UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-KSB
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999 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.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-1687244
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4600 Northgate Boulevard, Suite 130, Sacramento, California 95834
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 929-2295
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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NONE NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Series B, $7.50 Cumulative
Common Stock, $.50 par value Preferred Stock, $.50 par value
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(Title of class) (Title of class)
Check 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
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. (X)
State issuer's revenues for its most recent fiscal year: $2,394,000
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant (1,240,918 common shares) computed by
reference to the price at March 17, 2000 ($.875 per share) was approximately
$1,085,803. No market value is assigned to the Series B preferred stock. See
"Item 5. Market for Registrant's Common Equity and Related Matters".
The number of shares of common stock outstanding as of March 17, 2000 was
5,094,340.
Documents Incorporated by Reference - Not Applicable
This document consists of pages with exhibits, pages without exhibits.
<PAGE>2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Dunes Hotels and Casinos Inc. was incorporated in New York in 1956. In
this report the term "the Company" refers to Dunes Hotels and Casinos Inc.,
individually, or with its wholly-owned subsidiaries, Continental California
Corporation (Continental), 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, through its subsidiaries, operates in two principal
business segments: real estate (development and sale of residential lots and
rental of agricultural land), and agriculture (drying and storing grain). See
Note 13 of Notes to Consolidated Financial Statements for information relating
to industry segments and class of services.
The Company's real estate segment develops and sells completed
residential lots at The Fairways primarily to builders of custom homes and to
the general public located in and around the greater Sacramento, California
area.
The agricultural segment dries harvested grain over a two-month period
(approximately September 15 to November 15) and stores, for a fee, the dried
grain until it is removed by the owner. The Company stores grain principally for
one customer under a contract which expires in May 2002. This contract accounts
for approximately 50% of the storage capacity and 98% of the storage revenue.
During the year ended December 31, 1999, the Company did not have any contracts
for drying grain but is seeking such contracts in 2000. If the Company were to
lose its storage customer, fail to obtain drying contracts or the crop yield is
low, it would have a material adverse effect on the Company's agricultural
segment.
REAL ESTATE SEGMENT:
THE FAIRWAYS
The Company, through SHF, developed approximately 50 acres of real
property as a residential planned unit development known as "The Fairways" in
Rancho Murieta, California. Rancho Murieta is a 3,500 acre master planned unit
development located approximately 25 miles from Sacramento, California. Rancho
Murieta consists primarily of single family homes, town houses, commercial
property and two 18-hole championship golf courses, including country club
facilities. The Fairways, located within the boundaries of one of the golf
courses at Rancho Murieta, was subdivided into 110 single family estate lots. As
of March 24, 2000, 34 lots remain unsold.
In connection with its development of The Fairways, SHF was required to
construct certain improvements that benefited not only The Fairways, but other
properties that lay outside of the boundaries of The Fairways (the Benefited
Properties). The net cost of the improvements to the Benefited Properties was
$1,140,900 and SHF expects to be reimbursed for these costs if the Benefited
Properties are developed. SHF's right to reimbursement will expire in September
2015. The Company is unable to predict what amount, if any, will be received as
<PAGE>3
reimbursement. The rights to reimbursement are personal to SHF and do not run
with The Fairway's property unless assigned by SHF.
Until 1999, all of the unsold lots in The Fairways were encumbered by
a deed of trust in favor of Beal Bank which required a $40,000 payment for the
release of each encumbered lot. In November 1999, the note was paid in full and
the lien of the deed of trust was released.
In October 1996, the Company and Murieta Investors, LLC, (MI) signed a
Purchase and Option Agreement which provides that MI 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 may receive
contingent consideration equal to 20% of the gross sales price of each
residential dwelling sold less $40,000 (a "Success Payment").
The agreement also provided for MI to have an option to acquire 36
additional lots at various prices. If two consecutive options are not exercised
then the remaining options are terminated. MI did not exercise the December 1,
1998 option and the June 1, 1999 option. During June 1999, the Company notified
MI that the remaining options were terminated.
SAM HAMBURG FARM
MRI owns approximately 150 acres of agricultural property called Sam
Hamburg Farm (Hamburg Farm) in Merced County, California. MRI's 150 acres are
operated by SHF. Of the 150 acres, 40 acres contain the airstrip and the shop
areas which are the focus of continuing attempts at chemical clean-up. The
remaining 110 acres are leased to one tenant at an annual aggregate rental of
approximately $24,000. The current lease commences January 2000 for a period of
two years.
The Company has been advised that the 40 acres contains approximately
5,000 cubic yards of contaminated earth. 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 the chemical and toxic-laden soil.
Because of ongoing testing, the State has not imposed a disposal date
upon the Company. Cost of disposal is estimated at $100 per cubic yard or
approximately $500,000. However, if on-site remediation can be achieved, it is
estimated the cost will be up to $170,000. The Company is unable to predict when
the ongoing testing will be completed or what the outcome of these tests will
be. Accordingly, the estimates could materially change as the testing and
remediation work continues.
AGRICULTURAL SEGMENT:
GRAIN STORAGE AND DRYING FACILITIES
Since 1990, SHF owns a grain storage facility (the "Storage Facility")
located in Yolo County, California. The Storage Facility generally stores, for a
fee, grains owned principally by Adam's Grain Company.
The Storage Facility can store approximately 34,000 tons of grain.
<PAGE>4
In 1997, the Company entered into a financing lease agreement for its
drying facility which is adjacent to the Storage Facility. The lease is for five
years commencing March 1998, the monthly rental is $25,122 and the Company can
buy the drying facility for $1 at the end of the lease. The lease is
collateralized by the drying facility, a deed of trust on certain parcels of
property including the parcel on which the Storage Facility is located and the
guarantees of MRI and the Company. Before the Guarantors are liable for any
deficiency, the leasing company must first proceed against the drying facility
and the additional collateral.
OTHER ACTIVITIES:
CERTAIN LOANS
From time to time the Company has entered into certain transactions and
has made loans to various Anderson Entities, Anderson Related Entities,
Directors and Executives of the Company and other unrelated third
parties. All loans to related parties were approved by the Company's Audit
Committee. See Item 3. Legal Proceedings and Item 12. Certain Relationships and
Related Transactions.
COMPETITION
REAL ESTATE SEGMENT:
The real estate investment and development business is highly
competitive. The Company competes for real estate investments with investors of
all types, including domestic and foreign corporations, financial institutions,
other real estate investment companies and individuals, many of which have
substantially greater resources than the Company. In addition, the Company's
properties are subject to local competitors from the surrounding areas. The
Company does not consider its real estate business to be seasonal in nature.
With respect to the residential real estate, the Company competes with
numerous other developers and residential properties in the greater Sacramento
area of California, ranging from regional and national firms to local companies,
many of which have substantially greater resources than the Company. In the
greater Sacramento area, the Company's residential lots compete on the basis of,
among other things, location, price and quality of amenities, such as the golf
course and country club facilities at Rancho Murieta.
With respect to the Company's agricultural real estate, the Company
competes for tenants with other regional or local agricultural properties in the
area of California where the Company's property is located. Leasing property to
prospective tenants is generally determined on the basis of, among other things,
lease rates and quality of top soil. The Company's leases of agricultural
property are generally for a period of 2 years.
AGRICULTURAL SEGMENT:
With respect to the Company's grain drying and storage operations, the
Company competes with other grain drying and storage companies in Northern
California. The grain drying operation is seasonal and runs from approximately
September 15 to November 15. The storage facility, depending on the types of
grain being stored, operates on a year around basis. The drying and storage
<PAGE>5
operations are impacted by the number of acres grown, the yield per acre,
weather conditions and government programs. Because the Company stores grain for
principally one customer, the loss of that customer could have a material
adverse effect on the grain drying and storage operation.
SALES AND MARKETING
The Company employs a sales consultant for the sale of its residential
lots at the Fairways, although sales by independent real estate brokers are also
encouraged. The residential lots are marketed primarily by means of media
advertising, customer referrals and realtor contacts. Selling prices are set
based on the local market conditions and competitive factors. The agricultural
properties are marketed to farmers in the surrounding area where the
agricultural property is located. The grain drying and storage operation is
marketed to principally one customer but the Company is attempting to obtain
additional customers.
REGULATION
The Company must comply with various federal, state and local zoning,
building, pollution, environmental, health, and advertising ordinances, rules
and regulations, including regulations relating to specific building materials
to be used, building design, minimum elevations of properties and emissions from
the grain drying and storage facilities.
EMPLOYEES
At March 24, 2000, the Company had 4 employees. None of the Company's
employees are covered by collective bargaining agreements. The Company believes
its employee relations to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
REAL ESTATE SEGMENT:
The Fairways
The Fairways is comprised of approximately 50 acres of land which has
been developed into 110 single family estate lots of which 34 remain unsold as
of March 24, 2000. It is located in Rancho Murieta, California, adjacent to
Highway 16, approximately 25 miles southeast of Sacramento. The land is
encumbered by bonds in the approximate amount of $99,000, which is the pro rata
share of a bonded indebtedness incurred that enabled the Rancho Murieta
Community Services District to acquire the water and sewer facilities that serve
the community of Rancho Murieta, which includes the Fairways. The bonded
indebtedness will be assumed, pro rata, by the individual lot buyers.
Sam Hamburg Farm
Sam Hamburg Farm consists of approximately 150 acres remaining from an
original 4,600 acres of agricultural land. The remaining land is located in the
most southwesterly corner of Merced County, California approximately two miles
east of Interstate Highway 5. It is approximately ten miles south of the city of
Los Banos, California. The Company leases the remaining 110 acres to one tenant,
<PAGE>6
who grows annual crops. The terms of the leases are usually two crop years on a
cash rent basis. See "Item 1. Business - Real Estate Segment - Sam Hamburg
Farm".
AGRICULTURAL SEGMENT:
Grain Storage and Drying Facility
The storage and drying facilities are located in Yolo County,
California, approximately 15 miles west of the city of Sacramento. The storage
facility can store approximately 34,000 tons of grain. The drying facility can
dry approximately 165,000 pounds of grain in a 24 hour period. The drying
facility dries enough grain to fill approximately one-half of the storage
facility. See "Item 1. Business -- Agricultural Segment -- Grain Storage and
Drying Facilities."
EXECUTIVE OFFICES:
The Company's executive office is located in an office building in
Sacramento, California. The executive offices are 1,353 square feet and are
leased under terms of a lease agreement expiring June 30, 2001. The Company
believes that the executive office is suitable for its needs.
ITEM 3. LEGAL PROCEEDINGS
Federal Deposit Insurance Corporation, et al. v. John B. Anderson
et al., United States District Court, District of Nevada, Case No.
CV-S-95-00679-PMP (LRL), instituted on July 14, 1995. John B. Anderson
(Anderson), a director of the Company, Edith Anderson (Anderson's wife), Cedar
Development Co. (Cedar), J.A Inc (JA), J.B.A. Investments Inc, (JBA and,
collectively with Anderson, his wife, Cedar, and JA, the Anderson Parties) are
involved in litigation (the Anderson Litigation) with the Federal Deposit
Insurance Corporation (the FDIC). This matter is more fully described in the
Company's Form 10-K for the year ended December 31, 1997, see "Item 3. Legal
Proceedings - Federal Deposit Insurance Corporation, et al. v. John B. Anderson,
et al."
Until December 11, 1997, Anderson was the President and Chairman of the
Board of the Company and Chairman of the Board of various subsidiaries of the
Company. Prior to the events described herein, Anderson asserts, through his
ownership of Cedar, the parent of Baby Grand Corp. (BGC) and JBA, owned
approximately 4,280,756 shares or 67.2% of the then Company's outstanding common
stock (the Common Stock). Of those shares (i) 3,000,000 shares (the FDIC Pledged
Shares) have been pledged as collateral in favor of entities of which General
Financial Services, Inc. (GFS) since June 1999 is a successor and/or assign, and
(ii) 1,280,756 shares (the BGC Pledged Shares) had been pledged as collateral in
favor of a subsidiary of the Company.
In June 1999, the FDIC sold a portion of its loan, together with the
underlying security and a part of the judgement against Anderson Parties to GFS.
Included in the sale was the pledged FDIC shares.
GFS attempted to exercise its rights under the judgement and
demanded that the Company transfer ownership of the FDIC Pledged Shares to
itself but Mr. Anderson objected, claiming that there was no change in ownership
of the shares. The Company in turn filed on July 6, 1999, a Complaint in
Interpleader in Superior Court of California. The jurisdiction of the action was
removed and transferred on September 20, 1999 to the United States District
<PAGE>7
Court for the District of Nevada as DUNES HOTELS AND CASINOS INC. v. J.B.A.
INVESTMENTS, INC. et al. Case No. CV-S-99-1470-PMP (RJJ).
On January 5, 2000, The Nevada District Court ordered that the Company
hold a shareholders' meeting on or before April 14, 2000 and that GFS was
entitled to vote the FDIC Pledged Shares at that meeting. In addition to its
interest in the FDIC Pledged Shares, GFS has reported that it owns 853,422
shares of the Company's common stock acquired in the open market during 1999 and
January 2000, or approximately a total of 60% of the then outstanding stock.
Since 1998, the BGC Pledged Shares have been under the jurisdiction of
the US Bankruptcy Court in Las Vegas, NV, since BGC filed a petition under
Chapter 7. On February 22, 2000, the Company was granted its motion in
Bankruptcy Court to allow it to foreclose on the BGC Pledged Shares. On March 3,
2000, the Company foreclosed on the BGC Pledged Shares and placed them in the
treasury. GFS is now able to vote 75.6% of the outstanding stock (GFS Shares).
See "Item 14. Subsequent Events, Notes To Consolidated Financial Statements."
Because GFS is able to exercise voting rights with respect to the GFS
Shares, GFS could exercise substantial influence with respect to the election of
the entire Board of Directors of the Company and all matters submitted to
stockholders. Therefore, GFS is able to significantly influence the direction
and future operations of the Company, including decisions regarding future
financing (which could involve the issuance of additional Common Stock or other
securities) and decisions regarding the day-to-day operations of the Company's
real estate and agricultural operations. If it is determined that GFS owns the
FDIC Pledged Shares, it would then own 75.6% of the Company and GFS would have
ownership, rather than only significantly control the election of the entire
Board of Directors of the Company and all other matters submitted to
stockholders.
If there has been an ownership change for purposes of Section 382 of
the Internal Revenue Code of 1986, as amended (the Code), then there is a
limitation on the amount of income that can be offset by NOL carryovers. In
general, an ownership change occurs when a major shareholder of a loss
corporation increases their ownership by more than 50 percentage points, which
is tested over a three-year period. Regardless of what action, if any, GFS
should determine to take with respect to the Company, if the District Court of
Nevada finds in favor of GFS with respect to the transfer of the pledged shares,
an ownership change of more than 50 percentage points will have occurred at the
date the shares were actually acquired by GFS. At December 31, 1999, the Company
has a net operating loss carry forward (NOL) of approximately $53,246,000. The
Board of Directors believes this NOL represents a valuable asset to the Company
which may or may not be utilized in future years. When GFS purchased a portion
of the FDIC loan in June 1999, there could be a deemed change in ownership under
the Code if it is determined that this action is inconsistent with a typical
lending transaction. It is possible that the Internal Revenue Service could take
the position that the events within a three-year period, taken together with the
events described above, have already resulted in a change in ownership under the
Code. If there is a change of ownership under the Code, the value of the
Company's NOL would be materially adversely reduced or eliminated. There can be
no assurance that a change of ownership will not occur or has not already
occurred. In various court pleadings, GFS has asserted that it owns the FDIC
Pledged Shares. Mr. Anderson disagrees with this assertion and the decision in
the interpleader action will determine ownership.
On January 28, 2000, the Company entered into a non-binding letter of
intent with USI Corp whereby the Company would acquire not less than 3,000
shares of Series B Preferred Stock of the Company valued at $275 per share,
<PAGE>8
based upon the liquidation value and accrued but unpaid dividends on such Series
B Preferred Stock, in exchange for shares of the Company's Common Stock valued
at $.70 per share. The entering into the transaction was subject to a number of
conditions, including entering into a definitive stock purchase agreement, an
independent third party appraiser confirming the value of the Series B Preferred
Stock and Common Stock and the overall transaction, and determination by the
United States District Court, District of Nevada (No. CV-5-99-1470-PMP (RJJ)),
that the proposed stock purchase agreement was not subject to the Court's order
of January 6, 2000. Although the Company and USI had entered into subsequent
discussions regarding the acquisition of additional Common Stock, no definitive
agreement has been entered into.
On March 23, 2000, GFS and GFS Acquisition served the Company with an
emergency motion for temporary restraining order and amendment of preliminary
injunction in the United States District Court for the District of Nevada (Case
No. CV-S-99-1470-PMP-(RJJ)) seeking the Company from (1) issuing new shares of
common or preferred stock; (2) continuing or completing a purported transaction
with USI; (3) doing anything that will hinder or effect GFS' majority voting
control of the Company; and (4) changing the status quo concerning ownership of
the Company as of January 6, 2000, except as to transactions previously approved
by GFS. The litigation relates to a purported transaction with USI Corp. The
hearing for the emergency motion has been scheduled for March 28, 2000, and the
Company has not yet responded to the motion.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise. No matter has been submitted to a vote of security
holders since December 19, 1984.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal United States market in which the Company's common stock
is traded is the over-the-counter market. The Company's symbol for its common
stock is "DUNE". There is no established public trading market for the Company's
Series B preferred stock. Neither the Company's common stock nor the Company's
preferred stock is listed for trading on an exchange.
The following table sets forth for the periods indicated the range of
the high and low bid quotations for the Company's common stock as quoted on the
OTC Bulletin Board. The reported bid quotations reflect inter-dealer prices,
without retail markup, markdown or commissions, and may not necessarily
represent actual transactions.
1999 HIGH LOW
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1st Quarter .25 .19
2nd Quarter .83 .21
3rd Quarter .89 .50
4th Quarter .78 .68
<PAGE>9
1998 HIGH LOW
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1st Quarter .44 .25
2nd Quarter .37 .28
3rd Quarter .32 .15
4th Quarter .19 .14
At December 31, 1999, the Company's transfer agent reported that there
were approximately 1,805 holders of record of the Company's common stock, and
approximately 757 holders of record of the Company's Series B $7.50 cumulative,
voting and non-convertible Preferred Stock with a liquidating value of $125 per
share.
Dividends on the Company's common stock have not been paid since the
second quarter of 1979. 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 $1,317,000 as of December 31, 1999. The
Company has no present intention to pay dividends on either its common or
preferred shares in the near future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
The Consolidated Financial Statements and Notes thereto are an integral
part of this report, including this Item 6, and are incorporated herein by this
reference and should be read in conjunction herewith.
Certain information included herein contains statements that are
forward-looking, such as anticipated liquidity requirements for the coming
fiscal year, anticipated sources of liquidity for the coming fiscal year, the
impact of anticipated asset sales, and potential changes in control of the
Company. Such forward-looking information involves important risks and
uncertainties that could significantly affect the Company's financial condition
and future results of operations, and accordingly, such future financial
condition and results of operations may differ from those expressed in any
forward-looking statements made herein. These risks and uncertainties include,
but are not limited to, those risks relating to actual costs necessary to
clean-up certain real property chemical contamination, real estate market
conditions and general economic conditions, the abilities of certain third
parties to obtain financing and otherwise perform under real estate purchase
agreements, and the outcome of certain litigation and other risks. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, and, such statements speak only as of the date made.
YEAR 2000 ISSUE
The Company has addressed the possible exposures related to the impact
on its computer systems of the Year 2000. Key financial information and
operational systems have been assessed. As of March 24, 2000, all systems are
functioning properly.
<PAGE>10
OVERVIEW
REAL ESTATE
FAIRWAYS
In October 1996, the Company and Murieta Investors, LLC, (MI) signed a Purchase
and Option Agreement which provides that MI 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 may receive contingent
consideration equal to 20% of the gross sales price of each residential dwelling
sold less $40,000 (a "Success Payment). During 1999, the four residential
dwellings were sold by MI and the Company received Success Payments in the
amount of $174,980. Construction has not started on the two remaining lots.
The agreement also provided for MI to have options to acquire 36 additional lots
at various prices. The options are exercisable starting December 1, 1998 (6
lots) and every six months thereafter (4 lots each). If two consecutive options
are not exercised then the remaining options are terminated. MI did not exercise
the December 1, 1998 option and the June 1, 1999 option. During June 1999, the
Company notified MI that the remaining options were terminated.
AGRICULTURAL
The Company operates a grain drying and storage facility. The drying facility is
financed by a 5 year lease which commenced in March 1998. At the end of the
lease, the Company will obtain title to the drying facility.
OPERATING RESULTS
Net loss for the year ended December 31, 1999 decreased by approximately
$1,136,000 when compared with the year ended December 31,1998. This was due to a
number of factors including:
(1) A increase in profit from the sale of real estate primarily due to the
sale of the 2.16 acres of industrial property in Las Vegas, Nevada.
(2) A decrease in bad debt expense.
(3) A decrease in interest expense.
1999 vs. 1998
Real estate
The major increase in real estate revenues and profits in 1999 was due
to the sale of the 2.16 acres of industrial property in Las Vegas, Nevada for
$846,800 and the sale of the Solano Option for $533,000. Sales at The Fairways
were 6 lots in 1999 compared to 6 lots in 1998 and continue to be slow.
Agricultural
Grain drying and storage losses in 1999 increased by approximately
$80,000 when compared with 1998. For the year ended December 31, 1999 drying and
storage revenue was $168,000 compared to $370,000 for the prior year. This
<PAGE>11
decrease is primarily due to a decrease in drying and storage revenue of
$200,000. The 1999 revenue decrease consisted of $75,000 less drying revenue and
$120,000 less rice overage revenue compared to 1998. It was anticipated that the
facility would dry rice during the 1999 season, however, due to the lower yields
of rice acreage grown, there was no rice available to dry. The rice overage
revenue in 1998 resulted from the sale of rice overage from the 1997 crop.
General
Selling, administrative and general expenses in total decreased
approximately $78,000. The major contributors to the decrease were salaried and
related costs of $122,000 due to the decrease in personnel; office expenses of
$7,000; Director Fees of $8,000; and officers and directors liability insurance
of $16,000. These decreases were offset by increases in legal fees of $85,000
primarily related to litigation concerning the Interpleader and other GFS
related matters.
Interest income decreased because of principal collections on various
notes receivable. Interest expense decreased because of principal payments
through the sale of the lots at The Fairways made to Beal Bank, which was paid
in full in November 1999.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1999, cash, cash equivalents and
marketable securities decreased by $347,000 from $3,948,000 at December 31, 1998
to $3,601,000 at December 31, 1999. The most significant sources of cash in 1999
were cash of $655,000 provided by operations, the collection of loans of
$109,000 made to others, the proceeds of $500,000 from disposition of assets.
The most significant uses of cash in 1999, consisted of payments of $320,000
made to former minority interest, payments of $1,060,000 on long-term debt and
payments of $49,000 on short-term debt.
The Company believes that its primary requirements for liquidity in the
coming 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 grain dryer financing; to fund
costs that may be incurred relating to the toxic clean-up at Sam Hamburg Farm;
to fund any tax payments that may be due to the California Franchise Tax Board;
and to fund general and administrative expenses. In addition, the Company will
be required to fund certain costs relating to a possible stockholder meeting.
The Company believes that sources of required liquidity will be cash
generated from the grain drying and storage facilities, anticipated lot sales at
The Fairways, collection of notes receivable resulting from sales at The
Fairways. Based on known commitments, the Company believes that the sources of
cash described and the cash available at December 31, 1999, will be adequate to
fund known liquidity requirements in 2000. However, if the sources of required
liquidity and the cash available at December 31, 1999 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.
<PAGE>12
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements of Dunes Hotels and Casinos
Inc. are located at pages F-1 to F-20 attached to the end of this annual report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The By-laws of the Company provide that the number of directors
constituting the entire board shall be seven. Directors are elected at each
annual meeting of shareholders to hold office until the next annual meeting and
until a successor has been elected and qualified. The Company has not held an
annual meeting of stockholders since December 19, 1984. However, see "Item 3.
Legal Proceedings - Federal Deposit Insurance Corporation et al. v. John B.
Anderson et al." regarding a possible stockholders meeting.
Pursuant to a Securities and Exchange Commission consent decree, the
Company has been required to have an Audit Committee of the Board of Directors
(Audit Committee) since 1978, a majority of which must be independent directors.
Identified herein are all directors and executive officers of the
Company. The information set forth as to each Director and Executive Officer has
been furnished by such person.
John B. Anderson, 57, is and has been since May 1984, a director of the
Company and until December 11, 1997, served as the Company's chairman of the
board and president. On March 10, 1992, BGC (an Anderson Entity) filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Nevada. On November 10, 1992,
the United States Bankruptcy Court confirmed and approved BGC's plan of
reorganization which became effective December 1, 1992. On December 20, 1994,
the Chapter 11 case was closed. On April 6, 1992, Maxim Development Co. (an
Anderson Entity) filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of California, which bankruptcy was subsequently dismissed on March 12, 1993. On
June 4, 1998, BGC filed a petition for relief under Chapter 7 of the Bankruptcy
Code in the United States Bankruptcy Court for the District of Nevada where it
is pending.
Brent L. Bowen, 71, is and has been a director, officer and member of
the audit committee of the Company and a director and officer of certain of the
Company's subsidiaries since December 1984. Mr. Bowen was employed by Anderson
Farms (an Anderson Entity) from 1981 to 1995 as a business and financial
analyst. Mr. Bowen was an employee of MRI from 1995 to 1998. Mr. Bowen has
experience in the hotel/casino, farming, real estate, home-building, rice mill,
commodities and banking industries.
Andrew Marincovich, 78, is and has been since August 1978, a
director and member of the Audit Committee of the Company. He is, and has been
since July 1983, Chairman of the Audit Committee. He is President and Executive
Officer of Marincovich & Company, a certified public accounting firm in Rancho
Palos Verdes, California. He is a Certified Public Accountant, licensed to
practice in California.
Donald J. O'Leary, 69, was elected to the Company's Board of Directors
and appointed to the Company's Audit Committee on May 19, 1994. Mr. O'Leary is
an attorney and is a member of the California, Virginia and District of Columbia
Bars. He is currently in private practice in California. Prior to entering
<PAGE>14
private practice, Mr. O'Leary was a trial attorney for the U.S. Department of
Justice and resident counsel for several large real estate companies.
Edward Pasquale, 56, is and has been a director and officer of the
Company since December 1984; and was a director and officer of certain of the
Company's subsidiaries from December 1984 until September 1988. On January 27,
1998, he was elected president and a director of certain of the Company's
subsidiaries. On December 11, 1997, Mr. Pasquale was elected president of the
Company. Mr. Pasquale has been a member of the Company's audit committee since
May 19, 1994. He is presently, and has been since September 1983, self-employed
as a financial consultant, with emphasis in litigation support services,
bankruptcy proceedings, and corporate reorganization. He is a Certified Public
Accountant, licensed to practice in the States of California and Nevada.
Wayne O. Pearson, 69, is and has been since August 1978, a director and
member of the Audit Committee of the Company. From March 1975 to May 1993, he
was a marketing analyst for R&R Advertising Agency, Las Vegas, Nevada; and since
January 1970, sole proprietor, Wayne Pearson Consulting, Las Vegas, Nevada, a
business and public opinion research company.
Erik J. Tallstrom, 53, is and has been a director of the Company since
December 1984. Prior to 1985, he was self-employed as a certified public
accountant, and was a financial consultant to Anderson. From November 1985 to
December, 1996 he was a business partner with Anderson in several real estate
developments, including Rancho Murieta in California. Currently, Mr. Tallstrom
acts as a consultant to various real estate companies and is a part owner of a
tile manufacturing company.
There is no family relationship between any directors or executive
officers of the Company. No director holds a directorship in any other company
with a class of securities registered pursuant to Section 12 of the Exchange Act
or subject to the requirements of Section 15(d) of such Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended.
Compliance with Section 16(a) of the Exchange Act. Based solely upon a
review of the Commission's Forms 3 and 4 received by the Company during the last
fiscal year and written representations solicited by the Company, no Officer,
Director, beneficial owner of more than 10% of any class of the Company's equity
securities or any other person subject to Section 16 of the Exchange Act failed
to file on a timely basis as disclosed in the above forms, reports required by
Section 16(a) of the Exchange Act during the year ended December 31, 1999.
<PAGE>15
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid to Edward
Pasquale, the Company's President since December 1997. No other executive
officer of the Company received compensation in excess of $100,000 for the 3
years ended December 31, 1999.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<S> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (i)
Other annual All other
Name and prin- compensation compensation
cipal position Year Salary($) Bonus($) ($) ($) (1)
- ------------------ ---- --------- -------- ---------------- ---------------
Edward Pasquale, 1999 -- -- -- $62,568
President
Edward Pasquale,
President 1998 -- -- -- $36,862
Edward Pasquale,
President 1997 -- -- -- $ 2,250 (2)
</TABLE>
(1) All other compensation to Edward Pasquale consists of the following:
Dec
1997 1998 1999
------ -------- -------
Directors fees $1,250 $15,000 $15,000
Audit Committee fees 1,000 12,000 12,000
Consulting fees - 9,862 35,568
------ ------- -------
$2,250 $36,862 $62,568
====== ======= =======
(2) Mr. Pasquale was elected as President in December 1997. Amount represents
one-twelfth of the all other compensation paid in 1997.
Compensation of Directors
The Company pays each director an annual fee of $15,000 payable
monthly. Directors fees due to Mr. Anderson are retained by the Company and
applied against amounts due the Company from entities owned or controlled by Mr.
Anderson. The assignment of Mr. Anderson's directors fees will remain in effect
until changed by the Board of Directors. In addition to their regular directors
fees and audit committee fees, board members and audit committee members are
paid up to $150 per hour for special projects considered to be outside the scope
of their duties as board and audit committee members. In addition, they receive
a travel fee of $300 for each meeting attended.
Messrs. Marincovich, Pearson, Bowen, Pasquale and O'Leary are all
members of the Company's Audit Committee. Audit Committee members receive
compensation of $1,000 per month plus a travel fee of $300 for each meeting
attended. For services rendered as Audit Committee members and consultants
<PAGE>16
during the fiscal year 1999, Messrs. Marincovich, Pearson, O'Leary, Bowen and
Pasquale were paid $15,750, $12,900, $16,050, $12,600, and $47,568 respectively.
The Company does not have a plan, pursuant to which cash or non-cash
compensation is paid or distributed, or is proposed to be paid or distributed in
the future. The Company does not have any pension or other benefit plans.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table shown below contains certain information as of March 17, 2000
with respect to (1) any person (including any "group" as that term is used in
Section 13(d)(3) of the Exchange Act), who is known to the Company to be
beneficial owner (as that term is defined in rules and regulations of the
Commission under the federal securities laws) of more than 5% of the Company's
common stock (2) each director and executive officer and (3) certain information
with respect to the Company's common stock beneficially owned (as that term is
defined in rules and regulations of the Commission under the federal security
laws) by all directors, and executive officers of the Company as a group.
<TABLE>
<S> <C> <C>
Name and Address of Amount and Nature of Percent of Common
Beneficial Owner (1) Beneficial Ownership (1) Stock Outstanding
- --------------------------------- ------------------------- -----------------
John B. Anderson(2) 3,000,000 58.9%
P.O. Box 1410
Davis, CA 95617
GFS Acquisition Company, Inc.(2) 3,853,422 75.6%
8441 E. 32nd Street N
Wichita, KS 67226
Brent L. Bowen(3) 2,000 *
15361 Pear Valley Lane
Auburn, CA 95603
Andrew P. Marincovich(3) 200 *
28924 S. Western Ave., Ste 206
Rancho Palos Verdes, CA 90275
All Directors and Officers
as a Group (7 Persons) 3,002,200 58.9%
</TABLE>
* Less than one percent
<PAGE>17
(1) In furnishing this information, the Company is relying upon the contents of
statements filed with the Commission pursuant to Section 13(d) and Section
13(g) of the Exchange Act.
(2) Anderson, through various entities owned or controlled by him, claims
beneficial ownership of, and shared voting and shared investment power with
respect to the reported shares (the Anderson Shares). These shares of
common stock are subject to litigation. See Item 3. Legal Proceedings.
Of the Anderson Shares, approximately 3,000,000 shares are pledged in favor
of GFS as successor to the FDIC. In its Schedule 13D dated January 13, 2000
GFS reports that it possesses "Shared Voting Power" and "Shared Dispositive
Power" with respect to 3,853,422 shares of the Company's common stock which
includes the Anderson Shares.
The Anderson Shares are the subject of litigation between Anderson, the
FDIC and GFS pending in the United States District Court for the District
of Nevada. The Anderson Shares are also the subject of the interpleader
action filed by the Company and now pending in the United States District
Court for the District of Nevada. See Item 3. Legal Proceedings for a
detailed discussion of the pending litigation.
(3) Messrs. Marincovich and Bowen claim beneficial ownership of, and sole
investment and sole voting powers with respect to the reported shares.
The following table sets forth, as of March 17, 2000, the number and percentage
of shares of the Company's Series B preferred stock which are beneficially
owned, directly or indirectly, by each shareholder who owns more than 5% of the
outstanding shares. No director or officer has any beneficial ownership in the
Series B preferred stock. Unless otherwise indicated, the person listed has sole
voting and investment power over the preferred stock beneficially owned.
Name and Address of Amount and Nature of Percent of Series B
Beneficial Owner Beneficial Ownership Stock Outstanding
- --------------------- --------------------- -------------------
USI Corp 1,811 18.84%
1040 Lawrence Court
Wichita, KS 67206
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 17, 2000, Anderson and Anderson Entities beneficially own
approximately 58.9% of the Company's common stock. Refer to the Company's report
on Form 8-K dated February 12, 1993 regarding Securities and Exchange Commission
Schedule 13D filed on behalf of Eureka wherein Eureka claims "sole voting" and
"sole dispositive power" with respect to 3,000,000 shares of the Company's
common stock and beneficial ownership of 4,367,643 shares of the Company's
common stock. In July 1993, the FDIC succeeded to the position of Eureka with
respect to the Debtor-Creditor Agreement (DCA). In June 1999 GFS acquired a
portion of the DCA including all of the collateral from the FDIC.
<PAGE>18
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report
a. Financial Statements
Dunes Hotels and Casinos Inc. and Subsidiaries Consolidated Financial
Statements:
PAGE
- ------
F-1 Independent Auditors' Report
F-2 Balance Sheet as December 31, 1999
F-4 Statements of Operations, two years ended December 31, 1999
F-6 Statements of shareholders' equity, two years ended December 31, 1999
F-7 Statements of cash flows, two years ended December 31, 1999
F-9 Notes to Consolidated Financial Statements, two years ended December 31,
1999
b. Exhibits.
1.00 Restated Certificate of Incorporation of Dunes Hotels and Casinos
Inc. dated June 17, 1982, is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385)
for the year ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit
3.01.
2.00 Certificate of Amendment of Restated Certificate of Incorporation
of Dunes Hotels and Casinos Inc. dated December 19, 1984, is
incorporated herein by reference to Dunes Hotels and Casinos Inc.
Annual Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1994, Part IV, Item 14(a)(3), Exhibit 3.02.
3.00 Revised By-laws of Dunes Hotels and Casinos Inc. dated February 3,
2000.
4.01 Specimen Certificate for the Common Stock of Dunes Hotels and
Casinos Inc., is incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 4.01.
<PAGE>19
4.02 Specimen Certificate for the Preferred Stock of Dunes Hotels and
Casinos Inc., is incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 4.02.
10.05 Promissory Note dated November 2, 1992, in the principal amount of
$2,650,000 made by Baby Grand Corp. and M&R Investment Company, Inc.;
Amended and Restated Pledge Agreement dated November 2, 1992, by and
between Baby Grand Corp. and M&R Investment Company, Inc.; and Release
of Assignment of Leases, Rents and Revenues dated November 2, 1992, by
M&R Investment Company, Inc., are incorporated herein by reference to
Dunes Hotels and Casinos Inc. Annual report on Form 10-K (file no.
1-43855) for the year ended December 31, 1992, Part IV, Item 14(a)(3),
Exhibit 10.05. Second Settlement and Forbearance Agreement dated
February 5, 1995, by and among Baby Grand Corp., M&R Investment
Company, Inc. and Bank One, Arizona, NA.; and Purchase Agreement
(including Option Agreement) dated February 9, 1995, by and between
Baby Grand Corp. and M&R Investment Company, Inc. Current Report on
Form 8-K (file no. 1-4385) dated February 9, 1995, Item 7, Exhibit
Nos. 10.01 and 10.02.
10.24 Reimbursement Agreement dated September 20, 1995, by and between
Rancho Murieta Community Services District and SHF Acquisition
Corporation regarding the amount of the reimbursement due SHF for
excess work done at The Fairways at Rancho Murieta that will benefit
other properties within the boundaries of Rancho Murieta is
incorporated herein by reference to Dunes Hotels and Casinos Inc.
Annual Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.24.
10.40 Purchase and Option Agreement by and between SHF Acquisition
Corporation and Murieta Investors, LLC, dated October 7, 1996. This
Agreement is incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1996, Part IV, Item 14 (a) (3), Exhibit
10.40.Amendment to Purchase and Option Agreement by and between SHF
Acquisition Corporation and Murieta Investors, LLC is incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual Report on
Form 10-KSB (file no. 1-4385) for the year ended December 31, 1998,
Part IV, Item 13 (b), Exhibit 10.51.
10.41 Master Equipment Lease dated April 3, 1997, between ICON
Financial Corp. and SHF Acquisition Corporation is incorporated herein
by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, Part II, Item 6, Exhibit
10.02.
<PAGE>20
10.52 Agreement to purchase certain real property located in Solano
County, California (the Option Property) between Los Rios Farms, Inc.
and M&R Investment Company, Inc. Dated December 8, 1998 is
incorporated herein by reference to Dunes Hotels and Casinos Inc.
Annual Report on Form 10-KSB (file no. 1- 4385) for the year ended
December 31, 1998, Part IV, Item 13 (b), Exhibit 10.52.
10.53 Agreement to provide storage and drying between Adams Grain Co.
and SHF Acquisition Corporationis dated May 7, 1999.
10.54 Form of Indemnity Agreement with Directors
21.01 Subsidiaries of Registrant.
27.01 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. DUNES HOTELS AND CASINOS INC.
By /s/ EDWARD PASQUALE By /s/ MARVIN P. JOHNSON
--------------- ------------------
Edward Pasquale Marvin P. Johnson
President Principal Financial
(Principal Executive and Accounting Officer
Officer)
Dated March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
- -------------------------- ----------- ---------------
/s/ EDWARD PASQUALE President March 24, 2000
----------------
Edward Pasquale
John B. Anderson Director
/s/ BRENT L. BOWEN
----------------
Brent L. Bowen Director March 24, 2000
/s/ ANDREW P. MARINCOVICH
----------------------
Andrew P. Marincovich Director March 24, 2000
/s/ DONALD J. O'LEARY
-------------------
Donald J. O'Leary Director March 24, 2000
/s/ EDWARD PASQUALE
------------------
Edward Pasquale Director March 24, 2000
/s/ WAYNE O. PEARSON
-------------------
Wayne O. Pearson Director March 24, 2000
/s/ ERIK J. TALLSTROM
------------------
Erik J. Tallstrom Director March 24, 2000
<PAGE>F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Dunes Hotels and Casinos Inc.
Sacramento, California
We have audited the accompanying consolidated balance sheet of Dunes Hotels and
Casinos Inc. and Subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dunes
Hotels and Casinos Inc. and Subsidiaries as of December 31, 1999, and the
consolidated results of their operations and cash flows for each of the two
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
In connection with the matters discussed in Notes 11(a) and 14, there has been a
change in voting control of the Company's stock. The effect of such a change on
the Company's future operations or other activities cannot be assessed at this
time.
/s/ Piercy, Bowler, Taylor & Kern
Las Vegas, Nevada
January 28, 2000, except for Note 14 as to which the date is March 23, 2000.
<PAGE>F-2
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
(Dollars in thousands)
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents $ 3,323
Marketable securities 278
Receivables
Trade 3
Related party, less allowance 37
Real estate sales 363
Inventory of real estate held for sale 3,460
Prepaid expenses 111
Property and equipment, less accumulated depreciation
and amortization of $730 3,118
Other assets 3
---------------
$ 10,696
===============
</TABLE>
<PAGE>F-3
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1999
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS EQUITY
<TABLE>
<S> <C>
Accounts payable $ 52
Accrued expenses 171
Income taxes 307
Long-term debt and capital lease obligations 815
Accrued preferred stock dividends in arrears 1,317
--------------
2,662
--------------
Shareholders' equity
Preferred stock - authorized 10,750,000 shares ($.50 par);
issued 10,512 shares Series B $7.50 cumulative preferred
stock, outstanding 9,610 shares, aggregate liquidation
value $2,517, including dividends in arrears 5
Common stock - authorized 25,000,000 shares ($.50 par);
issued 7,799,780 shares, outstanding 6,375,096 3,900
shares
Capital in excess of par 25,881
Deficit (19,752)
--------------
10,034
Treasury stock, at cost; Preferred - Series B, 902 shares
Common 1,424,684 shares (2,000)
--------------
8,034
--------------
$ 10,696
==============
</TABLE>
<PAGE>F-4
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except per share)
<TABLE>
<S> <C> <C>
1999 1998
---------------- -----------------
Revenues
Sales of real estate $ 2,108 $ 571
Rental income, agricultural properties 51 57
Drying and storage revenues 168 370
Miscellaneous income (expense), net 67 35
---------------- -----------------
2,394 1,033
---------------- -----------------
Cost and expenses
Cost of real estate sold 1,120 552
Cost and expenses of rental income 4 4
Cost of drying and storage revenues 292 413
Selling, administrative and general
Corporate 685 763
Real estate operations 225 193
Bad debts 151
Depreciation 132 129
Provision for loss on real estate investment 100
---------------- -----------------
2,458 2,305
---------------- -----------------
Loss before other credits (charges) and income taxes (64) (1,272)
---------------- -----------------
Other credits (charges):
Interest and dividend income 248 260
Interest expense (178) (184)
Loss on marketable securities, net (90) (20)
---------------- -----------------
(20) 56
---------------- -----------------
</TABLE>
<PAGE>F-5
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except per share)
<TABLE>
<S> <C> <C>
1999 1998
-------------- --------------
Loss before income taxes (84) (1,216)
Income taxes 7 11
-------------- --------------
Net loss $ (91) $ (1,227)
============== ==============
Weighted average number of shares outstanding 6,375,096 6,375,096
============== ==============
Loss per common share $ (0.01) $ (0.19)
============== ==============
</TABLE>
See notes to consolidated financial statements
<PAGE>F-6
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred stock Common stock Preferred Common
issued (1) issued Capital treasury stock treasury stock Total
------------------ ------------------ in -------------- ---------------- share-
Par Par excess holders'
Shares value Shares value of par Deficit Shares Cost Shares Cost equity
-------- ------- --------- ------ -------- --------- ------- ----- --------- ------- ----------
Balance, January 1, 1998 10,512 $5 7,799,780 $3,900 $25,881 ($18,290) 902 ($70) 1,424,684 ($1,930) $9,496
Accrued dividends,
preferred stock (72) (72)
Net loss (1,227) (1,227)
-------- ------- --------- ------ -------- --------- ------- ----- --------- ------- ----------
Balance, December 31, 1998 10,512 5 7,799,780 3,900 25,881 (19,589) 902 (70) 1,424,684 (1,930) 8,197
Accrued dividends,
preferred stock (72) (72)
Net loss (91) (91)
-------- ------- --------- ------ -------- --------- ------- ----- --------- ------- ----------
Balance, December 31, 1999 10,512 $5 7,799,780 $3,900 $25,881 ($19,752) 902 ($70) 1,424,684 ($1,930) $8,034
======== ======== ========== ======= ========= ========= ======= ===== ========= ======= ==========
</TABLE>
(1) Series B, $7.50 dividend, voting and non-convertible (liquidation value,
$125 per share)
See notes to consolidated financial statements.
<PAGE>F-7
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in thousands)
<TABLE>
<S> <C> <C>
1999 1998
-------------- ------------
Cash flows from operating activities:
Net loss $ (91) $ (1,227)
Adjustments to reconcile net loss to net cash
provided by (used in)operating activities:
Depreciation 132 129
Loss on marketable securities 90 20
Provision for losses on receivables 76
(Gain) loss on disposition of assets 11 (8)
Provision for loss on real estate investment 100
(Increase) decrease in operating assets:
Trade receivables 6 (6)
Inventory, real estate held for sale 490 409
Prepaid expenses 4 7
Other 121
Increase (decrease) in operating liabilities:
Accounts payable 27 3
Accrued expenses (14) (24)
Deferred credits and other (178)
Former minority interest (320)
-------------- ------------
Net cash provided by (used in) operating activities 335 (578)
-------------- ------------
Cash flows from investing activities:
Investment in marketable securities (250)
Proceeds from sale of marketable securities 460 75
Real estate loans (70) (145)
Payments received on receivables 109 224
Proceeds from disposition of assets 500 13
Purchase of property and equipment (22) (110)
-------------- ------------
Net cash provided by (used in) investing activities 977 (193)
-------------- ------------
</TABLE>
<PAGE>F-8
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999 AND 1998
(Dollars in thousands)
<TABLE>
<S> <C> <C>
1999 1998
------------------- -------------------
Cash flows from financing activities:
Proceeds from short-term debt $ $ 90
Payments on short-term debt (49) (101)
Payments on long-term debt (1,060) (397)
------------------- -------------------
Net cash used in financing activities (1,109) (408)
------------------- -------------------
Increase (decrease) in cash and cash equivalents 203 (1,179)
Cash and cash equivalents, beginning of year 3,120 4,299
------------------- -------------------
Cash and cash equivalents, end of year $ 3,323 $ 3,120
=================== ===================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 7 11
=================== ===================
Interest $ 189 $ 204
=================== ===================
Supplemental schedules of non-cash investing and
financing activities:
Dividends accrued but unpaid $ 72 $ 72
=================== ===================
</TABLE>
See notes to consolidated financial statements
<PAGE>F-9
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1. Summary of significant accounting policies:
Consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Continental California
Corporation (Continental), 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), after
elimination of all material intercompany balances and transactions.
Description of business:
The Company operates in two principal business segments: real estate
(development and sale of residential lots and rental of agricultural land)
and agricultural (grain drying and storage).
The Company's real estate segment sells completed residential lots
primarily to builders of custom homes and to the general public in and
around the greater Sacramento, California, area. The agricultural
properties are leased to farmers in the area where the agricultural
properties are located. Accordingly, the Company's operations in this
segment could be affected by material adverse changes in economic
conditions in the area.
The agricultural segment dries and stores harvested grain over a two-month
period (approximately September 15 to November 15) and stores, for a fee,
the dried grain until it is removed by the owner. The Company stores grain
principally for one customer under a contract which expires in May 2002.
This contract accounts for approximately 50% of the storage capacity and
98% of the storage revenue. The Company does not have any contracts for
drying grain but is seeking such contracts in 2000. If the Company were to
lose its storage customer, fail to obtain drying contracts or crop yields
are low, it would have a material adverse affect on the Company's
agricultural segment.
Property and equipment and depreciation and amortization:
Property and equipment are stated at cost. Depreciation and amortization
are provided by the straight-line method over the estimated useful lives of
the assets.
Loss per share:
Loss percommon share has been computed using the weighted average number
of shares outstanding during the year: 6,375,096 and 6,375,096 for the
years ended December 31, 1999 and 1998, respectively. Dividends on
nonconvertible preferred stock - Series B have been deducted from income or
added to the loss applicable to common shares. (See Note 14).
<PAGE>F-10
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Cash equivalents:
The Company considers all highly liquid cash investments purchased with an
original maturity of three months or less to be cash equivalents.
Marketable securities:
The Company's investments in marketable securities are accounted for as
trading securities. Accordingly, gains or losses related to the Company's
investments in marketable securities, which have not been material, are
included in operations.
Environmental expenditures:
Expenditures that relate to current operations are expensed or capitalized
as appropriate. Expenditures that relate to an existing condition caused by
past operations and which do not contribute to future revenues are
expensed. Liabilities are recorded when remedial efforts are probable and
the costs can be reasonably estimated.
Inventory of real estate held for development and sale:
Realestate held for development and sale is stated at the lower of cost or
net realizable value. Costs include primarily acquisition costs and
improvements costs. Costs are allocated to individual properties using the
method appropriate in the circumstances. For purposes of the statement of
cash flows, sales and purchases of real estate held for development and
sale are classified as operating activities, because the real estate is, in
substance, inventory.
Use of estimates:
Timely preparation of financial statements in accordance with generally
accepted accounting principles requires management estimates, some of which
may require revision in future periods. (See Note 11(b) & (c)).
2. Fair value of financial instruments:
The following methods and assumptions were used by the Company in
estimating its fair value and disclosures for financial instruments.
Cash, cash equivalents and marketable securities: 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 December 31, 1999.
<PAGE>F-11
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Notes receivable: These notes are collateralized by the real property sold.
Management believes the fair value of real estate notes receivable
approximates their carrying value based on their outstanding balances (net
of allowances), their respective interest rates and the estimated fair
value, based on comparable sales in the area, of the real property.
In the event these notes were not collected, and the Company were unable to
recover or sell the collateral property the maximum losses sustained would
be equal to the aggregate value of the notes.
Long-term debt and capital lease obligation: The fair value of the capital
lease obligation is based on current rates at which the Company could
borrow funds.
The fair values of the Company's significant financial instruments at
December 31, 1999 approximate their carrying amounts.
3. Related party transactions:
(a) John B. Anderson (Anderson), the Company's controlling stockholder and
former Chairman of the Board of Directors of the Company and through
ownership of Cedar Development Co., was the sole shareholder and
President of Baby Grand Corp. (BGC) and they assert that entities
owned or controlled by him (Anderson Entities) owned approximately
67.2% of the Company's common stock as of January 29, 2000. See Note
11(a) regarding litigation between Anderson and the Federal Deposit
Insurance Corporation (the FDIC) and Note 14 regarding subsequent
events. Each entity related or controlled by Anderson will hereinafter
be identified as an Anderson Entity. As discussed, Anderson's
ownership in the Anderson Entities is currently subject to Litigation.
In June 1999 the FDIC sold a portion of its loan, together with the
underlying security and a part of the judgement against Anderson
Parties to General Financial Services, Inc. (GFS).
(1) In November 1997, the Company entered into a Loan Purchase Agreement
with Anderson, as Trustee of the John J. Anderson Family Trust
(Trust). The Loan Purchase Agreement provided for the sale of a note
issued by BGC (BGC Note) payable to MRI for $320,000 and the Company
reported a gain of approximately $162,500 in 1997. On March 31, 1998,
the Nevada District Court ordered that the Loan Purchase Agreement be
rescinded and all parties return any of the assets transferred. As a
result, the Company recorded a loss of approximately $162,500 in 1998.
<PAGE>F-12
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
4. Inventory of real estate held for development and sale (Dollars in
thousands):
The Fairways (a) $ 3,354
Sam Hamburg Farm (b) 146
Other 40
----------
$ 3,460
==========
(a) The Company, through SHF, developed 50 acres of residential land
located at Rancho Murieta, California as a residential planned unit
development known as "The Fairways". Rancho Murieta is a 3,500- acre
master planned unit development located approximately 25 miles from
Sacramento, California. The land is encumbered by bonds in the
approximate amount of $99,000. Rancho Murieta consists primarily of
single family homes, town houses, commercial property and two 18-hole
championship golf courses, including country club facilities. The
Fairways, located within the boundaries of one of the golf courses
located at Rancho Murieta, was subdivided into 110 single-family
estate lots. As of January 29, 2000, 38 lots remain unsold.
In connection with its development of The Fairways, SHF was required
to construct certain improvements that benefited not only The
Fairways, but other properties that lay outside of the boundaries of
The Fairways (the Benefited Properties). The net cost of the
improvements to the Benefited Properties was $1,140,900. SHF expects
to be reimbursed for these costs as the Benefited Properties are
developed. SHF's right to reimbursement will expire in September 2015
and the Company is unable to predict what amount, if any, will be
received as reimbursement. The rights to reimbursement are personal to
SHF and do not run with The Fairway's property unless assigned by SHF.
In 1996, the Company sold 6 lots to Murieta Investors, LLC (MI) for
$40,000 per lot. In addition the Company is entitled to a success
payment based on the gross sales price of the residential dwelling
(Success Payment). To date MI has constructed 4 dwelling units and has
not started any construction on the remaining 2 lots. During 1999, all
4 dwellings were sold and the Company received net Success Payments in
the amount of $174,980.
(b) Sam Hamburg Farm consists of approximately 150 acres of agricultural
property. Of the 150 acres, 40 acres contain the air strip and shop
areas which are the focus of continuing attempts at chemical clean-up.
See Note 11 (b) for a detailed discussion concerning the removal of
the toxic waste. The remaining 110 acres are leased to one tenant at
an annual aggregate rental of approximately $24,000.
<PAGE>F-13
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
5. Property and equipment and accumulated depreciation and amortization
(Dollars in thousands):
Land and land improvements $ 159
Building and improvements 3,591
Machinery and equipment 98
---------
3,848
Less accumulated depreciation
and amortization (730)
---------
$ 3,118
=========
6. Long-term notes receivable (Dollars in thousands):
Related Party
BGC, including interest $ 1,936
Less allowance 1,899
---------
37
Real estate
Various real estate notes, collateralized
by deeds of trust with interest ranging
from 8% to 10% 363
---------
$ 400
=========
7. Real estate investment:
The Company had an option (the Solano County Option) to acquire
approximately 1,690 acres of farm land located in Solano County,
California. The Company acquired the Solano County Option as part of a
settlement agreement between BGC, an Anderson Entity, a financial
institution and MRI. The purchase price of the Solano County Option
was $1,043,902. The Solano County Option provided that the Company
would purchase the 1,690 acres at a price of $3,000,000. The Company
would receive a credit of $1,000,000 against the Option Purchase
Price. The option expires on May 1, 2003.
In March 1999, the Company sold its rights under the option to the
grantor of the option for $500,000 in cash and a $33,333 note.
8. Long-term debt and capital lease obligations:
Long-term debt and capital lease obligations at December 31, 1999,
consists of the following (Dollars in thousands):
Capital lease obligation (a) $ 802
Other (b) 13
---------
$ 815
=========
<PAGE>F-14
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Maturities of long-term debt are as follows:
(Dollars in thousands)
-----------------------
Capital
Long term debt Lease Obligation Total
-------------- ----------------- ------
2000 $ 3 $223 $226
2001 3 250 253
2002 3 279 282
2003 4 50 54
-------------- ----------------- ------
$13 $802 $815
============== ================= ======
(a) The Company has a financing lease agreement for its drying facility
for five years commencing March 1998 with a monthly rental of $25,121.
The Company can buy the drying facility for $1 at the end of the
lease. The lease is collateralized by the drying facility, a deed of
trust on certain parcels of property, including the parcel on which
the storage facility is located and the guarantees of MRI and the
Company. Before the guarantors are liable for any deficiency, the
leasing company must first proceed against the drying facility and the
additional collateral.
(b) Other long-term debt consists of an unsecured note payable in annual
installments of $5,000, including interest.
9. Preferred Stock:
The Company is authorized to issue 10,750,000 share of $0.50 par value
preferred shares. The Company gave authority to its Board of Directors
to issue such preferred shares in one or more series, and to fix the
number of shares in each series, and all designations, relative rights
preferences and limitations of the shares issued in each series. As of
December 31, 1999, the Board of Directors has not exercised the
authority granted, and no such preferred shares have been issued
except for the 10,512 shares of Series B, $7.50 cumulative preferred
of which 902 shares are held as treasury stock. 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 as of
December 31, 1999, in the amount of approximately $1,317,000.
10. Due to former minority interest:
The due to former minority interest consists of a 50% co-owner's share
of the accumulated profits from the operations of the White Ranch,
which was sold in 1997. In December 1999, the minority interest was
paid.
<PAGE>F-15
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
11. Contingencies:
(a) Until December 11, 1997, Anderson was the President and Chairman of
the Board of the Company and Chairman of the Board of various
subsidiaries of the Company. Prior to the events described herein,
Anderson asserts, through his ownership of Cedar, the parent of Baby
Grand Corp. (BGC) and JBA, owned approximately 4,280,756 shares or
67.2% of the Company's outstanding common stock (the Common Stock). Of
those shares (i) 3,000,000 shares (the FDIC Pledged Shares) have been
pledged as collateral in favor of entities of which General Financial
Services, Inc. (GFS) since June 1999 is a successor and/or assign, and
(ii) 1,280,756 shares (the BGC Pledged Shares) had been pledged as
collateral in favor of a subsidiary of the Company.
In June 1999, the FDIC sold a portion of its loan, together with the
underlying security and a part of the judgement against Anderson
parties to GFS. Included in the sale was the pledged FDIC shares.
GFS attempted to exercise its rights under the judgement and demanded
that the Company transfer ownership of the FDIC Pledged Shares to
itself but Mr. Anderson objected, claiming that there was no change in
ownership of the shares. The Company in turn filed on July 6, 1999, a
Complaint in Interpleader in Superior Court of California. The
jurisdiction of the action was removed and transferred on September
20, 1999, to the United Stated District Court for the District of
Nevada.
At December 31, 1999, the Company has a net operating loss carry
forward (NOL) of approximately $53,246,000. The Board of Directors
believes that this NOL represents a valuable asset to the Company
which may or may not be utilized in future years.
See Note 14 for a discussion of subsequent developments with regard to
these matters.
(b) SHF was advised in 1991 of the possible contamination of 40 acres at
Sam Hamburg Farm of approximately 5,000 cubic yards of soil. 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 toxics-laden soil.
Because of ongoing testing, the State has not imposed a disposal date
upon the Company. Cost of disposal is estimated at $100 per cubic yard
or approximately $500,000. However, if on-site remediation can be
achieved, it is estimated the cost will be up to $170,000. The Company
is unable to predict when the ongoing testing will be complete or what
the outcome of these tests will be. Accordingly, the estimates could
materially change as the testing and remediation work continues.
<PAGE>F-16
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(c) The Company had received an assessment from the State of California
Franchise Tax Board (FTB) wherein the FTB stated that one of the
Company's subsidiaries owed California franchise tax of approximately
$316,000, plus approximately $350,000 in penalties and interest
resulting from the foreclosure sale of certain real property owne by
the subsidiary. The Company appealed this matter to the California
State Board of Equalization (SBE) which ruled in favor of the Company
and in October 1999 the FTB withdrew it's assessment.
The Company has been notified that the FTB is examining its 1995 tax
return. The FTB is questioning the Company's reporting of
approximately $7,700,000 of income as being exempt from the 9.3%
California tax. The Company disagrees with the FTB and plans to oppose
any assessment of additional taxes or interest. Therefore, no
provision for additional taxes or interest has been made.
12. Taxes:
The Company and its subsidiaries file a consolidated federal income
tax return. Deferred tax assets (liabilities) are comprised of the
following at December 31, 1999 (Dollars in thousands):
<TABLE>
<S> <C>
Marketable securities valuation allowance $ 26
Real estate allowances 480
Loss carryforwards 18,078
Other 2
----------
Gross deferred tax assets 18,586
Deferred tax asset valuation allowance (18,586)
----------
Net deferred tax assets $ 0
==========
A reconciliation of the changes in deferred tax assets valuation
allowance is as follows:
(Dollars in thousands);
Valuation allowance for unrealized loss on marketable
securities $ 28
Current year loss carryforwards 220
Valuation allowance for other investments (170)
--------- -
Change in deferred tax asset valuation allowance 78
Deferred tax assets valuation allowance, beginning of year 18,508
----------
Deferred tax assets valuation allowance, end of year $ 18,586
==========
</TABLE>
<PAGE>F-17
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
A reconciliation of the federal statutory tax rate to the effective tax rate for
1999 and 1998, is as follows:
Percentage of pre-tax income
1999 1998
---------- ---------
Federal statutory rate (34.00%) (34.00%)
Debt discharges and other (1.08%)
Non-deductible items:
Valuation adjustments 33.94% 34.65%
Other .06% .43%
---------- ---------
0.00% 0.00%
========== =========
The Company has the following net operating loss carryovers available for income
tax reporting purposes:
Year of expiration (Dollars in thousands)
------------------- ----------------------
2000 2,386
2001 9,890
2003 20,156
2004 1,889
2005 1,891
2006 3,542
2007 803
2008 2,408
2009 595
2010 3,298
2011 1,791
2012 2,767
2018 1,241
2019 589
As more fully described in Note 3(a), 11(a) and 14, a change in
ownership of the Company may have or could take place. If such a
change in ownership were to take place, it would materially reduce the
amount of income that could be offset by net operating losses each
year; and if there is no continuity of business after an ownership
change, the net operating losses could be eliminated. Net operating
losses, to the extent not used in any given taxable year, may be
carried forward and added to the limitation of subsequent years.
<PAGE>F-18
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
13. Segment information:
As discussed in Note 1, the Company operates in two principal business
segments: real estate investments (development and sale of residential
lots and rental of agricultural land), and agricultural (drying and
storing grain).
Following is a summary of segment information for 1999 and 1998:
<TABLE>
<S> <C> <C>
1999 1998
-------- ----------
Net revenues from unaffiliated customers:
Real estate:
Sale of real estate $ 728 $ 571
Land rent 51 57
Grain drying and storage revenue 168 370
-------- ----------
$ 947 $ 998
======== ==========
Income (loss) from operations:
Real estate $ 14 $ (122)
Grain drying and storage (250) (165)
-------- ----------
236 287
Corporate operating income 105 (1,020)
Other income (expense) 47 91
Income taxes (7) (11)
Net loss, as reported in the
accompanying consolidated statements of operations ($91) ($1,227)
======== ==========
1999
--------
Identifiable assets
Real estate $ 3,921
Grain drying and storage 3,159
General corporate assets 3,616
--------
Total assets, as reported in the accompanying
consolidated balance sheet $ 10,696
=========
</TABLE>
<PAGE>F-19
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
14. Subsequent events:
On January 5, 2000, The Nevada District Court ordered that the Company hold
a shareholders'meeting on or before April 14, 2000, and that GFS was
entitled to vote the FDIC Pledged Shares at that meeting. In addition to
its interest in the FDIC Pledged Shares, GFS has reported that it owns
853,422 shares of the Company's common stock acquired in the open market
during 1999 and January 2000, or approximately a total of 60% of the
outstanding stock.
Since 1998, the BGC Pledged Shares have been under the jurisdiction of the
US Bankruptcy Court in Las Vegas, NV, since BGC filed a petition under
Chapter 7. On February 22, 2000, the Company was granted its motion in
Bankruptcy Court to allow it to foreclose on the BGC Pledged Shares. On
March 3, 2000, the Company foreclosed on the BGC Pledged Shares and placed
them in the treasury. GFS is now able to vote 75.6% of the outstanding
stock (GFS Shares).
Because GFS is able to exercise voting rights with respect to the GFS
Shares, GFS could exercise substantial influence with respect to the
election of the entire Board of Directors of the Company and all matters
submitted to stockholders. Therefore, GFS is able to significantly control
the direction and future operations of the Company, including decisions
regarding future financing (which could involve the issuance of additional
Common Stock or other securities) and decisions regarding the day-to-day
operations of the Company's real estate and agricultural operations. If it
is determined that GFS owns the FDIC Pledged Shares, it would then own
75.6% of the Company and GFS would have ownership, rather than only
significantly control, the election of the entire Board of Directors of the
Company and all other matters submitted to stockholders.
If there has been an ownership change for purposes of Section 382 of the
Internal Revenue Code of 1986, as amended (the Code), then there is a
limitation on the amount of income that can be offset by NOL carryovers. In
general, an ownership change occurs when a majority shareholder of a loss
corporation increases their ownership by more than 50 percentage points,
which is tested over a three-year period. Regardless of what action, if
any, GFS should determine to take with respect to the Company, if the
District Court of Nevada finds in favor of GFS with respect to the transfer
of the pledged shares, an ownership change of more than 50 percentage
points will have occurred at the date the shares were actually acquired by
GFS. When GFS purchased a portion of the FDIC loan in June 1999, there
could be deemed a change of ownership under the Code if it is determined
that this action is inconsistent with a typical lending transaction. It is
possible that the Internal Revenue Service could take the position that the
events within a three-year period, taken together with the events described
above, have already resulted in a change in ownership under the Code. If
there is a change of ownership under the Code, the value of the Company's
NOL would be materially adversely reduced or eliminated. There can be no
assurance that a change of ownership will not occur or has already
occurred. In various court pleadings, GFS has asserted that it owns the
<PAGE>F-20
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
FDIC Pledged Shares. Mr. Anderson disagrees with this assertion and the
decision in the interpleader action will determine ownership.
On January 28, 2000, the Company entered into a non-binding letter of
intent with USI whereby the Company would acquire not less than 3,000
shares of Series B Preferred Stock of the Company valued at $275 per share,
based upon the liquidation value and accrued but unpaid dividends on such
Series B Preferred Stock, in exchange for shares of the Company's Common
Stock valued at $.70 per share. The entering into the transaction was
subject to a number of conditions, including entering into a definitive
stock purchase agreement, an independent third party appraiser confirming
the value of the Series B Preferred Stock and Common Stock and the overall
transaction, and determination by the United States District Court,
District of Nevada (No. CV-5-99-1470-PMP (RJJ)), that the proposed stock
purchase agreement was not subject to the Court's order of January 6, 2000.
Although the Company and USI had entered into subsequent discussions
regarding the acquisition of additional Common Stock, no definitive
agreement has been entered into.
On March 23, 2000, GFS and GFS Acquisition served the Company with an
emergency motion for temporary restraining order and amendment of
preliminary injunction in the United States District Court for the District
of Nevada (Case No. CV-S-99-1470-PMP-(RJJ) seeking the Company from (1)
issuing new shares of common or preferred stock; (2) continuing or
completing a purported transaction with USI; (3) doing anything that will
hinder or effect GFS' majority voting control of the Company; and (4)
changing the status quo concerning ownership of the Company as of January
6, 2000, except as to transactions previously approved by GFS. The
litigation relates to a purported transaction with USI Corp. The hearing
for the emergency motion has been scheduled for March 28, 2000, and the
Company has not yet responded to the motion.
<PAGE>i
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Exhibit Page
No. Description No.
- ------ ----------------------------------------------------------------------- ------
3.01 Revised By-Laws of Dunes Hotels and Casinos Inc.
10.53 Agreement to provide storage and drying between Adams Grains Co. and SHF
Acquisition Corp.
10.54 Form of Indemnity Agreement with Directors
10.55 Letter of Intent
21.01 Subsidiaries of Registrant
27.01 Financial Data Schedule
</TABLE>
BYLAWS OF
DUNES HOTELS AND CASINOS INC.
<PAGE>
<TABLE>
<S> <C>
BYLAWS OF DUNES HOTELS AND CASINOS INC.
ARTICLE I - SHAREHOLDERS.............................................................1
1. ANNUAL MEETINGS........................................................1
2. SPECIAL MEETINGS.......................................................1
3. PLACE OF MEETINGS......................................................1
4. NOTICE OF MEETINGS.....................................................1
5. RECORD DATE............................................................2
6. MEANING OF CERTAIN TERMS...............................................2
7. QUORUM.................................................................2
8. NOTICE OF SHAREHOLDER BUSINESS AT ANNUAL MEETING.......................3
9. SHAREHOLDER LIST AND CHALLENGE.........................................3
10. PROXY REPRESENTATION...................................................4
11. INSPECTORS.............................................................4
12. SHAREHOLDER ACTION WITHOUT MEETINGS....................................4
ARTICLE II - BOARD OF DIRECTORS......................................................5
1. NUMBER AND QUALIFICATIONS..............................................5
2. ELECTION AND TERM......................................................5
3. NOMINATION AND NOTIFICATION OF NOMINATION..............................5
4. REGULAR MEETINGS.......................................................6
5. SPECIAL MEETINGS.......................................................6
6. PLACE OF MEETING.......................................................6
7. QUORUM AND VOTE........................................................6
8. VACANCIES..............................................................6
9. REMOVAL OF DIRECTORS...................................................7
10. FEES AND COMPENSATION..................................................7
11. WRITTEN ACTION.........................................................7
12. COMMITTEES.............................................................7
ARTICLE III - OFFICERS...............................................................7
1. TITLES AND GENERAL.....................................................7
2. CHAIRMAN OF THE BOARD..................................................8
3. PRESIDENT..............................................................8
4. VICE PRESIDENTS........................................................8
5. TREASURE...............................................................8
6. SECRETARY..............................................................8
7. SALARIES...............................................................9
ARTICLE IV - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS.......................9
1. GENERAL................................................................9
2. OTHER PERSONS.........................................................10
3. ADVANCEMENT OF FUNDS..................................................10
<PAGE>
4. SERVICE OF ANOTHER CORPORATION........................................10
5. APPLICABLE LAW........................................................10
6. CONTRACTUAL RIGHTS....................................................10
7. REMEDIES..............................................................11
8. OTHER.................................................................11
ARTICLE V - SEAL....................................................................11
1. CORPORATE SEAL........................................................11
ARTICLE VI - SHARES OF STOCK........................................................11
1. SHARE CERTIFICATES....................................................11
2. TRANSFER OF SHARE.....................................................11
3. LOST OR DESTROYED CERTIFICATE.........................................12
ARTICLE VII - MISCELLANEOUS.........................................................12
1. CHECKS................................................................12
2. AMENDMENT OF BYLAWS...................................................12
3. FISCAL YEAR...........................................................12
</TABLE>
<PAGE>
ARTICLE I - SHAREHOLDERS
1. ANNUAL MEETINGS. The annual meetings of stockholders shall be held on
such date or time as may be determined from time to time by the Board of
Directors (the "Board"). At such meetings, directors shall be elected, reports
of the affairs of the Corporation shall be considered, and any other business
may be transacted which is within the powers of the stockholders.
2. SPECIAL MEETINGS. Special meetings of the shareholders, except those
regulated otherwise by statute, may be called at any time by the Board, or by
any person or committee expressly so authorized by the Board and by no other
person or persons.
3. PLACE OF MEETINGS. Meetings of shareholders shall be held at such
place within or without the State of New York as shall be determined from time
to time by the Board or, in the case of special meetings, by such person or
persons as may be authorized to call a meeting. The place in which each meeting
is to be held shall be specified in the notice of such meeting.
4. NOTICE OF MEETINGS. Written notice of all meetings shall be give,
stating the place, date and hour of the meeting, and unless this is an annual
meeting, indicating that it is being issued by or at the direction of the person
or persons calling the meeting. The notice of an annual meeting shall state that
the meeting is called for the election of directors and for the transaction of
other business which may properly come before the meeting, and shall (if any
other action which could be taken at a special meeting is to be taken at such
annual meeting) state the purpose or purposes. Notice of a special meeting shall
in all instances state the purpose or purposes for which the meeting is called;
and at any such meeting only such business may be transacted which is related to
the purpose or purposes set forth in the notice. If the directors shall adopt,
amend, or repeal a Bylaw regulating an impending election of directors, the
notice of the next meeting for election of directors shall contain the
statements prescribed by Section 601(b) of the Business Corporation Law. If, at
any meeting, any action is proposed to be taken which would, if taken, entitle
shareholders fulfilling the requirements of Section 623 of the Business
Corporation Law to receive payment for their shares pursuant to statutory
provisions the notice must include a statement of that purpose and to that
effect and shall be accompanied by a copy of Section 623 of the Business
Corporation Law or an outline of its material terms. A copy of the notice of any
meeting shall be given, personally or by first class mail, not fewer than ten
days and not more than forty days before the date of the meeting, unless the
lapse of the prescribed period of time shall have been waived, to each
shareholder at his record address or at such other address which he may have
furnished by request in writing to the Secretary of the corporation. In lieu of
giving a copy of such notice personally or by first class mail as aforesaid, a
copy of such notice may be given by third class mail not fewer than twenty-four
nor more than forty days before the date of the meeting. Notice by mail shall be
deemed to be given when deposited in the United States mail, postage prepaid,
directed to the shareholder at his address as it appears in the record of
<PAGE>
shareholders unless he shall have filed with the Secretary of the corporation a
written request that notices intended for him shall be mailed to some other
address, in which case it shall be directed to him at such other address. If a
meeting is adjourned to another time or place, and, if any announcement of the
adjourned time or place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the directors, after adjournment,
fix a new record date for the adjourned meeting.
5. RECORD DATE. For the purpose of determining the shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal without a
meeting, or for the purpose of determining shareholders entitled to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action, the Board may fix, in advance, a date as the record date for
any such determination of shareholders. Such date shall not be more than forty
nor less than ten days before the date of such meeting, nor more than forty days
prior to any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given or, if notice is waived, at the close of business on
the business day next preceding the day on which the meeting is held; the record
date for determining shareholders for any purpose other than that specified in
the preceding clause shall be at the close of business on the day on which the
resolution of the directors relating thereto is adopted. When a determination of
shareholders of record entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this paragraph, such determination
shall apply to any adjournment thereof, unless directors fix a new record date
under this paragraph for the adjourned meeting.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of meetings of shareholders or a waiver thereof or to participate or vote
thereat or to consent or dissent in writing in lieu of meeting, as the case may
be, the term "share" or "shares" or "shareholder" or "shareholders" refers to an
outstanding share or shares and to a holder or holders of record of outstanding
shares when the corporation is authorized to issue only one class of shares, and
said reference is also intended to include any outstanding share or shares and
any holder or holders of record of outstanding shares of any class upon which or
upon whom the Certificate of Incorporation confers such rights where there are
two or more classes or series of shares or upon which or upon whom the Business
Corporation Law confers such rights notwithstanding that the Certificate of
Incorporation may provide for more than one class or series of shares, one or
more of which are limited or denied such rights thereunder.
7. QUORUM. Except for a special election of directors pursuant to
Section 603(b) of the Business Corporation law, and except as herein otherwise
provided, the holders of a majority of the votes of outstanding shares shall
constitute a quorum at a meeting of shareholders for the transaction of
business, except as otherwise provided by statute, by the Certificate of
Incorporation or by the Bylaws. The shareholders present in person or by proxy
and entitled to vote at any meeting, despite the absence of a quorum, shall have
<PAGE>
power to adjourn the meeting from time to time, to a designated time and place,
without notice other than by announcement at the meeting, and at any adjourned
meeting any business may be transacted that might have been transacted on the
original date of the meeting. However, if after the adjournment the Board fixes
a new record date for the adjourned meeting, a notice of the adjourned meeting
shall be given to each shareholder of record entitled to notice on the new
record date.
8. NOTICE OF SHAREHOLDER BUSINESS AT ANNUAL MEETING. At an
annual meeting of shareholders, only such business shall be conducted as shall
have been brought before the meeting (a) by or at the direction of the Board or
(b) by any shareholder of the corporation who complies with the notice
procedures set forth in this Section 8. For business to be properly brought
before an annual meeting by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than forty days nor
more than sixty days prior to the meeting; PROVIDED, HOWEVER, that in the event
that less than thirty days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made.
A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the shareholder proposing
such business, (c) the class and number of shares of the corporation which are
beneficially owned by the shareholder and (d) any material interest of the
shareholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 8, and Article II,
Section 3 of these Bylaws. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Section 8,
and Article II, Section 3 of these Bylaws, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
9. SHAREHOLDER LIST AND CHALLENGE. A list of shareholders as of the
record date, certified by the Secretary or other officer responsible for its
preparation or by the transfer agent, if any, shall be produced at any meeting
of shareholders upon the request thereat or prior thereto of any shareholder. If
the right to vote at any meeting is challenged, the inspectors of election, if
any, or the person presiding thereat, shall require such list of shareholders to
be produced as evidence of the right of the persons challenged to vote at such
meeting, and all persons who appear from such list to be shareholders entitled
to vote thereat may vote at such meeting.
<PAGE>
10. PROXY REPRESENTATION. Every shareholder, entitled to vote at a
meeting of shareholders or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such shareholder by proxy. Such authorization may be accomplished by (a) the
shareholder or such shareholder's authorized officer, director, employee or
agent executing a writing or causing his or her signature to be affixed to such
writing by any reasonable means, including facsimile signature or (b) by
transmitting or authorizing the transmission of a telegram, cablegram, or other
means of electronic transmission to the intended holder of the proxy or to a
proxy solicitation firm, proxy support service organization or like agent duly
authorized by the intended proxy holder to receive such transmission; provided,
that any such telegram, cablegram or other means of electronic transmission must
either set forth or be accompanied by information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the shareholder. If it is determined that such telegram, cablegram
or other electronic transmission is valid, the inspectors, or, if there are no
inspectors, such other persons making that determination shall specify the
information upon which they relied.
Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to this section may be substituted
or used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that such
copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
A validly executed proxy that does not state that it is irrevocable
shall continue in full force and effect unless (i) revoked by the person
executing it by a writing delivered to the Corporation prior to the meeting
stating that the proxy is revoked, or if in attendance at the meeting, by a
writing delivered to the Secretary of the meeting prior to the voting of the
proxy, or by a subsequent proxy executed by the same person and delivered to the
Corporation prior to the meeting or to the Secretary of the meeting prior to the
voting of the proxy; or (ii) written notice of the death or incapacity of the
maker of that proxy is received by the Corporation before the vote pursuant to
that proxy is counted; provided, however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy, unless otherwise
provided in the proxy. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A proxy may be
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
11. INSPECTORS. Inspectors may be appointed in the manner prescribed by
the provisions of Section 610 of the Business Corporation Law, but need not be
appointed except as otherwise required by those provisions.
12. SHAREHOLDER ACTION WITHOUT MEETINGS. Whenever under the
provisions of the Business Corporation Law shareholders are required or
permitted to take any action by vote, such action may be taken without a meeting
on written consent, signed by the holders of outstanding shares having not less
<PAGE>
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted, in accordance with the provisions of Section 615 of the
Business Corporation Law.
ARTICLE II - BOARD OF DIRECTORS
1. NUMBER AND QUALIFICATIONS. The business of the corporation shall be
managed by its Board. The number of directors constituting the entire Board
shall be not less than three nor more than fifteen, as shall be fixed from time
to time by vote of a majority of the entire Board. Each director shall be at
least 18 years of age. Directors need not be shareholders. The number of
directors may be increased or decreased by action of shareholders or of the
directors, provided that any action of the directors to effect such increase or
decrease shall require the vote of a majority of the entire Board. No decrease
shall shorten the term of any incumbent director.
2. ELECTION AND TERM. At each annual meeting of shareholders, directors
shall be elected by a plurality of the votes to hold office until the next
annual meeting. Subject to the provisions of the statute, of the Certificate of
Incorporation and of the Bylaws, each director shall be elected to serve for one
year and until his successor has been elected and qualified.
3. NOMINATION AND NOTIFICATION OF NOMINATION. Subject to the rights of
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, nominations for the election of
directors may be made by the Board or to any committee appointed by the Board or
by any shareholder entitled to vote in the election of directors generally.
However, any shareholder entitled to vote in the election of directors generally
may nominate one or more persons for election as directors at a meeting only if
written notice of such shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the corporation not later than (i)
with respect to an election to be held at an annual meeting of shareholders
ninety days in advance of such meeting, and (ii) with respect to an election to
be held at a special meeting of shareholders for the election of directors, the
close of business on the seventh day following the date on which notice of such
meeting is first given to shareholders. Each such notice shall set forth: (a)
the name and address of the shareholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
shareholder is a holder of record of stock of the corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder; (d) such other
information regarding each nominee proposed by such shareholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board; and (e) the consent of each nominee to
<PAGE>
serve as a director of the corporation if so elected. At the request of the
Board, any person nominated by the Board for election as a director shall
furnish to the Secretary of the corporation that information required to be set
forth in a shareholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in these Bylaws. The
Chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
4. REGULAR MEETINGS. Regular meetings of the Board may be held without
notice at such places and times as may be fixed from time to time by resolution
of the Board and a regular meeting for the purpose of organization and
transaction of other business shall be held each year after the adjournment of
the annual meeting of shareholders.
5. SPECIAL MEETINGS. The Chairman of the Board, the Chief Executive
Officer, the President, the Senior Vice Chairman or any Vice Chairman may, and
at the request of three directors shall, call a special meeting of the Board,
two days' notice of which shall be given in person or by mail, telegraph, radio,
telephone or cable. Notice of a special meeting need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
6. PLACE OF MEETING. The directors may hold their meetings, have one or
more offices, and keep the books of the corporation (except as may be provided
by law) at any place, either within or without the State of New York, as they
may from time to time determine.
7. QUORUM AND VOTE. At all meetings of the Board the presence of a
majority of the entire Board shall constitute a quorum for the transaction of
business. Any one or more members of the Board or of any committee thereof may
participate in a meeting of the Board or a committee thereof by means of a
conference telephone or similar communications equipment which allows all
persons participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at such a
meeting. The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the Board, except
as may be otherwise provided by statute or these Bylaws.
8. VACANCIES. Newly created directorships resulting from increase in the
number of directors and vacancies in the Board, whether caused by resignation,
death, removal or otherwise, may be filled by vote of a majority of the
directors then in office, although less than a quorum exists.
9. REMOVAL OF DIRECTORS. Any or all of the directors may be removed
for cause or without cause by the shareholders. One or more of the directors may
be removed for cause by the Board.
<PAGE>
10. FEES AND COMPENSATION. Directors shall receive compensation for
their services as directors, as fixed by resolution of the Board. Nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity, as an officer, agent, employee or otherwise,
from receiving compensation therefor.
11. WRITTEN ACTION. Any action required or permitted to be taken by the
Board under the Business Corporation Law may be taken without a meeting if all
members of the Board individually or collectively consent in writing to such
action. Such consent or consents shall be filed with the minutes of the meetings
of the Board.
12. COMMITTEES. The Board, by resolution adopted by a majority of the
entire Board, may designate from among its members an Executive Committee, an
Audit Committee, and any other committees, each consisting of one or more
directors. Each such committee, subject to Section 712 of the Business
Corporation Law, and to the extent provided in the resolution or the Bylaws,
shall have all the authority of the Board, except that no such committee shall
have authority as to:
(i) the submission to shareholders of any action as to which shareholders'
authorization is required by law;
(ii) the filling of vacancies in the Board or any committee;
(iii) the fixing of compensation of directors for serving on the Board or
on any committee;
(iv) the amendment or appeal of the Bylaws, or the adoption of new Bylaws;
or
(v) the amendment or repeal of any resolution of the Board which by its
terms shall not be so amendable or repealable;
ARTICLE III - OFFICERS
1. TITLES AND GENERAL. The Board shall elect from among their number a
Chairman of the Board, a President, one or more Vice Chairmen, one or more Vice
Presidents, a Secretary and a Treasurer, who need not be directors. The officers
of the corporation may also include such other officers or assistant officers as
shall from time to time be elected or appointed by the Board. The Chairman of
the Board or the President or, in their absence, any Vice Chairman, may from
time to time appoint assistant officers. When all of the issued and outstanding
shares of the Corporation are owned by one person, such person may hold all or
any combination of offices.
<PAGE>
Unless otherwise provided in the resolution of election or appointment,
each officer shall hold office until the meeting of the Board following the next
annual meeting of shareholders and until his successor has been elected or
appointed and qualified.
All officers shall hold office at the pleasure of the Board. Officers
shall have the powers and duties defined in the resolutions appointing them.
2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a Chief
Executive Officer and shall preside at all meetings of the shareholders and of
the Board. Subject to the Board, he shall exercise all the powers and perform
all the duties usual to such office and shall have such other powers as may be
prescribed by the Board or the Executive Committee or vested in him by the
Bylaws.
3. PRESIDENT. The Chairman of the Board or, in his absence or
incapacity, the President shall, perform the duties of the Chairman of the
Board, and when so acting, shall have all the powers of, and be subject to all
the restrictions upon, the Chairman of the Board. The President shall perform
such other duties and have such other powers as the Board may from time to time
prescribe.
4. VICE PRESIDENTS. In the absence or disability of the President and
the Vice Presidents in order of their rank as fixed by the Board shall perform
all the duties of the President and, when so acting, shall have all the powers
of and be subject to all the restrictions upon the President. Each Vice
President shall have such other powers and shall perform such other duties as
from time to time may be prescribed for him by the Board or these Bylaws, and
the President.
5. TREASURER. The treasurer shall perform all the duties customary to
that office and except as may be otherwise provided by the Board shall have the
general supervision of the books of account of the corporation and shall also
perform such other duties and have such powers as may be prescribed or assigned
to him from time to time by the Board of Directors, the Executive Committee, or
these Bylaws.
6. SECRETARY. The Secretary shall keep the minutes of the meetings of
the Board and of the shareholders and shall have the custody of the seal of the
corporation. He shall perform all other duties usual to that office, and shall
also perform such other duties and have such powers as may be prescribed or
assigned to him from time to time by the Board, the Executive Committee, the
Chairman of the Board, or these Bylaws.
The Secretary shall keep, or cause to be kept, at the principal office
or at the office of the Corporation's transfer agent, a share register or a
duplicate share register showing the names of the stockholders and their
addresses, the number and classes of shares held by each, the number and the
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
<PAGE>
The Secretary shall prepare, or cause to be prepared and furnished to
shareholders entitled thereto any special financial notice and/or financial
statement, as the case may be, which may be required by any provision of law,
and which more specifically, may be required by Section 511, 515, 516, 517, 519,
and 520 of the Business Corporation Law.
7. SALARIES. Salaries of officers and other persons employed by the
Corporation shall be fixed periodically by the Board or established under
agreement with the officers or such persons approved by the Board. No officer
shall be prevented from receiving this salary because he is also a director of
the Corporation.
ARTICLE IV - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
1. GENERAL. The corporation shall, to the fullest extent permitted by
Section 721 of the Business Corporation Law, and consistent with the Certificate
of Incorporation, indemnify each director or officer of the corporation who is
or was made, or threatened to be made, a party to an action or proceeding,
whether civil or criminal, whether involving any actual or alleged breach of
duty, neglect or error, any accountability, or any actual or alleged
misstatement, misleading statement or other act or omission and whether brought
or threatened in any court or administrative or legislative body or agency,
including an action by or in the right of the corporation to procure a judgment
in its favor and an action by or in the right of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
corporation is serving or served in any capacity at the request of the
corporation by reason of the fact that he, his testator or intestate, is or was
a director or officer of the corporation, or is serving or served such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, against judgments, fines, amounts paid in
settlement, and costs, charges and expenses, including attorneys' fees, or any
appeal therein; provided, however, that no indemnification shall be provided to
any such person if a judgment or other final adjudication adverse to the
director or officer establishes that (i) his acts were committed in bad faith or
were the result of active and deliberate dishonesty and, in either case, were
material to the cause of action so adjudicated, or (ii) he personally gained in
fact a financial profit or other advantage to which he was not legally entitled.
2. OTHER PERSONS. The corporation may indemnify any person to whom the
corporation is permitted to provide indemnification or the advancement of
expenses by applicable law, whether pursuant to rights granted pursuant to, or
provided by, the New York Business Corporation Law or other rights created by
(i) a resolution of shareholders, (ii) a resolution of directors, or (iii) an
agreement providing for such indemnification, it being expressly intended that
these Bylaws authorize the creation of other rights in any such manner.
3. ADVANCEMENT OF FUNDS. The corporation shall, from time to time,
reimburse or advance to any person referred to in Section 1 of this Article IV
the funds necessary for payment of expenses, including attorneys' fees, incurred
in connection with any action or proceeding referred to in Section 1 of this
<PAGE>
Article, upon receipt of a written undertaking by or on behalf of such person to
repay such amount(s) if a judgment or other final adjudication adverse to the
director or officer establishes that (i) his acts were committed in bad faith or
were the result of active and deliberate dishonesty and, in either case, were
material to the cause of action so adjudicated, or (ii) he personally gained in
fact a financial profit or other advantage to which he was not legally entitled.
4. SERVICE OF ANOTHER CORPORATION. Any director or officer of the
corporation serving (i) another corporation, of which a majority of the shares
entitled to vote in the election of its directors is held directly or indirectly
by the corporation, or (ii) any employee benefit plan of the corporation or any
corporation referred to in clause (i), in any capacity shall be deemed to be
doing so at the request of the corporation. In all other cases, the provisions
of this Section 4 will apply (x) only if the person serving another corporation
or any partnership, joint venture, trust, employee benefit plan or other
enterprise so served at the specific request of the corporation, evidenced by a
written communication signed by the Chairman of the Board, the Chief Executive
Officer, the President, or any Vice Chairman, and (y) only if and to the extent
that, after making such efforts as the Chairman of the Board , the Chief
Executive Officer, or the President shall deem adequate in the circumstances,
such person shall be unable to obtain indemnification from such other enterprise
or its insurer.
5. APPLICABLE LAW. Any person entitled to be indemnified or to the
reimbursement or advancement of expenses as a matter of right pursuant to this
Article IV may elect to have the right to indemnification (or advancement of
expenses) interpreted on the basis of the applicable law in effect at the time
of the occurrence of the event or events giving rise to the action or
proceeding, to the extent permitted by law, or on the basis of the applicable
law in effect at the time indemnification is sought.
6. CONTRACTUAL RIGHTS. The right to be indemnified or to the
reimbursement or advancement of expenses pursuant to Section 4 of this Article
IV (i) is a contract right pursuant to which the person entitled thereto may
bring suit as if the provisions hereof were set forth in a separate written
contract between the corporation and the director or officer, (ii) is intended
to be retroactive and shall be available with respect to events occurring prior
to the adoption hereof, and (iii) shall continue to exist after the rescission
or restrictive modification hereof with respect to events occurring prior
thereto.
7. REMEDIES. If a request to be indemnified or for the reimbursement or
advancement of expenses pursuant hereto is not paid in full by the corporation
within thirty days after a written claim has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled also to be paid the expenses of prosecuting such
claim. Neither the failure of the corporation (including its Board, independent
legal counsel, or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances, nor an
<PAGE>
actual determination by the corporation (including its Board, independent legal
counsel, or its shareholders) that the claimant is not entitled to
indemnification or to the reimbursement or advancement of expenses, shall be a
defense to the action or create a presumption that the claimant is not so
entitled.
ARTICLE V - SEAL
1. CORPORATE SEAL. The corporate seal, if any, shall contain the name of
the corporation and the year and state of its incorporation. The seal may be
altered from time to time at the discretion of the Board.
ARTICLE VI - SHARES OF STOCK
1. SHARE CERTIFICATES. The certificates for shares of the corporation
shall be in such form as shall be approved by the Board and shall be signed by
the Chairman of the Board, the Chief Executive Officer, the President, or any
Vice Chairman, and the Secretary or an Assistant Secretary, and shall be sealed
with the seal of the corporation or a facsimile thereof. The signatures of the
officers upon the certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
corporation itself or its employees.
2. TRANSFER OF SHARES. Subject to the provisions of law, upon the
surrender to the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
3. LOST OR DESTROYED CERTIFICATE. In the case of a lost, destroyed or
mutilated certificate, a new certificate may be issued therefor upon such terms
and indemnity to the Corporation as the Board may prescribe.
ARTICLE VII - MISCELLANEOUS
1. CHECKS. All checks, drafts or other orders for payment of money,
notes or other evidences of indebtedness, issued in the name of or payable to
the Corporation, shall be signed or endorsed by such person or persons and in
such manner as from time to time shall be determined by resolution of the Board.
2. AMENDMENT OF BYLAWS. The Bylaws may be amended, repealed or added
to by vote of the holders of the shares at the time entitled to vote in the
election of any directors. The Board may also amend, repeal or add to the
<PAGE>
Bylaws, but any Bylaws adopted by the Board may be amended or repealed by the
shareholders entitled to vote thereon as provided herein. If any Bylaw
regulating an impending election of director is adopted, amended or repealed by
the Board, there shall be set forth in the notice of the next meeting of
shareholders for the election of directors the Bylaws so adopted, amended or
repealed, together with concise statement of the changes made.
3. FISCAL YEAR. The fiscal year shall begin the first day of January in
each year.
WITNESS my hand and the seal of the Corporation.
Dated:
/s/ BRENT BOWEN
---------------------------------
Brent Bowen, Secretary
SHF ACQUISITION CORPORATION
4600 Northgate Boulevard #130
Sacramento, CA 95834
Phone: 916-929-2295 Fax: 916-929-2178
May 7, 1999
Mr. Mike Adams
Adams Grain Company, Inc.
P. O. Box 799
Arbuckle, CA 95712
Dear Mike:
The following terms and conditions will govern the storage agreement between
Adams Grain Co., Inc. (AGCo) and S.H.F. Acquisition Corporation (SHF).
1. SHF agrees to provide storage at its facility located at 46735 County
Road 32B, Davis California. The facility consists of two buildings, each
sized to store approximately 350,000 cwt. of wheat, safflower or other
grains. Adams will be the sole tenant of the easternmost of these
buildings during this storage contract. The contract period will be from
June, 1999 through May 31, 2002. This contract will be reviewed each May
with an option to extend the contract an additional year if agreed by
both SHF and AGCo.
2. AGCo will fill the building to capacity (as determined by SHF) at least
once per year (June through May). AGCo will pay SHF as follows: A) Wheat
- $0.125/cwt. receiving (as harvested - May through July), $0.125/cwt.
shipping (when loaded out), and $0.05/cwt. storage per month in
September and October, B) Safflower - $0.175/cwt. receiving, and $0.175
shipping (when loaded out).
3. SHF will bill AGCo on the last day of each month for all receiving and
shipping charges incurred that month. AGCo will reconcile the bill and
pay within 20 days.
4. SHF's receiving house will coincide with AGCo's 102 facility harvest
receiving hours until the building is filled. Otherwise, SHF's
receiving/shipping hours will be 7AM to 3PM, Monday through Friday,
excepting holidays.
5. AGCo will deliver no more than 40 trucks of grain per day unless other
arrangements are made with SHF. AGCo will grade all trucks prior to
delivery and provide SHF with the grade. SHF will not dump any grain
without an AGCo grade.
<PAGE>
6. SHF is responsible for maintaining quality of grain stored. SHF will
retain a sample of grain from every truck shipped from their facility
for AGCo. Grain needing fumigation will be done at AGCo's recommendation
and expense. SHF will convert tunnels from screens to perforated metal
at SHF's expense, as required, for wheat storage.
7. AGCo may inspect their grain stocks at any time during the storage
period. AGCo will absorb 1 percent loss or gain on grain storage. SHF
agrees that any loss or gain greater than 1 percent will be for their
account. SHF will provide daily scale weights and monthly inventory
statements to AGCo.
8. In the event that SHF sells the building to a third party during the
term of this Agreement, AGCo will fulfill the obligations for the
current harvest year and reserves the right to retain or void the
remaining years of the Agreement.
9. This Agreement replaces and supersedes that certain letter agreement
dated May 28, 1998 between SHF Acquisition Corp. and Adams Grain Co.
relating to the storage and drying of grains at SHF's facility located
at 46735 County Road 32B, Davis California, except as the May 28, 1998
letter agreement pertains to corn stored at the SHF facility as of the
date of this agreement. With respect to that corn, the May 28, 1998
letter pertains.
10. AGCo acknowledges that it owns certain corn stored at SHF's facility (in
the westernmost building) as of the date of this agreement. AGCo agrees
that it will cause the corn to be shipped from the building by August
15, 1999.
Please sign and return the enclosed copy of this letter for confirmation of this
agreement.
Very truly,
/s/ BRENT BOWEN
--------------
Brent Bowen
SHF Acquisition Corporation
Brent Bowen, vice president
/s/ MIKE ADAMS
------------
Mike Adams
Adams Grain Company, Inc.
[FORM]
AGREEMENT TO INDEMNIFY ___________
BY
DUNES HOTELS AND CASINOS INC.
THIS AGREEMENT is executed this day of , 2000, by and between DUNES
HOTELS AND CASINOS, INC., a New York corporation (hereinafter referred to as the
"Corporation"), and __________ (hereinafter referred to as "Indemnitee").
WHEREAS, the Amended and Restated Bylaws (the "Bylaws") of the
Corporation provide that the Corporation may indemnify, to the fullest extent
permitted by New York law, certain persons, including directors, officers,
employees or agents of the Corporation, against specified expenses and losses
arising out of certain threatened, pending or completed actions, suits or
proceedings;
WHEREAS, Section 721 of the New York Business Corporation Law (the
"BCL") expressly recognizes that the indemnification provided by the other
subsections of the BCL shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office;
WHEREAS, as an inducement for Indemnitee to serve, or continue serving
as an officer and/or director, the Corporation desires to provide its officers
and directors with indemnification to the greatest extent permissible under the
law; and
WHEREAS, Indemnitee is an officer and/or director of the Corporation and
is willing to continue to serve in such capacity for or on behalf of the
Corporation on the condition that the indemnitee be so indemnified;
<PAGE>
WHEREAS, this agreement is in addition to, and not in lieu of, any other
agreement to indemnify by reason of the fact that Indemnitee is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise.
WHEREAS, the purpose of this agreement is to advance and indemnify
officers and/or directors for expenses in connection with proceedings arising
out of their service or continued service for the Corporation or any of its
subsidiaries or joint ventures.
NOW THEREFORE, in consideration for the mutual promises, conditions, and
forebearances contained herein, and as an inducement for the Indemnitee's
continued service as an officer and director, the parties agree as follows:
1. Definitions.
a. "Expenses" means, for the purposes of this Agreement, any:
(1) Costs, direct and indirect, of any type incurred in connection
with any Indemnifiable Event, any expense, liability, lien, cost, assessment,
penalty, damage, tax, demand, or loss, including attorneys' fees, judgments,
fines, ERISA excise taxes and penalties, and amounts paid or to be paid in
settlement thereof;
(2) Any interest, assessments, or other charges imposed on any of the
items in part (1) above;
(3) Any federal, state, local or foreign taxes and/or penalties
imposed on the indemnitee as a result of the actual or deemed receipt of any
payments under this Agreement, and any Expense paid or incurred in connection
with investigating, defending, being a witness in, or participating in
(including on appeal), or preparing for any of the foregoing in, any Proceeding
relating to any Indemnifiable Event; and
(4) All claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
<PAGE>
and reasonable attorneys' fees that Indemnitee shall incur or suffer, which
arise, result from, or relate to any breach or inaccuracy of any of the
representations and warranties of Corporation or the failure of Corporation to
perform any of its covenants, agreements or obligations contained in this
Agreement or in any instrument or other document delivered hereunder or in
connection herewith.
b. "Indemnifiable Event" shall mean any event or occurrence that takes
place either before or after execution of this Agreement that is
related to:
(1) The fact that Indemnitee is or was a director, officer, employee
or agent of Corporation, or while a director, officer or agent is or was serving
at the request of Corporation as a director, officer, employee, trustee, agent,
or fiduciary of another corporation, partnership, joint venture, employment
benefit plan, trust or other enterprise; or
(2) Anything done or not done by Indemnitee in any such
capacity, whether or not the basis of the Proceeding is an alleged action in an
official capacity as a director, officer, employee, or agent, or in any other
capacity while serving as a director, officer or agent of Corporation.
c. "Proceeding" means, for the purposes of this Agreement, any
threatened, pending or completed action, suit, claim, demand arbitration or
proceeding whether civil, criminal, administrative or investigative (including
actions, suits or proceedings brought by or in the right of the Corporation) in
which Indemnitee may be or may have been involved as a party, or otherwise, by
reason of the fact that Indemnitee is or was a director or officer of the
Corporation, by reason of any action taken by him or of any inaction on his part
while acting as such director or officer or by reason of the fact that he is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, whether or not he is serving in such capacity at the
time any liability or expense is incurred for which indemnification or
<PAGE>
reimbursement can be provided under this Agreement.
2. Indemnification of Indemnitee.
a. In General. In connection with any Proceeding, whether
relating to events occurring before or after the date hereof, the Corporation
shall indemnify, and advance Expenses, to the Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit.
b. Proceeding Other Than Proceedings by or in the Right of the
Corporation. The Indemnitee shall be entitled to the rights of indemnification
provided in this Section if, because the Indemnitee is or was a director of the
Corporation, the Indemnitee is, or is threatened to be made, a party to any
Proceeding, other than a Proceeding by or in the right of the Corporation.
Subject to this Section 2, the Indemnitee shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement, actually and
reasonably incurred by the Indemnitee or on the Indemnitee's behalf in
connection with such Proceeding.
c. Proceedings by or in the Right of the Corporation. The
Indemnitee shall be entitled to the rights of indemnification provided in this
Section if, because the Indemnitee is or was a director of the Corporation, the
Indemnitee is, or is threatened to be made, a party to any Proceeding brought by
or in the right of the Corporation to procure a judgment in its favor. Subject
to this Section 2, the Indemnitee shall be indemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement, actually and
reasonably incurred by the Indemnitee or on the Indemnitee's behalf in
connection with such Proceeding. Notwithstanding the foregoing, no such
indemnification shall be made in respect of any claim, issue or matter in such
Proceeding as to which the Indemnitee shall have been adjudged to be liable
<PAGE>
to the Corporation if applicable law prohibits such indemnification or if such
claim, issue or matter involves an accounting of profits by the Indemnitee to
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934, as amended ("Section 16").
d. Indemnification of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee is, because the Indemnitee is or was a director of the Corporation, a
party to and is successful, on the merits or otherwise, in any Proceeding, the
Indemnitee shall be indemnified to the fullest extent permitted by law, against
all Expenses, judgments, penalties, fines, and amounts paid in settlement,
actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf
in connection therewith. If the Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify the Indemnitee to the fullest extent permitted by law, against
all Expenses, judgments, penalties, fines, and amounts paid in settlement,
actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf
in connection with each successfully resolved claim, issue or matter. For
purposes of this Section and without limitation, the termination of any claim,
issue or matter in such a Proceeding by dismissal, with or without prejudice,
shall be deemed to be a successful result as to such claim, issue or matter.
e. Limitations on Indemnification. The Corporation shall not be
obligated pursuant to the terms of this Agreement for, (i) any acts or omissions
or transactions from which a director may not be relieved of liability under
Section 402(b) of the BCL; (ii) Proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
<PAGE>
this Agreement or any other statute or law or otherwise as required under
Section 722 of the BCL, but such indemnification or advancement of Expenses may
be provided by the Corporation in specific cases if a majority of the
disinterested directors has approved the initiation or bringing of such suit;
(iii) if a court of competent jurisdiction determines that each of the material
assertions made by Indemnitee in such proceeding was not made in good faith or
was frivolous; (iv) for judgments, fines or penalties, and amounts paid in
settlement) which have been paid directly to or on behalf of Indemnitee by an
insurance carrier under a policy of directors' and officers' liability insurance
maintained by the Corporation or any other policy of insurance maintained by the
Corporation or Indemnitee; (v) for Expenses and the payment of profits arising
from the purchase and sale by Indemnitee of securities in violation of Section
16(b) of the Securities Exchange Act of 1934, as amended, or any similar
successor statute.
f. Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee is, because
the Indemnitee is or was a director of the Corporation, a witness in any
Proceeding, the Indemnitee shall be indemnified against all Expenses actually
and reasonably incurred by the Indemnitee or on the Indemnitee's behalf in
connection therewith.
3. Payment of Expenses.
a. If so requested by Indemnitee, the Corporation shall from time
to time, within ten (10) business days of such request, advance up to Ten
Thousand Dollars ($10,000.00) in expenses to Indemnitee ("Expense Advance") for
the purpose of paying legal retainers and deposits against anticipated Expenses.
The provisions of this Section shall not in any way limit the Corporation's
obligation to indemnify Indemnitee.
<PAGE>
b. The Corporation shall promptly pay Indemnitee's Expenses
reasonably incurred within thirty (30) days from Indemnitee's tender of invoices
reflecting such Expenses.
c. If Corporation fails to pay any such Expenses within thirty
(30) days, the Corporation shall pay to Indemnitee a late fee of one and
one-half percent (1-1/2%) per month or part thereof until all such expenses are
paid in full, in addition to all other damage suffered by Indemnitee.
d. To the extent it is ultimately found that Indemnitee is not
entitled to indemnification under the terms of this Agreement, Corporation shall
be entitled to be reimbursed by Indemnitee for all such amounts (the "Reimbursed
Amounts"), and Indemnitee hereby agrees to reimburse Corporation promptly for
the same. Indemnitee's obligation to reimburse Corporation for the Reimbursed
Amounts shall be unsecured and no interest shall be charged thereon.
4. Notice and Opportunity to Defend. Indemnitee shall receive
indemnification from Corporation in accordance with this Agreement as soon as
practicable after Indemnitee has submitted to the Corporation a written request
for indemnification. If any Proceeding is initiated, or any claim or demand is
made, against Indemnitee with respect to an Indemnifiable Event, then the
Indemnitee shall give prompt written notice of such Proceeding to the
Corporation. In the event that the Corporation shall be obligated under Section
2 hereof to pay the Expenses of any Proceeding against Indemnitee, the
Corporation, if appropriate, shall be entitled to assume the defense of such
Proceeding, with the Corporation's counsel or such other counsel as may be
approved by Indemnitee, which approval shall not be unreasonably withheld, upon
the delivery to Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Corporation, the Corporation will not be liable
to Indemnitee under this Agreement for any fees of counsel subsequently incurred
by Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee
<PAGE>
shall have the right to employ Indemnitee's own counsel in any such Proceeding
at Indemnitee's expense, and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Corporation, or (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Corporation and Indemnitee in the conduct of such defense or (C) the Corporation
shall not, in fact, have employed counsel to assume the defense of such
Proceeding, then the fees and expenses of Indemnitee's counsel shall be paid by
the Corporation.
5. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by Corporation for a portion of
Expenses, but not for the total amount of Expenses, Corporation shall
nevertheless indemnify or pay advancements to Indemnitee for the portion of such
Expenses or liabilities to which Indemnitee is entitled.
6. Limitation on Corporation. Corporation shall not settle any
Proceeding in any manner that would impose any penalty or limitation on
Indemnitee without Indemnitee's written consent. Indemnitee will not
unreasonably withhold consent to a proposed settlement.
7. Limitation on Indemnitee. Indemnitee shall not settle any Proceeding
in any manner that would impose any penalty or limitation on Corporation without
Corporation's written consent. Corporation will not unreasonably withhold
consent to a proposed settlement.
Corporation shall not be liable to indemnify Indemnitee under this
Agreement with regard to any judicial award if Corporation was not given a
reasonable and timely opportunity, at its expense, to participate in the defense
of such action.
8. Non-Exclusivity.
a. The provisions for indemnification and advancement of expenses
set forth in this Agreement shall not be deemed to be exclusive of any other
rights that Indemnitee may have under any provision of law, the Certificate of
Incorporation or Bylaws, the vote of the Corporation's shareholders or
<PAGE>
disinterested directors, other agreements or otherwise, both as to action in his
official capacity and action in another capacity while occupying his position as
a director or officer of the Corporation.
b. In the event of any changes, after the date of this Agreement,
in any applicable law, statute, or rule that expand the right of a New York
corporation to indemnify its directors and officers, Indemnitee's rights and the
Corporation's obligations under this Agreement shall be expanded to the fullest
extent permitted by such changes. In the event of any changes in any applicable
law, statute or rule, that narrow the right of a New York corporation to
indemnify a director and officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder.
9. Indemnification Not a Waiver. Indemnitee's right to indemnification
pursuant to this Agreement shall not be deemed to be his exclusive remedy in
connection with or arising from any Indemnifiable Event or the failure of
Corporation to perform any of its covenants or obligations contained in this
Agreement; and the exercise by Indemnitee of his/her right to demand and receive
such indemnification shall not be deemed to prejudice, or to operate as a waiver
of, any remedy to which he may be entitled at law or equity.
10. Liability Insurance. To the extent Corporation maintains an
insurance policy or policies providing directors' and officers' liability
insurance, to the extent that Indemnitee may be covered by such policy or
policies, Indemnitee shall be covered by such policy or policies, in accordance
with its or their terms, to the maximum extent of the coverage available for any
corporate director or officer.
11. Subrogation. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
<PAGE>
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable Corporation effectively to bring
suit to enforce such rights.
12. No Duplication of Payments. Corporation shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable
under this Agreement.
13. No Right to Set-Off. Corporation shall have no right to set off the
amount of any Expense with respect to which Indemnitee may be indemnified by
Corporation hereunder against the amount of any obligation of Indemnitee to
Corporation.
14. Accounting of Profits Under Section 16(b). The Corporation shall not
be liable under this Agreement to make any payment in connection with any claim
made against Indemnitee for an accounting of profits made from the purchase or
sale by the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto, or
similar provisions of any state statute or common law.
15. Authorization; Binding Nature of Agreement. Corporation has all
necessary power and authority to enter into and perform its obligations under
this Agreement, and the execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of Corporation and
its officers and directors. No authorization, consent or approval of or filing
with any governmental authority or any other person is required to be obtained
or made by Corporation in connection with the execution, delivery or performance
of this Agreement.
16. Confidentiality. Unless otherwise required by law, Corporation
agrees to, and shall undertake all necessary action required to, keep
<PAGE>
confidential all information which relates to any Indemnifiable Event, Expense
or any other transaction or defense or indemnity arising out of this Agreement
which relates to Indemnitee.
17. Amendment of this Agreement. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by the
parties hereto. No waiver of any of the provisions of this Agreement shall
operate as a waiver of any other provisions hereof, nor shall such waiver
constitute a continuing waiver.
18. Survival of Agreement. This Agreement shall be binding on and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Corporation), assigns, spouses, heirs and personal and legal
representatives. Corporation shall require and cause its successor to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Corporation would be required to perform if no such succession had
taken place. The indemnification provided under this Agreement shall continue
for Indemnitee for any action taken or not taken while serving in an indemnified
capacity pertaining to an Indemnifiable Event even though Indemnitee may have
ceased to serve in such capacity at the time of any Proceeding.
19. Maintenance of Obligation to Indemnify. Corporation hereby covenants
and agrees that it shall not permit the indemnification provided to Indemnitee
as set forth in this Agreement to be compromised, restricted, limited, or
eliminated in any manner, including by way of amendment of Corporation's bylaws
and other governing documents.
20. Severability. If any portion of this Agreement shall be held by
a court of competent jurisdiction to be invalid, void, or otherwise
unenforceable, the remaining provisions shall remain enforceable to the fullest
extent permitted by law. Furthermore, to the fullest extent possible, the
<PAGE>
provisions of this Agreement (including, without limitation, each portion of
this Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, void or unenforceable.
21. Governing Law. Governing Law. This Agreement shall be interpreted
and enforced in accordance with the laws of the State of New York without regard
to its rules pertaining to conflicts of laws. To the extent permitted by
applicable law, the parties hereby waive any provisions of law that render any
provision of this Agreement unenforceable in any respect.
22. Further Assurances. Each party shall execute such instruments and
other documents, and take such action as may be required, as the other party may
reasonably request, for the purpose of carrying out or evidencing the
transactions contemplated hereby.
23. Attorneys' Fees. In the event of the bringing of any action, suit or
arbitration by a party hereto against another party hereunder by reason of any
breach of any of the covenants or agreements or any inaccuracies in any of the
representations and warranties on the part of any party arising out of this
Agreement, then in that event, the prevailing party in such action, suit,
arbitration or dispute, whether by final judgment, or out of court settlement
shall be entitled to have and recover of and from the other parties all costs
and expenses of suit, including actual attorneys' fees.
24. Remedies of Indemnitee.
a. This Section 24 shall apply in the event of a Dispute. For
purposes of this Section, "Dispute" shall mean any of the following events:
(i) a determination is made by the Corporation that the
Indemnitee is not entitled to indemnification under this Agreement;
<PAGE>
(ii) advance of Expenses is not timely made by the Corporation
pursuant to Section 3 of this Agreement; or
(iii)payment of indemnification is not made by the Corporation
pursuant to Section 3 of this Agreement within 30 days after receipt by the
Corporation of a written request therefor.
b. In the event of a Dispute, the Indemnitee shall be entitled to
an adjudication in an appropriate court in the State of residence of Indemnitee,
or in any other court of competent jurisdiction, of the Indemnitee's entitlement
to such indemnification or advancement of Expenses. Alternatively, the
Indemnitee, at the Indemnitee's option, shall be entitled to seek an award in
arbitration to be conducted by a single arbitrator pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. The Indemnitee shall
commence such proceeding seeking an adjudication or an award in arbitration
within 180 days following the date on which a Dispute arises. The Corporation
may not oppose the Indemnitee's right to seek any such adjudication or award in
arbitration.
c. In the event that a determination shall have been made by the
Corporation pursuant to Section 24a.(i) of this Agreement that the Indemnitee is
not entitled to indemnification, any judicial proceeding or arbitration
commenced pursuant to this Section 24 shall be conducted in all respects as an
independent issue in a de novo trial, or arbitration, on the merits and the
Indemnitee shall not be prejudiced by reason of that adverse determination or by
reason of the absence of a determination pursuant to Section 24a.(i). In any
such proceeding or arbitration, the Corporation shall have the burden of proving
that the Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
d. If a determination shall have been made or deemed to have been
made pursuant to this Agreement that the Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration absent (i) a misstatement by the Indemnitee
<PAGE>
of a material fact, or an omission of a material fact necessary to make the
Indemnitee's statement not materially misleading, in connection with the request
for indemnification or (ii) a prohibition of such indemnification under
applicable law.
e. The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 24 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
f. In the event that the Indemnitee, pursuant to this Section 24,
seeks a judicial adjudication of, or an award in arbitration to enforce the
Indemnitee's rights under, or to recover damages for breach of, this Agreement,
the Indemnitee shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any and all expenses (of the types
described in the definition of Expenses in Section 1 of this Agreement) actually
and reasonably incurred by the Indemnitee in such adjudication or arbitration,
but only if the Indemnitee prevails therein. If it shall be determined in such
adjudication or arbitration that the Indemnitee is entitled to receive part, but
not all of the indemnification or advancement of expenses sought, the expenses
incurred by the Indemnitee in connection with such adjudication or arbitration
shall be appropriately prorated.
25. Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered or certified, postage
<PAGE>
prepaid, and properly addressed as follows:
To Corporation: THE SECRETARY OF DUNES HOTELS AND
CASINOS, INC.
4600 NORTHGATE BLVD., SUITE 130
SACRAMENTO, CA 95834
or
C T CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
To Indemnitee:
If there is a change in the corporation's mailing address, or change in
the registered agent, the corporation must give notice of such changes to
Indemnitee within thirty days.
26. Effectiveness. This Agreement shall immediately become effective
upon adoption by Corporation's Board of Directors. Notwithstanding the
effectiveness of this Agreement, Corporation shall use its best efforts to have
its Board of Directors approve this Agreement.
IN WITNESS WHEREOF, Corporation and Indemnitee have executed this
Agreement as of the date specified above.
Corporation:
DUNES HOTELS AND CASINOS, INC.
a New York Corporation
By:
INDEMNITEE:
Dunes Hotels & Casinos Inc.
4600 Northgate Blvd., Suite 130
Sacramento, CA 95834
Barney Kreutzer, President January 26, 2000
USI Corp.
P.O. Box 8244
Wichita, Kansas 67208
Re: Letter of Intent for Proposed Acquisition of Series B Preferred Stock
Dear Mr. Kreutzer:
This letter sets forth the basic terms and conditions under which Dunes
Hotels & Casinos Inc. ("Dunes") will be willing to enter into a definitive
"Stock Purchase Agreement" with USI Corp. ("USI") to purchase all of the shares,
but not less than 3,000 shares, of Series B Preferred Stock of Dunes
beneficially owned by USI. Subject to the terms and conditions discussed herein
and the definitive Stock Purchase Agreement, the parties intend to complete this
acquisition as soon as practicable.
Stock Purchase Agreement.
USI shall sell to Dunes, and Dunes shall purchase from USI, all of the
shares of Series B Preferred Stock of Dunes beneficially owned by USI, but not
less than 3,000 shares, in exchange for restricted shares of common stock of the
Dunes valued at $.70 per share.
2. Valuation.
For purposes of the Stock Purchase Agreement, the value of the Series B
Preferred Stock shall be $275 per share based upon the liquidation value and
accrued but unpaid dividends on such shares. A valuation of the Series B
Preferred Stock and common stock shall be determined by an independent third
party appraiser.
3. Board Representation.
Upon the execution of the Stock Purchase Agreement and completion of the
transaction thereunder, USI will have the right to select two representatives to
the board of directors of Dunes.
4. Conditions.
The sale of the Series B Preferred Stock beneficially owned by USI and the
purchase of the Series B Preferred Stock by Dunes is subject to the following
conditions: a) the parties entering into a definitive Stock Purchase Agreement;
b) an independent third party appraiser confirming the value of the Series B
Preferred Stock and common stock and the overall transaction; and c)
determination by the U.S. District Court, District of Nevada, No.
CV-5-99-1470-PMP (RJJ), that this transaction is not subject to its order of
January 5, 2000.
<PAGE>
5. Fees and Expenses.
Each party shall pay the legal, accounting, and other fees and expenses
incurred by it with respect to the transaction, whether or not closing occurs.
Notwithstanding the foregoing, Dunes and USI shall be equally responsible for
the fees and expenses related to the independent appraiser.
6. Confidentiality.
The existence and content of this letter of intent are strictly
confidential and shall not be disclosed by any party without the other party's
consent. Notwithstanding the foregoing, Dunes may file a copy of this letter
with the United States District Court, District of Nevada if it determines that
it will assist the parties to complete the transaction.
7. Closing Date.
The parties intend to consummate the share purchase as soon as
practicable (the "Closing").
8. Due Diligence.
The consummation of the transaction contemplated herein is subject to
the satisfactory completion of due diligence by both parties. Dunes agrees to
provide USI and its agents and attorneys complete access to Dune's books,
records, and personnel (excluding information protected by the attorney-client
privilege) for purposes of conducting USI's due diligence investigation. USI
agrees that such information provided by Dunes and identified as "confidential"
by Dunes will be treated as confidential and that USI will not make use of such
information unless the same shall become available to USI through
non-confidential means or shall otherwise come into the public domain, and that
if this letter of intent shall be terminated without a definitive agreement
having been executed, USI will return all such information to Dunes (and all
copies thereof) in USI's possession, or will certify to Dunes that all such
information which has not been returned has been destroyed.
9. Definitive Agreement.
The parties mutually agree to proceed in good faith and use their best
efforts towards the negotiation and execution of a definitive Stock Purchase
Agreement and other agreements which incorporate the terms set forth herein and
which shall contain representations, conditions, covenants, and the like typical
in such transactions as contemplated hereby.
10. Non-binding.
This letter of intent is intended to be the non-binding expression of
the parties' intent concerning the proposed transaction and is merely a guide in
the preparation of definitive agreements satisfactory to the parties. Nothing
contained herein will be construed to preclude other provisions that are
inconsistent with or in addition to the terms contained from being included in
any definitive agreement(s), provided such other provisions are satisfactory to
the parties. While the parties intend to proceed promptly to complete a
definitive agreement(s), it is expressly understood that this is a term sheet
and that no liability or obligation of any nature whatsoever, with the
<PAGE>
of any nature whatsoever, with the exception of Sections 5 and 6 hereof, is
intended to be created between the parties hereto.
11. Signatures.
This Agreement may be executed and entered into in several counterparts
(including facsimile signatures), each of which shall be deemed to be an
original, and all of which shall constitute but one and the same instrument.
Very truly yours,
Dunes Hotels & Casinos Inc.
/s/ ED PASQUALE
------------------------
Ed Pasquale, President
The foregoing letter of intent is hereby confirmed:
Dated: January 28, 2000 USI Corp.
/s/ BARNEY KREUTZER
-------------------------
Barney Kreutzer, President
SUBSIDIARIES OF THE REGISTRANT
M & R CORPORATION ("MRC"), Delaware
M & R Investment Company, Inc. ("MRI"), Nevada
wholly owned by MRC
SHF Acquisition Corporation, Nevada
wholly owned by MRI
Southlake Acquisition Corporation, Nevada
wholly owned by MRI
CONTINENTAL CALIFORNIA CORPORATION, Delaware
wholly owned by Registrant
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS ON PAGES
F-2 THROUGH F-5 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED
IN IT'S ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,323
<SECURITIES> 278
<RECEIVABLES> 2,302
<ALLOWANCES> 1,899
<INVENTORY> 0
<CURRENT-ASSETS> 4,115
<PP&E> 3,848
<DEPRECIATION> 730
<TOTAL-ASSETS> 10,696
<CURRENT-LIABILITIES> 530
<BONDS> 0
0
5
<COMMON> 3,900
<OTHER-SE> 4,129
<TOTAL-LIABILITY-AND-EQUITY> 10,696
<SALES> 2,108
<TOTAL-REVENUES> 2,394
<CGS> 1,416
<TOTAL-COSTS> 1,416
<OTHER-EXPENSES> 1,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (178)
<INCOME-PRETAX> (84)
<INCOME-TAX> (7)
<INCOME-CONTINUING> (91)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (91)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
