AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - SB/A
Amendment No. 1
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.
<PAGE>
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,
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.
<PAGE>
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
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 Year Ended December 31, 1999 to Year Ended December 31, 1998:
The accompanying financial statements of Enova for the year ended
December 31, 1999 included operations of Enova and Pego. The accompanying
financial statements for the year ended December 31, 1998 included operations of
Pego for the twelve months ended December 31, 1998 and five months of operations
of PPI from August 6, 1998 (date of acquisition by Pego) to December 31, 1998.
Enova's investment in ECS was deemed as zero due to consistent losses in 1999
and 1998, respectively.
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 $338,500 or 5% for the year
ended December 31, 1999 compared with 1998. This increase was primarily
attributable due to acquisition of Pacific Pneumatics, Inc. in August 1998 and
higher volume in repairs and service sales.
Cost of sales. Cost of sales decreased by approximately $194,000 or
(4%) for the year ended December 31, 1999 when compared with 1998. This decrease
resulted primarily due to increase in higher margin products sales and increased
margin in repairs and service sales. Gross margins increased by 5% in 1999 over
1998 due to the sales of higher margin products and higher margins in repairs
and service sales in 1999.
General & administrative expenses. General and administrative expenses
increased by approximately $639,000 or (65%) and as a percentage of sales
increased to approximately 23% in 1999 compared to 15% 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 $157,000 or (19%) and as a percentage of sales increased to
approximately 14% in 1999 compared to 13% in 1998. The increase was primarily
due to Enova's expanding direct sales and marketing activities.
Net loss. Enova incurred a net loss of approximately $435,000 or
(0.62%) for the year ended December 31, 1999 when compared to net loss of
approximately $1,093,000 or (16.5%) during the same period of 1998. The
reduction in loss resulted primarily due to the impairment of goodwill amounting
to $991,000 recorded in 1998 compared to $ 0 in 1999, offset by increased
general and administrative expenses and sales and marketing expenses incurred in
1999 when compared with 1998.
Liquidity and Capital Resources
At December 31, 1999, Enova had cash and cash equivalents of
approximately $63,000 and working capital deficiency of approximately $637,000.
The company believes that its existing working capital deficit, legal fees
<PAGE>
associated with settlement of litigation together with funds generated from
operations, will not be sufficient to provide for its planned operations for the
foreseeable future. The company plans to sell its investment in Hartcourt common
shares upon effectiveness of a registration statement filed by Hartcourt in
February 2000 to register such shares. Management believes that actions are
currently being taken to reduce expenses, generate cash by optimizing operations
and thus pay-off the bank loans, will provide the opportunity for Enova to
continue as a going concern.
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
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 as of March 9, 2000
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 March 9, 2000, there were 5,149,711 shares of common stock outstanding.
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Interest of
$ .01 par value
Name and Address Common Stock Percent
of Beneficial Owners 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
---------------------------------------------------- ------------------------ ------------------
Amount and
Nature of
Beneficial Interest of
$ .01 par value
Name and Address Common Stock Percent
of Beneficial Owners of Class
---------------------------------------------------- ------------------------ ------------------
Dr. Alan V. Phan (1) 1,123,752 22.0%
Chairman of the Board
1198 E. Willow Street
Long Beach, CA 908091
---------------------------------------------------- ------------------------ ------------------
</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.
<PAGE>
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
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.
<PAGE>
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.
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.
<PAGE>
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
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
<PAGE>
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
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;
<PAGE>
(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 all debts 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 December 31, 1999, there were 5,149,712 shares
issued, one vote for each share held on all matters. Cumulative voting in
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.
<PAGE>
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 December 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.
Item 3. Changes in and Disagreements with Accountants
Weinberg & Company, P.A. ("Weinberg") were appointed Enova's
independent accountants for the years ended December 31, 1999 and 1998,
respectively. The opinion of Weinberg on the Balance Sheet of Enova and its
subsidiaries at December 31, 1999 and 1998, and the statement of operations,
shareholder's equity, and cash flows for Enova and its subsidiaries for the
years ended December 31, 1999 and 1998, respectively, 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.
<PAGE>
Harlan & Boettger, LLP ("Harlan") were the independent accountants for
Pego and its subsidiary for the year ended December 31, 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 matters 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
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
<PAGE>
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 F/S
Enova Holdings, Inc. - Consolidated audited Financial Statements as of December
31, 1999 and 1998.
<PAGE>
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1999 (CONSOLIDATED)
DECEMBER 31, 1998 (COMBINED)
<PAGE>
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
CONTENTS
PAGE 19 INDEPENDENT AUDITORS' REPORT
PAGE 20 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999
PAGE 21 STATEMENTS OF OPERATIONS AND COMPRENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 1999
(CONSOLIDATED) AND DECEMBER 31, 1998 (COMBINED)
PAGE 22 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999
(CONSOLIDATED) AND DECEMBER 31, 1998 (COMBINED)
PAGE 23 - 24 STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1999 (CONSOLIDATED) AND DECEMBER
31, 1998 (COMBINED)
PAGES 25 - 35 NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31,
1999 AND 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Enova Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Enova Holdings,
Inc. and Subsidiaries as of December 31, 1999 and the related statements of
operations, changes in shareholders' equity and cash flows for the years ended
December 31, 1999 (consolidated) and December 31, 1998 (combined). 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. The financial statements of the Company's subsidiary, Pego Systems,
Inc., as of December 31, 1998 were audited by other auditors whose report dated
March 17, 1999 expressed an unqualified opinion on those financial statements.
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 consolidated financial position of Enova Holdings, Inc.
and Subsidiaries as of December 31, 1999, and the results of its operations and
its cash flows for the years ended December 31, 1999 (consolidated) and the
December 31, 1998 (combined) in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note L to the
financial statements, the Company is in violation of certain debt covenants on a
note and line of credit payable to a bank, and the bank has demanded payment in
full. In addition, the Company has continuing losses and a working capital
deficiency and accumulated deficit at December 31, 1999. These conditions raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to this matter are also described in Note L. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 8, 2000
<PAGE>
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 60,373
Accounts receivable, net 1,177,544
Inventory 830,783
Other current assets 16,494
------------
Total Current Assets 2,085,194
------------
PROPERTY AND EQUIPMENT, net 1,343,883
OTHER ASSETS
Investments 1,506,250
Intangible, net 734,930
Receivable from affiliate 65,780
------------
Total Other Assets 2,306,960
------------
TOTAL ASSETS $ 5,736,037
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,061,720
Lines of credit 250,000
Accrued expenses 520,248
Notes payable, current portion 877,156
Capital lease obligations, current portion 13,112
------------
Total Current Liabilities 2,722,236
NOTES PAYABLE 1,468,828
CAPITAL LEASE OBLIGATIONS 71,530
------------
TOTAL LIABILITIES 4,262,594
------------
SHAREHOLDERS' 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 2,332,862
Accumulated other comprehensive income 431,250
Accumulated deficit (1,295,819)
------------
Total Shareholders' Equity 1,473,443
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,736,037
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 1999 (CONSOLIDATED)
AND DECEMBER 31, 1998 (COMBINED)
1999 1998
----------------- ------------------
<S> <C> <C>
NET SALES $ 6,970,262 $ 6,631,798
COST OF SALES 4,600,448 4,794,128
----------------- ------------------
Gross profit 2,369,814 1,837,670
----------------- ------------------
OPERATING EXPENSES
Sales and marketing 1,002,110 844,693
General and administrative 1,615,523 976,435
Impairments - 991,081
----------------- ------------------
Total Operating Expenses 2,617,633 2,812,209
----------------- ------------------
LOSS FROM OPERATIONS (247,819) (974,539)
OTHER (INCOME) EXPENSES
Interest income (708) (46,758)
Interest expense 164,206 129,832
Loss on disposal of assets 40,134 -
Gain on settlement of receivable (16,358) -
----------------- ------------------
Total Other (Income) Expenses 187,274 83,074
----------------- ------------------
NET LOSS BEFORE INCOME TAXES (435,093) (1,057,613)
Income taxes - 35,800
----------------- ------------------
NET LOSS (435,093) (1,093,413)
Other comprehensive income
Unrealized gain on investments 431,250 -
----------------- ------------------
COMPREHENSIVE LOSS $ (3,843) $ (1,093,413)
================= ==================
Net loss per common share - basic and diluted $ (0.08) $ (0.21)
================= ==================
Weighted average shares outstanding - basic and diluted 5,142,936 5,136,556
================= ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 (CONSOLIDATED)
AND 1998 (COMBINED)
ADDITIONAL ACCUMULATED
PREFERRED STOCK COMMON STOCK PAID-IN OTHER COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME
--------------- --------- ------------- ---------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 - $ - 5,136,555 $ 5,137 $ 2,251,595 $ -
Contribution of equipment - - - - 15,000 -
Additional paid-in capital - - - - 500 -
Net loss 1998 - - - - - -
--------------- --------- ------------- ---------- ------------- -----------------
Balance, December 31, 1998 - - 5,136,555 5,137 2,267,095 -
Recapitalization - - 1 - - -
Stock issued pursuant to
distribution agreement 250 - - - - -
Stock issued as loan to prior
principal stockholder - - 13,156 13 65,767 -
Unrealized gain on investments - - - - - 431,250
Net loss 1999 - - - - - -
--------------- --------- ------------- ---------- ------------- -----------------
BALANCE, DECEMBER 31, 1999
250 $ - 5,149,712 $ 5,150 $ 2,332,862 $ 431,250
=============== ========= ============= ========== ============= =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 (CONSOLIDATED)
AND 1998 (COMBINED) (continued)
RETAINED EARNINGS
(ACCUMULATED
DEFICIT) TOTAL
------------------ ----------------
<S> <C> <C>
Balance, December 31, 1997 $ 232,687 $ 2,489,419
Contribution of equipment - 15,000
Additional paid-in capital - 500
Net loss 1998 (1,093,413) (1,093,413)
------------------ ----------------
Balance, December 31, 1998 (860,726) 1,411,506
Recapitalization - -
Stock issued pursuant to
distribution agreement - -
Stock issued as loan to prior
principal stockholder - 65,780
Unrealized gain on investments - 431,250
Net loss 1999 (435,093) (435,093)
------------------ ----------------
BALANCE, DECEMBER 31, 1999
$ (1,295,819) $ 1,473,443
================== ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENOVA HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 (CONSOLIDATED)
AND DECEMBER 31, 1998 (COMBINED)
1999 1998
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (435,093) $ (1,093,413)
Adjustments to reconcile net profit to net cash provided by (used in)
operating activities:
Impairments - 991,081
Depreciation 68,904 60,501
Amortization 53,103 81,252
Loss on disposal assets 40,134 -
Gain on settlement of receivable (16,358) -
Provisions for doubtful accounts - 10,000
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable (193,453) 548,350
(Increase) Decrease in inventory (239,904) 164,705
(Increase) Decrease in other assets (9,368) 8,988
Decrease in prepaid income taxes - 35,000
Increase in accounts payable 176,210 162,914
Increase (Decrease) in accrued expenses 473,123 (193,675)
------------------- ------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (82,702) 775,703
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (30,779) (77,676)
Advances to affiliate (67,561) -
Purchases of subsidiary - (235,000)
Loan to parent company - (991,081)
------------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES (98,340) (1,303,757)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from lines of credit 200,000 -
Net payments on lines of credit - (200,000)
Proceeds from notes payable 250,000 1,235,000
Payments on notes payable (549,692) (159,431)
Payments on capital lease (4,007) (7,760)
Proceeds from issuance of common stock - 500
------------------- ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (103,699) 868,309
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (284,741) 340,255
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 345,114 4,859
------------------- ------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 60,373 $ 345,114
=================== ==================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Supplemental Disclosures of Cash Flow Information:
Non-cash investing and financing activities:
<S> <C>
Common stock issued to third party to settle debt of former parent $ 65,780
Equipment acquired under capital lease $ 86,356
Accounts receivable settled for marketable securities $ 1,058,642
Cash paid during the year ended December 31, 1999 for:
Interest $ 164,206
Income taxes $ 52,026
</TABLE>
See accompanying notes to financial statements.
<PAGE>
A. Organization and Summary of Significant Accounting Policies:
Organization and Nature of Operations
Enova Holdings, Inc.'s. ("Enova" or the "Company") operations include
distribution, service, and manufacturing of custom process equipment packages
for the air and gas handling equipment industry. The Company operates through
two operating subsidiaries; Pego Systems, Inc. ("Pego") and Pacific Pneumatics,
Inc. ("PPI"). (See Note B)
Basis of presentation
The accompanying financial statements have been prepared on a consolidated basis
for 1999 and combined basis for 1998. The combined 1998 financial statements
include the accounts of Enova, Pego and PPI under common control of Hartcourt
Companies, Inc.
("Hartcourt"). (See Note B)
Principles of Consolidation and Combination
The accompanying consolidated and combined financial statements include the
accounts of Enova Holdings, Inc., Pego, and PPI. For purposes of these
consolidated and combined financial statements all material intercompany
transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
For purpose of the statements 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>
Investments in Marketable Securities
The Company accounts for investments in marketable securities in accordance with
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." ("SFAS 115"). Management determines
the appropriate classification of its investments at the time of acquisition and
re-evaluates such determination at each balance sheet date. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, net of
tax, reported as a separate component of stockholders' equity. In determining
realized gains and losses, the cost of the securities sold is based on the
specific identification method.
Investments in Non-Marketable Equity Securities
The Company accounts for investments in non-marketable equity securities in
accordance with Accounting Principles Board Opinion No. 18 ("APB 18") and
related interpretations. Under APB 18, investments in corporate joint ventures
and other common stock of less than 20% are generally accounted for using the
cost method while investments between 20% and 50% are generally accounted for
using the equity method.
Under the cost method, investments are recorded and reported at original cost
until they are partially or entirely disposed of or the original cost value has
been impaired. Under the equity method, the investment is recorded at original
cost and periodically increased (decreased) by the investor's proportionate
share of earnings (losses) of the investee and decreased by all dividends
received from the investor by the investee.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosures of information about the
fair value of certain financial instruments for which it is practicable to
estimate the value. For purposes of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties other than in a forced sale or
liquidation.
The carrying amounts of the Company's accounts receivable, accounts payable,
accrued liabilities, and current loans payable approximates fair value due to
the relatively short period to maturity for these instruments.
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, 1999, the allowance for doubtful accounts was $10,000.
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.
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.
Intangibles
Goodwill and other intangible assets are amortized on the straight-line basis.
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.
<PAGE>
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 (See Note E).
Advertising
Advertising costs are expensed as incurred. Advertising expense included in
general and administrative expenses was $36,858 and $ 33,115 for the year ended
December 31, 1999 and 1998, respectively.
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.
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.
Loss Per Share
Basic and diluted net loss per common share for the years ended December 31,
1999 and 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, 1999
or 1998.
Business Segments
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information". The
Company operates in one segment and therefore segment information is not
presented.
<PAGE>
Recent Accounting Pronouncements
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by Statement No. 137,
establishes accounting and reporting standards for derivative instruments and
related contracts and hedging activities. This statement is effective for all
fiscal quarters and fiscal years beginning after June 15, 2000. The Company
believes that its adoption of pronouncement No. 133, as amended by No. 137, will
not have a material effect on the Company's financial position or results of
operations.
B. Business Acquisitions and Stock Issuances:
Enova Holdings, Inc., Pego and PPI were subsidiaries of Hartcourt until they
were spun-off effective March 31, 1999 (see below).
The acquisition of Pego by Hartcourt in October 1997 was accounted for under the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16 ("APB 16") "Business Combinations" and using push-down
accounting. The acquisition was recorded based upon a purchase price of
$2,211,501 and based on the fair value of the assets acquired and liabilities
assumed resulting in goodwill of $1,326,083. The goodwill is being amortized
over a period of 25 years. (See Note E)
On August 6, 1998, Pego purchased all outstanding shares of PPI. 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 (See Note E). The excess purchase price over the fair value of the net
assets totaling $442,543, was recorded as goodwill. (See Note E)
On March 1, 1999 in contemplation of the spin-off of the Company from its
parent, Hartcourt, discussed 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 shareholders in exchange for all of Hartcourt's ownership 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 Electronic Components and
Systems, Inc. ("ECS"). The investment in ECS was recorded at its carry-over
historical basis of zero. (See Note F)
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, PPI, and Enova Holdings, Inc. at historical
cost; (2) the statement of operations includes the operations of Pego PPI, and
Enova Holdings, Inc. for the periods presented.
All capital stock and earnings per share data in the accompanying financial
statements have been retroactively restated to reflect the recapitalization.
<PAGE>
On March 1, 1999, in conjunction with the above Agreement, 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, 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, an additional 146 shares were issued.
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 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 Distribution Agreement. As a result, an 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 July 7, 1999, 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.
<TABLE>
<CAPTION>
<S> <C>
C. Inventory:
Inventory at December 31, 1999 consists of the following:
Raw materials and purchased parts $ 491,788
Work-in-process 338,995
------------
$ 830,783
D. Property and Equipment:
Property and equipment at December 31, 1999 consists of the following:
Building and improvements $ 661,215
Land 586,155
Computer equipment 52,476
Furniture and equipment 56,125
Vehicles 28,904
Equipment under capital lease 86,356
------------
1,471,231
Less accumulated depreciation (127,348)
Property and equipment, net $1,343,883
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
E. Intangibles:
Intangibles at December 31, 1999 consists of the following:
Goodwill $ 777,545
Covenant not to compete 110,000
-----------
887,545
Less accumulated amortization (152,615)
Intangibles, net $ 734,930
===========
</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 PPI
by Pego. Management has evaluated the recoverability of goodwill and had
recorded an impairment of $991,081 during 1998.
The covenant not-to compete agreements are with the former stockholders
of the Company which are in effect for a five year period.
F. Investments:
Investment in Hartcourt
On December 19, 1999, Hartcourt, who owed the Company $1,058,642, issued
100,000 shares of its restricted common stock, valued at $10.75 per share
based upon the quoted market price, to satisfy its debt to the Company
and in exchange for the ECS common stock held by the Company. The Company
recognized a gain on settlement of $16,358. At December 31, 1999, the
investment in Hartcourt stock was classified as available-for-sale and
the Company recorded an unrealized gain of $431,250, which is included in
the financial statements as other comprehensive income.
Investment in ECS
During the period from March 1, 1999 to September 15, 1999 the investment
in ECS was accounted for under the equity method and remained at zero due
to losses in ECS. From September 15, 1999 the investment in ECS was
recorded under the cost method since at September 15, 1999, the Company's
percentage holdings in ECS of 35,000 shares of common stock was diluted
to under 20%. As discussed above, the ECS common stock was exchanged as
part of the settlement of receivables from Hartcourt. There was no
accounting effect since the recorded value of ECS at the exchange date of
December 19, 1999 was zero.
G. Lines of Credit:
The Company has a line of credit agreement with a bank that provides that
it may borrow up to $300,000 at the prime rate of 9%. The line of credit
is collateralized by inventory, equipment and accounts receivable and is
due on demand. At December 31, 1999, the Company had borrowed $ 200,000
under this agreement. This line is also guaranteed by Hartcourt. The
Company was in violation of certain covenants at December 31, 1999, and
accordingly, the bank has demanded payment in full from the Company and
its guarantors. As of the date of this report, neither the Company nor
its guarantors have made payment.
<PAGE>
PPI, the Company's subsidiary, has an unsecured line of credit with a
bank which provides that it may borrow up to $50,000 at the prime rate
plus 5.5% (13.25%) at December 31, 1999. At December 31, 1999, the entire
line was drawn.
<TABLE>
<CAPTION>
<S> <C>
H. Notes Payable:
Notes payable at December 31, 1999 consists of the following:
Note payable, individual, monthly principal and interest payments of
$9,544 with interest at 8.5%; matures November 2024;
collateralized by land and building. $ 1,184,085
Note payable, bank, monthly installments of $34,306 plus interest at
prime plus 2%, however, the Company was charged at the bank's default
rate of 13.25% at December 31, 1999; collateralized 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 note is also guaranteed by Hartcourt. The
Company was in violation of the covenants and restriction provisions of
the agreement at December 31, 1999. Accordingly, the bank has demand
payment in full
and the balance has been included in the current portion. 686,104
Note payable, former owner of PPI, monthly principal and interest
payments of $3,146 including interest at 6.5% due May 2010,
unsecured. 282,070
Note payable, former owner of PPI, monthly principal and interest
payments of $780 including interest at 6% per; due June 2005;
unsecured. 43,725
Note payable to Hartcourt, non-interest bearing, due on demand, unsecured. 50,000
Note payable, for $150,000, total principal and interest of $30,000 due
March 30, 2000, secured by 10,000 shares of Hartcourt stock. In January
2000, the remaining $50,000 under the note was received by the Company. 100,000
-------------
2,345,984
Less current portion (877,156)
Notes payable, less current portion $ 1,468,828
==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
The following is a summary of principal maturities of notes payable:
Year Ending
December 31,
2000 $ 877,156
2001 44,085
2002 47,348
2003 50,858
2004 54,632
Thereafter 1,271,905
-----------
Total $2,345,984
</TABLE>
I. Commitments:
Operating Leases
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 1999 and 1998 was $66,126 and
$47,378, respectively.
<TABLE>
<CAPTION>
<S> <C>
Future minimum lease payments required under the operating lease
agreements are as follows:
2000 $ 16,116
2001 11,096
----------
Total minimum lease payments $ 27,212
=========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Capital Leases
The company leases certain computer equipment under a capital lease.
Future minimum lease payments required under the capital lease are as
follows:
2000 $ 23,088
2001 23,088
2002 23,088
2003 030
Less interest (29,740)
84,642
Current portion (13,112)
$ 71,530
</TABLE>
Consulting Agreement
On December 21, 1999, the Company entered into a consulting agreement
effective January 1, 2000 and terminating on June 30, 2000 with an option
to renew for an additional six months. The consultant will provide
services, as defined in the Agreement, generally relating to operations,
sales and acquisitions. A payment of $2,000 per month starting January
31, 2000 will be due and a leased automobile will be provided. The
consultant will be paid a finder's fee under a stipulated schedule based
on the purchase price for any acquisitions closed. The $2,000 per month
paid is to be deducted from any finder's fee due.
<PAGE>
Employment Agreements
The Company is obligated under employment contracts with its Chairman of the
Board and Chief Executive Officer ("Executives"), to provide salary and fringe
benefits through June 30, 2002. Minimum salary payments under the contracts
currently amount to $260,000 per year and aggregate $739,600 through June 30,
2002. At December 31, 1999, $85,000 in compensation expense was included in
accrued expenses relating to the employment contracts. 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 the
Executive an amount equal to six months of base compensation.
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 the employment contract. To the extent Executive
receives compensation from any form of employment after such termination for any
part of the period during which termination payments 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.
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.
J. 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 vest over a six-year period.
Contributions totaled $10,124 for the year ended December 31, 1999.
<PAGE>
K. Income Taxes:
Income tax expense for the years ended December 31, 1999 and 1998 are as
follows:
Current: 1998 1999
-------- --------
Federal $ - $ 25,800
State - 10,000
-------- --------
$ - $ 35,800
The tax affects of temporary differences that give rise to significant portion
of deferred tax assets and liabilities at December 31, are as follows:
1999 1998
----------- -------
Deferred tax assets:
Net operating loss carryforward $187,950 $ 35,600
Impairment of goodwill 346,900 346,900
----------- -------
534,850 382,500
Valuation allowance (534,850) (382,500)
----------- -------
Net deferred taxes $ - $ -
=========== =======
Impairment of goodwill is not deductible in 1999 and 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.
At December 31, 1999, the Company had net operating loss carryforwards, of
approximately $537,000, available to offset future taxable income expiring
through 2019.
The valuation allowance at January 1, 1999 was $382,500. The net change in the
valuation allowance was an increase of $152,350.
L. Going Concern:
As reflected in the accompanying financial statements, the Company is in
violation of certain debt covenants on a $686,104 note payable and a $200,000
credit line payable to a bank and the bank has demanded payment in full from the
Company and its guarantor, who at the date of this audit report, have not paid
such debts. In addition the Company has continuing losses from operations and a
working capital deficit and accumulated deficit of $637,042 and $1,295,819
respectively at December 31, 1999. The ability of the Company to continue as a
going concern is dependent on the Company's ability to raise additional capital
or obtain debt financing and generate income from operations. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
Management plans to sell its investment in Hartcourt common stock upon
effectiveness of a registration statement filed by Hartcourt in February 2000 to
register such shares. Management believes that actions presently being taken to
generate cash and thus pay the bank loans provide the opportunity for the
Company to continue as a going concern.
<PAGE>
M. Subsequent Events:
On January 14, 2000, the bank who had demanded payment in full (Notes G, H and
L), filed a complaint against the Company on an alleged non-payment of a
promissory note and breach of security agreement, alleging payment in the amount
of $924,636.26. This amount is recorded as a liability on the Company's
financial statements at December 31, 1999. Management and its counsel are
currently reviewing the complaint noting that there are meritorious defenses and
basis for counter claims which may be vigorously prosecuted. The Company does
not believe that there is a legal basis for the prosecution of this action.
<PAGE>
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: March 23, 2000 By: /s/ Dr. Alan V. Phan
----------------------------------
Name: Dr. Alan V. Phan
Title: Chairman
By: /s/ Mr. Manu Ohri
----------------------------------
Name: Mr. Manu Ohri
Title: Chief Executive Officer
<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
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.
<PAGE>
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.
<PAGE>
(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
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
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.
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.
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
<PAGE>
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.
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.
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.
<PAGE>
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.
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.
(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.
<PAGE>
(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.
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.
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;
<PAGE>
(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;
(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.
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.
<PAGE>
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.
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.
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.
<PAGE>
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.
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.
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.
<PAGE>
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.
4. Signatures:
/s/ Jon L. Lawver
------------------------
Jon L. Lawver
President or Vice President JON L LAWVER
Jon L. Lawver
/s/ Jon L. Lawver
------------------------
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.
<PAGE>
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.
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.
<PAGE>
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>
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.
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.
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
Exchange Agreement (continued)
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.
1.5 "Consents" means any consents, waivers or approvals from, or
notification requirements to, any third parties.
<PAGE>
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
<PAGE>
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:
(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;
<PAGE>
(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.
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.
<PAGE>
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 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,
<PAGE>
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, 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.
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
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.
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:
<PAGE>
(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.
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)
<PAGE>
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 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.
<PAGE>
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.
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.
3. 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.
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.
<PAGE>
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:
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);
<PAGE>
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
<PAGE>
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
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).
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
<PAGE>
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.
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
<PAGE>
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.
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.
<PAGE>
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.
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
<PAGE>
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.
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: /s/ Dr. Alan V. Phan
------------------------
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.
<PAGE>
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").
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:
<PAGE>
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;
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.
<PAGE>
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 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.
<PAGE>
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.
b. 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.
c. 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.
<PAGE>
d. 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.
e. 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
<PAGE>
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.
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:/s/ Mr. Manu Ohri
--------------------------
Mr. Manu Ohri
21 Subsidiaries of Enova
Jurisdiction of
Subsidiaries Incorporation D/B/A
- ----------------------------------- --------------- ------------------
Pego Systems, Inc. California Pego Systems, Inc.
Electronic Components Systems, Inc. Arizona ECS, Inc.
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 8, 2000 on our audit
of the consolidated financial statements and schedules of Enova Holdings, Inc.
and its subsidiaries for the year ended December 31, 1999.
/s/ WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 60,373
<SECURITIES> 0
<RECEIVABLES> 1,277,544
<ALLOWANCES> 0
<INVENTORY> 830,783
<CURRENT-ASSETS> 2,085,194
<PP&E> 1,343,883
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,736,037
<CURRENT-LIABILITIES> 1,061,720
<BONDS> 0
0
0
<COMMON> 5,149,712
<OTHER-SE> (1,295,819)
<TOTAL-LIABILITY-AND-EQUITY> 5,736,037
<SALES> 6,970,262
<TOTAL-REVENUES> 6,970,262
<CGS> 4,600,448
<TOTAL-COSTS> 2,617,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (435,093)
<INCOME-TAX> 0
<INCOME-CONTINUING> (435,093)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (431,250)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
<FN>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 1999 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)
<PAGE>
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.
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.
