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IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION

GARY SHOVER, §
§
Plaintiff, §
§
v. § Civil Action No. 3:20-CV-2131-K
§
NATURAL SHRIMP INC., §
§
Defendant. §

ORDER APPROVING STIPULATION FOR SETTLEMENT OF CLAIMS

On July 30, 2021, Plaintiff Gary L. Shover (“Shover” or “Plaintiff”) and Defendant

Natural Shrimp Incorporated (“Defendant NSI”) filed their Amended Joint Motion for

Approval of Stipulation of Settlement of Claims (Doc. No. 12) (the “Motion”). The

Court held a fairness hearing on the Motion on November 15, 2021. In making its

determination, the Court has considered the Motion, the Stipulation of Settlement of all

Claims (the “Stipulation of Settlement”) between Plaintiff and Defendant (Ex. B, Doc.

No. 12-2), the Declaration of Gerald Easterling (“Easterling Decl.”) (Ex. F, Doc. No. 12-

6), the Declaration of David Clouston (“Clouston Decl.”) (Ex. G, Doc. No. 12-7), and

the Notice to all NaturalShrimp Holdings, Inc. Shareholders (Ex. D, Doc. No. 12-4), as

well as arguments of counsel. The Court finds the Stipulation of Settlement and the

terms and conditions therein are fair and, therefore, the Court GRANTS the Motion to

approve the Stipulation. In support of this determination, the Court makes the following

findings of fact and conclusions of law.

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Jurisdiction and Venue

1. This Court has subject matter jurisdiction over this proceeding pursuant

to 28 U.S.C. §1332(a)(2) because there is complete diversity of citizenship between

Plaintiff, a citizen of Oklahoma, and Defendant NSI, a Nevada corporation with its

principal place of business in Dallas, Texas, and Plaintiff seeks damages in excess of

$75,000. Venue is proper in this Court pursuant to 28 U.S.C. §1391(b)(1) because

Defendant’s headquarters is within this district.

Findings of Fact

2. Plaintiff is an individual who resides in Oklahoma and who purchased

574,382 shares of NaturalShrimp Holdings, Inc., a Delaware corporation (“NSH”) in

various tranches over a period of time beginning on or around May 21, 2008 and

extending through September 11, 2017 for a total purchase price of $161,929.00. The

NSH Shareholders identified in Exhibit A to the Motion are all shareholders of NSH

who currently hold such shares.

3. NSH is a privately held non-public subsidiary of Defendant NSI which is

a public entity traded on the OTCB.

4. Plaintiff acquired his shares of NSH based, in part, on the representations

of Bill G. Williams and Gerald Easterling, then-management of Defendant NSI and

NSH, that NSH shares would ultimately become publicly traded and the NSH shares

held by Plaintiff would have value.

5. On November 26, 2014, Defendant NSI, the publicly traded entity,

entered into an asset purchase agreement with NSH to acquire all or substantially all

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of the assets of NSH for a purchase price of 75,520,240 shares of Defendant NSI’s

common stock. This transaction was closed on January 25, 2015.

6. On August 15, 2018, NSH exchanged 75,000,000 shares of Defendant

NSI for 5,000,000 shares of Series A Preferred Shares that were convertible into

common shares with the consent of the majority of the holders of such shares.

7. Through the date of the filing of this Complaint, none of the 5,000,000

shares of Series A Preferred have been delivered to or exchanged with the holders and

owners of NSH Shares, including Plaintiff.

8. Each common share of NSH has the same rights and obligations as every

other share of NSH.

9. No class action has been filed and none has been certified by this or any

other court.

10. The parties have jointly proposed a settlement of the claims held by

Plaintiff and other NSH Shareholders similarly situated and incorporated such

proposed settlement in their Amended Joint Motion for Approval of Stipulation for

Settlement of Claims.

11. The Stipulation for Settlement of Claims has been approved and signed

by Plaintiff as being fair and reasonable. The Motion, the Stipulation for Settlement

of Claims, and the supporting documentation are available to the public through the

PACER System.

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12. The Stipulation for Settlement of Claims sets forth a procedure by which

Plaintiff, and other similarly situated shareholders, may exchange each share of NSH

held by such shareholder for a like number of shares in Defendant NSI.

13. Notice of this litigation and notice of the fairness hearing to approve the

Stipulation for Settlement of Claims was served on NSH shareholders, who are non-

parties to this action but who are to be offerees of the settlement. Those NSH

Shareholders had a full and fair opportunity to be present at the hearing, either in

person or through video conferencing, to voice any objections they may have had to

the proposed Stipulation for Settlement of Claims.

14. At the hearing, Plaintiff and Defendant appeared and responded to all

relevant inquiries. A number of NSH Shareholders appeared at the hearing, either in

person or through video conferencing, and were given an opportunity to participate;

however, no substantive objection to the Motion or the Stipulation for Settlement of

Claims was made by any of those NSH Shareholders. No written objections were

submitted by an NSH Shareholder.

Conclusions of Law

15. Defendant NSI breached its agreement to the NSH Shareholders,

including Plaintiff, by failing to timely deliver a share of NaturalShrimp, Inc. to the

NSH Shareholders for each NSH share held by such Shareholder arising out of the sale

of all NSH assets to NSI pursuant to the transactions dated November 26, 2014, and

the exchange of 75,000,000 shares for 5,000,000 shares of the Series A Preferred

shares.

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16. The notice provided by Defendant NSI to the NSH Shareholders is

adequate to inform such shareholders of the substance of the litigation and the date,

time and place of, as well as a video conferencing link for, the hearing on the Motion

and Stipulation for Settlement of Claims.

17. The obligations and duties owed by Defendant NSI to Plaintiff, in his

capacity as a Shareholder of NSH, are the same obligations and duties owed by

Defendant NSI to all other shareholders of NSH.

18. The Stipulation for Settlement of Claims establishes the procedure by

which shares of NSH may be exchanged for shares of Defendant NSI on a one-for-one

basis and provides a mechanism by which Defendant NSI may satisfy its obligations to

the NSH shareholders by providing a value to such shareholders for their non-public

shares.

19. The Stipulation for Settlement of Claims is fair and reasonable and

provides an NSH Shareholder only the option, and not the obligation, to exchange

NSH shares for NSI Shares.

20. The Stipulation for Settlement of Claims gives to each NSH shareholder

the benefit of the bargain each shareholder made when acquiring a share of NSH—that

is, access to a public market to monetize their respective investments.

A. The Proposed Settlement is Fair

21. Section 3(a)(10) provides that, “any security which is issued in exchange

for one or more bona fide outstanding securities, claims or property interests” is exempt

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from application of the federal securities laws, “where the terms and conditions of such

issuance and exchange are approved, after a hearing upon the fairness of such terms

and conditions at which all persons to whom it is proposed to issue securities in such

exchange shall have the right to appear, by any court.” 15 U.S.C. § 77c(a)(10).

22. “The statute is routinely taken advantage of by public companies to settle

outstanding debts in exchange for stock.” Chapel Invs., Inc. v. Cherubim Ints., Inc., 177

F.Supp.3d 981, 986 (N.D. Tex. 2016)(O’Connor, J.); accord Oceana Capitol Grp. Ltd. v.

Red Giant Ent., Inc., 150 F.Supp.3d 1219, 1223 (D. Nev. 2015) (“The Section 3(a)(10)

exemption is often used to effectuate settlements of claims against public company

defendants.”); ScripsAmerica, Inc. v. Ironridge Global LLC, 56 F.Supp.3d 1121, 1132, fn.

16 (C.D. Cal. 2014) (“Because the shares were unregistered, defendant and plaintiff

had to obtain court approval under state and federal securities laws before a transfer of

the stock could take place.”); In re Tripath Tech., Inc., Secs. Litig., No. C 04 4681 SBA,

2006 WL 1009228, at *2 (N.D. Cal. Apr. 18, 2006).

23. An exchange, like the one in this case, allows the defendant company to

preserve its operating cash, while eliminating the potential liability of pending claims.

See Chapel Invs., 177 F.Supp.3d at 986 (citing Cont’l Assurance Co. v. Macleod-Stedman,

Inc., 694 F.Supp. 449, 469 (N.D. Ill. 1988); In re Lloyd’s Am. Trust Fund Litig., No. 96

Civ.1262 RWS, 2002 WL 31663577, at *8 n.4 (S.D.N.Y. Nov. 26, 2002); In re Rite Aid

Corp. Secs. Litig., No. 2:99-CV-1349 SD, 2001 WL 35963382, at *2 (E.D. Pa. Aug. 16,

2001); Adams v. Amplidyne, Inc., No. Civ.A. 99-4468(MLC), 2001 WL 34885324, at *2

(D.N.J. Aug. 15, 2001); Manners v. Am. Gen. Life Ins. Co., No. Civ.A. 3-98-0266, 1999

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WL 33581944, at *6 (M.D. Tenn. Aug. 11, 1999); Turabo Med. Ctr. v. Beach, Civ. No.

96-2250(DRD), 1997 WL 33810581, at *3 (D. P.R. Aug. 13, 1997)).

24. As the Section 3(a)(10) exemption is exclusively within the purview of the

courts, the Securities & Exchange Commission need not be named as a party in the

proceeding or be given notice of the hearing. See Chapel Invs., 177 F.Supp.3d at 987

(citing Oceana Capitol, 2015 WL 9239767, at *2; 78 CONG. REC. 8668 (1934) (“[T]he

primary purpose of the amendment [to Section 3(a)(10)] is to make clear that the

exemptions accorded extend beyond the particular transactions therein covered, to the

security itself.”)). The holders of outstanding securities will be protected by court

supervision of the conditions of the issuance of their new securities. See Chapel Invs.,

177 F.Supp.3d at 987 (citing 78 CONG. REC. 8668 (1934); Oceana Capitol Group,

2015 WL 9239767, at *2). The Section 3(a)(10) exemption applies only upon the

court:

(1) Finding that the person to receive shares holds securities, claims or

property interests that were outstanding prior to the hearing;

(2) Conducting a fairness hearing at which all persons to whom the

securities will be issued have the right to appear and be heard; and

(3) Finding that the terms and conditions of the proposed exchange are fair.

See Chapel Invs., 177 F.Supp.3d at 987 (citing Oceana Capitol, 150 F.Supp.3d at 1221-

1224; In re Bd. of Dirs. of Multicanal S.A., 340 B.R. 154, 161 (S.D.N.Y. Mar. 29, 2006)).

If these prerequisite determinations are made, the exemption applies. Id.

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25. “By the requirement that securities, claims and property interests must be

bona fide outstanding, the new section will provide protection against resort to the

exemption for the purpose of evading the registration requirements of the act.” Chapel

Invs., 177 F.Supp.3d at 987 (quoting Oceana Capitol, 150 F.Supp.3d at 1223).

26. “The primary consideration to the determination of ‘fairness’ under

Section 3(a)(10) is ‘promoting full disclosure of the information believed to be necessary

to the making of informed investment decisions.’” Oceana Capitol, 150 F.Supp.3d at

1224 (quoting S.E.C. v. Blinder Robinson & Co., 511 F.Supp. 799, 802 (D. Colo. 1981)).

“As such, the question is whether those receiving shares in settlement ‘have had a full

and fair opportunity to learn everything required to make their decision’ such that they

can ‘act in awareness of the risks involved in acceptance . . . and nothing more is required

in the determination that th[e] settlement should be approved. Oceana Capitol, 150

F.Supp.3d at 1224 (quoting Blinder Robinson, 511 F.Supp. at 802).

27. All of the prerequisites for application of the Section 3(a)(10)

exemption are satisfied here. First, Defendant NSI’s shares will be exchanged in

satisfaction of bona fide outstanding claims held by Plaintiff and other NSH

shareholders that choose to exchange their shares. The second requirement is satisfied

as the Court held a fairness hearing on the proposed exchange at which Plaintiff, his

counsel, and other NSH Shareholders who may choose to exchange their securities

appeared and were heard. See Chapel Invs., 177 F.Supp.3d at 988. Third, the Court

finds the Stipulation of Settlement is fair as there has been a full and fair opportunity

to obtain the required information to make the investment decision and Plaintiff and

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Defendant NSI fully understand of both the potential upside and downside in the

Stipulation of Settlement. Oceana Capitol, 150 F.Supp.3d at 1225 (citing Blinder

Robinson, 511 F.Supp. at 802). These factors are sufficient for the Court to find that

the Stipulation is fair. See id. Accordingly, the terms and conditions of the Stipulation

of Settlement and the proposed exchange of shares are fair.

B. Registration of the Shares is Not Required

28. “No registration is required under Section 5 of the Securities Act, 15

U.S.C. § 77e, for the Court to approve the exchange as fair, because shares issued in a

court-approved exchange are completely exempt from the securities laws under Section

3(a)(10), 15 U.S.C. § 77c(a)(10).” Chapel Invs., 177 F.Supp.3d at 988 (citing Oceana

Capitol, 150 F.Supp.3d at 1225; In re Multicanal, 340 B.R. at 162; In re Trade Partners,

Inc. Inv'r Litig., No. 1:07-MD-1846, 2008 WL 4911797, at *5 (W.D. Mich. Nov. 13,

2008)). “[T]he very purpose of fairness hearings is to, ‘provide a fast and cost-efficient

alternative to federal registration.’” Chapel Invs., 177 F.Supp.3d at 988 (citing Oceana

Capitol, 2015 WL 9239767, at *3; 15 U.S.C. § 77c(a)(10); McKim v. NewMarket Techs.,

Inc., 370 F. App'x 600, 606 (6th Cir. 2010)).

29. “If the Court approves the exchange as fair, the ‘stock can be sold

immediately, without restriction.’” Chapel Invs., 177 F.Supp.3d at 988; see also

ScripsAmerica, 56 F.Supp.3d at 1165 (shares received in Section 3(a)(10) exchange

could be sold however the party chose; “it was not illegal to sell freely transferrable

shares in a publicly traded company.”); In re Tripath Tech., 2006 WL 1009228, at *2

(the benefit of Section 3(a)(10) exemption for court-approved exchanges is that the

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securities are “unrestricted and freely tradeable exempted securities.”). Accordingly, if

a court approves the proposed settlement as fair, the parties should not be required to

incur the delay and expense of registration in addition to seeking court approval.

1. Section 3(a)(10) Participants Are Exempt from Registration.

30. No registration by Plaintiff or Defendant NSI is required under Section

15(a) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78o(a), if

the Court approves the exchange as fair, “because Exchange Act registration

requirements do not apply to participants in court-approved Section 3(a)(10)

exchanges. Oceana Capitol, 150 F.Supp.3d at 1225 (citing Brucker v. Thyssen-Bornemisza

Europe N.V., 424 F.Supp. 679, 691-92 (S.D.N.Y. 1976), aff'd sub nom., Brucker v. Indian

Head, Inc., 559 F.2d 1202 (2d Cir. 1977) (requirements of Exchange Act “were not

meant to apply to judicially approved settlement agreements,” because investors are

“more than adequately protected by the procedures followed in the judicially-approved

settlement”)); cf. Metlyn Realty Corp. v. Esmark, Inc., 763 F.2d 826, 833 (7th Cir. 1985)

(“The securities laws were designed to handle transactions in markets” and “do not

apply expressly to . . . the course of litigation” or “securities issued in an exchange

transaction approved by a court” because “[l]itigation contains its own safeguards”

including “the supervision of a judge[.]”).

31. “When the Exchange Act was first adopted in 1934, Section 3(a)(10) was

amended in light of ‘complaints that the present [1933] act is too drastic, and is

interfering with business,’ in order to ‘substantially extend the present provisions in

order to cover various forms of readjustments of the rights of holders of outstanding

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securities, claims and property interests, where the holders will be protected by court

supervision of the conditions of the issuance of their new securities.’” Chapel Invs., 177

F.Supp.3d at 989 (quoting Oceana Capitol, 150 F.Supp.3d at 1223). Congress intended,

as evidenced by the legislative history, that Section 3(a)(10) be broadly construed to

exempt all aspects of a court-approved exchange from the federal registration

requirements, such that the exemption applies “to the security itself.” Oceana Capitol,

150 F.Supp.3d at 1223 (quoting 78 CONG. REC. 8668 (1934)).

32. “Requiring parties to court-approved exchanges to register under Section

15(a) would undermine the legislative purpose by eliminating the primary benefit of

the Section 3(a)(10) exemption, which is that the issued shares are freely tradeable

exempted securities that may be immediately resold without restriction.” Chapel Invs.,

177 F.Supp.3d at 989 (citing Oceana Capitol, 150 F.Supp.3d at 1223-24); see Charles J.

Johnson & Joseph McLaughlin, Corporate Finance and the Securities Laws § 1.05[E] (4th

ed. 2006 & Supp. 2013) (Section 3(a)(10) exemption avoids the time and expense of

registering shares and allows for the issuance of shares that are not restricted as they

would have been if issued in a private placement). Requiring the parties in this case to

register the securities after having successfully sought court approval of the proposed

exchange “would render unworkable” the proposed Stipulation of Settlement, which

anticipates Plaintiff being able to sell shares immediately. See Chapel Invs., 177

F.Supp.3d at 989-90.

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2. Section 3(a)(10) Participants Are Not Dealers.

33. “Reselling the freely tradeable shares acquired in a court approved Section

3(a)(10) exchange does not make the person receiving the shares a dealer that would

be required to register.” Chapel Invs., 177 F.Supp.3d at 990 (quoting Oceana Capitol,

150 F.Supp.3d at 1225-27); see also ScripsAmerica, 56 F. Supp. 3d at 1165 (recipient of

Section 3(a)(10) exchange shares, “was permitted to sell the shares however it pleased;

it was not illegal to sell freely transferrable shares in a publicly traded company”).

34. This case involves no public offering, thus there is no distribution and

there “cannot be an underwriter.” Chapel Invs., 177 F.Supp.3d at 990 (quoting Ackerberg

v. Johnson, 892 F.2d 1328, 1337 (8th Cir. 1989)). Plaintiff, along with any NSH

Shareholder as offeree, is merely exchanging a share of the private NSH stock for a

share of the NSI stock that he should have received in the NSI/NSH asset purchase

transaction. See also Ackerberg, 892 F.2d at 1337.

35. Even if they were considered underwriters, the parties nevertheless are

not dealers. See Chapel Invs., 177 F.Supp.3d at 990 (citing Oceana Capitol, 150

F.Supp.3d at 1225-27; Ackerberg, 892 F.2d at 1335). “Under both the Securities Act

and the Exchange Act, only a person engaged in the business of dealing may be

considered a dealer.” Chapel Invs., 177 F.Supp.3d at 990 (citing 15 U.S.C.

§ 78c(a)(5)(A); 15 U.S.C. § 77b(a)(12); S.E.C. v. Big Apple Consulting USA, Inc., 783

F.3d 786, 809 (2015)). “A person who buys and sells securities for his own account in

the capacity of a trader or individual investor is generally not considered to be engaged in

the business of buying and selling securities and consequently, would not be deemed a

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dealer.” Chapel Invs., 177 F.Supp.3d at 990 (quoting Oceana Capitol, 150 F.Supp.3d at

1226). Dealers do not include persons, “who buy and sell securities for their own

account as ordinary traders.” In re Gordon Wesley Sodorff, Jr., 50 S.E.C. 1249, 1992 WL

224082, at *5 (Sept. 2, 1992); see also Chapel Invs., 177 F.Supp.3d at 990 (“There is a

broad exemption for investors and traders not engaged in the regular business of

providing dealer services to others.”) (citing 15 U.S.C. § 78c(a)(5)(B)); Oceana Capitol,

150 F.Supp.3d at 1226 (“A person who buys and sells securities for his own account in

the capacity of a trader or individual investor is generally not considered to be engaged in

the business of buying and selling securities and consequently, would not be deemed a

dealer.”) (quoting Burton Secs., SEC No-Action Letter, 1977 WL 10680, at *1 (Dec. 5,

1977)).

36. “To be considered a dealer, a person must be engaged in the securities

business, such as soliciting investor clients, handling investor clients’ money and

securities, rendering investment advice to investors, and sending investors subscription

agreements for their review and execution.” Chapel Invs., 177 F.Supp.3d at 990 (citing

In re Gordon Wesley Sodorff, Jr., 1992 WL 224082, at *5). “These factors, many of which

‘are equally indicative of broker activities,’ ‘distinguish the activities of a dealer from

those of a private investor or trader.’” Chapel Invs., 177 F.Supp.3d at 991 (quoting In

re Gordon Wesley Sodorff, 1992 WL 224082, at *5 fn. 27).

37. Plaintiff does not provide advice or services to other investors; instead,

Plaintiff, and any other NSH Shareholder as offeree, is acting in his own best interests

as an investor and is not considered to be a dealer. See Chapel Invs., 177 F.Supp.3d at

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991. Accordingly, Plaintiff, and any other NSH Shareholder as offeree, is not required

to register as a dealer in order to sell the freely tradeable shares it acquires from

Defendant NSI in a court-approved Section 3(a)(10) exchange.

ORDER

In consideration of the foregoing Findings of Fact and Conclusions of Law, the

Court hereby ORDERS:

1. The Stipulation of Settlement of Claims, incorporated herein by

reference, is adopted and approved in its entirety;

2. Plaintiff and each of the NSH Shareholders on Exhibit A to the Motion

owns and holds bona fide outstanding securities, claims, and property

interests, the terms and conditions of the issuance and exchange for

shares of Common Stock of Defendant, as set forth in the Stipulation of

Settlement of Claims, are fair and approved after a hearing upon the

fairness of such terms and conditions;

3. Defendant NSI shall forthwith issue to Plaintiff, and each NSH

Shareholder on Exhibit A to the Motion who chooses to exchange their

respective shares, unrestricted and freely tradable shares of Defendant

NSI's Common Stock as set forth in the Stipulation of Settlement of

Claims, which shares shall be exempt from all provisions of the Securities

Act pursuant to Section 3(a)(10) thereof;

4. Plaintiff, and each NSH Shareholder on Exhibit A to the Motion who

chooses to exchange their respective shares, may immediately resell all of

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the shares on the public markets without any restriction and without any

registration under either the Securities Act or the Exchange Act; the parties

are not required to file a registration statement under Section 5 of the

Securities Act, and the parties and their affiliates are not required to

register as broker-dealer under Section 15 of the Exchange Act as a result

of the acquisition, exchange or resale of the shares; and

5. The Court shall retain jurisdiction to enforce the terms of this Order by

application or motion.

SO ORDERED.

Signed December 6th, 2021.

______________________________________
ED KINKEADE
UNITED STATES DISTRICT JUDGE

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