U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment to 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
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
19104 S. Norwalk Boulevard, Artesia, California 90701
----------------------------------------------- -------------
(Address of Principal Executive Offices) (Zip Code)
(310) 403-1126
--------------------------
(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......10
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..............................................26
Item 3. Changes and Disagreements with Accountants.....................26
Item 4. Recent Sales of Unregistered Securities........................26
Item 5. Indemnification of Directors and Officers......................28
PART F/S
Financial Statements...........................................29
PART III
Item 1. Index to Exhibits..............................................47
Item 2. Description of Exhibits........................................47
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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 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
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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 arrived 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.
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.
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In September 1996 Hartcourt Pen was spun-off from Harcourt Investments
to Hartcourt Companies, Inc. by Harcourt Investments transferring 100% of stock
ownership in Harcourt Pen to Harcourt Companies, Inc. Pursuant to the spin-off
in September 1996 CKES Acquisitions Inc. ("CKES"), a corporation organized under
the laws of the State of Nevada in September 1996, 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 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 (valued at $1.00 per share) 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, ($100,000
on January 3, 1996 at 1% over prime due July 3, 1996 and $100,000 on February 9,
1996 at 1% over prime due August 9, 1996), 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.
Terms include down payments totaling $20,924.89, invoice payments of $4,075.11
and 24 monthly payments of $2,000 with the remaining balance due in full on
August 15, 1999.
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 $161,250, 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 12,000 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
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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 (valued at
$10,000,000) 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 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." The
number of shares are determined by the average price per share over a 10 day
period for the 10 days prior to the execution of this agreement. 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. 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. Their is no maximum of this amount.
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." The number of shares are determined by the
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average price per share over a 10 day period for the 10 days prior to the
execution of this agreement. 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. 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. There is no maximum of
this additional amount.
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. The possibility of not raising $160,000 will prevent an
accurate value of the Alaskan Mines, however, 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."
In January 1997 the Company began ongoing negotiations with Network
Computer, Inc., a wholly-owned subsidiary of Oracle Company, to develop 500,000
network computers in Southeast Asia.
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.
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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. Once the pens are produced, they are inspected for quality control
before being available for retail.
The Company's products are distributed through consignment contracts
and retail activities. The Company also advertises on airline magazines such as
Frequent Flyer, Hughes and CFO. The mail order and U.S. domestic operations are
carried out by the help of customer service representatives under supervision of
office managers. All orders whether received by phone, fax, letter or through
the Company's web site are documented and checked for reliability. Once the
payment is processed or invoiced, the shipment proceeds through the mail order
and Internet service. The Company has established a large distribution network
available to customers worldwide.
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
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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 foreign currency payment obligations or to make distributions to
equity holders located outside of China.
VOLATILITY OF EXCHANGE RATES. There has not been significant volatility
in the exchange rates of RMBs to U.S. Dollars in the recent past but future
exchange rates may 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 12 month period ended December 31, 1996 no expense was
incurred 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.
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Item 2. Management's Discussion and Analysis or Plan of Operation
The Company assembles and imports writing instruments for sale in the
U.S. During 1995 and 1996, 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, 1996 and 1995 -- Notes to Financial Statements," Item H.
"Commitments and Contingencies."
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 2. "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 geo-survey 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
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requirements of the mining project, or whether, or to what extent, the project
will be profitable, should operations commence. See Item 2. "Description of
Property -- Mineral Lease Gold Lode Claims."
In the fourth quarter of 1996, the Company sold Harcourt Investments,
its wholly-owned subsidiary and owner of 52% of the Xinhui JV, to CKES Inc. for
$3,000,000. The Company received a $3,000,000 promissory note which is payable
in installments of $50,000 per month for 60 months starting October 1, 1998.
Interest accrues a 6% per annum and is payable in full at the end of the loan
period. The note is secured by all assets of CKES, Inc.
Also in the fourth quarter of 1996 the Company entered into a
consulting agreement with American Equities, LLC, a California limited liability
company to provide consultation and assistance in finding, acquiring, managing
and developing a real estate portfolio which will include office, commercial,
industrial, residential and raw land. As a minimum the consultant is expected to
increase assets and/or market capitalization of the Company by at least
$50,000,000 by the end of 1997.
RESULTS OF OPERATIONS
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 beginning of the third quarter of
1995. In 1996, as discussed previously the Company made some fundamental
changes, including the sale of its interest in the Xinhui JV. Because of the
nature of activities in 1996 as compared to 1995 it is not relevant to attempt a
comparison. The following discussion relates to the twelve months ended December
31, 1996 followed by a discussion of the twelve months ended December 31, 1995.
1996
During 1996, the Company's domestic operations were limited due to the
lack of a comprehensive marketing program and the refocus of Company objectives
and direction. Domestic sales during the year were approximately $272,000 which
included the sale, at auction, of outdated pen inventory for approximately
$92,000. Other domestic sales were primarily from mail order and some over the
counter retail sales. Total revenues of $511,000 include the sales activity of
the Xinhui JV for the first nine months of l996 which was approximately
$238,000. This is an improvement over 1995 due to an increase in their marketing
efforts, however, sales continued to lag behind projections which is reflective
of the slow economic climate in China at this time.
Cost of sales for the year ended December 31, 1996 was $797,667
compared to $159,797 for 1995, representing an increase of 499% over 1995. Cost
of sales for 1996 was very high due the liquidation at auction of outdated
inventory items received from the Xinhui JV. The Company received approximately
30 cents on the dollar. The total loss from this liquidation was approximately
$320,000. This is, of course, a one-time occurrence and the Company expects the
gross margin to be around 50% in the future.
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General and administrative expenses were $1,242,756 during 1996,
compared to $1,558,256 in 1995, a decrease of 25%. This decrease reflects an
effort by the Company to cut costs extensively, and also due to the fact that
general and administrative expenses of the Xin Hui JV were not included during
the fourth quarter of 1996. Further, the Company incurred interest expenses of
$360,744 from the Xin Hui JV's indebtedness. This expense from Xin Hui JV will
not occur in 1997 since the Company has sold its interest.
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 Cornpany'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.
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 $4,900,152, of which $1,227,325 was obtained during 1995 to
finance equipment for the Xinhui JV factory.
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. For the international operations,
assets and liabilities are translated into U.S. dollars at year-end exchange
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rates and revenues and expenses are translated at average exchange rates
prevailing during the year. Translation adjustments, resulting from fluctuations
in exchange rates, are recorded as a separate component of shareholder's equity.
Liquidity and Capital Resources
1996
The Company's current ratio improved significantly, at the end of 1996
over 1995 due to the sale of the Company's interest in the Xinhui JV because of
the heavy debt incurred by the Joint Venture. Despite the sale of the Xinhui JV,
total assets almost doubled at the end of 1996 over 1995. This was due to the
various investments made by the Company during 1996 as has been previously
discussed. These investments were financed primarily from the issuance of the
Company's common stock.
During 1996 the Company experienced a deficit in cash flows from
operations due primarily to the sale of the Company's interest in the Xinhui JV
and because the Joint Venture had an extremely high overhead compared to sales
and was unable to generate sufficient sales to cover general and administrative
costs. With the sale of the Company's interest in the Xinhui JV cash flows are
expected to improve. The cash flow deficiency from US operations was minimal
and, with the projected increase in sales, the Company should have a positive
cash flow from operations in the future.
In December 1996 the Company retained the services of a consultant to
develop a $50 million real estate portfolio for the Company. It is planned to
finance the purchase of this portfolio through a combination of debt and the
issuance of the Company's common stock. The real estate portfolio is expected to
produce cash flow for the Company. As part of the agreement with the consultant,
the Company advanced to the consultant $1,500,000 for consulting fees plus
another $150,000 for expenses. The Company paid these amounts by issuing the
consultant shares of the Company's common stock. One million shares were issued
at $1.50 per share and 300,000 shares at $0.50 per share.
The Company also has a stock subscription agreement with foreign
investors that will provide the Company with up to $20,000 per month during the
twelve month period beginning November 1996. The Agreement provides for the sale
of up to 480,000 shares of the Cornpany's common stock for $0.50 per share,
however, the Company is not obligated to sell any of the shares and in its sole
discretion can determine the amount sold.
Prepaid expenses increased by $828,000 or 1,115% to $900,000 on
December 31, 1996 from $72,000 on December 31, 1995. The primary reason was the
consulting fees to American Equities to develop a real estate portfolio for the
Company. In addition, there was a current portion of $133,764 of notes
receivable, totaling $2,526,779, resulting from various loans giving to
companies and private parties.
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Property, plant and equipment decreased by $8,985,692, or 99.5% as
the Company sold its interest in the Xin Hui JV company. On December 31, 1996,
total property, plant and equipment was only $44,809. The decrease in property
and equipment is due to the sale of the Company's interest in the Xinhui JV. The
sale of the interest was also the reason why current liabilities decreased by
$6,176,578, or 94% to $388,503 on December 31, 1996 comparing to $6,565,081 on
December 31, 1995. At December 31, 1996 the Company had a capital lease with
Anja Engineering, in the amount of $576,615, that relates to equipment that was
purchased for the Xinhui JV. The Company is currently in dispute with Anja
Engineering over the amount of the note because the equipment has not performed
in accordance with expectations. The Company expects to work out a settlement
that will cancel the capital lease and result in a substantial forgiveness of
debt.
The Company believes that, with the sale of the interest in the
Xinhui JV and the anticipated settlement of the Note and capital lease with Anja
Engineering, the Company will be well positioned in 1997 to pursue the planned
investment program of sound real estate projects and profitable, cash producing
businesses.
1995
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 operations 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.
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
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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 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 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 at December 31, 1995, made up of primarily
Xinhui JV debt, included several loans that were in default and therefore, were
classified as due with one year for financial statement reporting purposes.
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 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."
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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 $12,000,000, granting NuOasis a security interest in the property,
which is otherwise free of any mortgages, liens or encumbrances. 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 three residential apartment buildings,
will be $5,764,00 at 70% occupancy. Management estimates expenses to be
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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 included in their monthly rent. 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 used 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
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, which are 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
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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 December 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.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1)(2) Common Stock
Dr. Alan V. Phan 1,478,878 (3) 14.0%
19104 South Norwalk Boulevard
Artesia, California 90701
Frederic Cohn 1,609 *
19104 South Norwalk Boulevard
Artesia, CA 90701
Michael L. Caruana 1,609 *
19104 South Norwalk Boulevard
Artesia, CA 90701
James De Rosa 1,609 *
19104 South Norwalk Boulevard
Artesia, CA 90701
Philadep & Co. 617,989 (8) 5.8%
P.O. Box 15891
Philadelphia, PA 19103-0891
CEDE & Co. 536,351 (7) 5.1%
55 Water Street 2SL
New York, NY 10041
Tiana Corporation 1,022,949 (4) (5) 9.7%
Kai Tak Commercial Building
Room 704A
317 Des Voeux Road Central
Hong Kong, China
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NuOasis International, Inc. 4,000,000 (6) 37.8%
2 Park Plaza, Suite 470
Irvine, California 92714
All officers and directors
as a group 1,483,705 14.1%
_____________________
* 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
171,718 shares held by two sons who reside with Dr. Phan when not
attending college and law school, respectively. 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.
(4) As the owner of 20,000 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 20% by
Art Phan,80% by Tan Goek Ser in Singapore and various Asian business
groups located in Hong Kong, Singapore, Malaysia, and Indonesia.
(6) In August 1996 the Company purchased an apartment complex located near
Beijing, China for $22 million from NuOasis International, Inc. (a
wholly owned subsidiary of Nona Morelli's II). 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
occupance is received. NuOasis is a non-affiliate of the Company.
(7) CEDE & Co. Is a deposit trust corporation (stock brokerage company).
(8) Philadep & Co. is a deposit trust corporation (stock brokerage
company).
The Company is not aware of any arrangement which might result in a change in
control in the future.
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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).
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.
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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 compensation paid during each of the three fiscal years ended December
31, 1996, 1995 and 1994 to the person serving as the Company's Chief Executive
Officer during the years ended December 31, 1996. 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, 1996 $100,000
Chief Executive Officer 1995 $70,000
1994 $35,000
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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 Pacific
Rim Capital. 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."
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. These advances were
additional monies lent to Xin Hui which converted to capital contributions.
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
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annum and subject to no fixed repayment terms. On September 30, 1996, Pacific
Rim agreed to convert this loan for 425,000 shares at $0.50 per share 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, 1996
and 1995 -Notes to Financial Statements," Item H. "Commitments and
Contingencies."
In August 1996 the Company purchased an apartment complex located near
Beijing, China for $22 million from Nuoasis International, Inc. (a wholly owned
subsidiary of Nona Morell's II). 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 occupance is received. Nuoasis is a non-affiliate of the Company.
Under the deposit method of accounting in accordance with Financial Accounting
Standards No. 66 the promissory note for $12,000,000 is currently being deferred
until the complete consummation of the Peony Gardens sale. Also the 4 million
shares of common stock is recorded as a deposit at December 31, 1996.
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 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.
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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, at the holders option, 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.
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.
24
<PAGE>
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 if 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. One million shares of common stock options were granted as of
December 31, 1996.
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.
Approximately 800,000 outstanding 144 shares exist at December 31, 1996 held by
principals and directors.
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.
25
<PAGE>
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.
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.
All the transaction hereunder were between the Company and accredited
investors as defined in Section 4(2) of the Securities Act of 1933 or
sophisticated investors that possessed sufficient knowledge and experience in
financial and business matter to be able to evaluate the merits and risks of the
investment and were allowed access to the books and records of the company.
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 Pacific Rim Capital. All of the outstanding common stock of
Eastern Rocester Limited subsequently was sold to Tiana Corporation, of which
Dr. Phan beneficially owns 20% of the common stock.
26
<PAGE>
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.
On February 28, 1996, the Company issued 27,000 shares of its Common
Stock to former attorney Kevin Quinn for $466,560.
On March 27, 1996, the Company acquired a complete line of cosmetics,
including inventory, valued at $161,250 and marketed under a brand name, for
12,000 shares of the Company's Common Stock.
On June 3, 1996, the Company issued 5,000 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. These payments were to increase our invest
in Xin Hui and to expedite completion of molds.
On June 3, 1996, the Company issued a total of 1,267 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 667 shares and 600 shares
respectively. Inventory consists primarily of beauty products and pen
accessories.
On June 11, 1996, the Company issued 112 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
27
<PAGE>
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 at $2.50 per share of the
Company's Common Stock, and a Convertible Secured Promissory Note. On September
30, 1996, Pacific Rim Capital received 400,000 shares at $5.00 per share of the
Company's Common Stock and Philip Cavana received 200,000 shares at $5.00 per
share of the Company's Common Stock for $3,000,000 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 at $0.50 per share of the
Company's Common Stock to Pacific Rim Capital on account of funds advanced in
the amount of $272,416 for working capital during the January 1, 1996 to
September 30, 1996 period.
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
28
<PAGE>
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:
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of The Hartcourt
Companies, Inc. (a Utah corporation) and Subsidiaries as of December 31, 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year 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 audit. The consolidated
financial statements of the Hartcourt Companies, Inc. and Subsidiaries as of
December 31, 1995, were audited by other auditors whose report dated May 6,
1996, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that this audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Hartcourt
Companies, Inc. and Subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Harlan & Boettger LLP
San Diego, California
March 18, 1997
30
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 822 $ 142,047
Accounts receivable net of allowance for
doubtful accounts of $19,034 and $116,490
in 1996 and 1995, respectively 19,034 69,119
Trade dollar receivables 72,054 -
Accrued interest receivable 3,877 -
Note receivable, current portion (Note F) 133,764 -
Inventory, net 311,424 1,011,332
Prepaid expense 150,000 72,051
Prepaid consulting fees (Note H) 750,000 -
Due from related party 32,356 168,575
----------- -----------
TOTAL CURRENT ASSETS 1,473,331 1,463,124
PROPERTY AND EQUIPMENT, net (Note D) 44,809 9,030,501
INVESTMENTS (Note B) 17,906,520 -
NOTES RECEIVABLE, net (Note F) 1,190,795 -
DEPOSITS AND OTHER ASSETS 7,550 23,181
INTANGIBLE ASSETS - 715,658
----------- -----------
$20,623,005 $11,232,464
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
December 31, December 31,
1996 1995
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 148,569 $ 502,653
Accrued expenses 133,747 1,539,012
Bank overdrafts 5,691 -
Other loans - 2,468,302
Notes payable - current portion (Note E) 56,396 1,930,114
Capital lease obligations - current portion - 125,000
Subscription deposits received (Note N) 45,000 -
------------ -----------
TOTAL CURRENT LIABILITIES 389,403 6,565,081
RELATED PARTY PAYABLE - 272,416
MINORITY INTEREST - 1,913,361
NOTES PAYABLE, net of current portion (Note E) 524,369 501,736
CAPITAL LEASE OBLIGATIONS,
net of current portion - 575,000
------------ -----------
TOTAL LIABILITIES 913,772 9,827,594
COMMITMENTS AND CONTINGENCIES (Note H) - -
SHAREHOLDERS' EQUITY
Original preferred stock, $0.01 par value
1,000 shares authorized, issued and
outstanding 10 10
Common stock, $0.001 par value, 50,000,000
(10,000,000 in 1995) shares authorized;
10,560,352 shares outstanding at
December 31, 1996, and 2,745,803 shares
issued and outstanding at December 31, 1995 10,560 2,746
Treasury stock, at cost (24,364 shares in 1996) (279,928) -
Additional paid-in capital 23,204,260 3,424,662
Retained deficit (3,225,669) (2,135,892)
Foreign currency translation adjustment - 113,344
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 19,709,233 1,404,870
------------ -----------
$20,623,005 $11,232,464
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1996 1995
----------- -----------
REVENUES
Product sales $ 510,692 $ 353,674
----------- -----------
TOTAL REVENUES 510,692 353,674
COST OF SALES 797,667 159,797
----------- -----------
Gross profit (loss) (286,975) 193,877
OPERATING EXPENSES
General and administrative 570,774 1,006,828
Depreciation and amortization 671,982 551,428
----------- -----------
TOTAL OPERATING EXPENSES 1,242,756 1,558,256
----------- -----------
LOSS FROM OPERATIONS (1,529,731) (1,364,379)
SALE OF SUBSIDIARY (Note B) - -
OTHER INCOME (EXPENSES)
Minority interest - 564,261
Interest expense (443,042) (851,076)
Forgiveness of debt (Note O) 384,735 -
Interest income 10,100 2,351
Exchange gain (loss) - 54,952
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (48,207) (229,512)
----------- -----------
NET LOSS BEFORE INCOME TAXES (1,577,938) (1,593,891)
Income taxes (Note G) 1,800 -
----------- -----------
NET LOSS $(1,579,738) $(1,593,891)
=========== ===========
NET LOSS PER COMMON SHARE $ (.33) $ (.62)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 4,814,303 2,565,098
=========== ===========
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock Additional Common Stock
-------------------------- ------------------------- Paid-in Subscription
Shares Amount Shares Amount Capital Receivable
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 2,735,952 $2,736 1,000 $10 $3,289,672 $(700,000)
Shares issued to attorney
for legal fees 9,851 10 -- -- 64,990 --
Capital contribution -
officer's compensation -- -- -- -- 70,000 --
Cash paid on common stock
subscription -- -- -- -- -- 700,000
Foreign currency translation
adjustment -- -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 2,745,803 $2,746 1,000 $10 $3,424,662 $--
=========== =========== =========== =========== =========== ===========
Shares issued to attorney 27,000 27 -- -- 466,533 --
Shares issued for Xin Hui 5,000 5 -- -- 106,770 --
Shares issued for inventory 13,267 13 -- -- 191,382 --
Shares issued for settlement
of payables 94 -- -- -- 2,813 --
Shares issued for Peony
Gardens deposit 4,600,000 4,600 -- -- 11,927,900 --
Shares issued for consulting
agreement 1,300,000 1,300 -- -- 898,700 --
Shares issued for Alaska mines 1,298,700 1,299 -- -- 5,972,721 --
Shares issued to convert debt
to equity 425,000 425 -- -- 212,075 --
Stock dividends 169,852 170 -- -- 679 --
Treasury stock acquired (24,364) (25) -- -- 25 --
Sale of Harcourt Investments -- -- -- -- -- --
Net loss -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 10,560,352 $10,560 1,000 $10 $23,204,260 $--
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(continued)
<TABLE>
<CAPTION>
Foreign
Treasury Stock Currency Total
--------------------------- Retained Translation Shareholders'
Shares Amount Deficit Adjustment Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 -- -- $(542,001) $(915) $2,049,502
Shares issued to attorney
for legal fees -- -- -- -- 65,000
Capital contribution -
officer's compensation -- -- -- -- 70,000
Cash paid on common stock
subscription -- -- -- -- 700,000
Foreign currency translation
adjustment -- -- -- 114,259 114,259
Net loss -- -- (1,593,891 -- (1,593,891)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 -- -- $(2,135,892) $113,344 $1,404,870
============ ============ ============ ============ ============
Shares issued to attorney -- -- -- -- 466,560
Shares issued for Xin Hui -- -- -- -- 106,775
Shares issued for inventory -- -- -- -- 191,395
Shares issued for settlement
of payables -- -- -- -- 2,813
Shares issued for Peony
Gardens deposit -- -- -- -- 11,932,500
Shares issued for consulting
agreement -- -- -- -- 900,000
Shares issued for Alaska mines -- -- -- -- 5,974,020
Shares issued to convert debt
to equity -- -- -- -- 212,500
Stock dividends -- -- (849) -- --
Treasury stock acquired 24,364 (279,928) -- -- (279,928)
Sale of Harcourt Investments -- -- 490,810 (113,344) 377,466
Net loss -- -- (1,579,738) -- (1,579,738)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 24,364 $(279,928) $(3,225,669) -- $19,709,233
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,579,738) $(1,593,891)
Adjustments to reconcile net income
to net cash
used in operating activities:
Minority interest in loss of jointventure (1,339,225) (564,261)
Write off of intangible assets 698,039 --
Depreciation and amortization 671,982 551,428
Allowance for doubtful accounts (97,456) 116,490
Forgiveness of debt (384,735) -
Accrued interest income (8,871) -
Stock dividends 849 -
Sale of Harcourt Investments 489,961 -
Changes in operating assets and liabilities:
Increase in:
Accounts receivable 132,342 (175,958)
Inventory 647,256 (293,697)
Prepaid expenses (9,863) 127,512
Note receivables and other receivables (347,824) 603,159
Accounts payable and accrued expenses 341,912 1,363,056
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (785,371) 133,838
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (427,454) (259,919)
Construction in progress - (2,169,550)
Purchase of other assets (574) (36,851)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (428,028) (2,466,320)
----------- -----------
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Year ended December 31,
1996 1995
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft 5,691 --
Common stock subscriptions 45,000 200,000
Loan from Bank of China 507,801 849,535
Loans from shareholders 177,485 205,984
Issuance of common stock 186,632 835,000
Other loans 149,565 171,806
Additional contributions by foreign partner -- 15,634
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,072,174 2,277,959
----------- -----------
NET DECREASE IN CASH (141,225) (54,523)
CASH, BEGINNING OF PERIOD 142,047 196,570
----------- -----------
CASH, END OF PERIOD $ 822 $ 142,047
=========== ===========
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Summary of Significant Accounting Policies:
Organization and Nature of Operations
Hartcourt Investments (USA), Inc., (Harcourt Investments) was
incorporated 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
Investments 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. 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.
In November 1994, Stardust, Inc., Production-Recording-Promotion
(Stardust) acquired 100% of the outstanding shares of Harcourt
Investments for 8,280,000 shares of its common stock in a transaction
accounted for as a recapitalization of Harcourt Investments with
Harcourt Investments as the acquirer (reverse acquisition). Therefore,
the historic cost of assets and liabilities were carried forward to the
consolidated entity. In 1996, a reverse stock split changed the number
of shares issued and outstanding to 2,735,952. The consolidated
financial statements were restated to reflect this capital stock
transaction. Stardust's name was changed to the "Hartcourt Companies,
Inc."
Hartcourt Pen Factory, Inc. (Hartcourt Pen) was incorporated in October
1993. Principal business activities are the sale of writing instruments.
In December 1994, Harcourt Investments 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.
In August 1996, Hartcourt Companies, Inc. (Company) entered into a
purchase and sale agreement with NuOasis International, Inc.
("NuOasis"), a corporation incorporated under the laws of the
Commonwealth of the 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
Company issued 4,000,000 shares of its common stock with respect to this
purchase (Note B).
38
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A. Summary of Significant Accounting Policies (continued):
In September 1996 Hartcourt Pen was spun-off from Harcourt Investments
to Hartcourt Companies, Inc. by Harcourt Investments transferring 100%
of stock ownership in Hartcourt Pen to Hartcourt Companies, Inc.
Pursuant to the spin-off in September 1996 the Company sold Harcourt
Investments to CKES, Inc. of Sunnyvale, California (Note B).
In September 1996, the Company entered into a sales agreement with
Mandarin Overseas Investment Co., Ltd. (Mandarin) and Promed
International Ltd. ("Promed"), both unaffiliated Turks and Caicos
chartered companies, for the purchase of their 50% interest in
sixty-eight mineral lease gold lode claims in the state of Alaska, known
as Lodestar claims 1-68 and consisting of 320 acres. All claims are
located in the Melozitna mining district near Tanana, Alaska. The
Company issued 1,298,700 shares of its common stock with respect to this
purchase (Note B).
Basis of Accounting
The Company's policy is to use the accrual method of accounting and to
prepare and present financial statements which conform to generally
accepted accounting principles.
Cash
Cash includes cash on hand and cash in checking and savings accounts.
Inventory
Inventory is stated at the lower of cost or market, cost being
determined on the first-in, first-out (FIFO) method.
Plant and Equipment
Plant and equipment are stated at cost, and substantially all balances
relate to Xinhui JV in 1995. 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.
39
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A. Summary of Significant Accounting Policies (continued):
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 Investments 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. All sales are domestic in China in 1995 and 1994. The
joint venture had approximately $40,000 of export sales in 1996.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of The Hartcourt Companies, Inc. and its wholly-owned subsidiaries:
Harcourt Investments, 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.
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 the 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.
40
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A. Summary of Significant Accounting Policies (continued):
Income Taxes
Income taxes, are provided for using the liability method of accounting
in accordance with Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes." A deferred tax asset or
liability is recorded for all temporary differences between financial
and tax reporting. Deferred tax expense (benefit) results from the net
change during the year of deferred tax assets and liabilities.
Investments
Investments are provided for using the deposit method of accounting in
accordance with Statement of Financial Accounting Standards No. 66 (SFAS
66), "Accounting for Sales of Real Estate." The deposit method of
accounting shall be used until a sale has been consummated.
"Consummation" usually requires that all conditions precedent to closing
have been performed, including that the buildings, in the Peony Gardens
acquisition, be certified for occupancy and that the geological survey
of the Lodestar claims in Alaska have a minimum value of $6,000,000
(Note B).
Loss 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
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.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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.
41
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
B. Investments:
Sale of Harcourt Investments, Inc.
In September 1996 the Company sold its wholly-owned subsidiary, Harcourt
Investments (USA), Inc., (Harcourt Investments) to CKES, Inc. located in
Sunnyvale, California. Harcourt Investments owned a 52% interest in Xin
Hui Harcy Modern Pens, Ltd., a joint venture in the Peoples Republic of
China. All of the outstanding shares of Harcourt Investments were sold
for a $3 million dollar note receivable which is payable in 60 equal
monthly installments of $50,000 each, beginning October 1, 1998.
Interest accrues at 6% per annum and is payable in full at the end of
the loan period. The note receivable is secured by a security agreement.
This agreement allows the Company to have a security interest in all
assets of CKES, Inc.
General accepted accounting principles require the recording of the note
receivable at its fair value when the face amount does not reasonably
represent the value of consideration received. Under Accounting
Principles Board No. 21 the note receivable is discounted ($753,985) to
its approximate fair value at December 31, 1996. Per Financial
Accounting Standards No.114, the note receivable was considered impaired
at December 31, 1996 due to the present operating condition of Xin Hui
plant and the length of time before payment begins by CKES, Inc. The
Company has decided to reserve a substantial portion ($1,202,220) of the
receivable due to payments being deferred to a later period.
Investment in Peony Gardens
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. Under the deposit method of
accounting in accordance with Financial Accounting Standards No. 66 the
promissory note for $12,000,000 is currently being deferred until the
complete consummation of the Peony Gardens sale. Also the 4 million
shares of common stock is recorded as a deposit at December 31, 1996.
42
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
B. Investments: (continued)
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. Under the deposit method of accounting in accordance with
Financial Accounting Standards No. 66, the 1,298,700 shares of common
stock is recorded as a deposit at December 31, 1996.
C. Inventories:
Inventories consist of the following:
December 31, December 31,
1996 1995
--------- ----------
Raw materials $ - $ 265,847
Work in process - 30,693
Finished goods 311,424 714,792
--------- ----------
$ 311,424 $1,011,332
========= ==========
The majority of inventory in 1995 is related to the Xin Hui JV, thus the
sale of Xin Hui JV has significantly reduced inventory at December 31,
1996.
43
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
D. Property and Equipment:
Property and equipment are summarized as follows:
December 31, December 31,
1996 1995
------- ----------
Furniture and fixtures $28,600 $3,479,275
Leasehold improvements 6,197 264,108
Office equipment 34,926 5,520,301
Lab equipment 1,500 68,987
Vehicles - 123,791
------- ----------
71,223 9,456,462
Less accumulated depreciation 26,414 425,961
------- ----------
Property and equipment, net $44,809 $9,030,501
======= ==========
The majority of property and equipment in 1995 is related to the Xin Hui
JV, thus the sale of Xin Hui JV has significantly reduced property and
equipment at December 31, 1996.
E. Notes Payable:
Notes payable are summarized as follows:
December 31, December 31,
1996 1995
----------- -----------
Loan payable, Bank of China, maturity 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
44
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
E. Notes Payable: (continued)
December 31, December 31,
1996 1995
---------- ----------
Loan payable, vendor, with interest at 12%
and monthly payments of principal and
interest of $15,253 through March 1998 - 429,585
Loan payable, shareholder, with interest
at 6% and monthly payments of principal
and interest of $4,000 through Mid 1995 - 40,000
Loan payable, vendor, with interest at 10%
and monthly payments of principal of
$5,000 through November 1996. The
$4,150 balance was paid in full in 1997 4,150 61,000
Loan payable, Anja Engineering, with
interest at 8.5% and monthly principal
and interest payments of $12,075
beginning May 1, 1997 through April
2002. 576,615 -
---------- ----------
580,765 2,431,850
Less current portion 56,396 1,930,114
---------- ----------
$ 524,369 $ 501,736
========== ==========
The Company is currently negotiating with Anja Engineering to settle the
loan payable with regards to the cancellation of the capital lease.
45
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
E. Notes Payable: (continued)
The following is a summary of principal maturities of long-term debt:
Year ending December 31,
-----------------------
1997 $ 56,396
1998 104,329
1999 113,551
2000 123,588
2001 134,512
Thereafter 48,389
--------
Total $580,765
========
F. Notes Receivable:
Notes receivable at December 31, 1996 and 1995, consisted of the
following:
1996 1995
---------- ----------
Note receivable from former attorney
Kevin Quinn, interest at 8%,
balance due December 31, 1997,
secured by real estate $ 109,764 $ -
Note receivable from CKES, Inc., $3,000,000
face amount, 6% interest per annum, due
in monthly installments of principal
only of $50,000 beginning October 1,
1998, interest and unpaid principal due
and payable on October 1, 2003, (less
unamortized discount based on 12%
imputed interest of $753,985 and
$1,202,220 of loan impairment) $1,043,795 -
46
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
F. Notes Receivable: (continued)
1996 1995
---------- ----------
Note receivable from Yafa, Inc., 9%
interest per annum, due in monthly
installments of $2,000, accrued
interest and unpaid principal due
and payable on or before August 15,
1999. 171,000 -
---------- ----------
Total 1,324,559 -
Less current portion 133,764 -
---------- ----------
$1,190,795 $ -
========== ==========
G. Income Taxes:
As discussed in Note A, the Company accounts for income taxes in
accordance with SFAS 109. The provision for income taxes for the year
ended December 31, 1996 consists of the $800 minimum California
franchise tax and $100 minimum Utah tax for both 1996 and 1995.
Provisions for income taxes are summarized as follows:
Year ended
--------------------------
December 31, December 31,
1996 1995
----------- -----------
Current income taxes $1,800 $ -
Deferred income taxes - -
------ ------
Provision for income taxes $1,800 $ -
====== ======
47
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
G. Income Taxes (continued):
As a result of adopting SFAS 109, the Company has recognized deferred tax
assets for the tax effects of temporary differences for the years ended
December 31, 1996 and 1995 as follows:
1996 1995
--------- ---------
Deferred tax assets:
Net operating losses $ 569,592 $ 248,000
--------- ---------
Gross deferred tax assets 569,592 248,000
Valuation adjustment (569,592) (248,000)
--------- ----------
Net deferred tax assets $ - $ -
========= =========
The Company has net operating loss carryforwards remaining of
approximately $2,344,000. The regular net operating loss carryforwards,
which are approximately the same as the alternative net operating loss
carryforwards, if not utilized, will expire in varying amounts through
2011.
H. Commitments and Contingencies:
Operating Leases
The Company leases its facilities under an operating lease agreement from
Larry M. Mitobe which expires in May, 2001. Rental expense for the year
ended December 31, 1996 was $27,732.
Minimum future rental payments under the operating lease are as follows:
December 31, Amount
------------- --------
1997 $ 17,220
1998 22,140
1999 24,600
2000 24,600
2001 10,250
--------
Total future rental payments $ 98,810
========
48
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
H. Commitments and Contingencies:(continued)
Consulting Agreement
On December 30, 1996 the Company has entered into a consulting agreement
with American Equities, LLC (American Equities), a California Limited
Liability Company. The Company intends to acquire, manage and develop a
real estate portfolio including office, retail, industrial and
multi-family properties and raw land. The consulting period expires on
December 31, 2001. The minimum performance requirements of the
consulting agreement will increase assets and/or market capitalization
of Harcourt Companies, Inc. by at least $50,000,000 by December 31,
1997.
Pursuant to the terms of the agreement the Company issued 1,000,000
shares at $1.50 per share as an advance against future fees to be earned
by American Equities. The Company also advanced 300,000 shares at $0.50
per share to American Equities for future operating expenses. Both
transactions have been discounted due to the restriction on the shares
issued.
I. Supplemental Cash Flow Information:
1996 1995
---------- ---------
Cash paid for interest and income
taxes:
Interest $ - $ 9,524
Income taxes $ 900 $ -
Noncash investing and financing
activities:
Common stock issued for inventory $ 191,414 -
Common stock issued for interest
in gold claims $5,974,020 -
Treasury stock acquired $ 418,618 -
Common stock issued to settle
liabilities $ 109,589 -
Common stock issued for purchase of
Peony Gardens $9,920,000 -
Common stock issued for brokerage fees $2,012,500 -
Common stock issued for converting
debt to equity $ 212,500 -
Common stock issued for prepayment of
Consulting fees $ 900,000 -
Note received for sale of subsidiary $1,043,795 -
49
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
J. Capital 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; 1,000 shares of
original preferred stock having a par value of $0.01 per share (the
Original Preferred Stock); and 10,000,000 shares of Preferred Stock,
having a par value of $0.01 per share (the Class A Preferred Stock).
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 of involuntary, the holders of record
shall be entitled to be paid the full par value of Original Preferred
Stock, and no more.
J. Capital Stock: (continued)
Class A Preferred Stock
The 10,000,000 shares of authorized and unissued Class A Preferred Stock
may be split 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.
On August 2, 1996 the Company effectuated a one for five (1:5) reverse
stock split. The effect of this event has been restated retroactively on
the statement of stockholders' equity.
50
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
K. 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. One million shares of common stock
options were granted to an officer of Hartcourt Companies, at $0.50 per
share as of December 31, 1996.
These options expire December 31, 2004.
L. Warrants:
As of December 31, 1996 there are 2,000,000 outstanding warrants to
purchase 2,000,000 shares of $.001 par value common stock at $0.30 -
$2.10 per share. No warrants have been exercised as of December 31,
1996.
M. Foreign Operations:
Selected financial data for the Company's foreign operations is as
follows:
September 27, 1996 December 31, 1995
------------------ -----------------
Revenues $ 458,236 $ 249,784
Operating loss $(2,132,168) $(1,499,598)
Total assets $ 9,228,255 $10,366,707
N. Stock Subscription Agreements:
In October 1996 the Company entered into two stock subscription
agreements. Terms of the agreement include that the subscribers can
purchase up to 20,000 common shares of Hartcourt Companies, Inc. per
month for 12 months at $0.50 per share.
51
<PAGE>
THE HARTCOURT COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
O. Forgiveness of Debt:
During 1996 the Company recognized debt forgiveness of $367,983 relating
to several notes owed to three vendors and $16,752 in accounts payable
owed to one additional vendor, which were forgiven.
P. Subsequent Events:
On April 8, 1997 the Company entered into a preliminary stock purchase
agreement with Michael V. Caruana, officer and owner of Pego Systems,
Inc. The Company intends to acquire all outstanding shares of Pego
Systems, Inc. The parties are negotiating final terms of this agreement
and estimates completion of the transaction mid- year 1997.
52
<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 No.
- ------- ----------------------- -------
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. 56
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. 66
3.01 Articles of Incorporation of the Company, as amended. 76
3.02 Bylaws of the Company. 83
3.03 Amendment to the Bylaws of the Company. 90
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. 91
10.01 Lease between the Company and Larry M. Mitobe for the
Company's headquarters facility, dated April 9, 1996. 99
10.02 Equipment Lease between Harcourt USA and Anja Engineering
Corporation, dated April 4, 1994. 104
10.03 Stock Exchange Agreement between Harcourt USA and Eastern
Rocester, dated August 8, 1994. 110
10.04 1995 Stock Option Plan. 112
10.05 Purchase Contract between The Hartcourt Companies, Inc.
and Exceptional Specialty Products, Inc., dated March 21,
1996. 122
53
<PAGE>
Exhibit
No. Description of Document Page No.
- ------- ----------------------- -------
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. 125
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. 140
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. 144
10.09 Sales Agreement, dated September 17, 1996, between The
Hartcourt Companies, Inc. and Promed International Ltd. 148
10.10 Sales Agreement, dated September 17, 1996, between The
Hartcourt Companies, Inc. and Mandarin Overseas
Investment Co., Ltd. 150
10.11 Purchase and Sale Agreement, dated September 27, 1996,
between The Hartcourt Companies, Inc. and CKES
Acquisitions, Inc. 152
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. 155
21.01 Subsidiaries of the Company. 158
23.01 Consent of Independent Certified Public Accountants. 159
27.01 Financial Data Schedule. 160
54
<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: June 24, 1997 By:/s/ Alan V. Phan
---------------- ----------------
Alan V. Phan, Chairman of the Board,
President, Chief Executive Officer
and Chief Financial Officer
55
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
56
<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
57
<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
58
<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
59
<PAGE>
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
60
<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 indemnify others; (viii) waive or commit to waive any rights of substantial
Exhibit 2.01
61
<PAGE>
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 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.
Exhibit 2.01
62
<PAGE>
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
63
<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
64
<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
65
<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
66
<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
67
<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
Page 3
68
<PAGE>
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 any other employee benefit plan, fringe
benefit plan, agreement, or arrangement, whether formal or informal and whether
Exhibit 2.02
Page 4
69
<PAGE>
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 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.
Exhibit 2.02
Page 5
70
<PAGE>
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
71
<PAGE>
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
72
<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
73
<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
74
<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
AGREED TO AND ATTESTED BY THE SHAREHOLDER OF THE HARTCOURT PEN
FACTORY, INC.
PRINTED NAME: # OF SHARES: SIGNATURE:
ALAN PHAN 25,000 /s/ Alan Phan
-----------------------
Alan Phan
Exhibit 2.02
Page 10
75
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
76
<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 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
Exhibit 3.01
77
<PAGE>
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, 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
78
<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
79
<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 sch 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
80
<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
81
<PAGE>
[THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
82
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
83
<PAGE>
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
84
<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
85
<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
86
<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
87
<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
88
<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
89
<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
90
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
91
<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 bythis
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
92
<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
93
<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
94
<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(1)(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
95
<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
96
<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
97
<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
98
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
99
<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
100
<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
101
<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
102
<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
103
<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
104
<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
105
<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
106
<PAGE>
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
107
<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
108
<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
109
<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
110
<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
111
<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
112
<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 Option to him.
Exhibit 10.04
Page 2
113
<PAGE>
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
114
<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
Exhibit 10.04
Page 4
115
<PAGE>
equal to the 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
Exhibit 10.04
Page 5
116
<PAGE>
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 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 tohave 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
Exhibit 10.04
Page 6
117
<PAGE>
or all adjustments, recapitalization, reorganization 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
Exhibit 10.04
Page 7
118
<PAGE>
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 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
119
<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.
4. NON-TRANSFERRABLE. Unless otherwise expressly authorized by the Stock
Option Committee, which authorization may be withheld at the Stock
Exhibit 10.04
Page 9
120
<PAGE>
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
121
<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
122
<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
123
<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) 102,410.0
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
124
<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 ereto 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
125
<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, andother 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 astherwise may be reasonably
requested by Hartcourt in furtherance of the intent of
this Agreement.
Exhibit 10.06
Page 2
126
<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
127
<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 would conflict with this Agreement or any
action taken or to be taken in connection with it.
Exhibit 10.06
Page 4
128
<PAGE>
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
129
<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
130
<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
131
<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
132
<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
133
<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
134
<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
135
<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
136
<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 to gether 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
137
<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
138
<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
Iternational, 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
139
<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
ursuant 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
140
<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
agreesto 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
141
<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
onejurisdiction 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
142
<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
143
<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
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. 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
144
<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
145
<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
146
<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
147
<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
148
<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
thePurchaser 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
149
<PAGE>
EXH 10-10
SALES AGREEMENT
RECITALS
The Hartcourt Companies, Inc., a Utah chartered company ("Purchaser") with
ffices located at 19104 South Norwalk Blvd. Artesia, California, its assigns,
nominees or transferees does hereby enter into this agreement regarding
thepurchase 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
150
<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
151
<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
152
<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
153
<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
154
<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
155
<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
156
<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
asssigned 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
157
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
158
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form 10-SB as
amended of our report dated March 18, 1997, on our audits of the consolidated
financial statements and schedules of Hartcourt Companies, Inc. and Subsidiaries
(The "Company"), included in the Company's Form 10-KSB/A for the year ended
December 31,1996, which report is incorporated by reference herein.
June 26, 1997
Exhibit 23.01
159
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 822 142,047
<SECURITIES> 0 0
<RECEIVABLES> 1,362,627 185,609
<ALLOWANCES> 19,034 116,490
<INVENTORY> 311,424 1,011,332
<CURRENT-ASSETS> 1,473,331 1,463,124
<PP&E> 77,223 9,456,462
<DEPRECIATION> 26,414 425,961
<TOTAL-ASSETS> 20,623,005 11,232,464
<CURRENT-LIABILITIES> 389,403 6,565,081
<BONDS> 0 0
0 0
10 10
<COMMON> 10,560 2,746
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 20,623,005 11,232,464
<SALES> 510,692 353,674
<TOTAL-REVENUES> 510,692 353,674
<CGS> 797,667 159,797
<TOTAL-COSTS> 2,040,423 1,718,053
<OTHER-EXPENSES> 394,835 621,564
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 443,042 851,076
<INCOME-PRETAX> (1,577,938) (1,593,891)
<INCOME-TAX> 1,800 0
<INCOME-CONTINUING> (1,579,738) (1,593,891)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,579,738) (1,593,891)
<EPS-PRIMARY> 0.33 0.62
<EPS-DILUTED> 0.33 0.62
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