UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended JUNE 30, 1996 or
Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from to .
Commission File No. 1-4385
DUNES HOTELS AND CASINOS INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1687244
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4045 South Spencer Street, Suite 206, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 732-7474
NOT APPLICABLE
Former name, former address and former fiscal year, if changed
since last report
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
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Outstanding at
Class July 1, 1996
Common Stock, $.50 par value 6,375,096 shares
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1996
INDEX
Page
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets
June 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Loss
for the three months ended June 30, 1996 and 1995 5
Consolidated Condensed Statements of Loss
for the six months ended June 30, 1996 and 1995 6
Consolidated Condensed Statements of Cash Flows
for the six months ended June 30, 1996 and 1995 7
Notes to Consolidated Condensed Financial
Statements, June 30, 1996 and 1995 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
Part II. Other Information
ITEM 1. LEGAL PROCEEDING 19
ITEM 3. DEFAULT UPON SENIOR SECURITIES 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
Signatures 20
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
ASSETS
June December
30, 1996 31, 1995
(Unaudited)
(Dollars in thousands)
Cash and cash equivalents $ 481 $ 495
Marketable securities 533 511
Receivables
Trade, less allowance of $23 in 1995 97 256
Related party, less allowance of $1,566
in 1996 and 1995 1,183 1,127
Real estate sales 959 813
Other 259 410
Inventory of real estate held for sale 8,813 9,512
Inventory, other 38 89
Prepaid expenses 64 142
Property and equipment, less accumulated depreciation
and amortization, 1996, $374; 1995, $325 1,707 1,754
Investments 1,049 1,566
Deferred costs and other 5 52
$ 15,188 $ 16,727
(continued)
3
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
June December
30, 1996 31, 1995
(Unaudited)
(Dollars in thousands)
Accounts payable $ 43 $ 100
Accrued expenses 171 73
Accrued preferred stock dividends 1,065 1,028
Deferred income 35 23
Income taxes 254 327
Short-term debt 75
Long-term debt 2,420 2,797
Shareholders' equity
Preferred stock - authorized 10,750,000 shares
($.50 par); issued 10,512 shares Series B $7.50
cumulative preferred stock, aggregate liquidation
value $2,247 including dividends in arrears 5 5
Common stock - authorized 25,000,000 shares
($.50 par); issued 7,799,780 shares, outstanding
6,375,906 shares in 1996 and 1995 3,900 3,900
Capital in excess of par 25,881 25,881
Deficit (16,586) (15,482)
13,200 14,304
Treasury stock at cost; Preferred - Series B,
902 shares Common 1,424,684 shares in 1996
and 1995 2,000 2,000
Total shareholders' equity 11,200 12,304
$ 15,188 $ 16,727
4
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
(Dollars in thousands
except per share)
Operating Revenues:
Sales of real estate $ 229 $ 882
Cost of real estate sales 333 921
(104) (39)
Other operating revenue 149 256
Cost of other operating revenue 217 200
(68) 56
(172) 17
Operating expenses:
Selling, administrative and general 234 223
Bad debts 76
Depreciation 25 16
259 315
Loss before other (charges) credits (431) (298)
Other (charges) credits
Interest and dividend income 80 137
Interest expense (27) (1)
Partnership loss (64) (387)
Write down of real estate held for sale (290)
Other 78 48
(223) (203)
Net loss $ (654)$ (501)
Net loss per common share $ (0.10)$ (0.08)
5
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
(Dollars in thousands
except per share)
Operating Revenues:
Sales of real estate $ 443 $ 1,339
Cost of real estate sales 571 1,399
(128) (60)
Other operating revenue 438 433
Cost of other operating revenue 462 414
(24) 19
(152) (41)
Operating expenses:
Selling, administrative and general 565 668
Bad debts 125
Depreciation 49 32
614 825
Loss before other (charges) credits (766) (866)
Other (charges) credits
Interest and dividend income 162 293
Interest expense (85) (5)
Partnership loss (149) (450)
Write down of real estate held for sale (290)
Other 60 75
(302) (87)
Net loss $ (1,068)$ (953)
Net loss per common share $ (0.16)$ (0.15)
6
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
1996 1995
(Dollars in thousands)
Cash flows from operating activities:
Net cash provided by (used in) operating
activities $ (4) 1,473
Cash flows from investing activities:
Decrease (increase) in investments 495 (1,043)
Decrease (increase) in notes receivable (51) 88
Increase in real estate held for sale (427)
Purchase of equipment (2)
442 (1,382)
Cash flows from financing activities:
Decrease in long-term debt (377) (19)
Decrease in short-term debt (75)
(452) (19)
Increase (decrease) in cash and cash equivalents (14) 72
Cash and cash equivalents, beginning of period 495 874
Cash and cash equivalents, end of period $ 481 $ 946
7
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
UNAUDITED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION:
The accompanying consolidated condensed financial statements
include the accounts of the Company and its wholly-owned
subsidiaries Continental California Corporation
(Continental), Dunes, Inc., Dunes Hotel and Casino of
Atlantic City, Inc. (DAC), M&R Corporation (MRC), and MRC's
subsidiary M&R Investment Company, Inc. (MRI) and MRI's
subsidiaries SHF Acquisition Corporation (SHF) and Southlake
Acquisition Corporation (Southlake).
The Company did not consolidate Pine Ridge Joint Venture
(PRJV), a joint venture in which the Company has a 51%
interest at June 30, 1996, because the Company intends to
liquidate its interest in 1996. PRJV is accounted for on
the equity method. The Company did not consolidate
Steadfast Cattle Company (Steadfast), a limited liability
company in which the Company has a 50% interest. Steadfast
is accounted for on the equity method.
DESCRIPTION OF BUSINESS:
The Company considers its principal business to be the
acquisition, development and sale of real estate, and
related financing thereof. In that connection, the Company
has invested in a number of operating entities or
properties, the most significant of which is engaged in the
retail land sales business. Other enterprises, which are
held primarily for their real estate investment potential,
include less significant operations in rice storage and
drying and rentals. Because these operations are continued
primarily to minimize the carrying costs of the underlying
real estate investments, pending their ultimate disposition,
management considers the Company to be engaged in only one
business segment, real estate-related investments.
The Company's real estate investments are concentrated in
Northern California and, to a lesser extent, near Las Vegas,
Nevada. Accordingly, ultimate realization of these
investments will be affected by changes in local conditions.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
BASIS OF PRESENTATION:
The financial information included herein is unaudited;
however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The results
of operations for the six months ended June 30, 1996, are
not necessarily indicative of the results to be expected for
the full year.
RECLASSIFICATIONS:
For the six months ended June 30, 1996, the Company has
changed the format of its balance sheet from a classified
balance sheet to a non-classified balance sheet. The format
of the December 31, 1995 balance sheet has been changed to
conform to the June 30, 1996 presentation. The Company
believes that a non-classified balance sheet, one that does
not present current assets and current liabilities, better
reflects the status of the Company's assets, liabilities and
shareholders' equity.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Estimated fair value of the Company's financial instruments
(all of which are held for nontrading purposes) are as
follows:
Carrying Fair
Amount Value
(Dollars in thousands)
Cash, cash equivalents and
marketable securities 1,014 1,014 (a)
Notes receivable, real estate sales 959 959 (b)
Notes receivable, related parties,
net of allowance 1,183 (c)
Solano County Option 1,043 1,043 (d)
Long-term debt 2,420 (e)
(a) The carrying amount approximates fair value of cash,
cash equivalents and marketable securities. For
marketable securities, fair values are estimated based
on quoted market prices as of June 30, 1996.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):
(b) The fair value of the notes receivable are based on
their outstanding balances and their respective
interest rates. Notes receivable are collateralized by
first deeds of trust on the real estate sold. In the
event any purchaser were to default on the real estate
notes, the Company could institute foreclosure
proceedings and reacquire the property which serves as
the collateral for the note. The Company believes that
the fair value of the collateral is in excess of the
principal amount of the related note.
(c) It is not possible to determine the fair value of the
related party note. The related party note is more
fully described in detail in the Company's Form 10-K
for the year ended December 31, 1995. See "Item 1.
Business - Other Activities - Certain Loans - Baby
Grand Corp."
(d) The fair value of the Solano County Option is estimated
based on an appraisal of the real property to which the
option relates and the length of the option period
which enables the Company to have some flexibility as
to when and if the option should be exercisable. The
Company can only recover the fair value of the option
(i) by exercising the option and selling the property
or (ii) selling the option. However, if the fair value
of the real property should drop below the option
purchase price, the Company would not be able to
recover all of its investment in the Solano County
Option.
(e) The fair value of long-term debt is not subject to
reasonable estimation because the debt arose
principally as a result of the settlement of a dispute.
The settlement is described in detail in the Company's
Form 10-K for the year ended December 31, 1995. See
"Item 1. Business - Resolution of SASA Dispute and The
San Diego Property."
3. INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE:
1996 1995
(Dollars in thousands)
The Fairways at Rancho Murieta (3) 5,440 6,139
53 partially developed lots,
Las Vegas, Nevada 427 427
The White Ranch, 10,000 acres of
agricultural land (1) 2,800 2,800
Sam Hamburg Farm, 150 acres of
agricultural land (1 & 2) 146 146
$8,813 $9,512
(1) The White Ranch and Sam Hamburg Farm were previously
classified as Property and Equipment. The Company owns
a 50% interest in The White Ranch.
(2) See footnote 5b of Notes to Consolidated Condensed
Financial Statements regarding the chemical cleanup at
Sam Hamburg Farm.
(3) On July 12, 1996, the Company signed a letter agreeing
to modify the Purchase and Option Agreement (the New
Agreement) between the Company and Murieta Investors,
formerly West Coast Properties, LLC. The Purchase and
Option Agreement between West Coast Properties, LLC and
the Company is described in detail in the Company's
Form 10-K for the year ended December 31, 1995. See
"Item 1.Business - Real Estate and Related Activities -
The Fairways." The New Agreement provides that Murieta
Investors will purchase from the Company 6 lots at The
Fairways at $40,000 per lot plus payment of the Park
Fees applicable to the lots purchased. In addition,
the Company will receive 20% of the gross sales price
of each residential dwelling sold less $40,000 (the
Success Payments). Eight months after the purchase of
the initial 6 lots Murieta Investors will be entitled
to purchase a second group of 6 lots. An additional
group of 6 lots may be purchased every 4 months
thereafter until 40 lots have been purchased. The
initial payment for the second 6 lots purchased will be
$40,000 per lot plus payment of the applicable Park
Fees plus the Success Payments. The initial payment
for all subsequent lots purchased will be $45,000 plus
payment of the applicable Park Fees plus the Success
Payments.
4. RELATED PARTY TRANSACTIONS:
John B. Anderson, the Company's controlling stockholder and
Chairman of the Board of Directors of the Company, and
entities owned or controlled by him (Anderson Entities) own
approximately 68.5% of the Company's common stock as of July
1, 1996.
From time to time the Company has made loans to various
Anderson Entities and to Directors and Executive Officers of
the Company, details of which are more fully described in
the Company's Form 10-K for the year ended December 31,
1995.
In connection with a tentative settlement agreement (the
Agreement) dated June 12, 1996, between the Federal Deposit
Insurance Corporation (the FDIC) and John B. Anderson, Edith
Anderson, Cedar Development Company, J.A.Inc. and J.B.A.
Investments, Inc. (the Anderson Parties) the Company loaned
$250,000 to an Anderson Party. The loan is evidenced by a
note dated June 12, 1996, which bears interest at the rate
of 12% per annum, payable monthly. A principal payment of
$100,000 was due and paid on July 1, 1996. The balance of
the principal and accrued and unpaid interest is due on or
before the earlier of (i) the date that a defined payment
becomes due under the Agreement or (ii) December 12, 1996.
The note is collateralized by an assignment of the rights,
title and interest of the Anderson Party in and to the
Agreement.
5. CONTINGENCIES:
a. The Company is involved in various legal proceedings
which are considered to be incidental to the ordinary
course of business. The Company believes that the
impact, if any, will not materially affect the
Company's operating results or consolidated financial
position.
b. SHF was advised of possible contamination on two sites
at Hamburg Farms, a storage facility for diesel fuels
and an old airstrip which had been used for the loading
and fueling of aircraft applying agricultural chemicals
to the surrounding farm lands. The Company has
completed the cleanup related to the diesel storage
tanks at a cost of approximately $100,000. Clean up of
the airstrip has required major excavation of
contaminated earth and the treatment and disposal
thereof.
5. CONTINGENCIES (CONTINUED):
b. (continued)
The Company has disposed of a large amount of the
contaminated earth at an approved site for the storage
of toxic wastes. However 5,000 cubic yards of
contaminated earth (previously thought to be 4,000
cubic yards) still remain to be disposed of. The
Company, through its chemical and toxic clean-up
consultant, has been working with the California State
Environmental Protection Agency, in seeking alternate
means to the disposal in toxic dump sites of chemical
and toxic-laden soil. The State has participated in
the funding of several projects by a number of chemical
treatment firms in efforts to try other detoxification
methods on the soil. If on-site remediation can be
achieved, it is estimated that the cost will be between
$90,000 and $115,000. If the Company is required to
move the contaminated earth to an approved site for the
storage of toxic wastes, it is estimated that the cost
would be approximately $580,000.
On April 18, 1996, the Company received a letter from
the State of California, State Board of Equalization
(SBE) wherein the SBE alleges that the Company owes a
Hazardous Waste Disposal Fee (HWDF) of approximately
$49,700 and a Hazardous Waste Generator Fee and Waste
Reporting Surcharge Fee (HWGF) of approximately
$43,000. The fees relate to the toxic-laden soil that
was removed from Hamburg Farm. In addition, the
Company may be liable for a 10% penalty on both fees
and interest at 11% from January 31, 1993. As of May
1, 1996, the penalties and interest approximate
$48,000. In July 1996, the Company paid both the HWDF
and the HWGF. The Company is currently negotiating
with the SBE to have the interest reduced and the
penalties abated. No assurance can be given that the
Company will not have to pay the full amount of the
interest and penalties. As of June 30, 1996, the
Company has not made an accrual for any amounts,
relating to the penalties and interest, that may be due
the SBE.
5. CONTINGENCIES (CONTINUED):
b. (continued)
Because of the ongoing testing, the State has not
imposed a disposal date upon the Company. The Company
is unable to predict when the ongoing testing will be
complete or what the outcome of these tests will be.
As of June 30, 1996, the Company has paid approximately
$540,000, including the fees to the SBE and accrued
$60,000 relating to the clean up, including the
$100,000 expended for the diesel storage tanks. The
Company has not made an accrual for the cost, if any,
of removing the contaminated earth pending the results
of the various ongoing test.
c. The Company has received a notice from the State of
California Franchise Tax Board (FTB) wherein the FTB
alleges that one of the Company's subsidiaries owes
California franchise tax, penalties and interest of
approximately $316,000. The FTB claims that the
Company is not permitted to file a unitary tax return
in California. The Company has retained legal counsel
to resolve the matter with the FTB. The matter is
currently being appealed to the California State Board
of Equalization.
d. The Company has been advised by the State of New
Jersey, Department of State, Division of Commercial
Recording that neither Dunes, Inc. nor DAC filed
reports required by state statutes for two consecutive
years. As a result, as of February 28, 1995, the state
of New Jersey revoked the active status of Dunes, Inc,
and DAC which can result in denial of their privilege
of doing business under their respective current names.
The Company has no plans to resume operations or pursue
business opportunities in New Jersey and does not
intend to contest the action.
5. CONTINGENCIES (CONTINUED):
e. The Company has been informed that the Anderson
Parties have reached a tentative settlement agreement
(the Agreement) regarding the Anderson Parties
obligations to the FDIC. The Agreement is subject to
the final approval of the FDIC. The Anderson Parties
obligations to the FDIC are described in detail in the
Company's report on form 10-K for the year ended
December 31, 1995, "Item 3. Legal Proceedings - Federal
Deposit Insurance Corporation, et al v. John B.
Anderson et al." The Agreement is subject to certain
preconditions and funding obligations for which no
assurance can be given of performance. As described in
Note 4 above, the Company made a $250,000 loan to an
Anderson Party in connection with the Agreement of
which $150,000 remains outstanding. The Agreement
provides that the judgment, held by the FDIC, against
the Anderson Parties will be sold to the Anderson
Party. Terms of the agreement provided for an initial
payment of $250,000, which $250,000, was loaned to the
Anderson Party by the Company. The Agreement further
provides that an additional $250,000 will be due
approximately 10 days after the final approval of the
Agreement by the FDIC, with the balance of the
settlement due 60 days thereafter. There can be no
assurance that the Anderson Party will be able to repay
the remaining amount due to the Company or otherwise
perform the obligations under the Agreement, the
failure of which may jeopardize the Anderson Parties
ability to continue to operate, including Baby Grand
Corp. (BGC) which remains obligated to the Company
under a promissory note dated November 2, 1992, in the
original principal amount of $2,650,000 (the BGC Note),
of which approximately $2,500,000 remains outstanding
at June 30, 1996. Said failure to perform may also
result in a change of control of the Company.
6. LOSS PER COMMON SHARE:
Loss per common share has been computed using the number of
shares outstanding (6,375,096) at June 30, 1996. Dividends
on the Company's Series B Preferred stock have not been paid
since the first quarter of 1982. The Company is in arrears
on such dividends in the amount of approximately $1,065,000
as of June 30, 1996.
DUNES HOTELS AND CASINOS INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION. Certain
information included herein contains statements that may be
considered forward-looking, such as statements relating to
anticipated expenses, capital spending and financing sources.
Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results
in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made herein.
These risks and uncertainties include, but are not limited to,
those relating to dependence on existing management, leverage and
debt service (including sensitivity to fluctuations in interest
rates), outcome of litigation, domestic or global economic
conditions and changes in federal or state tax laws or the
administration of such laws.
MATERIAL CHANGES IN FINANCIAL CONDITION. During the quarter
ended June 30, 1996, cash and cash equivalents decreased by
$14,000 from $495,000 at December 31, 1995 to $481,000 at June
30, 1996. The most significant source of cash was the collection
of the loan made to William Maddocks et al. ($209,000). In
addition to the cash received from Maddocks et al, the Company
also received a 91.90% interest in a note in the principal amount
of $243,340. The most significant uses of cash during the six
months ended June 30, 1996, were the payments totaling $558,000
pursuant to a promissory note to the RTC.
The Company believes that its primary requirements for
liquidity for the remainder of the fiscal year will be to fund
ongoing expenses at The Fairways, which include, among other
things, association dues, water and sewer fees and property
taxes; to fund the required payments due on the promissory note
to the RTC; and to fund general and administrative expenses.
Additional liquidity requirements will be required if the Company
should decide to build a rice drying facility in Davis,
California.
The Company believes that the sources of required liquidity
will be cash generated from its existing storage and drying
facility, anticipated lot sales at The Fairways, collection of
notes resulting from sales at The Fairways, collection of rents
at the White Ranch, Success Payments related to the Murieta
Investors venture (formerly the WCP venture), payments on the BGC
Note and the sale of the North Las Vegas Lots. Based on known
commitments, the Company believes that the sources of cash
described will be adequate to fund known liquidity requirements.
However, if the sources of required liquidity prove to be
insufficient to cover the Company's primary liquidity
requirements, it will be necessary to sell some of the Company's
non-income producing assets. In addition, if the Company
proceeds with the construction of the Davis, California rice
drying facility at an estimated cost of $1,500,000 it will be
necessary to obtain outside financing. There can be no assurance
that the Company will be able to obtain the financing required.
Sales at The Fairways, both in terms of numbers and sales
prices, have not met Company expectations. As a result, during
the quarter ended June 30, 1996, the Company has written down the
carrying value of The Fairways by $290,000. The Company, along
with other developers at Ranch Murieta and the community of
Rancho Murieta, have begun an advertising campaign to try to
stimulate interest in the community of Rancho Murieta, which
includes The Fairways. In addition, the Company anticipates that
the Murieta Investors venture will stimulate sales of Company
owned lots.
As a result of the principal payments made on the promissory
note to the RTC, the Company's monthly interest payment to the
RTC has been reduced from $21,044 to $18,229. The note to the
RTC is described in detail in the Company's Form 10-K for the
year ended December 31, 1995. See "Item 1. Business - Resolution
of SASA Dispute and the San Diego Property."
The Company has been informed that the Anderson Parties and
the FDIC have reached a tentative settlement agreement (the
Agreement) regarding the Anderson Parties obligations to the
FDIC. The Agreement is subject to the final approval of the
FDIC. The Anderson Parties obligations to the FDIC are described
in detail in the Company's report on Form 10-K for the year ended
December 31, 1995, "Item 3. Legal Proceedings - Federal Deposit
Insurance Corporation, et al. v. John B. Anderson et al." The
Agreement is subject to certain preconditions and funding
obligations for which no assurance can be given to performance.
As described in Note 4 to Consolidated Condensed Financial
Statements, the Company made a $250,000 loan to an Anderson Party
in connection with the Agreement of which $150,000 remains
outstanding. The Agreement provides that the judgment, held by
the FDIC, against the Anderson Parties will be sold to the
Anderson Party. Terms of the Agreement provided for an initial
payment of $250,000, which $250,000, was loaned to the Anderson
Party by the Company. The Agreement further provides that an
additional $250,000 will be due approximately 10 days after final
approval of the Agreement by the FDIC, with the balance of the
settlement amount due 60 days thereafter. There can be no
assurance that the Anderson Party will be able to repay the
remaining amount due to the Company or otherwise perform the
obligations under the Agreement, the failure of which may
jeopardize the Anderson Parties ability to operate, including BGC
which remains obligated to the Company under the BGC Note. Said
failure to perform may also result in a change of control of the
Company.
As more fully described in the Company's report on Form 10-K
for the year ended December 31, 1995, "Item 7. Managements's
Discussion and Analysis of Financial Condition and Results of
Operations," the Company invested in a cattle feeding operation
in Gonzales, California, known as Steadfast Cattle Company
(Steadfast). Because the operations of Steadfast were
unsuccessful, the Company has written off all of the advances
made to Steadfast. The Company also acquired cattle feeding
equipment at a cost of approximately $225,000, which equipment is
now being marketed for sale. No assurance can be given as to the
amount to be recovered through sale of the equipment.
The Company has been informed that the foreclosure sale of
the El Dorado Vineyard property was completed during the second
quarter of 1996. The Company has been further informed that the
foreclosure sale extinguished without payment to Andrew
Marincovich, a director of the Company, all of his interest in
the property or the proceeds thereof. Mr. Marincovich's
obligation to the Company is discussed in detail in the Company's
report on Form 10-K for the year ended December 31, 1995, "Item
1. Business - Certain Loans - Directors".
The Company continues to have ongoing cash requirements
relating to the removal of 5,000 cubic yards (previously thought
to be 4,000 cubic yards) of contaminated earth at its Hamburg
Farm property. If the Company is required to dispose of the
contaminated earth, it is estimated that the cost will be
approximately $580,000. The Company, through its chemical and
toxic clean-up consultant, has been working with the California
State Environmental Protection Agency, in seeking alternate means
to the disposal in toxic dump sites of chemical and toxic-laden
soil. If on-site remediation can be achieved, it is estimated
that the cost will be between $90,000 and $115,000. Because of
the ongoing testing the State has not imposed a disposal date
upon the Company. The Company is unable to predict when the
ongoing testing will be completed or what the outcome of these
tests will be.
In July 1996, the Company paid to the State of California,
State Board of Equalization approximately $92,700 in fees
relating to the removal of toxic waste at Hamburg Farms. In
addition to the fees, the SBE imposed interest and penalties of
approximately $48,000. The Company is currently attempting to
obtain a reduction in the interest and to have the penalties
abated. There can be no assurance that the Company will receive
a reduction in the interest or that the penalties will be abated.
Because the Company operates predominantly in the
Sacramento, California area and the Las Vegas, Nevada area, the
Company's land sales and other operations could be affected by
adverse changes in economic conditions in those areas.
Certain of the matters discussed above are more fully
described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996, COMPARED WITH THE THREE
MONTHS ENDED JUNE 30, 1995. When compared with the three months
ended June 30, 1995, sales of real estate declined by $653,000
and the loss from real estate sales increased by $65,000. The
decline in real estate sales was due in large part to the
weakened Sacramento real estate market and the conclusion of The
Street of Dreams promotion. The increase in the loss from real
estate sales is largely attributable to an overall decline in the
price of custom home lots. As a result of the foregoing, the
Company reduced the carrying value of The Fairway lots by
$290,000. Other operating revenue for the three months ended
June 30, 1996, decreased by $107,000 when compared with the three
months ended June 30, 1995. The decrease in operating revenue
was due to a decline in rental, storage and drying income.
Partnership loss for the three months ended June 30, 1996
decreased by $323,000 when compared with the three months ended
June 30, 1995. The decrease was due to the winding down of Pine
Ridge Joint Venture. Total operating expenses and cost of other
operating revenue remained fairly constant when comparing the
quarters ending June 30, 1996 and June 30, 1995. Interest and
dividend income decreased by $57,000 when compared with the
quarter ended June 30,1995. The decrease was due in large part
to greater principal payment made on real estate and related
party notes receivable and the write off of certin related party
notes receivable.
SIX MONTHS ENDED JUNE 30, 1996, COMPARED WITH THE SIX MONTHS
ENDED JUNE 30, 1995. When compared with the six months ended June
30, 1995, sales of real estate declined by $896,000 and the loss
from the sale of real estate increased by $68,000. The decline
in real estate sales was due in large part to the weakened
Sacramento real estate market and the conclusion of the Street of
Dreams promotion. The increased loss from real estate sales is
largely attributable to an overall decline in the sale price of
custom home sites. As a result of the foregoing, the Company
reduced the carrying value of The Fairway lots by $290,000.
General and administrative expenses decreased by $103,000 when
compared with the six months ended June 30, 1995. The decrease
consisted primarily of an increase in salaries of $34,000 and a
decrease in legal fees of $125,000. Interest and dividend income
decreased by $131,000 when compared with the quarter ended June
30, 1995. The decrease was due in large part to greater
principal payments made on real estate and related party notes
receivable and the write off of certain related party notes
receivable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Dividends in arrears. See Note 6 of Notes to Consolidated
Condensed Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
ITEM DESCRIPTION
10.01 Letter dated July 12, 1996 from Murieta
Investors regarding amended Purchase and
Option Agreement.
10.02 Promissory Note dated June 12, 1996, between
Golden State Trust and M & R Investment
Company, Inc.; Assignment of Right to
Payments, Consent to Assignment between Baby
Grand Corp. and M & R Investment Company,
Inc.; Loan Agreement and Assignment between M
& R Investment Company, Inc. and Golden State
Trust.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
DUNES HOTELS AND CASINOS INC.
Registrant
Date: August 14, 1996 By: /s/ James H. Dale
James H. Dale
Duly Authorized Officer
and Chief Financial
Officer
Leveraged Equity Management, Inc.
One Market
Stewart Street Tower - Suite 2601
San Francisco, CA 94106
Eric P. Von der Porten (415) 284-0778
Managing Director
July 12, 1996
Mr. James H. Dale
President
SHF Acquisition Corporation
4045 S. Spencer Street, Suite 206
Las Vegas, NV 89119
Dear Jim:
Following are the modifications that we have agreed to make to
the Purchase and Option Agreement. Thank you for your input.
1. Upon execution of a revised Agreement, Murieta
Investors will make a non-refundable deposit of
$25,000. Closing of the first six lots will occur no
later than August 30, 1996. These lots will be numbers
3106, 3113, 3166, 3190, 3194, and 3203. The initial
payment for the first six lots will be $40,000 per lot
plus payment of applicable park fees. The Success
Payments on the first six homes will be calculated
solely on the Base Sales Prices of the homes. The Base
Sales Prices will be the prices recommended by The
Whitney Research Group plus adjustments for "bonus
rooms" offered to the home buyers. If the listed or
advertised price is greater than the price recommended
by the Whitney Research Group, then the listed or
advertised price will become the Base Price plus
adjustments for "bonum rooms" offered to buyers. If
the actual home sizes vary from the recommended sizes,
comparable prices will be agreed to by Buyer and
Seller.
2. Eight months from the closing of the initial lots,
Buyer may purchase a second group of six lots. An
additional group of six lots may be purchased every
four months thereafter until 40 lots have been
purchased. Buyer may select the lots for each group
from the total pool, but in no case can Buyer purchase
more than three fairway lots in any group of six.
3. The initial payment for the second six lots will be
calculated as $40,000 per lot, plus the applicable park
Mr. James H. Dale
July 12, 1996
Page Two
fees. The initial payments for subsequent lots will be
calculated as $45,000 per lot, plus the applicable park
fees.
4. The Success Payments on the second group of homes will
be increased by 10 percent of the difference between
the Gross Sales Prices and the Base Sales Prices. The
Gross Sales Price is defined as the Base Sale Price
plus adjustments for "bonus rooms" offered to buyers
plus any "extras" requested by buyers. On the third
group of homes, the Success Payments will be increased
by 15 percent of that difference. On all subsequent
homes, the Success Payments will be increased by 20
percent of that difference.
5. As provided for by the Agreement, Seller will be
allowed to sell lots that have not yet been purchased
by Buyer. Buyer will be permitted to accelerate the
closing of any of the lots to accomodate requests from
home purchasers and/or its construction schedule.
Please indicate your agreement by signing and dating this
agreement below. I will instruct my attorney, Tom French, to
revise the Agreement so that we can close as quickly as possible.
Sincerely,
Murieta Investors, LLC
/s/
By: Eric P. Von der Porten
ACCEPTED AND AGREED:
SHF Acquisition Corporation
/s/
By: James H. Dale
PROMISSORY NOTE
$ 250,000.00 DATE: June 12,1996
Las Vegas, Nevada
FOR VALUE RECEIVED, the undersigned ("Maker") promises to
pay to M & R INVESTMENT COMPANY, INC., a Nevada Corporation, or
to order (hereinafter "Holder"), at such place or places as may
from time to time be designated by Holder, the principal sum of
Two Hundred Fifty Thousand and No/100 ($250,000.00), together
with interest accruing thereon at the rate of twelve percent
(12%) per annum, principal and interest payable as follows:
(a) A principal payment of One Hundred Thousand and No/100
Dollars ($100,000.00) shall be made on or before July 1, 1996;
(b) Accrued Interest shall be paid monthly, with the first
payment of interest accruing between the date hereof and July 31,
1996 being made on August 1, 1996, and all further accrued
interest being paid on the first day of each month thereafter,
until the Maturity Date (as hereinafter defined); and
(c) All outstanding principal and accrued interest shall be
due and payable on or before the earlier of (I) the date that the
Secondary Nonrefundable Payment of $250,000.00 becomes due and
payable under that certain Asset Purchase Agreement (With Limited
Warranties By Seller) by and between Maker and the Federal
Deposit Insurance Corporation, dated June 12, 1996 ("Asset
Purchase Agreement"), and (ii) six (6) months after the date
hereof ("Maturity Date").
All payments due hereunder shall be paid at the offices of
Holder, 4045 South Spencer Street, Suite 206, Las Vegas, Nevada
89119. All payments hereunder shall be credited first to accrued
interest and next to reducing the balance of the principal. Any
and all payments hereunder shall be payable in lawful money of
the United States which shall be legal tender in payment of all
debts at the time of payment. Maker may prepay, without penalty,
this Promissory Note in whole or in part with accrued interest to
the date of such prepayment on the amount prepaid.
In the event Maker is late in the payment of any amount due
hereunder, Maker shall pay Holder interest at the rate of
eighteen percent (18%) per annum upon all such late payments from
the date the payment should have been received by Holder to the
date payment was actually received by Holder.
This Promissory Note is secured by an assignment of Maker's
rights and interest under the Asset Purchase Agreement, as set
forth in the Loan Agreement and Assignment and UCC-I financing
statement of even date herewith, and all of the terms thereof are
incorporated herein and made a part hereof by this reference.
Should payment of any principal or interest not be made when
due, or if Maker should breach the Asset Purchase Agreement or
the Loan Agreement and Assignment, Maker shall be in default
under this Promissory Note. In the event of such default, Maker
shall have the earlier of (I) ten (10) business days after the
date thereof, and (ii) the date that the Secondary Nonrefundable
Payment of $250,000.00 becomes due and payable under the Asset
Purchase Agreement to cure such default ("Cure Date"). If Maker
fails to cure a default by the Cure Date, the whole sum of
principal and interest due hereunder shall become immediately due
and payable at the option of Holder, and Holder may exercise any
and all rights and remedies it may possess at law or in equity
for the collection of this obligation.
Maker hereby waives notice of default, diligence, demand,
presentment, notice of nonpayment and protest.
If any action is taken by Holder (whether by Court
proceeding or otherwise) to enforce payment of this Note, the
undersigned promises to pay to Holder any and all costs of such
action, including all reasonable attorneys' fees and costs
incurred therein.
"Maker"
GOLDEN STATE TRUST, an
irrevocable trust
By: /s/
Jeffery Middlekauff, Trustee
2
ASSIGNMENT OF RIGHT TO PAYMENTS;
CONSENT TO ASSIGNMENT
WHEREAS, JOHN B. ANDERSON ("Assignor") is obligated to the
Federal Deposit Insurance Corporation, a corporation organized
under the laws of the United States ("FDIC"), pursuant to that
certain judgment entered in the District Court, Clark County,
Nevada, in Case No. A245662, together with the sister-state
judgment entered thereon in California ("Judgment"); and
WHEREAS, an irrevocable trust known as the GOLDEN STATE TRUST
("GST") has entered into an agreement with FDIC to acquire the
Judgment and certain other rights ("Asset Purchase Agreement"); and
WHEREAS, GST desires to borrow from M & R INVESTMENT COMPANY,
INC., a Nevada corporation ("Assignee"), the sum of Two Hundred
Fifty Thousand and No/100 Dollars ($250,000.00), as more
particularly set forth in the Loan Agreement and Assignment of even
date herewith ("Loan"), for the purpose of complying with the terms
and conditions of the Asset Purchase Agreement; and
WHEREAS, Assignee will only agree to make the Loan to GST if
Assignor assigns to Assignee certain sums due to Assignor from BABY
GRAND CORP., a Nevada corporation ("BGC"), as an officer and
director of BGC, until the Loan is repaid in full, along with all
accrued interest thereon; and
WHEREAS, Assignor shall obtain substantial benefit from the
Loan being made by Assignee to GST,
NOW, THEREFORE, in consideration of Assignee's agreement to
make the Loan to GST and of the mutual promises and covenants
herein contained, Assignor hereby assigns to Assignee and Assignee
hereby takes from Assignor an assignment of Assignor's right to
receive from BGC the sum of $100,000.00 due and owing to Assignor
from BGC on July 1, 1996, and additional monthly sums of $1,500.00
due and owing to Assignor from BGC on the first day of each month
thereafter, until the Loan and all interest accrued thereon are
paid in full, and Assignor and Assignee further agree as follows:
1. Assignor shall neither agree nor consent to any
modification, amendment, or termination of any agreement or
understanding, or resign from any position, pursuant to which
Assignor is entitled to receive the payments from BGC that form the
basis for the present assignment, nor shall Assignor take any
action or suffer that any action be taken that would restrict the
payment of monies to Assignee from BGC under this assignment.
2. Assignor shall inform Assignee of any default by any
party under any agreement or understanding pursuant to which
Assignor is entitled to receive the payments from BGC that form the
basis for the present assignment.
3. Assignor shall comply with any and all federal, state,
and local laws, including any and all orders or license
restrictions, relating to the operation of the business operations
of BGC.
4. This assignment is absolute in nature and shall not be
deemed to have been made for the purpose of securing the Loan.
5. Assignor hereby represents, warrants, and agrees that he
is legally entitled to receive, as an officer and director of BGC,
the sum of $100,000.00 on July 1, 1996, and no less than the
monthly sum of $1,500.00 on the first day of each month thereafter.
6. All notices and other communications provided for under
this Assignment shall be in writing and delivered or mailed,
postage prepaid, certified mail, return receipt requested, to the
following addresses (unless a notice of change of address is given
as provided in this paragraph):
If to Assignor: John B. Anderson
P.O. Box 1410
Davis, California 95617
If to Assignee: M & R Investment Company, Inc.
4045 South Spencer Street, Suite 206
Las Vegas, Nevada 89119
Attention: James H. Dale
7. No failure on the part of Assignee to exercise, and no
delay in exercising, any right, power or remedy under this
Assignment shall operate as a waiver thereof, nor shall any single
or partial exercise of any right under this Assignment preclude any
other or further exercise thereof or the exercise of any other
right. No waiver of any of the provisions of this Assignment shall
be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a
continuing waiver and no waiver shall be binding unless evidenced
by an instrument in writing executed by the party making the
waiver. The remedies provided in this Assignment are cumulative
and not exclusive of any remedies provided by law or equity.
8. This Assignment shall be binding upon and inure to the
benefit of Assignor and Assignee and their respective heirs,
successors, administrators, executors and permitted assigns.
9. Any provision of this Assignment that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of
this Assignment or affecting the validity or enforceability of such
provision in any other jurisdiction.
10. In the event that any action or proceeding is instituted
to interpret or enforce the terms and provisions of this
Assignment, the prevailing party shall be entitled to its costs and
reasonable attorneys fees and expenses, in addition to any other
relief it may obtain or be entitled to.
11. This assignment shall be governed by the laws of the
State of Nevada.
12. Time is of the essence of this assignment and of its
various provisions.
"ASSIGNOR" "ASSIGNEE"
M & R INVESTMENT COMPANY,
INC., a Nevada corporation
By: /s/ By: /s/
John B. Anderson James H. Dale, President
The undersigned, EDITH J. ANDERSON, hereby consents to the
foregoing assignment and agrees to cooperate with the Assignee,
M & R Investment Company, Inc., a Nevada corporation, in the
exercise of its rights thereunder.
DATED: /s/
Edith J. Anderson
The undersigned, BABY GRAND CORP., a Nevada corporation
("BGC"), hereby acknowledges that the Assignor, John B. Anderson,
is legally entitled to receive from BGC, as an officer and director
of BGC, the sum of $100,000.00 on July 1, 1996, and no less than
the monthly sum of $1,500.00 on the first day of each month
thereafter and hereby consents to the foregoing assignment by the
Assignor to the Assignee, M & R Investment Company, Inc., a Nevada
corporation, of the said sums. BGC further agrees to tender the
said sums directly to Assignee until such time as Assignor and
Assignee shall jointly notify BGC that the said assignment has been
terminated.
BGC understands and acknowledges that Assignee shall be
lending monies in the amount of $250,000.00 to GST in reliance
upon this consent and agreement by BGC.
DATED: BABY GRAND CORP., a Nevada
corporation
By: /s/
John B. Anderson, President
LOAN AGREEMENT AND ASSIGNMENT
THIS LOAN AGREEMENT AND ASSIGNMENT ("Agreement") is hereby
made and entered into this 11th day of June, 1996, by and
between M & R INVESTMENT COMPANY, INC., a Nevada corporation
("Lender"), and GOLDEN STATE TRUST, an irrevocable trust
("Borrower"). In consideration of the mutual covenants herein
contained and for good and valuable consideration, the parties
hereto hereby agree as follows:
SECTION I
AMOUNT AND TERMS OF THE LOAN
1.01 LOAN. Lender agrees, on the terms and conditions
hereinafter set forth, to loan to Borrower the sum of Two Hundred
Fifty Thousand and No/100 Dollars ($250,000.00) (the "Loan").
1.02 REPAYMENT OF LOAN. Borrower shall repay the Loan to
Lender, plus interest thereon at the rate of twelve percent (12%)
per annum, as evidenced by the Promissory Note described in
Paragraph 1.03, as follows:
(a) A principal payment of One Hundred Thousand and
No/100 Dollars ($100,000.00) shall be made on or before July 1,
1996;
(b) Accrued Interest shall be paid monthly, with the
first payment of interest accruing between the date hereof and
July 31, 1996, being made on August 1, 1996, and all further
accrued interest being paid on the first day of each month
thereafter, until the Maturity Date (as hereinafter defined); and
(c) All outstanding principal and accrued interest shall
be due and payable on or before the earlier of (I) the date that
the Secondary Nonrefundable Payment of $250,000.00 becomes due
and payable under that certain Asset Purchase Agreement (With
Limited Warranties By Seller) by and between Maker and the
Federal Deposit Insurance Corporation, a corporation organized
under the laws of the United States, dated June 12, 1996 ("Asset
Purchase Agreement"), and (ii) six (6) months after the date
hereof ("Maturity Date").
1.03 PROMISSORY NOTE. The Loan shall be evidenced by,
and repaid with interest in accordance with, a promissory note of
Borrower in substantially the form of the Promissory Note
attached hereto and incorporated herein as Exhibit "A" (the
"Promissory Note"). Upon the repayment in full of the Loan,
including without limitation all principal and interest
thereunder, the original of the Promissory Note shall be marked
"Paid in Full" and returned to Borrower.
1.04 SECONDARY NONREFUNDABLE PAYMENT. Lender may, but is
not obligated to, loan Borrower the monies necessary to make the
Secondary Nonrefundable Payment, which loan, if made, shall be
secured by the assignment herein contained and shall be
represented by a new promissory note.
1.05 REPAYMENTS. Borrower may prepay, without penalty,
the Promissory Note in whole or in part with accrued interest to
the date of such prepayment on the amount prepaid.
1.06 METHOD OF PAYMENT. Borrower shall make each payment
under this Agreement and under the Promissory Note not later than
5:00 P.M. on the date when due in lawful money of the United
States of America.
SECTION 2
CONDITIONS PRECEDENT
2.01 CONDITION PRECEDENT TO LOAN. Lender's obligation to
make the Loan is subject to the condition precedent that Lender
shall have received on or before the day of such Loan each of the
following, in form and substance satisfactory to Lender and its
counsel:
(a) The Promissory Note duly executed by Borrower;
(b) A fully-executed copy (or copies, if executed in
counterparts) of the Asset Purchase Agreement;
(c) The UCC-I Financing Statement described herein; and
(d) The assignment by John B. Anderson to Lender of his
right to receive payments due and payable from Baby Grand Corp.
("BGC"), including the sum of $100,000.00, which amount John B.
Anderson represents and warrants to Lender is due and payable on
July 1, 1996, and additional sums of $1,500.00 per month, which
amounts John B. Anderson represents and warrants to Lender are
due and payable on the first day of each month following July 1,
1996, in a form satisfactory to Lender.
SECTION 3
ASSIGNMENT
3.01 ASSIGNMENT. Borrower hereby assigns absolutely to
Lender all of Borrower's rights, title, and interest in and to
the Asset Purchase Agreement, and proceeds therefrom, regardless
of the form of such proceeds, whether arising from a voluntary or
involuntary disposition of such collateral or the proceeds
thereof.
3.02 LENDER'S AND BORROWER'S RIGHTS. By this assignment,
Lender shall have all of the rights, title, and interest of
Borrower as "Buyer" under the Asset Purchase Agreement.
Notwithstanding the foregoing, provided Borrower shall not be in
default under this Agreement, the Promissory Note, the Asset
Purchase Agreement, or any other obligations and indebtedness of
Borrower to Lender of whatever kind and whenever or however
created or incurred, Borrower may exercise all of the "Buyer's"
rights, title, and interest in and to the Asset Purchase
Agreement as if this assignment had never occurred.
Nevertheless, in the event that Borrower shall default hereunder,
or under the Promissory Note, the Asset Purchase Agreement, or
any other obligation owed by Borrower to Lender, and the default
is not timely cured, Lender shall be deemed to possess and shall
be entitled to exercise immediately and without further action
being taken by Lender any and all rights, title, and interest of
the Buyer under the Asset Purchase Agreement, including without
limitation Buyer's right to cure any defaults thereunder.
3.03 REASSIGNMENT AND TERMINATION OF FINANCING
STATEMENTS. Upon payment and satisfaction in full of the
obligations and indebtedness secured thereby, Lender shall
reassign to Borrower all of the rights, title, and interest
assigned herein and Lender shall terminate any and all financing
statements filed pursuant hereto.
SECTION 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
4.01 POWER AND AUTHORITY. Borrower is a duly-created,
validly-existing irrevocable trust, and the undersigned has the
power and authority, as Borrower's trustee, to enter into this
Agreement on behalf of Borrower and to comply with the provisions
hereof relevant to it. The undersigned has taken all requisite
action necessary to authorize the execution of this Agreement on
Borrower's behalf by the undersigned and to approve compliance
herewith and to perform all obligations of Borrower hereunder.
Additionally, the execution, delivery, and performance by
Borrower of this Agreement and of the Promissory Note do not and
will not:
(a) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other
agreement, lease, or instrument to which Borrower is a party
or by which they or their properties may be bound or
affected; or
(b) result in or require the creation or imposition
of any Lien, upon or with respect to any of the properties
now owned or hereafter acquired by Borrower; or
(c) cause Borrower to be in default under any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination, or award or any such indenture, agreement,
lease, or instrument.
4.02 LEGALLY ENFORCEABLE AGREEMENT. This Agreement is a
legal valid, and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except to the
extent that such enforcement may be limited by applicable
bankruptcy, insolvency, and other similar laws affecting
creditors' rights generally.
4.03 OTHER AGREEMENTS. Borrower is not a party to any
indenture, loan, or credit agreement or to any lease or other
agreement or instrument that could have a material adverse affect
on the business, properties, assets, operations, or conditions,
financial or otherwise, of Borrower, or the ability of Borrower
to carry out its obligations under the Promissory Note or this
Agreement. Borrower is not in default in any respect in the
performance, observance, or fulfillment of any of the
obligations, covenants, or conditions contained in any agreement
or instrument material to its business to which it is a party.
4.04 LITIGATION. Except as expressly set forth in the
Asset Purchase Agreement, there is no pending or threatened
action or proceeding against or affecting Borrower before any
court, governmental agency, or arbitrator which may, in any one
case or in the aggregate, materially, adversely affect the
financial condition, operations, properties, or business of
Borrower or the ability of Borrower to perform its obligations
under this Agreement, the Promissory Note, or the Asset Purchase
Agreement.
4.05 NO ASSIGNMENTS. Borrower has not assigned or agreed
to assign any rights, title, or interest that it may have in or
to the Asset Purchase Agreement.
SECTION 5
AFFIRMATIVE COVENANTS
So long as the Promissory Note shall remain unpaid or Lender
shall have any commitment under this Agreement, Borrower will:
5.01 NOTICE OF DEFAULT. Borrower shall immediately
notify Lender of any default by any party to the Asset Purchase
Agreement and shall further keep Lender apprised, at all times,
of Borrower's efforts to obtain financing for the transaction
contemplated under the Asset Purchase Agreement.
5.02 MAINTENANCE OF RECORDS. Keep adequate records and
books of account, in which complete entries will be made in
accordance with generally accepted accounting principles,
consistently applied, reflecting all financial transactions of
Borrower.
5.03 COMPLIANCE WITH LAWS. Comply in all respects with
all applicable laws, rules, regulations, and orders, such
compliance to include, without limitation, paying before the same
become delinquent all taxes, assessments, and governmental
charges imposed upon it or upon its property.
5.04 RIGHT OF INSPECTION. At any reasonable time, permit
Lender or any agent or representative thereof to examine and make
copies of and abstracts from the records and books of account of,
and visit the place of business of Borrower and to discuss the
affairs, finances, and accounts of Borrower with Borrower and
Borrower's independent accountants, if any.
5.05 FINANCING STATEMENTS. Execute such financing
statements (UCC-1) and other documents as shall reasonably be
deemed necessary by Lender to protect Lender's assigned interest,
as created hereunder, it being understood that one or more
financing statements may be filed by Lender as a precautionary
measure and to protect Lender's assigned interest.
SECTION 6
NEGATIVE COVENANTS
So long as the Promissory Note shall remain unpaid or Lender
shall have any commitment under this Agreement, Borrower shall
not, without the prior written consent of Lender:
6.01 ASSIGNMENTS OR LIENS. Further transfer or assign
any of its rights, title, or interest in or to the Asset Purchase
Agreement, or create, incur, assume, or suffer to exist, any
lien, security interest, or encumbrance upon or with respect to
the Asset Purchase Agreement, except for liens, security
interests, or encumbrances in favor of Lender.
6.02 MODIFICATION OR TERMINATION OF ASSET PURCHASE
AGREEMENT. Modify, amend, or terminate the Asset Purchase
Agreement, or waive any of Borrower's or Lender's rights, title,
or interest therein and thereto, or take any action or engage in
any conduct whereby Borrower or Lender may be estopped from
exercising their respective rights, title, or interest in and to
the Asset Purchase Agreement, or which would constitute a breach
of the Asset Purchase Agreement.
SECTION 7
EVENTS OF DEFAULT
7.01 EVENTS OF DEFAULT. If any of the following events
shall occur:
(a) Borrower shall fail to pay the principal of, or
interest on, the Promissory Note as and when due and payable, or
to cure such default within the earlier of (I) ten (10) business
days after the date thereof, and (ii) the date that the Secondary
Nonrefundable Payment of $250,000.00 becomes due and payable
under the Asset Purchase Agreement ("Cure Date");
(b) Borrower shall in any manner materially breach this
Agreement, the Promissory Note, or the Asset Purchase Agreement,
and shall fail to cure any such default by the Cure Date;
(c) Any representation or warranty made or deemed made
by Borrower in this Agreement or which is contained in any
certificate, document opinion, or financial or other statement
furnished at any time under or in connection with this Agreement,
the Promissory Note, or the Asset Purchase Agreement shall prove
to have been incorrect in any material respect on or as of the
date made or deemed made;
(d) Borrower (I) shall generally not, or shall be unable
to, or shall admit in writing its inability to pay its debts as
such debts become due; or (ii) shall make an assignment for the
benefit of creditors, petition or apply to any tribunal for the
appointment of a custodian, receiver, or trustee for it or a
substantial part of its assets; or (iii) shall commence any
proceeding under any bankruptcy, reorganization, arrangements,
readjustment of debt, dissolution, or liquidation law or statue
of any jurisdiction; or (iv) shall have any such petition or
application filed or any such proceeding commenced against it in
which an order for relief is entered or adjudication or
appointment is made and which remains undismissed for a period
thirty (30) days or more; or (v) by any act or omission shall
indicate its consent to, approval of, or acquiescence in any such
petition, application or proceeding, or order for relief, or the
appointment of a custodian, receiver or trustee for all or any
substantial part of its properties; or (vi) shall suffer any such
custodianship, receivership, or trusteeship to continue
undischarged for a period of thirty (30) days or more; Then, and
in any such event, Lender may, by written notice to Borrower,
declare the Promissory Note, all interest thereon, and all other
amounts payable under this Agreement to be forthwith due and
payable, whereupon the Promissory Note, all such interest
thereon, and all such amounts owed to Lender by Borrower shall
become and be forthwith due and payable, without presentment,
demand, protest, or further notice of any kind, all of which are
hereby expressly waived by Borrower. Further, Lender shall have
all rights under and all remedies available to it at law or in
equity, including without limitation those rights set forth in
Section 3 hereof.
SECTION 8
MISCELLANEOUS
8.01 NOTICES, ETC. All notices and other communications
provided for under this Agreement shall be in writing and
delivered or mailed, postage prepaid, certified mail, return
receipt requested, to the following addresses (unless a notice of
change of address is given as provided in this section 8.02):
If to Lender: M & R Investment Company, Inc.
4045 South Spencer Street, Suite 206
Las Vegas, Nevada 89119
Attention: James H. Dale
If to Borrower: Golden State Trust
c/o Calfee & Young
611 North Street
Woodland, California 95695-3237
Attention: Jeffery Middlekauff, Trustee
8.02 NO WAIVER; REMEDIES. No failure on the part of
Lender to exercise, and no delay in exercising, any right, power
or remedy under this Agreement, the Promissory Note or the Asset
Purchase Agreement shall operate as a waiver thereof, nor shall
any single or partial exercise of any right under this Agreement,
the Promissory Note or the Asset Purchase Agreement preclude any
other or further exercise thereof or the exercise of any other
right. No waiver of any of the provisions of this Agreement
shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver
constitute a continuing waiver and no waiver shall be binding
unless evidenced by an instrument in writing executed by the
party making the waiver. The remedies provided in this Agreement
are cumulative and not exclusive of any remedies provided by law
or equity.
8.03 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of Borrower and Lender and
their respective heirs, successors, administrators, executors and
permitted assigns.
8.04 GOVERNING LAW. This Agreement, the Promissory Note
and the Asset Purchase Agreement shall be governed by, and
construed in accordance with, the laws of the State of Nevada.
8.05 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement or the Promissory Note that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of
this Agreement and the Promissory Note or affecting the validity
or enforceability of such provision in any other jurisdiction.
8.06 HEADINGS. Headings in this Agreement are included
for the convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
8.07 ATTORNEY FEES. In the event that any action or
proceeding is instituted to interpret or enforce the terms and
provisions of this Agreement, the prevailing party shall be
entitled to its costs and reasonable attorneys fees and expenses,
in addition to any other relief it may obtain or be entitled to.
8.08 CROSS-DEFAULT. Any breach of or default under the
Promissory Note or the Asset Purchase Agreement, or any
amendments thereto, by and between, or issued by or in favor of,
the parties hereto, shall constitute a breach of this Agreement,
and the parties shall each have the remedies set forth herein in
the event of such breach or breaches.
8.09 TIME OF ESSENCE. Time is of the essence of this
Agreement and of its provisions.
8.10 ENTIRE AGREEMENT. This Agreement and the Promissory
Note and Asset Purchase Agreement incorporated herein by
reference constitute the entire agreement between the parties
pertaining to the subject matter contained in it and supersedes
all prior agreements, representations and understandings of the
parties. No addition to or modification of this Agreement shall
be binding unless executed in writing by all of the parties. Any
capitalized terms in this Agreement shall have the meaning(s)
ascribed thereto in the Asset Purchase Agreement or the
Promissory Note, as the case may be.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed as of the day and year first above written.
"LENDER" "BORROWER"
M & R INVESTMENT COMPANY, GOLDEN STATE TRUST, an
INC., a Nevada corporation irrevocable trust
By: /s/ By: /s/
James H. Dale, President Jeffrey Middlekauff, Trustee
STATE OF NEVADA )
) SS.
COUNTY OF CLARK )
This instrument was acknowledged before me on the 11th day
of June, 1996, by James H. Dale as President of M & R INVESTMENT
COMPANY, INC.
Notary Public-State Of Nevada
COUNTY OF CLARK Notary Public
PATRICIA B. CRAWLEY (My commission expires
My commission expires March 13, 1999)
March 13, 1999
STATE OF NEVADA )
) SS.
COUNTY OF CLARK )
This instrument was acknowledged before me on the 13th day
of June, 1996, by Jeffery Middlekauff as Trustee of GOLDEN STATE
TRUST.
DONNA BRADSHAW
Commission #1088776 Notary Public
Notary Public-California (My commission expires
Yolo County Feb. 23, 2000)
My Comm. Expires Feb. 23, 2000
EXHIBIT "A"
PROMISSORY NOTE
$ 250,000.00 DATE: June 12,1996
Las Vegas, Nevada
FOR VALUE RECEIVED, the undersigned ("Maker") promises to
pay to M & R INVESTMENT COMPANY, INC., a Nevada Corporation, or
to order (hereinafter "Holder"), at such place or places as may
from time to time be designated by Holder, the principal sum of
Two Hundred Fifty Thousand and No/100 ($250,000.00), together
with interest accruing thereon at the rate of twelve percent
(12%) per annum, principal and interest payable as follows:
(a) A principal payment of One Hundred Thousand and No/100
Dollars ($100,000.00) shall be made on or before July 1, 1996;
(b) Accrued Interest shall be paid monthly, with the first
payment of interest accruing between the date hereof and July 31,
1996 being made on August 1, 1996, and all further accrued
interest being paid on the first day of each month thereafter,
until the Maturity Date (as hereinafter defined); and
(c) All outstanding principal and accrued interest shall be
due and payable on or before the earlier of (I) the date that the
Secondary Nonrefundable Payment of $250,000.00 becomes due and
payable under that certain Asset Purchase Agreement (With Limited
Warranties By Seller) by and between Maker and the Federal
Deposit Insurance Corporation, dated June 12, 1996 ("Asset
Purchase Agreement"), and (ii) six (6) months after the date
hereof ("Maturity Date").
All payments due hereunder shall be paid at the offices of
Holder, 4045 South Spencer Street, Suite 206, Las Vegas, Nevada
89119. All payments hereunder shall be credited first to accrued
interest and next to reducing the balance of the principal. Any
and all payments hereunder shall be payable in lawful money of
the United States which shall be legal tender in payment of all
debts at the time of payment. Maker may prepay, without penalty,
this Promissory Note in whole or in part with accrued interest to
the date of such prepayment on the amount prepaid.
In the event Maker is late in the payment of any amount due
hereunder, Maker shall pay Holder interest at the rate of
eighteen percent (18%) per annum upon all such late payments from
the date the payment should have been received by Holder to the
date payment was actually received by Holder.
This Promissory Note is secured by an assignment of Maker's
rights and interest under the Asset Purchase Agreement, as set
forth in the Loan Agreement and Assignment and UCC-I financing
statement of even date herewith, and all of the terms thereof are
incorporated herein and made a part hereof by this reference.
Should payment of any principal or interest not be made when
due, or if Maker should breach the Asset Purchase Agreement or
the Loan Agreement and Assignment, Maker shall be in default
under this Promissory Note. In the event of such default, Maker
shall have the earlier of (I) ten (10) business days after the
date thereof, and (ii) the date that the Secondary Nonrefundable
Payment of $250,000.00 becomes due and payable under the Asset
Purchase Agreement to cure such default ("Cure Date"). If Maker
fails to cure a default by the Cure Date, the whole sum of
principal and interest due hereunder shall become immediately due
and payable at the option of Holder, and Holder may exercise any
and all rights and remedies it may possess at law or in equity
for the collection of this obligation.
Maker hereby waives notice of default, diligence, demand,
presentment, notice of nonpayment and protest.
If any action is taken by Holder (whether by Court
proceeding or otherwise) to enforce payment of this Note, the
undersigned promises to pay to Holder any and all costs of such
action, including all reasonable attorneys' fees and costs
incurred therein.
"Maker"
GOLDEN STATE TRUST, an
irrevocable trust
By: /s/
Jeffery Middlekauff, Trustee
2
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 481
<SECURITIES> 533
<RECEIVABLES> 2,498
<ALLOWANCES> 1,566
<INVENTORY> 38
<CURRENT-ASSETS> 0
<PP&E> 2,081
<DEPRECIATION> 374
<TOTAL-ASSETS> 15,188
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0
5
<COMMON> 3,900
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,188
<SALES> 443
<TOTAL-REVENUES> 1,110
<CGS> 571
<TOTAL-COSTS> 1,033
<OTHER-EXPENSES> 614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> (1,068)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,068)
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<CHANGES> 0
<NET-INCOME> (1,068)
<EPS-PRIMARY> (.16)
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