Subject to Completion, January 31, 2000
with the
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
- --------------------------------------------------------------------------------
PRE-EFFECTIVE AMENDMENT NUMBER 3
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 JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) CLASSIFICATION CODE NO.)
- --------------------------------------------------------------------------------
50 AIRPORT PARKWAY
SAN JOSE, CALIFORNIA 95110
(408) 451-8404
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL PLACE OF BUSINESS)
- --------------------------------------------------------------------------------
JON N. LEONARD
13924 NORTH GREEN TREE DRIVE
TUCSON, ARIZONA 85737
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
- --------------------------------------------------------------------------------
Copies to:
WILLIAM D. EVERS, ESQ. JON N. LEONARD
EVERS & HENDRICKSON, LLP CALIFORNIA MOLECULAR ELECTRONICS CORP.
155 MONTGOMERY STREET, SUITE 1200 13924 NORTH GREEN TREE DRIVE
SAN FRANCISCO, CA 94104 TUCSON, ARIZONA 85737
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
- --------------------------------------------------------------------------------
If any of the securities offered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415, please check the following box. [ X ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462 (b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _____________
If this Form is a post-effective amendment filed pursuant to Rule 462 (c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________
If this Form is a post-effective amendment filed pursuant to Rule 462 (d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434 check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
COMMON, NO PAR 1,000,000 $ 6.00 $ 6,000,000 $ 1,670
- --------------------------- ------------ -------------------------- ------------------------- -----------------
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION 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 SUCH SECTION 8(A),
MAY DETERMINE.
<PAGE>
Subject to Completion, January 31, 2000
CALIFORNIA MOLECULAR ELECTRONICS CORP.
50 Airport Parkway, San Jose, California 95110, (408) 451-8404
INITIAL PUBLIC OFFERING
1,082,560 SHARES OF COMMON STOCK
$6.00 PER SHARE
California Molecular Electronics Corp. (CALMEC(TM)) is developing a promising
new technology called molecular electronics that holds the potential for
electronic circuits that are thousands of times smaller than the smallest that
are possible with semiconductor electronics.
THE OFFERING
This is our initial public offering. Our stock will not be listed on Nasdaq or
any national exchange. The price for the shares will be $6.00 per share. The
minimum investment is 100 shares ($600). There is no maximum investment per
investor. We plan to offer and sell our stock ourselves. CALMEC officers who
will offer and sell shares on behalf of CALMEC are: James J. Marek, Jr., and Jon
N. Leonard. We have not retained any underwriters, brokers or placement agents
to do this for us. This offering will end 24 months from its effective date, or
sooner, if we decide to terminate it sooner.
We plan to raise $6,000,000 for CALMEC in this offering, before the payment of
expenses estimated at $50,000 and taking into account the pro rata distribution
to selling shareholders. See "Plan of Distribution" beginning on page 39.
Existing shareholders, all of whom are affiliated persons, will offer a combined
total of 82,560 shares for sale in this offering. See "Selling Shareholders" on
page 38. This offering is made on a best efforts basis. There is no minimum
amount to be raised. Funds from this offering will not be placed in an escrow
or trust account and will be available for use as the funds are received. No
selling expense will be allocated to selling shareholders.
<TABLE>
<CAPTION>
- --------------- -------------------- ------------------------------- -------------------
Proceeds to CALMEC
Price to the public Proceeds to affiliated persons Before Expenses
- --------------- -------------------- ------------------------------- -------------------
<S> <C> <C> <C>
Price Per Share $ 6.00 --- ---
- --------------- -------------------- ------------------------------- -------------------
Total $ 6,495,360 $ 495,360 $ 6,000,000
- --------------- -------------------- ------------------------------- -------------------
</TABLE>
THIS REPRESENTS A HIGH RISK INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6
TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING OUR SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
We have registered these shares in the states of California, Colorado,
Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Louisiana, Nevada,
New York, Rhode Island, Wisconsin, and Wyoming. Under section 485-4 of the
Hawaii Revised Statutes, an exemption from registration is available for the
sale of these shares in Hawaii, provided that no sales can be made until their
registration has become effective with the SEC. Only residents of the above
states may purchase shares. Also, investors residing in California must meet
the following suitability standard: either $65,000 annual income and a net worth
of $250,000, or a net worth of $500,000. An interested investor who is a
resident of a state not listed may request that we register the shares in that
state. However, we are under no obligation to do so. We will amend this
prospectus to disclose additional states, if any, in which we register these
shares.
<PAGE>
TABLE OF CONTENTS
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary Of Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Summary Of Financial Information . . . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . 7
Use Of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management's Discussion And Analysis . . . . . . . . . . . . . . . . . . . . 11
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Technical Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Security Ownership Of Management . . . . . . . . . . . . . . . . . . . . . . 35
Transactions With Related Parties. . . . . . . . . . . . . . . . . . . . . . 35
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Description Of Securities.And Trading Market . . . . . . . . . . . . . . . . 37
Plan Of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Index To Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 55
Investor Subscription Agreement. . . . . . . . . . . . . . . . . . . . . . . 57
-------------------------
"Chiropticene," the term describing our patented switch materials, and "CALMEC,"
the short name of our company, are trademarks belonging to California Molecular
Electronics Corp.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information described more fully elsewhere in this
prospectus. This summary is not complete and may not contain all of the
information that you should consider before investing in our common stock. You
should read the entire prospectus carefully.
CALIFORNIA MOLECULAR ELECTRONICS CORP.
Our company was formed to take advantage of a new field of technology in
which individual molecules are used to produce effects that are currently being
produced by electronic circuits. This field is known as "molecular
electronics." Molecular electronics seeks to use individual molecules as the
component parts of computer devices, display devices, and data storage devices.
We currently own the patent and trade secret rights to Chiropticene
switching, a single-molecule switching technology. We believe these switches,
one molecule in size, will become key components of future computational,
optical, and data storage devices. The Chiropticene switch 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
offers the promise of producing structures thousands of times smaller than the
smallest structures possible with semiconductor electronics.
3
<PAGE>
SUMMARY OF OFFERING
Common shares offered by the company 1,000,000 shares
Common shares offered by selling shareholders 82,560 shares
Common stock outstanding after this offering 5,979,060 shares, not including
1,600,000 shares under employee
stock incentive plan.
Other classes of stock Common stock is the only class
of stock.
Dividend policy We do not anticipate paying
dividends in the foreseeable
future.
Use of Proceeds The proceeds from this sale
will be used to accelerate our
technical progress and amplify
our influence in the field of
molecular electronics.
The minimum investment in our company per shareholder is 100 shares ($600).
This offering will begin as of the effective date of this prospectus and
continue for twenty-four (24) months, unless we decide to terminate the offering
at an earlier time. If this offering terminates, all subscription payments that
we have not accepted will be promptly returned.
There is no minimum amount to be raised. Funds from this offering will be
available for use as the funds are received. All subscriptions that we accept
are irrevocable.
Our common stock is being offered on a "best efforts" basis. We can make
no assurances of how many shares we will sell. If no shares or a nominal number
of shares are sold, our business, financial condition, and results of operations
would be adversely affected. No officer, director, or employee has agreed to
loan us funds in the event no shares or a nominal number of shares are sold.
There are three selling shareholders in this offering, all of whom are
affiliates of the company. These three selling shareholders and their
affiliations are shown below. See also Selling Shareholders on page 38.
Selling Shareholder Affiliation
------------------- -----------
Jon N. Leonard Officer, director and 10% shareholder
James J. Marek, Jr. Officer and director
Robert R. Schumaker Officer and director
4
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL INFORMATION
SUMMARY OF PREOPERATING EXPENSES
INCEPTION THROUGH 12-31-97 1-1-98 THROUGH 12-31-98
---------------------------- -------------------------
<S> <C> <C>
Income $ - $ 2,821
Research and development
expense - 25,000
Officers' compensation, donated
to the Company 148,333 270,000
Preoperating expenses 7,521 46,428
Net loss (155,904) (338,657)
Net loss per share (.03) (.07)
BALANCE SHEET
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------- -------------------------
Cash $ 94 $ 154,626
Employee advance & deposit 0 5,200
Organizational costs 427 427
TOTAL ASSETS $ 521 $ 160,253
Payables 2,356 18,258
Common stock 159,037 636,556
Receivable, common stock sale (4,968)
Accumulated deficit (155,904) (494,561)
LIABILITIES AND EQUITY $ 521 $ 160,253
</TABLE>
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN THIS
PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK.
WE ARE A STARTUP COMPANY IN ADVANCED TECHNOLOGY WHERE NO PROVEN PRODUCTS EXIST
We are a startup company seeking to exploit an advanced technology that is
at the edge of human knowledge. where no proven products based on molecular
electronics currently exist anywhere in the world. There can be no assurance
that we will ever be successful in our aims to revolutionize the electronics,
communications, and computer industries using molecular electronics.
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 which has been assigned exclusively to the company but which will
revert back to it's inventor, Mr. Schumaker, if we fail to act to pursue and
develop it. For example, the patent would be licensed back to Mr. Schumaker if
we were to decide to abandon the patent in favor of some other technology.
THIS IS A BEST EFFORTS OFFERING WITH NO ESCROW, NO MINIMUM AND NO REFUNDS
Our common stock is being offered on a "best efforts" basis. There is no
minimum amount of money that must be raised, there is no escrow of the funds
being raised, and no refunds will be made. We do not know how many of the
shares offered will be sold. Therefore, investors will bear the risk that we
will accept subscriptions for a nominal number of shares and then be unable to
accomplish our plans as discussed in the Use of Proceeds section below. If no
shares, or a nominal number of shares are sold, the quality of our business,
financial condition, and results of operations could be accordingly reduced.
OUR INTELLECTUAL PROPERTY PROTECTION MAY NOT BE ADEQUATE TO PROTECT US
There is no assurance that the patents and trade secrets as currently
controlled by us, or as expanded in the future, will be adequate to protect us
from competitive encroachment from existing or future companies.
WE HAVE NO OPERATING HISTORY AND WE HAVE SPENT $1,017,984
We were incorporated in Arizona on March 17, 1997. Through June 30, 1999,
our accumulated deficit is $866,296. No assurance can be given that future
revenues will result from our plans to develop and exploit molecular
electronics.
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. After the offering, assuming all of the shares offered
are sold, Mr. Leonard will own 66 percent of the outstanding common stock.
Thus, Mr. Leonard is and will be in a position to control the election of our
Board of Directors and our management and policies.
WE MAY HAVE A NEED FOR ADDITIONAL FINANCING
We may have to raise additional capital in the future in order to achieve
our goals. However, there can be no assurance that additional capital would be
available, or if available, on terms acceptable to us. If we were unable to
obtain these funds, our ability to achieve our goals and the value of your
investment would be adversely affected.
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 are sold, you will
experience immediate and substantial dilution of $4.95, or 83% of net tangible
book value, and if only 4% of the shares offered were sold, your dilution would
be $5.90, or 98% of net tangible book value. See "Dilution."
WE HAVE NO OUTSIDE DIRECTORS, AND THEREFORE DO NOT HAVE THE ADDITIONAL
OBJECTIVITY AND CONTACTS THAT SUCH OUTSIDE DIRECTORS MIGHT BRING
Our company has three directors, all of whom are employed by the company.
We have no outside directors. Because outside directors add objectivity,
independence and a widening of business contacts, their absence in a company is
frequently considered a negative for the company.
6
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" which may include
statements about our ability to do the following:
- Acquire intellectual property from universities, government lab,
and others;
- Market intellectual property to potential customers;
- Design, develop, and manufacture products;
- Maintain commercial acceptance of our products;
- Achieve new product commercialization; and
- Anticipate growth of our target markets.
When used in this prospectus, the words "expects," "anticipates,"
"believes," and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, actual results could differ materially from those
expressed or implied by these forward-looking statements for a number of
reasons, including those discussed under "Risk Factors" and elsewhere in this
prospectus. We assume no obligation to update any forward-looking statements.
USE OF PROCEEDS
The maximum number of shares that will be sold in this offering is
1,082,560 shares, and they will be sold on a first come first serve basis. This
offering is not contingent on a minimum number of shares to be sold. We do not
know what percentage of the total shares available in this offering will
actually be sold. It is possible that no shares or only a nominal number of
shares will be sold. If no shares or a nominal number of shares are sold, this
will significantly restrict our operations, and have a substantial adverse
effect on CALMEC and our investors.
In the following two tables we show our usage of proceeds as a function of
the percentage of proceeds received, from the maximum of 100% to a small
percentage, 4%.
<TABLE>
<CAPTION>
43,302
1,082,560 649,536 433,024 216,512 Shares
Shares Sold Shares Sold Shares Sold Shares Sold Sold
----------------------- ----------------------- ----------------- ----------------- --------
100% of 60% of 40% of 20% of 4% of Those
Those Offered Those Offered Those Offered Those Offered Offered
----------------------- ----------------------- ----------------- ----------------- --------
<S> <C> <C> <C> <C> <C>
Total Receipts $6,495,360 100% $3,897,216 100% $2,598,144 100% $1,299,072 100% $259,814
Less Selling
Shareholders' Portion $ 495,360 $ 297,216 $ 198,144 $ 99,072 $ 19,814
Gross Proceeds to CALMEC $6,000,000 $3,600,000 $2,400,000 $1,200,000 $240,000
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 1.3% $ 50,000 1.9% $ 50,000 3.8% $ 50,000
Net Proceeds from Offering $5,950,000 91.6% $3,550,000 91.1% $2,350,000 90.4% $1,150,000 88.5% $190,000
Use of Net Proceeds:
New R&D $1,785,000 30% $1,065,000 30% $ 705,000 30% $ 345,000 30% $150,000
New Sales & Corp. Dev. $1,785,000 30% $1,065,000 30% $ 705,000 30% $ 345,000 30% $ 20,000
New Purchase of Cap. Equip. $1,190,000 20% $ 710,000 20% $ 470,000 20% $ 230,000 20% $ 10,000
Support of New Work $1,190,000 20% $ 710,000 20% $ 470,000 20% $ 230,000 20% $ 10,000
Total Use of Net Proceeds: $5,950,000 100% $3,550,000 100% $2,350,000 100% $1,150,000 100% $190,000
<S> <C>
Total Receipts 100%
Less Selling
Shareholders' Portion
Gross Proceeds to CALMEC
Less Offering Expenses:
Printing
Distribution
Legal & Accounting
Miscellaneous
Total Offering Expense 19.2%
Net Proceeds from Offering 73.1%
Use of Net Proceeds:
New R&D 79%
New Sales & Corp. Dev. 11%
New Purchase of Cap. Equip. 5%
Support of New Work 5%
Total Use of Net Proceeds: 100%
</TABLE>
The table on the next page breaks out the above use of net proceeds
categories into more specific subcategories. As that table shows, all of the
proceeds of this offering will be spent on new R&D, new Sales and Corporate
Development (corporate development meaning the development of technology
relationships between CALMEC and potential customer companies), the support of
these new activities, and capital investment in equipment and in the
facilitization of new laboratory space.
7
<PAGE>
<TABLE>
<CAPTION>
USE OF PROCEEDS
100% OF 60% OF 40% OF 20% OF 4% OF
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NEW R&D
Develop new molecular switches 190,000 180,000 175,000 160,000 150,000
File foreign patents 200,000 200,000 200,000 185,000 0
Develop switch material manufacturing
processes 350,000 335,000 300,000 0 0
Develop materials for prototype
chiropticene-based hi-res display
screens 420,000 400,000 100,000 0 0
Develop ultra dense molecular memory
devices 625,000 0 0 0 0
------------ ------------ ------------ ------------ ------------
TOTAL NEW R&D EXP. $ 1,785,000 $ 1,065,000 $ 705,000 $ 345,000 $ 150,000
NEW SALES & CORP. DEVELOPMENT
Trade our stock, plus cash, for other
peoples' patents 265,000 265,000 200,000 45,000 10,000
Fund technology development work in
other laboratories 400,000 400,000 125,000 75,000 0
Fund joint venture R&D with future
customers 500,000 200,000 180,000 75,000 0
Package and sell technology licenses 620,000 200,000 200,000 150,000 10,000
------------ ------------ ------------ ------------ ------------
TOTAL NEW SALES & CORP. DEV. EXP. $ 1,785,000 $ 1,065,000 $ 705,000 $ 345,000 $ 20,000
NEW PURCHASE OF CAP. EQUIPMENT
Productivity equipment (PCs & technical
and business S/W) 50,000 40,000 30,000 20,000 10,000
Laboratory facilitization (lab leasehold
improvement) 90,000 90,000 40,000 40,000 0
Office furniture 250,000 250,000 200,000 60,000 0
Laboratory equipment (analytical
instruments and switch and device mfg.
equip.) 800,000 330,000 200,000 120,000 0
------------ ------------ ------------ ------------ ------------
TOTAL NEW CAPITAL EQUIP. EXP. $ 1,190,000 $ 710,000 $ 470,000 $ 230,000 $ 10,000
SUPPORT OF NEW WORK
Telecom (web services, phone, fax) 150,000 100,000 40,000 40,000 4,000
Printing, postage and off. suppl. 150,000 100,000 50,000 40,000 3,000
Training and conferences 150,000 100,000 50,000 20,000 2,000
Insurance, legal, acct. and HR 200,000 110,000 110,000 100,000 0
Office and lab leases 500,000 270,000 150,000 25,000 0
Miscellaneous 40,000 30,000 20,000 5,000 1,000
------------ ------------ ------------ ------------ ------------
TOTAL NEW WORK SUPPORT EXPENSE $ 1,190,000 $ 710,000 $ 470,000 $ 230,000 $ 10,000
TOTAL PROCEEDS TO CALMEC $ 5,950,000 $ 3,550,000 $ 2,350,000 $ 1,150,000 $ 190,000
</TABLE>
8
<PAGE>
It can also be seen from the table that we intend to spend a relatively
steady amount of money, about $150,000, on the development of new switch
molecules. In fact even if we were to sell only 4% of the offered shares,
receiving an estimated net of only $190,000 in this offering, we would still
intend to spend $150,000 of that amount on the development of new switch
molecules. The reason for this is that the chiropticene switch is a driving
factor in our company.
Steady progress in new switch molecules has substantial value to CALMEC.
This is where our focus has been, and even if no proceeds were received from the
offering, this is where our focus would remain. We believe that this progress
alone will drive our company along to success.
The table also shows that with larger proceeds from the offering,
substantial funds will be directed towards new equipment, new lab facilities,
and new R&D projects aimed at developing application/manufacturing processes.
As a result, greater expenditures can be effectively made on sales and corporate
development activity. We believe that at any level, such added expenditures
will accelerate our progress in, and amplify our influence on molecular
electronics. (The costs of travel, salaries, fringe, materials and technical
consulting associated with the New R&D subcategory, and the New Sales and
Corporate Development subcategory, are absorbed in the total expense for the
respective subcategory.)
The two tables above show our intentions for the use of proceeds. However,
since the timing of received proceeds cannot be precisely determined at this
time, our board of directors has broad discretion in determining how the
proceeds of this offering will be applied and we reserve the right to make
changes if we believe these changes are in CALMEC's best interests.
The offering will begin as of the effective date of this prospectus and
continue for twenty-four (24) months or to any earlier date at which we may
terminate the offering. No officer, director, or employee has agreed to loan or
advance funds to the corporation in the event we sell no or a nominal number of
shares. We do not plan to seek any loan financing.
The following table shows the dollar amount received by management, as
selling shareholders in this offering, as a function of level of sales in this
offering, and as compared to the amount, before offering expense estimated at
$50,000, distributed to CALMEC.
<TABLE>
<CAPTION>
100% OF 60% OF 40% OF 20% OF 4% OF
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
AMOUNT DISTRIBUTED TO CALMEC $ 6,000,000 $ 3,600,000 $ 2,400,000 $ 1,200,000 $ 240,000
AMOUNT DISTRIBUTED TO MANAGEMENT $ 495,360 $ 297,216 $ 198,144 $ 99,072 $ 19,814
</TABLE>
If subscriptions exceed 1,082,560 shares, all excess subscriptions will be
promptly returned without interest and without deduction for commissions or
expenses. All subscriptions for stock, once accepted by us, are irrevocable.
Pending usage, the net proceeds of the offering will be invested in short-term,
interest bearing accounts.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and do not anticipate
paying dividends in the foreseeable future. We currently intend to retain any
further earnings to develop and expand our business. (For the purpose of
effecting a two for one stock split, we issued a 100% stock dividend on February
15, 1999.)
9
<PAGE>
CAPITALIZATION
The following table shows the capitalization of CALMEC as of June 30, 1999,
on an actual basis and on an adjusted basis giving effect to the offering if, of
the shares offered, 100 percent, 60 percent, 40 percent, 20 percent and 4
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 CALMEC's employee stock option plan, or shares that
might be purchased at $5.00 per share with a warrant obtained in the March 1,
1999 Private Placement Memorandum (See "Dilution" below).
<TABLE>
<CAPTION>
Actual* As Adjusted**
Shares Shares Shares Shares Shares
Sold: Sold: Sold: Sold: Sold:
100% 60% 40% 20% 4%
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total Shares Sold. ----- 1,082,560 649,536 433,024 216,512 43,302
Shares Sold by Existing Shareholders. ----- 82,560 49,536 33,024 16,512 3,302
Net New Shares issued ----- 1,000,000 600,000 400,000 200,000 40,000
Issued and outstanding shares. 4,979,060 5,979,060 5,579,060 5,379,060 5,179,060 5,019,060
Paid-in capital . . . . . . . . . . . $1,208,033 $7,208,033 $4,808,033 $3,608,033 $2,408,033 $1,448,033
Receivable from sale of common st. ($10,000) ($10,000) ($10,000) ($10,000) ($10,000) ($10,000)
Cost of issuance . ($18,754) ($68,754) ($68,754) ($68,754) ($68,754) ($68,754)
Retained Earnings Thru 6-30-99 ($866,296) ($866,296) ($866,296) ($866,296) ($866,296) ($866,296)
Stockholders' equity $ 312,983 $6,262,983 $3,862,983 $2,662,983 $1,462,983 $ 502,983
----------- ----------- ----------- ----------- ----------- -----------
<FN>
* As of: 6/30/99 **After giving effect to the Offering
</TABLE>
We were initially capitalized by the issuance of stock to our founder, Jon
N. Leonard in return for cash and the donation to CALMEC of his compensation
(through company startup). Subsequently, we sold stock to our chief
technologist, Robert R. Schumaker, in return for cash, the donation to CALMEC of
his compensation (also through company startup), and a patent license.
Subsequently, we sold stock to our CEO, James J. Marek, Jr., in return for cash
and the donation to CALMEC of his compensation (also through 1company startup).
Subsequently, we sold common stock to accredited investors, under a private
placement memorandum dated June 1, 1998 at a price of $2.50 per share. This
offering was exempt from registration under Rule 506 of Regulation D.
Subsequently the Company sold common stock to accredited investors, under a
private placement memorandum dated March 1, 1999, 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. We raised approximately $575,000
dollars in these sales to accredited-investors. On June 15, 1999 we stopped
selling stock in order to prepare and file with state and federal securities
organizations this registration of stock for sale to the public. This
registration was filed with the SEC on July 8, 1999 .
DILUTION
The following table sets forth the difference between our officers,
investors under the two prior private placement memorandums (referred to as PPM
Investors), and purchasers of the shares in this offering with respect to the
number of shares purchased, the total consideration paid, and the average price
per share paid. The table assumes all of the shares offered by us are sold.
<TABLE>
<CAPTION>
Shares Issued Total Consideration Av.
-------------------- --------------------- Price
Number Percent Amount Percent Per Share:
---------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Officers* 4,800,000 80.3% $ 566,333 7.9% $ 0.118
PPM Investors and License** 179,060 3.0% $ 641,700 8.9% $ 3.584
Less Shares Sold by Existing Shareholders (82,560) -1.4% ($495,360) -6.9% $ 6.000
New Investors*** 1,082,560 18.1% $6,495,360 90.1% $ 6.000
---------- -------- ----------- --------
Total 5,979,060 100.0% $7,208,033 100.0%
---------- -------- ----------- --------
<FN>
*Includes officers' compensation donated to CALMEC.
**Includes service provider whose fee was paid in stock at PPM pricing,
and value of University of Minnesota license paid in stock.
***Assumes all of the shares offered are sold.
</TABLE>
10
<PAGE>
The following table shows the difference between the price to be paid by
you and the net tangible book value per share as of June 30, 1999 assuming 100
percent, 60 percent, 40 percent, 20 percent, and 4 percent of the shares
offered are sold. Net tangible book value per share is the amount of total
tangible assets less total liabilities, divided by the number of shares
outstanding.
<TABLE>
<CAPTION>
1,082,560 649,536 433,024 216,512 43,302
Shares Sold Shares Sold Shares Sold Shares Sold Shares Sold
100% 60% 40% 20% 4%
------------- ------------- ------------- ------------- --------
<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* $ 0.06 $ 0.06 $ 0.06 $ 0.06 $ 0.06
Increase per share attributable to Investors $ 1.07 $ 0.68 $ 0.47 $ 0.24 $ 0.04
Post-Offering net tangible book value per share** $ 1.13 $ 0.74 $ 0.53 $ 0.30 $ 0.10
Per share dilution to Investors $ 4.87 $ 5.26 $ 5.47 $ 5.70 $ 5.90
Percent dilution per share to Investors 81% 88% 91% 95% 98%
------------- ------------- ------------- ------------- --------
<FN>
* As of: 6/30/99 **After giving effect to the Offering
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
We currently are in the startup phase of our existence. In this phase, our
officers are working without pay, and our business office is a "virtual office"
utilizing telecommunication interactions (internet, phone and faxes), but with
no leased office space expense. CALMEC can continue indefinitely in this mode.
However, this is not a "stand still" mode because we are currently developing
intellectual property rights, forming technological exploitation agreements, and
instituting research and development plans. We presently have sufficient cash
on hand to support our activities for the next year. No funds from this
offering are required to support these activities.
In the second quarter of 1999, we started paying salaries to two chemists.
At about the same time, we started leasing lab space from San Jose State
University for the purpose of housing these chemists and developing Chiropticene
demonstration chemistry. (The lease is a 12 month, $43,174 total price lease
that runs through March 31, 1999.)
We will transition from the startup phase of our existence to the
operational phase when we have 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 low cost activities that will keep us within our cash
resources.
The sale of the shares in this initial offering is intended to facilitate a
quick startup phase. However, even if no shares were sold in 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, we will transition to operational status
in due time, regardless of the extent to which shares are sold in 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. 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. We
believe that the faster we can grow, the greater will be our participation in
the economic potential of the field of molecular electronics.
ACTIVITIES
Our business currently consists of two major areas of activity, Research
and Development and Sales and Corporate Development.
11
<PAGE>
Research and Development
- --------------------------
The purpose of our R&D program 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, our R&D consists of the following segments:
- Research
- Intellectual Property Development
- Product Technology Development
These three segments work together. Research develops our knowledge by
answering the questions that the other two segments need answered. Intellectual
Property Development fashions our 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 us 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 40% of our annual
budget will be used for R&D, 30% for direct R&D expense and about 10% for what
we term support expense. (Approximately half of our support budget (see the Use
of Proceeds chart on page 10 for the items we include under support) will
generally be attributable to our R&D program, the remainder being attributable
to our sales and corporate development program).
Sales and Corporate Development
- ----------------------------------
The purpose of this area of activity is to exploit our 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. Our
early "products" will be licenses to third parties of our 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. Approximately 40% of our annual budget will be used for our sales and
corporate development program, 30% for direct sales and corporate development
expense and about 10% for support expense. (See R&D above for more on support
expense.)
CASH REQUIREMENTS
As stated above, our operational plans are constructed so that we can
continue in our present status without proceeds from this offering. Any and all
proceeds from this offering will be used to accelerate our progress in both our
technical and our financing activities, and to amplify our influence in
molecular electronics. We believe that cash from this offering is not a
requirement for our eventual success, but it is an advantage to be able to
effectively accelerate and amplify our progress.
CAPITAL EQUIPMENT
Over the next year we expect to expend up to 20% of our expenditures on the
purchase of capital equipment and capital facilities improvement 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 very little expenditures will be made
on capital equipment if the availability of cash is limited. In that case, our
work will be focused on intellectual property development of the type that does
not depend upon the use of research equipment.
HIRING OF EMPLOYEES
We will transition from our startup phase to our operational phase when our
accumulated cash balance permits us to do so according to the business judgment
of management. At that time, employees currently working without pay will begin
receiving pay. Regardless of when that time occurs, we have already hired and
are supporting the lab work of the two chemists mentioned above.
12
<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.
We believe that this enormous shrinkage potential will allow molecular
electronics to create an industry that could supplant the semiconductor industry
that is in place today.
Our 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.
We believe that it is now 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 we think will be a key component of
future molecular electronics devices.
CALMEC also owns the rights to an invention and its related trade secrets
that involves the use of electrostatic signals for molecular electronic
computation (invented by a research group led by Professor James Tour now at
Rice University), molecular electronic patents and trade secrets involving
vapochromic platinum complexes (invented by a research group led by Professor
Kent Mann at the University of Minnesota), and new molecular electronic
inventions and trade secrets already developed by our own group, and now under
submission to the US Patent Office. We believe we are positioned to gain
control of other prime intellectual property by further development of new
technology in our own lab, and by the further development of
technology-exploitation agreements for the technology in the labs of others.
Our strategy for generating favorable returns for our 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 use our intellectual property to form the
basis of joint venture activities with 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 that result from successful products. We believe that our 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 our 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
revenues generated in the field of molecular electronics. It is the goal of
owning a meaningful portion of the entire revenues generated in the field of
molecular electronics, and that goal alone, that our 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 us 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. We believe that long-term revenues will flow from royalties
received from successful products developed by our customers.
Both revenue sources, licensing fees and royalty payments, will enhance our
company's value. Early revenues from licensing fees will be used to grow our
technology base. Long term revenues from royalty streams will be used with the
intent to drive 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
13
<PAGE>
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.
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. And a whole new list of billionaires has been spawned by these
industries.
We estimate 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
intended.
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
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."
14
<PAGE>
Some of the members of our 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 CALMEC playing the "commercialization" role for them.
OUR MOLECULAR ELECTRONICS SWITCH
The Chiropticene switch is a device that goes beyond the semiconductor
switch in size reduction. This switch is a single molecule that exhibits
classical switching properties.
Chiropticene 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.
Mirror image properties are also called "handedness" properties because of
this relationship between our hands. In chemistry, these properties are called
"chiral" properties after the Greek word CHEIR, "hand." The Chiropticenes 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 on the following page 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, this molecule is useful for describing the key
properties needed in such a switch.) The large bold arrows in Figure 1-A,
represent the amine molecule's natural electric dipole, an electrical influence
that points from the negative nitrogen atom toward the more positive R
hydrocarbons. Because it is an influence with both size and direction, it is
what is known as a vector, and is referred to as the dipole vector of the
molecule. Note that the arrows representing the dipole vectors 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
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 Chiropticene 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.
15
<PAGE>
ELEMENTS OF THE CHIROPTICENE SWITCH
The Chiropticene 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.
Figure 1. Umbrella-Like Inversion of Amines: Switching Between Mirror-Image
Forms Illustration Reversal of the Molecular Electric Dipole Vectors
[Graphic Ommitted - Symmetric Amine]
[Graphic Ommitted - Asymmetric Amine]
16
<PAGE>
By using crossed arrow symbols we represent the chiral switching process as:
[Graphic Ommitted - Mirror]
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 Ommitted]
This has the following switch action:
[Graphic Ommitted]
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
Chiropticene 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
valuable intrinsic properties shown in the table on the following page.
17
<PAGE>
<TABLE>
<CAPTION>
PROPERTIES OF THE CHIROPTIC SWITCH
<S> <C>
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.
PHOTONIC ADVANTAGE The Chiropticene 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 Chiropticene 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 Chiropticene 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.
</TABLE>
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 Chiropticene 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 Ommitted]
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
18
<PAGE>
Chiropticene 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 Chiropticene 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 our trade secrets, and are not generally
releasable.)
Figure 2: Discrimination, Orientation and Fixation of
Asymmetric Narcissistic Dipole Vectors
[Graphic Ommitted]
DESIGN OF THE CHIROPTICENE SWITCH
In what follows we embody our molecular switch within a broad group of
chemical structures that constitute Chiropticene 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.
19
<PAGE>
We have previously prepared examples of the Chiropticene 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:
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.
20
<PAGE>
Figure 3: General Formula of US Patent 5,237,067
[Graphic Ommitted]
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 Chiropticene 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.
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.
21
<PAGE>
Table 2: Selected Properties of DithioCarbamate
and DithioIminium Cation Derivatives
[Graphic Ommitted]
A Chiropticene 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 Chiropticene 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.
22
<PAGE>
Figure 4: Face Centered Chiropticene Switch
[Graphic Ommitted]
23
<PAGE>
Figure 5: Ligand Centered Chiropticene Switch
[Graphic Ommitted]
Figure 6: Chiropticene Switch Molecules
[Graphic Ommitted]
24
<PAGE>
[Graphic Ommitted]
[Graphic Ommitted]
[Graphic Ommitted]
[Graphic Ommitted]
25
<PAGE>
[Graphic Ommitted]
[Graphic Ommitted]
PRODUCTS AND SERVICES
Our products are intellectual property and technical services.
Intellectual properties - our patents and trade secrets - are salable products.
We intend to license them and support them in exchange for the payment of fees
and royalties. They will be a continuous output of our company. Customers for
these intellectual property products will be the companies in our customer
network. We believe that this network, consisting of companies interested in
exploiting molecular electronics, will need initial and ongoing access to
molecular electronics intellectual property.
We also intend to sell technical services: contract R&D and product
development support. Customers for these services will again be the companies
in our 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. Our 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.
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.
From reviewing Value Line Investment Survey we determined that 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. The common types of chips currently being
manufactured include computer microprocessors, signal processors,
26
<PAGE>
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. Also from
reviewing Value Line Investment Survey we determined 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.
We expect 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, we further believe 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 others and us. By virtue of these strategies
we hope to control and minimize the impact of the competition that will be seen.
We believe 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, we know of no companies interested in imitating our
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 our or others'
involvement.
We believe that our ultimate competitors 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
our work with them. While we intend to work our customer agreements to our
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.
COMPETITIVE POSITION
We believe that our competitive position is strong. 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. In their book The 22 Immutable Laws of Marketing, Al Reis and Jack
Trout list as their number one law of marketing: "It is better to be first than
it is to be better." As an example of this law, they ask you question Who was
the second person to fly solo across the Atlantic? The answer is Bert Hinkler.
Despite the fact that Hinkler was a better pilot than Charles Lindberg, making
the crossing faster and with less fuel, the chances are very great that you have
never heard of him.
As a matter of corporate policy we intend to exploit our position of being
first. CALMEC intends to be broadly present 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.
PATENTS
We have executed an exclusive license and patent assignment agreement for
the worldwide rights to the economic exploitation of United States Patent Number
5,237,067 issued August 17, 1993 to Dr. Robert R. Schumaker, and its related
technology, called as a whole "chiropticene" technology. Dr. Schumaker is also
our Executive Vice President for Research and Development and a major
27
<PAGE>
shareholder in our company. We have also filed new patent applications on
related molecular electronics innovations flowing from new work internal to our
company.
On March 26, 1999, we executed an exclusive patent license agreement with
the University of South Carolina for the worldwide rights to an invention (USC
Disclosure # 98038) and its related technology that exploits electrostatic
signals for molecular electronic computation. On May 6, 1999, we executed an
exclusive patent license agreement with the University of Minnesota for the
worldwide rights to United States Patent Number 5,766,952 on vapochromic
complexes and related patent disclosures being prosecuted by CALMEC (UM
Disclosures # 98059 and # 98060) together exploiting molecular electronic
vapochromic devices.
In addition, we are working on developing patent exploitation agreements
with numerous other universities and government labs that are leaders in the
field of molecular electronic and that own important intellectual property in
the field.
Chiropticene and CALMEC are trademarks belonging to us that refer to our
molecular switches and our company.
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. Our 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 previous private
offerings of our stock together with this offering of shares. In this offering,
we are using the Internet as a primary avenue for distributing shares. We are
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 our 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".
(Note: material required to be delivered to shareholders under the Exchange Act
will be delivered by US mail.)
STARTUP PHASE
In order to conserve resources, our executive officers have agreed to work
without pay until 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. We refer to the time period prior to the actual startup date as our
"startup phase."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, who will hold office until removal or
resignation, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION DATE OF ELECTION
- ----------------------- --- ----------------------------- -----------------
<S> <C> <C> <C>
Dr. Jon N. Leonard 59 Director, Chairman, Treasurer March 17, 1997
Mr. James J. Marek, Jr. 55 Director, President, CEO September 1, 1997
Dr. Robert R. Schumaker 63 Director, Exec. VP, 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
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.
28
<PAGE>
BIOGRAPHICAL SKETCHES OF MANAGEMENT
DR. JON N. LEONARD is a consultant to business and government in science,
technology, and business development. He has been the Chairman of CALMEC since
early in 1997. He was the President and CEO of BPM Technology from 1992 through
1996, a company that raised 10 million dollars in venture capital to develop and
market a three-dimensional printer product. Prior to that, from 1985 to 1992,
he was the Chief Scientist of, and responsible for new business development in,
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 the
management high technology companies. Since September of 1997, Mr. Marek has
been the President and CEO of CALMEC. Prior to this, in 1996, he had his own
consulting practice specializing in startup management, turnaround
restructuring, marketing/sales issues, and contract negotiations. From 1990 to
1996, Mr. Marek was the President and General Manager of ITEC, Inc., a privately
held $25 million manufacturer of systems for telephone administrations worldwide
and a provider of contract manufacturing services. 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. 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.
DR. ROBERT R. SCHUMAKER is a renown chemist and inventor, credited with the
development of new superconducting materials while at IBM, and the holder of
more than a dozen patents. Since May of 1997 Dr. Schumaker has been the
director of R&D at CALMEC. Prior to coming to CALMEC, from 1992 until 1997, Dr.
Schumaker ran International Molecular Processors, a private company that he
founded, that conducted research in the area of molecular switch devices.
Before this, Dr. Schumaker spent 25 years as a research scientist at IBM and
another 10 years in research and teaching at the University of Bordeaux
(France), the University of Alabama, and Universidad Autonoma de Guadalajara
(Mexico). Dr. Schumaker received his Bachelors degree in Chemistry from the
University of California in Santa Cruz., and his Ph.D. degree in Chemistry from
the University of Oregon.
OUTSIDE DIRECTORS
Our company has three directors, all of whom are employed by the company.
We have no outside directors. Because outside directors add objectivity,
independence and a widening of business contacts, their absence in a company is
frequently considered a negative for the company. To gain for our shareholders
the benefits that outside directors can bring, we intend to add two or more
outside directors over the course of the next year provided that suitable
individuals can be found who are willing to serve.
TECHNICAL ADVISORS
TECHNICAL ADVISORY COMMITTEE
Our Technical Advisory Committee was formed to advise our board of
directors, R&D 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 textbooks and 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
29
<PAGE>
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.
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. Hor k 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.
30
<PAGE>
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.
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
31
<PAGE>
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), Professor (1994 -
1996), and Guy F. Lipscomb Professor of Chemistry (1996 - 1999). He is presently
Chao Professor of Chemistry in the Center for Nanoscale Science and Technology
at Rice University. While on sabbatical leave 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.
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
32
<PAGE>
"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 management positions such 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 postgraduate 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.
EXECUTIVE COMPENSATION
To date, and other than stock as a hiring inducement, no compensation has
been paid to any of our three officers. All three of our officers have agreed
to serve and are serving without pay during our startup phase. (See "Business--
Startup Phase"). Dr. Schumaker and Mr. Marek are working under existing written
employment agreements. Mr. Leonard, working without a written agreement, is
working at the pleasure of the board.
Under the existing employment agreements, and under general board policy,
our officers will start receiving paychecks when our board determines that, in
its exercise of business discretion, CALMEC has enough money to start paying
officer salaries. Also at that time, and also under the existing employment
agreements and general board policy, officers will be provided standard fringe
benefits such as medical and life insurance, estimated at 24% of salaries.
33
<PAGE>
The essential information governing the employment arrangements that we have
with our officers is summarized in the following table:
<TABLE>
<CAPTION>
NAME ANNUAL SALARY CAPACITIES SERVED* START TERM SEVERANCE
- ------------------- -------------- ---------------------- ------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Jon N. Leonard $ 40,000 Chairman and Treasurer 3-17-97 No contract None
James J. Marek, Jr. $ 110,000 President and CEO 9-1-97 48 Months 9 Months
Robert R. Schumaker $ 120,000 Exec. VP and Secretary 5-1-97 68 Months Balance of term
- ------------------- -------------- ---------------------- ------- ----------- ---------------
Officers as a Group $ 270,000
<FN>
*All officers are also directors. There are no outside directors.
</TABLE>
Also, Dr. Schumaker's employment agreement contains a provision effective
after startup, by which CALMEC will carry an insurance policy on his life
payable to his beneficiaries in the amount of his remaining term of employment
in the event he should die in office. No such provision is available to anyone
else in CALMEC.
STOCK OPTION PROGRAM
We have adopted a stock option 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) 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 our 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.
Of our three officers, we have granted two, Dr. Schumaker and Mr. Marek,
options to purchase 400,000 shares each of our common stock under the plan. The
following table shows information regarding options granted to our officers.
<TABLE>
<CAPTION>
NAME OF OFFICER SHARES UNDERLYING OPTIONS DATE OF EXERCISE
- ------------------- ------------------------- ----------------
<S> <C> <C>
Robert R. Schumaker 400,000 None
James J. Marek 400,000 None
Jon N. Leonard 0
OFFICERS AS A GROUP 800,000 NONE
</TABLE>
34
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of our common stock, as
of the date of this prospectus, with respect to each director and officer, and
with respect to all directors and officers as a group. Currently, only Jon N.
Leonard, James J. Marek, Jr., and Robert R. Schumaker own more that five percent
(5%) of our common stock.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
--------------------------------------
PRIOR AFTER
TO THE OFFERING THE OFFERING**
------------------ ------------------
% OF % OF
NO. OF OUTSTANDING NO. 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% 3,972,440 66.4% Chairman and Treasurer
Tucson, AZ 85737
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
James J. Marek, Jr.***
1080 Grande View Blvd., #828 400,000 8.0% 380,000 6.4% President and CEO
Huntsville, AL 35824
Total Shares Owned by the
Above Shareholders 4,800,000 96.4% 4,717,440 78.9%
<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 are sold.
*** CALMEC has granted this individual options on 400,000 shares of common stock under the
company's stock option plan.
(See "Executive Compensation -- Stock Option Program").
</TABLE>
TRANSACTIONS WITH RELATED PARTIES
On March 19, 1997, we executed an agreement with our Chairman, Jon N.
Leonard, by which Mr. Leonard agreed to pay for those of our costs that he
believed were essential to the startup phase of our company (see "Business--
Startup Phase"). We assumed an obligation to repay Mr. Leonard for these costs.
Under this agreement Mr. Leonard paid for $11,366 of our company's startup
costs. The first $10,000 of this $11,366 obligation to Mr. Leonard was canceled
in exchange for founding shares of stock in our company. The balance was repaid
without interest in the second quarter of this year. Mr. Leonard is a director
of our company, is currently the Chairman of our board of directors, and holds
the position of Treasurer.
We executed agreements as of May 1, 1997 with our Executive Vice President,
Dr. Robert R. Schumaker, by which Dr. Schumaker entered into a long-term
employment contract with us, and executed with us an exclusive license and
patent assignment agreement, as amended November 19, 1998 and January 13, 1999
covering US Patent Number 5,237,067, a patent for an invention of Dr.
Schumaker's related to molecular electronic switching. Under the patent
agreement, the patent was assigned to us on January 13, 1999. The patent
agreement retains provisions that will cause our chiropticene technology to be
licensed back to Dr. Schumaker if we fail to act to develop it. For example,
our chiropticene technology would be licensed back to Dr. Schumaker if we
decided 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 Dr. Schumaker and us on whether or not a failure
to act may have occurred.) We have no intention of failing to pursue
chiropticene technology. But see "Risk Factors". Dr. Schumaker is a director
of our company and is currently our Executive Vice president for R&D, and our
Secretary.
Except for the transactions described above, no director, officer or
principal security holder of CALMEC has a direct or indirect material interest
in any transaction to which we are a party.
TRADING MARKET
There is no public market for our common stock, and a public market may not
be available in the foreseeable future. Following this offering, if we
determine that it is acceptable to the relevant securities regulators to do so,
we may sign CALMEC up with one or more independent companies that offer to
facilitate trading of our stock by using an internet based trading mechanism
operated by them, through which persons interested in purchasing or selling
shares of our stock can meet prospective trading partners. Depending on the
company used, there might be a charge for your use of such a service, but
neither CALMEC or any of its employees will receive any commissions or payments
for this service. However, you should not consider this type of mechanism as a
reliable avenue for liquidating your investment.
Our long-term plan for providing liquidity to our shareholders is to
develop a public market for our common stock by soliciting securities brokers to
become market makers. However, to date, we have not solicited any securities
brokers nor do we have any immediate plans to do so. There can be no assurance
that we will be successful in soliciting any market-makers.
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.
35
<PAGE>
There are 4,979,060 shares of common stock that are currently issued and
outstanding. Of these, 4,896,500 are restricted securities under the Securities
Act, and therefore cannot be resold without registration except in reliance on
an exemption from registration. The remaining 82,560 are shares offered by the
selling shareholders (see the table below for a list of selling shareholders),
and therefore will be registered as part of this offering.
Warrants to purchase 47,420 shares of common stock at a price of $5.00, and
expiring February 2, 2002 have been issued to those shareholders who bought our
common stock between March and June of 1999. These also are restricted
securities under the Securities Act, and therefore also cannot be resold without
registration except in reliance on an exemption from registration.
Under our stock option plan 1,600,000 shares of common stock have been
earmarked for provision to employees, directors and key consultants. Of these,
891,420 shares have already been optioned to employees.
SELLING SHAREHOLDERS
The table below shows the beneficial ownership of the selling shareholders,
as adjusted to give effect to the sale of common stock in this offering. The
selling shareholders are affiliates of the company. Their affiliation is also
shown.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING THE OFFERING*
------------------ --------------------
% OF SHARES % OF
NO. OF OUTSTANDING BEING NO. OF OUTSTANDING
SELLING SHAREHOLDER AFFILIATION SHARES SHARES OFFERED SHARES SHARES
- ------------------- ------------------ --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Jon N. Leonard Officer/director &
10% shareholder 4,000,000 80.3% 27,560 3,972,440 66.4%
Robert R. Schumaker Officer/director 400,000 8.0% 35,000 365,000 6.1%
James J. Marek, Jr. Officer/director 400,000 8.0% 20,000 380,000 6.4%
Totals: 4,800,000 96.4% 82,560 4,717,440 78.9%
<FN>
*Assuming all of the shares offered are sold
</TABLE>
DESCRIPTION OF SECURITIES
DESCRIPTION OF CAPITAL STOCK
Our only form of capital stock is no par common stock. We are authorized to
issue 20,000,000 shares of no par common stock. There are 4,979,060 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, these 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 are sold,
5,979,060 shares of common stock will be issued and outstanding. Of these
5,979,060 shares, 4,896,500 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, dividends that
may be declared by our board of directors out of funds legally available for
this. 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.
36
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market, when
and if such a market develops, or even the perception that such sales may occur,
could adversely affect the then prevailing market price of our stock.
Substantial amounts of our common stock are currently outstanding. All of
this outstanding stock was issued to investors in reliance upon an exemption
from registration under Rule 506 of Regulation "D" of the Securities Act of
1933. While such shares are "restricted securities" under the terms of
Regulation "D" and cannot be resold without registration except in reliance on
an applicable exemption from registration, such exemptions automatically become
available with the passage of time. Therefore, over time these shares can be
sold.
Also, we have adopted a stock option plan under which some employees have
been granted options to purchase up to 891,420 shares of common stock vesting
over various periods of time. The plan also reserves another 708,580 shares of
common stock for future issuance to key employees, consultants, or directors.
Some or all of the shares covered by existing or possible future options could
become outstanding.
Additionally, warrants to purchase 47,620 shares of common stock at a price
of $5.00, and expiring February 2, 2002 have been issued to those shareholders
who bought our common stock between March and June of 1999. Some or all of the
shares covered by these warrants could also become outstanding.
No prediction can be made of the effect that will be had on market price of
the future sales of currently outstanding stock, or stock purchased as a result
of the exercise of employee options or shareholder warrants.
LIMITATIONS ON TRANSFER OF SHARES
Prior to the offering there was public trading market for the shares. As
we have said previously, following the offering, we plan to facilitate trading
of our common stock by signing CALMEC up with one or more independent companies
that offer to facilitate trading of our stock by using an internet based trading
mechanism. And as also mentioned previously, our long-term plan for providing
liquidity to our shareholders is to develop a public market for our stock by
soliciting securities brokers to become market-makers of our stock. However, so
far we have not solicited any securities brokers nor do we have any immediate
plans to do so.
TRANSFER AGENT
We intend to serve as our own transfer agent.
ANNUAL REPORT
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
Our Articles of Incorporation, as required by the laws of the State of
Arizona, provide that CALMEC shall indemnify any person who incurs expense by
reason of this person acting as an officer, director, employee or agent of
CALMEC, 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, we have been advised that in the opinion of the Securities
and Exchange Commission this indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
ORGANIZED WITHIN PAST FIVE YEARS
CALMEC was organized in 1997 specifically to develop the technology of
molecular electronics. No promoters have participated in the organization of
CALMEC other than its directors, Dr. Jon N. Leonard, Dr. Robert R. Schumaker,
and Mr. James J. Marek, Jr. Dr. Schumaker and CALMEC 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.")
PLAN OF DISTRIBUTION
We plan to offer and sell the shares directly. We have not retained any
underwriters, brokers or placement agents in connection with this offering.
This offering will begin as soon as practicable after this registration
statement becomes effective and will continue for a maximum of twenty-four (24)
months. It may be terminated at any earlier date that we may choose. When this
offering terminates, if we have received subscription payments that we have not
accepted, we will return these payments without interest and without deduction
for commissions or expenses. We will effect offers and sales of shares through
printed copies of this prospectus delivered electronically and by mail. CALMEC
employees who will offer and sell shares on behalf of CALMEC and the existing
shareholders are:
Name Capacity Served
---------------------- ------------------------
James J. Marek, Jr. President and CEO
Jon N. Leonard Chairman and Treasurer
We have opinion from counsel that our employees are not acting as broker/dealers
in our selling of our shares in this way.
37
<PAGE>
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 electronic
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 CALMEC for the subscription will be returned to the subscriber
without interest or deduction. Within five days of our receipt of a
subscription agreement accompanied by payment of the purchase price, we will
send by first class mail a written confirmation to notify the subscriber of the
extent, if any, to which the subscription has been accepted by us.
We have registered these shares in the states of California, Colorado,
Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Louisiana, Nevada,
New York, Rhode Island, Wisconsin, and Wyoming. Under section 485-4 of the
Hawaii Revised Statutes, an exemption from registration is available for the
sale of these shares in Hawaii, provided that no sales can be made until their
registration has become effective with the SEC. Only residents of the above
states may purchase shares. Also, investors residing in California must meet
the following suitability standard: either $65,000 annual income and a net worth
of $250,000, or a net worth of $500,000.
It is anticipated that these shares may become available for sale in
additional states in the future where those future states will require that a
minimum amount of funds be raised in this offering before residents of those
states may purchase shares. We refer to those states as our minimum amount
states. We have made an agreement with Commercial Federal Bank, to place funds
received from this offering, as they are received, into a monitored account,
before passing these funds on to CALMEC to spend. Commercial Federal Bank will
provide independent certification to our minimum amount states, if any, when the
required minimum amount has been reached.
LEGAL MATTERS
The validity of the shares of common stock offered will be passed upon for
California Molecular Electronics Corp. by Evers & Hendrickson, LLP, San
Francisco California.
LEGAL PROCEEDINGS
Neither the Company nor its property is the subject of any pending legal
proceedings.
38
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<S> <C>
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Interim Balance Sheet, as of June 30, 1999 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . 41
Interim Statement of Operations and Accumulated Deficit, January through June 30, 1999 (Unaudited) 42
Interim Statement of Cash Flows, January through June 30, 1999 (Unaudited) . . . . . . . . . . . . 43
Interim Statement of Changes in Stockholders' Equity, Inception through June 30, 1999 (Unaudited). 44
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS (UNAUDITED). . . . . . . . . . . . . . . . . . . . 45
- --------------------------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . 46
Balance Sheets, as of December 31, 1997 and December 31, 1998 (Audited) .. . . . . . 47
Statements of Operations and Accumulated Deficit, Inception through 12-31-97 and FY 1998 (Audited) 48
Statements of Cash Flows, Inception through December 31, 1997 and FY 1998 (Audited). . . . . . . . 49
Statement of Changes in Stockholders' Equity, Inception through December 31, 1998 (Audited). . . . 50
NOTES TO AUDITED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
- --------------------------------------------------------------------------------------------------
FINANCIAL DATA SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM BALANCE SHEET
June 30, 1999
<S> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . $ 319,278
Employee advance . . . . . . . . . . . . . . . . 15,000
-----------
Total current assets . . . . . . . . . . . . . 334,278
Organization costs. . . . . . . . . . . . . . . . 427
Deposits. . . . . . . . . . . . . . . . . . . . . 7,408
-----------
$ 342,113
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . $ 23,266
Payroll taxes payable. . . . . . . . . . . . . . 864
Other payable. . . . . . . . . . . . . . . . . . 5,000
-----------
Total current liabilities. . . . . . . . . . . 29,130
-----------
Stockholders' equity
Common stock, no par value:
Authorized, 20 million shares;
4,979,060 issued and outstanding at June 30, 1999 $1,189,279
Receivable from sale of common stock. . . . . . . (10,000)
Deficit accumulated during development stage. . . (866,296)
-----------
312,983
-----------
$ 342,113
===========
</TABLE>
See accompanying notes to unaudited interim financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM STATEMENT OF OPERATIONS
Period from March
Cumulative amounts 17, 1997 (date of
from March 17, 1997 Period from January Year ended inception) to
(date of inception) to 1, 1999 to June 30, December 31, December 31, 1997
June 30, 1999 1999 1998
<S> <C> <C> <C> <C>
Revenue:
Interest income. . . . . . . . . $ 7,645 $ 4,824 $ 2,821 $ -
------------------------ --------------------- -------------- -------------------
Expenses:
Research and development
expenses. . . . . . . . . . . . 140,237 115,237 25,000 -
Officers' compensation,
donated to the Company
(Note 4). . . . . . . . . . . . 553,333 135,000 270,000 148,333
Preoperating expenses . . . . . . 180,221 126,272 46,428 7,521
------------------------ --------------------- -------------- -------------------
Loss before income taxes. . . . . (866,146) (371,685) (338,607) (155,854)
Provision for state income taxes
150 50 50 50
------------------------ --------------------- -------------- -------------------
Net loss. . . . . . . . . . . . . (866,296) (371,735) (338,657) (155,904)
Accumulated deficit during
development stage:
Beginning of period . . . . . . - (494,561) (155,904) -
------------------------ --------------------- -------------- -------------------
End of period . . . . . . . . . $ (866,296) $ (866,296) $ (494,561) $ (155,904)
======================== ===================== ============== ===================
</TABLE>
See accompanying notes to unaudited interim financial statements.
41
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED INTERIM STATEMENT OF CASH FLOWS
Cumulative amounts Period from March 17,
from March 17, 1997 Period from Year ended 1997 (date of inception)
(date of inception) to January 1, 1999 to December 31, to December 31, 1997
June 30, 1999 June 30 ,1999 1998
<S> <C> <C> <C> <C>
Operations:
Net loss . . . . . . . . . . . . $ (866,296) $ (371,735) $ (338,657) $ (155,904)
Items not requiring current use
of cash:
Officers' compensation,
donated to the Company
(Note 4) . . . . . . . . . . . 553,333 135,000 270,000 148,333
License fees. . . . . . . . . . 75,000 75,000 - -
Changes in other operating
items:
Payable to related party. . . - (14,500) 14,500 -
Employee advances . . . . . . (15,000) (10,000) (5,000) -
Accounts payable, and
accrued liabilities. . . . . 29,130 26,738 36 2,356
Deposits . . . . . . . . . . . (7,408) (7,208) (200) -
------------------------ -------------------- -------------- -------------------------
Cash used for operating
activities . . . . . . . . . . (231,241) (166,705) (59,321) (5,215)
------------------------ -------------------- -------------- -------------------------
Investments:
Organization costs . . . . . . . (427) - - (427)
------------------------ -------------------- -------------- -------------------------
Cash used for investing
activities . . . . . . . . . . (427) - - (427)
------------------------ -------------------- -------------- -------------------------
Financing:
Advance from (repayment to)
related party. . . . . . . . . - (1,366) 1,366 -
Issuance of common stock, after
stock issuance expense . . . . 550,946 332,723 212,487 5,736
------------------------ -------------------- -------------- -------------------------
Cash provided by financing
activities . . . . . . . . . . 550,946 331,357 213,853 5,736
------------------------ -------------------- -------------- -------------------------
Increase in cash. . . . . . . . . 319,278 164,652 154,532 94
Cash at beginning of period . . . - 154,626 94 -
------------------------ -------------------- -------------- -------------------------
Cash at end of period . . . . . . $ 319,278 $ 319,278 $ 154,626 $ 94
======================== ==================== ============== =========================
Supplemental cash flow
disclosures:
Taxes paid. . . . . . . . . . . $ 50 $ - $ - $ 50
======================== ==================== ============== =========================
Interest paid . . . . . . . . . $ - $ - $ - $ -
======================== ==================== ============== =========================
Supplemental schedule of noncash
investing and financing:
Receivable from sale of
common stock. . . . . . . . . $ 10,000 $ 10,000 $ - $ 4,968
======================== ==================== ============== =========================
</TABLE>
See accompanying notes to unaudited interim financial statements.
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 Inception)
To June 30, 1999
Common Stock Receivable
---------------------- From Sale of Accumulated
Shares Amount Common Stock Deficit Total
--------- ----------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Stock issued March 19, 1997 . . . . . . . . . . . . . . 4,000,000 $ 10,000 $ - $ 10,000
Stock issued May 1, 1997. . . . . . . . . . . . . . . . 400,000 1,000 - 1,000
Stock issued September 1, 1997. . . . . . . . . . . . . 400,000 2,000 - 2,000
Stock issuance costs. . . . . . . . . . . . . . . . . . - (2,296) - (2,296)
Officers' compensation, donated to the Company (Note 4)
- 148,333 - 148,333
Net loss. . . . . . . . . . . . . . . . . . . . . . . . - - (155,904) (155,904)
--------- ----------- ---------- ----------
Balance at December 31, 1997. . . . . . . . . . . . . . 4,800,000 159,037 (155,904) 3,133
Stock issued in private placement . . . . . . . . . . . 87,520 218,800 - 218,800
Stock issuance costs. . . . . . . . . . . . . . . . . . - (11,281) - (11,281)
Officers' compensation, donated to the Company (Note 4)
- 270,000 270,000
Net loss. . . . . . . . . . . . . . . . . . . . . . . . - - $ - (338,657) (338,657)
--------- ----------- -------------- ---------- ----------
Balance at December 31, 1998. . . . . . . . . . . . . . 4,887,520 636,556 (494,561) 141,995
Stock issued in private placement . . . . . . . . . . . 91,540 347,900 - 347,900
Stock issuance costs. . . . . . . . . . . . . . . . . . - (5,177) - (5,177)
Receivable from sale of common stock
- - (10,000) - (10,000)
Officers' compensation, donated to the Company (Note 4)
- 135,000 135,000
License technology fee (Note 3) . . . . . . . . . . . . - 75,000 - 75,000
Net loss. . . . . . . . . . . . . . . . . . . . . . . . - - - (371,735) (371,735)
--------- ----------- -------------- ---------- ----------
Balance at June 30, 1999. . . . . . . . . . . . . . . . 4,979,060 $1,189,279 $ (10,000) $(866,296) $ 312,983
========= =========== ============== ========== ==========
</TABLE>
See accompanying notes to unaudited interim financial statements.
43
<PAGE>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited financial statements of California Molecular
Electronics Corp. ("CALMEC" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Item 310(b) of Regulation S-B. Accordingly, they do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal accruals, considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the financial statements included in this registration for the year ended
December 31, 1998.
NOTE 2 - LEASES:
The Company has entered into a cost reimbursable contract with San Jose State
University Foundation ("Foundation") for the period April 1, 1999 through March
31, 2000. The contract includes advisory services to be provided by the San
Jose State University Department of Chemistry, facilities, supplies and
equipment use. The Foundation shall be reimbursed for costs incurred in
providing the aforementioned items not to exceed a maximum amount of $72,794
over the period of the contract.
NOTE 3 - LICENSES:
CALMEC has entered into a license agreement dated March 26, 1999 with the
University of South Carolina. The agreement provides the Company with an
exclusive license to make, have made, use or sell products using technology
owned by the University of South Carolina. The Company has paid the University
of South Carolina $25,000 as a license fee, which has been expensed as research
and development costs in the accompanying interim financial statements.
CALMEC has also entered into a licensing agreement dated May 6, 1999, with the
University of Minnesota. The agreement provides the Company with an exclusive
license to develop and commercialize technology related to technology owned by
the University of Minnesota. The Company will reimburse the University of
Minnesota $15,237 for prior expenses incurred, and will also issue 15,000 shares
of common stock to the University of Minnesota. The Company has reflected the
aforementioned as research and development costs in the amount of $90,237 in the
accompanying interim financial statements, with a credit to accounts payable in
the amount of $15,237 and common stock in the amount of $75,000.
NOTE 4 - RELATED PARTY TRANSACTIONS:
The Company's three officers have devoted 100 percent of their time to the
business of the Company since the Company hired them in 1997. The officers have
elected to forego their salaries until such time after the Company has completed
its startup phase and upon determination by the Board of Directors that
sufficient capital is available for operations. Planned annual remuneration for
the three officers is as follows: $40,000 - Chairman and Treasurer; $110,000 -
President and Chief Executive Officer; and $120,000 - Executive Vice President
and Secretary. As required by the Securities and Exchange Commission accounting
rules, the Company has reflected the officers' unpaid salaries for the period
ended June 30, 1999, in the amount of $135,000, as compensation expense and a
credit to common stock in the accompanying financial statements as the Company
does not intend to repay such foregone salaries in the future.
44
<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 inception) 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.
ODENBERG, ULLAKKO, MURANISHI & CO. LLP
San Francisco, California
45
<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
Deposits . . . . . . . . . . . . . . . . . . . . . . . . 200 -
------------- ----------
$ 160,253 $ 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. . . . . . . . . . . . . . . . . 636,556 159,037
Less: receivable from sale of common stock. . . . . . . - (4,968)
Deficit accumulated during development stage . . . . . . (494,561) (155,904)
------------- ----------
141,995 (1,835)
------------- ----------
Commitments (Note 1)
$ 160,253 $ 521
============= ==========
See accompanying notes to audited financial statements.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT (AUDITED)
Cumulative amounts Period from March
from March 17, 1997 Year ended 17, 1997 (date of
(date of inception) to December 31, inception) to
December 31,1998 1998 December 31, 1997
------------------------ -------------- -------------------
<S> <C> <C> <C>
Revenue:
Interest income. . . . . . . . . . $ 2,821 $ 2,821 $ -
------------------------ -------------- -------------------
Expenses:
Research and development
expenses . . . . . . . . . . . . . . 25,000 25,000 -
Officers' compensation, donated
to the Company (Note 5). . . . . . . 418,333 270,000 148,333
Preoperating expenses. . . . . . . . 53,949 46,428 7,521
------------------------ -------------- -------------------
Loss before income taxes . . . . . . (494,461) (338,607) (155,854)
Provision for state income taxes . . 100 50 50
------------------------ -------------- -------------------
Net loss . . . . . . . . . . . . . . (494,561) (338,657) (155,904)
Accumulated deficit at beginning of
period . . . . . . . . . . . . . . . - (155,904) -
------------------------ -------------- -------------------
Accumulated deficit at end of
period . . . . . . . . . . . . . . . $ (494,561) $ (494,561) $ (155,904)
======================== ============== ===================
Basic and diluted loss per common
share. . . . . . . . . . . . . . . . $ (.10) $ (.07) $ (.03)
======================== ============== ===================
Weighted average number of
common shares outstanding. . . . . . 4,832,658 4,832,658 4,800,000
======================== ============== ===================
</TABLE>
See accompanying notes to audited financial statements.
47
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS (AUDITED)
Cumulative amounts
from March 17, Period from
1997 (date of Year ended March 17, 1997 (date
inception) to December 31, of inception) to
December 31,1998 1998 December 31, 1997
-------------------- -------------- ----------------------
<S> <C> <C> <C>
Operations:
Net loss. . . . . . . . . . . . . . . . $ (494,561) $ (338,657) $ (155,904)
Items not requiring current use of cash:
Officers' compensation, donated to
the Company (Note 5). . . . . . . . . . . 418,333 270,000 148,333
Changes in other operating items:
Payable to related party. . . . . . . . . 14,500 14,500 -
Employee advances . . . . . . . . . (5,000) (5,000) -
Accounts payable. . . . . . . . . . 2,392 36 2,356
Deposits. . . . . . . . . . . . . . (200) (200) -
-------------------- -------------- ----------------------
Cash used for operating activities
(64,536) (59,321) (5,215)
-------------------- -------------- ----------------------
Investments:
Organization costs. . . . . . . . . . . (427) - (427)
-------------------- -------------- ----------------------
Cash used for investing activities. . . . (427) - (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
==================== ============== ======================
</TABLE>
See accompanying notes to audited financial statements.
48
<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 Inception)
To December 31, 1998
Common Stock
-------------------- Accumulated
Shares Amount Deficit Total
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Stock issued March 19, 1997 . . . . 4,000,000 $ 10,000 $ - $ 10,000
Stock issued May 1, 1997. . . . . . 400,000 1,000 - 1,000
Stock issued September 1, 1997. . . 400,000 2,000 - 2,000
Stock issuance costs. . . . . . . . - (2,296) - (2,296)
Officers' compensation, donated to
Company (Note 5) . . . . . . . - 148,333 - 148,333
Net loss. . . . . . . . . . . . . . - - (155,904) (155,904)
--------- --------- ---------- ----------
Balance at December 31, 1997. . . . 4,800,000 159,037 (155,904) 3,133
Stock issued in private placement . 87,520 218,800 - 218,800
Stock issuance costs. . . . . . . . - (11,281) - (11,281)
Officers' compensation, donated to
Company (Note 5) . . . . . . . - 270,000 - 270,000
Net loss. . . . . . . . . . . . . . - - (338,657) (338,657)
--------- --------- ---------- ----------
Balance at December 31, 1998. . . . 4,887,520 $636,556 $(494,561) $ 141,995
========= ========= ---------- ==========
</TABLE>
See accompanying notes to audited financial statements
49
<PAGE>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO AUDITED 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, and has a fiscal year ending
December 31. 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.
Since its inception, CALMEC has been in the development stage. 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 Chiropticene 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. The cost of the licensing
fee has been expensed on the accompanying financial statements as research and
development costs.
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.
Stock-based compensation
- -------------------------
The Company accounts for stock options as prescribed by APB Opinion No. 25 and
includes pro forma information in the stock option plan footnote, as provided by
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation."
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.
50
<PAGE>
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.
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 a long-term employment agreement 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 an employment agreement, 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 (as defined under Rule
501(a) of Regulation D, promulgated by the Securities and Exchange Commission)
at $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 under the 1997 Plan may not exceed 1,600,000 shares of common stock.
Options granted to some 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
$338,657 as reported for the year ended December 31, 1998 would compare to a pro
forma net loss of $366,197 and the net loss of $155,904 as reported for the
period from March 17, 1997 (date of inception) to December 31, 1997 would not
change. Basic and diluted loss per share of $.07 as reported for the year ended
December 31, 1998 would compare to a basic and diluted loss per share of $0.08
on a pro forma basis. Basic and diluted loss per share of $0.03 for the period
from March 17, 1997 (date of inception) 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.
51
<PAGE>
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.
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 Number Average
of Shares Exercise 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 - RELATED PARTY TRANSACTIONS:
The Company's three officers have devoted 100 percent of their time to the
business of the Company since the Company hired them in 1997. The officers have
elected to forego their salaries until such time after the Company has completed
its startup phase and upon determination by the Board of Directors that
sufficient capital is available for operations. Planned annual remuneration for
the three officers is as follows: $40,000 - Chairman and Treasurer; $110,000 -
President and Chief Executive Officer; and $120,000 - Executive Vice President
and Secretary. As required by the Securities and Exchange Commission accounting
rules, the Company has reflected the officers' unpaid salaries for 1998 and 1997
totaling $270,000 and $148,333, respectively, as compensation expense and a
credit to common stock in the accompanying financial statements as the Company
does not intend to repay these foregone salaries in the future.
52
<PAGE>
NOTE 6 - 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 7 - 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.
CALMEC has entered into a license agreement dated March 26, 1999 with the
University of South Carolina. The agreement provides the Company with an
exclusive license to make, have made, use or sell products using technology
owned by the University of South Carolina. The Company has paid the University
of South Carolina $25,000 as a license fee, which will be expensed as research
and development costs in the year ending December 31, 1999.
CALMEC has also entered into a licensing agreement dated May 6, 1999, with the
University of Minnesota. The agreement provides the Company with an exclusive
license to develop and commercialize technology related to technology owned by
the University of Minnesota. The Company will reimburse the University of
Minnesota $15,237 for prior expenses incurred, and will also issue 15,000 shares
of common stock to the University of Minnesota in the year ending December 31,
1999.
NOTE 8- RESTATEMENT OF FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
Year ended December 31, Year ended December 31,
1998 1997
-------------------------- --------------------------
As reported As restated As reported As restated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Officers' compensation, donated to the Company
$ - $ 270,000 $ - $ 148,333
Research and development expense . . . . . . . - 25,000 - -
------------ ------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . . . $ - $ 295,000 $ - $ 148,333
============ ============ ============ ============
</TABLE>
In accordance with Securities and Exchange Commission accounting rules, the
Company has restated its financial statements to recognize officers'
compensation donated to the Company as an expense with a credit to capital, and
research and development as an expense reflecting the cost of patents which have
not reached technological feasibility and which have no alternative future use.
The following table reflects the adjustments made for these items:
53
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA MOLECULAR ELECTRONICS CORP.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL DATA SCHEDULE
Inception to December 12 Months Ended 6 Months Ended
Period-Type 31, 1997 December 31, 1998 June 30, 1999
<S> <C> <C> <C>
Fiscal-Year-End. . . . . . December 31, 1997 December 31, 1998 December 31, 1999
Period-Start . . . . . . . March 17, 1997 January 1, 1998 January 1, 1999
Period-End . . . . . . . . December 31, 1997 December 31, 1998 June 30, 1999
Cash . . . . . . . . . . . 94 154,626 319,278
Securities . . . . . . . . - - -
Receivables. . . . . . . . - 5,000 15,000
Allowances . . . . . . . . - - -
Inventory. . . . . . . . . - - -
Current-Assets . . . . . . 94 159,626 334,278
PP&E . . . . . . . . . . . - - -
Depreciation . . . . . . . - - -
Total-Assets . . . . . . . 521 160,253 342,113
Current-Liabilities. . . . 2,356 18,258 29,130
Bonds. . . . . . . . . . . - - -
Preferred-Mandatory. . . . - - -
Preferred. . . . . . . . . - - -
Common . . . . . . . . . . 159,037 636,556 1,189,279
Other-SE . . . . . . . . . (160,872) (494,561) (876,296)
Total-Liability-and-Equity 521 160,253 342,113
Sales. . . . . . . . . . . - - -
Total-Revenues . . . . . . - 2,821 4,824
CGS. . . . . . . . . . . . - - -
Total-Costs. . . . . . . . 155,854 341,428 376,509
Other-Expenses . . . . . . - - -
Loss-Provision . . . . . . - - -
Interest-Expense . . . . . - - -
Loss-Pretax. . . . . . . . (155,854) (338,607) (371,685)
Income-Tax . . . . . . . . 50 50 50
Loss-Continuing. . . . . . (155,904) (338,657) (371,735)
Discontinued . . . . . . . - - -
Extraordinary. . . . . . . - - -
Changes. . . . . . . . . . - - -
Net-Loss . . . . . . . . . (155,904) (338,657) (371,735)
EPS-Primary. . . . . . . . (0.03) (0.07) (0.08)
EPS-Diluted. . . . . . . . (0.03) (0.07) (0.08)
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
GLOSSARY
--------
<S> <C>
alkyl A hydrocarbon substituent of a molecule
allylic rearrangements A chemical reaction that transposes a substituent with a double bond
in a molecule
amine An organic species containing a tertiary (i.e. bonded to three entities)
nitrogen atom
anchimeric assistance Participation of a neighboring group in the mechanism of a reaction
anion A negatively charged atom or molecule
antibonding orbital An electron orbital of energy sufficiently high that chemical bonds are
not formed
asymmetric narcissistic reaction A reaction whose product is a non-superimposable mirror image of
the starting material
capacitance The charge on the surface of a substance resulting from a voltage
across the substance
carbamate A chemical group derived from the reaction of an amine with carbon
dioxide (CO2)
cation A positively charged atom or molecule
chiral properties Physical-chemical properties due to molecular asymmetry
chiroptical properties Physical-chemical properties (in particular optical properties) due to
molecular asymmetry
Chiropticene switch A molecular based asymmetric, narcissistic electrical dipole switch
chromophore A group of atoms that absorb light energy
coalescent temperature Temperature at which two spectral absorptions become one due to a
rapid interchange between the molecular forms responsible for the
absorptions
cyclizations A chemical reaction resulting in a ring of atoms
cycloalkyl A hydrocarbon that forms a ring
debye A unit of measure of electric dipole strength
dipolar Producing an electric dipole vector
dithiocarbamate A chemical group derived from the reaction of an amine with carbon disulfide (CS2)
dithioiminium A salt formed by the alkylation of a dithiocarbamate
55
<PAGE>
electric dipole vector An electric force caused by a net separation of positive and negative
electrical charge in a region of a material (The word "vector" is used
to indicate that the force points in a particular direction, in this case
from the positive to the negative charge, and the word "dipole" is used
to indicate that the force acts as if there are two points ("poles"), one
with a positive charge, and one with a negative charge, which results
in the force in question.)
----------------------------------------------------------------------------------
electron orbital An energy level of a molecule that may be occupied by an electron
face centered Chiropticene switch A Chiropticene switch involving one atom at its switching site
hydrocarbon A molecular species consisting of only carbon and hydrogen
ligand centered Chiropticene A Chiropticene switch involving a polyene at its switching site
switch
methoxy tropolenyl A seven membered hydrocarbon ring bearing a methyl-oxygen
substituent
narcissistic reaction A chemical reaction that results in a product that is the mirror image
of the starting material
nucleophile A chemical species that attacks the positive center of a molecule
optical rotation The rotation of the plane of polarized light due to molecular chirality
photonic Involving light quanta
polyene A chain of carbon double bonds
ring-completing collection of A molecule in which the constituent atoms bond together to form a
atoms ring structure
rotational barrier The energy barrier for free rotation of atoms in a molecule
secondary phenalenyl A particular tricyclic hydrocarbon substituent
selena pipiradenyl A carbamate made by the combination of a cyclic amine with a carbon
diselenide (CSe2)
thiomethoxy anthracenyl A particular tricyclic hydrocarbon substituent bearing a methyl-sulfur
group
transannular interactions An anchimeric assistance occurring across a ring of atoms
strong "soft" nucleophilic attack Chemical attack from a strong nucleophile having loosely bound
electrons
sulfoxide asymmetry A lack of symmetry due to the presence of a sulfur atom coordinated
with an oxygen atom
</TABLE>
56
<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 in this
Subscription Agreement 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. CALMEC 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 these 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 regarding these Shares; (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; (d) Except as otherwise set forth above, 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 this title. 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 #
_______________________________________
57
<PAGE>
_______________________________________
City, State, Zip Code Telephone City, State, Zip Code Telephone
Please send this Subscription
Agreement together with payment made
Out to California Molecular
Electronics Corp. to:
California Molecular Electronics Corp.
C/O Commercial Federal Bank
1171 E. Rancho Vistoso Blvd., Suite 101
Tucson, AZ 85737
ACCEPTED:
CALIFORNIA MOLECULAR ELECTRONICS CORP.
By: ____________________________________
Signature of Officer
Title: ______________________ Date: _______
58
<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 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. We raised approximately $575,000 dollars in these
sales, selling to a total of 65 accredited-investors, counting as accredited
investors the three company founders, Messrs. Leonard, Schumaker, and Marek. In
addition, in an agreement effective May 7, 1999, we sold the University of
Minnesota 15,000 shares in exchange for $75,000 worth of technology belonging to
the University of Minnesota. These shares were divided between the University
of Minnesota and eight professors associated with the University of Minnesota,
giving nine new shareholders as a result of the transaction. In addition, some
of the 65 accredited investors have gifted some of their shares to family
members, and one investor gifted some of his shares to his church, adding eleven
more stockholders. Taken together, the 65 shareholders that were accredited
investors, the 9 shareholders resulting from the University of Minnesota
transaction, and the 11 shareholders resulting from the gifting of shares to
family members or the church by accredited investors, gives a total of 85
shareholders. On June 15, 1999 we stopped selling stock in order to prepare and
file with state and federal securities organizations this registration of stock
for sale to the public. This registration was filed with the SEC on July 8,
1999.
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.
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.
Page 1
<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.
Page 1
<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.
Page 2
<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.
Page 3
<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.
Page 5
<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.
Page 6
<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.
Page 7
<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.
Page 8
<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.
Page 9
<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.
Page 10
<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>
