AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
ENOVA HOLDINGS, INC.
(Name of Small Business Issuer in its Charter)
NEVADA
(State or Other Jurisdiction of Incorporation or Organization)
33-0803552
(IRS Employer Identification No.)
1196 E. WILLOW STREET, LONG BEACH, CA
(Address of Principal Executive Offices)
90806
(Zip Code)
(562) 426-1321
(Company's Telephone Number, Including Area Code)
SECURITIES TO BE REGISTERED UNDER 12(G) OF THE ACT:
TITLE OF EACH CLASS TO BE SO REGISTERED: NONE
NAME OF EACH EXCHANGE ON WHICH EACH CLASS IS TO BE REGISTERED: N/A
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK
(Title of Each Class)
$.001 PER SHARE
(Par Value)
<PAGE>
PART I
Item 1. Description of Business
Business Development
Enova Holdings, Inc. ("Enova") is a corporation duly incorporated,
validly existing and is in good standing under the laws of Nevada. Enova
previously known as Yes Lifestyles, Inc. ("YSI") incorporated under the laws of
Nevada on May 1, 1998 and amended its name to Enova on December 7, 1998. As of
this date, Enova had no ongoing operations.
On February 1, 1999, Enova and The Hartcourt Companies, Inc.
("Hartcourt") entered into a Share Purchase Agreement in which Hartcourt
acquired one (1) share of Enova which represented all of the issued and
outstanding shares of the company, making Enova a wholly owned subsidiary of
Hartcourt.
On March 1, 1999, Enova and Hartcourt executed an Exchange Agreement
whereby Hartcourt exchanged all of its ownership interest in two wholly owned
subsidiaries, Pego Systems, Inc. ("Pego") and Electronics Component Systems,
Inc. ("ECS"), collectively the "subsidiaries," for 4,709,788 additional shares
of Enova.
On March 1, 1999, Enova and Hartcourt entered into a Distribution
Agreement pursuant to which Hartcourt agreed to distribute to all Hartcourt
shareholders of record on March 31, 1999 all of the 4,709,789 shares of common
stock of the Enova and to file, within a reasonable period of time following
such distribution, a Registration Statement on Form 10-SB to cause the
distributed shares of Enova to be registered under the Securities Act of 1934.
As a result of the Share Purchase Agreement, the Exchange Agreement and
the Distribution Agreement, each shareholder of record of Hartcourt on March 31,
1999 received one (1) share of Enova for every four (4) shares owned of
Hartcourt. Following the distribution of Enova shares, both Enova and Hartcourt
continue to operate as separate companies. All of Enova's operations and related
assets and liabilities are held by Enova's subsidiaries.
Business of Issuer
Enova Holdings, Inc.
Enova is a holding company as a result of spin-off of Pego and ECS by
Hartcourt. Enova is currently doing business through its two wholly owned
subsidiaries.
Pego Systems, Inc.
Pego is a manufacturer's representative organization that offers a full
line of value added service including distribution, service, and manufacturing
of customer process equipment packages. Pego is the predominant industrial
equipment source on the West Coast for air, gas and material handling equipment
for the environmental, petrochemical, food service and other industries with
similar requirements. Pego is a full service source providing in stock
distribution capabilities for typical fabricated packages and service equipment;
and sales representation for all equipment through major manufacturers of
equipment, and is supported by engineering and fabrication capabilities for new
equipment and upgrade requirements, and a service fleet providing factory
authorized on-site service and repair; and factory authorized overhaul shop.
<PAGE>
Pego's primary product line includes compressors, blowers, fans, and
ready to go standard fabrications as well as all the ancillary items needed to
complement these industrial installations. Pego was founded as a manufacturer's
representative of equipment in 1952. Pego expanded its representation and sales
force and continually sought new opportunities. Pego began limited distribution
that it supported by providing in-house repair services and receiving
fabrication requests which it completed profitably, thus now completing the
evolution to becoming a one stop equipment source by offering engineering and
fabrication services.
Pego's evolution continued with the opening in 1992 of a satellite
service and sales facility in Novato, California; a sales office in Sacramento,
California in 1994; a sales office in Seattle, Washington in 1998; and plans to
open a sales office in Portland, Oregon. In 1998, Pego acquired Pacific
Pneumatics, Inc., a competitor in Rancho Cucamonga, California, that has the
ability to offer complementary products not available through Pego. Based on the
success of its satellite office program, Pego intends to continue expanding this
regional representation program by opening new offices in markets throughout the
country that will enable Pego to maintain its growth.
Currently, Pego has determined that its engineering and fabrication
capabilities are well suited to pollution control systems necessary for most of
today's industrial operations. In addition, opportunities exist for providing
equipment and services for wastewater treatment plants and landfills in the
United States and worldwide especially in evolving and emerging nations. Pego
believes that this is a virtually untapped potential of new business with
industrial plants in the United States discharging billions of gallons daily of
water requiring treatment. Pego is already fabricating and shipping systems to
China and other Asian countries providing management with experience in these
markets.
Market Analysis
Pego is involved in four inter-related markets. This includes the
Distribution Market, Manufacturer's Representatives, Fabrication, and Repair and
Service. The Distribution sales are growing at a strong rate. The sales for
these products amounted to $1,600,000 in 1998 representing a 15% growth over the
previous year. The Manufacturer's Representative sales have shown some growth
but are generally flat. Some of this explained by the fact that we package more
equipment, and the petrochemical market has been slow for the past two years.
This is due to the plunge in oil prices and also the devaluation of the monetary
value in the Pacific Rim countries where many large projects are on hold. This
market is reviving. Our manufacturers whom we represent cater to those markets.
The area of greatest growth in the service market is in the area of field
repairs and complete installations.
The upside potential for our products in each of the currently
addressed markets over the next two years is further sales inroads into the food
industry, which is one of the fastest growing industries in the non-computer
tech fields. Also the environmental field includes wastewater treatment plants,
landfill gas gathering, vapor extraction and soil remediation. All are areas
with growth, stability and opportunities for our products.
There are several thousand industrial plants in the United States that
discharge billion gallons of water per day that need to be treated. This is
above the municipalities that are growing and need more wastewater treatment.
The number of plants combined in the USA and in the foreign countries, to which
we have access, exceeds 20,000 plants. Based on the conditions introduced above,
it is apparent that we will broaden our market coverage of the food,
<PAGE>
petrochemical and environmental industries. An altogether new application for
some of our product would be tapping the metal finishing markets. Further
opportunity for our product exists in pharmaceutical and general food processing
industries.
Market Segment
Key points in defining the market segment are the western states where
we operate, and in the general processing industry. Currently, over 150
companies in the western states that are of our size or larger share the market.
Users of air and gas handling machinery and complete systems are looking for
quality and productivity improvements. Developments in air and gas handling
machinery and complete systems cause us to increase our packaging and service
capabilities.
The stability of this market segment is good. This is based on the
product category performance over the past 10 years. The machinery we sell is
essential to many markets and will be unaffected by changes in the development
of high tech equipment, since it cannot do the work of these standard products.
The major market segments are: petrochemicals, wastewater treatment,
environmental, pneumatic conveying and food processing. In the next two years it
is estimated that there will be more than ten products distributed by Pego. The
market potential for these products in our market is very strong even with only
5% of the overall market. We have an active customer base of over 600 companies
and a turnover of new customers that is in the range of 4500 companies in the
last 5 years.
Strengths
In terms of product strength, Pego has several distinct advantages over
the competition. First is world-class equipment in processing machinery and
worldwide known product names. In marketing, our most powerful assets are our
sales engineers. Pego has eight (8) sales engineers, all of who are extremely
well trained in the sales of our equipment and complete systems. Our sales
engineers have been with Pego for as long as 18 years. The longevity with our
company gives our sales engineers great advantage during competitive situations
because of their product knowledge, product training at the home factories of
the companies that we represent and their rapport with their customers.
Weaknesses
While there are some weaknesses inherent in our product lines, the only
notable marketplace disadvantage is delivery times. The sales increases have out
reached our principals manufacturing capacity. By mid year 2001, we expect to be
in good position as production catches up with sales and thereby reduce this
weakness considerable. Corporate weaknesses at this time consist of lack of
fully integrated accounting system. Pego has brought on board an information
technology coordinator to review Pego's immediate needs and offer solutions and
implement a fully integrated accounting system.
Customer Profile
The most typical customer for our product is someone who is in the
processing field and who currently uses our product for food or chemical
processing. It is likely that potential customers are going to be familiar with
similar products, and that they will readily accept our product, provided that
we market them effectively.
<PAGE>
Complementary products already in use by our customers include other
air handling devices and are seen as a tremendous help in compelling customers
to acquire and use our product. People are motivated to buy our product because
of cost savings in operation.
Customer List
Typical customers include all the major oil companies, chemical plants,
power plants, A & E engineering firms, the food processing plants and
municipalities with respect to land fills, wastewater treatment plants. All
environmental clean up companies are deemed as our potential customers.
To name some customers: Coca-Cola, Beatrice foods, Shell Oil, Exxon,
British Petroleum, Bechtel Corporation, Fluor-Daniel Corporation, and Waste
Management Inc.
Competition
Companies that compete in this market are Roots, Paxton Blowers, MD
Pneumatics and other blower manufacturers. All companies mentioned above charge
competitive prices within 10% of our prices, both higher and lower. The major
strengths of our competitors are name recognition and the major weaknesses of
our competitors are lesser-trained sales representatives. Pego competes with
national companies, several of whom are low cost market suppliers, and are based
primarily in Pennsylvania and Ohio. United Blowers Co. and Universal Blower Co.
have very low overhead operations. Pego has recently completed planning
significant expansions. Furthermore, if the market continues to grow, the major
national companies will likely devote greater resources to this segment. Our
building in Long Beach has recently been expanded and rearranged to accommodate
the future support staff.
The major competitors' objectives and strategies are to win on price.
The major competitors' most likely response to trends affecting our industry
will be to reduce production and sales costs. Our products are positioned
relative to our major competitors by price, quality and location.
Key factors that have resulted in the present competitive position in
this industry are improved efficiency and reduced operating noise level. Sales
and profit ranking of major competitors in the industry have changed over recent
years due to consolidation taking place in our industry. The rankings have
changed because of the big companies buying out some of the smaller ones in the
industry.
Competitive threats today come from foreign manufacturers who are
desperate to enter the domestic market and offer prices and services that are
below cost. Pego's products perform in virtually all situations. The ability to
offer a full range of product and services for air and gas handling equipment is
unique in our industry.
In all comparisons, Pego's products provide the same or more features
and have superior performance than do many competitive products.
Cost Structure
Pego opened a new facility in 1998 that increased our potential
capacity by a factor of 15%. In conjunction with this expansion, Pego increased
our marketing expense and other administrative overheads. If the market
<PAGE>
acceptance of our increased sale area is increased in proportion to the
demographics of the new territory, profitability should increase as the
additional overhead should far outweigh the increase in overall sales.
Pego plans to add equipment and personnel to further increase sales and
production capacity over a period of time. However, market opportunities for
Pego products have encouraged us to accelerate our expansion plans. Pego would
use additional financing to allow Pego to meet the expected growth in demand for
our products.
Industry Growth
The sale and consumption of our product has increased significantly
over the past 23 years. Pego and its manufacturers, for who we distribute, are
increasing their capacity in order to meet this growth. There can be no
assurance, however, that the growth will continue at the present rate.
Economic Risks
The economic risks affecting Pego are reduced oil prices and loss of
monetary value of foreign currencies against the dollar. The best strategy for
Pego is to increase domestic sales and increase the service part of our
business. In addition, we are increasing the product lines we represent and the
territory into which we sell them.
Legal and Government
State and local ordinances or zoning laws will not likely change or
have impact on the products that we distribute. Our products are in compliance
with environmental laws. No government approval is required for any of our
products that we represent for our principals. Environment law compliance is
related strictly to Pego's paint booth that is licensed by the city, county and
the State EPA regulatory agencies. Pego will stay abreast of legal issues facing
our industry through the major contractors and available government
publications.
Electronic Component Systems, Inc.
ECS specializes in high technology contract manufacturing and assembly
of printed circuit boards, phone and cable wires, coil winding and plastic
injection parts. ECS is also a pioneer in the new technology of ball-grid array
connection for the semi-conductor industry. ECS maintains manufacturing
operations under maquiladora agreements in Nogales, Mexico. A substantial amount
of ECS's cables and electronic components are manufactured and assembled at the
Mexico facility by the maquiladora. ECS has smaller manufacturing facilities in
Fremont, California and Chandler, Arizona and a distribution facility in
Nogales, Arizona.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of operations
Since Enova had no operations in fiscal 1998, the accompanying
financial statements for the year ended December 31, 1998 included only the cost
of organization of Enova.
<PAGE>
Comparison of unaudited interim financial statements for the ten months ended
October 31, 1999 and 1998:
The accompanying unaudited interim financial statements of Enova for
the ten months ended October 31, 1999 included operations of Enova and Pego. The
accompanying unaudited interim financial statements for 1998 included operations
of Pego for the ten months ended October 31, 1998 and three months of operations
of PPI from August 6, 1998 (date of acquisition by Pego) to October 31, 1998.
Enova's investment in ECS was deemed as zero due to consistent losses in 1998
and 1999.
The exchange of Pego and ECS was accounted for at historical cost since
it qualified as a combination of entities under common control. Accordingly, the
transaction was accounted for as a recapitalization of Pego, a combination of
businesses under common control and an asset acquisition of securities of ECS.
The financial statements subsequent to the acquisition are as follows: (1) the
balance sheet includes the net assets of Enova and Pego historical cost; (2) the
statement of operations includes the operations of Enova and Pego for the
periods presented.
Sales. Sales increased by approximately $705,000 or 14% during the ten
month period ended October 31, 1999 when compared with 1998. This increase was
primarily attributable to acquisition of Pacific Pneumatics, Inc. in August 1998
and higher volume in service sales.
Cost of sales. Cost of sales increased by approximately $ 464,000 (15%)
during the ten month period ended October 31, 1999 when compared with 1998
primarily as a result of the increase in sales. Gross margins (39%) remained
approximately the same during the ten month period ended October 31, 1999 when
compared with 1998.
General & administrative expenses. General and administrative expenses
increased by approximately $324,000 (29%) and as a percentage of sales increased
to approximately 25% in 1999 compared to 22% in 1998. Such increase was
primarily due to increased administrative expenses, legal and accounting costs,
and payroll expenses due to acquisition of Pego and ECS in March 1999.
Sales and marketing expenses. Sales and marketing expenses increased by
approximately $25,000 (4%) and as a percentage of sales decreased to
approximately 12% in 1999 compared to 13% in 1998. The increase was primarily
due to Enova's expanding direct sales and marketing activities.
Net income or loss. Enova incurred a net loss of approximately $50,000
(1%) during the ten month period ended October 31, 1999 when compared to the
profit of approximately $127,000 (2%) during the same period of 1998. The loss
resulted primarily due to the increased general and administrative expenses and
gross margins remained relatively the same.
Liquidity and Capital Resources
At October 31, 1999, Enova had cash and cash equivalents of
approximately $27,000 and working capital deficit of approximately $283,000. The
company believes that its existing working capital deficit together with funds
generated from operations, will not be sufficient to provide for its planned
operations for the foreseeable future.
Enova regularly examines opportunities for strategic acquisitions of
other companies or lines of business and anticipates that it may from time to
time issue additional debt and/or equity securities either as direct
consideration for such acquisitions or raise additional funds to be used, in
whole or in part, in payment for acquired securities or assets. The issuance of
<PAGE>
such securities could be expected to have a dilutive impact on Enova's
shareholders, and there can be no assurance as to whether or when any acquired
business would contribute positive operating results commensurate with the
associated investment.
Item 3. Description of Property
The corporate headquarters of Enova and Pego are located in Long Beach,
California. These facilities are owned by the company and contain approximately
22,000 square feet of office, warehouse and production facilities. Enova has a
promissory note on the facility bearing 8.5% interest per year, with monthly
payment of $9,543 including principal and interest. The final payment on the
promissory note is due on November 1, 2024. The production area is complete with
cranes, forklifts, fabrication equipment, overhaul and service equipment,
testing and certification equipment and a paint booth. The production facility
is in compliance with all government certifications.
Enova has two other facilities located in Novato, California and Chino,
California. Novato facility is leased from the former owner of Pego and
approximates 2,100 square feet. The monthly payments on this lease, which
expires May 31, 2003, are $1,975. The facility includes a sales office, a small
warehouse for certain high sales volume components and a shop for limited
repairs. PPI's office, located in Chino is leased at $1,409 per month for a
two-year term expiring on August 31, 2001. The lease has an option to renew for
one additional year. The facility is approximately 2,200 square feet and
supports Pore Poly production and filtration business.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information of November 1, 1999
with respect to the beneficial ownership of common stock of the Company, by each
person known by Enova to own beneficially more than five percent of Enova's
common stock, by each executive officer and director, and by all officers and
directors as a group. Unless otherwise indicated, all persons have sole voting
and investment powers over such shares, subject to community property laws. As
of November 1, 1999, there were 5,149,711 shares of common stock outstanding.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Interest of
Name and Address $ .01 par value Percent
of Beneficial Owners Common Stock of Class
------------------------------------------------ ---------------------- ---------
<S> <C> <C>
International Banking Company
Caribbean (IBOC) N. V. 275,000 5.3%
C/O Enova Holdings, Inc.
1196 E. Willow Street
Long Beach, CA 90806
Nuoasis International Inc. 325,000 6.3%
C/O Enova Holdings, Inc.
1196 E. Willow Street
Long Beach, CA 90806
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Interest of
Name and Address $ .01 par value Percent
of Beneficial Owners Common Stock of Class
------------------------------------------------ ---------------------- ---------
<S> <C> <C>
Dr. Alan V. Phan (1) 1,123,752 22.0%
Chairman of the Board
1198 E. Willow Street
Long Beach, CA 90809
</TABLE>
Includes an aggregate of 250,000 shares issueable upon conversion of 250 shares
of Original Preferred Stock. The sole holder of the 250 outstanding shares of
Original Preferred Stock, Dr. Phan is entitled to elect 3/5 of the number of
members of the Company's Board of Directors.
Item 5. Directors, Executive Officers, Promoters and Control Persons
Identification of Directors and Executive Officers.
Enova, pursuant to its Bylaws is authorized to maintain a three (3)
member Board of Directors, and executive officers as needed. The directors and
officers for fiscal 2000 are as follows:
<TABLE>
<CAPTION>
Position
Name Held with the Issuer Age Dates of Service
- -------------------------- -------------------------------------------- ------- ---------------------------------------
<S> <C> <C> <C>
Dr. Alan Phan Director, Chairman of the Board 55 March 1999 to present
Manu Ohri Director, President & CEO 44 June 1999 to present
Fred Cohn Director, Vice President, Secretary 64 March 1999 to present
</TABLE>
All directors of Enova hold office until the next annual meeting of
shareholders and until their successors have been elected and qualified. The
officers of Enova are elected by the Board of Directors and serve at the
discretion of the Board of Directors or until their earlier resignation or
death.
Business Experience
Dr. Alan V. Phan, Chairman of the Board and Director. Dr. Phan has over
30 years of experience in business management. He obtained his academic training
and degrees at Pennsylvania State University and Sussex College of Technology.
As Executive Vice President of Em Kay Group and Eisenberg Company, he
established 11 industrial projects including real estate developments in Asia
and South America. Dr. Phan has been a founder and Chairman of the Board and
Chief Executive Officer of Hartcourt since August 1990.
Mr. Manu Ohri, President, Chief Executive Officer and Director. Mr.
Ohri has over 19 years of diversified business management and operations
experience in public and private companies. Mr. Ohri joined Enova in June 1999
<PAGE>
as the President, CEO and Director of the company. From January 1997 to May
1999, Mr. Ohri served as Chief Operating Officer of Dynamic Cooking Systems,
Inc., a privately held manufacturing company. From September 1989 to December
1996, Mr. Ohri held the position of Chief Financial Officer at Startel
Corporation, a NASDAQ listed company in software development business. Mr.
Ohri's multi-faceted experience includes operations, finance as well as
administrative functions in the manufacturing, distribution and software
development industries. Mr. Ohri is a member of the Board of Directors of
Hartcourt since December 1999. Mr. Ohri is a Certified Public Accountant with
over six years experience with Deloitte & Touche and PriceWaterhouseCoopers. Mr.
Ohri earned his Masters degree in Business Administration from University of
Detroit and Bachelors degree in Accounting from University of Delhi in India.
Mr. Fred Cohn, Vice President, Secretary and Director. Mr. Cohn has
over 30 years of diversified experience in business management. During the last
five years, Mr. Cohn was a successful entrepreneur owning and operating medium
size companies in the fields of transportation, entertainment, manufacturing and
distribution. Mr. Cohn is a former member of the Board of Directors of The
Hartcourt Companies, Inc., a NASDAQ listed company. Mr. Cohn obtained his law
degree from New York School of Law and Bachelors degree in Accounting from
Wilkes University.
BOARD OF DIRECTORS
The Board of Directors is classified into three classes, with each
class serving staggered three-year terms. The classification of the Board of
Directors has the effect of generally requiring at least two annual stockholder
meetings, instead of one, to replace a majority of the members of the Board of
Directors.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and
Compensation Committee. The Audit Committee, consisting of Dr. Phan and Mr.
Ohri, reviews the adequacy of internal controls and results and scope of the
audit and other services provided by the Company's independent auditors. The
Audit Committee will meet periodically with management and the independent
auditors.
The Compensation Committee, consisting of Dr. Phan and Mr. Ohri,
establishes salaries, incentives and other forms of compensation for officers
and other employees of Enova and administers the incentive compensation and
benefit plans of the company.
DIRECTOR COMPENSATION
On July 1, 1999, the Board of Directors adopted a director compensation
plan pursuant to which Enova directors will be compensated as follows: (i)
$10,000 annual retainer payable in quarterly installments for participation at
up to four meetings of the Board of Directors; (ii) an immediately exercisable,
nonqualified stock option to purchase 20,000 shares of common stock to be
granted upon appointment to the Board of Directors, and (iii) an immediately
exercisable, nonqualified stock option to purchase 5,000 shares of common stock
to be granted on the day of each annual shareholders meeting during the
non-employee director's service on the Board of Directors. Such options are to
be granted as freestanding options and not under any stock option plan. The
exercise price shall be the fair market value of a share of common stock on the
date of grant. Directors are also reimbursed for reasonable expenses incurred in
attending meetings of the Board of Directors and committees thereof.
<PAGE>
Involvement in Certain Legal Proceedings.
None to report.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the company's directors and officers and persons who own more
than 10 percent of the company's equity securities, to file reports of ownership
and changes in ownership with the SEC. Directors, officers and greater than ten
percent shareholders are required by SEC regulation to furnish the company with
copies of all Section 16(a) reports filed.
Based solely on its review of the copies of the reports it received
from persons required to file, Enova believes that all filing requirements
applicable to its officers, directors and greater than ten percent shareholders
were complied with.
Item 6. Executive Compensation
The following table sets forth the total compensation for the Chairman
and the Chief Executive Officer and each of the Company's most highly
compensated executive officers whose total salary and bonus for the fiscal 1999
exceeded $100,000 or would have exceeded $100,000 on an annualized basis.
<TABLE>
<CAPTION>
Name Annual Salary Other Compensation Year
- ------------------------------ ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
Dr. Alan Phan $0 ($100,000 in Stock) 1999
Manu Ohri $0 ($25,000 in Stock) 1999
</TABLE>
(1) Stock represents Enova stock. Fair market value of stock indeterminable at
the present time and will be determined when compensation paid.
Long-Term Incentive Plans
None to report.
Stock Option Plan
Enova has not adopted a formal stock option plan to compensate its
Directors and Officers.
Employment Agreements
Dr. Alan Phan's Employment Agreement. Enova entered into an employment
agreement with Dr. Alan V. Phan in July 1999 pursuant to which Dr. Phan agreed
to serve as Chairman of the Board of Directors of the company. The employment
agreement provides that Dr. Phan will receive an annual base salary of $120,000
<PAGE>
and an annual cash bonus as determined by the Board of Directors. In case Dr.
Phan does not take compensation in cash, Enova will issue restricted common
shares for compensation earned, calculated at the closing price on January 1,
discounted by 50%, for the year compensation is earned. The company also granted
Dr. Phan an option to purchase 500,000 shares of common stock at an exercise
price of $2.00 per share. The company will provide Dr. Phan with 1) a life
insurance policy in the amount of $1,000,000; 2) medical, dental and disability
(long-term and short-term) coverages; 3) a car allowance of $650 per month; 4)
membership dues for business and professional associations.
Dr. Phan may terminate the employment agreement at any time for any
reason or no reason upon delivering thirty days notice to the company. If the
employment agreement is terminated by the company without cause, or if Dr. Phan
terminates his employment for good reason, including as a result of a change in
control, Dr. Phan is entitled to a lump sum payment dependent upon the amount of
time the employment agreement has been in effect.
If the employment agreement is terminated in the first year, the
severance amount would be equal to his base salary for 12 months; if employment
agreement is terminated in the second year, the severance amount will be equal
to his base salary for 18 months; and if employment agreement has been in effect
for longer than two years, the severance amount will equal 24 months of base pay
at the time of termination. In addition, Dr. Phan shall receive (i) his base
salary accrued through the date of termination; (ii) all accrued vacation pay
and accrued bonuses, if any, to date of termination; (iii) any bonus which would
have been paid but for the termination, prorated through the date of
termination, based upon Enova's performance and in accordance with the terms,
provisions and conditions of any company incentive bonus plan in which Dr. Phan
may be designated a participant; (iv) providing, for a period of 12 months after
the date of termination, at the company's expense, coverage to Dr. Phan under
the company's life insurance and disability insurance policies and to Dr. Phan
and his dependents under the company's health plan; if any of the company's
health, life insurance, or disability insurance plans are not continued or if
Dr. Phan is not eligible for coverage thereunder because of the termination of
his employment, the company shall pay the amount required for Dr. Phan to obtain
equivalent coverage; (v) providing to Dr. Phan reasonable outplacement services;
(vi) providing an office, secretarial support, and access to equipment and
supplies for a period of 6 months after termination. Also upon termination of
Dr. Phan's employment by Enova without cause, all equity options, restricted
equity grants and similar rights held by Dr. Phan with respect to securities of
the company shall automatically become vested and shall become immediately
exercisable.
Mr. Manu Ohri's Employment Agreement. Enova entered into an employment
agreement with Mr. Manu Ohri in July 1999, pursuant to which Mr. Ohri agreed to
serve as the Chief Executive Officer and President of the company. The
employment agreement provides that Mr. Ohri will receive an annual base salary
of $140,000 in the first year, $168,000 in the second year, and $201,600 in the
third year, and an annual cash bonus as determined by the Board of Directors.
The company also granted Mr. Ohri an option to purchase 200,000 shares of common
stock at an exercise price of $2.00 per share. The Company will provide Mr. Ohri
with (i) a life insurance policy in the amount of $1,000,000; (ii) medical,
dental and disability (long-term and short-term) coverage; (iii) a car allowance
of $650 per month; (iv) membership dues for business and professional
associations not to exceed $2,500 annually without the authorization of the
Board.
Mr. Ohri may terminate the employment agreement at any time for any
reason or no reason upon delivering thirty days notice to the company. If the
employment agreement is terminated by the company without cause, or if Mr. Ohri
<PAGE>
terminates his employment for good reason, including as a result of a change in
control, Mr. Ohri is entitled to a lump sum payment dependent upon the amount of
time employment agreement has been in effect.
If the employment agreement is terminated in the first year, the
severance amount would be equal to Mr. Ohri's base salary for 12 months; if
employment agreement is terminated in the second year, the severance amount will
be equal to Mr. Ohri's base salary for 18 months; and if employment agreement
has been in effect for longer than two years, the severance amount will equal 24
months of base pay at the time of termination.
In addition, Mr. Ohri shall receive (i) his base salary accrued through
the date of termination; (ii) all accrued vacation pay and accrued bonuses, if
any, to date of termination; (iii) any bonus which would have been paid but for
the termination, prorated through the date of termination, based upon company's
performance and in accordance with the terms, provisions and conditions of any
company incentive bonus plan in which Mr. Ohri may be designated a participant;
(iv) providing, for a period of 12 months after the date of termination, at the
company's expense, coverage to Mr. Ohri under the company's life insurance and
disability insurance policies and to Mr. Ohri and his dependents under the
company's health plan; if any of the company's health, life insurance, or
disability insurance plans are not continued or if Mr. Ohri is not eligible for
coverage thereunder because of the termination of his employment, the company
shall pay the amount required for Mr. Ohri to obtain equivalent coverage; (v)
providing to Mr. Ohri reasonable outplacement services; (vi) providing an
office, secretarial support, and access to equipment and supplies for a period
of 6 months after termination. Also upon termination of Mr. Ohri's employment by
the company without cause, all equity options, restricted equity grants and
similar rights held by Mr. Ohri with respect to securities of the company shall
automatically become vested and shall become immediately exercisable.
Item 7. Certain Relationships and Related Transactions
On July 7, 1999, Enova authorized and issued restricted shares under
Rule 144 to former holders of Convertible Debentures of Hartcourt, which holders
had agreed to accept Enova's common shares in lieu of cash repayment. Enova
issued 13,156 shares of its Common Stock to settle $65,780 of obligations of
Hartcourt.
On December 10, 1999, Pego received 100,000 shares of restricted common
stock of Hartcourt, an affiliate, in satisfaction of the debt payable to Pego.
The securities are traded over the OTC Bulletin Board and were valued at
$1,525,000 on the date of exchange.
Item 8. Description of Securities
The following summary is a description of certain provisions of the
company's Certificate of Incorporation and Bylaws. Such summary does not purport
to be complete and is subject to, and is qualified in its entirety by, all of
the provision of the Certificate of Incorporation and Bylaws, including the
definitions therein of certain terms. Copies of the Certificate of Incorporation
and Bylaws are filed as exhibits to the Registration Statement.
Common Stock
Pursuant to the Enova's Certificate of Incorporation, the Board of
Directors has authority to issue up to 75,000,000 shares of common stock, par
value $0.001 per share. As of October 31, 1999, there were 5,149,712 shares
issued, one vote for each share held on all matters. Cumulative voting in
<PAGE>
elections of directors and all other matters brought before stockholders
meetings, whether they be annual or special, is not provided for under Enova's
Certificate of Incorporation or Bylaws. However, under certain circumstances,
cumulative voting rights in the election of Enova's directors may exist under
California law. The holders of common stock will be entitled to receive such
dividends, if any, as may be declared by the board from time to time out of
legally available funds, subject to any preferential dividend rights of any
outstanding shares of Preferred Stock.
Upon the liquidation, dissolution, or winding up of the company, the
holders of the common stock will be entitled to share ratably in all assets of
the company that are legally available for distribution, after payment of all
debt and other liabilities and distribution in full of preferential amounts, if
any, to be distributed to holders of Preferred Stock. The holders of common
stock are not entitled to preemptive, subscription, redemption, or conversion
rights. The rights, preferences, and privileges of holders of common stock are
subject to, and may be adversely affect by, the rights of any series of
Preferred Stock, which the company may designate, and issue in the future.
Preferred Stock
Pursuant to the Enova's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue up to 25,000,000 shares of Preferred Stock in one or more series and to
fix the designations, powers, preferences, privileges, and relative
participating, optional or specials rights and the qualifications, limitations
of restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption and liquidation preferences, any or all of which may
be greater than the rights of the common stock. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of common stock. Preferred Stock could thus be issued quickly with terms
calculated to delay or prevent a change in control of the company or make
removal of management more difficult. Additionally, the issuance of Preferred
Stock may have the effect of decreasing the market price of the common stock,
and may adversely affect the voting and other rights of the holders of common
stock. As of the October 31, 1999, there were 250 issued and outstanding shares
of Preferred Stock.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters
None to report.
Item 2. Legal Proceedings
On January 14, 2000, Comerica Bank - California, instituted a legal
action against Pego Systems, Inc. as maker, Enova Holdings Inc. and Hartcourt
Companies, Inc. as guarantors, in the Los Angeles County Superior Court, Case
Number NC027075, alleging nonpayment of promissory notes, breach of security
agreement and breach of guaranty contracts, and alleging monies due in amount of
$924,636.26. Counsel to Enova is currently reviewing the documents with a
preliminary report indicating that there are meritorious defenses and basis for
counter claims that will be vigorously prosecuted. The company does not believe
that there is a legal basis for the prosecution of this action.
<PAGE>
Item 3. Changes in and Disagreements with Accountants
Weinberg & Company, P.A. ("Weinberg") were Enova's independent
accountants for the year ended December 31, 1998. The opinion of Weinberg on the
Balance Sheet of the Company and its subsidiaries at December 31, 1998 and the
statement of operations, shareholder's equity, and cash flows for the company
and its subsidiaries for the year ended December 31, 1998, did not contain any
adverse opinion or disclaimer, or modifications as to uncertainty, audit scope
or accounting principles. The company has no disagreements with its accountants
concerning accounting and financial disclosures.
Harlan & Boettger, LLP ("Harlan") were the independent accountants for
Pego and its subsidiary for fiscal 1998. The opinion of Harlan on the Balance
Sheet of Pego and its subsidiary at December 31, 1998 and the statement of
operations, shareholders' equity, and cash flows for Pego and its subsidiary for
the year ended December 31, 1998, did not contain any adverse opinion or
disclaimer, or modifications as to uncertainty, audit scope or accounting
principles. There were no disagreements between the Pego and Harlan on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of Harlan, would have caused it to make reference to the subject
matter of the disagreements in connection with its report.
Item 4. Recent Sales of Unregistered Securities
None to report.
Item 5. Indemnification of Directors and Officers
Enova's Certificate of Incorporation and Bylaws provide for expanded
indemnification of directors and officers of the company and limits the
liability of directors of the company. The Bylaws provide that Enova shall
indemnify each person who is or was an officer or director of Enova, or is or
was serving as an officer, director, employee or agent of any other corporation,
partnership, joint venture, trust or other enterprise at the request of the
company, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement (if such settlement is approved in advance by the
company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she believed
to be in or not opposed to the best interest of the company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful. Such right to indemnification includes the right to
advancement of expenses incurred by such person prior to final disposition of
the proceeding, provided that such director or officer shall provide the company
with an undertaking to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision that such person is not entitled to be
indemnified for such expenses.
The Bylaws also provide that Enova shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the company to procure judgment
in its favor by reason of the fact that he or she is or was a director, officer,
employee or agent of the company, or is or was serving at the request of the
<PAGE>
company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him or her
connection with the defense or settlement of such action or suit, if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interest of the company, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the company unless and only to the
extent that the Nevada Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Nevada
Court of Chancery or such other court shall deem proper. No person shall be
indemnified by the company for any expenses or amounts paid in settlement with
respect to any action to recover short-swing profits under Section 16(b) of the
Securities Exchange Act of 1934, as amended. The Certificate of Incorporation
provides that if the Nevada General Corporation law is amended to further
eliminate or limit the personal liability of directors, then the liability of a
director of the company shall be eliminated or limited to the fullest extent
permitted by the Nevada General Corporation Law, as so amended. The company has
also entered into agreements to indemnify its officers and directors in addition
to the indemnification provided for in the company's Bylaws.
The company has also entered into indemnification agreements with its
directors and officers which similarly provide for the indemnification and
advancement of expenses. In addition, the company has agreed to indemnify the
directors and officers to the fullest extent of the law pursuant to the terms of
their employment agreement with the company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to officers and directors of the company pursuant
to the provisions of the company's Certificate of Incorporation, the company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
PART III
Index to Exhibits
3(i) Articles of Incorporation of Yes Lifestyles, Inc.
3(ii) Bylaws of Yes Lifestyles, Inc.
3(iii) Certificate of Amendment to the Articles of Incorporation of Yes
Lifestyles, Inc.
4 Form of Common Stock Certificate of Enova Holdings Inc.
10.1 Share Purchase Agreement between The Hartcourt Companies, Inc. and
Enova Holdings, Inc.
10.2 Exchange Agreement between The Hartcourt Companies, Inc. and Enova
Holdings, Inc.
10.3 Distribution Agreement between The Hartcourt Companies, Inc. and Enova
Holdings, Inc.
10.4 Employment Agreements with Dr. Alan V. Phan
10.5 Employment Agreement with Mr. Manu Ohri
21 Subsidiaries of Enova
23 Consent of Independent Auditors
27 Financial Data Schedule
99 Nevada Revised Statutes Section 78.751
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Issuer has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Enova Holdings Inc.
a Nevada corporation
Date: January 24, 2000 By: /s/ Mr. Alan V. Phan
---------------------------------------
Name: Mr. Alan V. Phan
Title: Chairman
By: /s/ Manu Ohri
---------------------------------------
Name: Manu Ohri
Title: Chief Executive
<PAGE>
PART F/S
Enova Holdings, Inc. - Audited Financial Statements at December 31,
1998
Enova Holdings, Inc. - Consolidated Financial Statements (Unaudited) as
of October 31, 1999 and 1998
<PAGE>
ENOVA HOLDINGS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 BALANCE SHEET AT DECEMBER 31, 1998
PAGE 3 STATEMENT OF OPERATIONS FOR THE PERIOD FROM MAY
1, 1998 (INCEPTION) TO DECEMBER 31, 1998
PAGE 4 STATEMENT OF CASH FLOWS FOR THE PERIOD FROM MAY
1, 1998 (INCEPTION) TO DECEMBER 31, 1998
PAGE 5 STATEMENT OF STOCKHOLDER'S EQUITY FOR THE PERIOD
FROM MAY 1, 1998 (INCEPTION) TO DECEMBER 31,
1998
PAGES 6 - 9 NOTES TO FINANCIAL STATEMENTS
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Enova Holdings, Inc.
(A Development Stage Enterprise)
We have audited the accompanying balance sheet of Enova Holdings, Inc. (a
development stage enterprise) as of December 31, 1998 and the related statements
of operations, changes in stockholder's equity and cash flows for the period
from May 1, 1998 (inception) to December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Enova Holdings, Inc. (a development
stage enterprise) as of December 31, 1998, and the results of its operations and
its cash flows for the period from May 1, 1998 (inception) to December 31, 1998
in conformity with generally accepted accounting principles.
/s/ WEINBERG & COMPANY, P.A.
- ----------------------------------
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
December 27, 1999
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 1998
<S> <C>
ASSETS
Current assets
$ -
-------------
TOTAL ASSETS $ -
=============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES $ -
-------------
STOCKHOLDER'S EQUITY
Preferred stock, $.001 par value, 25,000,000 shares authorized,
none issued and outstanding -
Common stock, $.001 par value, 75,000,000 shares authorized,
one share issued and outstanding -
Additional paid-in capital 500
Deficit accumulated during development stage (500)
-------------
TOTAL STOCKHOLDER'S EQUITY -
-------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ -
=============
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FROM MAY 1, 1998 (INCEPTION)
TO DECEMBER 31, 1998
<S> <C>
REVENUES $ -
------------
EXPENSES
Organization expense 500
------------
TOTAL EXPENSES 500
------------
NET LOSS $ (500)
============
Net loss per share - basic and diluted $ (500)
============
Weighted average number of shares
outstanding during the period -
basic and diluted 1
============
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF SHAREHOLDER'S EQUITY
FROM MAY 1, 1998 (INCEPTION)
TO DECEMBER 31, 1998
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON STOCK PAID-IN DEVELOPMENT
----------------------------- --------------------- ----------------------- ------------
SHARES AMOUNT CAPITAL STAGE TOTAL
------------ ---------------- --------------------- ----------------------- ------------
<S> <C> <C> <C> <C> <C>
Common Stock Issuance 1 $ - $ 500 $ - $ 500
- ------------------------------------------ ------------ ---------------- --------------------- ----------------------- ------------
Net loss from May 1,1998 (Inception)
to December 31,1998 - - - (500) (500)
- ------------------------------------------ ------------ ---------------- --------------------- ----------------------- ------------
Balance, December 31, 1998 1 $ - $ 500 $ (500) $ -
- ------------------------------------------ ------------ ---------------- --------------------- ----------------------- ------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FROM MAY 1, 1998 (INCEPTION)
TO DECEMBER 31, 1998
<S> <C>
Cash flows from operating activities
Net loss $ (500)
--------------
Net cash used in operating activities (500)
--------------
Cash flows from investing activities
Net cash provided by investing activities
Cash flows from financing activities
Proceeds from issuance of common stock 500
--------------
Net cash provided by financing activities 500
--------------
Net increase (decrease) in cash -
Cash and cash equivalents at beginning of year -
--------------
Cash and cash equivalents at end of year $ -
==============
</TABLE>
See accompanying notes to financial statements
<PAGE>
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization
Enova Holdings, Inc. (a development stage enterprise) (the
"Company"), formerly known as Yes Lifestyles, Inc., was
incorporated in Nevada on May 1, 1998 to serve as a vehicle to
effect a merger, exchange of capital stock, asset acquisition or
other business combination with a domestic or foreign private
business. At December 31, 1998, the Company had not yet commenced
any formal business operations, and all activity related to the
Company's formation. The Company's fiscal year end is December
31.
In February 1999, the Company was acquired by a publicly held
company and subsequently spun off (see Note 3).
(B) Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and
revenues and expenses during the reported period. Actual results
could differ from those estimates.
(C) Cash and Cash Equivalents
For purposes of the cash flow statements, the Company considers
all highly liquid investments with original maturities of three
months or less at the time of purchase to be cash equivalents.
(D) Income Taxes
The Company accounts for income taxes under the Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ('Statement
109"). Under Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. There was no
current income tax expense in the period ended December 31, 1998
due to the net loss. Any deferred tax asset resulting from the
net loss has been fully offset by a valuation allowance.
(E) Earnings Per Share
Net loss per common share for the period from May 1, 1998
(inception) to December 31, 1998 is computed based upon the
weighted average common shares outstanding as defined by
Financial Accounting Standards No. 128, "Earnings Per Share".
There were no common stock equivalents outstanding at December
31, 1998.
<PAGE>
NOTE 2 STOCKHOLDER'S EQUITY
(A) Preferred Stock
The Company is authorized to issue 25,000,000 shares of preferred
stock at $.001 par value, with such designations, preferences and
relative, participating, optional or other special rights, or
qualification, limitations or restrictions thereof as may be
designated by the Board of Directors. As of December 31, 1998,
none of the preferred stock was issued or outstanding (See Note
3).
(B) Common Stock
The Company is authorized to issue 75,000,000 shares of common
stock at $.001 par value. As of December 31, 1998, one share of
common stock was issued and outstanding (See Note 3).
NOTE 3 SUBSEQUENT EVENTS
(A) Share Purchase Agreement
On February 1, 1999, the sole shareholder of the Company (the
"Shareholder") entered into a share purchase agreement (the
"Agreement") with The Hartcourt Companies, Inc., a publicly held
corporation ("Hartcourt"). Under the terms of the Agreement,
Hartcourt acquired one share of common stock of the Company,
representing 100% of the total issued and outstanding capital
stock of the Company in exchange for $500 cash paid to the
Shareholder. As a result, the Company became a wholly-owned
subsidiary of Hartcourt.
(B) Exchange Agreement
On March 1, 1999, in contemplation of the distribution agreement
and spin-off discussed in Note 3(C) below, the Company entered
into an exchange agreement, as amended, (the "Agreement") with
Hartcourt. Under the terms of the Agreement, the Company agreed
to issue 4,709,788 shares of its common stock to Hartcourt in
exchange for all of Hartcourt's ownership in Pego Systems, Inc.
("Pego") and Electronic and Component Systems, Inc. ("ECS"). The
exchange was accounted for at historical cost since it qualified
as a combination of entities under common control pursuant to
AICPA Interpretation 39 of APB Opinion 16 and Emerging Issues
Task Force 90-5 ("EIFT 90-5") "Exchanges of Ownership Interest
Between Entities Under Common Control" and a recapitalization of
Pego pursuant to APB 16.. As a result, the Company obtained a
100% ownership interest in Pego and a 35% ownership interest in
ECS.
Under generally accepted accounting principles the Company whose
stockholders receive over fifty percent voting control of the
surviving entity in a business combination is considered the
acquirer for accounting purposes. Accordingly, the transaction is
accounted for as a recapitalization of Pego, a combination of
businesses under common control and an asset acquisition of
securities of ECS. The financial statements subsequent to the
acquisition are as follows: (1) the balance sheet includes the
net assets of the Pego and Enova at historical cost; (2) the
statement of operations includes the operations of Pego and Enova
for the period presented.
<PAGE>
SUBSEQUENT EVENTS (continued)
(C) Distribution Agreement
On March 1, 1999, the Company entered into a distribution
agreement (the "Distribution Agreement") with Hartcourt. Under
the terms of the Distribution Agreement, Hartcourt agreed to
distribute to all its shareholders of record on March 31, 1999
all of the 4,709,789 shares of common stock of the Company owned
by Hartcourt at a 1 for 4 ratio and to file a Registration
Statement on Form 10-SB to cause the distributed shares to the
Company to be registered under the Securities Exchange Act of
1934, as amended. Due to the rounding of fractional shares, an
additional 146 shares were issued to the stockholders. This
distribution transaction was accounted for as a spin-off by
Hartcourt. In addition, 250 new shares of preferred stock were
issued to a preferred stockholder of Hartcourt, who is the
Chairman of the Company, at the same 1 for 4 ratio pursuant to
the Board of Directors' authorization, and their interpretation
of the Distribution Agreement. The 250 preferred shares entitle
the Chairman to appoint three-fifths of the membership of the
Board of Directors of the Company. Subsequent to March 1, 1999,
Hartcourt issued its common stock to the Company's Chairman for
services he rendered to Hartcourt during 1998. In September 1999,
the Company's Board of Directors issued a resolution to
retroactively include these shares as part of the March 1, 1999
Distribution Agreement. As a result, an additional 426,621 new
shares of the Company's common stock were issued. Thus an
aggregate of 5,136,556 and 250 common and preferred shares,
respectively, were issued pursuant to the Distribution Agreement.
(D) Common Stock Issuance
On July 7, 1999, as authorized by the Board of Directors, the
Company issued 13,156 shares of its common stock to satisfy
former holders of convertible debentures of Hartcourt. The shares
were recorded by the Company at the $65,780 Hartcourt carrying
value of the debentures, with a corresponding amount due from
Hartcourt. ENOVA HOLDINGS, INC. CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) OCTOBER 31, 1999 and 1998
<PAGE>
C O N T E N T S
Page
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet (Unaudited) ................................2
Consolidated Statement of Operations (Unaudited) ......................3
Consolidated Statement of Changes in Shareholder's Equity (Unaudited) .4
Consolidated Statement of Cash Flows (Unaudited) ......................5
Notes to Consolidated Financial Statements (Unaudited) ................6-13
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET (UNAUDITED)
OCTOBER 31, 1999
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,941
Accounts receivable, net 892,177
Inventory 522,617
Other assets 4,183
------------
TOTAL CURRENT ASSETS 1,445,918
PROPERTY AND EQUIPMENT, net 1,307,005
INTANGIBLES, net 743,780
RECEIVABLE FROM AFFILIATE 1,114,045
------------
TOTAL ASSETS $ 4,610,748
============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 441,395
Lines of credit 250,000
Accrued expenses 242,726
Notes payable, current portion 795,041
------------
TOTAL CURRENT LIABILITIES 1,729,162
NOTES PAYABLE, net of current portion 1,454,015
------------
TOTAL LIABILITIES 3,183,177
------------
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDER'S EQUITY
Preferred stock, $.001 par value, 25,000,000 shares authorized,
250 shares issued and outstanding -
Common stock, $.001 par value, 75,000,000 shares authorized,
5,149,712 shares issued and outstanding 5,150
Additional paid-in capital 2,332,861
Accumulated deficit (910,440)
------------
TOTAL SHAREHOLDER'S EQUITY 1,427,571
------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 4,610,748
============
</TABLE>
The accompanying notes are integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE TEN MONTHS ENDED OCTOBER 31, 1999 AND 1998
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 5,819,448 $ 5,113,841
COST OF SALES 3,573,825 3,110,271
------------ -----------
Gross profit 2,245,623 2,003,570
OPERATING EXPENSES
General and administrative expenses 1,458,462 1,134,601
Sales and marketing expenses 675,229 650,054
------------ -----------
TOTAL OPERATING EXPENSES 2,133,691 1,784,655
------------ -----------
INCOME FROM OPERATIONS 111,932 218,915
------------ -----------
OTHER (INCOME) EXPENSES
Interest income (662) (5,924)
Interest expense 110,283 98,111
------------ -----------
TOTAL OTHER (INCOME) EXPENSES 92,187 109,621
------------ -----------
NET PROFIT BEFORE INCOME TAXES 2,311 126,727
Income taxes 52,025 -
------------ -----------
NET PROFIT (LOSS) $ (49,714) $ 126,727
============ ===========
NET PROFIT (LOSS) PER SHARE -
BASIC AND DILUTED ($ 0.01) $ 0.02
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 5,141,818 5,136,556
</TABLE>
The accompanying notes are integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE TEN MONTHS ENDED OCTOBER 31, 1999
Retained
Additional Earnings Total
Paid in (Accumulated Shareholders
Description Preferred Shares Common Shares Capital Deficit) Equity
Shares Amount Shares Amount
-------- ---------- ------------ ---------- -------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - Dec 31, 1997 5,136,555 $5,137 $2,251,595 $ 232,687 $ 2,489,419
Additional paid-in capital 15,500 15,500
Net Loss (1,093,413) (1,093,413)
-------- ---------- ------------ ---------- -------------- --------------- -----------------
Balance - Dec 31, 1998 5,136,555 5,137 2,267,095 (860,726) 1,411,506
Recapitalization 1
Stock issued pursuant to 250
Distribution Agreement
Stock issued as loan to an 13,156 13 65,767 65,780
affiliate
Net Profit (loss) (49,714) (49,714)
-------- ---------- ------------ ---------- -------------- --------------- -----------------
Balance as of Oct. 31, 1999 250 5,149,712 $5,150 $2,332,862 $(910,440) $(1,427,571)
======== ========== ============ ========== ============== =============== =================
</TABLE>
The accompanying notes are integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE TEN MONTHS ENDED OCTOBER 31, 1999 AND 1998
1999 1998
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit (loss) $ (49,714) $ 126,727
Adjustments to reconcile net profit (loss) to net cash provided by
operating activities:
Depreciation 54,194 37,367
Amortization 44,252 54,782
Issuance of stock in lieu of cash 65,780 15,000
Changes in assets and liabilities:
Decrease in accounts receivable 91,914 622,164
(Increase)Decrease in inventory 68,257 (19,216)
(Increase)Decrease in other current assets 2,949 (29,330)
Decrease in prepaid income taxes 195,601 35,000
Decrease in accounts payable (444,116) (102,217)
Increase (Decrease) in accrued expenses 195,601 (95,613)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 29,116 644,664
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (25,413) (55,637)
Advances to an affiliate (122,964) (966,499)
Purchase of subsidiary (452,543)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (148,377) (1,474,679)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from lines of credit 200,000
Payments on lines of credit (150,000)
Proceeds on notes payable 1,496,595
Payments on notes payable (396,619)
Payments on capital lease obligation (2,293) (10,053)
----------- ----------
NET CASH PROVIDED BY USED IN FINANCING ACTIVITIES (198,912) 1,336,542
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (318,173) 506,526
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 345,114 4,859
---------- ----------
CASH AND CASH EQUIVALENTS, OCTOBER 31, $ 26,941 511,385
---------- ----------
</TABLE>
The accompanying notes are integral part of these financial statements.
<PAGE>
ENOVA HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization and Summary of Significant Accounting Policies:
Organization and Nature of Operations
Enova Holdings, Inc., (a development stage enterprise), ("the Company"),
formerly known as Yes Lifestyles, Inc., was incorporated in Nevada on May
1, 1998 to serve as a vehicle to effect a merger, exchange of capital
stock, asset acquisition or other business combination with a domestic or
foreign private business. The Company's operations include distribution,
service, and manufacturing of custom process equipment packages in air and
gas handling equipment industry. The Company operates through an operating
subsidiary Pego Systems, Inc. ("Pego") and has an investment interest in
Electronic Components Systems, Inc. ("ECS").
Basis of presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they may not include all the
information necessary for a comprehensive presentation of financial
position and results of operations.
It is management's opinion, however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statement presentation. The results for the
interim period are not necessarily indicative of the results to be expected
for the year. For further information, refer to the audited financial
statements of Pego and its wholly-owned subsidiary, Pacific Pnuematics,
Inc., ("PPI"), as of December 31, 1998 included in the Company's Form
10-SB.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, Pego and PPI. For purposes of these consolidated financial
statements all material inter-company transactions and balances have been
eliminated.
Use of Estimates
The preparation of consolidated 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 consolidated 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
For purpose of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with a initial maturity
of three months or less to be cash equivalents.
<PAGE>
A. Organization and Summary of Significant Accounting Policies (continued):
Accounts Receivable
The Company extends credit in the normal course of business to its
customers who are located throughout the United States. The Company
performs ongoing credit evaluations of its customers, and generally does
not require collateral. At October 31, 1999, the allowance for doubtful
accounts amounted to $10,000. It is reasonably possible that the Company's
estimate for allowance for doubtful accounts will change.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net
realizable value, and consists of purchased parts, materials, labor, and
overhead.
Accounting for Business Combinations
The acquisition of PPI by Pego was recorded as a purchase in accordance
with Accounting Principle Board Opinion No. 16 (APB 16) "Business
Combinations". The purchase price was allocated to the assets acquired and
liabilities assumed based upon their estimated fair value at the purchase
date. The consolidated statement of operations includes the activities of
the acquired entity from the purchase date. The acquisition of Pego and PPI
was accounted for at historical cost since it qualifies as a combination of
businesses under common control and a recapitalization of Pego.
Additionally, the Company has applied the "push down" method of accounting
whereby, when a company acquires substantially all of the common stock of
another company (subsidiary), the acquisition price is "pushed down" to the
subsidiary and used to establish a new cost basis for its assets and
liabilities.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
of property and equipment is provided using the straight-line method over
estimated useful lives ranging from five to seven years. The building is
depreciated over an estimated useful live of 20 years. The Company's policy
is to evaluate the remaining lives and recoverability in light of current
conditions. It is reasonably possible that the Company's estimate to
recover the carrying amount of property and equipment will change.
Advertising
Advertising costs are expensed as incurred. Advertising expense included in
general and administrative expenses was $ 33,115 for the ten months ended
October 31, 1999.
Income Taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
A deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting. Deferred tax expense (benefit) results
from the net change during the year of deferred tax assets and liabilities.
The components of the deferred tax asset and liability are individually
classified as current and non-current based on their characteristics.
<PAGE>
A. Organization and Summary of Significant Accounting Policies (continued):
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Intangibles
Goodwill and other intangible assets are amortized on the straight-line
basis over the estimated future periods to be benefited (not exceeding 25
years). Goodwill, the excess of the Company's purchase price over the fair
value of the net assets acquired, is amortized over 25 years. The covenant
not to compete is amortized over five years. It is reasonably possible that
the Company's estimate of the recoverability of goodwill will change.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No. 121
(SFAS 121) "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Under the provisions of this
statement, the Company has evaluated its long-lived assets for financial
impairment, and will continue to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be
fully recoverable.
The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. At the time such flows
of certain long-lived assets are not sufficient to recover the carrying
value of such assets, the assets are adjusted to their fair values.
Accordingly, based on these evaluations, management has adjusted the
carrying value of goodwill in 1998 (Note E).
B. Business Acquisition:
On March 1, 1999 (the "Effective Date"), in contemplation of the spin-off
of the Company from the its parent discussed below, the Company entered
into an exchange agreement, as amended, (the "Agreement") with The
Hartcourt Companies, Inc. ("Hartcourt"). Under the terms of the Agreement,
as amended, the Company agreed to issue 5,136,555 shares of its common
stock to Hartcourt shareholders in exchange for all of Hartcourt's
ownership interest in Pego and ECS. The exchange was accounted for at
historical cost since it qualified as a combination of entities under
common control pursuant to AICPA Interpretation 39 of APB Opinion 16 and
Emerging Issues Task Force 90-5 ("EITF 90-5") "Exchange of Ownership
Interest Between Entities Under Common Control" and a recapitalization of
Pego pursuant to APB 16. As a result, the Company obtained a 100% ownership
interest in Pego and a 35% ownership interest in ECS.
Under generally accepted accounting principles, the Company whose
stockholders receive over 50% voting control of the surviving entity in
business combination is considered the acquirer for accounting purposes.
Accordingly, the transaction is accounted for as a recapitalization of
Pego, a combination of business under common control and an asset
acquisition of securities in ECS. The financial statements subsequent to
the acquisition are as follows: (1) the balance sheet includes the net
assets of Pego and the Company at historical cost; (2) the statement of
operations includes the operations of Pego and the Company for the period
presented.
All capital stock and earnings per share data in the accompanying financial
statements has been retroactively restated to reflect the recapitalization.
<PAGE>
B. Business Acquisition (continued):
On March 1, 1999 (the "Effective Date"), the Company entered into a
distribution agreement (the "Distribution Agreement") with Hartcourt. Under
the terms of the Distribution Agreement, Hartcourt agreed to distribute to
all its shareholders of record on March 31, 1999 all of the 4,709.788
shares of the common stock of the Company owned by Hartcourt at a 1 for 4
ratio and to file a registration Statement on Form 10-SB to cause the
distributed shares to the Company to be registered under the Securities
Exchange Act of 1934, as amended. Due to the rounding of fractional shares,
additional 146 shares were issued to the shareholders. This distribution
transaction was accounted for as a spin-off by Hartcourt. In addition, 250
new preferred shares were issued to a preferred shareholder of Hartcourt,
who is the Chairman of the Company, at the same 1 for 4 ratio pursuant to
the Board of Directors' authorization, and their interpretation of the
Distribution Agreement. The 250 preferred shares entitle the Chairman to
appoint three-fifths of the membership of the Board of Directors of the
Company. Subsequent to March 31, 1999, Hartcourt issued common shares to
the Company's Chairman for the services rendered during 1998. In September
1998, the Company's Board of Directors issued a resolution to retroactively
include these common shares as part of the March 24, 1999 Distribution
Agreement. As a result, additional 426,621 shares of the Company's common
stock were issued. Thus, an aggregate of 5,136,555 of common shares and 250
preferred shares, respectively, were issued pursuant to the Distribution
Agreement.
On August 6, 1998, the Company purchased all outstanding shares of Pacific
Pneumatics, Inc. Terms of the transaction include payment of $235,000 in
cash and the transfer of equipment valued at $15,000. Included in the
acquisition price is a covenant not-to compete (Note E). The excess
purchase price over the fair value of the net assets totaling $442,543, was
recorded as goodwill.
C. Inventory:
Inventory at October 31, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Raw materials and purchased parts $ 401,198
Work-in-process 121,419
------------
$ (522,617)
============
</TABLE>
D. Property and Equipment:
<TABLE>
<CAPTION>
Property and equipment at October 31, 1999 consists of the following:
<S> <C>
Building $ 627,416
Land 586,155
Computer equipment 100,730
Furniture and equipment 56,985
Vehicles 28,904
Improvements 33,798
------------
1,433,988
Less accumulated depreciation (121,247)
Property and equipment, net $1,312,741
</TABLE>
<PAGE>
E. Intangibles:
<TABLE>
<CAPTION>
Intangibles are summarized as follows at October 31, 1999:
<S> <C>
Goodwill $ 777,545
Covenant not to compete 110,000
-----------
887,545
Less accumulated amortization (143,765)
Intangibles, net $ 743,780
===========
</TABLE>
Goodwill consists of amounts paid in excess of the fair value of the net
assets in the acquisition of Pego by Hartcourt and the acquisition of
Pacific Pneumatics, Inc. by Pego. In accordance with Statement of Financial
Accounting Standards No. 121, (SFAS No. 121) "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
management has evaluated the recoverability of goodwill. The covenant
not-to compete agreements are with the former stockholders of the Company
which are in effect for a five year period.
F. Receivable from an affiliate:
As of October 31, 1999, the Company loaned to an affiliate, The Hartcourt
Companies, Inc.$ 1,114,045. The receivable is unsecured, bears no interest,
and has no repayment terms. On December 19, 1999, the affiliated issued
100,000 shares of its restricted common stock to satisfy its debt to the
Company.
On July 7, 1999, as authorized by the Board of Directors, the Company
issued 13,156 shares of its common stock to satisfy former holders of
convertible debentures of Hartcourt. The shares were recorded by the
Company at the $65,780, Hartcourt's carrying value of the debentures, with
a corresponding amount due from Hartcourt.
G. Lines of Credit:
The Company has a secured line of credit agreement with a bank that
provides that it may borrow up to $300,000 at the bank's prime rate of
interest, 9% per year. The line of credit is secured by inventory,
equipment and accounts receivable of the Company. The line of credit is due
on demand. At October 31, 1999, the Company had borrowed $ 200,000 under
this agreement. The Company is in violation of certain financial covenants
at October 31, 1999, and accordingly, the bank has demanded all of its
outstanding debt in full.
Pacific Pneumatics, Inc., its subsidiary, has an unsecured line of credit
with a bank which provides that it may borrow up to $50,000 at the bank's
prime rate of interest plus 5.5% per annum, 13.25% at October 31, 1999. At
October 31, 1999, there were no funds available under this agreement.
<PAGE>
H. Notes Payable:
<TABLE>
<CAPTION>
<S> <C>
Notes payable at October 31, 1999 consists of the following:
Note payable, individual, monthly principal and interest payments of
$9,544 with interest at 8.5% per annum; due November 2024; secured
by land and building. $ 1,163, 175
Note payable, bank, monthly installments of $34,306 plus interest at the
bank's prime rate plus 2% per annum, 10.5% at October 31, 1999; secured
by substantially all assets of the Company; all unpaid principal and
interest due in full on June 5, 2001. The agreement requires maintenance
of certain financial covenants on a quarterly basis and other
restrictions of certain assets of the parent company. The Company was in
violation of the covenants and restriction provisions of the agreement at
October 31, 1999. Accordingly, the bank has demand
payment in full. 754,716
Note payable, former owner of Pacific Pneumatics, Inc., monthly principal
and interest payments of $3,146 including interest at 6.5% per annum;
due May 2010; unsecured. 286,835
Note payable, former owner of Pacific Pneumatics, Inc., monthly principal
and interest payments of $780 including interest at 6% per annum; due
June 2005; unsecured. 44,330
------------
2,249,056
Less current portion (795,041)
Notes payable, less current portion $ 1,454,015
============
</TABLE>
<TABLE>
<CAPTION>
The following is a summary of principal maturities of notes payable:
Year Ending
December 31,
- -------------------------------------------
<S> <C>
1999 (two months remaining) $ 795,041
2000 41,217
2001 44,262
2002 47,534
2003 51,056
Thereafter 1,269,946
----------
Total $2,249,056
==========
</TABLE>
<PAGE>
I. Commitments:
Operating Lease
The Company leases facilities under long-term, non-cancelable lease
agreements expiring at various dates through November 2001. The
non-cancelable operating lease agreements provide that the Company pays
property taxes, insurance and certain operating expenses applicable to the
leased premises. Rent expense for the ten months ended October 31, 1999 was
$ 58,792. The Company also leases vehicles and equipment under various
long-term agreements.
<TABLE>
<CAPTION>
Future minimum lease payments required under the operating lease agreements
are as follows:
<S> <C>
Ten months ending
October 31,
-------------------------------
1999 (two months remaining) $ 8,245
2000 49,737
2001 44,366
2002 23,700
2003 9,875
--------
Total minimum lease payments $135,923
========
</TABLE>
J. Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
<S> <C>
Noncash investing and financing activities:
Common stock issued by parent company for payment of debt
of The Hartcourt Companies, Inc. $ 65,780
Cash paid during the ten months ended October 31, 1999 for:
Interest $ 110,283
Income taxes $ 49,714
</TABLE>
K. Employee Benefit Plan:
The Company has a 401(k) employee savings and profit sharing plan for the
benefit of its employees. Under the plan, eligible employees may contribute
1% to 15% of their compensation. At the discretion of the Board of
Directors, the Company may contribute additional amounts to the plan on
behalf of those who actively participate. Company contributions will vest
over a six-year period as established in the plan. Contributions totaled $
8,062 for the ten months ended October 31, 1999.
<PAGE>
PEGO SYSTEMS, INC. AND SUBSIDIARY
(A WHOLLY - OWNED SUBSIDIARY
OF THE HARTCOURT COMPANIES, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT ..............................................1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet ............................................2
Consolidated Statement of Operations ..................................3
Consolidated Statement of Changes in Shareholder's Equity .............4
Consolidated Statement of Cash Flows ..................................5
Notes to Consolidated Financial Statement .............................6-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
Pego Systems, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheet of Pego Systems,
Inc., (a wholly - owned subsidiary of The Hartcourt Companies, Inc.) a
California Corporation (the "Company"), and its subsidiary as of December 31,
1998, and the related consolidated statements of operations, changes in
shareholder's equity, and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
San Diego, California
March 17, 1999
<PAGE>
<TABLE>
<CAPTION>
PEGO SYSTEMS, INC. AND SUBSIDIARY
(A WHOLLY - OWNED SUBSIDIARY
OF THE HARTCOURT COMPANIES, INC.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 345,114
Accounts receivable, net 984,091
Inventory (Note C) 590,874
------------
TOTAL CURRENT ASSETS 1,920,079
PROPERTY AND EQUIPMENT, net (Note D) 1,335,786
INTANGIBLES, net (Note E) 788,032
RECEIVABLE FROM PARENT (Note F) 991,081
OTHER ASSETS 7,132
------------
TOTAL ASSETS $ 5,042,110
============
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 885,511
Lines of credit (Note G) 50,000
Accrued expenses 47,125
Notes payable, current portion (Note H) 1,136,163
Capital lease obligation 2,293
------------
TOTAL CURRENT LIABILITIES 2,121,092
NOTES PAYABLE, net of current portion (Note H) 1,509,512
------------
TOTAL LIABILITIES 3,630,604
------------
COMMITMENTS AND CONTINGENCIES (Notes I and M) -
SHAREHOLDER'S EQUITY
Common stock, $.04 par value, 75,000 shares authorized,
33,000 shares issued and outstanding 1,320
Additional paid-in capital 2,270,412
Accumulated deficit (860,226)
------------
TOTAL SHAREHOLDER'S EQUITY 1,411,506
------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 5,042,110
============
</TABLE>
The accompanying notes are integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
PEGO SYSTEMS, INC. AND SUBSIDIARY
(A WHOLLY - OWNED SUBSIDIARY
OF THE HARTCOURT COMPANIES, INC.)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<S> <C>
NET SALES $ 6,631,798
COST OF SALES 4,794,128
------------
Gross Profit 1,837,670
OPERATING EXPENSES
General and administrative expenses 975,935
Sales and marketing expenses 844,693
Impairments (Note E) 991,081
------------
TOTAL OPERATING EXPENSES 2,811,709
------------
LOSS FROM OPERATIONS (974,039)
------------
OTHER INCOME (EXPENSES)
Interest income 46,758
Interest expense (129,832)
------------
TOTAL OTHER INCOME (EXPENSES) (83,074)
------------
NET LOSS BEFORE INCOME TAXES (1,057,113)
Income taxes (Note L) 35,800
------------
NET LOSS $(1,092,913)
============
</TABLE>
The accompanying notes are integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
PEGO SYSTEMS, INC. AND SUBSIDIARY
(A WHOLLY - OWNED SUBSIDIARY
OF THE HARTCOURT COMPANIES, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
Retained
Additional Earnings Total
Common Stock Paid-in (Accumulated Shareholder's
Shares Amount Capital Deficit) Equity
------ ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 33,000 $1,320 $2,255,412 $ 232,687 $ 2,489,419
Additional paid-in capital (Note B) - - 15,000 - 15,000
Net loss - - - (1,092,913) (1,092,913)
------ ------ ---------- ------------- ------------
Balance, December 31, 1998 33,000 $1,320 $2,270,412 $ (860,226) $ 1,411,506
====== ====== ========== ============= ============
</TABLE>
The accompanying notes are integral part of these financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
PEGO SYSTEMS, INC. AND SUBSIDIARY
(A WHOLLY - OWNED SUBSIDIARY
OF THE HARTCOURT COMPANIES, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,092,913)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Impairments 991,081
Depreciation 60,501
Amortization 81,252
Increase in allowance for doubtful accounts 10,000
Changes in assets and liabilities:
Decrease in:
Accounts receivable 548,350
Inventory 164,705
Prepaid income taxes 35,000
Other assets 8,988
Increase (decrease) in:
Accounts payable 162,914
Accrued expenses (193,675)
NET CASH PROVIDED BY OPERATING ACTIVITIES 776,203
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (77,676)
Purchase of subsidiary (235,000)
Loan to parent company (991,081)
------------
NET CASH USED IN INVESTING ACTIVITIES (1,303,757)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments on lines of credit (200,000)
Proceeds from issuance of note payable 1,235,000
Payments on notes payable (159,431)
Payments on capital lease obligation (7,760)
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 867,809
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 340,255
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,859
------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 345,114
============
</TABLE>
The accompanying notes are integral part of these financial statements.
5
<PAGE>
PEGO SYSTEMS, INC. AND SUBSIDIARY
(A WHOLLY - OWNED SUBSIDIARY
OF THE HARTCOURT COMPANIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization and Summary of Significant Accounting Policies:
Organization and Nature of Operations
Pego Systems, Inc. (a wholly - owned subsidiary of The Hartcourt Companies,
Inc. ("Hartcourt"), a California Corporation (the "Company"), operations
include distribution, service, and the manufacturing of custom process
equipment packages. The Company's primary product focus is air and gas
handling equipment.
The Company's markets include the petro-chemical industry, processing
companies, food industry, brewing industry, cement plants and many general
industrial operations, as well as waste-water treatment plants. The
environmental market for pollution control through vapor extraction and
other means is emerging as an area of major focus for the Company. Key
applications for the products and services the Company provides include
pneumatic conveying, combustion process air, wastewater secondary treatment
applications of aeration and digester gas mixing, bottle and can drying,
contaminated soil vapor extraction, and landfill gas handling.
Effective March 1, 1999, Hartcourt executed an agreement with Enova
Holdings, Inc. whereby they exchanged all Pego Systems, Inc. common stock.
Accordingly, effective March 1, 1999, the Company is a subsidiary of Enova
Holdings, Inc.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Pego Systems, Inc. and its wholly-owned subsidiary Pacific Pneumatics, Inc.
For purposes of these consolidated financial statements, Pego Systems, Inc.
and its subsidiary will be referred to collectively as "the Company". All
material intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of consolidated 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 consolidated 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
For purpose of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with a initial maturity
of three months or less to be cash equivalents.
6
<PAGE>
A. Organization and Summary of Significant Accounting Policies (continued):
Accounts Receivable
The Company extends credit in the normal course of business to its
customers who are located throughout the United States. The Company
performs ongoing credit evaluations of its customers, and generally does
not require collateral. At December 31, 1998, the allowance for doubtful
accounts amounted to $10,000. It is reasonably possible that the Company's
estimate for allowance for doubtful accounts will change.
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or net
realizable value, and consists of purchased parts, materials, labor, and
overhead.
Accounting for Business Combinations
The acquisition of Pacific Pneumatics, Inc. by Pego was recorded as a
purchase in accordance with Accounting Principle Board Opinion No. 16 (APB
16) "Business Combinations", and the purchase price was allocated to the
assets acquired and liabilities assumed based upon their estimated fair
value at the purchase date. The consolidated statement of operations
includes the activities of the acquired entity from the purchase date to
year end.
Additionally, the parent company has applied the "push down" method of
accounting whereby, when a company acquires substantially all of the common
stock of another company (subsidiary), the acquisition price is "pushed
down" to the subsidiary and used to establish a new cost basis for its
assets and liabilities.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
of property and equipment is provided using the straight-line method over
estimated useful lives ranging from five to seven years. The building is
depreciated over an estimated useful live of 20 years. The Company's policy
is to evaluate the remaining lives and recoverability in light of current
conditions. It is reasonably possible that the Company's estimate to
recover the carrying amount of property and equipment will change.
Advertising
Advertising costs are expensed as incurred. Advertising expense included in
general and administrative expenses was $48,015 for the year ended December
31, 1998.
7
<PAGE>
A. Organization and Summary of Significant Accounting Policies (continued):
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Intangibles
Goodwill and other intangible assets are amortized on the straight-line
basis over the estimated future periods to be benefited (not exceeding 25
years). Goodwill, the excess of the Company's purchase price over the fair
value of the net assets acquired, is amortized over 25 years. The covenant
not to compete is amortized over five years. It is reasonably possible that
the Company's estimate of the recoverability of goodwill will change.
Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No. 121
(SFAS 121) "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." Under the provisions of this
statement, the Company has evaluated its long-lived assets for financial
impairment, and will continue to evaluate them as events or changes in
circumstances indicate that the carrying amount of such assets may not be
fully recoverable.
The Company evaluates the recoverability of long-lived assets not held for
sale by measuring the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. At the time such flows
of certain long-lived assets are not sufficient to recover the carrying
value of such assets, the assets are adjusted to their fair values.
Accordingly, based on these evaluations, management has adjusted the
carrying value of goodwill in 1998 (Note E).
B. Business Acquisition:
On August 6, 1998, the Company purchased all outstanding shares of Pacific
Pneumatics, Inc. Terms of the transaction include payment of $235,000 in
cash and the transfer of equipment valued at $15,000. Included in the
acquisition price is a covenant not-to compete (Note E). The excess
purchase price over the fair value of the net assets totaling $442,543, was
recorded as goodwill.
C. Inventory:
<TABLE>
<CAPTION>
Inventory at December 31, 1998 consists of the following:
<S> <C>
Raw materials and purchased parts $532,462
Work-in-process 58,412
---------
$ 590,874
=========
</TABLE>
8
<PAGE>
D. Property and Equipment:
<TABLE>
<CAPTION>
Property and equipment at December 31, 1998 consists of the following:
<S> <C>
Building $ 627,416
Land 586,155
Computer equipment 81,271
Furniture and equipment 53,138
Vehicles 34,358
Improvements 26,238
------------
1,408,576
Less accumulated depreciation (72,790)
Property and equipment, net $ 1,335,786
============
</TABLE>
E. Intangibles:
<TABLE>
<CAPTION>
Intangibles are summarized as follows at December 31, 1998:
<S> <C>
Goodwill $1,768,626
Covenant not to compete 110,000
-----------
1,878,626
Less accumulated amortization (99,513)
-----------
1,779,113
Impairment of goodwill (991,081)
-----------
Intangibles, net $ 788,032
===========
</TABLE>
Goodwill consists of amounts paid in excess of the fair value of the net
assets in the acquisition of Pego by Hartcourt and the acquisition of
Pacific Pneumatics, Inc. by Pego. In accordance with Statement of Financial
Accounting Standards No. 121, (SFAS No. 121) "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
management has evaluated the recoverability of goodwill. Due to losses from
operations, the Company has recorded an impairment of $991,081 to goodwill
for the year ended December 31, 1998. The impairment of goodwill is
included in operating expenses in the accompanying consolidated statement
of operations. The covenant not-to compete agreements are with the former
stockholders of the Company which are in effect for a five year period.
F. Receivable from Parent:
During 1998, the Company loaned the parent company, Hartcourt, $991,081.
The receivable is unsecured, bears no interest, and has no repayment terms.
9
<PAGE>
G. Lines of Credit:
The Company has a secured line of credit agreement with a bank which
provides that it may borrow up to $300,000 at the bank's prime rate of
interest, 9% at December 31, 1998. The line of credit is secured by
inventory, equipment and accounts receivable of the Company. The line of
credit is due on demand. At December 31, 1998, $300,000 was available under
this agreement.
Pacific Pneumatics, Inc., its subsidiary, has an unsecured line of credit
with a bank which provides that it may borrow up to $50,000 at the bank's
prime rate of interest plus 5.5% per annum, 13.25% at December 31, 1998. At
December 31, 1998, there were no funds available under this agreement.
H. Notes Payable:
<TABLE>
<CAPTION>
Notes payable at December 31, 1998 consists of the following:
<S> <C>
Note payable, individual, monthly principal and interest payments of
$9,544 with interest at 8.5% per annum; due November 2024; secured
by land and building. $ 1,197,345
Note payable, bank, monthly installments of $34,306 plus interest at the
bank's prime rate plus 2% per annum, 10.5% at December 31, 1998; secured
by substantially all assets of the Company; all unpaid principal and
interest due in full on June 5, 2001. The agreement requires maintenance
of certain financial covenants on a quarterly basis and other
restrictions of certain assets of the parent company. The Company was in
violation of the covenants and restriction provisions of the agreement at
December 31, 1998. Accordingly, the bank may demand
payment in full. 1,097,776
Note payable, former owner of Pacific Pneumatics, Inc., monthly principal
and interest payments of $3,146 including interest at 6.5% per annum;
due May 2010; unsecured. 300,830
Note payable, former owner of Pacific Pneumatics, Inc., monthly principal
and interest payments of $780 including interest at 6% per annum; due
June 2005; unsecured. 49,724
------------
2,645,675
Less current portion (1,136,163)
------------
Notes payable, less current portion $ 1,509,512
============
</TABLE>
10
<PAGE>
H. Notes Payable (continued):
<TABLE>
<CAPTION>
The following is a summary of principal maturities of notes payable:
Year Ending
December 31,
-----------------
<S> <C>
1999 $1,136,163
2000 41,217
2001 44,262
2002 47,534
2003 51,056
Thereafter 1,325,443
----------
Total $2,645,675
==========
</TABLE>
I. Commitments:
Operating Lease
The Company leases facilities under long-term, non-cancelable lease
agreements expiring at various dates through November 2001. The
non-cancelable operating lease agreements provide that the Company pays
property taxes, insurance and certain operating expenses applicable to the
leased premises. Rent expense for the year ended December 31, 1998 was
$47,378. The Company also leases vehicles and equipment under various
long-term agreements.
<TABLE>
<CAPTION>
Future minimum lease payments required under the operating lease agreements
are as follows:
Year Ending
December 31,
<S> <C>
1999 $ 83,194
2000 43,744
2001 29,730
2002 21,600
2003 9,000
---------
Total minimum lease payments $ 187,268
=========
</TABLE>
11
J. Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
Noncash investing and financing activities:
<S> <C>
Common stock issued by parent company for purchase
of Pacific Pneumatics, Inc. $ 15,000
Cash paid during the year ended December 31, 1998 for:
Interest $ 129,832
Income taxes $ 800
</TABLE>
K. Employee Benefit Plan:
The Company has a 401(k) employee savings and profit sharing plan for the
benefit of its employees. Under the plan, eligible employees may contribute
1% to 15% of their compensation. At the discretion of the Board of
Directors, the Company may contribute additional amounts to the plan on
behalf of those who actively participate. Company contributions will vest
over a six-year period as established in the plan. Contributions totaled
$15,783 for the year ended December 31, 1998.
L. Income Taxes:
<TABLE>
<CAPTION>
The provision for income taxes for the year ended December 31, 1998 are as
follows:
<S> <C>
Current:
Federal $25,800
State 10,000
-------
Provision for income taxes $35,800
=======
</TABLE>
<TABLE>
<CAPTION>
The Company has a deferred tax asset for the tax effects of temporary
differences between financial and tax reporting for the year ended December
31, 1998 as follows:
<S> <C>
Deferred tax assets:
Net operating loss carryforward $ 35,600
Impairment of goodwill 346,900
----------
382,500
Valuation allowance (382,500)
----------
Net deferred taxes $ -
==========
</TABLE>
12
<PAGE>
L. Income Taxes (continued):
Impairment of goodwill is not deductible in 1998 for income tax purposes.
Goodwill is amortized over fifteen years for income tax purposes or until
the Company has disposed of its ownership in the entity to which the
goodwill relates. The deferred tax asset valuation allowance increased
$382,500 from 1997 to 1998. It is reasonably possible that the Company's
estimate of the valuation allowance will change. The Company's net
operating loss is consolidated with its parents operations and tax returns
are filed on a consolidated basis.
M. Concentrations of Credit Risk:
The Company maintains cash in bank deposit accounts at various financial
institutions. The balances, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and believe
they are not exposed to any significant credit risk on cash and cash
equivalents.
<TABLE>
<CAPTION>
Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC)
up to $100,000. A summary of total insured and uninsured cash balances as
of December 31, 1998 is as follows:
<S> <C>
Total cash in bank deposit accounts $ 411,459
Portion insured by FDIC (156,790)
----------
Uninsured cash balances $ 254,669
==========
</TABLE>
<PAGE>
Index to Exhibits
3(i) Articles of Incorporation of Yes Lifestyles, Inc.
3(ii) Bylaws of Yes Lifestyles, Inc.
3(iii) Certificate of Amendment to the Articles of Incorporation of Yes
Lifestyles, Inc.
4 Form of Common Stock Certificate of Enova Holdings Inc.
10.1 Share Purchase Agreement between The Hartcourt Companies, Inc. and Enova
Holdings, Inc.
10.2 Exchange Agreement between The Hartcourt Companies, Inc. and Enova
Holdings, Inc.
10.3 Distribution Agreement between The Hartcourt Companies, Inc. and Enova
Holdings, Inc.
10.4 Employment Agreements with Dr. Alan V. Phan
10.5 Employment Agreement with Mr. Manu Ohri
21 Subsidiaries of Enova
23 Consent of Independent Auditors
27 Financial Data Schedule
99 Nevada Revised Statutes Section 78.751
3(i) Articles of Incorporation of Yes Lifestyles, Inc.
ARTICLES OF INCORPORATION
OF
YES LIFESTYLES, INC.
ONE, The name of the corporation is
Yes Lifestyles, Inc.
Its registered office in the State of Nevada is located at 4001 South Decatur
Blvd., Las Vegas, NV 89103. The name of its resident agent at that address is
Fred Graves Luke.
THIRD; The aggregate ate number of shares of all classes of stock,
which the Corporation shall have authority to issue is One Hundred Million
(100,000,000) of which Seventy Five Million (75,000,000) shares will be
designated Common Stock with $.001 par value; and Twenty Five Million
(25,000,000) shares shall be designated $.001 par value "Preferred Stock"
Without further authorization from the shareholders, the Board of Directors
shall have the authority to divide and issue from time to time any or all of the
Twenty Five Million (25.000.000) shares of such Preferred Stock into one or more
series with such designation, preferences and relative, participating optional
or other special rights of qualification limitations or restrictions thereof, as
may be designated by the Board of Directors, prior to the issuance of such
series and the Board of Directors is hereby expressly authorized to fix by
resolution or resolutions only and without further action or approval prior to
such issuance, such designations, preferences and relative, participating
optional or other special rights, or qualifications, limitations or restrictions
including, without limitation the date and times at which and the rate if any,
or rates of which dividends on such series of Preferred Stock shall be paid; the
rights if any of the holders of such series of the Preferred Stock to vote and
the manner of voting except as otherwise provided by the law the nights , if any
of the holders of shares of such series of Preferred Stock to convert the same
into, or exchange the same for, other classes of stock of the Corporation, and
terms and conditions for such conversion or exchange; the redemption price or
prices and the time at which, and the terms and conditions of which, the shares
of such series of Preferred Stock may be redeemed: the rights of the holders of
shares of such series of Preferred Stock upon the voluntary or involuntary
liquidation distribution or sale of assets, dissolution or winding up of the
Corporation, and the teens of the sinking fund or redemption or purchase
account, if any, to be provided for such series of Preferred Stock. The
designations, preferences, and relative, participating, optional or other
special rights, the
<PAGE>
qualifications, limitations or restrictions thereof, of each additional series,
if any, may differ from those of any and all other series already outstanding.
Further, the Board of Directors shall have the power to fix the number of shares
constituting any classes or series and thereafter to increase or decrease the
number of shares of any such class or series subsequent to the issue of shares
of that class or series but not below the number of shares of that class or
series then outstanding.
FOURTH: The governing Board of this Corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the by-laws of this
Corporation.
The name and address of the first Board of Directors, which shall be
one ( I ) in number, is as follows:
NAME ADDRESS
Jon L. Lawver 4695 MacArthur Court, Suite 530
Newport Beach, California 92660
FIFTH: The name and address of the incorporator signing the Articles of
Incorporation is as follows:
NAME ADDRESS
Jon L. Lawver 4695 MacArthur Court, Suite 530
Newport Beach, California 92660
SIXTH: To the fullest extent permitted by Nevada Revised Statute 78.037
as the same exists or may hereafter be amended, an officer or director of the
corporation shall not be personally liable to the corporation or its
stockholders for monetary damages due to breach of fiduciary duty as such
officer or director.
SEVENTH: The purpose of this Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Nevada.
EIGHTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The Board of Directors shall have power without the assent or vote of the
stockholders:
(a) To make, alter, amend, change, add to or repeal the by-laws of the
Corporation to fix and vary the amount of capital or shares of the
Corporation's capital stock to be reserved or issued for any proper
purpose; to authorize and cause to be executed mortgages and liens
upon all or any part of the property of the Corporation; to determine
the use and disposition of any surplus or net profits; and to fix the
times for the declaration and payment of dividends.
To determine from time to time whether, and to what times and places,
and under what conditions the accounts and books of the Corporation
(other than the stock ledger) or any of them, shall be open to the
inspection of the stockholders.
(2) The directors in their discretion may submit any contract or act for
approval or ratification any annual meeting of the stockholders or any
meeting of the stockholders called for the purpose of considering any such
act or contract, and any contract or act that shall be approved or be
ratified by the vote of the holders of a majority of the stock of the
Corporation which is represented in person or by proxy at such meeting and
entitled to vote thereat (provided that a lawful quorum of stockholders be
there represented in person or by proxy) shall be as valid and as binding
upon the Corporation and upon all the stockholders as though it has been
approved or ratified by every stockholder of the Corporation, whether or
not the contract or act would otherwise be open to legal attack because of
directors' interest, or for any other reason.
(3) In addition to the powers and authorities hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation; subject, nevertheless, to the
provisions of the statutes of Nevada, of this certificate, and to any
<PAGE>
by-laws from time to time made by the stockholders; provided, however, that
no by -laws so made shall invalidate any prior act of the directors which
would have been valid if such by-law had not been made
(4) The holders of one-third of the voting power of the shares entitled to vote
at a meeting, represented either in person or by proxy, regular or special
meeting of shareholders shall constitute a quorum for the transaction of
business at any
(5) Cumulative voting by the shareholders of this Corporation shall not be
permitted in any election of directors.
IN WITNESS WHEREOF, the undersigned, Jon L. Lawver for the purpose of
filing the Corporation's Articles of Incorporation pursuant to the General
Corporation Law of the State of Nevada, does make and file the Articles of
Incorporation, hereby declaring and certifying that the facts herein stated are
true; and accordingly I have hereunto set my hand this 22nd day of April, 1998.
/s/ Jon L. Lawver, Incorporator
---------------------------------------
Jon L. Lawver, Incorporator
State of California
County of Orange
On 4-22-98 before me, :Linda Musto, Notary Public
Personally appeared Jon L. Lawver
personally known to me - OR -proved to me on the basis of satisfactory evidence:
to be the person(s) whose name (s) is/are subscribed to the within instrument
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies) and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Linda Musto
3(ii) Bylaws of Yes Lifestyles, Inc.
BYLAWS
YES LIFESTYLES, INC.
A Nevada Corporation
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal office of the
Corporation is hereby fixed in the State of Nevada.
SECTION 2. OTHER OFFICES. Branch or subordinate offices may be
established by the Board of Directors at such other places-as may be desirable.
ARTICLE II
SHAREHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of shareholders shall be held either at
the principal executive office of the corporation or at any other location
within or without the State of Nevada which may be designated by written consent
of all persons entitled to vote thereat.
SECTION 2. ANNUAL MEETINGS. The annual meeting of shareholders shall be held on
such day and at such time as may be fixed by the Board; provided, however, that
should said day fall upon a Saturday, Sunday, or legal holiday observed by the
Corporation at its principal executive office, then any such meeting of
shareholders shall be held at the same time and place on the next day thereafter
ensuing which is a full business day. At such meetings, directors shall be
elected by plurality vote and any other proper business may be transacted.
<PAGE>
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called for any purpose or purposes permitted under Chapter 78 of Nevada
Revised Statutes at any time by the Board, the Chairman of the Board, the
President, or by the shareholders entitled to cast not less than twenty-five
percent (25%) of the votes at such meeting. Upon request in writing to the
Chairman of the Board, the President, any Vice-President or the Secretary, by
any person or persons entitled to call a special meeting of shareholders, the
Secretary shall cause notice to be given to the shareholders entitled to vote,
that a special meeting will be held not less than thirty-five (35) nor more than
sixty (60) days after the date of the notice.
SECTION 4. NOTICE OF ANNUAL OR SPECIAL MEETING. Written notice of each
annual meeting of shareholders shall be given not less than ten (10) nor more
than sixty (60) days before the date of the meeting to each shareholder entitled
to vote thereat. Such notice shall state the place, date and hour of the meeting
and (i) in the case of a special meeting the general nature of the business to
be transacted, or (ii) in the case of the annual meeting, those matters which
the Board, at the time of the mailing of the notice, intends to present for
action by the shareholders, but, any proper matter may be presented at the
meeting for such action. The notice of any meeting at which directors are to be
elected shall include the names of the nominees intended, at the time of the
notice, to be presented by management for election.
Notice of a shareholders' meeting shall be given either personally or
by mail or, addressed to the shareholder at the address of such shareholder
appearing on the books of the corporation or if no such address appears or is
given, by publication at least once in a newspaper of general circulation in
Clark County, Nevada. An affidavit of mailing of any notice, executed by the
Secretary, shall be prima facie evidence of the giving of the notice.
<PAGE>
SECTION 5. QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders. If a quorum is present, the affirmative vote of the majority of
shareholders represented and voting at the meeting on any matter, shall be the
act of the shareholders. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the number of shares required as noted above to constitute a
quorum. Notwithstanding the foregoing, (1) the sale, transfer and other
disposition of substantially all of the corporation's properties and (2) a
merger or consolidation of the corporation shall require the approval by an
affirmative vote of not less than two-thirds (2/3) of the corporation's issued
and outstanding shares.
SECTION 6. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders
meeting, whether or not a quorum is present, may be adjourned from time to time.
In the absence of a quorum (except as provided in Section 5 of this Article), no
other business may be transacted at such meeting.
It shall not be necessary to give any notice of the time and place of
the adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken; provided,
however when a shareholders meeting is adjourned for more than forty-five (45)
days or, if after adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given as in the case of an
original meeting.
<PAGE>
SECTION 7. VOTING. The shareholders entitled to notice of any meeting
or to vote at such meeting shall be only persons in whose name shares stand on
the stock records of the corporation on the record date determined in accordance
with Section 8 of this Article.
SECTION 8. RECORD DATE. The Board may fix in advance, a record date for
the determination of the shareholders entitled to notice of a meeting or to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect to any other lawful
action. The record date so fixed shall be not more than sixty (60) nor less than
ten (10) days prior to the date of the meeting nor more than sixty (60) days
prior to any other action. When a record date is so fixed, only shareholders of
record on that date are entitled to notice of and to vote at the meeting or to
receive the dividend, distribution, or allotment of rights, or to exercise of
the rights, as the case may be, notwithstanding any transfer of shares on the
books of the corporation after the record date. A determination of shareholders
of record entitled to notice of or to vote at a meeting of shareholders shall
apply to any adjournment of the meeting unless the Board fixes a new record date
for the meeting. The Board shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days.
If no record date is fixed by the Board, the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be the close of business on the business day next preceding
the day on which notice is given or, if notice is waived, at the close of
business on the business day next preceding the day on which notice is given.
The record date for determining shareholders for any purpose other than as set
in this Section 8 or Section 10 of this Article shall be at the close of the day
on which the Board adopts the resolution relating thereto, or the sixtieth day
prior to the date of such other action, whichever is later.
<PAGE>
SECTION 9. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote not present in person or by proxy,
signs a written waiver of notice, or a consent to the holding of the meeting or
an approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
SECTION 10. ACTION WITHOUT MEETING. Any action which, under any
provision of law, may be taken at any annual or special meeting of shareholders,
may be taken without a.meeting and without prior notice if a consent in writing,
setting forth the actions to be taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Unless a record date for voting
purposes be fixed as provided in Section 8 of this Article, the record date for
determining shareholders entitled to give consent pursuant to this Section 10,
when no prior action by the Board has been taken, shall be the day on which the
first written-consent is given.
SECTION 11. PROXIES. Every person entitled to vote shares has the right
to do so either in person or by one or more persons authorized by a written
proxy executed by such shareholder and filed with the Secretary not less than
five (5) days prior to the meeting.
<PAGE>
SECTION 12. CONDUCT OF MEETING. The President shall preside as Chairman
at all meetings of the shareholders, unless another Chairman is selected. The
Chairman shall conduct each such meeting in a businesslike and fair manner, but
shall not be obligated to follow any technical, formal or parliamentary rules or
principles of procedure. The Chairman's ruling on procedural matters shall be
conclusive and binding on all shareholders, unless at the time of ruling a
request for a vote is made by the shareholders entitled to vote and represented
in person or by proxy at the meeting, in which case the decision of a majority
of such shares shall be conclusive and binding on all shareholders without
limiting the generality of the foregoing, the Chairman shall have all the powers
usually vested in the chairman of a meeting of shareholders.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to limitation of the Articles of
Incorporation, of these bylaws, and of actions required to be approved by the
shareholders, the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised by or under the direction of the Board.
The Board may, as permitted by law, delegate the management of the day-to-day
operation of the business of the corporation to a management company or other
persons or officers of the corporation provided that the business and affairs of
the corporation shall be managed and all corporate powers shall be exercised
under the ultimate direction of the Board. Without prejudice to such general
powers, it is hereby expressly declared that the Board shall have the following
powers:
(a) To select and remove all of the officers, agents and employees of
the corporation, prescribe the powers and duties for them as may not be
inconsistent with law, or with the Articles of Incorporation or by these bylaws,
fix their compensation, and require from them, if necessary, security for
faithful service.
<PAGE>
(b) To conduct, manage, and control the affairs and business of the
corporation and to make such rules and regulations therefore not inconsistent
with law, with the Articles of Incorporation or these bylaws, as they may deem
best.
(c) To adopt, make and use a corporate seal, and to prescribe the forms
of certificates of stock and to alter the form of such seal and such of
certificates from time to time in their judgment they deem best.
(d) To authorize the issuance of shares,of stock of the corporation
from time to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecation or other evidence of debt and securities therefor.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number
of directors shall be three until changed by amendment of the Articles or by a
bylaw duly adopted by approval of the outstanding shares amending this Section
2.
SECTION 3. ELECTION AND TERM OF OFFICE. The directors shall be elected
at each annual meeting of shareholders but if any such annual meeting is not
held or the directors are not elected. The shareholders may elect a director or
directors at any time to fill any vacancy or vacancies. Any such election by
written consent requires the consent of a majority of the outstanding shares
entitled to vote. If the Board accepts the resignation of a director tendered to
take effect at a future time, the shareholder shall have power to elect a
successor to take office when the resignation is to become effective.
<PAGE>
No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of the director's term
of office.
SECTION 6. PLACE OF MEETING. Any meeting of the Board shall be held at
any place within or without the State of Nevada which has been designated from
time to time by the Board. In the absence of such designation meetings shall be
held at the principal executive office of the corporation.
SECTION 7. REGULAR MEETINGS. Immediately following each annual meeting
of shareholders the Board shall hold a regular meeting for the purpose of
organization, selection of a Chairman of the Board, election of officers, and
the transaction of other business. Call and notice of such regular meeting is
hereby dispensed with.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board for any
purposes may be called at any time by the Chairman of the Board, the President,
or the Secretary or by any two directors.
Special meetings of the Board shall be held upon at least four (4) days
written notice or forty-eight (48) hours notice given personally or by
telephone, telegraph, telex or other similar means of communication. Any such
notice shall be addressed or delivered to each director at such director's
address as it is shown upon the records of the Corporation or as may have been
given to the Corporation by the director for the purposes of notice.
<PAGE>
SECTION 9. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board, unless a greater number be
required by law or by the Articles of Incorporation. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority
of the number of directors required as noted above to constitute a quorum for
such meeting.
SECTION 10. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members
of the Board may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participate in such
meeting can hear one another.
SECTION 11. WAIVER OF NOTICE. The transactions of any meeting of the
Board, however called and noticed or wherever held, are as valid as though had
at a meeting duly held after regular call and notice if a quorum be present and
if, either before or after the meeting, each of the directors not present signs
a written waiver of notice, a consent to holding such meeting or an approval of
the minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or made part of the minutes of the meeting.
SECTION 12. ADJOURNMENT. A majority of the directors present, whether
or not a quorum is present, may adjourn any directors' meeting to another time
and place. Notice of the time and place of holding an adjourned meeting need not
be given to absent directors if the time and place be fixed at the meeting
adjourned. If the meeting is adjourned for more than forty-eight (48) hours,
notice of any adjournment to another time or place shall be given prior to the
time of the adjourned meeting to the directors who were not present at the time
of adjournment.
<PAGE>
SECTION 13. FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.
SECTION 14. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board may be taken without a meeting if all members of the Board
shall individually or collectively consent in writing to such action. Such
consent or consents shall have the same effect as a unanimous vote of the Board
and shall be filed with the minutes of the proceedings of the Board.
SECTION 15. COMMITTEES. The board may appoint one or more committees,
each consisting of two or more directors, and delegate to such committees any of
the authority of the Board except with respect to:
(a) The approval of any action which requires shareholders' approval or
approval of the outstanding shares;
(b) The filling of vacancies on the Board or on any committees;
(c) The fixing of compensation of the directors for serving on the
Board or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws;
<PAGE>
(e) The amendment or repeal of any resolution of the Board which by its
express terms is not so amendable or repealable by a committee of the board;
(f) A distribution to the shareholders of the corporation;
(g) The appointment of other committees of the Board or the members
thereof.
Any such committee must be appointed by resolution adopted by a
majority of the authorized number of directors and may be designated an
Executive Committee or by such other name as the Board shall specify. The Board
shall have the power to prescribe the manner in which proceedings of any such
committee shall be conducted. Unless the Board or such committee shall otherwise
provide, the regular or special meetings and other actions of any such committee
shall be governed by the provisions of this Article applicable to meetings and
actions of the Board. Minutes shall be kept of each meeting of each committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a
president, a secretary and a treasurer. The corporation may also have, at the
discretion of the Board, one or more vice-presidents, one or more assistant vice
presidents, one or more assistant secretaries, one or more assistant treasurers
and such other officers as may be elected or appointed in accordance with the
provisions of Section 3 of this Article.
SECTION 2. ELECTION. The officers of the corporation, except such
officers as may be elected or appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by, and shall
serve at the pleasure of, the Board, and shall hold their respective offices
until their resignation, removal or other disqualification from service, or
until their respective successors shall be elected.
<PAGE>
SECTION 3. SUBORDINATE OFFICERS. The Board may elect, and may empower
the President to appoint, such other officers as the business of the corporation
may require, each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in these bylaws or as the
Board, or the President may from time to time direct.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by the Board of Directors at any time, or, except in the
case of an officer chosen by the Board, by any officer upon whom such power of
removal may be conferred by the Board.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein. The acceptance of such
resignation shall be necessary to make it effective.
SECTION 5. VACANCIES. A vacancy of any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed by these bylaws for the regular election or appointment to
such office.
SECTION 6. PRESIDENT. The President shall be the chief executive
officer and general manager of the corporation. The President shall preside at
all meetings of the shareholders and, in the absence of the Chairman of the
Board at all meetings of "he Board. The president has the general powers and
duties of management usually vested in the chief executive officer and the
general manager of a corporation and such other powers and duties as may be
prescribed by the Board.
<PAGE>
SECTION 7. VICE PRESIDENTS. In the absence or disability of the
President, the vice Presidents in order of their rank as fixed by the Board or,
if not ranked, the Vice President designated by the Board, shall perform all the
duties of the President, and when so acting shall have all the powers of, and be
subject to all the restrictions upon the President. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the President or the Board.
SECTION 8. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive offices and such other place as the Board may order, a
book of minutes of all meetings of shareholders, the Board, and its committees,
with the time and place of holding, whether regular or special, and, if special,
how authorized, the notice thereof given, the names of those present at Board
and committee meetings, the number of shares present or represented at
shareholders' meetings, and proceedings thereof. The Secretary shall keep, or
cause to be kept, a copy of the bylaws of the corporation at the principal
executive office of the corporation.
The Secretary shall keep, or cause to be kept, at the principal
executive office, a share register, or a duplicate share register, showing the
names of the shareholders and their addresses, the number and classes of shares
held by each, the number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the Board and any committees thereof
required by these bylaws or by law to be given, shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
<PAGE>
SECTION 9. TREASURER. The Treasurer is the chief financial officer of
the corporation and shall keep and maintain, or cause to be kept and maintained,
adequate and correct accounts of the properties and financial-transactions of
the corporation, and shall send or cause to be sent to the shareholders of the
corporation such financial statements and reports as are by law or these bylaws
required to be sent to them.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the Board. The Treasurer shall disburse the funds of the corporation as may
be ordered by the Board, shall render to the President and directors, whenever
they request it, an account of all transactions as Treasurer and of the
financial conditions of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board.
SECTION 10. AGENTS. The President and any Vice-President, the Secretary
or Treasurer may appoint agents with power and authority, as defined or limited
in their appointment, for and on behalf of the corporation to execute and
deliver, and affix the seal of the corporation thereto, to bonds, undertakings,
recognizance, consents of surety or other written obligations in the nature
thereof and any said officers may remove any such agent and revoke the power and
authority given to him.
<PAGE>
ARTICLE V
OTHER PROVISIONS
SECTION 1. DIVIDENDS. The Board may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and on
the terms and conditions provided by law, subject to any contractual
restrictions on which the corporation is then subject.
SECTION 2. INSPECTION OF BY-LAWS. The Corporation shall keep in its
Principal executive Office the original or a copy of these bylaws as amended to
date which shall be open to inspection to shareholders at all reasonable times
during office hours. If the Principal Executive Office of the corporation is
outside the State of Nevada and the Corporation has no principal business office
in such State, it shall upon the written notice of any shareholder furnish to
such shareholder a copy of these bylaws as amended to date.
SECTION 3. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President or any other officer or officers authorized by the Board or the
President are each authorized to vote, represent, and exercise on behalf of the
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the Corporation. The authority herein
granted may be exercised either by any such officer in person or by any other
person authorized to do so by proxy or power of attorney duly executed by said
officer.
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION IN ACTIONS BY THIRD PAIRTIES. Subject to the
limitations of law, if any, the corporation shall have the Power to indemnify
any director, officer, employee and agent of the corporation who was or is a
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of to procure a judgement in its favor) against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with such proceeding, provided that the Board
shall find that the director, officer, employee or agent acted in good faith and
in a manner which such person reasonably believed in the best interests of the
corporation and, in the case of criminal proceedings, had no reasonable cause to
believe the conduct was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere shall not, of
itself create a presumption that such person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of the
corporation or that such person had reasonable cause to believe such person's
conduct was unlawful.
<PAGE>
SECTION 2. INDEMNIFICATION IN ACTIONS BY OR ON BEHALF OF THE
CORPORATION. Subject to the limitations of law, if any, the Corporation shall
have the power to indemnify any director, officer, employee and agent of the
corporation who was or is threatened to be made a party to any threatened,
pending or completed legal action by or in the right of the Corporation to
procure a judgement in its favor, against expenses actually and reasonable
incurred by such person in connection with the defense or settlement, if the
Board of Directors determine that such person acted in good faith, in a manner
such person believed to be in the best interests of the Corporation and with
such care, including reasonable inquiry, as an ordinarily, prudent person would
use under similar circumstances.
SECTION 3. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the Corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of the officer,
director, employee or agent to repay such amount unless it shall be determined
ultimately that the officer or director is entitled to be indemnified as
authorized by this Article.
<PAGE>
SECTION 4. INSURANCE. The corporation shall have power to purchase and
maintain insurance on behalf of any officer, director, employee or agent of the
Corporation against any liability asserted against or incurred by the officer,
director, employee or agent in such capacity or arising out of such person's
status as such whether or not the corporation would have the power to indemnify
the officer, or director, employee or agent against such liability under the
provisions of this Article.
ARTICLE VII
AMENDMENTS
These bylaws may be altered, amended or repealed either by approval of
a majority of the outstanding shares entitled to vote or by the approval of the
Board; provided however that after the issuance of shares, a bylaw specifying or
changing a fixed number of directors or the maximum or minimum number or
changing from a fixed to a flexible Board or vice versa may only be adopted by
the approval by an affirmative vote of not less than two-thirds of the
corporation's issued and outstanding shares entitled to vote.
3(iii) Certificate of Amendment to the Articles of Incorporation of Yes
Lifestyles, Inc.
Certificate of Amendment to Articles of Incorporation
For Profit Nevada
Corporations (Pursuant to NRS 18.385 and
78.390 - After issuance of Stock)
1. Name of corporation YES LIFESTYLES, INC.
2. The articles have been amended as follows (provide article numbers if
available): ARTICLE I IS HEREBY AMENDED AS FOLLOWS:
THE NAME OF THE CORPORATION IS:
ENOVA HOLDINGS INC.
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or such
greater proportion of the voting power as may be required in the case of a
vote by classes or series or as may be required by the provisions of the
articles of incorporation have voted in favor of the amendment is:
unanimous.
<PAGE>
4. Signatures:
/s/ Jon L. Lawver
---------------------------------
President or Vice President
JON L LAWVER
/s/ Jon L. Lawver
---------------------------------
Secretary or Asst. Secretary
JON L. LAWVER
State of: CALIFORNIA
County of ORANGE
This instrument was acknowledged before me on
DECEMBER 2, 1998 by JON L LAWVER (Name of Person) PRESIDENT-SECRETARY., as
designated to sign this certificate of YES LIFESTYLES, INC.(name on behalf of
whom instrument was executed)
/s/ Tina L. Johnson
- ----------------------------------
Notary Public Signature
TINA L JOHNSON
Commission a 10997792
Notary Public - California
Orange County
My Comm. Expires Jun 6, 2000 Officer
4 Form of Common Stock Certificate of Enova Holdings, Inc.
Form of Common Stock Certificate
NUMBER SHARES
------------ -------------
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
Enova Holdings, Inc.
Authorized to Issue 100,000,000 Shares
75,000,000 SHARES COMMON STOCK 25,000,000 SHARES PREFERRED STOCK
$.001 PAR VALUE EACH $ .001 PAR VALUE EACH
THIS CERTIFIES THAT ____________________________________________ is the owner of
__________________________________________________ fully paid and non-assessable
shares of the Common Stock of Enova Holdings, Inc. transferable only on the
books of the Corporation by the holder hereof in person or by its duly
authorized Attorney upon surrender of the Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation this _____ day of _______ A.D. ______
- -------------------------- --------------------------
SECRETARY PRESIDENT
10.1 Share Purchase Agreement between The Hartcourt Companies, Inc. and Enova
Holdings, Inc.
Share Purchase Agreement
The undersigned, being the owner of one (1) share of common stock (the "Shares")
of Enova Holdings, Inc., a Nevada corporation (the "Company") hereby agrees with
The Hartcourt Companies, Inc. ("Hartcourt") to the sale of the Shares to
Hartcourt as a block.
When executed by Hartcourt below, this Share Purchase Agreement ("Agreement")
will set out the undersigned and Hartcourt's understanding and agreement
regarding this proposed transaction.
1. Upon Hartcourt's acceptance of this Agreement the undersigned will deliver
to Hartcourt the Shares.
2. Upon the undersigned's delivery of the Shares, Hartcourt will deliver to
the undersigned the selling price of $500.00.
3. In connection with this transaction, and as an inducement for Hartcourt to
enter into this Agreement, the undersigned hereby represents, and by the
undersigned's and Hartcourt's signing, hereby re-confirms, that:
3.1 The subject Shares are unrestricted and free and clear of liens,
claims and encumbrances.
3.2 The Company does not have any claims against the Shares, and can
acknowledge to Hartcourt that there is no reason or cause to block the
sale.
3.3 The undersigned has no knowledge of any restrictions by contract,
operation of law or otherwise prohibiting this sale or the transfer of
these shares into the name of Hartcourt, subject only to the
Securities Laws governing the sale of securities. The undersigned does
not believe that the sale of the Shares to Hartcourt is required to be
registered under the Act because a) the initial issuance of the Shares
by the Company was registered under the Act; b) the transaction
whereby the undersigned received the Shares was in compliance with all
applicable laws and securities rules and regulations; and c) the
undersigned does not control, is not controlled by and is not under
common control with the Company directly or indirectly.
3.4 The undersigned has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Hartcourt could
be obligated or liable.
4. In connection with this transaction, and as an inducement, for the
undersigned to enter into this Agreement, Hartcourt represents and
warrants, and by our signing hereby re-confirms that:
4.1 Hartcourt is duly organized, validly existing and in good standing
under the laws of its jurisdiction.
<PAGE>
4.2 Hartcourt is an accredited investor as the meaning is set forth under
Regulation D of the Securities Act of 1933, as amended (the "Act").
4.3 Hartcourt was not solicited by the undersigned or any of the
undersigned's representatives for the purchase of these shares.
4.4 Hartcourt is acquiring the Shares for its own account and not with a
view to distribution within the meaning of the Act.
4.5 Hartcourt has received all of the information from its independent
professional, legal and/or tax advisors as it considers necessary or
appropriate for determining whether to purchase the Shares. Hartcourt
is familiar with the business, affairs, risk and properties of the
Company. Hartcourt has had an opportunity to ask questions of and
receive answers from, the Company, and its officers, directors and
other representatives regarding the Company.
4.6 Hartcourt has such knowledge and expertise in financial and business
matters that it is capable of evaluating the merits and substantial
risks of an investment in the Shares and is able to bear the economic
risks relevant to the purchase of the Shares hereunder.
4.7 Hartcourt understands that there may be no market for the Shares.
4.8 Hartcourt's financial condition is such that Hartcourt is under no
present or contemplated future need to dispose of any portion of the
Shares to satisfy any existing or contemplated undertaking, need or
indebtedness.
4.9 Notwithstanding applicable Federal and State corporate and securities
law disclosure requirements, Hartcourt agrees not to disclose any
terms of this Agreement to any other parties except to parties
specifically involved in the transaction contemplated herein.
4.10 Hartcourt has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the undersigned
could become liable or obligated.
4.11 Hartcourt acknowledges that the undersigned makes no representation or
warranties as to the past, present or future operations of the
Company, or the price or activity of the Company's stock.
5. The undersigned and Hartcourt agree to indemnify and hold each other
harmless for two (2) years following the above date against and in respect
of any liability, damage or deficiency, all actions, suits, proceeding,
demands, assessment, judgments, costs and expenses resulting from any
misrepresentation made in this Agreement.
6. Neither of us has any obligation to the other for not completing this
transaction. If the transaction is not completed within the time frame
agreed upon, then the Shares shall be returned to the undersigned in their
original condition.
<PAGE>
7. We agree to execute such additional documents and take action as we may
reasonably request to effect this transaction or otherwise carry out the
intent and purpose of this Agreement, or subsequently transfer the subject
Shares.
8. This Agreement shall be governed by the laws of Nevada, notwithstanding any
conflict-of-law provisions to the contrary.
9. This Agreement sets forth the entire understanding between us and no other
prior written or oral statement or agreement shall be recognized or
enforced.
10. 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 are determined to be void,
illegal or unenforceable shall be limited so that they may remain in effect
to the extent permissible by law.
11. 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 us in the performance
of any obligation by the other shall be construed as a waiver of the same
or other default then, theretofore, or thereafter occurring or existing. At
any time prior to the issuance or exchange of the subject Shares as
contemplated herein, this Agreement may be amended in writing signed by all
parties hereto.
12. This letter may be executed by one or more parties in counterparts, and
such copy may be delivered by facsimile, and such execution and delivery
shall be considered valid, binding and effective for all purposes. At the
request of either of us, we agree to execute an original of this instrument
as well as any facsimile, telecopy or other reproduction hereof.
Dated: February 1, 1999.
/s/ Jon L. Lawver
---------------------------------------
Jon L. Lawver
Agreed to and accepted this First
day of February 1999.
The Hartcourt Companies, Inc.
2049 Century Park East, Suite 3760
Los Angeles, CA 90067
By:_______________________________
Title:____________________________
10.2 Exchange Agreement between The Hartcourt Companies, Inc. and Enova
Holdings, Inc.
Exchange Agreement
The undersigned, being the owner of Four Million Seven Hundred Thousand
Nine Seven Hundred Eighty Eight (4,709,788) shares of common stock (the
"Shares") of Enova Holdings, Inc., a Nevada corporation (the "Company") hereby
agrees with The Hartcourt Companies, Inc. ("Hartcourt") to the sale of the
Shares to Hartcourt as a block.
When executed by Hartcourt below, this Exchange Agreement ("Agreement")
will set out the undersigned and Hartcourt's understanding and agreement
regarding this proposed transaction.
1. Upon Hartcourt's acceptance of this Agreement the undersigned will deliver
to Hartcourt the Shares.
2. Upon the undersigned's delivery of the Shares, in exchange Hartcourt will
deliver to the undersigned Hartcourt's 100% ownership interest in two
subsidiaries, Pego Systems, Inc. and Electronic Component Systems, Inc.
3. In connection with this transaction, and as an inducement for Hartcourt to
enter into this Agreement, the undersigned hereby represents, and by the
undersigned's and Hartcourt's signing, hereby re-confirms, that:
3.1 The subject Shares are unrestricted and free and clear of liens,
claims and encumbrances.
3.2 The Company does not have any claims against the Shares, and can
acknowledge to Hartcourt that there is no reason or cause to block the
sale.
3.3 The undersigned has no knowledge of any restrictions by contract,
operation of law or otherwise prohibiting this sale or the transfer of
these shares into the name of Hartcourt, subject only to the
Securities Laws governing the sale of securities. The undersigned does
not believe that the sale of the Shares to Hartcourt is required to be
registered under the Act because a) the initial issuance of the Shares
by the Company was registered under the Act; b) the transaction
whereby the undersigned received the Shares was in compliance with all
applicable laws and securities rules and regulations; and c) the
undersigned does not control, is not controlled by and is not under
common control with the Company directly or indirectly.
<PAGE>
3.4 The undersigned has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Hartcourt could
be obligated or liable.
4. In connection with this transaction, and as an inducement, for the
undersigned to enter into this Agreement, Hartcourt represents and
warrants, and by our signing hereby re-confirms that:
4.1 Hartcourt is duly organized, validly existing and in good standing
under the laws of its jurisdiction.
4.2 Hartcourt is an accredited investor as the meaning is set forth under
Regulation D of the Securities Act of 1933, as amended (the "Act").
4.3 Hartcourt was not solicited by the undersigned or any of the
undersigned's representatives for the purchase of these shares.
4.4 Hartcourt is acquiring the Shares for its own account and not with a
view to distribution within the meaning of the Act.
4.5 Hartcourt has received all of the information from its independent
professional, legal and/or tax advisors as it considers necessary or
appropriate for determining whether to purchase the Shares. Hartcourt
is familiar with the business, affairs, risk and properties of the
Company. Hartcourt has had an opportunity to ask questions of and
receive answers from, the Company, and its officers, directors and
other representatives regarding the Company.
4.6 Hartcourt has such knowledge and expertise in financial and business
matters that it is capable of evaluating the merits and substantial
risks of an investment in the Shares and is able to bear the economic
risks relevant to the purchase of the Shares hereunder.
4.7 Hartcourt understands that there may be no market for the Shares.
4.8 Hartcourt's financial condition is such that Hartcourt is under no
present or contemplated future need to dispose of any portion of the
Shares to satisfy any existing or contemplated undertaking, need or
indebtedness.
4.9 Notwithstanding applicable Federal and State corporate and securities
law disclosure requirements, Hartcourt agrees not to disclose any
terms of this Agreement to any other parties except to parties
specifically involved in the transaction contemplated herein.
<PAGE>
4.10 Hartcourt has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the undersigned
could become liable or obligated.
4.11 Hartcourt acknowledges that the undersigned makes no representation or
warranties as to the past, present or future operations of the
Company, or the price or activity of the Company's stock.
5. The undersigned and Hartcourt agree to indemnify and hold each other
harmless for two (2) years following the above date against and in respect
of any liability, damage or deficiency, all actions, suits, proceeding,
demands, assessment, judgments, costs and expenses resulting from any
misrepresentation made in this Agreement.
6 Neither of us has any obligation to the other for not completing this
transaction. If the transaction is not completed within the time frame
agreed upon, then the Shares shall be returned to the undersigned in their
original condition.
7. We agree to execute such additional documents and take action as we may
reasonably request to effect this transaction or otherwise carry out the
intent and purpose of this Agreement, or subsequently transfer the subject
Shares.
8. This Agreement shall be governed by the laws of Nevada, notwithstanding any
conflict-of-law provisions to the contrary.
9. This Agreement sets forth the entire understanding between us and no other
prior written or oral statement or agreement shall be recognized or
enforced.
10. 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 are determined to be void,
illegal or unenforceable shall be limited so that they may remain in effect
to the extent permissible by law.
11. 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 us in the performance
of any obligation by the other shall be construed as a waiver of the same
or other default then, theretofore, or thereafter occurring or existing. At
any time prior to the issuance or exchange of the subject Shares as
contemplated herein, this Agreement may be amended in writing signed by all
parties hereto.
<PAGE>
Exchange Agreement (continued)
12. This letter may be executed by one or more parties in counterparts, and
such copy may be delivered by facsimile, and such execution and delivery
shall be considered valid, binding and effective for all purposes. At the
request of either of us, we agree to execute an original of this instrument
as well as any facsimile, telecopy or other reproduction hereof.
Dated: March 1, 1999.
Owner of the Enova Shares:
The Hartcourt Companies, Inc.
2049 Century Park East, Suite 3760
Los Angeles, CA 90067
By:____________________________________
Title: Chairman of the Board
Agreed to and accepted this First day of
March, 1999.
Owner of Pego Systems, Inc and
Electronic Component Systems, Inc.:
The Hartcourt Companies, Inc.
2049 Century Park East, Suite 3760
Los Angeles, CA 90067
By:____________________________________
Title: Chairman of the Board
10.3 Distribution Agreement between The Hartcourt Companies, Inc. and Enova
Holdings, Inc.
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT, dated March 24, 1999, is by and between
The Hartcourt Companies Inc., a Utah corporation ("Hartcourt") and Enova
Holdings Inc., a Nevada corporation ("Enova"). Capitalized terms used herein and
not otherwise defined shall have the respective meanings assigned to them in
paragraph 1 hereof.
WHEREAS, the Board of Directors of Hartcourt has determined that it is
in the best interests of Hartcourt and its shareholders to separate Hartcourt's
existing subsidiaries into an independent business;
WHEREAS, the Board of Directors of Hartcourt has determined that
Hartcourt will distribute to its shareholders all of the capital stock of Enova
held directly or indirectly by Hartcourt, subject to the terms and conditions
set forth herein;
WHEREAS, the Enova Distribution is intended to qualify as a tax-free
spin-off under Section 355 of the Code;
WHEREAS, it is appropriate and desirable to set forth certain
agreements that will govern certain matters relating to the Enova Distribution
and the relationship of Hartcourt and Enova following the Enova Distribution;
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. Definitions
For the purpose of this Agreement the following terms shall have the
following meanings:
1.1 "Agent" means the distribution agent to be appointed by Hartcourt to
distribute the shares of Enova stock held by Hartcourt pursuant to the
Enova Distribution.
1.2 "Agreement" means this Distribution Agreement, including all of the
Schedules hereto.
1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.4 "Commission" means the Securities and Exchange Commission.
<PAGE>
1.5 "Consents" means any consents, waivers or approvals from, or
notification requirements to, any third parties.
1.6 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations promulgated thereunder.
1.7 "Enova" means Enova Holdings Inc., a Nevada corporation.
1.8 "Enova Common Stock" means the Common Stock, par value $.001 per
share, of Enova.
1.9 "Enova Class A Warrant" means the Class A Warrant that grants the
holder the right to acquire one share of Enova Common Stock at a
purchase price of $4.00 per share.
1.10 "Enova Preferred Stock" means the Preferred Stock, Series D, par value
$.001 per share, of Enova.
1.11 "Enova Stock" means collectively the Enova Common Stock and the Enova
Preferred Stock.
1.12 "Enova Distribution" means the distribution by Hartcourt on a pro rata
basis to holders of Hartcourt Stock of all of the outstanding shares
of Enova Stock owned by Hartcourt on the Enova Distribution Date as
set forth in paragraph 2 of this Agreement.
1.13 "Enova Distribution Date" means the date determined pursuant to
paragraph 2.3 of this Agreement on which the Enova Distribution
occurs.
1.14 "Enova Form 10-SB" means the Registration Statement on Form 10-SB to
be filed by Enova with the Commission in connection with the Enova
Distribution.
1.15 "Enova Information Statement" means the Information Statement
constituting a part of the Enova Form 10, which will be mailed to
Hartcourt shareholders in connection with the Enova Distribution.
1.16 "Enova Record Date" means the time at which the transfer agents for
the Hartcourt Stock close the transfer records for Hartcourt Stock on
the date to be determined by the Hartcourt Board of Directors as the
record date for determining shareholders of Hartcourt entitled to
receive the special dividend of shares of Enova Stock in the Enova
Distribution.
<PAGE>
1.17 "Enova Ancillary Agreement" means any written agreement between
Hartcourt and Enova executed in furtherance of the transactions
contemplated herein.
1.18 "Hartcourt" means The Hartcourt Companies Inc., a Utah corporation.
1.19 "Hartcourt Common Stock" means the Common Stock, $.01 par value per
share, of Hartcourt.
1.20 "Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
2.0 The Distribution
2.1 The Distribution. Subject to paragraph 2.3 hereof, on or prior to the
Enova Distribution Date, Hartcourt will deliver to the Agent for the
benefit of holders of record of Hartcourt Stock on the Enova Record
Date, stock certificates representing all of the outstanding shares of
Enova Stock then beneficially owned by Hartcourt, and shall cause the
transfer agent for the shares of Hartcourt Stock to instruct the Agent
on the Enova Distribution Date to distribute the appropriate number of
such shares of Enova Stock to each such holder of Hartcourt Stock or
designated transferee or transferees of such holder
Subject to paragraph 2.4, each holder of Hartcourt Stock on the Enova
Record Date (or such holder's designated transferee or transferees)
will be entitled to receive in the Enova Distribution a number of
shares of Enova Stock equal to the number of shares of Hartcourt Stock
held by such holder on the Enova Record date divided by four (4).
Each of Enova and Hartcourt, as the case may be, will provide to the
Agent all share certificates and any information required in order to
complete the Enova Distribution on the terms contemplated hereby.
2.2. Actions Prior to The Enova Distribution. Hartcourt and Enova shall
prepare and mail, prior to the Enova Distribution Date, to the holders
of Hartcourt Common Stock, the Enova Information Statement, which
shall set forth appropriate disclosure concerning Enova, the Enova
Distribution and such other matters as Hartcourt and Enova may
determine. Within a reasonable period of time following the Enova
Distribution Date Hartcourt and Enova shall prepare, and Enova shall
file with the Commission, the Enova Form 10-SB, which shall include or
incorporate by reference the Enova Information Statement. Enova shall
use its reasonable best efforts to cause the Enova Form 10-SB to be
declared effective under the Exchange Act as soon as practicable
following the filing thereof. In this regard:
<PAGE>
(a) Hartcourt and Enova shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of
the United States (and any comparable laws under any foreign
jurisdiction) in connection with the Enova Distribution.
(b) Enova shall prepare and file, and shall use its reasonable best
efforts to have approved, an application for the listing of the
Enova Common stock to be distributed in the Enova Distribution on
a mutually agreeable stock exchange or on the Nasdaq Electronic
Bulletin Board system.
2.3. Conditions to The Enova Distribution. The Hartcourt Board shall have
the sole discretion to determine the Enova Record Date and the Enova
Distribution Date, and all appropriate procedures in connection with
the Enova Distribution, provided that the Enova Distribution shall not
occur prior to such time as each of the following conditions shall
have been satisfied or shall have been waived by the Hartcourt Board
in its sole discretion:
(a) A private letter ruling from the Internal Revenue Service or
written opinion from qualified tax counsel shall have been
obtained, and shall continue in effect, to the effect that, among
other things, the Enova Distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of
the Code, and such ruling or opinion shall be in form and
substance satisfactory to Hartcourt in its sole discretion;
(b) Any material Governmental approvals and consents necessary to
consummate the Enova Distribution shall have been obtained and he
in full force and effect;
(c) No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Enova Distribution shall be in
effect and no other event shall have occurred or failed to occur
that prevents the consummation of the Enova Distribution;
(d) The Hartcourt Board shall have formally approved the
Distribution; provided that the satisfaction of such conditions
shall not create any obligation on the part of Hartcourt, Enova
or any other person to effect or to seek to effect the Enova
Distribution or in any way limit Hartcourt's right to terminate
this Agreement as set forth in paragraph 7.1 or alter the
consequences of any such termination from those specified in
paragraph 7.2.
<PAGE>
2.4. Fractional Shares. No certificates representing fractional shares of
Enova Common Stock will be distributed to holders of Hartcourt Common
Stock in the Enova Distribution. Holders that receive certificates in
the Enova Distribution and holders that would otherwise receive less
than one whole share of Enova Common Stock in the Enova Distribution
will receive one whole share in lieu of such fractional shares as
contemplated hereby.
3. Certain Agreements Relating to The Enova Distribution
3.1. Enova Ancillary Agreements. Effective as of the date hereof, each of
Hartcourt and Enova are executing and delivering each of the Enova
Ancillary Agreements.
3.2. The Enova Board. Enova and Hartcourt shall take all actions which may
be required to elect or otherwise appoint as directors of Enova, on or
prior to the Enova Distribution Date, the persons so named shall also
be directors in the Enova Form 10-SB and shall constitute the Board of
Directors of Enova on the Enova Distribution Date.
3.3. Enova Charter, Bylaws And Warrants. Prior to the Enova Distribution
Date, (a) Hartcourt shall cause Articles of Amendment and Restatement
of Enova, substantially in the form filed with the Enova Form 10-SB,
to be filed for record with the Nevada Secretary of State and to be in
effect on the Enova Distribution Date, and (b) the Board of Directors
of Enova shall amend the Bylaws of Enova so that the Enova Bylaws are
substantially in the form filed with the Enova Form 10-SB. Prior to
the Enova Record Date, the Board of Directors of Enova shall declare a
dividend of the Class A Warrants so that each share of Enova Common
Stock issued and outstanding on the Enova Distribution Date shall
initially have one Class A Warrant attached thereto.
4. Mutual Releases; Indemnification
4.1. Release of Pre-Closing Claims.
(a) Release by Enova. It is the intent of each of Hartcourt and Enova by
virtue of the provisions of this paragraph 4.1 to provide for a full
and complete release and discharge of all Liabilities existing or
arising from all acts and events occurring or failing to occur or
alleged to have occurred or to have failed to occur and all conditions
existing or alleged to have existed on or before the Enova
Distribution Date, between or among Enova, on the one hand, and
Hartcourt, on the other hand (including any contractual agreements or
<PAGE>
arrangements existing or alleged to exist between or among any such
members on or before the Enova Distribution Date as follows: Enova
does hereby, for itself and successors and assigns, and all Persons
who at any time prior to the Enova Distribution Date have been
shareholders, directors, officers, agents or employees of Enova (in
each case, in their respective capacities as such), remise, release
and forever discharge Hartcourt, its respective Affiliates, successors
and assigns, and all Persons who at any time prior to the Enova
Distribution Date have been shareholders, directors, officers, agents
or employees of Hartcourt (in each case, in their respective
capacities as such), and their respective heirs, executors,
administrators, successors and assigns, from any and all Liabilities
whatsoever, whether at law or in equity (including any right of
contribution), whether arising under any contract or agreement, by
operation of law or otherwise, existing or arising from any acts or
events occurring or failing to occur or alleged to have occurred or to
have failed to occur or any conditions existing or alleged to have
existed on or before the Enova Distribution Date, including in
connection with the actions or decisions taken or omitted to be taken
in connection with the Enova Distribution
(b) Release by Hartcourt. Effective as of the Enova Distribution Date,
Hartcourt does hereby, for itself and its successors and assigns, and
all Persons who at any time prior to the Enova Distribution Date have
been shareholders, directors, officers, agents or employees of
Hartcourt (in each case, in their respective capacities as such),
remiss, release and forever discharge Enova, its successors and
assigns, and all Persons who at any time prior to the Enova
Distribution Date have been shareholders, directors, officers, agents
or employees of Enova (in each case, in their respective capacities as
such~, and their respective heirs, executors, administrators,
successors and assigns, from any and all Liabilities whatsoever,
whether at law or in equity (including any right of contribution),
whether arising under any contract or agreement, by operation of law
or otherwise, existing or arising from any acts or events occurring or
failing to occur or alleged to have occurred or to have failed to
occur or any conditions existing or alleged to have existed on or
before the Enova Distribution Date.
4.2. Indemnification by Enova. Enova shall indemnify, defend and hold
harmless Hartcourt, and each of its directors, officers and employees,
and each of the heirs, executors, successors and assigns of any of the
foregoing collectively, the "Hartcourt Indemnities"), from and against
any and all Liabilities of the Hartcourt Indemnities relating to,
<PAGE>
arising out of or resulting from any of the following items (without
duplication), in each case whether arising before, on or after the
Enova Distribution Date:
(a) The failure of Enova or any other Person to pay, perform or
otherwise promptly discharge any Liabilities of any member of
Enova in accordance with their respective terms, whether prior to
or after the Enova Distribution Date or the date hereof
(including any Liabilities assumed or retained by Enova);
4.3. Indemnification by Hartcourt. Hartcourt shall indemnify, defend and
hold harmless Enova, each of its directors, officers and employees,
and each of the heirs, executors, successors and assigns of any of the
foregoing (collectively, the "Enova Indemnities"), from and against
any and all Liabilities of the Enova Indemnities relating to, arising
out of or resulting from any of the following items (without
duplication), in each case whether arising before, on or after the
Enova Distribution Date:
(a) The failure of Hartcourt or any other Person to pay, perform or
otherwise promptly discharge any Liabilities of Hartcourt whether
prior to or after the Enova Distribution Date or the date hereof
(including any Liabilities assumed or retained by Hartcourt);
4.4. Survival of Indemnities. The rights and obligations of each of
Hartcourt and Enova and their respective Indemnities under this
paragraph 4 shall survive the sale or other transfer by any party of
any Assets or businesses or the assignment by it of any Liabilities.
5. Interim Operations And Certain Other Matters
5.1. Certain Tax Matters. Unless otherwise agreed to in writing in any
Ancillary Agreement, Hartcourt and Enova shall each be responsible for
any taxes incurred, accrued or owed through the Enova Distribution
Date. Following the Enova Distribution Date, Hartcourt and Enova, as
separate entities, shall be responsible for their respective tax
obligations.
5.2. Agreement For Exchange of Information; Archives. Hartcourt and Enova
each agrees that (a) Enova shall maintain in effect at its own cost
and expense adequate systems and controls to the extent necessary to
enable Hartcourt to satisfy its respective reporting, accounting,
audit and other obligations, and (b) Enova shall provide, or cause to
be provided, to Hartcourt in such form as Hartcourt shall request, at
no charge to Hartcourt, all financial and other data and information
as Hartcourt determines necessary or advisable in order to prepare
Hartcourt financial statements and reports or filings with any
Governmental Authority.
<PAGE>
5.3. Insurance Matters. All rights of Enova under Enova Policies as of the
Enova Distribution Date shall survive the Enova Distribution Date in
accordance with their respective terms as of such date.
Enova does hereby agree that Hartcourt shall not have any Liability
whatsoever as a result of the insurance policies and practices of Hartcourt
and its Affiliates as in effect at any time prior to the Enova Distribution
Date, including as a result of the level or scope of any such insurance,
the creditworthiness of any insurance carrier, the terms and conditions of
any policy, the adequacy or timeliness of any notice to any insurance
carrier with respect to any claim or potential claim or otherwise. In no
event shall Hartcourt have liability or obligation whatsoever to Enova in
the event that any Enova Insurance Policy or other contract or policy of
insurance shall be terminated or otherwise cease to be in effect for any
reason, shall be unavailable or inadequate to cover any Liability of Enova
for any reason whatsoever or shall not be renewed or extended beyond the
current expiration date.
6. Further Assurances And Additional Covenants
6.1. Further Assurances. In addition to the actions specifically provided
for elsewhere in this Agreement, each of the parties hereto shall use
its reasonable best efforts, prior to, on and after the Enova
Distribution Date, to take, or cause to be taken, all actions, and to
do, or cause to be done, all things, reasonably necessary, proper or
advisable under applicable laws, regulations and agreements to
consummate and make effective the transactions contemplated by this
Agreement and the Enova Ancillary Agreements.
Without limiting the foregoing, prior to, on and after the Enova
Distribution Date, each party hereto shall cooperate with the other
parties, and without any further consideration, but at the expense of
the requesting party, to execute and deliver, or use its reasonable
best efforts to cause to be executed and delivered, all instruments,
including instruments of conveyance, assignment and transfer, and to
make all filings with, and to obtain all consents, approvals or
authorizations of, any Governmental Authority or any other Person
under any permit, license, agreement, indenture or other instrument
(including any Consents or Governmental Approvals), and to take all
such other actions as such party may reasonably be requested to take
by any other party hereto from time to time, consistent with the terms
of this Agreement and the Enova Ancillary Agreements, in order to
effectuate the provisions and purposes of this Agreement and the Enova
Ancillary Agreements and the other transactions contemplated hereby
and thereby. Without limiting the foregoing, each party will, at the
<PAGE>
reasonable request, cost and expense of any other party, take such
other actions as may be reasonably necessary to vest in such other
party good and marketable title, free and clear of any Security
Interest, if and to the extent it is practicable to do so.
Hartcourt and Enova, at the request of the other, shall use its
reasonable best efforts to obtain, or to cause to be obtained, any
consent, substitution, approval or amendment required to novate
(including with respect to any federal government contract) or assign
all obligations under agreements, leases, licenses and other
obligations or Liabilities of any nature whatsoever that constitute
Liabilities of Enova or Liabilities that relate to Enova, or to obtain
in writing the unconditional release of all parties to such
arrangements, so that, in any such case, Enova will be solely
responsible for such Liabilities; provided, however, that neither
Hartcourt nor Enova shall be obligated to pay any consideration
therefor to any third party from whom such consents, approvals,
substitutions, amendments and releases are requested.
If Hartcourt or Enova is unable to obtain, or to cause to be obtained,
any such required consent, approval, release, substitution or
amendment, Hartcourt shall continue to be bound by such agreements,
leases, licenses and other obligations and, unless not permitted by
law or the terms thereof, Enova shall, as agent or subcontractor for
Hartcourt, pay, perform and discharge fully all the obligations or
other Liabilities of Hartcourt thereunder from and after the date
hereof. Enova shall indemnify each Hartcourt Indemnities, and hold
each of them harmless against any Liabilities arising in connection
therewith.
The parties hereto agree to take any reasonable actions necessary in
order for the Enova Distribution to qualify as a tax-free distribution
pursuant to Section 355 of the code.
6.2. Qualification as Tax-free Distribution. After the Enova Distribution
date, Hartcourt or Enova shall not take any action which could
reasonably be expected to prevent the Enova Distribution from
qualifying as a tax-free distribution within the meaning of Section
355 of the Code or any other transaction contemplated by this
Agreement or any Ancillary Agreement which is intended by the parties
to be tax-free from failing so to qualify.
After the Enova Distribution Date, Enova shall not take any action or
enter into any transaction which could reasonably be expected to
materially adversely impact the reasonably expected tax consequences
to Hartcourt which are known to Enova of any transaction contemplated
by this Agreement.
<PAGE>
7. Termination
7.1. Termination. This Agreement may be terminated at any time prior to the
Enova Distribution Date by Hartcourt.
7.2. Effect of Termination. In the event of any termination of this
Agreement, no party to this Agreement (or any of its directors or
officers) shall have any Liability or further obligation to any other
party.
8. Miscellaneous
8.1. Counterparts; Entire Agreement; Corporate Power. This Agreement and
each Enova Ancillary Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other
party.
This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof, supersede all previous
agreements, negotiations, discussions, writings, understandings,
commitments and conversations with respect to such subject matter and
there are no agreements or understandings between the parties other
than those set forth or referred to herein or therein.
Hartcourt represents on behalf of itself and Enova represents on
behalf of itself as follows:
(a) each has the requisite corporate or other power and authority and
has taken all corporate or other action necessary in order to
execute, deliver and perform each of this Agreement and each
other Enova Ancillary Agreements to which it is a party and to
consummate the transactions contemplated hereby and thereby; and
(b) this Agreement and each Enova Ancillary Agreement to which it is
a party has been duly executed and delivered by it and
constitutes a valid and binding agreement of it enforceable in
accordance with the terms thereof.
Notwithstanding any provision of this Agreement or any Enova Ancillary
Agreement, Hartcourt shall not be required to take or omit to take any
act that would violate its fiduciary duties to any minority
stockholders, if any.
8.2. Governing Law. This Agreement and, unless expressly provided therein,
each Enova Ancillary Agreement, shall be governed by and construed and
interpreted in accordance with the laws of the State of California.
<PAGE>
8.3. Assign Ability. Except as set forth in any Enova Ancillary Agreement,
this Agreement and each Enova Ancillary Agreement 5hail be binding
upon and inure to the benefit of the parties hereto and thereto,
respectively, and their respective successors and assigns; provided,
however, that no party hereto or thereto may assign its respective
rights or delegate its respective obligations under this Agreement or
any Enova Ancillary Agreement without the express prior written
consent of the other parties hereto or thereto.
8.4. Third Party Beneficiaries. Except for the indemnification rights under
this Agreement of any Hartcourt Indemnities or Enova Indemnities in
their respective capacities as such, (a) the provisions of this
Agreement and each Enova Ancillary Agreement are solely for the
benefit of the parties and are not intended to confer upon any Person
except the parties any rights at remedies hereunder, and (b) there are
no third party beneficiaries of this Agreement or any Enova Ancillary
Agreement and neither this Agreement nor any Enova Ancillary Agreement
shall provide any third person with any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those
existing without reference to this Agreement or any Enova Ancillary
Agreement.
8.5. Notices. All notices or other communications under this Agreement or
any Enova Ancillary Agreement shall be in writing and shall be deemed
to be duly given when (a) delivered in person or (b) deposited in the
United States mail or private express mail, postage prepaid, addressed
as follows:
If to Hartcourt, to: The Hartcourt Companies Inc.
c/o Dr. Alan Phan
2049 Century Park East
Los Angeles, California 90067
Telephone: (310) 788-2634
Facsimile: (310) 553-1338
If to Enova, to: Enova Holdings Inc.
4695 MacArthur Court, Suite 530
Newport Beach, CA 92660
Telephone: (949) 833-2094
Facsimile: (949) 833-7854
8.6. Severability. If any provision of this Agreement or any Enova
Ancillary Agreement or the application thereof to any Person or
circumstance is determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remaining provisions hereof or
<PAGE>
thereof, or the application of such provision to Persons or
circumstances or in jurisdictions other than those as to which it has
been held invalid or unenforceable, shall remain in full force and
effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the
transactions contemplated hereby or thereby, as the case may be, is
not affected in any manner adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort
to agree upon such a suitable and equitable provision to effect the
original intent of the parties.
8.7. Force Majeure. No party shall be deemed in default of this Agreement
or any Enova Ancillary Agreement to the extent that any delay or
failure in the performance of its obligations under this Agreement or
any Enova Ancillary Agreement results from any cause beyond its
reasonable control and without its fault or negligence, such as acts
of God, acts of civil or military authority, embargoes, epidemics,
war, riots, insurrections, fires, explosions, earthquakes, floods,
unusually severe weather conditions, labor problems or unavailability
of parts, or, in the case of computer systems, any failure in
electrical or air conditioning equipment. In the event of any such
excused delay, the time for performance shall be extended for a period
equal to the time lost by reason of the delay.
8.8. Publicity. Prior to the Enova Distribution Date, each of Enova and
Hartcourt shall consult with each other prior to issuing any press
releases or otherwise making public statements with respect to the
Enova Distribution or any of the other transactions contemplated
hereby and prior to making any filings with any Governmental Authority
with respect thereto.
8.9. Expenses. Except as expressly set forth in this Agreement or in any
Enova Ancillary Agreement, whether or not the Enova Distribution is
consummated, all third party fees, costs and expenses paid or incurred
prior to the Enova Distribution Date in connection with the Enova
Distribution will be paid by Hartcourt; provided however that Enova
shall consult with Hartcourt prior to incurring any such third party
obligations.
8.10.Headings. The paragraph and paragraph headings contained in this
Agreement and in the Enova Ancillary Agreements are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or any Enova Ancillary Agreement.
8.11.Survival of Covenants. Except as expressly set forth in any Enova
Ancillary Agreement, the covenants, representations and warranties
contained in this Agreement and each Enova Ancillary Agreement, and
liability for the breach of any obligations contained herein, shall
survive the Enova Distribution and shall remain in full force and
effect following the consummation of the Enova Distribution.
<PAGE>
8.12.Waivers of Default. Waiver by any party of any default by the other
party of any provision of this Agreement or any Enova Ancillary
Agreement shall not be deemed a waiver by the waiving party of any
subsequent or other default, nor shall it prejudice the rights of the
other party.
8.13.Amendments. No provisions of this Agreement or any Enova Ancillary
Agreement shall be deemed waived, amended, supplemented or modified by
any party, unless such waiver, amendment, supplement or modification
is in writing and signed by the authorized representative of the party
against whom it is sought to enforce such waiver, amendment,
supplement or modification.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Distribution Agreement
to be executed by their duly authorized representatives.
"Hartcourt"
The Hartcourt Companies Inc.
By: /s/ Alan Phan
----------------------------------
Name: Dr. Alan Phan
Title: President
"Enova"
Enova Holdings Inc.
By: /s/ JL Lawver
----------------------------------
Name: JL Lawver
Title: President
10.4 Employment Agreement with Dr. Alan V. Phan
Employment Agreement
EMPLOYMENT AGREEMENT dated as of July 1, 1999 by and between ENOVA
HOLDINGS, INC., a Nevada corporation, PEGO SYSTEMS, INC., a California
corporation, (collectively referred to as the "Company") and Dr. Alan V. Phan
(the "Executive).
WHEREAS, the Company is in the business of environmental consulting and
the manufacturing of certain related environmental products (the "Business");
WHEREAS, the Executive is an experienced executive in the Business; and
WHEREAS, the Company and the Executive desire to establish an
employment relationship with each other.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. Employment. The Company agrees that the Company shall employ the Executive,
and the Executive accepts employment with the Company, on the terms and
conditions set forth herein.
2. Term. The term of employment (the "Employment Term") under this Agreement
shall commence as of the date hereof and continue, subject to the terms and
conditions of this Agreement, for a period of thirty-six (36) months from
such date.
3. Position. The Company shall employ the Executive for the Employment Term as
its Chairman of the Board to perform when and where necessary such duties
relating to the overall operation of the Company as may from time to time
be assigned to the Chairman by the Board of Directors. The Executive agrees
to accept such employment and to devote his best efforts in and to the
faithful performance of his duties hereunder to the exclusion of all other
employment, subject to the general direction and control of the Board of
Directors of the Company. The parties agree that Executive shall not be
required to relocate.
Elected to Board. The Company shall use its best efforts to cause the
Executive to be elected to the Board of Directors of the Company at the
next Annual Meeting of Shareholders of the Company.
4. Compensation.
a. In consideration of the services to be rendered by the Executive for
his duties pursuant to Section 3 of this Agreement, including, without
limitation, any services rendered by the Executive as a director,
officer or employee of the Company or of any of its subsidiaries,
divisions or affiliated companies, and in full payment for the due and
faithful performance of said services, the Company shall pay the
Executive and the Executive agrees to accept a salary at the rate of
$120,000, per year (the "Base Compensation"). In case the executive
does not take compensation in cash, the Company will issue restricted
common shares for compensation earned, calculated at the closing price
on January 1, discounted by 50%, for the year compensation is earned.
<PAGE>
b. Payments to the Executive of his Base Compensation hereunder shall be
made periodically on the dates established by the Company for payment
of other executive employees, but not less frequently than once a
month. All payments under this agreement shall be subject to all
deductions and withholdings as required by law.
c. The Executive shall be entitled to reimbursement for reasonable
expenses incurred by him in connection with his employment hereunder,
upon the presentation of proper vouchers therefore in accordance with
the usual procedures of the Company. Such expenses shall not exceed
$1,000 per month without the authorization of the Board.
d. The Executive shall be entitled to participate in and receive medical
and dental benefits for the Executive and his dependent at the
Company's expense, in accordance with the provisions of the Company's
benefits plan or program currently in effect. The Company will provide
the Executive (i) a life insurance policy in the amount of $1,000,000;
(ii) three weeks vacation benefit annually; (iii) a long-term and
short-term disability coverage in accordance with the provisions of
any of the Company's employee benefit plans or programs now or
hereafter in effect, to the same extent that employees of the Company
in positions similar to that of the Executive have the right to
participate in such plans and programs.
e. The Executive shall be entitled during the Employment Term to an
automobile allowance equal to $650 per month.
The Executive shall be entitled during the Employment Term to receive
membership dues for business and professional associations. Such
expenses shall not exceed $2,500 annually without the authorization of
the Board.
5. Termination. The employment of the Executive may be terminated by the
Company upon the occurrence of any of the following events:
a. Subject to Section 7(a) below, the Company may terminate such
employment at any time without good cause upon written notice to the
Executive;
b. Such employment shall terminate automatically on the death of the
Executive;
c. The Company may terminate Executive's employment at any time for any
reason or no reason upon giving a written notice to the Executive. In
such event, the Company shall pay to Executive an amount equal to six
months Base Compensation. For purposes of this Agreement "good cause"
shall include the following circumstances:
<PAGE>
i. If there is a repeated and demonstrable failure on the part of
the Executive to perform material duties of Executive's
management position in a competent manner and where the Executive
fails to substantially remedy the failure within a reasonable
period of time after receiving written notice of such failure
from the Company (three written notices shall be sufficient to
establish "repeated and demonstrable" failure);
ii. If the Executive is convicted of a criminal offense;
iii. If the Executive or any member of his or his spouse's family
makes any personal profit at the expense of the Company without
prior written consent of the Company.
iv. If the Executive fails to fully observe the fiduciary duties
appropriate to his position; and
v. If the Executive disobeys reasonable instructions given in the
course of employment by the Board of Directors of the Company
that are not inconsistent with the Executive's management
position and not remedied by the Executive within a reasonable
period of time, after receiving written notice of such
disobedience. A "reasonable period of time" shall be determined
in good faith by the Board (with the Executive not voting, if
Executive is then a member of the Board), but in no event shall
such period be more than thirty (30) days.
d. The Executive may terminate his employment hereunder upon thirty days
written notice to the Company.
6. Payments on Termination; Change of Control. Upon termination of the
Executive's employment for any reason, the Company shall pay to the
Executive, or if the termination is as a result of the death of the
Executive, to his personal representative, any accrued but previously
unpaid Basic Compensation prorated to the effective date of such
termination.
In the event the Company terminates the Executive's employment without good
cause, the Company shall make severance payments equal to and in the same
manner as the Executive's Basic Compensation in effect at the time of such
termination for the remaining term of this Employment Agreement. To the
extent Executive receives compensation from any form of employment after
such termination for any part of the period during which termination
payments are being made to the Executive by the Company, Executive shall
immediately so inform the Company, and the termination payment payable
pursuant to this subparagraph will be reduced at the rate of $0.75 for each
dollar of compensation so received by the Executive.
In the event the Company terminates the Executive's employment with good
cause in the first year, the severance amount would be equal to Executive's
base salary for 12 months; if Executive's employment is terminated in the
second year, the severance amount will be equal to his base salary for 18
months; and if Executive's employment has been in effect for longer than
two years, the severance amount will equal 24 months of base pay at the
time of termination. In addition, the Company shall provide and Executive
shall receive (i) his base salary accrued through the date of termination;
(ii) all accrued vacation pay and accrued bonuses, if any, to date of
termination; (iii) any bonus which would have been paid but for the
termination, prorated through the date of termination, based upon Company's
performance and in accordance with the terms, provisions and conditions of
<PAGE>
any Company incentive bonus plan in which Executive may be designated a
participant; (iv) for a period of 12 months after the date of termination,
at the Company's expense, coverage to Executive under the Company's life
insurance and disability insurance policies; coverage to Executive and his
dependents medical and dental insurance under the Company's health plan; if
any of the Company's medical and dental, life insurance, or disability
insurance plans are not continued or if Executive is not eligible for
coverage hereunder because of the termination of his employment, the
Company shall pay the amount required for Executive to obtain equivalent
coverage; (v) reasonable outplacement services; (vi) office, secretarial
support, and access to equipment and supplies for a period of six (6)
months after termination. Also upon termination of employment by the
Company without good cause, all equity options, restricted equity grants
and similar rights held by the Executive with respect to securities of the
Company shall automatically become vested and shall become immediately
exercisable.
7. Covenant Not to Compete.
a. The Executive agrees that during the Employment Term, he will not,
directly or indirectly, have any ownership interest of five percent or
more in a corporation, firm, trust, association or other entity that
is in competition with the Company.
The Executive shall not, during the Employment Term and at any time
within one year after the termination his employment with Company by
the Executive or by the Company with cause, in any manner, engage or
become interested in (as owner, stockholder, partner, director,
officer, employee, consultant or otherwise) any business which is
competitive with the business conducted by the Company or any of its
affiliates at the time of the termination of his employment hereunder.
This Section 8 shall not apply if the Company terminates Executive's
employment without cause. The Executive's ownership of less than five
percent of the stock of a publicly owned company, which competes, with
the Company shall not be considered a violation of the provisions of
this Section 8(b).
b. Without limiting the rights of the Company hereunder, the parties
agree that in the event the Executive violates (in other than a
willful violation) any of the provisions of the Section 8, the Company
may give the Executive 30 days notice of such violation and
opportunity to cure it; in the event the violation is not cured within
such 30-day period, such violation will be grounds for termination of
this Agreement and the Executive's employment hereunder for cause, in
addition to any other remedies available to the Company. It is
expressly understood that the limitations contained in this Section 8
shall be in addition to, and not in substitution of, any provisions of
a separate non-competition agreement entered into between the
Executive and the Company. To the extent any provision herein is not
consistent with such non-competition agreement, the terms and
provisions of the non-competition agreement shall apply.
8. Inventions.
a. For purposes of the Agreement, "Invention" shall mean any and all
machines, apparatuses, compositions of matter, methods, know-how,
processes, designs, configurations, uses, ideas, concepts, or writings
of any kind, discovered, conceived, developed, made, or produced, or
any improvements to them, and shall include, but not be limited to the
definition of an invention contained in the United Sates Patent Laws.
<PAGE>
b. The Executive understands and agrees that all Inventions, or
trademarks or copyrights relating thereto, which reasonably relate to
the business of the Company and which are conceived or made by him
during his employment by the Company either alone or with others, are
the sole and exclusive property of the Company. The Executive
understands and agrees that all Inventions, trademarks, or copyrights
described above in this Section 9(a) are the sole and exclusive
property of the Company whether or not they are conceived or made
during regular working hours.
c. The Executive agrees that he will disclose promptly and in writing to
the Company all Inventions within the scope of this Agreement, whether
he considers them to be patentable or not, which he, either alone or
with others, conceives or makes (whether or not during regular working
hours). The Executive hereby assigns and agrees to assign all his
right, title, and interest in and to those Inventions that relate to
the business of the Company and agrees not to disclose any of these to
others without the written consent of the Company, except as required
by the conditions of his employment.
d. The Executive agrees that he will at any time during his employment
hereunder, or after this Employment Agreement terminates, on the
request of the Company, (i) execute specific assignments in favor of
the Company, or its nominee, of any of the Inventions covered by this
Agreement, (ii) execute all papers and perform all lawful acts the
Company considers necessary or advisable for the preparation,
application procurement, maintenance, enforcement, and defense of
patent applications and patents of the United States and foreign
countries for these Inventions, for the perfection or enforcement of
any trademarks or copyrights relating to such Inventions, and for the
transfer of any interest the Executive may have, and (iii) execute any
and all papers and lawful documents required or necessary to vest sole
right, title, and interest in the Company or its nominee of the above
Inventions, patent applications, patents, or any trademarks or
copyrights relating thereto. The Executive will, at the Company's
expense, execute all documents (including those referred to above) and
do all other acts necessary to assist in the preservation of all the
Company's interests arising under this Agreement.
9. Secrecy.
a. For purposes of this Agreement, "proprietary information" shall mean
any information relating to the business of the Company that has not
previously been publicly released by duly authorized representatives
of the Company and shall include (but shall not be limited to) Company
information encompassed in all computer code, software, notes, written
concepts, drawings, designs, plans, proposals, marketing and sales
plans, financial information, costs, pricing information, customer
information, and all methods, concepts, or ideas in or reasonably
related to the business of the Company.
b. The Executive agrees to regard and preserve as confidential all
proprietary information pertaining to the Company's business that has
been or may be obtained by the Executive prior to or during his
employment by the Company (whether before, during or after the
Employment Term hereof), whether he has such information in his memory
or in writing or other physical form. The Executive will not use for
his benefit or purposes, nor disclose to others, either during the
Employment Term or thereafter, except as required by the conditions of
his employment hereunder, any proprietary information connected with
the business or developments of the Company.
<PAGE>
c. The Executive agrees not to remove from the premises of the Company,
except as an employee of the Company in pursuit of the business of the
Company or any of its subsidiaries, or except as specifically
permitted in writing by the Company, any document or object containing
or reflecting any proprietary information of the Company. The
Executive recognizes that all such documents and objects, whether
developed by him or by someone else, are the exclusive property of the
Company. A breach of this provision shall be considered good cause for
termination. Upon termination of his employment hereunder, for any
reason, the Executive shall forthwith deliver up to the Company all
proprietary information, including, without limitation, all lists of
customers, correspondence, accounts, records and any other documents
or property made or held by him or under his control in relation to
the business or affairs of the Company or its affiliates, and no copy
of any such proprietary information shall be retained by him.
10. Injunctive Relief. The Executive acknowledges that in the event of a breach
or threatened breach by the Executive of any of the provisions of Sections
8, 9 or 10, monetary damages will not adequately compensate the Company and
the Company shall be entitled to an injunction restraining the Executive
from the commission of such breach, in addition to any other remedies or
rights the Company may have.
11. Notices. Any notice required or permitted to be given hereunder shall be in
writing and shall be delivered by prepaid registered or certified mail,
return receipt requested. Such duly mailed notice shall be deemed given
when dispatched. The address for mailed notices shall be:
a. For the Executive:
Dr. Alan V. Phan
1904 Norwalk Blvd.
Artesia, CA 90701
b. For the Company:
Enova Holdings, Inc. and/or Pego Systems, Inc.
1196 East Willow Street
Long Beach, CA 90806
Telephone: (562) 426-1321
Facsimile: (562) 490-0633
with a copy to: The Hartcourt Companies, Inc.
1904 Norwalk Blvd.
Artesia, CA 90701
Attn: Mr. Alan V. Phan
Facsimile: (562) 403-1130
Any party may notify the other parties in writing of a change of
address by serving notice in the manner provided in this Section.
<PAGE>
12. No Conflicting Agreements. Except as set forth herein, the Executive
represents and warrants that neither the execution and delivery of this
Agreement nor the performance of his duties hereunder violates or will
violate the provisions of any agreement to which he is a party or by which
he is bound.
13. Governing Law; Entire Agreement. This Agreement shall be construed
according to the laws of the State of California, and constitutes the
entire understanding between the parties, superseding and replacing all
prior understandings and agreements relating to employment between the
Company and the Executive and the parties shall cause such other
agreements, if any, to be terminated. This Agreement cannot be changed or
terminated except by an instrument in writing signed by each of the parties
hereto.
14. Amendments. If any provision of this Agreement or the application thereof
shall for any reason be invalid or unenforceable, such provision shall be
limited only to the extent necessary in the circumstances to make such
provision valid and enforceable and its partial or total invalidity or
unenforceability shall in any event not affect the remaining provisions of
this Agreement which shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed and
delivered this Agreement as of the date first above written.
ENOVA HOLDINGS, INC. / PEGO SYSTEMS, INC.
By________________________________
President & CEO
EXECUTIVE:
By________________________________
Dr. Alan V. Phan
10.5 Employment Agreement with Mr. Manu Ohri
Employment Agreement
EMPLOYMENT AGREEMENT dated as of July 1, 1999 by and between ENOVA
HOLDINGS, INC., a Nevada corporation, PEGO SYSTEMS, INC., a California
corporation, (collectively referred to as the "Company") and Mr. Manu Ohri (the
"Executive).
WHEREAS, the Company is in the business of environmental consulting and
the manufacturing of certain related environmental products (the "Business");
WHEREAS, the Executive is an experienced executive in the Business; and
WHEREAS, the Company and the Executive desire to establish an
employment relationship with each other.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. Employment. The Company agrees that the Company shall employ the Executive,
and the Executive accepts employment with the Company, on the terms and
conditions set forth herein.
2. Term. The term of employment (the "Employment Term") under this Agreement
shall commence as of the date hereof and continue, subject to the terms and
conditions of this Agreement, for a period of thirty-six (36) months from
such date.
3. Position. The Company shall employ the Executive for the Employment Term as
its President & Chief Executive Officer to perform when and where necessary
such duties relating to the overall operation of the Company as may from
time to time be assigned by the Chairman or by the Board of Directors. The
Executive agrees to accept such employment and to devote his best efforts
in and to the faithful performance of his duties hereunder to the exclusion
of all other employment, subject to the general direction and control of
the Board of Directors of the Company. The parties agree that Executive
shall not be required to relocate.
4. Elected to Board. The Company shall use its best efforts to cause the
Executive to be elected to the Board of Directors of the Company at the
next Annual Meeting of Shareholders of the Company.
5. Compensation.
a. In consideration of the services to be rendered by the Executive for
his duties pursuant to Section 3 of this Agreement, including, without
limitation, any services rendered by the Executive as a director,
officer or employee of the Company or of any of its subsidiaries,
divisions or affiliated companies, and in full payment for the due and
faithful performance of said services, the Company shall pay the
Executive and the Executive agrees to accept a salary at the rate of
$140,000 for the first year, $168,000 for the second year and $201,600
in the third year (the "Base Compensation").
<PAGE>
b. Payments to the Executive of his Base Compensation hereunder shall be
made periodically on the dates established by the Company for payment
of other executive employees, but not less frequently than once a
month. All payments under this agreement shall be subject to all
deductions and withholdings as required by law.
c. The Executive shall be entitled to reimbursement for reasonable
expenses incurred by him in connection with his employment hereunder,
upon the presentation of proper vouchers therefore in accordance with
the usual procedures of the Company. Such expenses shall not exceed
$1,000 per month without the authorization of the Board.
d. The Executive shall be entitled to participate in and receive medical
and dental benefits for the Executive and his dependent at the
Company's expense, in accordance with the provisions of the Company's
benefits plan or program currently in effect. The Company will provide
the Executive (i) a life insurance policy in the amount of $1,000,000;
(ii) three weeks vacation benefit annually; (iii) a long-term and
short-term disability coverage in accordance with the provisions of
any of the Company's employee benefit plans or programs now or
hereafter in effect, to the same extent that employees of the Company
in positions similar to that of the Executive have the right to
participate in such plans and programs.
e. The Executive shall be entitled during the Employment Term to an
automobile allowance equal to $650 per month.
f. The Executive shall be entitled during the Employment Term to receive
membership dues for business and professional associations. Such
expenses shall not exceed $2,500 annually without the authorization of
the Board.
6. Termination. The employment of the Executive may be terminated by the
Company upon the occurrence of any of the following events:
a. Subject to Section 7(a) below, the Company may terminate such
employment at any time without good cause upon written notice to the
Executive;
b. Such employment shall terminate automatically on the death of the
Executive;
c. The Company may terminate Executive's employment at any time for any
reason or no reason upon giving a written notice to the Executive. In
such event, the Company shall pay to Executive an amount equal to six
months Base Compensation. For purposes of this Agreement "good cause"
shall include the following circumstances:
i. If there is a repeated and demonstrable failure on the part of
the Executive to perform material duties of Executive's
management position in a competent manner and where the Executive
fails to substantially remedy the failure within a reasonable
period of time after receiving written notice of such failure
from the Company (three written notices shall be sufficient to
establish "repeated and demonstrable" failure);
ii. If the Executive is convicted of a criminal offense;
<PAGE>
iii. If the Executive or any member of his or his spouse's family
makes any personal profit at the expense of the Company without
prior written consent of the Company.
iv. If the Executive fails to fully observe the fiduciary duties
appropriate to his position; and
v. If the Executive disobeys reasonable instructions given in the
course of employment by the Board of Directors of the Company
that are not inconsistent with the Executive's management
position and not remedied by the Executive within a reasonable
period of time, after receiving written notice of such
disobedience. A "reasonable period of time" shall be determined
in good faith by the Board (with the Executive not voting, if
Executive is then a member of the Board), but in no event shall
such period be more than thirty (30) days.
d. The Executive may terminate his employment hereunder upon thirty days
written notice to the Company.
7. Payments on Termination; Change of Control. Upon termination of the
Executive's employment for any reason, the Company shall pay to the
Executive, or if the termination is as a result of the death of the
Executive, to his personal representative, any accrued but previously
unpaid Basic Compensation prorated to the effective date of such
termination.
In the event the Company terminates the Executive's employment without good
cause, the Company shall make severance payments equal to and in the same
manner as the Executive's Basic Compensation in effect at the time of such
termination for the remaining term of this Employment Agreement. To the
extent Executive receives compensation from any form of employment after
such termination for any part of the period during which termination
payments are being made to the Executive by the Company, Executive shall
immediately so inform the Company, and the termination payment payable
pursuant to this subparagraph will be reduced at the rate of $0.75 for each
dollar of compensation so received by the Executive.
In the event the Company terminates the Executive's employment with good
cause in the first year, the severance amount would be equal to Executive's
base salary for 12 months; if Executive's employment is terminated in the
second year, the severance amount will be equal to his base salary for 18
months; and if Executive's employment has been in effect for longer than
two years, the severance amount will equal 24 months of base pay at the
time of termination. In addition, the Company shall provide and Executive
shall receive (i) his base salary accrued through the date of termination;
(ii) all accrued vacation pay and accrued bonuses, if any, to date of
termination; (iii) any bonus which would have been paid but for the
termination, prorated through the date of termination, based upon Company's
performance and in accordance with the terms, provisions and conditions of
any Company incentive bonus plan in which Executive may be designated a
<PAGE>
participant; (iv) for a period of 12 months after the date of termination,
at the Company's expense, coverage to Executive under the Company's life
insurance and disability insurance policies; coverage to Executive and his
dependents medical and dental insurance under the Company's health plan; if
any of the Company's medical and dental, life insurance, or disability
insurance plans are not continued or if Executive is not eligible for
coverage hereunder because of the termination of his employment, the
Company shall pay the amount required for Executive to obtain equivalent
coverage; (v) reasonable outplacement services; (vi) office, secretarial
support, and access to equipment and supplies for a period of six (6)
months after termination. Also upon termination of employment by the
Company without good cause, all equity options, restricted equity grants
and similar rights held by the Executive with respect to securities of the
Company shall automatically become vested and shall become immediately
exercisable.
8. Covenant Not to Compete.
a. The Executive agrees that during the Employment Term, he will not,
directly or indirectly, have any ownership interest of five percent or
more in a corporation, firm, trust, association or other entity that
is in competition with the Company.
b. The Executive shall not, during the Employment Term and at any time
within one year after the termination his employment with Company by
the Executive or by the Company with cause, in any manner, engage or
become interested in (as owner, stockholder, partner, director,
officer, employee, consultant or otherwise) any business which is
competitive with the business conducted by the Company or any of its
affiliates at the time of the termination of his employment hereunder.
This Section 8 shall not apply if the Company terminates Executive's
employment without cause. The Executive's ownership of less than five
percent of the stock of a publicly owned company, which competes, with
the Company shall not be considered a violation of the provisions of
this Section 8(b).
c. Without limiting the rights of the Company hereunder, the parties
agree that in the event the Executive violates (in other than a
willful violation) any of the provisions of the Section 8, the Company
may give the Executive 30 days notice of such violation and
opportunity to cure it; in the event the violation is not cured within
such 30-day period, such violation will be grounds for termination of
this Agreement and the Executive's employment hereunder for cause, in
addition to any other remedies available to the Company. It is
expressly understood that the limitations contained in this Section 8
shall be in addition to, and not in substitution of, any provisions of
a separate non-competition agreement entered into between the
Executive and the Company. To the extent any provision herein is not
consistent with such non-competition agreement, the terms and
provisions of the non-competition agreement shall apply.
9. Inventions.
a. For purposes of the Agreement, "Invention" shall mean any and all
machines, apparatuses, compositions of matter, methods, know-how,
processes, designs, configurations, uses, ideas, concepts, or writings
of any kind, discovered, conceived, developed, made, or produced, or
any improvements to them, and shall include, but not be limited to the
definition of an invention contained in the United States Patent Laws.
<PAGE>
b. The Executive understands and agrees that all Inventions, or
trademarks or copyrights relating thereto, which reasonably relate to
the business of the Company and which are conceived or made by him
during his employment by the Company either alone or with others, are
the sole and exclusive property of the Company. The Executive
understands and agrees that all Inventions, trademarks, or copyrights
described above in this Section 9(a) are the sole and exclusive
property of the Company whether or not they are conceived or made
during regular working hours.
c. The Executive agrees that he will disclose promptly and in writing to
the Company all Inventions within the scope of this Agreement, whether
he considers them to be patentable or not, which he, either alone or
with others, conceives or makes (whether or not during regular working
hours). The Executive hereby assigns and agrees to assign all his
right, title, and interest in and to those Inventions that relate to
the business of the Company and agrees not to disclose any of these to
others without the written consent of the Company, except as required
by the conditions of his employment.
d. The Executive agrees that he will at any time during his employment
hereunder, or after this Employment Agreement terminates, on the
request of the Company, (i) execute specific assignments in favor of
the Company, or its nominee, of any of the Inventions covered by this
Agreement, (ii) execute all papers and perform all lawful acts the
Company considers necessary or advisable for the preparation,
application procurement, maintenance, enforcement, and defense of
patent applications and patents of the United States and foreign
countries for these Inventions, for the perfection or enforcement of
any trademarks or copyrights relating to such Inventions, and for the
transfer of any interest the Executive may have, and (iii) execute any
and all papers and lawful documents required or necessary to vest sole
right, title, and interest in the Company or its nominee of the above
Inventions, patent applications, patents, or any trademarks or
copyrights relating thereto. The Executive will, at the Company's
expense, execute all documents (including those referred to above) and
do all other acts necessary to assist in the preservation of all the
Company's interests arising under this Agreement.
10. Secrecy.
a. For purposes of this Agreement, "proprietary information" shall mean
any information relating to the business of the Company that has not
previously been publicly released by duly authorized representatives
of the Company and shall include (but shall not be limited to) Company
information encompassed in all computer code, software, notes, written
concepts, drawings, designs, plans, proposals, marketing and sales
plans, financial information, costs, pricing information, customer
information, and all methods, concepts, or ideas in or reasonably
related to the business of the Company.
b. The Executive agrees to regard and preserve as confidential all
proprietary information pertaining to the Company's business that has
been or may be obtained by the Executive prior to or during his
employment by the Company (whether before, during or after the
Employment Term hereof), whether he has such information in his memory
or in writing or other physical form. The Executive will not use for
his benefit or purposes, nor disclose to others, either during the
Employment Term or thereafter, except as required by the conditions of
his employment hereunder, any proprietary information connected with
the business or developments of the Company.
<PAGE>
c. The Executive agrees not to remove from the premises of the Company,
except as an employee of the Company in pursuit of the business of the
Company or any of its subsidiaries, or except as specifically
permitted in writing by the Company, any document or object containing
or reflecting any proprietary information of the Company. The
Executive recognizes that all such documents and objects, whether
developed by him or by someone else, are the exclusive property of the
Company. A breach of this provision shall be considered good cause for
termination. Upon termination of his employment hereunder, for any
reason, the Executive shall forthwith deliver up to the Company all
proprietary information, including, without limitation, all lists of
customers, correspondence, accounts, records and any other documents
or property made or held by him or under his control in relation to
the business or affairs of the Company or its affiliates, and no copy
of any such proprietary information shall be retained by him.
11. Injunctive Relief. The Executive acknowledges that in the event of a breach
or threatened breach by the Executive of any of the provisions of Sections
8, 9 or 10, monetary damages will not adequately compensate the Company and
the Company shall be entitled to an injunction restraining the Executive
from the commission of such breach, in addition to any other remedies or
rights the Company may have.
12. Notices. Any notice required or permitted to be given hereunder shall be in
writing and shall be delivered by prepaid registered or certified mail,
return receipt requested. Such duly mailed notice shall be deemed given
when dispatched. The address for mailed notices shall be:
a. For the Executive:
Mr. Manu Ohri
1199 N. Palo Loma Place
Orange, CA 92869
(714) 538-1496
b. For the Company:
Enova Holdings, Inc. and/or Pego Systems, Inc.
1196 East Willow Street
Long Beach, CA 90806
Telephone: (562) 426-1321
Facsimile: (562) 490-0633
Any party may notify the other parties in writing of a change of
address by serving notice in the manner provided in this Section.
13. No Conflicting Agreements. Except as set forth herein, the Executive
represents and warrants that neither the execution and delivery of this
Agreement nor the performance of his duties hereunder violates or will
violate the provisions of any agreement to which he is a party or by which
he is bound.
<PAGE>
14. Governing Law; Entire Agreement. This Agreement shall be construed
according to the laws of the State of California, and constitutes the
entire understanding between the parties, superseding and replacing all
prior understandings and agreements relating to employment between the
Company and the Executive and the parties shall cause such other
agreements, if any, to be terminated. This Agreement cannot be changed or
terminated except by an instrument in writing signed by each of the parties
hereto.
15. Amendments. If any provision of this Agreement or the application thereof
shall for any reason be invalid or unenforceable, such provision shall be
limited only to the extent necessary in the circumstances to make such
provision valid and enforceable and its partial or total invalidity or
unenforceability shall in any event not affect the remaining provisions of
this Agreement which shall continue in full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed and
delivered this Agreement as of the date first above written.
ENOVA HOLDINGS, INC. / PEGO SYSTEMS, INC.
By________________________________
Chairman
EXECUTIVE:
By________________________________
Mr. Manu Ohri
<TABLE>
<CAPTION>
21 Subsidiaries of Enova
Subsidiaries Jurisdiction of Incorporation D/B/A
- ------------------------------------------- ----------------------------- ------------------
<S> <C> <C>
Pego Systems, Inc. California Pego Systems, Inc.
Electronic Components Systems, Inc. Arizona ECS, Inc.
</TABLE>
23 Consent of Independent Auditors
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
We consent to the inclusion in this General Form for Registration of
Securities of Small Business Issuers Under Section 12(B) or 12 (G) of the
Securities Exchange Act of 1934 Form 10-SB of our report dated March 17, 1999 on
our audit of the consolidated financial statements and schedules of Pego
Systems, Inc. and its subsidiary, a wholly-owned subsidiary of the Hartcourt
Companies, Inc. for the year ended December 31, 1998.
/s/ Harlan & Boettger, LLP
San Diego, California
January 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> (500)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (500)
<INCOME-TAX> (500)
<INCOME-CONTINUING> (500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (500)
<EPS-BASIC> (500)
<EPS-DILUTED> (500)
<FN>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-SB.
</FN>
</TABLE>
99 Nevada Revised Statutes Section 78.7502 and 78.751
NRS 78.7502 Discretionary and mandatory indemnification of officers,
directors, employees and agents: General provisions.
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he acted in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, the corporation shall indemnify him against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with the defense.
(Added to NRS by 1997, 694)
NRS 78.751 Authorization required for discretionary indemnification;
advancement of expenses; limitation on indemnification and advancement of
expenses.
1. Any discretionary indemnification under NRS 78.7502 unless ordered by a
court or advanced pursuant to subsection 2, may be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding so orders, by independent legal
counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the action,
suit or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
<PAGE>
2. The articles of incorporation, the bylaws or an agreement made by the
corporation may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
3. The indemnification and advancement of expenses authorized in or ordered
by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the articles of
incorporation or any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to NRS 78.7502 or for the
advancement of expenses made pursuant to subsection 2, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
