<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For The fiscal year ended May 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-16250
DYNATEM, INC.
----------------------------------------------
(Name of small business issuer in its charter)
CALIFORNIA 95-3627099
- --------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23263 MADERO, SUITE C
MISSION VIEJO, CALIFORNIA 92691
- --------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (714) 855-3235
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. X
----
The issuer's revenues for its most recent fiscal year were $2,495,320.
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $432,232 on August 1, 1997.
On August 1, 1997, there were 1,418,400 shares of the issuer's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Definitive Proxy Statement to be filed for its
Annual Meeting of Shareholders to be held on October 10, 1997, are incorporated
herein by reference into Part III hereof, to the extent indicated herein.
Transitional Small Business Disclosure Format Yes No X
---- ----
<PAGE>
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS.
- ------- -----------------------
HISTORY
- -------
Dynatem, Inc. (the "Company" or "Dynatem") was incorporated on May 15,
1981, under the laws of the State of California. It was organized to design,
manufacture and market microcomputers and microcomputer-based systems and
software for industrial applications such as factory automation, sensor
monitoring, process control, robots, data acquisition, networking and displays.
The Company commenced manufacturing and marketing operations in May 1981 and has
conducted such operations continuously from such date. As part of such
operations, the Company was, until October 1984, an authorized dealer of certain
products manufactured by Rockwell International Corporation ("Rockwell") which
included the "AIM 65," "AIM 65/40" and "RM 65" families of single board
microcomputers, peripherals and software. In order to broaden the product line
manufactured by the Company and reduce the cost of sales, in October 1984 the
Company entered into an agreement with Rockwell pursuant to which the Company
received an exclusive United States and Canadian license and a non-exclusive
worldwide license elsewhere, with some exclusions, to manufacture the "AIM 65,"
"AIM 65/40" and "RM 65" families of single board microcomputers, peripherals and
software.
The Company currently designs, manufactures, distributes and markets more
than 100 products including microcomputers, microcomputer systems, microcomputer
modules, software and peripherals and markets such products and other licensed
products individually or as components of a system.
MARKET
- ------
The Company markets its products on a worldwide basis and its customers
include many Fortune 100 corporations. Included among the export markets are
the United Kingdom, Germany, and Japan. For the year ended May 31, 1997, export
sales accounted for 32% of the Company's net sales.
For the last two fiscal years the export net sales and the percentage to
total net sales were:
<TABLE>
<CAPTION>
YEAR AMOUNT % OF TOTAL NET SALES
- ---- -------- ---------------------
<S> <C> <C>
1997 $777,780 32%
1996 $851,538 32%
</TABLE>
2
<PAGE>
PRODUCTS
- --------
The Company's products generally consist of modular single board
microcomputers known as Central Processing Unit (CPU) boards, peripheral systems
and software. The products are intended for use by manufacturing companies
seeking to increase efficiency and productivity through factory automation,
sensor monitoring, process control and other electronic implementations. The
Company provides warranties ranging from 90 days to one year on all products
sold.
VME. The Company's principal product group is based on the VMEbus
---
specification. These products are used as embedded controllers for
telecommunications, industrial controls, robotics, aerospace, and a wide variety
of military applications.
In the Spring of 1990, Dynatem reached an agreement with OR Industrial
Computers GmbH in Germany ("OR"), whereby Dynatem would distribute the OR
products in North America. The relationship with OR was terminated in spring of
1997. The Company has since established a similar distributorship relationship
with another German VMEbus manufacturer, Microsys Electronics GmbH ("Microsys").
The products manufactured by Microsys are consistently compatible with the
Dynatem line because, like the Dynatem VMEbus products, the Microsys products
are 100% CMOS and extremely low in power consumption and well suited to extended
temperature range systems.
The addition of the Microsys line to the Dynatem line should have the
effect of augmenting the Dynatem range of products. It also increases the range
of hardware to meet virtually every customer's system requirements in connection
with the products designed and manufactured here. This is extremely important
because customers prefer buying all of the modules in their system from one
vendor who takes responsibility for guaranteeing that all modules function well
together.
New offerings from Microsys include a number of "IP Modules", which support
a popular "mezzanine bus" used in the VMEbus market. Through the use of these
IP modules, customers are able to customize the system I/O by adding piggyback
modules on VMEbus carrier boards. Microsys builds both intelligent VMEbus IP
carriers as well as IP modules themselves. Other interesting products from
Microsys include VMEbus board computers based on such current processors as the
68060 and the QUICC 860, both from Motorola.
Among the most exciting new product offering is Dynatem's own PC compatible
VMEbus module based upon the Pentium processor and using the most current PC
compatible components. With this design, the Company is able to produce a very
high performance, highly reliable processor module at a very low cost, by
leveraging off the economies of scale inherent to components used in desktop
PCs. Through part screening, testing and careful
3
<PAGE>
design, the same components found in state-of-the-art desktop computers can be
used in high-end multiprocessor systems or in rugged environments. With recent
software and hardware improvements, these architectures, previously not suitable
for use in time-critical multitasking applications, can now support true real-
time environments where "deterministic" tasks need to be scheduled to the micro-
second.
SOFTWARE. The Company offers to its customers software that it has
--------
developed, and software which the Company purchases from other suppliers. The
Company believes that there are alternative sources of supply for such software.
Since all of the modules offered are part of highly integrated real-time
systems, it is essential that all boards work well together. For this reason,
the Company is required to provide drivers for all the boards which enable them
to implement any of the standard real-time operating systems. The Company
therefore distributes, sells and supports real-time operating systems that have
been modified to work with the Dynatem and Microsys products. This is a value-
added service which ties the Company more closely to the customer base.
OPERATIONS
- ----------
The Company's products are manufactured either at the Company's facility in
Mission Viejo, California, or by outside assembly contractors. They are
produced from the Company's designs with standard and semi-custom components.
Most of the devices and components used in the Company's products are
available from several sources. Although no assurance can be given as to the
future, the Company believes that the loss of one or more of its current
suppliers would not have a material adverse effect upon its business.
MARKETING
- ---------
The Company's marketing and sales department consists of marketing, sales,
customer service, engineering and engineering application support. The Company
has in recent years expanded its use of advertising in major trade publications,
coupling it with wide distribution of marketing brochures. In addition, the
Company participates in over 20 regional trade shows during the year throughout
the United States and Canada.
There are over 200 VMEbus vendors worldwide. Depending on the application,
at least one or more of these companies are in direct competition with us.
Details of unique characteristics of the Company's offerings are more fully
described in "Products" above.
Marketing of the Company and the Company's products is accomplished through
direct marketing and telemarketing efforts. Direct marketing efforts are
generated by responding to inquiries generated through press releases, trade
publications, advertising, current customer lists and other similar leads.
Telemarketing is utilized to inform current and potential
4
<PAGE>
customers of new products and technical product changes, as well as allow the
Company to evaluate the market and customer needs. Implementation of a World
Wide Web site has been accomplished over the past six months. It has become an
effective means of attracting new customers throughout the world.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company believes that its future growth greatly depends on its ability
to be an innovator in the development and application of new and existing
hardware and software technology. Expenditures for Company-sponsored research
and development for the fiscal years ended May 31, 1997 and 1996, were $198,477
and $169,121, respectively. In the last fiscal year the Company continued
pursuing two exciting product areas. The Pentium Single Board Computer described
earlier has been the major development area; traffic control systems is the
second. CalTrans has specified the use of the 3U VMEbus into its new generation
of traffic controllers named the Model 2070. The Company has taken advantage of
its 3U VMEbus experience to develop a Motorola 68360 based Single Board Computer
("SBC") in compliance with the CalTrans specification. It is anticipated that
thousands of 2070 controllers will ultimately be implemented and, since there
are a limited number of other manufacturer's developing similar SBC's, the
Company believes it will receive a portion of this business.
EMPLOYEES
- ---------
At present the Company employs 14 people, 9 of whom are working full-time
schedules in the sales, engineering, financial and manufacturing departments.
Neither the Company nor its employees are parties to a collective bargaining
agreement. The Company believes that its employee relations are very good.
COMPETITION
- -----------
Competition within the industry is based primarily upon product line
breadth, product performance, price and customer service. The Company competes
with over 250 manufacturers of VMEbus products in North America and Europe. One
advantage the Company believes it has is its ability to offer a "one-stop-shop"
approach which provides full support normally not provided by the Company's
competitors. As part of this approach, the Company provides high quality
products, pricing that is competitive, and technical support which includes,
when needed, customization, special products and/or writing of special software
programs. In addition, the Company provides customers with most products
required for specific applications including, but not limited to, special power
supplies, special enclosures, cables and other requisite hardware. This
approach is not customary with larger competitors who would normally limit
themselves to sales of standard products. However, most of these manufacturers
have certain other competitive advantages over the Company, including greater
financial and technological resources, earlier access to customers, established
client service programs and client loyalty.
5
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
- ------- -----------------------
The Company's executive offices and manufacturing plant are located in an
approximately 6,357 square foot facility in Mission Viejo, California. The
facility is leased from an unaffiliated party for a term expiring in January,
2001, and is currently adequate to meet the Company's needs.
ITEM 3. LEGAL PROCEEDINGS.
- ------- -----------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ---------------------------------------------------
Not applicable
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ------- --------------------------------------------------------
There is no public trading market for the Company's Common Stock. Set
forth below are the high and low bid quotations of the Company's Common Stock
for the periods indicated, as reported by a licensed marketmaker who continues
to make a market in the Common Stock. Such quotations represent inter-dealer
quotations without adjustment for retail mark-up, mark-down or commissions, and
may not represent actual transactions. Trading in the Company's Common Stock is
limited in volume and may not be a reliable indicator of its market value.
<TABLE>
<CAPTION>
Fiscal year ended May 31,
1997 1996
------------ ------------
High Low High Low
----- ---- ----- ----
<S> <C> <C> <C> <C>
First Quarter 13/32 1/4 13/32 1/4
Second Quarter 3/8 7/32 13/32 1/4
Third Quarter 11/16 7/32 1/4 1/8
Fourth Quarter 11/16 7/32 1/4 1/4
</TABLE>
As of August 1, 1997, there were approximately 154 shareholders of record
of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock and the Board
of Directors intends to continue this policy for the foreseeable future. Future
dividend policy will depend upon the Company's earnings, capital requirements,
financial condition and other factors considered relevant by the Company's Board
of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
- ------- ---------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
Net sales for the Company's fiscal year ended May 31, 1997, decreased 7% to
$2,490,919 over net sales of $2,683,188 in fiscal year 1996. For fiscal year May
31, 1997, net sales of OR products
6
<PAGE>
decreased 23% to $1,374,227 over net sales of $1,790,758 for fiscal year 1996.
Dynatem manufactured products sales increased 25% to $1,116,692 this fiscal year
from $892,430 in fiscal year 1996. Export sales amounted to $777,780
representing 32% of total net sales for the fiscal year ended May 31, 1997. The
Company has been notified by OR that as of April 30, 1997, Dynatem will no
longer be a distributor of OR products. This could materially affect the net
sales of Dynatem in the near future since the ongoing arrangement proposed by OR
is that of a representative or finder. The Company has since established a
distributor relationship with another German VMEbus manufacturer, Microsys
Electronics GmbH.
Gross profit as a percentage of sales increased from 31% to 37% for this
fiscal year due to a lower cost of sales. One factor in this lower cost of
sales was a greater strength in the exchange rate of the U.S. Dollar against the
DeutschMark, and secondly, the Company realizes higher margins on domestic sales
of its own products than sales of OR products.
The Company's cost of sales totalled $1,569,654, a 16% decline over fiscal
year 1996. Taken as a percentage of net sales, cost of sales were 63% and 69%
for fiscal years 1997 and 1996, respectively. The decrease is due primarily on
the reasons mentioned above, as well as the factors in relation to the Company's
product sales mix.
Selling, general and administrative expenses were $656,986 for fiscal year
1997 compared to $635,338 for fiscal year 1996, a 3% increase. This change is
attributable to expenditures incurred in the Company's marketing campaign,
including advertising, trade shows and travel. The Company's management will
continue to review these types of expenditures to fuel future growth of sales.
In this connection, management intends to utilize commissioned sales
representatives.
Research and development costs were $198,477 in fiscal year 1997 in
comparison to $169,121 in fiscal year 1996, a 17% increase. The increase is
attributable to the development of the new PC compatible VMEbus module based
upon the Pentium processor. The Company will continue to expand its employment
of in-house design engineers in order to optimize the scheduling and completion
of its new products on a more timely basis, as well as to obtain more
competitive costs.
At May 31, 1997, the Company had net operating loss carryforwards of
approximately $1,545,308 and $12,780 for federal and state income tax reporting
purposes, respectively, which, if not used, will expire through 2006.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of May 31, 1997, the Company's working capital was $990,295 and its
current ratio was 7.9 to 1. Management believes that the Company's existing
working capital and cash flows from operations will be sufficient to meet its
working capital needs during fiscal 1998. The Company may consider additional
sources
7
<PAGE>
of capital should the need arise.
FUTURE TRENDS
- -------------
As a result of the new relationship established with Microsys, the Company
is now promoting these products and expects a significant growth in sales of
Microsys products over the next year. It will take an indeterminate period of
time, however, before the sales of Microsys will compensate for the loss of
sales as a result of the termination of the relationship with OR. There is
always the possibility that the Microsys sales will not, at some future period,
compensate for such loss of sales.
The Company's new PC compatible VMEbus module is now being designed into
several fairly large programs and it is being well received by the VMEbus
market. The key to success with this type of product is to offer strong
software support. The Company has put great effort into being a first to the
market with error-free versions of several popular realtime operating systems.
As the PC Compatible market changes, the Company will attempt to achieve market
leadership by offering new products based upon the latest PC compatible
technology, in a timely manner.
The Company is now in the process of using alternative methods of
manufacturing, by using outside vendor facilities on several contractual bases.
8
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
- ------- --------------------
INDEX
<TABLE>
<S> <C>
Independent Auditors' Report...................................... F-1
Balance Sheet as of May 31, 1997.................................. F-2
Statements of Income For The Years Ended May 31, 1997
and 1996......................................................... F-3
Statements of Shareholders' Equity For The Years Ended
May 31, 1997 and 1996............................................ F-4
Statements of Cash Flows For The Years Ended May 31, 1997
and 1996......................................................... F-5
Notes to Financial Statements For The Years Ended
May 31, 1997 and 1996............................................ F-6 to F-17
</TABLE>
9
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Dynatem, Inc.
We have audited the accompanying balance sheet of Dynatem, Inc. (a California
corporation) as of May 31, 1997, and the related statements of income,
shareholders' equity and cash flows for each of the years in the two-year period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dynatem, Inc. as of May 31,
1997, and the results of its operations and its cash flows for each of the years
in the two-year period then ended in conformity with generally accepted
accounting principles.
CORBIN & WERTZ
Irvine, California
July 18, 1997
F-1
<PAGE>
DYNATEM, INC.
BALANCE SHEET
May 31, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 561,511
Accounts receivable, less allowance
for doubtful accounts of $6,825 285,412
Inventories (Note 2) 264,700
Prepaid expenses and other 21,386
-----------
Total current assets 1,133,009
Notes receivable (Note 8) 10,886
Property and equipment, net (Notes 1 and 3) 17,321
Other assets (Note 4) 35,406
-----------
$ 1,196,622
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 76,807
Accrued expenses (Note 6) 65,907
-----------
Total current liabilities 142,714
-----------
Commitments and contingencies (Note 6)
Shareholders' equity (Note 7):
Common stock, no par value, authorized
50,000,000 shares; issued and outstanding
1,418,400 shares 2,383,385
Accumulated deficit (1,329,477)
-----------
Total shareholders' equity 1,053,908
-----------
$ 1,196,622
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-2
<PAGE>
DYNATEM, INC.
STATEMENTS OF INCOME
For The Years Ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales $2,490,919 $2,683,188
Cost of sales (Note 6) 1,569,654 1,858,944
---------- ----------
Gross profit 921,265 824,244
---------- ----------
Operating expenses:
Selling, general and administrative
(Notes 6 and 8) 656,986 635,338
Research and development 198,477 169,121
---------- ----------
Total operating expenses 855,463 804,459
---------- ----------
Operating income 65,802 19,785
Other income, net 23,411 16,963
---------- ----------
Income before provision for income taxes 89,213 36,748
Income taxes (Note 5) 800 800
---------- ----------
Net income $ 88,413 $ 35,948
========== ==========
Net income per common share $.06 $.03
========== ==========
Weighted average number of shares
outstanding (Note 1) 1,462,894 1,418,400
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-3
<PAGE>
DYNATEM, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
For The Years Ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock Total
---------------------------- Accumulated Shareholders'
Shares Amount Deficit Equity
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at
June 1, 1995 1,418,400 $2,383,385 $(1,453,838) $ 929,547
Net income --- --- 35,948 35,948
--------- ---------- ----------- ----------
Balances at
May 31, 1996 1,418,400 2,383,385 (1,417,890) 965,495
Net income --- --- 88,413 88,413
--------- ---------- ----------- ----------
Balances at
May 31, 1997 1,418,400 $2,383,385 $(1,329,477) $1,053,908
========= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-4
<PAGE>
DYNATEM, INC.
STATEMENTS OF CASH FLOWS
For The Years Ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 88,413 $ 35,948
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 78,460 44,462
Provision for doubtful accounts (5,818) (4,000)
Gain on sale of property and
equipment (600) ---
Changes in current assets and
liabilities:
Accounts receivable (4,306) (26,005)
Inventories 1,599 (7,648)
Prepaid expenses and other (1,406) (10,181)
Accounts payable (83,885) 32,883
Accrued expenses 4,338 14,188
-------- --------
Net cash provided by operating activities 76,795 79,647
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (7,099) (2,387)
Proceeds from sale of property
and equipment 600 ---
Note receivable issued to officer (2,500) ---
Collections on note receivable from
officer 2,349 3,250
Other assets (41,552) (45,203)
-------- --------
Net cash used in investing activities (48,202) (44,340)
-------- --------
Net increase in cash 28,593 35,307
Cash and cash equivalents, beginning
of year 532,918 497,611
-------- --------
Cash and cash equivalents, end of
year $561,511 $532,918
======== ========
Supplemental disclosures of cash flow
information -
Cash paid for:
Interest $ --- $ ---
======== ========
Income taxes $ 800 $ 800
======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements
F-5
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS
For The Years Ended May 31, 1997 and 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------------
General
- -------
Dynatem, Inc. (the "Company"), was incorporated on May 15, 1981, under the laws
of the state of California. The Company designs, manufactures, distributes and
markets modular single board microcomputers and microcomputer-based systems and
software. These systems are used for industrial applications including factory
automation, process control, robotics, data acquisition and networking. The
Company sells products to customers throughout the United States and in many
foreign countries.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements. Such
estimates also effect the reported amounts of revenues and expenses during the
reported period. The Company's significant estimates include allowances for
accounts receivable and inventory, as well as warranties on its products.
Actual results could materially differ from these estimates.
Concentrations of Credit Risk
- -----------------------------
At May 31, 1997, the Company holds cash with financial institutions in excess of
amounts insured by federal agencies.
Two vendors accounted for 53% and 18% of accounts payable at May 31, 1997.
Three customers accounted for 24%, 12%, and 10%, respectively, of accounts
receivable at May 31, 1997. There was no one customer whose sales were in
excess of 10% of total net sales for the year ended May 31, 1997. Two customers
accounted for 25% and 12%, respectively, of net sales for the year ended May 31,
1996, which are included in the net sales of distributed products noted below.
Export sales represented 32% of net sales for each of the years ended May 31,
1997 and 1996.
F-6
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------------------
The Company distributes products for an international vendor (the "International
Vendor") that is also a competitor. Approximately 55% and 67% of net sales for
the years ended May 31, 1997 and 1996, respectively, represented distribution of
the International Vendor's products. The International Vendor accounted for 74%
and 80% of cost of sales for the years ended May 31, 1997 and 1996,
respectively. Effective April 30, 1997, the Company's distributor relationship
with this International Vendor was terminated. As a result, the Company is no
longer an exclusive North American distributor for this vendor's products.
Risks and Uncertainties
- -----------------------
As discussed above, the Company's distributor relationship with the
International Vendor was terminated on April 30, 1997. The Company has replaced
this vendor with another international vendor (the "Replacement Vendor").
Management believes the Replacement Vendor will mitigate any potential adverse
effects which may arise from the termination of the International Vendor
relationship. However, there can be no assurances that the Replacement Vendor
will in fact effectively replace the sales lost from a discontinuation of the
International Vendor relationship, and as a result, the loss of such
relationship could have a materially adverse effect on the Company's future
operations.
Cash Equivalents
- ----------------
For the purposes of the statements of cash flows, the Company considers highly
liquid instruments with original maturities of three months or less to be cash
equivalents.
Inventories
- -----------
Inventories are stated at the lower of cost or market (estimated net realizable
value). Cost is determined using the first-in, first-out ("FIFO") method. Such
net realizable value is based on forecasts for sales of its products in the
ensuing years. The industry in which the Company operates is characterized by
rapid technological advancement and change. Should demand for the Company's
products prove to be significantly less than anticipated, and the reserve
established for such purpose proves to be inadequate, the value of such products
could be less than the amount reflected on the accompanying balance sheet.
Management provides an allowance for excess and obsolete inventory which it
believes is adequate to cover such uncertainty.
F-7
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------------------
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Major betterments are capitalized
while routine repairs and maintenance are charged to expense when incurred.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets or the remaining term of the leases, if
lesser. Useful lives range from three to five years.
Depreciation expense for the years ending May 31, 1997 and 1996 totaled $14,697
and $17,721, respectively.
Income Taxes
- ------------
The Company accounts for income taxes using the asset and liability approach
under Statement of Financial Accounting Standards Statement No. 109 ("SFAS No.
109"). Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A
valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future
operations.
Warranties
- ----------
The Company provides warranties ranging from ninety days to one year on all
products sold. Estimated future costs of warranties are provided at the time of
sale.
Research and Development Costs
- ------------------------------
Research and development costs are expensed as incurred.
F-8
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------------------
Other Assets
- ------------
Certain costs incurred subsequent to establishing technological feasibility to
produce a finished product, including purchased software and other outside costs
(see Note 4), are capitalized. The annual amortization of these costs is
computed at the lesser of the straight-line basis over the estimated product
life, not to exceed five years, or based on units sold divided by the total
estimated units to be sold. The Company capitalized $41,560 and $44,628 for the
years ended May 31, 1997 and 1996, respectively. Amortization expense for each
of the years ended May 31, 1997 and 1996 was $63,763 and $26,741, respectively.
Revenue Recognition
- -------------------
Revenues from product sales are recognized at the time the product is shipped.
Foreign Currency Transactions
- -----------------------------
The Company obtains certain products from offshore facilities in Germany.
Foreign currency transaction gains or losses are included in cost of sales in
the period in which the exchange rate changes or the underlying transaction
settles. Included in cost of sales on the accompanying statements of income are
foreign currency gains of $111,838 and $41,094 for the years ending May 31, 1997
and 1996, respectively.
Stock-Based Compensation
- ------------------------
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which defines a fair value based method of accounting for stock-
based compensation. However, SFAS 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting method of APB 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value method of
accounting defined in SFAS 123 had been applied. In 1996, the Company adopted
the provisions of SFAS 123 which relate to non-employee stock-based
compensation, and has elected to account for its stock-based compensation to
employees under APB 25.
F-9
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------------------
Earnings Per Share
- ------------------
Earnings per share is computed by dividing net income for the year by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year. The effect of common stock equivalents are
excluded from the calculation if they would be antidilutive.
Common stock equivalents were deemed to be antidilutive for the year ended May
31, 1996 and were thus excluded from the calculation of the weighted average
number of shares of common stock and common stock equivalents for such period.
All of the options outstanding during the year ended May 31, 1997 (see Note 7)
were determined to have a dilutive effect on earnings per share. The options,
based on an application of the Treasury Stock method, increased the weighted
average number of shares of common stock and common stock equivalents by 44,494
shares for such period.
New Disclosure Standard
- -----------------------
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128
is primarily a disclosure standard which requires public companies to present
basic earnings per share ("EPS") and, if applicable, diluted EPS, instead of
primary and fully diluted EPS. SFAS No. 128 is effective for fiscal years
ending after December 15, 1997. The effect of adopting SFAS No. 128 has not
been determined by management.
NOTE 2 - INVENTORIES
- --------------------
A summary of inventories at May 31, 1997 is as follows:
<TABLE>
<S> <C>
Finished goods $ 55,786
Work-in-process 46,071
Raw materials and component parts 162,843
--------
$264,700
========
</TABLE>
F-10
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
A summary of property and equipment at May 31, 1997 is as follows:
<TABLE>
<S> <C>
Machinery and equipment $ 396,414
Product tooling 226,277
Leasehold Improvements 5,000
Furniture and fixtures 44,587
---------
672,278
Less: accumulated depreciation and amortization (654,957)
---------
$ 17,321
=========
</TABLE>
NOTE 4 - OTHER ASSETS
- ---------------------
A summary of other assets at May 31, 1997 is as follows:
<TABLE>
<S> <C>
Capitalized software costs $ 5,946
Prepaid inventory (Note 6) 24,304
Deposit 5,156
---------
$ 35,406
=========
</TABLE>
NOTE 5 - INCOME TAXES
- ---------------------
Income tax expense for the years ended May 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Current:
U.S. federal $ --- $ ---
State 800 800
--------- --------
$ 800 $ 800
========= ========
</TABLE>
No deferred income tax expense was charged to the accompanying statements of
income for the years presented.
F-11
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 5 - INCOME TAXES, continued
- --------------------------------
Income tax expense differs from the amounts computed by applying a U.S. federal
income tax rate of 34% to pretax income as a result of the following for the
years ended May 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Computed "expected" tax expense
at a U.S. federal rate of 34% $ 30,332 $ 12,494
Increase (reduction) in income taxes
resulting from:
State income taxes, net of federal
tax benefit 5,476 2,256
Change in the valuation allowance
for deferred tax assets, net of
effects of expired net operating
loss carryforwards (29,209) (14,795)
Other (5,799) 845
--------- ---------
$ 800 $ 800
========= =========
</TABLE>
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets at May 31, 1997 are presented below. Deferred tax
liabilities at May 31, 1997 are not significant:
<TABLE>
<S> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 2,739
Inventories, principally due to additional
costs inventoried for tax purposes pursuant
to the Tax Reform Act of 1986 and allowance
for inventory obsolescence 41,024
Compensated absences, principally due to
accrual for financial reporting purposes 7,376
</TABLE>
F-12
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 5 - INCOME TAXES, continued
- --------------------------------
<TABLE>
<S> <C>
State net operating loss carryforwards 784
Federal net operating loss carryforwards 525,405
Research and development credit carryforwards 73,863
Other 2,611
---------
Total gross deferred tax assets 653,802
Less valuation allowance (653,802)
---------
Net deferred tax assets $ ---
=========
</TABLE>
At May 31, 1997, the Company had net operating loss carryforwards of $1,545,308
and $12,780 for Federal and state tax reporting purposes, respectively, which,
if not utilized to offset future taxable income, will expire through 2006.
At May 31, 1997, the Company had available unused research and development
credits for income tax purposes of $73,863, which, if not used, will expire
through 2010.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Leases
- ------
In December 1995 the Company entered into a noncancellable operating lease for
its corporate and manufacturing facility. In addition to monthly lease payments
for the facility, the Company is required to pay utilities and certain insurance
and maintenance costs. Such lease provides for annual rental increases and a
five-year renewal option based on certain terms and conditions. The lease
expires in fiscal 2001. Future annual minimum lease payments under this
noncancellable operating lease are as follows:
<TABLE>
<CAPTION>
Years Ending
May 31,
-------------
<S> <C>
1998 $ 56,461
1999 58,721
2000 61,072
2001 36,442
--------
$212,696
========
</TABLE>
F-13
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
Total rental expense for operating leases amounted to approximately $66,359 and
$49,900 for the years ended May 31, 1997 and 1996, respectively, of which
$32,324 and $24,963 has been classified as a component of cost of sales in the
accompanying statement of income.
Royalty and Licensing Agreements
- --------------------------------
The Company is a party to a royalty agreement that requires it to pay royalties
of 25% of sales of a select hardware product and 50% of sales of a select
software product, as defined.
The Company is also a party to another royalty agreement that requires it to pay
royalties of 50% of the gross profit earned by the Company on sales of certain
hardware products, as defined.
During 1997, the Company entered into two software licensing agreements. The
licensed software will be used with various products which the Company
manufactures and distributes. One of the agreements provided for a one-time
licensing fee which was recorded as an expense in the accompanying statement of
income for the year ended May 31, 1997. The other agreement provides for a
fixed fee on each unit of software sold. Licensing fees in connection with
this license have been recorded to expense in the accompanying statement of
income for the year ended May 31, 1997.
Total royalty and licensing expense which is included in selling, general, and
administrative expense in the accompanying statements of income for the above
noted royalty and licensing agreements amounted to approximately $21,350 and
$14,500 for the years ended May 31, 1997 and 1996, respectively.
Purchase Agreement
- ------------------
In March 1996, the Company entered into an agreement (the "Agreement") with an
unrelated product engineering and manufacturing firm (the "Firm") to design a
series of products, utilizing the Company's specifications, for sale to its
customers. In 1997, the design of these products was completed. Pursuant to
the terms of the Agreement, the Company has the exclusive right to sell such
products under the Company's name worldwide and it is not obligated to pay any
license or royalty fees. This Agreement is for an initial term of one year, is
cancelable thereafter by either party with 120 days advance notice, and will
renew automatically each year unless otherwise terminated.
F-14
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
As of May 31, 1997, the Company had agreed to purchase $138,000 of product from
the Firm in connection with the Agreement. As of May 31, 1997, the product had
not been delivered. Accordingly, the Company has not recorded a liability in
the accompanying balance sheet.
NOTE 7 - SHAREHOLDERS' EQUITY
- -----------------------------
On August 31, 1993, the Company's Board of Directors adopted, and the
shareholders approved, the Dynatem, Inc. 1993 Stock Option Plan (the "Plan"),
which provides for the grant of options intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code and for the grant of
nonqualified stock options. In connection with the Plan, 200,000 shares of the
Company's common stock have been reserved for issuance upon the exercise of
options to be granted.
Options to purchase an aggregate of 110,000 shares of the Company's common stock
were granted pursuant to the Plan to the Company's four non-employee directors
and to certain officers of the Company on October 15, 1993. Such options were
fully exercisable at the date of grant and expire on various dates through
October 15, 2003. The exercise price of such options ranges from $0.20 to
$0.22, which exceeded the fair market value per share of the Company's common
stock on the grant date.
On January 18, 1997, the Company granted options to purchase 55,000 shares of
the Company's common stock to certain officers and one non-employee director of
the Company. Such options were fully exercisable at the date of grant and
expire on January 17, 2007. The exercise price of such options was $.35 which
approximated the fair market value of the Company's stock on the date of grant.
F-15
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 7 - SHAREHOLDERS' EQUITY, continued
- ----------------------------------------
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Shares Option Price
------- ------------
<S> <C> <C>
Outstanding at June 1, 1995 110,000 $.20-.22
Canceled --- ---
Expired --- ---
Granted --- ---
------- --------
Outstanding at May 31, 1996 110,000 $.20-.22
Canceled --- ---
Expired --- ---
Granted 55,000 .35
------- --------
Outstanding at May 31, 1997 165,000 $.20-.35
======= ========
</TABLE>
As of May 31, 1997, all 165,000 options are exercisable.
Pro Forma Stock Option Information
- ----------------------------------
Pro forma information regarding net income is required by SFAS 123 and is
determined as if the Company had accounted for its employee stock options under
the fair value method pursuant to SFAS 123, rather than the method pursuant to
APB 25 as discussed in Note 1. The fair value of these options is estimated at
the date of grant based on the Black-Scholes options pricing model (the
"Model").
The Model was developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable. In addition, the
Model requires the input of highly subjective assumptions including the expected
stock price volatility. The Company's employee stock options have
characteristics significantly different from those of traded options; changes in
the subjective input assumptions can materially affect the fair value estimate.
The fair value of the options granted in 1997 was not significant and thus have
no pro forma impact on net income and earnings per share.
F-16
<PAGE>
DYNATEM, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For The Years Ended May 31, 1997 and 1996
NOTE 8 - RELATED PARTY TRANSACTIONS
- -----------------------------------
During the years ended May 31, 1997 and 1996, the Company paid fees of $7,200
and $3,000, respectively, to a consulting firm principally owned by the Chairman
of the Board of Directors of the Company.
The notes receivable are due from an officer, bear interest at the rate of 5%
per annum and require monthly installments of principal and interest. The notes
are due in May 2000.
F-17
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
Not Applicable.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ------- -------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
-------------------------------------------------
Information concerning the Company's directors and executive officers and
compliance with Section 16(a) of the Exchange Act is incorporated herein by
reference to the portion of the Company's Definitive Proxy Statement, to be
filed for its 1997 Annual Meeting of Shareholders to be held on October 10,
1997, set forth under the heading "ELECTION OF DIRECTORS".
ITEM 10. EXECUTIVE COMPENSATION.
- -------- ----------------------
Information concerning executive compensation is incorporated herein by
reference to the portion of the Company's Definitive Proxy Statement, to be
filed for its 1997 Annual Meeting of Shareholders to be held on October 10,
1997, set forth under the heading "ELECTION OF DIRECTORS - Compensation of
Executive Officers".
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------- --------------------------------------------------- ----------
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference to the portion of the Company's
Definitive Proxy Statement, to be filed for its 1997 Annual Meeting of
Shareholders to be held on October 10, 1997, set forth under the heading
"PRINCIPAL HOLDERS OF VOTING SECURITIES".
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- ----------------------------------------------
Information concerning certain relationships and related transactions is
incorporated herein by reference to the portion of the Company's Definitive
Proxy Statement, to be filed for its 1997 Annual Meeting of Shareholders to be
held on October 10, 1997, set forth under the heading "ELECTION OF DIRECTORS -
Relationships with Outside Firms".
10
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- -------- --------------------------------
(a) EXHIBITS.
--------
Reference is made to the Exhibit Index preceding the exhibits attached
hereto for a list of all exhibits filed as part of this Report.
(b) REPORTS ON FORM 8-K.
-------------------
The Company did not file any reports on Form 8-K during the last quarter of
the Company's fiscal year ended May 31, 1996.
11
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DYNATEM, INC.
August 16, 1997 By: /s/ Eileen DeSwert
---------------------------
Eileen DeSwert, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<S> <C>
By: /s/ Eileen DeSwert August 16, 1997
------------------------------
Eileen DeSwert,
President/Principal Executive
Officer/Director
By: /s/ Harry Cavanaugh August 16, 1997
------------------------------
Harry Cavanaugh,
Chairman of the Board/Director
By: /s/ Belen Ramos August 16, 1997
------------------------------
Belen Ramos,
Chief Financial Officer
By: /s/ Robert Anslow August 16, 1997
------------------------------
Robert Anslow,
Director
By: /s/ Richard Jackson August 16, 1997
------------------------------
Richard Jackson,
Director
By: /s/ Charles Spear August 16, 1997
-----------------------------
Charles Spear,
Director
By: August __, 1997
-----------------------------
Costis Toregas
Director
</TABLE>
12
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number
- -------
<C> <S>
3(a) Restated Articles of Incorporation of the Company
3(b) Bylaws of the Company
10 Standard Industrial/Commercial Multi-Tenant Lease-Modified Net dated
August 22, 1995, between Pacific Highpark Partners, as lessor and the
Company as lessee(1)
27 Financial Data Schedule
</TABLE>
_____________________
(1) Incorporated herein by reference to Exhibit 10 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended August 31, 1995.
13
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
DYNATEM, INC.
ARTICLE ONE: NAME
The name of the corporation is DYNATEM, INC.
ARTICLE TWO: PURPOSE
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE THREE: AUTHORIZED SHARES
The corporation is authorized to issue only one class of shares of
stock, and the total number of shares which the corporation is authorized to
issue is fifty million (50,000,000). The par value of each share is One Cent
($0.01).
ARTICLE FOUR: LIMITATION OF DIRECTORS' LIABILITY
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law, as
the same exists when this Article Four becomes effective and to such greater
extent as California law may thereafter permit.
ARTICLE FIVE: INDEMNIFICATION
The corporation is authorized to indemnify any agent (as defined in
Section 317 of the California Corporations Code) through Bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors, or
otherwise, to the fullest extent permissible under California law, and in excess
of that otherwise permitted under Section 317 of the California Corporations
Code, as the same exists when this Article Five becomes effective and to such
greater extent as California law may thereafter permit.
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
DYNATEM, INC.,
a California corporation
ARTICLE I
Offices
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The Board of Directors shall fix
--------------------------
and designate the location of the principal executive office of the corporation
at any place within or outside the State of California. If the principal
executive office is located outside the State of California, and the corporation
has one or more business offices in this state, the Board of Directors shall fix
and designate a principal business office in the state of California.
SECTION 2. OTHER OFFICES. The Board of Directors may at any time
-------------
establish, or may designate an officer of the corporation to establish, other
branch or subordinate business offices at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual or other meetings of
-----------------
shareholders shall be held at the principal executive office of the corporation,
or at any other place within or without the State of California which may be
designated either by the Board of Directors or by the written consent of all
persons entitled to vote thereat and not present at the meeting, given either
before or after the meeting and filed with the secretary of the corporation.
SECTION 2. ANNUAL MEETINGS. The annual meeting of shareholders shall be
---------------
held each year on a date and at a time designated by the Board of Directors. At
each annual meeting, directors shall be elected, reports of the affairs of the
corporation shall be considered, and any other business may be transacted which
is within the powers of the shareholders.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders, for
----------------
the purpose of taking any action permitted by the shareholders under the
California Corporations Code and the Articles of Incorporation of this
corporation, may be called at any time by the Chairman of the Board, the
President, the Board of Directors, or one (1) or more shareholders holding
shares in the aggregate entitled to cast not less than ten percent (10%) of the
votes at the meeting.
<PAGE>
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, any
Vice President, or the Secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Section 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this Section
3 shall be construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the Board of Directors may be held.
SECTION 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
--------------------------------
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II to each shareholder entitled thereto not less than ten (10) days
nor more than sixty (60) days before each annual meeting. Such notices shall
specify the place, the date, and the hour of such meeting, and (i) in the case
of a special meeting, the general nature of the business to be transacted, or
(ii) in the case of the annual meeting, those matters which the Board, at the
time of the mailing of the notice, intends to present for action by the
shareholders. The notice of any meeting at which directors are to be elected
shall include the name of any nominee or nominees intended, at the time of the
notice, to be presented by management for election;
If action is proposed to be taken at any meeting for approval of: a
contract or other transaction with an interested director; amendment of the
Articles of Incorporation; a reorganization of the corporation as defined in
Section 181 of the California Corporations Code; voluntary dissolution of the
corporation; or a distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, the notice shall also state the general
nature of that proposal.
SECTION 5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice
--------------------------------------------
of all meetings of shareholders shall be given to each shareholder entitled to
vote, either personally or by mail or other means of written communication,
charges prepaid, addressed to such shareholder at his address appearing on the
books of the corporation or given by him to the corporation for the purpose of
notice. If any notice or report addressed to the shareholder at the address of
such shareholder appearing on the books of the
2
<PAGE>
corporation is returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is unable to deliver
the notice or report to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period of
one (1) year from the date of the giving of the notice or report to all other
shareholders. If a shareholder gives no address, notice shall be deemed to have
been given him if sent by mail or other means of written communication addressed
to the place where the principal executive office of the corporation is
situated, or if published at least once in some newspaper of general circulation
in the county in which said principal executive office is located. Any such
notice shall be deemed to have been given at the time when delivered personally
or deposited in the mail or sent by other means of written communication. An
affidavit of mailing of any such notice in accordance with the foregoing
provisions, executed by the Secretary, Assistant Secretary or any transfer agent
of the corporation, shall be prima facie evidence of the giving of the notice.
SECTION 6. QUORUM. The presence in person or by proxy of the persons
------
entitled to vote a majority of the shares entitled to vote at any meeting of
shareholders shall constitute a quorum for the transaction of business. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
SECTION 7. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders'
------------------------------------
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares, the holders of which
are either present in person or represented by proxy thereat, but in the absence
of a quorum no other business may be transacted at such meeting, except as
provided in Section 6 of this Article II.
When any shareholders' meeting, either annual or special, is adjourned for
forty-five (45) days or more, or if after adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given in
accordance with the provisions of Sections 4 and 5 of this Article II. Except
as provided above, it shall not be necessary to give any notice of the time and
place of the adjourned meeting or of the business to be transacted thereat,
other than by announcement of the time and place of the adjourned meeting or of
the business to be transacted thereat, other than by announcement of the time
and place thereof at the meeting at which such adjournment is taken.
3
<PAGE>
SECTION 8. VOTING. Unless a record date for voting purposes be fixed as
------
provided in Section 11 of this Article II of these bylaws, then, subject to the
provisions of Sections 702 and 704, inclusive, of the California Corporations
Code (relating to voting of shares held by a fiduciary, in the name of a
corporation, or in joint ownership), only persons in whose names shares entitled
to vote stand on the stock records of the corporation at the close of business
on the business day next preceding the day on which notice of the meeting is
given or if such notice is waived, at the close of business on the business day
next preceding the day on which the meeting of shareholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date for such
meeting.
Such vote may be viva voce or by ballot; provided, however, that all
-------- -------
elections for directors must be by ballot upon demand made by a shareholder at
any election and before the voting begins. If a quorum is present, except with
respect to election of directors, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the California Corporations Code or the Articles of
Incorporation. Subject to the requirements of the next sentence, every
shareholder entitled to vote at any election for directors shall have the right
to cumulate his votes and give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which his
shares are entitled, or to distribute his votes on the same principle among as
many candidates as he shall think fit. No shareholder shall be entitled to
cumulative votes unless the name of the candidate or candidates for whom such
votes would be cast has been placed in nomination prior to commencement of the
voting, and any shareholder has given notice at the meeting prior to
commencement of the voting of such shareholder's intention to cumulate votes.
The candidates receiving the highest number of votes of shares entitled to be
voted for them, up to the number of directors to be elected, shall be elected.
SECTION 9. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
------------------------------------------- --------
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though a meeting had
been duly held after regular call and notice, if a quorum be present either in
person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, who was not present in person or by proxy, or who,
though present, has, at the beginning of the meeting, properly objected to the
transaction of any business because the meeting was not lawfully called or
convened, or to particular matters of business legally required to be included
in the notice, but not so included, signs a written waiver of notice, or a
consent to the holding of such meeting, or an approval of the minutes thereof.
The waiver, consent or approval need not specify
4
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either the business to be transacted or the purpose of any annual or special
meeting, except that, if action is taken or proposed to be taken for approval of
any of those matters specified in the second paragraph of Section 4 of this
Article II, the waiver, consent or approval shall state the general nature of
the proposal. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting.
SECTION 10. ACTION WITHOUT MEETING. Any action which, under any provision
----------------------
of the California Corporations Code, may be taken at a meeting of the
shareholders, may be taken without a meeting, and without notice except as
hereinafter set forth, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
In the case of election of directors, such consent shall be effective only
if signed by the holders of all of the outstanding shares entitled to vote for
the election of directors; provided, however, that, without notice except as
-------- -------
hereinafter set forth, a director may be elected at any time to fill a vacancy
not filled by the directors by the written consent of persons holding a majority
of the outstanding shares entitled to vote for the election of directors.
Unless the consents of all shareholders entitled to vote have been
solicited in writing:
(a) Notice of any proposed shareholder approval of: a contract or
other transaction in which a director has a direct or indirect financial
interest, (ii) indemnification of an agent of the corporation, (iii) a
reorganization of the corporation as defined in Section 181 of the California
Corporations Code, or (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, if any, without a
meeting by less than unanimous written consent, shall be given at least ten (10)
days before the consummation of the action authorized by such approval; and
(b) Prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting
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by less than unanimous written consent to those shareholders entitled to vote
who have not consented in writing. Such notices shall be given in the manner
and shall be deemed to have been given as provided in Section 5 of this Article
II.
Unless the Board of Directors has fixed a record date for the
determination of shareholders entitled to notice of and to give such written
consent, the record date for such determination shall be the day on which the
first written consent is given. All such written consents shall be filed with
the Secretary of the corporation and shall be maintained in the corporate
records. Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the Secretary of the corporation prior to the time that
written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary of the corporation, but may not do so
thereafter. Such revocation is effective upon its receipt by the secretary of
the corporation.
SECTION 11. RECORD DATE. The Board of Directors may fix a time in the
-----------
future as a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders or entitled to give consent
to corporate action in writing without a meeting, to receive any report, to
receive any dividend or distribution, or any allotment of rights, or to exercise
rights in respect to any change, conversion or exchange of shares. The record
date so fixed shall be not more than sixty (60) days nor less than ten (10) days
prior to the date of any meeting, nor more than sixty (60) days prior to any
other event for the purposes of which it is fixed. When a record date is so
fixed, only shareholders of record on that date are entitled to notice of and to
vote at any such meeting, to give consent without a meeting, to receive any
report, to receive a dividend, distribution or allotment of rights, or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided in the California Corporations Code, the Articles of
Incorporation or these bylaws.
If the Board of Directors does not so fix a record date:
The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
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The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, (i) when no prior action by
the board has been taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the board has been taken, shall be at the
close of business on the day on which the board adopts the resolution relating
to such prior action, or the sixtieth (60th) day before the date of such prior
action, whichever is later.
SECTION 12. PROXIES. Every person entitled to vote or execute consents
-------
shall have the right to do so either in person or by one or more agents
authorized by a written proxy executed by such person or his duly authorized
agent and filed with the Secretary of the corporation. Any proxy duly executed
is not revoked and continues in full force and effect until (i) an instrument
revoking it or a duly executed proxy bearing a later date is filed with the
Secretary of the corporation prior to the vote pursuant thereto, (ii) the person
executing the proxy attends the meeting and votes in person, or (iii) written
notice of the death or incapacity of the maker of such proxy is received by the
corporation before the vote pursuant thereto is counted; provided, however, that
-------- -------
no such proxy shall be valid after the expiration of eleven (11) months from the
date of its execution, unless the person executing it specifies therein the
length of time for which such proxy is to continue in force. The revocability
of a proxy that states on its face that it is irrevocable shall be governed by
the provisions of Sections 705(e) and 705(f) of the California Corporations
Code.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
----------------------
shareholders, the Board of Directors may appoint any persons other than nominees
for office as Inspectors of Election to act at such meeting or any adjournment
thereof. If Inspectors of Election be not so appointed, the Chairman of any
such meeting may, and on the request of any shareholder or his proxy shall, make
such appointment at the meeting. The number of inspectors shall be either one
(1) or three (3). If appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or their proxies
present at the meeting shall determine whether one (1) or three (3) inspectors
are to be appointed. In case any person appointed as inspector fails to appear
or fails or refuses to act, the vacancy may, and on the request of any
shareholder or a shareholder's proxy shall, be filled by appointment by the
Board of Directors in advance of the meeting, or at the meeting by the Chairman
of the meeting.
The duties of such inspectors shall be as prescribed by Section 707 of the
Corporations Code and shall include: (a) determining the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity and effect of proxies;
(b)
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receiving votes, ballots or consents; (c) hearing and determining all challenges
and questions in any way arising in connection with the right to vote; (d)
counting and tabulating all votes or consents; (e) determining when the polls
shall close; (f) determining the result; and (g) such other acts as may be
proper to conduct the election or vote with fairness to all shareholders. In
the determination of the validity and effect of proxies, the dates contained on
the forms of proxy shall presumptively determine the order of execution of the
proxies, regardless of the postmark dates on the envelopes in which they are
mailed.
The Inspectors of Election shall perform their duties impartially, in good
faith, to the best of their ability and as expeditiously as is practical. If
there are three (3) Inspectors of Election, the decision, act or certificate of
a majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the Inspectors of Election is prima
facie evidence by the facts stated therein.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to limitations of the Articles of
------
Incorporation and these bylaws and to the provisions of the California
Corporations Code as to action required to be authorized or approved by the
shareholders or by the outstanding shares, and subject to the duties of
directors as prescribed by the bylaws, all corporate powers shall be exercised
by or under the direction of, and the business and affairs of the corporation
shall be managed by, the Board of Directors. Without prejudice to such general
powers, but subject to the same limitations, the Board of Directors shall have
the following powers, to wit:
First - To select and remove all the officers, agents and employees of the
-----
corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the Articles of Incorporation or with these bylaws;
fix their compensation; and require from them security for faithful service.
Second - To conduct, manage and control the affairs and business of the
------
corporation, and to make such rules and regulations therefor not inconsistent
with law, or with the Articles of Incorporation or these bylaws, as they may
deem best.
Third - To change the principal executive office and principal office for
-----
the transaction of the business of the corporation from one location to another;
to cause the corporation to be qualified or licensed to do business in any other
state, territory, dependency or country and conduct business within or without
the
8
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State of California; to designate any place within or without the State of
California for the holding of any shareholders' meeting or meetings, including
annual meetings; and to adopt, make and use a corporate seal, and to prescribe
the forms of certificates of stock, and to alter the form of such seal and of
such certificates from time to time, as in their judgment they may deem best,
provided such seal and such certificates shall at all times comply with the
provisions of law.
Fourth - To authorize the issue of shares of stock of the corporation from
------
time to time, upon such terms as may be lawful in consideration of money paid,
labor done, services actually rendered, debts or securities cancelled, or
tangible property actually received.
Fifth - To borrow money and incur indebtedness on behalf of the
-----
corporation, and to cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations or other evidences of debt and
securities.
Sixth - By resolution adopted by a majority of the authorized number of
-----
directors, to designate an executive and one or more other committees, each
consisting of two (2) or more directors, to serve at the pleasure of the Board,
and to prescribe the manner in which proceedings of such committee shall be
conducted. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent member at any meeting of the
committee. Unless the Board of Directors shall otherwise prescribe the manner
of proceedings of any such committee, meetings of such committee may be
regularly scheduled in advance and may be called at any time by any two (2)
members thereof; otherwise, the provisions of these bylaws with respect to
notice and conduct of meetings of the Board shall govern. Any such committee,
to the extent provided in a resolution of the Board, shall have all of the
authority of the Board, except with respect to:
(i) The approval of any action for which the California
Corporations Code or the Articles of Incorporation also require shareholder
approval or approval of the outstanding shares;
(ii) The filling of vacancies on the Board or in any committee;
(iii) The fixing of compensation of the directors for serving on
the Board or on any committee;
(iv) The adoption, amendment or repeal of bylaws;
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(v) The amendment or repeal of any resolution of the Board;
(vi) Any distribution to the shareholders, except at a rate or
in a periodic amount or within a price range determined by the Board; and
(vii) The appointment of other committees of the Board or the
members thereof.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number
-------------------------------------
of directors shall be not less than five (5) nor more than nine (9). The exact
number of directors shall be six (6) until changed, within the limits specified
above, by an amendment to this Section 2, duly adopted by the Board of Directors
or by the shareholders. The indefinite number of directors may be changed, or a
definite number may be fixed without provision for an indefinite number, by an
amendment to this bylaw duly adopted by the vote or written consent of holders
of a majority of the outstanding shares entitled to vote; provided, however,
-------- -------
that an amendment reducing the fixed number or the minimum number of directors
to a number less than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two-thirds percent (16 2/3%)
of the outstanding shares entitled to vote thereon. No amendment may change the
stated maximum number of authorized directors to a number greater than two (2)
times the stated minimum number of directors minus one (1). No reduction of the
authorized number of directors shall have the effect of removing any director
before that director's term of office expires.
SECTION 3. ELECTION AND TERM OF OFFICE. The directors shall be elected at
---------------------------
each annual meeting of shareholders but, if any such annual meeting is not held
or the directors are not elected thereat, the directors may be elected at any
special meeting of shareholders held for that purpose. All directors shall hold
office until their respective successors are elected, subject to the California
Corporations Code and the provisions of these bylaws with respect to vacancies
on the Board.
SECTION 4. VACANCIES. A vacancy in the Board of Directors shall be deemed
---------
to exist in case of the death, resignation or removal of any director, or if the
Board of Directors by resolution declares vacant the offices of a director who
has been declared of unsound mind by order of court or convicted of a felony, or
if the authorized number of directors be increased, or if the shareholders fail,
at any annual or special meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
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Vacancies in the Board of Directors, except for a vacancy created by the
removal of a director, may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until the next annual meeting of shareholders and
until his successor is elected and qualified. A vacancy in the Board of
Directors created by the removal of a director may be filled only by the vote of
a majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present, or by the written consent of the holders of all of
the outstanding shares entitled to vote for the election of directors.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent shall require the consent of holders of a majority of the outstanding
shares entitled to vote.
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors of
the corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the Board of Directors accepts the resignation of a
director tendered to take effect at a future time, the Board of Directors or the
shareholders shall have power to elect a successor to take office when the
resignation is to become effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
SECTION 5. PLACE OF MEETING. Regular meetings of the Board of Directors
----------------
may be held at any place within or outside the State of California which has
been designated from time to time by resolution of the Board or by written
consent of all members of the Board. In the absence of such designation,
regular meetings shall be held at the principal executive office of the
corporation. Special meetings of the Board may be held at any place within or
outside the State of California that has been designated in the notice of the
meeting or, if not stated in the notice or there is no notice, at the principal
executive office of the corporation.
SECTION 6. ORGANIZATION MEETING. Immediately following each annual
--------------------
meeting of shareholders, the Board of Directors shall hold a regular meeting at
the place of said annual meeting or at such other place as shall be fixed by the
Board of Directors, for the purpose of organization, election of officers, and
the transaction of other business. Call and notice of such meetings are hereby
dispensed with.
SECTION 7. OTHER REGULAR MEETINGS. Other regular meetings of the Board of
----------------------
Directors shall be held without call at such time and
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date as shall from time to time be fixed by resolution adopted by the Board of
Directors. Notice of all such regular meetings of the Board of Directors is
hereby dispensed with.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
----------------
for any purpose or purposes may be called at any time by the Chairman of the
Board, the President, any Vice President, the Secretary or any two directors.
Written notice of the time and place of special meetings shall be delivered
personally to each director or communicated to each director by telephone or by
telegraph or mail, charges prepaid, addressed to each director at such
director's address as it is shown upon the records of the corporation or, if it
is not so shown on such records or is not readily ascertainable, at the place at
which the meetings of the directors are regularly held. In case such notice is
mailed, it shall be deposited in the United States mail in the place in which
the principal executive office of the corporation is located at least four (4)
days prior to the time of holding the meeting. In case such notice is
delivered, personally or by telephone or telegraph, as above provided, it shall
be so delivered at least forty-eight (48) hours prior to the time of the holding
of the meeting. Such mailing, telegraphing or delivery, personally or by
telephone, as above provided, shall be due, legal and personal notice to such
director. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting nor the
place if the meeting is to be held at the principal executive office of the
corporation.
SECTION 9. ACTION WITHOUT MEETING. Any action required or permitted to be
----------------------
taken by the Board of Directors may be taken without a meeting if all members of
the Board shall individually or collectively consent in writing to such action.
Such action by written consent or consents shall be filed with the minutes of
the proceedings of the Board and shall have the same force and effect as a
unanimous vote of the Board of Directors.
SECTION 10. ACTION AT A MEETING; QUORUM AND REQUIRED VOTE. Presence of a
----------------------------------------------
majority of the authorized number of directors at a meeting of the Board of
Directors constitutes a quorum for the transaction of business, except as
hereinafter provided.
Members of the Board may participate in a meeting, regular or special,
through use of conference telephone or similar communications equipment, so long
as all directors participating in such meeting can hear one another.
Participation in a meeting as permitted in the preceding sentence constitutes
presence in person at such meeting.
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Every act or decision done or made by a majority of the directors present
at a meeting duly held at which a quorum is present shall be regarded as the act
of the Board of Directors, unless a greater number, or the same number after
disqualifying one or more directors from voting, is required by law, by the
Articles of Incorporation, or by these bylaws. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of directors, provided that any action taken is approved by at least
a majority of the required quorum for such meeting.
SECTION 11. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
------------------------------------------- --------
transactions of any meeting of the Board of Directors, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present and if, either before or
after the meeting, each of the directors not present or who, though present,
has, prior to the meeting or at its commencement, protested the lack of proper
notice to him, signs a written waiver of notice or a consent to holding such
meeting or an approval of the minutes thereof. The waiver of notice, consent or
approval need not specify the purpose of the meeting. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 12. ADJOURNMENT. A quorum of the directors may adjourn any
-----------
directors' meeting to meet again at a stated day and hour; provided, however,
-------- -------
that in the absence of a quorum a majority of the directors present at any
directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the Board.
SECTION 13. NOTICE OF ADJOURNMENT. If the meeting is adjourned for more
---------------------
than twenty-four hours, notice of any adjournment to another time or place shall
be given prior to the time of the adjourned meeting to the directors who were
not present at the time of adjournment. Otherwise notice of the time and place
of holding an adjourned meeting need not be given to absent directors if the
time and place be fixed at the meeting adjourned.
SECTION 14. FEES AND COMPENSATION. Directors and members of committees
---------------------
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board. This Section 14 shall not be construed to preclude any director from
serving the corporation in any other capacity as an officer, agent, employee, or
otherwise, and receiving compensation for those services.
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ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the corporation shall be a
--------
President, a Secretary and a Chief Financial Officer. The corporation may also
have, at the discretion of the Board of Directors, a Chairman of the Board, one
(1) or more Vice Presidents, one (1) or more Assistant Secretaries, one (1) or
more Assistant Financial Officers and such other officers as may be appointed in
accordance with the provisions of Section 3 of this Article IV. Any number of
offices may be held by the same person.
SECTION 2. ELECTION. The officers of the corporation, except such
--------
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article IV, shall be chosen by the Board of Directors, and
each shall serve at the pleasure of the Board of Directors, subject to the
rights, if any, of an officer under any contract of employment.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and
--------------------
may empower the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the bylaws or as the
Board of Directors may from time to time determine.
SECTION 4. REMOVAL AND RESIGNATION. Subject to the rights, if any, of an
-----------------------
officer under any contract of employment, any officer may be removed, either
with or without cause, by the Board of Directors, at any regular or special
meeting thereof, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the President, or to the Secretary of the corporation, without
prejudice, however, to the rights, if any, of the corporation under any contract
to which such officer is a party. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 5. VACANCIES. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the bylaws for regular appointments to such office.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there
---------------------
shall be such an officer, shall, if present, preside at
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all meetings of the Board of Directors and exercise and perform such other
powers and duties as may be from time to time assigned to him by the Board of
Directors or prescribed by the bylaws. If there is no President, the Chairman
of the Board shall in addition be the Chief Executive Officer of the corporation
and shall have the powers and duties prescribed in Section 7 of this Article IV.
SECTION 7. PRESIDENT. Subject to such supervisory powers, if any, as may
---------
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be ex officio a member of all the standing
committees, including the executive committee, if any, and shall have the
general powers and duties of management usually vested in the office of
President of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or the bylaws.
SECTION 8. VICE PRESIDENT. In the absence or disability of the President,
--------------
the Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, subject to all the
restrictions upon the President. The Vice Presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board of Directors, the President, or the Chairman of
the Board or by these bylaws.
SECTION 9. SECRETARY. The Secretary shall record or cause to be recorded,
---------
and shall keep or cause to be kept, at the principal executive office and such
other place as the Board of Directors may direct, a book of minutes of all
meetings and actions taken at all meetings of directors, committees of directors
and shareholders, with the time and place of holding, whether regular or
special, and, if special, how authorized, the notice thereof given, the names of
those present at directors' meetings or committee meetings, the number of shares
present or represented at shareholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent, a share register,
or a duplicate share register, showing the names of the shareholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
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The Secretary shall give, or cause to be given, notice of all the meetings
of the shareholders and of the Board of Directors required by the bylaws or by
law to be given, and shall keep the seal of the corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board of Directors or by the bylaws.
SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
-----------------------
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Chief Financial Officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or the bylaws.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
The corporation shall have the authority, to the maximum extent permitted
by the California Corporations Code, to indemnify each of its agents against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that any such person is or was an agent of the corporation. The
corporation shall also have the authority, to the maximum extent permitted by
the California Corporations Code, to advance expenses incurred by any agent of
the corporation in defending any proceeding.
The corporation shall have the authority to purchase and maintain insurance
on behalf of agents of the corporation against any liability asserted against or
incurred by any agent in such capacity or arising out of the agent's status as
agent.
The corporation shall have the power to enter into binding agreements with
its agents to provide the indemnification allowed under this Article V.
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Nothing in this Article V shall be construed either to allow
indemnification of any agent for any acts or omissions or transactions from
which such agent may not be indemnified under applicable California law or to
deny indemnification when applicable California law requires indemnification.
For purposes of this Article V, an "agent" of the corporation includes any
person who is or was a director, officer, employee, or other agent of the
corporation, or is or was serving at the request of the corporation, as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, or was a director, officer, employee, or
agent of a corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation. For
purposes of this Article V, "proceeding" means any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative. For purposes of this Article V, "expenses" includes, without
limitation, attorneys' fees and any expenses of establishing a right to
indemnification.
ARTICLE VI
MISCELLANEOUS
SECTION 1. INSPECTION OF CORPORATE RECORDS. The accounting books and
-------------------------------
records, the record of shareholders, and minutes of proceedings of the
shareholders and the Board and committees of the Board of this corporation and
any subsidiary of this corporation shall be open to inspection upon the written
demand on the corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a shareholder or as the holder
of such voting trust certificate. Such inspection by a shareholder or holder of
a voting trust certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
A shareholder or shareholders holding at least five percent (5%) in the
aggregate of the outstanding voting shares of the corporation or who hold at
least one percent (1%) of such voting shares and have filed a Schedule 14B with
the United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person, or by agent or attorney) the
right to inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours upon five (5) business days' prior
written demand upon the corporation and to obtain from the transfer agent for
the corporation, upon written demand and upon the tender of such transfer
agent's usual charges, a list of the shareholders' names and addresses, who are
entitled to vote for the election of
17
<PAGE>
directors, and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand. The list shall be made available on or before the later of
five (5) business days after the demand is received or the date specified
therein as the date as of which the list is to be compiled.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation and each of its subsidiaries. Such
inspection by a director may be made in person or by agent or attorney and the
right of inspection includes the right to copy and make extracts of documents.
SECTION 2. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
--------------------
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
SECTION 3. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
-----------------------------
shareholders referred to in Section 1501 of the California Corporations Code is
expressly dispensed with so long as the corporation has fewer than one hundred
(100) holders of records of its shares, but nothing herein shall be interpreted
as prohibiting the Board from issuing annual or other periodic reports to
shareholders.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation may make a written
request to the corporation for an income statement of the corporation for the
three (3)-month, six (6)-month or nine (9)-month period of the then current
fiscal year ended more than thirty (30) days prior to the date of the request
and a balance sheet of the corporation as of the end of such period and, in
addition, if no annual report for the last fiscal year has been sent to
shareholders, the annual report for the last fiscal year. The corporation shall
use its best efforts to deliver the statement to the person making the request
within thirty (30) days thereafter. A copy of any such statements shall be kept
on file in the principal executive office of the corporation for twelve (12)
months and they shall be exhibited at all reasonable times to any shareholder
demanding an examination of them or a copy shall be mailed to such shareholder.
The corporation shall, upon the written request of any shareholder, mail to
the shareholder a copy of the last annual, semiannual or quarterly income
statement which it has prepared and a balance sheet as of the end of the period.
The quarterly income statements and balance sheets referred to in this section
shall be
18
<PAGE>
accompanied by the report thereon, if any, of any independent accountants
engaged by the corporation or the certificate of an authorized officer of the
corporation that such financial statements were prepared without audit from the
books and records of the corporation.
SECTION 4. CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The Board of
---------------------------------------
Directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the Board of Directors or within the agency power of an officer,
agent or employee, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or to any amount.
SECTION 5. CERTIFICATE FOR SHARES. Every holder of shares in the
----------------------
corporation shall be entitled to have a certificate signed in the name of the
corporation by the Chairman or Vice Chairman of the Board or the President or
Vice President and by the Chief Financial Officer or an Assistant Financial
Officer or the Secretary or any Assistant Secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any of the
signatures on the certificate may be facsimile, provided that in such event at
least one (1) signature, including that of either officer or the corporation's
registrar or transfer agent, if any, shall be manually signed. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if such person were an officer,
transfer agent or registrar at the date of issue.
Any such certificate shall also contain such legend or other statement as
may be required by Section 418 of the California Corporations Code, the
Corporate Securities Law of 1968, the federal securities laws, and any agreement
between the corporation and the issuee thereof.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board of Directors or the bylaws may
provide; provided, however, that any such certificate so issued prior to full
-------- -------
payment shall state on the face thereof the amount remaining unpaid and the
terms of payment thereof.
SECTION 6. LOST CERTIFICATES. No new certificate for shares shall be
-----------------
issued in lieu of an old certificate unless the latter is
19
<PAGE>
surrendered and cancelled at the same time; provided, however, that a new
-------- -------
certificate will be issued without the surrender and cancellation of the old
certificate if: the old certificate is lost, apparently destroyed or wrongfully
taken; the request for the issuance of the new certificate is made within a
reasonable time after the owner of the old certificate has notice of its loss,
destruction or theft; the request for the issuance of a new certificate is made
prior to the receipt of notice by the corporation that the old certificate has
been acquired by a bona fide purchaser; the owner of the old certificate files
a sufficient indemnity bond with or provides other adequate security to the
corporation; and the owner satisfies any other reasonable requirements imposed
by the corporation. In the event of the issuance of a new certificate, the
rights and liabilities of the corporation, and of the holders of the old and new
certificates, shall be governed by the provisions of Section 8104 and 8405 of
the California Uniform Commercial Code.
SECTION 7. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman
----------------------------------------------
of the Board, the President or any Vice President and the Secretary or any
Assistant Secretary of this corporation are authorized to vote, represent and
exercise on behalf of this corporation all rights incident to any and all shares
of any other corporation or corporations standing in the name of this
corporation. The authority herein granted to said officers to vote or represent
on behalf of this corporation any and all shares held by this corporation in any
other corporation or corporations may be exercised either by such officers in
person or by any other person authorized so to do by proxy or power of attorney
duly executed by said officers.
SECTION 8. INSPECTION OF BYLAWS. The corporation shall keep in its
--------------------
principal executive office in California, or, if its principal executive office
is not in California, then at its principal business office in California (or
otherwise provide upon written request of any shareholder) the original or a
copy of the bylaws as amended or otherwise altered to date, certified by the
secretary, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
SECTION 9. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
----------------------------
requires, the general provisions, rules of construction and definitions
contained in the California Corporations Code shall govern the construction of
these bylaws. Without limiting the generality of the foregoing, the masculine
gender includes the feminine and neuter, the singular number includes the plural
and the plural number includes the singular, and the term "person" includes a
corporation as well as a natural person.
20
<PAGE>
ARTICLE VII
AMENDMENTS
SECTION 1. POWER OF SHAREHOLDERS. New bylaws may be adopted or these
---------------------
bylaws may be amended or repealed by the affirmative vote or written consent of
the holders of a majority of the outstanding shares entitled to vote, except as
otherwise provided by law or by the Articles of Incorporation.
SECTION 2. POWER OF DIRECTORS. In addition to the right of the
------------------
shareholders as provided in Section 1 of this Article VII to adopt, amend or
repeal bylaws, any bylaw, other than a bylaw or amendment thereof changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the Board of Directors.
21
<PAGE>
CERTIFICATE OF SECRETARY
------------------------
The undersigned does hereby certify that:
1. He is the duly elected and acting Secretary of DYNATEM, INC., a
California corporation; and
2. The foregoing Amended and Restated Bylaws, constitute the bylaws of
said corporation as duly adopted by the written consent of the holders of a
majority of the issued and outstanding shares of the Corporation entitled to
vote on such matter dated January 20, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name as of January 21,
1997.
________________________________
Michael Horan, Secretary
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1994
AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO
SUCH FINANCIAL STATEMTENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1997
<PERIOD-START> JUN-01-1997 JUN-01-1995
<PERIOD-END> MAY-31-1997 MAY-31-1996
<CASH> 561,511 0
<SECURITIES> 0 0
<RECEIVABLES> 292,237 0
<ALLOWANCES> (6,825) 0
<INVENTORY> 264,700 0
<CURRENT-ASSETS> 1,133,009 0
<PP&E> 672,278 8,004
<DEPRECIATION> (654,957) 0
<TOTAL-ASSETS> 1,196,622 0
<CURRENT-LIABILITIES> 142,714 0
<BONDS> 0 0
0 0
0 0
<COMMON> 2,383,385 0
<OTHER-SE> (1,329,477) 0
<TOTAL-LIABILITY-AND-EQUITY> 1,196,622 0
<SALES> 2,490,919 2,683,188
<TOTAL-REVENUES> 2,490,919 2,683,188
<CGS> 1,569,654 1,858,944
<TOTAL-COSTS> 1,569,654 1,858,944
<OTHER-EXPENSES> 855,463 804,459
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 89,213 356,748
<INCOME-TAX> 800 800
<INCOME-CONTINUING> 88,413 35,948
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 88,413 35,948
<EPS-PRIMARY> 0.06 0.03
<EPS-DILUTED> 0.06 0.03
</TABLE>
