-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K4J3/N9Zq+nvad4vlV/6EsRJus2CO20zSEg9oa1uSVh0JEXLRpImYUBrOwnWcM4E 23d2bioMQrLwoW8nQqyu0A== 0000848296-96-000017.txt : 19961213 0000848296-96-000017.hdr.sgml : 19961213 ACCESSION NUMBER: 0000848296-96-000017 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 35 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961212 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORELLIS NONA II INC CENTRAL INDEX KEY: 0000848296 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 841126818 STATE OF INCORPORATION: CO FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18377 FILM NUMBER: 96679421 BUSINESS ADDRESS: STREET 1: 2 PARK PLZ STE 470 CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7148332094 MAIL ADDRESS: STREET 1: 2 PARK PLAZA STREET 2: SUITE 470 CITY: IRVINE STATE: CA ZIP: 92714 FORMER COMPANY: FORMER CONFORMED NAME: NONA MORELLIS II INC DATE OF NAME CHANGE: 19900731 10KSB 1 ANNUAL REPORT ON FORM 10-KSB FOR 6/30/96 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, 1996 Commission file number 0-18377 -------- NONA MORELLI'S II, INC. (Exact name of registrant as specified in its charter) Colorado -------------------------------------------------------------- (State of other jurisdiction of incorporation or organization) 84-1126818 ------------------------------------ (I.R.S. Employer Identification No.) 2 Park Plaza, Suite 470, Irvine, California 92614 -------------------------------------------------- (Address of Principal Executive Offices) Zip Code) Registrant's telephone number, including area code: (714) 833-5381 ------------ 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 $12,658,491. 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 October 15, 1996 was approximately $6,329,500. Class Common Stock , $.01 par value Outstanding at October 15, 1996 45,048,500 shares Documents Incorporated by Reference: None Total Number of Pages Including Cover [NM\10-KSB:63096KSB]-45 TABLE OF CONTENTS Page PART I Item 1. Description of Business .........................................1 Item 2. Description of Property .........................................13 Item 3. Legal Proceedings ...............................................14 Item 4. Submission of Matters to a Vote of Security-Holders .............18 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 ......................................20 Item 7. Financial Statements ............................................26 Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .......................................26 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act ..............27 Item 10. Executive Compensation ..........................................32 Item 11. Security Ownership of Certain Beneficial Owners and Management ..37 Item 12. Certain Relationships and Related Transactions ..................38 PART IV Item 13. Exhibits and Reports on Form 8-K ................................40 [NM\10-KSB:63096KSB]-45 PART I ITEM 1. DESCRIPTION OF BUSINESS. (a) Business Development Nona Morelli's II, Inc. (the "Company" or the "Registrant") was incorporated in Colorado on February 6, 1989 and became public in 1990. The Registrant 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 fresh-pack pasta and pasta sauces. Prior to December 1992, the business of the Registrant consisted solely of the manufacturing, marketing and sale of Italian food products, primarily pasta and sauces. 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 Registrant evolved from a pasta manufacturer into a food manufacturing, distributing and investment company. Following some extensive corporate re-engineering in fiscal 1993 and the first six months of its fiscal year ended June 30, 1994 ("fiscal 1994"), the Registrant was restructured to operate as a holding company. Since July 1, 1993, the Registrant'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 Registrant owned and exercised voting control. The restructuring was undertaken to allow the Registrant to redefine its business segments, concentrate its financial and human resources in each of its present areas of operation, and focus performance incentives based upon separate segment, or industry-specific businesses. The Registrant believes that maintaining an entrepreneurial atmosphere is essential to continuing its growth and development. In order to create this environment, in fiscal 1993 the Registrant adopted the strategy to ultimately result in its separate subsidiaries becoming publicly-held companies, which the Registrant believes will permit the establishment of more focused management objectives and performance incentives, and allow each subsidiary to raise new equity capital, as needed, while minimizing the Registrant's financial commitment to support the subsidiaries' growth. Since the beginning of fiscal 1994, the Registrant's operating philosophy is to supervise its subsidiaries by providing financial support, centralized strategic planning, corporate development, administrative, and other services that would not otherwise be available to independent companies of similar size. As of the close of the fiscal year ended June 30, 1996 ("fiscal 1996"), the Registrant had four subsidiaries, one of which is publicly traded. The Registrant's historical domestic gaming related assets and operations have been conducted by its subsidiary, NuOasis Gaming, Inc., a Delaware corporation ("NuOasis Gaming"), formerly E.N. Phillips Company, ("ENP"), which is a publicly-held company whose shares are traded on the OTC Bulletin Board. The Registrant has voting control of NuOasis Gaming and has the right to acquire a majority interest in NuOasis Gaming by virtue of its ownership of common and preferred stock, and warrants and options to purchase additional common stock. During the year ended June 30, 1996, the Registrant entered into an option agreement to sell the Registrant's controlling interest in NuOasis Gaming (see Item 6, Management's Discussion and Analysis). The Registrant's international gaming activities which, at the close of fiscal 1996, are still in the development stage and include its Asian and Tunisian activities, are conducted by its wholly-owned subsidiary, NuOasis International, Inc. ("NuOasis International"), 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") in which the Registrant owns a 28% equity interest. [NM\10-KSB:63096KSB]-45 1 The Registrant's domestic food operations are conducted by its wholly-owned subsidiary, Fantastic Foods International, Inc., a California corporation ("Fantastic Foods") doing business as the Pasta Fresca Company ("Pasta Fresca"). The Registrant's domestic real estate operations, which at the close of fiscal 1996 are still in the development stage, are conducted by NuOasis Properties, Inc., a Colorado corporation ("NuOasis Properties"), formerly Morelli Capital, Inc. ("MCI"), a wholly-owned subsidiary. As used herein, the term "Company" or the "Registrant" refers to Nona Morelli's II, Inc., and its subsidiaries: NuOasis Gaming and its wholly-owned subsidiaries; NuOasis Properties; NuOasis International; and Fantastic Foods. The wholly-owned subsidiaries of NuOasis Gaming are: Casino Management of America, Inc., a Utah corporation ("CMA"); NuOasis Laughlin, Inc., a Colorado corporation ("NuOasis Laughlin"); and NuOasis Las Vegas, Inc., a Colorado corporation ("NuOasis Las Vegas"). The Registrant currently maintains its executive offices in Irvine, California. The following chart illustrates the relationship between the Registrant and the various subsidiaries: ------------------------ |NONA MORELLI'S II INC | | | ------------------------ | ---------------------------------------------------------------- | | | | - ---------------- -------------------- ----------------- ---------------- | NuOasis | | NuOasis | | Fantastic | | NuOasis | | Gaming Inc. | | International | | Foods | | Properties | | (Voting | | Inc. | | International | | Inc. | | Control) | | (100%) | | Inc. (100%) | | (100%) | - ---------------- -------------------- ----------------- ----------------- (b) Description of Business The Registrant's business interests are comprised of food manufacturing and distribution, legalized gaming, and real estate acquisition and development. The activities in the past have been financed by working capital, equity financing or through joint ventures between one of the Registrant's subsidiaries and unrelated parties. (1) Food Manufacturing and Distribution The Registrant is a manufacturer and marketer of fresh and frozen packed pasta and Italian sauces. The Registrant utilizes its own recipes and those acquired in the purchase of the assets and business of Italfin, Inc. ("Italfin") and The Pasta Fresca Co. ("Pasta Fresca Company") in fiscal 1993. The Registrant'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 Registrant'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 Registrant's products under their private labels. Fresh and frozen pasta is also sold in bulk for the food service industry, hotels and restaurants. The Registrant has lines of no cholesterol and low cholesterol pasta and packages and markets pasta with accompanying sauces. The Registrant is also a producer and marketer of a private label and "Nona Morelli" and "Pasta Fresca" brand sauces. [NM\10-KSB:63096KSB]-45 2 During the year ended June 30, 1996, the Registrant continued to pursue a program that focused on increasing operations on both a national and international level. The Registrant 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 Southwest. In co-packing, the Registrant packages its pasta and sauce products for other companies which market the products under their own labels and brand names. Co-packing represented approximately 24% and 55% of food sales revenue for each of the years ended June 30, 1996 and 1995, respectively. Since September 1993, the Registrant's food products operations have been conducted by Fantastic Foods. In fiscal 1994 the Registrant's historical food manufacturing and distribution activities, which include pasta and sauce products, were transferred from Colorado to California and are now operated in two (2) manufacturing facilities based in Irwindale and Arcadia, California. The USDA certified Arcadia facility produces the Registrant's meat and other filled pasta products, and speciality items for hotels and restaurants. Products The Registrant's primary food products include a variety of pastas and sauces. The Registrant's pasta sales accounted for ninety five percent of food sales revenues for both the years ended June 30, 1996 and 1995. The Registrant's pasta line consists of 35 different pasta products separately packaged under the Registrant's and private-label names. The Registrant also manufactures and markets eight different sauce products separately packaged in five sizes under the Registrant's brand name and private-label. 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. [NM\10-KSB:63096KSB]-45 3 Marketing 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 Registrant's products. The Registrant cannot estimate its market share of fresh pasta sales. The Registrant is currently packaging pasta products and sauces separately and in combination for three marketers. Under co-packing agreements, the Registrant contracts with distributors to market its pasta products who are typically responsible for transporting, warehousing, advertising, distributing, promoting and brokering Fantastic Foods produced pastas and sauces. The Registrant'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 Registrant's products are made through direct marketing by food brokers and Registrant's personnel with a focus on supermarket chains and other retailers. Typically, the Registrant's products are delivered to distribution centers of such supermarket chains for subse quent re-delivery through the supermarket subsystem as demand dictates. The Registrant also markets its products through distributors under short term "spot sale" arrangements terminable on short notice. Food brokers utilized by the Registrant usually receive commissions based on net sales, while distributors purchase the Registrant's products for their own account. The Registrant has not granted exclusive area distribution rights with respect to any of its products. Production The Registrant purchases durum and semolina flour from mills in California and Minnesota in truck load quantities. The Registrant purchases whole eggs and egg white mixtures from local egg producers. The Registrant 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 the Registrant's control. The California and Minnesota mills currently supply 90% of flour purchases for the Registrant's products. Spices, cheese and various other raw materials are purchased locally in Southern California. The Registrant 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 pasta products, i.e., spaghetti, ravioli, linguine, tortellini and fettuccine. Spinach, tomato paste, and other herb ingredients are added to the basic pasta mix at different stages to create flavored products. The Registrant cuts, pasteurizes, and packages through an oxygen flushing process for its fresh or frozen pasta. Packaging In its fresh or frozen pasta manufacturing process, the Registrant 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 Registrant 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 Registrant's products with those features. Since the Registrant's products are usually maintained for retail sale in "deli" areas of supermarkets, the Registrant seeks distinctive packaging for its products, notwithstanding the slightly higher costs. [NM\10-KSB:63096KSB]-45 4 Current Sales Activity The Registrant's strategy is to continue to develop the market for its Nona Morelli and Pasta Fresca brand name products on a nationwide and regional basis, as well as to pursue additional co-packing agreements and relationships. The Registrant's brand sales represented 40% and 35% of food sales revenues for the years ended June 30, 1996 and 1995, respectively. The Registrant expects that its co-packing agreements with other customers will continue to represent a significant portion of its food business as the Registrant 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 Activities Until April 1995, Ba-Mak Gaming International Inc. ("BGI"), a wholly-owned subsidiary of NuOasis Gaming was active and involved in charitable gaming in Louisiana. BGI operated five charitable gaming establishments in New Orleans at which 140 video bingo machines were operating. BGI recognized as gaming revenues the gross funds deposited in video bingo machines. BGI realized a gross profit, or "net win", as represented by the difference between gross funds deposited into the machines and payments to customers. BGI realized net operating profits by way of the percentage of the net win after payments to the charitable organizations, the location owner and the State of Louisiana for gaming taxes. However, from inception through October 1994, BGI was unable to generate any operating profits. Additionally, the Registrant has suffered from 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. While under the protection of Chapter 11, BGI continued to operate as a charitable bingo route operator in Louisiana as Debtor-in-Possession. 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 is in the process of liquidating such assets for the benefit of BGI's bankruptcy estate. As such, all gaming operations at BGI ceased and, accordingly, BGI was accounted for as a disposition of investment during fiscal 1995 which resulted in (a) the write-off of $1,056,978 and $1,415,050 of total assets and liabilities, respectively, and (b) a net loss on disposal of investment in the amount of approximately $140,949. As of the date of this Report, the Trustee's administration of the bankruptcy estate is ongoing. NuOasis Gaming currently has no gaming or other ongoing business, and is presently evaluating business opportunities for possible acquisition within the gaming industry. In particular, NuOasis Gaming is currently evaluating the potential acquisition of a development stage California company formed in 1992 to facilitate public participation in group play in the California State Lottery and the lotteries of other states, through the sale of a prepaid debit card called the HIT- LOTTO value card (see Item 6, Managements Discussion and Analysis - National Pools Corporation). (3) International Gaming Activities In September 1993, as part of the Registrant's new business plan, it formed NuOasis International through which it hoped to extend its proposed gaming operations internationally. The Registrant believes that international leisure and entertainment opportunities offer much greater potential, and have far less competition than domestic U.S. gaming because of the "emerging market" status of many of the host countries. The Registrant'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 Registrant's research into these expected emerging leisure and entertainment markets during fiscal 1996, it has been soliciting and evaluating prospects in certain markets in North Africa, Asia, the Caribbean and the South Pacific where it intends to focus the majority of its resources. [NM\10-KSB:63096KSB]-45 5 North Africa In October 1993, the Registrant acquired a 70% equity interest in Cleopatra. In December 1995, the Registrant transferred a 42% equity interest in Cleopatra along with other corporate assets, to acquire a gaming interest in Macau (the "Gaming Interest") (as discussed below). In December 1995, the remaining 28% interest in Cleopatra was transferred to the Registrant's wholly-owned subsidiary, NuOasis International. Cleopatra is the lessee of a 200,000 square foot casino and Las Vegas-style showroom facility (the "Cap Gammarth Casino") pursuant to a Casino Lease Agreement and Operating Management Contract dated October 8, 1993, with Societe Touristique Tunisie-Golfe ("Tunisie- Golfe"). The Cap Gammarth Casino is presently under construction. In conjunction with such casino, Tunisie-Golfe is also building a five-star 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. The location of the Cap Gammarth Casino is approximately 10 miles northwest of Tunis, the capital of Tunisia. In October 1994, Cleopatra entered into an agreement with Societe Loisirs Club Hammamet ("Club Hammamet") to lease and operate the sixty thousand (60,000) square foot casino and French-style cabaret in Hammamet, Tunisia (the "Hammamet Casino"). The Hammamet Casino is presently under construction on a build-to-suit basis for Cleopatra as part of a new five-star hotel and villa resort (the "Hammamet Hotel"). Club Hammamet is a subsidiary of Occidental Hotels which, in turn, is a subsidiary of General Mediterranean Holdings, Ltd. 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. The Hammamet Hotel facilities were completed and opened in September 1996. Both the Hammamet Casino and Hotel facilities are situated within walking distance of three operating hotels, two of which were also recently completed, with approximately eighteen hundred (1,800) beds. Subsequent to the close of fiscal 1996, NuOasis International executed letters of intent and is negotiating definitive agreements related to its international gaming and hospitalities activities. The transactions represented by these agreements involve (a) the purchase of a controlling interest in the corporate entity which owns the Cap Gammarth Casino real property and improvements (b) the purchase of a 50% interest in the entity which is currently the lessor of the Le Palace Hotel and surrounding commercial center and residential complex (the "Cap Gammarth Resort"), (c) the formation of a new joint venture with a publicly-held European hotel and food service company, (d) the purchase of the Cap Gammarth Resort including the real estate and improvements, and (e) the purchase of additional equity in Cleopatra. The Registrant has an agreement in principle with the European hotel operation 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 will provide the new joint venture with up to $13.5 million in working capital and NuOasis International will 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. Closings have not occurred on any of the proposed transactions and there is no guarantee that all or any of the proposed transactions will be consummated. Additionally, failing to consummate the proposed new joint venture with the European hotel operator, the new acquisitions contemplated by NuOasis International, along with the continued development and completion of the Cap Gammath Casino and the Hammamet Casino, may require aggregate financing in excess of $20 million to complete, to which neither the Registrant nor any of its subsidiaries currently have access. [NM\10-KSB:63096KSB]-45 6 At the close of fiscal 1996, the Registrant held a 28% equity interest in Cleopatra, Mr. Ng Man Sun ("Mr. Ng"), doing business as Dragon Sight International Amusement (Macau) Company ("Dragon") held 42% of the equity interest in Cleopatra, and the remaining 30% is owned by one unrelated party and two related parties: 10% by Fred Graves Luke, Fred G.Luke's father, and a member of the Registrant's Advisory Board, a Director of Cleopatra, and an Officer and Director of Fantastic Foods International, Inc.; 10% by Gabriel Tabarani, President and Director of Cleopatra; and 10% subscribed but not paid for by an individual unrelated to the Registrant. Neither Cap Gammarth Casino nor Hammamet Casino are operating as of the date of this Report. Asia On May 25, 1995, the Registrant purchased from Dragon, a 40% net profits interest in the gaming operations conducted by Dragon at two hotels in Macau (the "Gaming Interest"). The two casinos, the Diamond Casino (Holiday Inn), Macau, and the Harbor Island Diamond Casino (Hyatt Regency), Macau are operated by Dragon and have been in operation since March 1991 and February 1994, respectively. The two casinos exist pursuant to a sub-license to Dragon under a master gaming permit granted by the government of Portugal to Sociedade DeTurismo Diversocs De Macau ("STDM"). STDM is owned, in part, by Mr. Stanley Ho. Dragon acquired its rights and interest in the two casinos pursuant to an "arrangement" with STDM, pursuant to which, Dragon equips and manages the casinos for which it is allowed to retain a percentage of the "net win" equal to 12.5% of Macau and Hong Kong resident customers and 37.5% of "foreign passport" customers. The balance of the "net win" in both categories is paid to STDM. The 40% net profits interest that Dragon sold and transferred to the Registrant is based on Dragon's portion of the "net win." STDM is the lessee of the leasehold interest in which each casino is situated and the annual leasehold costs are paid by STDM out of its share of net winnings. Dragon's costs are limited to the marketing, promotion and operation of the casinos. The total floor area of the casinos is approximately 10,000 square feet. Gaming activities consist primarily of card games; there are no slot machines in the two casinos. The arrangement between Dragon and STDM is oral: there is no written contract and, therefore, Dragon essentially conducts its business at the will of STDM. Mr. Ng, the sole proprietor of Dragon, reportedly has a good working relationship with STDM. Historically, STDM has not terminated any arrangement with any of its sub-licensees. STDM reportedly has no plans to open additional casinos in Macau prior to the year 2001, when STDM's license expires. On August 5, 1996, NuOasis International, holder of the Gaming Interest, entered into an agreement with Mr. Ng to sell the Gaming Interest for twenty million (20,000,000) shares of the Registrant's common stock issued by the Registrant in the original purchase of the Gaming Interest. On or about September 30, 1996, the subject shares were tendered by Mr. Ng to a third party escrow agent pending the closing of the purchase of replacement properties which NuOasis International is currently negotiating to purchase ("the Replacement Property"). At June 30, 1996, the Registrant recognized a write down of the book value of the Gaming Interest 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 Mr. Ng, which was $.50 a share or $10 million in aggregate. Since the intended purchase of the Replacement Property will be effective later in fiscal 1997, the book value of the escrowed shares has been presented in a position similar to treasury stock as of June 30, 1996. [NM\10-KSB:63096KSB]-45 7 The Registrant earned $2,111,228 and $11,407,317 as gaming revenue generated from the Gaming Interest for the 5-week period from inception on May 25, 1995 to June 30,1995 and fiscal year ended June 30, 1996, respectively. Due to the sale of the Gaming Interest, these revenues are not expected to recur in future years. (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 currently 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"). 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 the Hartcourt equity investment for other equity investments. [NM\10-KSB:63096KSB]-45 8 (c) Raw Materials The Registrant's domestic food manufacturing and distribution segment requires raw materials which are readily available such as flour, tomatoes and domestically-grown spices. The Registrant 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 Registrant's international gaming and proposed real estate acquisition and development activities are not manufacturing-based businesses and therefore do not rely on raw materials. (d) Patents, Trademarks and Licenses Although the Registrant's formulas and recipes are not subject to patent protection, the Registrant considers these proprietary and uses confidentiality agreements as appropriate in an attempt to protect such formulas and recipes. The Registrant has received a trademark for "Nona Morelli" from the United States Patent and Trademark Office, which it uses on some of its products. The Registrant's proposed international gaming activities do not require patents or trademarks, and the Registrant does not intend to rely on patents or trademarks. The operations of the proposed gaming casinos will depend on and be subject to gaming licenses and permits from their respective jurisdictions. With respect to the proposed gaming operations of Cleopatra in North Africa, the respective gaming licenses are to be issued jointly to Cleopatra and the owner/operators of the hotel complexes, of which the proposed casinos are a part. With respect to the Registrant's Gaming Interest in Macau, which was sold subsequent to the close of fiscal 1996, neither Dragon nor the Registrant relied on patents or trademarks. However, Dragon operated as a sub-licensee under a master gaming permit granted by the government of Portugal to STDM. (e) Seasonality None of the Registrant's industry segment activities is seasonal in nature. (f) Customer Dependence For the year ended June 30, 1996, the Registrant had three major customers, all distributors, each of which accounted for more than 10% of the Registrant's sales with respect to its food manufacturing and distribution segment. The Registrant's Tunisian gaming segment remains under development, and its domestic gaming is nonoperational since BGI's liquidation in April 1995. The Registrant's Macau Gaming Interest was dependent on gaming by the general public in Macau. (g) Backlog of Orders The Registrant's food manufacturing and distribution subsidiary, at June 30, 1996, had a backlog for orders of $31,733 as compared to $22,651 at June 30, 1995. This reflects production on an as-ordered basis. The Registrant's domestic gaming, international gaming and real estate subsidiaries were not subject to the type of business activities which would give rise to "orders." (h) Government Contracts None of the Registrant's industry segment activities were involved with material government contracts in fiscal 1996 or 1995. [NM\10-KSB:63096KSB]-45 9 (i) Competition (1) Food Manufacturing and Distribution Although the Registrant 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%, nationally, of fresh pasta sales. However, in certain states in which the Registrant operates, management believes Contadina controls less than 50% of this market in the aggregate. Other major retail competitors are Davis Lay 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 Registrant may be in a position to establish a niche in the food manufacturing industry with its co-packing agreements which are becoming a significant portion of its business. The Registrant expects Contadina to continue to be a major force due to its vast resources, name recognition, and good reputation. Although management believes the Registrant can compete on the basis of quality, price, and reliability of delivery, the marketing of food products is subject to changeable consumer tastes and habits and thus, there is no assurance the Registrant can maintain or improve its market position. (2) Domestic Gaming Activities The Registrant, through NuOasis Gaming, competes with other gaming companies for opportunities to acquire legal gaming sites in emerging gaming jurisdictions, and opportunities to manage gaming facilities. NuOasis expects many competitors to enter new jurisdictions that authorize gaming, some of whom may have more personnel, and greater financial and other resources than NuOasis Gaming or the Registrant. Further expansion of legalized gaming could also significantly and adversely affect the proposed gaming activities of NuOasis Gaming. In particular, the expansion of casino gaming in or near any geographic area that NuOasis Gaming attracts, or expects to attract a significant number of customers, would have a material effect on their business. (3) International Gaming Activities The Registrant, directly and through NuOasis International and Cleopatra, competes with other gaming companies for opportunities to manage casino gaming activities in emerging international gaming jurisdictions. The Registrant 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 NuOasis International and Cleopatra, or the Registrant. Further expansion of international legalized gaming could also significantly and adversely affect the proposed gaming activities of NuOasis International and the Registrant. In particular, the expansion of casino gaming in or near any geographic area where the Registrant, NuOasis International, Cleopatra or any future international gaming subsidiary of the Registrant 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 Registrant or its subsidiaries. [NM\10-KSB:63096KSB]-45 10 (4) Real Estate Activities The Registrant has no operating activities with respect to real estate investments, acquisitions and development. As of the date of this Report, NuOasis Properties does not hold any domestic real estate assets; therefore, competition is insignificant. International real estate related investments to date consist of a beneficial ownership interest in Peony Garden, which was sold subsequent to the close of fiscal 1996 and, therefore, competition as it relates to Peony Garden is not applicable. (j) Research and Development As part of the Registrant's domestic food manufacturing process, the Registrant enhances existing products and develops new products on a continuous basis. The Registrant did not have any direct costs associated with customer-sponsored research and development activities. (k) Government Regulation (1) Food Manufacturing and Distribution The Registrant is regulated by the Los Angeles County Health Department and the United States Food and Drug Administration. The Registrant 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 Registrant's products from store shelves. (2) Domestic Gaming Activities At the present time, neither the Registrant nor NuOasis Gaming has any domestic gaming activities. However, NuOasis Gaming is currently evaluating proposals from third parties to reenter the domestic gaming market. With respect to the Registrant's domestic gaming activities, casino gaming in the United States is highly regulated. Owners and operators of casinos must be licensed by the various state gaming commissions and must provide detailed financial and other reports. Additionally, some of the states which have just recently legalized gaming, have experienced unexpected internal changes and modification of the rules and regulations, all of which has served to delay and impede gaming applications filed by prospective gaming operators. Changes in laws and regulations may limit or otherwise materially affect types of gaming that may be conducted in these new jurisdictions. Any such changes might have an adverse effect on the activities and proposed activities of NuOasis Gaming. To the extent that the Registrant or NuOasis Gaming utilizes certain of their assets to make investments in or otherwise re-enter the domestic gaming industry, one or all companies may be required to submit applications for gaming licenses, as most jurisdictions require any holder of more than ten percent (10%) of the common stock of the operating entity to be suitable. (3) International Gaming Activities Tunisia 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. [NM\10-KSB:63096KSB]-45 11 The Tunisian government has approved Cleopatra and its management for casino gaming licenses at the Cap Gammarth Casino and Hammamet Casino. Macau The Gaming Interest in Macau is operated by Dragon, who is 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 owns interests in seven casinos, two of which it operates. The arrangement between STDM and Dragon is an oral agreement and the master gaming permit granted to STDM will expire in the year 2001 if not renewed or terminated in 1999 upon the return of Macau to the Peoples Republic of China. Since the Gaming Interest was sold in August 1996, the Registrant is no longer affected by Portuguese government regulations. (4) Real Estate Activities Since Peony Garden was sold in October 1996, the Registrant believes that PRC government regulations will have little if any direct effect on the Registrant in future fiscal years. (l) Compliance With Environmental Laws Compliance with 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 operators of the Registrant. (m) Employees (1) Corporate Officers and Significant Subsidiaries Officers Corporate officers of Nona and significant subsidiaries who rendered services during fiscal 1996 pursuant to employment or consulting agreements are as follows: Name Office ---------------------------- --------------------------------------- Fred G. Luke (Employee) Chief Executive Officer (Nona); and President (NuOasis Gaming) Steven H. Dong (Consultant) Chief Financial Officer (Nona & NuOasis Gaming) John D. Desbrow (Consultant) Corporate Secretary (Nona & NuOasis Gaming) Jon L. Lawver (Consultant) President (Fantastic Foods) Albert Rapuano (Consultant) President (NuOasis International) (2) Food Manufacturing and Distribution Fantastic Foods, the food manufacturing and distribution subsidiary, currently has 10 employees engaged in administrative activities, 27 employees engaged in production and 2 employees engaged in sales. The number of production employees varies depending upon demand for product and the Registrant's production procedures. The range for the two years ending June 30, 1996 was a low of 15 employees and a high of 35 employees. Production employees are generally paid an average of $7.93 per hour and the Registrant has not experienced difficulty in obtaining sufficient labor. None of Fantastic Foods employees are covered by a collective bargaining agreement, and it believes it has very good employee relations. [NM\10-KSB:63096KSB]-45 12 (3) Domestic Gaming Activities The Registrant's subsidiary, NuOasis Gaming and 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. All employees were located in Louisiana. Since BGI's bankruptcy case was converted to a Chapter 7 proceeding, NuOasis Gaming ceased employing personnel at BGI. (4) International Gaming Activities Tunisia The Registrant's international gaming subsidiary, NuOasis International, has no employees; Cleopatra had 2 employees as of June 30, 1996, as its proposed activities are still under development until the opening of its proposed casinos in North Africa. Macau The Gaming Interest acquired by the Registrant consisted of a 40% net profits interest in two Macau casinos; the Registrant did not acquire any rights to manage or otherwise participate in the daily operations of such casinos and, accordingly, the Registrant has no employees engaged in the operations of the two Macau casinos. The Gaming Interest was sold in August 1996. (5) Real Estate Activities The Registrant's real estate acquisition and development subsidiary, NuOasis Properties, has no employees, as there are no real estate operations as of June 30, 1996. ITEM 2. DESCRIPTION OF PROPERTY. (a) Food Manufacturing and Distribution Facilities and Corporate Headquarters The Registrant owns a 26,000 square foot plant in Pueblo, Colorado. The Registrant's Pueblo, Colorado facility was purchased in 1990 and includes 3.2 acres of land. The building was formerly used by a beverage distributor and contains 11,000 square feet of refrigerated space and 5,000 square feet of office space. In fiscal 1993, the Registrant relocated its pasta manufacturing activities to Southern California as part of the Pasta Fresca Company and Italfin acquisitions. The Registrant currently leases its Pueblo facilities 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 building. The Lessee has an option to buy the building at an amount of $660,000. Fantastic Foods leases approximately 7,000 and 10,000 square feet of food manufacturing space in Arcadia and Irwindale, California, respectively. It also owns two trucks for transportation of its products, various equipment for the manufacture of pasta and sauces, five large refrigeration units, and four large freezers for certain raw materials and finished products. Fantastic Foods completed a remodeling of its Irwindale plant in late 1995, increasing its production and storage capacity. The Registrant currently subleases its principal offices at 2 Park Plaza, Suite 470, Irvine, California, 92614, from an affiliate, NuVen Advisors, Inc. ("NuVen Advisors," formerly New World Capital), on a month-to-month basis as part of an Advisory and Management Agreement with NuVen Advisors. The Registrant believes that these facilities and its southern California manufacturing facilities are suitable and adequate for its needs. [NM\10-KSB:63096KSB]-45 13 (b) Domestic Gaming Facilities Prior to April 1995, the Registrant, 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, 1996 (discussed in Item 6). At June 30, 1996, the Registrant did not own any domestic gaming real property interests or personal property, nor was its domestic gaming entity subject to lease obligations. (c) International Gaming Facilities 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 under construction in Tunisia. As of the date of this Report, Cleopatra's activities are still in the development stage and, because construction of the proposed casinos has not yet been completed, the Registrant did not own any real or personal property nor was it subject to any leasehold or other contingent obligations with respect to its investment in Cleopatra, other than being the guarantor on the Cap Gammarth Casino lease and operating agreement. Macau The Registrant acquired the Gaming Interest, representing a 40% net profits interest in two Macau casinos; the Registrant did not acquire the operations of the casinos or any fixed assets, and accordingly the Registrant does not have any facilities or fixed assets recorded with respect to the two Macau casinos. The Gaming Interest was sold in August 1996. (d) Real Estate Activities The Registrant held no real estate operations at June 30, 1996, or as of the date of this Report. ITEM 3. LEGAL PROCEEDINGS. The Registrant knows of no material pending legal proceedings, other than ordinary routine litigation incidental to the Registrant's business except as follows: (a) Casino Management of America, Inc. vs. Mark Bachik, Bachik Enterprises, Inc. and Bruce West; District Court, Dallas County, Texas; Case No. 94-4479 In April 1993, FTF Management Company, Inc., a Colorado corporation owned by Frank J. Morelli, II and Frank J. Morelli, III ("FTF") entered into an agreement with Bachik Enterprises, Inc., a Texas corporation ("Bachik") to purchase a 50% interest in the Star Casino, a gaming facility located in Cripple Creek, Colorado. At the time of the Agreement, Mr. Morelli, II and Mr. Morelli, III were current and former officers and directors of the Registrant. Under the agreement, FTF and Bachik orally agreed to form a joint venture to own and operate the Star Casino with each party acquiring a 50% interest in the venture. Subsequent to the agreement, a $400,000 receivable due to the Registrant was allegedly diverted by Mr. Morelli, II and Mr. Morelli, III to agents of Bachik for the purpose of applying the funds to the acquisition of the Star Casino. Concurrently with the diversion of the Registrant's funds, Mr. Morelli, II was identified by local newspaper articles as the owner of the Registrant's interest in the star Casino. Subsequently, based on documentation received by the Registrant, the interest in the Star Casino attributable to the Registrant's funds was held in the name of FTF. The Registrant subsequently assigned its rights to the $400,000 receivable to Casino Management of America, Inc., ("CMA") which is now a subsidiary of NuOasis Gaming but which at the time of the assignment was a subsidiary of the Registrant. On May 9, 1994, Texas counsel for CMA filed suit in Texas against Bachik and other defendants to recover the funds improperly diverted to Bachik. Counsel for Mark Bachik, Bachik Enterprises, Inc., and East Bennett Limited Liability Company has withdrawn from their representation. Texas Counsel for CMA has negotiated a settlement with Bachik. Counsel for CMA and the Registrant and Counsel for Defendant Bruce West have entered into a letter agreement for settlement with Bruce West calling for the deposit of $25,000 into an attorney's escrow until certain conditions are satisfied. A jury trial which was set to commence in October 1996 has been taken off calendar pending receipt of documentation to effect a dismissal of the action. [NM\10-KSB:63096KSB]-45 14 (b) Nona Morelli's II, Inc. and Casino Management of America, Inc. vs. Star Casinos International, Inc., and Cripple Creek Properties, Inc.; Teller County, Colorado District Court; Case No. 94-CV-144 In a further effort to recover the $400,000 receivable related to the Star Casino, the Registrant and CMA in November 1994 filed a suit in the District Court of Teller County, Colorado against Star Casinos International, Inc. ("Star International") and Cripple Creek Properties, Inc. ("Cripple Creek") seeking imposition of a resulting trust, constructive seal, constructive trust, and an accounting of all money received and expended in connection with a gaming facility known as the Star Casino. The Defendants answered and counterclaimed for slander of title given that the Registrant filed a lis pendens against the real property on which the Star Casino is located in Cripple Creek, Colorado. The Registrant has asserted that the counterclaim for slander of title is substantially frivolous and groundless due to existing Colorado case law. Star International and Cripple Creek have filed a counterclaim naming Richard M. Greene ("Greene") as a third party defendant alleging breach of contract, promissory estoppel and fraud causes of action asserting that Greene received $100,000 from them under an agreement between Greene, FTF and Star International, that the funds would be paid to the Registrant. The funds were never paid to the Registrant, resulting in the Registrant filing suit. After taking the depositions of all of the principal players, everyone has acknowledged that the original $400,000 used to purchase the Star Casino in 1993 came from the Registrant. On May 3, 1996 Star Casinos International, Inc., (the "debtor") filed a bankruptcy petition under chapter 11 of the Bankruptcy Code. The schedules filed with the bankruptcy court do not list the Casino real property as an asset of the bankruptcy estate. Prior to October 9, 1996, the casino real property was held by Cripple Creek, one of the defendants and a subsidiary of the debtor, the stock of which is listed as one of the debtor's assets. In July 1996, the first trust deed holder on the subject real property instituted a quasi-judicial foreclosure proceeding in Teller County, Colorado District Court. A foreclosure sale occurred on October 9, 1996. The bid price by the foreclosing party was $782,320. Since the first trust deed holder foreclosed, the ability of the defendants to establish any damages as a result of the filing of the lis pendens has been substantially impaired. Additionally, under Colorado law subject to redemption rights, the foreclosure sale effectively eliminates all junior liens including the Registrant's lis pendens. A trial date which was set for the week of November 4, 1996 has been vacated and the suit has been indefinitely stayed pending resolution of the bankruptcy case. Another creditor of the debtor unrelated to the Registrant has filed a motion to dismiss the Chapter 11 bankruptcy and that motion is currently pending. The Registrant has filed a Proof of Claim in the Bankruptcy proceeding for the $400,000 plus accrued interest. (c) Chuck Arnold vs. Nona Morelli's II, Inc., Casino Management of America and MDM Gaming Partners, L.P.; Denver, Colorado District Court; Case No. 95-CV-104 In January 1995, Charles Arnold ("Arnold"), a consultant to the Registrant's prior management, initiated a lawsuit against the Registrant, CMA and MDM Gaming Partners, L.P. ("MDM"), alleging that the defendants have denied him a 1% equitable interest in MDM, which was allegedly verbally promised to Arnold by Frank J. Morelli, II and Frank J. Morelli, III for alleged professional services rendered to MDM. Arnold is alleging damages in an amount of $90,000 in connection with this claim. The Registrant and the other defendants have filed a third-party complaint against FTF, Theodore E. DeTello, Frank J. Morelli, II and Frank J. Morelli, III, seeking full indemnification from them for any damages to which Arnold may be entitled in accordance with a certain Termination Agreement dated December 17, 1993 between the parties. Counsel for the Morelli's has recently indicated that the Morelli's would be taking the Fifth Amendment against testifying in connection with this lawsuit. Since Arnold may not have witnesses to prove the alleged existence of an oral promise, the likelihood of any recovery against the Registrant, CMA or MDM appears to be remote. Counsel for the parties have stipulated to binding arbitration to be held sometime in 1997. [NM\10-KSB:63096KSB]-45 15 (d) Ruben Kitay et al. vs. Nona Morelli's II, Inc. et al.; United States District Court for the Central District of California; Case No. 95-4375 RMT (SHx) On October 10, 1995, a Second Amended Complaint was filed in the U.S. District Court for the Central District of California which named NuOasis Gaming, Fred G. Luke, John D. Desbrow, Kenneth R. O'Neal, O'Neal & White, P.C., a Texas professional corporation, New World Capital, Inc., Rocci Howe, Euro-Belge (NA) N.V., Structure America, Inc., International Banking Corporation Caribbean (IBCC), and the Luke Family Trust as defendants in an alleged shareholder derivative action (the "Derivative Action") filed on behalf of certain shareholders of NuOasis Gaming. The Derivative Action arose from a certain Stock Purchase and Business Combination Agreement, pursuant to which Nona Morelli's II, Inc. acquired voting control of E.N. Phillips Company, Inc. (now NuOasis Gaming, Inc.) and the events surrounding the bankruptcy of Ba-Mak Gaming International, Inc. The Plaintiffs sought damages according to proof, interest, rescission, attorneys' fees and exemplary damages. Outside counsel for NuOasis Gaming in the Derivative Action, and the management of both NuOasis Gaming and Nona believe, among other things, that the Plaintiffs do not have standing to file such litigation, have failed to state a proper claim, and do not qualify as representatives in a shareholder action. In response to NuOasis Gaming's filing a Motion to Dismiss the Derivative Action, the Action was dismissed without prejudice pursuant to stipulation. (e) Gustavo Farias vs. Nona Morelli's Inc. et al; United States District Court for the Central District of California; Case No. CV-96-2617 RMT (SHx) A Second Amended Complaint entitled Ruben Kitay et al vs. Nona Morelli's II, Inc., et al; United States District Court for the Central District of California: Case No. 95-4375 RMT(SHx), filed on October 10, 1995, in the U.S. District Court for the Central District of California and subsequently dismissed pursuant to stipulation, was refiled by the Plaintiffs on April 12, 1996, in a complaint entitled Gustavo Farias, et al v. Nona Morelli's II Inc., et al. The new complaint named the Registrant, its officers, the Registrant's accounting firm and other third parties as defendants in an alleged shareholder derivative action (the "Refiled Action") refiled on behalf of certain shareholders of NuOasis Gaming. The Refiled Action alleged securities fraud and RICO violations in connection with a certain Stock Purchase and Business Combination Agreement pursuant to which the Registrant acquired voting control of ENP (now NuOasis Gaming), and the events surrounding the bankruptcy of BGI. The plaintiffs seek damages in an amount not yet ascertained according to proof, interest, rescission, imposition of a constructive trust, diminution of share value for the individual plaintiffs, attorneys' fees and exemplary damages. Outside counsel for the Registrant in the Refiled Action, and the management of both NuOasis Gaming and the Registrant believe among other things, that the action was initiated by Mike Savage, a former consultant of NuOasis Gaming, and persons affiliated with him, as a part of an attempt to take control of NuOasis Gaming; that the Plaintiffs do not have standing to file such litigation; that the Plaintiffs have no competent and credible evidence to support their allegations; that they have failed to state a proper claim; and that they do not qualify as proper representatives in a shareholder action. After the filing of the Registrant's Motion to Dismiss in the original action, the original action was voluntarily dismissed by the Plaintiffs. The Registrant has filed a Motion to Dismiss the Refiled Action. As of the date of this Report, all but three of the Plaintiffs have dropped out of the litigation. In response to the Registrant's Motion to Dismiss, the remaining Plaintiffs have voluntarily dismissed most of the other Defendants and have dismissed the RICO claims. The Registrant's accounting firm and chief financial officer have been dismissed as Defendants. The Motion to Dismiss the remaining claims is currently pending. [NM\10-KSB:63096KSB]-45 16 (f) Louis Siegel vs. Nona Morelli's II, Inc.; Case No. 703222, Superior Court of California for the County of San Diego. In June 1993, prior management of the Registrant issued 450,000 pre-reverse split shares of its common stock to Louis Siegel ("Siegel"), allegedly in consideration for food conveyor equipment. However, new management found the apparatus stored in the parking lot at the Pueblo, Colorado plant and discovered that the equipment was nothing more than scrap metal. In September 1994, when Mr. Siegel failed to provide an appraisal for the apparatus after a demand for the same from the Registrant's Chief Executive Officer, the Registrant's Board of Directors canceled the shares, finding that no consideration had been received for the issuance of the shares. In July 1995, Siegel requested reinstatement of the shares. The Registrant refused. No further developments occurred during fiscal year 1996. However, on September 6, 1996, the Registrant was served with a Complaint filed by Siegel against the Registrant in San Diego Superior Court entitled Louis Siegel vs. Nona Morelli's II, Inc. Case No. 703222 seeking compensatory damages in excess of $150,000, interest, punitive damages, costs of suit and attorney's fees. Counsel for the Registrant and Siegel have stipulated to a transfer of the action to the Superior Court for the County of Orange and the Superior Court of Orange County assigned Case No. 772045 to the complaint. The Registrant intends to vigorously defend the Complaint and is in the process of filing a Demurrer and Motion to Strike the Complaint. (g) Ba-Mak Gaming International Inc., Chapter 11 Bankruptcy, Eastern District of Louisiana, Case No. 94-1366 On October 28, 1994, Ba-Mak Gaming International, Inc. ("BGI") filed a Chapter 11 Petition with the United States District Court (Bankruptcy Division) for the Eastern District of Louisiana, Bankruptcy Case #94-13661. On April 20, 1995, the Bankruptcy Court granted the motion of the United States Trustee to convert the case to a proceeding under Chapter 7. A Trustee was appointed to liquidate the bankruptcy estate of BGI, and the liquidation of its assets has been occurring since July 1995. The Registrant's remaining obligation in connection with BGI is a claim, in the approximate amount of $47,000, against NuOasis Gaming for legal fees incurred during the bankruptcy if the bankruptcy estate does not pay such legal fees in full. The Trustee in the bankruptcy estate has been ordered to pay such fees. As of the date of this Report, the Trustee has not yet closed the bankruptcy estate; however, due to the claims of other creditors, the Registrant does not expect to recover any amount on the Proof of Claim it has filed for funds lent or advanced to BGI. (h) Investigation The Securities and Exchange Commission ("SEC") has been conducting an investigation into certain transactions in the Registrant's shares which appear to have occurred under the stewardship of former management. Outside counsel for the Registrant has been informed by the SEC's staff that they do not have any intention of recommending an enforcement action against any of the present management of the Registrant. It is not known whether the Registrant will ever be named in an enforcement action for misconduct engaged in by prior management. The investigation appears to focus on the issuance of shares to consultants in 1992 and 1993 by prior management and the validity of certain Consulting Agreements executed by the Registrant's former President. Present management and the SEC have reviewed the transactions in question and both agree that the Registrant appears to be entitled to the cancellation or return of shares issued by the Registrant to consultants in situations in which the Registrant could not obtain evidence of these consultants rendering consideration to the Registrant. The Registrant has cooperated fully with the SEC in this investigation. After consultation with counsel, present management believes that, ultimately, any action brought by the SEC will not have any material adverse effect on the Registrant's accompanying consolidated financial statements. In the opinion of outside counsel, it is unlikely that any enforcement action would seek monetary consideration from the Registrant, either in the form of disgorgement or penalties. [NM\10-KSB:63096KSB]-45 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. None. [NM\10-KSB:63096KSB]-45 18 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) Market Information Through August 16, 1995, the Registrant's common stock was traded on the NASDAQ Small CapSM System under the symbol "NONA." Subsequent to August 16, 1995, the Registrant's shares have been traded on the Electronic Bulletin Board under the Symbol "NONA". The range of high and low "bid" quotations for the Registrant'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 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 Fiscal 1995 High Low ---------------------- ----- ----- Quarter ended 06/30/95 $2.78 $ .41 Quarter ended 03/31/95 $ .81 Quarter ended 12/31/94 $1.25 $ .31 Quarter ended 09/30/94 $3.00 $ .94 The total number of shares authorized is 50,000,000. There were no stock splits during fiscal 1995 or 1996. (b) Holders The approximate number of holders of record of each class of equity securities of the Registrant as of June 30, 1996, was as follows: Title of Class Number of Record Holders - ---------------------------- ------------------------ Common Stock, $.01 par value 2,015 Series D Preferred Stock, $.01 par value 1 This does not include an unknown number of beneficial holders of the Registrant's common stock whose shares are registered in "street name." [NM\10-KSB:63096KSB]-45 19 (c) Dividends The Registrant has paid no cash dividends with respect to its common stock since its inception. However, during fiscal 1995, the Registrant declared and paid a property dividend of approximately 1.5 million shares of common stock of NuOasis Gaming. No cash or property dividends were paid or declared during fiscal 1996. As of the date of this Report, the Board of Directors of the Registrant have not approved a dividend distribution policy. There are no contractual restrictions on the Registrant's present or future ability to pay dividends. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (a) Significant Events During the Year Ended June 30, 1996. Purchase and Subsequent Sale of Peony Garden 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 currently 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. Following the close of fiscal 1996, 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"). 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 Peony Garden 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 of $9.6 million was reduced to the value of the Registrant's equity in Hartcourt on or about the closing date of approximately $7 million resulting in a $2.6 million write down. 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 the Hartcourt equity investment for other equity investments. [NM\10-KSB:63096KSB]-45 20 (b) Significant Subsequent Events Gaming Interest On August 5, 1996, NuOasis International, holder of the Gaming Interest, entered into an agreement with Mr. Ng to sell the Gaming Interest for twenty million (20,000,000) shares of the Registrant's common stock issued by the Registrant in the original purchase of the Gaming Interest. On or about September 30, 1996, the subject shares were tendered by Mr. Ng to a third party escrow agent pending the closing of the purchase of replacement properties which NuOasis International is currently negotiating to purchase ("the Replacement Property"). At June 30, 1996, the Registrant recognized a $6.6 million write down of the book value of the Gaming Interest 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 Mr. Ng, which was $.50 a share or $10 million in aggregate. Since the intended purchase of the Replacement Property will be effective later in fiscal 1997, the book value of the escrowed shares has been presented in a position similar to treasury stock as of June 30, 1996 . The Registrant earned $2,111,228 and $11,407,317 as gaming revenue generated from the Gaming Interest for the 5-week period from inception on May 25, 1995 to June 30,1995 and fiscal year ended June 30, 1996, respectively. Due to the sale of the Gaming Interest subsequent to the closing of fiscal 1996, these revenues are not expected to recur in future years. 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. $3.2 million of the $3.9 million generated from the Gaming Interest was used by the Registrant as full payment of the principal and accrued interest on the $3 million promissory note issued as part of the original purchase of the Gaming Interest on May 25, 1995. Peony Garden As discussed above, the sale of the Peony Garden interest occurred on August 8, 1996 and closed on October 8, 1996. Cleopatra Subsequent to the close of fiscal 1996, NuOasis International executed letters of intent and was negotiating definitive agreements to acquire Replacement Properties related to its international gaming and hospitality activities. 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 designee, Cleopatra World), would lease the casino and through NuOasis International manage the hotel (to be re-named "Cleopatra Palace Resort - - Monastir"), and provide Las Vegas casino gaming management for the casino (the "Monastir Casino"). Also in July 1996, the Registrant 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 NuOasis International and the owners for the purpose of completing the construction and managing the operations of the subject complex (to be re-named "NuOasis Resort & Casino"). Negotiations are still continuing, but there have been no definitive agreements executed. If present negotiations result in the acquisition of that facility, capital expenditures for remodeling and construction of that facility are estimated to be in excess of $15 million, which neither the Registrant nor any of its subsidiaries have received a commitment for financing at this time. [NM\10-KSB:63096KSB]-45 21 In September 1996, the Registrant entered into an agreement in principle with a European hotel management 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 will provide the new joint venture with up to $13.5 million in working capital, and the Registrant, through NuOasis International, will 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 Registrant and Cleopatra entered into a reorganization agreement with Cleopatra which will result in NuOasis International issuing $13.5 million in secured promissory notes in consideration for 70% of the outstanding stock of three Cleopatra subsidiaries, including Cleopatra Cap Gammarth Casino, Cleopatra Hammamet Casino and Cleopatra Monastir. Additionally, the Registrant and Cleopatra agreed to increase NuOasis International's equity interest in Cleopatra from 28% to 33%. Also, in October 1996, NuOasis International entered into negotiations to purchase a controlling interest in the corporate entity which owns the Cap Gammarth Casino real property and improvements. Additionally, following the restructuring agreement with Cleopatra, NuOasis International executed an agreement to purchase a 50% interest in Cleopatra World, Inc., a British Virgin Island corporation ("Cleopatra World"), the lessor of the Le Palace Hotel and the commercial center, residential complex, real estate and improvements surrounding the Cap Gammarth Casino (the "Cap Gammarth Resort"). National Pools Corporation On June 13, 1996, Nona entered into an Option Agreement with Joseph Monterosso, President of National Pools Corporation ("NPC"), an individual previously unrelated to NuOasis Gaming or Nona, and granted such individual an option to purchase the 250,000 Series B Preferred Shares of NuOasis Gaming owned by Nona at a purchase price of $13.00 per share, or a total of $3,250,000, with a minimum purchase of 110,000 shares. The exercise of the option is conditioned upon shareholder approval of a proposal to increase the authorized number of shares of common stock of NuOasis Gaming by at least twenty million (20,000,000) shares. The option is assignable and shall expire 90 days after the next Annual Meeting of Shareholders of NuOasis Gaming. On November 21, 1996, NuOasis Gaming's board of directors approved the acquisition of NPC. The acquisition is expected to be financed by the issuance of securities of NuOasis Gaming, however, a definitive agreement has not been signed. Moreover, the acquisition is contingent upon the occurrence of certain events including but not limited to: (a) NPC shareholder approval; (b) exercise of that certain option agreement between Monterosso and Nona; (c) Monterosso securing financing that would allow the exercise of the option by Monterosso and/or one or more qualified private investors; (d) reaching an agreement to sell CMA; and (e) shareholder approval of a proposal to increase the number of authorized shares of common stock of NuOasis Gaming by at least 20,000,000 shares. There are no assurances that such transaction will occur and, because of on-going negotiations and uncertainties surrounding the realization of such transaction, NuOasis Gaming cannot determine the ultimate effect on NuOasis Gaming's financial position at this time. (c) Going Concern The Registrant 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, in the case of NuOasis Gaming, new operating opportunities. In the interim, the Registrant intends to continue operating with minimal overhead and key administrative functions provided by consultants who are compensated in the form of the Registrant's common stock. It is estimated, based upon its historical operating expenses and current obligations, that the Registrant may need to utilize its common stock for future financial support to finance its needs during fiscal year 1997. Accordingly, the accompanying consolidated financial statements have been presented under the assumption the Registrant will continue as a going concern. [NM\10-KSB:63096KSB]-45 22 (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, -------------------------------------------- 1996 1995 ------------------ ------------------- Working Capital (Deficit) $ (1,923,964) $ (830,069) Cash and Cash Equivalents $ 50,436 $ 628,870 Current Ratio .68 .8 The most significant effects on working capital and its components during fiscal 1996 were (i) earned revenue of approximately $11.4 million from the Gaming Interest; (ii) the pre-payment of $9.6 million in principal on the Registrant's note issued to acquire the interest in Peony Garden; (iii) an increase in current liabilities of approximately $2 million; and; (iv) a decrease in cash of $578,434. The Registrant's current plan for growth is to increase its working capital by converting the shares of Hartcourt received from the sale of Peony Garden into additional equity investments and, in turn, use these additional equity investments along with external debt and equity financing, if any can be arranged, to finance the activities of its subsidiaries, and for future acquisitions in its three business segments. Additionally, the Registrant anticipates receiving a distribution of net operating revenues from the Cleopatra casinos, which at the present time, subject to obtaining financing, are scheduled to be completed during the next calendar year. However, there are no assurances that the subject casinos will open during the next calendar year since the financing required by Cleopatra to complete and open its properties has not yet been committed. As of the date of this Report, the Registrant's sole operations are derived from its food manufacturing subsidiary and, therefore, there is considerable risk that the Registrant will not have adequate working capital to sustain its current status, and that the Registrant or its subsidiaries may not be able to secure the required debt or equity financing to complete their proposed projects during the next calendar year, in which case the Registrant or its subsidiaries may be forced to sell the projects or contribute them to a third party on terms which would preclude the Registrant from realizing significant future benefit, or any benefit at all from the projects. The Registrant may need to issue additional shares of its common stock to pay for services incurred, to finance the operations of its subsidiaries, and to continue to sustain itself. (e) Capital Expenditures General The Registrant has no commitments for material capital expenditures, however, to date neither the Registrant nor its subsidiaries have been able to secure adequate third party financing commitments to complete its various projects. Capital Requirements of Cleopatra At June 30, 1996, Cleopatra has approximately $3,500,000 deposited with the builders of the Cap Gammarth Casino and the Hammamet Casino. Cleopatra has approximately $2,000,000 remaining to be paid, as security deposits and advance rent, before it can take possession of the two casinos (see Note 12 of the footnotes to the accompanying financial statements included herein at Item 7). Construction on the Cap Gammarth Casino and Hammamet Casino is near completion. In addition, Cleopatra estimates remaining expenditures and working capital requirements, including security deposits and advance rental payments, related to equipping and opening the two casinos to be approximately $15 million in aggregate. [NM\10-KSB:63096KSB]-45 23 To finance the expected $15 million in remaining expenditures on the Cap Gammarth Casino and the Hammamet Casino, the Registrant is negotiating a joint venture between NuOasis International and a European hotel management company whereby the European hotel management company will contribute up to $13.5 million in exchange for a 50% interest in the joint venture (see Note 13 of the footnotes to the accompanying financial statements included herein at Item 7). Alternatively, subject to providing satisfactory collateral, the Registrant has arranged for a credit facility with Banque Francaise de L'Orient (the "Bank") which Cleopatra may utilize to borrow up to $25 million. Through June 30, 1996 the Registrant and its subsidiaries have, with few exceptions, financed all operations with internally generated funds and the Registrant's common stock. Third party debt and equity financing has been pursued, both domestically and internationally, without success. And, while the Registrant and its subsidiaries have been able to meet their financial commitments through the close of fiscal 1996, if for any reason, the proposed joint venture is not formed, or if Cleopatra is unable to borrow from the Bank, or if Cleopatra or NuOasis International are unable to otherwise meet their commitments under the various agreements to provide the furniture, fixtures, equipment and working capital for the proposed casinos once construction is completed, the Registrant may be required to intercede and provide the requisite financing and working capital, or be forced to sell all or a portion of their respective interest, or lose their respective rights to the projects and properties entirely. (f) Cash Flows Cash provided by operating activities was $8,861,699 for the year ended June 30, 1996 as compared to $560,435 in cash used by operating activities for the comparable period last year. The increase is primarily attributable to the receipt of $9.6 million generated from the Gaming Interest. Although revenues were accrued, there was no receipt of cash flow from the Gaming Interest during the same period last year. Cash used in investing activities was $9,666,393 as compared to $114,791 in cash provided by investing activities for the comparable period last year. The increase is primarily attributable to the $9.6 million principal payment made to acquire the Registrant's beneficial ownership interest in Peony Garden as discussed above. Cash provided by financing activities was $226,260 for the year ended June 30, 1996 as compared to $122,177 in cash used by financing activities for the comparable period last year. The increase is primarily attributable to a $350,000 loan obtained by Fantastic Foods for the repayment of existing debt, improvement of plant and equipment and for general working capital purposes. (g) Results of Operations Year Ended June 30, 1996 Compared to Year Ended June 30, 1995 The Registrant's total food sales for the year ended June 30, 1996 were $1,251,174 as compared to $1,555,119, for the year ended June 30, 1995, resulting in a decrease of $303,945 or 20%. The decrease is primarily attributable to a combination of a $633,026 decrease in co-packing sales and a $345,217 increase in fresh pasta sales. The Registrant's total cost of food sales for the year ended June 30, 1996 were $838,453 as compared to $938,848 for the year ended June 30, 1995, resulting in a decrease of $100,395 or 11%, which is primarily attributable to the lower food sales discussed above. Additionally, continued efforts to increase operating efficiencies have not compensated for the higher absorption of overhead on lower sales, and the Registrant's continued change in emphasis from the sale of its own brand label products to sales through private labeling arrangements has not yet had a positive effect on gross profit margin resulting in a decrease in gross profit margin to 33% for the year ended June 30, 1996 from 40% for the year ended June 30, 1995. [NM\10-KSB:63096KSB]-45 24 The Registrant's total gaming revenues for the year ended June 30, 1996 were $11,407,317 as compared to $3,292,273 for the year ended June 30, 1995, resulting in an increase of $8,115,044 or 247%. The increase is primarily attributable to the timing of the acquisition of the Gaming Interest, which contributed a full year of revenue as compared to last fiscal year which included revenues from inception on May 25, 1995, through June 30, 1995. Since the Gaming Interest was sold after year end, these revenues will not exist in the future. Since March 31, 1994, the Registrant has reported, on a consolidated basis, the revenues and net assets of NuOasis Gaming. The Registrant's cost of gaming revenue was $887,472 for the year ended June 30, 1995, as compared to $0 for the year ended June 30, 1996. Since cost of gaming revenue of $887,472 was solely from the operations of BGI, the decrease is attributable to the cessation of BGI's operations in April 1995 due to BGI's Chapter 7 bankruptcy proceedings. The Gaming Interest acquired in May 1995 was an acquisition of a forty percent (40%) net operating profits interest in the operations of two Macau casinos and, accordingly, had no effect on the total cost of gaming revenue. Amortization expense of $4,268,544 contributed to the increase in the total depreciation and amortization expense of $4,989,064 during fiscal 1996. The Registrant's total legal and professional fees and general and administrative expenses were $3,475,422 for fiscal 1996, as compared to $3,432,530 for fiscal 1995, resulting in an increase of $42,892 or 1%. The increase is primarily attributable to the combination of a $380,000 increase in the Registrant's legal and professional fees and a $337,000 decrease in the Registrant's general and administrative expenses during fiscal 1996 from fiscal 1995. The Registrant incurred a one time expense in connection with the sale of the Gaming Interest on August 8, 1996. As discussed above, because the sale of the Gaming Interest was structured to be effective on July 1, 1996, the Registrant recognized a write down of approximately $6.6 million to bring down the book value of the Gaming Interest to the basis of the stock originally issued to Mr. Ng Man Sun which was $.50 per share or $10 million in aggregate. The Registrant incurred a one time valuation expense in connection with the sale of Peony Garden discussed above. Since the value of the Registrant's equity in Hartcourt on or about the closing date was approximately $7 million, which is lower than the Registrant's net investment in the Peony Garden interest of $9.6 million, the Registrant recognized a write down for the difference in the amount of approximately $2.6 million. During fiscal 1996, the Registrant remodeled and improved its food processing equipment in its California locations and leased its Colorado facility held for sale. In connection therewith, the Company 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. During fiscal year 1996, the Registrant incurred expenses on behalf of Cleopatra amounting to $955,439 which is included as a stockholders' receivable at June 30, 1996, net of an allowance for possible loss of $766,180 which is included in Other Valuation Expense. The Registrant's total operating loss for fiscal 1996 was $7,475,285 as compared to an operating loss of $872,733 for fiscal 1995, resulting in an operating loss increase of $6,602,552. The increase is attributable to the one time valuation expenses of approximately $ 6.6 million,$2.6 million, $1 million, and $766,180 as discussed above. Comparatively, there were no such valuation expenses in fiscal 1995. [NM\10-KSB:63096KSB]-45 25 The Registrant recorded an income tax provision of $997,932 for fiscal year 1996 and an income tax benefit of $615,436 for fiscal year 1995. For the year ended June 30, 1996 and 1995, 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 tax was 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 $989,356 and $192,353 in net operating losses to offset federal and state taxable income for the years ended June 30, 1996 and 1995, respectively. 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 the difference in basis of the Gaming Interest, accounts receivable and the recognition of the benefit of prior year losses carried forward. As a result of changes in stock ownership which occurred in 1993 and 1995, the Registrant'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. The Registrant intends to obtain 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. As of the date of this Report, the Registrant has not received such independent valuation and accordingly has accrued its income tax provision in consideration of Section 382. Deferred tax assets have been computed using the maximum expiration terms of 13 and 5 years (or total net operating losses available of approximately $11.9 million and $7.8 million) for federal and state tax purposes, respectively. Net operating losses expire from the years 2004 through 2009. A valuation allowance was recorded at June 30, 1996 to offset benefits of net operating losses in excess of any potential federal loss carry back. The change in the valuation allowance in fiscal 1996 is due to the sale of cash flow producing assets. 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 Registrant'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 an NOL carryforward of approximately $9.6 million with a related unrecognized deferred tax benefit of approximately $3.3 million. (h) Recent Accounting Developments In March 1995, the Financial Accounting Standards Board ("FASB") adopted Statement No. 121 "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of" which requires entities to review long lived assets impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and provides guidance as to measurement of the carrying value of assets to be disposed of. The statement is effective for fiscal years beginning after December 15, 1995. The Registrant has not determined the effect the adoption of the statement will have, but does not believe its implementation will have a material effect on its financial position. In October 1995, the FASB adopted Statement No.123, "Accounting for Stock-Based Compensation." This Statement encourages entities to adopt a fair value method of accounting for stock- based compensation plans including stock options and warrants issued to employees. For entities which do not adopt this method, the Statement requires disclosure of the effect that the fair-value method would have on net income and earnings per share. The Statement is effective for transactions entered into in fiscal years that begin after December 15, 1995. The Registrant has not determined the effect of this Statement nor has it decided when it will adopt the provisions of this Statement. 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. 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 & Glassman. There were no disagreements between the Registrant and its former auditors regarding accounting and financial disclosure. [NM\10-KSB:63096KSB]-45 26 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 Registrant, 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 1996 were as follows:
Position Name Held with the Registrant Age Dates of Service - ------------------- ---------------------------------- --- ---------------------------------- Fred G. Luke Chairman of the Board and Chief 49 June 14, 1993 to Present Executive Officer John D. Desbrow Director 41 December 20, 1993 to May 29, 1996 Secretary December 20, 1993 to Present Jonathan L. Small Director 44 March 17, 1994 to January 22, 1996 Kenneth R. O'Neal Director, Chief Financial Officer 51 August 24, 1994 to July 15, 1995 Carol Chen Director 43 January 22, 1996 to October 29, 1996 Liu Mei Huan Chen Director 32 October 9, 1995 to Present Cheng Tai Chee Director 62 October 9, 1995 to Present Steven H. Dong Chief Financial Officer 30 July 16, 1995 to Present
All directors of the Registrant 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 Registrant are elected by the Board of Directors at its first meeting after each annual meeting of the Registrant's shareholders and serve at the discretion of the Board of Directors or until their earlier resignation or death. The Registrant, pursuant to resolutions adopted by its Board of Directors on December 15, 1993, maintains a five-member Advisory Board. At June 30, 1996, the following individuals served on the Advisory Board: Position Name Held with the Registrant Age Dates of Service - ----------------- ------------------------ --- ----------------------- 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 [NM\10-KSB:63096KSB]-45 27 (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 Registrant, 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. Fred G. Luke. Mr. Fred G. Luke has been a Director of the Registrant since June 1993, and Chairman and Chief Executive Officer since July 22, 1993. Mr. Luke has more than twenty-six 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 Registrant, Mr. Luke currently serves as Chairman and President of NuOasis Gaming, as well as Chairman and President of NuVen Advisors, Inc., ("NuVen Advisors") formerly New World Capital, Inc. ("New World"), President and Director of The Toen Group, Inc. ("Toen"), President and Director of Hart Industries, Inc. ("Hart"), Chairman and President of Diversified Land & Exploration Company ("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. BNR is presently inactive. Hart and DL&E were formerly in the environmental services and natural gas processing business, respectively. Both Hart and Toen are public companies which were formerly traded on NASDAQ or the OTC Bulletin Board. Neither Hart nor Toen has ongoing operations. NuVen Advisors provides managerial, acquisition, and administrative services to public and private companies including Nona, NuOasis Gaming, Hart, Toen, and DL&E. NuVen Advisors, which is controlled by Fred G. Luke, as Trustee of the Luke Family Trust, is an affiliate of both Nona and NuOasis Gaming. NuVen Advisors is a stockholder of Hart, DL&E and Nona, and provides management, general and administrative services, and merger and acquisition services to Hart, DL&E, NuOasis Gaming and Nona 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. John D. Desbrow. Mr. John D. Desbrow, as an independent consultant, has been a Director and Secretary of the Registrant 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 Registrant 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 Industries, Inc. since July 1993, as the Secretary of NuOasis Gaming since April 1994 and as a Director of Toen since Septmeber 1994. Mr. Desbrow resigned as a Director of the Registrant in May 1996. Carol Chen. Ms. Carol Chen has served as a Director of the Registrant 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 Registrant on October 29, 1996. [NM\10-KSB:63096KSB]-45 28 Liu Mei Huan Chen. Ms. Chen has served as a Director of the Registrant since October 9th, 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. Cheng Tai Chee. Mr. Chee has served as a Director of the Registrant 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. Jonathan L. Small. Mr. Jonathan L. Small, as an independent consultant, has been a Director of the Registrant 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 Basic Natural Resources, Inc. from June 1992 to September 1994. Mr. Small has served as Secretary and General Counsel for Diversified Land and Exploration since March 1988. Steven H. Dong. Mr. Dong, a Certified Public Accountant, and as an independent consultant, has served as Chief Financial Officer of the Registrant since July 16, 1995. Mr. Dong replaced Kenneth R. O'Neal, who resigned as the Registrant's Chief Financial Officer and as a Director effective July 15, 1995. Prior to joining the Registrant, Mr. Dong worked with the international accounting firm of Coopers & Lybrand since 1988. As an Assurance Manager with Coopers & Lybrand, 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 Registrant, Mr. Dong currently serves as Chief Financial Officer of NuOasis Gaming, Toen 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 Registrant from June 14, 1993 to November 30, 1993. Prior to his association with the Registrant, 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 Fantastic Foods. 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 Registrant's equity investments. [NM\10-KSB:63096KSB]-45 29 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, Fantastic Foods entered into an Employment Agreement with Giancarlo Pino for his services as a Vice President of Fantastic Foods which was renewed during fiscal 1996. 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 Registrant to serve as President of Fantastic Foods. Mr. Lawver has been President of Fantastic Foods since June, 1993. Mr. Lawver has twenty-two (22) years of experience in the area of bank financing where he has assisted companies by locating financing for expansion requirements and was employed with Bank of America from 1961 to 1970, ending his employment as Vice President. Since 1970, Mr. Lawver has served as President and a Director of J.L. Lawver Corp., a financial consulting firm. Since 1988, Mr. Lawver has also served as President and a Director of Eurasia, a private finance equipment leasing company specializing in oil and gas industry equipment. Mr. Lawver has also served as an officer of both Toen and Hart. Albert Rapuano entered into a Consulting Agreement with the Registrant to serve as President of NuOasis International. Mr. Rapuano has over 30 years experience in all aspects of hotel and casino management. Since, 1993, Mr Rapuano has been a partner and principle at EOR Weller Advertising and Marketing, a full-service advertising and marketing company specializing in the gaming industry. Prior to his work with EOR Weller, Mr. Rapuano served as President and Chief Operating Officer of the 2,174 room Riviera Hotel and Casino in Las Vegas. Mr. Rapuano successfully guided the Riviera through and out of bankruptcy within fifteen months. From 1982 to 1987, Mr. Rapuano served as Executive Vice President of the MGM Grand Hotel in Las Vegas, which was acquired by Bally Manufacturing Company in April 1986 and became Bally's Casino Resort. This 2,832 room casino hotel facility employed over 4,000 people and achieved gross annual revenues of $276 million with an annual operating income of $56 million. (d) Family Relationships Fred Graves Luke is the father of Fred G. Luke, Chief Executive Officer of the Registrant. At June 30, 1996, Fred Graves Luke served as the chairperson of the Registrant's Advisory Board; and Vice President of International Sales and a Director of Fantastic Foods. Fred Graves Luke holds 10% of the equity interest in Cleopatra. Giancarlo Pino, who serves as Vice President of Manufacturing and a Director of Fantastic Foods is the husband of Daniela Grechi, who serves as Corporate Secretary of Fantastic Foods. (e) Involvement in Certain Legal Proceedings. During the past five years, no director or officer of the Registrant 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. [NM\10-KSB:63096KSB]-45 30 (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 Registrant, 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 Registrant 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 Registrant. (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. (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 Registrant's directors and officers and persons who own more than 10 percent of the Registrant'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 Registrant 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 Registrant believes that during the period from June 30, 1995 through June 30, 1996, all filing re quirements applicable to its officers, directors and greater than ten-percent shareholders were complied with except the following instances: Kenneth R. O'Neal failed to file Form 3 to report his acceptance of the office of Chief Financial Officer and as a director in August 1994. Mr. O'Neal further failed to file Form 4 reporting his acquisition and subsequent sale of 170,000 shares of the Registrant's common stock. Mr. O'Neal resigned in July 1995 as an officer and director of the Registrant. Kenneth R. O'Neal failed to furnish the Registrant with any Form 4 filings reporting the termination of reporting requirements due to his resignation in July 1995 as an Officer and Director of the Registrant. In January 1996, Mr. Ng Man Sun, the beneficial owner of 13,000,000 shares owned of record by Dragon Star Securities Ltd., Sharp Profit Investment Limited, Sunning Star Enterprises Ltd., and Up- field Investment Ltd., filed a late Form 3 for the month of July 1995 reporting the acquisition of 29.13% of the Registrant's common stock. In March 1996, Jonathan L. Small filed a late Form 4 for the months of December 1995 and January 1996. In September 1995 Mr. Small filed a late Form 4 for the month of June 1995. In May 1996, J. L. Lawver Corp., which is owned by Jon L. Lawver, President of Fantastic Foods, filed a late Form 4 for the months of July through October 1995, December 1995, February 1996 and March 1996. In May 1996, J. L. Lawver Corp. filed two Form 5s for the fiscal years ended June 30, 1994 and June 30, 1995, respectively. In April 1996, Fred G. Luke filed a late Form 5 reporting his acquisition in September 1995 of an option to purchase 1,000,000 shares of the Registrant's common stock. [NM\10-KSB:63096KSB]-45 31 In February 1996, Liu Mei Huan Chen filed a late Form 3 for the month of October 1995 related to becoming a director of the Registrant. In February 1996, Cheng Tai Chee filed a late Form 3 for the month of October 1995 related to becoming a director of the Registrant. 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 Registrant's last three completed fiscal years by the Registrant's Chief Executive Officer and four most highly compensated executive officers other than the Chief Executive Officer. Name and Principal Fiscal Salary Other Annual Options Position Year ($) Compensation($) Granted (#) (3) - ------------------ ---- ------- --------------- --------------- Fred G. Luke (1) (2) 1996 174,000 130,000 N/A Chief Executive 1995 192,000 N/A 1,000,000 Officer (7-93 to 1994 22,500 N/A N/A Present) John D. Desbrow (1) 1996 206,250 N/A 50,000 Secretary (12-93 to 1995 189,500 N/A 50,000 Present) 1994 84,000 N/A N/A Steven H. Dong (1) 1996 165,000 N/A 100,000 Chief Financial Officer 1995 N/A N/A N/A (7-95 to Present) 1994 N/A N/A N/A Jon L. Lawver 1996 100,000 N/A 50,000 President of 1995 100,000 N/A 50,000 Fantastic Foods 1994 100,000 N/A N/A Albert Rapuano 1996 115,000 N/A 500,000 President of 1995 N/A N/A N/A NuOasis International 1994 N/A N/A N/A (1) Salary dollar values include both Nona and NuOasis Gaming combined base salary (cash and non-cash) earned. (2) Other Annual Compensation of $130,000 includes $84,000 of value realized on the exercise of 400,000 Nona options, and $21,000 and $25,000 amounting to the excess of reimbursable expenses pursuant to Mr. Luke's employment agreements with Nona and NuOasis Gaming, respectively. (3) During the period covered by the Table, the Registrant did not make any award of restricted stock, including share units. The number of options granted are the sum of the number of shares of Common Stock to be received upon the exercise of all stock options granted. Except for stock option plans, the Registrant does not have in effect any plan that is intended to serve as incentive for performance to occur over a period longer than one fiscal year. [NM\10-KSB:63096KSB]-45 32 b) Stock Options - Nona Morelli's II, Inc. The following table sets forth in summary form the aggregate options granted during fiscal year 1996 to Nona's Chief Executive Officer and four most highly compensated executive officers other than the Chief Executive Officer. OPTION/SAR GRANTS IN LAST FISCAL YEAR (Individual Grants) Percent of Total Exercise Options/SAR's or Base Options/SAR's Granted to Price Expiration Name Granted (#) Employees ($/Sh) Date - -------------------------- ------------- ------------- ------- ---------- Steven H. Dong, CFO 100,000 14% $ 1.53 12/31/99 John D. Desbrow, Secretary 50,000 7% $ 1.53 12/31/99 Jon L. Lawver, President 50,000 7% $ 1.53 12/31/99 (Fantastic Foods) Albert Rapuano, President 500,000 72% $ .91 12/31/99 (NuOasis Intl.) The following table sets forth in summary form the aggregate options exercised during fiscal year 1996, and the June 30, 1996 value of unexercised options for The Registrant's Chief Executive Officer and four most highly compensated executive officers other than the Chief Executive Officer.
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 - ---------------------------- ------------------ ------------ ---------------------- ---------------------- Fred G. Luke, Chief Executive Officer and 400,000 $524,000 600,000 Exercisable - Exercisable Director NuVen Advisors, Inc. (1) _ _ 100,000 Exercisable - Exercisable Steven H. Dong, CFO _ _ 100,000 Exercisable - Exercisable John D. Desbrow, _ _ 100,000 Exercisable - Exercisable Secretary Jon L. Lawver, President of Fantastic _ _ 100,000 Exercisable - Exercisable Foods Albert Rapuano, President of NuOasis International _ _ 500,000 Exercisable $140,000 Exercisable
(1) The Luke Family Trust (the "Luke Trust") owns 93% of NuVen Advisors, formerly New World. Fred G. Luke, as Co-Trustee of the Luke Trust determines the voting of such shares and, as a result, may be deemed to control the Luke Trust. [NM\10-KSB:63096KSB]-45 33 (c) Stock Options - NuOasis Gaming, Inc. The following table sets forth in summary form the aggregate options granted during fiscal year 1996 to NuOasis Gaming's President and four most highly compensated executive officers other than the President.
Number of Percent of Total Shares Options/ Under SAR's Granted Exercise or Options/SAR's to employees Base Price Expiration Name Granted in Fiscal Years ($/Sh) Date - ----------------------- ------------- --------------- ----------- ---------- Fred G. Luke, President and Director 3,000,000(1) 84% $.12 7/00 Steven H. Dong, CFO 275,000 8% $.12 7/00 John D. Desbrow 275,000 8% $.12 7/00
The following table sets forth in summary form the aggregate options exercised during fiscal year 1996, and the June 30, 1996 value of unexercised options for NuOasis Gaming's President and four most highly compensated executive officers other than the President.
Value of Unexercised Number of Unexercised In-the-Money Option/SAR's at Fiscal Options/SAR's at Fiscal Year-End (#) Year-End ($) Shares Acquired on Value Exercisable/ Exercisable/ Name Exercise (#) Realized ($) Unexercisable Unexercisable - ---------------------------- ------------------ ------------ ----------------------------------- ------------------------- Fred G. Luke, President 481,176 Exercisable $ 173,205 Exercisable and Director (1) 868,824 $ 104,258 1,650,000 Unexercisable $ 594,000 Unexercisable NuVen Advisors, Inc. (2) _ _ 2,000,000 Exercisable $ 760,000 Exercisable Steven H. Dong, CFO _ _ 275,000 Exercisable $ 99,000 Exercisable John D. Desbrow, _ _ 275,000 Exercisable $ 99,000 Exercisable Secretary
(1) Options vest at a rate of 50,000 per month over a five year term ending March 31, 1999. (2) The Luke Family Trust (the "Luke Trust") owns 93% of NuVen Advisors, formerly New World. 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 Registrant has no standard arrangement for the compensation of directors or their committee participation or special assignments. The Registrant 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. During fiscal 1996, Jonathan L. Small was paid approximately $12,000 for his services as a Director. During fiscal 1996, John D. Desbrow was paid approximately $11,000, for the eleven month period from July 1995 to May 1996 for his services rendered as a Director. No compensation was paid to other Directors during fiscal 1996. [NM\10-KSB:63096KSB]-45 34 (f) Contracts With Named Executive Officers In September 1994, the Registrant entered into an Employment Agreement with Fred G. Luke, the Registrant's Chairman and Chief Executive Officer. Mr. Luke has been serving as the Registrant's Chairman and CEO since approximately July 1993. From July 1993 through June 30, 1994, Mr. 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 Mr. 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 Registrant's common stock exercisable at $1.10 per share; provides him with an annual bonus based upon a number of factors related to the Registrant's growth and performance which include; (a) serving on the Registrant'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 Registrant to purchase life insurance 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 Registrant expensed $120,000 and $120,000 during fiscal years 1996 and 1995, respectively, and had no amounts due to Mr. Luke as of June 30, 1996. In August 1995, NuOasis Gaming entered into an Employment Agreement with Fred G. Luke, to save as NuOasis Gaming's President. Mr. Luke has been serving as the NuOasis Gaming President since approximately March 31, 1994. The terms of the Employment Agreement call for Mr. Luke to receive approximately $4,500 per month, retroactive to April 1, 1994, for five (5) years as a base salary; granted him an option to purchase 3,000,000 shares of NuOasis Gaming's common stock at an exercise price of $.12 per share; provides him with an annual bonus based upon a number of factors related to NuOasis Gaming's growth and performance which include (a) serving on NuOasis Gaming's Board of Directors and as its President; (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 President of a publicly-held company; and requires NuOasis Gaming to purchase life insurance coverage, reimburse vehicle expenses, and provide other fringe benefits. Between March 31, 1994 and September 30, 1994, Mr. Luke received no cash payments for his services. In August 1995, NuOasis Gaming agreed to retroactively compensate Mr. Luke for past services in the amount of $27,000 for the period April 1, 1994 to September 30, 1994 and $59,000 for the period October 1, 1994 to September 30, 1995. No bonuses have been accrued, paid or are owed as of the date of this Report. NuOasis Gaming expensed $54,000 and $72,500, during fiscal 1996 and 1995, respectively, and had $126,500 due to Mr. Luke as of June 30, 1996. Effective January 1, 1994, the Registrant 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 Registrant until December 31, 1994. Under the Consulting Agreement the Registrant contracted to pay Mr. Desbrow $150,000 payable in the Registrant's common stock issuable in monthly increments in arrears. Under the terms of the Consulting Agreement, Mr. Desbrow invoices the Registrant 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), Mr. Desbrow and the Registrant have agreed the price paid for the shares is deemed to be $150,000. Pursuant to the terms of the Consulting Agreement, the Registrant granted Mr. Desbrow an option to purchase 50,000 shares of the Registrant's common stock exercisable at a price of $.58 per share. Effective Janaury 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 Registrant expensed $150,000 and $150,000 during fiscal 1996 and 1995, respectively, and had $70,378 due to Mr. Desbrow as of June 30, 1996. Effective April 1, 1994, NuOasis Gaming 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 NuOasis Gaming, for the period from April 1, 1994 to March 31, 1995 for an amount of $36,000 per annum. Additionally, in fiscal 1995 Mr. Desbrow billed and eventually received from the sale of shares $4,000 for services rendered as a Director from April 1994 to July 1994. Effective April 1, 1995, the Consulting Agreement was renewed through March 31, 1996 for an amount of $50,000 per annum. 1,050,000 shares of NuOasis Gaming common stock were registered for issuance on Forms S-8 filed with the Securities and Exchange Commission during the 1995 fiscal year. Under the terms of the Consulting Agreement, Mr. Desbrow invoices NuOasis Gaming 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), Mr. Desbrow and NuOasis Gaming have agreed the price paid for the shares is deemed to be $50,000. Effective April 1, 1996, the Consulting Agreement was renewed through March 31, 1997 for an amount of $ 75,000 per annum and granted him an option to purchase 275,000 shares of NuOasis Gaming common stock at an exercise price of $.12 per share. NuOasis Gaming expensed $56,250 and $39,500 during fiscal 1996 and 1995, respectively, and had $8,252 due from Mr. Desbrow as of June 30, 1996. [NM\10-KSB:63096KSB]-45 35 Effective January 1, 1994, the Registrant entered into a Consulting Agreement with Jon L. Lawver and J. L. Lawver Corp. pursuant to which Mr. 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 Registrant agreed to pay Mr. Lawver 36,000 shares of the Registrant's common stock, issuable in monthly increments in arrears and granted Mr. Lawver the option to purchase 50,000 shares of the Registrant's common stock at an exercise price of $.58 per share. Under the terms of the Consulting Agreement, Mr. Lawver invoices the Registrant 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) Mr. Lawver and the Registrant have agreed the price paid for the shares is deemed to be $100,000. 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. The Registrant expensed $100,000 and $100,000 during fiscal 1996 and 1995, respectively and had $14,991 due to Mr. Lawver at June 30,1996. In July 1995, the Registrant 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. Pursuant to the agreement as amended in October 1995, the Registrant agreed to pay Mr. Dong $145,000 per annum in cash or in the Registrant's common stock payable monthly in arrears and granted him an option to purchase 100,000 shares of the Registrant's common stock at an exercise price of $1.53 per share. Under the terms of the Consulting Agreement, Mr. Dong invoices the Registrant 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) Mr. Dong and the Registrant 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 Mr. Dong during fiscal 1996 or 1995, however 95,000 shares were issued during 1996 which were used to apply against services rendered. The Registrant expensed $145,000 and $0 during fiscal 1996 and 1995 and had $42,635 due to Mr. Dong as of June 30, 1996. In July 1995, NuOasis Gaming 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. Pursuant to the agreement, NuOasis Gaming agreed to pay Mr. Dong $20,000 in cash or in NuOasis Gaming's common stock, payable monthly in arrears, and granted him an option to purchase 275,000 shares of NuOasis Gaming's common stock at an exercise price of $.12 per share. Effective July 1, 1996, the Consulting Agreement was renewed through June 30, 1997 for an amount of $39,000 per annum. Cash payments of $5,000 were made to Mr. Dong by NuOasis Gaming during fiscal 1996 and no stock has been issued pursuant to this Consulting Agreement. NuOasis Gaming expensed $20,000 during fiscal 1996, and had $15,000 due to Mr. Dong as of June 30, 1996. In January 1996, the Registrant entered into a consulting agreement with Albert Rapuano, pursuant to which Mr. 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 Registrant agreed to pay Mr. Rapuano $250,000 per annum in cash or in the Registrant's common stock payable monthly in arrears and granted him an option to purchase 500,000 shares of the Registrant's common stock at an exercise price of $.91 per share. Under the terms of the Consulting Agreement, Mr. Rapuano invoices the Registrant 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) Mr. Rapuano and the Registrant have agreed the price paid for the shares is deemed to be $250,000. No cash payments were made to Mr. Rapuano during fiscal 1996, however, 70,000 shares were issued during 1996 which were used to apply against services rendered. The Registrant expensed $115,000 and $0 during fiscal 1996 and 1995, respectively, and had $50,211 due to Mr. Rapuano as of June 30, 1996. [NM\10-KSB:63096KSB]-45 36 (g) Change of Control Not applicable. (h) Report on Repricing of Options Not applicable. 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 Registrant's voting securities by persons owning more than 5% of such securities as of October 15, 1996, the most recent practicable date.
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 - --------------------------- ---------------- -------- ------------------ -------- C/A/K Trustkantoor N.V.(2) 20,000,000 44.40% 0 0% P.O. Box 210 Willemstad Curacao Dragon King Investment 3,000,000 6.66% 0 0% Services Ltd. 8th Floor, Ruttonjee House 11 Duddell Street Central Hong Kong NuVen Advisors, Inc.(1)(3) 0 0% 24,000,000 100% 2 Park Plaza, Suite 470 Irvine, CA 92714
(1) Gives effect to the one vote per share for each of the outstanding shares of Common, Series C Preferred and Series D Preferred stock. (2) The shares are held pursuant to an escrow for the purchase of Replacement Property by NuOasis International, Inc. (3) The Luke Family Trust (the "Luke Trust") owns 93% of NuVen Advisors, formerly New World. 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:63096KSB]-45 37 The following sets forth information with respect to the Registrant'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 October 15, 1996:
Amount and Amount and Nature Nature of of Beneficial Beneficial Interest Interest of Series D Name of Officers and of $.01 par value Percent Convertible Percent Directors(1) Common Stock of Class(3) Preferred Stock of Class - -------------------- ------------------- ----------- -------------------- -------- Fred G. Luke 11,100,000 19.91% 24,000,000(2) 100% John D. Desbrow 171,000 .37% 0 0% Steven H. Dong 102,000 .23% 0 0% Jon Lawver(4) 103,000 .23% 0 0% Albert Rapuano 500,000 1.11% 0 0% All Officers and Directors as 11,976,000 21.18% 24,000,000 100% a group
(1) The address of each executive officer or Director is 2 Park Plaza, Suite 470, Irvine, CA 92614 unless otherwise shown. (2) The Luke Trust owns 93% of NuVen Advisors Inc., formerly New World. 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 Registrant's Series D Preferred Stock. (3) Percentage ownership amounts are computed for each holder assuming that convertible securities and options held by each holder are exercised within 60 days, however, as of date of this Report, no shares are held by any officer except for Fred G. Luke who holds 400,000 shares and John D. Desbrow who holds 71,000 shares. (4) Options and shares are held by J.L. Lawver Corp. of which John Lawver is the President of J.L. Lawver Corp. 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 1995 and 1996 that exceeded an aggregate amount of $60,000 other than the following: On March 17, 1994, Jonathan L. 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 Registrant entered into a Consulting Agreement with Mr. Small to retain his services to evaluate potential acquisitions and to assist the Registrant in the general development and execution of its business plan. Pursuant to the agreement, Mr. Small was issued 1,600 shares of the Registrant's common stock. On January 5, 1995, Mr. Small entered into a Consulting Agreement effective November 1, 1994, with the Registrant to retain Mr. Small to serve on the Board of Directors. 15,000 shares were issued to Mr. Small during fiscal 1996 which were used to apply against services rendered. [NM\10-KSB:63096KSB]-45 38 The Luke Trust and Lawver Corp. owns 93% and 7%, respectively, of NuVen Advisors, formerly New World. Fred G. Luke, as trustee of the Luke Trust, controls the Luke Trust and Mr. Lawver is the majority shareholder of Lawver Corp. and thereby controls Lawver Corp. On June 14, 1993, NuVen Advisors acquired 24,000,000 shares of the Registrant's $.01 par value Series D Convertible Preferred Stock. At the time of the transaction, NuVen Advisors was unrelated to the Registrant. As a result, NuVen Advisors became the Control Person of the Registrant. The Registrant, NuOasis Gaming, NuOasis International, NuOasis Properties and CMA have entered into separate advisory and management agreements with NuVen Advisors for the engagement of NuVen Advisors to perform professional and advisory services. Each of the agreements provide for NuVen Advisors to be paid $120,000 per year for services rendered. Each agreement also provides NuVen Advisors with an option to purchase common stock of the respective companies; the number of shares under each option varies as well as the length and expiration of each agreement - See Note 9 of the footnotes to the accompanying financial statements included herein at Item 7. During fiscal year 1994, NuOasis Gaming entered into an agreement with Structure America, Inc. ("SAI") to issue 1,000,000 shares of NuOasis Gaming for consulting services. Such services were rendered during fiscal 1995. During fiscal year 1996, NuOasis Gaming entered into another agreement with SAI to perform consulting services. Pursuant to such agreement, NuOasis Gaming agreed to issue 1,000,000 common shares of NuOasis Gaming to SAI and granted SAI an option to purchase 1,000,000 common shares of NuOasis Gaming, exercisable at $.12 per share. Under Rule 13d-3 (d) (1) (c), SAI is deemed the beneficial owner of 2,000,000 shares of NuOasis Gaming even though the shares are not outstanding. The agreement is fully contingent upon the final execution and closing of the purchase of National Pools Corporation. NuOasis Gaming expensed $75,000 and $54,000 during fiscal years 1996 and 1995, respectively and had approximately $40,000 due to SAI as of June 30, 1996. During fiscal year 1996, Nona renewed an agreement with SAI to perform consulting services. Pursuant to such agreement, Nona incurred approximately $465,000 for services performed during fiscal year 1996. Nona expensed approximately $465,000 and $224,500 during fiscal years 1996 and 1995, respectively and had approximately $6,000 due to SAI as of June 30, 1996. (b) Indebtedness of Management During fiscal 1996, 400,000 common shares were issued upon exercise of options by the Chief Executive Officer of the Registrant in the amount of 440,000, or $1.10 per share. The Registrant 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 due in May 1997. The note receivable has been classified as Stockholder Receivable in the amount of $400,000 at June 30, 1996. During fiscal 1996, 868,824 common shares of NuOasis Gaming were issued upon exercise of options by the President of NuOasis Gaming in the amount of $104,258, or $.12 per share. NuOasis Gaming 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 has been classified as Stockholder Receivable in the amount of $78,758 at June 30, 1996 and was fully paid subsequent to June 30, 1996. (c) Transactions with Promoters Not applicable. [NM\10-KSB:63096KSB]-45 39 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 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 [NM\10-KSB:63096KSB]-45 40 Exhibit Number Description ----------- ---------------------------------------------------------------- 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 Woocox 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 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 10.126 Merger Agreement dated February 28, 1996 between NuOasis International Inc., a California Corporation and Albion Aviation Company Limited, a Bahamanian corporation [NM\10-KSB:63096KSB]-45 41 Exhibit Number Description ---------- --------------------------------------------------------------- 10.127 Assumption Agreement and Release of Liability with Silver Faith Development Limited dated May 16, 1996 10.128 Amendment, Modification and Ratification of Asset Purchase Agreement with Silver Faith Development Limited and Beijing Grand Canal Real Estate Development Co., Ltd. 10.129 Purchase and Sale Agreement dated August 8, 1996 between NuOasis International Inc., and The Hartcourt Companies, Inc. 10.130 $12,000,000 Convertible Secured Promissory Note dated August 8, 1996 issued by The Hartcourt Companies, Inc. to NuOasis International Inc. 10.131 Security Agreement dated August 8, 1996 between NuOasis International Inc. and The Hartcourt Companies, Inc. 10.132 Assignment and Indemnification Agreement dated August 30, 1996 between NuOasis International, Inc. and The Hartcourt Companies, Inc. 10.133 Assignment and Bill of Sale between NuOasis International, Inc. and Silver Faith Development Limited 10.134 Agreement between NuOasis International, Inc. and Silver Faith Development Limited 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 10.136 Assignment dated December 29, 1995 from Nona Morelli's II, Inc. to NuOasis International Inc. 10.137 Letter of Intent dated August 5, 1996 between the Registrant and Ng Man Sun dba Dragon Sight International Amusement (Macau) Company 10.138 Purchase Agreement dated August 30, 1996 between NuOasis International Inc. and various purchasers 10.139 Option Agreement with Joseph Monterosso dated June 13, 1996 10.140 Casino Lease and Operating Management Contract between Societe Loisirs Club Hammamet and Cleopatra Place Limited 10.141 Letter of Intent between Compagnie Monastirienne Immobiliere et Touristique and Cleopatra Palace Limited 10.142 Letter of Intent dated September 24, 1996 between the Registrant and Grand Hotel Krasnapolsky N.V. 10.143 Collateral Substitution Agreement dated December 29, 1995 between the Registrant and Ng Man Sun [NM\10-KSB:63096KSB]-45 42 Exhibit Number Description ---------- ---------------------------------------------------------------- 10.144 Collateral Release Agreement dated September 30, 1996 between the Registrant and Ng Man Sun 10.145 Agreement of Exchange dated September 30, 1996 between NuOasis International, Inc. and C/A/K Trustkantoor N.V. 10.146 Operating Agreement between Mr. Ng Man Sun and Nona Morellis II, Inc. 10.147 Consent to Sale of Interest and Termination of Operating Agreement 10.148 Agreement dated July 31, 1996 between NuOasis International, Inc. and Mr. Ng Man Sun 10.149 Casino Lease and Operating Management Contact between Societe' d'Animation et de Loisirs Touristiques (S.A.L.T.) and Cleopatra Palace Limited 10.150 Fourth Addendum to Consulting Agreement with John P. Desbrow 10.151 Assumption Agreement and Release of Liability with Ng Man Sun dated December 29, 1995 10.152 Second Addendum to Consulting Agreement with Steven H. Dong 10.153 Agreement dated October 2, 1996 between NuOasis International, Inc. and Cleopatra World, Inc. 22.1 Schedule of Subsidiaries of the Registrant * Incorporated by reference from the like numbered exhibits filed with the Registrant's Registration Statement on Form S-18, SEC File No. 33-32127-D. ** Incorporated by reference from the like numbered exhibits filed with the Registrant's Registration Statement on Form S-1, SEC File No. 33-43402. # Incorporated by reference from the like-numbered exhibits filed with the Registrant'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 [NM\10-KSB:63096KSB]-45 43 (d) Reports (1) On June 19, 1995, the Registrant filed a Current Report on Form 8-K, dated May 25, 1995, reporting the purchase of a forty percent (40%) net profits interest in the gaming operations conducted at the Holiday Inn and Hyatt Hotels in Macau (the "Gaming Interest"). (2) On July 24, 1995, the Registrant filed a Current Report on Form 8-K, dated July 15, 1995 reporting effective the close of business on July 15, 1995 the resignation of Mr. Kenneth R. O'Neal as Director and Chief Financial Officer of the Registrant. (3) On August 28, 1995, the Registrant filed a Current Report on Form 8-K, dated August 18, 1995, reporting that effective August 18, 1995 the Registrant dismissed BDO Seidman, LLP as the Registrant's certifying accountants. The Registrant further reported the engagement of the accounting firm of Raimondo, Pettit & Glassman as a successor auditing firm for the purpose of examining the Registrant's consolidated financial statements for the fiscal year ended June 30, 1995 and rendering an Independent Accountant's Report. (4) On February 7, 1996, the Registrant filed a Current Report on Form 8-K dated January 22, 1996 reporting effective the close of business on January 22, 1996 the resignation of Jonathan L. Small as a Director of the Registrant and the election of Carol Chen as a Director. (5) On March 5, 1996 the Registrant filed a Current Report on Form 8-K reporting the closing of an Asset Purchase Agreement pursuant to which the Registrant purchased three duplex residential buildings totaling 104 units in a master planned residential and commercial complex known as Peony Garden in Beijing, China. (6) On June 11, 1996 the Registrant filed a Current Report on Form 8-K dated May 29, 1996 reporting effective the close of business on May 29, 1996 the resignation of John D. Desbrow as a Director of the Registrant. (7) On November 15, 1996, the Registrant filed a Current Report on Form 8-K dated October 29, 1996 reporting effective the close of business on October 29, 1996 the resignation of Carol Chen as a Director of the Registrant. [NM\10-KSB:63096KSB]-45 44 SIGNATURE In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NONA MORELLI'S II, INC. Date: December 7, 1996 By: /s/ Fred G. Luke --------------------------------- Fred G. Luke Chief Executive Officer Date: December 7, 1996 By: /s/ Steven H. Dong --------------------------------- Steven H. Dong Chief Financial Officer Date: December 7, 1996 By: /s/ John D. Desbrow --------------------------------- John D. Desbrow, Secretary 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 Registrant and in the capacities and on the dates indicated. NONA MORELLI'S II, INC. Date: December 7, 1996 By: /s/ Fred G. Luke ----------------------------- Fred G. Luke, Director Date: December 7, 1996 By: /s/ Liu Mei Huan Chen, Director ----------------------------- Liu Mei Huan Chen, Director Date: December 7, 1996 By: /s/ Cheng Tai Chee, Director ---------------------------------- Cheng Tai Chee, Director [NM\10-KSB:63096KSB]-45 EXHIBIT 22.1
SCHEDULE OF SUBSIDIARIES OF THE REGISTRANT Jurisdiction of Parent Percentage Subsidiary Incorporation Corporation Ownership - ------------------------------------ --------------- -------------------- ---------- Fantastic Foods International Inc. California Registrant 100% NuOasis International Inc. Commonwealth Registrant 100% of the Bahamas NuOasis Properties Inc. Colorado Registrant 100% NuOasis Gaming Inc. Delaware Registrant 44%(2) NuOasis Las Vegas Inc.(1) Colorado Casino Management of America Inc. (1) 100% NuOasis Laughlin Inc.(1) Colorado Casino Management of America Inc. (1) 100% Casino Management of America Inc.(1) Utah NuOasis Gaming Inc. 100% Ba-Mak Gaming International Inc.(3) Louisiana NuOasis Gaming Inc. 100% Cleopatra Palace Limited Ireland NuOasis International 28% Inc.
(1) Have not commenced business. (2) The Registrant currently has voting control of NuOasis Gaming, Inc. If Series B Preferred shares held by the Registrant are converted into common stock, the Registrant would own approximately 44% of the common stock of NuOasis Gaming, Inc., as of June 30, 1996. (3) Converted from Chapter 11 to Chapter 7 Bankruptcy proceeding on April 20, 1995. [NM\10-KSB:63096KSB]-45 NONA MORELLI'S II, INC. Index to Consolidated Financial Statements Description Page Independent Auditors' Report ..............................................F-2 Consolidated Balance Sheet as of June 30, 1996 ............................F-3 Consolidated Statements of Operations for the years ended June 30, 1996 and 1995 ..................................................F-4 Consolidated Statements of Stockholders' Equity for the years ended June 30, 1996 and 1995 ............................................F-5 Consolidated Statements of Cash Flows for the years ended June 30, 1996 and 1995 ..................................................F-6 Notes to Consolidated Financial Statements ................................F-8 F-1 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 NONA MORELLI'S II, INC. Irvine, California We have audited the accompanying consolidated balance sheet of Nona Morelli's II, Inc. and subsidiaries (the "Company"), as of June 30, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended June 30, 1996 and 1995. 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 1996, and the results of its operations and its cash flows for the years ended June 30, 1996 and 1995, 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 negative cash flows from operating activities, has limited liquid resources, and has negative working capital. Such matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those 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 --------------------------------- Raimondo, Pettit & Glassman Torrance, California November 8, 1996, except for information relating to Cleopatra Palace, Ltd. and National Pools Corporation included in Notes 7, 12 and 13, as to which the date is November 29, 1996. [NM\10-KSB:63096FS.2] -45 F-2
NONA MORELLI'S II, INC. Consolidated Balance Sheet As of June 30, 1996 ASSETS June 30, 1996 - ------------------------------------------------------------------------------- ---------------------- Current assets: Cash and cash equivalents $ 50,436 Accounts receivable, net 136,061 Due from affiliate 3,887,435 Inventory 93,599 Other current assets 15,000 ---------------------- Total current assets 4,182,531 Property and equipment: Food manufacturing equipment 1,065,249 Other 84,911 Accumulated depreciation and amortization (804,556) Total property and equipment, net 345,604 Other assets: Beneficial ownership interest 7,004,598 Property held for sale 539,213 Deferred tax asset, net 860,902 Deposits and other 7,850 ---------------------- Total other assets 8,412,563 ---------------------- TOTAL ASSETS $ 12,940,698 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 327,215 Accrued expenses 353,968 Interest payable to affiliate 263,672 Due to affiliates 813,028 Income taxes payable 1,243,396 Current maturities of long-term debt to affiliate and others 3,105,216 ---------------------- Total current liabilities 6,106,495 Long term liabilities: Long-term debt 425,327 Total liabilities 6,531,822 Commitments and contingencies (Note 12) Stockholders' equity Preferred stock, Series D, $.01 par value; 24,000,000 shares authorized, issued and outstanding at June 30, 1996 (aggregate liquidation of up to $10,000,000) 240,000 Common stock, $.01 par value; 50,000,000 shares authorized; 45,022,300 shares issued and outstanding at June 30, 1996 450,223 Additional paid-in-capital 47,648,677 Accumulated deficit (30,220,100) Cost of 20,000,115 treasury shares (10,002,425) Common stock subscription and stockholders' receivables (1,707,499) ----------------------- Total stockholders' equity 6,408,876 ----------------------- TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 12,940,698 =======================
See accompanying notes to consolidated financial statements [NM\10-KSB:63096FS.2] -45 F-3
NONA MORELLI'S II, INC. Consolidated Statements of Operations For the Years Ended June 30, 1996 and 1995 Years Ended June 30, ---------------------------------------------- 1996 1995 ----------------------- ---------------------- Food sales revenue $ 1,251,174 $ 1,555,119 Gaming revenue 11,407,317 3,292,273 ----------------------- ---------------------- 12,658,491 4,847,392 ----------------------- ---------------------- Cost of food sales revenues 838,453 938,848 Cost of gaming revenue - 887,472 ----------------------- ---------------------- 838,453 1,826,320 ----------------------- ---------------------- Gross profit 11,820,038 3,021,072 ---------------------- ---------------------- Operating expenses: Legal and professional fees 2,135,363 1,755,175 Depreciation and amortization 4,989,064 826,689 (Gain) loss on investments (38,510) 140,949 Minority interest (233,877) (506,363) General and administrative expenses 1,340,059 1,677,355 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 19,295,323 3,893,805 ----------------------- ---------------------- Operating loss (7,475,285) (872,733) ----------------------- ----------------------- Other income (expenses): Interest expense (309,757) (17,190) Other income (expense) 63,334 (13,311) ----------------------- ----------------------- Total other expenses (246,423) (30,501) ----------------------- ----------------------- Net loss before income tax (provision) benefit (7,721,708) (903,234) Income tax (provision) benefit (997,932) 615,436 ----------------------- ---------------------- Net loss $ (8,719,640) $ (287,798) ======================= ======================= Net loss per common share $ (.20) $ (.03) ----------------------- ----------------------- Weighted average number of common shares outstanding used to compute net loss per common share 43,803,077 10,481,997 ======================= ======================
See accompanying notes to consolidated financial statements [NM\10-KSB:63096FS.2] -45 F-4
NONA MORELLI'S II, INC. Consolidated Statement of Stockholders' Equity For the Years Ended June 30, 1996 and 1995 Preferred Common Treasury Stock Stock Stock ---------------------------- ------------------------- --------------------------- Shares Amount Shares Amount Shares Amount -------------- ------------- ----------- ------------ ----------- -------------- Balance at July 1, 1994 24,883,500 $ 248,835 7,376,200 $ 73,762 115 $ (2,425) Issuance of common stock for services 1,586,400 15,864 Issuance of common stock on conversion of Series C preferred stock (870,000) (8,700) 1,741,000 17,410 Property dividend declared and paid, and minority interest adjustment Issuance of common stock for property 5,200 52 Issuance of common stock and transfer of assets in the acquisition of Gaming Interest 32,000,000 320,000 Net Loss -------------- ------------- ----------- ------------ ----------- -------------- Balance at June 30, 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) -------------- ------------- =========== ============ =========== ==============
Additional Common Stock Paid-In Subscription Accumulated Capital Receivable (Deficit) Total ------------ -------------- ------------- ------------ Balance at July 1, 1994 $ 28,415,244 $ (3,289,536) $(21,137,662) $ 4,308,218 Issuance of common stock for services 1,345,850 1,361,714 Issuance of common stock on conversion of Series C preferred stock (8,710) - Property dividend declared and paid, and minority interest adjustment (575,884) (75,000) (650,884) Issuance of common stock for property 11,253 11,305 Issuance of common stock and transfer of assets in the acquisition of Gaming Interest 15,680,000 2,342,722 18,342,722 Net Loss (287,798) (287,798) ------------- -------------- ------------- ------------- Balance at June 30, 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) 124,000 Change in common stock subscription and stockholders receivable (360,685) (360,685) Net Loss (8,719,640) (8,719,640) ------------- -------------- ------------- ------------- Balance at June 30, 1996 $ 47,648,677 $ (1,707,499) $(30,220,100) $ 6,408,876 ============= ============== ============= ============
See accompanying notes to consolidated financial statements. [NM\10-KSB:63096FS.2] -45 F-5
NONA MORELLI'S II, INC. Consolidated Statements of Cash Flows For Years Ended June 30, 1996 and 1995 1996 1995 --------------------- ----------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (8,719,640) $ (287,798) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 4,989,064 826,689 Services exchanged for common stock 1,139,227 1,361,714 Valuation expenses 11,103,224 - Deferred taxes 3,800 (864,702) (Gain) loss on investments (38,510) 140,949 Minority interest (233,877) (506,363) Other 84,000 323,790 Increases (decreases) from changes in assets and liabilities: Accounts receivable, net 19,280 108,724 Due from affiliate (1,776,307) (2,111,228) Inventory 5,522 (27,297) Other current assets 158,906 3,737 Deposits and other assets 29,230 - Accounts payable (26,016) 322,205 Accrued expenses 287,360 149,145 Interest payable to affiliate 235,001 - Due to affiliates 607,305 - Income taxes payable 994,130 - --------------------- ---------------------- Net cash provided by (used in) operating activities 8,861,699 (560,435) --------------------- ---------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Beneficial ownership interest (9,604,598) - Conversion of investment to cash 38,510 114,791 Purchase of leasehold improvements and equipment (100,305) - --------------------- ----------------------- Net cash provided by (used in) investing activities (9,666,393) 114,791 --------------------- ----------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from stockholders' receivables 65,500 - Proceeds from issuance of note payable 350,000 - Principal payments on notes payables (189,240) (122,177) --------------------- ----------------------- Net cash provided by (used in) financing activities 226,260 (122,177) --------------------- ----------------------- Net (decrease) increase in cash (578,434) (567,821) Cash and cash equivalents, beginning of period 628,870 1,196,691 --------------------- ---------------------- Cash and cash equivalents, end of period $ 50,436 $ 628,870 ===================== ======================
See accompanying notes to consolidated financial statements [NM\10-KSB:63096FS.2] -45 F-6
NONA MORELLI'S II, INC. Consolidated Statements of Cash Flows For Years Ended June 30, 1996 and 1995 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 1996 1995 --------------------- --------------------- Cash paid during the year for: Interest $ 144,685 $ 29,900 Income taxes $ 1,600 $ - Non-cash investing and financing activities: Purchase of assets for stock $ - $ 16,000,000 Purchase of assets for common stock subscription receivable $ - $ 2,342,722 Purchase of assets for note payable $ - $ 3,000,000 Common stock issued for services $ 1,324,267 $ 1,361,714 Stock issued for services on behalf of Cleopatra $ 955,439 $ - Purchase of food equipment for media credits $ - $ 140,000 Common stock issued for stockholder notes receivable $ 518,758 $ -
See accompanying notes to consolidated financial statements [NM\10-KSB:63096FS.2] -45 F-7 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 Note 1. Summary of Significant Accounting Policies and Description of Business Description of Business Nona Morelli's II, Inc. and its subsidiaries (the "Company") operates as a holding company for leisure and entertainment-related businesses. At June 30, 1996, the company had three wholly-owned and one controlled subsidiary engaged in food manufacturing and distribution, casino gaming and real estate investments. The activities of the Company's subsidiaries are domestic and international, with existing food and gaming activities in the United States and Asia, and proposed activities in North Africa and Europe. Principles of Consolidation and Management Estimates The Company was incorporated in the State of Colorado on February 6, 1989 as a successor to Nona Morelli Limited Partnership. 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"), Fantastic Foods International, Inc. ("Fantastic Foods") and NuOasis Properties, Inc. ("NuOasis Properties"). In addition, the consolidated financial statements include the accounts of the Company's controlled company -- NuOasis Gaming, Inc. ("NuOasis Gaming") and its wholly-owned subsidiaries, Ba-Mak Gaming International, Inc. ("BGI"), Casino Management of America, Inc. ("CMA"), NuOasis Laughlin, Inc., ("NuOasis Laughlin"); and NuOasis Las Vegas, Inc. ("NuOasis Las Vegas"). The Company currently maintains its executive offices in Irvine, California. All material intercompany accounts and transactions have been eliminated in consolidation. 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. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. This amount includes $0 and $604,371 of certificates of deposit at June 30, 1996 and 1995, respectively. Fair Value of Financial Instruments The carrying value of financial instruments included in current assets and liabilities approximates fair value because of the short maturity of these items. 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. [NM\10-KSB:63096FS.2] -45 F-8 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 During fiscal 1994, the Company transferred all of its pasta manufacturing operations from Pueblo, Colorado to Southern California. At the end of fiscal 1994, the Company placed for sale its Pueblo facility consisting of land, buildings and improvements, along with its food manufacturing equipment, and reclassified them to assets held for sale. At June 30, 1996, property held for sale was carried at its estimated net realizable value of approximately $539,000. During fiscal 1996, the Company remodeled and improved its food processing equipment in its California locations and leased its Colorado facility 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. Depreciation of property and equipment, and amortization of assets under capital leases are 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 $360,520 and $416,252 for the years ended June 30, 1996 and 1995, respectively. Amortization of Gaming Interest The Company amortizes 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 during fiscal 1995 for the period since acquisition, May 25, 1995, through June 30, 1995, amounted to $410,437. Amortization for fiscal 1996 amounted to $4,268,544. 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 using the liability method. Income taxes are provided on all revenue and expense items, regardless of the period in which such items are recognized for tax purposes, except for those items representing a permanent difference between pre-tax accounting income and taxable income. A valuation allowance is recorded when it is more likely than not that benefits resulting from deferred tax assets will not be realized. Revenue Recognition Food sales and related cost of sales are recognized upon shipment of food products. Gaming revenues related to BGI are recognized based upon the gross funds deposited in the gaming machines. Net gaming revenues are referred to in the industry as "Net Win", the difference between gross funds deposited into the gaming machines and payments to customers. Gaming operating expenses are paid from the "Net Win". Gaming revenues with respect to the Gaming Interest in the two Macau casinos (see Note 2) are earned as the casinos report their net profits to the Company. [NM\10-KSB:63096FS.2] -45 F-9 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 Issuance of Stock for Services Shares of the Company's common stock issued for services are recorded in accordance with APB16 at the fair market value of the stock issued or the fair market of the services provided, whichever value is more clearly evident. Reclassification of Prior Year Amounts To enhance comparability, the 1995 financial statements have been reclassified, where appropriate, to conform with the financial statement presentation used in 1996. 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 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 in the form of the Company's common stock. Management estimates that the Company will need to utilize up to approximately $3,000,000 worth of common stock to fund its operations through fiscal year 1997. Accordingly, the accompanying consolidated financial statements have been presented under the assumption the Company will continue as a going concern. Recent Accounting Developments In March 1995, the Financial Accounting Standards Board ("FASB") adopted Statement No. 121 "Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed Of" which requires entities to review long lived assets impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and provides guidance as to measurement of the carrying value of asset to be disposed of. The statement is effective for fiscal years beginning after December 15, 1995, and the Company has not determined the effect the adoption of the statement will have, but does not believe its implementation will have a material effect on its financial position. In October 1995, the FASB adopted Statement No. 123, "Accounting for Stock-Based Compensation." This Statement encourages entities to adopt a fair value method of accounting for stock-based compensation plans including stock options and warrants issued to employees. For entities which do not adopt this method, the Statement requires disclosure of the effect that the fair-value method would have on net income and earnings per share. The Statement is effective for transactions entered into in fiscal years that begin after December 15, 1995. The Company has not determined the effect of this Statement nor has it decided when it will adopt the provisions of this Statement. Note 2. Acquisition and Liquidation of Investments Sino International Management Corp. In August 1993, the Company acquired a 50% interest in Sino International Management Corp. ("Sino"), a Vancouver, BC, Canada-based development stage casino property investment company in exchange for 200,000 shares of the Company's common stock. At June 30, 1994, the Company assigned its equity interest in Sino to its wholly-owned subsidiary, International Casino Management, Inc., now NuOasis International. In May 1995, the equity interest in Sino was transferred to Dragon as part of the consideration given to purchase the Gaming Interest (see Gaming Interest below). [NM\10-KSB:63096FS.2] -45 F-10 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 Cleopatra Palace Limited In October 1993, the Company acquired a 70% equity interest in Cleopatra Palace Limited, an Irish corporation ("Cleopatra") in exchange for 1,689,000 shares of its common stock and other assets. 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 dated October 8, 1993, with Societe Touristique Tunisie-Golfe. 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 presently under construction in Hammamet, Tunisia (the "Hammamet Casino"). In May 1995, as part of the Gaming Interest acquisition, described herein, the Company sold a 42% interest in Cleopatra to Dragon Sight International Amusement (Macau) Company ("Dragon"). E.N. Phillips Company Acquisition On January 13, 1994, the Company entered into a Stock Purchase and Business Combination Agreement (the "ENP Agreement") with E.N. Phillips Company ("ENP"), whereby ENP purchased all of the outstanding capital stock of CMA from the Company. The ENP Agreement closed on March 30, 1994 (the "ENP Closing Date"). On September 30, 1994, ENP's name was changed to NuOasis Gaming, Inc. During fiscal 1996, NuOasis Gaming changed its fiscal year from September 30 to June 30 in order to coincide with the Company's fiscal year end. The accounts of NuOasis Gaming are consolidated herein at June 30, 1996 and include 12 months of operations for both fiscal years ended 1996 and 1995. Agreement to Purchase Vessel In May 1994, the Company entered into an Asset Purchase Agreement for the purchase of a former car ferry vessel (the "Vessel") in exchange for certain of the Company's investment securities and shares of the Company's common stock. In May 1995, as part of the Gaming Interest acquisition described below, the Company relinquished its interest in the Vessel and, as a result, such investment is no longer included in the Company's balance sheet. Gaming Interest On May 25, 1995 the Company purchased from Mr. Ng Man Sun ("Mr. Ng"), doing business as Dragon, a 40% net profits interest in the gaming operations conducted by Dragon at the Holiday Inn and Hyatt Hotels in Macau (the "Gaming Interest"). The Gaming Interest was recorded as an investment in gaming property using the accounting basis of the elements of the consideration given having an aggregate book value of $21,342,722, and has been amortized on a straight line basis over a period of five years. Amortization expense and accumulated amortization with respect to the Gaming Interest was $4,268,544 and $410,437 for the years ended June 30,1996 and 1995, respectively. The Company recorded $11,407,317 and $2,111,228 in gaming revenues from the Gaming Interest for the year ended June 30, 1996, and for the period from May 25, 1995 to June 30, 1995, respectively. The Company has entered into an agreement to sell the Gaming Interest and, as a result, these revenues will not recur in future years. On August 5, 1996, NuOasis International, holder of the Gaming Interest, entered into an agreement with Mr. Ng to sell the Gaming Interest for 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 by Mr. Ng to a third party escrow agent pending the closing of the purchase of replacement properties which NuOasis International is currently negotiating to purchase ("the Replacement Property"). [NM\10-KSB:63096FS.2] -45 F-11 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 At June 30, 1996, the Company recognized a $6.6 million write down of the book value of the Gaming Interest 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 Mr. Ng, which was $.50 a share or $10 million in aggregate. Since the intended purchase of the Replacement Property will be effective later in fiscal 1997, the book value of the escrowed shares has been presented in a position similar to treasury stock as of June 30, 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 on May 25, 1995. BGI In October 1994, BGI filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the Eastern District of Louisiana. While under the protection of Chapter 11, BGI continued to operate as a charitable bingo route operator in Louisiana as Debtor-in-Possession. It was management's objective to reorganize BGI's debt under Chapter 11 and fully continue its gaming operations. Accordingly, BGI was accounted for as a continuing operation up through April 1995. On April 20, 1995, upon motion from the United States Trustee, an order converting the case to Chapter 7 was issued and a Chapter 7 Trustee was appointed. The trustee took possession of BGI's assets and is in the process of liquidating such assets for the benefit of BGI's bankruptcy estate. As such, all gaming operations at BGI ceased and accordingly, BGI has been accounted for as a disposition of an investment which resulted in (a) the write-off of $1,056,978 and $1,415,050 of total assets and liabilities, respectively; and (b) a net loss on disposal of investment in the amount of approximately $140,949. Fiscal 1995 gaming revenues include approximately $1.2 million in BGI revenues which will not be recurring in future years. As of the date of this report, the Trustee's administration of the bankruptcy estate is ongoing. Note 3. Accounts Receivable, Net The following table sets forth the amounts due to the Company at June 30, 1996: Food sales customers $ 169,929 Other 16,523 ---------- 186,452 Allowance for doubtful accounts (50,391) $ 136,061 ========== [NM\10-KSB:63096FS.2] -45 F-12 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 Note 4. Inventories Inventories relating to the Company's food manufacturing and distribution segment as of June 30, 1996 are comprised of the following: Raw materials $ 27,809 Finished goods 51,999 Packing materials and supplies 13,791 -------- $ 93,599 ======== Note 5. Beneficial Ownership Interest Effective December 31, 1995, the Company acquired from Silver Faith Development Limited ("SFDL"), an affiliate of the Company and Mr. Ng., an interest in three buildings currently 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 Company's interest in Peony Garden was $21 million for which the Company 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 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. In April 1996, the Company 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 Company 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 Company's interest in Peony Garden, the Company has presented its investment in Peony Garden as a beneficial ownership interest in the real estate development. Following the close of fiscal 1996, on August 8, 1996, the Company entered into an agreement with The Hartcourt Companies, Inc. ("Hartcourt") to sell the Company'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 Company's investment in the Hartcourt stock represents an equity interest of approximately 43%. 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 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 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. The Company'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 Company's ability to dispose of its investment at its current basis. The Company intends to exchange the Hartcourt equity investment for other equity investments. [NM\10-KSB:63096FS.2] -45 F-13 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 Note 6. Long-Term Debt Long-term debt for the years ended June 30, 1996 consist of the following: Note Payable to affiliate - Dragon 8% interest, paid in August 1996 $ 3,000,000 Note Payable - Bank Due November 1999, payable in monthly principal installments of $7,290 plus interest at Prime plus 4% 309,414 Mortgage Loan Due August 2000, payable in monthly principal installments of $2,455, with final installment of $186,500, at 10.25% interest 221,129 ------------ 3,530,543 Current Maturities of Long Term Debt (3,105,216) ------------- $ 425,327 ============= In October 1995, Fantastic Foods entered into a working capital loan agreement (the "Loan") with a financial institution, whereby Fantastic Foods borrowed $350,000 for a term of forty seven months bearing an interest rate of prime plus 4% (prime rate at June 30, 1996 was 8.25%) per annum and collateralized by all accounts receivable, inventory, and equipment related to Fantastic Foods food manufacturing activities. All real property has been pledged to lenders under the terms of the mortgage loan. 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 - ---------- ----------- 1997 3,105,216 1998 95,551 1999 97,124 2000 46,433 Thereafter 186,219 Total $ 3,530,543 =========== Note 7. Stockholders' Equity Capitalization There were no reverse stock splits or stock splits during the year ended June 30, 1996. Except for shares issued for services, there were no private offerings conducted in fiscal 1996 or 1995. [NM\10-KSB:63096FS.2] -45 F-14 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 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. The Series C Convertible Preferred Stock entitles holders to receive the same dividends as common stockholders when and if declared by the Board of Directors and, at June 30, 1994, was convertible, at the option of the holder, commencing August 1, 1993 to one share of common stock for each share of Series C Preferred Stock held, subject to adjustment. During the year ended June 30, 1995, the Company amended and restated the Certificate of Designations, Rights and Preferences of Series C Convertible Preferred Stock, such that the Series C Preferred Stock is convertible at the option of the holder to two shares of common stock for each share of Series C Preferred Stock, and shall entitle the holder to receive common stock dividends when and if declared by the Board of Directors at the rate of one share of common stock for each ten shares of Series C Preferred Stock. During the year ended June 30, 1995, 870,033 shares of Series C Convertible Preferred Stock were converted to 1,740,066 shares of common stock. During fiscal 1996 all remaining Series C Preferred Stock was converted to common stock, and no Series C Preferred Stock remains outstanding at June 30, 1996. During the 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 Series D Convertible Voting Preferred Stock consists of 24,000,000 shares which were issued to New World Capital Inc. (now NuVen Advisors) in exchange for the German Bonds with an estimated market value, based upon independent legal and valuation opinions, 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 German Bonds, at June 30, 1993, the $10,000,000 aggregate estimated market value of the German Bonds was fully reserved by the Company by a charge against Additional Paid-in Capital. The Series D Convertible Preferred Stock 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 Series D Convertible Preferred Stock expires in July 1998. Common Stock Subscriptions and Stockholders' Receivable Stock subscriptions and stockholders' receivable for the year ended June 30, 1996 consists of the following: Amount ----------- Stock Subscription Receivable - Cleopatra $ 946,814 Receivable from Cleopatra, net 189,259 Receivable from Officer 478,758 Receivables from Consultants 92,668 ----------- $ 1,707,499 In October 1993, the Company acquired a 70% equity interest in Cleopatra in exchange for shares of the Company's common stock. In May 1995, the Company's 70% equity interest in Cleopatra decreased to 28% as a result of the Gaming Interest acquisition (see Note 2). [NM\10-KSB:63096FS.2] -45 F-15 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 At June 30, 1996, the investment related to Cleopatra is carried as a Common Stock Subscription Receivable based on the market value of the Company's shares issued discounted 50% at the date of issuance. The investment in Cleopatra is maintained at cost, as a Common Stock Subscription Receivable until all of the Company's common stock held by Cleopatra is sold and all financing commitments have been fulfilled (Note 13). During fiscal year 1996, the Company incurred expenses on behalf of Cleopatra amounting to $955,439 which is included as a stockholders' receivable at June 30, 1996, net of an allowance for possible loss of $766,180 which is included in Other Valuation Expense. During fiscal year 1996, Cleopatra devoted most of its resources to completing its gaming projects in Tunisia, raising financing to fulfill its commitments and preparing for the opening of the casinos. As of the filing date of this Report, Cleopatra has no operations. Cleopatra's ability to continue as a going concern is dependent upon Cleopatra's ability to fulfill its financial commitments (see Note 13) and the future profitability of the casinos and other properties it will manage. Accordingly, the uncertainties surrounding these matters raise substantial doubt about Cleopatra's ability to continue as a going concern and about the Company's ultimate recoverability of its investment. No adjustments have been made to the accompanying consolidated financial statements of the Company for these uncertainties at this time and it is at least possible that management's estimate of the recoverability of its investment could change in the near term. 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 due in May 1997. The note receivable has been classified as Stockholder Receivable in the amount of $400,000 at June 30, 1996. During fiscal 1996, 868,824 common shares of NuOasis Gaming were issued upon exercise of options by the President of NuOasis Gaming in the amount of $104,258, or $.12 per share. NuOasis Gaming 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 has been classified as Stockholder Receivable in the amount of $78,758 at June 30, 1996 and was fully paid subsequent to June 30, 1996. Dividends The Company has paid no cash dividends with respect to its common stock since its inception. However, during fiscal 1995, the Company declared and paid a property dividend of approximately 1.5 million shares of common stock of NuOasis Gaming. No cash or property dividends were paid or declared during fiscal 1996. As of the date of this Report, the Board of Directors of the Company have not approved a dividend distribution policy. Employee Stock Benefit Plan An employee stock benefit plan ("ESBP") was established during fiscal year 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 year 1996, 16,000 shares were issued under the ESBP. As of June 30, 1996, the Board of Directors has not approved any additional issuances of common shares under the ESBP. [NM\10-KSB:63096FS.2] -45 F-16 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 Note 8. Stock Option Plan A summary of the status of option transactions for the years ended June 30, 1996 and 1995 is as follows: 1996 1995 ---------- ---------- Outstanding at beginning of year 1,320,000 200,000 Granted 700,000 1,120,000 Exercised (400,000) - Canceled (60,000) - ---------- ---------- Outstanding at end of year 1,560,000 1,320,000 ========== ========== Range of option exercise prices granted $0.91 - $1.53 $0.58 - $4.00 At June 30, 1996, options for 1,560,000 shares were fully vested and exercisable. The Company recognized $84,000 in compensation expense for options exercised during fiscal 1996. During fiscal year 1996, the Chief Executive Officer of the Company exercised 400,000 options to purchase shares of common stock of the Company (Note 7). Note 9. Related Party Transactions 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. From July 1993 through June 30, 1994, Mr. 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 Mr. 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 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 and $120,000 during fiscal years 1996 and 1995, respectively, and had no amounts due to Mr. Luke as of June 30, 1996. In August 1995, NuOasis Gaming entered into an Employment Agreement with Fred G. Luke, to save as NuOasis Gaming's President. Mr. Luke has been serving as the NuOasis Gaming President since approximately March 31, 1994. The terms of the Employment Agreement call for Mr. Luke to receive approximately $4,500 per month, retroactive to April 1, 1994, for five (5) years as a base salary; granted him an option to purchase 3,000,000 shares of NuOasis Gaming's common stock at an exercise price of $.12 per share; provides him with an annual bonus based upon a number of factors related to NuOasis Gaming's growth and performance which include (a) serving on NuOasis Gaming's Board of Directors and as its President; (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 President of a publicly-held company; and requires NuOasis Gaming to purchase life insurance coverage, reimburse vehicle expenses, and provide other fringe benefits. Between March 31, 1994 and September 30, 1994, Mr. Luke received no cash payments for his services. In August 1995, NuOasis Gaming agreed to retroactively compensate Mr. Luke for past services in the amount of $27,000 for the period April 1, 1994 to September 30, 1994 and $59,000 for the period October 1, 1994 to September 30, 1995. No bonuses have been accrued, paid or are owed as of the date of this Report. NuOasis Gaming expensed $54,000 and $72,500, during fiscal 1996 and 1995, respectively, and had $126,500 due to Mr. Luke as of June 30, 1996. [NM\10-KSB:63096FS.2] -45 F-17 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 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. Under the Consulting Agreement the Company contracted to pay Mr. Desbrow $150,000 payable in the Company's common stock issuable in monthly increments in arrears. Under the terms of the Consulting Agreement, Mr. 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), Mr. Desbrow and the Company have agreed the price paid for the shares is deemed to be $150,000. Pursuant to the terms of the Consulting Agreement, the Company granted Mr. Desbrow an option to purchase 50,000 shares of the Company's common stock exercisable at a price of $.58 per share. Effective Janaury 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 $150,000 and $150,000 during fiscal 1996 and 1995, respectively, and had $70,378 due to Mr. Desbrow as of June 30, 1996. Effective April 1, 1994, NuOasis Gaming 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 NuOasis Gaming, for the period from April 1, 1994 to March 31, 1995 for an amount of $36,000 per annum. Additionally, in fiscal 1995 Mr. Desbrow billed and eventually received from the sale of shares $4,000 for services rendered as a Director from April 1994 to July 1994. Effective April 1, 1995, the Consulting Agreement was renewed through March 31, 1996 for an amount of $50,000 per annum. 1,050,000 shares of NuOasis Gaming common stock were registered for issuance on Forms S-8 filed with the Securities and Exchange Commission during the 1995 fiscal year. Under the terms of the Consulting Agreement, Mr. Desbrow invoices NuOasis Gaming 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), Mr. Desbrow and NuOasis Gaming have agreed the price paid for the shares is deemed to be $50,000. Effective April 1, 1996, the Consulting Agreement was renewed through March 31, 1997 for an amount of $ 75,000 per annum and granted him an option to purchase 275,000 shares of NuOasis Gaming common stock at an exercise price of $.12 per share. NuOasis Gaming expensed $56,250 and $39,500, during fiscal 1996 and 1995, respectively, and had $8,252 due from Mr. Desbrow as of June 30, 1996. Effective January 1, 1994, the Company entered into a Consulting Agreement with Jon L. Lawver and J. L. Lawver Corp. pursuant to which Mr. 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 Mr. Lawver 36,000 shares of the Company's common stock, issuable in monthly increments in arrears and granted Mr. 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, Mr. 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) Mr. Lawver and the Company have agreed the price paid for the shares is deemed to be $100,000. 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. The Company expensed $100,000 and $100,000 during fiscal 1996 and 1995, respectively and had $14,991 due to Mr. Lawver at June 30, 1996. [NM\10-KSB:63096FS.2] -45 F-18 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 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. Pursuant to the agreement as amended in October 1995, the Company agreed to pay Mr. 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, Mr. 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) Mr. 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 Mr. Dong during fiscal 1996 or 1995, however 95,000 shares were issued during 1996 which were used to apply against services rendered. The Company expensed $145,000 and $0 during fiscal 1996 and 1995 and had $42,635 due to Mr. Dong as of June 30, 1996. In July 1995, NuOasis Gaming 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. Pursuant to the agreement, NuOasis Gaming agreed to pay Mr. Dong $20,000 in cash or in NuOasis Gaming's common stock, payable monthly in arrears, and granted him an option to purchase 275,000 shares of NuOasis Gaming's common stock at an exercise price of $.12 per share. Effective July 1, 1996, the Consulting Agreement was renewed through June 30, 1997 for an amount of $39,000 per annum. Cash payments of $5,000 were made to Mr. Dong by NuOasis Gaming during fiscal 1996 and no stock has been issued pursuant to this Consulting Agreement. NuOasis Gaming expensed $20,000 during fiscal 1996, and had $15,000 due to Mr. Dong as of June 30, 1996. In January 1996, the Company entered into a consulting agreement with Albert Rapuano, pursuant to which Mr. 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 Mr. 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, Mr. 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) Mr. Rapuano and the Company have agreed the price paid for the shares is deemed to be $250,000. No cash payments were made to Mr. Rapuano during fiscal 1996, however, 70,000 shares were issued during 1996 which were used to apply against services rendered. The Company expensed $115,000 and $0 during fiscal 1996 and 1995, respectively, and had $50,211 due to Mr. Rapuano as of June 30, 1996. Transactions with Directors and Affiliates On March 17, 1994, Jonathan L. 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 Mr. 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, Mr. Small was issued 1,600 shares of the Company's common stock. On January 5, 1995, Mr. Small entered into a Consulting Agreement effective November 1, 1994, with the Company to retain Mr. Small to serve on the Board of Directors. 15,000 shares were issued to Mr. Small during fiscal 1996 which were used to apply against services rendered. The Luke Trust and Lawver Corp. owns 93% and 7%, respectively, of NuVen Advisors, formerly New World. Fred G. Luke, as trustee of the Luke Trust, controls the Luke Trust and Mr. Lawver is the majority shareholder of Lawver Corp. and thereby controls Lawver Corp. [NM\10-KSB:63096FS.2] -45 F-19 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 On June 14, 1993, NuVen Advisors acquired 24,000,000 shares of the Company's $.01 par value Series D Convertible Preferred Stock. At the time of the transaction, NuVen Advisors was unrelated to the Company. As a result, NuVen Advisors became the Control Person of the Company. On June 14, 1993, Fred G. Luke became a Director. On July 22, 1993, following the resignation of Frank Morelli II, Fred G. 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 Advisors. 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 24,000,000 shares of the Company's Series D Preferred Stock. Effective February 1, 1994, the Company entered into an Advisory and Management Agreement with NuVen Advisors for the engagement of NuVen Advisors to perform professional and advisory services for calendar year 1995. Pursuant to the Consulting Agreement, the Company agreed to pay NuVen Advisors $120,000 annually, payable monthly in $10,000 increments in arrears, and granted NuVen Advisors 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 with the same terms. The Company expended $120,000 and $120,000 during fiscal 1996 and 1995, respectively, and had $2,958 due to NuVen Advisors as of June 30, 1996. Effective April 1, 1994, NuOasis Gaming entered into an Advisory and Management Agreement with NuVen Advisors for the engagement of NuVen Advisors to perform professional and advisory services. Pursuant to such Agreement, NuOasis Gaming agreed to pay NuVen Advisors $180,000 annually, payable monthly in $15,000 increments in arrears, and granted NuVen Advisors an option to purchase 2,000,000 shares of common stock of NuOasis Gaming exercisable at a price of $.10 per share. During fiscal 1996, the Advisory and Management Agreement was renewed effective October 1, 1995, for $120,000 annually. NuOasis Gaming expensed $135,000 and $180,000 during fiscal 1996 and 1995, respectively, and had $118,000 due to NuVen Advisors as of June 30, 1996. Effective July 1, 1994, NuOasis International entered into an Advisory and Management Agreement with NuVen Advisors for the engagement of NuVen Advisors to perform professional and advisory services for calendar year 1995. Pursuant to such agreement, NuOasis International agreed to pay NuVen Advisors $120,000 annually, payable monthly in $10,000 increments in arrears, and granted NuVen Advisors 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 expended $120,000 and $120,000 during fiscal 1996 and 1995, respectively, and had $224,499 due to NuVen Advisors as of June 30, 1996. Effective July 1, 1994, NuOasis Properties entered into an Advisory and Management Agreement with NuVen Advisors for the engagement of NuVen Advisors 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 Advisors $120,000 annually, payable monthly in arrears in $10,000 increments, and granted NuVen Advisors 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 Advisors to NuOasis Properties, as little activity occurred in NuOasis Properties for fiscal 1996 and 1995. NuOasis Properties had $80,000 due from NuVen Advisors as of June 30, 1996. Effective April 1, 1994, CMA entered into an Advisory and Management Agreement with NuVen Advisors for the engagement of NuVen Advisors to perform professional and advisory services. Pursuant to such agreement CMA agreed to pay NuVen Advisors $120,000 annually, payable monthly in $10,000 increments in arrears, and granted NuVen Advisors 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 expended $120,000 and $120,000 during fiscal 1996 and 1995, respectively, and had $159,000 due to NuVen Advisors as of June 30, 1996. [NM\10-KSB:63096FS.2] -45 F-20 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 During fiscal year 1994, NuOasis Gaming entered into an agreement with Structure America, Inc. ("SAI") to issue 1,000,000 shares of NuOasis Gaming for consulting services. Such services were rendered during fiscal 1995. During fiscal year 1996, NuOasis Gaming entered into another agreement with SAI to perform consulting services. Pursuant to such agreement, NuOasis Gaming agreed to issue 1,000,000 common shares of NuOasis Gaming to SAI and granted SAI an option to purchase 1,000,000 common shares of NuOasis Gaming, exercisable at $.12 per share. Under Rule 13d-3 (d) (1) (c), SAI is deemed the beneficial owner of 2,000,000 shares of NuOasis Gaming even though the shares are not outstanding. The agreement is fully contingent upon the final execution and closing of the purchase of National Pools Corporation. NuOasis Gaming expensed $75,000 and $54,000 during fiscal years 1996 and 1995, respectively and had approximately $40,000 due to SAI as of June 30, 1996. During fiscal year 1996, Nona renewed an agreement with SAI to perform consulting services. Pursuant to such agreement, Nona incurred approximately $465,000 for services performed during fiscal year 1996. Nona expensed approximately $465,000 and $224,500 during fiscal years 1996 and 1995, respectively and had approximately $6,000 due to SAI as of June 30, 1996. Note 10. Income Taxes The Company and its subsidiaries, NuOasis International, Fantastic Foods and NuOasis Properties file a consolidated return for both federal and state purposes. The Company's controlled subsidiary, NuOasis Gaming, files separate consolidated returns with its subsidiaries. The 1996 and 1995 provision for income taxes is as follows:
1996 1995 ---------------------------------- --------------------------------------- The Company The Company and and Subsidiaries NuOasis Gaming Subsidiaries NuOasis Gaming (excluding and (excluding and NuOasis Gaming) Subsidiaries NuOasis Gaming) Subsidiaries --------------------- -------------------- ------------------- ------------------- Liability: Current tax expense Federal $ (784,210) $ - $ (192,070) $ - State (209,920) - (57,196) - --------------------- -------------------- ------------------- ------------------- Total current tax expense (994,130) - (249,266) - --------------------- -------------------- ------------------- ------------------- Deferred taxes: Federal 2,060,904 2,570,356 1,884,098 349,003 State 558,092 379,808 105,212 47,731 Change in valuation allowance (2,622,798) (2,950,164) (1,124,608) (396,734) --------------------- -------------------- ------------------- -------------------- Total deferred tax benefit (provision) (3,802) 0 864,702 0 --------------------- -------------------- ------------------- ------------------- Income tax benefit (provision) $ (997,932) $ 0 $ 615,436 $ 0 ===================== ==================== =================== ===================
For the year ended June 30, 1996 and 1995, the Company's effective federal and state income tax rate applied to book taxable income (loss) differs from the statutory rate as follows: 1996 1995 -------- -------- 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 45.91% - Change in estimate of prior year liability (2.49%) - Change in valuation allowance 17.11% (25.25%) State taxes, net of federal effect (4.39%) (6.33%) Utilization of net operating loss (4.36%) (1.36%) Other (3.83%) (1.06%) -------- -------- Effective tax rate 12.92% (68.00%) ======== ======== The Company utilized $989,356 and $192,353 in net operating losses to offset federal and state taxable income for the years ended June 30, 1996 and 1995, respectively. At June 30, 1996, the components of net deferred tax asset are as follows:
The Company NuOasis and Gaming and Subsidiaries Subsidiaries (excluding NuOasis Gaming) ------------------------ ------------------------ Current: Deferred tax assets resulting from temporary differences $ 21,588 $ 154,224 Valuation allowance (21,588) (154,224) ------------------------ ------------------------ Total current deferred tax asset $ 0 $ 0 ======================== ======================== Non-Current: Deferred tax liability resulting from temporary differences $ (136,967) $ - Deferred tax assets resulting from loss carry forward 4,723,686 2,795,940 Valuation allowance (3,725,817) (2,795,940) ------------------------- ------------------------ Total non-current tax asset 860,902 0 ------------------------- ------------------------ Net deferred tax asset $ 860,902 $ 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 the difference in basis of the Gaming Interest, accounts receivable and the recognition of the benefit of prior year losses carried forward. 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. The Company intends to obtain 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. As of the date of this Report, the Company has not received such independent valuation and, accordingly, has accrued its income tax provision in consideration of Section 382. [NM\10-KSB:63096FS.2] -45 F-21 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 Deferred tax assets have been computed using the maximum expiration terms of 13 and 5 years (or total net operating losses available of approximately $11.9 million and $7.8 million) for federal and state tax purposes, respectively. Net operating losses expire from the years 2004 through 2009. A valuation allowance was recorded at June 30, 1996 to offset benefits of net operating losses in excess of any potential federal loss carry back. The change in the valuation allowance in fiscal 1996 is due to the sale of cash flow producing assets. 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 an NOL carryforward of approximately $9.6 million with a related unrecognized deferred tax benefit of approximately $3.3 million. Note 11. 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, 1996 and 1995 are as follows: 1996 1995 ------------ ----------- Revenues Food Manufacturing and Distribution $ 1,251,174 $ 1,555,119 Gaming/Entertainment $ 11,407,317 $ 3,292,273 Gross Profit Food Manufacturing and Distribution $ 412,721 $ 616,271 Gaming/Entertainment $ 11,407,317 $ 2,404,801 Identifiable assets of the Company's food manufacturing and distribution segment is approximately $1.9 million as of June 30, 1996. Identifiable assets exclude intercompany loans, advances and investments. Intercompany trade receivables between segments have also been excluded from identifiable assets. Corporate assets are principally cash, marketable securities, deferred charges and assets held for disposition. Significant Customers and Concentration of Credit Risk Approximately 90% of the Company's net revenues for the year ended June 30, 1996, resulted from its Gaming Interest in the two Macau casinos. At June 30, 1996, the Company has approximately $3.8 million of related gaming receivable which was collected subsequent to year end. The Company maintains several cash accounts with a bank. At June 30, 1996, the aggregate bank balance of such accounts do not exceed the federally-insured limit. [NM\10-KSB:63096FS.2] -45 F-22 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 The Company had sales to five customers and three customers, each in excess of 10% of total food sales during fiscal 1996 and 1995, respectively all of whom were distributors. At June 30, 1996, the Company had amounts due from four customers, each in excess of 10% of total food sales receivables. Note 12. 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 Advisors 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 Management and Advisory Agreements. At June 30, 1996 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 ------------------ ------------------ 1996 $ 130,581 1997 11,400 1998 12,900 1999 12,100 2000 5,400 ------------------ $ 172,381 ================== Rent expense charged to operations was $96,328 and $132,183 for the years ended June 30, 1996 and 1995, respectively. Legal Proceedings In January 1995, Charles Arnold ("Arnold"), a consultant to the Company's prior management, initiated a lawsuit against the Company, CMA and MDM Gaming Partners, L.P. ("MDM"), alleging that the defendants have denied him a 1% equitable interest in MDM, which was allegedly verbally promised to Arnold by Frank J. Morelli, II and Frank J. Morelli, III for alleged professional services rendered to MDM. Arnold is alleging damages in an amount of $90,000 in connection with this claim. The Company and the other defendants have filed a third-party complaint against FTF, Theodore E. DeTello, Frank J. Morelli, II and Frank J. Morelli, III, seeking full indemnification from them for any damages to which Arnold may be entitled in accordance with a certain Termination Agreement dated December 17, 1993 between the parties. Counsel for the Morelli's has recently indicated that the Morelli's would be taking the Fifth Amendment against testifying in connection with this lawsuit. Since Arnold may not have witnesses to prove the alleged existence of an oral promise, the likelihood of any recovery against the Company, CMA or MDM appears to be remote. Counsel for the parties have stipulated to binding arbitration to be held sometime in 1997. A Complaint entitled Ruben Kitay et al vs. Nona Morelli's II, Inc., et al; United States District Court for the Central District of California: Case No. 95-4375 RMT(SHx), filed on October 10, 1995, in the U.S. District Court for the Central District of California and subsequently dismissed pursuant to stipulation, was refiled by the Plaintiffs on April 12, 1996, in a complaint entitled Gustavo Farias, et al v. Nona Morelli's II Inc., et al. The new complaint named the Company, its officers, the Company's accounting firm and other third parties as defendants in an alleged shareholder derivative action (the "Refiled Action") refiled on behalf of certain shareholders of NuOasis Gaming. The Refiled Action alleged securities fraud and RICO violations in connection with a certain Stock Purchase and Business Combination Agreement pursuant to which the Company acquired voting control of ENP (now NuOasis Gaming), and the events surrounding the bankruptcy of BGI. The plaintiffs seek damages in an amount not yet ascertained according to proof, interest, rescission, imposition of a constructive trust, diminution of share value for the individual plaintiffs, attorneys' fees and exemplary damages. Outside counsel for the Company in the Refiled Action, and the management of both NuOasis Gaming and the Company believe among other things, that the action was initiated by Mike Savage, a former consultant of NuOasis Gaming, and persons affiliated with him, as a part of an attempt to take control of NuOasis Gaming; that the Plaintiffs do not have standing to file such litigation; that the Plaintiffs have no competent and credible evidence to support their allegations; that they have failed to state a proper claim; and that they do not qualify as proper representatives in a shareholder action. After the filing of the Company's Motion to Dismiss in the original action, the original action was voluntarily dismissed by the Plaintiffs. The Company has filed a Motion to Dismiss the Refiled Action. As of the date of this Report, all but three of the Plaintiffs have dropped out of the litigation. In response to the Company's Motion to Dismiss, the remaining Plaintiffs have voluntarily dismissed most of the other Defendants and have dismissed the RICO claims. The Company's accounting firm and chief financial officer have been dismissed as Defendants. The Motion to Dismiss the remaining claims is currently pending. [NM\10-KSB:63096FS.2] -45 F-23 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 In June 1993, prior management of the Company issued 450,000 pre-reverse split shares of its common stock to Louis Siegel ("Siegel"), allegedly in consideration for food conveyor equipment. However, new management found the apparatus stored in the parking lot at the Pueblo, Colorado plant and discovered that the equipment was nothing more than scrap metal. In September 1994, when Mr. Siegel failed to provide an appraisal for the apparatus after a demand for the same from the Company's Chief Executive Officer, the Company's Board of Directors canceled the shares, finding that no consideration had been received for the issuance of the shares. In July 1995, Siegel requested reinstatement of the shares. The Company refused. No further developments occurred during fiscal year 1996. However, on September 6, 1996, the Company was served with a Complaint filed by Siegel against the Company in San Diego Superior Court entitled Louis Siegel vs. Nona Morelli's II, Inc. Case No. 703222 seeking compensatory damages in excess of $150,000, interest, punitive damages, costs of suit and attorney's fees. Counsel for the Company and Siegel have stipulated to a transfer of the action to the Superior Court for the County of Orange and the Superior Court of Orange County assigned Case No. 772045 to the complaint. The Company intends to vigorously defend the Complaint and is in the process of filing a Demurrer and Motion to Strike the Complaint. The Company is involved, both as plaintiff and defendant, in litigation that originates in the normal course of business development or operations. Respective counsels for the Company do not believe that any existing litigation will result in an adverse judgment which would have a negative material impact on the Company's financial condition. Accordingly, no provision has been made in the accompanying financial statements for such contingencies. Capital Requirements of Cleopatra At June 30, 1996, Cleopatra has approximately $3,500,000 deposited with the builders of the Cap Gammarth Casino and the Hammamet Casino. Cleopatra has approximately $2,000,000 remaining to be paid, as security deposits and advance rent, before it can take possession of the two casinos (see Note 13 of the footnotes to the accompanying financial statements). Construction on the Cap Gammarth Casino and Hammamet Casino is near completion. In addition, Cleopatra estimates remaining expenditures and working capital requirements, including security deposits and advance rental payments, related to equipping and opening the two casinos to be approximately $15 million in aggregate. [NM\10-KSB:63096FS.2] -45 F-24 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 To finance the expected $15 million in remaining expenditures on the Cap Gammarth Casino and the Hammamet Casino, the Company is negotiating a joint venture between NuOasis International and a European hotel management Company whereby the European hotel management Company will contribute up to $13.5 million in exchange for a 50% interest in the joint venture (see Note 13 of the footnotes to the accompanying financial statements). Alternatively, subject to providing satisfactory collateral, the Company has arranged for a credit facility with Banque Francaise de L'Orient (the "Bank") which Cleopatra may utilize to borrow up to $25 million. Through June 30, 1996 the Company and its subsidiaries have, with few exceptions, financed all operations with internally generated funds and the Company's common stock. Third party debt and equity financing has been pursued, both domestically and internationally, without success. And, while the Company and its subsidiaries have been able to meet their financial commitments through the close of fiscal 1996, if for any reason, the proposed joint venture is not formed, or if Cleopatra is unable to borrow from the Bank, or if Cleopatra or NuOasis International are unable to otherwise meet their commitments under the various agreements to provide the furniture, fixtures, equipment and working capital for the proposed casinos once construction is completed, 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 their respective interest, or lose their respective rights to the projects and properties entirely. Commitments of Cleopatra As discussed above, and in Note 13, the Company is actively pursuing financing which may involve the pledge of or hypothecation of some or all of the Company's assets. The Company has no commitment for material capital expenditures, however, it is a guarantor of the obligation of Cleopatra under the Cap Gammarth agreement. Note 13. Subsequent Events Cleopatra Subsequent to the close of fiscal 1996, NuOasis International executed letters of intent and was negotiating definitive agreements to acquire Replacement Properties related to its international gaming and hospitality activities. 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 designee, Cleopatra World), would lease the casino and through NuOasis International manage the hotel (to be re-named "Cleopatra Palace Resort - Monastir"), and provide Las Vegas casino gaming management for the casino (the "Monastir Casino"). In September 1996, the Company entered into an agreement in principle with a European hotel management 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 will provide the new joint venture with up to $13.5 million in working capital and the Company, through NuOasis International, will 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 with Cleopatra which will result in NuOasis International issuing $13.5 million in secured promissory notes in consideration for 70% of the outstanding stock of three Cleopatra subsidiaries, including Cleopatra Cap Gammarth Casino, Cleopatra Hammamet Casino and Cleopatra Monastir. Additionally, the Company and Cleopatra agreed to increase NuOasis International's equity interest in Cleopatra from 28% to 33%. [NM\10-KSB:63096FS.2] -45 F-25 NONA MORELLI'S II, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 Additionally, following the restructuring agreement with Cleopatra, NuOasis International executed an agreement to purchase a 50% interest in Cleopatra World, Inc., a British Virgin island corporation ("Cleopatra World"), the lessor of the Le Palace Hotel and the commercial center, residential complex, real estate and improvements surrounding the Cap Gammarth Casino (the "Cap Gammarth. Resort"). National Pools Corporation On June 13, 1996, Nona entered into an Option Agreement with Joseph Monterosso, President of National Pools Corporation ("NPC"), an individual previously unrelated to the NuOasis Gaming or Nona, and granted such individual an option to purchase the 250,000 Series B Preferred Shares of the NuOasis Gaming owned by Nona at a purchase price of $13.00 per share, or a total of $3,250,000, with a minimum purchase of 110,000 shares. The exercise of the option is conditioned upon shareholder approval of a proposal to increase the authorized number of shares of common stock of the NuOasis Gaming by at least twenty million (20,000,000) shares. The option is assignable and shall expire 90 days after the next Annual Meeting of Shareholders of NuOasis Gaming. On November 21, 1996, NuOasis Gaming's board of directors approved the acquisition of NPC. The acquisition is expected to be financed by the issuance of securities of NuOasis Gaming, however, a definitive agreement has not been signed. Moreover, the acquisition is contingent upon the occurrence of certain events including but not limited to: (a) NPC shareholder approval; (b) exercise of that certain option agreement between Monterosso and Nona; (c) Monterosso securing financing that would allow the exercise of the option by Monterosso and/or one or more qualified private investors; (d) reaching an agreement to sell CMA; and (e) shareholder approval of a proposal to increase the number of authorized shares of common stock of NuOasis Gaming by at least 20,000,000 shares. There are no assurances that such transaction will occur, and because of on-going negotiations and uncertainties surrounding the realization of such transaction, NuOasis Gaming cannot determine the ultimate effect on NuOasis Gaming's financial position at this time. [NM\10-KSB:63096FS.2] -45 F-26 EX-99 2 ARTICLES OF AMENDMENT, EXHIBIT 3.1(C) EXHIBIT 3.1(c) Articles of Amendment to the Articles of Incorporation filed September 26, 1996 ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF NONA MORELLI'S II, INC. - ------------------------------------------------------------------------------- Pursuant to Section 7-106-102 of the Colorado Business Corporation Act of the State of Colorado [Shareholder approval not required pursuant to ss.7-106-102 (4) of the Colorado Business Corporation Act] - ------------------------------------------------------------------------------- NONA MORELLI'S II, INC., a corporation organized and existing under the laws of the State of Colorado ("the Company"), DOES HEREBY CERTIFY that pursuant to the authority contained in Article VII of its Articles of Incorporation, and in accordance with the provisions of ss.7-106-102 of the General Corporation Law of the State of Colorado, the Company's Board of Directors has duly adopted these Articles of Amendment of the Articles of Incorporation determining the Designations, Rights and Preferences of the classes of its authorized Preferred Stock, herein designated as Series C Convertible Preferred Stock and Series D Convertible Preferred Stock: Section 7.1 of Article VII, Capital, is hereby amended to read as follows: "Section 7.1. The aggregate number of shares which the Corporation shall have the authority to issue is 75,000,000 shares, of which 25,000,000 shares shall be Preferred Stock and shall be issued at a par value of $.01 per share, and 50,000,000 shares shall be Common Stock and shall be issued at a par value of $.01 per share. No share shall be issued until it has been paid for, and it shall thereafter be nonassessable." Section 7.2 and 7.3 of Article VII, Capital, are added to read as follows: "Section 7.2 A series of the class of Preferred Stock is hereby created, such series to be designated as Series C Preferred Stock, with the designations and amount thereof, together with the voting powers, preferences and relative, participating, optional and other special rights of the shares of each such series, and the qualifications, limitations or restrictions thereof, to be as follows: Section 7.2.1 Designation and Amount. One Million (1,000,000) shares of Nona Morelli's II, Inc. (the "Company") authorized preferred stock, par value $.01 per share, are designated as shares of Series C Convertible Preferred Stock (the "Series C Preferred Stock"). Section 7.2.2 Rank. The Series C Preferred Stock shall be senior to the common stock and the Company's Series D Convertible Preferred Stock. Section 7.2.3 Dividends. The holders of the Series C Preferred Stock shall be entitled to receive common stock dividends when, as, and if declared by the Board of Directors of the Company, at the rate of one share of $.01 par value per share common stock (the "Common Stock") for each ten shares of Series C Preferred Stock. Cash dividends will not be paid to the holders of Series C Preferred Stock. W:\NM\STK\ART.AMD Section 7.2.4 Liquidation Rights. (a) In the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the holders of the Series C Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, before any payment or declaration and setting apart for payment of any amount shall be made in respect of any outstanding preferred stock ranking junior to the Series C Preferred Stock or the Common Stock, an amount equal to $1.00 per share. If upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to the holders of the Series C Preferred Stock shall be insufficient to permit the payment to the holders thereof the full preferential amount as provided herein, then all of the assets of the Company available to be distributed shall be distributed ratably to the holders of the Series C Preferred Stock and other outstanding shares of preferred stock. (b) None of the following events shall be treated as or deemed to be a liquidation hereunder: (i) A merger, consolidation or reorganization of the Company; (ii) A sale or other transfer of all or substantially all of the Company's assets; (iii) A sale of 50% or more of the Company's capital stock then issued and outstanding; (iv) A purchase or redemption by the Company of stock of any class; or (v) Payment of a dividend or distribution from funds legally available therefor. Section 7.2.5 Voting Rights. In all matters the Series C Preferred Stock shall have the same voting rights as the Common Stock on a share-for-share basis. If the Company effects a stock split which either increases or decreases the number of shares of Common Stock outstanding and entitled to vote, the voting rights of the Series C Preferred Stock shall be proportionately increased or decreased to take into effect such stock split. Section 7.2.6 Conversion. The Series C Preferred Stock shall have the following conversion rights (the "Conversion Rights"): W:\NM\STK\ART.AMD (a) Holder's Optional Right to Convert. Each share of Series C Preferred Stock shall be convertible, at the option of the holder, on the Conversion Basis in effect at the time of conversion. (b) Conversion Basis. The conversion basis of the Series C Preferred Stock shall be two shares of Common Stock for each share of Series C Preferred Stock, subject to adjustment as provided in Paragraph 6(d) below (the "Conversion Basis"). (c) Mechanics of Conversion. Before any holder of Series C Preferred Stock shall be entitled to convert the same into shares of Common Stock, he shall (i) give written notice to the Company, at the office of the Company or of its transfer agent for the Common Stock or the Preferred Stock, that he elects to convert the same and shall state therein the number of shares of Series C Preferred Stock being converted; and (ii) surrender the certificate or certificates therefor, duly endorsed. Thereupon the Company shall promptly issue and deliver to such holder of Series C Preferred Stock a certificate or certificates for the number of shares of Common Stock to which he shall be entitled. The conversion shall be deemed to have been made and the resulting shares of Common Stock shall be deemed to have been issued immediately prior to the close of business on the date of such notice and surrender of the shares of Series C Preferred Stock. (d) Adjustments to the Conversion Basis. (i) Stock Splits and Combinations. At any time after the Company first issues the Series C Preferred Stock and while any of the shares of Series C Preferred Stock remain outstanding, if the Company shall effect a subdivision or combination of the Common Stock, the Conversion Basis then in effect immediately before that subdivision or combination shall be proportionately adjusted. Any adjustment under this Paragraph 6(d)(i) shall become effective at the close of business on the date the subdivision or combination becomes effective. (ii) Reclassification, Exchange or Substitution. At any time after the Company first issues the Series C Preferred Stock and while any of the shares of Series C Preferred Stock remain outstanding, if the Common Stock issuable upon the conversion of the Series C Preferred Stock shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for elsewhere in this Paragraph 6, then and in each such event the holder of each share of Series C Preferred Stock shall have the right thereafter to convert such shares into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series C Preferred Stock might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustments as provided herein. W:\NM\STK\ART.AMD (iii) Reorganization, Mergers, Consolidations or Sales of Assets. At any time after the Company first issues the Series C Preferred Stock and while any of the shares of Series C Preferred Stock remain outstanding, if there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Paragraph 6, or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's assets to any other person, then as a part of such reorganization, merger, consolidation, or sale, provision shall be made so that the holders of the Series C Preferred Stock thereafter shall be entitled to receive upon conversion of the Series C Preferred Stock, the number of shares of stock or other securities or property of the Company, or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Paragraph 6 with respect to the rights of the holders of the Series C Preferred Stock after the reorganization, merger, consolidation, or sale to the end that the provisions of this Paragraph 6 (including adjustment of the Conversion Basis then in effect and the number of shares issuable upon conversion of the Series C Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (iv) Notices of Record Date. In the event of any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, entity, or person, or any voluntary or involuntary dissolution, liquidating, or winding up of the Company, the Company shall mail to each holder of Series C Preferred Stock at least 30 days prior to the record date specified therein, a notice specifying the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation, or winding up is expected to become effective, and the time, if any is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation, or winding up. W:\NM\STK\ART.AMD (v) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series C Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of the Company's Common Stock on the date of conversion, as determined in good faith by the Board of Directors. (vi) Reservation of Stock Issuable Upon Conversion. At such time as the Company increases its authorized capital resulting in a sufficient number of shares of Common Stock becoming available for the conversion of the Series C Preferred Stock, the Company shall reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, a number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock. (vii) Notices. Any notice required by the provisions of this Paragraph 6 to be given to the holder of shares of the Series C Preferred Stock shall be deemed given when personally delivered to such holder or five business days after the same has been deposited in the United States mail, certified or registered mail, return receipt requested, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Company. (viii) Payment of Taxes. The Company will pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of shares of Series C Preferred Stock. Section 7.2.7 Restrictions and Limitations. (a) So long as any shares of Series C Preferred Stock remain outstanding, the Company, without the vote or written consent by the holders of a majority of the then outstanding shares of Series C Preferred Stock voting as a single class, shall not: W:\NM\STK\ART.AMD (i) Redeem, purchase, or otherwise acquire for value, any share or shares of Series C Preferred Stock; and (ii) Purchase, redeem, or otherwise acquire (or pay into or set aside a sinking fund for such purpose), any of the Common Stock, provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company (such as sales representatives or distributors) pursuant to agreements under which the Company has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment; or (b) So long as any shares of Series C Preferred Stock remain outstanding, the Company, without the approval by vote or written consent of the holders of a majority of the then outstanding shares of Series C Preferred Stock, voting as a separate class, shall not take any action which would: (i) Alter or change any of the rights, preferences, privileges of, or limitations provided for herein for the benefit of any shares of the Series C Preferred Stock; or (ii) Increase the authorized number of shares of the Series C Preferred Stock. Section 7.2.8 No Reissuance of Series C Preferred Stock. No share or shares of Series C Preferred Stock acquired by the Company by reason of conversion or otherwise shall be reissued as Series C Preferred Stock, and all such shares thereafter shall be returned to the status of undesignated and unissued shares of preferred stock of the Company. Section 7.2.9 No Redemption. The Series C Preferred Stock is not redeemable by the Company, and the Company is not required to establish any sinking fund or other fund for the benefit of the holders of the Series C Preferred Stock. Section 7.3 A series of the class of Preferred Stock of the Company, is hereby created, such series to be designated Series D Voting Convertible Preferred Stock, with the designations and amount thereof, together with the voting powers, preferences and relative, participating, optional and other special rights of the shares of each such series and the qualifications, limitations or restrictions thereof, to be as follows: Section 7.3.1 Designation, Amount and Definitions .Twenty four million (24,000,000) shares of the Company's Authorized Preferred Stock, par value $.01 per share, are designated as shares of Series D Voting Convertible Preferred Stock (The "Series D Voting Preferred Stock").Unless the context otherwise requires, the terms defined in this Section 7.3 shall have, for all purposes of this resolution, the meanings herein specified: W:\NM\STK\ART.AMD Common Stock. The term "Common stock" shall mean all shares now or hereafter authorized of any class of Common stock of the Corporation and any other stock of the Corporation, howsoever designated, authorized after the Issue Date, which has the right (subject always to prior rights of any class or series of Preferred Stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount. Issue Date. The term "Issue Date" shall mean the date that shares of Series D Preferred Stock are first issued by the Corporation. Junior Stock. The term "Junior Stock" shall mean, for purposes of paragraph 7.3.2 below, any class or series of stock of the Corporation authorized after the Issue Date not entitled to receive any dividends in any dividend period unless any dividends required to have been paid or declared and set apart for payment on the Series D Preferred Stock shall have been so paid or declared and set apart for payment and, for purposes of paragraph 7.3.3 below, shall mean common stock and any other class or series of stock of the Corporation authorized after the Issue Date not entitled to receive any assets upon liquidation, dissolution or winding up of the affairs of the Corporation until the Series D Preferred Stock shall have received the entire amount to which such stock is entitled upon such liquidation, dissolution or winding up. Parity Stock. The term "Parity Stock" shall mean, for purposes of paragraph 2 below the common stock and any other class or series of stock of the Corporation authorized after the Issue Date entitled to receive payment of dividends subject only to those preferential rights of dividends granted to the Series D Preferred Stock and, for purposes of paragraph 7.3.3 below, shall mean any class or series of stock of the Corporation authorized after the Issue Date entitled to receive assets upon liquidation, dissolution or winding up of the affairs of the Corporation subject to only those preferential rights and preference granted to the Series D Preferred Stock. Senior Stock. The term "Senior Stock" shall mean, for purposes of paragraph 7.3.2 below, any class or series of stock of the Corporation authorized before the Issue Date of the Series D Preferred Stock except for those preferential rights as granted herein but the right to receive dividends providing all dividends granted to the Series D Preferred Stock shall have been paid or set aside to be paid, and, for purposes of paragraph 7.3.3 below, shall mean any class or series of stock of the Corporation authorized after the Issue Date ranking equal to the Series D Preferred Stock and the right to participate in any distribution upon liquidation, dissolution or winding up of the affairs of the Corporation except for those preferential rights granted to the Series D Preferred Stock herein. Subscription Price. The term "Subscription Price" shall mean Forty One and Two-thirds cents ($.41667) per share. Section 7.3.2 Dividends The Series D Preferred Stock, notwithstanding the prior preferences, if any, granted to any other class or series of stock before or after the Issue Date shall entitle the holder of record thereof to dividends at the rate of One Cent ($.01) per share. W:\NM\STK\ART.AMD So long as any shares of Series D Preferred Stock shall be outstanding, the Company shall not declare or pay on any Junior Stock any dividend whatsoever, whether in cash, property or otherwise (other than dividends payable in shares of the class or series upon which such dividends are declared, together with cash in lieu of fractional shares), nor shall the Company make any distribution on any Junior Stock, nor shall any Junior Stock be purchased or redeemed by the Company or any of its subsidiaries of which it owns not less than 51% of the outstanding voting stock, nor shall any monies be paid or made available for a sinking fund for the purchase or redemption of any Junior Stock, unless all dividends to which the holders of Series D Preferred Stock shall have been entitled for all previous dividend periods shall have been paid or declared and a sum of money sufficient for the payment thereof set apart. Section 7.3.3 Distribution Upon Liquidation, Dissolution or Winding Up In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the affairs of the Company, and before any distribution or payment to any other class of series of stock, the holders of the Series D Preferred Stock shall be entitled to be paid the Subscription Price per share plus accrued dividends, if any, in cash or in property taken at its fair market value as mutually agreed by the Board of Directors and the holders of the Series D Preferred Stock. If such payment shall have been made in full to the holders of the Series D Preferred Stock, and if payment shall have been made in full to the holders of any Senior Stock and Parity Stock of all amounts to which such holders shall be entitled, the remaining assets and funds of the Company shall be distributed among the holders of Junior Stock, according to their respective shares. If, upon liquidation, dissolution or other winding up of the affairs of the Company, the net assets of the Company distributable among the holders of the outstanding shares of Series D Preferred Stock shall be insufficient to permit the payment in full of such holder of the preferential amounts to which they are entitled, then the entire assets of the Company shall be distributed among the holders of the Series D Preferred Stock ratably in proportion to the full amounts to which they would otherwise be entitled. Neither the consolidation or merger of the Company into or with another Company or Companys, nor the sale of all or substantially all of the assets of the Company to another Company or Companys shall be deemed liquidation, dissolution or winding up of the affairs of the Company within the meaning of this paragraph 3. Section 7.3.4 Redemption Program Subject to the provisions of the applicable Colorado Business Corporations Act, the Company, at the option of the Board of Directors, may at any time or from time to time redeem the whole or any part of the outstanding Series D Preferred Stock. Upon redemption the Company shall pay for each share redeemed the amount of One Dollar $1.00 per share payable in cash/or in shares of the Company's Common Stock plus such sum hereinafter being referred to as the redemption price. Such redemption shall be on an all-or-nothing basis. At least thirty days previous notice by mail, postage prepaid, shall be given to the holders of record of the Series D Preferred Stock to be redeemed, such notice to be addressed to each such shareholder at the address of such holder appearing on the books of the Company or given to such holder to the Company for the purpose of notice, or if no such address appears or is given, at the place where the principal office of the Company is located. Such notice shall state the date fixed for redemption and the redemption price, and shall call upon the holder to surrender to the Company on said date at the place designated in the notice such holder's certificate or certificates representing the shares to be redeemed. On or after the date fixed for redemption and stated in such notice, each holder of Series D Preferred Stock called for redemption shall surrender the certificate evidencing such shares to the Company at the place designated in such notice and shall thereupon be entitled to receive payment of the redemption price. If less than all the shares represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. If such notice of redemption shall have been duly given, and if on the date fixed for redemption funds necessary for the redemption shall be available therefore, notwithstanding that the certificates evidencing any Series D Preferred Stock called for redemption shall not have been surrendered, the dividends with respect to the shares so called for redemption shall forthwith after such date cease and determine, except only the right of the holders to receive the redemption price without interest upon surrender of their certificates therefore. If, on or prior to any date fixed for redemption or Series D Preferred Stock, the Company deposits, with any bank or trust company as a trust fund, the number of shares of Common Stock of a sum sufficient to redeem, on the date fixed for redemption thereof, the shares called for redemption, with irrevocable instructions and authority to the bank or trust company to give the notice of redemption thereof (or to complete the giving of such notice if theretofore commenced) and to pay, or deliver, on or after the date fixed for redemption or prior thereto, the redemption price of the shares to their respective holders upon the surrender of their share certificates, then from and after the date of the deposit (although prior to the date fixed for redemption), the shares so called shall be redeemed and any dividends on those shares shall cease to accrue after the date fixed for redemption. The deposit shall constitute full payment of the shares to their holders and from and after the date of the deposit the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders with respect to such shares, and shall have no rights with respect thereto except the right to receive from the bank or trust company payment of the redemption price of the shares without interest, upon the surrender of their certificates therefore. Any interest accrued on any funds so deposited shall be the property of, and paid to, the Company. If the holders of Series D Preferred Stock so called for redemption shall not, at the end of six years from the date fixed for redemption thereof, have claimed any funds so deposited, such bank or trust company shall thereupon pay over to the Company such unclaimed funds, and such bank or trust company shall thereafter be relieved of all responsibility in respect thereof to such holders and such holders shall look only to the Company for payment of the redemption price. Section 7.3.5 Voting Rights The holders of the Series D Preferred Stock issued and outstanding, except as otherwise provided by law or by the Articles of Incorporation of the Company, shall have and possess the right to notice of shareholders' meetings and the right to vote upon the election of directors or any other matter together with holders of all other classes of voting stock of the Company, on the basis of one vote for each share of Series D Preferred Stock. W:\NM\STK\ART.AMD Section 7.3.6 Conversion "Each share of Series D Convertible Preferred Stock shall be convertible into .41667 shares of the Corporation's common stock, notwithstanding the effects of any stock dividend or forward or reverse stock split by the Corporation subsequent to the issue date. In no event shall the total number of Series D Convertible Preferred Stock shares be converted into more than Ten Million (10,000,000) shares of common stock. Such right to convert shall commence as of the Issue Date and shall continue thereafter for a period of five years, such period ending on the fifth anniversary of the issue date. In the event that the holder(s) of the Series D Convertible Preferred Stock elect to convert such shares into common stock, the holder(s) of the Series D Convertible Preferred Stock shall have sixty (60) days from the date of such notice in which to tender their shares of Series D Convertible Preferred Stock to the Corporation in accordance with this paragraph. Section 7.3.7 Exclusion of Other Rights Except as may otherwise be required by law, the shares of Series D Preferred Stock shall not have any preferences or relative, participating, optional or other special rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Articles of Incorporation, as amended. The shares of Series D Preferred Stock shall have no preemptive or subscription rights. Section 7.3.8 Protective Provisions So long as any of the Series D Preferred Stock shall be outstanding, the Company shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least two-thirds of the total number of shares of Series D Preferred Stock outstanding: (a) Alter or change the rights, preferences or privileges of the Series D Preferred Stock so as to adversely affect in any manner the Series D Preferred Stock; or (b) Increase the authorized number of Series D Preferred Stock; or (c) Create any new class of shares having preferences over or being on a parity with the Series D Preferred Stock as to dividends or assets, unless the purpose of creation of such class is, and the proceeds to be derived from the sale and issuance thereof are to be used for, the retirement of all Series D Preferred Stock then outstanding; or (d) Repurchase any of the Company's common stock; or (e) Merge or consolidate with any other Company, except into or with a wholly-owned subsidiary of the Company with the requisite shareholder approval; or (f) Sell, convey or otherwise dispose of, or create or incur any mortgage, lien, charge or encumbrance on or security interest in or pledge of, or sell and leaseback, all or substantially all of the property or business of the Company; or (g) Incur, assume or guarantee any indebtedness (other than such as may be represented by the obligation to pay rent under leases) maturing more than 18 months after the date on which it is incurred, assumed or guaranteed by the Company, except purchase money obligations, obligations assumed as part of the price of property purchased, or the extension, renewal or refunding of any thereof. Section 7.3.9 Headings or Subdivisions The heading of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereto. Section 7.3.10 Severability of Provisions If any right, preference or limitation of the Series D Preferred Stock set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other rights, preferences and limitations set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein. Section 7.3.11 Status of Reacquired Stock Stock of Series D Preferred Stock which have been issued and reacquired in any manner shall (upon compliance with any applicable provisions of the State of Colorado) have the status of authorized and unissued shares of Preferred Stock issuable in series undesignated as to series and may be redesignated and reissued." The above designations of the rights, preferences and privileges of the Series C Preferred Stock were adopted on June 1, 1995 by the Board of Directors then in office. The above designations of the rights, preferences and privileges of the Series D Preferred Stock were adopted on April 30, 1993 by the Board of Directors then in office. IN WITNESS WHEREOF, said Nona Morelli's II, Inc. has caused these Articles of Amendment to be duly executed by its Chief Executive Officer and attested to by its Secretary this___ day of September, 1996. NONA MORELLI'S II, INC. By: /s/ Fred G. Luke ------------------------------------ Fred G. Luke, Chief Executive Officer ATTEST: /s/ John D. Desbrow --------------------------- John D. Desbrow, Secretary EX-99 3 MASTER LEASE, EXHIBIT 10.120 EXHIBIT 10.120 LEASE AGREEMENT WITH THEODORE DETELLO MASTER LEASE THIS MASTER LEASE (the "Lease") is made as of the 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", 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. [FFI\AGR:TEDLEASE.AGR] - 2 - 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 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. [FFI\AGR:TEDLEASE.AGR] - 3 - 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] - 4 - 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] - 5 - 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] - 6 - 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] - 7 - 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 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. [FFI\AGR:TEDLEASE.AGR] - 8 - 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] - 9 - 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 (ii) 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] - 10 - 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 INC. By: By:/s/ Theodore E. DeTello ------------------------------- ------------------------------------ Name: Theodore E. DeTello Title: By: By: ------------------------------- ------------------------------------ Name: Title: [FFI\AGR:TEDLEASE.AGR] - 11 - 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 Bldg Name/Ste 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 2 Park Plaza, Suite 470 Underwriters Inc. Irvine, California 92714 1745 N. Erie Pueblo, Colorado 81001 [FFI\AGR:TEDLEASE.AGR] - 12 - EXHIBIT "B" RULES AND REGULATIONS The following Rules and Regulations shall be n 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] - 13 - 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] - 14 - 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] - 15 - 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] - 16 - 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] - 17 - April 12, 1996 AMERICAN CHARITIES UNDERWRITERS 715 North Grand Avenue Pueblo, Colorado 81003 RE: Lease Agreement between Fantastic Foods International ("Fantastic") and American Charities Underwriters Inc. ("ACU") dated August 31, 1995 (the "Lease") Gentlemen: When countersigned in the space provided below, this letter (the "Agreement") will serve as an addendum to the Lease and the option granted therein by Fantastic, as Lessor, to ACU, as Lessee, to purchase the Building (as defined in the Lease). Subject to the following conditions, Nona Morelli's II Inc. ("Nona") and Fantastic agree to the assumption by ACU of Nona's note to Ohio National Life Insurance Company and the underlying First Trust Deed obligations of Nona related to the Building (the "Ohio National Note"), and Fantastic agrees to reduce the Purchase Price (as defined in the Lease) to $450,000, payable (a) by ACU's assumption of the present balance due under the Ohio National Note of approximately $240,000; and, (b) by the execution of a Second Trust Deed in favor of Fantastic in the principal amount of $210,000. Such Second Trust Deed to be payable from the net proceeds of any refinancing utilizing the Building, but in any event no later than December 31, 1996. This agreement is subject to: 1. Written confirmation that the assumption of the Ohio National Note by ACU will effect a full release of Nona and Fantastic by Ohio National Life Insurance Company, or their successor in interest, as to the Ohio National Note; and, 2. ACU bringing current the monthly payments due under Ohio National Note (such payments to be credited against the payments due to Fantastic under the Lease; and 3. Written confirmation from the proposed new lender, addressed to Fantastic, of the amount, terms and timing of ACU's proposed refinancing of the Building. If this correctly sets forth your understanding of the proposed revision of the terms of the Lease, please execute and return a countersigned copy of this Agreement to me before April 30, 1996. This offer contained herein is not binding unless signed by all parties and, even if fully executed, it will automatically terminate and be of no further force or effect if not returned to me before April 30, 1996. [NM\AGR:ACPUEBLD]-2 - 18 - Sincerely, /s/ Fred G. Luke - ---------------------------------------- Fred G. Luke Chief Executive Officer AGREED AND ACCEPTED This ---------- day of April, 1996 AMERICAN CHARITIES UNDERWRITERS INC. By:------------------------------------- Name: AGREED AND ACCEPTED This ---------- day of April, 1996 FANTASTIC FOODS INTERNATIONAL INC. By:------------------------------------- Name: [NM\AGR:ACPUEBLD]-2 - 19 - EX-99 4 EXHIBIT 10.121 EXHIBIT 10.121 PROMISSORY NOTE AND SECURITY AGREEMENT WITH FOOTHILL CAPITAL CORPORATION SECURED PROMISSORY NOTE $350,000.00 Los Angeles, California October 26, 1995 FOR VALUE RECEIVED, the undersigned ("Maker") hereby promises to pay to FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), or order, at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, or at such other address as the holder of this Secured Promissory Note ("Note") may specify in writing, the principal sum of Three Hundred Fifty Thousand Dollars ($350,000.00) or, if less, the then outstanding principal amount of the term loan made by Foothill in connection with that certain Security Agreement, dated as of even date herewith, between Maker and Foothill (as hereafter amended, restated, supplemented, or modified from time to time, the "Agreement"), plus interest and the Monthly Service Charge (defined below) in the manner and upon the terms and conditions set forth below. This Note is made in connection with the Agreement, the provisions of which are incorporated herein by reference. All capitalized terms used herein, unless otherwise defined herein, shall have the meanings ascribed to them in the Agreement. 1. Rate and Payment of Interest The principal balance of this Note shall bear interest from the date hereof until paid in full at a per annum rate equal to four (4) percentage points above the Reference Rate. For purposes of this Note, "Reference Rate" means the highest of the variable rates of interest per annum most recently announced by: (a) Bank of America, N.T. & S.A., San Francisco, California; (b) Mellon Bank, N.A., Pittsburgh, Pennsylvania; and (c) Citibank, N,A., New York, New York, or any successor to any of the foregoing institutions, as its "Prime Rate" or "Reference Rate", as the case may be, whether or not such announced rate is the best rate available from such financial institution, all as determined by Foothill. In the event that the Reference Rate is changed from time to time hereafter, the applicable rate of interest hereunder automatically and immediately shall be increased or decreased by an amount equal to the Reference Rate change. The rates of interest charged hereunder shall be based upon the average Reference Rate in effect during the month. Upon the occurrence of an Event of Default under the Agreement, the rate of interest on this Note shall, at the option of the holder of this Note, be increased to eight (8) percentage points above the Reference Rate. Interest charged on this Note shall be computed on the basis of a three hundred sixty (360) day year for actual days elapsed. In no event shall the interest rate or rates payable under this Note, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Maker and Foothill intend legally to agree upon the rate or rates of interest (and the other amounts paid in connection herewith) and manner of payment stated within this Note; provided, however, that anything contained herein to the contrary notwithstanding, if said interest rate or rates of interest (or other amounts paid in connection herewith) or the manner of payment exceeds the maximum allowable under applicable law, then, ipso facto as of the date of this Note, Maker is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Maker in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of this Note to the extent of such excess. [FFI\PNO:FOOT1026.PNO] 2. Schedule of Payments Principal, interest, and the Monthly Service Charge under this Note shall be due and payable according to the following schedule: A. Interest and the Monthly Service Charge shall be due and payable in arrears on the first (1st) day of each month commencing December 1, 1995, and continuing thereafter until this Note has been paid in full; B. Forty-seven (47) installments of principal, each in the amount of Seven Thousand Two Hundred Ninety Dollars ($7,290.00), shall be due and payable on the first (1st) day of each month commencing December 1, 1995; C. One (1) installment of principal in the amount Seven Thousand Three Hundred Seventy Dollars ($7,370.00) (or the outstanding remaining principal balance of this Note, if such outstanding principal balance is other than $7,370.00) shall be due and payable on November 1, 1999; and D. Any remaining outstanding principal, together with all accrued and unpaid interest thereon and any other sums owing in connection herewith (including, but not limited to, Monthly Service Charges that remain unpaid), shall be due and payable in full on November 1, 1999. 3. Monthly Service Charges In addition to the interest and other amounts due under this Note, a service charge of 3/10 of one percent (.3%) per month shall be payable monthly in arrears based on the average daily outstanding principal balance of this Note, calculated on the basis of a 360-day year and paid for actual days elapsed (the "Monthly Service Charge"). 4. Prepayment Voluntary prepayments of the principal balance of this Note shall be permitted at any time; provided that each such prepayment shall be accompanied by all interest and any Monthly Service Charges that have accrued and remain unpaid with respect to the amount of principal being repaid and a prepayment fee equal to the following: (i) Ten percent (10%) of the amount prepaid with respect to any prepayments made prior to June 1, 1997; and (ii) Three percent (3%) of the amount prepaid with respect to any prepayments made on or after June 1, 1997, and prior to November 1, 1999. Amounts repaid or prepaid with respect to this Note may not be re-borrowed. Partial prepayments of principal shall be applied to scheduled payments of principal in the inverse order of their maturity. [FFI\PNO:FOOT1026.PNO] 5. Holder's Right of Acceleration Upon the occurrence of an Event of Default under the Agreement, including, but not limited to, the failure to pay any installment of principal, interest, or Monthly Service Charge hereunder when due, the holder of this Note may, at its election and without notice to Maker, declare the entire balance hereof (including, but not limited to, all principal, interest, and Monthly Service Charges) immediately due and payable. 6. Additional Rights of Holder If any installment of principal, interest, or Monthly Service Charges hereunder is not paid when due, the holder shall have the following rights in addition to the rights set forth herein, in the Agreement, and under law: A. the right to compound interest and the Monthly Service Charge by adding the unpaid interest and/or Monthly Service Charge to principal, with such amount thereafter bearing interest and the Monthly Service Charge at the rates provided in this Note; and B. if any installment is more than ten (10) days past due, the right to collect a charge equal to the greater of Fifteen Dollars ($15.00) or five percent (5%) of the late payment for each month in which it is late. This charge is a result of a reasonable endeavor by Maker and the holder to estimate the holder's added costs and damages resulting from Maker's failure to make timely payments under this Note; hence Maker agrees that the charge shall be presumed to be the amount of damage sustained by the holder since it is extremely difficult to determine the actual amount necessary to reimburse the holder for damages. 7. General Provisions A. If this Note is not paid when due, Maker further promises to pay all costs of collection, foreclosure fees, and reasonable attorneys' fees incurred by the holder, whether or not suit is filed hereon, together with the fees, costs and expenses as provided in the Agreement. B. Maker hereby consents to any and all renewals, replacements, and/or extensions of time for payment of this Note before, at, or after maturity. C. Maker hereby consents to the acceptance, release, or substitution of security for this Note. D. Presentment for payment, demand, notice of dishonor, protest, and notice of protest are hereby expressly waived. E. No delay or omission on the part of the holder of this Note in exercising any right shall operate as a waiver thereof or of any other right. [FFI\PNO:FOOT1026.PNO] F. Any waiver of any rights under this Note, the Agreement, or under any other agreement, instrument, or paper signed by Maker is neither valid nor effective unless made in writing and signed by the holder of this Note. G. A waiver by the holder of this Note upon any one occasion shall not be construed as a bar or waiver of any right or remedy on any future occasion. H. Should any one or more of the provisions of this Note be determined illegal or unenforceable, all other provisions shall nevertheless remain effective. I. This Note cannot be changed, modified, amended, or terminated orally. J. The validity of this Note, its construction, interpretation, and enforcement, and the rights of the parties hereto shall be determined under, governed by, and construed in accordance with the laws of the State of California, without reference to the principles of conflicts of laws thereof. 8. Security for this Note This Note is secured by collateral described in the Agreement, and is subject to all of the terms and conditions thereof, including, but not limited to, the remedies specified therein or granted in connection therewith. 9. Venue; Jurisdiction; Waiver of Trial by Jury MAKER AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS NOTE SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. MAKER WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 9. MAKER, TO THE EXTENT IT MAY LEGALLY DO SO, HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER OR WITH RESPECT TO THIS NOTE, OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL TO, THE DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS NOTE OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. MAKER, TO THE EXTENT IT MAY LEGALLY DO SO, HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT THE HOLDER OF THIS NOTE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 9 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF MAKER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. [FFI\PNO:FOOT1026.PNO] IN WITNESS WHEREOF, this Note has been executed and delivered on the date first set forth above. Fantastic Foods International, Inc., a California corporation By: /s/ J.L. Lawver --------------------------------- Name: J.L. Lawver Its: President [FFI\PNO:FOOT1026.PNO] SECURITY AGREEMENT THIS SECURITY AGREEMENT is entered into as of October 26, 1995, between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and FANTASTIC FOODS INTERNATIONAL, INC., a California corporation ("Borrower"), with its chief executive office located at 5345 Third Street, Irwindale California 91706. The parties agree as follows: 1. Definitions and Construction 1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions: "Accounts" means all presently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to Borrower arising out of the sale or lease of goods or the rendition of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing. "Agreement" means this Security Agreement and any extensions, riders, supplements, notes, amendments, or modifications to or in connection with this Security Agreement. "Borrower's Books" means all of Borrower's books and records including: ledgers; records indicating, summarizing, or evidencing Borrower's assets or liabilities, or the Collateral; all information relating to Borrower's business operations or financial condition; and all computer programs, disc or tape files, printouts, runs, or other computer prepared information, and the equipment containing such information. "Closing Date" means the date on which Foothill makes the loan to Borrower under the Term Note. "Code" means the California Uniform Commercial Code. "Collateral" means each of the following: the Accounts; Borrower's Books; the Equipment; the General Intangibles; the Inventory; the Negotiable Collateral; any money, or other assets of Borrower which hereafter come into the possession, custody, or control of Foothill; and the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, Equipment, General Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or other tangible or intangible property resulting from the sale or other disposition of the Collateral, or any portion thereof or interest therein, and the proceeds thereof. [FFI\AGR:FOOTSEC.AGR] 1 "Equipment" means all of Borrower's present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies, jigs, goods, including, without limitation, the items of Borrower's equipment set forth on Schedule E-1 attached hereto, and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located. "Event of Default" has the meaning set forth in Section 8. "Foothill Expenses" means all: costs or expenses (including taxes, photocopying, notarization, telecommunication, and insurance premiums) required to be paid by Borrower under any of the Loan Documents that are paid or advanced by Foothill; documentation, filing, recording, publication, appraisal (including periodic Collateral appraisals), and search fees assessed, paid, or incurred by Foothill in connection with Foothill's transactions with Borrower; costs and expenses incurred by Foothill in the disbursement of funds to Borrower (by wire transfer or otherwise); charges paid or incurred by Foothill resulting from the dishonor of checks; costs and expenses paid or incurred by Foothill to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, whether or not a sale is consummated; costs and expenses paid or incurred by Foothill in examining Borrower's Books; costs and expenses of third party claims or any other suit paid or incurred by Foothill in enforcing or defending the Loan Documents; and Foothill's reasonable attorneys' fees and expenses incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing (including attorneys' fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or any guarantor of the Obligations), defending, or concerning the Loan Documents, whether or not suit is brought. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "General Intangibles" means all of Borrower's present and future general intangibles and other personal property (including choses or things in action, goodwill, patents, trade names, trademarks, service marks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, monies due under any royalty or licensing agreements, infringement claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims) other than goods and Accounts, and Borrower's Books relating to any of the foregoing. "Insolvency Proceeding" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief. [FFI\AGR:FOOTSEC.AGR] 2 "Inventory" means all present and future inventory in which Borrower has any interest, including goods held for sale or lease or to be furnished under a contract of service and all of Borrower's present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located, and any documents of title representing any of the above and Borrower's Books relating to any of the foregoing. "Judicial Officer or Assignee" means any trustee, receiver, controller, custodian, assignee for the benefit of creditors, or any other person or entity having powers or duties like or similar to the powers and duties of a trustee, receiver, controller, custodian, or assignee for the benefit of creditors. "Loan Documents" means, collectively, this Agreement, the Term Note and any other agreement entered into in connection with this Agreement, together with all alterations, amendments, changes, extensions, modifications, refinancings, refundings, renewals, replacements, restatements, or supplements, of or to any of the foregoing. "Negotiable Collateral" means all of Borrower's present and future letters of credit, notes, drafts, instruments, documents, leases, and chattel paper, and Borrower's Books relating to any of the foregoing. "Obligations" means all loans, advances, debts, principal, interest (including any interest that, but for the provisions of the United States Bankruptcy Code, would have accrued), premiums, liabilities (including all amounts charged to Borrower's loan account pursuant to any agreement authorizing Foothill to charge Borrower's loan account), obligations, fees, lease payments, guaranties, covenants, and duties owing by Borrower to Foothill of any kind and description (whether pursuant to or evidenced by the Loan Documents, by any note or other instrument, or by any other agreement between Foothill and Borrower, and whether or not for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including any debt, liability, or obligation owing from Borrower to others that Foothill may have obtained by assignment or otherwise, and further including all interest not paid when due and all Foothill Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise. "Pay-Off Letters" means letters, in form and substance reasonably satisfactory to Foothill, from other lenders, secured creditors, or lessors respecting the amount necessary to (a) repay in full all of the obligations of Borrower owing to such lenders, secured creditors, and/or lessors and (b) obtain (i) terminations/releases of all of the security interests or liens existing in favor of such lenders, secured creditors, and/or lessors in and to the properties or assets of Borrower and (ii) good and marketable title to such properties or assets (in the case of leased property). "Permitted Liens" means: (a) liens and security interests held by Foothill; and (b) liens for unpaid taxes that are not yet due and payable. [FFI\AGR:FOOTSEC.AGR] 3 "Term Note" means that certain Secured Promissory Note, of even date herewith, by Borrower to the order of Foothill, in the original principal amount of Three Hundred Fifty Thousand Dollars ($350,000), and any extensions, renewals, replacements, or substitutions therefor. 1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. 1.3 Code. Any terms used in this Agreement which are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 1.4 Construction. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, to the singular include the plural, and the term "including" is not limiting. The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, and exhibit references are to this Agreement unless otherwise specified. 1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. Fees Borrower shall pay to Foothill the following fees: 2.1 Closing Fee. A one time closing fee of Seven Thousand Dollars ($7,000) which is earned, in full, on the Closing Date and is due and payable by Borrower to Foothill in connection with this Agreement on the Closing Date; 2.2 Appraisal and Documentation Fees . Foothill's customary appraisal fee of Seven Hundred Fifty Dollars ($750) per day per appraiser, plus out-of-pocket expenses for each appraisal of the Collateral performed by Foothill or its agents. 3. Conditions to Effectiveness: Term of Agreement 3.1 Conditions Precedent. The obligation of Foothill to make the loan evidenced by the Term Note is subject to the fulfillment, to the satisfaction of Foothill and its counsel, of each of the following conditions on or before the Closing Date: (a) The Closing Date shall occur on or before October 31, 1995; (b) Other than with respect to Permitted Liens (if any), Borrower's existing lenders, creditors, and lessors shall have executed and delivered Pay-Off Letters, UCC termination statements, bills of sale, and other documentation evidencing the termination of their liens and security interests in the assets of Borrower (and the transfer of title to such assets to Borrower, in the case of leased property) or a subordination agreement in form and substance satisfactory to Foothill in its sole discretion; [FFI\AGR:FOOTSEC.AGR] 4 (c) Foothill shall have received copies of Borrower's Bylaws and Articles or Certificate of Incorporation, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower; (d) Foothill shall have received a certificate of corporate status with respect to Borrower, dated within ten (10) days of the Closing Date, by the Secretary of State of the state of incorporation of Borrower, which certificate shall indicate that Borrower is in good standing in such state; (e) Foothill shall have received a certificate from the Secretary of Borrower attesting to the resolutions of Borrower's Board of Directors authorizing its execution and delivery of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute same; (f) Foothill shall have received certificates of corporate status with respect to Borrower, each dated within ten (10) days of the Closing Date, such certificates to be issued by the Secretary of State of the states in which its failure to be duly qualified or licensed would have a material adverse effect on the financial condition or assets of Borrower, which certificates shall indicate that Borrower is in good standing; (g) Foothill shall have received the insurance certificates, certified copies of policies, required by Section 6.7 hereof along with a 438BFU Lender's Loss Payable Endorsement naming Foothill as sole loss payee, all in form and substance satisfactory to Foothill and its counsel; (h) Foothill shall have received each of the following documents and agreements, in form and substance satisfactory to Foothill and its counsel, duly executed, and each such document and agreement shall be in full force and effect: (1) This Agreement; (2) Secured Promissory Note; and (3) Validity Guaranty from Jon L. Lawver, individually; (i) Foothill shall have received searches reflecting the filing of its financing statements and fixture filings, and shall have received certificates of title with respect to the Collateral which shall have been duly executed in order to perfect all of the security interests granted to Foothill; (j) Foothill shall have received landlord and mortgagee waivers from the lessors and mortgagees of the locations where the Equipment is located; [FFI\AGR:FOOTSEC.AGR] 5 (k) Foothill shall have received the Closing Fee referenced in Section 2.1, all of Foothill Expenses incurred as of the Closing Date, and all other costs and expenses incurred by Foothill in connection herewith, including without limitation, audit fees, search fees, appraisal fees, documentation, recording and filing fees, and the fees and costs of Morgan, Lewis & Bockius LLP, for the negotiation, preparation and documentation of the Loan Documents; (l) All representations and warranties set forth in this Agreement and the other Loan Documents are true and correct as of the Closing Date, no "Event of Default" has occurred under this Agreement or any of the other Loan Documents, and all of the Loan Documents are in full force and effect: and (m) All other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Foothill and its counsel. 3.2 Term. This Agreement shall become effective upon the execution and delivery hereof by Borrower and Foothill, and shall continue in full force and effect until all Obligations have been indefeasibly paid in full. 4. Creation of Security Interest 4.1 Grant of Security Interest. Borrower hereby grants to Foothill a continuing security interest in all currently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Foothill's security interest in the Collateral shall attach to all Collateral without further act on the part of Foothill or Borrower. 4.2 Delivery of Additional Documentation Required. Borrower shall execute and deliver to Foothill, prior to or concurrently with Borrower's execution and delivery of this Agreement and at any time thereafter at the request of Foothill, all financing statements, continuation financing statements, fixture filings, security agreements, chattel mortgages, pledges, assignments, endorsements of certificates of title, applications for title, affidavits, reports, notices, letters of authority, and all other documents that Foothill may reasonably request, in form satisfactory to Foothill, to perfect and continue perfected Foothill's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 4.3 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and appoints Foothill (and any of Foothill's officers, employees, or agents designated by Foothill) as Borrower's true and lawful attorney, with power to: (a) sign the name of Borrower on any of the documents described in Section 4.2 or on any other similar documents to be executed, recorded, or filed in order to perfect or continue perfected Foothill's security interest in the Collateral; (b) endorse Borrower's name on any checks, notices, acceptances, money orders, drafts, or other item of payment or security that may come into Foothill's possession; (c) at any time that an Event of Default has occurred or Foothill deems itself insecure, make, settle, and adjust all claims under Borrower's policies of insurance in respect of the Collateral and make all determinations and decisions with respect to such policies of insurance. The appointment of Foothill as Borrower's attorney, and each and every one of Foothill's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Foothill's obligation to provide advances hereunder is terminated. [FFI\AGR:FOOTSEC.AGR] 6 4.4 Right to Inspect. Foothill (through any of its officers, employees, or agents) shall have the right, from time to time hereafter, to inspect Borrower's Books and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 5. Representations and Warranties Borrower represents and warrants as follows: 5.1 Prior Encumbrances. Borrower has good and indefeasible title to the Collateral, free and clear of liens, claims, security interests, or encumbrances except for Permitted Liens. Except with respect to certain machinery and equipment that will be purchased with the proceeds of the loan represented by the Term Note, none of the Collateral has been purchased by Borrower within the six (6) months period preceding the Closing Date, except for sales to Borrower in the ordinary course of the seller's business. 5.2 Location of Equipment. The Equipment is not now and shall not at any time hereafter be stored with a bailee, warehouseman, or similar party without Foothill's prior written consent. Borrower shall keep the Equipment only at the following locations: (i) 5345 Third Street, Irwindale, California 91706 and (ii) 119 West Live Oak, Units B, C, and D, Arcadia, California 91007. None of the Equipment has been located, during the six (6) month period prior to the Closing Date, in any jurisdiction other than the county(ies) and state(s) set forth in this Section. 5.3 Location of Chief Executive Office. The chief executive office of Borrower is located at the address indicated in the first paragraph of this Agreement and Borrower covenants and agrees that it will not, without thirty (30) days prior written notification to Foothill, relocate such chief executive office. 5.4 Fictitious Business Name(s). Borrower uses only the following Fictitious Business Names and none other: (a) Morelli Foods, Inc., (b) The Pasta Fresca Co., Inc., (c) Nona Morelli, (d) Santino's, and (e) Pasta Fresca Co. 5.5 Due Organization and Qualification. Borrower is and shall at all times hereafter be duly organized and existing and in good standing under the laws of the state of its incorporation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of the Collateral requires that it be so qualified. [FFI\AGR:FOOTSEC.AGR] 7 5.6 Due Authorization: No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower's corporate powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles or Certificate of Incorporation, or By-laws, nor will they constitute an event of default under any material agreement to which Borrower is a party. 5.7 Litigation. There are no actions or proceedings pending by or against Borrower before any court or administrative agency and Borrower does not have knowledge or belief of any pending, threatened, or imminent litigation, governmental investigations, or claims, complaints, actions, or prosecutions involving Borrower or any guarantor of the Obligations, except for ongoing collection matters in which the Borrower is the plaintiff. 5.8 No Material Adverse Change in Financial Condition. All financial statements relating to Borrower or any guarantor of the Obligations that have been or may hereafter be delivered by Borrower to Foothill have been prepared in accordance with GAAP and fairly present Borrower's financial condition as of the date thereof and Borrower's results of operations for the period then ended. There has not been a material adverse change in the financial condition of Borrower since the date of the latest financial statements submitted to Foothill on or before the Closing Date. 5.9 Solvency. Borrower's assets at a fair valuation exceed the amount of all of its debts at a fair valuation and Borrower is able to pay all of its debts (including trade debts and contingent liabilities) as they become due. 5.10 Environmental Condition. None of Borrower's properties or assets has ever been used by Borrower or, to the best of Borrower's knowledge, by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance. None of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute. No lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned or operated by Borrower. Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by Borrower resulting in the releasing or disposing of hazardous waste or hazardous substances into the environment. 5.11 Reliance by Foothill; Cumulative. Each warranty and representation contained in this Agreement shall be conclusively presumed to have been relied on by Foothill regardless of any investigation made or information possessed by Foothill. The warranties and representations set forth herein shall be cumulative and in addition to any and all other warranties and representations that Borrower shall now or hereinafter give, or cause to be given, to Foothill. [FFI\AGR:FOOTSEC.AGR] 8 6. Affirmative Covenants Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, and unless Foothill shall otherwise consent in writing, Borrower shall do all of the following: 6.1 Financial Statements, Reports, Certificates. Borrower agrees to deliver to Foothill: (a) as soon as available, but in any event within thirty (30) days after the end of each month during each of Borrower's fiscal years, a company prepared balance sheet, income statement, and cash flow statement covering Borrower's operations during such period; and (b) as soon as available, but in any event within ninety (90) days after the end of each of Borrower's fiscal years, financial statements of Borrower for each such fiscal year, reviewed by independent certified public accountants acceptable to Foothill, by such accountants to have been prepared in accordance with GAAP, together with a certificate of such accountants addressed to Foothill stating that such accountants do not have knowledge of the existence of any event or condition constituting an Event of Default, or that would, with the passage of time or the giving of notice, constitute an Event of Default. Such reviewed financial statements shall include a balance sheet, profit and loss statement, and cash flow statement, and such accountants' letter to management. Borrower shall have issued written instructions to its independent certified public accountants authorizing them to communicate with Foothill and to release to Foothill whatever financial information concerning Borrower that Foothill may request. If Borrower is a parent company of one or more subsidiaries, or affiliates, or is a subsidiary or affiliate of another company, then, in addition to the financial statements referred to above, Borrower agrees to deliver financial statements prepared on a consolidated basis. Borrower hereby irrevocably authorizes and directs all auditors, accountants, or other third parties to deliver to Foothill, at Borrower's expense, copies of Borrower's financial statements, papers related thereto, and other accounting records of any nature in their possession, and to disclose to Foothill any information they may have regarding Borrower's business affairs and financial conditions. 6.2 Other Reports. Borrower agrees to deliver to Foothill (i) within twenty-one (21) business days after Borrower's payroll taxes are due, evidence that such payroll taxes have been timely and fully paid, and (ii) promptly after receipt by Borrower, copies of the quarterly statements delivered by ADP to Borrower regarding evidence that such payroll taxes have been paid. 6.3 Tax Returns. Borrower agrees to deliver to Foothill copies of each of Borrower's future federal income tax returns, and any amendments thereto, within thirty (30) days of the filing thereof with the Internal Revenue Service. 6.4 Title to Equipment. Upon Foothill's request, Borrower shall immediately deliver to Foothill, properly endorsed, any and all evidences of ownership of, certificates of title, or applications for title to any items of Equipment. [FFI\AGR:FOOTSEC.AGR] 9 6.5 Maintenance of Equipment. Borrower shall keep and maintain the Equipment in good operating condition and repair, and make all necessary replacements thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any item of Equipment to become a fixture to real estate or an accession to other property, and the Equipment is now and shall at all times remain personal property. 6.6 Taxes. All assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower or any of its property have been paid, and shall hereafter be paid in full, before delinquency or before the expiration of any extension period. Borrower shall make due and timely payment or deposit of all federal, state, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Foothill, on demand, appropriate certificates attesting to the payment or deposit thereof. Borrower shall make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and shall, upon request, furnish Foothill with proof satisfactory to Foothill indicating that Borrower has made such payments or deposits. 6.7 Insurance. (a) Borrower, at its expense, shall keep the Collateral insured against "all risks" including loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in the full insurable value thereof. Borrower also shall maintain business interruption, public liability, and property damage insurance relating to Borrower's ownership and use of the Collateral. (b) All such policies of insurance shall be in such form, with such companies, and in such amounts as may be satisfactory to Foothill. All such policies of insurance (except those of public liability and property damage) shall contain a 438BFU lender's loss payable endorsement, or an equivalent endorsement in a form satisfactory to Foothill, showing Foothill as loss payee thereof, and shall contain a waiver of warranties, and shall specify that the insurer must give at least ten (10) days prior written notice to Foothill before canceling its policy for any reason. Borrower shall deliver to Foothill certified copies of such policies of insurance and evidence of the payment of all premiums therefor. All proceeds payable under any such policy shall be payable to Foothill to be applied on account of the Obligations. 6.8 Foothill Expenses. Borrower shall immediately and without demand reimburse Foothill for all sums expended by Foothill which constitute Foothill Expenses and Borrower hereby authorizes and approves all advances and payments by Foothill for items constituting Foothill Expenses. Any Foothill Expenses not paid promptly by Borrower shall constitute Obligations and shall accrue interest at the rate and in the manner of Obligations existing under the Term Note. [FFI\AGR:FOOTSEC.AGR] 10 6.9 No Setoffs or Counterclaims. All payments hereunder and under the other Loan Documents made by or on behalf of Borrower shall be made without setoff or counterclaim and free and clear of, and without deduction or withholding for or on account of, any federal, state or local taxes. 7. Negative Covenants Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, Borrower will not do any of the following without Foothill's Prior written consent: 7.1 Liens. Create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of the Collateral, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens. 7.2 Restrictions on Fundamental Changes. Enter into any acquisition, merger, consolidation, reorganization, or recapitalization, or reclassify its capital stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its business, property, or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the assets, stock, or other evidence of beneficial ownership of any person or entity. 7.3 Extraordinary Transactions and Disposal of Collateral. Sell, lease, or otherwise dispose of, move, relocate, or transfer, whether by sale or otherwise, any of the Collateral (except that Inventory may be sold by Borrower in the ordinary course of Borrower's business in accordance with past practice). 7.4 Change Name. Change Borrower's name, business structure, or identity, or add any new fictitious name. 8. Events of Default Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 If Borrower fails to pay when due and payable or when declared due and payable, any portion of the Obligations (whether of principal, interest [including any interest which, but for the provisions of the United States Bankruptcy Code, would have accrued on such amounts], fees and charges due Foothill, taxes, reimbursement of Foothill Expenses, or otherwise); 8.2 If Borrower fails or neglects to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Foothill; [FFI\AGR:FOOTSEC.AGR] 11 8.3 If there is a material impairment of the prospect of repayment of any portion of the Obligations owing to Foothill or a material impairment of the value or priority of Foothill's security interests in the Collateral; 8.4 If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any Judicial Officer or Assignee; 8.5 If an Insolvency Proceeding is commenced by Borrower; 8.6 If an Insolvency Proceeding is commenced against Borrower; 8.7 If Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.8 If a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a lien, whether choate or otherwise, upon any of Borrower's assets and the same is not paid on the payment date thereof: 8.9 If a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets; 8.10 If there is a default in any material agreement to which Borrower is a party with third parties resulting in a right by such third parties, whether or not exercised, to accelerate the maturity of Borrower's indebtedness thereunder; 8.11 If any misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or report made to Foothill by Borrower or any officer, employee, agent, or director of Borrower, or if any such warranty or representation is withdrawn by any officer or director; or 8.12 If the obligation of any guarantor or other third party under any loan document is limited or terminated by operation of law or by the guarantor or other third party thereunder, or any guarantor or other third party becomes the subject of an Insolvency Proceeding. 9. Foothill's Rights and Remedies 9.1 Rights and Remedies. Upon the occurrence of an Event of Default Foothill may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; [FFI\AGR:FOOTSEC.AGR] 12 (b) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Foothill, but without affecting Foothill's rights and security interest in the Collateral and without affecting the Obligations; (c) Without notice to or demand upon Borrower or any guarantor, make such payments and do such acts as Foothill considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Foothill so requires, and to make the Collateral available to Foothill as Foothill may designate. Borrower authorizes Foothill to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien that in Foothill's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Foothill a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Foothill's rights or remedies provided herein, at law, in equity, or otherwise; (d) Without notice to Borrower (such notice being expressly waived) set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Foothill, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Foothill; (e) Store, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Foothill is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Foothill's benefit; (f) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Foothill determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale; (g) Foothill may credit bid and purchase at any public sale. Foothill shall give notice of the disposition of the Collateral as follows: (i) Foothill shall give Borrower and each holder of a security interest in the Collateral who has filed with Foothill a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, then the time on or after which the private sale or other disposition is to be made; [FFI\AGR:FOOTSEC.AGR] 13 (ii) The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12, at least five (5) calendar days before the date fixed for the sale, or at least five (5) calendar days before the date on or after which the private sale or other disposition is to be made, unless the Collateral is perishable or threatens to decline speedily in value. Notice to persons other than Borrower claiming an interest in the Collateral shall be sent to such addresses as they have furnished to Foothill; and (iii) If the sale is to be a public sale, Foothill also shall give notice of the time and place by publishing a notice one time at least five (5) calendar days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held. 9.2 Deficiency: Excess Proceeds. Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third parties, by Foothill to Borrower. 9.3 Remedies Cumulative. Foothill's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Foothill shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Foothill of one right or remedy shall be deemed an election, and no waiver by Foothill of any Event of Default shall be deemed a continuing waiver. No delay by Foothill shall constitute a waiver, election, or acquiescence by it. 10. Taxes and Expenses Regarding the Collateral If Borrower fails to pay any monies (whether taxes, rents, assessments, insurance premiums, or otherwise) due to third persons or entities, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, to the extent that Foothill determines that such failure by Borrower could have a material adverse effect on Foothill's interests in the Collateral, in its discretion and without prior notice to Borrower, Foothill may do any or all of the following: (a) make payment of the same or any part thereof; or (b) obtain and maintain insurance policies of the type described in Section 6.7, and take any action with respect to such policies as Foothill deems prudent. Any amounts paid or deposited by Foothill shall constitute Foothill Expenses, shall be immediately charged to Borrower and become additional Obligations, shall bear interest at the then applicable rate set forth in the Term Note, and shall be secured by the Collateral. Any payments made by Foothill shall not constitute an agreement by Foothill to make similar payments in the future or a waiver by Foothill of any Event of Default under this Agreement. Foothill need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance, or lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. [FFI\AGR:FOOTSEC.AGR] 14 11. Waivers: Indemnification 11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Foothill on which Borrower may in any way be liable. 11.2 Foothill's Liability for Collateral. So long as Foothill complies with its obligations, if any, under Section 9207 of the Code, Foothill shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person. All risk of loss, damage, or destruction of the Collateral shall be borne by Borrower. 11.3 Indemnification. Borrower agrees to indemnify Foothill and its officers, employees, and agents and hold Foothill harmless against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party, and (b) all losses in any way suffered, incurred, or paid by Foothill as a result of or in any way arising out of, following, or consequential to transactions with Borrower whether under this Agreement, or otherwise. This provision shall survive the termination of this Agreement. 12. Notices Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection therewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or by prepaid telex, TWX, telefacsimile, or telegram (with messenger delivery specified) to Borrower or to Foothill, as the case may be, at its addresses set forth below: If to Borrower: Fantastic Foods International, Inc. 5345 Third Street Irwindale, California 91706 Attn: Jon L. Lawver If to Foothill: Foothill Capital Corporation 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025-3333 Attn: Small Business Lending Division Manager The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section 12, other than notices by Foothill in connection with Sections 9504 or 9505 of the Code, shall be deemed received on the earlier of the date of actual receipt or three (3) calendar days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by Foothill in connection with Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the mail or transmitted by telefacsimile or other similar method set forth above. [FFI\AGR:FOOTSEC.AGR] 15 13. Choice of Law and Venue; Jury Trial Waiver THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. Destruction of Borrower's Documents All documents, agings, or other papers delivered to Foothill may be destroyed or otherwise disposed of by Foothill four (4) months after they are delivered to or received by Foothill, unless Borrower requests, in writing, the return of said documents, schedules, or other papers and makes arrangements, at Borrower's expense, for their return. 15. General Provisions 15.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by Borrower and Foothill. 15.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without Foothill's prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Foothill shall release Borrower from its Obligations. Foothill may assign this Agreement and its rights and duties hereunder. Foothill reserves the right to sell, assign, transfer, negotiate, or grant participations in all or any part of, or any interest in Foothill's rights and benefits hereunder. In connection therewith, Foothill may disclose all documents and information which Foothill now or hereafter may have relating to Borrower or Borrower's business. To the extent that Foothill assigns its rights and obligations hereunder to a third party, Foothill shall thereafter be released from such assigned obligations to Borrower and such assignment shall effect a novation between Borrower and such third party. [FFI\AGR:FOOTSEC.AGR] 16 15.3 Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each paragraph applies equally to this entire Agreement. 15.4 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Foothill or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 15.5 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 15.6 Amendments in Writing. This Agreement cannot be changed or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations, if any, are merged into this Agreement. 15.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 15.8 Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by Borrower or the transfer by either or both of such parties to Foothill of any property of either or both of such parties should for any reason subsequently be declared to be improper under any state or federal law relating to creditors' rights, including, without limitation, provisions of the United States Bankruptcy Code relating to fraudulent conveyances, preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Foothill is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Foothill is required to repay or restore, and as to all reasonable costs, expenses and attorneys' fees of Foothill related thereto, the liability of Borrower shall automatically be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. [FFI\AGR:FOOTSEC.AGR] 17 15.9 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted, modified, or qualified by any other agreement, oral or written, whether before or after the date hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed at Los Angeles, California. "Borrower" Fantastic Foods International, Inc., a California corporation By: /s/ J.L. Lawver ---------------------------------- Name: J.L. Lawver Title: President ACCEPTED AND EFFECTIVE THIS 26TH DAY OF OCTOBER, 1995. "Foothill" Foothill Capital Corporation, a California corporation By: /s/ Pamela S. Ferro ---------------------------------- Name: Pamela S. Ferro Title: Vice President [FFI\AGR:FOOTSEC.AGR] 18 Schedule E-1 Equipment [FFI\AGR:FOOTSEC.AGR] 19 Pasta Fresca Company ============== =============================================================== 00101 EXTRUDER: MARCHIO DEPOSITATO: S/N 1021 00108 PASTA SHEETER, P. DOMINIONI 00116 PACKAGE MACHINE, MULTI-VAC: S/N 573-032 00202A TORTELLINI MACHINE, SAIMA: MODEL T4B, S/N B101-4 00202B TORTELLINI MACHINE, SAIMA 00202C TORTELLINI MACHINE, SAIMA, (NOT VIEWED) DESKTOP 00208 PASTEURIZER, P. DOMINIONI: S/N 270 00218 DRYER, P. DOMINIONI, 3-DOOR 00301 MIXER, TORESANI, MODEL 50A; S/N 86152 00311 PASTA SHEETER, TORESANI; S/N N.A. 00318 PASTA SHEETER, SAIMA; S/N 010/1 00401 PASTEURIZER, PASTA, 30"; S/N N.A. 00410 FREEZE TUNNEL, PASTA; S/N 90-01-60 00501 PASTA CUTTER, FLAT SAIMA 00511 PACKAGING MACHINE, MULTI-VAC, MODEL M855-F-PC; S/N 1094/1 00519 CASE SEALER, 3M; S/N 5332 00601 REFRIGERATOR, WALK-IN 22 X 32 X 14' 00610 FREEZER, WALK-IN, 28 X 25 X 16' 00701 PASTA CUTTER, CALIBRATOR, DOMINIONI 00801 MIXER, TORESANI, 100 KG CAP; S/N N.A. (NOT VIEWED) DESKTOP 00806 PASTA SHEETER, TORESANI 00811 TORTELLINI MACHINE, DOMINIONI; S/N N.A. 00818 LABELER, UNI-LASE 00823 (2) SHRINK WRAPPERS, SERGENT; S/N (1) 46963 & (1) N.A. 00902 PACKAGING MACHINE, MULTI-VAC; S/N 1352 00908 SHRINK WRAPPER, X-RITE; S/N 001045 [FFI\AGR:FOOTSEC.AGR] 20 Pasta Fresca Company ============== ================================================================ 01001 LOT PIZZA EQUIPMENT: (2)PIZZA OVENS S/N 14566-11-88/17894-82-20; DOUGH MIXER S/N 70260; DIVIDER ROUNDER S/N 1299; (3) DOUGH ROLLERS S/N 11-6792, 11140 & 4410; PROOFER 01101 TORTELLINI MACHINE, IMA 01108 FORKLIFT TRUCK, MITSUBISHI, 2700# CAP: S/N 52032 01115 COOKER/BLANCHER, RIETZ 01201 PALLET TRUCK, WALK BEHIND, 1500# CAP.; S/N N.A. 01301 MIXER, VULCAN, MODEL L-60; S/N 300353 01307 TORTELLINI MACHINE, DOMINIONI 01313 RAVIOLI MACHINE, DOMINIONI; S/N 2559 01319 PASTA CUTTER, DOMINIONI 01401 PASTA MACHINE, DOMINIONI 01407 CHEESE/MEAT GRINDER 01411 MEAT GRINDER, BENCH; S/N 64969 01417 DOUGH SHEETER, PASTA, DOMINIONI; S/N 2442 01501 PASTEURIZER, DOMINIONI 01506 EXTRUDER, L. PARMIGIANA; S/N 200463 01512 REFRIGERATOR, PHOENIX 01615 PALLET LIFT TRUCK, CROWN; S/N 36953 01621 PACKAGING MACHINE, MULTI-VAC; S/N 968-152 01701 RAVIOLI MACHINE, TORESANI 01707 DOUGH SHEETER, IMA 01713 GNOCCI MACHINE, DOMINIONI; S/N 3099 01719 EXTRUDER, SAIMA, S/N H4/12 01801 TORTELLINI MACHINE, DOMINIONI 01807 MIXER, BLAKESLEE; S/N 224421AAA 01815 EXTRUDER, PASTA, EDLEWEISS; S/N 8501 [FFI\AGR:FOOTSEC.AGR] 21 Pasta Fresca Company ============== ================================================================ 01901 REFRIGERATOR, WALK-IN, 7 X 11 X 8 01907 REFRIGERATOR, WALK-IN, 9 X 12 X 8 02002 REFRIGERATOR, STANLEY DOUCETTE 02007 PALLET LIFT TRUCK, ROL-LIFT; S/N 2659 02012 LOT SAUCE PRODUCTION SYSTEM W(3) KETTLES; S/N'S 39442, 25991/5350 02020 PACKAGING MACHINE, HOLOMATIC; S/N 32775 02101 FREEZER, WALK-IN, 8'7" X 8'7" X 8' 02109 REFRIGERATOR, WALK-IN, 12 X 19 X 8 02114 PUMP/FILLER, FILAMATIC 02120 VERTICAL CHOPPER / MIXER, HOBART 02201 CASE SEALER, 3M; S/N 1355 02208 PACKAGING / HEAT SEALER UNIT; S/N AP-1166 (NOT VIEWED); DESKTOP 02214 KETTLE, 60 GALLON, ELECTRIC; S/N 29783 02301 REFRIGERATOR, TRUE, 3-DOOR 02306 2 BURNERS, WELLS, ELECTRIC; S/N 7506 & 7507 02312 CONVECTION OVEN, BLODGETT; S/N 058261739112 02318 EXHAUST HOOD, 6' WIDE W/HALON SYSTEM Grand Total ============== =============================================================== [FFI\AGR:FOOTSEC.AGR] 22 EX-99 5 ASSIGNMENT, EXHIBIT 10.124 EXHIBIT 10.124 ASSIGNMENT DATED DECEMBER 29, 1995 TO NUOASIS INTERNATIONAL, INC., A CALIFORNIA CORPORATION ASSIGNMENT KNOW ALL THESE MEN BY THESE PRESENTS: THIS ASSIGNMENT AND BILL OF SALE is made and entered into by and between Nona Morelli's II Inc., a Colorado corporation ("Assignor"), and NuOasis International Inc., a California corporation ("Assignee"). WITNESSETH: That for and in consideration of the issuance of shares of Assignee's $.01 par value common stock, and other good and valuable consideration, the receipt of which is hereby acknowledged, Assignor hereby bargains, sells, grants and conveys unto Assignee all of its rights, duties, and obligations under the Asset Purchase Agreement made by it with Silver Faith Development Limited, a Hong Kong corporation, ("Silver Faith") dated September 28, 1995 (the "Agreement"), concerning the purchase of certain real estate and improvements located in Mainland China, commonly known as the Peony Garden Project, more fully described in such Agreement which is attached hereto as Exhibit "A" and incorporated herein by reference. By its acceptance of this assignment, Assignee assumes the performance of all of Assignor's duties and obligations under the Agreement, and will hold Assignor harmless from any liability or loss resulting from the performance or non-performance of these duties and obligations. Assignor warrants that it has the power and authority, and does hereby sell and transfer the Agreement to Assignee, free and clear of all liens and encumbrances. For the same consideration, Assignor covenants with Assignee, its heirs, successors, and assigns that Assignor is the lawful owner of and has good title to the Agreement, free and clear of all liens, encumbrances or adverse claims; that the Agreement is in full force and effect, and that Assignor will warrant and forever defend any claims of default, or breach by Silver Faith. IN WITNESS WHEREOF, I have caused this instrument to be executed effective the 29th day of December, 1995. "Assignor" NONA MORELLI'S II INC. By:----------------------------------------- Name: Title: EXHIBIT "A" to the Assignment dated December 29, 1995 ASSET PURCHASE AGREEMENT EX-99 6 $21 MILLION CONVERTIBLE NOTE PAYABLE, EXH. 10.125 EXHIBIT 10.125 $21,000,000 CONVERTIBLE SECURED PROMISSORY NOTE DATED DECEMBER 31, 1995 TO SILVER FAITH DEVELOPMENT LIMITED CONVERTIBLE SECURED PROMISSORY NOTE U.S. $21,000,000 December 31, 1995 Irvine, California FOR VALUE RECEIVED, Nona Morelli's II Inc., a corporation organized under the laws of the United States, State of Colorado, with its principal place of business in California ("Maker"), hereby promises to pay to Silver Faith Development Limited, a corporation organized under the laws of Hong Kong ("Payee" or "Holder") the principal sum of Twenty One Million Dollars (US$21,000,000) payable, including all principal and accrued interest, at the rate of eight percent (8%) per annum, on December 31, 1996 (the "Due Date"). This Convertible Secured Promissory Note (the "Note") is issued by Maker pursuant to the Asset Purchase Agreement dated September 28, 1995 (the "Purchase Agreement"). To secure the payment of this Note, Maker hereby grants to the Payee, pursuant to a Security Agreement dated of even date between Maker and Holder a security interest in the real 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. Maker shall pay to Payee all reasonable costs, expenses, charges, disbursements and attorneys' fees incurred by Payee following an Event of Default in collecting, enforcing or protecting this Note or any other Security Document, whether incurred in or out of court, including appeals and bankruptcy proceedings. If Maker utilizes the Collateral in any way to secure financing, Maker agrees to pay the net proceeds of such financing to Payee to the extent of the principal balance of the Note, and all accrued and unpaid interest, before distributing any of such financing proceeds for other purposes. Notwithstanding the Due Date referenced above, this Note shall not be due and payable prior to the expiration of three (3) calendar months after the full completion of construction of the Collateral. The unpaid principal balance of this Note is convertible, in whole or in part, into shares of the Maker's common stock. Such option to convert this Note into shares of Maker's common stock becomes exercisable thirty (30) days prior to the Delivery Date (as defined in the Purchase Agreement) and remains in effect until this Note is converted or paid in full. The price at which Holder may convert shall be determined by dividing the unpaid principal balance on the Note by the ten (10) day moving average bid price for such stock immediately preceding the date of notice to convert. 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. 2 This Note has been delivered to Payee and accepted by Payee in the County of Orange, 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 the Superior Court of the State of California in Orange County or a United States federal court located in or having jurisdiction over Orange County. 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 Code of Civil Procedure of 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. 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: THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), BUT HAVE BEEN ISSUED IN RELIANCE UPON REGULATION S PROMULGATED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO A "U.S. PERSON" (AS DEFINED IN REGULATION S) OR TO ANY PERSON WITH A UNITED STATES ADDRESS DURING THE RESTRICTED PERIOD FOLLOWING ISSUANCE OF THE SECURITIES. FOLLOWING EXPIRATION OF THE RESTRICTED PERIOD, ANY RESALE OR TRANSFER OF THE SECURITIES TO A U.S. PERSON OR INTO THE UNITED STATES MUST BE MADE IN ACCORDANCE WITH REGULATION S, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT. 3 Executed by the undersigned the year and day first above written. NONA MORELLI'S II INC. By: /s/ Fred G. Luke ------------------------------------ Name: Fred G. Luke Title: Chief Executive Officer 4 EX-99 7 MERGER AGREEMENT, EXHIBIT 10.126 EXHIBIT 10.126 MERGER AGREEMENT DATED FEBRUARY 28, 1996 BETWEEN NUOASIS INTERNATIONAL INC., A CALIFORNIA CORPORATION AND ALBION AVIATION COMPANY LIMITED, A BAHAMANIAN CORPORATION MERGER AGREEMENT THIS MERGER AGREEMENT is made and entered into as of the 28th day of February, 1996, by and between ALBION AVIATION COMPANY LIMITED, a corporation organized under the laws of the Commonwealth of the Bahamas (the "Surviving Corporation"), and NUOASIS INTERNATIONAL, INC., a California corporation ("NuOasis"). The Surviving Corporation and NuOasis are hereinafter sometimes referred to collectively as the "Constituent Corporations." RECITALS: A. NuOasis is a privately held company engaged in the lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. B. The Surviving Corporation is a corporation organized under the International Business Companies Act (1990) of the Commonwealth of the Bahamas. C. The Boards of Directors of NuOasis and the Surviving Corporation have determined that it is advisable that NuOasis merge with and into the Surviving Corporation, and that the shareholders of NuOasis exchange their shares of the capital stock of NuOasis for shares of the common stock of the Surviving Corporation. The transaction contemplated hereby is hereinafter referred to as the "Merger". D. The Constituent Corporations desire to enter into and adopt this Merger Agreement for the purpose of setting forth certain terms and provisions that will govern the Merger and to consummate the Merger as a "change in domicile merger" in accordance with the provisions of the applicable laws of the Commonwealth of the Bahamas. E. The principal purpose of the Merger is to effectuate a change in corporate domicile from California to the Commonwealth of the Bahamas, to set forth a new capital structure and to reduce the number of issued and outstanding shares of NuOasis. PROVISIONS: NOW, THEREFORE, in consideration of the mutual agreement hereinafter set forth, in accordance with the provisions of the applicable laws of the Commonwealth of the Bahamas and the General Corporation Law of the 1995 Corporations Code of the State of California and for the purpose of setting forth the terms and conditions of the Merger, the mode of completing the Merger, and the manner of converting the shares of the capital stock of NuOasis into shares of the common stock of the Surviving Corporation, the parties agree as follows: [NUOINTL\AGR:NUOBVIMG.AGR]-2 1 I. THE REORGANIZATION 1.1 The Effective Time. The Merger shall be accomplished by filing appropriate articles of merger with the governing authority of the Commonwealth of the Bahamas and the Secretary of State of the State of California in the form provided for by the business corporation laws of such State and Principality as soon as practicable after execution of this Merger Agreement. The term "Effective Time" shall mean the time of the effectiveness of the Merger under the International Business Companies Act (No. 2 of 1990) of the Commonwealth of the Bahamas provided that the Articles of Merger and Merger Agreement are filed with the Secretary of State of the State of California within six months after the time of effectiveness in the Commonwealth of the Bahamas. 1.2 Manner of Merger. At the Effective Time, NuOasis shall be merged into the Surviving Corporation, which shall be the corporation that survives the Merger. The corporate existence of the Surviving Corporation with all its purposes, powers and objects shall continue unaffected and unimpaired by the Merger; and, as the corporation surviving the Merger, the Surviving Corporation shall by governed by the laws of the Commonwealth of the Bahamas and shall succeed to all rights, assets, liabilities and obligations of NuOasis, as provided in the General Corporation Law of the 1995 Corporations Code of the State of California. The separate existences and corporate organizations of the Surviving Corporation and NuOasis shall cease at the Effective Time, and thereafter the Surviving Corporation shall continue as the Surviving Corporation under the laws of the Commonwealth of the Bahamas under the new name of NuOasis International, Inc., a corporation organized under the Commonwealth of the Bahamas. All the property, real, personal, and mixed, and all debts of other obligations due to NuOasis, shall be transferred to and shall be vested in the Surviving Corporation, without further act or deed, as provided in the business corporation laws of the Commonwealth of the Bahamas and the General Corporation Law of the 1995 California Corporations Code of the State of California. 1.3 Articles of Incorporation and Bylaws of the Surviving Corporation. At the Effective Time (a) The Articles of Incorporation of the Surviving Corporation shall be amended to change its name to "NuOasis International, Inc." (b) The Bylaws of the Surviving Corporation shall be the Bylaws of the Corporation surviving this Merger, except as they may thereafter be altered, amended or repealed in accordance with law, or in accordance with the Articles of Incorporation of the Surviving Corporation or its Bylaws. (c) The directors and officers of the Surviving Corporation shall be the directors and officers of the corporation surviving this Merger, until their successors shall have been elected and qualified, or as otherwise provided by the International Business Companies Act of the Commonwealth of the Bahamas and in the Bylaws of the Surviving Corporation. If at the Effective Time a vacancy exists in the Board of Directors of in any of the offices of the Surviving Corporation, such vacancy shall thereafter be filled in the manner provided in the Bylaws of the Surviving Corporation. [NUOINTL\AGR:NUOBVIMG.AGR]-2 - 2 - 1.4 Status and Conversion of Shares. The manner of converting the shares of capital stock of NuOasis outstanding immediately prior to the Merger into shares of common stock of the Surviving Corporation shall be as follows: (a) At the Effective Time, every One Hundred Thousand (100,000) shares of the issued and outstanding no $.01 par value common stock of NuOasis shall by virtue of the Merger and without any action on the part of the holder thereof become and be converted into one (1) share of the no par value common stock of the Surviving Corporation. One whole share in the Surviving Corporation shall be issued to any shareholder of NuOasis with respect to any fractional share in the Surviving Corporation resulting from such division. (b) Any shares of the capital stock of NuOasis that may be held in treasury as of the Effective Time shall be canceled as of the Effective Time, and shall not thereafter be issued or outstanding. (c) After the Effective Time, each holder of a certificate or certificates theretofore representing outstanding shares of the capital stock of NuOasis may surrender such certificate or certificates to such agent or agents as shall be appointed by the Surviving Corporation (the "Exchange Agent"), and shall be entitled to receive in exchange therefor a certificate or certificates representing the number of whole shares of capital stock of the Surviving Corporation into which the shares of capital stock of NuOasis theretofore represented by the certificates so surrendered have been converted. (d) If any certificate evidencing shares of the capital stock of NuOasis is to be issued in a name other than the name in which the certificate surrendered is registered, the certificate so surrendered shall be properly endorsed and shall otherwise be in proper form for transfer. The person requesting the transfer shall pay to the Exchange Agent any transfer or other fees or taxes required by reason of the issuance of a certificate in name other than that of the registered holder of the certificate surrendered. (e) The Surviving Corporation may, without notice to any person, terminate all exchange agencies at any time after 120 days following the Effective Time. After such termination, all exchanges, payments and notices provided for in this Agreement to be made to or by the Exchange Agent shall be made to or by the Surviving Corporation or its agent. (f) On February 15, 1996, notice of the proposed merger was given to all shareholders of record of NuOasis. On February 28, 1996, holders of a majority of the outstanding shares of the $.01 par value common stock of NuOasis approved the Merger. No shareholder voted against the Merger or elected dissenter's rights. Under California law, all NuOasis shareholders, by voting in favor of the Merger, have waived any dissenter's rights under the General Corporation Law of the 1995 Corporation's Code of the State of California. [NUOINTL\AGR:NUOBVIMG.AGR]-2 - 3 - (g) The sole share of no par value common stock of the Surviving Corporation shall be canceled as of the Effective Time and shall not thereafter be issued or outstanding. II. MISCELLANEOUS 2.1 Amendments. This Merger Agreement may be amended with the approval of the Boards of Directors of the Constituent Corporations at any time before or after the approval hereof by their respective shareholders, but after any such approval no amendment shall be made that substantially and adversely changes the terms hereof as to any party without the approval of the shareholders of such party. 2.2 Extension; Waiver. At any time before the Effective Time, the Board of Directors of either of the Constituent Corporations may (a) extend the time for the performance of any of the obligations or other acts of another party hereto, or (b) waive compliance by another party with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing duly executed and delivered on behalf of such party. IN WITNESS WHEREOF, the Constituent Corporations have executed this Merger Agreement as of the day and year first above written. "Surviving Corporation" ALBION AVIATION COMPANY LIMITED a corporation organized under the laws of the Commonwealth of the Bahamas By:------------------------------------ Name: Title: "NuOasis" NUOASIS INTERNATIONAL, INC. a California corporation By:------------------------------------ Name: Title: [NUOINTL\AGR:NUOBVIMG.AGR]-2 - 4 - EX-99 8 EXHIBIT 10.127 EXHIBIT 10.27 ASSUMPTION AGREEMENT AND RELEASE OF LIABILITY WITH SILVER FAITH DEVELOPMENT LIMITED DATED MAY 16, 1996 [SILVER FAITH DEVELOPMENT LETTERHEAD] May 16, 1996 Mr. John D. Desbrow Secretary NONA MORELLI'S II INC. 2 Park Plaza, Suite 470 Irvine, California 92714 RE: Ratification, Assumption and Release Agreement Dear Mr. Desbrow: Silver Faith Development Limited ("SFD") wishes to confirm its agreement with and acknowledgment of the transfer of that certain Convertible Security Promissory Note in the principal amount of US$21,000,000 executed in favor of SFD (the "Note") pursuant to the Purchase Agreement between Nona and SFD dated September 28, 1995 (the "Purchase Agreement") from Nona Morelli's II Inc. ("Nona"), as "Maker", to NuOasis International Ltd., a corporation organized under the laws of the Bahamas ("NuOasis"). The undersigned further acknowledges receipt of US$9,600,000 as a payment against the Note, reducing the principal amount due under the Note to US$11,400,000. The undersigned also acknowledges notice of the assignment of the Note from Nona to NuOasis, effective December 29, 1995, and consents to such assignment. And, in connection with such assignment, the undersigned hereby releases Nona from all liability on its part under the Note and agrees to look solely to NuOasis, and the underlying Peony Garden property which secures such Note, for payment. If any provisions of the Purchase Agreement or this Agreement are in conflict with any statute, rule or law, then such provisions shall be deemed null and void to the extent of such conflict, but without invalidating any other provisions of this Agreement, or the Purchase Agreement. Sincerely, /s/ Silver Faith Development Limited ------------------------------------------ SILVER FAITH DEVELOPMENT LIMITED [SFD\CORR:NMRATREL.LTR] EX-99 9 EXHIBIT 10.128 EXHIBIT 10.128 AMENDMENT, MODIFICATION AND RATIFICATION OF ASSET PURCHASE AGREEMENT WITH SILVER FAITH DEVELOPMENT LIMITED AND BEIJING GRAND CANAL REAL ESTATE DEVELOPMENT CO., LTD. AMENDMENT, MODIFICATION AND RATIFICATION OF ASSET PURCHASE AGREEMENT This Amendment, Modification and Ratification of Asset Purchase Agreement (the "Agreement") is entered into this day of September 1996, effective the 28th day of September 1995, by and between Silver Faith Development Ltd., a corporation organized under the laws of Hong Kong ("Silver Faith"), Nona Morelli's II Inc., a corporation organized under the laws of the United States, state of Colorado ("Nona") and Beijing Grand Canal Real Estate Development Co., Ltd., a joint venture enterprise approved by the Beijing Municipal Foreign Trade Bureau, approval number (1993) 049, ("CJV") WHEREAS all parties hereto desire to amend, modify and ratify the transaction contemplated by that certain Asset Purchase Agreement (the "Asset Purchase Agreement") dated September 25, 1595 executed by Silver Faith and Nona in order to allow for a subsequent sale of the Property described in the Asset Purchase Agreement (the "Property"). NOW THEREFORE, for and in consideration of Ten Dollars (USD10) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby amend, modify and ratify the Asset Purchase Agreement based upon the following promises, representations, warranties and covenants. 1. As the Property is located in Beijing, the purchase, sale, assignment or transfer of the Property is and shall only be governed by the laws of the Peoples Republic of China (PRC). 2. CJV is the sole developer and owner of the Property and has the legal right to develop, own and sell the Property under PRC law. 3. Silver Faith is, and at all times subsequent to September 28, 1995 was, the Managing Equity Partner of CJV. 4. The intent of Silver Faith and Nona in entering the Asset Purchase Agreement was to grant, transfer and convey all of the right, title and interest of CJV and/or Silver Faith in and to the Property through a pre-sale contract, as that concept applies to the sale and purchase transaction on the property under construction, under PRC law. CJV approves, ratifies, and confirms all actions heretofore taken in furtherance of that intent. 5. CJV and/or Silver Faith shall, at its own cost and effort, take any and all necessary actions to comply with any national, state or local PRC laws, including but not limited to (1) a local regulation of Beijing on real estate property sales that requires use of the standard form contract prepared and printed by the Beijing Municipal Housing and Land Administration Bureau (the "Bureau"), (2) pre-sale transaction registration at the Market Administration Department or the Bureau (the "Department"), and (3) the property title transfer formalities at the Department, in order to fully vest in Nona, its successors and assigns all of the right, title and interest of CJV and/or Silver Faith in and to the Property. [NM\AGR:PEONYAMD.PUR] 1 6. CJV bargains, sells, grants, transfers and conveys unto Nona, its successors and assigns all of CJV's right, title and interest in and to the Property. 7. Silver Faith bargains, sells, grants, transfers and conveys unto Nona, its successors and assigns all of Silver Faith's right, title and interest in and to the Property and under the CJV. 8. CJV and Silver Faith agree to hold harmless Nona, its successors and assigns, from any liability or loss resulting from the performance or non-performance by CJV or Silver Faith of the duties and obligations under the agreement of CJV, including but not limited to the completion of construction on the Property. 9. CJV and Silver Faith irrevocably appoint Nona as CJV and Silver Faith's true and lawful attorney, with full power of substitution and revocation, in CJV and Silver Faith's name, or otherwise, but at Nona's own cost and expense, to demand and receive the real, personal or leasehold interests due, or to become due attributable to the Asset Purchase Agreement and this Amendment, and to sue, and to commence any lawful action, suit and proceeding for the enforcement of such interest, and to acknowledge satisfaction, or to discharge same as fully as CJV or Silver Faith might, or could do if the Asset Purchase Agreement and this Amendment had not been made. 10. CJV, Silver Faith and Nona have the power and authority to execute this Amendment under and as required by applicable law. [rest of page intentionally left blank] [NM\AGR:PEONYAMD.PUR] 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed, effective the 18th of September 1995. CJV Beijing Grand Canal Real Estate Development Co., Ltd., a joint venture enterprise organized under the laws of the Peoples Republic of China By: Silver Faith Development Ltd. Its: Managing Equity Partner By: /s/ Cheng Tai Chee ------------------------------------ Name: Cheng Tai Chee Title:Director Silver Faith Silver Faith Development Ltd., a corporation organized under the laws of Hong Kong By: /s/ Silver Faith Development Ltd. ----------------------------------- Nona Nona Morelli's II Inc., a corporation organized under the laws of the United States, state of Colorado By: /s/ Fred G. Luke ----------------------------------- Name: Fred G. Luke Title: Chief Executive Officer [NM\AGR:PEONYAMD.PUR] 3 EX-99 10 EXHIBIT 10.129 EXHIBIT 10.129 PURCHASE AND SALE AGREEMENT DATED AUGUST 8, 1996 BETWEEN NUOASIS INTERNATIONAL INC., AND THE HARTCOURT COMPANIES, INC. PURCHASE AND SALE AGREEMENT DATED: 8, August 1996 PARTIES: 1. "Hartcourt" The Hartcourt Companies, Inc., a corporation organised under the laws of the United States, State of Utah. 2. "NuOasis" NUOASIS INTERNATIONAL INC., a corporation organised under the laws of the Commonwealth of the Bahamas. RECITALS: 1.1 NuOasis is the owner and developer of a commercial real estate project located in mainland China commonly known as the Peony Gardens Property, more fully described in Schedule "1" annexed hereto (the "Property"); and, 1.2 Hartcourt wishes to purchase the Property. OPERATIVE PROVISIONS: 1. PURCHASE AND SALE 1.1 Upon the terms and subject to the conditions of this Agreement, on the Closing Date, NuOasis agrees to sell and transfer the Property to Hartcourt and Hartcourt agrees to purchase and accept the Property for the consideration set forth in this Agreement. 1.2 In exchange for the Property, Hartcourt shall pay to NuOasis the sum of Twenty Two Million Dollars (USD22,000,000), hereinafter referred to as the "Purchase Price", consisting of a Convertible Secured Promissory Note in the principal amount of Twelve Million Dollars (USD12,000,000) in the form annexed hereto as Schedule 2 (the "Hartcourt Note") and the greater of Two Million (2,000,000) shares of Hartcourt common stock or that number of shares of Hartcourt common stock having a market value equal to Ten Million Dollars (USD10,000,000) at Closing (the "Shares"). For the purpose of this Agreement, "Market Value" shall mean fifty percent (50%) of the thirty (30) days moving average closing "bid" price for Hartcourt common stock as quoted by the United States National Association of Securities Dealers Electronic Bulletin Board immediately preceding the Closing Date. - 1 - 2. CLOSING 2.1 The closing of the delivery and transfer of the Property (the "Closing") shall occur at the offices of Hartcourt on a date ("Closing Date") to be mutually agreed upon by Hartcourt and NuOasis after (i) exchange of all books, records, financial information, documents, and other materials deemed necessary to completion of the transaction contemplated under this Agreement, and (ii) completion of all review periods provided for in this Agreement. Exchange of documents under this Agreement shall begin as soon as possible after execution hereof. In any case, the Closing Date shall be no later than 30th September 1996. 2.2 At the Closing, the following transactions shall occur and documents shall be exchanged, all of which shall be deemed to occur simultaneously: 2.2.1 NuOasis will deliver, or cause to be delivered, to Hartcourt: 2.2.1.1 the documents necessary to establish the interest in the Property and to transfer ownership of NuOasis' right, title and interest in and to the Property to Hartcourt, in form and substance acceptable to Hartcourt; 2.2.1.2 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 Hartcourt in furtherance of the intent of this Agreement. 2.2.1.3 certificates or other conveyance documents acceptable to NuOasis transferring the Purchase Price to NuOasis; 2.3 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. [NUOINTL\AGR:NUOBVIMG.AGR]-2 - 2 - 3. REPRESENTATIONS AND WARRANTIES OF HARTCOURT Hartcourt represents and warrants to NuOasis that: 3.1 Hartcourt is a corporation, validly existing and in good standing under the laws of the United States, State of Utah, 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 action on the part of Hartcourt. This Agreement has been duly executed and delivered by Hartcourt and the Hartcourt Note the Shares to be issued by Hartcourt hereunder will constitute validly issued shares and a binding, and enforceable obligation of the corporation. 3.2 To the best of Hartcourt'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 Hartcourt is a party or to which it is subject so as to give rise to a claim by anyone against the Hartcourt Note or Shares which would in any way effect the enforceability or validity of this Agreement or Hartcourt's ability to conclude the transaction contemplated under this Agreement. - 3 - 3.3 The Shares. The Shares to be issued pursuant to this Agreement will be issued at Closing, free and clear of liens, claim, and encumbrances, and Hartcourt can issue such shares without the consent or approval of any person, firm, corporation, or government authority. 3.4 Capitalization. The capitalization of Hartcourt is attached hereto and incorporated herein as Schedule "3". 3.5 Financial Information. Hartcourt has provided NuOasis, or will provide prior to Closing, copies of its Annual Report containing audited financial statements for the years ending 31st December 1994 and 1995, and all other information included in such reports or delivered to NuOasis pursuant to this Agreement, shall be referred to as the "Hartcourt Financials". Except as set forth in the Hartcourt Financials, Hartcourt has no obligations or liabilities (whether accrued, absolute, contingent, liquidated or otherwise, including without limitation any tax liabilities due or to become due) which are not fully disclosed and adequately provided for excepting current liabilities incurred and obligations under agreements entered into in the usual and ordinary course of business since the date of the Hartcourt Financials, none of which (individually or in the aggregate) are material except as expressly indicated there use is not a guarantor or otherwise contingently liable for any material amount of indebtedness. Except as indicated in the Hartcourt Financials, there exists no default under the provisions of any instrument evidencing any indebtedness or of any agreement in relation thereto. 3.6 Litigation. To the best knowledge and belief of Hartcourt, except as disclosed in the Hartcourt Financials or pursuant to this Agreement, there is neither pending nor threatened, any action, suit or arbitration to which its Hartcourt 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 create a material liability on the part of Hartcourt, or which would conflict with this Agreement or any action taken or to be taken in connection with it. 3.7 Tax Matter. To the extent that its tax filings, liabilities, payments, or provisions for payment could give rise to a claim against or affect the right of ownership to the Shares, Hartcourt 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 fee, assessment, or deficiencies shown to be due or claimed to be due or which have or may become due on or in respect of such returns or reports. [NUOINTL\AGR:NUOBVIMG.AGR]-2 - 37 - 3.8 Contracts. Except as disclosed pursuant to this Agreement, or in the Hartcourt Financials, there are no contracts, actual or contingent obligations, agreement, franchises, license agreements, or other commitments between Hartcourt third parties which are material to its business, financial condition, or results of operation, 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 Ten Thousand Dollars (USD10,000). 3.9 Material Contract Breaches: Defaults. To the best of Hartcourt's Knowledge and relief, 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 Note or the 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 rise to a claim against the Note or the Shares in respect of which Hartcourt has not taken adequate steps to prevent such a default from occurring. - 4 - 3.10 Securities Laws. Hartcourt is a public company and represents that, to the best of its knowledge, except as disclosed in the Hartcourt Financials, it has no existing or threatened liabilities, claims, lawsuits, or basis for the same with respect to this original stock issuance to its founders, its initial public offering, or any dealings with its stockholders, the public, the brokerage community, the United States Securities And Exchange Commission ("SEC"), any U.S. state regulatory agencies, or other person. Hartcourt is currently a non-reporting company and is not required to file quarterly or yearly reports. Hartcourt is in the process of filing its Form 10 with the SEC. Hartcourt is currently published in Standard and Poors and is cleared therefore for secondary trading in Standard and Poors approved states. 3.11 Brokers. Hartcourt has agreed to pay a finder's fee with respect to the transaction contemplated in this Agreement to Asian International Development Ltd. ("AID"), its assignees or nominees, and to Guangoong Investments Ltd. ("GIL"), its assignees or nominees in an amount to be negotiated. To the best of Hartcourt's knowledge, no other person or entity is entitled, or intends to claim that it is entitled, to receive any fees or commissions in connection with this transaction, further agrees to indemnify and hold harmless NuOasis against liability to AID, GIL or any broker claiming fees of any kind or nature. 3.12 Approvals. Except as otherwise provided in this Agreement, to Hartcourt'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 connection with Hartcourt's execution, delivery, or performance of this Agreement. 3.13 Full disclosure. The information concerning set forth in this Agreement, and in the Hartcourt Financials, is, to the best of Hartcourt'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. 3.14 Date of Representations and Warranties. Each of the representations and warranties of 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 - 4. REPRESENTATIONS AND WARRANTIES OF NUOASIS NuOasis represents and warrants to Hartcourt that: 4.1 NuOasis is the owner of the Property and will certify in form and substance acceptable to Hartcourt at Closing. 4.2 NuOasis is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Bahamas, with the corporate power and authority to carry on its business as now being conducted. In addition, NuOasis 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 NuOasis, 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 corporate actions on the part of NuOasis, to the extent, if any, that such authorizations are necessary. This Agreement has been duly executed and delivered by NuOasis and constitutes the valid, binding, and enforceable obligation of NuOasis. 4.3 NuOasis has provided to Hartcourt, or will provide prior to Closing, appraisals, construction costs and budgets, and all other information related to the Property in the possession of NuOasis, or available for NuOasis. Such information shall be referred to as the "Property Reports". All financial statements and reports included in the Property Reports and prepared by NuOasis, are prepared in accordance with generally acceptable accounting standards and present fairly the condition of the Property. Except as indicated, there exists no default under the provisions of any instrument evidencing NuOasis' ownership of the Property and NuOasis is not a guarantor or otherwise contingently liable for any material amount of indebtedness relating thereto. 4.4 To the best knowledge and belief of NuOasis, there is neither pending nor threatened, any action, suit, arbitration, proceeding (whether federal, state, local or foreign) or claim to which NuOasis or the Property is or is likely to be named as a party in which an unfavorable outcome, ruling or finding will or is likely to have a material adverse effect on the condition, financial or otherwise, of the Property, or create any material liability on the part of owners of the Property, or which would conflict with this Agreement or any action taken or to be taken in connection with it. - 6 - 4.5 To NuOasis'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 NuOasis in connection with the execution, delivery, or performance of this Agreement. 4.6 The information concerning NuOasis set forth in this Agreement and in the Property Reports is, to the best of NuOasis'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. 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF NUOASIS All obligations of NuOasis under this Agreement are subject to the fulfillment, prior to or as of the Closing Date, of each of the following conditions: 5.1 The representations and warranties by Hartcourt 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. 5.2 Hartcourt 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. 5.3 Hartcourt shall have taken all corporate and other action necessary to issue the Shares and the Hartcourt Note constituting the Purchase Price to NuOasis pursuant to this Agreement. 5.4 All instruments and documents delivered to NuOasis pursuant to the provisions of this Agreement shall be satisfactory to NuOasis and its legal counsel. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF HARTCOURT All obligations of NuOasis under this Agreement are subject to the fulfillment, prior to or as of the Closing Date, of each of the following conditions: - 7 - 6.1 The representations and warranties by NuOasis set forth in this Agreement shall be true and correct 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. 6.2 NuOasis shall have performed and complied with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. 6.3 NuOasis shall have taken all corporate and other action necessary to transfer NuOasis ownership and title to the Property to Hartcourt. 6.4 Before Closing, NuOasis will have delivered the Property Reports to Hartcourt. NuOasis shall specifically provide to Hartcourt schedules of all costs related to the Property as of 31st March, 1996 and all other documents necessary to substantiate to Hartcourt's sole satisfaction the agreed value of not less than Twenty Two Million Dollars (USD22,000,000). Upon receipt and review of the Property Reports, Hartcourt shall have fifteen(15) business days to raise objections to the information contained in the Property Reports, which shall be accomplished by submission of a written list of such objections to NuOasis, and to conduct a valuation of the Property. If there are objections, or if the valuation of the Property, as determined by Hartcourt, or a recognised independent appraiser acting for Hartcourt, is less than Twenty-Two Million Dollars(USD22,000,000), then Hartcourt shall have the option to terminate this Agreement without penalty. Alternatively, Hartcourt may elect, in its sole discretion, to waive objections and proceed with Closing. 6.5 All instruments and documents delivered to Hartcourt pursuant to the provisions of this Agreement shall be satisfactory to Hartcourt and its legal counsel. NuOasis shall provide to Hartcourt prior to Closing evidence satisfactory to Hartcourt that the representations of NuOasis herein and the interest in the Property is legally created and duly enforceable. 7. TERMINATION 7.1 This Agreement may be terminated at any time prior to the Closing Date without liability on the part of either Hartcourt or NuOasis: - 8 - 7.1.1 by mutual consent of Hartcourt and NuOasis; 7.1.2by Hartcourt or NuOasis, (unless the action or proceeding referred to is caused by a breach or default on the part of Hartcourt or NuOasis 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 Hartcourt or NuOasis, made in good faith and based upon the advice of legal counsel, makes it inadvisable to proceed with the transactions contemplated by this Agreement; 7.1.3by NuOasis or Hartcourt (as the case may be) if, as provided herein upon Hartcourt's disapproval of the Value of the Property or NuOasis' disapproval of the Value of the Shares or the financial condition of Hartcourt, including but not limited to its capitalisation, at any time prior to Closing. 8. TERMINATION WITH CAUSE If this Agreement is terminated for breach or otherwise for cause, the non-breaching party shall be reimbursed by the other party of all expenses and costs related to this Agreement in the amount of Fifty Thousand Dollars (USD50,000). 9. MISCELLANEOUS PROVISIONS 9.1 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. Hartcourt and NuOasis 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 it 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. - 9 - 9.2 All costs and expenses in the proposed sale and transfer described in this Agreement shall be borne by the following manner: 9.2.1each 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. 9.2.2each party shall bear its reasonable shares of all other Closing costs and expenses arising from this Agreement. 9.3 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. 9.4 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. 9.5 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 Hartcourt: The Hartcourt Companies, Inc. 19104 Norwalk Blvd. Artesia, California 90703 Telephone: +1 310 403-1126 Facsimile: +1 310 403-1130 To NuOasis: NuOasis International Inc. First Directors Limited 43 Elizabeth Avenue Nassau, The Bahamas Telephone: +44 1624 815544 Facsimile: +44 1624 815548 - 10 - 9.6 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. 9.7 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. 9.8 Notwithstanding that this Agreement was negotiated and is being contracted for in the Bahamas and any conflict-of-law provision to the contrary, the Agreement shall be governed by the laws of the Commonwealth of the Bahamas. 9.9 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. 9.10 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. 9.11 If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect. 9.12 This Agreement may be amended only by a written instrument executed by the parties or their respective successors or assigns. 9.13 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. - 11 - 9.14 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. THE HARTCOURT COMPANIES INC. /s/ Alan Phan By:------------------------------- Name: Alan Phan Title: President NuOASIS INTERNATIONAL INC. By:------------------------------- Name: Title: - 12 - EX-99 11 PURCHASE AND SALE AGREEMENT, EXHIBIT 10.130 EXHIBIT 10.130 $12,000,000 CONVERTIBLE SECURED PROMISSORY NOTE DATED AUGUST 8, 1996 ISSUED BY THE HARTCOURT COMPANIES, INC. PURCHASE AND SALE AGREEMENT DATED: 8, August 1996 PARTIES: 1. "Hartcourt" The Hartcourt Companies, Inc., a corporation organised under the laws of the United States, State of Utah. 2. "NuOasis" NUOASIS INTERNATIONAL INC., a corporation organised under the laws of the Commonwealth of the Bahamas. RECITALS: 1.1 NuOasis is the owner and developer of a commercial real estate project located in mainland China commonly known as the Peony Gardens Property, more fully described in Schedule "1" annexed hereto (the "Property"); and, 1.2 Hartcourt wishes to purchase the Property. OPERATIVE PROVISIONS: 1. PURCHASE AND SALE 1.1 Upon the terms and subject to the conditions of this Agreement, on the Closing Date, NuOasis agrees to sell and transfer the Property to Hartcourt and Hartcourt agrees to purchase and accept the Property for the consideration set forth in this Agreement. 1.2 In exchange for the Property, Hartcourt shall pay to NuOasis the sum of Twenty Two Million Dollars (USD22,000,000), hereinafter referred to as the "Purchase Price", consisting of a Convertible Secured Promissory Note in the principal amount of Twelve Million Dollars (USD12,000,000) in the form annexed hereto as Schedule 2 (the "Hartcourt Note") and the greater of Two Million (2,000,000) shares of Hartcourt common stock or that number of shares of Hartcourt common stock having a market value equal to Ten Million Dollars (USD10,000,000) at Closing (the "Shares"). For the purpose of this Agreement, "Market Value" shall mean fifty percent (50%) of the thirty (30) days moving average closing "bid" price for Hartcourt common stock as quoted by the United States National Association of Securities Dealers Electronic Bulletin Board immediately preceding the Closing Date. - 1 - 2. CLOSING 2.1 The closing of the delivery and transfer of the Property (the "Closing") shall occur at the offices of Hartcourt on a date ("Closing Date") to be mutually agreed upon by Hartcourt and NuOasis after (i) exchange of all books, records, financial information, documents, and other materials deemed necessary to completion of the transaction contemplated under this Agreement, and (ii) completion of all review periods provided for in this Agreement. Exchange of documents under this Agreement shall begin as soon as possible after execution hereof. In any case, the Closing Date shall be no later than 30th September 1996. 2.2 At the Closing, the following transactions shall occur and documents shall be exchanged, all of which shall be deemed to occur simultaneously: 2.2.1 NuOasis will deliver, or cause to be delivered, to Hartcourt: 2.2.1.1 the documents necessary to establish the interest in the Property and to transfer ownership of NuOasis' right, title and interest in and to the Property to Hartcourt, in form and substance acceptable to Hartcourt; 2.2.1.2 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 Hartcourt in furtherance of the intent of this Agreement. 2.2.1.3 certificates or other conveyance documents acceptable to NuOasis transferring the Purchase Price to NuOasis; 2.3 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. - 2 - 3. REPRESENTATIONS AND WARRANTIES OF HARTCOURT Hartcourt represents and warrants to NuOasis that: 3.1 Hartcourt is a corporation, validly existing and in good standing under the laws of the United States, State of Utah, 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 action on the part of Hartcourt. This Agreement has been duly executed and delivered by Hartcourt and the Hartcourt Note the Shares to be issued by Hartcourt hereunder will constitute validly issued shares and a binding, and enforceable obligation of the corporation. 3.2 To the best of Hartcourt'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 Hartcourt is a party or to which it is subject so as to give rise to a claim by anyone against the Hartcourt Note or Shares which would in any way effect the enforceability or validity of this Agreement or Hartcourt's ability to conclude the transaction contemplated under this Agreement. - 3 - 3.3 The Shares. The Shares to be issued pursuant to this Agreement will be issued at Closing, free and clear of liens, claim, and encumbrances, and Hartcourt can issue such shares without the consent or approval of any person, firm, corporation, or government authority. 3.4 Capitalization. The capitalization of Hartcourt is attached hereto and incorporated herein as Schedule "3". 3.5 Financial Information. Hartcourt has provided NuOasis, or will provide prior to Closing, copies of its Annual Report containing audited financial statements for the years ending 31st December 1994 and 1995, and all other information included in such reports or delivered to NuOasis pursuant to this Agreement, shall be referred to as the "Hartcourt Financials". Except as set forth in the Hartcourt Financials, Hartcourt has no obligations or liabilities (whether accrued, absolute, contingent, liquidated or otherwise, including without limitation any tax liabilities due or to become due) which are not fully disclosed and adequately provided for excepting current liabilities incurred and obligations under agreements entered into in the usual and ordinary course of business since the date of the Hartcourt Financials, none of which (individually or in the aggregate) are material except as expressly indicated there use is not a guarantor or otherwise contingently liable for any material amount of indebtedness. Except as indicated in the Hartcourt Financials, there exists no default under the provisions of any instrument evidencing any indebtedness or of any agreement in relation thereto. 3.6 Litigation. To the best knowledge and belief of Hartcourt, except as disclosed in the Hartcourt Financials or pursuant to this Agreement, there is neither pending nor threatened, any action, suit or arbitration to which its Hartcourt 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 create a material liability on the part of Hartcourt, or which would conflict with this Agreement or any action taken or to be taken in connection with it. 3.7 Tax Matter. To the extent that its tax filings, liabilities, payments, or provisions for payment could give rise to a claim against or affect the right of ownership to the Shares, Hartcourt 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 fee, assessment, or deficiencies shown to be due or claimed to be due or which have or may become due on or in respect of such returns or reports. - 4 - 3.8 Contracts. Except as disclosed pursuant to this Agreement, or in the Hartcourt Financials, there are no contracts, actual or contingent obligations, agreement, franchises, license agreements, or other commitments between Hartcourt third parties which are material to its business, financial condition, or results of operation, 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 Ten Thousand Dollars (USD10,000). 3.9 Material Contract Breaches: Defaults. To the best of Hartcourt's Knowledge and relief, 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 Note or the 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 rise to a claim against the Note or the Shares in respect of which Hartcourt has not taken adequate steps to prevent such a default from occurring. - 5 - 3.10 Securities Laws. Hartcourt is a public company and represents that, to the best of its knowledge, except as disclosed in the Hartcourt Financials, it has no existing or threatened liabilities, claims, lawsuits, or basis for the same with respect to this original stock issuance to its founders, its initial public offering, or any dealings with its stockholders, the public, the brokerage community, the United States Securities And Exchange Commission ("SEC"), any U.S. state regulatory agencies, or other person. Hartcourt is currently a non-reporting company and is not required to file quarterly or yearly reports. Hartcourt is in the process of filing its Form 10 with the SEC. Hartcourt is currently published in Standard and Poors and is cleared therefore for secondary trading in Standard and Poors approved states. 3.11 Brokers. Hartcourt has agreed to pay a finder's fee with respect to the transaction contemplated in this Agreement to Asian International Development Ltd. ("AID"), its assignees or nominees, and to Guangoong Investments Ltd. ("GIL"), its assignees or nominees in an amount to be negotiated. To the best of Hartcourt's knowledge, no other person or entity is entitled, or intends to claim that it is entitled, to receive any fees or commissions in connection with this transaction, further agrees to indemnify and hold harmless NuOasis against liability to AID, GIL or any broker claiming fees of any kind or nature. 3.12 Approvals. Except as otherwise provided in this Agreement, to Hartcourt'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 connection with Hartcourt's execution, delivery, or performance of this Agreement. 3.13 Full disclosure. The information concerning set forth in this Agreement, and in the Hartcourt Financials, is, to the best of Hartcourt'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. 3.14 Date of Representations and Warranties. Each of the representations and warranties of 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. - 6 - 4. REPRESENTATIONS AND WARRANTIES OF NUOASIS NuOasis represents and warrants to Hartcourt that: 4.1 NuOasis is the owner of the Property and will certify in form and substance acceptable to Hartcourt at Closing. 4.2 NuOasis is a corporation duly incorporated, validly existing and in good standing under the laws of the Commonwealth of Bahamas, with the corporate power and authority to carry on its business as now being conducted. In addition, NuOasis 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 NuOasis, 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 corporate actions on the part of NuOasis, to the extent, if any, that such authorizations are necessary. This Agreement has been duly executed and delivered by NuOasis and constitutes the valid, binding, and enforceable obligation of NuOasis. 4.3 NuOasis has provided to Hartcourt, or will provide prior to Closing, appraisals, construction costs and budgets, and all other information related to the Property in the possession of NuOasis, or available for NuOasis. Such information shall be referred to as the "Property Reports". All financial statements and reports included in the Property Reports and prepared by NuOasis, are prepared in accordance with generally acceptable accounting standards and present fairly the condition of the Property. Except as indicated, there exists no default under the provisions of any instrument evidencing NuOasis' ownership of the Property and NuOasis is not a guarantor or otherwise contingently liable for any material amount of indebtedness relating thereto. 4.4 To the best knowledge and belief of NuOasis, there is neither pending nor threatened, any action, suit, arbitration, proceeding (whether federal, state, local or foreign) or claim to which NuOasis or the Property is or is likely to be named as a party in which an unfavorable outcome, ruling or finding will or is likely to have a material adverse effect on the condition, financial or otherwise, of the Property, or create any material liability on the part of owners of the Property, or which would conflict with this Agreement or any action taken or to be taken in connection with it. - 7 - 4.5 To NuOasis'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 NuOasis in connection with the execution, delivery, or performance of this Agreement. 4.6 The information concerning NuOasis set forth in this Agreement and in the Property Reports is, to the best of NuOasis'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. 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF NUOASIS All obligations of NuOasis under this Agreement are subject to the fulfillment, prior to or as of the Closing Date, of each of the following conditions: 5.1 The representations and warranties by Hartcourt 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. 5.2 Hartcourt 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. 5.3 Hartcourt shall have taken all corporate and other action necessary to issue the Shares and the Hartcourt Note constituting the Purchase Price to NuOasis pursuant to this Agreement. 5.4 All instruments and documents delivered to NuOasis pursuant to the provisions of this Agreement shall be satisfactory to NuOasis and its legal counsel. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF HARTCOURT All obligations of NuOasis under this Agreement are subject to the fulfillment, prior to or as of the Closing Date, of each of the following conditions: - 8 - 6.1 The representations and warranties by NuOasis set forth in this Agreement shall be true and correct 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. 6.2 NuOasis shall have performed and complied with all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing. 6.3 NuOasis shall have taken all corporate and other action necessary to transfer NuOasis ownership and title to the Property to Hartcourt. 6.4 Before Closing, NuOasis will have delivered the Property Reports to Hartcourt. NuOasis shall specifically provide to Hartcourt schedules of all costs related to the Property as of 31st March, 1996 and all other documents necessary to substantiate to Hartcourt's sole satisfaction the agreed value of not less than Twenty Two Million Dollars (USD22,000,000). Upon receipt and review of the Property Reports, Hartcourt shall have fifteen(15) business days to raise objections to the information contained in the Property Reports, which shall be accomplished by submission of a written list of such objections to NuOasis, and to conduct a valuation of the Property. If there are objections, or if the valuation of the Property, as determined by Hartcourt, or a recognised independent appraiser acting for Hartcourt, is less than Twenty-Two Million Dollars(USD22,000,000), then Hartcourt shall have the option to terminate this Agreement without penalty. Alternatively, Hartcourt may elect, in its sole discretion, to waive objections and proceed with Closing. 6.5 All instruments and documents delivered to Hartcourt pursuant to the provisions of this Agreement shall be satisfactory to Hartcourt and its legal counsel. NuOasis shall provide to Hartcourt prior to Closing evidence satisfactory to Hartcourt that the representations of NuOasis herein and the interest in the Property is legally created and duly enforceable. 7. TERMINATION 7.1 This Agreement may be terminated at any time prior to the Closing Date without liability on the part of either Hartcourt or NuOasis: - 9 - 7.1.1 by mutual consent of Hartcourt and NuOasis; 7.1.2by Hartcourt or NuOasis, (unless the action or proceeding referred to is caused by a breach or default on the part of Hartcourt or NuOasis 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 Hartcourt or NuOasis, made in good faith and based upon the advice of legal counsel, makes it inadvisable to proceed with the transactions contemplated by this Agreement; 7.1.3by NuOasis or Hartcourt (as the case may be) if, as provided herein upon Hartcourt's disapproval of the Value of the Property or NuOasis' disapproval of the Value of the Shares or the financial condition of Hartcourt, including but not limited to its capitalisation, at any time prior to Closing. 8. TERMINATION WITH CAUSE If this Agreement is terminated for breach or otherwise for cause, the non-breaching party shall be reimbursed by the other party of all expenses and costs related to this Agreement in the amount of Fifty Thousand Dollars (USD50,000). 9. MISCELLANEOUS PROVISIONS 9.1 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. Hartcourt and NuOasis 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 it 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. - 10 - 9.2 All costs and expenses in the proposed sale and transfer described in this Agreement shall be borne by the following manner: 9.2.1each 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. 9.2.2each party shall bear its reasonable shares of all other Closing costs and expenses arising from this Agreement. 9.3 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. 9.4 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. 9.5 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 Hartcourt: The Hartcourt Companies, Inc. 19104 Norwalk Blvd. Artesia, California 90703 Telephone: +1 310 403-1126 Facsimile: +1 310 403-1130 To NuOasis: NuOasis International Inc. First Directors Limited 43 Elizabeth Avenue Nassau, The Bahamas Telephone: +44 1624 815544 Facsimile: +44 1624 815548 - 11 - 9.6 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. 9.7 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. 9.8 Notwithstanding that this Agreement was negotiated and is being contracted for in the Bahamas and any conflict-of-law provision to the contrary, the Agreement shall be governed by the laws of the Commonwealth of the Bahamas. 9.9 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. 9.10 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. 9.11 If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect. 9.12 This Agreement may be amended only by a written instrument executed by the parties or their respective successors or assigns. 9.13 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. - 12 - 9.14 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. THE HARTCOURT COMPANIES INC. /s/ Alan Phan By:------------------------------- Name: Alan Phan Title: President NuOASIS INTERNATIONAL INC. By:------------------------------- Name: Title: - 13 - SCHEDULE "1" to the Purchase and Sale Agreement Dated July 1996 THE PROPERTY 1 - 1 SCHEDULE "2" to the Purchase and Sale Agreement Dated July 1996 CONVERTIBLE SECURED PROMISSORY NOTE THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), BUT HAVE BEEN ISSUED IN RELIANCE UPON REGULATION S PROMULGATED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO A "U.S. PERSON" (AS DEFINED IN REGULATION S) OR TO ANY PERSON WITH A UNITED STATES ADDRESS DURING THE RESTRICTED PERIOD FOLLOWING ISSUANCE OF THE SECURITIES. FOLLOWING EXPIRATION OF THE RESTRICTED PERIOD, ANY RESALE OR TRANSFER OF THE SECURITIES TO A U.S. PERSON OR INTO THE UNITED STATES MUST BE MADE IN ACCORDANCE WITH REGULATION S, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT. 2 - 1 CONVERTIBLE SECURED PROMISSORY NOTE U.S. $12,000,000 August 8, 1996 Artesia, California FOR VALUE RECEIVED, The Hartcourt Companies, Inc., a corporation organised under the laws of the United States, State of Utah, with its principal place of business in Artesia, California ("Maker"), hereby promises to pay to NuOasis International, Inc., a company organised under the laws of the Commonwealth of the Bahamas ("Payee"or "Holder") the principal sum Twelve Million Dollars (US$12,000,000) with principal and accrued interest at the rate of eight percent (8%) per annum due and payable 30 days after demand or August 31, 1997, whichever first occurs (the "Due Date"). This Convertible Secured Promissory Note (the "Note") is issued by Maker pursuant to the Purchase and Sale 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 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 United States Uniform Commercial Code, or laws of the Peoples Republic of China. Notwithstanding anything to the contrary herein, this Note is without recourse. Payee and Holder agree to look solely to the Collateral for satisfaction in the event of default. 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 partial consideration for the Property being acquired by Maker pursuant to the Purchase Agreement. Maker shall pay to Holder all reasonable costs, expenses, charges, disbursements and attorneys' fees incurred by Holder 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. 2 - 2 If Maker utilizes the Collateral in any way to secure financing, Maker agrees to pay the net proceeds of such financing to Holder 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 into shares of the Maker's common stock as hereinafter provided. At the election of Holder, the Note is convertible into the greater of that number of shares of common stock of Maker with a current market value at the date of conversion equal to the unpaid principal balance due on the Note. "Market Value" for the purpose of this Note shall mean fifty percent (50%) of the moving average bid price of such shares for the ten (10) business days immediately preceeding notice of conversion. EXTENSION OF THE DUE DATE In the event the Maker hereof makes any principal reduction payments on this Note on or before October 31, 1996, then the Due Date of this Note shall be extended as follows: For each One Million Dollars (US$1,000,000) of principal reduction payments made on the Note, the Due Date shall be extended by thirty (30) days. EVENTS OF DEFAULT Each of the following events or occurrences shall constitute an "Event of Default" hereunder: (a) if default is made in the payment 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 ten (10) 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 ten (10) days after notice of such default is given by Holder or at any time thereafter when any Event of Default may continue, Holder 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. 2 - 3 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 Commonwealth of the Bahamas and shall be governed and construed generally according to the laws of said jurisdiction 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 United States federal court of appropriate jurisdiction located in or having jurisdiction over the Maker. 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 pursuant to the laws of the Commonwealth of the Bahamas or, if applicable, as described in the 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. 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: "THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), BUT HAVE BEEN ISSUED IN RELIANCE UPON REGULATION S PROMULGATED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO A "U.S. PERSON" (AS DEFINED IN REGULATION S) OR TO ANY PERSON WITH A UNITED STATES ADDRESS DURING THE RESTRICTED PERIOD FOLLOWING ISSUANCE OF THE SECURITIES. FOLLOWING EXPIRATION OF THE RESTRICTED PERIOD, ANY RESALE OR TRANSFER OF THE SECURITIES TO A U.S. PERSON OR INTO THE UNITED STATES MUST BE MADE IN ACCORDANCE WITH REGULATION S, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT." 2 - 4 Executed by the undersigned the year and day first above written. The Hartcourt Companies, Inc. a Utah corporation By:------------------------------------ Name: Title: 2 - 5 EXHIBIT "A" to the Convertible Secured Promissory Note dated August 8, 1996 THE COLLATERAL A - 1 SECURITY AGREEMENT THIS SECURITY AGREEMENT ("Agreement") is executed as of this 8th day of August, 1996, by The Hartcourt Companies, Inc., a Utah corporation (hereinafter referred to as the "Debtor"), with its principal place of business located at 19104 South Norwalk Blvd., Artesia, California 90703, in favor of NuOasis International Inc., a corporation organised under the laws of the Commonwealth of the Bahamas, 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 (the "Note") dated of even date which is required to be secured by the property described in Exhibit "A" to the 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 Secured Party with interest thereon as specified in the Security Documents 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 the Note 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 the Note and 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. A - 2 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. 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 A - 3 B. Failure to Pay. Any failure of the Debtor to pay any amount of principal and/or interest, or any other sum due under the Note within ten (10) days following the date such amount became due and payable; or C. False Statements. Any warranty, representation or statement contained in this Agreement or otherwise made or furnished to the Secured Party by or on behalf of the Debtor shall be or shall prove to have been false when made or furnished; or D. Destruction or Demise of Collateral. Any loss, theft, substantial damage, destruction of, or the attachment of an encumbrance to any of the Collateral, or the voluntary or involuntary transfer of any of the Collateral (and said Collateral is not immediately replaced, restored or returned) or the transfer of possession thereof to anyone, or the sale, creation of a security interest, lien, attachment, levy, garnishment, distraint, or other process of, in or upon any of the Collateral, and if such attachment or other similar process is not bonded or released within thirty (30) days after levy. E Breach of Conversion Rights. If the Debtor shall fail to honor the Secured Party's conversion rights under the Note following thirty (30) days prior notice to Debtor and following Secured Party's compliance with all the procedures of Debtor for conversion and the failure of Debtor to either tender the shares issuable upon conversion or to notify Secured Party of additional third party requirements (i.e. transfer agent) within said thirty (30) day period. 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 the Note 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 marshaling and/or suretyship and further agrees that Secured Party may proceed against any or all of the Collateral encumbered hereby 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. A - 4 D. Sale of Collateral. Secured Party may sell all or any part of the Collateral at public or private sale either with or without having such Collateral at the place of sale, and with notice to Debtor as provided herein. The proceeds of such sale, after deducting therefrom all expenses of Secured Party in taking, storing, repairing and selling the Collateral (including attorneys' fees and court costs) shall be applied to the payment of any part or all of the Obligations and any other indebtedness or liability of Debtor to Secured Party, and any surplus thereafter remaining shall be paid to any person that may be legally entitled thereto. In the event of a deficiency between such net proceeds from the sale of Collateral and the total amount of Obligations owing by Debtor, Debtor will promptly upon demand pay the amount of such deficiency to Secured Party. E. Secured Party as Purchaser. At any sale, public or private, of the Collateral or any part thereof, made in the enforcement of the rights and remedies of Secured Party, Secured Party may purchase any part or parts of the Collateral or all thereof offered at such sale. F. Notice of Sale. Secured Party shall give Debtor reasonable notice of any sale or other disposition of the Collateral or any part thereof. Debtor agrees that notice shall be conclusively deemed to be reasonable and effective if such notice is mailed by registered or certified mail postage prepaid, to Debtor at Debtor's principal place of business at least ten (10) days prior to such sale or other dispositions. G. Applicable Law Remedies. Secured Party shall have all the rights and remedies afforded a Secured Party under applicable law. 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. A - 5 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, the Note, the relationship created thereby, or the origination, administration or enforcement of the indebtedness evidenced and/or secured by this Agreement. D. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. E. Written Amendment Required. No modification, rescission, waiver, release or amendment of any provision of this Agreement shall be made except by a written agreement subscribed by Debtor and Secured Party. F. Full Force and Effect. This Agreement shall remain in full force and effect until all of the indebtedness and any extensions or renewals thereof shall be paid in full. G. Successors and Assigns. Secured Party and Debtor as used herein shall include the heirs, executors or administrators, or successors or assigns of those parties. The provisions of this Agreement shall apply to the parties according to the context hereof and without regard to the number or gender of words and expressions used herein. H. Financing Statements. A carbon, photographic or other reproduced copy of this Agreement and/or any financing statement relating hereto shall be sufficient for filing and/or recording as a financing statements. 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 United States, 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. The Hartcourt Companies, Inc. a Utah corporation By:------------------------------- Name: Title: A - 6 SCHEDULE "3" to the Purchase and Sale Agreement Dated August 8, 1996 CAPITALIZATION DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of 110,001,000 shares of capital stock, composed of 100,000,000 shares of common stock, par value $0.001 per share ("Common Stock"), 1,000 shares of Preferred Stock, par value $.01 per share ("Original Preferred Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per share ("Class A Preferred Stock"). COMMON STOCK Voting Rights. Subject to the voting rights of holders of Original Preferred Stock described below, each holder of shares of Common Stock is entitled to one vote for each share of Common Stock for the election of directors and on each other matter submitted to a vote of the stockholders of the Company. Until December 31, 2010, holders of Common Stock, are entitled to elect two-fifths (2/5) of the authorized number of members of the Board of Directors. The holders of Common Stock have exclusive voting power on all matters at any time no Preferred Stock with superior voting rights is issued and outstanding. Liquidation Rights. Upon liquidation, dissolution or winding up of the Company, holders of shares of Common Stock are entitled to share ratably in distributions of any assets after payment in full or provision for all amounts due creditors and provision for any liquidation preference of any other class or series of stock of the Company then outstanding. Dividends. Dividends may be declared by the Board of Directors and paid from time to time to the holders of Common Stock in cash, stock, or otherwise, as may be determine by the Board of Directors, out of the net profits or surplus of the Company. ORIGINAL PREFERRED STOCK Voting Rights. The holders of Original Preferred Stock are not entitled to vote on any matters except those affecting the Original Preferred Stock, the election of directors (to the extent described below) and as otherwise required by law. Until December 31, 2010, holders of Original Preferred Stock, voting as a single class, are entitled to elect three-fifths (3/5) of the authorized number of members of the Board of Directors. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, holders of Original Preferred Stock are entitled to be paid the full par value of the Original Preferred Stock, $.01 per share. Conversion Rights. The holders of shares of Original Preferred Stock are entitled to convert each share of Original Preferred Stock into 1,000 shares of fully paid non-assessable Common Stock. 3 - 1 Dividends.The holders of shares of Original Preferred Stock are not entitled to receive any dividends. Class A Preferred Stock General. The 10,000,000 shares of authorized and unissued Class A Preferred Stock may be issued pursuant to action by the Company's Board of Directors and without further action by the Company's stockholders with such designations, powers, preferences and other rights and qualifications, limitations and restrictions thereof as the Board of Directors may designate, including but not limited to: (i) the distinctive designation of each series and the number of shares that will constitute such series; (ii) the dividend rate on the shares of such series, any restriction, limitation or condition upon the payment of such dividends, whether dividends shall be cumulative and the dates on which dividends are payable; (iii) the prices at which, and the terms and conditions on which, the shares of such series may be redeemed, if such shares are redeemable; (iv) any preferential amount payable upon shares of such series may be converted into other securities, if such shares are convertible; and (v) the voting rights, including the right to vote as a class on designated matters such as, but not limited to, the merger, consolidation or sale of substantially all of the Company's assets, or the approval of designated action by a greater than two thirds (2/3) affirmative vote, and if so, the terms and conditions thereof and any limitations thereon. 3 - 2 EX-99 12 EXHIBIT 10.131 EXHIBIT 10.131 SECURITY AGREEMENT DATED AUGUST 8, 1996 BETWEEN NUOASIS INTERNATIONAL INC. AND THE HARTCOURT COMPANIES INC. SECURITY AGREEMENT THIS SECURITY AGREEMENT ("Agreement") is executed as of this 8th day of August, 1996, by The Hartcourt Companies, Inc., a Utah corporation (hereinafter referred to as the "Debtor"), with its principal place of business located at 19104 South Norwalk Blvd., Artesia, California 90703, in favor of NuOasis International Inc., a corporation organised under the laws of the Commonwealth of the Bahamas, 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 (the "Note") dated of even date which is required to be secured by the property described in Exhibit "A" to the 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 Secured Party with interest thereon as specified in the Security Documents 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 the Note 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 the Note and 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. 1 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. 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 2 B. Failure to Pay. Any failure of the Debtor to pay any amount of principal and/or interest, or any other sum due under the Note within ten (10) days following the date such amount became due and payable; or C. False Statements. Any warranty, representation or statement contained in this Agreement or otherwise made or furnished to the Secured Party by or on behalf of the Debtor shall be or shall prove to have been false when made or furnished; or D. Destruction or Demise of Collateral. Any loss, theft, substantial damage, destruction of, or the attachment of an encumbrance to any of the Collateral, or the voluntary or involuntary transfer of any of the Collateral (and said Collateral is not immediately replaced, restored or returned) or the transfer of possession thereof to anyone, or the sale, creation of a security interest, lien, attachment, levy, garnishment, distraint, or other process of, in or upon any of the Collateral, and if such attachment or other similar process is not bonded or released within thirty (30) days after levy. E Breach of Conversion Rights. If the Debtor shall fail to honor the Secured Party's conversion rights under the Note following thirty (30) days prior notice to Debtor and following Secured Party's compliance with all the procedures of Debtor for conversion and the failure of Debtor to either tender the shares issuable upon conversion or to notify Secured Party of additional third party requirements (i.e. transfer agent) within said thirty (30) day period. 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 the Note 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 marshaling and/or suretyship and further agrees that Secured Party may proceed against any or all of the Collateral encumbered hereby 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. 3 D. Sale of Collateral. Secured Party may sell all or any part of the Collateral at public or private sale either with or without having such Collateral at the place of sale, and with notice to Debtor as provided herein. The proceeds of such sale, after deducting therefrom all expenses of Secured Party in taking, storing, repairing and selling the Collateral (including attorneys' fees and court costs) shall be applied to the payment of any part or all of the Obligations and any other indebtedness or liability of Debtor to Secured Party, and any surplus thereafter remaining shall be paid to any person that may be legally entitled thereto. In the event of a deficiency between such net proceeds from the sale of Collateral and the total amount of Obligations owing by Debtor, Debtor will promptly upon demand pay the amount of such deficiency to Secured Party. E. Secured Party as Purchaser. At any sale, public or private, of the Collateral or any part thereof, made in the enforcement of the rights and remedies of Secured Party, Secured Party may purchase any part or parts of the Collateral or all thereof offered at such sale. F. Notice of Sale. Secured Party shall give Debtor reasonable notice of any sale or other disposition of the Collateral or any part thereof. Debtor agrees that notice shall be conclusively deemed to be reasonable and effective if such notice is mailed by registered or certified mail postage prepaid, to Debtor at Debtor's principal place of business at least ten (10) days prior to such sale or other dispositions. G. Applicable Law Remedies. Secured Party shall have all the rights and remedies afforded a Secured Party under applicable law. 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. 4 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, the Note, the relationship created thereby, or the origination, administration or enforcement of the indebtedness evidenced and/or secured by this Agreement. D. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. E. Written Amendment Required. No modification, rescission, waiver, release or amendment of any provision of this Agreement shall be made except by a written agreement subscribed by Debtor and Secured Party. F. Full Force and Effect. This Agreement shall remain in full force and effect until all of the indebtedness and any extensions or renewals thereof shall be paid in full. G. Successors and Assigns. Secured Party and Debtor as used herein shall include the heirs, executors or administrators, or successors or assigns of those parties. The provisions of this Agreement shall apply to the parties according to the context hereof and without regard to the number or gender of words and expressions used herein. H. Financing Statements. A carbon, photographic or other reproduced copy of this Agreement and/or any financing statement relating hereto shall be sufficient for filing and/or recording as a financing statements. 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 United States, 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. The Hartcourt Companies, Inc. a Utah corporation By:------------------------------- Name: Title: 5 SCHEDULE "3" to the Purchase and Sale Agreement Dated August 8, 1996 CAPITALIZATION DESCRIPTION OF SECURITIES The authorized capital stock of the Company consists of 110,001,000 shares of capital stock, composed of 100,000,000 shares of common stock, par value $0.001 per share ("Common Stock"), 1,000 shares of Preferred Stock, par value $.01 per share ("Original Preferred Stock"), and 10,000,000 shares of Preferred Stock, par value $.01 per share ("Class A Preferred Stock"). COMMON STOCK Voting Rights. Subject to the voting rights of holders of Original Preferred Stock described below, each holder of shares of Common Stock is entitled to one vote for each share of Common Stock for the election of directors and on each other matter submitted to a vote of the stockholders of the Company. Until December 31, 2010, holders of Common Stock, are entitled to elect two-fifths (2/5) of the authorized number of members of the Board of Directors. The holders of Common Stock have exclusive voting power on all matters at any time no Preferred Stock with superior voting rights is issued and outstanding. Liquidation Rights. Upon liquidation, dissolution or winding up of the Company, holders of shares of Common Stock are entitled to share ratably in distributions of any assets after payment in full or provision for all amounts due creditors and provision for any liquidation preference of any other class or series of stock of the Company then outstanding. Dividends. Dividends may be declared by the Board of Directors and paid from time to time to the holders of Common Stock in cash, stock, or otherwise, as may be determine by the Board of Directors, out of the net profits or surplus of the Company. ORIGINAL PREFERRED STOCK Voting Rights. The holders of Original Preferred Stock are not entitled to vote on any matters except those affecting the Original Preferred Stock, the election of directors (to the extent described below) and as otherwise required by law. Until December 31, 2010, holders of Original Preferred Stock, voting as a single class, are entitled to elect three-fifths (3/5) of the authorized number of members of the Board of Directors. Liquidation Rights. In the event of any liquidation, dissolution or winding up of the Company, holders of Original Preferred Stock are entitled to be paid the full par value of the Original Preferred Stock, $.01 per share. Conversion Rights. The holders of shares of Original Preferred Stock are entitled to convert each share of Original Preferred Stock into 1,000 shares of fully paid non-assessable Common Stock. 3 - 1 Dividends.The holders of shares of Original Preferred Stock are not entitled to receive any dividends. Class A Preferred Stock General. The 10,000,000 shares of authorized and unissued Class A Preferred Stock may be issued pursuant to action by the Company's Board of Directors and without further action by the Company's stockholders with such designations, powers, preferences and other rights and qualifications, limitations and restrictions thereof as the Board of Directors may designate, including but not limited to: (i) the distinctive designation of each series and the number of shares that will constitute such series; (ii) the dividend rate on the shares of such series, any restriction, limitation or condition upon the payment of such dividends, whether dividends shall be cumulative and the dates on which dividends are payable; (iii) the prices at which, and the terms and conditions on which, the shares of such series may be redeemed, if such shares are redeemable; (iv) any preferential amount payable upon shares of such series may be converted into other securities, if such shares are convertible; and (v) the voting rights, including the right to vote as a class on designated matters such as, but not limited to, the merger, consolidation or sale of substantially all of the Company's assets, or the approval of designated action by a greater than two thirds (2/3) affirmative vote, and if so, the terms and conditions thereof and any limitations thereon. 3 - 2 EX-99 13 ASSIGNMENT/INDEMNIFICATION AGR., EXHIBIT 10.132 EXHIBIT 10.132 ASSIGNMENT AND INDEMNIFICATION AGREEMENT DATED AUGUST 30, 1996 BETWEEN NUOASIS INTERNATIONAL, INC. AND THE HARTCOURT COMPANIES, INC. ASSIGNMENT AND INDEMNIFICATION AGREEMENT This Assignment and Indemnification Agreement is executed by and between NuOasis International Inc., a company organised under the laws of the Commonwealth of the Bahamas, ("Assignor" or "NuOasis") and The Hartcourt Companies Inc., a corporation organised under the laws of the United States, State of Utah, ("Assignee" or "Hartcourt"). RECITALS: WHEREAS, under the Purchase and Sale Agreement between Hartcourt and NuOasis dated August 8, 1996 (the Purchase Agreement) a condition of the Closing requires NuOasis to deliver, or cause to be delivered, to Hartcourt the documents necessary to establish the interest in the Property, (as that term is defined in the Purchase Agreement), and to transfer ownership of NuOasis' right, title, and interest in and to the Property to Hartcourt, in form and substance acceptable to Hartcourt; WHEREAS, NuOasis has delivered to Hartcourt all documents and tangible things that establish NuOasis' interest in and to the Property, including but not limited to that: (a) Valuation and Report of Three apartment buildings Peony Gardens, Tongxian within Beijing City, The Peoples Republic of China dated August 23, 1995 and prepared by Midland Property Consultants Ltd, a copy of which is attached hereto as Exhibit "A" and incorporated herein by reference for all purposes; (b) Assignment dated December 29, 1995 by and between Nona Morelli's II, Inc., a Colorado corporation ("Nona") and NuOasis, a copy of which is attached hereto as Exhibit "B" and incorporated herein by reference for all purposes; (c) Assignment and Bill of Sale dated September 30, 1995 by and between Silver Faith Development Ltd, a Hong Kong company ("Silver Faith") and Nona, a copy of which is attached hereto as Exhibit "C" and incorporated herein by reference for all purposes; and (d) Asset Purchase Agreement dated September 28, 1995 between Silver Faith and Nona (the "Silver Faith Agreement") and Amendment, Modification and Ratification of Asset Purchase Agreement effective September 28, 1995, a copy of which is attached hereto as Exhibit "D" and incorporated herein by reference for all purposes; WHEREAS, NuOasis assumed all of Nona's duties and obligations related to the Property, including payment of the Twenty One Million Dollars (USD21,000,000) principal amount due under that certain Convertible Secured Promissory Note dated December 30, 1995 payable to Silver Faith (the "Silver Faith Note"), a copy of which is attached hereto as Exhibit "E" and incorporated herein by reference for all purposes; WHEREAS, in January 1996, NuOasis made a Nine Million Six Hundred Thousand Dollar principal payment on the Silver Faith Note, reducing the principal balance due thereunder to Eleven Million Four Hundred Thousand Dollars (USD11,400,000); WHEREAS, the principal reduction and assumption of duties and obligations described in the foregoing two paragraphs were confirmed and acknowledged by Silver Faith in a letter dated May 16, 1996, a copy of which is attached hereto as Exhibit "F" and incorporated herein by reference for all purposes; and [NUOINTL\AGR:ASSIGN.DOC] WHEREAS, Assignee's officer, directors, and representatives have been delivered documents necessary to establish the interest in and to the Property, inspected the Property and received copies of licenses and permits related to the construction and sale of the Property at the offices of Silver Faith, and satisfied themselves as to what documents, in form and substance, are necessary to transfer ownership in and to the Property. NOW THEREFORE, for and in consideration of Ten Dollars (USD10) and other good and valuable consideration as set forth more fully in the Purchase Agreement and herein, the receipt of which is hereby acknowledged Assignor hereby bargains, sells, grants, transfers, and conveys unto Assignee all of its right, title, and interest in and to the Property, and all rights, obligations and duties accruing to Assignor under the Silver Faith Agreement. FURTHER, in consideration for the Purchase Price (as defined in the Purchase Agreement), Assignor agrees to indemnify and hold harmless Assignee from any liability or loss resulting from the performance or non-performance of the duties and obligations under the Silver Faith Note. FURTHER, Assignor's intent hereunder is to transfer and convey its right, title and interest in and to the Property as it may have under the Silver Faith Agreement to Assignee and Assignee accepts such assignment as a full and sufficient consideration for the Purchase Price set forth in the Purchase Agreement. FURTHER, Assignor covenants, warrants and represents that it has the power and authority to execute this Assignment and Indemnification Agreement as required by applicable law. FURTHER, Assignor covenants, warrants and represents that it has the power and authority, and does hereby sell and transfer to Assignee its rights in and to the Property pursuant to the Silver Faith Agreement, free and clear of all liens and encumbrances created by or through Assignor, and subject to that certain joint venture agreement (the "CJV") a copy of which is attached hereto as Exhibit "G" and incorporated herein by reference for all purposes. FURTHER, Assignee warrants that it is satisfied, through its inspection of documents and by way of this Assignment and Indemnification Agreement, as to Assignor's Closing obligation "to deliver, or cause to be delivered, to Hartcourt the documents necessary to establish the interest in the Property, and to transfer ownership of NuOasis' right, title, and interest in and to the Property to Hartcourt, in form and substance acceptable to Hartcourt." FURTHER Assignor irrevocably appoints Assignee as Assignor's true and lawful attorney, with full power of substitution and revocation, in Assignor's name, or otherwise, but at Assignee's own cost and expense, to demand and receive the real, personal or leasehold interests due, or to become due attributable to the Silver Faith Agreement, and to sue, and to commence any lawful action, suit and proceeding for the enforcement of such interest, and to acknowledge satisfaction, or to discharge same as fully as Assignor might, or could do if this Assignment and Indemnity Agreement had not been made. IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment and Indemnification Agreement to be executed this day of September 1996. "Assignor" NuOasis International Inc., a company organised under the laws of the Commonwealth of the Bahamas By:------------------------------------ Name: Title: "Assignee" The Hartcourt Companies Inc., a company organised under the laws of the United States, State of Utah By:------------------------------------ Name: Title: [NUOINTL\AGR:ASSIGN.DOC] EXHIBIT "A" to the Assignment and Indemnification Agreement dated September, 1996 THE VALUATION AND REPORT [NUOINTL\AGR:ASSIGN.DOC] EXHIBIT "B" to the Assignment and Indemnification Agreement dated September, 1996 THE ASSIGNMENT FROM NONA TO NUOASIS [NUOINTL\AGR:ASSIGN.DOC] EXHIBIT "C" to the Assignment and Indemnification Agreement dated September, 1996 THE ASSIGNMENT AND BILL OF SALE DATED SEPTEMBER 28, 1995 BETWEEN SILVER FAITH AND NONA [NUOINTL\AGR:ASSIGN.DOC] EXHIBIT "D" to the Assignment and Indemnification Agreement dated September, 1996 THE ASSET PURCHASE AGREEMENT DATED SEPTEMBER 28, 1995 BETWEEN SILVER FAITH AND NONA AND AMENDMENT, MODIFICATION AND RATIFICATION OF ASSET PURCHASE AGREEMENT EFFECTIVE SEPTEMBER 28, 1995 [NUOINTL\AGR:ASSIGN.DOC] EXHIBIT "E" to the Assignment and Indemnification Agreement dated September, 1996 THE SILVER FAITH NOTE [NUOINTL\AGR:ASSIGN.DOC] EXHIBIT "F" to the Assignment and Indemnification Agreement dated September, 1996 THE ASSUMPTION AGREEMENT BETWEEN SILVER FAITH AND NUOASIS [NUOINTL\AGR:ASSIGN.DOC] EXHIBIT "G" to the Assignment and Indemnification Agreement dated September, 1996 THE JOINT VENTURE AGREEMENT [NUOINTL\AGR:ASSIGN.DOC] EX-99 14 EXHIBIT 10.133 EXHIBIT 10.133 ASSIGNMENT AND BILL OF SALE BETWEEN NUOASIS INTERNATIONAL, INC., AND SILVER FAITH DEVELOPMENT LIMITED ASSIGNMENT AND BILL OF SALE KNOW ALL THESE MEN BY THESE PRESENTS: THIS ASSIGNMENT is made and entered into by and between Silver Faith Development Limited, a corporation organized under the laws of Hong Kong ("Assignor"), and NuOasis International, Inc., a corporation organized under the laws of the Commonwealth of the Bahamas ("Assignee"). WITNESSETH: That for and in consideration of Ten Dollars (USD$10) and other good and valuable consideration, the receipt of which is hereby acknowledged, Assignor hereby bargains, sells, grants and conveys unto Assignee, that certain Convertible Secured Promissory Note dated December 31, 1995 in the principal amount of $21,000,000 executed by Nona Morelli's II, Inc. as Maker in favor of Assignee as Payee, a copy of which Promissory Note is attached hereto as Exhibit "A" and incorporated herein by reference (the "Convertible Secured Promissory Note"). Assignor warrants that it has the power and authority, and does hereby sell and transfer the Promissory Note, free and clear of all liens and encumbrances. For the same consideration Assignor covenants with Assignee, its heirs, successors, and assigns that Assignor is the lawful owner of and has merchantable title to the Note; and that Assignor will warrant and forever defend title to the Note against all persons whomsoever, lawfully claiming or attempting to claim an interest in same. IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed effective the of August, 1996. "Assignor" SILVER FAITH DEVELOPMENT LIMITED a corporation organised under the laws of Hong Kong By: /s/ Silver Faith Development Limited -------------------------------------- Name: Title: EXHIBIT "A" to the Assignment and Bill of Sale dated August , 1996 CONVERTIBLE SECURED PROMISSORY NOTE THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), BUT HAVE BEEN ISSUED IN RELIANCE UPON REGULATION S PROMULGATED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO A "U.S. PERSON" (AS DEFINED IN REGULATION S) OR TO ANY PERSON WITH A UNITED STATES ADDRESS DURING THE RESTRICTED PERIOD FOLLOWING ISSUANCE OF THE SECURITIES. FOLLOWING EXPIRATION OF THE RESTRICTED PERIOD, ANY RESALE OR TRANSFER OF THE SECURITIES TO A U.S. PERSON OR INTO THE UNITED STATES MUST BE MADE IN ACCORDANCE WITH REGULATION S, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT. EX-99 15 EXHIBIT 10.134 EXHIBIT 10.134 AGREEMENT BETWEEN NUOASIS INTERNATIONAL, INC. AND SILVER FAITH DEVELOPMENT LIMITED AGREEMENT DATED: 30th August, 1996 PARTIES: 1. "NuOasis" NuOasis International Inc., a corporation organised under the laws of the Commonwealth of the Bahamas. 2. "Silver Faith" Silver Faith Development Limited., a corporation organised under the laws of Hong Kong RECITALS: 1.1 On September 30, 1995, Nona Morelli's II Inc., a Colorado corporation ("Nona"), the sole shareholder of NuOasis, entered into a Purchase and Sale Agreement with Silver Faith pursuant to which Nona issued a Convertible Secured Promissory Note of such date (the "Nona Note") in the principal amount of Twenty One Million Dollars (USD21,000,000) a copy of which is annexed hereto as Schedule 1; and, 1.2 NuOasis assumed Nona's rights and obligations under the Nona Note by way of the Assignment dated December 31, 1995 (the "Assignment"), a copy of which is annexed hereto as Schedule 2; and, 1.3 NuOasis wishes to purchase the Nona Note from Silver Faith pursuant to the terms hereof. OPERATIVE PROVISIONS: 1. Purchase of the Note On the basis of the representations and warranties herein contained, subject to the terms and conditions set forth herein, and for the Consideration (as defined herein), NuOasis agrees to purchase the Nona Note for Twelve Million Three Hundred Thousand Dollars (USD 12,000,000), which represents the current outstanding principal balance of Eleven Million Four Hundred Thousand Dollars (USD 11,400,000) plus interest of approximately Six Hundred Thousand Dollars (USD 600,000), and Silver Faith agrees to assign, deliver and transfer the Nona Note to NuOasis. 2. The Consideration The consideration ("Consideration") to be paid to Silver Faith in exchange for the Nona Note shall consist of that certain Convertible Secured Promissory Note dated July 31, 1996 in the principal amount of Twelve Million Dollars (USD 12,000,000) issued by The Hartcourt Companies Inc.("Hartcourt"), a copy of which is annexed hereof as Schedule 3 (the "Hartcourt Note"). 1 3. Effective Date and Closing The closing and effective date of the exchange 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 30th September 1996. At the Closing, Silver Faith shall deliver the Nona Note to NuOasis and NuOasis shall deliver the Hartcourt Note to Silver Faith, along with any opinions, certificates, exhibits, etc. reasonably requested by the other party. 4. Representations and Warranties of Silver Faith Silver Faith hereby represents and warrants to NuOasis that: 4.1 Silver Faith is a corporation organized under the laws of Hong Kong; and 4.2 Silver Faith 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 Hong Kong, Peoples Republic of China, or Chinese provincial or municipal government, or any department, board, body or agency thereof, which could result in a claim against the Nona Note; and 4.3 This Agreement has been duly executed by Silver Faith and the execution and performance hereof will not violate, or result in a breach of, or constitute a default in any agreement, instrument, judgement, order or decree to which Silver Faith is a party or to which Silver Faith is subject; and 4.4 Silver Faith's right to transfer the Nona Note is not in violation of any preemptive rights of any person or of any agreement to which Silver Faith is bound; and 4.5 The Nona Note will be transferred without any encumbrances or adverse claims and is not subject to any interest or right of any third person; and Silver Faith warrants that it has the full right and power to transfer the Nona Note pursuant to this Agreement; and 4.6 No representation or warranty contained herein, nor statement in any document, certificate or schedule furnished or to be furnished pursuant to this Agreement by Silver Faith or in connection with the transaction contemplated hereby, contains or contained any untrue statement of a material fact, nor does it omit to state a material fact necessary to make any statement of fact contained herein not misleading. 5. Representations and Warranties of NuOasis NuOasis hereby represents and warrants to Silver Faith that: 5.1 This Agreement has been duly executed by NuOasis 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 NuOasis is a party or to which the Hartcourt Note is subject; and 2 5.2 The Hartcourt Note is not subject to any claims or causes of action created by or through Nona or NuOasis, and NuOasis is not a defendant, nor a plaintiff against whom a counterclaim has been made or reduced to judgement, in any litigation or proceedings before any U.S., federal or state government, or the Commonwealth of the Bahama's, or any department, board, body or agency thereof, involving the Hartcourt Note as of the date hereof; and 5.3 The Hartcourt Note is not subject to any interest or right of any third person created by or through Nona or NuOasis, and NuOasis has the full right and power to transfer the Hartcourt Note pursuant to this Agreement; and 5.4 No representation or warranty contained herein, nor statement in any document, certificate or schedule furnished or to be furnished pursuant to this Agreement by NuOasis, or in connection with the transaction contemplated hereby, contains or contained any untrue statement of a material fact, nor does it omit to state a material fact necessary to make any statement of fact contained herein not misleading. 6. Availability of Information Silver Faith and NuOasis 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 Hartcourt Note for the Nona Note. 7. 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 this transaction has not closed by 30th September 1996 by reason of circumstances beyond the control of the parties hereto. 8. Miscellaneous 8.1 The officers of NuOasis and Silver Faith 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. 8.2 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: 3 To Silver Faith: Silver Faith Development Limited Room 3078, Diamond Square 3/F Shun Tak Centre 200 Connaught Road, Central Hong Kong Telephone: +852-2-559-8859 Facsimile: +852-2-540-5020 To NuOasis: NuOasis International Inc. 43 Elizabeth Avenue Nassau, Bahamas Telephone: +44 1624 815544 Facsimile: +44 1624 815548 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. 8.3 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. 8.4 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. 8.5 Neither party may assign this Agreement without the express written consent of the other party 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. 8.6 Notwithstanding that this Agreement was negotiated and is being contracted for in Hong Kong, it shall be governed by the laws of the Commonwealth of the Bahamas, notwithstanding any conflict-of-law provision to the contrary. 8.7 If any legal action or other preceding (nonexclusively 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. 8.8 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. 4 8.9 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. 8.10 At any time, and from time to time after the Closing, 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 Hartcourt Note and the Nona Note to be exchanged hereunder, or otherwise to carry out the intent and purposes of this Agreement. 8.11 Silver Faith and NuOasis warrant that neither party has 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. 8.12 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. 8.13 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. SIGNED AND DELIVERED as a DEED ) ) by: /s/ Silver Faith Development Limited (a Director) ) ) on behalf of ) SILVER FAITH DEVELOPMENT LIMITED ) SIGNED AND DELIVERED as a DEED ) ) by: /s/ NuOasis International Inc. (a Director) ) ) on behalf of ) NUOASIS INTERNATIONAL INC. ) 5 SCHEDULE "1" to the Agreement dated 30th August, 1996 THE NONA NOTE SCHEDULE "2" to the Agreement dated 30th August, 1996 THE ASSIGNMENT SCHEDULE "3" to the Agreement dated 30th August, 1996 THE HARTCOURT NOTE EX-99 16 SECURED CONTINGENT PROMISSORY NOTE, EXH. 10.135 EXHIBIT 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 SECURED CONTINGENT PROMISSORY NOTE FOR VALUE RECEIVED, effective on the 25th day of May, 1995, Nona Morelli's II Inc, a corporation ("Maker") promises to pay to Mr Ng Man Sun, doing business as Dragon Sight International Amusement (Macau) Company ("Holder"), the principal sum of Three Million Dollars (US$3,000,000) with interest at the rate of eight percent (8%) per annum. RATE OF INTEREST Interest shall accrue at a rate per annum equal to the lesser of (a) three percent (3%) or (b) the percentage which is the sum of (i) the "base rate of interest" announced publicly by First Los Angeles Bank, Newport Beach, California, from time to time (360-day basis) then in effect and most recently available before the date on which the interest rate determination is made (the "Base Rate") plus (ii) one percent (1%). A determination of the interest rate from time to time in effect shall be made prospectively on the date hereof and on the first day of each calendar month thereafter until this Note shall be paid in full. Interest hereunder shall be calculated on the actual number of days elapsed on the basis of a 360-day year. RATE OF INTEREST ON DEFAULT Interest on the unpaid principal together with all accrued and unpaid interest shall, after the maturity hereof, whether by demand, acceleration, or otherwise, automatically accrue and shall be payable at the rate per annum equal to the lesser of (a) three percent (3%) or (b) the percentage which is the sum of (i) one percent (1%), plus (ii) the Base Rate. PAYMENT OF PRINCIPAL AND INTEREST Payments of principal and interest under this Note shall be payable on or before June 30, 1996, with accrued interest, at the applicable rate set forth above, beginning on the first business day of June 1995 and thereafter on the first business day of each succeeding calendar month until the entire remaining balance together with all accrued but unpaid interest hereunder is paid. Each payment shall, when made, be credited first on interest then due, and the remaining on principal, and interest shall thereupon cease upon the principle so credited. SECURITY This Note is secured by a Security Agreement of even date herewith executed by Maker as Debtor granting to Holder a security interest in 250,000 shares of Class B Preferred Stock of NuOasis Gaming Inc, a Delaware corporation (the "NuOasis Shares") pursuant to which Maker has pledged the NuOasis Shares as collateral for payment of this Note. This Note is further subject to and governed by the provisions contained in or referred to in said Security Agreement of even date. Notwithstanding the terms of said Security Agreement, this Note is not negotiable. This Note may be assigned by Holder, but only subject to all defenses which Maker may have against Holder. Further, payment of this Note does not constitute a personal or corporate obligation of Maker. [TS-11:CMAIFTF.PNO] 1 ACCELERATION The entire remaining balance of this Note together with all accrued but unpaid interest hereunder, and all other obligations, direct and contingent, of Maker or any endorser hereof to Holder shall, at the election of Holder, become immediately due and payable, without demand or notice, upon the occurrence of any of the following: (a) Maker becomes bankrupt (including but not limited to, the commencement of a case under Title 11 of the United States Code as now constituted or hereafter amended, or under any other applicable federal or state bankruptcy law) or makes an assignment for the benefit of creditors; (b) The appointment for Maker, voluntarily or involuntarily, of a receiver, trustee, liquidator, custodian, or sequester or other similar official) in equity, bankruptcy, or under any provision of any law of any state or the United States of America, or otherwise: (c) Maker's dissolution; or (d) Default in any payment or performance required under this Note. FAILURE TO EXERCISE RIGHTS No failure or delay on the part of Holder in the exercise of any power, right, or privilege under this Note shall operate as a waiver thereof or of any other power, right, or privilege, nor shall any single or partial exercise of any such power, right, or privilege preclude any further exercise thereof or of any other power, right, or privilege. PRE-PAYMENT The entire principal balance of this Note or any part thereof may be prepaid without penalty or premium on any interest payment date upon not less than ten (10) days prior written notice. OFFSET FOR NOTE This Note is issued under an Asset Purchase Agreement dated May 1, 1995, between the Holder and the Maker. The Maker expressly reserves against the Holder, and any subsequent holder of this Note, the right to offset against any and all sums payable hereunder an amount equal to any and all damages sustained by the Maker by reason of any breach or default by the Holder under the Purchase Agreement. LIMIT ON INTEREST Notwithstanding anything to the contrary contained herein, the total liability for payments in the nature of interest, additional interest, and other charges shall not exceed the limits imposed by the applicable interest rate laws. If any payments in the nature of interest, additional interest, and other charges made hereunder are held to be in excess of the limits imposed by the applicable interest rate laws, it is agreed that any such amount held to be in excess shall be considered payment of principal hereunder and the indebtedness evidenced hereby shall be reduced by such amount so that the total liability for payments in the nature of interest, additional interest, and other charges shall not exceed the limits imposed by the applicable interest rate laws in compliance with the desires of Maker and Holder. [TS-11:CMAIFTF.PNO] 2 WAIVER OF PRESENTMENT, ETC. Maker and endorsers, and each of them, hereby waive diligence, demand, presentment for payment, protest and notice of protest, notice of dishonor, and notice of nonpayment of this Note, and specifically consent to and waive notice of any kind of any renewal, extension, or enforcement of this Note. The pleading of any statute of limitations as a defense to any demand against Maker or endorsers is expressly waived by each and all of said parties. Maker and endorsers, and each of them, waive trial by jury in any litigation arising out of or relating to this Note in which Holder is an adverse party and further waive the right to interpose any defense, setoff, or counterclaim of any nature or description. BENEFIT Subject to the terms and conditions contained herein, the provisions of this Note shall inure to the benefit of and shall be binding upon the assigns, successors in interest, or personal representatives of Maker and Holder, respectively. SEVERABILITY Every provision in this Note is intended to be severable. In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. TIME OF ESSENCE Time is of the essence in the performance of each and every obligation under this Note to be performed by Maker. "Maker" NONA MORELLI'S II INC. a Colorado corporation By:--------------------------------------- Name: Title: [TS-11:CMAIFTF.PNO] 3 EX-99 17 ASSIGNMENT AND BILL OF SALE, EXHIBIT 10.136 EXHIBIT 10.136 ASSIGNMENT DATED DECEMBER 29, 1995 FROM NONA MORELLI'S II, INC. TO NUOASIS INTERNATIONAL INC. ASSIGNMENT AND BILL OF SALE KNOW ALL THESE MEN BY THESE PRESENTS: THIS ASSIGNMENT AND BILL OF SALE is made and entered into by and between Nona Morelli's II Inc., a Colorado corporation ("Assignor"), and NuOasis International Inc., a California corporation ("Assignee"). WITNESSETH: That for and in consideration of the issuance of shares of Assignee's $.01 par value common stock, 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 interest in the 40% net profits interest in the gaming activities conducted at the Diamond Casino located in the Holiday Inn, Macau, and the Tapia Casino, located in the Hyatt Regency Hotel, Macau, acquired from Dragon Sight International Amusement (Macau) Company pursuant to that certain Asset Purchase Agreement dated May 1, 1995, more fully described in such agreement attached hereto as Exhibit "A" and incorporated herein by reference (the "Net Profits Interest"). Assignor warrants that it has the power and authority, and does hereby sell and transfer the Net Profits Gaming Interest to Assignee, free and clear of all liens and encumbrances. For the same consideration, Assignor covenants with Assignee, its heirs, successors, and assigns that Assignor is the lawful owner of and has good title to the Net Profits Gaming Interest, free and clear of all liens, encumbrances or adverse claims; that the Net Profits Gaming Interest is valid and enforceable; and that Assignor will warrant and forever defend title to the Net Profits Gaming Interest against all persons whomsoever, lawfully claiming or attempting to claim an interest in same. IN WITNESS WHEREOF, I have caused this instrument to be executed effective the 29th day of December, 1995. "Assignor" NONA MORELLI'S II INC. By:----------------------------------------- Name: Title: [NM\BOS:NUOINPI] 1 EXHIBIT "A" to the Assignment and Bill of Sale dated December 29, 1995 NET PROFITS GAMING INTEREST [NM\BOS:NUOINPI] 2 EX-99 18 EXHIBIT 10.137 EXHIBIT 10.137 LETTER OF INTENT DATED AUGUST 5, 1996 BETWEEN THE REGISTRANT AND NG MAN SUN DBA DRAGON SIGHT INTERNATIONAL AMUSEMENT (MACAU) COMPANY August 5, 1996 Mr. Ng Man Sun DRAGON SIGHT INTERNATIONAL AMUSEMENT (MACAU) COMPANY Room 3078, Diamond Square 3/F Shun Tak Centre 200 Connaught Road, Central Hong Kong RE: The 40% Net Profits Interest acquired on May 25, 1995 by Nona Morelli's II Inc., a Colorado corporation ("Nona"), the sole shareholder of NuOasis International Inc., a Bahamas corporation ("NuOasis") from Mr. Ng Man Sun doing business as Dragon Sight International Amusement (Macau) Company ("Dragon") at the Hyatt and Holiday Inn Hotels in Macau, as described in the Agreement attached hereto as Exhibit "A" (the "Net Profits Interest") Dear Mr. Ng: When countersigned by you in the space provided below, this letter (the "Agreement") shall serve as the agreement between yourself, individually and doing business as Dragon Sight International Amusement (Macau) Company (collectively, "you") and Nona to resolve the conflict between you and the government of Macau resulting from statements made to the Macau Gaming Commission which have served to interfere with the contractual and future business relationship between you and Nona and NuOasis. NuOasis is the successor to the Net Profits Interest by virtue of an Assignment of such interest from Nona in December 1995. 1. REPATRIATION OF NET PROFITS INTEREST Nona will cause NuOasis to assign to you, or your designees, effective July 1, 1996, all of the Net Profits Interest, in consideration for which you and such designees will sell, assign and transfer to NuOasis, or its designees, a mutually agreed number of the shares of common stock originally issued by Nona to make the purchase of the Net Profits Interest. 2. SETTLEMENT OF OUTSTANDING BALANCE ON NOTE Nona will cause NuOasis to purchase the Three Million (USD3,000,000) Contingent Secured Promissory Note issued to you by Nona on May 25, 1995 for an amount equal to the current outstanding principal and accrued interest, a copy of which is attached hereto as Exhibit "B", which is approximately Three Million Two Hundred Eighty Thousand Dollars (USD3,280,000) as of today's date. 3. PAYMENT OF ACCRUED NET PROFITS INTEREST REVENUES You will deposit with NuOasis, in its account at Po Sang Bank, the Net Profits Interest revenues accruing to the 40% Net Profits Interest of NuOasis from January 1 through June 30, 1996. [W:\NM\CORR\DSIRELEA]-2 1 4. RELEASE BY YOU Except for obligations and rights expressly set forth and reserved by this Agreement, you hereby release, acquit and forever discharge Nona, NuOasis and their respective agents, servants and employees, successors, heirs, legal representatives and assigns, and all persons, natural or corporate, in privity with them from any and all claims, causes of action, or controversies of any kind whatsoever, whether known or unknown, whether accrued or to accrue, including but not limited to claims at common law pursuant to the laws of the United States and the State of Colorado, or pursuant to any other laws or statutes, including but not limited to all matters relating or pertaining to the purchase and ownership of the Net Profits Interest through the date hereof. Except as otherwise provided herein, the foregoing release releases all claims as to any alleged misrepresentations, false statements, securities law violations relating or pertaining to Nona or NuOasis, the business affairs of Nona or NuOasis, or the management of Nona or NuOasis, through the date hereof. It is expressly understood and agreed that the foregoing release constitutes a general release of each and every claim which you have or may have against Nona or NuOasis, or their officers and directors as of the date hereof. 5. RELEASE BY NONA AND NUOASIS Except for obligations and rights expressly set forth and reserved by this Agreement, Nona and NuOasis hereby release, acquit, and forever discharge you, your respective agents, servants, and employees, heirs, legal representatives and assigns, and all persons natural, or corporate, in privity with you from any and all claims, causes of action, or controversies of any kind whatsoever, whether known or unknown, whether accrued or to accrue, including but not limited to claims at common law pursuant to the laws of the United States and the States of Colorado and California, and Macau, or pursuant to any other laws or statutes, including but not limited to all matters relating or pertaining to the sale and operation of the casinos underlying the Net Profits Interest by you through the date hereof. It is expressly understood and agreed that the foregoing release constitutes a general release of each and every claim which Nona or NuOasis have or may have against you as of the date hereof. [W:\NM\CORR\DSIRELEA]-2 2 6. WAIVER AND RELEASE OF UNKNOWN CLAIM It is expressly understood that this release extends to claims which the parties hereto may not know or suspect to exist in their favor at the time of executing this Agreement, which if known may have materially affected their settlement. This waiver and release of unknown claims is applicable to statutes and principles of common law of the United States or the State of Colorado and California, or of any and all other states of the United States or foreign jurisdictions, and are hereby knowingly and voluntarily waived and relinquished by the parties hereto. The parties each acknowledge that these waivers are essential and material terms of this Agreement, without which the consideration set forth herein and the agreement reached herein would not have been made. 7. NO PRIOR ENCUMBRANCES OR ASSIGNMENT You agree and covenant that you have not assigned, pledged or otherwise in any manner whatsoever encumbered, conveyed or transferred the shares of common stock to be transferred by you, and the Note or any claim or any cause of action, either by instrument in writing or otherwise, which you believe you may have against Nona or NuOasis, or their officers, agents or representatives, arising out of or relating to the subject matter of this Agreement. 8. NO DETRIMENTAL RELIANCE The parties agree that as a part of the consideration for this Agreement, and before executing this Agreement, each party hereto has been fully informed of and understands the terms, contents, conditions and effects of this Agreement; that in executing this Agreement and negotiating the terms thereof, each has had the benefit of the advice of attorneys of its own choosing; and, that no promise or representation of any kind has been made to any party by another party hereto, or anyone acting for them, except as is expressly stated in this Agreement. The parties represent that they have relied completely and solely on their own judgement and the advice of their attorneys in executing this Agreement. 9. NO LIABILITY The parties agree that the consideration described in this Agreement, and the covenants set forth herein, are given by the parties in compromise and settlement of a dispute in order that each party may but its peace. Such consideration, agreement and covenants are in no way to be construed as an admission of liability on the part of any party hereto. Each party specifically denies any such liability or responsibility and specifically denies all such allegations made against said party. [W:\NM\CORR\DSIRELEA]-2 3 10. EVENTS THAT WOULD MAKE THIS AGREEMENT VOID This Agreement shall be void and of no effect if any one of the following events occurs: A. Failure to Accept Agreement. If you fail to accept, sign and deliver this Agreement by August 16, 1996. B. Failure to Remit Proceeds of Net Profits Interest. If you fail to remit the proceeds of the Net Profits Interest for the six (6) months ended June 30, 1996 of HK$30,065,235.20. C. NuOasis' Failure to Tender Net Profits Interest. If NuOasis shall fail to tender the Net Profits Interest to you or your designees. D. NuOasis' Failure to Satisfy Outstanding Financial and Interest Due on the Note. If NuOasis fails to satisfy outstanding financial and interest due on the Note by check to you on or before August 16, 1996 (the "Closing Date"). In the event this Agreement is terminated pursuant to this paragraph, this Agreement shall be of no further force or effect and no obligation, right, or liability shall arise hereunder, And, further, each party shall bear its own costs in connection with the negotiation, preparation, and execution of this Agreement. 11. REPRESENTATION BY COUNSEL Each of the parties have been or have had the opportunity to be represented by the counsel in entering into this Agreement. Each of the parties affirms to the others that it has consulted and discussed the provisions of this Agreement with its counsel and fully understands the legal effect of each such provisions. 12. FACTUAL DIFFERENCE Each of the parties understands and accepts the risk that the facts, pursuant to which this Agreement is entered into may be different from the facts now known or believed by each such party to be true. This Agreement shall remain in all respects effective and shall not be subject to termination or rescission by virtue of any such difference in facts. [W:\NM\CORR\DSIRELEA]-2 4 13. NEGOTIATED TRANSACTION The drafting and negotiations of this Agreement has been participated in by each of the parties. For all purposes, this Agreement shall be deemed to have been drafted jointly by each of the parties. 14. FURTHER DOCUMENTATION AND ASSISTANCE You agree, following the consummation of the repatriation of the Net Profits Interest, to cooperate with Nona, its officers and directors, to execute additional instruments and take such action as may be reasonably requested by Nona or NuOasis to carry out the intent and purpose of this Agreement. 15. MISCELLANEOUS A. Authority. The persons executing this Agreement are duly authorized to do so. Further, Nona and you 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. 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 You: Dragon Sight International Amusement (Macau)Company Room 3078, Diamond Square 3/F Shun Tak Centre 200 Connaught Road, Central Hong Kong Telephone: +852-2-559-8859 Facsimile: +852-2-540-5020 To NuOasis: NuOasis International Inc. 43 Elizabeth Avenue Nassau, Bahamas Telephone: +44 1624 815544 Facsimile: +44 1624 815548 To Nona: Nona Morelli's II Inc. 2 Park Plaza, Suite 470 Irvine, California 92614 Telephone: (714) 833-5381 Telefax: (714) 833-7854 or to any other address which may hereafter be designate by either party by notice given in such manner. All notices shall be deemed to have been given as of the date of receipt. [W:\NM\CORR\DSIRELEA]-2 5 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 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. E. Assignment. Neither party may assign this Agreement without the express written consent of the other party, however, any 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. F. Applicable Law. This Agreement shall be construed and enforced in accordance with the laws of the United States, State of California G. Attorney's Fees. If any legal action or other preceding (nonexclusively 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 dispute among the parties hereto, the prevailing party will be entitled to recover actual attorney's fees (including for appeals and collection) and other costs incurred in such action or proceeding , in addition to any other relief to which such party may be entitled. H. 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. I. Further Documents. Nona and you will at any time, and from time to time after the date of this Agreement, cooperate with each other and execute such additional instruments and take such action as may be reasonably requested by the other party to confirm and to carry out the intent and purpose of this Agreement. [W:\NM\CORR\DSIRELEA]-2 6 J. Amendment or 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. K. 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. L. Facsimile Transmission. If a party signs this Agreement and then transmits an electronic facsimile of the signature page to another party, the party who receives the transmission may rely upon the electronic facsimile as a signed original of this Agreement. Sincerely, /s/ John D. Desbrow - --------------------------- John D. Desbrow Secretary and General Counsel ACCEPTED THIS ----- Day of August, 1996 Mr. Ng Man Sun, doing business as Dragon Sight International Amusement (Macau) Company - ------------------------------ [W:\NM\CORR\DSIRELEA]-2 7 EXHIBIT "A" to the Letter Agreement Dated August 5, 1996 THE NET PROFITS INTEREST [W:\NM\CORR\DSIRELEA]-2 8 EXHIBIT "B" to the Letter Agreement Dated 5, 1996 [W:\NM\CORR\DSIRELEA]-2 9 EX-99 19 EXHIBIT 10.138 EXHIBIT 10.138 PURCHASE AGREEMENT DATED AUGUST 30, 1996 BETWEEN NUOASIS INTERNATIONAL INC. AND VARIOUS PURCHASERS PURCHASE AGREEMENT DATED: 30th, August 1996 PARTIES: 1. "NuOasis" NuOasis International Inc., a corporation organized under the laws of the Commonwealth of the Bahamas. 2. "Purchaser" Those persons identified on Schedule 1 attached hereto whether one or more, and incorporated herein by reference for all purposes, who agree to be parties to this agreement as evidenced by their execution hereof. RECITALS: 1.1 On May 25, 1995, Nona Morelli's II Inc., a Colorado corporation ("Nona"), the sole shareholder of NuOasis, acquired from Dragon a forty percent (40%) net profits interest in the gaming operations conducted by Ng, doing business as Dragon Sight International Amusement (Macau) Company ("Dragon") at the Hyatt and Holiday Inn Hotels in Macau, as described in the Assignment annexed hereto as Schedule "2" (the "Interest"); and, 1.2 Nona assigned all of its right, title and interest in the Interest to NuOasis by way of the Assignment dated December 29, 1995, a copy of which is annexed hereto as Schedule 3 (the "Assignment"); and, 1.3 Purchaser wishes to acquire the Interest and, pursuant to the terms hereof, agrees to purchase the Interest from NuOasis. OPERATIVE PROVISIONS: 1. Exchange On the basis of the representations and warranties herein contained, subject to the terms and conditions set forth herein, and for the Consideration (as defined herein), NuOasis agrees to transfer the Interest to Purchaser and Purchaser agrees to transfer the Consideration to NuOasis or its designee. 2. The Consideration The consideration ("Consideration") to be assigned and transferred to NuOasis in exchange for the Interest shall consist of Twenty Million Dollars (USD20,000,000) of marketable securities consisting of not less than Twenty Million (20,000,000) shares of common stock of Nona, or other securities acceptable to NuOasis in its sole discretion. 3. Effective Date and Closing The closing and effective date of the exchange 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 30th September, 1996. At the Closing, Purchaser shall deliver the Consideration to NuOasis and NuOasis shall deliver the Interest to Purchaser, along with any opinions, certificates, exhibits, etc. reasonably requested by the other party. 4. Representations and Warranties of Purchaser Purchaser and each of them, hereby represent and warrant to NuOasis that: 4.1 It is a corporation duty organised and validly existing as of the date hereof; and 4.2 It is not defendant or a plaintiff against whom a counterclaim has been made or reduced to judgement. in any litigation or proceedings before any federal, provincial or municipal government, or any department, board, body or agency thereof. which could result in a claim against the Consideration; and 4.3 This Agreement has been duly executed by in the capacities stated on Schedule 3, 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 Purchaser is a party or to which it maybe subject; and 4.4 It's right to transfer the Consideration is not in violation of any preemptive rights of any person or of any agreement to which it is bound; and 4.5 The Consideration will be transferred without any adverse claims to any interest or right by any third party. 4.6 No representation or warranty contained herein, nor statement in any document, certificate or schedule furnished or to be furnished pursuant to this Agreement by Purchaser or in connection with the transaction contemplated hereby, contains or contained any untrue statement of a material fact, nor does it omit to state a material fact necessary to make any statement of fact contained herein not misleading. 5. Representations and Warranties of NuOasis NuOasis hereby represents and warrants to Purchaser that: 5.1 This Agreement has been duly executed by NuOasis 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 the Interest is a party or to which NuOasis is subject; and 5.2 The Interest is not subject to any claims or causes of action created by or through NuOasis, and NuOasis is not a defendant, nor a plaintiff against whom a counterclaim has been made or reduced to judgement, in any litigation or proceedings before any U.S., federal or state government, or the Commonwealth of the Bahama's, or any department, board, body or agency thereof, involving the Interest as of the date hereof; and 5.3 NuOasis. and NuOasis has the full right and power to transfer such and enter into and carry out this Agreement; and 5.4 No representation or warranty contained herein, nor statement in any document, certificate or schedule furnished or to be furnished pursuant to this Agreement by NuOasis, or in connection with the transaction contemplated hereby, contains or contained any untrue statement of a material fact, nor does it omit to state a material fact necessary to make any statement of fact contained herein not misleading. 6. Availability of Information Purchaser and NuOasis 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 ta exchange the Interest for the consideration. 7. Termination This Agreement may be terminated at anytime prior to the date of Closing by either Purchaser, by unanimous electron in the event of more than one, or by NuOasis 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 this transaction has not closed by 30th September, 1996. 8. Miscellaneous 8.1 The officers of NuOasis and Purchaser 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. 8.2 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 NuOasis: NuOasis International Inc. 43 Elizabeth Avenue Nassau, Bahamas Telephone: +44 1624 815544 Facsimile: +44 1624 815548 To Purchaser: As shown on Schedule 1. 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. 8.3 This Agreement sets forth the entire understanding between the parties hereto and no other prior written or oral statement or agreement shall be recognised or enforced. 8.4 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. 8.5 Neither party may assign this Agreement without the express written consent of the other party 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. 8.6 Notwithstanding that this Agreement was negotiated and is being contracted for in Hong Kong, it shall be governed by the laws of the Commonwealth of the Bahamas, notwithstanding any conflict-of-law Provision to the contrary. 8.7 If any legal action or other preceding 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. 8.8 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. 8.9 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. 8.10 At any time, and from time to time after the Closing, 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 Interest and Consideration to be transferred hereunder, or otherwise to carry out the intent and purposes of this Agreement. 8.11 Purchaser and NuOasis each warrant that none of them have incurred any liability, contingent or otherwise, for brokers' or finders' fees or commissions relating to this Agreement for which the other party or parses 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. 8.12 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. 8.13 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. SIGNED AND DELIVERED as a DEED ) ) by: /s/ D.L. Colquitt (a Director) ) ----------------------------------- ) for and on behalf of First Directors Limited ) ) and: /s/ R.B. Emery (a Director) ) ----------------------------------- ) for and on behalf of First Directors Limited ) ) on behalf of ) NUOASIS INTERNATIONAL INC. ) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) PERFECT WAY INVESTMENT LIMITED ) /s/ PERFECT WAY INVESTMENT LIMITED ) (Continued on next page) (Signature page continued) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) RISEN INVESTMENT LIMITED ) /s/ RISEN INVESTMENT LIMITED ) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) SHARP PROFIT INVESTMENT LIMITED ) /s/ SHARP PROFIT INVESTMENT LIMITED ) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) SUNNING STAR ENTERPRISES LIMITED ) /s/ SUNNING STAR ENTERPRISES LIMITED ) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) UP FIELD INVESTMENT LIMITED ) /s/ UP FIELD INVESTMENT LIMITED ) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) WORLDFIX INVESTMENT LIMITED ) /s/ WORLDFIX INVESTMENT LIMITED ) (Continued on next page) (Signature page continued) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) DRAGON STAR SECURITIES LIMITED ) /s/ DRAGON STAR SECURITIES LIMITED ) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) ) SIGNED AND DELIVERED as a DEED ) ) by: (a Director) ) ) and: (a Director) ) ) on behalf of ) ) SCHEDULE "1" TO THE PURCHASE AGREEMENT DATED 30, AUGUST 1996 PURCHASER Description of Securities Constituting Name the Consideration - ------------------------------------ --------------------------------------- PERFECT WAY INVESTMENT LIMITED Rm. 1406, Eastern Commercial Centre, 393-407 Hennessy Road, Causeway Bay, Hong Kong RISEN INVESTMENT LTD Rm. 3002, 3/F, Diamond Square, Shun Tak Centre, 200 Connaught Road, Central, Hong Kong SHARP PROFIT INVESTMENT LIMITED Rm. 3078, 3/F, Diamond Square, Shun Tak Centre, 200 Connaught Road, Central, Hong Kong SUNNING STAR ENTERPRISES LTD Rm. 3078, 3/F, Diamond Square, Shun Tak Centre, 200 Connaught Road, Central, Hong Kong UP FIELD INVESTMENT LTD Rm. 3078, 3/F, Diamond Square, Shun Tak Centre, 200 Connaught Road, Central, Hong Kong WORLDFIX INVESTMENT LTD Rm. 3002-3006, 3/F, Shun Tak Centre, 200 Connaught Road, Central, Hong Kong DRAGON STAR INVESTMENTS LTD 9/F, 1 Robinson Road, Hong Kong EX-99 20 OPTION AGREEMENT, EXHIBIT 10.139 EXHIBIT 10.139 OPTION AGREEMENT WITH JOSEPH MONTEROSSO DATED JUNE 13, 1996 OPTION AGREEMENT THIS OPTION AGREEMENT is entered into this 13th day of June, 1996, by and between NONA MORELLI'S II, INC., a Colorado corporation ("NONA"), and JOE MONTEROSSO, ("MONTEROSSO") on the basis of the following recitals. WHEREAS, MONTEROSSO wants to acquire an option to purchase 250,000 Series B Preferred Shares of NuOasis Gaming, Inc., a Delaware corporation (the "Shares") from NONA; and WHEREAS, NONA is willing to grant MONTEROSSO an option to purchase the Shares subject to certain conditions precedent. 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, NONA and MONTEROSSO agree as follows: It shall be a condition precedent to the exercise of the option created by this Agreement that: [1]. NuOasis Gaming, Inc., a Delaware corporation shall hold an annual or special meeting of shareholders in compliance with state and federal law, including the rules and regulations of the Securities and Exchange Commission. [2]. The shareholders of NuOasis Gaming, Inc., a Delaware corporation, at its annual meeting of shareholders tenatively scheduled for May 1996 pursuant to its Proxy Statement dated April __, 1996, approve the proposal to increase the authorized number of shares of common stock by at least 20 million shares. Upon the occurrence of the aforementioned condition precedent, MONTEROSSO shall have thirty (30) calendar days to exercise the option. NONA grants to MONTEROSSO and/or his assigns an option as hereinafter described. The option consists of the right to purchase up to 250,000 shares of Series B Preferred Stock of NuOasis Gaming for $13.00 per share, with a minimum purchase of 110,000 Shares on terms and conditions substantially similar to those set forth in Exhibit 1 attached hereto. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. NONA MORELLI'S II, INC. JOE MONTEROSSO /s/ Fred G. Luke /s/ Joe Monterosso - --------------------------- ---------------------------------- Fred G. Luke, CEO Joe Monterosso, an individual 1 EXHIBIT 1 to OPTION AGREEMENT DATED JUNE 13, 1996 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement"), is entered into this day of ________, 1996, by and between NONA MORELLI'S II, INC., a Colorado corporation ("NONA"), and JOE MONTEROSSO or his assigns ("MONTEROSSO") on the basis of the following recitals. WHEREAS, NuOasis Gaming, Inc., a Delaware corporation ("NGI") has issued 250,000 Series B Preferred Shares to NONA. WHEREAS, NONA desires to sell, assign and transfer to MONTEROSSO up to 250,000 shares of Series B Preferred Stock of NuOasis Gaming for $13.00 per share, with a minimum purchase of 110,000 (the "NGI Shares"), and MONTEROSSO desires to purchase the NGI Shares for Three Million Three Hundred Thousand Dollars ($3,300,000) 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, NONA and MONTEROSSO agree as follows: 1. Sale of NGI Shares. Upon and subject to all the terms and conditions of this Agreement, at the Closing NONA shall assign and transfer the NGI Shares to MONTEROSSO, and as full consideration therefor MONTEROSSO shall pay NONA in certified funds Three Million Three Hundred Thousand Dollars ($3,300,000) or $13.00 per share with a minimum purchase of 110,000 Shares. 2. Effective Date and Closing; Delivery of NGI Shares. A. Date and Place. The closing of this Agreement and transfer of the NGI Shares (the "Closing") shall occur at the office of NONA 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". B. Payment. At the Closing, MONTEROSSO shall deliver to NONA in certified funds $3,300,000 or $13.00 per share with a minimum purchase of 110,000 Shares. C. Delivery of MONTEROSSO Shares. NONA shall deliver to MONTEROSSO a stock certificate or certificates registered in the name of MONTEROSSO the NGI Shares, and MONTEROSSO shall deliver to NONA and NGI written confirmation, in form reasonably satisfactory to NONA and NGI, of its investment intent with regard to such shares, and such other or further documentation as NONA and 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 NGI Shares delivered to MONTEROSSO, 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 Series B Preferred Stock of NGI prior to the Closing; provided, however, that neither the foregoing provision, nor any other provision of this Agreement, shall be construed to confer on MONTEROSSO any of the rights, powers or benefits of ownership of shares of NGI (including without limitation cash dividends, voting rights, or stock purchase rights) as to any NGI Shares that shall not actually have been issued and delivered to MONTEROSSO pursuant to this Section 2C. 1 D. Delivery of Other Documents. At the Closing, each party hereto shall deliver to the other party 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. 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. 3. Representations and Warranties of NONA. NONA hereby covenants with and represents and warrants to MONTEROSSO that: A. The NGI Shares. The NGI Shares are and will be as of the Closing Date, owned, of record and beneficially, by MONTEROSSO free and clear of liens, claims and encumbrances, and NONA has all necessary right and power to enter into and perform this Agreement and to assign and sell the NGI Shares to MONTEROSSO as provided herein. Any necessary shareholder approval of NONA's shareholders will be obtained prior to Closing. B. Authority. 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. C. Status of NGI NGI is duly organized, validly existing, and in good standing under the laws of Delaware. D. 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 NONA is a party. E. Full Disclosure. The information concerning NGI set forth herein and in the NGI Disclosure Documents, 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. F. Financial Statements. Financial statements of NGI for the year ending September 30, 1995 ("NGI Financials"), have been or will be delivered to MONTEROSSO prior to the Closing Date. To the best knowledge of NONA, except as set forth in the NGI 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 NGI as reflected in such financial statements. 2 G. Capitalization of NGI. The capitalization of NGI is, as of the date hereof, comprised of 30,000,000 shares of authorized common stock, $.01 par value, of which 30,000,000 shares are issued and outstanding and 1,000,000 shares of authorized preferred stock of which 170,000 shares of 14% Preferred Stock are issued and outstanding and 250,000 shares of Series B Convertible Preferred Stock are issued and outstanding. H. Compliance with Laws, Rules and Regulations. NONA 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 NGI except to the extent that non-compliance would not materially and adversely affect the business, operations, properties, assets, or condition of NONA and its subsidiaries or except to the extent that non-compliance would not result in the incurring of any material liability for NONA. I. Conduct of Business. Since September 30, 1995, except as disclosed in the NGI Disclosure Documents, NGI 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 NGI Financials and current liabilities incurred since the date of the NGI Financials, in each case in the usual or ordinary course of business, (ii) mortgaged, pledged or subjected to lien any of their tangible or intangible assets (other than purchase money liens incurred in the ordinary course of business for such assets not yet paid for), (iii) sold, transferred or leased any of their assets except in the usual and ordinary course of business, (iv) canceled or compromised any material debt or claim, or waived or released any right of material value, (v) suffered any physical damage, destruction or loss (whether or not covered by insurance) materially adversely affecting its properties, business or prospects, (vi) entered into any transaction other than in the usual and ordinary course of business, except as contemplated by this Agreement, (vii) encountered any labor difficulties or labor union organizing activities, (viii) made or agreed to any wage or salary increase or entered into any employment agreement, (ix) issued or sold any securities or granted any options with respect thereto, except as disclosed pursuant to this Agreement, (x) amended its Articles of Incorporation, (xi) agreed to declare or pay any distributions with respect to their outstanding capital stock, or (xii) suffered or experienced any change in, or condition affecting, the condition (financial or otherwise) of their properties, assets, liabilities, business, operations or prospects, other than changes, events or conditions in the ordinary course of their business none of which has (individually or in the aggregate) been materially adverse, except as disclosed in the NGI Financials. J. Litigation. To the best knowledge and belief of NONA, except as disclosed in the NGI Disclosure Documents, there is neither pending nor threatened, any action, suit or arbitration to which NGI'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 NGI, or create any material liability on the part of NGI or conflict with this Agreement or any action taken or to be taken in connection herewith. K. Contracts. Except as disclosed in the NGI Disclosure Documents, there are no contracts, actual or contingent obligations, agreements, franchises, license agreements, or other commitments to which NGI 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. 3 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. L. Material Contract Breaches; Defaults. To the best of NONA's knowledge and belief, NGI has not materially breached, nor have they any knowledge of any pending or threatened claims or any legal basis for a claim that NGI 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 NGI, taken as a whole. To the best of NONA's knowledge and belief, NGI 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 NGI, 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 MONTEROSSO has not taken adequate steps to prevent such a default from occurring. M. Investments. NGI has provided, or will provide, prior to Closing, a complete and accurate description of the NGI assets, including but not limited to a list of all investments of NGI, which accurately sets forth the nature of NGI'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 MONTEROSSO, there is no corporation, limited partnership, limited partnership, joint venture, association, trust, or other entity or organization which NGI directly or indirectly controls or in which NGI directly or indirectly owns any equity interest or any other interest. N. Corporate Records. Copies of all corporate books and records, including but not limited to stock transfer ledgers, and any other documents and records of NGI will be provided at Closing. All such records and documents are complete, true, and correct. O. 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. To the best of NONA'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. NONA further agrees to indemnify and hold harmless MONTEROSSO against liability to any broker claiming to act on behalf of NONA. P. Date of Representations and Warranties. Each of the representations and warranties of NONA 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. 4. Representations and Warranties of MONTEROSSO MONTEROSSO hereby represents and warrants that, effective this date and the Closing Date, the representations and warranties listed below are true and correct. A. Organization and Authority. MONTEROSSO is an individual with the full power and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement. B. Qualification. As of the Closing Date, MONTEROSSO will be fully qualified to complete this transaction. 4 C. No Conflict. The execution of this Agreement will not violate or breach any document, instrument, agreement, contract, or commitment material to the business of MONTEROSSO or to which MONTEROSSO is a party, and has been duly authorized by all appropriate and necessary action. D. Full Disclosure. The information concerning MONTEROSSO 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. E. Ability to Carry Out Agreement. To the best of MONTEROSSO'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 MONTEROSSO is a party or to which MONTEROSSO is subject. 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 MONTEROSSO of this Agreement. F. Brokers. MONTEROSSO 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. To the best of MONTEROSSO'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. MONTEROSSO further agrees to indemnify and hold harmless NONA against liability to any broker claiming to act on behalf of MONTEROSSO. G. Approvals. Except as otherwise provided in this Agreement, to MONTEROSSO'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 MONTEROSSO in connection with the execution, delivery, or performance of this Agreement. H. Date of Representations and Warranties. Each of the representations and warranties of MONTEROSSO 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. Damages and Limit of Liability of NONA NONA shall be liable to MONTEROSSO 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 incurred by MONTEROSSO in connection with such breach or failure to perform Agreement. 5 6. Termination This Agreement may be terminated at any time prior to the Closing Date: A. By MONTEROSSO or NONA: (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 June 15, 1996 or such later date as shall have been approved by parties hereto, other than for reasons set forth herein. B. By MONTEROSSO. 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. In the event this Agreement is terminated pursuant to this paragraph, 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. 7. Private Transaction MONTEROSSO understands that the NGI 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 NONA's reliance on such exemption is predicted in part on the representations set forth herein and in the Investment Letter attached hereto as Exhibit "A" ("Investment Letter"). 8. Access to Information MONTEROSSO and NONA 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 NGI Shares 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 MONTEROSSO and that they have had the opportunity to obtain any additional information, to the extent that MONTEROSSO 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 NGI or NONA. 9. Indemnification by NONA As provided herein, NONA shall indemnify and hold harmless MONTEROSSO 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 misrepresenta tion contained in any certificate furnished to MONTEROSSO hereunder. 6 10. Indemnification by MONTEROSSO As provided herein, MONTEROSSO 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 misrepresenta tion contained in any certificate furnished to NONA hereunder. 11. Additional Covenants Between the date hereof and the Closing Date, except with the prior written consent of MONTEROSSO, NONA shall cause NGI to: A. Conduct Business as Usual: NGI 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 MONTEROSSO. B. NGI to Maintain Current Capital Structure: Except for shares previously authorized by NGI's Board of Directors to be issued, no change shall be made in the authorized or issued capital stock of NGI without the written consent of MONTEROSSO. C. Avoid Special Settlements: Without MONTEROSSO's consent NGI 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 MONTEROSSO Disclosure Documents, and current liabilities incurred since that date in the ordinary course of business. D. Avoid Distributions: NGI shall not make any payment or distribution to its stockholders or purchase for cash or redeem any of its shares of capital stock. E. Avoid Encumbrance or Cancellation of Debt: NGI shall not mortgage, pledge, or subject to lien or encumbrance any of its assets, tangible or intangible not in the ordinary course of business. NGI shall not cancel any debts or claims or waive any rights not in the ordinary course of business. F. Provide Additional Information: NGI and the officers of NGI will agree that after the Closing, they will continue to furnish MONTEROSSO with such additional documentation and information regarding NGI as is reasonably requested. 12. Documents at Closing At the Closing the following transactions shall occur, all of such shall transactions being deemed to occur simultaneously: A. Action by NONA. NONA will deliver, or cause the following to be delivered to MONTEROSSO: (1) Stock certificate(s) for the NGI Shares to be issued to MONTEROSSO 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 MONTEROSSO's counsel, as shall be required or as may be appropriate in order to effectively vest in MONTEROSSO good, indefeasible, and marketable title to the NGI Shares free and clear of all liens and encumbrances of every nature; 7 (2) A certificate executed by the NONA to the effect that all representations and warranties made by NONA under this Agreement are true and correct as of the Closing, the same as though originally given to MONTEROSSO on said date; (3) A certificate dated at or about the date of the Closing to the effect that NGI is in good standing under the laws of Delaware; (3) 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 MONTEROSSO in furtherance of the intent of this Agreement. B. Action by MONTEROSSO. MONTEROSSO will deliver or cause to be delivered to NONA: (1) A certified check in the sum of $3,000,000 made payable to NONA; (2) A certificate of MONTEROSSO to the effect that all representations and warran ties of MONTEROSSO made under this Agreement are reaffirmed on the Closing Date, the same as though originally given to NONA on said date; (3) Such other instruments and documents as are required to be delivered pursuant to the provisions of this Agreement, or otherwise reasonably requested by NONA. 13. 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 perfect title to the NGI Shares transferred hereunder 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. 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. 8 D. 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 NONA: Nona Morelli's II, Inc. 2 Park Plaza, Suite 470 Irvine, California 92714 Telephone: (714) 833-5381 Telefax: (714) 833-7854 To MONTEROSSO: Joe Monterosso c/o Nationa Pools Corporation 550 15th Street San Francisco, CA 94103 Telephone: (415) 575-0222 Telefax: (415) 861-4177 E. 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. F. 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. G. 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, notwith standing any conflict-of-law provision to the contrary. H. 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. I. 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. J. Severability. If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect. K. 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. 9 L. 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 have executed this Agreement the day and year first above written. "MONTEROSSO" Joe Monterosso By:----------------------------------------- Name: Joe Monterosso "NONA" NONA MORELLI'S II, INC. By:----------------------------------------- Name: Fred G. Luke Title: Chief Executive Officer 10 EXHIBIT "A" to the Stock Purchase Agreement Dated -----, 1996 INVESTMENT LETTER The Undersigned hereby represents to Nona Morelli's II, Inc. ("NONA "), that: (1) The shares of Series B Preferred Stock of NuOasis Gaming, Inc. ("NGI") (the "Securities"), which are being acquired by the Undersigned, are being acquired for the Undersigned's own account and for investment and not with a view to the public resale or distribution thereof; (2) The Undersigned will not sell, transfer or otherwise dispose of the Securities except in compliance with the Securities Act of 1933, as amended (the "Act"), and are being transferred in reliance on exemptions, including but not limited to Section 4(2) of the Act; (3) The Undersigned acknowledges that the Undersigned has been furnished with disclosure documents which the undersigned feels necessary to make an economic decision to acquire the Securities; (4) The Undersigned further acknowledges that it has had an opportunity to ask questions of and receive answers from duly designated representatives of NONA and NGI concerning the terms and conditions pursuant to which the Securities are being purchased. 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 NGI; (5) The Undersigned is fully aware of the applicable limitations on the resale of the Securities. These restrictions for the most part are set forth in Rule 144. If Rule 144 is available to the Undersigned, the Undersigned may make only routine sales of the Securities in limited amounts, in accordance with the terms and conditions of that Rule; (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 Securities and fully understands the speculative nature of the Securities and the possibility of such loss; (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 Securities to satisfy an existing or contemplated undertaking, need or indebtedness. Very truly yours, By:----------------------------------------- Name: Joe Monterosso 11 EX-99 21 EXHIBIT 10.140 CASINO LEASE AND OPERATING MANAGEMENT CONTRACT BETWEEN SOCIETE LOISIRS CLUB HAMMAMET AND CLEOPATRA PLACE LIMITED CASINO LEASE AND OPERATING MANAGEMENT CONTRACT SOCIETE LOISIRS CLUB HAMMAMET OWNER CLEOPATRA PALACE LIMITED LESSEE SOCIETE LOISIRS CLUB HAMMAMET CASINO LEASE AND OPERATING MANAGEMENT CONTRACT THIS DOCUMENT WITNESSETH: ON THE HAND, SOCIETE LOISIRS CLUB HAMMAMET, domiciled in Tunis, Tunisia ("Owner") AND ON THE OTHER HAND, CLEOPATRA PALACE LIMITED, the casino operating company of Dublin, Ireland ("Lessee"), the shareholders of which are as follows: Gabriel Tabarani; Alem Yaghi; Clifford Jones and Nona Morelli's II, Inc, a Colorado (U.S.A.) corporation. WHEREAS, Owner is the present owner of a building, now under construction (the "Casino-Property") as more fully described in Exhibit A which is incorporated by reference; and WHEREAS, Owner presently has an agreement in principle which will allow it to obtain a governmental license or Permit which legally authorises it to operate and maintain a gaming casino (the "Casino ) with slot machines, table games and video machines in Tunisia (the "Gambling License") subject to compliance by Owner and by Lessee with all applicable Tunisian laws and regulations; and WHEREAS, the parties hereto desire to enter into this Lease for the Casino Property ir; which Lessee shall operate a Casino with the particular location of the Casino Property being more fully described in Exhibit B. 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: 1. Lease. Owner does hereby lease the Casino-Property and Gambling License to Lessee for a fIxed rental as follows: A. First year beginning 31st December 1994 or occupancy (whichever is the latest) when the space designated as that for housing the Casino Property is deemed to be ready for occupancy, according to building and other such regulations as per the initial control office (SOCOTEC) certificate. Lessee will pay, the sum of One Million United States Dollars (US 1,000,000), payable to the owner in its entirety on occupancy. B. Second year beginning one (1 ) year from the date of occupancy by Lessee as mentioned above, as the sum of Two Million United States Dollars (US $2,000,000.00), payable to the Owner in its entirety one year after occupancy; C. Third year beginning two (2) years from the date of occupancy by Lessee as mentioned above, the sum of Two and One-Half Million United States Dollars (US $2,500,000.00), payable to the Owner in its entirety two years after occupancy; D. Fourth year beginning three years form the date of occupancy by Lessee as mentioned in 1 A above the sum of Three Million United States Dollars (US $3,000,000.00), payable to the Owner in its entirety three years after occupancy; E. Fifth year and thereafter, yearly increases of Two Hundred Fifty Thousand Dollars (US $250,000.00) up to a total rental per year of Five Million Dollars (US $5,000,000.00) per annum, payable to the Owner in its entirety four years after occupancy and of each year of this Agreement thereafter, as hereunder: US $3,250,000.00 four years after occupancy; US $3,500,000.00 five years after occupancy; US $3,750,000.00 six years after occupancy; US $4,000,000.00 seven years after occupancy; US $4,250,000.00 eight years after occupancy; US $4,500,000.00 nine years after occupancy; US $4,750,000.00 ten years after occupancy; US $5,000,000.00 eleven years after occupancy, and US $5,000,000.00 twelve, thirteen and fourteen years after occupancy. 2. Operation. Lessee shall manage the Casino-Property by and through experienced and professionally competent operators, reasonably acceptable to Owner. Lessee shall have full and complete control of the operation of the Casino, subject only to the terms and conditions of this Agreement. 3. License. Owner shall maintain the Gambling License for and during the entire term of this Agreement, and Owner hereby authorises 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 other terms of this Agreement. Commencement of the initial term and the continuation of this Agreement and Lessee's and Owner's obligations hereunder are subject to Owner obtaining and maintaining in effect the Gambling License, without prejudice to Clause 4 below. 4. Compliance. Lessee shall comply with the laws of Tunisia in operating the Casino-Property under the Gambling License in accordance with the terms of this Agreement. If the Casino license is to be frozen or withdrawn temporarily by the Tunisian Authority for any reason caused by the Lessee, the Lessee will keep paying the rent during that period up to one year. In the event that Lessee is unable to cure the default that caused the license to be frozen or withdrawn, the contract automatically terminates, unless agreed otherwise between the two parties. Where the contract terminates because of the fault of or actions attributable to the Lessee, the Owner has the right to take back the building and all the fittings, furniture and equipment supplied originally and owned by the Lessee, without compensation. 5. Term. This Agreement shall be effective when signed by the parties but the initial term of this Agreement shall be fifteen (15) years from the date of occupancy by Lessee as stated above, i.e. December 1994. This Agreement shall be renewed after renegotiation two years prior to its termination as defined in this Agreement, i.e. renegotiated by not later than 31st December 2007. 6. Lessee during the term of the Agreement will be responsible for the payment to the Owner of charges incurred for the interior and external maintenance of the Casino Property including but not limited to the air conditioning and ventilation system(s), electrical and plumbing outlets and carpeting, and all other landlord and Lessee fittings. 7. The Owner recognises that Lessee in order to obtain full enjoyment of the Casino facilities requires that the hotel complex be completed by 1st June 1995; otherwise the Lessee has the right to suspend the payments of the rental during the time from that date until the hotel is completed, and the lease shall be extended by that same period of time. 8. 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-Property in the condition thereof existing at the commencement of the term, ordinary wear and tear, and damage by fire or other casualty, excepted. Lessee shall be entitled to retain all of its furniture, gambling machines, equipment' records, supplies inventories and other personal property utilised in the operation of the Casino-Property except as provided in Clause 4 above. 9. Operating Capital. Lessee shall provide and expend a minimum of Three Million United States Dollars (US $3,000,000.00) in funds to equip the Property. 10. Deposit. As security for the lease payment(s), and the execution of all the terms and conditions of this Agreement, the Lessee shall deposit the sum of One Million United States Dollars (US$1,000,000) in the following two ways: A- Five hundred thousand United States Dollars (US$500,000) in the form of a bank guarantee issued by a prime bank acceptable to Owner. This guarantee to be effective as of the date of signing of this Agreement B- a cash payment of Five hundred thousand United States Dollars (US$500,000) to the account of the Owner in Tunis or any other place designated by Owner, within 45 days (forty five days) from the date of this Agreement. An interest rate of 7% (seven per cent) per year will be payable to Lessee by the Owner on this amount until it is returned to Lessee. Both (A & B) and interest thereon will be released by Owner to Lessee by 31st December 1998, upon faithful performance of the terms and conditions of this Agreement by the Lessee. 11. Furniture. Furnishings. Fixtures and Equipment. A. Owner shall, at its sole expense, make ready the Casino-Property for occupancy according to building and other such regulations as per the control office (SOCOTEC) certificate, painted and fitted with carpet of local manufacture. This includes all costs of roads, adequate parking, access corridors, walkways, and landscaping. B. Lessee shall, at its sole expense, "provide all gaming devices and related equipment necessary for the operation of the Casino including decoration and chandeliers as required by Lessee to a standard befitting a property of this stature without prejudice to Clause 9 above. Parking attendants for the Casino Property shall be employees of the Lessee. Such costs will not include items specified in (B) below. 12. Conduct of Business. A. During the term of this Agreement, the Casino and Gambling License shall be used solely for the purposes 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 extent that the ambiance of a high class casino shall at all times be maintained, without prejudice to clauses aforegoing. Lessee shall keep the Casino open and available for business on all days of the months of January through December [twelve (12) months] not 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. In such an occurrence, Lessee is entitled to a rebate/reduction of 50% of the rent so due for six (6) months after which both the Owner and/or the Lessee may terminate this Agreement B. Lessee shall employ and train all employees of the Casino-Property. All such employees shall be the employees of the Lessee. All employees of the Casino-Property shall be neatly and cleanly attired and if any of the Casino-Property's employees shall, in any way, bring discredit upon the Country of Tunisia or any city therein, they shall be immediately discharged, and any and all costs incurred thereon are to the responsibility of the Lessee. C. Lessee shall comply, and the Casino-Property shall be operated so as to comply, with all laws and regulations presently in force or subsequently enacted by Tunisia. D. Lessee shall operate and provide in the Casino Property all casino facilities and casino services normally operated and provided in casinos of comparable class. E. Lessee shall be entitled to operate service liquor bars within the Casino- Property for the purpose of selling drinks of patrons of the Casino as well as dispensing complimentary beverages. 13. Relationship of the Parties. Nothing herein contained shall be construed as effecting a co-partnership of 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. 14. Hold Harmless. Owner and Lessee shall, at all times during the term of Agreement, indemnify and save, protect and keep harmless each other from and against any and all liability, cost, damage, expense, and fine, whatsoever, which may arise or be claimed by a person or persons for any loss of money or damage to any property whatsoever, or injury to or death of any person whomsoever, consequent upon or arising from or out of any act of omission of the other. 15. Insurance. During the term of this Agreement, Lessee shall maintain, at Lessee's expense, with a reputable 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 for property damage, and Owner shall be listed as an additional insured. In addition, Lessee shall cause employees to be duly insured by such policies of Workman's Compensation or similar insurance as may be required by applicable laws. The Lessee shall obtain and keep in effect an insurance policy covering the risk of fire, flood, and subsidence damage to the Casino-Property. Owner shall be listed as additional insured. Such insurance shall include loss of revenue for a 24 month period. 16. Right of Inspection. Owner shall have the right to enter upon and/or inspect any part of the property at any time; provided however, such visits or inspections shall be conducted with as little disturbance as possible to the operations of the Casino and in the company of a representative of the Lessee. Such access to the Casino-Property shall not be unreasonably withheld. 17. Assignment. Lessee may assign this Agreement, or may assign or transfer its interest in the property, and any of its rights, or privileges under this Agreement so long as the Gambling Licenses remain in the name of the Owner, and so long as Lessee remains in control of the operation of the Casino-Property. Assignment of this Agreement requires the prior written consent of Owner, which shall not be unreasonably withheld. 18. Appearance of Premises. It is expressly understood and agreed that the appearance of the property which have been provided by the Owner at its expense, including the placing of signs and the general conduct of the business on the Casino-Property Area, will have a material effect on the reputation of Owner. The Owner, therefore, hereby expressly reserves the right to control and regulate the appearance of the property at all times during the term of this Agreement, including, but not limited to the regulation of any signs, advertisements 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 complex housing the Casino-Property, and the Owner shall not unreasonably withhold its approval of the form of such advertising. Lessee will annually prepare a specification book for a programme of promotional and touristic activities. No structural, material or other alterations to the external or internal appearance of the Casino-Property may be undertaken by the Lessee except with the express written permission of the Owner. 19. Entertainment. Lessee shall have the right to decide if any entertainment is needed in the Casino-Property. Lessee shall be responsible for the payment for all entertainment in the Casino-Property. Any such entertainment shall be in accordance with the regulations of Tunisia. 20. Default. If, at any time during the term of this Agreement, one or more of the following events shall occur, Owner may forthwith terminate this Agreement: A. Lessee shall fail to make any payment due under this Agreement on or prior to the date upon which it is due, and such failure shall continue for thirty (30) days after written notice. In such an event the Lessee shall pay the Owner 2% per month on the sum so delayed. B. Lessee shall fail or refuse to fully perform or comply with any other agreement, covenant, or undertaking, which it is required 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 notice. 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 reasonably necessary for Lessee to cure the non-monetary default, in the exercise of reasonable diligence. Should the lease be terminated under the above conditions, the owner retains the right to receive the rental for the remaining term of this Agreement. 21. Notices. Unless a party hereto shall in writing direct otherwise, all notices to be served or rendered under this Agreement shall be properly served and rendered if sent by Registered Mail directed to: Owner: Loisirs Club Hammamet 30, Rue Assamaoual - Notre Dames 1002 Tunis, Tunisie Telephone: 2161-794-450 Telefax: 2161-793-953 Copy to: GMH 29, venue de la Porte Neuve L-27 Luxembourg Telephone: 352-470-168 Telefax: 352-470-352 Lessee: Cleopatra Palace Limited c/o Gabriel Tabarani Chartwell House, 80 Wimbledon Parkside London SW19 SLN England Telephone: 081-789-6762 Copy to: Mohamed Moncef Barouni 6 Rue d' Argentine - Le Belvedere 1002 Tunis Telephone: 2161-285-868 Telefax: 2161-786-553 Any party may change its address for notice by written notice and such change shall be effective upon actual receipt of same. 22. Governing Law. This Agreement is subject to and shall be interpreted in accordance with the laws of Tunisia. 23. Arbitration. If at any time hereafter, any dispute shall arise between Owner and Lessee hereto with respect to this Agreement or the right to claim an abatement of their obligations by reason of a force majeure, then such dispute shall be referred to arbitration by three (3) disinterested persons, one each to be appointed by Owner and Lessee and the third party to be appointed by the other two in writing. If either party shall refuse or fail to appoint an arbitrator within ten (10) days after such a request or if the two appointed arbitrators refuse or fail to appoint the third arbitrator within ten (10) days after their appointment, then either party to this Agreement may request a Judge, in the first instance, in Tunisia, to appoint the third arbitrator. Parties shall abide by such an appointment. The appointment arbitrators shall proceed in accordance with the arbitration stipulations of the Code of Laws of Tunisia. IN WITNESS WHEREOF, this Agreement is executed in duplicate copies, of like terms and effect, on this day the Tenth of October, 1994. "Owner" "Lessee" Loisirs Club Hammamet Cleopatra Palace Ltd an Irish Corporation By: /s/ Jinan Abdulla By: /s/ Gabriel Tabarani ------------------------------- ------------------------------------ Jinan Abdulla Gabriel Tabarani SOCIETE LOISIRS CLUB HAMMAMET CASINO LEASE AND OPERATING MANAGEMENT CONTRACT THIS DOCUMENT WITNESSETH: ON THE HAND, SOCIETE LOISIRS CLUB HAMMAMET, domiciled in Tunis, Tunisia ( "Owner" ) AND ON THE OTHER HAND CLEOPATRA HAMMAMET LIMITED the casino operating company of Avenue Hedi CHAKER Immeuble Ben SALAH 1002 Tunis ( "Lessee" ): WHEREAS, Owner is the present owner of a building, now under construction ( the "Casino-Property" ) as more fully described in Exhibit A which is incorporated by reference; and WHEREAS, Owner presently has an agreement in principle which will allow the operating company to obtain a governmental license or permit which legally authorises it to operate and maintain a gaming casino (the " Casino ") with slot machines, table games and video machines in Tunisia (the "Gambling License") subject to compliance by Owner and by lessee with all applicable Tunisian laws and regulations; and WHEREAS, the parties hereto desire to enter into this lease for the Casino Property in which lessee shall operate a Casino with the particular location of the Casino Property being more fully described in Exhibit B. 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: 1. Lease. Owner does hereby lease the Casino-Property to lessee for a fixed rental as follows: A. First Year beginning 31st December 1995 or occupancy when the space designated as that for housing the Casino-Property is deemed to be ready for occupancy, according to building and other such regulations as per the initial control office (SOCOTEC) certificate. Lessee will pay in Tunisian Dinars a net sum equivalent to Two Million US Dollars ( $ US 2.000.000 ) payable to the owner in two payments, half of the sum on occupancy and the other half when Casino open for business . B. Second year beginning one (1) year from the date of occupancy by lessee as mentioned above, the net sum in Tunisian Dinars equivalent to Two Million five hundred thousand US Dollars (US $ 2.500.000), payable to the Owner in its entirety one year after occupancy; C. Third year beginning two (2) years from the date of occupancy by Lessee as mentioned above. the net sum in Tunisian Dinars equivalent to Three Million US Dollars ( $ US. 3.000.000 ), payable to the Owner in its entirety two years after occupancy; D. Fourth year beginning three years from the date of occupancy by Lessee as mentioned in 1A above the net sum in Tunisian Dinars equivalent to Three Million two hundred and fifty thousand US Dollars ( $ US. 3.250.000 ), payable to the Owner in its entirety three years after occupancy; E. Fifth year and thereafter, yearly increases in Tunisian Dinars equivalent of Two Hundred Fifty Thousand US Dollars ( $ US. 250.000 ) up to a total rental per year of a net sum in Tunisian Dinars equivalent to Five million US Dollars ( $ US. 5.000.000 ) per annum, payable to the owner in its entirety four years after occupancy and of each year of this Agreement thereafter, as hereunder payable in Tunisian Dinars a net sum equivalent to: $ US. 3.250.000 four years after occupancy $ US. 3.500.000 five years after occupancy $ US. 3.750.000 six years after occupancy $ US. 4.000.000 seven years after occupancy $ US. 4.250.000 eight years after occupancy $ US. 4.500.000 nine years after occupancy $ US. 4.750.000 ten years after occupancy $ US. 5.000.000 eleven years after occupancy and $ US. 5.000.000 twelve, thirteen and fourteen years after occupancy 2. Operation. Lessee shall manage the Casino-Property by and through experienced and professionally competent operators, reasonably acceptable to Owner. Lessee shall have full and complete control of the operation of the Casino, subject only to the terms and conditions of this Agreement. 3. License. Lessee shall obtain and maintain the Gambling License for and during the entire term of this agreement, and Owner hereby authorises 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 other terms of this Agreement. Commencement of the initial term and the continuation of this Agreement and Lessee's and Owner's obligations hereunder are subject to Lessee obtaining the Gambling License, without prejudice to clause 4 below. 4. Compliance. Lessee shall comply with the laws of Tunisia in operating the Casino-Property under the Gambling License in accordance with the terms of this Agreement. If the Casino license is to be frozen or withdrawn temporarily by the Tunisian Authority for any reason caused by the Lessee, the Lessee will keep paying the rent during that period up to one year. In the event that Lessee is unable to cure the default that caused the license to be frozen or withdrawn, the contract automatically terminates, unless agreed otherwise between the two parties. Where the contract terminates because of the default of or actions attributable to the Lessee, the Owner has the right to take back the building and all the filings, furniture and equipment supplied originally and owned or leased by the Lessee, without compensation. 5. Term. This agreement shall be effective when signed by the parties but the initial term of this Agreement shall be fifteen (15) years from the date of occupancy by the lessee as stated above, i.e. December 1995 or shortly after. This Agreement shall be automatically renewed for two ( 2 ) successive ten ( 10 ) years terms, unless same is terminated by lessee upon written notice to owner one (1) full year in advance of the expiration of the initial term, or any of the additional ten ( 10 ) year term. A yearly increase of the last rent for the additional periods of the present lease has been agreed upon between the two parties as follows: - Ten per cent ( 10 % ) for the first year of the first additional term. - Five per cent ( 5 % ) per year for the four following years of that period. - Ten per cent ( 10 % ) for the first year of the second five years period. - Five per cent ( 5 % ) per year for the remaining four years of that period. - Ten per cent ( 10 % ) for the first year of the third additional five years. - Five per cent ( 5 % ) per year for the following four years of this additional term. - Ten per cent ( 10 % ) for the first of the fourth additional five years term. - Five per cent ( 5 % ) per year for the remaining four years of this last additional term 6. Lessee during the term of the Agreement will be responsible for the payment to the Owner of charges incurred for the interior and external maintenance of the Casino-Property including but not limited to the air conditioning and ventilation system(s), electrical and plumbing installations and carpeting, and all other landlord and Lessee fittings. 7. The Owner recognises Lessee in order to obtain full enjoyment of the Casino facilities that the hotel complex be completed on or before the date of the opening of the Casino; otherwise the Lessee has the right to suspend the payments of the rental during the time from that date until the hotel is completed, and the lease shall be extended by that same period of time. 8. Surrender at Termination. At the expiration of the term of this Agreement or the additional terms, or upon the earlier termination thereof, Lessee shall surrender and return the Casino-Property in the condition thereof existing at the commencement of the term, ordinary wear and tear, and damage by fire or other casualty, excepted. Lessee shall be entitled to retain all of its furniture, gambling machines, equipment, records, supplies inventories and other personal property utilised in the operation of the Casino-Property except as provided in Clause 4 above. 9. Operating Capital. Lessee shall provide and expend a minimum of Three Million Tunisian Dinars ( T.D. 3.000.000 ) in funds to equip the Property, and operate the casino. 10. Deposit. As security for the lease payment(s), and the execution of all the terms and conditions of this Agreement, the Lessee shall deposit in Tunisian Dinars the equivalent of the sum of One Million and One Half US Dollars ( $ US. 1.500.000 ) in the following ways: A- The equivalent of five hundred thousand US Dollars ( $ US. 500.000 ) in the form of cash. This payment to be effective as of the date of signing of this agreement B- A cash payment in Tunisian Dinars equivalent of Five hundred thousand US Dollars ( $ US. 500.000 ) to be paid to owner at the same time when the owner releases the L.C. N// SB - 51880/94/676 issued by first Los Angeles Bank for the amount of ( US $ 500.000 ). Such payment should be effected on or before the 1st November 1995. C- A cash payment in Tunisian Dinars equivalent to five hundred thousand US Dollars ( $ US. 500.000 ) on or before 15th November 1995. D- An interest of 7% ( seven per cent ) per year will be paid on A, B, and C above by the owner to the lessee together with the cash deposits on 31st December 1999. 11. Furniture, Furnishings Fixtures and Equipment A. Owner shall, at its sole expense, make ready the Casino-Property for occupancy according to building and other such regulations as per the control office (SOCOTEC) certificate, painted and fitted with carpet of local manufacture. This includes all costs of roads, parking spaces, access corridors, walkways and landscaping. B. Lessee shall, at its sole expense, provide all gaming devices and related equipment necessary for the operation of the casino including drapes, quality decoration and chandeliers as required by lessee to a standard befitting a property of this stature without prejudice to Clause 9 above. Parking attendants for the casino-property shall be employees of the lessee. Such costs will not include items specified in ( B ) below. 12. Conduct of Business A. During the term of this Agreement, the Casino and Gambling License shall be used solely for the purposes 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 extent that the ambiance of a high class casino shall at all times be maintained, without prejudice to clauses aforegoing. Lessee shall keep the casino open and available for business on all days of the months of January through December (Twelve "12" months) not 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. In such an occurrence, Lessee is entitled to a rebate/reduction of 50% of the rent so due for six ( 6) months after which both the Owner and/or the Lessee may terminate this Agreement. B. Lessee shall employ and train all employees of the Casino-Property. All such employees shall be the employees of the Lessee. All employees of the Casino-Property shall be neatly and cleanly attired and if any of the Casino-Property's employees shall, in any way, bring discredit upon the Country of Tunisia or any city therein, they shall be immediately discharged, and any and all costs incurred thereon are to the responsibility of the Lessee. C. Lessee shall comply, and the Casino-Property shall be operated so as to comply, with all laws and regulations presently in force or subsequently enacted by Tunisia. D. Lessee shall operate and provide in the Casino-Property all casino facilities and casino services normally operated and provided in casinos of comparable class. E. Lessee shall be entitled to operate service liquor bars within the Casino Property for the purpose of selling drinks of patrons of the Casino as well as dispensing complementary beverages. 13. Relationship of the Parties. Nothing herein contained shall be construed as effecting a co-partnership of 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 14. Hold Harmless. Owner and Lessee shall, at all times during the term of this Agreement, indemnify and save, protect and keep harmless each other from and against any and all liability, cost, damage, expense, and fine, whatsoever, which may arise or be claimed by a person or persons for any loss of money or damage to any property whatsoever, or injury to or death of any person whomsoever, consequent upon or arising from or out of any act of omission of the other. 15. Insurance. During the term of this Agreement, Lessee shall maintain, at Lessee's expense, with a reputable 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 for property damage, and Owner shall be listed as an additional insured. In addition, Lessee shall cause employees to be duly insured by such policies of Workman's Compensation or similar insurance as may be required by applicable laws. The Lessee shall obtain and keep in effect an insurance policy covering the risk of fire, flood, and subsidence damage to the Casino-Property. Owner shall be listed as additional insured. Such insurance shall include loss of rent for a 24 month period. 16. Right of Inspection. Owner shall have the right to enter upon and/or inspect any part of the property at any time; provided however, such visits or inspections shall be conducted with as little disturbance as possible to the operations of the casino and in the company of a representative of the Lessee. Such access to the Casino-Property shall not be unreasonably withheld. 17. Assignment. Lessee may assign this Agreement, or may assign or transfer its interest in the property, and any of its rights, or privileges under this Agreement so long as the Gambling Licenses remain in the name of the Operator, and so long as Lessee remains in control of the operation of the Casino-Property. Assignment of this Agreement requires the prior written consent of Owner, which shall not be unreasonably withheld. 18. Appearance of Premises. It is expressly understood and agreed that the appearance of the property which have been provided by Owner at its expense, including the placing of signs and the general conduct of the business on the Casino-Property Area, will have a material effect on the reputation of Owner. The Owner, therefore, hereby expressly reserves the right to control and regulate the appearance of the property at all times during the term of this Agreement, including, but not limited to the regulation of any signs, advertisements 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 complex housing the Casino-Property, and the Owner shall not unreasonably withhold its approval of the form of such advertising. Lessee will annually prepare a specification book for a programme of promotional and touristic activities. No structural, material or other alterations to the external or internal appearance of the Casino-Property may be undertaken by the Lessee except with the express written permission of the Owner. 19. Entertainment. Lessee shall have the right to decide if any entertainment is needed in the Casino-Property. Lessee shall be responsible for the payment for all entertainment in the Casino-Property. Any such entertainment shall be in accordance with the regulations of Tunisia. 20. Default. If, at any time during the term of this Agreement, one or more of the following events shall occur, Owner may forthwith terminate this Agreement: A. Lessee shall fail to make any payment due under this Agreement on or prior to the date upon which it is due, and such failure shall continue for thirty ( 30 ) days after written notice. In such an event the lessee shall pay the owner 2% per month on the sum so delayed. B. Lessee shall fail or refuse to fully perform or comply with any other agreement, covenant, or undertaking, which it is required 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 notice. 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 reasonably necessary for Lessee to cure the non-monetary default, in the exercise of reasonable diligence. Should the lease be terminated under the above conditions, the Owner retains the right to receive the rental for the remaining term of this Agreement. 21. Notices. Unless a party hereto shall in writing direct otherwise, all notices to be served or rendered under this Agreement shall be properly served and rendered if sent by Registered Mail directed to: Owner: Loisirs Club Hammamet 30, Rue Essamaouel - Notre Dame 1002 Tunis, Tunisie Telephone: 216 1 794 450 Telefax: 216 1 793 953 Copy to: GMH 29, Avenue de la Porte Neuve L - 2227 Luxembourg Telephone: 352 470 168 Telefax: 352 470 352 Lessee: Cleopatra Hammamet Ltd. Avenue Hedi CHAKER Immeuble Ben SALAH 1002 Tunis Copy to: Mohamed Moncef Barouni 6 Rue d'Argentine - Le Belvedere 1002 Tunis Telephone: 2161-285-868 Telefax: 2161- 786-553 Any party may change its address for notice by written notice and such change shall be effective upon actual receipt of same. 22. Governing Law. This Agreement is subject to and shall be interpreted in accordance with the laws of Tunisia 23. Arbitration. If any time hereafter, any dispute shall arise between Owner and Lessee hereto with respect to this Agreement or the right to claim an abatement of their obligations by reason of a force majeure, then such dispute shall be referred to arbitration by three ( 3 ) disinterested persons, one each to be appointed by Owner and Lessee and the third party to be appointed by the other two in writing. If either party shall refuse or fail to appoint an arbitrator within ten ( 10 ) days after such a request or if the two appointed arbitrators refuse or fail to appoint the third arbitrator within ten ( 10 ) days after their appointment, then either party to this Agreement may request a Judge, in the first instance, in Tunisia, to appoint the second and/or the third arbitrator. Parties shall abide by such an appointment. The appointed arbitrators shall proceed in accordance with the arbitration stipulations of the Code of Laws of Tunisia. IN WITNESS WHEREOF, this Agreement is executed in duplicate copies, of like terms and effect, on this day of ----------, 199---. " Owner" " Lessee" Loisirs Club Hammamet EX-99 22 EXHIBIT 10.141 EXHIBIT 10.141 LETTER OF INTENT BETWEEN COMPAGNIE MONASTIRIENNE IMMOBILIERE ET TOURISTIQUE AND CLEOPATRA PALACE LIMITED 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 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 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 CASINO LEASE COMPAGNIE MONASTIRIENNE IMMOBILIERE ET TOURISTIQUE "OWNER" CLEOPATRA PALACE LIMITED "LESSEE" 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$ 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 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. 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. 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. 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. 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. 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. 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 CLEOPATRA PALACE LIMITED By: /s/ Cleopatra Palace Limited COMPAGNIE MONASTIRIENNE IMMOBILIERE ET TOURISTIQUE By: /s/ Compagnie Monastirienne Immobiliere et Touristique S.A. EX-99 23 EXHIBIT 10.142 EXHIBIT 10.142 LETTER OF INTENT DATED SEPTEMBER 24, 1996 BETWEEN THE REGISTRANT AND GRAND HOTEL KRASNAPOLSKY N.V. NuOasis International Inc. 43 Elizabeth Avenue o Nassau, Bahamas Telephone (011) 44-171-493-1166 o Facsimile (011) 44-171-493-1197 October 7, 1996 Board of Directors Grand Hotel Krasnopolsky N.V. Dam 9 - 1012 JS Amsterdam, The Netherlands RE: Formation and capitalization of a joint enterprise, to be incorporated under the laws of the Netherlands Antilles (the "NV Company") and jointly owned in equal proportions by NuOasis International Inc., a corporation organized under the laws of the Commonwealth of the Bahamas ("NuOasis") and 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, Nona Morelli's II Inc., a corporation organized under the laws of the United States ("Nona") and its wholly-owned subsidiary, NuOasis, 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 series of transactions (the "Transaction") whereby GHK (or its designee) and NuOasis will cause the formation of the NV Company (as defined herein) and capitalize such enterprise with cash, securities and assets, all upon and subject to the following terms and conditions. This Agreement is made and entered into by NuOasis based upon the following facts: A. NuOasis has the right to acquire seventy percent (70%) of the share capital of Cleopatra Palace Limited, an Irish corporation ("Cleopatra") and NuOasis Resort & Casino, Margarita A.V.V., an Aruba corporation in organization ("NuOasis Margarita"); and, B. Cleopatra is the owner of all of the issued and outstanding share capital of Cleopatra Cap Gammarth Limited ("Cleopatra Gammarth"), Cleopatra Hammamet Limited ("Cleopatra Hammamet"), and Cleopatra Palace Monastir Limited, a corporation in organization ("Cleopatra Monastir"), corporations serving as subsidiaries of Cleopatra and organized under the laws of Tunisia; and, C. Cleopatra Hammamet has the right to conduct casino gaming in the province of Hammamet, Tunisia pursuant to an order issued by the government of Tunisia (the "Hammamet License") at a casino gaming facility located in Hammamet (the "Hammamet Casino"), designed and built to suit Cleopatra pursuant to the Casino Lease and Management Operating contract with Societe Loisirs Club Hammamet (the "Hammamet Lease") which conveys to Cleopatra Hammamet certain use and operating rights to the Hammamet Casino; and, [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 D. Cleopatra Gammarth has the right to conduct casino gaming in the province of Cap Gammarth, Tunisia pursuant to an order issued by the government of Tunisia (the "Cap Gammarth License") at a casino gaming facility (the "Cap Gammarth Casino"), located on the premises of the Le Palace Hotel, itself a part of the hotel and commercial park known as Cleopatra Palace Resort at Cap Gammarth, designed and built to suit Cleopatra pursuant to the Casino Lease and Management Operating contract with Societe Loisirs Club Cap Gammarth (the "Cap Gammarth Lease") which conveys to Cleopatra Gammarth certain use and operating rights to the Cap Gammarth Casino; and, E. Cleopatra World has the rights to manage the Le Palace Hotel and adjoining commercial establishments, including eight (8) third-party operated restaurants and fifty-four (54) clothing and consumer goods retail shops, an independent health club, a stand-alone beach club and forty (40) deluxe apartments (collectively, the "Gammarth Hotel"); and, F. Cleopatra Monastir, a corporation in organization, has the right to manage and option to purchase the 1,000-room hotel and entertainment complex known presently as the "Jockey Club" (the "Monastir Hotel"), in the town of Monastir, Tunisia, and to conduct casino gaming in a 50,000 square foot casino facility (the "Monastir Casino"), to be built to suit for Cleopatra pursuant to the Agreement with (the "Monastir Lease"), which conveys to Cleopatra certain use, operating and management rights to the existing hotel and entertainment complex and to the proposed casino; and, G. NuOasis Margarita, a corporation in organization, has an agreement in principle to acquire, develop and own in perpetuity a 418-room deluxe hotel and 50,000 square foot gaming casino currently known as the "Curacao Beach Hotel", presently under construction on the Island of Margarita, in the southern Caribbean, which NuOasis intends to complete, open and operate as the "NuOasis Resort & Casino - Margarita Isle (the "Margarita Resort"). H. As soon as practicable after the execution hereof, GHK and NuOasis wish to enter into a joint business enterprise in the form of a new limited liability company under the laws of the Netherlands Antilles (the "NV Company") for the purpose of acquiring, constructing, developing, operating and/or managing real and leasehold interests in hotels, food services and casino gaming and non-gaming-related activities (generally referred to herein as "Properties"); and, [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 I. The initial Properties to be acquired, developed, operated and managed by the NV Company will be the Hammamet Casino, the Gammarth Casino and the Le Palace Hotel. Subject to the initial level of capitalization of the NV Company, as set forth herein, it may also acquire, develop, operate and manage the Monastir Casino, the Monastir Hotel, the Margarita Resort, and purchase a controlling ownership interest in the Le Palace Hotel. Based upon these facts, and the representations and warranties contained herein, our agreement is as follows: 1. Formation and Capitalization of NV Company Subject to the satisfaction (or waiver) of the terms and conditions contained herein, at the Closing (as herein defined), NuOasis and GHK shall cause the formation of NV Company with authorized share capital of the equivalent of Forty Million Dollars (USD40,000,000), comprised of Forty Thousand (40,000) shares with nominal value of the equivalent of One Hundred Dollars (USD100) per share. Immediately following the formation of NV Company, GHK and NuOasis shall each subscribe for share capital of the NV Company as follows: A. Subscription by NuOasis. NuOasis will transfer, or cause Cleopatra to transfer to the NV Company, in consideration for a fifty percent (50%) interest in the NV Company, its rights to seventy percent (70%) interest in Cleopatra Hammamet, Cleopatra Gammarth, Cleopatra Monastir and Cleopatra World, and its rights to fifty percent (50%) interest in NuOasis Margarita (as defined herein and collectively referred to herein as the "NuOasis Subsidiaries"); and, B. Subscription by GHK. GHK will initially transfer, or cause to be transferred to the NV Company the sum of Twenty Million Dollars (USD20,000,000), less the "Pre- Closing Contributions" (as defined herein), for use by the NV Company to complete the construction, development and opening of the two (2) casinos comprising the principal assets of Cleopatra Hammamet and Cleopatra Gammarth, to manage and acquire the rights and ownership interest of Cleopatra World. Subscription payments by GHK shall be made as follows: (i) USD3,500,000 upon formation of the NV Company and Closing hereunder; (ii) USD12,000,000 payable in two (2) equal installments of USD6,000,000 due thirty (30) days and again sixty (60) days following Closing herein; (iii)USD4,500,000 payable upon execution of the Hotel Management Agreement (as defined herein) with respect to the Le Palace Hotel. GHK may elect, at its discretion, to make further contributions to fund the development of the Monastir Hotel, Monastir Casino and Margarita Resort ("Secondary Contribution"). [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 2. Advances by GHK During the period immediately following the execution hereof and ending the Closing Date (the "Pre-Closing Period"), GHK agrees to provide an amount of cash (the "Pre-Closing Contributions") up to the lesser of USD2,000,000, or such amount as may be required to pay the costs and expenses incurred or becoming due during the Pre-Closing Period (whether before or after the formation of the NV Company), for the operation of the Le Palace Hotel, the Hammamet Casino and the Gammarth Casino in accordance with the budgets for the respective facilities (the "Pre-Opening Budget"), attached hereto and incorporated by reference as Schedule "1". Such Pre-Closing Contributions (if any) will be collateralized by NuOasis by the pledge and delivery to a mutually acceptable escrowholder of shares of Nona common stock equal in value to 120% of the aggregate Pre-Closing Contributions. 3. Use of Capital by NV Company A. Completion of Development, Construction and Opening of NV Company Properties. Upon Closing the NV Company will acquire majority ownership rights and the obligations to complete, open for business and manage or supervise the management of the initial Properties. It is mutually agreed that the GHK Capitalization, consisting of up to USD20,000,000 will be utilized by the NV Company, unless otherwise agreed by the Operating Committee (as defined below), as follows: (i) USD6,500,000 will be utilized to finance the remaining Pre-Opening Budget costs and expenses related to the Hammamet Casino; and, (ii) USD7,000,000 will be utilized to finance the remaining Pre-Opening Budget costs and expenses related to the Gammarth Casino; and, (iii)USD4,500,000 will be utilized to finance and retire debt of Cleopatra World related to the opening and working capital requirements of the Le Palace Hotel. B. Reimbursement of Costs Paid by NuOasis Pending Closing. Up to USD5,000,000 - USD1,000,000 out of Pre-Opening Contributions (if any) may be utilized to reimburse NuOasis or Cleopatra for costs and expenses incurred during the Pre-closing Period in the furtherance of the development, completion and opening of the subject Properties and contained in the Pre-Opening Budget which, as of the date hereof, have been or will be incurred or accrued directly by NuOasis or Nona on behalf of the subject facilities. [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 4. Closing The closing of this Transaction (the "Closing") shall occur within five (5) business days following the formation of the NV Company, at the office of GHK or such other place or time as the parties hereafter may mutually agree following the execution hereof. At Closing NuOasis shall cause the transfer to the NV Company of seventy percent (70%) of the share capital of (a) Cleopatra Hammamet; (b) Cleopatra Cap Gammarth; and (c) Cleopatra World. 5. Non-Disclosure; Non-Circumvention NuOasis and GHK, for themselves and on behalf of their Affiliates (as defined below), agree that, for a period of two (2) years immediately following the termination of this Agreement, they will not: A. Disclose. Disclose or make known to any person, firm or corporation not already in the public domain, including but not limited to the names or nature of the business opportunities, businesses, or addresses of any of the projects, Properties or customers of the other party or its Affiliates, any information pertaining to them; or, B. Circumvent. Call on, solicit, or take away, attempt to call on, solicit, or attempt to take away any of the Properties, projects, business opportunities, properties (owned or in the negotiating stage), or customers of the other parties or their Affiliates, on whom the parties hereof called or became acquainted with during the process of investigating the feasibility of the transaction contemplated by this Agreement, either for itself or for any other person, firm or corporation. For the purposes of this Agreement, an "Affiliate" of, or person affiliated with, a specified person is a person that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified. The term associate means (I) a corporation or organization (other than the NV Company) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities; (ii) any trust or other estate in which such a person has a substantial beneficial interest or as to which such person serves as trustee or in a similar capacity; and, (iii) any relative or spouse of such person, or any relative or such spouse, who has the same home as such person or is director or officer of the parties hereto. [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 6. Representations and Warranties of NuOasis In connection herewith, and as an inducement to GHK to enter into this Agreement, NuOasis confirms that: A. The NuOasis Subsidiaries. The shares of the NuOasis Subsidiaries, when delivered, will be free and clear of liens, claims and encumbrances; NuOasis has all necessary right and power to enter into this Agreement and to cause the transfer to NV Company NuOasis' seventy percent (70%) of the equity of Cleopatra Hammamet, Cleopatra Gammarth, Cleopatra World, Cleopatra Monastir and fifty percent (50%) of NuOasis Margarita, Cleo Aruba, to NV Company as contemplated herein; and, that any necessary approval by regulatory authorities, shareholders of NuOasis or third parties will be obtained prior to Closing. B. Status of the NuOasis Subsidiaries. The NuOasis Subsidiaries with the exception of NuOasis Margarita and Cleopatra World, which are incorporated under the laws of the Netherlands Antilles and British Virgin Islands, respectively, are duly organized, validly existing, and in good standing under the laws of their jurisdiction. C. Capitalization of the NuOasis Subsidiaries. The capitalization of the NuOasis Subsidiaries is, as of the date hereof is comprised of the following: (I) 1,000 shares of authorized capital stock, TD1,000 par value, of which all 1,000 shares are issued and outstanding as to Cleopatra Hammamet; (ii) 1,000 shares of authorized capital stock, TD1,000 par value, of which all 1,000 shares are issued and outstanding as to Cleopatra Gammarth; (iii) 50,000 shares of authorized capital stock, USD1.00 par value, of which all 50,000 shares are subscribed but not yet issued and outstanding as to Cleopatra World; (iv) 1,000 shares of authorized capital stock, TD1,000 par value, of which all 1,000 shares are subscribed but not yet issued and outstanding as to Cleopatra Monastir; and (v) 100,000 shares of authorized capital stock, NAD1.00 par value, of which all 100,000 shares are subscribed but not yet issued and outstanding as to NuOasis Margarita. D. Compliance with Laws, Rules and Regulations. The NuOasis Subsidiaries are in compliance with all applicable laws, rules and regulations, relating to their business, except to the extent that non-compliance would not materially and adversely affect their respective business, operations, or value of their assets. E. Value of the Principal Assets of the NuOasis Subsidiaries. NuOasis' investment in the NuOasis Subsidiaries, directly and indirectly through Cleopatra and by way of costs and expenses incurred by NuOasis and Nona for the benefit of such subsidiaries, as of the date hereof, is approximately USD17,100,000 represented by USD16,000,000 invested by NuOasis which NuOasis or Cleopatra have or are in the process of utilizing to provide working capital to and guarantees for the use of Cleopatra Hammamet, Cleopatra Gammarth, Cleopatra World and Cleopatra Monastir, and approximately USD1,100,000 in costs and expenses incurred by Nona for which NuOasis and/or Cleopatra have assumed responsibility for reimbursement. The allocation of such investments by NuOasis are identified in Schedule "2" attached hereto (the "Investments"). [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 In addition, pursuant to the agreement in principle with the present owners of the Margarita Resort, NuOasis has agreed to purchase the property for USD12,500,000 and a commitment to complete the construction and furnishing of the property, and contribute the facility to NuOasis Margarita in exchange for its 50% interest in NuOasis Margarita. Also, pursuant to the agreement in principle with the present owners of Le Palace Hotel, Cleopatra World has agreed to purchase the majority interest, being 55%, in the Tunisian corporation which owns the Le Palace Hotel for USD18,500,000, payable USD6,500,000 in cash at closing and USD12,000,000 in the form of a promissory note, the terms of which have not yet been finalized. F. Changes in Valuation of NuOasis Subsidiaries. Since September 30, 1996 except as set forth in Schedule "A" attached hereto (the "Valuations"), as may be amended from time to time prior to Closing, the value of the principal assets of the NuOasis Subsidiaries, net to the interest of being transferred to the NV Company pursuant hereto is USD as set forth in Schedule "8" have not (I) discharged or satisfied any liens other than those securing, or paid any obligation or liability which materially change the values shown on the Valuations. 7. NuOasis Subsidiaries; Conduct of Business Between the date hereof and the date of Closing or termination hereof, except with the prior written notice to GHK, NuOasis shall cause the NuOasis Subsidiaries to: A. Conduct Business as Usual: Conduct their business only in the usual and ordinary course and the character of such business shall not be changed nor any different business be undertaken; B. Maintain Current Capital Structure: Refrain from making any changes in their authorized or issued capital stock; C. Avoid Special Settlements: Not discharge or satisfy any lien or encumbrance or obligation or liability, other than current liabilities shown on their respective financial statements contained in the Valuations, and current liabilities incurred since that date in their respective course of business; [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 D. Avoid Distributions: Not make any payment or distribution to their respective stockholders, or purchase for cash or redeem any of their respective share capital; E. Avoid Encumbrance or Cancellation of Debt: Not mortgage, pledge, or subject to lien or encumbrance any of their respective assets, tangible or intangible not in the ordinary course of business; F. Provide Additional Information: Furnish GHK with such documentation and information regarding the NuOasis Subsidiaries as is reasonably requested. 8. Agreement to Cause NV Company to Retain GHK for Management of Hotel Properties Upon Closing the NV Company will cause Cleopatra World to enter into a Management and Food Service Agreement in form and content to the agreement attached hereto as Schedule "5" with GHK (the "Hotel Properties Manager"), as to the Le Palace Hotel, and as to other hotels acquired by the NV Company. The Hotel Properties Manager shall supervise all hotel and food service aspects of the Le Palace Hotel and other hotel properties acquired by NV Company, and shall authorize the disbursement of funds by the NV Company for such development and management in accordance with the Pre-Opening Budget for Le Palace Hotel as set forth herein or, as to all such future hotel properties with the approval of the Operating Committee. 9. Agreement to Cause NV Company to Retain NuOasis for Management of Casino Gaming Properties Upon Closing the NV Company will cause the Properties to enter into a Gaming Management Agreement identical in form and content to the agreement attached hereto as Schedule "6" (the "Casino Management Agreement") with NuOasis ("Casino Properties Manager") who will configure the operational design of the respective casinos and manage the day-to-day operations of all casinos acquired or to be managed by the NV Company. 10. Adoption of By-Laws of NV Company The NV Company shall approve and adopt By-Laws identical in form and content to the agreement attached hereto as Schedule "7" (the "NV By-Laws") which shall call for the formation of an Operating Committee, which shall have four (4) members, two (2) of which shall be selected by NuOasis and two (2) of which shall be selected by GHK (the "Operating Committee"). The Operating Committee shall make all determinations by majority vote; provided that (i) a unanimous vote shall be required to approve the sale of all or substantially all of the NV Company's assets or equity interest, and (ii) in the event of an impasse with respect to any determination to be made by majority vote, the membership of the Operating Committee shall be temporarily increased to five (5) members, with the fifth member to be selected by mutual agreement between GHK and NuOasis, in order to resolve such impasse by majority vote. [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 11. Conditions Precedent to Consummate Transaction The obligation of GHK or NuOasis to effect the Transaction contemplated by this Agreement is subject to: A. Formation of NV Company; Adoption of By-Laws. The NV Company shall be duly formed as contemplated herein, and the NV By-Laws shall be approved by GHK and NuOasis. B. Appointment of NV Company Directors. As soon as reasonably practicable after the formation of the NV Company, but in any event on or before the Closing Date, NuOasis and GHK shall each appoint two (2) directors who shall be elected as Directors of the NV Company. C. Acceptance of the Value of the NuOasis Subsidiaries. GHK shall be satisfied with the results of its due diligence review of the NuOasis Subsidiaries, including without limitation its review of (a) the Valuations, (b) matters related to governmental permitting and approvals, (c) legal aspects of the respective Leases, (d) physical aspects of the respective Properties, (e) revenues expected to be generated by gaming devices and tables at the respective casinos, (f) projected income and expenses for the respective hotels, (g) all documentation evidencing the transactions described in this Agreement to be signed on or before the Closing, and (h) all other matters related to the feasibility of the Transaction. D. Capitalization of NV Company by GHK. GHK shall tender the GHK Capitalization, less the aggregate amount of its Pre-Closing Contributions (the GHK Capitalization after subtracting out the Pre-Closing Contributions shall hereinafter be referred to as the "Pre-Closing Capital"), for development, construction and continuing working capital purposes, in accordance with the respective budgets, or amended budget adopted by the parties hereto, or for purposes as otherwise required by the terms of any of the respective Leases. E. Activities Covered. The respective management agreements to be entered into by the NV Company, NuOasis and GHK on the Closing Date shall be executed by all parties. [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 12. Additional Documents NuOasis and GHK each agree to execute such additional instruments and take such action as may be reasonably requested by the other party to effect the formation and capitalization of the NV Company or otherwise to carry out the intent and purposes of this Agreement. 13. 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: Bruno Hunziker Gruninger Hunziker Roth Thunstrasse 83, CH-3000 Bern 16, Switzerland Telephone: +41 (0) 31 356 5050 Facsimile: +41 (0) 31 356 5059 To GHK: Grand Hotel Krasnopolsky N.V. DAM 9 - 1012 JS Amsterdam, The Netherlands Telephone: + (31) 30 554 6011 Facsimile: + (31) 30 554 6127 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. 14. Applicable Law This Agreement was negotiated and shall be constructed under and governed by the laws of The Netherlands, notwithstanding any conflict-of-law provision to the contrary. [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 15. Remedies on Disclosure or Circumvention The parties hereto mutually acknowledge and agree that the damage caused by breach or violation of the non-disclosure and non-circumvention terms and covenants contained herein are difficult to measure and, given such [LIQUIDATED DAMAGE CLAUSE] 16. 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. 17. 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. 18. 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. 19. 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. 20. 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. 21. 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. [NUOINLTD\AGR:GHKJVCO.LOI]-5 Grand Hotel Krasnopolsky N.V. October 7, 1996 22. 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. ACCEPTED AND AGREED THIS ----- DAY OF ----------, 1996 Grand Hotel Krasnopolsky N.V. By:------------------------------- Name: [NUOINLTD\AGR:GHKJVCO.LOI]-5 SCHEDULE "1" to the Agreement Dated October 7, 1996
PRE-OPENING BUDGET Cleopatra Cleopatra Le Palace Cleopatra Purchase of NuOasis Hammamet Gammarth Hotel Monastir Interest in Margarita Expenditure Casino Casino Mngmnt Casino Le Palace Hotel Resort - ---------------------------------------- ------------- ---------- ----------- --------- --------------- --------- Security Deposit $ 1,000 $ 1,000 $ 3,000 Advance Rent * - - Gaming devices and related supplies 2,286 2,286 Table games and related supples Furniture, fixtures and equipment (non-gaming) 1,285 1,325 Pre-Opening working capital 500 500 Pre-Opening advertising 400 400 Bankroll 2,000 2,000 Contingency 500 500 TOTAL
SCHEDULE "2" to the Agreement Dated October 7, 1996 THE INVESTMENTS SCHEDULE "3" to the Agreement Dated October 7, 1996 THE HOTEL PROPERTIES MANAGER SCHEDULE "4" to the Agreement Dated October 7, 1996 THE CASINO MANAGEMENT AGREEMENT SCHEDULE "5" to the Agreement Dated October 7, 1996 THE NV BY-LAWS SCHEDULE "6" to the Agreement Dated October 7, 1996 NET INTEREST BEING TRANSFERRED TO THE NV COMPANY SCHEDULE "A" to the Letter Agreement Dated October 7, 1996 THE VALUATIONS
SCHEDULE OF USE OF CAPITAL BY NV COMPANY Cleopatra Cleopatra Le Palace Cleopatra Purchase of NuOasis Hammamet Gammarth Hotel Monastir Interest in Margarita Expenditure Casino Casino Mngmnt Casino Le Palace Resort Hotel - ---------------------------------------- ----------- ----------- ------------ --------- ----------- ------------ Security Deposit $ $ 1,000,000 $ 3,000,000 $ $ - $ - Advance Rent 1,600,000 - - - - Gaming devices and related supplies 2,400,000 2,500,000 - - 2,500,000 Furniture, fixtures and equipment (non-gaming) 1,285,000 2,375,000 - - 11,000,000 Pre-Opening working capital 210,000 300,000 1,450,000 5,000,000(1) 12,000,000 Bankroll 2,000,000 2,000,000 - - 2,000,000 TOTAL $ 7,495,000 $ 8,275,000 $ 4,450,000 $ $ 5,000,000 $ 16,500,000 =========== =========== ============ =========== ============= ============
[NUOINLTD\AGR:GHKJVCO.LOI]-5 EX-99 24 COLLATERAL SUBSTITION AGR., EXHIBIT 10.143 EXHIBIT 10.143 COLLATERAL SUBSTITUTION AGREEMENT DATED DECEMBER 29, 1995 BETWEEN THE REGISTRANT AND NG MAN SUN COLLATERAL SUBSTITUTION AGREEMENT This Collateral Substitution Agreement (the "Agreement") is made this 29th day of December 1995, by and between Nona Morelli's II Inc, a Colorado corporation ("Nona") and Silver Faith Holdings Limited, a corporation organized under the laws of Hong Kong ("Silver Faith"). WHEREAS, on May 1, 1995, Nona and Dragon Sight International Amusement (Macau) Company ("Dragon") entered into an Asset Purchase Agreement (the "Purchase Agreement") pursuant to which Nona purchased from Dragon a Net Profits Interest (as defined in the Purchase Agreement); and, WHEREAS, a closing of the Asset Purchase Agreement occurred on May 23, 1995; and, WHEREAS, the consideration delivered to Dragon in the purchase of the Net Profits Interest consisted of, among other things, a promissory note in the principal amount of US$3,000,000 (the "Note") and a security agreement of the same date ("Security Agreement") conveying to Dragon a security interest in certain securities owned by Nona consisting of 250,000 shares of Series B Preferred Stock of NuOasis Gaming Inc. (the "NuOasis Shares" or "Original Collateral"); and, WHEREAS, Silver Faith owns or has the right to acquire the Note, Security Agreement and Original Collateral; and, WHEREAS, Nona and Silver Faith have agreed to a substitution of certain other assets of Nona for the NuOasis Shares as collateral for the Note and the Security 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, Silver Faith and Nona agree as follows: 1. Pledge of Substitute Collateral In consideration for the release of the NuOasis Shares as the Original Collateral, as provided for herein, Nona hereby pledges and grants to Silver Faith a security interest in (a) 10,000 shares of no par value common stock of Fantastic FoodsInternational Inc., a California corporation ("Fantastic Shares"), (b) 6,000,000 New Class D Warrants to Purchase Common Stock of NuOasis Gaming Inc., a Delaware corporation (the "NuOasis New Class D Warrants"), and (c) One Million (1,000,000) shares of capital stock of Cleopatra Palace Limited, a corporation organized under the laws of Ireland ("Cleopatra Shares"). Collectively, the Fantastic Shares, the NuOasis New Class D Warrants and the Cleopatra Shares are referred to herein as the "New Collateral", and are valued, for the purpose of this Agreement, at US$3,000,000 as allocated in Exhibit "A" attached hereto. 2. Release of Original Collateral Inconsideration for Nona's assignment and transfer of the New Collateral, Silver Faith hereby releases any and all claims which it may have to the NuOasis Shares pursuant to the Note or Security Agreement, or otherwise, and agrees to convey and deliver to Nona, to have and to hold forever, all of Silver Faith's security interest in the NuOasis Shares, and any claims of Silver Faith related to the NuOasis Shares. And, Silver Faith warrants that it has the power and authority, and does hereby agree to transfer same to Nona at Closing, free and clear of all liens and encumbrances. [NM\AGR:SFHCOLAT.AGR]-4 1 3. No Prior Encumbrances or Assignment Silver Faith represents and covenants that it has not assigned, pledged or otherwise in any manner whatsoever conveyed or transferred to any third party the NuOasis Shares, or any security interest therein, either by instrument in writing or otherwise. 4. Transfer of New Collateral by Nona Nona agrees to transfer to Silver Faith, or its designee(s), the New Collateral pursuant to the following terms and conditions: A) Assignment. Nona will deliver certificates and other appropriate documents evidencing Nona's title to the respective securities comprising the New Collateral, together with properly signed and guaranteed stock powers, if applicable. Such assignment shall be made on an assignment separate from such certificates at Closing. B) Authority to Transfer. Nona represents and warrants that it has full legal power, right and authority to enter into this Agreement and to convey the New Collateral, as provided herein, free and clear of encumbrances, and that duly authorized corporate action, if appropriate, has or will be taken by Nona prior to the date of Closing. 5. Effective Date and Closing It is mutually understood and agreed that this Agreement may require the consent and execution of third parties, and, as a result, effecting the exchange of the Original Collateral for the New Collateral ("Closing") may take up to 60 days from the date hereof. Notwithstanding the actual date of Closing, the effective date of this Agreement shall be the date first written above ("Effective Date"). [NM\AGR:SFHCOLAT.AGR]-4 2 6. No Detrimental Releases Silver Faith and Nona expressly acknowledge and agree that before executing this Agreement, each party hereto has been fully informed of the terms, contents, conditions and effects of this Agreement; that in executing this Agreement and negotiating the terms thereof, each has had the benefit of the advise of attorneys of its own choosing; and, that no promise or representation of any kind has been made to any party by another party hereto, or anyone acting for them, except as it expressly stated in this Agreement. 7. Miscellaneous A. 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. Silver Faith and Nona are executing and carrying out the provisions of this Agreement in reliance on the representations, warranties, and covenants and agreements contained in this Agreement orat the Closing of the transactions herein provided for including any investigation upon which it 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. B. Costs and Expenses. Each party shall bear its share of all costs and expenses incurred in this proposed exchange and transfer. C. 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. 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. [NM\AGR:SFHCOLAT.AGR]-4 3 E. 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 Silver Faith: Silver Faith Holdings Limited Room 3078, Diamond Square 3/F Shun Tak Centre 200 Connaught Road, Central, Hong Kong Telephone: 011-852-2-559-8859 Facsimile: 011-852-2-540-5020 To Nona: Nona Morelli's II Inc. 2 Park Plaza, Suite 470 Irvine, California 92714 Telephone:(714) 553-3232 Facsimile:(714) 833-7854 F. 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. G. 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. H. Governing Law. Notwithstanding that this Agreement was negotiated and is being contracted for in Macau and any conflict-of-law provision to the contrary, the Agreement shall be governed by the laws of the United States, State of California. I. 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. J. 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. K. Severability. If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect. L. Amendment. This Agreement may be amended only by a written instrument executed by the parties or their respective successors or assigns. 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. [NM\AGR:SFHCOLAT.AGR]-4 4 IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. "Nona" NONA MORELLI'S II INC. a Colorado corporation /s/ Fred G. Luke By:---------------------------------------- Name: Fred G. Luke Title: Chief Executive Officer SILVER FAITH HOLDINGS LIMITED a Hong Kong corporation By:----------------------------------------- Name: Title: [NM\AGR:SFHCOLAT.AGR]-4 5 EXHIBIT "A" to the Collateral Substitution Agreement dated December 29, 1995 NEW COLLATERAL - Ten Thousand (10,000) shares of common stock of Fantastic Foods International Inc., a California corporation, Certificate No. 1, issued June 29, 1993 (the "Fantastic Shares") valued at US$1,250,000 - Six Million (6,000,000) New Class D Warrants to Purchase Common Stock of NuOasis Gaming Inc., a Delaware corporation, Certificate No. (the "NuOasis New Class D Warrants"), valued at US$250,000. - One Million (1,000,000) shares of capital stock of Cleopatra Palace Limited, a corporation organized under the laws of Ireland, Certificate No. (the "Cleopatra Shares") valued at US$1,500,000. [NM\AGR:SFHCOLAT.AGR]-4 6 EX-99 25 COLLATERAL RELEASE AGR., EXHIBIT 10.144 EXHIBIT 10.144 COLLATERAL RELEASE AGREEMENT DATED SEPTEMBER 30, 1996 BETWEEN THE REGISTRANT AND NG MAN SUN COLLATERAL RELEASE AGREEMENT This Collateral Release Agreement (the "Agreement") is made this --th day of September 1996, by and between Nona Morelli's II Inc, a Colorado corporation ("Nona") and Mr. Ng Man Sun, doing business as Dragon Sight International Amusement (Macau) Company ("Dragon"). WHEREAS, on May 1, 1995, Nona and Dragon Sight International Amusement (Macau) Company ("Dragon") entered into an Asset Purchase Agreement (the "Purchase Agreement") pursuant to which Nona purchased from Dragon a Net Profits Interest (as defined in the Purchase Agreement); and, WHEREAS, a closing of the Asset Purchase Agreement occurred on May 23, 1995; and, WHEREAS, the consideration delivered to Dragon in the purchase of the Net Profits Interest consisted of, among other things, a promissory note in the principal amount of US$3,000,000 (the "Note") and a security agreement of the same date ("Security Agreement") conveying to Dragon a security interest in certain securities owned by Nona consisting of 250,000 shares of Series B Preferred Stock of NuOasis Gaming Inc. (the "NuOasis Shares" or "Original Collateral"); and, WHEREAS, in a Collateral Substitution Agreement dated on or about December 31, 1995 Nona and Dragon agreed to a substitution of certain other assets of Nona more particularly described in Exhibit "A" hereto (the "New Collateral") for the NuOasis Shares as substitute collateral for the Note and the Security Agreement. WHEREAS, the Note has been paid in full and Nona and NuOasis International, Inc., the current obligor under the Note, each desire a written release of the security interest granted by Nona in the New Collateral to Dragon. 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, Dragon and Nona agree as follows: 1. Release of Substitute Collateral Dragon hereby releases any and all claims which it may have to (a) Ten Thousand (10,000) shares of no par value common stock of Fantastic Foods International Inc., a California corporation ("Fantastic Shares"), (b) Six Million (6,000,000) New Class D Warrants to Purchase Common Stock of NuOasis Gaming Inc., a Delaware corporation (the "NuOasis New Class D Warrants"), and (c) One Million (1,000,000) shares of capital stock of Cleopatra Palace Limited, a corporation organized under the laws of Ireland ("Cleopatra Shares"), (collectively referred to herein as the "New Collateral"), pursuant to the Collateral Substitution Agreement and Note and Security Agreement, or otherwise, and hereby conveys and delivers to Nona, to have and to hold forever, all of Dragon's security interest in the New Collateral, and any claims of Dragon related to the New Collateral. And, Dragon warrants that it has the power and authority, and does hereby transfer same to Nona, free and clear of all liens and encumbrances. 2. No Prior Encumbrances or Assignment Dragon represents and covenants that it has not assigned, pledged or otherwise in any manner whatsoever conveyed or transferred to any third party, including Silver Faith Holdings Limited, the New Collateral, or any security interest therein, either by instrument in writing or otherwise. [NM\AGR:DRNREL.AGR] 1 4. Transfer of New Collateral by Dragon Dragon agrees to transfer to Nona, or its designee(s), the New Collateral pursuant to the following terms and conditions: A) Assignment. Dragon will deliver certificates and other appropriate documents evidencing Dragon's security interest in the respective securities comprising the New Collateral, together with properly signed and guaranteed stock powers, if applicable. Such assignment shall be made on an assignment separate from such certificates at Closing. B) Authority to Transfer. Dragon represents and warrants that it has full legal power, right and authority to enter into this Agreement and to convey the New Collateral, as provided herein, free and clear of encumbrances, and that duly authorized corporate action, if appropriate, has or will be taken by Dragon prior to the date of Closing. 5. Effective Date and Closing It is mutually understood and agreed that this Agreement may require the consent and execution of third parties, and, as a result, effecting the release of the New Collateral ("Closing") may take up to 60 days from the date hereof. Notwithstanding the actual date of Closing, the effective date of this Agreement shall be the date first written above ("Effective Date"). [NM\AGR:DRNREL.AGR] 2 6. No Detrimental Releases Dragon and Nona expressly acknowledge and agree that before executing this Agreement, each party hereto has been fully informed of the terms, contents, conditions and effects of this Agreement; that in executing this Agreement and negotiating the terms thereof, each has had the benefit of the advise of attorneys of its own choosing; and, that no promise or representation of any kind has been made to any party by another party hereto, or anyone acting for them, except as it expressly stated in this Agreement. 7. Miscellaneous A. 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. Dragon and Nona 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 it 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. B. Costs and Expenses. Each party shall bear its share of all costs and expenses incurred in this proposed exchange and transfer. C. 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. 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. [NM\AGR:DRNREL.AGR] 3 E. 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 Dragon: Dragon Sight International Amusement (Macau) Company Room 3078, Diamond Square 3/F Shun Tak Centre 200 Connaught Road, Central Hong Kong Telephone: 011-852-2-559-8859 Facsimile: 011-852-2-540-5020 To Nona: Nona Morelli's II Inc. 2 Park Plaza, Suite 470 Irvine, California 92714 Telephone: (714) 553-3232 Facsimile: (714) 833-7854 F. 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. G. 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. H. Governing Law. Notwithstanding that this Agreement was negotiated and is being contracted for in Macau and any conflict-of-law provision to the contrary, the Agreement shall be governed by the laws of the United States, State of California. I. 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. J. 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. K. Severability. If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect. L. Amendment. This Agreement may be amended only by a written instrument executed by the parties or their respective successors or assigns. 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. [NM\AGR:DRNREL.AGR] 4 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 have executed this Agreement the day and year first above written. "Nona" NONA MORELLI'S II INC. a Colorado corporation /s/ Fred G. Luke By:----------------------------------------- Name: Fred G. Luke Title: Chief Executive Officer Ng Man Sun , doing business as DRAGON SIGHT INTERNATIONAL AMUSEMENT (MACAU) COMPANY /s/ Ng Man Sun --------------------------------------- Ng Man Sun [NM\AGR:DRNREL.AGR] 5 EXHIBIT "A" to the Collateral Release Agreement dated September ---, 1996 NEW COLLATERAL - Ten Thousand (10,000) shares of common stock of Fantastic Foods International Inc., a California corporation, Certificate No. 1, issued June 29, 1993 (the "Fantastic Shares"). - Six Million (6,000,000) New Class D Warrants to Purchase Common Stock of NuOasis Gaming Inc., a Delaware corporation, Certificate No. NWD001 (the "NuOasis New Class D Warrants"). - One Million (1,000,000) shares of capital stock of Cleopatra Palace Limited, a corporation organized under the laws of Ireland, Certificate No. (the "Cleopatra Shares"). [NM\AGR:DRNREL.AGR] 6 EX-99 26 AGREEMENT OF EXCHANGE, EXHIBIT 10.145 EXHIBIT 10.145 AGREEMENT OF EXCHANGE DATED SEPTEMBER 30, 1996 BETWEEN NUOASIS INTERNATIONAL, INC. AND C/A/K TRUSTKANTOOR N.V. AGREEMENT OF EXCHANGE THIS AGREEMENT OF EXCHANGE ("Agreement") is made and entered into effective as of the day of September, 1996, by and between NuOasis International, Inc., a company organised under the laws of the Commonwealth of the Bahamas and a resident at all times outside the United States (hereinafter referred to as "Party A"), and CAK Trustkantoor N.V., a trust company organised under the laws to the Netherlands Antilles and a resident at all times outside the United States (hereinafter referred to as "Escrow Holder"). RECITALS: WHEREAS, Party A is the present owner of that certain asset known as the Gaming Interest, being equal to forty percent (40%) of the Gaming Profits (net distributable after-tax) from the Casinos (i.e., the gaming operations conducted pursuant to an arrangement between Ng Man Sun, doing business as Dragon Sight International Amusement (Macau) Co. and Sociedade DeTurismo Diversocs De Macau at the Holiday Inn and Hyatt Hotels in Macau) more particularly described in Exhibit "A" attached hereto and incorporated herein by reference and as described in the Contract (as hereinafter defined) (the "Relinquished Property"); WHEREAS, Party A and all of those persons listed on Schedule 1 attached hereto and incorporated herein by reference (collectively referred to herein as "Purchasers"), have entered into that certain Purchase Agreement dated August 30, 1996, and as thereafter amended (the "Contract"), pursuant to which Party A has agreed to transfer and convey the Relinquished Property to the Purchaser in exchange for the purchase price as stated in the Contract, and as adjusted at closing (referred to herein as the "Purchase Price"); WHEREAS, Party A desires to make an exchange of the Relinquished Property for other assets to be located in the future; WHEREAS, Escrow Holder is willing to accept the assignment of Party A's rights under the Contract; and WHEREAS, Escrow Holder has entered into this Agreement pursuant to which the Escrow Holder has agreed to hold money and/or other assets, including without limitation, stocks, bonds, promissory notes and all other types of property, real, personal, tangible or intangible, in an Escrow Account. NOW THEREFORE, for and in consideration of the mutual covenants, conditions and agreements set forth herein, Party A and Escrow Holder hereby agree as follows: 1. Exchange of Properties. On the Closing Date (as hereinafter defined), Party A hereby agrees to transfer and convey to Escrow Holder all of its right, title and interest in the Contract, in consideration of and in exchange for the transfer and conveyance to Party A of other assets, including without limitation, stocks, bonds, promissory notes and all other types of property, real, personal, tangible or intangible, whether one or more, the "Replacement Property": (I) which is designated by Party A pursuant to Section 2 of this Agreement no later than forty-five (45) days after the Closing (as hereinafter defined), and (ii) the cost of which does not exceed, in the aggregate, the "Exchange Credit" (as hereinafter defined) at the time of its acquisition, subject to Party A's right to arrange for additional equity or debt in order to pay costs of acquisition in excess of the Exchange Credit. For purposes of this Agreement, the term "Exchange Credit" shall mean, at any given point in time, the sum of: (I) net proceeds from the Purchase Price, including any indebtedness assumed or taken subject to by the purchasing party, less closing costs with regard to the sale of the Relinquished Property and repayment of debt secured by the Relinquished Property and all related obligations thereto, plus (ii) the amount of interest, if any, which has then accrued to Escrow Holder with respect to the Escrow Account. [NUOINTL\AGR:CAK.EXC] 1 2. Acquisition of Replacement Property. (a) Identification. At such time or times as Party A locates other assets, including without limitation, stocks, bonds, promissory notes and all other types of property, real, personal, tangible or intangible which it desires for Escrow Holder to cause to be acquired and conveyed to it pursuant to this Agreement as "Replacement Property," Party A shall give written notice (an "Identification Notice") that: (I) is delivered to Escrow Holder and states that such property or assets will constitute Replacement Property pursuant to this Agreement, (ii) is in such form or forms as satisfies the requirements of Escrow Holder, (iii) is given within forty-five (45) days of the Closing ("Identification Period"), and (iv) specifically describes the Replacement Property. Party A may give an Identification Notice: (I) more often than once and (ii) with respect to more than one asset. Any Identification Notice may be revoked by Party A within forty-five (45) days of Closing but thereafter may not be revoked. (b) Acquisition. Subject to the limitations of Section 2(c) and (d) hereof, if Party A provides to Escrow Holder an Identification Notice with respect to a specific item of Replacement Property, Escrow Holder shall use its reasonable efforts to: (I) enter into or accept the assignment of a binding written contract with the owner or owners of the Replacement Property for the acquisition of Replacement Property acceptable to Party A and (ii) cause the transfer and conveyance of the Replacement Property to Party A within 180 days of the Closing. Escrow Holder may, at its election, cause the owner or owners of the Replacement Property to deliver to Party A a deed and/or other closing documents conveying title directly from the owner of the Replacement Property to Party A and Party A shall execute all closing documents required of it. (c) Maximum Payment. In no event shall Escrow Holder be required to provide consideration to acquire the Replacement Property: (I) in any form other than cash and/or debt which is secured by the Replacement Property and/or is the obligation of Party A, or (ii) expend in the acquisition of the Replacement Property an aggregate amount (including the expenses incurred in such acquisition or acquisitions), which exceeds the amount of the then outstanding Exchange Credit, subject to Party A's right to arrange for additional equity or debt in order to pay costs of acquisition in excess of the Exchange Credit. [NUOINTL\AGR:CAK.EXC] 2 (d) Debt Assumption. Other Limitations. Escrow Holder shall not be required to (I) enter into any agreement to acquire the Replacement Property which is not reasonably acceptable to it, (ii) assume any loan secured by the Replacement Property or to execute any promissory note or other evidence of indebtedness in connection with its acquisition or acquisitions which would impose any liability upon Escrow Holder or (iii) execute any agreement or participate in any transaction, which in the opinion of counsel to Escrow Holder, would require Escrow Holder to engage in any unlawful or fraudulent actions. (e) Limitation Period. Upon the expiration of one hundred eighty (180) days after the Closing, Party A shall have the right to require Escrow Holder to transfer to it the Exchange Credit then unexpended in the acquisition of the Replacement Property; provided, however, if Party A has not identified Replacement Property by the end of the Identification Period, then Party A shall have the right to require Escrow Holder to transfer to it the balance of the Exchange Credit then unexpended in the acquisition of the Replacement Property. Escrow Holder shall transfer all amounts due Party A pursuant to the immediately preceding sentence within five (5) days of written demand therefor from Party A. The payment by Escrow Holder to Party A of the balance of the Exchange Credit pursuant to this paragraph shall terminate the obligations of Escrow Holder to deliver the Replacement Property to Party A. 3. Escrow Account. a. Appointment of Escrow Holder. Party A appoints Escrow Holder as the Escrow Holder set forth herein, and Escrow Holder accepts such appointment. b. Deposit. The sum of the net proceeds or other assets received from the sale of the Relinquished Property, as defined herein (the "Deposit") shall be delivered to Escrow Holder to be held by Escrow Holder in accordance with the terms hereof. Subject to and in accordance with the terms and conditions hereof, Escrow Holder agrees that it shall receive, hold in escrow and release or distribute the Deposit and all interest earned thereon, if any. All interest and other earnings on the Deposit shall become part of the Deposit for all purposes, and that all losses resulting from the investment or reinvestment thereof from time to time and all amounts charged thereto to compensate or reimburse the Escrow Holder from time to time for amounts owing to it hereunder shall from the time of such loss or charge no longer constitute part of the Deposit. From time to time Party A may deposit or direct deposit of additional funds or assets with the Escrow Holder to be held, invested and disbursed hereunder and which shall be considered a part of the Deposit. c. Investment of the Deposit. Escrow Holder shall cause the Deposit to be held, or invested and reinvested after receipt of same in short-term interest bearing investments, such as bank certificates of deposit, money market funds, overnight repurchase accounts and treasury bills. Receipt or investment of the Deposit shall be confirmed by Escrow Holder as soon as practicable by account statement unless otherwise indicated; and any discrepancies therewith shall be noted by Party A to Escrow Holder within a reasonable time prior to the next account statement. Unless otherwise directed, Escrow Holder may use a broker-dealer of its own selection, including a broker-dealer owned by or affiliated with Escrow Holder or any of its affiliates. Party A shall be liable for all brokerage costs and related expenses incurred hereunder. Escrow Holder shall not be liable for and shall be indemnified by Party A from all liability for losses on any investments, market risk due to premature liquidation, or other actions taken in compliance with this Agreement. Notwithstanding the foregoing, Escrow Holder may, in its sole and absolute discretion, accept written directions or instructions from Party A, which Escrow Holder believes to be genuine, but Escrow Holder shall not be liable for executing, failing to execute or for any mistake in the execution of such orders except in case of willful misconduct. d. Disbursement of Deposit. Escrow Holder is hereby authorized to make disbursements of the Deposit only as follows: (i) Upon (a) notification from Party A, that a property or asset has been identified, instructing Escrow Holder to disburse an amount to make the initial deposit, if any, for or to effectuate the acquisition of Replacement Property in compliance with this Agreement and specifying: [NUOINTL\AGR:CAK.EXC] 3 (1) The amount of such initial deposit or purchase price required for the acquisition of the identified Replacement Property; (2) The manner in which such initial deposit or purchase price is to be made available; (3) The person or persons to which such initial deposit or purchase price is to be transferred; and (4) The date the initial deposit or purchase price is required to be delivered. (ii) Upon receipt of a written notification signed by Party A stating that there has been a failure, within forty-five (45) days from the date of Escrow Holder's receipt of the Deposit to identify sufficient Replacement Properties which are suitable for an exchange under and in accordance with this Agreement; (iii)Upon receipt of a written notification from Party A stating that all Replacement Property previously identified pursuant to this Agreement has been transferred and conveyed to Party A within 180 days after the date of the closing of the sale of the Relinquished Property by Party A, all funds then remaining in the Deposit, after all fees and expenses have been paid, shall be disbursed to Party A; (iv) As permitted by this Agreement, to Escrow Holder; and (v) Into the registry of the court in accordance with Sections 5 or 8 hereof. [NUOINTL\AGR:CAK.EXC] 4 e. Tax Matters. Party A hereto shall provide Escrow Holder with its taxpayer identification number or certification of foreign taxpayer exemption at the execution hereof. Failure to so provide such forms may prevent or delay investment of the Deposit and/or final disbursement of the Deposit and may incur a penalty and cause Escrow Holder to be required to withhold tax on any interest payable hereunder. All interest, if any, earned on the Deposit shall be paid to Party A. f. Scope of Undertaking. Escrow Holder's and Escrow Holder's duties and responsibilities shall be purely ministerial and shall be limited to those expressly set forth in this Agreement. Escrow Holder is not a principal, participant or beneficiary of any transaction underlying this Agreement and shall have no duty to inquire beyond the terms and provisions hereof. Escrow Holder and Escrow Holder shall have no responsibility or obligation of any kind in connection with this Agreement or the Deposit, and shall not be required to deliver the same or any part thereof or take any action with respect to any matters that might arise in connection therewith, other than to receive, hold, invest and deliver the Deposit as herein provided. Without limiting the generality of the foregoing, it is hereby expressly agreed and stipulated by the parties hereto that Escrow Holder shall not be required to exercise any discretion hereunder and shall have no investment or management responsibility and, accordingly, shall have no duty to, or liability for its failure to, provide investment recommendations or investment advice to the parties or either of them. Escrow Holder shall not be liable for any error in judgment, any act or omission, any mistake of law or fact, or for anything it may do or refrain from doing in connection herewith, except for, subject to Section 4 hereinbelow, its own willful misconduct. It is the intention of the parties hereto that Escrow Holder shall not be required to use, advance or risk its own funds or otherwise incur financial liability in the performance of any of its duties or the exercise of any of its rights and powers hereunder. 4. Reliance; Liability. After Escrow Holder receives the consent of Party A, Escrow Holder shall not be liable for following the instructions contained in any written notice, instruction or request or other paper furnished to it hereunder or pursuant hereto and believed by it to have been signed or presented by the proper part. Escrow Holder shall be responsible for holding, investing, reinvesting and disbursing the Deposit; provided, however, that in no event shall Escrow Holder be liable for any lost profits, lost savings or other special, exemplary, consequential or incidental damages in excess of Escrow Holder's fee hereunder and provided, further, that Escrow Holder shall have no liability for any loss arising from any cause beyond its control, including, but not limited to, the following: (a) acts of God, force majeure, including, without limitation, war (whether or not declared or existing), revolution, insurrection, riot, civil commotion, accident, fire, explosion, stoppage of labor, strikes and other differences with employees; (b) the act, failure or neglect of any other party or any agent or correspondent or any other person selected by Escrow Holder; (c) any delay, error, omission or default of any mail, courier, telegraph, cable or wireless agency or operator; or (d) the acts or edicts of any government or governmental agency or other group or entity exercising governmental powers. Escrow Holder is not responsible or liable in any manner whatsoever for the sufficiency, correctness, genuineness or validity of the subject matter of this Agreement or any part hereof or for the transaction or transactions requiring or underlying the execution of this Agreement, the form or execution hereof or for the identity or authority of any person executing this Agreement or any part hereof or depositing the Deposit. 5. Right of Interpleader. Should any controversy arise involving the parties hereto or any other person, firm or entity with respect to this Agreement or the Deposit, or should a substitute Escrow Holder fail to be designated as provided in Section 8 hereof, or if Escrow Holder should be in doubt as to what action to take, Escrow Holder shall have the right, but not the obligation, either to (a) withhold delivery of the Deposit until the controversy is resolved, the conflicting demands are withdrawn, or its doubt is resolved, or (b) institute a bill of interpleader in any court of competent jurisdiction to determine the rights of the parties hereto. The right of Escrow Holder to institute such a bill of interpleader shall not, however, be deemed to modify the manner in which Escrow Holder is entitled to direct disbursements of the Deposit as herein set forth other than to tender the Deposit into the registry of such court. In the event Escrow Holder is a party to any dispute, Escrow Holder shall have the additional right to refer such controversy to binding arbitration. Should a bill of interpleader be instituted, or should Escrow Holder be threatened with litigation or become involved in litigation or binding arbitration in any manner whatsoever in connection with this Agreement or the Deposit, then, Party A agrees to pay Escrow Holder from the Deposit its attorney's fees and any and all other disbursements, expenses, losses, costs and damages of Escrow Holder in connection with or resulting from such threatened or actual litigation or arbitration prior to any disbursement hereunder. [NUOINTL\AGR:CAK.EXC] 5 6. Lien. Escrow Holder is hereby given a lien upon all the rights, titles and interest of the other parties hereto in all Deposits to protect Escrow Holder's rights, including without limitation, rights of payment and to indemnity and reimbursement, as provided hereunder, which lien may be enforced by Escrow Holder without notice, by set off, or by appropriate foreclosure proceedings. 7. Consultation with Legal Counsel. Escrow Holder may consult with its counsel or other counsel satisfactory to it concerning any question relating to its duties or responsibilities hereunder or otherwise in connection herewith and shall not be liable for any action taken, suffered or omitted by it in good faith upon the advice of such counsel. 8. Resignation. Escrow Holder may resign hereunder upon 10 days' prior written notice to Party A. If Party A fails to designate a substitute Escrow Holder within 10 days after the giving of such notice, Escrow Holder may institute a bill of interpleader as contemplated by Section 5 hereof. Escrow Holder's sole responsibility after the notice period expires shall be in accordance with the directions of a final order or judgment of a court of competent jurisdiction, at which time Escrow Holder's obligations hereunder shall cease and terminate. 9. Performance of Contract. Notwithstanding anything to the contrary set forth herein, Party A shall not have the right following the Closing to receive, pledge, borrow or otherwise obtain the benefits of the Relinquished Property or the Exchange Credit, or any income or interest which has accrued with respect to the same, except as provided in Section 2 or 3 of this Agreement. 10. Closing. The transfer by Party A to Escrow Holder of all of its right, title and interest in the Contract shall occur prior to closing. The closing ("the Closing") shall be effective the 30th day of September, 1996 (the "Closing Date") or on such other date as may be mutually agreed to by Party A and Escrow Holder. The transfer by Party A to Escrow Holder of the Contract shall be made pursuant to an Agreement for Assignment of Rights substantially in the form of Exhibit B attached hereto. Party A hereby agrees to execute and deliver a deed or other assignment conveying title to the Relinquished Property pursuant to the terms of the Contract, and any other required conveyance and closing documents, directly to the Purchasers under the Contract. 11. Execution of Documents: Further Documentation. Each party hereto agrees to execute any and all additional documents and/or instruments necessary to carry out the terms of this Agreement. The costs incurred in the preparation of any documents required to conclude the transfer of the Relinquished Property or the Replacement Property shall be borne by Party A. 12. Conflict With Prior Agreements. If and to the extent that this Agreement is in conflict with any prior written or oral agreement or understanding between the parties hereto, the terms of this Agreement shall prevail. No modification or waiver of the terms of the Agreement shall be valid unless made in writing signed by both parties. 13. Arbitration. Any dispute arising out of this Agreement, whether for interpretation or enforcement of its terms, shall be determined and settled by arbitration under the then prevailing commercial rules of the International Arbitration Association. Arbitration shall be held in Willemstad, Curacao. Any reward rendered in such arbitration shall be final and binding on each of the parties and judgment may be entered thereon in a court of competent jurisdiction. 14. Attorneys' Fees. In the event any of the parties to this Agreement institutes legal action or arbitration proceedings against any other party to interpret or enforce this Agreement, or to obtain damages for any alleged breach hereof, the prevailing party in such action or proceeding shall be entitled to reasonable attorneys' and experts' fees in addition to all other recoverable costs and damages. [NUOINTL\AGR:CAK.EXC] 6 15. Survival. The terms of this Agreement shall survive the delivery of the conveyance documents to the Relinquished Property and receipt by Party A of the conveyance documents to the Replacement Property pursuant to this Agreement. 16. Time. Time is of the essence of this Agreement. 17. Binding. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto their estates, heirs, representatives, successors in interest and assigns; provided, however, that Party A shall have no right to assign this Agreement or any of its rights hereunder without the prior written consent of Escrow Holder. 18. Choice of Laws; Cumulative Rights. This Agreement and the Deposit shall be construed under and governed by the laws of the Netherlands Antilles, including its conflict of law rules. All of Escrow Holder's rights hereunder are cumulative of any other rights it may have by law or otherwise. 19. Assignment. This Agreement shall not be assigned by Party A or Escrow Holder without the prior written consent of either party. 20. Severability. Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reasons whatsoever, such illegality or invalidity shall not affect the validity or legality of the remainder of this Agreement. 21. Termination. Upon disbursement of all the Deposit as specified in Section 3 hereof, this Agreement shall terminate. 22. Notices. All notices required or permitted to be given pursuant to this Agreement shall be in writing and shall be effective upon personal delivery or confirmed telefax to the party to whom they are addressed at the following address: To Party A: NuOasis International, Inc. 43 Elizabeth Avenue P.O. Box CB-13022 Nassau, Bahamas Telephone: (809) 356-2903 Telefax: (809) 326-8434 To Escrow Holder: CAK Trustkantoor N.V. Do Ruyterkade 58A P.O. Box 210 Willemstad, Curacao Netherlands Antilles Telephone: 5999-613277 Telefax: 5999-612720 Any party may change its address for notice by giving notice to the other party in accordance with this paragraph. [NUOINTL\AGR:CAK.EXC] 7 23. No Agency. Party A and Escrow Holder mutually agree that Escrow Holder is acting as an independent principal in the transaction described herein and shall not be deemed as an agent for Party A in any capacity. 24. Payment to Escrow Holder. Escrow Holder shall be entitled to a fee for services rendered through closing of the Relinquished Property. Such fee will be paid from the Escrow Account upon funding of the Escrow Account. After closing of the Relinquished Property, Escrow Holder shall prepare an Assignment of Rights and related documentation which may be required to effectuate the transfer of the Replacement Property to Party A. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first above written. "Party A" NuOasis International, Inc., a company organised under the laws of the Commonwealth of the Bahamas By:---------------------------------------- Name: Its: "Escrow Holder" CAK Trustkantoor N.V., a company organised under the laws of the Netherlands Antilles By:---------------------------------------- Name: Its: 8 EXHIBIT "A" to the Agreement of Exchange dated September ---, 1996 RELINQUISHED PROPERTY 9 EXHIBIT "B" to the Agreement of Exchange dated September , 1996 AGREEMENT OF ASSIGNMENT OF RIGHTS THIS AGREEMENT (the "Agreement") is effective this ----- day of - -------, 1996 by and between NuOasis International Inc., a company organised under the laws of the Commonwealth of the Bahamas and a resident at all times outside the United States ("Party A"), and C/A/K Trustkantoor N.V. a trust company organised under the laws of the Netherlands Antilles and a resident at all times outside the United States (hereinafter referred to as "Escrow Holder"), with notice of this Agreement provided to those entities, as Purchasers under the Purchase Agreement dated August 30, 1996 ("Acquiring Party"). WHEREAS, Party A and Acquiring Party have entered into that certain Purchase Agreement dated August 30, 1996, and as thereafter amended, by and between Party A and Acquiring Party, attached hereto as Exhibit "A" (the "Contract"); wherein Party A agreed to dispose of by means of a sale, its interest in, among other things that asset or assets described in the Contract (the "Relinquished Property"); WHEREAS, Party A and Escrow Holder have entered into that certain Exchange Agreement dated as of September ____, 1996; WHEREAS, the parties hereto wish to assign Party A's rights to the Relinquished Property under the Contract to Escrow Holder; NOW THEREFORE, in consideration of the mutual covenants and promises set forth herein, Party A and Escrow Holder agree as follows: 1. Assignment of Rights. Party A hereby transfers and assigns to Escrow Holder all of its rights, title and interest under the Contract. Acquiring Party shall be notified of the assignment of Party A's rights, title and interest to Escrow Holder in the Contract prior to closing under the Contract. 2. Assignment of Deposit. At the time this Agreement becomes effective, Party A will cause any deposit which has been made under the Contract by the Acquiring Party to be released to the Escrow Holder. 3. Enforcement of Rights. Escrow Holder has assumed all rights of Party A under the Contract pursuant to this Agreement; provided, however, if for any reason Escrow Holder fails to enforce any of the rights assigned to it under the Contract by this Agreement, Party A may enforce the rights under the Contract assigned to Escrow Holder. 4. Assumption of Obligations. Escrow Holder does not hereby assume any of the obligations, representations or warranties of Party A under the Contract. 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, to be effective immediately before the transfer of title to the Relinquished Property by Party A pursuant to the Exchange Agreement. This Agreement, however, shall be null and void in the event Party A or its assigns do not convey title to the Relinquished Property on or before September 30, 1996, or at such future date as is mutually agreed to by the parties hereto. "Party A" NuOasis International, Inc., a company organised under the laws of the Commonwealth of the Bahamas By:----------------------------------------- Name: Its: "Escrow Holder" CAK Trustkantoor N.V., a company organised under the laws of the Netherlands Antilles By:----------------------------------------- Name: Its: 11 EXHIBIT "A" to the Agreement for Assignment of Rights dated September , 1996 THE CONTRACT 12 SCHEDULE "1" to the Agreement of Exchange dated September , 1996 NAME(S) OF PURCHASERS OF THE RELINQUISHED PROPERTY 13 EX-99 27 EXHIBIT 10.146 EXHIBIT 10.146 OPERATING AGREEMENT BETWEEN MR. NG MAN SUN AND NONA MORELLIS II INC. OPERATING AGREEMENT Casino Gaming Interests THIS AGREEMENT is made and entered into this day of February 1996 by and between Mr. Ng Man Sun ("Ng") doing business as Dragon Sight International Amusement [Macau] Company (hereinafter collectively referred to as "Dragon") and NuOasis International Inc, a corporation organized under the laws of the United States, state of California (hereinafter referred to as "NuOasis"). WHEREAS, the parties hereto are the Owners (as defined herein) one hundred percent (100%) of the interest in the profits generated by the casino gaming activities conducted by Dragon at the Hyatt Hotel Tapia Island and the Holiday Inn Hotel in Macau (hereinafter referred to as the "Casinos"), all as more particularly described in Exhibit "B" attached hereto and by this reference made a part hereof; and, WHEREAS, the parties hereto desire to more clearly define and set forth the procedures and methods for the operation of the Casinos. NOW, THEREFORE, in consideration of the premises mutual covenants and agreements contained herein, and for the purpose of operating the jointly-owned interest in the Casinos, the parties hereto agree as follows: 1. Definitions A. Net Profits Interest - means each Owners interest in the net operating profits from the casino gaming facilities as more particularly described in the attached Exhibit "A", and as the same may be amended or supplemented from time to time by written agreement of the parties hereto. B. Owners - shall mean Dragon and NuOasis, and their respective successors in interest. C. Operator - means any of the parties to this Agreement who is designated or who is subsequently selected or becomes the person or party responsible for the operation and maintenance of the Casinos in the manner and procedure set forth in this Agreement. D. Non-Operators - shall mean any Owner who is or are not designated or selected as the Operator of the Casinos. E. Quarter - means calendar quarter, or that multi-monthly accounting period stipulated by the Operator. [NUOINTL\AGR:NGTERM.AGR] - 2 - F. Accounting Procedure - means the procedure, plan and method established by the Operator to be utilized in the determination of the expenses allocatable to the operation and the administration of the Casinos. G. Costs - means all expenditures incurred pursuant to this Agreement and determined in accordance with the Accounting Procedure and such other expenditures as are herein chargeable as costs of the operating Casinos. 2. Operation of The Casinos A. Ownership and Sharing of Revenues and Costs - Exhibit "B", attached hereto and as amended from time to time, lists all of the Owners of the Casinos and their respective percentage or Net Profits Interests under this Agreement. Unless changed by other provisions, all costs and liabilities incurred in operations of the Casinos under this Agreement shall be borne and paid, and all equipment and material acquired in operations of the Casino shall be owned by the parties, as their interests are shown in said exhibit. All revenues and operating costs will be borne by the Operator for the joint account of all Owners and the net operating profits shall also be owned by the parties in the same manner during the term hereof; provided, however, this shall not be deemed an assignment or cross-assignment of interests covered hereby. B. Management of the Casinos subject to the provisions of this Agreement - the Operator shall have the right and obligation to manage, maintain and operate the Casinos for the exclusive benefit of the Owners, and shall supervise and control all matters necessary to the accomplishment of the purposes of and in accordance with the terms and conditions of this Agreement. C. The Operator - Dragon is hereby designated as the initial Operator of the Casinos. D. Resignation or Replacement of Operator - The Operator may resign at any time upon sixty (60) days' written notice to the Owners; provided, however, that a sale or transfer by the Operator of its entire interest in the Casinos shall constitute a resignation as the Operator effective as of the date of the sale or transfer. In the event of sale or transfer by the Operator of its entire interest in the Casinos, the Operator shall however continue to act for a maximum of sixty (60) days as the Operator to permit selection of a Successor Operator unless the Successor Operator takes over the duties of Operator prior to the expiration of such period. The Operator may be removed by the affirmative vote of Owners of at least fifty percent (50%) in the Net Profits Interest in the Casinos, and such removal shall be effective sixty (60) days after delivery to the Operator of written notice of removal, this period to be utilized by the Owners to select a Successor Operator Pursuant to the terms hereof. In the event the Operator is removed under the foregoing situation, then the majority interest Owner at that time shall act as temporary Operator until the Successor Operator is selected. [NUOINTL\AGR:NGTERM.AGR] - 3 - E. Election of Successor Operator - Upon the resignation or removal of the Operator, a Successor Operator shall be mutually agreed upon by the Owners. In the event there are, at any time, more than two Owners, the Successor Operator shall be selected by the affirmative vote of at least fifty percent (50%) interest in the Net Profits Interest in the Casinos. Each Owner shall have a voting interest equal to its percentage of Net Profits Interest in the Casinos. Should the parties be unable to agree on a new Operator, the selection of the Successor Operator shall be determined by a board of arbitration. F. Compliance with Rules and Regulations - The Operator shall perform its duties and discharge its obligations hereunder in a good and workmanlike manner in accordance with the rules, order, laws or regulations of any governmental, regulatory or administrative body with jurisdiction over the Casinos or operations thereof. G. No Liens or Encumbrances - The Operator shall keep the Casinos free from all liens and encumbrances occasioned by operations hereunder, except only the lien granted to the Operator herein and such other liens as may be authorized by the Owners. H. Hold Harmless - The Operator shall hold each Owner harmless from any lien or encumbrance on its or his interest in the Casinos resulting from the failure of the Operator to pay, liquidate and discharge all claims, obligations and charges attributable to such interest for which such Owner has theretofore paid to the Operator such Owner's proportionate part. I. Employee Costs and Relations - The Operator shall furnish the labor, supervision, marketing and accounting, and other services reasonably necessary and required for the efficient operation of the Casinos. The number of employees utilized in the conduct of operations hereunder, their selection, hours of labor and compensation shall be determined by the Operator. Such employees shall be the employees of the Operator, which shall pay their wages, salaries and employee benefits; provided, however, that the wages and salaries paid to such casino employees shall be at rates not exceeding those being paid from time to time for similar work on other operations in the general area of the Casinos. J. Emergency Expenditures - In case of explosion, fire, flood or other emergency, the Operator may take such action and incur such expense (without regard to any limitation on expenses elsewhere herein provided) as in the Operator's good faith and opinion are required to deal with the emergency and to safeguard life and property. The Operator shall report, as promptly as possible, the details of the emergency to the Owners, which report, if oral, shall be confirmed in writing. K. Operator Reports - The Operator shall conduct all operations hereunder in a good and workmanlike manner and, in the absence of any specific written instructions unanimously agreed to by all Owners, shall have the right and duty to conduct such operations in accordance with its best judgment of what a prudent Operator would do under the same or similar circumstances. The Operator shall consult with Owners and obtain the affirmative approval of all Owners, with respect to all matters of importance arising in connection with the ownership, operation and maintenance of the Casinos. [NUOINTL\AGR:NGTERM.AGR] - 4 - L. Owners Right to Audit - Any Owner shall have the right, at its or his expense, to cause books and records of the Casinos to be audited by Owner's personnel or representatives or by independent certified public accountants. M. Indemnification - Inasmuch as the Operator is responsible for the operation, management, maintenance and operation of Casinos, Operator shall, at its sole cost and expense, indemnify, protect and save Owners, and their respective directors, officers and employees, from and against any and all actions, or causes of action, claims, demands, liabilities, loss, damage, injury, cost or expense of whatever kind or nature, including costs of litigation, attorney fees, and reasonable expenses in connection therewith, brought or presented by any person, firm or corporation whatsoever (including but not limited to, third parties, employees of Owners, employees of Operator, and their dependents and personal representatives) for injuries to or the death of any person, or damage to or loss of property alleged or claimed to have been caused by, or to have resulted from the negligence of Operator in connection with the operation, maintenance or management of the Casinos. Operator further agrees that its obligations of indemnification hereunder including any and all expenses, costs, claims, penalties or liability of whatever kind or nature resulting from the failure of Operator to abide by and comply with any and all applicable laws, codes, rules or regulations of any governmental, administrative or regulatory authority or body with jurisdiction over the ownership, operation or management of the Casinos. 3. Distribution of Net Profits, Costs and Expenses A. Development and Operating Costs - Except as herein otherwise specifically provided, Operator shall promptly pay and discharge expenses incurred in the development and operation of the Casinos pursuant to this Agreement and shall charge such operations, or each of the Owners directly, if allowed by the nature of their respective interest, with their respective proportionate share upon the expense basis provided in the Accounting Procedure. Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits made and received. Operator, at its election, shall have the right from time to time to demand and received from the other owners directly, if allowed by the nature of their respective interest, payment in advance of their respective share of the estimated amount of the expense to be incurred in operation of the Casinos during the next succeeding quarter, which right may be exercised only by submission to each such owner of an itemized statement of such estimated expense, together with an invoice for its share thereof. Each such statement and invoice for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding quarter. Each owner shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimate and invoice is received. If any owner fails to pay its share of said estimate within said time, the amount due shall bear interest as provided for herein until paid. Proper adjustment shall be made quarterly between advances and actual expense to the end that each owner shall bear and pay its proportionate share of actual expenses incurred, and no more. [NUOINTL\AGR:NGTERM.AGR] - 5 - B. Expension Costs - All costs and expenses incurred in enlargements and expansions of and additions to the Casinos shall be charged and paid by Owners, in the proportion of their respective interests in the Net Profits Interests in the Casinos, in whichever of the following methods Owners deem proper in each particular instance. C. Net Operating Profits - All net operating profits generated from operations at the Casinos shall be credited and paid to the Owners in the proportion of their respective Net Profits Interest in the Casinos upon the basis set in Exhibit "B" attached hereto. D. Record Keeping - Operator shall keep accurate and systematic records and accounts with respect to the investment in and the operation and maintenance of the Casinos, to which shall be charged all costs and expenses properly chargeable thereto under this Agreement and to which shall be credited all receipts from all sources. Such entries shall be supported, where appropriate, by purchase order, invoices, payrolls and other customary records. E. Owners Failure to Pay Costs - Operator shall initially pay all such costs and expenses incurred in the operation, maintenance, management, administration and supervision of the Casinos and, if required by the nature of such Owners interest in the Casinos, each Owner shall reimburse Operator for its or his proportionate part thereof as herein provided. Should any Owner hereto fail to reimburse Operator for such Owner's proportionate part of such costs and expenses within twenty (20) business days after the receipt of statement therefor, same shall bear interest at the rate of ten percent (10%) per annum from the expiration of such twenty (20) business day period until paid, and if such default shall thereafter continue for an additional period of thirty (30) business days, Operator shall have the right, at its option, at any time thereafter while such default continues, to foreclose the lien hereinafter provided for upon the interest of such defaulting Owner. F. Limitation of Expenditures - Operator, if making or incurring a single expenditure or the undertaking of any project hereunder over and above the normal operating and maintenance functions in excess of One Million Hong Kong Dollars ($1,000,000) in lieu of advancing costs and expenses, may, at its election, require the other Owner or Owners, if required by the nature of such Owners interest in the Casinos, to advance their respective proportions of the costs and expenses of operating, maintaining, managing, administering and supervising the Casinos by submitting on or before the last day of the calendar quarter an itemized estimate of such costs and expenses for the succeeding calendar quarter, together with request for payment by each of the Owners of their proportionate parts thereof. G. Adjustments to Owners Account - All books of account, records, charts and files of Operator bearing on matters dealt with in this Agreement shall be preserved for a period of four (4) years (and longer, if required by any governmental authority having jurisdiction), and shall, at the request of Non-Operating Owners, be made available at reasonable times for inspection, audit, the making of copies and the taking of data therefrom. Any errors in the accounts, calculations or statements of Operator which are discovered within two (2) years after the rendering of the statement containing the error shall be corrected and appropriate adjustment made; and if it be an error in the amount of any payment made or due to be made by one party to the other, appropriate payments or refunds or credits shall be made during the month in which the error or errors are discovered, acknowledged or finally determined. [NUOINTL\AGR:NGTERM.AGR] - 6 - H. Accounting - Subject to the terms hereof, all income received by Operator and derived from the operation of the Casinos, from whatever source derived, shall be distributed or accounted for to the respective Owners, as their Net Profits Interests may appear, on a quarterly basis. 4. Security of Operator A. Lien in Favor of Operator - To secure the payment of all sums (including interest, court costs and reasonable attorney's fees) due, or to become due, to Operator hereunder, each Owner hereby grants to Operator a first and superior lien upon Owner's interest in Net Profits Interest in the Casinos, which lien may be enforced and foreclosed as any other mortgage lien when such Owner is in default in payments to Operator. Operator shall have the right, in event of default by an Owner in making any payment provided for herein, to collect, receive and retain Owner's interest in said Net Profits Interest in the Casinos, and proceeds of a sale, for application on said indebtedness (including interest) until same is paid. B. Financing Statement - Upon request by the Operator, the Owners shall execute a Memorandum of Operating Agreement, Security Agreement and Financing Statement to secure the lien and security interest to the Operator. Such Memorandum may be filed of record to perfect the lien and security interest granted to Operator when the Operating Agreement becomes effective. 5. Voting of Owners Each Owner shall have a voting interest equal to its percentage of ownership in the Net Profits Interest in the Casinos. Failure of an Owner to vote on any matter requiring approval of the Owners shall constitute a vote against the proposal. Any vote hereunder may be taken by mail and, if so taken, the failure of an Owner to return its or his ballot within twenty (20) business days after receipt thereof shall constitute a vote against the proposal. 6. Insurance A. Coverage Required - Operator shall carry the following insurance: (i) Workmen's Compensation and Employer's Liability Insurance in accordance with the laws of Macau, covering all employees engaged in the performance of work hereunder. [NUOINTL\AGR:NGTERM.AGR] - 7 - (ii) Comprehensive General Liability Insurance, including premises and operations liability, protective liability, contractual liability and product liability (if applicable), with limits for bodily injury or death and with limits for property damage in amounts typical for other gaming activities conducted in Macau. (iii) Insurance covering physical damage to the Casinos on a Named Peril basis, to include but not be limited to fire and lightning, extended coverage (windstorm, tornado, hail, explosion, riot, civil commotion, smoke, aircraft and land vehicles) and vandalism and malicious mischief. B. Cost - The cost of all such insurance (including any deductible amounts under the provisions of any of the policies) shall be charged as an expense of operating the Casinos. C. Subcontractors, Consultants and Vendors - Operator shall require that all contractors performing work or services for the Casinos carry insurance of the kinds described above, in such amounts as Operator shall determine. D. Claims in excess of coverage: Additional Insurance - All losses, costs and expenses (including court costs and attorney's fees) not covered or only partially covered by such insurance, shall be charged against the operations of the Casinos in the proportion of the perspective Net Profits Interests in the Casinos, except as otherwise provided for herein. Any Owner may individually purchase, at its or his sole expense, additional insurance to protect such Owner against losses not covered by insurance carried by the Operator. 7. Transfer of Interests All sales, transfers, assigns or other conveyances of the interest of any Owner in the Casinos shall be made expressly subject to this Agreement and shall not be binding on any of the parties hereto other than the Owner selling, transferring, assigning or conveying the same, unless and until a certified copy of the instrument evidencing such change in ownership has been delivered to Operator and Owners. All such sales, transfers, assigns or conveyances of an interest in the Casinos, whether expressly so stated or not, shall operate to impose upon the party or parties acquiring such interests, its or their proportionate part of all costs and expenses and other obligations chargeable hereunder to such interest and shall likewise operate to give and grant to the party, or parties acquiring such interest, its or their proportionate part of all benefits accruing hereunder, effective as of the date of such transfer. 8. Confidentiality Proprietary data and information with respect to the Casinos and the Owners shall be treated as confidential and shall not be divulged to others by the Operator or the Owners unless mutual agreement to the contrary is obtained from all parties concerned, or unless such disclosure is required of by law or court order. Operator and Non-Operator(s) further agree that no party hereto shall distribute any information or photographs regarding the Casinos or the Operator to the press or other media without the approval of all parties. The only exception to the foregoing shall be that in the event of an emergency involving extensive property damage, operating failure, loss of human life or other clear emergency exclude care. Operator is authorized to furnish such minimum, strictly factual information as shall be necessary to satisfy the legitimate public interest on the part of the press and duly constituted authorities if time does not permit the obtaining of prior approval by Non-Operator(s). Operator shall thereupon promptly advise Non-Operator(s) of the information so furnished. This paragraph shall survive termination of this Agreement for a period of two (2) years. [NUOINTL\AGR:NGTERM.AGR] - 8 - 9. Term and Option to Purchase A. Term - This Agreement shall be effective as of the date first written above and shall continue in full force and effect until terminated by either party upon ninety (90) days' written notice to the other. Termination of this Agreement shall not, however, relieve any of the parties of any liabilities or obligations incurred hereunder. B. Owners Right to Purchase - If, in the judgment of any Owner, the operation of the Casinos is unprofitable and such Owner desires to discontinue operations of the Casinos, such Owner will notify all other Owners in writing of that fact. Any Owner, or Owners, desiring to continue operation of the Casinos shall thereafter have the option for a period of forty-five (45) days to acquire all of the interest in the Casinos owned by the Owner desiring to abandon operations by paying to such Owner a sum equal to such Owner's proportionate share of the fair market value of the Casinos. Fair market value for this purpose is defined as the highest price that a willing and well-informed buyer would pay and a willing and well-informed seller would accept if the property were immediately exposed to the market for a reasonable period of time. Should the parties be unable to agree on the fair market value, they shall jointly select a qualified, independent appraiser to determine such value. The findings of such appraiser shall be binding on all parties, and the appraiser's fee shall be equally shared by the parties involved. The Owner desiring to abandon operations may, at its or his option, require the Owners desiring to continue operations to assume all costs of operation while said appraisal is in progress, in which event all net profits from the Casinos made and income accruing during such period shall belong to the Owners desiring to continue Casinos operations. It is agreed by the parties hereto that the provisions of this paragraph shall not apply to any Owner, or Owners, who merely desire to sell or transfer their interest in the Casinos without terminating the operation of the Casinos. C. Discontinued Operations - If no Owner desires to continue the operations of the Casinos, or if the Owners desiring to continue operations of the Casinos do not exercise the option granted them by subparagraph B above, Operator shall pursue whichever one of the following options the Owners shall approve: (i) Operator shall dismantle the Casinos and make division of the salvageable material if feasible and practicable. The cost of dismantling the Casinos shall be charged against the Owners in proportion to their Net Profits Interest. [NUOINTL\AGR:NGTERM.AGR] - 9 - (ii) Operator shall sell Casinos intact or as salvage and, after payment or any costs and expenses remaining unpaid, including, but not limited to, costs of selling said Casinos and/or the cost of cleaning up the Casinos sites, the net proceeds from such sale thereof shall be divided among the Owners in proportion to their respective Net Profits Interests in said Casinos. 10. Relationship of Parties It is the intention of the parties hereto that neither this Agreement nor the operations hereunder shall create a partnership or association. The duties, obligations and liabilities of the Owners are intended to be and shall be separate and not joint or collective, and nothing contained in this Agreement, or any other agreement made pursuant hereto, shall ever be construed to create a partnership or association or to impose a partnership duty, obligation, or liability with respect to any one or more of the Owners. Each Owner shall be individually responsible only for its own obligations under this Agreement and, if the nature of such Owners interest requires it to do so, shall be liable only for its proportionate share of the costs and expenses incurred in the operation, maintenance, management or supervision of the Casinos. 11. Laws, Regulations and Force Majeure A. Applicable Law - This Agreement and the maintenance and operation of the Casinos shall be subject to all valid and applicable laws, orders, rules and regulations made by duly constituted governmental or regulatory authorities or bodies with jurisdiction. B. Regulatory Reporting - It shall be the Operator's obligation to complete and submit any and all reports, etc., required by the rules, orders or regulations of any duly constituted governmental or regulatory body or authority with jurisdiction over the ownership, maintenance and operation of the Casinos, and Non-Operator(s) agree to assist Operator in every possible way in the preparation of any such report by providing Operator any and all necessary data, records and information when so requested by Operator. C. Force Majeure - Performance, other than of the obligation to pay money, by Operator of its covenants hereunder shall be excused for and so long as and to the extent that such performance is prevented by strikes, fires, floods, weather, lightning, explosions, Acts of God or the public enemy, governmental laws or regulations, inability or delay in obtaining right-of-way permits, easements, or material, and other happenings beyond the control of Operator, whether or not similar or dissimilar to the matters herein specifically enumerated. Performance shall be resumed within a reasonable time after such cause has been removed. Operator shall not be required, against its will, to settle any labor dispute. 12. Further Burdens If any party hereto hereafter creates a royalty or net profits interest from its interest in the Casino or other burden against its interest in the Casinos, the party or parties entitled to receive the Net Profits Interest from the Casinos shall receive such net profits from the Casinos free and clear of burdens against such net profits from the Casinos created by such party, and the party creating such subsequent burden shall save the other parties harmless with respect to claims against their respective interest. [NUOINTL\AGR:NGTERM.AGR] - 10 - 13. Bankruptcy If, following the granting of relief under any bankruptcy code to any Owner hereto as debtor thereunder, this Agreement should be held to be an executory contract under such bankruptcy code, then any remaining Owners shall be entitled to a determination by debtor or any trustee for debtor within thirty (30) days from the date an order for relief is entered under such bankruptcy code as to the rejection or assumption of this Agreement. In the event of an assumption, such party seeking determination shall be entitled to adequate assurances as to the future performance of debtor's obligation hereunder and the protection of the interest of all parties. The debtor shall satisfy its obligation to provide adequate assurances which are acceptable to the other Owner(s). 14. Rights of Operator Against a Defaulting Party Unless the nature of the interest held by the Owner(s) of the Casinos precludes it, in the course of operating the casinos if any party fails or is unable to pay its proportionate share of costs in excess of revenues, Operator shall have the right to enforce the lien as provided herein, or Operator shall have the right to enforce the lien as provided herein. If the defaulting party is the Operator, the Non-Operator(s) shall select a new Operator pursuant to the terms hereof. 15. Tax Election Each of the parties hereto subject to United States taxation hereby elects, under the authority of Section 761(a) of the United States Internal Revenue Code of 1954, to be excluded from the application of all of the provisions of Sub-chapter K of Chapter 1 of Sub-title 1A of the United States Internal Revenue Code of 1954 (the "US Tax Code"). If the income tax laws of the jurisdiction in which any property of the Casinos covered hereby is located contain or may hereafter contain provisions similar to those contained in the Sub-chapter K of the US Tax Code under which a similar election is permitted, each of the parties hereto agrees that such election shall be exercised. Each party hereto authorizes and directs the Operator to execute such an election or elections on its behalf, if appropriate, and to file the election with the proper governmental office or agency. If requested by the Operator or any Owner so to do, each party agrees to execute and join in such an election. 16. Miscellaneous A. Beneficial Ownership - If at any time the interest of any party hereto is divided among and owned by two (2) or more co-owners, Operator may at its discretion require such co-owners to appoint a single representative with full authority to receive notices, approve expenditures, receive billings for and approve and pay such party's share of the expenses, and to deal generally with, and with the power to bind, the co-owners of such party's interest within the scope of the operations embraced in this Agreement. [NUOINTL\AGR:NGTERM.AGR] - 11 - B. Survival - All representations, warranties, and covenants made by any party in this Agreement shall survive the termination hereof for two (2) years from the effective date of such termination. C. Additional Documents - At any time and from time to time, after the effective date of this Agreement, 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 its interest in the Casinos, or otherwise to carry out the intent and purposes of this Agreement. D. 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. 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 Dragon: Mr Ng Man Sun Dragon Sight International Amusement (Macau) Company Room 3078, Diamond Square 3/F Shun Tak Centre 200 Connaught Road Central Hong Kong Telephone: 011-852-2-559-8859 Facsimile: 011-852-2-540-5020 To NuOasis: NuOasis International Inc. c/o Nona Morelle's II Inc. 2 Park Plaza, Suite 470 Irvine, California USA 92714 Telephone: +714-833-2094 Facsimile: +714-833-7854 F. 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. [NUOINTL\AGR:NGTERM.AGR] - 12 - G. 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. H. Applicable Law - Notwithstanding that this Agreement was negotiated and is being contracted for in the Bahamas and any conflict-of-law provision to the contrary, the Agreement shall be governed by the laws of the Commonwealth of the Bahamas. I. Assignment - 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. M. 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. N. Severability - If any part of this Agreement is deemed to be unenforceable the balance of the Agreement shall remain in full force and effect. O. Amendment - This Agreement may be amended only by a written instrument executed by the parties or their respective successors or assigns. P. 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. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. NuOasis International Inc. Attest: By: /s/ Fred G. Luke ----------------------------------- Name: Name: Fred G. Luke Title: Title: President [NUOINTL\AGR:NGTERM.AGR] - 13 - Mr Ng Man Sun, doing business as Dragon Insight International Amusement (Macau) Company Attest: By:/s/ Ng Man Sun ------------------------------------ Name: Ng Man Sun Title: [NUOINTL\AGR:NGTERM.AGR] - 14 - EXHIBIT "A" To the OPERATING AGREEMENT OWNERS Mr Ng Man Sun Dragon Sight International Amusement (Macau) Company 3/E, 200 Connaught Road Hong Kong Central Nona Morelli's II Inc 2 Park Plaza, Suite 470 Irvine, California USA 92714 [NUOINTL\AGR:NGTERM.AGR] EXHIBIT "B" To the OPERATING AGREEMENT THE CASINOS The Casinos consist of two gaming facilities owned and operated by Dragon Sight International Amusement (Macau) Company ("Dragon"), the Diamond Casino Holiday Inn and Macau and the Harbour Island Diamond Casino (Hyatt Regency), Macau. The Diamond Casino Holiday Inn opened in February, 1994. The Harbour Island Diamond Casino opened in March, 1991. Dragon is a sub-licensee, pursuant to an "arrangement" with STDM, who holds a master gaming permit granted by the government of Portugal to Sociedade De Tourism Diversocs De Macau ("STDM"). There is no written contract between STDM and Dragon; Dragon conducts is business at the will of STDM. The arrangement between Dragon and STDM requires Dragon to equip and manage each casino for which Dragon is allowed to retain a percentage of the "net win" equal to 12.5 percent of Macau and Hong Kong resident customers and 42.5 percent of "foreign passport" customers. The balance of the "net win" in both categories is paid to STDM. STDM is the lessee of each casino and the annual leasehold costs are paid by STDM out of its share of net winnings. Dragon's costs are limited tot he marketing, promotion and operation of the casinos. Gaming is primarily card games; there are no slot machines in the two casinos. [NUOINTL\AGR:NGTERM.AGR] EX-99 28 EXHIBIT 10.147 EXHIBIT 10.147 CONSENT TO SALE OF INTEREST AND TERMINATION OF OPERATING AGREEMENT CONSENT TO SALE OF INTEREST AND TERMINATION OF OPERATING AGREEMENT This Consent to Sale of Interest and Termination of Operation Agreement ("Agreement") is entered into by and between NuOasis International Inc ("NuOasis") and Mr Ng Man Sun, doing business as Dragon Sight International Amusement Co (Macau) Company ("Dragon" or "Operator"). Whereas, effective May 25, 1995 NuOasis, as successor in interest to the ownership interest of Nona Morelli's II Inc in the net profits of the two casino gaming activities conducted by Dragon at the Hyatt and Holiday Inn hotels in Macau, became a party to the Operating Agreement, a copy of which is attached hereto as Exhibit A (the "Operating Agreement"); and, Whereas, NuOasis has sold its interest in the Casinos (as defined in the Operating Agreement), and the purchasers of such interest and the Operator wish to terminate the Operating Agreement; and, Whereas, the sale of the NuOasis interest requires the notice to and consent of the other Owner(s) of the Casinos; and, Whereas, the parties to the Operating Agreement wish to terminate such agreement. Now, therefore, in consideration for the mutual promises and agreements contained herein, the parties hereto, as the Owners of the Casinos, mutually agree as follows: 1. Dragon, as Operator and sole Owner of the balance of the Net Profits Interest in the Casinos, consents to the sale of the interest in the Casinos held by NuOasis. 2. Effective the effective date of the NuOasis sale of its interest in the Casinos, the Operating Agreement is terminated and shall thereafter be null and void. In witness thereof, the parties hereto have executed this Agreement the day and year first above written. NuOasis International Inc. By: /s/ Fred G. Luke ------------------------------------ Name: Fred G. Luke Title: Director [NUOINTL\AGR:NGTERM.AGR] EX-99 29 EXHIBIT 10.148 EXHIBIT 10.148 AGREEMENT DATED JULY 31, 1996 BETWEEN NUOASIS INTERNATIONAL INC. AND NG MAN SUN AGREEMENT DATED: 31st July, 1996. PARTIES: 1. "NuOasis" NUOASIS INTERNATIONAL INC., a corporation organised under the laws of the Commonwealth of the Bahamas 2. "Dragon" MR. NG MAN SUN, DOING BUSINESS AS DRAGON SIGHT INTERNATIONAL AMUSEMENT (MACAU) COMPANY RECITALS: 1.1 On May 25, 1995, Nona Morelli's II Inc. a Colorado corporation ("Nona"), the sole shareholder of NuOasis, acquired from Dragon a forty percent (40%) net profits interest in the gaming operations conducted by Dragon at the Hyatt and Holiday Inn Hotels in Macau, (the "Net Profits Interest"); and, 1.2 As partial consideration for the purchase of the Net Profits Interest on May 25, 1996, Nona issued a Contingent Security Promissory Note in the principal amount of Three Million Dollars (USD3,000,000) in favor of Dragon, a copy of which is annexed hereto as Schedule "1" (the "Note"); and 1.3 Nona assigned all of its right, title and interest in the Net Profits Interest and its obligations under the Note to NuOasis by way of the Assumption Agreement dated December 29, 1995; and, 1.4 Dragon and Nona have agreed, as part of the settlement of a dispute between them, to the retirement of the Note, by way of purchase by a third party or otherwise; and, 1.5 NuOasis has agreed to purchase the Note pursuant to the terms hereof. OPERATIVE PROVISIONS 1. NuOasis hereby purchases from Dragon and Dragon hereby sells the Note to NuOasis, subject only to Seller's receipt of the Purchase Price (as defined below). 2. The Purchase Price for the Note shall be Three Million Two Hundred Eighty Thousand Dollars (US$3,280,000), payable in cash at Closing. 3. Dragon hereby warrants to NuOasis as follows: [NUOINTL\AGR:NG73196.AGR] 3.1 At Closing Dragon shall deliver the Note in its original form to NuOasis in proper form for transfer, with signatures guaranteed in favor of NuOasis or its designee, transferring all right, title and interest in and to the Note to NuOasis, or such designee; and, 3.2 This Agreement has been duly executed by Dragon 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 judgment, order or decree to which the Note is subject or to which Dragon is a party; and, 3.3 The Note is not subject to any claims or causes of action created by or through Dragon, and Dragon is not a defendant, nor a plaintiff against whom a counterclaim has been made or reduced to judgment, in any litigation or proceedings before any federal or state government of Macau or other jurisdiction, or any department, board, body or agency thereof, involving the Note; and, 3.4 Dragon has the full right and power to transfer such and enter into and carry out this Agreement; and, 3.5 No representation or warranty contained herein, nor statement in any document, certificate or schedule furnished or to be furnished pursuant to this Agreement by Dragon, or in connection with the transaction contemplated hereby, contains or contained any untrue statement of a material fact, nor does it omit to state a material fact necessary to make any statement of fact contained herein not misleading. 4. NuOasis hereby warrants to Dragon as follows: 4.1 It is a corporation duly organized and validly existing under the laws of the Commonwealth of the Bahamas as of the date hereof; and, 4.2 It is not a defendant or a plaintiff against whom a counterclaim has been made or reduced to judgment, in any litigation or proceedings before any federal, provincial or municipal government of the Commonwealth of the Bahamas, or other jurisdiction, or any department, board, body or agency thereof, which could result in a claim against the Purchase Price; and, 4.3 This Agreement has been duly executed in the capacity stated on the signature page hereof, 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, judgment, order or decree to which NuOasis is a party or to which it may be subject; and, [NUOINTL\AGR:NG73196.AGR] 4.4 No representation or warranty contained herein, nor statement in any document, certificate or schedule furnished or to be furnished pursuant to this Agreement by Dragon, or in connection with the transaction contemplated hereby, contains or contained any untrue statement of a material fact, nor does it omit to state a material fact necessary to make any statement of fact contained herein not misleading. 5. This Agreement sets out the entire agreement and understanding of the parties and is in substitution for any previous agreements or contracts between NuOasis and Dragon in respect to the Note, which shall herewith be deemed to have been terminated by mutual consent. 6. The validity, construction and performance of this Agreement shall be governed by the laws of the Commonwealth of the Bahamas. 7. Delivery of the Note ("Closing") shall occur forty eight (48) hours following NuOasis' written notice to Dragon that NuOasis wishes to effect a Closing. 8. All disputes, claims or proceedings between the parties relating to the validity, construction or performance of this Agreement shall be subject to the exclusive jurisdiction of the Commonwealth of the Bahamas to which the parties irrevocably submit. 9. Any notice to be given by a party under this Agreement must be in writing (in the English language) and must be given by delivery at or sending by first class post or other faster postal service, or telex, facsimile transmission or other means of telecommunication in permanent written form (provided the addressee has his or its own facilities for receiving such transmissions) to the last known postal address or relevant telecommunications number of the other party. Where notice is given by sending in a prescribed manner it shall be deemed to have been received when in the ordinary course of the means of transmission it would be received by the addressee. To prove the giving of a notice it shall be sufficient to show it was dispatched. A notice shall have effect from the sooner of its actual or deemed receipt by the addressee. 10. This Agreement may be executed in more than one counterpart, each of which shall be deemed to constitute an original and shall become effective when one or more counterparts have been signed by all of the parties hereto and when such a counterpart so executed has been delivered to each of the parties hereto. [NUOINTL\AGR:NG73196.AGR] IN WITNESS WHEREOF this Agreement has been entered into by the parties hereto as a deed the day and year first below written SIGNED and DELIVERED as a DEED ) ) ) By: /s/ Roger Bryan Emery ) -------------------------------------------------------- ) Roger Bryan Emery (Representing First Directors ) Limited) (a Director) ) ) ) /s/ Darren Lee Colquitt ) -------------------------------------------------------- ) Darren Lee Colquitt (Representing First Directors ) Limited) (a Director) ) ) on behalf of NUOASIS INTERNATIONAL INC. ) SIGNED and DELIVERED as a DEED ) ) ) By: /s/ Ng Man Sun ) -------------------------------------------------------- ) Ng Man Sun ) ) on behalf of DRAGON SIGHT INTERNATIONAL AMUSEMENT (Macau) ) COMPANY ) [NUOINTL\AGR:NG73196.AGR] SCHEDULE "1" to the Agreement Dated 31 July, 1996 THE NOTE [NUOINTL\AGR:NG73196.AGR] SECURED CONTINGENT PROMISSORY NOTE FOR VALUE RECEIVED, effective on the 25th day of May, 1995, Nona Morelli's II Inc, a corporation ("Maker") promises to pay to Mr Ng Man Sun, doing business as Dragon Sight International Amusement (Macau) Company ("Holder"), the principal sum of Three Million Dollars (US$3,000,000) with interest at the rate of eight percent (8%) per annum. Rate of Interest Interest shall accrue at a rate per annum equal to the lesser of (a) three percent (3%) or (b) the percentage which is the sum of (i) the "base rate of interest" announced publicly by First Los Angeles Bank, Newport Beach, California, from time to time (360-day basis) then in effect and most recently available before the date on which the interest rate determination is made (the "Base Rate") plus (ii) one percent (1%). A determination of the interest rate from time to time in effect shall be made prospectively on the date hereof and on the first day of each calendar month thereafter until this Note shall be paid in full. Interest hereunder shall be calculated on the actual number of days elapsed on the basis of a 360-day year. Rate of Interest on Default Interest on the unpaid principal together with all accrued and unpaid interest shall, after the maturity hereof, whether by demand, acceleration, or otherwise, automatically accrue and shall be payable at the rate per annum equal to the lesser of (a) three percent (3%) or (b) the percentage which is the sum of (i) one percent (1%), plus (ii) the Base Rate. Payment of Principal and Interest Payments of principal and interest under this Note shall be payable on or before June 30, 1996, with accrued interest, at the applicable rate set forth above, beginning on the first business day of June 1995 and thereafter on the first business day of each succeeding calendar month until the entire remaining balance together with all accrued but unpaid interest hereunder is paid. Each payment shall, when made, be credited first on interest then due, and the remaining on principal, and interest shall thereupon cease upon the principle so credited. Security This Note is secured by a Security Agreement of even date herewith executed by Maker as Debtor granting to Holder a security interest in 250,000 shares of Class B Preferred Stock of NuOasis Gaming Inc, a Delaware corporation (the "NuOasis Shares") pursuant to which Maker has pledged the NuOasis Shares as collateral for payment of this Note. This Note is further subject to and governed by the provisions contained in or referred to in said Security Agreement of even date. Notwithstanding the terms of said Security Agreement, this Note is not negotiable. This Note may be assigned by Holder, but only subject to all defenses which Maker may have against Holder. Further, payment of this Note does not constitute a personal or corporate obligation of Maker. [NUOINTL\AGR:NG73196.AGR] Acceleration The entire remaining balance of this Note together with all accrued but unpaid interest hereunder, and all other obligations, direct and contingent, of Maker or any endorser hereof to Holder shall, at the election of Holder, become immediately due and payable, without demand or notice, upon the occurrence of any of the following: (a) Maker becomes bankrupt (including but not limited to, the commencement of a case under Title 11 of the United States Code as now constituted or hereafter amended, or under any other applicable federal or state bankruptcy law) or makes an assignment for the benefit of creditors; (b) The appointment for Maker, voluntarily or involuntarily, of a receiver, trustee, liquidator, custodian, or sequester or other similar official) in equity, bankruptcy, or under any provision of any law of any state or the United States of America, or otherwise; (c) Maker's dissolution; or (d) Default in any payment or performance required under this Note. Failure to Exercise Rights No failure or delay on the part of Holder in the exercise of any power, right, or privilege under this Note shall operate as a waiver thereof or of any other power, right, or privilege, nor shall any single or partial exercise of any such power, right, or privilege preclude any further exercise thereof or of any other power, right, or privilege. Pre-Payment The entire principal balance of this Note or any part thereof may be prepaid without penalty or premium on any interest payment date upon not less than ten (10) days prior written notice. Offset for Note This Note is issued under an Asset Purchase Agreement dated May 1, 1995, between the Holder and the Maker. The Maker expressly reserves against the Holder, and any subsequent holder of this Note, the right to offset against any and all sums payable hereunder an amount equal to any and all damages sustained by the Maker by reason of any breach or default by the Holder under the Purchase Agreement. [NUOINTL\AGR:NG73196.AGR] Limit on Interest Notwithstanding anything to the contrary contained herein, the total liability for payments in the nature of interest, additional interest, and other charges shall not exceed the limits imposed by the applicable interest rate laws. If any payments in the nature of interest, additional interest, and other changes made hereunder are held to be in excess of the limits imposed by the applicable interest rate laws it is agreed that any such amount held to be in excess shall be considered payment of principal hereunder and the indebtedness evidenced hereby shall be reduced by such amount so that the total liability, for payments in the nature of interest, additional interest, and other charges shall not exceed the limits imposed by the applicable interest rate laws in compliance with the desires of Maker and Holder. Waiver of Presentment, Etc. Maker and endorsers, and each of them, hereby waive diligence, demand, presentment for payment, protest and notice of protest, notice of dishonor, and notice of nonpayment of this Note, and specifically consent to and waive notice of any kind of any renewal, extension, or enforcement of this Note. The pleading of any statute of limitations as a defense to any demand against Maker or endorsers is expressly waived by each and all of said parties. Maker and endorsers, and each of them, waive trial by jury in any litigation arising out of or relating to this Note in which Holder is an adverse party and further waive the right to interpose any defense, setoff, or counterclaim of any nature or description. Benefit Subject to the terms and conditions contained herein, the provisions of this Note shall inure to the benefit of and shall be binding upon the assigns, successors in interest, or personal representatives of Maker and Holder, respectively. Severability Every provision in this Note is intended to be severable. In the event any term or provision hereof is declared by a court of competent jurisdiction to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the balance of the terms and provisions hereof, which terms and provisions shall remain binding and enforceable. [NUOINTL\AGR:NG73196.AGR] Time of Essence Time is of the essence in the performance of each and every obligation under this Note to be performed by Maker. "Maker" NONA MORELLI'S II INC. a Colorado corporation By: /s/ Fred G. Luke ------------------------------------ Name: Fred G. Luke Title: Chief Executiv Officer [NUOINTL\AGR:NG73196.AGR] EX-99 30 EXHIBIT 10.149 EXHIBIT 10.149 CASINO LEASE AND OPERATING MANAGEMENT CONTRACT BETWEEN SOCIETE' D' ANIMATION ET DE LOISIRS TOURISTIQUES (S.A.L.T.) AND CLEOPATRA PALACE LIMITED CASINO LEASE AND OPERATING MANAGEMENT CONTRACT Societe d' Animation et de Loisirs Touristiques (S.A.L.T.) "OWNER" CLEOPATRA PALACE LIMITED "LESSEE" - 1 - THIS DOCUMENT WITNESSETH, ON THE ONE HAND, SOCIETE D' ANIMATION ET DE LOISIRS TOURISTIQUES (S.A.L.T.), S.A. represented by Mr. Ibrahim A. KARAWI, acting as the chairman of the board of directors, domiciled in Tunis, Residence du Lac - Bloc B - App. B 32, Les Berges du Lac - Tunis hereinafter called "The Owner" ON THE OTHER HAND, CLEOPATRA PALACE LIMITED, Dublin, Ireland, represented by its General Manager Mr. Gabriel TABARANI hereinafter called "The Lessee" AND NONA MORELLI'S II, INC., Guarantor, represented by Mr. Fred G. LUKE. WHEREAS, Owner is the present owner of (1) casino, showroom, now under construction (the Casino area) as more fully described in Exhibit A which is incorporated by reference, and WHEREAS, Societe Touristique Tunisie Golfe (S.T.T.G.) S.A. represented by Mr. Ahmed AL IBRAHIM, acting as chairman of the board of Directors, domiciled in Tunis, Rue Ibn Aljazzar No 8, Tunisia, is the owner of a hotel of six hundred and thirty (630) beds, two (2) tennis courts, a shopping center, two hundred and fifty (250) apartments, convention facilities and entertainment, sport and health center area mentioned above and as more fully described in exhibit B which is incorporated by reference. WHEREAS, Owner presently has an agreement in principal which will allow it to obtain a governmental licence or permit which legally authorizes it to operate and maintain a gaming casino with slot machines, table games and video machines in Tunisia (the "Gambling License") subject to compliance by Lessor and by Lessee with all applicable Tunisian laws and regulations; and WHEREAS, the parties hereto desire to enter into this 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 here in 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 casino area to Lessee for a fixed rental of three million dollars US ($ 3,000,000) per annum, payable quarterly in arrears ("Rent") ARTICLE 2 : Operation. Lessee shall manage the Casino by and through experienced operators, reasonably acceptable to Owner. Lessee shall have full and complete control of the operation of the casino, subject only to the terms and conditions of this agreement. - 2 - 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 and Lessor'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 : Term. 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 January 1995), shall expire on the last day of the twentieth year, (The "Initial Term"). Three months before the expiry of the initial period, the Owner and the Lessee may inform each other of their intention, either to prorogate the lease or to terminate it. If no such notice is served, the present Agreement shall be renewed for a ten 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 for occupancy by (1st of July 1996) 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 at the said date, Lessee is entitled to complete at his expenses and with hold 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. ARTICLE 7 : Operating Capital. Lessee shall provide the appropriate amount of funds to equip and operate the casino during the term of this Agreement, in addition to the Deposit referenced below. The Lessee shall exercise reasonable skill, care and diligence in the performance of his obligations under this Agreement. ARTICLE 8 : Additional Rent. The Rent shall increase in the third (3rd) year of the commencement of the initial term by Three Hundred Thousand Dollars ($ 300,000.00) per year (which is an additional $ 75,000 per quarter), and shall increase by an additional Three Hundred Thousand Dollars per year ($ 75,000 maximum per quarter) each year thereafter, until the rent reaches a maximum of Five Million One Hundred Thousand Dollars ($ 5,100,000.00) per year, which is One Million Two Hundred Seventy-five Thousand Dollars ($ 1,275,000) per quarter ("Rent Ceiling"). When the Rent Ceiling is reached, there shall be no further or additional rent increases. - 3 - ARTICLE 9 : 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 Lessee's books and records, on reasonable notice to Lessee, at Owner's expense. ARTICLE 10 : 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 Lessee agrees to reimburse Owner on demand for all such taxes, fees licenses and charges which Owner may be required or deem it necessary to pay on account of the agents, employees and representative of Lessee or its assignees. Upon demand, Lessee agrees to furnish Owner with the information required to enable it to make the necessary reports and pay such taxes, fees, licenses and charges. ARTICLE 11 : Furniture, Furnishings, Fixtures and Equipment A- Owner shall, at its own expenses, complete and finish out the casino and the 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 building 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. - 4 - ARTICLE 12 : Conduct of Business A- During the term of this Agreement, the casino and Gambling License shall be used solely for the purposes 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 ambience 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) not less that 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 reasonably 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. B- Lessee shall employ and train all employees of the casino. All such employees shall be the employees 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. C- 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. D- Lessee shall operate and provide in the casino all casino facilities and casino services normally operated and provided in casinos of comparable class. E- Lessee shall be entitled to operate liquor bars within the casino area for the purpose of selling drinks to patrons of the casino as well as dispensing complimentary beverages. ARTICLE 13 : 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 14 : Hold Harmless. Owner and Lessee shall at 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 from all claims, suits or proceedings that may be brought against owner or Lessee with respect to such clause. ARTICLE 15 : Insurance. During the term of this Agreement, Lessee shall maintain, at Lessee's expense, in a responsible insurance company or companies reasonably satisfactory to owner, personal injury and property liability insurance with coverages of no less than One Million Dollars ($ 1,000,000.00) for personal injury and no less than Five Hundred Thousand Dollars ($ 500,000.00) for property damage, and Owner shall be listed as an additional insured by such policies as workmen's compensation or similar insurance as may be required by applicable laws. - 5 - ARTICLE 16 : Untenantability and Hostilities. If, during the term of this Agreement, any of the casino 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 17 : 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 of the gambling equipment, other special equipment, bankrolls, safe, or accounts used and maintained on said casino area at any time; provided, however, such visits or inspections shall be conducted with as little disturbance as possible to the operations of the casino and in the company of a representative of Lessee. ARTICLE 18 : Assignment. Lessee agrees not to sublease or assign this Agreement or its interest in the casino, and any of its rights and privileges under this Agreement without the written prior consent of Owner which shall not be unreasonably withheld. ARTICLE 19 : Appearance of Premises. It is expressly understood and agreed that the appearance of the casino and the casino area which have been provided by the owner at its expense, including the placing of signs and the general conduct of the business on the casino area, will have a material effect on the reputation of owner. The owner therefore hereby expressly reserves the right to control and regulate the appearance of the casino and the casino area at all times during the terms of this Agreement, including, but not limited to the regulation of any signs, advertisements 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 20 : Entertainment. Lessee shall have the right to decide if any entertainment is needed in the casino; Lessee shall be responsible for the payment of all entertainment in the casino area ARTICLE 21 : Condition to owner's performance. As a condition precedent to owner's performance, Lessee will provide evidence that it has at least Six Million Dollars ($ 6,000,000.00) of working capital, and that it is capable of working under this Agreement. ARTICLE 22 : Default. 22.1 Default by lessee : If, at any time during the term of this Agreement, one or more of the following events shall occur, owner may forthwith terminate this Agreement. - 6 - A. Lessee shall fail to make any payment due under this Agreement on or prior to the date upon which it is due, and such failure shall continue for thirty (30) days after written notice; B. Lessee shall fail or refuse to fully perform or comply with any other agreement, covenant, or undertaking, which is required 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 reasonably necessary for lessee to cure the non-monetary default, in the exercise of reasonable diligence. 22.2 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. 22.3 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 23 : Notices. Unless a party hereto shall in written direct otherwise, all notices to be served and rendered if sent by Registered Mail directed to: OWNER : Society d'Animation et de Loisirs Touristiques "S.A.L.T." Residence du Lac Bloc B - Appt. B 32 Les Berges du Lac Tunis, TUNISIA COPY TO : LESSEE : Cleopatra Palace Limited c/o Gabriel Tabarani Chartwell House 80 Wimbledon Parkside London SW19 5LN, ENGLAND Any party may change its address for notice by written notice and such change shall be effective upon actual receipt of same. - 7 - ARTICLE 24 : Governing Law. This agreement is subject to and shall be interpreted in accordance with the laws of Tunisia. ARTICLE 25 : Arbitration. Any dispute between Owner and Lessee arising from the execution or interpretation of the provisions of this Agreement, if not settled amicably, shall be settled by an arbitral tribunal consisting of three arbitrators whose award shall be final and enforceable. Each of the above mentioned parties 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 abstains from appointing its arbitrator. - - The arbitration shall be conducted in Tunisia. ARTICLE 26 : Promotional Material Lessee will annually prepare a specification book for a program of promotional and tourist activities. ARTICLE 27 : Other obligations. Nona Morello's II, Inc. shall secure and guarantee Lessee's performance under this Agreement. Lessee shall provide a yearly revolving Letter of Credit so as to maintain the security for Lessee's performance to Owner under this agreement for one year's rent including additional as established by the Agreement. In the event that payments are not made in accordance with this Agreement, Lessee shall instruct the bank holding the common stock to sell it and pay the proceeds to Owner as liquidated damages. If Lessee fails to instruct the bank holding the common stock within a delay of fifteen (15) days, Owner shall be entitled, upon sending a notice to both Lessee and the bank, to authorize the bank to proceed to the sale of the said common stock. During the period of lease of the Casino as defined under this Agreement, should the market value of the stock drop below the outstanding balance due, then in that event Lessee commits itself to increase the number of shares of NONA stock in escrow to the amount of shares necessary to maintain a market value equal to the outstanding balance due. ARTICLE 28: Language and interpretation. The conditions of the Agreement are drawn in English. It's interpretation should be in conformity with the parties' 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 vice-versa where the context requires. If there is a conflict between provisions of the agreement, the last to be written chronologically shall prevail, unless otherwise specified. ARTICLE 29 : 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. - 8 - ARTICLE 30 : Savings Clause. In the event any provision of this Agreement is inconsistent with or contrary to any applicable law, rule, regulation, code or order said provision shall be deemed to be modified to the extent 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. IN WITNESS WHEREOF, This Agreement is executed in duplicate copies, of like terms and effect, on this day ---------- of ----------------------. LESSEE : /s/ Cleopatra Palace Limited ---------------------------------- CLEOPATRA PALACE LIMITED OWNER : /s/ Societe D'Animation et de Loisirs Touristiques "S.A.L.T." ---------------------------------- SOCIETE D'ANIMATION ET DE LOISIRS TOURISTIQUES "S.A.L.T." GUARANTOR : /s/ Nona Morelli's II, Inc. ---------------------------------- NONA MORELLI'S II, INC. -9- EX-99 31 CONSULTING AGREEMENT, EXHIBIT 10.150 EXHIBIT 10.150 FOURTH ADDENDUM TO CONSULTING AGREEMENT WITH JOHN D. DESBROW JOHN D. DESBROW ATTORNEY AT LAW 2 PARK PLAZA, SUITE 470 IRVINE, CALIFORNIA 92714 TEL: (714) 833-2094 FAX: (714) 833-7854 December 27, 1995 Nona Morelli's II, Inc. 2 Park Plaza, Suite 470 Irvine, California 92714 RE: Fourth Addendum to Consulting Agreement Gentlemen: This letter will serve as the Fourth Addendum to my Consulting Agreement dated January 1, 1994 with Nona Morelli's II, Inc. (the "Company"). This Addendum will confirm the renewal of the Consulting Agreement for calendar year 1996. As soon as practicable following execution of this Addendum the Company agrees to include in a Form S-8 Registration Statement at its expense a sufficient number of shares in order to pay for professional services invoiced in calendar year 1996. If the foregoing is agreeable, please indicate your approval by dating and signing below and returning an original copy to me. Very truly yours, /s/ John D. Desbrow ------------------------------------ John D. Desbrow APPROVAL AND ACCEPTANCE READ AND ACCEPTED. NONA MORELLI'S II, INC. By: /s/ Fred G. Luke ------------------------------ Name: Fred G. Luke Title: Chief Executive Officer [JDD\AGR:4THADDCN.AGR] EX-99 32 ASSUMPTION AGREEMENT, EXHIBIT 10.151 EXHIBIT 10.151 ASSUMPTION AGREEMENT AND RELEASE OF LIABILITY WITH NG MAN SUN DATED DECEMBER 29, 1995 ASSUMPTION AGREEMENT AND RELEASE OF LIABILITY The undersigned corporation, NuOasis International, Inc., a California corporation, hereby assumes all obligations on the part of Nona Morelli's II, Inc. as Maker of that certain Secured Contingent Promissory Note in the principal amount of $3,000,000 executed in favor of Ng Man Sun, doing business as Dragon Sight International Amusement (Macau) Co. (the "Note"). The undersigned agrees to be bound by all the terms, provisions, covenants and conditions of the Note. The undersigned agrees to pay all expenses (including attorneys' fees and legal expenses) paid or incurred by Ng Man Sun, doing business as Dragon Sight International Amusement (Macau) Co. in endeavoring to collect the Note, or any part thereof, and in enforcing this Assumption Agreement. If any provisions of this Assumption Agreement are in conflict with any statute, rule or law, then such provisions shall be deemed null and void to the extent of such conflict, but without invalidating any other provisions of this Assumption Agreement. December 29, 1995 NUOASIS INTERNATIONAL, INC., a California corporation By: /s/ Fred G. Luke ---------------------------------- Fred G. Luke, President The undersigned, Ng Man Sun, doing business as Dragon Sight International Amusement (Macau) Co., releases Nona Morelli's II, Inc. from all liability on the part of Nona Morelli's II, Inc. to be performed under the Note. NG MAN SUN, doing business as Dragon Sight International Amusement (Macau) Co. /s/ Ng Man Sun --------------------------------------- Ng Man Sun [NUOINTL\AGR:NGNOTE.AGR] EX-99 33 CONSULTING AGREEMENT, EXHIBIT 10.152 EXHIBIT 10.152 SECOND ADDENDUM TO CONSULTING AGREEMENT WITH STEVEN H. DONG STEVEN H. DONG CERTIFIED PUBLIC ACCOUNTANT 2 PARK PLAZA., SUITE 470 IRVINE, CA 92614 TEL: (714) 833-2094 FAX: (714) 833-7854 July 1, 1996 Nona Morrelli's II, Inc. 2 Park Plaza, Suite 470 Irvine, California 92714 RE: Second Addendum to and Renewal of Consulting Agreement This letter will serve as a Second Addendum to the undersigned's Consulting Agreement dated July 1, 1995 (the "Consulting Agreement") with Nona Morelli's II, Inc., (the "Company"). Pursuant to the Consulting Agreement, this Addendum confirms the renewal of the Consulting Agreement and related Addendum, dated October 4, 1995, for the fiscal year ended June 30, 1997. As soon as practicable following execution of this Addendum, the Company agrees to include in a Form S-8 Registration Statement at its expense a sufficient number of common shares of the Company in order to pay for professional services rendered. The Company agrees that it will indemnify, defend and hold the Consultant harmless from and against all demands, claims, actions, prosecutions, losses, damages, liabilities, costs and expenses, including without limitation interest, penalties, and attorney's fees and expenses, asserted against, resulting to, imposed upon or incurred by Consultant, directly or indirectly, resulting from any dispute, claim, suit, proceeding, or cause of action arising from or in any way connected to the providing of services to the Company under the Consulting Agreement and this Addendum to and Renewal of Consulting Agreement. If the foregoing is agreeable, please indicate your approval by dating and signing below. Very truly yours, /s/ Steven H. Dong, CPA ---------------------------------- Steven H. Dong, CPA ("Consultant") APPROVAL AND ACCEPTANCE READ AND ACCEPTED THIS 1st day of July, 1996. NONA MORELLI'S II, INC. By: /s/ Fred G. Luke ------------------------------ Name: Fred G. Luke Title: Chief Executive Officer [nm/agr/dongamend11.AGR] EX-99 34 EXHIBIT 10.153 EXHIBIT 10.153 AGREEMENT DATED OCTOBER 2, 1996 BETWEEN NUOASIS INTERNATIONAL, INC. AND CLEOPATRA WORLD, INC. NuOasis International Inc. 43 Elizabeth Avenue, Box N-8680 (Diamond) Nassau, Bahamas Telephone (809) 356-2903 (Diamond) Facsimile (809) 326-8434 October 2, 1996 Board of Directors CLEOPATRA WORLD INC. Box 3186, Road Town Tortola, British Virgin Islands RE: Purchase of shares of capital stock of Cleopatra World Inc., a corporation organised under the laws of The British Virgin Islands ("Cleopatra World") Gentlemen: NuOasis International, Inc. ("NuOasis") wishes to acquire shares of capital stock of Cleopatra World ("Cleopatra World Shares"). When executed by an authorized officer of Cleopatra World this letter (the "Agreement") will set out the understanding and agreement regarding such a transaction. It is our understanding and representation that: 1. NuOasis has the right to acquire Three Million Dollars (US$3,000,000) of common stock of The Hartcourt Companies Inc., a corporation organised under the laws of the United States, state of Utah (the "Hartcourt Shares"); and 2. Pursuant to the Lease Agreement dated the 5th day of November, 1995 (the "Lease") between Cleopatra and Societe Touristique Tunisie Golfe S.A. ("Owner"), Cleopatra World is the Lessee of the Le Palace Hotel and adjoining commercial centre, sports and fitness centre, beach club and apartment complex (collectively, the "Property"), a copy of which is annexed hereto as Schedule "1"; and 3. Pursuant to the Lease Cleopatra is required to deposit with the Owner securities having a market value equal to US$3,000,000, to be held by the Owner as a Security Deposit. Based upon these facts and the representations contained herein, we agree as follows: 1. NuOasis to Provide Security Deposit Upon acceptance of this Agreement by Cleopatra World NuOasis will deposit the Hartcourt Shares with Owner to satisfy the Security Deposit set forth under the Lease. 2. Issuance of Additional Shares Upon deposit of the Hartcourt Shares by NuOasis as set forth herein Cleopatra World will issue and deliver to NuOasis shares of its capital stock equal in number to not less than fifty percent (50%) of the total issued and outstanding share capital of Cleopatra World at such date but giving effect to the transaction contemplated by this Agreement. [NUOINLTD\AGR:CLEOWSUB.AGR]-6 3. In connection with this proposal, and as an inducement to NuOasis to provide the aforementioned Security Deposit, Cleopatra World confirms that: A. The Cleopatra World Shares, when delivered, will be free and clear of liens, claims and encumbrances; Cleopatra World has all necessary right and power to enter into this Agreement and to cause such issuance of the Cleopatra World Shares to NuOasis as contemplated herein; and, any necessary shareholder approval of Cleopatra World's shareholders will be obtained prior to Closing. B. Cleopatra World is duly organised, validly existing, and in good standing under the laws of the British Virgin Islands and that the Lease is in full force and effect. C. The capitalization of Cleopatra World is, as of the date hereof, comprised of 50,000 shares of authorized common stock, US$.01 par value, of which approximately 15,000 shares are presently issued and outstanding. D. Cleopatra World is in compliance with all applicable laws, rules and regulations, relating to its operation of the Property, except to the extent that non-compliance would not materially and adversely affect the business, operations, properties, assets, or condition of the Property or its individual assets or contracts. E. Any and all originals of accounting books and records, and any other documents and records related to the Property or the Lease and maintained by Cleopatra World will be available for review by NuOasis prior to Closing. 4. Each party hereto 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. 5. 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, Box N-5680 Nassau, Bahamas Telephone: (809) 356-2903 Facsimile: (809) 326-8434 To Cleopatra World: Cleopatra World Inc. Box 3186, Road Town Tortola, British Virgin Islands [NUOINLTD\AGR:CLEOWSUB.AGR]-6 With copy to: Cleopatra Palace Ltd. Flat 2, Chartwell House 80 Wimbledon Parkside London SW19 5LN, ENGLAND Telephone: +44-171-602-9988 Facsimile: +44-181-788-8089 6. 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. 7. This Agreement was negotiated, and shall be governed by the laws of the Commonwealth of the Bahamas notwithstanding any conflict-of-law provision to the contrary. Sincerely, NuOasis International Inc. By: /s/ NuOasis International Inc. ----------------------------------- NuOasis International Inc. ACCEPTED AND AGREED IN PRINCIPLE THIS ----- DAY OF OCTOBER, 1996 Cleopatra World Inc. By: /s/ Cleopatra World Inc. ----------------------------------- Cleopatra World Inc. [NUOINLTD\AGR:CLEOWSUB.AGR]-6 SCHEDULE "1" to the Agreement Dated October 2, 1996 THE LEASE [NUOINLTD\AGR:CLEOWSUB.AGR]-6 EX-27 35 ART. 5 FDS FOR 12 MONTHS ENDED 6/30/96
5 12-MOS JUN-30-1995 JUN-30-1995 50,436 0 4,023,496 0 93,599 15,000 1,150,160 (804,556) 12,940,698 6,106,495 0 0 240,000 450,223 5,718,653 12,940,698 12,658,491 12,658,491 838,453 838,453 19,295,323 0 309,757 (7,721,708) (997,932) (8,719,640) 0 0 0 (8,719,640) (.20) 0
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