U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
THE HARTCOURT COMPANIES, INC.
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(Name of Small Business Issuer in Its Charter)
Utah 87-0400541
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(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
19104 S. Norwalk Boulevard, Artesia, California 90701
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(Address of Principal Executive Offices) (Zip Code)
(310) 403-1126
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(Issuer's Telephone Number)
Securities to be registered pursuant to 12(b) of the Act: None
----
Securities to be registered pursuant to 12(g) of the Act:
Common Stock $.001 Par Value
(Title of Class)
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business............................................ 3
Item 2. Management's Discussion and Analysis or Plan of Operation.......... 9
Item 3. Description of Property............................................ 15
Item 4. Security Ownership of Certain Beneficial Owners and Management..... 18
Item 5. Directors, Executive Officers, Promoters and Control Persons....... 20
Item 6. Executive Compensation............................................ 21
Item 7. Certain Relationships and Related Transactions.................... 22
Item 8. Description of Securities......................................... 23
PART II
Item 1. Market Price of and Dividends of the Registrant's Common Equity
and Other Shareholder Matters..................................... 25
Item 2. Legal Proceedings................................................. 25
Item 3. Changes and Disagreements with Accountants........................ 26
Item 4. Recent Sales of Unregistered Securities........................... 26
Item 5. Indemnification of Directors and Officers......................... 27
PART F/S
Financial Statements.............................................. 28
PART III
Item 1. Index to Exhibits................................................. 62
Item 2. Description of Exhibits........................................... 62
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Explanatory Note:
Unless otherwise indicated or the context otherwise requires, all
references herein to the "Company" are to The Hartcourt Companies, Inc., a Utah
corporation, and its wholly owned subsidiaries, Harcourt Investments (USA) Inc.
("Harcourt USA") and the Hartcourt Pen Factory, Inc. ("Hartcourt Pen"). All
share and per share information contained herein has been adjusted to reflect a
five-for-seven reverse split of the Company's Common Stock effected on October
6,1995, and a one-for-five reverse split of the Company's Common Stock effected
on August 1, 1996.
PART I
Item 1. Description of Business
General
Stardust, Inc.-Production-Recording-Promotion ("Stardust"), a
corporation organized under the laws of the State of Utah in September 1983,
acquired all of the outstanding shares of Harcourt USA, a Nevada corporation,
for 6,110,337 shares of Stardust common stock (after taking into account a
reverse stock split and stock dividend) pursuant to an Agreement and Plan of
Reorganization dated November 5, 1994. At the time of this acquisition, Stardust
was a "shell" corporation with no assets, business or operations. Subsequent to
the acquisition of Hartcourt USA, Stardust changed its name to "The Hartcourt
Companies, Inc."
Harcourt USA was organized under the laws of the State of Nevada in
April 1993, to engage in the design, manufacture and sale of writing
instruments. Harcourt USA entered into a Stock Exchange Agreement dated August
8, 1994 with Eastern Rocester Limited, a Hong Kong corporation and, pursuant
thereto, acquired Eastern Rocester Limited's 60% interest in Xinhui Harchy
Modern Pens, Ltd. (The "Xinhui JV"), a joint venture located in the Guangdong
province of the People's Republic of China ("China"), in exchange for 250,000
shares of Harcourt USA common stock, representing 80% of the common stock of
Harcourt USA outstanding immediately subsequent to the transaction. The
remaining 40% interest in the Xinhui JV was held by Xinhui Orient Light
Industrial Corp., a Chinese government-owned company. Pursuant to an amendment
to the joint venture agreement governing the Xinhui JV entered into in October
1995, the Company's interest was reduced to a 52% interest in the Xinhui JV,
with the remaining 48% held by Xinhui Orient Light Industrial Corp.
Hartcourt Pen was organized under the laws of the State of Nevada in
October 1993 to engage in the sale of writing instruments. Hartcourt Pen entered
into an Agreement and Plan of Reorganization dated December 1, 1994 with
Harcourt USA, pursuant to which Harcourt USA acquired all of the outstanding
shares of Hartcourt Pen in exchange for 38,625 shares of Harcourt USA common
stock. In connection with this transaction, 1,000 shares of Harcourt USA
Original
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Preferred Stock were issued to Dr. Alan Phan in consideration of certain
intangible assets and services rendered by Dr. Phan in connection with the
establishment of Hartcourt Pen. Hartcourt Pen currently is in the business of
importing pens, markers and components from China, Germany, Taiwan and Italy for
assembly (often by others) in the United States. It conducts certain limited
research and development activities in the United States, but engages in no
domestic manufacturing activities.
The Hartcourt Companies, Inc. commenced limited business activities
involving the design, manufacture and sale of writing instruments in December
1994. The Company's present operations involve the assembly and distribution of
writing instruments. The Company's current primary objective is to acquire
operating companies with related products to maximize the marketing process and
expand the distribution of writing instruments. A secondary objective is to
acquire real property assets and to utilize profits from the development of the
Company's present real property assets in order to diversify and create a multi
dimensional company. The principal executive offices of the Company are located
at 19104 South Norwalk Boulevard, Artesia, California 90701. The Company's
telephone number is (310) 403-1126.
In April 1993, the Xinhui JV commenced construction of a 170,000 square
foot manufacturing plant approximately ten miles north of Xinhui City. The plant
commenced limited operations in December 1994 and was fully operational by July
1995. By July 1996, the plant was operating at approximately 20% of its capacity
and employed approximately 80 people. It is estimated by management that
additional working capital in the amount of approximately $3,000,000 will be
required to permit the plant to operate at full capacity (300,000,000 pens
annually). There is no contractual obligation on the part of the joint venture
partners to provide this additional financing.
In April 1994, the Company entered into a Lease Agreement with
Tokai-Anza-Scripto Pen Company ("Anja"), for the use of five special ball pen
assembly machines by the Xinhui JV. The lease provides for semi-annual payments
of $25,000 over a ten-year term, subject to adjustment based on future purchases
of merchandise by the Company from the lessor. Consequently, annual lease
payments could range from zero, if annual purchases are in excess of $1,000,000,
to $100,000, if annual purchases are less than $100,000. The machinery was
delivered by Anja in June 1995. However, the machinery initially did not
function properly and therefore, the lease term did not commence until February
1996. In December 1996, the machinery was shipped by vessel back from the Xinhui
JV to the Company and is scheduled to arrive in January 1997. The Company and
Anja have agreed to terminate the lease upon delivery of the machinery to Anja
with no further obligation to the Company. To date, there have been no payments
under this lease.
CKES Acquisitions Inc. ("CKES"), a corporation organized under the laws
of the State of Nevada in September 1996, and a non-affiliate, acquired all of
the outstanding shares of the Company's wholly-owned subsidiary Harcourt (USA),
pursuant to a Purchase and Sale Agreement dated September 27, 1996, thus
replacing the Company as a joint venture partner in the Xinhui JV. Title to the
shares was transferred to CKES in return for a Secured Promissory Note in the
principal
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sum of $3,000,000, payable monthly, with accrued compound interest at six
percent (6%) per annum. The Company has no present contractual obligation to the
Xinhui JV.
In January 1996, the Company entered into a Memorandum of Understanding
to acquire Yafa Pen Company ("Yafa"), a California corporation, with offices in
Los Angeles, California. The purchase price consisted of an initial cash payment
of $285,000 and 80,000 shares of the Company's Preferred Stock. Pursuant to the
Memorandum of Understanding, the Company advanced to Yafa a total of $200,000,
secured by two promissory notes, the amount of this advance to be offset against
the purchase price for Yafa. Various disputes arose between the Company and
Yafa, and in September 1996 the parties entered into a confidential settlement
agreement and agreed to terminate the Memorandum of Understanding.
Pursuant to a Purchase Contract dated March 21, 1996, between the
Company and Exceptional Specialty Products, Inc., a California corporation,
located in Laguna Hills, California, the Company acquired a complete line of
cosmetics valued at $310,815, including inventory consisting of liquid makeup in
bulk, finished product consisting of various lotions, creams, cleansers, scrubs,
liquid makeup, eye shadow, accent pencils, mascara, makeup brushes, translucent
powder, makeup bags, and mirrors, for 60,000 shares of the Company's Common
Stock. Included in this purchase is the United States trademarked brand name
Camille St. Moritz, under which the inventory will be marketed, as well as
containers, labels, packaging, stationery and promotional materials. The Company
has not sold any of the cosmetic products since the purchase and is currently
seeking overseas importers, primarily in China, to purchase the entire inventory
and market the products. The Company does not intend to distribute the cosmetics
other than to importers who will be responsible for their own marketing networks
and money collection.
In August 1996, The Company entered into a Purchase and Sale Agreement
with NuOasis International Inc. ("NuOasis"), a corporation incorporated under
the laws of the Commonwealth of Bahamas, for the purchase of a commercial real
estate project, consisting of three 5-7 story apartment buildings, commonly
known as the Peony Gardens Property, ("Peony Gardens") located in the eastern
part of Tongxian in Beijing city, mainland China. The purchase price consists of
a Convertible Secured Promissory Note, granting NuOasis a security interest in
the property, in the principal amount of $12,000,000 and the greater of
10,000,000 shares of the Company's Common Stock, or that number of shares of the
Company's Common Stock having a market value equal to $10,000,000 immediately
preceding the closing date. On August 8, 1996, an Addendum to the Purchase and
Sale Contract was agreed to by the Company and NuOasis, by which the Company's
obligation to issue stock to NuOasis was reduced to 4,000,000 shares of its
Common Stock. The transaction was completed on September 8, 1996. As of December
1996, the apartment buildings were approximately 35% complete, and it is
anticipated by the Company that the project will be completed by August 1997.
The Company has no obligation for construction costs or any other costs relating
to the project's completion. At completion, the Company will commence operation
of the project. It is anticipated that the Company may sell some of the
buildings, or units within the buildings, to provide initial operating funds.
There can be no assurance, however, as to when, if ever, the Company will be
successful in selling some of the buildings, or units within the buildings
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to obtain operating funds, or whether, or to what extent, the project will be
profitable. See Part 1, Item 3, "Description of Property - Real Estate and
Operating Data."
In September 1996, the Company entered into a Sales Agreement with
Mandarin Overseas Investment Co., Ltd. ("Mandarin"), an unaffiliated Turks and
Caicos chartered company located in Central Hong Kong, for its undivided 50%
interest in thirty-four State of Alaska mineral lease gold lode claims, known as
Lodestar claims numbered 35-68, consisting of 160 acres each, all located in the
Melozitna mining district near Tanana, Alaska, approximately 300 air-kilometers
west of the city of Fairbanks, Alaska. The Company will pay $3,000,000
in shares of its Common Stock to Mandarin for its undivided 50% interest
in the mineral lease gold lode claims, all shares to be issued pursuant to
Regulation "S." Certain maintenance and administrative costs will be incurred
to maintain the claims in a good standing status with all regulatory agencies.
The Company has agreed to pay Mandarin fifty percent (50%) of all such
administrative costs necessary to maintain the claims in good standing, such
costs not expected to exceed $2,500 annually and, at the end of two years from
the date of the Agreement, the Company will pay an additional amount
representing fifty percent (50%) of no less than twenty-five thousand dollars
($25,000) in connection with the requirements of regulatory agencies.
In September 1996, the Company entered into a Sales Agreement with
Promed International Ltd. ("Promed"), an unaffiliated Turks and Caicos chartered
company with offices in the British crown colony of Gibraltar, for the purchase
of their undivided 50% interest in thirty-four State of Alaska mineral lease
gold lode claims, known as Lodestar claims numbered 1-34, consisting of 160
acres each, all located in the Melozitna mining district near Tanana, Alaska,
approximately 300 air-kilometers west of the city of Fairbanks, Alaska. The
Company will pay $3,000,000 in shares of its Common Stock to Promed for its
undivided 50% interest in the mineral lease gold lode claims, all shares
to be issued pursuant to Regulation "S." Certain maintenance and
administrative costs will be incurred to maintain the claims in good standing
with all regulatory agencies. The Company has agreed to pay Promed fifty percent
(50%) of all such costs, not to exceed $2,500 annually, and at the end of two
years from the date of the Agreement, the Company will pay an additional amount
representing fifty percent (50%) of no less than twenty-five thousand dollars
($25,000) in connection with the requirements of regulatory agencies.
Management intends to obtain the services of an independent geo-survey
company to prepare detailed geo-maps of the gold lode claims acquired from
Mandarin and Promed, and to evaluate existing studies, at an estimated cost of
approximately $160,000. If these studies confirm the valuation that has been
represented, the Company intends to raise sufficient capital to fulfill the
requirements of the mining project. Management does not expect this to affect
other activities in which the Company is involved. There can be no assurance,
however, as to when, if ever, the Company will obtain the necessary capital to
fulfill the requirements of the mining project, or whether, or to what extent,
the project will be profitable, should operations commence. See Item 3.
"Description of Property - Mineral Lease Gold Lode Claims."
During 1994 and 1995, the Company entered into various negotiations
involving transactions relating to the manufacture and sale of writing
instruments. None of these transactions were
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completed. See Part III., F/S, "Consolidated Financial Statements, Years Ended
December 31, 1995 and 1994 -- Notes to Financial Statements," Item 13.
"Commitments."
Except for certain limited operations involving the manufacture and
distribution of writing instrument in China through the Xinhui JV and the
assembly and distribution of writing instruments in the United States through
Hartcourt Pen, the Company's activities to date primarily have consisted of
raising capital, obtaining financing, locating and acquiring equipment,
identifying prospective customers and suppliers, installing and testing
equipment and administrative activities relating to the foregoing, as well as
identifying real property for potential acquisition. The Company's future
business, including expansion of its current limited operations, requires
substantial additional equity and/or debt financing, which may not be available
in a timely manner, on commercially reasonable terms, or at all. Since the
Company is in the development stage, it is subject to all the risks inherent in
undertaking a new business venture. See Part I, Item 2, "Management's Discussion
and Analysis or Plan of Operation."
See Part I, Item 7, "Certain Relationships and Related Transactions"
for information about the interests of certain directors, executive officers and
promoters of the Company in the formation and reorganization transactions
described above involving Stardust, Harcourt USA and Hartcourt Pen.
See Part 1. Item 3, "Description of Property," for
information about the Company's facilities.
Principal Products, Distribution and Competitive Conditions
The Company's present business activities consist of the assembly and
distribution of a broad range of writing instruments, ranging from the most
commonly used and inexpensive plastic ballpoint pens to high-priced luxury and
collectible fountain pens. The Company also distributes special order stationery
items, such as daily diaries and planners, organizers and desk sets and other
desk items, manufactured by others.
Commonly used and inexpensive writing instruments ("Popular Items")
assembled and sold by the Company include a broad range of ballpoint pens,
roller pens, cosmetic pens, white board markers, water color markers, permanent
markers, highlighters, erasable ballpoint pens and magic ink pens. The Company's
Popular Items are available in various compositions and colors of plastic
barrels and in a variety of ink colors.
Higher priced and luxury writing instruments ("Luxury Items") sold by
the Company include ballpoint, roller and fountain pens as well as mechanical
pencils. The barrels of Luxury Items generally are composed of brass or
stainless steel with lacquer or engraved designs and have nibs (the point of the
pen that regulates ink flow) of German-made iridium, as well as gold-plated
accessories.
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Management believes that the materials and equipment used in the
assembly of the Company's products generally are available from multiple sources
on competitive terms. Therefore, the Company does not anticipate any significant
delays in the acquisition of, or shortages of, either materials or equipment.
The Company believes that the markets for its broad range of writing
instruments are relatively fragmented and highly competitive. There are many
local, national and multinational importers of writing instruments in the United
States and elsewhere, and the Company's ability to compete successfully will be
dependent upon numerous factors, including its ability to obtain necessary
financing in a timely manner and on commercially acceptable terms, as well as
upon the design, quality and price of its products and its customer service.
Many of the Company's competitors have greater experience and far greater
financial and other resources than the Company, which is in the development
stage. There can be no assurance that the Company will be able to compete
successfully in its markets.
Doing Business in China
GENERAL. Because the Company's Peony Gardens project is in China and
China is among the possible markets targeted by the Company for future
acquisitions, as well as a market for the purchase of its cosmetic products
inventory, China is important to the Company's success. The operation of
facilities in China involves certain risks and special considerations not
typically associated with operations in the United States.
These risks generally relate to: (I) social, economic and political
uncertainty; (ii) substantial governmental involvement in and control over the
Chinese economy; (iii) the possibility that the Chinese government could elect
to discontinue its support of the economic reform programs implemented in 1978
and return to a completely centrally planned economy; and (iv) possible
nationalization or expropriation of assets. Accordingly, government actions in
the future could have a significant effect on economic conditions in China. Such
actions, and resultant changes in the Chinese economy, could significantly
aversely affect, limit or eliminate opportunities for foreign investment, the
prospects of private sector enterprises operating in China and the value of the
Company's investments in China.
RESTRICTIONS ON FOREIGN CURRENCY EXCHANGE. In order to meet foreign
currency obligations and remit dividends to foreign owners, a joint venture
operating in China must convert a portion of its funds from the Chinese
currency, the Chinese Renminbi (the "RMB"), to other currencies. Because China
controls its foreign currency reserves, RMB earnings within China can not freely
be converted into foreign currencies, except with government permission and at
rates which are determined in part by supply and demand at authorized financial
institutions, such as the People's Bank of China or at government-regulated
foreign exchange swap centers established by the State Administration of
Exchange Control. In the event of shortages of foreign currencies, the Company
may be unable to convert sufficient RMBs into foreign currencies to enable it to
comply with
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foreign currency payment obligations or to make distributions to equity holders
located outside of China.
VOLATILITY OF EXCHANGE RATES. There has been significant volatility in
the exchange rates of RMBs to U.S. Dollars in the recent past and future
exchange rates may also experience significant volatility.
ENVIRONMENTAL REGULATION. The Company's Chinese operations are subject
to central, provincial and local environmental protection laws and regulations.
The costs and effects of compliance with environmental laws and regulations in
the United States (federal, state and local) and China (central, provincial and
local) have not been material in the past and are not anticipated to be material
in the future.
Employees
The Company currently employs four full-time and three-part-time
employees at its principal executive offices in the United States. Hartcourt Pen
is located at this headquarters location, which also is the site for certain
research and development activities. The Company does not expect any significant
changes in the number of employees during the next twelve months.
Research and Development
The Company currently conducts limited research and development
activities involving the creation of ink formulas, as well as the engineering
design of pens and materials used for components of writing instruments. During
the fiscal years ended December 31, 1993, 1994 and 1995, $110,650, $180,440 and
$38,205 respectively, was expended in connection with such activities. During
the 9 month period ended September 30, 1996 approximately $20,000 was expended
in connection with research and development activities. Management anticipates
that research and development costs as a percentage of sales will not increase
materially from current levels.
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company is a development stage company that assembles and
imports writing instruments for sale in the U.S. During 1994 and 1995, the
Company entered into negotiations involving various transactions intended to
increase the Company's inventory and ability to manufacture, assemble and import
writing instruments. None of these transactions were completed. See Part F/S,
"Consolidated Financial Statements, Years Ended December 31, 1995 and 1994
- -Notes to Financial Statements," Item 13. "Commitments."
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During the first quarter of 1996, the Company acquired a complete line
of cosmetics and the United States trademarked name Camille St. Moritz, under
which the cosmetics will be marketed. The Company does not intend to market the
products in the United States, and is currently seeking overseas importers,
primarily in China, to purchase the inventory and market the products. There
have been no sales of the cosmetic products since the Company acquired the line,
and there can be no assurance that the Company will find importers to purchase
its cosmetic product inventory. See Item 1. "Description of Business --
General."
During the third quarter of 1996, the Company acquired Peony Gardens, a
commercial real estate project in the eastern part of Tongxian in Beijing city,
mainland China, commonly known as the Peony Gardens property. The project, when
completed, will be comprised of three 5-7 story apartment buildings. The
buildings are scheduled for completion in the third quarter of 1997. The Company
has no obligation for construction costs, or any costs relating to the project's
completion and will not assume operating costs until full completion of the
project. Upon the full completion of the project, it is anticipated by
Management that the Company may sell some of the buildings, or units within the
buildings, to provide initial operating funds. Any sale or lease of the
buildings, or of units within the buildings, by real estate brokers in China is
subject to a 5% commission. It is the Company's intent to have the properties
managed by a real estate management company, local to the area, whose services
will be compensated, if possible, through the issuance of the Company's Common
Stock. Real estate company management fees for the area are 4% of total rents
collected. There can be no assurance as to when, if ever, the Company will
obtain these initial, or future, operating funds, or whether, or to what extent,
the project will be profitable. See Item 3.
"Description of Property -- Real Estate and Operating Data."
During the third quarter of 1996, the Company purchased, in two
separate transactions, an undivided 50% interest in a total of 68 mineral lease
gold lode claims, 34 from each transaction respectively, located in the
Melozitna mining district near Tanana, in southern Alaska. Until such time as an
independent geo-survey company has prepared detailed geo-maps of the area, and
an evaluation of existing studies has been performed on the properties, the
Company does not intend to enter into any mining activities on these claims. The
Company estimates that the cost for the geosurvey service will be approximately
$160,000. Management is establishing a program to finance the administrative and
developmental needs of the gold claims. There can be no assurance, however, as
to when, if ever, the Company will obtain the necessary capital to fulfill the
requirements of the mining project, or whether, or to what extent, the project
will be profitable, should operations commence. See Item 3. "Description of
Property -- Mineral Lease Gold Lode Claims."
Results of Operations
Fiscal Years 1995 and 1994
The Company's domestic U.S. sales activity commenced, on a limited
basis, during the fourth quarter of 1994 and its Chinese facilities were not
completed and in full operation until the
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beginning of the third quarter of 1995. Because the Company had no operations at
all during the first half of 1994 and only limited operations during that latter
half of that year, comparison of results for 1994 and 1995 (during which the
Company had operations for the full year) are not meaningful. Consequently, the
following discussion primarily relates to the 12 months ended December 31,1995.
During the 12 months ended December 31, 1995, consolidated sales were
$354,000, compared to $475,000 for 1994, representing a decrease of 25% in 1995
from 1994, due to a decrease in the mail order market The Company's sales during
the 12 months ended December 31, 1995 consisted of $250,000 by the Xinhui JV to
customers within China and $104,000 from domestic U.S. sales. Sales in 1994 were
exclusively from U.S. domestic operations, which consisted primarily of mail
order activities.
Cost of sales for the year ended December 31, 1995 was $160,000,
compared to $32,000 for 1994, representing an increase of 400% over 1994. This
increase was primarily due to the Company's increased sales of low cost pens,
resulting in a lower profit margin.
The gross profit margin for the year ended December 31, 1995 was 54.8%,
compared to 57.3% for 1994. The reduction in gross profit during 1995 is
attributable to competitive pressures to lower prices and pricing decisions by
management intended to increase the Company's market share. Management expects
these factors to continue to affect pricing in the future, and to result in
substantial additional reductions in gross margins.
General and administrative expenses were $1,558,000 during 1995,
compared to $429,000 in 1994, an increase of 263%. This substantial increase was
due to expansion of the Company's marketing efforts both domestically and in
China, through the addition of personnel and related costs. Administrative
expenses of the Xinhui JV increased substantially during 1995, as construction
activities were completed and manufacturing operations commenced. In particular,
the commencement of manufacturing operations required the hiring of additional
sales and administrative personnel. In addition, during 1995 the Company
incurred interest expense in the amount of $851,000 in connection with loans in
the aggregate amount of $1,227,325 obtained during 1995 to finance equipment for
the Xinhui JV factory. The Company incurred no interest expense during 1994.
Management currently is engaged in negotiations to convert accrued interest on
these loans to principal and to permit the Company to repay these loans over a
longer term, thereby lowering monthly outlays for debt service. See "--Liquidity
and Capital Resources."
Foreign Currency
The Xinhui JV reports its operating results and financial condition in
the local currency, the Chinese Renminbi (the "RMB"). The effect of changes in
foreign currency exchange rates had minimal effect on the sales and cost of
sales of the Xinhui JV during the period in which the Company was joint venture
partner, since it operates almost exclusively within China and engages in
minimal importing or exporting activities. Further, changes in the foreign
currency exchange rate
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have had no direct effect on the Company's consolidated results of operations,
because exchange gains and losses are not included in the Company's net income
(loss), in accordance with Statement of Financial Accounting Standard No. 52.
Liquidity and Capital Resources
Changes in cash flows resulting from the Company's operating activities
for the year ended December 31, 1995 as compared to the prior year were due to
the commencement of full operation of the Xinhui JV during the third quarter of
1995. Accounts receivable increased by $59,000, or 616%, to $69,000 at December
31, 1995 from $10,000 at December 31, 1994, and inventories increased by
$294,000, or 40.8%, to approximately $1,011,000 at December 31, 1995 from
$718,000 at December 31, 1994, primarily as a result of the commencement of
operations by the Xinhui JV. Domestic operations also showed modest increases in
accounts receivable and inventories for the same reasons.
At December 31, 1995 the Company was experiencing a deficiency in
operating cash flow. This deficiency was primarily the result of the operations
of the Xinhui JV and, to a lesser extent,
to U.S. domestic operations. In China, it is customary commercial practice to
provide customers purchasing "on account" with substantially more liberal
payment terms than are generally available with the U.S., with terms of net 120
or even 180 days commonplace.
The Company's cash flow deficiency from U.S. domestic operations is
attributable to the Company's development stage. Management anticipates that, as
domestic sales increase, the domestic cash flow deficiency should diminish and,
eventually, disappear.
Prepaid expenses decreased by $128,000, or 63.9%, to $72,000 at
December 31, 1995 from $200,000 at December 31,1994, due to the transfer of
amounts from prepaid expenses and construction in progress to property, plant
and equipment during 1995. In addition, Common Stock subscriptions receivable
decreased in recognition of receipt, by the Company, of the proceeds of Common
Stock subscription agreements fulfilled prior to December 31, 1995.
Property, plant and equipment increased by $1,906,000, or 26.8%, to
$9,031,000 at December 31, 1995 from $7,125,000 at December 31,1994, and
deposits and other assets decreased by $595,000, or 96.3%, to $23,000 at
December 31, 1995 from $618,000 at December 31, 1994, as a result of the
transfer of certain amounts to property, plant and equipment from construction
in progress in connection with completion of the Xinhui JV plant and from
deposits in connection with equipment on order at the end of 1994 and delivered
during 1995.
Current liabilities increased by $3,092,000, or 82.6%, to $6,837,000 at
December 31, 1995 from $3,745,000 at December 31, 1994, because of the transfer
of long-term debt to current debt and due to additional borrowing by the Xinhui
JV to meet cash flow needs for completion of construction of the manufacturing
facilities and to finance operations while sales and marketing programs are
implemented within China. Long-term debt decreased by approximately $480,000, or
48.9%, to
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approximately $502,000 at December 31, 1995 from $982,000 at December 31, 1994,
due to transfer of a portion thereof to current debt.
At December 31, 1995, $773,000 of the Company's current debt was
attributable to 12 loans from various banks and companies within China to the
Xinhui JV. These loans have various maturity dates during calendar year 1996,
and currently bear interest at various rates ranging from 11.7% to 22.8%. One of
these loans, in the principal amount of $682,600, is secured by machinery and
equipment, and the remaining amounts are unsecured.
The Company's indebtedness, as of December 31, 1995, also included the
following loans, all of which were in default the at that date and, therefore,
are classified as due within one year for financial statement reporting
purposes.
Principal
Amount Interest Rate Terms and Maturity
- ---------- ------------- ------------------
$1,901,000 17.3% at Single payment due in March 1997.
12/31/95 (1)
$430,000 (2) 12% Monthly payments of principal and interest in
the amount of $15,253 due through March 1998.
$40,000 (2) 6% Monthly payments of principal and interest in
the amount of $4,000 due through June 1995.
$61,000 (2) 10% Monthly payments of principal and interest in
the amount of $5,000 due through November
1996.
(1) The interest rate is a floating rate.
(2) The loans associated with note (2) were in default at December 31, 1995
and, therefore, were classified as current in the Company's financial
statements as of that date.
Interim Periods Ended September 30, 1996 and 1995
During the 9 months ended September 30, 1996, consolidated sales were
$374,367, compared to $220,840 at September 30, 1995, representing an increase
of 70% in 1996 over 1995. The Company's sales during the 9 months ended
September 30, 1996 consisted entirely of domestic U.S.
sales.
Cost of sales during the 9 months ended September 30, 1996 was $556,684
compared to $142,326 at September 30, 1995, representing an increase of
approximately 291.13% over 1995.
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This increase was primarily due to the liquidation at auction of outdated, old
inventory items received from the Xinhui JV upon the sale of the Company's
interest. Another factor was the Company's increased sales of low cost pens.
The gross loss of $(182,317) for the period ended September 30, 1996
represented a decrease of $(260,831) compared with the approximately 55.16%
gross profit margin for the same period in 1995. The gross loss during the 9
months ended September 30, 1996 is attributable to the increased cost of sales
and competitive pressures to lower prices. Management does not expect inventory
liquidation to continue to affect the gross profit margin, since no additional
liquidation of inventory is anticipated. However, Management expects competitive
pressures to lower prices to continue to affect pricing in the future and to
result in substantial additional reductions in gross margins.
General and administrative expenses were $388,853 at September 30,
1996, compared to $633,355 for the same period in 1995. This reduction was due
to the Company's efforts to reduce overhead and because the Xinhui JV general
and administrative expense is not included. The Company sold its interest in the
Xinhui JV and has no further obligation for loans in the aggregate amount of
$1,227,325 obtained during 1995 to finance equipment for the Xinhui JV factory.
See Part I, Item 1, "Description of Business."
Foreign Currency
Changes in foreign currency exchange rates had minimal effect on the
sales and cost of sales of the Xinhui JV during the period in which the Company
was a joint venture partner. Further, changes in the foreign currency exchange
rate have had no direct effect on the Company's consolidated results of
operations. See Part I, Item 2, "Management's Discussion and Analysis or Plan of
Operation," -- "Results of Operations -- Fiscal Years 1995 and 1994."
Liquidity and Capital Resources
Changes in cash flows resulting from the Company's operating activities
for the 9 months ended September 30, 1996 as compared to the same period for the
prior year were due to the commencement of full operation of the Xinhui JV in
the third quarter of 1995. Accounts receivable increased by $467,297, to
$624,019 at September 30, 1996 from $156,722 at September 30, 1995, and
inventories decreased by $431,274, or approximately 50% from $844,293 at
September 30, 1995, to $413,019 at September 30, 1996, primarily as a result of
the sale of the Company's interest in the Xinhui JV during September 1996.
Currently, the Company is experiencing a deficiency in operating cash
flow. This deficiency is primarily the result of the operations of the Xinhui JV
during the period prior to the Company's sale of its interest in the joint
venture, and to a lesser extent, to U.S. domestic operations.
The Company's current cash flow deficiency from U.S. domestic
operations is attributable to the Company's development stage. Management
anticipates that, as domestic sales increase, the
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domestic cash flow deficiency should diminish and, eventually, disappear. In
addition, the Company anticipates that it will undertake a public offering of
its securities, designed to raise a minimum of $1,000,000 in net proceeds,
during the first half of 1997. There can be no assurance, however, as to when,
if ever, such an offering will be completed.
Prepaid expenses decreased by $89,238 to $0.00 at September 30, 1996
from $89,238 at September 30, 1995, due to the Company's sale of its interest in
the Xinhui JV.
Property, plant and equipment decreased by $5,974,463 to $41,827 at
September 30, 1996 from $6,016,290 at September 30, 1995, primarily due to the
Company's sale of its interest in the Xinhui JV.
Current liabilities decreased by $3,644,620, to $1,408,953 at September
30, 1996 from $5,053,573 at September 30, 1995 because of the sale of the
Company's interest in the Xinhui JV.
Long-term debt increased approximately $11,088,803, from $1,050,594 at
September 30, 1995 to $12,139,397 at September 30, 1996 due to the Company's
purchase of Peony Gardens, offset by approximately $1,000,000 relating to the
Xinhui JV.
The Company's other indebtedness, as of September 30, 1996, included
the following loans:
Principal
Amount Interest Rate Terms and Maturity
- ---------- ------------- ------------------
$2,946 11.75% Monthly payments of principal of
$113.31, plus interest, through
November 1998.
$8,300 No Interest Monthly payments of $4,150 through
November 1996.
The Company does not expect to make any significant future capital
expenditures that would require additional financing or leasing arrangements.
Management anticipates that future expansion and acquisition activities, if any,
will be effected through the issuance of additional debt or equity securities.
Item 3. Description of Property
Principal Plants and Other Property
The Company's principal executive offices are located at 19104 South
Norwalk Boulevard, Artesia, California 90701. Hartcourt Pen is located at this
headquarters site, which also is the site of certain limited research and
development activities. The premises, which are leased from an
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unaffiliated party, consist of 5,200 square feet, approximately 2,000 square
feet of which is used for warehousing, approximately 2,000 square feet for
assembly of writing instruments, and approximately 1,200 square feet for
executive and clerical offices. Monthly rent is $1,230 until May 31, 1997,
$1,640 from June 1,1997 through May 31,1998 and $2,050 for the remainder of the
lease term, through May 31, 2001; provided, however, that no rent will be due
for the months of June 1999 and June 2000.
See Part I, Item 1, "Description of Business--General" for information
about the manufacturing facilities of the Xinhui JV.
The Company believes that its property and equipment are adequate for
its present activities as a development stage company. See Part I, Item 1,
"Description of Business--Proposed Activities." and Part I, Item 2,
"Management's Discussion and Analysis or Plan of Operation--Liquidity and
Capital Resources."
Investment Policies
The Company has placed no limitation on the percentage of assets which
may be invested in any one investment. This policy may be changed by the
Company's Board of Directors and without a vote of the Company's security
holders. It is the Company's policy to acquire assets primarily to add to its
equity base and for income.
Real Estate Investments
The Company's investments in real estate are not restricted to
developed or undeveloped properties, or properties of any specific type or
location. It is the present intent of Management to acquire commercial
properties that can be operated by outside management and do not require the
Company's hands-on operation. With the exception of the Peony Gardens Project
(See Item 1. "Description of Business - General"), it is the present intent of
Management that real estate will be purchased, free and clear of any mortgage,
with shares of the Company's Common Stock. Any necessary management services in
connection with the Peony Gardens Project, and any future acquisitions, will be
compensated, if possible, through the issuance of the Company's Common Stock.
Real Estate and Operating Data
On September 8, 1996, the Company completed the purchase of a
commercial real estate project, commonly known as the Peony Gardens Project
("Peony Gardens"), located in mainland China. See Part I, Item 1, "Description
of Business." The land use right of the property has been granted to Beijing
Grand Canal Real Estate Development Co. Ltd., the project's developer, for a
term of seventy (70) years, commencing from May 3,1994. NuOasis, the seller,
holds the Company's Convertible Secured Promissory Note in the principal amount
of 412,000,000, granting NuOasis a security interest in the property, which is
otherwise free of any mortgages, liens or encumbrances.
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Peony Gardens, upon its anticipated completion, will be comprised of three 5-7
story apartment buildings located at the eastern part of Tongxian of Beijing
city. The property is connected to a network of highways and roads, and is
located in one of the city's strategic areas for outward expansion, with a
relatively good transport system consisting of public buses and taxicabs between
the city center and the development.
As of December 1996, the development is approximately 35% complete,
and it is anticipated that it will be fully developed by August 1997. The
Company has no obligation for construction costs, or any other costs relating to
the project's completion, and will not assume operating costs until full
completion of the project. It is the opinion of the Company's management that
present insurance coverage is adequate. Upon completion of the project, it is
the intent of the Company to acquire, if possible, the services of an
independent real estate management company for the properties through the
issuance of the Company's Common Stock. At present, real estate management
company fees in China are 4% of total rents collected. It is estimated that the
total annual rental income, after completion of the project's four residential
apartment buildings, will be $5,764,00 at 70% occupancy. Management estimates
expenses to be approximately $1,441,000 annually. Depreciation is based on
twenty years, which is standard depreciation for apartment buildings. Real
estate and governmental taxes in connection with the Peony Gardens purchase are
the obligation of the developer and were included in the purchase price. All
rental taxes will be paid by the tenants. Management estimates that leases will
be for a minimum period of two years, which is the standard lease term for the
area. The property is not, at present, subject to the usual competitive
conditions associated with rental or leased residential apartment property,
since the apartment buildings have been mandated by the Chinese government as a
special project for the use of foreigners. However, should the government
rescind that mandate, or should conditions occur which would cause the Chinese
government to expel foreigners, the apartments would be subject to extremely
competitive lease and sale pricing. See Part I, Item 1, "Description of
Business--Doing Business in China."
Mineral Lease Gold Lode Claims
In September 1996, the Company, through separate transactions with
Mandarin Overseas Investment Co., Ltd. ("Mandarin") and Promed International,
Ltd. ("Promed"), acquired an undivided 50% interest in a total of 68 (34 from
each transaction) mineral lease gold lode claims, consisting of 160 acres each,
all located in the Melozitna mining district near Tanana, Alaska, some 300
air-kilometers west of the City of Fairbanks, Alaska. A gravel landing
strip near Golden Creek, about 12 kilometers north of the Yukon River, can be
used to access and service the area during snow-free months. Aircraft up to the
size of a DC-3 can land on this strip to supply fuel and other supplies to
mining camps in the area. Scheduled passenger flights from Fairbanks west to
points along the Yukon River can be persuaded to provide passenger service to
and from the Golden Creek landing strip. Larger equipment and fuel supplies can
be barged down the Yukon River to several points where tractor roads lead into
the mineral lease area.
Certain maintenance and administrative costs will be incurred by the
Company to maintain the claims in a good standing status with all regulatory
17
<PAGE>
agencies. Pursuant to the Sales Agreements, with Mandarin and Promed, the
Company has agreed to pay fifty percent (50%) of all such administrative costs
necessary to maintain the claims in good standing, such costs not expected to
exceed a total of $5,000 annually, payable to Mandarin and Promed in the amount
of $2,500 each, respectively. At the end of two years from the date of the
Agreements, the Company will pay an additional amount representing fifty percent
(50%) of no less than twenty-five thousand dollars ($25,000) to Mandarin, and an
additional amount representing fifty percent (50%) of no less than twenty-five
thousand dollars ($25,000) to Promed, in connection with the requirements of
regulatory agencies. See Item 1., "Description of Business -- General."
Recent exploration activity in Alaska has been stimulated by the
discovery of low-grade bulk tonnage gold mineralization at the Fort Knox
deposit, near Fairbanks. The gold is associated with high concentrations of
tungsten and bismuth. Unaffiliated companies, with gold lode claims in areas
adjacent to the Company's gold lode claims, commenced field work on a portion of
the adjacent area in July and August 1996. However, the Company does not expect
to enter into any mining operations on its gold lode claims until such time as
detailed geo-maps and evaluation of existing studies of the gold lode claims are
obtained from an independent geo-survey company, at an estimated cost of
$160,000. If these studies confirm the valuation that has been represented, the
Company intends to raise sufficient capital to fulfill the requirements of the
mining project. There can be no assurance, however, as to when, if ever, the
Company will obtain the necessary capital to fulfill the requirements of the
mining project, or whether, or to what extent, the project will be profitable,
should operations commence.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of October 31, 1996 with
respect to persons known to the Company to be the beneficial owners of more than
5% of its voting securities and with respect to the beneficial ownership of such
securities by each director of the Company and by all directors and executive
officers of the Company as a group.
Amount and Nature
Name and Address of Of Beneficial Percent of
Beneficial Owner Ownership (1)(2) Common Stock
- ----------------------------- ----------------- ------------
Dr. Alan V. Phan 1,636,071 (3) 17.6%
19104 South Norwalk Boulevard
Artesia, California 90701
Frederic Cohn 1,609 *
19104 South Norwalk Boulevard
Artesia, California 90701
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<PAGE>
Michael L. Caruana 1,609 *
19104 South Norwalk Boulevard
Artesia, California 90701
James De Rosa 1,609 *
19104 South Norwalk Boulevard
Artesia, California 90701
Tiana Corporation 1,022,949 (4) (5) 11.0%
Kai Tak Commercial Building
Room 704A
317 Des Voeux Road Central
Hong Kong, China
NuOasis International, Inc. 4,000,000 43.1%
2 Park Plaza, Suite 470
Irvine, California 92714
All officers and directors
as a group 1,640,898 17.7%
* Less than 1%
(1) Except as otherwise indicated, each of the parties listed has sole
voting and investment power with respect to all shares of Common Stock
indicated. Beneficial ownership is calculated in accordance with Rule
13-d-3(d) under the Securities Exchange Act of 1934, as amended.
(2) Except as otherwise indicated, shares held are Common Stock.
(3) Includes (i) an aggregate of 1,000,000 shares issuable upon conversion
of 1,000 shares of Original Preferred Stock and (ii) an aggregate of
312,124 shares held by two sons who reside with Dr. Phan when not
attending college and law school, respectively. As the sole holder of
the 1,000 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. See Part I, Item 8, "Description of Securities."
(4) As the owner of 204,589 shares of stock in Tiana corporation, Dr. Alan
V. Phan's son, Art Phan, holds a 20% interest in Tiana Corporation. Dr.
Phan disclaims any beneficial ownership in these shares.
(5) Tiana Corporation is a British Virgin Islands corporation owned by
various Asian business groups located in Hong Kong, Singapore,
Malaysia, and Indonesia.
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The Company is not aware of any arrangement which might result in a
change in control in the future.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The following table sets forth certain information about the directors
and executive officers of the Company.
Name Age Position
------ --- --------
Dr. Alan V. Phan 51 Chairman of the Board, President,
Chief Executive Officer and Chief
Financial Officer
Frederic Cohn 57 Secretary, Treasurer and Director
Kenneth Silva 70 Vice-President Marketing and Sales
and Director
Michael L. Caruana 53 Director
James De Rosa 65 Director
Dr. Alan V. Phan is the founder of the Company and has been Chairman,
President, Chief Executive Officer and Chief Financial Officer since November
1993. He also is the founder of Harcourt USA and Hartcourt Pen. See Part I, Item
1, "Description of Business--General." From 1986 through October 1993, Dr. Phan
was the owner of Hartcourt Consulting, an export management firm and, from 1980
to 1986, he was the Executive Vice President of EM Kay Group (which owned Magic
Marker Industries). In addition to his activities in the export and writing
instrument business, Dr. Phan has been involved in gold mining operations, as
manager in the Philippines (1971-1972) for Eisenberg Group, a company located
in Israel. He was active in the real estate industry from 1976 until 1982 as
owner of Alpha Development, a California real estate company. Dr. Phan received
his academic training and degrees at Pennsylvania State University (1967), and
Sussex College of Technology, Sussex England (1975).
Frederic Cohn has been a director and Secretary Since November 1993. He
is responsible for all financial, tax, accounting, personnel, management
information system and administrative functions. From 1990 to 1993, Mr. Cohn was
the President and Chief Executive Officer of Aladdin Enterprises, Inc., an
entertainment equipment leasing firm, located in Santa Monica, California. Mr.
Cohn is a graduate of New York Law School (1978).
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<PAGE>
Kenneth Silva has been Vice President, Sales and Marketing and a
director, since January 1996. Prior to joining the Company, Mr. Silva was a Vice
President and a Manager for a number of banks, including Capital National Bank
(two years), Bank of Downey (four years), Interstate Bank (10 years), and 22
years at Wells Fargo Bank where he served as Vice President of Business
Development. Mr. Silva holds a B.A. degree in accounting and banking from
Armstrong College in San Francisco, California (1964), and attended graduate
courses at American Institute of Banking.
Michael L. Caruana has been a director since June 1994. Mr. Caruana is
a graduate of California State University at Long Beach (1972) with a degree in
engineering. He currently is the President, Chief Executive Officer and majority
owner of Pego Systems, Inc., an engineering and industrial equipment
manufacturing company, and has held various positions with Pego since 1975. See
Part I, Item 1, "Description of Business--General" and Part I, Item 7, "Certain
Relationships and Related Transactions."
James De Rosa has been a director of the Company since September 1996.
A graduate of Tufts College (1960), and Suffolk Law School, Boston,
Massachusetts (1963), Mr. DeRosa is a Real Estate investor and developer and has
been active in the real estate business since 1974. Mr. De Rosa is President of
De Rosa Properties, Inc.
Directors serve for a term of one year or until their successors are
elected and qualified. Directors do not receive any cash compensation for
serving as such, although the Company is contemplating the adoption of a plan to
compensate directors through the issuance of shares of Common Stock. The terms
of such a plan currently are under consideration and there can be no assurance
as to when, if ever, it will be implemented.
Executive officers are appointed by and serve at the will of the Board
of Directors. There are no family relationships between or among any of the
directors or executive officers of the Company.
As the sole holder of the 1,000 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, whereas the holders of the outstanding shares
of Common Stock are entitled to elect 2/5 of that number. See Part I, Item 8,
"Description of Securities" for more information about the rights of the Common,
and Original Preferred stockholders.
By virtue of his activities in founding and organizing the Company, as
well as his beneficial ownership of its voting securities, Dr. Phan may be
deemed to be a "promoter" of the Company.
Item 6. Executive Compensation
The following summary compensation table sets forth certain information
regarding
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compensation paid during each of the three fiscal years ended December 31, 1995,
1994 and 1993 to the person serving as the Company's Chief Executive Officer
during the years ended December 31, 1995. No annual compensation in excess of
$100,000 was awarded to, earned by or paid to any director of executive officer
of the Company for services rendered in any/all capacity/ies in any of the
fiscal years indicated.
Name and Principal Fiscal Annual
Position Year Salary
- ---------------------------------------- ---------- ----------
Dr. Alan V. Phan, 1995 $70,000
Chief Executive Officer 1994 $35,000
1993 -0-
There is no employment agreement with any executive officer. There are
no salary, bonus or incentive plans covering cash or securities except the
Company's 1995 Stock Option Plan (the "Plan"). Under the Plan, incentive and
non-qualified stock options may be granted to directors, officers and key
employees to purchase up to 2,000,000 shares of Common Stock at an option price
not less than the fair market value of the stock at the time the option is
granted; the option period shall not exceed ten years from the date of grant.
Except in the case of the death or disability of an option holder, vested
options lapse 90 days following termination of continuous employment by the
Company. Vested options lapse one year after the death or disability of an
option holder. No options have been granted under the Plan.
Item 7. Certain Relationships and Related Transactions
Dr. Alan Phan, a director, executive officer and promoter of the
Company, acquired ten shares of Harcourt USA for nominal consideration upon its
organization in April 1993. Pursuant to a stock Exchange agreement dated August
8, 1994 with eastern Rocester Limited, Harcourt USA acquired a 60% interest in
the Xinhui JV in exchange for 250,000 shares of Harcourt USA common stock,
representing 80% of the common stock of Harcourt USA outstanding immediately
subsequent to the transaction. After giving effect to this transaction, Harcourt
USA was held 80% by Eastern Rocester Limited, 2% by Dr. Phan and 18% by an
unaffiliated person. See Part I, Item 1, "Description of Business--General" and
Part I, Item 5, "Directors, Executive Officers, Promoters and control Persons."
The Company acquired all of the outstanding shares of Harcourt USA in
exchange for 6,110,337 shares of the Company's Common Stock pursuant to an
Agreement and Plan of Reorganization dated November 5,1994. In connection with
this transaction, Dr. Phan received 38,625 of such shares. Michael Caruana, who
currently serves as a director of the Company, was Vice President of the Company
at the time of this transaction. See Part I, Item 1, "Description of
business--General" and Part I. Item 5, "Directors, Executive Officers, Promoters
and Control Persons."
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<PAGE>
Dr. Phan acquired ten shares of Hartcourt Pen for nominal consideration
upon its organization in October 1993. All of the outstanding shares of
Hartcourt Pen were acquired by the Company pursuant to an Agreement and Plan of
Reorganization dated December 1,1994. As the sole stockholder of Hartcourt Pen,
Dr. Phan received all 38,625 shares of the Company's Common Stock and 1,000
shares of Original Preferred Stock issued by the Company in connection with this
transaction. See Part I. Item 1, "Description of Business--General" and Part I,
Item 5, "Directors, Executive Officers, Promoters and Control Persons."
During 1994 and 1995, the Company made advances in the aggregate amount
of $168,575 to the Company's joint venture partner in the Xinhui JV. All of
these advances are non-interest bearing and due on demand.
During 1994 and 1995, Pacific Rim Capital ("Pacific Rim"), a
non-affiliated financier for the Company advanced a total of $272,416 to the
Company. The advance was unsecured, bearing interest at the rate of 24% per
annum and subject to no fixed repayment terms. On September 30, 1996, Pacific
Rim agreed to convert this loan for 425,000 shares of the Company's common
stock.
In June 1995, the Company entered into an Agreement and Plan of
Reorganization with Pego Systems, Inc. to acquire all of the outstanding shares
of Pego common stock in exchange for 1,500,000 shares of the Company's Class A
Preferred stock. The transaction was terminated prior to its completion. The
owner of Pego, Michael L. Caruana is a current director of the Company. See Part
III, F/S, "Consolidated Financial Statements, Years Ended December 31, 1995 and
1994 -Notes to Financial Statements," Item 13. "Commitments."
Item 8. Description of Securities
The authorized capital stock of the Company consists of 110,001,000
shares of capital stock, composed of 100,000,000 shares of common stock, par
value $0.001 per share ("Common Stock"), 1,000 shares of Preferred stock, par
value $.01 per share ("Original Preferred Stock"), and 10,000,000 shares of
Preferred Stock, par value $.01 per share ("Class A Preferred Stock"). At
present, there are no shares of Class A Preferred Stock outstanding.
Common Stock
VOTING RIGHTS. Subject to the voting rights of holders of Original
Preferred Stock described below, each holder of shares of Common Stock is
entitled to one vote for each share of Common Stock for the election of
directors and on each other matter submitted to a vote of the stockholders of
the Company. Until December 31, 2010, holders of Common Stock, are entitled to
elect two fifths (2/5) of the authorized number of members of the board of
Directors. The holders of Common Stock have exclusive voting power on all
matters at any time no Preferred Stock with superior voting rights is issued and
outstanding.
LIQUIDATION RIGHTS. Upon liquidation, dissolution or winding up of the
Company, holders
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of shares of Common Stock are entitled to share ratably in distributions of any
assets after payment in full or provision for all amounts due creditors and
provision for any liquidation preference of any other class or series of stock
of the Company then outstanding.
DIVIDENDS. Dividends may be declared by the Board of Directors and paid
from time to time to the holders of Common Stock in cash, stock, or otherwise,
as may be determined by the Board of Directors, out of the net profits or
surplus of the Company.
OPTIONS. Under the Company's 1995 Stock Option Plan (the "Plan"),
incentive and non-qualified stock options may be granted to directors, officers
and key employees to purchase up to 2,000,000 shares of Common Stock at an
option price not less than the fair market value of the stock at the time the
option is granted; the option period shall not exceed ten years from the date of
the grant. Excepting the case of the death or disability of an option holder,
vested options lapse 90 days following termination of continuous employment by
the Company. Vested options lapse one year after the death or disability of an
option holder. No options have been granted under the Plan.
WARRANTS. None.
Original Preferred Stock
VOTING RIGHTS. The holders of Original Preferred Stock are not entitled
to vote on any matters except those affecting the Original Preferred Stock, the
election of directors (to the extent described below) and as otherwise required
by law. Until December 31, 2010, holders of Original Preferred Stock, voting as
a single class, are entitled to elect three-fifths (3/5) of the authorized
number of members of the Board of Directors.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, holders of Original Preferred stock are entitled to
be paid the full par value of the Original Preferred Stock, $.01 per share.
CONVERSION RIGHTS. The holders of shares of Original Preferred Stock
are entitled to convert each share of Original Preferred Stock into 1,000 shares
of fully paid and non-assessable Common Stock.
DIVIDENDS. The holders of shares of Original Preferred Stock will be
entitled to receive annual dividends at the rate of $0.08 per share, payable in
additional shares of Series A Preferred Stock. The holders of Series A Preferred
Stock otherwise will not be entitled to receive any dividends.
CONVERSION RIGHTS. The holder(s) of shares of Series A Preferred Stock
will be entitled to convert their shares into shares of Common Stock at the rate
of one share of Series A Preferred Stock for one share of Common Stock.
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<PAGE>
REDEMPTION RIGHTS. The Series A Preferred Stock will be redeemable by
the Company. During the two year period commencing with the date of issuance the
redemption price will be $1.00 per share and, thereafter, the redemption price
will be increased by 5% per annum.
WARRANTS. None.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
Market Information
There is no established trading market for shares of the Company's
Common Stock, although there have been limited or sporadic quotations in the
over-the-counter market, and there is no assurance that any such trading market
will develop in the future. However, at such time, if any, as the Company
satisfies applicable entry or listing criteria, the Company may seek to include
or list its Common Stock on The NASDAQ Stock Market or a securities exchange.
All of the Company's issued stock is has been issued pursuant to Rule 144 of the
Securities Act and could come into any market which exists under Rule 144.
Holders
As of December 31, 1996 there were 401 holders of the Company's Common
Stock.
Dividends
In September 1995 the Company declared a 3% stock dividend on its
Common Stock. Certain holders of shares of the Common Stock of the Company
waived their rights to receive this dividend. As a result, on October 31,1995,
the Company issued a dividend of an aggregate of 108,765 shares of Common Stock
to holders of 3,565,052 shares of the Company's Common Stock.
In May 1996, the Company declared a 3% stock dividend on its Common
Stock. As a result, on May 3, 1996, the Company issued a dividend of an
aggregate of 417,872 shares of Common Stock to holders of 13,929,066 shares of
the Company's Common Stock.
In June 1996, the Company declared a 3% stock dividend on its Common
Stock. As a result, on July 31, 1996, the Company issued a dividend of an
aggregate of 431,386 shares of Common Stock to holders of 14,379,533 shares of
the Company's Common Stock. The Company does not anticipate payment of any other
stock or cash dividends in the foreseeable future.
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<PAGE>
Item 2. Legal Proceedings
Neither the Company nor any of its subsidiaries currently is a party
to, or owns property subject to, any pending or threatened legal proceedings
which, in the opinion of management, are likely to have a material adverse
impact on the financial condition of the Company.
Item 3. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
Item 4. Recent Sales of Unregistered Securities
The following information sets forth certain information for all
securities the Company sold during the past three years without registration
under the Securities Act of 1933 (the "Securities Act"). All transactions were
effected in reliance on the exemption from registration afforded by Section 4(2)
of the Securities Act for transactions not involving a public offering. There
were no underwriters in any of these transactions.
Pursuant to a Stock Exchange Agreement dated August 8, 1994, Harcourt
USA issued 250,000 shares of its common stock (representing 80% of its common
stock outstanding immediately subsequent to the transaction) to Eastern Rocester
Limited, a Hong Kong corporation, in exchange for a 60% interest in the Xinhui
JV. After the transaction, Harcourt USA was held 80% by Eastern Rocester
Limited, 2% by Dr. Alan Phan, a director, executive officer and promoter of the
Company, and 18% by an unaffiliated person. All of the outstanding common stock
of Eastern Rocester Limited subsequently was transferred to Tiana Corporation,
of which Dr. Phan beneficially owns 20% of the common stock.
Dr. Phan acquired ten Harcourt USA shares in April 1993 for nominal
consideration.
The Company acquired all of the outstanding Harcourt USA shares for
6,110,337 shares of the Company's Common Stock pursuant to an Agreement and Plan
of Reorganization dated November 5,1994. Dr. Phan received 291,500 of such
shares in exchange for his Harcourt USA shares.
Pursuant to an Agreement and Plan of Reorganization dated December 1,
1994, the Company acquired all of the outstanding shares of Harcourt Pen from
Dr. Phan for 38,625 shares of the Company's Common Stock and 1,000 shares of its
Original Preferred Stock.
26
<PAGE>
On February 28, 1996, the Company issued 135,000 shares of its Common
Stock to Kevin Quinn as full compensation for $64,000 in legal fees incurred by
the Company.
On March 27, 1996, the Company acquired a complete line of cosmetics,
including inventory, valued at $310,815 and marketed under a brand name, for
60,000 shares of the Company's Common Stock.
On June 3, 1996, the Company issued 25,000 shares of the Company's
Common Stock to Cavaform, Inc. for outstanding liabilities, in the amount of
$106,775, on behalf of the Xinhui JV.
On June 3, 1996, the Company issued a total of 6,335 shares of its
Common Stock for the purchase of inventory valued at $37,164 to Kenneth Johnson
/ Marvin Lieberman and Edmund Murray in the amount of 3,335 shares and 3,000
shares respectively.
On June 11, 1996, the Company issued 560 shares of the Company's Common
Stock to Idea International, Inc. in settlement of $2,813.75 in accounts
payable.
Pursuant to a Sales Agreement dated September 17, 1996, the Company
acquired a fifty percent (50%) interest in thirty four gold lode claims, valued
at $3,000,000, from Promed International, Ltd. for 649,350 shares of the
Company's Common Stock.
Pursuant to a Sales Agreement dated September 17, 1996, the Company
acquired a fifty percent (50%) interest in thirty four gold lode claims, valued
at $3,000,000 from Mandarin Overseas Investment Co., Ltd. For 649,350 shares of
the Company's Common Stock.
Pursuant to a Purchase and Sale Agreement dated September 27, 1996,
CKES Acquisitions, Inc., a Nevada corporation, acquired all of the outstanding
25,000 shares of the Company's wholly-owned subsidiary Harcourt USA for a
Secured Promissory Note in the principal sum of $3,000,000, with accrued
compound interest at six percent (6%) per annum.
On September 30, 1996, pursuant to a Purchase and Sale agreement dated
July 8, 1996, and its Addendum dated August 8, 1996, the Company acquired a
commercial real estate project, commonly known as the Peony Gardens Property,
located in mainland China, for 4,000,000 shares of the Company's Common Stock,
and a Convertible Secured Promissory Note. On September 30, 1996, Pacific Rim
Capital received 400,000 shares of the Company's Common Stock and Philip Cavana
received 200,000 shares of the Company's Common Stock for $1,000,000 in
brokerage fees in connection with this purchase.
On September 30, 1996, pursuant to a Resolution of the Company's Board
of Directors, the Company issued 425,000 shares of the Company's Common Stock to
Pacific Rim Capital on account of funds advanced in the amount of $272,416
during the January 1, 1996 to September 30, 1996 period.
27
<PAGE>
Item 5. Indemnification of Directors and Officers
Under Article VII of the Company's Bylaws, the Company is preparing an
amendment to provide for indemnification of officers and directors to the
fullest extent permitted by the provisions of the Utah Business Corporation Act
(the "Utah Act").
Under Section 16-10a-902 of the Utah Act, a corporation may indemnify a
past or present director against liability incurred in a proceeding if (1) the
director conducted himself in good faith, (2) the director reasonably believed
that his conduct was in, or not opposed to, the corporation's best interest, and
(3) in the case of any criminal proceeding, the director had no reasonable cause
to believe his conduct was unlawful; provided, however, that a corporation may
not indemnify a director (I) in connection with a proceeding by or in the right
of the corporation in which the director is adjudged liable to the corporation,
or (ii) in connection with any other proceeding charging improper personal
benefit to him in which he is adjudged liable on the basis that personal benefit
was improperly received by him.
In addition, pursuant to Section 16-10a-903 of the Utah Act, unless
limited by the articles of incorporation, a corporation shall indemnify a
director who is wholly successful, on the merits or otherwise, in the defense of
any proceeding to which he is party because he is or was a director against
reasonable expenses incurred by him in connection with the proceeding.
Under 16-10a-905 of the Utah Act, an officer is entitled to the benefit
of the same indemnification provisions as apply to directors, but in addition a
corporation may indemnify and advance expenses to an officer who is not a
director to the extent, consistent with public policy, provided by the
corporation's articles of incorporation, the corporation's bylaws, general or
specific action of the board of directors, or contract. Unless the corporation's
articles of incorporation provide otherwise, Section 16-10a-905 of the Utah Act
permits a court in certain circumstances to order the payment of indemnification
to a director, whether or not he met the applicable standard of conduct, if the
director is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances.
PART F/S
The following financial statements are filed as part of this
registration statement on form 10-SB:
28
<PAGE>
The Hartcourt
Companies, Inc.
and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 1995 and 1994
F-1
29
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Contents
Report of Independent Certified Public Accountants F-3
Consolidated financial statements
Balance sheets at December 31, 1995 and 1994 F-4-5
Statements of operations for the years ended
December 31, 1995 and 1994 F-6
Statements of shareholders' equity for the years
ended December 31, 1995 and 1994 F-7
Statements of cash flows for the years ended
December 31, 1995 and 1994 F-8-9
Summary of accounting policies F-10-13
Notes to financial statements F-14-25
F-2
30
<PAGE>
Report of Independent Certified Public Accountants
The Hartcourt Companies, Inc.
Cerritos, California
We have audited the accompanying consolidated balance sheets of The Hartcourt
Companies, Inc. and Subsidiaries (the "Company") as of December 31, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Hartcourt
Companies, Inc. and Subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements at December 31, 1995, the Company has
accumulated over $2.0 million in losses, has negative working capital of
approximately $5,400,000 and is delinquent in making certain required loan
payments. As a result, substantial doubt exits about the Company's ability to
continue as a going concern. Management's plans to deal with this issue are also
discussed in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
Los Angeles, California
May 6, 1996
F-3
31
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
1995 1994
----------- ----------
Assets
Current
Cash $ 142,047 $ 196,570
Accounts receivable, net of allowance for
doubtful accounts of $116,490 in 1995 69,119 9,651
Inventories (Note 2) 1,011,332 717,634
Prepaid expenses 72,051 199,563
Due from related party (Note 16) 168,575 102,143
Common stock subscriptions receivable (Note 8) - 200,000
----------- ----------
Total current assets 1,463,124 1,425,561
----------- ----------
Plant and equipment, net of
accumulated depreciation (Notes 3, 5 and 9) 9,030,501 7,125,106
Deposits and other assets 23,181 617,583
Intangible assets, net (Note 4) 715,658 714,919
----------- ----------
Total assets $11,232,464 $9,883,169
=========== ==========
F-4
32
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
1995 1994
----------- ----------
Liabilities and Stockholders' Equity
Current liabilities
Bank loans (Note 5) $ 772,753 $ 356,819
Current portion of obligations under
capital lease (Note 9) 125,000 55,000
Current portion of long-term debt (Note 6) 1,930,114 600,441
Other loans (Note 5) 1,695,549 1,939,677
Accounts payable and accrued expenses 2,041,665 792,868
Due to related party (Note 16) 272,416 -
----------- ----------
Total current liabilities 6,837,497 3,744,805
Obligations under capital lease, less
current portion (Note 9) 575,000 645,000
Long-term debt, less current portion (Note 6) 501,736 981,874
Minority interest 1,913,361 2,461,988
Commitments and contingencies (Note 13)
Shareholders' equity
Original preferred stock - $0.01 par value;
1,000 shares authorized, issued and
outstanding 10 10
Class A preferred stock - $0.01 par value;
10,000,000 shares authorized; no shares
issued and outstanding - -
Common stock - $0.001 par value;
100 million shares authorized;
13,729,018 (13,679,672 in 1994) shares
issued and outstanding 13,729 13,680
Additional paid-in capital 3,413,679 3,278,728
Common stock subscriptions receivable (Note 8) - (700,000)
Accumulated deficit (2,135,892) (542,001)
Foreign currency translation adjustment 113,344 (915)
----------- ----------
Total shareholders' equity 1,404,870 2,049,502
----------- ----------
Total liabilities and shareholders' equity $11,232,464 $9,883,169
=========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-5
33
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended December 31,
1995 1994
----------- ----------
Sales $ 353,674 $ 74,510
Cost of sales 159,797 31,559
----------- ----------
Gross profit 193,877 42,951
Selling, general and administrative 1,558,256 428,989
----------- ----------
Operating loss (1,364,379) (386,038)
----------- ----------
Other income (expense)
Interest expense (851,076) -
Exchange gain 54,952 1,103
Other 2,351 -
----------- ----------
(793,773) 1,103
----------- ----------
Net loss before minority interest (2,158,152) (384,935)
Minority interest 564,261 39,140
----------- ----------
Net loss $(1,593,891) $(345,795)
=========== ==========
Net loss per share $ (.12) ($.03)
=========== ==========
Weighted average number of shares
outstanding 12,825,497 11,921,976
=========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-6
34
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Foreign
Preferred Stock Common Stock Additional Stock Currency
--------------- ---------------- Paid-in Subscriptions Accumulated Translation
Shares Amount Shares Amount Capital Receivable Deficit Adjustment Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 -- $-- 6,110,337 $ 6,110 $ 101,858 -- $ (196,206) -- $ (88,238)
Shares issued in finding
public shell company -- -- 189,446 189 61 -- -- -- 250
Shares issued in connection
with acquisition of 60%
interest in Xinhui JV on
August 8, 1994 -- -- 4,825,782 4,826 2,144,374 -- -- -- 2,149,200
Share issued in connection with
acquisition of The Hartcourt
Pen Factory, Inc.
on December 1, 1994 1,000 10 38,625 39 (49) -- -- -- --
Shares issued in connection
with private placement on
December 21, 1994 (Note 8) -- -- 1,757,786 1,758 998,242 (1,000,000) -- -- --
Shares issued to underwriter
for issuance costs -- -- 757,786 758 (758) -- -- -- --
Cash paid on common stock
subscriptions receivable
(Note 8) -- -- -- -- -- 300,000 -- -- 300,000
Capital contribution -
officer's compensation -- -- -- -- 35,000 -- -- -- 35,000
Foreign currency translation
adjustment -- -- -- -- -- -- -- (915) (915)
Net loss -- -- -- -- -- -- (345,795) -- (345,795)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 1,000 10 13,679,762 13,680 3,278,728 (700,000) (542,001) (915) 2,049,502
Shares issued to attorney
for legal fees -- -- 49,256 49 64,951 -- -- -- 65,000
Capital contribution -
officer's compensation -- -- -- -- 70,000 -- -- -- 70,000
Cash paid on common stock
subscription -- -- -- -- -- 700,000 -- -- 700,000
Foreign currency translation
adjustment -- -- -- -- -- -- -- 114,259 114,259
Net loss -- -- -- -- -- -- (1,593,894) -- (1,593,891)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,000 $10 13,729,018 $13,729 $3,413,679 -- $(2,135,892) $113,344 $1,404,870
===================================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-7
35
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31,
Increase (Decrease) in Cash 1995 1994
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,593,981) $(345,795)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Minority interest in losses of joint venture (564,261) (39,140)
Depreciation and amortization 551,428 3,577
Allowance for doubtful accounts 116,490 -
Changes in operating assets and liabilities:
Accounts receivable (175,958) (9,651)
Inventories (293,697) (714,583)
Prepaid expenses 127,512 (4,051)
Deposits 603,159 -
Amount due from shareholder - (102,143)
Accounts payable and accrued expenses 1,363,146 1,223,688
----------- ----------
Total adjustments 1,727,819 357,697
----------- ----------
Net cash provided by (used in) operating activities 133,838 11,902
----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of plant and equipment (259,919) (223,407)
Construction in progress (2,169,550) (66,029)
Purchase of other assets (36,851) (8,009)
Net cash used in investing activities (2,466,320) (297,445)
----------- ----------
F-8
36
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31,
Increase (Decrease) in Cash 1995 1994
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 835,000 300,000
Common stock subscriptions 200,000 (200,000)
Loan from Bank of China 849,535 560,657
Loans from shareholders 205,984 -
Other loans 171,806 (343,671)
Additional contributions by foreign partner 15,634 -
---------- ----------
Net cash provided by financing activities 2,277,959 316,986
---------- ----------
Net increase (decrease) in cash (54,523) 31,443
Cash, beginning of year 196,570 165,127
---------- ----------
Cash, end of year $ 142,047 $ 196,570
========== ==========
See accompanying summary of accounting policies and notes to
consolidated financial statements.
F-9
37
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Summary of Accounting Policies
The Company
Harcourt Investments (USA), Inc., (Harcourt Nevada) was established on April 23,
1993. Principal business activities are the design, manufacture and sale of
writing instruments. During its first two years of operation, Harcourt Nevada
used foreign contract manufacturers to produce various types of pens and markers
which were then imported for sale in the U.S. market. In August 1994, Harcourt
Nevada acquired a 60% interest in the Xinhui Harchy Modern Pens, Ltd. joint
venture (Xinhui JV) owned by a Hong Kong corporation for common stock valued at
$2,149,200. The Xinhui JV is located in the Guangdong province of China.
In November 1994, Stardust, Inc., Production-Recording-Promotion (Stardust)
acquired 100% of the outstanding shares of Harcourt Nevada for 8,280,000 shares
of its common stock in a transaction accounted for as a recapitalization of
Harcourt Nevada with Harcourt Nevada as the acquirer (reverse acquisition).
Therefore, the historic cost of assets and liabilities were carried forward to
the consolidated entity. In 1995, stock dividends and a reverse stock split
changed the number of shares issued and outstanding to 6,110,337. The
consolidated financial statements were restated to reflect these capital stock
transactions. The historical financial statements are those of Harcourt Nevada
and include the accounts of Stardust on a manner similar to a pooling of
interest basis. Stardust's name was changed to the "Hartcourt Companies, Inc."
Hartcourt Pen Factory, Inc. (Hartcourt Pen) was established in October 1993.
Principal business activities are the sale of writing instruments. In December
1994, Harcourt Nevada acquired 100% of the outstanding shares of the common
stock of Hartcourt Pen for 52,500 shares of its common stock and 1,000 shares of
its Original Preferred Stock in a transaction accounted for similar to a pooling
of interests. In 1995, stock dividends and a reverse stock split changed the
number of shares issued to 38,625 to acquire Hartcourt Pen. The consolidated
financial statements were restated to reflect these capital stock transactions.
F-10
38
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Summary of Accounting Policies
Chinese Joint Venture
Xinhui JV is a joint venture between Xin Hui Orient Light Industry, Ltd., a
Chinese government-owned company with an anticipated 48% interest, and Harcourt
Nevada with an anticipated 52% interest. The ownership interest of each investor
has not been finalized. Xinhui JV was incorporated in November 1992 as a limited
liability Chinese-foreign equity joint venture. No material transactions
occurred until April 1993 when construction began on the plant facilities.
Limited manufacturing commenced in December 1994; and by July 1995 the
manufacturing plant was fully operational.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of The
Hartcourt Companies, Inc. and its wholly-owned subsidiaries: Harcourt Nevada,
which includes the accounts of majority-owned Xinhui JV and Hartcourt Pen. For
purposes of these consolidated financial statements, The Hartcourt Companies,
Inc. and its subsidiaries will be referred to collectively as "the Company." All
material intercompany transactions and balances have been eliminated. In
accordance with generally accepted accounting principles, all of the assets,
liabilities and operations of Xinhui JV are reflected on the consolidated
financial statements. The interest of the joint venture partner in the net
assets and net loss of the joint venture are reported as "Minority Interest" on
the consolidated balance sheets and statements of operations.
Inventories
Inventories are stated at the lower of cost (first in - first out) or net
realizable value, substantially all pertains to Xinhui JV.
F-11
39
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Summary of Accounting Policies
Plant and Equipment
Plant and equipment are stated at cost, and substantially all balances related
to Xinhui JV. Depreciation is provided over the estimated useful lives of the
respective assets on the straight-line basis ranging from five to twenty years.
All direct and attributable costs relating to the acquisition or construction of
the plant facilities, machinery and molds (including interest and exchange
differences on related borrowings during the construction period) were
capitalized as construction-in-progress. Construction-in-progress was
reclassified to property and equipment upon completion in 1995.
Intangible Assets
(Xinhui JV)
Intangible assets represent costs incurred for technical services which include
product designs, process and materials specifications and technical materials.
Such costs are being amortized on the straight-line basis over ten years
beginning July 1, 1995 (date of normal commercial production). The Company will
continually evaluate the recoverability of intangible assets based on projected,
undiscounted net cash flows.
Foreign Currencies
(Xinhui JV)
Assets and liabilities denominated in foreign currencies are translated into the
currency of U.S. dollars using the exchange rates at the balance sheet date. For
revenues and expenses, the average exchange rate during the year was used to
translate China (RMB) into U.S. dollars. Transaction gains and losses resulting
from changes in the exchange rate are included in the determination of net loss
for the period. Translation gains and losses are excluded from the consolidated
statements of operations and are credited or charged directly to a separate
component of shareholders' equity.
Earnings Per Share
Net loss per share has been calculated by dividing the net loss for each period
presented by the average number of common shares outstanding for the respective
period. Common stock equivalents, such as the preferred stock outstanding, have
not been considered in the calculation since their effect would be
anti-dilutive. The number of common shares issued in the reverse acquisition of
Harcourt Nevada and the acquisition of Hartcourt Pen are assumed to be
outstanding for all periods presented since both acquisitions were accounted for
in a manner similar to a pooling of interests. The number of common shares
issued under the stock subscription agreement, as well as, the number of shares
issued to the Company's attorney for legal fees were included in the calculation
since these shares were issued in July 1995.
F-12
40
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Summary of Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses at the date and for the periods that the consolidated
financial statements are prepared. Actual results could differ from those
estimates.
Reclassification of Amounts
Certain 1994 amounts have been reclassified to conform with the 1995
presentation.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. SFAS No. 121 establishes new guidelines regarding when impairment losses
on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. The Company does not expect adoption of SFAS No. 121 to have
a material affect on its financial position or results of operations.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into after
December 15, 1995, while the disclosure requirements of SFAS No. 123 are
effective for financial statements for fiscal years beginning no later than
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which an
entity acquires goods or services from nonemployees in exchange for equity
instruments. At the present time, the Company has not determined if it will
change its accounting policy for stock based compensation or only provide the
required financial statement disclosures. As such, the impact on the Company's
financial position and results of operations is currently unknown.
F-13
41
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Going Concern
and Management's Plans
From 1993 to 1995 the Company was engaged primarily in building a pen
manufacturing plant in China. In July 1995 the plant was fully operational and
production commenced. However, operations were insufficient to compensate for
the interest on debt incurred to pay for construction of the plant. In addition,
only 20% of the plants capacity was used. As a result, during 1995 the Company
incurred a loss of approximately $1,600,000, had a negative working capital of
approximately $5,400,000 at December 31, 1995 and is delinquent in making
certain required loan payments. These conditions raise substantial doubt about
the continuation of the business. Accordingly, the Company's continuation as a
going concern, the realization of the carrying amounts of its assets, and the
amount and classification of its liabilities are dependent upon the Company's
ability to achieve and maintain profitable operations and generate sufficient
cash flows to meet its obligations on a timely basis.
Management believes the Company will be able to generate additional cash flows
through an anticipated public offering of convertible debentures in the fall of
1996 as well as from additional funding from the foreign minority shareholder of
the Xinhui JV. In addition, management is currently negotiating with one of its
lenders to convert approximately $900,000 of debt to equity.
The accompanying financial statements do not include any adjustments that might
be necessary should the Company be unable to continue in existence.
2. Inventories
Inventories consist of the following:
December 31,
1995 1994
-------------------------
Raw materials $ 265,847 $595,098
Work-in-process 30,693 -
Finished goods 714,792 122,536
---------- --------
$1,011,332 $717,634
---------- --------
F-14
42
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. Plant and Equipment
Plant and equipment consist of the following:
December 31, Useful
1995 1994 Lives
-------------------------------------------
Building $3,479,275 $ - 20 years
Leasehold improvements 264,108 255,036 10 years
Machinery and molds 5,520,301 - 10 years
Construction in progress - 6,714,527 -
Office furniture and equipment 68,987 38,102 6 years
Vehicles 123,791 122,031 5 years
-------------------------------------------
9,456,462 7,129,696
Less accumulated depreciation 425,961 4,590
-------------------------------------------
Net plant and equipment $9,030,501 $7,125,106
-------------------------------------------
During 1995, capitalized costs of additions to plant and equipment included
approximately $600,000 relating to deposits made in 1994 toward the acquisition
of plant and equipment. These deposits are included as a component of "Deposits
and other assets" on the consolidated balance sheet as of December 31, 1994.
4. Intangible Assets
Intangible assets of $715,658 (net of accumulated amortization of $37,666) as of
December 31, 1995 relate to Xinhui JV and consist of purchased training services
and technology transfer costs.
5. Short-term Loans
At December 31, 1995, short-term loans relate to Xinhui JV and consist of twelve
separate loans from various banks and companies within the People's Republic of
China. The loans have maturity dates in 1996 and bear interest at various rates
ranging from 11.7% to 22.8%. One of the loans for $682,600 is collateralized by
machinery and equipment. The other loans are not collateralized. At December 31,
1995, the credit lines were fully utilized.
F-15
43
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Long-term Debt
December 31,
1995 1994
-------------------------
Loan payable, Bank of China, maturing in
March 1997 with interest at a floating
rate (17.3% at December 31, 1995) and
repayment terms specified by the Bank
of China $1,901,265 $1,582,315
Loan payable, vendor, with interest at
12% and monthly payments of principal
and interest of $15,253 through March,
1998(a) 429,585 -
Loans payable, shareholder, with interest
at 6% and monthly payments of principal
and interest of $4,000 through
mid-1995(a) 40,000 -
Loan payable, vendor, with interest at
10% and monthly payments of principal
of $5,000 through November, 1996(a) 61,000 -
---------- ----------
2,431,850 1,582,315
Less current portion 1,930,114 600,441
---------- ----------
$ 501,736 $ 981,874
========== ==========
(a) The Company has not made all of the required payments under these loans due
to a shortage of cash. As a result, these loans are in default and are
classified as due within the next year in these consolidated financial
statements. See Note 1 for a description of management's plans to obtain
additional debt and equity funding to satisfy the Company's obligations while
the Company develops a sufficient revenue base to achieve and sustain profitable
operations.
F-16
44
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Long-term Debt
(Continued)
Annual maturities of long-term debt are as follows: Amount
----------
1996 $1,930,114
1997 501,736
---------
$2,431,850
==========
7. Income Taxes
Since inception, the Company has reported losses for income tax and financial
reporting purposes. Accordingly, no provisions for Federal or state income taxes
were provided. The Company has a $248,000 deferred tax asset resulting from net
operating loss carryforwards. A 100% valuation allowance was provided at
December 31, 1995 and 1994 since management could not determine that it was more
likely than not that the net deferred tax asset would be realized.
At December 31, 1995, the Company has available net operating loss carryforwards
of approximately $670,000 for income tax purposes, subject to certain
limitations, which expire in varying amounts through 2010. Income from the
Xinhui JV will not be taxed in the United States until such income is
distributed by the foreign company and brought into the United States.
Under the laws of The People's Republic of China, income earned by Xinhui JV
during the first two years of operations are tax free, and the next three years
are taxed at 50% of the normal tax rates. Xinhui JV has no provision for
deferred income taxes because there are no temporary differences.
F-17
45
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Subscription Agreement for
the Sale of Common Stock
In December 1994, the Company entered into a private placement for the sale of
1,000,000 shares of the Company's common stock at a price of $1 per share. In
1995, stock dividends and a reverse stock split changed the number of shares
issued to 757,786. In January 1996, the Company issued an additional 1,000,000
shares to the original shareholders for no consideration. The consolidated
financial statements have been restated to reflect these transactions. Although
the Company issued these shares, the shares were not released until the money
was received. At December 31, 1994 the Company received $100,000 and released
100,000 shares of its common stock in connection with this agreement. In
addition, the Company received $200,000 during the first three months of 1995
and has reflected this amount as receivable under the subscription agreement at
December 31, 1994. In 1995, the remaining $700,000 was received.
9. Obligation Under Capital Lease
In April 1994, Harcourt Nevada entered into a lease agreement with Tokai-
Anja-Scripto Pen Company (Anja) for a special ball pen assembly machine for use
by Xinhui JV. This equipment was capitalized at its fair market value of
$700,000 and is included in machinery and molds within "Plant and equipment" on
the consolidated balance sheet at December 31, 1995. Related accumulated
depreciation at December 31, 1995 was $35,000. The lease provides for
semi-annual payments of $25,000 over a ten year period. Under the terms of the
lease, however, the annual lease payment may be increased or decreased, each
year, based on future purchases of Anja merchandise by Harcourt Nevada.
F-18
46
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Obligation Under Capital Lease
(Continued)
The following shows the calculation of the annual lease payment based on the
value of merchandise purchased each year during the life of the lease:
Increase/ Base Total
(Decrease) Annual Annual
Value of Purchases in Annual Lease Lease
During Each Year Lease Payment Payment
- --------------------------------------------------------------------------------
$ -0- - 100,000 $ 50,000 $50,000 $100,000
$100,001 - 200,000 $ 40,000 $50,000 $ 90,000
$200,001 - 300,000 $ 30,000 $50,000 $ 80,000
$300,001 - 400,000 $ 20,000 $50,000 $ 70,000
$400,001 - 500,000 $ 10,000 $50,000 $ 60,000
$500,001 - 700,000 $ -0- $50,000 $ 50,000
$700,001 - 1,000,000 $(25,000) $50,000 $ 25,000
$1,000,001 and over $(50,000) $50,000 $ -0-
Harcourt Nevada anticipates that minimum purchases each year from the lessor
will be in excess of $500,000. If this level of purchases each year is
sustained, then the total of lease payments over the next five years will be
$250,000. However, based on the above schedule, total lease payments over the
next five years could be as high as $500,000 or as little as zero, depending on
the value of total purchases each year by Harcourt Nevada from Anja. As of
December 31, 1995, the Company has made no payments under this lease. Included
in current liabilities at December 31, 1995 is $125,000 related to this lease.
F-19
47
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Stock Option Plan
In April 1995, the Company adopted a stock option plan (the Plan) to attract and
retain qualified persons for positions of substantial responsibility as
officers, directors, consultants, legal counsel, and other positions of
significance to the Company. The Plan provides for the issuance of both
Incentive Stock Options and Non-Qualified Stock Options. The Plan, which is
administered by the Board of Directors, provides for the issuance of a maximum
of 2,000,000 options to purchase shares of common stock at the market price
thereof on the date of grant. Such options are generally exercisable over a 10
year period from the date of grant. Each option lapses 90 days after the
optionee has terminated his continuous activity with the Company, except that if
his continuous activity with the Company terminates by reason of his death, such
option of the deceased optionee may be exercised within one year after the death
of such optionee. Options granted under the Plan are restricted as to sale or
transfer. No options have been granted under this plan as of December 31, 1995.
11. Foreign Operations
Financial data for the Company's foreign operations is as follows:
Year ended December 31,
1995 1994
----------------------------------
Revenues $ 249,794 $ 22,612
Operating loss $(1,499,598) $ (81,541)
Identifiable assets $10,366,707 $8,896,784
12. Amended Articles of
Incorporation and Original
Preferred Stock
In April 1995, the Company's Articles of Incorporation (Articles) were amended
to authorize the issuance of preferred stock. As amended, the Articles provide
that the total number of shares of stock which the Company shall have the
authority to issue is 60,001,000, consisting of 50,000,000 shares of Common
Stock, $0.001 par value (Common Stock); 1,000 shares of Preferred Stock, having
a par value of $.01 per share (the Original Preferred Stock); and 10,000,000
shares of Preferred Stock, having a par value of $.01 per share (the Class A
Preferred Stock).
F-20
48
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
12. Amended Articles of Incorporation
and Original Preferred Stock
(Continued)
Original Preferred Stock
Until December 31, 2010, with respect to the election of directors, holders of
Original Preferred Stock shall be entitled to elect that number of directors
which constitutes three-fifths (3/5ths) of the authorized number of members of
the Board of Directors and, if such three-fifths (3/5ths) is not a whole number,
then the holders of Original Preferred Stock shall be entitled to elect the
nearest higher whole number of directors that is at least three-fifths (3/5ths)
of such membership.
The holders of shares of Original Preferred Stock shall not be entitled to
receive any dividends.
The holders of record of shares of Original Preferred Stock shall, at their
option, be entitled to convert each share of Original Preferred Stock into 1,000
shares of fully paid and non-assessable Common Stock. Such shares are owned by
the President of the Company.
In the event of liquidation, dissolution, or winding up of the affairs of the
Company whether voluntary or involuntary, the holders of record shall be
entitled to be paid the full par value of Original Preferred Stock, and no more.
Class A Preferred Stock
The 10,000,000 shares of authorized and unissued Class A Preferred Stock may be
issued with such designations, powers, preferences and other rights and
qualifications, limitations and restrictions thereof as the Company's Board of
Directors elects for a given series. To date, only one series has been
authorized with defined rights and privileges (Series B Preferred Stock). No
shares have been issued.
F-21
49
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
13. Commitments
On June 23, 1995, the Company entered into an Agreement and Plan of
Reorganization with Pego Systems, Inc. (Pego) and the shareholders of Pego
pursuant to which the Company agreed to acquire all of the outstanding shares of
Pego common stock in exchange for 1,500,000 shares of the Company's Class A
Preferred Stock, which is convertible into common stock, and a promissory note
in the amount of $500,000 payable in two equal installments. The first
installment is due 60 days after the approval by the Securities and Exchange
Commission of a $5,000,000 public offering, and the second installment is due 60
days thereafter. The transaction is expected to close upon receipt of the
audited financial statements of Pego. Neither of the above two events are
currently in process. The owner of Pego is a current director of the Company.
See Note 17.
The Company has issued a letter of intent dated June 10, 1995 to acquire Abel
Pen Company (Abel), a California corporation located in San Francisco,
California. Abel has been in business for the last twenty years and is a
wholesaler of writing instruments and other office supplies. In 1994, Abel's
sales were approximately $2 million with a net income of $50,000. The purchase
price for this acquisition is to be $450,000, $200,000 cash and $250,000 of the
Company's Preferred Stock.
In January 1995, the Company entered into a preliminary agreement with Alfa Pen
Company to set up a joint venture in Slovakia (Slovakia JV). Upon receipt of the
necessary financing, the Company intends to contribute $2,000,000 for 51% of the
equity of the Slovakia JV. If the Slovakia JV is successfully established, a new
factory will be set up outside of the Province of Slovakia and it will be custom
designed for the production of writing instruments. Consummation of this
acquisition is subject to raising the necessary financing.
F-22
50
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
13. Commitments
(Continued)
In June 1994, the Company signed a preliminary agreement to create a joint
venture (Shanghai JV) with the largest ball pen manufacturing company in China,
the Shanghai Ball Pen Company. The agreement calls for a total investment of
Hartcourt of $4 million to obtain a 55% share in the joint venture. This
agreement was executed subject to the Company obtaining adequate funding for the
$4 million from outside investors and receipt of government approvals. The
Company is seeking to raise the $4 million through a private placement effort to
be undertaken by a financial institution in Hong Kong and/or in combination with
the public offering discussed in the following paragraph.
The Company intends to finance the acquisition of the Shanghai JV, Pego and Abel
through bank financing and a public offering of convertible debentures. The
Company has received a letter of intent from an underwriter with respect to a
$5,000,000 offering which is expected to be filed with the Securities and
Exchange Commission in August 1996. The offering, which is on a "best efforts"
basis, is expected to commence in August 1996.
14. Fair Value
The Company has cash, receivables, and accounts payable for which the carrying
value approximates fair value due to the short-term nature of these instruments.
The carrying value of notes payable and long-term debt approximates fair value
at December 31, 1995 and 1994 since these notes substantially bear interest at
floating rates based upon the lenders' "prime" rate. The fair value of debt
bearing fixed interest rates cannot be estimated due to the present default
status. The fair value of amounts due to/from minority shareholder cannot be
estimated due to their related party nature.
15. Supplemental Disclosure of
Cash Flow Information
During 1995, $9,524 of interest payments were made. In 1994, no interest
payments were made. No income tax payments were made during 1995 and 1994.
Interest totaling $167,261 was capitalized to property and equipment in 1995
and $323,840 was capitalized to construction in progress in 1994.
F-23
51
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
15. Supplemental Disclosure of
Cash Flow Information
(Continued)
The Company entered into a capital lease for new equipment with a fair value of
$700,000 in 1994.
During 1994, the Company acquired a 60% interest in Xinhui JV in a transaction
valued at $2,149,200. The acquisition was recorded under the purchase method of
accounting. The fair values of Xinhui JV's assets and liabilities at the date of
acquisition are presented below:
Cash $137,824
Inventories 3,051
Prepaid expenses and deposits 801,380
Property, plant and equipment 179,043
Construction in progress 5,711,913
Intangibles 714,919
Accounts payable and accrued expenses (362,351)
Capital lease obligation (700,000)
Bank loans (1,378,477)
Other loans (1,525,302)
-----------
Net assets 3,582,000
Acquired interest 60.00%
-----------
$2,149,200
===========
16. Related Party Transactions
During the past two years, the Company made advances amounting to $168,575 to a
related party. All these advances were unsecured, non-interest bearing, due on
demand and outstanding as of December 31, 1995.
In addition, a related party loaned the Company $272,416. This loan bears
interest at 24%, has no underlying collateral or defined repayment terms and is
outstanding as of December 31, 1995.
F-24
52
<PAGE>
The Hartcourt Companies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
17. Subsequent Events
In January 1996, the Company signed a memorandum of understanding with Yafa Pen
Company, Inc. (Yafa) in which the Company agreed to (1) lend Yafa $200,000
(Note) which will be collateralized by a pledge of all of the outstanding shares
of the common stock of Yafa, plus a personal guarantee by Yafa's President; (2)
acquire all of the issued and outstanding shares of Yafa for $285,000; and (3)
reduce the purchase price by offsetting the total amount of principal and
interest due under the Note on the date the transaction is consummated. Yafa's
President shall receive shares of restricted common stock of the Company in an
amount equal to $175,000. The price per share shall be the average price per the
ten trading days prior to the date the acquisition of the Yafa stock is
consummated. The Company will buy back $75,000 of the restricted shares of
common stock within twelve months of the date of the closing of the Yafa
transaction. The price per share for the repurchase shall be determined by the
same formula noted above. In addition, the Company would have an option to
purchase the building in which Yafa operates in exchange for 100,000 shares of
the Company's Series D Preferred Stock (Series D). The rights and preferences of
Series D have not yet been defined.
The Company entered into a series of equity-related transactions, the most
significant of which occurred in March 1996. On March 21, 1996, the Company
entered into a purchase contract with a third party which resulted in the
issuance of 60,000 shares of common stock in exchange for a complete line of
cosmetics, including inventory marketed under a brand name, which was valued at
$310,815. The Company intends to ship the line of cosmetics to China for resale.
As indicated in Note 13, the Company entered into an Agreement and Plan of
Reorganization ("Agreement") with Pego and the shareholders of Pego to acquire
all of the outstanding shares of Pego common stock in exchange for 1,500,000
shares of the Company's Class A Preferred stock. On April 30, 1996, the
Agreement was amended so that the Company would issue 1,740,000 shares of its
$.01 par value Series B Preferred Stock with specified rights and privileges.
F-25
53
<PAGE>
THE HARTCOURT COMPANIES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
(Unaudited)
Quarter Ended September 30, 1996
54
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
September 30,
1996 1995
----------- -----------
ASSETS
Current assets:
Cash $ 7,430 $ 92,800
Accounts Receivable 624,019 156,722
Inventories 413,019 844,293
Prepaid expenses 89,238
Amount due from shareholder 114,671
Common stock subscriptions receivable 300,000
----------- -----------
Total current assets 1,044,468 1,597,724
Property, plant and equipment, net of
accumulated depreciation 41,827 6,016,290
Construction in progress 2,846,107
Investments 33,999,994
Other assets 339,848 225,028
Intangible assets, net of amortization 753,324
----------- -----------
TOTAL ASSETS $35,426,137 $11,438,473
=========== ===========
55
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
September 30,
1996 1995
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 697,707 $ 811,821
Bank loans 776,629
Current portion of obligations under
capital lease 700,000 114,950
Current portion of long-term debt 1,430,288
Other loans 11,246 1,919,885
----------- -----------
Total current liabilities 1,408,953 5,053,573
Obligations under capital lease, less
current portion 585,050
Long-term debt, less current portion 12,139,397 1,050,594
Loan from shareholder
Minority interest 2,360,257
Commitments and contingencies
Shareholders' equity:
Original preferred stock - $0.001 par value:
1,000 shares authorized, issued and
outstanding 10 10
Common stock - $0.001 par value; 50 million
(100 million in 1995) shares authorized;
9,284,718 shares (13,729,018 in 1995)
issued and outstanding 21,129 16,127
Additional paid in capital 23,587,205 3,328,781
Treasury stock (341,218)
Deficit accumulated during the
development stage (1,389,339) (1,094,387)
Foreign currency translation adjustment 138,468
----------- -----------
Total shareholders' equity 21,877,787 2,388,999
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $35,426,137 $11,438,473
=========== ===========
See accompanying note to consolidated financial statements
56
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Unaudited
Nine months ended
September 30,
1996 1995
---------- ----------
Sales $ 374,367 $ 220,840
Cost of sales 556,684 142,326
---------- ----------
Gross profit (loss) (182,317) 78,514
Other income (loss)) (36,510) 2,455
---------- ----------
Net revenues (218,827) 80,969
General and administrative expenses 388,853 633,355
---------- ----------
Net loss $(607,680) $(552,386)
========== ==========
See accompanying note to consolidated condensed financial statement.
57
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
Nine months ended
September 30,
Increase (Decrease) in Cash 1996 1995
------------ -----------
Cash flows from operating activities:
Net loss $ (607,680) $ (552,388)
------------ -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,280
Changes in:
Accounts receivable (554,900) (147,071)
Inventories 598,313 (126,658)
Prepaid expenses 72,051 110,325
Amount due from joint venture partner 168,575 (12,528)
Loan from shareholder (272,416)
Common stock subscriptions receivable (100,000)
Accounts payable and accrued expenses (1,343,958) 18,953
------------ -----------
Total adjustments (1,328,055) (256,980)
------------ -----------
Net cash used in operating activities (1,935,735) (809,366)
------------ -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (5,605,711)
Construction in progress 3,868,420
Investments (29,370,830)
Deposits 392,555
Purchase of other assets (316,667) (38,405)
------------ -----------
Net cash used in investing activities (29,687,497) (1,383,141)
------------ -----------
Cash flows from financing activities
Issuance of common stock for investments
and to pay off debt 19,839,708
Loan from bank of China 419,810
Loans from banks and others 11,648,907 878,775
Decrease in minority interest (101,731)
Additional paid-in capital 52,500
Receipts on common stock subscriptions 700,000
------------ -----------
Net cash provided by financing activities 31,488,615 1,949,354
------------ -----------
Effect of exchange rate changes on cash 139,383
Net increase (decrease) in cash (134,617) (103,770)
Cash, beginning of year 142,047 196,570
------------ -----------
Cash, September 30 $ 7,430 $ 92,800
============ ===========
See accompanying note to consolidated condensed financial statements.
58
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995
Unaudited
<TABLE>
<CAPTION>
Foreign
Additional Currency
Preferred Stock Common Stock Paid in Accumulated Translation Treasury
Shares Amount Shares Amount Capital Deficit Adjustment Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 1,000 $10 13,729,018 $13,729 $ 3,413,679 ($2,135,892) $113,344 $1,404,870
Shares issued to attorney for
work on private placement
and obtaining public shell 135,000 135 527,715 527,850
Return of 47,746 shares by
attorney and held in
treasury (341,218) (341,218)
Shares issued in payment of
outstanding liabilities on
behalf of Xin Hui joint
venture 25,000 25 106,730 106,755
Shares issued in connection
with purchase of
inventories 66,335 66 330,099 330,165
Shares issued in settlement
of accounts payable 560 2,813 2,813
3% stock dividend as of -
5/3/96 417,872 418 (418)
3% stock dividend as of
7/31/96 431,386 431 (431) -
One for five reverse stock
split as of 8/1/96 (11,844,154) -
Shares issued to acquire
certain investments 5,898,700 5,899 18,994,095 18,999,994
Shares issued in conversion
of debt to equity 425,000 426 212,074 212,500
Sale of Harcourt Investments
(USA), Inc. 1,355,082 (113,344) 1,241,738
Net loss (607,680) (607,680)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1996 1,000 $10 9,284,717 $21,129 $23,587,205 ($1,389,339) - ($341,218) $21,877,787
=======================================================================================================
</TABLE>
See accompanying note to consolidated condensed financial statement.
59
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. Basis of Presentation
The accompanying unaudited consolidated financial statements for The
Hartcourt Companies, Inc. and Subsidiaries (the "Company") as of September
30, 1996 and for the nine month periods ended September 30, 1996 and 1995
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been included. These
results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the
preparation of the Company's 1995 Annual Report.
These consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
incorporated by reference to the Company's Annual Report for the year ended
December 31, 1995.
The results of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results to be expected for any other period
or for the full year.
2. Sale of Harcourt Investments, Inc.
In September 1996 the Company sold its wholly-owned subsidiary, Harcourt
Investments, Inc., to CKES, a Nevada Corporation. Harcourt Investments owned
a 52% interest in XinHui Harchy Modern Pens, Ltd., a joint venture in the
Peoples Republic of China. The shares of Harcourt Investments were sold for
$3 million which is payable in 60 equal monthly installments of $50,000 each,
beginning October 1, 1999. Interest accrues at 6% per annum and is payable at
the end of the loan period.
Remaining on the Company's financial statements, related to the Chinese joint
venture, is an account receivable of approximately $544,000 and a capitalized
lease of $700,000.
60
<PAGE>
3. Investment in Beijing Apartment Complex
In August 1996 the Company purchased an apartment complex located near
Beijing, China for $22 million from NuOasis International, Inc. The purchase
price included the issuance of 4 million shares of common stock, valued at
$10 million, and a promissory note to NuOasis for $12 million. The Note is
due and payable on August 17, 1997 or, if construction is not complete, then
the note is extended to the date the certificate of occupancy is received.
4. Investment in Alaskan Gold Claims
In September 1996 the Company purchased several gold mining claims
encompassing 320 acres of land in the state of Alaska for $6 million. The
purchase was made by issuing 1,298,700 shares of the Company's common stock.
The value of the purchase was supported by a current appraisal.
5. Purchase of Cosmetic Inventory
In March 1996 the Company purchased a line of cosmetics and related supplies
from Camille St. Moritz for $300,000. The purchase was made by the issuance
of 60,000 shares of common stock.
61
<PAGE>
PART III
Item 1. Index to Exhibits
The following list describes the exhibits filed as part of this
registration statement on Form 10-SB:
Exhibit
No. Description of Document Page
- ------- ------------------------------------------------------------ -----
2.01 Agreement and Plan of Reorganization, dated November 5,
1994 among Stardust, Inc.-Production-Recording-Promotion,
Hartcourt Investments (USA) Inc. ("Harcourt USA") and the
shareholders of Harcourt USA. 65
2.02 Agreement and Plan or Reorganization dated December 1,
1994 Among Harcourt USA. The Hartcourt Pen Factory, Inc.
("Hartcourt Pen") and the Hartcourt Pen shareholder. 75
3.01 Articles of Incorporation of the Company, as amended. 85
3.02 Bylaws of the Company. 92
3.03 Amendment to the Bylaws of the Company. 99
4.01 Articles of Amendment to Articles of Incorporation of the
Company Regarding the Creation of Preferred stock and the
Statement of Rights and Preferences of Common Stock,
Original Preferred Stock and Class A Preferred Stock. 100
10.01 Lease between the Company and Larry M. Mitobe for the
Company's headquarters facility, dated April 9, 1996. 108
10.02 Equipment Lease between Harcourt USA and Anja Engineering
Corporation, dated April 4,1994. 113
10.03 Stock Exchange Agreement between Harcourt USA and Eastern
Rocester, dated August 8, 1994. 119
62
<PAGE>
Exhibit
No. Description of Document Page
- ------- ------------------------------------------------------------ -----
10.04 1995 Stock Option Plan. 121
10.05 Purchase Contract between The Hartcourt Companies, Inc.
and Exceptional Specialty Products, Inc., dated March 21,
1996. 131
10.06 Purchase and Sale Agreement, dated August 8, 1996, between
The Hartcourt Companies, Inc. and NuOasis International,
Inc., and Addendum to Purchase and Sale Contract. 134
10.07 Convertible Secured Promissory Note, dated August 8, 1996,
in connection with Purchase and Sale Agreement, dated
August 8, 1996 between The Hartcourt Companies, Inc. And
NuOasis International, Inc. 149
10.08 Convertible Secured Promissory Note, dated August 8, 1996,
In connection with Purchase and Sale Agreement, dated
August 8, 1996 between The Hartcourt Companies, Inc. and
NuOasis International, Inc., as amended. 153
10.09 Sales Agreement, dated September 17, 1996, between The
Hartcourt Companies, Inc. and Promed International Ltd. 157
10.10 Sales Agreement, dated September 17, 1996, between The
Hartcourt Companies, Inc. and Mandarin Overseas Investment
Co., Ltd. 159
10.11 Purchase and Sale Agreement, dated September 27, 1996,
between The Hartcourt Companies, Inc. and CKES
Acquisitions, Inc. 161
10.12 Secured Promissory Note, dated September 27, 1996, in
connection with Purchase and Sale Agreement between The
Hartcourt Companies, Inc. and CKES Acquisitions, Inc. 164
21.01 Subsidiaries of the Company. 167
27.01 Financial Data Schedule. 168
63
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
THE HARTCOURT COMPANIES, INC.
Date: January 14, 1997 By:/s/ Alan V. Phan
- ----------------------- -------------------------------------
Alan V. Phan, Chairman of the Board,
President, Chief Executive Officer and
Chief Financial Officer
64
AGREEMENT AND PLAN
OF
REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, made this 5th day of November,
1994, by and between Stardust, Inc. Production-Recording-Promotion, a Utah
corporation having its principal place of business at 5100 South 1050 West,
Riverdale, Utah, 84405, ("Stardust"); Harcourt Investments (USA), Inc., a Nevada
corporation having its principal place of business at 20022 State Road,
Cerritos, California ("Harcourt"); and the undersigned shareholders of Harcourt
("Shareholders").
WHEREAS, Shareholders own one hundred percent (100%) of the Share ownership
interest of Harcourt, and;
WHEREAS, Shareholders wish to sell and Stardust wishes to acquire
Shareholders' one hundred percent (100%) capital stock ownership of Harcourt,
and;
WHEREAS, the parties to this Agreement herein agree that this transaction
is by means of private sale, and waive any and all reference and/or rights as
the respective consideration paid or shares received by purchaser as being a
securities transaction, as promulgated by any state, territorial, provincial or
federal agency or law.
WHEREAS, the parties to this Agreement have as herein represented and
warranted, entered into this binding Agreement, which terms are herein
incorporated and agreed to by the parties hereto; that as such they are an
integral part hereof, and shall remain and survive as to their construction
intent and content pursuant and subject to all conditions of this Agreement, as
contained herein.
WHEREAS, Stardust wishes to acquire and Shareholders wish to transfer all
of the issued and outstanding capital stock of Harcourt in a transaction
intended to qualify as a reorganization within the meaning of Section
368(a)(b)(B) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, Stardust and Shareholders adopt this Plan or Reorganization
and agrees as follows:
ARTICLE 1. EXCHANGE OF STOCK
1.1 NUMBER OF SHARES. Shareholders represent and warrant that they are
selling one hundred percent (100%) (25,000 shares of no par value common stock)
issued and outstanding interest ownership of Harcourt (a Nevada corporation), to
Stardust for and in exchange for Shareholders receipt of the terms and
conditions of the full consideration of payment by Stardust to Shareholders of
fourteen million five hundred seventy five thousand (14,575,000) shares of
Stardust common stock at closing.
Exhibit 2.01
65
<PAGE>
1.2 DELIVERY OF CERTIFICATES BY SHAREHOLDERS. The transfer of the Harcourt
shares by each of the Shareholders shall be effected by the delivery to Stardust
at the Closing of the total issued shares of capital stock represented by
certificates representing 25,000 shares of common stock accompanied by stock
powers executed in blank by each of the Shareholders.
1.3 DELIVERY OF CERTIFICATES BY STARDUST. On the date of the closing of
this Agreement, Stardust shall cause to be transferred and delivered to the
Shareholders the total purchase consideration herein defined, as full payment of
the purchase of one hundred percent (100%) of Shareholders' interest in
Harcourt.
1.4 RESTRICTIONS ON STARDUST COMMON STOCK. The Stardust shares issuable
pursuant to this Plan of Reorganization will be restricted securities within the
meaning of the Securities Act of 1933, as amended (the "Act").
ARTICLE II. THE CLOSING
The Closing contemplated by Articles I shall be held at such place and time
as shall be agreed upon by the parties, but in no event shall the Closing occur
later than December 31, 1994.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF
HARCOURT, INC., AND SHAREHOLDERS
Shareholders and Harcourt, jointly and severally, represent and warrant to
Stardust as follows:
3.1 CORPORATE STATUS. Harcourt is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada.
3.2 CORPORATE POWER. Harcourt has the corporate power to own, lease, or
operate all properties and assets owned, leased or operated by it, to carry on
its business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement and to consummate the transactions contemplated by this
Agreement.
3.3 ARTICLE OF INCORPORATION. Harcourt's Articles of Incorporation, and any
amendments or restatement thereof through the date hereof, as filed with the
Nevada Secretary of State, are attached as Exhibit 3.3.
3.4 BYLAWS. Harcourt has not adopted bylaws.
3.5 CAPITALIZATION. The authorized capital stock of Harcourt consists of
twenty five thousand (25,000) shares of common stock, with no par value per
share, of which twenty five thousand (25,000) shares are issued and outstanding.
Harcourt has no outstanding subscription, options, warrants, call, or other
agreement or commitments entitling any person to purchase
Exhibit 2.01
66
<PAGE>
or otherwise acquire any shares of common stock of Harcourt or other capital
stock or securities of Harcourt, including any right of conversation or exchange
under any outstanding security or other instrument. Harcourt is not subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock of any security convertible or
exchangeable for any of its capital stock. There are no voting trusts or other
agreements or understandings with respect to the voting of the capital stock of
Harcourt. The common stock of Harcourt is vested with all the voting rights in
Harcourt.
3.6 SUBSIDIARIES. Harcourt has no subsidiaries or affiliated corporations
within the meaning of Section 1563 (a) or Section 1564 of the Code.
3.7 SOLE SHAREHOLDERS. Shareholders are the only shareholders of Harcourt.
3.8 STOCK PAID AND NONASSESSABLE. The Harcourt Shares have been duly and
validly authorized and issued, and are fully paid and nonassessable and free
from preemptive and cumulative voting rights.
3.9 TITLE TO SHARES. Shareholders are the sole owners, free and clear of
any liens and encumbrances, of the number of the Harcourt shares specified in
Section 1.1. Such Shares represent all of the issued and outstanding capital
stock of Harcourt.
3.10 AUTHORIZATION. This Agreement has been duly authorized, executed, and
delivered by Harcourt, and has been approved by Harcourt's shareholders, and
constitutes a valid and binding agreement of Harcourt enforceable in accordance
with its terms.
3.11 FINANCIAL STATEMENTS. Are complete and correct and have been prepared
in accordance with generally accepted accounting principals on a basis
consistent with prior periods and fairly present the financial condition of
Harcourt at the date of such statements, and the results of operations for the
period ended on such date and reflect all adjustments which are necessary for a
fair presentation of the results reported.
3.12 COMPLIANCE. Harcourt is not in breach of, or in conflict with, any of
the terms, conditions, or provisions of its articles of Incorporation.
3.13 DIRECTORS AND OFFICERS. As of the date hereof, the following are
officers and directors of Harcourt: Alan V. Phan, Michael Carauna, and Frederic
Cohn. Alan V. Phan is Chief Executive Officer, Michael Carauna is Vice-President
of Harcourt.
3.14 TITLE TO PROPERTY. Harcourt has good and marketable title to all of
the property and assets reflected in the balance sheet delivered pursuant to
3.11 and such property and assets are not subject to any mortgage, pledge, lien
or encumbrance.
Exhibit 2.01
67
<PAGE>
3.15 PATENTS, TRADEMARKS, ETC. Harcourt has received no notice of
infringement of, or conflict with, asserted rights of others with respect to any
patents, trademarks, service marks, trade names or copyright, nor is Harcourt
aware of any infringement by other upon its name. There are not patents, patent
rights, trademarks, service marks, conducted or as contemplated by Harcourt
which Harcourt does not own or possess adequate rights to use. All of Harcourt's
employees, including without limitation Shareholders, have transferred to
Harcourt all of their right , title and interest in and to any intellectual
property owned by them or in which they share an ownership interest (if any)
related in any way to Harcourt business.
3.16 NO REGULATORY VIOLATION. To the best of Harcourt's and the
Shareholders' knowledge, Harcourt is not in violation of any law, statue, order,
rule, regulation, writ, injunction, or decree of any governmental authority or
court, domestic or foreign, with respect to the conduct of its business, the
operation of Harcourt's facility or the ownership of its properties, nor will
the execution of this Agreement or consummation of any of the transactions
contemplated by this Agreement result in any such violation.
3.17 NO CONTRACTUAL VIOLATION. Neither the execution of this Agreement, nor
the performance of Harcourt's and Shareholders' obligations pursuant to this
Agreement or the consummation of the transactions contemplated hereby, will
conflict with, or result in a breach or violation of any of the terms or
provisions of, or constitute, or with the passage of time or the giving of
notice constitute, a default under any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond debenture, note agreement, or other
evidence of indentureness, lease, contract or other agreement or instrument to
which Harcourt is a party, or by which Harcourt or any of its properties is
bound, or Harcourt's Articles of Incorporation; and no consent, approval,
authorization, or order of any court or governmental agency or body is required
for the consummation by Harcourt or Shareholders of the transactions
contemplated hereby .
3.18 MATERIAL CONTRACTS. Harcourt warrants that there are not material
agreements, written or oral, related to Harcourt, except those specifically
disclosed in Exhibit 3.11.
3.19 UNDISCLOSED LIABILITIES. Harcourt has no liabilities of any nature
except as specifically disclosed on Exhibit 3.11 or to Stardust in writing.
3.20 LITIGATION. There are no actions, suits or proceedings to which
Harcourt is a party, or of which any of its property is the subject, pending
before or brought by any court or governmental agency or body, nor, to the
knowledge or Harcourt or Shareholders, is any such action, suit, or proceeding
threatened, which would, singly, or in the aggregate, result in any material
adverse change in the condition (financial or otherwise), business, key
personnel, properties, assets, results of operations (present or prospective) or
net worth of Harcourt.
3.21 PROFIT SHARING PLANS, ETC. Harcourt is not a party to and has no
obligation, contingent or otherwise, under any materials, oral or written,
expressed or implied: (i) commitment or agreement, with officers, directors,
Exhibit 2.01
68
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employees, or any other persons providing similar services; (ii) agreement or
arrangement providing for the payment of any incentive, bonus, commission, or
deferred compensation or severance or termination pay; (iii) pension, profit
sharing, stock purchase, stock option, group life insurance, hospitalization
insurance, disability, retirement, or any other employee benefit plan, fringe
benefit plan, agreement, or arrangement, whether formal or informal and whether
legally binding or not; or (iv) collective bargaining or union contract or
agreement.
3.22 TAX RETURNS. Harcourt has timely filed all tax returns and reports
required to be filed by it, and has paid in a timely manner all taxes that are
shown on such returns as being due and payable other than such taxes as are
being contested in good faith and for which adequate reserves have been
established. Harcourt is not a Subchapter S Corporation.
3.23 NO MATERIAL CHANGES. There have been no material adverse changes in
the condition (financial or otherwise), results of operations, or shareholders'
equity of Harcourt since the date of the latest balance sheet contained in
Exhibit 3. 11, except for changes (material or otherwise) resulting from its
operations conducted in the ordinary course of business.
3.24 NO BROKERS. No finders' fees or brokerage commissions of any kind will
be payable by Harcourt in connection with the transactions described in this
Agreement.
3.25 DISCLOSURE OF MATERIAL FACTS. Neither Harcourt nor Shareholders have
knowingly failed to disclose to Stardust any facts material to the assets,
liabilities, earnings, prospects, and business of Harcourt. No representation or
warranty by Harcourt and Shareholders contained in this Agreement, and, to the
best of their knowledge, no statement contained in any document (including,
without limitation, the financial statements and Exhibits hereto), list,
certificate, or other writing furnished or to be furnished by or on behalf of
Harcourt or Shareholders or any of their representations in connection with the
transactions contemplated hereby, contains or will contain any untrue statements
of a material fact, or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was or will be made, in order to
make the statements contained herein or there not misleading or necessary in
order to provide fully and fairly the information required to be provided in any
such document, list, certificate, or other writing.
3.26 INTERPRETATION. As used in this Agreement, the term "best knowledge"
or "Harcourt's best knowledge" refers to the best knowledge of the officers and
directors of Harcourt.
3.27 INVESTMENT REPRESENTATIONS. Shareholders acknowledge that the
restricted Stardust Shares which they are receiving in exchange for their
Harcourt Shares have not been registered under the Securities Act of 1933 or
state blue sky laws, and that the restricted Stardust Shares may not be
transferred without such registration or an opinion of counsel that registration
is unnecessary ; Shareholders have the financial ability to bear the economic
risk of an investment in the Stardust Shares and have no need for liquidity in
Exhibit 2.01
69
<PAGE>
such investment. Shareholders have had an opportunity to inspect Stardust's
corporate records and ask questions of officers of Stardust and are capable of
evaluating the merits and risks of consummating this transaction.
3.28 AUTHORITY. Shareholders have he power and legal capacity to enter into
this Agreement, the execution, delivery and performance of this Agreement has
been duly authorized by all required shareholders action on the part of Harcourt
and this agreement constitutes a valid, binding and legal obligation of
Shareholders,
ARTICLE IV. REPRESENTATIONS AND WARRANTS
OF STARDUST, INC.
STARDUST represents and warrants to Shareholders, as follows:
4.1 CORPORATE AUTHORITY: Authorization, Stardust has the full corporate
power and authority to enter into this Agreement, the execution of which has
been duly authorized by all requisite corporate action on the part of Stardust.
4.2 ISSUANCE OF SHARES. The Stardust Shares will be fully paid, validly
issued and nonassessable when issued in exchange for the Harcourt Shares.
4.3 FINANCIAL STATEMENTS. Exhibit 4.3 is a true and correct copy of
Stardust's financial statements as of May 31, 1994. Such financial statements
are complete and correct and have been prepared in accordance with generally
accepted accounting principals on a basis consistent with prior periods and
fairly present the financial condition of Stardust at the date of such
statements, and the results of operations for the period ended on such date and
reflect all adjustments which are necessary for a fair presentation of the
results reported.
ARTICLE V. CONDUCT OF SHAREHOLDERS AND
HARCOURT PENDING THE CLOSING
Shareholders and Harcourt agree that Harcourt will conduct itself in the
following manner pending the Closing:
5.1 CAPITALIZATION, ETC. Harcourt will not, without the prior written
consent of Stardust: (i) issue or commit to issue any capital stock or other
ownership interest; (ii) grant or commit to grant any options, warrants, or
other rights to subscribe for, purchase or otherwise acquire any shares of its
capital stock or other ownership interest, or issue or commit to issue any
securities convertible into or exchangeable for shares of its capital stock or
other ownership interest: (iii) declare, set aside, or pay any dividends or
distributions; (iv) directly or indirectly terminate or reduce or commit to
terminate or reduce or commit to acquire any of its capital stock or other
ownership interest, or directly or indirectly terminate or reduce or commit to
terminate or reduce any bank line of credit or the availability of any funds
under any other loan or financing agreement; (v) effect a stock split,
reclassification or recapitalization; (vi) change its Articles of Incorporation
or other governing instruments; (vii) borrow or agree to borrow any funds,
guarantee or agree to guarantee the obligations of others, or indemnify or agree
to
Exhibit 2.01
70
<PAGE>
indemnify others; (viii) waive or commit to waive any rights of substantial
value; or (ix) other than in the ordinary course of business. enter into any
agreement, contract, or commitment; except, in each case, contemplated by this
Agreement.
5.2 PROMPT ACTION. Harcourt and Shareholders will promptly take all action
contemplated by this Agreement or necessary to complete the transactions
contemplated by this Agreement.
5.3 CONFIDENTIALITY. Shareholders and Harcourt will treat this Agreement,
and the transactions contemplated by this Agreement as confidential, and will
not issue any press release or otherwise provide any information regarding such
transactions contemplated by this Agreement.
5.4 BUSINESS IN ORDINARY COURSE. Except as otherwise specifically provided
in this Agreement, Harcourt shall conduct its business only in its ordinary
course.
ARTICLE VI. ACCESS
From the date hereof to the Closing, Harcourt and Stardust shall provide
each other full access to their premises and books and records, and shall cause
each of their officers to furnish the other such financial and operating date
and other information with respect to each of their business and properties as
the other shall, from time to time, reasonably request, provided, however that
any such investigation shall not affect any of the representations and
warranties hereunder. In the event of termination of this Agreement, each parry
will return to the other all documents and other materials obtained in
connection with the transactions contemplated hereby, and not disclose or
utilize any information obtained from the other.
ARTICLE VII. CONDITIONS PRECEDENT TO SHAREHOLDERS'
AND HARCOURT'S OBLIGATIONS
The obligations of Shareholders and/or Harcourt under this Agreement, are
subject to fulfillment, before or on the date of Closing, of each of the
following conditions, any of which may be waived in writing at the discretion of
Stardust.
7.1 REPRESENTATIONS AND WARRANTIES OF HARCOURT AND SHAREHOLDERS. The
representations and warranties of Harcourt and Shareholders contained herein
shall be true and correct, in all material respects, as of the date hereof, and
shall continue to be true and correct, in all material respects, as of the
Closing.
7.2 COVENANTS AND AGREEMENTS OF HARCOURT AND SHAREHOLDERS. Harcourt and
Shareholders shall have performed all obligations and complied with all
covenants an conditions required by this Agreement to be performed or complied
with by them at or prior to the Closing.
7.3 NO ADVERSE CHANGES. No information shall have come to the attention of
Exhibit 2.01
71
<PAGE>
Stardust pursuant to its investigation of Harcourt and Shareholders which is not
consistent, in all material respects, with information previously furnished by
Harcourt and Shareholders to Stardust.
ARTICLE VIII. CONDITIONS PRECEDENT TO
STARDUST'S OBLIGATIONS
The obligations of Stardust under Agreement are subject to the fulfillment,
before or on the date of Closing, of each of the following conditions, any of
which may be waived in writing at the discretion of Harcourt:
8.1 REPRESENTATIONS AND WARRANTIES OF STARDUST. The representations and
warranties of Stardust contained herein shall be true and correct, in all
material respect, as of the date hereof, and shall continue to be true and
correct, in all material respects, as of the Closing.
8.2 COVENANTS AND AGREEMENTS OF STARDUST. Stardust shall have performed all
obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing.
8.3 APPROVAL OF THE BOARD OF DIRECTORS OF STARDUST. The Board of Directors
of Stardust shall have approved the execution, delivery and performance of this
Agreement.
ARTICLE IX. INDEMNIFICATION
9.1 INDEMNIFICATION OF STARDUST. Shareholders agree to indemnify
Shareholders against any loss, damage, or expense (including reasonable
attorneys' fees) suffered by Stardust from (l) any breach by Shareholders or
Harcourt of this Agreement; or (2) any inaccuracy in or breach of any of the
representations, warranties, or covenants by Shareholders or Harcourt.
9.2 INDEMNIFICATION OF SHAREHOLDERS. Stardust agrees to indemnify
Shareholders against any loss, damage, or expense (including reasonable
attorneys' fees) suffered by the Shareholders from any inaccuracy in or breach
of any of Stardust's representations, warranties or covenants herein.
9.3 DEFENSE OF CLAIMS. Upon obtaining knowledge thereof, the indemnified
parties shall promptly notify the indemnifying party of any claim which has
given or could give rise to a right of indemnification under this Agreement. If
the right of indemnification relates to a claim asserted by a third party
against the indemnified party, the indemnifying party shall have the right to
employ counsel acceptable to the indemnified party to cooperate in the defense
of any such claim. So long as the indemnified party will not settle such claim,
if the indemnifying party does not elect to defend any such claim, the
indemnified party shall have no obligation to do so.
Exhibit 2.01
72
<PAGE>
ARTICLE X. TERMINATION
10.1 CIRCUMSTANCES OF TERMINATION. This Agreement may be terminated (l) by
mutual consent in writing; (2) by either Harcourt or Stardust if there has been
a material misrepresentation or material breach of any warranty or covenant by
the other party, which determination on behalf of Stardust shall be made by its
Board of Directors in its sole discretion; or (3) by either Shareholders of
Stardust if the Closing shall not have taken place, unless adjourned to a later
date by mutual consent in writing, by the date set forth in Article II.
10.2 EFFECT OF TERMINATION. In the event of a termination of this Agreement
pursuant to Section 10. 1, each party shall pay the cost and expenses incurred
by it in connection with this Agreement and no party (or any of its officers,
directors, and shareholders) shall be liable to any other party for any costs,
expenses, damage or loss of anticipated profits hereunder.
ARTICLE XI. MISCELLANEOUS
11.1 WAIVERS. No action pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party shall be deemed to
constitute a waiver by the party taking such action of any representation,
warranty, covenant or agreement contained herein, except that a breach of any
representation or warranty set forth herein that is known to a party hereto at
the time the transactions contemplated hereby are consummated shall not be
subsequently enforceable or actionable by such party. A waiver by any party, or
repeated waiver by any party hereto, of a breach or repeated series of breaches
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach.
11.2 GOVERNING LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Utah applicable to agreements executed in Utah.
11.3 ENTIRE AGREEMENT. This Agreement, together with the Exhibits hereto
and the financial statements referred to herein (which are incorporated hereby
by reference and made a part hereof) sets forth the entire agreement and
understandings of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreement, arrangements, and understanding
relating to the subject matter hereof.
11.4 CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Article III and IV of this Agreement shall survive the closing
of the transactions contemplated by this Agreement.
11.5 NOTICES. Any notices or other communications required or permitted
hereunder shall be sufficiently given, if sent by registered mail or certified
mail, postage prepaid, and addressed to the address set forth above with the
name of each party hereto.
Exhibit 2.01
73
<PAGE>
11.6 ASSIGNMENT. This Agreement may not be assigned by operation of law or
otherwise.
11.7 HEADINGS. Headings in this Agreement are descriptive only, are
inserted for convenience, and do not constitute part of this Agreement.
11.8 COUNTERPARTS. This Agreement may be signed in any number of
counterparts and all such counterparts taken together shall constitute a single
agreement of the parties.
IN WITNESS WHEREOF, each of the parties has executed or caused its duly
authorized representative to execute this Agreement and Plan or Reorganization
in the manner appropriate to each, all as of the date first above written.
HARCOURT INVESTMENTS (USA), INC.
/s/ Alan V. Phan
- ----------------------------------
Dr. Alan V. Phan, President
STARDUST, INC. PRODUCTION-RECORDING-PROMOTION
/s/ Michael Carauna
- ----------------------------------
Michael Carauna, Vice-President
AGREED TO AND ATTESTED BY 100% OF THE SHAREHOLDERS OF HARCOURT INVESTMENTS
(USA), INC.
PRINTED NAME: # OF SHARES: SIGNATURE:
EASTERN ROCESTER
LIMITED 20,000 /s/ Tan Geok Ser
-----------------------
Tan Geok Ser, President
ALAN PHAN 500 /s/ Alan Phan
-----------------------
Alan Phan
FIRST CAPITAL 4,500 /s/ Regis Possino
NETWORK, INC. ------------------------
Regis Possino, President
Exhibit 2.01
74
<PAGE>
AGREEMENT AND PLAN
OF
REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, made this lst day of December,
1994, by and between Harcourt Investments (USA), Inc. , Utah corporation having
its principal place of business at 20022 State Road, Cerritos, California
("Harcourt"); The Harcourt Pen Factory, Inc., a Nevada corporation having its
principal place of business at 20022 State Road, Cerritos, California ("Pen");
and the undersigned shareholder of Pen ("Shareholder").
WHEREAS, Shareholder owns one hundred percent (100%) of the share ownership
interest of Pen, and;
WHEREAS, Shareholder wishes to sell and Harcourt wishes to acquire
Shareholder's one hundred percent (100%) capital stock ownership of Pen, and;
WHEREAS, the parties to this Agreement herein agree that this transaction
is by means of private sale, and waive any and all reference and/or rights as
the respective consideration paid or shares received by purchaser as being a
securities transaction, as promulgated by any state, territorial, provincial or
federal agency or law.
WHEREAS, the parties to this Agreement have as herein represented and
warranted, entered into this binding Agreement, which terms are herein
incorporated and agreed to by the parties hereto; that as such they are an
integral part hereof, and shall remain and survive as to their construction
intent and content pursuant and subject to all conditions of this Agreement, as
contained herein.
WHEREAS, Harcourt wishes to acquire and Shareholder wishes to transfer all
of the issued and outstanding capital stock of Pen in a transaction intended to
qualify as a reorganization within the meaning of Section 368(a)(b)(B) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, Harcourt, Pen and Shareholder adopt this Agreement and Plan
of Reorganization and agrees as follows:
ARTICLE 1. EXCHANGE OF STOCK
1.1 NUMBER OF SHARES. Shareholder represents and warrants that he is
selling one hundred percent (100%) (25,000 shares of no par value common stock)
issued and outstanding interest ownership of Pen, to Harcourt for and in
exchange for the issuance by Harcourt to Shareholder of fifty two thousand five
hundred (52,500) shares of Harcourt common stock.
Exhibit 2.02
Page 1
75
<PAGE>
1.2 DELIVERY OF CERTIFICATES BY SHAREHOLDER. The transfer of the Pen shares
by Shareholder shall be effected by the delivery to Harcourt at the Closing of
the total issued shares of capital stock represented by certificates for 25,000
shares of common stock accompanied by stock powers executed in blank by
Shareholder.
1.3 DELIVERY OF CERTIFICATES BY HARCOURT. On the date of the closing of
this Agreement, Stardust shall cause to be transferred and delivered to the
Shareholder the total purchase consideration herein defined, as full payment of
the purchase of one hundred percent (100%) of Shareholder's interest in Pen.
1.4 RESTRICTIONS ON HARCOURT COMMON STOCK. The Harcourt shares issuable
pursuant to this Plan of Reorganization will be restricted securities within the
meaning of the Securities Act of 1933, as amended (the "Act").
ARTICLE II. THE CLOSING
The Closing contemplated by Articles I shall be held at such place and time
as shall be agreed upon by the parties, but in no event shall the Closing occur
later than December 31, 1994.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF
PEN AND SHAREHOLDER
Shareholder and Pen, jointly and severally, represent and warrant to
Harcourt as follows:
3.1 CORPORATE STATUS. Pen is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada.
3.2 CORPORATE POWER. Pen has the corporate power to own, lease, or operate
all properties and assets owned, leased or operated by it, to carry on its
business as now conducted and as proposed to be conducted, to execute and
deliver this Agreement and to consummate the transactions contemplated by this
Agreement.
3.3 ARTICLE OF INCORPORATION. Pen's Articles of Incorporation, and any
amendments or restatement thereof through the date hereof, as filed with the
Nevada Secretary of State, are attached as Exhibit 3.3.
3.4 BYLAWS. Pen has not adopted bylaws.
3.5 CAPITALIZATION. The authorized capital stock of Pen consists of twenty
five thousand (25,000) shares of common stock, with no par value per share, of
which twenty five thousand (25,000) shares are issued and outstanding ("Pen
Shares"). Pen has no outstanding subscription, options, warrants, call, or other
agreements or commitments entitling any person to purchase or otherwise acquire
any shares of common stock of Pen or other capital stock or
Exhibit 2.02
Page 2
76
<PAGE>
securities of Pen, including any right of conversion or exchange under any
outstanding security or other instrument. Pen is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock of any security convertible or exchangeable for any
of its capital stock. There are no voting trusts or other agreements or
understandings with respect to the voting of the capital stock of Pen. The
common stock of Pen is vested with all the voting rights in Pen.
3.6 SUBSIDIARIES. Pen has no subsidiaries or affiliated corporations within
the meaning of Section 1563 (a) or Section 1564 of the Code.
3.7 SOLE SHAREHOLDER. Shareholder is the only shareholder of Pen.
3.8 STOCK PAID AND NONASSESSABLE. The Pen Shares have been duly and validly
authorized and issued, and are fully paid and nonassessable and free from
preemptive and cumulative voting rights.
3.9 TITLE TO SHARES. Shareholder is the sole owner, free and clear of any
liens and encumbrances, of the number of the Pen Shares specified in Section
1.1. Such Shares represent all of the issued and outstanding capital stock of
Pen.
3.10 AUTHORIZATION. This Agreement has been duly authorized, executed, and
delivered by Pen and has been approved by Pen's shareholder, and constitutes a
valid and binding agreement of Pen enforceable in accordance with its terms.
3.11 FINANCIAL STATEMENTS. The Pen financial statements attached hereto as
Exhibit A are complete and correct and have been prepared in accordance with
generally accepted accounting principals on a basis consistent with prior
periods and fairly present the financial condition of Pen at the date of such
statements, and the results of operations for the period ended on such date and
reflect all adjustments which are necessary for a fair presentation of the
results reported.
3.12 COMPLIANCE. Pen is not in breach of, or in conflict with, any of the
terms, conditions, or provisions of its Articles of Incorporation.
3.13 DIRECTORS AND OFFICERS. As of the date hereof, the following are
officers and directors of Pen: Alan V. Phan, and Frederic Cohen. Alan V. Phan is
Chief Executive Officer, and Frederic Cohen is Secretary.
3.14 TITLE TO PROPERTY. Pen has good and marketable title to all of the
property and assets reflected in the balance sheet delivered pursuant to 3.11
and such property and assets are not subject to any mortgage, pledge, lien or
encumbrance.
3.15 PATENTS, TRADEMARKS, ETC. Pen has received no notice of infringement
of or conflict with, asserted rights of others with respect to any patents,
trademarks, service marks,
Exhibit 2.02
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trade names or copyright, nor is Pen aware of any infringement by other upon its
name. There are not patents, patent rights, trademarks, service marks, conducted
or as contemplated by Pen which Pen does not own or possess adequate rights to
use. All of Pen's employees, including without limitation Shareholder, have
transferred to Pen all of their right, title and interest in and to any
intellectual property owned by them or in which they share an ownership interest
(if any) related in any way to Pen's business.
3.16 NO REGULATORY VIOLATION. To the best of Pen and the Shareholder's
knowledge, Pen is not in violation of any law, statue, order, rule, regulation,
writ, injunction, or decree of any governmental authority or court, domestic or
foreign, with respect to the conduct of its business, the operation of Pen's
facility or the ownership of its properties, nor will the execution of this
Agreement or consummation of any of the transactions contemplated by this
Agreement result in any such violation.
3.17 NO CONTRACTUAL VIOLATION. Neither the execution of this Agreement, nor
the performance of Pen and Shareholder's obligations pursuant to this Agreement
or the consummation of the transactions contemplated hereby, will conflict with,
or result in a breach or violation of any of the terms or provisions of, or
constitute, or with the passage of time or the giving of notice constitute, a
default under any indenture, mortgage, deed of trust, voting trust agreement,
loan agreement, bond debenture, note agreement, or other evidence of
indentureness, lease, contract or other agreement or instrument to which Pen is
a party, or by which Pen or any of its properties is bound, or Pen's Articles of
Incorporation; and no consent, approval, authorization, or order of any court or
governmental agency or body is required for the consummation by Pen or
Shareholder of the transactions contemplated hereby.
3.18 MATERIAL CONTRACTS. Harcourt warrants that there are not material
agreements, written or oral, related to Pen, except those specifically disclosed
in Exhibit A.
3.19 UNDISCLOSED LIABILITIES. Pen has no liabilities of any nature except
as specifically disclosed on Exhibit A or to Harcourt in writing.
3.20 LITIGATION. There are no actions, suits or proceedings to which Pen is
a party, or of which any of its property is the subject, pending before or
brought by any court or governmental agency or body, nor, to the knowledge of
Pen or Shareholder, is any such action, suit, or proceeding threatened, which
would, singly, or in the aggregate, result in any material adverse change in the
condition (financial or otherwise), business, key personnel, properties, asset,
results of operations (present or prospective) or net worth of Pen.
3.21 PROFIT SHARING PLANS, ETC. Pen is not a party to and has no
obligation, contingent or otherwise, under any materials, oral or written,
expressed or implied: (i) commitment or agreement, with officers, directors,
employees, or any other persons providing similar services; (ii) agreement or
arrangement providing for the payment of any incentive, bonus, commission, or
deferred compensation or severance or termination pay; (iii) pension, profit
sharing, stock purchase, stock option, group life insurance, hospitalization
insurance, disability, retirement, or
Exhibit 2.02
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<PAGE>
any other employee benefit plan, fringe benefit plan, agreement, or arrangement,
whether formal or informal and whether legally binding or not; or (iv)
collective bargaining or union contract or agreement.
3.22 TAX RETURNS. Pen has timely filed all tax returns and reports required
to be filed by it, and has paid in a timely manner all taxes that are shown on
such returns as being due and payable other than such taxes as are being
contested in good faith and for which adequate reserves have been established.
Pen is not a Subchapter S Corporation.
3.23 NO MATERIAL CHANCES. There have been no material adverse changes in
the condition (financial or otherwise), results of operations, or shareholder'
equity of Pen since the date of the latest balance sheet contained in Exhibit A,
except for changes (material or otherwise) resulting from its operations
conducted in the ordinary course of business.
3.24 NO BROKERS. No finders' fees or brokerage commissions of any kind will
be payable by Harcourt in connection with the transactions described in this
Agreement.
3.25 DISCLOSURE OF MATERIAL FACTS. Neither Pen nor Shareholder have
knowingly failed to disclose to Harcourt any facts material to the assets,
liabilities, earnings, prospects, and business of Pen. No representation or
warranty by Pen and Shareholder contained in this Agreement, and, to the best of
their knowledge, no statement contained in any document (including, without
limitation, the financial statements and Exhibits hereto), list, certificate, or
other writing furnished or to be furnished by or on behalf of Pen or Shareholder
or any of their representations in connection with the transactions contemplated
hereby, contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements contained herein or there not misleading or necessary in order to
provide fully and fairly the information required to be provided in any such
document, list, certificate, or other writing.
3.26 INTERPRETATION. As used in this Agreement, the term "best knowledge"
or "Pen's best knowledge" refers to the best knowledge of the officers and
directors of Pen.
3.27 INVESTMENT REPRESENTATIONS. Shareholder acknowledges that the
restricted Harcourt Shares which they are receiving in exchange for his Pen
Shares have not been registered under the Securities Act of 1933 or state blue
sky laws, and that the restricted Harcourt Shares may not be transferred without
such registration or an opinion of counsel that registration is unnecessary;
Shareholder has the financial ability to bear the economic risk of an investment
in the Harcourt Shares and have no need for liquidity in such investment.
Shareholder has had an opportunity to inspect Harcourt's corporate records and
ask questions of officers of Harcourt and are capable of evaluating the merits
and risks of consummating this transaction.
3.28 AUTHORITY. Shareholder has the power and legal capacity to enter into
this
Exhibit 2.02
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Agreement, the execution, delivery and performance of this Agreement has been
duly authorized by all required shareholder action on the part of Pen and this
Agreement constitutes a valid, binding and legal obligation of Shareholder.
ARTICLE IV. REPRESENTATIONS AND WARRANTS
OF HARCOURT
Harcourt represents and warrants to Shareholder, as follows:
4.1 CORPORATE AUTHORITY; AUTHORIZATION. Harcourt has the full corporate
power and authority to enter into this Agreement, the execution of which has
been duly authorized by all requisite corporate action on the part of Harcourt.
4.2 ISSUANCE OF SHARES. The Harcourt Shares will be fully paid, validly
issued and nonassessable when issued in exchange for the Pen Shares.
4.3 FINANCIAL STATEMENTS. Exhibit B is a true and correct copy of
Harcourt's financial statements as of December 31, 1994. Such financial
statements are complete and correct and have been prepared in accordance with
generally accepted accounting principals on a basis consistent with prior
periods and fairly present the financial condition of Harcourt at the date of
such statements, and the results of operations for the period ended on such date
and reflect all adjustments which are necessary for a fair presentation of the
results reported.
ARTICLE V. CONDUCT OF SHAREHOLDER AND
PEN PENDING THE CLOSING
Shareholder and Pen agree that Pen will conduct itself in the following
manner pending the Closing:
5.1 CAPITALIZATION, ETC. Pen will not, without the prior written consent of
Harcourt: (i) issue or commit to issue any capital stock or other ownership
interest; (ii) grant or commit to grant any options, warrant, or other rights to
subscribe for, purchase or otherwise acquire any shares of its capital stock or
other ownership interest, or issue or commit to issue any securities convertible
into or exchangeable for shares of its capital stock or other ownership
interest; (iii) declare, set aside, or pay any dividends or distributions; (iv)
directly or indirectly terminate or reduce or commit to terminate or reduce or
commit to acquire any of its capital stock or other ownership interest, or
directly or indirectly terminate or reduce or commit to terminate or reduce any
bank line of credit or the availability of any funds under any other loan or
financing agreement; (v) effect a stock split, reclassification or
recapitalization; (vi) change its Articles of Incorporation or other governing
instruments; (vii) borrow or agree to borrow any funds, guarantee or agree to
guarantee the obligations of others, or indemnify or agree to indemnify others;
(viii) waive or commit to waive any rights of substantial value; or (ix) other
than in the ordinary course of business, enter into any agreement, contract, or
commitment; except, in each case, contemplated by this Agreement.
Exhibit 2.02
Page 6
80
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5.2 PROMPT ACTION. Pen and Shareholder will promptly take all action
contemplated by this Agreement or necessary to complete the transactions
contemplated by this Agreement.
5.3 CONFIDENTIALITY. Shareholder and Pen will treat this Agreement, and the
transactions contemplated by this Agreement as confidential, and will not issue
any press release or otherwise provide any information regarding such
transactions contemplated by this Agreement.
5.4 BUSINESS IN ORDINARY COURSE. Except as otherwise specifically provided
in this Agreement, Pen shall conduct its business only in its ordinary course.
ARTICLE VI. ACCESS
From the date hereof to the Closing, Pen and Harcourt shall provide each other
full access to their premises and books and records, and shall cause each of
their officers to furnish the other such financial and operating data and other
information with respect to each of their business and properties as the other
shall, from time to time, reasonably request, provided, however that any such
investigation shall not affect any of the representations and warranties
hereunder. In the event of termination of this Agreement, each party will return
to the other all documents and other materials obtained in connection with the
transactions contemplated hereby, and not disclose or utilize any information
obtained from the other.
ARTICLE VII. CONDITIONS PRECEDENT TO SHAREHOLDER'
AND PEN'S OBLIGATIONS
The obligations of Shareholder and/or Pen under this Agreement, are subject
to fulfillment, before or on the date of Closing, of each of the following
conditions, any of which may be waived in writing at the discretion of Pen and
Shareholder.
7.1 REPRESENTATIONS AND WARRANTIES OF HARCOURT. The representations and
warranties of Harcourt contained herein shall be true and correct, in all
material respects, as of the date hereof, and shall continue to be true and
correct, in all material respects, as of the Closing.
7.2 COVENANT AND AGREEMENTS OF HARCOURT. Harcourt shall have performed all
obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by them at or prior to the Closing.
7.3 NO ADVERSE CHANCES. No information shall have come to the attention of
Pen and Shareholder pursuant to its investigation of Harcourt which is not
consistent, in all material respects, with information previously furnished to
Harcourt by Pen and Shareholder.
Exhibit 2.02
Page 7
81
<PAGE>
ARTICLE VIII. CONDITIONS PRECEDENT TO
HARCOURT'S OBLIGATIONS
The obligations of Harcourt under Agreement are subject to the fulfillment,
before or on the date of Closing, of each of the following conditions, any of
which may be waived in writing at the discretion of Harcourt:
8.1 REPRESENTATIONS AND WARRANTIES OF PEN AND SHAREHOLDER. The
representations and warranties of Harcourt contained herein shall be true and
correct, in all material respects, as of the date hereof, and shall continue to
be true and correct, in all material respects, as of the Closing.
8.2 COVENANT AND AGREEMENTS OF PEN AND SHAREHOLDER. Pen and Shareholder
shall have performed all obligations and complied with all covenants and
conditions required by this Agreement to be performed or complied with by it at
or prior to the Closing.
8.3 APPROVAL OF THE BOARD OF DIRECTORS OF PEN. The Board of Directors of
Pen shall have approved the execution, delivery and performance of this
Agreement.
ARTICLE IX. INDEMNIFICATION
9.1 INDEMNIFICATION OF HARCOURT. Shareholder agree to indemnify Harcourt
against any loss, damage, or expense (including reasonable attorneys' fees)
suffered by Harcourt from (1) any breach by Shareholder or Pen of this
Agreement; or (2) any inaccuracy in or breach of any of the representations,
warranties, or covenants by Shareholder or Pen.
9.2 INDEMNIFICATION OF PEN AND SHAREHOLDER. Harcourt agrees to indemnify
Pen and Shareholder against any loss, damage, or expense (including reasonable
attorneys' fees) suffered by Pen and/or the Shareholder from any inaccuracy in
or breach of any of Harcourt's representations, warranties or covenants herein.
9.3 DEFENSE OF CLAIMS. Upon obtaining knowledge thereof, the indemnified
parties shall promptly notify the indemnifying party of any claim which has
given or could give rise to a right of indemnification under this Agreement. If
the right of indemnification relates to a claim asserted by a third party
against the indemnified party, the indemnifying party shall have the right to
employ counsel acceptable to the indemnified party to cooperate in the defense
of any such claim. So long as the indemnified party will not settle such claim,
if the indemnifying party does not elect to defend any such claim, the
indemnified party shall have no obligation to do so.
Exhibit 2.02
Page 8
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<PAGE>
ARTICLE X. TERMINATION
l0.1 CIRCUMSTANCES OF TERMINATION. This Agreement may be terminated (l) by
mutual consent in writing; (2) by either Pen or Harcourt if there has been a
material misrepresentation or material breach of any warranty or covenant by the
other party, which determination on behalf of Harcourt shall be made by its
Board of Directors in its sole discretion; or (3) by either Shareholder or
Harcourt if the Closing shall not have taken place, unless adjourned to a later
date by mutual consent in writing, by the date set forth in Article II.
10.2 EFFECT OF TERMINATION. In the event of a termination of this Agreement
pursuant to Section 10.1, each party shall pay the cost and expenses incurred by
it in connection with this Agreement and no party (or any of its officers,
directors, and shareholder) shall be liable to any other party for any costs,
expenses, damage or loss of anticipated profits hereunder.
ARTICLE XI. MISCELLANEOUS
11.1 WAIVERS. No action pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party shall be deemed to
constitute a waiver by the party taking such action of any representation,
warranty, covenant or agreement contained herein, except that a breach of any
representation or warranty set forth herein that is known to a party hereto at
the time the transactions contemplated hereby are consummated shall not be
subsequently enforceable or actionable by such party. A waiver by any party, or
repeated waiver by any party hereto, of a breach or repeated series of breaches
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach.
11.2 GOVERNING LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Utah applicable to agreement executed in Utah.
11.3 ENTIRE AGREEMENT. This Agreement, together with the Exhibits hereto
and the financial statements referred to herein (which are incorporated hereby
by reference and made a part hereof) sets forth the entire agreement and
understandings of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements, arrangements, and understanding
relating to the subject matter hereof.
11.4 CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Articles III and IV of this Agreement shall survive the
closing of the transactions contemplated by this Agreement.
11.5 NOTICES. Any notices or other communications required or permitted
hereunder shall be sufficiently given, if sent by registered mail or certified
mail, postage prepaid, and addressed to the address set forth above with the
name of each party hereto.
Exhibit 2.02
Page 9
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11.6 ASSIGNMENT. This Agreement may not be assigned by operation of law or
otherwise.
11.7 HEADINGS. Headings in this Agreement are descriptive only, are
inserted for convenience, and do not constitute part of this Agreement.
11.8 COUNTERPARTS. This Agreement may be signed in any number of
counterparts and all such counterparts taken together shall constitute a single
agreement of the parties.
IN WITNESS WHEREOF, each of the parties has executed or caused its duly
authorized representative to execute this Agreement and Plan or Reorganization
in the manner appropriate to each, all as of the date first above written.
HARCOURT INVESTMENTS (USA), INC.
/s/ Alan V. Phan
- ---------------------------
Dr. Alan V. Phan, President
AGREED TO AND ATTESTED BY THE SHAREHOLDER OF THE HARTCOURT PEN
FACTORY, INC.
PRINTED NAME: # OF SHARES: SIGNATURE:
ALAN V. PHAN 25,000 /s/ Alan V. Phan
-----------------
Alan V. Phan
Exhibit 2.02
Page 10
84
ARTICLES OF AMENDMENT
STARDUST, INC. PRODUCTION-RECORDING-PROMOTION
I. The exact name of the Corporation: Stardust, Inc. Production-Recording-
Promotion.
II. Amendment adopted:
ARTICLE I.
CORPORATE NAME
This entity shall be known by the name The Hartcourt Companies, Inc.
III. Although the capitalization of the Corporation is not changed by the
amendment, the authorized shares of the Corporation were reverse split 1 for 10
and the capitalization of the Corporation was changed to Fifty Million
(50,000,000) shares at $0.001 par value, thus leaving Article IV of the Articles
of Incorporation unchanged. One share will be exchanged for ten shares issued
prior to this amendment when the same are received for transfer.
IV. This amendment was approved by the shareholders of the Corporation as
follows:
A. Number of outstanding shares: Two Million Five Hundred Thousand
(2,500,000) common shares, being the only class of shares authorized.
B. Total number of votes cast:
For: 2,382,600 Against: 0
Dated this 21st day of November, 1994.
STARDUST, INC. PRODUCTION-RECORDING-PROMOTION
/s/ Warren Bates
- ------------------------
PRESIDENT
(Stamped with the Seal of
the State of Utah, Department of Commerce,
Division of Corporations and Commercial Code,
Filed and approved the 14th day of Dec. 1994)
Exhibit 3.01
85
<PAGE>
ARTICLES OF INCORPORATION
-------------------------
STARDUST, INC.-
--------------
PRODUCTION - RECORDING - PROMOTION
----------------------------------
ARTICLE I
CORPORATE NAME
This entity shall be known by the name of Stardust, Inc. -
Production - Recording - Promotion.
ARTICLE II
TERMS OF EXISTENCE
The duration of this corporation shall be perpetual.
ARTICLE III
PURPOSES
The purposes for which this corporation is organized are:
a. To produce, record and promote the artistic product of
performing artists under professional guidance.
b. To provide a company where talented performing artists
can develop their respective talents and skills in the field of music, theater
and dance, in a performing environment.
c. To work for the advancement of the Performing arts by sponsoring
recording and/or video sessions and by presenting artists in concerts and
performances before the general public.
d. To offer guidance and training in the execution, standards
Exhibit 3.01
86
<PAGE>
and direction of young performing artists.
f. To acquire by purchase, exchange, gift, bequest,
subscription or otherwise, and to hold, own, mortgage, pledge, hypothecate,
sell, assign, transfer, exchange, or otherwise dispose of or deal in or with its
own corporate securities or stock or other securities, including without
limitations, any shares of stock, bonds, debentures, notes, mortgages, or other
obligations, and any certificates, receipts, or other instruments representing
rights or interests therein or any property or assets created or issued by any
person, firm, association, or corporation, or any government or subdivisions,
agencies, or instrumentalities thereof; to make payment thereof in any lawful
manner or to issue in exchange thereof its own securities or to use its
unrestricted and unreserved earned surplus for the purchase of its own shares,
and to exercise as owner or holder of any securities, any and all rights,
powers, and privileges in respect thereof.
g. To do each and every thing necessary, suitable or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the subjects herein enumerated, or which may at any time appear conducive to or
expedient for protection or benefit of this corporation, and to do said acts as
fully and to the same extent as natural persons might, or could do, in any part
of the world as principals, agents, partners, trustees or otherwise, either
alone or in conjunction with any person, association or corporation.
h. The foregoing clauses shall be construed both as purposes
and powers and shall not be held to limit or restrict in any manner
the general powers of the corporation, and the enjoyment and exercise thereof,
Exhibit 3.01
87
<PAGE>
as conferred by the laws of the State of Utah; and it is the intention that the
purposes and powers specified in each of the paragraphs of this ARTICLE III
shall be regarded as independent purposes and powers.
ARTICLE IV
STOCK
The aggregate number of shares which this corporation shall have
authority to issue is 50,000,000 shares of par value stock at $0.001 per share.
All stock of the corporation shall be of the same class, common, and shall have
the same rights and preferences. Fully paid stock of this corporation shall not
be liable to any further call or assessment.
ARTICLE V
AMENDMENT
These Articles of Incorporation may be amended by the affirmative vote
of a majority of the shares entitled to vote on each such amendment .
ARTICLE VI
SHAREHOLDER RIGHTS
The authorized and treasury stock of this corporation may be issued at
such time, upon such terms and conditions and for such consideration as the
Board of directors shall determine. Shareholders shall not have pre-emptive
rights to acquire unissued shares of the stock of this corporation.
Exhibit 3.01
88
<PAGE>
ARTICLE VII
CAPITALIZATION
This corporation will not commence business until consideration of a
value of at least $5,000.00 has been received for this issuance of shares.
ARTICLE VIII
INITIAL OFFICE AND AGENT
The address of this corporation's initial registered office and the
name of its original registered agent at such address is:
Starley Dullien
1881 S. Redwood Road
Woods Cross, Utah 84087
ARTICLE IX
DIRECTORS
The number of Directors constituting the initial Board of Directors of
this corporation is 3. The names and addresses of persons who are to serve as
directors until the first annual meeting of stockholders, or until their
successors are elected and qualify, are:
Starley Dullien
4262 Peggy Lane
West Valley City, Utah 84120
Warren R. Bates
395 S. State
Clearfield, Utah 84015
Warren E. Meader
22 North 1100 West
West Bountiful, Utah 84087
Exhibit 3.01
89
<PAGE>
ARTICLE X
INCORPORATORS
The name and address of each Incorporator is:
Starley Dullien
4262 Peggy Lane
Quest Valley City, Utah 84110
Warren R. Bates
395 S. State
Clearfield, Utah 84015
Warren E. Meader
22 Forth 1190 West
West Bountiful, Utah 84087
ARTICLE XI
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this corporation and one or
more of its Directors or any other corporation, firm, association, or entity in
which one or were of its Directors are directors or officers or are financially
interested, shall be either void or voidable because of such relationship or
interest, or because such Directors are present at the meeting of the Board of
Directors, or a committee thereof which authorizes, approves or ratifies such
contract or transaction, or because his or their votes are counted for such
purpose if: (a) the fact of such relationship or interest is disclosed or known
to the Board of Directors or committee which authorizes, approves or ratifies
the contract or transaction by vote or consent sufficient for the purpose
without counting the votes or consents of such interested Director; or (b) the
fact of such relationship or interest is disclosed or known to the shareholders
entitled to vote and they authorize, approve or ratify such contract or
transaction by vote or written consent; or (c) the contract or transaction is
fair and reasonable to the corporation.
Exhibit 3.01
90
<PAGE>
Common or interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or committee thereof
which authorizes, approves or ratifies such contract or transaction.
DATED this 6th day of Sept, 1983.
/s/ Starley Dullien
- ---------------------------------
/s/ Warren Bates
- ----------------------------------
/s/ Warren E. Meader
- -----------------------------------
STATE OF UTAH
COUNTY OF Davis
I, Blen Smith, a Notary Public, hereby certify that on the 6th day of
Sept., 1983, Starley Dullien, Warren Bates and Warren E. Meader personally
appeared before me who, being by me first duly sworn, severally declared that
they are the persons who signed the foregoing document as incorporators and that
the statements therein contained are true.
DATED this 6th day of Sept., 1983.
/s/
- ---------------------------------------------------
Notary Public
Residing in Clearfield, Utah
My Commission Expires: 2/5/86
Exhibit 3.01
91
BY LAWS
STARDUST, INC. (A UTAH CORPORATION)
PRODUCTION - RECORDING - PROMOTION
ARTICLE ONE
CAPITAL STOCK
SECTION ONE: Share certificates, as approved by the Board of Directors, shall be
issued to shareholders specifying the name of the owner, number of shares, and
date of issue. Each certificate shall be signed by the President and Secretary
with the corporate seal affixed thereon. Each certificate shall be numbered in
the order in which it is issued.
SECTION TWO: Each shareholder shall be entitled to one vote per share of common
stock, unless otherwise stated in Article of Incorporation.
SECTION THREE Transfer of shares of stock shall be in the transfer ledger of the
corporation. Such transfers shall be done in person or by power of attorney.
Transfers shall be completed on the surrender of the old certificate, duly
assigned.
ARTICLE TWO
SHAREHOLDER'S MEETINGS
SECTION ONE: The annual meeting of the shareholders shall be held on the 15th
day of April of each year at Corporation Headquarters. If the stated day is a
weekend day or a legal holiday, the meeting shall be held on the next succeeding
day not a weekend day or a holiday.
Exhibit 3.02
Page 1
92
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SECTION TWO: The place of the annual meeting may be changed by the Board of
Directors within or without the State of incorporation for any given year upon
14 days notice to the shareholders. Special meetings may be held within or
without of the State of incorporation and at such time as the Board of Directors
may fix.
SECTION THREE: Special meetings of the shareholders may be called at any time by
the President or any holder(s) of at least twenty-five percent of the
outstanding capital stock.
SECTION FOUR: Notice of any special meeting of the shareholders shall be given
to all shareholders to their last known address by registered mail. Notice of
any special meeting of the shareholders shall state the purpose of such meeting.
Notice of a special meeting may be waived in writing either before or after such
meeting.
SECTION FIVE: Unless otherwise provided by law or the Articles of Incorporation,
all meetings of the shareholders, action may be taken by a majority vote of the
number of sharer entitled to vote as represented by the shareholders present at
such meeting. Directors shall be elected by a plurality vote. A quorum shall
constitute one share over fifty percent of the outstanding shares entitled to
vote as represented by the shareholders present at such meeting. No business may
be transacted without the presence of a quorum. At any time during any
shareholders meeting, if it is determined that a quorum is no longer present,
the meeting shall be then adjourned.
Exhibit 3.02
Page 2
93
<PAGE>
SECTION SIX: Action may be taken by the shareholders without a formal meeting by
consent, if such consent is executed in writing by all of the shareholders
entitled to vote and if allowed under the laws of the State of incorporation.
ARTICLE THREE
DIRECTORS
SECTION ONE: The Board of Directors shall control the full and entire management
of the affairs and business of the corporation. The Board of Directors shall
adopt rules and regulations to manage the affairs and business of the
corporation by resolution at special or the annual meeting. A quorum shall
consist of a majority of the directors. Resolutions adopted and all business
transacted by the Board of Directors shall be done by a majority vote of the
directors present at such meetings.
SECTION TWO: The Board of Directors shall consist of 7 members to be elected by
the shareholders at an annual meeting. The term of office shall be one year.
Vacancies may be filled by the Board of Directors prior to the expiration of the
term. Such appointment shall continue until the next annual meeting of
shareholders.
SECTION THREE: The Board of Directors shall meet annually at the same place of
the shareholders meetings immediately following the annual meeting of the
shareholders. Special meetings of the Board of Directors may be called by the
President or any two (2) directors on ten (10) days notice, or such other and
further notice as required by the laws of the State of incorporation.
Exhibit 3.02
Page 3
94
<PAGE>
SECTION FOUR: Notice Of special or regular meetings of the board of Directors
other than the annual meeting of the Board of Directors, shall be made by mail
to the last known address of each director. Such notice shall be mailed ten (10)
days prior to such meeting and shall include time and place and reasons for the
meeting. All other requirements of the laws of the State of incorporation for
notices shall be followed.
SECTION FIVE: All directors of the corporation who are present at a meeting of
the Board of Directors shall be deemed to have assented to action taken at such
meeting as to any corporate action taken, unless a director who did not vote in
favor on such action goes on record in the minutes as dissenting. In such a
case, the dissenting director will not be deemed to having assented to the
action taken.
SECTION SIX: Directors may be removed for cause by a majority vote at a meeting
of the shareholders or Directors. Directors may be removed without cause by a
majority vote at a meeting of the shareholders.
ARTICLE FOUR
OFFICERS
SECTION ONE: The officers of the corporation shall consist of a President,
Secretary and Treasurer. All officers shall be elected by the Board of Directors
and shall serve a term for compensation as fixed by the Board of Directors. The
Board Of Directors may establish other offices as it may be deem fit.
Exhibit 3.02
Page 4
95
<PAGE>
SECTION TWO: The chief executive officer shall be the President. The president
shall have management powers of the corporation. His duties shall include but
are not limited to administration of the corporation presiding over shareholders
meeting including general supervision of the policies of the corporation as well
as general management. The President shall execute contracts, mortgages, loans
and bonds under the seal of the corporation. The President shall have other
powers as determined by the Board of Directors by resolution.
SECTION THREE: The Secretary shall keep the minutes of meetings of the Board of
Directors and shareholder meetings. The Secretary shall have charge of the
minute books, seal and stock books of the Corporation. The Secretary shall have
other powers as delegated by the President.
SECTION FOUR: The Treasurer shall have the power to manage the financial affairs
of the corporation. The Treasurer shall keep books and records of the financial
affairs and make such available to the President and Board of Directors upon
request. The Treasurer may make recommendations to the officers and directors in
regard to the financial affairs of the corporation.
SECTION FIVE: The Vice-President, if one is appointed by the Board of Directors,
shall have such powers as delegated to him by the President. Upon the inability
to perform by the President, the Vice-President shall serve as President until
such time as this President shall be able to perform or further action by the
Board of Directors. The President shall be deemed unable to perform his duties
upon written notification by the President of such inability or resignation to
the Board of Directors that the President is unable to perform.
Exhibit 3.02
Page 5
96
<PAGE>
SECTION SIX: Vacancies shall be felled by the Board of Directors. Until such
time as vacancies are filled the following rules of succession shall apply
without regard to Section Five of this Article. The Vice-President shall act as
President, the Treasurer shall act as Secretary, and the Secretary shall act as
Treasurer.
SECTION SEVEN: Assistants to officers may be appointed by the
President. These duties shall be those delegated to them by the
President or the board of Directors.
SECTION EIGHT: Compensation of the officers shall be determined
by the Board of Directors.
ARTICLE FIVE
CONTRACTS AND INSTRUMENTS OF INDEBTEDNESS
SECTION ONE: No contracts or any instrument of indebtedness shall be executed
without approval by the Board of Directors by resolution. Upon such resolution,
the President shall be authorized to execute contracts or Instruments of
indebtedness as specified in the resolution.
SECTION TWO: All checks, drafts or other instruments of indebtedness shall be
executed in the manner as determined by the Board of Directors by resolution.
Exhibit 3.02
Page 6
97
<PAGE>
ARTICLE SIX
CORPORATE SEAL
The seal of the corporation shall be provided by the Board of Directors by
resolution. The seal shall be used by the President or other officers of the
Corporation as provided for in these By-Laws.
ARTICLE SEVEN
AMENDMENT
These By-Laws may be amended from time to time by a majority vote of the Board
of Directors or by a majority vote of the shareholders. These By-Laws may be
repealed and new By-Laws established in the same manner as amendments. These
By-Laws will continue in full force and effect until amended or repealed and
replaced by new By-Laws.
ARTICLE EIGHT
DIVIDENDS
The Board of Directors may from time to time declare dividends to the
shareholders. These distributions may be in cash or property. No such dividends
may be made out of the capital of the corporation.
Exhibit 3.02
Page 7
98
<PAGE>
RESOLUTION OF BOARD OF DIRECTORS
OF
THE HARTCOURT COMPANIES, INC.
Resolved, that the Board of Directors of The Hartcourt Companies, Inc.,
in accordance with Article Seven of the corporation's By-Laws, hereby amend
Article Three, Section Two of the By-Laws as follows:
ARTICLE THREE
SECTION TWO: The Board of Directors shall consist of five (5) members to be
elected by the shareholders at an annual meeting. The term of office shall be
one year. Vacancies may be filled by the Board of directors prior to the
expiration of the term. Such appointment shall continue until the next annual
meeting of shareholders.
Date: Dec. 2, 1996 /s/ Dr. Alan V. Phan
- ------------------------- ----------------------------
Dr. Alan V. Phan, Chairman
/s/ Frederic Cohn
----------------------------
Frederic Cohn, Director
/s/ Kenneth Silva
----------------------------
Kenneth Silva, Director
/s/ Michael L. Caruana
----------------------------
Michael L. Caruana, Director
/s/ James De Rosa
----------------------------
James De Rosa, Director
Exhibit 3.03
99
ARTICLES OF AMENDMENT
THE ARTICLES OF INCORPORATION OF
THE HARTCOURT COMPANIES, INC.
Pursuant to the provisions of section 16-10-57 of the Utah Business
Corporation act, the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation.
FIRST: The name of the corporation is The Hartcourt Companies, Inc.
SECOND: The following amendment to the Articles of Incorporation of The
Hartcourt Companies, Inc., was duly adopted by more than 84% of the shareholders
of the corporation on March 24, 1995, in the manner prescribed by the Utah
Business Corporation Act, to wit:
ARTICLE IV
That the Articles of Incorporation of this Corporation, as heretofore
amended, be further amended by striking out Article IV thereof and by
substituting in lieu of said Article IV the following new Article IV:
ARTICLE IV
The total number of shares of stock which the corporation shall have
the authority to issue is 110,001,000, consisting of 100,000,000 shares of
Common Stock, par value $0.001 per share ("Common Stock"), l,000 shares of
Preferred Stock, have a par value of $.01 per share (the "Original Preferred
Stock"), and 10,000,000 shares of Preferred Stock, having a par value of $.01
per share (the "Class A Preferred Stock").
Exhibit 4.01
Page 1
100
<PAGE>
The relative rights, preferences, privileges, limitations and
restrictions relating to the Common Stock, the Original Preferred Stock and the
Class A Preferred Stock are as set forth in the STATEMENT OF THE RIGHTS AND
PREFERENCES OF COMMON STOCK, ORIGINAL PREFERRED STOCK AND CLASS A PREFERRED
STOCK OF THE HARTCOURT COMPANIES, INC., attached thereto as Exhibit A and by
this reference incorporated herein.
Dividends may be paid upon the common shares as and when declared by
the Board of Directors out of any funds legally available therefore.
THIRD: The Amendment to these Articles of Incorporation was
adopted on March 24, 1995.
FOURTH: The number of shares of the corporation outstanding at the time
of the adoption of such amendment was 16,127,500 common shares and the number
entitled to vote thereon was 16,127,500 common shares. The designation of the
number of outstanding shares of each class entitled to vote thereon as a class
was as follows, to wit:
CLASS NUMBER OF SHARES
Common Stock 16,127,500
FIFTH: The number of shares voted for such amendment was 13,627,500
representing in excess of 84% of the outstanding shares.
Exhibit 4.01
Page 2
101
<PAGE>
IN WITNESS WHEREOF, the undersigned President and Secretary having been thereto
duly authorized, have executed the foregoing Articles of Amendment for the
corporation under the penalties of perjury this 23rd day of March, 1995. THE
HARTCOURT COMPANIES, INC.
By: /s/ Alan V. Phan
- -------------------------------------------
Alan V. Phan, President
By: /s/ Frederic Cohen
- -------------------------------------------
Frederic Cohen, Secretary
Exhibit 4.01
Page 3
102
<PAGE>
STATEMENT OF THE RIGHTS AND PREFERENCES
OF
COMMON STOCK, ORIGINAL PREFERRED STOCK
AND CLASS A PREFERRED STOCK
OF
THE HARTCOURT COMPANIES, INC.
A. COMMON STOCK
(l) Voting Rights
(i) Except as provided in (ii) below, each holder of Common Stock shall
have one (l) vote for each share of Common Stock held by him or record
on the books of the Corporation for the election of directors and on
all matters submitted to vote of the stockholders of the Corporation.
(ii) Until December 31, 2010, with respect to the election of directors,
holders of Common Stock shall be entitled to elect that number of
directors which constitutes two-fifths (2/5ths) of the authorized
number of members of the Board of Directors and, if such two-fifths
(2/5ths) is not a whole number, then the holders of Common Stock shall
be entitled to elect the nearest whole number of directors that is
closest to, but not in excess of, two fifths (2/5ths) of such
membership. Directors elected by the holders of Common Stock, voting as
a separate class, and directors elected by one or more other directors
to fill vacancies created by the death, resignation or removal of
directors elected by such holders of Common Stock, shall be designated
as "Common Stock Directors".
Holders of Common Stock shall be entitled to vote as a separate class
on the removal, with or without cause, of any Common Stock Director.
Any vacancy in the office of a Common Stock Director may be filled by
the vote of the majority of the Common Stock Directors, by the sole
remaining Common Stock Director or, in the event that there are not
remaining Common Stock Directors, by the vote of the majority of any
other directors or by the sole remaining director, regardless, in each
instance, of any quorum requirements set out in the By-Laws. Any Common
Stock Director elected by some or all of the directors to fill a
vacancy shall serve until the next Annual Meeting of Stockholders and
until his successor has been elected and has qualified.
If permitted by the By-Laws, the Board of Directors may increase the
number of directors and any vacancy so created may be filled by the
Board of Directors,
Exhibit 4.01
Page 4
103
<PAGE>
provided, that, so long as the holders of Common Stock have the right
to elect only two-fifths (2/5ths) of the directors, the Board of
Directors may be so enlarged by the Board of Directors only to the
extent that two-fifths (2/5ths) of the enlarged Board consists of
Common Stock Directors.
Notwithstanding anything in this Section A(l)(ii) to the contrary, the
holder of Common Stock shall have exclusive voting power on all matters
at any time no Preferred Stock is issued and outstanding.
(2) DIVIDENDS. Dividends may be declared by the Board of Directors and paid from
time to time to the holders of Common Stock in cash, stock, or otherwise, as may
be determined by the Board of Directors, out of the net profits or surplus of
the Corporation.
(3) PREFERENCES. In the event of any liquidation, dissolution, or winding up of
the affairs of the Corporation, whether voluntary or involuntary, and after the
payment to holders of Preferred Stock of the amount payable to them as provided
below, the remaining assets and funds of the Corporation shall be divided and
distributed among the holders of record of the Common Stock pro rata according
to their respective shares.
B. ORIGINAL PREFERRED STOCK
(l) Voting Rights
(i) Except as provided in (ii) below, the holders of Original Preferred
stock shall not be entitled to vote except as to matters in respect of
which they shall at the time be indefeasibly vested by statute with
such right. A holder of Original Preferred Stock shall have one (1)
vote for each share of Original Preferred Stock held by him or record
on the books of the Corporation on all matters as to which he shall
have the right to vote.
(ii) Until December 31, 2010, with respect to the election of directors,
holders of Original Preferred Stock shall be entitled to elect that
number of directors which constitutes three-fifths (3/5ths) of the
authorized number of members of the Board of Directors and, if such
three-fifths (3/5ths) is not a whole number, then the holders of
Original Preferred stock shall be entitled to elect the nearest higher
whole number of directors that is at least three-fifths (3/5ths) of
such membership. Director elected by the holders of Original Preferred
Stock voting as a separate class, and directors elected by one or more
other directors to fill vacancies created by the death, resignation or
removal of directors elected by holders of original Preferred Stock,
shall be designated as "Original Preferred Stock Directors".
Holders of Original Preferred stock shall be entitled to vote as a
separate class on the removal, with or without cause, of any Original
Preferred Stock Director.
Exhibit 4.01
Page 5
104
<PAGE>
Any vacancy in the office of an Original Preferred Stock Director may
be filled by the vote of the majority of the Original Preferred Stock
Directors, by the sole remaining Original Preferred stock Director, or
in the event that there are no remaining Original Preferred stock
Directors, by the vote of the majority of any other directors or by the
sole remaining directors, regardless, in each instance, of any quorum
requirement set out in the By-Laws. Any Original Preferred Stock
Director elected by some or all of the directors to fill a vacancy
shall serve until the next Annual Meeting of Stockholders and until his
successor has been elected and has qualified.
If permitted by the By-Laws, the Board of Directors may increase the
number of directors and any vacancy so created may be filled by the
Board of Directors provided, that, so long as the holders of Original
Preferred Stock have the right to elect three-fifths (3/5ths) of the
directors, the Board of Directors may be so enlarged by the Board of
Directors only to the extent that three-fifths (3/5ths) of the enlarged
Board consists of Original Preferred Stock Directors. This right to
elect three-fifths (3/5ths) of the Board of Directors shall expire on
December 31, 2010.
(2) DIVIDENDS. The holders of shares of Original Preferred Stock shall not be
entitled to receive any dividends.
(3) CONVERSION. The holder of record of shares of Original Preferred Stock
shall, at their option, be entitled to convert each shares or Original Preferred
Stock into 10,000,000 shares of fully paid and non-assessable Common Stock.
Any such conversion may be effected by any holder of Original Preferred Stock
surrendering said holder's certificate or certificates for Original Preferred
stock to be converted, duly endorsed, at the office of the Corporation, or any
transfer agent for the Original Preferred Stock, together with a written notice
to the Corporation at such office, at which time said holder shall receive in
exchange therefore the appropriate number of Common Stock shares represented by
duly executed Common Stock certificates.
Notwithstanding anything to the contrary contained herein, no fractional shares
shall be issued pursuant to the conversion of any Original Preferred stock and,
accordingly, in any case in which such conversion would result in the issuance
of a number of shares which includes a fraction of a share, such fraction shall
be disregarded and the number of shares to be issued shall be rounded down to
the next largest whole number of shares.
(4) Preference In the event of any liquidation, dissolution, or winding up of
the affairs of the Corporation whether voluntary or involuntary, the holders of
record of the Original Preferred Stock shall be entitled to be paid the full par
value of the Original Preferred Stock, and no more.
Exhibit 4.01
Page 6
105
<PAGE>
C. CLASS A PREFERRED STOCK
The Board of Directors shall have authority, by resolution to divide any or all
of the shares of the Class A Preferred Stock into, and to authorize the issuance
of, one or more series, and with respect to each such series to establish and,
prior to issuance to determine and fix:
(l) A distinguishing designation for such series and the number of shares
comprising such series, which number may be increased or decreased from time to
time (but not below the number of shares then outstanding) by action of the
Board of Directors;
(2) The rate and times at which and the other conditions upon which dividends on
the shares may be declared and paid or set aside for payment, whether dividends
shall be cumulative, and the date from which any dividends shall accrue;
(3) Whether or not the shares shall be redeemable and, if so, the price and the
terms and conditions of such redemption;
(4) The amounts payable by preference or otherwise upon shares in the event of
voluntary or involuntary liquidation, dissolution, winding up or distribution of
the assets of the Corporation;
(5) Whether the shares shall be convertible or exchangeable for shares of any
other class or series of securities of the Corporation, and if so, the terms and
conditions of such conversion or exchange; and
(6) Whether or not the shares shall have voting rights, including the right to
vote as a class on designated matters such as, but not by way of limitation, the
merger, consolidation or sale of substantially all of the Corporation's assets,
or the approval of designated action by a greater than two-thirds (2/3rds)
affirmative vote, and if so, the terms and conditions thereof and any
limitations thereon.
In the resolution establishing a new series of the Class A Preferred Stock, the
Board of Directors may provide for any other relative powers, preferences,
rights, qualifications, limitations and restrictions of such series as are
consistent with other terms of the Corporation's Articles of Incorporation.
All shares of all series, if any, of the Class A Preferred Stocks shall be
identical except as to the above-mentioned rights and preferences which the
Board of Directors establishing a particular series shall otherwise provide, in
the event amounts payable upon liquidation preference shall participate ratably
in any distribution in accordance with the sums which would be payable on such
distribution if all sums payable thereon to holders of all shares of Class A
Preferred Stock were discharged in full.
Exhibit 4.01
Page 7
106
<PAGE>
Shares of the Class A Preferred stock of any series redeemed, purchased or
otherwise acquired may be canceled by the Board of Directors and thereupon
restored to the status of authorized but unissued shares of Class A Preferred
Stock undesignated as to series.
Exhibit 4.01
Page 8
107
LEASE
(General, Long Form)
1. PARTIES:
This Lease is made and entered into this 9th day of April, 1996 by and between
Larry M. Mitobe (hereinafter referred to as "Landlord") and HARTCOURT COMPANIES
(hereinafter referred to as "Tenant").
2. PREMISES:
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, on the
terms and conditions hereinafter set forth, that certain real property and the
building and other improvements located thereon situated in the City of Artesia,
State of California commonly known as 19104 S. Norwalk Blvd., Artesia, CA and
described as Lot 97 and 98 of Tract No. 3894 in the City of Artesia, County of
Los Angeles, State of California as per map recorded in Book 74 page 35 of maps,
in the office of County Recorder of said County (said real property is
hereinafter called the "Premises").
3. TERM:
The terms of this Lease shall be for Five years, commencing on June l, 1996 and
ending on May 31, 2001.
4. RENT:
Rent shall be payable without notice or demand and without any deduction,
off-set, or abatement in lawful money of the United States to the Landlord at
the address stated herein for notices or to such other persons or such other
places as the Landlord may designate to Tenant in writing.
Tenant shall pay to the Landlord as rent for the Premises, the following sums:
$1230. per month from June l, 1996 to May 31, 1997.
$1640. per month from June 1, 1997 to May 31, 1998.
$2050. per month from June l, 1998 to May 31, 2001.
Tenant to pay before possession $1230.00 for first month's rent and $2050.00 for
last month's rent. The first month of 4th year and 5th year will be free rents.
Exhibit 10.01
Page 1
108
<PAGE>
5. TAXES:
(a) Real Property Taxes Landlord shall pay all real property taxes and
general assessments levied and assessed against the Premises during the term of
this Lease.
(b) personal Property Taxes. Tenant shall pay prior to the delinquency all
taxes assessed against and levied upon the trade fixtures, furnishings,
equipment and other personal property of Tenant contained in the Premises.
6. UTILITIES:
Tenant shall make all arrangements and pay for all water, gas, heat, light,
power, telephone and other utility services supplied to the Premises together
with any taxes thereon and for all connection charges.
7. ALTERATIONS AND ADDITIONS:
Tenant shall not, without the Landlord's prior written consent, make any
alterations, improvements or additions in or about the Premises.
8. HOLD HARMLESS:
Tenant shall indemnify and hold Landlord harmless from and against any and all
claims arising from Tenant's use or occupancy of the Premises or from the
conduct of its business or from any activity, work, or things which may be
permitted or suffered by Tenant in or about the Premises including all damages,
costs, attorney's fees, expenses and liabilities incurred in the defense of any
claim or action or proceeding arising therefrom. Except for Landlord's willful
or grossly negligent conduct, Tenant hereby assumes all risk of damage to
property or injury to person in or about the Premises.
9. ASSIGNMENT AND SUBLETTING:
Tenant shall not voluntarily or by operation of law assign, transfer, sublet,
mortgage, or otherwise transfer or encumber all or any part of Tenant's interest
in this Lease or in the Premises without Landlord's prior written consent which
consent shall not be unreasonably withheld.
10. DEFAULT:
It is agreed between the parties hereto that if any rent shall be due hereunder
and unpaid, or if Tenant shall default and breach any other covenant or
provision of the Lease, then the Landlord, after giving the proper notice
required by law, may re-enter the Premises and remove any property and any and
all persons therefrom in the manner allowed by law. The Landlord may, at its
option, either maintain this Lease in full force and effect and recover the rent
and other charges as they become due or, in the alternative, terminate this
Lease. In addition, the Landlord may recover all rentals and any other damages
and pursue any other rights and remedies which the Landlord may have against the
Tenant by reason of such default as provided by law.
Exhibit 10.01
Page 2
109
<PAGE>
11. SURRENDER:
On the last day of the term of this Lease, Tenant shall surrender the Premises
to Landlord in good condition, broom clean, ordinary wear and tear and damage by
fire and the elements excepted.
12. HOLDING OVER:
If Tenant, with the Landlord's consent, remains in possession of the Premises
after expiration or termination of the term of this Lease, such possession by
Tenant shall be deemed to be a tenancy from month-to-month at a rental in the
amount of the last monthly rental plus all other charges payable hereunder, and
upon all the provisions of this Lease applicable to such a month-to-month
tenancy.
13. BINDING ON SUCCESSORS AND ASSlGNS:
Each provision of this Lease performable by Tenant shall be deemed both a
covenant and a condition. The terms, conditions and covenants of this Lease
shall be binding upon and shall inure to the benefit of each of the parties
hereto, their heirs, personal representatives, successors and assigns.
14. NOTICES:
Whenever under this Lease a provision is made for any demand, notice or
declaration of any kind, it shall be in writing and served either personally or
sent by registered or certified United States mail, postage prepaid, addressed
at the address as set forth below:
TO LANDLORD AT:
Larry Mitobe
P. O. Box 5751
Fullerton, CA 92635
TO TENANT AT:
Alan V. Phan
4141 Ball Road, Suite 156
Cypress, CA 90630
Such notice shall be deemed to be received within forty-eight (48) hours from
the time of mailing, if mailed as provided for in this paragraph.
15. WAIVERS:
No waiver by Landlord of any provision hereof shall be deemed a waiver of any
other provision hereof or of any subsequent breach by Tenant of the same or any
other provisions.
16. TIME:
Time is of the essence of this Lease.
Exhibit 10.01
Page 3
110
<PAGE>
Tenant shall have an option to purchase the property for $300,000 during the
lease term.
Landlord will complete the following:
- - Central air conditioning and heating.
- - Carpet and tiles, as agreed.
- - All doors and windows must be fixed.
- - All partitions, as agreed.
- - Chain link fence.
The parties hereto have executed this Lease on the date first above written.
LANDLORD: TENANT:
By: /s/ Larry Mitobe By: Hartcourt Co's.
- ---------------------------- ---------------------------
By: /s/ Alan Phan, President
----------------------------
Exhibit 10.01
Page 4
111
<PAGE>
NOTICE TO CHANGE TERMS OF LEASE
(Civil Code Section 827)
To Tenants in Possession: Hartcourt Companies
All Terms of Said Lease are to remain the same, only the dates are to change as
follows:
1. Said Lease to begin on July l, 1996.
2. The June l, 1996 to June 30, 1996, rent to be free.
3. Rental rates to begin from July 1, 1996.
4. Possession was taken on May 16, 1996.
5. Rent will not be charged from May 16 1996, to May 30, 1996.
/s/ Alan V. Phan /s/ Larry Mitobe
- ---------------------------- ----------------------------
Alan V. Phan Larry Mitobe
6/1/96 5/23/96
- ---------------------------- ----------------------------
Date Date
Exhibit 10.01
Page 5
112
<PAGE>
LEASE
COMPLETE LEGAL NAME AND FULL NAME AND FULL ADDRESS OF THE
ADDRESS OF LESSEE ("LESSEE") SUPPLIER OF EQUIPMENT ("LESSOR")
Harcourt Investments (USA), Inc. Anja Engineering Corporation
20022 State Road 11591 Etiwanda Avenue
Cerritos, CA 90703 Fontana, CA 92337
Taxpayer I.D. No.
SCHEDULE OF EQUIPMENT LEASED ("EQUIPMENT")
(Include make, year, model, identification and model numbers or marks)
SEE SCHEDULE
EQUIPMENT TO BE DELIVERED AND LOCATED AT:
SEE SCHEDULE
("Equipment Location")
1. SCHEDULE OF LEASE PAYMENTS
Lease term number of months: 120
Number of payments: 10 Annual Payments
Amount of each lease payment:
Lease: $50,000.00
Tax: Included
Other: None
Total annual lease payment: $50,000.00
Advance lease payment representing:
1 years $ 50,000.00 Total advance lease payment
2. LEASE. Lessor leases to Lessee and Lessee leases from Lessor for the lease
term specified above and for any extension or renewal thereof (collectively
"Term") and on the terms and conditions stated in this agreement ("Lease")
the Equipment identified above and in any schedule ("Schedule")
incorporating this Lease by reference that the parties agree in writing to
make a part of this Lease.
Exhibit 10.02
113
<PAGE>
3. LEASE PAYMENTS. The obligation to make Lease Payments begins on the date
(as determined by Lessor) when Lessee accepts Equipment for shipment to its
final destination. Lessee shall make Lease Payments, in advance, on the
date or dates specified by Lessor in a notice to Lessee. Lease Payments
shall be paid at the office of Lessor or at any other place specified by
Lessor. Any Security Deposit and/or Advance Lease Payment is due on signing
of the lease specifying such amount. If any part of a payment is more than
five days late, Lessee shall pay a late charge of 10% of the payment, all
or a portion of which is late. Lessor shall not be required to perform any
maintenance and/or service obligations. Lessee will provide separate
purchase orders for any maintenance and/or service. Lessee's obligation to
make Lease Payments shall remain unconditional.
4. NO WARRANTIES. The Equipment is leased '"AS IS". Lessee has selected the
Equipment from Supplier prior to requesting Lessor to manufacture it and
lease it to Leesee. Lessor agrees to allow SGS Industrial Sevives to
inspect the equipment at Anja's,Fontana facility and issue a Certificate of
Quality as required. Lessee agrees to pay for the full cost of such an
Inspection. LESSOR MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WITH
RESPECT TO PATENT OR COPYRIGHT INFRINGEMENT, TITLE, OR THE LIKE.
5. INSURANCE. Lessee agrees, at Lessee's sole cost and expense, to procure and
deliver to Lessor simultaneously with or prior to delivery to Lessee of the
equipment to be leased hereunder, and to keep in full force and effect
during the entire term of the Agreement, a policy or policies of Insurance
satisfactory to the Lessor as to the insurer and amount of coverage,
protecting the Lessor against all losses and damages it may sustain or
suffer due to any of the reasons stated above with a combined single limit
of one million dollars ($1,000,000.00) for personal injury liability and
property damage.
Lessee will deliver, as required by the Lessor, to the Lessor a valid
certificate of insurance, naming Lessor as additional insured and loss
payee covering the lease term and any applicable extensions, and including
the period up to the return of the equipment, which will become part of
this Agreement.
Exhibit 10.02
114
<PAGE>
6. INDEMNITIES. Lessee agrees and warrants that the machine leased hereunder
will not be operated by any person other than agents or employees of
Lessee, each of whom the Lessee warrants to be a careful, dependable
operator not under the influence of alcohol or drugs. Lessee further agrees
and warrants that Lessee or Lessee's agent will not permit the machinery to
be used or operated in violation of any applicable national, federal, state
or local law, ordinance or regulation and shall hold Lessor harmless from
any fine, forfeiture, or penalty for any such violation.
7. BANKRUPTCY, Etc. This Agreement shall terminate without notice if Lessee
shall have filed a voluntary petition in bankruptcy, shall have made an
assignment for the benefit of creditors, shall have been voluntarily or
involuntarily adjudicated a bankrupt by any court of competent
jurisdiction, or if a petition for reorganization of Lessee, or for an
arrangement with creditors is filed by or against Lessee, or if a receiver
shall have been appointed for Lessee's business, or if Lessee shall have
permitted or suffered any distress, attachment, levy or execution to be
made or levied against any or all of the property of Lessee.
In the event this Agreement shall have been terminated as provided above,
the Lessee shall comply with and the Lessor shall be entitled to damages
herein liquidated for all purposes including claims or suits against the
Lessee'e assets in bankruptcy or reorganization, if any, as follows:
Thirty-five percent (35%) of all lease payments due for the full contract
term of this Agreement unbilled as at the date of termination representing
the Lessor's cost for administration, contract set-up, machinery
procurement, delivery, machinery modification, all of which would have been
amortized over the full term of the Agreement together with one hundred
percent (100%) of all billed and unpaid invoices which are applicable to
this Agreement prior to the date of termination, repair charges for
machinery together with interest relating thereto.
8. DEFAULT. In the event any material act or thing required of Lessee
hereunder shall not be done and performed in the manner and at the time or
times required by this Agreement, Lessee shall thereby be and become in
default under this Agreement thereby vesting in Lessor the right,
exercisable
Exhibit 10.02
115
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at the discretion of the Lessor without prejudice to any other right or
remedy which the Lessor may have in relation to such default and, without
notice of demand to declare all unpaid lease payments due or to become due
hereunder payable forthwith together with all other charges provided herein
and in any addenda now or hereafter made a part hereof, and enter any
premises where equipment provided hereunder shall be and remove end retain
same, or otherwise obtain possession thereof, without being liable to any
suit, action, defense or other proceeding, free of all rights of Lessee
without any further liability or obligations and indemnities provided
hereunder, including but not limited to Lessee's obligation for the lease
payments provided herein. Any such repossession shall not constitute a
termination of this Agreement unless Lessor so notifies Lessee in writing
and Lessor shall have the right, at its option, to lease, rent or sell
machinery to any person or persons upon such terms and conditions as Lessor
shall determine. Lessee shall pay to Lessor all costs and expenses,
including reasonable legal fees, incurred by Lessor in collecting payments
due from Lessee or in enforcing any of the Lessor's rights pursuant to this
Agreement.
9. TITLE TO EQUIPMENT. It is expressly understood and agreed that this is a
leasing contract only. Lessee acknowledges and agrees that it shall not, by
virtue of this Agreement or the possession or use of the equipment by
Lessee under or pursuant to this Agreement or of anything permitted to be
done by Lessee hereunder in respect to the equipment acquire right, title
or interest to any equipment leased hereunder. If the registered owner of
the equipment is other than the Lessor, then the Lessee under this
Agreement shall become sub-lessee and be subject and subordinate to the
provisions of any written agreements covering the equipment, including the
owner's rights of repossession. such agreements being available to the
sub-lessee upon written request to Lessor.
10. LIENS AND ALTERATION. Lessee will keep the leased equipment free from any
liens, claims or encumbrances and Lessee will not, without prior written
consent thereto, make or suffer any changes, alterations, or improvements
in or to said lease equipment or remove therefrom any parts, accessories,
attachments or other equipment.
Exhibit 10.02
116
<PAGE>
11. DELIVERY AND ACCEPTANCE. Supplier will ship the Equipment directly to a
location designated by the Lessee. Lessee shall be deemed to have
irrevocably accepted the Equipment under the lease upon the earlier of A)
delivery to Lessor of the signed Delivery and Acceptance Receipt; or B) 10
days after delivery of the Equipment, if Lessee has not prior to such 10th
day, delivered with the foregoing. Lessor and Lessee shall be relieved of
all obligations or liabilities under the lease. Lessor shall retain any
Advance Lease Payment as liquidated damages for loss of bargain and not as
a penalty, and Lessee shall be responsible for paying for the Equipment and
fulfilling all other obligations of the buyer under any applicable purchase
order. The validity of the lease will not be affected by any delay in
Lessee's receipt of the Equipment.
12. ENTIRE AGREEMENT. The parties agree that this Agreement together with the
Schedule(s) and Addendum(s) attached hereto and any additional Schedule(s)
and Addendum(s) which may be added at a later date and which are signed by
a duly authorized representative of the Lessee and by a Corporate Officer
of the Lessor constitute the entire agreement between the parties hereto
and supersede all prior agreements and understandings of the parties
relating to the subject matter hereof but without prejudice to the Lessor's
right on any antecedent breaches by the Lessee under any such prior
Agreements, and shall be binding upon the respective parties and their
respective representatives, successors, and assignees. The Agreement and
the Schedules and Addenda now or hereafter made a part hereof may not be
amended or altered in any manner unless such amendment or alteration is in
writing and signed by a duly authorized representative of the Lessee and a
Corporate Officer of the Lessor.
13. WAIVER. The failure of either party hereto, in any or more than one
instance, to insist upon the performance of any of the terms, covenants, or
conditions of this Agreement or to exercise any right of privilege herein,
or the waiver by either party of any breach of any of the terms, covenants
or conditions of this Agreement, shall not be construed as thereafter
waiving any such terms, covenants, conditions, rights or privileges, but
the same shall continue and remain in full force and effect the same as if
no such forbearance or waiver had occurred.
Exhibit 10.02
117
<PAGE>
14. SAVING CLAUSE.The form of this agreement is intended for general use in the
Continental United States and in the event that any of the terms and
provisions hereof are in violation of or prohibited by any law, statue or
ordinance of the state or county, of in the city where it is used, such
terms and provisions shall be deemed amended to conform to such law,
statute or ordinance without invalidating any other terms and provisions of
this Agreement.
15. SECTION HEADINGS.All section headings are inserted for convenience only and
shall not affect any construction or interpretation of this Agreement.
Lessee agrees to all terms and conditions of this Lease, that they are a
complete and exclusive statement of its lease agreement with Lessor and
that they may be modified only by written agreement signed by an executive
officer of Lessor and not by course of performance: provided, however, that
Lessee authorizes Lessor, without notice, to supply omitted information and
correct patent errors in any document executed by or on behalf of Lessee.
LESSEE REPRESENTS AND WARRANTS THAT THE EQUIPMENT WILL BE USED FOR BUSINESS
PURPOSES ONLY AND NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES. LESSEE
CERTIFIES THAT IT HAS READ AND RECEIVED A COPY OF THIS LEASE. LESSOR AND
LESSEE HAVE ENTERED INTO THIS LEASE INTENDING TO BE BOUND BY THE TERMS AND
CONDITIONS SET FORTH IN THIS LEASE AND ON ALL SCHEDULES OR ADDENDUMS. ALL
LEASES HEREUNDER SHALL BE NONCANCELLABLE NET LEASES.
Anja Engineering Corporation Harcourt Investments (USA) Inc.
/s/ /s/
- ------------------------------- --------------------------------------
Shuji Kanamaru - President Alan V. Phan - Chief Executive Officer
4/4/94 4/4/94
- ------------ ------------
Date Date
Exhibit 10.02
118
<PAGE>
STOCK EXCHANGE AGREEMENT
This agreement was entered on August 8, 1994 by and between:
(1) Eastern Rocester Limited, a Hong Kong corporation, located at Kailey Tower,
15 Stanley Street, 9th Floor, Central, Hong Kong, represented by Mr. Tan
Goek Ser, President, (herein referred to as "Party A"); and,
(2) Harcourt Investment (USA) Inc., a Nevada corporation, located at 20022
State Road, Cerritos, California 90703, represented by Mr. Alan V. Phan,
President, (herein referred to as "Party B").
WHEREAS, Party A, who owns 60% interest in a Chinese
corporation, called Xinhui Harchy Modern Pens Ltd. , located
at P.O. No. 529100, Dongshansi, Xinhui, Guangdong, China
(herein referred to as "Party C") would like to transfer
this asset to Party B, in exchange for shares of Party B,
under the following terms and conditions;
(1) Party A will cause Party C to transfer the 60% share of Party B as of
September 1, 1994.
(2) In exchange, Party B will tender 20,000 shares of Party B to Party A (out
of the 25,000 total outstanding), as consideration for above transaction.
(3) Party A will have the option to purchase the remaining shares of 5,000 to
Party B at a set price of $60 per share. The option is valid from today up
to 12/31/96.
(4) The two parties have studied diligently the books and records of all
parties involved, including books and records of Party C.
(5) All parties agreed that the transaction does not: involve any monetary
consideration and will hold each other harmless and indemnify each other
against any legal claims and proceedings.
(6) All parties agreed that there is no representation of any fact other than
those books and records examined by all parties concerned.
Exhibit 10.03
119
<PAGE>
(7) This transaction will take Place on September 1, 1994.
(8) Should there be any dispute in respect to the performance of either party,
the business law and regulations of Hong Kong will apply. All arbitration,
and legal proceedings shall be conducted in Hong Kong.
WHEREAS, two Parties do hereby affix their signatures to confirm this agreement.
BY: HARCOURT INVESTMENT (USA), INC.
/s/ Alan V. Phan
- -----------------------------
Alan V. Phan, President
BY: EASTERN ROCESTER LIMITED
/s/ Tan Goek Ser
- -----------------------------
Tan Goek Ser, President
Exhibit 10.03
120
<PAGE>
THE HARTCOURT COMPANIES, INC.
1995 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN. The purpose of The Hartcourt Companies, Inc.,
("Company") 1995 Stock Option Plan ("PLAN") is to encourage ownership of the
common stock of Company, by eligible key employees, directors, and officers
providing service to the Company and its subsidiaries and licensees, and to
provide increased incentive for such employees and other persons to render
services to the Company and its subsidiaries in the future and to exert maximum
effort for the success of the business of the Company and its subsidiaries.
2. DEFINITIONS. As used herein, and in any Option granted hereunder, the
following definitions shall apply:
a) "Board" shall mean the Board of Directors of the Company.
b) "Common Stock" shall mean the common stock of the Company or any other
class of shares of capital stock which has the right to participate in
assets available for distribution to shareholders after the preferences
of all other classes of capital stock has been satisfied.
c) "Company" shall mean The Hartcourt Companies, Inc.
d) "Committee" shall mean the Committee appointed by the Board in
accordance with paragraph (a) Section 3 of the Plan. If no Committee is
appointed, the term "Committee" shall refer to the Board.
e) "Continuous Employment" or "Continuous Status as an Employee" shall
mean the absence of any interruption or termination of employment by
the Company or any Subsidiary. Continuous Employment shall not be
considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Company or in the case of
transfers between locations of the Company or between the Company, its
Subsidiaries or its successor.
f) "Employee" shall mean any person, including officers, directors,
employees and consultants, employed by the Company or any Subsidiary on
either a full-time or part-time basis.
g) "Incentive Stock Option" shall mean any Option granted under this Plan,
or any other option granted to an Employee, which complies with the
Exhibit 10.04
Page 1
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<PAGE>
provisions of Section 422A of the United States Internal Revenue Code of
1986, as amended from time to time (herein called the "Code").
h) "Non-Qualified Stock Option" shall mean any Option granted under this
Plan which does not qualify in whole or in part as an "incentive stock
option" under the provision of Section 422A of the Code.
i) "Option" shall mean a stock option granted pursuant to the Plan.
j) "Optioned Shares" shall mean the Common Stock subject to an Option
granted pursuant to the Plan.
k) "Optionee" shall mean a person who receives an Option under the plan.
l) "Plan" shall mean this 1995 Stock Option Plan.
m) "Share" shall mean a share of the Common Stock as adjusted in
accordance with Section 6(i) of the Plan.
n) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the
time of the granting of the Option, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing 50
percent or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
3. ADMINISTRATION OF THE PLAN.
a) PROCEDURE. The Plan shall be administered by the Board. The Board may
appoint a Committee consisting of not less than three members of the
Board to administer the Plan on behalf of the Board, subject to such
terms and conditions as the Board may prescribe. Once appointed, the
Committee shall continue to serve until serve until otherwise directed
by the Board. From time to time, the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with
or without cause) and appoint new members in substitutions therefore,
fill vacancies, however caused, and remove all members of the Committee
and, thereafter, directly administer the Plan.
Members of the Board or Committee who are either eligible for Options or
have been granted Options may vote on any matters affecting the administration
of the Plan or the grant of any Options pursuant to the Plan; provided that no
such member shall act upon the granting, amendment or modification of an Option
to himself, but any such member may be counted in determining the existence of a
quorum at any meeting of the Board or the Committee during which action is taken
with respect to the granting of an
Exhibit 10.04
Page 2
122
<PAGE>
Option to him.
b) POWERS OF THE COMMITTEE. Subject to the provisions of the Plan, the
Committee shall have the authority: (i) to determine, upon review of
relevant information, the fair market value of the Common Stock; (ii)
to determine the exercise price of Options to be granted (which price,
in the case of Incentive Stock Options, shall be not less than the
minimum specified in Section 6(b) hereof), the Employees to whom and
the time or times at which Options shall be granted, and the number of
Shares to be represented by each Option; (iii) to interpret the Plan;
(iv) to prescribe, amend and rescind rules and regulations relating to
the Plan, (v) to determine the terms and provisions of each Option
granted under the Plan (which need not be identical and, with the
consent of the holder thereof, to modify or amend any Option; (vi) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Option previously granted by the
Committee, and (vii) to make all other determinations deemed necessary
or advisable for the administration of the Plan.
c) EFFECT OF COMMITTEE'S DECISION. All decisions, determinations and
interpretations of the Committee shall be final and binding on all
Optionees and any other holders of any other holders of any Options
granted under the Plan.
4. STOCK RESERVED FOR THE PLAN. Subject to adjustment as provided in
paragraph 6(h) and 6(1) hereof and to the provisions of Section 9 hereof, a
total of two million (2,000,000) shares of Common Stock shall be subject to the
Plan. The Shares subject to the Plan shall consist of unissued shares or
previously issued shares reacquired and held by the Company, and such amount of
shares shall be made available (for sale for such purpose. Any of such shares
which may remain unsold and which are not subject to outstanding Options at the
termination of the Plan shall cease to be reserved (for the purpose of the Plan,
but until termination of the Plan the Company shall make available a sufficient
number of shares to meet the requirements of the Plan, but until termination of
the Plan shall cease to be reserved for the purpose of the Plan, but until
termination of the Plan the Company shall make available a sufficient number of
shares to meet the requirements of the Plan. Should any Option expire or be
canceled prior to its exercise in full, the shares theretofore subject to such
Option may again be made subject to an Option under the Plan.
5. ELIGIBILITY.
a) Incentive Stock Options under the Plan may be granted only to Employees
for a reason connected with their employment by the Company or any
Subsidiary. Non- Qualified Stock Options may be granted under the Plan
to Employees for reason connected with their employment or other
service to the Company or any Subsidiary. An Employee who has been
granted an Incentive Stock Option or a Non-Qualified Stock Option, if
he or she is otherwise eligible, may be granted additional Incentive
Stock Options or Non-Qualified Stock Options.
Exhibit 10.04
Page 3
123
<PAGE>
b) The aggregate fair market value (determined at the time an Incentive
Stock Option is granted) of the Common Stock with respect to which any
Incentive Stock Option may be exercisable for the first time by an
Optionee during any calendar year (under this Plan and any other stock
option plans of the Company and its Subsidiaries) shall not exceed
$100,000.
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment by the Company, (or shall it interfere in any way
with his right or the Company's right to terminate his employment or other
position at any time.
6. TERMS AND CONDITIONS. Each Option granted under the Plan shall be
evidenced by an agreement, in a form approved by the Committee, which
shall be subject to the following express terms and conditions and to
such other terms and conditions as the Committee may deem appropriate.
a) OPTION PERIOD. Each option agreement shall specify the period (for
which the Option thereunder is granted (which in no event shall exceed
ten years from the date of grant) and shall provide that the Option
shall expire at the end of such period. In the outstanding stock of the
Company (determined in accordance with Section 425(d) of the Code) on
the date the Incentive Stock Option is granted to him, the option
period shall not exceed five years from the date of grant.
b) OPTION PERIOD. The purchase price of each share of Common Stock subject
to each Option granted pursuant to the Plan shall be determined by the
Committee at the time the Option is granted. In the case of Incentive
Stock Options, such purchase price shall not be less that the fair
market value of a share of Common Stock on the date the Option is
granted, as determined by the Committee; provided, however, that in the
case of an Incentive Stock Option granted to an Optionee who owns more
than ten percent (10%) of the outstanding stock of the Company
(determined in accordance with Section 425(d) of the Code) on the date
Option is granted to him, the option price shall not be less that 110%
of the fair market value of a share of Common Stock on such date.
c) EXERCISE PERIOD. No part of any Option may be exercised until the
optionee shall have remained in the employ of the Company or any of its
Subsidiaries for such period after the date on which the Option is
granted as the Committee may specify in the option agreement.
d) PROCEDURE FOR EXERCISE. Options shall be exercised by the delivery of
written notice to the Company setting forth the number of shares with
respect to which the Option is to be exercised. An Option may not be
exercised for fractional shares. Unless stock of Company is used to
acquire such shares in accordance with paragraph 6(k), such notice
shall be accompanied by cash or certified check, bank draft, or postal
or express money order payable to the order of the Company for an
amount equal to the
Exhibit 10.04
Page 4
124
<PAGE>
Option price of such shares and specifying the address to which the
certificates for such shares are to be mailed. As promptly as practicable after
receipt of such written notification and payment, the Company shall deliver to
the Optionee certificates for the number of shares with respect to which such
Option has been so exercised, issued in the Optionee's name; provided, however,
that such delivery shall be deemed effected for all purposes when a stock
transfer agent of the Company shall have deposited such certificates in the
United States mail, addressed to the Optionee, at the address specified pursuant
to this paragraph 6(d). Until the issuance of the stock certificates, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the optioned shares.
e) Termination of Employment. If an Optionee to whom an Option has been
granted ceases to be employed by the Company or any of it's
Subsidiaries for any reason other than death or disability, the options
granted to him shall thereupon terminate except as otherwise provided
in any written contract of employment entered into between the Optionee
and the Company or any Subsidiary prior to the termination of
employment.
f) Disability or Death of Optionee. In the event of the disability or
death of the holder of an Option under the plan while he is employed by
the Company or any of its Subsidiaries, the Options previously granted
to him may be exercised (to the extent he would have been entitled to
do so at the date of his disability or death) at any time and from time
to time, within a period of one year after his disability or death, by
the Optionee, by the executor or administrator of his estate or by the
person or persons to whom his rights under the Option shall pass by ill
or the laws of descent and distribution, but in no event may the Option
be exercised after its expiration. An employee shall be deemed to be
disabled if, in the opinion of a physician selected by the Committee,
he is incapable of performing services for the Company or any of its
subsidiaries by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long,
continued and indefinite duration lasting not less than 12 months.
g) No Rights as Stockholder. No Optionee shall have any rights as a
stockholder with respect to shares covered by an Option until the date
of issuance of a stock certificate for such shares; except as provided
in paragraphs 6(h) or 6(i), no adjustment for dividends, or otherwise,
shall be made if the record date therefore is prior to the date of
issuance of such certificate.
h) Extraordinary Corporate Transactions; Adjustment for Recapitalization,
Merger. etc. If the Company is dissolved or liquidated, or is merged or
consolidated into or with another corporation, other than by a merger
or consolidation in which the Company is the surviving corporation, the
then exercisable but unexercised Options granted under the Plan shall
not be exercisable after date of such dissolution, liquidation, merger
or consolidation, unless such other surviving corporation makes
provision for
Exhibit 10.04
Page 5
125
<PAGE>
adoption of the Plan and the assumption of the Company's obligations thereunder.
Notwithstanding any provision of this Plan, the Committee is authorized to
take such action as it determines to be necessary or advisable, and fair and
equitable to Optionees, with respect to Option held by Optionees in the event of
a sale or transfer of all or substantially all of the Company's assets, or
merger or consolidation (other than a merger or consolidation in which the
Company is the surviving corporation and no shares are converted into or
exchanged for securities, cash or any other thing of value). Such action may
include (but is not limited to) the following:
(A) Accelerating the vesting of any Option to permit its exercise in
full during such period as the Committee in its sole discretion shall
prescribe following the public announcement of a sale or transfer of assets
or merger or consolidation.
(B) Permitting an Optionee, at any time during such period as the
Committee in its sole discretion shall prescribe following the consummation
of such a merger, consolidation or sale or transfer of assets, to surrender
any Option (or any portion thereof to the Company for cancellation.
(C) Requiring any Optionee, at any time following the consummation of
such a merger, consolidation or sale or transfer of assets, if required by
the terms of the agreements relating thereto, to surrender any Option (or
any portion thereof) to the Company in return for a substitute Option which
is issued by the corporation surviving such merger or consolidation or the
corporation which acquired such assets (or by an affiliate of such
corporation) and which the Committee, in its sole discretion, determines to
have a value to the Optionee substantially equivalent to the value to the
Optionee of the Option (or portion thereof) so surrendered.
Subject to any action which the Committee may take pursuant to the
provisions o( this paragraph 6(h) and paragraph 6(i), in the event of any
merger, consolidation or sale or transfer of assets referred to in this
paragraph 6(h) or paragraph 6(i), upon any exercise thereafter of an Option, an
Optionee shall, at no additional cost other than payment of the exercise price
of the Option, be entitled to receive in lieu of Shares, (1) the number and
class of Shares or other security, or (2) the amount of cash, or (3) property,
or (4) a combination of the foregoing, to which the Optionee would have been
entitled pursuant to the terms of such merger, consolidation or sale or transfer
of assets, if immediately prior thereto the Optionee had been the holder of
record of the number of Shares for which such Option shall be so exercised.
(i) Changes in Company's Capital Structure. The existence of outstanding
Options shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalization,
reorganization
Exhibit 10.04
Page 6
126
<PAGE>
or other changes in the Company's capital structure or its business, or any
merger or consolidation of the Company, or any issuance of Common Stock or
subscription rights thereto, or any issuance of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise. Provided,
however, that if the outstanding shares of common Stock of the Company shall at
any time be changed or exchanged by declaration of a stock dividend, stock
split, combination of shares, or recapitalization, the number and kind of shares
subject to the Plan or subject to any Options theretofore granted, and the
option prices, shall be appropriately and equitably adjusted so as to maintain
the proportionate number of shares without changing the aggregate option price.
(j) Investment Representation. Each option agreement shall contain an
agreement that, upon demand by the Committee for such a representation, the
Optionee [or any person acting under paragraph 6(f)] shall deliver to the
Committee at the time of any exercise of an Option a written representation that
the shares to be acquired upon such exercise are to be acquired for investment
and not for resale or with a view to the distribution thereof. Upon such demand,
delivery of such a representation prior to the delivery of any shares issued
upon exercise of an Option and prior to the expiration of the option period
shall be a condition precedent to the right of the Optionee or such other person
to purchase any shares.
k) Payment with Stock. Subject to approval of the Committee, an Employee
may pay for any shares of Common Stock with respect to which an Option has been
exercised by tendering to the Company other shares of Common Stock at the time
of the exercise of such Option, provided, however. that at the time of such
exercise, the Company shall have a Committee consisting of three or more
disinterested directors who shall approve the payment for option shares with
other shares. The certificates representing such other shares of Common Stock
must be accompanied by a stock power duly executed with signature guaranteed.
The value of Common Stock so tendered shall be determined by the Committee in
its sole discretion. The Committee may, in its sole and absolute discretion,
refuse any tender of shares of Common Stock, in which case it shall deliver the
tendered shares of Common Stock back to the employee and notify the employee of
such refusal.
l) Options Not Transferable. No Option or interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempted disposition thereof shall
be null and void and of no
Exhibit 10.04
Page 7
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<PAGE>
effect; provided, however, that nothing in this Section 6(l) shall prevent
transfers by will or by the applicable laws of descent and distribution, or
transfers made with the express written authorization of the Committee, whose
authorization may be withheld at its absolute discretion.
7. Amendments or Terminations. The Board of Directors may amend, alter or
discontinue the Plan, but not amendment or alteration shall be made which would
impair the rights of any participant under any Option theretofore granted
without his consent, or which without the approval of the shareholders, would:
(i) except as is provided in paragraphs 6(b) and 6(1) of the Plan, increase the
total number of shares reserved for the purposes of the Plan or decrease the
option price provided for in paragraph 6(b) of the Plan, (ii) change the class
of persons eligible to participate in the Plan as provided in paragraph 5 of the
Plan, (iii) extend the option period provided for in paragraph 6(a) of the Plan,
or (iv) extend the expiration date of this Plan set forth in paragraph 9 of the
Plan.
8. Compliance with Other Laws and Regulations The Plan, the grant and
exercise of Options thereunder, and the obligation of the Company to sell and
deliver shares under such Options, shall be subject to all applicable federal
and state laws, rules and regulations and to such approvals by the governmental
or regulatory agency as may be required. The Company shall not be required to
issue or deliver any certificates for shares of Common Stock prior to the
completion of any registration or qualification of such shares under any federal
or state law, or any ruling or regulation of any government body which the
Company shall, in its sole discretion, determine to be necessary or advisable.
Further, it is the intention of the Company that the Plan comply in all respects
with the provision of Rule 16b-3 of the United States Securities and Exchange
Act of 1934, as amended. If any Plan provision is found or determined not to be
in compliance with such Rule 16b-3 of the United States Securities and Exchange
Act of 1934, as amended. If any Plan provision is found or determined not to be
in compliance with such Rule 16b-3 the provision shall be deemed null and void.
9. Effectiveness and Expiration of Plan. The Plan shall be effective on
March 23, 1995, the date the Board of Directors of the Company initially adopted
the Plan, subject to the express condition that stockholders of the Company
shall have approved and ratified the Plan within one year thereafter. For the
purpose of granting Options hereunder, this Plan. shall expire on March 23,
2005, ten years after the effective date of the Plan and thereafter no Option
shall be granted pursuant to the Plan.
10. Cancellation and Issuance. The Committee may, as it's sole discretion,
subject to the provision of the Plan, cancel outstanding Option and issue
replacement Options under the Plan under terms and at exercise prices it deems
beneficial to the Company and the Optionees, to further the purposes of the
Plan. Notwithstanding this paragraph 10, no Option may be canceled, or otherwise
amended or modified, without the written consent of the Optionee.
Exhibit 10.04
Page 8
128
<PAGE>
THE HARTCOURT COMPANIES. INC.
STOCK OPTION AGREEMENT
UNDER 1995 INCENTIVE STOCK OPTION PLAN
---------------------
Date: _, 199_
The Hartcourt Companies, Inc., a Utah corporation (the "Company"), hereby
grants to ***** (the "optionee"), pursuant to the 1995 Incentive Stock Option
Plan of the Company (the "Plan"), a copy of which is appended hereto and made a
part hereof as Schedule I, an option to purchase a total of (______ shares of
Common Stock of the Company at a price of *****DOLLARS ($***) per share (subject
to adjustment as provided in Section 6(i) of the Plan), on the terms and
conditions set forth in the Plan and hereinafter. This option shall not be
exercisable later than on _______, 200___ (hereinafter referred to as the
"Expiration Date"), except as otherwise provided in paragraphs 6(e) and 6(f) of
the Plan in the event of termination of employment, death or disability of the
Optionee.
1. VESTING. Subject to the terms and conditions of this Agreement, the
shares subject to this option shall be exercisable at any time, in whole or in
part, on or after the date of grant of this option; provided, however, that this
option shall not be exercisable later than the Expiration Date.
2. TERMINATION. Except as otherwise expressly provided in any contract of
employment between the Optionee and the Company, this option and all rights
hereunder to the extent such rights shall not have been exercised shall
terminate and become null and void after the Optionee ceases to be an Employee
of the Company or any of its subsidiaries or licensees (whether by resignation,
retirement, dismissal, death or otherwise); provided, however, that in no event
may this option be exercised after the Expiration Date. Notwithstanding the
foregoing, this option may in no event be exercised by any one to any extent in
the event of a voluntary dissolution, liquidation or winding up of the affairs
of the Company or in the event of merger into, consolidation with, or sale or
transfer of all or substantially all of the assets of the Company, except under
the circumstances and pursuant to the terms and conditions of Section 6(h) of
the Plan.
3. EXERCISE. This option is exercisable with respect to all, or from time
to time with respect to any portion, of the shares then subject to such
exercise, by delivering written notice of such exercise, in the form prescribed
by the Stock Option Committee, to the principal office of the Secretary of the
Company. Each such notice shall be accompanied by payment in full of the option
purchase price of such shares. The Company acknowledges that the Optionee may,
if he so elects, exercise this option by tendering shares of the Company's
capital stock in payment of the option exercise price as permitted by Section
6(k) of the Plan.
Exhibit 10.04
Page 9
129
<PAGE>
4. NON-TRANSFERRABLE. Unless otherwise expressly authorized by the Stock
Option Committee, which authorization may be withheld at the Stock Option
Committee's absolute discretion, this option shall during the Optionee's
lifetime be exercisable only by him, and neither it nor any right thereunder
shall be transferable except by will or laws of descent and distribution, or be
subject to attachment, execution or other similar process. In the event of any
attempt by the Optionee to alienate, assign, pledge, hypothecate or otherwise
dispose of the option or any right thereunder, except as provided for herein, or
in the event of the levy of any attachment, execution or similar process upon
the rights or interest hereby conferred, the Company may terminate the option by
notice to the Optionee and the option shall thereupon become null and void.
5. MISCELLANEOUS
(a) Neither the granting of this option nor the exercise thereof shall be
construed as conferring upon the Optionee any right to continue in the
employment of the Company or any of its subsidiaries, or as interfering with or
restricting in any way the right of such corporations to terminate such
employment at any time.
(b) Neither the Optionee, nor any person entitled to exercise his rights in
the event of his death, shall have any of the rights of a stockholder with
respect to the shares subject to the option, except in the extent that
certificates for such shares shall have been issued upon exercise of the option
as provided for herein.
(c) The Company is relieved from any liability for the non-issuance or
non-transfer of any delay in the issuance or transfer of any shares of Common
Stock subject to this option which results from the inability of the Company to
obtain, or in any delay in obtaining, from each regulatory body having
jurisdiction all requisite authority to issue or transfer shares of Common Stock
of the Company in satisfaction of this option of counsel for the Company deems
such authority necessary for the lawful issuance or transfer of any such shares.
(d) No capital stock acquired by exercise of this option shall be sold or
otherwise disposed of in violation of any federal or state securities law or
regulation.
(e) This option shall be exercised in accordance with such administrative
regulations as the Stock Option Committee may from time to time adopt. All
decisions of the Stock Option Committee upon any question arising under the Plan
or under this instrument shall be conclusive and binding upon the Optionee and
all other persons.
THE HARTCOURT COMPANIES, INC.
By: /s/ ATTEST:
- ---------------------
-------------------
Secretary
Exhibit 10.04
Page 10
130
<PAGE>
PURCHASE CONTRACT
******
This contract was entered on 21 Mar 96 by and between:
1. Exceptional Specialty Products Inc., a California Corporation, located at 446
South Anaheim Hills Rd Suite 121 Anaheim Hills, California 92807, represented by
Mrs. Joanne Daly, its President, herein referred to as SELLER: and
2. The Hartcourt Companies, a Utah corporation, located at 20022 State Rd,
Cerritos, California 90703, represented by Dr. Alan V. Phan, its President,
herein referred to as BUYER.
WHEREAS:
Seller agreed to sell and Buyer agreed to buy, a complete line of cosmetics,
including inventory, marketed under the brand name of " Camille St Moritz",
under the following terms and conditions:
1. The products sold will include the inventory as listed under Attachment A,
the trademarked name of Camille St Moritz, the promotional literature, and the
covenant not to compete from the principals.
2. Total and final payment for these products will be 60,000 units of free
trading common shares of Hartcourt (NASDAQ Symbol: HRCT) delivered to an escrow
account to be established by Buyer. The escrow will hold the shares for a period
of 24 months, not allowed to sell, before releasing them to the rightful owner
after this period
3. Buyer will have the right to repurchase the 60,000 shares at an unit price of
$7.00 cash, at the end of the 24-month period.
4. Seller will have the option to resell the shares to Buyer; and Buyer will pay
Seller $5.00 per share at the end of the 24 month period.
5. Seller hereby warrants to Buyer the following:
5a. All products are still in good conditions and completely safe to consumers;
and there is no existing or potential violation of the laws and regulations of
the FDA or other governmental authorities.
5b. Seller holds free and clear title of the goods; and there is no existing or
future encumbrance from any source.
Exhibit 10.05
Page 1
131
<PAGE>
5c. Seller and its principals will not compete for a period of 5 years by
marketing similar products in the U.S.
6. Buyer warrants that all shares of Hartcourt are free-trading and have no
encumbrances or restrictions.
7. Buyer will deliver the share certificates to the escrow no later than 30
March 96 and Seller will ship all products and related materials within 24 hours
of receiving the shares.
The two parties hereby affix their signatures as agreed.
/s/ Alan V. Phan /s/ Joanne Daly
- ----------------- ------------------------
BUYER SELLER
Exhibit 10.05
Page 2
132
<PAGE>
ATTACHMENT A
Purchase Contract
Camille St Moritz
TOTAL RECAP
1. Finished Products (Quantity & Item Description
Per Page 1 & 2 Of Inventory Sheet)......... $ 186,475.00
2. Liquid Make Up In Bulk (Page 5)....................... 3,180.00
3. Containers, Labels, Packaging (Pages 4 thru 9)...... 102,410.00
4. Stationary & Promotional Materials (estimated)....... 18,750,00
GRAND TOTAL $310,815.00
/s/ Alan V. Phan /s/ Joanne Daly
- ---------------- ----------------
BUYER SELLER
Exhibit 10.05
Page 3
133
<PAGE>
Ex 10-6
PURCHASE AND SALE AGREEMENT
DATED: August 8th, 1996
PARTIES :
1. "Hartcourt" The Hartcourt Companies, Inc., a corporation
organized under the laws of the United
States, State of Utah.
2. "NuOasis" NUOASIS INTERNATIONAL INC., a corporation
organized under the laws of the Commonwealth
of the Bahamas.
RECITALS:
1.1 NuOasis is the owner and developer of a commercial real estate project
located in mainland China commonly known as the Peony Gardens Property,
more fully described in Schedule "1" annexed hereto (the "Property"); and,
1.2 Hartcourt wishes to purchase the Property.
OPERATIVE PROVISIONS:
1. Purchase and Sale
1.1 Upon the terms and subject to the conditions of this Agreement, on the
Closing Date, NuOasis agrees to sell and transfer the Property to
Hartcourt and Hartcourt agrees to purchase and accept the Property for
the consideration set forth in this Agreement.
1.2 In exchange for the Property, Hartcourt shall pay to NuOasis the sum
of Twenty Two Million Dollars (USD22,000,000), hereinafter referred to
as the "Purchase Price", consisting of a Convertible Secured
Promissory Note in the principal amount of Twelve Million Dollars
(USD12, 000, 000) in the form annexed hereto as Schedule 2 (the
"Hartcourt Note") and the greater of Ten Million (10, 000, 000) shares
of Hartcourt common stock or that number of shares of Hartcourt common
stock having a market value equal to Ten Million Dollars
(USDIO,000,000) at Closing (the "Shares"). For the purpose of this
Agreement, "Market Value" shall mean fifty percent (5O%) of the thirty
Exhibit 10.06
Page 1
134
<PAGE>
(30) days moving average closing "bid" price for Hartcourt common
stock as quoted by the United States National Association of
Securities Dealers Electronic Bulletin Board immediately preceding the
Closing Date.
2. Closing
2.1 The closing of the delivery and transfer of the Property (the
"Closing") shall occur at the offices of Hartcourt on a date ("Closing
Date") to be mutually agreed upon by Hartcourt and NuOasis after (i)
exchange of all books, records, financial information, documents, and
other materials deemed necessary to completion of the transaction
contemplated under this Agreement, and (ii) completion of all review
periods provided for in this Agreement . Exchange of documents under
this Agreement shall begin as soon as possible after execution hereof.
In any case, the Closing Date shall be no later than 30th September
1996.
2.2 At the Closing, the following transactions shall occur and documents
shall be exchanged, all of which shall be deemed to occur
simultaneously:
2.2.1 NuOasis will deliver, or cause to be delivered, to Hartcourt:
2.2.1.1 the documents necessary to establish the interest in the
Property and to transfer ownership of NuOasis' right,
title and interest in and to the Property to Hartcourt,
in form and substance acceptable to Hartcourt;
2.2.1.2 such other documents, instruments, and/or certificates,
if any, as are required to be delivered pursuant to the
provisions of this Agreement, or which are reasonably
determined by the parties to be required to effectuate
the transactions contemplated in this Agreement, or as
otherwise may be reasonably requested by Hartcourt in
furtherance of the intent of this Agreement .
Exhibit 10.06
Page 2
135
<PAGE>
2.2.1.3 certificates or other conveyance documents acceptable to
NuOasis transferring the Purchase Price to NuOasis;
2.3 From time to time after the Closing, upon the reasonable request of
any party, the party to whom the request is made shall deliver such
other and further documents, instruments, and/or certificates as may
be necessary to more fully vest in the requesting party the
consideration provided for in this Agreement or to enable the
requesting party to obtain the rights and benefits contemplated by
this Agreement.
3. Representations and Warranties of Hartcourt
Hartcourt represents and warrants to NuOasis that;
3.1 Hartcourt is a corporation, validly existing and in good standing
under the laws of the United States, State of Utah, with the power and
authority to carry on its business as now being conducted. The
execution and delivery of this Agreement and the consummation of the
transaction contemplated in this Agreement have been, or will be prior
to Closing, duly authorized by all requisite action on the part of
Hartcourt. This Agreement has been duly executed and delivered by
Hartcourt and the Hartcourt Note the Shares to be issued by Hartcourt
hereunder will constitute validly issued shares and a binding, and
enforceable obligation of the corporation.
3.2 To the best of Hartcourt's knowledge and belief, the execution and
performance of this Agreement will not violate, or result in a breach
of, or constitute a default in, any provisions of applicable law, any
agreement, instrument, judgment, order or decree to which Hartcourt is
a party or to which it is subject so as to give rise to a claim by
anyone against the Hartcourt Note or Shares which would in any way
effect the enforceability or validity of this Agreement or Hartcourt's
ability to conclude the transaction contemplated under this Agreement.
Exhibit 10.06
Page 3
136
<PAGE>
3.3 The Shares. The Shares to be issued pursuant to this Agreement will be
issued at Closing, free and clear of liens, claim, and encumbrances,
and Hartcourt can issue such shares without the consent or approval of
any person, firm, corporation, or government authority .
3.4 Capitalization. The capitalization of Hartcourt is attached hereto and
incorporated herein as Schedule "3".
3.5 Financial Information. Hartcourt has provided NuOasis, or will provide
prior to Closing, copies of its Annual Report containing audited
financial statements for the years ending 3lst December 1994 and 1995,
and all other information included in such reports or delivered to
NuOasis pursuant to this Agreement, shall be referred- to as the
"Hartcourt Financials" . Except as set forth in the Hartcourt
Financials, Hartcourt has no obligations or liabilities (whether
accrued, absolute, contingent, liquidated or otherwise, including
without limitation any tax liabilities due or to become due) which are
not fully disclosed and adequately provided for excepting current
liabilities incurred and obligations under agreements entered into in
the usual and ordinary course of business since the date of the
Hartcourt Financials, none of which (individually or in the aggregate)
are material except as expressly indicated their use is not a
guarantor or otherwise contingently liable for any material amount of
indebtedness. Except as indicated in the Hartcourt Financials, there
exists no default under the provisions of any instrument evidencing
any indebtedness or of any agreement in relation thereto.
3.6 Litigation. To the best knowledge and belief of Hartcourt, except as
disclosed in the Hartcourt Financials or pursuant to this Agreement,
there is neither pending nor threatened, any action, suit or
arbitration to which its Hartcourt property, assets or business is or
is likely to be subject and in which an unfavorable outcome, ruling or
finding will or is likely to have a material adverse effect on the
condition, financial or otherwise, or create a material liability on
the part of Hartcourt, or which
Exhibit 10.06
Page 4
137
<PAGE>
would conflict with this Agreement or any action taken or to be taken
in connection with it.
3.7 Tax Matter. To the extent that its tax filings, liabilities, payments,
or provisions for payment could give rise to a claim against or affect
the right of ownership to the Shares, Hartcourt has filed or will file
all federal, state, and local income, excise, property, and other tax
returns, forms, or reports, which are due or required to be filed by
it and has paid, or made adequate provision for payment of all taxes,
interest, penalty fee, assessment, or deficiencies shown to be due or
claimed to be due or which have or may become due on or in respect of
such returns or reports.
3.8 Contracts. Except as disclosed pursuant to this Agreement, or in the
Hartcourt Financials, there are no contracts, actual or contingent
obligations, agreement, franchises, license agreements, or other
commitments between Hartcourt third parties which are material to its
business, financial condition, or results of operation, taken as a
whole. For purposes of the preceding sentence, the term "material"
refers to any obligation or liability which by its terms calls for
aggregate payments of more than Ten Thousand Dollars (USD10,000).
3.9 Material Contract Breaches: Defaults. To the best of Hartcourt's
Knowledge and belief, it has not materially breached, nor has it any
knowledge of any pending or threatened claims or any legal basis for a
claim that it has materially breached, any of the terms or conditions
of any agreements, contracts, or commitments to which it is a party or
is bound and which might give rise to a claim by anyone against the
Note or the Shares, and there is no event of default or other event
which, with notice or lapse of time or both, would constitute a
default in any material rise to a claim against the Note or the Shares
in respect of which Hartcourt has not taken adequate steps to prevent
such a default from occurring .
Exhibit 10.06
Page 5
138
<PAGE>
3.10 Securities Laws. Hartcourt is a public company and represents that, to
the best of its knowledge, except as disclosed in the Hartcourt
Financials, it has no existing or threatened liabilities, claims,
lawsuits, or basis for the same with respect to this original stock
issuance to its founders, its initial public offering, or any dealings
with its stockholders, the public, the brokerage community, the United
States Securities And Exchange Commission ("SEC"), any U.S. state
regulatory agencies, or other person. Hartcourt is currently a
non-reporting company and is not required to file quarterly or yearly
reports. Hartcourt is in the process of filing its Form 10 with the
SEC. Hartcourt is currently published in Standard and Poors and is
cleared therefore for secondary trading in Standard and Poors approved
states.
3.11 Brokers. Hartcourt has agreed to pay a finder's fee with respect to
the transaction contemplated in this Agreement to Asian International
Development Ltd. . ("AID" ) , its assignees or nominees, and to
Guangdong Investments Ltd. ("GIL"), its assignees or nominees in an
amount to be negotiated. To the best of Hartcourt's knowledge, no
other person or entity is entitled, or intends to claim that it is
entitled, to receive any fees or commissions in connection with this
transaction, further agrees to indemnify and hold harmless NuOasis
against liability to AID, GIL or any broker claiming fees of any kind
or nature.
3.12 Approvals. Except as otherwise provided in this Agreement, to
Hartcourt's best knowledge and belief no authorization, consent, or
approval of, or registration or filing with any governmental
authority, or any other person, is required to be obtained or made by
connection with Hartcourt's execution, delivery, or performance of
this Agreement.
3.13 Full disclosure. The information concerning set forth in this
Agreement, and in the Hartcourt Financials, is, to the best of
Hartcourt's knowledge and belief, complete and accurate in all
material respects and does not contain any untrue statement of a
material fact or omit to state a material fact required to make the
statements made, in light of the circumstances under which they were
made, not misleading.
Exhibit 10.06
Page 6
139
<PAGE>
3.14 Date of Representations and Warranties. Each of the representations
and warranties of set forth in this Agreement is true and correct at
and as of the Closing Date, with the same force and effect as though
made at and as of the Closing Date, except for changes permitted or
contemplated by this Agreement.
4. Representations and Warranties of NuOasis
NuOasis represents and warrants to Hartcourt that;
4.1 NuOasis is the owner of the Property and will certify in form and
substance acceptable to Hartcourt at Closing.
4.2 NuOasis is a corporation duly incorporated, validly existing and in
good standing under the laws of the Commonwealth of Bahamas, with the
corporate power and authority to carry on its business as now being
conducted. In addition, NuOasis is duly qualified to do business in
each jurisdiction in which the nature of its business requires it to
be so qualified, except to the extent that the failure to so qualify
does not have a material adverse effect on the business of NuOasis,
taken as a whole. The execution and delivery of this Agreement and the
consummation of the transactions contemplated in this Agreement have
been, or will be prior to Closing, duly authorized by all requisite
corporate actions on the part of NuOasis, to the extent, if any, that
such authorizations are necessary. This Agreement has been duly
executed and delivered by NuOasis and constitutes the valid, binding,
and enforceable obligation of NuOasis.
4.3 NuOasis has provided to Hartcourt, or will provide prior to Closing,
appraisals, construction costs and budgets, and all other information
related to the Property in the possession of NuOasis, or available for
NuOasis. Such information shall be referred to as the "Property
Reports" . All financial statements and reports included in the
Property Reports and prepared by NuOasis, are prepared in accordance
with generally acceptable accounting standards and present fairly the
condition of the Property. Except as indicated, there exists no
default under the provisions of any instrument evidencing NuOasis'
ownership of the
Exhibit 10.06
Page 7
140
<PAGE>
Property and NuOasis is not a guarantor or otherwise contingently
liable for any material amount of indebtedness relating thereto.
4.4 To the best knowledge and belief of NuOasis, there is neither pending
nor threatened, any action, suit, arbitration, proceeding (whether
federal, state, local or foreign) or claim to which NuOasis or the
Property is or is likely to be named as a party in which an
unfavorable outcome, ruling or finding will or is likely to have a
material adverse effect on the condition, financial or otherwise, of
the Property, or create any material liability on the part of owners
of the Property, or which would conflict with this Agreement or any
action taken or to be taken in connection with it.
4.5 To NuOasis's best knowledge and belief, no authorization, consent, or
approval of, or registration or filing with, any governmental
authority or any other person is required to be obtained or made by
NuOasis in connection with the execution, delivery, or performance of
this Agreement.
4.6 The information concerning NuOasis set forth in this Agreement and in
the Property Reports is, to the best of NuOasis's knowledge and
belief, complete and accurate in all material respects and does not
contain any untrue statement of a material fact or omit to state a
material fact required to make the statements made, in light of the
circumstances under which they were made, not misleading.
5. Conditions Precedent to Obligations of NuOasis
All obligations of NuOasis under this Agreement are subject to the
fulfillment, prior to or as of the Closing Date, of each of the following
conditions:
5.1 The representations and warranties by Hartcourt set forth in this
Agreement shall be true and correct at and as of the Closing Date,
with the same force and effect as though made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement.
Exhibit 10.06
Page 8
141
<PAGE>
5.2 Hartcourt shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing.
5.3 Hartcourt shall have taken all corporate and other action necessary to
issue the Shares and the Hartcourt Note constituting the Purchase
Price to NuOasis pursuant to this Agreement.
5.4 All instruments and documents delivered to NuOasis pursuant to the
provisions of this Agreement shall be satisfactory to NuOasis and its
legal counsel.
6. Conditions Precedent to Obligations of Hartcourt
All obligations of NuOasis under this Agreement are subject to the
fulfillment, prior to or as of the Closing Date, of each of the following
conditions:
6.1 The representations and warranties by NuOasis set forth in this
Agreement shall be true and correct with the same force and effect as
though made at and as of the Closing Date, except for changes
permitted or contemplated by this Agreement.
6.2 NuOasis shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed
or complied with by it prior to or at the Closing.
6.3 NuOasis shall have taken all corporate and other action necessary to
transfer NuOasis ownership and title to the Property to Hartcourt.
6.4 Before Closing, NuOasis will have delivered the Property Reports to
Hartcourt. NuOasis shall specifically provide to Hartcourt schedules
of all costs related to the Property as of 31st March, 1996 and all
other documents necessary to substantiate to Hartcourt's sole
satisfaction the agreed value of not less than Twenty Two Million
Dollars (USD22,000,000). Upon receipt and review of the Property
Reports, Hartcourt shall have fifteen(15) business days to raise
objections to the information contained in the Property Reports, which
shall be accomplished by
Exhibit 10.06
Page 9
142
<PAGE>
submission of a written list of such objections to NuOasis, and to
conduct a valuation of the Property. If there are objections, or if
the valuation of the Property, as determined by Hartcourt, or a
recognized independent appraiser acting for Hartcourt, is less than
Twenty-Two Million Dollars(USD22,000,000), then Hartcourt shall have
the option to terminate this Agreement without penalty. Alternatively,
Hartcourt may elect, in its sole discretion, to waive objections and
proceed with Closing.
6.5 All instruments and documents delivered to Hartcourt pursuant to the
provisions of this Agreement shall be satisfactory to Hartcourt and
its legal counsel. NuOasis shall provide to Hartcourt prior to Closing
evidence satisfactory to Hartcourt that the representations of NuOasis
herein and the interest in the Property is legally created and duly
enforceable.
7. Termination
7.1 This Agreement may be terminated at any time prior to the Closing
Date without liability on the part of either Hartcourt or NuOasis:
7.1.1 by mutual consent of Hartcourt and NuOasis;
7.1.2 by Hartcourt or NuOasis, (unless the action or proceeding
referred to is caused by a breach or default on the part of
Hartcourt or NuOasis of any of their representations,
warranties, or obligations under this Agreement) , if there
shall be any actual or threatened action or proceeding by or
before any court or any other governmental body which shall
seek to restrain, prohibit, or invalidate the transactions
contemplated by this Agreement and which, in the judgment of
Hartcourt or NuOasis, made in good faith and based upon the
advice of legal counsel, makes it inadvisable to proceed with
the transactions contemplated by this Agreement;
7.1.3 by NuOasis or Hartcourt (as the case may be) if, as provided
herein upon Hartcourt's disapproval of the Value of the
Property or
Exhibit 10.06
Page 10
143
<PAGE>
NuOasis' disapproval of the Value of the Shares or the
financial condition of Hartcourt, including but not limited to
its capitalization, at any time prior to Closing.
8. Termination with Cause
If this Agreement is terminated for breach or otherwise for cause, the
non-breaching party shall be reimbursed by the other party of all expenses
and costs related to this Agreement in the amount of Fifty Thousand Dollars
(USD50,000).
9. Miscellaneous Provisions
9.1 All representations, warranties, and covenants made by any party in
this Agreement shall survive the Closing hereunder and the
consummation of the transactions contemplated hereby for three (3)
years from the Closing Date. Hartcourt and NuOasis are executing and
carrying out the provisions of this Agreement in reliance on the
representations, warranties, and covenants and agreements contained in
this Agreement or at the Closing of the transactions herein provided
for including any investigation upon which it might have made or any
representations, warranty, agreement, promise, or information, written
or oral, made by the other party or any other person other than as
specifically set forth herein.
9.2 All costs and expenses in the proposed sale and transfer described in
this Agreement shall be borne by the following manner:
9.2.1 each party has been represented by its own attorney(s) in this
transaction, shall pay the fees of its own attorney(s), except
as may be expressly set forth herein to the contrary .
9.2.2 each party shall bear its reasonable shares of all other
Closing costs and expenses arising from this Agreement .
Exhibit 10.06
Page 11
144
<PAGE>
9.3 At any time and from time to time, after the effective date, each
party will execute such additional instruments and take such action as
may be reasonably requested by the other party to confirm or perfect
title to any property transferred hereunder or otherwise to carry out
the intent and purposes of this Agreement .
9.4 Any failure of any party to this Agreement to comply with any of its
obligations, agreements, or conditions hereunder may be waived in
writing by the party to whom such compliance is owed. The failure of
any party to this Agreement to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a
waiver of any such provision or a waiver of the right of such party
thereafter to enforce each and every such provision. No waiver of any
breach of or non-compliance with this Agreement shall be held to be a
waiver of any other or subsequent breach or non-compliance.
9.5 A11 notices and other communications hereunder shall either be in
writing and shall be deemed to have been given if delivered in person,
sent by overnight delivery service or sent by facsimile transmission,
to the parties hereto, or their designees, as follows:
To Hartcourt: The Hartcourt Companies, Inc.
19104 Norwalk Blvd.
Artesia, California 90703
Telephone: +1 310 403-1126
Facsimile: +1 310 403-1130
To NuOasis: NuOasis International Inc.
First Directors Limited
43 Elizabeth Avenue
Nassau, The Bahamas
Telephone: +44 1624 815544
Facsimile: +44 1624 815548
9.6 The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Exhibit 10.06
Page 12
145
<PAGE>
9.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.8 Notwithstanding that this Agreement was negotiated and is being
contracted for in the Bahamas and any conflict-of-law provision to the
contrary, the Agreement shall be governed by the laws of the
Commonwealth of the Bahamas.
9.9 This Agreement shall be binding upon the parties hereto and inure to
the benefit of the parties, their respective heirs, administrators,
executors, successors, and assigns.
9.10 This Agreement contains the entire agreement between the parties
hereto and supersedes any and all prior agreements, arrangements, or
understandings between the parties relating to the subject matter of
this Agreement. No oral understandings, statements, promises, or
inducements contrary to the terms of this Agreement exist. No
representations, warranties, covenants, or conditions, express or
implied, other than as set forth herein, have been made by any party.
9.11 If any part of this Agreement is deemed to be unenforceable the
balance of the Agreement shall remain in full force and effect.
9.12 This Agreement may be amended only by a written instrument executed by
the parties or their respective successors or assigns.
9.13 A facsimile, telecopy or other reproduction of this Agreement may be
executed by one or more parties hereto and such executed copy may be
delivered by facsimile of similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of
such party can be seen, and such execution and delivery shall be
considered valid, binding and effective for all purposes. At the
request of any party hereto, all parties agree to execute an original
of this Agreement as well as any facsimile, telecopy or other
reproduction hereof.
Exhibit 10.06
Page 13
146
<PAGE>
9.14 Time is of the essence of this Agreement and of each and every
provision hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
THE HARTCOURT COMPANIES INC.
By: /s/ Alan Phan
- ----------------------------
Name: Alan Phan
Title: President
NuOasis INTERNATIONAL INC.
By: /s/ R. B. Emery
- ----------------------------
Name: R. B. Emery
Title: Director
For and on Behalf of
First Directors Limited
Exhibit 10.06
Page 14
147
<PAGE>
ADDENDUM TO
PURCHASE AND SALE CONTRACT OF
AUGUST 8, 1996
BETWEEN
THE HARTCOURT COMPANIES, INC.,
AND
NUOASIS INTERNATIONAL,INC.
RECITALS
- --------
On August 8, 1996 The Hartcourt Companies Inc. (Hartcourt) and NuOasis
International, Inc. (NuOasis) entered into a Purchase and Sale Agreement
regarding the commercial real estate project located in mainland China, commonly
known as the Peony Gardens property.
The parties do hereby agree to enter into this addendum and to incorporate by
reference the Purchase and Sale Agreement executed on August 8, 1996.
The parties agree that the terms contained in this addendum shall modify those
terms contained in the Purchase and Sale Agreement of August 8, 1996 relating to
the sale of the Peony Gardens Property to the extent set forth herein. Any terms
and conditions not modified, altered and changed or referred to in this addendum
shall remain in full force and effect and this addendum shall have no effect
thereon.
The parties therefore agree as follows:
"1.2.2 Paragraph 1.2 is modified to the limited extent as follows: For the
purpose of this Agreement, in addition to the promissory note referred herein,
notwithstanding the formula set forth in paragraph l .2 herein, Hartcourt shall
issue 4,000,000 shares of its common stock to NuOasis upon Closing."
IN WITNESS WHEREOF, the parties have executed this agreement on the date set
forth herein.
THE HARTCOURT COMPANIES, INC. NUOASIS INTERNATIONAL INC
By: /s/ Alan Phan By: /s/ Fred G. Luke
- ----------------------------- ---------------------------
Alan Phan, President Fred G. Luke, its agent and
representative
Exhibit 10.06
Page 15
148
<PAGE>
CONVERTIBLE SECURED PROMISSORY NOTE
U.S. $12,000,000
August 8, 1996
Artesia, California
FOR VALUE RECEIVED, The Hartcourt Companies, Inc., a corporation organized
under the laws of the United States, State of Utah, with its principal place of
business in Artesia, California ("Maker"), hereby promises to pay to NuOasis
International, Inc., a company organized under the laws of the Commonwealth of
the Bahamas ("Payee"or "Holder") the principal sum Twelve Million Dollars
(US$12,000,000) with principal and accrued interest at the rate of eight percent
(8%) per annum due and payable 30 days after demand or August 31, 1997,
whichever first occurs (the "Due Date"). This Convertible Secured Promissory
Note (the "Note") is issued by Maker pursuant to the Purchase and Sale Agreement
of even date (the "Purchase Agreement").
To secure the payment of this Note, Maker hereby grants to the Holder
pursuant to a Security Agreement dated of even date between Maker and Holder a
security interest in the property set forth, in Exhibit "A" hereto ("the
Collateral"). Upon default, the Holder may resort to any remedy against the
Collateral available to a secured party under the United States Uniform
Commercial Code, or laws of the Peoples Republic of China. Not withstanding
anything to the contrary therein, this Note is without recourse. Payee and
Holder agree to look solely to the Collateral for satisfaction in the event of
default.
All documents and instruments now, or hereafter evidencing and/or securing
the indebtedness evidenced hereby or any part thereof, including but not limited
to this Note and the Security Agreement of even date, are sometimes collectively
referred to herein as the "Security Documents."
All agreements in this Note are expressly limited so that in no contingency
or event whatsoever, whether by reason of acceleration of maturity of the
indebtedness evidenced hereby or otherwise, shall the amount agreed to be paid
hereunder for the use, forbearance or detention of money exceed the highest
lawful rate permitted under applicable usury laws. If, for any circumstance
whatsoever, fulfillment of any provision of this Note or any other Security
Document at the time performance of such provision shall be due shall involve
exceeding any usury limit prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then ipso facto, the obligations to be
fulfilled shall be reduced to allow compliance with such limit, and if, from any
circumstance whatsoever, Payee shall ever receive as interest an amount which
would exceed the highest lawful rate, the receipt of such excess shall be deemed
a mistake and shall be canceled automatically or, if theretofore paid, such
excess shall be credited against the principal amount of the indebtedness
evidenced hereby to which the same may lawfully be credited, and any portion of
such excess not capable of being so credited shall be refunded immediately to
Maker. Maker and Payee affirm that the indebtedness evidenced represents the
partial consideration for the Property being acquired by Maker pursuant to the
Purchase Agreement.
Maker shall pay to Holder all reasonable costs, expenses, charges,
disbursements and attorneys' fees incurred by Holder following an Event of
Exhibit 10.07
Page 1
149
<PAGE>
Default in collecting, enforcing or protecting this Note or any other Security
Document, whether incurred in or out of court, including appeals and bankruptcy
proceedings.
If Maker utilizes the Collateral in any way to secure financing, Maker agrees
to pay the net proceeds of such financing to Holder to the extent of the
principal balance of the Note, and all accrued and unpaid interest, before
distributing any of such financing proceeds for other purposes.
Conversion Features of the Note
This Note is convertible into shares of the Maker's common stock as
hereinafter provided. At the election of Holder, the Note is convertible into
the greater of that number of shares of common stock of Maker with a current
market value at the date of conversion equal to the unpaid principal balance due
on the Note. "Market Value" for the purpose of this Note shall mean fifty
percent (50%) of the moving average bid price of such shares for the ten (10)
business days immediately proceeding notice of conversion.
Extension of the Due Date
In the event the Maker hereof makes any principal reduction payments on
this Note on or before October 31, 1996, then the Due Date of this Note shall be
extended as follows: For each One Million, Dollars (US$1,000,000) of principal
reduction payments made on the Note, the Due Date shall be extended by thirty
(30) days.
Events of Default
Each of the following events or occurrences shall constitute an "Event of
Default" hereunder: (a) if default is made in the payment of any monetary amount
payable hereunder, under the terms of any Security Document, or under the terms
of any other obligation of Maker to Payee hereunder, within ten (10) days
following the date the same is due; (b) if default is made in the performance of
any other promise or obligation described herein, in any Security Document, or
in any other document evidencing or securing any indebtedness of Maker to Payee
following ten ( 10) days prior notice to Maker of such default and the failure
of Maker to cure such default within ten (10) day period; (c) if Maker shall
execute an assignment of any of its property for the benefit of creditors, fail
to meet any obligations herein described, be unable to meet its debts as they
mature, suspend its active business or be declared insolvent by any court,
suffer any judgment or decree to be rendered against it in an amount greater
than US$10,000, suffer a receiver to be appointed for any of its property,
voluntarily seek relief or have involuntary proceedings brought against it under
any provision now in force or hereinafter enacted of any law relating to
bankruptcy, or forfeit its charter, dissolve, or terminate its existence; (d) if
any writ of attachment, garnishment or execution shall be issued against Maker,
(e) if any tax lien be assessed or filed against Maker; (f) if any warranty,
representation or statement made or furnished to Payee by or on behalf of Maker,
including but not limited to any information provided to Payee in conjunction
with the Purchase Agreement.
Exhibit 10.07
Page 2
150
<PAGE>
Upon the occurrence of any Event of Default, which is not cured within ten
(10) days after notice of such default is given, by Holder or at any time
thereafter when any Event of Default may continue, Holder may, at its option and
in its sole discretion, declare the entire balance of Note to be immediately due
and payable, and upon such declaration all sums outstanding and unpaid under
this Note shall become and be in default, matured and immediately due and
payable, without presentment, demand, protest or notice of any kind to Maker or
any other person, all of which are hereby expressly waived, anything in this
Note or any other Security Document to the contrary notwithstanding.
Payee and Maker hereby agree to trial by court and irrevocably agree to
waive jury trial in any action or proceeding (including but not limited to any
counterclaim) arising out of or in any way related to or connected with, this
Note or any other Security Document, the relationship created thereby, or the
origination, administration or enforcement of the indebtedness evidenced and/or
secured by this Note or any other Security Document.
This Note has been delivered to Payee and accepted by Payee in the
Commonwealth of the Bahamas and shall be governed and construed generally
according to the laws of said jurisdiction except to the extent that creation,
validity, perfection or enforcement of any liens or security interests securing
this Note are governed by the laws of another jurisdiction. Venue of any action
brought pursuant to this Note or any other Security Document, or relating to the
indebtedness evidenced hereby or the relationships created by or under the
Security Documents shall, at the election of the party bringing the action, be
brought in a United States federal court of appropriate jurisdiction located in
or having jurisdiction over the Maker. Maker and Payee each waives any
objection to the jurisdiction of or venue in, any such court and to the service
of process issued by such court and agrees that each may be served by any method
of process pursuant to the laws of the Commonwealth of the Bahamas or, if
applicable, as described in the United States Federal Rules of Civil Procedure.
Maker and Payee each waives the right to claim that any such court is an
inconvenient forum or any similar defense.
If, in any jurisdiction, any provision of this Note shall, for any reason,
be held to be invalid, illegal, or unenforceable in any respect, such holding
shall not affect any other provisions of this Note, and this Note shall be
construed, to the extent of such invalidity, illegality or unenforceability (and
only to such extent) as if any such provision had never been contained herein.
Any such holding of invalidity, illegality or unenforceability in one
jurisdiction shall not prevent valid enforcement of any affected provision if
allowed under the laws of another relevant jurisdiction.
As used in this Note, the term "person" shall include, but is not limited
to, natural persons, corporations, partnerships, trusts, joint ventures and
legal entities, and all combinations of the foregoing natural persons or
entities, and the term "obligation" shall include any requirement to pay any
indebtedness and/or perform any promise, term, provision, covenant or agreement
included or provided for in this Note or any other Security Document.
Exhibit 10.07
Page 3
151
<PAGE>
This Note and any and all certificates issued in replacement thereof or in
exchange thereof, will bear a restrictive transfer legend in the following form:
"THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), BUT HAVE
BEEN ISSUED IN RELIANCE UPON REGULATIONS PROMULGATED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED TO A "U.S. PERSON" (AS DEFINED IN REGULATIONS) OR TO
ANY PERSON WITH A UNITED STATES ADDRESS DURING THE RESTRICTED PERIOD FOLLOWING
ISSUANCE OF THE SECURITIES. FOLLOWING EXPIRATION OF THE RESTRICTED PERIOD. ANY
RESALE OR TRANSFER OF THE SECURITIES TO A U. S. PERSON OR INTO THE UNITED STATES
MUST BE MADE IN ACCORDNCE WITH REGULATIONS. PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT. "
Executed by the undersigned the year and day first above written.
The Hartcourt Companies, Inc., a Utah corporation
By /s/ Alan V. Phan
-------------------------
Name: Alan V. Phan
Title: CEO, and President
Exhibit 10.07
Page 4
152
<PAGE>
Ex 10-8
CONVERTIBLE SECURED PROMISSORY NOTE
U.S. $12,000,000 August 8th, 1996
Artesia, California
FOR VALUE RECEIVED, The Hartcourt Companies, Inc., a corporation organized
under the laws of the United States, State of Utah, with its principal place of
business in Artesia, California ("Maker"), hereby promises to pay to NuOasis
International, Inc., a corporation organized under the laws of The Commonwealth
of the Bahamas ("Payee" or "Holder") the principal sum of Twelve Million Dollars
(US$12,000,000) with principal and accrued interest at the rate of eight percent
(8%) per annum due and payable 30 days after demand or August 31, 1997,
whichever first occurs (the "Due Date"). This Convertible Secured Promissory
Note (the "Note") is issued by Maker pursuant to the Purchase and Sale Agreement
of even date (the "Purchase Agreement").
To secure the payment of this Note, Maker hereby grants to the Payee,
pursuant to a Security Agreement dated of even date between Maker and Holder a
security interest in the property set forth in Exhibit "A" hereto (the
"Collateral"). Upon default, the Holder may resort to any remedy against the
Collateral available to a secured party under the Uniform Commercial Code, or
laws of the People's Republic of China. Notwithstanding anything to the contrary
herein, this Note is without recourse. Payee and Holder agree to look solely to
the Collateral for satisfaction in the event of default.
All documents and instruments now or hereafter evidencing and/or securing
the indebtedness evidenced hereby or any part thereof, including but not limited
to this Note and the Security Agreement of even date, are sometimes collectively
referred to herein as the "Security Documents".
All agreements in this Note and all other Security Documents are expressly
limited so that in no contingency or event whatsoever, whether by reason of ac-
celeration of maturity of the indebtedness evidenced hereby or otherwise, shall
the amount agreed to be paid hereunder for the use, forbearance or detention of
money exceed the highest lawful rate permitted under applicable usury laws. If,
for any circumstance whatsoever, fulfillment of any provision of this Note or
any other Security Document at the time performance of such provision shall
be due shall involve exceeding any usury limit prescribed by law which a court
of competent jurisdiction may deem applicable hereto, then ipso facto, the
obligations to be fulfilled shall be reduced to allow compliance with such
limit, and if, from any circumstance whatsoever, Payee shall ever receive as
interest an amount which would exceed the highest lawful rate, the receipt of
such excess shall be deemed a mistake and shall be canceled automatically or, if
theretofore paid, such excess shall be credited against the principal amount of
the indebtedness evidenced hereby to which the same may lawfully be credited,
and any portion of such excess not capable of being so credited shall be
refunded immediately to Maker. Maker and Payee affirm that the indebtedness
evidenced represents the partial consideration for the Property being acquired
by Maker pursuant to the Purchase Agreement. Further, Holder agrees that, in the
event the Property acquired by Maker pursuant to the Purchase Agreement cannot
be completed for occupancy and the requisite permits and approval of the
transfer of title to Maker by the Due Date, and upon written demand by Maker
that Holder shall compensate Maker in the form of liquidated damages calculated
in the following manner: (a) Holder agrees to refund any and all monies
Exhibit 10.08
Page 1
153
<PAGE>
previously paid to Holder by Maker (i) in furtherance of construction and
completion of the Property; or, (ii) as principal reduction payments applied to
the Note; and, (b) Holder agrees to cause the return of 4,000,000 shares of
Maker's common stock to Maker.
Maker shall pay to Holder all reasonable costs, expenses, charges,
disbursements and attorneys' fees incurred by Payee following an Event of
Default in collecting, enforcing or protecting this Note or any other Security
Document, whether incurred in or out of court, including appeals and bankruptcy
proceedings.
If Maker utilizes the Collateral in any way to secure financing, Maker
agrees to pay the net proceeds of such financing to Payee to the extent of the
principal balance of the Note, and all accrued and unpaid interest, before
distributing any of such financing proceeds for other purposes.
Conversion Features of the Note
This Note is convertible into shares of the Maker's common stock as
hereinafter provided. At the election of Holder, the Note is convertible into
the greater of that number of shares of common stock of Maker with a current
market value at the date of conversion equal to the unpaid principal balance due
on the Note. "Market Value" for the purpose of this Note shall mean fifty
percent (50%) of the moving average bid price of such shares for the ten (10)
business days immediately preceding notice of conversion.
Extension of the Due Date
In the event the Maker hereof makes any principal reduction payments on
this Note on or before October 31, 1996, then the Due Date of this Note shall be
extended as follows: For each One Million Dollars (US$1,000,000) of principal
reduction payments made on the Note, the Due Date shall be extended by thirty
(30) days.
Events of Default
Each of the following events or occurrences shall constitute an "Event of
Default" hereunder: (a) if default is made in the payment of any monetary amount
payable hereunder, under the terms of any Security Document, or under the terms
of any other obligation of Maker to Payee hereunder, within ten (10) days
following the date the same is due; (b) if default is made in the performance of
any other promise or obligation described herein, in any Security Document, or
in any other document evidencing or securing any indebtedness of Maker to Payee
following ten (10) days prior notice to Maker of such default and the failure of
Maker to cure such default within said ten (10) day period; (c) if Maker shall
execute an assignment of any of its property for the benefit of creditors, fail
to meet any obligations herein described, be unable to meet its debts as they
mature, suspend its active business or be declared insolvent by any court,
suffer any judgment or decree to be rendered against it in an amount greater
than US$10,000, suffer a receiver to be appointed for any of its property,
voluntarily seek relief or have involuntary proceedings brought against it under
any provision now in force or hereinafter enacted of any law relating to
bankruptcy, or forfeit its charter, dissolve, or terminate its existence; (d) if
Exhibit 10.08
Page 2
154
<PAGE>
any writ of attachment, garnishment or execution shall be issued against Maker;
(e) if any tax lien be assessed or filed against Maker; (f) if any warranty,
representation or statement made or furnished to Payee by or on behalf of Maker,
including but not limited to any information provided to Payee in conjunction
with the Purchase Agreement.
Upon the occurrence of any Event of Default, which is not cured within ten
(10) days after notice of such default is given by Holder or at any time
thereafter when any Event of Default may continue, Holder may, at its option and
in its sole discretion, declare the entire balance of this Note to be
immediately due and payable, and upon such declaration all sums outstanding and
unpaid under this Note shall become and be in default, matured and immediately
due and payable, without presentment, demand, protest or notice of any kind to
Maker or any other person, all of which are hereby expressly waived, anything in
this Note or any other Security Document to the contrary notwithstanding.
Payee and Maker hereby agree to trial by court and irrevocably agree to
waive jury trial in any action or proceeding (including but not limited to any
counterclaim) arising out of or in any way related to or connected with this
Note or any other Security Document, the relationship created thereby, or the
origination, administration or enforcement of the indebtedness evidenced and/or
secured by this Note or any other Security Document.
This Note has been delivered to Payee and accepted by Payee in the
Commonwealth of the Bahamas and shall be governed and construed generally
according to the laws of said jurisdiction except to the extent that creation,
validity, perfection or enforcement of any liens or security interests securing
this Note are governed by the laws of another jurisdiction. Venue of any action
brought pursuant to this Note or any other Security Document, or relating to the
indebtedness evidenced hereby or the relationships created by or under the
Security Documents shall, at the election of the party bringing the action, be
brought in a United States federal court of appropriate jurisdiction located in
or having jurisdiction over the Maker. Maker and Payee each waives any objection
to the jurisdiction of or venue in any such court and to the service of process
issued by such court and agrees that each may be served by any method of process
pursuant to the laws of the Commonwealth of the Bahamas or, if applicable, as
described in the United States Federal Rules of Civil Procedure. Maker and Payee
each waives the right to claim that any such court is an inconvenient forum or
any similar defense.
If, in any jurisdiction, any provision of this Note shall, for any reason,
be held to be invalid, illegal, or unenforceable in any respect, such holding
shall not affect any other provisions of this Note, and this Note shall be
construed, to the extent of such invalidity, illegality or unenforceability (and
only to such extent) as if any such provision had never been contained herein.
Any such holding of invalidity, illegality or unenforceability in one
jurisdiction shall not prevent valid enforcement of any affected provision if
allowed under the laws of another relevant jurisdiction.
Exhibit 10.08
Page 3
155
<PAGE>
As used in this Note, the term "person" shall include, but is not limited
to, natural persons, corporations, partnerships, trusts, joint ventures and
other legal entities, and all combinations of the foregoing natural persons or
entities, and the term "obligation" shall include any requirement to pay any
indebtedness and/or perform any promise, term, provision, covenant or agreement
included or provided for in this Note or any other Security Document.
This Note and any and all certificates issued in replacement thereof or in
exchange therefore, will bear a restrictive transfer legend in the following
form:
"THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), BUT HAVE BEEN ISSUED IN RELIANCE UPON
REGULATION S PROMULGATED BY THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED TO A "U.S. PERSON" (AS DEFINED IN
REGULATIONS) OR TO ANY PERSON WITH A UNITED STATES ADDRESS DURING
THE RESTRICTED PERIOD FOLLOWING ISSUANCE OF THE SECURITIES.
FOLLOWING EXPIRATION OF THE RESTRICTED PERIOD, ANY RESALE OR
TRANSFER OF THE SECURITIES TO A U.S. PERSON OR INTO THE UNITED
STATES MUST BE MADE IN ACCORDANCE WITH REGULATIONS, PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE ACT."
Executed by the undersigned the year and day first above written.
The Hartcourt Companies, Inc.
a Utah corporation
By: /s/ Alan Phan
------------------
Name: Alan V. Phan
Title: President
NOT VALID WITHOUT ORIGINAL SEAL
This note replaces the previous note of the same date. It
supersedes and cancels the other note in its entirety.
Exhibit 10.08
Page 4
156
<PAGE>
SALES AGREEMENT
RECITALS
The Hartcourt Companies, Inc., a Utah chartered company ("Purchaser") with
offices located at 19104 South Norwalk Blvd. Artesia, California, its assigns,
nominees or transferees does hereby enter into this agreement regarding the
purchase of an undivided fifty percent (50%) interest in thirty four (34) State
of Alaska mineral lease gold lode claims, consisting of one hundred sixty (160)
acres each for a total of five thousand four hundred forty (5,440) acres, all
located in the Melozitna mining district near Tanana, Alaska, from Promed
International, Ltd., a Turks & Caicos chartered company ("Seller") with offices
located at 2B Mansion House, 143 Main Street, Gibraltar, pursuant to the
following terms and conditions:
AGREEMENT
1. Hartcourt agrees to pay as consideration three million dollars
($3,000,000) in shares in The Hartcourt Companies, Inc. (HRCT), pursuant to
Regulation "S". The shares will be valued on the basis of the average price per
share over a 10 day period for the 10 days prior to the execution of this
agreement.
2. Seller warrants that the claims identified as Lodestar claims numbered
1-34 inclusive are legally owned by Seller, and that all claims are in good
standing with all regulatory authorities, with no liens claims or encumbrances.
Seller farther represents that it has the express right to sell, hypothecate
and/or convey such interest.
3. Seller warrants and represents that in order to maintain the claims in a
current status, maintenance and administrative costs must be incurred on behalf
of all the claims herein in an amount not to exceed twenty five hundred dollars
($2,500) a year. Purchaser agrees to pay fifty percent (50%) of any and all such
administrative costs in order to maintain the claims in a current, valid and
good standing position with all regulatory agencies.
4. The parties hereto acknowledge that in order to maintain the claims in
good order, at the end of 2 years an additional $25,000 is required to be
invested. At the end of two years Purchaser agrees to pay fifty percent (50%) of
no less than twenty five thousand dollars ($25,000) required in order to
maintain the claims in a current, valid and position of good standing with all
regulatory agencies in the state of Alaska.
5. Both parties agree that each party has the right of first refusal to
acquire the interests of the other party in the event the other party determines
to sell their interests.
6. Seller agrees to keep Hartcourt informed on a timely basis of all
regulations, taxes, fees or other payments, or any requirements, by any and all
agencies in order to keep the claims in good standing.
Exhibit 10.09
Page 1
157
<PAGE>
7. The parties hereto acknowledge that a current geological survey and
report is being prepared for presentation to the Purchaser and on behalf of
Seller by Alex Burton, Geologist and Professional Engineer.
8. The Seller warrants and represents that the 34 claims referenced herein
shall have a probable valuation of no less than $5,000,000, as evidenced by the
geological evaluation. If the geological evaluation relating to the 34 claims
indicates that the valuation of the property is not as represented, or the
claims are not as represented, that being a probable value of no less than
$5,000,000, either party may rescind this transaction with no further notice.
In the event of rescission, any and all consideration previously paid by the
Purchaser shall be returned in full upon notice of intent to rescind by
Purchaser.
PURCHASER: THE HARTCOURT COMPANIES, INC.
/s/ Alan Phan date: 9/17/96
- -------------------- ---------------
Alan Phan, President
SELLER: PROMED INTERNATIONAL, INC.
/s/ Robert Harper date 10/1/96
- ----------------------- ---------------
Robert Harper, Director
Exhibit 10.09
Page 2
158
<PAGE>
EXH 10-10
SALES AGREEMENT
RECITALS
The Hartcourt Companies, Inc., a Utah chartered company ("Purchaser") with
offices located at 19104 South Norwalk Blvd. Artesia, California, its assigns,
nominees or transferees does hereby enter into this agreement regarding the
purchase of an undivided fifty percent (50%) interest in thirty four (34)
State of Alaska mineral lease gold lode claims, consisting of one hundred sixty
(160) acres each for a total of five thousand four hundred forty (5,440) acres.
all located in the Melozitna mining district near Tanana, Alaska, from Mandarin
Overseas Investment Co., Ltd., a Turks & Caicos chartered company ("Seller")
with offices located at Suite 1-3 Kinwick Center, 32 Hollywood Road, Central
Hong Kong, pursuant to the following terms and conditions:
AGREEMENT
1. Hartcourt agrees to pay as consideration three million dollars
($3,000,000) in shares in The Hartcourt Companies, Inc. (HRCT), pursuant to
Regulation "S". The shares will be valued on the basis of the average price per
share over a 10 day period for the 10 days prior to the execution of this
agreement.
2. Seller warrants that the claims identified as Lodestar claims numbered
35-68 inclusive are legally owned by Seller, and that all claims are in good
standing with all regulatory authorities, with no liens claims or
encumbrances. Seller further represents that it has the express right to sell,
hypothecate and/or convey Such interest.
3. Seller warrants and represents that in order to maintain the claims in a
current status, maintenance and administrative costs must be incurred on behalf
of all of the claims herein in an amount not to exceed twenty five hundred
dollars ($2,500) a year. Purchaser agrees to pay fifty percent (50%) of any and
all such administrative costs in order to maintain the claims in a current,
valid and good standing position with all regulatory agencies.
4. The parties hereto acknowledge that in order to maintain the claims in
good order, at the end of 2 years an additional $25,000 is required to be
invested. At the end of two years Purchaser agrees to pay fifty percent (50%) of
no less than twenty five thousand dollars ($25,000) required in order to
maintain the claims in a current, valid and position of good standing with all
regulatory agencies in the state of Alaska.
5. Both parties agree that each party has the right of first refusal to
acquire the interests of the other party in the event the other party determines
to sell their interests.
6. Seller agrees to keep Hartcourt informed on a timely basis of all
regulations, taxes, fees or other payments, or any requirements, by any and all
agencies in order to keep the claims in good standing.
Exhibit 10.10
Page 1
159
<PAGE>
7. The parties hereto acknowledge that a current geological survey and
report is being prepared for presentation to the Purchaser and on behalf of
Seller by Alex Burton, Geologist and Professional Engineer.
8. The Seller warrants and represents that the 34 claims referenced herein
shall have a probable valuation of no less than $5,000,000, as evidenced by the
geological evaluation. If the geological evaluation relating to the 34 claims
indicates that the valuation of the property is not as represented, or the
claims are not as represented, that being a probable value of no less than
$5,000,000, either party may rescind this transaction with no further notice.
In the event of rescission, any and all consideration previously paid by the
Purchaser shall be returned in full upon notice of intent to rescind by
Purchaser.
PURCHASER: THE HARTCOURT COMPANIES. INC.
/s/ Alan Phan Date: 9/17/96
- -------------------------- -------------
Alan Phan, President
SELLER: MANDARIN OVERSEAS INVESTMENT CO. LTD.
/s/ Clara Richardson Date: 9/17/96
- -------------------------- --------------
Clara Richardson, Director
Exhibit 10.10
Page 2
160
<PAGE>
PURCHASE & SALE AGREEMENT
DATE: 27 September 1996
PARTIES:
1. Hartcourt: The Hartcourt Companies, Inc., a Utah corporation, located at
19104 S. Norwalk Blvd., Artesia, CA 90701; and,
2. CKES: CKES Acquisitions Inc., a Nevada corporation, located at 555 E.
Washington, Ste. 1706, Sunnyvale, CA 94086.
WHEREAS:
Hartcourt owned 100% of 25,000 outstanding shares of a Nevada corporation
known as Harcourt Investments (USA) Inc. (herein referred to as "HIUI"). CKES
agree to purchase said HIUI shares, and Hartcourt agree to sell said shares to
CKES, under the following terms and conditions.
1. Purchase Price: CKES will pay Hartcourt a total amount of USD $3 million for
these 25,000 shares.
2. Payment Terms: CKES will pay said purchase price by tendering to
Hartcourt a Convertible Secured Promissory Note in the principal sum of USD $3
million, as per attached Schedule A. The Note will be secured by a Security
Agreement, as per attached Schedule B of this Agreement.
3. Closing Date: The closing date is also the date of execution of this
Agreement and upon delivery of the 25,000 shares certificate in exchange for the
Promissory Note and the Security Agreement
4. Due Diligence: CKES has confirmed that all due diligence have been
completed and has received all financial operating statements from Hartcourt and
hereby approved all pertinent data. As such, CKES will hold Hartcourt harmless
and waive all claims against Hartcourt now and in the future
5. Representations and Warrants: Hartcourt hereby represents, covenants and
warrants the following to CKES:
a. Title to the shares shall be transferred to CKES or its assignee, free and
clear of all exceptions.
Exhibit 10.11
Page 1
161
<PAGE>
b. Hartcourt owns the shares in good, clear, recorded and marketable title
without any claims, past pending or future, from any third party.
c. The person executing this Agreement on behalf of Hartcourt has the
authority to enter into this Agreement and to consummate the contemplated
transaction.
d. There is no pending or threatened litigation, public or private, affecting
any portion of the shares.
e. All members of the Board of Directors of HIUI will resign as of today.
6. Hartcourt shall indemnify and hold CKES harmless from and against any claims,
damages or liabilities including, without limitation, attorneys fees and court
costs that CKES may incur by reason of any breach by Hartcourt of any
Hartcourt's representations, warrants or covenants.
7. If any part or portion of this Agreement is invalid or unenforceable as
determined by a court or other authority of competent jurisdiction, such part or
portion shall be severed from this Agreement to the extent invalid or
unenforceable and the remainder hereof shall remain in full force and effect.
Furthermore, the provisions of this Agreement and any subsequent Agreement were
negotiated by the parties hereto with said Agreement being deemed to have
drafted by the parties hereto.
8. Unless otherwise provided herein, any notice, tender or delivery to be given
hereunder by either party to the other shall be in writing and may be affected
by personal delivery or to be registered or certified US mail, postage prepared,
return receipt requested, and shall be deemed communicated as of mailing.
Notices shall be addressed as follows, but each party may change its address by
written notice received by other party in accordance with this paragraph.
To Hartcourt: The Hartcourt Companies Inc.
19104 S. Norwalk Blvd.
Artesia, CA 90701
To CKES: CKES Acquisitions Inc.
555 E. Washington, Ste. 1706
Sunnyvale, CA 94086
Exhibit 10.11
Page 2
162
<PAGE>
9. This Agreement shall be construed under the laws of the State of California
and, in the event of any dispute or action arises to enforce this Agreement, the
prevailing party shall be entitled to reasonable attorneys fees and court costs.
CKES Acquisitions Inc.
By: /s/ Cynthia Kacar
----------------------------
Cynthia Kacar, Secretary
By: /s/ Eric Simonsen
----------------------------
Eric Simonsen, President
EXECUTED at Artesia, Los Angeles County, California, this 27th day of September,
1996 by Hartcourt.
The Hartcourt Companies inc.
By: /s/ Alan V. Phan
----------------------------
Alan V. Phan, President
Exhibit 10.11
Page 3
163
<PAGE>
SECURED PROMISSORY NOTE
$3,000,000.00 September 27, 1996
FOR VALUE RECEIVED, CKES Acquisitions Inc., a Nevada corporation
("Debtor"), hereby promises to pay to The Hartcourt Companies Inc., a Utah
corporation, or its order ("Holder"), the principal sum of Three Million
Dollars ($3,000,000.00), together with interest on the unpaid principal balance
at the rate of six percent (6%) per annum.
Provided there is no uncured default, then all principal and accrued
interest shall be paid as follows:
a) Monthly payments of principal only in the amount of Fifty Thousand
Dollars ($50,000.00), without interest, shall be made beginning on October 1,
1998, and continuing thereafter on the first (1st) day of each calendar month
and shall continue for sixty (60) calendar months thereafter;
b) Interest will accrue and be due with the final payment, and interest
shall compound at the above stated rate for the term of this Note; and,
c) All unpaid principal balance and all accrued interest shall be due and
payable on or before September 1, 2003
Debtor reserves the right to make payment of the principal sum and accrued
interest at any time, and from time to time, prior to maturity without penalty.
All payments under this Note, whether of principal or interest, or both,
shall be made to Holder in lawful money of the United States at such place as
Holder shall designate in writing to Debtor.
Upon the occurrence of an uncured default (as defined below), the entire
unpaid balance of the principal debt together with any other sums due hereunder,
with accrued interest theretofore, shall at the option of Holder, become
immediately due and payable. The occurrence of any one or more of the following
shall constitute an uncured default:
a) Debtors third (3rd) failure, within any twelve (12) calendar month
period, to pay any installment of principal, whether in whole or in part, when
due hereunder, without regard to any cure period;
b) Debtors failure to pay any installment of principal, whether in whole or
in part, when due hereunder and following receipt by Debtor of written notice
and the failure by Debtor to cure within ten (10) calendar days the default;
c) Debtor, severally or jointly, i) makes an assignment for the benefit of
its/his/her/her creditors or admits in writing its/his/her inability to pay
its/his/her debts generally as they become due, or ii) becomes insolvent as that
concept is
Exhibit 10.12
Page 1
164
<PAGE>
commonly understood under either federal bankruptcy law or state law, or
iii) applies to any tribunal for the appoint of a trustee or receiver of
any substantial part of its/his/her assets, or iv) commences any voluntary
proceedings under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, or v) becomes the subject of any such involuntary
proceedings and Debtor, severally or jointly, indicates it/his/her
approval, consent or acquiescence, or vi) becomes the subject of an order
appointing a trustee or receiver, adjudicating either bankruptcy or
insolvency, or approving a petition in any such involuntary proceeding, and
Debtor, severally or jointly, does not cure within thirty (30) calendar
days after written notice; or
d) Debtor i) engages in cessation of its business, whether in whole or in
part, ii) engages in liquidation of its business, whether in whole or in part,
or iii) Cynthia Kacar and/or Eric Simonsen discontinues active, full-time
employment with Debtor.
If Debtor shall effect any reorganization or disposition of assets or
stock, with or without the prior written consent of Hartcourt, all obligations
under this Note, regardless of the maturity dates, shall automatically become
due and payable without demand or notice.
Except as provided herein, Debtors obligations under this Note shall be
paid and performed without any defenses, claims, setoffs, counterclaims,
recoupments, reductions, limitations, impairments or termination which Debtor
may now or hereafter have or could claim against Holder, and Debtor hereby
waives all of the same.
Except as set forth herein, demand, notice of demand, presentation for
payment, notice of non-payment or dishonor, protest, and notice of protest are
hereby waived by Debtor.
All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, given by prepaid telegram or mailed
first-class, postage prepaid, registered or certified mail, as follows:
If to Debtor: CKES Acquisitions Inc.
ATTN: Cynthia Kacar, President
555 E. Washington, Ste. 1706
Sunnyvale, CA 94086
If to Holder: The Hartcourt Companies Inc.
ATTN: Dr. Alan V. Phan, President
19104 S. Norwalk Blvd.
Artesia, CA 90701
A Party may change its address of notice by complying with the terms of
this Section. It is a condition that legal counsel receive a copy of the notice
for the notice to be effective.
Exhibit 10.12
Page 2
165
<PAGE>
Receipt shall be deemed to have occurred (regardless of actual receipt) on
the date served, if personally delivered, or three (3) business days after
mailing, if placed in the United States Mail, postage prepaid, by registered or
certified mail.
If any term or provision of this Note or the application thereof to any
person or circumstances shall, to any extent, be invalid or unenforceable, the
remainder of this Note, or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Note shall be valid and be enforced to the fullest extent permitted by law.
Any waive of any default, condition, term or provision must be in writing
signed by the waiving party and such waiver shall not be construed as a waiver
of any subsequent event of default.
This Note shall bind Debtor and Holder, and their respective heirs,
successors, representative and assigns, and the benefits hereof shall inure to
each party and its successors, representatives and assigns.
This Note shall be governed by and construed in accordance with the laws of
the State of California. If any legal action is necessary to enforce or
interpret the terms and conditions of this Note, the parties hereby agree to and
consent to the jurisdiction of the State Court of California, Los Angeles,
County. for the bringing of an action.
This Note supersedes any prior written or oral agreement between the
Parties respecting the subject matter contained herein and constitutes the
Parties' entire Note.
This Note cannot be modeled or amended except by a writing signed by the
Parties hereto desiring to amend or modify their respective rights and
obligations.
If any legal action is necessary to enforce the terms and conditions of
this Note, Holder shall be entitled to recover all costs of suit and reasonable
attorney's fees as determined by the court.
Dated: September 27, 1996
DEBTOR:
CKES Acquisitions Inc.
a Nevada corporation
By: /s/ Eric Simonsen
- ----------------------------
Eric Simonsen, President
Exhibit 10.12
Page 3
166
SUBSIDIARIES
OF THE HARCOURT COMPANIES, INC.
State of Doing Business
Name of Subsidiary Incorporation Under the Name
- ------------------ ------------- --------------
The Harcourt Pen Factory, Inc. Nevada Harcourt Pen
19104 S. Norwalk Boulevard
Artesia, California 90701
Exhibit 21.01
167
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<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1995 DEC-31-1995
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