FORM 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): December 24, 1996
NuOasis Gaming, Inc.
(Exact name of registrant as specified in its charter.)
Delaware
(State of incorporation or organization)
33-73240 95-4176781
- -------------------------------------------------------------------------------
(Commission File Number) (I.R.S. Employee Identification No.)
2 Park Plaza, Suite 470, Irvine, California 92614
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 833-5382
(Former name or former address, if changed since last report)
N/A
Total number of pages:
[NUOGAM\8K\NPC.8K]-7
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Item 1. Changes in Control of Registrant
N/A
Item 2. Acquisition or Disposition of Assets
Pursuant to a Stock Purchase Agreement dated December 19, 1996
with the shareholders of National Pools Corporation("NPC") (the "Agreement"),
the Registrant acquired 33,457,689 shares of NPC representing 100% of the issued
and outstanding shares of NPC.
The transaction closed on December 24, 1996 whereupon the
Registrant issued a series of Convertible Promissory Notes in the aggregate
amount of approximately $1,200,000 and agreed to issue 1,000,000 shares of
common stock to the shareholders of NPC when there are sufficient authorized
shares available for issuance.
The terms and conditions of the agreement were determined as a
result of arms length negotiations between unrelated parties.
Item 3. Bankruptcy or Receivership
N/A
Item 4. Changes in Registrant's Certifying Accountant
N/A
Item 5. Other Events
N/A
Item 6. Change in Registrant's Directors
On November 25, 1996 the Board elected Joseph Monterosso to
fill one of the vacancies on the Board of Directors.
[NUOGAM\8K\NPC.8K]-7
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Item 7. Financial Statements and Exhibits
(a) Financial Statements
The audited financial statements of National Pools
Corporation together with a manually signed accountant's report for
the period ending June 30, 1996, and the unaudited financial
statements for the quarter ending September 30, 1996 are filed as an
exhibit in this Current Report.
(b) Proforma Financial Statements
The following are attached hereto:
1. Pro Forma Consolidated Balance Sheets as of June
30, 1996
2. Pro Forma Consolidated Statement of Operations for
the year ended June 30, 1996.
3. Pro Forma Consolidated Statement of Operations for
the three months ended September 30, 1996.
(c) Exhibits
1. Stock Purchase Agreement dated December 19, 1996.
2. Audited Financial Statements of National Pools
Corporation as of December 31, 1995, and for the
year then ended, and Unaudited Financial
Statements of National Pools Corporation as of
September 30, 1996 and for the three and nine
months then ended.
3. Director Acceptance letter by Joseph Monterosso.
Item 8. Change in Registrant's Fiscal Year
N/A
[NUOGAM\8K\NPC.8K]-7
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
NuOasis Gaming Inc.
(Registrant)
Dated: January 13, 1997 By: /s/ Joseph Monterosso
----------------------------------
Joseph Monterosso,
President and Director
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NUOASIS GAMING, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AND STATEMENTS OF OPERATIONS
(Unaudited)
To Reflect the
Acquisition of
National Pools Corporation
The following unaudited pro forma consolidated balance sheet as of September 30,
1996 and the unaudited pro forma consolidated statement of operations for the
three months ended September 30, 1996, give effect to the acquisition of all the
outstanding shares of National Pools Corporation, ("NPC") by NuOasis Gaming
Inc., ("NuOasis") which acquisition was completed on December 24, 1996, and
other related transactions which are expected to occur in the near future
(collectively, the "Transaction"). The pro forma consolidated information is
based on the historical financial statements of NuOasis Gaming and NPC and
includes the effect of the acquisition under the purchase method of accounting
and the assumptions and adjustments set forth in the accompanying notes to the
pro forma consolidated financial statements. The pro forma consolidated balance
sheet presents the financial position of NuOasis Gaming as if it had acquired
NPC as of September 30, 1996. The pro forma consolidated statement of operations
presents the result of operations of NuOasis Gaming as if it had acquired NPC as
of July 1, 1995.
The unaudited pro forma consolidated balance sheet as of September 30, 1996 and
the unaudited pro forma consolidated statement of operations for the year ended
June 30, 1996 and for the three months ended September 30, 1996 may not be
indicative of the results which may be obtained in the future or that actually
would have occurred if the Transaction closed on July 1, 1995, and the
combination had been in effect on the dates indicated. These unaudited pro forma
consolidated financial statements should be read in conjunction with the NuOasis
Gaming audited financial statements and notes included in its Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1996, and the NPC's audited
financial statements and notes contained elsewhere herein.
[NUOGAM\8K\NPC.8K]-7
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<PAGE>
<TABLE>
<CAPTION>
NUOASIS GAMING, INC.
PRO FORMA CONSOLIDATED BALANCE SHEETS
As of September 30, 1996
(Unaudited)
Pro Forma Pro Forma
NuOasis NPC Adjustments Totals
----------------- ----------------- ------------------------- -----------------
ASSETS
<S> <C> <C> <C> <C>
Cash $ 2,022 $ 15,211 $ 3,000,000 (B)(E) $ 3,017,233
Employee Advances - 30,939 - 30,939
Fixed Assets, Net - 49,642 - 49,642
Intangibles, Net - 54,912 - (A)(D) 54,912
Investment in NPC - - - (A)(B) -
Other Assets - 6,573 - 6,573
------------------ ------------------ ------------------------- -----------------
Total Assets $ 2,022 $ 157,277 $ 3,000,000 $ 3,159,299
================= ================== ========================= =================
LIABILITIES &
STOCKHOLDERS' DEFICIT
Current Liabilities $ 79,436 $ 1,081,320 $ - $ 1,160,756
Due to Affiliates 760,198 - 1,540,415 (B)(E) 2,300,613
Notes Payable - 929,180 1,325,000 (A) 2,254,180
------------------ ------------------ ------------------- -----------------
Total Liabilities 839,634 2,010,500 2,865,415 5,715,549
Stockholders' Deficit
Preferred Stock Series B 501,700 - - (A) 501,700
Common Stock 300,000 991,764 (991,764) (A) 300,000
Stockholders' Receivable (1,326,613) - 1,368,000 (A)(B) 41,387
Additional Paid in Capital 12,376,196 - (12,186,132) (A) 190,064
Accumulated Deficit (12,688,895) (2,844,987) 11,944,481 (A)(B)(C)(D) (3,589,401)
------------------ ------------------ ------------------ ------------------
Total Stockholders' Deficit (837,612) (1,853,223) 134,585 (2,556,250)
------------------ ------------------ ------------------ ------------------
Total Liabilities and
Stockholders' Equity $ 2,022 $ 157,277 $ 3,000,000 $ 3,159,299
================== ================== ================== ==================
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
[NUOGAM\8K\NPC.8K]-7
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<PAGE>
<TABLE>
<CAPTION>
NUOASIS GAMING, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1996
(Unaudited)
Pro Forma Pro Forma
NuOasis NPC Adjustments Totals
- ----------------------------------- --------------- -------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Operating Expenses $ 1,087,987 $ 406,524 $ - $ 1,494,511
Write-off Goodwill - - 835,999 (A)(D) 835,999
Research & Development - 195,762 - 195,762
---------------- --------------- ------------------ -----------------
Total operating expenses 1,087,987 602,286 835,999 2,526,272
Interest Expense - 227,095 96,000 (C) 323,095
Loss on Disposal of Asset - 12,684 91,585 (B) 104,269
---------------- --------------- ------------------ -----------------
Net income before extraordinary
item (1,087,987) (842,065) (1,023,584) (2,953,636)
Extraordinary item
Extinguishment of Debt
Benefit - 384,860 - 384,860
---------------- --------------- ------------------ -----------------
Net Income $ (1,087,987) $ (457,205) $ (1,023,584) $ (2,568,776)
================ =============== ================== ==================
Pro forma net loss per share $ (.04) $ N/A $ N/A $ (.09) (F)
================ =============== ================= ==================
Pro forma weighted-average common
shares outstanding 28,301,697 N/A N/A 28,301,697 (F)
================ =============== ================= =================
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
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<TABLE>
<CAPTION>
NUOASIS GAMING, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1996
(Unaudited)
Pro Forma Pro Forma
NuOasis NPC Adjustments Totals
----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Operating Expenses $ 189,067 $ 136,788 $ - $ 325,855
Write-off Goodwill - - - -
Research & Development - 5,178 - 5,178
----------------- ----------------- ---------------- ---------------
Total operating expenses 189,067 141,966 - 331,033
Interest Expense - 32,238 24,000 (C) 56,238
----------------- ----------------- ---------------- ---------------
Net Income $ (189,067) $ (174,204) $ (24,000) $ (387,271)
================= ================= ================ ================
Pro forma net loss per share $ (.01) $ N/A $ N/A $ (.01) (F)
================= ================ ================ ================
Pro forma weighted-average
common shares outstanding 30,000,000 N/A N/A 30,000,000 (F)
================= ================= ================ ================
</TABLE>
See Accompanying Notes to Pro Forma Consolidated Financial Statements.
[NUOGAM\8K\NPC.8K]-7
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<PAGE>
NUOASIS GAMING, INC.
Notes to Pro Forma Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The unaudited pro forma consolidated balance sheet as of September 30, 1996 and
the unaudited pro forma consolidated statement of operations for the three
months ended September 30, 1996 of NuOasis reflect the acquisition of NPC and
the unaudited pro forma consolidated financial statements and operations of
NuOasis as if it had acquired NPC as of July 1, 1995.
These unaudited pro forma consolidated financial statements do not purport to be
indicative of the results that actually would have been obtained if the two
companies and their operations had actually been combined at July 1, 1995, and
this presentation is not intended to be a projection of future results or
trends.
These proforma financial statements are presented assuming that NPC is the
accounting acquiror. As a result of the Transaction, the shareholders of NPC
will become the largest NuOasis equity ownership group, and the control group of
NPC will continue in control of the surviving entity.
These proforma financial statements are presented assuming that all
contingencies surrounding the Transaction, described in Note 2 herein, have
occurred.
Note 2. Background and Overview of the Transaction
NPC was formed in 1993 for the purpose of developing and operating a system to
facilitate participation in group play in state lotteries in the United States
and the lotteries of foreign countries. The program developed by NPC was named
"Hit-Lotto". The Hit-Lotto program uses debit cards, telecommunications,
Internet Website, and proprietary computer software to organize and market
lottery pools for lottery players who participate in various state lotteries.
Since inception NPC's operations have been devoted primarily to the formulation
and design of the telecommunication and computer technology to support the
Hit-Lotto program. In August, 1994, Hit-Lotto was tested in the San Diego
market: development is ongoing.
On June 13, 1996 Nona Morelli's II, Inc. ("Nona"), the controlling parent of
NuOasis, granted an option to Joseph Monterosso, the President and Chief
Executive Officer of NPC ("Monterosso"), to acquire 250,000 Series B Preferred
Shares (the "Series B Shares") owned by Nona. Such option is exercisable at a
price of $13.00 per share. Monterosso has subsequently conditionally assigned
his rights under the option as to 95,000 Series B Shares to certain shareholders
of NPC and other investors, leaving him with rights under the option to purchase
155,000 Series B Shares.
On December 19, 1996 NuOasis entered into a Stock Purchase Agreements with each
of the shareholders of NPC pursuant to which it agreed to issue a series of
Secured Promissory Notes (the "Notes") in the aggregate amount of $1,200,000 and
1,000,000 shares of its common stock to the NPC shareholders in exchange for all
of the issued and outstanding shares of capital stock of NPC. The Notes are
convertible into a total of 241,900,000 shares of NuOasis' common stock
contingent upon NPC's operations achieving certain financial goals over the next
several fiscal years. The Notes are non-recourse to NuOasis and secured by the
assets of NPC, bear interest at 8% per annum, and are due and payable on May 31,
1999. Under the terms of the Notes, for every $250,000 of net annual operating
income achieved by NPC, $7,500 in principal amount of the Notes may be converted
[NUOGAM\8K\NPC.8K]-7
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NUOASIS GAMING, INC.
Notes to Pro Forma Financial Statements
(Unaudited)
into 1,511,875 shares of restricted NuOasis common stock. As part of this
acquisition, Nona and NuOasis agreed to a debt assumption agreement whereby all
third party NuOasis debt in excess of $20,000 on December 24, 1996 is to be
converted into shares of NuOasis common stock: the conversion rate is based upon
the prevailing market price on the date of the next NuOasis Shareholder's
Meeting.
The audited financial statements of NPC are included herein as an exhibit. Such
audit reports explain that NPC's financial statements have been prepared
assuming that NPC will continue as a going concern and that such statements do
not include any adjustments that may result in the event it is unable to do so.
The audited financial statements of NPC also reflect that it has incurred
operating losses of $2,401,992 from its inception and had negative working
capital of $1,581,827, as of December 31, 1995. Unaudited financial statements
of NPC for the quarter ended September 30, 1996 are also included herein as an
exhibit.
Subject to the exercise of the Option and the sale by Nona of the Series B
Shares, NuOasis has agreed to fund NPC's future operations. Exercise of the
Option is contingent upon the approval of an amendment to the NuOasis
Certificate of Incorporation allowing for its authorized capital stock to be
increased to have sufficient shares of its common stock available for conversion
of the Notes. Upon such Amendment to the NuOasis Certificate of Incorporation,
and the acquisition of the Series B Shares, there will be a change of control of
NuOasis. If the NuOasis shareholders do not approve such Amendment to the
Certificate of Incorporation it is unlikely that the Series B Shares will be
acquired pursuant to the Option and, in this event, NPC may not have sufficient
working capital to "roll out" the Hit-Lotto program on a commercial basis, and
there will not be a change of control of NuOasis. The Transaction is divided
into three phases and summarized as follows:
Phase I : Acquisition of NPC, which closed on December 24, 1996
Phase II: Exercise of 95,000 Series B Shares
Holders of the Option exercise the option to purchase 95,000
Series B Shares, at $13.00 per share, by payment to Nona of
$1,235,000. The 95,000 Series B Shares so acquired may then
immediately be converted into 7,410,000 shares of restricted
NuOasis common stock at the election of the holders.
Subject to the exercise of the Option as to the 95,000 Series
B Shares, NuOasis has agreed to sell its wholly-owned
subsidiary, CMA, to Nona for $1,235,000. Upon the sale of CMA,
NuOasis intends to contribute most if not all of the proceeds
of the sale of CMA to NPC, its wholly owned subsidiary, for
working capital.
[NUOGAM\8K\NPC.8K]-7
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<PAGE>
NUOASIS GAMING, INC.
Notes to Pro Forma Financial Statements
(Unaudited)
Phase III: Exercise of 155,000 Series B Shares
Following the initial exercise of 95,000 Series B Shares, if
such exercise occurs, there will be remaining 155,000 Series B
Shares available under the Option. If exercised, the 155,000
Series B Shares could immediately be converted into 12,090,000
common shares. The exercise and sale of such remaining Series
B Shares will result in an additional $2,015,000 in proceeds
to Nona which Nona intends to utilize to satisfy any
intercompany payables owed to NuOasis of up to $1,765,000 as
of the date Phase III occurs. No amounts are owed by Nona to
NuOasis as of September 30, 1996 assuming Phase II occurs,
therefore, the entire $1,765,000 is assumed to be a short term
loan from Nona to NuOasis and accordingly reflected as such in
the pro forma financial statements (see Note 4).
Note 3. Difference in Fiscal Year Ends
NPC's most recent fiscal year end of December 31, 1995 differs from the
Registrant's most recent fiscal year end of June 30, 1996 by more than 93 days.
NPC's income statement is updated to March 31, 1996 which is within 93 days of
the Registrant's most recent fiscal year end of June 30, 1996. This updating is
accomplished by adding subsequent interim period results of three months ended
March 31, 1996 to the most recent fiscal year-end information of December 31,
1995 and deducting the comparable preceding year interim period results of the
three months ended March 31, 1995.
During the most recent fiscal year end of NuOasis, a change in fiscal year end
was made from September 30 to June 30 and, accordingly, the most recent fiscal
year ended June 30, 1996 results include only nine months ended June 30, 1996.
Since NPC's latest fiscal year is a twelve month period and that NPC is the
accounting acquiror, the latest fiscal year (nine months) of NuOasis ended June
30,1996 have been shown to present a twelve month period ended June 30, 1996.
The twelve months ended June 30, 1996 is accomplished by adding NuOasis' interim
period results of three months ended September 30, 1995 to its nine months ended
June 30, 1996 results.
Note 4. Adjustments to Proforma Financial Statements
(A) Acquisition of NPC
This adjustment reflects (i) the acquisition of 100% of the outstanding stock of
NPC in exchange for the Note in the amount of $1.2 million and the issuance of 1
million shares of NuOasis restricted common stock valued at $125,000, the low
bid price on the purchase date of $.12 per share; (ii) the elimination of
NuOasis' capital account, including accumulated deficit in the amount of
$12,688,895 and additional paid in capital in the amount of $11,852,896; and,
(iii) the recording of "goodwill" in the amount of $835,999 which is assumed to
be immediately written off - see Adjustment (D) below.
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NUOASIS GAMING, INC.
Notes to Pro Forma Financial Statements
(Unaudited)
(B) Sale of CMA
This adjustment reflects the probable sale of CMA for $1,235,000 resulting in
the elimination of the CMA's net equity basis of $ 1,459,585 and loss on sale of
$91,585. The adjustment also reflects the elimination of CMA's net assets,
including $224,585 of current liabilities and $1,368,000 of shareholders'
receivable.
(C) Interest on Notes Payable
This adjustment reflects interest expense retroactively incurred in the amounts
of $96,000 and $24,000 for the twelve months ended June 30, 1996 and three
months ended September 30, 1996, respectively, as if the Notes were issued on
July 1, 1995.
(D) Write-off of Goodwill
The excess of the purchase price over the fair market value of the net assets
acquired was approximately $ 835,999 and was assumed to be allocated to
goodwill. Due to the Registrant's and NPC's historical negative cash flows from
operations and working capital deficit, this adjustment assumes the goodwill of
$835,999 is immediately written off due to the uncertainty of realizing any
future benefit from this asset.
(E) Short Term Loan
This adjustment reflects the assumption that the Phase III funds generated in
the amount of $1,765,000 by Nona are assumed to be a short term loan from Nona
to NuOasis (see Note 2).
(F) Earnings/Loss Per Share
Pro forma loss per share is completed using the weighted average number of
shares of NuOasis common stock issued and outstanding assuming that all the
shares were outstanding for the entire year. Common stock equivalents were not
considered in the loss per share calculation as the effect would have been
anti-dilutive.
[NUOGAM\8K\NPC.8K]-7
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EXHIBIT 1
STOCK PURCHASE AGREEMENT DATED DECEMBER 19, 1996
[NUOGAM\8K\NPC.8K]-7
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (which together with the attached
exhibits, are referred to herein as "Agreement") is entered into this 19th day
of December 1996, by and between NuOasis Gaming Inc., a Delaware corporation
(the "Company") and the shareholders of National Pools Corporation, a California
corporation ("NPC") who agree to become parties to this Agreement ("Selling
Shareholders") evidenced by their signatures hereto.
WHEREAS, the Selling Shareholders wish to sell and the Company desires
to purchase the NPC Shares, as defined below, in exchange for a series of
Secured Convertible Promissory Notes in the aggregate principal amount of
$1,200,000 and the Shares, as defined below, upon the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of and in reliance on the mutual
promises and representations and warranties contained in this Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Selling Shareholders and the Company agree as follows:
1. Definitions
1.1 "Associate" means with respect to any person, (i) any member of the
immediate family of such person, (ii) any entity of which such person,
or any member of the immediate family of such person, directly or
indirectly, owns any equity interest, (iii) any entity of which such
person, or any member of the immediate family of such person, serves as
a director or executive officer, and (iv) any entity that directly or
indirectly controls, or that is directly or indirectly controlled by or
under common control with, such person or any member of the immediate
family of such person.
1.2 "Company Disclosure Documents" means the Company Financials (as
defined herein), material agreements and corporate documents, and other
information related to the Company material to its operations for the
three (3) fiscal years ending September 30, 1995, and any and all
interim data or filings through the date hereof to be provided by the
Company pursuant to this Agreement, including but not limited to the
Company Financials (as defined herein) and other information required
pursuant to the provisions of the Securities Exchange Act of 1934 (the
" '34 Act") or the Securities Act of 1933, as amended (the "'33 Act")
as listed in Exhibit "C" to this Agreement.
1.3 "Liabilities" means liabilities, obligations, or commitments of any
nature, absolute, accrued, contingent, or otherwise, known or unknown,
whether matured or unmatured.
[NUOGAM\AGR:NPCPNO.STK]
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1.4 "NPC Shares" means all the issued and outstanding shares of
National Pools Corporation, a California corporation, comprising
33,457,689 shares of Common Stock, without par value, or such number of
shares as is delivered.
1.5 "Company Shares" means shares of common stock in the Company issued
before or after the shareholders meeting of the Company referred to in
paragraph 7.7.
1.6 "NPC Disclosure Documents" means the NPC Financials (as defined in
Section 5.4 herein) and the documents listed in Exhibit "D" to this
Agreement.
1.7 NPC Assets means assets (excluding the books and records of the
Selling Shareholders), properties, leases, contracts, agreements, and
rights of NPC of every type and description, real, personal, and mixed,
tangible and intangible, including without limitation, all cash on hand
and in banks, trade accounts receivable, other accounts receivable,
deposits, prepaid items, furniture and fixtures, office equipment and
supplies, real property and improvements, leases and leasehold
improvements, trademarks, including the Hit-Lotto(TM), 1-800 Hit
Lotto(TM), 1-888 Hit Lotto(TM) and 1-900 Hit Lotto(TM) trademarks and
Hit-Lotto Value Card deferred pre-operating costs, other tangible
properties, and its business as a going concern, goodwill and
proprietary computer software operating system, as contained in the NPC
Financials and more fully described in Exhibit "B" hereto.
1.8 "Person" means any individual, corporation, professional
corporation, limited partnership, association, or any other legal
entity through which an individual or business might organize himself
or itself.
1.9 "Subsidiary" means any corporation, joint venture, or other entity
in which either the Company, the Selling Shareholders, or any other
person directly or indirectly own any voting or equity interest.
1.10 "Tax" or "Taxes" mean any federal, state, local, or foreign
income, gross receipts, profits, franchise, doing business, transfer,
sales, use, payroll, occupation, real or personal property, excise and
similar taxes (including interest, penalties, or additions to such
taxes).
1.11 "Tax Returns" or "Tax Reports" mean all returns, reports,
estimates, information returns, and statements of any nature with
respect to Taxes.
2. Purchase and Sale of NPC Shares
2.1 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, on the Closing Date, as defined in Paragraph 3.1, the
Selling Shareholders agree to sell and transfer the NPC Shares to the
Company and the Company agrees to purchase the NPC Shares for the
consideration set forth in this Agreement.
[NUOGAM\AGR:NPCPNO.STK]
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<PAGE>
2.2 Purchase Price. In exchange for the NPC Shares, the Company shall
issue and deliver to the Selling Shareholders:
2.2.1 Secured Convertible Promissory Notes (the "Notes") in
the aggregate principal amount of One Million, Two Hundred
Thousand Dollars ($1,200,000), together with a Security
Agreement in denominations and in the names of such Selling
Shareholders as they mutually agree and designate in writing
at Closing. The Notes may be convertible into a total of up to
241,900,000 Company Shares as follows:
(A) For every $250,000 of net (after-tax) operating
income reported by NPC under generally accepted
accounting principles after the Closing, $7,500 in
principal amount of the Notes may be converted into
1,511,875 Company Shares. Note conversions shall
occur annually following the issuance of audited
financial statements. The conversion features are set
forth on page 2 of the Notes.
2.2.2 One Million (1,000,000) Company Shares (the "Shares") in
such denominations as Selling Shareholders shall designate
prior to the Closing.
2.3 Adjustment to Purchase Price. In the event one or more of the
Selling Shareholders listed on the signature page hereof are
unable to deliver any of the NPC Shares, the aggregate
principal amount of the Notes and the number of the Shares
shall be decreased by the percentage of NPC Shares which
cannot be delivered at Closing.
3. Closing
3.1 Date and Place. The closing of the delivery and transfer of the NPC
Shares (the "Closing") shall occur on a date ("Closing Date") to be
mutually agreed upon by the Selling Shareholders and the Company after
exchange of all books, records, financial information, documents, and
other materials reasonably deemed necessary to completion of the
transaction contemplated under this Agreement. Exchange of documents
under this Agreement shall begin as soon as possible after execution.
In any case, the Closing Date shall be no later than December 15, 1996,
unless agreed upon by the parties, and the effective date of this
transaction shall be the date of Closing (the "Effective Date").
3.2 Transactions and Document Exchange at Closing. At the Closing, the
following transactions shall occur and documents shall be exchanged,
all of which shall be deemed to occur simultaneously:
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(A) By the Selling Shareholders. The Selling Shareholders
will deliver, or cause to be delivered, to the Company:
(1) The documents necessary to transfer the NPC
Shares to the Company pursuant to this Agreement, in
proper form and substance reasonably acceptable to
the Company;
(2) The Certificate of Representations and Warranties
executed by the President of NPC, as defined in
Paragraph 7.1;
(3) The opinion of counsel as set forth in Paragraph
7.6;
(4) Such other documents, instruments, and/or
certificates, if any, as are required to be delivered
pursuant to the provisions of this Agreement, or
which are reasonably determined by the parties to be
required to effectuate the transactions contemplated
in this Agreement, or as otherwise may be reasonably
requested by the Company to further the intent of
this Agreement;
(5) Audited financial statements of NPC dated as of
its most recent year end prior to the Closing Date
covering all operations since the inception of NPC.
Such financial statements shall be audited by a
certified public accounting firm. The Selling
Shareholders shall also deliver or cause to be
delivered all books and records of NPC to the extent
available and necessary to perform an audit of its
book as of its most recent month end prior to the
Closing Date in accordance with Regulation S-X, which
books and records shall present fairly the financial
condition and results of operations of NPC since the
date of its audited financial statements, in
accordance with generally accepted accounting
principles applied on a basis consistent with prior
accounting periods.
(6) A certificate dated within 30 days of the Closing
Date from the Secretary of State of California to the
effect that NPC is in good standing in the State of
California;
(7) All federal and state income payroll tax and
sales tax returns filed by NPC and all correspondence
related thereto;
(8) The denominations and names for issuance of the
Notes and the Shares.
[NUOGAM\AGR:NPCPNO.STK]
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(B) By the Company. The Company will deliver, or cause
the following to be delivered, to the Selling
Shareholders:
(1) The Notes, as calculated according to
Paragraph 2.2 and 2.3;
(2) Stock certificate(s) in the name of the
Selling Shareholders aggregating 1,000,000
Company Shares.
(3) The Company Certificate of Representations
and Warranties, as defined in Paragraph 6.1;
(4) A certificate dated at or within 30 days of
the date of the Closing from the Secretary
of state of Delaware to the effect that the
Company is a corporation duly organized,
validly existing, and in good standing under
the laws of the State of Delaware;
(5) The opinion of counsel as set forth in
Paragraph 6.7;
(6) Such other documents, instruments, and/or
certificates, if any, as are required to be
delivered pursuant to the provisions of this
Agreement, or which are reasonably
determined by the parties to be required to
effectuate the transactions contemplated in
this Agreement, or as otherwise may be
reasonably requested by the Selling
Shareholders in furtherance of the intent of
this Agreement.
3.3 Post-Closing Documents. From time to time after the Closing, upon
the reasonable request of any party, the party to whom the request is made shall
deliver such other and further documents, instruments, and/or certificates as
may be necessary to more fully vest in the requesting party the consideration
provided for in this Agreement or to enable the requesting party to obtain the
rights and benefits contemplated by this Agreement, including but not limited to
delivery of records of all books and records of NPC since inception .
4. Representations and Warranties of the Company
The Company represents and warrants to the Selling Shareholders that:
4.1 Organization and Authority. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, with the corporate power and authority to carry on its business as
now being conducted. The execution and delivery of this Agreement and the
consummation of the transactions contemplated in this Agreement have been, or
will be prior to closing, duly authorized by all requisite corporate actions on
the part of the Company. This Agreement has been duly executed and delivered by
the Company and constitutes the valid, binding, and enforceable obligation of
the Company.
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4.2 Ability to Carry Out Agreement. To the best of the Company's
knowledge and belief, the execution and performance of this Agreement will not
violate, or result in a breach of, or constitute a default in, any provisions of
applicable law, any agreement, instrument, judgment, order or decree to which
the Company is a party or to which the Company is subject. No consents of any
persons under any contract or agreement required to be disclosed pursuant to
this Agreement are required for the execution, delivery, and performance by the
Company of this Agreement.
4.3 The Notes. The Notes to be issued pursuant to this Agreement will
be issued at Closing, free and clear of liens, claims, and encumbrances, and the
Company has all necessary right and power to issue the Notes to the Selling
Shareholders as provided in this Agreement without the consent or approval of
any person, firm, corporation, or governmental authority.
4.4 Capitalization of the Company. The capitalization of the Company
is, as of the date hereof, comprised of Thirty Million (30,000,000) shares of
authorized $.01 par value common stock of which all Thirty Million (30,000,000)
shares are issued and outstanding, and One Million (1,000,000) shares of $.01
par value preferred stock of which One Hundred Seventy Thousand (170,000) shares
of 14% Cumulative Class A Preferred Stock and Two Hundred Fifty Thousand
(250,000) shares of Class B Preferred Stock are issued and outstanding. The
Company has certain warrants to purchase common stock issued and outstanding
consisting of 1,530,000 New Class A Warrants exercisable at $.50 per share;
3,080,000 New Class B Warrants exercisable at $.75 per share; 1,510,000 New
Class C Warrants exercisable at $1.00 per share; and 6,000,000 New Class D
Warrants to purchase common stock, each New Class D Warrant entitling the holder
thereof to purchase two common shares at a purchase price of $.50 per share.
Additionally, the Company has approximately 6,281,176 shares reserved for
issuance under non-qualified stock options granted to past and present officers,
directors, employees and consultants. All issued and outstanding shares are
legally issued, fully paid, and non-assessable, and are not issued in violation
of the preemptive or other right of any person.
4.5 Financial Information. The Company has provided to the Selling
Shareholders, or will provide prior to Closing, copies of its Annual Report on
Form 10-K and/or 10-KSB for the three (3) years ending at or prior to September
30, 1995 and the interim quarterly financial statement on Form 10-QSB for the
quarters ended December 31, 1995, March 31, 1996 and June 30, 1996. The
quarterly financial statements and such Annual Reports, and all other
information included in such reports, shall be referred to as the "Company
Financials". The Company has no obligations or liabilities (whether accrued,
absolute, contingent, liquidated or otherwise, including without limitation any
tax liabilities due or to become due) which are not fully disclosed and
adequately provided for in the Company Financials, excepting current liabilities
incurred and obligations under agreements entered into in the usual and ordinary
course of business since the date of the Company Financials, none of which
(individually or in the aggregate) are material except as expressly indicated in
the Company Financials. The Company is not a guarantor or otherwise contingently
liable for any material amount of such indebtedness. Except as indicated in the
Company Financials or the Company Disclosure
[NUOGAM\AGR:NPCPNO.STK]
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<PAGE>
Documents, there exists no default under the provisions of any instrument
evidencing such indebtedness or of any agreement relating thereto.
4.6 Litigation. To the best knowledge and belief of the Company, except
as disclosed pursuant to this Agreement, there is neither pending nor
threatened, any action, suit or arbitration to which its property, assets or
business is or is likely to be subject and in which an unfavorable outcome,
ruling or finding will or is likely to have a material adverse effect on the
condition, financial or otherwise, or properties, assets, business or
operations, which would create a material liability on the part of the Company,
or which would conflict with this Agreement or any action taken or to be taken
in connection with it.
4.7 Tax Matters. The Company has filed or will file all federal, state,
and local income, excise, property, and other tax returns, forms, or reports,
which are due or required to be filed by it and has paid, or made adequate
provision for payment of all taxes, interest, penalty fees, assessments, or
deficiencies shown to be due or claimed to be due or which have or may become
due on or in respect to such returns or reports.
4.8 Contracts. Except as disclosed pursuant to this Agreement, there
are no contracts, actual or contingent obligations, agreements, franchises,
license agreements, or other commitments between the Company and the Company or
other third parties which are material to the business, financial condition, or
results of operation of the Company, taken as a whole. For purposes of the
preceding sentence, the term "material" refers to any obligation or liability
which by its terms calls for aggregate payments of more than $25,000.
4.9 Material Contract Breaches; Defaults. To the best of the Company's
knowledge and belief, except as disclosed in the Company Financials, it has not
materially breached, nor has it any knowledge of any pending or threatened
claims or any legal basis for a claim that it has materially breached, any of
the terms or conditions of any agreements, contracts, or commitments to which it
is a party or is bound and which might give rise to a claim by anyone against
the Company Shares. To the best of its knowledge and belief, the Company is not
in default in any material respect under the terms of any outstanding contract,
agreement, lease, or other commitment which might give rise to a claim against
the Company Shares, and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in any material
respect under any such contract, agreement, lease, or other commitment which
might give rise to a claim against the Company Shares in respect of which the
Company has not taken adequate steps to prevent such a default from occurring.
4.10 Securities Laws. The Company is a public company and represents
that, except as disclosed in the Company Disclosure Documents and in Company
Financials, it has no existing or threatened liabilities, claims, lawsuits, or
basis for the same with respect to its original stock issuance to its founders,
its initial public offering, any other issuance of stock, or any dealings with
its stockholders, the public, the brokerage community, the SEC, any state
regulatory agencies, or other persons. The Company is required to file periodic
reports under Section 12(g) of the '34 Act. The Company represents that all
[NUOGAM\AGR:NPCPNO.STK]
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<PAGE>
reports required to be filed pursuant to the '34 Act and any applicable U.S.
state "Blue Sky" laws have been filed.
4.11 Brokers. The Company has not agreed to pay any brokerage fees,
finder's fees, or other fees or commissions with respect to the transactions
contemplated in this Agreement which could give rise to a claim against the
Shares, the NPC Shares or the Notes, or any portion thereof. To the best of the
Company's knowledge, no person or entity is entitled, or intends to claim that
it is entitled, to receive any such fees or commissions in connection with such
transactions, except that Structure America, Inc. is entitled to receive
1,000,000 shares of the Common Stock of the Company and an option to purchase an
additional 1,000,000 shares at an exercise price of $0.12 per share. The Company
further agrees to indemnify and hold harmless the other parties to this
Agreement against liability to any other broker claiming to act on behalf of the
Company.
4.12 Corporate Records. Copies of all corporate books and records,
including, but not limited to, any other documents and records of the Company
relating to the proceeding of its shareholders and directors will be provided to
NPC prior to Closing at the request of NPC. All such records and documents are
and will be complete, true, and correct.
4.13 Approvals. Except as otherwise provided in this Agreement, no
authorization, consent, or approval of, or registration or filing with, any
governmental authority or any other person is required to be obtained or made by
the Company in connection with the execution, deliver, or performance of this
Agreement.
4.14 Full Disclosure. The information concerning the Company, set forth
in this Agreement, and in the Company Disclosure Documents, is, to the best of
the Company's knowledge and belief, complete and accurate in all material
respects and does not contain any untrue statement of a material fact or omit to
state a material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.
4.15 Date of Representations and Warranties. Each of the
representations and warranties of the Company set forth in this Agreement is
true and correct at and as of the Closing Date, with the same force and effect
as though made at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement. Without limiting the generality of the
foregoing, Company represents and warrants that as of the Closing Date, its
payables will be $20,000 or less and it will have no ongoing contractual
commitments which have not been previously approved in writing by NPC's
management or which are not terminable, without cause or penalty or further
payment, or less than thirty (30) days notice, except as agreed to in writing by
NPC's management.
[NUOGAM\AGR:NPCPNO.STK]
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<PAGE>
5. Representations and Warranties of the Selling Shareholders
The Selling Shareholders represent and warrant to the Company that:
5.1 Organization and Authority. NPC is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
with the power and authority to carry on its business as now being conducted. In
addition, NPC is duly qualified to do business in each jurisdiction in which the
nature of its business requires it to be so qualified, except to the extent that
the failure to so qualify does not have a material adverse effect on the
business of NPC, taken as a whole. The execution and delivery of this Agreement
and the consummation of the transactions contemplated in this Agreement have
been, or will be prior to closing, duly authorized by all requisite action on
the part of NPC as required, or otherwise, to the extent, if any, that such
authorizations are necessary. This Agreement has been duly executed and
delivered by NPC and constitutes the valid, binding, and enforceable obligation
of NPC, subject to equitable principles and laws of bankruptcy and similar laws.
5.2 Ability to Carry out Agreement. To the best of the Selling
Shareholders' knowledge and belief, the execution and performance of this
Agreement will not violate, or result in a breach of, or constitute a default
in, any provisions of applicable law, any agreement, instrument, judgment, order
or decree to which NPC is a party or to which NPC is subject, other than such
violations, breaches, or defaults which, singly or in the aggregate, do not have
a material adverse effect on its business as a whole or on the enforceability or
validity of this Agreement. No consents of any persons under any contract or
agreement required to be disclosed or disclosed pursuant to this Agreement are
required for the execution, delivery, and performance by the Selling
Shareholders of this Agreement.
5.3 Capitalization of NPC. As of the date of execution of this
Agreement, the capitalization of NPC is comprised of one class of capital stock
consisting of Thirty Five Million (35,000,000) shares of Common Stock, without
par value, of which 33,457,689 shares were issued and are presently outstanding
and held, of record, by the Selling Shareholders in the amounts opposite their
names on the signature page hereto. All of the issued and outstanding shares are
duly authorized, validly issued, fully paid, and have been offered, issued,
sold, and delivered by NPC in material compliance with all applicable federal
and state securities laws.
5.4 Financial Information. The Selling Shareholders have provided to
the Company, or will provide prior to Closing, financial statements of NPC for
all fiscal years ended since the inception of NPC and reports for such interim
periods ending since the latest fiscal year ended, and such other documents and
information relating to NPC's current financial condition including but not
limited to its purchase, operation and disposition, if any, of any NPC assets
and liabilities. Such financial statements and other financial information shall
be referred to as the "NPC Financials". If not audited, the Selling Shareholders
represent that all financial statements and reports included in the NPC
Financials have been prepared from the books and records of NPC (subject to
normal year-end adjustments) and present fairly the financial condition of NPC
and the results of their operations for the periods therein specified, all in
[NUOGAM\AGR:NPCPNO.STK]
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<PAGE>
accordance with generally accepted accounting principles applied on a basis
consistent with prior accounting periods. Except as set forth in the NPC
Financials, NPC has no obligations or liabilities (whether accrued, absolute,
contingent, liquidated or otherwise, including without limitation any tax
liabilities due or to become due) which are not fully disclosed and adequately
provided for, excepting current liabilities incurred and obligations under
agreements entered into in the usual and ordinary course of business since
September 30, 1995, none of which (individually or in the aggregate) are
material. NPC is not a guarantor or otherwise contingently liable for any
material amount not disclosed in the NPC Financials, nor does there exist any
default under the provisions of any instrument evidencing any indebtedness of
NPC or of any agreement relating thereto.
5.5 Conduct of Business. Since September 30, 1995, except as disclosed
in the NPC Disclosure Documents, NPC has not (i) discharged or satisfied any
liens other than those securing, or paid any obligation or liability other than,
current liabilities shown on the NPC Financials and current liabilities incurred
since the date of the NPC Financials, in each case in the usual or ordinary
course of business, (ii) mortgaged, pledged or subjected to lien any of their
tangible or intangible assets (other than purchase money liens incurred in the
ordinary course of business for such assets not yet paid for), (iii) sold,
transferred or leased any of their assets except in the usual and ordinary
course of business, (iv) canceled or compromised any material debt or claim, or
waived or released any right of material value, (v) suffered any physical
damage, destruction or loss (whether or not covered by insurance) materially
adversely affecting its properties, business or prospects, (vi) entered into any
transaction other than in the usual and ordinary course of business, except as
contemplated by this Agreement, (vii) encountered any labor difficulties or
labor union organizing activities, (viii) made or agreed to any wage or salary
increase or entered into any employment agreement, (ix) issued or sold any
securities or granted any options with respect thereto, except as disclosed
pursuant to this Agreement, (x) amended its Articles of Incorporation, (xi)
agreed to declare or pay any distributions with respect to their outstanding
capital stock, or (xii) suffered or experienced any change in, or condition
affecting, the condition (financial or otherwise) of their properties, assets,
liabilities, business, operations or prospects, other than changes, events or
conditions in the ordinary course of their business none of which has
(individually or in the aggregate) been materially adverse, except as disclosed
in the NPC Financials or Disclosure Documents.
5.6 Litigation. To the best knowledge and belief of NPC, except as
disclosed in the NPC Disclosure Documents, there is neither pending nor
threatened, any action, suit or arbitration to which NPC's property, assets or
business is or is likely to be subject and in which an unfavorable outcome,
ruling or finding will or is likely to have a material adverse effect on the
condition, financial or otherwise, or properties, assets, business or operations
of NPC, or create any material liability on the part of NPC or conflict with
this Agreement or any action taken or to be taken in connection herewith.
5.7 Tax Matters. NPC has filed all federal, state and local income,
payroll and sales tax returns and reports which are due or required to be filed
by it, and, except as disclosed in the NPC Disclosure Documents, has paid, or
made adequate provision for the payment of, all taxes, interest, penalties,
[NUOGAM\AGR:NPCPNO.STK]
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<PAGE>
assessments or deficiencies shown to be due or claimed to be due or which have
or may become due on or in respect to such tax returns and reports. Such federal
and state income, payroll and sales tax returns, to the best of the Selling
Shareholders' knowledge and belief, have not been audited and are not being
audited by any governmental authority.
5.8 Contracts and Options. Except as disclosed in the NPC Disclosure
Documents, there are no contracts, actual or contingent obligations, agreements,
franchises, license agreements, or other commitments to which NPC is a party or
by which it or any of its properties or assets are bound which are material to
the business, financial condition, or its results of operation. For purposes of
the preceding sentence, the term "material" refers to any obligation or
liability which by their terms calls for aggregate payments of more than
$10,000. Ron McGee holds an option to purchase 3,744,000 NPC Shares.
5.9 Material Contract Breaches; Defaults. Except as disclosed by the
NPC Financials or as reserved for therein, to the best of their knowledge and
belief of the Selling Shareholders, NPC has not materially breached, nor have
they any knowledge of any pending or threatened claims or any legal basis for a
claim that NPC has materially breached, any of the terms or conditions of any
agreements, contracts, or commitments to which they are a party or is bound and
which are material to the business, financial condition, or results of operation
of NPC, taken as a whole. Except as disclosed by the NPC Financials or as
reserved for therein, to the best of their knowledge and belief, neither the
Selling Shareholders nor NPC are not in default in any material respect under
the terms of any outstanding contract, agreement, lease, or other commitment
which is material to the business, operations, properties, assets, or condition
of NPC, and there is no event of default or other event which, with notice or
lapse of time or both, would constitute a default in any material respect under
any such contract, agreement, lease, or other commitment in respect of which NPC
has not taken adequate steps to prevent such a default from occurring.
5.10 Selling Shareholders. Exhibit "F" hereto accurately sets forth the
identity of and their relationship with NPC, and the names, and titles of the
persons serving as directors and officers of a Selling Shareholder, if any such
Selling Shareholder is a corporation.
5.11 Employee and Labor Matters. The NPC Disclosure Documents
accurately set forth the names, positions, and annual salary of each person
employed by NPC, including officers, whose annual salary including bonuses
exceeds Ten Thousand Dollars ($10,000). Except as disclosed in the NPC
Disclosure Documents, NPC has no employment agreement that cannot be canceled on
thirty (30) days notice, or collective bargaining agreement covering any of its
employees and has encountered no material labor difficulties. The NPC Disclosure
Documents also set forth a complete and accurate list of all employee benefit
plans, including all profit sharing, bonus, stock, pension, or similar plans to
which NPC is a party or by which NPC is bound. The Selling Shareholders will
deliver or cause to be delivered to the Company prior to Closing complete and
correct copies of all the agreements, plans, or other written materials
identified in the NPC Disclosure Documents. There is no existing default by NPC
[NUOGAM\AGR:NPCPNO.STK]
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<PAGE>
under any of the agreements, plans, or arrangements identified in the NPC
Disclosure Documents, and there exists no condition or circumstance which, with
notice or lapse of time or both, would constitute such a default. Except as
disclosed in the NPC Disclosure Documents, there is no pending or threatened
labor dispute, strike, slowdown, or work stoppage, no unfair labor practice
pending against NPC before the National Labor Relations Board, NPC is not
engaged in any unfair labor practice, and there is no grievance or arbitration
proceeding pending against, or threatened to be asserted or commenced against
NPC under any collective bargaining agreement or other labor contract. All Taxes
relating to NPC which NPC is required by law to withhold or collect have been
duly withheld or collected and have been timely paid over to the proper
authorities to the extent due and payable.
5.12 Real Properties. Except as disclosed pursuant to this Agreement,
NPC has good and marketable fee simple title to all of the real properties owned
by it, including without limitation those reflected in the NPC Financials, free
and clear of any liens or encumbrances except for current local property taxes
not yet payable and any utility or other easements that do not and will not
affect operations upon or about such real properties or the economic value or
marketability thereof.
5.13 Other Properties and Equipment. Except as disclosed pursuant to
this Agreement, NPC has good title, subject to no security interests, liens,
encumbrances, or claims of others, to all structures, facilities, machinery and
equipment, supplies, raw materials, vehicles, tools, parts, office equipment,
furniture, furnishings, and all items of personal property and equipment in, at,
on or about such real properties owned or leased by it, or used or necessary in
its operations or business, including without limitation those reflected in the
NPC Financials. All such structures, facilities, equipment, machinery, vehicles
and tools are in reasonably good operating condition and repair and are
sufficient to enable NPC to carry on its operations.
5.14 Trademarks. Except for the Hit-Lotto(TM), 1-800 Hit Lotto(TM),
1-888 Hit Lotto(TM), and 1-900 Hit Lotto(TM) trademarks or as disclosed in the
NPC Disclosure Documents, (i) NPC does not own or use any trademark, service
mark, trade name, copyright or patent, or any registration or application for
registration of any of the foregoing, and (ii) to the best of NPC's knowledge
and belief, it has not infringed or is infringing upon any trademark, service
mark, trade name, copyright, or patent that is owned or used by any other
person.
5.15 Leaseholds and Executory Contracts. Except as disclosed pursuant
to this Agreement, each and every lease or executory contract to which NPC is a
party is valid and enforceable. NPC has not received any notice of default by it
under the terms of any such lease or executory contract which default remains
uncured, and it is not in material breach or default by them under the terms of
any such lease or executory contract, except as disclosed on the NPC Disclosure
Documents.
5.16 Investments. NPC has provided, or will provide to the Company,
prior to Closing, a complete and accurate description of the NPC Assets,
including but not limited to a list of all investments of NPC, which accurately
sets forth the nature of NPC's interest or ownership in each investment and, if
[NUOGAM\AGR:NPCPNO.STK]
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<PAGE>
applicable, the jurisdictions in which the respective investments have been
incorporated, organized, and currently doing business. Except for the entities
identified on the list to be provided to the Company, there is no corporation,
limited partnership, limited partnership, joint venture, association, trust, or
other entity or organization which NPC directly or indirectly controls or in
which NPC directly or indirectly owns any equity interest or any other interest.
5.17 Permits. Except as disclosed pursuant to this Agreement, NPC has
obtained and maintained in full force and effect all franchises, permits,
certificates, authorizations, licenses and other similar authority required by
law or governmental regulations from all applicable federal, state or local
authorities and any other regulatory authorities, which are necessary for the
conduct of its business as now being conducted by it and as planned to be
conducted, and it is not in default or noncompliance in any material respect
under any of such franchises, permits, certificates, authorizations, licenses or
other similar authority.
5.18 Compliance with Laws, Rules, Etc. The capitalization, business and
operations of NPC is and has been conducted in compliance with all applicable
federal, state, and local laws, rules and regulations, and it is not in
violation of any terms of any mortgage, indenture, contract, agreement,
instrument, judgment, decree, order, statute, rule or regulation to which it is
subject, except to the extent any violation or noncompliance would not
materially and adversely affect its business, operations, properties, assets, or
financial condition, except to the extent that any violation or noncompliance
would not result in the incurring of any material liability. Further, NPC not
been notified by any regulatory or governmental authority that it is now in
violation of any law, rule, regulation, ordinance, or order.
5.19 Conflict of Interest Transactions. Except as disclosed in the NPC
Disclosure Documents, no past or present shareholder or employee of NPC, or any
affiliate, and no Associate of any past or present shareholder or employee of
NPC or any affiliate, (i) is indebted to, or has any financial, business, or
contractual relationship or arrangement with NPC or any affiliate, (ii) has any
direct or indirect interest in any property, asset, or right which is owned or
used by NPC or any affiliate, or (iii) has been directly or indirectly involved
in any transaction with NPC or any affiliate.
5.20 Corporate Records. Copies of all corporate books and records,
including but not limited to stock transfer ledgers, and any other documents and
records of NPC will be provided to the Company at Closing. All such records and
documents are complete, true, and correct.
5.21 Banking Records. A true, correct, and complete list of the names
of each bank in which NPC has an account and the names of all persons authorized
to draw thereon will be delivered to the Company as part of the NPC Disclosure
Documents; NPC has no safe deposit box.
5.22 Brokers. NPC has agreed to pay brokerage fees, finder's fees, or
other fees or commissions with respect to the transactions contemplated in this
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and other Agreements to Dan Sweet and Jeff Waller in the form of 125,000 shares
of the Company's Common Stock. To the best of NPC's knowledge, no other person
or entity is entitled, or intends to claim that they are entitled, to receive
any such fees or commissions in connection with such transactions. NPC and the
Selling Shareholders further agree to indemnify and hold harmless the Company
against liability to any other broker claiming to act on behalf of NPC.
5.23 Approvals. Except as otherwise provided in this Agreement, to the
best knowledge and belief of the Selling Shareholders, no authorization,
consent, or approval of, or registration or filing with, any governmental
authority or any other person is required to be obtained or made by the Selling
Shareholders or NPC in connection with the execution, delivery, or performance
of this Agreement.
5.24 Full Disclosure. The information concerning NPC set forth in this
Agreement, in the NPC Disclosure Documents, and in the NPC Financials is, to the
best of the Selling Shareholders' knowledge and belief, complete and accurate in
all material respects and does not contain any untrue statement of a material
fact or omit to state a material fact required to make the statements made, in
light of the circumstances under which they were made, not misleading.
5.25 Date of Representations and Warranties. Each of the
representations and warranties of the Selling Shareholders set forth in this
Agreement are joint and several, and are true and correct at and as of the
Closing Date, with the same force and effect as though made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement.
6. Conditions Precedent to Obligations of the Selling Shareholders
All obligations of the Selling Shareholders under this Agreement are
subject to the fulfillment, prior to or as of the Closing Date, of each of the
following conditions:
6.1 Representations and Warranties. The representations and warranties
by the Company set forth in this Agreement shall be true and correct at and as
of the Closing Date, with the same force and effect as though made at and as of
the Closing Date, except for changes permitted or contemplated by this
Agreement. The Company shall deliver on the Closing Date a certificate to this
effect, referred to as the Company Certificate of Representations and
Warranties.
6.2 No Breach or Default. The Company shall have performed and complied
with all covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing.
6.3 Action to Pay Purchase Price. The Company shall have taken all
corporate and other action necessary to issue and deliver the Notes representing
the Purchase Price to the Selling Shareholders pursuant to this Agreement and
the 1,000,000 Company Shares to be delivered to the Selling Shareholders at
Closing, except those actions to be taken after Closing which are required by
the undertaking referred to in Paragraph 6.5 below.
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6.4 Company Disclosure Documents. Before Closing, the Company will have
delivered to the Selling Shareholders, or caused the delivery of, the Company
Disclosure Documents.
6.5 Approval of Other Instruments and Documents by the Selling
Shareholders. All instruments and documents delivered to the Selling
Shareholders pursuant to the provisions of this Agreement including the
undertaking by the Company, which shall be guaranteed by Nona Morelli's II,
Inc., a Delaware corporation, to perform the covenants referred to in Paragraph
9.7 below, shall be reasonably satisfactory to their legal counsel.
6.7 Opinion of Counsel. The Company shall have delivered to the Selling
Shareholders an opinion of counsel dated the Closing Date to the effect that:
(A) The Company is duly organized, validly existing, and in
good standing under the laws of the United States, State of Delaware.
(B) The Company has the corporate power to conduct business
and, specifically, to carry on its business as now being conducted and is duly
qualified to do business in the United States, State of California.
(C) All corporate actions and director approvals have been
properly obtained and completed by the Company, to the extent, if any, that they
are necessary, for all actions required under this Agreement prior to Closing.
(D) This Agreement has been duly authorized, executed, and
delivered by the Company and is a valid and binding obligation of the Company
and, in this regard, the Company shall provide the Selling Shareholders at
Closing with a certified copy of the resolution or resolutions of the Board of
Directors of the Company, approving and authorizing the issuance by the Company
of the Notes upon the terms and conditions herein set forth.
7. Conditions Precedent to Obligations of the Company
All obligations of the Company under this Agreement are subject to the
fulfillment, prior to or as of the Closing Date, of each of the following
conditions:
7.1 Representations and Warranties. The representations and warranties
executed by the President of NPC on behalf of the Selling Shareholders set forth
in this Agreement shall be true and correct at and as of the Closing Date, with
the same force and effect as though made at and as of the Closing Date, except
for changes permitted or contemplated by this Agreement. The Selling
Shareholders shall cause to be delivered on the Closing Date the certificate to
this effect, referred to in this Agreement as the Certificate of Representations
and Warranties executed by the President and Chief Executive Officer of NPC.
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7.2 No Breach or Default. The Selling Shareholders shall have performed
and complied with all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by them prior to or at the Closing.
7.3 Action to Transfer NPC Shares. The Selling Shareholders shall have
taken all action necessary to transfer the NPC Shares to the Company pursuant to
this Agreement.
In this regard, the conveyance(s) of the NPC Shares shall
contain such good and sufficient stock powers, and other good and sufficient
instruments of sale, conveyance, transfer, and assignment, in form and substance
reasonably satisfactory to the Company's counsel and with all requisite
documentary stamps, if any, affixed, as shall be required or as may be
appropriate in order effectively to vest in the Company's good, indefeasible,
and marketable title to the NPC Shares free and clear of all liens, mortgages,
conditional sales, and other title retention agreements, pledges, assessments,
covenants, restrictions, reservations, easements, and all other encumbrances of
every nature.
In addition to the conveyance and delivery of the NPC Shares,
the Selling Shareholders shall have taken all action necessary to deliver all of
NPC's corporate books and records, including but not limited to its files,
documents, papers, agreements, formulas, books of account, and records
pertaining to its business, and evidence of compliance with the California
Corporations Code with respect to its securities, if required and requested by
the Company's counsel.
7.4 NPC Financials. Before Closing, the Selling Shareholders will have
delivered the NPC Financials and all NPC Disclosure Documents to the Company.
The NPC Disclosure Documents shall specifically include income statements
related to the operations of NPC's business interests up to and including
December 31, 1995 and as updated through the quarters ending March 31, 1996,
June 30, 1996 and September 30, 1996.
7.5 Approval of Other Instruments and Documents by the Company. All
instruments and documents delivered to the Company pursuant to the provisions of
this Agreement shall be reasonably satisfactory to the Company and its legal
counsel.
7.6 Opinions, Affidavits and Declarations by the Selling Shareholders.
The Selling Shareholders shall have delivered to the Company evidence reasonably
satisfactory to the Company, and their counsel and auditors, dated as at the
Closing Date, that:
(A) NPC is duly organized, validly existing, and in good
standing under the laws of California and that the NPC Shares are free and clear
of any and all liens, encumbrances or contingent liabilities except as disclosed
pursuant to this Agreement.
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(B) NPC has the corporate power to carry on its business as
now being conducted and is duly qualified to do business in California and in
any other jurisdiction where required or where the non-qualification to do
business would have a material adverse affect on the value of its business.
(C) All action and approvals required in connection to the
transfer of the NPC Shares to the Company have been properly taken, completed or
obtained by the Selling Shareholders, to the extent, if any, that they are
necessary.
(D) This Agreement has been duly authorized, executed, and
delivered by the Selling Shareholders and is a valid and binding obligation of
the Selling Shareholders.
8. Covenants and Agreements of the Selling Shareholders
Up to and including the Closing Date, the Selling Shareholders covenant
that:
8.1 Access and Information. After the execution of this Agreement, the
Selling Shareholders will cause NPC to permit the Company to have reasonable
access to all information necessary to verify the representations and warranties
made herein. After the Closing, the Selling Shareholders will cause NPC to
continue to permit the Company access to such additional documentation and
information as is reasonably necessary to completion of the transactions
contemplated under this Agreement.
8.2 Conduct of Business as Usual. Up until the Closing Date, the
Selling Shareholders shall insure that NPC's operations shall be conducted only
in the usual and ordinary course, and that no change will be made to such
operations which might adversely affect the value of the NPC Shares to be
transferred to the Company.
8.3 Best Efforts. The Selling Shareholders shall use their best efforts
to fulfill all conditions of the Closing including the timely solicitation of
affirmative consent of all third parties necessary to effect a Closing under
this Agreement.
8.4 Assent to Sale of NPC Shares. In the event the sale of NPC Shares
is consummated, then each of the Selling Shareholders agrees to such sale and
waives, surrenders, and agrees not to exercise any rights which such Selling
Shareholders might have to purchase any NPC Shares or have NPC redeem any NPC
Shares.
9. Covenants and Agreements of the Company
Up to and including the Closing Date, except that Paragraph 9.7 shall
be applicable to the period after Closing in accordance with its terms, the
Company covenants that:
9.1 Change in the Company Directors. The Company's Board of Directors
currently consists of five (5) seats four of which are vacant. At Closing, the
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Company agrees that three (3) of the four (4) vacant seats on the Company's
Board may be filled by three (3) new directors to be chosen by the Selling
Shareholders. Neither NuOasis management nor its Board shall recommend the
election of any new outside director or other candidate to fill a subsequently
created seat on the Board unless such candidate has been approved by the NPC
representatives or the Board or the Selling Shareholders as a group, such
consent not to be unreasonably withheld or delayed.
9.2 Maintenance of Capital Structure. Up until the Closing Date, or
termination hereof, whichever is the earlier, except as disclosed herein or
required under the terms of this Agreement, no change shall be made in the
Articles of Incorporation or Bylaws of the Company, or the authorized capital
stock of the Company.
9.3 Avoidance of Distributions. Up until the Closing Date, the Company
shall not declare any dividends, make any payments or distributions to its
stockholders or purchase for cash or redeem any of its shares of capital stock.
9.4 Conduct of Business as Usual. Up until the Closing Date, the
Company Shareholders shall conduct its operations only in the usual and ordinary
course, and that no change will be made to such operations which might adversely
affect the value of the Company.
9.5 Access and Information. After the execution of this Agreement, the
Company will permit the Selling Shareholders to have reasonable access to all
information necessary to verify the representations and warranties of the
Company. After the Closing, the Company will continue to permit the Selling
Shareholders access to such additional documentation and information regarding
the Company as is reasonably necessary to completion of the transactions
contemplated under this Agreement.
9.6 Best Efforts. The Company shall use its best efforts to fulfill or
obtain the fulfillment of all conditions of the Closing, including the timely
solicitation of affirmative consent of all third parties necessary to effect a
Closing under this Agreement.
9.7 Post Closing Undertaking. The Company shall, at its own cost and
expense, which cost and expense shall not be reflected in the computation of the
number of shares of the Company's Common Stock to be delivered to the Selling
Shareholders in accordance with the Notes, to obtain all approvals of the
Securities and Exchange Commission required by law so that the Company may hold
a Shareholders Meeting to amend its Articles of Incorporation to authorize the
Company to issue up to 333,000,000 shares of its Common Stock and enter into
agreements, in form and substance acceptable to the Selling Shareholders and
their counsel, so that the Company's obligation to pay for any liabilities in
excess of $20,000 after Closing shall be limited to those obligations
specifically approved by NPC's management and listed on the attached Exhibit G
and such other acts as may reasonably be necessary to, as quickly as possible
after Closing, assure (i) that the Company's financial condition is such that it
has no liabilities attributable to operations prior to the Closing or the
fulfillment of conditions to the transaction envisioned by this Agreement (even
[NUOGAM\AGR:NPCPNO.STK]
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if such conditions are filled after Closing) in excess of twenty thousand
dollars ($20,000) and (ii) that the Company is in compliance with the
requirements of all applicable laws, including those arising under the
Securities Act of 1933 and the Securities and Exchange Act of 1934.
10. Termination
10.1 Termination Without Cause This Agreement may be terminated at any
time prior to the Closing Date without cost or penalty to either party:
(A) Mutual Consent. By mutual consent of the Selling
Shareholders and the Company.
(B) Actions or Proceedings. By the Selling Shareholders or the
Company, (unless the action or proceeding referred to is caused by a breach or
default on the part of the Selling Shareholders or the Company of any of their
representations, warranties, or obligations under this Agreement), if there
shall be any actual or threatened action or proceeding by or before any court or
any other governmental body which shall seek to restrain, prohibit, or
invalidate the transactions contemplated by this Agreement and which, in the
judgment of the Selling Shareholders or the Company, made in good faith and
based upon the advice of legal counsel, makes it inadvisable to proceed with the
transactions contemplated by this Agreement.
(C) Less than 80% of NPC Shares Participate. By the Company,
if less than 80% of the outstanding shares of NPC are tendered to the Company at
the Closing.
10.2 Termination with Cause
This Agreement may be terminated, with the terminating party to be
reimbursed by the other party of all expenses and costs related to this
Agreement, if:
(A) Breach or Noncompliance by the Selling Shareholders. The
Selling Shareholders shall fail to comply in any material aspect with any of
their representations, warranties, or obligations under this Agreement, or if
any of the representations or warranties made by the Selling Shareholders, or
any one of them, under this Agreement shall be inaccurate in any material
respect and is not cured within ten (10) business days of notice of such breach.
(B) Breach or Noncompliance by the Company. The Company shall
fail to comply in any material aspect with any of its representations,
warranties, or obligations under this Agreement, or if any of the
representations or warranties made by the Company under this Agreement shall be
inaccurate in any material respect and is not cured within ten (10) business
days of notice of such breach.
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11. Securities Registration; Disclosure
11.1 Private Transaction. The Selling Shareholders understand that the
Notes issued pursuant to this Agreement, have not been nor will they be
registered under the Securities Act of 1933 as amended ("'33 Act"), but are
issued pursuant to exemptions from registration including but not limited to
Regulation D and Section 4(2) of the '33 Act, and the Company's reliance on such
exemptions in issuing the Notes is predicated in part on the representations of
the Selling Shareholders set forth herein and in the Investment Letter attached
hereto as Exhibit "E" (the "Investment Letter"), to be executed by each of the
Selling Shareholders and delivered to the Company at Closing.
11.2 Access to Information. Each of the Selling Shareholders represents
that, by virtue of their respective economic bargaining power or otherwise,
he/she has had access to or have been furnished with, prior to or concurrently
with Closing, the same kind of information that would be available in a
registration statement under the '33 Act should registration of the Notes issued
pursuant to this Agreement have been necessary, and that they have had the
opportunity to ask questions of and receive answers from the Company's officers
and directors, or any party acting on their behalf, concerning the business of
the Company and that they have had the opportunity to obtain any additional
information, to the extent that the Company possesses such information or can
acquire it without unreasonable expense or effort, necessary to verify the
accuracy of information obtained or furnished by the Company.
12. Indemnification
As provided herein, the Selling Shareholders and the Company shall each
indemnify and hold harmless the other for one (1) year following the date of
Closing under this Agreement against and in respect of any liability, damage, or
deficiency, all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses resulting from any misrepresentations, breach of covenant or
warranty, or from any misrepresentation contained in any certificate furnished
hereunder. In this regard, the Selling Shareholders agree that the Company is
held harmless from and indemnified against any loss, damage, or expense
resulting from the falsity or breach of any of the representations, warranties,
or agreements of the Selling Shareholders contained herein under which the Notes
hereunder are transferred to the Selling Shareholders. The Company's right of
indemnification shall be limited exclusively to the right of offset of any loss,
damages and expenses incurred against sums due Selling Shareholders under the
Notes.
13. Covenant Not to Compete
13.1 Each Selling Shareholder agrees that for a period of five (5)
years from and after the date of the Closing, he will not, unless acting with
the Company's prior written consent, directly or indirectly, own, manage,
operate, join, control, or participate in the ownership, management, operation,
or control of, or be connected as an officer, employee, partner, or otherwise
with, any business engaged in the business of organizing or managing a pooled
betting scheme or lottery debit cards and related activities within the United
[NUOGAM\AGR:NPCPNO.STK]
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States, except any Selling Shareholder may own not more than five percent (5%)
of the common stock of any company whose stock is traded in any stock exchange
or over-the-counter. The Selling Shareholders agree that the remedy at law for
any breach of the foregoing will be inadequate and that the Company and NPC
shall be entitled, inter alia, to temporary and permanent injunctive relief
without the necessity of proving actual damage to the Company or NPC.
13.2 In consideration of the Selling Shareholders' agreement not to
compete set forth in subparagraph 13.1 above, but regardless of whether or not
such agreement is legally enforceable (and regardless of whether or not any
stockholder remains in life or remains as custodian), the Company has agreed to
grant the Selling Shareholders the option to convert any and all principal and
interest accruing under the Notes into New Company Shares as set forth herein
and in the Notes.
14. Right of Set-Off
In the event that the Selling Shareholders incur any liability under
this Agreement to the Company over and above the limitations herein provided,
the Company shall allocate such liability among such Selling Shareholders pro
rata in accordance with their respective stock, and shall then have the right to
set off such proportionate liability against the principal amount due to such
Selling Shareholder(s) under the Notes. The rights of the Company to
indemnification shall be limited exclusively to this right of set-off, but shall
not in any event exceed the amount of $1,200,000 plus any accrued interest.
15. Right to Transfer or Liquidate NPC and Substitute Collateral
The Selling Shareholders specifically agree that the Company shall be
entitled at any time after the Closing to transfer any and all of the NPC Shares
to any person, firm, or entity, including, but not limited to a corporation
controlled by or affiliated with the Company, provided that no such transfer
shall in any way relieve the Company of its obligations under this Agreement or
under the terms of the Notes. In the event of any such transfer, the transferee
shall be authorized to liquidate and dissolve NPC. In such event New Company
Shares having a fair market value equal to any portion of the $1,200,000
principal sum of the Notes then unpaid plus fifty percent (50%) of the value of
the NPC Assets, if any, liquidated by the transferee shall be substituted as
collateral for the NPC Assets liquidated as to which a security interest is
granted to the Selling Shareholders under the terms of the Notes, a copy of
which is attached as Exhibit "A". In the event of any such transfer and
dissolution, the parties specifically agree to execute or cause to be executed
as reasonably requested by any other party from time to time such instruments
and documents as may be necessary in order to carry out and effectuate the
purposes of this Agreement and particularly of this paragraph 15.
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16. Confidential Information
Notwithstanding any termination of this Agreement, the Company, NPC and
the Selling Shareholders, and their representatives, agree to hold in confidence
any information not generally available to the public received by them from the
Company, NPC or the Selling Shareholders pursuant to the terms of this
Agreement. If this Agreement is terminated for any reason, the Company, NPC and
the Selling Shareholders and their representatives will continue to hold such
information as to NPC in confidence and will, to the extent requested by the
Selling Shareholders, promptly return to them all written material and all
copies or abstracts thereof furnished to the Company, NPC and the Selling
Shareholders pursuant hereto. Notwithstanding any termination of this Agreement,
the Selling Shareholders and their representatives agree to hold in confidence
any information not generally available to the public received by them from the
Company pursuant to the terms of this Agreement. If this Agreement is terminated
for any reason, the Selling Shareholders and their representatives will continue
to hold such information in confidence and will, to the extent requested by the
Company, promptly return to the Company all written material and all copies or
abstracts thereof given to them or their representatives pursuant thereto.
17. Conditions Subsequent to Closing
In the event the Company cannot deliver to the NPC Shareholders
1,000,000 shares of its Common Stock at Closing, the parties to this Agreement
shall proceed with the Closing in which event the Company shall, as soon as
legally permitted, cause to be delivered to the NPC Shareholders a total of
1,000,000 shares of the Company's Common Stock subject to adjustment set forth
in paragraph 2.3.
18. Miscellaneous Provisions
18.1 Survival of Representations and Warranties. All representations,
warranties, and covenants made by any party in this Agreement shall survive the
Closing hereunder and the consummation of the transactions contemplated hereby
for three (3) years from the Closing Date. The Selling Shareholders and the
Company are executing and carrying out the provisions of this Agreement in
reliance on the representations, warranties, and covenants and agreements
contained in this Agreement or at the Closing of the transactions herein
provided for including any investigation upon which they might have made or any
representations, warranty, agreement, promise, or information, written or oral,
made by the other party or any other person other than as specifically set forth
herein.
18.2 Approval of the Selling Shareholders. The Company and the Selling
Shareholders understand that this Agreement requires approval and participation
by a majority of the Selling Shareholders holding at least 80% of the NPC
Shares, and thus that all rights and obligations hereunder are subject to
securing such approval. Each Selling Shareholder, by its execution hereof,
hereby gives its consent to the transaction contemplated by this Agreement. In
the event that the requisite number of Selling Shareholders shall fail to
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approve this Agreement, then notwithstanding anything contained herein to the
contrary, this Agreement shall be terminated without liability to either the
Selling Shareholders or the Company.
18.3 Costs and Expenses. Subject to paragraph 10 herein, all costs and
expenses in the proposed sale and transfer described in this Agreement shall be
borne by the Selling Shareholders and the Company in the following manner:
(A) Attorneys Fees and Costs. Each party has been represented
by its own attorney(s) in this transaction, shall pay the fees of its own
attorney(s), except as may be expressly set forth herein to the contrary.
(B) Costs of Closing. Each party shall bear its reasonable
share of all other Closing costs and expenses arising from this Agreement.
18.4 Further Assurances. At any time and from time to time, after the
effective date, each party will execute such additional instruments and take
such action as may be reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or otherwise to carry out
the intent and purposes of this Agreement.
18.5 Waiver. Any failure of any party to this Agreement to comply with
any of its obligations, agreements, or conditions hereunder may be waived in
writing by the party to whom such compliance is owed. The failure of any party
to this Agreement to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provision or a waiver of
the right of such party thereafter to enforce each and every such provision. No
waiver of any breach of or non-compliance with this Agreement shall be held to
be a waiver of any other or subsequent breach or non-compliance.
18.6 Notices. All notices and other communications hereunder shall
either be in writing and shall be deemed to have been given if delivered in
person, sent by overnight delivery service or sent by facsimile transmission, to
the parties hereto, or their designees, as follows:
To the Selling Shareholders: As their names and addresses appear
on the signature page hereto
To the Company: NuOasis Gaming Inc.
2 Park Plaza, Suite 470
Irvine, California 92714
Telephone: (714) 833-5382
Facsimile: (714) 833-7854
18.7 Headings. The paragraph and subparagraph headings in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
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18.8 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
18.9 Governing Law. This Agreement shall be governed by the laws of the
United States, State of California.
18.10 Binding Effect. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors, and assigns.
18.11 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto and supersedes any and all prior agreements,
arrangements, or understandings between the parties relating to the subject
matter of this Agreement. No oral understandings, statements, promises, or
inducements contrary to the terms of this Agreement exist. No representations,
warranties, covenants, or conditions, express or implied, other than as set
forth herein, have been made by any party.
18.12 Severability. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full force and
effect.
18.13 Amendment. This Agreement may be amended only by a written
instrument executed by the parties or their respective successors or assigns.
18.14 Facsimile Counterparts. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto and
such executed copy may be delivered by facsimile of similar instantaneous
electronic transmission device pursuant to which the signature of or on behalf
of such party can be seen, and such execution and delivery shall be considered
valid, binding and effective for all purposes. At the request of any party
hereto, all parties agree to execute an original of this Agreement as well as
any facsimile, telecopy or other reproduction hereof.
18.15 Time is of the Essence. Time is of the essence of this Agreement
and of each and every provision hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
"Company"
NuOasis Gaming Inc.
a Delaware corporation
By: /s/ Fred G. Luke
----------------------------------
Name: Fred G. Luke
Title: Director
"Selling Shareholders"
/s/ see Exhibit F for signatories
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EXHIBIT "A"
to the
Stock Purchase Agreement
Dated December 19th, 1996
NOTES
CONVERTIBLE SECURED PROMISSORY NOTE
U.S. $_______________ December 19th, 1996 Irvine, California
FOR VALUE RECEIVED, NuOasis Gaming Inc., a corporation organized under
the laws of the United States, State of Delaware, with its principal place of
business in California ("Maker"), hereby promises to pay to , a former
shareholder of National Pools Corporation, a California corporation ("Payee"or
"Holder") the principal sum of ______________________ $( ) with principal and
accrued interest at the rate of eight percent (8%) per annum due and payable on
May 31, 1999 (the "Due Date"). This Convertible Secured Promissory Note (the
"Note") is issued by Maker pursuant to the Stock Purchase Agreement of even date
(the "Purchase Agreement").
To secure the payment of this Note, Maker hereby grants to the Holder
pursuant to a Security Agreement dated of even date between Maker and Holder a
security interest in the personal property set forth in Exhibit "A" hereto (the
"Collateral"). Upon default, the Holder may resort to any remedy against the
Collateral available to a secured party under the Uniform Commercial Code;
provided, however, that notwithstanding anything contained herein to the
contrary this Note is non-recourse and Holder's sole remedy shall be against the
Collateral.
All documents and instruments now or hereafter evidencing and/or
securing the indebtedness evidenced hereby or any part thereof, including but
not limited to this Note and the Security Agreement of even date, are sometimes
collectively referred to herein as the "Security Documents."
All agreements in this Note and all other Security Documents are
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount agreed to be paid hereunder for the use, forbearance
or detention of money exceed the highest lawful rate permitted under applicable
usury laws. If, for any circumstance whatsoever, fulfillment of any provision of
this Note or any other Security Document at the time performance of such
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provision shall be due shall involve exceeding any usury limit prescribed by law
which a court of competent jurisdiction may deem applicable hereto, then, ipso
facto, the obligations to be fulfilled shall be reduced to allow compliance with
such limit, and if, from any circumstance whatsoever, Payee shall ever receive
as interest an amount which would exceed the highest lawful rate, the receipt of
such excess shall be deemed a mistake and shall be canceled automatically or, if
theretofore paid, such excess shall be credited against the principal amount of
the indebtedness evidenced hereby to which the same may lawfully be credited,
and any portion of such excess not capable of being so credited shall be
refunded immediately to Maker.
Maker shall pay to Payee all reasonable costs, expenses, charges,
disbursements and attorneys' fees incurred by Payee following an Event of
Default in collecting, enforcing or protecting this Note or any other Security
Document, whether incurred in or out of court, including appeals and bankruptcy
proceedings.
If Maker utilizes the Collateral in any way to secure financing, Maker
agrees to pay the net proceeds of such financing to Payee to the extent of the
principal balance of the Note, and all accrued and unpaid interest, before
distributing any of such financing proceeds for other purposes.
Conversion Features of the Note
This Note is convertible, in whole or in part, into shares of the
Maker's common stock as hereinafter provided.
NPC's financial position shall be audited every year for the next ten
(10) years for the twelve months ending December 31, beginning with the year
ending December 31, 1997. The audit shall be performed by an internationally
recognized independent public accounting firm. Said audit shall be completed as
soon as possible under the circumstances. Following completion of the audit the
conversion features of this Note shall be activated.
For the year ending December 31, 1997. At any time during the 15 days
following the release of audited year end financial statements by NPC, Maker
shall notify each Noteholder of the option to convert all or part of the
principal amount of the Note into shares of Maker's (restricted) Common Stock
based upon the following formula. "For every $250,000 of net operating income
reported by NPC under generally accepted accounting principles after Closing,
$7,500 in principal amount of the Notes may be converted into 1,511,875 shares
of Maker's (restricted) Common Stock (the "Conversion Formula"). All Noteholders
as a group shall have the option but not the obligation, to convert all or part
of their Notes in accordance with the Conversion Formula. Within 20 days after
receiving notice, any Noteholder desiring to convert all or part of the
principal amount of his or her Note, shall deliver to the secretary of Maker a
written election to convert to shares of Maker's (restricted) Common Stock based
upon the Conversion Formula. If the total amount specified in the elections by
Noteholders exceeds the amount available under the Conversion Formula, then each
Noteholder shall have priority, up to the dollar amount of principal specified
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in his or her notice of election, to convert into shares of Maker's (restricted)
Common Stock, in the same proportion that the amount of principal, that he or
she holds, bears to the total amount of principal eligible for conversion under
the Conversion Formula. Any eligible principal not converted on such a priority
basis shall be allocated in one or more successive allocations to those
Noteholders electing to convert more than the principal amount to which they
have a priority right, up to the amount of principal specified in their
respective notices, in the proportion that the amount of principal held by each
of them bears to the outstanding principal held by all of them. Further, if
Maker has adequate cash reserves, (i.e., more than $1,500,000 in cash) a
Noteholder can request payment in full instead of exercising the option to
convert or waiting for the Note to mature on May 31, 1999.
For the year ending December 31, 1998. At any time during the 15 days
following the release of audited year end financial statements by NPC, Maker
shall notify each Noteholder of the option to convert all or part of the
principal amount of the Note into shares of Maker's (restricted) Common Stock
based upon the following formula. "For every $250,000 of net operating income
reported by NPC under generally accepted accounting principles after Closing,
$7,500 in principal amount of the Notes may be converted into 1,511,875 shares
of Maker's (restricted) Common Stock." (the "Conversion Formula"). All
Noteholders as a group shall have the option but not the obligation, to convert
all or part of their Notes in accordance with the Conversion Formula. Within 20
days after receiving notice, any Noteholder desiring to convert all or part of
the principal amount of his or her Note, shall deliver to the Secretary of Maker
a written election to convert to shares of Maker's (restricted) Common Stock
based upon the Conversion Formula. If the total amount specified in the
elections by Noteholders exceeds the amount available under the Conversion
Formula, then each Noteholder shall have priority, up to the dollar amount of
principal specified in his or her notice of election, to convert to shares of
Maker's (restricted) Common Stock, in the same proportion that the amount of
principal, that he or she holds, bears to the total amount of principal eligible
for conversion under the Conversion Formula. Any eligible principal not
converted on such a priority basis shall be allocated in one or more successive
allocations to those Noteholders electing to convert more than the principal
amount to which they have a priority right, up to the amount of principal
specified in their respective notices, in the proportion that the amount of
principal held by each of them bears to the outstanding principal held by all of
them.
For the years ending December 31, 1999 through 2002. Any principal on
the Note outstanding as of May 31,1999, at the election of the Noteholder shall
be paid in full by Maker or be placed into an earn out pool. The earn out pool
shall be created upon the surrender of the Note to the Company and in lieu of
payment. The earn out pool shall exist until the completion of the annual audit
of NPC for the year ending December 31, 2002 or full conversion of all Note
principal in accordance with the Conversion Formula, i.e. for every $250,000 of
net operating income reported by NPC under generally accepted accounting
principles after Closing, $7,500 in principal amount of the Notes may be
converted into 1,511,875 shares of Maker's (restricted) Common Stock. Each
Noteholder shall participate in conversion based upon the proportion that the
amount of principal held by each of them in the earn out pool bears to the
outstanding principal held by all of them in the earn out pool.
[NUOGAM\AGR:NPCPNO.STK]
A-3
<PAGE>
Each of the following events or occurrences shall constitute an "Event
of Default" hereunder: (a) if default is made in the payment of any installment
hereunder, or of any monetary amount payable hereunder, under the terms of any
Security Document, or under the terms of any other obligation of Maker to Payee
hereunder, within thirty (30) days following the date the same is due; (b) if
default is made in the performance of any other promise or obligation described
herein, in any Security Document, or in any other document evidencing or
securing any indebtedness of Maker to Payee following thirty (30) days prior
notice to Maker of such default and the failure of Maker to cure such default
within said thirty (30) day period; (c) if Maker shall execute an assignment of
any of its property for the benefit of creditors, fail to meet any obligations
herein described, be unable to meet its debts as they mature, suspend its active
business or be declared insolvent by any court, suffer any judgment or decree to
be rendered against it in an amount greater than US$10,000, suffer a receiver to
be appointed for any of its property, voluntarily seek relief or have
involuntary proceedings brought against it under any provision now in force or
hereinafter enacted of any law relating to bankruptcy, or forfeit its charter,
dissolve, or terminate its existence; (d) if any writ of attachment, garnishment
or execution shall be issued against Maker; (e) if any tax lien be assessed or
filed against Maker; (f) if any warranty, representation or statement made or
furnished to Payee by or on behalf of Maker, including but not limited to any
information provided to Payee in conjunction with the Purchase Agreement.
Upon the occurrence of any Event of Default, which is not cured within
thirty (30) days after notice of such default is given by Payee or at any time
thereafter when any Event of Default may continue, Payee may, at its option and
in its sole discretion, declare the entire balance of this Note to be
immediately due and payable, and upon such declaration all sums outstanding and
unpaid under this Note shall become and be in default, matured and immediately
due and payable, without presentment, demand, protest or notice of any kind to
Maker or any other person, all of which are hereby expressly waived, anything in
this Note or any other Security Document to the contrary notwithstanding.
Payee and Maker hereby agree to trial by court and irrevocably agree to
waive jury trial in any action or proceeding (including but not limited to any
counterclaim) arising out of or in any way related to or connected with this
Note or any other Security Document, the relationship created thereby, or the
origination, administration or enforcement of the indebtedness evidenced and/or
secured by this Note or any other Security Document.
This Note has been delivered to Payee and accepted by Payee in the
State of California, and shall be governed and construed generally according to
the laws of said State except to the extent that creation, validity, perfection
or enforcement of any liens or security interests securing this Note are
governed by the laws of another jurisdiction. Venue of any action brought
pursuant to this Note or any other Security Document, or relating to the
indebtedness evidenced hereby or the relationships created by or under the
Security Documents shall, at the election of the party bringing the action, be
brought in California state or United States federal court of appropriate
jurisdiction located in the City and County of San Francisco, State of
California. Maker and Payee each waives any objection to the jurisdiction of or
[NUOGAM\AGR:NPCPNO.STK]
A-4
<PAGE>
venue in any such court and to the service of process issued by such court and
agrees that each may be served by any method of process described in the State
of California or United States Federal Rules of Civil Procedure. Maker and Payee
each waives the right to claim that any such court is an inconvenient forum or
any similar defense.
If, in any jurisdiction, any provision of this Note shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
holding shall not affect any other provisions of this Note, and this Note shall
be construed, to the extent of such invalidity, illegality or unenforceability
(and only to such extent) as if any such provision had never been contained
herein. Any such holding of invalidity, illegality or unenforceability in one
jurisdiction shall not prevent valid enforcement of any affected provision if
allowed under the laws of another relevant jurisdiction.
No waiver by the holder of any payment or other right under this Note
shall operate as a waiver of any other payment or right.
In the event Maker incurs any liability as a result of the breach of
any representations (or omission to state any material facts) made (or omitted)
by Payee or National Pools Corporation pursuant to the Purchase Agreement,
Maker's exclusive remedy shall be to offset against all sums due hereunder such
amounts it may deem necessary to fully indemnify it from any such liabilities.
As used in this Note, the term "person" shall include, but is not
limited to, natural persons, corporations, partnerships, trusts, joint ventures
and other legal entities, and all combinations of the foregoing natural persons
or entities, and the term "obligation" shall include any requirement to pay any
indebtedness and/or perform any promise, term, provision, covenant or agreement
included or provided for in this Note or any other Security Document.
This Note and any and all certificates issued in replacement thereof or
in exchange therefor, will bear a restrictive transfer legend in the following
form:
"The obligations represented by this certificate and right to
acquire shares of the Company's common stock contained herein, have not been
registered under the Securities Act of 1933 (the "Act") and are "restricted
securities" as that term is defined in Rule 144 under the Act. Neither this debt
instrument nor the shares for which this obligation may be exchanged may be
offered for sale, sold or otherwise transferred except pursuant to an effective
Registration Statement under the Act or pursuant to an exemption from
registration under the Act, the availability of which is to be established to
the satisfaction of the Company."
[NUOGAM\AGR:NPCPNO.STK]
A-5
<PAGE>
Executed by the undersigned the year and day first above written.
NUOASIS GAMING INC.
By:
Name:
Title:
[NUOGAM\AGR:NPCPNO.STK]
A-6
<PAGE>
EXHIBIT "A"
to the
Convertible Secured Promissory Note
dated December 19, 1996
THE COLLATERAL
The assets of National Pools Inc. described as follows:
Office Equipment
Software Order Processing System
The trade names of Hit-LottoTM
1-800 Hit LottoTM, and 1-900 Hit LottoTM
[NPC to provide detailed Asset descriptions]
[NUOGAM\AGR:NPCPNO.STK]
AA-1
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is executed as of this 19th day
of December, 1996, by NUOASIS GAMING INC. (hereinafter referred to as the
"Debtor"), with a place of business located at 2 Park Plaza, Suite 470, Irvine,
California 92714, in favor of
, its successors and assigns (hereinafter referred
to as the "Secured Party").
WHEREAS, the following recitals of fact are a material part of this
Agreement; and,
WHEREAS, Secured Party is granting credit to Debtor pursuant to a
Convertible Secured Promissory Note dated of even date which is required to be
secured by the assets described in Exhibit "A" to the Convertible Secured
Promissory Note (all of which documents and instruments evidencing and/or
securing indebtedness of Debtor to Secured Party are collectively referred to
herein, along with this Agreement, as the "Security Documents"). Secured Party
is unwilling to grant credit to Debtor unless Debtor grants to Secured Party the
security interest granted herein according to the terms and conditions hereof.
1. Grant and Scope of Security Interest.
In consideration of the granting of credit to Debtor by Secured Party,
Debtor hereby grants to Secured Party a security interest (hereinafter referred
to as the "Security Interest") in the property described on Exhibit "A" attached
hereto and made a part hereof, whether now owned or hereafter acquired,
including all proceeds and products thereof and additions and accessions thereto
(hereinafter referred to as the "Collateral"). This Agreement and the rights
hereby granted shall secure the following (hereinafter collectively referred to
as the "Obligations"):
A. Principal and Interest. The principal amount of Borrower's
indebtedness to Lender with interest thereon as specified in the Security
Documents and any other sums due under any Loan Document, and any renewals,
extensions or modifications thereof; and
B. Expenses. The expense of all legal proceedings, including attorneys'
fees, brought by the Secured Party to enforce any Loan Document executed by
Debtor or this Agreement and all other costs and expenses paid or incurred by
the Secured Party in respect of or in connection with the Collateral; and
C. Performance. The observance and performance by the Debtor of all of
the terms, provisions, covenants and obligations on its part to be observed or
performed under any Loan Document, this Agreement; and
[NUOGAM\AGR:NPCPNO.STK]
AAA-1
<PAGE>
D. Other. Any and all indebtedness, obligations and liabilities of any
kind and nature of the Debtor to Secured Party, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising.
2. Perfection of Security Interest.
The Debtor shall use its best efforts and cooperate in the perfection
of security interest in the Collateral granted by this Security Agreement, as
follows:
A. NPC Shares. As to the portion of the Collateral consisting of the
issued and outstanding shares of capital stock of National Pools Corporation,
the Debtor shall, within ten (10) business days after the closing of the
transaction envisioned by that certain Stock Purchase Agreement of even date
herewith (to which a form of this Security Agreement is attached as an exhibit),
deliver all stock certificates standing in its name and evidencing shares of
capital stock of National Pools Corporation in its possession, duly endorsed for
transfer to Richard H. Skjerven, Esq., Skjerven, Morrill, MacPherson, Franklin &
Friel, 25 Metro Drive, Suite 700, San Jose, California 95110, as pledgeholder,
to Mr. Skjerven. Mr. Skjerven shall hold such certificates pending Debtor's
satisfaction of all duties and obligations secured by the Collateral. Upon
notice from Debtor that it has performed all such duties and obligations, Mr.
Skjerven shall deliver any certificates evidencing shares of capital stock of
National Pools Corporation to Debtor. Upon notice by the Secured Party that
Debtor has defaulted in one or more of its obligations secured by the
Collateral, Mr. Skjerven shall notify debtor of such notice and shall, within
ten (10) business days thereafter, (i) either deliver the certificate(s)
evidencing the shares of capital stock of National Pools Corporation to the
Secured Party or a person designated by him or her for the purpose of selling
such shares in accordance with the Uniform Commercial Code or (ii) shall deposit
the same in a court of competent jurisdiction for the purpose of having such
court determine the proper ownership of such shares. For so long as Debtor is
not in default under its duties and obligations secured by the Collateral, it
shall have the right to vote and otherwise act as owner of any shares (except
for the right to sell, transfer or assign such shares which may be effected, if
at all, only in compliance with the terms and conditions of Section 15 of the
Stock Purchase Agreement referred to above) of capital stock of National Pools
Corporation serving as a portion of the Collateral.
B. Personal Property. As to any other of the Collateral, debtor shall
execute financing statements and/or collateral assignments, in form and
substance reasonably satisfactory to Secured Party and Secured Party's counsel,
perfecting Secured Party's security interest in such portion of the Collateral
and shall give all reasonable assistance in the filing and the recordation of
such financing statements and/or Collateral assignments.
3. Debtor's Warranties, Covenants and Agreements.
Debtor hereby warrants, covenants and agrees that:
[NUOGAM\AGR:NPCPNO.STK]
AAA-2
<PAGE>
A. Purpose. The Collateral covered by this Agreement is used or
purchased for use primarily for business purposes. Although proceeds of
Collateral are covered by this Agreement, this shall not be construed to mean
that Secured Party consents to any sale of the Collateral, except in ordinary
course of business.
B. Transfer of Collateral Prohibited. Debtor will not, without
obtaining the prior written consent of Secured Party, transfer or permit any
transfer of the Collateral or any part thereof to be made, or any interest
therein to be created by way of a sale (except as permitted by Section 15 of the
Stock Purchase Agreement referred to in Paragraph 2.A. above), or by way of a
grant of a security interest, or by way of levy or other judicial process.
C. Access and Inspection. Debtor will, at all reasonable times, allow
Secured Party or its representatives free and complete access to all of the
Debtor's records for such inspection and examination as Secured Party deems
necessary. Debtor shall also upon request of Secured Party from time to time
submit up-to-date schedules of the items comprising the Collateral in such
detail as Secured Party shall require.
D. Third Party Claims. Debtor at its cost and expense will protect and
defend this Agreement, all of the rights of Secured Party hereunder and the
Collateral against the claims and demands of all other parties. Debtor will
promptly notify Secured Party of any levy, distraint or other seizure by legal
process or otherwise of any part of the Collateral, and of any threatened or
filed claims or proceedings that might in any way affect or impair any of the
terms of the Agreement.
E. Insurance. Debtor at its expense will obtain and maintain in force
insurance policies including fire and flood insurance, covering losses or damage
to the Collateral. The insurance policies to be obtained by Debtor shall be in
form and amounts acceptable to Secured Party. Secured Party is hereby
irrevocably appointed Debtor's attorney in fact to endorse any check or draft
that may be payable to the Debtor, alone or jointly with other payees, so that
the Secured Party may collect the proceeds payable for any loss under such
insurance. The proceeds of such insurance, less any costs and expenses incurred
or paid by the Secured Party in the collection thereof, shall be applied in
Secured Party's sole discretion either toward the costs of the repair or
replacement of the items damaged or destroyed, or on account of any sums secured
hereby, whether or not then due or payable.
F. Notices. Debtor will give Secured Party immediate written notice of
any change in location of Debtor's place of business.
4. Events of Default.
The occurrence of any of the following events shall constitute and is
hereby defined to be an "Event of Default":
[NUOGAM\AGR:NPCPNO.STK]
AAA-3
<PAGE>
A. Breach of Security Agreement Any failure or neglect to observe or
perform any of the terms, provisions, promises, agreements or covenants of this
Agreement and the continuance of such failure or neglect after notice thereof to
the Debtor; or
B. Failure to Pay. Any failure of the Debtor to pay any installment of
principal and/or interest, or any other sum due under any Loan Document within
ten (10) days following the date such installment became due and payable; or
C. False Statements. Any warranty, representation or statement
contained in this Agreement or otherwise made or furnished to the Secured Party
by or on behalf of the Debtor shall be or shall prove to have been false when
made or furnished; or
D. Destruction or Demise of Collateral. Any loss, theft, substantial
damage, destruction of, or the attachment of an encumbrance to any of the
Collateral, or the voluntary or involuntary transfer of any of the Collateral
(and said Collateral is not immediately replaced, restored or returned) or the
transfer of possession thereof to anyone, or the sale, creation of a security
interest, lien, attachment, levy, garnishment, distraint, or other process of,
in or upon any of the Collateral, and if such attachment or other similar
process is not bonded or released within thirty (30) days after levy.
E. Breach of Conversion Rights. If the Debtor shall fail to honor the
Secured Party's conversion rights under the Note following thirty (30) days
prior notice to Debtor and following Secured Party's compliance with all the
procedures of Debtor for conversion and the failure of Debtor to either tender
the shares issuable upon conversion or to notify Secured Party of additional
third party requirements (i.e. transfer agent) within said thirty (30) day
period.
5. Secured Party's Remedies.
Upon the occurrence of any Event of Default hereunder, Secured Party
shall have the following rights and remedies:
A. Acceleration and Possession. Secured Party may, at its option,
declare all or any part of the Obligations immediately due and payable and
Debtor shall on demand by Secured Party deliver the Collateral to the Secured
Party. Secured Party may, without further notice or demand and without legal
process, take possession of the Collateral wherever found and, for this purpose,
may enter upon any property occupied by or in the control of Debtor.
B. All Remedies Available. Secured Party may pursue any legal remedy
available to collect all sums secured hereby and to enforce its title in and
right to possession of the Collateral, and to enforce any and all other rights
or remedies available to it, and no such action shall operate as a waiver of any
other right or remedy of the Secured Party under the terms hereof or under
applicable law.
[NUOGAM\AGR:NPCPNO.STK]
AAA-4
<PAGE>
C. Waiver of Defenses. Debtor waives any requirements of presentment,
protest, notices of protest, notices of dishonor, and all other formalities.
Debtor waives all rights and/or privileges it might otherwise have to require
Secured Party to proceed against or exhaust the Collateral encumbered hereby or
by any Loan Document or to proceed against any guarantor of the Obligations or
to pursue any other remedy available to Secured Party in any particular manner
or order under the legal or equitable doctrine or principle of marshalling
and/or suretyship and further agrees that Secured Party may proceed against any
or all of the Collateral encumbered hereby or by any other Loan Document in the
event of default in such order and manner as Secured Party in its sole
discretion may determine. Any Debtor that has signed this Agreement as a surety
or accommodation party, or that has subjected its property to this Agreement to
secure the indebtedness of another hereby expressly waives the benefits of the
provisions of any laws which could delay, defeat or render more costly the
Secured Party's realization upon the Collateral, waives any defense arising by
reason of any disability or other defense of Debtor or by reason of the
cessation from any cause whatsoever of the liability of Debtor, and waives the
benefit of any statutes of limitation affecting the enforcement hereof.
D. Sale of Collateral. Secured Party may sell all or any part of the
Collateral at public or private sale either with or without having such
Collateral at the place of sale, and with notice to Debtor as provided herein.
The proceeds of such sale, after deducting therefrom all expenses of Secured
Party in taking, storing, repairing and selling the Collateral (including
attorneys' fees and court costs) shall be applied to the payment of any part or
all of the Obligations and any other indebtedness or liability of Debtor to
Secured Party, and any surplus thereafter remaining shall be paid to any person
that may be legally entitled thereto. In the event of a deficiency between such
net proceeds from the sale of Collateral and the total amount of Obligations
owing by Debtor, Debtor will promptly upon demand pay the amount of such
deficiency to Secured Party.
E. Secured Party as Purchaser. At any sale, public or private, of the
Collateral or any part thereof, made in the enforcement of the rights and
remedies of Secured Party, Secured Party may purchase any part or parts of the
Collateral or all thereof offered at such sale.
F. Notice of Sale. Secured Party shall give Debtor reasonable notice of
any sale or other disposition of the Collateral or any part thereof. Debtor
agrees that notice shall be conclusively deemed to be reasonable and effective
if such notice is mailed by registered or certified mail postage prepaid, to
Debtor at Debtor's principal place of business at least ten (10) days prior to
such sale or other dispositions.
G. Applicable Law Remedies. Secured Party shall have all the rights and
remedies afforded a Secured Party under applicable law.
[NUOGAM\AGR:NPCPNO.STK]
AAA-5
<PAGE>
6. Miscellaneous Provisions.
A. Waivers and Cumulative Remedies. No Event of Default hereunder by
Debtor shall be deemed to have been waived by Secured Party except by a writing
to that effect signed by Secured Party and no waiver of any such Event of
Default shall operate as a waiver of any other Event of Default on a future
occasion, or as a waiver of that Event of Default after written notice thereof
and demand by Secured Party for strict performance of this Agreement. All
rights, remedies and privileges of Secured Party hereunder shall be cumulative
and not alternative, and shall, whether or not specifically so expressed, inure
to the benefit of the Secured Party, its successors and assigns, and all
obligations of the Debtor shall bind its successors and legal representatives.
B. Debtor's Possession of Collateral. Until an Event of Default, the
Debtor may retain possession of the Collateral and may use it in any lawful
manner not inconsistent with this Agreement or with the provisions of any
policies of insurance thereon.
C. Waiver of Jury Trial. Secured Party and Debtor hereby agree to trial
by court and irrevocably waive jury trial in any action or proceeding (including
but not limited to any counterclaim) arising out of or in any way related to or
connected with this agreement or any other Loan Document, the relationship
created thereby, or the origination, administration or enforcement of the
indebtedness evidenced and/or secured by this Agreement or any other Loan
Document.
D. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
E. Written Amendment Required. No modification, rescission, waiver,
release or amendment of any provision of this Agreement shall be made except by
a written agreement subscribed by Debtor and Secured Party.
F. Full Force and Effect. This Agreement shall remain in full force and
effect until all of the indebtedness and any extensions or renewals thereof
shall be paid in full.
G. Successors and Assigns. Secured Party and Debtor as used herein
shall include the heirs, executors or administrators, or successors or assigns
of those parties. The provisions of this Agreement shall apply to the parties
according to the context hereof and without regard to the number or gender of
words and expressions used herein.
H. Financing Statements. A carbon, photographic or other reproduced
copy of this Agreement and/or any financing statement relating hereto shall be
sufficient for filing and/or recording as a financing statements.
[NUOGAM\AGR:NPCPNO.STK]
AAA-6
<PAGE>
Notwithstanding the foregoing, Debtor shall provide, shall execute and shall
cooperate with Secured Party in the execution and filing of such financing
statements, documents and instruments as Secured Party may reasonably request in
order to perfect the security interest granted to Secured Party hereunder or
otherwise to carry out the purposes of this Agreement.
I. Governing Law. This Security Agreement and the transaction evidenced
hereby shall be construed under the laws of the State of California, as the same
may from time to time be in effect.
IN WITNESS WHEREOF, this Agreement has been executed and delivered on
behalf of and in the name of Debtor on the date indicated above.
"Debtor"
NUOASIS GAMING INC.,
a Delaware corporation
By: /s/ Fred G. Luke
----------------------------------
Name: Fred G. Luke
Title: Director
"Secured Party"
Signatories listed on Exhibit "F"
[NUOGAM\AGR:NPCPNO.STK]
AAA-7
<PAGE>
EXHIBIT "B"
to the
Stock Purchase Agreement
Dated December 19, 1996
NPC ASSETS
In addition to the attached list, the following trade names are
registered:
1 HITTLOTTO
2. 1 900 HITLOTTO
3. 1 800 HITLOTTO
4. 1 888 HITLOTTO
[NUOGAM\AGR:NPCPNO.STK]
B-1
<PAGE>
EXHIBIT "C"
to the
Stock Purchase Agreement
Dated December 19th, 1996
COMPANY DISCLOSURE DOCUMENTS
Form 10-KSB for the fiscal year ended June 30,
1996 and Form 10-QSB for the quarter ended
September 30, 1996
[NUOGAM\AGR:NPCPNO.STK]
C-1
<PAGE>
EXHIBIT "D"
to the
Stock Purchase Agreement
Dated December 19, 1996
NPC DISCLOSURE DOCUMENTS
NuOasis Gaming, Inc. Received the following National Pools Corporation ("the
Company") Financial Documentation:
1993 Audited Financials Copy Included
1994 Audited Financials Copy Included
1995 Audited Financials Copy Included
1996 March, June, September unaudited statements Copy Included
A loan Agreement Promissory Note and other documents were entered into in
connection with the $822,000 debt financing provided by Providence Investments
during the summer of 1994. This indebtedness is reflected on the Company
Financial Statements, the Company is negotiating a settlement of this debt.
The company also entered into agreements and arrangements with various suppliers
and vendors. The amount due in connection with these agreements and arrangements
are set forth in the Company Financials. None of the listed suppliers or vendors
are now material to the operation of the Company.
Whereas, the Company has had discussion and negotiations with suppliers and
vendors, no definitive or binding agreements have been reached with any of the
said suppliers.
The company entered into an agreement with Ronald McGee, in 1994, Whereas McGee
would give up certain rights, NPC granted McGee and option to purchase 3,744,000
NPC Shares @.05 per share. The Option expires January 1, 1997, McGee has
requested that the option be extended for a further twelve months due to the
inability of NPC to commence it's operation in 1996. The NPC Board has
considered McGee's request and has agreed to the twelve month extension, Option
Agreement attached.
[NUOGAM\AGR:NPCPNO.STK]
D-1
<PAGE>
EXHIBIT "E"
to the
Stock Purchase Agreement
Dated December 19, 1996
Form of
INVESTMENT LETTER
The Undersigned hereby represents to NuOasis Gaming Inc. ("NuOasis")
(1) The Secured Convertible Promissory Note of NuOasis (the "Note"), which is
being acquired by the Undersigned, is being acquired by the Undersigned for the
Undersigned's own account and for investment. Upon conversion of the Notes into
shares the Undersigned may be deemed an affiliate of NuOasis and may be required
to file Schedule 13-D and Form 3 pursuant to the requirements of the Securities
Exchange Act of 1934 (the "Act").
(2) The Undersigned acknowledges that the Note is being issued by NuOasis in
reliance on exemptions from registration, including but not limited to Section
4(2) of the Security Act of 1933, as amended (the " '33 Act") and applicable
state securities laws, and the Undersigned agrees not to sell, transfer or
otherwise dispose of the Note except in compliance with the '33 Act, and
applicable state securities laws. The representations and warranties by the
Undersigned in this Investment Letter will be used and relied upon by NuOasis to
issue the Note to the Undersigned pursuant to Section 4(2) of the '33 Act and
Regulation D thereunder, and applicable state securities laws, and the
Undersigned will notify NuOasis immediately of any material changes to the
representations made herein.
(3) The Undersigned acknowledges that it has been furnished with disclosure
documents which it feels adequate and necessary to make an economic decision to
acquire the Note, including but not limited to a copy of NuOasis' most recent
Annual Report on Form 10-KSB and all reports or documents required to be filed
under Sections 13(a), 14(a), and 15(d) of the '34 Act, and quarterly reports on
Form 10-QSB, Current Reports on Form 8-K, and proxy statements (the "Disclosure
Documents"). In addition, the Undersigned has been furnished with a description
of NuOasis's capital structure and any material changes in NuOasis's financial
condition that may not have been disclosed in the Disclosure Documents.
(4) The Undersigned further acknowledges that it has had an opportunity to ask
questions of and receive answers from duly designated representatives of NuOasis
concerning the terms and conditions pursuant to which the Note is being
purchased. The Undersigned has had the opportunity to obtain any additional
information which it possesses or can acquire without unreasonable effort or
[NUOGAM\AGR:NPCPNO.STK]
E-1
<PAGE>
expense necessary to verify the accuracy of information furnished by NuOasis.
The Undersigned has been afforded an opportunity to examine such documents and
other information which it has requested for the purpose of verifying the
financial stability of NuOasis;
(5) The Undersigned is fully aware that there is no market for the Note. The
Undersigned is also aware of the applicable limitations on its resale of any
securities such as the Note, and that the Note, and any and all certificates
issued in replacement thereof or in exchange therefore, will bear a restrictive
transfer legend in the following form:
"The obligations represented by this certificate and right to acquire
shares of the Company's common stock contained herein, have not been
registered under the Securities Act of 1933 (the "Act") and are
"restricted securities" as that term is defined in Rule 144 under the
Act. Neither this debt instrument nor the shares for which this
obligation may be exchanged may be offered for sale, sold or otherwise
transferred except pursuant to an effective Registration Statement
under the Act or pursuant to an exemption from registration under the
Act, the availability of which is to be established to the satisfaction
of the Company."
(6) By reason of the Undersigned's knowledge and experience in financial and
business matters in general, and investments in particular, the Undersigned is
capable of evaluating the merits and bearing the economic risks of an investment
in the Note and fully understands the speculative nature of the Note and the
possibility of loss of the Undersigned's entire investment in the securities
used to acquire the Note.
(7) The present financial condition of the Undersigned is such that it is under
no present or contemplated future need to dispose of any portion of the Note to
satisfy an existing or contemplated undertaking, need or indebtedness.
Very truly yours,
/s/ see signatories on Exhibit F
[NUOGAM\AGR:NPCPNO.STK]
E-2
<PAGE>
EXHIBIT "F"
to the
Stock Purchase Agreement
Dated December 19, 1996
SELLING SHAREHOLDERS
Bernard Accristo Brian Heslip & Colleen Heslip Norma McLean
Paula Amanda Drake Heslip Domenick Migliorato
Jeff Waller Mark Heslip Barbara Monterosso
Raymond Benetti, Jr. Nicole Heslip Dan Monterosso
Mary Bernstein Heslip Trust Joseph Monterosso
Winona Bjorkland Gerald Hill Robert Rapp Trust
Gene Blount Carol Jackson George Rees
William Burgers Steven Jensen Henrietta Rees
James Cerretani Henry Jones Lee Rees
Douglas Coats George Kern Kathy Rees
Gary Collins Matt Kern Theo Suter
John Collins Daniel F. Sweet Michael Walsh
Michael Collins William Liggett Anthony Ward
Dell'Oca Trust Marcy Milne McCann Lane R. Ward
Mario Desenna Ryan McCann Janice Winkler
Tony Gibbs Ronald McGee
[NUOGAM\AGR:NPCPNO.STK]
F-1
<PAGE>
EXHIBIT "G"
to the
Stock Purchase Agreement
Dated December 19, 1996
PERMITTED OBLIGATIONS
I. All sums due or to become due under the following agreements commencing
after December 24, 1996:
1. Advisory and Management Agreement with NuVen Advisors, Inc. @
$10,000/month*
2. Employment Agreement with Fred G. Luke @ $4,500/month plus
reimbursable expenses*
3. Consulting Agreement with John D. Desbrow*
4. Consulting Agreement with Steven H. Dong*
5. Engagement Letter and Fee Agreement with Structure America,
Inc.*
6. Fee Agreement with Richard Weed*
7. Engagement Letter and Fee Agreement with OTC Communications*:
8. $ 20,000 in Accounts Payable.
II. Sums due to Nona Morelli's II, Inc. as intercompany advances (excluding
sums owed by CMA to Nona which will be removed from the Company's
consolidated balance sheet upon the sale of CMA).Upon funding of Phase
II transaction pursuant to Form 8-K description of transaction, all
other liabilities will be canceled or assumed, in writing, by Nona
Morelli's II, Inc.
* Agreement will terminate (unless extension mutually acceptable to parties is
agreed upon prior to NuOasis shareholders' meeting) effective at end of business
day of NuOG shareholders' meeting if parties reach mutual agreement, after good
faith negotiations, on terms of conditions under which NuOG will provide
indemnity acceptable to all parties for acts and omissions prior to
shareholders' meeting on NuOG's behalf and NuOG has sufficient authorized shares
to allow payments due under such Agreements as previously agreed to and is
eligible to register such shares on Form S-8.
[NUOGAM\AGR:NPCPNO.STK]
G-1
EXHIBIT 2
AUDITED FINANCIAL STATEMENTS OF NATIONAL POOLS CORPORATION
DATED JUNE 30, 1996 AND UNAUDITED FINANCIAL STATEMENTS OF
NATIONAL POOLS CORPORATION DATED SEPTEMBER 30, 1996
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
FINANCIAL STATEMENTS
With Report of Certified Public Accountants
Years Ended December 31, 1995 and 1994, And For The
Period Cumulative From Inception (February 23, 1993) through
December 31, 1995
- -------------------------------------------------------------------------------
MARCIA FRITZ & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
5530 Birdcage Street, Suite 200
Citrus Heights, CA 95610-7621
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
INDEX
Page(s)
Report of Certified Public Accountant ...................1
Balance Sheets ..........................................2-3
Statements of Operations and Accumulated Deficit ........4
Statements of Changes in Stockholders' Deficit ..........5
Statements of Cash Flow .................................6-7
Notes to the Financial Statements .......................8-13
<PAGE>
MARCIA FRITZ & COMPANY
CERTIFIED PUBLIC ACCCOUNTANTS
5530 Birdcage Street, Suite 200
Citrus Heights, CA 95610-7621
(916) 966-9366 o Fax (916) 966-8743
To the Board of Directors and
Stockholders of National Pools Corporation
We have audited the accompanying balance sheets of National Pools Corporation (a
development stage company) as of December 31, 1995 and December 31, 1994, and
the related statements of operations and accumulated deficit, changes in
stockholders' equity, and cash flows for the years then ended and from inception
(February 23, 1993) through December 31, 1995. 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 audit.
We conducted our audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of National Pools Corporation as
of December 31, 1995 and December 31, 1994, and the results of its operations
and its cash flows for the years then ended and from inception (February 23,
1993) through December 31, 1995, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13, the Company's
operating losses since inception and negative working capital raise substantial
doubt about its ability to complete development of its project and successfully
conduct principal operations as a going concern. As discussed in Note 12, the
Company is currently attempting to be acquired as a wholly owned subsidiary by
another company. The acquiring company must be successful in obtaining
sufficient working capital to finance the acquisition, satisfy the Company's
creditors, complete development of the project, and successfully conduct
principal operations. The Company cannot predict what the outcome of these plans
will be. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Marcia Fritz & Company
July 5, 1996, except for
Note 12 which is dated
November 7, 1996
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS 1995 1994
Current Assets: ----------- -----------
<S> <C> <C>
Cash $ 12,639 $ 597
Employee Advances Receivable 17,965 2,286
------ -----
Total Current Assets 30,604 2,883
------ -------
Fixed Assets:
Equipment 89,090 168,465
Less Accumulated Depreciation 26,218 16,784
------ -------
Net Fixed Assets 62,872 151,681
------ -------
Intangible Assets:
Software 200,036 190,361
Less Accumulated Amortization 95,120 28,441
------ ------
Net Intangible Assets 104,916 161,920
------- -------
Deposits 3,811 14,092
------- -------
TOTAL ASSETS $ 202,203 $ 330,576
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
LIABILITIES AND STOCKHOLDERS' DEFICIT
1995 1994
----------- -----------
<S> <C> <C>
Current Liabilities:
Accounts Payable (Note 3) $ 533,085 $ 528,033
Accrued Interest Payable (Note 5) 162,116 51,501
Wages Payable 82,788 102,630
Payroll Taxes Payable 11,512 15,924
Note Payable (Note 5) 822,930 822,930
------- -------
Total Current Liabilities 1,612,431 1,521,018
--------- ---------
Payable to Stockholders (Note 6):
Accrued Interest Payable 72,478
Notes Payable 75,864
Advance Payable to Stockholder 72,500
Convertible Debt 496,376
Less Unamortized Original Issue Discount 96,518
---------
Net Convertible Debt 399,858
Total Payable to Stockholders 620,700
Total Liabilities 1,612,431 2,141,718
--------- ---------
Stockholders' Deficit:
Common Stock (Note 8) 991,764 39,926
Preferred Stock (Note 8)
Deficit Accumulated during the
Development Stage ( 2,401,992) ( 1,851,068)
------------ ------------
Total Stockholders' Deficit ( 1,410,228) ( 1,811,142)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 202,203 $ 330,576
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years Ended December 31, 1995 and 1994, and for the
Period Cumulative from Inception (February 23, 1993) through December 31, 1995
Cumulative
from
Inception
through
Years Ended December 31, December 31,
---------------------------- ------------
1995 1994 1995
------------- ---------- ------------
<S> <C> <C> <C>
Operating Expenses $( 436,886) $( 437,778) $(1,019,263)
Research and Development (Note 2) ( 224,191) ( 842,019) (1,255,375)
------------- ----------- ------------
Net (Loss) from Operations ( 661,077) (1,279,797) (2,274,638)
------------- ----------- ------------
Other Income and (Expense):
Interest Expense:
Discounts on Convertible Debt
(Note 6) ( 96,518) ( 82,729) ( 248,188)
Other Interest Expense ( 160,977) ( 97,726) (286,997)
------------ ----------- -----------
Total Interest Expense ( 257,495) ( 180,455) ( 535,185)
Interest Income 1,012
Loss on Disposal of Assets ( 17,212) ( 40,373) ( 57,585)
------------ ---------- ------------
Total Other Income and (Expense) ( 274,707) ( 220,828) ( 591,758)
Net (Loss) Before Extraordinary
Item ( 935) (1,500,625) ( 2,866,396)
Benefit from Extinguishment
of Debt (Note 7) 384,860 67,934 464,404
------------ ---------- ----------
Net (Loss) ( 550,924) (1,432,691) ( 2,401,992)
Accumulated Deficit, Beginning ( 1,851,068) ( 418,377)
------------ ----------
Accumulated Deficit, Ending $( 2,401,992) $(1,851,068) $( 2,401,992)
============= ============ =============
Per Common Share (Note 1)
Net (Loss) Before Extraordinary
Item $ ( .09) $ ( .51)
Benefit from Extinguishment of Debt .04 .02
------------- ------------
Net (Loss) Per Common Share
(Note 1) $ ( .05) $ ( .49)
============ ============
Weighted Average Common Shares
Outstanding (Note 1) 10,910,839 2,956,201
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Period from Inception (February 23, 1993) through December 31, 1995
Common Accumulated Total
Stock Deficit Stockholders'
Deficit
----------- ------------ ------------
<S> <C> <C> <C>
Shares Issued in 1993 (Note 8) $ 10,326 $ 10,326
Net Loss for the period $( 418,377) ( 418,377)
----------- ------------ -----------
Balance December 31, 1993 10,326 ( 418,377) ( 408,051)
Shares Issued in 1994 (Note 8) 29,600 29,600
Net Loss for the period (1,432,691) (1,432,691)
----------- -----------
Balance December 31, 1994 39,926 (1,851,068) (1,811,142)
Shares Issued in 1995 (Note 8) 951,838 951,838
Net Loss for the period ( 550,924) ( 550,924)
------------ ----------- -----------
Balance December 31, 1995 $ 991,764 $(2,401,992) $(1,410,228)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOW
Years Ended December 31, 1995 and 1994, and
the Period From Inception (February 23, 1993) through December 31, 1995
Cumulative
from
Inception
through
Years Ended December 31, December 31,
------------------------------ ------------
1995 1994 1995
------------- ----------- ------------
<S> <C> <C> <C>
Cash Flow from Operating
Activities:
Net Loss $( 550,924) $( 1,432,691) $( 2,401,992)
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Depreciation 21,230 19,374 41,518
Amortization of Intangible Assets 66,679 29,765 97,944
Amortization of Original Issue
Discount, Convertible Debt 96,518 82,729 248,188
Loss on Disposal of Assets 17,212 40,373 57,585
Gain from Extinguishment of Debt ( 384,860) ( 67,934) ( 464,404)
(Increase) Decrease in:
Employee Advances Receivable ( 15,679) ( 145) ( 17,965)
Deposits 10,281 ( 11,092) ( 3,811)
Increase (Decrease) in:
Accounts Payable 96,792 371,564 479,056
Wages Payable 337,364 138,957 523,901
Payroll Taxes Payable ( 4,412) 15,924 11,512
Accrued Interest Payable 160,975 95,685 284,954
------------- ----------- ------------
Net Cash Used by Operating
Activities ( 148,824) ( 717,491) ( 1,143,514)
Cash Flows from Investing
Activities:
Proceeds from Sale of Assets 8,400 8,400
Cash Paid for Fixed Assets ( 150,722) ( 168,465)
Cash Paid for Intangible
Assets ( 9,675) ( 81,292) ( 100,967)
------------- ------------- -------------
Net Cash (Used by) Provided by
Investing Activities ( 1,275) ( 232,014) ( 261,032)
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
Cumulative
from
Inception
through
Years Ended December 31, December 31,
----------------------------------- ------------
1995 1994 1995
------------- ------------- ------------
<S> <C> <C> <C>
Cash Flows from Financing
Activities:
Issuance of Common Stock $ 94,341 $ 26,000 $ 129,903
Proceeds from Short-Term Debt 822,930 822,930
Proceeds from Stockholder Loans 67,800 101,640 464,352
------------- ------------- ------------
Net Cash Provided by
Financing Activities 162,141 950,570 1,417,185
------------- ------------- ------------
Net Increase (Decrease) in
Cash and Cash Equivalents 12,042 1,065 12,639
Cash and Cash Equivalents,
Beginning of Period 597 ( 468)
------------- ------------- ------------
Cash and Cash Equivalents,
End of Period $ 12,639 $ 597 $ 12,639
============= ============= ============
Supplemental Disclosures:
Noncash Investing Activities:
Accounts Payable Reduced by
Disposal (Return) of Assets $( 41,966) $ $( 41,966)
Intangible Assets Financed by
Accounts Payable 145,769 145,769
------------- ------------- --------------
Total Noncash Investing
Activities $( 41,966) $ 145,679 $ 103,803
============= ============= ===============
Noncash Financing Activities:
Wages Payable Converted to
Common Stock $ 17,372 $ 3,600 $ 22,498
Accounts Payable Converted to
Common Stock 4,748 4,748
Stockholder Loans and Related
Accrued Interest Converted to
Common Stock 835,377 853,377
------------- ------------- --------------
Total Noncash Financing
Activities $ 857,497 $ 3,600 $ 880,623
============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
The Company was formed on February 23, 1993, for the purpose of
developing and operating the Hit-Lotto Project (Project). This Project
uses debit card, telecommunications, and computer technology to market
and distribute chances for lottery players to enter pools when they buy
Hit-Lotto cards.
Basis of Accounting
The financial statements have been prepared for a development stage
company in accordance with generally accepted accounting principles.
Fixed Assets
Equipment is shown at cost. When retired or otherwise disposed of, the
related carrying value and accumulated depreciation are removed from the
respective accounts. Any resulting profit or loss is reflected in
income. The Company provides for depreciation of equipment using the
straight-line method and lives of five to seven years.
Intangible Assets
The Company has capitalized proprietary software developed for the
management of the Project. The Company provides for amortization of
intangible assets using the straight-line method over three years,
subject to periodic review of impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.
Convertible Debt Discount
The Company provides for amortization of the convertible debt discount
using the straight-line method over three years.
Research and Development Costs
The Company charges all research and development costs, including direct
and indirect costs, to an expense when incurred.
Net Loss Applicable Per Common Share
Per share amounts are calculated based on the weighted average number of
common shares outstanding during the periods of net loss.
Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include
the general operating checking and money market accounts.
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1995 and 1994
2. DEVELOPMENT STAGE OPERATIONS
Since inception, the Company operations have been devoted primarily to
the formulation and design of telecommunications and computer
technology, including the Hit-Lotto debit card and Internet Web Page,
for the Project. In August, 1994, the Project was tested in San Diego,
and development is continuing. Advertising costs of $237,936 were
incurred during the test period and are included in research and
development expenses for the year ended December 31, 1994.
3. ACCOUNTS PAYABLE
Accounts payable consist of the following:
1995
----------
Rent $ 81,078
Legal Fees 74,742
Advertising 151,999
Proprietary software 145,769
Miscellaneous 79,497
----------
Total $ 533,085
==========
4. INCOME TAXES
As of December 31, 1995, the Company has a federal loss carryforward of
$2,401,992 and a state loss carryforward of $1,200,996. The loss
carryforwards are available to reduce future years' taxable income (if
earned) and expire as follows:
Losses Expire
December 31, Federal State
------------- ----------- -----------
2008 $ 418,376 $ 209,188
2009 1,432,692 716,346
2010 550,924 275,462
----------- -------
$ 2,401,922 $ 1,200,996
=========== ===========
5. NOTE PAYABLE
During 1994 the Company issued a note payable to Providence Investment
Group with an interest rate based on the prime rate plus four points
(12.65% at December 31, 1995). The note is payable upon demand and is
unsecured.
6. PAYABLE TO STOCKHOLDERS
On March 18, 1993, the Company issued convertible debt at a 50%
discount, a 7% interest rate, and a March 1, 1996, maturity date in
connection with a sale of common stock.
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1995 and 1994
6. PAYABLE TO STOCKHOLDERS (CONTINUED)
During 1993 and 1994, the Company issued notes payable with a 10%
interest rate and a one-year maturity. During 1994 and 1995, the Company
issued notes payable with a 12.5% interest rate and a December 31, 1995,
maturity date.
As shown in Note 8, all convertible debt, notes payable to stockholders,
and related accrued interest were converted to 15,257,579 shares of
common stock on December 31, 1995. In the event the Company does not
obtain other financing by December 31, 1996, the shares issued in lieu
of payment of stockholder debt shall become void and interest shall
continue to accrue, effective January 1, 1996, under all indebtedness
otherwise converted.
7. BENEFIT FROM EXTINGUISHMENT OF DEBT
As discussed in Note 8, the Company's employees agreed to accept shares
of common stock in lieu of wages. The stock issued was valued less than
wages owed which resulted in gains of $339,834, $67,934, and $419,378
for the years ended December 31, 1995 and 1994 and since inception,
respectively. The per share benefit was $.03 and $.02 for the years
ended December 31, 1995 and 1994, respectively.
As discussed in Note 10, a vendor and related party agreed to accept
shares of common stock in lieu of payment on accounts payable. The stock
issued was valued less than amounts owed which resulted in a gain of
$45,026 for the year ended December 31, 1995. The per share benefit was
$.01 for the year ended December 31, 1995.
8. CAPITAL TRANSACTIONS
Common Stock
The following schedule includes the date and number of common shares
issued for cash and other considerations.
<TABLE>
<CAPTION>
Shares
Authorized Shares
and Unissued Issued Amount
------------ ---------- ---------
<S> <C> <C> <C>
Shares authorized,
February 23, 1993 3,000
Increase in shares
authorized, September 23,
1993 9,997,000
Shares issued throughout
year at $.005 per share ( 1,912,398) 1,912,398 $ 9,562
Shares issued to employees
during September through
November 1993, at $.0025
per share ( 305,533) 305,533 764
------------ --------- ---------
Balance December 31, 1993 7,782,069 2,217,931 10,326
</TABLE>
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1995 and 1994
8. CAPITAL TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Shares
Authorized Shares
and Unissued Issued Amount
------------ --------- ------
<S> <C> <C> <C>
Balance December 31, 1993 7,782,069 2,217,931 10,326
Shares issued during
September, 1994, at $.50
per share ( 50,000) 50,000 25,000
Shares issued during
December, 1994, at $.05
per share ( 20,000) 20,000 1,000
Shares issued to employees
throughout the year at
$.0025 per share ( 1,439,875) 1,439,875 3,600
- ---------- --------- -----
Balance December 31, 1994 6,272,194 3,727,806 39,926
Shares issued during April,
1995, at $.0465 per share ( 591,910) 591,910 27,500
Shares issued during April,
1995, in lieu of advance
payable to stockholder
at $.0465 per share ( 1,560,490) 1,560,490 72,500
Shares issued January through
May, 1995, at $.05 per share ( 790,841) 790,841 39,541
Increase in shares
authorized, December 29,
1995 25,000,000
Shares issued to employees
during July, 1995, in lieu
of payment of wages at
$.0025 per share ( 6,948,878) 6,948,878 17,372
Shares issued during December,
1995, in lieu of accounts
payable to stockholder at
$.0025 per share ( 205,500) 205,500 514
Shares issued August through
December, 1995, at $.05
per share ( 546,000) 546,000 27,300
Shares issued during November
and December, 1995, in lieu of
employee expenses at $.05
per share ( 74,685) 74,685 3,734
Shares issued during December,
1995, in lieu of accounts
payable at $.05 per share ( 10,000) 10,000 500
Shares issued during December,
1995, for extinguishment of
stockholder debt at $.05
per share (15,257,579) 15,257,579 762,877
------------ ---------- ---------
Balance December 31, 1995 5,286,311 29,713,689 $ 991,764
============ ========== =========
</TABLE>
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1995 and 1994
8. CAPITAL TRANSACTIONS (CONTINUED)
Preferred Stock
On September 23, 1993, the Company authorized 5,000,000 shares of
preferred stock which remain unissued as of December 31, 1995.
Shares Issued for Extinguishment of Stockholder Debt
In the event the Company does not obtain other financing by December 31,
1996, 15,257,579 shares issued for extinguishment of stockholder debt
shall become void and interest shall continue to accrue, effective
January 1, 1996, under all indebtedness otherwise converted.
9. INTANGIBLE ASSETS AMORTIZATION
Unamortized intangible assets were $104,916 and $161,920 at December 31,
1995 and 1994, respectively. Amortization expense was $66,679, $29,765,
and $97,944 for the years ended December 31, 1995 and 1994 and since
inception, respectively. Accumulated amortization was $95,120 and
$28,441 at December 31, 1995 and 1994, respectively.
10. STOCK OPTIONS OUTSTANDING
On January 20, 1995, one stockholder was granted an option to purchase
3,744,000 shares of common stock at $.05 per share. The option expires
January 30, 1997.
11. RELATED PARTY TRANSACTIONS
Included in operating expenses are $37,294, $21,138, and $67,742 for the
years ended December 31, 1995 and 1994 and since inception,
respectively, for lobbying expenses provided by a company owned by a
5.08% stockholder. Included in the gain on extinguishment of debt is
$45,026 formerly owed to this company. Additionally, $514 of accounts
payable to this company was converted to 205,500 shares of common stock
in 1995.
12. SUBSEQUENT EVENT
On June 13, 1996, the President, as an individual, entered into an
option agreement to acquire 250,000 shares of convertible preferred
stock in NuOasis Gaming, Inc. (NuOasis) at $13.00 per share
($3,250,000). The stock is convertible to 19,500,000 shares of common
stock, or 39% of voting stock in NuOasis. The options are assignable,
and any profits earned through assignment will be used to purchase
additional shares of NuOasis common stock.
The preferred shares will be purchased from a single stockholder who in
turn has agreed to use the majority of the proceeds to purchase a
subsidiary from NuOasis, and to obtain a release from liabilities from
NuOasis.
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1995 and 1994
12. SUBSEQUENT EVENT (CONTINUED)
The preferred share option exercise is contingent upon NuOasis'
acquisition of the Company for consideration of $1,200,000 in
convertible notes and 1,000,000 shares of common stock when available
for issuance. Subsequent to the acquisition and the preferred share
option exercise, the Company would be a wholly-owned subsidiary of
NuOasis with $3,000,000 working capital available for continuing
operations.
The conversion of the NuOasis preferred shares following the exercise of
the preferred share option is conditioned on an increase in the
authorized shares of NuOasis common stock. The required increase in
authorized shares of common stock is subject to NuOasis stockholder
approval.
13. GOING CONCERN
As shown in the accompanying financial statements, the Company has
incurred a $2,401,992 deficit since inception and as of December 31,
1995, the Company's current liabilities exceeded its current assets by
$1,581,827. Liens of $108,498 have been filed by two creditors.
Management of the Company is currently negotiating settlement payments
for several accounts payable balances.
Management of the Company has developed a one-year financing plan based
on loans to be provided from existing stockholders until the receipt of
working capital in connection with the NuOasis acquisition of the
Company, as discussed in Note 12.
The ability of the Company to continue as a going concern is dependent
on the ability to obtain additional working capital or equity
investment, as well as to be successful in developing a product that can
be marketed profitably. Should the Company not receive additional
funding, it is uncertain whether the Company has the ability to
continue. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going
concern.
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
FINANCIAL STATEMENTS
With Report of Certified Public Accountants
Three Months Ended September 30, 1996 and 1995, And For The
Period Cumulative From Inception (February 23, 1993) through
September 30, 1996
MARCIA FRITZ & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
5530 Birdcage Street, Suite 200
Citrus Heights, CA 95610-7621
<PAGE>
INDEX
Page(s)
Report of Certified Public Accountant .....................1
Balance Sheets ............................................2-3
Statements of Operations and Accumulated Deficit ..........4-5
Statements of Changes in Stockholders' Deficit ............6
Statements of Cash Flow ...................................7-9
Notes to the Financial Statements .........................10-15
<PAGE>
MARCIA FRITZ & COMPANY
CERTIFIED PUBLIC ACCCOUNTANTS
5530 Birdcage Street, Suite 200
Citrus Heights, CA 95610-7621
(916) 966-9366 o Fax (916) 966-8743
To the Board of Directors and
Stockholders of National Pools Corporation
We have compiled the accompanying balance sheet of National Pools Corporation (a
development stage company) as of September 30, 1996 and the statements of
operations and accumulated deficit, changes in stockholders' equity, and cash
flows for the three months and nine months ended September 30, 1996 and 1995 and
from inception (February 23, 1993) through September 30, 1996, in accordance
with Statements on Standards and Review Services issued by the American
Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The balance sheet for the year ended December 31, 1995 was audited by us and we
expressed an unqualified opinion on it in our report dated July 5, 1996, but we
have not performed any auditing procedures since that date.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10, the Company's
operating losses since inception and negative working capital raise substantial
doubt about its ability to complete development of its project and successfully
conduct principal operations as a going concern. As discussed in Note 9, the
Company is currently attempting to be acquired as a wholly owned subsidiary by
another company. The acquiring company must be successful in obtaining
sufficient working capital to finance the acquisition, satisfy the Company's
creditors, complete development of the project, and successfully conduct
principal operations. The Company cannot predict what the outcome of these plans
will be. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Marcia Fritz & Company
November 11, 1996
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
BALANCE SHEETS
September 30, December 31,
1996 1995
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 15,211 $ 12,639
Employee Advances Receivable 30,939 17,965
------------ -----------
Total Current Assets 46,150 30,604
------------ -----------
Fixed Assets:
Equipment 89,090 89,090
Less Accumulated Depreciation 39,448 26,218
------------ -----------
Net Fixed Assets 49,642 62,872
------------ -----------
Intangible Assets (Note 7):
Software 200,036 200,036
Less Accumulated Amortization 145,124 95,120
------------ -----------
Net Intangible Assets 54,912 104,916
------------ -----------
Deposits 6,573 3,811
------------ -----------
TOTAL ASSETS $ 157,277 $ 202,203
============ ===========
</TABLE>
See accountants' compilation report and accompanying notes
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
BALANCE SHEETS
(Continued)
September 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable (Note 3) $ 616,922 $ 533,085
Accrued Interest Payable (Note 5) 255,819 162,116
Wages Payable 195,288 82,788
Payroll Taxes Payable 13,291 11,512
Notes Payable (Note 5) 929,180 822,930
------------ -----------
Total Current Liabilities 2,010,500 1,612,431
------------ -----------
Total Liabilities 2,010,500 1,612,431
------------ -----------
Stockholders' Deficit:
Common Stock (Note 6) 991,764 991,764
Preferred Stock (Note 6)
Deficit Accumulated during the
Development Stage (2,844,987) (2,401,992)
------------ ------------
Total Stockholders' Deficit (1,853,223) (1,410,228)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 157,277 $ 202,203
============ ============
</TABLE>
See accountants' compilation report and accompanying notes
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND ACCUMULATED
DEFICIT Three Months and Nine Months Ended September 30,
1996 and 1995, and for the
Period Cumulative from Inception (February 23, 1993) through September 30, 1996
Cumulative
from
Inception
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
--------------------------- ---------------------------------- ------------
1996 1995 1996 1995 1996
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Expenses $( 136,788) $( 47,254) $( 296,341) $( 223,489) $( 1,315,604)
Research and Development (Note 2) ( 5,178) ( 39,004) ( 52,951) ( 177,602) ( 1,308,326)
------------- ------------- ------------- ------------- -------------
Net (Loss) from Operations ( 141,966) ( 86,258) ( 349,292) ( 401,091) ( 2,623,930)
------------- ------------- ------------- ------------- -------------
Other Income and (Expense):
Interest Expense:
Discounts on Convertible Debt
(Note 6) ( 20,682) ( 62,046) ( 248,188)
Other Interest Expense ( 32,238) ( 40,324) ( 93,703) ( 120,812) ( 380,700)
------------- ------------- ------------- ------------- -------------
Total Interest Expense ( 32,238) ( 61,006) ( 93,703) ( 182,858) ( 628,888)
Interest Income 1,012
Loss on Disposal of Assets ( 7,490) ( 57,585)
------------- ------------- ------------- ------------- -------------
Total Other Income and (Expense) ( 32,238) ( 61,006) ( 93,703) ( 190,348) ( 685,461)
------------- ------------- ------------- ------------- -------------
Net (Loss) Before Extraordinary
Item ( 174,204) ( 147,264) ( 442,995) ( 591,439) ( 3,309,391)
Benefit from Extinguishment
of Debt 464,404
Net (Loss) ( 174,204) ( 147,264) ( 442,995) ( 591,439) ( 2,844,987)
</TABLE>
See accountants' compilation report and accompanying notes
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Continued)
Cumulative
from
Inception
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
--------------------------------- --------------------------- -------------
1996 1995 1996 1995 1996
------------ ----------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Net (Loss) ( 174,204) ( 147,264) ( 442,995) ( 591,439) ( 2,844,987)
Accumulated Deficit, Beginning ( 2,670,783) ( 2,295,243) ( 2,401,992) ( 1,851,068)
------------- ------------- ------------- -------------
Accumulated Deficit, Ending $( 2,844,987) $( 2,442,507) $( 2,844,987) $( 2,442,507) $( 2,844,987)
============= ============= ============= ============= =============
Per Common Share
Net (Loss) Per Common Share $ ( .01) $ ( .01) $ ( .01) $ ( .08)
Weighted Average Common Shares
Outstanding 29,713,689 13,925,592 29,713,689 7,483,777
============= ============= ============= =============
</TABLE>
See accountants' compilation report and accompanying notes
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
Period from Inception (February 23, 1993) through September 30, 1996
Common Accumulated Total
Stock Deficit Stockholders'
Deficit
------------ ------------ ------------
<S> <C> <C> <C>
Shares Issued in 1993 (Note 6) $ 10,326 $ 10,326
Net Loss for the period $( 418,377) ( 418,377)
------------ ------------ ------------
Balance December 31, 1993 10,326 ( 418,377) ( 408,051)
Shares Issued in 1994 (Note 6) 29,600 29,600
Net Loss for the period (1,432,691) (1,432,691)
------------ ------------ ------------
Balance December 31, 1994 39,926 (1,851,068) (1,811,142)
Shares Issued in 1995 (Note 6) 951,838 951,838
Net Loss for the period ( 550,924) ( 550,924)
------------ ------------ ------------
Balance December 31, 1995 991,764 (2,401,992) (1,410,228)
Net Loss for the period ( 442,995) ( 442,995)
------------ ------------ ------------
Balance September 30, 1996 $ 991,764 $(2,844,987) $(1,853,223)
============ ============ ============
</TABLE>
See accountants' compilation report and accompanying notes
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOW
Three Months and Nine Months Ended September 30, 1996 and 1995, and
the Period From Inception (February 23, 1993) through September 30, 1996
Cumulative
from
Inception
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
1996 1995 1996 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net Loss $( 174,204) $( 147,264) $( 442,995) $( 591,439) $( 2,844,987)
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
Depreciation 4,410 8,992 13,230 26,976 54,748
Amortization of Intangible Assets 16,668 16,670 50,004 50,010 147,948
Amortization of Original Issue
Discount, Convertible Debt 20,682 62,047 248,188
Loss on Disposal of Assets 7,490 57,585
Gain from Extinguishment of Debt ( 464,404)
(Increase) Decrease in:
Employee Advances Receivable ( 8,359) ( 5,581) ( 12,974) ( 6,279) ( 30,939)
Deposits ( 2,762) 610 ( 2,762) 10,281 ( 6,573)
Increase (Decrease) in:
Accounts Payable 54,055 4,901 83,837 94,397 562,893
Wages Payable 37,500 36,725 112,500 109,151 636,401
Payroll Taxes Payable 1,075 ( 4,510) 1,779 ( 795) 13,291
Accrued Interest Payable 32,237 40,244 93,703 120,731 378,657
------------- ------------- ------------- ------------- ------------
Net Cash Used by Operating
Activities ( 39,380) ( 28,531) ( 103,678) ( 117,430) ( 1,247,192)
</TABLE>
See accountants' compilation report and accompanying notes
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOW
(Continued)
Cumulative
from
Inception
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
1996 1995 1996 1995 1996
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Investing
Activities:
Proceeds from Sale of Assets $ $ $ $ 8,000 8,400
Cash Paid for Fixed Assets ( 168,465)
Cash Paid for Intangible
Assets ( 100,967)
------------ ------------- ------------- ------------- ------------
Net Cash (Used by) Provided by
Investing Activities 8,000 ( 261,032)
Cash Flows from Financing
Activities:
Issuance of Common Stock 5,000 75,167 129,903
Proceeds from Short-Term Debt 822,930
Proceeds from Stockholder Loans
(Note 5) 33,537 21,650 106,250 35,602 570,602
------------- ------------- ------------- ------------- ------------
Net Cash Provided by
Financing Activities 33,537 26,650 106,250 110,769 1,523,435
------------- ------------- ------------- ------------- ------------
Net Increase (Decrease) in
Cash and Cash Equivalents ( 5,843) ( 1,881) 2,572 1,339 15,211
Cash and Cash Equivalents,
Beginning of Period 21,054 3,817 12,639 597
------------- ------------- ------------- ------------- ------------
Cash and Cash Equivalents,
End of Period $ 15,211 $ 1,936 $ 15,211 $ 1,936 $ 15,211
============= ============= ============= ============= ============
</TABLE>
See accountants' compilation report and accompanying notes
<PAGE>
<TABLE>
<CAPTION>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOW
(Continued)
Cumulative
from
Inception
Three Months Ended Nine Months Ended through
September 30, September 30, September 30,
----------------------------------- ------------------------------------ -------------
1996 1995 1996 1995 1996
------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Supplemental Disclosures:
Noncash Investing Activities:
Accounts Payable Reduced by
Disposal (Return) of Assets $ $ $ $( 41,966) $( 41,966)
Intangible Assets Financed by
Accounts Payable 145,769
Total Noncash Investing
Activities $ $ $ $( 41,966) $ 103,803
============= ============= ============= ============= =============
Noncash Financing Activities:
Wages Payable Converted to
Common Stock $ $ $ $ $ 22,498
Accounts Payable Converted to
Common Stock 4,748
Stockholder Loans and Related
Accrued Interest Converted to
Common Stock 853,377
Total Noncash Financing
Activities $ $ $ $ $ 880,623
============= ============= ============= ============= ============
</TABLE>
See accountants' compilation report and accompanying notes
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
The Company was formed on February 23, 1993, for the purpose of developing and
operating the Hit-Lotto Project (Project). This Project uses debit card,
telecommunications, Internet website, and computer technology to market and
distribute chances for lottery players to enter pools when they buy Hit-Lotto
cards.
Basis of Accounting
The financial statements have been prepared for a development stage company in
accordance with generally accepted accounting principles.
Fixed Assets
Equipment is shown at cost. When retired or otherwise disposed of, the related
carrying value and accumulated depreciation are removed from the respective
accounts. Any resulting profit or loss is reflected in income. The Company
provides for depreciation of equipment using the straight-line method and
lives of five to seven years.
Intangible Assets
The Company has capitalized proprietary software developed for the Project.
The Company provides for amortization of intangible assets using the
straight-line method over three years, subject to periodic review of
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable.
Convertible Debt Discount
The Company provides for amortization of the convertible debt discount using
the straight-line method over three years.
Research and Development Costs
The Company charges all research and development costs, including direct and
indirect costs, to an expense when incurred.
Net Loss Applicable Per Common Share
Per share amounts are calculated based on the weighted average number of
common shares outstanding during the periods of net loss.
Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include the
general operating checking and money market accounts.
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
2. DEVELOPMENT STAGE OPERATIONS
Since inception, the Company operations have been devoted primarily to the
formulation and design of telecommunications and computer technology,
including the Hit-Lotto debit card and Internet Web Page, for the Project. In
August, 1994, the Project was tested in San Diego, and development is
continuing.
3. ACCOUNTS PAYABLE
Accounts payable consist of the following at September 30, 1996:
Rent $ 81,078
Legal Fees 129,357
Advertising 151,999
Proprietary Software 145,769
Accounting 35,126
Miscellaneous 73,593
---------
Total $ 616,922
=========
4. INCOME TAXES
As of September 30, 1996, the Company has a federal loss carryforward of
$2,844,987 and a state loss carryforward of $1,422,493. The loss carryforwards
are available to reduce future years' taxable income (if earned) and expire as
follows:
Losses Expire
December 31, Federal State
------------- ----------- -------------
2008 $ 418,376 $ 209,188
2009 1,432,692 716,346
2010 550,924 275,462
2011 442,995 221,497
----------- -------------
$ 2,844,98 $ 1,422,493
5. NOTES PAYABLE
Included in notes payable at September 30, 1996, are the following:
Payable to Providence on demand,
prime + 4% (12.25% at September 30, 1996) $ 822,930
Payable to stockholders, 10%, revolving
three month maturity 106,250
---------
$ 929,180
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
6. CAPITAL TRANSACTIONS
Common Stock
The following schedule includes the date and number of common shares issued
for cash and other considerations.
<TABLE>
<CAPTION>
Shares
Authorized Shares
and Unissued Issued Amount
------------ ---------- ---------
<S> <C> <C> <C>
Shares authorized,
February 23, 1993 3,000
Increase in shares
authorized, September 23,
1993 9,997,000
Shares issued throughout
year at $.005 per share ( 1,912,398) 1,912,398 $ 9,562
Shares issued to employees
during September through
November 1993, at $.0025
per share ( 305,533) 305,533 764
------------ --------- ---------
Balance December 31, 1993 7,782,069 2,217,931 10,326
Shares issued during
September, 1994, at $.50
per share ( 50,000) 50,000 25,000
Shares issued during
December, 1994, at $.05
per share ( 20,000) 20,000 1,000
Shares issued to employees
throughout the year at
$.0025 per share ( 1,439,875) 1,439,875 3,600
------------ --------- ---------
Balance December 31, 1994 6,272,194 3,727,806 39,926
</TABLE>
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
6. CAPITAL TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
Shares
Authorized Shares
and Unissued Issued Amount
------------ --------- -------
<S> <C> <C> <C>
Balance December 31, 1994 6,272,194 3,727,806 39,926
Shares issued during April,
1995, at $.0465 per share ( 591,910) 591,910 27,500
Shares issued during April,
1995, in lieu of advance
payable to stockholder
at $.0465 per share ( 1,560,490) 1,560,490 72,500
Shares issued January through
May, 1995, at $.05 per share ( 790,841) 790,841 39,541
Increase in shares
authorized, December 29,
1995 25,000,000
Shares issued to employees
during July, 1995, in lieu
of payment of wages at
$.0025 per share ( 6,948,878) 6,948,878 17,372
Shares issued during December,
1995, in lieu of accounts
payable to stockholder at
$.0025 per share ( 205,500) 205,500 514
Shares issued August through
December, 1995, at $.05
per share ( 546,000) 546,000 27,300
Shares issued during November
and December, 1995, in lieu of
employee expenses at $.05
per share ( 74,685) 74,685 3,734
Shares issued during December,
1995, in lieu of accounts
payable at $.05 per share ( 10,000) 10,000 500
Shares issued during December,
1995, for extinguishment of
stockholder debt at $.05
per share (15,257,579) 15,257,579 762,877
------------ ---------- ---------
Balance September 30, 1996 5,286,311 29,713,689 $ 991,764
============ =========== =========
</TABLE>
Preferred Stock
On September 23, 1993, the Company authorized 5,000,000 shares of preferred
stock which remain unissued as of September 30, 1996.
Shares Issued for Extinguishment of Stockholder Debt
In the event the Company does not obtain other financing by December 31, 1996,
15,257,579 shares issued for extinguishment of stockholder debt shall become
void and interest shall continue to accrue, effective January 1, 1996, under
all indebtedness otherwise converted.
7. INTANGIBLE ASSETS AMORTIZATION
Unamortized intangible assets were $54,912 at September 30, 1996. Amortization
expense was $16,668, $50,004, and $147,948 for the three months and nine
months ended September 30, 1996 and since inception, respectively. Accumulated
amortization was $145,124 at September 30, 1996.
<PAGE>
NATIONAL POOLS CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1996
8. STOCK OPTIONS OUTSTANDING
On January 20, 1995, one stockholder was granted an option to purchase
3,744,000 shares of common stock at $.05 per share. The option expires January
30, 1997.
9. SUBSEQUENT EVENT
On June 13, 1996, the President, as an individual, entered into an option
agreement to acquire 250,000 shares of convertible preferred stock in NuOasis
Gaming, Inc. (NuOasis) at $13.00 per share ($3,250,000). The stock is
convertible to 19,500,000 shares of common stock, or 39% of voting stock in
NuOasis. The options are assignable, and any profits earned through assignment
will be used to purchase additional shares of NuOasis common stock.
The preferred shares will be purchased from a single stockholder who in turn
has agreed to use the majority of the proceeds to purchase a subsidiary from
NuOasis, and to obtain a release from liabilities from NuOasis.
The preferred share option exercise is contingent upon NuOasis' acquisition of
the Company for consideration of $1,200,000 in convertible notes and 1,000,000
shares of common stock when available for issuance. Subsequent to the
acquisition and the preferred share option exercise, the Company would be a
wholly-owned subsidiary of NuOasis with $3,000,000 working capital available
for continuing operations.
The conversion of the NuOasis preferred shares following the exercise of the
preferred share option is conditioned on an increase in the authorized shares
of NuOasis common stock. The required increase in authorized shares of common
stock is subject to NuOasis stockholder approval.
10. GOING CONCERN
As shown in the accompanying financial statements, the Company has incurred a
$2,844,987 deficit since inception and, as of September 30, 1996, the
Company's current liabilities exceeded its current assets by $1,964,350. Liens
of $108,498 have been filed by two creditors. Management of the Company is
currently negotiating settlement payments for several accounts payable
balances.
The ability of the Company to continue as a going concern is dependent on its
ability to obtain additional working capital or equity investment, as well as to
be successful in developing a product that can be marketed profitably. Should
the Company not receive additional funding, it is uncertain whether the Company
has the ability to continue. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
EXHIBIT 3
DIRECTOR ACCEPTANCE LETTER BY
JOSEPH MONTEROSSO
<PAGE>
November 25, 1996
Board of Directors
NuOasis Gaming, Inc.
2 Park Plaza, Suite 470
Irvine, CA 92614
Gentlemen:
I hereby accept my nomination and appointment as a Director of NuOasis Gaming,
Inc. to be effective as of the date hereof.
Very truly yours,
/s/ Joseph Monterosso
- ----------------------------------
Joseph Monterosso
