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Note 11 - Subsequent Events
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9 Months Ended |
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May 31, 2012
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| Subsequent Events [Text Block] |
NOTE
11 – SUBSEQUENT EVENTS
Subsequent
to quarter end, HP A&M failed to make balloon payments
due on promissory notes secured by deeds of trust on certain
properties we acquired pursuant to the Arkansas River
Agreement. As of the date of this filing, we
believe that HP A&M has defaulted on notes with principal
and accrued interest due in the amount of approximately $2.73
million. The defaulted notes are secured by deeds
of trust on our properties and water rights as well as
mineral interests, 25% of which are owned by us and 75% of
which are currently owned by HP A&M. We have
been discussing settlement proposals with HP A&M to
resolve the defaulted indebtedness issue as well as the
pending lawsuit filed by HP A&M against us on February
29, 2012, as disclosed in two current reports on Form 8-K,
one filed on February 16, 2012, and one filed on February 29,
2012. HP A&M has approximately $9.4 million of
principal and accrued interest payments remaining secured by
approximately 13,000 acres of farm land and water
rights. Of the $9.4 million of principal and
accrued interest, there are $8.6 million in balloon payments
of which approximately $6.5 million is due within 12 months
of May 31, 2012, approximately $2.0 million is due within 12
months of May 31, 2013, with the remaining amounts maturing
in 2014. We notified HP A&M of our intent to
exercise our rights under the Arkansas River Agreement,
including our right to (i) foreclose on 1,500,000 shares
of Pure Cycle common stock issued to HP A&M, (ii) reduce
the Tap Participation Fee by two times the amount paid by us
to discharge or cure the notes in default, and (iii)
terminate the Property Management
Agreement.
We have agreed to
refrain from exercising our rights temporarily to allow us
and HP A&M time to negotiate a mutually agreeable
settlement. If we are unable to reach an agreement
with HP A&M, we may elect to enter into new agreements
with note holders, sell the pledged Pure Cycle common stock
and/or farms and apply 100% of the proceeds to the repayment
of any defaulted indebtedness, or use farm income to repay
any defaulted indebtedness. Additionally, we may
foreclose upon HP A&M’s mineral
rights. We anticipate that based on current market
rates, we could sell approximately 4,200 acres of farms and
water to retire the $9.4 million of outstanding notes and
deeds of trust. *****
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