My Commission Expires:______________________________________ ____________________________________________
Notary Public
</TABLE>
CORPORATE, PARTNERSHIP OR ASSOCIATION ACKNOWLEDGEMENT
STATE OF MISSISSIPPI
COUNTY OF Sunflower
Personally appeared before me, the undersigned authority in and for the
said county and state, on this 28th day of March, 1995, within my jurisdiction,
the within named George S. Hastings who acknowledged that he is the General
Partner of Circle Creek Aquaculture, V, L.P., a Tennessee Limited Partnership,
and as its act and deed he executed the above and foregoing instrument, after
first having been duly authorized by said partnership so to do.
My Commission Expires:
----------------------------- -------------------------
Notary Public
<PAGE> 6
The E1/4 of Section 22, T 24 N, R 7 W and
The S1/2 of Section 15, T 24 N, R 7 W which lies South of a certain county road
less and except the W1/2 of the SW1/4 of the said Section 15.
The SW1/4 of Section 14, T 24 N, R 7 W which lies south of a certain county
road and the N1/2 of Section 23, T 24 N, R 7 W, which lies south of the Bogue
Phalia and less and except that part of the same N1/2 of the said Section 23
which is described as follows: Beginning at the quarter corner between Sections
23 and 24 both of T 24 N, R 7 W, thence West 1980 feet more or less to the
center of a certain canal; thence North along the center of the said canal 1155
feet more or less to the center of Bogue Phalia; thence run Southeast along to
the Center of Bogue Phalia; thence run Southeast along the center of the
aforesaid Bogue Phalia to its intersection with the East Section line of the
said Section 23; thence run South along the East boundary of the said Section
23 to the point of beginning.
All lying and situated in Sections 14, 15, 22 and 23, T 24 N, R 7 W, First
Judicial District of Bolivar County, Mississippi.
And.
The N1/2 of the NE1/4, the NE1/4 of the NW1/4, and part of the SE1/4 of the
NW1/4, of Section 21, T24 N, R 7 W, First Judicial District of Bolivar County,
Mississippi, and being more particularly described as follows:
Beginning at the Northeast corner of said Section 21; thence South 89 degrees
25' West along the North line of said Section 21 for 4,014 feet to the
Northwest corner of the NE1/4 of the Northwest Quarter; thence South 0 degrees
45' East along the West line of the NE1/4 of the NW1/4 and the SE1/4 of the
NW1/4 for 1,599.75 feet; thence North 89 degrees 25' East for 1,105.46 feet;
thence North 0 degrees 42' West for 276.5 feet to a point on the South line of
the Northeast Quarter of the Northwest Quarter, which point is 231.02 feet
South 89 degrees 25' West of the Southeast corner of the NE1/4 of the NW1/4;
thence North 89 degrees 25' East along the South line of the NE1/4 of the NW1/4
and along the South line of the N1/2 of the NE1/4 for 2,904.38 feet to the
Southeast corner of the NE1/4 of the NE1/4; thence North 0 degrees 35' West
along the East line of said Section 21 for 1,323.25 feet to the point of
beginning, all lying and situate within the First Judicial District of Bolivar
County, Mississippi.
LESS AND EXCEPT:
Commence at the Northeast corner of Section 21, Township 24 North, Range 7 West,
of the First Judicial District of Bolivar County, Mississippi; run thence South
00 degrees 35 minutes East along the East line of said Section 21 for a
distance of 660 feet to the Southeast corner of the property herein described;
run thence South 89 degrees 25 minutes West, parallel with the North line of
said Section 21 for a distance of 4012.08 feet to the Southwest corner of the
parcel hereby described; run thence North 00 degrees 45 minutes West, parallel
to the East line of Section 21, for a distance of 660 feet to the North line of
Section 21 and the Northwest corner of the parcel herein described; run thence
North 89 degrees 25 minutes East for a distance of 4014 feet to the Northeast
corner of Section 21 and the Point of Beginning, contained 68.09 acres, more or
less, and being the same property described and conveyed in those deeds of
record in Book 11-108, Page 521, Book 11-108, Page 569, Book 11-114, Page 93,
and Book 11-120, Page 125.
EXHIBIT "A"
<PAGE> 1
EXHIBIT 10.9
August 31, 1994
NOTE
$153,000.00
FOR VALUE RECEIVED, I, the undersigned ,
Circle Creek Aquaculture VI.L.P., a Tennessee Limited Partnership, by
George S. Hastings, Jr., a General Partner, and George S. Hastings,
Jr.------------------------------------------ promise to pay to the order of the
METROPOLITAN LIFE INSURANCE COMPANY, at its principal office, 1 Madison Avenue,
New York, N.Y., the sum of ------------- ONE HUNDRED FIFTY-THREE THOUSAND AND
NO/100---------Dollars ($153,000.00), together with interest from the date
hereof on the said principal sum, or the balance thereof remaining unpaid at any
interest-payment date, at the rate of 9.50 percent per annum
- ----------------------------------
payable semi annually, on the 15th day of September and March in each and every
year: such principal and interest to be paid in lawful money of the United
States which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, the said principal sum to be paid on the dates
and in the manner following, to wit: $6,100.00 on March 15, 1995 and a like
amount of $6,100.00 on each and every March 15th up to and including March 15,
2004; and a final installment of $92,000.00 on September 15, 2004.
Notwithstanding anything herein to the contrary, a late payment charge of 4% of
the amount of any delinquency shall be made on any payment more than 15 days
past due.
THIS IS A DEFERRED PURCHASE MONEY NOTE.
Partial payments may be made in accordance with the privilege, if any,
endorsed on this Note.
If default be made in the payment or any part of the said principal or
interest, when the same becomes due and payable, then all principal and accrued
interest shall, at the option of the legal holder or holders hereof, become at
once due and payable without notice.
The makers, endorsers, sureties, and guarantors, and all other persons
who may become liable for the payment hereof, severally waive demand,
presentment, protest, notice of nonpayment, notice of protest, and any and all
lack of diligence or delays in collection which may occur, and expressly
consent and agree to all extensions of time of payment hereof from time to time
at or after maturity and waive all notice thereof.
All homestead exemption, appraisement, and stay laws are hereby
expressly waived. If this Note shall not be paid at the date of its maturity,
or shall become due and payable by the exercise of the said option and shall be
placed in the hands of any attorney for collection, all parties aforesaid agree
to pay in addition, a reasonable attorney's fee on the amount owing or found
due hereon.
Privilege is reserved to pay $100.00 or any multiple thereof on any interest
payment date not to exceed $15,300.00 in any one calendar year. Privilege is
reserved to prepay this note at any time, but a prepayment penalty of 5% of the
unpaid principal balance will apply during the first year 4% during the second
year, 3% during the third year, 2% during the fourth year and 1% during the
fifth year. There is no penalty for prepayment after 5 years from the date
hereof.
This Note is made and executed under, and is in all respect to be
governed by, the laws of the State of Mississippi, and is secured by a Trust
Deed on real estate situated in the County of Sunflower, State of Mississippi.
Circle Creek Aquaculture VI, L.P., a
Tennessee Limited Partnership [SEAL]
------------------------------
By:/s/ G.S. Hastings, G.P. [SEAL]
---------------------------
(George S. Hastings, Jr.,
General Partner
By:/s/ G.S. Hastings, Jr. [SEAL]
---------------------------
(George S. Hastings, Jr.,
Individually)
------------------------------ [SEAL]
<PAGE> 2
DEED OF TRUST
(Mississippi)
THIS INDENTURE, made and entered into this 31st day of August,
1994, by and between Circle Creek Aquaculture VI, L.P., a Tennessee
Limited Partnership, by George S. Hastings, Jr., General Partner of the
County of Sunflower and State of Mississippi and George S. Hastings,
Jr.------------------------------ of the County of Davidson, and State
of Tennessee, hereinafter called the first party;---------------------
------Frank L. Melton, Individually, of Ruleville, Mississippi--------
Trustee, hereinafter called the second party, and the METROPOLITAN
LIFE INSURANCE COMPANY, a corporation organized under the laws of New
York, located at 1 Madison Avenue, New York, N.Y., hereinafter called
the third party.
WITNESSETH: That the first party, for and in consideration of
the debt and trust hereinafter mentioned, and the sum of $1, to them
paid by the said second party, the receipt of which is hereby
acknowledged, has granted, bargained, sold and conveyed, and by
these presents does grant, bargain, sell, and convey, unto the said
second party, and to his successors in this Trust, all of the
following-described real estate, situated in the County of Sunflower
and State of Mississippi to wit:
175 acres of land being that portion of Section 21, Township 18 North,
Range 3 West lying South and West of Moorhead Bayou; and that portion
of Section No. 28, Township 18 North, Range 3 West lying North and
West of Moorhead Bayou, containing in the aggregate 175 acres,
more or less. This tract contains all, or portions of, Units 12, 13,
14, 15, 16, and 17 of the S.H. Moore Farm according to a map or file
in Plat Book 3, Page 23 in the office of the Chancery Clerk of
Sunflower County, Mississippi; together with all and singular, the
tenements, hereditaments and appurtenances thereunto belonging or in
anywise appertaining, Sunflower County, Mississippi.
Notwithstanding anything herein to the contrary, a late payment charge of 4% of
the amount of any delinquency shall be made on any payment more than 15 days
past due.
This Deed of Trust to the extent of the sum secured thereby
represents funds advanced by the mortgage to pay part of the
purchase price represented by the conveyance under which the
mortgagors acquired title.
STATE OF MISSISSIPPI
COUNTY OF SUNFLOWER
I CERTIFY THE WITHIN INSTRUMENT
WAS FILED AND RECORDED
94 AUG 31 AM 11:39
IN BOOK NO. P31 PAGE 549
JACK E HARKER, JR.
CHANCERY COURT
BY T. GRISSETTS, D.C.
[SEAL]
In the event that the mortgaged premises or any portion thereof be sold
or conveyed or become subject to an agreement to sell or convey, then the
entire indebtedness secured by this Deed of Trust shall at the option of the
third party, become due and payable.
If all or any part of the mortgaged property be condemned or taken
through eminent domain proceedings, all or such part of any award or proceeds
thereof as the third party in its sole discretion may determine in writing are
hereby assigned and shall be paid to the third party and applied to the payment
of the mortgage indebtedness.
<PAGE> 3
TO HAVE AND HOLD THE SAME, together with all hereditaments and appurtenances
unto belonging or in any wise appertaining in and all right of homestead, unto
the said second party, and to his successors in this Trust forever.
And the first party does hereby bind themselves and their heirs, executors,
and administrators, to warrant and forever defend all and singular the said
premises unto the said second party and unto his successors in this Trust,
against any person whomsoever lawfully claiming, or to claim, the same or any
part thereof;
IN TRUST, HOWEVER, to secure the payment of One certain Promissory Note for
the principal sum of ----- ONE HUNDRED FIFTY-THREE THOUSAND AND NO/100------
Dollars, ($153,000.00), bearing even date herewith, executed by the fist party,
and last instalment payable on the 15th day of September ,2004. In the order
of the Metropolitan Life Insurance Company, at its office, 1 Madison Avenue, New
York, N.Y., or at such other place as the holder thereof may from time to time
designate in writing, together with interest thereon from date until maturity
at the rate set forth in the note, payable semi annually by the 15th day of
September and March in each year until the maturity of said principal Note.
THE SAID FIRST PARTY HEREBY COVENANTS AND AGREES WITH THE SAID OTHER PARTIES
TO THIS AGREEMENT: AND THE COVENANTS CONTAINED IN THE LOAN AGREEMENT EXECUTED
BY THE FIRST PARTY
That they are lawfully seized in fee simple of the real estate hereby
conveyed and that they have a good right to sell and convey the same as
aforesaid, that the said real estate is free and clear of all encumbrances and
that they and their heirs, executors, and administrators will warrant and defend
the same unto the said second party, its successors of assigns, against all
lawful claims and demands.
To pay said indebtedness promptly when due and to pay all taxes and
assessments, general and special, which from time to time may be imposed,
assessed, or levied upon the property herein conveyed, or any part thereof, and
all charges of every character which are now due, or which may hereafter become
liens on said real estate, as and when they become due and payable, and before
delinquency, so that the priority of the lien hereby created shall at all times
be maintained and preserved; and if said taxes and assessments or charges
against said real estate are not paid as herein provided, then and in that
event the third party, or its assigns, may pay such taxes, assessments, or
charges at the time said taxes become delinquent or thereafter, and this
Deed of Trust shall stand as security for the amount so paid, and the sum or
sums so paid shall immediately be due and payable and shall be an additional
lien upon said real estate and may be recovered from the first party with
interest at the rate of 15 percent per annum and be secured by this Deed of
Trust and may be collected in the same manner as the principal debt hereby
secured.
That the third party shall be subrogated for further security to the lien,
though released of record, of any and all prior encumbrances upon said real
estate, paid out of the proceeds of this loan;
And as additional and collateral security for the payment of the debt
hereinbefore described, the said first party herein hereby assigns to the said
third party, or its assigns, all right, title, and interest in and to all
royalties and rentals accruing to them under all oil, gas, mineral,
agricultural, together with all crops grown thereon, or other leases on said
real estate, and directs any lessee, on demand, to pay to said party, or its
assigns, all royalties and rentals that may be payable to them under the terms
of any lease by them given. Provided that so long as no default be made in the
payment of the principal debt hereby secured, or the interest due thereon, and
so long as the conditions of this Deed of Trust shall be faithfully performed,
the first party, their heirs or assigns, shall retain possession of the
premises hereby conveyed and shall be entitled to appropriate for their own use
all the income and profit derived therefrom; this assignment to terminate and
become void upon the release of this Deed of Trust.
That they will neither commit nor suffer waste, but will maintain, as nearly
as with diligence they are able to do so, all buildings and structures erected
and to be erected on the mortgaged premises in good repair, and will see that
ditches, laterals, drains, levees, and other devices for the proper control of
surplus water are cleaned and kept in serviceable condition:
That they will not permit occupancy of the mortgaged premises for any
unlawful purposes, and will promptly report in writing to second party, or the
legal holder hereof, all attempts on the part of anyone to locate upon, over,
across, or contiguous to any part of the land herein described any road, main
ditch, dyke, levee, opening, excavation, or obstruction appropriating any of
said land or calculated to damage the same or interfere with its use or
desirability for agricultural purposes, or to subject said premises to taxation
or assessment;
To keep the buildings now on said premises, or that may hereafter be erected
thereon, insured in a company or companies, acceptable to the third party,
against loss by fire and windstorm, for their insurable value, and to pay the
premiums upon such policy, or policies, as the same become due, and to deliver
the policy or policies, with proper mortgage clause attached thereto, from time
to time, as the same may be renewed, to the said third party, or its assigns,
hereby giving and granting to said third party, or assigns, full power to
demand, receive, and collect, by suit or otherwise, all such insurance money as
may become due under said policy or policies, and to apply any such moneys so
collected either toward the payment of the principal debt, whether due or not,
and interest then accrued thereon or in restoring the building; and in case of
failure to keep said buildings so insured, the party of the third part, or its
assigns, may at its option effect such insurance and the amount paid therefor
shall be collectible from the party of the first part, with interest at 15
percent per annum, and this Deed of Trust shall stand as security therefor.
That in case the third party, its successors or assigns, shall hereafter
appear in any of the land departments of the United States Government or in any
court or tribunal whatever, to defend the title or possession of the mortgaged
real estate or the lien thereon, or appear in any court to prove the mortgaged
debt, all the costs and expenses or such appearance, together with a reasonable
attorney's fee, shall be allowed the third party, its successors and assigns,
and such costs, expenses, and attorney's fee shall bear 15 percent interest
from the date of the payment by said third party, its successors or assigns,
and shall be an additional lien upon the mortgaged real estate, concurrent with
and collectible in the same manner as the balance of the mortgaged debt hereby
secured. This clause shall extend to condemnation and bankruptcy as well as
other actions and proceedings.
AND IT IS FURTHER MUTUALLY COVENANTED AND AGREED that in the event of the
passage, after the date of this Deed of Trust, of any law deducting any lien
thereon from the value of land for the purpose of taxation, or changing in any
way the laws now in force for the taxation of mortgages or debts secured by
mortgage or the manner of the collection of any such taxes, so as to affect
this Deed of Trust, the whole of the principal sum secured by this Deed of
Trust, together with the interest due thereon, shall at the option of the
second party, without notice, become immediately due and payable.
<PAGE> 4
IT IS FURTHER UNDERSTOOD AND AGREED that if default be made in the payment
of any indebtedness, whether principal or interest, herein provided for, when
the same becomes due and demandable; or if default be made in any stipulation,
agreement, or covenant herein contained, then the whole of the indebtedness
may, at the option of said third party, or any holder of said Note, or other
indebtedness secured hereby, without notice to said first party, be declared
due and payable, and the said third party, or any holder of said Note, or other
indebtedness secured hereby may proceed to enforce this Deed of Trust, as
hereinafter provided, or at its option institute proceedings respectively for
the collection at law or equity of such amounts as may then be unpaid.
NOW, THEREFORE, it is mutually agreed between the parties hereto, that if
the said first party shall faithfully keep and perform all the covenants and
agreements herein set forth, and well and truly pay off and discharge all Notes
and other indebtedness secured and intended to be secured herein, then, and in
that case only, this conveyance shall be null and void, and shall be released
in due form at the expense of the first party; otherwise it shall remain in
full force and effect.
But if default be made in the payment of any of the debts herein described
on any portion thereof when due, or if any of the covenants or agreements
herein set forth are not kept, then the said second party, or his successor or
successors hereunder, when so requested by the third party, or any holder of
said Note, or by any person interested in any other indebtedness herein
provided for, may take possession of said property, and shall sell or cause the
same to be sold, or so much thereof as may seem to it necessary to meet said
indebtedness and the expense, of executing this Trust, at the front door of the
Courthouse in said County of Sunflower Mississippi, at public auction, to the
highest bidder for cash, between the hours of 11 o'clock a.m. and 4 o'clock
p.m., after having given notice of the time, terms, and place of such sale, and
the property to be sold, by publication for 21 days, by at least four
insertions, once a week for four consecutive weeks proceeding such sale, in a
newspaper published in the County or having a general circulation therein, and
by posting one notice at the Courthouse of the County where the land is
situated. The Acting Trustee is authorized to appoint an agent and auctioneer
to make such sale in his absence, which sale shall be valid as if made by said
Trustee, and a cash deposit may be required as a condition for the acceptance
of bids and any of the parties hereto may become purchasers. After advertising
said sale may be dismissed and not made. Said land when sold to be first
offered in subdivision not exceeding 160 acres, or one-quarter section, and
then offered as an entirety, and the price bid for the latter shall control only
when it shall exceed the aggregate of the bids for the same in subdivisions as
aforesaid.
The third party, or its assigns, may direct the Trustee, or his successors in
this Trust, to sell the property hereby conveyed for the payment of only the
matured portion of the indebtedness hereby secured, subject to the lien of the
remaining indebtedness hereby secured. In which event the advertisement of the
sale shall so state, and any purchase at such sale shall take the property
subject to the unpaid balance of the debt secured by this Deed of Trust, and
future sale or sales may be had if subsequent defaults be made.
In the event maturity of the unpaid portion of the debt hereby secured is
declared, but no sale is made, such declaration shall be held for naught, and
the Note hereby secured shall be deemed to mature as provided on its face, and
it is agreed that no sale made in good faith by the second party, or his
successors, shall be void, if any portion of the debt secured is in default at
the time of such sale.
After said sale, as aforesaid, said Trustee shall make, execute, deliver to
the purchaser or purchasers thereof, a good and sufficient deed or deeds in law
to the property so sold, in fee simple, and shall receive the proceeds of such
sale to be applied as follows: First, to the payment of the cost and expenses
of executing this Trust, including the payment to said Trustee of a reasonable
fee for the services of himself and his attorney; second, to the payment of 15
percent of said sum for attorney's fees, in the event suit is commenced to
collect the indebtedness or any part of it, and to the payment of any taxes and
assessments or other payments as herein specified, with interest thereon at 15
percent per annum from the date of payment; third, to the payment of the whole
debt due the said third party, or assigns, together with all interest due
thereon; and lastly, the remainder, if there be any, shall be paid to the said
first party.
In case of the absence, dissolution, resignation, death, inability, or
refusal of the said second party to act, of if the third party shall for any
reason desire to remove the said second party, or his successors so appointed
hereunder, and appoint a new Trustee instead, the third party, or the owner or
holder of the indebtedness hereby secured, is hereby granted full power to
appoint in writing a substituted Trustee for the second party, and when said
appointment shall have been recorded in the office of the Clerk of the Chancery
Court of said County, the substituted Trustee named therein shall be clothed
with all the powers and charged with all the duties as if originally named
Trustee hereunder; and likewise third party shall have full power and authority
to remove the second party and appoint a successor or successors or any
succeeding Trustee or Trustees thereafter by instrument in writing, duly
acknowledged or proved so as to entitle the same to record in this State, and
such succeeding Trustee or Trustees shall thereupon be vested with the title to
the property in trust for the purposes and objects of these presents, with all
the powers, duties, and obligations herein conferred on the second party, in
the same manner and to the same effect as the Trustee herein named.
The taking of any additional security, execution or partial release of the
security, or any extension of the time of payment of the indebtedness or
renewal thereof shall not diminish the force, effect or lien of this instrument
and shall not affect or impair the liability of any maker, surety or endorser
for the payment of said indebtedness; that the third party shall have the right
to release with or without consideration or credit on the indebtedness hereby
secured, any part of the property herein described or any party liable for
payment of this loan, by adequate legal instrument without regard to the
existence of any junior encumbrance and without the consent of such junior
encumbrancer, and such release, shall have no further effect upon the rank,
lien or estate conveyed hereby or against the third party than is therein
expressed.
AND IT IS FURTHER AND LASTLY SPECIALLY AGREED, by the parties hereto, that
any Deed or Deeds which shall be made by any Trustee acting hereunder, to the
purchaser at any sale made hereunder, shall be prima facie evidence of the
trust of all the recitals therein contained as to the maturity and nonpayment
of the debt secured, the request to the Trustee to sell, the advertisement of
such sale, the time, place, terms, and manner of such sale and proceedings had
thereat, and in case such Acting Trustee is a substitute, the fact of his
appointment, and the facts authorizing the appointment of a substitute to act
in the premises. And all courts of law and equity shall accept such Deed or
Deed as prima facie evidence that all prerequisites to the validity of such
sale were had and done.
And the said first party, Mortgagors, do hereby absolutely ratify and
confirm any and all acts that the Trustee, or his successors in this Trust, may
lawfully do in the premises by virtue hereof.
This Deed or Trust is made upon the express condition that it shall not be
released of record by anyone other than the said third party, or the holder and
owner, for value (at the time such release is made) of the Note secured
<PAGE> 5
Plural or singular words used herein to designate the undersigned, the
parties of the first part, shall be construed to refer to the maker or makers
of this Mortgage, whether one or more persons or a corporation; and all
covenants and agreements herein made by the undersigned shall bind the heirs,
personal representatives, successors, and assigns of the undersigned, and every
option, right, and privilege herein reserved or secured to the Mortgagee, shall
inure to the benefit of its successors and assigns.
IN WITNESS WHEREOF, the said first party has hereunto subscribed its
name, the day and year first hereinbefore written.
Circle Creek Aquaculture VI, L.P., a Tennessee
Limited Partnership
By: /s/ George S. Hastings, Jr. G.P.
----------------------------------------[SEAL]
(George S. Hastings, Jr., a General Partner)
/s/ George S. Hastings, Jr.
----------------------------------------[SEAL]
(George S. Hastings, Jr., Individually)
----------------------------------------[SEAL]
----------------------------------------[SEAL]
STATE OF MISSISSIPPI, )
)ss.
COUNTY OF Sunflower )
Personally appeared before me,
a Notary Public in and for said County and State the within named Circle Creek
Aquaculture VI, L.P., a Tennessee Limited Partnership, by George S. Hastings,
Jr., General partner; and George S. Hastings, Jr.
- ------------------------------------------------------------------------------
who acknowledged that he signed and delivered the foregoing instrument on the
day and year therein mentioned.
Given under my hand and seal of office this 31st day of August 1994.
My commission expires
Sharon P. Clark
MY COMMISSION EXPIRES FEB 19 1995 ---------------------------------
Notary Public in and for
County, Mississippi
DEED OF TRUST
(MISSISSIPPI)
================================================================================
From
Circle Creek Aquaculture, VI, L.P.,
a Tennessee Limited Partnership, et al - -
to
TRUSTEE FOR
METROPOLITAN LIFE
INSURANCE COMPANY
================================================================================
STATE OF MISSISSIPPI, )
)ss.
COUNTY OF )
I,
Clerk of the Chancery Court and Ex-Officio Recorder for the County and State
aforesaid, do hereby certify that the within instrument of writing was filed for
record
in my office on the
day of .19 ,
at o'clock m.
and has been this day duly recorded, with the acknowledgment and
certificate thereon, in
Deed Book on Page .
Witness my hand and official seal, affixed this
day of 19 .
-----------------------------------
Clerk of Chancery Court.
By
---------------------------------
Deputy Clerk.
[SEAL]
================================================================================
Illinois BRANCH OFFICE
Agricultural Investments
METROPOLITAN LIFE
INSURANCE COMPANY
2203 E. Empire St.
Bloomington, IL 61704
slm
F.M. 232-29 (MISS.)-(4-75)--PRINTED IN U.S.A.
<PAGE> 6
PREPARED BY: METROPOLITAN LIFE INSURANCE COMPANY
Post Office Box 37
Bloomington, IL 61702-0037
GRANTEE: METROPOLITAN LIFE INSURANCE COMPANY
-------------------------------------------------
Post Office Box 37
-------------------------------------------------
Bloomington, IL 61702-0037
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
GRANTOR: CIRCLE CREEK AQUACULTURE VI, L.P.
-------------------------------------------------
a Tennessee Limited Partnership
900 Olive St., P. O. Box 646
-------------------------------------------------
Moorhead, MS 38761
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
ABSTRACT
INSTRUCTIONS: All of Section 21, Township 18 North, Range
-------------------------------------------------
3 West lying South and West of Moorhead Bayou;
All of Section 28, Township 18 North, Range
-------------------------------------------------
3 West lying North and West of Moorhead Bayou;
Being all or portions of Units Nos. 12, 13,
-------------------------------------------------
14, 15, 16 and 17 of the S. H. Moore Farm
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
<PAGE> 7
LOAN AGREEMENT
WHEREAS, CIRCLE CREEK AQUACULTURE VI, L. P., a Tennessee Limited Partnership,
by George S. Hastings, Jr., General Partner, of Sunflower County, Mississippi
and George S. Hastings, Jr., of Davidson County, Tennessee, hereinafter
referred to as "BORROWER", have applied to METROPOLITAN LIFE INSURANCE COMPANY,
hereinafter referred to as "Metropolitan", for a loan of $153,000.00 to be
secured by a first mortgage lien on approximately 175 acres of land in
Sunflower County, Mississippi, and
WHEREAS, Metropolitan requires that Borrower execute this Loan Agreement, the
terms of which are a material inducement for Metropolitan to enter into the
mortgage loan hereinbefore mentioned.
NOW, THEREFORE, the following covenants, terms and conditions shall be observed
by borrower, so long as any part of the $153,000.00 loan is outstanding:
1 - Borrower shall furnish a copy of the Balance Sheet and Profit/Loss
Statement, certified to be true and correct at the time and these
statements shall be provided to Metropolitan without 30 days after receipt
of written request.
2 - Borrower is restricted from placing any additional liens and/or mortgages
on the security tracts, without the prior written consent of Metropolitan.
3 - Borrower agrees to give a collateral assignment of all machinery and
equipment leases to Metropolitan, as appropriate.
A default under any of the foregoing covenants, terms and conditions shall, at
the option of Metropolitan, accelerate the due date of the Note and Deed of
Trust executed by Borrower, which shall then become immediately due and payable.
Circle Creek Aquaculture VI, L. P., a
Tennessee Limited Partnership, by George S.
Hastings, Jr., General Partner
By:/s/ G. S. Hastings, Jr.
------------------------------------------
(George S. Hastings, Jr., General Partner)
/s/ G. S. Hastings, Jr.
------------------------------------------
(George S. Hastings, Jr., Individually)
August 31, 1994
- -------------------
Date
<PAGE> 8
FINANCE CHARGE AGREEMENT
RE: $153,000.00 Loan form Metropolitan Life Insurance Company ("Lender") to
Circle Creek Aquacultrue VI, L. P., A Tennessee Limited Partnership, by George
S. Hastings, Jr., General Partner and George S. Hastings, Jr. ("Borrower");
Sunflower County, Mississippi
DATE: August 31, 1994
----------------
The undersigned acknowledge and agree that borrower hereby contracts for and
agrees to pay, and Lender hereby contracts for and agrees to receive, on the
above-referenced loan, an annual interest rate of 9.50 percent. The undersigned
also agree to the servicing fee of $1,530.00 previously collected.
LENDER:
METROPOLITAN LIFE INSURANCE COMPANY
By:/s/
-------------------------------------------
Its: Manager
-------------------------------------
BORROWER:
Circle Creek Aquaculture VI, L. P., a
Tennessee Limited Partnership by George S.
Hastings, Jr., General Partner
By: /s/ G. S. Hastings, Jr
------------------------------------------
(George S. Hastings, Jr., General Partner)
/s/ G. S. Hastings, Jr.
------------------------------------------
(George S. Hastings, Jr., Individually)
<PAGE> 1
Exhibit 10.10
PMM LOAN NO. 258256-71
DEED OF TRUST AND SECURITY AGREEMENT
STATE OF MISSISSIPPI
COUNTY OF BOLIVAR
----------------------------------
WHERE MARK C. ATCHLEY AND ELIZABETH S. ATCHLEY
--------------------------------------------------------------------
- -----------------------------------------------------------------------------
is/are indebted to the FEDERAL LAND BANK OF JACKSON, a corporation and federal
instrumentality, hereinafter to as Beneficiary, in the principal sum of
SIX HUNDRED TWENTY SIX THOUSAND AND 00/100--------------DOLLARS ($ 626,000.00)
- ------------------------------------------------------------------------------
together with interest thereon, as evidenced by a promissory note of even
date herewith, payable to the order of the Federal Land Bank of Jackson
which bears interest and is payable according to the terms of said note and
which has final maturity date on the 1st day of January, 2015 and
---------- --------
NOW, THEREFORE, in consideration of the premises and in order to secure the
prompt and full payment of said indebtedness, and any future
advance(s), additional advance(s), and/or readvance(s) and/or any renewal(s),
extension(s), restructuring(s), reamortization(s), and/or any other loan
treatment(s) thereof, or any part thereof, and the interest thereon and any and
all other indebtedness(es) (including future advance(s) now or thereafter owed
by any of the undersigned to the Beneficiary), whether such indebtedness(es) is
/are primary or secondary, direct or indirect, contingent or absolute, matured
or unmatured, joint or several, and otherwise secured or not, and to secure the
faithful and to secure the faithful performance of and compliance with all the
terms, agreements, provisions, obligations, covenants, conditions, warranties,
representations, and
stipulation herein made, Mark C. Atchley and wife, Elizabeth S. Atchley of 707
-----------------------------------------------------
West Gresham, Indianola, Mississippi 38751
- ------------------------------------------------------------------------------
hereabove and hereinafter called Grantor, in consideration of the premises and
other good and valuable paid to Grantor by Harry F Beacham as Trustee,
---------------
hereinafter called Trustee, does hereby convey and warrant unto said Trustee the
following described real estate situated in Bolivar County/Counties,
-------
Mississippi, to-wit;
ALL THAT PART OF THE WEST HALF, AND THE WEST HALF OF THE EAST HALF OF
SECTION 9, TOWNSHIP 20 NORTH, RANGE 7 WEST, LYING SOUTH OF THE SHAW-BENOIT,
Road BEING HIGHWAY 448, IN THE FIRST JUDICIAL DISTRICT OF BOLIVAR COUNTY,
MISSISSIPPI, CONTAINING 454 ACRES, MORE OR LESS.
together with all buildings and other improvements, hereditaments and
appurtenances thereunto belonging, or in any wise appertaining, now existing or
hereafter erected upon the premises and all the income and rents arising
therefrom, Grantor does hereby intend to convey and does convey all of
Grantor's right, title, and interest in and to any strips and gores Grantor may
now own contiguous to the above described property.
AND FOR THE CONSIDERATION AFORESAID, and as further security for any and
all of the debt(s) and obligation(s) described above, said Grantor does hereby
assign, pledge and transfer to the Beneficiary, and grant to the Beneficiary a
security interest in and to, the following described property and interest,
to-wit: (1) All timber of all kind, character and description planted and/or
growing, or to be planted and/or grown, on the hereinabove described property:
(2) all crop allotments, quotas, or benefits of every kind, character and
description presently allotted or assigned to, and/or hereafter allotted or
assigned to, Grantor on the property hereinabove described: (3) all rents,
profits, issues, income, royalties, bonuses, and revenues of said property, or
any part or interest therein, from time to time accruing, whether under leases
or tenancies now existing or hereafter created: (4) each and every policy of
hazard insurance, or the like, now or hereafter in effect which insures said
property or any building, fixture and/or improvement thereon, or any part
thereof, together with all the right, title and interest of Grantor in and to
such policy, including but not limited to any premiums paid (or rights to return
premiums) and/or all proceeds or payments thereunder: (5) all judgments, awards
of damages and settlements hereafter made resulting from condemnation
proceedings or the taking of the real property, or any part thereof, under the
power of eminent domain, or for any damage (whether caused by such taking or
otherwise) to the property, or any part thereof, or to any rights appurtenant
thereto: (6) all building materials, equipment, fixtures and fittings of all
kind, character, and description used in connection with or relating to said
property and/or buildings, fixtures or improvements thereon: and/or (7) all
tangible or intangible property specifically described as follows, to-wit:
None.
and products, proceeds, additions and/or replacements of any or all of the
above described property.
FOR THE CONSIDERATION AFORESAID and the purpose of further securing
the payment of the above referenced debt(s) and obligation(s). Grantor further
warrants, covenants, represents, and agrees, as follows:
1. Grantor agrees and warrants that this instrument is a valid first
lien against all the property and improvements offered and appraised as
security for any and all debts and/or obligations secured hereby: that Grantor
is the owner of and lawfully seized in fee and possessed of the hereinabove
described property affected hereby and has a good and lawful right to convey
same: that said property is now free and clear from any and all other liens and
encumbrances, and that Grantor will warrant and forever defend the title to
said property hereto against all claims or demands of any parties. If the
validity of this instrument, or if Grantor's title to any of said property or
improvements is questioned in any manner, or if any part of such property or
improvements is not property described herein, or if any terms contained in
this instrument, the above referenced note(s) and/or any other instrument(s)
relating hereto shall be determined to be incomplete or incorrect. Grantor
agrees to fully cooperate with Beneficiary and to execute any corrective
instrument(s) as required by Beneficiary:
2. Grantor shall separately assess said property for taxation and shall
completely satisfy when due all taxes, liens, judgements, or assessments
recorded, imposed, or assessed against said property and, if required by
Beneficiary, to promptly furnish Beneficiary with evidence or such complete
satisfaction:
3. Grantor shall insure and keep insured the property hereinabove
described, including but not limited to, the buildings, fixtures, and
improvements now on, or which may hereafter be placed upon, any of said
property against loss or damage by fire (including extended coverage), theft,
wind and such other hazards, casualties and contingencies (including flood and
water damage) in such manner. In such amounts and with such companies as may be
satisfactory to Beneficiary, which insurance shall be maintained for the
benefit of Beneficiary with a standard mortgage clause, with loss, if any,
payable to the Beneficiary as its interest may appear, which insurance to be in
an amount at least equal to the full insurable value of the property
hereinabove described and all buildings, fixtures and improvements thereon:
Grantor shall give immediate notice in writing to Beneficiary of any loss or
damage to said property from any cause whatsoever and the proceeds of such
insurance shall be paid by the insurer to Beneficiary, which is hereby granted
full power to settle and compromise claims under all policies, to endorse in
the name of Grantor any check or draft representing the proceeds of any such
insurance, and to demand, receive and give receipt in the name of Grantor for
all sums coming due thereunder: which insurance proceeds may, at the election
of the Beneficiary, and subject to the general regulations of the Farm Credit
Administration, be credited on the debt(s) and/or obligation(s) secured by this
instrument on the date of actual receipt by Beneficiary, less costs of
collection and other expenses, or may be used in whole or in part to repair or
reconstruct said property. Any or all proceeds used for the repair or
reconstruction of said property shall not act to reduce the debt(s) and/or
obligation(s) secured hereby:
<PAGE> 2
Grantor shall at the option of the Beneficiary and subject to the general
regulations of the Farm Credit Administration, obtain and carry credit life
insurance (mortgage protection insurance) on the life of Grantor, in favor of
Beneficiary, when so required by Beneficiary, any policy evidencing such
insurance shall be deposited with, and or any loss thereunder shall be payable
to Beneficiary as its interests may appear; if Grantor fails to obtain said
insurance as may be required, then at the option of the Beneficiary and without
notice to any person, the Beneficiary may, but shall no be obligated to obtain
and carry insurance for its own benefit:
5. Grantor shall properly care for and keep in good repair said property
and improvements hereinabove described and shall not permit or commit waste,
impairment, removal, damage or deterioration of the same, and if a farm, Grantor
shall cultivate said property in an appropriate and reasonable manner and
maintain and continue said farming operations. Grantor shall comply with all
laws, ordinances, regulations, covenants, conditions and restrictions affecting
the property, and permit Beneficiary and or any person acting on its behalf to
enter and inspect the property hereinabove described, and the buildings,
improvements and timber thereon or affected hereby, at such time(s) as
Beneficiary desires, Grantor agrees, as to the property herein described and the
timber thereon and attached hereby, to follow a good and approved forestry
practice that will minimize fire risks, avoid depreciation, protect young timber
and maintain forest production it being intended and agreed, however, that no
timber now or hereafter affected hereby will be cut, removed, damaged or
turpentined (except such as is customarily used on the property for fuel,
fencing and repairs) without the prior written consent of Beneficiary, and then
only upon compliance with such terms and conditions as shall be established by
Beneficiary.
6. Grantor agrees that this instrument is given and accepted upon the
express provision that, except where prohibited by law or where same is
accomplished by inheritance by Grantor's heirs the property hereinabove
described, or any part thereof, or any interest therein, shall not be further
mortgaged, sold, agreed to be sold, conveyed, alienated, rented, leased, or
optioned whether voluntarily, involuntarily or by operation of law or by
transfer through the enforcement of a subordinate lien or mortgage, or
otherwise, without the prior written consent of the Beneficiary, in each and
every instance, subsequent acceptance of any payment hereunder by Beneficiary
shall not be deemed a waiver of this provision, regardless of Beneficiary's
knowledge of such deed of trust or mortgage, sale, agreement to sell,
conveyance, alienation, rent, lease, or option at the time of acceptance of such
payment, if all or any part of the property hereinabove described becomes vested
in any party other than Grantor. Beneficiary may, without notice to Grantor deal
with such successor in interest with reference to this instrument and the
debt(s) and obligation(s) hereby secured in the same manner as with the Grantor,
without in any way releasing, vitiating or discharging the Grantor's liability
hereunder or for the debt(s) and obligation(s) hereby secured, and, extension(s)
of time for payment or other loan treatment(s) described herein given or
permitted by Beneficiary shall not operate to release, vitiate, or discharge the
liability of the Grantor herein, either in whole or in part.
7. Grantor agrees and warrants that any and all representations and
statements made in connection with any loan(s), debt(s) or other obligation(s)
secured hereby and with any and all future advance(s), additional advance(s),
readvance(s), renewal(s), extension(s), restructuring(s), reamortization(s) and
or any other loan treatment(s) thereof, or any part thereof, and with any
releases of personal liability and or of security granted or permitted by the
Beneficiary are true and correct, and that any loan proceeds or other advance(s)
made to or on behalf of Grantor will be used solely for the purposes specified
in the loan application and or commitment, and that Grantor will continuously
comply with any and all requirements and or conditions imposed by said
Beneficiary, including but not limited to the execution and delivery of any
security instrument(s), mortgage(s), note(s), financing statement(s) or other
writing(s) or document(s) required by Beneficiary now or in the future to
create, preserve, protect and/or enforce Beneficiary's rights or interests:
8. Grantor agrees and warrants (1) that the loan secured hereby, if a
farm, has been based not only upon the value of the raw property, improvements,
and other collateral stated herein, but also on the value of said property as
used for raising various crops as permitted under government acreage allotments
or quotas and for the value of set aside, P.I.K. or similar programs now
existing or which are established from time to time during the term of this
loan, (2) to perform any and all acts necessary to maintain, pursuant to
applicable government rules and regulations as are from time to time
established, all such allotments, quotas, and other benefits as are associated
herewith or established for use in conjunction with the property herein
described, (3) that any failure to so perform or any transfer or attempt to
transfer such allotments, quotas, payments, or other benefits, or any positions
thereof shall not be made without the written consent of the Beneficiary, and
(4) in the event of the foreclosure or other enforcement of hits instruments,
the Grantor agrees to perform all acts necessary if any, to vest the
Beneficiary, its successor(s), or any purchaser(s) or any of the property
hereinabove described, as the case may be, with all of the Grantor's rights,
title and interest in the allotments, quotas, and or benefits required to be
maintained hereunder:
9. Grantor agrees that, notwithstanding any taking by eminent domain or
other injury to or decrease in value of the premises by any private, public or
quasi-public authority or corporation, any reduction in the principal sum
resulting from the application by the Beneficiary of any award or payment,
shall be deemed to take effect only on the date of actual receipt by
Beneficiary: said award or payment may, at the option of the Beneficiary, be
retained and applied by the Beneficiary, wholly or in part toward payment of
any debt(s) and or obligation(s) secured by this instrument, or to be paid over
wholly or in part to the Grantor, who assumes full and sole responsibility to
apply said funds for the purpose of altering, repairing and/or reconstructing
any part of the premises which may have been altered, removed, damaged or
destroyed as a result of any such taking or other injury to the premises, or
for any other purposes or object approved in writing by the Beneficiary: that,
if prior to the receipt by the Beneficiary of such award or payment the
premises have been sold by foreclosure of this instrument, the Beneficiary
shall have the right to receive said award or payment to the extent of any
deficiency found to be due upon such sale and/or any debt(s) and/or
obligation(s) secured by this instrument, with interest thereon, at the rate
herein described:
10. Grantor agrees that Beneficiary may, at its option, proceed to
collect and receive the rents, royalties, bonuses, revenues, income and profits
from the herein described property and all rights and interest therein, and
Beneficiary may notify the lessee(s) or other payor(s) thereof of the existence
of this instrument and any other assignment, mortgage, or other instrument
and/or to make payments directly to Beneficiary; any and all sums received by
the Beneficiary from lessee(s) or other payor(s) shall be applied first to the
payment of the debt(s) and/or other obligation(s) secured hereby and/or to the
reimbursement of the Beneficiary for any sum(s) advanced in payment of taxes,
insurance, assessments or for other loss, costs and/or expenses as provided
herein, together with interest thereon, or sold Beneficiary may, at its option,
turn over and deliver to Grantor or any other party entitled thereto, either in
whole or in part, any or all such sum(s), without prejudice to Beneficiary's
right to take and retain any future sum(s) and without prejudice to, or waiver
of, any of Beneficiary's other rights under this instrument:
11. Grantor agrees that this instrument and the debt(s) and/or
obligation(s) secured hereby or in any way connected herewith are subject to
the Farm Credit Act of 1971 and all Acts amendatory or supplementary thereto,
and the laws of the State of Mississippi not inconsistent therewith:
12. Grantor warrants that Grantor's hereinafter referenced address is
true and correct and that Grantor shall keep Beneficiary informed at all times
of their correct residence address and correct mailing address, and any changes
thereto:
13. Grantor agrees that Beneficiary may at any time, without notice,
(1) release all or any part of the property described herein, (2) grant future
advance(s), additional advance(s), readvance(s), renewal(s), extension(s),
restructuring(s), reamortization(s), any other loan treatment(s) and/or
determant(s) of the debt(s) or obligation(s) secured hereby, or any part
thereof, or of time of payment thereof, (3) release from liability any one or
more party(ies) who are or may become liable for the payment of all or any part
of said debt(s) or obligation(s), and/or (4) grant any other loan treatment as
said Beneficiary deems appropriate, without affecting the priority of this
instrument and without operating to release, discharge, modify, change or
affect the liability of the Grantor or any other party liable or who may
become liable for the said debt(s) or obligation(s):
14. Grantor agrees that all the terms, provisions, covenants and
agreements contained herein shall extend to and bind their respective heirs,
executors, administrators, personal representatives, receivers, successors and
assigns and that the terms, provisions, covenants and agreements and all
options, rights, privileges and powers herein given, granted or secured to
Beneficiary shall inure to the benefit of its successors and assigns:
15. Grantor agrees that the following are authorized to select and
substitute another trustee in the place and stead of the above named Trustee,
or any successor trustee, at any time any of them may so desire, namely: (1)
the Beneficiary herein acting by and through its president, any vice-president,
treasurer, secretary, any other officer or attorney-in-fact of said
Beneficiary: (2) any person holding the office of president, vice-president,
treasurer, secretary, other office, or attorney-in-fact of said beneficiary: or
(3) any future holder(s) of the indebtedness secured hereby, it shall not be
necessary to obtain either the consent or resignation of the original trustee
or of any successor trustee before appointing another trustee in his/her place
and stead, any and such appointee who may be an agent, employee or officer of
Beneficiary shall have full and sole power as trustee herein:
16. Grantor shall pay and discharge, when the same become due, any and
all debt(s), indebtedness(es), future advance(s), additional advance(s) and/or
readvance(s), and/or any renewal(s), extension(s), restructuring(s),
reamortization(s), and/or any other loan treatment(s) thereof, or any part
thereof and all other debt(s) and obligation(s) secured hereby and/or by any
instrument(s) relating hereto, or any part thereof, and the interest thereon:
17. Grantor agrees that in the event Beneficiary in good faith deems
itself insecure and/or deems that the prospect of payment or performance
hereunder is impaired, Grantor shall, at the option of Beneficiary, pay the
whole of the debt(s) and obligation(s) secured hereby, with interest thereon,
or provide Beneficiary with sufficient and satisfactory collateral and/or
additional collateral, as required by Beneficiary:
18. Grantor agrees that Beneficiary, at Beneficiary's option and without
any obligation to do so, (1) may employ attorneys, experts, arbitrators,
investigators, contractors, repairmen, appraisers and surveyors, (2) may incur
costs, expenses and fees and/or (3) may appear in any suit, administrative,
arbitrative or regulatory hearing and litigate any matters, whether as a party
plaintiff, defendant, intervenor, or otherwise, including but not limited to
eminent domain proceedings, bankruptcy proceedings,partition suits or any other
legal proceedings affecting property described herein, this instrument and/or
any instruments relating thereto, or the interest, rights or obligations of the
Grantor and or Beneficiary associated therewith, in order to maintain, enforce
and ensure compliance with any and all provisions of this instrument and/or any
instruments relating hereto and or in order to preserve, protect and maintain
the herein described property and/or the rights or interests of the Beneficiary
therewith and/or in order to collect, or attempt to collect, the debt(s) and/or
obligation(s) associated herewith or relating hereto:
19. Grantor agrees to immediately pay and satisfy, when incurred by
either Grantor or Beneficiary, any and all costs, expenses and loss expended in
order to maintain, enforce and ensure compliance with any and all provisions of
this instrument and/or any instruments relating hereto, including but not
limited to costs,expenses and loss for taxes. Insurance, attorneys, experts,
arbitrators, investigators, contractors, repairmen, witnesses, appraisers,
surveyors, recordings fees, repairmen assessments liens, judgments or
encumbrances:
20. Grantor agrees that if Grantor fails to pay any costs, expenses or
fees, whether incurred by Grantor or Beneficiary, pursuant to the terms and
provisions of this instrument and or any instrument(s) relating hereto.
Beneficiary may, at his option and without any obligation to do so, make, pay or
advance such fee, cost and/or expenses and upon such payment or advances by
Beneficiary, the amounts thereof, together with interest thereon at the past due
rate as herein provided, shall be immediately due and payable by Grantor and
secured hereby:
21. Grantor agrees that in the event that any payment(s) of principal,
interest, cost, expenses, fees and/or other charges, under the terms of this
instrument and/or any instrument(s) relating hereto, are not paid when due, such
past due payment(s) shall bear interest from the due date until paid at the rate
in effect during this period of said non-payment, as set forth in the promissory
note(s) secured hereby, plus an additional four per cent (4%) per annum;
22. Grantor agrees that any delay forbearance of failure of Beneficiary
in exercising any right, remedy or option hereunder or otherwise afforded by
applicable law shall not be a waiver of, or preclude the enforcement of, any
right, remedy or option hereunder as to past, present or future nonperformance
of noncompliance hereunder. The payment of any costs(s), expense(s), fee(s) and
or charge(s) hereunder by Beneficiary, or in the acceptance of any payment(s),
shall not be a waiver of Beneficiary's right of foreclosure as set forth herein:
23. Grantor agrees that Grantor waives and relinquishes any and all
rights of homestead exemptions and/or personal exemptions to which Grantor is or
may be entitled, under the Constitution and laws of the State of Mississippi and
or the United States of American:
24. Grantor agrees that each and every term, condition, and provision
contained in this instrument and any other instrument(s) relating hereto, is
declared to be separate, distinct, and severable; and accordingly if any such
term condition, or provision contained in this instrument is declared null,
void or unenforceable by court of competent jurisdiction, for any reason(s),
all other terms, conditions, and provisions shall not be affected thereby and
shall remain in full force and effect between the parties hereto, their
successor(s), heir(s), legal representative(s) and assign(s). Further, as
applicable, each plural noun, pronoun, and verb may read as singular and each
singular noun, pronoun, and verb may be read as plural, and gender may be read
as masculine, feminine, or neuter.
UPON CONDITION, HOWEVER, that if Grantor shall well and truly pay and
discharge all the debt(s) and obligation(s) hereby secured and any future
advance(s), additional advance(s), readvance(s), renewal(s), extension(s)
restructuring(s), reorganization(s) and or any other loan payment(s) thereof, or
any part thereof, and the interest thereon, and any and all other
indebtedness(es) now or hereafter owed by Grantor to Beneficiary as the same
shall become due and payable and if Grantor shall perform and fulfill all of the
terms, agreements, obligations, covenants conditions and stipulations of this
instrument or any instrument(s) relating hereto,then this conveyance shall be
null and void; BUT IF: (1) default be made in the payment of any debt(s) or
other obligation(s), hereby secure or any future advance(s), additional
advance(s), readvance(s), renewals(s) extension(s), restructuring(s),
reamortizations(s) and or any other loan treatment(s) thereof, or any part
thereof, and the interest thereon; (2) default be made in the payment of any
other debt(s) or other obligation(s) now of hereafter owed by any of the
Grantors to Beneficiary; (3) default is made in the payment by Grantor to the
Beneficiary of any costs, expenses, fees or charges paid by Beneficiary under
the authority of any term or provision of this instrument: (4) any warranty,
representation or statement made in this instrument is breached or proves false
in any material respect: (5) default is made in the due performance of any term,
agreement, provision, obligation, covenant, condition, warranty, representation
or stipulation of Grantor under this instrument; (6) any interest of the
Beneficiary in this property described hereinabove becomes endangered by reason
of the enforcement of any prior or subsequent dead of trust of mortgage lien or
encumbrance thereon; (7) any part or all of the property described hereinabove
is attached, repossessed, levied, or foreclosed upon by any person,
partnership, corporation, association, entity, government, or political
subdivision claiming a right thereto prior or subsequent to Beneficiary; (8)
any claim or statement of lien is filed or enforced against the property
described hereinabove; (9) a petition to condemn any part of the property
hereinabove described be filed by any authority, person or entity having power
of eminent domain; (10) any law, statute or ordinance is passed imposing or
authorizing the imposition of a specific tax upon this instrument or the
debt(s) or obligation(s) hereby secured or the deduction of such tax from the
principal or interest secured by this instrument or by virtue of which any such
tax or assessment shall be charged against the holder or owner of this
instrument; (11) any of the terms or provisions contained in this instrument is
declared invalid or inoperative by any court of competent jurisdiction; (12)
Grantor fails to do and perform any other act obligation or things herein
required or agreed to be done; (13) Grantor or any of them (a) shall apply for
or consent to the appointment of a receiver, trustee or liquidator thereof or
of the property hereinabove described or of all or a substantial part of such
Grantor's assets, (b) be adjudicated a bankrupt or insolvent or file a
voluntary petition in bankruptcy, (c) fail, or admit in writing such Grantor's
inability generally, to pay such Grantor's debts when they may come due, (d)
make a general assignment for the benefit of creditors, (e) file a petition, or
an answer acknowledging reorganization of an arrangement with creditors of any
advantages or any insolvency law, or (i) filing any answer admitting the
material allegations of or consent to any default in answering a petition filed
against such Grantor in any bankruptcy, reorganization or insolvency
proceedings; (14) an order for relief or other judgment decree as shall be
entered by any court of competent jurisdiction and approving a petition,
<PAGE> 3
seeking liquidation of the Grantor, or any of them if more than one, appointing
a receiver, trustee or liquidator of any of the property hereinabove described
or a substantial part of the assets of any Grantor; (15) Grantor is a
corporation and any owner(s) of 60% of the aggregate voting stock of said
corporation sells or otherwise transfers 50% or more of the voting shares of
such corporation to any other person or entity, or if any Grantor is a
partnership and/or limited partnership and any partner and/or general partner,
excluding limited partners, dies, resigns, and/or withdraws from said
partnership; THEN upon the happening of any one or more of said events the
Beneficiary may, at its option, declare the whole of the debt(s) and
obligation(s) hereby secured as set forth hereinabove or any portion or part
hereof, with interest thereon, at once immediately due and payable, and the
Trustee, at the request of the Beneficiary, shall: (1) proceed to enforce
payment of same and to exercise all of the rights and remedies of a secured
party under the Uniform Commercial Code of Mississippi, (Section 75-1-101, et
seq Mississippi Code of 1972, as amended) or other applicable law and all
rights provided herein, in this instrument or any instrument(s) relating
hereto, all of which rights and remedies shall, to the extent permitted by law,
be cumulative including, without limiting the generality of the foregoing, the
right to take possession of the property or any part thereof, to perform all of
the operations which Grantor has agreed to perform hereunder and to take such
other measures as Beneficiary may deem necessary for the care, growing,
harvesting, protection, preservation, and marketing of the property; (2)
require Grantor; to assemble the property and make it available to Beneficiary
at a place to be designated by Beneficiary which is reasonably convenient to
Beneficiary and Grantor; and (3) sell said property or a sufficiency thereof at
the option of the Trustee at public outcry to the highest bidder for cash
(either as a whole or in parcels, at his/her election; the provisions of
Section 89-1-55, Mississippi Code of 1972, as amended, and Section 111,
Mississippi Constitution of 1890, with respect to offering and selling real
estate in parcels rather than as a whole, being hereby expressly waived)
sufficient to satisfy any obligation(s) secured hereby, after giving due notice
of the time, place, and terms of sale by publication in some newspaper
published in the county/counties in which said land is situated, or if no
newspaper is then being published in said county/counties, in a newspaper
having general circulation therein, for three (3) consecutive weeks preceding
the date of sale, and by posting one notice at the courthouse(s) of said
county/counties for said time. The Trustee may appoint or delegate any one or
more persons as agent to perform any act or acts necessary or incident to any
sale held by the Trustee including the posting of notices and the conduct of
the sale but in the name and on behalf of the Trustee, his substitute or
successor. The Beneficiary shall have the right to purchase the property at
foreclosure sale as would a purchaser who is not a party to this instrument.
Any sale made by the Trustee hereunder may be adjourned by announcement at the
time and place appointed for such sale without further notice except as may be
required by law:
In case the property herein described is situated in more than one
county, or in more than one judicial district of a county or counties, a
foreclosure sale of all of said property may be made in any one of the
counties or judicial districts in which any part thereof is situated, after
giving notice of the time, place, and terms of sale in the manner above
described in each county and judicial district in which any part of said land
lies; and
In the event of foreclosure, the proceeds shall be applied: first,
toward payment of the expenses of executing this trust, including a reasonable
trustee's fee and a reasonable attorney's fee (both of which fees shall accrue
immediately upon instructions being mailed or otherwise directed to the Trustee
to foreclose); second toward liquidation of the indebtedness secured hereby;
and, third, any balance shall be paid to the Grantor or persons entitled
thereto.
WITNESS the signature of the Grantor, this the 24th day of
January, 1985.
/s/ Mark C. Atchley
------------------------------
Mark C. Atchley
/s/ Elizabeth S. Atchley
------------------------------
Elizabeth S. Atchley
------------------------------
------------------------------
==============================================================================
GRANTOR AND ADDRESS: Mark C. Atchley and Elizabeth S. Atchley
--------------------------------------------------------
707 West Gresham
--------------------------------------------------------
Indianola, Mississippi 38751
--------------------------------------------------------
--------------------------------------------------------
BENEFICIARY AND ADDRESS: FEDERAL LAND BANK OF JACKSON, 1800 East County Line
Road, Ridgeland, Mississippi 39157
TRUSTEE AND ADDRESS: Harry F. Beacham, 1800 East County Line Road,
Ridgeland, MS 39157
-------------------------------------------------------
STATE OF MISSISSIPPI (Individual Acknowledgment)
COUNTY OF BOLIVAR
- -----------------
PERSONALLY appeared before me, the undersigned authority in and for said
County and State, Mark C. Atchley
---------------
who acknowledged that he signed and delivered the foregoing instrument on the
--
day and year therein mentioned.
Given under my hand and official seal this the 24th day of January,
---- -------
1985.
--
(Seal) /s/ Rachel Hooper
-----------------
Notary Public
My commission expires: 3/21/88
-------
STATE OF MISSISSIPPI (Individual Acknowledgement)
COUNTY OF BOLIVAR
- -----------------
PERSONALLY appeared before me, the undersigned authority in and for said
County and State, Elizabeth S. Atchley
--------------------
who acknowledged that she signed and delivered the foregoing instrument on the
---
day and year therein mentioned.
Given under my hand and official seal this the 24th day of January,
---- -------
1985.
--
(Seal) /s/ Rachel Hooper
-----------------
Notary Public
My commission expires: 3/21/88
-------
<PAGE> 4
REQUEST TO ASSUME A FARM CREDIT BANK LOAN
TO: The FLBA of North Mississippi - Cleveland
--------------------------- ----------------------------------
and/or Farm Credit Bank of Texas.
SELLER'S STATEMENT:
1. I hereby give permission to reveal loan information to purchaser or
his representative for loan number 758256
--------------
2. The FLBA Stock outstanding in connection with the loan to be assumed
N/A be acquired by purchaser.
-----------------------
(will/will not)
3. I agree to furnish the Farm Credit Bank of Texas a copy of the
proposed deed whereby the purchaser assumes the loan.
LOUISIANA ONLY - I agree to furnish the Farm Credit Bank of Texas a
copy of the Recorded Act of Sale with Assumption wherein the
purchaser assumes the loan.
4. $ N/A currently in future payment fund/funds held will be
-----------------
(Amount)
disposed as of indicated:
[ ] a. Credited to the principal of the loan.
[ ] b. Remain in present account for purchaser's benefit.
[ ] c. Refunded to borrower. (Not applicable on Texas homestead
loans.)
Note: Interest accrual will be automatically applied to the billed
interest on the loan at the next billing date:
Date: Signed:/s/ G.S. Hastings, Jr.
------------------------------ ------------------------
George S. Hastings, Jr.
Signed:/s/ Patricia G. Hastings
------------------------
Patricia G. Hastings
================================================================================
PURCHASER'S STATEMENT:
1. Name Circle Creek VIII Soc. Sec. No.
----------------------------- --------------------
2. Spouse's Name N/A Soc. Sec. No.
----------------------------- --------------------
3. Mailing Address
--------------------------------------------------------
City State Zip
-------------------------------- ------------- --------
4. Phone No. Date of Birth
---------------- ----------------- ------------
(Home) (Work)
Principal Occupation
--------------------------------------------------
5. I carry $ life insurance. Judgments and
----------------------------
suits are pending against me as follows:
-------------------------
6. Total acres now owned Number of acres rented from others
-------- -----
7. Gross income from agriculture for last crop year: 19 $
----- ---------
8. Net income from total agriculture operations: 19 $
----- ---------
Alimony, child support, or separate maintenance income need not be
revealed if you do not wish to have it considered as a basis for
repayment of this obligation.
9. Non-farm income (source) How long $
----------------- ------ --------
How long $
----------------- ------ --------
How long $
----------------- ------ --------
10. Purchase terms: Cash $ Assumption $
------------------ --------
Other Liens $
---------------
Terms of other liens: Payable $ per for years.
------------- ---------- ----
(Amount) (month/Year) (No.)
11. Credit References:
A.
---------------------------------------------------------------------
B.
---------------------------------------------------------------------
C.
---------------------------------------------------------------------
12. I (We), the undersigned, hereby request permission to assume loan
number______________ and agree to furnish the required financial
information. I (We) certify that all of the statements contained
herein are true and correct. I (We) agree to pay any and all fees
required in connected with this assumption, and to become personally
liable on the Laon, if approved.
Date: Signed: CIRCLE CREEK VIII
----------------------- -------------------------------
Purchaser
signed: By: /s/ G.S. Hastings, Jr.
-------------------------------
Purchaser
<PAGE> 5
Loan No. 758256
---------------------
Name George S. Hastings, Jr.
-------------------------
FLBA North MS - Cleveland
------------------------
BUYERS ASSUMPTION OF INDEBTEDNESS - MORTGAGE LOANS
To be executed in connection with the assumption of loans held by the Farm
Credit Bank of Texas.
THE STATE OF MISSISSIPPI
-----------
KNOW ALL MEN BY THESE PRESENTS.
COUNTY OF BOLIVAR
-------
I, (We) CIRCLE CREEK VIII of
-------------------------------- ------------------------------------
(Address)
, having on the day of , 19
- --------------- ------------ ------ ------------- ---
(City) (State)
purchased or acquired from GEORGE S. HASTINGS, JR., ET UX of 4307 Central Pike
------------------------------ -----------------
Hermitage, TN acres of land which is (all) (a part of) the land described in
- ---------- ----
(State)
deed(s) of trust/mortgage executed by the original borrower(s) named below to
the trustee named therein, to secure the payment of the following described
note(s).
<TABLE>
<CAPTION>
Original
Loan No. Original Borrower Amount of Note Original Payee
<S> <C> <C> <C>
758256 Mark C. Atchley $626,000.00 Federal Land Bank of
- ---------- -------------------- -------------- -----------------------
Elizabeth S. Atchley Amount of Note Jackson
- ---------- -------------------- -------------- -----------------------
Assumed by CCA VIII LP. $282,888.08 GSH
- ---------- -------------------- -------------- -----------------------
</TABLE>
fully described in said deed(s) of trust or mortgage(s) to which the record(s)
thereof and to any and all papers in said loan(s) reference is here made for
all pertinent purposes, or because I (we) otherwise desire to assume said
indebtedness for value received, and in consideration of the owner of the
note(s) securing same permitting me (us) to assume said mortgage and
indebtedness and receive the benefits of the Farm Credit Act, without in any
way releasing the personal obligation and liability of the original borrower(s)
and/or others who have assumed said mortgage(s), I (we) have assumed and by
these presents do assume and agree to pay the unpaid balance of said
indebtedness according to terms and conditions of said note(s) and the deed(s)
of trust or mortgage(s) securing same, or any rearrangement thereof heretofore
made.
I (We) have furnished to the Bank an executed IRS Form W-9 in connection with
this loan.
EXECUTED this the day of 19
------ -------------------- ---
CIRCLE CREEK VII
Social Security By: /s/ G.H. Hastings, Jr.
----------------------- -----------------------------
(Buyer Sign Here)
Social Security
----------------------- -----------------------------
(Buyer Sign Here)
NOTE TO FLBA: If the purchaser has assumed the indebtedness and acquired the
stock or participation certificates of the seller and is a qualified borrower
under the association's bylaws and Farm Credit Act of 1971 and Amendments
thereto, he/she is eligible to membership in the association. If he/she has
not assumed the indebtedness and has not acquired the stock of the seller or is
not a qualified borrower under the Farm Credit Act of 1971 and Amendments
thereto, he/she is not eligible to membership in the Federal Land Bank
Association. He/she can assume the indebtedness without being a member of the
association.
The purchaser acquired the Federal Land Bank Association stock or
-------------
has - has not
participation certificates.
Date entered on the certificate
------------------
The above transfer of ownership has been recorded on the records of this
association.
---------------------------------------
Federal Land Bank Association
Date By
--------------------------- -------------------------------------
Loan Officer
<PAGE> 6
Loan No. 758256
---------------------
Name George S. Hastings, Jr.
-------------------------
FLBA North MS - Cleveland
------------------------
BUYERS ASSUMPTION OF INDEBTEDNESS - MORTGAGE LOANS
To be executed in connection with the assumption of loans held by the Farm
Credit Bank of Texas.
THE STATE OF MISSISSIPPI
-----------
KNOW ALL MEN BY THESE PRESENTS.
COUNTY OF BOLIVAR
-------
I, (We) CIRCLE CREEK VIII of
-------------------------------- ------------------------------------
(Address)
, having on the day of , 19
- --------------- ------------ ------ ------------- ---
(City) (State)
purchased or acquired from George S. Hastings, Jr., Et ux of 4307 Central Pike
------------------------------ -----------------
Hermitage, TN acres of land which is (all) (a part of) the land described in
- ---------- ----
(State)
deed(s) of trust/mortgage executed by the original borrower(s) named below to
the trustee named therein, to secure the payment of the following described
note(s).
<TABLE>
<CAPTION>
Original
Loan No. Original Borrower Amount of Note Original Payee
<S> <C> <C> <C>
758256 Mark C. Atchley $626,000.00 Federal Land Bank of
- ---------- -------------------- -------------- -----------------------
Elizabeth S. Atchley Amount of Note Jackson
- ---------- -------------------- -------------- -----------------------
Assumed by CCA VIII L.P. $261,651.07 GSH
- ---------- -------------------- -------------- -----------------------
</TABLE>
fully described in said deed(s) of trust or mortgage(s) to which the record(s)
thereof and to any and all papers in said loan(s) reference is here made for
all pertinent purposes, or because I (we) otherwise desire to assume said
indebtedness for value received, and in consideration of the owner of the
note(s) securing same permitting me (us) to assume said mortgage and
indebtedness and receive the benefits of the Farm Credit Act, without in any
way releasing the personal obligation and liability of the original borrower(s)
and/or others who have assumed said mortgage(s), I (we) have assumed and by
these presents do assume and agree to pay the unpaid balance of said
indebtedness according to terms and conditions of said note(s) and the deed(s)
of trust or mortgage(s) securing same, or any rearrangement thereof heretofore
made.
I (We) have furnished to the Bank an executed IRS Form W-9 in connection with
this loan.
EXECUTED this the day of 19
------ ---------- --
CIRCLE CREEK VIII
Social Security By: /s/ G.H. Hastings, Jr.
----------------------- -----------------------------
(Buyer Sign Here)
----------------------- -----------------------------
(Buyer Sign Here)
NOTE TO FLBA: If the purchaser has assumed the indebtedness and acquired the
stock or participation certificates of the seller and is a qualified borrower
under the association's bylaws and Farm Credit Act of 1971 and Amendments
thereto, he/she is eligible to membership in the association. If he/she has
not assumed the indebtedness and has not acquired the stock of the seller or is
not a qualified borrower under the Farm Credit Act of 1971 and Amendments
thereto, he/she is not eligible to membership in the Federal Land Bank
Association. He/she can assume the indebtedness without being a member of the
association.
The purchaser acquired the Federal Land Bank Association stock or
-------------
has - has not
participation certificates.
Date entered on the certificate
------------------
The above transfer of ownership has been recorded on the records of this
association.
---------------------------------------
Federal Land Bank Association
Date By
----------------------- -------------------------------------
Loan Officer
<PAGE> 7
Loan No. 758256
----------------------------
Name: George S. Hastings, Jr.
-------------------------------
FLBA/Branch North Miss. - Cleveland
-------------------------
MODIFICATION AND LOAN AGREEMENT
STATE OF MISSISSIPPI Section
------------------
Section KNOW ALL MEN BY THESE PRESENTS THAT:
COUNTY/PARISH OF BOLIVAR Section
----------
WHEREAS, the undersigned CIRCLE CREEK VII are obligated on one
promissory note originally payable or subsequently assigned to the order of the
Farm Credit Bank of Texas (formerly the Federal Land Bank of Texas, hereinafter
"Bank") in the original principal sum of $626,000.00 (CC VII assumes
$282,888.08) gsh secured by deed of trust or mortgage dated January 24, 1985,
as recorded in Volume H-96, Page 117 of the Deed of Trust or Mortgage Records
of Bolivar County, Parish, Mississippi, identified as Loan No. 758256 on the
records of the Bank; and
WHEREAS, the Bank continues to be the holder of said deed of trust or
mortgage and the note secured thereby, and the undersigned has requested of the
Bank the benefit of a certain loan servicing or administrative actions(s); and
WHEREAS, the Bank will perform such loan servicing or administrative
actions (s) for the undersigned only if the undersigned for themselves, their
heirs, successors and assigns, represent, convenant and agree that the
following covenant(s) will become a part of the not and the deed of trust or
mortgage lien heretofore described and that they will abide by said
covenant(s), to wit:
1. To furnish to the Bank, upon request, a financial statement and
income statement attested to by the undersigned or verified by a
public accountant.
NOW, THEREFORE, for and in consideration of the agreement of the Bank to
perform the loan servicing or administrative action(s) requested, the
undersigned accepts, concurs and agrees to the above addition to the covenants
of the not and the deed of trust or mortgage securing the debt hereinfore
described.
And it is hereby agreed that this instrument shall be read into, and
the same is hereby made a part of and incorporated into said note and deed of
trust or mortgage; that said deed of trust or mortgage; that said deed of trust
or mortgage and the note secured thereby, together with all and singular the
conditions, stipulations, covenants, agreements, and provisions of each
thereof, shall be and remain exactly the same as they are now, or have
otherwise been modified, SAVE AND EXCEPT, the addition of the above numerated
covenant(s) and that default of the same shall constitute a default under said
note and deed of trust or mortgage. By accepting this instrument said bank
agrees to the modification and addition of the above covenants to the said deed
of trust or mortgage and the note secured thereby.
EXECUTED this__________day of______________, 19________.
CIRCLE CREEK VII
- ------------------------------------ ---------------------------------------
By: G.S. Hastings, G.P.
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
<PAGE> 8
Loan No. 758256
----------------------------
Name: George S. Hastings, Jr.
-------------------------------
FLBA/Branch North Miss. - Cleveland
-------------------------
MODIFICATION AND LOAN AGREEMENT
STATE OF MISSISSIPPI Section
------------------
Section KNOW ALL MEN BY THESE PRESENTS THAT:
COUNTY/PARISH OF BOLIVAR Section
----------
WHEREAS, the undersigned CIRCLE CREEK VIII are obligated on one
promissory note originally payable or subsequently assigned to the order of the
Farm Credit Bank of Texas (formerly the Federal Land Bank of Texas, hereinafter
"Bank") in the original principal sum of $626,000.00 (CC VII assumes
$261,651.07) gsh secured by deed of trust or mortgage dated January 24, 1985,
as recorded in Volume H-96, Page 117 of the Deed of Trust or Mortgage Records
of Bolivar County, Parish, Mississippi, identified as Loan No. 758256 on the
records of the Bank; and
WHEREAS, the Bank continues to be the holder of said deed of trust or
mortgage and the note secured thereby, and the undersigned has requested of the
Bank the benefit of a certain loan servicing or administrative actions(s); and
WHEREAS, the Bank will perform such loan servicing or administrative
actions (s) for the undersigned only if the undersigned for themselves, their
heirs, successors and assigns, represent, convenant and agree that the
following covenant(s) will become a part of the not and the deed of trust or
mortgage lien heretofore described and that they will abide by said
covenant(s), to wit:
1. To furnish to the Bank, upon request, a financial statement and
income statement attested to by the undersigned or verified by a
public accountant.
NOW, THEREFORE, for and in consideration of the agreement of the Bank to
perform the loan servicing or administrative action(s) requested, the
undersigned accepts, concurs and agrees to the above addition to the covenants
of the not and the deed of trust or mortgage securing the debt hereinfore
described.
And it is hereby agreed that this instrument shall be read into, and
the same is hereby made a part of and incorporated into said note and deed of
trust or mortgage; that said deed of trust or mortgage; that said deed of trust
or mortgage and the note secured thereby, together with all and singular the
conditions, stipulations, covenants, agreements, and provisions of each
thereof, shall be and remain exactly the same as they are now, or have
otherwise been modified, SAVE AND EXCEPT, the addition of the above numerated
covenant(s) and that default of the same shall constitute a default under said
note and deed of trust or mortgage. By accepting this instrument said bank
agrees to the modification and addition of the above covenants to the said deed
of trust or mortgage and the note secured thereby.
EXECUTED this__________day of______________, 19________.
CIRCLE CREEK VIII
- ------------------------------------ ---------------------------------------
By: G.S. Hastings, G.P.
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
<PAGE> 9
Exhibit 10.10
MEMORANDUM
DATE: March 20, 1995
TO: FLBA of North Mississippi (Cleveland)
Attn.: Tully Boyer, Vice President
FROM: /s/ Dennis L. Raesener
--------------------------------------
Dennis L. Raesener, Vice President
AMLO Credit and Loan Processing/Servicing
RE: Assumption of Loan No. 758256 by George S. Hastings, Jr.
I have reviewed the financial and income information for Mr. and Mrs. Hastings,
Circle Creek VII and Circle Creek VIII. The bank has no objection to the above
referenced loan being assumed by the Hastings, Circle Creek VII and Circle Creek
VIII.
The following conditions must be met for this assumption:
1. George S. Hastings, Jr. and wife, Patricia to become personally liable on the
loan.
2. The January 1, 1995 installment for this loan to be paid prior to April 15,
1995.
3. Real estate taxes to be paid current.
4. Forms 1191, 2185, 2188, 2032, and W9 to be executed.
The bank agrees to the assumption and splitting of existing loan to Circle Creek
VII and Circle Creek VIII with the following conditions:
1. George S. Hastings, Jr. to remain liable on the split loans. Patricia
Hastings to be released from personal liability upon assumption of split
loans by Circle Creek VII and Circle Creek VIII.
2. Title insurance to be obtained on each tract purchased by Circle Creek
VII and Circle Creek VIII.
3. Limited partnership agreements for Circle Creek VII and Circle Creek
VIII to be submitted to the bank for review prior to assumption by Circle
Creek VII and Circle Creek VIII.
<PAGE> 10
Assumption of Loan No. 758256
March 20, 1995
Page 2
4. $87,000 to be placed in Funds Held - Code 32 until ponds are built and
completed on the 186 acre parcel. FLBA of North Mississippi to inspect pond
construction and, in their sole discretion, disburse once improvements are
completed.
5. Forms 1191, 2185, 2188, 2032 and W9 to be executed.
This approval supersedes previous approvals issued January 25, 1995 and
February 21, 1995. This approval is valid until April 25, 1995, with the
condition that the January 1, 1995 delinquent installment plus penalty interest
is paid current by April 15, 1995.
DLR/mr
cc: FLBA of North Mississippi
Craig Schideler, Sr. Vice President
Don Barlow
<PAGE> 11
FEDERAL LAND BANK ASSOCIATION [FEDERAL LAND BANK ASSOCIATION LOGO]
of NORTH MISSISSIPPI
- --------------------------------------------------------------------------------
210 E. Sunflower Rd., Ste 8
Valley Court Square
P.O. Box 1819
Cleveland, MS 38732
(601) 843-2421
FAX (601) 843-4013
December 11, 1995
Mr. George S. Hastiings, Jr.
4307 Central Pike
Hermitage, TN 37076
RE: Loan No. 758256
Dear Mr. Hastings:
We are pleased to inform you that the assumptions of the above referenced loan
by Circle Creek VII and Circle Creek VIII have been completed. The unmatured
principal balance was split into two loans. Loan #758256 bearing the name Circle
Creek Aquaculture VIII has an unmatured principal balance of $261,651.07. Loan
#090029 bearing the name Circle Creek Aquaculture VII has an unmatured principal
balance of $282,888.08.
We are also forwarding the Release of Personal Liability on Patricia G.
Hastings. This release is provided for your records and does not have to be
recorded.
We appreciate your patience while we processed your request. I'm sure you'll
find everything has been processed as requested. Please give us a call in case
we can be of further assistance.
Sincerely,
/s/ Tully Boyer
Tully Boyer
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AQUAPRO CORPORATION FOR THE SIX MONTHS ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 202,894
<SECURITIES> 0
<RECEIVABLES> 108,009
<ALLOWANCES> 0
<INVENTORY> 5,740,124
<CURRENT-ASSETS> 6,089,541
<PP&E> 7,507,022
<DEPRECIATION> 1,867,269
<TOTAL-ASSETS> 12,716,973
<CURRENT-LIABILITIES> 1,799,597
<BONDS> 4,102,980
0
1,837,408
<COMMON> 10,588,311
<OTHER-SE> (5,611,323)
<TOTAL-LIABILITY-AND-EQUITY> 12,716,973
<SALES> 1,203,468
<TOTAL-REVENUES> 1,212,468
<CGS> 1,188,159
<TOTAL-COSTS> 1,188,159
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212,685
<INCOME-PRETAX> (1,487,525)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,487,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,487,525)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
<PAGE> 1
Exhibit 28
INDEX
<TABLE>
<S> <C>
Condensed Consolidated Statement of Operations
for the Six Months Ended June 30, 1996 (unaudited)............................1
Condensed Consolidated Statement of Cash Flows
for the Six Months Ended June 30, 1996 (unaudited)............................2
Notes to Condensed Consolidated Financial Statements (unaudited)..............3
</TABLE>
<PAGE> 2
AquaPro Corporation
Condensed Consolidated Statement of Operations
Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Revenues:
Net sales $ 1,891,390
Management fees from affiliates 9,000
-----------
1,900,390
Cost of products sold 1,613,910
Selling, general and administrative 664,983
Impairment loss on long-lived assets 1,019,000
-----------
Operating loss (1,397,503)
Other (income) expense:
Delta Pride Catfish, Inc. assessment (79,969)
Interest expense (230,170)
Other, net 27,074
-----------
(283,065)
-----------
Net loss $(1,680,568)
===========
Net loss per common share $ (0.73)
===========
Weighted average common shares outstanding 2,305,904
===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE> 3
AquaPro Corporation
Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Net cash used in operating activities $ (564,552)
Investing activities - Purchases of property and equipment (438,419)
Financing activities:
Net decrease in notes payable (819,354)
Principal payments on long-term borrowings (370,576)
Proceeds from long-term borrowings 354,304
Proceeds from exercise of stock purchase rights 2,137,928
Proceeds from sale of limited partnership units 5,525
Cash distributions to partners (108,516)
Retirement of partnership units (26,749)
----------
Net cash provided by financing activities 1,172,562
----------
Net increase in cash and cash equivalents 169,591
Cash and cash equivalents at beginning of period 1,058,545
----------
Cash and cash equivalents at end of period $1,228,136
==========
Supplemental cash flow information-
Interest paid $ 270,980
==========
Non-cash financing activities-
Conversion of notes payable and long-term debt to common stock $1,717,305
==========
Common stock issued to employees for future services $ 150,000
==========
Conversion of long-term debt to 10.35% convertible notes payable $ 214,495
==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE> 4
AquaPro Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)
Six Months Ended June 30, 1996
1. Basis of Presentation of Unaudited Financial Statements
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the rules of the Securities and Exchange Commission. Accordingly
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments consisting of normal recurring accruals
considered necessary for a fair presentation have been included. The results of
operations are not necessarily indicative of results which may be expected for
any other interim period or for the year as a whole.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate any prior periods. Under the new
requirements for calculating earnings per share, the dilutive effect of stock
options will be excluded. The impact of Statement 128 on the calculation of
earnings per share is not expected to be material.
2. Merger
Effective June 30, 1997, the Company acquired the assets and assumed the
liabilities of Circle Creek AquaCulture V, L.P., Circle Creek AquaCulture VI,
L.P., Circle Creek AquaCulture VII, L.P., and Circle Creek AquaCulture VIII,
L.P. (collectively the "Circle Creek Partnerships"). The merger has been
accounted for as through it were a pooling of interests because of common
control. The accompanying condensed consolidated financial statements for the
six months ended June 30, 1996 have been restated to give effect to the merger.
The Circle Creek Partnerships are engaged in catfish farming in the State of
Mississippi and were previously managed by the Company pursuant to management
agreements.
In consideration for the assets and liabilities of the Circle Creek
Partnerships, the Company issued 708,926 Units and $68,582 of 7.15% Convertible
Notes based upon the relative fair value of the net assets of the Company and
the Circle Creek Partnerships. A unit consists of 1.6 shares of the Company's
common stock and one 90-day right to purchase one share of the Company's 7.0%
Series A Preferred Stock for $9.50 (the Stock Rights). Also, as part of the
consolidation, the Company offered its Series A Preferred
3
<PAGE> 5
Stock in exchange for $1,147,513 in principal amount of certain 10.35% notes of
the Circle Creek Partnerships (the Investor Notes). This exchange offer
commenced subsequent to June 30, 1997 and each holder of Investor Notes was
offered 1.3 shares of Series A Preferred Stock for each $10 of Investor Notes.
In the aggregate, approximately $900,000 of Investor Notes were exchanged
117,000 shares of Preferred Stock.
Separate revenues and net loss of the merged entities for the six months ended
June 30, 1996 are as follows:
<TABLE>
<S> <C>
Revenues:
AquaPro Corporation $ 1,423,528
Circle Creek Partnerships 1,073,259
Elimination of intercompany transactions (605,397)
-----------
$ 1,891,390
===========
Net loss:
AquaPro Corporation $ (509,555)
Circle Creek Partnerships (1,117,097)
Elimination of intercompany transactions 229,149
-----------
Net loss, as reported $(1,397,503)
===========
</TABLE>
3. Improvement Loss on Long-Lived Assets
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Live Assets and for Long-Live Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The adoption by the Company of Statement 121
resulted in a non-cash charge of $1,019,000 from the write-down of land, ponds
and improvements, buildings and goodwill to their estimated fair values. The
charge represents the adjustment required to remeasure long-lived assets at the
lower of the carrying amount or fair value based upon 1996 appraisals obtained
from an independent appraiser in connection with the merger as described in
Note 2.
4
