AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1999
REGISTRATION NO. ___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
_________________
ARIZONA 8731 86-0888087
(State or other (Primary Standard (I.R.S. Employer
jurisdiction) Industrial Classification Code) dentification No.)
JON N. LEONARD
50 AIRPORT PARKWAY
SAN JOSE, CA 95110
(408) 451.8404
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
_______________________
Copies to:
William D. Evers, Esq.
Rafael Aguirre-Sacasa, Esq.
Evers & Hendrickson, LLP
155 Montgomery, 12th Floor
San Francisco, CA 94104
Phone No.: (415) 772-8100
Fax No.: (415) 772-8101
___________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Maximum
Title of each class Amount to be Aggregate Offering Amount of
of Securities to be Registered Registered Price Per Share Price (1) Registration Fee
- ------------------------------ ------------ ---------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, no par value 1,000,000 $ 6.00 $ 6,000,000 $ 1,668
Total 1,000,000 $ 6,000,000 $ 1,668
- ------------------------------ ------------ ---------------- -------------------- -----------------
<FN>
(1) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as amended (the "Securities
Act"), solely for purposes of calculating the registration fee.
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
1,082,560 SHARES
CALIFORNIA MOLECULAR ELECTRONICS CORP.
COMMON STOCK AT $6.00 PER SHARE
California Molecular Electronics Corp. (the "Company" or "CALMEC") hereby offers
up to 1,082,560 shares of the Company's Common Stock (the "Shares") at an
offering price of $6.00 per share (the "Offering"). Of this amount, 1,000,000
shares are being offered by the Company and 82,560 shares are being offered by
certain shareholders of the Company (the "Selling Shareholders"). The Company
will not receive any of the proceeds of the sale of Shares belonging to Selling
Shareholders. See "Selling Shareholders," and "Plan of Distribution."
THIS OFFERING INVOLVES A HIGH-DEGREE OF RISK. WE URGE YOU TO READ THE "RISK
FACTORS" SECTION - BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED BY YOU PRIOR TO MAKING AN INVESTMENT.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRICE TO THE PUBLIC UNDERWRITING DISCOUNT PROCEEDS TO
AND COMMISSIONS THE COMPANY
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE $ 6.00 $ 0.00 $ 6.00
- --------------------------------------------------------------------------------
TOTAL $ 6,000,000 $ 0.00 $ 6,000,000
- --------------------------------------------------------------------------------
</TABLE>
There is no required minimum number of Shares to be sold in the Offering. As
the Company can continue in its present mode of operation for 12 months without
the proceeds from this Offering, there is no minimum number of shares that must
be sold by the Company before it can use the proceeds from the Offering.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND IS SUBJECT TO CHANGE. WE
MAY NOT DISTRIBUTE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL AND IT IS NOT THE SOLICITATION OF AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER, SOLICITATION OR SALE IS NOT PERMITTED.
THE DATE OF THIS PROSPECTUS IS JUNE 15, 1999
<PAGE>
LIMITED STATE REGISTRATIONS
Only residents of those states in which the Shares have been qualified for sale
under applicable securities or so called "Blue Sky" laws may purchase Shares in
this Offering. Each potential investor will be required to execute a
Subscription Agreement (a copy of which is include as the last two pages of this
Prospectus) which, among other things, requires the potential investor to
certify his or her state of residence. A potential investor who is a resident
of a state other than a state in which the Shares have been qualified for sale
may request that we register the Shares in the state in which such investor
resides. However, we are under no obligation to do so, and may refuse any such
request in our sole and absolute discretion.
STOCK CERTIFICATES
Within five days of its receipt of a Subscription Agreement accompanied by a
check for the purchase price, we will send by first class mail a written
confirmation notifying the subscriber of the extent, if any, to which such
subscription has been accepted by the Company. We reserve the right to reject
orders for the purchase of Shares in whole or in part. Not more than thirty
days following the mailing of its written confirmation, the stock certificate
evidencing the Shares purchased by an accepted subscriber (the "Investor") will
be mailed to the Investor by first class mail.
AVAILABLE INFORMATION
We will provide without charge to each person who receives this Prospectus, upon
request in writing sent to the address below, or upon oral request of such
person at any stockholders' meeting, a copy of any of the information that is
incorporated by reference into this Prospectus (not including exhibits to such
information unless the exhibits themselves are specifically incorporated by
reference). Send written requests to: California Molecular Electronics Corp.,
50 Airport Parkway, San Jose, California 95110.
Page 2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY 4
RISK FACTORS 8
USE OF PROCEEDS 11
CAPITALIZATION 12
LEGAL COUNSEL 12
LEGAL PROCEEDINGS 12
DILUTION 12
PLAN OF DISTRIBUTION 13
MANAGEMENT 14
TECHNICAL ADVISORS 15
SELLING SHAREHOLDERS 19
SECURITY OWNERSHIP 19
DESCRIPTION OF CAPITAL STOCK, INDEMNIFICATION, AND RECENT ORGANIZATION 20
BUSINESS 21
PLAN OF OPERATIONS 35
TRANSACTIONS WITH RELATED PARTIES 37
MARKET FOR SHARES AND RELATED STOCKHOLDER MATTERS 37
EXECUTIVE COMPENSATION 38
INDEX TO FINANCIAL STATEMENTS 39
INVESTOR SUBSCRIPTION AGREEMENT 51
</TABLE>
Page 3
<PAGE>
SUMMARY
This summary is qualified in its entirety by the detailed information appearing
elsewhere in this Prospectus. This prospectus contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might make a difference include, but are not limited to, those
discussed in "Risk Factors." All share and per share information has been
adjusted to reflect a 100% stock dividend granted February 15, 1999 to every
shareholder and option holder.
SUMMARY OF THE COMPANY
VISION We believe that a new field of technology in which individual molecules
are used to produce effects that are currently being produced by electronic
circuits is ready for commercial exploitation. This field is known as
"Molecular Electronics. "Molecular Electronics seeks to use individual molecules
for the components of computational, optical, and data storage devices.
Molecular-sized structures promise to produce such devices thousands of times
smaller than the smallest devices possible with semiconductor electronics. We
further believe that Molecular Electronics will power much of the worldwide
technological and economic advances that will occur over the next twenty-five
years. Management will attempt to position CALMEC so as to be the beneficiary
of this technological and economic advance. For this reason, Management believes
that Molecular Electronics will grow to supplant the semiconductor industry that
is in place today. There can, however, be no assurances that this will be the
case.
AIM Our aim is to generate returns for our investors by acting now to gain
control of important blocks of intellectual property (patents and trade secrets)
in the Molecular Electronics field. We currently own the patent and trade
secret rights to Chiropticene switching, the first practical single-molecule
switching technology. We believe that these unprecedented light and electric
field activated switches, one molecule in size, will become key components of
numerous future computational, optical, and data storage molecular devices.
CALMEC intends to take full advantage of the generic nature of this unique
technology by securing the intellectual property rights on the lion's share of
all specific applications, new devices and novel systems issuing from it.
Management also believes that we are well positioned to gain control of other
major intellectual property by developing new patents and trade secrets through
our own internal efforts, and by developing patent-exploitation agreements for
the patents and trade secrets belonging to others.
CUSTOMERS The Company's patent portfolio will form the basis for constructing a
network of joint venture activities, aimed at product creation, with industrial
customers from the display, computer and semiconductor industries. This network
is intended to provide both short-term revenues from the licensing of our
intellectual properties, and long-term revenues from the royalties from
successful products.
FINANCIAL STRATEGY Our financial strategy is to grow the Company's value
through expanding licensing and royalty revenues. We believe that early
revenues will come primarily from up front fees paid to the Company by our
industrial customers under licensing agreements for the use of pieces of our
intellectual property for product development and sales. In addition, we expect
to receive payment for activities supporting these customers during product
development. We further believe that long-term revenues will flow from
royalties received from successful products developed by our customers.
Page 4
<PAGE>
PRODUCTS As depicted in the figure below, we believe that the development of
ChiropticeneTM switch technology will lead to a steady and rapid product
progression, from specific display applications to sophisticated
three-dimensional supramolecular information processors. This progress can be
predicted as a result of our unique ability to manipulate the architecture of
the single-molecule Chiropticene switch by elemental and compositional variation
to optimize specific physical parameters that control its performance.
In the near term (1 to 5 years), we expect ChiropticeneTM switches to be
immediately applicable to information display and storage technologies.
Management also believes that the capacity of the ChiropticeneTM switches to
function as light-triggers for liquid crystal display (LCD) media will be
immediately exploitable for the production of inexpensive, fast, high
resolution, low energy LCD displays. By fine-tuning the performance of these
first devices, Management expects further immediate application in advanced, low
cost, large-area and very-large-area high-definition flat panel display screens
for innovative TV, computer, and commercial display applications. By tailoring
the ChiropticeneTM molecule to satisfy other performance standards, we
anticipate the exploitation of reversible ultra-high-density optical information
storage for computers.
In the middle term (5 to 8 years), we aim to develop hybrid technologies
comprising novel devices based on conventional solid state materials integrated
with ChiropticeneTM based light panels. A targeted application will be
laser-activated optical input/output arrays for opto-electronic computers. This
will require constructing nanometer scale assemblies for three-dimensional
transport and control of optical signals incorporating waveguide structures that
link together ChiropticeneTM based logic elements to achieve signal processing
at the molecular level.
[GRAPHIC OMITED
of Proposed CALMEC Products]
MARKET The current market for liquid crystal display devices has surpassed 5
billion dollars and we believe that this market is poised for an exponential
growth in revenue with the commercialization of large-area flat-panel displays
for television, desktop computing, advertising and other novel applications.
Our clear and immediate niche in this market would be to provide
photo-activators for liquid crystal devices. We believe that we will have an
advantage in this niche because we believe that we will be in the position to
develop very high resolution ChiropticeneTM-based flat-panels at a lower cost
than others. There can, however, be no assurance of this. Very closely related
to the display application and taking off from it, is the use of the
ChiropticeneTM switch to enable reversible ultra high-density information
storage. Upon achieving reversible high-density information storage, we believe
that we will be positioned to capture a part of the "flash" memory market for
computers. This market alone is currently valued at 3 billion dollars. As
CALMEC moves the technology on to where the ChiropticeneTM switch will find its
most natural application -- massively parallel systems for the storage and
processing of information -- we believe that our potential for increased
revenues will expand enormously. There can be no assurances given, however,
that any revenue opportunity at all will in fact materialize for CALMEC.
Page 5
<PAGE>
COMPETITIVE POSITION To the best of our knowledge, we are the first company
organized to make a business and a profit from capturing and exploiting the
intellectual property of Molecular Electronics. Marketeers claim that being
first is better than being better. As a matter of corporate policy, Management
will energetically exploit our position of being first. CALMEC intends to be
everywhere in the field: in the universities, in the government research labs,
in the technology partnership offices of future customer corporations, and in
the US Patent and Trademark Office.
PATENTS We have filed several new patent applications in Molecular Electronics,
and in addition, we own the worldwide rights to the economic exploitation of
United States Patent Number 5,237,067 (the "Patent") issued August 17, 1993 to
Dr. Robert R. Schumaker. Dr. Schumaker is also the Company's Executive Vice
President for Research and Development and a major shareholder in the Company
(See "Management" and "Security Ownership"). The Patent's claims cover a class
of Molecular Electronic switches that we refer to as Chiropticene switches.
And, while there can be no assurances given at this time that we will be proven
correct, we believe that Chiropticene switches will be major components of
Molecular Electronic computers in the future.
CASH REQUIREMENTS In order to conserve resources, the Company's executive
officers have agreed to work without pay until such date as the Board decides
that the Company has attained capital sufficient to pay their salaries. THE
COMPANY CAN CONTINUE IN ITS PRESENT MODE OF OPERATIONS FOR A YEAR WITHOUT ANY
PROCEEDS FROM THIS OFFERING. Any and all proceeds from this Offering will be
used to accelerate our financing and technical progress and amplify our
influence on the field of Molecular Electronics.
COMPANY CONTACT Jon N. Leonard, Chairman: California Molecular Electronics
Corp., 50 Airport Parkway, San Jose, California 95110. Phone: 408-451-8404.
Email: [email protected]
Page 6
<PAGE>
SUMMARY OF THE OFFERING
Shares offered 1,082,560 Shares. (1)
Offering price $6.00 per Share.
Common stock 5,978,940 Shares (2), to be outstanding after the Offering
Other classes of stock Common Stock is the only authorized class of Company
capital stock. There are currently 4,978,940 shares of Common Stock issued and
outstanding(2), including the 82,560 shares being registered by the Selling
Shareholders.
Dividend policy The Company does not anticipate paying dividends in the
foreseeable future.
Use of Proceeds The net proceeds from the sale of the Shares (after
deduction of Offering expenses(3) estimated at $50,000) will be:
- $5,950,000 if all the Shares are sold;
- $4,750,000 if 80% of the Shares are sold;
- $3,550,000 if 60% of the Shares are sold;
- $2,350,000 if 40% of the Shares are sold; and
- $1,150,000 if 20% of the Shares are sold.
Notwithstanding the exact amount of net proceeds available, the Company expects
to use substantially all of such proceeds to accelerate our technical progress
and amplify our influence on the field of Molecular Electronics. There is no
minimum number of Shares that must be sold prior to the Company's use of the net
proceeds. No escrow account has been established. All subscription funds will
be paid directly to the Company.
SUMMARY OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SUMMARY OF PREOPERATIONS EXPENSE
INCEPTION THROUGH 12-31-97 1-1-98 THROUGH 12-31-98
---------------------------- -------------------------
<S> <C> <C>
Income 0 $ 2,821
PreOperating Expense (4) ($7,571) ($46,478)
Net Loss ($7,571) ($43,657)
Net loss Per Share - (.01)
BALANCE SHEET
--------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------- -------------------------
Cash $ 94 $ 154,626
Employee Advance & Deposit 0 5,200
Patent License 0 25,000
Organizational Costs 427 427
TOTAL ASSETS $ 521 $ 185,253
Payables $ 2,356 $ 18,258
Common Stock 10,704 218,223
Receivable, Common Stock Sale (4,968)
Accumulated Deficit (7,571) (51,228)
LIABILITIES AND EQUITY $ 521 $ 185,253
<FN>
(1) Includes 82,560 shares that are offered on behalf of certain Selling
Shareholders, none of the proceeds of which will go to the Company, and
1,000,000 shares that are offered by the Company, all of the proceeds of
which (after deduction of the Offering expenses estimated at $50,000) will
be received by the Company. (See "Selling Shareholders," and "Plan of
Distribution.")
(2) Excludes shares subject to options under Company stock options plan. (See
"Executive Compensation-- Stock Option Program.")
(3) Offering expenses reflect the cost of printing, distribution, legal &
accounting services and misc. costs. (See "Use of Proceeds.")
(4) INCLUDES PROVISION FOR STATE INCOME TAXES.
</TABLE>
Page 7
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk.
Prospective investors should carefully consider all of the information in the
Prospectus including the following risk factors.
WE ARE A STARTUP COMPANY IN ADVANCED TECHNOLOGY
We are a startup company seeking to exploit an advanced technology, Molecular
Electronics, that is at the edge of human knowledge. Because Molecular
Electronics is at the frontier of knowledge, progress in the field is being
driven by research and invention, not by products and sales. To the best of our
knowledge, no proven products based on Molecular Electronics currently exist
anywhere in the world. There can be no assurance given that we will ever be
successful in our aims to revolutionize the electronics, communications and
computer industries by exploiting the technology of Molecular Electronics, and
to profit from the development of products, product sales, licensing fees and
royalty streams.
WE MAY HAVE TO LICENSE OUR TECHNOLOGY BACK TO ROBERT SCHUMAKER
We plan to build our intellectual property position using US Patent Number
5,237,067, (the "Patent"). The Patent was invented by our Vice President,
Robert R. Schumaker ("Schumaker") and has been assigned wholly to the Company in
connection with an agreement with Mr. Schumaker dated as of May 1, 1997 (Patent
Agreement"), as amended November 19, 1997 and January 13, 1999. Management
intends to use the Patent and related patent applications as a beginning point
in its intellectual properties portfolio and to add, over time, other patents,
patent applications and trade secrets to it (see "Business"). In this
Prospectus the Patent, together with all of the technology associated with it,
is referred to as "Chiropticene Technology". (See "Business-Patent" for a
discussion of the class of molecules referred to by CALMEC's trademark
"Chiropticenes.") The Patent Agreement contains provisions that will cause the
Chiropticene Technology to revert back to Mr. Schumaker if we fail to act to
develop the Chiropticene Technology. For example, the Chiropticene Technology
would be licensed back to Mr. Schumaker if we were to decide to abandon
Chiropticene Technology in favor of some other technology. (An arbitration
process is provided for in the Patent Agreement in the event there is
disagreement between the Company and Mr. Schumaker on whether or not a failure
to act may have occurred.)
We have no intention of failing to pursue Chiropticene Technology.
Nevertheless, we recognize that over the course of time we may determine that it
is not in the best interests of our stockholders to pursue the development of
Chiropticene Technology. In that event, the Chiropticene Technology and perhaps
the services of Mr. Schumaker as well, would become unavailable to the Company
(See "Risk Factors - Dependence on Key Personnel"). Such an eventuality might
require the acquisition of other talent and would require a different course of
development of our intellectual property position. There is no guarantee that
substitute talent or intellectual property would be available to us in a timely
or cost effective manner, and therefore such an eventuality could adversely
impact our ability to carry out our proposed business strategy.
OUR INTELLECTUAL PROPERTY PROTECTION MAY NOT BE ADEQUATE
Our strategy is to expand our intellectual property, that is, our existing
patent license and trade secrets in Molecular Electronics, and to use this
intellectual property to deter competitive encroachment, as well as to develop
products, product sales, license fees and royalty streams based on this
intellectual property. There is no assurance that the intellectual property as
currently controlled by us or as expanded in the future, will be adequate either
to protect us from competitive encroachment from existing or future companies in
such fields as electronics, communications and computers, or to generate
significant products, product sales, license fees and/or royalty streams based
on this intellectual property.
WE HAVE NO OPERATING HISTORY
We incorporated in Arizona on March 17, 1997. We have no operating history.
Through December 31, 1998 we have spent an average of approximately $3,700 per
month creating our intellectual property position and our operating plans. See
"Financial Data". No assurance can be given that future revenues will result
from our plans to develop and exploit our intellectual property in Molecular
Electronics.
WE ARE DEPENDENT UPON KEY EMPLOYEES
The vision and persistence of Dr. Jon N. Leonard, the management, organizational
and selling skills of Mr. James J. Marek, and the scientific experience and
technical skills of Dr. Robert R. Schumaker, are essential to our success. We
do not carry key person life insurance on any of our key employees. The loss of
the services of any of our executive officers or other key employees could have
a material adverse effect on the business, results of operation and financial
condition of the Company.
Page 8
<PAGE>
Our future success also depends on our ability to attract and retain highly
qualified technical and managerial personnel. Competition for such personnel is
intense and there can be no assurance that we will be able to retain our key
technical and managerial employees - or that we will be able to attract and
retain additional highly qualified technical and managerial personnel in the
future. The inability to attract and retain the necessary technical and
managerial personnel could have a material and adverse effect on our business,
results of operations and financial condition.
VOTING CONTROL IS IN THE HANDS OF A SINGLE SHAREHOLDER
Our stockholders are not entitled to cumulative voting rights. Consequently,
the election of directors and all other matters requiring stockholder approval
will be decided by majority vote except as otherwise provided by law. Mr. Jon
N. Leonard currently owns 80 percent of the outstanding common stock and,
assuming all of the Shares offered hereby are sold, after the Offering, Mr.
Leonard will own 67 percent of the outstanding common stock if all of the Shares
are sold. Thus, Mr. Leonard is and will be in a position to control the
election of our Board of Directors and our management and policies. See
"Security Ownership".
THERE IS NO MINIMUM OFFERING AMOUNT; NO ESCROW; IRREVOCABILITY OF SUBSCRIPTION
There can be no assurance that all of the Shares offered will be sold. In
addition, no escrow account has been established and all subscription funds will
be paid directly to us, and may be used by us immediately upon receipt.
Subscriptions are irrevocable. See "Use of Proceeds", and "Plan of
Distribution."
THIS IS A BEST EFFORTS OFFERING
This Offering is being conducted directly by our officers on a "best-efforts"
basis. No underwriter, placement agent, or other person has contracted with us
to purchase or sell all, or a portion of, the securities offered hereby and
there is no assurance that we can sell all or any of the securities. Due to the
absence of an underwriter, there may be less due diligence performed in
conjunction with this Offering than would be performed in a firm underwritten
offering. It is also important to note that there are no restrictions as to
whether officers, directors or beneficial shareholders can purchase securities
in the Offering or the amounts they are able to purchase.
WE HAVE BROAD DISCRETION TO ALLOCATE NET PROCEEDS
We have broad discretion to allocate a substantial portion of the proceeds of
this Offering, in both dollar and percentage terms, on a net proceeds basis.
See "Plan of Operation."
WE MAY HAVE A NEED FOR ADDITIONAL FINANCING
Based on current projections, we may decide to raise additional capital in the
future in order to fully achieve our goals. There can, however, be no assurance
that such funds will be available, or if available, on terms acceptable to us.
If we are unable to obtain such funds, our business operations could be
adversely affected which, in turn, could cause a deterioration of our financial
condition and ability to generate revenue.
THERE MAY BE COMPETITION IN THE FUTURE
If the technology of Molecular Electronics becomes a viable method for
implementing computation, communications, and the mass storage of information,
then the competition to control the intellectual property of this technology and
to develop and market the products based on this technology will be substantial.
We believe our that our future competitors could include existing display,
electronics and chip making companies, most of which have greater financial,
engineering, R&D, production, marketing and distribution resources than the
Company. See "Business."
WE ARE SUBJECT TO GOVERNMENT REGULATION
Electronic products are regulated in many ways by the government at various
levels. Products and activities based on Molecular Electronics may likewise
become subject to future governmental regulation. It is possible that such
regulation would come to affect our business in ways that are difficult or
impossible to predict.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT
The public offering price at which the Shares are to be sold in the Offering is
significantly higher than the net tangible book value per share of our Common
Stock. Assuming all of the Shares offered hereby are sold, you will experience
immediate and substantial dilution of $4.93 per share, or 82 percent. See
"Dilution."
Page 9
<PAGE>
WE ARBITRARILY DETERMINED THE PURCHASE PRICE
There is no known public trading market for our stock, and the price of the
Shares offered hereby bears no relationship to the assets, book value, net worth
or any other recognized criteria of value of the Company. The offering price of
the Shares was determined arbitrarily by our Management, and should not be
considered as an indication of the actual value of the Company. In determining
the offering price, Management considered, among other things, our brief
operating history, our limited financial resources, our growth and profit
potential, the amount of dilution to you in this Offering, and the risk of
investing in the Company. In addition, the prospects for our comprehensive
approach in exploiting the field of Molecular Electronics were a key element in
ascertaining the value of the Shares. You should make an independent evaluation
of the fairness of such price. See "Capitalization", "Dilution" and "Financial
Data."
THERE IS NO PUBLIC MARKET FOR THE SHARES
There is no public market for these Shares, and a public market may not be
available in the foreseeable future. Following the Offering, the Company plans
to facilitate trading of its Common Stock by implementing an internet bulletin
board based trading mechanism through which persons interested in purchasing or
selling shares of Common Stock can meet prospective trading partners. Trading
in this type of market should not be considered by investors as a reliable
avenue for liquidity of their investment.
The Company's long-term plan for providing liquidity to its shareholders is to
develop a public market for its common stock by soliciting securities brokers to
become market makers of the Company's stock. However, to date the Company has
not solicited any such securities brokers nor does the Company have any
immediate plans to do so. There can be no assurance that the Company will be
successful in soliciting a market-maker if it attempts to do so.
In view of the absence of an underwriter and the relatively small size of the
Offering, there is little likelihood that a regular trading market will develop
in the near term, if at all, or that if developed it will be sustained.
Accordingly, an investment in these Shares should be considered highly illiquid.
OUR BUSINESS COULD BE ADVERSELY IMPACTED BY YEAR 2000 COMPLIANCE ISSUES
During the next year, many software programs may not recognize calendar dates
beginning in the Year 2000. This problem could force computers or machines
which utilize date dependent software to either shut down or provide incorrect
information. To address this problem, we have examined our computer and
information systems, contacted our hardware and software providers, and where
necessary, made upgrades to our system.
Although we believe that we are Year 2000 compliant, undetected errors may
remain. Disruptions to our business or unexpected costs could arise because of
undetected errors or defects in our technology or internal information systems,
which are comprised of third-party software and hardware. Any such unforeseen
errors or defects could have a material and adverse effect on our business,
financial condition and results of operation.
OUR STOCK MAY BE SUBJECTED TO PENNY STOCK REGULATION
Although it is uncertain whether our stock will be listed on a national or
regional exchange or whether broker-dealers will make a market in our stock, if
our stock is not listed with a national or regional exchange, or quotation
system, and broker-dealers do buy and sell our stock, then certain Penny Stock
regulations could affect the sale of the stock if its stock price falls below
$5.00. Broker-dealer practices in connection with transactions in Penny Stocks
are regulated by rules adopted by the U.S. Securities and Exchange Commission.
Penny Stocks are generally equity securities with a price of less than $5.00
(other than securities registered on certain national exchanges or quoted on the
NASDAQ system). The Penny Stock rules require a broker-dealer, prior to a
transaction in a Penny Stock not exempt from the rules, to deliver a
standardized risk disclosure document that provides information about Penny
Stocks and the nature and level of risks in the Penny Stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the Penny Stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly accounting statements showing the
market value of each Penny Stock held in the customer's account. In addition,
the broker-dealer must make a special written determination that the Penny Stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. In the event our Common Stock becomes subject to
the Penny Stock rules, such regulations may have the effect of reducing the
level of trading activity and the secondary market for the stock and make it
more difficult for investors to sell our stock.
Page 10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Of the 4,978,940 shares of common stock currently outstanding (including the
82,560 shares being registered by Selling Shareholders), all were provided to
investors in reliance upon an exemption from registration under Rule 506 of
Regulation D ("Rule 506 D") of the Securities Act of 1933, as amended (the
"Securities Act"). Accordingly, all of such shares are "restricted securities"
under the Securities Act and cannot be resold without registration except in
reliance on an applicable exemption from registration.
No prediction can be made as to the effect, if any, that future sales of the
above described outstanding Common Stock, or the availability of such Common
Stock for sale, will have on the market price prevailing from time to time.
Sales of substantial amounts of such Common Stock in the public market, or the
perception that such sales may occur, could adversely affect the then prevailing
market price.
In addition, we have adopted an employee stock option plan under which certain
employees have been granted options (as of June 15, 1999) to purchase up to
869,500 shares of Common Stock vesting over a five year time period, and under
which an additional 730,500 shares of Common Stock are reserved for future
issuance to key employees, consultants or directors. No prediction can be made
as to the effect, if any, that future sales or potential sales under the stock
option plan may have on the market price of the Common Stock prevailing from
time to time. Sales of substantial amounts of such Common Stock, or the
perception that such sales may occur, could adversely affect the then prevailing
market price.
THERE ARE A LIMITED NUMBER OF OUTSIDE DIRECTORS
The Company has three directors. None is an outside director. See
"Management--Directors and Executive Officers".
OUR ARTICLES OF INCORPORATION PROVIDE FOR THE INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
The Articles of Incorporation of the Company, as required by law in the state of
incorporation, provide that the Company shall indemnify any person who incurs
expense by reason of such person acting as an officer, director, employee or
agent of the Company and that this indemnification is mandatory in all cases in
which indemnification is permitted by law.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical fact included in this Prospectus,
including, without limitation, the statements under "Summary," "Risk Factors,"
"Plan of Operations" and "Business" regarding the Company's strategies, plans,
objectives and expectations, the Company's ability to acquire intellectual
property from universities, government labs and others, the Company's ability to
market such intellectual property to potential customers, the Company's ability
to design, develop, manufacture and market products; the ability of the
Company's products to maintain commercial acceptance; the Company's ability to
achieve new product commercialization; the anticipated growth of its target
markets; its future operating results; and other matters are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable at this time, it can give no
assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are set forth in these "Risk Factors," as
well as elsewhere in this Prospectus. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
USE OF PROCEEDS
The Company has sufficient cash reserves to carry itself for a year even if no
Shares whatever are sold pursuant to this Offering. We intend to use the
proceeds from this Offering to accelerate the Company's progress and amplify its
influence on Molecular Electronics. Thus we intend to use any proceeds received
from this offering to extend in a strategic manner what we are already doing.
To this end, the Company intends to spend about thirty percent of any proceeds
received to expand its research and development work in order to gain additional
intellectual property, about thirty percent of such proceeds to extend its
Sales and Corporate Development work in order to foster both the acquisition of
useful intellectual properties residing in other labs around the world, and the
generation of revenue, about twenty percent to extend its capital development
purchases, primarily lab and computer equipment, about ten percent extending its
management processes, primarily its web based management tools, and about ten
percent for the miscellaneous work required to support the body of extensions
that are undertaken as a result of any funds that may flow into the Company
through this Offering.
Page 11
<PAGE>
The following table sets forth the Company's anticipated use of proceeds for
different levels of Shares sold. Each use of proceeds as a percentage of gross
proceeds is also shown. Prior to their actual expenditure for the various
allocations, proceeds will be invested in short term investment grade money
market instruments and/or Government T-Bills. There is no minimum number of
Shares which must be sold before we are able to use the net proceeds from the
Offering. In addition, no escrow account has been established and all
subscription funds will be paid directly to the Company.
<TABLE>
<CAPTION>
1,000,000 800,000 600,000 400,000 200,000
Shares Sold Shares Sold Shares Sold Shares Sold Shares Sold
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Proceeds from Offering $ 6,000,000 100% $ 4,800,000 100% $ 3,600,000 100% $ 2,400,000 100% $ 1,200,000
Less Offering Expenses:
Printing $ 4,000 $ 4,000 $ 4,000 $ 4,000 $ 4,000
Distribution $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000
Legal & Accounting $ 35,000 $ 35,000 $ 35,000 $ 35,000 $ 35,000
Miscellaneous $ 6,000 $ 6,000 $ 6,000 $ 6,000 $ 6,000
------------ ------------ ------------ ------------ ------------
Total Offering Expense $ 50,000 0.8% $ 50,000 1.0% $ 50,000 1.4% $ 50,000 2.1% $ 50,000
Net Proceeds from Offering $ 5,950,000 99.2% $ 4,750,000 99.0% $ 3,550,000 98.6% $ 2,350,000 97.9% $ 1,150,000
Use of Net Proceeds:
Research & Development $ 1,785,000 30% $ 1,425,000 30% $ 1,065,000 30% $ 705,000 30% $ 345,000
Sales & Corp.Development $ 1,785,000 30% $ 1,425,000 30% $ 1,065,000 30% $ 705,000 30% $ 345,000
Capital Equip. Acquisition $ 1,190,000 20% $ 950,000 20% $ 710,000 20% $ 470,000 20% $ 230,000
General & Administrative $ 595,000 10% $ 475,000 10% $ 355,000 10% $ 235,000 10% $ 115,000
Miscellaneous $ 595,000 10% $ 475,000 10% $ 355,000 10% $ 235,000 10% $ 115,000
Total Use of Net Proceeds: $ 5,950,000 100% $ 4,750,000 100% $ 3,550,000 100% $ 2,350,000 100% $ 1,150,000
<S> <C>
Gross Proceeds from Offering 100%
Less Offering Expenses:
Printing
Distribution
Legal & Accounting
Miscellaneous
Total Offering Expense 4.2%
Net Proceeds from Offering 95.8%
Use of Net Proceeds:
Research & Development 30%
Sales & Corp.Development 30%
Capital Equip. Acquisition 20%
General & Administrative 10%
Miscellaneous 10%
Total Use of Net Proceeds: 100%
</TABLE>
CAPITALIZATION
The following table shows the capitalization of the Company as of June 15, 1999,
on an actual basis and on an adjusted basis giving effect to the Offering if, of
the Shares offered, all, 80 percent, 60 percent, 40 percent and 20 percent are
sold. The table assumes the payment of Offering expenses estimated at $50,000.
The table does not reflect shares of common stock that would become subject to
options under the Company's employee stock option plan, or shares that might be
purchased at $5.00 per share with a warrant obtained in a Private Placement
Offering dated 3-1-99 (see "Dilution" below).
<TABLE>
<CAPTION>
Actual* As Adjusted**
1,000,000 800,000 600,000 400,000 200,000
Shares Shares Shares Shares Shares
100% 80% 60% 40% 20%
----------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issued and outstanding shares. 4,978,940 5,978,940 5,778,940 5,578,940 5,378,940 5,178,940
Paid-in capital. . . . . . . . $ 579,100 $ 6,579,100 $5,379,100 $4,179,100 $2,979,100 $1,779,100
Cost of issuance . ($18,754) ($68,754) ($68,754) ($68,754) ($68,754) ($68,754)
Retained Earnings Thru 6-15-99 ($139,912) ($139,912) ($139,912) ($139,912) ($139,912) ($139,912)
Stockholders' equity $ 420,434 $ 6,370,434 $5,170,434 $3,970,434 $2,770,434 $1,570,434
----------- --------------- ----------- ----------- ----------- -----------
<FN>
* As of: 6/15/99
** After giving effect to the Offering
</TABLE>
LEGAL COUNSEL
The Company is represented on securities matters by the firm of Evers and
Hendrickson, LLP of San Francisco, California.
LEGAL PROCEEDINGS
Neither the Company nor its property is the subject of any pending legal
proceedings.
DILUTION
The Company was initially capitalized by a sale of Common Stock to its founder,
Jon N. Leonard. Subsequently, we sold stock to our chief technologist, Robert
R. Schumaker, as a hiring inducement and for a patent license, and to our CEO,
James J. Marek, Jr. as a hiring inducement. Subsequently, we sold Common Stock
to Accredited Investors, under a Private Placement Memorandum (a "PPM") dated
4-1-98, at a price of $2.50 per share, and exempt from registration under Rule
506 of Regulation D. Subsequently the Company sold Common Stock to Accredited
Investors, under a Private Placement Memorandum dated 3-1-99, at a price of
$5.00 for a share plus a three-year warrant to purchase another share of Common
Stock at $5.00, also under Rule 506 of Regulation D. The following table sets
forth the difference between the Company's founder, the Chief Technologist, the
CEO, the purchasers of stock under the two PPMs and purchasers of the Shares in
this Offering with respect to the number of shares purchased from the Company,
the total consideration paid and the average price per share paid. The table
assumes all of the Shares offered hereby are sold.
Page 12
<PAGE>
<TABLE>
<CAPTION>
Shares Issued Total Consideration Av. Price
------------------- -------------------- -----------
Number Percent Amount Percent Per Share:
--------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Founder 4,000,000 66.9% $ 10,000 0.2% $ 0.003
Chief Technologist 400,000 6.7% $ 1,000 0.0% $ 0.003
President/CEO 400,000 6.7% $ 2,000 0.0% $ 0.005
PPM Investors* 178,940 3.0% $ 566,100 8.6% $ 3.164
New Investors** 1,000,000 16.7% $6,000,000 91.2% $ 6.000
--------- -------- ---------- --------
Total 5,978,940 100.0% $6,579,100 100.0%
--------- -------- ---------- --------
<FN>
* Includes service provider whose fee was paid in stock at PPM pricing.
** Assumes all of the Shares offered hereby are sold.
</TABLE>
The following table sets forth the difference between the price to be paid by
you and the net tangible book value per share as of June 15, 1999, as adjusted
to give effect to the Offering if, of the Shares offered, all, 80 percent, 60
percent, 40 percent, and 20 percent are sold. Net tangible book value per share
represents the amount of total tangible assets less total liabilities divided by
the number of shares outstanding.
<TABLE>
<CAPTION>
1,000,000 800,000 600,000 400,000 200,000
Shares Shares Shares Shares Shares
100% 80% 60% 40% 20%
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Offering Price $ 6.00 $ 6.00 $ 6.00 $ 6.00 $ 6.00
Pre-Offering net tangible book value per share* $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08
Increase per share attributable to Investors $ 0.98 $ 0.81 $ 0.63 $ 0.43 $ 0.22
Post-Offering net tangible book value per share** $ 1.07 $ 0.89 $ 0.71 $ 0.52 $ 0.30
Per share dilution to Investors $ 4.93 $ 5.11 $ 5.29 $ 5.48 $ 5.70
Percent dilution per share to Investors 82% 85% 88% 91% 95%
----------- --------- --------- --------- ---------
<FN>
* As of: 6/15/99
** After giving effect to the Offering
</TABLE>
PLAN OF DISTRIBUTION
In this Offering, the Company is offering up to 1,000,000 newly issued Shares
and 82,560 Shares belonging to the Selling Shareholders at the Offering Price of
$6.00 per share. There is no required minimum number of Shares to be sold
pursuant to the Offering. Since there is no minimum, there will not be an
escrow of funds, meaning that we will be able to use the proceeds from the
Offering immediately as the proceeds are received. The Offering will begin on
the date of this Prospectus and will continue for up to twenty-four months, or
until all the Shares under this Offering are sold, or until such time as the
Company shall decide to close or terminate the Offering in our sole and absolute
discretion. The Minimum Investment in the Company is 100 Shares ($600.00).
The Maximum Investment, subject to waiver by the Company, is 20,000 Shares
($120,000.00).
We plan to offer and sell the Shares directly to you and we have not retained
any underwriters, brokers or placement agents in connection with the Offering.
However, we reserve the right to use brokers or placement agents and could pay
commissions equal to as much as 10 percent of the gross proceeds. Since there
is no minimum amount of Shares to be sold pursuant to the Offering and no escrow
account for the deposit of subscribers' funds, no arrangement has been made to
return the funds if all of the Shares offered are not sold. Jon N. Leonard,
founder and Treasurer of the Company, will conduct the Offering on our behalf.
Page 13
<PAGE>
We will effect offers and sales of shares through printed copies of this
Prospectus delivered by mail and electronically. Any voice or other
communications will be conducted in certain states through our executive
officers, and in other states through a designated sales agent, licensed in
those states. Under Rule 3a4-1 of the Exchange Act, none of these employees of
the Company will be deemed a "broker," as defined in the Exchange Act, solely by
reason of participation in this Offering, because (1) none is subject to any of
the statutory disqualifications in Section 3(a)(39) of the Exchange Act, (2) in
connection with the sale of the shares hereby offered, none will receive,
directly or indirectly, any commissions or other remuneration based either
directly or indirectly on transactions in securities, (3) none is an associated
person (partner, officer, director or employee) of a broker or dealer and (4)
each meets all of the following conditions: (A) primarily performs substantial
duties for the Company other than in connection with transactions in securities;
(B) was not a broker or dealer, or an associated person of a broker or dealer,
within the preceding 12 months; and (C) will not participate in selling an
offering of securities for any issuer more than once every 12 months.
The proceeds of this Offering will be divided and disbursed as they are received
on a pro rata basis between the Company and the Selling Shareholders. To
subscribe for the Shares, you must complete, date, execute and deliver to us a
Subscription Agreement and pay the purchase price of the Shares subscribed for
by check, money order, wire transfer, credit card, or FAX check payable to
California Molecular Electronics Corp. A copy of the Subscription Agreement is
included as the last two pages of this Prospectus. We reserve the right to
reject any subscription in its entirety or to allocate Shares among prospective
investors. If any subscription is rejected, funds received by the Company for
such subscription will be returned to the subscriber without interest or
deduction. Within five days of its receipt of a Subscription Agreement
accompanied by a check for the purchase price, we will send by first class mail
a written confirmation to notify the subscriber of the extent, if any, to which
such subscription has been accepted by the Company.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers, who will hold office until
removal or resignation, are as follows:
<TABLE>
<CAPTION>
DATE OF
NAME AGE POSITION ELECTION/APPOINTMENT
- ----------------------- --- --------------------------------------------- --------------------
<S> <C> <C> <C>
Dr. Jon N. Leonard 59 Director, Chairman, Treasurer March 17, 1997
Mr. James J. Marek 55 Director, President, CEO September 1, 1997
Dr. Robert R. Schumaker 63 Director, Executive Vice-President, Secretary May 27, 1997
</TABLE>
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
We currently do not pay compensation to our directors and executive officers for
their services. In the future, after we have completed our startup phase of
business (see "Business-Startup Phase"), executive officers will be compensated
for their services as executive officers, but will not be separately compensated
for their services as directors. Presently, all executive officers of the
Company are serving without compensation. This is one of the reasons that we
are able to function indefinitely with or without the proceeds of this Offering.
BIOGRAPHICAL SKETCHES OF MANAGEMENT
DR. JON N. LEONARD is a consultant to business and Government in science,
technology, and business development. He was the founding President and CEO of
BPM Technology, a company that raised 10 million dollars in venture capital to
develop and market a three dimensional printer product. Prior to that he was
the Chief Scientist of the Strategic Products Manufacturing Division of Hughes
Aircraft Company. Dr. Leonard has authored numerous technical papers in the
areas of electronics, computation and communication, as well as three popular
books in the area of human health. Dr. Leonard received Ph.D. and Bachelors
degrees in mathematics and physics from the University of Arizona and a Masters
degree in engineering from UCLA.
MR. JAMES J. MAREK, JR. has over 30 years of business experience in high
technology companies. He has over 16 years in top management positions (CEO,
President, General Manager, Vice President of Marketing and Sales, and Director)
with full P&L responsibility for start-up companies as well as multimillion
dollar corporations manufacturing and marketing sophisticated electronic
products. Since 1996, he has consulted for businesses acting in pivotal
capacities in startups, turnarounds, and contract negotiations. Mr. Marek has a
Bachelor of Electrical Engineering degree from Marquette University and has
taken post graduate work in Communications, Marketing, Finance, Accounting, and
Business Management.
Page 14
<PAGE>
DR. ROBERT R. SCHUMAKER was trained at the University of California, Santa Cruz,
where he received his bachelors degree with honors in chemistry, and at the
University of Oregon, where he received his Ph.D. in chemistry in 1972. Dr.
Schumaker spent 25 years as a research scientist at IBM where he led work in
Molecular Electronics and was credited as the developer of new superconducting
materials. He holds a dozen U.S. patents including a patent, licensed to the
Company, in Molecular Electronics involving molecular-optical switching. He has
spent the past 10 years in research and teaching at the University of Bordeaux
(France), the University of Alabama, and Universidad Autonoma de Guadalajara
(Mexico), and has been a consultant to several industrial companies in Europe.
TECHNICAL ADVISORS
TECHNICAL ADVISORY COMMITTEE
The Technical Advisory Committee was formed to advise our Board of Directors,
Research and Development organization, and senior management on technical and
scientific matters related to exploiting the field of Molecular Electronics for
economic gain. The Committee is composed of individuals, mainly from outside
the Company, with exceptional backgrounds in Molecular Electronics science.
Each member is renowned in the scientific community and has been recognized for
his achievements with numerous awards. They have written and co-authored
prominent scientific papers and text books and have served and continue to serve
on editorial boards of various scientific publications. All members serve on
the Technical Advisory Committee in exchange for Company stock or stock options.
BIOGRAPHICAL SKETCHES OF TECHNICAL ADVISORS
MICHAEL P. CAVA was born in Brooklyn, New York on February 13, 1926. He entered
Harvard University in 1943 and received a Bachelor of Science degree in
Chemistry from that institution in 1946. His graduate studies were carried out
at the University of Michigan which awarded him a Master of Science degree in
Chemistry in 1948 and a Ph.D. degree in Chemistry in 1951. His doctoral
preceptor was the late Professor W.E. Bachmann. During the period 1951 through
1953, Dr. Cava was a Research Associate at Harvard University where he held a
U.S. Public Health Postdoctoral Fellowship and worked with Professor R.B.
Woodward. He was on the staff of the Department of Chemistry of the Ohio State
University from 1953 through 1965, during which time he held the positions of
Assistant Professor (1953 - 1958), Associate Professor (1958 - 1963), and
Professor (1963 - 1965). He then held the position of Professor of Chemistry at
Wayne State University from 1965 through 1969. From July 1969 through June 1985,
Dr. Cava was Professor of Chemistry at the University of Pennsylvania. He has
also been a Visiting Professor at the University of Illinois (1957) and the
University of California at Santa Barbara (1968). He has been a Fellow of the
Alfred P. Sloan Foundation (1958 - 1962) and has spent research leaves in
Switzerland (1959), in Brazil (1965), and in France (1979). In the winter of
1973, he was Sir C.V. Raman Visiting Professor at Madras University, India. From
September 1984 to August 1985, Dr. Cava was the recipient of a Guggenheim
Fellowship, enabling him to study at the University of Paris and at the
University of California at Santa Barbara. Since July 1985, he has been at the
University of Alabama as the Ramsay Professor of Chemistry. Dr. Cava has served
as a member of the Executive Committee of the Organic Division, American
Chemical Society, and the Editorial Boards of the Journal of Organic Chemistry,
Heterocycles, Sulfur Letters, and Sulfur Reports. He has served as a member of
the Medicinal Chemistry Study Section B (1966 - 1970) and Section A (1986 -
1991), National Institutes of Health. In 1992, Dr. Cava received the University
of Alabama's Burnum Award for Outstanding Teaching. In 1996, he was awarded the
University of Alabama's Blackmon-Moody Outstanding Professor Award. He has
authored or co-authored 411 scientific papers, a chemical monograph, and two
textbooks.
Professor Cava's research areas extend over several different areas of organic
chemistry. In the field of natural products, he is interested in the chemistry
of biologically significant compounds, especially those derived from aromatic or
heterocyclic systems. Other research interests include the organic chemistry of
Group VI elements, especially sulfur and tellurium, as well as material science
studies aimed at the synthesis of new organic metals and non-linear optical
materials.
ROBERT M. METZGER was born in Japan in 1940 of Hungarian parents. He was
educated in France, Italy, and the United Kingdom. He obtained his Bachelor of
Science degree in Chemistry from the University of California Los Angeles in
1962. His post graduate studies were performed at Caltech where in 1966 he was
awarded the Ph.D. degree in Chemistry. From 1969 through 1971, he attended
Stanford University doing his postdoctoral work. Professor Metzger has taught at
the University of Mississippi at Oxford (1971 - 1986) and at the University of
Alabama in Tuscaloosa (1986 - present). He presently holds the position of
Professor of Chemistry at the University of Alabama and is a member of the
Materials Science faculty. Professor Metzger has written more than 140 research
publications, among them the "Unimolecular Electrical Rectification in
Hexadecylquinolinium Tricyanoquinodimethanide" which was published in a recent
issue of the Journal of the American Chemical Society. He has edited or
co-edited four books and has attended conferences and presented invited papers
in 21 foreign countries. Professor Metzger has directed the research of nine
Ph.D. students, one MS student, and over a dozen postdoctoral associates.
Page 15
<PAGE>
Professor Metzger's research interests in physical chemistry are extensive. From
1971 through 1983, he studied the cohesion of organic ionic crystals. In 1976,
he determined experimentally that the organic metal TTF TCNQ was
thermodynamically stable. He studied the paramagnetic resonance and crystal
structure of several organic semiconductors, the cohesion of high-temperature
ceramic oxide superconductors, and the magnetism of iron in porous aluminum
oxide.
In 1992, Professor Metzger's research in Molecular Electronics led to the
discovery that Langmuir-Blodgett multilayers of fullerene, when doped with
potassium, became super-thin superconductors at low temperatures (i.e.,
temperatures lower than in bulk). In 1997, he found that the zwitterionic
crystal hexadecylquinolinium tricyanoquinodimethanide was a unimolecular
rectifier of electrical current, which may be the world's smallest electronic
device and one of the first examples of a truly unimolecular electronic device.
JOSEF MICHL was born in Prague, Czechoslovakia in 1939. He studied at the
Charles University in Prague with V. Horak and P. Zuman, and at the Czechoslovak
Academy of Sciences with R. Zahradnik, receiving his Ph.D. in 1965. He enjoyed a
rich variety of postdoctoral experiences covering a range of experimental and
theoretical chemistry with R.S. Becker at the University of Houston, M.J.S.
Dewar at the University of Texas, A.C. Albrecht at Cornell University, J.
Linderberg at Aarhus University, and finally with F.E. Harris in physics at the
University of Utah. He joined the department of chemistry at the University of
Utah in 1970 and served as Chairman from 1979 through 1984. He left Utah in
1986, moving to the University of Texas in Austin as the Collie-Welch Regents
Chair Professor. In 1991, he was lured to his current position as Professor in
the Department of Chemistry and Biochemistry at the University of Colorado in
Boulder. Professor Michl has held numerous visiting positions and named
lectureships throughout the world. He has received honorary degrees from
Georgetown University in Washington, DC and from the University of Pardubice in
the Czech Republic.
Professor Michl has earned an international reputation in the close integration
of experiment and theory in his research. His publications span an extraordinary
breadth of areas, including organic, inorganic, analytical, physical, and
theoretical chemistry. He has, in particular, been instrumental in the current
understanding of organic photochemistry. His applications of novel methodologies
in matrix isolation spectroscopy have been groundbreaking, leading to a deeper
knowledge of the fundamental properties of highly reactive and high-energy
molecules. His studies on silicon reactive intermediates and oligosilanes have
been instrumental in the understanding of photochemical processes in
silicon-based polymers. He has long enjoyed a fruitful collaboration with
scientists at IBM, helping to produce currently used photoresists and new
optical storage systems. In recent years, he has focused on new classes of
rigid-rod molecules, systems he has termed "staffanes", as well as oligomeric
carboranes, to assemble ordered materials with interesting and useful physical
properties -- a molecular-sized "Tinkertoy" set.
Professor Michl has received numerous awards including a Sloan Award, a
Guggenheim Fellowship, the Humboldt Senior US Scientist Award, the Utah Section
Award and the Cope Scholar Award from the American Chemical Society, the Schr
dinger Medal from the World Association of Theoretical Organic Chemists, the
1994 award from the Inter-American Photochemical Society, the Heyrovsky Gold
Medal from the Czech Academy of Sciences, and the Gold Medal of the Charles
University in Prague. In 1986, he was elected to the National Academy of
Sciences and in 1988 to the International Academy of Quantum Molecular Science.
He is a WATOC Fellow and an honorary member of the Czech Learned Society.
Professor Michl is currently the editor of Chemical Reviews and is an Editorial
Board member of Accounts of Chemical Research, Bulletin of the Chemical Society
of Japan, Chemistry-a European Journal, Collection of Czechoslovak Chemical
Communications, and International Journal of Quantum Chemistry. He had a long
association with IUPAC, where he chaired the Photochemistry Commission from 1985
through 1989. He has co-authored five books on photochemistry and polarization
spectroscopy, several patents, and over 400 scientific papers. His current areas
of interest are modular chemistry, highly reactive molecules, molecular
electronic structure, silicon and boron chemistry, and photochemistry.
MARK A. REED received his Bachelors Degree with Honors in Physics from Syracuse
University in 1977. He continued his post graduate studies at Syracuse
University receiving a MS degree in Physics in 1979 and a Ph.D. degree in Solid
State Physics in 1983. He left the University to join Texas Instruments as a
Member of the Technical Staff in the Ultrasmall Electronics Branch where he
co-founded the Nanoelectronics research program. In 1988, he was elected to
Senior Member of the Technical Staff. Dr. Reed left Texas Instrument in 1990 to
join the faculty at Yale University where he presently holds a joint appointment
as Professor in the Electrical Engineering and Applied Physics Departments.
Since 1995, he has been the Chairman of Electrical Engineering.
Dr. Reed's research activities have included the investigation of nanoscale and
mesoscopic systems, tunneling and transport in heterojunction systems,
artificially structured materials and devices, MEMS, nanotechnology, and
molecular electronics. He is the author of more than 85 professional
publications and has given three plenary and more than 75 invited talks. He
holds 11 United States as well as several foreign patents on quantum effect,
heterojunction, and molecular devices. His book credits include Nanostructure
Physics and Fabrication (1989), Nanostructures and Mesoscopic Systems (1992),
and Nanostructured Systems (in the series Semiconductors and Semimetals). He has
chaired numerous international conferences and program committees and is an
associate editor for several technical journals including Physical Review
Letters. He has been elected to the Connecticut Academy of Science and
Engineering, Who's Who in American Science and Engineering, and is a Senior
Member of the IEEE. In October 1990, Fortune Magazine named Dr. Reed as one of
America's most promising young scientists and in 1994 he won the Kilby Young
Innovator Award. In 1997, the DARPA ULTRA Most Significant Achievement Award was
presented to him for his work in molecular electronics.
Page 16
<PAGE>
CHAD A. MIRKIN was born in Phoenix, Arizona on November 23, 1963. He obtained
his Bachelor of Science degree in Chemistry from Dickinson College in Carlisle,
Pennsylvania in 1986. His graduate studies were performed at Pennsylvania State
University where he majored in organic and inorganic chemistry and received his
Ph.D. in Chemistry in 1989. That same year, Dr. Mirkin moved to the
Massachusetts Institute of Technology as a National Science Foundation Post
Doctoral Fellow. Upon finishing his postdoctoral work in 1991, he joined
Northwestern University as an Assistant Professor in the Chemistry Department
and, in 1995, was promoted to Associate Professor. In 1997, at the age of 33, he
became Charles E. and Emma H. Morrison Professor of Chemistry at the University.
He is currently a member of various faculties within the Chemistry Department
including the Nanotechnology and Molecular Electronics Faculty.
Professor Mirkin's research interests and activities focus on problems at the
interfaces of four disciplines: organometallic chemistry, electrochemistry,
nanotechnology, and surface chemistry. He has pioneered the surface modification
chemistry of high temperature superconductors and has also identified and
co-developed a new interdisciplinary field that focuses on using complex
biomolecules to assemble nanoscale inorganic building blocks into functional
meso- and macroscopic structures.
Dr. Mirkin is the author or co-author of more than 70 scientific manuscripts in
professional publications such as the Journal of the American Chemical Society,
Science, Angewandte Chemie International Edition in English, and Nature. He
holds six United States patents and various foreign patents on such concepts as
self-assembled fullerene-based materials and two-terminal voltammetric
microsensors. Dr. Mirkin has won many national awards for his research including
the 1999 ACS Pure Chemistry Award, the 1998 E. Bright Wilson Prize, the 1998 PLU
Fresenius Award, the Beckman Young Investigator Award, the National Science
Foundation Young Investigator Award, an Alfred P. Sloan Foundation Fellowship,
the Dupont New Professor Award, the ONR Young Investigator Award, and the
Camille Dreyfus Teacher-Scholar Award. In 1997, he was co-recipient of a
prestigious BF Goodrich Collegiate Inventors Award for one of the three most
outstanding collegiate inventions in all of medicine, science, and engineering.
JAMES M. TOUR graduated Cum Laude in 1981 from Syracuse University with a
Bachelor of Science Degree in Chemistry. His post graduate studies were
performed at Purdue University where in 1986 he received his Ph.D. in Organic
Chemistry. He performed his postdoctoral work from 1986 through 1988 at the
University of Wisconsin and Stanford University. Upon completing his
postdoctoral work, Dr. Tour joined the Department of Chemistry and Biochemistry
at the University of South Carolina where he has held the positions of Assistant
Professor (1988 - 1992), Associate Professor (1992 - 1994), and Professor (1994
- - 1996). He is presently Guy F. Lipscomb Professor of Chemistry. While on
sabbatical leave from the University in the Fall of 1994, Dr. Tour was a
Visiting Scholar in the Department of Chemistry at Harvard University. He has
served on both the CAREER Program Advisory Committee (March 1995) and the
Materials Research Centers Advisory Committee (April 1996 and February 1997) of
the National Science Foundation. From 1996 through 1998, Dr. Tour was an advisor
to the Governor of South Carolina serving on that State's Mathematics and
Science Advisory Board. He presently is a member of the National Defense Science
Study Group.
Page 17
<PAGE>
In addition to molecular scale electronics, Dr. Tour's research interests are in
organic chemistry, polymer chemistry, and materials science. They include
conjugated oligomers and polymers for electronic, photonic, and high performance
materials applications; self-assembly; fullerene syntheses and separations;
flame-retardant polymer additives; polymer-supported syntheses; metal deposition
in sol-gel materials; and homogeneous and heterogeneous catalysis.
Dr. Tour has been granted 12 United States patents and has numerous patent
applications in process. He has authored or co-authored more than 120 scientific
papers. Descriptions of his work in molecular scale electronics have appeared in
such renown publications as the Journal of the American Chemical Society, the
Journal of International Quantum Chemistry, the Journal of Organic Chemistry,
the European Journal of Inorganic Chemistry, Macromolecules, Molecular
Electronics: Science and Technology, Nanotechnology, and the Journal of Applied
Polymer Science.
ROBERT R. SCHUMAKER, the Company's Executive Vice President of Research and
Development, was born on September 16, 1935 in Redlands, California. While in
the position of Senior Laboratory Technician with IBM, he took an educational
leave in 1966 to pursue his undergraduate degree in Chemistry at the University
of California in Santa Cruz. Two short years later, in 1968, he received his
Bachelors Degree with honors in Chemistry. He continued on with his education
entering the graduate program at the University of Oregon where, in 1972, he
received his Ph.D. in Chemistry. Dr. Schumaker returned to IBM where, as a
Senior Research Scientist, he was a leader in Molecular Electronics research and
was credited as the developer of new superconducting materials. In 1978, he took
a six month sabbatical from the IBM Research Laboratories in San Jose,
California to do work on the synthesis of organic conductors at the IBM
Laboratories in Yorktown Heights, New York. While at IBM, Dr. Schumaker received
12 awards for his research including four "Invention Achievement" and three
"Special Activities" awards. In 1985, he left industry and spent the next 10
years at the University of Bordeaux in France, the University of Alabama, and
the Universidad Autonoma de Guadalajara, the largest private university in
Mexico. At the University of Bordeaux, Dr. Schumaker was a Visiting Chief
Investigator working on organic semiconductors. While in Europe, he was
consultant to several industrial companies. In 1986, Dr. Schumaker returned to
the United States joining the Chemistry Department at the University of Alabama
in the position of Visiting Scientist working on the synthesis of organic
semiconductors. From 1988 through 1992, Dr. Schumaker was on the staff of the
Department of Organic Chemistry at the Universidad Autonoma de Guadalajara,
during which time he held the position of Professor/Investigator and served as a
Ph.D. Program Advisor. In 1992, Dr. Schumaker founded International Molecular
Processors, a private company conducting research in the area of molecular
switch devices. He holds more than a dozen United States patents including a
patent, licensed to the Company, in Molecular Electronics involving
molecular-optical switching.
Dr. Schumaker has written and co-authored over 33 articles published in such
noted publications as the Journal of the American Chemical Society, the Journal
of Organic Chemistry, and Solid State Communications. He has been invited and
presented numerous papers at international scientific meetings such as the
Universidad Nacional Autonoma de Mexico Winter Meeting, the American Chemical
Society's National Meeting, the Chemical Society of Japan Symposium, and the
Academy of Sciences Conference. He has prepared and presented over 35 research
seminars at Universities, Institutes, and Research Laboratories in seven
countries.
Dr. Schumaker's interests and research expertise are in molecular electronics,
organic conductors, and energy storage. Specifically, his areas of interest are
in the preparation of novel molecular-optical switching devices for laser
modification and informational storage; the design, synthesis, and study of the
physical properties of chalcogen compounds; the development or organic
superconductors; and the design of organic compounds for energy storage.
JAMES J. MAREK, JR., the Company's President and CEO, was born in Chicago,
Illinois on December 22, 1943. After graduating from Marquette University in
1966 with a Bachelor of Electrical Engineering degree, Mr. Marek joined industry
as a design engineer for the Bell System, specifically Western Electric and Bell
Telephone Laboratories. During the next 14 years in the Bell System, he
progressed from engineering into product consulting, product management, and
project management. He was member of the Technical Staff at Bell Telephone
Laboratories where he was awarded a patent for his design work. At Western
Electric, he held such management positions as Department Chief and Assistant
Manager. In 1980, Mr. Marek left the Bell System to expand his base of
experience. He has worked for various high technology companies where he gained
experience in product management, manufacturing, operations, sales, marketing
(domestic and international), finance, human resources, customer service, legal,
staff development, and general management. He has held the positions of
Director of Product Management and Marketing, Vice President of Sales and
Marketing, General Manager, President, CEO, and Treasurer. Mr. Marek has served
on the Board of Directors of two companies. He has been a successful
independent management consultant specializing in startup companies, turnaround
management, sales and marketing management, and contract negotiations. He has
performed post graduate work in Communications, Marketing, Finance, Accounting,
and Business Administration at the University of Colorado in Denver, the Western
Electric Corporate Education Center, and the American Management Association.
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<PAGE>
SELLING SHAREHOLDERS
The table below sets forth certain information regarding the beneficial
ownership of common stock of the Selling Shareholders as of June 15, 1999, and
as adjusted to give effect to the sale of common stock offered hereby.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY COMMON STOCK BENEFICIALLY
OWNED PRIOR TO THE OFFERING SHARES OWNED AFTER THE OFFERING*
----------------------------------- -----------------------------
NO. OF % OF OUTSTANDING BEING NO. OF % OF OUTSTANDING
SHAREHOLDER NAME SHARES SHARES OFFERED SHARES SHARES
---------------- ----------------- --------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Jon N. Leonard 4,000,000 80.3% 20,000 3,980,000 66.6%
Schumaker Family 400,000 8.0% 35,000 365,000 6.1%
James J. Marek, Jr. 400,000 8.0% 20,000 380,000 6.4%
David W. Collins, Trustee,
David W. Collins Retirement Plan 13,040 ** 4,960 8,080 **
Grant Tucker Humphries 2,000 ** 600 1,400 **
Ronald C. McConnell 4,000 ** 2,000 2,000 **
Totals: 4,819,040 82,560 4,736,480 79.2%
<FN>
* Assuming All of the Shares Offered Hereby are Sold
** Less than 1%
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, with
respect to each director and officer, the Accredited Investors, and all
directors, officers, and Accredited Investors as a group. There is no person
who is known to the Company to be the beneficial owner of more than 5 percent of
the Company's Common Stock other than the directors and officers.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING**
--------------------- --------------------
NO. OF % OF OUTSTANDING NO. OF % OF OUTSTANDING
SHAREHOLDERS* SHARES SHARES SHARES SHARES POSITION IN COMPANY
- ------------------------------------ --------- ----------------- --------- ----------------- ----------------------
<S> <C> <C> <C> <C> <C>
Jon N. Leonard
13924 N. Green Tree Dr. 4,000,000 80.3% 3,980,000 66.6% Chairman and Treasurer
Tucson, AZ 85737
James J. Marek, Jr.***
1080 Grande View Blvd., #828 400,000 8.0% 380,000 6.4% President and CEO
Huntsville, AL 35824
Robert R. Schumaker*** Executive Vice President
19950 Wright Dr. 400,000 8.0% 365,000 6.1% of R&D and Secretary
Los Gatos, CA 95030
Shareholders as a Result of Private 178,940 3.6% 171,380 2.9%
Placement (PPM)
Total Shares Owned by the
Above Shareholders 4,978,940 100% 4,896,380 82%
<FN>
* Shareholders Leonard and Schumaker have given stock to relatives in the
amounts of 8,334 and 30,000 shares respectively. While both claim no
control of the gifted shares, this table lists ownership as if they did
retain control.
** Assuming all shares offered hereby are sold.
*** Company has granted this individual options on 400,000 shares of common
stock under a Company stock option plan. (See "Executive Compensation --
Stock Option Program").
</TABLE>
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<PAGE>
DESCRIPTION OF SECURITIES
DESCRIPTION OF CAPITAL STOCK
CAPITAL STOCK The Company's only form of capital stock is Common Stock. We are
authorized to issue 20,000,000 shares of Common Stock with no par value. There
are 4,978,940 shares of Common Stock currently issued and outstanding, including
the 82,560 shares to be registered by Selling Shareholders. All of our
currently outstanding shares of Common Stock were issued in private transactions
exempt from registration. (Accordingly, such shares are "restricted securities"
under the Securities Act and cannot be resold without registration except in
reliance on an applicable exemption from registration. After a two year holding
period, a non-affiliate shareholder may sell without restrictions.)
After the Offering, and assuming all of the Shares offered hereby are sold,
5,978,940 shares of Common Stock will be issued and outstanding. Of these
5,978,940 shares, 4,896,380 shares will still be unregistered, and thus still
not salable except in reliance on an applicable exemption from registration.
Each share of Common Stock entitles the holder thereof to one vote on all
matters submitted to a vote of the stockholders. Since the holders of Common
Stock do not have cumulative voting rights, holders of more than 50 percent of
the outstanding shares can elect all of the directors of the Company and holders
of the remaining shares by themselves cannot elect any directors. Holders of
Common Stock will be entitled to receive, on a pro rata basis, such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of the Common Stock have the right to a pro rata portion of the
assets remaining after payment of liabilities. All shares of Common Stock
currently outstanding, and to be outstanding upon completion of this Offering,
are and will be fully paid and non-assessable.
LIMITATIONS ON TRANSFER OF SHARES Prior to the Offering there has been no
public trading market for the Shares. Following the Offering, we plan to
facilitate trading of our Common Stock by implementing, on a World Wide Web
internet site, a trading mechanism through which persons interested in
purchasing or selling shares of the Company's Common Stock can meet prospective
trading partners.
The Company's long-term plan for providing liquidity to its shareholders is to
develop a public market for its capital stock by soliciting securities brokers
to become market-makers of its stock. However, to date the Company has not
solicited any such securities brokers nor does the Company have any immediate
plans to do so.
TRANSFER AGENT AND ANNUAL REPORT The Company will serve as its own transfer
agent for its Shares. Each year we will prepare and distribute to our
shareholders an Annual Report which describes the nature and scope of our
business and operations for the prior year.
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
The Articles of Incorporation, as required by the laws of the State of Arizona,
provide that the Company shall indemnify any person who incurs expense by reason
of such person acting as an officer, director, employee or agent of the Company,
and that this indemnification is mandatory in all cases in which indemnification
is permitted by law. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons, the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
ORGANIZED WITHIN PAST FIVE YEARS
The Company was organized in 1997 specifically to develop the technology of
Molecular Electronics. No promoters have participated in the organization of
the Company other than its directors, Dr. Jon N. Leonard, Dr. Robert R.
Schumaker, and Mr. James J. Marek. Dr. Schumaker and the Company are parties to
a patent license and assignment agreement upon which the Company's technology is
being built. (See "Business" and "Transactions with Related Parties.")
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<PAGE>
BUSINESS
OUR VISION
We believe that the field of Molecular Electronics will power much of the
worldwide technological and economic advance that will occur over the next
twenty-five years. Molecular Electronics is the technology of using single
molecules to form the components of computational and data storage devices.
Molecular sized computation could lead to computational devices thousands of
times smaller than the smallest devices possible with semiconductor electronics.
Management believes that this enormous shrinkage potential will allow Molecular
Electronics to create an industry that could supplant the semiconductor industry
that is in place today.
The Company's aim is to generate long-term returns for our investors by acting
now to capture a rewarding portion of the future of the Molecular Electronics
industry. Management believes that now is the right time to gain control of
important blocks of intellectual property (patents and trade secrets) in the
Molecular Electronics field. CALMEC already controls the patent and trade
secret rights to Chiropticene switching, a technology that Management believes
will be a key component of future Molecular Electronics devices. The Company is
positioned to gain control of other prime intellectual property by developing
new patents and trade secrets through its own internal efforts, and by
developing patent-exploitation agreements for the patents and trade secrets
belonging to others.
Management's strategy for generating favorable returns for the Company's
investors combines a technical strategy for exploiting the field of Molecular
Electronics, with a financial strategy for building revenues and stock value.
Our technical strategy is to capture and exploit crucial Molecular Electronics
intellectual property in order to drive the development of the field. An
important beginning is our ownership of the rights to the patented Chiropticene
switching technology. Management intends, through additional in-house patent
development, to further enlarge CALMEC's patent portfolio based on the
Chiropticenes. We are also currently working on technology exploitation
agreements with thirteen key universities and government labs that are leaders
in the field of Molecular Electronics.
The Company's intellectual property will form the basis for constructing a
network of joint venture activities with future industrial customers from the
semiconductor, computer and chemical industries, aimed at the creation of
advanced products based on Molecular Electronics. Such a customer network is
intended to provide two kinds of revenues: short-term revenues from the
licensing of our intellectual properties, and long-term revenues from the
royalties payable to the Company that result from successful products.
Management believes that our future customer network, together with our
intellectual property position, will provide us with the business foundation to
develop our own family of products.
Our financial strategy is to grow the Company's stock value through expanding
technology licensing and product royalty revenues. Our goal is nothing short of
owning, through intellectual property development, a meaningful portion of the
entire revenues generatable in the field of Molecular Electronics. It is the
goal of owning a meaningful portion of the entire revenues generatable in the
field of Molecular Electronics, and that goal alone, that the Company was formed
to pursue. It is our firm belief in the reality of that goal that has kept our
executive officers working full time without pay for an extended period of time
in the pursuit of it.
We believe that early revenues will come from up-front fees paid to the Company
by our industrial customers under licensing agreements for the use of pieces of
our intellectual property for product development. In addition, we expect to
receive payment for R&D activities supporting these customers during product
development.
The Company believes that long-term revenues will flow from royalties received
from successful products developed by our customers, and from sales of our own
product families.
All three revenue sources: licensing fees, royalty payments, and product sales,
will enhance the Company's value. Early revenues from licensing fees will be
used to grow our technology base. Longer term revenues from royalty streams and
Company products will be used with the intent to dominate the field of Molecular
Electronics with the aim to maximally grow our stock value.
WHY MOLECULAR ELECTRONICS?
It is fair to say that the enormous economic boom of the last 25 years has been
driven largely by a single fantastically successful technological device. That
device is the semiconductor switch in the form of the field effect transistor.
The field effect transistor, or FET, has been scaled down in size, and scaled
down in size again, over and over, decade after decade, for the last 40 years,
and today, millions of such devices can be integrated onto a single computer
chip the size of your little fingernail, and mass produced by the millions.
Intel's Pentium II computer chip, for example, contains more than 7 million
semiconductor FET switches, and has been manufactured and sold worldwide by the
100s of millions.
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<PAGE>
This never ending shrinkage in the size of the semiconductor switch has brought
with it a never ending growth in computer power at an ever decreasing cost.
This in turn has underwritten tremendous gains in productivity that have reached
into every aspect of society from manufacturing, to mass communication, to
transportation, and even into our homes and offices. Whole new industries have
arisen because of this. Software, cell phones, the internet, even biotech, owe
their existence as we know them to the advances driven by the semiconductor FET
switch.
Management estimates that the market resting directly on the semiconductor
switch, namely the chip market, the chip-based computer market, and the software
markets for those computers, will exceed $500 billion annually by the close of
this year.
Much of this $500 billion annual market depends upon the continued GROWTH of the
power of computation: more powerful computers for fewer dollars and better
software for less cost as a result of these computers. But without continued
shrinkage of the semiconductor switch, this growth cannot be continued.
It is clear to many observers that the end to the continuously shrinking
semiconductor switch is now on the horizon. The density of semiconductor
switches on a chip is now so great that cross talk between switches, a fatal
circumstance to a computer chip, is difficult to control. Furthermore, at these
densities, heat generation is so great that it threatens the viability of the
chip. To control these effects, the cost of a single chip-manufacturing
facility already exceeds one billion dollars. It is estimated that the cost of
the next generation facility will exceed 10 billion dollars, with no guarantee
that the chips it would provide would be sufficiently reliable to meet the needs
for which they would exist.
In an interview in the October 19, 1998 issue of Business Week, Nobel laureate
Richard Smalley said:
"I've had meetings with folks at the chip consortium Sematech. The notion
that they will eventually have to leave silicon was discussed in depth.
They see so many problems on the horizon that they can't get around .This
is all to explain why we may need molecular electronics. Once you're below
100 nanometers, a device has to go way down in size to remain stable. It
can't be a little under 100 nanometers. It'll have to be more like one
nanometer, or about 3-4 atoms across. At the same time, this device has to
live in the real world, with air and water around it. So how can we be sure
that this tiny entity we so carefully crafted will stay just that, without
adding or subtracting one or more atoms? THE ANSWER IS, IT WILL BE A
MOLECULE. That means all the atoms stay together, as we made them. They're
happy that way, and don't want to change."
That is our view as well. The end of the ever-shrinking semiconductor switch is
the beginning of Molecular Electronics. When the semiconductor reaches the
wall, the only thing on the other side of the wall is the molecule. The
molecule is nature's preferred way to maintain totally stable entities where one
entity is exactly like every other entity of its kind. And stable molecules
that promise to perform useful computation can be made in huge numbers for very
little cost.
The Government also recognizes the need to find Molecular Electronics answers to
the impending difficulties in further shrinking the semiconductor switch. Last
year the Defense Advanced Projects Research Agency (DARPA), the Federal
Government's primary funder of advanced research, and the institution credited
with the invention of the internet, began its own Molecular Electronics program,
called the Moletronics Program. In their words:
"The Defense Advanced Research Projects Agency (DARPA) is soliciting
innovative research proposals in molecular electronics (Moletronics). The
goal of the Moletronics Program is to demonstrate THE INTEGRATION OF
MULTIPLE MOLECULES and/or nanoparticles into scalable, functional
electronic devices that are interconnected to each other and connected to
the outside world in a realistic and practical manner. The long-term goal
of this effort is to provide moderate computational power and high-density
memory in an extremely small, low-power format, which will NOT REQUIRE
MULTI-BILLION DOLLAR FABRICATION FACILITIES."
Some of the members of the Company's Technical Advisory Committee (See
"Technical Advisors" for a description of the Technical Advisory Committee and
its members) and their universities have been awarded contracts under the
Moletronics Program, with the Company playing the "commercialization" role for
them.
CALMEC'S MOLECULAR ELECTRONICS SWITCH
Calmec's ChiropticeneTM switch is a switchable device that goes beyond the
semiconductor switch in size reduction. This switch is a single molecule that
exhibits classical switching properties. Being only one molecule in size, it
promises device densities thousands of times denser than is possible with even
the smallest semiconductor switch.
ChiropticeneTM molecules are switchable between two distinct states in which the
states are spatial mirror images of each other. These mirror images are
electronically and optically distinct, enabling sharp and stable switching
properties.
Mirror imagery is a property familiar to everyone because our hands are mirror
images of each other. (That is, our left hand seen in a mirror, looks just like
our right hand seen straight on without a mirror.) And despite the fact that
our two hands are alike, they are also distinct: a glove that fits the right
hand won't fit the left, and vice versa. While the universe treats objects that
are mirror images as completely distinct and essentially unrelated to each
other, such objects can be engineered to flip on command, across the mirror
plane, one into the other. In this way, they make nature's most perfect switch.
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<PAGE>
Mirror image properties are also called "handedness" properties because of this
relationship between our hands. In chemistry, such properties are called
"chiral" properties after the Greek word CHEIR, "hand." The ChiropticenesTM get
their name from a combination of the word chiral, because they exhibit
handedness, and the word optic, because they are optically switchable and
optically readable.
Figure 1 below illustrates the idea behind the concept of a molecular
mirror-image switch. This figure shows an equilibrium process, a rapid thermal
oscillation, between two forms of a particular molecule, an amine molecule, in
which the two forms are mirror images of each other. A mirror plane is shown
separating the forms. (Although a molecule is shown on each side of the mirror,
there is only one molecule, occupying one volume of space, but inverting itself
rapidly between the two forms as it oscillates.)
In Figure 1-A the mirror images are NOT geometrically distinguishable from each
other. That is, one image can be geometrically manipulated so as to be
superimposable on the other. This is because the substituent hydrocarbon
residuals, the Rs, attached to the nitrogen atom, N, are identical. (While such
a molecule couldn't be a switch, because the mirror images are not
distinguishable from each other, it is useful to start describing the key
properties needed in the switch using this molecule.) The large bold arrows in
Figure 1-A, represent the amine molecule's natural electric dipole, a vector
that points from the negative nitrogen atom toward the more positive R
hydrocarbons. This dipole vector, a key electrical property of the molecule,
has both size and direction. Note that these arrows point in opposite
directions for the two molecular forms. This means that as the molecule
switches the configuration of its atoms as it oscillates, the dipole vector also
switch directions.
In Figure 1-B the substituent hydrocarbons on the amine molecule are all
different: R, S, and T. Because of this, the mirror images CAN BE geometrically
distinguished from each other. That is, this molecule is a chiral molecule, one
form of the molecule cannot be manipulated so as to superimpose the other. In
other words, it comes in a "left" handed version and a "right" handed version.
The arrow for the dipole vector in Figure 1-B is drawn with an uneven bar across
it to signify that it is the dipole vector of a chiral molecule and to provide a
visual method for distinguishing on paper the arrow belonging to the left handed
version from the one belonging to the right handed version. (An unevenly
crossed arrow is never superimposable upon its mirror image by rotations and
translations restricted to the paper plane.)
In general, reactions of molecules that result in the molecule being converted
into its mirror image, as in Figure 1, are called narcissistic reactions (after
the Greek god Narcissus who fell in love with his own reflection in a pool).
When the molecule undergoing such a reaction is chiral, the reaction is called
an asymmetric narcissistic reaction. The fundamental principal of the
Chiropticenetm switch is that control of the direction of the crossed arrow
symbol, the dipole vector, enables control of the chirality of the molecular
forms during manufacture, and consequently control of the chiroptical properties
of the molecular switch.
ELEMENTS OF THE CHIROPTICENETM SWITCH
The ChiropticeneTM switch is a single-molecule chiroptical dipole switch. The
switch molecule is constructed of atoms in such a way as to make it asymmetric
and capable of undergoing a narcissistic reaction. It possesses a strong
electric dipole vector that points approximately perpendicularly to the mirror
plane of the reaction. In operation, the chiroptical dipole switch is triggered
by light and controlled with an electric field, actions that change the
direction of the molecule's electric dipole vector by 180o thereby reversing the
molecular chirality.
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<PAGE>
FIGURE 1. UMBRELLA-LIKE INVERSION OF AMINES: SWITCHING BETWEEN MIRROR-IMAGE
FORMS INLLUSTRATING REVERSAL OF THE MOLECULAR ELECTRONIC DIPOLE
VECTORS
[GRAPHIC OMITED
A. SYMMETRIC AMINE
NON-CHIRAL AMINE
SUPERIMPOSABLE MIRROR IMAGE]
[GRAPHIC OMITED
B. ASYMMETRIC AMINE
CHIRAL AMINE
NON-SUPERIMPOSABLE MIRROR IMAGE]
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<PAGE>
By using crossed arrow symbols we represent the chiral switching process as:
[MIRROR GRAPHIC OMITED]
Remembering that the two crossed arrows represent one molecule, occupying one
volume of space, each arrow signifies one of two states of the molecule,
constituting the binary pair of the switch,
[GRAPHIC OMITED]
and having the following switch action:
[GRAPHIC OMITED]
The switch may also be flipped by an electrical field that flips the dipole, and
its state may be read with a field detector that detects the molecular
capacitance induced by the dipole.
PROPERTIES OF THE SWITCH
ChiropticeneTM technology is a GENERIC single-molecule switch technology,
meaning that the technology embraces a wide class of patent-protected switchable
molecules. This class of switches is expected to produce devices with the
following valuable intrinsic properties:
STABILITY Two equal but opposite energy states in these molecules affords
stability while assuring complete reversibility.
SPEED Electrical field switching will potentially provide femptosecond
computational switching times. Optical switching will potentially provide
nanosecond computational switching times.
NANOASSEMBLY The molecules will lend themselves to the new techniques of
nanotechnology self-assembly enabling the assembly of supra-molecular device
architectures.
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<PAGE>
PHOTONIC ADVANTAGE The ChiropticeneTM molecule capitalizes in novel ways on
the unique properties of light in data manipulation: high bandwidth, frequency
domain modulation, diffraction, refraction, reflection, superposition, and
parallelism.
THRESHOLD PROTECTION An intervening neutral state prevents optical switching
without electrical stimulation.
MOLECULAR ENGINEERING By the judicious selection of constituents, the
ChiropticeneTM molecule can be tuned to respond to selected laser frequencies
and can be engineered to meet specific performance requirements.
NON DESTRUCTIVE READOUTS The molecule can be interrogated without energy
absorption by means of optical rotation or by measurement of the capacitance at
the molecule produced by the dipole.
COMMERCIAL ATTRACTIVENESS ChiropticeneTM based devices are expected to have
no moving parts and operate at room temperature. They are also expected to be
enormously cost effective to produce.
MEDIA PREPARATION OF THE SWITCH
To control the crossed arrow dipole vector, the narcissistic switch molecule is
oriented and fixed on a substrate with the direction of its dipole vector known.
To accomplish this, the ChiropticeneTM switch is constructed with the following
properties:
A.) The molecule has a long axis along which the narcissistic reaction
occurs.
B.) The molecule's dipole vector points approximately along the long axis.
C.) And importantly, the molecule does not undergo its narcissistic
transformations at ambient temperatures.
The prepared switch molecule is represented on paper by a crossed arrow symbol.
In this representation, the plane of the substrate coincides with the plane of
the paper, the crossed arrow symbol is confined to the plane of the paper, and
the body of the arrow and the long length of the molecule coincide. It is
useful then to represent the orientation and fixation of the molecule on the
substrate by showing the crossed arrow symbols confined within aligned
rectangular cells that make up the substrate surface.
[GRAPHIC OMITED]
The narrow cells serve to orient and fix the crossed arrows. The arrows are
free to rotate around their long molecular axis but not around an axis
perpendicular to their long axis. Figure 2 shows the preparation of the
ChiropticeneTM switch media. As observed in 2-A, each of the two mirror-image
crossed arrows can be made, by rotation in the plane, to point in either
direction. There are two strict rules that must be observed when filling the
cells. First, It is rigorously required that only one of the two crossed arrow
forms, the left handed form is shown in the figure, be utilized to fill the cell
structure as specified. Second, as observed in 2-B, all crossed arrows when
filling the cells must point in the same direction. The direction itself being
of no consequence.
The crucial asymmetric discrimination incorporated into the structure is part of
the patented novelty of the ChiropticeneTM switch. Thus the preparation of the
switch media requires an ability to discriminate, physically separate, orient
and fix the narcissistic mirror-image forms. (Specific preparation concepts
comprise a portion of the Company's trade secrets, and are not generally
releasable.)
Page 26
<PAGE>
[GRAPHIC OMITED
FIGURE 2: DISCRIMINATION, ORIENTATION AND FIXATION
OF ASYMMETRIC NARCISSISTIC DIPOLE VECTORS]
DESIGN OF THE CHIROPTICENE SWITCH
In what follows we embody our molecular switch within a broad group of chemical
structures that constitute ChiropticeneTM switch molecules. With the aid of the
crossed arrow symbols and the symmetry of the figures, the reader unfamiliar
with chemical notation will be able to appreciate how the structures implement
the switch.
We have previously prepared examples of the ChiropticeneTM switch, characterized
them physically and chemically and obtained a patent that covers the general
composition. The general formula and novel ring-chain transformation specified
in our patent are shown in Figure 3.
The great advantage of a general composition patent is the multitude of
structures that fall under its protective umbrella. It capitalizes fully on the
almost unlimited number of structural and elemental variations that is the
richness of organic materials. It is from out of this wealth of variety that
commercial switch designs are elaborated and refined.
To analyze the structure of the switch, the general formula is conveniently
divided into three major components: a central component, Z, an anion component,
A-, and two interchanging ring and chain groups, R2NCX2, that together are
considered the third component. These three separate components can then be
characterized as follows:
Z The central component can be any ring-completing collection of atoms
---
that changes chirality as the molecule undergoes the ring-opening,
ring-closing transformation indicated in Figure 3. In addition, the Z
component contains the light activated trigger (called a chromophore)
that initiates the switching of the ring-chain groups.
A- This component is the negatively charged (-) acid, the anion, that
balances the positive charge (+) on the nitrogen atom of the ring
group. The choice of anion will radically affect the properties of the
switch.
R2NCX2 In the combined ring-chain component consisting of the two R2NCX2
groups, the two Ns are nitrogen atoms while the two Cs are carbon
atoms. The remaining letters of the ring-chain component stand for
variable atoms or parts as follows:
Page 27
<PAGE>
X: These are the key atoms that make or break bonds during the ring-chain
conversion and are restricted to being either sulfur or selenium
atoms.
R and R1: These parts attached to the nitrogen atoms are carbon chains or rings
that may be variously substituted. They function as molecular
fasteners.
[GRAPHIC OMITED
FIGURE 3: GENERAL FORMULA OF US PATENT 5,237,067]
Functioning as the pivotal switching component, the ring and chain groups (
R2N-CX2 )-, merit further examination. In the case where (X) is sulfur, the
groups are easily made and their dynamic properties have been extensively
investigated. In Table 2 the conversion between a sulfur-containing chain
structure (called a dithiocarbamate) and its corresponding ring structures
(called a dithioiminium cation) is depicted along with a list of some relevant
properties.
As viewed in Table 2, the dithiocarbamate chain has two equivalent sulfur atoms
one of which is used to attach it to a molecular substrate. The other sulfur
atom is an exceptionally good positive-charge-seeking specie (called a
nucleophile) that can displace another atom on the molecule to form a ring
structure as shown in the drawing. The resulting positively charged
dithioiminium ring structures are in this way readily obtained, with from four
to eight atoms in their ring system and are remarkably stable species. They
permit ring opening in the presence of good nucleophiles. (The table depicts a
nucleophile, denoted as the Nu with the two dots over the N, addressing the ring
for opening).
In our work leading up to the ChiropticeneTM Switch we demonstrated that this
nucleophile can be another carbamate chain on the same molecule and that it
forms its own ring while opening the first ring to produce the original chain.
We then realized the value of putting, on a chiral molecule, two strategically
positioned ring and chain elements so that they open and close each other to
produce the same molecule but of opposite chirality. Their combined properties
rendered the ring-chain groups virtually ideal as asymmetric narcissistic
switching components.
Page 28
<PAGE>
In addition, as seen in Table 2, the carbamate chain structures possess a high
rotational barrier and a strong dipole moment. These related features insure a
sharp, stable response of the sulfur group to radio frequency electrical fields
(~ GHz operational range). The resulting effect of this field-directed
dipolar-response is to cause the switching indicated by the small curved arrows
in Figures 4 and 5 below.
[GRAPHIC OMITED
TABLE 2: SELECTED PROPERITES OF DITHIOCARBAMATE
AND DITHIOIMINIUM CATION DERIVATIVES]
A ChiropticeneTM Switch operates by way of two different types of reaction
sites: "Face Centered" reaction sites and "Polyene Centered" reaction sites.
These two reaction types are illustrated in Figures 4 and 5 which show both
chiral forms and intermediate structures. In Figures 4 and 5, small curved
arrows are included in the drawing of the (upper) prochiral intermediate to
indicate the response of the chain structures to the applied field and the
position of the respective reaction sites. (The molecules shown in Figures 4
and 4 have not been prepared. They are shown as visual aids of the switching
process. For the sake of visualization, we assume that "nice" switching
properties prevail. For example, we assume that their thermal conversion is
inactive while photoexcitation results in smooth cleavage of the carbon-sulfur
ring bond via charge transfer from the chromophore, a nitrogen atom, to an
antibonding orbital of the ruptured carbon-sulfur bond.)
Figure 6 contains seven examples of ChiropticeneTM switch molecules. These
examples have been assembled to illustrate the wide range of structures
available and in particular, the variety of ring systems and asymmetric elements
that can be incorporated into the central portion, the Z portion, of the
molecule. In these structures the anions are not shown, the selected
chromophores have been kept simple, and the R groups are all methyl.
Other more advanced designs take into account structural and mechanistic
requirements as well as other factors not previously mentioned such as
conformational behavior, chromophore orientation and chiroptical effects. Our
advanced designs are considered proprietary and are not generally releasable.
Page 29
<PAGE>
[GRAPHIC OMITED
FIGURE 4: FACE CENTERED CHIROPTICENE SWITCH]
Page 30
<PAGE>
[GRAPHIC OMITED
FIGURE 5: LIGAND CENTERED CHIROPTICENE SWITCH]
FIGURE 6: CHIROPTICENE SWITCH MOLECULES
[GRAPHIC OMITED
FACE CENTERED CIS-DIMENTHYL ASYMMETRY BENZEL]
Page 31
<PAGE>
[GRAPHIC OMITED
POLYENE CENTERED TETRAHEDRAL ASYMMETRY SLENA PIPIRADENYL]
[GRAPHIC OMITED
POLYENE CENTERED SULFOXIDE ASYMMETRY METHOXY TROPOLENYL]
[GRAPHIC OMITED
FACE CENTERED DOUBLE-RING ASYMMETRY 7-MEMBER THIOMETHOXY ANTHRACENYL]
[GRAPHIC OMITED
POLYENE CENTERED DOUBLE-RING ASYMMETRY 5-MEMBER DECONDARY PHENALENYL]
Page 32
<PAGE>
[GRAPHIC OMITED
FACE CENTERED BICYCLO ASYMMETRY THIASELENA BICYCLOAZA-HEPTADIENYL]
[GRAPHIC OMITED
POLYENE CENTERED SPIRO ASYMMETRY ZWIITERIONIC THIOPHENYL]
PRODUCTS AND SERVICES
The Company intends to produce and sell the following three classes of products:
Intellectual Property
Technical Services
Molecular Electronic Information Processor Elements
The first two product classes are near-term products that we intend to begin
selling in the first year of operation. The third is a longer-term product
family, the early members of which Management hopes to begin selling within the
first four years of operation.
The intellectual properties that the Company intends to produce - its patents
and trade secrets - are salable products. They will be licensed and supported
in exchange for the payment of fees. As such, they will be a continuous and
major output of the Company. The potential customers for these intellectual
property products will be companies interested in exploiting Molecular
Electronics, the same companies we envision will make up our network of future
joint venture partners. We believe that this network will need initial and
ongoing access to Molecular Electronics intellectual property, and we intend to
provide it to them.
The Company also intends to sell technical services: Contract R&D and product
development support. Potential customers for these services will again be the
companies in our future customer network. We believe that our special Molecular
Electronics expertise will be of value to our customers as they attempt to
develop Molecular Electronics products. This expertise will be sold as product
development support and as contract R&D. The Company's customers will be drawn
from Computing, Electronics and Chemical industries. We will choose our
customers on the basis of their interests in technology innovation and new
product development. While the actual products undertaken for development will
be determined by customer companies and not by us, Management would expect
these products to include: ultra-large capacity memory chips, very low cost,
high resolution display screens, the special chemical/biochemical compounds
required in the manufacturing of Molecular Electronic circuitry, and special
input/output devices unique to the technology of Molecular Electronics.
Page 33
<PAGE>
Management sees Molecular Electronic information processors as our long-term
products. The Company expects these processors to be of two types: digital
serial processors (DSPs), modeled after today's existing semiconductor computer
processing chips, and massively parallel processors (MPPs), that exploit the
high inter-connectivity potentially achievable with Molecular Electronics
technology, and architected after the structure of the human brain or other
neural network architectures. Molecular Electronic DSPs could lead to super
powerful, super small computers. Molecular Electronic MPPs promise computers
with "brain like" behavior such as understanding, intelligence, and
conversation.
MARKET
We believe that families of processors will be the major product areas flowing
from the field of Molecular Electronics. The markets for these products may be
an expanded version of today's markets for semiconductor chips.
The combined market, as measured by actual annual revenues, of the 18 leading
U.S. semiconductor chip makers was projected to be 93 billion dollars in 1998
and 153 billion dollars by the year 2002(5). The common types of chips currently
being manufactured include computer microprocessors, signal processors,
special-purpose chips, programmable logic chips, memory chips and controllers.
Semiconductor chips are purchased by the manufacturers of chip-dependent
products. This is a large and growing class of products including personal
computers, communication products (cell phones, roam phones, modems, pagers, and
infrastructure), VCRs, camcorders, calculators, manufacturing equipment (robots,
controllers, instruments, and automated manufacturing systems), transportation
equipment (cars, trucks, boats, airplanes and infrastructure), and electronic
equipment of all kinds. Semiconductor chips also support a large software
market providing software applications based on these chips. Management
estimates that all together, the chip market, the chip-dependent manufacturing
market, and the chip driven software market, will be $500 billion annually by
the end of this year.
The Company expects Molecular-Electronic processors to serve the same markets as
today's semiconductor chips. However, since we believe that successful
Molecular Electronics technology will provide much greater performance at a much
smaller size and price, our Management further believes that Molecular
Electronics processors will find their way into many new products.
COMPETITION
The field of Molecular Electronics is in the development stage. To the best of
our knowledge, no one anywhere is developing or selling products based on
Molecular Electronics technology. We believe that at this stage, competition is
for intellectual property that will enable the control of future markets and not
for the products for these markets.
Patents have been and are being granted for innovations in the field or
innovations that will impact the field. It is our opinion, however, that
overall, the intellectual property of the field is largely underdeveloped.
Moreover, an essential part of our business strategy is to exploit, under
exploitation agreements, existing and future intellectual property belonging to
others for the mutual benefit of the Company and such others. By virtue of
these strategies we hope to control and minimize the impact of the competition
that will be seen.
The Company believes that the competition for this intellectual property will
come from two sources: Those who will seek to imitate our customer-building
strategy, and those who will develop and exploit intellectual property on their
own. Currently, Management knows of no companies interested in imitating its
customer-building strategy. And only time will tell whether or not there will
be many or few intellectual property developers who have the time, resources and
commitment to undertake exploitation on their own without CALMEC's or others'
involvement.
Management believes that our ultimate competitors in the markets for Molecular
Electronic information processors and operating system software will be
companies within CALMEC's own product-development customer network. Our
customers will have the knowledge, expertise and experience to engage this new
market in part because of the Company's work with them. While Management
intends to work its customer agreements to the Company's benefit, we recognize
that it will be impossible and perhaps even unwise to prevent our customers from
being our competitors in various niches of the market.
These customer-based competitors will probably be the earliest specific
competitors that we will be able to identify. Management expects to know them
in more intimate detail than other future competitors.
- -----------------------------------------
(5) Value Line Investment Survey
Page 34
<PAGE>
COMPETITIVE POSITION
Management believes that our competitive position is strong. We are first. We
are the first company organized to make a business and a profit from capturing
and exploiting the intellectual property of Molecular Electronics. CALMEC
intends to be everywhere in the field: in the universities, in the government
research labs, in the technology partnership offices of future customers, and in
the US Patent & Trademark Office. There is a maxim that says: Being first is
better than being better. As a matter of corporate policy we intend to exploit
the Company's position of being first.
PATENTS
The Company has executed an exclusive license and patent assignment agreement
("Patent Agreement") for the worldwide rights to the economic exploitation of
United States Patent Number 5,237,067 (the "Patent") issued August 17, 1993 to
Dr. Robert R. Schumaker. Dr. Schumaker is also the Company's Executive Vice
President for Research and Development and a major shareholder in the Company
(See "Management" and "Security Ownership").
The Company has also filed new patent applications on related Molecular
Electronics innovations flowing from new work internal to the Company. In
addition, we are working on developing patent exploitation agreements with
numerous universities and government labs that are leaders in the field of
Molecular Electronics and that own important intellectual property in the field.
Chiropticene is a trademark belonging to the Company that refers to the
molecular switches defined in and covered by the Patent.
THE USE OF THE INTERNET
As a startup, our primary assets are our vision and the intellectual means we
have in our possession to achieve that vision. The Company's primary task is
the same as that of every startup: financing its activities in order to succeed.
We have chosen to finance our activities with a combination of a previous
private offering of Company stock together with this Offering of Shares. In
this Offering, the Company is using the Internet as a primary avenue for
distributing Shares. The Company is focusing on the Internet for this purpose
due to the power possessed by the Internet to reach great numbers of people, its
ability to quickly and interactively provide information to people about the
Company, and its futuristic effectiveness in the execution of on-the-spot
transactions. We encourage you to look at our World Wide Web site at
http://www.calmec.com. This Prospectus and the Subscription Agreement for the
purchase of these Shares are both contained on our web site, enabling you to
view these documents "on line".
STARTUP PHASE
In order to conserve resources, our executive officers have agreed to work
without pay until such date as the Board decides that we have attained capital
sufficient for our operations. At that time, which is referred to in this
Prospectus as the "Actual Startup Date," these officers will begin receiving pay
for their services. The time period prior to the Actual Startup Date is
referred to as the Company's "Startup Phase."
PLAN OF OPERATIONS
The Company is currently in its Startup Phase of existence (see paragraph
above). In this phase, our officers are working without pay, and our office is
a virtual office utilizing telecommunication interactions (internet, phone and
faxes), but with no leased office space expense. THE COMPANY CAN CONTINUE
INDEFINITELY IN THIS MODE. This is not a "stand still" mode. Intellectual
property, technology exploitation agreements and R&D plans are under active
development in this phase.
We have begun paying salaries to two chemists in the second quarter of 1999.
At the same time, the Company has begun leasing lab space from San Jose State
University for the purpose of housing these chemists and developing Chiropticene
demonstration chemistry. THE COMPANY PRESENTLY HAS SUFFICIENT CASH ON HAND TO
SUPPORT ALL OF THESE ACTIVITIES FOR THE NEXT YEAR. NO FUNDS FROM THIS OFFERING
ARE REQUIRED TO SUPPORT THESE ACTIVITIES.
The Company will transition from the Startup Phase of its existence to the
Operational Phase when it has accumulated sufficient capital to do so. At that
time all employees, including our executive officers, will receive salaries,
additional space will be leased, capital equipment will be purchased, and other
business operating expenses will be incurred. Prior to that time, activities
will be restricted to the work of the two chemists mentioned above, and to other
low cost activities so as to keep the Company within its cash resources.
Page 35
<PAGE>
The sale of the Shares is intended to facilitate getting the Company's financing
steps done quickly, and thereby accomplishing a quick Startup Phase. However,
even if no Shares were sold pursuant to this Offering, we would still be able to
proceed in the development of our intellectual property, continue putting
technology exploitation agreements into place, and begin the sale of licenses of
our technology and contract R&D services in support of technology development.
In this way the Company will transition to operational status in due time,
regardless of the extent to which Shares are sold under this Offering.
Our operational plans are designed for financial safety. In our current Startup
Phase, we are able to continue indefinitely our process of intellectual property
development and exploitation without additional funds. It is our intention to
continue to pace the growth of operations to the availability of cash so as to
minimize the likelihood of damage to the Company caused by operational
requirements that exceed the Company's financial abilities.
For this reason, our operational plans do not require cash from this Offering to
-------
succeed. Cash from this Offering will be used to accelerate our operational
----------
plans. Management believes that the faster we can grow, the greater will be our
participation in the economic potential of the field of Molecular Electronics.
ACTIVITIES
The Company's business currently consists of two major areas of activity: 1.)
Research and Development, and 2.) Sales and Corporate Development.
RESEARCH AND DEVELOPMENT The purpose of our R&D is to capture as large a
portion of the intellectual property in the field of Molecular Electronics as
possible and to develop our capability to create products that exploit this
intellectual property. To this end, the Company's R&D consists of the following
segments:
- Research
- Intellectual Property Development
- Product Technology Development
These three segments work together. Research develops the Company's knowledge
by answering the questions that the other two segments need answered.
Intellectual Property Development fashions the Company's knowledge into
patent-protectable or trade-secret-protectable units that can be licensed and
otherwise exploited for business. Finally, Product Technology Development puts
in place those technical processes and technology arrangements necessary for the
Company to produce, or support the production of, salable products. All three
research segments are functioning now at a low, but valuable, level. We believe
that the power and effectiveness of these segments will be amplified as we grow.
Approximately 30 percent of our annual expenditures are expected to be used for
R&D.
SALES AND CORPORATE DEVELOPMENT The purpose of this area of activity is to
exploit the Company's R&D results in order to generate revenue. This area of
activity is responsible for selling products and for developing our business
arrangements so as to foster these sales. The Company's early "products" will
be licenses to third parties of its intellectual property and contract research
in the development-support of third party products based on these licenses (See
"Business--Products and Services"). We expect to begin selling these products
within the next year, but there can be no assurances of this. The Company's
later products are expected to be Molecular Electronics processors, with the
earliest versions of such products estimated to be available within four years
from now. Approximately 30% of our annual expenditures in the early years are
expected to be for Sales and Corporate Development.
CASH REQUIREMENTS
As stated above, the Company's operational plans are constructed so that we can
continue in our present status for a year and longer, even without any proceeds
from this Offering. Any and all proceeds from this Offering will be used to
ACCELERATE the Company's progress in both its technical and its financing
activities, and to AMPLIFY the Company's influence in Molecular Electronics.
Management believes that cash from this Offering is not a requirement for the
Company's eventual success, but it is an advantage to be able to effectively
accelerate and amplify our progress and impact on Molecular Electronics.
CAPITAL EQUIPMENT
Over the next year the Company expects to expend up to 20% of its expenditures
on the purchase of capital equipment, primarily for use in research and
development. In accordance with our operational planning, which is designed to
be flexible, the actual percentage will depend upon the availability of cash.
It is possible that no expenditures will be made on capital equipment if the
availability of cash is limited. In that case, the Company's work will be
focused on intellectual property development of the type that does not depend
upon the use of research equipment.
Page 36
<PAGE>
HIRING OF EMPLOYEES
As stated previously, we will transition from our Startup Phase to our
Operational Phase when accumulated cash permits. At that time, employees
currently working without pay will begin receiving pay. Regardless of when that
time occurs, the Company has already hired and will support the lab work of the
two chemists mentioned above. The Company believes that hiring these two
chemists and supporting their work can be done with a substantial margin of
financial safety.
QUALIFIED SMALL BUSINESS ISSUER CAPITAL GAINS TAX EXCLUSION
In 1993 IRS Section 1202 was enacted to provide a 50 percent exclusion of any
gain from the sale of "qualified small business stock." For the Shares to
qualify for this exclusion, several tests must be met. For instance, the Shares
must be purchased directly from the Company, not in any later trading market,
and the Shares must be held for at least five years. In addition, a "qualified
small business" must have not more than $50 million in assets at all times
before the issuance of stock and immediately thereafter. The Company meets
these requirements. Further, at least 80 percent of the assets must be used in
the "active conduct of one or more qualified trades or businesses" throughout
the holding period, a requirement the Company also presently intends to meet.
There are also limitations on the persons who may use the exclusion.
Prospective investors should consult their own tax advisors as to the
availability of the exclusion.
TRANSACTIONS WITH RELATED PARTIES
On March 19, 1997, the Company executed an agreement with its Chairman, Jon N.
Leonard, by which Mr. Leonard agreed to pay for such Company costs as he
believed were essential to the Startup Phase of the Company (see "Business--
Startup Phase"). The Company assumed an obligation to repay Mr. Leonard for
such costs. Under this agreement Mr. Leonard paid for $11,366 of Company
startup expense. The first $10,000 of this $11,366 obligation to Mr. Leonard
was canceled in exchange for founding shares of stock in the Company (See
"Security Ownership"). The balance was repaid without interest in the second
quarter of this year. Mr. Leonard is a director of the Company, serving as the
Chairman of the Board of Directors, and is currently the Company's Treasurer.
The Company executed agreements as of May 1, 1997 with its Executive Vice
President, Dr. Robert R. Schumaker, by which Dr. Schumaker entered into a
long-term employment contract with the Company, and executed with the Company an
exclusive license and patent assignment agreement, as amended November 19, 1998
and January 13, 1999 ("Patent Agreement") covering US Patent Number 5,237,067
("Patent"), a patent for an invention of Dr. Schumaker's related to Molecular
Electronic switching. Under the Patent Agreement, the Patent was assigned to
the Company on January 13, 1999. The Patent Agreement retains provisions that
will cause the Chiropticene Technology to be licensed back to Dr. Schumaker if
the Company fails to act to develop Chiropticene Technology. For example, the
Chiropticene Technology will be licensed back to Dr. Schumaker if the Company
decides to abandon Chiropticene technology in favor of some other technology.
(An arbitration process is provided for in the Patent Agreement in the event
there is disagreement between the Company and Dr. Schumaker on whether or not a
failure to act may have occurred.) The Company has no intention of failing to
pursue Chiropticene Technology. But see "Risk Factors". Dr. Schumaker is a
director of the Company, and is currently the Company's Executive Vice president
for R&D, and its Secretary.
Except for the transactions described above, no director, officer or principal
security holder of the Company has or has had a direct or indirect material
interest in any transaction to which the Company is or was a party. We believe
that the terms of the transactions described above were no less favorable to the
Company than could have been obtained from third parties. In addition, in the
future we will not enter into additional transactions with directors, officers
or principal shareholders unless the terms thereof are no less favorable to the
Company than could be obtained from third parties. In any event, the Company
will not enter into any transaction with directors, officers or principal
shareholders without the affirmative vote of a majority of disinterested
directors.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
TRADING MARKET There is currently no public trading market for the Company's
Common Stock. The Company plans to facilitate trading of its Common Stock by
implementing, on a World Wide Web Internet site, a trading mechanism through
which persons interested in purchasing or selling shares of Common Stock can
meet prospective trading partners. Under the Company's stock option plan
1,600,000 shares of Common Stock have been earmarked for provision to employees,
directors and key consultants. Of the 4,978,940 shares of Common Stock that are
currently issued and outstanding, 4,896,380 are restricted securities under the
Securities Act, and as such cannot be resold without registration except in
reliance on an exemption from registration. The remaining 82,560 are Shares
offered by the Selling Shareholders hereunder, and therefore will be registered
as part of this Offering. (See "Selling Shareholders.")
HOLDERS OF COMMON STOCK Current holders of Common Stock in the Company are the
individuals described and discussed under the section "Security Ownership".
Page 37
<PAGE>
DIVIDENDS The Company has never paid cash dividends. However, for the purpose
of effecting a two for one stock split, the Company issued a 100% stock dividend
on February 15, 1999. There are no current or foreseen restrictions that limit
the ability of the Company to pay dividends on its Common Stock.
EXECUTIVE COMPENSATION
To date, and other than stock as a hiring inducement, no compensation has been
paid to any officer or director. All officers and directors of the Company have
agreed to serve and are serving without pay during the Startup Phase of the
Company (See "Business-- Startup Phase"). This phase will end at such date that
the Board determines that the Company has attained capital sufficient for
expanded operations. Beginning on that date, annual compensation of the
Company's officers shall be as follows:
<TABLE>
<CAPTION>
NAME CAPACITIES SERVED PLANNED REMUNERATION (ANNUAL)
- ------------------- --------------------------------------- ------------------------------
<S> <C> <C>
Jon N. Leonard Chairman and Treasurer $ 40,000
James J. Marek President and CEO $ 110,000
Robert R. Schumaker Executive Vice President and Secretary $ 120,000
Officers as a Group $ 270,000
</TABLE>
STOCK OPTION PROGRAM
The Company has adopted a stock option plan (the "Plan"). It is intended that
under the Plan key employees and consultants will be eligible to receive options
that qualify as incentive stock options (within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code")) or which are
non-qualified stock options. An aggregate of 1,600,000 shares of Common Stock
have been earmarked for issuance under the Plan.
The Plan is administered by a committee of the Company's Board of Directors, the
members of which are designated by the Board of Directors. Currently the
committee is comprised of the whole Board. The committee has the authority,
subject to the terms of the Plan, to determine the terms of options granted
under the Plan, including, among other things, the individuals who shall receive
options, the times when they shall receive them, the number of shares to be
subject to each option, the exercise price of the shares covered by options,
whether an incentive stock option or non-qualified stock option shall be
granted, and the date or dates each option shall become exercisable.
The Company has granted to Dr. Schumaker and Mr. Marek options to purchase
400,000 shares each of the Company's Common Stock under the Company stock option
plan. Additionally, 69,500 options been granted to other employees or
ex-employees of the Company which are outstanding as of June 15, 1999. The
following table sets forth certain information regarding the options.
<TABLE>
<CAPTION>
NAME OF OPTIONEE SECURITIES UNDERLYING OPTIONS DATE OF EXERCISE
- ------------------- ----------------------------- ----------------
<S> <C> <C>
Robert R. Schumaker 400,000 None
James J. Marek 400,000 None
Officers as a group 800,000 None
</TABLE>
Page 38
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Interim Balance Sheet, as of May 31, 1999 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . 40
Interim Statement of Operations and Accumulated Deficit, January through May, 1999 (Unaudited). . . 41
Interim Statement of Cash Flows, January through May, 1999 (Unaudited). . . . . . . . . . . . . . . 42
Interim Statement of Changes in Stockholders' Equity, Inception through June 15, 1999 (Unaudited) . 43
Report of Odenberg, Ullakko, Muranishi & Co. LLP, Independent Accountants . . . . . . . . . . . . . 44
Balance Sheets, as of December 31, 1997 and December 31, 1998 (Audited) . . . . . . . . . . . . . . 45
Statements of Operations and Accumulated Deficit, Inception through 12-31-97 and FY 1998 (Audited) 46
Statements of Cash Flows, Inception through December 31, 1997 and CY 1998 (Audited) . . . . . . . . 47
Audited Statement of Changes in Stockholders' Equity, Inception through December 31, 1998 (Audited) 48
Footnotes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
Page 39
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM BALANCE SHEET
As of June 15, 1999
<S> <C>
ASSETS
Current assets:
Cash $356,994
Employee advance 10,000
---------
Total current assets 366,994
Organization costs 427
Licenses 50,000
Deposits 7,408
---------
$424,829
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,024
Payroll taxes payable 2,371
---------
Total current liabilities 4,395
---------
Stockholders' equity
Common stock issued $579,100
Stock issuance expense (18,754)
Accumulated deficit (51,228)
Net loss (88,684)
---------
420,434
---------
$424,829
=========
</TABLE>
Page 40
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM STATEMENT OF OPERATIONS
- - Period from March
Period from January Year ended 17, 1997 (date of
1, 1999 to June 15, December 31, incorporation) to
1999 1998 December 31, 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenue:
Interest income $ 3,833 $ 2,821 $ -
------------------- ------------------- -------------------
Expenses:
Preoperating and development
expenses 92,467 46,428 7,521
------------------- ------------------- -------------------
Loss before income taxes (88,634) (43,607) (7,521)
Provision for state income taxes 50 50 50
------------------- ------------------- -------------------
Net loss (88,684) (43,657) (7,571)
Accumulated deficit at beginning of
period (51,228) (7,571) -
------------------- ------------------- -------------------
Accumulated deficit at end of period $ (139,912) $ (51,228) $ (7,571)
=================== =================== ===================
</TABLE>
Page 41
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM STATEMENT OF CASH FLOWS
Period from March
Period from January Year ended 17, 1997 to
1, 1999 to December 31, December 31,
June 15,1999 1998 1997
--------------------- -------------- -------------------
<S> <C> <C> <C>
Operations:
Net loss $ (88,684) $ (43,657) $ (7,571)
Items not requiring current use of
cash:
Changes in other operating
items:
Employee advances (5,000) (5,000) -
Accounts payable
and accrued liabilities 2,003 36 2,356
Deposits (7,208) (200) -
--------------------- -------------- -------------------
Cash used for operating
activities (98,889) (48,821) (5,215)
--------------------- -------------- -------------------
Investments:
Organization costs - - (427)
Licenses (39,500) (10,500) -
--------------------- -------------- -------------------
Cash used for investing activities
(39,500) (10,500) (427)
--------------------- -------------- -------------------
Financing:
Advance from (repayment to)
related party (1,366) 1,366 -
Issuance of common stock, after
stock issuance expense 342,123 212,487 5,736
--------------------- -------------- -------------------
Cash provided by financing
activities 340,757 213,853 5,736
--------------------- -------------- -------------------
Increase in cash 202,368 154,532 94
Cash at beginning of period 154,626 94 -
-==================== -------------- -------------------
Cash at end of period $ 356,994 $ 154,626 $ 94
===================== ============== ===================
Supplemental cash flow disclosures:
Taxes paid $ - $ - $ 50
===================== ============== ===================
Interest paid $ - $ - $ -
===================== ============== ===================
Supplemental schedule of noncash
investing and financing
Receivable from sale of common
stock $ - $ - $ 4,968
===================== ============== ===================
Payable for purchase of license $ - $ 14,500 $ -
===================== ============== ===================
</TABLE>
Page 42
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For The Period From March 17, 1997 (Date Of Incorporation)
To June 15, 1999
Common Stock Accumulated
--------------------
Shares Amount Deficit Total
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Stock issued in March 4,000,000 $ 10,000 $ - $ 10,000
1997
Stock issued on hiring of
executives 800,000 3,000 - 3,000
Stock issuance costs - (2,296) - (2,296)
Net loss - - (7,571) (7,571)
--------- --------- ---------- ---------
Balance at December 31,
1997 4,800,000 10,704 (7,571) 3,133
Stock issued in private
placement 87,520 218,800 - 218,800
Stock issuance costs - (11,281) - (11,281)
Net loss - - (43,657) (43,657)
--------- --------- ---------- ---------
Balance at December 31,
1998 4,887,520 $218,223 $ (51,228) $166,995
Stock issued in private
placement 91,420 347,300 - 347,300
Stock issuance costs - (5,177) - (5,177)
Net loss - - (88,684) (88,684)
--------- --------- ---------- ---------
Balance at June 15, 1999
4,978,940 $560,346 $(139,912) $420,434
========= ========= ========== =========
</TABLE>
Page 43
<PAGE>
March 3, 1999
To the Board of Directors
and Stockholders of
California Molecular Electronics Corp.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
-------------------------------------------------------
In our opinion, the accompanying balance sheet and the related statements
of operations, stockholders' equity (deficit) and cash flows present fairly, in
all material respects, the financial position of California Molecular
Electronics Corp. (a development stage company) at December 31, 1998 and 1997,
and the results of its operations and its cash flows for the year ended December
31, 1998 and the period from March 17, 1997 (date of incorporation) to December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ Odenberg, Ullakko, Muranishi & Co. LLP
- ------------------------------------------
Odenberg, Ullakko, Muranishi & Co. LLP
Page 44
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET (AUDITED)
December 31
1998 1997
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $154,626 $ 94
Employee advance 5,000 -
--------- --------
Total current assets 159,626 94
Organization costs 427 427
Licenses 25,000 -
Deposits 200 -
--------- --------
$185,253 $ 521
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,392 $ 2,356
Advance from related party 1,366 -
Payable to related party 14,500 -
--------- --------
Total current liabilities 18,258 2,356
--------- --------
Stockholders' equity (deficit):
Common stock, no par value:
Authorized 20 million shares; 4,887,520 and
4,800,000 issued and outstanding at December 31, 1998
and 1997, respectively 218,223 10,704
Less: receivable from sale of common stock - (4,968)
Deficit accumulated during development stage (51,228) (7,571)
--------- --------
166,995 (1,835)
--------- --------
Commitments (Note 1)
$185,253 $ 521
========= ========
</TABLE>
See accompanying notes to financial statements.
Page 45
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (AUDITED)
Cumulative amounts
from March 17, 1997 Period from March
(date of Year ended 17, 1997 (date of
incorporation) to December 31, incorporation) to
December 31,1998 1998 December 31, 1997
--------------------- -------------- -------------------
<S> <C> <C> <C>
Revenue:
Interest income $ 2,821 $ 2,821 $ -
--------------------- -------------- -------------------
Expenses:
Preoperating and development
expenses 53,949 46,428 7,521
--------------------- -------------- -------------------
Loss before income taxes (51,128) (43,607) (7,521)
Provision for state income taxes 100 50 50
--------------------- -------------- -------------------
Net loss (51,228) (43,657) (7,571)
Accumulated deficit at beginning of
period - (7,571) -
--------------------- -------------- -------------------
Accumulated deficit at end of $ (51,228) $ (51,228) $ (7,571)
===================== ============== ===================
period
Basic and diluted loss per common
share $ (.01) $ (.01) $ -
===================== ============== ===================
Weighted average number of
common shares outstanding 4,832,658 4,832,658 4,800,000
===================== ============== ===================
</TABLE>
See accompanying notes to financial statements.
Page 46
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (AUDITED)
Cumulative amounts Period from March
from March 17, 17, 1997 (date of
1997 (date of Year ended incorporation) to
incorporation) to December 31, December 31,
December 31,1998 1998 1997
-------------------- -------------- -------------------
<S> <C> <C> <C>
Operations:
Net loss $ (51,228) $ (43,657) $ (7,571)
Items not requiring current use of
cash:
Changes in other operating
items:
Employee advances (5,000) (5,000) -
Accounts payable 2,392 36 2,356
Deposits (200) (200) -
-------------------- -------------- -------------------
Cash used for operating
activities (54,036) (48,821) (5,215)
-------------------- -------------- -------------------
Investments:
Organization costs (427) - (427)
Licenses (10,500) (10,500) -
-------------------- -------------- -------------------
Cash used for investing
activities (10,927) (10,500) (427)
-------------------- -------------- -------------------
Financing:
Advance from related party 1,366 1,366 -
Issuance of common stock 218,223 212,487 5,736
-------------------- -------------- -------------------
Cash provided by financing
activities 219,589 213,853 5,736
-------------------- -------------- -------------------
Increase in cash 154,626 154,532 94
Cash at beginning of period - 94 -
-------------------- -------------- -------------------
Cash at end of period $ 154,626 $ 154,626 $ 94
==================== ============== ===================
Supplemental cash flow disclosures:
Taxes paid $ 50 $ - $ 50
==================== ============== ===================
Interest paid $ - $ - $ -
==================== ============== ===================
Supplemental schedule of noncash
investing and financing
activities:
Receivable from sale of common
stock $ - $ - $ 4,968
==================== ============== ===================
Payable for purchase of license $ 14,500 $ 14,500 $ -
==================== ============== ===================
</TABLE>
See accompanying notes to financial statements.
Page 47
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (AUDITED)
For The Period From March 17, 1997 (Date Of Incorporation)
To December 31, 1998
Common Stock Accumulated
--------------------
Shares Amount Deficit Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Stock issued in March 1997 4,000,000 $ 10,000 $ - $ 10,000
Stock issued on hiring of executives
800,000 3,000 - 3,000
Stock issuance costs - (2,296) - (2,296)
Net loss - - (7,571) (7,571)
--------- --------- --------- ---------
Balance at December 31, 1997
4,800,000 10,704 (7,571) 3,133
Stock issued in private placement
87,520 218,800 - 218,800
Stock issuance costs - (11,281) - (11,281)
Net loss - - (43,657) (43,657)
--------- --------- --------- ---------
Balance at December 31, 1998
4,887,520 $218,223 $(51,228) $166,995
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
Page 48
<PAGE>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
California Molecular Electronics Corp. ("CALMEC" or the "Company"), an Arizona
corporation, was incorporated on March 17, 1997. CALMEC was formed to engage
primarily in the business of producing and selling products and services related
to the new technological field of molecular electronics. Molecular electronics
is the technology of using single molecules to form the components of electronic
devices.
CALMEC is currently attempting to raise equity through a private placement
offering of up to $1 million of its common stock (see Note 2), followed by a
proposed later public offering of its common stock. Management plans to
implement its operating plan after completing the initial private placement
offering.
CALMEC has entered into an exclusive license and patent assignment agreement
with an officer/director of the Company. The agreement provides the Company
with the exclusive rights to use ChiropticeneTM switches, a class of molecular
electronic switches. The agreement also calls for the assignment to CALMEC of
all of the officer/director's rights to Chiropticene technology on May 1, 1999.
CALMEC is obligated to pay the officer/director a license fee of $25,000, which,
at the Company's option, may be paid in the form of 5% of cash flow from equity
financing until the total license fee is paid. As of December 31, 1998, the
Company had paid the officer/director $10,500 of the license fee. On January
13, 1999, the Company paid the balance of the fee.
A summary of significant accounting policies follows:
Organization costs
- -------------------
Organization costs consist primarily of legal fees which have been capitalized
and which will be charged to expense over a five-year period commencing on the
date CALMEC's operations begin.
Use of estimates
- ------------------
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair value of financial instruments
- ---------------------------------------
The carrying values of financial instruments, such as accounts payable and debt
obligations, approximate their fair market value.
Concentration of credit risk
- -------------------------------
The Company maintains its cash in bank deposit accounts at well-established
financial institutions. At times the balances per the records of the financial
institutions may exceed federally insured limits.
Income taxes
- -------------
The Company uses the asset and liability method in accounting for deferred
income taxes. Under this method, deferred income taxes are recorded to reflect
the tax consequences in future years of differences between the carrying amount
of assets and liabilities for financial reporting and tax purposes (primarily
relating to start-up costs) at each fiscal year end.
Loss per share
- ----------------
Basic and dilutive loss per common share is calculated by dividing the net loss
for the period by the average number of common shares outstanding. In 1998,
dilutive loss per share excludes the effect of options, because the effect would
have been antidilutive.
NOTE 2 - COMMON STOCK OFFERING:
CALMEC is in the process of arranging equity financing through a private
placement offering of common stock, which began on April 1, 1998. The offering
agreement allows for the sale of up to 400,000 shares of CALMEC's common stock
at $2.50 per share (restated for stock dividend), for a maximum value of $1
million. There is no minimum number of securities which must be sold in the
offering. In February 1999, the Company increased the price of the shares to $5
per share (restated for the stock dividend). On March 1, 1999, the Company
began providing stock purchasers with a warrant for each share purchased. The
warrant entitles the purchasers to buy an additional share for $5 through
February 2002. The offering will continue until all of the shares under the
offering are sold or until such time as CALMEC decides to close or terminate the
offering.
Page 49
<PAGE>
NOTE 3 - ISSUANCES OF CAPITAL STOCK:
On March 19, 1997, the Company's chairman agreed to pay expenses he deemed
essential to the Company's start-up phase, with the understanding that the
Company would reimburse him for these costs at 10% per annum, until such time as
the Board of Directors determined the Company had attained sufficient capital
for its operations. The chairman agreed to cancel the first $10,000 of such
obligations owed to him by the Company in exchange for 10 million shares of the
Company's no par common stock valued at $.001 per share. 0n June 5, 1997, upon
the execution of certain long-term employment and other agreements related to
CALMEC, the Company issued 1 million shares of common stock to an
officer/director of CALMEC at $.001 per share. On September 17, 1997, upon the
execution of certain employment agreements, CALMEC issued 1 million shares of
its common stock to the Company's president and CEO at $.002 per share. On
January 1, 1998, each of the stockholders voluntarily contributed back to the
Company 80% of his stock to effect a pro-rata voluntary 80% reduction in their
ownership. The stock that was contributed back to the Company was deemed to be
authorized and unissued stock rather than treasury stock. The outstanding common
stock of the Company for 1997 has been retroactively restated for the common
stock contributed back to the Company. In 1998, the Company issued 87,520 shares
of its common stock to accredited investors at, as defined under rule 501(a) of
Regulation D promulgated by the Securities and Exchange Commission, $2.50 per
share. In January and February 1999, the Company issued 43,920 shares of its
common stock to accredited investors at $2.50 per share.
NOTE 4 - STOCK OPTION PLAN:
On May 1, 1997, the Board of Directors of CALMEC adopted the 1997 Stock Option
Plan (the "1997 Plan"). The aggregate number of shares that are available for
issuance pursuant to the exercise of options granted under the 1997 Plan may not
exceed 1,600,000 shares of common stock. Options granted to certain members of
the Board of Directors in 1997 vest over a five-year period, with 20% vesting
each year. Options granted in 1998 generally vest within one year from the date
of grant. Incentive stock options are priced at the fair market value of the
stock at the date of grant. Nonqualified stock options are priced at eight-five
percent (85%) of the fair market value at the date of grant. Options generally
have a life of seven to ten years.
CALMEC applies the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") to the 1997 Plan.
Accordingly, no compensation cost has been recognized for the Plan in 1998 and
1997.
Had CALMEC adopted Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the net loss of
$43,657 as reported for the year ended December 31, 1998 would compare to a pro
forma net loss of $71,197, and the net loss of $7,571 as reported for the period
from March 17, 1997 (date of incorporation) to December 31, 1997 would not
change. Basic and diluted loss per share of $.01 as reported for the year ended
December 31, 1998 would not change on a pro forma basis. Basic and diluted loss
per share of $0 for the period from March 17, 1997 (date of incorporation) to
December 31, 1997 would not change on a pro forma basis.
The effects of applying SFAS No. 123 in the preceding pro forma disclosure are
not indicative of the effect on reported net income for future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively: risk-free interest
rates of 6.4% for both years, and expected lives of 5.9 and 6 years. No
dividend yield was used as CALMEC has not paid dividends in the past and does
not anticipate paying dividends in the future.
Page 50
<PAGE>
A summary of the status of CALMEC's stock option plan as of December 31, 1998
and 1997, and changes during the years then ended, is presented below:
<TABLE>
<CAPTION>
1998 1997
Weighted Weighted
Number Average Exercise Number Average
of Shares Price of Shares Exercise Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 800,000 $ 0.0038 - $ -
Granted 86,000 $ 2.1860 800,000 $ .0038
--------- ----------------- --------- ---------------
Outstanding at end of year 886,000 $ 0.2156 800,000 $ .0038
========= ================= ========= ===============
Options exercisable at year end 207,000 none
Weighted average grant-date fair value of
options granted during the year whose
exercise price equaled market price on date
of grant $ .39 none
Weighted average grant-date fair value of
options granted during the year whose
exercise price was less than market price
on date of grant $ .92 none
</TABLE>
The following table summarizes information about stock options outstanding at
December 31,1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------ ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ----------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .0025 400,000 5.3 years $ .0025 80,000 $ .0025
$ .005 400,000 5.7 years $ .005 80,000 $ .005
$ 2.125 72,000 9.6 years $ 2.125 33,000 $ 2.125
$ 2.50 14,000 6.3 years $ 2.50 14,000 $ 2.50
- ----------------- ----------- ----------- --------- ----------- ---------
$ .0025 - $2.50 886,000 5.8 years $ .2156 207,000 $ .5107
================= =========== =========== ========= =========== =========
</TABLE>
NOTE 5 - INCOME TAXES:
The Company has a deferred tax asset of $7,700 relating to its net operating
loss for financial reporting purposes, which has been fully offset by a
valuation reserve. The Company's operating loss for financial reporting
purposes has been reported as deferred start-up costs for federal and state
income tax purposes.
NOTE 6 - SUBSEQUENT EVENTS:
On February 15, 1999, the Board of Directors declared a 100% stock dividend.
All shares and per share date have been restated to reflect the stock dividend.
Page 51
<PAGE>
INVESTOR SUBSCRIPTION AGREEMENT
TO THE OFFICERS AND DIRECTORS OF
CALIFORNIA MOLECULAR ELECTRONICS CORP.
Gentlemen:
I intend to purchase _________ Shares (the "Shares") of California Molecular
Electronics Corp. (the "Company"), at $6.00 each, and enclose herewith
$_______________ payable to California Molecular Electronics Corp. for that
purpose.
I represent and warrant to the Company that:
1. I have carefully read the Prospectus and have discussed (or have been given
the opportunity to discuss), to the extent I felt necessary, its contents
with my counsel.
2. I have had an opportunity to request additional information from the
Company for verification purposes.
3. I acknowledge prior to the purchase of the Shares, that I have received
adequate information concerning the true financial condition of the
Company, its business operations and the use of the proceeds from the sale
of the Shares.
4. I understand the business of the Company is subject to high risk and no
representations can be or have been made with respect to the future success
of the business.
5. The representations, warranties and agreements contained herein shall
survive the delivery of and payment for the Shares.
6. The Investor acknowledges that he is aware that this Subscription Agreement
may be rejected for any reason by the Company.
7. The Company or its agents, assigns, or representatives, shall not be
liable, responsible or accountable in damages or otherwise to the Investor
for any act or omission performed or omitted by it and/or them in good
faith in connection with this transaction, and in a manner reasonably
believed by them to be within the scope of the authority and responsibility
granted to them by this Agreement provided such persons were not guilty of
gross negligence, willful misconduct, fraud, or bad faith.
8. Miscellaneous: (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of California; b) This Subscription
Agreement constitutes the entire agreement between the parties respecting
the subject matter hereof; (c ) Captions in this Subscription Agreement are
for the convenience of reference only and shall not limit or otherwise
affect the interpretation or effect of any term or provision hereof; (d)
Except as otherwise set forth herein, this Subscription Agreement shall be
binding upon and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of the
parties hereto.
VERY TRULY YOURS,
_____________________________________________________ DATE: _______________
Please Sign Here as Name(s) is (are) Printed Below
_____________________________________________________
Please Print Name(s) as Desired on Stock Certificate
(When signing as an attorney, executor, administrator, trustee, or guardian,
please give title as such. If joint ownership, both joint tenants or all
tenants in common must sign.)
Home Address:
_________________________________ _____________________________________________
Number and Street Social Security Number or Other Taxpayer ID #
_________________________________
City, State, Zip Code
Telephone ______________________
Page 52
<PAGE>
ACCEPTED:
CALIFORNIA MOLECULAR ELECTRONICS CORP. ----------------------------------------
/Please send this Subscription /
By: __________________________________ /Agreement together with payment made /
Signature of Officer /out to California Molecular /
/Electronics Corp. to: /
Title: _________________ Date: ______ / /
/California Molecular Electronics Corp./
/C/O Commercial Federal Bank /
/1171 E. Rancho Vistoso Blvd.,Suite 101/
/Tucson, AZ 85737 /
----------------------------------------
Page 53
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles of Incorporation of the Company provide that the Company shall
indemnify any person who incurs expense by reason of such person acting as an
officer, director, employee or agent of the Company, and that this
indemnification is mandatory in all cases in which indemnification is permitted
by law.
EXPENSES OF ISSUANCE AND DISTRIBUTION
The table below sets forth the Company's estimate of the expenses that it will
incur in the issuance and distribution of the Shares under this Offering:
<TABLE>
<CAPTION>
CATEGORY EXPENSE
- ---------------------- --------
<S> <C>
Printing $ 4,000
Distribution $ 5,000
Legal & Accounting $ 35,000
Miscellaneous $ 6,000
--------
Total Offering Expense $ 50,000
</TABLE>
RECENT SALE OF UNREGISTERED SECURITIES
On March 19, 1997, the Company issued its Chairman, founder and then sole
shareholder, Jon N. Leonard, 4,000,000 shares of Common Stock(1) in exchange for
$10,000 in startup cash. On May 1, 1997 the Company issued 400,000 shares of
Common Stock to its Executive Vice President, Robert R. Schumaker, as a signing
bonus. On September 1, 1997 the Company issued 400,000 shares of Common Stock
to its President and CEO , James J. Marek, Jr., as a signing bonus. Beginning
in April 1998, the Company distributed 131,440 shares at an effective price of
$2.50 per share (adjusted for the Company's 100% stock dividend granted 2-15-99)
under a Private Placement Memorandum dated April 1, 1998 (the "April 1998 PPM"),
to accredited investors who were the friends, associates and relatives of the
officers of the Company, including one vendor, the Company's Corporate Patent
Counsel, David W. Collins, whose services were provided in exchange for stock at
the same pricing. Beginning in March 1999, the Company distributed another
47,500 shares at $5.00 per share, under a Private Placement Memorandum dated
March 1, 1999 (the "March 1999 PPM"), to accredited investors who also were the
friends, associates and relatives of the officers of the Company, again
including some shares sold at the same pricing to the Company's Corporate Patent
Counsel, David W. Collins, in exchange for services provided. Each share sold
under the March 1999 PPM also included a warrant to purchase another share at
$5.00 good through 2-28-2002.
The above securities transactions are exempt from registration under Regulation
D of the Securities Act. The securities therein are restricted securities and
contain an appropriate legend on their evidencing-stock-certificates restricting
their further sale or transfer without either registering them under the
Securities Act or establishing to the satisfaction of the Company that an
appropriate exemption is available.
- ------------------------
(1) The description of stock sales in this paragraph reflect adjustment made for
a 100% stock dividend granted on February 15, 1999 to all then existing
shareholders and option holders of the Company. This dividend was implemented
for the purpose of achieving the effect of a two for one stock split. The
dividend doubled the number of shares held by each then existing shareholder.
It also effectively halved the price per share that had been paid by each
investor.
UNDERTAKINGS
The Company, in reliance upon Rule 415 of the Securities Act, intends to
sell the shares under this Offering over a 24 month "Offering Period" beginning
on the SEC effective date and in accordance with the requirements of Rule 415
will:
1.) File a post effective amendment to this registration statement to:
- Include any prospectus required by section 10(a)(3) of the Securities
Acts,
- Reflect in such prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement, and
- Include any additional or changed material information on the plan of
distribution.
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<PAGE>
2.) For determining liability under the Security Act, treat each post-effective
amendment as a new registration statement of the shares offered, and the
offering of the securities at that time to be the initial bone fide
offering.
3.) File a post effective amendment to remove from registration any shares that
remain unsold at the end of the 24 month Offering Period.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
California Molecular Electronics Corp. certifies that it has reasonable grounds
to believe it meets all of the requirements of filing on Form SB-2, and
authorizes this registration statement to be signed on its behalf by the
undersigned.
Registrant: California Molecular Electronics Corp.
City and State: Tucson, Arizona
Date: March 1, 1999
By: /s/ Jon n. Leonard
-------------------------------------------------
Jon N. Leonard (Director, Chairman and Treasurer)
In Accordance with the Securities Act of 1933, this registration statement
was signed by the following persons in the capacities and on the dates stated:
1. Signature: /s/ Jon n. Leonard
-------------------
Jon N. Leonard
Title: Director, Chairman and Treasurer
Date: July 8, 1999
2. Signature: /s/ James J. Marek, Jr.
-------------------------------------------------
James J. Marek, Jr.
Title: Director, President and CEO
Date: July 8, 1999
3. Signature: /s/ Robert R. Schumaker
-------------------------------------------------
Robert R. Schumaker
Title: Director, Executive Vice President and Secretary
Date: July 8, 1999
Page 2
<PAGE>
<TABLE>
<CAPTION>
INDEX OF EXHIBITS
SEC REFERENCE
EXHIBIT NUMBER NAME OF EXHIBIT
- --------- -------------- ---------------------------------------
<S> <C> <C>
Exhibit 1 (3) i Articles of Incorporation
Exhibit 2 (3) ii By Laws
Exhibit 3 (5) Opinion re: Legality
Exhibit 4 (10) Long Term Employment Agreements
Exhibit 5 (10) Exclusive patent License and Assignment
Exhibit 6 (23) Consent of Legal Counsel
Exhibit 7 (23) Consent of Independent Accountant
</TABLE>
Page 3
<PAGE>
ARTICLES OF INCORPORATION
OF
CALIFORNIA MOLECULAR ELECTRONICS CORP.
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned, have this day
associated ourselves together for the purpose of forming a corporation under and
pursuant to the laws of the State of Arizona, and for that purpose hereby adopt
the following Articles of Incorporation:
ARTICLE I
The name of the corporation is: California Molecular Electronics Corp.
ARTICLE II
The purpose for which this corporation is organized is the transaction of any
and all lawful business for which corporations may be incorporated under the
laws of the State of Arizona, as they may be amended from time to time.
ARTICLE III
The corporation initially intends to conduct the business of the development of
advanced technology and products for the electronics industry based on the
quantum electronic behavior of suitable organic molecules.
ARTICLE IV
The corporation shall have the authority to issue twenty million (20,000,000)
shares of no par value common capital stock.
Each issued and outstanding share of common stock will entitle the holder
thereof to one (1) vote on any matter submitted to a vote of or for consent of
the shareholders.
ARTICLE V
The initial Board of Directors shall consist of two (2) Directors. The persons
who are to serve as Directors, and the offices they are to hold, until the first
Annual Meeting of Shareholders or until their successors are elected and
qualify, are:
Jon N. Leonard, President Nadine J. Leonard, Secretary
13924 N. Green Tree Drive 13924 N. Green Tree Drive
Tucson, AZ 85737 Tucson, AZ 85737
The minimum and maximum number of Directors who shall from time to time serve
the corporation shall be set forth in the Bylaws of the corporation.
<PAGE>
ARTICLE VI
This corporation shall indemnify any person who incurs expense by reason of such
person acting as an officer, Director, employee, or agent of this corporation.
This indemnification shall be mandatory in all circumstances in which
indemnification is permitted by law.
ARTICLE VII
The incorporators of the corporation are:
Jon N. Leonard, President Nadine J. Leonard, Secretary
13924 N. Green Tree Drive 13924 N. Green Tree Drive
Tucson, AZ 85737 Tucson, AZ 85737
All powers, duties, and responsibilities of the incorporators shall cease at the
time of delivery of these Articles of Incorporation to the Arizona Corporation
Commission for filing.
ARTICLE VIII
The name of the initial Statutory Agent is Ernest B. Leonard, whose address is
14010 N. Fawnbrooke Drive, Tucson, AZ 85737, and who has been a bona fide
resident of the State of Arizona for more than three (3) years past.
ARTICLE IX
The private property of the shareholders, Directors, and officers of this
corporation shall be exempt from all corporate debts or liabilities for
corporate debts.
IN WITNESS WHEREOF, we the undersigned have hereunto signed our names this
______day of ________ in the year ________.
______________________________________
Incorporator
______________________________________
Incorporator
1, Ernest B. Leonard, having been designated to act as Statutory Agent, hereby
consent to act in that capacity until removal or resignation is submitted in
accordance with the Arizona Revised Statutes.
______________________________________
Statutory Agent
<PAGE>
BYLAWS OF
CALIFORNIA MOLECULAR ELECTRONICS CORP. ~ CALMEC
ARTICLE I
OFFICES AND CORPORATE SEAL
1.01 PLACE OF BUSINESS
In addition to its known place of business, which shall be the office of
its Statutory Agent, the corporation shall maintain a principal office in Pima
County, Arizona.
1.02 OTHER PLACES OF BUSINESS
The corporation may also maintain offices at such other place or places,
either within or without the State of Arizona, as may be designated from time to
time by the Board of Directors, and the business of the corporation may be
transacted at such other offices with the same effect as that conducted at the
principal office.
1.03 CORPORATE SEAL
A corporate seal shall not be requisite to the validity of any instrument
executed by or on behalf of this corporation, but nevertheless if in any
instance a corporate seal be used, the same shall be, at the pleasure of the
officer affixing the same, either (a) a circle having on the circumference
thereof "California Molecular Electronics Corp." and in the center "Incorporated
1997 Arizona," or (b) a circle containing the words "Corporate Seal" on the
circumference thereof, and in the center "Arizona."
ARTICLE II
SHAREHOLDERS
2.01 PLACE OF MEETINGS
All meetings of shareholders shall be held at such place as may be fixed
from time to time by the Board of Directors, or in the absence of direction by
the Board of Directors, by the President or Secretary of the corporation, either
within or without the State of Arizona, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
2.02 ANNUAL MEETINGS
Annual meetings of shareholders shall be held during the last month of the
fiscal year each year or at such date and time as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting. At
the annual meeting, shareholders shall elect a Board of Directors and transact
such other business as may properly be brought before the meeting.
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<PAGE>
2.03 NOTICE OF ANNUAL MEETING
Written notice of the annual meeting stating the place, date, and hour of
the meeting shall be given to each shareholder of record entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting. Shareholders entitled to vote at the meeting shall be
determined as of 4:00 P.M. on the day before notice of the meeting is sent.
2.04 SHAREHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of the
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address and the number
of shares registered in the name of each shareholder. Such list shall be open
to the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the principal corporate office. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any shareholder present.
2.05 SPECIAL MEETINGS
Special meetings of the shareholders, for any purpose or purposes, unless
otherwise prescribed by statute or by the Articles of Incorporation, may be
called by the President and shall be called by the President or Secretary at the
request in writing of a majority of the Board of Directors, or at the request in
writing of shareholders owning a majority in amount of the entire capital stock
of the corporation issued, outstanding, and entitled to vote. Such request
shall state the purpose or purposes as well as the time and date of the proposed
meeting.
2.06 NOTICE OF SPECIAL MEETING
Written notice of a special meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten (10) nor more than fifty (50) days before the date of
the meeting to each shareholder of record entitled to vote at such meeting.
Business transacted at any special meeting of shareholders shall be limited to
the purposes stated in the notice. Shareholders entitled to vote at the meeting
shall be determined as of 4:00 P.M. on the day before notice of the meeting is
sent.
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<PAGE>
2.07 QUORUM
The holders of a majority of the shares issued, outstanding, and entitled
to vote at the meeting, present in person or represented by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the Articles of
Incorporation. If, however, such quorum shall not be present or represented at
any meeting, present in person or represented by proxy, the President, or if he
or she is not present, the Secretary, shall have power to adjourn the meeting
and to reconvene it at another time or place, without notice of reconvenement
other than announcement at the meeting at which adjournment is taken, until a
quorum shall be present or represented. At such reconvened meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the reconvened meeting, a notice of the reconvened
meeting shall be given to each shareholder of record entitled to vote at the
meeting.
2.08 AUTHORITY OF QUORUM
When a quorum is present at any meeting, the vote of the holders of a
majority of the voting power present, whether in person or represented by proxy,
shall decide any question brought before such meeting, unless the question is
one upon which, by express provision of the statutes of the State of Arizona or
of the Articles of Incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
2.09 VOTING AND PROXIES
At every meeting of the shareholders, each shareholder shall be entitled to
one vote in person or by proxy for each share of the capital stock having voting
power held by such shareholder, but no proxy shall be voted or acted upon after
eleven (11) months from its date, unless the proxy provides for a longer period.
2.10 ACTION WITHOUT MEETING
Any action required or permitted to be taken at any annual or special
meeting of shareholders may be taken without a meeting, without prior notice,
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of all of the outstanding shares entitled to vote
with respect to the subject matter of the action.
2.11 WAIVER OF NOTICE
Attendance of a shareholder at a meeting shall constitute waiver of notice
of such meeting, except when such attendance at the meeting is for the express
purpose of objecting to the transaction of any business because the meeting is
not lawfully called or convened. Any shareholder may waive notice of any annual
or special meeting of shareholders by executing a written notice of waiver
either before or after the meeting.
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<PAGE>
2.12 LIMITATION ON TRANSFER OF SHARES
Until such time as that common stock of the corporation that is held by a
holder shall have been registered for sale in accordance with the Securities Act
of 1933, no holder of such stock shall have the right or power to encumber,
hypothecate, transfer, pledge, sell, or otherwise dispose of any of the shares
of the common stock of the corporation, and unless such transfer be accomplished
by right of inheritance or by operation of law, no transfer, pledge, sale, or
other disposition thereof shall be valid and effective until the shares of
common stock proposed to be transferred are first offered for sale to the
corporation for the price at which and under the terms on which such shares are
proposed to be sold as evidenced by a bona fide offer to purchase. Such offer
to the corporation shall be made in writing, signed by such shareholder, and
sent by certified or registered mail, return receipt requested, to the Secretary
of the corporation at its principal place of business, and such offer shall
remain open for acceptance by the corporation for a period of sixty (60) days
from the date of mailing such offer.
The corporation shall have the right to accept all or any part of the
shares of such offer. If the corporation elects to accept some amount of shares
of such offer, then on or before the sixtieth (60th) day following the date the
offer was mailed to the corporation, the corporation shall advise the selling
shareholder by certified or registered mail, return receipt requested, of the
amount so accepted and deliver to him or her anything necessary to effectuate
such acceptance under the terms of the offer.
A reference to this section of these Bylaws and the effect of the
provisions contained herein shall be printed upon each certificate for common
stock issued by the corporation and these provisions shall thereupon be a part
thereof and binding upon each and every owner thereof regardless of how such
common stock may be acquired. These provisions shall be binding also upon any
executor, administrator, or other legal representative of any holder of common
stock in case of the transfer, pledge, or sale of any shares of common stock by
any of these persons. In the event that the provisions of this Article 2.12 of
the Bylaws conflicts with the terms or provisions of any written agreement
between this corporation and its shareholders, the terms and provisions of that
agreement shall prevail over the terms of this Article 2.12.
ARTICLE III
DIRECTORS
3.01 NUMBER AND ELECTION
The number of Directors may be increased or decreased from time to time by
resolution of the Board of Directors, or by resolution at an annual meeting of
shareholders or by a special meeting of shareholders duly called for that
purpose, or as provided in Section 3.02 of this Article, but shall not be less
than one nor more than thirty. Each Director elected shall hold office until
his or her successor is elected and qualified. Directors need not be
shareholders.
3.02 VACANCIES
Vacancies and newly created directorships resulting from any increase in
the authorized number of Directors may be filled by the affirmative vote of a
majority of the remaining Directors then in office, though not less than a
quorum, or by a sole remaining Director, and the Directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and qualified, unless sooner displaced. If there are no Directors in
office, then an election of Directors may be held in the manner provided by
statute
Page 4
<PAGE>
3.03 DUTIES OF BOARD
It shall be the duty of the Board of Directors to control and manage the
property and business of the corporation, and to appoint from its own membership
or otherwise the officers of the corporation who may serve under written or oral
contract at the pleasure of the Board. The Board shall have power to enter into
written contracts with officers for terms extending beyond their own terms of
office. Generally, and without limitation, the Board shall have the power and
shall operate the business of the corporation in a prudent and careful manner to
the best interests of the stockholders. The authority of the Board shall
include the authority to authorize the issuance of stock, the power to fill
vacancies on the Board and the power to increase the maximum or minimum size of
the Board of Directors by appropriate amendment to these Bylaws.
3.04 PLACE OF MEETING
The Board of Directors of the corporation may hold meetings, both regular
and special, either within or without the State of Arizona.
3.05 FIRST MEETING OF BOARD OF DIRECTORS
The first meeting of each newly elected Board of Directors shall be held
immediately following the annual meeting of shareholders and in the same place
as the annual meeting of shareholders, and no notice to the newly elected
directors of such meeting shall be necessary in order legally to hold the
meeting, providing a quorum shall be present. In the event such meeting is not
held, the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver by all of the Directors.
3.06 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice at
such time and at such place as shall from time to time be determined by the
Board.
3.07 SPECIAL MEETINGS
Special meetings of the Board may be called by the President or the
Secretary on two (2) day's notice to each Director, either personally, by mail,
by telegram, or by telephone;. Special meetings shall be called by the
President or Secretary in like manner and on like notice on the written request
of two (2) Directors.
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<PAGE>
3.08 QUORUM
A majority of the membership of the Board of Directors shall constitute a
quorum, and if a quorum is present the concurrence of a majority of those
present shall be sufficient to conduct the business of the Board, except as may
be otherwise specifically provided by statute or by the Articles of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the Directors then present may adjourn the meeting to another time or
place, without notice other than announcement at the meeting, until a quorum
shall be present.
3.09 ACTION WITHOUT MEETING
Unless otherwise restricted by the Articles of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting, if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or Committee.
3.10 EXECUTIVE COMMITTEE
There may be created at the option of the Board of Directors an Executive
Committee, the size of which may be selected and from time to time modified at
the discretion of the Board of Directors, and consisting of members of the Board
of Directors who shall be elected by the Board of Directors at any meeting of
the Board of Directors at which a quorum is present. Members of the Executive
Committee shall serve at the pleasure of the Board of Directors and each member
of the Executive Committee may be removed with or without cause at any time by
the Board of Directors acting at a meeting or by unanimous written consent. In
the event any vacancy occurs in the Executive Committee, the vacancy shall be
filled by the Board of Directors. The Executive Committee shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the corporation, but shall not possess any authority of the Board
of Directors prohibited by law.
3.11 REIMBURSEMENT OF EXPENSES
The Directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as Director. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
The amount or rate of such compensation of members of the Board of Directors or
of committees shall be established by the Board of Directors and shall be set
forth in the minutes of the Board.
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<PAGE>
3.12 WAIVER OF NOTICE
Attendance of a Director at a meeting shall constitute waiver of notice of
such meeting, except when the person attends the meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Any Director may waive notice of any annual,
regular, or special meeting of Directors by executing a written notice of waiver
either before or after the time of the meeting.
ARTICLE IV
OFFICERS
4.01 ELECTION AND OFFICES
The officers of the corporation shall be chosen by the Board of Directors.
The Board of Directors may choose a Chairman of the Board, a President, Vice
Presidents, a Treasurer, a Secretary, one or more assistant secretaries and
assistant treasurers, and any number of other officers with any other names, as
deemed appropriate by the Board of Directors. Any number of offices may be held
by the same person, unless the Articles of Incorporation or these Bylaws
otherwise provide. The Board of Directors may leave any office vacant
indefinitely so long as there is a Secretary available to act.
4.02 TIME OF ELECTION
The Board of Directors at its first meeting after each annual meeting of
shareholders or at any other meeting, may choose a Secretary and may choose a
President, one or more Vice Presidents, a Treasurer, and a Chairman of the
Board, each of whom shall serve at the pleasure of the Board of Directors. The
Board of Directors at any time may appoint such other officers and agents as it
shall deem necessary to hold offices at the pleasure of the Board of Directors
and to exercise such powers and perform such duties as shall be determined from
time to time by the Board.
4.03 SALARIES
The salaries of the officers shall be fixed from time to time by the Board
of Directors, and no officer shall be prevented from receiving such salary by
reason of the fact that he or she is also a Director of the corporation. The
salaries of the officers or the rate by which salaries are fixed shall be set
forth in the minutes of the meetings of the Board of Directors.
4.04 VACANCY
A vacancy in any office because of death, resignation, removal,
disqualification, or otherwise may be filled by the Board of Directors at any
time.
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<PAGE>
4.05 CHAIRMAN OF THE BOARD
The Chairman of the Board, if one shall have been appointed and be serving,
shall preside at all meetings of the Board of Directors and shall perform such
other duties as from time to time may be assigned to him or her.
4.06 THE PRESIDENT
The President shall preside at all meetings of shareholders, and if a
Chairman of the Board shall not have been appointed or, having been appointed,
shall not be serving or be absent, the President shall preside at all meetings
of the Board of Directors. He or she shall sign all deeds and conveyances, all
contracts and agreements, and all other instruments requiring execution on
behalf of the corporation, subject to policies established by the Board of
Directors.
4.07 THE VICE PRESIDENTS
There shall be as many vice Presidents as shall be determined by the Board
of Directors from time to time, and they shall perform such duties as from time
to time may be assigned to them. Any one of the vice Presidents, as authorized
by the Board, shall have all the powers and perform all the duties of the
President in case of the temporary absence of the President or in case of his or
her temporary inability to act. In case of the permanent absence or inability
of the President to act, the office shall be declared vacant by the Board of
Directors and a successor chosen by the Board.
4.08 THE SECRETARY
The Secretary shall see that the minutes of all meetings of shareholders, of the
Board of Directors, and of any standing committees are kept. He or she shall be
the custodian of the corporate seal and affix it to all proper instruments when
deemed advisable by him or her. If no President is serving, he or she shall
sign all deeds and conveyances, all contracts and agreements, and all other
instruments requiring execution on behalf of the corporation, subject to
policies established by the Board of Directors. He or she shall give or cause
to be given required notices of all meetings of the shareholders and of the
Board of Directors. He or she shall have charge of all the books and records of
the corporation including the books of account if no Treasurer is serving, and
in general shall perform all the duties incident to the office of secretary of a
corporation and such other duties as may be assigned to him or her.
4.09 THE TREASURER
The Treasurer shall have general custody of all the funds and securities of
the corporation except such as may be required by law to be deposited with any
state official. He or she shall see to the deposit of the funds of the
corporation in such bank or banks as the Board of Directors may designate.
Regular books of account shall be kept under his or her direction and
supervision, and he or she shall render financial statements to the President,
Directors, and shareholders at proper times. The Treasurer shall have charge of
the preparation and filing of such reports, financial statements, and returns as
may be required by law. He or she shall give to the corporation such fidelity
bond as may be required, and the premium therefor shall be paid by the
corporation as an operating expense.
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<PAGE>
4.10 THE ASSISTANT SECRETARIES
There may be such number of assistant secretaries as from time to time the
Board of Directors may fix, and such persons shall perform such functions as
from time to time may be assigned to them.
4.11 THE ASSISTANT TREASURERS
There may be such number of assistant treasurers as from time to time the
Board of Directors may fix, and such persons shall perform such functions as
from time to time may be assigned to them. No assistant treasurer shall have
the power or authority to collect, account for, or pay over any tax imposed by
any federal, state, or city government.
ARTICLE V
SPECIAL CORPORATE ACTS
NEGOTIABLE INSTRUMENTS, DEEDS AND CONTRACTS
All checks, drafts, notes, bonds, bills of exchange, and orders for the payment
of money of the corporation; all deeds, mortgages, and other written contracts
and agreements to which the corporation shall be a party; and all assignments or
endorsements of stock certificates, registered bonds, or other securities owned
by the corporation, shall, unless otherwise directed by the Board of Directors,
or unless otherwise required by law, be signed by the President or Secretary.
The Board of Directors may, however, authorize any one of such officers to sign
any of such instruments, for and in behalf of the corporation, without necessity
of countersignature; may designate officers or employees of the corporation,
other than those named above, who may, in the name of the corporation, sign such
instruments; and may authorize the use of facsimile signatures of any of such
persons. Any shares of stock issued by any other corporation and owned or
controlled by the corporation may be voted at any shareholders' meeting of the
other corporation by the President of the corporation, if he or she be present;
or, in his or her absence, by the Secretary of the corporation who may be
present; and, in event both the President and Secretary shall be absent, then by
such person as the President of the corporation shall, by duly executed proxy,
designate to represent the corporation at such shareholders' meeting.
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<PAGE>
ARTICLE VI
STOCK CERTIFICATES
6.01 CERTIFICATES
Each certificate of stock, if issued, shall contain the information
required by statute and shall be in the form as then approved by the Directors.
6.02 ISSUANCE/NON-ISSUANCE
All certificates of stock, if issued, shall be signed by the President or
Vice President and by the Secretary or an Assistant Secretary, and the seal of
the company may be impressed thereon. The name of the initial owner of each
certificate and the number of shares represented by it shall be entered on its
stub. If shares are issued without a certificate, the issuee shall be given a
Statement of Information and appropriate notations shall be made in the
corporate stock ledger.
6.03 TRANSFER
Certificates of stock shall be transferred on the books of the corporation
by assignment made by the owner, his or her attorney in fact, or legal
representative, and by delivery of the certificate to the Secretary of the
corporation for transfer, together with such further supporting documents as the
corporation may reasonably require. Each certificate surrendered for transfer
shall be marked "Canceled" by the Secretary and an incision on the certificate
shall be made through the names of the subscribing officers, and the canceled
certificate shall be affixed to its stub.
6.04 LOST CERTIRICATES
Should the owner of any certificate of stock make application to the corporation
for the issuance of a duplicate certificate by reason of the loss or destruction
of his or her certificate, he or she shall accompany his or her application by
an affidavit setting forth the time, place, and circumstances of such loss or
destruction, together with a bond in such amount and with such surety or
sureties acceptable to the Secretary of the corporation, indemnifying the
corporation against such loss as it may suffer by reason of the issuance of a
duplicate certificate or the refusal to recognize the certificate that was
allegedly lost or destroyed. Upon satisfaction of the foregoing, a duplicate
certificate may be issued. The duplicate certificate must be marked
"Duplicate," and the stub of the certificate lost or destroyed shall indicate
the issuance of the duplicate. The Board of Directors may, in its discretion,
waive the requirement of a surety or sureties on the bond.
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<PAGE>
6.05 DIVIDENDS
Dividends on the issued and outstanding stock from the surplus or net
profits of the corporation may be declared by the Board of Directors from time
to time, payable to the owners of record of the stock of the corporation
outstanding at such date as the Board of Directors may specify.
ARTICLE VII
REPEAL, ALTERATION OR AMENDMENT
These Bylaws may be altered, amended, supplemented, repealed or temporarily
or permanently suspended, in whole or in part, or new Bylaws may be adopted, at
any duly constituted meeting of the shareholders or the Board of Directors, the
notice of which meeting either includes mention of the proposed action relative
to the Bylaws or is waived as provided above in Sections 2.03, 2.06 or 3.12
(whichever is applicable) or, alternatively, by the unanimous written consent of
the shareholders or of the Directors pursuant to Section 2.10 or Section 3.09
(whichever is applicable). If, however, any such action arises as a matter of
necessity at any such meeting and is otherwise proper, no notice thereof will be
required.
ARTICLE VIII
RECORDS AND REPORTS FOR SHAREHOLDERS
8.01 RECORD KEEPING
This corporation will keep as permanent records minutes of all meetings of its
shareholders and Board of Directors, a record of all actions taken by the
shareholders or Board of Directors without a meeting and a record of all actions
taken by a committee of the Board of Directors in place of the Board of
Directors on behalf of the corporation. This corporation will maintain
appropriate accounting records. This corporation or its agent will maintain a
record of its shareholders in a form that permits preparation of a list of the
names and addresses of all shareholders and in alphabetical order by class of
shares showing the number and class of shares held by each. This corporation
will maintain its records in written form or in another form capable of
conversion into written form within a reasonable time. This corporation will
keep a copy of all of the following records at its known place of business:
Its Articles or Restated Articles of Incorporation and all amendments to them
currently in effect;
Its Bylaws or Restated Bylaws and in addition, all amendments to them that are
currently in effect;
Page 11
<PAGE>
Resolutions adopted by its Board of Directors creating one or more classes or
series of shares and fixing their relative rights, preferences and
limitations, if shares issued pursuant to those resolutions are
outstanding;
The minutes of all shareholders' meetings and records of all action taken by
shareholders without a meeting for the past three years;
All written communications to shareholders generally within the past three
years, including the financial statements furnished for the past three
years under A.R.S. Sec. 10-1620;
A list of the names and business addresses of its current officers and
members of the Board of Directors;
Its most recent annual report delivered to the Arizona Corporation Commission;
and,
Any agreements between and among its shareholders.
8.02 FINANCIAL STATEMENTS FOR SHAREHOLDERS
This corporation shall furnish to its shareholders annual financial
statements that may be consolidated or combined statements of the corporation
and one or more of its subsidiaries, as appropriate, and that include a balance
sheet as of the end of the fiscal year, an income statement for that year and a
statement of changes in shareholders' equity for the year unless that
information appears elsewhere in the financial statements. If financial
statements are prepared for the corporation on the basis of generally accepted
accounting principles, the annual financial statements shall also be prepared on
that basis.
If the annual financial statements have been examined by a certified public
accountant (CPA), the CPA's report must accompany these statements. If not, the
statements shall be accompanied by a statement of the President or the person
responsible for the corporation's accounting records (1) indicating whether, in
that person's reasonable belief , the statements were prepared on the basis of
generally accepted accounting principles and, if not, describing the basis of
preparation, and (2) describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
This corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year. On written
request from a shareholder, the corporation shall mail that shareholder the
latest annual financial statements.
ARTICLE IX
SEVERABILITY
Should any portion of these Bylaws be found to be invalid or unenforceable
by any court of competent jurisdiction, the remaining Bylaws shall be unaffected
thereby and shall remain in full force and effect.
Page 12
<PAGE>
ARTICLE X
TELEPHONIC MEETINGS
At the option of the Board of Directors, and with provision of notice as
specified elsewhere in these Bylaws, any shareholders meeting or any meeting of
the Board of Directors may be held by telephone conference call (or by a
combination of telephone conference call and physical presence with some
attendees physically present at a designated meeting place and with others
telephonically present), and actions taken at such a meeting shall have all the
force and effect of actions taken at a meeting with all attendees physically
present. Provisions elsewhere in these Bylaws related to consent for meetings
and waiver of consent for meetings shall apply to such telephonic meetings.
________________________________________________________________________________
I, Nadine J. Leonard, Secretary of California Molecular Electronics Corp.,
an Arizona corporation, do hereby certify that the foregoing Bylaws were duly
adopted as the Bylaws of said corporation by the Board of Directors effective as
of March 19, 1997, and that the same do now constitute the Bylaws of said
corporation.
DATED: March 19, 1997.
_______________________________________
Nadine J. Leonard
Page 13
<PAGE>
EVERS
& HENDRICKSON LLP
_______________________
155 MONTGOMERY STREET, 12TH FLOOR, SAN FRANCISCO, CA 94104 WILLIAM D. EVERS
LAWYER
DIRECT (415) 772-8102
MAIN (415) 772-8100
July 6, 1999 FAX (415) 772-8101
[email protected]
VIA US MAIL
- -------------
Mr. Jon Leonard
Chairman
California Molecular Electronics Corp.
50 Airport Parkway
San Jose, California 95110
Dear Mr. Leonard:
You have asked us as counsel for California Molecular Electronics Corp., an
Arizona corporation (the "Company"), for our opinion regarding the legality of
the shares being cleared for registration with the Securities and Exchange
Commission pursuant to the filing of a Registration Statement on Form SB-2 under
the Securities Act of 1933. The Registration Statement is on behalf of the
Company and covers 1,000,000 shares of the Common Stock of the Company.
We have been asked to opine as to the legality of the securities being
cleared. We have made reasonable inquiry and are of the opinion that the
securities being cleared, will, when sold, be legally issued, fully paid and
non-assessable.
We are not opining as to any other statements contained in the Registration
Statement, nor as to matters that occur after the date thereof.
Sincerely,
/s/ EVERS & HENDRICKSON, LLP
-----------------------------
EVERS & HENDRICKSON, LLP
By: William D. Evers, Partner
<PAGE>
SCHUMAKER LONG TERM EMPLOYMENT AGREEMENT
CALIFORNIA MOLECULAR ELECTRONICS CORP. ~ CALMEC
1. INTRODUCTION. This Agreement, effective as of May 1, 1997, is made and
entered into by and between California Molecular Electronics Corp., an
Arizona Corporation ("CALMEC") and Robert R. Schumaker ("Employee").
2. UNDERSTANDING OF STARTUP NATURE OF COMPANY. Employee understands that
CALMEC is a startup company currently operating without funds, and that
while the completion of fund raising and the commencement of its operations
is scheduled for April 1, 1998, the Actual Startup Date (as such date is
defined in Section 16 below), may be earlier or later than April 1, 1998
depending upon fund raising success, and it is even possible that fund
raising will fail and CALMEC will not start up at all.
3. EMPLOYMENT. CALMEC employs Employee and Employee accepts employment,
subject to and in accordance with the terms and conditions of this
Agreement.
4. TERM OF EMPLOYMENT. Employee's term of employment ("Term of Employment")
will begin on May 1, 1997 and will continue for five years (until April 30,
2002) unless sooner terminated by CALMEC in accordance with Section 10
below.
5. SALARY. Beginning on the Actual Startup Date, but no later than May 1,
1999, CALMEC will pay Employee a salary of $120,000 per year in the form of
regular paychecks which will be issued on a weekly, bi-weekly,
semi-monthly, or monthly basis in accordance with the CALMEC payroll
procedures in effect at that time. Employee's compensation shall include
fringe benefits, the value of which will be approximately 24% of Employee's
salary. Prior to the Actual Startup Date, or May 1, 1999, whichever date is
sooner, Employee will perform without pay or fringe benefits, such duties
as needed to assist the startup of CALMEC.
6. ADDITIONAL COMPENSATION. As additional compensation, upon execution of the
agreements in paragraph 3 above, Employee will be issued one million shares
of CALMEC Common Stock. In addition, Employee will be provided with a seven
year stock option to acquire one million additional shares of CALMEC Common
Stock at an exercise price of one mil ($.001) per share, vesting at 200,000
shares per year of completed employment. As further compensation, CALMEC
will provide Employee with a life insurance policy that begins soon after
the Actual Startup Date, and that provides that if Employee dies while
employed by CALMEC, but before the expiration of the five year Term of
Employment, Employee's beneficiary will be paid an amount at least equal to
the remaining balance of Employee's salary under the five year Term of
Employment.
7. EMPLOYEE'S TITLE AND DUTIES. Employee shall hold the position of Executive
Vice President in charge of Research and Development, reporting to the CEO.
In this capacity, Employee shall be responsible for the development of
CALMEC's product-focused technology, and for such other duties as may be
from time to time assigned him by the CEO.
8. EMPLOYEE TO DEVOTE FULL TIME TO CALMEC'S BUSINESS. Employee will devote
full time attention and energies to the business of CALMEC during his
employment.
Page 1
<PAGE>
9. EMPLOYEE'S LONG-TERM ILLNESS OR INCAPACITY. If Employee is unable to
perform his obligations under this Agreement because of illness or
incapacity for a period of more than six months in any year, CALMEC may
terminate this Agreement for cause.
10. TERMINATION OF EMPLOYMENT. Without cause, CALMEC may terminate this
Agreement at anytime upon ten days' written notice to Employee. If CALMEC
requests, Employee will continue to perform his duties and be paid his
regular salary up to the date of termination. If Employee is terminated
without cause, CALMEC will pay Employee on the date of termination the
remaining balance of Employee's salary under the five year Term of
Employment, less taxes and social security required to be withheld.
11. EMPLOYEE'S DEATH. If Employee dies during the term of his employment,
Corporation will pay to Employee's estate any compensation due him up to
the end of the month in which Employee dies.
12. ASSIGNMENT. This Agreement shall not be assignable except upon written
consent of all parties hereto.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of The State of Arizona.
14. ENTIRE AGREEMENT. This instrument is the entire employment agreement
between Company and Employee. Oral changes will have no effect. It may be
altered only by a written agreement.
15. WAIVER. A waiver of any breach of any provision of this Agreement shall not
be construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement.
16. STARTUP DATE. The Actual Startup Date shall be that date, as determined by
the Board of Directors, that CALMEC shall have attained capital sufficient
for its operations. In the event that the Actual Startup Date is delayed
beyond May 1, 1999, CALMEC will begin payment of Schumaker's salary as
specified in paragraphs 4 and 5 of this agreement and will continue payment
without break for the Term of Employment. Failure of CALMEC to perform in
any respect under this paragraph shall constitute the immediate invocation
of the Backlicense that is defined in that certain Exclusive Patent License
and Assignment Agreement between CALMEC and Employee, which agreement is by
reference made a part a part hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
CALMEC:
By: ________________________________
Dr. Jon N. Leonard, Its Chairman
Employee: __________________________
Dr. Robert R. Schumaker
Page 2
<PAGE>
LONG-TERM EMPLOYMENT AGREEMENT
CALIFORNIA MOLECULAR ELECTRONICS CORP. ~ CALMEC
1. INTRODUCTION. This Agreement, dated as of September 1, 1997, is made and
entered into by and between California Molecular Electronics Corp., an
Arizona Corporation ("CALMEC" or the "Company"), and James J. Marek, Jr. of
1080 Grande View Blvd., #828, Huntsville, AL ("Employee").
2. UNDERSTANDING OF STARTUP NATURE OF COMPANY. Employee understands that
CALMEC is a startup company currently operating without funds, and that
while the completion of fund raising and the commencement of its operations
is scheduled for April 1, 1998, the Actual Startup Date (as such date is
defined in Section 17 below), may be earlier or later than April 1, 1998
depending upon fund raising success, and it is even possible that fund
raising will fail and CALMEC will not start up at all.
3. EMPLOYMENT. Upon execution of this Agreement simultaneously with the
execution of the following two agreements: 1.) Confidentiality, Invention
Assignment and Noncompete Agreement, and 2.) Acceptance of Appointment as
Director, which two agreements are incorporated herein by reference, CALMEC
employs Employee and Employee accepts employment, subject to and in
accordance with the terms and conditions of this Agreement.
4. TERM OF EMPLOYMENT. Employee's term of employment ("Term of Employment")
will begin on September 1, 1997 and will continue for four years (until
August 31, 2001) unless sooner terminated by CALMEC in accordance with
Section 10 below.
5. SALARY. Beginning on the Actual Startup Date, CALMEC will pay Employee a
salary of $110,000 per year in the form of regular paychecks which will be
issued on a weekly, bi-weekly, semi-monthly, or monthly basis in accordance
with the CALMEC payroll procedures in effect at that time. Employee's
compensation shall include usual fringe benefits. Prior to the Actual
Startup Date, Employee will perform without pay or fringe benefits, such
duties as needed to assist the startup of CALMEC.
6. ADDITIONAL COMPENSATION. As additional compensation, upon execution of the
agreements in Section 3 above, 1,000,000 shares of CALMEC Common Stock will
be issued as a "Stock Grant" for Employee. As further compensation,
Employee will be provided a seven year stock option for an additional
1,000,000 shares of CALMEC Common Stock at an exercise price of 2 mils
($.002) per share (which the Board of Directors of CALMEC has determined is
100% of the current fair market vale of the Company's common stock),
vesting at 200,000 shares per year of completed employment.
7. EMPLOYEE'S TITLE AND DUTIES. Employee shall hold the position of President
and CEO. In this capacity, Employee shall have full responsibility for the
development and operation of CALMEC.
8. EMPLOYEE TO DEVOTE FULL TIME TO CALMEC'S BUSINESS. Employee will devote
full time attention and energies to the business of CALMEC during his
employment.
9. EMPLOYEE'S LONG-TERM ILLNESS OR INCAPACITY. If Employee is unable to
perform his obligations under this Agreement because of illness or
incapacity for a period of more than nine months in any year, CALMEC may
terminate this Agreement for cause.
<PAGE>
10. TERMINATION OF EMPLOYMENT. Without cause, CALMEC may terminate this
Agreement at anytime upon ten days' written notice to Employee. If CALMEC
requests, Employee will continue to perform his duties and be paid his
regular salary up to the date of termination. If after Actual Startup Date
Employee is terminated without cause, CALMEC will pay Employee on the date
of termination a nine month's severance, less taxes and social security
required to be withheld.
11. EMPLOYEE'S DEATH. If Employee dies during the term of his employment,
CALMEC will pay to Employee's estate any compensation due him up to the end
of the month in which Employee dies.
12. ASSIGNMENT. This Agreement shall not be assignable except upon written
consent of all parties hereto.
13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of The State of Arizona.
14. ENTIRE AGREEMENT. This instrument is the entire employment agreement
between Company and Employee. Oral changes will have no effect. It may be
altered only by a written agreement.
15. WAIVER. A waiver of any breach of any provision of this Agreement shall not
be construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement.
16. STARTUP DATE AND STARTUP DELAY. The Actual Startup Date shall be that date,
as determined by the Board of Directors, that CALMEC shall have attained
capital sufficient for its operations. In the event that the Actual Startup
Date is delayed past April 1, 1998, either party shall have the option to
declare this Agreement to be null and void ("Employment Agreement
Nullification Option"). So long as neither party exercises Employment
Agreement Nullification Option, this Agreement shall continue in force. If
Actual Startup Date occurs after April 1, 1998, and if neither party has
exercised Employment Agreement Nullification Option prior to such
occurrence of Actual Startup Date, then Employment Agreement Nullification
Option shall forever terminate.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
CALMEC: Employee:
By: _________________________________ By: _________________________________
Jon N. Leonard, its Chairman James J. Marek, Jr.
<PAGE>
EXCLUSIVE PATENT LICENSE AND ASSIGNMENT AGREEMENT
THIS AGREEMENT is made and entered into as of May 1, 1997 by and between Robert
R. Schumaker ("Schumaker"), residing at 19950 Wright Drive, Los Gatos,
California 95030 and California Molecular Electronics Corp. ("Calmec"), an
Arizona corporation with an office at 13924 N. Green Tree Drive, Tucson, Arizona
85737.
WHEREAS Schumaker represents and warrants that:
1.) He is the owner of the entire rights, title and interest in and to United
States Patent number 5,237,067 issued 17 August 1993 ("Patent"),
2.) Patent is directed to a class of optoelectronic materials (such class of
materials hereinafter referred to as "Chiropticene" materials or the
"Chiropticenes").
3.) He has the sole right to grant for the United States, its territories and
possessions licenses under Patent, reissues and extensions, of the scope
hereinafter granted ("Patent Rights"), and
4.) He has not been granted patents corresponding to Patent in any foreign
country ("Foreign Patent"), and is not now pursuing a Foreign Patent in any
foreign country, and,
WHEREAS Calmec is a startup company which has been organized to commercially
exploit the technology areas related to the Patent, and
WHEREAS Schumaker is an officer and a major stockholder of Calmec, and
WHEREAS it is the intention of the officers of Calmec to derive Calmec's startup
funding through an ongoing sale of Calmec capital stock, thereby producing
a viable stream of funds ("Funding Stream") to finance Calmec's activities,
and
WHEREAS Schumaker owns certain confidential information and trade secrets,
including engineering and technical knowledge and data, manufacturing
knowledge and data, designs, skills, methods, procedures and information
(collectively "Knowhow") related to manufacturing and exploiting
Chiropticene material, and
WHEREAS it is the intention of both Calmec and Schumaker to continually develop
new technology based on the Chiropticenes, by developing new patents, new
patent applications and new Knowhow (collectively "Ongoing New
Developments"), and
WHEREAS Calmec desires to make, have made, use and sell (collectively "Exploit")
any and all products (such products referred to hereinafter as "Embodying
Products") embodying the inventions covered by Patent Rights, Ongoing New
Developments, and Knowhow (Patent Rights, Ongoing New Developments, and
Knowhow are hereinafter collectively referred to as "Chiropticene
Technology"), and
WHEREAS Calmec desires to acquire the exclusive right and license ("License") to
Chiropticene Technology , and
WHEREAS Schumaker wishes to grant License and to be instrumental in the
development of Chiropticene Technology, and
WHEREAS upon the date 1 May 1999, Calmec and Schumaker desire that all of
Schumaker's rights in Chiropticene Technology shall permanently be assigned
to Calmec,
NOW THEREFORE in consideration of the foregoing, and of the mutual covenants,
terms and considerations hereinafter expressed, the parties hereto agree as
follows:
<PAGE>
1.) GRANT OF LICENSE
Schumaker hereby grants License to Calmec, an exclusive, irrevocable
license to make, have made, use and sell Embodying Products.
2.) TERM OF LICENSE, LICENSE FEE, AND PAYMENT OF LICENSE FEE
License shall begin on the date first above written and shall terminate on
1 May 1999, the date at which rights to Chiropticene Technology shall be
assigned to Calmec in accordance with paragraph 2 below. Calmec shall pay
Schumaker a fee of $25,000 for the License ("License Fee"). The License Fee
shall be due 1 April 1998. Calmec and Schumaker agree that at Calmec's
option, the License Fee may be paid by paying Schumaker 5% of the Funding
Stream until the $25,000 License fee is paid.
3.) ASSIGNMENT OF CHIROPTICENE TECHNOLOGY
All of Schumaker's rights to Chiropticene Technology shall be assigned to
Calmec on 1 May 1999 (the "Assignment") by the execution of a patent
assignment agreement of the form shown in Attachment A hereto, and by the
execution by Schumaker of such other documents as shall be required of him
by Calmec to effect this paragraph.
4.) PROVISION OF EXCLUSIVE BACKLICENSE OF CHIROPTICENE TECHNOLOGY BACK TO
SCHUMAKER UNDER CERTAIN CONDITIONS OF CALMEC INACTION
The parties to this agreement recognize the importance of developing
Chiropticene Technology and agree that Schumaker shall be granted by Calmec
an exclusive and irrevocable license back ("Backlicense") to the
Chiropticene Technology under any one or more of the following conditions:
a.) Calmec neglects to pursue Chiropticene Technology.
b.) Calmec breeches its obligations under Schumaker's Amended Long Term
Employment Agreement (which agreement is by reference made a part
hereof).
c.) Calmec fails to pay the License Fee prior to 1 May 1999.
Written concurrence by Calmec of the occurrence of any one or more of these
conditions shall provide sufficiency for the immediate invocation of the
Backlicense. Any dispute between the parties as to the occurrence of any of
these conditions shall be settled by arbitration in accordance with
paragraph 18 below, and the settlement in Schumaker's favor on any of the
above three conditions shall provide the sufficiency for the immediate
invocation of the Backlicense. The parties agree that this Backlicense, if
invoked, will provide to Schumaker all the rights that this License
currently provides to Calmec.
5.) ROYALTIES
No royalties shall be paid under this Agreement.
6.) EXTENSION OF TERM
The term of this License is not extendible.
7.) WARRANTY OF RIGHT TO ENTER INTO AGREEMENT
Schumaker represents and warrants that he has the right to enter into this
Agreement, and that there are no outstanding assignments, grants, licenses,
encumbrances, obligations or agreements, either written, oral or implied,
inconsistent with this agreement.
Page 2
<PAGE>
8.) SUBLICENSING
Calmec may grant coterminating sublicenses under this License on any terms
and conditions it deems advisable.
9.) ACKNOWLEDGMENT OF VALIDITY
During term of License, Calmec shall not dispute or object to the validity
of Patent or of the scope of any claim or claims therein.
10.) CALMEC'S RIGHT TO DEFEND PATENT
During the term of License, on discovery of any suspected infringement,
Calmec at its own expense may take all necessary proceedings for
effectively protecting and defending Patent. In such event Schumaker agrees
to render to Calmec every assistance in his power, except financial
assistance, to help Calmec protect and defend Patent.
11.) CLAIM OF INFRINGEMENT AGAINST CALMEC
In the event of litigation against Calmec on account of any claim of
infringement arising out of Exploiting Embodying Products, Schumaker agrees
to furnish to Calmec at Calmec's request all evidence and information in
his possession relating to the defense of such litigation.
12.) KNOWHOW
Schumaker agrees to disclose to Calmec during the term of his agreement any
and all Knowhow, that might be of use to Exploit Embodying Products, that
was in his possession prior to this agreement or that comes into his
possession during the term of License and to use his best efforts to assist
Calmec in the use of this Knowhow to Exploit Embodying Products.
13.) IMPROVEMENTS BY SCHUMAKER
Schumaker agrees that all inventions, patents and applications therefor
which are acquired by him during the term of License, and which constitute
improvements on Embodying Products, shall automatically become part of
Chiropticene Technology covered by License and Assignment.
14.) MAINTENANCE OF PATENT
During the term of License, Schumaker shall promptly pay all fees required
by the United States Patent and Trademark Office for maintenance of Patent.
Calmec shall reimburse Schumaker for these fees.
15.) NONASSIGNABILITY WITHOUT SCHUMAKER'S APPROVAL
This Agreement may not be assigned or transferred by Calmec except upon
written agreement with Schumaker.
16.) AUTOMATIC TERMINATION OF LICENSE
This License shall terminate automatically in any one or more of the
following circumstances: a.) in the event that Calmec is ordered or
adjudged bankrupt or is placed in the hands of a receiver, or otherwise
enters into any scheme or composition with its creditors or makes an
unauthorized assignment for the benefit of creditors; b.) in the event that
the assets of Calmec are seized or attached, in conjunction with any action
against it by any third party; or c.) in the event that Calmec is
dissolved, or that a sale of all or substantially all of the assets of
Calmec is made, or that this Agreement is attempted to be assigned by
Calmec without the prior written consent of Schumaker.
Page 3
<PAGE>
17.) COMPLETION OF CONTRACT AFTER AUTOMATIC TERMINATION
If License is automatically terminated as described in section 15 above,
Calmec, its successors or assignees shall have the right to complete any
and all contracts that it may already have on the books, or that it may be
obligated for, and may fabricate and sell devices under such contracts
whether or not such contract completion or such device fabrication involve
the embodiment of inventions covered by Patent.
18.) INTENTION NOT TO VIOLATE LAW; SEVERABILITY
Both parties hereby expressly agree and contract that it is the intention
of neither party to violate any public policy, statutory or common laws;
that if any sentence, paragraph, clause or combination of the same is in
violation of any state or federal law, such sentences, paragraphs, clauses,
or combination of the same shall be inoperative and the remainder of this
Agreement shall remain binding upon the parties hereof. It is the intention
of both parties to make this Agreement binding only to the extent that it
may be lawfully done under existing state and federal laws.
19.) ARBITRATION
In the event of any dispute, difference or question arising between the
parties in connection with this Agreement or any clause or the construction
thereof, or the rights, duties or liabilities of either party, then and in
every such case, unless the parties concur in the appointment of a single
arbitrator, the matter of difference shall be referred to three (3)
arbitrators: one to be appointed by each party, and a third being nominated
by the two so selected by the parties, or if they cannot agree on a third,
by the American Arbitration Association. In the event that either party
within one (1) month of any notification made to it of the demand for
arbitration by the other party, shall not have appointed its arbitrator,
such arbitrator shall be nominated by the American Arbitration Association.
The arbitrators shall determine the place or places where meetings are to
be held. The arbitrators must base their decision with respect to the
difference before them on the contents of this Agreement, and the decision
of any two of the three arbitrators shall be binding on both parties.
20.) LIMITATION OF THE EFFECT OF WAIVER
A waiver of any breach of any provision of this Agreement shall not be
construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement.
21.) ENTIRE AGREEMENT
This Agreement embodies the entire understanding between the parties
relating to License and there are no prior representations, warranties, or
agreements between the parties relating hereto, and this Agreement is
executed and delivered upon the basis of this understanding.
22.) GOVERNING LAW
This Agreement shall be interpreted and construed, and the legal relations
created herein shall be determined in accordance with, the laws of the
State of Arizona.
23.) GENERAL ASSURANCES
The parties agree to execute, acknowledge and deliver all such further
instruments, and to do all such acts, as may be necessary or appropriate in
order to carry out the intent and purpose of this Agreement.
Page 4
<PAGE>
24.) NOTICES
All notices provided for in this Agreement shall be given in writing and
shall be effective when either served by personal delivery or deposited,
postage paid, in the United States Post Office, registered or certified
mail, addressed to the parties at their respective addresses hereinabove
set forth, or to such other address or addresses as either party may later
specify by written notice to the other.
IN WITNESS WHEREOF the parties hereto have caused this agreement to be signed,
sealed and delivered as of the date first above written.
_________________________________________
Robert R. Schumaker
Witnesses:
_________________________________________
_________________________________________
CALIFORNIA MOLECULAR ELECTRONICS CORP.
by: ______________________________________
Jon N. Leonard, its Chairman
Page 5
<PAGE>
EVERS & HENDRICKSON LLP
_______________________
155 MONTGOMERY STREET, 12TH FLOOR, SAN FRANCISCO, CA 94104 WILLIAM D. EVERS
LAWYER
DIRECT (415) 772-8102
MAIN (415) 772-8100
July 6, 1999 FAX (415) 772-8101
[email protected]
VIA US MAIL
- -------------
Mr. Jon Leonard
Chairman
California Molecular Electronics Corp.
50 Airport Parkway
San Jose, California 95110
Dear Mr. Leonard:
This law firm consents to the incorporation of its name and its opinion
letter regarding the legality of the securities being cleared for registration
with the Securities and Exchange Commission pursuant to a Registration Statement
on Form SB-2.
Sincerely,
/s/ EVERS & HENDRICKSON, LLP
-----------------------------
EVERS & HENDRICKSON, LLP
By: William D. Evers, Partner
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use of this Registration Statement on Form SB-2 of
our report dated March 3, 1999 relating to the financial statements of
California Molecular Electronics Corp., which appears in such Registration
Statement.
/s/ ODENBERG, ULLAKKO, MURANISHI & CO. LLP
- ------------------------------------------------
ODENBERG, ULLAKKO, MURANISHI & CO. LLP
San Francisco, California
July 6, 1999
<PAGE>
