UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
Form 10K
[ ] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended ________________
[X] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from February 1, 1998
to July 31, 1998.
Commission file number 0-1287
------------------------------
STERLING SUGARS, INC.
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 72-0327950
------------------------------- ------------------------------------
(State or other jurisdiction of (IRS employer identification number)
incorporation or organization)
P. O. Box 572, Franklin, La. 70538
---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (318) 828 0620
-------------------------
Securities registered pursuant to Section 12d of the Act:
Title of each class Name of each exchange on which registered
None None
-------------------------- -----------------------------------------
Securities registered pursuant to Section 12(G) of the Act:
Common Stock $1 par value
---------------------------
(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
September 30, 1998 by non-affiliates of the registrant was $3,257,671. 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 regist-
rant 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 52 Pages
<PAGE>
The number of shares of common stock outstanding as of October 12, 1998 was
2,500,000 shares.
An exhibit index is located on page 38.
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 fiscal 1998 was 96,242 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.
The Company did not process cane nor produce sugar for the six months
ended July 31, 1998. This is normal for that period of the year.
I-1 -2-
<PAGE>
Company employment for the six months ended July 31, 1998 was as
follows:
Factory Agriculture
--------------- -----------------
Year round employees 96 5
Seasonal and temporary employees 76 3
-------- --------
172 8
======== =======
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:
Lafourche St. Mary Iberia St. Landry Total
-----------------------------------------------------
Cultivable 570 9,544 1,390 - 11,504
Non-cultivable 140 7,533 1,302 121 9,096
Plant site 65 65
-------- -------- -------- ------ --------
710 17,142 2,692 121 20,665
======== ======== ======== ====== ========
Of the cultivable land, approximately 270 acres are operated by the
Company. Approximately 9,544 acres in St. Mary Parish, 570 acres in
Lafourche Parish and 1,390 acres in Iberia Parish are leased to tenants
for the growing of sugarcane.
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.
The Company's plant site, consisting of a factory compound and main
office, is located on 65 acres 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 20,665 acres of land owned by the Company, approximately 890
acres are being held under leases granted for oil and gas exploration and
production.
I-2 -3-
<PAGE>
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
The Company is party from time to time to various legal and other
proceedings which are incidental to the conduct of its business. The
Company believes that there are no such proceedings pending which, if
adversely determined, would have a material adverse impact on the
financial condition or results of operations of the Company.
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 October 12, 1998 there were approximately 500 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 nor for the six months ended July 31,
1998.
Range of Prices
--------------------------
Six months Ending July 31, 1998 High Low
-------------------------------- -------- --------
First Quarter $ 8-1/4 $ 7
Second Quarter 7-5/8 7-1/8
Fiscal 1998
-------------------------------
First Quarter 6-5/8 6-1/2
Second Quarter 8 6-1/2
Third Quarter 9 7
Fourth Quarter 7 7
I-3 -4-
<PAGE>
Fiscal 1997
--------------------------------
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
Six months ended July
July 31
-----------------------
1998 1997*
----------- -----------
Revenues $16,385,368 $12,474,750
Net Earnings
(Loss) $ (825,877) $(1,907,761)
Net Earnings
(Loss per
Share) $ (.33) $ (.76)
Cash Dividends
Paid per
Share $ - $ -
Total assets $28,842,188 $26,357,728
Long-term
Debt $ 8,777,263 $ 9,291,174
Working
Capital $ (411,958) $ (264,444)
Stockholders'
Equity $15,679,182 $13,757,729
* Unaudited
I-4 -5-
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA (Continued)
Year ended January 31
-------------------------
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 -6-
<PAGE>
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward -Looking Information
----------------------------
This Form 10-K contains certain statements that may be deemed
"forward-looking statements." All statements, other than historical
statements, in this Form 10-K that address activities, events or
developments that the Company intends, expects, projects, believes or
anticipates will or may occur in the future, are forward-looking statements.
Such statements are based on assumptions and analysis made by management of
the Company in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors
it believes are appropriate. The forward-looking statements in the Form
10-K are also subject to a number of material risks and uncertainties,
including weather conditions in south Louisiana during the sugarcane
growing season, the success of sugarcane pest and disease abatement
procedures, the quality and quantity of the sugarcane crops, mechanical
failures at the Company's sugar mill, and prices for sugar and molasses
produced by the Company. Such forward-looking statements are not guarantees
of future performance and actual results. Development and business
decisions may differ from those envisioned by such forward-looking
statements.
Results of Operations
---------------------
For the six months ended July 31, 1998, sugar and molasses sales
were $15,226,844 compared to $12,297,176 for the same period last year.
The increase in sales is directly related to the raw sugar and molasses
inventories on hand at the beginning of the two six month periods. At
January 31, 1998, the Company had a raw sugar inventory of approximately
32,000 tons compared to 27,000 tons at January 31, 1997. All of this sugar
was sold during the six month periods ending July 31, 1998 and 1997. The
sugar price received for the 1998 period was down slightly from the 1997
period but the difference in inventories accounted for the bulk of the
sales difference.
Interest earned also increased from $9,899 for the six months
ended July 31, 1997 to $16,699 for the same period in 1998. Higher sales
made available more funds for short-term investments. Interest rates
varied little from 1997 to 1998.
Mineral leases and royalties were comparable at $81,154 for the
six months ended July 31, 1998 and $84,978 for the 1997 period.
On June 26, 1998, the Company sold, under threat of expropriation,
170.13 acres of land near the Port of Iberia in Iberia Parish for
$1,020,780 and that sale coupled with several much smaller dispositons
resulted in a gain on disposition of property and equipment of $1,014,348
for the six months ended July 31, 1998. The Company had a loss of $24,798
on such dispositions for the six months ended July 31, 1997. On that same
date, the Company purchased 710 acres of farm land in Lafourche Parish and
subsequently leased the land for farming purposes to two local farmers. The
leases are included in the exibits attached to this document.
II-2 -7-
<PAGE>
Other revenues consist primarily of miscellaneous income items,
cane land rentals and permits issued by the Company for seismic surveys for
oil and gas exploration. Other revenues for the six months ended July 31,
1998 were $50,823 compared to $107,495 for the six months ended July 31,
1997. These items can vary substantially from period to period depending on
sales of miscellaneous items (ie scrap metal) and requests for seismic
permits.
Costs of products sold for the six months ended July 31, 1998 and
1997 were $16,811,057 and $14,697,801, respectively. These costs are
related to sales and as would be expected the higher sales generated a higher
cost of goods sold figure for the six months ended July 31, 1998.
General and administrative expenses were $491,456 for the six months
ended July 31, 1998 and $383,641 for the same period in 1997. The increase
in 1998 expenses stemed from an accrual of pension plan expense and a Company
contribution to its 401-K plan totalling $72,995. These expenses are
normally accrued and paid later in the year.
Interest and loan expenses increased from $470,247 for the six
months ended July 31, 1997 to $521,359 for the same period in 1998. This
increase is the function of the loan of $6,500,000 made in December, 1996
to purchase approximately 8,500 acres of land in close proximity to
Sterling's factory. The purchase was made principally to protect the
Company's cane supply.
Both statements of income and retained earnings for the six months
ended July 31, 1998 and 1997 reflect a loss for the periods. During these
periods, the Company was making capital improvements and repairs in
anticipation of the coming harvest season which generally begins around
October 1 of each year. Consequently, the Company will normally show a
loss for these periods. However, the Company does not anticipate a loss for
the year ended July 31, 1999.
Liquidity and Capital Resources
-------------------------------
Working capital at July 31, 1998 was a negative $411,958 compared to
a negative $264,444 at July 31, 1997. The Company is generally in this
position before the start of the crop because of the aforementioned capital
improvements and repairs which are generally financed from internally
generated funds and short-term borrowings. The Company has a $9,000,000
line of credit to cover its short-term borrowings before the start of the
crop. At September 30, 1998, the Company had $2,800,000 of short-term debt
outstanding.
II-3 -8-
<PAGE>
Year 2000
----------
The Company has taken steps to correct computer problems relating
to the year 2000. In May, 1998, a year 2000 compliant upgrade to the
operating system of the Company's midrange computer was made at a cost of
$5,000. A review of the application programs on the midrange computer
indicates that the programs are in compliance with year 2000. The Company
may have to replace several older PC computers before December 31, 1999 for
them to be year 2000 compliant. The Company does not anticipate any
significant cost to become fully year 2000 compliant.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
II-4 -9-
<PAGE>
September 11, 1998
To the Stockholders and Board of Directors
Sterling Sugars, Inc.
Franklin, Louisiana
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Sterling Sugars,
Inc. as of July 31, 1998, and the related statements of income and retained
earnings and cash flows for the six months then ended. 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 audit.
We conducted our audit 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 audit provides 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
July 31, 1998, and the results of its operations and its cash flows for the
six months then ended, in conformity with generally accepted accounting
principles.
Respectfully submitted,
/s/ LeGlue & Company
(A Professional Corporation)
II-5 -10-
<PAGE>
STERLING SUGARS, INC.
BALANCE SHEET
JULY 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 70,078
Temporary cash investments 94,074
------------
Total cash and temporary cash investments 164,152
Accounts receivable, principally sugar and
molasses sales, no allowance for doubtful
accounts considered necessary 376,308
Expenditures for future crops 330,760
Operating supplies - at cost 655,001
Deferred income taxes 543,000
Prepaid expenses and other assets 720,664
------------
TOTAL CURRENT ASSETS 2,789,885
------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 7,523,496
Buildings 3,322,617
Machinery and equipment 37,485,185
------------
48,331,298
Less accumulated depreciation 24,018,631
------------
24,312,667
------------
INVESTMENTS AND OTHER ASSETS:
Cash value of officers' life insurance 34,002
Expenditures for future crops 1,208,174
Notes receivable, net of allowance for
doubtful accounts: $17,232. 497,460
------------
Total investments and other assets 1,739,636
------------
$28,842,188
============
See notes to financial statements
II-6 -11-
<PAGE>
STERLING SUGARS, INC.
BALANCE SHEET
JULY 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,135,000
Accounts payable 885,857
Due cane growers 239,835
Current portion of long-term debt
and capital leases 941,151
--------------
TOTAL CURRENT LIABILITIES 3,201,843
--------------
LONG-TERM DEBT AND CAPITAL LEASE, less portion
due within one year included in current
liabilities 8,777,263
--------------
DEFERRED INCOME TAXES 1,183,900
--------------
COMMITMENTS AND CONTINGENCIES (Note 9) -
--------------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share:
Authorized and issued 2,500,000 shares 2,500,000
Additional paid-in capital 40,455
Retained earnings 13,138,727
--------------
15,679,182
--------------
$28,842,188
==============
See notes to financial statements
II-7 -12-
<PAGE>
STERLING SUGARS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED JULY 31, 1998
REVENUES:
Sugar and molasses sales $15,222,844
Interest earned 16,699
Mineral leases and royalties 81,154
Gain on disposition of property and equipment 1,014,348
Other 50,823
-----------
16,385,868
-----------
COST AND EXPENSES:
Cost of products sold 16,871,057
General and administrative 491,456
Interest and loan expenses 521,359
-----------
17,883,872
-----------
INCOME (LOSS) BEFORE INCOME TAXES (1,498,004)
INCOME TAXES (BENEFITS) (672,127)
-----------
NET INCOME (LOSS) (825,877)
RETAINED EARNINGS AT BEGINNING OF YEAR 13,964,604
-----------
RETAINED EARNINGS AT END OF YEAR $13,138,727
===========
WEIGHTED AVERAGE EARNINGS (LOSS) PER COMMON SHARE:
Net income (Loss) $ (.33)
===========
CASH DIVIDENDS PAID $ 0
============
See notes to financial statements
II-8 -13-
<PAGE>
STERLING SUGARS, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (825,877)
Adjustments to reconcile net income (loss)
to net cash provided by (used
in) operating activities:
Depreciation 879,724
Deferred income taxes (472,300)
(Gain) on dispositions of property and equipment (1,014,348)
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,233,449
Decrease in sugar and molasses inventories 12,874,664
Increase in expenditures for future crops (272,320)
Decrease in accounts payable and
accrued expenses and due to cane
growers (5,449,671)
Decrease in interest and income taxes payable (8,783)
Other items - net (517,361)
-----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 7,427,177
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection on notes receivable 74,135
Purchases of property, plant and equipment (2,385,827)
Proceeds from dispositions of property and equipment 1,019,759
-----------
NET CASH (USED IN)
INVESTING ACTIVITIES (1,291,933)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes
payable and long-term debt 4,780,000
Payments on short-term notes
payable and long-term debt (10,961,815)
-----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (6,181,815)
-----------
INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS (46,571)
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 210,723
-----------
(Continued)
II-9 -14-
<PAGE>
STERLING SUGARS, INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1998
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR $ 164,152
===========
SUPPLEMENTAL INFORMATION REGARDING
CASH FLOWS:
INTEREST PAID $ 523,959
============
INCOME TAXES PAID $ -
============
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Purchase of equipment financed by
notes payable and capital lease $ 101,618
============
See notes to financial statements
II-10 -15-
<PAGE>
STERLING SUGARS, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JULY 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Sales are recognized when deliveries are made.
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-11 -16-
<PAGE>
3. NOTES PAYABLE
Notes payable at July 31, 1998 included $1,135,000 of short-term
unsecured notes payable to a bank with interest at 8.50%.
The maximum aggregate short-term borrowings outstanding were $11,556,000
the six months ended July 31, 1998. The average aggregate amount of
short-term borrowings and the weighted average interest rate was
approximately $1,015,000 and 8.58% during the six months ended July 31, 1998.
4. LONG-TERM DEBT AND CAPITAL LEASE
Long-term debt and capital lease at July 31, 1998 consisted of the
following:
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. $ 3,630,505
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 July 31, 1998. An
additional covenant of the loan is that no
dividends are to be paid. 5,525,000
8.9% note collateralized by equipment, payable
in twenty-four monthly installments of $10,345
including interest, beginning May 1, 1997 131,513
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 115,678
II-12 -17-
<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 221,429
6.92% note collateralized by equipment payable in
three annual installments of $33,816 including
interest, beginning March 10, 1999. 88,874
9.56% capital lease payable in twelve monthly payments
of $1,109 including imputed interest, beginning on
February 5, 1998 with the final payment due January 5,
1999. 5,415
-----------
9,718,414
Less portion due within one year (941,151)
-------------
$ 8,777,263
=============
The aggregate annual principal payments applicable to these notes and
capital leases are payable as follows:
Year ended July 31, 1999 $ 941,151
Year ended July 31, 2000 928,112
Year ended July 31, 2001 861,169
Year ended July 31, 2002 4,032,649
Year ended July 31, 2003 680,333
Thereafter 2,275,000
-------------
$ 9,718,414
=============
The loan agreements with a bank restrict the corporation from paying
dividends until such time as the loans have been paid in full.
The Company had a line of credit with a bank at July 31, 1998
in the amount of $8,600,000. There was $1,135,000 borrowed against this
line of credit as of July 31, 1998.
The Company was not in compliance with debt covenants relating to
working capital and long-term debt to earnings before interest, taxes,
depreciation and amortization as of July 31, 1998. Compliance with
these requirements has been waived by the bank until the subsequent
annual audit.
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 July 31, 1998 are as follows:
II-13 -18-
<PAGE>
Deferred tax assets:
Tax credit carryforwards $ 189,400
Operating loss carryovers 1,160,200
Other 76,900
-------------
Total 1,426,500
-------------
Deferred tax liabilities:
Differences between book and tax basis of property (2,060,500)
Other (6,900)
-------------
Total (2,067,400)
-------------
Net $ (640,900)
=============
The foregoing net amounts were included in the accompanying balance sheet
as follows:
Deferred tax assets - Current $ 543,000
Deferred tax liability - Non-current (1,183,900)
-------------
Net $ (640,900)
=============
There was no valuation allowance required at July 31, 1998.
Income taxes consist of the following components:
Currently payable $ (197,227)
Deferred (474,900)
-------------
$ (672,127)
=============
State income taxe (benefit) included in income tax expense amounted to
approximately $(197,200).
Deferred income taxes relate primarily to the following items:
Depreciation $ 172,800
Gain on sale of land 380,400
Net operating loss carryforward (1,160,200)
Other 132,100
-------------
$ (474,900)
=============
II-14 -19-
<PAGE>
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:
Amount %
----------------
Income taxes at statutory
rate of pretax earnings $ (509,300) (34)
Increase (decrease) in taxes
resulting from:
State income taxes (197,200) (13)
Other items - net 34,373 2
----------------
Actual income taxes $ (672,127) (45)
================
At July 31, 1998 the Company had alternative minimum tax credit
carryforwards of approximately $189,400 available to reduce future income
taxes payable under certain circumstances. The alternative minimum tax
credit carryover period is unlimited. The corporation had a net operating
loss carryover of $2,896,724 which can be utilized ratably over the next
six years and provides for a maximum carryover period of fifteen years.
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 six months ended July 31,
1998 was $53,888.
Data relative to the Plan as of January 31, 1998 were as follows
(in thousands):
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,268
=========
Accumulated benefit obligation $ 1,292
=========
Projected benefit obligation for service rendered
to date $ (1,480)
Plan assets at fair value 1,441
---------
Plan assets in excess of projected benefit
obligation (39)
Remaining unrecognized portion of net assets at
February 1, 1987 (82)
Unrecognized net loss from past experience
different from that assumed 139
---------
Prepaid pension cost included in other assets $ 18
=========
II-15 -20-
<PAGE>
The net pension expense for the six months ended July 31, 1998 included
the following (income) expense components:
Service cost - benefits earned during the period $ 54
Interest cost on projected benefit obligation -
Actual return on plan assets -
Net amortization and deferrals -
---------
NET PENSION EXPENSE $ 54
=========
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% in 1998. The projected rate of
increase in future compensation levels used was 5.5% in 1998. The expected
rate of return on plan assets was 8% in 1998. 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 $19,107 for the six months ended July 31, 1998.
8. REVENUES
Sugar and molasses sales are comprised of the following:
Sugar $14,824,484
Molasses 398,360
-----------
$15,222,844
===========
Sugar sales to individual major customers amounted to $5,492,915,
$4,230,662, $2,937,239, and $2,154,686.
Income from mineral leases and royalties is comprised of the following:
Oil and gas royalties $ 4,388
Mineral leases 76,766
-----------
$ 81,154
===========
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.
II-16 -21-
<PAGE>
Other income is comprised of the following:
Rental property $ (6,910)
Other 57,733
----------
$ 50,823
==========
9. COMMITMENTS AND CONTINGENCIES
The Company has certain lease obligations under which a total of
approximately 98 acres of agricultural land are being leased and
farmed by the Company.
The Company had an employment agreement with an executive officer.
The Company had guaranteed a $100,000 collateralized note and a $415,000
collaterilized note a grower and a harvesting company, respectively.
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. As of July 31, 1998 the principal balance
outstanding on the note was $250,000.
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 six months ended July 31, 1998, the Company was involved
in the following related party transactions:
II-17 -22-
<PAGE>
The Company entered into a technical service agreement with M. A.
Patout & Son, Ltd., a majority stockholder of Sterling Sugars, Inc.
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.
For the six months ended July 31, 1998, no management fee was due by the
company.
The Company reimbursed M. A. Patout & Son, Ltd. certain expenses paid by
them on behalf of the Company. Reimbursements for the six months ended
July 31, 1998 were $118,701.
The Company reimbursed Raceland Sugars, Inc., a wholly-owned subsidiary
of M. A. Patout & Son, Ltd. certain expenses paid by them on behalf of the
company. Reimbursements for the six months ended July 31, 1998 were $92.
The Company obligated itself a co-maker of a collateralized equipment note
for Patout Equipment Co., Inc. in the original 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):
Carrying Fair
value value
------- -------
Cash and cash equivalents $ 164 $ 164
Accounts receivable 376 376
Notes receivable 497 369
Short-term debt 1,404 1,404
Accounts payable 886 886
Due to growers 240 240
Long-term debt (including current
portion) 9,450 9,450
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.
II-18 -23-
<PAGE>
12. Comparative information for the six months ended July 31, 1997 (unaudited).
BALANCE SHEET
JULY 31, 1997
ASSETS
CURRENT ASSETS: (Unaudited)
Cash and temporary cash investments $ 302,616
Accounts receivable, principally sugar and
molasses sales, no allowance for doubtful
accounts considered necessary 282,808
Expenditures for future crops 424,500
Operating supplies - at cost 842,029
Deferred income taxes 503,000
Prepaid expenses and other assets 552,428
------------
TOTAL CURRENT ASSETS 2,907,381
------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Land 6,886,838
Buildings 3,293,695
Machinery and equipment 34,345,009
------------
44,525,542
Less accumulated depreciation 23,254,460
------------
21,271,082
------------
INVESTMENTS AND OTHER ASSETS:
Cash value of officers' life insurance 31,763
Expenditures for future crops 1,389,338
Notes receivable, net of allowance for
doubtful accounts: $38,000. 700,883
Deferred loan acquistion costs 57,281
------------
Total investments and other assets 2,179,265
------------
$26,357,728
============
II-19 -24-
<PAGE>
NOTE 12 (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 2,066,825
Current portion of long-term debt
and capital leases 1,105,000
--------------
TOTAL CURRENT LIABILITIES 3,171,825
--------------
LONG-TERM DEBT AND CAPITAL LEASE, less portion
due within one year included in current
liabilities 9,291,174
--------------
DEFERRED INCOME TAXES 137,000
--------------
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share:
Authorized and issued 2,500,000 shares 2,500,000
Additional paid-in capital 40,455
Retained earnings 11,217,274
--------------
Total stockholders equity 13,757,729
--------------
$26,357,728
==============
II-20 -25-
<PAGE>
NOTE 12 (Continued)
STATEMENT OF INCOME AND RETAINED EARNINGS
SIX MONTHS ENDED JULY 31, 1997
REVENUES:
Sugar and molasses sales $12,297,176
Interest earned 9,899
Mineral leases and royalties 84,978
Gain on disposition of property and equipment (24,798)
Other 107,495
-----------
12,474,750
-----------
COST AND EXPENSES:
Cost of products sold 14,697,801
General and administrative 383,641
Interest and loan expenses 470,247
-----------
15,551,689
-----------
INCOME (LOSS) BEFORE INCOME TAXES (3,076,939)
INCOME TAXES (BENEFITS) (1,169,178)
-----------
NET INCOME (LOSS) (1,907,761)
RETAINED EARNINGS AT BEGINNING OF YEAR 13,125,035
-----------
RETAINED EARNINGS AT END OF YEAR $11,217,274
============
WEIGHTED AVERAGE EARNINGS (LOSS) PER COMMON SHARE:
Net income (Loss) $ (.76)
============
CASH DIVIDENDS PAID $ 0
============
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (1,907,761)
Adjustments to reconcile net income (loss)
to net cash provided by (used
in) operating activities:
Amortization of loan costs 6,182
Depreciation 1,235,950
Deferred income taxes (1,264,500)
Loss on dispositions of property and equipment 24,798
Changes in operating assets and liabilities:
Decrease in accounts receivable 1,607,590
Decrease in sugar and molasses inventories 10,825,919
II-21 -26-
<PAGE>
NOTE 12 (Continued)
Decrease in accounts payable and
accrued expenses and due to cane
growers (3,759,144)
Other items - net (303,059)
-----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,465,975
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Issuance of notes receivable (16,354)
Purchases of property, plant and equipment (3,686,220)
Proceeds from dispositions of property and equipment 125,179
-----------
NET CASH (USED IN)
INVESTING ACTIVITIES (3,577,395)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes
payable and long-term debt 5,059,343
Payments on short-term notes
payable and long-term debt (7,755,639)
-----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (2,696,296)
-----------
INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS 192,284
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 110,332
-----------
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR $ 302,616
=============
SUPPLEMENTAL INFORMATION REGARDING
CASH FLOWS:
INTEREST PAID $ 509,581
=============
INCOME TAXES PAID $ -
=============
ITEM 9 -DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
II-22 -27-
<PAGE>
PART III
ITEM 10-DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about each director of the company follows:
Name Principal occupation last five years
-----------------------------------------------------------------------
Bernard E. Boudreaux, Jr. Chairman of the Board and general counsel of
Director since 1996 the Company. District Attorney sixteenth
Age 60 Judicial District of Lousisana.
Dr. James Patout Burns, Jr. Secretary of the Company and is Thomas and
Director since 1994 White Professor of Christian Thought and Chair
Age 58 of the Program in Religious Studies at
Washington University, St. Louis, Missouri.
Craig P. Caillier President and Chief Executive Officer of the
Director since 1996 Company since 1996. Senior Vice President and
Age 36 General Manager of the Company from 1994 to
1996. Previously, he was Assistant General
Manager and Secretary/Treasurer of M. A. Patout
and Son, Ltd., Jeanertte, Lousisana.
Peter V. Guarisco Chairman of the Board and President of Hellenic,
Director since 1986 Inc., a privately owned company having diverse
Age 70 business interests, Morgan City, Louisiana.
Victor Guarisco, II (1) President of Cottonwood, Inc., a privately owned
Director since 1992 real estate management and development company,
Age 34 Morgan City, Louisiana.
Rivers Patout (2) Rivers Patout is Vice President of Property
Director since 1994 Development of the Company and Assistant General
Age 32 Manager of M. A. Patout & Son, Ltd., Jeanerette,
Louisiana.
Willian S. Patout, III William S. Patout, III is President and Chief
Director since 1997 Executive Officer of M. A. Patout & Son, Ltd.,
Age 65 Jeanerette, Louisiana.
(1) Peter V. Guarisco is the father of Victor Guarisco, II.
(2) William S. Patout, III is the father of Rivers Patout.
Directors receive an annual retainer of $5,000 and an attendance fee of
$500 per meeting plus reimbursement for travel and related expenses
incurred in attending board and committee meetings.
III-1 -28-
<PAGE>
Information concerning the Company's executive officers is set forth below:
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
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
The executive officers were elected by the Board of Directors on May 21,
1998 to serve a term which expires in November, 1999 or when their successors
have been chosen.
ITEM 11-EXECUTIVE COMPENSATION
The following table shows, for the six months ended July 31, 1998, the fiscal
year ended January 31, 1998, the fiscal year ended January 31, 1997 and the
fiscal year ended January 31, 1996 the cash compensation as well as certain
other compensation, paid to the Chief Executive Officer.
ANNUAL COMPENSATION TABLE
Name and Principal Other Annual
Position Year Salary Bonus Compensaton(1)
---------------------------------------------------------------------------
Craig P. Caillier 1998* $ 41,333 $ 29,546 $ 1,626
President & CEO 1998 79,583 63,474 4,292
1997 73,833 63,219 4,112
1996 71,500 20,000 2,686
---------------------------------------------------------------------------
* For the six months ended July 31, 1998.
(1) Company contributions to 401(K) savings plan.
Compensation Policies of the Board of Directors:
The Board of Directors does not have a compensation committee and
executive compensation determinations are made by the entire Board. Mr.
Caillier's compensation is based on his performance and the overall profit-
ability of the Company, as well as the Board's forecasted future performance
as determined in the best judgement of the Board. Mr. Caillier's compensation
is not directly tied to one specific factor such as an increase in the price
of the Company's stock, return on equity or net profit and there is no
specific formulas used in the calculation of compensation.
III-2 -29-
<PAGE>
As amended in 1986, the Company's Retirement Plan provides benefits at
retirement to full-time salaried and hourly factory employees and to full-
time agricultural employees (other than those hired at age 60 or older) who
are at least 21 years of age and have at least one year of service.
Contributions to the plan, which are funded entirely by the Company, are
computed on an actuarial basis. The plan classifies employees as agricultural
and factory employees. Benefits for factory employees (a classification that
includes the Company's executive officers) are determined by multiplying the
employee's years of service by the sum of (i) .60 percent times Final Average
Earnings up to Covered Compensation and (ii) 1.20 percent times Final Average
Earnings in excess of Covered Compensation. The term "Covered Compensation"
means the average annual earnings used to calculate a participant's social
security benefit. This average covers his entire employment history (including
employment prior to employment at Sterling Sugars, if any) and assumes
continued employment to age 65. It also assumes that, during each year of
employment, the participant always earned the maximum amount subject to social
security withholding (the Taxable Wage Base). Each year, the plan's
actuaries provide a table that determines the Covered Compensation level for
participants reaching age 65 in each of the succeeding years. The Covered
Compensation level increases over time (generally every year) as the Taxable
Wage Base itself increases. As a result, Covered Compensation is relatively
low for participants nearing average retirement age of 65 and increases for
younger participants. The actual final determination of a participant's
Covered Compensation amount is therefore made at the time of termination of
employment or retirement.
Mr. Caillier, who is 36 years old, has approximately four years of
credited service. Set out below is a table that shows the estimated annual
pension benefits for employees retiring at age 65 with varying years of
credited service and final earnings.
PENSION TABLE
-----------Years of Service------------
Final Earnings 10 15 20 25
--------------------------------------------------------
$ 50,000 $ 4,632 $ 6,948 $ 9,264 $ 11,580
75,000 7,632 11,448 15,264 19,080
100,000 11,632 15,948 21,264 26,580
Effective February 1, 1992, the Company established the Sterling Sugars,
Inc. Employee Savings Plan and Trust for the benefit of all eligible full-
time salaried and hourly employees and full-time salaried agricultural
employees who are at least 21 years old and have completed at least one year
of service with the Company. The plan is referred to as a 401(K) retirement
plan, a form of a defined contribution plan. Through elective deferrals,
employees may contribute from one to six percent of their annual gross
compensation into the plan. The Company is obligated to match contributions
to the extent of fifty percent of the first six percent of an employees
elective deferrals. Any additional Company contributions are discretionary.
The Plan was amended effective February 1, 1994 to change eligibility
requirements and investment election dates and to credit service for a related
employer. Newly hired employees are now eligible to participate on the first
day of the calendar month following completion of age and service require-
ments. Investment changes will be made effective April 1 instead of February
1 and October 1 instead of August 1 of each year. Credited service was also
amended to include service with M. A. Patout & Son, Ltd., a related employer.
III-3 -30-
<PAGE>
ITEM 12-SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Name and address of Shares Percent
Beneficial Owner Beneficially Owned(1) of Class
- -----------------------------------------------------------------------------
M. A. Patout & Son, Ltd. 1,537,268 61.49%
3512 J. Patout Burns Rd.
Jeanerette, La. 70544
Peter V. Guarisco 511,531(2) 20.46%
P. O. Box 2588
Morgan City, La. 70380
Capital Management Consultants, Inc. 204,431(2) 8.18%
P. O. Box 2588
Morgan City, La. 70380
Hellenic, Inc. 143,100(2) 5.72%
P. O. Box 2588
Morgan City, La. 70380
- --------------------------------------------------------------------------
(1) Based on information furnished by beneficial owners. Includes direct
and indirect ownership and, unless otherwise indicated, also includes sole
voting and investment power with respect to reported holdings.
(2) Includes 143,100 shares owned by Hellenic, Inc. and 204,431 shares
owned of record by Capital Management Consultants, Inc. Mr. Guarisco
shares voting and investment powers with respect to such shares. Mr.
Guarisco disclaims beneficial ownership of these shares.
ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
On November 15, 1994, the Company entered into a technical service
contract with M. A. Patout & Son, Ltd. ("Patout"). The contract provides that
Patout will provide technical and engineering services to the Company in
return for a fee equal to ten percent of the Company's 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. The agreement expires on January 31, 1999. The agreement also
provides Patout 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.
Patout exercised its option on April 12, 1995 and acquired 50,000 shares of
treasury stock for $162,500. The technical service fee for the year ended
January 31, 1998 was $39,111. No technical service fee was due for the six
months ended July 31, 1998.
III-4 -31-
<PAGE>
The Company also entered into a cane swap agreement with Patout whereby
some shippers of sugarcane to Patout deliver their cane to Sterling Sugars,
Inc. ("Sterling") because of their proximity to Sterling's factory. The
agreement was reciprocal for some shippers normally having their cane
processed by Sterling. The net effect of this cane swap agreement was that
Sterling ground an additional 33,275 tons of cane for fiscal 1996. The
reimbursement due Patout at January 31, 1996 for payments made by Patout to
shippers under this agreement was $62,196. For fiscal 1997, the Company
processed an additional 29,662 tons of cane. The reimbursement due Patout at
January 31, 1997 for payments made by Patout to shippers under this agreement
was $172,409. The Company did not enter into a cane swap agreement for the
year ended January 31, 1998 nor for the six months ended July 31, 1998.
Mr. Bernard E. Boudreaux, Jr., Chairman of the Board of the Company,
served in fiscal 1998 and the six months ended July 31, 1998 and will serve
in fiscal 1999, as general counsel for the Company on a retainer basis.
Other Information
Persons who are directors or executive officers of the Company, and
persons who beneficially own more than 10% of the Company's common stock, are
required to file with the Securities and Exchange Commission periodic reports
of changes in their ownership of the Company's stock. Based solely on a
review of the forms furnished to the Company pursuant to the rules of the
Securities and Exchange Commission, such persons complied with the filing
requirements during the last three fiscal years and the six months ended
July 31, 1998 except M. A. Patout & Son, Ltd. was late in filing one report
covering two transactions and Mr. Boudreaux was late in filing Form 3.
The Company has no standing nominating or compensation committees or
committees performing similar functions. The Company's Audit and Ethics
Committee is empowered to engage and evaluate the performance of the Company's
public accountants and review year-end and other financial statements when
appropriate. The Committee, which consists of Messrs. Boudreaux, R. Patout
and V. Guarisco, met once during the six months ended July 31, 1998.
One meeting of the Board of Directors was held during the six months
ended July 31, 1998. All directors attended the meeting.
ACCOUNTANTS
It is anticipated that LeGlue & Company, will be asked to serve as the
Company's independent public accountants for the fiscal year ending July 31,
1999.
III-5 -32-
<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 (Six months ended July 31, 1998)
Balance Sheet as of July 31, 1998.
Statement of Income and Retained Earnings for the six months ended
July 31, 1998.
Statements of Cash Flows for the six months ended July 31, 1998.
Notes to Financial Statements
Note 12 to the financial statements contains unaudited financial
statements for the six months ended July 31, 1997 for comparative
purposes.
(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 -33-
<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 -34-
<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 (r)
(xx) Agricultural lease-Northside Planting (r)
(yy) Agricultural lease-S & S Farms (r)
(zz) Agricultural lease-Breaux Bros. Farms, Inc. (r)
(aaa) Lease Agreement-Myette Point Boat Landing (r)
(bbb) Lease Agreement-Myette Point Dock (r)
(11) Computation of earnings per share (60)
(b) Reports on Form 8-K
Incorporated by refernce from registrant's Form 8-K filed on August
28, 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 -35-
<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*
(r) Incorporated by reference from registrant's Form 10-K for the fiscal year
ended January 31, 1998*
* Commission File Number 0-1287
IV-4 -36-
<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 October 19, 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 October 19, 1998
--------------------- Director
Craig P. Callier
/s/ Stanley H. Pipes Vice President & Treasurer
---------------------- (Principal Financial and
Stanley H. Pipes Accounting Officer) October 19, 1998
/s/ William S. Patout III Director October 19, 1998
------------------------
William S. Patout III
/s/ Peter V. Guarisco Director October 19, 1998
------------------------
Peter V. Guarisco
/s/ J. Patout Burns, Jr. Director October 19, 1998
----------------------
J. Patout Burns, Jr.
/s/ Rivers Patout Director October 19, 1998
----------------------
Rivers Patout
/s/ Victor Guarisco, II Director October 19, 1998
-----------------------
Victor Guarisco, II
IV-5 -37-
<PAGE>
INDEX TO EXHIBITS
(10) Material Contracts
Agricultural lease - Ellender Farms, Inc. (39)
Agricultural lease - Gravois Farms, Inc. (45)
(11) Computation of Earnings per Common Share (51)
IV-6 -38-
<PAGE>
AGRICULTURAL LEASE - ELLENDER FARMS, INC.
STATE OF LOUISIANA
PARISH OF LAFOURCHE
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 P. Caillier, President and
CEO, duly authorized, whose mailing address is P. O. Box 572, Franklin,
Louisiana 70538,
hereinafter called LESSOR, and
Ellender Farms, Inc., a Louisiana corporation authorized to do and doing
business in the State of Louisiana, Parish of Lafourche, appearing herein
through and being represented by Wallace R. Ellender, III, President, and
Thomas Ellender, Secretary-Treasurer, duly authorized, whose mailing
address is Box 235 Highway 55, Bourg, Louisiana 70343,
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 Lafourche 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, 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.
IV-7 -39-
<PAGE>
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.
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 18% 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 18% 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-8 -40-
<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 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-9 -41-
<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 Raceland Raw Sugar Corporation 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:
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.
IV-10 -42-
<PAGE>
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 LESSOR is also the owner of all of the
sugar cane crops growing on the leased premises known as Upper Ten
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 in
excess of lessors ownership on the leased premises at the then fair market
value, or allow LESSEE to farm off all cane in excess of lessors ownership
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 18% thereof, and
LESSEE shall be entitled to 82% 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 an additional consideration for this lease, without which
same would not be granted, LESSEE agrees to ship all sugar cane grown by
it, including all sugar cane grown on the premises leased herein and all
sugar cane grown by LESSEE, to the sugar mill owned and operated by
Raceland Raw Sugar Corp. in Raceland, Louisiana.
18) All notices herein provided for (except Paragraph 16) shall be
effective upon placing same in the United States Mail addressed to LESSEE
at:
IV-11 -43-
<PAGE>
Wallace R. Ellender
Thomas Ellender
Ellender Farms, Inc.
Box 235 Highway 55
Bourg, Louisiana 70343
and to LESSOR at
Sterling Sugars, Inc.
P. O. Box 572
Franklin, Louisiana 70538
unless such addresses be changed by notice in writing.
THUS DONE AND SIGNED in duplicate originals at Franklin, St. Mary Parish,
Louisiana, this 13th day of July, 1998 in the presence of the undersigned
witnesses.
WITNESSES: STERLING SUGARS, INC.
/s/ Yvonne Dufrene BY:/s/ Craig P. Caillier
---------------------------- ---------------------------
/s/ Mary P. Robichaux Craig P. Caillier
---------------------------- President and CEO
/s/ Yvonne Dufrene ELLENDER FARMS, INC.
----------------------------
/s/ Mary P. Robichaux By: /s/ Wallace R. Ellender, III
---------------------------- ----------------------------
Wallace R. Ellender, III
President
/s/ Yvonne Dufrene ELLENDER FARMS, INC.
----------------------------
/s/ Mary P. Robichaux By: /s/ Thomas Ellender
---------------------------- ---------------------------
Thomas Ellender
Secretary-Treasurer
IV-12 -44-
<PAGE>
AGRICULTURAL LEASE - GRAVOIS FARMS, INC.
STATE OF LOUISIANA
PARISH OF LAFOURCHE
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 P. Caillier, President and
CEO, duly authorized, whose mailing address is P. O. Box 572, Franklin,
Louisiana 70538,
hereinafter called LESSOR, and
Dean A. Gravois Farms, Inc., a Louisiana corporation authorized to do and
doing business in the State of Louisiana, Parish of Lafourche, appearing
herein through and being represented by Dean A. Gravois, President, duly
authorized, whose mailing address is 21222 LA 20 West, Vacherie, Louisiana
70090,
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 Lafourche 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, 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.
IV-13 -45-
<PAGE>
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.
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 18% 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 18% 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-14 -46-
<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 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-15 -47-
<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 Raceland Raw Sugar Corporation 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:
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.
IV-16 -48-
<PAGE>
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 LESSOR is also the owner of all of the
sugar cane crops growing on the leased premises known as Upper Ten
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 in
excess of lessors ownership on the leased premises at the then fair market
value, or allow LESSEE to farm off all cane in excess of lessors ownership
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 18% thereof, and
LESSEE shall be entitled to 82% 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 an additional consideration for this lease, without which
same would not be granted, LESSEE agrees to ship all sugar cane grown by
it, including all sugar cane grown on the premises leased herein and all
sugar cane grown by LESSEE, to the sugar mill owned and operated by
Raceland Raw Sugar Corp. in Raceland, Louisiana.
18) All notices herein provided for (except Paragraph 16) shall be
effective upon placing same in the United States Mail addressed to LESSEE
at:
IV-17 -49-
<PAGE>
Dean A. Gravois
Dean A. Gravois Farms, Inc.
21222 LA 20 West
Vacherie, Louisiana 70090
and to LESSOR at
Sterling Sugars, Inc.
P. O. Box 572
Franklin, Louisiana 70538
unless such addresses be changed by notice in writing.
THUS DONE AND SIGNED in duplicate originals at Franklin, St. Mary Parish,
Louisiana, this 13th day of July, 1998 in the presence of the undersigned
witnesses.
WITNESSES: STERLING SUGARS, INC.
/s/ Yvonne Dufrene BY:/s/ Craig P. Caillier
---------------------------- ---------------------------
/s/ Mary P. Robichaux Craig P. Caillier
---------------------------- President and CEO
/s/ Yvonne Dufrene DEAN A. GRAVOIS FARMS, INC.
----------------------------
/s/ Mary P. Robichaux By: /s/ Dean A. Gravois
---------------------------- ----------------------------
Dean A. Gravois
President
IV-18 -50-
<PAGE>
STERLING SUGARS, INC.
COMPUTATION OF EARNINGS PER SHARE
Six months ended July 31,
1998 1997*
----------- ------------
Primary
Income (loss) $ (825,877) $(1,907,761
=========== ============
Shares
Weighted average number of common
shares outstanding 2,500,000 2,500,000
========== ============
Primary earnings (loss) per common share $( .33) $( .76)
=========== ============
* Unaudited
IV-19 -51-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 164152
<SECURITIES> 0
<RECEIVABLES> 376308
<ALLOWANCES> 0
<INVENTORY> 655001
<CURRENT-ASSETS> 2789885
<PP&E> 48331298
<DEPRECIATION> 24018631
<TOTAL-ASSETS> 28842188
<CURRENT-LIABILITIES> 3201843
<BONDS> 8777263
<COMMON> 2500000
0
0
<OTHER-SE> 13179182
<TOTAL-LIABILITY-AND-EQUITY> 28842188
<SALES> 15222844
<TOTAL-REVENUES> 16385868
<CGS> 16871057
<TOTAL-COSTS> 17883872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 521359
<INCOME-PRETAX> (1498004)
<INCOME-TAX> ( 672127)
<INCOME-CONTINUING> ( 825877)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 825877)
<EPS-PRIMARY> ( .33)
<EPS-DILUTED> ( .33)
</TABLE>
