SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1997 Commission file number: 0-18377
NuOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
(Exact name of registrant as specified in its charter)
Nevada
(State of other jurisdiction of incorporation or organization)
84-1126818
(I.R.S. Employer Identification No.)
4695 MacArthur Court, Suite 530, Newport Beach, California
(Address of Principal Executive Offices)
92660
(Zip Code)
Registrant's telephone number, including area code: (714) 833-5381
------------
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K, is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
o
The Registrant's revenues for its most recent fiscal year were
$1,339,763.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of January 31, 1997 was approximately
$8.7 million.
Class
Common Stock, $.01 par value
Outstanding at January 31, 1998
48,824,300 shares
Documents Incorporated by Reference:
None
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 1
Item 2. Description of Property..................................17
Item 3. Legal Proceedings........................................18
Item 4. Submission of Matters to a Vote of Security-Holders......19
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.19
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................21
Item 7. Financial Statements.....................................28
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure....................29
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act ..........................................29
Item 10. Executive Compensation...................................34
Item 11. Security Ownership of Certain Beneficial Owners and
Management ............................................38
Item 12. Certain Relationships and Related Transactions...........39
PART IV
Item 13. Exhibits and Reports on Form 8-K..........................40
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General
NuOasis Resorts, Inc., formerly, Nona Morelli's II, Inc. (the "Company"
or "NRI"), was incorporated in Colorado on February 6, 1989 and became public in
1990. Through its subsidiaries the Company (a) develops, owns, leases, manages
and operates hotels, gaming casinos and related operations (b) manufactures and
distributes specialty food products, and (c) invests in and develops real estate
interests. In addition to its hotel and gaming operations, the Company provides
food, entertainment and ancillary services.
(b) Business Development
The Company was originally organized to succeed the business of the
Nona Morelli Limited Partnership which operated a restaurant from 1986 through
1989 and manufactured and marketed specialty Italian food products.
Prior to December 1992, the business of the Company consisted solely of
the manufacturing, marketing and sale of Italian food products. During its
fiscal year ended June 30, 1993 ("fiscal 1993"), as a result of a number of
acquisitions and investments in the areas of food, legalized gaming and real
estate, the Company was restructured to operate as a holding company. Since July
1, 1993, the Company's food, legalized gaming and real estate acquisition,
development and production activities have been owned and operated by
wholly-owned subsidiaries or subsidiaries where the Company owned and exercised
voting control.
The Company's domestic food operations are conducted by its
wholly-owned subsidiary, Fantastic Foods International, Inc., a California
corporation ("FFI") doing business as The Pasta Fresca Company ("Pasta Fresca").
The Company's historical domestic gaming related assets and operations
have been conducted by a former subsidiary, Group V Corporation (formerly,
NuOasis Gaming, Inc.), a Delaware corporation ("GRPV"), formerly E.N. Phillips
Company ("ENP"), which is a publicly-held company whose shares are traded on the
Electronic Bulletin Board. During the year ended June 30, 1997 ("fiscal 1997"),
the Company sold the majority of its equity and voting control of GRPV,
consisting of common and preferred stock of GRPV. At the close of fiscal 1997,
the Company held approximately 10% voting control of GRPV. Subsequent to the
close of fiscal 1997, the Company entered into an agreement to sell its
remaining interest in the common stock, preferred stock and certain warrants to
purchase common stock of GRPV (see Item 6, Management's Discussion and
Analysis).
The Company's international hotel management and casino gaming
activities which, at the close of fiscal 1997, were still in the development
stage, are conducted by its wholly-owned subsidiary, NuOasis International, Inc.
("NuOI"), a Bahamas corporation, successor to NuOasis International Inc., a
California Corporation (formerly International Casino Management, Inc.), and by
Cleopatra Palace Limited, an Irish corporation ("Cleopatra") and Cleopatra's
World Inc., a British Virgin Island corporation ("Cleopatra's World"), entities
which are 70% and 50% owned, respectively, by NuOI, as of June 30, 1997.
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The Company's domestic real estate operations, which at the close of
fiscal 1997, are still in the development stage, are conducted by NuOasis
Properties, Inc., a Colorado corporation, formerly Morelli Capital, Inc., a
wholly-owned subsidiary ("NuOP").
In fiscal 1993, the Company adopted the strategy to ultimately result
in its separate subsidiaries becoming publicly-held companies. The Company
believes that its subsidiaries can raise new equity capital, as needed, as
separate publicly-held entities, and minimize the Company's financial commitment
to support the subsidiaries' growth. Since the beginning of its fiscal year
ended June 30, 1994 ("fiscal 1994"), the Company has supervised its subsidiaries
and provided financial support, centralized strategic planning, corporate
development, administrative and other services. During fiscal 1997 the Company
had eight (8) subsidiaries, one of which was publicly traded.
As used herein, the term "Company", "Registrant" or "NRI" refers to
NuOasis Resorts, Inc. (formerly, Nona Morelli's II, Inc.), and its subsidiaries:
NuOP, NuOI and its subsidiaries, Cleopatra and Cleopatra's World, FFI, ACI Asset
Management Inc., a Nevada corporation ("ACI"), and GRPV and its wholly-owned
subsidiaries; Casino Management of America, Inc., a Utah corporation ("CMA");
NuOasis Laughlin, Inc., a Colorado corporation ("NuLA"); and NuOasis Las Vegas,
Inc., a Colorado corporation ("NuLV"). NuLV and NuLA were both wholly
owned-subsidiaries of CMA which in turn was owned by GRPV until June 1996, when
CMA, NuLV and NuLA were acquired and became wholly-owned subsidiaries of the
Company. NuLV and NuLA were formed for the purpose of acquiring gaming assets in
the metropolitan Las Vegas and Laughlin, Nevada areas. ACI was formed for the
purpose of acquiring certain real estate assets. ACI, NuOP, CMA, NuLV and NuLA
are development-stage companies and did not have any operations during the three
fiscal years ended June 30, 1997.
The following chart illustrates the relationship between the Company
and the various subsidiaries:
<TABLE>
<CAPTION>
NuOASIS RESORTS INC.
<S> <C> <C> <C> <C> <C> <C> <C>
GRPV
(Voting CMA NuLV NuOI NuLA FFI ACI NuOP
Control) 100% 100% 100% 100% 100% 100% 100%
--------- ---- ---- ----------------------- ---- ---- ---- ----
Cleopatra - 70%
Cleopatra's World - 50%
</TABLE>
(c) Description of Business
The Company's business interests are comprised of food manufacturing
and distribution, legalized gaming and hotel management, and real estate
acquisition and development.
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(1) Food Manufacturing and Distribution
Through FFI, the Company is a manufacturer and marketer of
fresh and frozen packed pasta and Italian sauces. Since September 1993,
the Company's food products operations have been conducted by FFI. In
fiscal 1994 the Company's historical food manufacturing and
distribution activities, which include pasta and sauce products, were
transferred from Colorado to California and are now operated in
facilities based in Irwindale, California. The facility is USDA
certified and produces all of the Company's pasta and sauce products,
including meat and chicken filled products and speciality items for
hotels and restaurants.
The Company utilizes its own recipes and those acquired in the
purchase of the assets and business of Italfin, Inc. ("Italfin") and
Pasta Fresca in fiscal 1993. The Company's pasta products are fresh or
frozen, not dried, to maintain 60% of the nutritional value, to cook
quickly and to retain aroma and taste. Its pasta is high in complex
carbohydrates making it a high energy food. The Company's pasta is
manufactured under the brand names "Nona Morelli" and "Pasta Fresca,"
and contains all natural ingredients without any preservatives. The
"Nona Morelli" and "Pasta Fresca" brand name pasta products are sold
primarily to the retail trade in supermarkets, club stores and
independent grocers in California and other states and, to an
increasingly greater extent, through contract packaging ("co-packing")
for other national/regional organizations, which distribute the
Company's products under their private labels. Fresh and frozen pasta
is also sold in bulk for the food service industry, hotels and
restaurants. The Company has lines of no cholesterol and low
cholesterol pasta and packages and markets pasta with accompanying
sauces. The Company is also a producer and marketer of a private label
and "Nona Morelli" and "Pasta Fresca" brand sauces.
During the year ended June 30, 1997, the Company continued to
pursue a program that focused on increasing operations on both a
national and international level. The Company continues its direct
manufacturing and marketing activities for the "Nona Morelli" and
"Pasta Fresca" brand names on a regional basis through various brokers
in the Southeast and Midwest. In co-packing, the Company packages its
pasta and sauce products for other companies which market the products
under their own labels and brand names. Co-packing represented
approximately 38% and 24% of food sales revenue for each of the years
ended June 30, 1997 and 1996, respectively.
Products
The Company's primary food products include a variety of
pastas and sauces. The Company's pasta sales accounted for ninety
percent (90%) and ninety five percent (95%) of food sales revenues for
both the years ended June 30, 1997 and 1996, respectively. The
Company's pasta line consists of 35 different pasta products separately
packaged under the "Nona Morelli's" label and private-label names.
The Company also manufactures and markets five different sauce
products separately packaged in four sizes under the "Nona Morelli's"
brand name and private-label.
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Fresh pasta is manufactured from high quality durum or
semolina flour, and whole eggs or egg whites, in a process which takes
it from dough mix through various machines which shape and cut the
pasta to the required shape, thickness, and size. The product is then
pasteurized and packaged in a way in which oxygen is flushed from the
package and replaced with an inert gas to inhibit spoilage and increase
shelf life. The fresh pasta industry has flourished with the advent of
effective, cost-efficient, packaging equipment. Spinach, cheese,
tomatoes, and other ingredients may be added to the mix to create a
variety of gourmet pasta products. Cholesterol free pasta is
manufactured from semolina flour, egg whites, and water.
The major markets for fresh pasta are chain-supermarkets, club
stores, food service, independent groceries, delicatessens, and
military commissaries. Fresh pasta, sold in retail supermarkets,
generally may be found in the "deli" section, refrigerated grocery, or
possibly the nutrition section. According to a compilation of the U.S.
Commerce Department and the National Pasta Association, annual sales of
pasta in the United States for 1990 were estimated at approximately 4.6
billion pounds or a mean annual per capita consumption rate of 18.4
pounds, up from 13 pounds per person in 1980. Domestic sales of fresh
pasta were not separately categorized by the publication. The National
Pasta Association estimated that the mean annual per capita consumption
of pasta will be 30.6 pounds by the year 2000.
While consumption of pasta generally has been occurring for
hundreds of years in Europe and the United States, over-the-counter
sale of off-premises manufactured and packaged fresh pasta is made
possible by pasteurization and oxygen flushing. Domestic fresh pasta
sales began to accelerate in 1985. Sales of low cholesterol, and no
cholesterol, fresh pasta began to capture a small market share in 1988
as U.S. consumers with health concerns, or dietary requirements, became
more aware of pasta products with these features. These same fresh
pasta products can also be quick frozen for longer shelf life in the
retail markets. Management expects the demand for fresh and frozen
pasta will continue to increase during the coming years.
Production
The Company purchases durum and semolina flour from mills in
California, and purchases cheese and raw materials from local
producers. The Company has not experienced any shortages or limited
availability for ingredients for its products; however, prices for
flour and eggs fluctuate based on weather, market variations, and other
factors beyond its control. The California mills currently supply 90%
of flour purchases for the Company's products. Spices, cheese and
various other raw materials are also purchased locally in Southern
California.
The Company mixes flour and eggs (whole or whites only) into a
moist dough mix which is then processed into specific thicknesses in
sheets. The sheets are then placed in machines which form different
flat pasta products, i.e., spaghetti, linguine and fettuccine as well
as various filled product such as ravioli, tortettini and tortellini.
Spinach, tomato paste, and other herb ingredients are added to the
basic pasta mix at different stages to create flavored products. Filled
products are filled with cheeses, spinach, chicken and meat. The
Company cuts, pasteurizes, and packages through an oxygen flushing
process for its fresh or frozen pasta.
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Packaging
In its fresh or frozen pasta manufacturing process, the
Company uses a series of equipment, including dough mixers, pasta
sheeters, tortellini and ravioli machines, cutters, and pasteurizing
and packaging equipment. Sauces, which are marketed in separate
containers and combination packages, are precooked in large batches
pursuant to proprietary recipes. The Company packages its sauces in 7
oz., 8 oz., 15 oz., 21 oz., and bulk containers for sale, usually with
clear-wrap to reveal its freshness. Colorful logos are included on the
package, along with identifying and ingredient labels meeting all USDA
and Government standards along with cooking instructions. Low fat and
no cholesterol notations are clearly indicated on the Company's
products with those features. Since the Company's products are usually
maintained for retail sale in "deli" areas of supermarkets, the Company
seeks distinctive packaging for its products, notwithstanding the
slightly higher costs.
(2) Domestic Gaming Activities
Until April 1995, Ba-Mak Gaming International Inc. ("BGI"), a
wholly-owned subsidiary of GRPV was active and involved in charitable
gaming in Louisiana. BGI recognized as gaming revenues the gross funds
deposited in video bingo machines. However, from inception through
October 1994, BGI was unable to generate any operating profits.
Additionally, the Company suffered negative cash flows since assuming
control of BGI in April 1994. On October 28, 1994, BGI filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in the Eastern
District of Louisiana.
On April 20, 1995, upon motion from the United States Trustee,
an order converting the case to Chapter 7 was issued. The Chapter 7
trustee took possession of BGI's assets and at the close of fiscal
1997, was in the process of liquidating such assets for the benefit of
BGI's bankruptcy estate. All gaming operations at BGI ceased in fiscal
1995 and the Company sold the majority of its equity and its voting
control of GRPV in fiscal 1997 (see Item 6, Managements Discussion and
Analysis - GRPV).
(3) International Casino Gaming and Hotel Management Activities
In September 1993, the Company formed NuOI through which it
intends to develop its international gaming and hotel management
operations. The Company believes that international leisure and
entertainment opportunities offer much greater potential, and have far
less competition than domestic market because of the "emerging market"
status of many of the host countries. The Company's goal is to
capitalize on the expected growth in tourism trade and the surge of
entertainment spending worldwide, and to take advantage of certain
investment opportunities in emerging markets which appear to be the
greatest beneficiaries of this expected growth. As a result of the
Company's research into these expected emerging leisure and
entertainment markets, it has been soliciting and evaluating prospects
in certain markets in North Africa, Asia, the Caribbean and the South
Pacific. In fiscal 1994 the Company acquired an interest in two (2)
casinos in Macau. The interest in Macau was subsequently sold in fiscal
1997. Also in fiscal 1994 the Company began acquiring interests in
casino and hotel projects in Tunisia.
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Macau
In May 1995, the Company purchased a 40% net profit interest
(the "Gaming Interest") in two casinos in Macau, the Diamond Casino
(Holiday Inn) and the Harbor Island Diamond Casino (Hyatt Regency). The
gaming operations were conducted at these two facilities by Mr. Ng Man
Sun ("Ng"), doing business as Dragon Sight International Amusement
(Macau) Company ("Dragon").
In December 1995, the Company assigned the Gaming Interest to
its wholly-owned subsidiary, NuOI. In August 1996, NuOI entered into an
agreement with Ng to exchange the Gaming Interest for twenty million
(20,000,000) shares of the Company's common stock issued by the Company
in the original purchase of the Gaming Interest. On or about September
30, 1996, the subject shares were tendered to a third party escrow
agent pending the closing of the purchase of replacement properties
which NuOI is currently negotiating to purchase ("the Replacement
Property").
The Company recognized a write down of the book value of the
Gaming Interest in fiscal 1996 to bring down the value of the shares
held in escrow for the purchase of the Replacement Property to the
basis of the stock originally issued to Ng, which was $.50 a share or
$10 million in aggregate. The book value of the escrowed shares has
been presented in the June 30, 1997 consolidated balance sheet in a
position similar to treasury stock until NuOI completes the purchase of
the Replacement Property.
Tunisia
In October 1993, the Company acquired a 70% equity interest in
Cleopatra. In December 1995, the Company transferred a 42% equity
interest in Cleopatra along with other corporate assets, to acquire the
Gaming Interest. In December 1995, the Company transferred its
remaining 28% interest in Cleopatra to NuOI.
Cleopatra is the lessee of a 200,000 square foot casino and
Las Vegas-style showroom (the "Cap Gammarth Casino") pursuant to a
Casino Lease Agreement and Operating Management Contract. The Cap
Gammarth Casino is part of a large resort development located in the
Cap Gammarth area of Tunisia approximately 6 miles north of the city of
Tunis, the country's capital. In conjunction with such casino, the
developer of the resort has also built a five-star hotel (the "Le
Palace Hotel"), a health and sports center, a beach club, a 54-unit
shopping mall and 250 apartments, all located within walking distance
to the Cap Gammarth Casino.
In October 1994, in a separate transaction, Cleopatra entered
into an agreement to lease and operate a casino and French-style
cabaret in Hammamet, Tunisia (the "Hammamet Casino"). The Hammamet
Casino was completed in the first half of calendar 1997 and opened
December 6, 1997. Adjoining the Hammamet Casino is a five-star hotel
and villa resort (the "Hammamet Hotel") which was completed and opened
in September 1996. The Hammamet Hotel is one of forty-five (45) hotels
planned or currently under construction in south Hammamet as part of a
Tunisian government-sponsored expansion of the Hammamet resort area. If
completed, these additional hotels will provide up to thirty-eight
thousand (38,000) additional beds for the Hammamet area. Both the
Hammamet Casino and Hammamet Hotel are situated within walking distance
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of three operating hotels, two of which were also recently
completed, with approximately eighteen hundred (1,800) beds.
During fiscal 1997, NuOI purchased a 50% interest in
Cleopatra's World. Cleopatra's World is the lessee of the Le Palace
Hotel and surrounding shopping arcade, health club and beach club (the
"Cap Gammarth Resort").
During fiscal 1997, NuOI entered into an agreement with
Cleopatra to provide Cleopatra additional working capital in exchange
for additional equity of Cleopatra, increasing its total equity to 70%.
At the close of fiscal 1997 NuOI held a 70% equity interest in
Cleopatra, and 50% of the equity interest in Cleopatra's World.
The Company financed the completion and opening of the
Hammamet Casino through the financing agreement with Cedric (see Note
13, "Subsequent Events" to the footnotes to the consolidated financial
statements included elsewhere herein at Item 7.). To finance the
remaining expenditures on the Cap Gammarth Casino, the Company is
negotiating possible joint ventures between NuOasis International and
foreign investment groups, and attempting early collections of
receivables.
(4) Real Estate Activities
Effective December 31, 1995, the Registrant acquired from
Silver Faith Development Limited ("SFDL"), an affiliate of the
Registrant and Mr. Ng, an interest in three buildings under
construction located in a large master planned commercial and
residential real estate development located in Beijing, Peoples
Republic of China ("PRC") known as The Peony Garden project ("Peony
Garden"). The purchase price of the Registrant's interest in Peony
Garden was $21 million for which the Registrant issued an 8% Promissory
Note in the principal amount of $21 million (the "Peony Garden Note").
The Peony Garden Note was non recourse and fully collateralized by the
interest acquired, with the outstanding principal balance convertible
into the shares of the Registrant's common stock. In January 1996, the
Registrant made a prepayment of principal on the Peony Garden Note in
the amount of $9.6 million.
In April 1996, the Registrant requested a title opinion on
Peony Garden in conjunction with NuOasis International's efforts to
receive financing on the property. Upon receipt of the title opinion in
October 1996, the Registrant learned that under PRC law, real property
cannot be transferred until completion of the project. Since the
project was not completed at June 30, 1996, and the Peony Garden Note
was non recourse other than against the Registrant's interest in Peony
Garden, the Registrant has presented its investment in Peony Garden as
a beneficial ownership interest in the real estate development.
On August 8, 1996, the Registrant entered into an agreement
with The Hartcourt Companies, Inc. ("Hartcourt") to sell the
Registrant's entire interest in Peony Garden for $22 million,
consisting of $10 million of Hartcourt common stock and a $12 million
Convertible Promissory Note secured by the Peony Garden interest being
sold (the "Hartcourt Note"). The sale closed on October 8, 1996 and,
according to unaudited information received from Hartcourt, the
Registrant's investment in the Hartcourt stock represents an equity
interest of approximately 43%. Concurrent with the closing of the sale
of the Registrant's interest in Peony Garden, the Hartcourt Note was
assigned to SFDL in exchange for the Peony Garden Note (the "Note
Swap").
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No profit was recognized on the Note Swap or the transaction since the
difference between the sales price and the Registrant's basis in Peony
Garden represents approximately the amount of interest on the Note that
would otherwise have been capitalized during the construction of the
Peony Garden project. At June 30, 1996, the beneficial ownership
interest in Peony Garden was valued at the lower of the Registrant's
equity in Hartcourt on or about the closing date or its net investment
in the Peony Garden interest. The Registrant's ultimate realization of
value from the investment in Hartcourt is dependent upon many factors,
such as changes in the equity value in Hartcourt, which itself is
dependent upon uncertainties surrounding Peony Garden, and upon the
Registrant's ability to dispose of its investment at its current basis.
The Registrant intends to exchange its remaining Hartcourt equity
investment for other equity investments.
(d) Marketing
(1) Food Manufacturing and Distribution
There are approximately 40,000 major supermarkets in the
United States and between 4,000 and 6,000 in market areas presently
served by the Company's products. The Company cannot estimate its
market share of fresh pasta sales.
Under co-packing agreements, the Company contracts with
distributors to market its pasta products who are typically responsible
for transporting, warehousing, advertising, distributing, promoting and
brokering FFI produced pastas and sauces. The Company's expenses
related to managing co-packing accounts have been relatively nominal.
Thus, the primary costs are limited to production, packaging, and
returns, which are subject to more accurate budgeting and control.
Sales of the Company's products are made through direct
marketing by food brokers and Company's personnel with a focus on
supermarket chains and other retailers. Typically, the Company's
products are delivered to distribution centers of such supermarket
chains for subse quent re-delivery through the supermarket subsystem as
demand dictates. The Company also markets its products through
distributors under short term "spot sale" arrangements terminable on
short notice. Food brokers utilized by the Company usually receive
commissions based on net sales, while distributors purchase the
Company's products for their own account. The Company has not granted
exclusive area distribution rights with respect to any of its products.
The Company's strategy is to continue to develop the market
for its "Nona Morelli's" and "Pasta Fresca" brand name products on a
nationwide and regional basis, as well as to pursue additional
co-packing agreements and relationships. The Company's brand sales
represented 45% and 40% of food sales revenues for the years ended June
30, 1997 and 1996, respectively. The Company expects that its
co-packing agreements with other customers will continue to represent a
significant portion of its food business as the Company enters into
additional co-packing agreements, and that direct sales of its products
to stores will increase as a percentage of total sales.
(2) Domestic Gaming
The Company discontinued its domestic gaming activities in
fiscal 1995 and has not utilized or relied upon any marketing for
domestic gaming activities in fiscal 1996 or 1997.
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(3) International Casino Gaming and Hotel Management
The Company sold the Gaming Interest in Macau effective the
end of fiscal 1996. The Company's current activities are located in
Tunisia.
The Company's marketing strategy in Tunisia is to target past
and repeat middle-market, value-oriented visitors to its facilities by
systematic marketing programs directed to the individual visitors and
to the tour operators who have historically promoted and booked the
tours to the respective areas in the past. The Company uses general
marketing approaches to attract first time customers to its casinos by
advertising its slot player club program, popular entertainment and
other promotions. Once customers enter the Company's casinos, the
Company attempts to capture the name and playing level of each slot
machine and table game player. The Company uses this information to
follow up promotions. The Company believes that utilizing the
"Cleopatra" name in the Mediterranean area, and the proposed "NuOasis
Resorts" theme in other areas, combined with personalized database
driven marketing programs, will create a strong brand image synonymous
with quality casino gaming and hotel facilities, service and food.
The Company is currently working with the Tunisian government
and local organizations with the goal of promoting the areas to
increase the number of tourists.
As the markets surrounding the Company's current and future
hotel and casino facilities continue to mature, it intends to expand
its focus to encompass the surrounding tourist markets and other
markets in the region. The Company utilizes and continuously monitors
the effectiveness of direct mail, television advertising, newspapers,
billboards and tourist magazine advertising placed in the surrounding
areas to increase the visibility of the Company's facilities and to
promote the image that these facilities are part of the history and
romance of the region of the past. Management believes that the advent
of Las Vegas-style casino gaming in the Mediterranean area will
increase the current length of a tourist's stay as well as increase the
number of tourists into its market areas.
(e) Raw Materials
The Company's domestic food manufacturing and distribution segment
requires raw materials which are readily available such as flour, tomatoes and
domestically-grown spices. The Company has not experienced any difficulty
obtaining any raw materials for its domestic food operations in the past and
does not anticipate any supply problems in the future.
The Company's international casino gaming and hotel management, and its
proposed real estate acquisition and development activities, are not
manufacturing-based businesses and therefore do not rely on raw materials.
(f) Patents, Trademarks and Licenses
Although the Company's formulas and recipes are not subject to patent
protection, it considers these proprietary and uses confidentiality agreements
as appropriate in an attempt to protect such formulas and recipes. The Company
has received a trademark for "Nona Morelli" from the United States Patent and
Trademark Office, which it uses on some of its products.
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The Company's proposed international gaming activities do not require
patents or trademarks, and the Company does not intend to rely on patents or
trademarks. The operations of the proposed gaming casinos and resort hotel
properties will depend on and be subject to gaming licenses and permits from
their respective jurisdictions. With respect to the current casino gaming and
hotel operations of Cleopatra and Cleopatra's World in Tunisia, the respective
permits and gaming licenses are issued jointly to Cleopatra and the
owner/operators of the hotel complexes, of which the casinos are a part. With
respect to the Company's Gaming Interest in Macau, which was sold subsequent to
the close of fiscal 1996, neither Dragon nor the Company relied on patents or
trademarks.
(g) Seasonality
The Company's food manufacturing and development-stage real estate
industry segment activities are not seasonal in nature.
The Company's international casino gaming and hotel management
activities are seasonal and are strongly affected by weather and other factors
that influence the tourist trade in Tunisia. Higher revenues are typically
realized from the Company's current operations in Tunisia during the late
spring, summer and early fall months. Additionally, due to their location on the
southern Mediterranean coast, tourist traffic at the Cap Hammamet Casino, the
Cap Gammarth Casino and the Cap Gammarth Resort can be especially adversely
affected by severe weather.
(h) Customer Dependence
For the year ended June 30, 1997, the Company had five major customers,
all distributors, each of which accounted for more than 10% of the Company's
sales with respect to its food manufacturing and distribution segment. The
Company's domestic gaming, international casino gaming and hotel management
activities were in the development stage or discontinued at June 30, 1997 and
not subject to customer dependence. The Company's Gaming Interest was sold
effective the close of fiscal 1996; its two Tunisian gaming segments remained
under development at the close of fiscal 1997. The Company's domestic gaming
activities were non-operational following BGI's liquidation in April 1995 and
the Company sold its voting control of GRPV in fiscal 1997.
(i) Backlog of Orders
The Company's food manufacturing and distribution subsidiary, at June
30, 1997, had a backlog for orders of approximately $15,000 as compared to
approximately $32,000 at June 30, 1996. This reflects production on an
as-ordered basis.
The Company's domestic gaming, international gaming and hotel
management, and real estate subsidiaries were not subject to the type of
business activities which would give rise to "orders."
(j) Government Contracts
None of the Company's industry segment activities were involved with
material government contracts in fiscal 1997 or fiscal 1996.
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(k) Competition
(1) Food Manufacturing and Distribution
Although the Company has no market data compiled on the fresh
pasta industry, management believes that Contadina, a division of
Carnation Foods, is the fresh pasta industry leader accounting for in
excess of 50% of nationally fresh pasta sales. However, in certain
states in which the Company operates, management believes Contadina
controls less than 50% of this market in the aggregate. Other major
retail competitors are Tyson Foods under the trade name Mallard's,
Pasta Pasta, Trios, Pasta Perfecta, DiGiorno, Romance and Monterey
Pasta Company.
Competitive factors in the industry include product quality
and taste, freshness, healthfulness, brand name awareness among
consumers, advertising and promotion, supermarket shelf space, product
shelf life, package design, price and reputation among consumers.
Competition is severe in each area, and industry leaders, such as
Contadina, are extremely strong in most competitive areas.
Management believes the Company may be in a position to
establish a niche in the food manufacturing industry with its
co-packing agreements and speciality products in the Food Service
areas, which are becoming a significant portion of its business. The
Company expects Contadina to continue to be a major force due to its
vast resources, name recognition, and good reputation. Although
management believes the Company can compete on the basis of quality,
price, and reli ability of delivery, the marketing of food products is
subject to changeable consumer tastes and habits and thus, there is no
assurance the Company can maintain or improve its market position.
(2) Domestic Gaming Activities
At the present time, the Company does not have any domestic
gaming activities and does not intend to enter the domestic gaming
market in the near future.
(3) International Gaming and Hotel Management Activities
The Company, directly and through NuOI and Cleopatra, competes
with other gaming companies for opportunities to manage casino gaming
and hotel management activities in emerging international gaming
jurisdictions. The Company expects many competitors to enter new
international jurisdictions that authorize gaming, some of whom may
have more personnel and greater financial and other resources than
NuOI, Cleopatra, Cleopatra's World or the Company. Further expansion of
international legalized gaming in the markets where the Company is
active or proposes to become active could also significantly and
adversely affect its proposed gaming activities. In particular, the
expansion of casino gaming in or near any geographic area where the
Company is active, or in pursuit of a gaming license or rights to
manage casino gaming activities, may diminish or otherwise detract from
the activities of the Company or its subsidiaries.
The Company believes that its gaming markets are extremely
competitive and expects them to become even more competitive as the
number of gaming and other entertainment establishments increases. Such
competition is growing in the Mediterranean market and the Company also
competes with gaming facilities worldwide. It is also possible that
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<PAGE>
substantial competition could cause the supply of casino gaming
facilities to exceed the demand for casino gaming. Additionally,
many of the Company's competitors have more casino gaming industry
experience, larger operations or significantly greater financial
and other resources than the Company. Given these factors it is
possible that substantial competition could have a material adverse
effect on the Company's future results of operations.
(4) Real Estate Activities
Domestic Properties
As of the date of this Report, NuOP does not hold any direct
domestic real estate assets; therefore, competition is insignificant.
And, during fiscal 1996 and 1997, the Company did not have any
operating activities with respect to domestic real estate acquisitions
and development.
International Properties
International real estate related investments to date
consisted of Peony Garden, which was sold subsequent to the close of
fiscal 1996 and, therefore, competition as it relates to Peony Garden
is not applicable.
(l) Research and Development
As part of the Company's domestic food manufacturing process,
the Company enhances existing products and develops new products on a continuous
basis. The Company did not have any direct costs associated with
customer-sponsored research and development activities. As to its real estate,
casino gaming and hotel management activities, it does not have a research and
development department or budget. Market research is conducted on the subsidiary
level as to each particular property or project.
(m) Government Regulation
(1) Food Manufacturing and Distribution
The Company is regulated by the Los Angeles County Health
Department and the United States Food and Drug Administration. The
Company is subject to various regulations with respect to cleanliness,
maintenance of food production equipment, storage cooling and cooking
temperatures, food handling and storage, and is subject to on-site
inspections. The finding of a failure to comply with one or more
regulatory requirements could result in a variety of sanctions,
including fines and the withdrawal of the Company's products from store
shelves.
(2) Domestic Gaming Activities
At the present time, the Company does not have any domestic
gaming activities.
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<PAGE>
(3) International Casino Gaming and Hotel Management Activities
The Company's operations are generally dependant on the
continued licenseability, qualification and operations of the Company
and its subsidiaries and/or that hold the licenses in the jurisdictions
where it conducts or proposes to conduct gaming and hotel management
activities. Generally, such operations are reviewed periodically by
local, state and/or federal governmental authorities. In addition, the
Company's directors and many of the employees of casinos and hotels are
often required to be approved. The failure of the Company or any of its
key personnel to obtain or retain a license or a permit in a particular
jurisdiction could have a material adverse effect on the Company's
ability to continue its current casino gaming and/or hotel management
operations, or to obtain or retain licenses or permits in other
jurisdictions. In addition, any regulations adopted by the local, state
and/or federal governmental authorities, the legislatures or any
governmental authority in jurisdictions in which the Company intends to
have casino gaming and/or hotel management operations, may materially
adversely affect its operations.
Macau
The Gaming Interest during the Company's ownership was
operated by Dragon who was a sub-licensee under a 40-year master gaming
permit granted in 1961 by the government of Portugal to STDM. Pursuant
to this arrangement with STDM, Dragon owned interest in seven casinos,
two of which it operated. The arrangement between STDM and Dragon is an
oral agreement and the master gaming permit granted to STDM is due to
expire in the year 2001 if not renewed or terminated in 1999 upon the
return of Macau to the PRC. Since the Gaming Interest was sold in
August 1996, the Company is no longer affected by the PRC or Portuguese
governmental regulations.
Tunisia
The Company's only international casino gaming and hotel
management investments at the close of fiscal 1997 were in Tunisia,
North Africa. Under Tunisian law, casino gaming is closely supervised
and monitored through the use of on-site government representatives and
strict published operating procedures. The process through which a
company obtains a license to conduct casino gaming in Tunisia is
similar to that of many of the various states in the U.S. which have
recently adopted legalized gaming statutes, involving background
checks, personal interviews and the discretionary right of the
government body overseeing gaming activities to deny or withdraw a
license to any applicant.
The Tunisian government has approved the Company's management
for gaming licenses at the Cap Gammarth Casino and Hammamet Casino.
(4) Real Estate Activities
International Properties
Peony Garden was sold in October 1996 and, as a result, the
Company is no longer effected by PRC government regulations.
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<PAGE>
Domestic Properties
At the present time, the Company does not have any domestic
real estate activities.
(n) Compliance With Environmental Laws
Compliance with United States federal, state and local provisions
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment has no material effect on the capital
expenditures, earnings and competitive position and operations of the Company's
food manufacturing, international casino gaming and hotel management activities.
The Company's food operation has no material effect on environmental
laws. Pasteurization of products and cooking of ingredients are of no major
concern to environmental requirements.
(o) Employees
(1) Corporate Officers and Officers of Significant Subsidiaries
Corporate officers of the Company and significant subsidiaries
who rendered services during fiscal 1997 pursuant to employment or
consulting agreements are as follows:
Name Office
- ---------------------------- --------------------------------------------
Fred G. Luke (Employee) Chief Executive Officer of NRI; and former
President of GRPV
Steven Dong (Consultant) Former Chief Financial Officer of NRI & GRPV
John D. Desbrow (Consultant) Former Corporate Secretary of NRI & GRPV
Jon L. Lawver (Consultant) President of Fantastic Foods International
Albert Rapuano (Consultant) President of NuOasis International
(2) Food Manufacturing and Distribution
At the close of fiscal 1997 FFI, the food manufacturing and
distribution subsidiary, had 3 employees engaged in administrative
activities, 17 employees engaged in production and 2 employees engaged
in sales. The number of production employees varies depending upon
demand for product and FFI's production procedures. The range for the
two years ending June 30, 1997 was a low of 15 employees and a high of
33 employees. Production employees are generally paid an average of
approximately $7.00 per hour and FFI has not experienced difficulty in
obtaining sufficient labor. None of FFI's employees are covered by a
collective bargaining agreement, and it believes it has very good
employee relations.
(3) Domestic Gaming Activities
The Company's former subsidiary, GRPV and its subsidiary, BGI
(through April 20, 1995, the date BGI was converted into Chapter 7
liquidation) employed 4 full-time employees and 10 part-time employees
during fiscal 1995, and none in fiscal 1996 and fiscal 1997. All
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<PAGE>
employees were located in Louisiana. Since BGI's bankruptcy case was
converted to a Chapter 7 proceeding, GRPV ceased employing personnel
at BGI.
(4) International Casino Gaming and Hotel Management Activities
Macau
The Gaming Interest acquired by the Company consisted of a 40%
net profits interest in two Macau casinos; the Company did not acquire
any rights to manage or otherwise participate in the daily operations
of such casinos and, accordingly, the Company had no employees engaged
in the operations of the two Macau casinos. The Gaming Interest was
sold in August 1996.
Tunisia
The Company's international subsidiary, NuOI, has no
employees; Cleopatra had 2 employees as of June 30, 1997, as its
proposed activities at the close of fiscal 1997 were still under
development.
(5) Real Estate Activities
International Properties
Since Peony Garden was sold in October 1996, the Company has
no employees relating to Peony Garden as of June 30, 1997.
Domestic Properties
The Company's real estate acquisition and development
subsidiary, NuOP, has no employees as of June 30, 1997.
(p) Forward Looking Statements
The statements contained herein include forward-looking statements
based on management's current expectations of the Company's future performance.
Predictions relating to future performance are inherently uncertain and subject
to a number of risks. Consequently, the Company's actual results could differ
materially from the expectations expressed in this Report. Factors that could
cause the Company's actual results to differ materially from the expected
results include, among other things: increases in the number and the intensely
competitive nature of competitors in the markets in which the Company operates;
the seasonality of the hotel and casino gaming industry in certain markets in
which the Company operates; the susceptibility of the Company's operating
results to adverse weather conditions and natural disasters; the availability of
sufficient capital to finance the Company's business plan on terms satisfactory
to the Company; the risk that jurisdictions in which the Company proposes to
operate hotels or casinos rescind or fail to enact legislation permitting casino
gaming or do not enact such legislation in a timely manner; changes in
governmental regulations governing the Company's activities; changes in labor,
equipment and capital costs; the ability of the Company to consummate
contemplated joint ventures and acquisitions on terms satisfactory to the
Company, and to obtain necessary regulatory approvals therefor; and other risks
detailed in the Company's filings with the Securities and Exchange Commission
("SEC").
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<PAGE>
Additionally, all statements contained herein that are not historical
facts, including but not limited to statements regarding the Company's current
business strategy, the Company's prospective joint ventures, asset sales and
expansions of existing projects, and the Company's plans for future development
and operations, are based upon current expectations. In addition to being
forward-looking in nature, these statements involve a number of risks and
uncertainties. Generally, the words "anticipates," "believes," "estimates,"
"expects," and similar expressions as they relate to the Company and its
management are intended to identify forward-looking statements. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
ITEM 2. DESCRIPTION OF PROPERTY.
(a) Food Manufacturing and Distribution Facilities and Corporate
Headquarters
Through September 1993, the Company conducted its activities from a
26,000 square foot plant in Pueblo, Colorado (the "Pueblo Plant"). The Pueblo
Plant was purchased by the Company in 1990 and included 3.2 acres of land. The
facility was formerly used by a beverage distributor and contained 11,000 square
feet of refrigerated space and 5,000 square feet of office space.
In fiscal 1994, the Company relocated its pasta manufacturing
activities to Southern California as part of the Pasta Fresca Company and
Italfin acquisitions. The Pueblo Plant was assigned to FFI in fiscal 1995.
Beginning in fiscal 1996, FFI leased the Pueblo Plant to an ethnic food
manufacturer under a month-to-month lease agreement calling for the lessee to
pay $4,000 per month in advance and satisfy certain maintenance and other
operating costs associated with the facility. During fiscal 1997, the lessee
exercised its option to buy the facility for $450,000.
FFI currently leases approximately 10,000 square feet of food
manufacturing space in Irwindale, California. It also owns two trucks for
transportation of its products, various equipment for the manufacture of pasta
and sauces, three large refrigeration units for certain raw materials and
finished products and two freezers for finished frozen products. FFI completed a
remodeling of its Irwindale plant, adding a kitchen along with a Research &
Development unit; meeting all USDA requirements.
The Company currently subleases its principal offices at 4695 MacArthur
Court, Suite 530, Newport Beach, California 92660, from an affiliate, NuVen
Advisors, Inc. ("NuVen"), on a month-to-month basis as part of the Advisory and
Management Agreement with NuVen. The Company believes that these facilities and
its southern California manufacturing facilities are suitable and adequate for
its present needs.
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(b) Domestic Gaming Facilities
Prior to April 1995, the Company, through BGI, provided video bingo
gaming devices to five (5) charitable bingo halls in southern Louisiana. During
this time, BGI leased approximately 1,000 square feet of industrial/office space
in the New Orleans area from where it supervised the related gaming activities
and where it maintained the gaming devices. All of BGI's property, however, was
subject to its Chapter 7 bankruptcy proceedings and, as a result, BGI maintained
no facilities at June 30, 1997. At the close of fiscal 1997, the Company did not
own any domestic gaming, real property interests or personal property, nor did
it have any domestic gaming activities subject to lease obligations.
(c) International Casino Gaming and Hotel Management Facilities
Macau
The Company acquired the Gaming Interest, representing a 40% net
profits interest in two Macau casinos in fiscal 1995. The Gaming Interest was
sold in fiscal 1997. While owning the Gaming Interest, the Company did not
exercise control over the operations of the casinos or acquire any fixed assets.
Accordingly, the Company does not have any facilities or fixed assets recorded
with respect to the two Macau casinos.
Tunisia
At June 30, 1996, Cleopatra was a lessee under two casino lease and
management operating contracts related to the proposed Cap Gammarth Casino and
Hammamet Casino in Tunisia. Cleopatra's World was a lessee pursuant to a hotel
Lease Agreement with Societe Touristique Tunisie Golfe ("STTG") dated November
10, 1995 (the "Resort Lease"). Due to their position as lessees, and as
subsidiaries of NuOI, the Company did not own any real or personal property nor
was it subject to any leasehold or other contingent obligations with respect to
the Tunisian activities at the close of fiscal 1997.
(d) Real Estate Activities
International Properties
The Company did not have any international real estate operations at
June 30, 1997, or as of the date of this Report.
Domestic Properties
The Company did not have any domestic real estate operations at June
30, 1997, or as of the date of this Report.
ITEM 3. LEGAL PROCEEDINGS.
The Company settled, or had agreements to settle all material
litigation where it was a defendant at the close of fiscal 1997, and knows of no
material threatened legal proceedings, other than ordinary routine litigation
incidental to its business.
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As a plaintiff, the Company has one pending lawsuit against the owners
and certain shareholders of the management company operating the Star Casino in
Cripple Creek, Colorado (the "Star Litigation").
The Star Litigation resulted from a complaint filed by the Company, as
Plaintiff, against Star Casinos Inc. ("Star") and various individual defendants
to recover approximately $400,000 invested by the Company in fiscal 1993. Star
filed for relief under Chapter 11 of the United States Bankruptcy Code on May 3,
1996, at Case No. 96-15362 dec. As a result, the parties were precluded from
proceeding with the trial of this case on November 4, 1996, pursuant to the
automatic stay under 11 U.S.C. Section 362(a)(1).
On March 18, 1997, the Bankruptcy Court Judge, Donald E. Cordova,
entered an Order granting the Trustee's motion to convert this case from a
Chapter 11 to a Chapter 7. Star's Chapter 7 Bankruptcy is still pending. Hence,
the Company is still precluded from proceeding against Star under 11 U.S.C.
Section 362(a)(1).
The Company is awaiting the resolution of Star`s Chapter 7 Bankruptcy
before it decides how best to proceed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company did not submit any matters to a vote of security holders
during fiscal 1997 or 1996. In January 1998, following the close of fiscal 1997,
the Company held a Special Meeting of Shareholders, at which meeting the
following actions were taken by its shareholders:
(i) Jon L. Lawver was elected to serve as a director.
(ii) The Company was re-incorporated in the state of Nevada
pursuant to a statutory merger with NuOasis Resorts Inc.,
effectively changing the Company's name to "NuOasis Resorts
Inc."
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information
Through August 16, 1995, the Company's common stock was traded on the
NASDAQ Small CapSM System under the symbol "NONA." From August 16, 1995 through
January 19, 1998, the Company's shares traded on the Electronic Bulletin Board
under the Symbol "NONA". Effective January 19, 1998 the Company's shares trade
on the Electronic Bulletin Board under the symbol "NUOA".
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The range of high and low "bid" quotations for the Company's common
stock for the last two fiscal years as reported by NASDAQ or OTC Bulletin Board
are provided below. These over-the-counter market quotations reflect
inter-dealer prices without retail markup, markdown or commissions and may not
necessarily represent actual transactions.
Bid Price of Common Stock
-------------------------------
Fiscal 1997 High Low
- ------------------------------ ------------------ ------------
Quarter ended 06/30/97 $.41 $.16
Quarter ended 03/31/97 $.72 $.19
Quarter ended 12/31/96 $.84 $.24
Quarter ended 09/30/96 $1.25 $.69
Fiscal 1996 High Low
- ------------------------------ ------------------ ------------
Quarter ended 06/30/96 $2.28 $1.03
Quarter ended 03/31/96 $1.81 $.78
Quarter ended 12/31/95 $2.25 $.75
Quarter ended 09/30/95 $2.78 $1.46
(b) Holders
The approximate number of holders of record of each class of equity
securities of the Company as of December 31, 1997, was as follows:
Approximate
Number of
Title of Class Record Holders
- ---------------------------- --------------
Common Stock, $.01 par value 2,015
Series D Preferred Stock,
$.01 par value 1
This approximate number of record holders of common stock does not
include an unknown number of beneficial holders whose shares are registered in
"street name."
(c) Dividends
The Company has not paid any cash dividends with respect to its common
stock or preferred stock since its inception. During fiscal 1995 the Company
declared and paid a property dividend to holders of its common stock consisting
of certain investment securities comprised of approximately 1.5 million shares
of common stock of GRPV. No cash or property dividends were paid or declared
during fiscal 1996 or fiscal 1997. As of the date of this Report, the Board of
Directors of the Company have not approved a dividend distribution policy. There
are no contractual restrictions on the Company's present or future ability to
pay dividends.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(a) Significant Events During the Year Ended June 30, 1997.
Gaming Interest
In December 1995 the Company transferred the Gaming Interest to its
wholly-owned subsidiary, NuOI. On August 5, 1996, effective July 1, 1996, NuOI
entered into an agreement with Ng to sell the Gaming Interest. On or about
September 30, 1996, 20,000,000 shares of the Company's common stock (the "Ng
Shares") were tendered by Ng to a third party escrow agent pending the closing
of the purchase of replacement assets or properties which NuOI is currently
negotiating to purchase ("the Replacement Property").
The gaming revenues for the six months ended June 30, 1996 were
classified as Due From Affiliate in the amount of approximately $3.9 million and
were subsequently collected. Approximately $3.2 million of the $3.9 million in
Gaming Interest revenues received was used by the Company to retire the $3
million promissory note issued as part of the original purchase of such
investment.
The Company recognized a $6.6 million write down on the sale of the
Gaming Interest, at June 30, 1996, to bring the value of the shares held in
escrow for the purchase of the Replacement Property to the basis of the stock
originally issued to Ng, which was $.50 a share or $10 million in aggregate. The
book value of the escrowed shares is presented in a position similar to treasury
stock at June 30, 1997, and until such time as the Company completes the
intended purchase of the Replacement Property.
Peony Garden
In August 1996, through NuOI, the Company entered into an agreement
with The Hartcourt Companies, Inc. ("Hartcourt") to sell its entire interest in
Peony Garden for $22 million, consisting of $10 million of Hartcourt common
stock (the "Hartcourt Shares") and a $12 million Convertible Promissory Note
secured by the Peony Garden interest being sold (the "Hartcourt Note").
Concurrent with the closing of the sale of the interest in Peony Garden, the
Hartcourt Note was assigned to the original seller of the property in exchange
for the Peony Garden Note (the "Note Swap"). At the close of fiscal 1996, the
beneficial ownership interest in Peony Garden of $9.6 million was reduced to the
value of the Company's equity in Hartcourt on or about the closing date of
approximately $7 million, resulting in a $2.6 million write down during fiscal
1996.
Cleopatra
In July 1996, Cleopatra signed two letters of intent with a company
owning a hotel and casino project in Monastir, Tunisia, pursuant to which
Cleopatra (or its affiliate, Cleopatra's World), would lease and manage the
hotel ("Monastir Hotel"), and provide Las Vegas casino gaming management for the
proposed casino (the "Monastir Casino").
Also in July 1996, the Company entered into negotiations with the
owners of a newly built hotel and casino facility in the southern Caribbean area
to form a joint venture between NuOI and the owners of such project for the
purpose of completing the construction and managing the operations of the
complex. At the close of fiscal 1997 there have been no definitive agreements
executed.
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In September 1996, the Company entered into an agreement in principle
with a European hotel company pursuant to which the parties plan to form a joint
venture. In exchange for a 50% interest in the new joint venture, the European
hotel operator was to provide the new joint venture with up to $13.5 million in
working capital, and the Company (through NuOI) was to contribute or cause to be
transferred its interest in the entities which hold the rights to manage the Le
Palace Hotel, the Cap Gammarth Casino, the Hammamet Casino and the Monastir
Casino.
In October 1996, the Company and Cleopatra entered into a
reorganization agreement ("Restructuring Agreement") with Cleopatra which
resulted in NuOI issuing $13.5 million in additional working capital for
Cleopatra. The additional working capital consisted of secured promissory notes
(the "Cleopatra Notes") which were later canceled in exchange for certain of the
Hartcourt Shares (see below). This transaction increased NuOI's equity interest
in Cleopatra from 28% to 70%.
Also, in October 1996, NuOI entered into negotiations to purchase an
interest in the corporate entity which owns the Cap Gammarth Casino real
property and improvements. Additionally, following the recapitalization of
Cleopatra, NuOI purchased a 50% interest in Cleopatra World.
On January 27, 1997, the Company and Cleopatra amended the
Restructuring Agreement (the "Amendment") in an effort to stage the development
and limit the initial scale of the JV with the European Partner. The Amendment
canceled $2 million of the $13.5 million Cleopatra Note and in consideration for
the 2.7 million Hartcourt shares transferred to Cleopatra in December 1996, the
remaining $11.5 million Cleopatra Note. Pursuant to the Amendment and in lieu of
NuOI receiving 70% of the outstanding stock of the three Cleopatra subsidiaries
as originally envisioned by the agreement, Cleopatra agreed to repurchase
certain of its outstanding shares and to issue additional shares to NuOI as
necessary to bring its equity ownership of Cleopatra Palace up to 70%. As of
March 31, 1997, NuOI's interest in Cleopatra was 49%, with control of the Board
of Directors of Cleopatra Palace remaining with the other 51% equity
shareholders. On June 15, 1997, the recapitalization was completed and NuOI's
equity ownership increased to 70%. As such, Cleopatra Palace is consolidated
with NuOI at June 30, 1997.
Fantastic Foods
During fiscal 1996, the Company remodeled and improved its food
processing equipment in its California locations and leased its Colorado
facility held for sale ("Pueblo Building"). In connection therewith, the Company
reevaluated the use and value of its older equipment and wrote off certain
impaired equipment with a net book value of $1,073,303 which has been recorded
as Other Valuation Expense during fiscal 1996.
In February 1997 the Company received notice that the lessor of the
Pueblo Building intended to exercise its option to purchase the property. On
February 26, 1997, the sale of the Pueblo Building closed and the Company
received a total consideration of $450,000. As part of the total consideration
received, the Company's mortgage debt in the principle amount of $215,392 was
fully satisfied, the Company received cash in the amount of $148,820, and the
Company received a note receivable in the amount of $50,000, bearing 8% interest
per annum, and secured by the Pueblo Building.
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GRPV
In December 1995, GRPV, as a subsidiary of the Company, entered into
an agreement with the shareholders of National Pools Corporation ("NPC") to
acquire all of the issued and outstanding shares of NPC.
In June 1996, the Company, then the controlling parent of GRPV,
granted an option (the "GRPV Option") to Mr. Joseph Monterosso ("Monterosso),
the new President of GRPV, to acquire 250,000 shares of GRPV Series B Preferred
stock (the "GRPV B Shares") owned by the Company. The GRPV Option was
exercisable at a price of $13.00 per share.
In December 1996, GRPV closed on the purchase of NPC, making NPC a
wholly-owned subsidiary of GRPV. In June 1997, following the GRPV purchase of
NPC, Monterosso exercised the GRPV Option to purchase 128,041 GRPV B Shares, at
$13.00 per share, by payment to the Company of approximately $1,665,000.
Additionally, in June 1997, GRPV sold CMA and its subsidiaries, NuLV and NuLA,
to the Company for $1,140,000 in cash, notes receivable from GRPV aggregating
$245,836, and a credit against the Company's intercompany account with GRPV of
$95,000.
In August 1997, but effective June 1996, the GRPV Option was amended
(the "Amended Option") canceling the right to acquire 100,000 of the 121,959
remaining GRPV B Shares and increasing the exercise price for the balance, or
21,959 shares, from $13.00 per share to $72.20 per share. The Company
subsequently converted the 100,000 shares of GRPV B Shares into 7.8 million
shares of GRPV common stock. In September 1997, but effective June 1997,
Monterosso exercised the Amended Option to purchase 21,959 GRPV B Shares, at
$72.20 per share, by payment to the Company of approximately $1,585,000.
Concurrently, GRPV released the Company for liability, if any, arising from any
events when the Company controlled GRPV, in exchange for approximately
$1,585,000.
Also in September 1997, the Company and Monterosso entered into a
Put/Option Agreement (the "Put") under which Monterosso had the option to
purchase and the Company had the right to require Monterosso to purchase all of
the subject 7.8 million shares at a price of $.15 per share. Concurrent with the
Put, the Company sold to Monterosso its interest in 6,000,000 New Class D
Warrants to purchase common stock of GRPV (the "GRPV D Warrants"). The
consideration for the GRPV D Warrants consisted of a $1,800,000 promissory note
due in September 1998 (the "Warrant Note"). The GRPV D Warrants had a book value
of zero with $553,840 of the $1,800,000 promissory note collected, as of the
date of this Report, resulting in the Company recording a gain on sale in the
amount of $553,840 during Fiscal 1997.
As a result of the sale of the GRPV B Shares and the Put, a change in
control of GRPV occurred and, as of June 13, 1997, GRPV is no longer a
controlled subsidiary of the Company. Subsequent to the close of fiscal 1997,
the Company conveyed to Monterosso all interest in the GRPV B Shares and the
GRPV D Warrants and, through the Put, sold beneficial interest in the 7,800,000
shares of GRPV common stock.
[NM\10-KSB\97:63097KSB]-21
22
<PAGE>
(c) Going Concern
The Company has experienced recurring net losses, has limited liquid
resources, negative working capital and one of its operating subsidiaries was
liquidated during fiscal year 1995. Management's intent is to continue searching
for additional sources of capital and new additional international gaming and
hotel management opportunities. In the interim, the Company intends to continue
operating with minimal overhead and key administrative functions provided by
consultants who are compensated in the form of the Company's common stock. It is
estimated, based upon its historical operating expenses and current obligations,
that the Company may need to utilize its common stock for future financial
support to finance its needs during fiscal year 1998. The Company's consolidated
financial statements for fiscal 1997 and 1996 have been presented under the
assumption that it will continue as a going concern.
(d) Liquidity and Capital Resources
A comparison of working capital, cash and cash equivalents and current
ratios for the past two fiscal years are reflected in the following table:
June 30,
----------------------------------
1997 1996
------------- ---------------
Working Capital (Deficit) $ 1,027,674 $ (1,923,964)
Cash and Cash Equivalents $ 576,734 $ 50,436
Current Ratio 1.35 .68
The most significant effects on working capital and its components
during fiscal 1997 were the payment of $3.2 million in principal and interest on
the Company's note issued to acquire the Gaming Interest, the continued accrual
of legal and professional advisory fees, the sale of GRPV and the acquisition of
a controlling interest in Cleopatra.
The Company's current plan for growth is to increase its working
capital by arranging debt and equity financing to finance the activities of its
subsidiaries and for future acquisitions in its three business segments.
Additionally, the Company anticipates receiving a distribution of net operating
revenues from its proposed international casino gaming and hotel management
activities; the two Tunisian casinos were subject to obtaining financing, but
were scheduled to be completed and opened during the fiscal year ended June 30,
1998 ("fiscal 1998"). On December 6, 1997, one of two casinos commenced
operations, however, there are no assurances that the opened casino will be able
to generate positive cash flows or that the second casino will open. As of the
close of fiscal 1997, the Company's sole operations were derived from its food
manufacturing and hotel management subsidiaries and, therefore, there is
considerable risk that the Company will not have adequate working capital to
sustain its current status or that the Company or its subsidiaries may not be
able to secure the required debt or equity financing to complete their proposed
projects on a timely basis. In such event the Company or its subsidiaries may be
forced to sell the projects or contribute them to a third party on terms which
would preclude the Company from realizing significant future benefit, or any
benefit at all from the projects. The Company may also need to issue additional
shares of its common stock to pay for services incurred, to finance the
operations of its subsidiaries or to continue to sustain itself.
[NM\10-KSB\97:63097KSB]-21
23
<PAGE>
(e) Capital Expenditures
General
The Company has no commitments for material capital expenditures, but
the Company's subsidiaries are seeking financing commitments to complete their
various projects, as follows:
Capital Requirements
At June 30, 1997, Cleopatra had approximately $2,000,000 remaining to
be paid as security deposits and advance rent before it could take possession of
the Cap Gammarth Casino and the Hammamet Casino. Additionally, there was
approximately $6,000,000 remaining to be paid for furniture, fixtures and
equipment, bankroll and pre-opening costs for the two casinos.
The Company financed the completion and opening of the Hammamet Casino
through the financing agreement with Cedric (see Note 12 to the footnotes to the
consolidated financial statements included elsewhere herein at Item 7). To
finance the remaining expenditures on the Cap Gammarth Casino, the Company is
negotiating possible joint ventures between NuOI and foreign investment groups,
and attempting early collections receivables.
During fiscal 1997, Cleopatra's World made a partial payment on the
lease on the Cap Gammarth Resort and, simultaneously, filed a request for
arbitration in its dispute with the developer of the Cap Gammarth Resort
claiming that the developer had breached the terms of the lease by not
completing for occupancy, on a timely basis, the hotel, the shopping arcade, the
health club or the beach club comprising the resort in accordance with the terms
of the lease, causing Cleopatra's World significant loss of revenue and profits.
Subsequent to the close of fiscal 1997 the matter was removed from the
arbitration calendar by mutual agreement between the parties, however, the
dispute has not yet been resolved.
As to any future projects undertaken by the Company, additional project
financing will be required. Capital investments may include all or some of the
following: acquisition and development of land, acquisition of leasehold
investments and contract rights, and construction of other facilities. In
connection with development activities relating to potential acquisitions or new
jurisdictions, the Company also makes expenditures for professional services
which are expenses as incurred. The Company's financing requirements depend upon
actual development costs, the amounts and timing of such expenditures, the
amount of available cash flow from operations and the availability of other
financing arrangements including selling equity securities and selling or
borrowing against assets (including current facilities). The Company may also
consider strategic combinations or alliances. Although there can be no assurance
that the Company can effectuate any of the financing strategies discussed above,
the Company believes that if it determines to seek any additional licenses to
operate gaming or permits to conduct hotel operations in other jurisdictions it
will be able to raise sufficient capital to pursue its strategic plan.
If for any reason, Cleopatra, Cleopatra's World or NuOI are unable to
borrow or otherwise meet their commitments under current agreements to provide
the furniture, fixtures, equipment and working capital to open the Cap Gammarth
Casino or manage the Cap Gammarth Resort, or acquire, develop and operate future
casino gaming and hotel management projects, the Company may be required to
intercede and provide the requisite financing and working capital, or be forced
to sell all or a portion of the respective interests, or lose the respective
rights to the projects and properties entirely.
[NM\10-KSB\97:63097KSB]-21
24
<PAGE>
(f) Cash Flows
Cash provided by operating activities was $3,043,148 for the year ended
June 30, 1997 as compared to $8,861,699 for the comparable period last year. The
decrease is primarily attributable to the final collection and receipt of
amounts due from operations from the Gaming Interest.
Cash provided by investing activities was $423,236 for the year ended
June 30, 1997 as compared to $9,666,393 in cash used by investing activities for
the comparable period last year. The change is primarily attributable to having
purchased the beneficial ownership in Peony Garden last year where as there was
no such purchase this year.
Cash used by financing activities was $2,940,086 for the year ended
June 30, 1997 as compared to $226,260 in cash provided by financing activities
for the comparable period last year. The change is primarily attributable to the
payment of principal and interest on the note payable issued to acquire the
Gaming Interest, whereas there was no such payment last year.
(g) Results of Operations
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
The Company's total food sales for the year ended June 30, 1997 were
$1,339,763 as compared to $1,251,174, for the year ended June 30, 1996,
resulting in a increase of $88,589 or 7%. The increase is primarily attributable
to the continued efforts of improving the pasta line of business.
The Company's total cost of food sales for the year ended June 30, 1997
were $903,446 as compared to $838,453 for the year ended June 30, 1996,
resulting in a slight increase of $64,993 or 8%, which is a direct result of the
same relative increase in food sales. Gross profit margin remained at 67% for
both the current year and last year.
There were no gaming revenues for the year ended June 30, 1997 compared
to $11,407,317 for the year ended June 30, 1996. The decrease is directly
attributable to the sale of the Gaming Interest.
Depreciation and amortization decreased by $4,492,436 due to the Gaming
Interest having been sold. Since the Gaming Interest was sold effective June 30,
1996, there was no related amortizing expense during the current year.
The Company's total legal and professional fees and general and
administrative expenses were $2,620,347 for fiscal 1997, as compared to
$2,763,834 for fiscal 1996, resulting in a decrease of $143,487 or 5%. The small
decrease is primarily attributable to the continued efforts of minimizing the
Company's general corporate overhead.
The Company incurred a one time expense in connection with the sale of
the Gaming Interest on August 8, 1996. As discussed herein, because the sale of
the Gaming Interest was structured to be effective on July 1, 1996, the Company
recognized a write down of approximately $6.6 million to bring down the book
value to the basis of the stock originally issued to Ng, which was $.50 per
share or $10 million in aggregate. There was no such write down during the
current year.
[NM\10-KSB\97:63097KSB]-21
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<PAGE>
The Company incurred a one time valuation expense in connection with
the sale of Peony Garden discussed herein. Since the value of the Company's
equity in Hartcourt on or about the closing date of the sale of Peony Garden was
approximately $7 million, which is lower than the Company's net investment of
$9.6 million in the property, the Company recognized a write down for the
difference in the amount of approximately $2.6 million. There was no such write
down during the current year.
During fiscal 1996, FFI remodeled and improved its food processing
equipment in its California location and leased its Colorado facility held for
sale. In connection therewith, FFI re-evaluated the use and value of its older
equipment and wrote off certain impaired equipment with a net book value of
approximately $1 million which is included in Other Valuation Expense. There was
no such valuation expense during the current year.
During fiscal year 1996, the Company incurred expenses on behalf of
Cleopatra which is included as a stockholders' receivable at June 30, 1996 of
$955,439, net of an allowance for possible loss of $766,180 which is included in
Other Valuation Expense. There was no such valuation expense during the current
year.
The Company's losses in equity investments for fiscal 1997 was
$3,061,944 as compared to none for fiscal 1996, resulting from the acquisition
of the investments in Cleopatra Palace and Cleopatra's World during the current
year.
The Company's total operating loss for fiscal 1997 was $1,847,981 as
compared to an operating loss of $6,395,647 for fiscal 1996, resulting in an
improvement of approximately $4.5 million. The improvement is primarily
attributable to: (i) having no write downs during the current year as compared
to approximately $11 million of write downs during last year; (ii) having no
gaming interest revenue and amortization expense during the current year as
compared to the $11.4 million and $4.7 million of gaming interest revenue and
amortization expenses, respectively, during last year; and; (iii) a decrease in
legal and professional fees and general and administrative expenses of
approximately $143,000 during the current year as compared to last year.
The Company recorded an income tax benefit of $382,494 for fiscal year
1997 and an income tax provision of $997,932 for fiscal year 1996. For the year
ended June 30, 1997 and 1996, the Company's effective federal and state income
tax rate applied to book taxable income (loss) differs from the statutory rate
primarily from the effect of foreign controlled corporation losses for which no
deferred taxes were recognized, the change in valuation allowance to offset
deferred tax benefits, utilization of net operating loss carry forwards and
impact of state taxes net of federal effect. The Company utilized $0 and
approximately $3,860,000 in net operating losses to offset federal and state
taxable income for the years ended June 30, 1997 and 1996, respectively.
As a result of changes in stock ownership which occurred in 1993 and
1995, the Company's use of its net operating loss carry forwards may be limited
by Section 382 of the Internal Revenue Code until such net operating loss carry
forwards expire. During fiscal 1997, the Company obtained an independent third
party valuation of its stock for purposes of the calculation required by Section
382 in order to determine whether such net operating loss carry forwards may be
limited. Based on the results of the independent third party valuation, the
Company reversed amounts originally recorded in fiscal 1996 for income taxes
payable and for the net deferred tax asset. Accordingly, the Company recorded a
current year income tax benefit of $382,494.
[NM\10-KSB\97:63097KSB]-21
26
<PAGE>
The net losses of GRPV are presented in the Company's consolidated
statements of operations as net losses from discontinued operation. Due to
GRPV's historical negative cash flows from operations and working capital
deficit, the goodwill resulting from the NPC acquisition in the amount of
$3,318,107 was immediately written off GRPV's accounts due to the uncertainty of
realizing any future benefit from the asset. There was no such write off during
the comparable period last year.
(h) Recent Accounting Developments
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share"
("EPS"). SFAS No. 128 requires all companies to present "basic" EPS and, if they
have a complex capital structure, "diluted" EPS. Under SFAS No. 128, "basic" EPS
is computed by dividing income (adjusted for any preferred stock dividends) by
the weighted average number of common shares outstanding during the period.
"Diluted" EPS is computed by dividing income (adjusted for any preferred stock
or convertible stock dividends and any potential income or loss from convertible
securities) by the weighted average number of common shares outstanding during
the period plus the number of additional common shares that would have been
outstanding if any dilutive potential common stock had been issued. The issuance
of anti-dilutive potential common stock should not be considered in the
calculation. In addition, SFAS No. 128 requires certain additional disclosures
relating to EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997. Thus, the Company expects to adopt the
provisions of this statement in fiscal year 1998. Management does not expect the
adoption of this pronouncement to have a significant impact on the Company's
financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in an entity's financial statements. This statement requires an entity to
classify items of other comprehensive income by their nature in a financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of a statement of financial position. This pronouncement is effective
for fiscal years beginning after December 15, 1997 and the Company expects to
adopt the provision of this statement in fiscal year 1998. Management does not
expect this statement to significantly impact the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." This statement requires public
enterprises to report financial and descriptive information about its reportable
operating segments and establishes standards for related disclosures about
product and services, geographic areas, and major customers. This pronouncement
is effective for fiscal years beginning after December 15, 1997 and the Company
expects to adopt the provisions of this statement in fiscal year 1998.
Management does not expect this statement to significantly impact the Company's
financial statements.
ITEM 7. FINANCIAL STATEMENTS.
The required financial statements are filed as a part of this Annual
Report on Form 10-KSB commencing on page F-1 attached hereto.
[NM\10-KSB\97:63097KSB]-21
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<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
A Current Report on Form 8-K dated August 18, 1995 was filed on August
24, 1995, reporting under Item 4 a change of accountants on August 18, 1995 from
BDO Seidman, LLP to Raimondo Pettit Group (formerly Raimondo Pettit & Glassman).
There were no disagreements between the Company and its former auditors
regarding accounting and financial disclosure.
A Current Report on Form 8-K dated July 3, 1997 was filed on July 9,
1997, reporting under Item 4 a change of accountants on July 3, 1997 from
Raimondo Pettit Group (formerly Raimondo, Pettit & Glassman) to Haskell & White
LLP. There were no disagreements between the Company and its former auditors
regarding accounting and financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
(a) Identification of Directors and Executive Officers.
The Company, pursuant to its Bylaws is authorized to maintain a five
(5) member Board of Directors, and executive officers as needed. The directors
and officers for fiscal 1997 were as follows:
<TABLE>
<CAPTION>
Position
Name Held with the Company Age Dates of Service
- --------------------------- ----------------------------------------- -------- ------------------------------
<S> <C> <C> <C>
Fred G. Luke Chairman of the Board and Chief 50 June 14, 1993 to Present
Executive Officer
John D. Desbrow Director 42 December 20, 1993 to May 29, 1996
Secretary December 20, 1993 to May 9, 1997
Jonathan L. Small Director 45 March 17, 1994 to January 22, 1996
Carol Chen Director 44 January 22, 1996 to October 29, 1996
Liu Mei Huan Chen Director 33 October 9, 1995 to January 2, 1997
Cheng Tai Chee Director 63 October 9, 1995 to January 2, 1997
Steven H. Dong Chief Financial Officer 31 July 16, 1995 to June 30, 1997
</TABLE>
All directors of the Company hold office until the next annual meeting
of shareholders and until their successors have been elected and qualified.
Vacancies in the Board of Directors are filled by the remaining members of the
Board until the next annual meeting of shareholders. The officers of the Company
are elected by the Board of Directors at its first meeting after each annual
meeting of the Company's shareholders and serve at the discretion of the Board
of Directors or until their earlier resignation or death.
[NM\10-KSB\97:63097KSB]-21
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<PAGE>
Pursuant to resolutions adopted by its Board of Directors on December
15, 1993, the Company maintains a five-member Advisory Board. At June 30, 1997,
the following individuals served on the Advisory Board:
<TABLE>
<CAPTION>
Position
Name Held with the Company Age Dates of Service
- ----------------------------- -------------------------------------------- -------- ------------------------
<S> <C> <C> <C>
Fred Graves Luke Member of Advisory Board 74 October 1993 to Present
Clifford A. Jones Member of Advisory Board 84 October 1993 to Present
Kenneth Scholl Member of Advisory Board 52 October 1993 to Present
Louis Weiner Member of Advisory Board 81 October 1993 to Present
Royce Warren Member of Advisory Board 57 October 1993 to Present
</TABLE>
(b) Business Experience
The following is a brief account of the business experience during the
past five years of each director, director nominee and executive officer of the
Company, and the members of its Advisory Board, including principal occupations
and employment during that period and the name and principal business of any
corporation or other organization in which such occupation and employment were
carried on.
Current Directors and Officers
Fred G. Luke. Mr. Fred G. Luke has been a Director of the Company since
June 1993, and Chairman and Chief Executive Officer since July 22, 1993. Mr.
Luke has more than twenty-seven years of experience in domestic and
international financing and the management of private and publicly held
companies. Since 1982, Mr. Luke has provided consulting services and has served,
for brief periods lasting usually not more than six months, as Chief Executive
Officer and/or Chairman of the Board of various publicly held and privately held
companies in conjunction with such financial and corporate restructuring
services. In addition to his position with the Company, Mr. Luke currently
serves as Chairman and President of NuVen, President and Director of Virtual
Enterprises Inc., formerly The Toen Group, Inc. ("VEI"), President and Director
of Hart Industries, Inc. ("Hart"), Chairman and President of Diversified Land &
Exploration Co. ("DL&E"). DL&E is a former publicly traded independent natural
resource development company engaged in domestic oil and gas exploration,
development and production. Prior to 1995, DL&E was a 90% owned subsidiary of
Basic Natural Resources, Inc. ("BNR"). From 1991 through 1994 Mr. Luke served as
the President and Director of BNR. Hart was formerly in the environmental
services business. Both Hart and VEI are public companies which were formerly
traded on NASDAQ or the OTC Bulletin Board. Neither Hart nor VEI has ongoing
operations. NuVen provides managerial, acquisition, and administrative services
to public and private companies including the Company, Hart, VEI, and DL&E.
NuVen, which is controlled by Mr. Luke, as Trustee of the Luke Family Trust, is
an affiliate of the Company. NuVen is a stockholder of Hart, DL&E and the
Company, and provides management, general and administrative services, and
merger and acquisition services to Hart, DL&E, GRPV and the Company pursuant to
independent Advisory and Management Agreements. Mr. Luke also served from 1973
through 1985 as President of American Energy Corporation, a privately held oil
and gas company involved in the operation of domestic oil and gas properties.
From 1970 through 1985 Mr. Luke served as an officer and Director of Eurasia,
Inc., a private equipment leasing company specializing in oil and gas industry
equipment. Mr. Luke received a Bachelor of Arts Degree in Mathematics from
California State University, San Jose in 1969.
[NM\10-KSB\97:63097KSB]-21
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<PAGE>
Former Directors and Officers
John D. Desbrow. Mr. John D. Desbrow, as an independent consultant, has
been a Director and Secretary of the Company since December 20, 1993. Mr.
Desbrow is a member in good standing of the State Bar of California and has been
since 1980. Prior to joining the Company Mr. Desbrow was in the private practice
of law. Mr. Desbrow received his Bachelor of Science degree in Business
Administration from the University of Southern California in 1977, his Juris
Doctorate from the University of Southern California Law Center in 1980, and his
Master of Business Taxation degree from the University of Southern California
Graduate School of Accounting in 1982. Mr. Desbrow has served as a Director and
Secretary of Hart since July 1993, as the Secretary of GRPV since April 1994 and
as a Director of VEI since September 1994. Mr. Desbrow resigned as a Director of
the Company in May 1996 and resigned as Secretary May 9, 1997.
Carol Chen. Ms. Carol Chen has served as a Director of the Company since
January 22, 1996. From 1991 to the present, Ms. Chen has been active as a real
estate agent for Park Georgia Realty Limited where she specialized in industrial
warehouses and commercial land projects. From 1990 to 1991, Ms. Chen served as a
licensed real estate agent for Century 21 Prudential Estates where her focus was
the residential real estate market in British Columbia, Canada. Ms. Chen
resigned as a Director of the Company on October 29, 1996.
Liu Mei Huan Chen. Ms. Chen has served as a Director of the Company since
October 9, 1995. From 1992 to the present, Ms. Chen has been serving as an
Executive Director of Silver Faith Holding (Macau) Ltd. and certain of its
subsidiaries, where she acts as corporate liaison to the central and certain
provincial governments of The Peoples Republic of China. Ms. Chen also serves as
a Director of Silver Faith (Hong Kong) Holdings Limited. Both companies are
subsidiaries of Silver Faith Holdings Limited, and both are involved in the
manufacturing and distribution of cigarettes in China, Hong Kong and Macau. From
1988 to 1992, Ms. Chen operated a Mitsubishi car dealership in Canton Province
and was an authorized fuel oil broker for Mainland China. From 1981 to 1988, Ms.
Chen lived in New York where she operated an import/export clothing business and
served as an advisor to Mainland Chinese companies regarding international hotel
projects. Ms. Chen resigned as a Director January 2, 1997.
Cheng Tai Chee. Mr. Chee has served as a Director of the Company since
October 9, 1995. From 1970 through 1984, Mr. Chee was a champion horse jockey
and trainer for the Royal Hong Kong Jockey Club. After he retired from the Royal
Hong Kong Jockey Club in 1984, he joined Dragon Sight International Amusement
(Macau) Company as Marketing Coordinator for the promotion of the junket group
from Southeast Asia. In 1992, he joined the Silver Faith Holdings group of
companies of Silver Faith Holdings Ltd., where he presently serves as Project
Coordinator for the Peony Gardens real estate development in Beijing, Mainland
China. Mr. Chee resigned as a Director January 2, 1997.
Jonathan L. Small. Mr. Jonathan L. Small, as an independent consultant, has
been a Director of the Company from March 17, 1994, through January 22, 1996, at
which date he resigned. Mr. Small is currently a member in good standing of the
State Bar of California and has been since 1980. Mr. Small is in the private
practice of law. Mr. Small's law practice consists of the regulation, due
diligence, planning tax opinions for private placement offerings in oil and gas,
real estate, banking, alternative energy, investment and venture capital
programs; financial business and individual planning; civil litigation and
general business matters. Prior to forming his private law practice, Mr. Small
was a tax accountant with Arthur Young & Company in 1981 and 1982. Mr. Small
served as Director, General Counsel and Assistant Secretary of BNR from June
1992 to September 1994. Mr. Small has served as Secretary and General Counsel
for DL&E since March 1988.
[NM\10-KSB\97:63097KSB]-21
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<PAGE>
Steven H. Dong. Mr. Dong, a Certified Public Accountant, and as an
independent consultant, has served as Chief Financial Officer of the Company
from July 16, 1995 through June 30, 1997. Prior to joining the Company, Mr. Dong
worked with the international accounting firm of Coopers & Lybrand since 1988.
Mr. Dong's experience consisted of providing financial accounting and consulting
services to privately and publicly held companies. In addition to his position
with the Company, Mr. Dong previously served as Chief Financial Officer of GRPV,
VEI and Hart. Mr. Dong received his Bachelor of Science degree in Accounting
from Babson College in 1988. Mr. Dong is currently a member in good standing
with the California Society of Certified Public Accountants and American
Institute of Certified Public Accountants.
Fred Graves Luke. Mr. Fred Graves Luke, served as a Director and Secretary
of the Company from June 14, 1993 to November 30, 1993. Prior to his association
with the Company, Mr. Luke served as Chief Executive Officer of three private
firms operating oil and gas properties from 1954 until his retirement in 1985.
Mr. Luke also serves as Vice President of International Sales and as a Director
of FFI. He received his B.A. and LLB Degrees from the University of Arizona and
was admitted to the bar in the State of Arizona in 1950. Mr. Luke served in the
U.S. Army Air Corp. in World War II as a pilot and served in the U.S. Air Force
as a legal officer during the Korean War.
Clifford A. Jones. Mr. Clifford A. Jones has been involved in the gaming
and resort hotel industry since 1941. Mr. Jones established the first
American-style casino in several foreign countries and is known as a global
pioneer of the gaming industry. Mr. Jones served as Lieutenant Governor of the
state of Nevada for two terms and founded the law firm of Jones, Jones, Close &
Brown in Las Vegas in 1938. Mr. Jones owns 10% of Cleopatra, one of the
Company's equity investments.
Kenneth Scholl. Mr. Kenneth Scholl is a consultant to the gaming, hotel and
distribution business. Mr. Scholl has developed, owned and operated a hotel
management company.
Louis Weiner. Mr. Louis Weiner is a nationally recognized attorney
emphasizing in gaming operations.
Royce Warren. Mr. Royce Warren is Director of Operations of the Indian
Springs Casino in Indian Springs, Nevada. Mr. Warren has more than 25 years
experience in gaming personnel recruitment.
(c) Identification of Certain Significant Employees and Consultants.
In connection with the acquisition of Italfin and Pasta Fresca in
fiscal 1993, FFI entered into an Employment Agreement with Giancarlo Pino for
his services as a Vice President of FFI which was renewed during fiscal 1996 and
1997. He is responsible for the day to day operations of the two food product
manufacturing plants in Southern California.
During fiscal 1996, Jon L. Lawver, through J. L. Lawver Corp. ("Lawver
Corp."), renewed his Consulting Agreement with the Company to serve as President
of FFI for fiscal 1997. Mr. Lawver has been President of FFI since June, 1993.
Mr. Lawver has also served as an officer of Nuven, VEI and Hart.
[NM\10-KSB\97:63097KSB]-21
31
<PAGE>
Mr. Gabriel Tabarani serves as the President and Director of Cleopatra and
Cleopatra's World. Fred Graves Luke, Fred G. Luke's father, and a member of the
Company's Advisory Board and a Director of Cleopatra, owns 10% of Cleopatra.
Gabriel Tabarani, President and Director of Cleopatra owns 10% of Cleopatra and
50% of Cleopatra's World.
Mr. Albert Rapuano entered into a Consulting Agreement with the Company in
fiscal 1996 to serve as President of NuOI. Mr. Rapuano's contract expired in
January 1997 following which he served as a consultant until September 1997.
(d) Family Relationships
Fred Graves Luke is the father of Fred G. Luke, Chief Executive Officer
of the Company. Fred Graves Luke was appointed chairperson of the Company's
Advisory Board in 1993 and continues to serve in this capacity: he also serves
as a Director of Cleopatra and Cleopatra's World. Fred Graves Luke, as the
assignee of Clifford A. Jones, is the beneficial owner of 10% of the equity
interest in Cleopatra. Giancarlo Pino, who serves as Vice President of
Manufacturing and a Director of FFI is the husband of Daniela Grechi, who serves
as Corporate Secretary of FFI.
(e) Involvement in Certain Legal Proceedings.
During the past five years, no director or officer of the Company has:
(1) Filed or has filed against him a petition under the federal bankruptcy laws
or any state insolvency law, nor has a receiver, fiscal agent or similar officer
been appointed by a court for the business or property of such person, or any
partnership in which he was a general partner, or any corporation or business
association of which he was an executive officer at or within two years before
such filings; except, however, that Fred G. Luke was Secretary of Diversified
Production Services, Inc., an Oklahoma corporation ("DPS") which filed a
Voluntary Petition under Chapter 11 of the U.S. Bankruptcy Code in 1991. DPS was
discharged from its bankruptcy proceedings in May 10, 1994 following the
affirmative vote on its Plan of Reorganization.
(2) Been convicted in a criminal proceeding; except however, during fiscal year
1995, Kenneth R. O'Neal, formerly a Director and Chief Financial Officer of the
Company, was the subject of a lawsuit filed in United States District Court,
Middle District of Florida, Orlando Division, Case No. 95-73-C-Orl-22, wherein
the United States Attorney charged Mr. O'Neal with securities fraud in violation
of Rule 10b- 5(17C.F.R.240.10b-5) in connection with an audit of a company
unrelated to the Company performed by O'Neal & White, P.C. in 1991 while Mr.
O'Neal was a partner of O'Neal & White, P.C. In April 1995, Mr. O'Neal pleaded
guilty. In July 1995, Mr. O'Neal resigned as an Officer and Director of the
Company.
(3) Been the subject of any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining such person from, or otherwise limiting his
involvement in any type of business, securities or banking activities.
(4) Been found by a court of competent jurisdiction in a civil action, the SEC
or the Commodity Futures Trading Commission ("FTC") to have violated any federal
or state securities or commodities law, which judgment has not been reversed,
suspended, or vacated.
[NM\10-KSB\97:63097KSB]-21
32
<PAGE>
(f) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and officers and persons who own more
than 10 percent of the Company's equity securities, to file reports of ownership
and changes in ownership with the SEC. Directors, officers and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) reports filed.
Based solely on its review of the copies of the reports it received
from persons required to file, the Company believes that during fiscal 1997, all
filing requirements applicable to its officers, directors and greater than
ten-percent shareholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
(a) Summary Compensation Table
The following summary compensation table sets forth in summary form the
compensation received during each of the Company's last three completed fiscal
years by the Company's Chief Executive Officer and four most highly compensated
executive officers other than the Chief Executive Officer.
<TABLE>
<CAPTION>
Name and Principal Fiscal Salary Other Annual Options
Position Year ($) Compensation ($) Granted (#)(2)
- --------------------------------- ----------- ----------------- ------------------------ -----------------
<S> <C> <C> <C> <C>
Fred G. Luke (1) 1997 189,000 N/A N/A
Chief Executive 1996 174,000 130,000 N/A
Officer (7-93 to Present) 1995 192,000 N/A 1,000,000
John D. Desbrow (1) 1997 225,000 N/A N/A
Secretary (12-93 to 5-9-97) 1996 206,250 N/A 50,000
1995 189,500 N/A 50,000
Steven H. Dong (1) 1997 184,000 N/A N/A
Chief Financial Officer 1996 165,000 N/A 100,000
(7-95 to 6-30-97) 1995 N/A N/A N/A
Jon L. Lawver 1997 100,000 N/A N/A
President of FFI 1996 100,000 N/A 50,000
1995 100,000 N/A 50,000
Albert Rapuano 1997 250,000 N/A N/A
President of 1996 115,000 N/A 500,000
NuOasis International 1995 N/A N/A N/A
(6-95 to 1-97)
</TABLE>
(1) Salary dollar values include both NRI and GRPV combined base salary (cash
and non-cash) earned.
[NM\10-KSB\97:63097KSB]-21
33
<PAGE>
(2) During the period covered by the Table, the Company did not make any
award of restricted stock, including share units. The number of options
granted are the sum of the number of shares of common stock to be
received upon the exercise of all stock options granted. Except for
stock option plans, the Company does not have in effect any plan that
is intended to serve as incentive for performance to occur over a
period longer than one fiscal year.
(b) Stock Options - The Company
The following table sets forth in summary form the aggregate options
exercised during fiscal year 1997, and the value at June 30, 1997 of unexercised
options for the Company's Chief Executive Officer and four most highly
compensated executive officers other than the Chief Executive Officer. There
were no options granted during fiscal 1997.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Year-End (#) Year-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ----------------------------- ----------------- ------------ ------------------------------ ---------------------
<S> <C> <C> <C> <C>
Fred G. Luke, Chief
Executive Officer and
Director 600,000 Exercisable N/A
-- --
NuVen Advisors, Inc. (1) _ 100,000 Exercisable N/A
--
Steven H. Dong, CFO 100,000 Exercisable N/A
-- --
John D. Desbrow,
Secretary 50,000 100,000 Exercisable N/A
--
Jon L. Lawver, President
of FFI 100,000 Exercisable N/A
-- --
Albert Rapuano,
President of NuOasis
International 500,000 Exercisable N/A
-- --
</TABLE>
(1) The Luke Family Trust (the "Luke Trust") owns 93% of NuVen. Fred G.
Luke, as Co-Trustee of the Luke Trust determines the voting of such
shares and, as a result, may be deemed to control the Luke Trust.
[NM\10-KSB\97:63097KSB]-21
34
<PAGE>
(c) Stock Options - GRPV
The following table sets forth in summary form the aggregate options
exercised during fiscal 1997, and the value at June 30, 1997 of unexercised
options for GRPV's President and four most highly compensated executive officers
other than the President at June 30, 1997. There were no options granted during
fiscal 1997 to GRPV's President and four most highly compensated executive
officers other than the President. (GRPV was sold during fiscal 1997 and is no
longer consolidated with the Company at June 30, 1997).
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money
Option/SAR's at Fiscal Options/SAR's at Fiscal
Year-End (#) Year-End ($)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ----------------------------- ----------------- ------------ ---------------------------------- -------------------------
<S> <C> <C> <C> <C>
Fred G. Luke (1)(2) 1,131,176 124,479 N/A N/A
NuVen Advisors, Inc. (1) 2,000,000 220,000 N/A N/A
Steven H. Dong (1) 275,000 30,250 N/A N/A
John D. Desbrow (1) 275,000 30,250 N/A N/A
</TABLE>
(1) Fred G. Luke is a former officer and director of GRPV, John Desbrow and
Steven Dong are former officers of GRPV. Due to the sale of GRPV,
NuOasis Resorts is no longer a controlling parent of GRPV.
(2) Fred G. Luke, as Co-Trustee of the Luke Trust, determines the voting of
such shares and, as a result, may be deemed to control the Luke Trust.
(d) Long-Term Incentive Plans
Not applicable.
(e) Compensation of Directors
The Company has no standard arrangement for the compensation of
directors or their committee participation or special assignments. The Company
has established an Advisory Board to assist the Board of Directors. Members of
the Advisory Board are typically compensated at the approximate rate of $1,000
per month.
[NM\10-KSB\97:63097KSB]-21
35
<PAGE>
(f) Contracts With Executive Officers
In September 1994, the Company entered into an Employment Agreement
with Fred G. Luke, the Company's Chairman and Chief Executive Officer. Mr. Luke
has been serving as the Company's Chairman and CEO since approximately July
1993. In August 1995, GRPV entered into an Employment Agreement with Mr. Luke,
to serve as GRPV's President. Mr. Luke served as the President of GRPV from
approximately March 31, 1994 through May 7, 1997.
Effective January 1, 1994, the Company and John D. Desbrow entered into
a Consulting Agreement for the engagement of Mr. Desbrow to perform legal
services and to hold the office of Secretary on behalf of the Company until
December 31, 1994, amended to continue through June 1997, at which time Mr.
Desbrow resigned. Effective April 1, 1994, GRPV entered into a Consulting
Agreement with John D. Desbrow for the engagement of Mr. Desbrow to perform
legal services and to hold the office of Secretary, on behalf of GRPV, for the
period from April 1, 1994 to March 31, 1995.
Effective January 1, 1994, the Company entered into a Consulting
Agreement with Jon L. Lawver and Lawver Corp. pursuant to which Mr. Lawver was
to perform professional services and to hold the office of President of FFI for
calendar year 1994. Mr. Lawver's agreement was renewed for the year ended June
30, 1995 and 124,000 shares were issued to him during fiscal 1995. During fiscal
1996, the Consulting Agreement was again renewed with the same terms for fiscal
1997 and 85,000 shares were issued to him during fiscal 1996 to apply against
services rendered. An additional option of 50,000 shares exercisable at a price
of $1.53 per share was granted during fiscal 1996.
In July 1995, the Company entered into a Consulting Agreement with
Steven H. Dong, pursuant to which Mr. Dong is to perform accounting services and
to hold the office of Chief Financial Officer through June 30, 1996. During
fiscal 1996, the Consulting Agreement was renewed with the same terms through
June 30, 1997. In July 1995, GRPV entered into a Consulting Agreement with Mr.
Dong, pursuant to which Mr. Dong is to perform accounting services and to hold
the office of Chief Financial Officer through June 30, 1996. Effective July 1,
1996, the Consulting Agreement was renewed through June 30, 1997.
In January 1996, the Company entered into a consulting agreement with
Albert Rapuano, pursuant to which Mr. Rapuano performed gaming consulting
services and to hold the office of President of NuOI through December 31, 1996.
(g) Change of Control
Not applicable.
(h) Report on Repricing of Options
Not applicable.
[NM\10-KSB\97:63097KSB]-21
36
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) and (b) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the ownership of
the Company's voting securities by persons owning more than 5% of such
securities as of January 31, 1998, the most recent practicable date.
<TABLE>
<CAPTION>
Amount and Amount and
Nature of Nature of
Beneficial Beneficial
Name and Address Interest of $.01 Interest of Series
of Officers and par value Percent D Convertible Percent
Directors Common Stock of Class Preferred Stock of Class
- -------------------------- ---------------- -------- ------------------ --------
<S> <C> <C> <C> <C>
C/A/K Trustkantoor N.V.(2) 20,000,000 44.40% 0 0%
P.O. Box 210
Willemstad, Curacao
NuVen Advisors, Inc.(1)(3) 0 0% 24,000,000 100%
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
</TABLE>
(1) Gives effect to the one vote per share for each of the outstanding
shares of common stock, C Preferred and D Preferred.
(2) The shares are held pursuant to an escrow for the purchase of
Replacement Property by NuOI.
(3) The Luke Trust owns 93% of NuVen. Fred G. Luke, as Co-Trustee of the
Luke Trust, determines the voting of such shares and, as a result, may
be deemed to control the Luke Trust.
The following sets forth information with respect to the Company's
voting stock beneficially owned by each current and former officer and director,
and by all current and former officers and directors as a group, as of June 30,
1997:
<TABLE>
<CAPTION>
Amount and Nature Amount and Nature
of Beneficial of Beneficial
Interest of $.01 par Interest of Series D
Name of Officers and value Percent Convertible Percent
Directors(1) Common Stock of Class(3) Preferred Stock of Class
- ------------------------------ ---------------- ------------- ------------------- --------
<S> <C> <C> <C> <C>
Fred G. Luke(5) 11,000,000(5) 23% 24,000,000(2) 100%
John D. Desbrow 321,000 .66% -- --
Steven H. Dong 302,000 .62% -- --
Jon Lawver(4) 230,000 .47% -- --
Albert Rapuano 975,000 2% -- --
All Officers and Directors as 12,828,000 26% 24,000,000 100%
a group
</TABLE>
(1) The address of each executive officer or Director is 4695 MacArthur
Court, Suite 530, Newport Beach, California 92660 unless otherwise
shown
(2) The Luke Trust owns 93% of NuVen. Fred G. Luke, as co-Trustee of the
Luke Trust determines the voting of such shares and, as a result, may
be deemed to control the Luke Trust and the disposition of the
24,000,000 shares of the Company's D Preferred.
(3) Percentage ownership amounts are computed for each holder assuming that
convertible securities and options held by each holder are exercised
within 60 days.
(4) Options and shares are held by J.L. Lawver Corp. of which Jon L. Lawver
is the President of J.L. Lawver Corp.
(5) Includes 400,000 shares held by Mr. Luke and 600,000 shares held
beneficially pursuant to options, and 10,000,000 shares of common stock
into which the shares of D Preferred will convert if converted by
NuVen.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with Directors and Affiliates.
There were no related transactions or series of similar related
transactions during fiscal 1997 that exceeded an aggregate amount of $60,000
other than the following:
During fiscal 1994, Group V entered into an agreement with Structure
America, Inc. ("SAI") to issue 1,000,000 shares for consulting services. Such
services were rendered during fiscal 1995. During fiscal 1996, Group V entered
into another agreement with SAI to perform consulting services. Pursuant to such
agreement, Group V agreed to issue 1,000,000 shares of Group V's common stock to
SAI and granted SAI an option to purchase 1,000,000 shares of Group V's common
stock exercisable at $.12 per share. In May 1997, 1,000,000 common shares were
issued in settlement of all amounts owed to SAI as of May 5, 1997. Group V
expensed $200,000 and $75,000 during fiscal year 1997 and 1996, respectively,
and had no amounts due to SAI as of June 30, 1997. SAI's agreement with Group V
was terminated effective May 5, 1997.
During fiscal year 1996, the Company renewed an agreement with SAI to
perform consulting services. The Company expensed approximately $255,000 and
$465,000 during fiscal years 1997 and 1996, respectively and had approximately
$160,000 due to SAI as of June 30, 1997.
(b) Indebtedness of Management
During fiscal 1996, 400,000 common shares were issued upon exercise of
options by the Chief Executive Officer of the Company in the amount of $440,000,
or $1.10 per share. The Company received a note receivable in the amount of
$440,000 and cash payments in the aggregate amount of $40,000 were made during
fiscal 1996, approximately $120,000 in fiscal 1997. The note bears interest of
10% and is due in May 1998. The note receivable has been classified as
Stockholder Receivable.
[NM\10-KSB\97:63097KSB]-21
37
<PAGE>
During fiscal 1996, 868,824 shares of GRPV common stock were issued
upon exercise of options by its President in consideration for $104,258, or $.12
per share. GRPV received a note receivable in the amount of $78,758, bearing
interest of 10%, and a cash payment of $25,500 as consideration for the exercise
of these options. The note receivable was classified as Stockholder Receivable
in the amount of $78,758 at June 30, 1996 and was fully paid subsequent to June
30, 1997.
(c) Transactions with Promoters
Not applicable.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Consolidated Financial Statements
The Consolidated Financial Statements included in this Item are indexed
on Page F-1, "Index to Consolidated Financial Statements."
(b) Financial Statement Schedules
Not applicable.
(c) Exhibits
Unless otherwise noted, Exhibits are filed herewith.
Exhibit
Number Description
3.1* Articles of Incorporation
3.1(a)** Articles of Amendment of Articles of Incorporation
3.1(b) Certificate of Amendment of Articles of Incorporation of
International Casino Management, Inc.
3.1(c) Articles of Amendment to the Articles of Incorporation filed
September 26, 1996
3.2* Bylaws
3.3# Certificate of Designations and Preferences of Series C
Convertible Preferred Stock.
10.94o Consulting Agreement with Steven Dong
10.95o Consulting Agreement with Clifford Jones
[NM\10-KSB\97:63097KSB]-21
38
<PAGE>
10.96o Consulting Agreement with Louis Wiener
10.97o Consulting Agreement with Roy Warren
10.98o Consulting Agreement with Kenneth Scholl
10.99X Consulting Agreement with Lee Linton
10.100X Consulting Agreement with Clifford ("Buck") Jones II
10.101X Second Addendum to Fee Agreement with Morris Gore
10.102X Fee Agreement with Kenneth R. O'Neal
10.103X Fee Agreement with Geoffrey G. Riggs
10.104X Fee Agreement with Jonathan L. Small
10.105X Addendum to Consulting Agreement with Sandra V. Alsina
10.106X Fee Agreement with Michael Manson, C.P.A.
10.107X Addendum to Consulting Agreement with Steven H. Dong
10.108X Third Addendum to Consulting Agreement with John D. Desbrow
10.109X Second Addendum to Consulting Agreement with J. L. Lawver
Corp.
10.110X Non-Qualified Stock Option Agreement with Fred G. Luke
10.111o Engagement Letter and Fee Agreement with Woodcox Advertising &
Communications
10.112o Third Addendum to Consulting Agreement with Structure America.
10.113o Second Addendum to Engagement Letter with OTC Communications
10.114o Consulting Agreement with Albert Rapuano
10.115o January 3, 1996 Addendum to Consulting Agreement with J. L.
Lawver
10.116o 1996 Employee Stock Benefit Plan
10.117o Second Addendum to Fee Agreement with Morris C. Gore
10.118o Third Addendum to Fee Agreement with James R. Gordon
[NM\10-KSB\97:63097KSB]-21
39
<PAGE>
10.119o Contracting Agreement with Dynamic Telecommunications, Inc.
dba Dynatel
10.120 Lease Agreement with Theodore DeTello
10.121 Promissory Note and Security Agreement with Foothill Capital
Corporation
10.122o Asset Purchase Agreement dated September 28,1995 with Silver
Faith Development Limited
10.123o Assignment and Bill of Sale dated September 30, 1995 from
Silver Faith Development Limited
10.124 Assignment dated December 29, 1995 to NuOasis International,
Inc., a California Corporation
10.125o $21,000,000 Convertible Secured Promissory Note dated December
31, 1995 to Silver Faith Development Limited
10.127 Assumption Agreement and Release of Liability with Silver
Faith Development Limited dated May 16, 1996 (1)
10.128 Amendment, Modification and Ratification of Asset Purchase
Agreement with Silver Faith Development Limited and Beijing
Grand Canal Real Estate Development Co., Ltd. (1)
10.129 Purchase and Sale Agreement dated August 8, 1996 between
NuOasis International Inc., and The Hartcourt Companies, Inc.
(1)
10.130 $12,000,000 Convertible Secured Promissory Note dated August
8, 1996 issued by The Hartcourt Companies, Inc. to NuOasis
International Inc. (1)
10.131 Security Agreement dated August 8, 1996 between NuOasis
International Inc. and The Hartcourt Companies, Inc. (1)
10.132 Assignment and Indemnification Agreement dated August 30, 1996
between NuOasis International, Inc. and The Hartcourt
Companies, Inc. (1)
10.133 Assignment and Bill of Sale between NuOasis International,
Inc. and Silver Faith Development Limited (1)
10.134 Agreement between NuOasis International, Inc. and Silver Faith
Development Limited (1)
10.135 $3,000,000 Secured Contingent Promissory Note dated May 25,
1995 from Nona Morelli's II, Inc., to Ng Man Sun dba Dragon
Sight International Amusement (Macau) Company (1)
10.136 Assignment dated December 29, 1995 from Nona Morelli's II,
Inc. to NuOasis International Inc. (1)
[NM\10-KSB\97:63097KSB]-21
40
<PAGE>
10.137 Letter of Intent dated August 5, 1996 between the Company and
Ng Man Sun dba Dragon Sight International Amusement (Macau)
Company (1)
10.138 Purchase Agreement dated August 30, 1996 between NuOasis
International Inc. and various purchasers (1)
10.139 Option Agreement with Joseph Monterosso dated June 13, 1996(1)
10.140 Casino Lease and Operating Management Contract between Societe
Loisirs Club Hammamet and Cleopatra Place Limited (1)
10.141 Letter of Intent between Compagnie Monastirienne Immobiliere
et Touristique and Cleopatra Palace Limited (1)
10.142 Letter of Intent dated September 24, 1996 between the Company
and Grand Hotel Krasnapolsky N.V. (1)
10.143 Collateral Substitution Agreement dated December 29, 1995
between the Company and Ng Man Sun (1)
10.144 Collateral Release Agreement dated September 30, 1996 between
the Company and Ng Man Sun (1)
10.145 Agreement of Exchange dated September 30, 1996 between NuOasis
International, Inc. and C/A/K Trustkantoor N.V. (1)
10.146 Operating Agreement between Ng Man Sun and Nona Morelli's II,
Inc. (1)
10.147 Consent to Sale of Interest and Termination of Operating
Agreement (1)
10.148 Agreement dated July 31, 1996 between NuOasis International,
Inc. and Ng Man Sun(1)
10.149 Casino Lease and Operating Management Contact between Societe'
d'Animation et de Loisirs Touristiques (S.A.L.T.) and
Cleopatra Palace Limited (1)
10.150 Fourth Addendum to Consulting Agreement with John D. Desbrow
(1)
10.151 Assumption Agreement and Release of Liability with Ng Man Sun
dated December 29, 1995(1)
10.152 Second Addendum to Consulting Agreement with Steven H. Dong
(1)
10.153 Agreement dated October 2, 1996 between NuOasis International,
Inc. and Cleopatra World, Inc. (1)
10.154 Amendment to Letter Agreement dated October 7, 1996 by and
between NuOasis International, Inc. and Cleopatra Palace
Limited (the "Letter Agreement") (1)
[NM\10-KSB\97:63097KSB]-21
41
<PAGE>
10.155 Letter of Intent between Compagnie Monastirienne Immobiliere
et Touristique and Cleopatra World, Inc. (1)
10.156 Master Lease between Fantastic Foods International, Inc. and
American Charities Underwriters, Inc. (1)
10.157 Market Analysis of the property at 1745 Erie Avenue, Pueblo,
CO. 81001
10.158 Second Amendment to Letter Agreement dated October 7, 1996 by
and between NuOasis International, Inc. and Cleopatra Palace
Limited (the "Letter Agreement")
10.159 Assignment dated November 27, 1996 from NuOasis International,
Inc. and Cleopatra Palace Limited
10.160 Agreement dated October 27, 1996 between NuOasis
International, Inc. and Grand Hotel Krasnopolsky N.V.
10.161 Agreement dated November 13, 1996 between Cleopatra Palace
Limited and International Banking Company Caribbean N.V.
10.162 Option Agreement dated June 13, 1997 between Nona Morelli's
II, Inc. and Joseph Monterosso
10.163 Stock Purchase Agreement dated May 30, 1997 between Nona
Morelli's II, Inc. and Joseph Monterosso
10.164 Stock Purchase Agreement dated December 19, 1996 with Exhibits
A through F between NuOasis Gaming, Inc. and National Pools
Corporation
10.165 Stock Purchase Agreement dated May 4, 1997 between NuOasis
Gaming, Inc. and Nona Morelli's II, Inc.
10.166 National Pools Corporation letter to Fred G. Luke dated June
4, 1997
10.167 Letter to/from Richard Skjerven dated June 2, 1997, RE: Escrow
Instructions - Stock Purchase Agreement between Nona Morelli's
II, Inc. and National Pools Corporation
10.168 Assignment between NuOasis Gaming, Inc. and Nona Morelli's II,
Inc. dated May 5, 1997
10.169 Indemnification Agreement dated May 30, 1997 between NuOasis
Gaming, Inc. and Nona Morelli's II, Inc.
10.170 Indemnification Agreement dated May 30, 1997 between NuOasis
Gaming, Inc. and Fred G. Luke
10.171 Warrant Purchase Agreement dated August 22, 1997
[NM\10-KSB\97:63097KSB]-21
42
<PAGE>
10.172 Letter from Fred G. Luke to Mr. Joseph Monterosso, Group V
Corporation, dated September 5, 1997, RE: Notice of Conversion
of 100,000 shares of Series B Preferred Stock
10.173 Letter to Joseph Monterosso, Group V Corporation, dated
September 3, 1997, RE: Extension and modification of
Put/Option Agreement and Warrant Purchase Agreement dated
August 22, 1997
10.174 Put/Option Agreement, dated August 22, 1997
10.175 Amendment to Agreement, dated August 22, 1997
22.1 Schedule of Subsidiaries of the Company
27. Financial Data Schedule
* Incorporated by reference from the like numbered exhibits
filed with the Company's Registration Statement on Form S-18,
SEC File No. 33-32127-D
** Incorporated by reference from the like numbered exhibits
filed with the Company's Registration Statement on Form S-1,
SEC File No. 33-43402
# Incorporated by reference from the like-numbered exhibits
filed with the Company's 10-K for the fiscal year ended June
30, 1992
~ Incorporated by reference to Registration Statement on Form
S-8, SEC File No. 33-57270
o Incorporated by reference to Registration Statement on Form
S-8, SEC File No. 33-94498 X Incorporated by reference to
Registration Statement on Form S-8, SEC File No. 33-99060
o Incorporated by reference to Registration Statement on Form
S-8, SEC File No. 33-31064
o Incorporated by reference to Exhibit to Form 8-K dated
December 31, 1995, filed on March 5, 1996
(1) Incorporated by reference from the like numbered exhibits
filed with the Company's Form 10-KSB for fiscal year ended
June 30, 1996
(d) Reports
(1) On November 15, 1996, the Company filed a Current Report
on Form 8-K dated October 29, 1996 reporting the resignation of Carol Chen as a
Director of the Company effective the close of business on October 29, 1996.
(2) On June 13, 1997, the Company filed a Current Report on
Form 8-K dated August 22, 1997, reporting, as the controlling parent of GRPV,
granted an option to Monterosso as the President and Chief Executive Officer of
NPC to acquire the GRPV Series B Shares owned by the Company.
[NM\10-KSB\97:63097KSB]-21
43
<PAGE>
(3) Effective July 3, 1997, the Company filed a Current Report
on Form 8-K dated July 3, 1997, reporting the change of the Company's auditors
from Raimondo Pettit Group (formerly Raimondo Pettit & Glassman) to Haskell &
White LLP as the Company's certifying accountants.
(4) On August 22, 1997, the Company filed a Current Report on
Form 8-K dated August 22, 1997, reporting the sale of the GRPV D Warrants to
Monterosso.
(5) On September 26, 1997, the Company filed a Current Report
on Form 8-K dated September 26, 1997, reporting that Cleopatra Hammamet entered
into an agreement with Cedric pursuant to which Cedric and the Company agreed to
the recapitalization of Cleopatra Hammamet to enable such subsidiary to open its
casino gaming facility located in South Hammamet, Tunisia.
[NM\10-KSB\97:63097KSB]-21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
NuOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
Date: February 24, 1998 By: /s/ Fred G. Luke
----- -----------------------------
Fred G. Luke,
Chief Executive Officer
Date: February 24, 1998 By: /s/ Jon L. Lawver
----- -----------------------------
Jon L. Lawver, President,
Fantastic Foods International,
Inc.
In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
NuOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
Date: February 24, 1998 By: /s/ Fred G. Luke
----- -----------------------------
Fred G. Luke,
Chief Executive Officer
Date: February 24, 1998 By: /s/ Jon L. Lawver
----- -----------------------------
Jon L. Lawver, President,
Fantastic Foods International,
Inc.
[NM\10-KSB\97:63097KSB]-21
NUOASIS RESORTS, INC.
(formerly Nona Morelli's II, Inc.)
Index to Consolidated Financial Statements
Description Page
Independent Auditors' Reports...............................................F-2
Consolidated Balance Sheet as of June 30, 1997..............................F-4
Consolidated Statements of Operations for the years ended
June 30, 1997 and 1996....................................................F-5
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1997 and 1996..............................................F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 1997 and 1996....................................................F-7
Notes to Consolidated Financial Statements..................................F-9
F-1
<PAGE>
HASKELL & WHITE LLP
4901 Birch Street
Newport Beach, CA 92660
Telephone (714) 833-8312 Fax (714) 833-9421
INDEPENDENT AUDITORS' REPORT
Board of Directors
NuOasis Resorts, Inc. (formerly, Nona Morelli's II, Inc.)
Newport Beach, California
We have audited the accompanying consolidated balance sheet of NuOasis Resorts,
Inc. (formerly Nona Morelli's II, Inc.) and subsidiaries (the "Company") as of
June 30, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended June 30, 1997. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 1997, and its results of operations and cash flows for the year ended
June 30, 1997, in conformity with generally accepted accounting principles.
/s/ HASKELL & WHITE LLP
Newport Beach, California
January 30, 1998
F-2
<PAGE>
Raimondo, Pettit & GLASSMAN
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
CERTIFIED PUBLIC ACCOUNTANTS
UNION BANK TOWER, SUITE 1250
21515 HAWTHORNE BOULEVARD
TORRANCE, CALIFORNIA 90503
INDEPENDENT AUDITORS' REPORT
Board of Directors
NuOasis Resorts, Inc. (formerly, Nona Morelli's II, Inc.)
Irvine, California
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of NuOasis Resorts, Inc. (formerly Nona
Morelli's II, Inc.) and subsidiaries (the "Company") for the year ended June 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 our audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
the Company for the year ended June 30, 1996, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred recurring net losses
and has limited liquid resources. Such matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
these matters are described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Raimondo, Pettit & Glassman
Torrance, California
November 8, 1996, except for information relating to Cleopatra Palace, Ltd. and
National Pools Corporation included in Notes 2, 3 and 11, as to which the date
is November 29, 1996.
[NM\10-KSB\97:63097FS]-26
F-3
<PAGE>
<TABLE>
<CAPTION>
NUOASIS RESORTS, INC.
(formerly Nona Morelli's II, Inc.)
Consolidated Balance Sheet
As of June 30, 1997
<S> <C>
ASSETS
Current assets:
Cash $ 576,734
Equity investments 2,487,544
Due from affiliate, net 553,840
Amounts receivable, net of allowance
for doubtful accounts of $50,391 287,589
Inventory 35,173
--------------------
Total current assets 3,940,880
Property and equipment:
Food manufacturing equipment 1,205,569
Accumulated depreciation and amortization (964,730)
Total property and equipment, net 240,839
Other assets:
Equity investments 3,317,720
Due from affiliates, net 1,543,674
Intangible assets, net 1,022,395
Other assets 62,400
--------------------
Total other assets 5,946,189
--------------------
TOTAL ASSETS $ 10,127,908
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,109,225
Accrued expenses 58,044
Due to affiliates 1,510,562
Current maturities of long-term debt 235,375
Total current liabilities 2,913,206
ong term liabilities:
Long-term debt 145,880
Total liabilities 3,059,086
Minority interest 1,619,298
Commitments and contingencies (Notes 5 and 11) Stockholders' equity Preferred
stock, Series D, $.01 par value;
24,000,000 shares authorized, issued and outstanding
(aggregate liquidation of up to $10,000,000) 240,000
Common stock, $.01 par value; 50,000,000 shares authorized;
48,824,300 shares issued and outstanding 488,243
Cost of 20,000,115 treasury shares (10,002,425)
Additional paid-in-capital 48,827,297
Common stock subscription and stockholders' receivables (324,225)
Accumulated deficit (33,779,366)
---------------------
Total stockholders' equity 5,449,524
---------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 10,127,908
=====================
</TABLE>
See accompanying notes to consolidated financial statements
[NM\10-KSB\97:63097FS]-26
F-4
<PAGE>
<TABLE>
<CAPTION>
NUOASIS RESORTS, INC.
(formerly Nona Morelli's II, Inc.)
Consolidated Statements of Operations
For the Years Ended June 30, 1997 and 1996
Years Ended June 30,
--------------------------------------------
1997 1996
--------------------- ----------------------
<S> <C> <C>
Food sales revenue $ 1,339,763 $ 1,251,174
Gaming revenue - 11,407,317
--------------------- ----------------------
1,339,763 12,658,491
Cost of food sales revenues 903,446 838,453
-------------------- ----------------------
Gross profit 436,317 11,820,038
--------------------- ----------------------
Operating expenses:
Legal and professional fees 1,844,749 1,717,064
Depreciation and amortization 128,578 4,621,014
Gain on sale of investments (553,840) (38,510)
General and administrative expenses 775,598 1,046,770
Loss on sale of property and equipment 89,213 -
Minority interest - (233,877)
Write down of gaming interest - 6,663,741
Write down of beneficial ownership - 2,600,000
Other valuation expense - 1,839,483
--------------------- ----------------------
Total operating expenses 2,284,298 18,215,685
--------------------- ----------------------
Operating loss (1,847,981) (6,395,647)
--------------------- -----------------------
Other income (expenses):
Interest expense (96,594) (309,757)
Losses in equity investments (3,061,944) -
Other income 65,847 63,334
--------------------- ----------------------
Total other expenses (3,092,691) (246,423)
--------------------- -----------------------
Net loss before income tax benefit (provision)
and discontinued operation (4,940,672) (6,642,070)
Income tax benefit (provision) 382,494 (997,932)
--------------------- -----------------------
Net loss before discontinued operation (4,558,178) (7,640,002)
Discontinued operation:
Net loss of discontinued operation (3,118,107) (1,079,638)
Gain on disposal of discontinued operation 350,249 -
--------------------- ----------------------
Net loss $ (7,326,036) $ (8,719,640)
===================== =======================
Per share amounts:
Net loss before discontinued operation $ (.10) $ (.18)
Discontinued operations (.06) (.02)
--------------------- -----------------------
Net loss per common share $ (.16) $ (.20)
===================== =======================
Weighted average number of common shares
outstanding used to compute net loss per
common share 46,863,961 43,803,077
===================== =======================
</TABLE>
See accompanying notes to consolidated financial statements
[NM\10-KSB\97:63097FS]-26
F-5
<PAGE>
<TABLE>
<CAPTION>
NUOASIS RESORTS, INC.
(formerly Nona Morelli's II, Inc.)
Consolidated Statement of Stockholders' Equity
For the Years Ended June 30, 1997 and 1996
Preferred Common Treasury
Stock Stock Stock
---------------------- ------------------------ ---------------------------
Shares Amount Shares Amount Shares Amount
---------- ----------- ---------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1995 24,013,500 $ 240,135 42,708,800 $ 427,088 115 $ (2,425)
Issuance of common stock for services 1,886,500 18,865
Exchange of Gaming Interest 20,000,000 (10,000,000)
Issuance of common stock on conversion of
Series C preferred stock (13,500) (135) 27,000 270
Issuance of common stock for exercised options 400,000 4,000
Change in common stock subscription and
stockholders receivable
Net loss
------------- ------------ ------------ ------------- ------------- ---------------
Balance at June 30, 1996 24,000,000 240,000 45,022,300 450,223 20,000,115 (10,002,425)
--
Issuance of common stock 3,802,000 38,020
Net change in common stock subscription
receivable
Net effects of the disposition of Group V
Net loss
------------- ------------ ------------ ------------- ------------- ---------------
Balance at June 30, 1997 24,000,000 $ 240,000 48,824,300 $ 488,243 20,000,115 $ (10,002,425)
============= ============ ============ ============= ============= ===============
</TABLE>
<TABLE>
<CAPTION>
Additional Common Stock
Paid-In Subscription Accumulated
Capital Receivable (Deficit) Total
-------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Balance at July 1, 1995 $ 44,867,753 $ (946,814) $ (21,500,460) $ 23,085,277
Issuance of common stock for services 2,261,059 2,279,924
Exchange of Gaming Interest (10,000,000)
Issuance of common stock on conversion of
Series C preferred stock (135)
Issuance of common stock for exercised options 520,000 (400,000) -
Change in common stock subscription and 124,000
stockholders receivable (360,685)
Net loss (8,719,640) (360,685)
--------------- ---------------- --------------- --------------
(8,719,640)
Balance at June 30, 1996
Issuance of common stock 1,178,620 1,216,640
Net change in common stock subscription
receivable 1,383,274 1,383,274
Net effects of the disposition of Group V 3,766,770 3,766,770
Net loss (7,326,036) (7,326,036)
--------------- ---------------- --------------- ---------------
Balance at June 30, 1997 $ 48,827,297 $ (324,225) $ (33,779,366) $ 5,449,524
=============== ================ ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
[NM\10-KSB\97:63097FS]-26
F-6
<PAGE>
<TABLE>
<CAPTION>
NUOASIS RESORTS, INC.
(formerly Nona Morelli's II, Inc.)
Consolidated Statements of Cash Flows
For Years Ended June 30, 1997 and 1996
1997 1996
--------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,326,036) $ (8,719,640)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 128,578 4,621,014
Common stock exchanged for services 1,334,311 1,139,227
Valuation expenses - 11,103,224
Income tax benefit (382,494) 3,800
Gain on investments (553,840) (38,510)
Loss on sale of property and equipment 89,213 -
Minority interest - (233,877)
Losses in equity investments 3,061,944 -
Other 45,414 84,000
Discontinued operations 2,767,858 1,079,638
Increases (decreases) from changes in assets and liabilities:
Accounts receivable, net (151,528) 19,280
Due from affiliates 3,887,435 (1,819,479)
Inventory 58,426 5,522
Other current assets 15,000 158,906
Deposits and other assets (4,550) 29,230
Accounts payable (110,283) (56,281)
Accrued expenses (598,101) 287,360
Interest payable to affiliate - 235,001
Due to affiliates (182,814) 184,332
Net liabilities of discontinued operations 964,615 -
Income taxes payable - 778,952
--------------------- ---------------------
Net cash provided by operating activities 3,043,148 8,861,699
--------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Beneficial ownership interest - (9,604,598)
Proceeds from sales of assets 432,922 38,510
Purchase of leasehold improvements and equipment (9,686) (100,305)
--------------------- ----------------------
Net cash provided by (used in) investing activities 423,236 (9,666,393)
--------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from collection of stockholders' receivables 198,758 65,500
Proceeds from issuance of note payables 100,000 350,000
Principal payments on notes payables (3,238,844) (189,240)
--------------------- ----------------------
Net cash (used in) provided by financing activities (2,940,086) 226,260
--------------------- ---------------------
Net increase (decrease) in cash 526,298 (578,434)
Cash and cash equivalents, beginning of period 50,436 628,870
--------------------- ---------------------
Cash and cash equivalents, end of period $ 576,734 $ 50,436
===================== =====================
</TABLE>
See accompanying notes to consolidated financial statements
[NM\10-KSB\97:63097FS]-26
F-7
<PAGE>
<TABLE>
<CAPTION>
NUOASIS RESORTS, INC.
(formerly Nona Morelli's II, Inc.)
Consolidated Statements of Cash Flows
For Years Ended June 30, 1997 and 1996
1997 1996
-------------------- ---------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 47,547 $ 144,685
Income taxes $ 2,480 $ 1,600
Non-cash investing and financing activities:
Exercise of options for reduction of debt $ 29,200 $ -
Stock issued for services on behalf of Cleopatra $ - $ 955,439
Common stock issued for stockholder notes receivable $ - $ 518,758
Common stock exchanged for services $ 1,334,311 $ 1,139,227
Note received for sale of property and equipment $ 50,000 $ -
Exchange of Hartcourt Shares for equity in Cleopatra's World
and Cleopatra $ 5,775,000 $
Effects of the consolidation of Cleopatra from non-cash
acquisition of controlling interest
Cash $ 525,056 $ -
Due from affiliates, net $ 1,543,674 $ -
Equity investments $ 3,800,022 $ -
Intangible assets $ 1,029,617 $ -
Accounts payables $ 793,698 $ -
Stockholders' equity $ 6,104,671 $ -
</TABLE>
See accompanying notes to consolidated financial statements
[NM\10-KSB\97:63097FS]-26
F-8
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 and 1996
Note 1. Summary of Significant Accounting Policies and Description of Business
Description of Business
NuOasis Resorts, Inc. (formerly, Nona Morelli's II, Inc.) and its subsidiaries
(the "Company"), a Nevada corporation (formerly, a Colorado corporation)
operates as a holding company for leisure and entertainment-related businesses.
At June 30, 1997, the Company had seven wholly-owned subsidiaries engaged in
food manufacturing and distribution, casino gaming and hotel management, and
real estate investments.
The activities of the Company's subsidiaries are domestic and international,
with existing food manufacturing activities in the United States and Asia, and
proposed casino gaming and hotel management activities in North Africa and
Europe.
Principles of Consolidation
The consolidated financial statements, and references therein to the Company,
include the accounts of the Company and its wholly-owned subsidiaries; NuOasis
International, Inc. ("NuOasis International") and its 70% owned subsidiary,
Cleopatra Palace Limited ("Cleopatra"), Fantastic Foods International, Inc.
("Fantastic Foods"), Casino Management of America, Inc. ("CMA") and its wholly
owned subsidiaries, NuOasis Laughlin, Inc., ("NuLA") and NuOasis Las Vegas, Inc.
("NuLV"), ACI Asset Management Inc. ("ACI") and NuOasis Properties, Inc.
("NuOasis Properties"). In addition, the consolidated financial statements
include the accounts of Group V Corporation, formerly NuOasis Gaming, Inc. and
its subsidiaries ("Group V") through June 13, 1997, the date in which the
Company sold its controlling interest in Group V. All material intercompany
accounts and transactions have been eliminated in consolidation.
Minority Interest
The accompanying consolidated balance sheet as of June 30, 1997 includes
minority interest of $1,619,298. Such amount represents 30% of the stockholders'
equity of Cleopatra that is not owned by the Company at June 30, 1997.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
[NM\10-KSB\97:63097FS]-26
F-9
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less on the date of acquisition to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market, computed on the first-in,
first-out basis.
Property and Equipment and Depreciation
Property and equipment, including amounts recorded under capital leases, are
stated at cost. Repairs and maintenance are charged to expense as incurred and
expenditures for improvements are capitalized. The Company evaluates the usage
of its equipment throughout the fiscal year.
Depreciation of property and equipment, and amortization of assets under capital
leases is provided over the lesser of the estimated useful lives of the assets
or the lease term using the straight-line method. Estimated useful lives are 28
to 32 years for buildings, 7 to 10 years for factory equipment, 5 to 7 years for
furniture, fixtures and transportation equipment.
Depreciation expense, including amortization of assets under capital lease
arrangements, charged to operations was $119,057 and $360,520 for the years
ended June 30, 1997 and 1996, respectively.
Equity Investments
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting For Certain
Investments In Debt and Equity Securities." This statement addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and investment in debt securities. The statement
requires that management classify these investments as either held-to-maturity,
available-for sale or trading securities.
As of June 30, 1997, the Company owns, in the aggregate, 980,000 shares of
restricted common stock of The Hartcourt Companies, Inc., 280,000 of which are
owned by Cleopatra, and 7,800,000 shares of restricted common stock of Group V.
Management has classified these equity securities as available-for- sale based
on its intent to continue to exchange the equity securities for other assets. In
accordance with SFAS No. 115, these equity securities are presented in the
accompanying consolidated balance sheet as current assets at their estimated
fair market values. At June 30, 1997, there are no unrealized holding gains in
these securities as their estimated fair market values approximated the equity
securities' carrying values.
[NM\10-KSB\97:63097FS]-26
F-10
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
The Company has additional equity investments in private entities in which its
equity interest exceeds 20% but is less than 51%. Such investments are accounted
for using the equity method of accounting in accordance with Accounting
Principles Board ("APB") Opinion No. 18, whereby the Company's investments are
increased or decreased based on its portion of the income or loss of the
investee.
Intangible Assets
At June 30, 1997, intangible assets include pre-opening costs and gaming
licenses owned by Cleopatra in the amount of $575,891 and $446,504,
respectively. The intangible assets are amortized over 15 years.
Amortization of Gaming Interest
The Company amortized its interest in the profits of the two Macau casinos (see
Note 2) over a period of five years using the straight line method. Amortization
for Fiscal 1997 and 1996 amounted to $0 and $4,268,544, respectively. The
Company's Interest in the Macau casinos was sold effective June 30, 1996 (See
Note 2).
Impairment Loss
In accordance with SFAS No. 121, when indicators of impairment are present, the
Company assesses whether there has been a permanent impairment in the value of
its long-lived assets by considering such factors as estimated, undiscounted
future net cash flows, trends and prospects and other economic factors.
Loss Per Share
The net loss per share is computed based upon the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents were not considered in the calculations as the
effect would have been anti-dilutive.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" which requires the use of the "liability method"
of accounting for income taxes. Accordingly, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates in effect for the year
in which the differences are expected to reverse. Current income taxes are based
on the year's income taxable for federal and state income tax reporting
purposes.
Revenue Recognition
Food sales and related cost of sales are recognized upon shipment of food
products.
[NM\10-KSB\97:63097FS]-26
F-11
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Discontinued Operation
As discussed in Note 2, the Company sold its controlling interest in Group V
during Fiscal 1997. Accordingly, Group V's results have been accounted for as a
discontinued operation in the accompanying consolidated financial statements.
The following table summarizes amounts recorded as the net loss of discontinued
operation in the accompanying consolidated statements of operations:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
June 30, 1997 June 30, 1996
-------------------------- -------------------------
<S> <C> <C>
General and administrative expenses $ 287,329 $ 211,296
Professional services 490,406 418,299
Write off of NPC goodwill (Note 2) 3,318,107 -
Other 171,315 -
Loss on discontinued operations of CMA
at GRPV 219,497 450,043
Gain on debt forgiveness (1,368,454) -
-------------------------- -------------------------
Net loss $ 3,118,200 $ 1,079,638
========================== =========================
</TABLE>
Employee Stock Options
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." In conformity with the provisions of SFAS No. 123, the Company
has determined that it will not change to the fair value method presented by
SFAS No. 123 and will continue to follow APB Opinion No. 25 for measurement and
recognition of employee stock-based transactions. There were no stock options
granted to employees during fiscal 1997 or 1996.
Issuance of Stock for Services
Shares of the Company's common stock issued to non-employees for services are
recorded in accordance with SFAS No. 123 at the fair market value of the stock
issued or the fair market value of the services provided, whichever value is
more reliably measurable.
[NM\10-KSB\97:63097FS]-26
F-12
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Fair Value of Financial Instruments
SFAS No. 107 requires disclosure about fair value for all financial instruments
whether or not recognized, for financial statement purposes. The fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair values. The Company has
determined that the fair value of all financial instruments approximated their
carrying value as of June 30, 1997.
Reclassification of Prior Year Amounts
To enhance comparability, the 1996 financial statements have been reclassified,
where appropriate, to conform with the financial statement presentation used in
Fiscal 1997. In addition, reclassifications have been made to reflect the
activities of Group V as a discontinued operation.
Going Concern
The Company has experienced recurring net losses and has limited liquid
resources. Management's intent is to continue searching for additional sources
of capital and new operating opportunities. In the interim, the Company will
continue operating with minimal overhead and key administrative functions will
be provided by consultants who are compensated primarily with the Company's
common stock. Management estimates that the Company may need to utilize its
common stock to fund its operations through Fiscal 1998. Accordingly, the
accompanying consolidated financial statements have been presented under the
assumption the Company will continue as a going concern.
Recent Accounting Developments
In February 1997, FASB issued SFAS No. 128, "Earnings Per Share" ("EPS"). SFAS
No. 128 requires all companies to present "basic" EPS and, if they have a
complex capital structure, "diluted" EPS. Under SFAS No. 128, "basic" EPS is
computed by dividing income (adjusted for any preferred stock dividends) by the
weighted average number of common shares outstanding during the period.
"Diluted" EPS is computed by dividing income (adjusted for any preferred stock
or convertible stock dividends and any potential income or loss from convertible
securities) by the weighted average number of common shares outstanding during
the period plus the number of additional common shares that would have been
outstanding if any dilutive potential common stock had been issued. The issuance
of anti-dilutive potential common stock should not be considered in the
calculation. In addition, SFAS No. 128 requires certain additional disclosures
relating to EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997. Thus, the Company expects to adopt the
provisions of this statement in the year ending June 30, 1998 ("Fiscal 1998").
Management does not expect the adoption of this pronouncement to have a
significant impact on the Company's financial statements.
[NM\10-KSB\97:63097FS]-26
F-13
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in an entity's
financial statements. This statement requires an entity to classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in-capital in the equity section of a statement of
financial position. This pronouncement is effective for Fiscal years beginning
after December 15, 1997 and the Company expects to adopt the provision of this
statement in Fiscal 1998. Management does not expect this statement to
significantly impact the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement requires public enterprises
to report financial and descriptive information about its reportable operating
segments and establishes standards for related disclosures about product and
services, geographic areas, and major customers. This pronouncement is effective
for Fiscal years beginning after December 15, 1997 and the Company expects to
adopt the provisions of this statement in Fiscal 1998. Management does not
expect this statement to significantly impact the Company's financial
statements.
Note 2. Acquisition and Liquidation of Investments
Gaming Interest
In May 1995 the Company purchased a 40% net profits interest in the gaming
operations conducted at the Holiday Inn and Hyatt Hotels in Macau (the "Gaming
Interest") from Mr. Ng Man Sun ("Ng"), doing business as Dragon Sight
International Amusement (Macau) Company ("Dragon"). The Gaming Interest was
transferred to NuOasis International in December 1995.
In August 1996, effective June 30, 1996, NuOasis International entered into an
agreement to sell the Gaming Interest. The consideration for the sale consisted
of 20,000,000 shares of the Company's common stock originally issued by the
Company in the purchase of the Gaming Interest (the "Ng Shares"). On or about
September 30, 1996, the Ng Shares were tendered to a third party escrow agent
pending the closing of the purchase of replacement assets or properties which
NuOasis International is currently negotiating to purchase (the "Replacement
Property").
As a result of the sale, the Company recognized a $6.6 million write
down of the book value of the Gaming Interest effective June 30, 1996,
to bring the value of the shares held in escrow for the purchase of
the Replacement Property to the basis of the stock originally issued
to Ng, which was $.50 a share or $10 million in aggregate. Until the
purchase of the Replacement Property, the book value of the escrowed
shares will be presented in a position similar to treasury stock.
Accordingly, the 20,000,000 treasury shares are recorded at their cost
of $10,002,425 in the accompanying June 30, 1997 consolidated balance
sheet.
[NM\10-KSB\97:63097FS]-26
F-14
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
The gaming revenues for the six months ended June 30, 1996 were classified as
Due from Affiliate as of June 30, 1996 in the amount of approximately $3.9
million and were subsequently collected in August 1996. $3.2 million of the $3.9
million was used by the Company as full payment of the principal and accrued
interest on the original note issued as part of the purchase of the Gaming
Interest.
Cleopatra
In October 1993, the Company acquired a 70% equity interest in Cleopatra Palace
Limited, an Irish corporation ("Cleopatra"). Cleopatra is the lessee of a
200,000 square foot casino and Las Vegas-style showroom presently under
construction (the "Cap Gammarth Casino") pursuant to a Casino Lease Agreement
and Operating Management Contract with Societe Touristique Tunisie-Golfe
("STTG").
In October 1994, Cleopatra entered into an agreement with Societe Loisirs Club
Hammamet ("Club Hammamet") to lease and operate a 60,000 square foot casino and
French-style cabaret recently completed in Hammamet, Tunisia (the "Hammamet
Casino"). During Fiscal 1997, the lease with STTG and the lease with Club
Hammamet were each modified several times and, as to the lease on the Cap
Gammarth Casino, the real property interest was transferred from STTG to Societe
D'Animation et de Loisirs Touristique, a Tunisian corporation ("SALT") resulting
in a change in lessor from STTG to SALT.
As part of the Gaming Interest acquisition, the Company transferred certain
assets to Dragon including a 42% interest in Cleopatra.
In June 1997, the Company reacquired the 42% interest in Cleopatra as part of a
recapitalization of Cleopatra resulting in an increase in the Company's
ownership of Cleopatra to 70% from 28%. Accordingly, the accounts of Cleopatra
as of June 30, 1997, are consolidated with the Company and the investment is no
longer accounted for using the equity method of accounting.
In September 1997, Cleopatra assigned the lease with Club Hammamet to Cleopatra
Hammamet Limited, a Tunisian corporation in organization as of June 30, 1997
("Cleopatra Hammamet"). In exchange for the lease, Cleopatra received an equity
interest in Cleopatra Hammamet.
Cleopatra's World
During Fiscal 1997, NuOasis International Inc. exchanged 600,000 shares of
common stock of The Hartcourt Companies Inc. for a 50% equity ownership in
Cleopatra's World Inc. a British Virgin Island corporation ("Cleopatra's
World"). Cleopatra's World is the lessor of the Le Palace Hotel and the real
estate and improvements surrounding the Cap Gammarth Casino.
[NM\10-KSB\97:63097FS]-26
F-15
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Acquisition of NPC, NuOasis Las Vegas, NuOasis Laughlin and CMA; Sale of Group V
In December 1995, Group V, as a subsidiary of the Company, entered into an
agreement with the shareholders of National Pools Corporation ("NPC") to acquire
all of the issued and outstanding shares of NPC.
In June 1996, the Company, then the controlling parent of Group V, granted an
option (the "Group V Option") to Mr. Joseph Monterosso ("Monterosso), the new
President of Group V, to acquire 250,000 shares of Group V Series B Preferred
stock (the "Group V B Shares") owned by the Company. The Group V Option was
exercisable at a price of $13.00 per share.
In December 1996, Group V closed the purchase of NPC, making NPC a wholly-owned
subsidiary of Group V. In June 1997, following the Group V purchase of NPC,
Monterosso exercised the Group V Option to purchase 128,041 Group V B Shares, at
$13.00 per share, by payment to the Company of approximately $1,665,000.
Additionally, in June 1997, Group V sold CMA and its wholly-owned subsidiaries,
NuLV and NuLA, to the Company for $1,140,000 in cash, notes receivable from
Group V aggregating $245,836, and a credit against the Company's intercompany
account with Group V of $95,000.
In August 1997, but effective June 1996, the Group V Option was amended (the
"Amended Option") canceling the right to acquire 100,000 of the 121,959
remaining Group V B Shares and increasing the exercise price for the balance, or
21,959 shares, from $13.00 per share to $72.20 per share. The Company
subsequently converted the 100,000 shares of Group V B Shares into 7,800,000
shares of Group V common stock. In September 1997, but effective June 1997,
Monterosso exercised the Amended Option to purchase 21,959 Group V B Shares, at
$72.20 per share, by payment to the Company of approximately $1,585,000.
Concurrently, Group V released the Company for liability, if any, arising from
any events when the Company controlled Group V, in exchange for approximately
$1,585,000. Also in September 1997, the Company and Monterosso entered into a
Put/Option Agreement (the "Put") under which Monterosso had the option to
purchase and the Company had the right to require Monterosso to purchase the
Company's remaining 7,800,000 common shares at a price of $.15 per share.
Concurrent with the Put, the Company sold to Monterosso its interest in
6,000,000 New Class D Warrants to purchase common stock of Group V (the "Group V
D Warrants"). Each Group V D Warrant is exercisable at $1.00 per share and will
entitle the holder to receive upon exercise two shares of Group V common stock,
or a total of 12,000,000 common shares. The consideration for the Group V D
Warrants consisted of a $1,800,000 promissory note due in September 1998 (the
"Warrant Note"). The Group V D Warrants had a book value of zero on the date of
sale. As of the date of this Report, $553,840 of the promissory note has been
realized, resulting in the Company recording a gain on sale in the amount of
$553,840 during Fiscal 1997.
[NM\10-KSB\97:63097FS]-26
F-16
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
As a result of the sale of the Group V B Shares and the Put, as discussed above,
a change in control of Group V occurred and, as of June 13, 1997, Group V is no
longer a controlled subsidiary of the Company. As of June 30, 1997, the Company
maintains approximately 7,800,000 shares of Group V common stock which are
included in equity investments (Note 3) in the accompanying consolidated balance
sheet. In connection with the sale transactions described above, the Company
recorded an aggregate net gain on disposal of discontinued operations of
approximately $350,000 during Fiscal 1997.
Sale of Pueblo Building
During Fiscal 1996, the Company remodeled and improved its food processing
equipment in its California locations and leased its manufacturing facility in
Pueblo, Colorado (the "Pueblo Building") held for sale. In connection therewith,
the Company reevaluated the use and value of its older equipment and wrote off
certain impaired equipment with a net book value of $1,073,303 which has been
recorded as Other Valuation Expense during Fiscal 1996.
On February 26, 1997, the lessee of the Company's Pueblo Building exercised on
option to purchase the Pueblo Building. As part of the consideration received,
the Company's mortgage debt in the principal amount of $215,392 was fully
satisfied, it received cash in the amount of $148,820, and a note in the amount
of $50,000, bearing 8% interest per annum and secured by the Pueblo Building.
The $50,000 note was paid in full subsequent to June 30, 1997. In connection
with the sale of the Pueblo building, the Company recorded a loss on sale of
approximately $89,000.
Note 3. Equity Investments/Beneficial Ownership Interest
Effective December 31, 1995, the Company acquired an interest in three buildings
under construction located in a large master planned commercial and residential
real estate development located in Beijing, Peoples Republic of China ("PRC")
known as the Peony Garden Project ("Peony Garden") from Silver Faith Development
Limited ("SFDL"), an affiliate of the Company and Ng. The purchase price of the
Company's interest in Peony Garden was $21 million consisting of an 8%
Promissory Note issued by NuOasis International in the principal amount of $21
million (the "Peony Garden Note"). The Peony Garden Note was non recourse and
fully collateralized by the interest acquired, with the outstanding principal
balance convertible into the shares of the Company's common stock. In January
1996, the Company made a prepayment of principal on the Peony Garden Note in the
amount of $9.6 million.
On August 8, 1996, the Company entered into an agreement with The Hartcourt
Companies, Inc. ("Hartcourt") to sell its entire interest in Peony Garden to
Hartcourt for $22 million. The consideration received by the Company consisted
of $10 million of Hartcourt common stock ("Hartcourt Shares") and a $12 million
Convertible Promissory Note secured by the Peony Garden interest being sold (the
"Hartcourt Note"). The sale closed on October 8, 1996 and, according to
unaudited information received from Hartcourt, the Hartcourt Shares represented
a 43% equity interest in Hartcourt. Concurrent with the closing of the sale of
the Company's interest in Peony Garden, the Hartcourt Note was assigned to SFDL
in exchange for the Peony Garden Note (the "Note Swap"). No profit was
[NM\10-KSB\97:63097FS]-26
F-17
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
recognized on the Note Swap or the transaction since the difference between the
sales price and the Company's basis in Peony Garden represents approximately the
amount of interest on the Peony Garden Note that would otherwise have been
capitalized during the construction of the Peony Garden project. At June 30,
1996, the Company's interest in Peony Garden of $9.6 million was reduced to
approximately $7 million, the value of the Company's equity in Hartcourt on or
about the closing date, resulting in a $2.6 million write down during the year
ended June 30, 1996.
During the year ended June 30, 1997, 3.3 million Hartcourt Shares (of the 4
million originally acquired) were exchanged to acquire additional equity
ownership in Cleopatra and Cleopatra's World. As a result of the sale of Peony
and the exchange involving the Hartcourt Shares, the Company has the following
equity investments as of June 30, 1997:
<TABLE>
<CAPTION>
Percentage Ownership Book Value Basis of
Investee at June 30, 1997 Equity Investments
- ----------------------------- ------------------------------ -------------------------
<S> <C> <C>
Current Assets:
- --------------
Hartcourt 8% (A) $ 1,890,805
Group V Corporation 16% (B) $ 596,739
-------------------------
$ 2,487,544
=========================
Non-Current Assets:
Cleopatra's World 50% (C) $ 182,698
SALT 20% (D) $ 3,135,022
Cleopatra 70% (E) $ --
-------------------------
$ 3,317,720
=========================
</TABLE>
(A) The percentage ownership is based upon unaudited financial
statements of Hartcourt as of December 31, 1997 (latest
available as of the date of this Report). Based on the
Company's percentage ownership, these securities are presented
at their June 30, 1997 estimated fair market value (Note 1).
(B) During Fiscal 1997, the Company sold its majority interest in
Group V (Note 2), leaving a remaining equity interest of
7,800,000 common shares valued at $596,739, the estimated fair
market value at June 30, 1997.
(C) In Fiscal 1997, NuOasis International acquired 50% equity
ownership in Cleopatra's World in exchange for 600,000
Hartcourt Shares (Note 2). The value of the 50% equity
ownership is based upon the Company's basis in the Hartcourt
Shares that was given as consideration for this investment,
reduced by $952,229 which represents the Company's portion of
Cleopatra's World Fiscal 1997 net loss. Although the Company's
equity ownership is 50%, the equity method of accounting is
used since control of the Board of Directors of Cleopatra's
World lies with the other 50% equity owners. Accordingly,
Cleopatra's World is not consolidated with the Company.
[NM\10-KSB\97:63097FS]-26
F-18
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
(D) In Fiscal 1997, Cleopatra acquired a 20% interest in Societe
D'Animation Et De Loisirs Club Touristique, a corporation
incorporated in Tunisia ("SALT"). SALT is the owner of the Cap
Gammarth Casino presently under construction and the lessor of
the Cap Gammarth Casino leased by Cleopatra. In exchange for
its 20% interest in SALT, Cleopatra made lease deposits of
$2,000,000 and transferred 1,100,000 Hartcourt Shares to SALT.
Cleopatra subsequently received $300,000 as compensation for
not exercising its pre-emption rights on a subsequent
recapitalization by SALT, resulting in a dilution of
Cleopatra's interest from 20% to 9%. However, Cleopatra is
currently contesting the dilution and, accordingly, the
interest is stated at 20% and the $300,000 payment received
was recorded by Cleopatra as a current liability. No financial
statements have been prepared for SALT to date.
(E) During June 1997, Cleopatra redeemed and transferred to the
Company 2,400,000 shares of its common stock, and the Company
transferred 2,700,000 Hartcourt Shares to Cleopatra. This
resulted in the increase of the Company's ownership percentage
to 70% from 49%. Accordingly, the accounts of Cleopatra are
now consolidated with the Company and the investment is no
longer accounted for using the equity method of accounting.
The Company's ultimate realization of value from the Hartcourt Shares is
dependent upon many factors, such as future changes in the equity value in
Hartcourt, which itself may be dependent upon uncertainties surrounding Peony
Garden, and upon the Company's ability to dispose of the Hartcourt Shares at its
current basis.
Cleopatra's World and Cleopatra's ability to continue as a going concern is
dependent upon their ability to fulfill their financial commitments (see Note
12) and the future operations of the casinos and other properties they intends
to manage. The uncertainties surrounding these matters raise doubt about the
ability of Cleopatra and Cleopatra's World to continue as a going concern, and
about the Company's ultimate recoverability of its investment in Cleopatra and
the various Cleopatra subsidiaries. No adjustments have been made to the
accompanying consolidated financial statements for these uncertainties.
Note 4. Due From Affiliates
Due from affiliates, net is comprised of the following at June 30, 1997:
Advances to Cleopatra Hammamet $ 1,750,900
Advances to Cleopatra's World 1,209,486
Due from Monterosso 553,840
Other 126,962
----------------------
Allowance for uncollectible amounts 3,641,188
(1,543,674)
-----------------------
$ 2,097,514
=======================
Advances to Cleopatra Hammamet and Cleopatra's World are non-interest bearing,
have no stated repayment terms and are uncollateralized. Amounts due from
Monterosso were realized subsequent to year end as described in Note 2, and are
therefore, classified as current assets.
[NM\10-KSB\97:63097FS]-26
F-19
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Note 5. Long-Term Debt
Long-term debt at June 30, 1997 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Note payable - bank
Due November 1999, payable in monthly principal installments
of $7,290 plus interest at prime plus 4%
(12.5% at June 30, 1997) $ 211,490
Note payable - financial institution
Due March 1998, payable in full, including interest at 18% 100,000
Note payable - financial institution
Due June 1998, payable in full, including interest at prime 69,765
----------------
plus 6% (14.5% at June 30, 1997) 381,255
Current Maturities of Long Term Debt (235,375)
-----------------
$ 145,880
</TABLE>
In October 1995, Fantastic Foods entered into a working capital loan agreement
(the "Loan") with a financial institution, whereby Fantastic Foods borrowed
$350,000. The loan was evidenced by a forty- seven month note bearing interest
at the rate of prime plus 4% per annum and collateralized by all accounts
receivable, inventory, and equipment related to Fantastic Foods food
manufacturing activities. At June 30, 1997, the outstanding principal balance of
the Loan was $211,490.
On March 20, 1997, Fantastic Foods entered into a working capital loan
agreement, collateralized by the Notes Receivables received from the sale of the
Pueblo building (Note 2), for $100,000 bearing interest at 18% per annum and
maturing on March 19, 1998.
On July 22, 1996, Fantastic Foods entered into a $150,000 line of credit
agreement which is collateralized by the Fantastic Foods accounts receivable.
The line of credit has an outstanding principal balance of $69,765 as of June
30, 1997 and outstanding amounts bear interest at prime plus 6% with the line of
credit expiring June 22, 1998.
Minimum annual principal repayments of long-term debt in each of the next five
fiscal years, are as follows:
Year Ending Amounts
June 30, Due
- ------------------------- -------------
1998 235,375
1999 145,880
----------------------
Total $ 381,255
======================
[NM\10-KSB\97:63097FS]-26
F-20
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Note 6. Stockholders' Equity
Capitalization
Except for shares issued for services, there were no private offerings conducted
in Fiscal 1997 or 1996.
Preferred Stock
The Company has authorized 25,000,000 shares of preferred stock, which are
divided into four classes or series: Series A, Series B, Series C and Series D.
All Series A and Series B preferred stock was redeemed by the Company prior to
or during Fiscal 1993, and returned to the preferred stock treasury.
In October 1992, the Company conducted a private offering of Series C
Convertible Preferred Stock ("C Preferred"). During the Fiscal year ended June
30, 1995, the Company amended and restated the Certificate of Designations,
Rights and Preferences of C Preferred. During the Fiscal year ended June 30,
1995, 870,033 shares of C Preferred were converted to 1,740,066 shares of common
stock. During Fiscal 1996 all remaining C Preferred was converted to common
stock, and no C Preferred remains outstanding at June 30, 1997.
During the Fiscal year ended June 30, 1993, the Company designated a Series D
Voting Convertible Preferred Stock out of the 24,130,000 redeemed shares of
Series A, Series B and Series C Preferred Stock (the "D Preferred"). The D
Preferred consists of 24,000,000 shares which were issued to NuVen Advisors
Inc., formerly New World Capital Inc. ("NuVen) in exchange for the investment
securities with an estimated market value, based upon independent legal and
valuation opinions at the time, discounted approximately 50% at the date of
transfer, of $10,000,000. Due to the lack of a date and value certain as to the
redemption and incomplete trading history of the investment securities, at June
30, 1993, the $10,000,000 aggregate estimated market value of the investment
securities was fully reserved by the Company by a charge against Additional
Paid-in Capital for financial statement purposes.
The D Preferred is redeemable, in whole or in part, at the option of the Board
of Directors, at any time, at a redemption price of up to $24,000,000, or
convertible, at the option of the holder, into a maximum of 10,000,000 shares of
the Company's common stock. The right to convert the D Preferred expires in July
1998.
Common Stock Subscriptions and Stockholders' Receivable
Stock subscriptions and stockholders' receivables as of June 30, 1997 consists
primarily of receivables due from officers and consultants.
[NM\10-KSB\97:63097FS]-26
F-21
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
During Fiscal 1996, 400,000 common shares were issued upon exercise of options
by the Chief Executive Officer of the Company in the amount of 440,000, or $1.10
per share. The Company received a note receivable in the amount of $440,000 and
cash payments in the aggregate amount of $40,000 were made prior to year end and
approximately $120,000 subsequent to year end. The note bears interest of 10%
and is past due. The note receivable has been classified as Stockholder
Receivable in the amount of $280,000 at June 30, 1997.
Treasury Stock
On August 5, 1996, NuOasis International entered into an agreement with Ng to
sell the Gaming Interest. On or about September 30, 1996, the Ng Shares were
tendered to a third party escrow agent pending the closing of the purchase of
the Replacement Property (see Note 2).
The Company recognized a $6.6 million write down on the sale of the Gaming
Interest at June 30 1996 to bring the value of the shares held in escrow for the
purchase of the Replacement Property to the basis of the stock originally issued
to Ng, which was $.50 a share or $10 million in aggregate. The book value of the
escrowed shares is presented in a position similar to treasury stock as of June
30, 1997 until such time as the Company completes the intended purchase of the
Replacement Property. Accordingly, the 20,000,000 treasury shares are recorded
at their cost of $10,002,425 in the accompanying June 30, 1997 consolidated
balance sheet.
Employee Stock Benefit Plan
An employee stock benefit plan ("ESBP") was established during Fiscal 1996,
covering substantially all employees and consultants of the Company. There are
no mandatory contributions required by either the Company or the employees and
consultants, however, the ESBP provides for the issuance of up to 500,000 common
shares of the Company at the discretion of the Board of Directors. During Fiscal
1997 and 1996, 0 and 16,000 shares were issued under the ESBP, respectively. As
of June 30, 1997, the Board of Directors has not approved any additional
issuances of common shares under the ESBP.
[NM\10-KSB\97:63097FS]-26
F-22
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Note 7. Stock Option Plan
A summary of the status of stock option transactions for the years ended June
30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ----------------------
<S> <C> <C>
Outstanding at beginning of year 1,560,000 1,320,000
Granted - 700,000
Exercised (50,000) (400,000)
Canceled - (60,000)
------------------------ ----------------------
Outstanding at end of year 1,510,000 1,560,000
======================== ======================
Range of option exercise prices
granted $0.91 - $1.53 $0.91 - $1.53
</TABLE>
At June 30, 1997, options for 1,510,000 shares were fully vested and
exercisable.
Exercised Options
On October 8, 1996, 50,000 common shares were issued upon exercise of an option
by the Company's former Secretary and Director in the amount of $29,200, or
approximately $.58 per share. In lieu of cash being received for payment of the
exercise price, the Company received a credit of $29,200 against amounts owed to
such officer for services performed pursuant to his consulting agreement.
Note 8. Related Party Transactions
Transactions With Officers
In September 1994, the Company entered into an Employment Agreement with Fred G.
Luke, the Company's Chairman and Chief Executive Officer ("Luke"). Luke has been
serving as the Company's Chairman and CEO since approximately July 1993. From
July 1993 through June 30, 1994, Luke received no compensation for his services
as CEO but did receive $9,000 for his services as a Director. The terms of the
Employment Agreement call for Luke to receive approximately $10,000 per month,
retroactive to July 1, 1994, for five (5) years as a base salary; granted him an
option to purchase 1,000,000 shares of the Company's common stock exercisable at
$1.10 per share; provides him with an annual bonus based upon a number of
factors related to the Company's growth and performance which include; (a)
serving on the Company's Board of Directors and as its Chief Executive Officer;
(b) providing advice concerning mergers and acquisitions; (c) corporate finance;
(d) day to day management; (e) guidance with respect to general business
decisions; (f) other duties commonly performed by the Chief Executive Officer of
a publicly-held company; and requires the Company to purchase life insurance
[NM\10-KSB\97:63097FS]-26
F-23
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
coverage, reimbursement for vehicle expenses, and provide other fringe benefits.
No bonuses have been accrued, paid or are owed as of the date of this Report.
The Company expensed $120,000 during each of the Fiscal Years 1997 and 1996, and
had no amounts due as of June 30, 1997.
In August 1995, Group V entered into an Employment Agreement with Luke, pursuant
to which he served as Group V's President from March 1994 through August 1997
and as Chairman from March 1994 through November 1997. The terms of the
Employment Agreement call for Luke to receive approximately $4,500 per month,
retroactive to April 1, 1994, for five (5) years as a base salary; and, granted
him an option to purchase 3,000,000 shares of Group V's common stock at an
exercise price of $.12 per share. Group V expensed $54,000 and $40,500, during
Fiscal 1997 and 1996, respectively, and had no amounts due as of June 30, 1997.
Luke's Employment Agreement with Group V was terminated by Luke effective May 5,
1997.
Effective January 1, 1994, the Company and John D. Desbrow ("Desbrow") entered
into a Consulting Agreement for the engagement of Desbrow to perform legal
services and to hold the office of Secretary on behalf of the Company until
December 31, 1994. Under the Consulting Agreement the Company contracted to pay
Desbrow $150,000 payable in the Company's common stock issuable in monthly
increments in arrears. Under the terms of the Consulting Agreement, Desbrow
invoices the Company and applies the net proceeds received from the sale of
stock to the invoiced amounts. For purposes of any "profit" computation under
Section 16(b), Desbrow and the Company agreed that the price paid for the shares
was deemed to be $150,000. Pursuant to the terms of the Consulting Agreement,
the Company granted Desbrow an option to purchase 50,000 shares of the Company's
common stock exercisable at a price of $.58 per share. Effective January 1,
1996, the Consulting Agreement was renewed through December 31, 1996 and 50,000
shares were issued during Fiscal 1996. An additional option of 50,000 shares
exercisable at a price of $1.53 per share was granted during Fiscal 1996. The
Company expensed $128,000 and $150,000 during Fiscal 1997 and 1996,
respectively, and had $120,158 due as of June 30, 1997. Mr. Desbrow's renewed
consulting agreement terminated on May 9, 1997.
Effective April 1, 1997, Group V renewed a Consulting Agreement with Desbrow
through March 31, 1997 to perform legal services and to hold the office of
Secretary. Under the renewed Consulting Agreement Group V contracted to pay
Desbrow $75,000 per annum for the renewal term payable in Group V's common
stock. In May 1997, 102,030 common shares were issued in settlement of all
amounts owed to Desbrow as of May 5, 1997. Under the terms of the Consulting
Agreement, Desbrow invoices Group V and applies the net proceeds received from
the sale of stock to the invoiced amounts. For purposes of any "profit"
computation under Section 16(b), Desbrow and Group V have agreed the price paid
for the shares is deemed to be $75,000. Group V expensed $62,500 and $43,750,
during Fiscal 1997 and 1996, respectively, and had no amounts due as of June 30,
1997. Desbrow's renewed Consulting Agreement with Group V terminated on May 5,
1997.
[NM\10-KSB\97:63097FS]-26
F-24
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Effective January 1, 1994, the Company entered into a Consulting Agreement with
Jon L. Lawver and J. L. Lawver Corp. (collectively, "Lawver") pursuant to which
Lawver was to perform professional services and to hold the office of President
of Fantastic Foods for calendar year 1994. Pursuant to the Consulting Agreement
the Company agreed to pay Lawver 36,000 shares of the Company's common stock,
issuable in monthly increments in arrears and granted Lawver the option to
purchase 50,000 shares of the Company's common stock at an exercise price of
$.58 per share. Under the terms of the Consulting Agreement, Lawver invoices the
Company and applies the net proceeds received from the sale of stock to the
invoiced amounts. For purposes of any "profit" computation under Section 16(b)
Lawver and the Company have agreed the price paid for the shares is deemed to be
$100,000. Lawver's agreement was renewed for the year ended June 30, 1995 and
124,000 shares were issued to him during Fiscal 1995. During Fiscal 1996, the
Consulting Agreement was again renewed with the same terms for Fiscal 1997 and
85,000 shares were issued to him during Fiscal 1996 to apply against services
rendered. An additional option of 50,000 shares exercisable at a price of $1.53
per share was granted during Fiscal 1996. The Company expensed $100,000 in each
of Fiscal 1997 and 1996, and had approximately $49,000 due to Lawver at June 30,
1997.
In July 1995, the Company entered into a Consulting Agreement with Steven H.
Dong ("Dong"), pursuant to which Dong is to perform accounting services and to
hold the office of Chief Financial Officer through June 30, 1996. Pursuant to
the agreement as amended in October 1995, the Company agreed to pay Dong
$145,000 per annum in cash or in the Company's common stock payable monthly in
arrears and granted him an option to purchase 100,000 shares of the Company's
common stock at an exercise price of $1.53 per share. Under the terms of the
Consulting Agreement, Dong invoices the Company and applies the net proceeds
received from the sale of stock to the invoiced amounts. For purposes of any
"profit" computation under Section 16(b) Dong and the Company have agreed the
price paid for the shares is deemed to be $145,000. During Fiscal 1996, the
Consulting Agreement was renewed with the same terms through June 30, 1997. No
cash payments were made to Dong during Fiscal 1997 or 1996, however 450,000
shares were issued during 1997 which were used to apply against services
rendered. The Company expensed $145,000 in each of Fiscal 1997 and 1996 and had
approximately $148,000 due to Dong as of June 30, 1997.
In July 1996, Group V renewed a Consulting Agreement with Dong, pursuant to
which Dong is to perform accounting services and to hold the office of Chief
Financial Officer through June 30, 1997. Pursuant to the renewed Consulting
Agreement Group V agreed to pay Dong $39,000 per annum in cash or in Group V's
common stock, payable monthly in arrears. In May 1997, 237,500 common shares
were issued in settlement of all amounts owed to Dong as of May 5, 1997. Under
the terms of the renewed Consulting Agreement, Dong invoices Group V and applies
the net proceeds received from the sale of the stock to the invoiced amounts.
For purposes of any "profit" computation under Section 16(b), Dong and Group V
have agreed the price paid for the shares is deemed to be $39,000. Group V
expensed $39,000 and $15,000 during Fiscal 1997 and 1996, respectively, and had
no amounts due to Dong as of June 30, 1997. Dong's renewed Consulting Agreement
with Group V was terminated effective May 5, 1997.
[NM\10-KSB\97:63097FS]-26
F-25
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
In January 1996, the Company entered into a Consulting Agreement with Albert
Rapuano ("Rapuano"), pursuant to which Rapuano is to perform gaming consulting
services and to hold the office of President of NuOasis International through
December 31, 1996. Pursuant to the agreement, the Company agreed to pay Rapuano
$250,000 per annum in cash or in the Company's common stock payable monthly in
arrears and granted him an option to purchase 500,000 shares of the Company's
common stock at an exercise price of $.91 per share. Under the terms of the
Consulting Agreement, Rapuano invoices the Company and applies the net proceeds
received from the sale of stock to the invoiced amounts. For purposes of any
"profit" computation under Section 16(b) Rapuano and the Company have agreed the
price paid for the shares is deemed to be $250,000. No cash payments were made
to Rapuano during Fiscal 1997, however, 575,000 shares were issued during 1997
which were used to apply against services rendered. The Company expensed
$250,000 and $115,000 during Fiscal 1997 and 1996, respectively, and had
approximately $265,000 due to Rapuano as of June 30, 1997.
Transactions with Directors and Affiliates
On March 17, 1994, Jonathan L. Small ("Small"), Attorney at Law, became a member
of the Board of Directors to fill a vacancy caused by the resignation of a
former Director in June 1993. On October 29, 1993, the Company entered into a
Consulting Agreement with Small to retain his services to evaluate potential
acquisitions and to assist the Company in the general development and execution
of its business plan. Pursuant to the agreement, Small was issued 1,600 shares
of the Company's common stock. On January 5, 1995, Small entered into a
Consulting Agreement effective November 1, 1994, with the Company, to retain
Small to serve on the Board of Directors. During the year ended June 30, 1996,
15,000 shares were issued to Small which were used to apply against services
rendered.
The Luke Trust and Lawver owns 93% and 7%, respectively, of NuVen. Luke, as
trustee of the Luke Trust, controls the Luke Trust and Jon L. Lawver is the
majority shareholder of Lawver Corp. and thereby controls Lawver Corp.
On June 14, 1993, NuVen acquired the D Preferred. At the time of the
transaction, NuVen was unrelated to the Company. As a result, NuVen became the
Control Person of the Company. On June 14, 1993, Luke became a Director. On July
22, 1993, following the resignation of Frank Morelli II, Luke became the
Company's Chief Executive Officer, Chief Financial Officer and Chairman of the
Board of Directors. The Luke Trust owns 93% of NuVen. Luke, as Co-Trustee of the
Luke Trust determines the voting of such shares and, as a result, may be deemed
to control the Luke Trust and the disposition of 24,000,000 shares of the
Company's D Preferred.
Effective February 1, 1994, the Company entered into an Advisory and Management
Agreement with NuVen ("NuVen Advisory Agreement") to perform professional and
advisory services for calendar year 1995. Pursuant to the Consulting Agreement,
the Company agreed to pay NuVen $120,000 annually, payable monthly in $10,000
increments in arrears, and granted NuVen an option to purchase 100,000 shares of
the Company's common stock exercisable at a price of $.80 per share. During
Fiscal 1996, the Advisory and Management Agreement was renewed for Fiscal 1997
[NM\10-KSB\97:63097FS]-26
F-26
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
with the same terms. The Company expensed $120,000 in each of Fiscal 1997 and
1996, respectively, and had $3,500 due to NuVen as of June 30, 1997.
Effective October 1, 1995, Group V renewed its Advisory and Management Agreement
with NuVen for the engagement of NuVen to perform professional services for
Fiscal 1997 and 1996. Pursuant to such renewal, Group V agreed to pay NuVen
$120,000 annually, payable monthly in arrears. In May 1997, 787,180 common
shares were issued in settlement of all amounts owed to NuVen as of May 5, 1997.
Group V expensed $120,000 and $135,000, during Fiscal 1997 and 1996,
respectively, and had no amounts due to NuVen as of June 30, 1997. NuVen's
agreement with Group V was terminated effective May 5, 1997.
Effective July 1, 1994, NuOasis International entered into an Advisory and
Management Agreement with NuVen for the engagement of NuVen to perform
professional and advisory services for calendar year 1995. Pursuant to such
agreement, NuOasis International agreed to pay NuVen $120,000 annually, payable
monthly in $10,000 increments in arrears, and granted NuVen an option to
purchase 1,100,000 shares of common stock of NuOasis International exercisable
at a price of 110% of the book value per share on the day of the grant. During
Fiscal 1996, the Advisory and Management Agreement was renewed for Fiscal 1997
with the same terms. NuOasis International expensed $120,000 in each of Fiscal
1997 and 1996, respectively, and had $100,000 due to NuVen as of June 30, 1997.
Effective July 1, 1994, NuOasis Properties entered into an Advisory and
Management Agreement with NuVen for the engagement of NuVen to perform
professional and advisory services on behalf of NuOasis Properties for the
calendar year 1995. Pursuant to such agreement, NuOasis Properties agreed to pay
NuVen $120,000 annually, payable monthly in arrears in $10,000 increments, and
granted NuVen an option to purchase 1,100,000 shares of common stock of NuOasis
Properties exercisable at a price of 110% of the book value per share on the
date of the grant. During Fiscal 1996, the Advisory and Management Agreement was
renewed for Fiscal 1997 with the same terms. Minimal amounts were billed by
NuVen to NuOasis Properties, as little activity occurred in NuOasis Properties
for Fiscal 1997 and 1996. NuOasis Properties had $600 due to NuVen as of June
30, 1997.
Effective April 1, 1994, CMA entered into an Advisory and Management Agreement
with NuVen for the engagement of NuVen to perform professional and advisory
services. Pursuant to such agreement CMA agreed to pay NuVen $120,000 annually,
payable monthly in $10,000 increments in arrears, and granted NuVen an option to
purchase up to 5% of CMA's common stock outstanding at the time of exercise,
exercisable at a price of 110% of the book value of such shares. During Fiscal
1996, the Advisory and Management Agreement was renewed for Fiscal 1997 with the
same terms. CMA expensed $120,000 in each of Fiscal 1997 and 1996, and had
$12,456 due to NuVen as of June 30, 1997.
During Fiscal 1994, Group V entered into an agreement with Structure America,
Inc. ("SAI") to issue 1,000,000 shares for consulting services. Such services
were rendered during Fiscal 1995. During Fiscal 1996, Group V entered into
another agreement with SAI to perform consulting services. Pursuant to such
agreement, Group V agreed to issue 1,000,000 shares of Group V's common stock to
[NM\10-KSB\97:63097FS]-26
F-27
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
SAI and granted SAI an option to purchase 1,000,000 shares of Group V's common
stock exercisable at $.12 per share. In May 1997, 1,000,000 common shares were
issued in settlement of all amounts owed to SAI as of May 5, 1997. Group V
expensed $200,000 and $75,000 during Fiscal year 1997 and 1996, respectively,
and had no amounts due to SAI as of June 30, 1997. SAI's agreement with Group V
was terminated effective May 5, 1997.
During Fiscal 1996, the Company renewed an agreement with SAI to perform
consulting services. The Company expensed approximately $255,000 and $465,000
during Fiscal 1997 and 1996, respectively and had approximately $160,000 due to
SAI as of June 30, 1997.
Note 9. Income Taxes
The Company and its controlled, domestic subsidiaries file a consolidated income
tax return for federal and a combined income tax return for state purposes.
The 1997 and 1996 income tax benefit (provision) is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------- ---------------------------------------
The Company The Company
and and
Subsidiaries Subsidiaries Group V
(excluding (excluding and
Group V) Group V) Subsidiaries
-------------------- ------------------- ------------------
<S> <C> <C>
Current taxes:
Current tax benefit (provision)
Federal $ 976,280 $ (784,210) $ -
State 267,116 (209,920) -
-------------------- -------------------- ------------------
Total current tax benefit (provision) 1,243,396 (994,130) -
-------------------- -------------------- ------------------
Deferred taxes:
Federal 880,583 2,060,904 2,570,356
State 143,279 558,092 379,808
Change in valuation allowance (1,884,764) (2,622,798) (2,950,164)
-------------------- -------------------- -------------------
Total deferred tax benefit (provision) (860,902) (3,802) -
-------------------- -------------------- ------------------
Income tax benefit (provision) $ 382,494 $ (997,932) $ -
==================== ==================== ==================
</TABLE>
[NM\10-KSB\97:63097FS]-26
F-28
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
For the years ended June 30, 1997 and 1996, the Company's effective tax rate
differs from the federal statutory rate as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
<S> <C> <C>
Federal statutory rate (34.00%) (34.00%)
Minority interest - (1.03%)
Effect of foreign controlled corporation
loss for which no deferred tax amount was
recognized 18.06% 45.91%
Change in estimate of prior year liability - (2.49%)
Change in valuation allowance 9.92% 17.11%
State taxes, net of federal effect (.03%) (4.39%)
Utilization of net operating loss - (4.36%)
Other .12% (3.83%)
------------------------ ------------------------
Effective tax rate (5.93%) 12.92%
======================== ========================
</TABLE>
The Company utilized $0 and approximately $3,860,000 in net operating losses to
offset federal and state taxable income for the years ended June 30, 1997 and
1996, respectively.
At June 30, 1997, the components of net deferred tax asset are as follows:
Current:
Deferred tax assets resulting from
temporary differences $ 177,653
Valuation allowance (177,653)
---------------------
Total current deferred tax asset $ 0
====================
Non-Current:
Deferred tax assets resulting from loss
carry forward $ 6,817,327
Valuation allowance (6,817,327)
---------------------
Total non-current tax asset 0
--------------------
Net deferred tax asset $ 0
====================
The deferred taxes result from temporary differences relating to the difference
in the basis of assets and liabilities for financial and tax reporting purposes.
The temporary differences relate mainly to reserves recorded for financial
reporting purposes that are not deductible for tax purposes.
[NM\10-KSB\97:63097FS]-26
F-29
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
As a result of changes in stock ownership which occurred in 1993 and 1995, the
Company's use of its net operating loss carry forwards may be limited by Section
382 of the Internal Revenue Code until such net operating loss carry forwards
expire. During Fiscal 1997, the Company obtained an independent third party
valuation of its stock for purposes of the calculation required by Section 382
in order to determine whether such net operating loss carry forwards may be
limited. Based on the results of the independent third party valuation, the
Company reversed amounts originally recorded in Fiscal 1996 for income taxes
payable and for the net deferred tax asset. Accordingly, the Company recorded a
current year income tax benefit of $382,494.
Deferred tax assets have been computed using the maximum expiration terms of 13
and 5 years (or total net operating losses available of approximately $12.6
million and $7.8 million) for federal and state tax purposes, respectively. Net
operating losses expire from the years 2004 through 2009.
No provision was made or benefits recognized in 1996 for U.S. income taxes on
the undistributed earnings/ losses of the foreign subsidiary as it is the
Company's intention to utilize those earnings in the foreign operations for an
indefinite period of time or repatriate earnings only when tax effective to do
so. The foreign subsidiary had an accumulated deficit at June 30, 1996 which
would have resulted in an unrecognized temporary difference for net operating
losses carried forward in the approximate amount of $3.4 million, with a related
unrecognized deferred tax benefit of approximately $1.3 million. The foreign net
operating loss carryforward may not be utilized for United States federal income
tax purposes.
Note 10. Segment Information and Concentration of Credit Risk
Industry Segments
The relative contributions to revenues, gross profit and identifiable assets of
the Company's active industry segments for the years ended June 30, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- ------------------
<S> <C> <C>
Revenues
Food Manufacturing and Distribution $ 1,339,763 $ 1,251,174
Gaming/Entertainment $ - $ 11,407,317
Gross Profit
Food Manufacturing and Distribution $ 436,317 $ 412,721
Gaming/Entertainment $ - $ 11,407,317
</TABLE>
Identifiable assets of the Company's food manufacturing and distribution segment
are $489,455 as of June 30, 1997 and are comprised primarily of net property and
equipment, trade accounts receivable and other receivables. Identifiable assets
exclude intercompany loans, advances and investments.
[NM\10-KSB\97:63097FS]-26
F-30
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
As of June 30, 1997, the Company's assets are principally located in two
geographic areas: the United States and North Africa. The following is a summary
of the Company's June 30, 1997 assets by geographic area:
<TABLE>
<CAPTION>
United States North Africa Total
------------------- -------------------- ------------------
<S> <C> <C> <C>
Cash $ (8,735) $ 585,469 $ 576,734
Equity investments 2,487,544 - 2,487,544
Due from affiliate 553,840 - 553,840
Other current assets 322,762 - 322,762
-------------------- -------------------- ------------------
Total current assets 3,355,411 585,469 3,940,880
-------------------- -------------------- ------------------
Property and equipment, net 240,839 - 240,839
Equity investments - 3,317,720 3,317,720
Due from affiliates, net - 1,543,674 1,543,674
Other assets 62,400 - 62,400
Intangible assets, net - 1,022,395 1,022,395
-------------------- -------------------- ------------------
Total noncurrent assets 303,239 5,883,789 6,187,028
-------------------- -------------------- ------------------
Total assets $ 3,658,650 $ 6,469,258 $ 10,127,908
==================== ==================== ==================
</TABLE>
Significant Customers and Concentration of Credit Risk
In the United States, the Company maintains several cash accounts with a single
bank. At June 30, 1997, the aggregate bank balance of such accounts do not
exceed the federally-insured limit. The Company also has approximately $585,000
on deposit with foreign banks.
The Company had sales in excess of 10% of total food sales to each of five
customers in Fiscal 1997 and 1996, all of whom were distributors. At June 30,
1997, the Company had amounts due from four customers, each in excess of 10% of
total food sales receivables.
[NM\10-KSB\97:63097FS]-26
F-31
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Note 11. Commitments and Contingencies
Operating Leases
The Company leases two manufacturing plants in California for its food
processing operations. The Company also leases certain equipment on
non-cancelable operating leases related to its food manufacturing activities.
NuVen provides office space to the Company and its subsidiaries, along with
general and administrative personnel, office furniture and equipment, telephone
and fax services, accounting and automobiles pursuant to the various Advisory
and Management Agreements (Note 9).
At June 30, 1997 future rental payments due under non-cancelable operating
leases, ranging from 1-3 years for buildings and equipment related to its food
manufacturing activities, are as follows:
Year Ending Amounts
June 30, Due
------------------ -----------------
1998 $ 12,900
1999 12,100
2000 5,400
-----------------
$ 30,400
=================
Rent expense charged to operations was $101,681 and $96,328 for the years ended
June 30, 1997 and 1996 respectively.
Cleopatra, Cleopatra Hammamet and Cleopatra's World are lessees under various
lease agreements related to the Cap Gammarth Casino, the Hammamet Casino and the
Cap Gammarth Resort, respectively, which require annual lease payments to be
made, monthly or quarterly, over their respective terms, which range from
fourteen to twenty years. Annual lease payments by these entities in each of the
next five years and thereafter are as follows:
[NM\10-KSB\97:63097FS]-26
F-32
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
<TABLE>
<CAPTION>
Amounts Due
------------------------------------------------------------------------------
Cleopatra
Year Ending Cap Gammarth Cleopatra Cleopatra's
June 30 Casino Hammamet World Total
- --------------------- -------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
1998 $ 3,000,000 $ 1,000,000 $ 1,000,000 $ 5,000,000
1999 3,000,000 2,000,000 3,500,000 8,500,000
2000 3,000,000 2,500,000 3,741,000 9,241,000
2001 3,300,000 3,000,000 4,007,150 10,307,150
2002 3,600,000 3,250,000 4,287,650 11,137,650
Thereafter 73,500,000 39,750,000 62,369,604 175,619,604
-------------------- ------------------ ------------------ -------------------
$ 89,400,000 $ 51,500,000 $ 78,905,404 $ 219,805,404
==================== ================== ================== ===================
</TABLE>
Capital Requirements of Cleopatra, Cleopatra Hammamet and Cleopatra's World
During Fiscal 1997, the Company negotiated a release of its guarantee of the
obligation of Cleopatra under the lease agreement related to the Cap Gammarth
Casino following a default by the lessor.
At June 30, 1997, the Company had approximately $2,000,000 remaining to be paid,
as security deposits and advance rent, to take possession of the Cap Gammarth
Casino and Hammamet Casino. Additionally, there was approximately $6,000,000
remaining to be paid for furniture, fixtures and equipment, bankroll and
pre-opening costs for the two casinos.
The Hammamet Casino was completed and opened on December 6, 1997 (see Note 13).
To finance the remaining expenditures on the Cap Gammarth Casino, the Company is
negotiating possible joint ventures between NuOasis International and foreign
investment groups, and attempting early collections of its receivables. The Cap
Gammarth Casino is expected to be completed in May 1998.
During Fiscal 1997, Cleopatra's World made a partial payment to STTG on the
lease on the Cap Gammarth Resort and, simultaneously, filed a request for
arbitration in its dispute with STTG claiming that STTG had breached the lease
by not completing for occupancy, on a timely basis, the hotel, the shopping
arcade, the health club or the beach club comprising the resort, causing
Cleopatra's World significant loss of revenue and profits. Subsequent to the
close of Fiscal 1997, the matter was removed from the arbitration calendar by
mutual agreement between the parties, however, the dispute has not yet been
resolved.
As to any future projects undertaken by the Company, NuOasis International,
Cleopatra or Cleopatra's World, additional project financing will be required.
Capital investments may include all or some of the following: acquisition and
development of land, acquisition of leasehold investments and contract rights,
and construction of other facilities. In connection with development activities
relating to potential acquisitions or new jurisdictions, the Company also makes
expenditures for professional services which are expenses as incurred. The
[NM\10-KSB\97:63097FS]-26
F-33
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Company's financing requirements depend upon actual development costs, the
amounts and timing of such expenditures, the amount of available cash flow from
operations, the availability of other financing arrangements including selling
equity securities, and selling or borrowing against assets (including current
facilities). The Company may also consider strategic combinations or alliances.
Although there can be no assurance that the Company can effectuate any of the
financing strategies discussed above, the Company believes that if it determines
to seek any additional licenses to operate gaming or permits to conduct hotel
operations in other jurisdictions it will be able to raise sufficient capital to
pursue its strategic plan.
If for any reason, NuOasis International, Cleopatra or Cleopatra's World are
unable to borrow or otherwise meet their commitments under current agreements to
provide the furniture, fixtures, equipment and working capital to open the Cap
Gammarth Casino, or acquire and develop future casino gaming and hotel
management projects, the Company may be required to intercede and provide the
requisite financing and working capital, or be forced to sell all or a portion
of the respective interests, or lose the respective rights to the projects and
properties entirely.
Legal Proceedings
The Company is involved from time to time, both as plaintiff and defendant, in
litigation that originates in the normal course of business development or
operations. Counsel for the Company in each of the matters currently outstanding
as of the date of this report do not believe that any existing litigation will
result in an adverse judgment which would have a negative material impact on the
Company's consolidated financial condition. Accordingly, no provision has been
made in the accompanying financial statements for such contingencies.
Note 12. Subsequent Events
Group V
In January 1998, the Company received consideration that reduced the principal
balances due under the Warrant Note issued on the purchase of the Group V D
Warrants and the Put to $1,080,000 and $720,000, respectively.
[NM\10-KSB\97:63097FS]-26
F-34
<PAGE>
NUOASIS RESORTS, INC.
(formerly, Nona Morelli's II, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997 and 1996
Cleopatra Hammamet
In September 1997, to finance the remaining expenditures on the Hammamet Casino,
the Company and Cleopatra Hammamet entered into an agreement with Cedric
International Company Inc., a Panamanian corporation ("Cedric") pursuant to
which the Company and Cedric each agreed to contribute $1.5 million to the
capital of Cleopatra Hammamet, and Cedric further agreed to provide up to
$3,800,000 for use by Cleopatra Hammamet in making the first annual lease
payments on the Hammamet Casino. In exchange for such capital contribution, the
Company and Cleopatra agreed to a capital restructuring of Cleopatra Hammamet
which resulted in the Company holding a direct 70% interest in Cleopatra
Hammamet, with 70% of this interest pledged to Cedric with the agreement that
Cedric will return such interest when the Company reimburses Cedric for all
funds advanced prior to the first anniversary date of such agreement (on an all
or nothing basis) plus interest at the rate of 15% per annum. Construction on
the Hammamet Casino was completed and the facility was equipped and opened
December 6, 1997. In the event the Company is unable or elects not to reimburse
Cedric for its capital contribution to Cleopatra Hammamet, the Company's equity
interest in Cleopatra Hammamet will be permanently reduced to 21%.
[NM\10-KSB\97:63097FS]-26
F-35
EXHIBIT 10.154
NuOasis International Inc.
43 Elizabeth Avenue, Box N-8680
Nassau, Bahamas
Telephone:(809) 356-2903 Facsimile:(809) 326-8434
January 27, 1997
Mr. Gabriel Tabarani
CLEOPATRA PALACE LIMITED
c/o Flat 2, Chartwell House
80 Wimbledon Parkside
London SW19 5LN
ENGLAND
RE: Amendment to Letter Agreement dated October 7, 1996 by and between
NuOasis International Inc. and Cleopatra Palace Limited (the "Letter
Agreement")
Dear Gaby:
I have learned that Grand Hotel Kransnopolsky NV ("GHK") is unable to go forward
with the proposed joint venture under the terms of an "Advisory Agreement", as
we had planned, rather than their proposed Hotel Management Agreement. For this
reason I believe the joint venture with GHK will not likely materialize.
Since the purchase of the 70% interest in the former subsidiaries of Cleopatra
Palace Limited ("CPL") in Tunisia was designed solely to accommodate GHK and
comply with their suggested joint venture structure, there is no need now to
strip away these subsidiaries from CPL.
If acceptable to you we would like to restructure the transaction set out in the
Letter Agreement. When countersigned by you in the space provided below this
letter (the "Amendment") will serve to amend and modify the terms, consideration
and effect of the Letter Agreement as follows:
1. Note B in the amount of $2 million shall be canceled.
2. Note A in the amount of $11.5 million shall be satisfied by 2,700,000
shares of The Hartcourt Companies Inc.
3. CPL will take such action necessary to (a) redeem certain of its
shares, (b) issue additional shares, or (c) a combination of (a) and
(b), so as to give NuOasis 70% equity in CPL.
4. CPL will, by February 15, 1997, establish its own cash collateral for
use by Banque Francaise D'Orient ("BFO") and cause the deposit and
current accounts of NuOI at BFO to be released as collateral for the
$300,000 loan by BFO to CPL in 1996.
[NUOINTL\CORR:CPLAMEND]-3
<PAGE>
Mr. Gabriel Tabarani
January 27, 1997
Page 2
5. CPL will execute a Casino Management Agreement with NuOI in respect to
the Tunisian casinos in form and substance generally used in the United
States. Our proposed agreement is enclosed.
6. CPL will execute such additional instruments and take such action as
may be reasonably requested to carry out the intent and purposes of
this Amendment.
7. This Amendment shall be constructed under and governed by the laws of
the Commonwealth of the Bahamas, notwithstanding any conflict-of-law
provision to the contrary.
8. The persons executing this Amendment on behalf of CPL are duly
authorized to do so. Further, CPL and NuOasis each represent, through
the executors, that each has taken all action required by law or
otherwise to properly and legally execute and carry out the terms of
this Amendment.
9. This Amendment 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. If a party
signs this Amendment and then transmits an electronic facsimile of the
signature page to the other party, the party who receives the
transmission may rely upon the electronic facsimile as a signed
original of this Amendment.
NuOasis International Inc.
By: /s/ Fred G. Luke
-----------------------------
Name: Fred G. Luke
ACCEPTED AND AGREED TO
THIS 7th DAY OF OCTOBER 1997
Cleopatra Palace Limited
By: /s/ Gabriel Tabarani
-----------------------------
Name: Gabriel Tabarani
EXHIBIT 10.155
LETTER OF INTENT
BETWEEN:
Compagnie Monastirienne Immobiliere et Touristique S.A. 15, Rue su ler Juin,
Tunis, Tunisia, represented by Mr. Mohamed Ali Mabrouk, General, Manager
hereinafter called "The Owner".
AND,
Cleopatra Palace Limited, Flat 2 Chartwell House, 80 Wimbledon Parkside London
SW19 5LN England. Represented by Mr. Gabriel Tabarani, President, hereinafter
called "Cleopatra".
The owner has an important development plan in SKANES, MONASTIR focused
basically on real estate, casino and hotel facilities.
The owner is ready to invest in the construction of a casino of approximately
3000 square meters that could be extended to 5000 square meters.
The owner is interested in leasing the casino under terms and conditions to be
agreed. Therefore the two parties have agreed as follows:
1-RESPONSIBILITIES OF THE OWNER:
The owner will bear all costs incurred in the interior construction and fitting
out of the casino building including exterior works such as the provision of
roads, adequate car parking space...and putting the building into such condition
that Cleopatra may immediately commence its business activities.
2-RESPONSIBILITIES OF CLEOPATRA:
Cleopatra will lease the casino for twenty (20) years renewable for two (2)
periods of five (5) years each; will manage and conduct the casino to profits to
the best of its ability and in a proper efficient and business like manner to
the intent that ambiance of a high class casino shall at all time thereafter be
maintained.
Cleopatra shall bear the cost of all equipment to be used for the purposes of
gaming, such equipment to include gaming tables, slot machines and related
equipment, including chips and tokens to be used for gaming.
Cleopatra shall bear the costs of close circuit television and computer
equipment. All such equipment shall remain at all times the property of
Cleopatra. Cleopatra will provide technical assistance including architectural
services and engineering consultation.
1
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3-THE RENTAL AGREEMENT:
Cleopatra undertakes to pay the Owner an annual rental of:
- -15% of the casino's cost incurred by the Owner for the first two (2) years -
plus 10% of the second year rental for the third year - plus 10% of the third
year rental for the fourth year - plus 10% of the fourth year rental for the
years 5, 6, and 7 - 25% of the casino's costs for the years 8, 9, 10, 11, 12,
13, 14 and 15. - plus 13% of the fifteen year rental for years 16, 17, 18, 19,
and 20.
Based on casino's cost of US $3,000,000 the annual rent will be as follows
Year 1...............................................450,000 US$
Year 2...............................................450,000 US$
Year 3...............................................495,000 US$
Year 4...............................................545,000 US$
Year 5...............................................600,000 US$
Year 6...............................................600,000 US$
Year 7...............................................600,000 US$
Year 8...............................................750,000 US$
Year 9...............................................750,000 US$
Year 10..............................................750,000 US$
Year 11..............................................750,000 US$
Year 12..............................................750,000 US$
Year 13..............................................750,000 US$
Year 14..............................................750,000 US$
Year 15..............................................750,000 US$
Year 16..............................................850,000 US$
Year 17..............................................850,000 US$
Year 18..............................................850,000 US$
Year 19..............................................850,000 US$
Year 20..............................................850,000 US$
The rental agreed will be payable in equivalent Tunisian Dinars in the first of
each quarter. Bearing in mind that the delivery of the casino by the Owner to
Cleopatra must be on the first of May, 1998,
Cleopatra shall pay the Owner the amount of 450,000 US$ prior to the opening of
the casino as part of the rent. Such payment shall be made in accordance with
the advancement of the casino construction.
2
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These installments shall be delivered as follows in US $:
- - 50,000 shall be paid after the work has started - 150,000 shall be paid after
the roof is installed - 150,000 shall be paid when the casino carpeting is
finished
- - 100,000 shall be paid when Cleopatra accepts the casino as ready for use.
The payment will be reimbursed on four (4) years time as follows:
- - 1st of May, 1999...................................100,000 US$
- - 1st of May, 2000...................................100,000 US$
- - 1st of May, 2001...................................125,000 US$
- - 1st of May, 2002 ..................................125,000 US$
The Owner and Cleopatra will sign the lease agreement within one (1) month.
THE OWNER
/s/ Compagnie Monastirienne Immobiliere et Touristique S.A.
CLEOPATRA
/s/ Cleopatra Palace Limited
3
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CASINO LEASE
COMPAGNIE MONASTIRIENNE IMMOBILIERE ET
TOURISTIQUE
"OWNER"
CLEOPATRA PALACE LIMITED
"LESSEE"
<PAGE>
THE DOCUMENT WITNESSETH
ON THE ONE HAND, Compagnie Monastirienne Immobiliere et Touristique S.A. 15, Rue
su ler Juin, Tunis, Tunisia, represented by Mr. Mohamed Ali Mabrouk, General,
Manager hereinafter called "The Owner".
ON THE OTHER HAND, Cleopatra Palace Limited, Flat 2 Chartwell House, 80
Wimbledon Parkside London SW19 5LN England. Represented by Mr. Gabriel Tabarani,
President, hereinafter called "The Lessee"
WHEREAS, the Owner has an important development plan in SKANES MONASTIR focused
basically on real estate, casino and hotel facilities
The Owner is ready to invest in the construction of a casino and approximately
3000 square meters that could be extended to 5000 square meters.
The Owner is interested in leasing the casino under terms and conditions to be
agreed. Therefore the two parties have agreed as follows:
WHEREAS, the parties hereto desire to enter into the Lease for the casino on
which Lessee shall operate (The "Casino") with the particular location of the
Casino (the "Casino Area") being more fully described in Exhibit A.
NOW, THEREFORE, in consideration of the covenants and conditions herein to be
kept and performed by the parties hereto, and other good and valuable
consideration, the receipt and sufficiency whereof is hereby acknowledged, the
following shall be, and hereby is understood and agreed:
ARTICLE 1: Lease:
Owner does hereby lease the Casino and the Casino area to Lessee for an annual
rental of: -15% of the casino's cost incurred by the Owner for the first two (2)
years - plus 10% of the second year rental for the third year - plus 10% of the
third year rental for the fourth year - plus 10% of the fourth year rental for
the years 5, 6, and 7 - 25% of the casino's costs for the years 8, 9, 10, 11,
12, 13, 14 and 15. - plus 13% of the fifteen year rental for years 16, 17, 18,
19, and 20.
Based on casino's cost of US $3,000,000 the annual rent will be as follows:
Year 1 450,000 US$
Year 2 450,000 US$
Year 3 495,000 US$
Year 4 545,000 US$
Year 5 600,000 US$
Year 6 600,000 US$
Year 7 600,000 US$
Year 8 750,000 US$
Year 9 750,000 US$
Year 10 750,000 US$
Year 11 750,000 US$
Year 12 750,000 US$
Year 13 750,000 US$
Year 14 750,000 US$
Year 15 750,000 US$
Year 16 850,000 US$
Year 17 850,000 US$
Year 18 850,000 US$
Year 19 850,000 US$
Year 20 850,000 US$
<PAGE>
The rental agreed will be payable in equivalent Tunisian Dinars in the first of
each quarter. Bearing in mind that the delivery of the casino by the Owner to
Cleopatra must be on the first of May, 1998,
Cleopatra shall pay the Owner the amount of 450,000 US$ prior to the opening of
the casino as part of the rent. Such payment shall be made in accordance with
the advancement of the casino construction.
These installments shall be delivered as follows in US $:
- - 50,000 shall be paid after the work has started - 150,000 shall be paid after
the roof is installed - 150,000 shall be paid when the casino carpeting is
finished
- - 100,000 shall be paid when Cleopatra accepts the casino as ready for use.
The payment will be reimbursed on four (4) years time as follows:
- - 1st of May, 1999 100,000 US$
- - 1st of May, 2000 100,000 US$
- - 1st of May, 2001 125,000 US$
- - 1st of May, 2002 125,000 US$
ARTICLE 2: Operation:
Lessee shall manage the Casino by and through experienced operators, reasonable
acceptable to Own. Lessee shall have full and complete control of the operation
of the
<PAGE>
ARTICLE 3: License:
The Lessee shall obtain the Gambling License from the Tunisian Authority. Owner
shall provide the necessary assistance to Lessee to obtain and maintain the
gambling license for and during the entire term of this Agreement, and Owner
hereby authorizes the Lessee to operate the casino during the term of this
Agreement in accordance with the provisions of the Gambling License, the laws of
Tunisia, and the continuation of this Agreement and Lessee's obligations
hereunder are subject to Lessee obtaining and maintaining in effect, the
Gambling License.
ARTICLE 4: Compliance:
Lessee shall comply with the laws of Tunisia to operate the Casino under the
Gambling License in accordance with the terms of this Agreement.
ARTICLE 5: Terms:
This Agreement is considered to have come into force immediately upon signature
by the parties. The initial term of this Agreement shall be twenty (20) years,
commencing on the date (1st May, 1998), shall expire on the last day of the
twentieth year, (The "Initial Term "). Three months before expiry of the Initial
Term, the Owner and the Lessee may inform each other of their intention, either
to prorogate the lease or to terminate Initial Term. If no such notice is
served, the present Agreement shall be renewed for a five year option period.
Subject to the Licensing provisions referenced below. This Agreement shall be
automatically renewed for two (2) successive five (5) year terms, unless same is
terminated by Lessee upon written notice to Owner ninety (90) days in advance of
the expiration of the initial term, or any of the additional five (5) year term.
In the event the casino area is not ready to occupancy twenty-four (24) months
after commencement of the construction of the Casino, then, Lessee may terminate
this agreement and receive a return of the full deposit made by him to the Owner
plus interest at seven-and-one-half percent (7 1/2%) per annum, or if premises
are not ready and the said date, Lessee is entitled to complete at his expenses
and withhold funds from rent until repaid.
ARTICLE 6: Surrender at Termination:
At the expiration of the term of this Agreement, or upon the earlier termination
thereof, Lessee shall surrender and return the Casino and Casino area in the
condition thereof existing at the commencement of the term, ordinary wear and
tear, and damage by fire or other casualty, excepted. Provided, Lessee shall be
entitled to retain all of its furniture, gambling machines, equipment, records,
supplies, inventories and other personal property utilized in the operation of
the Casino. It is understood that anything supplied or paid by the Lessee for
the performance of the Casino operation shall be his property.
<PAGE>
ARTICLE 7: Operating Capital:
Lessee shall provide the appropriate amount of funds to equip and operate the
Casino during the term of this Agreement . The Lessee shall exercise reasonable
skill, care and diligence in the performance of his obligations under this
Agreement.
ARTICLE 8: Books and records:
Lessee shall be responsible for the maintenance of such records and books of
account as may reasonably reflect the operation of the Casino and shall preserve
such records and books of account during the term of this Agreement and shall
permit Owner (or its authorized representatives) and auditors to examine and
audit such records and books of account at any and all reasonable times. Lessee
shall cause the books and records of Lessee to be audited annually, at Lessee's
expense, and shall furnish Owner with a copy of the audit, but Owner shall not
be required to accept the audit and may audit or examine any of the Lessee's
books and records on reasonable notice to Lessee, at Owner's expense.
ARTICLE 9: Taxes:
Lessee agrees to pay all taxes, licenses, charges and fees levied or assessed on
Lessee by any governmental authority in connection with/or incident to the
performance of this Agreement, Lessee agrees to require the same agreements from
any of its subcontractors.
ARTICLE 10: Furniture, Furnishings, Fixtures & Equipment:
A- Owner shall, at its sole expense, complete and finish out the Casino and
Casino area, decorated and fixtured, including but not limited to, carpets and
drapes. This includes all costs of roads adequate parking, access corridors,
walkways, landscaping and generally putting the buildings into such condition
that Lessee may commence its business activities. Such costs will not include
items specified in (B) below.
B- Lessee shall at its sole expense, provide all gaming devices and relating
equipment necessary for the operation of the Casino.
C- It is understood that any gaming devices and related equipment provided by
Lessee shall remain the property of the Lessee.
D- Lessee shall, at all times, keep and maintain the inside of the Casino area
and the furniture, furnishings, fixtures and equipment of the Casino in good
order and repair, reasonable wear and tear excepted. Owner will allocate the
maximum possible parking for the Casino, and the parking attendants for Casino
parking shall be the responsibility of Lessee.
<PAGE>
ARTICLE 11: Conduct of Business:
A -Cleopatra will manage and conduct the casino to profits to the best of its
ability and in a proper efficient and business like manner to the intent that
ambiance of a high class casino shall at all time thereafter be maintained.
Cleopatra shall bear the cost of all equipment to be used for the purposes of
gaming, such equipment to include gaming tables, slot machines and related
equipment, including chips and tokens to be used for gaming.
Cleopatra shall bear the costs of close circuit television and computer
equipment.
All such equipment shall remain at all times the property of Cleopatra.
Cleopatra will provide technical assistance including architectural services and
engineering consultation.
B- During the term of this Agreement, the Casino and Gambling License shall be
used solely for the purpose of this Agreement. Lessee shall manage and operate
the Casino to the best of its ability; and in a proper efficient, and
businesslike manner, and to the intent that the ambiance of a high class Casino
shall at all times be maintained. Lessee shall keep the Casino open and
available for business on all days for the months of January through December
(twelve (12) months) no less than eight (8) hours per day, but only during the
times when there is sufficient business to justify the operation, except when
prevented by force majeure. The phrase " prevented by force majeure"as used in
this Agreement, shall be deemed to mean prevented by government regulation; wars
or civil strife, which might impede travel to and from Tunisia, riots, civil
commotion; war; hostilities; invasion, act of foreign enemies, rebellion
revolution, insurrection, and any operation of the forces of nature against
which precautions could not reasonable have been expected to have been taken.
Rent under this Agreement shall abate so long as Casino operations are prevented
by force majeure, provided that if the force majeure continues for six (6)
months, Lessee may at its convenience terminate its Agreement.
C- Lessee shall employ and train all employees of the Casino. All such employees
shall be the employee of the Lessee. All employees of the Casino shall be neatly
and cleanly attired and if any of the Casino's employees shall in any way bring
discredit upon the country of Tunisia or any city therein, they shall be
immediately discharged.
D- Lessee shall comply, and the casino shall be operated so as to comply, with
all laws and regulations presently in force or subsequently enacted by Tunisia.
E- Lessee shall operate and provide in the Casino all casino services normally
operated and provided in casinos or comparable class.
F - Lessee shall be entitled to operate service liquor bars within the Casino
area for the purpose of selling drinks to patrons of the Casino as well as
dispensing complimentary beverages.
<PAGE>
ARTICLE 12: Relationship of the parties:
Nothing herein contained shall be construed as effecting a co-partnership or
joint venture between the parties, and it is the express intent of the parties
that the relationship between them shall be solely and exclusively that of
Landlord and Tenant, under the terms and conditions hereof.
ARTICLE 13: Hold Harmless:
Owner and Lessee shall at all times during the term of this Agreement defend,
indemnify and hold harmless each other from any liability or penalty which may
be imposed by reason of act or omission of a third party, and also for all
claims, suits or proceedings that may be brought against Owner or Lessee with
respect to such cause.
ARTICLE 14: Insurance:
During the term of this Agreement, Lessee shall maintain, at Lessee's expense,
in a reasonable insurance company or companies reasonably satisfactory to Owner,
personal injury and property liability insurance with coverage of no less than
$1,000,000.00 for personal injury and no less than $500,000.00 for property
damage, and Owner shall be listed as an additional insured by such policies of
workmen's compensation or similar insurance as may be required by applicable
laws.
ARTICLE 15: Untenantability and Hostilities:
If, during the term of this Agreement, any of the Casino area are made wholly
untenantable by fire or other casualty so that said premises cannot be properly
utilized as a casino facility, then Lessee's obligations (including the
obligation to pay rent) shall abate during such period, until such time as the
operation of the Casino may resume. If such condition continues for more than
twelve (12) months, then the Lessee may terminate this Agreement.
ARTICLE 16: Right of Inspection:
Owner shall have the right to enter upon and/or inspect any part of the casino
area at any time and may also inspect any part of the Casino area at any time
and may also inspect any of the gambling equipment, other special equipment,
bankrolls, safe, or accounts used and maintained on casino area at any time;
provided, however, such visits or conditions shall be conducted with as little
disturbance as possible to the operations of the Casino and in the company of
representative of Lessee.
ARTICLE 17: Assignment:
Lessee agrees not to sublease or assign Agreement or its interest in the Casino
or its interest in Casino, and any of its rights or privileges under this
Agreement without the written prior consent of Owner which shall not be
unreasonably withheld. Assignment of the present Agreement or the subcontracting
of the work or services to be performed hereunder, is so stated by the Owner
shall not relieve Lessee or its duties or conditions hereunder.
<PAGE>
ARTICLE 18: Appearance of Premises:
It is expressly understood that the appearance of the Casino and the Casino area
have been provided by the Owner at its expense, including placing if signs and
the general conduit of the business on Casino area, will have a material effect
on the reputation of Owner. The Owner hereby expressly reserves the right to
control and regulate the appearance of the Casino and the Casino area and at all
times during the term of this Agreement, including but not limited to the
regulation of any signs, advertisement or other promotional material used in
connection with the operation of the Casino. Lessee shall have the right to
advertise the Casino but the format of the advertising shall be in keeping with
the dignity of the Casino, and the Owner shall not unreasonably withhold its
approval of the form of such advertising.
ARTICLE 19: Entertainment:
Lessee shall have the right to decide if entertainment is needed in the Casino.
Lessee shall be responsible for the payment for all entertainment in the Casino.
ARTICLE 20: Default:
Default by Lessee:
At any time during the term of this Agreement, one or more of the following
events shall occur, Owner may forthwith terminate this agreement.
Lessee shall fail to make any payment due under this Agreement prior to the date
upon which it is due, and such failure to continue for thirty (30) days after
written notice;
Lessee shall fail or refuse to fully perform or comply with this Agreement,
covenant, or undertaking, which is rendered by this Agreement to perform or
comply with, or shall otherwise violate any provision hereof, and such failure
shall continue for thirty (30) days after written consent.
Provided that, if Lessee is diligently attempting to cure a non-monetary default
but cannot reasonably do so in thirty (30) days, the cure period shall continue
as long as reasonable necessary for Lessee to cure the non-monetary default, in
the exercise of reasonable diligence.
ARTICLE 20.2: Default by Owner :
The Lessee may by written notice to the Owner terminate this agreement if he
considers that the Owner is not discharging his obligations under this
Agreement, stating the reasons therefore. In the event that the Owner does not
respond to such notice within fifteen (15) days, the Lessee may deem the
Agreement terminated, or at his convenience the Lessee may correct defaults at
the Owner's expense and withhold rents until Lessee has been repaid Lessee's
costs.
<PAGE>
ARTICLE 20.3: Claims for Default:
Any claim for damages arising out of default and termination shall be agreed
between the Owner and the Lessee or, failing agreement, shall be referred to
arbitration in accordance with Clause 25 of this Agreement.
ARTICLE 21: Notices:
Unless a party hereto shall in written direct other, all notices to be served
and rendered if sent by Registered mail directed to:
OWNER: Compagnie Monastirienne Immobiliere et Touristique S.A. 15, Rue
su ler Juin, Tunis, Tunisia
COPY TO:
LESSEE: Cleopatra Palace Limited, Flat 2 Chartwell House, 80 Wimbledon
Parkside London SW19 5LN England.
COPY TO:
Any party may change its address for notice by written notice and such change
shall be effective upon actual receipt of same.
ARTICLE 22: Governing Law:
This Agreement is subject to and shall be interpreted in accordance with the
laws of Tunisia.
ARTICLE 23: Arbitration:
Any dispute between Owner and Lessee arising from the execution or
interpretation of the provisions in this Agreement, if not settled amicable,
shall be settled by an arbitral tribunal consisting of three arbitrators whose
award shall be final and enforceable.
Each of the above mentioned party shall appoint an arbitrator and the two
arbitrators before proceeding to arbitration shall appoint a Chairman who shall
be the Chairman of the arbitral tribunal. If the two arbitrators as mentioned
above fail within a delay of 30 days after their appointment to appoint the
Chairman, then each party may request the first President of the Appeal Court of
Tunis to appoint such Chairman. The same procedure shall apply if either party
abstain from appointing its arbitrator.
The arbitration shall be conducted in Tunisia.
<PAGE>
ARTICLE 24: Promotional Material:
Lessee will annually prepare a specification book for a program of promotional
and touristic activities.
ARTICLE 25: Language and Interpretation:
The condition of the Agreement are drawn in English its interpretation should be
in conformity with the parties's intention and the technical meaning.
The headings in the Agreement shall not be used in its interpretation.
The singular includes the plural, the masculine includes the feminine, and
vise-versa where the context requires.
If there is conflict between provisions of the Agreement, the last to be written
chronologically shall prevail, unless otherwise specified.
ARTICLE 26: Alterations:
Should circumstances arise which call for modifications of the agreement these
may be made by mutual consent given in writing. Proposals in this respect from
any party shall be given due consideration by the other party.
ARTICLE 27: Savings Clause:
In the event any provision of this Agreement is inconsistent with or contrary to
any applicable law, rule, regulation, code, or other, said provision shall be
deemed to be modified to the extend required to comply with said law, rule
regulation, code or order and as so modified said provision and this Agreement
shall continue in full force and effect.
WITNESS WHEREOF, this Agreement is executed in duplicate of like terms and
effect, on this 7th day of July, 1996.
CLEOPATRA PALACE LIMITED
By: /s/ Cleopatra Palace Limited
COMPAGNIE MONASTIRIENNE IMMOBILIERE ET TOURISTIQUE
By: /s/ Compagnie Monastirienne Immobiliere et Touristique S.A.
EXHIBIT 10.156
MASTER LEASE
THIS MASTER LEASE (the "Lease") is made as of the 31st day of August,
1995, between Fantastic Foods International, Inc., a California corporation
("Lessor"), and American Charities Underwriters Inc., a Colorado corporation
("Lessee").
WHEREAS, Lessee is engaged in the business of manufacturing and storage
of pizza; and
WHEREAS, the Lessee desires to rent from Lessor those certain premises
set forth in Item 3 of Exhibit "A" attached hereto, together with certain
underlying real property (the "Plant"); and
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from the covenants contained herein, the Lessee and Lessor agree as follows:
1. Premises
Lessor hereby leases to Lessee and Lessee hereby rents from Lessor
those certain premises set forth in Item 3 of Exhibit "A" attached
hereto, which, together with the underlying real property, is herein
called the "Plant". Except as may otherwise be specifically provided
herein, Lessor shall accept the Plant in its existing condition as of
the date hereof.
2. Tenancy
This Lease shall commence on the date set forth in Item 4 of Exhibit
"A", and continue thereafter for a term of one (1) year, unless until
terminated pursuant to the terms hereof, or until sooner terminated for
default or breach of the terms, covenants or conditions hereinafter
provided.
3. Use
The Plant shall be occupied and used by Lessor solely for the purpose
of conducting therein the business or profession stated in Item 7 of
Exhibit "A", and for no other business or purpose. Lessor shall comply
with all applicable laws and governmental requirements pertaining to
its use of the Plant and shall not generate, handle, store or dispose
of hazardous or toxic materials within the Plant without the prior
written consent of Lessor.
4. Rent
Lessee shall pay to Lessor monthly rent in the amount stated in Item 5
of Exhibit "A" in advance on the first day of each and every calendar
month without notice or offset, the first monthly payment to be made
concurrently with the execution hereof. All rental and other payments
shall be made to Lessor at the address stated in Item 8 of Exhibit "A",
[FFI\AGR:TEDLEASE.AGR]
<PAGE>
or such other place as Lessor shall from time to time designate in
writing. Rent for the first partial month shall be prorated on the
basis of the number of days in such month, and thereafter shall be
payable on the first day of each month. All payments hereunder shall be
paid in lawful money of the United States.
5. Inspection
Lessee shall permit Lessor and its agents to enter into and upon the
Plant at all reasonable times for the purpose of inspecting same,
cleaning windows and performing other janitorial services, or for the
purpose of maintaining the Plant in which the Plant is situated, or for
the purposes of making repairs, alterations or additions to any other
portion of the Plant, including the erection of scaffolding, props, or
other mechanical devices, or for the purpose of posting Notices of
Non-Responsibility for alterations, additions, or repairs, without any
abatement or rebate of rent to Lessee or damages for any loss of
occupation or quiet enjoyment of the Plant thereby occasioned. Lessor
and its agents may, during the last thirty (30) days of the term of
this Lease, at reasonable hours, enter upon the Plant and exhibit same
to prospective Lessees.
6. Rules and Regulations
The rules and regulations attached hereto as Exhibit "B", as well as
such rules and regulations as may be hereafter adopted by Lessor for
the safety, care and cleanliness of the Plant and the preservation of
good order thereon, are hereby expressly made a part hereof, and Lessor
agrees to obey all such rules and regulations.
7. Security Deposit
Lessee has deposited with Lessor the sum, if any, stated in Item 6 of
Exhibit "A", to be held by Lessor as security for the full and faithful
performance of every Lease term, covenant and condition to be performed
by Lessee. If Lessee defaults with respect to any term, covenant or
condition of this Lease, including but not limited to the provisions
relating to the payment of rent, Lessor may (but shall not be required
to) use, apply or retain all or any part of this security deposit for
the payment of any rent or other sum in default, or for the payment of
any other amount (including but not limited to the cost of repairing
and/or restoring the Plant during or at the expiration of the term of
this Lease) which Lessor may spend or become obligated to spend by
reason of Lessee's default or to compensate Lessor for any other loss
or damage which Lessor may suffer by reason of Lessee's default to the
full extent permitted by law. If any portion of said deposit is so used
or applied, Lessee shall within five (5) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore
the security deposit to its original amount. Lessee's failure to do so
shall be a material breach of this Lease. Lessor shall not be required
to keep this security deposit separate from its general funds, and
Lessee shall not be entitled to interest on such deposit. If Lessee
shall fully and faithfully perform every term, covenant and condition
of this Lease to be performed by it, the security deposit or any
balance thereof shall be returned to Lessee promptly following the
expiration of the Lease term, provided that Lessor may retain the
security deposit until such time as any amount due from Lessor has been
determined and paid in full. Should Lessor sell its interest in the
[FFI\AGR:TEDLEASE.AGR]
- 2 -
<PAGE>
Plant during the term hereof and if Lessor deposits with the purchaser
thereof the then unappropriated funds deposited by Lessee, thereupon
Lessee shall be discharged from any further liability with respect to
such deposit.
8. Alterations
Lessee shall make no alterations, additions or improvements to the
Plant without the prior written consent of Lessor, and Lessor may
impose, as a condition to such consent, such requirements as Lessor in
its sole discretion may deem reasonable or desirable, including but not
limited to a requirement that all work be covered by a lien and
completion bond satisfactory to Lessor and requirements as to the
manner, time and contractor or contractors by which such work shall be
done. Any request for Lessor's consent shall be made in writing and
shall contain architectural plans describing such work in detail
reasonably satisfactory to Lessor. Failure of Lessor to respond to such
request within thirty (30) days shall be deemed a denial of such
request. Unless Lessor otherwise agrees in writing, all such
alterations, additions or improvements affixed or built into the Plant
(but excluding moveable trade fixtures and furniture) shall became the
property of Lessor as provided in Paragraph 11 below, and shall be
surrendered with the Plant, as a part thereof, at the end of this Lease
term, except that Lessor may, by written notice to Lessee given at
least twenty (20) days prior to the end of this Lease term, require
Lessee to remove all or any alterations, decorations, additions,
improvements and the like installed by Lessee, and to repair the Plant,
or at Lessee's option to pay all costs relating to any damage to the
Plant arising from such removal.
9. Surrender of Plant; Removal of Property
Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Lessee shall quit and surrender possession
of the Plant to Lessor in as good order, condition and repair as when
received or as hereafter may be improved by Lessor or Lessee,
reasonable wear and tear and repairs which are Lessee's obligation
excepted, and shall, without expense to Lessor, remove or cause to be
removed from the Plant all debris and rubbish, all furniture,
equipment, business and trade fixtures, freestanding cabinet work and
other articles of personal property owned by Lessee or installed or
placed by Lessee at its expense in the Plant, and all similar articles
of any other persons claiming under Lessee unless Lessee exercises its
option to have any subleases or subtenancies assigned to it. Lessee
shall repair all damage to the Plant resulting from such removal, which
repair shall include the patching and filling of holes and repair of
structural damage. In the event that Lessee shall fail to comply with
the provisions of this Paragraph, Lessor may make such repairs and the
cost thereof shall be additional rent payable by the Lessee upon
demand. If requested by Lessor, Lessee shall execute, acknowledge and
deliver to Lessor an instrument in writing releasing and quitclaiming
to Lessor all right, title and interest of Lessee in and to the Plant
by reason of this Lease or otherwise.
10. Option to Buy Plant
Lessor grants to Lessee, or its assigns, the option to purchase the
Plant, together with the building and the personal property and
equipment appurtenant thereto, which are the subject of this Lease, and
all additions and improvements to them, if any, that may be made during
the term of this Lease, upon and subject to the following terms and
conditions:
[FFI\AGR:TEDLEASE.AGR]
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A. The purchase price shall be:
(i) The sum of Six Hundred Sixty Thousand Dollars
($660,000) (the "Option Price").
(ii) Plus such amount, if any, as may be added to the
Option Price, as provided below, in the event of
inflationary changes occurring in the currency of the
Unites States, or in the event of the occurrence of
any other factor or factors that shall result in what
commonly is known as "currency inflation," and which,
at the time of the exercise of the option, shall have
caused or resulted in inflated market values and
inflated rentals of real property in Pueblo,
Colorado.
B. The option shall be exercised between the date hereof and the
expiration date of this Lease, by the Lessee or its assigns
serving upon the Lessee by registered mail ninety (90) days'
written notice of its or their election to exercise the
option.
C. If, after the mailing of such notice of election to exercise
the option, the Lessor shall be of the opinion that a state of
currency inflation, as defined in subsection"(b)" of paragraph
"1" exists, the Lessor, within ten (10) days after the mailing
of such notice of election, shall serve upon the Lessee or its
assigns by registered mail a notice to such effect, which
notice shall further state the amount by which the Lessor
claims that the Option Price should be increased by reason of
such inflation.
D. Within ten (10) days after the service of the Lessor's notice,
the Lessee or its assigns shall, by notice in writing served on
the Lessee by registered mail, assent to, or dissent from, the
Lessor's claim for an increase in the Option Price by reason of
such inflation. If the Lessee or its assigns shall so assent to
the Lessor's claim, then, and in such event, the Option Price
shall be augmented in accordance with the Lessor's claim. If,
however, the Lessee or its assigns shall dissent from the
Lessor's claim, the option shall not thereby be avoided, but the
dispute between the Lessor and the Lessee or its assigns as to
such claim shall be submitted to arbitration, for the purpose of
determining the following issues:
(i) Whether, at the time of exercise of the option, a condition
or state of inflation, as defined above, existed;
(ii) Whether, as the result of such inflation, market values and
rentals of real property in Pueblo, Colorado have been
inflated; and
(iii)By what sum, if any, the Option Price should be increased
by reason of the existence of the inflation referred to in
both subparagraphs "(a)" and "(b)".
[FFI\AGR:TEDLEASE.AGR]
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E. In the notice of dissent above referred to, the Lessee or its assigns
shall name its or their arbitrator. Within five (5) days thereafter,
the Lessor shall, by written notice served by registered mail upon the
Lessee or its assigns, designate its arbitrator, and the two (2)
arbitrators so chosen shall, within five (5) days thereafter, appoint
in writing a third arbitrator. If the two (2) arbitrators shall be
unable to agree upon such third arbitrator within the period of five
(5) days, any party to this agreement may thereafter make application
to the Court of Pueblo County, or to any judge of that court, for the
appointment of such third arbitrator. A decision of a majority of the
arbitrators on the three (3) issues above set out shall be binding
upon the parties to this agreement; and the parties shall bear equally
the expenses and cost of such arbitration.
F. If the Lessor shall fail to serve a notice of claim of inflation, or
notice of the designation of its arbitrator, as provided above, then,
and in either or both of such events, the Lessee or its assigns shall
be entitled to purchase the Plant for the Option Price.
If the Lessee or its assigns shall fail to serve a notice of dissent,
as provided above, then is such event, the Option Price shall be
augmented by the amount of the increase claimed by the Lessor in its
claim for an increase by reason of inflation.
11. Subletting or Assignment
Lessee shall not assign this Lease, or any interest therein, or sublet
the Plant or any part thereof, or allow any other person (the agents
and servants of Lessor excepted) to occupy or use the Plant, or any
portion thereof, without the prior written consent of Lessor. Any such
assignment or subletting without Lessor's consent shall be void and
shall, at the option of Lessor, terminate this Lease. This Lease shall
not, nor shall any interest therein, be assignable as to the interest
of Lessee by operation of law without the written consent of Lessor.
12. Notices
Any notice, election, demand, consent, approval or other communication
to be given or other document to be delivered by either party to the
other hereunder shall be in writing and shall be delivered by personal
service or telegram, telex, telecopier or other electronic facsimile
transmission, or by any "overnight" or "one-day" express mailing
service, or by certified or registered mail, prepaid and return receipt
requested, to the other party at the address set forth in Item 8 of
Exhibit "A". Either party may from time to time, by written notice to
the other, served in the manner herein provided, designate a different
address. If any notice or other document is sent by certified or
registered mail as above, the same shall be deemed served or delivered
two (2) business days after the mailing. All other notices shall be
deemed given when received. If more than one Lessor is named under this
Lease, service of any notice upon any one of said Lessors shall be
deemed as service upon all of them.
[FFI\AGR:TEDLEASE.AGR]
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13. Attorneys' Fees
Should either party institute legal proceedings against the other
arising out of this Lease, the prevailing party shall be entitled to
recover reasonable attorneys' fees and costs, to be fixed by the court
in said action.
14. Remedies
The waiver by Lessee of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other
term, covenant or condition herein contained. The acceptance of rent
hereunder shall not be construed to be a waiver of any breach by Lessee
of any term, covenant or condition of this Lease. No payment by Lessee
of a lesser amount than the rent and other sums required by this Lease
shall be deemed to be other than a partial payment on account of the
earliest due sums, notwithstanding any check endorsement or letter to
the contrary. It is understood and agreed that the remedies herein
given to Lessee and those awarded by statutes of the State of
California shall be cumulative, and the exercise of any one remedy by
Lessee shall not be to the exclusion of any other remedy.
15. Late Payments
A. Any installment of rent due under this Lease or any other sum not paid
to Lessor within five (5) days of the date when due shall bear
interest at the maximum legal rate permitted by law from the date due
until the same shall have been fully paid. The payment of such
interest shall not excuse or cure any default by Lessor under this
Lease.
B. Lessor hereby acknowledges that the late payment by Lessee to Lessor
of rent and other sums due hereunder will cause Lessee to incur costs
not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs may include, but are not
limited to, administrative, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any other
sum due from Lessee shall not be received by Lessor or Lessor's
designee within five (5) days after the date due, then Lessee shall
pay to Lessor, in addition to the interest provided above, a late
charge in the amount of One Hundred Dollars ($100.00). The parties
agree that such late charge represents a fair and reasonable estimate
of the cost Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's default with respect to such overdue amount, nor
prevent Lessor from exercising any of its other rights and remedies.
16. Lessor's Insurance
Lessee, at its sole cost and expense, shall provide the insurance
described in Exhibit "C" attached hereto.
[FFI\AGR:TEDLEASE.AGR]
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17. Lessor's Indemnity
A. Lessee shall defend, indemnify and hold harmless Lessor, its
agents, employees, and any and all affiliates of Lessor,
including without limitation, any corporations or other entities
controlling, controlled by or under common control with Lessor,
from and against any and all claims or liabilities arising from
Lessee's use or occupancy of the Plant, the Plant or the Common
Facilities (as hereinafter defined) or the conduct of its
business or from any activity, work, or thing done, permitted or
suffered by Lessee in or about the Plant and the Plant or Common
Facilities arising from any breach or default in the performance
of any obligation on Lessee's part to be performed hereunder, or
arising from any act or negligence of Lessee, or of its agents,
employees, visitors, patrons, guests, invitees or licensees,
including vendors servicing Lessee, and for and against all
costs, attorneys' fees, expenses and liabilities incurred or any
actions or proceedings brought thereon. In case Lessor, its
agents or affiliates shall be made a party to any litigation
commenced by or against Lessor, then Lessee shall protect and
hold Lessor harmless and shall pay all costs, expenses and
reasonable attorneys' fees, legal expenses, expenses of discovery
proceedings, travel and fees for expert witnesses incurred or
paid by Lessor in connection with such litigation. Lessor may at
its option, require Lessee to assume Lessor's defense in any
action covered by this Paragraph through counsel satisfactory to
Lessor.
B. The term "Common Facilities" shall mean all areas within the
exterior boundaries of the Plant or appurtenant thereto which are
not now or hereafter held for exclusive use by persons entitled
to occupy space in the Plant, and other areas and improvements
provided by Lessor for the common use of Lessee and Lessee's and
its respective employees and invitees, including, without
limiting the generality of the foregoing, parking areas,
driveways, truckways, delivery passages, loading docks,
sidewalks, ramps, landscaped and painted areas, exterior
stairways, hallways and interior stairwells not located within
the Plant, common entrances and lobbies, elevators, bus stops,
retaining walls and restrooms not located within the Plant,
lighting fixtures, building and/or project identification signs,
irrigation systems and controllers, drains and sewers.
18. Lessor's Non-Liability
A. Lessee, as a material party of the consideration to Lessor,
hereby assumes all risk of damage to property or injury to
person, in, upon or about the Plant from any cause whatsoever
other than ultimately determined to be Lessor's sole
negligence or willful misconduct and for any damage to the
Plant resulting from any negligence or willful misconduct of
any employee, agent, visitor or licensee of Lessor.
B. Lessor shall not be liable to Lessee, and Lessee hereby waives
all claims against Lessor for any injury or damage to any
person or property in or about the premises of the Plant or
from any cause whatsoever, other than ultimately determined to
be Lessor's sole negligence or willful misconduct.
Specifically, Lessor or its agents or employees shall not be
[FFI\AGR:TEDLEASE.AGR]
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liable for any damage to property entrusted to Lessee's employees
in the Plant, nor for loss of or damage to any property by theft
or otherwise, nor for any injury or damage to persons or property
or loss or interruption of business or loss of income resulting
from, but not limited to, the following causes, unless ultimately
determined to be caused by or due to the sole negligence or
willful misconduct of Lessor, its agents or employees: fire,
explosion, falling plaster, steam, gas, electricity, water or
rain which may leak or flow from or into any part of the Plant or
from the breakage, leakage, obstruction or other defects of the
pipes, sprinklers, wires, appliances or plumbing or air
conditioning or electrical works therein, whether such damage or
injury results from conditions arising in the Plant or in other
portions of the Plant. Neither Lessor nor its agents shall be
liable for interference with the light or other incorporeal
hereditament, nor shall Lessor be liable for any latent defect of
the Plant. Lessee shall give prompt notice to Lessor in case of
fire or accidents in the Plant and of defects therein or in the
fixtures or equipment.
C. Lessee understands that Lessor will not carry insurance of any
kind on Lessee's furniture or furnishings, fixtures or equipment,
and that Lessor shall not be obligated to repair any damage
thereto or replace the same. Lessor shall have the right to
change the name, number or designation of the Plant in which the
Plant is located without notice or liability to Lessee.
19. Miscellaneous
A. Subsequent Events. Lessor and Lessee each agree to notify the
other party if, subsequent to the date of this Agreement, either
party incurs obligations which could compromise their efforts and
obligations under this Agreement.
B. Amendment. This Agreement may be amended or modified at any time
and in any manner only by an instrument in writing executed by
the parties hereto.
C. Further Actions and Assurances. At any time and from time to
time, each party agrees, at its or their expense, to take actions
and to execute and deliver documents a may be reasonably
necessary to effectuate the purposes of this Agreement.
D. 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.
E. Assignment. Neither this Agreement nor any right created by it
shall be assignable by Lessor or Lessee without the prior written
consent of the other party.
[FFI\AGR:TEDLEASE.AGR]
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F. Notices. Any notice or other communication required or permitted
by this Agreement must be in writing and shall be deemed to be
properly given when delivered in person to an officer of the
other party, when deposited in the United States mails for
transmittal by certified or registered mail, postage prepaid, or
when deposited with a public telegraph company for transmittal,
or when sent by facsimile transmission charges prepared, provided
that the communication is addressed:
(i) In the case of Lessee:
American Charities Underwriters Inc.
1745 N. Erie
Pueblo, Colorado 81001
Telephone: (719)
Telefax: (719)
(2) In the case of Lessor:
Fantastic Foods International Inc.
5345 3rd Street
Irwindale, California 91706
Telephone: (818) 814-3775
Telefax: (818) 814-3090
or to such other person or address designated by Lessee or Lessor
to receive notice.
G. 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.
H. 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.
I. Governing Law. This Agreement was negotiated and is being
contracted for in the State of California, and shall be governed
by the laws of the State of California, notwithstanding any
conflict-of-law provision to the contrary.
J. 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.
K. 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.
[FFI\AGR:TEDLEASE.AGR]
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L. Severability. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full
force and effect.
M. 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.
N. Time is of the Essence. Time is of the essence of this Agreement
and of each and every provision hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease
consisting of the foregoing Paragraphs 1 through 18, Exhibits "A" through "C"
and, if any Rider pages and/or Addendum to Lease which follow, as of the day and
year first hereinabove set forth.
"Lessor" "Lessee"
FANTASTIC FOODS INTERNATIONAL INC. AMERICAN CHARITIES UNDERWRITERS
By: /s/ Jon L. Lawver By: /s/ Theodore E. DeTello
------------------------ ----------------------------------
Name: Jon L. Lawver Name: Theodore E. DeTello
[FFI\AGR:TEDLEASE.AGR]
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EXHIBIT "A"
THE PLANT
In the event of any conflict, inconsistency or ambiguity created by or
between this Exhibit "A" and the Lease to which it is attached, which Lessee
acknowledges it has read in full, the terms and conditions of the Lease shall
govern.
1. Lessee: Theodore E. DeTello dba: American Charities Underwriters Inc.
2. Address including Building Name and Suite No.: 1745 N. Erie, Pueblo,
Colorado
3. Rentable Area: 28,700 +/- square feet
4. Term commerce: January 1, 1996
5. Rental: Four Thousand Dollars and no/100 ($4,000.00) per month
6. Security Deposit: Zero Dollars ($0)
7. Permitted Use: Manufacturing pizzas and storage of same
8. Address for Payments and Notices:
Lessor Lessee
---------------------------------- ----------------------------------
Fantastic Foods International Inc. American Charities Underwriters Inc
2 Park Plaza, Suite 470 1745 N. Erie
Irvine, California 92714 Pueblo, Colorado 81001
with a copy of notices to:
[FFI\AGR:TEDLEASE.AGR]
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EXHIBIT "B"
RULES AND REGULATIONS
The following Rules and Regulations shall be in effect at the Building. Lessor
reserves the right to adopt reasonable nondiscriminatory modification and
additions at any time. In the case of any conflict between these regulations and
the Lease, the Lease shall be controlling.
1. Except with the prior written consent of Lessor, Lessee shall not sell, or
permit the retail sale of, newspapers, magazines, periodicals, or theater
tickets, in or from the Plant, nor shall Lessee carry on, or permit or
allow any employee or other person to carry on, the business of
stenography, typewriting or any similar business in or from the Plant for
the service or accommodation of occupants of any other portion of the
Plant. Lessee shall not allow the Plant to be utilized for any
manufacturing of any kind, or the business of a public barber shop, beauty
parlor, or a manicuring and chiropodist business, or any business other
than that specifically provided for the Lease.
2. The sidewalks, halls, passages, elevators, stairways, and other common
areas shall not be obstructed by Lessee or use by it for storage or for any
purpose other than for ingress to and egress from the Plant. The halls,
passages, entrances, elevators, stairways, balconies and roof are not for
the use of the general public, and Lessor shall in all cases retain the
right to control and prevent access to those areas of all persons whose
presence, in the judgment of Lessor, shall be prejudicial to the safety,
character, reputation and interests of the Plant and its Lessees. Nothing
contained in this Lease shall be construed to prevent access to persons
with whom Lessee normally deals only for the purpose of conducting its
business on the Plant (such as Lessees' customers, office suppliers and
equipment vendors and the like) unless those persons are engaged in illegal
activities. Neither Lessee nor any employee or contractor of Lessee shall
go upon the roof of the Plant without the prior written consent of Lessor.
3. The sashes, sash doors, windows, glass lights, solar film and/or screen,
and any lights or skylights that reflect or admit light into the halls or
other places of the Office Building shall not be covered or obstructed. The
toilet rooms, water and wash closets and other water apparatus shall not be
used for any purpose other than that for which they were constructed, and
no foreign substance of any kind shall be thrown in those facilities, and
the expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by Lessee.
4. No sign, advertisement or notice visible from the exterior of the Plant
shall be inscribed, painted or affixed by Lessee on any part of the Plant
without the prior written consent of Lessor. If Lessor shall have given its
consent at any time, whether before or after the execution of this Lease,
that consent shall in no way operate as a waiver or release of any of the
provisions of this Lease, and shall be deemed to relate only to the
particular sign, advertisement or notice so consented to by Lessor and
shall not be construed as dispensing with the necessity of obtaining the
specific written consent of Lessor with respect to any subsequent sign,
advertisement, or notice. If Lessor, by a notice in writing to Lessee,
shall object to any curtain, blind, tinting, shade or screen attached to,
or hung in, or used in connection with, any window or door of the Plant,
the use of the curtain, blind, tinting, shade or screen shall be
immediately discontinued by Lessee. No awnings shall be permitted on any
part of the Plant.
[FFI\AGR:TEDLEASE.AGR]
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5. Lessee shall not do or permit anything to be done in the Plant, or bring or
keep anything in the Plant, which shall in any way increase the rate of
fire insurance of the Plant, or on the property kept in the Plant, or
obstruct or interfere with the rights of other Lessees, or in any way
injure or annoy them, or conflict with the regulations of the Fire
Department or the fire laws, or with any insurance policy upon the Plant,
or any portion of the Plant or its contents, or with any rules and
ordinances established by the Board of Health or other governmental
authority.
6. No safes, computers or other objects larger or heavier than the freight
elevators of the Plant are limited to carry shall be brought into or
installed in the Plant. Lessor shall have the right to prescribe and
approve of the weight and position of safes, computers or other large or
heavy objects which shall, if deemed necessary by Lessor, be placed on some
type of applicable platform prescribed by Lessor to distribute the weight.
8. Lessee shall not sweep or throw, or permit to be swept or thrown, from the
Plant any dirt or other substance into any of the corridors or halls or
elevators, or out of the doors or windows or stairways of the Plant, and
Lessee shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Plant, or permit or suffer the Plant to be occupied
or use in a manner offensive or objectionable to Lessor or other occupants
of the Plant by reasons of noise, odors and/or vibrations, or interfere in
any way with other Lessees or those having business with other Lessees, nor
shall any animals or birds be kept by Lessee in or about the Plant. Smoking
or carrying lighted cigars or cigarettes in the elevators and restrooms of
the Plant is prohibited.
9. No cooking shall be done or permitted by Lessor on the Plant, except
pursuant to the normal use of a microwave oven and coffee maker for the
benefit of Lessee's employees and invitees, nor shall the Plant be used for
the storage of merchandise or for lodging.
10. Lessee shall not use or keep in the Plant any kerosene, gasoline, or
inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Lessor.
11. If Lessee desires telephone or telegraph connections, Lessor will direct
electricians as to where and how the wires are to be introduced. No boring
or cutting for wires or otherwise shall be made without directions from
Lessor.
12. Upon the termination of its tenancy, Lessee shall deliver to Lessor all the
keys to offices, rooms and toilet rooms and all access cards which shall
have been furnished to Lessee or which Lessee shall have had made. In the
event of the loss of any keys or cards so furnished, Lessee shall pay
Lessor for those items.
13. Lessee shall not affix any floor covering to the floor of the Plant in any
manner except by a past, or other material which may easily be removed with
water, the use of cement or other similar adhesive materials being
expressly prohibited. The method of affixing any floor covering shall be
subject to approval by Lessor. The expense of repairing any damage
resulting from a violation of this rule shall be borne by Lessee.
[FFI\AGR:TEDLEASE.AGR]
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14. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 8:00 a.m., access to the Plant, or to the halls,
corridors, elevators or stairways in the Plant, or to the Plant, may be
refused unless the person seeking access complies with any access control
system that Lessor may establish. Lessor shall in no case be liable for
damages for the admission to or exclusion from the Plant of any person whom
Lessor has the right to exclude under Rules 2 or 19 of this Exhibit. In
case of invasion, mob, riot, public excitement, or other commotion, or in
the event of any other situation reasonably requiring the evacuation of the
Plant, Lessor reserves the right at its election and without liability to
Lessee to prevent access to the Plant by closing the doors or otherwise for
the safety of Lessee and protection of property in the Plant.
15. Lessee shall see that the windows, transoms and doors of the Plant are
closed and securely locked before leaving the Plant and shall observe
strict care not to leave windows open, if applicable, when it rains. Lessee
shall exercise extraordinary care and caution that all water faucets or
water apparatus are entirely shut off before Lessee or Lessee's employees
leave the Plant, and that all electricity, gas or air shall likewise be
carefully shut off, so as to prevent waste or damage, and for any default
or carelessness Lessee shall make good all injuries sustained by other
Lessees or occupants of the Plant or Lessee.
16. Lessee shall not alter any lock or install a new or additional lock or any
bolt on any door of the Plant without the prior written consent of Lessor.
If Lessor gives its consent, Lessee shall in each case promptly furnish
Lessor with a key for any new or altered lock.
17. Lessee shall not install equipment, such as but not limited to electronic
tabulating or computer equipment, requiring electrical or air conditioning
service in excess of that to be provided by Lessor under the Lease.
18. Lessee shall furnish and utilize masonite or plastic floor mats so as to
minimize carpet damage resulting from the use of rollers on chairs.
19. Lessor shall have full and absolute authority to regulate or prohibit the
entrance to the Plant of any vendor, supplier, purveyor, petitioner,
proselytizer or other similar person. In the event any such person is a
guest or invitee of Lessee, Lessor shall notify Lessee in advance of each
desired entry, and Lessor shall authorize the person so designated to enter
the Plant, provided that in the sole and absolute discretionary judgment of
Lessor, such person will not be involved in general solicitation
activities, or the proselytizing, petitioning, or disturbance of other
Lessees or their customers or invitees, or engaged or likely to engage in
conduct which may in Lessor's opinion distract from the use of the Plant
for its intended purpose. Notwithstanding the foregoing, Lessor reserves
the absolute right and discretion to limit or prevent access to the Plant
by any food or beverage vendor, whether or not invited by Lessee, and
Lessor may condition such access upon the vendor's execution of an entry
permit agreement which may contain provisions for insurance coverage and/or
the payment of a fee to Lessor.
20. Lessor may from time to time grant Lessee individual and temporary
variances from these Rules, provided that any variance does not have a
material adverse effect on the use and enjoyment of the Plant by Lessee.
[FFI\AGR:TEDLEASE.AGR]
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EXHIBIT "C"
LESSEE'S INSURANCE
The following standards for Lessee's Insurance shall be in effect at the Plant.
Lessor reserves the right to adopt reasonable nondiscriminatory modifications
and additions to those standards. Lessee agrees to obtain and present evidence
to Lessor that it has fully complied with the insurance requirements.
1. Lessee shall, at its sole cost and expense, commencing on the date Lessee
is given access to the Plant for any purpose and during the entire Term,
procure, pay for and keep in full force and effect: (i) comprehensive
general liability insurance with respect to the Plant and the operations of
or on behalf of Lessee in, on or about the Plant, including but not limited
to personal injury, non-owned automobile, blanket contractual, independent
contractors, broad form property damage, fire legal liability, products
liability (if a product is sold from the Plant), liquor law liability (if
alcoholic beverages are sold, served or consumed within the Plant), and
cross liability and severability of interest clauses, which policy(ies)
shall be written on an "occurrence" basis and for not less than $1,000,000
with a $1,000,000 umbrella liability policy combined single limit (with a
$50,000 minimum limit on fire legal liability) per occurrence for bodily
injury, death, and property damage liability, or the current limit of
liability carried by Lessee, whichever is greater, and subject to such
increases in amounts as Lessor may determine from time to time; (ii)
workers' compensation insurance coverage as required by law, together with
employers' liability insurance coverage; (iii) with respect to
improvements, alterations, and the like required or permitted to be made by
Lessee under this Lease, builder's all-risk insurance, in amounts
satisfactory to Lessor; (iv) insurance against fire, vandalism, malicious
mischief and such other additional perils as may be included in a standard
"all risk" form in general use in Orange County, California, insuring
Lessee's leasehold improvements, trade fixtures, furnishings, equipment and
items of personal property of Lessee located in the Plant, in an amount
equal to not less than ninety percent (90%) of their actual replacement
cost (with replacement cost endorsement)l and (v) business interruption
insurance in amounts satisfactory to Lessor. In no event shall the limits
of any policy be considered as limiting the liability of Lessee under this
Lease.
2. All policies of insurance required to be carried by Lessee pursuant to this
Exhibit "C" shall be written by responsible insurance companies authorized
to do business in the State of California and Colorado, and with a Best's
policyholder rating of not less than "A" subject to final acceptance and
approval by Lessor. Any insurance required of Lessee may be furnished by
Lessee under any blanket policy carried by it or under a separate policy. A
true and exact copy of each paid up policy evidencing the insurance
(appropriately authenticated by the insurer) or a certificate of insurance,
certifying that the policy has been issued, provides the coverage required
by this Exhibit "C" and contains the required provisions, shall be
delivered to Lessor prior to the date Lessee is given the right of
possession of the Plant. Proper evidence of the renewal of any insurance
coverage shall also be delivered to Lessor not less than thirty (30) days
prior to the expiration of the coverage. Lessor may at any time, and from
time to time, inspect and/or copy any and all insurance policies required
by this Lease.
[FFI\AGR:TEDLEASE.AGR]
- 15 -
<PAGE>
3. Each policy evidencing insurance required to be carried by Lessee pursuant
to this Exhibit "C" shall contain the following provisions and/or clauses
satisfactory to Lessor: (i) provision that the policy and the coverage
provided shall be primary and that any coverage carried by Lessee shall be
noncontributory with respect to any policies carried by Lessee; (ii) a
provision including Lessee and any other parties in interest designated by
Lessor as an additional insured, except as to workers compensation
insurance; (iii) a waiver by the insurer of any right to subrogation
against Lessor, its agents, employees, contractors and representatives
which arises or might arise by reason of any payment under the policy or by
reason of any act or omission of Lessee, its agents, employees, contractors
or representatives; and (iv) a provision that the insurer will not cancel
or change the coverage provided by the policy without first giving Lessor
thirty (30) days prior written notice.
4. In the event that Lessee fails to procure, maintain and/or pay for, at the
times and for the durations specific in this Exhibit "C", any insurance
required by this Exhibit "C", or fails to carry insurance required by any
governmental authority, Lessor may at its election procure that insurance
and that insurance and pay the premiums, in which event Lessee shall repay
Lessor all sums paid by Lessor, together with interest at the maximum rate
permitted by law and any related costs or expenses incurred by Lessor
within ten (10) days following Lessor's written demand to Lessee.
[FFI\AGR:TEDLEASE.AGR]
- 16 -
EXHIBIT 10.157
MARKET
ANALYSIS
1745 ERIE AVENUE
PUEBLO, CO. 81001
Anthony L. Paglione
418 W. 6th Street
Pueblo, Co. 81003
(719) 545-2742
1
<PAGE>
INDEX
1. Valuation Page
2&3. Information Data Page - General
4. Comparative Page
2
<PAGE>
VALUATION OF SUBJECT PROPERTY
After reviewing and analysis all supplied
documentation, I have determined the fair
market value of the subject property as of
October 31, 1996 to be: $630,000.00.
1
<PAGE>
MARKET ANALYSIS
ADDRESS: 1745 Erie Avenue
Pueblo, Co. 81001
LEGAL DESCRIPTION: Lot 5, Otterstein Subdivision
Pueblo County
ZONING: I-2
LAND DIMENSIONS: 3.5 Acres
Approx. 391.7 X 350.5=137,213 Sq. Ft.
YEAR BUILT: 1974
ASSESSED VALUE: Land: $19,900
Improvements: $143,450
TOTAL: $163,350
ACTUAL VALUE: Land: $68,620
Improvements: $494,670
TOTAL: $563,290
PROPERTY TAXES: $16,199.76 For Tax Year 1995/Paid
IMPROVEMENTS: 25,944 Sq. Ft. Building On First Level
4,072 Sq. Ft. Office
2,728 Sq. Ft. Mezzanine Storage Above Office
20,528 Sq. Ft. Warehouse
One-Level
Twin Tee Construction
Vulcanized Roof/5 Years Old
Walls and Ceilings Insulated
20' Ceiling Height
Automatic Doors
Employee Showers & Baths
Commercial Gas Supply Line
All information, facts and figures were derived from sources deemed reliable. No
representations are made concerning the accuracy of the information, facts or
figures.
2
<PAGE>
(Cont'd.)
IMPROVEMENTS: Commercial Waste Lift Station For Heavy Food
Manufacturing
City Sewer
4" Water Main
440 Electric Service
Inside 15,000 Sq. Ft. Cold Storage
Air/Refrigerated
Heat/HVAC
Office: Forced Air Gas
Warehouse: Space Heaters
Rail Spur
ADA & OSHA Inspected and Approved
All information, facts and figures were derived from sources deemed reliable. No
representations are made concerning the accuracy of the information, facts or
figures.
3
<PAGE>
<TABLE>
<CAPTION>
COMPARISON ANALYSIS
<S> <C> <C>
Subject Property Comparable #1
1745 Erie Ave. 315 Eagleridge Blvd.
Pueblo, Co. 81001 Pueblo, Co. 81001
------------------------------ ------------------------
LAND SIZE: 137,213 Sq. Ft. 244,371 Sq. Ft.
BLDG. SIZE: 25,944 Sq. Ft. 45,866 Sq. Ft.
CONSTRUCTION: Twin Tee Metal
YEAR BUILT 1974 1974
CEILING HEIGHT: 20 Ft. 20 Ft.
TENANT MIX: Regional Tenants-No One User-Nat'l. Company
Nationals Triple Net
ASSESSED
ACTUAL VALUES
LAND: $ 68,620.00 $ 109,870.00
IMPROVEMENTS: 494,670.00 667,520.00
------------ ------------
TOTAL: $ 563,290.00 $ 777,390.00
OVERALL
CONDITION: Average Excellent
DATE OF SALE N/A 12-28-1995
SALE PRICE N/A $950,000.00
</TABLE>
4
EXHIBIT 10.158
Second Amendment to Letter Agreement dated October 7, 1996 by and between
NuOasis International, Inc. and Cleopatra Palace Limited (the "Letter
Agreement")
EXHIBIT 10.159
Assignment dated November 27, 1996 from NuOasis International, Inc. and
Cleopatra Palace Limited
EXHIBIT 10.160
NuOasis International Inc.
43 Elizabeth Avenue o Nassau, Bahamas
Telephone (011) 44-171-493-1166 o Facsimile (011) 44-171-493-1197
October 27, 1996
Board of Directors
Grand Hotel Krasnopolsky N.V.
DAM 9 - 1012 JS
Amsterdam
The Netherlands
RE: Purchase of shares of capital stock of Grand Hotel Krasnopolsky N.V.,
a corporation organized under the laws of The Netherlands ("GHK")
Gentlemen:
This letter agreement, when countersigned as indicated below ("Agreement") will
confirm and memorialize the agreement by and among, on the one hand, NuOasis
International Inc., a corporation organized under the laws of the Commonwealth
of the Bahamas ("NuOasis") and a wholly-owned subsidiary of Nona Morelli's II
Inc., a corporation organized under the laws of the United States ("Nona"), and
on the other hand, Grand Hotel Krasnopolsky N.V., a corporation organized under
the laws of The Netherlands ("GHK"), to enter into the within-described
transaction (the "Transaction") whereby NuOasis will purchase and acquire from
GHK for the consideration specified herein, shares of GHK capital stock equal to
US$2,500,000 ("GHK Shares"), all upon and subject to the following terms and
conditions.
This Agreement is made and entered into by NuOasis and GHK based upon the
following facts:
1. GHK is in the business of owning and operating hotel and restaurant
properties; it is a publicly-held corporation whose shares are traded
in the Amsterdam Stock Exchange; and, it desires to expand its hotel
and food service activities outside The Netherlands and to diversify
into other hospitality and leisure-based activities including but not
limited to casino gaming.
2. NuOasis is the international hotel and casino gaming subsidiary of
Nona, and it is engaged in the purchase, development and operation of
casino gaming and hotel properties outside of the United States.
3. Nona is a publicly-held corporation whose shares are traded on the
United States Over-the-Counter Market. As a result of a sale of a
casino gaming property NuOasis has the right to shares of common stock
of Nona, and it desires to reinvest such shares by making an equity
investment in a hotel management-related business.
4. Simultaneously with the execution of this Agreement Nona and GHK have
agreed to enter into a joint venture for the purchase, development and
operation of hotel and casino gaming properties and, in furtherance of
such joint venture, Nona and GHK desire to acquire equity interests in
each other.
<PAGE>
Based upon these facts, and the representations and warranties contained herein,
our agreement is as follows:
1. Principal Purchase Terms
Subject to the satisfaction (or waiver) of the terms and conditions
contained herein, at the Closing GHK will sell, issue and deliver to
NuOasis (or its designee), and NuOasis (or its designee) will purchase
and acquire from GHK, the GHK Shares for and in consideration of shares
of common stock of Nona having an equivalent Market Value on the date
of Closing of US$2,500,000 (the "Nona Shares").
2. Closing
The closing of this Transaction (the "Closing") shall occur at the
office of GHK, or such other location and at such time or date as the
parties hereafter may mutually agree following the execution hereof,
but no later than November 15, 1996. At Closing NuOasis shall deliver
the Nona Shares to GHK and GHK shall deliver the GHK Shares to NuOasis
along with other documents, affidavits and investment letters
reasonably requested by the delivering party.
3. Representations and Warranties of GHK
In connection herewith, and as an inducement to NuOasis to enter into
this Agreement, GHK confirms that:
A. The GHK Shares. The GHK Shares, when delivered, will be free
and clear of liens, claims and encumbrances; that GHK has all
necessary right and power to enter into this Agreement and to
cause the issuance of the GHK Shares to NuOasis as
contemplated herein; and, that any necessary approval by
regulatory authorities, shareholders of GHK or third parties
will be obtained by GHK prior to Closing.
B. Status of GHK. GHK is duly organized, validly existing, and in
good standing under the laws of The Netherlands and, that
there has been no material change in GHK's financial condition
as reflected in Schedule "1" attached hereto (the "GHK
Financials").
C. Authorized Share Capital of GHK. The capitalization of GHK, as
of the date hereof, consists of Twenty Million Dutch Guilders
(f20,000,000), comprised of One Million (1,000,000) ordinary
shares of a nominal value of f20.00 per share, of which no
more than 224,587 shares are presently issued and outstanding.
<PAGE>
D. Compliance with Laws, Rules and Regulations. GHK is in
compliance with all applicable laws, rules and regulations,
relating to its business and its listing on the Amsterdam
Stock Exchange, except to the extent that non-compliance would
not materially and adversely affect the business, operations,
properties, assets, general financial condition or the listing
of its shares.
E. Conduct of Business. Since December 31, 1995, except as set forth
in Schedule "2" attached hereto, as may be amended from time to
time prior to Closing ("Recent Developments"), GHK 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 GHK Financials and current liabilities incurred
since the date of the GHK 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 its 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.
4. Representations and Warranties of NuOasis and Nona
In connection herewith, and as an inducement to GHK to enter into this
Agreement, NuOasis and Nona confirm that:
A. The Nona Shares. The Nona Shares, when delivered, will be free
and clear of liens, claims and encumbrances; that NuOasis has all
necessary right and power to enter into this Agreement and to
cause the transfer of the Nona Shares to GHK as contemplated
herein; and, that any necessary approval by regulatory
authorities, shareholders of NuOasis, Nona or third parties will
be obtained prior to Closing.
B. Status of Nona. Nona is duly organized, validly existing, and in
good standing under the laws of the United States, state of
Colorado and, except as disclosed to GHK in writing prior to
Closing, there has been no material change in Nona's financial
condition as reflected in Schedule "3" attached hereto (the "Nona
Financials").
C. Authorized Share Capital of Nona. The capitalization of Nona, as
of the date hereof, consists of Fifty Million (50,000,000) shares
of authorized common stock, US$.01 par value, of which no more
than Forty Four Million (44,000,000) shares are presently issued
and outstanding.
<PAGE>
D. Compliance with Laws, Rules and Regulations. Nona and NuOasis are
in compliance with all applicable laws, rules and regulations,
relating to their business and Nona's listing on the United
States Over-the-Counter Market, except to the extent that
non-compliance would not materially and adversely affect their
business, operations, properties, assets, general financial
condition or the listing of Nona's shares.
E. Conduct of Business. Since December 31, 1995, except as set forth
in Schedule "4" attached hereto, as may be amended from time to
time prior to Closing ("Recent Developments"), Nona 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 Nona Financials and current liabilities incurred
since the date of the Nona 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 its 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.
5. Indemnification
Each party agrees to indemnify and hold the other harmless for two (2)
years following the date of Closing 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 herein or any certificate furnished as part
of the transaction contemplated herein.
6. Conditions Precedent to Closing
The obligations of NuOasis and GHK to effect a Closing hereunder are
subject to (a) the acceptance of the Transaction by the Board of
Directors of the respective parties, and (b) the execution and delivery
by all parties of one original of this Agreement prior to November 15,
1996, without which this Agreement may be terminated without penalty to
such terminating party.
7. Additional Documents
Each party agrees to execute such additional instruments and take such
action as may be reasonably requested by the other party to effect the
Transaction, or otherwise to carry out the intent and purposes of this
Agreement.
<PAGE>
8. Notices
All notices and other communications hereunder shall be in writing and
shall be sent by prepaid first class mail to the parties at the
following addresses, as amended by the parties with written notice to
the other:
To NuOasis: NuOasis International Inc.
43 Elizabeth Avenue
Nassau, Bahamas
Telephone: +44-171-493-1166
Facsimile: +44-171-493-1197
With copy to: Nona Morelli's II Inc.
2 Park Plaza, Suite 470
Irvine, California, USA
Telephone: (714) 833-2094
Facsimile: (714) 833-7854
To GHK: Grand Hotel Krasnopolsky N.V.
DAM 9 - 1012 JS
Amsterdam, The Netherlands
Telephone: + (31) 30 554 6011
Facsimile: + (31) 30 554 6127
9. 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.
10. Applicable Law
This Agreement was negotiated and shall be constructed under and
governed by the laws of the Commonwealth of the Bahamas,
notwithstanding any conflict-of-law provision to the contrary.
11. Authority
The persons executing this Agreement are duly authorized to do so.
Further, the parties hereto each represent, through such executors,
that each has taken all action required by law or otherwise to properly
and legally execute and carry out the terms of this Agreement.
<PAGE>
12. Entire Agreement
This Agreement sets forth the entire understanding between the parties
hereto and no other prior written or oral statement or agreement shall
be recognized or enforced.
13. Severability
If a court of competent jurisdiction determines that any clause or
provision of this Agreement is invalid, illegal, or unenforceable, the
other clauses and provisions of the Agreement shall remain in full
force and effect and the clauses and provisions which determined to be
void, illegal, or unenforceable shall be limited so that they shall
remain in effect to the extent permissible by law.
14. Assignment
Neither party may assign this Agreement without the express written
consent of the other party. And, in the event of any approved
arrangement, such assignment shall be binding on and inure to the
benefit of such successor, or, in the event of death or incapacity, on
their heirs, executors, administrators and successors of any party.
15. Waiver
No waiver by any party of the performance of any obligation by the
other shall be construed as a waiver of the same or any other default,
then, theretofore, or thereafter occurring or existing. This Agreement
may only be amended by a writing signed by all parties hereto.
16. Headings
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
17. Facsimile Counterparts
If a party signs this Agreement and then transmits an electronic
facsimile of the signature page to the other party, the party who
receives the transmission may rely upon the electronic facsimile as a
signed original of this Agreement.
Sincerely,
NuOasis International Inc.
By: /s/ Fred G. Luke
-----------------------------
Name: Fred G. Luke
Nona Morelli's II Inc.
By: /s/ Fred G. Luke
-----------------------------
Name: Fred G. Luke
ACCEPTED AND AGREED
THIS 27th DAY OF October 27 1996
/s/ Grand Hotel Krasnopolsky N.V.
- ----------------------------------
Grand Hotel Krasnopolsky N.V.
<PAGE>
SCHEDULE "1"
to the
Agreement
Dated October 27, 1996
GHK FINANCIALS
<PAGE>
SCHEDULE "2"
to the
Agreement
Dated October 27, 1996
NONA FINANCIALS
<PAGE>
SCHEDULE "3"
to the
Agreement
Dated October 27, 1996
RECENT DEVELOPMENTS
EXHIBIT 10.161
Agreement dated November 13, 1996 between Cleopatra Palace Limited and
International Banking Company Caribbean N.V.
EXHIBIT 10.162
Option Agreement dated June 13, 1997 between Nona Morelli's II, Inc. and
Joseph Monterosso
EXHIBIT 10.163
Stock Purchase Agreement dated May 30, 1997 between Nona Morelli's II, Inc.
and Joseph Monterosso
EXHIBIT 10.164
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (which together with the attached
exhibits, are referred to herein as "Agreement") is entered into this 1st day of
March 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 in exchange for a series of Secured Convertible
Promissory Notes in the aggregate principal amount of $1,200,000, 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.
1.4 "NPC Shares" means all the issued and outstanding shares of
National Pools Inc., a California corporation, comprising
33,324,684 shares of No Par value common stock or such number of
shares as is delivered.
1.5 "New Company Shares" means shares of common stock in the Company
issued after the effectiveness of the one-for-five (1 for 5)
reverse stock split, defined in paragraph 6.4.
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
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
items, furniture and fixtures, office equipment and supplies,
real property and improvements, leases and leasehold
improvements, trademarks, including the Hit-LottoTM, 1-800 Hit
LottoTM, and 1-900 Hit LotttoTM 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.
2.2 Purchase Price. In exchange for the NPC Shares, the Company shall
issue and deliver to the Selling Shareholders:
2.2.1Secured Convertible Promissory 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 75,000,000 New
Company Shares as follows:
(A) For every $250,000 of net operating income reported by
NPC under generally accepted accounting principles
after the Closing, $4,000 in principal amount of the
Notes may be converted into 250,000 New 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.
2.2.2Two Hundred Thousand (200,000) New Company 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 New Company Shares shall be decreased by
the percentage of NPC Shares which cannot be delivered at
Closing.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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 (I) exchange of all books, records, financial
information, documents, and other materials reasonably deemed
necessary to completion of the transaction contemplated under
this Agreement and (ii) completion of all review periods, as
provided for in 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 31, 1996,
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:
(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 in
furtherance of the intent of this Agreement;
(5) Audited financial statements of NPC dated as of its
most recent month end prior to the Closing Date
covering all operations since the inception of NPC.
Such financial statements shall be audited by an
international certified public accounting firm. If
audited financial statements are not available,
alternatively Selling Shareholders shall deliver all
books and records of NPC to the extent available and
necessary to perform such audit in accordance with
Regulation S-X, which books and records shall present
fairly the financial condition and results of
operations of NPC since inception, 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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
(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 200,000 New 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.
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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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 no more than Twenty Nine Million, Nine Hundred Thousand
(29,900,000) 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. 1,325,193 warrants to purchase
shares of common stock are exercisable at .21875 per share are
also outstanding and held by a former executive officer.
Additionally, the Company has approximately 6,375,000 shares
reserved for issuance under incentive and 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, 1994, March 31, 1995 and June 30, 1995. 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 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 in the Company Disclosure Documents or
Company Financials or 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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
4.8 Contracts. Except as disclosed pursuant to this Agreement, or in
the Company Disclosure Documents, 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 $50,000.
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, to the best of its knowledge, except as disclosed in the
Company Disclosure Documents, or except as disclosed 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 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 New Company Shares, 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. The Company further agrees to
indemnify and hold harmless the other parties to this Agreement
against liability to any broker claiming to act on behalf of the
Company.
4.12 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.
4.13 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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
4.14 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.
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 No Par value common stock, of which 33,324,684 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
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
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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 outstan ding 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, 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
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
any obligation or liability which by their terms calls for
aggregate payments of more than $10,000. Ron McGee holds an
option to purchase 3,700,000 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 cancelled 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 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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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-LottoTM, 1-800 Hit LottoTM, and
1-900 Hit LotttoTM 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.
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 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
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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 and other Agreements to Daniel F. Sweet and
Steve Burke and/or Public Gaming Research Institute Inc. 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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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.
6.4 Reverse Split. The Company agrees to take the necessary corporate
action to effect the 1 share for 5 share reverse split ("Reverse
Split"), which shall apply to all currently issued and
outstanding Company common stock. Selling Shareholders
acknowledge the Company must hold a Shareholders' Meeting to
approve the Reverse Split prior to implementation of the Reverse
Split and prior to issuance of New Company Shares to Selling
Shareholders.
6.5 Company Disclosure Documents. Before Closing, the Company will
have delivered to the Selling Shareholders, or caused the
delivery of, the Company Disclosure Documents.
6.6 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
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.
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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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.
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.
(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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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, 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 Company agrees that two (2) of the four (4) vacant
seats on the Company's Board may be filled by two (2) new
directors to be chosen by the Selling Shareholders. The parties
acknowledge by separate agreement Gaming Solutions International
will designate one director to fill one of the other two (2) of
such four (4) vacancies. In the event Gaming Solutions
International does not complete the transaction specified by
separate agreement, then Nona Morelli's II, Inc. shall be
entitled to designate one director instead of Gaming Solutions
International. 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 for the
reverse split or 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 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,
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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.
9.5 Best Efforts. The Company shall use its best efforts to fulfill
or obtain the fulfillment of all conditions of the Closing.
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.
(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.
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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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 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 the right of set-off, but shall not in any
event exceed the amount of $1,200,000 plus any accrued interest.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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 the New Company Shares 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.
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 Reverse Split defined in paragraph 6.4 is not
implemented by the Closing, the parties to this Agreement may elect to
proceed with the Closing in which event the Company shall, as soon as
legally permitted, cause the Shareholders' Meeting to be held and the
Reverse Split approved and implemented, and the 200,000 New Company
Shares set forth in paragraph 2.2.2 delivered to Selling Shareholders.
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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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 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.
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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
18.9 Governing Law. This Agreement shall be governed by the laws of
the United States, State of California.
18.10Binding 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.
18.11Entire 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.
18.12Severability. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full
force and effect.
18.13Amendment. This Agreement may be amended only by a written
instrument executed by the parties or their respective successors
or assigns.
18.14Facsimile 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.
18.15Time is of the Essence. Time is of the essence of this Agreement
and of each and every provision hereof.
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
"Selling Shareholders"
/s/ Bernard Accristo
/s/ Paula Amanda
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
/s/ Bartel, Eng, Linn & Schoder,
a Law Corporation
/s/ Raymond Benetti, Jr.
/s/ Mary Bernstien
/s/ Winona Bjorkland
/s/ Gene Blount
/s/ William Burgers
/s/ James Cerretani
/s/ Douglas Coats
/s/ Gary Collins
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
/s/ John Collins
/s/ Michael Collins
/s/ Dell'Oca Trust
/s/ Mario Desenna
/s/ Tony Gibbs
/s/ Brian Heslip
/s/ Colleen Heslip
/s/ Drake Heslip
/s/ Mark Heslip
/s/ Nicole Heslip
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
/s/ Heslip Trust
/s/ Gerald Hill
/s/ Carol Jackson
/s/ Steven Jensen
/s/ Henry Jones
/s/ George Kern
/s/ Matt Kern
/s/ Mitch Kern
/s/ William Liggett
/s/ Marcy Milne McCann
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
/s/ Ryan McCann
/s/ Ronald McGee
/s/ Norma McLean
/s/ Domenick Migliorato
/s/ Barbara Monterosso
/s/ Dan Monterosso
/s/ Joseph Monterosso
/s/ Robert Rapp Trust
/s/ George Rees
/s/ Henrietta Rees
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
/s/ Lee Rees
/s/ Kathy Rees
/s/ Theo Suter
/s/ Michael Walsh
/s/ Anthony Ward
/s/ Lane R. Ward
/s/ Janice Winkler
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
EXHIBIT "A"
to the
Stock Purchase Agreement
Dated December 19, 1996
NOTES
CONVERTIBLE SECURED PROMISSORY NOTE
U.S. $ January, 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 Inc., 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 February 28, 1998 (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 may not maintain an action against
Maker.
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
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 and Payee affirm that the indebtedness
evidenced represents the total consideration for the Property being acquired by
Maker pursuant to the Purchase Agreement.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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.
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 September 30. 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 conversion features of this Note are
activated.
For the year ending September 30, 1996. At any time during the 15 days
following the release of audited year end financial statements by NPC, the
Company shall notify each Noteholder of the option to convert all or part of the
principal amount of the Note into New Company Shares based upon the following
formula. "For every $250,000 of net operating income reported by NPC under
generally accepted accounting principles after Closing, $4,000 in principal
amount of the Notes may be converted into 250,000 New Company Shares."(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 the Company a written election to convert to
shares 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, 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 the Company 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 February 28, 1998.
For the year ending September 30, 1997. At any time during the 15 days
following the release of audited year end financial statements by NPC, the
Company shall notify each Noteholder of the option to convert all or part of the
principal amount of the Note into New Company Shares based upon the following
formula. "For every $250,000 of net operating income reported by NPC under
generally accepted accounting principles after Closing, $4,000 in principal
amount of the Notes may be converted into 250,000 New Company Shares."(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 the Company a written election to convert to
shares 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, 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
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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 September 30 1998 through 2001. Any principal on
the Note outstanding as of February 28, 1998, at the election of the Noteholder
shall be paid in full by the Company 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 September 30, 2001 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, $4,000 in principal amount of the Notes may
be converted into 250,000 New Company Shares. 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.
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 a State or United States federal court of appropriate jurisdiction
located in or having jurisdiction over the State of California.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
Maker and Payee each waives any objection to the jurisdiction of or 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."
Executed by the undersigned the year and day first above written.
NUOASIS GAMING INC.
By: /s/ Fred G. Luke
----------------------------------
Name: Fred G. Luke
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<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:NPCSTKPR.AGR]-5
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is executed as of this day of
January, 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 real property 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. 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
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. Debtor's Warranties, Covenants and Agreements
Debtor hereby warrants, covenants and agrees that:
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 above), or by way of a grant of a security
interest, or by way of levy or other judicial process.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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.
3. Events of Default
The occurrence of any of the following events shall constitute and is
hereby defined to be an "Event of Default":
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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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.
4. 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.
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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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.
5. 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.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
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. 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
"Secured Party"
/s/ Secured Party
---------------------------------------
Secured Party
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
EXHIBIT "B"
to the
Stock Purchase Agreement
Dated December 19, 1996
NPC ASSETS
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
EXHIBIT "C"
to the
Stock Purchase Agreement
Dated December 19, 1996
COMPANY DISCLOSURE DOCUMENTS
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
EXHIBIT "D"
to the
Stock Purchase Agreement
Dated December 19, 1996
NPC DISCLOSURE DOCUMENTS
All filings made with the California Department of Corporations, and any and all
material agreements related to the NPC Shares, the Selling Shareholders and the
operations of NPC since inception through the date hereof, to be provided by the
Selling Shareholders pursuant to this Agreement.
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<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 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:
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
"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,
[NUOGAM\AGR:NPCSTKPR.AGR]-5
<PAGE>
EXHIBIT "F"
to the
Stock Purchase Agreement
Dated December 19, 1996
<TABLE>
<CAPTION>
SELLING SHAREHOLDERS
<S> <C> <C>
Bernard Accristo Brian Heslip & Colleen Heslip Norma McLean
Paula Amanda Drake Heslip Domenick Migliorato
Bartel, Eng, Linn & Schoder, Mark Heslip, a Law Corporation Barbara Monterosso
Raymond Benetti, Jr. Nicole Heslip Dan Monterosso
Mary Bernstien 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 Mitch Kern 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
</TABLE>
[NUOGAM\AGR:NPCSTKPR.AGR]-5
EXHIBIT 10.165
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is entered into this
4th day of May, 1997, by and between NuOASIS GAMING INC., a Delaware corporation
("NGI"), and NONA MORELLI'S II, INC., a Colorado corporation ("NONA"), on the
basis of the following recitals:
WHEREAS, Casino Management of America, Inc., a Utah corporation ("CMA")
is a wholly owned subsidiary of NGI.
WHEREAS, NGI desires to sell, assign and transfer to NONA all of the
outstanding shares of stock of CMA ("CMA Shares") consisting of 7,500,000 shares
of common stock, and NONA desires to purchase the CMA Shares for One Million Two
Hundred Thirty Five Thousand Dollars ($1,235,000) upon and subject to the terms
and conditions of this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, NGI and CMA agree as follows:
SALE OF CMA SHARES.
Upon and subject to all the terms and conditions of this Agreement, at
the Closing NGI shall assign and transfer the CMA Shares to NONA, and as full
consideration therefor NONA shall pay NGI One Million Two Hundred Thirty Five
Thousand Dollars ($1,235,000).
EFFECTIVE DATE AND CLOSING; DELIVERY OF CMA SHARES.
DATE AND PLACE. The closing of this Agreement and transfer of the CMA
Shares (the "Closing") shall occur at the offices of Skjerven, Morrill,
MacPherson, Franklin and Friel LLP as escrow agent, at such time or date as the
parties hereafter may mutually agree. The time and date of the Closing are
herein called the "Closing Date".
PAYMENT. At the Closing, NONA shall deliver to NGI through escrow the
sum of $1,140,000 in certified funds and a credit of $95,000 against the
payments due on the intercompany account between NONA and NGI.
DELIVERY OF CMA SHARES. NGI shall deliver to NONA through escrow a
stock certificate or certificates registered in the name of NONA the CMA Shares,
and NONA shall deliver to CMA and NGI written confirmation, in form reasonably
satisfactory to CMA and NGI, of its investment intent with regard to such
shares, and such other or further documentation as CMA or NGI then may
reasonably require in order to comply with then-applicable federal and state
securities laws or applicable stock exchange requirements. The number, type and
kind of the CMA Shares delivered to NONA, in each case, shall be adjusted to
reflect all stock splits, stock dividends, reverse stock splits,
reclassifications, mergers and similar capital changes that shall have occurred
in the outstanding common stock of CMA prior to the Closing; provided, however,
that neither the foregoing provision, nor any other provision of this Agreement,
shall be construed to confer on NONA any of the rights, powers or benefits of
ownership of shares of CMA (including without limitation cash dividends, voting
rights, or stock purchase rights) as to any CMA Shares that shall not actually
have been issued and delivered to NONA pursuant to this Section 2C.
<PAGE>
DELIVERY OF OTHER DOCUMENTS. At the Closing, each party hereto shall
deliver to the other party through escrow such other and further documents,
instruments and information as are herein required to be delivered at the
Closing by such party or as are customarily delivered at the closing of a
transaction of the type provided for in this Agreement.
FURTHER DOCUMENTS. From time to time after the Closing, upon the
reasonable request of either party, the other party will deliver such other and
further instruments and documents 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.
A. REPRESENTATIONS AND WARRANTIES OF NGI.
NGI hereby covenants with and represents and warrants to NONA that:
1. THE CMA SHARES. The CMA Shares are and will be as of the Closing
Date, owned, of record and beneficially, by NONA, free and clear
of all liens, claims and encumbrances, and NGI has all necessary
right and power to enter into and perform this Agreement and to
assign and sell the CMA Shares to NONA as provided herein. Any
necessary shareholder approval of NGI's shareholders will be
obtained prior to Closing.
2. AUTHORITY. NGI has the full corporate power and authority to
enter into this Agreement and to carry out the transactions
contemplated by this Agreement. The Board of Directors of NGI
have duly authorized the execution, delivery, and performance of
this Agreement. Upon execution, this Agreement constitutes the
valid, binding and enforceable obligation of NGI.
3. STATUS OF CMA. CMA is duly organized, validly existing, and in
good standing under the laws of Utah.
4. NO CONFLICT WITH OTHER INSTRUMENT. Except as disclosed herein,
the execution of this Agreement will not violate or breach any
document, instrument, agreement, contract, or commitment to which
NGI or CMA is a party or by which it or CMA is bound.
5. FULL DISCLOSURE. The information concerning CMA set forth herein
and in the CMA Financials, as defined below, is 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
require to make the statements made, in light of the
circumstances under which they were made, not misleading.
6. FINANCIAL STATEMENTS. Financial statements of CMA for the quarter
ending March 31, 1997 ("CMA Financials"), have been or will be
delivered to NONA prior to the Closing Date. To the best
knowledge of NGI, except as set forth in the CMA Financials,
there are no liabilities, either fixed or contingent, not
reflected in such financial statements other than contracts or
obligations in the ordinary and usual course of business, which
would constitute liens or other liabilities which, if disclosed,
would alter substantially the financial condition of CMA as
reflected in such financial statements. Since March 31, 1997,
there have been no material changes in CMA's financial condition.
<PAGE>
7. CAPITALIZATION OF CMA. The capitalization of CMA is, as of the
date hereof, comprised of 25,000,000 shares of authorized common
stock, $.01 par value, of which approximately 7,500,000 shares
are issued and outstanding.
8. COMPLIANCE WITH LAWS. Rules and Regulations. NGI represents and
warrants that it is in compliance with all applicable federal
laws, rules and regulations; and all applicable state laws, rules
and regulations relating to its ownership of CMA except to the
extent that non-compliance would not materially and adversely
affect the business, operations, properties, assets, or condition
of NGI and its subsidiaries or except to the extent that
non-compliance would not result in the incurring of any material
liability for NGI.
9. CONDUCT OF BUSINESS. Since March 31, 1997, except as disclosed on
Exhibit "B", CMA has not (1) discharged or satisfied any liens
other than those securing, or paid any obligation or liability
other than current liabilities shown on the CMA Financials and
current liabilities incurred since the date of the CMA
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
ill the CMA Financials.
10. LITIGATION. To the best knowledge and belief of CMA, except as
disclosed in the CMA Financials or in NGI's Form 10-KSB for the
year ended June 30, 1996, there is neither pending nor
threatened, any action, suit or arbitration to which CMA'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 CMA,
or create any material liability on the part of CMA or conflict
with this Agreement or any action taken or to be taken in
connection herewith.
11. CONTRACTS. Except as disclosed in the CMA Disclosure Documents,
there are no contracts, actual or contingent obligations,
agreements, franchises, license agreements, or other commitments
to which CMA 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.
<PAGE>
12. MATERIAL CONTRACT BREACHES, DEFAULTS. To the best of their
knowledge and belief, CMA has not materially breached, nor have
they any knowledge of any pending or threatened claims or any
legal basis for a claim that CMA 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
operations of CMA, taken as a whole. To the best of their
knowledge and belief, CMA is 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 CMA, 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 CMA has not taken adequate steps to prevent such
a default from occurring.
13. INVESTMENTS. CMA has provided, or will provide to the Company,
prior to Closing, a complete and accurate description of the CMA
assets, including but not limited to a list of all investments of
CMA, which accurately sets forth the nature of CMA's interest or
ownership in each investment and, if 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 NONA, there
is no corporation, limited partnership, limited partnership,
joint venture, association, trust, or other entity or
organization which CMA directly or indirectly controls or in
which CMA directly or indirectly owns any equity interest or any
other interest.
14. CORPORATE RECORDS. Copies of all corporate books and records,
including but not limited to stock transfer ledgers, and any
other documents and records of CMA will be provided to the
Company at Closing. All such records and documents are complete,
true, and correct.
15. BROKERS. NGI has not agreed to pay any brokerage fees, finder's
fees, or other fees or commissions with respect to the
transactions contemplated in tiffs Agreement. To the best of
NGI's knowledge, no 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. NGI further
agrees to indemnify and hold harmless NONA against liability to
any broker claiming to act on behalf of NGI.
16. DATE OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of NONA and NGI set forth in this
Agreement 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.
B. REPRESENTATIONS AND WARRANTIES OF NONA.
1. NONA hereby represents and warrants that, effective this date and
the Closing Date, the representations and warranties listed below
are true and correct.
<PAGE>
2. ORGANIZATION AND AUTHORITY. NONA is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Colorado with the corporate power and
authority to carry on its business as now being conducted. NONA
has the full corporate power and authority to enter into this
Agreement and to carry out the transactions contemplated by this
Agreement. The Board of Directors of NONA have duly authorized
the execution, delivery, and performance of this Agreement. Upon
execution this Agreement constitutes the valid, binding and
enforceable obligation of NONA.
3. QUALIFICATION. As of the Closing Date, NONA will be in good
standing in the State of Colorado, and will be duly qualified to
do business in each state and jurisdiction where the failure to
qualify would have a material adverse effect on its business.
4. NO CONFLICT. The execution of this Agreement will not violate or
breach any document, instrument, agreement, contract, or
commitment material to the business of NONA or to which NONA is a
party, and has been duly authorized by all appropriate and
necessary action.
5. FULL DISCLOSURE. The information concerning NONA set forth in
this Agreement is 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.
6. ABILITY TO CARRY OUT AGREEMENT. To the best of NONA'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 NONA is a party or to which
NONA is subject so as to give rise to a claim by anyone against
NONA. Other than such violations, breaches, or defaults which,
individually or in the aggregate, will not have a material
adverse effect on the enforceability or validity of this
Agreement or on the transactions contemplated under 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 NONA of this Agreement.
7. SECURITIES LAWS. NONA is a public company and is required to file
periodic reports under Section 12(g) of the '34 Act. NONA
represents that all reports required to be filed pursuant to the
'34 Act and any applicable U.S. state "Blue Sky" laws have been
filed.
8. BROKERS. NONA 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 CMA Shares or any portion thereof. To the
best of NONA'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. NONA further
agrees to indemnify and hold harmless NGI against liability to
any broker claiming to act on behalf of NONA.
<PAGE>
9. APPROVALS. Except as otherwise provided in this Agreement, to
NONA's best knowledge and belief 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 NONA in connection with the execution, delivery, or
performance of this Agreement, except for the filing of Form 8-K
following the Closing.
10. DATE OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of NONA 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.
C. DAMAGES AND LIMIT OF LIABILITY OF NGI.
1. NGI shall be liable to NONA for any material breach of the
representations, warranties, and covenants contained herein
which results in a failure to perform any obligations under
this Agreement, but only to the extent of the expenses
actually incurred by NONA in connection with such breach or
failure to perform Agreement.
D. TERMINATION.
This Agreement may be terminated at any time prior to the Closing Date:
BY NONA OR NGI:
1. 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 such Board of Directors made in good faith and
based upon the advice of legal counsel, makes it inadvisable
to proceed with the transactions contemplated by this
Agreement; or
2. If the Closing shall not have occurred prior to May 15, 1997
or such later date as shall have been approved by parties
hereto, other than for reasons set forth herein.
BY NONA.
1. If NGI shall fail to comply in any material respect with any of
its covenants or agreements contained in this Agreement, or if
any of the representations or warranties of NGI contained herein
shall be inaccurate in any material respect.
2. BY NGI. If NONA shall fail to comply in any material respect with
any of its covenants or agreements contained in this Agreement,
or if any of the representations or warranties of NONA contained
herein shall be inaccurate in any material respect.
EFFECT OF TERMINATION. In the event this Agreement is terminated
pursuant to this Section 6, this Agreement shall be of no further force
or effect, and no obligation, right, or liability shall arise hereunder
and each party shall bear its own costs in connection with the
negotiation, preparation, and execution of this Agreement and any due
diligence conducted pursuant to this Agreement.
<PAGE>
D. PRIVATE TRANSACTION.
NONA understands that the CMA Shares have not been registered under the
Act and the transfer of such shares hereunder is made pursuant to an
exemption from registration pursuant to Regulation D and Section 4(2)
of the Act, and NGI's reliance on such exemption is predicted in part
on the representations set forth herein and in the Investment Letter
attached hereto as Exhibit "C" ("Investment Letter").
E. ACCESS TO INFORMATION.
NONA and NGI represent that, by virtue of their respective economic
bargaining power or otherwise, they have had access to or has been
furnished with, prior to or concurrently with the execution hereof, the
same kind of information that would be available in a registration
statement under the Act should registration of the CMA Shares had been
necessary, and that they have had the opportunity to ask questions of
and receive answers from the other party, or any party acting on their
behalf, concerning the business of CMA and that they have bad the
opportunity to obtain any additional information, to the extent that
CMA and NGI possesses such information or can acquire it without
unreasonable expense or effort, necessary to verify the accuracy of
information obtained or furnished by CMA or NGI.
G. INDEMNIFICATION BY NGI.
As provided herein, NGI shall indemnify and hold harmless NONA for two
(2) years 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 by
NGI to NONA hereunder.
H. INDEMNIFICATION BY NONA.
As provided herein, NONA shall indemnify and hold harmless NGI for two
(2) years 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 by
NONA to NGI hereunder.
I. ADDITIONAL COVENANTS.
Between the date hereof and the Closing Date, except with the prior
written consent of NONA, NGI shall cause CMA to:
1. CONDUCT BUSINESS AS USUAL: CMA shall conduct its business only in
the usual and ordinary course and the character of such business
shall not be changed nor any different business be undertaken
without the written consent of NONA.
2. NGI TO MAINTAIN CURRENT CAPITAL STRUCTURE: No change shall be
made in the authorized or issued capital stock of CMA without the
written consent of NONA.
<PAGE>
3. AVOID SPECIAL SETTLEMENTS: CMA shall not discharge or satisfy any
lien or encumbrance or obligation or liability, other than
current liabilities shown on the financial statements contained
in the CMA Disclosure Documents, and current liabilities incurred
since that date in the ordinary course of business.
4. AVOID DISTRIBUTIONS: CMA shall not make any payment or
distribution to its stockholders or purchase for cash or redeem
any of its shares of capital stock.
5. AVOID ENCUMBRANCE OR CANCELLATION OF DEBT: CMA shall not
mortgage, pledge, or subject to lien or encumbrance any of its
assets, tangible or intangible not in the ordinary course of
business. CMA shall not cancel any debts or claims or waive any
rights not in the ordinary course of business.
6. PROVIDE ADDITIONAL INFORMATION: CMA and the officers of CMA will
agree that after the Closing, they will continue to furnish NONA
with such additional documentation and information regarding CMA
as is reasonably requested.
J. DOCUMENTS AT CLOSING.
At the Closing the following transactions shall occur, all of such
shall transactions being deemed to occur simultaneously:
1. ACTION BY NGI. NGI will deliver, or cause the following to be
delivered to NONA through escrow:
2. Stock certificate(s) for the CMA Shares to be issued to NONA
pursuant to this Agreement together with such good and sufficient
stock powers, and other good and sufficient instruments of sale,
conveyance, transfer, and assignment, in form and substance
satisfactory to NONA's counsel, as shall be required or as may be
appropriate in order to effectively vest in NONA good,
indefeasible, and marketable title to the CMA shares free and
clear of all liens and encumbrances of every nature;
3. A certificate executed by the NGI to the effect that all
representations and warranties made by NGI under this Agreement
are true and correct as of the Closing, the same as though
originally given to NONA on said date;
4. A certificate dated at or about the date of the Closing to the
effect that CMA is in good standing under the laws of Utah;
5. Such other instruments, documents, and certificates, if any, as
are required to be delivered pursuant to the provisions of this
Agreement, or which may be reasonably requested by NONA in
furtherance of the intent of this Agreement.
ACTION BY NONA.
NONA will deliver or cause to be delivered to NGI through escrow:
1. A check in the sum of $1,140,000 made payable to NGI;
2. An acknowledgment that $95,000 of the intercompany debt owed to
NONA by NGI has been paid.
<PAGE>
3. A certificate of NONA to the effect that all representations and
warranties of NONA made under this Agreement are reaffirmed on
the Closing Date, the same as though originally given to NGI on
said date;
4. Such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement, or
otherwise reasonably requested by NGI.
K. MISCELLANEOUS.
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 the CMA Shares transferred hereunder or
otherwise to carry out the intent and purposes of this Agreement.
1. WAIVER. Any failure on the part of any party hereto 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.
2. COSTS AND EXPENSES. Except as otherwise provided herein, all
fees, costs and expenses incurred by either party relating to
this Agreement shall be paid by the party incurring the same.
3. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in
person or sent by prepaid first class registered or certified
mail, return receipt requested to the parties hereto, or their
designees, as follows:
To NGI: NuOasis Gaming Inc.
Park Plaza, Suite 470
Irvine, California 92714
Telephone: (714) 833-5382
Telefax: (714) 833-7854
To NONA: Nona Morelli's II, Inc.
Park Plaza, Suite 470
Irvine, California 92714
Telephone: (714) 833-538 I
Telefax: (714) 833-7854
L. HEADINGS. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
a. 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.
<PAGE>
b. GOVERNING LAW. This Agreement was negotiated and is being contracted
for in the State of California, and shall be governed by the laws of
the State of California, notwithstanding any conflict-of-law provision
to the contrary.
c. BINDING EFFECT. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective
belts, administrators, executors, successors, and assigns.
d. 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 hereof. 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.
e. SEVERABILITY. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full force
and effect.
f. 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.
g. TITLE IS OF THE ESSENCE. Time is of the essence of this Agreement and
of each and every provision hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
"NONA"
NONA MORELLI'S II, INC.
By: /S/ FRED G. LUKE
------------------------------------
Name: Fred G. Luke
Title: President
"NGI"
NuOASIS GAMING INC.
By: /S/ JOSEPH MONTEROSSO
-----------------------------------
Name: Joseph Monterosso
Title: President
EXHIBIT 10.166
JOSEPH J. MONTEROSSO
NATIONAL POOLS CORPORATION
550 15TH STREET
SAN FRANCISCO, CA 94103
June 4, 1997
Mr. Fred G. Luke, Jr.
Nona Morelli's II, Inc.
2 Park Plaza, Suite 470
Irvine, CA 92714
Re: Exchange Agreement Transaction
Dear Fred:
Reference is made to that certain Exchange Agreement entered into by and among
me, Nona Morelli's II, Inc. and Universal Network Services, Inc. ("UNS")
concerning the proposed purchase by UNS of 50,000 shares of Series B Preferred
Stock issued by NuOasis Gaming, Inc. ("NuOasis"). As we have discussed, most of
the terms and conditions of that sale will be set forth in a separate agreement
to be entered into by and between me and UNS and the escrow instructions to be
signed by me, UNS and other purchasers of Series B Preferred Stock, Nona
Morelli's II, Inc. and NuOasis.
In order to expedite the closing of the transaction envisioned by the Exchange
Agreement, as well as all related transactions and to accurately reflect our
ultimate economic interest in these transactions, this letter will confirm that
I, in my sole discretion, will, on behalf of both me and Nona Morelli's II,
Inc., have the discretion to decide whether the representations and warranties
made by UNS in the Exchange Agreement are accurate and whether the conditions to
closing specified in that Agreement have been fulfilled. I may not, however,
authorize a closing of the transaction envisioned by the Exchange Agreement or
deem such representations and warranties accurate or such closing conditions
fulfilled, unless I have been informed by Richard H. Skjerven, Esq., of
Skjerven, Morrill, MacPherson, Franklin & Friel LLP, acting as escrow holder for
the various transactions identified above, that he is in a position to make
distributions to Nona Morelli's II, Inc., such that it will receive from the
proposed distribution of cash and all past cash distributions out of such escrow
to Nona Morelli's II, Inc. a total of $250,000.
Please indicate your acceptance of the agreement of these terms and conditions
by signing this letter in the blank below and returning it to me.
Very truly yours,
/S/ JOSEPH J. MONTEROSSO
---------------------------------------
Joseph J. Monterosso
The foregoing terms and conditions are accepted and agreed to.
NONA MORELLI'S II, INC.
By: /S/ FRED G. LUKE
-----------------------------
Fred G. Luke, CEO
EXHIBIT 10.167
June 2, 1997
Richard H. Skjerven, Esq.
Skjerven, Morrill, MacPherson, Franklin & Friel LLP
25 Metro Drive, Suite 700
San Jose, CA 95110
Re: Escrow Instructions for Joseph Monterosso/National Pools Corporation/Nona
Morelli's II, Inc./NuOasis Gaming, Inc. Transactions
Dear Mr. Skjerven:
This letter shall serve as joint escrow instructions by the undersigned to you
in connection with the Stock Purchase Agreement between Nona Morelli's II Inc.
("Nona") and Joseph J. Monterosso and/or his assignees, dated May 1, 1997 (the
"Nona Agreement"), the Stock Purchase Agreement between NuOasis Gaming, Inc.
("NuOasis") and the Stockholders of National Pools Corporation (the "Selling NPC
Stockholders"), dated December 19, 1996 (the "NPC Agreement"), and the Stock
Purchase Agreement between Nona and NuOasis, dated May 1, 1997 (the "CMA
Agreement")
1. APPOINTMENT AS ESCROW HOLDER. Pursuant to the Nona Agreement, a copy of
which is attached hereto as Exhibit "A", the NPC Agreement, a copy of
which is attached hereto as Exhibit "B", and the CMA Agreement, a copy
of which is attached hereto as Exhibit "C", the parties are each
required to deposit with a mutually acceptable third party, as Escrow
Holder, funds and other documents and securities required to be
delivered to the other parties to each such agreement pursuant to the
terms and conditions of such agreement.
In consideration for the covenants contained herein, the adequacy and
sufficiency of which are expressly acknowledged, Nona, NuOasis, Mr.
Monterosso (on behalf of himself and his assignees) and the Selling NPC
Stockholders (all as evidenced by their signatures hereto) mutually
agree with you to engage you as Escrow Holder to effect a Closing and
to carry out the intent and purposes of the Nona Agreement, the NPC
Agreement and the CMA Agreement.
In this regard, subject to your acceptance of these instructions and
agreement, Nona, NuOasis, Mr. Monterosso and/or his assignees and the
Selling NPC Stockholders agree with you as follows:
2. HOLDING OF DOCUMENTS, ETC. You are hereby irrevocably authorized and
instructed to receive, together with the instant instructions:
A. For the Nona Agreement:
(i) A counterpart original of Exhibit "A" hereto, (the Nona
Agreement), executed by Mr. Monterosso and/or his assignees and
by Nona;
(ii) The sum of at least US$1,235,000 in certified or verified funds
and, at the option of Mr. Monterosso and/or his assignees, up to
an additional US$2,015,000; and
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(iii)The stock certificate, together with a properly executed
assignment or stock power, representing Two Hundred Fifty
Thousand (250,000) shares of Series B Preferred Stock of NuOasis
(the "NuOasis Shares").
(iv) Various other agreements entered into by the parties, including
an Exchange Agreement or another document entered into by the
parties that specifies that certain securities and obligations
may be accepted in lieu of cash as payment for certain of the
NuOasis shares, the securities and obligations to be so accepted,
provided nothing in such instrument which would adversely affect
your ability to make the distribution authorized by Paragraph
E(v) below, a letter agreement pertaining to certain intercompany
debt, and two Indemnity Agreements, one in favor of Mr. Fred G.
Luke and one in favor of NuOasis and release receipt letters by
various consultants of NuOasis of fees to be paid by NuOasis to
them (the "Ancillary Documents").
B. For the NPC Agreement:
(i) Counterpart originals of Exhibit "B" hereto, (the NPC Agreement),
executed by NuOasis and by the Selling NPC Stockholders;
(ii) A series of Convertible Promissory Notes ("Notes") in favor of
the individual NPC Selling Stockholders in the aggregate
principal amount of One Million, Two Hundred Thousand Dollars
($1,200,000) representing the Purchase Price (as defined in the
NPC Agreement) in such individual denominations as the NPC
Shareholders have instructed;
(iii)Stock certificates representing up to One Million (1,000,000)
shares of Common Stock of NuOasis in such individual
denominations as the NPC Shareholders have instructed; and
(iv) The stock certificates, together with properly executed
assignments or stock powers, representing all the issued and
outstanding shares of common stock of NPC.
C. For the CMA Agreement:
(i) A counterpart original of Exhibit "C" hereto, (the CMA
Agreement), executed by Nona and by NuOasis; and
(ii) The stock certificate, together with a properly executed
assignment or stock power, representing Seven Million Five
Hundred Thousand shares (7,500,000) of common stock of Casino
Management of America, Inc., a Utah corporation; and
(iii)A release in favor of Nona executed by NuOasis which is one of
the Ancillary Documents, specifically the letter agreement
pertaining to intercompany debt.
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You shall hold all such documents and instruments deposited in
escrow as you deem best. All funds deposited in escrow shall be
held in a trust account you establish with interest payable to
those persons depositing the same.
3. DELIVERY OF DOCUMENTS. When you have received all of the foregoing (except
that neither all or any part of the additional U.S.$2,015,000 referred to
above shall be required for you to take action under paragraphs A, B, C or
D below) and you have determined, in your reasonable discretion, or have
otherwise been informed in writing by the parties that all conditions
precedent to the close of the transaction envisioned by the Nona Agreement,
the NPC agreement and the CMA Agreement have been satisfied, you are
authorized to proceed with an initial Closing and you are hereby
irrevocably authorized and instructed to perform the following actions:
A. For the Nona Agreement:
(i) On behalf of Mr. Monterosso and/or his assignees, deliver the
$1,235,000 or such other greater sum as may be specified by Mr.
Monterosso and/or his assignees and deposited in escrow, to Nona,
$1,140,000 of which shall be immediately and simultaneously
distributed per the instruction set forth in C.(i) below; and
(ii) On behalf of Nona, deliver certificates to Mr. Monterosso and/or
his assignees evidencing the number of the NuOasis Shares that
Mr. Monterosso and/or his assignees are entitled to receive under
the Nona Agreement.
B. For the NPC Agreement:
(i) On behalf of NuOasis, deliver to the NPC shareholders the series
of Notes (aggregating $1,200,000, or such lesser amount,
withholding the corresponding number of Notes attributable to
those Selling NPC Stockholders who have not executed the NPC
Agreement) and certificates evidencing shares of common stock of
NuOasis (aggregating 1,000,000 or such lesser number, withholding
the corresponding number of such shares attributable to those
selling NPC Stockholders who have not executed the NPC
Agreement). You shall hold any shares or one of the Notes
attributable to any option held by Ronald McGee pursuant to a
previously executed agreement applicable to such shares and Note.
(ii) On behalf of the Selling NPC Stockholders, deliver the
certificate(s) evidencing the NPC Shares to NuOasis.
(iii)On behalf of Nona deliver the Indemnification Agreement in favor
of NuOasis (one of the Ancillary Documents) to NuOasis.
C. For the CMA Agreement:
(i) On behalf of Nona, deliver the $1,140,000 or such greater sum as
is received from Mr. Monterosso and/or his assignees to NuOasis
for immediate and simultaneous distribution per the instruction
set forth in (iii) below; provided, however, you shall retain the
difference obtained by subtracting the amount distributed
pursuant to (iii) below from $250,000.
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(ii) On behalf of NuOasis, deliver the stock certificate evidencing
the CMA Shares to Nona; and
(iii)On behalf of Mr. Monterosso and/or his assignees and NuOasis,
deliver at least $1,140,000 of the $1,235,000 or such greater sum
as is received from Nona via Mr. Monterosso and/or his assignees
to NPC as additional paid in capital from NuOasis to NPC and for
distribution pursuant to D below.
(iv) On behalf of NuOasis, deliver $95,000 or more (at the rate of
$1.00 for each share of Series B Preferred Stock purchased by Mr.
Monterosso or his assigns in addition to the first 95,000 shares
purchased) to Nona.
(v) On behalf of NuOasis, deliver the Indemnification Agreement in
favor of Mr. Luke (one of the Ancillary Documents) to Mr. Luke.
D. Additional Disbursements at Closing Approved by NuOasis:
Out of funds received by NPC at Closing and on behalf of NPC, or
deposited in escrow from the sale of securities of NuOasis by NuOasis
for such purpose or purposes, NuOasis approves and ratifies the
payment of up to $180,000 as follows:
(a) approximately $15,000 to the Internal Revenue Service in
satisfaction of a tax lien;
(b) up to $250,000 to persons:
[1] who after December 31, 1995 had made bridge loans to NPC; or
[2] who performed legal services on NPC's behalf; or
[3] who performed audit services on NPC's behalf; or
[4] have provided administrative services to NPC.
Said parties are to provide written evidence, approved by NPC, of
such bridge loans, legal services, audit services and
administrative services prior to Closing.
If you fail to receive any notice to close from the parties within 30
days of your receipt of all the funds, documents and securities set
forth in Paragraph 2, or otherwise are unable to determine that all of
the conditions precedent to the transactions envisioned by the Nona
Agreement, the NPC Agreement or the CMA Agreement have been satisfied,
you shall return to each respective depositing party the funds,
securities or documents deposited by such party into escrow promptly
upon the expiration of said 30 day period; provided, however, this 30
day period shall not expire until 120 days after the date on which
NuOasis is first scheduled to hold a meeting of its shareholders
pursuant to a proxy solicitation approved by the SEC.
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E. Disbursements at Second Closing:
If after the deliveries referred to above, Mr. Monterosso and Nona
shall deliver to you notice of their agreement on a new option
exercise price for the NuOasis Shares, or, in any case, for at least
the 120 day period referred to above, you shall hold the certificates
evidencing the NuOasis Shares remaining in escrow, the Release
referred to in Paragraph 1.C.(iii) above and any funds deposited by
Mr. Monterosso and/or his assignees not released in the initial
closing. Upon either (i) the expiration of the 120 day period referred
to above, (ii) the earlier receipt and notice from Mr. Monterosso
and/or his assignees and Nona or (iii) the deposit of the sum of
$2,015,000, you shall make the following disbursements:
(i) On behalf of Mr. Monterosso and/or his assignees, deliver all or
any part of the $2,015,000 in cash and/or securities and
obligations previously deposited to Nona, $1,860,000 of which
shall be immediately and simultaneously distributed as set forth
in (iv) below;
(ii) On behalf of Nona, deliver certificates to Mr. Monterosso and/or
his assignees evidencing the number of the NuOasis Shares that
Mr. Monterosso and/or his assignees are entitled to receive under
the Nona Agreement.
(iii)On behalf of Nona, deliver the $1,860,000 or such lesser sum of
cash and/or securities and obligations received from Mr.
Monterosso and/or his assignees to NuOasis for immediate and
simultaneous distribution per the instructions set forth in (iv)
below;
(iv) On behalf of NuOasis, deliver the $1,860,000 of cash and/or
securities and obligations (less any amount to be distributed
pursuant to (v) below) received from Nona via Mr. Monterosso
and/or his assignees to NPC as additional paid in capital from
NuOasis to NPC and make the distributions envisioned by (v)
below;
(v) On behalf of Mr. Monterosso and/or his assignees and NuOasis,
deliver cash in the amount of the difference obtained by
subtracting from $250,000 the amount distributed pursuant to
Paragraph C.(iv) above.
(vi) On behalf of each signing party, deliver an original of the
Ancillary Documents not previously released from escrow to the
other party or parties thereto.
Without limiting the generality of the foregoing, you shall release to
Mr. Monterosso and/or his assignees any additional funds they deposit
in escrow solely on their instructions if such instructions are given
prior to the deposit of all items specified in Paragraph 2A above.
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<PAGE>
F. Early NPC Close:
Anything contained elsewhere in these instructions to the contrary
notwithstanding, upon written notice from Mr. Monterosso, you are
authorized to treat the sale of the capital stock of NPC to NuOasis by
the Selling NPC Stockholders as though it were closed in accordance
with these instructions and proceed with the closing of the other
transactions envisioned by these instructions in accordance with these
instructions, all without investigation as to the actual closing of
such sale.
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<PAGE>
4. RELATIONSHIP. The parties mutually agree and acknowledge that as far as
your rights and liabilities are concerned, this transaction is an escrow
and not any other legal relationship, and you are simply acting as an
escrow agent under the terms expressed herein.
5. TIME OF ESSENCE. Time is of the essence of this Agreement and if, for any
reason, this escrow cannot be closed as hereinabove provided or as mutually
extended by the parties hereto, this escrow shall automatically terminate
without further instruction from any party; provided, however, this 30 day
period shall not expire until 120 days after the date on which NuOasis is
first scheduled to hold a meeting of its shareholders pursuant to a proxy
solicitation approved by the SEC.
6. INDEMNIFICATION AND DEFENSE. All of the parties to this escrow hereby
jointly and severally promise to pay promptly on demand, as well as to
indemnify you and to hold you harmless from and against all litigation and
interpleader costs, damages, judgments, attorney's fees, expenses,
obligations and liabilities of every kind which, in good faith, you may
incur or suffer in connection without arising out of this escrow, whether
said litigation, interpleader obligation, liabilities or expenses arise
during the performance of this escrow or subsequent thereto, directly or
indirectly. You are hereby given a lien upon all the right, title and
interest of every party hereto in all escrow papers, securities and other
property and monies deposited into this escrow, to protect your rights and
to indemnify and reimburse you.
7. LIMIT OF RESPONSIBILITY. You are not to be held liable for the sufficiency
or correctness as to form, manner of execution, or validity of any
instruments deposited in this escrow, nor as to identity, authority or
rights of any person executing the same, nor the genuineness of any
signature, nor for failure to comply with any of the provisions of any
agreement, contract or other instrument filed herein or referred to herein,
and your duties hereunder shall be limited to the safekeeping of such
monies, instruments, securities or other documents received by you as
escrow agent, and for the disposition of same in accordance with the
foregoing instructions and other instructions provided by all affected
parties and accepted by you in this escrow.
8. FEES. Your fees for services rendered pursuant to this Agreement shall be
borne by all parties jointly and severally. It is anticipated by the
parties you will be paid out of the proceeds of this escrow. In addition,
you shall have a lien upon all property deposited with hereunder to secure
payment of your compensation and expenses.
9. RELEASE. It is mutually agreed that you shall not be liable for any action
taken or omitted by you in good faith and believed by you to be within the
discretion and power conferred upon you by this Agreement, nor for any
action taken or omitted by you when acting upon any instrument believed by
you to be genuine.
10. NOTICE. It is mutually agreed by all parties hereto that you shall not be
deemed to have notice or knowledge of any fact hereunder unless written
notice thereof is delivered to you.
11. EFFECT OF SIGNATURE. The signatures of any party on any document and/or
instruction shall be construed as that party's approval of the form,
contents, terms and conditions of such document, instrument and/or
instruction.
12. DELIVERY OF DOCUMENTS. All disbursements of funds, documents and/or
instruments of this escrow shall be delivered by commercial overnight
delivery service to the respective parties as their addresses as they
appear below.
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<PAGE>
13. COUNTERPARTS. These instructions may be executed in counterparts, each of
which so executed shall irrespective of the date of its execution and
delivery be deemed an original, and said counterparts together shall
constitute one and the same instrument.
14. DISPUTES. It is mutually agreed that if any dispute arises among or between
the parties, or between either party and you before Closing, as to any
action to be taken by you or as to your rights and duties hereunder, you
may upon written request terminate this Escrow and immediately return all
documents, funds or certificates deposited herewith to the respective
depositing party. In such event, you shall thereupon be discharged from all
obligation to account to any party.
15. GOVERNING LAW. These instructions shall be governed by and construed in
accordance with the laws of the United States, State of California. In the
event that an action shall be brought to determine or enforce the
respective rights and liabilities of the parties, venue shall be deemed to
be in Santa Clara County, California.
16. ASSIGNMENT. This Agreement and these escrow instructions shall be binding
on and inure to the benefit of the heirs, executors, administrators,
successors and assigns of the parties hereto.
17. AMENDMENT. It is mutually agreed that you are to disregard any future or
further instructions from either party severally hereto. Once these
instructions have been received by you, the respective instructions of the
parties may only be amended, supplemented or modified by means of a written
amendment that has been signed in writing by all parties hereto. Any
purported oral amendment, supplement or modification of these instructions
shall be ineffective and invalid.
"NuOasis" "Escrowholder"
NuOASIS GAMING INC.
a Delaware corporation
By: /S/ FRED G. LUKE /S/ RICHARD J. SKJERVEN
----------------------------- ---------------------------------------
Name: RED G. LUKE Richard J. Skjerven
Title: CHAIRMAN
"Nona"
NONA MORELLI'S II INC.
a Colorado corporation
By: /S/ FRED G. LUKE
-----------------------------
Name: FRED G. LUKE
Title: CEO
/S/ JOSEPH J. MONTEROSSO
- ----------------------------------
Joseph J. Monterosso
8
<PAGE>
Series B Preferred Stock Purchasers
Listed on Schedule I
By: /S/ JOSEPH J. MONTEROSSO
-----------------------------
Joseph J. Monterosso,
their Attorney-in-Fact
9
EXHIBIT 10.168
ASSIGNMENT
KNOW ALL THESE MEN BY THESE PRESENTS:
THIS ASSIGNMENT is made and entered into by and between NuOasis Gaming,
Inc., a Delaware corporation ("Assignor"), and Nona Morelli's II, Inc., a
Colorado corporation ("Assignee").
WITNESSETH: That for and in Consideration of Ten Dollars ($10) and
other good and valuable consideration, the receipt of which is hereby
acknowledged, Assignor hereby bargains, sells, grants and conveys unto Assignee,
all of Assignor's right, title and interest in the Seven Million five Hundred
Thousand (7,500,000) shares of common stock of Casino Management of America
Inc., a Utah corporation (the "CMA shares"), to have and to hold forever.
Assignor warrants that it has the power and authority, and does hereby sell and
transfer the CMA Shares to Assignee.
IN WITNESS WHEREOF, I have caused this instrument to be executed
effective the 5th day of May 1997.
"Assignor"
NuOasis Gaming, Inc., a Delaware corporation
By: /S/ JOSEPH MONTEROSSO
--------------------------------------------
Name: Joseph Monterosso
1
EXHIBIT 10.169
INDEMNIFICATION AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") is made as of the 30th day of
May 1997 between NuOasis Gaming Inc., a Delaware corporation, with its principal
office located in Irvine, California (referred to herein as "Indemnitee") and
Nona Morelli's II, Inc., a Delaware corporation with an office in Irvine,
California (referred to herein as "Indemnitor").
IN CONSIDERATION of the sum of Ten Dollars ($10), and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged, it
is hereby agreed:
1. INDEMNIFICATION FOR CLAIMS. Indemnitor shall indemnify and hold Indemnitee
harmless from any and all liability, cost, loss or damage Indemnitee may
suffer or incur as a result of any claim, demand or judgment against
Indemnitee arising out of a claim by a third party that constitutes a
breach of any representation or warranty by NuOasis Gaming, Inc. under that
certain Stock Purchase Agreement by and between NuOasis Gaming, Inc. and
the shareholders of National Pools Corporation or that is due to the
assertion of a claim by any third party or the attempt to collect debt by
any third party purportedly due from NuOasis Gaming, Inc. and not
specifically set forth in Exhibit G to such Stock Purchase Agreement or
otherwise or that is due to the acquisition or disposition or management of
Casino Management of America, Inc. by NuOasis Gaming, Inc. prior to May 30,
1997; provided, however, Indemnitor shall have no liability under this
indemnity to the extent such loss, cost, or damage is the direct result of
the actions or omissions of management of Indemnitee on and after May 5,
1997.
2. DEFENSE OF CLAIMS. Indemnitor also agrees to defend or reimburse Indemnitee
for its reasonable costs in defending any claims brought or actions filed
against Indemnitee with respect to the subject of the indemnity contained
herein, including those which may not result in a payment of indemnity due
to Indemnitor's action or inaction after Indemnitor ceased to control
Indemnitee's affairs, whether such claims or actions are rightfully or
wrongfully brought or filed, provided, in any case, Indemnitor controls the
defense of such claim or suit and Indemnitee complies with Paragraph 4
below. Control of defense shall mean the right to select defense counsel,
which shall be reasonably acceptable to Indemnitee, and, after
consultations with Indemnitee, to determine the defense strategy, to
authorize any settlement offer made to plaintiff(s) and to accept or to
reject any settlement offer made by plaintiff(s).
3. TERM OF INDEMNITY. The indemnity under this Agreement shall commence on the
date hereof, and shall continue in full force and effect until June 30,
2002, and beyond that date for any claim or action brought before that
date.
4. NOTICE OF CLAIMS BY INDEMNITEE. Indemnitee agrees to notify Indemnitor in
writing within ten (10) days by registered mail, return receipt requested,
at Indemnitor's address, of any claim made against Indemnitee in respect to
obligations for which Indemnitee is hereby indemnified by Indemnitor
against or for which Indemnitor is obligated to provide a defense.
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5. MISCELLANEOUS.
A. 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 otherwise to carry out the intent and purposes of this
Agreement.
B. WAIVER. Any failure on the part of any party hereto 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.
C. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in person
or sent by prepaid first class registered or certified mail, return
receipt requested to the parties hereto, or their designees, as
follows, or at such other address as either party may subsequently
provide to the other pursuant to this paragraph:
To Indemnitee: NuOasis Gaming, Inc.
550 15th Street
San Francisco, CA 94103
Telephone: (415) 575-0222
Telefax: (415) 861-4177
To Indemnitor: Nona Morelli's II, Inc.
2 Park Plaza, Suite 470
Irvine, CA 92714
Telephone: (714) 833-5381
Telefax: (714) 833-7854
D. HEADINGS. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
E. GOVERNING LAW. This Agreement was negotiated and is being contracted
for in the State of California, and shall be governed by the laws of
the State of California, notwithstanding any conflict-of-law provision
to the contrary.
F. 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.
G. 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 hereof. 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.
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H. SEVERABILITY. If any party of this Agreement is deemed to be
unenforceable, the balance of this Agreement shall remain in full
force and effect.
I. 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 and may
be delivered in original or by facsimile or similar instantaneous
electronic transmission device pursuant to which the signature of or
on behalf of such party can be seen, and in such case the facsimile
execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party hereto, all
parties agree to deliver an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof subsequent to the
effective date.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
"Indemnitor"
NONA MORELLI'S II, INC.
By: /S/ FRED G. LUKE
---------------------------------------
Fred G. Luke
"Indemnitee"
NuOASIS GAMING, INC.
By: /S/ JOSEPH MONTEROSSO
---------------------------------------
Name: Joseph Monterosso
Title: President
3
EXHIBIT 10.170
INDEMNIFICATION AGREEMENT
THIS INDEMNITY AGREEMENT ("Agreement") is made as of the 30th day of
May 1997 between NuOasis Gaming Inc., a Delaware corporation, with its principal
office located in Irvine, California (referred to herein as "Indemnitor") and
Fred Gordon Luke, an individual residing in Irvine, California and former
President of the Board of NuOasis Gaming, Inc. (referred to herein as
"Indemnitee").
IN CONSIDERATION of the sum of Ten Dollars ($10), and other good and
valuable consideration, including Indemnitee's termination of that certain
Employment Agreement dated August ___, 1995, such termination to be effective
upon the closing of the sale of all 250,000 shares of Series B Preferred Stock
issued by NuOasis Gaming, Inc. to Joseph Monterosso and/or his assignees by Nona
Morelli's II, Inc., (the "Resignation Date"), the receipt and sufficiency of
which is acknowledged, it is hereby agreed:
1. INDEMNIFICATION FOR PAST SERVICES. Indemnitor shall indemnify Indemnitee
from any and all liability, cost, loss or damage Indemnitee may suffer or
incur as a result of claims, demands or judgments against Indemnitee
arising from Indemnitee's past services in any capacity to Indemnitor
brought by any third party, except to the extent the same are due to any
intentionally wrongful or bad faith act of Indemnitee, but not excluding
liability, loss or damage to Indemnitee attributable to the action or
inaction by Indemnitee's successors in the management of Indemnitor for
which Indemnitor shall be responsible.
2. DEFENSE OF CLAIMS. Indemnitor also agrees to defend or reimburse Indemnitee
for his reasonable costs in defending any claims brought or actions filed
against Indemnitee with respect to the subject of the indemnity contained
herein, including those which may not result in a payment of indemnity due
to Indemnitor's bad faith or intentionally wrongful act or omissions,
whether such claims or actions are rightfully or wrongfully brought or
filed, provided, in any case, Indemnitor controls the defense of such claim
or suit and Indemnitee complies with Paragraph 4 below.
3. TERM OF INDEMNITY. The indemnity under this Agreement shall commence on the
date hereof, and shall continue in full force and effect until June 30,
2002 and beyond that date for any claim or action brought before that date.
4. NOTICE OF CLAIMS BY INDEMNITEE. Indemnitee agrees to notify Indemnitor in
writing within ten (10) business days by registered mail, return receipt
requested, at Indemnitor's address, of any claim made against Indemnitee in
respect to obligations for which Indemnitee is hereby indemnified by
Indemnitor against or for which Indemnitor is obligated to provide a
defense.
5. RELEASE OF CLAIMS BY INDEMNITOR. Indemnitor hereby releases Indemnitee from
any and all claims or causes of action, of any sort whatsoever, excepting
only claims based on bad faith, intentional misappropriation of funds for
personal use, which Indemnitor may now or may hereafter have against
Indemnitee from arising out of any action or omission of Indemnitee in his
capacity as a direction or officer of Indemnitor from the beginning of time
through the Resignation Date.
1
<PAGE>
6. RELEASE OF CLAIMS BY INDEMNITEE. Indemnitee hereby releases Indemnitor from
any and all claims and causes of action of any sort whatsoever, excepting
only compensation due under any agreement entered into by the parties or
agreed to be assumed by Indemnitor or Joseph Monterosso as part of the
purchase by Joseph Monterosso and assigns of Series B Preferred Stock of
Indemnitor.
7. UNKNOWN CLAIMS. This release extends to claims which the parties may not
know or suspect to exist at the time of executing this Agreement and the
parties hereby waive the benefit of Section 1542 of the California Civil
Code (and all other statutes and court decisions of similar import) which
is set forth below:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
8. ASSISTANCE WITH CLAIMS. In addition to the indemnification and release
obligations of Indemnitor hereunder, Indemnitor will provide Indemnitee
with access to any information and documents in its possession or control
which would assist Indemnitee in the defense of any claim whatsoever,
provided such information or document is not subject to a contractual or
legal restriction or disclosure.
9. MISCELLANEOUS.
A. 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 otherwise to carry out the intent and purposes of this
Agreement.
B. WAIVER. Any failure on the part of any party hereto 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.
C. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in person
or sent by prepaid first class registered or certified mail, return
receipt requested tot he parties hereto, or their designees, as
follows:
To Indemnitor: Joseph Monterosso
NuOasis Gaming, Inc.
550 15th Street
San Francisco, CA 94103
Telephone: (415) 575-0222
Telefax: (415) 861-4177
2
<PAGE>
To Indemnitee: Fred G. Luke
2 Park Plaza, Suite 470
Irvine, CA 92714
Telephone: (714) 833-5381
Telefax: (714) 833-7854
D. HEADINGS. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
E. GOVERNING LAW. This Agreement was negotiated and is being contracted
for in the State of California, and shall be governed by the laws of
the State of California, notwithstanding any conflict-of-law provision
to the contrary.
F. 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.
G. 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 hereof. 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.
H. SEVERABILITY. If any party of this Agreement is deemed to be
unenforceable, the balance of this Agreement shall remain in full
force and effect.
I. 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 and may
be delivered in original or by facsimile or similar instantaneous
electronic transmission device pursuant to which the signature of or
on behalf of such party can be seen, and in such case the facsimile
execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party hereto, all
parties agree to deliver an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof subsequent to the
effective date.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
"Indemnitee"
/S/ FRED GORDON LUKE
---------------------------------------
Fred Gordon Luke
"Indemnitor"
NuOASIS GAMING, INC.
By: /S/ JOSEPH MONTEROSSO
----------------------------------
Name: Joseph Monterosso
Title: President
3
EXHIBIT 10.171
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (the "Agreement") is made this 22nd day
of August 1997, by and between Nona Morelli's II Inc., a corporation organized
under the laws of Colorado ("Nona") and Joseph Monterosso, an individual with an
office in San Francisco, California ("Monterosso").
WHEREAS, on January 13, 1994, E.N. Phillips Company, a Delaware
corporation, now known as Group V Corporation ("Group V"), entered into that
certain Stock Purchase Agreement with Nona pursuant to which Nona was granted
New Series D Warrants to Purchase Common Stock ("Warrants") giving it the right
to purchase up to 12,000,000 shares of common stock of Group V, as more fully
described in the Warrant Agreement annexed hereto as Exhibit "A" (the "Warrant
Agreement"); and,
WHEREAS, Monterosso wishes to acquire Nona's rights under the Warrant
Agreement.
IN CONSIDERATION of the mutual promises contained herein, the benefits
to be derived by each party hereunder and other good and valuable consideration,
the receipt and sufficiency of which are hereby expressly acknowledged, Nona and
Monterosso agree as follows:
1. Purchase and Sale
On the basis of the representations and warranties herein contained,
subject to the terms and conditions set forth herein, and for the
Purchase Price (as defined herein), Nona agrees to sell its rights and
interest in the Warrant Agreement, and Monterosso agrees to purchase
the Warrant Agreement.
2. Purchase Price
The Purchase Price for the Warrant Agreement shall be One Million Eight
Hundred Thousand Dollars ($1,800,000) consisting of a Secured
Promissory Note issued by Monterosso, a copy of which is annexed hereto
as Exhibit "B" (the "Note"), to be issued in one or more series at the
election of Nona. The Note is to be secured by the Warrants pursuant to
the Security Agreement, a copy of which is attached hereto as Exhibit
"C" ("Security Agreement").
3. Effective Date and Closing
The closing of the purchase and sale contemplated by this Agreement
(the "Closing") shall occur upon such date that the parties have
satisfied their respective obligations and covenants contained herein,
but shall not be later than August 15, 1997. At the Closing, Monterosso
shall deliver the Note to Nona and Nona shall assign the Warrant
Agreement subject to Nona's rights to retain its rights to the Warrants
pursuant to its security interest in the Warrant Agreement.
Notwithstanding the date of Closing, the Effective Date shall be August
8, 1997.
5
<PAGE>
4. Representations and Warranties of Nona
Nona hereby represents and warrants to Monterosso that:
A. Organization. Nona is a corporation validly existing and in good
standing under the laws of Colorado, with the power and authority
to carry on its business as now being conducted. The execution
and delivery of this Agreement and the consummation of the
transaction contemplated in this Agreement have been, or will be
prior to Closing, duly authorized by all requisite corporate
action on the part of Nona. This Agreement has been duly executed
and delivered by Nona and constitutes a binding, and enforceable
obligation of Nona.
B. Third Party Consent 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 Nona in
connection with the execution, delivery, or performance of this
Agreement, or if required, Nona has or will obtain same prior to
Closing.
C. Litigation. Nona is not a defendant or a plaintiff against whom a
counterclaim has been made or reduced to judgement, in any
litigation or proceedings before any local, state or U.S.
government, or any department, board, body or agency thereof,
which could result in a claim against the Warrants; and,
D. Status of Warrant Agreement. The Warrant Agreement is a valid and
binding derivative security issued by GRPV and Nona has not
created any option, security interest or encumbrance involving
the Warrant Agreement or the underlying Warrants that would give
rise to any claims by third parties or otherwise conflict with or
preclude the sale as contemplated herein.
E. Authority. This Agreement has been duly executed by Nona, and the
execution and performance of this Agreement will not violate, or
result in a breach of, or constitute a default in any agreement,
instrument, judgement, order or decree to which Nona is a party
or to which Nona is subject; and,
5. Conditions Precedent to Obligations of Nona and Monterosso
All obligations of Nona under this Agreement are subject to the
fulfillment, prior to or as of the Closing Date, of each of the
following conditions:
A. Issuance of Note. Monterosso shall have taken all action
necessary to issue and shall have executed the Note and Security
Agreement and delivered same to Nona pursuant to this Agreement.
B. Assignment of Warrant Agreement. Nona shall have taken all action
necessary to assign the Warrant Agreement, subject to the
Security Agreement, to Monterosso.
C. Acceptance of Documents. All instruments and documents delivered
to Nona pursuant to the provisions of this Agreement shall be
satisfactory to Nona and its legal counsel.
6
<PAGE>
6. Availability of Information
Nona and Monterosso each represent that, by virtue of their respective
business activities and economic bargaining power or otherwise, they
have been able to conduct their own due diligence and have had access
to or have been furnished with, prior to or concurrently with the
execution hereof, the information which they consider to be adequate to
make a decision to exchange the Warrant Agreement for the Note.
7. Private Transaction
A. Private Offering. Monterosso understands that the Warrant
Agreement and the underlying Warrants are being transferred to
him in reliance on specific exemptions from the registration
requirements of the United States federal and state securities
rules and regulations, and that Nona is relying upon the truth
and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Monterosso set forth herein
in order to determine the applicability of such exemptions to
this transaction.
B. No Registration; No Public Market. The Warrant Agreement and the
underlying Warrants have not been registered under the United
States Securities Act of 1933, as amended (the "Act"), nor
qualified under applicable state securities laws. There is no
present public market for the Warrants. The Warrants and the
common stock into which the Warrants may be converted may be
acquired for investment purposes only and not with a view to
distribution or resale, and may not be sold, mortgaged, pledged,
hypothecated or otherwise transferred or offered to be so sold
without an effective registration statement under the Act and the
regulations promulgated pursuant thereto.
C. Purchase for Own Account. Monterosso is not an underwriter of, or
dealer in, the Warrants and Monterosso is not acting as such or
participating, pursuant to a contractual agreement, in the
distribution of the Warrants.
D. Investment Risk. Because of Monterosso's financial position and
other factors, the exchange contemplated by this Agreement may
involve a high degree of financial risk, including the risk that
Monterosso may lose his entire investment.
E. Access to Information. Monterosso and his advisors have been
afforded the opportunity to discuss the transaction with legal
and accounting professionals and, as the President and Control
Person of GRPV, to examine and evaluate the financial condition
of GRPV.
8. Termination
This Agreement may be terminated at anytime prior to the date of
Closing by either party if (a) 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
transaction contemplated by this Agreement, and which, in the judgment
of such party giving notice to terminate and based upon the advice of
legal counsel, makes it inadvisable to proceed with the transaction
contemplated by this Agreement, or (b) if the transaction contemplated
herein has not closed by August 15, 1997.
7
<PAGE>
9. Miscellaneous
A. Authority. Monterosso and the officers of Nona executing this
Agreement are duly authorized to do so and each party has taken
all action required by law or otherwise to properly and legally
execute this Agreement.
B. Notices. Any notice under this Agreement shall be deemed to have
been sufficiently given if sent by registered or certified mail,
postage prepaid, addressed as follows:
To Monterosso: Joseph J. Monterosso
550 15th Street, 3rd Floor
San Francisco, California 94103
Telephone: (415) 575-0222
Facsimile: (415) 861-4177
To Nona: Nona Morelli's II Inc.
2 Park Plaza, Suite 470
Irvine, California 92614
Telephone: (714) 833-5381
Facsimile: (714) 833-7854
or to any other address which may hereafter be designated by
either party by notice given in such manner. All notices shall
be deemed to have been given as of the date of receipt.
C. Entire Agreement. This Agreement sets forth the entire
understanding between the parties hereto and no other prior
written or oral statement or agreement shall be recognized or
enforced.
D. Severability. If a court of competent jurisdiction determines
that any clause or provision of this Agreement is invalid,
illegal or unenforceable, the other clauses and provisions of the
Agreement shall remain in full force and effect and the clauses
and provision which are determined to be void, illegal or
unenforceable shall be limited so that they shall remain in
effect to the extent permissible by law.
E. Assignment. None of the parties hereto may assign this Agreement
without the express written consent of the other parties and any
approved assignment shall be binding on and inure to the benefit
of such successor or, in the event of death or incapacity, on
assignor's heirs, executors, administrators and successors.
F. Applicable Law. This Agreement has been negotiated and is being
contracted for in Orange County, California, it shall be governed
by the laws of California, notwithstanding any conflict-of-law
provision to the contrary.
8
<PAGE>
G. Attorney's Fees. If any legal action or other preceding
(non-exclusively including arbitration) is brought for the
enforcement of or to declare any right or obligation under this
Agreement or as a result of a breach, default or
misrepresentation in connection with any of the provisions of
this Agreement, or otherwise because of a dispute among the
parties hereto, the prevailing party will be entitled to recover
actual attorney's fees (including for appeals and collection) and
other expenses incurred in such action or proceeding, in addition
to any other relief to which such party may be entitled.
H. No Third Party Beneficiary. Nothing in this Agreement, expressed
or implied, is intended to confer upon any person, other than the
parties hereto and their successors, any rights or remedies under
or by reason of this Agreement, unless this Agreement
specifically states such intent.
I. Counterparts. It is understood and agreed that this Agreement may
be executed in any number of identical counterparts, each of
which may be deemed an original for all purposes.
J. Further Assurances. At any time, and from time to time after the
Closing, each party hereto will execute such additional
instruments and take such action as may be reasonably requested
by the other party to confirm or perfect title to the Warrants to
be transferred hereunder, or otherwise to carry out the intent
and purposes of this Agreement.
K. Broker's or Finder's Fee; Expenses. Monterosso and Nona each
warrant that they have not incurred any liability, contingent or
otherwise, for brokers' or finders' fees or commissions relating
to this Agreement for which the other party shall have
responsibility. Except as otherwise provided herein, all fees,
costs and expenses incurred by either party relating to this
Agreement shall be paid by the party incurring same.
L. Amendment or Waiver. Every right and remedy provided herein shall
be cumulative with every other right and remedy, whether
conferred herein, at law, or in equity, and may be enforced
concurrently herewith, and no waiver by any party of the
performance of any obligation by the other shall be construed as
a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to Closing,
this Agreement may be amended by a writing signed by all parties
hereto.
M. Headings. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
9
<PAGE>
N. Facsimile. A facsimile, telecopy or other reproduction of this
instrument may be executed by one or more parties hereto and such
executed copy may be delivered by facsimile or 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 instrument as
well as any facsimile, telecopy or other reproduction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
"Nona"
Nona Morelli's II Inc.
By: /s/ Fred G. Luke
----------------------------------
Name: Fred G. Luke
Title: Chief Executive Officer
"Monterosso"
/s/ Joseph Monterosso
----------------------------------
Joseph Monterosso
10
<PAGE>
EXHIBIT "A"
to the
Warrant Purchase Agreement
dated August 22, 1997
THE WARRANT AGREEMENT
<PAGE>
EXHIBIT "B"
to the
Warrant Purchase Agreement
dated August 22, 1997
SECURED PROMISSORY NOTE
U.S. $1,800,000 August 22, 1997
Irvine, California
FOR VALUE RECEIVED, Joseph Monterosso, an individual residing in the
United States, State of California ("Maker"), hereby promises to pay to Nona
Morelli's II Inc., a Colorado corporation ("Payee"or "Holder") the principal sum
of One Million Eight Hundred Thousand Dollars ($1,800,000), payable in
installments as set forth herein, with interest at the rate of six percent (6%)
per annum payable on the Due Date. This Secured Promissory Note (the "Note") is
issued by Maker pursuant to the Warrant Purchase Agreement of even date (the
"Purchase Agreement"). This Note shall be secured by the rights to the
12,000,000 New Series D Warrants to Purchase Common Stock (the "Warrants")
conferred to Payee pursuant to the Warrant Agreement dated March 30, 1994,
between E.N. Phillips Company, a Delaware corporation, now known as Group V
Corporation (the "Company") and Payee, a copy of which is attached hereto as
Exhibit "A" (the "Warrant Agreement"). The Warrant Agreement and the underlying
Warrants are referred to herein as the"Collateral".
Payments of principal under this Note shall be made as follows:
Installment
- ---------------------------------------------
Due Date Amount
- ------------------------ ------------------
September 1, 1997 $ 23,100
October 1, 1997 46,200
November 1, 1997 69,000
December 1, 1997 184,600
January 1, 1998 184,600
February 1, 1998 184,600
March 1, 1998 184,600
April 1, 1998 184,600
May 1, 1998 184,600
June 1, 1998 184,600
July 1, 1998 184,600
August 1, 1998 184,900
------------------
$ 1,800,000
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."
[NM\PNO:JM1-8MIL.PNO]
12
<PAGE>
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
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 and Payee affirm that the indebtedness evidenced represents the
total consideration for the Warrants being acquired by Maker pursuant to the
Purchase Agreement.
This Note may be satisfied at any time, in whole or in part, at the
election of Maker, without penalty.
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 Collateral.
Upon default, the Holder may resort to any remedy, including immediate
sale of the Collateral, available to a secured party under the Uniform
Commercial Code.
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 ten (10) 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 ten (10) days prior notice
to Maker of such default and the failure of Maker to cure such default within
said ten (10) day period; (c) if Maker shall execute an assignment of any of his
property for the benefit of creditors, fail to meet any obligations herein
described, be unable to meet his debts as they mature, or be declared insolvent
by any court, suffer any judgment or decree to be rendered against him in an
amount greater than US$10,000, suffer a receiver to be appointed for any of his
property, or voluntarily seek relief or have involuntary proceedings brought
against him under any provision now in force or hereinafter enacted of any law
relating to bankruptcy; (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.
[NM\PNO:JM1-8MIL.PNO]
13
<PAGE>
Upon the occurrence of any Event of Default, which is not cured within
ten (10) 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.
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 or protecting the Collateral, whether incurred in or out of court,
including appeals and bankruptcy proceedings.
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, county of Orange and shall be governed and construed
generally according to the laws of said State and county 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 a State or United States federal court in
Orange County, California. Maker and Payee each waives any objection to the
jurisdiction of or venue in 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 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.
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.
[NM\PNO:JM1-8MIL.PNO]
14
<PAGE>
A facsimile, telecopy or other reproduction of this instrument may be
executed by one or more parties hereto and such executed copy may be delivered
by facsimile or 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 instrument as well as any facsimile, telecopy or other
reproduction hereof.
Executed by the undersigned the year and day first above written.
/s/ Joseph Monterosso
---------------------------------------
Joseph Monterosso
[NM\PNO:JM1-8MIL.PNO]
15
<PAGE>
EXHIBIT "A"
to the
Secured Promissory Note
dated August 22, 1997
THE WARRANT AGREEMENT
[NM\PNO:JM1-8MIL.PNO]
16
<PAGE>
EXHIBIT "C"
to the
Warrant Purchase Agreement
dated August 22, 1997
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is executed as of this day of
August, 1997 by Joseph Monterosso (hereinafter referred to as the "Debtor"), in
favor of Nona Morelli's II Inc., 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, simultaneously with the execution and delivery of this
Agreement, Debtor is executing a Purchase Agreement and, in connection
therewith, a Secured Promissory Note in the amount of $1,800,000 (the "Note"),
both of even date, pursuant to which Debtor is purchasing Secured party's
rights, title and interest in the Warrant Agreement dated March 30, 1994 between
Secured Party and E.N. Phillips Company now known as Group V Corporation
("GRPV"); and,
WHEREAS, Secured Party is granting credit to Debtor pursuant to the
Note which is required to be secured by the Warrant Agreement and the rights
thereunder to purchase 12,000,000 shares of GRPV common stock (the "Warrants").
The Warrant Agreement and all other 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"; and,
WHEREAS, 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. Pledge of Collateral
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 Warrant Agreement and
the underlying Warrants described in Exhibit "A" attached hereto,
including all proceeds, derivative rights and products thereof and
additions and accessions thereto (hereinafter referred to as the
"Collateral").
This Agreement and the rights hereby granted herein shall secure the
following (hereinafter collectively referred to as the "Obligations"):
A. Principal and Interest. The principal amount of Debtor's
Indebtedness to Secured Party, as evidenced by the Note and the
Security Documents, with interest thereon as specified in such
documents, and any other sums due and any renewals, extensions or
modifications thereof; and
[NM\PNO:JM1-8MIL.PNO]
1
<PAGE>
B. Expenses. The expense of all legal proceedings, including
attorneys' fees, brought by the Secured Party to enforce any
Security Documents 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 protection, maintenance or
sale of 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 Security Documents, this
Agreement; and
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. Debtor's Warranties, Covenants and Agreements
Debtor hereby warrants, covenants and agrees that:
A. Purpose. The Collateral covered by this Agreement is pledged by
Debtor to secure Debtor's promise to pay the Purchase Price (as
defined in the Purchase Agreement) and to induce Secured Party to
enter into the Purchase Agreement with Debtor.
B. 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 attempt to levy, distraint, lay claim, disavow, repudiate or
otherwise diminish the derivative rights, or seize by legal
process or otherwise of any part of the Collateral, and of any
threatened claims or proceedings that might in any way affect or
impair any of the terms of this Agreement or the Purchase
Agreement.
C. Notices. Debtor will give Secured Party immediate written notice
of any change in location of Debtor's last known residence
address.
3. Events of Default
The occurrence of any of the following events shall constitute and is
hereby defined to be an "Event of Default":
A. Breach of Note or Security Agreement Any failure or neglect to
observe or perform any of the terms, provisions, promises,
agreements or covenants of the Note or this Agreement and the
continuance of such failure or neglect after notice thereof by
Secured Party 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
Security Documents in accordance with their terms; or
[NM\PNO:JM1-8MIL.PNO]
2
<PAGE>
C. Breach of Purchase Agreement or False Statements. Failure or
neglect to observe or perform any of the terms or covenants in
the Purchase Agreement, or 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 in
the Purchase Agreement, the Put/Option Agreement or any Security
Documents 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, the cancellation of the Collateral by GRPV
or its successor(s) in interest (and said Collateral is not
immediately replaced, restored or returned) Debtor's assignment
or attempted transfer of the Collateral 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 such
action is taken.
4. 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 Sale. Secured Party may, at its option, declare
all or any part of the Note immediately due and payable. Secured
Party may, without further notice or demand and without legal
process, negotiate for the sale of the Collateral.
B. All Remedies Available. Secured Party may pursue any legal remedy
available to collect all sums due under the Note and/or secured
hereby and to enforce its title in and right to possession and
sale 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.
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 sell or otherwise transfer the Collateral
encumbered hereby or by any Security Documents or to proceed
against Maker personally 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 marshaling and/or
suretyship Debtor acknowledges that he has signed this Agreement
and in doing so has subjected his property to this Agreement to
secure any deficiency in the subject indebtedness and hereby
expressly waives the benefits of the provisions of any laws which
could delay, defeat or render more costly Secured Party's
realization upon the Collateral, and waives any defense arising
by reason of any disability or other defense of Debtor, and
waives the benefit of any statutes of limitation affecting the
enforcement hereof.
D. Sale of Collateral. Secured Party may immediately 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,
[NM\PNO:JM1-8MIL.PNO]
3
<PAGE>
after deducting therefrom all expenses of Secured Party in taking,
storing, validating 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
notwithstanding anything to the contrary contained in any of the
Security Documents. 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 last known residence address 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.
5. 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. 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 Security Documents, the relationship
created thereby, or the origination, administration or
enforcement of the indebtedness evidenced and/or secured by the
Purchase Agreement or any Security Documents.
C. 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.
[NM\PNO:JM1-8MIL.PNO]
4
<PAGE>
D. 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.
E. Full Force and Effect. This Agreement shall remain in full force
and effect until all of the obligations and the indebtedness
evidenced on the Note, and any extensions or renewals thereof,
shall be paid in full.
F. 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.
G. 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. 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.
H. 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.
I. Facsimile. A facsimile, telecopy or other reproduction of this
instrument may be executed by one or more parties hereto and such
executed copy may be delivered by facsimile or 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 instrument as
well as any facsimile, telecopy or other reproduction hereof.
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"
/s/ Joseph Monterosso
---------------------------------------
Joseph Monterosso
"Secured Party"
Nona Morelli's II Inc.,
a Colorado corporation
By: /s/ Fred G. Luke
----------------------------------
Name: Fred G. Luke
Title: Chief Executive Officer
[NM\PNO:JM1-8MIL.PNO]
5
EXHIBIT 10.172
NONA MORELLI'S II, INC.
2 Park Plaza, Suite 470
Irvine, California 92614
Telephone (714) 833-2094
Facsimile (714) 833-7854
February 13, 1998
Mr. Joseph Monterosso
President
Group V Corporation
550 15th Street
San Francisco, CA 94103
RE: Notice of Conversion of 100,000 Shares of Series B Preferred Stock
Dear Mr. Monterosso:
Nona Morelli's II, Inc., a Colorado corporation, the holder of 100,000
shares of Series B Preferred Stock of Group V Corporation's ("GRPV" formerly
NuOasis Gaming, Inc.) has elected to convert such shares into 7,800,000 shares
of GRPV's $.01 par value common stock.
Enclosed, please find the original stock certificate representing
100,000 shares of Series B Preferred Stock and the legal opinion of Richard O.
Weed.
Please instruct GRPV's transfer agent to issue 7,800,000 shares of the
corporation's $.01 par value common stock in the name of Nona Morelli's II, Inc.
without any restrictive legend in the following denominations:
1 certificate for 3,900,000 shares in the name of Nona Morelli's II,
Inc.; and 39 certificates for 100,000 shares each in the name of Nona
Morelli's II, Inc.
Our Taxpayer Identification Number is 84-1126818. Please send the
certificates to my attention at the above address. Thank you in advance for your
prompt attention to this matter.
Sincerely yours,
/s/ Fred G. Luke
----------------------------------
Fred G. Luke,
Chief Executive Officer
Enclosures
C:\clients\Nona\seriesBconversion.doc
EXHIBIT 10.173
NONA MORELLI'S II, INC.
2 Park Plaza, Suite 470
Irvine, California 92614
Telephone (714) 833-2094
Facsimile (714) 833-7854
September 3, 1997
Mr. Joseph Monterosso
President
Group V Corporation
550 15th Street
San Francisco, CA 94103
RE: Extension and Modification of Put/Option Agreement and Warrant
Purchase Agreement dated August 22, 1997
Dear Joe:
This letter will serve as our mutual agreement to extend and modify the
Put/Option Agreement and Warrant Purchase Agreement dated August 22, 1997.
1. As to the Put/Option Agreement dated August 22, 1997 between Joseph
Monterosso and Nona Morelli's II, Inc. the dates in that agreement are extended
as follows:
Paragraph Number 2, the date April 1, 1998 is hereby extended until
June 1, 1998.
Paragraph Number 5, the obligation to be performed on October 1, 1997
is hereby extended until November 1, 1997.
Paragraph Number 5, the obligation to be performed on November 1, 1997
is hereby extended until December 1, 1997.
Paragraph Number 5, the obligation to be performed on December 1, 1997
is hereby extended until January 1, 1998.
Paragraph Number 5, the obligation to be performed on January 1, 1998
is hereby extended until February 1, 1998.
Paragraph Number 5, the obligation to be performed on February 1, 1998
is hereby extended until March 1, 1998.
Paragraph Number 5, the obligation to be performed on March 1, 1998 is
hereby extended until April 1, 1998.
C:\clients\Nona\Ext&ModAgr.doc
<PAGE>
Paragraph Number 5, the obligation to be performed on April 1, 1998 is
hereby extended until May 1, 1998.
Paragraph Number 5, the obligation to be performed on May 1, 1998 is
hereby extended until June 1, 1998.
Paragraph Number 5, the obligation to be performed on June 1, 1998 is
hereby extended until July 1, 1998.
Paragraph Number 5, the obligation to be performed on July 1, 1998 is
hereby extended until August 1, 1998.
Paragraph Number 5, the obligation to be performed on August 1, 1998 is
hereby extended until September 1, 1998.
Paragraph Number 5, the obligation to be performed on September 1, 1998
is hereby extended until October 1, 1998.
2. As to the Put/Option Agreement, dated August 22, 1997, Joseph Monterosso
agrees to use his best efforts so that, provided Nona Morelli's II, Inc. submits
the Series B certificate with a legal opinion, Group V Corporation ("GRPV") will
take all action necessary to effect the receipt by Nona Morelli's II, Inc. of
7,800,000 shares of unrestricted common stock of GRPV following Nona Morelli's
II, Inc.'s conversion of 100,000 shares of Series B Preferred Stock of GRPV.
3. As to the Put/Option Agreement, dated August 22, 1997, Nona Morelli's II,
Inc. and Joseph Monterosso agree that Mr. Monterosso's obligations under the
Put/Option Agreement are dependent upon Nona Morelli's II, Inc. delivering, in
accordance with the terms and conditions of that agreement, 7,800,000 shares of
unrestricted common stock of GRPV to be subject to the option and put
established by such agreement.
4. As to the Warrant Purchase Agreement dated August 22, 1997, Nona Morelli's
II, Inc. and Joseph Monterosso agree that it shall be a condition precedent to
the obligations of Nona Morelli's II, Inc. and Joseph Monterosso under the
Warrant Purchase Agreement that the following condition occur on or before
October 31, 1997:
A. Receipt by Nona Morelli's II, Inc. of 7,800,000 shares of
unrestricted common stock of GRPV following conversion of 100,000 shares of
Series B Preferred Stock of GRPV.
5. As to the Warrant Purchase Agreement dated August 22, 1997 which includes
that certain Secured Promissory Note dated August 22, 1997 made by Joseph
Monterosso in favor of Nona Morelli's II, Inc. the installment due dates set
forth on page one of the Secured Promissory Note are extended as follows.
The installment due on October 1, 1997 is hereby extended until
November 1, 1997. The installment due on November 1, 1997 is hereby
extended until December 1, 1997. The installment due on December 1,
1997 is hereby extended until January 1, 1998. The installment due on
January 1, 1998 is hereby extended until February 1, 1998.
C:\clients\Nona\Ext&ModAgr.doc
<PAGE>
The installment due on February 1, 1998 is hereby extended until March
1, 1998. The installment due on March 1, 1998 is hereby extended until
April 1, 1998. The installment due on April 1, 1998 is hereby extended
until May 1, 1998. The installment due on May 1, 1998 is hereby
extended until June 1, 1998. The installment due on June 1, 1998 is
hereby extended until July 1, 1998. The installment due on July 1, 1998
is hereby extended until August 1, 1998. The installment due on August
1, 1998 is hereby extended until September 1, 1998. The installment due
on September 1, 1998 is hereby extended until October 1, 1998.
6. All other provisions of the agreements shall remain in full force and
effect.
If the foregoing modification and extension of the above referenced
agreements is acceptable to you, please sign in the space provided below.
Sincerely yours,
/s/ Fred G. Luke
---------------------------------------
Fred G. Luke
Chief Executive Officer
APPROVED AND AGREED TO
By: /s/ Joseph Monterosso
-----------------------------
Name: Joseph Monterosso
Title: An individual
C:\clients\Nona\Ext&ModAgr.doc
EXHIBIT 10.174
PUT/OPTION AGREEMENT
THIS PUT/OPTION AGREEMENT ("Agreement") is entered into this 22nd day
of August, 1997, by and between Nona Morelli's II Inc., a Colorado corporation
("Nona"), and Joseph Monterosso ("Monterosso").
WHEREAS, Monterosso desires to acquire from Nona an option to purchase
up to 7,800,000 shares of common stock (the "Shares") of Group V Corporation, a
Delaware corporation ("GRPV") which Nona owns or will acquire as a result of its
election to convert 100,000 shares of Series B Preferred Stock of GRPV (the
"Series B Shares"); and,
WHEREAS, Nona desires to grant Monterosso an option to purchase the
Shares subject to the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the mutual promises herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and subject to the terms and conditions set forth
below, Nona and Monterosso agree as follows:
1. Nona hereby grants to Monterosso an option (the "Option") to acquire
the Shares at a purchase price of $.15 per share, increased or
decreased proratably, as the case may be, to give effect to any reverse
or forward stock splits, respectively ("Option Price").
2. It shall be a condition precedent to the exercise of the Option created
by this Agreement that neither the Board of Directors nor the
shareholders of GRPV shall effect a reverse split of GRPV's capital
stock prior to April 1, 1998. In the event of a stock split by GRPV
Nona may, at its election, require Monterosso to purchase within five
(5) days all Shares not previously purchased by Monterosso pursuant to
the Option, or the Put (as defined below), at a price of $.15 per
share.
3. This Option may be exercised in whole or in part and from time to time,
provided that no exercise of this Option shall be effective until this
Option has been exercised with respect to a least One Hundred Thousand
(100,000) of the Shares. Any subsequent exercise of this Option shall
be for a minimum of One Hundred Thousand (100,000) of such Shares.
4. Monterosso shall have until August 1, 1998 to exercise this Option as
to all or any portion of the Shares.
5. In consideration of the Option, which is currently in the money,
Monterosso hereby grants Nona the right to require Monterosso to
purchase ("Put") the Shares not previously purchased by Monterosso, and
Monterosso hereby agrees to purchase the Shares tendered, at a price of
$.15 per share ("Put Price"). This right to Put Shares to Monterosso
shall begin on the date hereof and continue for a period of one (1)
year immediately following the date hereof, with written notice within
five (5) days of the first day of each month (the "Tender Date"), in
accordance with the following schedule:
[NM\AGR:JMPUT.OPT]-2
5
<PAGE>
Number of Shares Which
Monterosso is Required to After the Tender
Purchase if Tendered Date of:
- ---------------------------------------- ---------------------
102,667 September 1, 1997
205,333 October 1, 1997
306,667 November 1, 1997
798,222 December 1, 1997
798,222 January 1, 1998
798,222 February 1, 1998
798,222 March 1, 1998
798,222 April 1, 1998
798,222 May 1, 1998
798,222 June 1, 1998
798,222 July 1, 1998
799,557 August 1, 1998
Monterosso shall have five (5) days to remit the Put Price for Shares
tendered, in good funds, to Nona or the custodian, as directed in
writing by Nona.
6. Exercise of the Option granted herein shall be accomplished by written
notice to Nona at the address set forth below specifying the number of
the Shares being purchased, accompanied by the Option Price per share,
in good funds. The exercise of the Put granted herein shall be
accompanied by written notice to Monterosso in accordance with the
terms hereof at the address set forth below specifying the number of
Shares being tendered with a copy of irrevocable instructions to the
custodian of the Shares to deliver such Shares upon receipt of good
funds.
7. In the event Nona fails to deliver the certificates or order via DTC
the transfer of Shares purchased by Monterosso pursuant to the Option,
or if Monterosso fails to tender in good funds the Put Price of any of
the Shares tendered by Nona in accordance with the terms hereof (a
"Default"), the respective rights granted to the defaulting party
hereunder shall automatically terminate. However, any failure resulting
from a Stop Transfer order by GRPV or GRPV's refusal to issue the
Shares upon request for conversion of the Series B Shares shall not
constitute a Default and the terms hereof and Tender Dates shall be
tolled until such time as the Shares are issued or such Stop Transfer
rescinded. This Agreement and the rights hereunder shall not be
assigned by either party hereto.
[NM\AGR:JMPUT.OPT]-2
6
<PAGE>
8. A facsimile, telecopy or other reproduction of this instrument may be
executed by one or more parties hereto and such executed copy may be
delivered by facsimile or 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 instrument as
well as any facsimile, telecopy or other reproduction hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first written above.
"Nona"
Nona Morelli's II Inc.
By: /s/ Fred G. Luke
----------------------------------
Name: Fred G. Luke
Title: Chief Executive Officer
Address: 2 Park Plaza, Suite 470
Irvine, CA 92614
"Monterosso"
/s/ Joseph Monterosso
---------------------------------------
Joseph Monterosso,
an individual
Address: 550 15th Street
San Francisco, CA 94103
[NM\AGR:JMPUT.OPT]-2
7
EXHIBIT 10.175
AMENDMENT TO AGREEMENT
This Amendment ("Amendment") to the Option Agreement dated June 13,
1996 (the "Option") is made this 8th day of August 1997, but effective
retroactive to the date of the Option, by and between Nona Morelli's II Inc.
("Optionor") and Joseph Monterosso ("Optionee").
WHEREAS, pursuant to the Option, Optionee has the right to purchase up
to 250,000 shares of Series B Preferred Stock (the "B Preferred Shares") of
NuOasis Gaming Inc., now known as Group V Corporation ("Group V"), at a price of
$13.00 per share; and,
WHEREAS, on June 4, 1997 (the "June 1997 Modification") Optionor agreed
with Optionee to accept certain securities, consisting of shares of common stock
of Network Long Distance Inc., a Delaware corporation (the "Network Shares"), in
lieu of the cash towards the purchase price on the unexercised portion of the B
Preferred Shares; and,
WHEREAS, Optionee has not yet been able to effect the transfer of the
Network Shares to Optionor and there is some uncertainty that such securities
can be transferred prior to the expiration of the Option; and,
WHEREAS, Optionor is willing to extend the term of the Option pursuant
to the terms of this Amendment upon the terms and conditions hereof.
NOW, THEREFORE, in consideration for the covenants and promises made
herein, and for other good and valuable consideration, the sufficiency and
adequacy of which is hereby mutually acknowledged and agreed by the parties
hereto, Optionee and Optionor hereby agree as follows:
1. The parties mutually agree and the Option is hereby extended: the
Option shall expire on August 15, 1997.
2. The parties mutually agree and the Option is hereby amended: the
purchase price for each B Preferred Share, unexercised as of the date
hereof, is approximately $72.20 per share.
3. Optionor agrees to accept $1,585,467, consisting of $121,959 in cash
and 195,006 shares of the Network Shares, valued at approximately
$1,463,508, or $7.50 per share on a discounted basis, as the full
purchase price on 21,959 shares of the remaining B Preferred Shares not
previously purchased (the "Phase III Purchase").
4. Optionee and Optionor mutually agree that the Option as to 100,000 B
Preferred Shares remaining unexercised, giving effect to the Phase III
purchase, shall hereby terminate.
Except as amended and modified by this Amendment, the terms and conditions of
the Option shall otherwise remain in force and effect as stated therein.
[NM\AGR:BSHRAMND.AGR]-5
8
<PAGE>
A facsimile, telecopy or other reproduction of this instrument may be executed
by one or more parties hereto and such executed copy may be delivered by
facsimile or 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 instrument as well as any facsimile, telecopy or other
reproduction hereof.
"Optionor"
Nona Morelli's II Inc.
By: /s/ Fred G. Luke
----------------------------------
Name: Fred G. Luke
Title: Chief Executive Officer
"Optionee"
/s/ Joseph Monterosso
---------------------------------------
Joseph Monterosso
[NM\AGR:BSHRAMND.AGR]-5
9
<TABLE>
<CAPTION>
EXHIBIT 22.1
SCHEDULE OF SUBSIDIARIES OF THE COMPANY
Jurisdiction of Parent Percentage
Subsidiary Incorporation Corporation Ownership
- ------------------------------------ --------------- ------------------------ ----------
<S> <C> <C> <C>
Fantastic Foods International Inc. Nevada Company 100%
NuOasis International Inc. Commonwealth Company 100%
of the Bahamas
NuOasis Properties Inc. Nevada Company 100%
Group V Corporation (formerly,
NuOasis Gaming, Inc.) Delaware Company 44%(3)
NuOasis Las Vegas Inc.(1) Colorado Company 100%
NuOasis Laughlin Inc.(1) Colorado Company 100%
Casino Management of America Inc.(1) Utah Company 100%
Ba-Mak Gaming International Inc.(2) Louisiana Group V Corporation 100%
(formerly, NuOasis
Gaming, Inc.)
ACI Asset Management Inc. Nevada Company 100%
Cleopatra Palace Limited Ireland NuOasis International Inc. 70%
Cleopatra's World Inc. British Virgin British Virgin Islands 50%
Islands
</TABLE>
(1) Have not commenced business.
(2) Converted from Chapter 11 to Chapter 7 Bankruptcy proceeding on April
20, 1995.
(3) Reduced to approximately 10% in June 1997 and 0 in September 1997.
[NM\10-KSB\97:63097KSB]-21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 576,734
<SECURITIES> 2,487,544
<RECEIVABLES> 841,429
<ALLOWANCES> 0
<INVENTORY> 35,173
<CURRENT-ASSETS> 3,940,880
<PP&E> 1,205,569
<DEPRECIATION> (969,730)
<TOTAL-ASSETS> 10,127,908
<CURRENT-LIABILITIES> 2,913,206
<BONDS> 0
0
240,000
<COMMON> 488,243
<OTHER-SE> 4,721,281
<TOTAL-LIABILITY-AND-EQUITY> 10,127,908
<SALES> 1,339,763
<TOTAL-REVENUES> 1,339,763
<CGS> 903,446
<TOTAL-COSTS> 903,446
<OTHER-EXPENSES> 2,284,298
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96,594
<INCOME-PRETAX> (4,940,672)
<INCOME-TAX> 382,494
<INCOME-CONTINUING> (4,558,178)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,326,036)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.06)
</TABLE>
