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Note 9 - Litigation Loss Contingencies
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6 Months Ended |
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Feb. 28, 2013
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| Legal Matters and Contingencies [Text Block] |
NOTE
9 – LITIGATION LOSS CONTINGENCIES
The
Company is involved in various claims, litigation and other
legal proceedings that arise in the ordinary course of its
business. The Company records an accrual for a loss
contingency when its occurrence is probable and damages can
be reasonably estimated based on the anticipated most likely
outcome or the minimum amount within a range of possible
outcomes. The Company makes such estimates based on
information known about the claims and experience in
contesting, litigating and settling similar claims.
Disclosures are also provided for reasonably possible losses
that could have a material effect on the Company's financial
position, results of operations or cash flows.
Because
each of the lawsuits below involves complex legal issues and
uncertainties and are in the early stages of litigation, the
Company has determined that no accruals for losses related to
the lawsuits is reasonably estimable or deemed reasonably
likely at this time.
As
discussed in a Form 8-K filed on December 19, 2011, on that
date the Company and the District filed a lawsuit against the
State of Colorado by and through the Land Board. The
complaint was filed with the District Court, City and County
of Denver, State of Colorado. The Company and the District
are claiming that the Land Board breached, and will breach,
agreements entered into by the Land Board with the Company
and the District in connection with a 1996 settlement
agreement. Those agreements include (i) the Amended and
Restated Water Lease, dated as of April 4, 1996, between the
Land Board and the District and (ii) the Service Agreement of
the same date between the Company and the District. As
initially reported in a Current Report on Form 8-K filed on
November 29, 2011, the Land Board issued a Request for
Proposal that included a draft lease agreement related to oil
and gas rights at the Land Board’s Lowry Range. The
Company believes the draft lease agreement did not adequately
address or protect the Company’s exclusive right to
provide water to the Lowry Range. The Land Board subsequently
entered into an oil and gas lease for the Lowry Range, which,
like the draft lease, does not protect the Company’s
exclusive rights. As a result of this breach, the Company and
the District are claiming damages which will be proven at
trial.
As
disclosed in two Form 8-K’s, one filed on February 16,
2012, and one filed on February 29, 2012, HP A&M
initiated a lawsuit against the Company in District Court,
City and County of Denver, State of Colorado on February 27,
2012, alleging breaches of representations made in connection
with the Arkansas River Agreement. The HP A&M claims
relate to the issues currently being litigated between the
Company and the Land Board regarding the Company’s
exclusive right to provide water service to the Land
Board’s Lowry Range property. The Company believes the
allegations are without merit and intends to vigorously
defend against them.
During
the period ended February 28, 2013, foreclosure proceedings
were commenced against 15 of the properties acquired by the
Company from HP A&M which are subject to promissory notes
defaulted upon by HP A&M and secured by deeds of trust on
the Company’s land and water
rights. Subsequent to February 28, 2012,
foreclosure proceedings were commenced against an additional
17 properties. These properties represent
approximately 31% of the Company’s Arkansas River
assets. The proceedings were filed on various
dates from January 9, 2013, through April 8, 2013, with the
Public Trustees of Bent, Otero and Prowers Counties in
Colorado. Foreclosure proceedings in Colorado take
at least nine months to conclude. Due to statutory
protections afforded to the Company as the owner of the
properties, the Company’s liquidity and its success in
acquiring the notes and deeds of trust, the Company
anticipates concluding these foreclosure proceedings on terms
which will not have a material adverse effect on its
financial position, results of operations or cash
flows. The Company also intends to pursue remedies
against HP A&M for the defaults. Because the
Company has determined that losses related to the foreclosure
proceedings are not probable and because the Company is
unable to predict which, if any, of these proceedings may
conclude other than as anticipated, the Company has
determined that no accruals for losses related to the
foreclosures are reasonably estimable or deemed reasonably
likely at this time.
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