UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
Form 10K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 31, 1998
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______To______
Commission file number 0-1287
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STERLING SUGARS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 72-0327950
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(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
P. O. Box 572, Franklin, La. 70538
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (318) 828 0620
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Securities registered pursuant to Section 12d of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(G) of the Act:
Common Stock $1 par value
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(Title of Class)
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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 X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. /__/
The aggregate market value of the registrant's voting stock held on February
28, 1998 by non-affiliates of the registrant was $3,015,852. Such value has
been computed on the basis of the average bid and asked prices of the stock
and by excluding, from the 2,500,000 shares outstanding on that date, all
stock beneficially owned by officers and directors of the registrant and by
beneficial owners of more than five percent of its stock, even though all
such persons may not be affiliates as defined in SEC rule 405.
Page 1 of 60 pages
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The number of shares of common stock outstanding as of April 17, 1998 was
2,500,000 shares.
Documents incorporated by reference: Portion of Registrant's Proxy Statement
dated April 24, 1998 are incorporated by reference into Part III.
An exhibit index is located on page 33.
FORM 10-K
PART I
ITEM 1-BUSINESS
Sterling Sugars, Inc. is grower and processor of sugarcane from which
it produces raw sugar and blackstrap molasses, a by-product. Cane residue
(bagasse), also a by-product, is used as the primary fuel for the Company's
steam boilers. The business is highly seasonal in that the processing
season usually extends from early October to mid December or early January.
For the fiscal year ended January 31, 1998 (referred to by the Company as
"fiscal 1998"), the season began on September 29, 1997 and continued
through December 27, 1997. From the crop grown during fiscal 1998
(referred to by the Company as the "1997 crop"), the factory processed
899,989 tons of sugarcane. During the previous year (fiscal 1997), the
Company processed a total of 821,184 tons of cane. In fiscal 1996, a total
of 759,953 tons of cane were processed by the Company. Sugar production
for 1998 is estimated at 94,757 tons. For fiscal 1997 and 1996 the Company
produced 81,822 and 82,141 tons of raw sugar, respectively.
Historically, the Company has had no difficulty in selling, at
competitive prices, all of its raw sugar production to a few major sugar
refiners and a candy manufacturer and all of its molasses production to a
molasses distributor under sales contracts. The Company expects these
marketing avenues to be open in the future.
The raw sugar factory operated by the Company is situated on sixty-
five acres of land outside the city of Franklin, Louisiana on Bayou Teche.
The factory is one of the largest and most modern in the state with a
grinding capacity of 10,500 tons of sugarcane per day.
Sugarcane for processing is supplied to the factory from Company
operated lands and by independent farmers in St. Mary, Iberia and surround-
ing parishes. See Item 2, "Properties," incorporated herein by reference,
for further information concerning properties owned and leased by the
Company.
The Company's farming operations produced a total of 19,872 tons of
cane for the 1997 crop. This compares to 20,792 and 20,509 tons of cane
for the 1996 and 1995 crops, respectively. During the year, the Company
maintained its policy of leasing and subleasing farm lands to independent
growers. This program has proven to be a success since being implemented
in 1988. Further information on this subject is provided under Item 2,
"Properties," incorporated herein by reference.
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<PAGE>
On April 4, 1996 President Clinton signed the new Federal
Agricultural Improvement and Reform Act (FAIR) otherwise known as the
Freedom to Farm Bill. This seven year farm bill, starting with the 1996
crop, is more risky to producers and includes an 18 cent loan rate with
loans not to exceed nine months. The no cost provision to the Federal
Treasury is retained and marketing allotments have been suspended through
the year 2002. The marketing assessment, currently at 1.10% of the loan
rate, is increased to 1.375%. Loans become non-recourse if the sugar
import quota rises above 1.5 million short tons. Also, a one cent per
pound penalty assessment is made on sugar pledged as collateral and
forfeited to the government for non-recourse loans. After the year 2002,
the domestic sugar industry may be without a sugar program and consequently
will have to compete in a global market to produce and sell raw sugar.
The Company does not engage in research activities itself, but
numerous experiments and research activities are conducted for the benefit
of the sugar industry as a whole by the American Sugar Cane League,
Louisiana State University and the United States Department of Agriculuture
Experiment Station in Houma, Louisiana. The Company supports these agencies
by providing land for some of the research and experimentation. The
agencies have released several improved varieties of sugarcane in recent
years which have proved beneficial to the farmers.
Until now, despite costly remedial actions by the Company,
opacity problems at the Company's factory has not been completely resolved
resulting in citations from the Air Quality Control Division of the
Louisiana State Office of Environmental Protection (the Agency) for
exceeding opacity limits for stack emissions. The most recent notice
violation was issued in November, 1992 and resulted in the issuance of an
amended compliance order dated June 4, 1993. On March 10, 1994 the
compliance order was amended a second time to delay the requirements of the
order by one year because of the Company's poor financial results of fiscal
1994. The requirments of the amended compliance order are as follows: (1)
install a wet scrubber on boiler No. 2 by October 1, 1995 or the beginning
of the 1995 grinding operation, whichever comes first (2) retrofit boiler
No. 5 with new Spreader-Stoker furnaces and ash and air handling systems to
include a wet scrubber, that will be sized to service both boiler No. 4 and
No. 5 by October 1, 1996, (3) retrofit boiler No. 4 with new Spreader-Stoker
furnaces and ash and air handling systems to be connected to the wet
scrubber (to be installed in 1996) by October 1, 1997, and (4) increase the
No. 6 boiler induced draft system by installing a larger fan and drive by
October 1, 1998. Requirement number one was completed prior to the 1995
grinding season. For fiscal 1997, to comply with requirements 2 and 3, the
Company retrofited boiler no. 4 with new speader stoker furnaces and ash
and air handling systems including a wet scrubber. Retrofitting boiler no.
4 prior to boiler no. 5 was more feasible since it is closest to the
existing boilers. Furthermore, the plans for retrofitting boiler no. 5
includes installation of its own wet scrubber for better performance. Also
for fiscal 1997, the Company increased the no. 6 boiler induced draft
system capacity by installing a new and larger fan and drive (compliance
order no. 4) along with a wet scrubber. For fiscal 1998, to complete the
requirements of the compliance order, the Company retrofited boiler
no. 5 with new spreader-stoker furnaces and ash and air handling systems
including a wet scrubber.
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<PAGE>
Company employment for the year ended January 31, 1998 was as follows:
Factory Agriculture
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Year round employees 96 6
Seasonal and temporary employees 102 3
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198 9
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Further information respecting the Company's business is given under Item
7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," incorporated herein by reference.
ITEM 2 -PROPERTIES
Land owned by the Company by parishes and suitability of land for
cultivation is as follows:
St. Mary Iberia St. Landry Total
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Cultivable 9,544 1,560 - 11,104
Non-cultivable 7,533 1,302 121 8,956
Plant site 65 65
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17,142 2,862 121 20,125
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Of the cultivable land, approximately 270 acres are operated by the
Company. Approximately 9,274 acres in St. Mary Parish and 1,560 acres in
Iberia Parish (Peebles Plantation) are leased to tenants for the growing of
sugarcane. Of the leases in effect, one covering 1,560 acres (Peebles
Plantation) expired in 1995 and was renewed under basically the same terms
and conditions as the previous lease. Another lease covering 818 acres
also expired in 1995 but contained an option to renew for five years. The
option on this lease was exercised by the tenant. One lease covering 169
acres expired in 1996 and was extended for an additional five years with a
five year renewal option. A lease covering 424 acres expired in 1997 and
was renewed for five years with a five year option under basically the same
terms and conditions. During 1998, one lease on 410 acres will expire but
contains an option to renew for an additional five years. In 1999 two
leases covering 308 acres will expire. Also in 1999, two leases covering
2,285 acres will expire but contain options to renew for additional five
year periods. One of the leases expiring in 1999 includes 1,870 acres
formerly part of Sterling's farm division now leased to an independent
grower.
The Company, in December, 1996, purchased approximately 8,519 acres of
land in St. Mary Parish of which 4,863 acres in cultivable cane land. The
acquisition is viewed as good for the Company in that it will secure and
maintain the Company's current cane supply. The Company obtained leases
with the existing tenants of these lands. The lease agreements will
contain five year terms beginning in 1997 with an option to renew for an
additional five years.
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<PAGE>
In addition to Company owned land, about 1,190 acres in St. Mary
parish are leased to the Company for growing sugarcane. The land currently
leased by the Company is subleased to independent growers. Past experience
indicates that small independent growers do a better job of farming than
can be done by a very large agricultural operation. Arrangements have been
made for the Company to process the sugarcane grown from the subleased
premises. Over the last three years the Company has made attempts to have
farmers lease land directly from landlords in an effort to minimize the
Company's liability exposures. The Company's farm division currently
operates on approximately 540 acres of leased land and 270 acres of Company
owned land.
The Company's plant site, consisting of a factory compound and main
office, is located on Bayou Teche just outside the city of Franklin,
Louisiana. The factory compound is comprised of the raw sugar mill,
warehouses, shipping and receiving facilities, truck and tractor repair
garage and large areas for the storage of sugarcane.
Of the 20,125 acres of land owned by the Company, approximately 890
acres are being held by production, primarily from the LGS Sterling No. 1
well located in St. Mary Parish. The Sterling No. 1 well was completed
by the Company's lessee, LGS Exploration, Inc. during December, 1984.
During September, 1991 the well experienced production problems and in
January 1992 production was restored but at significantly reduced rates.
On July 31, 1992 the Company entered into a unitization agreement for the
Sterling No. 1 well whereby several individual units existing at the 6,800'
sand Charenton Field would operate as one unit. As part of the agreement
the Company maintained a twenty-five percent interest in the 34.5 acre unit.
For fiscal 1998, the Company's share of royalty income from the unit was
$17,625 compared to $16,839 for fiscal 1997 and $15,249 for fiscal 1996.
In September, 1995 the Company began receiving royalty income from the C.
M. Cremaldi well in St. Mary Parish. Sterling maintains approximately 274
acres in the 4,000 acre unit. The site is a re-completion unit that was
inactive since December, 1986. Income from the well decreased in fiscal
1998 and was $13 compared to $2,242 in fiscal 1997 and $10,394 for fiscal
1996.
For fiscal 1998, the Company entered into two seismic agreements
in the first quarter. One agreement for $31,625, was for six months and
covers approximately 710 acres in St. Mary Parish. The second agreement,
for $71,891, contains an eighteen month term and covers 2,396 acres in St.
Mary Parish. This agreement contains an option to lease the subject
property for oil and gas exploration. In the third quarter of fiscal 1998,
the Company entered into an oil and gas lease on approximately 41 acres in
St. Mary Parish for $7,283. The agreement has a three year primary term.
Also in the third quarter, the Company entered into a seismic and lease
option agreement dated August 1, 1997. The agreement covers approximately
320 acres for $40,000. This lease carries a five year primary term. In
fiscal 1997, the Company entered into geophysical option agreement
on 1,000 acres for $20,000. The agreement is dated September 25, 1996 and
expires after one year. The agreement contained an option to acquire an
oil and gas lease. Also on February 3, 1997, the Company entered into a
seismic agreement covering approximately 1,395 acres for $28,184. The sole
purpose of the agreement was to allow seismic exploration activities. The
agreement expired December 31, 1997. In fiscal 1996, the Company entered
into a geophysical option agreement dated April 1, 1995 for $10,166 covering
985 acres. This agreement expired March 31, 1996. In 1996 the Company
granted an oil and gas lease for $20,528 on the 274 acres. The lease
I-4 -5-
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agreement has a three year primary term. The lease was not renewed for a
second year. During fiscal 1995, the Company entered into a geophysical
agreement on approximately 1,200 acres of land for $12,002 whereby the
Company granted an option for one year to acquire an oil and gas lease. On
February 1, 1995, the option was exercised and a lease granted for a one
year term on approximately 555 acres for $55,461. The lease contained a
three year primary term. In February, 1996 the lease was extended one
additional year and not renewed.
The Company's activities with respect to oil and gas are limited to
the granting of leases and the collection of bonuses, delay rentals and
landowner royalties thereunder.
See also Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," incorporated herein by reference, for
further information on mineral operations on Company lands.
ITEM 3 - LEGAL PROCEEDINGS
No material legal proceedings are pending or known to comtemplated by
governmental authorities, attention is invited to Item 1, "Business,"
incorporated herein by reference, for information respecting citations
issued to the Company by the Air Quality Control Division of the
Louisiana State Office of Environmental Protection.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of April 9, 1998 there were approximately 600 holders of record
of the Company's stock which is traded in the over-the-counter market. The
Company acts as its own stock transfer agent and registrar. The Company's
mailing address is P. O. Box 572, Franklin, Louisiana 70538 and its
physical address is 609 Irish Bend Road, Franklin, Lousisana 70538.
The following table shows the range of high and low bid quotations for
the Company's stock for each quarterly period during the last two years, as
quoted by the National Quotation Bureau, Inc. Such quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commissions, and may not
necessarily reflect actual transactions. No dividends were declared by the
Company during the two year period.
Range of Prices
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Fiscal 1998 High Low
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First Quarter $ 6-5/8 $ 6-1/2
Second Quarter 8 6-1/2
Third Quarter 9 7
Fourth Quarter 7 7
I-5 -6-
<PAGE>
Fiscal 1997
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First Quarter $ 6-1/2 $ 6-1/2
Second Quarter 6-3/4 6-1/2
Third Quarter 6-5/8 6-5/8
Fourth Quarter 6-1/2 6-1/2
ITEM 6 - SELECTED FINANCIAL DATA
Year ended January 31
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1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Revenues $39,746,442 $38,748,102 $29,644,559 $34,250,584 $13,932,753
Net Earnings
(Loss) $ 839,569 $ 2,036,970 $ 2,119,609 $ 742,783 $ (983,319)
Net Earnings
(Loss per
Share) $ .34 $ .81 $ .85 $ .30 $ (.40)
Cash Dividends
Paid per
Share $ - $ - $ - $ - $ -
AT YEAR END:
Total assets $41,389,416 $35,584,629 $27,969,569 $20,879,631 $26,513,324
Long-term
Debt $ 9,160,422 $ 9,615,175 $ 4,017,469 $ 4,371,434 $ 4,694,236
Working
Capital $ 2,716,133 $ 5,204,946 $ 5,169,044 $ 4,493,736 $ 3,121,514
Stockholders'
Equity $16,505,059 $15,665,490 $13,628,520 $11,346,411 $10,604,028
II-1 -7-
<PAGE>
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For fiscal 1998 (1997 crop), the Company had net earnings of
$839,569 or $.34 per share. Net earnings for the fiscal year ending
January 31, 1997 (1996 crop) were $2,036,970 or $.81 per share. The
Company for fiscal 1996 (1995 crop) had net earnings of $2,119,609 or
$.85 per share.
Net earnings for fiscal 1998 are reduced compared to the two
previous fiscal years for primarily two reasons. First, the trend
among sugarcane farmers in our area to convert harvesting practices from
whole stalk to billet combines has led to increased factory costs.
Second, the Company has incurred an increased amount of interest and
loan expenses. In December, 1996 additional long-term debt was acquired
to purchase cane land to secure and maintain the Company's cane supply.
Also as the Company processes larger volumes of cane, working capital
requirements increase resulting in additional short-term borrowings and
interest costs.
For the fourth consecutive year, the Company was able to set a new
record for tons of cane processed. The Company processed 899,989 tons of
cane for the 1997 crop. This is compared to 821,184, 769,953 and 606,112
tons of cane for 1996, 1995 and 1994, respectively.
The Company's average daily grinding rate was increased again this
grinding season. For the 1997 crop, the average daily grinding rate was
10,112. For the 1996 and 1995 crops, the average daily grinding rates were
9,803 and 9,457 tons of cane per day, respectively. The 1997 crop was
processed in 89 days. This is compared to 84 days to process the 1996 crop
and 81 days to process the 1995 crop. The factory capital additions over
the past four years have allowed the factory to increase its daily grinding
capacity substantially. In the future, the Company plans to continue to
focus on capital expansion projects which will further increase the daily
grinding capacity of the factory which will result in more efficiencies
thereby reducing costs while matching the total cane supply available for
processing.
For the 1997 crop, sugar yields per ton of cane are estimated at
211 pounds. This is a 12 pound increase over the 1996 crop yield. For the
1996 and 1995 crops, sugar yields were 199 and 213 pounds per ton of cane,
respectively.
Raw sugar production is up considerably for the 1997 crop and is
estimated at 94,757 tons. For the 1996 and 1995 crops, raw sugar production
was 81,822 and 82,141 tons, respectively. The increased production for the
1997 crop primarily results from the Company processing an additional 78,805
tons of cane for the 1997 crop over 1996 coupled with increased sugar yields
from crop year 1996 to 1997.
The Company's agricultural division produced 19,872 tons of cane on
609 mill acres for the 1997 crop. For the 1996 and 1995 crops, the
agricultural division produced 20,792 and 20,509 tons of cane on 730 and 798
mill acres, respectively. For the 1997 crop the sugarcane yield was 32.6
tons per acre compared to 28.5 tons per acre for the 1996 crop and 25.7 tons
per acre for the 1995 crop. During February, 1997 the Company was
successful in leasing to an independent farmer approximately 383 cultivable
acres of its farm division. The Company now farms approximately 817 acres
compared to approximately 1,200 acres the two previous years.
II-2 -8-
<PAGE>
The Statement of Earnings for the three years ended January 31,
1998, 1997 and 1996 reflect sales of raw sugar and molasses of $39,746,442,
$38,748,102 and $28,495,085, respectively. Sugar marketed for fiscal 1998
was 90,434 tons. This compares to 85,749 and 61,278 tons of raw sugar
marketed during fiscal 1997 and 1996, respectively. The increase in sales
over the past three years is primarily the result of increased raw sugar
production from processing greater volumes of sugarcane. The increase in
sales, however, is offset by the continued reduction in the sugar price.
The average price received for sugar marketed in fiscal 1998 is estimated at
$21.99 cwt. whereas the fiscal 1997 average price was $22.15 and the fiscal
1996 price averaged $22.52.
Interest earned for fiscal 1998 was $25,154. For fiscal 1997 and
1996, interest earned was $43,959 and $45,864, respectively. The reduction
in fiscal 1998 is principally the result of the Company having less funds
available for short-term investment because of the aforementioned increased
working capital requirements during fiscal 1998.
Income from mineral leases and royalties increased significantly in
fiscal 1998 and was $167,695. This compares to mineral lease and royalty
income of $89,948 for fiscal 1997 and $114,926 for fiscal 1996. The
increase for fiscal 1998 is primarily attributable to the Company entering
into two seismic agreements in the first quarter of the fiscal year. One
agreement, for $31,625, was for six months and covers approximately 710
acres in St. Mary Parish. The second agreement, for $71,891, contains an
eighteen month term and covers 2,396 acres in St. Mary Parish. This
agreement contains an option to lease the subject property for oil and gas
exploration. In the third quarter of fiscal 1998, the Company entered into
an oil and gas lease on approximately 41 acres in St. Mary Parish for
$7,283. The agreement has a three year primary term. Also in the third
quarter, the Company entered into a seismic and lease option agreement dated
August 1, 1997. The agreement covers approximately 320 acres for $40,000.
This lease carries a five year primary term. The decrease from fiscal 1996
to 1997 is primarily the result of an oil and gas lease and a geophysical
option agreement not being renewed for a second year. The oil and gas lease
was originally granted in February, 1995 for $20,528 on 274 acres. The
geophysical option agreement was dated April 1, 1995 for $10,166 covering
985 acres. Oil and gas royalties have declined over the three year period
and were $20,613, $25,708 and $30,188 for fiscal 1998, 1997 and 1996,
respectively.
For fiscal 1998, the Company recognized a loss of $164,700 on the
disposition of property and equipment. For the two previous fiscal years,
the Company recognized gains of $14,795 and $145,076 on the disposition of
property and equipment. The loss recognized in fiscal 1998 is primarily
attributable to the sale or scrapping of obsolete machinery and equipment.
Other revenues consist primarily of miscellaneous income items which
include amounts received from cane land rentals and permitting seismic
surveys conducted for oil and gas exploration. For the current fiscal year,
other revenues were $942,459. For the two previous years, revenues totaled
$518,370 and $843,608, respectively.
Cane land rentals for fiscal 1998, 1997 and 1996 were $796,180,
$565,401 and $602,185, respectively. Other revenue also includes amounts
received from the Sugar Cane Safety Group representing a return of capital
from workers compensation reserve funds for years closed out. For fiscal
1998, the amount received was $89,698. For fiscal 1997 and 1996, the
amounts received were $141,127 and $318,032, respectively.
II-3 -9-
<PAGE>
Cost of products sold for each of the three years ending in 1998,
1997 and 1996 were $37,184,172, $34,703,495 and $24,952,455, respectively.
The cost of products sold in each of these years are relative to the sales
of raw sugar and molasses for the three years.
General and administrative expenses remained relatively consistent
over the three years. These expenses were $942,896, $975,779 and $954,809
for fiscal years ending 1998, 1997 and 1996, respectively.
The Company's interest and loan expenses for fiscal 1998 totaled
$1,142,248 up from $504,260 for fiscal 1997. For fiscal 1996, these
expenses were $522,667. The increase in the current year results primarily
from the Company making a long-term loan of $6,500,000 in December, 1996 to
finance the total purchase price of approximately 8,519 acres of land in St.
Mary Parish of which 4,863 acres is cultivable cane land. The acquisition
was viewed as good for the Company in that it will secure and maintain the
Company's current cane supply. For the 1997 crop, the Company processed
121,750 tons of cane from this land which is approximately 14 percent of the
total cane processed. The loan agreement contains a ten year pay out.
Interest expense for each of the three years also includes interest incurred
on a $4,000,000 long-term loan made in April, 1992 and interest cost on
lines of credit utilized.
For fiscal 1998, 1997 and 1996, the Company is recognizing income
tax expenses of $608,165, $1,194,670 and $1,095,019, respectively. The
income tax expenses are explained in Footnote 5, Notes to Financial
Statements, on pages 12 and 13 of this report.
The liquidity of the Company over the last three years has been
fairly good. The current ratio at January 31, 1998 was 1.2 to 1. For the
two previous fiscal years ending January 31, 1997 and January 31, 1996, the
current ratios were 1.6 to 1 and 1.5 to 1, respectively. The decrease in
the current ratio for the 1998 period primarily results from the Company
maintaining a higher amount of short-term debt at January 31, 1998 compared
to January 31, 1997. At January 31, 1998, debt was $6,776,000 compared to
$2,575,000 at January 31, 1997. The increase in short-term debt primarily
results from decreases in working capital available during the 1997 idle and
grinding seasons.
For the coming year, the Company expects the volume of cane it will
grind to increase over that of fiscal 1998. It's anticipated that billet
cane deliveries will approach 55% of total cane processed. For the 1997
crop, billet cane deliveries were approximately 47% of the total cane
processed. This year the Company will focus on a good repair season in an
effort to reduce lost time during grinding operations and become more
efficient in handling and processing billet cane. For fiscal 1999, the
Company has budgeted capital improvements of $1,522,000. These additions
are directed to improve existing areas of plant operations. The additions
include upgrading the mud filter station, rebuilding the water cooling
towers and the installation of a wet scrubber on boiler #1 to improve
emissions. The Company expects to fund the capital additions from working
capital and short-term borrowings through lines of credit available to the
Company.
The current farm bill referred to as the Federal Agriculture
Improvement and Reform Act (FAIR) otherwise known as the Freedom to Farm
Bill has been in effect for nearly two years. This seven year farm bill is
more risky for producers and includes an 18 cent loan rate with loans not to
exceed nine months. The no cost provision to the federal treasury is
retained and marketing allotments have been suspended through the year 2002.
II-4 -10-
<PAGE>
The bill contains a recourse loan provision when imports fall below 1.5
million tons and mandates a 1 cent penalty for forfeited sugar. The
marketing assessment was raised to 1.375% from 1.10% of the loan rate.
Sugar industry officials believe the legislation is satisfactory. However
after the year 2002, the domestic sugar industry may be without a sugar
program and consequently will have to compete in a global market to produce
and sell sugar.
The sugar program is intended to maintain price levels in the market
place that will not lead to forfeitures by domestic producers. The USDA
administers a foreign country quota system which allocates import quotas to
forty foreign countries to supply the deficiencies between domestic
production and consumer demand. As a result of recent trade agreements in
Geneva, regardless of supply/demand requirements to fill the gap, foreign
country quota holders are guaranteed a minimum quota of approximately
1,250,000 short tons per year.
For the last couple of years the system has centered around estimates
from the World Agriculture Supply and Demand Estimates (WASDE) of the stocks
to use ratio which would lead to automatic quota increases. For the quota
years 1996/1997 and 1997/1998, if the stocks to use ratio percentage
estimate as of September 30 of each year was 15.5% or lower, an automatic
increase in the quota of 200,000 metric tons would be triggered. The
scheduled quota increases of 200,000 tons each are automatically triggered
if the estimate of the stocks to use ratio is 15.5% lower in WASDE estimates
announced January, March and May.
In looking ahead, it is very important for the Company to continue to
expand the size of the factory and increase its volume of cane supply to be
profitable. It is believed by most in the industry that the recent decline
in sugar prices will not improve in the very near future. Therefore it is
very important that the Company strive to become more efficient and become
competitive in the global market place.
II-5 -11-
<PAGE>
March 10, 1998
To the Stockholders and Board of Directors
Sterling Sugars, Inc.
Franklin, Louisiana
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Sterling Sugars,
Inc. as of January 31, 1998 and 1997, and the related statements of
income and retained earnings and cash flows for each of the three
years in the period ended January 31, 1998. 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 audits 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 financial statements present fairly, in all
material respects, the financial position of Sterling Sugars, Inc. as of
January 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended January 31, 1998, in
conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ LeGlue & Company
(A Professional Corporation)
II-6 -12-
<PAGE>
STERLING SUGARS, INC.
BALANCE SHEETS
JANUARY 31, 1998 AND 1997
ASSETS
CURRENT ASSETS:
1998 1997
------------ ------------
Cash $ 103,511 $ 16,611
Temporary cash investments 107,212 93,721
------------ ------------
Total cash and temporary cash investments 210,723 110,332
Accounts receivable, principally sugar and
molasses sales, no allowance for doubtful
accounts considered necessary 2,609,757 1,890,398
Sugar inventory - at cost 12,617,812 10,583,250
Molasses inventory - at market 256,852 261,269
Expenditures for future crops 58,440 148,334
Operating supplies - at cost 761,637 823,429
Deferred income taxes 253,400 102,200
Prepaid expenses and other assets 304,847 588,998
------------ ------------
TOTAL CURRENT ASSETS 17,073,468 14,508,210
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 6,886,838 6,886,838
Buildings 3,293,695 3,146,195
Machinery and equipment 35,668,731 31,015,481
------------ ------------
45,849,264 41,048,514
Less accumulated depreciation 23,138,907 22,077,725
------------ ------------
22,710,357 18,970,789
------------ ------------
INVESTMENTS AND OTHER ASSETS:
Cash value of officers' life insurance 34,002 31,763
Expenditures for future crops 999,994 1,389,338
Notes receivable, net of allowance for
doubtful accounts, 1998 $17,232; 1997 $38,000 571,595 684,529
------------ ------------
Total investments and other assets 1,605,591 2,105,630
------------ ------------
$41,389,416 $35,584,629
============ ============
See notes to financial statements
II-7 -13-
<PAGE>
STERLING SUGARS, INC.
BALANCE SHEETS
JANUARY 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
-------------- -------------
CURRENT LIABILITIES:
Notes payable $ 6,776,000 $ 2,575,000
Accounts payable 875,330 1,171,467
Due to cane growers 5,708,816 4,654,502
Current portion of long-term debt
and capital leases 997,189 902,295
-------------- --------------
TOTAL CURRENT LIABILITIES 14,357,335 9,303,264
-------------- --------------
LONG-TERM DEBT AND CAPITAL LEASE, less portion
due within one year included in current
liabilities 9,160,422 9,615,175
-------------- --------------
DEFERRED INCOME TAXES 1,366,600 1,000,700
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 9) - -
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share:
Authorized and issued 2,500,000 shares 2,500,000 2,500,000
Additional paid-in capital 40,455 40,455
Retained earnings 13,964,604 13,125,035
------------ --------------
16,505,059 15,665,490
------------ --------------
$41,389,416 $35,584,629
============ ==============
See notes to financial statements
II-8 -14-
<PAGE>
STERLING SUGARS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED JANUARY 31,
1998 1997 1996
---------- ----------- -----------
REVENUES:
Sugar and molasses sales $39,746,442 $38,748,102 $28,495,085
Interest earned 25,154 43,959 45,864
Mineral leases and royalties 167,695 89,948 114,926
Gain (loss) on disposition of property
and equipment (164,700) 14,795 145,076
Other 942,459 518,370 843,608
----------- ----------- -----------
40,717,050 39,415,174 29,644,559
----------- ----------- -----------
COST AND EXPENSES:
Cost of products sold 37,184,172 34,703,495 24,952,455
General and administrative 942,896 975,779 954,809
Interest and loan expenses 1,142,248 504,260 522,667
----------- ----------- -----------
39,269,316 36,183,534 26,429,931
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,447,734 3,231,640 3,214,628
INCOME TAXES 608,165 1,194,670 1,095,019
----------- ----------- -----------
NET INCOME 839,569 2,036,970 2,119,609
RETAINED EARNINGS AT BEGINNING OF YEAR 13,125,035 11,088,065 8,968,456
----------- ----------- -----------
RETAINED EARNINGS AT END OF YEAR $13,964,604 $13,125,035 $11,088,065
=========== =========== ===========
WEIGHTED AVERAGE EARNINGS PER
COMMON SHARE:
Net income $.34 $.81 $ .85
=========== ========== ===========
CASH DIVIDENDS PAID $ 0 $ 0 $ 0
=========== =========== ===========
See notes to financial statements
II-9 -15-
<PAGE>
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31,
1998 1997 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 839,569 $ 2,036,970 $ 2,119,609
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Depreciation 2,120,443 1,793,012 1,533,946
Deferred income taxes 214,700 361,100 271,600
Bad debts 38,000 - -
(Gain) loss on dispositions of property
and equipment 164,700 (14,795) (145,076)
Changes in operating assets and liabilities:
(Increase) decrease in accounts
receivable (719,359) (173,350) 559,929
(Increase) decrease in sugar and
molasses inventories (2,030,145) 817,603 (7,458,169)
Increase in accounts payable and
accrued expenses and due to cane
growers 758,177 30,480 2,190,846
Increase (decrease) in interest
and income taxes payable (31,833) 59,406 (326,541)
Other items - net 854,775 (1,344,052) 117,908
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,209,027 3,566,374 (1,135,948)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection on notes receivable 147,596 224,589 415,184
Issuance of Notes receivable (72,662) (231,639) (431,738)
Purchases of property, plant and
equipment (5,514,397) (8,842,848) (2,739,294)
Proceeds from dispositions of
property and equipment 125,478 74,300 217,462
------------ ----------- -----------
NET CASH (USED IN)
INVESTING ACTIVITIES (5,313,985) (8,775,598) (2,538,386)
------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes
payable and long-term debt 20,168,000 27,309,300 20,568,778
Sale of treasury stock - - 111,625
Payments on short-term notes
payable and long-term debt (16,962,651) (22,123,796) (17,495,254)
------------ ------------ -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,205,349 5,185,504 3,185,149
------------ ------------ -----------
INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS 100,391 (23,720) (489,185)
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 110,332 134,052 623,237
----------- ----------- -----------
(Continued)
II-10 -16-
<PAGE>
STERLING SUGARS, INC.
STATEMENTS OF CASH FLOWS
Years Ended January 31,
------------------------------------
1998 1997 1996
------------ ----------- -----------
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR $ 210,723 $ 110,332 $ 134,052
============ =========== ===========
SUPPLEMENTAL INFORMATION REGARDING
CASH FLOWS:
INTEREST PAID $1,162,716 $ 415,053 $ 509,421
============ ============ ==========
INCOME TAXES PAID $ 225,000 $1,226,919 $ 1,152,704
============ ============ ===========
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment financed by
notes payable and capital lease $ 635,792 $ - $ -
============= ============ ===========
Corporation issued common stock for
the payment of management fee due
to M. A. Patout & Son, Ltd. $ - $ _ $ 50,875
============= =========== ============
See notes to financial statements
II-11 -17-
<PAGE>
STERLING SUGARS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Raw sugar produced by the Company included in inventory was valued at
lower of cost or market. Molasses amounts on hand are recorded at an
average of the estimated weekly market price during the pricing period as
specified in the sales contracts. Sales are recognized when deliveries are
made.
Allowance for doubtful accounts was based on management's evaluation of
the individual accounts and notes receivable.
Property, plant and equipment are recorded at cost. Depreciation is
computed principally by the declining balance method, and is primarily on
average lives of 40 years for buildings, 15 years for machinery and
equipment, 10 years for furniture and fixtures and 6 years for vehicles.
Income taxes were accounted for using the liability method.
Expenditures for future crops relate to subsequent years' crops and have
been deferred. These costs will be charged against earnings as the income is
received from these crops. The amounts related to land leased to others on
which the leases do not expire within one year of the balance sheet date have
been classified as non-current assets.
Cash equivalents include all highly liquid temporary cash investments
with a maturity of three months or less at the date of purchase.
2. NATURE OF OPERATIONS, RISK AND UNCERTAINTIES
Sterling Sugars, Inc. is a grower and processor of sugarcane from which
it produces raw sugar and blackstrap molasses in St. Mary Parish, Louisiana.
All sugar produced by the Company is sold to a few major sugar refiners and
candy manufacturers under sales contracts. Molasses is sold to a major
molasses distributor under sales contracts.
The cane supply, which the Company processes into raw sugar and
blackstrap molasses, is provided by approximately fifty growers located
primarily in St. Mary and Iberia Parishes, some of which are on Company
owned land.
The Company maintains, at a regional financial instituion, cash which
may exceed federally insured amounts at times.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
II-12 -18-
<PAGE>
3. NOTES PAYABLE
Notes payable at January 31, 1998 included $6,776,000 of short-term
unsecured notes payable to a bank with interest at 8.50%.
Notes payable at January 31, 1997 included $2,575,000 of short-term
unsecured notes payable to a bank with interest at 8.25%
The maximum aggregate short-term borrowings outstanding were $20,168,000
in 1998, $20,809,900 in 1997 and $20,568,800 in 1996. The average aggregate
amount of short-term borrowings and the weighted average interest rate was
approximately $2,795,550 and 8.34% in 1998, $924,300 and 6.18% in 1997, and
$1,640,280 and 6.97% in 1996. Short-term borrowings occur primarily during
the months of September through December.
4. LONG-TERM DEBT AND CAPITAL LEASE
Long-term debt and capital lease at January 31, 1998 and 1997 consisted
of the following:
1998 1997
----------- -----------
8.50% mortgage note collateralized by first
mortgage on approximately 10,186 acres of
land owned by the Company; payable in
semi-annual payments of $194,240, including
interest with the balance of $3,360,000 due
January 1, 2002. $ 3,668,820 $ 3,740,829
8.95% capital lease collateralized by equipment,
payable in monthly payments of $16,500 including
imputed interest beginning October 1, 1995 with
a final payment of $16,500 due October 1, 1998. 96,355 276,641
8.25% mortgage note collateralized by a first
mortgage on 8,519 acres of land and a second
mortgage on 10,186 acres of land owned by the
Company; payable in semi-annual payments of
$325,000, interest payable quarterly, with a
final payment due October, 31, 2006. This mortgage
note provides for additional principal payments
equal to fifty percent of the net income before
depreciation reduced by capital expenditures.
There were no required additional payments of
principal at January 31, 1998 and 1997. An
additional covenant of the loan is that no
dividends are to be paid. 5,850,000 6,500,000
8.9% note collateralized by equipment, payable
in twenty-four monthly installments of $10,345
including interest, beginning May 1, 1997 168,305 -
8.5% note collateralized by equipment, payable
in four annual installments of $18,760,
including interest, and one installment for
balance of $61,142, beginning February 2, 1998 118,097 -
II-13 -19-
<PAGE>
10% capital lease collateralized by equipment,
payable in thirty-six monthly payments of
$7,782, including imputed interest, beginning
November 1, 1997 with a final payment of
$42,500 due October 1, 2000 256,034 -
----------- -----------
10,157,611 10,517,470
Less portion due within one year (997,189) (902,295)
------------ -------------
$ 9,160,422 $ 9,615,175
============ =============
The aggregate annual principal payments applicable to these notes and
capital leases are payable as follows:
Year ended January 31, 1999 $ 997,189
Year ended January 31, 2000 909,434
Year ended January 31, 2001 888,237
Year ended January 31, 2002 4,081,833
Year ended January 31, 2003 680,918
Thereafter 2,600,000
-------------
$ 10,157,611
=============
The Company had a line of credit with a bank at January 31, 1998 and 1997
in the amount of $8,600,000 and $3,500,000, respectively. There was
$6,776,000 and $2,575,000 borrowed against this line of credit as of
January 31, 1998 and 1997, respectively.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's net deferred tax
liability as of January 31, 1998 and 1997 are as follows:
1998 1997
------------ ------------
Deferred tax assets:
Tax credit carryforwards $ 190,500 $ 404,800
Other 62,900 119,000
------------ -------------
Total 253,400 523,800
------------ -------------
Deferred tax liabilities:
Differences between book and tax basis of
property (1,366,600) (1,405,500)
Other - (16,800)
------------ -------------
Total (1,366,600) (1,422,300)
------------ -------------
Net $(1,113,200) $ (898,500)
============ =============
II-14 -20-
<PAGE>
The foregoing net amounts were included in the accompanying balance sheet
as follows:
1998 1997
--------- -----------
Deferred tax assets - Current $ 253,400 $ 102,200
Deferred tax liability - Non-current (1,366,600) (1,000,700)
------------ -----------
Net $(1,113,200) $ (898,500)
============ ===========
There was no valuation allowance required at January 31, 1998 and 1997.
Income taxes consist of the following components:
1998 1997 1996
---------- ---------- -----------
Currently payable $ 393,465 $ 833,570 $ 823,419
Deferred 214,700 361,100 271,600
---------- ---------- -----------
$ 608,165 $1,194,670 $1,095,019
========== ========== ===========
State income taxes included in income tax expense amounted to approximately
$56,600, $156,800 and $83,600 in 1998, 1997 and 1996, respectively.
Deferred income taxes relate primarily to the following items:
1998 1997 1996
----------- ---------- -----------
Depreciation $ 92,900 $ (8,200) $ 37,500
Alternative minimum tax carryover 214,300 311,000 (167,500)
Deferred compensation (15,000) (43,830) (40,900)
Net operating loss carryforward - - 412,400
Other (77,500) 102,130 30,100
----------- ---------- ------------
$ 214,700 $ 361,100 $ 271,600
=========== ========== ============
Income taxes as a percentage of pretax earnings vary from the effective
Federal statutory rate of 34%. The reasons for these differences are shown
below:
1998 1997 1996
------------ ------------ ---------------
Amount % Amount % Amount %
------------- ------------ ---------------
Income taxes at statutory
rate of pretax earnings $ 492,200 34 $1,098,800 34 $1,093,000 34
Increase (decrease) in taxes
resulting from:
State income taxes 115,800 8 258,500 8 257,200 8
Other items - net 165 - (162,630)(5) (255,181)(8)
------------- ------------- --------------
Actual income taxes $ 608,165 42 $1,194,670 37 $1,095,019 34
============= ============= =============
II-15 -21-
<PAGE>
At January 31, 1998 the Company had alternative minimum tax credit
carryforwards of approximately $190,500 available to reduce future income
taxes payable under certain circumstances. The alternative minimum tax
credit carryover period is unlimited.
6. RETIREMENT PLAN
The Company has a defined benefit non-contributory retirement plan in
force covering eligible salaried and factory hourly employees.
The Company's current policy is to contribute annually the amount that can
be deducted for federal income tax purposes. The benefits are based upon
years of service and employee's compensation during the best five years of
employment. The total pension expense for the years ended January 31,
1998, 1997 and 1996 was $39,000, $34,000 and $35,000, respectively.
Data relative to the Plan were as follows (in thousands):
January 31,
---------------------
1998 1997
--------- ---------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,268 $ 1,203
========== ========
Accumulated benefit obligation $ 1,292 $ 1,229
========== ========
Projected benefit obligation for service rendered
to date $ (1,480) $ (1,390)
Plan assets at fair value 1,441 1,375
---------- --------
Plan assets in excess of projected benefit
obligation (39) (15)
Remaining unrecognized portion of net assets at
February 1, 1987 (82) (98)
Unrecognized net loss from past experience
different from that assumed 139 157
---------- --------
Prepaid pension cost included in other assets $ 18 $ 44
========== ========
The net pension expense for 1998, 1997 and 1996 included the
following (income) expense components:
1998 1997 1996
------- ------- -------
Service cost - benefits earned during the period $ 54 $ 52 $ 51
Interest cost on projected benefit obligation 104 97 90
Actual return on plan assets (109) (105) (96)
Net amortization and deferrals (10) (10) (10)
--------- ------- -------
NET PENSION EXPENSE $ 39 $ 34 $ 35
========= ======= =======
II-16 -22-
<PAGE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% in 1998, 1997 and 1996.
The projected rate of increase in future compensation levels used was 5.5%
in 1998, 1997 and 1996. The expected rate of return on plan assets was 8%
in 1998, 1997 and 1996. The plan's assets consist primarily of deposits in
the general funds of an insurance company.
7. EMPLOYEE SAVINGS PLAN
The Company established, effective February 1, 1992, an Employee Savings
Plan under Section 401(k) of the Internal Revenue Code. The Plan, which
covers eligible salaried and factory hourly employees, provides that the
Company match up to 50% of the first 6% of employee contributions. The
Company's contribution was $45,000 for the year ended January 31, 1998 and
$42,000 for the year ended January 31, 1997 and $39,000 for the year ended
January 31, 1996.
8. REVENUES
Sugar and molasses sales are comprised of the following:
1998 1997 1996
----------- ----------- -----------
Sugar $38,622,246 $37,274,463 $26,896,616
Molasses 1,124,196 1,473,639 1,598,469
----------- ----------- -----------
$39,746,442 $38,748,102 $28,495,085
============ =========== ===========
Sugar sales to individual major customers amounted to $17,243,478,
$11,413,502, $6,962,764, $1,488,453, $787,115 and $684,182 in 1998,
$15,750,889, $9,088,903, $8,419,174,$3,637,474 and $305,782 in 1997,
$9,934,094, $7,916,007, $4,189,733 and $3,427,134 in 1996.
Income from mineral leases and royalties is comprised of the following:
1998 1997 1996
--------- -------- ---------
Oil and gas royalties $ 20,613 $ 25,708 $ 30,188
Mineral leases 147,082 64,240 84,739
--------- -------- ---------
$167,695 $ 89,948 $114,927
========= ======== =========
Oil and gas royalties consist entirely of landowners overrides which
management considers incidental to the operations of the Company. Reserve
information relating to this production has not been made available to the
Company.
Other income is comprised of the following:
1998 1997 1996
--------- --------- ---------
Rental property $ 815,881 $ 575,566 $ 607,672
Other 126,578 (57,196) 235,963
--------- --------- ---------
$ 942,459 $ 518,370 $ 843,635
========= ========= =========
II-17 -23-
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
The Company has certain lease obligations under which a total of
approximately 3,000 acres of agricultural land are being leased. At the
present time, substantially all of these properties are being subleased
and resulted in net payments of approximately zero in all years. The
subleases have the same payment and option terms as the Company's leases.
The Company had employment agreements with two executive officers. One
of the agreements expired in 1996. During the year ended January 31,
1994, the Company amended the terms of the second agreement due to the
retirement of one of the executive officers. The Company accrued the
present value of all future payments required under the amended agreement.
This agreement expired May 31, 1997.
At January 31, 1998 the Company had guaranteed a $202,000 collateralized
note of a cane grower. The outstanding note balance at January 31, 1998
was $65,659.
The Company had guaranteed a $100,000 collateralized note and a $415,000
collateralized note for a grower and a harvesting company, respectively.
The Company is also contingently liable or co-maker of a collateralized
note in the amount of $1,150,000 for Patout Equipment Co., Inc., an
affiliated corporation.
The Company entered into a technical service contract which provides for a
fee payable to M. A. Patout & Son, Ltd. equal to ten percent of net income
before income taxes from the manufacture, production and sale of raw sugar
and molasses each year provided that net income from the foregoing exceeds
$500,000. This agreement expires January 31, 1999.
The Company has an option to purchase approximately 238 acres of
agricultural land in St. Mary Parish for approximately $357,000. As
consideration for this option the Company pledged a certificate of
deposit in the amount of $82,160.
10. RELATED PARTIES
During the year ended January 31, 1998 and 1997, the Company was involved
in the following related party transactions:
The Company entered into a cane swap agreement with M. A. Patout & Son
Ltd. whereby some shippers of sugarcane to M. A. Patout & Son, Ltd.
delivered their cane to Sterling Sugars, Inc. because of their proximity
to the Sterling Sugars, Inc.'s factory. The agreement was reciprocal for
some shippers normally having their cane processed by Sterling Sugars, Inc.
The net effect of this cane swap agreement was that Sterling Sugars, Inc.
ground an additional 29,662 tons of cane for the year ended January 31,
1997. The reimbursement due M. A. Patout & Son, Ltd. for the year ended
January 31, 1997 for payments made by them to shippers under this agreement
was $970,816. Amounts payable at January 31, 1997 were $172,490. The
Company did not enter into a cane swap agreement for the year ended January
31, 1998.
II-18 -24-
<PAGE>
The Company entered into a technical service agreement with M. A.
Patout & Son, Ltd. This agreement provides for an option to acquire
50,000 shares of treasury stock owned by the Company on or before December
31, 1998, at a price of $3.25 per share. M. A. Patout & Son, Ltd.
exercised its option on April 12, 1995 and acquired the 50,000 shares of
treasury stock for $162,500. Additionally, the amounts due by the Company
to M. A. Patout & Son, Ltd. under the technical service agreement were
$39,111 and $219,305 for the years ended January 31, 1998 and 1997,
respectively.
The Company reimbursed M. A. Patout & Son, Ltd. certain expenses paid by
them on behalf of the Company. Reimbursements for the year ended January
31, 1998 were $301,126.
The Company reimbursed Raceland Sugars, Inc. certain expenses paid by
them on behalf of the Company. Reimbursements for the year ended January
31, 1998 were $459.
The Company obligated itself a co-maker of a collateralized equipment note
for Patout Equipment Co., Inc. in the amount of $1,150,000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair value of the Company's financial instruments were as
follows (in thousands):
1/31/98 1/31/97
Carrying Fair Carrying Fair
value value value value
--------- ----- -------- ------
Cash and cash equivalents $ 211 $ 211 $ 110 $ 110
Accounts receivable 2,610 2,610 1,890 1,890
Notes receivable 572 385 685 466
Short-term debt 6,776 6,776 2,575 2,575
Accounts payable 875 875 1,171 1,171
Due to growers 5,709 5,709 4,655 4,655
Long-term debt (including current
portion) 10,158 10,158 10,517 10,517
The carrying value of cash and cash equivalents, accounts receivable,
short-term debt, accounts payable and due to growers approximate fair
value due to short-term maturities of these assets and liabilities.
The fair value of the Company's notes receivable was estimated based on
discounting the future cash flows using current interest rates at which
similar loans would be made.
The fair value of the Company's long-term debt (including current
maturities) was based on current rates at which the Company could borrow
funds with similar remaining maturities.
9. ITEM 9 -DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
II-19 -25-
<PAGE>
PART III
ITEM 10-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As respects directors information required under this item is contained
in the registrant's Proxy Statement dated April 24, 1998 under the captions
"Election of Directors" and "Information Concerning Management-Business
Experience of Directors," incorporated herein by reference.
The following table sets forth information concerning the Company's
executive officers, including their principal occupation for the the past
five years and all positions and offices held with the Company by such
executive officers. The term of each of the below named executive officers,
elected May 15, 1997, expires on May 21, 1998, or when their successors have
been chosen.
NAME CAPACITY AGE
----------------------------------------------------------------------
Craig P. Caillier President and CEO February 2,
1996 to present; Senior Vice
President and General Manager
January 1994 - February 1, 1996.
For five years prior to his
association with the Company, was
assistant General Manager and
Secretary/Treasurer of M. A. Patout
& Son, Ltd., Jeanerette, La. 36
Willard E. Legendre Vice President, Plant Operations since
February, 1997; Plant manager January,
1994 - February, 1997. For five years
prior to his association with the
Company, was Assistant Engineer for
M. A. Patout & Son, Ltd., Jeanerette,
La. Mr. Legendre resigned from the
Company on January 31, 1998 37
Stanley H. Pipes Vice President from 1977 until August
1989; Senior Vice President from
August 1989 until January 1994; Vice
President since that date; Treasurer
since 1971. 63
Information required under this item as respects compliance with Section 16
(a) of the Securities Exchange Act of 1934 is contained in the registrant's
Proxy Statement dated April 24, 1998 under the caption "Information
Concerning Management-Certain Transactions," incorporated herein by
reference.
ITEM 11-EXECUTIVE COMPENSATION
Information required under this item is contained in the registrant's Proxy
Statement dated April 24, 1998 under the caption "Information Concerning
Management-Executive Compensation," incorporated herein by reference.
III-1 -26-
<PAGE>
ITEM 12-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the registrant's Proxy
Statement dated April 24, 1998 under the captions "Voting Securities and
Principal Holders Thereof" and "Election of Directors," incorporated herein
by reference.
ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item is contained in the registrant's Proxy
Statement dated April 24, 1998 under the caption "Information Concerning
Management-Certain Transactions," incorporated herein by reference.
III-2 -27-
<PAGE>
FORM 10-K
PART IV
ITEM 14-EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8K
(a) 1. Financial Statements
The following financial statements of Sterling Sugars, Inc. are
included in Part II, Item 8:
Independent Auditors Report (Fiscal Years 1998 and 1997)
Balance Sheets as of January 31, 1998 and 1997
Statements of Income and Retained Earnings for years ended
January 31, 1998, 1997 and 1996
Statements of Cash Flows for years ended January 31, 1998,
1997 and 1996
Notes to Financial Statements
(a) 2. Financial Statement Schedules
Not Applicable
All schedules are omitted for the reason that they are not required or are
not applicable, or the required information is shown in the financial
statements or notes thereto.
IV-1 -28-
<PAGE>
FORM 10-K
PART IV
(Continued)
(a) 3. Exhibits
(3) Page
(a) Articles of Incorporation (a)
(b) By-laws (a)
(c) Amendments to By-laws (b)
(d) Amendments to By-laws (e)
(e) Amended By-laws (e)
(f) Amendment to Certificate of Incorporation (j)
(g) Amended by-laws (p)
(4) (a) Specimen Stock Certificate (b)
(d) Pension Plan (b)
(e) Income Sharing Plan (b)
(f) 1987 employment contract (Fred Y. Clark) (c)
(g) 1986 Peebles lease (f)
(h) Employment contract (Fred Y. Clark) (g)
(j) Lease-West Camperdown (Bolton Cane Company) (i)
(k) Sublease-Katy Plantation (Bolton Cane Company) (i)
(l) Lease-portions of Sterling Plantation
(Baker Plantation, Inc.) (i)
(n) Employment contract (Stanley H. Pipes) (k)
(o) Addendum to employment contract dated January
31, 1987 (Fred Y. Clark) (k)
(q) Lease-Calumet Plantation (Frank Martin Farms) (k)
(t) Lease-Belleview Golf and Country Club (m)
(u) Agricultural lease with option to purchase
(Adeline Plantation) (m)
(v) Amendment to agricultural lease (Adeline Plt.) (m)
(w) Sublease-(Adeline Plantation) (m)
(x) Agricultural lease (Shadyside Plantation) (n)
(y) Sublease-Shadyside (C.J. Hebert) (n)
(z) Sublease-Shadyside (Frank Martin Farms) (n)
(aa) Agriculture lease-Shaffer Plantatin (Teche
Planting Company) (n)
(bb) Agriculture lease-West Belleview (Teche
Planting Company) (n)
(cc) Amendment to employment contract of January 31,
1987 (Fred Y. Clark) (n)
(dd) Techincal Services Agreement-M.A. Patout & Son (o)
(ee) Sublease-Teche Planting Company (o)
(ff) Lease extension-Franklin Realty (o)
(gg) Agricultural lease-Theodore Broussard (o)
(hh) Agricultural lease-Kevin Breaux (o)
(ii) Agricultural lease-Sun Operating Limited P. (o)
IV-2 -29-
<PAGE>
FORM 10-K
PART IV
(Continued)
(jj) Agricultural lease - Mildred Buckner (o)
(kk) Sublease - C. J. Hebert (o)
(ll) Sublease - Merrill Smith (o)
(nn) Lease Purchase Agreement-Michael Champagne (o)
(oo) Hunting lease - Richard McGoff (o)
(ss) Agricultural agreement-Advanced Agriculture, Inc. (p)
(tt) Amendment to agriculture agreement-Advanced Ag. (p)
(uu) Agricultural lease renewal-Daniel Gonsoulin (q)
(vv) Agricultural lease renewal-Baker Plantation, Inc. (q)
(ww) Agricultural lease renewal-Bolton Cane Company (34)
(xx) Agricultural lease-Northside Planting (35)
(yy) Agricultural lease-S & S Farms (41)
(zz) Agricultural lease-Breaux Bros. Farms, Inc. (47)
(aaa) Lease Agreement-Myette Point Boat Landing (53)
(bbb) Lease Agreement-Myette Point Dock (57)
(11) Computation of earnings per share (60)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the year ended January 31,
1998.
Footnotes:
(a) Incorporated by reference from registrant's Form 10-K filed May 21,
1965.*
(b) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1981.*
(c) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1982.*
(e) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1984.*
(f) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1986.*
(g) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1987.*
(i) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1989.*
(j) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1990.*
IV-3 -30-
<PAGE>
FORM 10-K
PART IV
(Continued)
(k) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1991.*
(m) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1993.*
(n) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1994.*
(o) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1995*
(p) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1996*
(q) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1997*
* Commission File Number 0-1287
IV-4 -31-
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
STERLING SUGARS, INC.
Date April 24, 1998 BY /s/ Craig P. Caillier
-------------------- ------------------------
Craig P. Caillier
President & CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which includes the
Chief Executive Officer, the Chief Financial and Accounting Officer and a
majority of the Board of Directors, on behalf of the Registrant and in the
capacities and on the dates indicated:
/s/ Craig P. Caillier President & CEO and April 24, 1998
--------------------- Director
Craig P. Callier
/s/ Stanley H. Pipes Vice President & Treasurer
---------------------- (Principal Financial and
Stanley H. Pipes Accounting Officer) April 24, 1998
/s/ William S. Patout III Director April 24, 1998
------------------------
William S. Patout III
/s/ Peter V. Guarisco Director April 24, 1998
------------------------
Peter V. Guarisco
/s/ J. Patout Burns, Jr. Director April 24, 1998
----------------------
J. Patout Burns, Jr.
/s/ Rivers Patout Director April 24, 1998
----------------------
Rivers Patout
/s/ Victor Guarisco, II Director April 24, 1998
-----------------------
Victor Guarisco, II
IV-5 -32-
<PAGE>
INDEX TO EXHIBITS
(10) Material Contracts
(ww) Agricultural lease renewal-Bolton Cane Co. (34)
(xx) Agricultural lease-Northside Planting Co. (35)
(yy) Agricultural lease-S & S Farms (41)
(zz) Agricultural lease-Breaux Bros. Farms, Inc. (47)
(aaa) Lease Agreement-Myette Point Boat Landing (53)
(bbb) Lease Agreement-Myette Point Dock (57)
(11) Computation of Earnings per Common Share (60)
IV-6 -33-
<PAGE>
January 22, 1998
Clyde Bolton
Bolton Cane Company
3810 Irish Bend Road
Franklin, Louisiana 70538
Dear Clyde:
By mutual agreement, the agriculture lease dated January 1, 1988 and
expired on December 31, 1997 is extended for an additional five years with a
five year renewal option, exercised by written agreement of both parties by
January 1, 2002, one year prior to the expiration of the first five year
period. All terms remain the same, except Section 2, to be revised to
reflect most current values of planted acreage in sugar cane as follows:
Compensation for the difference in acreage should be determined by a
mutually agreed upon 3rd party knowledgeable of such values of sugar cane.
As per the lease agreement, please forward to this office, current
Certificate of Insurance for proof of Workers' Compensation and General
Liability Insurance in the amount of $1,000,000.00, with Sterling Sugars,
Inc. named as additional insured.
Sincerely,
Craig P. Caillier
President
Agreed:/s/ Craig P. Caillier
---------------------------
Sterling Sugars, Inc.
Agreed:/s/ Clyde Bolton
---------------------------
Bolton Cane Company
IV-8 -34-
<PAGE>
STATE OF LOUISIANA
PARISH OF ST. MARY
AGRICULTURAL LEASE
AN AGREEMENT OF LEASE made and entered into and effective as of
January 1, 1998 between:
STERLING SUGARS, INC., a Delaware corporation authorized to do and
doing business in the State of Louisiana, Parish of St. Mary,
appearing herein through and being represented by Craig Caillier,
President and CEO, duly authorized, whose mailing address is P. O.
Box 572, Franklin, Louisiana 70538, hereinafter called LESSOR, and
Northside Planting LLC, a Louisiana corporation domiciled and doing
business in Iberia Parish, Louisiana, whose mailing address is P. O.
Box 570, Franklin, Louisiana 70538 represented herein by Jackie
Judice, duly authorized, hereinafter referred to as LESSEE,
FOR AND IN CONSIDERATION and upon the terms and conditions
hereinafter expressed, LESSOR does lease, and hire unto and in favor
of LESSEE, all of the properties now in sugar cane cultivation in St.
Mary Parish, Louisiana described on tract or parcel of land on the
sketch of property attached hereto as Exhibit "1A".
1) This lease is made for the purpose of LESSEE'S operation of the
leased premises as a plantation for the growing of sugar cane.
LESSEE agrees neither to commit nor permit others to commit
waste upon the property leased, to operate the premises as a good
and prudent husband man, and to properly care for and cultivate
the fields. LESSEE shall have no right to assign this lease or
sublease the whole or any part of the leased premises.
2) During the term of the lease, LESSEE shall keep approximately
two-thirds (2/3rds) of the cultivable land in sugar cane, in the
ratio of approximately one-third (1/3rd) of said two-thirds
(2/3rds) in plant cane and the balance in stubble cane, subject
to quota or other regulations of the United States Department of
Agriculture or other governmental agency, Federal or State, and
unless prevented by weather or other conditions beyond the
control of LESSEE.
3) Cultivated but fallow lands not used for cane shall be plowed or
otherwise treated for control of Johnson and other undesirable
weeds and grasses or planted in legumes.
4) This lease is made for a period of five (5) years, commencing as
of the date hereof and ending with the 31st day of December,
2002. LESSEE shall have the right and option to renew this lease
for an additional five (5) years on the same terms and conditions
as set out herein. LESSEE shall notify LESSOR by certified mail,
on or before sixty (60) days, prior to the expiration of the
primary term of LESSEE's desire to exercise its right to extend
the lease.
IV-9 -35-
<PAGE>
5) This lease is made in consideration of the stipulations and
agreements herein expressed, all of which are material and
without which the same would not be made, and the payment of a
rental by LESSEE of one-fifth (1/5th) of the net proceeds from
all sugar cane harvested and delivered to mills, less any and all
mill processing fees which are the custom of trade in the
Louisiana sugar industry, together with all subsidy, incentive or
benefit payments (excluding Agricultural Conversation Payments)
accruing to the said one-fifth (1/5th) share of LESSOR from the
United States Government or any of its departments or agencies,
for each of the crop years during which this lease shall be in
force and effect. LESSEE shall have the right to harvest sugar
cane from the leased premises for planting sugar cane on the
leased premises for which LESSEE shall owe no rent.
6) This lease is made and accepted by LESSEE subject to all mineral
leases, and servitudes now existing on the leased premises, and
all other valid and existing servitudes and rights of way,
recorded or unrecorded, apparent or non-apparent. LESSOR shall
have the right hereafter to grant other and further oil, gas and
mineral leases, servitudes and rights of way upon the leased
property providing that the leases, servitudes and rights of way
upon the leased property provide that the lessee(s) or grantee(s)
in such oil, gas or mineral leases, servitudes and rights of way
shall have the right to enter upon the premises for the purpose
of prospecting and exploring for oil, gas and other minerals and
to construct, maintain and operate thereon all buildings,
derricks, machinery, equipment, pipelines, storage tanks and
facilities for the purpose of housing their employees and any
equipment of any nature or description necessary in drilling for,
producing, storing, treating and transporting oil, gas and other
minerals, and to do all things incidental to the exercise of its
or their rights under such lease or leases. LESSOR shall not be
responsible or liable to LESSEE herein for any damage that may
result to LESSEE herein from any use of or operation on the
leased property by owner or any of its mineral and servitude
lessees for any of the purposes referred to in this paragraph,
LESSEE hereby expressly waiving and renouncing any and all rights
to claim damages from LESSOR herein on account of actions of any
mineral or servitudes lessee of the property for the destruction
of or injury to growing crops on said property, or damage to the
leased premises, which injury or destruction shall have been
caused by the operations of such mineral or servitude lessee.
LESSEE specifically reserves the right to claim reasonable
damages from any mineral lessee, pipeline owner, grantee,
condemnor, or expropriator of the Premises for the destruction of
or damage to LESSEE's farming operations or to destruction of
crop rows, headlands, drainage, land level or growing crops or to
the value of this sublease caused by the operations of any such
person or by the taking of any right-of-way.
IV-10 -36-
<PAGE>
7) During the entire term of this lease, LESSEE shall procure and
maintain, at its own expense, public liability, property damage,
workman's compensation in the statutory amount and liability
coverage in the total aggregate amount of $1,000,000.00. LESSEE
shall provide for coverage for personal injury to/or death of any
one person or for personal injury to/or death of more than one
person along with coverage for property damage liability of not
less than $250,000.00. The aforesaid insurance shall be obtained
from a company satisfactory to LESSOR and licensed to do business
in the State of Louisiana. Such insurance policy or policies
shall name LESSOR as an additional insured and provide for at
least 30 days written notice to LESSOR prior to cancellation,
termination, modification or change of any policy. All insurance
policies owned by LESSEE shall contain a provision waiving all
rights of subrogation against LESSEE. Certificates of Insurance
shall be provided to LESSEE.
8) LESSEE recognizes that LESSOR intends for the use and operation
of the leased premises to be in full compliance with all
environmental laws, rules and regulations. LESSEE agrees not to
bury or burn on the leased premises any solid waste or hazardous
waste including, but not limited to, containers, drums and/or
cartons used for farm chemicals, fertilizer or petroleum
products. LESSEE further agrees to clean up any and all spills
and/or leakage of chemicals, fertilizer or petroleum products
which are placed on the premises by LESSEE from the leased
premises and to dispose of said clean-up residue off the leased
premises. Additionally, LESSEE will use its best efforts to
prevent any dumping of solid waste, hazardous waste, hazardous
substances, toxic substances, contaminants or pollutants on the
leased premises by third parties.
9) LESSEE assumes all risks and responsibilities of accidents,
injuries, or death resulting from such injuries or damages to
person or property occurring in, on or about the Leased Premises,
and agrees to indemnify and hold harmless LESSOR and LESSOR's
employees, agents and assigns from any and all claims,
liabilities, losses, costs and expenses (including attorney's
fees) arising from, or in connection with the condition, use or
control of the Leased Premises, including the improvements and
equipment thereon, during the term of this lease. LESSEE shall
be liable to LESSOR for any damages to the Leased Premises,
including the improvements and equipment thereon, and for any act
done by LESSEE or any employee or agent of LESSEE or any invitee
or license of LESSEE, except LESSOR, its agents or employees.
Nothing contained herein shall require LESSEE to indemnify LESSOR
or release or waive claims LESSEE may have against LESSOR for the
negligence of LESSOR and/or its agents and assigns.
LESSEE shall indemnify, defend and hold harmless LESSOR from all costs,
losses, liabilities, claims, penalties, or expenses (including attorney's
fees), imposed upon or incurred by or asserted against LESSOR by reason
of: (i) any failure on the part of LESSEE to perform or comply with any
of the terms of this Lease; (ii) any enforcement or remedial action
taken by LESSOR in the event of a failure to perform or comply with the
IV-11 -37-
<PAGE>
terms of this Lease; or (iii) any litigation, negotiation or transaction
in which LESSOR becomes involved or concerned (without LESSOR's fault)
respecting this Lease, the Leased Premises or the use or occupancy
thereof by LESSEE.
10) LESSEE shall make all repairs necessary to maintain the leased
premises in good order during the term of this lease, and the
leased premises, including all buildings and improvements
covered by the lease, shall be returned at the termination of
this lease in the same condition as received, excluding normal
wear and tear. This obligation to repair shall apply
particularly, but without limitation, to any buildings, roads,
drains, canals and levees now or hereafter constructed on the
property. Without limiting LESSEE's obligation to make repairs,
it is understood that LESSOR shall have the right to make such
improvements to the leased premises, including buildings, as
LESSOR may deem desirable, so long as the construction and
existence of such improvements do not reasonably interfere with
LESSEE's operations under this lease.
In the event the leased premises have irrigation systems installed
thereon, LESSEE agrees to keep and maintain them in good condition and
repair, maintain them in accordance with manufacturer's servicing
recommendations when applicable and operate the irrigation systems
located on the leased premises so as to maximize crop production. The
LESSEE shall be responsible for the expense of fuel filters and oil
filters for the irrigation power units, and for all replacement parts
for irrigation equipment. In the event major repairs or overhauls are
necessary to the irrigation system, the first $1,000 shall be paid by
LESSEE and the cost in excess of $1,000 shall be paid for by LESSOR.
Major repairs are those which exceed $1,000 in any one instance. LESSEE
shall provide all labor for routine repairs and maintenance of the
irrigation systems. The term "irrigation systems" as used herein shall
include the following: drainage pumps, power units, underground pipes,
underground electrical wire, water distribution equipment, and all other
structures, equipment and materials used to provide drainage or
irrigation water to the leased premises. In the event of major repairs,
LESSEE shall be responsible for securing such repairs from reputable
equipment dealers in the area. The LESSOR may require the solicitation
of written bids for major repairs which exceed $2,500 with LESSEE
reserving the right to approve payment for low bidders, only. LESSOR
does not agree to pay any costs toward making any housing unit habitable.
LESSOR may, in its sole discretion, pay for improvements or repairs to
barns, shop buildings, living quarters, and other improvements.
11) LESSEE shall have the right to construct such buildings and
improvements on the leased premises at LESSEE's sole expense, as
may be necessary or desirable in connection with LESSEE's
agricultural operations, subject to written approval of LESSOR.
12) LESSOR or its agents shall have the right to enter upon the
leased premises at all times for any and all purposes, except
that there shall be no interference with LESSEE's agricultural
operations.
IV-13 -38-
<PAGE>
13) This lease shall be terminated prior to the expiration of the
term herein provided, at the option of LESSOR:
a) In the event voluntary bankruptcy proceedings be
instituted by LESSEE, or, in proceedings instituted by
anyone else LESSEE be adjudged bankrupt, or if
LESSEE makes an assignment for the benefit of creditors.
b) In the event of substantial default upon the part of
LESSEE in keeping or performing any of the obligations of
LESSEE under this lease for thirty (30) days after notice
in writing from LESSOR to LESSEE specifying such default,
provided LESSEE has not commenced within said thirty (30)
day period to correct such default and thereafter
diligently proceeds to completion.
14) Should an option to terminate accrue to LESSOR prior to the
expiration of the term of this lease, LESSOR shall have a period
of thirty (30) days thereafter in which to exercise such option
by written notice to vacate the leased premises within five (5)
days from date of delivery of the notice to LESSEE.
15) The parties agree that LESSEE is also the owner of all of the
sugar cane crop growing on the leased premises known as Oxford
Plantation, as shown on exhibit "A" and colored yellow and also
the new lands recovered from woodland and from land around the
Oaklawn sugar mill and the Oaklawn living quarters consisting of
166.6 acres, as shown on exhibit "2-A" and colored yellow. The
remaining sugar cane crop growing on the leased premises is
owned by LESSOR. At the expiration or termination of this lease,
in whole or in part, for any cause, LESSOR, at its option, shall
either purchase from LESSEE all cane remaining on that portion
of the leased premises where the cane is owned by LESSEE, or
allow LESSEE to farm off all such cane through its second year
stubble growth.
16) In the event of an expropriation or of a sale under threat
of expropriation of any portion of the premises (cultivable
land) or of any servitude affecting the premises, the full
amount paid for the land or servitude taken as well as the full
amount paid for any severance damages to any remaining land,
shall belong to LESSOR. With regard to amounts paid for damages
to growing crops, LESSOR shall be entitled to one-fifth (1/5th)
thereof, and LESSEE shall be entitled to four-fifths (4/5ths)
thereof. In the event of any such sale, LESSOR shall not be
responsible or liable to LESSEE for any damages that LESSEE may
sustain as a result thereof and LESSEE expressly waives and
renounces any and all rights to claim damage whatsoever from
LESSOR. LESSEE specifically reserves the right to claim
reasonable damages from any grantee, condemnor, or expropriator
of the premises, whether said acquisition is made by
expropriation or under the threat of expropriation, for the
destruction of or damage to LESSEE's farming operations or to
damages arising from the destruction of crop rows, headlands,
drainage, land level or growing crops or to the value of this
lease caused by the operations of any such person or by the
taking of any right-of-way.
IV-14 -39-
<PAGE>
17) As a further consideration, without which this lease would not
have been granted, LESSEE agrees to deliver unto LESSOR's raw
sugar factory at Franklin, Louisiana, for processing into raw
sugar, an amount of sugar cane equal in tonnage to the amount of
all sugar cane grown on the leased premises and not used for
seed, which sugar cane shall be processed by LESSOR at LESSORS'
raw sugar factory on the same basis and for the same
consideration as is customary for such transactions in the
Louisiana raw sugar industry.
18) All notices herein provided for (except Paragraph 16) shall be
effective upon placing same in the United States Mail addressed to
LESSEE at:
Northside Planting LLC
P. O. Box 570
Franklin, LA 70538
and to LESSOR at
Sterling Sugars, Inc.
P. O. Box 572
Franklin, LA 70538
unless such addresses be changed by notice in writing.
THUS DONE AND SIGNED in duplicate originals at Franklin, St. Mary
Parish, Louisiana, this 4th day of February, 1998 in the
presence of the undersigned witnesses.
WITNESSES: STERLING SUGARS, INC.
/s/ Desiree Wimberly BY: /s/ Craig Caillier
------------------------- -----------------------
Craig Caillier
/s/ Roni L. May President and Chief
------------------------- Executive Officer
/s/ Raymond E. Allain
------------------------- Northside Planting LLC
/s/ Rebecca M. Allain By: /s/ Jackie Judice
------------------------- --------------------
Jackie Judice
IV-15 -40-
<PAGE>
STATE OF LOUISIANA
PARISH OF ST. MARY
AGRICULTURAL LEASE
AN AGREEMENT OF LEASE made and entered into and effective as of
January 1, 1998 between:
STERLING SUGARS, INC., a Delaware corporation authorized to do and
doing business in the State of Louisiana, Parish of St. Mary,
appearing herein through and being represented by Craig Caillier,
President and CEO, duly authorized, whose mailing address is P. O.
Box 572, Franklin, Louisiana 70538, hereinafter called LESSOR, and
S & S Farms, a Louisiana company domiciled and doing business in St.
Mary Parish, Louisiana, whose mailing address is 3221 Highway #87,
Franklin, Louisiana 70538 represented herein by Donald Segura and
Jaime Segura, duly authorized, hereinafter referred to as LESSEE,
FOR AND IN CONSIDERATION and upon the terms and conditions
hereinafter expressed, LESSOR does lease, and hire unto and in favor
of LESSEE, all of the properties now in sugar cane cultivation in St.
Mary Parish, Louisiana described on tract or parcel of land on the
sketch of property attached hereto as Exhibit "1A".
1) This lease is made for the purpose of LESSEE'S operation of the
leased premises as a plantation for the growing of sugar cane.
LESSEE agrees neither to commit nor permit others to commit waste
upon the property leased, to operate the premises as a good and
prudent husband man, and to properly care for and cultivate the
fields. LESSEE shall have no right to assign this lease or
sublease the whole or any part of the leased premises.
2) During the term of the lease, LESSEE shall keep approximately
two-thirds (2/3rds) of the cultivable land in sugar cane, in the
ratio of approximately one-third (1/3rd) of said two-thirds
(2/3rds) in plant cane and the balance in stubble cane, subject
to quota or other regulations of the United States Department of
Agriculture or other governmental agency, Federal or State, and
unless prevented by weather or other conditions beyond the
control of LESSEE.
3) Cultivated but fallow lands not used for cane shall be plowed or
otherwise treated for control of Johnson and other undesirable
weeds and grasses or planted in legumes.
4) This lease is made for a period of five (5) years, commencing as
of the date hereof and ending with the 31st day of December,
2002. LESSEE shall have the right and option to renew this lease
for an additional five (5) years on the same terms and conditions
as set out herein. LESSEE shall notify LESSOR by certified mail,
on or before sixty (60) days, prior to the expiration of the
primary term of LESSEE's desire to exercise its right to extend
the lease.
IV-16 -41-
<PAGE>
5) This lease is made in consideration of the stipulations and
agreements herein expressed, all of which are material and
without which the same would not be made, and the payment of a
rental by LESSEE of one-fifth (1/5th) of the net proceeds from
all sugar cane harvested and delivered to mills, less any and all
mill processing fees which are the custom of trade in the
Louisiana sugar industry, together with all subsidy, incentive or
benefit payments (excluding Agricultural Conversation Payments)
accruing to the said one-fifth (1/5th) share of LESSOR from the
United States Government or any of its departments or agencies,
for each of the crop years during which this lease shall be in
force and effect. LESSEE shall have the right to harvest sugar
cane from the leased premises for planting sugar cane on the
leased premises for which LESSEE shall owe no rent.
6) This lease is made and accepted by LESSEE subject to all mineral
leases, and servitudes now existing on the leased premises, and
all other valid and existing servitudes and rights of way,
recorded or unrecorded, apparent or non-apparent. LESSOR shall
have the right hereafter to grant other and further oil, gas and
mineral leases, servitudes and rights of way upon the leased
property providing that the leases, servitudes and rights of way
upon the leased property provide that the lessee(s) or grantee(s)
in such oil, gas or mineral leases, servitudes and rights of way
shall have the right to enter upon the premises for the purpose
of prospecting and exploring for oil, gas and other minerals and
to construct, maintain and operate thereon all buildings,
derricks, machinery, equipment, pipelines, storage tanks and
facilities for the purpose of housing their employees and any
equipment of any nature or description necessary in drilling for,
producing, storing, treating and transporting oil, gas and other
minerals, and to do all things incidental to the exercise of its
or their right under such lease or leases. LESSOR shall not be
responsible or liable to LESSEE herein for any damage that may
result to LESSEE herein from any use of or operation on the
leased property by owner or any of its mineral and servitude
lessees for any of the purposes referred to in this paragraph,
LESSEE hereby expressly waiving and renouncing any and all rights
to claim damages from LESSOR herein on account of actions of any
mineral or servitudes lessee of the property for the destruction
of or injury to growing crops on said property, or damage to the
leased premises, which injury or destruction shall have been
caused by the operations of such mineral or servitude lessee.
LESSEE specifically reserves the right to claim reasonable
damages from any mineral lessee, pipeline owner, grantee,
condemnor, or expropriator of the Premises for the destruction of
or damage to LESSEE's farming operations or to destruction of
crop rows, headlands, drainage, land level or growing crops or to
the value of this sublease caused by the operations of any such
person or by the taking of any right-of-way.
7) During the entire term of this lease, LESSEE shall procure and
maintain, at its own expense, public liability, property damage,
workman's compensation in the statutory amount and liability
IV-17 -42-
<PAGE>
coverage in the total aggregate amount of $1,000,000.00. LESSEE
shall provide for coverage for personal injury to/or death of any
one person or for personal injury to/or death of more than one
person along with coverage for property damage liability of not
less than $250,000.00. The aforesaid insurance shall be obtained
from a company satisfactory to LESSOR and licensed to do business
in the State of Louisiana. Such insurance policy or policies
shall name LESSOR as an additional insured and provide for at
least 30 days written notice to LESSOR prior to cancellation,
termination, modification or change of any policy. All insurance
policies owned by LESSEE shall contain a provision waiving all
rights of subrogation against LESSEE. Certificates of Insurance
shall be provided to LESSEE.
8) LESSEE recognizes that LESSOR intends for the use and operation
of the leased premises to be in full compliance with all
environmental laws, rules and regulations. LESSEE agrees not to
bury or burn on the leased premises any solid waste or hazardous
waste including, but not limited to, containers, drums and/or
cartons used for farm chemicals, fertilizer or petroleum
products. LESSEE further agrees to clean up any and all spills
and/or leakage of chemicals, fertilizer or petroleum products
which are placed on the premises by LESSEE from the leased
premises and to dispose of said clean-up residue off the leased
premises. Additionally, LESSEE will use its best efforts to
prevent any dumping of solid waste, hazardous waste, hazardous
substances, toxic substances, contaminants or pollutants on the
leased premises by third parties.
9) LESSEE assumes all risks and responsibilities of accidents,
injuries, or death resulting from such injuries or damages to
person or property occurring in, on or about the Leased Premises,
and agrees to indemnify and hold harmless LESSOR and LESSOR's
employees, agent and assigns from any and all claims,
liabilities, losses, costs and expenses (including attorney's
fees) arising from, or in connection with the condition, use or
control of the Leased Premises, including the improvements and
equipment thereon, during the term of this lease. LESSEE shall
be liable to LESSOR for any damages to the Leased Premises,
including the improvements and equipment thereon, and for any act
done by LESSEE or any employee or agent of LESSEE or any invitee
or license of LESSEE, except LESSOR, its agents or employees.
Nothing contained herein shall require LESSEE to indemnify LESSOR
or release or waive claims LESSEE may have against LESSOR for the
negligence of LESSOR and/or its agents and assigns.
LESSEE shall indemnify, defend and hold harmless LESSOR from all costs,
losses, liabilities, claims, penalties, or expenses (including
attorney's fees), imposed upon or incurred by or asserted against LESSOR
by reason of: (i) any failure on the part of LESSEE to perform or
comply with any of the terms of this Lease; (ii) any enforcement or
remedial action taken by LESSOR in the event of a failure to perform or
comply with the terms of this Lease; or (iii) any litigation,
negotiation or transaction in which LESSOR becomes involved or concerned
(without LESSOR's fault) respecting this Lease, the Leased Premises or
the use or occupancy thereof by LESSEE.
IV-18 -43-
<PAGE>
10) LESSEE shall make all repairs necessary to maintain the leased
premises in good order during the term of this lease, and the
leased premises, including all buildings and improvements
covered by the lease, shall be returned at the termination of
this lease in the same condition as received, excluding normal
wear and tear. This obligation to repair shall apply
particularly, but without limitation, to any buildings, roads,
drains, canals and levees now or hereafter constructed on the
property. Without limiting LESSEE's obligation to make repairs,
it is understood that LESSOR shall have the right to make such
improvements to the leased premises, including buildings, as
LESSOR may deem desirable, so long as the construction and
existence of such improvements do not reasonably interfere with
LESSEE's operations under this lease.
In the event the leased premises have irrigation systems installed
thereon, LESSEE agrees to keep and maintain them in good condition and
repair, maintain them in accordance with manufacturer's servicing
recommendations when applicable and operate the irrigation systems
located on the leased premises so as to maximize crop production. The
LESSEE shall be responsible for the expense of fuel filters and oil
filters for the irrigation power units, and for all replacement parts
for irrigation equipment. In the event major repairs or overhauls are
necessary to the irrigation system, the first $1,000 shall be paid by
LESSEE and the cost in excess of $1,000 shall be paid for by LESSOR.
Major repairs are those which exceed $1,000 in any one instance. LESSE
shall provide all labor for routine repairs and maintenance of the
irrigation systems. The term "irrigation systems" as used herein shall
include the following: drainage pumps, power units, underground pipes,
underground electrical wire, water distribution equipment, and all other
structures, equipment and materials used to provide drainage or
irrigation water to the leased premises. In the event of major repairs,
LESSEE shall be responsible for securing such repairs from reputable
equipment dealers in the area. The LESSOR may require the solicitation
of written bids for major repairs which exceed $2,500 with LESSEE
reserving the right to approve payment for low bidders, only. LESSOR
does not agree to pay any costs toward making any housing unit
habitable. LESSOR may, in its sole discretion, pay for improvements or
repairs to barns, shop buildings, living quarters, and other
improvements.
11) LESSEE shall have the right to construct such buildings and
improvements on the leased premises at LESSEE's sole expense,
as may be necessary or desirable in connection with LESSEE's
agricultural operations, subject to written approval of LESSOR.
12) LESSOR or its agents shall have the right to enter upon the
leased premises at all times for any and all purposes, except
that there shall be no interference with LESSEE's agricultural
operations.
13) This lease shall be terminated prior to the expiration of the
term herein provided, at the option of LESSOR:
IV-19 -44-
<PAGE>
a) In the event voluntary bankruptcy proceedings be
instituted by LESSEE, or, in proceedings instituted by
anyone else LESSEE be adjudged bankrupt, or if
LESSEE makes an assignment for the benefit of creditors.
b) In the event of substantial default upon the part of
LESSEE in keeping or performing any of the obligations of
LESSEE under this lease for thirty (30) days after notice
in writing from LESSOR to LESSEE specifying such default,
provided LESSEE has not commenced within said thirty (30)
day period to correct such default and thereafter
diligently proceeds to completion.
14) Should an option to terminate accrue to LESSOR prior to the
expiration of the term of this lease, LESSOR shall have a period
of thirty (30) days thereafter in which to exercise such option
by written notice to vacate the leased premises within five (5)
days from date of delivery of the notice to LESSEE.
15) The parties agree that LESSEE is also the owner of all of the
sugar cane crop growing on the leased premises known as Oxford
Plantation, as shown on exhibit "A" and colored yellow. At the
expiration or termination of this lease, in whole or in part,
for any cause, LESSOR, at its option, shall either purchase from
LESSEE all cane remaining on the leased premises at the then
fair market value, or allow LESSEE to farm off all cane through
its second year stubble growth.
16) In the event of an expropriation or of a sale under threat of
expropriation of any portion of the premises (cultivable land)
or of any servitude affecting the premises, the full amount paid
for the land or servitude taken as well as the full amount paid
for any severance damages to any remaining land, shall belong to
LESSOR. With regard to amounts paid for damages to growing
crops, LESSOR shall be entitled to one-fifth (1/5th) thereof,
and LESSEE shall be entitled to four-fifths (4/5ths) thereof.
In the event of any such sale, LESSOR shall not be responsible
or liable to LESSEE for any damages that LESSEE may sustain as a
result thereof and LESSEE expressly waives and renounces any and
all rights to claim damage whatsoever from LESSOR. LESSEE
specifically reserves the right to claim reasonable damages from
any grantee, condemnor, or expropriator of the premises, whether
said acquisition is made by expropriation or under the threat of
expropriation, for the destruction of or damage to LESSEE's
farming operations or to damages arising from the destruction of
crop rows, headlands, drainage, land level or growing crops or
to the value of this lease caused by the operations of any such
person or by the taking of any right-of-way.
17) As a further consideration, without which this lease would not
have been granted, LESSEE agrees to deliver unto LESSOR's raw
sugar factory at Franklin, Louisiana, for processing into raw
sugar, an amount of sugar cane equal in tonnage to the amount of
all sugar cane grown on the leased premises and not used for
seed, which sugar cane shall be processed by LESSOR at LESSORS'
IV-20 -45-
<PAGE>
raw sugar factory on the same basis and for the same
consideration as is customary for such transactions in the
Louisiana raw sugar industry.
18) All notices herein provided for (except Paragraph 16) shall be
effective upon placing same in the United States Mail addressed
to LESSEE at:
S & S Farms
3321 Hwy. 87
Franklin, LA 70538
and to LESSOR at
Sterling Sugars, Inc.
P. O. Box 572
Franklin, LA 70538
unless such addresses be changed by notice in writing.
THUS DONE AND SIGNED in duplicate originals at Franklin, St. Mary
Parish, Louisiana, this 6th day of February, 1998 in the
presence of the undersigned witnesses.
WITNESSES: STERLING SUGARS, INC.
/s/ Desiree Wimberly By: /s/ Craig Caillier
------------------------- ---------------------
Craig Caillier
/s/ Roni L. May President and Chief
------------------------- Executive Officer
/s/ Barbara D. Hebert
------------------------- S & S Farms
/s/ Rebecca M. Allain
------------------------- By: /s/ Donald Segura
--------------------
/s/ Barbara D. Hebert Donald Segura
-------------------------
/s/ Rebecca M. Allain By: /s/ Jamie Segura
------------------------- -------------------
Jaime Segura
IV-21 -46-
<PAGE>
STATE OF LOUISIANA
PARISH OF ST. MARY
AGRICULTURAL LEASE
AN AGREEMENT OF LEASE made and entered into and effective as of
January 1, 1998 between:
STERLING SUGARS, INC., a Delaware corporation authorized to do and doing
business in the State of Louisiana, Parish of St. Mary, appearing herein
through and being represented by Craig Caillier, President and CEO, duly
authorized, whose mailing address is P. O. Box 572, Franklin, Louisiana
70538, hereinafter called LESSOR, and
Breaux Bros. Farms, Inc. a Louisiana Corporation domiciled and doing
business in St. Mary Parish, Louisiana, whose mailing address is 2379 Irish
Bend Road , Franklin, Louisiana 70538 represented herein by Herbert A.
Breaux, duly authorized, hereinafter referred to as LESSEE,
FOR AND IN CONSIDERATION and upon the terms and conditions hereinafter
expressed, LESSOR does lease, and hire unto and in favor of LESSEE, all
of the properties now in sugar cane cultivation in St. Mary Parish,
Louisiana described on tract or parcel of land on the sketch of property
attached hereto as Exhibit "1A".
1) This lease is made for the purpose of LESSEE'S operation of the
leased premises as a plantation for the growing of sugar cane.
LESSEE agrees neither to commit nor permit others to commit
waste upon the property leased, to operate the premises as a
good and prudent husband man, and to properly care for and
cultivate the fields. LESSEE shall have no right to assign this
lease or sublease the whole or any part of the leased premises.
2) During the term of the lease, LESSEE shall keep approximately
two-thirds (2/3rds) of the cultivable land in sugar cane, in the
ratio of approximately one-third (1/3rd) of said two-thirds
(2/3rds) in plant cane and the balance in stubble cane, subject
to quota or other regulations of the United States Department of
Agriculture or other governmental agency, Federal or State, and
unless prevented by weather or other conditions beyond the
control of LESSEE.
3) Cultivated but fallow lands not used for cane shall be plowed or
otherwise treated for control of Johnson and other undesirable
weeds and grasses or planted in legumes.
4) This lease is made for a period of five (5) years, commencing as
of the date hereof and ending with the 31st day of December,
2002. LESSEE shall have the right and option to renew this lease
for an additional five (5) years on the same terms and conditions
as set out herein. LESSEE shall notify LESSOR by certified mail,
on or before sixty (60) days, prior to the expiration of the
primary term of LESSEE's desire to exercise its right to extend
the lease.
IV-22 -47-
<PAGE>
5) This lease is made in consideration of the stipulations and
agreements herein expressed, all of which are material and
without which the same would not be made, and the payment of a
rental by LESSEE of one-fifth (1/5th) of the net proceeds from
all sugar cane harvested and delivered to mills, less any and all
mill processing fees which are the custom of trade in the
Louisiana sugar industry, together with all subsidy, incentive or
benefit payments (excluding Agricultural Conversation Payments)
accruing to the said one-fifth (1/5th) share of LESSOR from the
United States Government or any of its departments or agencies,
for each of the crop years during which this lease shall be in
force and effect. LESSEE shall have the right to harvest sugar
cane from the leased premises for planting sugar cane on the
leased premises for which LESSEE shall owe no rent.
6) This lease is made and accepted by LESSEE subject to all mineral
leases, and servitudes now existing on the leased premises, and
all other valid and existing servitudes and rights of way,
recorded or unrecorded, apparent or non-apparent. LESSOR shall
have the right hereafter to grant other and further oil, gas and
mineral leases, servitudes and rights of way upon the leased
property providing that the leases, servitudes and rights of way
upon the leased property provide that the lessee(s) or grantee(s)
in such oil, gas or mineral leases, servitudes and rights of way
shall have the right to enter upon the premises for the purpose
of prospecting and exploring for oil, gas and other minerals and
to construct, maintain and operate thereon all buildings,
derricks, machinery, equipment, pipelines, storage tanks and
facilities for the purpose of housing their employees and any
equipment of any nature or description necessary in drilling for,
producing, storing, treating and transporting oil, gas and other
minerals, and to do all things incidental to the exercise of its
or their rights under such lease or leases. LESSOR shall not be
responsible or liable to LESSEE herein for any damage that may
result to LESSEE herein from any use of or operation on the
leased property by owner or any of its mineral and servitude
lessees for any of the purposes referred to in this paragraph,
LESSEE hereby expressly waiving and renouncing any and all rights
to claim damages from LESSOR herein on account of actions of any
mineral or servitudes lessee of the property for the destruction
of or injury to growing crops on said property, or damage to the
leased premises, which injury or destruction shall have been
caused by the operations of such mineral or servitude lessee.
LESSEE specifically reserves the right to claim reasonable
damages from any mineral lessee, pipeline owner, grantee,
condemnor, or expropriator of the Premises for the destruction of
or damage to LESSEE's farming operations or to destruction of
crop rows, headlands, drainage, land level or growing crops or to
the value of this sublease caused by the operations of any such
person or by the taking of any right-of-way.
7) During the entire term of this lease, LESSEE shall procure and
maintain, at its own expense, public liability, property damage,
workman's compensation in the statutory amount and liability
coverage in the total aggregate amount of $1,000,000.00. LESSEE
IV-23 -48-
<PAGE>
shall provide for coverage for personal injury to/or death of any
one person or for personal injury to/or death of more than one
person along with coverage for property damage liability of not
less than $250,000.00. The aforesaid insurance shall be obtained
from a company satisfactory to LESSOR and licensed to do business
in the State of Louisiana. Such insurance policy or policies
shall name LESSOR as an additional insured and provide for at
least 30 days written notice to LESSOR prior to cancellation,
termination, modification or change of any policy. All insurance
policies owned by LESSEE shall contain a provision waiving all
rights of subrogation against LESSEE. Certificates of Insuranc
shall be provided to LESSEE.
8) LESSEE recognizes that LESSOR intends for the use and operation
of the leased premises to be in full compliance with all
environmental laws, rules and regulations. LESSEE agrees not to
bury or burn on the leased premises any solid waste or hazardous
waste including, but not limited to, containers, drums and/or
cartons used for farm chemicals, fertilizer or petroleum
products. LESSEE further agrees to clean up any and all spills
and/or leakage of chemicals, fertilizer or petroleum products
which are placed on the premises by LESSEE from the leased
premises and to dispose of said clean-up residue off the leased
premises. Additionally, LESSEE will use its best efforts to
prevent any dumping of solid waste, hazardous waste, hazardous
substances, toxic substances, contaminants or pollutants on the
leased premises by third parties.
9) LESSEE assumes all risks and responsibilities of accidents,
injuries, or death resulting from such injuries or damages to
person or property occurring in, on or about the Leased Premises,
and agrees to indemnify and hold harmless LESSOR and LESSOR's
employees, agents and assigns from any and all claims,
liabilities, losses, costs and expenses (including attorney's
fees) arising from, or in connection with the condition, use or
control of the Leased Premises, including the improvements and
equipment thereon, during the term of this lease. LESSEE shall
be liable to LESSOR for any damages to the Leased Premises,
including the improvements and equipment thereon, and for any act
done by LESSEE or any employee or agent of LESSEE or any invitee
or license of LESSEE, except LESSOR, its agents or employees.
Nothing contained herein shall require LESSEE to indemnify LESSOR
or release or waive claims LESSEE may have against LESSOR for the
negligence of LESSOR and/or its agents and assigns.
LESSEE shall indemnify, defend and hold harmless LESSOR from all costs,
losses, liabilities, claims, penalties, or expenses (including
attorney's fees), imposed upon or incurred by or asserted against LESSOR
by reason of: (i) any failure on the part of LESSEE to perform or
comply with any of the terms of this Lease; (ii) any enforcement or
remedial action taken by LESSOR in the event of a failure to perform or
comply with the terms of this Lease; or (iii) any litigation,
negotiation or transaction in which LESSOR becomes involved or concerned
(without LESSOR's fault) respecting this Lease, the Leased Premises or
the use or occupancy thereof by LESSEE.
IV-24 -49-
<PAGE>
10) LESSEE shall make all repairs necessary to maintain the leased
premises in good order during the term of this lease, and the
leased premises, including all buildings and improvements
covered by the lease, shall be returned at the termination of
this lease in the same condition as received, excluding normal
wear and tear. This obligation to repair shall apply
particularly, but without limitation, to any buildings, roads,
drains, canals and levees now or hereafter constructed on the
property. Without limiting LESSEE's obligation to make repairs,
it is understood that LESSOR shall have the right to make such
improvements to the leased premises, including buildings, as
LESSOR may deem desirable, so long as the construction and
existence of such improvements do not reasonably interfere with
LESSEE's operations under this lease.
In the event the leased premises have irrigation systems installed
thereon, LESSEE agrees to keep and maintain them in good condition and
repair, maintain them in accordance with manufacturer's servicing
recommendations when applicable and operate the irrigation systems
located on the leased premises so as to maximize crop production. The
LESSEE shall be responsible for the expense of fuel filters and oil
filters for the irrigation power units, and for all replacement parts
for irrigation equipment. In the event major repairs or overhauls are
necessary to the irrigation system, the first $1,000 shall be paid by
LESSEE and the cost in excess of $1,000 shall be paid for by LESSOR.
Major repairs are those which exceed $1,000 in any one instance. LESSEE
shall provide all labor for routine repairs and maintenance of the
irrigation systems. The term "irrigation systems" as used herein shall
include the following: drainage pumps, power units, underground pipes,
underground electrical wire, water distribution equipment, and all other
structures, equipment and materials used to provide drainage or
irrigation water to the leased premises. In the event of major repairs,
LESSEE shall be responsible for securing such repairs from reputable
equipment dealers in the area. The LESSOR may require the solicitation
of written bids for major repairs which exceed $2,500 with LESSEE
reserving the right to approve payment for low bidders, only. LESSOR
does not agree to pay any costs toward making any housing unit
habitable. LESSOR may, in its sole discretion, pay for improvements or
repairs to barns, shop buildings, living quarters, and other
improvements.
11) LESSEE shall have the right to construct such buildings and
improvements on the leased premises at LESSEE's sole expense, as
may be necessary or desirable in connection with LESSEE's
agricultural operations, subject to written approval of LESSOR.
12) LESSOR or its agents shall have the right to enter upon the
leased premises at all times for any and all purposes, except
that there shall be no interference with LESSEE's agricultural
operations.
13) This lease shall be terminated prior to the expiration of the
term herein provided, at the option of LESSOR:
IV-25 -50-
<PAGE>
a) In the event voluntary bankruptcy proceedings be
instituted by LESSEE, or, in proceedings instituted by
anyone else LESSEE be adjudged bankrupt, or if
LESSEE makes an assignment for the benefit of creditors.
b) In the event of substantial default upon the part of
LESSEE in keeping or performing any of the obligations of
LESSEE under this lease for thirty (30) days after notice
in writing from LESSOR to LESSEE specifying such default,
provided LESSEE has not commenced within said thirty (30)
day period to correct such default and thereafter
diligently proceeds to completion.
14) Should an option to terminate accrue to LESSOR prior to the
expiration of the term of this lease, LESSOR shall have a period
of thirty (30) days thereafter in which to exercise such option
by written notice to vacate the leased premises within five (5)
days from date of delivery of the notice to LESSEE.
15) The parties agree that LESSEE is also the owner of all of the
sugar cane crop growing on the leased premises known as Oaklawn
West Plantation, as shown on exhibit "A" and colored yellow. At
the expiration or termination of this lease, in whole or in
part, for any cause, LESSOR, at its option, shall either
purchase from LESSEE all cane remaining on the leased premises
at the then fair market value, or allow LESSEE to farm off all
cane through its second year stubble growth.
16) In the event of an expropriation or of a sale under threat of
expropriation of any portion of the premises (cultivable land)
or of any servitude affecting the premises, the full amount paid
for the land or servitude taken as well as the full amount paid
for any severance damages to any remaining land, shall belong to
LESSOR. With regard to amounts paid for damages to growing
crops, LESSOR shall be entitled to one-fifth (1/5th) thereof,
and LESSEE shall be entitled to four-fifths (4/5ths) thereof.
In the event of any such sale, LESSOR shall not be responsible
or liable to LESSEE for any damages that LESSEE may sustain as a
result thereof and LESSEE expressly waives and renounces any and
all rights to claim damage whatsoever from LESSOR. LESSEE
specifically reserves the right to claim reasonable damages from
any grantee, condemnor, or expropriator of the premises, whether
said acquisition is made by expropriation or under the threat of
expropriation, for the destruction of or damage to LESSEE's
farming operations or to damages arising from the destruction of
crop rows, headlands, drainage, land level or growing crops or
to the value of this lease caused by the operations of any such
person or by the taking of any right-of-way.
17) As a further consideration, without which this lease would not
have been granted, LESSEE agrees to deliver unto LESSOR's raw
sugar factory at Franklin, Louisiana, for processing into raw
sugar, an amount of sugar cane equal in tonnage to the amount of
all sugar cane grown on the leased premises and not used for
seed, which sugar cane shall be processed by LESSOR at LESSORS'
raw sugar factory on the same basis and for the same
IV-26 -51-
<PAGE>
consideration as is customary for such transactions in the
Louisiana raw sugar industry.
18) All notices herein provided for (except Paragraph 16) shall be
effective upon placing same in the United States Mail addressed
to LESSEE at:
Herbert A. Breaux
Breaux Bros. Farms, Inc.
3321 Hwy. 87
Franklin, LA 70538
and to LESSOR at
Sterling Sugars, Inc.
P. O. Box 572
Franklin, LA 70538
unless such addresses be changed by notice in writing.
THUS DONE AND SIGNED in duplicate originals at Franklin, St. Mary Parish,
Louisiana, this 4th day of February, 1998 in the presence of the
undersigned witnesses.
WITNESSES: STERLING SUGARS, INC.
/s/ Desiree Wimberly By: /s/ Craig Caillier
------------------------- ---------------------
/s/ Roni L. May Craig Caillier
------------------------- President and Chief
/s/ Raymond E. Allain Executive Officer
-------------------------
/s/ Rebecca M. Allain Breaux Bros. Farms, Inc.
-------------------------
By: /s/ Herbert A. Breaux
------------------------
Herbert A. Breaux
IV-27 -52-
<PAGE>
STATE OF LOUISIANA
PARISH OF ST. MARY
LEASE AGREEMENT
This agreement entered into effective as of April 1, 1997, by and
between Sterling Sugars, Inc. (hereinafter referred to as Lessor) whose
local mailing address is P. O. Box 572, Franklin, Louisiana 70538, and
Parker & Parsley Development L. P. (hereinafter referred to as Lessee),
whose mailing address is P. O. Box 53813, Lafayette, Louisiana 70503.
WITNESSETH:
1. That the Lessor for and in consideration of the rents, covenants and
agreements hereinafter reserved and contained on the part of the Lessee
to be paid, kept and performed, does hereby lease and let unto Lessee,
and Lessee does hereby rent, take and lease from Lessor the following
described land situated in St. Mary Parish, Louisiana:
A certain tract of land at Myette Point Landing, section 28 T13S-R10E
measuring 60 feet wide from toe of Levee to the water edge, with
permission to build a walkway from water edge to the Levee. Also
permission is granted to build a road from Parish Landing shell road to
Parking area.
This site is located East of the existing walkway belonging to Lessor.
2. The term of this lease shall be for a period of five (5) years,
beginning April 1, 1997, and ending at midnight March 31, 2002.
3. Lessee covenants and agrees to pay as cash rent to Lessor, the total
sum of Seven Thousand Five Hundred Dollars ($7,500), comprised of five
payments of One Thousand Five Hundred ($1,500) each, due in advance at
the beginning of each year of this lease, on April 1, 1997, 1998, 1999,
2,000, 2001.
4. Demised Premises is to be used by Lessee solely for the purpose of
servicing its production of oil and gas off said premises. Lessee
further agrees as follows:
(a) To cut or spray and destroy all noxious weeds, to take
reasonable care to prevent soil erosion, to keep all tidal outlets
and ditches in working order, and in all respects to care for
Lessor's property in such manner as to return it at the termination
of this lease in as good condition as at the beginning of the term,
ordinary wear, depreciation, and loss or damage to the improvements
by fire or by the elements, excepted.
(b) To comply with all applicable federal, state and local pollution
control and environmental laws and regulations, and use the utmost
care in handling of all petroleum products and containers. Lessee
indemnifies, protects and holds harmless Lessor and Lessor's agent
from all claims, losses, damages and expenses (including reasonable
attorney's fees) which Lessor and Lessor's agent may suffer arising
from Lessee's failure to perform his duties under this subsection.
IV-28 -53-
<PAGE>
(c) DUMP USE PROHIBITED. Lessee recognizes that Lessor intends for
the use and operation of the premises to be in full compliance with all
applicable environmental laws, rules and regulations. Lessee agrees
not to bury or burn on the premises any rubbish, trash, drums, or
containers including, but not limited to, container/drums/cartons, used
for petroleum. Lessee agrees to dispose of container/drums/cartons,
which are no longer usable, off the premises in a dump site approved by
appropriate state of federal agencies.
5. Lessee shall not erect additional fences, buildings or other
structures upon said lands without the prior written consent of Lessor,
which consent will not be unreasonable withheld.
6. Lessor shall have the right at all times to enter the Demised Premises
for the purpose of showing same to prospective buyers or making repairs or
improvements which it deems necessary for the premises, but Lessor shall
have no obligation to make any repairs. Lessee is familiar with the
Demised Premises and hereby accepts it in its present condition, and
Lessee obligates itself to notify Lessor immediately in writing of any
adverse claim or possession which may be asserted to said Demised
Premises. Lessor agrees to pay all taxes on real estate.
7. Lessee agrees that in the event Lessor should enter into a contract to
sell the Demised Premises during the term of the lease, Lessor shall have
the right to cancel this lease effective upon a transfer of title and
Lessee shall be entitled to a reimbursement of a pro-rata share of lease
payments for said year and relieved of all future payments, as
compensation for the early termination of this lease.
All property, including buildings and equipment, that is placed on the
Leased Premises by Lessee after the commencement of the term of this
lease, and which can be removed without unreasonable damage to the real
estate, shall remain the property of the Lessee; provided, however,
that any of such property removed from the Leased Premises within one
hundred twenty (120) days after the termination or expiration of this
lease, shall become and remain a part of the Leased Premises, at the
option of Lessor.
8. In the event of a breach of any condition to this lease or if Lessee
fails or refuses to vacate the premises upon termination thereof and
Lessor employs an attorney for the purpose of gaining possession of said
premises, or enforcing the provisions hereof, any expense and cost shall
be chargeable to the Lessee and Lessee hereby agrees to pay same,
including reasonable attorney's fee.
9. Lessee agrees to indemnify and hold Lessor harmless for all damage or
injury that may be caused to Lessee, its agents, invitees and other
parties in or about the Demised Premises including but not limited to
injury to persons, personal property, domestic animals or crops.
10. Nothing herein is to be construed as creating a joint venture,
partnership, nor a business association between the parties, and their
relationship will always remain Lessor and Lessee.
IV-29 -54-
<PAGE>
11. Lessee may not assign or sublet this lease without the prior written
consent of Lessor and by Lessor's legal department. Lessor reserves the
right to refuse an assignment of subletting but consent will not be
unreasonably withheld.
12. Any unpaid rent shall bear interest at the rate of 15 percent per year
or the highest legal rate from the date due until paid. If Lessee fails to
pay the rent due or fails to keep any of the agreements of this lease, all
costs and reasonable attorney's fees in enforcing collection or performance
shall be added to and become a part of the obligation payable by Lessee
hereunder.
13. Lessee acknowledges that it has previously occupied the premises and
does assume all responsibility for the condition of the premises and all
liability for damage to person or property of itself, its agents or
employees or third persons going on or being upon the leased premises
during the terms of this lease and will indemnify and hold Lessor harmless
from any and all claims or demands (including court costs and attorney's
fees) of whatsoever nature or kind for loss or damage to person, including
death, or property of itself, its agents, employees or third persons,
wherever situated, arising out of the condition of the premises or any work
or construction undertaken or done by Lessee or out of or in anywise
connected with Lessee's use or occupancy of the premises.
14. Lessee shall obtain and maintain, in full force and effect, liability
insurance policies with an insurance company or companies authorized to do
and doing business in the state of Louisiana , having combined single
limits of no less than $1,000,000, which insurance shall name Lessor herein
as an additional insured as Lessor's interest may appear. Lessee shall
further furnish Lessor with current certificates of insurance showing the
issuance of such insurance. The liability insurance policy can only be
canceled after notice has been provided to Lessor of the cancellation of
such policy.
15. Lessor, individually or through its agents or employees, shall at all
reasonable times have the right of reasonable ingress to the premises for
inspection thereof.
16. Lessee agrees and obligates itself to observe and abide by all
provisions and requirements of the U. S. Army Corps of Engineers,
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. Art. 9601, et. seq.) the Hazardous Materials Transportation
Act and the Resource Conservation and Recovery Act (RCRA), all as amended,
as well as all rules or regulations now or hereafter promulgated under
authority thereof, and does agree not to deposit, place upon or permit to
remain thereon any asbestos , solid or liquid waste, or any hazardous
material, hazardous substance or toxic substance, as may be now or
hereafter defined in the foregoing. Lessee does hereby agree to indemnify
Lessor, and does fully indemnify and hold Lessor harmless from any and all
claims, liabilities, expenses, loss and damages which Lessee or any third
party or governmental agency has or may have hereafter against Lessor from
and against any loss, including reasonable attorney's fees and court costs,
relating to any claim concerning the presence of any such substance
deposited or placed by Lessee or permitted to remain upon the property
IV-30 -55-
<PAGE>
during the term of this lease or any extension. Upon termination of this
lease for any cause, Lessee agrees promptly to remove, at its expense, any
hazardous or toxic material or substance which may then be upon the
property.
IN WITNESS WHEREOF, the parties hereto have executed this contract of
lease on the 23rd day of July, 1997.
WITNESSES: LESSOR
/s/ Desiree Wimberly Sterling Sugars, Inc.
/s/ Randall Romero By: /s/ Craig P. Caillier
Title: President & CEO
/s/ Delia McGratt LESSEE
/s/ Mary Helen Parker & Parsley Development L.P.
By Parker & Parsley Petroleum USA
By: /s/ Steven E. Weathrl, V. P.
Steven E. Weathrl, V. P.
IV-31 -56-
<PAGE>
STATE OF LOUISIANA
PARISH OF ST. MARY
SURFACE LEASE
BEFORE THE UNDERSIGNED respective Notaries Public, and in the
presence of the undersigned competent witnessed, and on the dates and
at the places hereafter stated,
PERSONALLY CAME AND APPEARED:
STERLING SUGARS, INC., a Louisiana corporation domiciled in St. Mary
Parish, Louisiana, appearing through and represented by its duly
authorized President, CRAIG CAILLIER,
hereafter referred to as "Lessor", who did declare that for the
consideration and on the terms and conditions as hereafter set forth,
it has and does by these presents lease unto and in favor of:
MYETTE POINT BOAT DOCK, a Louisiana partnership domiciled in
Franklin, Louisiana, appearing through and represented by its duly
authorized partners, GEORGE LANGE and CARLIN D. LANGE,
hereafter referred to as "Lessee", all and singular the following
described property, to-wit:
TRACT ONE:
A rectangular tract or parcel of land located in Section 33, T13s,
R10E, located on the South side of the Atchafalaya Basin Levee and
Bounded on the North and East by the levee borrow pit, on the South
by the Department of Wildlife and Fisheries fence, and on the West by
Martin Ridge Road.
TRACT TWO:
An L shaped tract or parcel of land located in Section 28, T13S, R10E
located on the North side of the Atchafalaya Basin Levee and bounded
on the North by the levee borrow pit, on the West by the levee ramp,
on the South by the Atchafalaya Basin Levee, and on the East by the
Parker and Parsley Walkway and the boat dock.
The property is leased by Lessor and accepted by Lessee under the
following,
TERMS AND CONDITIONS
1. The property herein is unimproved. Lessee shall have the right to
clear the surface and to spread gravel, shell or other similar
material thereon for the use of automobiles, trucks, vehicles and
equipment, and to conduct such business thereon as Lessee may best
see fit.
IV-32 -57-
<PAGE>
2. Lessee may not construct any permanent improvements on the
property, but Lessee may place temporary improvements thereon such as
trailers or buildings on skids or movable storage sheds. All such
temporary improvements, with the exception of gravel, shell or other
parking lot materials, which Lessee may place thereon shall be
promptly removed from the premises upon termination of this lease.
All gravel, shell, or other parking lot materials shall remain on the
premises upon termination of this lease.
3. Lessee shall have the non-exclusive right of ingress and egress
from the above described leased property across Lessor's intervening
lands and roadways, and in exercising this right the Lessee shall
take care not to block or unreasonably interfere with the right of
others to use the same.
4. This lease shall be for a primary term of five (5) years to
commence April 1, 1997 and to terminate March 31, 2002. Lessee shall
have the right and option to renew this lease for an additional five
year period to commence April 1, 2002 and to terminate March 31,
2007.
Should Lessee decide not to act on this option, written notice of
Lessee's intent not to renew will be given to Lessor no later than
twenty (20) days prior to the end of the primary term.
5. Lessee agrees to pay as rental a yearly sum of FOUR THOUSAND
TWO HUNDRED & 00/100 ($4,200.00), commencing April 1, 1997 and
continuing thereafter on or before April 1st of each subsequent
and consecutive year.
6. Lessee does assume all responsibility for the condition of the
premises and all liability for damage to person or property of
itself, its agents or employees or third persons going on or being
upon the leased premises during the terms of this lease and will
indemnify and hold Lessor harmless from any and all claims or
demands (including court costs and attorney's fees) of whatsoever
nature or kind for loss or damage to person, including death, or
property of itself, its agents, employees or third persons, wherever
situated, arising out of the condition of the premises or any work or
construction undertaken or done by Lessee or out of or in anywise
connected with lessee's use or occupancy of the premises.
7. Lessee shall obtain and maintain, in full force and effect,
liability insurance policies with an insurance company or companies
authorized to do and doing business in the state of Louisiana,
having combined single limits of no less than $1,000,000, which
insurance shall name Lessor herein as an additional insured as
Lessor's interest may appear. Lessee shall further furnish Lessor
with current certificates of insurance showing the issuance of such
insurance. The liability insurance policy can only be canceled after
notice has been provided to Lessor of the cancellation of such
policy.
8. Lessor, individually or through its agents or employees, shall, at
all reasonable times, have the right of reasonable ingress of the
premises for inspection thereof.
IV-33 -58-
<PAGE>
9. Lessee agrees and obligates itself to observe and abide by all the
provisions and requirements of the U. S. Army Corps of Engineers,
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (42 U.S.C. Art. 9601, et. seq.) the Hazardous Materials
Transportation Act and the Resource Conservation and Recovery Act
(RCRA), all as amended, as well as all rules or regulations now or
hereafter promulgated under authority thereof, and does agree not to
deposit, place upon or permit to remain thereon any asbestos , solid
or liquid waste, or any hazardous material, hazardous substance or
toxic substance, as may be now or hereafter defined in the foregoing.
Lessee does hereby agree to indemnify Lessor, and does fully
indemnify and hold Lessor harmless from any and all claims,
liabilities, expenses, loss and damages which Lessee or any third
party or governmental agency has or may have hereafter against Lessor
from and against any loss, including reasonable attorney's fees and
court costs, relating to any claim concerning the presence of any such
substance deposited or placed by Lessee or permitted to remain upon
the property during the term of this lease or any extension. Upon
termination of this lease for any cause, Lessee agrees promptly to
remove, at its expense, any hazardous or toxic material or substance
which may then be upon the property.
10. Any notice herein required to be given by either party to the other
shall be in writing, and the same shall be deemed properly delivered
twenty-four hours after deposit in the United States Mail, postage
prepaid, duly certified or registered, and properly addressed as
follows:
Unless and until Lessor notifies Lessee, in writing, to the
contrary, notices to the Lessor shall be addressed:
Sterling Sugars, Inc.
P. O. Box 572
Franklin, Louisiana 70538
Unless and until Lessee notifies Lessor, in writing, to the
contrary, notices to the Lessee shall be addressed:
Myette Point Boat Dock
P. O. Box 81
Franklin, Louisiana 70538
THUS DONE AND SIGNED at Franklin, State of Louisiana on this 1st
day of April, 1997.
Sterling Sugars, Inc.
By: /s/ Craig Caillier
President
Myette Point Boat Dock
A Partnership
By: /s/ George Lange
By: /s/ Carlin Lange
IV-34 -59-
<PAGE>
STERLING SUGARS, INC.
COMPUTATION OF EARNINGS PER SHARE
Year Ended January 31,
1998 1997 1996
----------------------------------
Primary
Income $ 839,569 $2,036,970 $ 2,119,609
========== =========== ==========
Shares
Weighted average number of common
shares outstanding $2,500,000 $2,500,000 $ 2,500,000
========== ========== ===========
Primary earnings (loss) per common share $.34 $.81 $.85
======= ======== ===========
IV-35 -60-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 210723
<SECURITIES> 0
<RECEIVABLES> 2609757
<ALLOWANCES> 0
<INVENTORY> 12617812
<CURRENT-ASSETS> 17073468
<PP&E> 45849264
<DEPRECIATION> 23138907
<TOTAL-ASSETS> 41389416
<CURRENT-LIABILITIES> 14357335
<BONDS> 9160422
<COMMON> 2500000
0
0
<OTHER-SE> 14005059
<TOTAL-LIABILITY-AND-EQUITY> 41389416
<SALES> 39746442
<TOTAL-REVENUES> 40717050
<CGS> 37184172
<TOTAL-COSTS> 39269316
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1142248
<INCOME-PRETAX> 1447734
<INCOME-TAX> 608165
<INCOME-CONTINUING> 839569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 839569
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
