-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HiJrvZP8PZlD9budhcbKP8Hws4NWFJsUoMU2kO0odHDsjeNyhNSYwO/SG3s92g3p s9tJWq3hMnKX7MJAgpOJSg== 0000024004-97-000003.txt : 19970328 0000024004-97-000003.hdr.sgml : 19970328 ACCESSION NUMBER: 0000024004-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DUNES HOTELS & CASINOS INC CENTRAL INDEX KEY: 0000024004 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 111687244 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-04385 FILM NUMBER: 97565870 BUSINESS ADDRESS: STREET 1: 4045 S SPENCER STE 206 CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7027327474 MAIL ADDRESS: STREET 1: 4045 S SPENCER STREET STREET 2: SUITE 206 CITY: LAS VEGAS STATE: NV ZIP: 89119 FORMER COMPANY: FORMER CONFORMED NAME: CONTINENTAL CONNECTOR CORP DATE OF NAME CHANGE: 19790823 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the fiscal year ended December 31, 1996 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] for the transition period from to . Commission File No. 1-4385 DUNES HOTELS AND CASINOS INC. (Exact name of registrant as specified in its charter) NEW YORK 11-1687244 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4045 South Spencer, Suite 206, Las Vegas, Nevada 89119 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (702) 732-7474 Securities Registered Pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered NONE NONE Securities Registered Pursuant to Section 12(g) of the Act: Series B, $7.50 Cumulative Common Stock, $.50 par value Preferred Stock, $.50 par value (Title of class) (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock held by non-affiliates of the Registrant (2,094,340 common shares) computed by reference to the price at February 14, 1997 ($.1563 per share) was approximately $327,345. 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 February 14, 1997 was 6,375,096. Documents Incorporated by Reference Not Applicable This document consists of pages with exhibits, pages without exhibits. ITEM 1. 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). On May 18, 1995, Continental filed a Petition for Relief Under Chapter 11 of the United States Bankruptcy Code. The Petition for Relief was filed in the United States District of Nevada, Case No. 95-21992 LBR. The case was subsequently transferred to the United States Bankruptcy Court for the Southern District of California. The bankruptcy case was dismissed on November 9, 1995. 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 rice). See Note 16 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 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 rice over a two month period (approximately September 15 to November 15) and stores, for a fee, the dried rice (or other grains) until it is removed by the owner. The Company drys and stores rice principally for one customer, Farmers Rice Co-operative (Farmers). Farmers accounts for approximately 98% of the rice drying and storage revenue. If the Company were to lose Farmers as a customer, it would have a material adverse effect on the Company's agricultural segment. The Company is contemplating building a new rice drying facility adjacent to its rice storage facility. See "Item 1. Business - Agricultural Segment - Grain Storage and Drying Facility." RESOLUTION OF SASA DISPUTE On October 24, 1995, the Company, along with Continental, MRI and SHF, entered into a Settlement, Release and Loan Modification Agreement (the Settlement Agreement) with the Resolution Trust Corporation (the RTC) in connection with the Company's obligation to San Antonio Savings Association (the SASA Obligation) which the RTC alleged was $21,107,796 as of October 10, 1995. The Settlement Agreement became effective on December 6, 1995. As a result of the settlement, the Company recorded a one-time extraordinary gain of $8,346,000. Pursuant to the terms of the Settlement Agreement and as full payment of the SASA Obligation, (i) Continental transferred four parcels of non-contiguous real property located northwest of San Diego, California, owned by Continental, to the RTC in consideration of a $1,500,000 credit against the SASA Obligation, (ii) the Company paid $290,000 to the RTC, and (iii) the Company delivered a secured promissory note to the RTC (the RTC Settlement Note) in the principal amount of $2,710,000. In addition, Continental received an order dismissing its bankruptcy case, and the Company received orders dismissing all of the litigation between the Company, SASA and the RTC. The RTC Settlement Note bears interest at an annual rate of 1% over the prime rate, adjustable semi-annually; provided, however, that the interest rate shall not be less than 8% or more than 12% per annum. The RTC Settlement Note requires monthly payments of interest until December 6, 2000, at which time the entire unpaid principal amount and all accrued and unpaid interest is due. As of the date hereof, the Company has made all required payments under the RTC Settlement Note. The RTC Settlement Note is collateralized by (i) a deed of trust (the Rancho Murieta Deed of Trust) on 69 unsold residential lots at The Fairways in Rancho Murieta, California (56 lots as of December 31, 1996), (ii) a deed of trust (the Nevada Deed of Trust) on 53 partially developed residential lots located in North Las Vegas, Nevada, and (iii) a collateral assignment (the Collateral Assignment) of purchase money promissory notes (the SHF Notes) in the aggregate principal amount of $725,520 secured by 7 residential lots previously sold at The Fairways ($564,160 secured by 5 residential lots as of December 31, 1996). 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 February 14, 1997, 55 lots remain unsold. In connection with its development of The Fairways, SHF was required to construct several water, sewer and drainage facilities (the Improvements) that are oversized to serve lands outside the boundaries of The Fairways (the Benefited Properties). SHF and Rancho Murieta Community Services District (the District) have entered into an agreement (the Reimbursement Agreement) wherein SHF and the District have agreed that the total cost of the Improvements was $1,597,425 and that of this amount, $276,088 is allocable to The Fairways and $1,321,337 is allocable to the Benefited Properties. SHF and the District also agreed that future construction of certain other facilities will benefit both The Fairways and the Benefited Properties. The Reimbursement Agreement provides that the amount that will be allocable to The Fairways will be approximately $176,500 and will be deducted from the amount due SHF resulting in a net amount due to SHF of approximately $1,140,900. The funds will be reimbursed to SHF out of proceeds of any subsequent community facilities district or by direct payment by subsequent developers of the Benefited Properties. SHF's right to reimbursement under the Reimbursement Agreement will expire in twenty years from September 1995. The Company is unable to predict what amount, if any, will be received under the Reimbursement Agreement. The rights to reimbursement under the Reimbursement Agreement are personal to SHF and do not run with The Fairway property unless assigned by SHF. As part of the development of The Fairways, SHF entered into a Parks Development Agreement dated February 20, 1991 (the Parks Agreement) with Rancho Murieta Association (RMA). The Parks Agreement provided, among other things, that the developers of properties in Rancho Murieta pay to RMA a park fee for each developed lot. It was RMA's contention that the park fees were due in full when the common areas within a subdivision are annexed into RMA. SHF maintained that the park fees, applicable to each lot, were due only when each lot was sold. In August 1994, SHF entered into a Settlement Agreement Regarding Payment of Park Fees (the Park Fee Payment Agreement). The Park Fee Payment Agreement acknowledged that the total park fees owing to RMA were $173,238. The Park Fee Payment Agreement further provided that SHF would pay $17,323 upon signing of the Park Fee Payment Agreement and that the balance would be paid ratably as the remaining lots were sold. In the event all of the lots are not sold by December 31, 1997, then any remaining amount due must be paid in full. In the event that SHF makes any sale or transfer of multiple lots within the Fairways to any other person, the allocable share of the SHF park fees attributable to the lots so conveyed shall be immediately due and payable to RMA. However, SHF is permitted to transfer multiple lots to an entity in which SHF holds at least a 50% interest without accelerating payment of the park fees allocable to the lots transferred. As part of the Settlement Agreement described above with the RTC, all of the unsold lots in The Fairways are encumbered by a deed of trust in favor of the RTC. The deed of trust requires a $40,000 payment for the release of each encumbered lot. See "Resolution of SASA Dispute" above. On October 7, 1996, the Company signed a letter agreeing to modify the Purchase and Option Agreement (the New Agreement) between the Company and Murieta Investors, LLC, (MI) formerly West Coast Properties, LLC. The Purchase and Option Agreement is described in detail in the Company's Form 10-K for the year ended December 31, 1995. See Item 1. "Business - Real Estate and Related Activities - The Fairways." The New Agreement provides that 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 (the Success Payments). Eight months after the purchase of the initial 6 lots, MI will be entitled to purchase a second group of 6 lots. An additional group of 6 lots may be purchased every 4 months thereafter until 40 lots have been purchased. The initial payment for the second 6 lots purchased will be $40,000, plus payment of the applicable park fees and the Success Payments. Beginning with the purchase of the third group of 6 lots, the initial payment will be $45,000, plus payment of the park fees applicable to the lots purchased. Therefore, the Success Payments will be 20% of the gross sales price of each residential dwelling lot sold less $45,000. If MI sells any lot without constructing a residential dwelling thereon, the Company will receive 20% of the sale price without offset of the initial payment. The sale of the first 6 lots closed on December 20, 1996. WHITE RANCH The Company, through Southlake, owns a 50% interest in the White Ranch which consists of approximately 10,000 acres of agricultural land, located in Kings and Tulare Counties, California. The other 50% owner and Southlake share equally in profits and losses on the operation and sale of the White Ranch. All of the 10,000 acres have been leased for the 1997 crop year. Tenants at the White Ranch generally pay a fixed cash rent plus a share rent. The amount of the share rent is based on the profitability of the crop grown. Tenants are required to pay all water usage charges applicable to the leased land. In February 1997, the Company and the other 50% owner of the White Ranch entered into a Purchase and Sales Agreement (the Agreement) to sell the White Ranch for $6,000,000. The Agreement provides that the purchaser will make a $10,000 non-refundable deposit for a 90-day inspection period. The inspection period may be extended for an additional 90-day period upon the payment of an additional $10,000 non-refundable deposit. Terms of the sale are all cash at close of escrow. If the sale is consummated, net proceeds to the Company will be approximately $3,000,000. The sale is subject to, among other things, the buyer's ability to obtain adequate financing. There can be no assurance that the buyer will be able to obtain financing and that the sale will close. SAM HAMBURG FARM MRI owns approximately 150 acres of agricultural property called Sam Hamburg Farm (Hamburg Farm) in Fresno and Merced Counties, 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 various tenants at an annual aggregate rental of approximately $20,000. In connection with a potential 1991 sale of a portion of Hamburg Farm, SHF was advised of possible contamination on the site. The Company retained a specialist to inspect the sites, take samples, analyze the samples and report to the Company. The specialist indicated that there were two major sites of chemical spillage, a storage facility for diesel fuels and an old airstrip which had been used for the loading and fueling of aircraft applying agricultural chemicals to the surrounding farm lands. The Company has substantially completed the clean-up relating to the diesel storage tanks at a cost of approximately $100,000. The Company has disposed of a large amount of the contaminated earth at an approved site for the storage of toxic wastes. However, 5,000 cubic yards of contaminated earth (previously thought to be 4,000 cubic yards) still remain to be disposed of. The Company, through its chemical and toxic clean-up consultant, has been working with the California State Environmental Protection Agency, in seeking alternate means to the disposal in toxic dump sites of chemical and toxics-laden soil. The State has participated in the funding of several projects by a number of chemical treatment firms in efforts to try other detoxification methods on the soil. Because of the ongoing testing the State has not imposed a disposal date upon the Company. Cost of disposal is estimated at $100 per cubic yard. However, if on-site remediation can be achieved, it is estimated that the cost will be between $90,000 and $115,000. The Company is unable to predict when the ongoing testing will be completed or what the outcome of these tests will be. As of December 31, 1996, the Company has paid approximately $500,000, including the $100,000 expended for the diesel storage tanks and has accrued an estimated $174,000 relating to the balance of the clean up. That estimate could change as the remediation work takes place. RESIDENTIAL LOTS, NORTH LAS VEGAS The Company owns 57 partially developed residential lots in North Las Vegas, Nevada. The 57 lots were formerly owned by Pine Ridge Joint Venture (PRJV). As part of the settlement with the RTC, 53 of the lots are encumbered by the Nevada Deed of Trust in favor of the RTC. The Nevada Deed of Trust requires a $6,000 payment for the release of each of the encumbered lots. See "Resolution of the SASA Dispute". On February 21, 1997, the Company signed an Agreement for the Purchase and Sale of all 57 lots for a total consideration of $661,800 plus reimbursement of water fees paid in the amount of $72,957. The sale is expected to close in the second quarter of 1997. AJD JOINT VENTURE In June 1993, MRI entered into a joint venture known as PRJV with AJD, a Nevada limited partnership, for the purpose of developing approximately 92 single-family residences in North Las Vegas, Nevada. The development was scheduled to be completed in two phases consisting of 32 residences in the first phase and the balance to be completed in the second phase. The holder of the first lien on the land in the second phase, which consisted of 53 partially developed residential lots, filed a Notice of Default and Election to Sell Under Deed of Trust. On May 3, 1995, SHF acquired the lots at the foreclosure sale for approximately $440,000. On October 1, 1996, PRJV deeded to the Company, in lieu of foreclosure, 4 fully developed residential lots. See "Residential Lots, North Las Vegas" above. On October 10, 1996, the last remaining house in Phase I was sold, thereby effectively terminating PRJV. SOLANO COUNTY OPTION The Company has 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 Baby Grand Corp. (BGC), an Anderson Entity, a financial instution and MRI. The purchase price of the Solano County Option was $1,043,902. The Solano County Option provides that the Company can purchase the 1,690 acres at a price of $3,000,000. The Company will receive a credit of $1,000,000 against the purchase price. The option expires on May 1, 2003. Upon certain conditions and the consent of the first lienholder on BGC's Maxim Hotel and Casino and the Nevada Gaming Control Board, MRI can require BGC to repurchase the Solano County Option (The Repurchase Agreement). The Repurchase Agreement expires on the earlier of: (i) May 1, 2002 or (ii) 1 year prior to the date the Option Agreement expires. The Company can only recover the value of the option (i) by exercising the option and selling the property or (ii) selling the option. However, if the fair value of the real property should drop below the option purchase price, the Company would not be able to recover all of its investment in the Solano County Option. The owner of the property under option has informed the Company that it may not be able to make the payment due on the first mortgage lien which had a balance due of approximately $1,356,000 as of December 31, 1996. The Company and the owner are attempting to negotiate a solution, which could include the Company exercising the Solano County Option at a price that is less than the option price stated in the Solano County Option. No assurance can be given that the Company will be able to recover its investment in the Solano County Option, or to negotiate a satisfactory solution with the owner of the property. If the Company is unable to renegotiate the option price, the Company may make the payment to the first mortgage lien holder in order to protect its investment in the Solano County Option. The Company is unable to predict what the outcome of this matter will be. AGRICULTURAL SEGMENT: GRAIN STORAGE AND RICE DRYING FACILITIES 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 Farmers Rice Co-operative. The Storage Facility can store approximately 34,000 tons of grain. On March 1, 1995, the Company entered into a two year lease, at an annual rent of $54,000, of a rice drying facility (the Drying Facility) located in West Sacramento, California. In November 1996, the Company informed the lessor that it was terminating the Drying Facility lease. In consideration of the payment of $75,000, the lessor agreed to accept the return of the Drying Facility, as is, and acknowledged that it had no claims of any kind or nature against the Company and released the Company from any and all obligations, except for rent payments for the remainder of the lease term, and any subsequent damages. On January 1, 1996, the Company entered into an agreement with Cal-Dehy whereby the Company would pay to Cal-Dehy $60,000, payable $5,000 per month, for the use of the Cal-Dehy name and a Covenant Not To Compete. The agreement, including the Covenant Not to Compete, was for one year. The agreement expired on December 31, 1996. The Company does not intend to renew the agreement or the Covenant Not To Compete. In January 1996, the Company's Board of Directors authorized management to pursue the possibility of constructing a new rice drying facility adjacent to the rice storage facility in Yolo County, California (The New Drying Facility). The cost of constructing The New Drying Facility is estimated to be approximately $1,800,000 including carrying costs. The Company has made a $47,484 deposit on a rice dryer in anticipation of constructing The New Drying Facility. Since the Company did not begin construction as originally scheduled, 50% of the deposit has been forfeited. However, the Company would receive credit for the balance of the deposit if construction of The New Drying Facility goes forward. In the event the Company does not proceed with the construction of The New Drying Facility, the Company will lose the balance of its deposit on the rice dryer. Construction of The New Drying Facility is subject to various governmental approvals and the ability of the Company to obtain adequate financing. The Company has signed a financing commitment which, if funded, would provide approximately 65% or $1,150,000, whichever is less, of the construction funds needed to build The New Drying Facility. The commitment is subject to the final review and credit approval by the lender and execution of mutually acceptable documentation. No assurance can be given that the Company will receive the necessary approvals or adequate financing. It is anticipated that construction of The New Drying Facility would begin in the second or third quarter of 1997. The Company is unable to predict whether The New Drying Facility will be completed in time for the 1997 rice drying season (approximately September 15 to November 15). If The New Drying Facility is not completed in time for the 1997 rice drying season, the Company may attempt to negotiate a new lease on the West Sacramento, California drying facility. The Company is unable to predict if a new lease can be obtained for the West Sacramento drying facility or what the terms and conditions of such a lease would be. OTHER ACTIVITIES: CERTAIN LOANS From time to time the Company has made loans to various Anderson Entities, Directors and Executive Officers of the Company and other unrelated third parties. All loans to related parties were approved by the Company's Audit Committee. The most significant of these are as follows: BABY GRAND CORP. BGC d/b/a Maxim Hotel and Casino (the Maxim), Las Vegas, Nevada, an Anderson Entity, owed the Company $2,129,400 plus accrued interest in the amount of $167,000 at December 31,1996, pursuant to a promissory note dated November 2, 1992, in the original amount of $2,650,000 (the BGC Note). The BGC Note bears interest at the rate of 9% per annum. Monthly payments under the BGC Note are currently $50,000. The BGC Note is due in full on December 1, 1997 at which time the first deed of trust indebtedness on the Maxim is due. BGC is precluded from paying the final installment due on the BGC Note until it pays the first deed of trust indebtedness of approximately $34,200,000 as of December 31,1996. If BGC is unable to pay or refinance the first deed of trust indebtedness, it would have a material adverse effect on the Company's ability to collect on the BGC Note. If BGC is unable to make the final payment, the Company would have a loss of approximately $1,899,000 for which $1,899,000 has been provided. The BGC Note is collateralized by approximately 1,280,000 shares of the Company's common stock. BGC is current in payment of monetary obligations under the BGC Note. The first trust deed holder has threatened to declare a default primarily as a result of the litigation between Mr. Anderson and the Anderson Parties and the FDIC (See Item 3. "Legal Proceedings and Item 12, "Security Ownership Of Certain Beneficial Owners And Management"). In the event the Maxim first trust deed holder declares a default, the BGC Note will also be in default. GOLDEN STATE TRUST In connection with a proposed settlement agreement (the Agreement) dated June 12, 1996, between the FDIC and John B. Anderson, Edith Anderson, Cedar Development Company, J.A. Inc. and J.B.A. Investments, Inc.(collectively the Anderson Parties) the Company loaned $250,000 to Golden State Trust, an Anderson Party. The loan is evidenced by a note dated June 12, 1996, which bears interest at the rate of 12% per annum, payable monthly. A principal payment of $100,000 was paid on July 1, 1996. The balance of the principal and accrued and unpaid interest was due on December 12, 1996. The Company believes that the note is uncollectible and therefore has provided a reserve of $150,000 against the balance of the amount due from Golden State Trust. In addition, the Company ceased accruing interest on the loan as of September 30, 1996. OTHER TRANSACTIONS In July 1995, the Company committed to invest up to $200,000 in a cattle feeding operation, with an unrelated third party, known as Steadfast Cattle Co. (Steadfast). The feed lot is located in Gonzales, California on land leased from the former operator. The operation consisted of feeding both beef and dairy cattle, owned by others, on a per diem basis. In addition to its original commitment, the Company purchased approximately $225,000 of equipment that it leases to the feed lot operation. Because the cattle feeding operation was not successful, the company stopped funding Steadfast. As of December 31, 1996, all operations at Steadfast have ceased and the Company has written off all advances made to Steadfast. The effect of the Steadfast operations and its discontinuance on the Company's financial statement have been immaterial. The Company is currently attempting to sell the equipment that was purchased for the feed lot operation. It is anticipated that the sale of the equipment will result in a loss of approximately $10,000. However, it is possible that the estimated amount of the loss could increase if the Company is unable to sell the equipment within a reasonable amount of time. DIRECTORS As reported in previous reports, the Company in 1993 made a $500,000 loan to an entity wholly-owned by Director Andrew Marincovich. See Annual Report on Form 10-K for the year ended December 31, 1995, Item 1. "Business - Other Activities - Certain Loans - Directors." The Company was informed that the foreclosure sale of the El Dorado Vineyard property was completed during the second quarter of 1996. The Company was further informed that the foreclosure sale extinguished without payment to Andrew Marincovich all of his interest in the property or the proceeds thereof. The Company's non-recourse guarantee from Mr. Marincovich was limited to excess proceeds from such foreclosure sale. Therefore, the Company did not recover any of its funds pursuant to the guarantee. MADDOCKS/WILLOWS RANCH In May 1990, the Company made a loan to William Maddocks, et al, a central California real estate investment group (Maddocks), in the principal amount of $1,000,000. The loan was collateralized by real property in northern California. Maddocks paid all but $315,000 of the loan. In 1992, the Company and Maddocks formed a partnership called Willows Ranch. The Company's contribution was the balance remaining on the original $1,000,000 loan, and Maddocks contributed the net equity in the real estate that served as collateral for the Company's loan. In November 1995, Maddocks and the Company agreed to sell the Willows Ranch for a price of $835,000. The sale closed on February 5, 1996. Out of the sale proceeds, the Company received cash of approximately $209,000 and a 91.90% interest in a note in the amount of $243,430. 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 their respective areas of California where the Company's properties are located. Competition for tenants is intense. 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 short-term period of one year or less. AGRICULTURAL SEGMENT: With respect to the Company's rice drying and storage operations, the Company competes with other rice drying and storage companies in Northern California. The rice 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 rice drying and storage operations are impacted by the number of acres of rice grown, the yield per acre, weather conditions and government programs. Because the Company dries and stores rice for principally one customer, the loss of that customer could have a material adverse effect on the rice 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 rice drying and storage operation is marketed to principally one customer. 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 rice drying and storage facilities. EMPLOYEES At February 14, 1997, the Company had 9 employees. None of the Company's employees are covered by collective bargaining agreements. The Company believes its employee relations to be satisfactory. ITEM 2. PROPERTIES 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. 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 $600,000, 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 and by a deed of trust in favor of RMA securing the payment of Park Fees due RMA. The bonded indebtedness will be assumed, pro rata, by the individual lot buyers. The amount due RMA will be paid as individual lot sales are closed. If all of the lots are not sold by December 31, 1997, then the remaining balance owing to RMA will be due and payable. As part of the settlement of the SASA Obligation, the Company signed a note in favor of the RTC in the original principal amount of $2,710,000. The note is collateralized by, among other things, a deed of trust on the lots at The Fairways. The deed of trust requires a $40,000 payment for the release of each of the encumbered lots. See "Item 1. Business -- Real Estate Segment -- The Fairways." RESIDENTIAL LOTS -- NORTH LAS VEGAS The residential lots in North Las Vegas consist of 53 partially developed lots and 4 completed lots. Of the 57 lots, 53 lots are encumbered by a deed of trust in favor of the RTC. The deed of trust requires a $6,000 payment for the release of each of the encumbered lots. See "Item 1. Business -- Real Estate Segment -- Residential Lots, North Las Vegas." WHITE RANCH White Ranch, in which the Company holds a 50% interest, is comprised of approximately 10,000 acres of agricultural land. It is located on the western edge of Tulare County, California, adjacent to State Highway 43 and the community of Angiola, approximately 10 miles south of Corcoran and 30 miles southwest of Tulare. See "Item 1. Business -- Real Estate Segment -- White Ranch." SAM HAMBURG FARM Sam Hamburg Farm consists of approximately 150 acres remaining from an original 4,600 acres of agricultural land. The land is located in the most southwesterly corner of Merced County, California and the most northwesterly corner of Fresno County, California, approximately two miles east of Interstate Highway 5. It is approximately ten miles south of the city of Los Banos. The Company leases the remaining land to various tenants, whose current crops include cotton, small grains, and certain types of melons. The terms of the leases are usually one crop year on a cash rent basis. See "Item 1. Business - Real Estate Segment - Sam Hamburg Farm". AGRICULTURAL SEGMENT: GRAIN STORAGE FACILITY The Storage Facility is 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. See "Item 1. Business -- Agricultural Segment -- Grain Storage and Rice Drying Facilities." EXECUTIVE OFFICES: The Company's executive offices are located in an office building in Las Vegas, Nevada. The executive offices are 1,744 square feet and are leased under terms of a lease agreement expiring May 31, 1997. The Company also leases office space in Davis, California on a month to month basis at a monthly rent of $1,000. The Company believes that the executive offices and the Davis office are 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 (LRL), instituted on July 14, 1995. The FDIC, acting as a successor and assignee of EurekaBank, formerly known as Eureka Federal Savings and Loan Association (Eureka), filed a complaint against John B. Anderson, Edith Anderson, Cedar Development Company, J.A., Inc. and J.B.A. Investments, Inc. (collectively, the Anderson Parties). The complaint arises out of a judgment in the original principal amount of approximately $33,700,000 obtained by Eureka against the Anderson Parties in the District Court for Clark County, Nevada. In consideration of Eureka's forbearance from executing on the judgment, the Anderson Parties executed a debtor-creditor agreement and related pledge and security agreements. Among other things, approximately 3,000,000 shares of the Company's common stock is pledged as collateral to the FDIC. The FDIC alleges, among other things, that the Anderson Parties have breached the debtor-creditor agreement and seek relief including (i) specific performance, (ii) appointment of a receiver, (iii) injunctive relief, (iv) judicial foreclosure, and (v) enforcement of the judgment, which together with interest, is alleged to be in excess of $63,000,000. On September 15, 1995, the Anderson Parties entered into a Stipulation and Order For: Entry of Order Appointing Receiver and For Injunctive Relief, and For Entry of Consent Judgment (the Stipulation). The District Court entered its order (the Order) staying certain powers granted to the receiver, but allowing the receiver to review the assets, observe the operations, and inspect the books and records, including the Company's, relating to the assets of the Anderson Parties. In June 1996, the Company was informed that the Anderson Parties had reached a tentative agreement (the Agreement) regarding the Anderson Parties' obligation to the FDIC. The Agreement was subject to final approval of the FDIC. The Company made a $250,000 loan to Golden State Trust, an Anderson Party, in connection with the Agreement of which $150,000 remains outstanding. See" Item 1. Business - Other Activities - Certain Loans - Golden State Trust" The Agreement provided that the judgment, in the original principal amount of approximately $33,700,000, held by the FDIC against the Anderson Parties, would be sold to Golden State Trust. On August 27, 1996, the Company was informed that the FDIC rejected the Agreement. The Company was further informed that on August 28, 1996, the United States District Court, District of Nevada, entered the Consent Judgment appointing Ronald L. Durkin, C.P.A. (the Receiver) as the permanent receiver over the assets of Mr. Anderson and the Anderson Parties to the extent and with the powers set forth in the Receivership Order. Included in the assets over which the Receiver's powers extend are Mr. Anderson's beneficial ownership of 3,000,000 shares, or approximately 47.1% of the common stock of the Company. The balance of the shares owned beneficially by Mr. Anderson are pledged to the Company as collateral for the BGC Notes. On February 4, 1997, the United States District Court, District of Nevada, terminated the receivership, discharged the receiver, and appointed a special liquidating master. Based on statements made by FDIC representatives in public proceedings and court proceedings, the Company believes that it is the intent of the special liquidating master to sell the assets of the Anderson Parties that serve as collateral for the obligation to the FDIC on terms and conditions ordered by the Court, including the outstanding voting shares of the Company presently in the possession of the FDIC. If the special liquidating master or the FDIC obtains court approval and the common shares are in fact sold to either persons or entities other than Mr. Anderson or entities controlled by Mr. Anderson, a change of control of the Company will occur. To the knowledge of the Company, the special liquidating master has not taken any overt steps to assert control, vote the shares, influence management of the Company, or otherwise, although no assurance can be given that such steps are not contemplated or imminent. In March 1997, the Anderson Parties filed a notice of appeal with respect to the U. S. District Court's February 4, 1997 ruling terminating and discharging the Receiver and appointing a Special Liquidating Master. At the present time, the Company cannot predict the time or likelihood that such sale of shares or such change of control will occur, or whether other actions, proceedings or otherwise will occur that may block, impede or otherwise prevent or postpone such sale of shares or potential change of control. The actions of the special liquidating master may jeopardize the Anderson Parties ability to operate, including BGC which remains liable to the Company under the BGC Note. The Company is unable to predict what effect the outcome of the matters described above will have on the Company, or the payment of the BGC Note. 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. See "Item 10. - Directors and Executive Officers of the Registrant." PART II ITEM 5. MARKET FOR REGISTRANT'S 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. 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 reported by the National Quotation Bureau. The reported bid quotations reflect inter-dealer prices, without retail markup, markdown or commissions, and may not necessarily represent actual transactions. 1997 HIGH LOW 1st Quarter (through February 14, 1997) 3/16 5/32 1996 HIGH LOW 1st Quarter 3/16 3/16 2nd Quarter 11/32 3/32 3rd Quarter 1/4 1/8 4th Quarter 3/16 1/8 1995 HIGH LOW 1st Quarter 7/32 1/8 2nd Quarter 7/32 1/8 3rd Quarter 3/16 3/32 4th Quarter 3/16 1/32 At December 31, 1996, the Company's transfer agent reported that there were approximately 1,838 holders of record of the Company's common stock, and approximately 752 holders of record of the Company's Series B Preferred Stock. 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 $1,101,000 as of December 31, 1996. Because of the settlement of the SASA Obligation, the Company's second tier subsidiary, MRI, is no longer prohibited from paying dividends to MRC, which in turn is no longer prohibited from paying dividends to the Company. The Company has no present intention to pay dividends on either its common or preferred shares. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations". ITEM 6. SELECTED FINANCIAL DATA The following table summarizes certain selected financial data for the periods indicated. The data for the years ended December 31, 1994, 1995 and 1996 should be read in conjunction with the more detailed audited Consolidated Financial Statements and Notes thereto appearing elsewhere herein, including the Independent Auditors' Report. DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (NOT COVERED BY INDEPENDENT AUDITORS' REPORTS) Year ended December 31, 1992 1993 1994 1995 1996 (Dollars in thousands, except per share data) Continuing operations: Net sales and miscellaneous income $ 1,816 $ 1,387 $3,242 $3,130 $2,982 Income (loss) from continuing operations ($ 1,431) ($ 1,678) ($ 1,195) ($2,075) ($1,789) Extraordinary item, net of tax $8,346 Earnings (loss) per common share before extraordinary item ($ .20) ($ .25) ($ .20) ($ .33) ($ .29) Extraordinary item per common share $ 1.30 Earnings (loss) per common share ($ .20) ($ .25) ($ .20) $ .97 ($ .29) As of the end of period: Total assets $22,963 $21,262 $19,962 $19,527 $17,126 Long-term debt and capital lease obligations $ 25 $ 25 $ 146 $ 2,797 $ 1,955 Shareholders' equity $ 9,298 $ 7,545 $ 6,275 $12,304 $10,443 Book value per common share $ 1.43 $ 1.16 $ .97 $ 1.93 $ 1.64
Certain items in the table of selected financial data have been reclassified to conform to the current classification. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Consolidated Financial Statements and Notes thereto are an integral part of this report, including this Item 7, and are incorporated herein by this reference and should be read in conjunction herewith. Section 21 E of the Securities Exchange Act of 1934 provides a "safe harbor" for forward-looking statements. 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, proposed facilities construction 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, actual construction costs and construction contingencies in connection with construction of new facilities, 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. OVERVIEW On October 24, 1995, the Company, along with its subsidiaries Continental, MRI, and SHF, entered into a Settlement Agreement with the RTC in connection with the SASA Obligation. The Settlement Agreement became effective December 6, 1995. The Settlement Agreement modifies and restructures and refinances and extends further credit to the Company in accordance with the terms and conditions set for in the Settlement Agreement, which terms and conditions are intended to entirely supersede and replace the terms of the SASA Obligation. The SASA Obligation is more fully described in the Company's report on Form 10-K for the year ended December 31, 1994, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and in the Company's reports on Form 8-K dated February 2, 1995, April 3, 1995, April 26, 1995 and May 18, 1995. Pursuant to the terms of the Settlement Agreement and as full payment of the SASA Obligation, (i) Continental transferred the San Diego Property to the RTC in consideration of a $1,500,000 credit against the SASA Obligation, (ii) the Company paid $290,000 to the RTC, and (iii) the Company delivered a secured promissory note to the RTC (the RTC Settlement Note) in the principal amount of $2,710,000. The RTC Settlement Note bears interest at an annual rare of 1% over the prime rate as published in the Wall Street Journal. The interest rate is adjusted semi-annually; provided, however, that the interest rate shall not be less than 8% or more than 12% per annum. The Company will make monthly payments of interest until December 6, 2000, at which time the entire principal amount and all accrued interest is due. The RTC Settlement Note is collateralized by (i) the Rancho Murieta Deed of Trust on 69 unsold residential lots at The Fairways in Rancho Murieta, California (56 lots as of December 31,1996), (ii) the Nevada Deed of Trust on 53 partially developed residential lots located in North Las Vegas, Nevada, and (iii) the Collateral Assignment of the SHF Notes in the aggregate principal amount of $725,250 secured by 7 residential lots previously sold at The Fairways ($564,160 secured by 5 residential lots at December 31, 1996). The Rancho Murieta Deed of Trust requires a $40,000 payment for the release of each of the encumbered lots. The Nevada Deed of Trust requires a $6,000 payment for the release of each of the encumbered lots. The RTC will apply such payments to the outstanding principal due on the RTC Settlement Note. Principal collections received by the Company on the SHF Notes will be remitted to the RTC for application to the outstanding principal due on the RTC Settlement Note. As a result of settling the SASA Obligation, the Company recorded an extraordinary gain of $8,346,000 in the year ended December 31, 1995. The gain consisted of a profit of approximately $1,100,000 on the transfer of the San Diego property to the RTC and a reduction of indebtedness of approximately $7,246,000 net of related legal fees and other costs. On February 21, 1997, the Company signed an Agreement for the Purchase and Sale of all of the 57 lots, located in North Las Vegas, Nevada, for a total consideration of $661,800 plus reimbursement of water fees paid in the amount of $72,597. The sale is expected to close in the second quarter of 1997. On October 7, 1996, the Company signed a letter agreeing to modify the Purchase and Option Agreement (the New Agreement) between the Company and Murieta Investors, LLC (MI), formerly West Coast Properties, LLC. The Purchase and Option Agreement between West Coast Properties, LLC and the Company is described in detail in the Company's Form 10-K for the year ended December 31, 1995. See Item 1. "Business - Real Estate and Related Activities - The Fairways". The New Agreement provides that 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 (the Success Payments). Eight months after the purchase of the initial 6 lots, MI will be entitled to purchase a second group of 6 lots. An additional group of 6 lots may be purchased every 4 months thereafter until a total of 40 lots have been purchased. The initial payment for the second 6 lots purchased will be $40,000, plus payment of the applicable Park Fees and the Success Payments. The initial payment for all subsequent lots purchased will be $45,000, plus payment of the applicable Park Fees and the Success Payments. Beginning with the purchase of the third group of 6 lots, the Success Payments will be 20% of the gross sales price of each residential dwelling sold less $45,000. If MI sells any lots without constructing a residential dwelling thereon, the Company will receive 20% of the sales price without offset of the initial price of $40,000. The sale of the first 6 lots closed on December 20, 1996. In January 1996, the Company's Board of Directors authorized management to pursue the possibility of constructing a new rice drying facility adjacent to the rice storage facility in Yolo County, California (The New Drying Facility). The cost of constructing The New Drying Facility is estimated to be $1,800,000 including carrying costs. The Company has made a $47,484 deposit on a rice dryer in anticipation of constructing The New Drying Facility. Since the Company did not begin construction as originally scheduled, 50% of the deposit has been forfeited. However, the Company will receive credit for the balance of the deposit if construction of The New Drying Facility goes forward. In the event the Company does not proceed with the construction of The New Rice Drying Facility, the Company will lose the balance of its deposit on the rice dryer. Construction of The New Drying Facility is subject to various governmental approvals and the ability of the Company to obtain adequate financing. The Company has signed a financing commitment, which if funded, would provide approximately 65% or $1,150,000, whichever is less, of the construction funds needed to build The New Drying Facility. The commitment is subject to the final review and credit approval of the lender and execution of mutually acceptable documentation. No assurance can be given that the Company will receive the necessary approvals or adequate financing. It is anticipated that construction of The New Drying Facility would begin in the second quarter of 1997. The Company is unable to predict whether The New Drying Facility will be completed in time for the 1997 rice drying season (approximately September 15 to November 15). If The New Drying Facility is not completed in time for the 1997 rice drying season, the Company may attempt to negotiate a new lease on the West Sacramento drying facility. In February 1997, the Company and the other 50% owner of the White Ranch entered into a Purchase Agreement (the Agreement) to sell the White Ranch for $6,000,000. The Agreement provides that the purchaser will make a $10,000 non-refundable deposit for a 90-day inspection period. The inspection period may be extended for an additional 90 days upon payment of an additional $10,000 non-refundable deposit. Terms of the sale are all cash at close of escrow. If the sale is consummated, net proceeds to the Company will be approximately $3,000,000. However, no assurance can be given that the sale will be completed. A special liquidating master has been appointed by the United States District Court, District of Nevada, to sell the assets that serve as collateral for the obligation due the FDIC by the Anderson Parties, including the outstanding voting shares of the Company in the possession of the FDIC. If the common shares are in fact sold to either persons or entities other than Mr. Anderson or entities controlled by Mr. Anderson, a change in control of the Company will occur. To the knowledge of the Company, the special liquidating master has not taken any over steps to assert control, vote the shares, influence management of the Company, or otherwise, although no assurance can be given that such steps are not contemplated or imminent. In March 1997, the Anderson Parties filed a notice of appeal with respect to the U.S. District Court's February 4, 1997 ruling terminating and discharging the Receiver and appointing a special liquidating master. At the present time the Company cannot predict the time and likelihood that such sale of shares or such change in control will occur, or whether other actions, proceedings or otherwise will occur that may block, impede or otherwise prevent or postpone such sale of shares or potential change in control. The appointment of a special liquidating master may jeopardize the Anderson Parties' ability to operate, including Baby Grand Corp., which remains liable to the Company under the Baby Grand Note. The Company is unable to predict what the effect the outcome of the matters described above will have on the Company. See Item 3. "Legal Proceedings". The Company has no present intentions to pay dividends on either its common or preferred stock. OPERATING RESULTS Results of operations for the year ended December 31, 1996, were adversely impacted due to a number of factors including: (i) a bad debt write off relating to entities owned or controlled by or related to the President and Chairman of the Board of the Company ($482,000); (ii) a write down of real estate held for sale relating to The Fairways ($290,000); (iii) partnership losses relating to Pine Ridge Joint Venture and Steadfast Cattle Company ($135,000); (iv) a decline in profits from the operations of the rice dryer and storage facility; and (v) a decline in the profit from the sale of lots at The Fairways. 1996 vs. 1995 Real Estate During 1996 the Company reduced the carrying value of The Fairway lots by $290,000. The write down of the carrying value was necessitated when the Company reduced the listed sales prices of The Fairways lots in an attempt to increase the number of lot sales. The sale of the 6 lots to MI were recorded at the initial price of $40,000 per lot. In accordance with Statement of Accounting Financial Standards (SFAS) No. 66 "Accounting for Sales of Real Estate," no recognition was given to any Success Payments the Company may receive in the future. The Company has recorded all costs associated with the lots which resulted in a loss on the sale of the 6 lots of approximately $240,000. Net rental income from agricultural properties increased by approximately $400,000 when compared with 1995. The increase was due to increased acres being rented for the 1996 crop year. Agricultural Rice drying and storage gross profit decreased by approximately $204,000 when compared with 1995. The decrease was due primarily to increased costs associated with the operation of the Drying Facility, and the payment of $75,000 relating to the Drying Facility lease. The cost of operating the Drying Facility increased because the Company had to rent generators to provide the power necessary to run the Drying Facility. This was necessitated by vandalism relating to the electrical wiring in the drying facility. Because of the vandalism, the Company was required, under the terms of the drying facility lease, to return the premises to the lessor in the same condition it was in at the inception of the lease. The Company paid the lessor $75,000 and in return, the lessor agreed to accept the return of the premises in an "as is" condition. General During 1996, the Company recorded bad debts of approximately $482,000 relating to loans made to entities owned or related to the Company's Chairman of the Board and President. Of the $482,000, $150,000 related to a $250,000 loan made to Golden State Trust in connection with a proposed settlement between John B. Anderson and the Anderson Parties and the FDIC. (See Item 1. "Business - Other Activities - Certain Loans - Golden State Trust."). In addition, the Company reduced the carrying value of the BGC Note by $338,000 to an amount the Company considers to be collectible by the due date. (See Item 1. "Business - Other Activities - Certain Loans - Baby Grand Corp."). On October 10, 1996, the last remaining home constructed by PRJV was sold, thereby effectively terminating PRJV. (See Item 1. "Business - Real Estate Segment - AJD Joint Venture."). The Company does not anticipate any future losses relating to PRJV. As of December 31, 1996, all operations of Steadfast ceased. (See Item 1. "Business - Other Activities - Other Transactions."). The Company does not anticipate any future losses relating to Steadfast and the cattle feeding operation. When compared with 1995, corporate selling, general and administrative expenses decreased due primarily to a reduction in legal fees. When compared with 1995, real estate selling, administrative and general expenses decreased due primarily to the sale of lots at The Fairways which caused a reduction in association dues, water and sewer fees, and property taxes. The decrease in interest and dividend income, when compared with 1995, was due to a decrease in notes receivables. When compared with 1995, interest expense increased because of the December 1995 settlement of the SASA Obligation and the commencement of interest payments. As a result of the foregoing, the net loss, before the extraordinary item, for the year ended December 31, 1996, decreased by $286,000 when compared with the net loss before the extraordinary item for the year ended December 31, 1995. 1995 vs. 1994 Real Estate Sales of real estate in 1995 increased by $343,000 when compared with 1994. Cost of real estate sold in 1995 increased by $477,000 when compared with 1994. The increase in sales and cost of real estate sold was due to increased sales volume at The Fairways. However, when compared with 1994, sales prices of lots, on the average, was less than the average sale price in 1994, thereby causing a decrease in profit resulting from the sale of real estate. Rental income from agricultural properties in 1995 decreased by $386,000 when compared with 1994. Rents received from the White Ranch decreased by approximately $301,000 as a result of fewer acres rented and reduced rental rates. Rent from Sam Hamburg Farm decreased by approximately $85,000 when compared with 1994. The decrease was due primarily to the sale of a portion of the Sam Hamburg Farm land. Agriculture When comparing 1995 with 1994, there were no significant increases or decreases in revenues and expenses associated with the rice drying and storage operation. General When comparing 1995 with 1994, Corporate Selling, Administrative and General expenses decreased by approximately $78,000. The decrease was general in nature and did not relate to any one given category of expenses. Real estate Selling, Administrative and General expenses decreased by approximately $168,000 in 1995. The decrease was due to a non-recurring charge in 1994 relating to the Street of Dreams promotion at The Fairways. Total bad debts for the year 1995 were approximately $761,000, which of $410,000 relating to a loan made to an entity wholly-owned by a director of the Company and approximately #351,000 relating to loans made to others, in the ordinary course of business, which became uncollectible. These consisted of unpaid rents at the White Ranch and a loan collateralized by a first deed of trust on real property and an assignment of rents, which real property was foreclosed on by the holder of the first mortgage and deed of trust. Bad debt expense was reduced by approximately $336,000 as a result of a settlement between Rancho Murieta Properties, Inc. (RMPI), the Pension Trust Fund for Operating Engineers and Rancho Murieta Country Club (RMCC) relating to certain obligations owing to RMPI by RMCC in which the Company had a security interest. The increase in partnership loss was directly related to the write-down of the Company's investments in PRJV and Steadfast. LIQUIDITY AND CAPITAL RESOURCES During the year ended December 31, 1996, cash, cash equivalents and marketable securities increased by $804,000 from $1,006,000 at December 31, 1995 to $1,810,000 at December 31, 1996. The most significant sources of cash in 1996 were cash provided by operations ($935,000), the collection of loans made to others, including related parties, ($975,000), proceeds from short term debt ($123,000) and cash from the disposition of investments ($183,000). The most significant uses of cash in 1996, consisted of payments on long-term debt ($842,000), payments on short term debt ($129,000), loans made to others, including related parties ($281,000) and cash paid for other investments. 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 note to the RTC; to fund a portion of the construction and carrying costs of The New Drying Facility; to fund costs that may be incurred relating to the toxic clean-up at Sam Hamburg Farm; and to fund general and administrative expenses. In addition, the Company may be required to fund certain mortgage payments relating to the Solano County Option if the current owner is unable to do so. The Company believes that sources of required liquidity will be cash generated from the rice drying and storage facilities, anticipated lot sales at The Fairways, collection of notes receivable resulting from sales at The Fairways, collection of rents at the White Ranch and/or the sale of the White Ranch if such sale is consummated, Success Payments related to the venture with MI, the collection of the Maddocks investment which was paid in February 1997, and the sale of the 57 lots in North Las Vegas. Based on known commitments, the Company believes that the sources of cash described will be adequate to fund known liquidity requirements. However, if the sources of required liquidity prove to be insufficient to cover the Company's primary liquidity requirements, it will be necessary to sell some of the Company's non-income producing assets. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and supplementary data of Dunes Hotels and Casinos Inc. are located at pages F-1 to F-32 and are listed and included under Item 14, Exhibits, Financial Statement Schedules and Reports on Form 8-K of Part IV hereof and are incorporated herein by reference. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The By-laws of the Company provide that the number of directors constituting the entire board shall be twelve. 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. Of the nine directors elected at the December 19, 1984 annual meeting of shareholders, three have resigned, and only two of such vacancies thereby created have been filled. As a result, the number of directors currently serving is eight. 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, 54, is and has been since May 1984, a director, chairman of the board, and president of the Company. Anderson, through various subsidiaries, operates two hotel/casinos in Nevada. 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. Brent L. Bowen, 68, 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 became an employee of MRI in 1995. Mr. Bowen has experience in the hotel/casino, farming, real estate, home-building, rice mill, commodities and banking industries. James H. Dale, 65, is and has been since January 1988, a director of the Company. Mr. Dale was elected Treasurer of the Company in 1990. From September 1986 to October 1991, Mr. Dale was employed by Anderson Farms (an Anderson Entity) as Chief Financial Officer. Prior to 1986, he was a partner in Grant Thornton, Certified Public Accountants. Mr. Dale became an employee of MRI in October 1991 when he was elected president of MRI and its subsidiaries. Andrew Marincovich, 75, 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, 66, 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 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, 53, 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. 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. Mr. Pasquale was elected to the Company's Audit Committee on May 19, 1994. Wayne O. Pearson, 66, 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, 49, 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. Since November 1985, he has been 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. There is no family relationship between any director or executive officer of the Company. No director holds a directorship in any 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 upon 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, 1996. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the annual compensation paid to John B. Anderson, the Company's Chairman of the Board and President, and to James H. Dale, the only executive officer of the Company who received compensation in excess of $100,000 for the year ended December 31, 1996. SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION (a) (b) (c) (d) (e) (i) Other annual All other compen- compen- Name and prin- sation sation cipal position Year Salary($) Bonus($) ($) ($) John B. Anderson, 1996 --- --- --- $74,998 (1) Chairman of 1995 --- --- --- $64,278 (1) the Board and 1994 --- --- --- $73,134 (1) President James H. Dale, 1996 $110,000 $2,500 --- $15,000 (2) Treasurer 1995 $102,400 $20,000 --- $15,000 (2) 1994 $100,000 $1,800 --- $15,000 (2) (1) All other compensation to John B. Anderson, the Company's Chairman of the Board and President consists of the following for the years indicated: 1996 Annual Directors fees $ 15,000 Payments of certain expenses on behalf of Mr. Anderson 59,998 $ 74,998 1995 Annual Directors fees $ 15,000 Payments of certain expenses on behalf of Mr. Anderson 49,278 $ 64,278 1994 Annual Directors fees $ 15,000 Payments of certain expenses on behalf of Mr. Anderson 58,134 $ 73,134 (2) All other compensation to James H. Dale, the Company's Treasurer, consists of annual directors fees in the amount of $15,000. COMPENSATION OF DIRECTORS The Company pays each director an annual fee of $15,000 which until December 31, 1996, was paid quarterly. At the January 1997 Board of Directors meeting, the Directors voted to pay directors fees monthly. Directors fees due 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 1996, Directors fees due Mr. Tallstrom were retained by the Company and applied against amounts due the Company from entities owned or controlled by Mr. Tallstrom. In 1996, Directors fees due Mr. Marincovich were retained by the Company and applied against amounts due the Company from El Dorado Vineyards, Inc., a company wholly-owned by Mr. Marincovich. In January 1997, the Board of Directors agreed to pay Mr. Marincovich's and Mr. Tallstrom's director fees directly to them effective January 1, 1997. 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 allowance of $300 for each meeting attended. For services rendered as Audit Committee members during the fiscal year 1996, Messrs. Marincovich, Pearson, Pasquale, O'Leary and Bowen were paid $16,550, $12,300, $16,460, $13,500, and $12,000, respectively. Beginning January 1, 1997, the Company adopted the policy of deferring $250 of each monthly directors fee and $200 of each monthly audit committee fee. 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 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table shown below (1) contains certain information with respect to any person (including any "group" as that term is used in Section 13(d)(3) of the Exchange Act), who are known to the Company to be beneficial owners (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. No person is known to the Company to be the beneficial owner of more than 5% of the Company's Series B preferred stock. Percent of Name and Address of Amount and Nature of Common Stock Beneficial Owner Beneficial Ownership(1) Outstanding John B. Anderson(2) 4,280,756 67.2% P.O. Box 1410 Davis, CA 95617 Federal Deposit Insurance 4,280,756 67.2% Corporation(2) 550-17th N.W. Washington, D.C. The table shown below (1) contains 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 securities laws) by all directors, and directors and executive officers of the Company as a group. No director or executive officer of the Company is known to the Company to be the beneficial owner of any of the Company's Series B preferred stock. NAME OF BENEFICIAL AMOUNT AND NATURE OF PERCENT OF COMMON OWNER BENEFICIAL OWNERSHIP(1) STOCK OUTSTANDING John B. Anderson(2) 4,280,756 67.2% Brent L. Bowen(3) 2,000 * Andrew P. Marincovich(3) 200 * All Directors and Officers as a Group (3 Persons) 4,282,956 67.2% * Less than one percent (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). Of the Anderson Shares, approximately 3,000,000 shares are pledged in favor of the FDIC. On February 17, 1993, the Company received a copy of Securities and Exchange Commission Schedule 13D dated February 12, 1993 filed with the Commission on behalf of EurekaBank (Eureka). The Eureka Schedule 13D reports that Eureka possesses "sole voting power" and "sole dispositive power" with respect to 3,000,000 shares of the Company's common stock. The Eureka Schedule 13D also reports that Eureka may be deemed to have acquired beneficial ownership of 4,367,643 shares of the Company's common stock which amounts to 68.5% of the class represented by said shares. In July 1993, Eureka representatives advised the Nevada Gaming Control Board that the FDIC had assumed management and supervision of efforts to collect Mr. Anderson's obligation under a debtor-creditor agreement dated November 30, 1988, by and between John B. Anderson, Edith Anderson and Eureka Federal Savings and Loan Association. On July 14, 1995, the FDIC filed an action in the United District Court for the District of Nevada against Anderson, Edith Anderson, CDC, J.A. Inc. and J.B.A. Investments, Inc. The Company is not a party to the action. See "Item.3 - Legal Proceedings" for a detailed discussion of the Anderson Parties obligation to the FDIC and the litigation relating thereto. Of the Anderson Shares, approximately 1,280,000 shares are pledged in favor of the Company to secure indebtedness to the Company. The balance of the Anderson Shares are pledged in favor of other creditors of Anderson. The transfer agent's records maintained for the Company show that Anderson or entities owned or controlled by him own 4,510,912 shares. The difference between what the transfer agent's records show and the information provided to the Company by Anderson is 230,156 shares. The difference consists of (i) 250,000 shares which were purchased by the Company in January 1992, (ii) 106,731 shares purchased by BGC and (iii) 86,887 shares owned by CBC given in payment of legal fees owed by Mr. Anderson. None of these transactions have been changed on the transfer agent's records. (3) Messrs. Marincovich and Bowen claim beneficial ownership of, and sole investment and sole voting powers with respect to the reported shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Anderson and Anderson Entities own approximately 67.2% 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. As of December 31, 1996, BGC was indebted to MRI in the principal amount of $2,129,400 plus accrued interest in the amount of $167,000. Refer to "Item 1. -- Business -- Certain Loans" for a more detailed discussion of the BGC loan. On February 9, 1995, the Company purchased from BGC an option, held by BGC, to purchase approximately 1,690 acres of real property in Solano County, California. The purchase price was $1,043,000. Refer to "Item 1.- Real Estate Segment - Solano County Option." On June 12, 1996, the Company loaned Golden State Trust, an Anderson Entity, $250,000. The loan is presently in default. Refer to "Item 1.-- Business - Certain Loans" for a more detailed discussion of the Golden State Trust Loan. In February 1993, the Company loaned $500,000 to an entity wholly-owned by Director Andrew Marincovich. The Company did not recover any of the loan amount, either directly or through the non-recourse guarantee from Mr. Marincovich. Refer to "Item 1.- - - Business - Certain Loans - Directors" for more detailed discussion of the loan. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report. 1. Financial Statements. PAGE Independent Auditors' Report F-1 Dunes Hotels and Casinos Inc. and Subsidiaries Consolidated Financial Statements: Balance sheets as of December 31, 1996 and 1995 F-2 Statements of income (loss), three years ended December 31, 1996, 1995 and 1994 F-4 Statements of shareholders' equity, three years ended December 31, 1996, 1995 and 1994 F-6 Statements of cash flows, three years ended December 31, 1996, 1995 and 1994 F-7 Notes to Consolidated Financial Statements, three years ended December 31, 1996, 1995 and 1994 F-9 2. Financial Statement Schedules: Schedule II S-1 Schedule III S-4 Schedule IV S-5 3. Exhibits. 3.01 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. 3.02 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. 3.03 Revised By-laws of Dunes Hotels and Casinos Inc. dated December 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 3.03. 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. 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. 10.02 Agreement dated November 21, 1989 by and between CCC Nevada Inc. (formerly Continental Connector Corporation), and Continental Industries, Inc.; Promissory Note dated November 20, 1984, in the principal amount of $3,000,000 made by Continental Industries, Inc. to Continental Connector Corporation; Allonge to Promissory Note, dated November 20, 1989, in the original principal amount of $3,000,000 made by Continental Industries, Inc. to Continental Connector Corporation; Security Agreement dated as of November 20, 1984 by and between Continental Industries, Inc. and Continental Connector Corporation; and Continuing Guaranty dated April 2, 1985, by Morris Blinder and Meyer Blinder in favor of Continental Connector Corporation, are 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 10.02. 10.04 Settlement Agreement dated June 28, 1988, by and between San Antonio Savings Association and Dunes Hotels and Casinos Inc.; First Amendment to Settlement Agreement dated December 5, 1989, by and between San Antonio Savings Association, F.A. (assignee of San Antonio Savings Association) and 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 10.04. Settlement Release and Loan Modification Agreement dated October 24, 1995, by and among the Resolution Trust Corporation, Dunes Hotels and Casinos Inc., Continental California Corporation, M & R Investment Company, Inc. and SHF Acquisition Corporation, is incorporated herein by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, Item 6, Exhibit 10.01. Order Granting Joint Motion to Dismiss Bankruptcy Case and Adversary Proceeding, dismissing bankruptcy case of Continental California Corporation, is incorporated herein by reference to Dunes Hotels and Casinos Inc. Current Report on Form 8-K dated November 22, 1995, Item 7(c), Exhibit 99.01. 10.05 Stipulation and Order for Dismissal with Prejudice filed in the United States Bankruptcy Court, District of Nevada, Case No. BK-S-92-20989 (RCJ) executed by The Valley National Bank of Arizona, EurekaBank, M&R Investment Company, Inc. and Baby Grand Corp.; Compromise Agreement dated November 9, 1992, by and among Maxim Development, The Valley National Bank of Arizona and Redwood Bank; Settlement Agreement and Mutual Release dated November 2, 1992, by and among EurekaBank, The Valley National Bank of Arizona, M&R Investment Company, Inc. and Baby Grand Corp.; Addendum to Settlement Agreement and Mutual Release dated November 2, 1992, by and among EurekaBank, The Valley National Bank of Arizona, M&R Investment Company, Inc., and Baby Grand Corp.; Stipulation for Dismissal of Appeal with Prejudice filed in the United States District Court, District of Nevada, Case No. CV-S-92-675-LVG (RCH) dated November 2, 1992 and executed by The Valley National Bank of Arizona, Baby Grand Corp., M&R Investment Company, Inc. and the official Unsecured Creditors' Committee; Promissory Note dated November 2, 1992, in the principal amount of $2,650,000 made by Baby Grand Corp. to 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. 1-4385) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.05. Second Settlement and Forbearance Agreement dated February 9, 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., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Current Report on Form 8-K (file no. 1-4385) dated February 9, 1995, Item 7, Exhibit Nos. 10.01 and 10.02. 10.06 Straight Note dated August 28, 1990, in the principal amount of $486,000 made by Rancho Murieta Properties, Inc. to SHF Acquisition Corporation; and Deed of Trust with Assignment of Rents (Short Form) dated August 28, 1990, by and between Rancho Murieta Properties, Inc., First American Title Insurance Company and SHF Acquisition Corporation, securing $486,000 Straight Note, are 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, 1990, Part IV, Item 14(a)(3), Exhibit 10.07. Second Extension Agreement dated September 30, 1993, by and between SHF Acquisition Corporation and Rancho Murieta Properties, Inc.; Pre-workout Letter Agreement dated November 9, 1993, by and between SHF Acquisition Corporation and Rancho Murieta Properties, Inc.; Assignment of Membership Proceeds dated September 30, 1993, by and among SHF Acquisition Corporation, Rancho Murieta Properties, Inc. and M & R Investment Company, Inc.; and UCC-1 Financing Statement dated November 29, 1993, by Rancho Murieta Properties, Inc. in favor of SHF Acquisition Corporation and M & R Investment Company, Inc., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.10. 10.09 Promissory Note dated May 31, 1990, in the principal amount of $1,100,000, made by Yolo Oil and Gas, Inc. to SHF Acquisition Corporation; Guaranty of Payment and Performance dated May 29, 1990, by 500 First Street, a California general partnership, Kent N. Calfee, William Maddocks and Kenneth Wallace in favor of SHF Acquisition Corporation; Deed of Trust and Security Agreement dated May 31, 1990, by and among Yolo Oil and Gas, Inc., Chicago Title Insurance Company and SHF Acquisition Corporation; Deed of Trust and Security Agreement dated May 29, 1990, by and among 500 First Street, Wildlife Artisan, Inc., Chicago Title Insurance Company and SHF Acquisition Corporation; Assignment of Rents and Leases dated May 31, 1990, by and between Wildlife Artisan, Inc. and 500 First Street, for the benefit of SHF Acquisition Corporation; Environmental Indemnity Agreement dated May 31, 1990, by Yolo Oil & Gas, Inc., 500 First Street, Kent N. Calfee, William Maddocks and Kenneth Wallace in favor of SHF Acquisition Corporation; Loan Agreement dated May 25, 1990, by and among Yolo Oil & Gas, Inc., SHF Acquisition Corporation, 500 First Street, and William Maddocks; Lender's Escrow Instructions dated May 31, 1990, by Yolo Oil & Gas, Inc., Chicago Title Insurance Company and SHF Acquisition Corporation; Deed of Trust and Security Agreement dated May 29, 1990, by 500 First Street, Wildlife Artisan, Inc., Chicago Title Insurance Company and SHF Acquisition Corporation; and Assignment of Rents and Leases dated May 31, 1990, by Wildlife Artisan, Inc., 500 First Street, and SHF Acquisition Corporation, are 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, 1990, Part IV, Item 14(a)(3), Exhibit 10.11. 10.10 Letter Agreement dated July 21, 1991, by and among Calfee & Young (on behalf of M & R Investment Company, Inc.), Rancho Murieta Properties, Inc. and CBC Builders, Inc.; Promissory Note in the principal amount of $955,500 made by Rancho Murieta Properties, Inc. and CBC Builders, Inc. to M&R Investment Company, Inc.; Deed of Trust with Assignment of Rents dated July 22, 1991, by CBC Builders, Inc. in favor of M&R Investment Company, Inc.; Deed of Trust dated July 22, 1991 by CBC Builders, Inc. in favor of M&R Investment Company, Inc.; Collateral Assignment of Partnership Interest dated July 22, 1991, by Erik J. Tallstrom in favor of M&R Investment Company, Inc.; Assignment of Director's Fees dated July 22, 1991, by and between CBC Builders, Inc. and M&R Investment Company, Inc.; Memorandum of Option to Purchase dated July 22, 1991, by and between CBC Builders, Inc. and M&R Investment Company, Inc.; and Personal Guaranty dated July 22, 1991, by Erik J. Tallstrom, are incorporated by reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file no 1-4385) for the year ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.12. Extension Agreement dated September 30, 1993, by and among M & R Investment Company, Inc., Rancho Murieta Properties, Inc. and CBC Builders, Inc.; Pre-workout Letter Agreement dated November 9, 1993, by and among M & R Investment Company, Inc., Rancho Murieta Properties, Inc. and CBC Builders, Inc.; Extension of Option Agreement dated September 30, 1993, by and between M&R Investment Company, Inc. and CBC Builders, Inc, are 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.10. 10.14 Corporation Deed of Trust with Assignment of Rents dated March 23, 1993, by and among Andrew P. Marincovich and Matilda C. Marincovich, First American Title Insurance Company and M&R Investment Company, Inc.; Promissory Note dated July 22, 1992, in the principal amount of $500,000 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Business Loan Agreement by and among M&R Investment Company, Inc., El Dorado Vineyards, Inc. and Andrew P. Marincovich; Security Agreement by El Dorado Vineyards, Inc. in favor of M&R Investment Company, Inc.; Personal Guaranty dated April 7, 1993, by Andrew P. Marincovich in favor of M&R Investment Company, Inc., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.14. Promissory Note in the principal amount of $500,000, made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note in the principal amount of $8,800 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note in the principal amount of $3,945.21 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note in the principal amount of $39,591.29 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Business Loan Agreement by and among M&R Investment Company, Inc., El Dorado Vineyards, Inc. and Andrew P. Marincovich; Personal Guaranty by Andrew P. Marincovich in favor of M&R Investment Company, Inc.; and Security Agreement by El Dorado Vineyards, Inc. in favor of M&R Investment Company, Inc., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.14. Loan Modification Agreement dated July 15, 1994, by and among El Dorado Vineyards, Inc., Andrew P. Marincovich and M&R Investment Company, Inc.; Durable Special Power of Attorney dated July 21, 1994 by Andrew P. Marincovich; Promissory Note dated July 15, 1994, in the principal amount of $500,000 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note dated July 15, 1994, in the principal amount of $39,591.32 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note dated July 15, 1994, in the principal amount of $3,945.21 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note dated July 15, 1994, in the principal amount of $8,800.00 by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note dated July 15, 1994, in the principal amount of $12,184.86 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; and Promissory Note dated July 19, 1994, in the principal amount of $153,428.94 by El Dorado Vineyards, Inc. to M&R Investment Company, Inc., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q (file no. 1-4385) for the six months ended June 30, 1994, Item 6, Exhibit 10.01. Note Modification Agreement (with Exhibits A through F) dated January 5, 1995, by and among El Dorado Vineyards, Inc., Andrew P. Marincovich and M&R Investment Company, 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 10.14. 10.16 Parks Development Agreement dated February 20, 1991, by and among the Rancho Murieta Association, the Rancho Murieta Community Services District, Rancho Murieta Properties, Inc., CBC Builders, Inc. and SHF Acquisition Corporation, 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.16. Settlement Agreement Regarding Payment of Park Fees (not dated) by and among Rancho Murieta Association, SHF Acquisition Corporation, CBC Builders, Inc., Rancho Murieta Properties, Inc. and Rancho Murieta Community Services District of Sacramento County, 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 10.16. 10.17 Inter-Creditor Agreement dated September 30, 1993, by and among SHF Acquisition Corporation, M & R Investment Company, Inc. and Calfee & Young, 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.17. 10.18 Commercial Premises Lease dated July 1, 1993, by and between California Dehydrating Company and SHF Acquisition Corporation, 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.18. 10.19 Renewal Promissory Note secured by Security Agreement Modification Agreement dated June 1989, by and between Eureka Federal Savings and Loan Association and Andco Development Group, Inc.; Security Agreement-Pledge dated June 1989, by and between Rancho Murieta Properties, Inc. and Eureka Federal Savings and Loan Association; Agreement to Modify Promissory Note dated June 1989, by and among Eureka Federal Savings and Loan Association, Andco Development Group, Inc., Andco Land and Development Company, Inc. and CBC Builders, Inc.; Extension Agreement dated February 1, 1990, by and among Eureka Federal Savings and Loan Association, Andco Development Group, Inc., Andco Land and Development Company, Inc., Rancho Murieta Properties, Inc., Erik J. Tallstrom and John B. Anderson; Guaranty dated October 1, 1987, by John B. Anderson in favor of Eureka Federal Savings and Loan Association; Guaranty dated October 1, 1987, by Erik J. Tallstrom in favor of Eureka Federal Savings and Loan Association; Guaranty dated October 1, 1987, by Rancho Murieta Properties, Inc. in favor of Eureka Federal Savings and Loan Association; Amendment No. 1 to Guaranty dated June 1989, by and between John B. Anderson and Eureka Federal Savings and Loan Association; Amendment No. 1 to Guaranty dated June 1989, by and between Erik J. Tallstrom and Eureka Federal Savings and Loan Association; Amendment No. 1 to Guaranty dated June 1989, by and between Rancho Murieta Properties, Inc. and Eureka Federal Savings and Loan Association; Corporation Deed of Trust with Assignment of Rents dated June 1989, by and between Rancho Murieta Properties, Inc. and Eureka Federal Savings and Loan Association; Agreement for Purchase and Sale of Promissory Note dated November 24, 1993, by and between Realecon, Inc. and M&R Investment Company, Inc.; Assignment of Promissory Note dated November 24, 1993, by and between Realecon, Inc. and M&R Investment Company, Inc.; Assignment and Assumption Agreement of Security Agreement and Guaranties dated November 24, 1993, between Realecon, Inc. and M&R Investment Company, Inc.; Secured Promissory Note dated November 24, 1993, in the principal amount of $125,000 by M&R Investment Company, Inc. to Realecon, Inc.; Assignment of Deed of Trust with Request for Special Notice dated November 24, 1993, by Realecon, Inc. in favor of M&R Investment Company, Inc.; and Corporation Deed of Trust with Assignment of Rents dated November 24, 1993, by SHF Acquisition Corporation in favor of Realecon, Inc, are 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.19. 10.20 Pine Ridge Joint Venture Agreement dated June 1993, by and between AJD and M & R Investment Company, 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.20. Pine Ridge Joint Venture -- Joint Venture Meeting-- November 10, 1994, discussing additional capital requirements for the continuing operations of Pine Ridge Joint Venture and equity increases to M&R Investment Company, Inc. related thereto, 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 10.20. 10.21 Letter dated March 28, 1994 from M&R Investment Company, Inc. to Michael Shipsey and Tri-Star International Development regarding purchase of a 25% interest of Tri-Star International Development's 50% interest in Arroyo Grande Joint Venture Agreement of distributable cash; and Letter dated July 29, 1994 from Dennis L. Kennedy of Lionel Sawyer & Collins to Tri-Star International Development regarding termination of Tri-Star International Development's interest in the Arroyo Grande Joint Venture, are 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 10.21. 10.22 Agreement dated January 1, 1996, by and between California Dehydrating Company, Inc. and SHF Acquisition Corporation regarding use of the California Dehydrating name and a Covenant Not to Compete 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 10.22. 10.23 Commercial Premises Lease dated March 1, 1995, by and between Pheasant Investment Corporation and SHF Acquisition Corporation regarding the lease of the rice drying facility in West Sacramento, California 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 10.23. 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. 10.25 Assignment of promissory note in the original principal amount of $57,000 made by James P. Parks and Dale A. Parks in favor of SHF Acquisition Corporation; Promissory Note dated February 13, 1995, made by James P. Parks and Dale A. Parks in favor of SHF Corporation; Deed of Trust dated February 13, 1995, made by James P. Parks and Dale A. Parks 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 10.25. 10.26 Assignment of promissory note in the original principal amount of $70,000 made by Chandler T. Martin and Debra L. Martin in favor of SHF Acquisition Corporation; Promissory Note dated March 2, 1992, made by Chandler T. Martin and Debra L. Martin in favor of SHF Acquisition Corporation; Letter dated April 6, 1994, extending the due date of the note to March 10, 1998; Deed of Trust dated March 2, 1992, made by Chandler T. Martin and Debra L. Martin 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 10.26. 10.27 Assignment of promissory note in the original principal amount of $164,160 made by Consolidated Kapital, Inc. in favor of SHF Acquisition Corporation; Promissory Note dated January 24, 1992, made by Consolidated Kapital, Inc in favor of SHF Acquisition Corporation; Deed of Trust dated January 24, 1992, made by Consolidated Kapital, 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, 1995, Part IV, Item 14(a)(3), Exhibit 10.27. 10.28 Assignment of promissory note in the original principal amount of $85,360 made by William A. Brown in favor of SHF Acquisition Corporation; Promissory Note dated April 6, 1995, made by William A. Brown in favor of SHF Acquisition Corporation; Deed of Trust dated April 6, 1995, made by William A. Brown 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 10.28. 10.29 Assignment of promissory note in the original principal amount of $76,000 made by John P. Xepoleas and Monterey A. Xepoleas in favor of SHF Acquisition Corporation; Promissory Note dated March 10, 1995, made by John P. Xepoleas and Monterey A. Xepoleas in favor of SHF Acquisition Corporation; Deed of Trust dated March 10, 1995, made by John P. Xepoleas and Monterey A. Xepoleas 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 10.29. 10.30 Assignment of promissory note in the original principal amount of $193,800 made by T. E. Duerr and P. A. Duerr, Trustees of the Duerr Family Revocable Trust dated October 14, 1987, in favor of SHF Acquisition Corporation; Promissory Note dated July 22, 1992, made by T.E. Duerr and P. A. Duerr, Trustees of the Duerr Family Revocable Trust in favor of SHF Acquisition Corporation; Deed of Trust dated July 22, 1992, made by T.E. Duerr and P. A. Duerr, Trustees of the Duerr Family Revocable Trust 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 10.30. 10.31 Assignment of promissory note in the original principal amount of $79,000 made by Raymond L. James and Cheryle James in favor of SHF Acquisition Corporation; Promissory Note dated December 7, 1994, made by Raymond L. James and Cheryle James in favor of SHF Acquisition Corporation; Deed of Trust dated December 7, 1994, made by Raymond L. James and Cheryle James 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 10.31. 10.32 Installment Note dated January 17, 1996, made by Mukhtar Ahmad and Nazra P. Ahmad in favor of Willows Ranch Group, consisting of SHF Acquisition Corporation and 500 First Street wherein SHF Acquisition Corporation has a 91.90% interest 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 10.32. 10.33 Purchase and Option Agreement by and between SHF Acquisition Corporation and West Coast Properties, LLC, undated, regarding the sale of 20 lots and an option to purchase an additional 20 lots at The Fairways is incorporated herein by Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, Part II, Item 6, Exhibit 10.01. 10.34 Letter dated July 12, 1996 from Murieta Investors regarding Amended Purchase Agreement is incorporated herein by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, Part II, Item 6, Exhibit 10.01 10.35 Promissory note dated June 12,1996, between Golden State Trust and M & R Investment Company, Inc.; Assignment of Rights to Payments, Consent to Assignment between Baby Grand Corp. and M & R Investment Company, Inc.; Loan Agreement and Assignment between M & R Investment Company Inc. and Golden State Trust is incorporated herein by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for the quarter ended June 30,1996, Part II, Item 6, Exhibit 10.02. 10.36 Real Estate Option Agreement dated September 27, 1996, wherein M&R Investment Company, Inc. granted an Option to MARCOR PARTNERSHIP, a general partnership, an Option to acquire M&R Investment Company, Inc's 66.667% interest in 2.16 acres of industrial property in Las Vegas, Nevada; Memorandum Of Option for the purpose of recordation. 10.37 Purchase Agreement dated February 27, 1997 by and between Dana C. Hair ("Buyer") and Southlake Acquisition Corporation, a Nevada Corporation, and Jim Joseph, as Trustee of The Joseph Revocable Trust, each as to an undivided 1/2 interest wherein Buyer agrees to buy the property, more commonly known as The White Ranch for $6,000,000; Exhibit "A" to purchase agreement, Legal description of the property; Exhibit "B", there are no items in Exhibit B; Exhibit "C", there are no items in Exhibit "C"; Exhibit "D", (i) Copy of a Field Tenant Lease dated January 5, 1997, between Southlake Acquisition Corporation and Phoenix Farming Company (ii) Copy of a Field Tenant Lease dated January 5, 1997, between Southlake Acquisition Corporation and Four B's Farms (iii) Copy of an Agricultural Lease dated September 8, 1992, and its amendment dated November 29, 1995 between Southlake Acquisition Corporation and J.G. Boswell Company (iv) Copy of a letter dated February 14, 1997, from Brent Bowen, Vice President, Southlake Acquisition Corporation to J. W. Boswell, President, J.G. Boswell Company (v) Copy of a Field Tenant Lease dated February 20, 1997, between Southlake Acquisition Corporation and W.William Blanken dba HWB Farms.; Exhibit "E", there are no items in Exhibit "E"; Exhibit "F", (i) Copy of the Angiola Water District Restated Water Distribution Agreement (ii) Copy of a Fax Transmittal dated February 12, 1997, from Kevin Johansen, Angiola Water District, to Brent Bowen, Southlake Acquisition Corporation, describing portions of "the Property" lying within the boundaries of the Tulare Lake Basin Water Storage District and the Tulare Lake Drainage District, (iii) Copy of the Short Term State Water Contract between Tulare Lake Basin Water Storage District and Southlake Acquisition Corp. for the period January 1, 1997 through December 31, 1998, (iv) Copy of the Ninth Amended Rules and Regulations Governing the Transmission of Water Under the Water Supply Contract Between the State of California, Department of Water Resources and the Tulare Lake Basin Water Storage District; Exhibit "G", there are no items in Exhibit "G". 10.38 Agreement For The Purchase and Sale of Real Property dated February 21,1997, wherein SHF Acquisition Corporation agrees to sell to Celebrate, LLC, and/or assignee, a parcel of vacant land consisting of approximately .82 acres described as a portion of the W2, SW4, Se4NW4 of Section 33, Township 195 and Range 61E, M.D.M. The Property is further described as Arroyo Grande Unit 3 consisting of 4 lots. 10.39 Agreement For The Purchase and Sale of Real Property dated February 21,1997, wherein SHF Acquisition Corporation agrees to sell to Celebrate, LLC, and/or assignee, a parcel of vacant land consisting of approximately 11 gross acres described as a portion of the SW4, NW4 of Section 33, Township 195 and Range 61E, M.D.M. The property is further described as Arroyo Grande Unit 2A and 2B consisting of 53 lots. 10.40 Purchase and Option Agreement by and between SHF Acquisition Corporation and Murieta Investors, LLC, dated October 7, 1996, wherein SHF Acquisition Corporation sold 6 lots at The Fairways to Murieta Investors, LLC, and granted an option to Murieta Investors, LLC, to acquire 34 additional lots at The Fairways under terms and conditions described in the Purchase and Option Agreement. 21.01 Subsidiaries of Registrant. 27.01 Financial Data Schedule (b) Reports on Form 8-K 8K.01 August 27, 1996. This report on Form 8-K, Item 5, reported the entry of the Consent Judgment and the appointment of a receiver over the assets of Mr. Anderson and the Anderson Parties. 8K.02 February 4, 1997. This report on Form 8-K, Item 5, reported the termination of the receivership, the discharge of the receiver and the appointment of a special liquidating master to sell the assets of the Anderson Parties that serve as collateral for the obligation due the FDIC. 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/ John B. Anderson By /s/ James H. Dale John B. Anderson James H. Dale Chairman of the Board Treasurer (Principal and President Accounting and Financial (Principal Executive Officer) Officer) Dated March 27, 1996 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/ John B. Anderson John B. Anderson Chairman of the Board and President March 27, 1997 /s/ Brent L. Bowen Brent L. Bowen Director March 27, 1997 /s/ James H. Dale James H. Dale Director March 27, 1997 /s/ Andrew P. Marincovich Andrew P. Marincovich Director March 27, 1997 /s/ Donald J. O'Leary Donald J. O'Leary Director March 27, 1997 /s/ Edward Pasquale Edward Pasquale Director March 27, 1997 /s/ Wayne O. Pearson Wayne O. Pearson Director March 27, 1997 Erik J. Tallstrom Director March 27, 1997 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders Dunes Hotels and Casinos Inc. Las Vegas, Nevada We have audited the accompanying consolidated balance sheets of Dunes Hotels and Casinos Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dunes Hotels and Casinos Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 4a(1), the appointment in February 1997 of a special liquidating master in connection with the matter involving John B. Anderson and the Anderson Parties and the Federal Deposit Insurance Corporation could result in change of control; the effects of this and related developments on the Company or its future financial statements cannot be determined. As also discussed in Note 4, the Company has engaged in significant business activity and transactions with related parties, including real estate investment and lending, which have resulted in losses. In connection with our audits of the financial statements referred to above, we audited the financial statement schedules listed under Item 14(a)2. In our opinion, these financial statement schedules present fairly, in all material respects, the information stated therein, when considered in relation to the financial statements taken as a whole. /s/ Piercy, Bowler, Taylor & Kern Las Vegas, Nevada February 14, 1997 (except as to the matters discussed in Notes 4a(1), 5(b) and 5(c) as to which the dates are March 6, 1997, February 27, 1997 and February 21, 1997, respectively) DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 ASSETS 1996 1995 (Dollars in thousands) Cash and cash equivalents $ 1,283 $ 495 Marketable securities 527 511 Receivables Trade, less allowance, 1996, $141; 1995, $23 133 256 Related party, less allowance, 1996, $2,049; 1995, $1,566 397 1,127 Real estate sales 928 813 Other 47 410 Inventory of real estate held for sale 10,919 12,312 Inventory, other 38 89 Prepaid expenses 116 142 Property and equipment, less accumulated depreciation and amortization, 1996, $424; 1995, $325 1,678 1,754 Investments 1,049 1,566 Deferred costs and other 11 52 $ 17,126 $ 19,527 (continued) DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995 (Dollars in thousands) Accounts payable $ 98 $ 100 Accrued expenses 246 73 Deferred income 70 23 Income taxes 247 327 Short-term debt 69 75 Long-term debt and capitalized lease obligations 1,955 2,797 Accrued preferred stock dividends 1,101 1,028 Total liabilities 3,786 4,423 Minority interest 2,897 2,800 Shareholders' equity Preferred stock - authorized 10,750,000 shares ($.50 par); issued 10,512 shares Series B $7.50 cumulative preferred stock, outstanding 9,250 shares in 1996 and 1995, aggregate liquidation value $2,301 including dividends in arrears 5 5 Common stock - authorized 25,000,000 shares ($.50 par); issued 7,799,780 shares, outstanding 6,375,096 shares in 1996 and 1995 3,900 3,900 Capital in excess of par 25,881 25,881 Deficit (17,343) (15,482) 12,443 14,304 Treasury stock at cost; Preferred - Series B, 902 shares Common 1,424,684 shares in 1996 and 1995 2,000 2,000 Total shareholders' equity 10,443 12,304 $ 17,126 $ 19,527 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 (Dollars in thousands, except per share) Operating revenues: Sales of real estate $ 1,128 $ 1,901 $ 1,558 Cost of real estate sold 1,226 1,824 1,347 (98) 77 211 Rental income - agricultural properties 948 485 871 Cost and expense of rental income 449 386 594 499 99 277 Rice drying and storage revenues 787 752 774 Cost of rice drying and storage 768 529 561 19 223 213 Miscellaneous income - net 119 (8) 39 539 391 740 Operating expenses: Selling, administrative and general Corporate 1,022 1,090 1,168 Real estate operations 245 388 220 Bad debts, net of recoveries 556 425 624 Depreciation 99 69 63 Losses on real estate investments 290 284 500 2,212 2,256 2,575 Loss before other credits (charges), income taxes, minority interest and extraordinary item (1,673) (1,865) (1,835) Other credits (charges): Interest and dividend income 360 595 578 Interest expense (230) (37) (10) Partnership income (loss) (135) (781) 23 Securities gains (losses), net (14) 26 57 (19) (197) 648 (continued) DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 1996 1995 1994 (Dollars in thousands, except per share) Loss before income taxes, minority interest and extraordinary item (1,692) (2,062) (1,187) Income taxes (13) (8) Loss before minority interest and and extraordinary item (1,692) (2,075) (1,195) Minority interest in income of the White Ranch (97) Loss before extraordinary item (1,789) (2,075) (1,195) Extraordinary item, net of taxes of $80 8,346 Net income (loss) $ (1,789) $ 6,271 $ (1,195) Income (loss) per common share: Loss before extraordinary item $ (0.29) $ (0.33) $ (0.20) Extraordinary item 1.30 Net income (loss) $ (0.29) $ 0.97 $ (0.20) See notes to consolidated financial statements. DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in thousands) Preferred Stock Common stock Capital Preferred Common Total issued (1) issued in treasury stock treasury stock share- excess holders' Shares Amount Shares Amount of par Deficit Shares Amount Shares Amount equity Balance, January 1, 1994 10,152 $5 7,799,780 $3,900 $25,881 ($20,411) (902) ($70) (1,339,684) ($1,760) 7,545 Accrued dividends, Preferred (75) (75) Net loss (1,195) (1,195) Balance, December 31, 1994 10,152 5 7,799,780 3,900 25,881 (21,681) (902) (70) (1,339,684) (1,760) 6,275 Accrued dividends, Preferred (72) (72) Purchase of treasury stock (85,000) (170) (170) Net income 6,271 6,271 Balance, December 31, 1995 10,152 5 7,799,780 3,900 25,881 (15,482) (902) (70) (1,424,684) (1,930) 12,304 Accrued dividends, Preferred (72) (72) Net loss (1,789) (1,789) Balance, December 31, 1996 10,152 $5 7,799,780 $3,900 $25,881 ($17,343) (902) ($70) (1,424,684) ($1,930) $10,443 (1) Series B, $7.50 dividend, voting and non-convertible (liquidation value $125 per share) See notes to consolidated financial statements.
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 and 1994 1996 1995 1994 (Dollars in Thousands) Cash flows from operating activities: Net income (loss) $ (1,789) $ 6,271 $ (1,195) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Provision for losses on accounts and notes receivable, related parties and others 600 331 717 Non-cash gain from settlement of liability (8,619) Depreciation 99 69 63 Cost of real estate sold 1,191 1,732 1,172 Gain on disposition of assets (2) Non-cash portion of real estate sales (323) (777) Write-down of real estate held for sale 290 284 Provision for losses on investments 171 346 428 Partnership loss - net 435 50 Allocation of minority interest 97 (Gain) loss on marketable securities 14 (26) (57) Changes in certain assets and liabilities: Decrease (increase) in trade receivables 6 235 (123) Decrease (increase) in inventory 51 (89) Decrease (increase) in prepaid expenses 26 107 2 Decrease (increase) in deferred costs and other 41 (44) (2) Increase (decrease) in accounts payable (2) (74) (175) Increase (decrease) in accrued expenses 173 15 (20) Increase (decrease) in deferred income 47 4 Increase (decrease) in income taxes (80) 80 Net cash provided by operating activities 935 728 87 Cash flows from investing activities: Payments made for real estate held for sale (50) (445) (6) Capital expenditures (146) Cash paid for property and equipment (23) Cash paid for investments (125) (1,367) (568) Proceeds from investments 64 12 Investment in marketable securities (30) (65) (835) Proceeds from sale of marketable securities 435 1,286 Payments received on receivables 975 1,873 1,282 Loans made to related parties (250) (594) (718) Loans made to others (43) (193) (645) Cash from funds held in escrow 459 Cash from disposition of investments 183 Proceeds from disposition of property 10 87 Net cash provided by (used in) investing activities 701 (492) 354 (continued) DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1996, 1995 and 1994 1996 1995 1994 (Dollars in Thousands) Cash flows from financing activities: Proceeds from short-term debt $ 123 $ 133 $ 137 Payments on short-term debt (129) (134) (186) Payments on long-term debt (842) (444) (38) Payments for treasury stock (170) Net cash (used in) financing activities (848) (615) (87) Increase (decrease) in cash and cash equivalents 788 (379) 354 Cash and cash equivalents, beginning of year 495 874 520 Cash and cash equivalents, end of year $ 1,283 $ 495 $ 874 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 283 $ 10 $ 10 Supplemental schedules of non-cash investing and financing activities: Total liability settled $ $ 8,985 $ Less assets transferred (366) Non-cash gain from extraordinary items -- settlement of liabilities $ $ 8,619 $ Real estate acquired through foreclosure $ 38 $ $ Note receivable from sale of investments $ 224 $ $ Property and equipment acquired through a capitalized lease $ $ 73 $ Dividends accrued but unpaid $ 72 $ 72 $ 75 See notes to consolidated financial statements. DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 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. The Company did not consolidate Pine Ridge Joint Venture (PRJV), a joint venture in which the Company has a 51% interest, or Steadfast Cattle Company, a limited liability company in which the Company has a 50% interest. Both PRJV and Steadfast disposed of all of their assets during 1996 and are no longer operational. 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. The book value of obsolete assets is charged to depreciation expense when they are disposed of. Profits and losses from the sale of assets are included in other income. Repairs and maintenance are charged to expense as incurred. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," without any material effect. INCOME (LOSS) PER SHARE: Income (loss) per common share has been computed using the weighted average number of shares outstanding during the year: 6,375,096, 6,429,822 and 6,460,096 for the years ended December 31, 1996, 1995 and 1994, respectively. Dividends on nonconvertible preferred stock - Series B have been deducted from income or added to the loss applicable to common shares. See Note 17 of Notes to Consolidated Financial Statements. CASH AND CASH EQUIVALENTS: Cash equivalents are short-term (original maturity of 90 days or less), highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): MARKETABLE SECURITIES: Effective December 31, 1995, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain Investments in Debt and Equity Securities". The Company's investments in marketable securities are generally in preferred stocks of publicly held companies, are held for an indefinite period and are accounted for as trading securities. There have been no material gains or losses related to the Company's investments in marketable securities. RECLASSIFICATIONS: Effective January 1, 1996, the Company changed the format of its balance sheet from a classified balance sheet to a non-classified balance sheet. The format of the December 31, 1995 balance sheet has been changed to conform to the new presentation. The Company believes that a non-classified balance sheet, one that does not present current assets and current liabilities, better reflects the status of the Company's assets, liabilities and shareholders' equity. Certain amounts in the Company's consolidated statements of income (loss) for the years ended December 31, 1995 and 1994 have been reclassified to conform to the 1996 presentation. Such reclassification has no effect on the results of operations. The Company's Consolidated Balance Sheet for the year ended December 31, 1995 has been restated to reflect the 50% minority interest in the White Ranch. 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. REAL ESTATE HELD FOR DEVELOPMENT AND SALE: Real estate 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. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): USE OF ESTIMATES: The timely preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. 2. BANKRUPTCY PROCEEDING: On May 18, 1995, Continental filed a Petition for Relief Under Chapter 11 of the United States Bankruptcy Code. The Petition for Relief was filed in the United States District of Nevada, Case No. 95-21992 LBR. The case was subsequently transferred to The United States Bankruptcy Court for the Southern District of California. The bankruptcy case was dismissed on November 9, 1995. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS: Estimated fair value of the Company's financial instruments (all of which are held for nontrading purposes, except for marketable securities) are as follows: Carrying Fair Amount Value (Dollars in thousands) Cash and cash equivalents $1,283 $1,283 (a) Marketable securities 527 527 (a) Notes receivable, real estate sales 928 928 (b) Note receivable, related party (the BGC Note) 397 (c) Solano County Option 1,043 1,043 (d) Long-term debt (1,955) (e) (a) The carrying amount approximates fair value of cash, cash equivalents and marketable securities. For marketable securities, fair values are estimated based on quoted market prices. (b) The fair value of the notes receivable are based on their outstanding balances and their respective interest rates. Notes receivable are collateralized by first deeds of trust on the real estate sold. In the event any purchaser were to default on the real estate notes, the Company could institute foreclosure proceedings and reacquire the property which serves as the collateral for the note. The Company believes that the fair value of the collateral is in excess of the principal amount of the related note. 3. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED): (c) It is not possible to determine the fair value of the Baby Grand Corp. note ( the BGC Note) because the Company is unable to predict whether Baby Grand Corp. (BGC) will be able to pay its first lien note on its due date, which is the same date that the BGC Note payable to the Company comes due. See Note 4a(1) of Notes to Consolidated Financial Statements. (d) The fair value of the Solano County Option is estimated based on an appraisal of the real property, and subsequent discussions with local realtors, to which the option relates and the length of the option period which enables the Company to have some flexibility as to when and if the option should be exercisable. The Company can only recover the fair value of the option (i) by exercising the option and selling the property or (ii) selling the option. However, if the fair value of the real property should drop below the option purchase price, the Company would not be able to recover all of its investment in the Solano County Option. See Note 8(a) of Notes to Consolidated Financial Statements. (e) The fair value of long-term debt is not subject to reasonable estimation because the debt arose principally as a result of the settlement of a dispute. See Notes 9 and 10 of Notes to Consolidated Financial Statements. 4. RELATED PARTY TRANSACTIONS: a. John B. Anderson (Anderson), the Company's controlling stockholder and Chairman of the Board of Directors of the Company, and entities owned or controlled by him (Anderson Entities) own approximately 67.2% of the Company's common stock as of February 14, 1997. Each entity controlled by John B. Anderson will hereinafter be identified as an Anderson Entity. (1) Baby Grand Corp. d/b/a Maxim Hotel and Casino (the Maxim), Las Vegas, Nevada, an Anderson Entity, owed the Company $2,129,400 plus accrued interest in the amount of $167,000 at December 31, 1996, pursuant to a promissory note dated November 2, 1992, in the original amount of $2,650,000 (the BGC Note). The BGC Note bears interest at the rate of 9% per annum. Monthly payments under the BGC Note are currently $50,000. The BGC Note is due in full on December 1, 1997 at which time the first deed of trust indebtedness on the Maxim is due. BGC is precluded from paying the final installment due on the BGC Note until it pays the amount due the first deed of trust indebtedness of approximately $34,200,000 as of December 31, 1996. If BGC is unable to pay the first deed of trust indebtedness, it would have a material adverse effect on the Company's ability to collect on the BGC Note. If BGC is unable to make the final payment, the Company would have a loss of approximately $1,899,000 for which 4. RELATED PARTY TRANSACTIONS (CONTINUED): a. (1) continued $1,899,000 has been provided. The BGC Note is collateralized by approximately 1,280,000 shares of the Company's common stock. BGC is current in payment of monetary obligations under the note. The first trust deed holder has threatened to declare a default primarily as a result of the litigation between Mr. Anderson and the Anderson Parties and the Federal Deposit Insurance Corporation (the FDIC). In the event the first trust deed lender declares a default, the BGC Note will also be in default. The FDIC, acting as a successor and assignee of EurekaBank formerly known as Eureka Federal Savings and Loan Association (Eureka), filed a complaint against Anderson, Edith Anderson, Cedar Development Company, J. A. Inc. and J.B.A. Investments, Inc. (collectively, the Anderson Parties). The complaint arises out of a judgment in the original principal amount of approximately $33,700,000 obtained by Eureka against the Anderson Parties in the District Court for Clark County, Nevada. In consideration of Eureka's forbearance from executing on the judgment, the Anderson Parties executed a debtor-creditor agreement and related pledge and security agreements. Among other things, approximately 3,000,000 shares of the Company's common stock is pledged to the FDIC. The FDIC alleges, among other things, that the Anderson Parties have breached the debtor-creditor agreement and seek relief including (i) specific performance, (ii) appointment of a receiver, (iii) injunctive relief, (iv) judicial foreclosure, and (v) enforcement of the judgment, which together with interest, is alleged to be in excess of $63,000,000. On September 15, 1995, the Anderson Parties entered into a Stipulation and Order For: Entry of Order Appointing Receiver and For Injunctive Relief, and For Entry of Consent Judgment (the Stipulation). The District Court entered its order (the Order) staying certain powers granted to the receiver, but allowing the receiver to review the assets, observe the operations, and inspect the books and records, including the Company's, relating to the assets of the Anderson Parties. 4. RELATED PARTY TRANSACTIONS (CONTINUED): a. (1) continued In June 1996, the Company was informed that the Anderson Parties had reached a tentative agreement (the Agreement) regarding the Anderson Parties obligations to the FDIC. The Agreement was subject to final approval of the FDIC. As described below, the Company made a $250,000 loan to Golden State Trust, an Anderson Party, in connection with the Agreement of which $150,000 remains outstanding. See Notes 4a(3) and 7 of Notes to Consolidated Financial Statements. The Agreement provided that the judgment, in the original principal amount of approximately $33,700,000, held by the FDIC against the Anderson Parties would be sold to Golden State Trust. On August 27,1996, the Company was informed that the FDIC rejected the Agreement. The Company was further informed that on August 28, 1996, the United Stated District Court, District of Nevada, entered the Consent Judgment appointing Ronald L. Durkin, C.P.A. (the Receiver) as the permanent receiver over the assets of Mr. Anderson and the Anderson Parties to the extent and with the powers set forth in the Receivership Order. Included in the assets over which the receiver's powers extend are Mr. Anderson's beneficial ownership of 3,000,000 shares, or approximately 47.1% of the common stock of the Company. The balance of the shares owned beneficially by Mr. Anderson are pledged to the Company as collateral for the BGC Note. On February 4, 1997, the United States District Court, District of Nevada, terminated the receivership, discharged the receiver, and appointed a special liquidating master. Based on statements made by the FDIC representatives in public proceedings and court proceedings, the Company believes that it is the intent of the special liquidating master to sell the assets of the Anderson Parties that serve as collateral for the obligation to the FDIC on terms and conditions ordered by the Court, including the outstanding voting shares of the Company presently in possession of the FDIC. If the special liquidating master or the FDIC obtains court approval and the common shares are in fact sold to either persons or entities other than Mr. Anderson or entities controlled by Mr. Anderson, a change of control of the Company will occur. To the knowledge of the Company, the special liquidating master has not taken any overt steps to assert control, vote the shares, influence management of the Company, or otherwise, although no assurance can be given that such steps are not contemplated or imminent. In March 1997 the Anderson Parties filed a notice of appeal with respect to the U.S. District Court's February 4, 1997 ruling terminating and discharging the receiver and appointing a special liquidating master. 4. RELATED PARTY TRANSACTIONS (CONTINUED): a. (1) continued At the present time, the Company cannot predict the time or likelihood that such sale of shares or such change of control will occur, or whether other actions, proceedings or otherwise will occur that may block, impede or otherwise prevent or postpone such sale of shares or potential change of control. The actions of the special liquidating master may jeopardize the Anderson Parties ability to operate, including BGC which remains liable to the Company under the BGC Note. The Company is unable to predict what effect the outcome of the matters described above will have on the Company, or the payment of the BGC Note. The appointment of a special liquidating master may jeopardize the Anderson Parties' ability to operate, including BGC which remains liable to the Company under the BGC Note. The Company is unable to predict what effect the outcome of the matters described above will have on the Company. (2) For the years ended December 31, 1996, 1995 and 1994, $59,998, $49,278 and $58,134, respectively, was paid on behalf of Anderson for certain of Anderson's expenses, which payments were considered compensation to Anderson and were approved by the Company's Audit Committee. The Audit Committee approved payments on behalf of Mr. Anderson of up to $48,000 for the year 1997. The payments are subject to continuing review by the Audit Committee. (3) In connection with a proposed settlement agreement in June 1996, between the FDIC and the Anderson Parties, the Company loaned $250,000 to the Golden State Trust, an Anderson Party. The loan is evidenced by a note dated June 12, 1996, which bears interest at the rate of 12% per annum, payable monthly. A principal payment of $100,000 was paid on July 1, 1996. The balance of the principal and accrued interest was due on December 12, 1996. Due to the matters discussed in Note 4a(1), and the Company's belief that the note is uncollectible, the Company has provided a reserve of $150,000 against the balance of the note as of December 31, 1996. In addition, the Company ceased accruing interest on the loan in September 1996. 4. RELATED PARTY TRANSACTIONS (CONTINUED): a. (4) In July 1993, SHF entered into a three-year lease agreement with California Dehydrating Co. (Cal-Dehy, an Anderson Entity) whereby SHF leased a rice drying facility (the Drying Facility) located in West Sacramento, California, at an annual rental of $60,000. In February 1995, the Drying Facility was the subject of a foreclosure action which terminated the SHF lease. On March 1, 1995, the Company entered into a two-year lease with the new owner of the Drying Facility at an annual rental of $54,000. In November 1996, the Company informed the lessor that it was terminating the Drying Facility lease. In consideration for the payment of $75,000, the lessor agreed to accept the return of the Drying Facility, as is, and acknowledged that it had no claims of any kind or nature against SHF and released SHF from any and all obligations, except for payment of rent for the remainder of the lease term and any subsequent damage prior to the termination of the lease of the Drying Facility. On January 1, 1996, the Company entered into an agreement with Cal-Dehy whereby the Company would pay to Cal-Dehy $60,000 per year for the use of the Cal-Dehy name and a Covenant Not To Compete. The agreement, including the Covenant Not To Compete, is for a one-year period. The agreement expired on December 31, 1996. The Company does not intend to renew the agreement or the Covenant Not To Compete. (5) As reported in previous reports, the Company in 1993 made a $500,000 loan to an entity wholly-owned by Director Andrew Marincovich. See Annual Report on Form 10-K for the year ended December 31, 1995, Item 1. "Business - Other Activities - Certain Loans - Directors." The Company was informed that the foreclosure sale of the El Dorado Vineyard property was completed during the second quarter of 1996. The Company was further informed that the foreclosure sale extinguished without payment to Andrew Marincovich all of his interest in the property or the proceeds thereof. The Company's non-recourse guarantee from Mr. Marincovich was limited to excess proceeds from such foreclosure sale. Therefore, the Company did not recover any of its funds pursuant to the guarantee. 5. INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE: 1996 1995 The Fairways (a) $ 4,664 $ 6,099 White Ranch (b) 5,600 5,600 Residential lots, North Las Vegas (c) 469 427 Sam Hamburg Farm (d) 146 146 Other 40 40 $ 10,919 $ 12,312 5. INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE (CONTINUED): (a) The Company, through SHF, developed the 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. 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 February 14, 1997, 55 lots remain unsold. In connection with its development of The Fairways, SHF was required to construct certain improvements that benefitted not only The Fairways, but other properties that lay outside of the boundaries of The Fairways (the Benefited Properties). The total cost of the improvements was $1,597,425, of which $276,088 is allocable to The Fairways and $1,321,337 is allocable to the Benefited Properties. SHF entered into an agreement (the Reimbursement Agreement) with the Rancho Murieta Community Services District which provides that SHF will be reimbursed the amount of the costs allocable to the Benefitted Properties, less approximately $176,500 of future costs that will be of benefit to The Fairways. The funds will be reimbursed to SHF out of proceeds of any subsequent community facilities district or by direct payment by subsequent developers of the Benefited Properties. SHF's right to reimbursement will expire in twenty years from September 1995. The Company is unable to predict what amount, if any, will be received under the Reimbursement Agreement. As part of the development of The Fairways, SHF entered into a Settlement Agreement Regarding Payment of Park Fees (the Park Fee Payment Agreement) regarding park fees that are payable to Rancho Murieta Association (RMA) on each developed lot. The Park Fee Agreement acknowledged that the total park fees owing to RMA were $173,238. SHF agreed to pay $17,323 upon signing the Park Fee Agreement with the balance payable ratably as the remaining lots were sold. In the event all of the lots are not sold by December 31, 1997, then any remaining amount due must be paid in full. As part of the Settlement Agreement with the Resolution Trust Corporation (the RTC) as Receiver for San Antonio Savings Association, all of the unsold lots in The Fairways are encumbered by a deed of trust in favor of the RTC. The deed of trust requires a $40,000 payment for the release of each of the encumbered lots. See Note 10 of Notes to Consolidated Financial Statements. 5. INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE (CONTINUED): (a) continued On October 7, 1996, the Company signed a Purchase and Option Agreement with West Coast Properties, LLC (WCP) whereby WCP offered to purchase from the Company, 20 lots at The Fairways and obtain an option to purchase an additional 20 lots, with the intent of constructing single family residences on the lots purchased. On July 12, 1996, the Company signed a letter agreeing to modify the Purchase and Option Agreement (the New Agreement) between the Company and Murieta Investors, LLC (MI), formerly WCP. The New Agreement provides that MI will purchase from the Company 6 lots at The Fairways at $40,000 per lot plus payment of 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 (the Success Payments). Eight months after the purchase of the initial 6 lots, MI will be entitled to purchase a second group of 6 lots. An additional group of 6 lots may be purchased every 4 months thereafter until a total of 40 lots have been purchased. The initial payment for the second 6 lots purchased will be $40,000, plus payment of the applicable Park Fees and the Success Payments. The initial payment for all subsequent lots purchased will be $45,000, plus payment of the applicable Park Fees and the Success Payments. Therefore, beginning with the purchase of the third group of 6 lots, the Success Payments will be 20% of the gross sales price of each residential lot sold less $45,000. If MI sells any lot without constructing a residential dwelling thereon, the Company will receive 20% of the sale price without offset of the initial payment. The sale of the first 6 lots which closed on December 20, 1996, were recorded at the initial price of $40,000 per lot. In accordance with Statement of Accounting Financial Standards (SFAS) No. 66 "Accounting for Sales of Real Estate," no recognition was given to any Success Payments the Company may receive in the future, but the Company has recorded all costs associated with the lots, resulting in a recorded loss on the sale of the six lots. (b) The White Ranch consists of approximately 10,000 acres of agricultural land in which the Company has a 50% interest. The other 50% owner and the Company share equally in profits and losses on the operation and sale of the White Ranch. All of the 10,000 acres have been leased for the 1997 crop year. Tenants at the White Ranch generally pay a fixed cash rent plus a share rent. The amount of the share rent is based on the profitability of the crop grown. Tenants are required to pay all water usage charges applicable to the leased land. 5. INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE (CONTINUED): (b) continued In February 1997, the Company entered into a Purchase Agreement (the Agreement) to sell the White Ranch for $6,000,000. The Agreement provides that the purchaser will make a $10,000 non-refundable deposit for a 90-day inspection period. The inspection period may be extended for an additional 90-day period upon the payment of an additional $10,000 non-refundable deposit. Terms of the sale are all cash at close of escrow. If the sale is consummated, net proceeds to the Company will be approximately $3,000,000. The sale is subject to, among other things, the buyer's ability to obtain financing. There can be no assurance that the buyer will be able to obtain financing or that the sale will close. (c) The Company owns 57 partially developed residential lots located in the City of North Las Vegas, Nevada. As part of the settlement with the RTC, 53 of the lots are encumbered by a deed of trust in favor of the RTC. The deed of trust requires a $6,000 payment for the release of each of the encumbered lots. See Note 10 of Notes to Consolidated Financial Statements. On February 21, 1997, the Company signed an agreement for the purchase and sale of all 57 lots for a total consideration of $661,800 plus reimbursement of water fees paid in the amount of $72,957. The sale is expected to close in the second quarter of 1997. (d) 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 13 for a detailed discussion concerning the removal of the toxic waste. The remaining 110 acres are leased to various tenants at an annual aggregate rental of approximately $20,000. 6. PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION AND AMORTIZATION: 1996 1995 (Dollars in thousands) Land and land improvements $ 159 $ 159 Building and improvements 1,679 1,679 Machinery and equipment 265 241 2,103 2,079 Less accumulated depreciation and amortization ( 425) (325) $ 1,678 $ 1,754 In January 1996, the Company's Board of Directors authorized management to pursue the possibility of constructing a new drying facility adjacent to the rice storage facility in Yolo, County, California (the New Drying Facility). The cost of constructing the New Drying Facility is estimated to be approximately $1,800,000 including carrying costs. The Company has made a $47,484 deposit on a rice dryer in anticipation of constructing the New Drying Facility. Since the Company did not begin construction as originally scheduled, 50% of the deposit has been forfeited. However, the Company would receive credit for the balance of the deposit if construction of the New Drying Facility goes forward. Construction of the New Drying Facility is subject to various governmental approvals and the ability of the Company to obtain adequate financing. The Company has signed a financing commitment which, if funded, would provide approximately 65% or $1,150,000, whichever is less, of the construction funds to build the New Drying Facility. The commitment is subject to final review and credit approval by the lender and execution of mutually acceptable documentation. No assurance can be given that the Company will receive the necessary approvals or adequate financing. It is anticipated that construction of the New Drying Facility would begin in the second or third quarter of 1997. The Company is unable to predict whether the New Drying Facility will be completed in time for the 1997 rice drying season. If the New Drying Facility is not completed in time for the 1997 rice drying season, and the Company wants to continue drying rice in 1997, it will be necessary to attempt to negotiate a new lease for the West Sacramento drying facility. The Company is unable to predict if a new lease can be obtained for the West Sacramento drying facility or what the terms and conditions of such a lease would be. In the event the Company does not proceed with the construction of the New Drying Facility, the Company will lose the balance of its deposit. 7. LONG-TERM NOTES RECEIVABLE: 1996 1995 (Dollars in thousands) Related parties BGC, including interest $ 2,296 $ 2,693 Less allowance (1,899) (1,566) Golden State Trust 150 Less allowance (150) 397 1,127 Real estate Various real estate notes, collateralized by deeds of trust with interest ranging from 8% to 10% (a) 928 1,223 $ 1,325 $ 2,350 (a) Included in the "various real estate notes" is approximately $564,160 resulting from the sale of lots at The Fairways which notes are subject to a collateral assignment in favor of the RTC. See Note 10 of Notes to Consolidated Financial Statements. "Various real estate notes" also includes a note in the approximate amount of $224,000 which resulted from the sale of the Willows Ranch investment as discussed in Note 8c of Notes to Consolidated Financial Statements. 8. INVESTMENTS: 1996 1995 (Dollars in thousands) Investments at cost, net of valuation allowances, consist of: Solano County Option (a) $ 1,045 $ 1,045 Pine Ridge Joint Venture (b) 572 576 Less reserve (572) (531) Partnership, Willows Ranch (c) 406 Steadfast Cattle Company (d) 84 64 Less reserve (84) Other 4 6 $ 1,049 $ 1,566 8. INVESTMENTS (CONTINUED): (a) The Company has 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 provides that the Company can purchase the 1,690 acres at a price of $3,000,000. The Company will receive a credit of $1,000,000 against the purchase price. The option expires on May 1, 2003. Upon certain conditions and the consent of the first lien holder on the Maxim and the Nevada Gaming Control Board, MRI can require BGC to repurchase the Solano County Option (the Repurchase Agreement). The Repurchase Agreement expires on the earlier of: (i) May 1, 2002 or (ii) 1 year prior to the date the option agreement expires. The owner of the property under option has informed the Company that it may not be able to make the payment due on the first mortgage lien which had a balance due of approximately $1,356,000 as of December 31, 1996. The Company and the owner are attempting to negotiate a solution, which could include the Company exercising its option at a price that is less than the option price stated in the Option Agreement. If the Company is unable to renegotiate the option price, the Company may make the payment to the mortgage lien holder in order to protect its investment in the Solano County Option. The Company is unable to predict what the outcome of this matter will be. (b) In June 1993, MRI entered into a joint venture known as Pine Ridge Joint Venture (PRJV) with AJD, a Nevada limited partnership, for the purpose of developing approximately 92 single-family residences in Clark County, Nevada. The development was scheduled to be completed in two phases consisting of 32 residences which were to be completed in the first phase and the balance to be completed in the second phase. See Note 5 of Notes to Consolidated Financial Statements regarding the disposition of 57 of the PRJV lots. On October 10, 1996, the last remaining house in Phase I was sold, thereby effectively terminating PRJV. (c) In May 1990, the Company made a loan to William Maddocks, et al, a Central California real estate investment group, (Maddocks) in the principal amount of $1,000,000. The loan was collateralized by real property in northern California. Maddocks paid all but $315,000 of the loan. In 1992, the Company and Maddocks formed a partnership called Willows Ranch. The Company's contribution was the balance remaining on the original $1,000,000 loan and Maddocks contributed the net equity in the real estate that served as collateral for the Company's loan. 8. INVESTMENTS (CONTINUED): (c) continued In November 1995, Maddocks and the Company agreed to sell the Willows Ranch property for a price of $835,000. The sale closed on February 5, 1996. Out of the sale proceeds, the Company received cash of approximately $209,000 and a 91.90% interest in a note in the amount of $243,430. (d) In July 1995, the Company's Board of Directors authorized the Company to invest up to $200,000 for a 50% interest in a cattle feeding operation with an unrelated third party. The parties formed a Limited Liability Company named Steadfast Cattle Company (Steadfast). Steadfast's primary operation was feeding cattle, owned by others, on leased land located in Gonzales, California. The cattle feeding operation was not successful and, therefore, the Company discontinued funding the operations of Steadfast. Without funding from the Company, Steadfast was unable to continue its operations. As of December 31, 1996, all operations at the feed lot have ceased. The effect of the Steadfast operations, and its discontinuance, on the Company's financial statements have been immaterial. In connection with its investment in Steadfast, the Company purchased equipment costing approximately $200,000 for use in the Steadfast operation. As of December 31, 1996, the equipment had a carrying value of approximately $160,000. The Company is currently attempting to sell the equipment it purchased for the feed lot operation. The Company estimates that the sale of the equipment will result in a loss of approximately $10,000 which has been accrued. However, it is possible that the estimated amount of the loss could increase if the Company is unable to sell the equipment within a reasonable amount of time. 9. RESOLUTION OF SASA DISPUTE: On October 24, 1995, the Company, along with Continental, MRI and SHF, entered into a Settlement, Release and Loan Modification Agreement (the Settlement Agreement) with the RTC in connection with the SASA Obligation. The Settlement Agreement became effective December 6, 1995. Pursuant to the Settlement Agreement and as full payment of the SASA Obligation, (i) Continental transferred the San Diego Property to the RTC in consideration of $1,500,000 credit against the SASA Obligation, (ii) the Company paid $290,000 to the RTC, and (iii) the Company delivered a secured promissory note to the RTC (the RTC Settlement Note) in the amount of $2,710,000. See Note 10 of Notes to Consolidated Financial Statements for a detailed discussion of the terms of the RTC Settlement Note. 10. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS: Long-term debt and capitalized lease obligations consists of the following at December 31: 1996 1995 (Dollars in thousands) RTC Settlement Note $ 1,784 $ 2,590 RMA 93 114 Capitalized lease obligation 57 72 Other 21 21 $ 1,955 $ 2,797 Five year maturities of long-term debt are as follows: (Dollars in thousands) Long term Capitalized debt Lease Obligation Total 1997 $ 95 $ 15 $ 110 1998 2 18 20 1999 3 24 27 2000 1,787 1,787 2001 3 3 Thereafter 8 8 $ 1,898 $ 57 $ 1,955 The amount due RMA is for payment of park fees, is non-interest bearing and is collateralized by a first deed of trust on The Fairway lots. Principal payments, in the approximate amount of $1,700 per lot, are paid upon the close of escrow of each sale of a lot in The Fairways. If on December 31, 1997, any lots remain unsold, then the balance of the amount due becomes payable in full. The capitalized lease obligation is payable in monthly installments of approximately $1,890 including interest at an effective rate of approximately 16%. The lease is collateralized by a security interest in equipment formerly used in the Steadfast cattle feeding operation. Other long-term debt consists of an unsecured note payable in annual installments of $5,000 including interest. 10. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED): The RTC Settlement Note is dated December 6, 1995, and is due December 6, 2000. The note bears interest at the rate of 1% per annum in excess of the prime rate as published in the Wall Street Journal. The rate is adjusted semi-annually (the Interest Adjustment Date), provided, however, that under no circumstances shall the rate be less than 8% or more than 12% per annum. Payment terms are interest only, payable monthly. Monthly payments are adjusted semi-annually on the Interest Adjustment Date. The entire remaining principal amount and all accrued and unpaid interest is due and payable in full on the maturity date. The note is collateralized by the following: a. A deed of trust with an assignment of rents (Nevada Deed of Trust) with SHF. The Nevada Deed of Trust encumbers 53 partially improved residential lots located in North Las Vegas, Nevada. SHF is entitled to the release of a lot upon the payment of $6,000 to the RTC for each lot released. The RTC will apply such payments to the outstanding principal due on the note. b. A deed of trust with an assignment of rents (Rancho Murieta Deed of Trust) with SHF. The Rancho Murieta Deed of Trust encumbers approximately 56 finished residential lots at December 31, 1996 located at The Fairways. SHF is entitled to the release of a lot upon the payment of $40,000 to the RTC for each lot released. The RTC will apply such payments to the outstanding principal due on the note. c. A collateral assignment of purchase money promissory notes (The Promissory Notes) secured by deeds of trust (Collateral Assignment) with SHF as pledgor and the RTC as pledgee. The Collateral Assignment provides for SHF to assign to the RTC the promissory notes and deeds of trust in the approximate principal amount of $725,000 ($564,000 as of December 31, 1996). Principal collections on the Promissory Notes will be remitted to the RTC for application to the outstanding principal due on the note. 11. SHAREHOLDERS' EQUITY: The Company is authorized to issue 10,750,000 shares 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, 1996, 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. 11. SHAREHOLDERS' EQUITY (CONTINUED): 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 $1,100,000 as of December 31, 1996. 12. MINORITY INTEREST: The minority interest consists of the investment of $2,800,000 made by the other 50% owner of the White Ranch. The minority interest is increased or decreased by the other 50% owner's share of profits or losses attributable to the operations of the White Ranch. These amounts were previously included in accounts receivable or accounts payable. 13. CONTINGENCIES: a. As of December 31, 1996, there were no material legal proceedings pending against the Company. b. SHF was advised of possible contamination on two sites at Sam Hamburg Farm, a storage facility for diesel fuels and an old airstrip which had been used for the loading and fueling of aircraft applying agricultural chemicals to the surrounding farm lands. The Company has completed the cleanup relating to the diesel storage tanks at a cost of approximately $100,000. The Company has disposed of a large amount of the contaminated earth at an approved site for the storage of toxic wastes. However, 5,000 cubic yards of contaminated earth (previously thought to be 4,000 cubic yards) still remain to be disposed of. The Company, through its chemical and toxic clean-up consultant, has been working with the California State Environmental Protection Agency, in seeking alternate means to the disposal in toxic dump sites of chemical and toxics-laden soil. The State has participated in the funding of several projects by a number of chemical treatment firms in efforts to try other detoxification methods on the soil. Because of the ongoing testing, the State has not imposed a disposal date upon the Company. Cost of disposal is estimated at $100 per cubic yard. However, if on-site remediation can be achieved, it is estimated that the cost will be between $90,000 and $115,000. The Company is unable to predict when the ongoing testing will be complete or what the outcome of these tests will be. As of December 31, 1996, the Company has paid approximately $500,000, including the $100,000 expended for the diesel storage tank, and accrued an estimated $174,000 relating to the balance of the clean-up of the contaminated earth. That estimate could change as the remediation work takes place. 13. CONTINGENCIES (CONTINUED): c. The Company has received a notice from the State of California Franchise Tax Board (FTB) wherein the FTB alleges that one of the Company's subsidiaries owes California franchise tax, penalties and interest of approximately $316,000. The FTB claims that the Company is not permitted to file a unitary tax return in California. The Company has retained legal counsel to resolve the matter with the FTB. The matter is currently being appealed to the California State Board of Equalization. d. As more fully described in Note 4a(1), Mr. Anderson and the Anderson Parties are involved in litigation with the FDIC, the result of which could cause a sale of the pledged assets of the Anderson Parties. Such a sale of the Anderson Parties assets would have an adverse effect on the Company's ability to collect the BGC Note, and in addition, would result in a change in control of the Company. 14. 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, 1996 and 1995: 1996 1995 (Dollars in thousands) Loan reserves $ 697 $ 536 Accounts receivable reserves 48 8 Investment reserves 195 Real estate reserves 480 382 Loss carryforwards 15,337 14,702 Other 2 4 Gross deferred tax assets 16,564 15,827 Deferred tax assets valuation allowance 16,553 (15,810) 11 17 Marketable securities valuation allowance (11) (17) Gross deferred tax liabilities (11) (17) Net deferred tax assets $ 0 $ 0 14. TAXES (CONTINUED): A reconciliation of the changes in deferred tax assets valuation allowance for 1996 and 1995 is as follows: 1996 1995 (Dollars in thousands) Write-off of installment notes receivable $ $ 73 Tax recognition of real estate basis difference 117 Tax recognition of passive loss (7) Book marketable securities unrealized (gain) loss 6 (10) Current year loss carryforwards 635 130 (Decrease) increase in loan reserves 161 (1,018) (Decrease) increase in accounts receivable reserves 40 (53) Book reserve of investments loss (197) 54 Book reserve of real estate loss 98 97 Change in deferred tax asset valuation allowance 743 (617) Deferred tax assets valuation allowance, beginning of year 15,810 16,427 Deferred tax assets valuation allowance, end of year $ 16,553 $ 15,810 A reconciliation of the federal statutory tax rate to the effective tax rate for 1996, 1995 and 1994, is as follows: Percentage of pre-tax income 1996 1995 1994 Federal statutory rate (34.00%) 34.00% (34.00%) Net operating loss applied (18.38%) Debt discharges and other (15.52%) (21.55%) Non-deductible items: Loss reserves 45.41% 0.03% 21.91% Valuation adjustments 8.75% 0.03% 12.22% Other (4.64%) 5.88% (0.13%) 0.00% 0.01% 0.00% 14. TAXES (CONTINUED): The Company has the following net operating loss carryovers available for income tax reporting purposes: Year of expiration (Dollars in thousands) 2001 $10,337 2003 22,034 2004 1,908 2005 1,896 2006 3,550 2007 825 2008 2,425 2009 604 2011 1,529 As more fully described in Note 4a(1), a change in control of the Company could take place. If such a change in control were to take place, it would have an effect as to when and as to the amount of net operating losses that the Company could use to offset future taxable income in any given year. This annual limitation, to the extent not used in any given taxable year, may be carried forward and added to the limitation of subsequent years. A subsidiary has not paid State of New Jersey income taxes since 1980 due to a dispute with the taxing authorities over the method of determining the tax liability. In 1983, judgments were entered in favor of the State amounting to $247,000 exclusive of interest and penalties for which the Company believes adequate provision has been made in the consolidated financial statements. 15. EXTRAORDINARY ITEM: At December 31, 1995, the Company recorded as an extraordinary item, a gain in the amount of $8,346,000, net of tax of $80,000, resulting from the settlement of the SASA Obligation with the RTC. The settlement resulted in the Company and the RTC entering into a Settlement, Release and Loan Modification Agreement (The Agreement). The Agreement provided, among other things, that upon execution of The Agreement, the Company would pay to the RTC the sum of $290,000, transfer to the RTC the San Diego property at an agreed upon price of $1,500,000 and sign a promissory note in favor of the RTC in the principal amount of $2,710,000. The effect of the foregoing was to reduce the amount of the SASA Obligation by $8,616,000. In connection with the settlement, the Company incurred legal fees and other costs in the approximate amount of $190,000. 15. EXTRAORDINARY ITEM (CONTINUED): A reconciliation of the extraordinary item as shown in the Consolidated Statements of Income (Loss) with the supplemental schedules of non-cash investing and financing activities as shown in the Consolidated Statements of Cash Flow for the year ended December 31, 1995 is as follows: Non-cash gain from extraordinary items-- Settlement of liabilities $8,619,000 Less: Cash paid for legal fees (190,000) Tax effects (80,000) Cash paid for miscellaneous expenses (3,000) Extraordinary item -- net of tax effect $8,346,000 16. SEGMENT INFORMATION: 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 rice). The Company's real estate segment sells completed residential lots primarily to builders of custom homes and to the general public located in and around the greater Sacramento, California area. The agricultural properties are leased to farmers in the area where the agricultural properties are located. The agricultural segment dries harvested rice over a two month period (approximately September 15 to November 15) and stores, for a fee, the dried rice (or other grains) until it is removed by the owner. The Company dries and stores rice for principally one customer, Farmers Rice Co-operative (Farmers). Farmers accounts for approximately 98% of the rice drying and storage revenues. If the Company were to lose Farmers as a customer, it would have a material adverse effect on the drying and storage operation. 16. SEGMENT INFORMATION (CONTINUED): Following is a summary of segmented information for 1996, 1995, and 1994: 1996 1995 1994 Net revenues from unaffiliated customers: Real estate: Sale of residential lots $ 1,128 $ 1,901 $ 1,558 Land rent 948 485 871 Rice drying and storage revenue 787 752 774 $ 2,683 $ 3,138 $ 3,203 Income (loss) from operations: Real estate $ (254) $ (482) $ 195 Rice drying and storage (42) 162 152 (296) (320) 347 Corporate operating expense (1,496) (1,537) (2,221) Other income (expense) 100 (205) 687 Income taxes (13) (8) Minority interest (97) Loss before extraordinary item as reported in the accompanying consolidated statement of income (loss) ($ 1,789) ($ 2,075) ($ 1,195) 1996 1995 Identifiable assets Real estate $ 10,919 $ 12,312 Rice drying and storage 1,836 1,894 General corporate assets 4,371 5,321 Total assets as reported in the accompanying consolidated balance sheets $ 17,126 $ 19,527 17. COMPUTATION OF PER SHARE EARNINGS (LOSS): Earnings (loss) per share for the years ended December 31, 1996, 1995 and 1994 were computed as follows: 1996 1995 1994 Weighted average number of shares outstanding 6,375,096 6,429,822 6,460,096 Net loss for the year before extraordinary item $ $ (2,075) $ Extraordinary item 8,346 Net income (loss) for the year (1,789) 6,271 (1,195) Dividends applicable to preferred shares 72 (72) (75) Net income (loss) used for computing net earnings (loss) per common share $ (1,861) $ 6,199 $ (1,270) Net earnings (loss) per common share $ (.29) $ .97 $ (.20) DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES December 31, 1996 SCHEDULE II COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions (1) (2) Balance at Charges to Charges to Other changes Balance beginning Costs and other accounts- add (deduct) at end of Classification of period expenses describe describe period (Dollars in thousands) Allowance for doubtful accounts: Long-term notes receivable - related party $1,566 $483 $2,049 Accounts receivables 23 118 141 $1,589 $601 $2,190 (1) Bad debt recovery S-1
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES December 31, 1995 SCHEDULE II COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions (1) (2) Balance at Charges to Charges to Other changes Balance beginning Costs and other accounts- add (deduct) at end of Classification of period expenses describe describe period (Dollars in thousands) Allowance for doubtful accounts: Notes Receivable - Director $427 $382 $72(2) ($881)(1) $0 Long-term notes receivable - related party 2,967 41(2) (1,442)(1) 1,566 Accounts receivables 23 23 Long-term notes receivable 1,174 61(2) (1,235)(1) 0 $4,568 $405 $174 ($3,558) $1,589 (1) Credit to related notes receivable (2) Interest income S-2
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES December 31, 1994 SCHEDULE II COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions (1) (2) Balance at Charges to Charges to Other changes Balance beginning Costs and other accounts- add (deduct) at end of Classification of period expenses describe describe period (Dollars in thousands) Allowance for doubtful accounts: Accounts Receivable $131 $72 ($203)(1) $0 Long-term notes receivable 1,092 $82(2) 1,174 Notes Receivable - Director 427 427 Long-term notes receivable - related party 2,759 125 111(2) (28)(3) 2,967 $3,982 $624 $193 ($231) $4,568 (1) Write off against allowance (2) Interest income (3) Bad debt recovery
S-3 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1996 SCHEDULE III COLUMN A COLUMN B COLUMN C Initial cost to Company Buildings and Description Encumbrances Land Improvements REAL ESTATE HELD FOR SALE (D o l l a r s i n T h o u s a n d s) Approximately 110 residential lots Deed of Trust in located in Rancho Murieta, California favor of Resolution (The Fairways) Trust Corporation (2) $1,784 Deed of Trust in favor of Rancho Murieta Association 93 $3,880 Approximately 80 acres of unimproved land located in Auburn, California 40 7 partially improved residential lots Deed of Trust in located in North Las Vegas, Nevada favor of Resolution Trust Corporation (2) 469 Approximately 10,000 acres located in Kings and Tulare County, California (4) 5,600 Approximately 4,600 acres located in Fresno and Merced County, California 1,866 1,877 11,855 REAL ESTATE INCLUDED IN PROPERTY, PLANT AND EQUIPMENT Rice storage facility located in Yolo County, California 159 1,678 $1,877 $12,014 $1,678
COLUMN A COLUMN D COLUMN E Costs capitalized subsequent Gross amount at which carried to acquisition at close of period (Note 1) Buildings Carrying and Description Improvements costs Land Improvements Total REAL ESTATE HELD FOR SALE Approximately 110 residential lots located in Rancho Murieta, California (The Fairways) $6,837 $4,664 $4,664 Approximately 80 acres of unimproved land located in Auburn, California 40 40 7 partially improved residential lots located in North Las Vegas, Nevada 469 469 Approximately 10,000 acres located in Kings and Tulare County, California 5,600 5,600 Approximately 4,600 acres located in Fresno and Merced County, California 276 146 146 6,837 276 10,919 10,919 REAL ESTATE INCLUDED IN PROPERTY, PLANT AND EQUIPMENT Rice storage facility located in Yolo County, California 159 1,678 1,837 $6,837 $276 $11,078 $1,678 $12,756
COLUMN A COLUMN F COLUMN G COLUMN H COLUMN I Life on which depreciation in latest income Accumulated Date of Date statement is Description depreciation construction acquired computed REAL ESTATE HELD FOR SALE Approximately 110 residential lots located in Rancho Murieta, California (The Fairways) 01/31/90 Approximately 80 acres of unimproved land located in Auburn, California 03/08/94 7 partially improved residential lots located in North Las Vegas, Nevada 1995-1996 Approximately 10,000 acres located in Kings and Tulare County, California 1989 Approximately 4,600 acres located in Fresno and Merced County, California 03/23/88 REAL ESTATE INCLUDED IN PROPERTY, PLANT AND EQUIPMENT Rice storage facility located in Yolo County, California 359 1985 11/14/90 10-31 years $359
December 31, 1996 1995 1994 Accumulated Depreciation Reconciliation: Balance-beginning of period $301 $243 $185 Additions during period: Provision for depreciation 58 58 58 Balance - end of period $359 $301 $243 December 31, 1996 1995 1994 Reconciliation: Balance-beginning of period $11,348 $12,920 $13,872 Additions during period: Improvements 17 239 Other acquisitions 2,841 427 40 14,189 13,364 14,151 Deductions during period: Cost of sales 1,143 1,732 1,231 Valuation allowance (3) 290 284 Balance - close of period $12,756 $11,348 $12,920 Note 1 The cost basis for Federal Income Tax purposes is the same as for financial reporting purposes. Note 2 The Deed of Trust in favor of the Resolution Trust Corporation encumbers both properties in the total amount of $1,784. Note 3 Valuation allowances have been provided against the lots in Rancho Murieta. The purpose of the valuation allowance was to reduce the carrying value to estimated market value. Note 4 50% owned by an unrelated third party.
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 SCHEDULE IV COLUMN A COLUMN B COLUMN C COLUMN D Final Periodic Interest Maturity Payment Description Rates Date Term Collateralized by Sam Hamburg Farm Property: Delgado 9.00% 02/22/00 Note 1 ATB Packing 8.50% 02/08/00 Note 2 Collateralized by Real Estate: Ahmad Collateralized by the Fairways Property: Consolidated Kapital, Inc. 8.00% 01/25/97 Note 3 & 4 Martin, Chandler T. & Debra L. 8.00% 03/05/98 Note 3 & 4 Duerr Family Revocable Trust 8.00% 08/10/96 Note 3 & 4 James, Raymond L. & Cheryle 10.00% 12/14/97 Note 3 & 4 Parks, James P. & Dale A. 9.00% 02/22/98 Note 3 & 4
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H Principal Amount of Loans Carrying Subject to Face Amount of Delinquent Prior Amount of Mortgages Principal Description Liens Mortgages (Note 3) or Interest Collateralized by Sam Hamburg Farm Property: Delgado None $50,099 $40,079 $0 ATB Packing None 126,737 82,380 0 Subtotal 176,836 122,459 0 Collateralized by Real Estate: Ahmad 432,630 224,000 Collateralized by the Fairways Property: Consolidated Kapital, Inc. None 164,160 164,160 0 Martin, Chandler T. & Debra L. None 70,000 70,000 70,000 Duerr Family Revocable Trust None 193,800 193,800 0 James, Raymond L. & Cheryle None 79,200 79,200 0 Parks, James P. & Dale A. None 57,000 57,000 0 Subtotal 564,160 564,160 70,000 TOTAL $1,173,626 $910,619 $70,000
12/31/96 Balance at Beginning of Period $1,086,920 Additions During Period: New Mortgage Loans 432,630 1,519,550 Deduction During Period: Reclassified to investments 119,958 Collections of Principal 488,973 Balance at End of Period $ 910,619 Note 1 - Interest Payable Quarterly - Principal payable in 5 equal annual installments. Note 2 - Principal and interest payable quarterly until maturity. Note 3 - Interest payable monthly until maturity. Note 4 - Subject to a collateral assignment in favor of the Resolution Trust Corporation as Receiver for San Antonio Savings Association, F.A. Note 5 - Mortgage loans collateralized by the Fairways Property do not include accrued interest.
EXHIBIT INDEX Exhibit No. Description Page No. 3.01 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. 3.02 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. 3.03 Revised By-laws of Dunes Hotels and Casinos Inc. dated December 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 3.03. 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. 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. 10.02 Agreement dated November 21, 1989 by and between CCC Nevada Inc. (formerly Continental Connector Corporation), and Continental Industries, Inc.; Promissory Note dated November 20, 1984, in the principal amount of $3,000,000 made by Continental Industries, Inc. to Continental Connector Corporation; Allonge to Promissory Note, dated November 20, 1989, in the original principal amount of $3,000,000 made by Continental Industries, Inc. to Continental Connector Corporation; Security Agreement dated as of November 20, 1984 by and between Continental Industries, Inc. and Continental Connector Corporation; and Continuing Guaranty dated April 2, 1985, by Morris Blinder and Meyer Blinder in favor of Continental Connector Corporation, are 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 10.02. 10.04 Settlement Agreement dated June 28, 1988, by and between San Antonio Savings Association and Dunes Hotels and Casinos Inc.; First Amendment to Settlement Agreement dated December 5, 1989, by and between San Antonio Savings Association, F.A. (assignee of San Antonio Savings Association) and 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 10.04. Settlement Release and Loan Modification Agreement dated October 24, 1995, by and among the Resolution Trust Corporation, Dunes Hotels and Casinos Inc., Continental California Corporation, M & R Investment Company, Inc. and SHF Acquisition Corporation, is incorporated herein by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for the nine months ended September 30, 1995, Item 6, Exhibit 10.01. Order Granting Joint Motion to Dismiss Bankruptcy Case and Adversary Proceeding, dismissing bankruptcy case of Continental California Corporation, is incorporated herein by reference to Dunes Hotels and Casinos Inc. Current Report on Form 8-K dated November 22, 1995, Item 7(c), Exhibit 99.01. 10.05 Stipulation and Order for Dismissal with Prejudice filed in the United States Bankruptcy Court, District of Nevada, Case No. BK-S-92-20989 (RCJ) executed by The Valley National Bank of Arizona, EurekaBank, M&R Investment Company, Inc. and Baby Grand Corp.; Compromise Agreement dated November 9, 1992, by and among Maxim Development, The Valley National Bank of Arizona and Redwood Bank; Settlement Agreement and Mutual Release dated November 2, 1992, by and among EurekaBank, The Valley National Bank of Arizona, M&R Investment Company, Inc. and Baby Grand Corp.; Addendum to Settlement Agreement and Mutual Release dated November 2, 1992, by and among EurekaBank, The Valley National Bank of Arizona, M&R Investment Company, Inc., and Baby Grand Corp.; Stipulation for Dismissal of Appeal with Prejudice filed in the United States District Court, District of Nevada, Case No. CV-S-92-675-LVG (RCH) dated November 2, 1992 and executed by The Valley National Bank of Arizona, Baby Grand Corp., M&R Investment Company, Inc. and the official Unsecured Creditors' Committee; Promissory Note dated November 2, 1992, in the principal amount of $2,650,000 made by Baby Grand Corp. to 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. 1-4385) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.05. Second Settlement and Forbearance Agreement dated February 9, 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., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Current Report on Form 8-K (file no. 1-4385) dated February 9, 1995, Item 7, Exhibit Nos. 10.01 and 10.02. 10.06 Straight Note dated August 28, 1990, in the principal amount of $486,000 made by Rancho Murieta Properties, Inc. to SHF Acquisition Corporation; and Deed of Trust with Assignment of Rents (Short Form) dated August 28, 1990, by and between Rancho Murieta Properties, Inc., First American Title Insurance Company and SHF Acquisition Corporation, securing $486,000 Straight Note, are 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, 1990, Part IV, Item 14(a)(3), Exhibit 10.07. Second Extension Agreement dated September 30, 1993, by and between SHF Acquisition Corporation and Rancho Murieta Properties, Inc.; Pre-workout Letter Agreement dated November 9, 1993, by and between SHF Acquisition Corporation and Rancho Murieta Properties, Inc.; Assignment of Membership Proceeds dated September 30, 1993, by and among SHF Acquisition Corporation, Rancho Murieta Properties, Inc. and M & R Investment Company, Inc.; and UCC-1 Financing Statement dated November 29, 1993, by Rancho Murieta Properties, Inc. in favor of SHF Acquisition Corporation and M & R Investment Company, Inc., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.10. 10.09 Promissory Note dated May 31, 1990, in the principal amount of $1,100,000, made by Yolo Oil and Gas, Inc. to SHF Acquisition Corporation; Guaranty of Payment and Performance dated May 29, 1990, by 500 First Street, a California general partnership, Kent N. Calfee, William Maddocks and Kenneth Wallace in favor of SHF Acquisition Corporation; Deed of Trust and Security Agreement dated May 31, 1990, by and among Yolo Oil and Gas, Inc., Chicago Title Insurance Company and SHF Acquisition Corporation; Deed of Trust and Security Agreement dated May 29, 1990, by and among 500 First Street, Wildlife Artisan, Inc., Chicago Title Insurance Company and SHF Acquisition Corporation; Assignment of Rents and Leases dated May 31, 1990, by and between Wildlife Artisan, Inc. and 500 First Street, for the benefit of SHF Acquisition Corporation; Environmental Indemnity Agreement dated May 31, 1990, by Yolo Oil & Gas, Inc., 500 First Street, Kent N. Calfee, William Maddocks and Kenneth Wallace in favor of SHF Acquisition Corporation; Loan Agreement dated May 25, 1990, by and among Yolo Oil & Gas, Inc., SHF Acquisition Corporation, 500 First Street, and William Maddocks; Lender's Escrow Instructions dated May 31, 1990, by Yolo Oil & Gas, Inc., Chicago Title Insurance Company and SHF Acquisition Corporation; Deed of Trust and Security Agreement dated May 29, 1990, by 500 First Street, Wildlife Artisan, Inc., Chicago Title Insurance Company and SHF Acquisition Corporation; and Assignment of Rents and Leases dated May 31, 1990, by Wildlife Artisan, Inc., 500 First Street, and SHF Acquisition Corporation, are 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, 1990, Part IV, Item 14(a)(3), Exhibit 10.11. 10.10 Letter Agreement dated July 21, 1991, by and among Calfee & Young (on behalf of M & R Investment Company, Inc.), Rancho Murieta Properties, Inc. and CBC Builders, Inc.; Promissory Note in the principal amount of $955,500 made by Rancho Murieta Properties, Inc. and CBC Builders, Inc. to M&R Investment Company, Inc.; Deed of Trust with Assignment of Rents dated July 22, 1991, by CBC Builders, Inc. in favor of M&R Investment Company, Inc.; Deed of Trust dated July 22, 1991 by CBC Builders, Inc. in favor of M&R Investment Company, Inc.; Collateral Assignment of Partnership Interest dated July 22, 1991, by Erik J. Tallstrom in favor of M&R Investment Company, Inc.; Assignment of Director's Fees dated July 22, 1991, by and between CBC Builders, Inc. and M&R Investment Company, Inc.; Memorandum of Option to Purchase dated July 22, 1991, by and between CBC Builders, Inc. and M&R Investment Company, Inc.; and Personal Guaranty dated July 22, 1991, by Erik J. Tallstrom, are incorporated by reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file no 1-4385) for the year ended December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.12. Extension Agreement dated September 30, 1993, by and among M & R Investment Company, Inc., Rancho Murieta Properties, Inc. and CBC Builders, Inc.; Pre-workout Letter Agreement dated November 9, 1993, by and among M & R Investment Company, Inc., Rancho Murieta Properties, Inc. and CBC Builders, Inc.; Extension of Option Agreement dated September 30, 1993, by and between M&R Investment Company, Inc. and CBC Builders, Inc, are 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.10. 10.14 Corporation Deed of Trust with Assignment of Rents dated March 23, 1993, by and among Andrew P. Marincovich and Matilda C. Marincovich, First American Title Insurance Company and M&R Investment Company, Inc.; Promissory Note dated July 22, 1992, in the principal amount of $500,000 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Business Loan Agreement by and among M&R Investment Company, Inc., El Dorado Vineyards, Inc. and Andrew P. Marincovich; Security Agreement by El Dorado Vineyards, Inc. in favor of M&R Investment Company, Inc.; Personal Guaranty dated April 7, 1993, by Andrew P. Marincovich in favor of M&R Investment Company, Inc., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year ended December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.14. Promissory Note in the principal amount of $500,000, made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note in the principal amount of $8,800 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note in the principal amount of $3,945.21 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note in the principal amount of $39,591.29 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Business Loan Agreement by and among M&R Investment Company, Inc., El Dorado Vineyards, Inc. and Andrew P. Marincovich; Personal Guaranty by Andrew P. Marincovich in favor of M&R Investment Company, Inc.; and Security Agreement by El Dorado Vineyards, Inc. in favor of M&R Investment Company, Inc., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for the year ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.14. Loan Modification Agreement dated July 15, 1994, by and among El Dorado Vineyards, Inc., Andrew P. Marincovich and M&R Investment Company, Inc.; Durable Special Power of Attorney dated July 21, 1994 by Andrew P. Marincovich; Promissory Note dated July 15, 1994, in the principal amount of $500,000 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note dated July 15, 1994, in the principal amount of $39,591.32 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note dated July 15, 1994, in the principal amount of $3,945.21 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note dated July 15, 1994, in the principal amount of $8,800.00 by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note dated July 15, 1994, in the principal amount of $12,184.86 made by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.; and Promissory Note dated July 19, 1994, in the principal amount of $153,428.94 by El Dorado Vineyards, Inc. to M&R Investment Company, Inc., are incorporated herein by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q (file no. 1-4385) for the six months ended June 30, 1994, Item 6, Exhibit 10.01. Note Modification Agreement (with Exhibits A through F) dated January 5, 1995, by and among El Dorado Vineyards, Inc., Andrew P. Marincovich and M&R Investment Company, 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 10.14. 10.16 Parks Development Agreement dated February 20, 1991, by and among the Rancho Murieta Association, the Rancho Murieta Community Services District, Rancho Murieta Properties, Inc., CBC Builders, Inc. and SHF Acquisition Corporation, 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.16. Settlement Agreement Regarding Payment of Park Fees (not dated) by and among Rancho Murieta Association, SHF Acquisition Corporation, CBC Builders, Inc., Rancho Murieta Properties, Inc. and Rancho Murieta Community Services District of Sacramento County, 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 10.16. 10.17 Inter-Creditor Agreement dated September 30, 1993, by and among SHF Acquisition Corporation, M & R Investment Company, Inc. and Calfee & Young, 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.17. 10.18 Commercial Premises Lease dated July 1, 1993, by and between California Dehydrating Company and SHF Acquisition Corporation, 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.18. 10.19 Renewal Promissory Note secured by Security Agreement Modification Agreement dated June 1989, by and between Eureka Federal Savings and Loan Association and Andco Development Group, Inc.; Security Agreement-Pledge dated June 1989, by and between Rancho Murieta Properties, Inc. and Eureka Federal Savings and Loan Association; Agreement to Modify Promissory Note dated June 1989, by and among Eureka Federal Savings and Loan Association, Andco Development Group, Inc., Andco Land and Development Company, Inc. and CBC Builders, Inc.; Extension Agreement dated February 1, 1990, by and among Eureka Federal Savings and Loan Association, Andco Development Group, Inc., Andco Land and Development Company, Inc., Rancho Murieta Properties, Inc., Erik J. Tallstrom and John B. Anderson; Guaranty dated October 1, 1987, by John B. Anderson in favor of Eureka Federal Savings and Loan Association; Guaranty dated October 1, 1987, by Erik J. Tallstrom in favor of Eureka Federal Savings and Loan Association; Guaranty dated October 1, 1987, by Rancho Murieta Properties, Inc. in favor of Eureka Federal Savings and Loan Association; Amendment No. 1 to Guaranty dated June 1989, by and between John B. Anderson and Eureka Federal Savings and Loan Association; Amendment No. 1 to Guaranty dated June 1989, by and between Erik J. Tallstrom and Eureka Federal Savings and Loan Association; Amendment No. 1 to Guaranty dated June 1989, by and between Rancho Murieta Properties, Inc. and Eureka Federal Savings and Loan Association; Corporation Deed of Trust with Assignment of Rents dated June 1989, by and between Rancho Murieta Properties, Inc. and Eureka Federal Savings and Loan Association; Agreement for Purchase and Sale of Promissory Note dated November 24, 1993, by and between Realecon, Inc. and M&R Investment Company, Inc.; Assignment of Promissory Note dated November 24, 1993, by and between Realecon, Inc. and M&R Investment Company, Inc.; Assignment and Assumption Agreement of Security Agreement and Guaranties dated November 24, 1993, between Realecon, Inc. and M&R Investment Company, Inc.; Secured Promissory Note dated November 24, 1993, in the principal amount of $125,000 by M&R Investment Company, Inc. to Realecon, Inc.; Assignment of Deed of Trust with Request for Special Notice dated November 24, 1993, by Realecon, Inc. in favor of M&R Investment Company, Inc.; and Corporation Deed of Trust with Assignment of Rents dated November 24, 1993, by SHF Acquisition Corporation in favor of Realecon, Inc, are 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.19. 10.20 Pine Ridge Joint Venture Agreement dated June 1993, by and between AJD and M & R Investment Company, 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, 1993, Part IV, Item 14(a)(3), Exhibit 10.20. Pine Ridge Joint Venture -- Joint Venture Meeting-- November 10, 1994, discussing additional capital requirements for the continuing operations of Pine Ridge Joint Venture and equity increases to M&R Investment Company, Inc. related thereto, 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 10.20. 10.21 Letter dated March 28, 1994 from M&R Investment Company, Inc. to Michael Shipsey and Tri-Star International Development regarding purchase of a 25% interest of Tri-Star International Development's 50% interest in Arroyo Grande Joint Venture Agreement of distributable cash; and Letter dated July 29, 1994 from Dennis L. Kennedy of Lionel Sawyer & Collins to Tri-Star International Development regarding termination of Tri-Star International Development's interest in the Arroyo Grande Joint Venture, are 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 10.21. 10.22 Agreement dated January 1, 1996, by and between California Dehydrating Company, Inc. and SHF Acquisition Corporation regarding use of the California Dehydrating name and a Covenant Not to Compete 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 10.22. 10.23 Commercial Premises Lease dated March 1, 1995, by and between Pheasant Investment Corporation and SHF Acquisition Corporation regarding the lease of the rice drying facility in West Sacramento, California 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 10.23. 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. 10.25 Assignment of promissory note in the original principal amount of $57,000 made by James P. Parks and Dale A. Parks in favor of SHF Acquisition Corporation; Promissory Note dated February 13, 1995, made by James P. Parks and Dale A. Parks in favor of SHF Corporation; Deed of Trust dated February 13, 1995, made by James P. Parks and Dale A. Parks 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 10.25. 10.26 Assignment of promissory note in the original principal amount of $70,000 made by Chandler T. Martin and Debra L. Martin in favor of SHF Acquisition Corporation; Promissory Note dated March 2, 1992, made by Chandler T. Martin and Debra L. Martin in favor of SHF Acquisition Corporation; Letter dated April 6, 1994, extending the due date of the note to March 10, 1998; Deed of Trust dated March 2, 1992, made by Chandler T. Martin and Debra L. Martin 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 10.26. 10.27 Assignment of promissory note in the original principal amount of $164,160 made by Consolidated Kapital, Inc. in favor of SHF Acquisition Corporation; Promissory Note dated January 24, 1992, made by Consolidated Kapital, Inc in favor of SHF Acquisition Corporation; Deed of Trust dated January 24, 1992, made by Consolidated Kapital, 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, 1995, Part IV, Item 14(a)(3), Exhibit 10.27. 10.28 Assignment of promissory note in the original principal amount of $85,360 made by William A. Brown in favor of SHF Acquisition Corporation; Promissory Note dated April 6, 1995, made by William A. Brown in favor of SHF Acquisition Corporation; Deed of Trust dated April 6, 1995, made by William A. Brown 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 10.28. 10.29 Assignment of promissory note in the original principal amount of $76,000 made by John P. Xepoleas and Monterey A. Xepoleas in favor of SHF Acquisition Corporation; Promissory Note dated March 10, 1995, made by John P. Xepoleas and Monterey A. Xepoleas in favor of SHF Acquisition Corporation; Deed of Trust dated March 10, 1995, made by John P. Xepoleas and Monterey A. Xepoleas 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 10.29. 10.30 Assignment of promissory note in the original principal amount of $193,800 made by T. E. Duerr and P. A. Duerr, Trustees of the Duerr Family Revocable Trust dated October 14, 1987, in favor of SHF Acquisition Corporation; Promissory Note dated July 22, 1992, made by T.E. Duerr and P. A. Duerr, Trustees of the Duerr Family Revocable Trust in favor of SHF Acquisition Corporation; Deed of Trust dated July 22, 1992, made by T.E. Duerr and P. A. Duerr, Trustees of the Duerr Family Revocable Trust 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 10.30. 10.31 Assignment of promissory note in the original principal amount of $79,000 made by Raymond L. James and Cheryle James in favor of SHF Acquisition Corporation; Promissory Note dated December 7, 1994, made by Raymond L. James and Cheryle James in favor of SHF Acquisition Corporation; Deed of Trust dated December 7, 1994, made by Raymond L. James and Cheryle James 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 10.31. 10.32 Installment Note dated January 17, 1996, made by Mukhtar Ahmad and Nazra P. Ahmad in favor of Willows Ranch Group, consisting of SHF Acquisition Corporation and 500 First Street wherein SHF Acquisition Corporation has a 91.90% interest 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 10.32. 10.33 Purchase and Option Agreement by and between SHF Acquisition Corporation and West Coast Properties, LLC, undated, regarding the sale of 20 lots and an option to purchase an additional 20 lots at The Fairways is incorporated herein by Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, Part II, Item 6, Exhibit 10.01. 10.34 Letter dated July 12, 1996 from Murieta Investors regarding Amended Purchase Agreement is incorporated herein by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, Part II, Item 6, Exhibit 10.01 10.35 Promissory note dated June 12,1996, between Golden State Trust and M & R Investment Company, Inc.; Assignment of Rights to Payments, Consent to Assignment between Baby Grand Corp. and M & R Investment Company, Inc.; Loan Agreement and Assignment between M & R Investment Company Inc. and Golden State Trust is incorporated herein by reference to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for the quarter ended June 30,1996, Part II, Item 6, Exhibit 10.02. 10.36 Real Estate Option Agreement dated September 27, 1996, wherein M&R Investment Company, Inc. granted an Option to MARCOR PARTNERSHIP, a general partnership, an Option to acquire M&R Investment Company, Inc's 66.667% interest in 2.16 acres of industrial property in Las Vegas, Nevada; Memorandum Of Option for the purpose of recordation. 10.37 Purchase Agreement dated February 27, 1997 by and between Dana C. Hair ("Buyer") and Southlake Acquisition Corporation, a Nevada Corporation, and Jim Joseph, as Trustee of The Joseph Revocable Trust, each as to an undivided 1/2 interest wherein Buyer agrees to buy the property, more commonly known as The White Ranch for $6,000,000; Exhibit "A" to purchase agreement, Legal description of the property; Exhibit "B", there are no items in Exhibit B; Exhibit "C", there are no items in Exhibit "C"; Exhibit "D", (i) Copy of a Field Tenant Lease dated January 5, 1997, between Southlake Acquisition Corporation and Phoenix Farming Company (ii) Copy of a Field Tenant Lease dated January 5, 1997, between Southlake Acquisition Corporation and Four B's Farms (iii) Copy of an Agricultural Lease dated September 8, 1992, and its amendment dated November 29, 1995 between Southlake Acquisition Corporation and J.G. Boswell Company (iv) Copy of a letter dated February 14, 1997, from Brent Bowen, Vice President, Southlake Acquisition Corporation to J. W. Boswell, President, J.G. Boswell Company (v) Copy of a Field Tenant Lease dated February 20, 1997, between Southlake Acquisition Corporation and W. William Blanken dba HWB Farms.; Exhibit "E", there are no items in Exhibit "E"; Exhibit "F", (i) Copy of the Angiola Water District Restated Water Distribution Agreement (ii) Copy of a Fax Transmittal dated February 12, 1997, from Kevin Johansen, Angiola Water District, to Brent Bowen, Southlake Acquisition Corporation, describing portions of "the Property" lying within the boundaries of the Tulare Lake Basin Water Storage District and the Tulare Lake Drainage District, (iii) Copy of the Short Term State Water Contract between Tulare Lake Basin Water Storage District and Southlake Acquisition Corp. for the period January 1, 1997 through December 31, 1998, (iv) Copy of the Ninth Amended Rules and Regulations Governing the Transmission of Water Under the Water Supply Contract Between the State of California, Department of Water Resources and the Tulare Lake Basin Water Storage District; Exhibit "G", there are no items in Exhibit "G". 10.38 Agreement For The Purchase and Sale of Real Property dated February 21,1997, wherein SHF Acquisition Corporation agrees to sell to Celebrate, LLC, and/or assignee, a parcel of vacant land consisting of approximately .82 acres described as a portion of the W2, SW4, Se4 NW4 of Section 33, Township 195 and Range 61E, M.D.M. The Property is further described as Arroyo Grande Unit 3 consisting of 4 lots. 10.39 Agreement For The Purchase and Sale of Real Property dated February 21,1997, wherein SHF Acquisition Corporation agrees to sell to Celebrate, LLC, and/or assignee, a parcel of vacant land consisting of approximately 11 gross acres described as a portion of the SW4, NW4 of Section 33, Township 195 and Range 61E, M.D.M. The property is further described as Arroyo Grande Unit 2A and 2B consisting of 53 lots. 10.40 Purchase and Option Agreement by and between SHF Acquisition Corporation and Murieta Investors, LLC, dated October 7, 1996, wherein SHF Acquisition Corporation sold 6 lots at The Fairways to Murieta Investors, LLC, and granted an option to Murieta Investors, LLC, to acquire 34 additional lots at The Fairways under terms and conditions described in the Purchase and Option Agreement. 21.01 Subsidiaries of Registrant. 27.01 Financial Data Schedule EX-10.36 2 REAL ESTATE OPTION AGREEMENT THIS REAL ESTATE OPTION AGREEMENT ("Agreement") is made and entered into as of this 27th day of September, 1996, by and between MARCOR PARTNERSHIP, a general partnership, ("Optionee") and M & R INVESTMENT COMPANY, INC., a Nevada corporation ("Optionor"). RECITALS: WHEREAS Optionor is the owner of an undivided two thirds (66.667%) interest (the "Subject Interest") as tenant in common in that certain real property located in Clark County, Nevada, containing approximately 2.16 acres, as more particularly described on Exhibit "A" hereto (the "Property"); and WHEREAS Optionee desires an option to acquire the Subject Interest; and WHEREAS Optionor is willing to grant Optionee said option on the terms and conditions provided hereinbelow; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Optionee and Optionor agree as follows: WITNESSETH: 1. PROPERTY. Subject to the terms hereof, Optionor hereby grants Optionee an exclusive option (the "Option") to purchase the entire Subject Interest, including all rights and hereditiments appurtenant thereto. 2. TERM OF OPTION. If not sooner exercised pursuant to the terms of this Agreement, the Option shall expire and be of no further force or effect at 5:00 p.m. Las Vegas time on October 11, 1999 (the "Option Deadline"). 3. FEASIBILITY PERIOD. Optionee shall have until thirty (30) days after mutual execution hereof (the "Feasibility Period") in which to evaluate the Property and conduct such studies and investigations as Optionee sees fit. At any time prior to expiration of the Contingency Period Optionee may terminate this Agreement by written notice to Optionor, in which event neither party shall have any further rights or obligations hereunder. 4. OPTION FEE. In consideration of the Option granted herein, Optionee shall pay Optionor an annual payment (the "Option Fee") in the amount of Forty Five Thousand One Hundred Eighty Five Dollars ($45,185.00), so long as the Option remains in effect. the first such payment shall be due and payable on or before the expiration of the Feasibility Period, with a like payment due and payable on each of the next two (2) anniversaries thereof, provided that the Option has not sooner been terminated as provided for elsewhere herein. 5. EXERCISE OF OPTION. At any time during the term of the Option, Optionee shall have the right to exercise the Option by giving Optionor not less than thirty (30) days prior written notice thereof (the "Exercise Notice"). 6. CLOSING. Within two (2) business days after Optionor's receipt of Optionee's Exercise Notice as provided for under Section 5 above, Optionee and Optionor shall open an escrow with Angie Galindo of United Title Agency ("Escrow Agent"), 2300 W. Sahara Avenue, Suite 140, Las Vegas, Nevada 89102, by depositing an executed copy of this Agreement. The parties shall promptly execute and deliver such escrow instructions and additional documents, not inconsistent with this Agreement, as may be required to effectuate the intent hereof. Escrow shall close not later than thirty (30) days after Optionor's receipt of Optionee's Exercise Notice. Optionor shall convey the Subject Interest to Optionee or Optionee's nominee by grant, bargain and sale deed as customary in Nevada. At close of escrow, Optionor shall cause Escrow Agent to issue the Optionee Escrow Agent's standard CLTA owner's policy of title insurance, with coverage in the amount of the Purchase Price, insuring good and marketable title to the Subject Interest subject only to Items 1, 2, 4, 5, 6, 7, 8 and 12 as shown on Schedule B of United Title Company's preliminary title report dated April 19, 1996 and attached hereto as Exhibit "B"; provided, however, that as to Item 1, all taxes shall be paid current by Optionor as of close of escrow, and as to Item 2, Optionor shall remain obligated as to supplemental taxes assessed against any improvements constructed by Optionor or on Optionor's behalf. Closing costs shall be apportioned as follows: Optionor shall pay transfer tax, the premium for Optionee's CLTA title policy, and one-half of the escrow fee. Optionee shall pay recording costs and one-half of the escrow fee, and the incremental cost of any ALTA title insurance coverage desired by Optionee over and above the cost of a standard CLTA policy. Real property taxes shall be prorated as of closing. 7. PURCHASE PRICE. The purchase price for the Subject Interest (the "Purchase Price") shall be an amount equal to Nine Dollars ($9.00) multiplied by the total square footage of the Property. The square footage of the Property shall be deemed to be Ninety Four Thousand Ninety (94,090) square feet unless Optionee obtains a survey, at Optionee's expense, prepared by a licensed Nevada surveyor during the Feasibility Period, which reflects a different square footage. In such event, the square footage of the Property shall be determined by reference to said survey. The Purchase Price shall be payable in cash at close of escrow. No portion of the Option Fee paid by Optionee shall be applicable to the Purchase Price. 8. RIGHT OF ENTRY. Optionee and its agents shall have the right to enter onto the Property during the term of the Option, to inspect same and conduct studies thereon and/or a survey thereof. Optionee shall indemnify Optionor from any claims, liens, damages and expenses (including attorneys fees) arising from or in connection with such entry. Optionor agrees to provide to Optionee, promptly after execution hereof, all information and materials concerning the Property in the present possession of Optionor or its agent. 9. BROKERS. Optionee and Optionor hereby represent and warrant to each other that they have not retained or dealt with any broker or agent with respect to this transaction. Optionee and Optionor each hereby agree to indemnify and hold the other harmless from and against the claims of any broker, agent or finder claiming by or through the indemnifying party. Optionee discloses that Optionee and/or principals of Optionee are licensed Nevada real estate brokers. 10. OPTIONOR'S REPRESENTATIONS. Optionor hereby represents and warrants to Optionee as follows: (a) The execution, delivery and performance by Optionor of this Agreement and such other instruments and documents to be executed and delivered in connection herewith by Optionor does not, and will not, result in any violation of, or conflict with, or constitute a default under, any provision of any agreement or any mortgage, deed of trust, indenture, lease, security agreement, or other instrument or agreement to which Optionor is a party. (b) To the best of the Optionor's knowledge, Optionor is not prohibited from consummating the transactions contemplated by this Agreement by any law, rule, regulation, instrument, agreement, order or judgment. (c) Optionor has not received any notice of, and, to the best of Optionor's knowledge, there do not exist any current violations of any laws, statutes, ordinances, regulations or other requirements of any governmental agency in connection with or related to the Property. Without limiting the generality of the foregoing, to the best of Optionor's knowledge, no hazardous substances or wastes or petroleum products are presently located on the Property. Optionor has not received any notice of any proceeding or any pending inquiry by any governmental agency with respect to hazardous wastes or toxic substances in connection with the Property. Optionor has received no notice of any violations of any local, state or federal statutes or laws governing the generation, treatment, storage, disposal or clean-up of hazardous substances, including, without limitation, NRS Chapter 459, the Toxic Substance Control Act of 1976, or the Resource Conservation and Recovery Act of 1976, as they have been amended from time to time. (d) To the best of Optionor's knowledge, there are not any existing, pending or anticipated litigation, condemnation or similar proceedings against or involving the Property or, to the best of Optionor's knowledge, or any other claim, action, suit or other proceeding threatened or pending which would materially and/or adversely affect Optionee's right, title and/or interest in and to, or enjoyment or use of, the Property. (e) The Property is a legal parcel or parcels in accordance with Nevada's Subdivision Map Act, Chapter 278 of Nevada Revised Statutes. (f) Optionor shall not transfer, encumber or otherwise hypothecate the Property or any portion thereof or interest therein, so long as this Agreement remains in effect. The foregoing representations and warranties shall be true and correct as of the date hereof and as of close of escrow, and shall survive closing and delivery of the deed. In the event of any failure of any of the foregoing representations and warranties prior to the close of escrow. Optionee shall have the right, at its option and without limitation of remedy, to terminate this Agreement and obtain a refund of all Option Fees paid to Optionor. 11. NOTICES. Any notices hereunder shall be hand delivered or sent by certified mail, postage prepaid, return receipt requested, addressed as follows: OPTIONEE: OPTIONOR: 4495 South Polaris Avenue 4045 S. Spencer St. #206 Las Vegas, Nevada 89103 Las Vegas, Nevada 89119 Attn: Robert H. O'Neil Attn: James H. Dale Notices mailed as aforesaid shall be deemed delivered on the earlier of (a) actual receipt, or (b) two (2) business days after deposited in the U.S. mail. 12. DEFAULT. In the event of default hereunder by Optionor, which default is not cured within five (5) days after written notice thereof from Optionee to Optionor, Optionee shall have all rights and remedies available at law or in equity, including (without limitation) the right to compel specific performance of this Agreement. In the event of default hereunder by Optionee, which default is not cured within five (5) days after written notice thereof from Optionor to Optionee, Optionor's sole remedy shall be to terminate this Agreement by written notice to Optionee and Escrow Agent, in which event Optionor shall retain all portions of the Option Fee paid by Optionee, and neither party shall have any further rights or obligations hereunder. 13. GENERAL. Time is of the essence hereof. This Agreement represents the entire agreement of the parties, expressly superseding all prior agreements and understandings (including, without limitation, the matters set forth in correspondence between the parties dated August 22, 1996, August 26, 1996, and August 27, 1996, respectively). This Agreement may only be amended in writing. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns. The waiver of any default by Optionor or Optionee shall not be construed as a continuing waiver, or a waiver of any subsequent default of the same or any other provision of this Agreement. The terms of this Agreement shall be governed under Nevada law. In the event of any action to enforce the terms of this Agreement, the prevailing party shall be entitled to costs and attorneys fees from the other party. This Agreement may be executed in counter parts. 14. ACCEPTANCE. Unless this Agreement is executed by Optionor and delivered to Optionee by 5:00 p.m., Las Vegas time, on September 24, 1996, any offer represented hereby shall be deemed revoked and of no further force or effect. 15. MEMORANDUM OF OPTION. Concurrently with the expiration of the Feasibility Period, Optionee and Optionor shall execute and record against the Property a memorandum giving notice of the existing, but not the terms, of this Agreement. IN WITNESS WHEREOF Optionee and Optionor have executed this Agreement as of the date first set forth above. OPTIONEE: OPTIONOR: MARCOR PARTNERSHIP, M & R INVESTMENT COMPANY, INC. a general partnership, a Nevada corporation, /s/ /s/ James H. Dale By: By: James H. Dale Its: Managing General Partner Its: President EXHIBIT A A parcel of land located in the Northeast One Quarter (NE 1/4) of the Northwest One Quarter (NW 1/4) of Section 20, Township 21 South, Range 61 East, Mount Diablo Meridian, Clark County, Nevada, more particularly described as follows: Beginning at a point South 75(45'32" West 815.64 feet from the North Quarter (N 1/4) corner of Section 20, Township 21 South, Range 61 East, MDM, said point being on the West right of way line of Industrial Road; thence North 66(10'34" West 282.96 feet, thence North 27(39'44" East, 62.48 feet to a point on the South right of way of Flamingo Wash; thence South 72(50'01" East 31.47 feet along the South right of way line of Flamingo Wash; thence South 84(38'32" East 52.93 feet along the South right of way line of Flamingo Wash; thence South 86(11'41" East 53.52 feet along the South right of way line of Flamingo Wash; thence North 83(04'56" East 50.98 feet along the South right of way line of Flamingo Wash; thence North 68(22'39" East 72.74 feet along the South right of way line of Flamingo Wash to the West right of way line of Industrial Road; thence Southerly along the arc of a curve concave to the East 167.18 feet along the West right of way line of Industrial Road, said curve has a radius of 565 feet and has a central angle of 16(57'11" and radial lines bearing North 73(02'49" West and due West; thence due South 20.05 feet along the West right of way line of Industrial Road to the point of beginning. Escrow Number: 96-10-4555-AG MEMORANDUM OF OPTION This MEMORANDUM OF OPTION is made this 21st day of November, 1996 by and between M & R INVESTMENT COMPANY, INC., hereinafter referred to as "Optionor" and CINDERLANE, INC., A NEVADA CORPORATION, hereinafter referred to as "Optionee". The parties have entered into a REAL ESTATE OPTION AGREEMENT dated September 27, 1996, for the option to purchase the property as set forth on Exhibit "A" attached hereto and by reference made a part hereof. The Real Estate Option Agreement terminates at 5:00 PM, October 11, 1999. THIS MEMORANDUM OF OPTION IS PREPARED FOR THE PURPOSE OF RECORDATION AND IN NO WAY MODIFIES THE TERMS AND CONDITIONS OF THE AGREEMENT. Witness our hands this 3rd day of December, 1996 OPTIONOR: M & R INVESTMENT COMPANY, INC., A NEVADA CORPORATION /s/ James H. Dale By: JAMES H. DALE, PRESIDENT OPTIONEE: CINDERLANE, INC., A NEVADA CORPORATION By: STATE OF NEVADA ) Escrow No. 96-10-4555-AG COUNTY OF CLARK ) When recorded, mail to: On this 3rd of December, 1996 UNITED TITLE OF NEVADA appeared before me, a Notary 2300 West Sahara Ave/Box 3 Public, James H. Dale personally Las Vegas, Nevada 89103 known or proven to me to be the person(s) whose name(s) is/are This document is executed in subscribed to the above counterpart to facilitate this instrument, who acknowledged transaction each of which so that he/she/they executed executed shall, irrespective the instrument for the purposes of the date of its execution therein contained. and delivery, be deemed an original, and these counterparts together /s/ constitute one and the same Notary Public instrument. My commission expires: March 13, 1999 This area for Notary Seal THIS IS CERTIFIED TO BE A TRUE & CORRECT COPY OF THE SIGNED ORIGINAL BY /S/ UNITED TITLE OF NEVADA Escrow Number: 96-10-4555-AG MEMORANDUM OF OPTION This MEMORANDUM OF OPTION is made this 21st day of November, 1996 by and between M & R INVESTMENT COMPANY, INC., hereinafter referred to as "Optionor" and CINDERLANE, INC., A NEVADA CORPORATION, hereinafter referred to as "Optionee". The parties have entered into a REAL ESTATE OPTION AGREEMENT dated September 27, 1996, for the option to purchase the property as set forth on Exhibit "A" attached hereto and by reference made a part hereof. The Real Estate Option Agreement terminates at 5:00 PM, October 11, 1999. THIS MEMORANDUM OF OPTION IS PREPARED FOR THE PURPOSE OF RECORDATION AND IN NO WAY MODIFIES THE TERMS AND CONDITIONS OF THE AGREEMENT. Witness our hands this 3rd day of December, 1996 OPTIONOR: M & R INVESTMENT COMPANY, INC., A NEVADA CORPORATION By: JAMES H. DALE, PRESIDENT OPTIONEE: CINDERLANE, INC., A NEVADA CORPORATION /s/ By: James A. Barrett, Jr., President STATE OF NEVADA ) Escrow No. 96-10-4555-AG COUNTY OF CLARK ) When recorded, mail to: On this 3rd of December, 1996 UNITED TITLE OF NEVADA appeared before me, a Notary 2300 West Sahara Ave/Box 3 Public, James A. Barrett, Jr. Las Vegas, Nevada 89103 personally known or proven to me to be the person(s) whose name(s) is/are This document is executed in subscribed to the above counterpart to facilitate this instrument, who acknowledged transaction each of which so that he/she/they executed executed shall, irrespective the instrument for the purposes of the date of its execution therein contained. and delivery, be deemed an original, and these counterparts together /s/ constitute one and the same Notary Public instrument. My commission expires: 7/27/99 This area for Notary Seal THIS IS CERTIFIED TO BE A TRUE & CORRECT COPY OF THE SIGNED ORIGINAL BY /S/ UNITED TITLE OF NEVADA EXHIBIT "A" A parcel of land located in the Northeast One Quarter (N/E 1/4) of the Northwest One Quarter (NW 1/4) of Section 20, Township 21 South, Range 61 East, Mount Diablo Meridian, Clark County, Nevada, more particularly described as follows: Beginning at a point on the North line of Section 20, Township 21 South, Range 61 East, M.D.M. and the North right of way line of Flamingo Road and the West right of way line of I-15 said point being North 89(53'29" West, 199.49 feet from the North Quarter (N 1/4) corner of Section 20; Thence South Westerly along the arc of a curve concave to the North West 421.46 feet. This arc is the North right of way line of Flamingo Road and has a radius of 415 feet and a central angle of 58(11'18" and radial lines bearing South 69(43'06" East and South 11(31'48" East; thence Westerly along the arc of a curve concave to the North 164.57 feet. This arc is the North right of way line of Flamingo Road and has a radius of 1340 feet and a central angle of 07(02'28" and radial lines bearing South 00(31'08" East; and South 06(31'20" West. This point being the intersection of the North right of way line of Flamingo Road and the East right of way line of Industrial Road; Thence North 04(14'05" West, 73.43 feet along the East right of way line of Industrial Road; Thence Northerly along the arc of a curve concave to the East 44.26 feet said arc being the East right of way line of Industrial Road. this curve has a radius of 450 feet and a central angle of 05(38'08" and radial lines bearing North 84(21'54" East and due East; Thence North 84(21'54" East 20.00 feet; Thence Northerly along the arc of a curve concave to the East 127.79 feet. Said Arc being the East right of way line of Industrial Road. This curve has radius of 430 feet and a central angle of 17(01'38" and a radials bearing North 67(20'08" West and North 84(21'54" West; Thence North 22(39'44" East 17.38 feet along the East right of way line of Industrial Road to a point on the North line of Section 20; Thence South 89(53'29" East 416.18 feet along the North line of Section 20 to the Point of Beginning. CLARK COUNTY, NEVADA JUDITH A. VANDEVER, RECORDER RECORDED AT REQUEST OF: UNITED TITLE OF NEVADA 12-05-96 08:01 CPD 3 BOOK: 961205 INST: 00291 Fee: 9.00 RPTT: .00 OPTION CONFORMED COPY-HAS NOT BEEN COMPARED TO THE ORIGINAL EX-10.37 3 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT is made and entered into as of the 27th day of February, 1997 by and between Dana C. Hair ("Buyer") and Southlake Acquisition Corporation, a Nevada Corporation, and Jim Joseph, as Trustee of the Joseph Revocable Trust, each as to an undivided 1/2 interest ("Owner"). 1. General Description of Transaction: Buyer is agreeing to purchase (subject to the terms and conditions set forth is this Agreement) the Property from Owner. The purchase price is Six Million and no/100 Dollars ($6,000,000.00) to be paid all in cash at the close of escrow. Escrow will be opened at First American Title Insurance Company and will close one hundred twenty (120) days from the opening of escrow, unless extended. Buyer will make a Ten Thousand and no/100 Dollars ($10,000.00) non-refundable deposit at the opening of escrow. Owner will provide Buyer with certain information about the Property after the opening of escrow. Buyer is to have ninety (90) days from the opening of escrow to conduct such investigations, inspections and tests as Buyer deems prudent, as well as to review condition of title. In addition, concurrent with the ninety (90) day Inspection/Contingency Period, Buyer will be attempting to arrange financing for the purchase of the Property. Buyer may extend this ninety (90) day Inspection/Contingency Period for an additional ninety (90) days by making an additional Ten Thousand and no/100 Dollar ($10,000.00) non-refundable payment to Owner. Assuming Buyer is satisfied with the results of the title, inspections, etc., and is able to arrange financing, Buyer will notify escrow in writing that all conditions have been satisfied and thereafter, be legally bound to purchase the Property, and thereafter, escrow will close. In the event Buyer is not satisfied with the results of the title, inspections, etc., or has been unable to arrange financing, then Buyer may terminate this Agreement, cancel escrow, and have no further obligation to Owner, however, Buyer's deposit (or deposits) will not be refunded. The foregoing is intended as a generalized overview of the transaction. The specific terms and conditions of the Parties' agreements are set forth in the balance of this Agreement. In the event any statement in the Generalized Overview is inconsistent with a specific provision in the remainder of this Agreement, the specific provision is intended to be controlling. 2. Definitions: The following terms, whenever used in this Agreement, shall have only the meanings set forth below, unless such meanings are expressly modified elsewhere herein. 2.1. Broker: Neither Owner, nor Buyer is represented by a broker in this transaction. 2.2. Broker's Commission: There is no Broker's Commission. 2.3. Closing: The date the deed to the Property is recorded in the Official Records of the county where the Property is located. 2.4. Deposit: Buyer will deposit with Escrow Holder Ten Thousand and no/100 Dollars ($10,000.00) as a non-refundable deposit which escrow will be instructed to disburse to Seller immediately following the opening of escrow. This deposit is intended to compensate Seller for Seller's agreement to remove the Property from the market during the Inspection/Contingency Period, and to serve as Liquidated Damages under Paragraph 7. 2.5. Escrow Holder: First American Title Insurance Company 4540 California Avenue, Suite 100 Bakersfield, CA 93309 (805) 327-5311 (805) 327-8533 - fax 2.6. Inspection/Contingency Period: The period commencing at the Opening of Escrow and ending ninety (90) days thereafter. However, at any time prior to the expiration of the initial ninety (90) day Inspection/Contingency Period, Buyer may extend the Inspection/Contingency Period one time for up to ninety (90) days, for a total of a one hundred eighty (180) day Inspection/Contingency Period, by paying Owner Ten Thousand and no/100 Dollars ($10,000.00) outside of escrow. This Ten Thousand and no/100 Dollars ($10,000.00) extension fee shall be non-refundable, and shall be in addition to the deposit made on the opening of escrow. 2.7. Opening of Escrow: Opening of Escrow shall be the time when escrow instructions signed by both Buyer and Owner are received by First American Title Insurance Company. 2.8. Outside Closing Date: Escrow will close and the deed will be recorded no later than thirty (30) days after the close of the Inspection/Contingency Period (ninety (90) or one hundred eighty (180) days, if extended by tender of additional non-refundable deposit as described in 2.6). 2.9. Property: The property that is the subject of this Purchase Agreement is commonly known as The White Ranch. The legal description of the Property is set forth in Exhibit "A" ("the Property"). 2.10. Purchase Period: The period commencing on the timely execution of this Agreement and ending on the earlier to occur of (a) the Closing or the cancellation of the Escrow, or (b) 5:00 p.m. on the Outside Closing Date. 2.11. Purchase Price: Six Million and no/100 Dollars ($6,000,000.00). 2.12. Title Company: First American Title Insurance Company 4540 California Avenue, Suite 100 Bakersfield, CA 93309 (805) 327-5311 (805) 327-8533 - fax * ALL PAYMENTS TO BE MADE BY BUYER TO OWNER OR ESCROW HOLDER SHALL BE IN THE FORM OF CASH OR CASHIER'S CHECK OR BY WIRE TRANSFER OF FEDERAL FUNDS ONLY. 3. Conditions to Buyer's Obligation to Purchase. 3.1. Buyer's Inspection Rights: At any time during the Inspection Period, Buyer and Buyer's experts shall have the right to enter upon the Property at reasonable times after reasonable notice to the Owner to make reasonably necessary inspections including the sampling of any surface waters, wells, and groundwater on or under the Property, and conducting such tests and examinations upon the Property as they deem appropriate, but without unreasonably interfering with the Property. These inspections will include, but not be limited to, examination of soils and environmental factors, a review and investigation of the effect of any zoning, maps, permits, reports, engineering data, regulations, ordinances and laws affecting the Property, and the review of the items, if any, required to be delivered as provided in this Agreement. Buyer and Buyer's experts shall exercise care in entering upon and inspecting the Property, and Buyer hereby agrees to defend, indemnify and hold harmless Owner, its officers, employees and agents from all damages, losses, costs, expenses and liabilities (including all attorneys' fees incurred by Owner), arising out of or resulting from Buyer's or Buyer's experts' entry upon or inspection of the Property. At any time during the Inspection Period, Buyer has the right to cancel this Agreement if it is dissatisfied with the results of any inspection, evaluation, report, etc., and decides that the Property is not suitable for Buyer's purposes. Buyer's failure to disapprove the physical condition of the Property on or before the end of the Inspection Period shall be deemed approval of the condition of the Property by Buyer. Buyer agrees to keep the Property free and clear of all liens, and further agrees to indemnify and hold Owner harmless from all liabilities and to repair all damages to the Property arising from the inspections. 3.2. Financing: Buyer does not know if Buyer can obtain suitable permanent financing. Buyer shall seek financing during the Inspection Period. In the event Buyer is unable to obtain financing acceptable to Buyer during that time, Buyer may terminate this Agreement in writing delivered to Owner during the Inspection Period and have no further obligation to Owner under this Agreement, except Buyer's indemnity obligation as set forth in Paragraph 3. 3.3. Title. a) Matters of Record: Owner will provide Buyer a copy of a preliminary title report on the Property along with copies of all documents reflected as exceptions in the Preliminary Title Report. Buyer shall, within thirty (30) days of his receipt of the Preliminary Title Report, provide written notice to Owner of any items unacceptable to Buyer. Owner shall then have ten (10) days to agree to remove such items and in the event Owner is unwilling or unable to do so, this Agreement shall terminate. Buyer's failure to object to exceptions in the Preliminary Title Report within 30 days set forth above shall be deemed an approval of the Preliminary Title Report. b) Matters not of Record: Any matters not of record but known to Owner are disclosed in Exhibits C, D, E, and F. Buyer shall, within thirty (30) days, provide written notice to Owner of any items unacceptable to Buyer. Owner shall then have ten (10) days to agree to remove such items and in the event Owner is unwilling or unable to do so, this Agreement shall terminate. Buyer's failure to object to exceptions in Exhibits C, D, E, and F in a timely manner shall be deemed an approval of the matter set forth in those Exhibits C, D, E, and F. c) Title at Close: At the close of escrow: (a) Title shall be transferred by grant deed; (b) title shall be free of liens, except the lien for current property taxes; (c) title shall be free of other encumbrances, easements, restrictions, rights, and conditions of record or know to Owner, except for all matters shown in the Preliminary Title Report which are not disapproved in writing by Buyer, as set forth in a) and b), above. Owner shall provide Buyer with a CLTA Standard Policy of Title Insurance in favor of Buyer in the amount of Six Million and no/100 Dollars ($6,000,000.00). 4. Operation of Property: During the Purchase Period, and if escrow closes, until the close of escrow, the Owner shall have the right to possess the property. If escrow closes, Owner shall deliver possession to Buyer at the close of escrow subject to any Farm Leases approved by Buyer. Notwithstanding the foregoing, Owner will not materially alter the Property in any manner during the Purchase Period. 5. Property Condition/Owner's Representations and Warranties: Owner has made no representations, except as set forth in this Paragraph 5. Owner warrants and represents to Buyer that as of the date of this Agreement and as of the Closing Date, the following warranties and representations are accurate: 5.1. Owner possesses fee simple absolute title to the Property and Owner has the legal right to enter into this Agreement. This Agreement and all documents, certificates and instruments executed or to be executed by Owner in connection with the transfer of the Property to Buyer have been or will be duly authorized, executed, and delivered, and each constitutes or shall constitute a legal, valid and binding agreement enforceable against Owner in accordance with its terms; and no consents, orders or approvals are required in connection therewith. 5.2. Owner and Buyer are aware of the existence in the NW 1/4 of Section 3, T23S R23E of the Property of a dilapidated residence. Owner makes no warranty or representation as to the physical, structural, or mechanical condition of the residence or any systems or fixtures which may or may not be a part of the residence. 5.3. To the best of Owner's knowledge, there are no violations of any laws or regulations applicable to the Property. 5.4. There is no Section 5.4. 5.5. There is no Section 5.5. 5.6. Owner is not aware of any fact or circumstance which would prevent Buyer from operating the Property after Closing as a farm. 5.7. Except as listed on Exhibit "C", or in the Preliminary Title Report, at the Closing there shall be no outstanding contracts made by Owner affecting the Property, for any improvements to the Property or for services to be rendered to the Property and all such contracts that existed prior to closing will have been fully performed and paid for by Owner. Owner shall cause to be discharged all mechanic's liens and materialmen's liens arising from any labor or materials furnished prior to Closing which pertain to the Property. 5.8. Except as listed on Exhibit "D", there are no rental agreements, leases or other agreements creating any possessory right in any third party in the Property. 5.9. Except as disclosed in Exhibits "C" or "D", or as set forth in Exhibit "E", to the best of Owner's knowledge, there are no matters, not of record, that would have a material adverse impact on the Buyer's use and enjoyment of the Property. 5.10. The Property lies within, or is entitled to water service from the water districts disclosed on Exhibit "F". Any other source of water for the Property is also disclosed on Exhibit "F". Seller has made no representations or warranties as to the quality or quantity of water available to the Property. Buyer will make Buyer's own independent evaluation of the water supply. 5.11. Owner has not filed or been the subject of any filing of a petition under the Federal Bankruptcy Law or any insolvency laws, or any laws for composition of indebtedness or for the reorganization of debtors. 5.12. To the best of Owner's knowledge, there are not now pending any lawsuits or causes of action regarding the Property, or any part thereof, and that Owner shall protect, indemnify, and hold Buyer harmless from any causes of action arising out of or relating to the Property, where the incidents or events which are the basis of any such lawsuit or cause of action are alleged to have occurred prior to the Closing Date. The agreement to protect, indemnify and hold Buyer harmless in the preceding sentence shall not include any matters arising out of or caused by Buyer's negligent acts or omissions. 5.13. Owner has received no written notice from any governmental authority that eminent domain proceedings for the condemnation of all or any portion of the Land or Improvements are pending or proposed. 5.14. Owner is not a "foreign person" within the meaning of section 1445(f)(3) of the Internal Revenue Code of 1954, as amended, and that Owner shall furnish to Buyer, prior to the Closing, an affidavit in form satisfactory to Buyer confirming the same. 5.15. No Hazardous Substances. (i) To the best of Owner's knowledge, there have been no violations of any Environmental Laws (as defined below). (ii) To the best of Owner's knowledge, there are no buried or partially buried storage tanks on the Property. (iii) To the best of Owner's knowledge, Owner has received no notice, warning, notice of violation, administrative complaint, judicial complaint, or other formal or informal notice alleging that conditions on the Property are or have been in violation of any Environmental Law, or informing Owner that the Property is subject to investigation or inquiry regarding Hazardous Substances on the Property or the potential violation of any Environmental Law. (iv) To the best of Owner's knowledge, there is no monitoring program required by the Environmental Protection Agency ("EPA") or any similar state agency concerning the Property. (v) Except as noted below, to the best of Owner's knowledge, no toxic or hazardous chemicals, waste, or substances of any kind have ever been spilled, disposed or, or stored on, under or at the Property, whether by accident, burying, drainage, or storage in containers, tanks, holding areas, or by any other means. Note: As of February 19, 1997, a number of metal drums of unknown origin and unknown contents were located on the property in the shop yard. The drums have been examined by Buyer, and he has determined that the drums were empty except for accumulations of rain water, and that the drums had been stored on the property by a former tenant. On February 20, 1997, the drums were removed to the former tenant's property. (vi) To the best of Owner's knowledge, the Property has never been used as a dump or landfill. (vii) Owner has disclosed to Buyer all information, records, and studies maintained by Owner in connection with the Property concerning Hazardous Substances. (viii) The warranties in this section apply to all Hazardous Substances other than residues of chemicals applied to the Property or to crops growing in the property in the ordinary course of farming. As used in this Agreement, "Environmental Laws" means all federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, or requirements of any government authority regulating, relating to, or imposing liability or standards of conduct concerning any Hazardous Substance (as later defined), or pertaining to occupational health or industrial hygiene (and only to the extent that the occupation or industrial hygiene laws, ordinances, or regulations relate to Hazardous Substances on, under, or about the Property), occupational or environmental conditions on, under, or about the Property, as now or may at any later time be in effect, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") [42 USCS Sections 9601 et seq.]; the Resource Conservation and Recovery Act of 1976 ("RCRA") [42 USCS Sections 6901 et seq.]; the Clean Water Act also known as the Federal Water Pollution Control Act ("FWPCA") [33 USCS Sections 1251 et seq.]; the Toxic Substances Control Act ("TSCA") [15 USCS Sections 2601 et seq.]; the Hazardous Materials Transportation Act ("HMTA") [49 USCS Sections 1801 et seq.]; the Insecticide, Fungicide and Rodenticide Act [7 USCS Sections 136 et seq.]; the Superfund Amendments and Reauthorization Act [42 USCS Sections 6901 et seq.]; the Clean Air Act [42 USCS Sections 7401 et seq.]; the Safe Drinking Water Act [42 USCS Sections 300f et seq.]; the Solid Waste Disposal Act [42 USCS Sections 6901 et seq.]; the Surface Mining Control and Reclamation Act [30 USCS Sections 1201 et seq.]; the Emergency Planning and Community Right to Know Act [42 USCS Sections 11001 et seq.]; the Occupational Safety and Health Act [29 USCS Sections 655, 657]; the California Underground Storage of Hazardous Substances Act [H & SC Sections 25280 et seq.]; The California Hazardous Substances Account Act [H & SC Sections 25300 et seq.]; the California Hazardous Waste Control Act [H & SC Sections 25100 et seq.]; the California Safe Drinking Water and Toxic Enforcement Act [H & SC Sections 24249.5 et seq.]; the Porter-Cologne Water Quality Act [Wat C Sections 13000 et seq.], together with any amendments of or regulations promulgated under the statutes cited above and any other federal, state, or local law, statute, ordinance, or regulation now in effect or later enacted that pertains to occupational health or industrial hygiene (and only to the extent that the occupational health or industrial hygiene laws, ordinances, or regulations relate to Hazardous Substances on, under, or about the Property), or the regulation or protection of the environment, including ambient air, soil, soil vapor, groundwater, surface water, or land use. As used in this Agreement, "Hazardous Substances" includes, without limitation: (a) Those substances included within the definitions of "hazardous substance", "hazardous material", "toxic substance", "solid waste", or "pollutant or contaminant" in CERCLA, RCRA, TSCA, HMTA, or under any other Environmental Law; (b) Those substances listed in the United States Department of Transportation (DOT) Table [49 CFR 172.101], or by the Environmental Protection Agency (EPA), or any successor agency, as hazardous substances [40 CFR Part 302]; (c) Other substances, materials, and wastes that are or become regulated or classified as hazardous or toxic under federal, state, or local laws or regulations; and, (d) Any material, waste, or substance that is: (i) a petroleum or refined petroleum product; (ii) asbestos; (iii) polychlorinated biphenyl; (iv) designated as a hazardous substance pursuant to 33 USCS Section 1321 or listed pursuant to 33 USCS Section 1317; (v) a flammable explosive; or, (vi) a radioactive material. 5.16. To the Best of Owner's Knowledge: In making the representations and warranties set forth in this Purchase Agreement, where Owner has stated "To the best of Owner's knowledge," Owner means that Owner has no conscious awareness of any information that would cause Owner to reach a different conclusion, and has undertaken no investigation or verification to determine the existence of any information that might cause Owner to reach a different conclusion. The Property is occupied by tenants of Owner, and Owners' knowledge is limited to infrequent observations of the Property. Buyer is directly and/or indirectly involved in farming on the Property as a result of Buyer's affiliation with two of the tenants on the Property. 5.17. The continued accuracy in all respects of Owner's representations and warranties shall be a condition precedent to Buyer's obligation to close. All representations and warranties contained in the Agreement shall be deemed remade as of the date of Closing and shall survive the Closing. If any of the representations and warranties are not correct at the time made or as of the Closing, Buyer may terminate this Agreement, and there shall be no further liability on the part of Buyer to Owner. The fact that Buyer has the right to inspect the Property as provided in Paragraph 3 of this Agreement, and further the fact that Buyer conducts such inspections, shall not in any manner relieve Owner of its Representations and Warranties under this Paragraph and shall not constitute a waiver by Buyer of these Representations and Warranties. 6. Purchase and Closing: Owner shall be legally bound to sell and Buyer legally bound to buy the Property under the following terms and conditions. 6.1. Purchase Price and Terms: The purchase price is Six Million and no/100 Dollars ($6,000,000.00) and will be paid at the close of escrow in one lump sum. 6.2. Escrow: The escrow shall be with First American Title Insurance Company. Buyer and Owner agree to deliver signed escrow instructions to escrow within a reasonable time after the execution of this Agreement by Owner and Buyer. The Escrow Instructions shall be in the usual form used by the Escrow Company, but shall specifically provide that they do not supersede this Agreement. Owner will pay one-half (1/2) of the Escrow Agent's fees, the cost of the Preliminary Title Report, the cost of the policy of title insurance and the documentary transfer tax. Buyer shall pay one-half (1/2) of the Escrow Agent's fees and all recording costs. 6.3. Possession: Buyer shall be given possession of the Property upon the close of escrow. Possession shall mean actual physical possession. Owner covenants that the Property will not be subject to any possessory interests (leases, rental agreements, licenses, etc.) of any kind at the close of escrow, except as approved by Buyer pursuant to Paragraph 3.3. 6.4. Title: Title shall be as provided in Paragraph 3.3. 6.5. Prorations/Fees/Closing Costs. For purposes of prorations, the Property shall be deemed to have been transferred on the close of escrow, and the following items shall be prorated based on that closing date: (a) County consolidated property tax bill charges, and public utility charges (water, sewer, electricity, gas, garbage) shall be paid current by Owner and prorated between Owner and Buyer as of the date of recordation of the Deed. (b) Bonds or assessments of Special Assessment Districts which are now a lien and are reflected in the county consolidated tax bill referred to in Paragraph (a) or are disclosed on the preliminary title report and approved by Buyer, shall be paid current by Owner as of the date shown in Paragraph (a); payments that are not yet due shall be assumed by Buyer. (c) County transfer tax or tax transfer fee shall be paid by Owner. City transfer tax or transfer fee shall be paid by Owner. (d) Rents due under the leases shown in Exhibit "D" to 4 B's Farms, Phoenix Farming Company, and the J.G. Boswell Company will be prorated at the close of escrow on a calendar year basis. Rents due prior to the close of escrow under the lease to HWB Farms as shown in Exhibit "D" will be for the account of the Owner. 6.6. Personal Property: There are no items of personal property included as part of the Property. However, the Property does include those items set forth on Exhibit "G", which may be classified as personal property or fixtures. 6.7. Fixtures: All permanently installed fixtures and fittings that are attached to the Property or for which special openings have been made are included, free of liens, in the purchase price, including, but not limited to, fences, fuel tanks, and fixtures in or on the shop, except that Owner believes, but does not warrant, that is has the right to transfer an above-ground fuel tank located in the shop yard. 6.8. Assignment: Buyer may assign all or any part of its interests in the Agreement. 6.9. Risk of Loss: Except as otherwise provided in this Paragraph, all risk of loss to the Property which occurs after the offer is accepted and before either title has been transferred or possession has been given to Buyer, whichever occurs first, shall be borne by Owner. Any damage to the land and improvements totaling one percent (1%) of the purchase price shall: (a) be repaired by Owner until Buyer takes possession of the Property, or (b) be the responsibility of Buyer once Buyer takes possession of the Property. If the land or improvements to the Property are destroyed or materially damaged prior to transfer of title in an amount exceeding one percent (1%) of the purchase price, then whether or not Buyer has possession, buyer shall have the right only to either: (a) terminate this Agreement and recover the full deposit, or (b) purchase the Property in its then present condition. If this Agreement is terminated pursuant to this Paragraph, any expenses paid by Buyer or Owner for credit reports, appraisals, title examination, or inspections of any kind shall remain that party's responsibility. Whether the loss exceeds, equals, or is less than one percent (1%) of the purchase price, if Buyer purchases the Property, Owner shall assign to Buyer all rights to any insurance claims or insurance proceeds covering, or recovered for, the loss. If transfer of title and possession do not occur at the same time, Buyer and Owner are advised to seek advice of their insurance advisors as to the insurance consequence thereof. 6.10. Permits: If in Owner's possession, Owner shall within ten (10) days of the Opening of Escrow, deliver to Buyer copies of all permits and approvals concerning the Property obtained from any governmental entity, including but not limited to, Certificates of Occupancy, Conditional Use Permits, Development Plans, and licenses and permits pertaining to the operation of the Property. 6.11. Structural Modifications: Owner, within ten (10) days of the Opening of Escrow, shall disclose to Buyer in writing any known structural additions or alterations, or the installation, alteration, repair, or replacement of significant components of the structure upon the Property. Buyer may notify Owner in writing of disapproval at any time during the Inspection Period. Notice by Buyer to Owner of its disapproval shall terminate this Agreement. 6.12. Governmental Compliance: (a) Within ten (10) days of the Opening of Escrow, Owner shall disclose to Buyer any improvements, additions, alterations, or repairs ("Improvements") made by Owner or known to Owner to have been made without required governmental permits, final inspections, and approvals. (b) In addition, Owner represents that Owner has no knowledge of any notice of violations of City, County, State, or Federal building, zoning, fire, or health laws, codes, statutes, ordinances, regulations, or rules filed or issued against the Property. If Owner receives notice or is made aware of any of the above violations prior to the Closing Date, Owner shall immediately notify Buyer in writing. (c) Prior to the end of the Inspection Period, Buyer shall provide Owner written notice of any items disclosed in (a) or (b) which Buyer disapproves. Notice by Buyer to Owner of its disapproval shall terminate this Agreement. 6.13. Survey, Land, and Engineering Documents: Owner, within ten (10) days of opening of escrow, shall deliver to Buyer copies of surveys, plans, specifications, and engineering documents, if any, prepared on Owner's behalf or in Owner's possession. Prior to the end of the Inspection Period, Buyer shall notify Owner in writing of disapproval. Notice by Buyer to Owner of its disapproval shall terminate this Agreement. 6.14. Rental/Service Agreements: Owner, within ten (10) days of the Opening of Escrow, shall make available to Buyer for inspection and review: (1) all current leases, rental agreements, service contracts and other agreements pertaining to the operation of the Property; (2) a rental statement including names of tenants, rental rates, period of rental, date of last rent increase, security deposits, rental concessions, rebates or other benefits, if any, and a list of delinquent rents and their duration. Owner represents that no tenant is entitled to any rebate, concession, or other benefit except as set forth in the documents. Owner represents that the documents to be furnished are those maintained in the ordinary and normal course of business. Prior to the end of the Inspection Period, Buyer shall notify Owner in writing of disapproval. Buyer's failure to timely disapprove shall be deemed approval. Notice by Buyer to Owner of its disapproval shall terminate this Agreement. 6.15. Income/Expense Statements: Not applicable. 6.16. There is no Section 6.16 6.17. Delay Caused by Owner: If Owner fails to provide the documents required in this Section 6 within the ten (10) day period, the Inspection Period shall be extended by the period of the delay or Buyer, at Buyer's option, may terminate this Agreement. 6.18 Exchange Option: Owner reserves the right to effect a tax free exchange prior to the close of this escrow, and Buyer agrees to cooperate with Owner in such exchange, provided Buyer is not at any additional expense as a result thereof, and provided that such exchange escrow does not involve Buyer taking title to any other property and does not interfere with the timely closing of the sale to Buyer. Owner shall assume responsibility for all aspects of the "tax free" exchange and Buyer's only obligation is reasonable cooperation. 7. Liquidated Damages: BUYER AND OWNER AGREE THAT IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO FIX THE ACTUAL DAMAGES TO OWNER IN THE EVENT BUYER ELECTS NOT TO CLOSE OR DEFAULTS UNDER THIS AGREEMENT. THE PARTIES HEREBY AGREE THAT A REASONABLE ESTIMATE OF SUCH DAMAGE IS TEN THOUSAND DOLLARS ($10,000.00). OWNER ACKNOWLEDGES THAT IT HAS NO RIGHT TO RECOVER ANY OTHER CONSIDERATION OR DAMAGES OR TO EXERCISE ANY OTHER REMEDIES OR MAKE ANY OTHER CLAIMS IN THE EVENT THAT BUYER DOES NOT CLOSE AND TO THE EXTEND THAT OWNER HAS ANY RIGHTS, REMEDIES OR CLAIMS, GROWING OUT OF BUYER'S FAILURE TO PURCHASE THE PROPERTY, DOES HEREBY WAIVE THEM. /s/ /s/ Owner's Initials Buyer's Initials 8. Notices: All notices or other communications required or permitted hereunder shall be in writing, and shall be personally delivered (delivery by overnight courier shall be deemed personal delivery) to the following addresses or sent by telecopy to the following fax numbers: To Owner: Brent Bowen Vice-President Southlake Acquisition Corp. P.O. Box 1410 Davis, CA 95617 (916) 753-5695 ext. 17; (916) 756-8252-fax with a copy to: Christopher J. Konwinski, Esq. CALFEE & YOUNG 611 North Street Woodland, CA 95695-3237 (916) 666-2185; (916) 666-3123 - fax The Joseph Irrevocable Trust Jim Joseph, Trustee 1480 Drew Avenue, Suite 100 Davis, CA 95616 (___)____________; (___)___________-fax with a copy to: _______________________________ _______________________________ _______________________________ (___)___________; (___)____________-fax To Buyer: Dana C. Hair 629 Oleander Bakersfield, CA 93301 (805) 328-9232; (___)____________-fax with a copy to: Thomas C. Fallgatter, Esq. THOMAS C. FALLGATTER, LAWYER 1605 "G" Street Bakersfield, CA 93301 (805)328-9091; (805) 328-9314-fax Personally delivered or telecopied notice shall be deemed given upon receipt. Notice of change of address shall be given by written notice in the manner detailed in this Paragraph. If escrow has been opened, copies of all notices shall also be sent to the Escrow Holder at the address or fax number set forth in Paragraph 2.5. 9. General Provisions: 9.1. Successors and Assigns: This Agreement shall be binding upon and inure to the benefit of Owner and Buyer and their respective successors and assigns, except as otherwise provided herein. 9.2. Entire Agreement: This Agreement contains the entire agreement between the parties concerning the Property, and no addition to or modification of any term or provision shall be effective unless in writing, signed by both Owner and Buyer. 9.3. Time of Essence: Owner and Buyer hereby acknowledge and agree that time is strictly of the essence with respect to each term and condition of this Agreement and that the failure to timely perform any of the terms and conditions by either party shall constitute a breach and default under this Agreement by the party failing to perform. 9.4. Partial Invalidity: If any portion of this Agreement shall be declared by any court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from this Agreement and the remaining parts shall remain in full force as fully as though the invalid, illegal or unenforceable portion had never been part of this Agreement. 9.5. Attorneys' Fees: If any action, lawsuit or other proceeding is commenced which arises out of, or in any way relates to this Agreement or its enforcement, the prevailing party shall be entitled to recover from each other party such amounts as the court may adjudge to be reasonable attorneys' fees in the action, lawsuit or proceeding (including, but not limited to, the allocated costs for services of in-house counsel), in addition to such court costs, expert witness fees and such other fees, costs or sums as are allowed by law. 9.6. Governing Law: The parties intend and agree that this Agreement shall be governed by and construed in accordance with the laws of the State of California. 9.7 Waivers: No waiver by either party of any provision shall be deemed a waiver of any other provision or of any subsequent breach by either party of the same or any other provision. 9.8 Captions: The captions, paragraph and subparagraph numbers of the Agreement are for convenience only and in no way define or limit the scope of intent of the paragraphs of this Agreement. 9.9. Counterparts: This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one Agreement. 9.10. Exhibits: Exhibits A, B, C, D, E, F, and G, attached to this Agreement are hereby incorporated by this reference. IN WITNESS WHEREOF, Buyer has executed this Agreement on the day and year set forth below. DATED: 2/27 , 1997 OWNER: Southlake Acquisition Corporation, a Nevada Corporation By: /s/ BRENT BOWEN Print: BRENT BOWEN Its: VICE PRESIDENT The Joseph Revocable Trust By: /s/ JIM JOSEPH BY DONALD C. LEWIS Jim Joseph, Trustee By: /s/ DONALD C. LEWIS ATTORNEY IN FACT DATED: 2/27 , 1997 BUYER: By: /s/ DANA C. HAIR DANA C. HAIR EXHIBIT "A" to PURCHASE AGREEMENT dated ______________ between Southlake Acquisition Corporation and Jim Joseph Revocable Trust, "Owner"; and Dana C. Hair "Buyer". Legal description of "the Property". RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO NAME CALFEE & YOUNG ADDRESS: P.O. Box 2143 CITY & Woodland, CA 95695 STATE ZIP Title Order No. _______ Escrow No. _______ Space above this line for recorder's use. _____________________________________________________________ MAIL TAX STATEMENTS TO NAME SOUTHLAKE ACQUISITION Documentary Transfer Tax $0 CORPORATION ___ computed on full value of STREET 4045 S. Spencer Street property conveyed, ADDRESS: Suite 206 X or computed on full value CITY & Las Vegas, NV 89119 less liens and encum- STATE brances remaining at ZIP time of sale. /s/ Signature of Declarant or Agent determining tax. Firm Name. No tax-Deed is from an Agent to a principal, not pursuant to a sale. CORPORATION GRANT DEED FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, ADDIS CORPORATION a Texas Corporation hereby GRANT(S) to SOUTHLAKE ACQUISITION CORPORATION, a Nevada corporation the following described real property in the UNINCORPORATED AREA OF county of KINGS, state of California SEE EXHIBIT "A" ATTACHED HERETO AND INCORPORATED HEREIN BY THIS REFERENCE ADDIS CORPORATION Dated February 15, 1989 By: /s/ D. Doyle Mize D. Doyle Mize, President STATE OF CALIFORNIA ) ) ss __________________________________ COUNTY OF _________ ) __________________________________ On _______ before me, the undersigned, a Notary /s/ Public in and for said WITNESS County and State, personally appeared ___________ known to me to be the ______ President, and _________ known to me to be ________ Secretary of the corporation that executed the within Instrument, and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors. Signature ___________________ _____________________________ Name (Typed or Printed) Notary Public in and for said County and State (This area for official notarial seal) Order No. 70436 EXHIBIT "A" DESCRIPTION PARCEL 1: The Northeast Quarter of Section 11 in Township 23 South, Range 22 East, Mount Diablo Base and Meridian, according to United States Government Township Plat, in the County of Kings, State of California. EXCEPTING FROM the North one-eighth of the Northeast Quarter of said Section, any part thereof included in ditches and public roads. ALSO EXCEPTING THEREFROM an undivided one-half interest in and to all minerals, mineral deposits, oil, gas and other hydrocarbon substances of every kind and character contained in or upon said premises, as saved and executed by California Western States Life Insurance Company, a corporation, in its Deed to South Lake Farms, Inc., a corporation, dated December 17, 1946 and recorded January 20, 1947 in Book 367 at Page 394 of Official Records, as Document No. 568. PARCEL 2: All of Section 12, Township 23 South, Range 22 East, Mount Diablo Base and Meridian, according to United States Government Township Plat. EXCEPTING THEREFROM an undivided one-half interest in and to all minerals, mineral deposits, oil, gas and other hydrocarbon substances of every kind and character contained in or upon said premises, as saved and executed by California Western States Life Insurance Company, a corporation, in its Deed to South Lake Farms, Inc., a corporation, dated December 17, 1946 and recorded January 20, 1947 in Book 367 at Page 394 of Official Records, as Document No. 568. STATE OF CALIFORNIA ) ) ss. COUNTY OF YOLO ) On 2/15, 1989, before me, the undersigned, a Notary Public in and for said State, personally appeared Kent N. Calfee, personally known to me (or proved to me on the basis of the oath of ___________, a credible witness who is personally known to me) to be the person whose name is subscribed to the within instrument as witness thereto, who being by duly sworn, deposed and said: That he/she resides in Yolo County, that he/she was present and saw D. Doyle Mize, personally known to him/her to be the same person described in and who executed the within instrument as ___________ President and ___________ Secretary, on behalf of Addis Corporation, the corporation therein named and acknowledged to him/her that the corporation executed the same as a party thereto pursuant to its bylaws or a resolution of its Board of Directors, signed, sealed and delivered the same and that said party duly acknowledged in the presence of said affiant, that he/she/they executed the same, and that said affiant, thereupon at the parties request subscribed his/her name as a witness thereto. Witness my hand and official seal (Seal) /s/ Notary Public END OF DOCUMENT Order No. Escrow No. Loan No. RECORDING REQUESTED BY: WHEN RECORDED MAIL TO: NAME CALFEE & YOUNG ADDRESS: P.O. Box 2143 CITY & Woodland, CA 95695 STATE ZIP Space above this line for recorder's use. _____________________________________________________________ MAIL TAX STATEMENTS TO NAME SOUTHLAKE ACQUISITION Documentary Transfer Tax $0 CORPORATION ___ Computed on the considera- STREET 4045 S. Spencer Street tion or value of property ADDRESS: Suite 206 conveyed; OR CITY & Las Vegas, NV 89119 X Computed on the considera- STATE tion or value less liens ZIP or encumbrances remaining at time of sale. /s/ Signature of Declarant or Agent determining tax. Firm Name. No tax-Deed is from an agent to a principal not pursuant to a sale. CORPORATION GRANT DEED FOR A VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, ADDIS CORPORATION, a Texas corporation a Corporation organized under the laws of the State of Texas, does hereby GRANT to SOUTHLAKE ACQUISITION CORPORATION, a Nevada corporation the real property in the City of Unincorporated area County of Tulare, State of California, described as See Exhibit "A" attached hereto and incorporated herein by this reference. THIS DEED IS RE-RECORDED TO CORRECT LEGAL DESCRIPTION. Dated January 31, 1989 ADDIS CORPORATION STATE OF TEXAS ) ) ss. By: /s/ COUNTY OF HARRIS ) D. Doyle Mize President On November 6, 1989 before By: ______________________________ me, the undersigned, a Secretary Notary Public in and for said State, personally appeared D. Doyle Mize known to me to be the _____________ /s/ President, and _________ Witness known to me to be the ______ Secretary of the corporation that executed the within Instrument, and known to me to be the person who executed the within instrument on behalf of the corporation therein named, and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors. WITNESS my hand and official seal Signature /s/ Name (Typed or Printed) Notary Public in and for said County and State MAIL TAX STATEMENTS AS DIRECTED ABOVE STATE OF CALIFORNIA ) ) ss. COUNTY OF YOLO ) On January 31, 1989 before me, the undersigned, a Notary Public in and for said State, personally appeared Kent N. Calfee, personally known to me a credible witness who is personally known to me to be the person whose name is subscribed to the within instrument as witness thereto, who being by duly sworn, deposed and said: That he/she resides in Yolo County, that he/she was present and saw D. Doyle Mize, personally known to him/her to be the same person described in and who executed the within instrument as _____________ President and _____________ Secretary, on behalf of Addis Corporation, the corporation therein named and acknowledged to him/her that the corporation executed the same as a party thereto pursuant to its bylaws or a resolution of its Board of Directors, signed, sealed and delivered the same and that said party duly acknowledged in the presence of said affiant, that he/she/they executed the same, and that said affiant, thereupon at the parties request subscribed his/her name as a witness thereto. Witness my hand and official seal (Seal) /s/ Notary Public EXHIBIT "A" Description Parcel 1: The follwoing parcels located in Township 22 South, Range 23 East Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plot thereof. APN 291-140-05 (portion) (A) The Southerly 20 acres of Swamp and Overflow, Lot 2 of the East half of Section 20, the North line of said 20 acres being parallel with the North line of said Section 20. APN 291-070-01 (B) The Southwest quarter of Section 21; the West half of the Southeast quarter of Section 21. APN 291-100-03 (C) That portion of the South half of Section 27, lying West of the Westerly line of the land described in the Deed to the State of California, recorded September 14, 1973, in Book 3130, page 744, Official Records. APN 291-100-01 and 02 (D) All of Section 28. APN 291-110-03 (portion) (E) Swamp and Overflow Lot 1 in the Southwest quarter of Section 34, the Southeast quarter of the Southwest quarter of Section 34; the North half of the Southwest quarter of Section 34; the North half of Section 34, the Southeast quarter of Section 34. EXCEPTING therefrom that portion lying East of the Westerly line of the land described in a Deed to the State of California recorded September 14, 1973 in Book 3130, page 744, Official Records. ALSO EXCEPTING an undivided one-half interest in and to all minerals, oil, gas and other hydrocarbon substances as reversed by Myrtle Frances Bryson, a widow, in the Deed to F. L. Purinton and Gertrude E. Purinton, his wife, dated October 8, 1947, and recorded October 22, 1984 in Book 1268, page 413, File No. 27542, Official Records. ALSO EXCEPTING from said Parcel 1 an undivided one-fourth interest in and to all minerals, oil, gas and other hydrocarbon substances, as reserved in the Deed from F.L. Purinton and Gertrude E. Purinton, his wife, to Goldring Packing Co., a California Corporation, dated January 21, 1948, recorded February 17, 1948 in Book 1283, page 244, File No. 4398, Official Records. ALSO EXCEPTING an undivided one-eighth interest in all oil, gas and other hydrocarbons and minerals as reserved by Angiola Ranch in Deed recorded in Book 2403, page 422, Official Records. ALSO EXCEPTING all oil, gas, petroleum and other hydrocarbon substances and minerals located in, under and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and to her improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damages or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonable value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, at al, recorded April 16, 1981 in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 2: APN 291-140-05 Swamp and Overflow Lot 3 in the Southeast quarter and the Swamp and Overflow Lots 4 and 5 in the Northeast quarter; the Northwest quarter of the Southeast quarter; the Southeast quarter of the Southeast quarter; the Southwest quarter of the Southeast quarter, and the West half of Section 20, Township 22 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom one-half of all the oil, gas and other hydrocarbons and minerals in, on or that may be produced therefrom reserved by James A. Booth and Francis N. Booth, his wife, in Deed dated May 27, 1943, recorded June 2, 1943 in Book 1832, page 272, Official Records. ALSO EXCEPTING one-fourth of all oil, gas and other hydrocarbons and minerals in, on or under, or that may be produced from said land, as reserved by Harold A. Witham and Frances A. Witham, his wife, in Deed dated January 2, 1947, recorded February 21, 1947 in Book 1234, page 71, Official Records. ALSO EXCEPTING therefrom one-eighth of all the oil, gas and other hydrocarbons and minerals in, on or under, or that may be produced therefrom as reserved by John Ruether and Margaret F. Ruether, in the Deed recorded February 5, 1962, in Book 2317, page 250, File No. 4664, Official Records. ALSO EXCEPTING therefrom a strip of land 30 feet wide along the entire East side of the property described hereinabove and a strip of land 55 feet wide along the Northerly boundary of the property described hereinabove, measured from the center of the County road South, said 30 foot strip to leave the East line and pass to the West of the pumping plant in the Northeast corner of the property hereinabove described, a distance therefrom of not less than 25 feet, so that the East line of said 30 foot strip is not less than 25 feet West of the pumping plant. ALSO EXCEPTING all oil, gas, petroleum and the hydrocarbon substances and minerals located in, under and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas and other hydrocarbon substances and minerals, together with the rights of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonable value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al, recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 3: APN 291-140-05 (portion) The right of ingress and egress at not more than two points across the strip of land 55 feet wide, excepted from Parcel No. 2 above, and across the ditch maintained thereon and the right to maintain a bridge not over 16 feet wide at not more than two points on the North crossing said ditch. Also an easement and right of way for a pipe line over and across the strips of land excepted from Parcel No. 2 above, for the purpose of conveying water from the pumping plant across said strip of land to the above described land. Also the further easement and right of way through and across the strips of land excepted from Parcel No. 2 above, at a point where the lateral of the Bayou Vista Ditch now feeds and conveys water to said Section 20, for conveyance of water purchased or to be purchased from Bayou Vista Ditch Company, to said Section 20, should the strip of land above described by used for other than ditch purposes. PARCEL 4: APN 291-070-10 That portion of Section 22, Township 22 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof, lying West of the Atchison, Topeka and Santa Fe Railroad, more particularly described as follows: Beginning at a point 26.70 feet East and 30 feet North of the Southwest corner of said Section 22; thence East 758.50 feet to a point on the Westerly right of way line of the Atchison, Topeka and Santa Fe Railroad said point being 30 feet North of the South line of said Section 22; thence North 30 degrees 17' 45" West 1375.63 feet along the Westerly right of way line of the Atchison, Topeka and Santa Fe Railroad; thence South 66 degrees 09' 45" West 56.46 feet; thence South 0 degrees 38' 15" West 1165.00 feet to the point of beginning. EXCEPTING therefrom that portion described as follows: Beginning at the Southwest corner of said Section 22; thence North 89 degrees 46' 06" East, along the South line of said Section 22, 803.02 feet to the Westerly right of way line of the Atchison, Topeka and Santa Fe Railroad Company; thence North 30 degrees 23' 39" West, along said Westerly right of way line, 34.70 feet to the true point of beginning, thence continuing North 30 degrees 23' 39" West, along said Westerly right of way line, 11.56 feet; thence South 59 degrees 26' 21" West, 19.89 feet; thence North 89 degrees 46' 06" East, parallel to and 30 feet distant from said South line of Section 22, 23.01 to the true point of beginning. ALSO EXCEPTING therefrom an undivided three-fourths interest in all oil, gas and other minerals beneath the surface of said land, together with rights incidental to the development of the same, as reserved by the Union Central Life Insurance Company, a corporation, in Deed dated February 14, 1940, recorded October 2, 1940 in Book 911, page 477, Official Records. ALSO EXCEPTING all oil, gas, petroleum and other hydrocarbon substances and minerals located in, under and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns. A reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonable value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so-selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al, recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 5: APN 291-080-01, 02 and 291-090-01 That portion of the Northwest quarter of Section 27, Township 22 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof, lying West of a line 150 feet Southwesterly at right angles from the center line of the Atchison, Topeka and Santa Fe Railway Company right of way. EXCEPTING therefrom those portions thereof described as follows: (A) Beginning at a point 230 feet at right angles in a Southwesterly direction from a point in the center line of the Atchison, Topeka and Santa Fe Railway which point is a distance of 1439.3 feet, measured along said line Southeasterly from the point where said line intersects the North boundary of said Section 27; thence Southeasterly parallel with said centerline, 75 feet; thence at right angles Southwesterly 150 feet; thence at right angles Northwesterly 75 feet; thence at right angles Northeasterly 150 feet to the point of beginning. (B) Beginning at a point in the Northwest quarter of said Section 27 which point is determined by commencing at the point where the Atchison, Topeka and Santa Fe Railway Company right of way crosses the North line of said Section 27; thence Southeasterly along the center of said right of way 939.3 feet; thence at right angles to said right of way in a Southwesterly direction, 230 feet to a post at the Northeasterly corner of a Blacksmith Shop; thence in a Southeasterly direction and parallel with said right of way, 175 feet to the true point of beginning; thence in a Southwesterly direction at right angles to said right of way 150 feet; thence Southeasterly parallel with said right of way 50 feet; thence Northeasterly and at right angles to said right of way, 150 feet; thence Northwesterly and parallel with said right of way, 50 feet to the true point of beginning. EXCEPTING therefrom an undivided one-half interest in and to all minerals, mineral deposits, oil, gas, and other hydrocarbon substance of every kind and character contained in or upon said premises, together with rights incidental to the development of the same, as reserved by California-Western States Life Insurance Company, a corporation, in Deed dated July 1, 1944, recorded September 1, 1944, in Book 1099, page 64, Official Records. ALSO EXCEPT from a portion of said Northwest quarter, an undivided three-fourths interest in and to all oil, gas, minerals and mineral rights in and under said land, as reserved by John F. Butcher and Verna V. Butcher, his wife, in Deed recorded September 15, 1977 in Book 3454, page 932, Official Records. ALSO EXCEPTING all oil, gas, petroleum and other hydrocarbon substances and minerals located in, under and upon said property, together with the right to go upon said property at any time hereafter for the purposes of development and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and to her improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonable value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al, recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 6: APN 291-120-07 (portion) The Northeast quarter of Section 31, Township 22 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom all oil, gas, petroleum, and other hydrocarbon substances within or underlying said land or that may be saved or produced therefrom, with rights of ingress and egress to recover the same, as excepted by Ethel B. Cooper, a married woman, in the Deed to O. L. Foy, et al., dated June 13, 1952, recorded July 9, 1952 in Book 1608, page 105, Official Records. ALSO EXCEPTING all oil, gas, petroleum and other hydrocarbon substances and minerals located in, under and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonable value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al, recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 7: APN 291-120-06, 05 and 291-110-05, 06 and 311-020-10 & 11 All of Section 32; all of Section 33 in Township 22 South, Range 23 East, Mount Diablo Base and Meridian, and all of Section 4, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom an undivided one-half interest in and to all oil, gas, and minerals in and under said land, together with all easements and rights necessary or convenient for the production, storage and transportation thereof, and the exploration and testing of said real property, as reserved by R. V. Taylor and Marie Hutton Taylor, his wife, in Deed dated December 30, 1946, recorded December 9, 1952 in Book 1636, page 71, Official Records. ALSO EXCEPTING all oil, gas petroleum and other hydrocarbon substances and minerals located in, under and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonable value of the land so occupied and use, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al, recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantees, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 260, page 238 of Deeds, Tulare County Records." PARCEL 8: APN 291-120-07 (portion) The Southeast quarter of Section 31, Township 22 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom an undivided one-half interest in and to all minerals, mineral deposits, oil, gas, and other hydrocarbon substance of every kind and character contained in or upon said land, together with rights incidental to the development of the same, as reserved by California-Western States Life Insurance Company, a corporation, in Deed dated December 17, 1946, recorded January 20, 1947 in Book 1228, page 373, Official Records. ALSO EXCEPTING all oil, gas, petroleum and other hydrocarbon substances and minerals located in, under and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonable value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties thereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al, recorded April 16, 1981, in book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 9: APN 291-110-03 (PORTION) That portion of the Southwest quarter of Section 34, Township 22 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof, described as follows: Beginning at the Southwest corner of said Section 34, thence East 6 chains; thence Northwesterly along the Swamp and Overflow line, North 17 degrees West 20.8 chains to the West line of said Section 34, thence South along said West line to the point of beginning. EXCEPT one-half interest in all oil, gas, minerals, and other hydrocarbon substances located in or under Parcel No. 9, as reserved by Angiola Ranch in Deed recorded March 8, 1963, in Book 2403, page 422, Official Records. ALSO EXCEPTING all oil, gas, petroleum and other hydrocarbon substances and minerals located in, under and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors, and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonable value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981 in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 10: APN 311-030-08 (portion) The Northwest quarter of Section 3 and the West half of the Southwest quarter of Section 3, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof. EXCEPTING from said Parcel 10 an undivided one-half interest in and to all minerals, oil, gas, and other hydrocarbon substances as reserved in the Deed from F.L. Purinton and Gertrude E. Purinton, his wife, dated January 21, 1948 and recorded February 17, 1948 in Book 1283, page 244, File No. 4398, Official Records. ALSO EXCEPTING one-fourth interest in all oil, gas, minerals, and other hydrocarbons and substances as reserved by Angiola Ranch in Deed recorded in Book 2403, page 422, Official Records. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 11: APN 311-030-80 (portion) The Northeast quarter of Section 3 and the East half of Southwest quarter of Section 3, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom one-half of all oil, gas, and other hydrocarbon substances and minerals in, under and that may be produced from said land as reserved by Charles F. Harper Company, a corporation, in Deed dated January 22, 1947, recorded March 3, 1947, in Book 1237, page 15, Official Records. ALSO EXCEPT from said Parcel 11 one-fourth of all oil, gas, and other hydrocarbon substances, as reserved in the Deed from F.L. Purinton and Gertrude E. Purington, husband and wife, dated January 21, 1948 and recorded February 17, 1948 in Book 1283, page 244, File No. 4398, Official Records. ALSO EXCEPTING one-eighth interest in all oil, gas, minerals, and other hydrocarbon substances in or under Parcel No. 11, as reserved by Angiola Ranch in Deed recorded March 8, 1963 in Book 2403, page 422, Official Records. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "in addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 12: APN 311-030-07 The Southeast quarter of Section 3, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom the East 66 feet thereof. ALSO EXCEPTING therefrom an undivided one-half interest in all oil, gas, and minerals in and under said lands as reserved in the Deed from California Lands, Inc., to R.Y. Williams, dated December 26, 1934, filed for record January 3, 1935, in Book 602, page 370, Official Records of Tulare County, California. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. as reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, leasees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 13: APN 311-020-05, 06, 18, and portion 17 The West half of Section 5, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPTING the Northeast quarter of the Northwest quarter of the Northwest quarter of the Northwest quarter thereof. ALSO EXCEPTING the Northwest quarter of the Northwest quarter of the Northwest quarter of the Northwest quarter thereof. ALSO EXCEPTING therefrom an undivided one-half interest in and to all minerals, mineral deposits, oil, gas, and other hydrocarbon substances of every kind and character contained in or upon said land, together with the rights incidental to the development of the same, as reserved by California-Western States Life Insurance Company, a corporation, in Deed dated December 17, 1946, recorded January 20, 1947 in Book 1228, page 373, Official Records. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 14: APN 311-020-19, 20, 21, 22 and portion 17 The East half of Section 5; all of Section 8, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof. EXCEPTING from Section 5 the Northeast quarter of the Northeast quarter of the Northeast quarter of the Northeast quarter and the Southwest quarter of the Northeast quarter of the Northeast quarter of the Northeast quarter. EXCEPTING from said Section 8, the interest in a strip of land on the Southerly end thereof, being a strip 123 links wide at the West end and 98 links wide at the East end of said Section 8, which was conveyed to Kings County Canal Company, a corporation, for use as an irrigation ditch with 25 links in width adjoining said ditch, by Deed dated April 20, 1906, recorded April 8, 1924 in Book 61, page 285, Official Records. ALSO EXCEPTING therefrom the minerals within or underlying the Northeast quarter of said Section 5, and the South half of the Southwest quarter of said Section 8, as excepted in the Deed from Annie L. Johnson and C. Walter Johnson, dated December 1, 1943, recorded January 17, 1944 in Book 1058, page 144, Official Records. ALSO EXCEPT from the above portion of Section 5 and Section 8 except the South half of the Southwest quarter, an overriding one percent net royalty of all the oil, gas, and other hydrocarbon substances produced and saved as conveyed to Richard N. Oster and wife in a Deed recorded October 16, 1943 in Book 1046, page 342, Official Records. ALSO EXCEPTING all oil, gas, petroleum and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrator shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 15: APN 311-020-08 The Southwest quarter of the Northeast quarter of the Northeast quarter of the Northeast quarter of Section 5, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPT the minerals within or underlying said land as excepted in a Deed from Annie L. Johnson, et con. recorded January 17, 1944, in Book 1058, page 144, Official Records. PARCEL 16: APN 311-020-09 The Northeast quarter of the Northeast quarter of the Northeast quarter of the Northeast quarter of Section 5, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPT the minerals within or underlying said land as excepted in a Deed from Annie L. Johnson, et con., recorded January 17, 1944 in Book 1058, page 144, Official Records. PARCEL 17: APN 311-020-02 Swamp and Overflow Lots 1, 2, 3, 4, 7, 8, and 11 of Section 6; the South half of the Northeast quarter of Section 6; the Southeast quarter of the Northwest quarter of Section 6; the East half of the Southwest quarter of Section 6, and the Southeast quarter of Section 6, all in Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom an undivided one-half interest in and to all minerals, mineral deposits, oil, gas, and other hydrocarbon substances of every kind and character contained in or upon said land, together with rights incidental to the development of the same, as reserved by California-Western States Life Insurance Company, a corporation, in Deed dated December 17, 1946, recorded January 20, 1947, in Book 1228, page 373, Official Records. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances form said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 18: APN 311-020-15 and 16 Swamp and Overflow Lots 1, 2, 3, 4, 5, 6, 7, and 8 of Section 7; the East half of the Northwest quarter of Section 7; the East half of the Southwest quarter of Section 7; and the East half of Section 7, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom an undivided one-half interest in and to all minerals, mineral deposits, oil, gas, and other hydrocarbon substances of every kind and character contained in or upon said land, together with rights incidental to the development of the same, as reserved by California-Western States Life Insurance Company, a corporation, in Deed dated December 17, 1946, recorded January 20, 1947, in Book 1228, page 373, Official Records. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnity and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 19: APN 311-020-12 Section 9, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for al land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 20: APN 311-030-03, 05, 16, and 311-060-02 The North half of the Northeast quarter of Section 10, Lots 5, 6, 7, and 8 of Section 10 and Lot 3 of Section 15, all in Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe lines, fences, canals, buildings and other improvements of the grantee, his heirs, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns not agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 21: APN 311-030-02 and 17 The South half of the Northeast quarter, the Southeast quarter, and Lots 2, 3, and 4, all in Section 10, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom that portion of said land conveyed to Curtney McCracken, a single man, in Deed recorded march 3, 1952, File No. 6344, Official Records, described as follows: That portion lying Easterly of the Easterly line of the existing 100 foot right of way for the canal which runs Northeasterly and Southwesterly through the East half of said Section 10. ALSO EXCEPTING therefrom an undivided one-half interest in and to all oil, gas, and minerals in and under said land, as reserved by Ada R. Boyd, a widow, in Deed recorded October 22, 1975, File No. 42420, Official Records. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe liens, fences, canals, buildings and other improvements of the grantee, his heir, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." PARCEL 22: APN 311-030-04 Lot 1 in Section 10, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, in the County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom an undivided one-half of all oil, gas, and minerals in and under said land, as reserved by P.T. Burns and Sarah Burns, in Deed recorded May 18, 1946, File No. 18354, Official Records. ALSO EXCEPTING therefrom an undivided one-half interest in and to all oil, gas, and minerals in and under said land, as reserved by Ada R. Boyd, a widow, in Deed recorded October 22, 1975, File No. 42420, Official Records. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe liens, fences, canals, buildings and other improvements of the grantee, his heir, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." NOTE: Said property is situated within the Tulare Lake Resource Conservation District. PARCEL 23: APN 311-010-02 Swamp and Overflow Lots 1, 4, 5, and 8 of Section 18; the East half of the Northwest quarter of Section 18 and the East half of the Southwest quarter of Section 18, and the East half of Section 18, Township 23 South, Range 23 East, Mount Diablo Base and Meridian, County of Tulare, State of California, according to the official plat thereof. EXCEPTING therefrom an undivided one-half interest in and to all minerals, mineral deposits, oil, gas and other hydrocarbon substances of every kind and character contained in or upon said land, together with rights incidental to the development of the same, as reserved by California-Western States Life Insurance Company, a corporation, in Deed dated December 17, 1946, recorded January 20, 1947 in Book 1228, page 373, Official Records. ALSO EXCEPTING all oil, gas, petroleum, and other hydrocarbon substances and minerals located in, under, and upon said property, together with the right to go upon said property at any time hereafter for the purposes of developing and extracting oil, gas, minerals and other hydrocarbon substances from said land, and to erect and construct upon said land at locations approved in advance in writing by Grantee or his successor in interest which approval shall not be unreasonably withheld, any and all equipment, derricks, telephone and telegraph lines, storage tanks, pipelines, and any and all things necessary or incidental to the exploration and development of said land for oil, gas, and other hydrocarbon substances and minerals, together with the rights of way of passage over, upon and across, and egress and ingress to and from said land for any or all of the above purposes at locations approved in advance in writing by grantee or his successor in interest; which approval shall not be unreasonably withheld; provided, however, that the grantor, his heirs, administrators, executors, and assigns, whomsoever shall own the mineral rights at the time, shall make complete payment to the grantee, his heirs, administrators, executors and assigns, for any and all damages occasioned by the operations of the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, to crops, wells, pumps, pipe liens, fences, canals, buildings and other improvements of the grantee, his heir, administrators, executors and assigns, a reasonable price, based on its fair market value for all land used or damaged or occupied by the grantor, his heirs, administrators, executors, assigns and lessees, under leases made after December 12, 1980, for any of said purposes. If the parties or their successors and assigns cannot agree as to the damages or as to the reasonably value of the land so occupied and used, the same shall be determined by arbitration, each party, their successors or assigns selecting one arbitrator, and the two so selected choosing a third arbitrator, and the decision of any two of such arbitrators shall be conclusive and binding upon the parties hereto, their heirs, successors and assigns. As reserved by South Lake Farms, a corporation, in a Deed to Floyd C. Williams, et al., recorded April 16, 1981, in Book 3856, page 843, Official Records. NOTE: Said Deed recites: "In addition, the grantor, its heirs, successors, lessees and assigns, whomsoever shall own the mineral rights at the time, shall indemnify and hold grantee, its heirs, successors and assigns harmless from any loss, costs, expense or damage caused by any complete or partial defeasance suffered by the grantee, its heirs, successors or assigns resulting from any act or failure to act of such mineral rights owner in violation of any covenant or condition contained in that certain Deed dated July 30, 1919, recorded in Book 280, page 238 of Deeds, Tulare County Records." EXHIBIT "B" to PURCHASE AGREEMENT dated _______________ between Southlake Acquisition Corporation and Jim Joseph Revocable Trust, "Owner"; and Dana C. Hair "Buyer." There is no Exhibit "B." EXHIBIT "C" to PURCHASE AGREEMENT dated _______________ between Southlake Acquisition Corporation and Jim Joseph Revocable Trust, "Owner"; and Dana C. Hair "Buyer." There are no items in Exhibit "C." EXHIBIT "D" to PURCHASE AGREEMENT dated _______________ between Southlake Acquisition Corporation and Jim Joseph Revocable Trust, "Owner"; and Dana C. Hair "Buyer." - - A copy of a Field Tenant Lease dated January 5, 1997, between Southlake Acquisition Corporation ("Landlord") and Phoenix Farming Company ("Tenant"). - - A copy of a Field Tenant Lease dated January 5, 1997, between Southlake Acquisition Corporation ("Landlord") and Four B's Farms ("Tenant"). - - A copy of an Agricultural Lease dated September 8, 1992 and its amendment dated November 29, 1995 between Southlake Acquisition Corporation ("Owner") and J.G. Boswell Company ("Tenant"). - - A copy of a letter dated February 14, 1997, from Brent Bowen, Vice President, Southlake Acquisition Corporation to J.W. Boswell, President, J.G. Boswell Company. - - A copy of a Field Tenant Lease dated February 20, 1997, between Southlake Acquisition Corporation ("Landlord") and W. William Blanken dba HWB Farms ("Tenant"). FIELD TENANT LEASE DATE: January 5, 1997 PARTIES: SOUTHLAKE ACQUISITION CORPORATION, a Nevada corporation, (hereinafter referred to as "Landlord"); and PHOENIX FARMING COMPANY, a general partnership (hereinafter referred to as "Tenant"). RECITALS: A. The Landlord is the owner of approximately 3,533 acres, more or less (hereinafter referred to as the "Real Property"), located in the County of Tulare, State of California, and more particularly described in Exhibit "A". B. Landlord desires to lease to Tenant and Tenant desires to lease from Landlord the Real Property, together with appurtenances, subject to the terms and conditions contained herein. AGREEMENTS: In consideration of the mutual covenants contained herein, the parties agree as follows: 1. Lease: The Landlord leases to Tenant and the Tenant leases from Landlord, on the terms and conditions set forth in this Lease, the Real Property, together with all appurtenances. 2. Term: The term of this Lease starts on the date hereof and terminates upon the completion of the harvest of the crop planted on the Real Property during the 1997 cropping season or December 31, 1997, whichever event occurs first. 3. Rent - Cotton: Tenant shall pay to the landlord an amount per acre of cotton grown on the premises determined as follows: $55.00 per acre plus "Additional Rent" per acre computed as follows: Gross Income minus "Cost of Production", minus "Marketing Costs", plus gin credits (minus gin debits), minus $100, divided by three. Rent shall be paid as follows: $55,602.25 on or before February 1, 1997 $55,602.25 on or before December 1, 1997 "Additional Rent" due (if any) on or before February 1, 1998 "Cost of Production" is hereby stipulated at $825 per acre for upland cotton and $835 per acre of pima cotton. "Cost of Production" includes (among other costs) $55 per acre for rent and $170 per acre for the cost and application of herbicides, the cost and application of insecticides, and the cost of hand weeding. If the actual costs for insecticides, herbicides and hand weeding exceed or are less than $170 per acre, the "Cost of Production" will be adjusted accordingly. "Marketing Costs" will include costs such as freight, insurance, and f.o.b. charges which Tenant incurs for his account in the marketing of the crop from the premises. Computations for additional rent due will be made separately for upland and Pima cotton grown on the premises. The yield for each type of cotton will be the average yield per acre from each type of cotton grown on the premises. The costs for insecticides, herbicides and hand weeding will be the average per acre of such costs for all cotton grown on the premises and shall not be segregated between pima and upland cotton. Tenant shall supply to Landlord figures for cotton yields, "Gross Income", "Cost of Production", "Marketing Costs", and gin credits or debits. Tenant shall also supply Landlord, upon its reasonable request, with documents and records to substantiate those figures. Rent-Wheat: Tenant shall pay to Landlord an amount per acre of wheat grown on the premises determined as follows: "Wheat Revenue" shall be the gross amount received by the tenant for wheat grown on the premises. "Wheat Cost of Production" is hereby stipulated to be $265 per acre. "Wheat Profit" per acre is equal to the "Wheat Revenue" per acre minus the "Wheat Cost of Production" per acre. Tenant shall pay to Landlord and amount equal to one-half the "Wheat Profit" per acre for "Wheat Profit" per acre up to $50 per acre. "Wheat Profit" per acre exceeding $50.00 per acre is for the account of the Tenant. No rental shall be due unless the "Wheat Revenue" per acre exceeds the "Wheat Cost of Production" per acre. Wheat rental due, if any, shall be paid by the Tenant to the Landlord on or before September l, 1997. Tenant shall supply Landlord with figures for wheat yields per acre and "Wheat Revenue" per acre. Tenant shall also supply Landlord, upon its reasonable request, with documents and records to substantiate those figures. Tenant shall supply to Landlord acreage planted to pima cotton, upland cotton and wheat. 4. Government Programs. Upon written request of Tenant, Landlord agrees to join in and cooperate with all governmental agricultural plans and programs, both state and federal, which may during the term hereof be applicable to the Real Property or the farming operations upon the Real Property contemplated hereby, and Landlord agrees to execute any and all writings which may be required by governmental authorities in that regard. Tenant shall be entitled to all crop allotments and/or histories arising out of the farming operations on the Real Property during the term hereof to the extent allowed by any such governmental plan or program. Provided, however, under no circumstances shall any crop allotment, crop history, or other program benefit be severed from the Real Property. 5. Relationship of the Parties: The relationship of the parties hereto is that Landlord and Tenant, and Landlord shall not be deemed a partner or a joint venturer with Tenant by reasons of the provisions of this Lease. 6. Use: The Real Property is leased to Tenant for the planting, growing, and harvesting of wheat, barley, cotton and any other crops customarily grown in the area. Tenant shall not use, or permit to be used, any part of the Real Property for any purpose other than other than those specified herein. All operations incident to this use of the Real Property shall be carried on according to the best courses of husbandry practised in the vicinity, and Tenant shall use all reasonable means to control the growth of noxious weeds and grasses at its sole expense. Tenant shall also perform post-harvest discing and ground preparation as is required by law and/or is consistent with the highest standards of farming practices in the area. 7. Entry by Owner: Tenant shall permit Landlord, and Landlord's agents and assigns, at all reasonable times, to enter the Real Property, and to use the roads established on the Real Property now or in the future, for the purposes of inspection, compliance with the terms of this Lease, posting notices, and all other lawful purposes. Tenant shall supply Landlord and its agents and assigns with keys and other instruments necessary to effect entry on the Real Property. Tenant shall make and keep pertinent records of all operations and conduct under this Lease and shall make them available to Landlord and Landlord's agents and assigns at all reasonable times for inspection. 8. Expenses: Tenant shall pay all costs and expenses in connection with the planting, cultivating, irrigating, dusting, spraying, harvesting, hauling, and all other costs incurred in connection with the crops to be grown on the Real Property during the term of this Lease. 9. Utilities: Tenant shall pay for all water, gas, heat, light, power, telephone service, and for all other services to the Real Property except as otherwise provided in this Lease. 10. Irrigation and Water Districts: During the term of this Lease Tenant shall be entitled to receive whatever water is available to Tenant from the facilities of the Angiola Water District. Tenant shall pay, during the term of this Lease, to the Angiola Water District Fifty Dollars ($50.00) per acre foot for all water delivered to the Real Property by the Angiola Water District and applied to land planted to cotton and shall pay Twenty Five Dollars ($25.00) for all water delivered to the Real Property by the Angiola Water District and applied to land planted to wheat or other crops. Tenant shall pay for such water within 10 days of the date of the invoice from the Angiola Water District. Failure on the part of Tenant to pay for water within that ten-day period may result in the discontinuance of water deliveries. Tenant agrees that such discontinuance of water delivery shall constitute no cause of action by Tenant against Landlord or the Angiola Water District. Tenant agrees to pay the penalties and interest assessed by the Angiola Water District on late payments to the District. 11. Waste: Tenant shall not commit, or permit others to commit, waste on the Real Property, or maintain a nuisance upon the Real Property. Tenant accepts the Real Property in its present condition and agrees on the last day of the term or upon sooner termination of the Lease, to surrender the Real Property in the same condition as when received. 12. Repairs: Tenant has inspected the premises and all improvements thereon and acknowledges that the premises and improvements are now in good and tenantable condition and thereby waives any obligations on the Landlord's part to repair such improvements and any and all rights to make improvements at Landlord's expense under the provisions of Section 1942 of the California Civil Code. All improvements now and hereafter placed on the premises will be maintained by Tenant during the term hereof at its own expense. At the expiration or sooner termination of the term, Tenant will surrender the premises and improvements in as good order and condition as when received by Tenant, reasonable use and wear excepted. 13. Alterations: Tenant shall not make or permit to be made any alterations on the Reap Property without first obtaining Landlord's written consent. All alterations and additions shall be made at the sole expense of the Tenant. Additions to or alterations of the Reap Property shall become at once a part of the Real Property and belong to the Landlord. Tenant shall keep the Real Property free from any liens arising out of work performed, material furnished, or any other obligations incurred by Tenant. 14. Liability and Insurance: Tenant agrees to keep Landlord free from all liability and claims for damages arising from any injury from any cause to any person, including Tenant, or to property of any kind belonging to anyone, including Tenant, arising from Tenant's operations while in, upon, or in any way connected with the Real Property, including the flooding of public roads or neighboring lands because of improper drainage or escaping irrigation waters, during the term of any occupancy under this Lease. Tenant waives any and all claims against Landlord for damage to person or property arising from any reason. Tenant further agrees to take out and to keep in full force and effect during the term of this Lease, at Tenant's expense, a policy of public liability insurance for protection against liability to the public arising as an incident to the use of, or resulting from any action occurring in or about the Real Property. Landlord shall be an additional named insured on the policy, and the policy shall contain cross-liability endorsements. The policy shall provide for combined single limit coverage in an amount not less than One Million Dollars ($1,000,000.00). Upon demand by the Landlord, Tenant shall deliver to Landlord a certificate of such insurance coverage. Tenant further agrees to take out and keep in force during the term of this Lease at its own expense, proper and adequate workman's compensation insurance. 15. Remedies of Landlord on Default: Landlord shall have the following remedies if Tenant commits a default. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law. A. Landlord can continue this Lease in full force and effect, and the Lease will continue in effect as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect rent when due. During the period Tenant is in default, Landlord can enter the premises and relet them or any part of them, to third parties for the Tenant's account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Real Property, including, without limitation, broker's commissions, expenses of remodeling the Real Property required by the reletting, and like costs. Reletting can be for a period shorter or longer than the remaining term of this Lease. Tenant shall pay to Landlord the rent due under this Lease on the dates the rent is due, less the rent the Landlord receives from any reletting. No act by Landlord allowed by this paragraph shall terminate this Lease unless Landlord notifies Tenant that the Landlord elects to terminate this Lease. After Tenant's default and for as long as Landlord does not terminate Tenant's right of possession of the Real Property, if Tenant obtains Landlord's consent Tenant shall have the right to assign or sublet its interest in this Lease, but Tenant shall not be released from liability. Landlord's consent toa propose assignment or subletting shall not be unreasonably withheld. B. Landlord can terminate Tenant's right to possession of the Real Property at any time. No act by the Landlord other than giving notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Real Property, or the appointment of a receiver on the Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On Termination, Landlord has the right to recover from Tenant: (i) The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this Lease; (ii) The worth, at the time of the award, of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time of the award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; (iii)The worth, at the time of the award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; and (iv) any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. "The worth at the time of the award", as used in (i) and (ii) of this paragraph, is to be computed by allowing interest at the maximum rate an individual is allowed by law charge. "The worth, at the time of the award", as referred to in (iii) of this paragraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). Landlord shall have the right to re-enter the premises to take whatever acts, in the landlord's sole and absolute discretion, are necessary to protect the crops and/or Real Property and may take possession and/or ownership of all crops and may apply any proceeds to amounts due from Tenant. No re-entry or taking possession of the Real Property by Landlord shall be construed as an election by him to terminate this Lease unless a written notice of such an intention is given to the Tenant or the Lease is declared to be terminated by a court of competent jurisdiction. All these rights shall be concurrent and cumulative and are in addition to, and not in derogation of, all other rights and remedies available to Landlord. Nothing contained in this Lease, and no security or guaranty of the Tenant that landlord holds now or in the future under this Lease, shall in any way constitute a bar or defense to an action by Landlord in unlawful detainer or for recovery of the Real Property. 16. Landlord's Right to Cure Tenant's Defaults. If Tenant should fail to pay any charges, tax, or other amounts herein required to be paid by it when due, or in the event that Tenant fails to pay any sums required to be paid hereunder to protect Landlord's interest herein, the same may be paid by the Landlord and all sums so expended by Landlord shall immediately become due and payable from Tenant to Landlord and shall bear interest at the rate specified in Paragraph 3. Landlord shall also have the right, should Landlord deem it necessary for the protection of Landlord's interest in any crop or produce being grown upon the premises, to take immediate possession of the premises and to mature, harvest and/or market the crops and produce growing thereon for the benefit of both Landlord and Tenant, and any and all costs or expenses incurred by the Landlord in so doing shall be deemed to be amounts paid to cure a default of Tenant and shall become immediately due and payable from Tenant to Landlord pursuant to the terms of this Paragraph. 17. Security Agreement. Tenant hereby grants Landlord a security interest in all crops growing or to be grown on the Real Property during the term of this Lease including proceeds of said crops to secure Tenants to secure Tenant's obligations under this Lease, said obligations include but are not limited to the payment of rent. Tenant agrees to execute any and all documents reasonably necessary to memorialize and perfect said security interest including, but not limited to two copies of UCC-1 Financing Statement in the form of Exhibit "B". Should enforcement of the above described security interest be necessary, Landlord shall have any and all remedies available under California law. 18. Assignment and Subletting. Tenant shall not assign this Lease, or any rights under it, and shall not sublet the entire or any part of the Real Property, or any right or privilege appurtenant to the Real Property, or permit any other person (the agents and employees of Tenant excepted) to occupy or use the entire or any portion of the Real Property, without first obtaining Landlord's written consent. A consent to one assignment, subletting, occupation, or use by another person is not a consent to future assignment, subletting, occupation, or use by the same or another person. An assignment or subletting without Landlord's consent shall be void, and shall, at Landlord's option, terminate this Lease. No interest of Tenant in this Lease shall be assignable by operation of law without Landlord's written consent. 19. Rights of Others. This Lease is subject to all existing easements, servitudes, licenses, and rights-of-way for canals, ditches, levees,, roads, highways, telephone, telegraph, electric, power lines, railroads, pipelines, and other purposes whether recorded or not. 20. Subordination. This Lease shall be subordinate to any mortgages, or deeds of trust that may subsequently be placed on the premises, to all advances made under them, to the interest on all obligations secured by them, and to all renewals, replacements, and extensions of them. PROVIDED, HOWEVER, the mortgagee or beneficiary in those mortgages or deeds of trust shall recognize the Lease of Tenant in the event of foreclosure if Tenant is not in default under the terms of the Lease. Subordination of the Tenant's interest is effective without any further act of Tenant. Tenant shall from time to tome upon Landlord's request execute and deliver any documents or instruments that may be required by a lender or other third party to effectuate any subordination. If Tenant fails to execute and deliver any such documents or instruments, Tenant irrevocably appoints Landlord as Tenant's special attorney in fact to deliver any such document or instrument. 21. Disclaimer. Landlord makes no warranty of the soil suitability for growing crops Tenant is authorized to grow under this Lease. 22. Oil, Gas, and Mineral Rights. All rights in minerals, oil, gases, and other hydrocarbons located on or under the Real Property, and all hunting rights are particularly reserved to the landlord and are particularly excepted from the property covered by the terms of this Lease. Landlord agrees to reimburse Tenant for any reasonable damages that Tenant sustains as a result of and interference with the agricultural operations conducted on the Real Property under the terms of this Lease arising from the exploration, drilling, or mining operations or from hunting. 23. Condemnation. If a part of the Real Property is condemned for a public or quasi-public use, and the remaining part is capable of supporting an economical farming operation by Tenant, this Lease shall terminate, as to the part taken, on the date title vests in the condemnor. The cash rent payable under this Lease shall be adjusted so that Tenant shall be required to pay for the remainder of the term only the portion of the rent that the value of the part remaining after the condemnation bears to the value of the entire Real Property at the date of valuation for condemnation purposes. If the entire or a part of the Real Property is taken or condemned, all compensation awarded on condemnation shall go to the Landlord, with Tenant having no claim to compensation except that Tenant shall be entitled to compensation for Tenant's share of growing crops only. All expenses necessary to restore fences and ditches and to replace access roads lost by condemnation shall be borne by Landlord. If, after condemnation, the Real Property is not capable of supporting a economical farming operation by Tenant, this Lease shall terminate on the date title vests in the condemnor. 24. Compliance with Law. Tenant shall comply with all requirements of all governmental authorities, enforced either now or in the future, affecting Tenant's use of the Real Property. 25. Insolvency: Receiver. Any of the following shall constitute a breach of this Lease by Tenant: (a) the appointment of a receiver to take possession of all or substantially all of Tenant's assets; or (b) a general assignment by Tenant for the benefit of creditors; or ( c) an action taken or suffered by Tenant under any insolvency or bankruptcy act. 26. Attorney's Fees. In any action or proceeding by either party to enforce this Lease or any portion hereof, the prevailing party shall be entitled to all costs incurred and to reasonable attorneys' fees. 27. Surrender of Lease - Effect on Subleases. The voluntary or other surrender by Tenant, or a mutual cancellation of this Lease shall not work a merger, and shall, at Landlord's option, terminate all existing subleases or sub-tenancies, or may, at Landlord's option, operate as an assignment to him of any or all subleases or subtenancies. 28. Crop Mortgages. All crop mortgages, encumbrances, or liens given or suffered by Tenant on the crops grown on the Real Property shall be for terms or periods not extending beyond the term of this Lease and shall not encumber Landlord's share of the crops. Landlord agrees to execute any crop waiver as to Tenant's share of the crops which may be submitted by Tenant. All Liens created by Tenant must be satisfied of record before the end of the Lease term. If a mortgage or lien creates a cloud on the Landlord's title, Tenant must pay all reasonable costs and expenses, including attorneys' fees, for removal of the cloud. 29. Notice. Any notice to be given to either party by the other shall be in writing and shall be served either personally or by certified or registered mail addressed as follows: If to Landlord: Southlake Acquisition Corporation P.O. Box 1410 Davis, CA 95617 Attn: Brent Bowen If to Tenant: Phoenix Farming Co. 1601 Skyway Drive, Ste. 225 Bakersfield, CA 93308 30. Waiver. The waiver by the Landlord of a breach of any term, covenant, or condition contained in this Lease shall not be treated as a waiver of any other term, covenant, or condition, or breach thereof. The acceptance of rent by the Landlord shall not be treated as a waiver of a previous breach by Tenant of any term, covenant, or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of the Landlord's knowledge of a previous breach at the time of acceptance of rent. 31. Legal Effect. All covenants of Tenant contained in this Lease are expressly made conditions. The provisions of this Lease shall, subject to the provisions on assignment, apply to and bind the heirs, successors, executors, administrators, and assigns of all parties to this Lease; and all parties to this Lease shall be jointly and severally liable under it. The titles or headings to the paragraphs of this Lease are not a part of this Lease and shall have no effect on the construction or interpretation of any part of this Lease. 32. Further Assurances. Each party agrees that it will execute and acknowledge such documents reasonably requested by the other to carry out the terms, purposes, and intent of this Lease, including, without limitation: (1) a memorandum in recordable form to give constructive notice of this Lease or any of its terms; (2) contracts and commitments to sell crops grown upon the Real Property; and (3) waivers of any interest to the interest of the other party in such crops. 33. Time. Time is of the essence of this agreement. The parties have executed this Lease effective as of the date and year first above written. Landlord: SOUTHLAKE ACQUISITION CORPORATION a Nevada Corporation By: /s/ Brent Bower Its Vice President Tenant: Phoenix Farming Co. by By: Phoenix Farms, Inc. /s/ President 1/8/97 EXHIBIT "A" PHOENIX FARMING COMPANY - 1997 618.7 acres Part of Section 9 T23S R23E 645.5 acres Part of Section 18 T23S R23E 338.4 acres Part of W1/2 Section 20 T22S R23E 188.8 acres Part of E1/2 Section 20 T22S R23E 180.1 acres Part of SW1/4 Section 21 and part of W1/2 Section 20 T22S R23E 77.5 acres Part of W1/2 SE1/4 Section 21 T22S R23E 75.0 acres Part of NW1/4 Section 27 T22S R23E 616.5 acres Part of Section 28 T22S R23E 162.2 acres Part of NE1/4 Section 31 T22S R23E 634.7 acres Part of Section 32 T22S R23E EXHIBIT "B" (California Uniform Commercial Code) Blank UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC FIELD TENANT LEASE DATE: January 5, 1997 PARTIES: SOUTHLAKE ACQUISITION CORPORATION, a Nevada corporation, (hereinafter referred to as "Landlord"); and FOUR BPS FARMS, a general partnership (hereinafter referred to as "Tenant"). RECITALS: A. The Landlord is the owner of approximately 3,538 acres, more or less (hereinafter referred to as the "Real Property"), located in the County of Tulare, State of California, and more particularly described in Exhibit "A". B. Landlord desires to lease to Tenant and Tenant desires to lease from Landlord the Real Property, together with appurtenances, subject to the terms and conditions contained herein. AGREEMENTS: In consideration of the mutual covenants contained herein, the parties agree as follows: 1. Lease: The Landlord leases to Tenant and the Tenant leases from Landlord, on the terms and conditions set forth in this Lease, the Real Property, together with all appurtenances. 2. Term: The term of this Lease starts on the date hereof and terminates upon the completion of the harvest of the crop planted on the Real Property during the 1997 cropping season or December 31, 1997, whichever event occurs first. 3. Rent - Cotton: Tenant shall pay to the landlord an amount per acre of cotton grown on the premises determined as follows: $55.00 per acre plus "Additional Rent" per acre computed as follows: Gross Income minus "Cost of Production", minus "Marketing Costs", plus gin credits (minus gin debits), minus $ 100, divided by three. Rent shall be paid as follows: $55,673.75 on or before February 1, 1997 $55,673.75 on or before December 1, 1997 "Additional Rent" due (if any) on or before February 1, 1998 "Cost of Production" is hereby stipulated at $825 per acre for upland cotton and $835 per acre of pima cotton. "Cost of Production" includes (among other costs) $55 per acre for rent and $170 per acre for the cost and application of herbicides, the cost and application of insecticides, and the cost of hand weeding. If the actual costs for insecticides, herbicides and hand weeding exceed or are less than $170 per acre, the "Cost of Production" will be adjusted accordingly. "Marketing Costs" will include costs such as freight, insurance, and f.o.b. charges which Tenant incurs for his account in the marketing of the crop from the premises. Computations for additional rent due will be made separately for upland and Pima cotton grown on the premises. The yield for each type of cotton will be the average yield per acre from each type of cotton grown on the premises. The costs for insecticides, herbicides and hand weeding will be the average per acre of such costs for all cotton grown on the premises and shall not be segregated between pima and upland cotton. Tenant shall supply to Landlord figures for cotton yields, "Gross Income", "Cost of Production" "Marketing Costs", and gin credits or debits. Tenant shall also supply Landlord, upon its reasonable request, with documents and records to substantiate those figures. Rent-Wheat: Tenant shall pay to Landlord an amount per acre of wheat grown on the premises determined as follows: "Wheat Revenue" shall be the gross amount received by the tenant for wheat grown on the premises. "Wheat Cost of Production" is hereby stipulated to be $265 per acre. "Wheat Profit" per acre is equal to the "Wheat Revenue" per acre minus the "Wheat Cost of Production" per acre. Tenant shall pay to Landlord and amount equal to one-half the "Wheat Profit" per acre for "Wheat Profit" per acre up to $50 per acre. "Wheat Profit" per acre exceeding S50.00 per acre is for the account of the Tenant. No rental shall be due unless the "Wheat Revenue" per acre exceeds the "Wheat Cost of Production" per acre. Wheat rental due, if any, shall be paid by the Tenant to the Landlord on or before September 1, 1997. Tenant shall supply Landlord with figures for wheat yields per acre and "Wheat Revenue, per acre. Tenant shall also supply Landlord, upon its reasonable request, with documents and records to substantiate those figures. Tenant shall supply to Landlord acreage planted to pima cotton, upland cotton and wheat. 4. Government Programs. Upon written request of Tenant, Landlord agrees to join in and cooperate with all governmental agricultural plans and programs, both state and federal, which may during the term hereof be applicable to the Real Property or the farming operations upon the Real Property contemplated hereby, and Landlord agrees to execute any and all writings which may be required by governmental authorities in that regard. Tenant shall be entitled to all crop allotments and/or histories arising out of the farming operations on the Real Property during the term hereof to the extent allowed by any such governmental plan or program. Provided, however, under no circumstances shall any crop allotment, crop history, or other program benefit be severed from the Real Property. 5. Relationship of the Parties: The relationship of the parties hereto is that Landlord and Tenant, and Landlord shall not be deemed a partner or a joint venturer with Tenant by reasons of the provisions of this Lease. 6. Use: The Real Property is leased to Tenant for the planting, growing, and harvesting of wheat, barley, cotton and any other crops customarily grown in the area. Tenant shall not use, or permit to be used, any part of the Real Property for any purpose other than other than those specified herein. All operations incident to this use of the Real Property shall be carried on according to the best courses of husbandry practised in the vicinity, and Tenant shall use all reasonable means to control the growth of noxious weeds and grasses at its sole expense. Tenant shall also perform post-harvest discing and ground preparation as is required by law and /or is consistent with the highest standards of farming practices in the area. 7. Entry by Owner: Tenant shall permit Landlord, and Landlord's agents and assigns, at all reasonable times, to enter the Real Property, and to use the roads established on the Real Property now or in the future, for the purposes of inspection, compliance with the terms of this Lease, posting notices, and all other lawful purposes. Tenant shall supply Landlord and its agents and assigns with keys and other instruments necessary to effect entry on the Real Property. Tenant shall make and keep pertinent records of all operations and conduct under this Lease and shall make them available to Landlord and Landlord's agents and assigns at all reasonable times for inspection. 8. Expenses: Tenant shall pay all costs and expenses in connection with the planting, cultivating, irrigating, dusting, spraying, harvesting, hauling, and all other costs incurred in connection with the crops to be grown on the Real Property during the term of this Lease. 9. Utilities: Tenant shall pay for all water, gas, heat, light, power, telephone service, and for all other services to the Real Property except as otherwise provided in this Lease. 10. Irrigation and Water Districts: During the term of this Lease Tenant shall be entitled to receive whatever water is available to Tenant from the facilities of the Angiola Water District. Tenant shall pay, during the term of this Lease, to the Angiola Water District Fifty Dollars ($50.00) per acre foot for all water delivered to the Real Property by the Angiola Water District and applied to land planted to cotton and shall pay Twenty Five Dollars ($25.00) for all water delivered to the Real Property by the Angiola Water District and applied to land planted to wheat or other crops . Tenant shall pay for such water within 10 days of the date of the invoice from the Angiola Water District. Failure on the part of Tenant to pay for water within that ten-day period may result in the discontinuance of water deliveries. Tenant agrees that such discontinuance of water delivery shall constitute no cause of action by Tenant against Landlord or the Angiola Water District. Tenant agrees to pay the penalties and interest assessed by the Angiola Water District on late payments to the District. 11. Waste: Tenant shall not commit, or permit others to commit, waste on the Real Property, or maintain a nuisance upon the Real Property. Tenant accepts the Real Property in its present condition and agrees on the last day of the term or upon sooner termination of the Lease, to surrender the Real Property in the same condition as when received. 12. Repairs: Tenant has inspected the premises and all improvements thereon and acknowledges that the premises and improvements are now in good and tenantable condition and thereby waives any obligations on the Landlord's part to repair such improvements and any and all rights to make improvements at Landlord's expense under the provisions of Section 1942 of the California Civil Code. All improvements now and hereafter placed on the premises will be maintained by Tenant during the term hereof at its own expense. At the expiration or sooner termination of the term, Tenant will surrender the premises and improvements in as good order and condition as when received by Tenant, reasonable use and wear excepted. 13. Alterations: Tenant shall not make or permit to be made any alterations on the Reap Property without first obtaining Landlord's written consent. All alterations and additions shall be made at the sole expense of the Tenant. Additions to or alterations of the Reap Property shall become at once a part of the Real Property and belong to the Landlord. Tenant shall keep the Real Property free from any liens arising out of work performed, material furnished, or any other obligations incurred by Tenant. 14. Liability and Insurance: Tenant agrees to keep Landlord free from all liability and claims for damages arising from any injury from any cause to any person, including Tenant, or to property of any kind belonging to anyone, including Tenant, arising from Tenant's operations while in, upon, or in any way connected with the Real Property, including the flooding of public roads or neighboring lands because of improper drainage or escaping irrigation waters, during the term of any occupancy under this Lease. Tenant waives any and all claims against Landlord for damage to person or property arising from any reason. Tenant further agrees to take out and to keep in full force and effect during the term of this Lease, at Tenant's expense, a policy of public liability insurance for protection against liability to the public arising as an incident to the use of, or resulting from any action occurring in or about the Real Property. Landlord shall be an additional named insured on the policy, and the policy shall contain cross-liability endorsements. The policy shall provide for combined single limit coverage in an amount not less than One Million Dollars ($1,000,000.00). Upon demand by the Landlord, Tenant shall deliver to Landlord a certificate of such insurance coverage. Tenant further agrees to take out and keep in force during the term of this Lease at its own expense, proper and adequate workman's compensation insurance. 15. Remedies of Landlord on Default: Landlord shall have the following remedies if Tenant commits a default. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law. A. Landlord can continue this Lease in full force and effect, and the Lease will continue in effect as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect rent when due. During the period Tenant is in default, Landlord can enter the premises and relet them or any part of them, to third parties for the Tenant's account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Real Property, including, without limitation, broker's commissions, expenses of remodeling the Real Property required by the reletting, and like costs. Reletting can be for a period shorter or longer than the remaining term of this Lease. Tenant shall pay to Landlord the rent due under this Lease on the dates the rent is due, less the rent the Landlord receives from any reletting. No act by Landlord allowed by this paragraph shall terminate this Lease unless Landlord notifies Tenant that the Landlord elects to terminate this Lease. After Tenant's default and for as long as Landlord does not terminate Tenant's right of possession of the Real Property, if Tenant obtains Landlord's consent Tenant shall have the right to assign or sublet its interest in this Lease, but Tenant shall not be released from liability. Landlord's consent toa propose assignment or subletting shall not be unreasonably withheld. B. Landlord can terminate Tenant's right to possession of the Real Property at any time. No act by the Landlord other than giving notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Real Property, or the appointment of a receiver on the Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On Termination, Landlord has the right to recover from Tenant: (i) The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this Lease; (ii) The worth, at the time of the award, of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time of the award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; (iii)The worth, at the time of the award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; and (iv) any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. "The worth at the time of the award", as used in (i) and (ii) of this paragraph, is to be computed by allowing interest at the maximum rate an individual is allowed by law charge. "The worth, at the time of the award", as referred to in (iii) of this paragraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). Landlord shall have the right to re-enter the premises to take whatever acts, in the landlord's sole and absolute discretion, are necessary to protect the crops and/or Real Property and may take possession and/or ownership of all crops and may apply any proceeds to amounts due from Tenant. No re-entry or taking possession of the Real Property by Landlord shall be construed as an election by him to terminate this Lease unless a written notice of such an intention is given to the Tenant or the Lease is declared to be terminated by a court of competent jurisdiction. All these rights shall be concurrent and cumulative and are in addition to, and not in derogation of, all other rights and remedies available to Landlord. Nothing contained in this Lease, and no security or guaranty of the Tenant that landlord holds now or in the future under this Lease, shall in any way constitute a bar or defense to an action by Landlord in unlawful detainer or for recovery of the Real Property. 16. Landlord's Right to Cure Tenant's Defaults. If Tenant should fail to pay any charges, tax, or other amounts herein required to be paid by it when due, or in the event that Tenant fails to pay any sums required to be paid hereunder to protect Landlord's interest herein, the same may be paid by the Landlord and all sums so expended by Landlord shall immediately become due and payable from Tenant to Landlord and shall bear interest at the rate specified in Paragraph 3. Landlord shall also have the right, should Landlord deem it necessary for the protection of Landlord's interest in any crop or produce being grown upon the premises, to take immediate possession of the premises and to mature, harvest and/or market the crops and produce growing thereon for the benefit of both Landlord and Tenant, and any and all costs or expenses incurred by the Landlord in so doing shall be deemed to be amounts paid to cure a default of Tenant and shall become immediately due and payable from Tenant to Landlord pursuant to the terms of this Paragraph. 17. Security Agreement. Tenant hereby grants Landlord a security interest in all crops growing or to be grown on the Real Property during the term of this Lease including proceeds of said crops to secure Tenants to secure Tenant's obligations under this Lease, said obligations include but are not limited to the payment of rent. Tenant agrees to execute any and all documents reasonably necessary to memorialize and perfect said security interest including, but not limited to two copies of UCC-1 Financing Statement in the form of Exhibit "B". Should enforcement of the above described security interest be necessary, Landlord shall have any and all remedies available under California law. 18. Assignment and Subletting. Tenant shall not assign this Lease, or any rights under it, and shall not sublet the entire or any part of the Real Property, or any right or privilege appurtenant to the Real Property, or permit any other person (the agents and employees of Tenant excepted) to occupy or use the entire or any portion of the Real Property, without first obtaining Landlord's written consent. A consent to one assignment, subletting, occupation, or use by another person is not a consent to future assignment, subletting, occupation, or use by the same or another person. An assignment or subletting without Landlord's consent shall be void, and shall, at Landlord's option, terminate this Lease. No interest of Tenant in this Lease shall be assignable by operation of law without Landlord's written consent. 19. Rights of Others. This Lease is subject to all existing easements, servitudes, licenses, and rights-of-way for canals, ditches, levees,, roads, highways, telephone, telegraph, electric, power lines, railroads, pipelines, and other purposes whether recorded or not. 20. Subordination. This Lease shall be subordinate to any mortgages, or deeds of trust that may subsequently be placed on the premises, to all advances made under them, to the interest on all obligations secured by them, and to all renewals, replacements, and extensions of them. PROVIDED, HOWEVER, the mortgagee or beneficiary in those mortgages or deeds of trust shall recognize the Lease of Tenant in the event of foreclosure if Tenant is not in default under the terms of the Lease. Subordination of the Tenant's interest is effective without any further act of Tenant. Tenant shall from time to tome upon Landlord's request execute and deliver any documents or instruments that may be required by a lender or other third party to effectuate any subordination. If Tenant fails to execute and deliver any such documents or instruments, Tenant irrevocably appoints Landlord as Tenant's special attorney in fact to deliver any such document or instrument. 21. Disclaimer. Landlord makes no warranty of the soil suitability for growing crops Tenant is authorized to grow under this Lease. 22. Oil, Gas, and Mineral Rights. All rights in minerals, oil, gases, and other hydrocarbons located on or under the Real Property, and all hunting rights are particularly reserved to the landlord and are particularly excepted from the property covered by the terms of this Lease. Landlord agrees to reimburse Tenant for any reasonable damages that Tenant sustains as a result of and interference with the agricultural operations conducted on the Real Property under the terms of this Lease arising from the exploration, drilling, or mining operations or from hunting. 23. Condemnation. If a part of the Real Property is condemned for a public or quasi-public use, and the remaining part is capable of supporting an economical farming operation by Tenant, this Lease shall terminate, as to the part taken, on the date title vests in the condemnor. The cash rent payable under this Lease shall be adjusted so that Tenant shall be required to pay for the remainder of the term only the portion of the rent that the value of the part remaining after the condemnation bears to the value of the entire Real Property at the date of valuation for condemnation purposes. If the entire or a part of the Real Property is taken or condemned, all compensation awarded on condemnation shall go to the Landlord, with Tenant having no claim to compensation except that Tenant shall be entitled to compensation for Tenant's share of growing crops only. All expenses necessary to restore fences and ditches and to replace access roads lost by condemnation shall be borne by Landlord. If, after condemnation, the Real Property is not capable of supporting a economical farming operation by Tenant, this Lease shall terminate on the date title vests in the condemnor. 24. Compliance with Law. Tenant shall comply with all requirements of all governmental authorities, enforced either now or in the future, affecting Tenant's use of the Real Property. 25. Insolvency: Receiver. Any of the following shall constitute a breach of this Lease by Tenant: (a) the appointment of a receiver to take possession of all or substantially all of Tenant's assets; or (b) a general assignment by Tenant for the benefit of creditors; or ( c) an action taken or suffered by Tenant under any insolvency or bankruptcy act. 26. Attorney's Fees. In any action or proceeding by either party to enforce this Lease or any portion hereof, the prevailing party shall be entitled to all costs incurred and to reasonable attorneys' fees. 27. Surrender of Lease - Effect on Subleases. The voluntary or other surrender by Tenant, or a mutual cancellation of this Lease shall not work a merger, and shall, at Landlord's option, terminate all existing subleases or sub-tenancies, or may, at Landlord's option, operate as an assignment to him of any or all subleases or subtenancies. 28. Crop Mortgages. All crop mortgages, encumbrances, or liens given or suffered by Tenant on the crops grown on the Real Property shall be for terms or periods not extending beyond the term of this Lease and shall not encumber Landlord's share of the crops. Landlord agrees to execute any crop waiver as to Tenant's share of the crops which may be submitted by Tenant. All Liens created by Tenant must be satisfied of record before the end of the Lease term. If a mortgage or lien creates a cloud on the Landlord's title, Tenant must pay all reasonable costs and expenses, including attorneys' fees, for removal of the cloud. 29. Notice. Any notice to be given to either party by the other shall be in writing and shall be served either personally or by certified or registered mail addressed as follows: If to Landlord: Southlake Acquisition Corporation P.O. Box 1410 Davis, CA 95617 Attn: Brent Bowen If to Tenant: Four B's Farms 1601 Skyway Drive, Ste. 225 Bakersfield, CA 93308 30. Waiver. The waiver by the Landlord of a breach of any term, covenant, or condition contained in this Lease shall not be treated as a waiver of any other term, covenant, or condition, or breach thereof. The acceptance of rent by the Landlord shall not be treated as a waiver of a previous breach by Tenant of any term, covenant, or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of the Landlord's knowledge of a previous breach at the time of acceptance of rent. 31. Legal Effect. All covenants of Tenant contained in this Lease are expressly made conditions. The provisions of this Lease shall, subject to the provisions on assignment, apply to and bind the heirs, successors, executors, administrators, and assigns of all parties to this Lease; and all parties to this Lease shall be jointly and severally liable under it. The titles or headings to the paragraphs of this Lease are not a part of this Lease and shall have no effect on the construction or interpretation of any part of this Lease. 32. Further Assurances. Each party agrees that it will execute and acknowledge such documents reasonably requested by the other to carry out the terms, purposes, and intent of this Lease, including, without limitation: (1) a memorandum in recordable form to give constructive notice of this Lease or any of its terms; (2) contracts and commitments to sell crops grown upon the Real Property; and (3) waivers of any interest to the interest of the other party in such crops. 33. Time. Time is of the essence of this agreement. The parties have executed this Lease effective as of the date and year first above written. Landlord: SOUTHLAKE ACQUISITION CORPORATION a Nevada Corporation By: /s/ Brent Bowen Its Vice President Tenant: Farm B's Farm By: /s/ 1/8/97 EXHIBIT "A" FOUR B's FARMS-1997 613.4 acres Part of Section 4 T23S R23E 155.3 acres Part of SE1/4 Section 5 T23S R23E 312.7 acres Part of N1/2 Section 5 T23S R23E 293.9 acres Part of S1/2 Section 6 T23S R23E 579.9 acres Part of Section 7 T23S R23E 589.1 acres Part of Section 8 T23S R23E 148.0 acres Part of SW1/4 Section 27 T22S R23E 566.0 acres Part of Section 33 T22S R23E 279.8 acres Part of W1/2 Section 34 T22S R23E EXHIBIT "B" (California Uniform Commercial Code) Blank UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1 AGRICULTURAL LEASE THIS LEASE, made and entered into this 8th day of September, 1992, by and between SOUTHLAKE ACQUISITION CO., hereinafter called OWNER, and J.G. BOSWELL COMPANY, a California Corporation, hereinafter called TENANT. WITNESSETH That the Owner hereby leases to the Tenant and the Tenant hereby leases from the Owner that certain real property ("Premises") situated and located in the County of Kings, State of California, and more particularly described as follows, to wit: The Northeast Quarter (NE1/4) of Sec. 11, Township Twenty-Three South (23S), Range Twenty-Two East (22E), M.D.B.&M. All of of Sec. 12, Township Twenty-Three South (23S), Range Twenty-Two East (22E), M.D.B.&M. 1. The term of this lease shall be from August 15, 1992, to December 20, 1995, with the understanding that the NE quarter of Sec. 11 will be available upon conclusion of harvest or December 30, 1992, whichever comes first. 2. The Premises are leased to Tenant for agricultural purposes only, and for the purpose of growing cotton, barley, wheat or such other annual crops as tenant in its sole discretion shall determine. 3. Tenant will pay to Owner for the use and occupation of the Premises, as follows: a. $75 per-farmed-acre when cotton is grown b. $40 per-farmed-acre when seed alfalfa is grown c. $20 per-farmed-acre when grain or safflower are grown Said rental payment shall be made on or about March 15 each year. Tenant shall each year review all factors affecting the profitability of this Lease, including but not limited to, yield, the price received for the crop grown, water supply and cost thereof, all farming expenses attributable to such crop and any other factors bearing upon such profitability. Based upon such review Tenant may, in its sole discretion, pay Owner a profitability bonus of up to 100% of the cash rent due Owner under this Lease. 4. Should the rented premises be flooded so that Tenant is prevented from planting any crop or a planted crop is destroyed by flood or other act of God, Owner shall not be entitled to any rental payment for said rented premise. 5. Owner will supply up to 2.75 acre feet per acre for the gross farmable acres. At least 2.0 acre feet per acre will be available during the crop irrigation season which is normally from June 1 to September 10. Tenant will pay Owner $50 per acre foot delivered to the field. 6. If less than 2.75 acre feet per acre is available, Tenant has the option to reduce the acreage farmed until 2.75 acre feet per acre is available. 7. Tenant agrees to pay for all costs and expenses of the farming, planting, seed, irrigation and harvesting of any and all crops planted and/or harvested and any other costs or charges incident to raising and harvesting said crops on the Premises hereby leased, all at his own cost and expense. Owner will be responsible for all taxes and/or assessments levied against the Premises. 8. Tenant agrees to farm any crops planted on said land in a good, farmer-like manner and in accordance with the usual farming practices in the neighborhood and will not permit any damages to said premises or suffer the same to be done by another, all at his own cost and expense. 9. That, in the event Owner brings an action at law against Tenant to enforce the payment of any amount due or to enforce any of the terms hereof or in the event of the commencement of a summary action under the unlawful detainer laws of the State of California for the forfeiture of this lease and possessions of the demised premises, then the Tenant agrees to pay Owner reasonable attorney's fees to be fixed by the Court. 10. Owner and any of its agents or representatives shall, at reasonable times, have the right to freely go on the premises. 11. Owner agrees to cooperate with Tenant in executing any document required by any agricultural program that may be promulgated by the United States Government or any other governmental agency. 12. The failure on the part of the Owner to take any action against Tenant by reason of any particular breach of any of the terms, covenants and conditions of this lease on the part of the Tenant shall not be deemed in any way a waiver of any other or subsequent breach on the part of any or all of the covenants and conditions of this lease. 13. Tenant agrees that the Owner may lease said premises or any part thereof, without having first obtained the written consent of Tenant, for the purpose of drilling for oil, gas or other mineral products. Tenant hereby waives and terminates any rights he may have acquired by this lease and in and to any revenues from such above mentioned mineral lease or leases. In case such lease is entered into and drilling is started on the premises, any damage done to the crops growing thereon shall be adjusted with the Tenant so that Tenant may be compensated for any damage so suffered. Should any portion of the Premises be devoted to an oil or gas well site or used for any other mineral production purpose so that the portion so devoted may not be used for agricultural purposes, then the rental specified, in Paragraph 2 hereof, shall be adjusted by subtracting from the total rent specified the sum of the per-acre rental for the crop grown, times the acres devoted to mineral production. 14. Owner will not claim rights to or in any water, water system or service therefrom which may be used or provided by Tenant. 15. Any notice or demand required or permitted under this lease shall be deemed duly given if deposited in the United States mail, with postage prepaid, addressed as follows: OWNER: SOUTHLAKE ACQUISITION CO. P.O. BOX 1410 DAVIS, CA 95617 TENANT: J.G. BOSWELL COMPANY POST OFFICE BOX 457 CORCORAN, CALIFORNIA 93212 16. This Lease shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of the respective parties hereto. IN WITNESS WHEREOF, the Owner has caused this Lease to be executed in triplicate and Tenant has hereunto set his hand. OWNER: SOUTHLAKE ACQUISITION CO. By: /s/ Brent Bowen Vice President By: ____________________ TENANT: J.G. BOSWELL COMPANY By: /s/ Gary Gamble Vice President By: /s/ Secretary AMENDMENT TO LEASE This Amendment to Lease is entered into by and between J.G. BOSWELL COMPANY ("Lessee") and SOUTHLAKE ACQUISITION CORPORATION ("Lessor") as of the day and date last written hereon. RECITALS WHEREAS, Lessor and Lessee heretofore entered into that certain Lease dated September 8, 1992, and WHEREAS, Lessor and Lessee desire to amend said lease in the following particulars, NOW THEREFORE, It is Hereby Agreed by and between the parties hereto as follows: 1. The term of said aforementioned Lease is hereby extended for four (4) years beginning on January 1, 1996 through and including December 31, 1999. 2. Except as specifically amended hereby, all other terms and conditions of said Lease shall remain the same. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Lease as of 11/29/95. LESSEE: J.G. BOSWELL COMPANY By: /s/ Gary Gamble Vice President and Chief Operating Officer By: /s/ John P. Rodrigues Manager, California Ranching LESSOR: SOUTHLAKE ACQUISITION CORPORATION By: /s/ Brent Bowen, V.P. SOUTHLAKE ACQUISITION CORPORATION P.O. Box 1410 Davis, California 95617 (916) 753-5695 February 14, 1997 Mr. J. W. Boswell, President J.G. Boswell Company 101 West Walnut Street Pasadena, California 91103 Dear Mr. Boswell: This is further to our telephone conversation of February 11, 1997 concerning property leased by Southlake Acquisition Corporation to the J.G. Boswell Company. A copy of the lease and its amendment, dated September 8, 1992 and November 29, 1995, respectively, are enclosed. In that conversation I reported that Southlake and Dana Hair are presently negotiating the sale to Mr. Hair of the property which Southlake currently owns known as the White Ranch, and which contains the leased property. It is my understanding of our conversation that, in the event of a sale of the White Ranch to Mr. Hair (or his assigns) during the calendar year 1997, the Boswell Company will cancel and terminate the subject lease as of December 31, 1997. If this is also your understanding of that conversation, I'll appreciate your signing the enclosed copy of this letter and returning it to me. Very truly, /s/ Brent Bowen Brent Bowen, Vice President, Southlake Acquisition Corporation /s/ J.W. Boswell 2-26-97 J.W. Boswell date Encl. FIELD TENANT LEASE DATE: February 20, 1997 PARTIES: SOUTHLAKE ACQUISITION CORPORATION, a Nevada corporation, (hereinafter referred to as "Landlord"); and, H. WILLIAM BLANKEN, dba HWB FARMS (hereinafter referred to as "Tenant"). RECITALS: A. The Landlord is the owner of approximately 1,620 acres, more or less (hereinafter referred to as the "Real Property"), located in the County of Tulare, State of California, and more particularly described in Exhibit "A". B. Landlord desires to lease to Tenant and Tenant desires to lease from Landlord the Real Property, together with appurtenances, subject to the terms and conditions contained herein. AGREEMENTS: In consideration of the mutual covenants contained herein, the parties agree as follows: 1. Lease: The Landlord leases to Tenant and the Tenant leases from Landlord, on the terms and conditions set forth in this Lease, the Real Property, together with all appurtenances. 2. Term: The term of this Lease starts on the date hereof and terminates upon December 31, 1997, or the close of escrow in the event of sale of the Real Property whichever is the earlier. 3. Rent: Tenant shall pay to the Landlord, as rental for the Real Property, without deduction or set-off, at such places as may be designated from time to time by Landlord, 33 l/3% (thirty three and one-third per cent) of the gross proceeds of alfalfa and cotton, and 12 1/2% (twelve and one-half per cent) of the gross proceeds of all wheat and barley produced on the Real Property during the term hereof. Such rental shall be paid to the Landlord and mailed to the Landlord at P.O. Box 1410, Davis, California 95617 within 10 days of the receipt by the Tenant of any such proceeds. 4. Government Programs. Upon written request of Tenant, Landlord agrees to join in and cooperate with all governmental agricultural plans and programs, both state and federal, which may, during the term hereof, be applicable to the Real Property or the farming operations upon the Real Property contemplated hereby, and Landlord agrees to execute any and all writings which may be required by governmental authorities in that regard. Tenant shall be entitled to all crop allotments and/or histories arising out of the farming operations on the Real Property during the term hereof to the extent allowed by any such governmental plan or program. Provided, however, that Tenant shall not be entitled to receive any payments made subsequent to the termination of this Lease under any governmental plan or program: and provided further that under no circumstances shall any crop allotment, crop history, or other program benefit be severed from the Real Property. 5. Relationship of the Parties: The relationship of the parties hereto is that Landlord and Tenant, and Landlord shall not be deemed a partner or a joint venturer with Tenant by reasons of the provisions of this Lease. 6. Use: The Real Property is leased to Tenant for the planting, growing, and harvesting of wheat, barley, cotton and any other crops customarily grown in the area. Tenant shall not use, or permit to be used, any part of the Real Property for any purpose other than other than those specified herein. All operations incident to this use of the Real Property shall be carried on according to the best courses of husbandry practiced in the vicinity, and Tenant shall use all reasonable means to control the growth of noxious weeds and grasses at its sole expense. Tenant shall also perform post-harvest discing and ground preparation as is required by law and /or is consistent with the highest standards of farming practices in the area. 7. Entry by Owner: Tenant shall permit Landlord, and Landlord's agents and assigns, at all reasonable times, to enter the Real Property, and to use the roads established on the Real Property now or in the future, for the purposes of inspection, compliance with the terms of this Lease, posting notices, and all other lawful purposes. Tenant shall supply Landlord and its agents and assigns with keys and other instruments necessary to effect entry on the Real Property. Tenant shall make and keep pertinent records of all operations and conducted under this Lease and shall make them available to Landlord and Landlord's agents and assigns at all reasonable times for inspection. 8. Expenses: Tenant shall pay all costs and expenses in connection with the planting, cultivating, irrigating, dusting, spraying, harvesting, hauling, and all other costs incurred in correction with the crops to be grown on the Real Property during the term of this Lease. 9. Utilities: Tenant shall pay for all water, gas, heat, light, power, telephone service, and for all other services to the Real Property except as otherwise provided in this Lease. 10. Irrigation and Water Districts: During the term of this Lease Tenant shall be entitled to receive whatever water is available to Tenant from the facilities of the Angiola Water District. Tenant shall pay, during the term of this Lease, to the Angiola Water District, Twenty Five Dollars ($25.00) per acre foot for all water delivered to the Real Property by the Angiola Water District during the term of this Lease. Tenant shall pay for such water within 10 days of the date of the invoice from the Angiola Water District. Water from the source mentioned above shall be used only on the Real Property and in the performance of the Tenant's obligations under the Lease. Landlord assumes no responsibility to Tenant for any water shortage from the facilities mentioned above and assumes no responsibility for, and does not warrant, the quality or quantity of the water supplied to the Real Property. 11. Waste: Tenant shall not commit, or permit others to commit, waste on the Real Property, or maintain a nuisance upon the Real Property. Tenant accepts the Real Property in its present condition and agrees on the last day of the term or upon sooner termination of the Lease, to surrender the Real Property in the same condition as when received. 12. Repairs: Tenant shall be responsible for the day-to-day repair and maintenance of the Real Property during the term of this Lease, including, but not limited to, all fences, wells, pumps, pipelines ditches, and roadways, and Tenant agrees to maintain them in the same order and consition in which received, ordinary wear and tear excepted. All minor repairs and maintenance shall be at Tenant's cost and expense. 13. Alterations: Tenant shall not make or permit to be made any alterations on the Real Property without first obtaining Landlord's written consent. All alterations and additions shall be made at the sole expense of the Tenant. Additions to or alterations of the Real Property shall become at once a part of the Real Property and belong to the Landlord. Tenant shall keep the Real Property free from any liens arising out of work performed, material furnished, or any other obligations incurred by Tenant. 14. Liability and Insurance: Tenant agrees to keep Landlord free from all liability and claims for damages arising from any injury from any cause to any person, including Tenant, or to property of any kind belonging to anyone, including Tenant, arising from Tenant's operations while in, upon, or in any way connected with the Real Property, including the flooding of public roads or neighboring lands because of improper drainage or escaping irrigation waters, during the term of any occupancy under this Lease. Tenant waives any and all claims against Landlord for damage to person or property arising from any reason. Tenant further agrees to take out and to keep in full force and effect during the term of this Lease, at Tenant's expense, a policy of public liability insurance for protection against liability to the public arising as an incident to the use of, or resulting from any action occurring in or about the Real Property. Landlord shall be an additional named insured on the policy, and the policy shall contain cross-liability endorsements. The policy shall provide for combined single limit coverage in an amount not less than One Million Dollars ($1,000,000.00). Upon demand by the Landlord, Tenant shall deliver to Landlord a certificate of such insurance coverage. Tenant further agrees to take out and keep in force during the term of this Lease at its own expense, proper and adequate workman's compensation insurance. 15. Remedies of Landlord on Default: Landlord shall have the following remedies if Tenant commits a default. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law. A. Landlord can continue this Lease in full force and effect, and the Lease will continue in effect as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect rent when due. During the period Tenant is in default, Landlord can enter the premises and relet them or any part of them, to third parties for the Tenant's account. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Real Property, including, without limitation, broker's commissions, expenses of remodeling the Real Property required by the reletting, and like costs. Reletting can be for a period shorter or longer than the remaining term of this Lease. Tenant shall pay to Landlord the rent due under this Lease on the dates the rent is due, less the rent the Landlord receives from any reletting. No act by Landlord allowed by this paragraph shall terminate this Lease unless Landlord notifies Tenant that the Landlord elects to terminate this Lease. After Tenant's default and for as long as Landlord does not terminate Tenant's right of possession of the Real Property, if Tenant obtains Landlord's consent Tenant shall have the right to assign or sublet its interest in this Lease, but Tenant shall not be released from liability. Landlord's consent to a propose assignment or subletting shall not be unreasonably withheld. B. Landlord can terminate Tenant's right to possession of the Real Property at any time. No act by the Landlord other than giving notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Real Property, or the appointment of a receiver on the Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On Termination, Landlord has the right to recover from Tenant: (i) The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this Lease; (ii) The worth, at the time of the award, of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time of the award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; (iii) The worth, at the time of the award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; and (iv) any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. "The worth at the time of the award", as used in (i) and (ii) of this paragraph, is to be computed by allowing interest at the maximum rate an individual is allowed by law charge. "The worth, at the time of the award", as referred to in (iii) of this paragraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). No re-entry or taking possession of the Real Property by Landlord shall be construed as an election by him to terminate this Lease unless a written notice of such an intention is given to the Tenant or the Lease is declared to be terminated by a court of competent jurisdiction. All these rights shall be concurrent and cumulative and are in addition to, and not in derogation of, all other rights and remedies available to Landlord. Nothing contained in this Lease, and no security or guaranty of the Tenant that landlord holds now or in the future under this Lease, shall in any way constitute a bar or defense to an action by Landlord in unlawful detainer or for recovery of the Real Property. 16. Landlord's Right to Cure Tenant's Defaults. If Tenant should fail to pay any charges, tax, or other amounts herein required to be paid by it when due, or in the event that Tenant fails to pay any sums required to be paid hereunder to protect Landlord's interest herein, the same may be paid by the Landlord and all sums so expended by Landlord shall immediately become due and payable from Tenant to Landlord and shall bear interest at the rate specified in Paragraph 3. Landlord shall also have the right, should Landlord deem it necessary for the protection of Landlord's interest in any crop or produce being grown upon the premises, to take immediate possession of the premises and to mature, harvest and/or market the crops and produce growing thereon for the benefit of both Landlord and Tenant, and any and all costs or expenses incurred by the Landlord in so doing shall be deemed to be amounts paid to cure a default of Tenant and shall become immediately due and payable from Tenant to Landlord pursuant to the terms of this Paragraph. 17. Security Agreement. Tenant hereby grants Landlord a security interest in all crops growing or to be grown on the Real Property during the term of this Lease including proceeds of said crops to secure Tenants to secure Tenant's obligations under this Lease, said obligations include but are not limited to the payment of rent. Tenant agrees to execute any and all documents reasonably necessary to memorialize and perfect said security interest including, but not limited to two copies of UCC-1 Financing Statement in the form of Exhibit "B". Should enforcement of the above described security interest be necessary, Landlord shall have any and all remedies available under California law. 18. Assignment and Subletting. Tenant shall not assign this Lease, or any rights under it, and shall not sublet the entire or any part of the Real Property, or any right or privilege appurtenant to the Real Property, or permit any other person (the agents and employees of Tenant excepted) to occupy or use the entire or any portion of the Real Property, without first obtaining Landlord's written consent. A consent to one assignment, subletting, occupation, or use by another person is not a consent to future assignment, subletting, occupation, or use by the same or another person. An assignment or subletting without Landlord's consent shall be void, and shall, at Landlord's option, terminate this Lease. No interest of Tenant in this Lease shall be assignable by operation of law without Landlord's written consent. 19. Rights of Others. This Lease is subject to all existing easements, servitudes, licenses, and rights-of-way for canals, ditches, levees, roads, highways, telephone, telegraph, electric, power lines, railroads, pipelines, and other purposes whether recorded or not. 20. Subordination. This Lease shall be subordinate to any mortgages, or deeds of trust that may subsequently be placed on the premises, to all advances made under them, to the interest on all obligations secured by them, and to all renewals, replacements, and extensions of them. PROVIDED, HOWEVER, the mortgagee or beneficiary in those mortgages or deeds of trust shall recognize the Lease of Tenant in the event of foreclosure if Tenant is not in default under the terms of the Lease. Subordination of the Tenant's interest is effective without any further act of Tenant. Tenant shall from time to time upon Landlord's request execute and deliver any documents or instruments that may be required by a lender or other third party to effectuate any subordination. If Tenant fails to execute and deliver any such documents or instruments, Tenant irrevocably appoints Landlord as Tenant's special attorney in fact to deliver any such document or instrument. 21. Disclaimer. Landlord makes no warranty of the soil suitability for growing crops Tenant is authorized to grow under this Lease. 22. Oil, Gas, and Mineral Rights. All rights in minerals, oil, gases, and other hydrocarbons located on or under the Real Property, and all hunting rights are particularly reserved to the landlord and are particularly excepted from the property covered by the terms of this Lease. Landlord agrees to reimburse Tenant for any reasonable damages that Tenant sustains as a result of and interference with the agricultural operations conducted on the Real Property under the terms of this Lease arising from the exploration, drilling, or mining operations or from hunting. 23. Condemnation. If a part of the Real Property is condemned for a public or quasi-public use, and the remaining part is capable of supporting an economical farming operation by Tenant, this Lease shall terminate, as to the part taken, on the date title vests in the condemnor. The cash rent payable under this Lease shall be adjusted so that Tenant shall be required to pay for the remainder of the term only the portion of the rent that the value of the part remaining after the condemnation bears to the value of the entire Real Property at the date of valuation for condemnation purposes. If the entire or a part of the Real Property is taken or condemned, all compensation awarded on condemnation shall go to the Landlord, with Tenant having no claim to compensation except that Tenant shall be entitled to compensation for Tenant's share of growing crops only. All expenses necessary to restore fences and ditches and to replace access roads lost by condemnation shall be borne by Landlord. If, after condemnation, the Real Property is not capable of supporting a economical farming operation by Tenant, this Lease shall terminate on the date title vests in the condemnor 24. Compliance with Law. Tenant shall comply with all requirements of all governmental authorities, enforced either now or in the future, affecting Tenant's use of the Real Property. 25. Insolvency; Receiver. Any of the following shall constitute a breach of this Lease by Tenant: (a) the appointment of a receiver to take possession of all or substantially all of Tenant's assets; or (b) a general assignment by Tenant for the benefit of creditors; or (c) an action taken or suffered by Tenant under any insolvency or bankruptcy act. 26. Attorney's Fees. In any action or proceeding by either party to enforce this Lease or any portion hereof, the prevailing party shall be entitled to all costs incurred and to reasonable attorneys' fees. 27. Surrender of Lease - Effect on Subleases. The voluntary or other surrender by Tenant, or a mutual cancellation of this Lease shall not work a merger, and shall, at Landlord's option, terminate all existing subleases or sub-tenancies, or may, at Landlord's option, operate as an assignment to him of any or all subleases or subtenancies. 28. Crop Mortgages. All crop mortgages, encumbrances, or liens given or suffered by Tenant on the crops grown on the Real Property shall be for terms or periods not extending beyond the term of this Lease and shall not encumber Landlord's share of the crops. Landlord agrees to execute any crop waiver as to Tenant's share of the crops which may be submitted by Tenant. All Liens created by Tenant must be satisfied of record before the end of the Lease term. If a mortgage or lien creates a cloud on the Landlord's title, Tenant must pay all reasonable costs and expenses, including attorneys' fees, for removal of the cloud. 29. Notice. Any notice to be given to either party by the other shall be in writing and shall be served either personally or by certified or registered mail addressed as follows: If to Landlord: Southlake Acquisition Corporation P.O. Box 1410 Davis, CA 95617 Attn: Brent Bowen If to Tenant: H. William Blanken HWB Farms 335 Richardson Way Hanford, CA 93230 30. Waiver. The waiver by the Landlord of a breach of any term, covenant, or condition contained in this Lease shall not be treated as a waiver of any other term, covenant, or condition, or breach thereof. The acceptance of rent by the Landlord shall not be treated as a waiver of a previous breach by Tenant of any term, covenant, or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of the Landlord's knowledge of a previous breach at the time of acceptance of rent. 31. Legal Effect. All covenants of Tenant contained in this Lease are expressly made conditions. The provisions of this Lease shall, subject to the provisions on assignment, apply to and bind the heirs, successors, executors, administrators, and assigns of all parties to this Lease; and all parties to this Lease shall be jointly and severally liable under it. The titles or headings to the paragraphs of this Lease are not a part of this Lease and shall have no effect on the construction or interpretation of any part of this Lease. 32. Further Assurances. Each party agrees that it will execute and acknowledge such documents reasonably requested by the other to carry out the terms, purposes, and intent of this Lease, including, without limitation: (1) a memorandum in recordable form to give constructive notice of this Lease or any of its terms; (2) contracts and commitments to sell crops grown upon the Real Property; and (3) waivers of any interest to the interest of the other party in such crops. 33. Time. Time is of the essence of this agreement. The parties have executed this Lease effective as of the date and year first above written. Landlord: SOUTHLAKE ACQUISITION CORPORATION, a Nevada Corporation By: /s/ Brent Bowen Its Vice President Tenant: By: /s/ H. William Blanken EXHIBIT "A" HWB Lease- 1997 All property described herein is located in the County of Tulare, State of California: 35 acres Part of SE1/4 Section 27 T22S R23E 221 acres Part of E1/2 Section 34 T22S R23E 612 acres Part of Section 3 T23S R23E 299 acres Part of N1/2 Section 6 T23S R23E 310 acres Part of Wl/2 Section 10 T23S R23E 143 acres Part of E1/2 Section 10 T23S R23E EXHIBIT "E" to PURCHASE AGREEMENT dated ___________________ between Southlake Acquisition Corporation and Jim Joseph Revocable Trust, "Owner"; and Dana C. Hair "Buyer". There are no items in Exhibit "E". EXHIBIT "F" to PURCHASE AGREEMENT dated _____________ between Southlake Acquisition Corporation and Jim Joseph Revocable Trust, "Owner"; and Dana C. Hair "Buyer". - - A copy of the Angiola Water District Restated Water Distribution Agreement - - A copy of a Fax Transmittal dated February 12, 1997 From Kevin Johansen, Angiola Water District, to Brent Bowen, Southlake Acquisition Corporation, describing portions of " the Property" lying within the boundaries of the Tulare Lake Basin Water Storage District and the Tulare Lake Drainage District. - - A copy of the Short Term State Water Contract between Tulare Lake Basin Water Storage District and Southlake Acquisition Corp. for the period January 1, 1997 through December 31, 1998. - - A copy of the Ninth Amended Rules and Regulations Governing the Transmission of Water Under the Water Supply Contract Between the State of California, Department of Water Resources and the Tulare Lake Basin Water Storage District. ANGIOLA WATER DISTRICT RESTATED WATER DISTRIBUTION AGREEMENT DATE: _________________, 1987 PARTIES: First Party: FEDERAL LAND BANK OF SACRAMENTO, a corporation, (hereinafter "Land Owner"). Second Party: ANGIOLA WATER DISTRICT, organ- ized and existing under and by virtue of the California Water District Law, Division 13 of the California Water Code, (hereinafter "Angiola"). RECITALS: A. Pursuant to a foreclosure of certain security interests held by it, Land Owner acquired title to all of the real property, located in Kings and Tulare Counties in the State of California, included within the boundaries of Angiola. All of said real property is sometimes hereafter referred to as the "South Lake Property," and is more particularly described in EXHIBIT A and EXHIBIT B attached hereto and by this reference incorporated herein. The real property described in EXHIBIT A is sometimes hereafter referred to as the "White Ranch," and the real property described in EXHIBIT B is sometimes hereafter referred to as "Liberty Farms." B. On May 27, 1983, the predecessors in interest of Land Owner as the owners of the South Lake Property, together with Angiola, entered into the ANGIOLA WATER DISTRICT WATER DISTRIBUTION AGREEMENT (hereafter referred to as the "Prior Agreement"). Said document was recorded in the official records of Tulare County on June 10, 1983, as Document No. 26996, in Vol. 4077, at Page 794, and was recorded in the official records of Kings County on June 10, 1983, as Document No. 7373, in Book 1265, at Page 404. C. The purposes of the Prior Agreement were to provide that all water, regardless of its source, then available to or historically used on the South Lake Property would be used to meet the water needs of the South Lake Property as if such property had remained a single unified farming entity, as was the case when it was operated by South Lake Farms, a California corporation, prior to the sale of the South Lake Property to the predecessors of the Land Owner, to insure that the present or future owners of the South Lake Property, or any part thereof, would have a voice in the establishment of policy decisions within Angiola in proportion to the amounts of land owned by them within the South Lake Property, and to provide that in the event sufficient water is not available to meet the water needs of the South Lake Property, the water and the capacity for its transportation should be shared on a pro rata acreage basis throughout the South Lake Property. D. Section 9 of the Prior Agreement provides a mechanism for the amendment thereof, upon the mutual written consent of certain parties, all of whom are parties to this Restated Water Distribution Agreement (hereinafter, "this Agreement"). E. The parties hereto are basically satisfied with the mechanisms set up by the Prior Agreement for providing water to the South Lake Property, but believe that by amending the Prior Agreement as set forth below, the mechanisms will be able to function even more advantageously than in the past. The parties further believe that a complete restatement of all of the terms of the Prior Agreement, as amended, in one document would minimize the possibilities of confusion in the future. AGREEMENT: NOW THEREFORE, it is mutually agreed by all of the parties hereto that the Prior Agreement is hereby amended in its entirety to read as follows: Section 1. COVENANTS RUNNING WITH THE LAND. All of the agreements contained herein are expressly made for the benefit of the South Lake Property and the owners thereof, and the benefits and burdens created herein shall run with the South Lake Property and with each and every lot or parcel into which the South Lake Property may from time to time be divided, and shall be binding upon the parties, and the heirs, successors and assigns of the parties hereto and the present and future owners of the South Lake Property for the benefit of the South Lake Property, or such portion thereof as may be owned by such owners. Section 2. WATER SUBJECT TO AGREEMENT. The parties agree that the "water subject to this Agreement" shall mean all water or water rights, regardless of the source thereof, presently available to, historically used on, or acquired in the future by Angiola for use on, the South Lake Property, including, without limitation: (a) All water and water rights attributable to ownership of stock in Tulare Lake Water Company, Tulare Lake Canal Company, Liberty Farms Mutual Water Company, Southeast Lake Water Company, the Bayou Vista Ditch Company, and the Gates-Jones Mutual Water Company, whether such stock is owned by Land Owner, any of its successors or assigns as owners of all or any part of the South Lake Property, or Angiola, and (b) All water and water rights attributable to membership in the Downstream Kaweah and Tule Rivers Association and the Kings River Water Association, and (c) All water and water rights attributable to portions of the South Lake Property being located within the Tulare Lake Basin Water Storage District, and (d) All non-riparian water and water rights, of whatever nature, in and to the Kings River, Tule River, Kaweah River, Deer Creek, White River, Poso Creek, Kern River, and in any and all other streams, surface and/or underground, intermittent and/or continuous which adjoin or traverse any part of the South Lake Property or with respect to which the South Lake Property or any portion thereof shall have water rights of any kind however acquired, and (e) All rights whatsoever to extract water from Tulare Lake, and (f) All rights whatsoever to extract ground water from the South Lake Property for agronomic purposes, Section 3. TRANSFER OF WATER RIGHTS AND STOCK. Land Owner hereby transfers to Angiola all of its right, title and interest in the water subject to this Agreement; provided that: (a) With respect to Land owner's overlying rights to extract ground water for agronomic purposes from below its property for use on its property, the rights so transferred shall be exclusive, (b) With respect to Land Owner's overlying rights to extract ground water for any other purposes from below its property for use on its property, the rights so transferred shall be non-exclusive, as more fully set forth in Section 10 below, (c) If at any time a court or other forum of competent jurisdiction shall determine that Angiola's extraction of ground water for agronomic purposes for use on overlying land pursuant to this Agreement is not an overlying use, then, at the time such order or judgment becomes final, the overlying ground water rights transferred herein shall revert to the then fee owners of the lands from which such rights are derived, but such water rights shall remain water subject to this Agreement, and (d) Notwithstanding any other provision of this Agreement, the parties hereto do not intend to transfer, and do not transfer, any water right to Angiola which right would be lost by severance as a result of such transfer. The parties further declare that similar water rights were transferred by Land Owner's predecessors in interest as owners of the South Lake Property pursuant to the terms of the Prior Agreement, and that the transfer of water rights set forth in this Agreement is not meant to imply that the previous transfers were not effective. The transfer of water rights set forth in this Agreement is meant only to reconfirm the previous transfers, to the extent that such previous transfers conveyed water rights also conveyed by the terms of this Agreement. To the extent that it might be asserted that the water rights transferred pursuant to the terms of the Prior Agreement conveyed to Angiola water rights which are not also included within the terms of this Agreement, Angiola quitclaims such water rights to the parties originally conveying such rights to Angiola, or to their respective successors in interest. Land Owner also hereby transfers to Angiola all of its right, title and interest in any non-appurtenant stock in Tulare Lake Water Company, Tulare lake Canal Company, Liberty Farms Mutual Water Company, Southeast Lake Water Company, the Bayou Vista Ditch Company, and the Gates-Jones Mutual Water Company. All of the parties agree to execute whatever documents and take whatever further steps may be necessary to formalize any of the transfers accomplished pursuant to this Section, including obtaining approval of such transfer, when required, by other water distribution organizations. Section 4. TRANSFER OF WATER DISTRIBUTION FACILITIES. Land Owner hereby grants and transfers to Angiola all those existing water works, water distribution facilities and equipment presently available to or historically used in connection with the South Lake Property, including, without limitation, all existing ditches, canals, pipes, pumps, motors, tanks, gates, weirs and other devices, and excluding only wells and related facilities. Land Owner also hereby grants and transfers to Angiola permanent easements for and rights of access to such existing water works and water distribution facilities. It is the intention of the parties that such existing water works, water distribution facilities and easements shall become the property of Angiola. Such existing water works, water distribution facilities and easements are more particularly described in EXHIBIT C attached hereto and by this reference incorporated herein. Land Owner hereby grants to Angiola a permanent non- exclusive easement and right of use and access in and to all existing wells and related facilities located on the South Lake Property. It is not the intention of the parties that any of the foregoing shall become the property of Angiola. Such items shall remain the property of the respective owners of the South Lake Property. Nevertheless, Angiola shall, at all times it is not in material default of its obligations under this Agreement, be entitled to the exclusive use of such items. For the purposes specified in this Agreement, the parties agree to use their best efforts to grant to Angiola a right of use in and to that portion of the Wellfield Systems Ditch extending across Section 22, Township 22 South, Range 23 East, M.D.B. & M., and in and to the Wilbur Ditch, running northerly from the northwest corner of Liberty Farms along the boundary between Range 20 East and Range 21 East, M.D.B. & M., title to both of which is in W.H. Wilbur Reclamation District No. 825. In addition to the foregoing provisions of this Section 4, Angiola shall retain its full rights under law to purchase, construct, condemn or otherwise acquire such facilities in the future. Angiola shall also have the right, and hereby agrees, to make such repairs and replacements of such existing water works and water distribution facilities and any water wells located on the South Lake Property, and to undertake such construction, including the drilling of new water wells, as is reasonably necessary to maintain the historic capacity of said existing water works, facilities and wells, and to provide such increased capacity as the Board of Directors of Angiola may determine to be necessary in the future. Angiola shall also have the right, at reasonable times and places, to enter upon any portion of the South Lake Property as may be necessary to carry out such activities, without unreasonably interfering with the surface use of the portion of the South Lake Property entered upon. However, it is not the intention of the parties that Angiola shall have the right to construct, maintain, operate or use any existing or future sub-surface drainage works upon the South Lake Property. All such matters shall remain in the sole discretion of the applicable respective owners of the South Lake Property. The parties further acknowledge that the South Lake Property is presently affected by the following agreements and grants of easement: (a) License Agreement dated July 7, 1971, by and between South Lake Farms and Salyer Land Company, concerning the Wilbur Ditch. (b) License Agreement dated August 1, 1971, by and between South Lake Farms and J.G. Boswell Company ("Boswell"), concerning Wilbur Ditch. (c) Canal Use Exchange Agreement dated December 10, 1974, by and between South Lake Farms and Boswell. (d) Agreement For Canal Right of Way and For Construction and Maintenance of Canal, dated March 1976, by and between South Lake Farms and Salyer Land Company. (e) Agreement For Construction of Interceptor Ditch dated September 8, 1976, between and among South Lake Farms, Salyer Land Company, and Boswell. (f) Agreement For Exchange of Easements and Other Rights and Relating to Storage Use of South Wilbur Area, dated December 10, 1980, by and between South Lake Farm and Boswell. (g) Letter Agreement amending the agreement referred to in item (f) above, dated March 19, 1981, between South Lake Farms and Boswell. (h) Grant of Easement relating to "North Wilbur," dated March 20, 1981, between Boswell and Wilbur Reclamation District No. 825, a California Reclamation District ("Wilbur"). (i) Agreement For Enlargement and Use of the Wilbur Ditch and South Wilbur Levee, dated March 20, 1981, between South Lake Farms, Wilbur, and Boswell. (j) Grant of Easement relating to "West Homeland," dated March 20, 1981, between South Lake Farms and Boswell. (k) Grant of Easement relating to "Lateral A (Sections 7 and 8-23-22)," dated March 20, 1981, between South Lake Farms and Kings County Canal Company ("KCCC"). (l) Grant of Easement relating to "Lateral A (Sections 9 and 10-23-22)," dated March 20, 1981, between South Lake Farms and KCCC. (m) Grant of Easement relating to "Lateral A and System Ditch (Section 11-23-22)," dated March 20, 1981, between South Lake Farms, Boswell, and KCCC. (n) Grant of Easement relating to "Homeland Canal," dated March 20, 1981, between South Lake Farms and Boswell. (o) Grand of Easement relating to "Homeland Canal," dated March 20, 1981, between South Lake Farms and KCCC. (p) Grand of Easement relating to "Lateral A and System Ditch (Sections 7 and 8-23-22)," dated March 20, 1981, between South Lake Farms and KCCC. (q) Grant of Easement relating to "Lateral A (Sections 9 and 10-23-23)," dated March 20, 1981, between South Lake Farms and KCCC. (r) Grand of Easement relating to "Lateral A and System Ditch (Section 12-23-33)," dated March 20, 1981, between South Lake Farms, Boswell and KCCC. The parties agree that all costs, expenses, indemnities, prorations and payments called for in such agreements and grants of easement to be made by South Lake Farms or Wilbur shall be deemed an expense of Angiola, and shall be subject to the provisions of this Agreement. Section 5. AVAILABILITY AND DISTRIBUTION OF WATER. The parties agree that all water subject to this Agreement, other than surplus water sold for use outside the boundaries of Angiola pursuant to the provisions of California Water Code Section 35425, and the capacity for its production, transportation and distribution shall be made available equally on a pro rata acreage basis to all lands within the South Lake Property, with no distinctions made between the White Ranch, Liberty Farms, or any portion of either of them, to the fullest extend possible. Notwithstanding anything to the contrary set forth elsewhere in this Agreement, for purposes of determining the availability of water pursuant to the terms of this Section 5, and for purposes of determining the allocation of standby charges pursuant to the terms of Section 8 below, the following areas shall not be considered to be a part of the South Lake Property: (a) Any property lying within Township 24 South, Range 20 East, M.D.B. & M, (b) That portion of Liberty Farms located within Township 22 South, Range 23 East, M.D.B. & M, and (c) Those drainage ponds, consisting of approximately 640 acres, located within Sections 23 and 26, Township 23 South, Range 21 East, M.D.B. & M. Such ponds may once again be included within the scope of the term "South Lake Property", for purposes of Sections 5 and 8 herein, at such time as they are returned to agricultural production, upon the request of the owner thereof. The acreage of the lands within the South Lake Property may be determined by Angiola, for any purpose under this Agreement, by reference to the assessor's parcel records of the county in which the land in question is located, as such records exist from time-to-time. All the parties hereto understand, agree and acknowledge that in order for each acre within the South Lake Property to receive, or have the right to receive, the same amount of water, different water, water rights, water capacity, and sources of water will have to be utilized, regardless of relative cost of water from different sources. This pro rata acreage availability standard shall apply regardless of crop requirements, hardship from drought, or other public or private emergency, but shall not be construed to include a requirement that water from any specific source or under any particular right must itself be distributed on a pro rata acreage basis throughout the South Lake Property. Having made water available to the lands within the South Lake Property on a pro rata acreage basis as set forth in the preceding paragraph, Angiola may distribute water on other than a pro rata acreage basis if any owners of land within the South Lake Property chose to take less than the amount of water to which they would otherwise be entitled. Any water made available as a result of such a choice by an owner shall be made available on a pro rata acreage basis to the other owners of land within the South Lake Property. Nothing in this Agreement shall be meant to imply that Angiola will have any obligation to deliver water to any lands not directly served by the water distribution facilities transferred pursuant to the terms of Section 4 above. Its obligation to make water available on a pro rata acreage basis, set forth in this Section, shall be satisfied by making the water available to a point in such water distribution facilities selected by the land owner to whom the water is being made available. The exact time and amount of each delivery shall be at the discretion of Angiola, taking into account available supplies, overall demand for deliveries, and such other factors as Angiola may determine to be appropriate. Nothing in this Agreement shall require any party or owner of a portion of the South Lake Property to apply its allocation of water on a particular portion of such party's or owner's lands, and each party or owner may determine where, within the South Lake Property, such allocation may be applied, subject to any limitations imposed by law, or by agreement to which any party or owner may be bound upon acquisition of a portion of the South Lake Property. Notwithstanding the foregoing, if, by reason of the assertion, directly or indirectly, by an owner of any interest in any portion of the South Lake Property of any legal or contractual limitation, Angiola is unable to furnish a pro rata share of water subject to this Agreement to all or any portion of the South Lake Property, then the share of the water subject to this Agreement that would be available for beneficial use on said lands if such limitation did not exist may not be put to beneficial use on any portion of the South Lake Property in which the owner asserting such limitations owns any interest, except with the written consent of the owner of record of said unserved lands. Said right of consent is in addition to all other rights and remedies available hereunder to the owner of the unserved lands. The owner asserting such limitations shall become liable for all delivery charges in connection with such pro rata share of the water subject to this Agreement. If, by reason of the assertion of such legal or contractual limitations by any person or entity not owning, either directly or indirectly, any interest in any portion of the South Lake Property, Angiola is unable to furnish a pro rata share of water subject to this Agreement to all or any portion of the South Lake Property, Angiola shall be entitled to furnish such water for use or to transfer such water to the fullest extent permitted by law, and to obtain by purchase, exchange, or otherwise sufficient water from other sources to furnish to the portion of the South Lake Property to which a pro rata share of the water subject to this Agreement could not be furnished an amount of water equal to that to which it would have been entitled had such legal or contractual limitations not existed. Any additional cost of obtaining such replacement water need not be borne solely by the land to which it is furnished, but may, in the discretion of the Board of Directors of Angiola, be spread among all of the owners of the South Lake Property. Also notwithstanding the foregoing, to the extent that any owner of a portion of the South Lake Property holds any riparian rights to water which either is commingled with or may conveniently be commingled with water distributed pursuant to this agreement in any water works or water distribution facilities operated by Angiola, such riparian water may be delivered by Angiola to the land entitled thereto as if it were water subject to this Agreement. The transfer to Angiola of the water subject to this Agreement, pursuant to the provisions of Section 3 above, and the transfer to Angiola of water distribution facilities pursuant to Section 4 above, are specifically made subject to the provisions of this Section. Section 6. USE OF WATER RIGHTS. Angiola shall exercise all water rights currently owned by it, transferred pursuant to Section 3 hereinabove to it, or at any time in the future acquired by it, in such a fashion as to maximize its ability to distribute water pursuant to the provisions of Section 5 hereinabove. Section 7. DEVELOPMENT OF WATER RESOURCES. In order to perfect Angiola's ability to deliver water consistent with the provisions of this Agreement at the lowest possible cost to all of the present or future owners of the South Lake Property, Angiola shall have, in addition to the powers set forth in Section 5 above, the power to establish surface or underground reservoirs, to enter into agreements for the exchange of water, to exercise its right of condemnation, to store water delivered to it in current years for use in future years, to conduct engineering and technical studies, to commingle water from various sources (both inside and outside the District) and to acquire water by purchase, by exchange or by acceptance of overflow and surplus water, maintaining records of the sources thereof so that the rights of the District therein shall be maintained. Land Owner agrees not to drill any new wells, or otherwise develop any ground water resources in its individual capacities, other than as set forth in Section 10 below, so long as no party to this Agreement is in material breach of any of the obligations set forth herein; provided, that in this regard a party's own material breach shall not justify that party drilling any new well or developing any water resources in its individual capacity. In the event that any owner of a portion of the South Lake Property shall nevertheless drill any new wells, or otherwise develop any ground water resources in violation of the provisions of this Section, then such wells and ground water resources shall be subject to all of the terms of this Agreement, including without limitation, the grant of a permanent easement in such items contained in Section 4 above, the same as if they had existed at the time of the execution hereof. Section 8. CHARGES FOR WATER. Angiola shall raise its revenues to meet expenses and to finance its activities undertaken by reason of this Agreement primarily by means of charges, including standby charges, pursuant to Article 4 of Chapter 2 of Part V of the California Water District Law. Standby charges, reflecting the fixed costs of making water available to the South Lake Property, shall be fixed and applied on a pro rata acreage basis to the South Lake Property, as that term is modified pursuant to the terms of Section 5 above, without regard to the amount of water used, without distinction to the type of use, and without differentiation based upon differing costs of water from different sources. All other costs of making water available to the South Lake Property shall be met by delivery charges, to be fixed and applied as determined from time-to-time by the Board of Directors of Angiola, taking into account the actual deliveries of water made. It is the intention of the parties that, under circumstances were the owners of the South Lake Property are each making use of approximately the pro rata share of water made available to them, and all the water from various sources delivered by Angiola is of substantially equal quality for irrigation purposes, the Board of Directors of Angiola will ordinarily fix such delivery charges at an equal amount of each unit of water delivered anywhere in the South Lake Property, without regard to the particular source or marginal cost of producing or delivering any such unit of water. All charges shall be due and payable at such times as may be determined by the Board of Directors of Angiola. Nothing in this Agreement shall limit the right of Angiola to collect any such charges in any manner authorized by law. Angiola may also raise revenues by means of assessment. Section 9. AGREEMENTS AMONG OWNERS OF LAND. The parties recognize that, although the distribution of water subject to this Agreement and allocation of costs therefor are governed by the provisions of Sections 5 and 8 above, the owners of the South Lake Property may, from time-to-time, make agreements between themselves to sell or exchange certain of the water to which each of them is entitled pursuant to the terms of this Agreement. So long as the water affected by such agreements is not transported for use outside the boundaries of Angiola, Angiola may, upon receipt of written notice of the terms thereof, recognize such agreement, and deliver water in accordance therewith. Any such agreements shall not be effective for periods of more than one year, and shall not affect the obligation of any party to pay any charges allocated to him pursuant to Section 8 above. In addition, Angiola may be requested by the parties to any such agreements to make appropriate adjustments in its records of payments of charges for such parties to reflect any consideration paid for water transferred pursuant to such agreements. Such adjustments shall only be made annually, upon written request of the parties involved, and may be discontinued at any time by Angiola. Section 10. WATER FOR DOMESTIC PURPOSES. Angiola shall not provide water for human consumption, for any other domestic use, or for animal husbandry purposes. Notwithstanding any other provisions in this Agreement, the owners of the South Lake Property shall continue to have the right, to the extent that there is no adverse impact on the ability of Angiola to produce groundwater for agronomic purposes, to develop groundwater resources for domestic or animal husbandry purposes, including without limitation the right to drill wells and related facilities for such purposes, and any water so produced for such purposes shall not be water subject to this Agreement. Any owner of land in the South Lake Property desiring to develop groundwater resources for such purposes shall, however, give Angiola ninety (90) days prior written notice of any such development. Section 11. COVENANT TO PAY CHARGES; TERMINATION OF WATER DELIVERIES. Land Owner agrees to pay in a timely fashion all charges, including standby charges, levied upon the South Lake Property. In the event that Land Owner, or any future owner of any portion of the South Lake Property, shall not pay when due any charge or assessment imposed by Angiola, then the Board of Directors of Angiola shall, on such terms and conditions as it may deem by resolution to be appropriate, cease deliveries of water to any land owned by such defaulting owner until such charge, together with any applicable penalties, late charges and interest, shall have been paid. Any cessation of water deliveries occurring pursuant to the terms of this Section shall not be deemed a failure of Angiola to comply with the provisions of Section 5 above regarding the distribution of water. Section 12. DETACHMENT OF LAND FROM DISTRICT. In the event that any part of the South Lake Property is detached from Angiola, so that it is no longer included within the boundaries thereof, such detached land shall no longer be entitled to receive any of the water subject to this Agreement from Angiola, nor shall it be subject to any charges or assessments imposed by Angiola. Notwithstanding the foregoing, however, all transfers to Angiola of water subject to this Agreement, or of any other personal or real property, other than any transfers of rights to extract groundwater and right to the use of wells, by any then current or prior owner of such detached land, shall remain effective. In the event of such detachment, any rights to extract groundwater and to the use of wells attributable to the ownership of the land being detached shall revert to the owner of such land. All covenants contained in this Agreement which are stated to be covenants running with the land pursuant to the provisions of Section 1 above, shall continue to bind such detached land and the owners thereof as if it were still included within the South Lake Property. From and after the effective date of the detachment of any land from Angiola, it shall no longer be considered as a part of the South Lake Property for purposes of this Agreement, except as otherwise set forth in this Section. Angiola shall, upon written request, execute and record any documents necessary to make the effects of this Section matters of public record. Section 13. PROTECTION OF GROUND WATER RIGHTS. Angiola shall use its best efforts to protect the ground water rights attributable to the South Lake Property. To fulfill this obligation, Angiola may, without limitation, file with the State Water Resources Control Board statements pursuant to Water Code Sections 1005.1 through 1005.4, develop and implement a ground water pumping program designed to insure and protect the ground water rights attributable to the South Lake Property against loss or limitation by any cause whatsoever, and/or do all such other acts as are necessary from time-to-time to protect said ground water rights. Further, the other parties agree to fully cooperate with Angiola in carrying out the provisions of this Section. Section 14. WATER CONSERVATION. Angiola shall at all times in performing its obligations under this Agreement promote the effective use and conservation of the water available to it, and shall avoid unnecessary depletion of ground water resources, by utilizing surface water in place of pumping such ground water whenever possible, consistent with the efficient use of water and the need to minimize expenses. Section 15. FOREIGN WATER. The parties acknowledge that from time-to-time any of the owners of the South Lake Property may have the opportunity to acquire water from sources outside the boundaries of Angiola, which is not water subject to this Agreement (such water hereinafter being referred to as "foreign water"), but which such owner intends for use within the boundaries of Angiola. Such owner shall have the right to import such foreign water and to use it on any portion of the South Lake Property which he owns, provided that his right to use any portion of the water distribution system owned or operated by Angiola shall be subject to the following conditions: (a) The use of any portion of the water distribution system owned and operated by Angiola shall at all times be subordinate and subservient to the paramount obligation of Angiola to deliver water subject to this Agreement in accordance with the terms set forth in this Agreement. (b) The land owner acquiring the foreign water shall make such water available to all of the other owners of land within the South Lake Property on a pro rata acreage basis, at a price equal to that paid by such land owner for such foreign water. Any foreign water made available to an owner of land who chooses not to purchase it, shall be made available on a pro rata acreage basis to the other owners of land within the South Lake Property. Such foreign water shall be delivered on a pro rata acreage basis to those owners of land within the South Lake Property who have agreed to purchase all or any portion of such foreign water made available to them. Such foreign water must be paid for in cash, in advance of any deliveries. (c) Any land owner to whom such foreign water is to be delivered shall pay whatever delivery charge as the Board of Directors shall determine is appropriate, in cash, prior to being entitled to the delivery of any such foreign water by means of any portion of the water distribution system owned or operated by Angiola. Section 16. NOTICE TO GRANTEES. Each party hereto agrees that upon any transfer by them of ownership of any portion of the South Lake Property, the grant deed or other document accomplishing such transfer shall make specific reference to the existence of this Agreement. The failure to include such reference shall not, however, effect the binding nature of this Agreement on any transferee. Section 17. NOTICES. Any notice of demand required or permitted under this Agreement shall be deemed made when personally delivered or three (3) days following deposit in the United States mail, first class, postage prepared, and addressed: (a) In the case of Land Owner to: General Counsel Federal Land Bank of Sacramento P.O. Box 13106-C 3636 American River Drive Sacramento, CA. 95813 (b) In the case of Angiola to: Angiola Water District P.O. Box 1236 Corcoran, California 93212 Attn: Mike Steele With copies to: William A. Dahl Thomas, Snell, Jamison, Russell, & Asperger, P.C. P.O. Box 1461 Fresno, California 93716 Any party may change its address by giving notice in accordance with this Section to the other parties. Any new owner of record of any portion of the South Lake Property shall give notice to all other parties of its address, and Angiola shall send to such new owner the address of all other land owners of which it has been given notice. Section 18. POWERS OF ANGIOLA. Notwithstanding anything in this Agreement, Angiola shall possess all powers and enjoy all privileges vested in it by California Water District Law, provided that Angiola shall exercise those powers and privileges, and adopt bylaws in furtherance thereof, in a manner consistent with this Agreement, including but not limited to, distributing water on a pro rata acreage basis, as set forth in Section 5; and further provided that as a condition precedent to the signing of any contract or the making or the failure to make any election with the United States of America, the State of California, or any agency of either, or with any public agency, the effect of which contract, election or failure to make an election would be subject landowners of any portion of the South Lake Property to acreage limitations or to a requirement of divestment of acreage as a condition to receiving water, Angiola shall first obtain the written consent of any landowner so affected. Section 19. RECORDING. After execution of this Agreement, the parties agree to promptly execute, acknowledge and record complete copies hereof, in the official Records of Kings and Tulare Counties. Section 20. LIMITATIONS. No party shall use, permit or suffer the actual or possible use of the water subject to this Agreement outside the South Lake Property except as a result of sales of surplus water pursuant to California Water Code Section 35425, or except as may be an unavoidable result of Angiola's operations as herein authorized. The rights and obligations of this Agreement are subject to any limitations imposed by law, or by agreement to which any party is or will be bound upon acquisition of the South Lake Property. Section 21. REMEDIES. (a) In the event that any party fails to perform its obligations hereunder, the parties acknowledge that the rights created by this Agreement constitute a valuable property right, that such property right is unique in nature, that damages are incapable of being ascertained and will be inadequate to compensate the parties for the irreparable detriment that will be suffered by failure of that party to perform its said obligations. The parties therefore agree that a non- defaulting party shall have all remedies now or hereafter available at law or in equity, including, without limitation, the right to obtain an injunction or specific performance of this Agreement, and said remedies shall be deemed cumulative and not exclusive. (b) The rights affected hereby are property rights constituting fundamental rights of the parties hereto. Section 22. SEVERABILITY. If any word, phrase, clause, sentence or paragraph of this agreement is, or shall be, invalid for any reason, the same shall be deemed severable from the remainder and shall in no way affect or impair the validity of this Agreement or any portion thereof. Section 23. ATTORNEYS' FEES. In the event any party hereto commences an action against any other party hereto to enforce any obligation hereunder, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs as fixed by the court in that action or in a separate action brought for that purpose; provided, however, that in the event that Angiola is a non- prevailing party in any such action, and is obligated to pay such attorneys' fees and costs to a prevailing party who also owns land within the South Lake Property, then no part of any charges imposed by Angiola to cover the expense of payment of such fees and costs shall be imposed upon such prevailing party. Section 24. BOARD OF DIRECTORS. The holders of title to the lands within the South Lake Property shall cast their votes for directors, or join in nomination of directors, in such manner that two of the seven directors of Angiola shall be chosen by the owners of record of White Ranch, that four of the directors of Angiola shall be chosen by the owners of Liberty Farms, and that the seventh director of Angiola shall be chosen by all of the owners of record of land within Angiola, with each such owner in each such case being entitled to the same proportionate voting strength as would have been the case if each acre of land within the South lake property was entitled to one vote and cumulative voting was permitted. The seventh director shall, when possible, be an independent director, not related to any of the other owners of record within Angiola, but with experience in matters of water distribution and water district administration if possible. The parties agree to use their best efforts to fill vacancies on the Board of Directors of Angiola in a manner consistent with the purposes of this Section. Section 25. APPOINTMENT OF AGENT. With respect to any water subject to this Agreement which is not currently transferred to Angiola, or with respect to any such water which any of the parties hereto is legally prevented from transferring to Angiola, each party owning any such water hereby designates and appoints Angiola as its sole and exclusive agent to exercise all rights and privileges associated with the ownership of such water, in a manner consistent with the terms of this Agreement, as if the ownership of such water had been transferred to Angiola pursuant to the terms of this Agreement but also in a manner consistent with the rights and incidents of actual ownership of such water. The parties further agree and affirm that any agency created by the terms of this Section is a power coupled with an interest in a portion of the South Lake Property, shall not be affected by the subsequent incapacity or death of any party or any of their successors, and shall continue in effect for so long as this Agreement continues in effect. Section 26. EFFECT ON PRIOR AGREEMENTS. All of the parties hereby mutually agree that the Agency Agreement referred to in Recital F of the Prior Agreement is rescinded and of no further force or effect. All of the parties further agree that this Agreement is intended to be a complete restatement of the Prior Agreement, superseding all of the terms and conditions thereof, but without affecting the validity of any transfers of water rights or other interests in property from any of the parties to the Prior Agreement to Angiola. Section 27. TRANSFER AND REVERSION OF WELL FIELD. The parties acknowledge that, simultaneously with the recording of this agreement, Land Owner is granting to Angiola certain real property located within the South Lake Property, more particularly described in EXHIBIT D attached hereto (the "Well Field"). It is intended that Angiola shall continue to own the Well Field for as long as this Agreement shall continue in effect. In the event that any time this Agreement shall cease to be binding on the parties, then the Well Field shall be conveyed to the owners of record at that time of whatever portion of Liberty Farms is then within the boundaries of Angiola, as tenants in common, in undivided interests corresponding to the acreage in such portion of Liberty Farms owned by each such owner of record. Section 28. NOTICES OF INTENT TO PRESERVE. In the event that the transfer of the Well Field referred to in Section 27 above, or any other transfer of property accomplished by this Agreement, is deemed to be the transfer of a fee simple subject to a restriction in the form of a condition subsequent pursuant to the terms of Section 885.020 of the California Civil Code, or any successor statute, then the parties agree to cooperate in the execution and recording of appropriate notices of intent to preserve any power of termination associated therewith pursuant to the provisions of Section 885.030 (a)(2) or (3), or any successor statute, prior to the date which is thirty (30) years from and after the date of the execution of this Agreement. Section 29. BINDING EFFECT. The parties agree that this Agreement is intended to be and shall be binding on each of them and their heirs, successors and assigns. Specifically, but not by way of limitation, any reference herein to Land Owner, or to the parties, shall be interpreted to include any future owner of record of any portion of the South Lake Property, the same as if such future owner has owned such portion at the time of the execution of this Agreement, and such owner had been one of the original parties hereto. Section 30. FURTHER ASSURANCES. The parties agree to do such further acts and execute such further documents as may be necessary to implement the terms of this Agreement. Section 31. MUTUAL WRITTEN CONSENT. This Agreement sets forth the entire agreement of the parties, and incorporates all discussions between the parties. This Agreement may not be revoked, terminated or amended without the mutual written consent of the owners of record of the entire South Lake Property and of Angiola. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date and year first hereinabove written. LAND OWNER: FEDERAL LAND BANK OF SACRAMENTO, a corporation By: ______________________ President By: ______________________ Secretary ANGIOLA: ANGIOLA WATER DISTRICT By: _____________________ By: _____________________ STATE OF CALIFORNIA ) ) ss. COUNTY OF _________ ) On this ____ day of ____________, 19__, before me, the undersigned, a Notary Public in and for the State of California, personally appeared __________________ and _________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the persons who executed the within instrument as President and Secretary, respectively, of FEDERAL LAND BANK OF SACRAMENTO, the corporation therein named, and acknowledged to me that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this Certificate first above written. ___________________________________ Notary Public in and for said State STATE OF CALIFORNIA ) ) ss. COUNTY OF _________ ) On this ____ day of ____________, 19__, before me, the undersigned, a Notary Public in and for the State of California, personally appeared __________________ and _________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the persons who executed the within instrument as _____________ and ______________, respectively, of ANGIOLA WATER DISTRICT, a California Water District, and acknowledged to me that said district executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this Certificate first above written. ___________________________________ Notary Public in and for said State ANGIOLA WATER DISTRICT c/o Provost & Pritchard, Inc. Phone (209) 449-2700 286 W. Cromwell Avenue FAX (209) 449-2715 Fresno, California 93711-6162 FAX TRANSMITTAL DATE: February 12, 1997 TO: Brent Bowen FAX Number: 916-878-8946 Southlake Acquisition Corp. FROM: Kevin Johansen Job Number: 9730100 SUBJECT: TLBWSD and TLDD Boundaries Number of Pages: 2 (including this page) Original to follow by mail? No Attached is a map showing the boundaries of Tulare Lake Basin Water Storage District (TLBWSD) and Tulare Lake Drainage District (TLDD) in relation to the White Ranch. It appears that the following land is in these districts: In both TLBWSD & TLDD NE/4 Section 11 Section 12 Section 18 SW/4 Section 8 In TLBWSD (but outside TLDD) SE/4 Section 8 22 + or - acres in Section 15 In TLDD (but outside TLBWSD) E/2 Section 31 Section 6 SW/4 Section 5 Section 7 NW/4 Section 8 If you have any questions, give me a call. If you do not receive all of the pages indicated, please give us a call at (209) 449-2700. [Map showing the boundaries of Tulare Lake Basin Water Storage District and Tulare Lake Drainage District in relation to the White Ranch] TULARE LAKE BASIN WATER STORAGE DISTRICT Established 1926 1109 Whitley Avenue, Corcoran, California 93212 Phone (209) 992-4127 . FAX (209) 992-3891 December 20, 1996 Landowners of the Tulare Lake Basin Water Storage District Re: 1997 & 1998 Short Term State Water Service Contract Dear Landowner: With respect to the 1997 & 1998 Water Service Contract, please find enclosed the following: 1. One copy of the 1997 & 1998 Short Term State Water Service Contract; 2. Two Signature Pages; and 3. One copy of Landowner Requested Participation Sheet. Should you desire to participate in State Project Water for the 1997 & 1998 period, either for yourself or on behalf of your tenant, please sign the two (2) enclosed signature pages [Page 22 of the Contract] as Landowner. With reference to the Landowner Requested Participation Sheet, please check the appropriate line. Near the bottom of this sheet, please indicate the name of your authorized Agent, if applicable. All correspondence and billings will be forwarded to your Agent, unless otherwise directed. Sign and date the Participation Sheet. Please return the two (2) copies of the signed signature pages and the Landowner Requested Participation Sheet. The District will return one fully signed copy of the signature page to attach to your copy of the 1997 & 1998 Contract. We ask that the signature pages and the Landowner Requested Participation sheet be returned not later than January 31, 1997. This will enable the District to expedite finalizing the 1997 & 1998 allocation of Table A Water to all the participating Landowners. Based upon the final allocation of Table A water for State Project Water in 1997 & 1998, a revised Exhibit A, indicating each Water User's Table A Water will also be forwarded for attachment to your copy of the Contract. If you do not desire to participate in the 1997 & 1998 Contract, return only the Participation Sheet signed with the appropriate line checked. Should you have questions, please call our office. Yours truly, /s/ Brent L. Graham Brent L. Graham Manager blg/em Enclosures (4) COMPRISING TULARE LAKE BASIN IN KINGS AND TULARE COUNTIES, CALIFORNIA SHORT TERM STATE WATER SERVICE CONTRACT BETWEEN TULARE LAKE BASIN WATER STORAGE DISTRICT AND SOUTHLAKE AQUISITION CORP. FOR AGRICULTURAL WATER SERVICE FOR THE PERIOD JANUARY 1, 1997 THROUGH DECEMBER 31, 1998 1997& 1998 SHORT TERM STATE WATER SERVICE CONTRACT This contract, hereinafter referred to as "Water Service Contract," made and entered into on the effective date hereof, in pursuance of powers granted by Division 14 of the Water Code of the State of California, by and between TULARE LAKE BASIN WATER STORAGE DISTRICT, hereinafter referred to as "District," a California Water Storage District organized and existing under provisions of said Division 14 of the California Water Code and the undersigned landowner(s), hereinafter sometimes referred to as "Water User(s)," WITNESSETH, that: EXPLANATORY RECITALS WHEREAS, District has duly, regularly, and according to law, entered into a contract with the State of California, Department of Water Resources, for a water supply, which contract is dated December 20, 1963; and, WHEREAS, said contract has been amended from time to time and may be so amended in the future from time to time; and, WHEREAS, said contract as now amended and as may be amended is referred to herein as the "State Contract"; and, WHEREAS, District duly, regularly, and according to law, adopted General District Project No. 4, which Project provided among other things for the construction of Laterals A and B as conduits for the transmission of water acquired under the terms of State Contract from the California Aqueduct; and, WHEREAS, the District transmission facilities have been completed; and, WHEREAS, by the terms of the State Contract, District is obligated to pay for Project Water whether or not District fails or refuses to accept delivery or State is unable to provide delivery of any or all thereof; and, WHEREAS, the Hacienda Water District State Water Supply Contract has been consolidated with District's State Contract as per Amendment No. 16 to the State Contract dated February 11, 1981; and, WHEREAS, the benefits of the State Water Supply Contract Assessment, General District Project No. 1, General District Project No. 3, General District Project No. 4 (now retired), and General District Project No. 5, accrue to only those lands within the District; and, WHEREAS, in accordance with General District Project No. 5, District tract numbers 1353, 1354, and 1385 through 1391, inclusively, have been detached and the liabilities of the forenamed tracts have been assumed by the Water Users; and, WHEREAS, the short term contracts with Water Users presently executed terminate on December 31, 1996; and, WHEREAS, the Board of Directors of District is of the opinion that the best interest of District will be served by offering two-year Short Term State Water Service Contracts to Water Users due to a number of modifications that have recently been made to the State Contract under Amendment Number 25 thereto and recent implementations thereof; and, WHEREAS, the State Water Supply Contract Assessment roll has been filed with the County Treasurers of Kings and Tulare Counties and assessments may be levied to pay periodic service charges under the State Contract to the extent that funds are not otherwise available for the payment of such charges, all as provided for in Section 44030 of the California Water Code (California Water Storage District Law); NOW, THEREFORE, IT IS MUTUALLY AGREED BY AND BETWEEN THE PARTIES TO THIS SHORT TERM STATE WATER SERVICE CONTACT AS FOLLOWS: 1. DEFINITIONS (a) Agricultural Use means any use of water primarily in the production of plant crops or livestock for market, including any use incidental thereto for domestic or stock watering purposes. (b) Annual Entitlement means the amount of entitlement water to be made available to District during the respective Year at the California Aqueduct delivery structures provided for District, und er the terms of the State Contract, as shown in Table A thereof or as amended. (c) Board means the body of members duly constituted as the Board of Directors of the Tulare Lake Basin Water Storage District. (d) Carryover Water means water carried from one year to the next under the provisions of the State Contract Article 12(e) and/or Article 56(c). (e) Contract Amount of Water means the amount of water equal to the sum of Water User's Table A Water, Interruptible Water, Turnback Water and/or other Project Water which District agrees to deliver, or make available for delivery, to Water User(s) in each Year based in proportion to Water User's respective Table A Wat er as shown in Exhibit A attached hereto and made a part hereof, subject to the provisions of this Water Service Contract and the State Contract. (f) Contract Water Service means the delivery, or the availability for delivery, of the Contract Amount of Water through District Turnout(s) each and every Year during the term hereof at times and rates of delivery requested by Water User(s), subject to the pro visions of this Water Service Contract and the Rules and Regulations adopted by the Board. (g) District means Tulare Lake Basin Water Storage District. (h) District Rate means the acre foot unit cost of available Table A water, that includes all State charges and the District Water Service Charge. (i) District Water Service Charge means the charge that Water User(s) shall pay (per Section 6) District for costs of operation, maintenance and replacement of Project Facilities and costs of District's administration of the State Contract, the Water Service Contract and other matters directly associated with and attributed to the delivery of Project Water. (j) Interruptible Water means water available from the Delta at various times during the Year and further defined by the State Contract. (k) Non-District Water means water conveyed through Project Facilities per Rules and Regulations that is neither contracted for by District, nor for the benefit of District as a whole. (l) Off-Aqueduct Charge means the annual charges by the State for Off-Aqueduct Power Facilities allocated among Water Users. (m) Project Facilities means District's transmission system, including installations and related facilities owned, controlled and operated by District having the purpose of diversion, conveyance, control, measurement and delivery of water. (n) Project Water means all water obtained by, or available to, District under the State Contract, including Annual Entitlement, Interruptible Water and Turnback Water. (o) Rules and Regulations means rules and regulations as adopted by the Board pursuant to Section 43003 of the Water Code, and as such Rules and Regulations may be amended from time to time. (p) State means the State of California acting by and through the Department of Water Resources. (q) State Contract means the Water Supply Contract between District and the State of California, Department of Water Resources, dated December 20, 1963, and any amendments of said State Contract which have been executed or may be executed during the term of this Water Service Contract. (r) Supplemental Water means all non-Project Water obtained by, or available to, District and delivered through Project Facilities, including California Drought Bank Water and Supplemental Purchase Water, but excepting Non-District Water. (s) Supplemental Water Charge means the charge in dollars per acre foot which Water User shall pay for all costs attributed to Supplemental Water. (t) Table A Water means an amount of water in each Year equal to Water User's allocated share of Annual Entitlement under the terms of the State Contract. (u) Trust Fund means the Agricultural Rate Management Trust Fund established by the Monterey Amendment (Amendment No. 25 to the State Contract) that shall, to the extent there are funds available in the District's account in the Trust Fund, and as requested by the District, (1) make distribution to the State on the District's behalf, or (2) make distribution to the District which shall in turn make the payment to the State in years when (1) the District's Table A entitlement, by April 15th of that year, is less than 100% of the District's annual requested Table A entitlement, or (2) on April 15th of any year, irrigable lands are flooded in the District. The District's account in the Trust Fund shall be funded by monies collected by the District from the Water Users. (v) Trust Fund Accounts means the individual Water Users' accounts that shall be established by the District to administer the Trust Fund internally among the Water Users. (w) Turnback Water means water purchased by District under the State Contract, Article 56(d). (x) Turnback Water Charge means the charge in dollars which Water User(s) shall pay for all costs attributed to Turnback Water. (y) Turnout(s) means any structure constructed for the purpose of diverting water to the Water Users from Project Facilities, or Turnout C in Reach 8d of the California Aqueduct. (z) Water Availability Charge means the charge the Water User shall pay each Year on Table A Water, regardless of whether or not all or a portion of Table A Water is delivered to, or taken by, Water User and shall include the District Water Service Charge. (aa) Water Service Contract means this two (2) Year agreement for water service between District and Water User(s). (bb) Water Use Charge (State Variable Delivery Charge) means the charge in dollars per acre foot which Water User shall pay for each acre foot of Project Water delivered to Water User under provisions of this Water Service Contract. (cc) Water User(s) means that person or entity owning land within the boundaries of District, or the successor in interest, who has executed a Water Service Contract or who has been assessed pursuant to and under the provisions of said Section 44030 of the California Water Code. (dd) Year means the twelve-month period from and including January 1 of any Year through December 31 of said Year. 2. INTERLAKE AGREEMENT CONTROVERSY District and Water User(s) expressly recognize that a controversy exists as to the meaning and effect of the Interlake Agreement, dated January 7, 1930 and it is expressly understood that the transmission of water through Project Facilities for use within District, except as may otherwise be permitted under Section 15(a) of the State Contract, is not to be and shall not be construed as ownership or operation of distribution facilities within District and that said controversy is expressly left unresolved and undetermined. 3. CONTRACT WATER SERVICE (a) The provisions for payment for Contract Water Service shall become effective on the date of execution of this Water Service Contract, regardless of whether or not Water User takes delivery of his Contract Amount of Water, unless otherwise provided herein. (b) Subject to the provisions of this Water Service Contract, District agrees to furnish Contract Water Service to each Water User in each Year, at Turnout(s), his respective Contract Amount of Water, subject to the availability of Project Water. (c) In the event that District obtains an increase in its Project Water or an allocation of Supplemental Water, Water User may, at his option, participate therein with other Water Users, in proportion to the Water User's respective Table A Water. (d) District agrees that it shall at all times endeavor, through State Contract, to obtain and deliver at Turnouts, the full Contract Amount of Water to Water Users at the least cost, subject to the provisions of the Rules and Regulations. (e) Interruptible Water shall be made available and delivered in accordance with the terms of the State Contract. District shall make Interruptible Water available to Water Users to the extent Interruptible Water is available to District. (f) Under the terms of the State Contract, District is permitted to carry over water for delivery in the subsequent Year(s). In no event shall a Water User be permitted to carry over water into the succeeding Year(s), unless the District has been permitted to do so in accordance with provisions of the State Contract. In the event there is inadequate carryover space to accommodate all carryover requests, Water User's share of District carryover space shall be in proportion to the Water User's respective Table A Water as compared to other Water Users' respective Table A Entitlement that are requesting to carry over water. Any and all Carryover Water shall be at risk of displacement or conversion in the event the State is in need or requires project storage space. Water User shall not be entitled to any reimbursement for or replacement of Carryover Water lost. (g) District is subject to delivery priorities established by the State Contract. District shall attempt to deliver all waters to Water User in accordance with his delivery request. In the event Project Facilities are inadequate at any time to carry all of the water requested by Water Users for delivery, allocation of conveyance capacity will be made in accordance with the Rules and Regulations. 4. CONDITIONS OF DELIVERY OF WATER (a) Water furnished under this Water Service Contract shall be used by Water User for agricultural purposes only. Said water is in a raw untreated condition and, as a result, is considered to be unfit for human consumption without treatment. (b) District shall deliver water to Turnouts through Project Facilities in accordance with the Rules and Regulations. (c) Only District employees shall operate Project Facilities. Water User hereby agrees District and/or its employees shall have full authority to stop water delivery to Water User when the amount of water ordered and available pursuant to this Water Service Contract has been delivered or in the event the Water User is in breach or default of this Water Service Contract. (d) District shall not be responsible for the control, carriage, handling, use, disposal, or distribution of water delivered to Water User hereunder outside Project Facilities. Water User does hereby agree to indemnify and shall assume the defense of and hold harmless District, and its officers, agents and employees from any and all loss, damage liability, claims, or causes of action of every nature whatsoever, for damage to or destruction of property, including District property, or for injury to or death of persons, in any manner arising out of or incidental to the control, carriage, handling, disposal or distribution of water outside such Project Facilities. (e) The character and quality of water furnished hereunder may vary from time to time, and District does not guarantee in any respect the character or quality of the water delivered pursuant to this Water Service Contract. (f) District may temporarily discontinue or reduce the amount of water to be furnished to Water User as herein provided, for the purpose of investigation, inspection, maintenance, repair or rep lacement, as may be reasonably necessary, of any of the Project Facilities for the furnishing of water to Water User, or of the facilities of the State. To the extent practicable, District shall give Water User notice in advance of such temporary discontinuance or reduction, except in case of emergency, in which case no notice need be given. In no event shall any liability accrue against District, or any of its officers, agents or employees, for any damage, direct or indirect, arising from such temporary discontinuance or reduction of water deliveries. (g) District shall not be liable for the failure to perform any portion of this Water Service Contract to the extent that such failure is caused by the failure of the State to perform any obligation imposed on the State by the State Contract; provided, however, that to the extent that District obligations are reduced by such failure on the part of the State, District shall make commensurate reduction in the obligations of Water User. (h) In the event of any suspension, discontinuance, or reduction under the terms hereof, District shall upon the resumption of service, to the extent it may be possible to do so and within the ability of Water User to accept same, make every reasonable effort to deliver, within the same Year, the quantity of water which would have been furnished to Water User in the absence of such event or contingency. In the event District is unable to deliver the water in the same year, the Water User may then schedule the delivery of said undelivered water for the subsequent year, to the extent water is available under the State Contract. (i) After initiation of Contract Water Service, there may at times occur a shortage in the quantity of water available for furnishing any water to Water User pursuant to this Contract, and that in no event shall any liability accrue against District, its officers, agents or employees, for any damage, direct or indirect, arising from a shortage due to problems of delivery, drought, or any other cause whatsoever, including but not limited to regulatory restrictions on Delta exports, flood, lightening and earthquake; provided, however, that such shortage shall be a shortage beyond and outside of the control of District. (j) Delivery adjustments from the California Aqueduct through Project Facilities shall be allocated monthly among the Water Users based on their respective monthly deliveries of all water com pared with the total monthly deliveries of water through Project Facilities. Such adjustments shall be equalized for all water deliveries at Year-end. (k) Conveyance Capacity of District's Lateral A is subject to and limited by the Agreement dated January 2, 1968, by and between District and the Empire West Side Irrigation District. (l) It is recognized and understood that Project Facilities will also be used to convey water made available to District under the terms of the Agreement dated April 26, 1967, by and between the County of Kings of the State of California and the District. Said water shall be allocated in proportion to Water Users' respective Table A Water. (m) It is recognized and understood that Project Facilities will also be used from time to time to convey water made available to lands outside District boundaries in accordance with the provisions contained in the Department of Water Resources' letter dated July 10, 1970, and in "POLICY RE DELIVERY OF STATE PROJECT WATER TO LAND OUTSIDE OF DISTRICT BY ACTION OF THE BOARD OF DIRECTORS JANUARY 3, 1973," and further specified in "AGREEMENT BETWEEN TULARE LAKE BASIN WATER STORAGE DISTRICT (HEREIN TERMED DISTRICT) AND 'WATER USER' (HEREIN TERMED WATER USER) IN SUPPORT OF REQUEST FOR STATE CONSENT TO DISPOSITION OF PROJECT WATER OUTSIDE THE BOUNDARIES OF DISTRICT.", all as may be amended. 5. TIME OF DELIVERY OF WATER (a) Water User shall make application for water deliveries under the Rules and Regulations (b) Consistent with the design and operational objectives of Project Facilities and giving consideration to requests for water service from all Water Users, District shall schedule water deliveries and deliver water to Water User as nearly in accordance with Water User's request as is practicable. District determination with regard to scheduling of water deliveries shall be final and conclusive; provided, however, that District, its officers, agents and employees shall have acted in good faith and without partiality toward or bias against any Water User. (c) Except as otherwise provided in Paragraph 3(f) hereof, and in the event Water User is unable to use all or any part of his Contract Amount of Water in any given Year, District shall, to the extent permitted under the terms of the State Contract and as may be allowed by the State, carry over such water for future delivery in the immediate subsequent year at the option of Water User. Any additional charges resulting from such Carryover Water shall be paid by Water User. (d) Upon expiration of this Water Service Contract, any water or any dollar credits as a remit of Carryover Water shall remain, to the extent permitted under the terms of the State Contract and as may be allowed by the State, credited to the account of Water User and shall be delivered or the dollars credited in accordance with the provisions of this Water Service Contract. 6. PAYMENTS AND PROCEDURES FOR DISTRICT BILLINGS FOR CONTRACT WATER SERVICE (a) On or before September 1 of each Year, District shall notify Water User in writing of the estimated total monthly amount of the Water Availability Charge and Water Use Charges for Table A Water for the following Year. The Water Availability Charge shall be billed on a monthly basis. Payment on said charges must be received by District within thirty (30) days from date of billing. (b) The Water Availability Charge shall be Water User's share of District's fixed or recurring costs based in proportion to Water User's respective Table A Water, including, but not necessarily limited to, the following: (I) Capital Cost Component of the Delta Water Charge and the Transportation Charge. (II) Minimum Operation, Maintenance, Power, and Replacement Component of the Delta Water Charge and the Transportation Charge. (III) Replacement Charge. (IV) Off-Aqueduct Charge. (V) Water Revenue Bond Surcharge. (VI) District Water Service Charge. (VII) Other State Charges. (c) District shall bill each Water User his Water Use Charge, monthly on or about the tenth (10th) day following the month that delivery was made. District must receive payment on such charge(s) not later than thirty (30) days from date of invoice. Water Use Charge shall include, but not be limited to, the following: (I) Project and Carryover Water - The variable or non-recurring costs associated with the delivery of Project Water or Carryover Water. Such charges shall be made on a uniform basis, in dollars per acre foot of water delivered from Project Facilities, and shall include, but not necessarily be limited to the Variable Operation, Maintenance, Power, and Replacement Component of the Delta Water Charge and the Transportation Charge. (II) Interruptible Water - In addition to the costs specified in Paragraph 6(c)(I) any State administrative charges, as provided in State Contract. (III) Turnback Water - All charges imposed under State Contract for such deliveries, including a portion of the Delta Water Charge and those costs specified in Paragraph 6(c)(l) above. (IV) Other Project Water - All charges imposed under the State Contract for such deliveries. (d) Supplemental Water Charge shall include all charges imposed by separate Contract with State for deliveries of Supplemental Water. (e) Following receipt of any adjusted water cost information from State, District shall provide each Water User an adjusted accounting of the water charge(s), based upon District's adjusted payment obligations to State and the actual quantities of water delivered to Water User. District shall include with said adjusted accounting either: (I) A statement of credit to Water User for overpayment showing the amount that shall be deducted from the next installment of Water User's payment obligations to District, or (II) An invoice statement for Water User's additional payment obligations that shall be due and payable within thirty (30) days from date of billing. (f) The District Water Service Charge adjustment shall be based on actual expenditures at Year-end and credited or charged to the Water Users in accordance with Paragraph 6(f)(I) & (II). (g) Under the provisions of the State Contract and the administrative procedures of the State, it is expected that there will continue to be occasions when District will not receive final power cost information on various categories of Project Water and/or Supplemental Water delivered to District until one year or more after the date of delivery of such water. Such final cost information may indicate that upward and/or downward power cost adjustments will be applicable to such delivered water. All such upward and/or downward power cost adjustments shall be allocated in proportion to the Water Users respective Project Water and/or Supplemental Water delivered in the subject Year of adjustment. (h) The State shall determine annually the Off-Aqueduct Charge based on costs for energy required for requested water deliveries. A Year-end adjustment shall be made based upon actual water deliveries and upon the net Off-Aqueduct charge. In the event the quantity of Project Water delivered by District in Year is zero, then the Off-Aqueduct Charge shall be allocated uniformly to the Water Users in proportion to Water User's respective Table A Water. (i) The charges provided for herein are authorized by Sections 43006 and 47180 of the California Water Code and are intended to be provisionally in lieu of assessments authorized under said Code. Nothing contained herein shall limit the power of District to levy assessments from time to time in accordance with benefits, as provided in said California Water Code, to collect such amounts as may be found necessary by District to meet its financial obligations. (j) No water shall be delivered to Water User if such Water User is delinquent in the payment of any charges under this Water Service Contract, delinquent in any assessment levied by District, or in violation of any of the Rules and Regulations. In addition to the other remedies provided herein and by law, the Board may reallocate a Water User's water in the manner provided in Paragraph 6(o) herein in the event he fails to cure a delinquency or violation within ten (10) days of notice of such. Any violation of the Rules and Regulations must be cured within five (5) days of notice of such violation. Should Water User fail to timely cure the violation, he shall be considered in default of this Water Service Contract. (k) In the event District is unable to meet its total financial obligation to the State due to failure by one or more of the Water Users to remit payment as provided in this Water Service Contract that would result in delinquency charges by the State, District shall make payment to the State of those funds which are available from Water Users prior to the State's delinquency date. Remaining payments received from the delinquent Water User(s), including State delinquency charges, will be forwarded to the State as they are received to be credited against District's delinquent account. The delinquent Water User shall be responsible for any and all State delinquency charges, and other charges accrued on the outstanding delinquency. District shall bill each delinquent Water User his pro rata share of such charges, considering both the amounts and periods of time of the delinquency. In addition, each such delinquent Water User shall be obligated to pay any District interest, penalties, or other charges, all as hereinafter provided. (l) In the event any charge or any obligation of the Water User arising from this Water Service Contract remains unpaid for a period of thirty (30) days after invoice date, it shall thereupon become delinquent and a penalty of ten percent (10%) shall be added thereto and it shall thereafter bear interest at the rate of twelve percent (12%) per annum, shall be recorded as a lien on the Water User's land, and shall be collectible, all as provided in Sections 47181 to 47185, inclusive, and Section 43003 of said California Water Code and in any other manner authorized by law. Any Water User who shall become delinquent in any payment due hereunder shall be considered in default of this Water Service Contract. (m) Monies received from Water User shall be first applied to the oldest outstanding invoices and any penalties or interest thereon. District imposed penalties and interest collected from Water User(s) shall be deposited in the District's State Water Fund Account for the benefit of all Water Users. (n) Delinquent Water User shall reimburse District for all costs, including, but not limited to, administrative costs and attorneys fees associated with the collection of delinquent payments, penalties, and interest. (o) Water User's failure or refusal to accept delivery of his Contract Amount of Water in any Year shall in no way relieve Water User of the payment obligations provided for herein. Should any Water User not accept delivery of his Contract Amount of Water, then the District, at the request of Water User shall make reasonable efforts to dispose of any water made available to, but not required by, Water User. In disposing of any such water, District shall first make the water available to other Water Users within the District at the District rate. The District shall then make reasonable efforts to dispose of the water on the open market. Each Water User shall be deemed a third party beneficiary of each of the other Water User contracts and shall have a right of first refusal to purchase the water being disposed of. Revenue derived from the disposition of the water shall be first credited against the Water User's payment obligations hereunder. Any surplus revenues from the disposition of the water shall be deposited into District's State Water Project Fund Account for the benefit of all Water Users. (p) Purchasers outside of District and/or Water User(s) who purchase water on the open market, pursuant to Paragraph 6(o) above, for use outside District shall reimburse District for all of its out of pocket costs associated with the processing of the transfer of said water out of the District. Three percent (3%) of the total amount of water to be transferred will be contributed to the District to offset delivery losses in Project Facilities. 7. ADMINISTRATION OF THE TRUST FUND AND TRUST FUND ACCOUNTS (a) Trust Fund. The provisions of this Contract shall be subject to the terms of the Trust Fund. (b) Water User Accounts. The District shall create and maintain individual Water User accounts to internally administer the District's account in the Trust Fund. The Water User's Trust Fund Account shall be credited with all amount , s paid into the Trust Fund by the Water User. The amounts withdrawn from the Trust Fund per the request of Water User, shall be debited against the Water User's Trust Fund Account to reduce the Water User's State billing(s), as hereinafter provided. (c) Payments into the Trust Fund. The District shall monthly bill each Water User, based on the Water User's percentage of Annual Entitlement, for the District's payments to the State and required contributions to the Trust Fund. Payment of said billings shall be subject to Paragraph 6(1) hereof. (d) Payments out of the Trust Fund. (1) Years of Less Than 100% Table A Allocation. In any year in which the State's allocation of Annual Entitlement to the District by April 15th of that year is less than one hundred percent (100%) of the District's requested Annual Entitlement for that year, at the direction of the Water User, the District shall request the Trustee of the Trust Fund to the extent there are funds in the Water User's Account, distribute to the State (or the District) amounts specified in Article 51(h)(4)(I) of the State Contract. The District shall debit each Water User's Trust Fund Account by the amount of reduction the respective Water Users received on his State billings. (2) Flood Irrigable Lands. In any year in which there are irrigable lands within the District which are flooded on April 15th of that year, at the direction of any Water User whose lands are flooded, the District shall request the Trustee of the Trust Fund, to the extent there are funds in the Water User's Account, to distribute to the State (or the District) amounts specified in Article 5l(h)(4)(ii) of the State Contract. The District shall debit the Water User's Trust Fund Account by the amount of reduction the Water User received on his State billings. In no event shall the District request on behalf of a Water User a reduction in his State billings in an amount in excess of the balance in that Water User's Trust Fund Account. Reductions in billings to the District as a result of Water User requests for distributions from the Trust Fund shall be allocated to those Water Users with flooded irrigable lands who have requested distribution from the Trust Fund. 8. WATER TRANSFERS (a) Water User may transfer any portion of his Contract Amount of Water to his lands or lands that he farms outside of the District boundaries provided all the following conditions are met: (I) The water proposed to be transferred is first offered to the other Water Users in the District at the District Rate and is refused by the other Water Users. (II) Water User may not replace the transferred water with groundwater to irrigate the lands in the District. (III) The transfer will not injure or have an adverse affect on any other Water User in the District. (IV) The Water User contributes 3% of the water to be transferred to the District to offset delivery losses in Project Facilities. (V) The transfer will not adversely affect the historical water balance in the District, which water balance includes Project Waters, groundwater, and local surface waters. (VI) The transfer shall be consistent with the adopted AB 3030 Tulare Lake Bed Coordinated Groundwater Management Plan to the extent the District is a participant in said Plan. (VII) The Water User has first obtained the approval of the Board. (VIII) District has received approval from the State and the State Water Resources Control Board, if required. (IX) District and/or Water User has obtained all the necessary approvals, permits or licenses to transfer the water. (b) Not less than fifteen (15) days prior to a regular District Board Meeting, Water User shall submit a written request to the District for permission to transfer water that shall include all of the following: (I) A description of the proposed transfer. (II) Identification and ownership/operator of lands outside the District on which the transferred water will be applied. (III) Quantity of water to be transferred (IV) A proposed monthly delivery schedule of the transferred water - dates and quantities. (V) Identification of lands in the District that will be fallowed. (VI) If land will not be fallowed, the source of replacement surface water to irrigate the lands in the District that would otherwise have been irrigated with the transferred water. (VII) Explanation of how the District's water balance will not be adversely affected. (c) After receipt of a Water User request to transfer, the District shall circulate to the other Water Users a notice of the proposed transfer. The notice shall advise the other Water Users that they may purchase their proportionate share (based on Table A Water of those desiring to purchase) of the water proposed to be transferred. Water Users desiring to purchase a portion of the water to be transferred shall advise the District in writing of such intent no later than the time and date set forth in the notice from the District. Only Water Users who have timely filed a written notice of intent to purchase shall be eligible to do so. (d) At the next regular Board Meeting, following receipt of a transfer request pursuant to Paragraph 8(b) above, the Board shall consider the request. The Board may deny a request to transfer if any of the transfer conditions in Paragraph 8(a) are not satisfied. (I) In the event requests from Water Users to purchase the water proposed to be transferred equals or exceeds the amount of water proposed to be transferred, the transfer request shall be denied. If denied, the Water User proposing to transfer shall then have seven (7) days to advise the District in writing whether he will then use the water in the District or release the water to the District for allocation to the other Water Users submitting requests to purchase such water. Should he fail to advise the District of his intentions, the water will remain with the Water User. (II) In the event requests to purchase from the other Water Users are less than the amount of water proposed to be transferred, the Board may authorize the transfer in the amount proposed to be transferred, less the requests to purchase. The remaining amount shall be subject to the immediately foregoing paragraph. (e) Water User shall reimburse District for all out of pocket expenses associated with the processing of the water transfer request. District shall not be responsible for the failure of any agency or entity to approve the requested water transfer and Water User agrees to indemnify and shall assume the defense of and hold District, its officers, agents and employees harmless from any and all loss, damage, liability, claims or causes of action of every nature whatsoever. (f) This section shall not apply to a Water User that purchases another Water User's Table A Water at the open market rate under Paragraph 6(o) above, for the purpose of using the same on his lands or lands that he farms outside of the District boundaries. The Water User may take delivery of such water outside the District boundaries without complying with this section. 9. NOTICE Any Notice or Announcement which the provisions hereof contemplate shall be given to one of the parties hereto by the other in writing and shall be deemed to have been given if deposited in the United States mail on the part of District in a postage-prepaid envelope addressed to Water User at the address shown on District Records, and on the part of Water User in a postage-prepaid envelope, addressed to District at 1109 Whitley Avenue, Corcoran, California 93212, or such other address as from time to time may be designated by written notice from one party to the other, provided, however, that this Article shall not preclude the effective service of any such Notice or Announcement by other means. 10. TERM OF CONTRACT This Water Service Contract shall be effective on January 1, 1997, and shall remain in effect for a period of two (2) Years, terminating December 31, 1998. 11. CONTRACT AMENDMENTS OR MODIFICATIONS This Water Service Contract may be renewed, amended, modified, or prematurely terminated only upon the mutual written consent of the parties. 12. RIGHTS OF LANDOWNERS REGARDING ALLOCATION OF PROJECT WATER Upon termination of this Water Service Contract, any Landowner shall have the right to contract with the District for his share of Project Water on the same terms and conditions as the other Water Users. 13. CONTRACT ASSIGNMENT, SALE OR TRANSFER The right to receive Project Water under and pursuant to this Water Service Contract shall not be assigned, sold or otherwise transferred without the prior written consent of the District. Disposition of any Project Water surplus to the needs of Water User shall be reallocated or disposed of in the manner provided in Paragraph 6(o) hereof. 14. RELATIONSHIP TO STATE CONTRACT This Water Service Contract is made subject to any and all requirements imposed upon District or Water User by the terms of the State Contract and nothing in this Water Service Contract shall be deemed to require District or Water User to perform any obligation in conflict with the State Contract. The State Contract is hereby incorporated herein by this reference in all respects as though set forth in full at this point, and any amendments thereto. 15. GENERAL (a) Any waiver or claim of waiver at any time by either party to this Water Service Contract of its rights with respect to default, or any other matter arising in connection with this Water Service Contract, shall not be deemed to be a waiver with respect to any subsequent default or matter. (b) Nothing contained in this Water Service Contract shall be construed as in any manner abridging, limiting or depriving District or Landowners of any means of enforcing any remedy, either at law or in equity, for the breach of any of the provisions hereof which it would otherwise have. (c) Where the terms of this Water Service Contract provide for action to be based upon the opinion or determination of either party to this Water Service Contract, whether or not stated to be conclusive, said terms shall not be construed as permitting such action to be predicated upon arbitrary, capricious, or unreasonable opinions or determinations. (d) Captions accompanying sections of this Water Service Contract are for convenience of reference and do not form a part of this Water Service Contract. (e) Water Service Contracts executed by District for agricultural water service shall be uniform with respect to basic terms and conditions. (f) It is agreed by the parties that time is of the essence in Water Service Contract. (g) Nothing herein contained shall be deemed to require the performance of any act which shall constitute the modification or abandonment of Project Facilities, nor be deemed to prevent the exercise of any powers contained in the California Water Storage District Law regarding the modification or abandonment of the Project Facilities. TULARE LAKE BASIN WATER STORAGE DISTRICT By: _____________________ Date: _______________________ President By: _____________________ Date: _______________________ Secretary WATER USER: SOUTHLAKE AQUISITION CORP. By: /s/ Date: 1/17/97 12/10/96 LANDOWNER'S REQUESTED PARTICIPATION TOTAL CONTRACT AMOUNT OF WATER TO BE DESIGNATED ON EXHIBIT A, AS MODIFIED, OF SHORT TERM STATE WATER SERVICE CONTRACT FOR 1997 and 1998 STATE PROJECT WATER Reference is made to the Short Term State Water Service Contract for the 1997 and 1998 Water Years and to the Rules and Regulations currently in effect, and particularly to Paragraph 1 of said Rules and Regulations addressing "Policy Regarding Allocation of Project Water." Please indicate: ____ (a) I desire to purchase my proportionate share of State Project Water, as shown on Exhibit A of my Short Term Contract. (b) I desire to purchase my proportionate share of additional total Contract water which may be available from undersubscription of other landowners: ____ (I) Proportional share of Total Undersubscription; ____ (II) Up to a total Contract Amount of Water equal to _____ acre feet. ____ (c) I desire to purchase less than my proportionate share, specifically a total Contract amount of ______ acre feet per year. ____ (d) I do not desire to purchase any State Project Water in 1997 and 1998. I hereby name my authorized agent on all State Project Water matters to be: _______________________________________________ SOUTHLAKE AQUISITION CORP. Signed: /s/ BB Dated: 1/17/97 EXHIBIT A 12/16/96 1997-1998 SHORT TERM STATE WATER SERVICE CONTRACT BETWEEN TULARE LAKE BASIN WATER STORAGE DISTRICT AND LANDOWNER (WATER USER) The allocation of Project Water to SOUTHLAKE AQUISITION CORP. is 0.5315% of the District's Table A Entitlement. Said percentage is based upon the attached parcel ownership list, as such ownership relates to total assessed land within District. This percentage shall be adjusted to reflect other landowner participation, as provided in this Contract and the Amended Rules and Regulations. Such percentage has been applied in accordance with this Contract. The adjusted quantities of Annual Entitlement of District and Water User's Table A Water are shown below for the period of this Short Term State Water Service Contract, all quantities being in acre feet. Annual Entitlement Annual Water User's For the Years of District Table A Water-A.F. 1997 & 1998 118,500 630 A.F. The Water User's Table A Water shall be adjusted to reflect the Water User's adjusted percentage of participation. Tulare Lake Basin Water Storage District 12/17/96 1997 and 1998 Short-Term State Water Service Contract Exhibit A Tract APN SECTR ACREAGE Parcel List 9730 SOUTHLAKE AQUISITION CORP. 9001A 311-020-210 08-23-23 160.00 9001B 311-020-220 08-23-23 160.00 9002 311-060-020 15-23-23 22.80 9014 311-010-020 18-23-23 640.00 982.80 NINTH AMENDED RULES AND REGULATIONS GOVERNING THE TRANSMISSION OF WATER UNDER THE WATER SUPPLY CONTRACT BETWEEN THE STATE OF CALIFORNIA, DEPARTMENT OF WATER RESOURCES AND THE TULARE LAKE BASIN WATER STORAGE DISTRICT Pursuant to the requirements of Section 43003, Article 1, Chapter 1, Division 14, Water Code of the State of California, the Board of Directors of the Tulare Lake Basin Water Storage District hereby adopts these Rules and Regulations governing the transmission of water under the Water Supply Contract between the State of California and the Tulare Lake Basin Water Storage District through District's Project Facilities designated as Laterals A and B to the District, except as may otherwise be permitted under Section 15(a) of said Contract. The District expressly recognizes that a controversy exists as to the meaning and effect of the Interlake Agreement and it is expressly understood that the transmission of water through Laterals A and B to the District for use within the District, except as may otherwise be permitted under Section 15(a) of the State Contract, is not to be and shall not be construed as ownership or operation of distribution facilities within District, and that said controversy is expressly left unresolved and undetermined. 1. Policy Regarding Allocation of Project Water It is the policy of the Board of Directors of this District that: (a) The District's ability to deliver State Project Water to District's Water Users is limited to the use of Laterals A and B and Turnout C, hereinafter termed "Project Facilities". Subject to the foregoing and the express and distinct understanding that nothing herein contained shall ever be so construed as to impose on the District or create for District any obligation or liability to District's landowners not existing under the adopted Projects of District, the Interlake Agreement, the pertinent provisions of the Water Code of the State of California or other applicable law, all landowners shall be given the opportunity to receive their proportionate share of District's State Project Water supply and/or other water on a uniform basis per assessed acre, under terms and conditions set forth in the Water Service Contract. (b) In the event that all or a portion of District's State Water Project Table A Water is not subscribed by landowners in accordance with their respective percentages of assessed lands within District, other Water Users in District will be afforded the opportunity to subscribe for quantities in excess of their respective percentages. (c) In the event Water Users subscribe for quantities in excess of their respective percentages of assessed lands within District, as provided for in subparagraph (b) above, the reallocable quantity will be apportioned to said Water Users on a pro rata basis per assessed acre of the Water User. (d) In the event the under-subscribed quantity is in excess of the quantity requested by over-subscribing Water Users, then, and in that event, assessments will be levied from time to time all as provided for in Section 44030 of the California Water Code (California Water Storage District Law). District will, however, make reasonable efforts to dispose of the under-subscribed quantities of water at the best prices available for the accounts of the under- subscribing Water Users. 2. Delivery To Lands Outside District Boundaries Deliveries of water from Project Facilities to lands outside District boundaries shall be made in accordance with the provisions contained in "POLICY RE DELIVERY OF STATE PROJECT WATER TO LAND OUTSIDE OF DISTRICT BY ACTION OF THE BOARD OF DIRECTORS JANUARY 3, 1974" and further specified in "AGREEMENT BETWEEN TULARE LAKE BASIN WATER STORAGE DISTRICT (HEREIN TERMED DISTRICT) AND 'WATER USER' (HEREIN TERMED WATER USER) IN SUPPORT OF REQUEST FOR STATE CONSENT TO DISPOSITION OF PROJECT WATER OUTSIDE THE BOUNDARIES OF DISTRICT", all as may be amended. Copies of both documents are on file in the offices of the District. 3. Irrigation Year The irrigation year means the twelve-month period from and including January 1 of any year through the 31st of December of said year. 4. Management Of Project Facilities The Project Facilities of District, are under the exclusive management and control of the Board of Directors through its authorized agents, and no other persons shall have any right to interfere with, operate or manage the said Project Facilities in any manner. 5. Water User Water User means that person or entity owning land within the boundaries of District, or the successor in interest, who has executed a Short Term State Water Service Contract with said District or who has been assessed pursuant to and under the provisions of said Section 44030 of the Water Code. 6. Authorized Agent(s) Of Water Users Each Water User who desires water service shall advise the District in writing the names of his authorized agent(s) and such authorized agent(s) may be changed from time to time by the Water User by giving such notice, in writing, to the District. 7. Water Orders (a) All Water Users' orders for Project Water, Supplemental Water and Non-District Water deliveries shall be made to the District office or District personnel 24 hours prior to actual delivery. Annual requested monthly deliveries shall be submitted on forms provided, on or before October 1 of each year, to allow District to comply with the requirements of the State and District's operational requirements. (b) Delivery Schedule requirements of the State include, but are not limited to, the following: (1) On or before October 1 of each year, District must submit in writing to the State a preliminary Table A Water delivery schedule and, if appropriate, a carryover water delivery schedule, indicating the amounts of water desired by the District during each month of the succeeding year. (2) On December 1 of each year, the State shall determine and furnish to District the water delivery schedule for the next succeeding year which shall show the amounts of Table A Water to be delivered to District during each month of that year. (3) A water delivery schedule may be amended by the State upon District's written request. Requested amendments shall be submitted by the Water user in time for the District to submit the desired change on or before the 20th of the month prior to the month or months the desired change is to become effective, and shall be subject to review and modification by the State in like manner as the schedule itself. (c) From time to time there may be made available to District other Project Water including Turnback Water, Interruptible Water, and Supplemental Water from other sources delivered through Project Facilities. The District shall promptly notify the Water users of the availability and estimated cost of said water and the allocated amounts to each Water User based upon respective percentage of Table A Water. Water Users desiring to participate shall enter into an agreement with the District for the delivery of such water. (d) It is expected that, under normal operational conditions, and within the limitations of contract obligations and capacities of the Project Facilities, it will generally be possible to accommodate Water Users' requests for water deliveries and changes in daily water deliveries provided that advance notice is given by such Water Users to District in accordance with the operating procedures of the State. 8. Continual Delivery Delivery of Water shall be made continually, day and night. 9. Proration Of Available Capacity At any time or location where total Water User requests for delivery capacity in Project Facilities exceeds the actual capacity of Project Facilities, then the actual capacity of Project Facilities will be allocated among those Water Users requesting delivery capacity in proportion to the respective percentages of Table A Water which each requesting Water User has contracted for under the Short Term State Water Service Contracts. Water Users may use their allocated share of delivery capacity in Project Facilities to take delivery of any type of water, irrespective of the source. 10. Charge For Water Spilled If water is ordered, and the Water user is not ready or able to receive water or continue to take delivery at the times of requested delivery, said Water User shall be charged for any water spilled until the State, at District's notification, has effected a change at the Turnout(s) in the California Aqueduct, unless another Water User or Users agrees to take said water. In the event no other Water User or Users agrees to take said water, District shall notify the State as soon as reasonably possible. 11. No Water Delivery If Water User Is Delinquent No water will be delivered to Water user if he is delinquent in the payment of any charges under the Short Term State Water Service Contract and/or for any assessments levied under said California Water Code. 12. Grievances Any grievance or complaint of a Water User that cannot be settled directly with the Operations Superintendent, shall be appealed to the District Manager and, from his decision, appeal may be made to the Board of Directors, provided, however, no such Water User shall be precluded from taking any legal action available in a court of competent jurisdiction after exhausting these administrative remedies. 13. Inspection Of Records Water Users may inspect records of cost, water delivery and other matters pertinent to the Short Term State Water Service Contracts at the District's office during regular business hours. 14. Water Shortages Pursuant to powers granted by Section 43004 of the California Water Code, in the event of shortage of Project Water, water will be apportioned to each Water User within District, on a pro rata basis relating to their respective contract quantities of Table A Water. 15. Responsibility For Damage To District Property Each landowner and/or Water User shall be responsible to District for all damage to District property caused by negligent or careless acts of himself or his agent. All such damage will be repaired by District or to District's specifications and the cost thereof shall be borne by the landowner and/or Water User. 16. Limitations Of District Responsibility District shall not be liable for any damages of any kind or nature resulting directly or indirectly from any private ditch or the water flowing therein, or for negligent, wasteful or other use or handling of water by the users thereof. District's responsibility shall absolutely cease when the water leaves the Project Facilities. 17. Encroachment On Project Facilities (a) No opening shall be made or structure placed in any Project Facilities, except by District, or with written approval of the District's Board of Directors. (b) A permit for encroachment shall be required before any irrigation or drainage ditches, fences, pipelines, or other encroachments from private sources will be permitted to be used within any District right-of-way. (c) The work for all encroachments on Project Facilities shall be constructed and maintained to District's specifications at the sole expense of the applicant. (d) Any person using any District right-of-way for any purpose assumes all risk of so doing and by his use accepts responsibility for any damage to District property resulting therefrom and also for any damage or claims of damage to private property caused by such damage to District property. (e) Any Water User constructing or doing work on District right-of-way or Project Facilities shall first enter into an agreement which shall, among other things, provide a hold harmless to the District. (f) Access roads along Laterals A and B banks may be used by landowners at such time and in such a manner that neither the road nor the bank is damaged, within terms and conditions to be set from time to time by the Board. (g) No livestock may be pastured, or allowed to trespass, upon Project Facilities at any time. (h) No waste of any kind shall be either dumped into Project Facilities or placed on or adjacent to the banks of Project Facilities where it might fall, slide or be blown into the Project Facilities. (i) No tail water from any source shall be spilled into Project Facilities, except by District or with the written approval of the District's Board of Directors. 18. Non-District Water Charge The District shall bill non-Water Users a wheeling charge, at a unit rate to be set by the Board of Directors, for water conveyed through Project Facilities. Water Users will not be billed for Non-District Water conveyed through Project Facilities. 19. Authority Of Rules And Regulations (a) These Rules and Regulations are made to govern transmission of water under the Water Supply Contract between the State of California, Department of Water Resources, and the Tulare Lake Basin Water Storage District, and the Short Term State Water Service Contract between the District and its Water users, and any amendments to the foregoing. In the event of a conflict between such Contracts and these Rules and Regulations, reconciliation amendments shall be adopted as soon as reasonably possible. In the event the conflict is not or cannot be reconciled, the Water Supply Contract and the Short Term State Water Service Contract shall govern. (b) Pursuant to said Section 43003 of the Water Code of the State of California, District may enter into long- term water service contracts with landowners in District, which contracts may, in the discretion of the Board, provide, among other things, that the obligations are a lien on the land with the same force and effect and priority as an assessment lien if such contract is recorded in the office of the County Recorder in the County in which such land is situated and such contracts may provide for delivery of water outside District's boundaries as contemplated by Article 15(a) of the Water Supply Contract and the obligations resulting from such deliveries may likewise be secured by a lien on lands within the boundaries of District. The Short Term State Water Service Contracts entered into between District and Water User shall not be recorded. 20. Changes In Rules And Regulations These Rules and Regulations shall become effective immediately and may be changed from time to time by resolution of the District's Board of Directors. 21. Enforcement Of Rules And Regulations The Manager of District shall be responsible for the enforcement of the Rules and Regulations. Refusal to comply with any of the Rules and Regulations shall be sufficient cause for the termination of water service, and water service shall not again be furnished until full compliance has been made with all the requirements herein set forth. In no event shall any liability accrue against District or any of its officers, agents or employees, for damage, direct or indirect, arising from such temporary discontinuance or reduction of water deliveries; provided, however, that liability of District hereunder shall be governed by and under the provisions of the Government Code of the State of California, commonly known as the "Claims Against Public Entities Statute", Section 810 et seq. of said Code and applicable law with respect thereto and as said Code and law may be interpreted by courts of competent jurisdiction; and, provided further that in the event a grievance or complaint is being processed pursuant to Section 12 hereof, any action hereunder shall be suspended pending decision of the Board of Directors. EXHIBIT "G" to PURCHASE AGREEMENT dated _______________ between Southlake Acquisition Corporation and Jim Joseph Revocable Trust, "Owner"; and Dana C. Hair "Buyer." There are no items in Exhibit "G." EX-10.38 4 AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY THIS AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY is made and entered into this 21st Day of February, 1997 by and between Celebrate L.L.C. and/or assignee (hereinafter referred to as "Buyer") and S.H.F. Acquisition Corp. ("Seller"), with reference to the following facts: A. Seller is the owner of a parcel of vacant land consisting of approximately .82 gross acres described as a portion of the W2 SW4 SW4 SE4 NW4 of Section 33, Township 19S and Range 61E, M.D.M. (hereinafter referred to as the "Property"). The property is further described as Arroyo Grande Unit 3 consisting of 4 lots. B. Buyer now desires to purchase from Seller and Seller desires to sell to Buyer the Property. NOW THEREFORE, in consideration of the mutual covenants, premises and agreements contained herein, the parties hereto do hereby agree as follows: 1. PURCHASE AND SALE. Buyer shall purchase from Seller, upon the terms and conditions set forth, the Property. Purchase shall be in the form of cash or certified funds at the close of escrow. 2. PURCHASE PRICE. The purchase price to be paid for the Property shall be exactly ONE HUNDRED THOUSAND DOLLARS ($100,000.00). Said sum shall by paid as follows: a) Upon the acceptance of this offer to purchase, the Buyer shall deposit into escrow FIVE THOUSAND DOLLARS ($5,000 00). Said deposit shall be applicable to purchase price. Upon satisfaction of the contingencies contained in paragraph 6, at Buyer's sole discretion, the earnest money deposit shall be increased to TEN THOUSAND DOLLARS ($10,000.00) and become non-refundable in the event Buyer fails to close. In the event Buyer elects to cancel prior to expiration of the contingency period, the initial deposit of FIVE THOUSAND DOLLARS ($5,000.00) shall be released to the Buyer without further instructions from Seller. 3. TITLE TO THE PROPERTY. Title conveyed is to be subject to encumbrances, easements, rights of way, restrictions, conditions and covenants of record as shown on a current preliminary title report provided through escrow to be furnished at Seller's expense. Buyer shall have ten (10) working days following receipt of said report to approve the condition of title, provided that if written disapproval is not received by Buyer within said period, Buyer shall be deemed to have accepted the condition of the title. Seller agrees to deliver, at his expense, good and merchantable title as evidenced by a policy of title insurance to the Buyer. The Buyer, at his option, may terminate this offer to purchase and his earnest money shall be returned if the Seller fails to deliver good and merchantable title as herein provided. 4. DISCLOSURE OF CONDITIONS. Buyer shall take title subject to declarations, covenants, conditions and restrictions, articles of incorporation, bylaws, rules and regulations currently in force, to be delivered to Buyer. Buyer shall be deemed to have approved said documents unless written notice to the contrary is delivered to Seller within ten (10) working days of receipt by Buyer. 5. ESCROW. The purchase and sale provided for herein shall be consummated through an escrow to be opened with Fidelity National Title (Regina Kington). THE ESCROW SHALL BE DEEMED OPEN WHEN BUYER AND SELLER HAVE EXECUTED AND DEPOSITED SIGNED ESCROW INSTRUCTIONS WITH THE ESCROW COMPANY (THE OPENING OF ESCROW). Said escrow shall be upon the usual form of instructions of the escrow holder for transactions of the type provided for herein, except that said instructions shall incorporate ail terms and provisions of this Agreement, and in additions shall provide the following: a) to close escrow 75 days from opening escrow or recordation of final map whichever is later but in no event later than 9/1/97; b) promptly after the opening of escrow, Seller shall cause to be procured and delivered for Buyer's approval the Preliminary Title Report and copies of documents referred to in paragraph 3; c) Seller shall pay a Documentary Transfer Tax, and all other fees and costs shall be divided in accordance with the usual practices of the escrow holder; d) real property taxes shall be prorated to Close of Escrow; e) any Special Assessments or Fees outstanding on the Property shall be paid by Seller; f) in the event of any conflict between the terms of this agreement and the terms of the escrow, the terms of this agreement shall prevail except where the escrow instructions specifically provide otherwise. If escrow fails to close as the result of Buyer's default, all monies deposited by Buyer into escrow shall be considered as liquidated damages to the Seller. If escrow fails to close as a result of Seller's default, Buyer shall be entitled to seek specific performance remedies. The provisions of this paragraph shall be the sole remedies available to each respective party hereunder in the event of a default under this agreement. 6. CONTINGENCIES. The purchase of the Property is contingent upon: a) Buyer's approval of the Preliminary Title Report and all documents described within the Preliminary Title Report, issued by Fidelity National Title Company concerning the property as described in paragraph (3). b) Buyer's approval of all surveys and engineering as to soils conditions, dirt balance, hydrology, sewer and water availability, tortoise mitigation and on and off site costs and feasibility studies, all to be completed at Buyer's expense, at Buyers option. c) Buyer's approval of a Phase I Environmental Site Assessment to be performed by (Buyer to select) at Buyer's expense, at Buyers option. The above contingencies are solely for the Buyer's benefit. Each of the contingencies must be approved in writing, by Buyer on or before 45 days from the Opening of Escrow. Should Buyer not approve for any reason whatsoever, any one of the above contingencies, then he shall have the right to terminate this Agreement on or before the expiration of the contingency period. In the event Buyer terminates this Agreement due to his disapproval of one or more of the contingencies, any deposits made by Buyer shall be immediately returned to Buyer less any escrow costs incurred and Buyer shall have no further obligations under this agreement. Buyer shall be solely responsible for all costs involved in satisfying the above contingencies. 7. DUE DILIGENCE STUDIES. It is hereby agreed that, in the event that this escrow does not close, that the Buyer shall furnish at no expense to Seller, all surveys, engineering, feasibility studies, reports and any and all other materials in Buyer's possession that may pertain to the development of the property. Buyer hereby agrees to indemnify Seller from any claims, liens damages and expenses (including attorney's fees) arising from or in connection with such entry. 8. OFFER EXPIRATION. Unless the Seller's acceptance of this offer to purchase is delivered to Buyer before 5PM, the 25th day of February, 1997, this offer shall be deemed revoked. 9. AGENCY DISCLOSURE. See attached agency disclosure forms. 10. NOTICES. Any and all notices, demands, or other communications required or desired to be given hereunder shall be in writing and shall be validly given or made to another party if served either personally or if deposited in the United States mail certified or registered, postage prepaid, return receipt requested. If such notice, demand or other communication be serviced personally, service shall be conclusively deemed made at the time of such personal service. If such notice, demand or other communication be given by mail, such shall be conclusively deemed given forty-eight (48) hours after the deposit thereof in the United States mail addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth. To Buyer: Celebrate L.L.C. 2317 Glassport Cir. N. Las Vegas, NV 89030 Ann: Harry Shull To Seller: S.H.F. Acquisition Corp. 4045 Spencer Street, Ste. 206 Las Vegas, NV 89119 Attn: Jim Dale Any party hereto may change its' address for the purpose of receiving notices, demands and other communications as herein provided by written notice given in the manner aforesaid to the other party or parties hereto. After opening of escrow, a copy of all notices, demands and other communications shall be given to the escrow office. 11. APPLICABLE LAWS AND SEVERABILITY. This document shall, in all respects, be governed by the laws of the State of Nevada applicable to agreements executed and to be wholly performed with the State of Nevada. Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision contained herein and any present or future statute, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail but the provision of this document which is affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. 12. ENTIRE AGREEMENT. The foregoing represents the entire Agreement between the parties and no verbal statements made by any party are a part hereof unless incorporated in writing. In the event either party shall prevail in any legal action commenced to enforce this agreement, he shall be entitled to all costs incurred in such action including attorney's fees, costs and expenses as may be fixed by the Court. 13. MODIFICATIONS OR AMENDMENTS. No amendment, change or modification of this document shall be valid unless in writing and signed by ail parties hereto. 14. SUCCESSORS OR ASSIGNS. All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns. 15. TIME OF THE ESSENCE. Time is of the essence of this Agreement and all terms, provisions, covenants and conditions hereof. 16. BUYER'S STATEMENT. Buyer states that Buyer will personally inspect said property and is buying said property on his own inspection and not on any representation(s) of Seller or Seller's Agent(s). Buyer accepts that the only guarantees given by Seller are those of title and there are no other guarantees given by Seller as to, but not limited to, condition, zoning, fitness for use for any certain purpose, soils tests, percolation tests, improvements, presence or absence of utilities, or paving. 17. SELLER'S STATEMENT. The sale of Unit 3 is contingent upon the successful completion of the sale of Units 2A and 2B (53 lots of Arroyo Grande Estates). 18. DISCLOSURE. Seller is aware that Buyer is a Nevada Real Estate Licensee. 19. DISCLOSURE. Seller warrants no knowledge of soil contamination. COUNTER OFFER The Agreement For the Purchase and Sale of Real Property made by Celebrate L.L.C. to purchase the real property commonly known as Phases 3 Arroyo Grande Estates dated February 21, 1997 is not accepted in its present form, but the following COUNTER OFFER is hereby submitted: CHANGE TO READ AS FOLLOWS B. ... desires to sell to Buyer the Property, as is. CHANGE TO READ AS FOLLOWS 5a. Close of escrow shall be no later than July 1, 1997. ADD NEW PARAGRAPH 5g. Escrow shall be deemed to be opened on the first business day following the signing of this document by both the Seller and Buyer, and Buyer is notified in of Sellers signing in writing. CHANGE TO READ AS FOLLOWS 6a. Seller will provide Buyer a copy of a current Preliminary Title Report, and . . . ADD NEW PARAGRAPH 6d. Buyer shall, within thirty (30) days of receipt of the Preliminary Title Report and supporting documentation, provide written notice to seller of any items unacceptable to Buyer. Seller shall have 10 days to agree to remove such items, and in the event seller is unwilling or unable to do so, this agreement shall terminate and the escrow be canceled. Buyers failure to object to the exceptions in the preliminary title report, within 30 days, set forth above shall be deemed an approval of the Preliminary Title Report. The above also applies to paragraph 4 of Purchase Agreement. ADD NEW PARAGRAPH 6e. Buyer and Buyer's experts shall exercise care in entering upon and inspecting the property. Buyer hereby agrees to defend, indemnify, and hold the Seller, its officials, employees, and agents, harmless from damages, losses, cost expenses, and liabilities, (including legal fees), incurred by Seller arising out of and resulting from Buyer's and Buyer's experts entry upon and inspection of the property. The undersigned Buyers, offer and agree to purchase said property on the terms and conditions herein stated and acknowledges receipt of a copy of this agreement from the Broker named above. Date: 2/21/97 Time: 10:45 am BUYER: /S/ Address: 2317 Glassport Cir. City: North Las Vegas State: NV Date: 2/26/97 Time: 8:35 am SELLER: SHF Acquisition Corp. by: /s/ James H. Dale President Address: 4045 S. Spencer St. Ste. 206 City: Las Vegas State: NV EX-10.39 5 AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY THIS AGREEMENT FOR THE PURCHASE AND SALE OF REAL PROPERTY is made and entered into this 21st Day of February, 1997 by and between Celebrate L.L.C. and/or assignee (hereinafter referred to as "Buyer") and S.H.F. Acquisition Corp. ("Seller"), with reference to the following facts: A. Seller is the owner of a parcel of vacant land consisting of approximately eleven (11) gross acres described as a portion of the SW4 NW4 of Section 33, Township 19S and Range 61E, M.D.M. (hereinafter referred to as the "Property"). The property is further described as Arroyo Grande Unit 2A and 2B consisting of 53 lots. B. Buyer now desires to purchase from Seller and Seller desires to sell to Buyer the Property. NOW THEREFORE, in consideration of the mutual covenants, premises and agreements contained herein, the parties hereto do hereby agree as follows: 1. PURCHASE AND SALE. Buyer shall purchase from Seller, upon the terms and conditions set forth, the Property. Purchase shall be in the form of cash or certified funds at the close of escrow. 2. PURCHASE PRICE. The purchase price to be paid for the Property shall be exactly FIVE HUNDRED SIXTY ONE THOUSAND EIGHT HUNDRED DOLLARS ($561,800.00). Said sum shall by paid as follows: a) Buyer shall deposit into escrow FIVE THOUSAND DOLLARS ($5,000 00). Said deposit shall be applicable to purchase price. Upon satisfaction of the contingencies contained in paragraph 6, at Buyer's sole discretion, the earnest money deposit shall be increased to TWENTY FIVE THOUSAND DOLLARS ($25,000.00) and become non-refundable in the event Buyer fails to close. In the event Buyer elects to cancel prior to expiration of the contingency period, the initial deposit of FIVE THOUSAND DOLLARS ($5,000.00) shall be released to the Buyer without further instructions from Seller. b) Buyer shall reimburse, to Seller, SEVENTY TWO THOUSAND NINE HUNDRED FIFTY SEVEN DOLLARS ($72,957.00), for prepaid deposits for water fees, from proceeds of a construction loan. 3. TITLE TO THE PROPERTY. Title conveyed is to be subject to encumbrances, easements, rights of way, restrictions, conditions and covenants of record as shown on a current preliminary title report provided through escrow to be furnished at Seller's expense. Buyer shall have ten (10) working days following receipt of said report to approve the condition of title, provided that if written disapproval is not received by Buyer within said period, Buyer shall be deemed to have accepted the condition of the title. Seller agrees to deliver, at his expense, good and merchantable title as evidenced by a policy of title insurance to the Buyer. The Buyer, at his option, may terminate this offer to purchase and his earnest money shall be returned if the Seller fails to deliver good and merchantable title as herein provided. 4. DISCLOSURE OF CONDITIONS. Buyer shall take title subject to declarations, covenants, conditions and restrictions, articles of incorporation, bylaws, rules and regulations currently in force, to be delivered to Buyer. Buyer shall be deemed to have approved said documents unless written notice to the contrary is delivered to Seller within ten (10) working days of receipt by Buyer. 5. ESCROW. The purchase and sale provided for herein shall be consummated through an escrow to be opened with Fidelity National Title (Regina Kington). THE ESCROW SHALL BE DEEMED OPEN WHEN BUYER AND SELLER HAVE EXECUTED AND DEPOSITED SIGNED ESCROW INSTRUCTIONS WITH THE ESCROW COMPANY (THE OPENING OF ESCROW). Said escrow shall be upon the usual form of instructions of the escrow holder for transactions of the type provided for herein, except that said instructions shall incorporate ail terms and provisions of this Agreement, and in additions shall provide the following: a) to close escrow 75 days from opening escrow or recordation of final map whichever is later but in no event later than 9/1/97; b) promptly after the opening of escrow, Seller shall cause to be procured and delivered for Buyer's approval the Preliminary Title Report and copies of documents referred to in paragraph 3; c) Seller shall pay a Documentary Transfer Tax, and all other fees and costs shall be divided in accordance with the usual practices of the escrow holder; d) real property taxes shall be prorated to Close of Escrow; e) any Special Assessments or Fees outstanding on the Property shall be paid by Seller; f) in the event of any conflict between the terms of this agreement and the terms of the escrow, the terms of this agreement shall prevail except where the escrow instructions specifically provide otherwise. If escrow fails to close as the result of Buyer's default, all monies deposited by Buyer into escrow shall be considered as liquidated damages to the Seller. If escrow fails to close as a result of Seller's default, Buyer shall be entitled to seek specific performance remedies. The provisions of this paragraph shall be the sole remedies available to each respective party hereunder in the event of a default under this agreement. 6. CONTINGENCIES. The purchase of the Property is contingent upon: a) Buyer's approval of the Preliminary Title Report and all documents described within the Preliminary Title Report, issued by Fidelity National Title Company concerning the property as described in paragraph (3). b) Buyer's approval of all surveys and engineering as to soils conditions, dirt balance, hydrology, sewer and water availability, tortoise mitigation and on and off site costs and feasibility studies, all to be completed at Buyer's expense, at Buyers option. c) Buyer's approval of a Phase I Environmental Site Assessment to be performed by (selected by buyer) at Buyer's expense, at Buyers option. The above contingencies are solely for the Buyer's benefit. Each of the contingencies must be approved in writing, by Buyer on or before 45 days from the Opening of Escrow. Should Buyer not approve for any reason whatsoever, any one of the above contingencies, then he shall have the right to terminate this Agreement on or before the expiration of the contingency period. In the event Buyer terminates this Agreement due to his disapproval of one or more of the contingencies, any deposits made by Buyer shall be immediately returned to Buyer less any escrow costs incurred and Buyer shall have no further obligations under this agreement. Buyer shall be solely responsible for all costs involved in satisfying the above contingencies. 7. DUE DILIGENCE STUDIES. It is hereby agreed that, in the event that this escrow does not close, that the Buyer shall furnish at no expense to Seller, all surveys, engineering, feasibility studies, reports and any and all other materials in Buyer's possession that may pertain to the development of the property. Buyer hereby agrees to indemnify Seller from any claims, liens damages and expenses (including attorney's fees) arising from or in connection with such entry. 8. OFFER EXPIRATION. Unless the Seller's acceptance of this offer to purchase is delivered to Buyer before 5PM, the 25th day of February, 1997, this offer shall be deemed revoked. 9. AGENCY DISCLOSURE. See attached agency disclosure forms. 10. NOTICES. Any and all notices, demands, or other communications required or desired to be given hereunder shall be in writing and shall be validly given or made to another party if served either personally or if deposited in the United States mail certified or registered, postage prepaid, return receipt requested. If such notice, demand or other communication be serviced personally, service shall be conclusively deemed made at the time of such personal service. If such notice, demand or other communication be given by mail, such shall be conclusively deemed given forty-eight (48) hours after the deposit thereof in the United States mail addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth. To Buyer: Celebrate L.L.C. 2317 Glassport Cir. N. Las Vegas, NV 89030 Ann: Harry Shull To Seller: S.H.F. Acquisition Corp. 4045 Spencer Street, Ste. 206 Las Vegas, NV 89119 Attn: Jim Dale Any party hereto may change its' address for the purpose of receiving notices, demands and other communications as herein provided by written notice given in the manner aforesaid to the other party or parties hereto. After opening of escrow, a copy of all notices, demands and other communications shall be given to the escrow office. 11. APPLICABLE LAWS AND SEVERABILITY. This document shall, in all respects, be governed by the laws of the State of Nevada applicable to agreements executed and to be wholly performed with the State of Nevada. Nothing contained herein shall be construed so as to require the commission of any act contrary to law, and wherever there is any conflict between any provision contained herein and any present or future statute, law, ordinance or regulation contrary to which the parties have no legal right to contract, the latter shall prevail but the provision of this document which is affected shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law. 12. ENTIRE AGREEMENT. The foregoing represents the entire Agreement between the parties and no verbal statements made by any party are a part hereof unless incorporated in writing. In the event either party shall prevail in any legal action commenced to enforce this agreement, he shall be entitled to all costs incurred in such action including attorney's fees, costs and expenses as may be fixed by the Court. 13. MODIFICATIONS OR AMENDMENTS. No amendment, change or modification of this document shall be valid unless in writing and signed by ail parties hereto. 14. SUCCESSORS OR ASSIGNS. All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns. 15. TIME OF THE ESSENCE. Time is of the essence of this Agreement and all terms, provisions, covenants and conditions hereof. 16. BUYER'S STATEMENT. Buyer states that Buyer will personally inspect said property and is buying said property on his own inspection and not on any representation(s) of Seller or Seller's Agent(s). Buyer accepts that the only guarantees given by Seller are those of title and there are no other guarantees given by Seller as to, but not limited to, condition, zoning, fitness for use for any certain purpose, soils tests, percolation tests, improvements, presence or absence of utilities, or paving. 17. DISCLOSURE. Seller is aware that Buyer is a Nevada Real Estate Licensee. 18. DISCLOSURE. Seller warrants no knowledge of soil contamination. The undersigned Buyers, offer and agree to purchase said property on the terms and conditions herein stated and acknowledges receipt of a copy of this agreement from the Broker named above. Date: 2/21/97 Time: 10:45 am BUYER: /S/ Address: 2317 Glassport Cir. City: North Las Vegas State: NV Date: 2/26/97 Time: 8:35 am SELLER: SHF Acquisition Corp. by: /s/ James H. Dale President Address: 4045 S. Spencer St. Ste. 206 City: Las Vegas State: NV COUNTER OFFER The Agreement For the Purchase and Sale of Real Property made by Celebrate L.L.C. to purchase the real property commonly known as Phases 2A & 2B Arroyo Grande Estates dated February 21, 1997 is not accepted in its present form, but the following COUNTER OFFER is hereby submitted: CHANGE TO READ AS FOLLOWS 2b... from proceeds of a construction loan. Buyer shall reimburse seller for these fees at close of escrow, or as an alternative shall create a note and first trust deed, secured by the property, in favor of the seller. The note shall bear interest at 10% per annum and shall mature no later than 90 days from close of escrow. CHANGE TO READ AS FOLLOWS 5a. Close of escrow shall be no later than July 1, 1997. ADD NEW PARAGRAPH 5g. Escrow shall be deemed to be opened on the first business day following the signing of this document by both the Seller and Buyer, and Buyer is notified in writing of sellers signing. CHANGE TO READ AS FOLLOWS 6a. Seller will provide Buyer a copy of a current Preliminary Title Report, and . . . ADD NEW PARAGRAPH 6d. Buyer shall, within thirty (30) days of receipt of the Preliminary Title Report and supporting documentation, provide written notice to seller of any items unacceptable to Buyer. Seller shall have 10 days to agree to remove such items, and in the event seller is unwilling or unable to do so, this agreement shall terminate and the escrow be canceled. Buyers failure to object to the exceptions in the preliminary title report, within 30 days, set forth above shall be deemed an approval of the Preliminary Title Report. The above also applies to paragraph 4 of Purchase Agreement. ADD NEW PARAGRAPH 6e. Buyer and Buyer's experts shall exercise care in entering upon and inspecting the property. Buyer hereby agrees to defend, indemnify, and hold the Seller, its officials, employees, and agents, harmless from damages, losses, cost expenses, and liabilities, (including legal fees), incurred by Seller arising out of and resulting from Buyer's and Buyer's experts entry upon and inspection of the property. ADD NEW PARAGRAPH 6f. Prior to commencement of construction, Buyer shall replace existing performance bond for off site improvements, posted by the Seller with the City of North Las Vegas, with either a new bond or other collateral acceptable to the City of North Las Vegas. ADD NEW PARAGRAPH 6g. All fees, entitlements, and permits paid or received to date, by the seller, except the water fees, shall be transferred to the benefit of the Buyer at close of escrow. Seller will cooperate with Buyer in signing any documentation required by the City of North Las Vegas or Buyer's Lender to effectuate such transfer. Water fees will be transferred, to Buyer, upon payment of the amount stated in paragraph 2b. Seller will further cooperate in signing any and all documentation to effectuate this transfer. Note and Trust Deed would be considered payment as stated in para 2b. at close of escrow. All other terms and conditions, of the Original Agreement for Purchase, shall remain the same. Seller's reserve the right to accept any other offer prior to purchaser's acceptance of this counter offer and seller's agent being so advised in writing. This counter offer, upon execution by both parties, shall become a part of the Original Agreement for Purchase. Unless the Buyer's acceptance of this Counter Offer, to the Original Agreement for Purchase, is delivered to Seller before 5PM, THE 26TH DAY OF FEBRUARY, 1997, this offer shall be deemed revoked. Date: 2/25/97 Time: 9:25 AM SELLER: SHF Acquisition Corporation by:/s/ James H. Dale, President Date: 2/25/97 Time: 11:55 AM BUYER: /s/ EX-10.40 6 PURCHASE AND OPTION AGREEMENT by and between SHF ACQUISITION CORPORATION and MURIETA INVESTORS, LLC dated October 7, 1996 TABLE OF CONTENTS Page No. 1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . 2 2. Option to Purchase . . . . . . . . . . . . . . . . . . . . 2 2.1 Option Consideration . . . . . . . . . . . . . . . . . 2 2.2 Term of Option . . . . . . . . . . . . . . . . . . . . 2 2.3 Exercise of Option . . . . . . . . . . . . . . . . . . 2 3. Purchase Price . . . . . . . . . . . . . . . . . . . . . . 3 3.1. Purchase Price for Phase I Lots . . . . . . . . . . . 3 3.1.1 Deposit . . . . . . . . . . . . . . . . . . . . 4 3.1.2 Remainder of Phase I Closing Amount . . . . . . 4 3.1.3 Phase I Success Payments . . . . . . . . . . . . 4 3.2 Purchase Price for Option Lots . . . . . . . . . . . . 4 3.2.1 First Six Option Lots . . . . . . . . . . . . . 4 3.2.2 Second Six Option Lots . . . . . . . . . . . . . 5 3.2.3 Remainder of Option Lots . . . . . . . . . . . . 5 3.3 Payment of Purchase Price for the Option Payments . . 5 3.3.1 Option Lots Closing Amount . . . . . . . . . . . 5 3.3.2 Option Lots Success Payments . . . . . . . . . . 6 3.4 Buyer's Obligation to Build Homes on Lots . . . . . . 6 4. LIQUIDATED DAMAGES . . . . . . . . . . . . . . . . . . . . 6 5. Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5.1 Condition of Title . . . . . . . . . . . . . . . . . . 6 5.2 Phase I Title Policy . . . . . . . . . . . . . . . . . 7 5.3 Option Lots Title Policy. . . . . . . . . . . . . . . . 7 6. Escrow and Closing . . . . . . . . . . . . . . . . . . . . 7 6.1 Opening of Escrow . . . . . . . . . . . . . . . . . . . 7 6.2 Phase I Closing Date . . . . . . . . . . . . . . . . . 7 6.3 Option Lots Closing Date. . . . . . . . . . . . . . . . 7 6.4 Seller's Deposits . . . . . . . . . . . . . . . . . . . 8 6.5 Buyer's Deposits . . . . . . . . . . . . . . . . . . . 8 6.6 Closing Costs . . . . . . . . . . . . . . . . . . . . . 8 6.7 Prorations . . . . . . . . . . . . . . . . . . . . . . 8 6.8 Possession . . . . . . . . . . . . . . . . . . . . . . 9 7. Feasibility Study . . . . . . . . . . . . . . . . . . . . . 9 8. Investigation of the Property . . . . . . . . . . . . . . . 9 8.1 Delivery of Documents . . . . . . . . . . . . . . . . . 9 8.2 Access and Processing . . . . . . . . . . . . . . . . .10 8.2.1 Access . . . . . . . . . . . . . . . . . . . . .10 i 8.2.2 Processing . . . . . . . . . . . . . . . . . . .10 9. Buyer's Condition to Close . . . . . . . . . . . . . . . .10 10. Seller's Condition to Close. . . . . . . . . . . . . . . . 11 11. Representations Warranties and Covenants . . . . . . . . . 12 11.1 Seller's Representations Warranties and Covenants . . 12 11.2 Buyer's Representations and Warranties . . . . . . . 15 12. Condemnation . . . . . . . . . . . . . . . . . . . . . . . 15 13. Sale of Seller's Remaining Property . . . . . . . . . . . 16 14. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 16 15. General Provisions . . . . . . . . . . . . . . . . . . . . 16 15.1 Counterparts . . . . . . . . . . . . . . . . . . . . 16 15.2 Entire Agreement . . . . . . . . . . . . . . . . . . 16 15.3 Partial Invalidity . . . . . . . . . . . . . . . . . 16 15.4 Choice of Law . . . . . . . . . . . . . . . . . . . 17 15.5 Waiver of Covenants, Conditions or Remedies . . . . 17 15.6 Legal Advice . . . . . . . . . . . . . . . . . . . . 17 15.7 Time of the Essence . . . . . . . . . . . . . . . . 17 15.8 Attorneys' Fees . . . . . . . . . . . . . . . . . . 17 15.9 Assignment . . . . . . . . . . . . . . . . . . . . . 17 15.10 Notices . . . . . . . . . . . . . . . . . . . . . . 17 15.11 Confidentiality . . . . . . . . . . . . . . . . . . 18 15.12 Exclusivity . . . . . . . . . . . . . . . . . . . . 19 15.13 Memorandum of Agreement . . . . . . . . . . . . . . 19 EXHIBIT A LEGAL DESCRIPTION OF SELLER'S PROPERTY . . . . . . . 21 EXHIBIT B LEGAL DESCRIPTION OF THE PHASE I LOTS . . . . . . . . 22 EXHIBIT C BLANKET ASSIGNMENT AND BILL OF SALE . . . . . . . . . 23 EXHIBIT D WHITNER RESEARCH GROUP PRICE LIST . . . . . . . . . . 24 EXHIBIT E FIRPTA AFFIDAVIT . . . . . . . . . . . . . . . . . . 25 EXHIBIT F DEFINITION OF HAZARDOUS SUBSTANCE . . . . . . . . . . 26 EXHIBIT G MEMORANDUM OF AGREEMENT . . . . . . . . . . . . . . . 28 ii PURCHASE AND OPTION AGREEMENT This PURCHASE AND OPTION AGREEMENT (this "Agreement") is made and entered into as of October 7, 1996 (the "Effective Date"), by and between SHF ACQUISITION CORPORATION, a Nevada corporation ("Seller"), and MURIETA INVESTORS, LLC, a California limited liability company ("Buyer"). RECITALS A. Seller and Buyer have previously entered into a Purchase and Option Agreement dated April 27, 1996, and the parties acknowledge that such agreement has terminated on its own terms and is of no further force or effect. B. Seller is the owner of certain real property ("Seller's Property") located in the development commonly known as Unit 6 of Rancho Murieta (the "Development"), County of Sacramento ("County"), State of California ("State"), as more particularly described on EXHIBIT "A" attached hereto. C. Seller desires to sell to Buyer six (6) legally subdivided and finished residential lots, lot numbers 3106, 3103, 3113, 3166, 3190 and 3192 (the "Phase I Lots") located within Seller's Property, as more particularly described in EXHIBIT "B" attached hereto, and Buyer desires to purchase the Phase I Lots, in accordance with terms and conditions contained in this Agreement. D. Seller further desires to grant to Buyer the option to purchase a maximum of thirty-four (34) (the "Maximum Option Lots") additional legally subdivided and finished residential lots (the "Option Lots") located within Seller's Property, and Buyer desires to obtain the option to purchase the Option Lots, in accordance with terms and conditions contained in this Agreement. The Option Lots shall be selected by Buyer from all of the lots constituting Seller's Property at the time of exercising each option to purchase such Option Lots and Seller shall have the right to reasonably disapprove of such Option Lots selected by Buyer. The Phase I Lots and the Option Lots shall be collectively referred to herein as the "Property." E. As used herein, the Property shall include the real property described above and all of Seller's right, title and interest in and to all entitlements, easements, rights, mineral rights, oil and gas rights, water, water rights, air rights, development rights and privileges appurtenant to such real property and all improvements located on such real property. Notwithstanding the foregoing, neither the Property, nor any other rights transferred pursuant to this Agreement or the Blanket assignment and Bill of Sale attached hereto as Exhibit "C", (the "Assignment"), shall include any rights or obligations of Seller under that certain Reimbursement Agreement between Seller and Rancho Murieta Community Services District, dated August 18, 1995 (the "Reimbursement Agreement"). 1 AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereby agree as follows: 1. PURCHASE AND SALE. Seller agrees to sell the Phase I Lots to Buyer, and Buyer agrees to purchase the Phase I Lots from Seller, subject to the terms and conditions of this Agreement. 2. OPTION TO PURCHASE. Seller hereby grants to Buyer, within the time period and upon the terms and conditions of this Agreement, the exclusive right and option (the "Option") to purchase the Option Lots. Subject to the following sentence, Buyer shall have the right to exercise the Option in multiple phases and in such increments as Buyer desires, in its sole and absolute discretion, until Buyer has purchased all of the Option Lots. If Buyer fails to exercise the Option to purchase at least six (6) of the Option Lots, with no more than three (3) of such six (6) Option Lots being located on the fairway of the golf course on Seller's Property, during any Option Period (as defined below in Section 2.2), then the Maximum Option Lots shall be reduced by the number of the Option Lots less than six (6) which Buyer failed to exercise the Option to purchase during such Option Period. 2.1 OPTION CONSIDERATION. The Option is granted for the Option Term (as defined below in Section 2.2) in consideration of Buyer's payment to Seller of One Dollar ($1.00) and other valuable consideration, the receipt and adequacy of which are hereby acknowledged by Seller. Regardless of whether the Option is exercised pursuant to the terms of this Agreement, the One Dollar ($1.00) consideration paid by Buyer to Seller pursuant to this Section 2.1 shall not be applied to the Purchase Price for the Phase I Lots (as defined below in Section 3.1) or the Purchase Price for the Option Lots (as defined below in Section 3.2), and shall be retained by Seller as earned consideration for the granting of the Option. 2.2 TERM OF OPTION. The term of the Option (the "Option Term") shall commence on the date (the "Option Commencement Date") that is eight (8) months following the Phase I Closing Date (as defined below in Section 6.2) and shall expire on the date that is twenty four (24) months following the Option Commencement Date, unless extended by a written agreement executed by both Seller and Buyer. The "Option Periods" shall be those consecutive four month periods commencing on the Option Commencement Date and expiring on the expiration of the Option Term. 2.3 EXERCISE OF OPTION. Each Option shall be exercised by Buyer's delivery, during the respective Option Period, of written notice of exercise of each Option (the "Option Exercise Notice") to Seller and Buyer's deposit into the Escrow (as defined below in Section 6.1) of the sum of Twenty-Five Thousand Dollars ($25,000) (the "Option Deposit") in cash (or in the form of a wire transfer or other immediately available funds) for each Option exercised. Upon Buyer's deposit of the Option Deposit 2 into the Escrow, the Option Deposit shall be non-refundable, except as expressly set forth in this Agreement. The Option Deposit shall be credited to the applicable Option Lots Closing Amount (as defined below in Section 3.3.1) at the applicable Option Lots Close of Escrow (as defined below in Section 6.3). The Option Exercise Notice shall specify the Option Lots which the exercise of the Option applies and set forth the date of the closing on such Option Lots which shall not be sooner than ten (10) days following the date of the Option Exercise Notice and not later then thirty (30) days following the date of the Option Exercise Notice. Seller shall have the right to reasonably disapprove of any of the Option Lots selected from Seller's Property in the Option Exercise Notice by providing Buyer with written notice of disapproval of such Option Lots within five (5) days of the date of the Option Exercise Notice. If Buyer does not receive Seller's written notice of disapproval during such five (5) day period, Seller shall be deemed to have approved of the Option Lots selected by Buyer. If Buyer does receive written notice of Seller's reasonable disapproval of any such Option Lots during such five (5) day period, Buyer shall have the right to select other Option Lots from Seller's Property, which must be reasonably approved by Seller, to replace those Option Lots disapproved by Seller. Buyer shall have the right to reasonably extend the closing date set forth in the Option Exercise Notice if Seller disapproves of any Option Lots selected by Buyer. 3. PURCHASE PRICE. 3.1 PURCHASE PRICE FOR PHASE I LOTS. The purchase price for the Phase I Lots (the "Purchase Price for the Phase I Lots") shall be the sum of (a) Two Hundred Forty Thousand Dollars ($240,000), (b) Thirty-Three Thousand One Hundred Seventy Two and 40/100 Dollars ($33,172.40) for park fees payable to Rancho Murieta Association (the "Current Park Fees"), and (c) twenty percent (20%) of the lesser of (i) the Gross Sales Price (as hereinafter defined), or (ii) the Base Sales Price (as hereinafter defined), of each of the Phase I Lots, as improved with a fully completed single-family home, resold by Buyer, LESS Forty Thousand Dollars ($40,000) for each such lot (the "Phase I Success Payments"). The term "Base Sales Price" as used in this Agreement shall mean the greater of (y) the price recommended by the Whitney Research Group, as set forth in EXHIBIT "D" attached hereto, plus a reasonable adjustment for "bonus rooms" offered to specific home buyers, or (z) the listed or advertised price for standard homes offered by Buyer, plus a reasonable adjustment for "bonus rooms" offered to specific home buyers. If the home sizes constructed by Buyer vary from the recommended sizes of the Whitney Research Group, comparable Base Sale Prices shall be reasonably agreed to by Buyer and Seller for each of such homes. The term "Gross Sales Price" as used herein shall mean the gross proceeds of cash and other consideration received by Buyer (whether through escrow or outside of escrow) from the sale of any relevant lot hereunder, (including the cost of all improvements, extras, upgrades or additional items), less any rebates, credits, discounts or other forms of price reduction. The Purchase Price for the Phase I Lots, less the Phase I Success Payments shall be referred to herein as the "Phase I Closing Amount." The Purchase Price for the Phase I Lots shall be payable by Buyer to Seller as follows: 3 3.1.1 DEPOSIT. Within five (5) days of the Effective Date, Buyer shall deposit in the Escrow the sum of Twenty-Five Thousand Dollars ($25,000) (the "Deposit") in cash (or in the form of a wire transfer or other immediately available funds). If Buyer does not terminate this Agreement prior to the expiration of the Feasibility Period (as defined below in Section 7), then upon the expiration of the Feasibility Period, the Deposit shall be non-refundable, except as expressly set forth in this Agreement. The Deposit and the Option Deposit (if such deposit has been made by Buyer pursuant to Section 2.3 hereof) shall be held by the Escrow Agent (as defined below in Section 6.1) in an insured interest-bearing account with an institutional lender acceptable to Buyer and Seller, with interest accruing for the benefit of Buyer. The Deposit shall be credited to the Phase I Closing Amount at the Phase I Close of Escrow (as defined below in Section 6.2). 3.1.2 REMAINDER OF PHASE I CLOSING AMOUNT. Prior to the Phase I Close of Escrow, Buyer shall deposit in the Escrow the remaining portion of the Phase I Closing Amount, in cash (or in the form of a wire transfer or other immediately available funds), for payment to Seller at the Phase I Close of Escrow. 3.1.3 PHASE I SUCCESS PAYMENTS. Upon the closing of the resale of each of the Phase I Lots by Buyer, Buyer shall arrange for the Phase I Success Payments, in cash (or in the form of a wire transfer or other immediately available funds), to be paid directly from the closing on such lots to Seller. 3.2 PURCHASE PRICE FOR OPTION LOTS. The purchase price for the Option Lots (the "Purchase Price for the Option Lots") shall be as follows: 3.2.1 FIRST SIX OPTION LOTS. For the first six (6) Option Lots purchased by Buyer, the sum of (a) the number of Option Lots multiplied by Forty Thousand Dollars ($40,000), (b) the amount allocable for park fees to such lots which is outstanding to the Rancho Murieta Association as of the date of Buyer's purchase of such lots, such amount to be paid to the Rancho Murieta Association (the Current Park Fee is applicable to the Option Lots as of the Effective Date, but it is adjusted annually at the end of each calendar year) (the sum of items (a) and (b) of this Section 3.2.1 shall be collectively referred to herein as the "First Six Option Lots Closing Amount"), and (c) twenty percent of the lesser of (i) the Gross Sales Price, or (ii) the Base Sales Price, of each of the first six (6) Option Lots, as improved with a fully completed single-family home, resold by Buyer, PLUS ten percent (10%) of the Gross Sales Price less the Base Sales Price (assuming the Gross Sales Price is greater than the Base Sales Price), LESS Forty Thousand Dollars ($40,000) for each such Option Lot (the total of this subheading) (c) shall be referred to herein as the "First Six Option Lots Success Payment"). 3.2.2 SECOND SIX OPTION LOTS. For the second six (6) Option Lots purchased by Buyer, the sum of (a) the number of Option Lots multiplied by Forty-Five Thousand Dollars ($45,000), (b) the amount allocable for park fees to such lots which is outstanding to the Rancho Murieta Association as of the date of Buyer's Purchase of such lots, such amount to be paid to the Rancho Murieta Association (the Current Park Fee is applicable to 4 the Option Lots as of the Effective Date, but it is adjusted annually at the end of each calendar year) (the sum of items (a) and (b) of this Section 3.2.2 shall be collectively referred to herein as the "Second Six Option Lots Closing Amount"), and (c) twenty percent of the lesser of (i) the Gross Sales Price, or (ii) the Base Sales Price, of each of the second six (6) Option Lots, as improved with a fully completed single-family home, resold by Buyer, PLUS fifteen percent (15%) of the Gross Sales Price less the Base Sales Price (assuming the Gross Sales Price is greater than the Base Sales Price), LESS Forty-Five Thousand Dollars($45,000) for each such Option Lot (the total of this subheading (c) shall be referred to herein as the "Second Six Option Lots Success Payment"). 3.2.3 REMAINDER OF OPTION LOTS. For the remainder of the Option Lots purchased by Buyer, the sum of (a) the number of Option Lots multiplied by Forty Five Thousand Dollars ($45,000), (b) the amount allocable for park fees to such lots which is outstanding to the Rancho Murieta Association as of the date of Buyer's purchase of such lots, such amount to be paid to the Rancho Murieta Association (the Current Park Fee is applicable to the Option Lots as of the Effective Date, but it is adjusted annually at the end of each calendar year) (the sum of items (a) and (b) of this Section 3.2.3 shall be collectively referred to herein as the "Remainder of Option Lots Closing Amount"), and (c) twenty percent of the Gross Sales Price of each of the remaining Option Lots, as improved with a fully completed single-family home, resold by Buyer, LESS Forty Five Thousand Dollars ($45,000) for each such Option Lot (the total of this subheading (c) shall be referred to herein as the "Remaining Option Lots Success Payment"). The First Six Option Lots Closing Amount, the Second Six Option Lots Closing Amount and the Remainder of Option Lots Closing Amount shall be collectively referred to herein as the "Option Lots Closing Amount." The First Six Option Lots Success Payment, the Second Six Option Lots Success Payment and the Remaining Option Lots Success Payment shall be collectively referred to herein as the "Option Lots Success Payment." 3.3 PAYMENT OF PURCHASE PRICE FOR THE OPTION PAYMENTS. The Purchase Price for the Phase I Lots and the Purchase Price for the Option Lots shall be collectively referred to herein as the "Purchase Price." The Purchase Price for the Option Lots shall be payable by Buyer to Seller as follows: 3.3.1 OPTION LOTS CLOSING AMOUNT. Prior to the Close of Escrow for each group of Option Lots, Buyer shall deposit in the Escrow the Option Lots Closing Amount for the applicable group of Option Lots, less the Option Deposit, in cash (or in the form of a wire transfer or other immediately available funds), for payment to Seller at the Close of Escrow for such Option Lots. 3.3.2 OPTION LOTS SUCCESS PAYMENTS. Upon the closing of the resale of each of the Option Lots by Buyer, Buyer shall arrange for the applicable Option Lots Success Payment, in cash (or in the form of a wire transfer or other immediately available funds), to be paid directly from the closing on each of such Option Lots to Seller. 5 3.4 BUYER'S OBLIGATION TO BUILD HOMES ON LOTS. Buyer agrees to sell each of the Phase I Lots and the Option Lots improved with a single family residence thereon, except (i) in circumstances where Seller has consented in writing to the sale of a bare lot, or (ii) Seller has transferred all of its interest in Seller's Property, except for the Property. In either of such circumstances, a success fee (the "Bare Lot Success Fee") shall be payable by Buyer to Seller for each such lot, in the amount of therefor, twenty percent (20%) of the Gross Purchase Price, but with no reduction of the Forty Thousand Dollars ($40,000) credit (in the case of the Phase I Lots and the first six (6) Option Lots purchased by Buyer) or Forty-Five Thousand Dollars $45,000 (in the case of all other Option Lots), as the case may be, to which Buyer would otherwise be entitled hereunder where an improved lot is being resold by Buyer. 4. LIQUIDATED DAMAGES. BUYER AND SELLER AGREE THAT SHOULD BUYER FAIL TO COMPLETE THE PURCHASE AS HEREIN PROVIDED BY REASON OF DEFAULT OF BUYER, THE PARTIES HERETO, BY INITIALING THIS AGREEMENT AT THE END OF THIS PARAGRAPH, AGREE THAT IT WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO FIX ACTUAL DAMAGES IN CASE OF BUYER'S FAILURE TO COMPLETE THE PURCHASE DUE TO BUYER'S DEFAULT, THAT THE AMOUNT OF THE DEPOSIT PROVIDED FOR IN PARAGRAPH 3.1.1 IS A REASONABLE ESTIMATE OF SELLER'S DAMAGES, AND THAT AS SELLER'S SOLE REMEDY FOR BUYER'S BREACH OF THIS AGREEMENT, IN LAW OR IN EQUITY, SELLER MAY RETAIN THE AMOUNT OF THE DEPOSIT. Buyer's Initials /s/ Seller's Initials /s/ 5. TITLE. 5.1 CONDITION OF TITLE. Seller shall have the Escrow Agent prepare and deliver to Buyer a preliminary title report (the "Title Report") with respect to the Property (with legible copies of all documents referenced therein as exceptions to title) on or prior to five (5) days following the Effective Date. The Title Report shall specify which exceptions apply to the Phase I Lots and which apply to the Option Lots. Within fifteen (15) days of Buyer's receipt of the Title Report, Buyer shall notify Seller in writing which exceptions contained in the Title Report, if any, Buyer disapproves; all other exceptions in the Title Report shall be referred to as "Permitted Exceptions." Seller shall have ten (10) days after receipt of such notice to advise Buyer in writing of any disapproved exceptions which will not be removed by Seller from record title to the Phase I Lots and those Option Lots selected by Buyer, at or prior to each of the Phase I Close of Escrow and the Option Lots Close of Escrow (collectively, the "Close of Escrow"); provided, if Seller does not respond in such ten (10) day period, Seller shall remove all such disapproved exceptions from record title to the Phase I Lots and the Option Lots at or prior to each Close of Escrow for each. If Seller gives Buyer notice prior to expiration of such ten (10) day period of disapproved exceptions that Seller is unable or unwilling to remove from record title to the Phase I Lots or the Option Lots, Buyer may elect to terminate this Agreement at any 6 time prior to the Phase I Close of Escrow; or, alternatively, Buyer may elect to waive its objections to such disapproved exceptions and to classify the exceptions contained in Seller's notice as Permitted Exceptions. Following Seller's receipt of Buyer's written notice approving the Feasibility Matters (as defined below in Section 7.1), Seller shall not, without Buyer's prior written consent, permit any new exceptions to title to be placed on the Phase I lots. At any time prior to the expiration of the Option, Seller agrees not to permit or to cause exceptions to title to Seller's Property, except for such lots within Seller's Property which Seller reasonably disapproves as Option Lots or which are sold by Seller pursuant to Section 13 hereof, to occur with respect to each group of Option Lots which pose a material risk to Seller's ability to convey good title to the Property to Seller in accordance with the terms of this Agreement. 5.2 PHASE I TITLE POLICY. At the Phase I Close of Escrow, Seller shall convey fee title to the Phase I Lots to Buyer by grant deed (the "Phase I Grant Deed"). At the Phase I Close of Escrow, the Escrow Agent shall issue a CLTA owner's policy (or an ALTA owner's policy, if Buyer so elects) of title insurance, (the "Phase I Title Policy") to Buyer in the amount of the estimate Purchase Price for Phase I Lots, subject only to the Permitted Exceptions applicable to the Phase I Lots. 5.3 OPTION LOTS TITLE POLICY. At the Close of Escrow for each group of the Option Lots, Seller shall convey fee title to the particular group of the Option Lots to Buyer by grant deed (the "Option Lots Grant Deed"). At the Close of Escrow for each group of Option Lots, the Escrow Agent shall issue a CLTA owner's policy (or an ALTA owner's policy, if Buyer so elects) of title insurance (the "Option Lots Title Policy"), to Buyer in the amount of the estimated Purchase Price for the particular group of Option Lots, subject only to the Permitted Exceptions applicable to the particular group of Option Lots. 6. ESCROW AND CLOSING. 6.1 OPENING OF ESCROW. Within three (3) business days after the Effective Date, Buyer or Seller shall open an escrow (the "Escrow") with Old Republic Title Company, Sacramento, California (the "Escrow Agent"), by depositing with Escrow Agent a copy of the fully executed Agreement, or executed counterparts hereof. 6.2 PHASE I CLOSING DATE. The closing on the Phase I Lots shall occur on or before October 18, 1996 (the "Phase I Closing Date"). The "Phase I Close of Escrow" shall be deemed to occur at the moment the Phase I Grant Deed is recorded in the County Recorder's Office (the "Official Records"). 6.3 OPTION LOTS CLOSING DATE. Pursuant to Section 2.3 hereof, the Closing Date for each group of Option Lots shall be the date set forth in the Option Exercise Notice. The "Option Lots Close of Escrow" shall be deemed to occur at the moment each applicable Option Lots Grant Deed is recorded in the Official Records. 7 6.4 SELLER'S DEPOSITS. Prior to each Close of Escrow, Seller shall deposit into the Escrow all of the following: 6.4.1 The Phase I Grant Deed or the applicable Option Lots Grant Deed, as the case may be, duly executed and acknowledged by Seller conveying fee title to Buyer; 6.4.2 A FIRPTA Affidavit in the form attached hereto as Exhibit "E", duly executed by Seller certifying that Seller is not a foreign person within the meaning of Section 1445 of Internal Revenue Code; 6.4.3 A California state tax withholding certificate satisfying the requirements of California Revenue and Taxation Code Section 18662 and 18668 (the "California Tax Certificate"); 6.4.4 The Assignment duly executed by Seller; and 6.4.5 Such escrow instructions and additional documents and instruments as may be reasonably necessary to close the Escrow pursuant to this Agreement. 6.5 BUYER'S DEPOSITS. Prior to each Close of Escrow, Buyer shall deposit into the Escrow: 6.5.1 Cash or wired funds in the amount sufficient to pay the balance of the Phase I Closing Amount or the applicable Option Lots Closing Amount, as the case may be, plus Buyer's share of closing costs; and 6.5.2 Such escrow instructions and additional documents and instruments as may be reasonably necessary to close the Escrow pursuant to this Agreement. 6.6 CLOSING COSTS. Seller shall pay such portion of the premium(s) for Buyer's Phase I Title Policy and each of the Option Lots Title Policies, if applicable, equal to standard CLTA owner's coverage and Buyer shall pay any portion of such premium(s) above the standard CLTA owner's coverage. In connection with each Close of Escrow, Buyer and Seller shall pay all other costs related to the transaction in the manner consistent with common practice in residential bulk lot transactions in the County. Each party shall be responsible for paying their own legal costs relating to this transaction. 6.7 PRORATIONS. Seller shall pay at each Close of Escrow any delinquent real property taxes and the prorated amount of all assessments encumbering the Phase I Lots or the Option Lots, as the case may be, or any portion thereof, including the County Improvement Assessment "1915 Bond Act" for the Rancho Murieta Community Services District No. 1 (the "Improvement Act Bonds"), and the Elk Grove Unified School District Community 8 Facilities District No. 1, in accordance with the "Mello-Roos Community Faculty Facilities Act of 1982" (the "Mello-Roos Bonds"). All current, non-delinquent real property taxes and assessments for the Phase I Lots or the Option Lots, as the case may be, shall be prorated at each Close of Escrow on the basis of the most recent tax information. Said prorations shall be based on a thirty (30) day month. 6.8 POSSESSION. Upon each Close of Escrow, exclusive possession of and title to the Phase I Lots or the Option Lots, as the case may be, shall be conveyed to the Buyer, subject only to the applicable Permitted Exceptions. 7. FEASIBILITY STUDY. Buyer shall have the period from the Effective Date until 5 p.m. on the date which is thirty (30) calendar days following the Effective Date (the "Feasibility Period") to: 7.1 Review, in its sole and absolute discretion, the suitability of the Property for Buyer's use and development, including, without limitation, any governmental land regulations, zoning ordinances, architectural and design approvals, development costs, financial and market feasibility, the status of the entitlements of the Property (including, without limitation, the subdivision map status of the Phase I Lots), the presence of "Hazardous Substances" (as defined in Exhibit "F" attached hereto), existing or potential assessments imposed on the Property and the physical condition of the Property (the "Feasibility Matters"); 7.2 Approve or disapprove of the Feasibility Matters; and 7.3 Deliver to Seller and Escrow Agent written notice of Buyer's approval, conditional approval or disapproval of the Feasibility Matters or any of them. If Buyer disapproves of any of the Feasibility Matters, then this Agreement shall terminate, Escrow Agent shall immediately return the Deposit to Buyer without any additional instructions from Seller, Buyer and Seller shall share equally any Escrow and title cancellation charges, the Escrow shall be terminated, and the parties shall have no further rights or obligations under this Agreement. 8. INVESTIGATION OF THE PROPERTY. 8.1 DELIVERY OF DOCUMENTS. Within five (5) days after the Effective Date, Seller shall provide Buyer with complete copies of all of the following documents and materials in Seller's possession, or readily obtainable by Seller, concerning the Property and its improvement, development and operation (collectively, the "Reports"): studies; reports; correspondence; agreements; documents; affordable housing agreements and materials; plans; maps; CC&Rs; home owners' association formation documents, budgets, correspondence or other materials; permits; and entitlements. The Reports shall include, without limitation, the Environmental Report (as hereinafter defined), and copies of any and all other environmental reports and materials, if any, relating to the Property that are in Seller's possession. Additionally, Seller shall immediately provide Buyer with any 9 additional Reports on the Property that arise at any time after the Effective Date and prior to (a) the Option Lots Close of Escrow, if Buyer has exercised the option, or (b) the expiration of the Option Term, if Buyer has failed to exercise the Option prior to the expiration of the Option Term. 8.2 ACCESS AND PROCESSING. 8.2.1 ACCESS. From and after the Effective Date through each Close of Escrow, Buyer, its agents, employees and contractors shall have the right to enter the Property for the purposes of conducting such investigations, inspections and tests of the Property as Buyer deems necessary in order to determine the condition and suitability of the Property including, but not limited to, the Feasibility Matters. Buyer hereby agrees to indemnify and hold Seller harmless from and against any and all loss, expense, claim, damage and injury to person or property resulting from any acts of Buyer, its employees, consultants, engineers, authorized agents and contractors on the Property in connection with the performance of any investigation of the Property as contemplated herein. 8.2.2 PROCESSING. From and after the Effective Date through each Close of Escrow, Buyer shall have the right to process all applications, plans, maps, agreements, documents, and other instruments or entitlements necessary or appropriate for the development of the Property as contemplated by Buyer, including, without limitation, to the extent deemed necessary or advisable by Buyer, home designs and floor plans. Buyer shall proceed with such processing in a diligent manner at its sole cost and expense and, upon written request from Seller, shall advise Seller of the status of any entitlement processing it performs. Seller shall, at no cost or expense to Seller, other than general overhead costs and expenses, cooperate with and assist Buyer in the processing of such items, including without limitation attending meetings with governmental authorities relating to the same, and to the extent necessary or appropriate, executing all such items and materials. 9. BUYER'S CONDITION TO CLOSE. 9.1 Buyer's obligation hereunder to complete the purchase of each phase of the Property is subject to satisfaction of the following conditions at or prior to the applicable Closing Date, each of which is for the sole benefit of Buyer, unless waived by the Buyer in writing: 9.1.1 Seller shall have timely performed each and every one of Seller's obligations set forth in this Agreement; 9.1.2 All of the warranties and representations of Seller set forth in this Agreement shall be true and correct at the Effective Date and the applicable Close of Escrow; 9.1.3 The Escrow Agent shall issue or provide an irrevocable commitment to issue the Title Policy to Buyer at the applicable Close of Escrow; 10 9.1.4 Seller shall have executed and delivered to the Escrow Agent the FIRPTA Certificate and the California Tax Certificate; and 9.1.5 No development, building, construction, water, sewer, utility or other moratorium shall be in existence on the applicable Closing Date that would prevent or limit the City, County or any other public agency from issuing building, grading, sewer or other permits or certificates of occupancy for any single-family residential unit to be constructed on the Property by Buyer. 9.2 In the event any of the conditions set forth in Section 9.1 hereof are not satisfied or waived by Buyer in writing, as and when required, then this Agreement and the Escrow established hereunder shall terminate upon written notice by Buyer to Seller, all documents deposited into Escrow shall be returned to the party who deposited the same without further instructions by either party to the Escrow Agent, and the Deposit and Option Deposit (if such deposit has been made by Buyer pursuant to Section 2.3 hereof) shall be promptly returned to Buyer. In such event, Buyer shall retain all rights and remedies against Seller to the extent Seller has failed to perform any of its obligations hereunder. 10. SELLER'S CONDITION TO CLOSE. 10.1 Seller's obligation hereunder to complete the sale of each phase of the Property is subject to satisfaction of the following conditions at or prior to the Closing Date, each of which is for the sole benefit of Seller, unless waived by the Seller in writing. 10.1.1 Buyer shall have timely performed each and every one of Buyer's obligations set forth in this Agreement; 10.1.2 All of the warranties and representations of Buyer set forth in this Agreement shall be true and correct at the Effective Date and the applicable Close of Escrow; 10.2 In the event any of the conditions set forth in Section 10.1 hereof are not satisfied or waived by Seller in writing, as and when required, then this Agreement and the Escrow established hereunder shall terminate upon written notice by Seller to Buyer, all documents deposited into Escrow shall be returned to the party the same further instructions by either party to the Escrow Agent, and Seller shall retain all rights and remedies against Buyer to the extent Buyer has failed to perform any of its obligations hereunder, as limited by the provisions of Section 4 hereof. In such event, the Deposit shall be returned to Buyer, unless Buyer is in default hereunder. 11 11. REPRESENTATIONS, WARRANTIES AND COVENANTS. 11.1 SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. In addition to the representations, warranties and covenants of Seller contained in other sections of this Agreement, Seller hereby represents, warrants and covenants to Buyer as follows, all of which shall survive each Close of Escrow and any investigation or knowledge of Buyer prior to each Close of Escrow: 11.1.1 Seller is a corporation duly organized, validly existing and in good standing in the State of Nevada, and has the full right, capacity, power and authority as the sole owner in fee simple of the Property to enter into and carry out the terms of this Agreement. Seller has not alienated, encumbered, transferred, leased, assigned or otherwise conveyed its interest in the Property or any portion thereof except as set forth in the Title Report, nor entered into any Agreement to do so, nor shall Seller do so prior to each Close of Escrow. The entering into and performance by Seller of the transactions contemplated by this Agreement will not violate or breach any agreement, covenant or obligation binding on Seller. This Agreement has been duly authorized and executed by Seller and the parties signing on behalf of Seller, and upon delivery to and execution by Buyer shall be a valid and binding agreement of Seller. 11.1.2 For each of the forty (40) lots comprising the Property, Seller has, to the best of Seller's knowledge, (a) graded in accordance with all grading plans by the City, County, State and any other applicable governmental or quasi-governmental agency, body or authority (and any private group, if applicable) (individually an "Authority", and collectively, the "Authorities") having jurisdiction over the Property, and certified to Buyer with respect to compaction by a soils engineer licensed and in good standing in the State and reasonably acceptable to Buyer, and certified by any required Authority (such engineer's and Authorities' certificates being referred to herein collectively as the "Engineers' Certificates"), and suitable for the construction of Buyer's product; (b) caused all water and sewer services to be installed and stubbed to the lot, with each respective service including water meter boxes, meter setter and/or curb stop and sewer clean-outs set to grade and marked with a protective barrier; (c) caused all electricity, telephone, and cable television conduit to be installed and stubbed to the lot lines and capable of being energized for immediate service upon completion of a single-family residence on the lot; (d) caused all storm drain, water, sewer, curb, gutter, sidewalk and pavement frontage improvements to be constructed and installed; (e) caused all street signs and striping installed and street lights to be installed and energized; (f) caused all property corners to be surveyed and marked and all monumentation, perimeter walls and/or perimeter landscaping required by the Authorities or the improvement plans and specifications to be installed; (g) caused all fees (other than ordinary building permit fees and those certain park fees payable pursuant to that certain Park Development Agreement dated February 20, 1991, as amended by that certain Settlement Agreement Regarding Payment of Park Fees executed in August, 1994), exactions and assessments (except for the Improvement Act Bonds and the Mello-Roos Bonds, both of which shall be paid current by Seller, and prorated) to be paid in full 12 by Seller; and (h) completed any and all off-site improvements, park area, open space or other public amenities required by the conditions of approval to the tentative subdivision map(s) and final map for the Property (the "Final Map") or by applicable Authorities that are necessary for construction and occupancy of residential units. 11.1.3 There are no mechanic's or materialman's liens or similar claims or liens now asserted against the Property for work performed or commenced prior to the date hereof other than as described in the Title Report. 11.1.4 Neither Seller nor, to the best of Seller's knowledge, any third party has used, generated, manufactured, stored or disposed any Hazardous Substance in, at, on, under or about the Property or transported any Hazardous Substance to or from the Property. To the best of Seller's knowledge, the Property is not in violation, nor has been or is currently under investigation for violation of any federal, state or local law, ordinance or regulation relating to industrial hygiene, worker health and safety, or to the environmental conditions in, at, on, under or about the Property including, but not limited to, soil and groundwater conditions, except as expressly set forth in that certain Level I Hazardous Materials Site Assessment Rancho Murieta Unit No. 6, dated March, 1992, prepared by W.E.S. Technology (the "Environmental Report"). To the best of Seller's knowledge, the Property has not, except as set forth in the Environmental Report, been subject to, and is not within 2,000 feet of, a deposit of any Hazardous Substance. To the best of Seller's knowledge, except as set forth in the Environmental Report, there has been no discharge, migration or release of any Hazardous Substance from, into, on, under or about the Property, and there is not now, nor has there ever been on or in the Property underground storage tanks or surface or below-grade impoundments, any asbestos-containing materials or any polychlorinated biphenyls used in hydraulic oils, electrical transformers or other equipment. Seller hereby assigns to Buyer as of each Close of Escrow all claims, counterclaims, defenses or actions, whether at common law, or pursuant to any other applicable federal or state or other laws which Seller may have against any third parties relating to the existence of any Hazardous Substance in, at, on, under or about the Property. Moreover, Seller shall defend, indemnify and hold harmless Buyer and its officers, directors, employees, agents, shareholders, attorneys and their respective representatives and successors in interest (collectively, the "Indemnitee") from any liability, loss, cost, damage or expense, including, without limitation, court costs, expert witness' fees and attorneys' fees, that Indemnitee may suffer or incur as a result of any claim, demand, action, cost or judgment made or obtained by any individual, partnership, cooperation, entity, governmental agency or person which arises out of or results from the presence or existence of Hazardous Substances above, below or on the Property to the extent that such Hazardous Substances are or were located in such locations prior to the applicable Close of Escrow. 11.1.5 To the best of Seller's knowledge, there are no endangered species or protected natural habitat, flora or fauna located on the Property (other than the requirement that 13 any oak trees removed from the Property must be replaced pursuant to that certain Sacramento County Ordinance amending Ordinance No. 77-8D-10G regarding a Planned Unit Development known as Rancho Murieta), nor are there any areas of the Property that are or could be designated as wetlands. 11.1.6 There is no pending or threatened suit, action or arbitration, or legal, administrative, or other proceeding or governmental investigation, formal or informal, including but not limited to eminent domain, condemnation, assessment district or zoning change proceeding, or any judgment, moratorium or other government policy or practice which affects the Property or Buyer's anticipated development of the Property. 11.1.7 The Final Map has been approved by all applicable Authorities, subject only to the conditions indicated on the face thereof, and provides for the forty (40) lots comprising the Property. 11.1.8 To the best of Seller's knowledge, all grading and work of improvement performed by or on behalf of Seller on the Property has been performed in a good and workmanlike manner, strictly in accordance with applicable plans therefor approved by the Authorities, and neither such plans nor the grading and other work of improvement contain any error, omission or defect in design, material or workmanship. 11.1.9 Except as set forth on the face of the Final Map, Seller has not made any commitment or representation to any government authority, or any adjoining or surrounding property owner, which would in any way be binding on Buyer or would interfere with Buyer's ability to develop and improve the Property as a residential development, and will not make any such commitment or representation which would affect the Property or any portion thereof prior to each Close of Escrow, without Buyer's written consent, which consent Buyer may grant or withhold in its sole and absolute discretion. 11.1.10 To the best of Seller's knowledge, no seismic safety problem relating to the Property would prevent or impair residential development of the Property. 11.1.11 To the best of Seller's knowledge, Seller is unaware of any other fact that would preclude Buyer from developing the Property as a single-family residential subdivision. Each of the representations and warranties made by Seller in this Agreement, or in any exhibit or on any document or instrument delivered pursuant hereto, shall be true and correct in all material respects on the Effective Date, and shall be deemed to be made again as of each Close of Escrow, and shall then be true and correct in all material respects. The truth and accuracy of each of the representations and warranties, and the performance of all covenants of Seller contained in this Agreement, are conditions precedent to the release of the Deposit 14 to Seller and to each Close of Escrow. Seller shall notify Buyer immediately of any facts or circumstances which are contrary to the foregoing representations and warranties contained in this Section 11.1. 11.2 BUYER'S REPRESENTATIONS AND WARRANTIES. In addition to the representations, warranties and covenants of Buyer contained in other sections of this Agreement, Buyer hereby represents, warrants and covenants to Seller as follows, all of which shall survive each Close of Escrow: 11.2.1 Buyer is a limited liability company duly organized, validly existing and in good standing in the State of California, and has the capacity and full power and authority to enter into and carry out the agreements contained in, and the transactions contemplated by, this Agreement, and that this Agreement has been duly authorized and executed by Buyer and, upon delivery to and execution by Seller, shall be a valid and binding Agreement of Buyer. Buyer's entering into and performance by Buyer of the transactions contemplated by this Agreement will not violate or breach any agreement, covenant or obligation binding on Buyer. 11.2.2 Buyer and any entity or person that owns or controls Buyer are not bankrupt or insolvent under any applicable federal or state standard, have not filed for protection or relief under any applicable bankruptcy or creditor protection statute and have not been threatened by creditors with an involuntary application of any applicable bankruptcy or creditor protection statute. 11.2.3 Prior to Seller transferring all its interest in Seller's Remaining Property or Seller giving its written consent, Buyer shall not resell any of the lots comprising the Property without a single-family residence being first constructed on each of such lots. 12. CONDEMNATION. If, prior to either Close of Escrow, any portion of the Property is taken by any entity by condemnation or with the power of eminent domain, or if the access thereto is reduced or restricted thereby (or is the subject of a pending taking which has not yet been consummated), Seller shall immediately notify Buyer of such fact. In such event, Buyer shall have the right, in Buyer's sole discretion, to terminate this Agreement to all or any portion of the Property upon written notice to Seller and Escrow Agent not later than seven (7) days after receipt of Seller's notice thereof. If this Agreement to any portion of the Property is so terminated, all documents and funds, relating to such portion of the Property, including the Deposit, shall be returned by Escrow Agent to each party who so deposited the same, and neither party shall have any further rights or obligations under this Agreement relating to such portion of the Property, except for payment of escrow cancellation fees which shall be borne equally by Buyer and Seller. Alternatively, Buyer may proceed to consummate the transaction provided for herein at Buyer's sole election, in which event Seller shall assign and turn over, and Buyer shall be entitled to receive and keep, any and all awards made or to be made in connection with such condemnation or eminent domain, and the parties shall proceed to such Close of Escrow pursuant to the terms hereof, without any reduction in the applicable Purchase 15 Price. Provided that Seller shall be entitled to recover from Buyer, out of such condemnation proceeds, Seller's reasonable and necessary attorneys' fees which were directly and solely relative to such condemnation and which were incurred prior to Buyer's notice of intention to proceed with consummation of the sale transaction, and PROVIDED FURTHER that Buyer shall be limited in recovery rights for condemnation proceeds to making claim against the condemning governmental agency. 13. SALE OF SELLER'S PROPERTY. Seller is currently engaged in the process of selling Seller's Property. In the event that Buyer identifies in writing to Seller a potential purchaser of a lot within Seller's Property who subsequently consummates a sale of such lot from Seller, Buyer shall be entitled to receive a six percent (6%) commission (less any commission payable to a participating broker in any such transaction) from Seller based on the purchase price of such lot, which shall be immediately payable to Buyer on the closing on such lot. Notwithstanding anything to the contrary in this Section 13 or elsewhere in this Agreement, Seller shall be free to sell lots within Seller's Property on an individual basis at any time, provided such sales do not deprive Buyer from exercising the Option to purchase the Maximum Option Lots provided for in this Agreement. 14. BROKERS. Each party shall be responsible to pay any sales or brokerage commission each has incurred in connection with this transaction. Each party hereto hereby agrees to indemnify, defend and hold the other harmless from any real estate brokerage commission, finders fee, and all costs and expenses (including reasonable attorneys' fees) of investigating and defending any such claims, payable to any realtor or finder, which such party may engage or is claimed to have engaged in connection with this transaction. 15. GENERAL PROVISIONS. 15.1 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which, taken together, shall constitute one and the same instrument. 15.2 ENTIRE AGREEMENT. This Agreement, together with all exhibits hereto and documents referred to herein, if any, constitute the entire agreement among the parties hereto with respect to the subject matter hereof, and supersede all prior understandings or agreements, including the January 11, 1996 letter agreement between the parties. This Agreement may be modified only by a writing signed by both parties. All exhibits to which reference is made in this Agreement are deemed incorporated in this Agreement whether or not actually attached. 15.3 PARTIAL INVALIDITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of the Agreement shall continue in full force and effect and shall in no way be impaired or invalidated, and the parties agree to substitute for the invalid or unenforceable provision a valid and enforceable 16 provision that most closely approximates the intent and economic effect of the invalid or unenforceable provision. 15.4 CHOICE OF LAW. This Agreement and each and every related document are to be governed by, and construed in accordance with, the laws of the State of California. 15.5 WAIVER OF COVENANTS, CONDITIONS OR REMEDIES. The waiver by one party of the performance of any covenant, condition or promise, or of the time for performing any act, under this Agreement shall not invalidate this Agreement nor shall it be considered a waiver by such party of any other covenant, condition or promise, or of the time for performing any other act required, under this Agreement. The exercise of any remedy provided in this Agreement shall not be a waiver of any consistent remedy provided by law, and the provisions of this Agreement for any remedy shall not exclude any other consistent remedies unless they are expressly excluded. 15.6 LEGAL ADVICE. Each party has received independent legal advice from its attorneys with respect to the advisability of executing this Agreement and the meaning of the provisions hereof. The provisions of this Agreement shall be construed as to the fair meaning and not for or against any party based upon any attribution of such party as the sole source of the language in question. 15.7 TIME OF THE ESSENCE. Time shall be of the essence as to all dates and times of performance, whether they are contained herein or contained in any escrow instructions to be executed pursuant to this Agreement. 15.8 ATTORNEYS' FEES. In the event that any party hereto institutes an action or proceeding for a declaration of the rights of the parties under this Agreement, for injunctive relief, for an alleged breach or default of, or any other action arising out of, this Agreement, or the transactions contemplated hereby, or in the event any party is in default of its obligations pursuant thereto, whether or not suit is filed or prosecuted to final judgment, the non-defaulting party or prevailing party shall be entitled to its actual attorneys' fees and to any court costs incurred, in addition to any other damages or relief awarded. 15.9 ASSIGNMENT. Buyer may not assign this Agreement or any of its rights and obligations hereunder without the written consent of Seller, except for transfer to any entity which is wholly or commonly owned by Buyer. If Seller gives its written consent to any such assignment by Buyer and such assignee expressly assumes all of Buyer's obligations under this Agreement, Buyer shall be fully relieved from any further liability hereunder. This Agreement shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the parties to this Agreement. 15.10 NOTICES. All notices and demands which either party is required or desires to give to the other shall be given in writing by certified mail, return receipt requested with 17 appropriate postage paid, by personal delivery, or by private overnight courier service to the address set forth below for the respective party, provided that if any party gives notice of a change of name or address, notices to that party shall thereafter be given as demanded in that notice. All notices and demands so given shall be effective only upon receipt or refusal of delivery by the party to whom notice or demand is being given. If to Seller: SHF Acquisition Corporation 4045 S. Spencer Street Suite 206 Las Vegas, NV 89119 Attn: James H. Dale Telephone Number: (702) 732-7474 Fax Number: (702) 737-1065 With a copy to: Calfee & Young 611 North Street Woodland, CA 95695 Attn: Christopher J. Konwinski, Esq. Telephone Number: (916) 666-2185 Fax Number: (916) 666-3123 If to Buyer: Murieta Investors, LLC c/o Leveraged Equity Management, Inc. One Market, Suite 2801 San Francisco, California 94105 Attn: Mr. Eric P. Von der Porten Telephone Number: (415) 284-0778 Fax Number: (415) 284-0784 With a Copy to: Gray Cary Ware & Freidenrich 400 Hamilton Avenue Palo Alto, California 94301 Attn: Thomas M. French, Esq. Telephone Number: (415) 833-2028 Fax Number: (415) 327-3699 15.11 CONFIDENTIALITY. Buyer and Seller acknowledge that the terms, conditions and contents of this Agreement are confidential, and Buyer and Seller each hereby agrees that Buyer and Seller, and their respective directors, officers, employees, agents, legal counsel, consultants and independent contractors (collectively, "Agents") shall keep the terms, conditions and contents of this Agreement strictly confidential except as otherwise permitted in this Section 15.11. Accordingly, Buyer and Seller agree that they shall not, without the prior written consent of the other, release, publish or otherwise distribute, and shall not authorize or permit any of its Agents to release, publish or otherwise distribute, the terms, conditions and contents of the Agreement to any person other than such party and 18 its Agents for this transaction, but then only to the extent that any such Agent needs to know the terms, conditions and contents of the Agreement to evaluate the Property. Notwithstanding anything to the contrary herein, neither Buyer nor Seller shall be in breach of its obligations hereunder if it or its Agents: (a) disclose the existence and terms of this Agreement to the City and/or any lenders of Seller or Buyer to the extent reasonably necessary to cause the Close of Escrow to occur as contemplated herein, provided any such disclosure shall be made expressly subject to the terms of this Section 15.11; (b) are required by law to disclose any such matters; (c) disclose the information contained in the Memorandum of Agreement (as defined below in Section 15.13). 15.12 EXCLUSIVITY. Seller agrees not to solicit, discuss, or entertain other offers or proposals relating to the Property prior to the earlier of: (a) Buyer's termination of this Agreement pursuant to Section 7 hereof, or (b) the expiration of the Option Term. 15.13 MEMORANDUM OF AGREEMENT. Buyer shall have the right to record a memorandum of agreement in the form of Exhibit "G" attached hereto in the Official Records upon Buyer's written approval of the Feasibility Matters. IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. SELLER SHE ACQUISITION CORPORATION, a Nevada corporation By: /s/ James H. Dale Its: President BUYER: MURIETA INVESTORS, LLC, a California limited liability company By: /s/ Eric P. Von der Porten Its: Member 19 ACCEPTANCE BY ESCROW AGENT: Escrow Agent hereby acknowledges that it has received a fully executed counterpart of the foregoing Agreement and agrees to act as Escrow Agent thereunder and to be bound by and perform the terms thereof as such terms apply to Escrow Agent. Dated: By: Name: Its: 20 EXHIBIT A LEGAL DESCRIPTION OF SELLER'S PROPERTY 21 EXHIBIT B LEGAL DESCRIPTION OF THE PHASE I LOTS 22 EXHIBIT C BLANKET ASSIGNMENT AND BILL OF SALE Reference is hereby made to (a) that certain property located in the development commonly known as Village 6 of Rancho Murieta, County of Sacramento, State of California as more particularly described on EXHIBIT "A" attached hereto, (b) to the improvements located thereon, and (c) to the rights, privileges and entitlements incident thereto (collectively, the "Property"). For good and valuable consideration, receipt of which is hereby acknowledged, the undersigned, SHF Acquisition Corporation, a Nevada corporation ("Seller"), does hereby, give, grant, bargain, sell, transfer, assign, convey and deliver to Murieta Investors, LLC, a California limited liability company ("Buyer"), all of Seller's right, title and interest in all assets, rights, materials and/or claims used, owned or held in connection with the use, management, development or enjoyment of the Property, including, without limitation: (a) all entitlements, subdivision agreements and other agreements relating to the development of the Property; (b) all plans, specifications, maps, drawings and other renderings relating to the Property; (c) all warranties, claims and any similar rights relating to and benefiting the Property or the assets transferred hereby; (d) all intangible rights, goodwill and rights benefiting the Property; (e) all development rights benefiting the Property; (f) all rights, claims or awards benefiting the Property; (g) all personal property located on or about the Property; and (h) all rights to receive a reimbursement, credit or refund from the applicable agency or entity of any deposits or fees paid in connection with the development of the Property. Notwithstanding the foregoing, it is acknowledged that none of Seller's rights and obligations under the Reimbursement Agreement (as defined in that certain Purchase and Option Agreement between Seller and Buyer dated __________, 1996) are being assigned to Buyer. Seller hereby covenants that it will, at any time and from time to time upon written request therefor, execute and deliver to Buyer, its nominees, successor and/or assigns, any new or confirmatory instruments and do and perform any other acts which Buyer, its nominees, successors and/or assigns, may request in order to fully transfer possession and control of, and protect the rights of Buyer, its nominees, successors and/or assigns in, all the assets of Seller intended to be transferred and assigned hereby. SELLER: SHF ACQUISITION CORPORATION, a Nevada corporation By: /s/ James H. Dale Its: President 23 EXHIBIT D WHITNER RESEARCH GROUP PRICE LIST 24 EXHIBIT E FIRPTA AFFIDAVIT DATE: October 8, 1996 Murieta Investors, LLC c/o Leveraged Equity Management, Inc. One Market, Suite 2801 San Francisco, California 94105 Attn: Mr. Eric P. Von der Porten Re: Internal Revenue Code Section 1445 Dear Eric: Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform the transferee that withholding of tax is not required upon the disposition of a U.S. real property interest by the undersigned hereby certifies the following on behalf of SHF ACQUISITION CORPORATION, a Nevada corporation ("Seller"). 1. Seller is not a foreign corporation, foreign partnership, foreign trust, or foreign estate (as those terms are defined in the Internal Revenue Code and Income Tax Regulations): 2. Seller's U.S. employer identification number is 88-0242928; 3. Seller's office address is 4045 S. Spencer St. Ste. 206, Las Vegas, NV 89119; and 4. Seller understands that this certification may be disclosed to the Internal Revenue Service by transferee and that any false statement contained herein could be punished by fine, imprisonment, or both. Under penalties of perjury, I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct and complete, and I further declare that I have authority to sign this document on behalf of Seller. SELLER SHF ACQUISITION CORPORATION, a Nevada corporation By: /s/ James H. Dale Its: President 25 EXHIBIT F DEFINITION OF HAZARDOUS SUBSTANCE The term "Hazardous Substance" as used in this Agreement shall mean any toxic or hazardous substance, material or waste or any pollutant or contaminant or infectious or radioactive material, including but not limited to those substances, materials or wastes regulated now or in the future under any of the statutes or regulations listed below and any and all of those substances included within the definitions of "hazardous substances", "hazardous materials", "hazardous waste", "hazardous chemical substance or mixture", "imminently hazardous chemical substance or mixture", "toxic substances", "hazardous air pollutant", "toxic pollutant" or "solid waste" in the statues or regulations listed below. Hazardous Substances shall also mean any and all other similar terms defined in other federal state and local laws, statutes, regulations, orders or rules and materials and wastes which are, or in the future become, regulated under applicable local, state or federal law for the protection of health or the environment or which are classified as hazardous or toxic substances, materials or waste, pollutants or contaminants, as defined, listed or regulated by any federal, state or local law, regulation or order or by common law decision, including, without limitation, (a) trichloroethylene, tetrachloroethylene, perchloroethylene and other chlorinated solvents, (b) any petroleum products or fractions thereof, (c) asbestos, (d) polychlorinated biphenyls, (e) flammable explosives, (f) urea formaldehyde, and (g) radioactive materials and waste. In addition, a Hazardous Substance shall include: (1) A "Hazardous Substance", "Hazardous Material", "Hazardous Waste", or "Toxic Substance" under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Sections 9601, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq., or the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.; (2) An "Extremely Hazardous Waste", a "Hazardous Waste", or a "Restricted Hazardous Waste", under Sections 25115, 25117 or 25122.7 of the California Health and Safety Code, or is listed or identified pursuant to Sections 25140 or 44321 of the California Health and Safety Code; (3) A "Hazardous Material", "Hazardous Substance", "Hazardous Waste", "Toxic Air Contaminant", or "Medical Waste" under Sections 25281, 25316, 25501, 25501.1, 25023.2 or 39655 of the California Health and Safety Code; (4) "Oil" or a "Hazardous Substance" listed or identified pursuant to Section 311 of the Federal Water Pollution Control Act, 33 U.S.C. Section 1321, as well as any other hydrocarbon substance or by-product; (5) A "Hazardous Waste", "Extremely Hazardous Waste", or an "Acutely Hazardous Waste" listed or defined pursuant to Chapter 11 of Title 22 of the California Code of Regulations; 26 (6) A chemical listed by the State of California as known to cause cancer or reproductive toxicity pursuant to Section 25249.8(a) of the California Health and Safety Code; (7) A material which due to its characteristics or interaction with one or more other substances, chemical compounds, or mixtures, damages or threatens to damage, health, safety, or the environment, or is required by any law or public agency to be remediated, including remediation which such law or public agency requires in order for the property to be put to any lawful purpose; (8) Any material the presence of which would require remediation pursuant to the guidelines set forth in the State of California Leaking Underground Fuel Tank Field Manual, whether or not the presence of such material resulted from a leaking underground fuel tank; (9) Pesticides regulated under the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Sections 136 et seq.; (10) Asbestos, PCBs, and other substances regulated under the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq.; (11) Any radioactive material including, without limitation, any "source material", "special nuclear material", "by-product material", "low-level wastes", "high level radioactive waste", "spent nuclear fuel" or "transuranic waste", and any other radioactive materials or radioactive wastes, however produced, regulated under the Atomic Energy Act, 42 U.S.C. Sections 2011 et seq., the Nuclear Waste Policy Act, 42 U.S.C. Sections 10101 et seq., or pursuant to the California Radiation Control Law, California Health and Safety Code Sections 25800 et seq.; (12) Industrial process and pollution control wastes, whether or not "hazardous" within the meaning of the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq.; (13) Any material regulated under the Occupational Safety and Health Act, 29 U.S.C. Sections 651 et seq., or the California Occupational Safety and Health Act, California Labor Code Sections 6300 et seq.; and/or (14) Any material regulated under the Clean Air Act, 42 U.S.C. Sections 7401 et seq. or pursuant to Division 26 of the California Health and Safety Code. All other laws, ordinances, codes, statutes, regulations, administrative rules, policies and orders, promulgated pursuant to said foregoing statutes and regulations or any amendments or replacement thereof, provided such amendments or replacements shall in no way limit the original scope and/or definition of Hazardous Substance defined herein. 27 EX-21.01 7 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 EX-27.01 8
5 This schedule contains summary financial information extracted from the consolidated balance sheet and consolidated statements of income (loss) on pages F-2 through F-5 of the Company's annual report on Form 10-K and is qualified in it's entirety by reference to such financial statements. 1,000 YEAR DEC-31-1996 DEC-31-1996 1,283 527 274 141 38 0 2,102 424 17,126 0 0 0 5 3,900 6,538 17,126 1,128 2,982 1,226 2,443 1,656 556 230 (1,692) 0 (1,692) 0 0 0 (1,789) (.29) (.29)
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