SOUTHERN DISTRICT OF MISSISSIPPI NORTHERN ......2019/02/28 · 2 1411266v.2 30A in Santa Rosa Beach, Walton County, Florida. The interests in KAPA were shared equally (25% each) by

1411266v.2

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF MISSISSIPPI

NORTHERN DIVISION

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v.

ARTHUR LAMAR ADAMS AND MADISON TIMBER PROPERTIES, LLC,

Defendants.

Case No. 3:18-cv-252

Hon. Carlton W. Reeves, District Judge

Hon. F. Keith Ball, Magistrate Judge

MOTION FOR APPROVAL OF PURCHASE AGREEMENT

Alysson L. Mills, in her capacity as the court-appointed receiver (the “Receiver”) for

Arthur Lamar Adams and Madison Timber Properties, LLC, through undersigned counsel,

respectfully moves the Court to enter the attached proposed Order Approving Purchase

Agreement, which approves the Receiver’s Purchase Agreement with Brad Pugh, Corey Alger,

and Mae Lynn Investments, LLC to sell the Receiver’s interest in KAPA Breeze, LLC [Exhibit

A]. The Receiver requests that the Court approve the sale pursuant to 28 U.S.C. § 2004, which

permits a court to approve the sale of personalty, including intangible property such as an LLC

interest, without strict observance of the requirements for the sale of real property under 28 U.S.C.

§ 2001. In support, she states as follows:

1.

KAPA Breeze, LLC (“KAPA”) was formed by Arthur Lamar Adams, Terry Wayne Kelly,

Jr., Brad Pugh, and Corey Alger to develop approximately 1.5 acres of land located on Highway

Case 3:18-cv-00252-CWR-FKB Document 123 Filed 02/28/19 Page 1 of 6

2 1411266v.2

30A in Santa Rosa Beach, Walton County, Florida. The interests in KAPA were shared equally

(25% each) by the four partners.

2.

Pursuant to a settlement agreement resolving the Receiver’s claims against Terry Wayne

Kelly, Jr., approved by order of this Court on December 21, 2018, Kelly assigned his interest in

KAPA to the Receiver. Accordingly, the Receiver now controls 50% of the interests in KAPA.

The Receiver seeks to sell that interest.

3.

The Receiver obtained an independent appraisal of KAPA’s assets and has engaged in

arm’s length negotiations over the past six months with the other members of KAPA to find a way

to monetize the Receivership Estate’s interest in KAPA. Those negotiations required not only

finding a replacement member who was acceptable to KAPA’s other members, but also

negotiating KAPA’s operating agreement between the other members of KAPA and the proposed

replacement member. In addition, the remaining members of KAPA had to secure a commitment

for financing to continue the project, as KAPA’s pre-existing financing was insufficient to

complete the project and its pre-existing financial institution did not desire to continue financing

the project.

4.

The Receiver has now agreed to sell its LLC interest in KAPA in a private sale to Mae

Lynn Investments, LLC for immediate payment of $700,000. The Receiver has also agreed to

release all claims against KAPA and the assets of KAPA, or against the remaining members of

KAPA relating to KAPA or the KAPA Breeze development.


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5.

The Receiver believes that the proposed sale price represents fair and reasonable

consideration to the Receivership Estate. The proposed sale price represents a significant premium

above the appraised value of KAPA’s assets, the other members of KAPA have approved the

purchaser becoming a full member of KAPA, and the purchaser has secured a commitment for

financing to allow KAPA to continue to pursue the KAPA Breeze development. The Receiver

does not believe that a sale on such favorable terms could be obtained through an auction process

or after the delay required to market the property.

6.

The proposed Purchase Agreement does not release any claims the Receiver may have

against the former members of KAPA relating to any involvement in the Madison Timber Ponzi

scheme.

7.

The proposed Purchase Agreement follows meaningful, informed, arm’s length

negotiations between the Receiver, the other former members of KAPA, and Mae Lynn

Investments.

8.

28 U.S.C. § 2004 permits the Court to approve the sale of personal property, including

intangible property such as an LLC interest, without observance of the stringent requirements of

28 U.S.C. § 2001. The Receiver believes that deviation from the strict requirements of § 2001 is

appropriate here, where: (1) the Receiver has obtained an independent appraisal of the property

and the sale represents a significant premium to the appraised value; (2) sale of the LLC interest

requires approval of the new member by the other members of KAPA; (3) sale of the LLC interest


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requires renegotiating KAPA’s operating agreement among the remaining members; (4) sale of

the LLC interest for any significant value requires that the remaining members obtain new

financing for the project and that the new member assist in obtaining that financing. Given the

circumstances, the Receiver submits that only a private sale could obtain fair value for the

Receivership Estate. Further, extended delay of the sale of the LLC interest would put the

Receiver’s ability to recover any value in jeopardy because the LLC is not currently operating and

cannot continue to support its existing financing indefinitely.

9.

The Receiver believes sale of the LLC interest pursuant to the terms of the Purchase

Agreement is in the Receivership Estate’s best interests. The Receiver thus recommends that the

Court approve the Purchase Agreement by entering the proposed Order Approving Purchase

Agreement.

WHEREFORE the Receiver asks that after due consideration the Court enter the proposed

Order Approving Purchase Agreement.

February 28, 2019

Respectfully submitted,

/s/ Lilli Evans Bass

BROWN BASS & JETER, PLLC

Lilli Evans Bass, Miss. Bar No. 102896

LaToya T. Jeter, Miss. Bar No. 102213

1755 Lelia Drive, Suite 400

Jackson, Mississippi 39216

Tel: 601-487-8448

Fax: 601-510-9934

[email protected]

Receiver’s counsel

/s/ Jason W. Burge

FISHMAN HAYGOOD, LLP

Admitted pro hac vice

Brent B. Barriere, Primary Counsel

Jason W. Burge

Kristen D. Amond

Rebekka C. Veith

201 St. Charles Avenue, Suite 4600

New Orleans, Louisiana 70170

Tel: 504-586-5253

Fax: 504-586-5250


5 1411266v.2

[email protected]

[email protected]

[email protected]

[email protected]



6 1411266v.2

CERTIFICATE OF SERVICE

I certify that I electronically filed the foregoing with the Clerk of Court using the ECF

system which sent notification of filing to all counsel of record.

Date: February 28, 2019 /s/ Jason W. Burge



1411266v.2

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF MISSISSIPPI

NORTHERN DIVISION

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,

v.

ARTHUR LAMAR ADAMS AND MADISON TIMBER PROPERTIES, LLC,

Defendants.

Case No. 3:18-cv-252

Hon. Carlton W. Reeves, District Judge

Hon. F. Keith Ball, Magistrate Judge

MEMORANDUM IN SUPPORT OF MOTION FOR APPROVAL OF PURCHASE AGREEMENT

Alysson L. Mills, in her capacity as the court-appointed receiver (the “Receiver”) for

Arthur Lamar Adams and Madison Timber Properties, LLC, through undersigned counsel,

respectfully moves the Court to enter the attached proposed Order Approving Purchase

Agreement, which approves the Receiver’s Purchase Agreement with Brad Pugh, Corey Alger,

and Mae Lynn Investments, LLC to sell the Receiver’s interest in KAPA Breeze, LLC [Exhibit

A]. The Receiver requests that the Court approve the sale pursuant to 28 U.S.C. § 2004, which

permits a court to approve the sale of personalty, including intangible property such as an LLC

interest, without strict observance of the requirements for the sale of real property under 28 U.S.C.

§ 2001. She submits this memorandum in support.


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SUMMARY

KAPA Breeze, LLC (“KAPA”) was formed by Arthur Lamar Adams, Terry Wayne Kelly,

Jr., Brad Pugh, and Corey Alger to develop approximately 1.5 acres of land located on Highway

30A in Santa Rosa Beach, Walton County, Florida. The membership interests in KAPA were

shared equally (25% each) by the four partners. Pursuant to a settlement agreement resolving the

Receiver’s claims against Terry Wayne Kelly, Jr., approved by order of this Court on December

21, 2018, Kelly assigned his interest in KAPA to the Receiver. Accordingly, the Receiver now

controls 50% of the membership interests in KAPA. The Receiver seeks to sell that interest.

The Receiver obtained an independent appraisal of KAPA’s assets and has engaged in

arm’s length negotiations over the past six months with the other members of KAPA to find a way

to monetize the Receivership Estate’s interest in KAPA. Those negotiations required not only

finding a replacement member who was acceptable to KAPA’s other members, but also

negotiating KAPA’s operating agreement between the other members of KAPA and the

replacement member. In addition, the remaining members of KAPA had to secure a commitment

for financing to continue the project, as KAPA’s pre-existing financing was insufficient to

complete the project and its pre-existing financial institution did not desire to continue financing

the project.

The Receiver has now agreed to sell the 50% LLC interest in KAPA in a private sale to

Mae Lynn Investments, LLC for immediate payment of $700,000. The Receiver has also agreed

to release all claims against KAPA and the assets of KAPA, or against the remaining members of

KAPA relating to KAPA or the KAPA Breeze development.

The Receiver believes that the proposed sale price represents fair and reasonable

consideration to the Receivership Estate. The proposed sale price represents a significant premium


3 1411266v.2

above the appraised value of KAPA’s assets, the other members of KAPA have approved the

purchaser becoming a full member of KAPA, and the purchaser has secured a commitment for

financing to allow KAPA to continue to pursue the KAPA Breeze development. The proposed

Purchase Agreement does not release any claims the Receiver may have against the former

members of KAPA relating to any involvement in the Madison Timber Ponzi scheme. The

proposed Purchase Agreement follows meaningful, informed, arm’s length negotiations between

the Receiver, the other former members of KAPA, and Mae Lynn Investments. The Receiver does

not believe that a sale on such favorable terms could be obtained through an auction process or

after the delay required to market the property.

The Receiver believes sale of the LLC interest pursuant to the terms of the Purchase

Agreement is in the Receivership Estate’s best interests. The Receiver thus recommends that the

Court approve the Purchase Agreement by entering the proposed Order Approving Purchase

Agreement.

BACKGROUND

The Receiver’s duties

The Receiver has a duty “to take custody, control, and possession of all Receivership

Property, Receivership Records, and any assets traceable to assets owned by the Receivership

Estate”1 and to “terminate any and all leases of the Receivership Defendants’ personal or real

property, or to sell any of the Receivership Defendants’ personal or real property.”2

Immediately following her appointment, the Receiver and her counsel engaged the

members of all LLCs of which Arthur Lamar Adams was a member and began negotiations to

1 Docket No. 33, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss). 2 Docket No. 33, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss).


4 1411266v.2

liquidate the Receivership Estate’s interest in the LLCs. Two of the LLCs, 707 LLCs and Delta

Farm Lands LLC, were already seeking to sell their principal assets, and the Receivership Estate

assisted those LLCs in liquidating their assets and dissolving. The Receiver also entered into a

settlement agreement with Terry Wayne Kelly, Jr., pursuant to which the Receiver obtained an

additional 50% interest in KAPA. After discussing with KAPA’s members and reviewing

KAPA’s records, including a project narrative, formation documents, records relating to the

property acquisition, an appraisal of the property, records of the company’s corporate actions, bank

statements, and an initial construction agreement with Compass Builders of Florida, the Receiver

determined that a private sale of the Receivership Estate’s LLC interest was in the best interest of

the Receivership Estate.

KAPA Breeze, LLC

KAPA Breeze, LLC was created to develop approximately 1.5 acres of land located on

Highway 30A in Santa Rosa Beach, Walton County, Florida. KAPA obtained $1,365,000 of

financing from Jefferson Bank of Greenville, Mississippi, purchased the property, developed plans

to build nine townhouses on the property as well as shared pool facilities, and began construction

including demolition of the existing structure on the property and erection of a retaining wall.

Since August, however, construction on the property has slowed due to a lack of financing.

Without a significant contribution of financing, the KAPA development cannot be completed.

KAPA’s operating agreement does not allow members to transfer their LLC interest

without the unanimous written consent of the other members. In order to complete construction

and develop the property as contemplated, millions of dollars of additional financing will be

required. The former members of KAPA do not have the financial capacity to finance the project,


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and the Receivership Estate cannot responsibly devote its resources to providing financing for a

project that will likely not be completed or generate any returns for several years.

Negotiations leading to the Purchase Agreement

The Receiver entered into negotiations with the other members of KAPA seeking to sell

the Receivership Estate’s LLC interest shortly after appointment. Although the Receiver was

provided with prior appraisals of the property, which valued the property at $2,100,000 (as of June

21, 2017) and $2,335,000 (as of September 1, 2018), the Receiver also obtained an independent

appraisal. The Receiver rejected initial offers to sell the LLC interest to relatives of the other

members at prices that did not represent a fair return for the interest. Following several months of

negotiations, including the entry of an unrelated purchaser with the capacity and willingness to

secure financing for the project, the Receiver negotiated the attached Purchase Agreement.

The current offer represents a significant premium on the value of the Receivership Estate’s

LLC interest based on both the prior and the independent appraisals of the property. The purchaser

is acceptable to the other members of KAPA, who have agreed to amend KAPA’s operating

agreement to allow the purchaser to become a full member. The purchaser has been able to obtain

a commitment for financing so that the project can proceed.

PROPOSED PURCHASE AGREEMENT

The Purchase Agreement [Exhibit A] reflects that the Receiver and the other members of

KAPA (Brad Pugh, Corey Alger, and Mae Lynn Investments, LLC) have agreed to the following

material terms and conditions:

1. Mae Lynn Investments will pay $700,000 in exchange for the Receivership Estate’s full assignment of all of its interest in KAPA, and in fact those funds have already been placed into escrow;


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2. The Receiver will move this Court to approve the Purchase Agreement, and all terms of the Purchase Agreement are contingent on Court approval;

3. The Receiver will release all claims against KAPA, its assets, or the members of KAPA (Pugh, Alger, Mae Lynn Investments, LLC, and its principal Charles Bert Darnell) relating to KAPA or the KAPA Breeze Development. They will likewise release all claims against the Receiver or the Receivership Estate.

The foregoing is intended solely as a summary of the material terms of the Purchase

Agreement; in all events, the specific terms of the Purchase Agreement shall control.

The Receiver is satisfied that $700,000 exceeds the net amount the Receivership Estate

would receive from an auction of the Receivership Estate’s 50% interest in KAPA or from a

liquidation of KAPA’s assets following retirement of the outstanding debt.

ARGUMENT

28 U.S.C. § 2004 permits the Court to approve the sale of personal property, including

intangible property such as an LLC interest, without observance of the stringent requirements of

28 U.S.C. § 2001. The Receiver believes that deviation from the strict requirements of § 2001 is

appropriate here, where: (1) the Receiver has obtained an appraisal of the property and the sale

represents a significant premium to the appraised value; (2) the sale of the LLC interest would

require approval of the new members by the other members of KAPA; (3) the sale of the LLC

interest requires renegotiating KAPA’s operating agreement among the remaining members; (4)

the sale of the LLC interest for any significant value requires that the remaining members obtain

new financing for the project and that the new member assist in obtaining that financing. Given

the circumstances, the Receiver submits that only a private sale could obtain fair value for the

Receivership Estate. Further, extended delay of the sale of the LLC interest would put the

Receiver’s ability to recover any value in jeopardy because the LLC is not currently operating and

cannot continue to support its existing financing indefinitely.


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CONCLUSION

The Receiver recommends that the Court enter the proposed Order Approving Purchase

Agreement because she believes sale of the Receivership Estate’s LLC interest in KAPA through

private sale under the terms of the Purchase Agreement unquestionably is in the Receivership

Estate’s best interests.

February 28, 2019

Respectfully submitted,

/s/ Lilli Evans Bass

BROWN BASS & JETER, PLLC

Lilli Evans Bass, Miss. Bar No. 102896

LaToya T. Jeter, Miss. Bar No. 102213

1755 Lelia Drive, Suite 400

Jackson, Mississippi 39216

Tel: 601-487-8448

Fax: 601-510-9934

[email protected]


/s/ Jason W. Burge

FISHMAN HAYGOOD, LLP


Brent B. Barriere, Primary Counsel

Jason W. Burge

Kristen D. Amond

Rebekka C. Veith

201 St. Charles Avenue, Suite 4600

New Orleans, Louisiana 70170

Tel: 504-586-5253

Fax: 504-586-5250

[email protected]

[email protected]

[email protected]

[email protected]



8 1411266v.2

CERTIFICATE OF SERVICE

I certify that I electronically filed the foregoing with the Clerk of Court using the ECF

system which sent notification of filing to all counsel of record.

In addition, I have separately emailed a copy of the foregoing to:

Date: February 28, 2019 /s/ Jason W. Burge



Case 3:18-cv-00252-CWR-FKB Document 124-1 Filed 02/28/19 Page 1 of 17

















Documents

SOUTHERN DISTRICT OF MISSISSIPPI NORTHERN ......2019/02/28 · 2 1411266v.2 30A in Santa Rosa Beach, Walton County, Florida. The interests in KAPA were shared equally (25% each) by